Hello, and welcome to the Eastern Bankshares, Inc., Second Quarter 2024 Earnings Conference Call. Today's call will include forward-looking statements, including statements about Eastern's future financial and operating results, outlook, business strategies, and plans, as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to risks and uncertainties that can such cause actual results or the timing of events to differ materially from the views expressed today. More information about such risks and uncertainties is set forth under the caption forward-looking statements in the earnings press release as well as in the Risk Factors section and other disclosures in the Company's periodic filings with the Securities and Exchange Commission. Any forward-looking statements made during this call represent management's views and estimates as of today, and the company undertakes no obligation to update these statements as a result of new information or future events. During the call, the company will also discuss both GAAP and non-GAAP financial measures. For a reconciliation of GAAP to the non-GAAP financial measures, please refer to the company's earnings press release, which can be found @investor.easternbank.com. Please note this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. And now, I would like to turn the call over to Bob Rivers, Executive Chair and Chair of the Board. Please go ahead.

Thank you, Julie, and welcome, everyone, to our Second Quarter Earnings Call. With me today is Eastern's new CEO, Denis Sheahan; as well as Jim Fitzgerald, our Chief Financial Officer and Chief Administrative Officer. It's been a very busy time for us here at Eastern, and I have a number of topics to cover before turning it over to Denis and Jim. Overall, we are pleased with our second quarter results. As you know, the operating environment remained challenging in the second quarter with higher rates continuing to modestly compress our net interest margin and some continued credit challenges, particularly in the office market. We have worked our way through these challenges and maintain a fortress balance sheet to continue to be there for our customers while producing strong results. Although our overall earnings in the second quarter were lower, and we would like them to be long term, we're pleased that we continue to meet these short-term challenges and are extremely well-positioned for the future. We are delighted to announce that we closed our merger with Cambridge Trust on July 12 and successfully converted all banking customers that we get. We are pleased overall with the customer transition and to report that we've been operating very smoothly since we opened for business on July 15 as a combined institution. This transaction completes a series of important milestones dating back to last spring with our securities repositioning in the first quarter, the sale of Eastern Insurance Group in the fourth quarter and the completion of the Cambridge merchant this month. The securities sale addressed certain challenges with the balance sheet caused by rapidly rising interest rates and resulting funding pressures. The sale of Eastern Insurance monetized and undervalued assets for our shareholder and created a significant gain and capital increase.…

Thank you, Bob, and good morning, everyone. On behalf of the Cambridge Trust Board and myself, I'd like to thank Bob, the Eastern Board and the entire Eastern team for all their support throughout the process. As you know, mergers and conversions are a long and challenging process, and we are very happy with how successful the transition was and the attention and care we were able to collectively provide our customers. I especially want to thank my Cambridge Trust colleagues for all their hard work and effort during this time of uncertainty for all of them. Now that we have the bank conversion completed, we all look forward to getting back on offense and focusing on growth opportunities in all business lines and in realizing the synergies and potential of the combination, and I'm very confident we can do that. We operate in a very dynamic market, and our market position and franchise provide us great opportunities in both banking and wealth management that we look to capitalize on. Thank you. And I'll now turn it back to you, Bob.

