Eastern Bankshares Inc

NASDAQ:EBC

Earnings Call Transcript 2020-Q4

[Operator]

Good morning. My name is Amy and I will be your conference operator today. I would like to welcome everyone to the Eastern Bankshares, Inc. Q4 2020 Earnings 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 known and unknown risks and uncertainties that may cause actual results or the timing of events to differ materially from those expressed or implied in such forward-looking statements.

Listeners are referred to the disclosures set forth under the caption forward-looking statements in the earnings press release as well as the risk factors and other disclosures contained in the company's recent filings with the Securities and Exchange Commission for more information about such risks and uncertainties. Any forward-looking statements made during this call represent management views and estimates only as of today, while the company may elect to update forward-looking statements at some point in the future, the company specifically disclaims any obligation to do so, even if management’s views or estimates change. And you should not rely on such statements as representing management views, as of any date subsequent to today.

During the call of the company will also discuss certain non-GAAP financial measures. For a reconciliation of such non-GAAP financial measures to the comparable GAAP measures, please refer to the Company's earnings release, which can be found at investor.easternbank.com.

Please note, this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

I'll now turn the call over to Bob Rivers, Chair and CEO.

[Bob Rivers, Chief Executive Officer and Chair]

Great. Thanks Amy. Good morning. I hope that you and your families have been doing well over the past 10.5 months. And wish you the very best for a safe and happy year ahead. Thank you for joining us for the very first earnings call in Eastern’s almost 203 year-history.

I am joined today by our Chief Administrative Officer and Chief Financial Officer, Jim Fitzgerald; as well as our Chief Credit Officer, Dan Sullivan, who will participate in the question-and-answer segment of the call.

From the beginning 2020 was destined to be one of the significant accomplishments at Eastern. As the year began, we work to build upon our long history as a mission-driven mutual bank, dedicated to our customers, committed to helping to address the social justice issues impacting our communities and providing our colleagues with a diverse, equitable, and inclusive workplace.

Our team was also focused on creating the next chapter in Eastern’s history, in initial public offering a significant undertaking under the most ordinary of circumstances. At the same time, we're continued on the completion of two additional transformative initiatives, the implementation of our new online and mobile banking platforms and the upgrade of our insurance agency management system, when the pandemic hit.

Our team is pivoted to ensure our colleagues could work safely in our branches and offices to continue to serve our customers. While also setting up secure, remote workforce for over 60% of our colleagues, who suddenly needed to work-from-home. Through all of this, we have been there for our customers, like never before. We processed an outsized number of Paycheck Protection Program loans, 8,800 loans, totally $1.1 billion, working around the clock to provide this much needed lifeline, including loans to those who are turned away from their own banks. And establishing low-interest loan programs for small businesses and consumers, while maintaining our region leading SBA loan production at the same level as the prior year. In addition, we restructured thousands of loans and in a way selected fees to help reduce the extreme financial burden borne by so many.

We have also been there for our communities in an unprecedented way. As part of our IPO, we donated 7.5 million shares, at a value of $91.3 million, to the Eastern Bank Charitable Foundation, along the foundation and the communities we serve to share in our long-term growth. Furthermore, in these times in which we are seeing the greatest and growing need in our communities, the Eastern Bank Charitable Foundation donated over $22 million in 2020, almost 90% more than our previous annual high, making more than 2000 grants to nonprofit organizations throughout our communities.

We are acutely aware that our communities are hurdling, the gaping and widening disparities in health, education and wealth, experienced most acutely by people of color and laid there by the impacts of the pandemic were tragically and hard wretchedly underscored by the very public murder of George Floyd and other black people by law enforcement. Eastern has long been committed to and recognized as a leader in diversity, equity and inclusion as highlighted in the Wall Street Journal last month.

And just yesterday, the Human Rights Campaign announced that for the eighth consecutive year Eastern was designated as one of the best places to work the LGBTQ Equality, earning a perfect score on its 2021 Corporate Equality Index.

While we are proud of the diversity equity inclusion have long been a focus for us with the support and encouragement of our diverse board, we undertook an internal review and now better recognized that we still have much more – much work to do to achieve equity, especially within our senior and executive management ranks. We continue to build upon our past efforts as we introduce a more robust and intentional action plan regarding talent acquisition and development, securement and philanthropy, along with tracking key metrics in order to drive increased transparency and greater accountability toward improved results in these areas.

