Eastern Bankshares Inc

NASDAQ:EBC

Earnings Call Analysis

Eastern Bankshares' solid quarter despite challenges, merger with Cambridge Trust

Eastern Bankshares reported GAAP net income of $26.3 million ($0.16 per share) and operating earnings of $36.5 million ($0.22 per share) for Q2 2024. Their net interest margin declined slightly to 2.64%. Notably, they completed the strategic merger with Cambridge Trust on July 12, expected to improve their net interest margin to 3% post-merger and boost ROA to over 1%. Despite a challenging credit environment, they resolved several non-performing loans, reducing NPLs from $57 million to $40 million. They also announced a 5% share repurchase program and a dividend of $0.11 per share, indicating strong liquidity with $750 million in cash.

Navigating Through Challenges

During the second quarter, Eastern Bank faced a challenging operational environment. The ongoing impact of higher interest rates has led to a modest compression of their net interest margin, which declined from 2.68% to 2.64%. This was reflected in their net interest income, which saw a slight decrease from $129.9 million in the prior quarter to $128.6 million. Despite these challenges, the management emphasized that the company is in a strong position to weather these storms due to its robust balance sheet.

Highlighting Strategic Growth through Acquisition

A significant development during this quarter was the completion of the merger with Cambridge Trust on July 12, 2024. This crucial step enhances Eastern's market position, now boasting the fourth-largest deposit market share in the Boston metropolitan area. With this merger, Eastern expects an improved net interest margin of 3% in the post-merger phase and a return on assets exceeding 1%, with tangible equity returns expected to surpass 10%. This merger is poised to be transformative for Eastern, not just in terms of market share but also in driving future profitability.

Loan and Deposit Dynamics

In the quarter, Eastern generated loan growth of $57 million, equating to a 1.6% annualized increase, aligning with previous guidance. Notably, consumer loan growth, particularly in home equity lines, showed a robust annualized growth rate of 14%. However, total deposits experienced a reduction of $129 million, primarily influenced by a $100 million early withdrawal of a legacy Century Bank deposit, which incurred a penalty of $7.8 million. Despite these fluctuations, the bank maintained stability with a strong liquidity position, holding $750 million in cash.

Asset Quality and Loan Loss Provisions

The bank has made commendable progress in managing its asset quality. The non-performing loans (NPLs) decreased significantly from $57 million to $40 million, or from 0.41% to 0.28% of total loans. This shift was attributed to the successful resolution of two problematic assets that generated net recoveries of approximately $2 million. The provision for loan losses was reported at $6.1 million, a reduction from $7.5 million in the prior quarter, showing a more stable outlook for the company’s underlying asset quality.

Guidance and Future Outlook

Looking ahead, the management has provided a robust outlook driven by the integration of the Cambridge Trust merger. They anticipate utilizing share repurchases as a capital management tool, with authorization to repurchase up to 5% of shares or approximately $200 million. Management expects a tangible book value dilution to be lower than earlier projections and earnings per share (EPS) accretion to exceed 20% based on the merger's synergies. Moreover, the wealth management sector is forecasted to generate annual revenues of $60 million, indicating healthy growth prospects.

Executive Leadership and Organizational Changes

The earnings call also introduced new leadership dynamics, with Denis Sheahan taking over as CEO and David Rosato joining as Chief Financial Officer. The management's focus is to capitalize on organic growth while ensuring a successful merger integration. The team anticipates that the benefits of the merger will start becoming evident by the fourth quarter of 2024 and throughout 2025, paving the way for a promising future trajectory for the firm.

Earnings Call Transcript 2024-Q2

[Operator]

Hello, and welcome to the Eastern Bankshares, Inc. Second Quarter 2024 Earnings Conference Call. Today's call will include forward-looking statements, including statements about Eastern's future financial and operating results, outlook, business strategies and plans as well as other opportunities and potential risks that management foresees. Such forward-looking statements reflect management's current estimates or beliefs and are subject to risks and uncertainties that 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 caption forward-looking statements in the earnings press release as well as in the Risk Factors section and other disclosure in the company's periodic filings with the Securities and Exchange Commission. Any forward-looking statements made during this call represent management's views and estimates as of today, and the company undertakes no obligation to update these statements as a result of new information or future events.

During the call, the company will also discuss both GAAP and 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 Instructions].

Thank you. I would now like to turn the call over to Bob Rivers, Executive Chair and Chair of the Board. Please go ahead.

