Eastern Bankshares Inc. Stock

Welcome to the Eastern Bankshares, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com.

Today's call will include forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Please refer to the company's forward-looking statement on Slide 19 of this presentation as well as the risk factors described in the company's SEC filings. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release and SEC filings.

I'd now like to turn the call over to Denis Sheahan, Eastern Chief Executive Officer.

Thank you. Good morning, everyone, and thank you for joining us. On the call today with me are Executive Chair and Chair of the Board of Directors, Bob Rivers; President and Chief Operating Officer, Quincy Miller; and our Chief Financial Officer, David Rosato. We're pleased with our third quarter performance, which reflects disciplined execution of our priorities. We delivered record operating earnings, generated attractive returns, maintained excellent asset quality and returned meaningful capital to shareholders, all while continuing to drive organic growth across both our banking and fee-based businesses.

These results further reinforce Eastern's standing as a premier bank in Greater Boston, one of the nation's largest and most affluent banking markets. The increase in period-end loan balances was primarily driven by strong commercial real estate originations and broad-based C&I growth. As expected, CRE payoffs moderated from the second quarter, leading to solid growth overall in commercial real estate.

Commercial loan pipelines remain strong, although the pace of closings has been somewhat slower than anticipated as some clients take a more measured approach to investment decisions amid interest rate uncertainty. Overall, customers remain resilient as business activity continues to generate demand for financing. We believe there are a lot of opportunities in the Commercial Banking segment, and we are well positioned to gain share. Customers value our ability to deliver a broad set of commercial capabilities typically associated with larger institutions while also providing the certainty of execution that comes from local decision-making and knowledge.

The Eastern brand is highly regarded across our market and the franchise is deeply rooted. We live and work here, and our extensive involvement in the communities we serve resonates with customers. On the funding side, period-end deposits grew modestly despite seasonal municipal outflows. While the deposit environment remains competitive and costs move higher, we remain committed to gathering core deposits to support our growth strategy and balancing these efforts with margin performance.

Importantly, the strength of our core deposit base and limited reliance on wholesale funding provide us with the flexibility to stay disciplined while also supporting customer relationships. Wealth Management is an important component of our long-term growth strategy, and we achieved another successful quarter. Assets under management and administration increased from the end of the second quarter, driven by both positive net flows and market appreciation. Our comprehensive team-based approach continues to differentiate us across our target market of $2 million to $20 million in investable assets. We offer a level of service to this segment that larger firms typically cannot deliver. Importantly, we get compensated well for these services with an average fee ratio of approximately 70 basis points.

While we're in the early stages of capitalizing on the full potential of this business, the increasing alignment between our wealth and banking teams, combined with the attractive wealth demographics across our footprint is generating meaningful momentum, and we are encouraged about its long-term outlook. Our asset quality remains a clear source of strength, reflecting conservative underwriting and proactive risk management.

Net charge-offs declined linked quarter and as anticipated, nonperforming loans improved for the third consecutive quarter following the HarborOne merger. We are confident in our credit profile, including the sectors that have received greater attention in Boston, such as life science, which we have limited exposure. We know our investor office portfolio exceptionally well, and it represents only 4% of total loans. The portfolio is well reserved and continues to perform within our expectations.

While overall credit trends remain favorable, our experienced credit team continues to actively monitor the macro environment and local market for emerging risks that could impact our customers, positioning us to respond quickly and decisively when needed. Finally, given our profitability, we continue to generate capital in excess of our growth needs. As we have consistently communicated, we are committed to thoughtfully rightsizing our capital position over time. That commitment was evident again this quarter as we returned meaningful capital to shareholders through both share repurchases and quarterly dividend while continuing to support organic growth opportunities.

As always, our results reflect the efforts of an exceptional team, and I want to thank our colleagues for their continued commitment and execution. I also want to express my gratitude to our customers for choosing Eastern as our financial partner and to shareholders for their ongoing trust and support. We never take these relationships for granted. And every day, we are focused on delivering strong, sustainable performance and value for all stakeholders.

David, I'll hand it over to you to provide further details on third quarter financials.

Thanks, Denis, and good morning, everyone. Our third quarter financial performance was strong and highlighted by record operating net income, further improvement in key profitability metrics, including return on average assets and return on average tangible common equity. Positive operating leverage driven by an increase in net interest income and lower expenses, solid balance sheet growth, supported by strong commercial lending activity, sustained excellent asset quality and meaningful capital returns to shareholders.

The third quarter also benefited from a modestly lower effective tax rate, primarily reflecting a higher level of tax-preferenced items. Going forward, we expect the effective tax rate to return to about 22%. We reported record operating net income of $111 million or $0.51 per diluted share, an increase of 4% linked quarter and 50% from a year ago, reflecting the enhanced earnings power of the company. Net interest income growth, combined with well-controlled expenses, produced another quarter of positive operating leverage. As a result, the operating efficiency ratio improved to 47.5%, contributing to a 3 basis point increase in operating ROAA to 141 basis points and a 37 basis point improvement in operating return on average tangible common equity to 15.7% compared to the second quarter.

Total revenue of $306.6 million increased 1% linked quarter as growth in net interest income was offset by lower fee income. Starting with Slide 5 of the presentation. Net interest income grew 2% linked quarter, reflecting the benefit of continued balance sheet growth. Net interest margin declined 4 basis points to 3.62%, which was in line with our expectations as higher funding costs more than offset improvement in asset yields. Asset yields increased 2 basis points, driven by favorable loan and securities repricing, while interest-bearing liability costs rose 8 basis points due to higher deposit costs.

Net discount accretion contributed 26 basis points to the margin compared to 28 basis points in the prior quarter. Excluding accretion, the margin declined 2 basis points linked quarter. Importantly, our year-to-date net interest margin of 3.64% remains well within our full year guidance range of 3.60% to 3.65%. While the benefits of a steeper yield curve and higher rates are supporting asset repricing, those tailwinds continue to be offset by competitive deposit pricing. As a result, we currently expect net interest margin to remain relatively stable in the fourth quarter and to modestly improve into next year.

We show the repricing characteristics of our interest-earning assets on Slide 6. We have approximately $8.8 billion of floating rate assets repricing constantly with short-term rates. Beyond that, we expect approximately $1 billion of fixed rate variable assets repricing in the fourth quarter and roughly $800 million per quarter in 2027.

As detailed on Slide 7, operating noninterest income decreased $9.2 million or 16% compared to a particularly strong second quarter results. The largest contributor to the variance was a $6.3 million decrease in income from investments for employee retirement benefits, reflecting weaker equity market performance. This unfavorable impact on fee income was partially offset by a $2.5 million reduction in related benefit costs reported in noninterest expense.

Miscellaneous income and fees also decreased $3.1 million, largely as a result of gains on the sale of commercial loans recognized in Q2 that did not reoccur in Q3.

Turning to Wealth Management on Slide 8. Assets under administration increased to $11.6 billion, including $10.8 billion in assets under management. AUM increased $156 million linked quarter, primarily driven by $97 million in positive net flows, highlighting the continued momentum in the business. Wealth management fees declined modestly from the prior quarter as growth in AUM revenues was more than offset by lower tax preparation fees, which are seasonally higher in the second quarter. Compared to Q3 '25, fees increased 10%, reflecting strong organic and market-driven asset growth over the last year.

As detailed on Slide 9, the third quarter demonstrated our ongoing focus on prudent expense management and operating efficiency as noninterest expense decreased $8.3 million or 5% linked quarter. Notably, we did not incur any nonoperating costs in the current quarter compared to $1.6 million in Q2. On an operating basis, noninterest expense was down $6.7 million.

The current quarter benefited from the following: $2.2 million decrease in salaries and employee benefits, primarily due to lower costs related to employee retirement benefits that I referenced earlier; a $1.9 million decrease in occupancy and equipment expenses, reflecting lower depreciation and maintenance costs; a $1.8 million decrease in professional services, primarily due to shareholder advisory fees in Q2 that did not reoccur in the third quarter, and a $1.9 million decrease in other operating expenses, largely driven by a release of unfunded commitment reserves. These declines in noninterest expense were partially offset by a $1 million increase in FDIC insurance costs.

Moving to the balance sheet, starting with deposits on Slide 10. Period-end balances increased $98 million linked quarter despite seasonal municipal outflows. On an average basis, deposits increased $667 million or 2.6% from the second quarter. Consistent with recent trends, money market balances continue to grow as customers maintained a preference for liquidity. Total deposit costs of 156 basis points increased 9 basis points linked quarter with a September spot rate of 159 basis points, reflecting elevated competition for deposits in the New England market.

In response to higher short-term rates, we took targeted actions to appropriately position offerings to defend and grow market share. Looking ahead, we remain focused on gathering core deposits while balancing growth with margin performance.

Looking at loans on Slide 11. Period-end balances increased $261 million or 1.1% linked quarter. CRE balances grew $229 million, supported by strong originations, although payoffs remained a headwind despite moderating from Q2 levels. C&I balances increased $93 million, reflecting broad-based growth across the portfolio and continued client activity. Commercial pipelines remain strong and ended September at approximately $1 billion, with a balanced mix between CRE and C&I.

Turning to consumer lending. Home equity balances increased $44 million. Given the strong underlying demand across our footprint for this product, we continue to see home equity as an attractive area of growth. Residential mortgage balances were up modestly from Q2. However, our expectation is the residential portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth.

Moving to Slide 13. Our capital position remains strong as indicated by CET1 and TCE ratios of 13% and 9.6%, respectively. We are focused on rightsizing capital through organic growth, share repurchases and quarterly dividends. We expect to continue to generate excess capital but are managing our CET1 towards the median of the KRX. Tangible book value per share of $12.96 declined 1% linked quarter, primarily driven by higher unrealized losses in the available-for-sale securities portfolio reflected in AOCI. Excluding this mark-to-market impact, tangible book value per share would have increased approximately 2% from Q2 despite returning $89.1 million of capital to shareholders during the quarter.

In addition to $32.4 million of cash dividends paid, we repurchased 2.6 million shares for $56.7 million at an average price of $22.11, which was $0.30 below the VWAP for the quarter. As a result, our diluted common shares outstanding were 215.5 million as of September 30. Fourth quarter to date, we have also repurchased an additional 1.6 million shares through yesterday for a total cost of $33.8 million and now have 8.5 million shares remaining in our authorization that runs through the end of 2027.