2020 was also a story of growth for Eastern. Our balance sheet expanded by the largest amount in our history, driven by PPP loan originations, strong deposit growth, and the capital raised through the offering. We also had a strong year in sales overall, highlighted by our highest residential mortgage production in many years. We also completed two insurance agency acquisitions and successfully helped incubate a new fintech company, Eastern Labs.

Despite the current challenging market conditions, we remain very optimistic and excited about Eastern’s future. Armed with $1.7 billion from our capital raise, we believe that we are positioned better than ever before to undertake bank acquisition opportunities in our region, supplementing our solid organic growth. We expect that this will allow us to scale the size of our company at a more rapid rate than in the past, providing the bandwidth and resources to better serve our customers and better compete against the larger banks in our region, while increasing our position in the greater Boston market over time.

In the interim, we are focused on elevating our earnings performance and realize improving our efficiency ratio, we like to be a key component in doing that. As we have transitioned to a public company over the last year, we have taken a number of steps to reduce our expenses and recognize the challenging revenue environment driven by lower interest rates and the pandemic, or require us to do more in 2021.

That said, we believe that the ownership of Eastern stock by nearly all of our 1,900 employees through our new employee stock ownership plan, as well as their own purchases in their 401(k) or directly, fosters an increased alignment with and focus on our financial performance, including expense management.

Eastern's many accomplishments in 2020, and in prior years are a testament to the talent and commitment of all of our colleagues, especially those working in our bank and insurance offices in customer facing positions, and those continuing to work onsite in other critical areas, as well as the support and guidance of our Board, our community partners and our over 600,000 customers, who made these results possible. Once again, thank you for your interest in Eastern.

And with that, I'll turn it over to Jim for an in-depth review of our financial performance.

[Jim Fitzgerald]

Thanks, Bob. And good morning to all. I want to extend a welcome to everybody on the call today and a special thank you to our new shareholders who are joining us. We're very pleased with our financial performance in the fourth quarter, our first as a publicly traded company. We recognize the combination of the IPO, the foundation contribution, lack of history as a public company, make these results more difficult to assess than they will be in the future.

We'll try and help put some information on those items during this call and encourage everyone to read our disclosures, including the non-GAAP tables at the back of the earnings release. We've tried to provide information there that we think will be useful to assess our earnings going forward.

In connection with the IPO, the company donated 7.5 million shares of stock to the Eastern Bank Charitable Foundation. This created a large one-time expense in the fourth quarter of $91.3 million and drove a net loss for the quarter $44.1 million on a GAAP basis. We had previously communicated this contribution and the related expense in both the S-1 and our third quarter 10-Q.

For this quarter in particular, we believe operating net income better demonstrates our core sustainable earnings stream compared to GAAP results. Operating net income was $31.6 million for the quarter or $0.18 per share, compared to $32.3 million, in the prior quarter. There is good detail, especially in the non-GAAP reconciliation tables and Appendix A that indicate how we derive net operating income.

We’re pleased with these results, which we believe evidenced our stable asset quality, strong performance from our fee businesses, and continued strong customer deposit growth and ample capital and liquidity. Book value and tangible book value per share finished the quarter at $18.36 and $16.34 respectively. I’m also very pleased to report the Board of Directors declared a cash dividend of $0.06 per share. The initiation of this regularly quarterly dividend is part of the company’s capital management program. We believe the company’s strong financial position and our history of generating strong cash flows will allow us to both invest in the company and return capital to shareholders.

Looking to the net interest margin, we saw a decline of 20 basis points linked quarter to 2.84% fully tax equivalent basis. This decline is due to the combined effects of the low interest rate environment, as well as our excess liquidity position resulting from our $1.7 billion capital raise and deposit levels, which were up $2.6 billion or 27% organically from the end of 2019.

As a reminder, our deposit balances at the end of the third quarter were elevated due to proceeds from the investor stock subscription orders in connection with our IPO, which were temporarily held on deposit prior to the close of the conversion and offering in mid-October. Loan growth remained challenged in this economic environment as many commercial customers remain cautious and we experienced paydowns and payoffs in certain segments.

