Eastern Bankshares, Inc. (EBC) Q4 2021 Earnings Call Transcript

Eastern Bankshares, Inc. (EBC -1.10%)
Q4 2021 Earnings Call
Jan 28, 2022, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Hello, and welcome to Eastern Bankshares, Inc. fourth 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, 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'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 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 this event is being recorded. [Operator instructions] Thank you. I'd now like to turn the call over to Bob Rivers, chair and CEO.

Please go ahead, sir.

Bob Rivers -- Chairman and Chief Executive Officer

Great. Thank you, Patricia. Good morning, everyone, and thank you for joining our fourth quarter earnings call. With me today is Jim Fitzgerald, our chief administrative officer and chief financial officer.

We hope your new year is off to a good start, and you and your families are safe and doing as well as possible amid this latest chapter of the pandemic. Eastern finished the fourth quarter and fiscal year 2021 with strong financial results, capping off another milestone year for the company, which we will most remember for the acquisition of Century Bank & Trust Company, by far, our largest acquisition to date, and one that we believe will help us further enhance our commitment to deliver an outstanding customer experience and provide competitive financial products and services to award-winning technology, all while serving as an important resource to our communities. At more than four times the asset size of any prior transaction, this acquisition was made possible by the completion of our initial public offering only slightly more than a year ago, quickly validating our commitment to grow and expand our capacity to better serve our customers. For our 56,000 new customers joining us from Century, these benefits have been immediately realized through expanded access to full-service locations throughout Eastern Massachusetts and Southern New Hampshire, enhanced digital and online tools, greater wealth management capabilities, and a suite of insurance offerings.

Likewise, these benefits collectively have enabled us to solidify Eastern as the largest community bank headquartered in Massachusetts, increasing our total assets to $24 billion, and our deposit share position in the very attractive Greater Boston market to fourth from fifth, while forming the largest dedicated government banking department headquartered in Massachusetts and adding expertise and relationships within some of the largest sectors of our regional economy such as healthcare and higher education. We also added 12 net new branch locations, expanding Eastern's branch network to 99 offices while welcoming 252 new colleagues, representing more than 10% of our workforce today. Most recently, we announced that Eastern has entered into an agreement to transfer approximately $500 million in cannabis-related and money service business deposit relationships, which were acquired from Century to Needham Bank, a large local mutual bank. Although the marijuana industry represents a fast-growing industry in Massachusetts, we evaluated it and concluded that this business is not well-aligned with our approach to serving our business customers due to the special handling required with meeting the banking needs of cannabis-related businesses at this time.

We think that Needham Bank has solid capabilities to improve, to provide extensive service to this important business sector, and we applaud the strong commitment they are making to support it. The successful integration of Century represented yet another landmark achievement amid the ongoing COVID-19 pandemic, which required our teams to virtually work together, almost entirely over the course of seven months. However, this was just the main headline of another landmark year in which Eastern Insurance Group closed on two insurance agency acquisitions, our 33rd and 34th, since we entered this business in 2002. In addition, we ended fiscal year 2021 with record earnings, along with strong organic growth in both commercial loans, excluding PPP loans, and total deposits as well as new highs in residential mortgage volumes and wealth management sales.

And Eastern's Benefits Group, a division of Eastern Insurance Group, was ranked by the Boston Business Journal as the second largest employee benefits broker in Massachusetts. Our continued investments in digital and analytical tools for our small business customers earned us multiple accolades during the year while also continuing to receive among the highest ratings for customer service among banks nationwide. As another example of our continued focus on improving our service levels through new technology platforms, we contracted with a fintech company called Blend, to provide an improved digital borrowing experience for our customers and bankers, launching an integrated online application platform designed to make the process of getting a home equity line simpler and faster. This platform has driven a significant improvement in online application completion rates and an increase in our overall home equity line originations by over 20%.

We believe that the continued growth and success of our company provides greater resources to increase the support we provide to our customers, the communities we serve, and our employees, a focus that is more important than ever during these challenging times. It also allows us the opportunity to deliver greater value to our shareholders, as demonstrated by the second increase in our quarterly dividend over the past four quarters, which Jim will discuss later. In 2021, Eastern continued to be an outsized participant in the Small Business Administration's Paycheck Protection Program with almost over 6,500 loans, the second highest in Massachusetts, increasing our total PPP originations since the beginning of the pandemic to over 15,500 loans. These totals were in addition to being named the No.

1 SBA lender for 7(a) loans in Massachusetts for the 13th consecutive year, generating twice the number of 7(a) loans originated by the four largest banks in the Commonwealth combined. In an effort to address the lack of affordable housing, Eastern made a low-cost $65 million line of credit to Mass. Housing Partnership, the single largest loan we've ever originated, while increasing our commitment to Massachusetts Affordable Housing Alliances One Mortgage Program. Eastern was again ranked among the most charitable companies in Massachusetts, our fifth consecutive year in the Top 10, with total donations by the Eastern Bank foundation exceeding $15 million.

