Q3 2024 Eastern Bankshares Inc Earnings Call

Speaker Change: [music].

Operator: Hello and welcome to the Eastern Bank Shares, Inc. third 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 versus Such forward-looking statements reflect management's current estimates or beliefs and are subject to risks and uncertainties that may 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 captioned 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.

Hello, and welcome to the Eastern Bancshares, Inc. Third quarter 2020 earnings Conference call. Today's call will include forward looking statements, including statements about or eastern speech or financial and operating results outlet business strategies and plans as well.

Other opportunities and potential risks that management brushy.

Such forward looking statements reflect management's current estimates or beliefs and are subject to risks and uncertainties that may cause actual results or the timing of advance Jennifer about your any from the views expressed today.

More information about such risks and uncertainties are 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.

Operator: Any forward-looking statements made during this call represent management's views and estimate As of today, the company undertakes no obligation to update this statement as a result of new information or future events.

Any forward looking statements made during this call represent managements 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 certain non-GAAP financial measures for a reconciliation of GAAP to non-GAAP financial measures. Please refer to the company's earnings.

Operator: During the call, the company will also discuss both GAAP and certain 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 at investor.easternbank.com.

Press release, which can be found at investor that eastern back Dot com.

Operator: please note this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, please press the star 2.

Please note. This event is being recorded all.

All lines have been placed on mute to prevent any background noise.

Speaker Change: Thank you speakers remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one I guess telephone keypad. If you would like to withdraw your question. Please press. The start you. Thank you I'd now like to turn the call over to Bob Devers Executive Chair and chair of the Board. Please go ahead.

Operator: Thank you.

Bob Rivers: I'd now like to turn the call over to Bob Rivers, Executive Chair and Chair of the Board. Please go ahead.

Bob Rivers: Thank you, Lodi.

Bob Devers: Thank you Larry and good morning, everyone. Thanks for joining our third quarter earnings call with me today is eastern CEO Denis Sheahan.

Bob Rivers: And good morning, everyone. Thanks for joining our third quarter earnings call. With me today is Eastern CEO Denis Sheahan, our new CFO, David Rosato, and Jim Fitzgerald, our former CFO, who is continuing to serve as a senior advisor to our management team and our board of directors. The third quarter marked a transformational moment in Eastern's history as we closed on our merger with Cambridge Trust. completed our integration, expanded our leadership team and board, and look forward to the future as a newly combined, more robust organization. This combination represents a powerful step forward in achieving our strategic vision, positioning us as a stronger, more competitive institution, and the greater Boston region's leading local full-service bank, offering comprehensive personal, commercial, and private banking solutions, in addition to personalized wealth management offerings.

Bob Devers: Our new CFO, David Rosato, and Jim Fitzgerald, our former CFO, who is continuing to serve as a senior advisor to our management team and our board of directors.

Bob Devers: The third quarter marked a transformational moment.

Bob Devers: Any sense history as we closed on our merger with Cambridge Trust.

Bob Devers: Completed our integration expanded our leadership team and board and look forward to the future as a newly combined more robust organization.

Bob Devers: This combination represents a powerful step forward in achieving our strategic vision.

Bob Devers: Positioning us as a stronger more competitive institution and the greater Boston regions, leading local service bag offering comprehensive personal commercial and private banking solutions. In addition to personalized wealth management offerings.

Bob Rivers: whereas our larger competitors focus on a wider geography. Our commitment is to Eastern Massachusetts and Southern New Hampshire, as well as other areas of New England, which is demonstrated not only by a management team that lives and raises our families here, but makes strategic lending and community investments entirely within the markets we serve. Time and again, we hear from our customers that a point of differentiation is our deep understanding of local markets and communities. Although we have grown larger to have the talent and technology to better serve and compete for our customers' business, we remain at our core a true community bank, understanding that we can only be as strong as our customers, our colleagues, and the communities we serve.

Bob Devers: Whereas our larger competitors focus on a wider geography.

Bob Devers: Our commitment is to eastern Massachusetts, and southern New Hampshire, as well as other areas.

As well as other areas of new England, which has demonstrated not only by a management team that lives and raises our families here that make strategic lending community investments entirely within the markets we serve.

Bob Devers: Time, and again, we hear from our customers that a point of differentiation is our deep understanding of local markets and communities.

Bob Devers: Although we are growing larger to have the talent and technology to better serve to compete for our customers business. We remain at our core a true community bank understanding that we can only be as strong as our customers our colleagues and the communities we serve.

Bob Rivers: as recent evidence of this. Eastern during the past quarter was named the number one SBA lender in Massachusetts for the 16th consecutive year. ranked among the 10 most charitable companies in Massachusetts by the Boston Business Journal for the 13th time and was recognized by DisabilityIn as a 2024 Best Place to Work for Disability Inclusion. and the Eastern Bank Foundation was once again recognized among the top leading women-led organizations in Massachusetts by the Women's Edge. Of course, to deliver all of this requires a total team effort from my 2,000 colleagues at Eastern, who in addition to very successfully transitioning our banking and wealth management customers to new systems, also completed a major upgrade of our online and mobile banking platform.

Bob Devers: As recent evidence of this.

Eastern during this.

Bob Devers: Last quarter was named the number one SBA lender in Massachusetts for the sixth.

Consecutive year.

Bob Devers: Among the 10, most charitable companies in Massachusetts by the Boston business Journal for the 13th time.

And was recognized by disability in is it 2024 best place to work for disability inclusion.

Bob Devers: In the Eastern Bank Foundation was once again recognized among the top leading women led organizations in Massachusetts by the women's edge.

Bob Devers: Of course to deliver all of this requires a total team effort from my 2000 colleagues at Eastern well. In addition to very successfully transitioning our banking and wealth management customers to new systems also completed a major upgrade of our online and mobile banking platforms.

Bob Rivers: It is their incredibly hard work, dedication, and commitment to our customers and each other, which make these results possible in order to deliver greater value for our shareholders and support for our communities.

Bob Devers: It is their incredibly hard work dedication and commitment to our customers and each other which make these results possible in order to deliver greater value for our shareholders and support.

Bob Devers: Communities.

Denis Sheahan: With that, I'll hand it over to Denis who will discuss the business in more detail before handing it off to David to discuss our financial. Thank you, Bob. Please note we have posted a slide presentation on our website and we encourage you to review the slides as David and I will reference a number of them in our commentary. I want to reiterate Bob's comments about our colleagues at Eastern. I'm incredibly proud of the work our team has completed during the quarter across our banking, wealth, and operational divisions. With the merger and conversions behind us, we can now focus on realizing the benefits of the merger and the growth opportunity ahead.

Speaker Change: With that I'll hand, it over to Dennis who will discuss the business in more detail before handing it off to David to discuss our financial results.

Dennis: Thank you Bob.

Dennis: Please note we have posted a slide presentation on our website and we encourage you to review the slides as David and I will reference a number of them in our commentary.

Dennis: I want to reiterate Bob's comments about our colleagues at eastern I'm incredibly proud of the work our team has completed during the quarter across our banking wealth and operational divisions.

Dennis: With the merger and conversion is behind US we can now focus on realizing the benefits of the merger and the growth opportunity ahead.

Denis Sheahan: We are the largest community bank serving the attractive Greater Boston, Eastern Massachusetts, and New Hampshire markets, with the fourth largest deposit market share within the Greater Boston MSA, which includes Southern New Hampshire. In addition, our combined wealth management business with over $8 billion in assets under management makes us the largest bank-owned investment advisor in Massachusetts and the 12th largest in the state overall. We're excited to bring the fuller suite of wealth management and banking services to our client base and to the market. I'll spend greater time in the future speaking to why our position is compelling and in giving you a greater sense of the capability of our firm.

We have the largest community bank, serving the attractive greater Boston, Eastern, Massachusetts, and New Hampshire markets with the fourth largest deposit market share within the greater Boston MSA, which includes southern New Hampshire.