Thanks, Denis. We also announced approval for a share repurchase authorization of up to 5% of our shares or $200 million. We look forward to analyzing share repurchases, along with our other capital management tools and we'll continue to look for additional opportunities to create shareholder value. David Rosato will be joining us as our Chief Financial Officer on August 1. As we mentioned on our last call, we have been planning for Jim's retirement for some time and feel very good about this transition. I know many of you know David from his time at People's United Bank and Berkshire Bank, and we are delighted he will be joining us next week. We are looking for someone with extensive financial and M&A experience at a larger bank to help guide and assist us as we grow. David's strong track record, particularly at Peoples, which grew from $14 billion in assets to $60 billion in assets during his tenure, makes him a great fit for Eastern. We look forward to David's insights and contributions as we work our way through the Cambridge integration. As I also mentioned during our last earnings call, after working with David on the CFO transition, Jim will stay with us as a senior adviser to me, the executive team and our Board. Jim will continue to join us on our quarterly earnings calls. So please don't say goodbye to him just yet. As I said in my opening remarks, it has been a particularly busy but successful time for us as we embark on day 10 of this next chapter, many thanks to all of our colleagues at Eastern and Cambridge Trust who have ensured such a smooth conversion of our banking systems. Although such a complex transition is never perfect with always inevitable and unexpected bumps their extensive preparation and planning combined with the patient reassuring support and guidance of our customers and each other, cause us to go as well as any of us have ever experienced. Special thanks to our branch call center and operations teams who are always on point in such transitions and who handle them with incredible poise and responsiveness and special thanks to our technology team, who not only architected such a successful systems integration but literally stood on their heads the first Friday after conversion to get us through the CrowdStrike episode with minimal disruption. And now I'll turn it to Jim.

Great. Thank you, Bob, and good morning, everyone. As Bob mentioned, given the challenging environment, we're pleased with our overall results in the quarter and feel very good about our position going forward. GAAP net income in the quarter was $26.3 million, $0.16 per diluted share and operating earnings were $36.5 million or $0.22 per diluted share. The quarter had noise due to merger charges and a number of onetime items that I will go through during my comments and explain. But first, I'll start with some highlights. As Bob mentioned, we received non-objection from our regulators for a 5% share repurchase plan as well as approval from our Board, as we mentioned through the last two to three quarters, we very much look forward to adding share repurchases to our capital management strategies. The net interest margin compressed four basis points in the quarter from 2.68% to 2.64% and net interest income was down $1.3 million in the quarter. We generated loan growth of $57 million in the quarter or 1.6% on an annualized basis. This was in-line with our experience over the last few quarters and in-line with our guidance. Our consumer loan growth, primarily home equity lines was strong at 14% on an annualized basis. Growth in residential loans was largely offset by a modest decline in commercial loans. Deposits were generally stable in the quarter with a reduction of $129 million, although as I'll describe later, $100 million of that was from the early withdrawal of the legacy Century Bank deposit for which we collected and early withdrawal penalty. Although the credit environment remains challenging, we had a number of highlights in our asset quality in the quarter. We continue to see good velocity in the turnover of problem assets. We resolved two more NPLs in…

[Operator Instructions] Your first question comes from Mark Fitzgibbon from Piper Sandler. Please go ahead.

Hey guys. Good morning. Congrats on the deal and congrats to everybody on their new roles. I wondered if -- since you marked the Cambridge loan book in conjunction with the deal, are there any plans to sort of sell down office or CRE loans I know that you had sold some securities in the Cambridge book, but I was curious on the loan side, if there was plans there.

Yes. No, Mark, thanks. We are going through that process now, as you know. Our plans have been to retain the loans. With the purchase accounting and the higher yields, we find them attractive. Obviously, the PCD loans as the acronym is for those loans that are credit impaired through the valuation process. Those are loans that we anticipate trying to move through in a sort of analogous way that we've moved through our own office loans and other credit impaired loans.

Okay. And then secondly, on that 1 new office loan that moved to nonperforming status, I guess I'm curious where it is, what the vacancies look like and what the prospects for -- in timing for resolution are?

Sure. It's in the suburbs, a very nice suburb of Boston. So a footnote there, obviously, the problems that started out in the financial district have spread as we've talked about over the last couple of quarters. So the location, although slightly different than our prior descriptions of our own assets it isn't a surprise to us. We -- the vacancies are in the 70s or the not vacancies, the vacancies are in the 30s, the occupancy -- thank you, Denis, are in the 70s. And we're hoping to move that in a similar fashion to what we've experienced to date. So hopefully, within the next couple of quarters, that would be marketed for sale and sold. .

Okay. And then, Jim, what are you targeting longer term for capital ratios, whether it's TCE or CET1? Or what are you targeting longer term?