Although most of this continued to support local nonprofits, addressing a wide array of community needs, the Eastern Bank Foundation invested an increasing amount with those working to facilitate greater economic inclusion and mobility in our region. Most notably, Eastern led the establishment of the Massachusetts Business Coalition for early childhood education, which now includes 83 companies, representing over 270,000 employees, along with another 20 business associations. In 2021, the foundation increased its community COVID relief with another $3.4 million, designated to support culturally competent outreach and greater vaccine access within our most at-risk communities, food security, and other related COVID-19 support, bringing our total contributions addressing pandemic relief to $16.5 million over the past two years. We also increased our commitment to advancing racial and gender equity through the implementation of our road to equity plan, designed to drive greater transparency and accountability and faster progress in the recruitment and development of diverse talent, particularly within our senior and executive management ranks.

This initiative also includes similar actions and measures designed to enhance our products and services for people of color and women within our customer base, and to foster greater diversity among our vendor relationships and charitable grant recipients. And for the ninth consecutive year, Eastern received a perfect score on the Human Rights Campaign's Corporate Equality Index, the nation's foremost measure of LGBTQ+ workplace equality. Of course, these many achievements are the result of the hard work and incredible commitment of our 2,081 employees, many of those who brought our company public in 2020 also played a central role in Century acquisition through subsequent and new work streams. 40% of our colleagues have been on our front lines every day, in our branches, our insurance offices, and in other critical functions, meeting the needs of our customers while bearing the greatest health risk.

Those working from home are also working hard amid the disappearing separation between work and home, especially those with child and other care responsibilities. We can never thank our colleagues enough for all that they have endured and overcome to support our company, our customers, and our communities while delivering value to our shareholders. Once again, we thank you for your interest in Eastern. And now, I'll turn things over to Jim for an in-depth review of our financial performance.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Great. Thank you, Bob, and good morning, everyone. As Bob mentioned, we had a great milestone in the quarter with the closing and conversion of Century in mid-November. It was a significant financial transaction, and we are confident we came through the conversion and initial integration in very, very good shape.

It was a great effort by all our colleagues, including the former Century employees who joined us, and the entire former team at Century. Conversions and integrations require a lot of energy and focus. So we were very pleased with our continued organic growth in loans in Q4, especially commercial loans, and the strong results in our fee-generating businesses. We look forward to combining this organic revenue growth with our larger operating platform post-conversion.

GAAP net income in Q4 was $35.1 million or $0.20 per share, capping off a record year of earnings for Eastern. Operating earnings for the quarter, which exclude -- which primarily excludes Century-related merger charges, were $44.9 million or $0.26 per share. Given the closing with Century was a noisy quarter as expected, we provide detail on the nonoperating items in the tables at the back of the press release and the presentation, and we would encourage everyone to review those disclosures and the reconciliation of non-GAAP earnings. I'll also incorporate some comments on those items in my review.

On the capital management front, we remain very committed to enhancing long-term shareholder value. To that end, our board of directors approved a 25% increase in our quarterly dividend to $0.10 per share, payable on March 15th. This increase reflects the higher level of earnings from the Century transaction and is our second dividend increase since going public. We also commenced our share repurchase program in Q4 and by the end of the quarter, had repurchased 1.1 million shares at an average price of $20.42 and per share, excluding commissions.

Book value at December 31st was $18.28 per share, and tangible book value was $14.80 per share. At September 30th, book value per share was $18.36 and tangible book value was $16.33. The reduction in book value per share reflects the increase in retained earnings being offset by reductions in other comprehensive income and the impact of share repurchases. The reduction in tangible book value reflects those items plus the goodwill and intangibles created in the Century transaction.

We included a roll-forward of our tangible equity in Appendix eye to show the changes from the prior quarter. The Century transaction closed in mid-November and changed the balance sheet significantly. From the prior quarter, assets increased by $6.1 billion, loans increased by $2.8 billion, securities by $2.8 billion, and deposits increased $6 billion. Century accounted for most of those increases.

Excluding Century and PPP runoff, organic loan growth overall was 6% annualized in the quarter and organic commercial loan growth was 7% annualized. We're very pleased with these results. Acquisitions can be an interruption from business as usual, and we were happy to see the same general level of organic growth in these categories as we experienced in the prior quarter. We also added Appendix G to provide the quarterly loan flows to show the impact of Century and PPP on our organic loan growth activity.

