Eastern Bankshares, Inc. Q3 FY2025 earnings call

• Eastern recently received regulatory approvals for the merger with HarborOne, on track to close November 1, strengthening presence in Greater Boston and Rhode Island.
• Resumed share buyback program, with Board authorizing a new 5% share repurchase program up to 11.9 million shares.
• Third quarter operating earnings increased 44% year-over-year, operating return on assets 1.16%, operating return on average tangible common equity 11.7%.
• Loan growth driven by commercial lending, with commercial portfolio up nearly 6% year-to-date.
• Wealth management assets under management at record $9.2 billion, wealth management fees up due to higher asset values.
• Noninterest expense increased due to higher salaries, benefits, technology, and merger-related costs.
• Capital position robust, tangible book value per share $13.14, up 5% from Q2.

Net income for the third quarter was $106.1 million or $0.53 per diluted share. Operating earnings were $74.1 million, a 44% increase from the prior year. Net interest income was $200.2 million, down 1% quarter-over-quarter due to higher deposit costs and lower net discount accretion. Noninterest income was $41.3 million, down $1.6 million from the second quarter. Wealth management assets under management reached a record $9.2 billion, driven by market appreciation and modest positive net flows. Total loans grew 1.3% quarter-over-quarter, led by commercial lending. Period-end deposits totaled $21.1 billion, a decrease of $104 million from the second quarter.

• Board authorized a new 5% share repurchase program of up to 11.9 million shares.
• Approved a $0.13 dividend to be paid in December.
• HarborOne merger on track to close November 1, reiterating key assumptions and cost savings plans.

• Competitive pressures on deposits, with elevated costs and ongoing competition in the region.
• Uncertainty in net discount accretion affecting margin performance.
• Office loan portfolio with some loans requiring attention, though worst of issues mostly behind us.

Q: Regarding margin and deposit competition, do you think the core margin can hold steady in Q4 and grind higher into '26?

A: Core margin has drivers like accretion income (wildcard) and deposit competition. Accretion income was down in Q3, deposit competition remains, but HarborOne merger will add 2 months of numbers with original margin expansion still good.

Q: On the expense side, will core Eastern expenses stay similar in Q4?

A: Comp costs were inflated in Q3 and will settle, tech expenses consistent, so expense base not overly concerned with Q4 being roughly flat or down a touch.

Q: Any appetite for additional M&A deals?

A: Focus on organic growth and HarborOne integration now, no near-term plans but open to evaluating opportunities if in shareholders' best interest.

Q: Breakdown of Wealth Management AUM increase?

A: Predominantly market-driven with good equity and fixed income markets, net flows in the quarter were a little over $50 million positive.

Q: Thoughts on office exposure and provision?

A: One loan originated in 2016, reserves maturing next year, loan 85% occupied, small numbers in grand scheme with full resolution expected into Q1.

Q: Spot margin update?

A: Spot margin in September was 3.48%, 1 basis point higher than the quarter.

Q: NIM and deposit costs outlook?

A: Deposit repricing slow initially due to competition, but longer term expect to achieve full betas as Fed eases.

Q: Underutilized parts of Eastern's business?

A: Commercial lending team, wealth management due to favorable demographic, and retail/deposit franchise with new leadership as areas with upside.