We continue to view our buyback through 2 lenses: core and opportunistic. The core component reflects our need to consistently repurchase shares to steadily reduce capital levels. The opportunistic component is more price sensitive. As we remain disciplined and focused on creating value for shareholders. As a result, the pace of repurchases may vary from quarter-to-quarter based on market conditions and the stock's valuation. While we control capital generation and the pace of buybacks, we do not control valuation.

As displayed on Slide 14, asset quality remains excellent. Net charge-offs to average total loans of 9 basis points declined from 17 basis points in Q2, and NPLs improved by $24.6 million to $84.8 million or 36 basis points of total loans. Notably, NPLs continued to improve in both the Legacy Eastern and acquired HarborOne portfolios. Commercial criticized and classified loans increased modestly from the second quarter, reflecting higher balances in both the Legacy Eastern and HarborOne portfolios. The increase was primarily driven by a small number of relationships.

To conclude, our third quarter results underscore the strength of the franchise. We generated record operating net income, produced positive operating leverage and maintained excellent asset quality, all while executing against our priorities of growing organically and returning capital to shareholders. As we look ahead, we remain encouraged by the underlying momentum across the franchise. At the same time, we continue to operate in a dynamic environment characterized by elevated deposit competition, evolving interest rate expectations, inflationary pressures and broader macroeconomic uncertainty. While these factors may influence the pace of loan and earnings growth in 2027, we believe our relationship-based banking model, disciplined expense management and strong balance sheet position us well to continue delivering attractive returns to shareholders.

This concludes our remarks, and we'll now open up the call for questions.

[Operator Instructions] your first question comes from the line of Damon DelMonte with Keefe, Bruyette & Woods.

Just want to start off on loan growth kind of around the commentary with the C&I outlook with kind of a bit of a pause from customers. Just wondering if that impacts your outlook for the full year at all or if you think you're still on track for your updated guide that you provided last quarter?

Damon, thanks for joining us. So pipeline still remain very robust. And actually, the C&I segment is the largest component of our pipeline overall. So we feel really good about that. But certainly, the increase in interest rates, as you might expect, has an impact. We -- more conversations with clients about the fact that rates have gone up. And so it does slow things down somewhat, but we're still optimistic overall and certainly regarding the targets we provided for this year. As we look ahead into next year, we'll have to reassess and we'll provide new guidance at the beginning of the year in terms of -- once we've had more time to digest the higher rate environment, what our outlook for '27 would be.

Okay. Great. And then on the CRE side, are you seeing similar trends with payoffs kind of moderating so far here in the fourth quarter?

Well, certainly, I'll speak to the third quarter. Payoffs did moderate. We did expect them to. If we go back to the beginning of the year, we did expect elevated payoffs in part because of the environment, but also because of the HarborOne merger. And as we anticipated in Q3, they did modify somewhat, although at an elevated level overall. But in a higher rate environment, yes, we would expect payoffs to slow to some degree.

Okay. Great. And then just one for David on securities, the average securities this quarter were up linked quarter. Could you just remind us, was that kind of a full quarter impact from activity in the second quarter? Or were those purchases here in the third quarter?

It was both -- Damon, so we had -- we cash flow about $40 million a month, which we have been reinvesting this year, plus we've added to that both last quarter and this quarter.

Okay. And can we expect there to be a little bit more growth in the securities portfolio?

Yes, sorry. And I think that trend of reinvestment and net growth -- net modest growth will continue into Q4.

Your next question comes from the line of Justin Crowley with Piper Sandler.

I was wondering if you could frame up for us the state of play on the deposit side a bit more. And I think you kind of alluded to this, David, but is your sense or it sounds like it's your sense that competition, and I suppose yourselves included, moved on rate just in advance of the December hike. Or could there -- could that be less of the case and we could see a longer lag here, especially if we think about a couple of more hikes that may be on the way? How are you thinking about that going forward?

Yes, it's the million-dollar question, Justin. The deposit pressure continues. It's -- I would say it's broadened out to -- it's from smaller banks to larger regionals as well. We think it's going to continue into Q4 and into next year if we do, in fact, see another 75 basis points of tightening from the Fed.

The good news from our perspective is, and we called it out in our comments, the $1 billion of fixed rate asset repricing in Q4 and the $800 million or so a quarter next year. We believe that the fixed rate asset repricing will outpace deposit cost increases, leading to a slightly better margin. But we underestimated deposit pricing in Q3, frankly, as you can see in our results. Our Q margin, if you adjust for a little slowdown in accretion in the residential mortgage portfolio was down 2 basis points.

Okay. Got it. That's helpful. And then just flipping to the lending side. You talked about higher rates and what it's doing as far as customers, some of the uncertainty. But curious for you folks and not that you go that far out on the risk spectrum, but just if you guys at all are tightening up the credit box in any meaningful way and if there are just some deals that don't work with the move in interest rates.

Well, we can give you a couple of examples. We're just talking to a senior lender about this of loans that sort of had to be reworked because of the change in interest rates. And it's a combination of, as you'd imagine, with higher rates, the debt service coverage ratio changes. So that requires that the borrower has to put in more equity to meet -- to satisfy our requirements. And that happened in that situation, perhaps in some other situations, it may not.

The other thing that is -- has an effect here is with higher rates, sometimes the sale price of a property would need to be renegotiated modestly to accommodate for the buyers' need to pay a higher rate on the loan. So those things have an effect and they can have an effect on the speed to close those loans. It can also have an effect on demand. But we've been through this before, different rate cycles, and I'm confident in the team's ability to sort of weather through this period.

Justin, I would just add to that because our credit box is fairly tight and conservative. Our customer base has the ability to put up more equity in the example that Denis cited rather than a more highly levered client base who doesn't have those -- that ability. So on a relative basis, I think we have a better ability to manage through this.

Okay. Great. That makes sense. And then just one last one. You guys have, of course, done a lot of work on just improving asset quality. You called that out and maybe selectively moving some credits out of the bank if we think about the acquired portfolio. So I guess I'm curious where you think you are there? And is the legwork basically complete at this point? Or is there still a little room left to go?

I think we feel like we're on track. We -- as we mentioned at the beginning of the year, we knew we'd have sort of an increase in the nonperforming assets, nonaccrual loans, and we'd work our way through it. So if you look at our level of nonperformers at the end of the quarter, 36 basis points, that's a pretty normalized level. And so we think we're through most of the issues we needed to work through on the acquired portfolio.

Yes. As Denis says, we're right on track. There's probably another quarter into Q1 at most of working through that portfolio. As you can see, that 36 basis points that Denis referenced, it is essentially half HarborOne and half Legacy split right down the middle.

Your next question comes from the line of Feddie Strickland with Hovde Group.

I wanted to clarify on the directional NIM guide. Thanks David, for that. Does that include any rate hikes? And does the fixed rate repricing story still outpace funding costs in a scenario where we get, let's call it, 2 more hikes over the next couple of quarters?

Yes. Good question, Feddie. Yes, it does include additional rate hikes. And the conclusion still holds.

Okay. And then just one more piece to that. Just again, I appreciate the detail on the fixed rate asset repricing. Can you give us a sense for the rate that you're able to get on the new securities purchases as well as kind of where these loans are repricing up to?

Well, on the securities portfolio, if you look in the page that we have there, we've been able to drive up security purchases on average about 10 basis points a quarter through the last year, some quarters a little higher, some quarters a little lower. We're putting in -- depending what asset class you're talking about, whether it's mortgage-backs, which were primarily doing hybrid ARMs or municipal bonds, you're putting in yields at 6% to 6.5%, depending on asset class. So quite additive to the portfolio.

And then the second part of your question was just on the loan -- was on the loan side. And with as much talk about competition on loan spreads, we're actually seeing loan spreads for the most part, being held relatively stable. So you're talking 175 to 200 basis points across our bread and butter CRE and C&I portfolios. It's -- where we're really seeing spread competition is what I would call them, the larger, more marquee names in the markets that also would have strong fee income opportunities.

Got it. That's helpful. And just one more for me, just on expenses. Are there any items that could meaningfully add to the expense base in the fourth quarter? And directionally, as we think out to '27, just given the step down in expenses in the third quarter, could we potentially see expenses either flat or maybe even slightly lower for the year? Just trying to get a sense for where they could go.

I would caution you a touch there. I would expect expenses to tick up a bit in Q4 relative to Q3. We kind of went, the investment advisory fees that we called out linked quarter drove that down. That's not repeatable. Maintenance operating expense there was a little below trend. I would think more about the average of the second and third quarter, which puts that expense base, call it, $163 million, $164 million in that neighborhood.

Your next question comes from the line of Tyler Cacciatori with Stephens.

This is Tyler on for M. Breese. I was wondering if you could talk a little bit about the loan-to-deposit ratio. I know the seasonal muni outflows played a role this quarter, but is there any level you start to pull back on loan growth if deposit growth doesn't keep pace? Or is that not really a constraint you're focused on today?

If you look over many years, our loan-to-deposit ratio has ticked up. But if you look at our 9/30 balance sheet, we have $2 billion more deposits than we have loans today. And we've made comments about our residential mortgage portfolio being a little larger than normal because of acquisitions. So we're certainly focused on growing our deposit base to fund loan growth, but we're not at a point where we believe it would be a constraint on loan growth.

Okay. Great. And then just one more quick one. Do you happen to have the spot cost of deposits maybe at quarter end or in the month of September?

Yes, we do. So it was 1.56%, as we said, for the quarter. We ended September at 1.59%.

Your next question comes from the line of Laurie Hunsicker with Seaport Research Partners.

Just staying on margin. By the way, I love Slide 6. That's super helpful. Spot margin, do you have that?

Sure. The spot margin for September was 3.62%.

Okay. Great. And then just going back to expenses more broadly. And I realize you haven't yet given guidance for next year, but can you help us think about where you all sit in terms of sort of a tech AI spend relative to where you were this year and then branch rationalization, which is something that certainly some of your peers are looking at. How do you approach that?

So we are certainly focused -- we have seen tech AI spend go up this year modestly. We're in the middle of a budget process where we are seeing increased ask for tech spend and people to support that tech spend. At the end of the day, we will be able to absorb that in our full expense base in a manner that puts year-over-year expenses well under control. They will increase, and they will increase modestly, but we don't think the tech AI spend is -- we're going to be sitting here in January, delivering bad news on the expense line.

And then I'll jump in as far as your question about branch rationalization. We don't have a program you referred that some others may have of rationalizing a branch no more than we would in any other period. Anything we think about there, whether it's expansion or potential branch closure, is sort of onesie-twosie. We evaluate each of our markets and our presence there in terms of its growth potential, our profitability, et cetera. So we don't have a significant plan in terms of branch rationalization.