Deposits increased $6 billion in the quarter, Century added $6.1 billion of deposits, and we experienced some modest runoff of higher-cost funds post-acquisition, including some seasonal declines in municipal deposits. As we have mentioned, we expect some repositioning of the Century funding over the next few quarters and some reduction in overall deposits. This was always part of our plan to optimize our balance sheet post acquisition and improve our overall financial performance. We are pleased with the very nominal increase in our overall cost of funds post-acquisition for the fourth quarter and the fact that our deposit mix remained very strong at 60% checking products as is outlined in the presentation on Page 12.

Asset quality continued to be sound through the fourth quarter as annualized net charge-offs were five basis points, NPL decreased by $7 million, and the reserve coverage ratio to nonperforming loans increased from 246% to 280%. All of the measures were very strong, especially in light of adding $2.9 billion of Century loans. Many of our credit statistics were stronger after the acquisition than they were prior, which is a very, very good outcome. Our COVID-19 modifications continued to reduce and ended the quarter at $107 million, down from $111 million at September 30th.

We continue to work with all the customers of modified loans and are comfortable with their progress and the terms of the modifications. There were no COVID modifications within the Century-acquired loan portfolio. For the fourth quarter, post-acquisition capital remained very strong with the tangible equity intangible assets ratio over 12%, and our regulatory capital ratios were far above the well-capitalized minimums. I'll now focus on earnings.

Net interest income was 4124.6 million on a fully tax-equivalent basis, or $20.6 million above the third quarter. The increase was due in part to an increase of $4.9 million in PPP fee recognition compared with the prior quarter, and an increase in average earning assets due primarily to the Century acquisition. The net interest margin on a fully tax-equivalent basis for the quarter was 2.54, essentially the same as Q3's net interest margin of 2.53. I'll add some comments on the overall purchase accounting impact for the transaction later in my presentation.

We continued to provide a look at the core margin in Appendix E to strip out the impact of PPP loans and the excess cash position. As you will see, the core margin was 2.45%, or nine basis points less than the overall margin. We expect that with the additional runoff of PPP loans and the further reduction of our cash position in 2022, there will be less of a difference between the core and stated margin than there has been over the last year and a half. We included an update of our PPP portfolio on Page 14 of the presentation.

At December 31st, the outstanding PPP loans originated by Eastern totaled $267 million and included $10.6 million of remaining fees to be recognized. We expect most of these loans to run off and the remaining fees to be recognized in 2022. Operating noninterest income showed good growth in the quarter and it totaled $44.5 million, up from $43 million in the third quarter. Deposit service charges, trust fees, and debit card fees all had good growth quarter over quarter.

Insurance revenues experienced an expected seasonal decline compared to the third quarter. Noninterest expense in the quarter was $142.6 million, and $110.3 million on an operating basis. The merger expenses related to Century were $30.7 million in the quarter and are outlined in Appendix H. As we mentioned last quarter, we look forward to leveraging our operating platform post-acquisition and are confident that 45% cost savings we outlined at the time of the acquisition will be realized in 2022.

As mentioned earlier, asset quality continued to be sound, and we had a reserve release of $4.3 million for the fourth quarter, compared to a $1.5 million release for the third quarter. As we have mentioned previously, we adopted CECL as of January 1, 2022, and I'll provide some insights into our expectations on that later in my remarks. We had a reduction in a deferred tax valuation allowance in the quarter, which created a tax benefit of $2.9 million in the quarter, compared to the $11.3 million of expense in Q3. We created the valuation allowance in 2020 after the IPO due to the uncertainty of getting the full deduction for the charitable contribution to the Eastern Bank Foundation.

Our higher level of earnings, including the higher levels anticipated post-Century, allowed us to reduce the valuation allowance. I wanted to provide some updates on our outlook and some comments on some recent announcements. Since our last call, our expectation of the interest rate environment has changed. Our most recent forecast expects 325 basis point increases by the Fed in 2022.

This improves our net interest income outlook, particularly for the second half of 2022. We are currently expecting net interest income between $505 million and $520 million for the full year, which is up 10 to 15 million from our prior outlook. Approximately 40% of our loan portfolio will adjust immediately with a Fed hike, providing an immediate lift asset yields, but we expect a more significant impact from these rate increases to be felt in 2023. There's no change in the outlook for noninterest income, noninterest expense, and our 2022 tax rate from the outlook provided last quarter.

We continue to expect nonoperating noninterest income to be in the range of $180 million to $190 million, and noninterest expense to be in the range of $445 million to 460 million for the full year. As previously mentioned, we adopted CECL on January 1, 2022, and expect a day one adjustment that will reduce our tangible book value per share by $0.10 to $0.15. The adjustment will flow through retained earnings and includes what is generally referred to as the acquisition double count for the Century portfolio. As mentioned, we commenced our share repurchase program in Q4.