Dennis: In addition, our combined wealth management business with over $8 billion in assets under management makes us the largest bank owned investment advisor in Massachusetts, and the 12th largest in the state overall.

Dennis: We're excited to bring the Fuller suite of wealth management and banking services to our client base and to the market.

Dennis: Spend greater time in the future speaking to fly our position is compelling and I'm, giving you a greater sense of the capability of our firm.

Denis Sheahan: But I know you'd like to understand in detail how we performed on the merger, so let's get into that. I'm sure you can understand there are a number of differences in interest rates, the economy, and otherwise since the merger was announced in September 2023. And this is an important backdrop to the variances from the original merger model guidance. Slide six gives an overview. In short, we outperformed. We outperformed the original guidance on deal charges, earnings-per-share accretion, and cost-savings. Importantly, capital in the form of either tangible book value or tangible common equity are significantly better than originally projected.

Dennis: But I know you'd like to understand in detail, how we performed on the merger so let's get into that.

Dennis: I'm sure you can understand there were a number of differences in interest rates the economy and otherwise since the merger was announced in September 2023, and this is an important backdrop to the variances from the original merger model guidance.

Dennis: Slide six gives an overview.

Dennis: In short we outperformed.

Dennis: We outperformed the original guidance on deal charges earnings per share accretion and cost saves.

Dennis: Importantly capital in the form of either tangible book value or tangible common equity are significantly better than originally projected due to a combination of a smaller balance sheet and rate changes over the past year.

Denis Sheahan: due to a combination of a smaller balance sheet and rate changes over the past year. The balance sheet is smaller than projected as we decided to sell the Cambridge Trust Securities portfolio and pay off borrowings. which resulted in an even healthier balance. This decision, along with the lower fair value marks associated with the changes in interest rates since announcement, shown on slide 7, resulted in lower earnings per share in the quarter as compared to Street S. On the credit front, we took a hard look at Cambridge loans, and you will note increased reserves in the commercial real estate category, particularly office, which we feel are appropriate at this stage of the cycle.

Dennis: Our balance sheet is smaller than projected as we decided to sell the Cambridge Trust securities portfolio and pay off borrowings, which resulted in an even healthier balance sheet.

Dennis: This decision along with the lower fair value marks associated with changes in interest rates since announcement shown on slide seven.

Dennis: Resulted in lower earnings per share in the quarter as compared to street estimates.

Dennis: On the credit front, we took a hard look at average loans and you will note increased reserves in the commercial real estate category, particularly office, which we feel are appropriate at this stage of the cycle.

Denis Sheahan: the company's overall allowance for loan losses was prudently expanded to 1.4% in the quarter. We take an aggressive approach in reserving for potential challenges. As an example, our reserve for total investor office loans represents 8% of loans in that category. So in summary, regarding the merger, client retention has been terrific. We feel good about where we are relative to original expectations. Capital is stronger and asset quality is well marked and accounted for.

The company's overall allowance for loan losses was prudently expanded to one 4% in the quarter.

Dennis: We've taken aggressive approach and reserving for potential challenges as an example, a reserve for total Investor office loans represents 8% of loans in that category.

Dennis: So in summary regarding the merger client retention has been terrific we.

Dennis: We feel good about where we are relative to original expectations capital is stronger and asset quality as well in March and accounted for.

Denis Sheahan: David will provide some detail regarding an outlook for Q4, and I preface it by saying the financial metrics of Eastern are markedly stronger than pre-merger and rest atop a balance sheet with very strong capital and liquidity, providing capacity for future earnings growth.

Dennis: David will provide some detail regarding our outlook for Q4, and I preface it by saying our financial metrics with eastern are markedly stronger than pre merger addressed atop a balance sheet with very strong capital and liquidity, providing capacity for future earnings growth and finally I'm pleased to report.

Denis Sheahan: And finally, I'm pleased to report that our board has approved a 9% dividend increase to $0.12 per share. Thank you, Denis.

Dennis: That our board has approved a 9% dividend increase to 12 cents per share David.

David Rosato: Thank you Dennis.

David Rosato: I'll start with the financial review of the Cambridge merger before moving into the full results for the third quarter. As a reminder, the merger closed early in the third quarter on July 12. As Denis mentioned, we are on track to successfully achieve the merger-related financial targets that were announced just over a year ago. As part of the merger closing, we've marked to market the Cambridge Balance. Slide 7 outlines the final purchase accounting adjustments relative to estimates at time of announcement. Those came in as expected, but I'll walk through a few key different The interest rate for fair value mark on loans was $250 million at close significantly lower than the $413 million estimated a year ago.

David Rosato: I'll start with a financial review of the Cambridge merger before moving into the full results for the third quarter.

David Rosato: As a reminder, the merger closed early in the third quarter on July 12.

David Rosato: As Dennis mentioned, we are we are on track to successfully achieve the merger related financial targets that were announced just over a year ago.

As part of the merger closing, we mark to market, the Cambridge balance sheet.

David Rosato: Slide seven outlines the final purchase accounting adjustments relative to estimates at time of announcement.

David Rosato: Most came in as expected, but I'll walk through a few key differences.

David Rosato: The interest rate fair value Mark on loans was $250 million at closing significantly lower than the 413 billion estimated a year ago.

David Rosato: The credit mark on PCD loans was $56 million at close. The credit mark is the result of a very thorough review of all Cambridge loans. The increase from expectations a year ago was driven mainly by office commercial real estate loans, given the challenges for that sector in the current environment. I'll provide additional color later in my remarks on asset quality. As Denis mentioned, Eastern sold all of Cambridge's investments in the days after the closing and used the proceeds to eliminate Cambridge Wholesale funding. The original securities mark of $172 million, therefore, will not be accreted into income.

David Rosato: The credit Mark on P. C D loans was $56 million at closing.

David Rosato: The credit Mark is the result of a very thorough review of all Cambridge loves.

David Rosato: The increase from expectations a year ago was driven mainly by office commercial real estate loans, given the challenges for that sector in the current environment.

David Rosato: I'll provide additional color later in my remarks on asset quality.

Speaker Change: As Dennis mentioned Eastern sold all of Cambridge is investments in the days after the closing and use the proceeds to eliminate Cambridge wholesale funding.

Speaker Change: The original securities Mark of $172 million. Therefore, therefore will not be accreted into income.

David Rosato: This equates to $29 million to $34 million per annum. On slide eight, we have provided an estimated schedule of accretion and amortization for the fair value marks that will impact earnings going forward. Most notable is the accretion of the discount on acquired loans. As a reminder, we will accrete into income the $250 million interest rate mark on loans, plus the $33 million credit mark on non-PCD loans, which totals $283 million over the lives of those loans. We expect this will create income of approximately $12 million to $14 million each quarter for the next year. We have modeled the loan accretion schedule based on the best information we have available.

Speaker Change: This equates to 29 million to $34 million.

Speaker Change: For Anna.

Speaker Change: On slide eight we have provided an estimated schedule of accretion and amortization for the fair value marks that will impact earnings going forward.

Speaker Change: Most notable is the accretion of the discount on acquired loans.

Speaker Change: As a reminder, we will accrete into income the 250 million dollar interest rate Mark on loans, plus the 33 million credit Mark on non P. C D loans, which totaled $283 million over the lives of those loans.

Speaker Change: We expect this will create income of approximately 12 million to $14 million each quarter for the next year.

We have modeled the loan accretion schedule based on the best information we have available.

David Rosato: But As you know, actual accretion recognized will be subject to loan prepayments over time. Those prepayment rates will be based on changes in market interest rates. If rates decline, we'd expect to see faster prepayments in certain loan categories, creating accelerated recognition of the associated discount. However, it's important to remember that although these loans are marked to current rate levels, the underlying interest rates on the loans are relatively low. This means that rates would have to fall pretty far from where they are today before borrowers have incentive to refinance and pay off fixed rate loans. For this reason, we believe we have strong protection against prepayment risk on these assets, and the income stream should have a higher level of predictability.

Speaker Change: But.