Quarter-over-quarter total loans declined by just over $200 million or 2%, approximately half that decline were $97 million came from PPP loans primarily due to forgiveness. And we had $1 billion of PPP loans outstanding at year end. Many of our PPP customers were waiting for the simplified forgiveness instructions, which came out last week and we expect most of the PPP loans to pay off or be forgiven this year with much of the activity in the first half. We had approximately $18.5 million of deferred PPP fees, net of deferred costs yet to be recognized at year end.

Our securities portfolio grew $1 billion over the fourth quarter, as some of our excess liquidity was deployed into agency securities for incremental yield. Net interest income increased $4.9 million quarter-over-quarter to $103.6 million due to a few factors. We recognized $2 million more of PPP fees in the fourth quarter than we had in the prior quarter; $6 million compared to $4 million in the third quarter.

Commercial loan [ph] interest income for the fourth quarter included a favorable non-recurring $3.8 million adjustment. Our overall cost of deposits was three basis points in the quarter and the cost of interest-bearing deposits was six basis points. Although we’re very proud of these statistics, they don’t provide any room for reductions from this point going forward. I would like to point everyone to Appendix E of the press release and presentation, where we have provided a four quarter non-GAAP reconciliation of our core margin, which strips out the effects of PPP loans, excess cash levels, and the one-time item in Q4. We think this reconciliation provides a very useful roadmap to how we think our future net interest income and – about our future net interest income and margin.

Moving to non-interest income, we recorded $49.6 million for the quarter. Revenues from insurance, mortgage and wealth management, more important areas of support in this interest rate environment and all performed very well in Q4. On an operating basis, non-interest income was $44.0 million, unchanged from the prior quarter as outlined in Appendix B in the press release. Our non-interest expense, as previously mentioned, included a $91.3 million expense from the donation of stock to our charitable foundation.

As disclosed in the S-1 and prior 10-Q, we convert our defined benefit pension plan to a cash balance plan in Q4. This created a modest reduction expense in Q4, and we’ll reduce our pension costs in 2021 and going forward. The company also created an employee stock ownership plan at the time of its conversion. And we incurred $2.4 million of related expense in Q4. For both non-interest income and non-interest expense, Appendix B in the press release provides five quarters of operating results, which we think provides a very useful roadmap for those items.

Switching gears, we currently view our asset quality as stable and better than we would have anticipated earlier in 2020 at the onset of the pandemic. Our provision for the quarter was $900,000 in line with the prior quarter. And the allowance stands at $113 million or 1.16% of total loans and 1.30% of loans excluding PPP loans. As a reminder, we expect to adopt CECL at the end of 2021 and are currently operating under the incurred loss model. Non-performing loans were $43 million at the end of the quarter, little change from the end of the Q3 and net charge-offs were $3.3 million or 15 basis points of total loans, excluding PPP loans for the quarter, which is up slightly from Q3.

COVID-19-related loan modifications fell to $333 million for the quarter, down from $701 million at the end of September, which demonstrates significant progress. Of the $333 million in modified loans remaining at the quarter end, $215 million remained under their original modification and $117.5 million had been granted more than one modification. Most of our modifications were granted for six months timeframe to allow our borrowers to work through the highly uncertain environment. We believe back at the beginning of the pandemic and still believe this six-month timeframe has been the best approach to provide our customers an opportunity to work through their challenges and for Eastern to be repaid in full.

We also continue to report a loan as modified until the terms of the modification have expired and the customers made their first subsequent loan payment, which is typically 30 days later. On a percentage basis, modification levels continue to be highest in the hotel industry where a loan balance is totaled $179 million at quarter end, a total of $90 million or approximately 51% of the total have been modified – it had been modified at year end.

In addition to the loans that have second modifications, we’ve also added some disclosures about commercial real estate loan to values. As I said earlier, our view is that our asset quality is stable and we believe we’ve made very good progress in working through the pandemic with our customers. Dan Sullivan, our Chief Credit Officer is on the call and will be available in the Q&A for any additional questions.

I’d like to add just a few additional comments before turning to your questions. As I mentioned, the tangible book value per share year end was $16.34. We realized this amount was previously hard to estimate. So, we’ve provided an equity roll forward in Appendix H that provides the component parts. I didn’t specifically call out our capital ratios, but our tangible equity to tangible assets is close to 20%.

