Eastern Bankshares Q4 2024 Earnings Call Transcript

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Provided by Quartr
January 24, 2025

Key Takeaways

  • The merger with Cambridge Trust closed in July 2024, making Eastern the largest commercial bank headquartered in Greater Boston and expanding its product suite, client base, and regional footprint.
  • Full-year 2024 operating net income rose 18% to $192.6 million, driven by a 10% increase in net interest income and a 12 basis-point expansion in net interest margin.
  • Period-end loans grew 29% year-over-year and deposits increased 21%, leaving the bank fully deposit-funded with an 85% loan-to-deposit ratio and minimal wholesale funding.
  • Management announced a $1.2 billion investment portfolio repositioning, accepting a $200 million after-tax loss to reinvest in higher-yielding securities and target a $0.13 accretion to operating EPS in 2025.
  • Credit costs jumped in Q4 with charge-offs at 71 basis points (primarily on acquired PCD loans), nonperforming assets rising to 0.76% of loans, and investor office CRE exposures requiring heightened monitoring and specific reserves.
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Earnings Conference Call
Eastern Bankshares Q4 2024
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Operator

Hello, and welcome to the Eastern Bancshares Inc. 4th 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 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 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 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 the non GAAP financial measures, please refer to the company's earnings press release, which can be found at investor. Easternbank.com. Please note, this event is being recorded.

Operator

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. Joining today's call are Eastern Executive Chair and Chair of the Board, Bob Rivers Chief Executive Officer, Dennis Sheehan and Chief Financial Officer, David Rosado. I'd now like to turn the call over to Bob Rivers, Executive Chair and Chair of the Board.

Robert Rivers
Robert Rivers
Executive Chairman & Chairman of Board of Directors at Eastern Bankshares

Thank you, Joelle. Good morning, everyone, and thank you for joining our Q4 earnings call. We hope your 2025 is off to a good start. As was mentioned, with me today is Eastern's CEO, Dennis Sheehan and our CFO, David Rosato. As we close out the Q4 and reflect another successful year, our most significant milestone was our merger with Cambridge Trust.

Robert Rivers
Robert Rivers
Executive Chairman & Chairman of Board of Directors at Eastern Bankshares

This combination not only solidifies our position as the largest commercial bank headquartered in Greater Boston and a leading financial institution in New England, but also allows us to deliver a broader suite of offerings to our customers, greater opportunities for our colleagues and even stronger commitment to the communities we serve. As always, I want to express my endless gratitude to our 2,200 employees for all of their tremendous work and achievement in 2024. It's the values, talent, and commitment of our team that truly sets us apart. And speaking of our people, we have a few important retirements to acknowledge. Barbara Heinemann, our Director of Consumer Banking, who has been an integral part of Eastern's growth and performance, has recently retired after 23 years of dedicated service.

Robert Rivers
Robert Rivers
Executive Chairman & Chairman of Board of Directors at Eastern Bankshares

Kim D joined Eastern as our new consumer banking director, bringing to us over 20 years of retail banking experience from Citizens Bank. We also have 2 retiring board members, Al Conley and Paul Stice, whose valued insights have guided us well, particularly over the past 5 years of extraordinary transformation at Eastern. On behalf of all of us, we wish Barbara, Paul and Paul the very best in their well deserved next chapters. I look forward to all we will achieve together in the year ahead. With that, I'll hand it over to Dennis, who will discuss our business in more detail before handing it off to David to discuss our financial results.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

Thank you, Bob. We ended the year on a strong note with our 4th quarter earnings, bringing us to full year operating net income of $192,600,000 which is 18% higher than 2023. Net interest income of $607,600,000 increased 10% from 2023, highlighted by a 12 basis point expansion in the net interest margin. Period end loans were up 29% from a year ago, benefiting from the addition of Cambridge Trust and organic growth. Our liquidity position remains strong with period end deposits up 21% year over year, essentially no wholesale funding and a loan to deposit ratio of 85%.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

