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Eastern Bankshares, Inc. (EBC -0.07%)
Q3 2021 Earnings Call
Oct 29, 2021, 9:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Hello, and welcome to the Eastern Bankshares, Inc. third quarter 2021 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, including expanding merger with Century Bancorp Inc., 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 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 the risks and uncertainties. Any forward-looking statements made during this call represent management's 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 the management's views or estimates change, and you should not rely on such statements as representing management's views as of any date subsequent to today. During the call, the company will also discuss certain non-GAAP financial measures.

For a reconciliation of such non-GAAP financial measures to the comparable GAAP figures, please refer to the company's earnings press release, which can be found at investor.easternbank.com. Please note that this event is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

[Operator instructions] Thank you. I would now like to turn the call over to Bob Rivers, chair and CEO. Please go ahead, sir.

Bob Rivers -- Chairman and Chief Executive Officer

Thank you, Patricia, and good morning, everyone. With me today is Jim Fitzgerald, our chief administrative officer and chief financial officer, and we're pleased to be with you today to provide another quarterly update. Two weeks ago, we marked the one-year anniversary since Eastern's IPO, which we undertook to provide additional resources to grow our customer offerings, accelerate new business opportunities and better serve our customers and communities. A year later, we believe that we are delivering on our commitments in a number of ways and are now just two weeks away from closing on the largest acquisition in Eastern's history.

A few recent accomplishments that make us especially proud include we were once again named by the U.S. Small Business Administration as the No. 1 lender for SBA 7(a) and 504 loans in Massachusetts for the 13th consecutive year. In the area of AI and advanced analytics, we were recognized as a winner of the 2021 Impact Innovation Award in cash management and payments by Aite-Novarica Group a global advisory firm to the financial services industry for our partnership with Signal Financial Technologies to build Monit, a digital financial assistant for small business owners.

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The 2021 Finovate of awards also recognized Eastern as a finalist for its best small business banking solution award for offering quality products and an exceptional digital experience to small and medium businesses. In addition, MarCom, an international organization that honors the best creative storytelling and marketing recognized Eastern's Join Us for Good advertising campaign with three awards for strategic communications, video, and print media. And finally, we were ranked by Boston Business Journal as the fifth largest -- the fifth most charitable company in Massachusetts, our fifth consecutive year in the top 10. A few weeks ago, Jim and I were joined by the rest of the executive management team and our board of directors at our annual strategic planning retreat, a time to reflect on the successes and learnings of the past year, but more importantly, to plan for the future.

Our president, Quincy Miller, outline plans for the future of our commercial and small business banking businesses in which we have a long track record of success and continues to represent our greatest opportunity for strategic growth. We discussed ways to prudently expand these businesses and talked about the importance of doubling down on investments in technology and people. We also discussed our long-standing commitment to diversity, equity, and inclusion and through the continued advancement of our road to equity plan, which reflects our greater intentionality in advancing DE&I in a number of areas, including talent acquisition, retention, and development with a particular focus upon driving a greater representation of women and people of color on our board, within our executive and senior management ranks and our procurement practices. I think we can all agree that some things never change.

We're in a people-driven business and relationships matter more than ever before. But we're also in a constant state of evolution. And we're keenly focused on continuing to ensure we have the talent and technology to compete effectively and continue to build upon our position as the leading community bank in the Greater Boston market. And we have had and continue to have great leaders to get us there.

Jan Miller, Eastern's Chief Commercial Banking Officer, who joined us as part of Eastern's acquisition of Wainwright Bank & Trust Company in 2010, has announced his plans to retire at the end of this year. Under Jan's leadership, Eastern's commercial banking team has continually generated record results and developed significant management depth in order to sustain and build upon this recognized strength in our markets. Jan is an exceptional leader and banker and many of the community development lending and philanthropic programs developed under his leadership at Wainwright, flourish at Eastern today. Words cannot express our gratitude to Jan for his tremendous impact and many contributions.

As part of our ongoing succession planning, two years ago, senior commercial banking officers, Greg Buscone and Matthew Osborne, were promoted to executive vice president. And since July of this year, Greg and Matthew have reported directly to our President Quincy Miller. They will continue to serve in these roles upon Jan's retirement and shall formally assume shared responsibility for the commercial banking business. We expect this transition will be smooth, which is a testimony to the strong leadership of Jan, Greg, and Matthew.