I mentioned earlier that loan growth was challenging in Q4 with balances excluding PPP loans down 1%. We believe that our activity levels and new business both in commercial and mortgage are reasonably strong. And we certainly have been open for business throughout the pandemic. Our commercial pipeline was over $400 million at year end. And while we expect paydowns and prepayments to continue, we expect growth to return to the commercial portfolio this year at a modest pace until the vaccine and potential economic recovery take hold, which we expect to be late in the year.

Given our liquidity position, we’re looking to add more residential mortgages to the portfolio than we did in the last few years. That said prepayments in the portfolio high and we expect a very modest growth rate in 2021. We haven’t focused much on our technology or digital investments on this call or the earnings release, but we continue to be very pleased with the increased usage of our digital channels by our customers, as well as the products that we’re providing and our overall technology capabilities. We would expect to spend more time on this in the future, as it’s an important part of our story and our future.

As Bob mentioned, as a new public company, we know that we need to lower our expenses and improve our efficiency ratio. This transition will take some time, but the pension change I mentioned previously is an example of the type of changes we are expecting to undertake. As we disclosed in Appendix B, our operating non-interest expenses were between $100 million and $102 million in the third and fourth quarters. We would expect our annualized expense in 2021 to be two to three percentage points below that annualized amount. This assumes we’re in the same general operating environment we’re in today and there’s been no structural changes to our business. We expect our effective tax rate to be in the range of 22% to 23%.

This concludes my comments, and we’re very happy to take your questions.

[Operator]

Thank you. [Operator Instructions] Your first question comes from the line of Damon DelMonte with KBW. Damon, your line is open.

[Damon DelMonte, KBW]

Hey, good morning, everyone. Hope everyone’s doing well today. Thanks for taking my question. So, my first question just wanted to ask a little bit about the margin outlook and kind of the direction that you see the core margin moving over the next couple of quarters, Jim, especially as you guys become fully vested with the liquidity on the balance sheet?

[Jim Fitzgerald]

Sure. Damon, first of all, good morning. Thanks for joining us and appreciate your question. The first place I direct you is to that non-GAAP reconciliation that I referenced in my comments, really what we tried to do there was strip out PPP loans, excess liquidity, et cetera, and give you how we – what we view the margin, the core margin to be. I think going forward and I think that gives you a good baseline for the existing – our existing expectations. Obviously going forward, we see that the PPP – the deferred fees of PPP from last year’s PPP loans that I mentioned, which is $18.5 million. We do expect most of that to come in the first half of this year or certainly in 2021.

And we are incrementally investing in the securities – transferring from cash to securities at about a $350 million a month pace. I think that caution there is yields continue to be very compressed in the areas that we're investing. The reinvestment yields there are – investment yields are somewhere between 75 and 80 basis points. It feels like we're competing with the Fed quite honestly in the sectors where we're buying. So, although we do see enhancement from that, we do think it's a very tough environment. And as we've said in the past taken – we are going to take a pretty measured approach there.

[Damon DelMonte, KBW]

Got it. Okay. That's good color. Thank you. And then with respect to the – one of the last comments you made about expenses, just want to make sure I understood this correctly. So, you said third or fourth quarter $100 million to $102 million. And you said you expect about 2% to 3% below that for full year 2021. So, if you annualize that at, call it a little over $400 million kind of cut that by 2% or 3% for the full year, is that right?

[Jim Fitzgerald]

Correct.

[Damon DelMonte, KBW]

Okay, great. And then just lastly, on the dividend, nice to see that you guys established that, just wondering what your thoughts are, is that going to be something that's evaluated annually or just given the strong capital position, once you get a couple of quarters under your belt, you feel you have capacity to maybe increase that on a non-annual basis and maybe on a semi-annual basis?

[Jim Fitzgerald]

That's a conversation we'll have with our Board, Damon. So, it's a good point. I think, priorities coming into this work to get it initiated and have the payout ratio be what we think is a reasonable level. I think going forward we'll definitely review that with our Board. Nothing more to really say at this time, I think, we're still trying to get sort of our legs are under arrest [ph] as a public company. And we'll take that up with the Board at the appropriate time, but I wouldn't expect that for a couple of quarters at a minimum.