We continue to strategically deploy capital during the year, repurchasing $28,400,000 worth of shares and increasing the dividend by 9%. We are now 6 months past the merger of Eastern and Cambridge, and we remain focused on continuing to capitalize on synergies, growth opportunities and overall financial performance. The improvement in the company's performance ratios, namely return on average assets and return on average tangible common equity and the outlook for continued improvement is very satisfactory. I'm pleased to report Cambridge client and talent retention continues to be strong. This success reflects the thoughtful planning and seamless integration of Eastern and Cambridge, ensuring continuity and stability and creating a strong foundation for growth.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

Our branch network is well situated in and around Boston and Southern New Hampshire, the epicenter of the Midlands economy, and provides us with direct community connection to serve consumers and businesses. This branch network combined with our talented staff has earned us the number one deposit market share among locally headquartered banks in the Boston MSA. We're hopeful that 2025 will bring renewed growth to our lending and deposit businesses, but also recognize that the overall economic and rate environment could be a headwind. We remain open for business with a highly capable team well positioned to continue to serve our customers as loan demand strengthens. In this regard, we added talent in 2024 to both commercial and industrial lending and our wealth management businesses.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

Our commercial and industrial lending capability grew by adding 4 experienced lenders, and we added 2 seasoned members to business development in the wealth management division. Looking ahead, we will continue to add growth oriented talent in Commercial Banking, Business Banking, Deposit Gathering, Private Banking and Wealth Management. Our Wealth Management and Private Banking businesses are a key segment of our longer term growth strategy. With over $8,300,000,000 in assets under management and $8,800,000,000 in assets under administration, we are the largest bank owned independent investment advisor in Massachusetts and 12th largest in the state overall. We're confident in our ability to deliver sustainable growth over time in wealth management, creating value for our clients and shareholders alike.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

To touch on the competitive landscape, there were 2 significant mergers announced in our footprint in the Q4, creating even more consolidation here in Massachusetts. We are frequently asked about our interest in further acquisitions. Our answer remains the same. We are focused on organic growth and realizing the potential of our recent combinations. However, if an appropriate merger opportunity develops, we are interested and will be disciplined.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

I have full confidence in our team's ability to execute on any acquisition opportunity. Most importantly, we remain committed to delivering on our financial objectives, and we have positive momentum as we look into the year ahead. In 2025, we'll have the full year impact of the Cambridge merger, significant financial benefits from the investment restructure we just announced and continued very robust levels of capital and liquidity that provide us with strategic and financial flexibility. David, I'll now hand it to you to review our Q4 results.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Thanks, Dennis, and good morning, everyone. Please note, we have posted a slide presentation on our website, which we encourage you to review as I will reference a number of those slides in my commentary. As a reminder, the Cambridge merger closed on July 12, providing a partial quarter impact to the Q3. Beginning with highlights on Slide 2 and the income statement on Slide 3. Our Q4 financial performance was very positive and demonstrated the enhanced earnings power of the company with the addition of Cambridge.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

GAAP net income for the Q4 was $60,800,000 or $0.30 per share. Operating net income was $68,300,000 up 37% linked quarter. On a per share basis, net operating income increased 36% to $0.34 These results were highlighted by an expanding net interest margin that increased 8 basis points in the quarter to 3.05 on an FTE basis. We are pleased with the continued improvement in returns. Operating ROA of 105 basis points increased 26 basis points linked quarter, while operating return on average tangible common equity of 11.3% was up from 8.5% in Q3.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

In addition, the operating efficiency ratio improved for the 2nd consecutive quarter to 57.2% driven by higher revenue. We continue to maintain a strong balance sheet with exceptional levels of capital and credit reserves as reflected by a year end CET1 ratio of 15.7% and allowance for loan losses of 129 basis points. We continue to move through the credit cycle with investor office loans a primary focus. As we communicated last quarter, with the closing of the Cambridge merger, we took significant credit marks through merger accounting. Though our charge offs were elevated in the quarter at 71 basis points, most of these were from PCD loans acquired from Cambridge that had specific reserves established last quarter.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Importantly, we also announced this quarter that we are executing on a $1,200,000,000 repositioning of our investment portfolio that will accelerate improvement in financial performance and is expected to be $0.13 accretive to operating EPS in 2025. More on that later. Moving to the margin on Slide 4. Net interest income increased $9,300,000 linked quarter due to improvement in the margin as well as a merger related increase in average earning assets. The margin expanded 8 basis points and is 41 basis points above the trial just 2 quarters ago.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