And I am pleased to report that Jan will continue to serve as a member of our board of advisors. Likewise, at Eastern Insurance, President and CEO John Koegel will be transitioning to a consultant role to the business at the end of this year and will focus on cultivating potential agency acquisition opportunities as he moves toward retirement in the next few years. As a member of the executive management team of Allied American Insurance, John joined Eastern as part of our initial foray into the insurance brokerage business in 2002. Under John's leadership, Eastern Insurance completed 34 insurance agency acquisitions becoming the second-largest insurance broker in Massachusetts and the 30th largest property and casualty agency in the United States.

Effective January 1, 2022, Executive Vice President Tim Lodge will be promoted to president and CEO of Eastern Insurance. Tim has been an integral member of the Eastern Insurance Group executive leadership team over the past two years overseeing our Commercial Lines division in addition to serving as the lead sponsor of a multiyear project to migrate operations to a new agency management system. Tim's knowledge, industry experience, and strong relationships, both internally with our colleagues and externally with our customers and our community partners, position him exceptionally well to lead this business. We congratulate him on this well-deserved promotion and look forward to his leadership in this new role while continuing to benefit from John's expertise in executing Eastern Insurance's acquisition strategy.

Transitioning to the capital front, I'm very pleased to announce our plans to establish a corporate share repurchase program, which has been approved by our board and remains subject to regulatory nonobjection. This program is expected to be another tool in our toolbox that enables us to demonstrate our commitment to delivering shareholder value. I'd also like to provide a brief update on our pending merger with Century Bank, which is just two weeks away. Thinking back to our inaugural earnings call in January, I spoke about our exciting future and how the capital raised in our IPO would make us better positioned than ever before to undertake bank acquisitions in our region supplementing our organic growth.

With the Century merger now at our doorstep, I'm fully confident that our partnership will provide the scale and resources to better serve our customers and more effectively compete against the larger banks in our region while continuing to increase our position in the greater Boston market over time. Our efforts to onboard and integrate Century's customers are already well underway. We look forward to serving these new customers, and we'll make every effort to earn their trust and provide them with a great level of service they've come to expect. Thanks to the hard work and dedication of our teams at Eastern and Century, our merger and conversion remains on schedule for mid-November.

We are especially proud of the commitment that employees at both banks have demonstrated to our customers and our colleagues, and we thank them for their extraordinary efforts as our two organizations combined to become one. Regarding our third quarter performance, we had another successful and very profitable quarter. I'm excited to report that after seeing signs of revitalization earlier in the year, the third quarter saw a return to strong core commercial loan growth. Excluding the impact of PPP loans, commercial loans increased 9% in the third quarter on an annualized basis, up from a 5% annualized growth last quarter.

Our loan pipeline has continued to build, and asset quality trends have remained strong. I also wanted to say a few words about the Eastern Bank Foundation's activities in the quarter. As a reminder, the Eastern Bank Foundation is the philanthropic arm of Eastern. The foundation is led by its president and CEO, Nancy Huntington Stager, and is governed by a board of trustees, which includes myself, several directors of Eastern, and several community leaders.

Recent activities include to address the inequities in vaccination experienced in communities of color, especially within the gateway cities of Massachusetts and New Hampshire, the foundation collaborated with local community partners and invested $2 million to support culturally inclusive outreach and access to vaccines. The foundation's investments in the community, including those focused on racial justice and economic inclusion and mobility, led to it being recognized by the Commonwealth Institute as a top women-led organization in Massachusetts. In addition, Foundation President and CEO Nancy Stager was recognized among the Boston Business Journal's Annual Power 50 of most influential Bostonian's, an honor proudly shared with several members of Eastern Bank's advisory boards, our many community partners in this work, as well as with Glynn Lloyd, executive director of the Foundation for Business Equity, another foundation, which Eastern launched four years ago to address the wealth gap by supporting the growth of businesses of color. This is truly an exciting time at Eastern, and I'm so grateful and honored to be sharing it with our exceptional team of colleagues, whether serving as a trusted advisor to our customers, innovating to continually enhance our customer experience and our workplace, giving back to the community or simply being there for one another.