Speaker Change: As you know actual accretion recognized will be subject to loan prepayments overtime.

Speaker Change: Those prepayment rates will be based on changes in market interest rates.

Speaker Change: If rates decline, we would expect to see faster prepayments in certain loan categories, creating accelerated recognition of the associated discount.

Speaker Change: However, it's important to remember that all although these loans are marked to current.

Speaker Change: Great levels, the underlying interest rates on the loans are relatively low.

Speaker Change: This means that rates would have to fall pretty far from where they are today before borrowers have incentive to refinance and pay off fixed rate loans.

Speaker Change: For this reason we believe we have strong protection against prepayment risk on these assets and the income stream should have a higher level of pre.

Speaker Change: Predictability.

David Rosato: Consistent with all aspects of this merger, Eastern is committed to continuing and growing the strong relationships that Cambridge has fostered with its customers. As the legacy Cambridge loans pay down over time, creating a reduction in accretion income, the acquired loans will be replaced with new loans at market yields, continuing to drive interest income. In the bottom half of slide eight, we also provide expected amortization of the core deposit intangible and wealth intangibles, which will be included in non-interest expense. combined, we expect these non-cash expenses to be about $7 million per quarter over the next few quarters.

Speaker Change: Consistent with all aspects of this merger eastern is committed to continuing and growing the strong relationships that Cambridge is fostered with its customers.

Speaker Change: As the legacy, Cambridge loans pay down over time, creating a reduction in accretion income.

Speaker Change: Wired loans will be replaced with new loans at market yields continuing to drive interest income.

Speaker Change: In the bottom half of slide eight we also provide expected amortization of core deposit intangible and wealth intangibles, which will be included in noninterest expense.

Speaker Change: Combined we expect these noncash expenses to be about $7 million per quarter over the next few quarters.

David Rosato: I'll now move into our results for the third quarter, beginning on slide nine. We reported a gap net loss of $6 million in the third quarter due to non-reoccurring merger items. primarily the day to non PCD loan reserve expense of $40.9 million, as well as the 30.5 million in M&A expense. On an operating basis, that income was $49.7 billion, or $0.25 per share. This higher level of operating earnings is driven by a larger balance sheet. a higher margin, which increased 33 basis points in the quarter to 297. On the fee income side, our wealth revenues more than doubled to $14.9 million in the third quarter.

Speaker Change: I will now move into our results for the third quarter beginning on slide nine.

Speaker Change: We reported a GAAP net loss of $6 million in the third quarter due to non reoccurring merger items.

Speaker Change: Primarily the day two non P. C D loan reserve expense of $49 million as well as the $35 million in M&A expenses.

Speaker Change: On an operating basis net income was $49 7 billion or 25 cents per share.

Speaker Change: This higher level of operating earnings is driven by a larger balance sheet.

Speaker Change: A higher margin, which increased 30 basis 33 basis points in the quarter to 297.

Speaker Change: On the fee income side, our wealth revenues more than doubled to $14 $9 million in the third quarter.

David Rosato: The balance sheet remains very strong. Tangible book value per share ended the quarter at $12.17. Our board approved a penny raise in the quarterly dividend and we repurchased 836,000 shares of stock at an average price of $15.08 for a total of $12.6 million in the quarter. Asset quality also remains strong. Although non-performing loans increased to $125 million, the increase was due to PCD loans that have been conservatively reserved for. I'll discuss asset quality more later in my remarks.

Speaker Change: The balance sheet remains very strong.

Speaker Change: Tangible book value per share ended the quarter at $12 17 SaaS.

Speaker Change: Our board approved a penny raise in the quarterly dividend.

Speaker Change: And we repurchased 836000 shares of stock at an average price of $15 eight sets for a total of $12 6 million in the quarter.

Speaker Change: Asset quality quality also remains strong.

Although nonperforming loans increased to $125 million. The increase was due to P. C. D loans that had been conservatively reserved for.

Speaker Change: Also discuss asset quality more later in my remarks.

David Rosato: Transitioning to the income statement for the quarter, slide 10 provides a summary of both GAAP and operating results and return metrics. As I mentioned, our gap loss of $6 million for the quarter was driven by merger items. operating net income of $49.7 million, which $13 million higher than in the prior quarter, an increase of 36%. There was considerable noise in the quarter due to the merger, which appeared in three places. The provision for credit losses included a $40.9 million dollar reserve on non-PCD Cambridge. Non-interest income included $3 million fixed asset write down. That was in other non-interest income.

Speaker Change: Transitioning to the income statement for the quarter slide.

Speaker Change: Slide 10 provides a summary of both GAAP and operating results and return metrics.

Speaker Change: As I mentioned, our GAAP loss of $6 million for the quarter was driven by merger items.

Speaker Change: Operating net income of $49 $7 million was $13 million higher than in the prior quarter, an increase of 36%.

Speaker Change: There was considerable noise in the quarter due to the merger which appeared in three places.

Speaker Change: The provision for credit losses included $40 9 million dollar reserve on non P. C D Cambridge loans.

Speaker Change: Non interest income included 3 million dollar fixed asset write down that was in other non interest income.

David Rosato: A non-interest expense contained $27.6 million of expenses concentrated in salaries and benefits. please see slide 33 for a full breakout of M&A costs during the quarter. Note that our operating tax rate for the quarter was modestly elevated at 24.6% 24.6%. And I'll provide an update on the tax rate we expect going forward when I cover our outlook in a few minutes.

Speaker Change: Noninterest expense contained $27.6 million of expenses concentrated in salaries and benefits.

Please see slide please see slide 33.

Speaker Change: For a full breakout of M&A costs during the quarter.

Speaker Change: Note that our operating tax rate for the quarter was modestly elevated at 24 points expert <unk>.

Speaker Change: 24, 6% and I'll provide an update on the tax rate, we expect going forward when I cover our outlook in a few minutes.

David Rosato: Moving to the margin on slide 11, it's important to remember that we had a partial quarter of impact of the merger beginning on July 3rd. For September, our margin on a FTE basis was 305. We are encouraged by the recent margin growth and expect additional rate cuts by the Fed to provide benefit, especially if the yield curve normalizes towards a traditional upward-sloping shape. Total non-interest income on slide 12 was $33.5 million in the third quarter and $32.9 million on an operating basis. Remember, in Q2, we had an early deposit termination payment of $7.8 million, which skewed our results.

Speaker Change: Moving to the margin on slide 11, it's important to remember that we had a partial quarter impact of the merger beginning on July 13.

Speaker Change: For September are marching on a FTE basis was 305.

Speaker Change: We are encouraged by the recent margin growth and expect additional rate cuts by the fed to provide benefit, especially if the yield curve normalizes towards a traditional upward sloping shape.

Total noninterest income on slide 12 was $33 5 million in the third quarter and $32 9 million on an operating basis.

Speaker Change: Remember in Q2, we had an early deposit termination payment of $7 $8 million, which skewed our results.

David Rosato: Wealth fees increased from $6.7 million to $14.9 million in the third quarter, driven by the increase in assets under management from Cambridge, as well as strong market performance. deposit service charges were $8.1 million in the third quarter, an increase of $200,000. Please note that certain deposit service charges were temporarily waived for our new Cambridge customers, detracting approximately $300,000 in income for the quarter. These fees will be reinstated in mid-Q4.

Speaker Change: Wealth fees increased from $6 7 million to $14 9 million in the third quarter driven by the increase in assets under management from Cambridge, as well as strong market performance.

Deposit service charges were $8 1 million in the third quarter, an increase of $200000.

Speaker Change: Please note that certain deposit service charges were temporarily way for our new Cambridge customers subtracting approximately $300000 in income for the quarter.

These fees will be reinstated in mid Q4.

David Rosato: Moving to slide 13. Total non interest expense was $159.8 million at $130.9 billion on an operating basis. there were two primary drivers to the link quarter change in operating expense. First, salaries and benefits on an operating basis increased $15.4 million due to the addition of colleagues from Cambridge. Second, we saw an increase in amortization expense of $5.7 million due to the amortization of the core deposit and wealth management intangible. As I mentioned earlier, we have the vast majority of merger-related cost saves reflected in Q3 results.