This demonstrates the positive financial impact of the Cambridge merger and our ability to manage funding costs lower with recent rate reductions from the Federal Reserve. Our asset yields declined 4 basis points compared to a decline in our liability costs of 17 basis points. Turning to Slide 5. Total non interest income of $37,300,000 increased $3,800,000 linked quarter. On an operating basis, total non interest income of $36,900,000 was up $4,000,000 The largest driver of the increase was our wealth business with fees of $18,000,000 up $3,100,000 linked quarter.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

However, this included a one time item of $1,200,000 in the 4th quarter. Excluding this item, wealth management fees were up $1,900,000 or 13% linked quarter. Included in other non interest income was a $9,300,000 non operating gain due to Eastern's investment in Numerated Growth Technologies, which sold to Moody's in November. As a reminder, Numerated was a FinTech startup that was originally developed within Eastern Bank and we are pleased to see this result. We leveraged this gain We leveraged this gain to execute on the sale of $116,000,000 of low yielding securities in the quarter, which had a paired non operating loss of $9,200,000 This sale will provide incremental margin benefit going forward.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

We saw a $600,000 increase in customer swap fees and a $300,000 increase in deposit service charges as we reinstated fees for the Cambridge customer base that were previously waived. On Slide 6, total non interest expense was $137,500,000 a decrease of $22,200,000 linked quarter due to lower non operating merger related costs. 4th quarter merger costs were $3,600,000 down from $27,600,000 On an operating basis, non interest expense was 133,700,000 dollars an increase of $2,900,000 driven by the partial quarter impact of Cambridge in the Q3. Moving to the balance sheet. Let's start with deposits on Slide 7.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

We saw stability in total deposits for the quarter as we balanced our excess liquidity position against deposit cost reductions. Our mix of deposits remain very favorable and improved in the quarter. Low cost checking accounts, which comprise 50 percent of the total deposit balances, increased $180,000,000 while CDs declined 209,000,000 dollars We continue to be fully deposit funded with essentially no wholesale funding. We were able to reduce deposit costs by 13 basis points to 169 basis points in the quarter. As of year end, our deposit costs were 155 basis points, demonstrating our ability to pass along the impact of Fed rate cuts to depositors.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Looking ahead, the downward repricing of our CD book will continue to support lower deposit costs. If the Fed continues to ease, we will target deposit betas similar to our experience during the most recent tightening cycle or about 45% to 50%, with modest lags relative to Fed actions while monitoring balances and competition. On Slide 8, loans were essentially flat in the quarter as new business was offset with paydowns and maturities. Consumer home equity lines were the exception with growth of $23,000,000 in the quarter. The commercial loan pipeline remained steady at approximately $400,000,000 demonstrating our commitment and ability to support both existing and new borrowers.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

As Dennis mentioned in his opening remarks, there are headwinds to loan growth in the environment, So we remain ready and able to land and we'll continue to explore new growth opportunities. We have an exceptional team of relationship managers and a deep understanding of our local communities, which differentiate Eastern within the markets we serve and positions us well to drive loan growth over time. Moving to the securities portfolio on Slide 9. We had some purchase and sale activity in the quarter that increased the portfolio yield 11 basis points to 1.95% as of year end. Later in my remarks, I'll discuss the portfolio repositioning we're undertaking in the Q1 of this year.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Turning to Slide 10, capital levels remain robust and we continue to return capital to shareholders. We purchased 908,000 shares in the quarter at an average price of $17.41 which was $0.09 below the VWAP for a total cost of $15,800,000,000 We have also repurchased an additional 761,000 shares through yesterday for a total cost of $13,100,000 and now have 8,300,000 shares remaining in our authorization that runs through the end of July. Our diluted common shares outstanding were 202,100,000 as of December 31. Additionally, our Board approved a $0.12 dividend in the Q1.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Looking at overall asset quality on Slide 11, our reserve levels remain strong as evidenced by an allowance for loan losses of $229,000,000 or 129 basis points of total loans. These metrics are down modestly linked quarter to $254,000,000 or 143 basis points, primarily due to charge off activity in the Q4. Charge offs totaled $31,700,000 or 71 basis points to average loans compared to $5,100,000 or 12 basis points in the 3rd quarter. The increase was mostly driven by investor office loans, of which approximately $20,000,000 were PCD loans acquired from Cambridge that were fully reserved at close. It is important to note that approximately 81% of the charge offs this quarter were from previously established specific reserves.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