Their commitment to Eastern and all that we do is extraordinary, and I cannot thank them enough for their contributions. Their accomplishments are even more impressive given that 60% of our colleagues are contributing while working remotely from home with the other 40% of our colleagues working on-site in our branches, insurance offices, and other critical roles. We are continually evaluating our future of work environment, incorporating feedback from our employees, and expect to formalize our plan next year. Once again, we 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 -- Chief Administrative Officer and Chief Financial Officer

Thanks, Bob, and good morning, everyone. As Bob mentioned, we're very pleased with our third quarter results and look forward to closing the Century merger as expected on November 12. As we communicated, we have received all of our regulatory approvals back in September. We are converting Century to Eastern systems over the weekend of the closing and look forward to adding the former Century customers and our new colleagues at that time.

I'll have more comments on both the impact to Century and our outlook later in this presentation. GAAP net income was $37.1 million for the quarter or $0.22 per share. Operating net income was $37.4 million or $0.22 per share as well. Although the nonoperating items were relatively small in the third quarter, we would encourage everyone to review the reconciliation of non-GAAP earnings in Appendix A of the press release and the earnings presentation to see the adjustments.

Our board of directors approved a quarterly dividend of $0.08 per share payable on December 15 and approved a share repurchase program to repurchase up to 5% of outstanding shares. The program remains subject to nonobjection from the Federal Reserve, which we have applied for, but have not yet received. Book value at September 30 was $18.36 per share and tangible book value was $16.33 per share. Both of these were very similar to the values at June 30 as growth in retained earnings was offset by a reduction and other comprehensive income due to the reduction in the market value of the securities portfolio.

I'll start with some comments on the balance sheet. As Bob mentioned and we covered in the press release, we experienced strong growth in our core loans in the quarter. Excluding PPP loans, both residential and commercial loan growth was 9% on an annualized basis and overall loan growth was 8%. Commercial growth was strong in both C&I and commercial real estate.

Although we expect to see continued strong growth in commercial loans, the 9% growth in the third quarter is slightly higher than what we expect over the longer term. We also continued to anticipate strong origination activity from our mortgage group, although we expect that our balance sheet growth rate will reduce over time as the portfolio increases in size. We also had another strong quarter for deposit growth, which was $400 million or 12% on an annualized basis. Although this growth adds to our liquidity challenges in the short run, we're confident it will add value over the long term.

The asset quality picture remains to be strong as net charge-offs were 3 basis points and the reserve coverage ratio to nonperforming loans of 246% remains very comfortable. Our COVID-19 modifications continue to reduce and ended the quarter at $111 million, down from $150 million at June 30. We continue to work with customers with modified loans. We are generally comfortable that this group of customers has made significant progress and that the terms of their modifications are appropriate.

Although I won't go into details, our capital ratios remain very strong, and we believe our overall capital and liquidity position will provide us with an ability to continue to look at strategic growth opportunities in the future. I'll now focus on earnings for the third quarter. While net interest income was $102.7 million in the third quarter, net interest income on a fully tax-equivalent basis was $104 million or $1.9 million less than the second quarter. The reduction was driven by lower PPP fee income of $5.9 million, down $3.3 million from the second quarter total of $9.3 million.

During the third quarter, the average securities portfolio grew $900 million from the second quarter, which added $1.8 million of interest income quarter to quarter. The net interest margin on a tax-equivalent basis was 2.53% for the quarter, down 16 basis points from the second quarter. The core margin was 2.63% in the quarter, down 17 basis points from the second quarter. There continued to be a challenging interest rate environment as we deployed excess liquidity into loans and securities at lower interest rates when compared to our existing portfolio yields.

We encourage you to review the non-GAAP reconciliation of the net interest margin in Appendix E as it includes the impact of PPP loans and our high cash position, both of which we expect to change over time. We included an update of our PPP portfolio on Page 14 of the presentation. At September 30, we had $534 million of PPP loans outstanding and $23 million of PPP fees not yet recognized. We anticipate that the remaining PPP fees will be recognized in the fourth quarter of 2021 and early 2022.