Speaker Change: Moving to slide 13, total noninterest expense was $159 $8 billion at 130.9 billion on an operating basis.

Speaker Change: There were two primary drivers to the linked quarter change in operating expenses.

Speaker Change: First salaries and benefits on an operating basis increased $15.4 million due to the addition of colleagues from Cambridge.

Second we saw an increase in amortization expense of $5 $7 million due to the amortization of the core deposit and wealth management and tangibles.

Speaker Change: As I mentioned earlier, we had the vast majority of merger related.

Speaker Change: The cost saves reflected in Q3 results.

David Rosato: The balance sheet on slide 14 shows the level of deposits, loans, borrowings, and investments post-merger. The balance sheet is extremely healthy with $25.5 billion in total assets, a tangible common equity ratio of 10.7%, a loan-to-deposit ratio in the mid-80s, and essentially no wholesale funding. We added approximately $3.9 billion in loans and $3.7 billion in deposits from Cambridge. Organic growth in the quarter was slow, with essentially flat loan levels and a decline in deposits driven by seasonality. We are optimistic about our local economy, the inflection point we are at in the rate cycle, and our prospects for growth moving into 2025.

Speaker Change: The balance sheet on slide 14 shows the level of deposits loans borrowings and investments post merger.

Speaker Change: Our balance sheet is extremely healthy with $25 5 billion of total assets a tangible common equity ratio of 10, 7%.

Speaker Change: A loan to deposit ratio in the mid eighties, and essentially no wholesale funding.

Speaker Change: We added approximately 3.9 billion in loans and $3 7 billion in deposits from Cambridge.

Speaker Change: Organic growth in the quarter was slow, but essentially flat loan levels and a decline in deposits driven by seasonality.

Speaker Change: We are optimistic about our local economy. The inflection point, we are at in the rate cycle and our prospects prospects for growth moving into 2025.

David Rosato: Moving to deposits and loans on slides 15 and 16. The key quarter over quarter changes related to Cambridge while organic activity remained muted. We added high quality deposits through the merger. We continue to have approximately 50% of our total deposits in checking accounts, and our total deposit cost is very well contained at 182 basis points, demonstrating the strength of the combined deposit franchise. On the loan side, we added $2.3 billion of commercial loans and another $1.5 billion in residential loans from Cambridge. We are enthusiastic about the transition for the Cambridge customers, which went seamlessly. And we are making concerted efforts to continue to welcome and serve those customers who are new to Eastern.

Speaker Change: Moving to deposits and loans on slides 15, and 16, the key quarter over quarter changes related to Cambridge.

Speaker Change: While our organic activity remains muted.

Speaker Change: We added high quality deposits through the merger.

Speaker Change: We continue to have approximately 50% of our total deposits and checking accounts and our total deposit cost is very well contained at 192 basis points demonstrating the strength of the combined deposit franchise.

On the loan side, we added $2 3 billion of commercial loans, and another billion and a half and residential loans from Cambridge.

Speaker Change: We are enthusiastic about the transition for the Cambridge customers, which went seamlessly and we are making concerted efforts to continue to welcome and serve those customers who are new to Easter.

David Rosato: Moving to the credit impacts of Cambridge on slide 19. The allowance increased from 111 basis points last quarter to 143 basis points this quarter and stands at $253.8 billion. The bill was comprised of $56 million of the day one Cambridge PCD reserves, which were recorded to the allowance with the offset to goodwill. Additionally, we booked a Day 2 provision on non-PCD loans of $41 million. The legacy Eastern provision was $6 million, in line with the past several quarters, and charge-offs totaled $5 million.

Speaker Change: Moving to the credit impacts of Cambridge on Slide 19.

Speaker Change: The allowance increased from 111 basis points last quarter to 143 basis points this quarter and stands at $253 $8 billion.

The build was comprised of $56 million of the day, one Cambridge P. C D reserves, which were recorded to the allowance with the offset to goodwill.

Speaker Change: Additionally, we booked a day two provision non PCI loans of $41 million.

Speaker Change: The legacy Eastern provision was $6 million in line with the past several quarters and charge offs totaled $5 million.

David Rosato: Let's now take a closer look at the acquired loans and how we assess the credit impact of the Cambridge portfolio, beginning on slide 20. The combined credit mark on PCD and non-PCD loans was estimated at $44 million at the time of announcement versus $89 million at close. The PCD pool of loans was expanded over the last year, primarily due to deterioration in the office. Over the past year, distressed office property sales have increased, giving us a clearer picture of value. Slide 20 shows the total unpaid principal balance of PCD loans, which is $353 million, or 9% of total Cambridge loans.

Speaker Change: Let's now take a closer look at the acquired loans and how we assess the credit impact of the Cambridge portfolio beginning on slide 20.

The combined credit Mark on P. C D and non PCI loans was estimated at $44 million at the time of announcement versus $89 million at closing.

Speaker Change: The P. C D pool of loans was expanded over the last year, primarily due to deterioration in the office market.

Speaker Change: Over the past year distress office property sales have increased giving us a clearer picture of values.

Speaker Change: Slide 20 shows the total unpaid principal balance of PS P. C D loads was $353 million.

Speaker Change: Four 9% of total Cambridge loans.

David Rosato: We recorded $56 million of reserves associated with these PCD loans via a gross up of the allowance that was recorded through goodwill.

Speaker Change: We recorded $56 million of reserves associated with these P. C D loans.

Speaker Change: Gross up the allowance that was recorded through goodwill.

David Rosato: Slide 22 highlights our Cree investor office exposure post-merger, which totals $900 million. were 5% of total loans unchanged from Legacy Eastern's percentage. Criticized and classified investor office loans increased to $178 million or about 20% of total investor office loans. We have reserves totaling $72 million, or 8%, against our $900 million of investor offices.

Speaker Change: Slide 22 highlights our Cree Investor office exposure post merger, which totals $900 billion.

Speaker Change: Or 5% of total loans unchanged from legacy Eastern's percentage.

Speaker Change: Asides criticized and classified Investor office loans increased to $178 million.

We're about 20% of total Investor office loans.

We have reserves totaling $72 million or 8% against our $900 million of Investor office loans.

David Rosato: When looking at overall asset quality on slide 23, non-performing loans increased to $125 million, or 70 basis points of total loans, driven by the addition of Cambridge PCD loans. Legacy Eastern levels of non-performing loans remain stable from recent quarters. That charge us were $5.1 million in the quarter, or 12 basis points of total loan. We feel very comfortable with the allowance of $254 million. It provides very strong coverage for the loan portfolio.

Speaker Change: When looking at overall asset quality on slide 23, nonperforming loans increased to $125 million or 70 basis points of total loans driven by the addition of Cambridge P. C D loans.

Speaker Change: Eastern levels of nonperforming loans remained stable from recent quarters.

Speaker Change: Net charge offs were $5 $1 million in the quarter or 12 basis points of total loans.

Speaker Change: We feel very comfortable with the allowance of $254 million provides very strong coverage for the loan portfolio.

David Rosato: Moving now to our outlook, which is for Q4 only. We expect to provide 2025 guidance in January once we work through our annual budget process. For Q4, we expect loan balances to be relatively flat. While we don't anticipate much loan growth in Q4, we are seeing a build in commercial lending pipelines, a positive leading indicator for future growth. Deposits typically exhibit seasonal declines late in the year and we have the maturity of $185 million deposit acquired from Century Bank that is maturing in mid-November. We expect net interest margin, net interest income of $175 to $180 million and net interest margin to be between 3 and 3.05.

Speaker Change: Moving now to our outlook, which is for Q4, only we expect to provide 2025 guidance in January once we went through our annual budget process.

Speaker Change: For Q4, we expect loan balances to be relatively flat.