As a reminder, with the closing of the Cambridge merger last quarter, we set aside a total of $97,000,000 on PCD and non PCD loans to provide coverage for potential future charge offs. Non performing loans increased $11,300,000 in the quarter to $136,000,000 or 76 basis points of total loans. This was driven by the move to non accrual status of 2 Eastern investor office loans, partially offset by charge off activity. Criticized and classified loans decreased $234,000,000 in the quarter to $595,000,000 or 4.9 percent of total loans. We are pleased with the reduction and great work by our credit team.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

However, as the credit environment evolves in the office space, it would not be unexpected to see quarterly fluctuations over the course of the year. Finally, we booked provision of $6,800,000 in the quarter in line with recent legacy Eastern Bank history. On Slides 1213, we provide details on total CRE and CRE investor exposures. Total commercial real estate loans were $7,100,000,000 Our exposure is largely within our local markets that we know well and is diversified by sector. Total non owner occupied CRE to risk based capital is very well contained at approximately 200%. Our largest exposure is to the multifamily sector at $2,500,000,000 dollars which is a very strong asset class here in Metro Boston due to ongoing housing shortages.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

We have no multifamily non performing loans and have had no charge offs in this portfolio in the last decade. Our focus continues to be on investor office loans, which we cover in detail on Slide 13. The investor office portfolio is $914,000,000 or 5% of our total loan book. Criticized and classified loans ended the quarter at $184,000,000 or about 20% of total investor office loans. Our reserve levels on this book declined in the quarter from 8% to 6.2% due to Q4 charge off activity.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

We continue to take a proactive approach to managing investor office exposures. Our credit teams perform thorough assessments of the portfolio on a quarterly basis and on larger lower risk rated credits, we conduct ongoing monthly reviews. This in-depth knowledge enables our credit team to make timely and decisive actions. Although we expect the credit cycle to continue to evolve, we are confident that our proactive approach allows us to deal with issues prudently but quickly and will serve us well in the quarters ahead. Moving to Slide 14, we announced a $1,200,000,000 investment portfolio repositioning to be completed this quarter.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

We are in the process of selling low yielding available for sale securities and reinvesting at current rate levels, which will improve financial performance. We have excess capital providing us with financial flexibility. We will rebuild roughly half of our CET1 capital ratio through stronger earnings by year end. The after tax non operating loss on the sale will be approximately $200,000,000 and will be fully completed by mid Q1 2025. We expect the transaction to be $0.13 accretive to operating EPS for the full year and to add approximately 10 basis points to ROA and approximately 95 basis points to return on tangible common equity.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Slide 15 highlights several factors that will provide support to our margin looking ahead. On the asset side of the balance sheet, as we just discussed, the investment portfolio repositioning will add approximately 1% to the total portfolio yield. We also have a hedge portfolio that will begin to amortize in Q3 of this year, at which point the loans will reset to market rates above the current strike rate based on the forward curve. On the liability side, we have $2,800,000,000 of CD maturities in Q1 and Q2 of this year that will reprice lower as our current highest CD offer is approximately 4%. Our interest rate risk position is essentially neutral when considering parallel shifts in the yield curve.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

However, we expect a steepening yield curve to be beneficial to our margin with a 25 basis point reduction from the Fed anticipated to add approximately $7,000,000 to net interest income on an annual basis. On Slide 16, we provide our full year outlook for 2025. We expect modest balance sheet growth due to the economic and rate environment. Loan growth for 2025 is anticipated to be 2% to 4%, deposit growth of 1% to 2% with a favorable mix shift from CDs to money markets. Based on market forwards as of year end, we anticipate net interest income to be in the range of $815,000,000 to $840,000,000 with a full year FTE margin of 3.45 to 3.55.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

While provision will be based on the evolution of credit trends, we currently expect $30,000,000 to $40,000,000 of provision expense. Operating non interest income is expected to be between $130,000,000 $140,000,000 This assumes modest client inflows, but no market appreciation. Operating non interest expense should be in the range of 5.35 dollars to $555,000,000 Finally, we expect the full year tax rate on an operating basis to be between 22% and 23%. Overall, we anticipate our 2025 financial performance, as indicated by this outlook, will drive meaningful year over year improvements in ROA, return on tangible common equity and the efficiency ratio. This concludes our comments for the quarter. And now, we'll open up the line for questions.