[Damon DelMonte, KBW]

Great. Thank you very much for taking my questions.

[Jim Fitzgerald]

Thanks, Damon.

[Operator]

Your next question comes from the line of Janet Lee with JPMorgan. Janet, your line is open.

[Janet Lee, JPMorgan]

Good morning, everyone. My first question I have is on capital. Obviously, some of value deployed into securities in the quarter, but you're still sitting on a ton of capital. And we know that you have aspiration to get much bigger M&As one primary way to deploy that. Can you provide us more color around some of the ideal M&A targets such as size, geography and some of the M&A thresholds you may be considering? And also, how would you describe the current bank M&A landscape in your market?

[Bob Rivers, Chief Executive Officer and Chair]

Great. Well, Janet, this is Bob, and appreciate the question. Certainly, it is you may have heard it say in the past. We're focused on acquisitions that are really in market and what we mean by that is in our current footprint or immediately adjacent we're trying to leverage the infrastructure that we have here at the company. So, we think that that's the best way to do that. In terms of size what I would say around the size of those acquisitions is certainly bigger than we've done in the past. Generally, we've been a fairly regular acquire of banks about $1 billion in assets in size. And one of the driving reasons for going public was we just did not have the capital internally generated as a mutual loan to acquire banks that were remaining of that size.

First of all, they weren't available at that size for us to acquire. So, by definition, and going public, we're looking at acquisitions greater than that size how much greater remains to be seen, but that's certainly what we're focused on we have from a bank perspective. We're also looking at insurance agency acquisitions. We just did two this past year as we reported and as you've seen that's a regular pattern for us has been for many years, that'll continue. We have a nice pipeline of potential deals in that space. They're not significant capital spend. As you know, it's a pretty sizable agency, what we have already. But again, that will be supplementary to it.

In terms of the acquisition landscape here, again, we're just waiting to see what opportunities may yield. I think many of us in the market are looking for recovery in the banking sector at this point. So not anticipating any immediate opportunities near term, but nonetheless certainly have made it known generally and through calls like this that we're interested in potential partnership opportunities in that regard.

[Janet Lee, JPMorgan]

Right. Some of the prior acquisitions that you've done in the past, like obviously you have much more capacity with your capital like is MOE something that you would even consider?

[Bob Rivers, Chief Executive Officer and Chair]

Certainly not at this particular point in time and certainly don't see any opportunities in that regard that we could undertake anyway.

[Janet Lee, JPMorgan]

Got it.

[Jim Fitzgerald]

Janet, it's Jim. I just want to add as a reminder for those – there was a three-year restriction on selling Eastern as part of the conversion. So, on a technical basis, the MOA question doesn't quite apply to Eastern at this time.

[Janet Lee, JPMorgan]

Got it. Another question maybe for Bob. So, you've donated a $91 million upfront and stopped donation. So, I believe that you're going to stop donating around 10% of your annual income to the charity that you've done in the past. I know that this upfront donation is obviously very significant probably larger than what you would have donated for the next few years combined. But when you combine that with Eastern now becoming a public company, what's your strategy and plan maybe to maintain that key competitive advantage of your franchise. That's really known for outspoken advocacy and philanthropy, which has been core to your high-quality deposit franchise and brand distinction.

[Bob Rivers, Chief Executive Officer and Chair]

Sure. Well, we think the distribution that we've made into the foundation as a result of the offering put this at a much higher level than we would have been able to do on our own. And it was something that our Board was very sensitive to and something that we made sure that this initial contribution, this contribution from the offering would essentially exceed anything that we could do in the future. For example, if we had continued to donate 10% of our net income to charity, and a big part of that was a contribution to the foundation. We would not have been anywhere near the levels for as long as we could see in the foundation. We've already elevated the foundation to a level that we could never get to certainly many, many – for many, many years over time.

So, we think we've started the foundation with the resources to support our community engagement efforts at a much higher level really indefinitely. And most of the grants that we've had come out to the marketplace are really a distribution from the foundation. We distributed at least 5% of the assets of the foundation in the form of grants every year. Obviously, those total assets are much higher than they were before.

