Eastern Bankshares, Inc. Q2 FY2025 earnings call

Key Points

• Strong second quarter results with operating earnings of $81.7 million, a 21% increase from the first quarter.
• Net interest margin expanded 21 basis points to 3.59%, and the operating efficiency ratio improved to 50.8% due to higher revenues and effective expense management.
• Operating return on average assets rose 21 basis points to 1.3%, and operating return on average tangible equity increased to 13.6%.
• Loan growth was 8% annualized, deposits grew 8% annualized, and wealth management assets under management reached a record $8.7 billion.
• Credit trends were positive with nonperforming loans improving for the second consecutive quarter and no net charge-offs.
• The company is excited about the HarborOne partnership and looking forward to integrating HarborOne customers and employees.

During the second quarter, Eastern Bankshares had strong financial performance. Net interest income was $202 million, increasing $13.1 million from Q1, with the net interest margin expanding 21 basis points to 3.59%. Noninterest income was $42.9 million. Wealth management assets under management reached a record high of $8.7 billion. Period-end deposits totaled $21.2 billion, an increase of $424 million from the prior quarter. Period-end loans increased $385 million, led by commercial lending. Capital levels remained robust with CET1 and TCE ratios at 14.4% and 10.8% respectively. Credit trends were positive with nonperforming loans improving and no net charge-offs.

Forward-Looking Statements

• Raised full-year loan growth outlook to 3% to 5% from the previous 2% to 4%.
• Deposit growth expectation revised to 0% to 1% from 1% to 2%.
• Net interest income expected to be in the range of $810 million to $820 million, with FTE margin expectations remaining at 3.45% to 3.55%.
• Provision expected to end the year between $27 million and $32 million, an improvement from the previous projection of $30 million to $40 million.
• Operating fee income forecast increased to $145 million to $150 million from $130 million to $140 million.
• Operating noninterest expense expected to end the year between $530 million and $540 million, an improvement from the previous range of $535 million to $555 million.
• Expected full-year operating tax rate revised to 21% to 22% from 22% to 23%.

Risks

• Economic uncertainties that could impact customers.
• Potential challenges in deposit cost management and market conditions.
• Risks associated with the integration of the HarborOne merger.

Q: Likely securities portfolio restructurings in coming quarters?

A: Possibly, but with the focus on the HarborOne merger and current buyback authorization expiring, it's on the back burner for now.

Q: What was the driver of the NPL drop this quarter?

A: Credit to the managed asset group, which resolved 5 credits in the quarter.

Q: Plans for HarborOne expansion geographically?

A: Focus on growing in the Rhode Island market for commercial, consumer, and wealth management, but no immediate plans to expand into Connecticut or New York.

Q: What drove the strong C&I growth this quarter?

A: A combination of customer confidence and the investment in growing talent within the commercial lending division, with a steady loan pipeline heading into summer.

Q: Margin outlook for the back half of the year?

A: Roughly flattish, dependent on core deposit growth, swap amortization, and competitive deposit market conditions, though accretion income can be unpredictable.

Q: How does the rabbi trust income factor into full-year guidance?

A: Positive with equity markets, but not a significant needle mover, as it's partially hedged and most is equity-based.

Q: Impact of FASB's proposed ASU on HarborOne?

A: For HarborOne, it's 1%-1.5% less accretive, with a 1% reduction in tangible book value dilution and an earn-back of about 0.2 of a year, not material overall.

Q: Plans for expansion into Maine?

A: No immediate strategic plans to expand into Maine, though they already have wealth management presence there.