Speaker Change: While we don't anticipate much loan growth in Q4, we are seeing we are seeing a build in commercial lending pipelines, a positive leading indicator for future growth.

Speaker Change: Deposits typically exhibit seasonal declines late in the year and we have the maturity of 185 million dollar deposits acquired from century Bank that is maturing in mid November.

Speaker Change: We expect net interest margin net interest income of $175 million to $180 million and net interest margin to be between three and 305.

David Rosato: As I mentioned earlier, we expect declines and short-term rates to benefit the margin and net interest income going forward. Approximately 20% of the loan book, net of hedges, resets on short-term interest. We expect betas on our interest bearing deposits to be 40 to 50% on the way down, inclusive of our CD book. Operating non-interest income is expected to be in the range of $33 to $34 million. Operating non-interest expense is expected to be between $130 million and $132 million with fully achieved costs. This includes intangible amortization of about $7 million. We also anticipate two to $3 million in non-operating M&A expenses in Q4.

Speaker Change: As I mentioned earlier, we expect declines in short term rates to benefit the margin and net interest income going forward.

Speaker Change: <unk> only 20% of the loan book net of hedges resets on short term interest rate.

Speaker Change: We expect betas on our interest bearing deposits to be 40% to 50% on the way down inclusive.

Speaker Change: Our CD book.

Speaker Change: Operating noninterest income is expected to be in the range of $33 million to $34 million.

Speaker Change: Operating noninterest expense is expected to be between 130 and $132 million with fully achieve cost saves.

Speaker Change: This includes intangible amortization out $7 million.

Speaker Change: We also anticipate $2 million to $3 million and nonoperating M&A expenses in Q4.

David Rosato: Lastly, we expect the tax rate to normalize for the full year in the range of 22 to 23 percent.

Speaker Change: Lastly, we expect the tax rate to normalize for the full year in the range of 22% to 23%.

Operator: That concludes our comments for the quarter and we'll now open the line for your questions. Thank you.

Speaker Change: Yeah.

Speaker Change: That concludes our comments for the quarter and we will now open the line for your questions.

Speaker Change: Yeah.

Speaker Change: Thank you and at this time I would like to remind everyone in order to ask a question simply press star followed by the number one on your telephone keypad. If you would like to be glad. Your question. Please press star two well pause for just a moment to compile the Q&A roster.

Operator: And at this time, I would like to remind everyone, in order to ask a question, simply press the star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star 2.

Operator: We'll pause for just a moment to compile the Q&A roster.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Mark Fitzgibbon: And your first question comes from the line of Mark Fitzgibbon with Piper Zandler. Please go ahead. Hey guys, good morning and congratulations on the deal. It's rare that we see anybody bring in deal charges below their initial projections, so great job. I guess my first question, David, to follow up on a couple of points that you made, on loan pipelines, you said they were strong. I wondered if you could share with us the size of the pipeline and the complexion of it.

Speaker Change: And your first question comes from the line of Mark Fitzgibbon with Piper Sandler. Please go ahead.

Mark Fitzgibbon: Hey, guys good morning, and congratulations on the deal.

Mark Fitzgibbon: It's rare that we see anybody bring in deal charges below the initial projections so great job.

Mark Fitzgibbon: I guess my first question David to follow up on a couple of points that you made.

Mark Fitzgibbon: Loan pipelines you said they were strong I wondered if you could share with us the size of the pipeline and the complexion of it.

Denis Sheahan: Sure, Mark, but I'll let Dan assemble that. Hi, Mark. Good morning.

Speaker Change: Sure Mark, but I'll, let Dennis sample that hi, Mark good morning, So yeah.

Denis Sheahan: So, yeah, the commercial loan pipeline is at its third highest level this year. Now, admittedly, that's coming off a fairly low level at the end of June, but I'll just give you the two numbers. At the end of June, our pipeline was $228 million. It's now $438 million. So, you know, we're optimistic that that will continue to grow heading into the new year and it's certainly better than it was at the end of June.

The commercial loan pipeline is at its third highest level. This year now admittedly that's coming off a fairly low level at the end of June but I'll just give you. The two numbers at the end of June our pipeline was $228 million. It's now.

Speaker Change: $438 million. So we're optimistic that that will continue to grow heading into the new year and.

Speaker Change: It's certainly certainly better than it was at the end of June.

Speaker Change: Okay.

Speaker Change: And Dennis is that mostly commercial real estate or is it or even mix of C&I and CRE or what does that look like.

Denis Sheahan: Dennis, is that mostly commercial real estate or is it an even mix of C&I and CRE or what is that like? Good mix of commercial real estate, C&I and community development lending, you know, very active in in all three businesses. And we're certainly we're just seeing some some early seeds of increased activity and hopefully will continue into the new year.

But mix of commercial real estate C&I and community development lending very active in all three businesses.

Speaker Change: We are certainly that we're just seeing.

Speaker Change: Some some early seeds of increased activity and hopefully will continue into the new year.

Denis Sheahan: Okay, great.

Speaker Change: Okay great.

David Rosato: Mark, I was... Go ahead. No, no, please, David. I was I was just gonna add that, you know, tip normal, we've been inwardly focused on the completion of the merger, and the bringing on of our colleagues. I think the other positive aspect to this is just a sense in the market among customers of the Fed beginning an easing cycle, and demand starting to build as well. And then I heard your comments and the discussion around purchase accounting adjustments in that slide eight was helpful. It sounds like you expect the net interest margin to sort of gradually rise.

Speaker Change: Okay.

Speaker Change: No Mark I wish it.

Go ahead.

David Rosato: No no please David sorry.

David Rosato: I was I was just going to add that.

Speaker Change: Tip normal we've been inwardly focused on the completion of the merger.

Speaker Change: And the bringing on of our colleagues I think the other positive aspect to this is Josh.

Speaker Change: Our sense in the market among customers of the fed begin in an easing cycle and demand starting to build as well.

Speaker Change: Yeah.

Speaker Change: Okay, Great and then I heard your comments in the discussion around purchase accounting adjustments in that slide eight was helpful.

Speaker Change: It sounds like you expect the net interest margin to sort of gradually rise across two.

David Rosato: 2025.

David Rosato: Can you help us think about where the margin might be able to get to by the end of the year, assuming we follow the forward curve?

Speaker Change: <unk> 2025 can you help us think about where the margin might be able to get to by the end of the year, assuming we follow the forward curve.

David Rosato: So... What I would I would say a couple of things. I would say we're modestly liability sensitive when we think about parallel changes in interest rates.

Okay.

Speaker Change: No.

Speaker Change: What I would I would say a couple things I would say, we're modestly liability sensitive when we think about parallel changes in.

Speaker Change: Interest rates.

David Rosato: but we're more liability sensitive if the shape of the yield curve becomes normalized or more upward sloping, which is the much more likely path of interest rates. Instead of specific margins, the way I would think about it is if you had a parallel rate in moves, every 25 basis point move is worth about a basis point. But if the short end of the curve falls relative to long rates, every 25 basis points is worth about four basis points. almost four times as impact.

Speaker Change: But we are more liability sensitive if the shape of the yield curve becomes normalized or more upward sloping.

Speaker Change: So which is the much more likely.

Speaker Change: Path of interest rates so.

Speaker Change: Yes.

Speaker Change: Instead of specific margin Sac with the way I would think about it is if you had a parallel rate and moves every 25 basis point move is worth about a basis point.

Speaker Change: If the short end of the curve.

Speaker Change: Pause relative to long rates every 25 basis points is worth about four basis points almost four times as impactful.

Speaker Change: Okay, Great and then I wondered if.

David Rosato: And then I wondered if you could share with us how much of the $85 million increase in non-performing loans was PCI-related versus sort of other stuff that might have come from, say, the eastern side? The $85 million increase, so certainly the biggest component of the increase in non-performers in the quarter mark were the Cambridge loans, the PCD loans from Cambridge, and most of that was office. I think the vast majority of those loans were office.

Speaker Change: You could share with us how much of the $85 million increase in nonperforming loans was PCI related versus sort of other stuff that might have come from say the eastern side.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: The $85 million increase so so.