We have been and continue to be very asset-sensitive. We added a look at the repricing characteristics of our loans on Page 13 of the presentation. As you'll see, 42% of our loans are expected to reprice within 30 days. We believe this repricing characteristic will be beneficial to us as short-term rates rise, but it makes the current environment much more difficult.

Total noninterest income was $43.2 million in the third quarter. On an operating basis, noninterest income totaled $43 million, showing good growth from the second quarter of $41.5 million. We generated solid growth compared to Q3 of 2020 in deposit service charges, wealth management, and debit card revenues with growth rates of 17%, 19%, and 11%, respectively. Our insurance group posted revenues of $22 million in the quarter, flat from a year ago and gains on mortgage sales were down from the record levels of 2020.

Noninterest expense in the quarter was $99 million and $97.2 million on an operating basis. Operating noninterest expense was down from $99.9 million in Q2. Although there's variability in some line items from quarter to quarter, our core noninterest expenses have been at or below 2020 expense levels, and we look forward to leveraging our operating platform as we integrate the Century acquisition starting next month. As mentioned earlier, asset quality continued to be sound, and we had a reserve release of $1.5 million in the third quarter, compared to a $3.3 million release in the second quarter.

As we have mentioned previously, we plan to adopt CECL as of January 1, 2022. The effective tax rate was 23% in the quarter. I wanted to make sure everyone was aware of some items we have communicated recently and then provide an update on our outlook. We have scheduled a shareholder meeting on November 29 related to our proposed equity plan and the definitive proxy statement, which summarizes that plan is currently available.

We look forward to the meeting and would encourage any shareholders that have questions to contact our Investor Relations team through the website. Given the ongoing pandemic, we also encourage shareholders as of the record date who are interested in attending meeting to participate virtually. All of the relevant information about virtual attendance is in the proxy materials. As mentioned earlier, our board of directors approved a share repurchase program, which is subject to a nonobjection from the Federal Reserve, which we requested earlier this month.

As previously mentioned, we're on track to close the Century transaction and convert the systems in mid-November. We'd all like to acknowledge the support and partnership we've received from Barry Sloane and Linda Sloane Kay and all of the Century employees and customers. Bank mergers are complex and the most successful one star with a partnership of the management teams. Barry and Linda have been wonderful partners to Eastern on all levels.

We feel very good about the financial targets we provided for the Century acquisition back in April. The integration is scheduled for mid-November, and we have a very good plan in place and are very, very well prepared. The Eastern and Century teams have done an excellent job. We believe that the cost savings of 45% we projected at the time we announced the acquisition will be fully achieved in 2022, which is faster than originally anticipated.

We had initially expected that we would not realize the full expense synergies from the transaction until 2023. However, the overall integration planning has progressed more quickly than we expected back during the due diligence phase. Although the associated purchase accounting adjustments are subject to swings due to interest rate changes, we also feel very good about our original estimates and assumptions there as well. We provide an early outlook for 2022, including Century, on Page 16 of the presentation.

We realize there are only four quarters of data on Eastern as a public company and that there isn't a lot of analyst coverage of Century. So, we hope our outlook can help investors and analysts. The key assumptions behind this outlook are an improving economy, slightly higher long-term interest rates in 2022 and a rate hike in very late 2022, which we would expect would have very minimal impact to our full year results. We expect net interest income to be between $490 million and $510 million in 2022.

As we have mentioned in prior outlooks, we expect very little PPP fee income in 2022, and this will affect the year-over-year comparisons of 2021 and 2022. We expect core commercial loan -- we expect our core commercial loan portfolio, excluding PPP loans, to grow at a mid- to high single-digit rate, although we expect to experience some modest runoff from the Century portfolio as we integrate and align Century's existing portfolio with the Eastern's approach to lending. We also expect to reshape the existing Century funding structure, which is likely to cause some Century deposit runoff. We will plan to use some of our excess liquidity to cover any Century deposit runoff.

We think a more efficient balance sheet long term will help improve our overall returns, and we'll begin that process after the closing. We expect our overall net interest margin to be lower in 2022 than 2021 levels, as the Century net interest margin is below the current Eastern margin. As mentioned, we expect 2022 to be a bit of a repositioning year for the balance sheet. 2022 operating noninterest income is expected to be between $180 million and $190 million.