Okay. That's helpful. And then just very high level, Denis, maybe you can comment. I think we know the answer, but just would like to hear you say it, whole bank M&A. Where do you sit on that at the moment?

Yes. Laurie, our position remains the same as it has been for quite some time. We're focused on -- we're very pleased to deliver a nice clean quarter with sort of no non-operating items, as David referenced. The profitability performance of the company is improving significantly. We're generating a lot of capital. We're returning a lot of capital, and that's exactly what we're focused on. We're not focused on M&A at all.

[Operator Instructions] your next question comes from the line of Jared Shaw with Barclays Capital.

Should we assume with the removal of the guidance side, is that -- are we -- are you removing guidance? Or how should we think about guidance from last quarter?

Yes. Jared, I did chuckle to myself when I read your note last night. The -- our practice is guidance in January, midyear update in July, not quarterly guidance. So there really wasn't -- we haven't removed anything. That's just what our practice is.

Okay. So it's not -- so what was left from July is still sort of we can call that still the current guidance?

100%. And I slightly referenced that in the comments around the margin. Even though the margin was down, it's still within that guidance. But we have not changed any of our thoughts for full year '26 relative to what we put out on -- in July.

Other than your earlier comments during Q&A, you referenced expenses in Q4, the tax rate. So Jared, it's largely, it's the same guidance.

Got it. Okay. And then what are your thoughts on expected beta given the sort of the changed rate outlook and the competition that you referenced? How should we think about your thoughts of deposit beta through the cycle here?

Yes. So again, a really important question. Our goal, our thought today is we'll be able to achieve the historic 50% deposit betas that we have done -- that we did in the last up cycle. Every one of these cycles is different, as we all know. What's different this cycle is the industry moved before the Fed moved, right? That's kind of what we're experiencing on deposit costs last quarter and slightly in Q2. The -- it's the level of deposit competition, which is also driven by the level of loan demand, ultimately is going to control that beta.

But there's nothing other than the fact that the industry moves sooner that should be different this cycle. The deposit power of our franchise is only stronger now than it has been in the past as we're bigger and more important in our market. So we stand by the historical averages we've been able to achieve, which is essentially a 50% beta.

Okay. All right. And then just finally for me, any update on the competitive environment on commercial with some of the consolidation that we've seen? Is that flowing through to the potential to -- to see some movement among borrowers?

Jared, yes. I mean, certainly, there has been a change in the competitive environment with some of the consolidation that's happened. We've been able to attract talent to our company. We're very pleased with that, very high-caliber talent. And we've been able to keep our pipeline at an elevated level and good growth in C&I and now growth returning in CRE. So we are benefiting to a degree, yes, from the consolidation and our outlook would -- absent higher rates, we'll give you some guidance in January as to what we think 2027 will look like. But the team is in place to be able to take more share in the market.

There are no further questions at this time. I will now turn the call over to Denis Sheahan for closing remarks.

Thank you for joining us. We look forward to speaking with you following our next quarterly earnings.

This concludes today's conference call. You may now disconnect.

Great. Thanks. Sorry for the delay, but we're happy to continue the discussion this morning with Eastern Bankshares. We have Denis Sheahan, the CEO; and David Rosato, the CFO, joining us. Thanks very much, guys.

Thanks for having us.

Thank you.

I guess maybe starting off, Boston has really become one of the more competitive banking markets in the country, it feels like, with large nationals, super regionals and wealth managers all trying to gain share. How would you characterize the competitive landscape today? And where do you think Eastern is best positioned to compete?

So yes, I mean, the Greater Boston market has always been very competitive. There are lots of smaller mutuals in the market. As a matter of fact, most of the mutuals in the country are in the New England region. So it's not unusual that we have a lot of competition. And yes, the larger organizations are there and have professed interest in coming into the region if they're not already there. But we really like our position in the marketplace. We have $31 billion in banking assets. We're the #4 in terms of deposit market share. We have a sizable and growing wealth and private banking business. And the Eastern brand is so ingrained in the marketplace. This is -- it's our home turf. We work and live and make decisions right in that marketplace. So the brand is very well known, and we really like our position.

Several institutions have made significant investments in the market over the past few years. Have you seen any meaningful shifts in competitive behavior recently, either in deposits, commercial lending or wealth management?

Not significant with the possible exception of deposit pricing. So deposit pricing is elevated in the marketplace. We saw this trend in the back half of last year and continued into the first quarter. So that's one area where we've definitely seen increased changes in competitive behavior would be in that segment.

When you're speaking with clients today, how would you describe sentiment? Are you seeing any change in sentiment given the changing rate outlook? Or are they still moving forward with expansion and investment?

Well, I look at our business pipelines as sort of a leading indicator of customer sentiment. And in both our commercial and wealth businesses, we're seeing very good activity, particularly commercial, we've had record pipelines now in each of the last 2 quarters and good loan closings and the pipeline continues to fill back up. It's remarkable. So we think that our customers are very resilient. They've gone through a lot in the past few years in terms of tariffs and shocks to energy prices, but they remain resilient and we'd categorize them, I think, as sort of cautiously optimistic.

And those pipelines, though, are very robust and give us a degree of confidence about the back half of the year and really what our customers are seeing and feeling that they continue to want to lend or to borrow, excuse me. And then on the wealth side of the business, we're also seeing very good activity in terms of net flows. So those to us are good, really concrete manifestations of customer sentiment.

Great. On the deposit side, deposit guidance was increased in the second quarter despite the highly competitive environment. What's driving the confidence in the stronger deposit outlook? And what are you seeing to sort of support that?

Sure. I'll take that one, Jared. We are -- when we decided to defend and grow market share and started pricing for that, in essence, woke up our customer base. And it solidified or showed us once again the value of that deposit franchise. It's 130 branches, very, very dense footprint, Southern Vermont (sic) [ New Hampshire ] now into a little bit of a presence in Rhode Island. It's a great deposit franchise. And we're continuing to leverage it, and we have confidence that it will continue growing.

You talked about balancing deposit growth and margin performance. And on the call, noted that money market balances continue to grow faster than CDs. As you think about deposit gathering today, what are customers telling you that they're valuing the most? And how are you balancing that growth of deposits with protecting profitability?

There is a clear preference for liquidity. So customers are responding and flows are supporting money market specials over CD pricing, for example. Our CDs have been relatively flat year-to-date. Money market is where most of the growth has been. And then in money markets, it's really across all the major businesses as well, whether that's retail or commercial or private banking.

The challenge, obviously, with a little heightened deposit competition is maintenance of the margin. The backup in interest rates is helping the fixed rate repricing story, whether that's the securities portfolio or the fixed rate loan book. And that's a multiyear story there. And some of that positive income is being offset on the deposit side. But net-net, I think it's a small positive for us over the next couple of years.

As you look out over those years, what does the optimal deposit mix look like for Eastern? How do you balance the opportunity for overall growth with improving mix and commercial operating balances?

So the mix, we're really focused in, you think on the asset side of the balance sheet, the portfolio that's growing the most significantly for us, and this is by design, is the C&I category. So good relationship-based C&I lending that will bring more commercial deposits will be a focus for us. So I think you'll -- hopefully, you'll see us do more in that category with good treasury management services along with it.

And then understanding the demographics of the marketplace, the Northeast and Massachusetts, in particular, is high net worth, high household income are favorable demographics, perhaps population growth is not. So we'll continue to lean into that private banking, wealth management segment. So more of our deposits, we think, will skew in that commercial category and in the private banking wealth management segment.

On the commercial side, commercial pipelines finished the quarter at a record level, approaching $1 billion. What are you seeing in those pipelines today? And what gives you the confidence that growth can remain healthy in the second half?

It's that the pipeline -- we both sit very near to our senior lender. We're constantly asking them, so what's going on with the pipeline? You had really good closings in the second quarter, and it's that the pipeline keeps filling back up. And some of that is -- it's certainly the perhaps, I said, the cautious optimism and a little bit more optimism in the marketplace, but it's also that we've added talent over the last several years. And in particular, in the last 2 years, we've added talent to our commercial banking team, and they're beginning to hit their stride now. So we feel good about -- as far as we can see out through the end of the year, we feel good about that pipeline continuing to fill back up.

You've talked about the initiatives and the focus on C&I. We've heard from other banks that CRE is actually becoming -- the economics of that are starting to improve. As you look out, how do you see that loan mix shaping up over the next few years?

So for us, it has been and will continue to be a focus around commercial, and then I'll comment on each of the portfolios. Less so on residential real estate, we expect that the residential portfolio will be flat to down over the next several years. We also see opportunity in consumer home equity. But the primary growth driver will be commercial. Within that, CRE has been slow for us year-to-date. It's -- our gross originations have been excellent, but we've had a lot of payoffs. Some of those payoffs have come through our most recent merger, the HarborOne merger, where we're working through some loans. And that's been actually been very successful, but it has dampened overall commercial real estate growth.

And then the legacy Eastern portfolio has also had payoffs. And there's a good news, bad news about this. There's more activity in the marketplace, which is a good thing. The Northeast and Massachusetts is relatively frozen in terms of the bid-ask spread between buyers and sellers. That is beginning to loosen. So the good news is there's activity. The bad news is it can reduce -- it can result in a payoff. So we're seeing both sides of that. We wouldn't expect much by way of commercial real estate growth through the end of the year. We're hopeful that it will be renewed in 2027 with a little bit less payoff activity. But continued focus around C&I, we feel good about the outlook there, and those pipelines remain very strong.

The only other thing I would add to that is our largest commercial real estate portfolio is multifamily. And there's such a chronic housing shortage in New England that there will always be this core multifamily projects going on that we'll be financing.

How is -- on that specifically, Massachusetts was in the news about a potential rent regulation mandate. How did that influence building? And is there a backlog of sort of demand now that it feels like that's been pushed out on the calendar?

Yes, that's been pushed out, and it did have an effect for a period of time where we saw some projects and capital perhaps moving to other states for development. Now that, that is -- it appears to be off the table in the near term, we would expect for opportunity to return to the marketplace. But there is a degree of uncertainty about what will ultimately happen that could prevent some development.

In the past, you've highlighted the investments you've made, hiring commercial bankers over the last several years. How much of the strong growth that you're talking about in the pipelines is a result of those investments beginning to mature versus the overall market or legacy Eastern's position?

Certainly, it's an element of it, but it's also the legacy Eastern team because the company has gone through 3 mergers in a little over 5 years. So that has an impact. There is a distraction quotient associated with that, that the team is now -- and also the liquidity crisis. That's key. Let's not forget that. That -- those are all behind us now. So the company is very growth focused. And so between the legacy team and the relatively new talent that's been brought in, we think we're really hitting our stride.