Through January 27th, we purchased 2 million shares at a weighted average price of 20 -- of approximately $20.70. Our first priority is to buy shares to offset the dilutive effect of equity grants under our new shareholder-approved equity plan, which included director shares that were granted in Q4 of 2021 and the management awards that we expect to grant later in Q1. The remaining authority we have under our existing approval is approximately 7 million shares. We expect future activity to be based on market conditions.

We announced earlier this month the transaction with Needham Bank to assume Century's cannabis business. It includes approximately $500 million of deposits and the team, including compliance staff that was dedicated to the business. There is no deposit premium for the transaction. Our goals when we announced the Century acquisition were to leverage the larger operating platform to improve our overall financial returns.

Cannabis business has a number of complexities and compliance risks that we evaluated and concluded in line with our strategy. We were looking for a home for the business who would serve our customers well and are very confident that Needham Bank, especially with the team that's planning to join them will do that. The transaction is pending regulatory approval and we look to close in Q2. We're very happy with the terms of this transaction.

A few additional comments. We filed an amended 8-K earlier this week that provided additional required information on the Century acquisition and related accounting. There are a few things I would like to point out that are included in the filing. The mark-to-market on the loan portfolio was very small at a discount of $7 million.

The mark on the deposit portfolio was also very modest at $1.8 million. The accretion of these marks will be over the lives of the loans and deposits, and we expect that they will have a very modest annual impact on our net interest income in 2022 and beyond. Also in the disclosure is the fair value of the Century Securities portfolio which had a discount of $37 million to Century's carrying value. At the time of the merger announcement, we expected a premium on the portfolio of $17 million.

That swing in valuation was due to interest rates and created additional goodwill. However, we project that the going forward yield is higher than we originally expected. As we point out on Page 11 of the presentation, the overall securities yield at year-end was 1.4%, compared to the average yield of 1.28% in the fourth quarter. This includes the benefit of that securities mark-to-market.

We are even more positive about the Century transaction now that it's complete than we were when we announced it back in April. The successful customer conversion provides us a quick return to business as usual and the expanded footprint gives us a better market penetration and a bigger opportunity. We expect the strong organic loan growth that we've experienced to continue, and our ability to leverage our platform and technology is enhanced. We're working very hard to capitalize on these opportunities and believe that the changing interest rate environment will likely create some tailwinds at our back.

The all-cash nature of the Century acquisition means that any improvements in earnings at Eastern will benefit solely our existing shareholders. We are particularly excited by that aspect of the transaction. We felt it was one of the strongest benefits of the transaction, and it's great to see this benefit being realized so quickly. In conclusion, we're very pleased with our Q4 results.

The combination of continued strong organic results, complemented by the success of the largest acquisition in the company's history, was a fantastic finish to 2021. We believe our larger platform expectations for continued strong organic growth, and the prospect for a higher interest rate environment, puts us in great position in 2022, and we look forward to capitalizing on all these opportunities. Thanks, and we'd be happy to take any questions.

Questions & Answers:

Operator

Thank you. [Operator instructions] Your first question comes from the line of David Bishop from Seaport Research. Your line is open.

David Bishop -- Seaport Global Securities -- Analyst

Hey. Good morning, gentlemen.

Bob Rivers -- Chairman and Chief Executive Officer

Good morning.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Good morning.

David Bishop -- Seaport Global Securities -- Analyst

Quick question. Just remind us maybe in terms of the balance sheet repositioning post the Century deal. Obviously, we have the cannabis deposit sale, but maybe some of the other puts and takes there just in terms of their loan portfolio and securities, and just getting maybe a sense of size of maybe the core attrition you might expect every year over the next couple of quarters? Thanks.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure, David. I'll take that, and Bob can certainly add in as well. But I think if you take it one at a time, unpack your question because there's a lot there. On the deposit side, really, there's one or two areas.

The first one you mentioned, which is cannabis, which we've articulated is about $500 million in deposits. We will see that run off later this year. As I said, we expect that in Q2. And the other key variable on the deposit side is they're a municipal business.

Eastern had always been in the municipal deposit business as well. We're going to basically look to conform the way they did their business to make it look more like ours. They offered things like collateral and paid higher rates than we did. And as we see going forward and sort of on a day-by-day basis, we'll just try to move those considerations to again eliminate the -- reduce and ultimately eliminate the collateral and bring the pricing so it's more aligned to ours.

As that happens and we have a lot of overlap in customers as well. We do expect some runoff. We don't expect that to be material, but it's just -- that's our expectation. On the loan side, we're very happy with the loan portfolio.