And operating noninterest expense in 2022 is expected to be between $445 million and $460 million. This includes the projected expenses associated with the Century acquisition, as well as the proposed equity plan, assuming we receive shareholder approval. The effective tax rate for 2022 is anticipated to be between 20% and 21%. Thank you very much, and we're ready to open it up for questions.

Questions & Answers:


Thank you. [Operator instructions] Your first question comes from the line of Damon DelMonte from KBW. Your line is open.

Damon DelMonte -- KBW -- Analyst

Hey, good morning, guys. Hope everybody's doing well today. 

Bob Rivers -- Chairman and Chief Executive Officer

Good morning, Damon. How are you? 

Damon DelMonte -- KBW -- Analyst

Doing great. Thanks. So, first question, kind of looking at your outlook a little bit here, the noninterest income expectation of -- I think it's $180 million to $190 million. How much contribution are you expecting from Century? And I guess if you take that out, what kind of organic growth would you be expecting year over year?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. No, it's a good question, Damon. I think Century, if you look historically, did not have a large fee component to its income stream. They had approximately somewhere between on a core basis of $12 million and $15 million a year.

If you look at our noninterest income, there has been some variability this year, especially the nonoperating numbers, the rabbi trust gains in the operating category swap revenue. So, if you can see through those, we expect basically flat noninterest income year on year.

Damon DelMonte -- KBW -- Analyst

Got it. OK. All right. That's helpful.

Thanks. And then as you look at your outlook for loan growth, I think you said mid to high single digits on the commercial side in 2022. Can you just talk a little bit about what your commercial customers are seeing as far as like supply chain issues or wage inflation? Is that kind of factoring into the demand that may or may not be happening in the next 12 months?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. No, it's a very good question as well. So, I think there's a number of mixed things going on, right? Clearly, what we hear from customers is wage inflation, supply chain slowness to construction projects. Many of the things that you hear commonly.

And so that's definitely a factor. Offsetting that a little bit the other way, the Boston market is doing well. It's growing. A couple of our major industries bio and pharma, in particular, really growing, and so the support that those -- and education.

The support that those sectors give makes the underlying economy here a little bit stronger than what we sense in other parts of the country. So, it's sort of a balancing act there. But those two things are what we hear most.

Damon DelMonte -- KBW -- Analyst

Got it. OK. That's helpful. And then I guess if I can squeeze in one more question here.

On the outlook for credit, obviously, things are continuing to go very well for you guys. Can you just give a little perspective on your forward book on provision? You've had three releases in a row. And just wondering if you could expect further release? Again, I should preface this by saying absent any day to CECL impact or any type of accounting impact from the merger closing, but if you look at like a core Eastern active? Thanks.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yeah. No. So I'm going to laugh and just give a shout out to our credit and accounting teams who actually have to do the accounting for Century on one basis and then we are adopting CECL, as you mentioned, January 1. So, to say it's a moving fluid target is the understatement and it's a lot of work and very time-sensitive.

It's really hard to give you an answer -- a straight answer to your question, Damon. There's so much uncertainty in the transition from sort of the incurred loss model of the past over to CECL. I think the best we can say is credit trends have been very strong. And the fourth quarter, we will be on the incurred loss model.

It probably looks like what you've seen in the last couple of quarters. And then we'll probably give an update more in January as we know more from the Century closing in CECL.

Damon DelMonte -- KBW -- Analyst

Got it. OK, fair enough. That's all I had. Thanks a lot.

Appreciate it.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer



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

Laurie Hunsicker -- Compass Point -- Analyst

Hi. Thanks. Good morning. I was hoping you can give us, Jim, an update on what intangibles are going to look like with the closing? I think the last stat you gave us, it was around $617 million, I don't know if that's been fine-tuned?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yeah. So, I think, Laurie, no, we don't. There's so many moving pieces at this point. The biggest change and that's outside of our control is interest rates.

So, what we feel good about and what I communicated a couple of minutes ago is that we certainly had all the areas, the purchase accounting marks in due diligence, and we feel very good about the process we had and the understanding that we had there. The interest rate, interest rates are a little bit different than they were back in April and they'll all get determined as of November 12. So that's the one variable that makes it hard to give you an answer. But we feel very good about the knowledge that we had in due diligence, we feel very good about.