[Robert Rivers, executive]

Thank you, Julie, and welcome, everyone, to our Second Quarter Earnings Call. With me today is Eastern's new CEO, Denis Sheahan; as well as Jim Fitzgerald, our Chief Financial Officer and Chief Administrative Officer. It's been a very busy time for us here at Eastern, and I have a number of topics to cover before turning it over to Denis and Jim. Overall, we are pleased with our second quarter results. As you know, the operating environment remained challenging in the second quarter with higher rates continuing to modestly compress our net interest margin and some continued credit challenges, particularly in the office market. We have worked our way through these challenges and maintain a fortress balance sheet to continue to be there for our customers while producing strong results. Although our overall earnings in the second quarter were lower, and we would like them to be long term.

We're pleased that we continue to meet these short-term challenges and are extremely well-positioned for the future. We are delighted to announce that we closed our merger with Cambridge Trust on July 12 and successfully converted all banking customers that we get. We are pleased overall with the customer transition and to report that we've been operating very smoothly since we opened for business on July 15 as a combined institution. This transaction completes a series of important milestones dating back to last spring with our securities repositioning in the first quarter, the sale of Eastern Insurance Group in the fourth quarter and the completion of the Cambridge merchant this month. The securities sale addressed certain challenges with the balance sheet caused by rapidly rising interest rates and resulting funding pressures.

The sale of Eastern Insurance monetized and undervalued assets for our shareholder and created a significant gain and capital increase. And the Cambridge merger provides us with a strategic position we need to continue to excel in our core markets and the earnings accretion to be a top-tier financial performer. To accomplish all of these in just 5 quarters is a testament to the strength of our underlying franchise and the talent and hard work of all of our employees. And we believe our best days are still ahead of us due to the strategic benefits of the Cambridge merger.

We now have the fourth largest deposit market share in the Boston MSA and are very close to being in the top 3. We're the largest bank-owned investment advisory in Massachusetts and #10 overall. With over $25 billion in assets, we are the largest independent bank headquartered in Boston and increasingly Boston's hometown bank marked by a local understanding, accessibility and engagement that sets us apart from larger banks headquartered in other states and in some cases, other countries. There are many things that comprise Eastern's secret sauce, starting with our people, our culture and our deep and extensive community engagement, but 1 of the most critical ingredients is that we live, work and raise our families here, just like our customers.

In addition, our partnership with Cambridge Trust is highly complementary with the strengths of the 2 organizations creating a better, stronger company than either would have been on its own. We think there is great opportunity to continue to grow in our market and the platform we've created will give us what we need to continue to be very successful in the long term. We are very excited to be continuing to use the Cambridge Trust brand for our wealth management and private banking businesses.

We are confident that with the conversion of our banking systems now completed, and the integration of our wealth management systems scheduled for later this year, the full power of the franchise will be clear beginning in the fourth quarter and throughout 2025. Although this call is focused on our results pre Cambridge, I'm very happy to share that Denis Sheahan has joined our executive team as our CEO. In addition to Denis, 3 other executives from Cambridge have joined our executive team, bringing us additional expertise in wealth management, private banking and marketing, which, coupled with the talent of our 300 new colleagues joining us from Cambridge Trust will strengthen us going forward. In addition, please join me in congratulating Quincy Miller, who officially adds Chief Operating Officer to his titles of Vice Chair and President.

At this point, I'd like to introduce Denis and turn it over to him to make a few remarks.

[Denis Sheahan, executive]

Thank you, Bob, and good morning, everyone. On behalf of the Cambridge Trust Board and myself, I'd like to thank Bob, the Eastern Board and the entire Eastern team for all their support throughout the process. As you know, mergers and conversions are a long and challenging process, and we are very happy with how successful the transition was and the attention and care we were able to collectively provide our customers. I especially want to thank my Cambridge Trust colleagues for all their hard work and effort during this time of uncertainty for all of them.

Now that we have the bank conversion completed, we all look forward to getting back on offense and focusing on growth opportunities in all business lines. and in realizing the synergies and potential of the combination, and I'm very confident we can do that. We operate in a very dynamic market, and our market position and franchise provide us great opportunities in both banking and wealth management that we look to capitalize on.

Thank you. And I'll now turn it back to you, Bob.

[Robert Rivers, executive]

Thanks, Denis. We also announced approval for a share repurchase authorization of up to 5% of our shares or $200 million. We look forward to analyzing share repurchases, along with our other capital management tools and we'll continue to look for additional opportunities to create shareholder value. David Rosato will be joining us as our Chief Financial Officer on August 1. As we mentioned on our last call, we have been planning for Jim's retirement for some time and feel very good about this transition. I know many of you know David from his time at People's United Bank and Berkshire Bank, and we are delighted he will be joining us next week.