Yes. No, it's a great question, and it's also a transition time for the company. So we'll need to wait for David and Denis, and I'd like to participate in that as well. But we'll probably be in a better position over time to give you a more clear answer there. But if you look post Cambridge, we still feel like we've got a very, very healthy amount. And in particular, we're excited about the share repurchases because of that. But over time, I think we'll be able to collectively give you a better answer on that, Mark. .

Okay. And then lastly, maybe a tough question to contemplate right now, but when do you think you could sort of handle another bank deal? And I'm also curious if asset management acquisitions are likely in the cards for you all.

Well, thanks for the question, Mark. Right now, we're completely focused on the Cambridge Trust integration. I mean we've completed the banking systems conversion. As you know, we still have wealth management coming up. So certainly, for the balance of this year, our plate is very full. s we look ahead into '25, our first focus is to make sure that we will continue to execute this partnership well and really demonstrate the performance that we feel very confident in going forward. Once we get through all of that and feel like we're better positioned, and again, depending on the environment for other merger opportunities, we'll evaluate them then. Obviously, it's a very challenging environment to do mergers for a number of reasons, and we need a significant change in the environment to make that different. With respect to wealth management acquisitions, it's not something that either of us have ever done. It's certainly a challenging space. We wouldn't rule them out per se. But Denis, you have more experience here than I do.

So Mark, our focus is going to be on organic growth and sort of realizing the benefit of the merger combination, so the period. That's what we're going to be focused on. In terms of asset management acquisition, I have done some of this in the past in a prior life. And we'd never say never. They are challenging, both culturally and financially to execute. So we're going to be focused around growing our own business. It's something that we wouldn't rule out entirely, but just note that it's not a priority for us.

Your next question comes from Damon DelMonte from KBW. Please go ahead.

Hey, good morning, everyone. Hope everybody's doing well and congrats on the deal and welcome, Denis. Quick question on the kind of the core or the legacy Eastern operations and the outlook for that. Jim, could you just provide a little outlook on -- I know you gave the core expenses this quarter, around $102 million. But -- and obviously, we have Cambridge being layered on in the third quarter. But as we think about the legacy operations from the Eastern side. Do you have a range or an outlook for the back half of the year?

So it's a little -- it's interesting. That's not the way we're looking at the world right now, Damon, but I appreciate the question. I think if you look at our first and second quarter results, it's a challenging environment, right? Net interest, if you want to call it flat or close to flat is what we've experienced. Balance sheet growth has been hard to come by. We're very excited about adding Cambridge at that time because it gives us, we think, is a differentiated growth story. But the underlying environment is still very difficult. And if you look at Eastern Solo in the first and second quarter, on a stand-alone basis, that's likely what you would see for the next quarter or 2.

Okay. So like on the expense and fee income side, are you able to provide guidance with the combined operations or no?

Once we get everything put together, I think we'll come back in the third quarter and do that, Damon. We have a lot of work to do here. So we didn't -- we want to set that process and get it all behind us before we speak out on that.

Got it. Okay. And then, I guess, as far as -- this is tough because every question is on a combined basis now. Okay. From a loan growth perspective, from the combined company perspective here, has the outlook changed at all on the commercial landscape? Are you seeing any more demand on the C&I side? Or is that kind of status quo?

No, I'm sort of smiling you can't see me, Damon, I smile because I understand your kind of frustration there. We share it internally, right? It's a hard time to answer some of these questions. I think on the loan growth side, what we can recommit to is what we've seen at Eastern and what we would think going forward is still slow growth. And again, specifically on the commercial side, we've guided to low single-digit growth, and I think you could assume that for the combined entity as well.

[Operator Instructions] Your next question comes from Laurie Hunsicker from Seaport Research.

Yes, I too want to echo my congratulations on the deal and all of the title changes. So maybe kind of saying where Damon was pro forma to the extent that you can just help us think about it. The pro forma margin of 3%, if I'm just sort of backing into your comments on Eastern stand-alone margin and then obviously, what we know of CETC, does that put the accretion impact running somewhere in the neighborhood of 40 basis points. Am I thinking about that the right way? And I realize you're early in your purchase accounting adjustments, but it's such a big number, so I just want to make sure I'm thinking about that.

