Eastern Bankshares, Inc. Q3 FY2024 earnings call

• Completed the merger with Cambridge Trust in the third quarter, integrating operations and expanding leadership. The company outperformed original merger guidance on deal charges, earnings per share accretion, and cost savings, with stronger capital due to a smaller balance sheet and rate changes.
• In Q3, GAAP net loss was $6 million due to non-recurring merger items, but operating net income was $49.7 million ($0.25 per share). Net interest margin increased 33 basis points to 2.97%. Wealth revenues more than doubled to $14.9 million.
• The dividend was increased by 9% to $0.12 per share. The balance sheet is very strong, with tangible book value per share ending the quarter at $12.17.
• Asset quality: The allowance for loan losses expanded to 1.4%, with non-performing loans increasing due to Cambridge PCD loans, particularly in office commercial real estate, but reserves are deemed appropriate for the cycle.

Post-merger, the balance sheet is extremely healthy with $25.5 billion in total assets, a tangible common equity ratio of 10.7%, and a loan-to-deposit ratio in the mid-80s. Eastern added approximately $3.9 billion in loans and $3.7 billion in deposits from Cambridge Trust. Organic loan growth in Q3 was slow, but the commercial loan pipeline stood at $438 million (up from $228 million at the end of June) with a good mix of commercial real estate, C&I, and community development lending.

• For Q4, loan balances are expected to be relatively flat. Net interest income is projected to be $175 million to $180 million, and net interest margin between 3% and 3.05%.
• Operating non-interest income is expected to be $33 million to $34 million, and operating non-interest expense between $130 million and $132 million.
• Tax rate is expected to normalize to 22% to 23% in 2025. 2025 guidance will be provided in January after the annual budget process.

• Interest rate changes could impact prepayment risk on acquired loans.
• Challenges in the office commercial real estate sector pose potential risks to loan quality.
• Uncertainties in deposit seasonality and potential deposit outflows present operational risks.

Q: Mark Fitzgibbon asked about the loan pipeline size and complexion.

A: Denis Sheahan stated the commercial loan pipeline is at $438 million (up from $228 million end of June) with a good mix of commercial real estate, C&I, and community development lending.

Q: Damon DelMonte inquired about expenses and capital.

A: David Rosato mentioned he's still learning the organization and budget cycle, but excess capital allows for buybacks and securities restructuring discussion.

Q: Laurie Hunsicker asked about office loan details.

A: David Rosato and Denis Sheahan discussed office loan reserves, maturities, and reserves being fully accounted for.