So really that primary fuel for community grants again, has been insured regardless of how much we may continue to contribute to the foundation in the future, which will be a lot lower. A lot of our 10% of net income to charity about $2.5 million or so every year comes in the form of sponsorships to non-profit organizations. Those are always expensed in current year. Those we plan to continue in that basis, but really contributions to the foundation will be much more muted than they were in the past really very, very low again, because of this contribution that we've just made through the foundation. So, in short, we'll be able to continue to be the same sort of advocate that we've been in the past and I would argue even brighter.

[Janet Lee, JPMorgan]

Right, right. That makes sense. And if I can squeeze just one more question. So, besides the pension change, do you have any other efficiency initiatives you're planning to execute to maybe eventually come down closer to the pure level on the efficiency ratio? And maybe if you can talk about sort of a level of efficiency ratio that you're targeting as you look out into 2021? Thanks.

[Jim Fitzgerald]

Sure. Janet, it's Jim, I'm just going to jump in on that one. I think a few things we – what we've tried to say very clearly as we understand that we need to lower our expenses over time. We've got a very successful company here, and we're going to do that in a very appropriate way. It is going to take some time. We are looking at a number of things and have been. Nothing to report at this point. It's very difficult for us to talk much more than that, but we're very conscious of it. And I think, as I said, I think, the pension plan was really something we had started a while ago and it was a step in that direction. There will be more actions over time.

One last technical thing just wanted to make sure there wasn't a misconception to a charitable contribution that Bob mentioned in his remarks a second ago, would be included in the expense guidance I gave earlier. We, those would have been factored into the numbers I gave you.

[Operator]

Your next question comes from the line of Laurie Hunsicker with Compass Point. Laurie, your line is open.

[Laurie Hunsicker, Compass Point]

Hi, thanks. Good morning. Very exciting time. I just want to say congratulations and really appreciate the details in the deck and the earnings release.

And if we could just stay on expenses, I appreciate the guide there. As we look further out into 2022, assuming that a year from now your benefit plan is in place. So that's maybe round numbers adding $20 million annually. Jim, can you help us think a little bit about how you potentially mitigate that expense or how we should think about modeling that in? Thanks.

[Jim Fitzgerald]

Sure. Laura here is what I would say on that. And just you are – you know a lot here. I'm just going to give a little bit of background for those who may not have the benefit of your experience. The benefit plans need shareholder approval. We would anticipate doing that probably very late this year. And you won't see – and you would start to see the expense in 2022.

I think what we would say on that is we're – it's something we're working through. We understand the need to look at our total compensation and figure out what the appropriate levels are that's Eastern management and our Board. We're very up to doing that, very eager to take that on. Really don't anticipate studying that – we're studying that more, but it's really the second half of this year. As we get closer, we’ll give more commentary on that, I’ll give you our views on that. At this point, it's hard to say anything other than we see it coming, we know what we need to do, and we're in the process of studying it. And we'll report out at the appropriate time.

[Laurie Hunsicker, Compass Point]

Can you just – and maybe this is jumping ahead a little bit. But can you just comment broadly on your thoughts Bob and Jim, on branch rationalization and your approach there? We're certainly seeing regional banks across the country close branches. How are you thinking about that currently?

[Bob Rivers, Chief Executive Officer and Chair]

Yes, certainly it's something that we continue to look at. In general, we think our branch franchise is pretty efficient. And we've made a number of consolidations of branches over the past many years, in fact, at a rate that's typically higher than others in our marketplace in the past. Certainly those, the accelerated use of digital channels in the midst of the pandemic is a game changer here and it’s something that again, within that context, continue to look at our overall physical network in terms of branch size, number of branches, locations, et cetera. But at this point, don't see any major restructuring that we need to do with the branch network. Again, we think it's overall pretty efficient.

But as always and in all things, there are ways that we can continue to make improvement in that. And again, given the acceleration of digital channels, something that we're taking a much closer look at given the context with which we use to analyze the decisions in the past, continues to evolve.

[Laurie Hunsicker, Compass Point]

Okay, great. Thanks. And then just Bob wondered if you could just kind of refresh us regarding sort of a, three-pronged thinking about capital management, obviously saw you start the dividend. That’s great. Well, nine months out from a buyback. Can you just comment buyback versus M&A, buyback M&A? How you would rank buyback over M&A or under M&A? Just your thoughts around that?