When you look at the market, obviously, there is the acquisition of Webster by Santander, and that's creating a bigger company there. Is that going to be an opportunity for you to emphasize that local decision-making process and take share coming out of that?

No question. But what I'd first say in terms of the Webster-Santander merger is Webster was more of a Connecticut, New York institution than the Massachusetts. So in that context, yes, there certainly continues to be opportunity for us to emphasize the local decision-making, the certainty of execution, the speed of execution that we bring to the market for our clients but also understand that, that particular merger is more Connecticut, New York.

Yes. Shifting over to the margin. This past quarter, you did highlight that balance sheet growth was strong, but NII and margin guidance moved lower. How should investors think about the interaction between asset repricing tailwinds and continued funding pressure with that growth dynamic?

I'd first go back and just -- so we did lower net interest income from January to our midyear update in July. It was really a function of lack of growth, mostly loan growth, but really deposits as well in Q1 and then accretion income coming in a little lighter. And then third was the deposit pricing pressure. It was important to remember all the components of that. The kind of what we talked about earlier, though, Jared, is the steeper yield curve, the higher rates is helping the long-term asset repricing side of the balance sheet, offset by heightened level of deposit competition.

We do think that if we're going to go through a Fed tightening cycle here of one or a couple of hikes that the industry and us will start exercising those historical betas roughly in the 50%. So if the Fed moves tomorrow, you're not going to see a full increase in money market rates and CDs. So we'll start to recoup some of that back. And I think the -- our margin is going to stay in that low to mid 3.60% range for the next couple of quarters and into next year. And I think that's a positive. But then over time, it should start expanding.

So as we look over maybe like the 12 months after a hike, it should be relatively stable as we get out there with those dynamics?

Yes. Yes. And then the question becomes whether there's -- it's one and done or there's going to be a series of increases.

If we see rates remaining higher for longer, how does that alter the earnings trajectory versus maybe what you were expecting 6 or 12 months ago when we were talking about a rate cut versus a rate hike?

Higher for longer is a net positive. The only 2 related issues is dependent on the magnitude of the move impact on AOCI and then on customer demand for financing if rates hit a certain level. And that's not a uniform. There's not like a number there. It's really specific to each customer and what they need to finance.

Maybe shifting over to wealth management, which is obviously a core strength of the company. Wealth assets reached another record $11.5 billion and advisory fees continue to grow. What's driving that momentum? And what gives you confidence that those trends can continue?

So we have a terrific capability at the firm and the demographics of the market lean towards that capability, high degree of net worth, high household income. And bringing together the Eastern and Cambridge team on the wealth side has gone very successfully, and we've had good growth. Where we target -- you started off the conversation, Jared, about the competitors that have come into the marketplace. We can bring service to a much lower level of assets. We target $2 million to $20 million in investable assets. We can bring a lot of service to that asset category that the larger firms will struggle to do.

So we have many clients that are well in excess of that, but we target there, and we can bring our full capability as a trust company with trust powers, helping clients with their estate planning, their financial planning in partnership with their attorneys and tax advisers, wrapping a team around the client that is a meaningful differentiator in the marketplace at the asset sizes that we target and our customers really are attracted to it.

And when you look at -- you talked about legacy Cambridge and focus on wealth and the legacy Eastern had the insurance business that you sold. How significant is the opportunity to just sort of deepening the penetration of the legacy Eastern customer base? How long do you think that takes to really materialize?

We believe it's very significant, again, backed by the demographics in the marketplace and the fact that insurance was the primary source of fee revenue for the company. So when you think of your average branch manager or your commercial lender, their focus from a referral perspective in the past was around insurance, the insurance business. It's now wealth. That's the primary fee business. That's a strategic priority. And it's undertapped in terms of potential. And we're in the early innings of taking advantage of it.

We're at the point now where we're training our colleagues, building trust with -- between the wealth and private banking and branch colleagues and commercial banking and business banking and mortgage banking. Building that trust, having the appropriate incentives put in place, and we're confident that we're going to continue to see growth in that segment for many years to come.

Maybe shifting to technology and AI. Eastern has consistently talked about using technology to improve productivity and customer experiences. Where are you seeing the most tangible benefit from those investments today?

So I'll comment on a couple and David and by all means, jump in here, too. So the first I'd say is our Salesforce implementation. The Salesforce is now going to -- it's an enterprise-wide solution at Eastern. Just a couple of years ago, it was in certain parts of the company, but wasn't thoroughly throughout. So in terms of building a better customer experience, having it be an enterprise solution is a significant element of improving that customer experience, fully understanding the customer's relationship with the bank.

And then in terms of AI, we, like everyone else, are -- we're experimenting with AI. Every employee in the company has access to Microsoft Copilot and between 10% and 20% of the company now has access to Claude. So we're experimenting with it to a great degree. And our perspective on it is, yes, of course, it will help in terms of productivity, but we really want to lean into it in terms of improving the customer experience.

And I'll give you one quick example. In the past, in doing customer segmentation, we may have brought in a third party to do that segmentation and you pay a fee for that. We've now built our own customer segmentation using AI. And it's updated like real time, live, and we can tell where are our customers interacting with the company and how can we improve their customer experience. Those are just a couple of examples of ways that we're leaning into and benefiting from the use of technology.

And I'll just tag on to that for a second. So not only have we built customer segment, we've deployed it. So our frontline staff see that, including the branches. So it will help referrals. But we've also used it to identify assets held away from us so that those customer referrals, that prospecting, those conversations are all now much better informed than they would have been. And that system is real time. It's constantly running and refining itself.

So there's -- one of the things that we've done that's kind of interesting is as we put the AI technology in different parts of the bank, we haven't said our goal is cost improvement. We've been basically agnostic to let people come up with ways to make their jobs better, whether it's serving their customers or being more productive. And we have an internal group that takes lessons learned and distributes it to other users. And at the end of the day, we'll wind up having success in both paths.

[Audio Gap]

on over $5 million on an annual basis, and we use that to determine its classification and whether it's performing or nonperforming and keep very close to the lease rates and that sort of thing. And so we think we have it well understood. So we're not overly concerned from an asset quality perspective at all.

I would just add to that, thinking about it a little different. Credit is really a competitive advantage for us as a company, not only the quality of the books that we have and our ability to work through credit issues from an acquisition, whether it's Cambridge Trust or HarborOne, but it's the credit skills of the company, whether it's our commercial RMs or our credit approval side of the house, it creates certainty of execution for our customers. Everyone knows the credit box we play in. Our customers are aligned. Our RMs know and we can turn credit decisions quickly. And that's a real advantage. That's one of those things that makes a bank like us be able to compete against larger banks.

What's the state of sort of the office market more broadly in Metro Boston, New York? I just read an article last week that the Midtown office market is back to pre-pandemic levels. It feels like Boston continues to lag. What's sort of your -- not so much from your specific portfolio, but what's your view on the Boston office market and return to office?

Yes. It does continue to lag, but it's improving all the time. We were referencing in a meeting earlier that Fidelity is now back 5 days a week. That's a significant change in the office market and some of the large employers are now coming back 5 days a week. But Boston does lag New York in that category. So the vacancy rates are still elevated. They're in the low 20s, better than they were, but still a long way to go to get back to pre-COVID.

The problem, whether it's with us or any other financial institution, the problem loans are pretty well identified. The problem properties are pretty well identified, and they are beginning to resolve. You are seeing sales happen in the marketplace, certainly at significantly reduced valuation, but they are beginning to happen. And there are properties that are re-leasing, which is a good sign. We're -- again, we're off what was the peak pre-COVID, but it is improving all the time.

On capital, you continue to operate with a CET1 ratio above 13%, while actively repurchasing shares. Walk us through, I guess, that path to getting to the 12% target given the still growth backdrop that you are expecting on.

Sure. I'd be glad to. I mean, the really good news in the whole capital story is how much capital we're generating because the company is so profitable. We actually finished last week, the buyback that we announced last November. And so we relaunched another buyback announced it on our July call, and we're starting to execute against that. We look at the buyback really through 2 different lenses. One is we need to be constantly returning capital to shareholders via dividend and buybacks. And in the last 12 months, we've returned about 110% of earnings through buybacks.

And then there's an opportunistic sleeve that is more price dependent. When we announced the buyback last November, we were trading about 1.5x book. We -- before this recent pullback in the market, we were just almost at 1.75x. So we're clearly buying a lot more at 1.5x and a little less at 1.75x. So that's the opportunistic sleeve, but the real message is there's an ongoing sleeve of continuous buybacks that we need to work down our capital levels. We've been very careful not to put a date out there just because we don't control the valuation.

Got it. I guess if we're having this conversation a year from now and investors are viewing the company differently with a higher valuation, what do you think would be the biggest drivers to get there?

I think it's continued execution. When we talk with our investors, it's -- they welcome the execution, the improvement in profitability, the focus around the continued protection of the core deposit base, which is a real jewel in our franchise. As much as we talk about deposit pricing and deposit competition, we ended the last quarter with 140 basis point cost of deposits. So continued focus around protection and appropriate growth in that deposit base and emphasis around growth in commercial lending. We've really seen a real improvement in our C&I lending growth rate, looking for that to continue.

And then the execution on the fee-based business, the wealth business and otherwise, there are other categories that we would hope to grow there like treasury management, for example, that -- so it's good execution, improvement in profitability, continue to return capital to shareholders. Those are the things that we're focused on as sort of very basic blocking and tackling, but being focused on the areas that we think provide the most return for our shareholders.

But another way to say that is that's just a steady compounder, right? No surprises, steady compounder and that earnings stream will be more highly valued.

Great. Well, thanks very much. With that, I think we can wrap it up unless there's any questions from the audience. But thanks very much for joining us today.

Thank you, Jared.

Thanks, Jared.

Welcome to the Eastern Bankshares, Inc. Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com.

Today's call will include forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Please refer to the company's forward-looking statement on Slide 21 of this presentation as well as the risk factors described in the company's SEC filings. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release and SEC filings.

I'd now like to turn the call over to Denis Sheahan, Eastern Chief Executive Officer.

Thank you. Good morning, and thank you for joining us. On the call with me today are Executive Chair and Chair of the Board of Directors, Bob Rivers, President and Chief Operating Officer, Quincy Miller; and Chief Financial Officer, David Rosato.