Speaker Change: I mean, certainly the biggest component of the increase in non performers in the quarter Mark Ware.

Speaker Change: The Cambridge loans, the PCB loans from Cambridge, and most of that was office I think the vast majority of those loans for office it.

David Rosato: I think it's worth sharing with you how the process that our team went through in evaluating those loans, but also broadly the investor office category in its entirety. We recognize that the office market has certainly deteriorated in this past year and knowing that our team did a very thorough review. We've re-underwritten all office loans over $5 million through the second and the third quarter. It was a massive effort by our team. Our team is in close contact with our borrowers and have a very good sense of what's happening with each loan. So again, we've re-underwritten every loan over $5 million.

Speaker Change: I think it's it's worth sharing with you how.

Speaker Change: The process that our team went through in evaluating those loans, but also broadly investor office category.

Speaker Change: And in its entirety.

Speaker Change: We recognize that the office market is certainly deteriorated in this past year.

Speaker Change: And knowing that our team did a very thorough review.

Speaker Change: We under written all office loans over $5 million.

Speaker Change: Through the second and the third quarter, because it was a massive effort by our team.

Speaker Change: Team is in close contact with our borrowers and a very good sense of what's happening.

Speaker Change: With each well so again, if re underwritten every loan over $5 million.

David Rosato: And every quarter, we review each credit to determine if they were appropriately risk-rated and reserved. And the result of this, and clearly with the Cambridge office portfolio, which has seen some deterioration here this year, we established a very strong reserve against those office loans.

Speaker Change: And every quarter, we review each credit to determine if they are appropriately risk rated and reserves and the result of this and clearly with the Cambridge.

Speaker Change: Our office portfolio, which has seen some deterioration here. This year, we established a very strong reserve against those office loans and as we mentioned.

David Rosato: And as we've mentioned... In our comments, overall, we have an 8% reserve against the total investor office book at the end of the quarter. And our reserve, as noted, is 1.4% at the end of the quarter, so very strong actions. We believe we have fully accounted for the risk in these loans at the end of the quarter.

Speaker Change: In our comments overall, we have an 8% reserve against the total Investor Office book.

Speaker Change: At the end of the quarter and our reserves.

Speaker Change: As noted is one 4% at the end of the quarter. So very strong actions. We believe we have fully accounted for the risk in these loans at the end of the quarter.

Mark Fitzgibbon: Great, thank you.

Speaker Change: Great. Thank you.

Damon Delmonte: Your next question comes from the line of Damon DelMonte with KBW, please go ahead. Hey, good morning, everyone. Hope everybody's doing well. And thanks for taking my questions here. I guess just with regards to expenses, I think you noted you got, you know, majority of the cost saves out, just looking for a little bit of of commentary as we kind of go into 25.

Speaker Change: Your next question comes from the line of Damon Delmonte with <unk>. Please go ahead.

Damon Delmonte: Hey, good morning, everyone.

Damon Delmonte: What he is doing well and thanks for taking my questions here I.

Damon Delmonte: I guess just with regards to expenses I think you noted you got majority of the cost saves out.

Damon Delmonte: Just looking for a little bit of.

Damon Delmonte: A commentary as we kind of go into 25 do you feel like there's additional opportunities to extract some savings from the expense base.

David Rosato: Do you feel like there's additional opportunities to extract some savings from the expense base?

David Rosato: Hi Damon, it's David. Hi David. The short answer is... Navy.

Damon Delmonte: Hi, Dave Damien it's David.

David Rosato: Hi, David.

David Rosato: So.

David Rosato: Yeah. The short answer is no.

David Rosato: I caveat my response a little bit for two reasons. I'm just short of only being here for three months. I'm still learning the organization and spent most of that time, you know, coming up to speed on the Cambridge transaction and the Purchase Accounting work we just shared with you.

David Rosato: Maybe.

Yeah.

David Rosato: I caveat my response, a little bit for two reasons.

David Rosato: Just short of only been here for three months I'm still learning their organization and spent most of that time.

David Rosato: Coming up to speed on on the Cambridge transaction, then the purchase accounting work, we just shared with you.

David Rosato: But secondly, we're just starting, we're at the beginning of the budget cycle, so I haven't worked through one of those, neither has Denis. So I think by January, when we're talking about the fourth quarter and giving guidance for the full year, we'll have a lot better clarity because we'll know the organization better at that point.

David Rosato: But secondly, we're just starting we're at the beginning of the budget cycle. So I Havent worked through one of those neither has Dennis.

David Rosato: So I think by January when we're talking about the fourth quarter and giving guidance for the full year, we'll have a lot better clarity.

David Rosato: We will know the organization better at that point.

David Rosato: And then, with regards to capital, obviously tangible book value and capital ratios came in stronger just given the change in the marks with the deal closing. Just kind of wondering what your thoughts are on the buyback, I saw you were active this quarter. And then also, if you have any thoughts on potential securities restructuring, just given the greater capital flexibility.

Speaker Change: Okay fair enough.

Speaker Change: And then with regards to capital, obviously, a tangible book value and capital ratios came in stronger just given the.

The change in March with the deal closing just kind of wondering what your thoughts are on the buyback I saw you were active this quarter and then also do you have any thoughts on potential securities restructuring just given the greater capital flexibility.

David Rosato: Yeah, so we. You can see the numbers. We bought just under $13 million of stock. We spent the quarter mostly being price sensitive rather than volume sensitive. You can see our execution was about a dollar below the VWAP. You're right. We certainly have plenty of excess capital. Hopefully, it supports the loan growth, the pipelines that Denis was talking about. But the reality is we still can execute on buybacks. We still think our stock is a very good value.

Speaker Change: Yes, so we.

Speaker Change: You can see the numbers, we bought just under $13 million of stock.

Speaker Change: We spent the quarter.

Speaker Change: Mostly being price sensitive rather than volume sensitive you can see our execution was about.

Speaker Change: About a dollar below the B Wap.

Speaker Change: Youre right, we certainly have plenty of excess capital.

Speaker Change: Hopefully.

It supports the loan growth the pipelines that Dennis was talking about.

Speaker Change: But the reality is we still can can execute on buybacks, we still think.

Speaker Change: Our stock is a very good value and we are talking about whether it makes sense to do a securities restructuring or not.

David Rosato: And we are talking about whether it makes sense to do a securities restructuring or not. The so that's an active discussion at our ALCO committees. And we may or we may not, as everyone on the call knows, there's pros and cons to those transactions. But it's that we're actively thinking about it. Great, appreciate that color.

Speaker Change: So that's an active discussion at our Alco committee's.

Speaker Change: And we may or we may not as everyone on the call knows there's there's pros and cons.

Speaker Change: So those transactions.

Speaker Change: But it's that we're actively thinking about it.

Great I appreciate that color and then just lastly.

Damon Delmonte: And then just lastly, you know, the cash balances at the end of the quarter were a little bit higher than last quarter.

Speaker Change: The cash balances at the end of the quarter were.

Speaker Change: A little bit higher than last quarter, just kind of curious as to how do we think about the average earning asset base going forward due to the cash down the balance sheet does it.

David Rosato: Just kind of curious as to how we think about the average earning asset base going forward. Does the cash stay on the balance sheet? Does it, you know, will there be an outflow of deposits that have to be used to fund that? Or, you know, would it be reinvested in securities? Just kind of, you know, you guys are at 3.4 billion of earning assets, just kind of what's a good target, you know, over the coming quarters? Thanks. Sure, thanks. So cash is up $130 million. I think link quarter it's just shy or right around $900 million part.

And there'll be an outflow of deposits that have to.

Speaker Change: We used to fund that or what would it be reinvest in securities just kind of.

Speaker Change: You guys just short of $3 4 billion of earning asset just kind of what's the what's a good target you know over the coming quarters. Thanks.

Speaker Change: Sure. Thanks, So cash is up $130 million I think linked quarter, it's just shy or right around $900 million.