[Bob Rivers, Chief Executive Officer and Chair]

Well, I mean, certainly our primary use of the capital is really a M&A. I mean, that's going to be the lever by which we're able to grow the company. That said, of course, we're mindful of a strong pricing discipline in terms of engaging in M&A. And as we look at potential M&A transactions over time, we'll continue to benchmark those metrics relative to the associated benefits of buybacks as well.

But again, we see both as critical levers as well as the implementation of our dividend policy as ways to manage capital. And again, very focused on that in that way.

[Laurie Hunsicker, Compass Point]

Okay, thanks. And then Bob, just one last question around M&A. Your approach about being protective of tangible book, how you think about a line in the sand in terms of tangible books dilution, and earn back. Any color you can give us around that? And I've realized that it’s early in the process of being public, but that certainly is a focus. Thank you.

[Bob Rivers, Chief Executive Officer and Chair]

Yes, certainly. I mean, again, we've heard a lot about this and received a lot of guidance and advice from those on this call, as well as others about how to think about that. So certainly, we appreciate those comments and something we're thinking about. We're also mindful of other metrics that are important when we do acquisitions. So, thinking about those two. And I think it will be a deal-by-deal basis as we undertake an opportunity and look at those numbers, we'll start to consider how those all work together. But nonetheless, we're particularly sensitive to tangible book value dilution as we know that many of you are. And so, something that we're quite mindful of.

But in terms of a line in the sand on that particular basis, hard to give an answer there. I guess we're going to see what happens when we finally get an opportunity and kind of work through the numbers.

[Laurie Hunsicker, Compass Point]

Right. Thanks for taking my questions.

[Operator]

Thanks. And your finial question comes from the line of Jake Civiello with Janney. Jake, your line is open.

[Jake Civiello, Janney]

Great, good morning, everyone.

[Bob Rivers, Chief Executive Officer and Chair]

Good morning, Jake.

[Jake Civiello, Janney]

I know you said in your prepared remarks that it's safe to assume that most PPP forgiveness fees will be recognized in the first half of 2021. You have an update on new PPP originations and how much you ultimately might book in round two, or if you're participating in round two?

[Jim Fitzgerald]

Actually, yes sure Jake, we may a double or triple from here. I think just at a high level, we're definitely participating in round two. We felt very good about our performance a year ago in round one, and view the PPP process as a great customer – a great thing for our customers and for Eastern.

I think the early read we've got is that activities are little – is definitely slower than last year. Coming into this we thought we would have been at a percentage basis of last year may be 50. And I think it's very, very early. It's a little bit slower than that would be my – would be my response. Dan Sullivan is with me he may add more.

[Dan Sullivan, Chief Credit Officer]

Yes, good morning. And thank you. Yes, the last year our – in spring of last year, we did approximately 8,800 loans for $1.1 billion. I think you found that in the materials. Today, this year, in this round we received 3,000 applications totaling about $350 million, right. And again, it's very early there, so we're trying not to over-interpret that, but that's what we've got to date. Again, it's very early.

[Jake Civiello, Janney]

No, I understand that. But that helps me in terms of thinking about it in terms of the starting point. So, thank you. In terms of deposits, do you have an estimate for how much of the non-interest-bearing decline in the quarter was from the conversion subscription dynamics? What I'm trying to understand is if there was core growth in non-interest-bearing in the quarter similar to what you saw in savings and interest-bearing checking?

[Dan Sullivan, Chief Credit Officer]

I don't have that right here, Jake. So, I'm not really going to be able to answer it. I think what we experienced last year and I recognize your question to which is a good one, which is it's hard because of the third quarter blip because of the conversion, we saw the heavy increase in deposits the first half of the year. We believe most of those have stuck and the transitions in and out were, because of the conversion and the subscription offering. But I don't have a specific answer to your question.

[Jake Civiello, Janney]

Okay. Maybe I'll follow-up later.

[Dan Sullivan, Chief Credit Officer]

Sure.

[Operator]

Ladies and gentlemen, this concludes today's conference call. On behalf of Eastern Bankshares thank you for your participation. You may now disconnect.