Eastern Bankshares, Inc. Q3 FY2026 earnings call

• Commercial Lending Strength: Commercial Real Estate (CRE) originations were strong, though payoffs moderated from Q2 levels. Commercial Non-Real Estate (CNI) pipelines remain robust at approximately $1 billion, supporting broad-based growth.
• Wealth Management Momentum: Assets under administration rose to $11.6 billion, driven by positive net flows ($97 million) and market appreciation. The team-based approach targeting clients with $2-$20 million in investable assets continues to differentiate the franchise.
• Asset Quality Excellence: Net charge-offs declined to 9 basis points, and non-performing loans (NPLs) improved to $84.8 million (36 basis points of total loans). The HarborOne merger integration is on track, with NPLs normalized and split evenly between legacy and acquired portfolios.
• Capital Return Strategy: The bank returned $89.1 million to shareholders via dividends and share repurchases. Tangible book value per share declined 1% due to unrealized losses in securities but would have risen 2% excluding mark-to-market impacts.
• Deposit Competition: Deposit costs rose to 156 basis points due to competitive pressures in New England. The bank remains focused on gathering core deposits while balancing margin performance.

Eastern Bank reported total revenue of $306.6 million, a 1% increase quarter-over-quarter. Net interest income grew 2%, while non-interest income decreased 16% due to lower investment income and seasonal tax fee variations. Operating net income reached a record $111 million (51 cents per diluted share), up 4% from the previous quarter and 50% year-over-year. The operating efficiency ratio improved to 47.5%. Assets under management and administration grew to $11.6 billion, with AUM increasing by $156 million. Non-interest expense decreased 5% to approximately $158 million, driven by lower salaries, occupancy, and professional services costs.

• Net Interest Margin (NIM): Full-year guidance remains unchanged at 360-365 basis points. Q3 NIM was 362 basis points, within guidance. Management expects NIM to remain stable in Q4 and modestly improve next year as fixed-rate asset repricing outpaces deposit cost increases.
• Tax Rate: The effective tax rate is expected to normalize to approximately 22% going forward.
• Expenses: Full-year expense guidance from July remains intact. Management anticipates expenses to tick up slightly in Q4 relative to Q3 due to non-recurring savings in Q3, settling at an average of $163-$164 million.
• Loan Growth: No specific numerical loan growth guidance provided for the full year; management will reassess outlook for 2027 after digesting the higher rate environment.

• Interest Rate Sensitivity: Higher interest rates are impacting customer behavior, slowing loan closings as clients take a more measured approach to investment decisions. Debt service coverage ratios are changing, requiring borrowers to inject more equity or renegotiate property sale prices.
• Deposit Cost Inflation: Intense competition for deposits has led to higher funding costs than anticipated in Q3. Industry-wide deposit pricing moves may lag Fed rate hikes, potentially pressuring margins longer than expected.
• Credit Portfolio Risks: While overall asset quality is strong, commercial criticized and classified loans increased modestly. The bank maintains limited exposure to high-risk sectors like life sciences and keeps office portfolio exposure low at 4% of total loans.

Q: Analyst asked if customer hesitation due to rising rates impacts full-year loan growth targets and CRE payoff trends. / A: CEO stated pipelines remain robust, particularly in CNI, but higher rates slow deal velocity. Payoffs did moderate as expected. Guidance for the current year remains on track, but 2027 outlook will be reassessed later.