I mentioned the credit quality earlier. The only issue that we see there is there are a couple of sectors where there are some loans that were out of market and areas that we haven't historically done business in, geographic areas we haven't historically done business in. And I think on a case-by-case basis, whether or not those are core loans to us or not, we'll make that determination. We've -- as I said, we very much like the business, but just want to be realistic that as we go forward and we operate in a more of an Eastern-style that loan runoff could happen.

On the security side, as I mentioned, there's $2.8 billion coming over. We have retained initially all of that. We do expect a little bit of modest repositioning as we go but assume you'll just -- assume that would just take place over the next couple of quarters and I wouldn't consider that significant.

David Bishop -- Seaport Global Securities -- Analyst

OK. Got it. And then appreciate the guidance on the fee income and operating expenses. I noticed you mentioned, I guess, in the preamble, have done a couple of insurance agency acquisitions, but maybe some weakness in the fourth quarter and just year over year in the in those fees? Maybe any color in terms of what's driving that sequential and year-over-year decline and I'll hop off.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yep. No. Thanks, David. Good.

So just one reminder, you may have implicitly included in your question. There isn't a seasonality to the insurance business. So the drop from Q3 to Q4 is expected. And if you go back and look historically, you'll see a very similar drop there.

So that's one factor just to keep in front of everybody. A couple of things on the year-over-year decline, there's really a couple of things going on. Profits, there's a component -- we used to call it profit sharing. That's not the right technical accounting.

It's actually incentive payments that are paid, it's actually about 10% of the revenue of the business. Each year is a little bit different. Those payments are depending on the carrier, either based on volume or based on underwriting statistics. And they're a little bit volatile.

They're based on those factors. If you look what's happening in that year-to-year decline. There's changes both in the timing of them because sometimes they're paid differently each year, and also the amount. That's what's driving a lot of that.

There are a few other things as well. We took a breather from acquisitions back in 2021 when we implemented a new operating system there, as we've articulated in prior calls. And really, year two, which would have been this year would have been when the revenue from those acquisitions that we would have normally done would have occurred. So there were none this year.

I think fundamentally, those explain it. And I think we're very confident that going forward and over the long term, the insurance business is going to be a great success for us.

Bob Rivers -- Chairman and Chief Executive Officer

Yeah. And David, just to add to that, the pipeline for agency acquisitions continues to be very strong, and we'd expect to continue that pattern as we have in the past.

David Bishop -- Seaport Global Securities -- Analyst

Got it. Appreciate the color.

Operator

Your next question comes from the line of Damon DelMonte from KBW. Your line is open.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Hey. Good morning, guys. I hope everybody's doing well today.

Bob Rivers -- Chairman and Chief Executive Officer

Hey, Damon.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

So first question, just wanted to get a little bit more perspective on the expense outlook. Jim, I know you gave the full-year guidance. But as you think of the first kind of full quarter of the combined operations. You're at 110.3 on an operating basis this quarter.

What's kind of the starting point for the first quarter of '22? Do you have a range for that?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

We don't, Damon. I think we spent a lot of time crafting the annual numbers. I think a couple of things I would say to you. There are a few branches, Eastern branches that we actually are consolidating in the month of January.

So there's a little bit of a timing to the -- and that's included in the guidance that we gave you, just to be clear on that. But there are some timing considerations there, and also the equity plan doesn't really kick in until the second quarter. So we did spend a lot of time on the annual event -- on the annual number, and that's what we focused on.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Got it. OK. And have you quantified publicly what the expected impact of the equity plan is going to be?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

We haven't provided a number. It is in the guidance that we've given you. One thing I would articulate here is prior -- pre-IPO, we had a long-term incentive plan for management. Cost was about $10 million to $11 million a year, $10 million to $12 million a year.

And as we think about the equity plan, we're just basically looking to replace that expense. Obviously, there's differences in the plans and differences in timing. But in terms of our approach, it was to, in essence, replace the cost of the prior plan.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Got it. OK. That's helpful. And then as you look at your outlook for loan growth, another decent quarter for you guys, what -- how are you feeling about your pipeline right now going into 2022? What areas of the commercial platform seems to be presenting the best opportunity for growth? What are some of the trends and expectations that you have?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

So I think, Damon, we're -- just by starting, we're proud of our commercial teams across the board. They all really are very well-positioned and have a great history and track record. As a middle-market lender that has a specialty in real estate and commercial and then what we call community development lending, which you might refer to as nonprofit lending, we feel like those are three key strengths. The market here in Eastern Massachusetts and Southern Hampshire where we operate is very strong in all of those sectors.

Demand seems very good. We're a very good competitor. So it isn't any one place. It's really the combination of those areas that we expect growth.

And there's obviously variability quarter-to-quarter. But if you look at our track record over time, all three of those units have grown, and we expect that to continue.