We are pleased with our strong second quarter performance, which reflects the enhanced earning power of the franchise and further reinforces Eastern's position as a premier bank in Greater Boston, one of the nation's largest and most affluent banking markets. Record operating net income increased 20% linked quarter and 30% from a year ago, driving an operating return on average tangible common equity of 15.3%.

Our results are a reflection of the priorities we have consistently communicated to investors, organically growing both banking and fee-based businesses and returning capital to shareholders. During the quarter, we grew loan balances and built healthy pipelines, generated meaningful deposit growth, increased wealth management assets to another record level and produce positive operating leverage.

Combined with the return of a significant amount of capital to shareholders, these results demonstrate we are successfully executing on those priorities and delivering on our commitments.

Turning to lending. The increase in period-end loan balances was primarily driven by broad-based growth in the C&I loan portfolio. Partially offsetting this growth were headwinds from commercial real estate payoffs, some of which were expected as we continue to work out acquired nonperforming loans. Looking forward, we are encouraged by the resiliency of customers as the commercial loan pipeline finished June at a record quarter end level and is well diversified across businesses. We continue to benefit from the investments we've made in talent in recent years.

In addition, our ability to combine local decision-making with the breadth of products and services typically associated with larger banks continues to differentiate Eastern and contribute to growth. The meaningful increase in deposits was due to seasonal municipal inflows and broad-based growth across business lines. As a result, the loan-to-deposit ratio improved to 91% at quarter end compared to 93% at March 31. While the deposit environment remains competitive and costs move modestly higher, we remain committed to balancing deposit growth with margin performance. Importantly, the strength of our core deposit base and limited reliance on wholesale funding provides us with the flexibility to stay disciplined.

Wealth management is an important component of the Eastern franchise and our long-term growth strategy. Momentum continued as wealth assets increased for another record high at $11.5 billion and fees had strong growth year-over-year. Our wealth business not only provides recurring fee revenue and earnings diversification, but also strengthens customer relationships across the franchise. The growing connectivity between our wealth and banking teams, including private banking, continues to create more client engagement and new business opportunities.

Our comprehensive solutions-oriented approach is resonating with clients, reinforcing our value proposition. Given the wealth demographics and strength of the Cambridge Trust brand and our footprint, we are encouraged by the long-term outlook of the business. Asset quality remains strong. Net charge-offs were stable but nonperforming loans improved for the second consecutive quarter following the HarborOne merger. We are very confident in our credit profile, including the sectors that have received greater attention in Boston, such as life science, which we have limited exposure. We know our office portfolio exceptionally well and it continues to perform within our expectations.

Importantly, every office loan over $5 million is re-underwritten annually, providing us with a current and comprehensive view of each property. Overall, we view our asset quality as a source of strength, reflecting conservative underwriting and proactive risk management.

Finally, given our profitability, we continue to generate capital in excess of our growth needs. As we have guided, we are committed to rightsizing our capital position. That commitment was evident again this quarter by returning $106 million in capital to shareholders through share repurchases and quarterly dividend. Notably, even after returning a sizable amount of capital this quarter we increased tangible book value per share at a 7% annualized rate.

In addition, given the strength of our balance sheet and enhanced earnings power, the Board approved a new 5% share repurchase program underscoring confidence in the company's long-term intrinsic value.

In closing, we are grateful for our customers, colleagues and community partners whose trust and support position us for future growth in the markets we serve.

David, I'll hand it over to you to provide further details on second quarter financials.

Thanks, Denis, and good morning, everyone. Our second quarter financial performance was strong with record operating net income and we continue to see positive trends in many areas of the business.

Highlights from the quarter include further improvement in key financial metrics, notably, return on average assets and return on average tangible common equity. Positive operating leverage driven by margin expansion accompanied by diversified fee revenue growth and lower expenses.

Solid balance sheet growth, supported by strong commercial lending activity and higher deposit balances. A significant capital returns to shareholders and sustained excellent asset quality with positive credit trends. We reported net income of $105.2 million or $0.48 per diluted share. Excluding $1.6 million of nonoperating expenses related to the last remaining HarborOne merger-related costs.

Operating net income was $106.5 million, or $0.49 per diluted share, an increase of 20% linked quarter. Our focus on growing revenues while thoughtfully managing expenses produced another quarter of positive operating leverage. As a result, the operating efficiency ratio improved 49%, contributing to a 21 basis point increase and operating ROA to 138 basis points and a 250 basis point improvement in operating return on average tangible common equity to 15.3%.

As displayed on Slides 5 and 6, revenue growth accelerated during the quarter as both net interest income and noninterest income contributed meaningfully. Net interest income grew 3% from Q1 as the margin expanded 3 basis points to 3.66%. Higher asset yields more than offset increased funding costs. Total interest-earning asset yields increased 4 basis points, supported by favorable loan and securities repricing while interest-bearing liability costs rose 2 basis points due to modestly higher deposit pricing.

Net discount accretion remained stable at approximately $20 million and contributed 28 basis points to the margin, which was consistent with the first quarter. Growth in operating noninterest income was strong and diversified, increasing $12.8 million or 28% from the first quarter. The largest contributor to the variance was an $8.9 million increase in income on investments for employee retirement benefits, reflecting stronger equity market performance.

This favorable impact on fee income was partially offset by a $3.4 million increase in related benefit costs reported in noninterest expense. Noninterest income also benefited from notable growth in investment advisory fees and interest rate swap income. The increase in investment advisory fees was driven by higher wealth management assets and seasonal tax preparation fees, reflecting both continued business momentum and the value of our comprehensive wealth management services we provide to clients. The higher swap income was due to increased commercial loan volume and greater customer adoption of interest rate risk management solutions.

Turning to expenses on Slide 8. Improvement in both nonoperating and operating costs drove a $30.7 million or 15% reduction in noninterest expense linked quarter. Nonoperating expense decreased $29.2 million, largely driven by lower merger-related costs. On an operating basis, noninterest expense was down $1.5 million.

The current quarter benefited from cost synergies achieved following the HarborOne core system conversion in February and were primarily reflected in lower salaries and benefits as well as occupancy and equipment expenses. These improvements were partially offset by higher professional services costs, primarily related to shareholder advisory fees as well as an increase in other operating expenses, primarily driven by growth in off-balance sheet commitments.

Moving to the balance sheet. Starting with deposits on Slide 9. Balances increased $814 million or 3.2% linked quarter due to seasonal municipal inflows and broad-based growth across our business lines. While we expect a portion of the municipal deposits to seasonally outflow in Q3, we are encouraged by overall growth in the quarter. As we guided on our Q1 call, we took targeted actions in Q2 to appropriately position offerings to defend and grow our market share. This resulted in upward pressure on deposit costs. Total deposit costs of 147 basis points increased 1 basis point for the quarter and the spot deposit rate for June was 1.51%, which is a reflection of elevated competition for deposits in the New England market. We are focused on increasing deposits to support our growth strategy.

However, as Denis stated earlier, we remain committed to balancing growth with margin performance. Looking at loans on Slide 10. Period-end balances increased $325 million or 1.4% linked quarter. Growth was driven by strong C&I production, which increased more than $300 million partially offset by continued commercial real estate payoffs. We finished June with a record quarter-end commercial pipeline of nearly $1 billion, which gives us strong confidence in origination activity in the coming quarters.

Turning to consumer lending. Home equity balances increased by $59 million given the strong underlying demand across our footprint for this product. We see home equity as an attractive area for growth. Residential mortgage balances were down slightly from Q1. Our expectation is the resi portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth.

As seen on Slide 12, our capital position remains strong, as indicated by CET1 and TCE ratios of 13% and 10.1%, respectively. We are focused on rightsizing capital through organic growth, share repurchases and quarterly dividends. We expect to continue to generate excess capital and are managing our CET1 towards the median of the KRX, which is currently 12%. We returned a significant amount of capital to shareholders during Q2.

In addition to $33.1 million of cash dividends paid, we repurchased 3.6 million shares for $72.7 million at an average price of $20.03, which was $0.46 below the VWAP for the quarter. As a result, our diluted common shares outstanding were 217.6 million as of June 30. At quarter end, 1.3 million shares remain in the current share repurchase program.

The Board authorized a new repurchase program of up to 11.3 million shares or 5% of common stock outstanding. The program expires on December 31 2027. In addition, the Board approved a $0.15 dividend to be paid in September.

As displayed on Slide 13, asset quality remains excellent. Net charge-offs to average total loans were stable at 17 basis points, and NPLs improved as expected, falling by $29 million linked quarter to $109 million or 47 basis points of total loans. Notably, NPLs improved in both the legacy Eastern and acquired HarborOne portfolios, and we expect further credit resolutions in the quarters ahead. Criticized and classified loans decreased modestly from the first quarter. The improvement was driven by lower criticized balances in the legacy Eastern portfolio largely offset by an increase in HarborOne loans.

As we further deepen our knowledge of the acquired portfolio, we continue to refine risk ratings. The increase in Q2 was attributable to a small number of loans, all of which we believe present no risk of loss. Before turning to Q&A, I'd like to spend a few minutes on our full year 2026 outlook on Slide 14. We're entering the second half of the year with healthy commercial loan pipelines an exceptional deposit base, strong asset quality, improved efficiency, continued wealth management momentum and substantial capital flexibility. All of which position us well to deliver attractive returns for shareholders.

With that said, we have revised our full year outlook to reflect our performance through the first six months of the year. On the balance sheet, we are narrowing our loan growth outlook to a range of 3% to 4% from our prior expectation of 3% to 5%. The change primarily reflects the slower-than-anticipated start to the year in the first quarter. That said, second quarter production was solid and commercial pipelines ended June at a record quarter end level approaching $1 billion, which gives us confidence in continued growth momentum through the balance of the year.

Conversely, reflecting the meaningful growth in deposits during Q2, we are increasing our deposit growth outlook to 2% to 3%, up from our previous range of 1% to 2%. From an earnings perspective, softer loan growth in Q1, lower than anticipated accretion year-to-date and a highly competitive deposit environment are impacting our expectations for net interest income and margin.

Accordingly, we now anticipate net interest income in the range of $1.005 billion to $1.020 billion for the year with an FTE margin of 3.60% to 3.65%.. While these ranges are modestly lower than the previous outlook, we continue to expect solid profitability in the second half of the year. Credit performance remained strong and trends were positive over the first 6 months. As a result, we are lowering our provision outlook to a range of $25 million to $30 million from our prior range of $30 million to $40 million. As always, actual provision levels will depend on the evolving economic environment. We are also narrowing the outlook range for operating fee income to $195 million to $200 million, compared to the original range of $190 million to $200 million.