David Rosato: So while I just said we're thinking about securities restructuring, our ALCO is also thinking about just security purchases to utilize some of that cash. So the goal is Organic loan growth, we just telegraphed we expect flat loan growth in Q4, but we're feeling better about Q5, I'm sorry not Q5, 2025 though. We're just, you know, at the beginning of our planning for 2025. The, um, we did call out the expected maturity from, um, legacy century deposit. If you recall, that's a similar deposit to what happened in Q2. Q2 is an early termination. We received a $7.8 million prepayment penalty.

Speaker Change: So why do I, just said, we're thinking about securities restructure in our Alco is also thinking about just security purchases to utilize some of that cash so.

The goal is.

Speaker Change: Organic loan growth, we just telegraphed, we expect flat loan growth in Q4.

Speaker Change: But we're feeling better about Q five im sorry, not Q five plenty twenty-five though.

Speaker Change: We're just.

Speaker Change: At the beginning of our planning for 2025.

Speaker Change: <unk>.

Speaker Change: We did call out the.

Speaker Change: The expected maturity from.

Speaker Change: Legacy century deposit if you'll recall that's a similar deposit what happened in Q2 Q2 was an early termination we received a $7 8 billion dollar pre.

Speaker Change: Prepayment penalty, we won't that won't happen in November because it's just where do we expect it to go till maturity. So a little bit of that cash will fund that plus we have we will have some seasonal deposit outflows, but not all of that we're still sitting on a very healthy cash position.

David Rosato: We won't, that won't happen in November because it's just, we expect it to go until maturity. So a little bit of that cash we'll fund that. Plus we have, we'll have some seasonal deposit outflows, but net all of that, we're still sitting on a very healthy cash position, um, that will, A, fund loan growth, B, um, probably lead to some modest additional security burden. Okay, great. That's helpful.

Speaker Change: That will.

Speaker Change: And fund loan growth B.

Speaker Change: Probably leads to some some modest additional security purchases.

Speaker Change: Got it okay. Great. That's helpful. That's all that I had for now thank you.

Damon Delmonte: That's all that I had for now.

Damon Delmonte: Thanks, James.

Speaker Change: Thanks, David statement.

Laura Hunsicker: And your next question comes from the line of Lori Hunsicker with Seaport Research. Please go ahead. Great, hi, thanks, good morning. And just to echo Mark's congratulations, yeah.

Speaker Change: And your next question comes from the line of Laurie Hunsicker with Seaport Research. Please go ahead.

Speaker Change: Hi, Thanks, good morning.

Speaker Change: And just to Echo Mark congratulations.

Speaker Change: Yeah, I'm wondering I'm wondering though if we could start with office.

Laura Hunsicker: Wonder though if we could start with office, just some specifics. So the commercial non-accruals that you give of 105 million, can you just share with us the breakdown of CRE versus CNI versus business banking, and then very specifically of that 105 million, how much is office non-performers? So Laurie, you know, we're not going to go into detail on specific non-accruals, specific categories, but what we I'm happy to talk about is and share with you is in terms of, you know, the PCD loans was largely office at Cambridge. As you can understand, given the environment and the weakening in office overall, the office was the largest category there and had significant reserves assigned against it.

Speaker Change: Specifics, though the commercial non accruals that you have.

Laurie Hunsicker: 105 million can you just share with us the breakdown of Cree versus C&I versus business banking and then very specifically of that 105 million. How much is is often not performers.

Laurie Hunsicker: Yes.

Speaker Change: So Laurie you know, we're not going to go into detail on specific non accruals specific categories, but what we I'm happy to talk about us and share with you is in terms of.

Speaker Change: The P C D loans the increase in the P. C D loans.

Speaker Change: Largely office at Cambridge.

Speaker Change: The as you can understand given the environment and the weakening in office overall.

Speaker Change: The office is the largest category there that and had significant reserves assigned against it.

Denis Sheahan: Okay, right, so... Well, so you don't have, you're not disclosing how much you have in office on performance? Am I just going to assume that your PCD commercial real estate is $204 million? plus whatever. strong legacy was, it's all awesome. About a third of the PCD loans, the $204 million, were office. And that's the category that had the most significant reserve against it. Totally, totally understand that. Just, I mean, for tracking purposes, I'm just trying to understand what the office number formers are. Okay.

Speaker Change: Okay right so.

Speaker Change: Well. So you don't have you're not disclosing how much you have in office non performers.

Speaker Change: No I'm actually going to spend that.

Speaker Change: Your your P C D commercial real estate with $204 million.

Whatever.

Speaker Change: It sound like I know it was is all opex.

Speaker Change: About a third of the P. C D loans $204 million were office and that's the category that had the most significant reserve against it.

Speaker Change: Right.

Speaker Change: Totally totally understand that just I mean for talking purposes, I'm, just trying to understand what the office non performers are.

Speaker Change: Okay.

Denis Sheahan: Or maybe we can come back to that. So, I guess, can you help me think about... Of your $178 million, the Criticized and Classified Office, how much of that is coming due here in coming quarters? And then just any color on those loans in terms of vacancy rates, how you're thinking about that?

Speaker Change: Maybe we can come back to that so.

Speaker Change: So I guess can you help me think about.

Of your 178 million the criticized and classified office how much of that is coming due here in coming quarters, and then just any color on those lines in terms of vacancy rates, how youre thinking about that.

Denis Sheahan: So, Laurie, I would start from the starting point of we closed this transaction. We had the ability to do all these fair value marks, PCD, non-PCD. And since deal announcement. there was one distressed property sale prior to the deal announcement. And then starting late in the third quarter, and then fourth quarter of last year into this year, you're starting to see more distressed sales, which translates into it's much easier to ascertain values in commercial real estate, especially in office. So we had the benefit when we went through the purchase accounting to have substantially better knowledge than when the deal was announced.

Speaker Change: So.

Speaker Change: Laurie I would start from.

From the starting point.

Speaker Change: We closed this transaction we have the ability to do all these fair value marks P. C D. Non P C D.

Speaker Change: So I'd say and since deal announcement.

Speaker Change: There was one distressed property sale prior to the deal announcement.

Speaker Change: Starting late in the third quarter, and then fourth quarter of last year into this year, you're starting to see more distress sales, which translates into <unk>.

Speaker Change: It's much easier to ascertain values.

Speaker Change: Commercial real estate, especially in the office. So we had the benefit when we went through the purchase accounting to have substantially better knowledge than when the deal was announced and the reality is office weekend over that time period commercial real estate weakened over that time period.

Denis Sheahan: And the reality is, office weakened over that time period, commercial real estate weakened over that time. and hopefully we're starting to see some signs of stabilization. is kind of our purview as we approach this. Denis called out, and I called out in our script, 8% total reserve against investor office of $900 million, very healthy reserve. So on page 22, we break out what are very small future maturities, right? $61 billion this quarter, $74 million in the next quarter. So within that $61 million, for example, there is one loan on non-accrual, but it's fully reserved for no additional loss expected.

Speaker Change: Hopefully, we're starting to see some signs of.

Speaker Change: Stabilization.

Speaker Change: So that.

Okay.

Speaker Change: It is kind of our per view as we approach this dennis called out and I called out in our script, 8% total reserve against.

Speaker Change: Investor office of $900 million very healthy reserve. So on page 22, we breakout what are very small future maturities right $61 billion this quarter $74 million in the next quarter. So.

Speaker Change: Within.

Speaker Change: That $61 million for example, there is one loan on nonaccrual, but it's fully reserved for.

Denis Sheahan: The rest of the loans are accruing. If you go through second quarter of 25 to $70 million, there's no concern about any of those loans. They're all accruing. There's no special reserves. We expect all to be paid off that maturity. So point being... our reserves at 143 basis points, though our uplink water are merger driven, and we're standing by our reserve levels. The only other point I would add is if you walk through and just think about legacy Eastern in Q3. that charge also $5 million, $6 million reserve. That portfolio has been our credit teams here have been well on top of that through this whole cycle.