Bob Rivers -- Chairman and Chief Executive Officer

And as Jim's comments indicated and as the numbers indicate, those teams have been able to be focused really throughout the integration of Century. Century's book is very clean. They didn't have a big team. As a result, our team could continue to focus on being out in the market.

Pipelines are good in all sectors, and we continue to add to the team through recruitment. So -- and that's -- as we wait for another opportunity for acquisitions, that's what we're entirely focused on, is how do we continue to drive growth, particularly commercial loan growth. And again, as Jim mentioned, the team is fantastic to start with, has been for a long time, and continues to grow.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Great. OK. That's helpful. And if I could squeeze one more in, just on --

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

And no bias on the team comment, by the way, just because we happen to know them and like them.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

No, I got it. And just to squeeze one more in on the outlook with credit. You've had four quarters in a row of provision reversal. What are your thoughts going into 2022, especially with the adoption of CECL? Do you feel you're going to have to start to provide for loan losses? Or do you think you could maybe keep it really low or even maybe more release?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

It's a tough question, right? We just -- sort of laughing, bragged about our commercial loans. Jim, a second ago, made -- bragged about our credit and accounting team now. But it -- we just complete -- and not just, but we're really -- has been a lot of work to adopt CECL and get everything up and running. I think generally, that creates a different accounting than we had in the past.

So it's hard for us to give any guidance on that. But we believe the overall credit environment continues to be very strong. The economic environment is very strong and that leads to a good credit performance. I don't believe the reserve releases will continue for that much longer but it's hard for us to give any guidance on that given the adoption of CECL.

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Fair enough. That's good. Great. Thanks and good luck with the blizzard this weekend.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yeah.

Operator

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

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

Yeah. Hi. Thanks. Good morning and yeah, I would just echo what Damon said.

Good luck with the snow.

Bob Rivers -- Chairman and Chief Executive Officer

Yeah. The forecast [Inaudible] we look at it.

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

Oh, yeah. It's -- absolutely. So just circling back on expenses. Can you help us think about -- and this is just one of the line items, it looks like you break this out now, and I didn't see it before, this operational losses for the quarter of $1.6 million in December.

You break it out historically. Is that something that's going away? Or what is that number? How do we think about that? The $1.557 -- yeah.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yeah. Those generally, Laurie -- and admire you're going for details. But that's generally our operational losses in the branches or ACH. They tend to be pretty modest, and we think of them as business as usual.

We do a lot of transactions to the branches and through the ACH mechanism, and that's just the cost of doing business.

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

Got it. Thank you for that. OK. Great.

That's helpful. And then can you just refresh us in terms of merger charges, where you are in terms of taking that? I know you had said you were going to be at $64 million. Is that still the right number? Is it higher? And any thoughts on the timing of when we see it, I mean, guessing most of it in the first half? But can you help us think about that?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. So -- and I didn't cover my comments, maybe I should have. Yes, you are right. The initial anticipated amount we had at the time of the announcement was much higher than what we recorded.

If you look at the fourth quarter and prior, it was $35 million, and that compares to the $63 million or $64 million you referenced. A couple of comments I'd make. We are pretty much done with that. We've done all of the branch things and etc.

We're booked in November, and so we believe we're complete there. That's not to say there wouldn't -- there might be a cannabis transaction-related straggler. But generally, we don't anticipate much in the way of those expenses this year. One comment on the reconciliation is -- so we did have -- we came well under, as you referenced.

One honest reminder as Century actually paid a fair amount of -- the expenses that were Century-related were paid by Century. So even though they were in our numbers back in April, the accounting actually went through their books pre-closing, and --

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

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

That's great. Thanks. And then cost base. I think your cost base were projected to be 45%, $37 million or so.

How much of that -- I guess, where are we with realizing that? How are you thinking about that? Is that ahead of schedule? Or can you help us think about that?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Yes. So I think here's what we said, Laurie, what I would say, again, at the time, we announced 45%. We actually thought it would take through into 2023 to get the full amount. What we articulated at the end of last quarter is that the guidance that we've given you and confirmed today, $445 million to $460 million of operating expenses includes 45% reduction for that $37 million you referenced is -- will be in 2022.

As I mentioned earlier, we -- I think you know, we did the conversion in November. A lot of the expenses come out at that point. There were some branch closures and repositionings that are taking place in January of this year and maybe February. But those -- essentially all the branch transactions were done in the fourth quarter of last year.

So one of the strongest things we felt was as we entered 2022, we were trying to get back to business as usual and have all of that sort of in the rearview mirror, and that's what we believe you will see.

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

OK. Great. And then just last one for me. On net interest margin.