In addition, the successful HarborOne integration and realization of cost synergies are supporting improved efficiency and expense discipline. Therefore, we are tightening the operating noninterest expense outlook to a range of $655 million to $665 million, from the previous range of $655 million to $675 million.

Finally, the outlook for operating tax rate and capital levels remain unchanged. This concludes our remarks, and we'll now open up the call for questions.

[Operator Instructions] The first question comes from [ Feddie Strickland ] of Hovde.

Wanted to start on deposit competition. costs held in better than I might have expected this quarter, just given some of the commentary. Last quarter on expectations on competition and really solid growth here. Has competition maybe been a little bit less of an issue than you expected? I know it's still strong, but maybe a little better than you anticipated? Or do you just expect more of an acceleration in those costs in the back half of the year?

Good morning, Feddie. It's -- I would label it as relatively constant. And our expectation is the same for the back half of the year. Maybe it was a little -- it accelerated a bit during the second quarter, modestly, but I don't really see any reason with current market expectations of higher rates that competition will lessen in the near term.

Got it. Fair enough. And then just on the other side of the balance sheet, is it fair to assume there's still more to go here on yield expansion, just given I'd assume loans in the pipeline are probably above portfolio rates, and you still got a good bit of repricing loans on Page 18 of the deck.

Yes, I would characterize your comments as consistent with our thinking. There's a multiyear asset repricing story, which we detail in the deck. And just one small item to point out, if you just look at the loan portfolio because of the C&I -- the strong C&I growth in the quarter, the floating rate component of that portfolio ticked up quite a few percentage points, which is a positive if you think about a Fed tightening cycle, possibly beginning.

The wildcard, which is kind of what we've talked about last quarter is just with that long-term asset repricing what's the state of deposit costs going to be? That's the back half of the year falls.

Understood. And just a real quick one last one. Do you have the weighted average rate on what's in the pipeline today?

No, I don't have it. But directionally, I would say consistent with the second quarter. There's some modest commercial real estate spread tightening that's occurring. I think -- we've talked about that a little bit. Other banks have talked about it. But away from that, we're seeing relatively steady spreads across all of our businesses.

The next question comes from Justin Crowley from Piper Sandler.

On the NII guide, and I know the bias has already been towards the lower end previously, but following up a little on what was just said, thinking about the margin outlook from [ here ], which kind of implies flat to down through the balance of the year, the thought now that just what you've got on the asset repricing side, isn't going to be enough to outrun whatever you see as far as the funding cost pressure that you were talking about. Is that kind of the right way to think about it?

Yes. I would just go back to kind of the same response as we gave to Feddie, which is there's a clear back book repricing going -- that's going to go on, on our fixed rate loan book and our securities portfolio. And you saw, especially in the securities portfolio, a nice uptick in the quarter. That's clear. And that's really regardless of what happens to interest rates as well. The deposit pressure, frankly, is hard to know exactly how that will evolve, especially if you think that we're going to have a more aggressive Fed.

So the two counteracting forces and deposits will as we said last quarter, we'd probably pick up 2 to 3 basis points a quarter. That's probably another basis point or 2 higher is how we've answered that question. And if we're right, it's generally those 2 should offset each other with a little bit, with the deposit cost eating into the positive asset repricing, costing us a few basis points of margin.

Okay. Got you. That's helpful. And then just on deposit balances and the growth for the quarter, which is strong. And it looks like most of that came from money market accounts and you kind of called out the seasonality in municipal. But just curious how you're thinking about growth from here just from a mix standpoint.

I think it's going to be generally consistent. The CDs will probably grow less than money markets. There is a clear preference, we believe, for money markets rather than term product, but we did see growth in both of them in the quarter.

Okay. Got it. And then just one last one. Just on the payoff activity on the CRE side, I know it could be tough to predict, but do you have much line of sight or just any thoughts on how that should trend through the remainder of the year. Would you expect that pace to slow at all just given the move that we've had in rates?

Yes. We -- it was elevated definitely in Q2. We do think there's a moderation in the back half of the year. Hard to know exactly how much, but we do think Q2 was abnormally high for us. And just a little color about half of those came out of the HarborOne portfolio and about half of those payoffs came out of the legacy Easter portfolio.

The next question comes from Jared Shaw of Barclays.

Just to keep on the interest income side. Was there anything on the loan yields. Did you have any interest recoveries from some of those NPL reductions in loan yields this quarter?

No.

Okay. So that's sort of a good -- that loan yield is a good base to look at going forward? And then, I guess, just sort of separately -- sorry.

Jared, I was just going to point out accretion income was consistent quarter-to-quarter. So the impact on the margin was the exact same each quarter.

Okay. I guess just on that, any thoughts on expected accretion sort of through the rest of the year just sort of trending? Should we just assume sort of steadily grinds lower from here?

Yes, if anything, maybe just a slight tick down. So last quarter, if you remember, we talked about a range of $21 million to $22 million in the last two quarters, we've come in at $19.5 million. We think that $19.5 million is about that run rate. Commercial is actually higher -- is coming in higher than our original expectations.

However, the resi portfolio is coming in a little slower because prepaid speeds have slowed down.

Okay. And then, I guess, shifting over to the wealth management side, good trends there. What's the competitive landscape looking like up there. We're hearing other banks really making a big portion of hired people. Are you seeing that -- is it more difficult to attract that incremental new customer here? And I guess how are you trying to differentiate your product from others in the market?

Jared, it's consistently competitive. I mean, yes, there are others who are entering the market and looking to grow in this space. But we have had very robust pipelines, and our outlook for that is to continue certainly into the back half of this year and beyond. And one of the unique things about our franchise is that there's a lot of upside within the Eastern customer base. If you go back just a few years, the primary fee business at Eastern was insurance. Now the primary fee business is wealth management. So when you think of the opportunity that our colleagues in the retail branch division and in commercial lending have to refer, it's -- they're thinking now about wealth, whereas in the past, that might have been thinking about insurance.

So we believe there's a lot of upside both within our customer base and in the market. And we're finding a way. It's -- we're in the early innings, we believe of the growth as possible in this business, and we're pretty excited about it.

Your next question comes from Damon DelMonte with KBW.

So just curious if you could provide a little color on the commercial pipeline. A lot of positive commentary about it being at record levels. Just kind of looking for a little color on what industries and what types of loans that you guys are getting good looked at?

So Damon, thanks for the question. It's broad-based. If we look at our growth that we had in -- just here in the second quarter, it really was well diversified across many industries. And it's really a testament to the team in commercial their focus, the talent that we brought in that is now beginning to hit its stride.

So it really and truly is -- it's not concentrated in any one particular industry. And our pipeline in commercial real estate and in community development lending is also very strong. We certainly -- we didn't experience growth in CRE in the last quarter. But as David has referenced, we're working through a lot of acquired loans and beyond that, just payoffs in the marketplace. But we would expect the payoffs to decrease in the back half and we should see growth in CRE as well. But good activity, our customers are feeling reasonably optimistic and that's being reflected in our loan pipelines.

Got it. Okay. Great. That's helpful. And then maybe just one on the expenses. Could you just maybe talk a little bit about your approach with continuing to have a tight restrictor on expense growth, but then also balancing that with investing in technology and other areas of the footprint, making strategic hires and things of that nature?

Sure, Damon. Expense management just it's a day-to-day activity. Fortunately, this is a company that is relatively just thrifty in its mindset and has a good history of thoughtful expenses management. We are looking -- we're always looking for opportunities to save money to redirect into technology. That's -- we're not unique in that, obviously, but we work extra hard on that trade-off trying to push the use of AI and other technology to support our customers and increase productivity. You can tell by our guide we lowered the top end on expenses. And I feel really good about expenses in the back half of the year.

And I'll just add to that, we're always looking for talent. We have opportunities to bring in talent to help grow revenue in the future where we're absolutely open for business.

Your next call comes from Janet Lee of TD Cowen.

This is Brad D'Alessandro on for Janet. My question is noninterest-bearing deposits. One of the key themes of this earnings season has been noninterest-bearing deposits, and you've had a couple of strong quarters of growth here on an average basis, but end of period was down slightly. Do you expect noninterest-bearing as a percent of a total to flatten out here in the back half of the year?

Brad, you were breaking up a little bit. Was the question, our thoughts around noninterest-bearing DDA balances?

Yes, that's correct. Sorry, I don't know if that's any better now -- that's correct.

Okay. Okay. Good. I want to make sure we answered the right question. I feel generally positive about it. It's -- it's not going to grow at the pace that money markets are going, for example, obviously, but it's the bread and butter of new customer acquisitions and holding on and growing the relationships that you have. So I expect modest growth there only.

Great. And then one quick one on -- really on buybacks, right? So with CET1 around 13% and continue to trend towards that stated 12% target with the new 5% repurchase authorization in place. Is there any cadence we should think about buybacks over the next few quarters?

The -- yes, I mean, what I would say is on the current buyback that we're getting close to completing the -- our stock has moved up appreciably. We've outperformed the KRX. And then obviously, the industry has moved up. So we're trying to work through and prudently manage the buyback and the pace of the buyback recognizing that we're trading at a higher valuation. Whether it's priced earnings or price to book.

So we think of executing the buyback and basically two components, a core amount because we're generating excess capital this quarter, we essentially bought either returned capital in the totality of what we earned in the quarter. And the other component is the opportunistic piece that is more scale to trading valuations.

So a little reluctant to get overly definitive on the pace of getting from currently 13% to 12%. It is clearly our target, and we will achieve it. But the market trading multiples will be a determinant in the final pace.

Your next question comes from Laurie Hunsicker with Seaport Research.

Just wanted to go back to the Slide 14, your NII growth or NII, I should say, guide, I'm not growth guide, but -- of the $1 billion, how much do you have modeled for accretion income in that figure?

That accretion income in the -- so you're asking for the full year or the back half of the year?

It doesn't matter, how [indiscernible] right -- so you weren't...

Yes. For the full year. Yes. So either way, and it's about $80 million full year. It's about $40 million in the back half, half of that.

In the back half?

Yes, it was $19.5 million Q1, $19.7 million Q2, running slightly below our original expectations.

Right. Okay. Okay. And then on expenses, I mean, obviously, no more merger charges, which was great, but you still have, I think, a little bit more cost saves that you're picking up. Can you help us think about what the HarborOne cost saves are going to look like and when they're fully realized? Is it a 3-quarter event or a 4-quarter event? How much are you still picking up there?

The -- those cost saves are basically done the 40% that we advertised or telegraphed.