Laurie Hunsicker -- Compass Point -- Analyst

Great. OK. That's helpful. And then your color around margin was helpful.

Just hoping you can help us think about it. just a little bit more specifically, right, because obviously, to your point, PPP fees are out, Century's margin is 1.82% as of the third quarter, and you still have liquidity as a challenge. And so, I'm kind of putting all that together as a 2.35% or so baseline, but I'm just hoping that you can help us fine-tune that a little bit. Is that still too high? Or how should we be thinking more specifically about margin for 2022?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. So, I think you've done a good job there, Laurie. You've gotten all the inputs there, right? And you're -- and they were accurate. So, the Century margin is lower than Eastern that is obviously going to put downward pressure on our margin.

And as we've tried to say, where we are originating loans and buying securities, they are at lower yields than our overall aggregate portfolio yields. So, the margin compression issue is still there. On top of that, it's a cash transaction, so the liquidity component of Eastern is going to change as well. We did try to be helpful on the dollars, and that's as much guidance as I think we can give at this point.

Laurie Hunsicker -- Compass Point -- Analyst

OK. OK. And then expenses, your expense guide looks fabulous. Can you help us think a little bit maybe more specifically assuming your benefit plans are approved in their conversion IPO norm, so it would seem to make sense they are? Assuming that comes in, can you just refresh us, I believe it's about a $20 million expense, and then help us think about how you're mitigating that generally in dollar amounts in terms of high-end cash bonuses would be eliminated? Just maybe if you've got some more specific dollar numbers around that that you could share.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. So, hopefully, it can be helpful, Laurie. I think first thing I would say is no decisions, and you know this, I'm not sure everybody else does. No decisions about the management team get made until post-approval.

So, we don't -- we certainly -- when we put together our budgets for next year have some thoughts about what the equity plans might cost. But none of that's been approved nor really individually reviewed -- individuals reviewed. So, it's a little premature to talk about that. As I said in my comments though, we have included that in the $445 million to $460 million next year, the component of that.

What I would say is -- and we -- I think I'll be consistent here and Bob has been consistent, coming into being a public company, we realized we had to change many of the Eastern compensation programs in part because the equity plans we knew would be coming in 2022. So just to recap there, we changed the pension plan for the company back in 2020. That was a significant employee benefit change. The way we structured it, reduce the expense to the company in a significant way, and we expect that benefit to continue into the future.

I think as we've articulated previously, you can see in our detailed disclosures, the pension cost this year was about $7 million to $8 million less than last year. So that's a component going the right way. Second, as we disclosed back in July, there were some supplemental executive retirement programs for a few executives that got modified. Again, that was in anticipation of the equity plans coming next year.

And then thirdly, going back to 2020, really 2019, we had an executive incentive program that was a cash-based program here that we basically stopped making new grants in the years 2020, in the year 2020, and 2021, again, in anticipation of the equity plans coming. So hopefully, that gives you some of the tools of how we approached it and the balances and the trade-offs that we made to get to that position.

Laurie Hunsicker -- Compass Point -- Analyst

OK. OK. That's helpful. And then two more questions, if I may, on loan deferrals.

Love to see that coming down to $111 million, kind of a two-part question here. Do you have balances on restaurant hotel and retail? Or if not, I can follow up with you separately. And then on the $111 million of total deferrals. Can you remind us how much of that is gone as of December 31?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

So, we should follow up the -- there are a significant number of -- there are some maturities in that last modification bucket. I don't believe a lot are in the fourth quarter of this year, but there is certainly more in 2022.

Laurie Hunsicker -- Compass Point -- Analyst

OK. I'll follow up with you offline. And then just, Bob, last question for you. With this deal just about to close, can you give us a refresh now on how you're approaching future M&A if you would look to digest or you would potentially look to do something in 2022 if the opportunity arose? And then just second part of that, how you think about using cash versus your currency? Thanks. 