Great. First of all, Laurie, always good to hear your voice. I think, Laurie, the way we would describe that is if you start with the Eastern Solo margin of, call it, 2.64%, 2.65% there's really two dynamics happening. We're adding the Cambridge balance sheet. And remember, we've liquidated the securities and paid off wholesale funding. So there's a a nice margin pickup from that transaction. It's really two transactions. But if you look at them together, there's a nice margin pickup there. So the balance sheet that we've added before purchase accounting is helpful to that. And then obviously, the purchase accounting, which we're not in a position to talk about today, we think is a nice addition as well. When you add up the three components, really the four components, right, Cambridge, Solo, Eastern Solo, Cambridge post securities transaction and then the accretion from the loans, which will give a better description at the end of next quarter, that's how you get to the 3%.

Right. So -- but I mean, if I'm thinking about the accretion, and again, I appreciate that you're marking it again, I appreciate that it's early. I mean 40 basis points of starting accretion and obviously, that winds down is that missing the mark. I mean, I guess -- or maybe a different way to ask the question. The 3% guide that you gave, obviously, includes accretion income, what would be the core combined guide if you were looking at it ex-accretion? Or maybe you're just not prepared to talk about it. I'm just trying to...

And I appreciate the question I really do. I will be very excited to do that at the end of the third quarter and give you as much detail as we can. But right now, we just closed, and it's not something we're -- we have available.

Got you. Okay. And what was the timing on the securities sales this quarter?

May. It happened in May.

In May?

The sale of the $85 million, just to clarify? Yes, it was in mid-May.

Mid-May. That's what I was looking for. Okay. Great. And then how should we be thinking about the tax rate for 2025?

More, I love your questions. We are focused Q3 here. I would say historically, we've spent 21% and we've guided some years to 22%. So I'd say somewhere between 21% and probably 22%. .

Okay. Because I know CETC was running up at like 25% or something. Okay 21% to 22%. Okay, great. And then your $6 million of loan loss provision, how much of that was related to office?

All of it.

All of it. Okay. Great. And then Bob and Dennis, just going back to, I think, what Mark touched on with respect to M&A. Can you help us think as we look to 2025, 2026, and obviously, your stock currency has strengthened tremendously here. But as we look going forward, what deal size would be too small for you? What's your ideal deal size? And then are you still committed to being in the Boston marketplace? Or does that expand a little bit? If you could just touch on those points.

So Laurie, this is Denis. And I think in terms of deal size there comes a point where at our scale, a certain size is just too small and perhaps you question whether it's worth the effort. We haven't sort of formulated that yet. We're not focused on M&A. Again, I go back to we're focused on executing the benefits of this integration and on organic growth. So we haven't spent a lot of time talking through that. In terms of geographic expansion, we love the markets that we're in. The preference would be if we were to do a merger, it would be contiguous in nature. It's easier to integrate. But if your question is, would we expand out of the New England region. That's not in our thought process at all. And frankly, we're not talking about M&A today, we're talking about the Cambridge integration.

Yes. I would just reinforce that, Laurie, is expanding outside of New England, even parts of New England, frankly, we're very committed to the Greater Boston market. We have building a concentrated franchise and just an outstanding market where, as you know, so many others are still trying to enter and we really would have been trying to build is a concentrated franchise and continuous is really just what Denis said, really immediate adjacencies to where we are and build from there. And there's just so many advantages to that from a management perspective and from leveraging the investments that we've made over time in a number of different areas.

And there are no further questions at this time. I will turn the call back over to Bob Rivers for closing remarks.

Great. Well, thanks, Julie. And as always, everyone, thank you for your interest and your questions. And believe me, we are as eager as you are to share more with you during our next earnings call at the end of October. So for now, best wishes for a great rest of the summer.

This concludes today's conference call. You may now disconnect. Thank you.