Okay. So that $55 million fully baked now into the run rate. Okay. And then I guess, the professional services line had a big jump that had been running $2 million, $3 million, it was up last quarter, but now it's doubled here almost $6 million. Where does that line go and maybe just help us think about what is that. Is that a one-off or that going down?

Well, no, we detailed it in the slides. So it's a onetime, it was $2 million expense related to advisory services, shareholder advisory services.

Okay. Okay. So I mean, we -- so where is the run rate down on that? It's about $4 million going forward?

That $2 million will fall -- that $2 million falls out of the run rate going forward.

Okay. Okay. Great. And then just last question. I know we spent a lot of time on the cost of deposits. But borrowings, can you just talk a little bit about that? You -- obviously, you increased on a weighted basis for the quarter, but it looks like right at period end, sort of cut it in half there and that was costing 370. How are we thinking about borrowing for the back half of the year? How are you thinking about that?

Well, I mean, simply, the borrowings is the wildcard balancing loan growth and deposit growth. So we had really strong -- we had both strong growth in the quarter of loans and deposits and deposits outpaced loans, a little over $800 million versus $300 million and change for loan growth.

Therefore, once you net out securities as growth as well, we were able to reduce our borrowings. And those borrowings are essentially federal home loan advances.

Right. I mean, so what would you expect in the back half of the year? Are your borrowings going to track close to where you ended, i.e., $350 million? Or is that -- is that going to go back up when the municipal deposits fall off? How should we think about that? Because that's your obviously most expensive cost.

Yes. I mean it's hard to answer. I mean, we're telegraphing good loan growth. So the wildcard is going to be what we wind up doing in securities portfolio and then how deposit competition and our success also over the quarter. That number can move $100 million or $200 million in a quarter, and that's from my perspective, no big deal.

Laurie, just one further thought there is, from an earnings perspective, that becomes the issue, that's 3.75-ish, maybe a little higher money relative to deposit costs, average deposit costs of 147 basis points in the quarter.

The next question comes from Matthew Breese of Stephens Bank.

A couple of quick modeling and then a couple of big picture. First one, Dave, I don't know if I missed it. I'm sorry if I did. Within the NII guide, any sort of forecasted changes to rates. You spoke a couple of times about potential rate hikes, I agree. And then how does NII or the NIM respond at this point to each 25 basis point hike?

Sure. Yes, Matt, the -- so part of the NII change is volume related. We're slow on loan growth in Q1, but it's also interest rate related. And it's roughly -- our original guidance had 2 cuts, so 50 basis points total of cuts. We're now thinking there's one tightening in the back half of the year. So a 75 basis point differential on the short end of the curve and a flatter yield curve. So that's the interest rate question and the thought around one of the reasons around the lower net interest income outlook. The -- from an interest rate risk perspective, we are still relatively neutral to interest rates and have been for a long while.

With that said, 25 basis points of steepening or flattening is about 1 to 2 basis points to margin. And again, that's been consistent for quite a period of time for us. I know I've talked about it on previous calls.

Great. Okay. Very helpful. The other one is within fees, the income or losses from investments from employee retirement benefits. I'm going to be honest, I have a tough time modeling this one. Can you help me out what's baked into the forward guide for the last couple of years has been about $10 million a year. Is that a reasonable place to be?

It's hard for you, and it's hard for me. It's -- those investments have an equity market component. When we think about it, we try to think with no market impact. So no effect in fee income and don't forget there's an offsetting employee benefit expense as well. The -- but we've had strong equity markets, especially in Q2, and that produced that income. It's basically from a modeling perspective, you're making a judgment on what equity markets will do in each quarter. And I try to just be neutral about that, to be honest with you. But the reality is it's been a positive this year, and it was it was positive last year as well.

Okay. Bigger picture, considering the background of some of the executives now at Eastern and continued disruption in Connecticut now with Webster being sold. Is there opportunity there for you all on either side of the balance sheet hiring opportunities have you considered that?

Yes. We're open to talent opportunities in any of the markets that we operate in. So Matt, you may or may not recall, we do have a wealth management office in Connecticut. So perhaps thinking about other areas of the income statement or balance sheet, we'd welcome those opportunities, and we are always looking for talent, as I said earlier.

Okay. And then the other one I had, there's been, to Jared's point, a bunch of larger banks even going back the last handful of years to enter or try to enter or make a big push in Boston. It's hard to miss some of, I won't name names, but who's advertising for the local Red Sox games. Curious as we've seen increased competition, how much is coming from new versus existing entrants. And for the new entrants, how are they doing in terms of deposit market share historically, Boston has been a parochial market pretty loyal to existing banks in the area? And I'm curious if anything has changed on that front.

I mean it's -- look, Matt, it's a story that just continues to evolve. We've had new entrants to this market before, and that will continue. It's a very attractive market. It's why we feel so good about being here. This is our home base. We're the local bank. And -- so the competition, whether it's in the wealth management business or in the banking business, it just continues to increase, but we're comfortable that we can find our way and continue to put up good numbers for our shareholders quarter after quarter, year after year. It's intense and but it's been intense before. I don't -- then President Quincy Miller is here right next to me, Quincy, how would you describe it?

Yes. I would echo that. What I'd say is they've all been here on the commercial side. That's not new. They've been here for well over a decade. The increased pressure is really more on the consumer front. And -- but we carve out our own niche year as a $30 billion local community bank, we offer a great value proposition for clients who are looking for that. And so we continue to compete and we'll continue to compete to the future, I think, very well.

There are no further questions at this time. I will now turn the call over to Denis Sheahan for closing remarks.

Thank you, everybody. Thanks for your interest, your questions. I look forward to speaking with you at the end of our next quarter.

This concludes today's conference call. You may now disconnect.

Welcome to the Eastern Bancshares, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions]. Please note that this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com which will be referenced during the call.

Today's call will include forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied due to a variety of factors. These factors are described in the company's earnings press release and most recent 10-K filed with the SEC. Any forward-looking statements made represents management's views and estimates as of today, and the company undertakes no obligation to update these statements because of new information or future events.

The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release. I'd now like to turn the call over to Denis Sheahan, Eastern Chief Executive Officer.

Thank you, Rob. Good morning, and thank you for joining our call. With me today on the call are Bob Rivers, Executive Chair and Chair of the Board of Directors; Quinsey Miller, our President and Chief Operating Officer; and David Rosato, our Chief Financial Officer.

Our first quarter performance was solid and in line with our expectations with results reflecting the impact of typical seasonal trends. Operating income increased 31% and operating earnings per share increased 18% from a year ago and generated an operating return on average tangible common equity of 12.8%. As expected, period-end loan and deposit balances were down modestly from year-end. However, customer sentiment remains positive and commercial loan pipelines ended the quarter at record high levels, giving us confidence for strong activity in the coming quarters.

Following a record year of originations, our commercial lending team remains energized and that momentum is carrying into 2026. Overall, we believe Eastern is well positioned to deliver meaningful value to shareholders by executing on organic growth opportunities and a consistent return of capital. We continue to see positive trends across many areas of the business. First quarter highlights include continued momentum in Wealth Management with positive net flows approaching $400 million in the quarter.

Solid build in loan pipelines for both commercial and home equity lending, strong asset quality, significant capital return to shareholders and the successful completion of the Harbor One merger core system conversion. Wealth management is an important component of our long-term growth strategy. Beyond strong investment solutions and results we provide comprehensive wealth services, including financial, tax and estate planning as well as private banking. Wealth assets increased to a record high of $10.3 billion including $9.8 billion in assets under management, driven by strong positive net flows, partially offset by weaker equity market performance. We've been pleased with the integration of the Eastern and Cambridge wealth teams, which continue to capitalize on the deepening alignment within our banking business, elevating client engagement and referral activity.

Notably, we have considerable opportunity to expand relationships within Eastern's client base, and our plan is to lean into that meaningfully over the next several years. Given the wealth demographics of our footprint, we are encouraged by the momentum of our business. Asset quality continues to be a real strength for us. Net charge-offs were 17 basis points, and we saw a solid improvement in nonperforming loans since year-end. We remain very comfortable with our risk profile with limited exposure to current higher-risk sectors, including private credit, software, life sciences and clean tech.

Our lending to non-deposit financial institutions or MDFIs as defined by the call report, is less than 3% of total loans and as low risk as it is largely centered on organizations that provide affordable housing in Massachusetts, REITs that lend in our market, mostly in the multifamily space. and a small number of asset-based lending relationships we know well. Overall credit trends are positive and reflect the quality of our underwriting and deep knowledge of our customers, communities and local economy. Importantly, as the macro and geopolitical environment continues to evolve, we remain vigilant and closely engaged with our customers and consistent with our proactive risk management approach we will address any emerging issues prudently and quickly.

Turning to capital. Given our profitability, we continue to generate capital in excess of our growth needs, we remain focused on rightsizing our capital through a combination of organic growth, share repurchases and quarterly dividends. This was evident in the first quarter as we repurchased 3.9 million shares for $75.1 million. As of quarter end, we've completed 59% of the current authorization and we expect to finish the program around midyear, at which point we anticipate executing a new authorization subject to regulatory approval.

In addition, we announced a 15% dividend increase, marking our sixth consecutive year of dividend growth since becoming a public company, reinforcing our commitment to deliver consistent capital returns to shareholders. In February, we successfully completed the Harbor One merger core system conversion. With this milestone behind us, we are excited to realize the full potential of the combined franchise. This achievement reflects the extraordinary efforts of our employees, particularly given the conversion was partly executed amid a significant snowstorm in Greater Boston. I want to sincerely thank everyone who contributed to this effort for their dedication and teamwork.

Importantly, we remain on track to capture the merger's targeted cost savings and onetime charges are largely complete with approximately $2 million remaining in the second quarter, bringing the total to $67 million. Before turning the call over to David, I wanted to spend a moment on artificial intelligence, a topic we are frequently asked about. Everything we are doing in AI is centered on improving how we deliver for our clients.

Our focus goes beyond streamlining processes and efficiency and is centered on the objective of knowing our customers better than we know them today. One of Eastern's long-standing strengths has been the depth of our client relationships and AI will allow us to scale that advantage in meaningful ways. It will enable us to better anticipate customer needs, provide more relevant product recommendations and engage customers at the right time with the right solutions. This will further differentiate our franchise through an even higher level of personalization that customers typically receive from much larger banks.

As a result, we view AI not only as an efficiency tool though it certainly will streamline workflows and improve productivity, but also as a driver of revenue growth. David, I'll hand it over to you to provide a review of our first quarter financials.