Speaker Change: No additional loss expected the rest of the loans are accruing.

If you go through second quarter of $25 million to $70 million Theres no concerned about any of those loans are all accruing. There was no special reserves, we expect all to be paid off at maturity So point being.

Speaker Change: Our reserves at 143 basis points, though were up linked quarter, our ARP merger driven and we're.

Speaker Change: We're standing by our reserve levels. The only other point I would add is if you walk through and just think about legacy eastern in Q3.

Speaker Change: Net charge offs of $5 million 6 million dollar reserve.

Speaker Change: Portfolio has been our credit teams here have been well on top of that through this whole cycle I think I'll speak for myself as a newcomer here going through my first.

David Rosato: I mean, I'll speak for myself as as a newcomer here going through my first Cecil committee, my first allowance committee, and observing the teams and the process. very impressed. And that gives me, in a short period of time, an awful lot of confidence around the credit. understanding of the market, the understanding of our portfolio. You heard Denis in his comments talking about re-underwriting all of our loans. commercial loans in Q1 and Q2. Standard practice. Right. And so, and I appreciate that. I appreciate all the details you guys give in your deck. It's so helpful.

Speaker Change: So committee my first allowance committee and observing the teams in the process.

Speaker Change: Very impressed.

Speaker Change: That gives me.

Speaker Change: In a short period of time and awful lot of confidence around.

Speaker Change: The credit.

Speaker Change: Understanding of the market the understanding of our portfolio you heard Dennis and his comments talking about re.

Speaker Change: Re underwriting all of our loans.

Commercial loans.

Speaker Change: In Q1, and Q2 standard practice here.

Speaker Change: Right and so and I appreciate that I appreciate all the details you guys given your doctor. So household so sorry, just one one more often question here. So of the 61 million that is maturing next quarter I had in my notes that half of that actually plus from an eastern credit UBC itself.

David Rosato: So sorry, just one, one more office question here. So of the 61 million that is maturing next quarter, I had in my notes that half of that actually was from an Eastern credit EBC. So I guess maybe, can you just help us Help us think about that $30 million loan, and you said it's fully reserved. Any color in terms of vacancy rates? Any color in terms of, is that going to be extended or how should we be thinking about that? So it wasn't an $11 million loan, David, right? Yes. Yeah, there's one $11 million loan on non-accrual fully reserved for.

Speaker Change: Hum.

Speaker Change: I guess, maybe can you just help us.

Speaker Change: Think about that that 30 million loan and you said, it's fully reserved.

Speaker Change: Any color in terms of vacancy rates.

Speaker Change: Any color in terms of.

Speaker Change: Is that it can be extended or how should we be thinking about that.

Speaker Change: So it wasn't it.

David Rosato: $11 million, David right, Yes, yes, it does.

Speaker Change: One 111 million dollar loan on nonaccrual fully reserved for I think what you said Lori was.

Denis Sheahan: I think what you said, Laurie, was Just to clarify, some of I did not say or mean to say that all those maturities were coming from Chambridge's portfolio. It's more legacy Eastern portfolio. Right, okay, okay.

Just to clarify some of.

I did not say or mean to say that all of those maturities were coming from.

Speaker Change: Cambridge is portfolio, it's more legacy eastern port that way.

Speaker Change: Yeah.

Speaker Change: Right Okay. Okay.

Laura Hunsicker: Your net interest income and margin guide, that does include the accretion schedule you laid out in slide 8? Yes.

Speaker Change: Your your forward guide and I appreciate that you're going to refresh that in January I, just two things.

Speaker Change: Number one your your net interest income and margin guide that doesn't include <unk>.

Speaker Change: And schedule you laid out in slide eight.

Speaker Change: Yes.

David Rosato: Okay, and then tax rate, and this is sort of just a more general question, sort of as we look to next year, how should we be thinking about it? Because there's such a wild swing. In other words, there are... Are we thinking maybe you're back to the 21% that Eastern was legacy or, you know, CATC added a higher tax rate?

Speaker Change: Okay.

Speaker Change: And then tax rate and sort of just.

Speaker Change: Just a more general question on sort of as we look to next year, how should we be thinking about it because there's such a wild swing in other words there.

Speaker Change: Are we thinking maybe you're back to the 21% that you prefer and was legacy or.

Speaker Change: <unk> added a higher tax rate just any any helpful guidance you can't get there on tax rate looking forward beyond fourth quarter would be helpful.

David Rosato: Just any helpful guidance you can give there on tax rate looking forward beyond fourth quarter would be great. Yeah, I think next year is going to look basically like what we have on the page, probably 22 to 23%. Again, you know, we haven't gone through the budget, you know, taxes post merger can be a little complicated. We're still have some outstanding tax issues from years before nothing. just normal stuff, you know. It takes three years to close every tax year. So we could have some variability in Q4. but I think this 20 to 22% to 23% is probably, I'm thinking of that at least today as probably a run rate.

Speaker Change: Yeah, I I think next year is gonna look basically at like what we have on the page probably 22% to 23% again, yeah, we haven't gone through the budget.

Speaker Change: Taxes post merger can be.

Speaker Change: A little complicated.

Speaker Change: We're still.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Have some outstanding tax issues from premieres before nothing.

Speaker Change: So just normal stuff you know it takes three years to close every tax year. So.

Speaker Change: We could have some variability in Q4.

Speaker Change: But I think this 20% to 22% to 23% is probably I'm thinking of that at least today is probably a run rate.

David Rosato: for a bunch of quarters forward.

Speaker Change: For a bunch of quarters forward.

Laura Hunsicker: Thanks, David.

Speaker Change: Great. Thanks, David and then just last question. Dennis you can you help us think a little bit about M&A you've completed this deal.

Denis Sheahan: And then just last question, Denis, to you. Can you help us think a little bit about M&A? You've completed this deal. how you how you see how you see M&A and Eastern. So thanks, Laurie. So, you know, our focus is on the integration of the Cambridge merger, and even thinking back to the century merger, there's a lot of opportunity for us to capitalize on. So our primary focus is going to be on organic growth. But that said, you know, I'm We're all very, very pleased with how the team worked so well on the integration of the Cambridge merger.

That's how you how you see how do you see M&A in eastern.

Speaker Change: Thanks.

So thanks Corey so.

Speaker Change: Our focus is on the integration of the Cambridge merger and even thinking back to the century version, there's a lot of opportunity for us to capitalize on so our primary focus is going to be on organic growth.

Speaker Change: That said it.

Speaker Change: We're all very very pleased with how the team.

Speaker Change: Worked so well on the integration of the Cambridge merger, there's a lot of capability at this firm and.

Denis Sheahan: There's a lot of capability at this firm, and I'm very confident that if an opportunity were to arise, if we get a call about a merger opportunity, that this team would be able to engage on it very, very effectively. Again, our primary focus is organic growth. Great, thanks. Thank you.

Speaker Change: I'm very confident that if an opportunity were to arise if we got a call about a merger opportunity at this time, we'd be able to engage on it very very effectively but again, our primary focus is organic growth.

Speaker Change: Okay.

Great. Thanks.

Speaker Change: Okay.

Speaker Change: Thank you.

Operator: There are no further questions at this time.

Speaker Change: There are no further questions at this time I will now turn the call over to Bob reverse for closing remarks.

Bob Rivers: I will now turn the call over to Bob Rivers for closing remarks. Well, thanks, everyone, for your interest and your questions, and we look forward to sharing more with you during our next earnings call at the end of January. Until then, best wishes for a happy and healthy holiday. Thank you.

Bob Devers: Well, thanks, everyone for your interest and your questions and we look forward to sharing more with you. During our next earnings call at the end of January until then best wishes for a happy and healthy holiday season.

Speaker Change: Okay.

Thank you and this concludes today's conference call. Thank you all for participating you may now disconnect.

Operator: And this concludes today's conference call. Thank you all for participating. You may now disconnect.

Speaker Change: [noise].

Yeah.