So if we look at this and we say, OK, we strip out that remaining $10.7 million, $10.6 million in PPP fees. Century, obviously, we're going to see a full quarter reflected in the March quarter, but they were running at a 180 margin. You mentioned that you're doing some repositioning there. You obviously still have cash.

How should we think about it? In other words, if we strip out what's going to be probably the remainder of your PPP gains, if we just looked at where you would be core in March prior to that potentially moving? How should we be thinking about that on a pro forma combined basis?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Right. So there's a number of things to unpack there. So I'm going to try and go sort of one at a time or take it a little bit slow. The first place I'd point you to is our guidance, right? So we've -- previously, we were a little bit lower, but we've increased it to between $500 million and $520 million for the year.

To your point, if you want to focus on the margin, there's a couple of things going on that are detractors there. You referenced the PPP fees, which are down significantly from where they had been in 2021, and there's about $10 million left. There is not, as I tried to make clear, there's not much in the way of purchase accounting that's going to roll through and make an impact there. The Century margin was below ours.

So that's also a detractor. And as we've disclosed in prior 10-Ks and 10-Qs, we had some hedge gains that we had closed out in the prior years that amortized, that may basically finish up at the end -- in early 2022 as well. So those are kind of the detractors. And what you see going forward, though, is the impact of the securities repositioning, tried to articulate, as well as their rate -- complexion of the rate change, and also the continued organic loan growth on the pace that we've been talking about.

What we said in the past and I think is still a very fair comment is we -- in 2022, I don't know how much the margin is actually going to change from where it is now. But we do think the full impact of all these rate changes will be really seen in 2023.

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

OK. So sorry. Just one more question around that because I feel like maybe something is wrong in my math. I'm looking at the sort of pro forma all combined, and obviously, without knowing the actions you're taking around Century, and I'm closer to a 2.3 margin versus, obviously, the 2.54 that you reported.

Am I missing something? Or is there any sort of help you can give us thinking about even just the June quarter margin, what it would look like?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

One question I'd ask is to make sure you have the cannabis and some of the deposit runoff that we've talked about in there. That's obviously not going to change net interest income, but it is going to prove the net interest margin.

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

Got it. Got it. OK. OK.

I will follow up with you guys offline. I guess just, Bob, maybe just one question for you. Now that you've done this deal and obviously, you now have to talk currency. How are you thinking about future acquisitions? And any thoughts in terms of what you're seeing in M&A space?

Bob Rivers -- Chairman and Chief Executive Officer

Yeah. It really is the same as before, Laurie. I mean we continue to be ready to undertake partnerships, primarily focused on the banking sector, but obviously continued in insurance agencies, and possibly wealth if we could find something smaller that fits in that particular space. So really, the posture and the interest and the conversations haven't changed.

It's really sort of a constant flow of engagement around ideas. But really, our primary focus is really finishing up Century, continuing to drive organic growth, particularly in our commercial and small businesses, as well as investment in technology, which continues. So again, we have the capital, we have the interest, and again, stand ready when an opportunity should arise.

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

Great. Thanks for taking my questions.

Bob Rivers -- Chairman and Chief Executive Officer

Thanks.

Operator

[Operator instructions] Your next question is from Janet Lee from J.P. Morgan. Your line is open.

Janet Lee -- J.P. Morgan -- Analyst

Hi, everyone.

Bob Rivers -- Chairman and Chief Executive Officer

Good morning.

Janet Lee -- J.P. Morgan -- Analyst

Hey. To clarify on your NII guidance. So obviously, you're incorporating three rate hikes now versus one in the third quarter. So is this $10 million to $15 million increase in NII guide just incorporating that additional two rate hikes in the guide? And can you just tell us the annualized NII impact from, say, a 25-basis-point rate hike?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. So again, a couple of components. I'm going to go slowly and take them sort of one at a time. So the guidance is up, as you mentioned, $10 million to $15 million.

It's a dominant -- the reason it's up is dominated by the change in rates. There are other small changes. Obviously, we do a lot of work to put that together. So there are other small changes.

But I think the way you asked the question is rate-driven -- rate outlook driven. And as you said, we went from one rate increase at the end of the year to now 3%. So that comment accounts for that at a high level. I think a single 25-basis-point increase by the Fed on an annualized basis, adds about $8 million to $10 million of net interest income for Eastern, assuming our normal betas -- our normal deposit betas.

Again, so it's $8 million to $10 million. That's annualized, which is my comment about why the second half of '22 is why you'll see that, and in particular, in 2023. But it's $8 million to $10 million annualized assuming our normal deposit betas.

Janet Lee -- J.P. Morgan -- Analyst

OK. That's helpful. And to follow up on that, I heard that you're assuming lower cash level for 2022. But can you just give us more details around what level of cash you're assuming versus $1.2 billion in the fourth quarter? And what's your current appetite for deployment of cash into securities?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Just to make sure I understood the first part of your question, Janet. It was the tax rate?