Operator

Thank Your first question comes from Mark Fitzgibbon with Piper Sandler. Your line is now open.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

Hey, good morning, everyone. This is Greg Zingoyan stepping in for Mark. How are you?

Robert Rivers
Robert Rivers
Executive Chairman & Chairman of Board of Directors at Eastern Bankshares

Hi, good morning, Greg.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Good morning, Greg.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

Nice to speak with you guys again. First, could you share with us the average rate of the securities you were selling as part of the repositioning and the average rate and duration of the securities you were buying?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Sure. So, if you just go back and look at our Q3 materials, the average portfolio yield was about $182,000,000 to $184,000,000 We're buying, as you can imagine, a mix of security asset classes, durations. The average yield on that on those buys, if you had to pick one number, it's about 4.75 a range between that and up to just under 5%.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

Right. And then you said the type securities were mixed?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Yes. All I mean by that is, I mean, so agency securities, there'll be a combination of CMBS providing strong lockout protection, agency mortgage backed securities in there, you'll when all is said and done, there will be a mix of 15 30 years discount bonds, again, looking for a little call protection, and then some closer to current coupons. So not unlike Greg, just a little more color there, not unlike what we're selling. It's just substantially different price levels.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

Okay.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

And if our math is correct, you're taking the $200,000,000 loss and you'll pick up roughly $35,000,000 in NII benefit per year. So is that roughly a 5.7 year earn back?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Yes. The earn back is longer than what you might see from some other banks that have done similar transactions. The earn back is really driven by the securities you're selling. The situation at Eastern happens to be, we became a public company 4 years ago, raised a lot of capital. That capital or a majority of that capital was put into investment portfolio securities, which at the time, the very low in interest rates.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

That's why that portfolio yields, as I said, in the mid 180s pre restructuring. So that's what we have to sell. It's an incredibly homogeneous portfolio put on at one price level, essentially. So the math doesn't work any other way than when you sell those longer duration securities with a loss of, call it, 15% to 18% depending on the individual bonds, you're not going to be able to achieve, for example, a 3 year payback. The math just is impossible. So your calculation is correct.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

Okay. Thank you. And then the last question

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

I have for you on those 2 Eastern Investor Office loans. Could you share with us the loan size of each, current occupancy and if there are any specific reserves against these credits at quarter end?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

We'll share some of that information. This is legacy Eastern loans that were essentially long time. We've been ahead of these loans for a long time. They had high level of specific reserves and there's really nothing more that needs to be said about them. They were identified reserved for charged off.

Gregory Zingone
Gregory Zingone
Research Analyst at Piper Sandler Companies

Okay. Thank you.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

You're welcome, Troy.

Operator

Your next question comes from Damon DelMonte with KBW. Your line is now open.

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

Hey, good morning guys. Thanks for taking my questions. Hope everybody is doing well today. So first question on the margin as we try to model this out on a quarterly basis going forward, David. Since this is taking place, the restructuring is taking place here midway through the Q1, do you expect to kind of split the benefit from the restructuring on the margin in the Q1?

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

So maybe 9 basis points of benefit here in the Q1 and then get the full run rate going into the Q2? Is that a good way to look at it?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Yes. I mean, we were specifically using mid-1st quarter. So take it literally. It's a lot of securities and the selling is easier than the buying, right? We want to make sure we're looking for and are repurchasing the security structure we want.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

So, we're announcing it today. Our Board recently approved the transaction. We're starting to execute on it. We're giving ourselves a couple of weeks to complete execution. So yes, so the first half, January and half of February, will run a lower margin impact than the back half of the quarter.