We are looking for someone with extensive financial and M&A experience at a larger bank to help guide and assist us as we grow. David's strong track record, particularly at Peoples, which grew from $14 billion in assets to $60 billion in assets during his tenure, makes him a great fit for Eastern. We look forward to David's insights and contributions as we work our way through the Cambridge integration. As I also mentioned during our last earnings call, after working with David on the CFO transition, Jim will stay with us as a senior adviser to me, the executive team and our Board. Jim will continue to join us on our quarterly earnings calls. So please don't say goodbye to him just yet.

As I said in my opening remarks, it has been a particularly busy but successful time for us as we embark on day 10 of this next chapter, many thanks to all of our colleagues at Eastern and Cambridge Trust who have ensured such a smooth conversion of our banking systems. Although such a complex transition is never perfect with always inevitable and unexpected bumps their extensive preparation and planning combined with the patient reassuring support and guidance of our customers and each other, cause us to go as well as any of us have ever experienced. Special thanks to our branch call center and operations teams who are always on point in such transitions and who handle them with incredible poise and responsiveness and special thanks to our technology team, who not only architected such a successful systems integration but literally stood on their heads the first Friday after conversion to get us through the CrowdStrike episode with minimal disruption.

And now I'll turn it to Jim.

[James Fitzgerald, executive]

Great. Thank you, Bob, and good morning, everyone. As Bob mentioned, given the challenging environment, we're pleased with our overall results in the quarter and feel very good about our position going forward. GAAP net income in the quarter was $26.3 million, $0.16 per diluted share and operating earnings were $36.5 million or $0.22 per diluted share. The quarter had noise due to merger charges and a number of onetime items that I will go through during my comments and explain.

But first, I'll start with some highlights. As Bob mentioned, we received non-objection from our regulators for a 5% share repurchase plan as well as approval from our Board, as we mentioned through the last 2 to 3 quarters, we very much look forward to adding share repurchases to our capital management strategies. The net interest margin compressed 4 basis points in the quarter from 2.68% to 2.64% and net interest income was down $1.3 million in the quarter. We generated loan growth of $57 million in the quarter or 1.6% on an annualized basis. This was in line with our experience over the last few quarters and in line with our guidance.

Our consumer loan growth, primarily home equity lines was strong at 14% on an annualized basis. Growth in residential loans was largely offset by a modest decline in commercial loans. Deposits were generally stable in the quarter with a reduction of $129 million, although as I'll describe later, $100 million of that was from the early withdrawal of the legacy Century Bank deposit for which we collected and early withdrawal penalty. Although the credit environment remains challenging, we had a number of highlights in our asset quality in the quarter. We continue to see good velocity in the turnover of problem assets. We resolved 2 more NPLs in Q2 at slightly better values than we had expected. This caused a reduction in our nonperforming loans from $57 million to $40 million, and the value of those assets created net recoveries in the quarter.

I'll follow up with more information on the credit front later in my remarks. Overall, our balance sheet remains extremely strong. In addition to the asset quality I just mentioned, capital levels were robust with a common equity Tier 1 ratio of 18.6% and a TCE ratio of 11.7%. Our liquidity is very strong with $750 million in cash and essentially no borrowings. Our Board approved a dividend of $0.11 per share for shareholders of record on September 3 and payable on September 16, 2024. I'll move on to comments on the balance sheet. Assets were $21 billion at June 30, down by $100 million from Q1. Cash was $750 million at the end of Q2, which was up slightly from Q1. The securities portfolio was $4.5 billion, down $197 million from Q1. In addition to runoff and amortization we sold $85 million in available for sale securities that I will provide some detail on shortly.

Loans ended the quarter at $14.1 million, an increase of $57 million from Q1, consumer loan growth primarily home equity lines accounted for $51 million of the growth. As I mentioned, deposits were down $129 million in the quarter due to the early withdrawal of a legacy Century deposit contract. The withdrawal was triggered by the sale of a business and generated a penalty of $7.8 million that I will review shortly. We experienced a continuation of the deposit mix shift as demand deposits declined by approximately $150 million on an average basis and interest-bearing deposits increased by $300 million on an average basis in the quarter. Shareholders' equity increased $15 million in the quarter due to an increase in retained earnings and paid in capital. Accumulated other comprehensive income was essentially unchanged during the quarter.