Janet Lee -- J.P. Morgan -- Analyst

No, no, no. Cash. Sorry, cash flow.

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Cash. I'm sorry. Got it. Got it.

I didn't connect the dots there. Now I -- so I got it. Thanks for clarifying. So if you look at our securities portfolio at year-end, it's between $8.5 -- $8 billion and $9 billion.

We expect some modest repositioning there but a similar-sized portfolio. We don't -- the cash that we had at the end of the year that you can see, a reminder, we've talked about a little bit of deposit runoff from the repositioning of Century and then also the cannabis. So we do expect the cash position to normalize as we get through those elements, which we think are in the first half of this year. So we don't envision -- a year ago when we were talking about how much money we're going to invest quarterly in securities, we're at kind of a steady state now.

The portfolio is relatively large, and we see managing that, but we don't see it much bigger than where it is today given the balance sheet size that we have right now.

Janet Lee -- J.P. Morgan -- Analyst

OK. That's helpful. And just to -- sort of following up on Damon's question earlier on loan growth. I don't think I've heard.

What is your current outlook for total organic loan growth for any ex-PPP and ex-Century acquisition? I think last quarter, you said you're targeting mid-to-high single-digit commercial loan growth. And obviously, this quarter, we've seen many regional banks coming out more bullish on C&I growth outlook. So I just wanted to see if there's any update on your commercial loan growth outlook as well as just total organic loan growth outlook for 2022?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Sure. So just to, again, trying to be precise in the answer. So when we say our commercial loans, that includes commercial real estate, our commercial loans, typically called C&I, and then also our community development lending group, which is part of our -- that's our commercial rollout. What we articulated in the past and still see is organic loan growth that we've had historically, which is in the high single digits.

So last quarter, it was 8%. This quarter, it was 7%. That kind of -- that is -- that aligns very much with what we've done historically. And even though the balances are a little bit bigger now, we're still comfortable with that expectation going forward.

So again, high single digits for commercial loan growth. And as I said, if you look at our track record over an extended period of time, we think that's very consistent. Mortgage and consumer loans, we've had last -- the early part of this year, we had a nice increase in mortgage loans. We do portfolio jumbo loans.

That's something we've done for the last year and a half or so with the excess as a good way to use the excess liquidity up. This quarter, we had, call it, 5% to 6% annualized growth there. We think that's probably sustainable. One trend that we're starting to see the beginning of is a little bit of a life in our home equity lines and loans and with higher rates and probably less mortgage activity.

There might be a little bit of a subtle shift from mortgage into home equity. But those consumer categories in total, we think somewhere a 5-ish percent loan growth organically.

Janet Lee -- J.P. Morgan -- Analyst

OK. So excluding PPP, commercial loan growth of high single digits, and for consumer, around mid-single-digit, 5%-ish, right?

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

Correct.

Janet Lee -- J.P. Morgan -- Analyst

OK. That's helpful. And lastly, my question on your share repurchases, offsetting dilution from your equity plan grinds. Am I understanding your earlier commentary correctly that the amount of repurchases required to offset dilution, plan is 1.2 million shares, and the rest of 7 million of shares that are currently available are sort of dependent upon market conditions or --

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

No, let me just go back and try and say slowly what our plan is so that -- what we repurchased at the end of the year was 1.1 million. And what I articulated is through yesterday, in essence, we've repurchased 2 million shares. That's one kind of -- that's just a status update, if you will. Our strategy for that is to be very prioritized buying in shares to offset the dilutive effects of those -- of the equity plan, which includes the shares that you can -- that were issued last year and would be in the year-end counts and are disclosed.

And then also the upcoming management grants under the equity plan. So the goal is to -- priority, not the goal. The priority is to make sure we offset that dilution. We haven't disclosed the number of shares there but we're on track to do that.

And then once we complete that priority, we still have considerable amounts still in our authorization and future purchases beyond that would be based on market conditions.

Janet Lee -- J.P. Morgan -- Analyst

OK.

Operator

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

Again, thank you, Patricia. Thanks to all of you. I really appreciate you taking the time to join us this morning and wish you the best for the rest of the winter. We look forward to talking with you again in the spring.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Bob Rivers -- Chairman and Chief Executive Officer

Jim Fitzgerald -- Chief Administrative Officer and Chief Financial Officer

David Bishop -- Seaport Global Securities -- Analyst

Damon DelMonte -- Keefe, Bruyette and Woods -- Analyst

Laurie Hunsicker -- Compass Point Research and Trading -- Analyst

Janet Lee -- J.P. Morgan -- Analyst

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