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it. Okay. And then the guidance for the full year of $3.45 to $3.55 how should we think about kind of an exiting margin in the Q4?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Tell me your rate forecast, right? That's a big driver. I think the more important issue there, Damon, so 3.45 to 3.55, it's and we're also calling out, to parallel changes in the yield curve were basically interest rate neutral. The yield curve is steepening and it's basically upward sloping. That's why we called out the benefit to 25 basis points on the short end.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

That's $7,000,000 just as a reminder is annualized by 2025, depending when that might if and when that might happen. The over the course of the quarters, there's with no change in rates, there is incremental improvement as the year goes on. That has to do with forgetting the Q1 and the timing of the securities repositioning, right, halfway through, it has to do with in Q1 and Q2, 80% of our CD book is going to roll and it's going to reprice slower. So that's number 1. Number 2 is the we called out the hedges that are starting to come off, right?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

That starts in July. So that's more of a back half issue. And then just the core business of the bank that with no change in rates and that growth of money markets and DDA accounts relative to our loan growth modest as it is creates a little bit more positive margin.

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it.

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

Okay. That's helpful. Thank you. And then it's kind of like two thoughts here. Number 1, as you look at the deal that was announced in December between Brookline and Berkshire Hills and potential market disruption and opportunities to take some market share there and you look at your loan growth outlook of 2% to 4%, I mean, do you think that there's opportunities from the disruption that could lead to the higher end of the growth outlook?

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

Or do you just feel that the underlying conditions would only support a 2% to 4% type of loan growth for the year?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

So, we are hopeful that we'll be able to capitalize on market disruption. There was the transaction you just referenced in our market and then there was an earlier transaction that's more in the northern part of our market. The so but that opportunity, as hopeful as we are, is not embedded in the 2% to 4% guide. So we would hope that there's incremental benefit over the course of the year, but we're not including it in our outlook.

Damon Delmonte
Managing Director at Keefe, Bruyette & Woods (KBW)

Got it. Okay, great. Appreciate that. That's all that I had for now. Thank you very much.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Thanks,

Operator

Your next question comes from Laurie Hunsicker with Seaport Research Partners. Your line is now open.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Yes. Hi, Bob, Dennis and David, good morning. Just going back to the margin, can you share with us, David, where the spot margin was for December?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Sure, Laurie. Good morning. So the spot margin in December was 3.13%.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

You can write that number down, but I would tell you a better number to work off of is probably $308,000,000 We just there was a one there was a little extra accretion income in the month that drove the margin up a touch. Normalized, I'd call it a $308,000,000

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Okay, great. And then you mentioned the buybacks that you had done and I just didn't actually get the share count since the quarter end. What was that number?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

So we called out the yes, we called out ending share count of $202,100,000 And then I'm not sure if you caught it, but we also wanted to share what we've done this quarter to date. So in this quarter, we bought 761,000 shares.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Yes. Okay. Got it. Yes, that was in your question. I thought you sorry, I missed it.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

I thought you had called out what you had done in January. Okay. And then just going back over Hey,

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Laurie, that's $7.61 is what we did in January.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Is what you did. Okay. Yes. Okay. Got it.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

Yes. So, I if you say Q4 or say Q4, then January.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Yes. So, just to be clear, we bought $908,000 in Q4 and we additionally bought $76,000 in January.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Right, at $13,100,000 Okay, great. Thank you. Okay. And then, just going back over to office and I really appreciate all the extra details that you put in Slide 13. I love how you've laid it out, super helpful.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Just a couple of things. So the charge offs that you had, just the commercial real estate charge offs of $31,000,000 how much of that was actually office this quarter?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Yes, essentially all of that. The non office was just under $1,000,000

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Okay. And then can you share with us a little bit about the office charges? In other words, those are some big haircuts, which certainly is not different than what we've seen other banks taking, but just to have some data points. Do you have any details that you can share?

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

I mean, I think, Maureen, I think that's the answer to the question. It's not much different than others are experiencing. It's just it's the nature of the market. It's when you're assessing these properties, you're looking at ultimately one's ability to exit. And so we're making significant haircuts on them that we think is appropriate.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Okay. Just didn't know if you had anything to share. Okay. The $184,000,000 that you have that is listed as office criticized and classified, how much of that is coming due in 2025?