Next, I'll comment on asset quality. As I mentioned, we saw a reduction in NPLs from $57 million to $40 million or from 0.41% of loans to 0.28% of loans. The reduction was primarily due to the resolution of 2 NPLs that we've discussed in the past. We did better on those resolution in terms of value than we expected and recorded recoveries of approximately $2 million. These recoveries more than offset charge-offs, creating a net recovery position for the quarter compared with net charge-offs of 21 basis points last quarter. We continue to monitor and manage the office exposure in the portfolio. We did move 1 loan into NPL status and have the collateral of that loan and the collateral of the NPL from last quarter, both being marketed for sale.

We've been pleased with the pace that our team has moved through problem loans through resolution. We expect that to continue, the recoveries this quarter were a great outcome, but not something we expect in future quarters. We also have accelerated our timing in dealing with office loan maturities, we dealt with 2 loans in the second quarter that don't have a maturity until the fourth quarter. One of the lessons learned from a few quarters ago as most borrowers have already made their decisions about the future of these properties before the maturity. We've continued to add information on both the CRE portfolio and the office portfolio in the presentation.

The CRE portfolio information is on Page 15, and the office portfolio is on Page 16. There isn't much new on the overall CRE portfolio. The multifamily portfolio continues to be a favorite asset class in our markets due to the acute housing shortage and the overall portfolio is diverse with no NPLs other than the office segment. On Page 16, we added some information on the office breakout between pure office, mixed-use and medical office and updated the criticized and classified totals. Criticized and classified office loans increased from $103 million to $116 million in the quarter. We have spent considerable time on the Cambridge loan portfolio in particular, the office segment and will record those loans at fair value during the purchase accounting process.

As we have mentioned, we competed in the same market with Cambridge Trust and know the credit and value landscape of the local office and CRE markets extremely well. Next, I'll comment on earnings. As I mentioned, GAAP net income was $26.3 million or $0.16 per diluted share and operating earnings were $36.5 million or $0.22 per diluted share. Net interest income was $128.6 million in the quarter, down from $129.9 million in the first quarter. The net interest margin was 2.64% compared to 2.68% in the prior quarter as interest-bearing liability costs increased faster than interest-earning asset yields. The provision for loan losses was $6.1 million or $1.4 million less than the $7.5 million in the first quarter.

Noninterest income included 2 onetime items. As mentioned, there was an early withdrawal of a legacy $100 million Century deposit contract, and we collected an early termination payment of $7.8 million. To partially offset the impact to liquidity and net interest income, we sold $85 million of securities from our AFS portfolio at a loss of $7.6 million. The early withdrawal penalty is included in our operating earnings, which is consistent with the treatment of early withdrawal penalties in our retail CD portfolio, which are generally much smaller amounts. The securities loss of $7.6 million is included in our nonoperating results, which is consistent with our past practices on securities gains and losses. I'll provide our views on the core run rate for earnings shortly.

The other categories that our noninterest income were in line with Q1 and the trends that we've experienced over the last few quarters. Expenses also had a number of onetime items. As we outlined in the presentation, noninterest expense was $109.9 million in the quarter and $105.3 million on an operating basis, included in the operating amount of $105.3 million with 3 items that are nonrecurring. The second FDIC special assessment was $1.9 million. We incurred $700,000 of severance and early retirement expenses and $900,000 of occupancy expenses related to our move to our new corporate headquarters, which was completed in Q2.

Excluding these items, our core expenses were $102 million in the second quarter. The tax rate also had some noise this quarter primarily in GAAP results. You may remember we had a number of fairly complicated tax events in 2023 due to the combination of the balance sheet restructure and the sale of Eastern Insurance. We trued up some of those amounts in this quarter, and they were slightly higher than what we recorded last year. Most of those tax benefits in 2023 were included as nonoperating items and that is where this increase was recorded as well. This explains the 31% tax rate on our GAAP results, but the 25% rate on our operating results. The 25% operating tax rate is higher than where we expect to see the run rate for the full year, which is 21%.

I can appreciate that there are a number of onetime items and some accounting noise in these results. When we look at the results and try to get to our core results in the quarter, we start with net interest income of $128.6 million and the provision for loan losses of $6.1 million. These items are both straightforward. For noninterest income, we exclude the early withdrawal penalty, the securities loss and the Rabbi Trust gains, which results in a total of $23.5 million. For expenses, we removed the FDIC special assessment, the severance and early retirement amount and the headquarters moving costs, which results in core noninterest expenses of $102 million.

I apply our operating tax rate for the quarter of 25% against those earnings, which results in approximately $33 million of what we consider a core level of net income. I hope that's helpful. All of the items I adjusted out are referenced in our presentation. I'll now make a few comments on our outlook. We are very excited about the closing of the Cambridge transaction on July 12. As both Bob and Denis mentioned, we're pleased with the bank conversion over the weekend of the 12 and have seen a smooth transition for customers and colleagues.