Bob Rivers -- Chairman and Chief Executive Officer

Sure. So certainly, we continue to look for opportunities for M&A. And if one were to come along in 2022, we certainly consider that very seriously. We're mindful of the fact that the targets in the space that we're focused on hearing Greater Boston are fewer.

These are rare opportunities. and their terrific potential opportunities. So, there are kind of things that we wouldn't let pass by. That said, we are very focused on organic growth.

It has always been very solid to strong. It continues to be that way. we see a lot of opportunities. So right now, our energies are very focused on things that will help accelerate organic growth.

We're in the middle, for example, of a major project in the middle of integrating Century and a systems conversion. So really kudos to our technology team of a new digital account opening system that were currently underway in building and very excited about as a way to further improve access for our clients, as well as help accelerate account acquisition. And as I mentioned in my remarks, as always, focused on our middle market and small business businesses and see a lot of opportunities there. I think in terms of preference for cash versus stock, I'll defer to Jim on that one.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yes. No, and I think I've said this before, Laurie. It's ironic because it's a very good question. But in reality, the sellers dictate that.

So obviously, we have a very strong balance sheet. And cash is something that's a relative advantage for us. But in reality, that's determined more by sellers than buyers.

Laurie Hunsicker -- Compass Point -- Analyst

Great. Thanks for taking my question.


[Operator Instructions] Your next question comes from Dave Bishop from Seaport Research. Your line is open.

Dave Bishop -- Seaport Global Securities -- Analyst

Yeah. Good morning, gentlemen. I hopped on a little bit late, but in terms of the balance sheet repositioning simultaneous or post-closing the Century deal, if you can just walk through that again just on a high-level basis? Thanks.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure, Dave. You've faded in and out, but I think I got the question, if not redirect me. But I think the question was a Century balance sheet positioning. I think if you look at Century and you look at Eastern, Eastern's very strong funding capabilities.

And one of the things that we anticipate doing is looking at the deposits and probably and expecting some deposit runoff from the Century side. And we feel very comfortable with that because we've got so much liquidity at Eastern, and our funding sources are so strong. So, it's really just optimizing that funding side. Now that takes time.

That doesn't happen immediately. So, it will be something that will reposition over time. But it's really the funding side is where we see the potential improvements there. And again, it's really just capitalizing on the Eastern's strengths.

Dave Bishop -- Seaport Global Securities -- Analyst

Got it. And then maybe some color in terms of the types of security duration [Inaudible] investments you purchased this quarter?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

I'm sorry, could you repeat that?

Dave Bishop -- Seaport Global Securities -- Analyst

Just maybe some color in terms of maybe the duration types of security that you put on balance sheet this quarter.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. So generally, there's pretty decent disclosure on the securities portfolio is what we bought in the past. And so, I think the question is more of the specific recent purchases, which look in terms of types like what we have in the portfolio, the average duration is between three and four years.

Dave Bishop -- Seaport Global Securities -- Analyst

And yields this quarter?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

The yields on the portfolio purchases in the quarter were about 1%, at about 1%.

Dave Bishop -- Seaport Global Securities -- Analyst

One percent. OK. Got it. And then noticed in the outlook, the guidance, the effective tax rate between 20% and 21%, looks a little bit lower than what you think.

But wondering, generally, just curious what's sort of driving that outlook a little bit lower?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure, Century. So, one of the Century's strengths in their education portfolio lending is they do what you would generally refer to as an IRB kind of loan. So, it's tax-advantaged. It's one reason their margin is a little bit lower, but the tax advantages -- obviously run through the tax line.

And that's what's causing the -- in essence, the reduction -- the lower rate in '22 compared to '21.

Dave Bishop -- Seaport Global Securities -- Analyst

Got it. Thank you.


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

Bob Rivers -- Chairman and Chief Executive Officer

Great. Well, again, thanks so much for tuning in and for listening and for your interest. And for those of you who asked questions, your questions as well. So again, best wishes for the upcoming holiday season, and we look forward to talking with you again next quarter.


[Operator signoff]

Duration: 42 minutes

Call participants:

Bob Rivers -- Chairman and Chief Executive Officer

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Damon DelMonte -- KBW -- Analyst

Laurie Hunsicker -- Compass Point -- Analyst

Dave Bishop -- Seaport Global Securities -- Analyst

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