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

So we've laid out the maturity. We don't have that number in front of us, Laurie. We can perhaps put that in a future presentation, but we've laid out the maturity of the non performing loans here over 2025 that you see on Slide 13.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Right. Yes, I see that. So just $3,000,000 but I just didn't know if anything was potentially going to be stressed. In other words, when you look to, for example, 2Q, the $67,000,000 at all accruing, Are the vacancy rates there at the accruing properties running where you want them to be? Or how do you think about that?

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

Well, if they were stressed, we'd be looking at possibly placing those loans on non accrual. So our team, as you know, as we referenced before, it is a very thorough review of our investor office portfolio on a constant basis. And as of year end, we felt it was appropriate to keep those loans that are maturing to keep them accruing. If there was a stress point there, we would be looking to put them on non accrual.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

Just a little more color. So if you look at Q1, right, there's 3 loans maturing on that page. 1 is a non accrual. It will be, it's completely reserved for, it'll be resolved this quarter or next. All the other loans are accruing, no concerns on our part.

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

If you look at, the second quarter, every one of those loans is accruing. We don't think there's an issue at all on any of those loans.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Perfect. Super helpful. Okay. And then just going over to your merger charges, the one time charges with CACC, are those now wrapped? Or can you just remind us what we should expect there?

David Rosato
David Rosato
CFO & Treasurer at Eastern Bankshares

It's a wrap. Yes. So we're through Cambridge. We're yes, we're through Cambridge merger charges and it was only $3,500,000 in the quarter in Q4.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Yes, perfect. Okay. Great. Okay. And then last question, Dennis and Bob, as you're talking about 2 significant mergers in the 4th quarter, obviously, right in your market, Brooklyn Berkshire Hills that was referenced, the INDB acquisition that they did.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

I guess your tone a little bit, I just want to understand this. I realize you're focused on organic growth. However, you said however, right? So help us think a little bit about suddenly now 2 banks have jumped and they're exactly your same size. Does that put pressure on you?

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Like maybe just expand a little bit on the however, how you're looking at that? And if you were to see a deal, what's the sweet spot acquisition wise where it would make sense for you to really take a look at that? Thanks.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

So no, we don't feel pressure. Our focus is on maximizing the benefit of the recent combinations that we've entered into both the Cambridge Trust merger, the Century Bank merger, those are both very important opportunities for us to capitalize on and we've got a lot of work to do there. So we don't feel pressure to engage in mergers. However, from time to time, organizations decide that they want to sell and we're confident that if they did decide to sell that we'd like we'd get a call and we'd consider that in a disciplined manner, whether or not we would want to engage. So it's just it's a consolidating market as you know, Laurie.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

We have a capability, we have a skill set. We have an attractive currency and attractive organization to partner with. So, I put it in that characterization rather than saying that we sort of feel any pressure to do mergers.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Okay. And then just one last question. How small is too small, how big would you consider going as you sort of think about that band? Thanks.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

So, we'd never want to rule out anything. Depends on the opportunity and the financial circumstances of a particular opportunity. I mean, clearly, the effort that's required, whether it's a $1,000,000,000 bank or a $5,000,000,000 bank or a $10,000,000,000 bank is generally the same. So you have to weigh that very carefully. But as you know, when you think about our organization, there may be, even with a smaller institution, there may be holes that we may want to fill.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

That's how we might think about it. But you have to weigh that against the effort, the distraction, etcetera, that happens, whether it's a $1,000,000,000 bank or a $10,000,000,000 bank. So I'm not going to rule out anything.

Laurie Hunsicker
Senior Equity Research Analyst at Seaport Research Partners

Okay, great. Thanks for taking my questions.

Denis Sheahan
Denis Sheahan
CEO at Eastern Bankshares

Sure. You're welcome.

Operator

There are no further questions at this time. I will now turn the call over to management for closing remarks.

Robert Rivers
Robert Rivers
Executive Chairman & Chairman of Board of Directors at Eastern Bankshares

Great. Well, thank you again for your interest in Eastern and for your questions this morning. We look forward to talking with you again in the spring.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Executives
    • Robert Rivers
      Robert Rivers
      Executive Chairman & Chairman of Board of Directors
    • Denis Sheahan
      Denis Sheahan
      CEO
    • David Rosato
      David Rosato
      CFO & Treasurer
Analysts
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