As you know, the closing of the merger is just the beginning for the financial processes that need to take place so we can ultimately provide our results and answer your questions. We are underway with the purchase accounting valuations for loans, deposits and the wealth business, and we expect them to be completed towards the end of the third quarter. In addition to the valuations themselves, the loan marks need to be added on a loan level basis to the loan system for accretion purposes. We would expect our first full report to be with our third quarter results.

That said, we can confirm the prior guidance we provided for the transaction. We liquidated the Cambridge investment portfolio and used the proceeds to pay off wholesale funding shortly after closing. We expect the post-closing merger net interest margin to be 3%, an increase from our current level of 2.64%, the return on assets to be 1% plus and a return on average tangible equity to exceed 10%. All of those metrics are meaningful improvements from where we are operating today. We expect tangible book value dilution to be less than our original projections, and the EPS accretion to exceed the 20% from the original projections. We expect the cash efficiency ratio, excluding the amortization of intangibles to be in the mid-50% range. We expect the combined wealth business to generate revenues of $60 million annually.

We're very excited about using share repurchases as part of our capital management strategy going forward. Share repurchases will be subject to market conditions and capital and liquidity conditions. As both Bob and Denis mentioned, the Cambridge transaction is transformative for Eastern, and we look forward to providing a full update next quarter. On a personal note, I'd like to thank everyone. I've enjoyed interacting with all of you and look forward to working with David Rosato in what will be a very smooth transition.

And with that, Julie, we can open up for questions.

[Operator]

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

[Mark Fitzgibbon, analyst]

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

[James Fitzgerald, executive]

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

[Mark Fitzgibbon, analyst]

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

[James Fitzgerald, executive]

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

[Mark Fitzgibbon, analyst]

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

[James Fitzgerald, executive]

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

[Mark Fitzgibbon, analyst]

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

[Robert Rivers, executive]

Well, thanks for the question, Mark. Right now, we're completely focused on the Cambridge Trust integration. I mean we've completed the banking systems conversion. As you know, we still have wealth management coming up. So certainly, for the balance of this year, our plate is very full. As we look ahead into '25, our first focus is to make sure that we will continue to execute this partnership well and really demonstrate the performance that we feel very confident in going forward. Once we get through all of that and feel like we're better positioned, and again, depending on the environment for other merger opportunities, we'll evaluate them then.

Obviously, it's a very challenging environment to do mergers for a number of reasons, and we need a significant change in the environment to make that different. With respect to wealth management acquisitions, it's not something that either of us have ever done. It's certainly a challenging space. We wouldn't rule them out per se. But Denis, you have more experience here than I do.

[Denis Sheahan, executive]

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

[Operator]

Your next question comes from Damon DelMonte from KBW.

[Damon Del Monte, analyst]

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

[James Fitzgerald, executive]

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

[Damon Del Monte, analyst]

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

[James Fitzgerald, executive]

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

[Damon Del Monte, analyst]

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

[James Fitzgerald, executive]

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

[Operator]

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

[Laura Havener Hunsicker, analyst]

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

[James Fitzgerald, executive]

Great. First of all, Laurie, always good to hear your voice. I think, Laurie, the way we would describe that is if you start with the Eastern Solo margin of, call it, 2.64%, 2.65% there's really 2 dynamics happening. We're adding the Cambridge balance sheet. And remember, we've liquidated the securities and paid off wholesale funding. So there's a nice margin pickup from that transaction. It's really 2 transactions. But if you look at them together, there's a nice margin pickup there.

So the balance sheet that we've added before purchase accounting is helpful to that. And then obviously, the purchase accounting, which we're not in a position to talk about today, we think is a nice addition as well. When you add up the 3 components, really the 4 components, right, Cambridge, Solo, Eastern Solo, Cambridge post securities transaction and then the accretion from the loans, which will give a better description at the end of next quarter, that's how you get to the 3%.

[Laura Havener Hunsicker, analyst]

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

[James Fitzgerald, executive]

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

[Laura Havener Hunsicker, analyst]

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

[James Fitzgerald, executive]

May. It happened in May.

[Laura Havener Hunsicker, analyst]

In May?

[James Fitzgerald, executive]

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

[Laura Havener Hunsicker, analyst]

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

[James Fitzgerald, executive]

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

[Laura Havener Hunsicker, analyst]

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

[James Fitzgerald, executive]

All of it.

[Laura Havener Hunsicker, analyst]

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

[Denis Sheahan, executive]

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

[Robert Rivers, executive]

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

[Operator]

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

[Robert Rivers, executive]

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

[Operator]

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