Thanks, Denis, and good morning, everyone. I'll begin on Slide 3 of the presentation. The first quarter marked a solid start to the year and was mostly in line with our expectations. We reported net income of $65.3 million or $0.29 per diluted share. Included in net income was $30.8 million of nonoperating costs, mostly related to the Harbor One merger. On an operating basis, earnings were $88.6 million or $0.40 per diluted share. While operating earnings decreased 6% linked quarter, they were up 31% year-over-year reflecting the enhanced earnings power of the company.

Looking at Slide 4. We are pleased with the continued strength of our profitability metrics while operating ROA of 117 basis points and return on average tangible common equity of 12.8% were down from Q4. Both metrics improved from a year ago when operating ROA was 109 basis points and operating return on average tangible common equity was 11.7%. We remain focused on driving sustainable growth and profitability. Moving to the margin on Slide 5. Net interest income of $244.7 million or $250.8 million on an FTE basis increased 3% from Q4. The growth was driven by margin improvement due to lower cost of funds, partially offset by $3.1 million of lower net discount accretion, which totaled $19.5 million compared to $22.6 million in the prior quarter. Excluding accretion, net interest income increased approximately 5%.

As you all know, quarterly accretion income can be lumpy. Looking ahead, we expect accretion to average $21 million to $22 million per quarter. In Q1, accretion of $19.5 million was about $2 million below trend. The net interest margin expanded 2 basis points linked quarter to $3.63. The improvement was driven by a 16 basis point reduction in interest-bearing and liability costs, reflecting improved deposit pricing. This more than offset a 7 basis point decline in yield on interest-earning assets, primarily due to lower loan yields, partially offset by higher security yields. Net discount accretion contributed 28 basis points to the margin compared to 34 basis points in Q4.

Excluding the impact of accretion, the margin expanded approximately 8 basis points from the fourth quarter, highlighting the underlying strength of our core margin performance. We have included a new disclosure report on the repricing characteristics of our interest-earning assets on Page 18 in the appendix. Excluding the impact of cash flow hedges, which are in runoff mode, $1 billion or approximately 35% of our total loan portfolio is floating at current rates. The remaining $14.9 billion is comprised of variable and fixed rate loans of $4.1 billion and $10.8 billion, respectively.

The time buckets reflect the dollar value of any repricing or cash flow events for the portfolio, including projected prepayments based on the forward yield curve. We have also disclosed the projected yields as assets run off the balance sheet, inclusive of purchase accounting. Current loan origination yields are 5.75% to 6% for commercial, 5.5% to 6% for residential, and HELOCs are indexed to prime. Excluding floating rate loans, we expect approximately $2.8 billion of turnover for repricing over the next 3 years. Based on current origination yields, this activity is expected to be accretive to NII and margin.

For the securities portfolio, we expect approximately $1.5 billion of principal cash flow in the next 3 years at a weighted average book yield of 2.86%. Again, this cash flow will be accretive to NII and margin. Turning to Slide 6. Noninterest income for the quarter was $43.6 million, a decrease of $2.5 million compared to the fourth quarter. On an operating basis, noninterest income was $45.1 million, down $1.6 million. The largest contributor contribute to the variance was a $1.9 million loss on investments related to employee retirement benefits, reflecting weaker equity market performance.

This compares to $1.7 million in income for the prior quarter, resulting in a $3.6 million quarter-over-quarter reduction in noninterest income. The unfavorable impact on income was partially offset by a $1.2 million improvement and related benefit costs reported in noninterest expense. Conversely, noninterest income benefited from a $2.9 million increase in miscellaneous income and fees. Primarily driven by a $1.7 million gain on the sale of commercial loans. This gain is related to a Harbor One loan workout that resulted in a note sale above our remaining fair value mark.

Turning to Slide 7, we highlight Wealth Management, which is our primary fee business and accounts for more than 40% of noninterest income. Wealth assets increased to a record $10.3 billion, including AUM of $9.8 billion, driven by strong positive net flows. We're particularly pleased with this performance given that weaker equity market conditions during the quarter created headwinds for asset values, yet we were still able to deliver growth. underscoring the strength of our client relationships and full-service capabilities. Fees decreased modestly from the fourth quarter, but increased nearly 12% from a year ago primarily driven by strong growth in assets.

Moving to Slide 8. Noninterest expense was $198.6 million, an increase of $9.2 million compared to the fourth quarter. The increase was primarily driven by seasonal costs and a full quarter of Harbor One operating expenses, partially offset by lower nonoperating costs. On an operating basis, noninterest expense was $167.9 million, up $11.8 million from the prior quarter. The increase reflects seasonally higher payroll and benefit-related costs as well as the full quarter impact of Fiber One. The largest contributors to the quarter-over-quarter increase were salaries and benefits of $10.6 million. Occupancy and equipment costs increased $2.1 million and technology and data processing expenses rose $1.2 million.

These increases were partially offset by a $2.2 million reduction in professional services expense. Nonoperating noninterest expense of $30.8 million decreased $2.6 million, primarily due to $1.8 million of lower merger-related costs and $800,000 lower other nonoperating expenses. As a reminder, the first quarter typically represents a seasonally high point for expenses, and we expect a moderation in the quarterly expense run rate over the remainder of 2026. Importantly, with the completion of the Harbor One core system conversion in February, we remain on track to achieve the projected merger cost savings. Moving to the balance sheet, starting with deposits on Slide 9.

As expected, balances declined from year-end. Deposits finished the quarter at $25.1 billion, down $366 million or 1.4%, primarily due to seasonal outflows at elevated competition for deposits. In addition, $81 million of Harbor One's broker deposits matured in Q1. Total deposit costs decreased 13 basis points to 1.46% and primarily driven by lower costs and time deposits and money market accounts. We are committed to increasing deposits to support our loan growth strategies. The New England deposit environment remains competitive, and we are taking targeted actions to ensure our offerings are appropriately positioned to defend and grow share.

While these efforts will result in some upward pressure on costs, we remain focused on balancing growth of our high-quality deposit base with that of the margin. Notably, retention of Harbor One deposits has been consistent with our expectations. Turning to Slide 10. Total loans declined modestly from year-end, consistent with our expectations. Period-end balances were down $187 million or less than 1%. The decrease was driven in part by nonperforming loan resolutions of $35 million and commercial real estate payoffs. We are pleased C&I continue to be a source of growth with balances increasing $49 million or 1.1% from year-end.

We finished the quarter with record commercial pipeline of approximately $800 million. which gives us confidence in strong origination activity in the coming quarters and supports a favorable growth outlook as we move through the year. We continue to benefit from the strategic investments we have made in hiring talent and our differentiation in the market. We can deliver the breadth and products and services typically associated with much larger banks by retaining the certainty of execution that comes from local decision-making and a deep understanding of our customers and communities.

Turning to consumer lending. Home equity balances grew slightly during the quarter. We are underpenetrated in this line of business, and growth has been somewhat episodic. Largely due to capacity constraints within our legacy origination platform. We are in the process of implementing a new home equity origination platform, which we expect will improve speed scalability and consistency, enabling more sustained growth. Given the strong underlying consumer demand across our footprint for this product, we are excited about the opportunity ahead and we see home equity as an attractive area of growth. Residential mortgage balances were down approximately 1% from year-end.

Our expectation is the residential portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth. Turning to securities on Slide 11. We continue to be pleased with the overall quality and positioning of the portfolio. Balances increased $171 million since year-end, reflecting disciplined deployment into attractive opportunities. The portfolio yield increased 14 basis points to 3.18% for the quarter, supported by recent purchases. From a valuation perspective, AFS unrealized losses totaled $277 million at quarter end compared to $259 million at year-end. Turning to Slide 12.

Our capital position remains strong, as indicated by CET 1 and TCE ratios of 13.2% and 10.2%, respectively. As Dennis stated earlier, we are focused on rightsizing capital through organic growth, share repurchases and quarterly dividends. We expect to generate excess capital but plan to manage our CET1 towards the median of the KRX, which is currently 12%. Our commitment to rightsizing capital was evident in Q1 and with the repurchase of 3.9 million shares for $75.1 million at an average price of $19.33 which was $0.68 below the VWAP for the quarter.

As a result, our diluted common shares outstanding were 220.8 million as of March 31. Second quarter to date, we have repurchased an additional 740,000 shares through yesterday for a total cost of $14.4 million and now have 4.2 million shares remaining on our authorization. We have now completed 65% of the buyback. We currently anticipating completing the buyback around midyear, at which point we anticipate executing a new authorization subject to regulatory approval. Additionally, if the Basel III proposal to reduce risk weights on certain assets is adopted, our preliminary estimates suggest an increase to Eastern's risk-based ratios of approximately 1%, which will support additional share buybacks over time.

As displayed on Slide 13, asset quality remains excellent as evidenced by net charge-offs to average total loans of 17 basis points. Nonperforming loans improved as expected, falling nearly $35 million linked quarter to $138 million or 60 basis points of total loans. NPLs were lower in both the legacy Eastern and acquired Harbor One portfolios. Progress has continued in the second quarter, and we expect further credit resolutions in the quarters ahead. Reserve levels remain robust as demonstrated by an allowance for loan losses to $37.9 million or 143 basis points of total loans.

Criticized and classified loans of $801 million or 5.1% of total loans, were up modestly from $793 million or 5% of total loans at year-end. The increase was driven by higher criticized balances on the Harbor One portfolio, largely offset by continued improvement in legacy Easter loans. As we deepen our knowledge of the acquired portfolio, we further refined risk ratings and this led to the increase in Q1. In addition, we booked a provision of $5.8 million, up from $4.9 million in the prior quarter.

Finally, slides covering our CRE and investor office portfolios can now be found in the appendix. We remain focused on the investor office portfolio and believe the worst of the office loan issues are behind us. so we remain realistic in our outlook. The portfolio totals $1 billion or 4% of total loans. Criticized and classified loans are $160 million an improvement from over $170 million at year-end. Our reserve level of 6% remains conservative. Importantly, we reunderwrite all investor office loans of $5 million or more each year, and we recently completed that process during the first quarter with no unexpected findings.

Before turning to Q&A, I'd like to briefly address our 2016 outlook on Slide 14. At this time, we are not making any changes to full year guidance as the first quarter performance was mostly in line with our expectations. While there were some offsetting factors in the quarter, none alter our overall view of the year, and we remain confident in achieving the projections in the outlook. With that said, based on Q1 results, we may trend towards the lower end of the NII guidance range we shared in January.

In addition, we are mindful that the economic environment remains fluid. We continue to closely monitor conditions impacting our business, our customers and the communities we serve. Given the ongoing uncertainty around geopolitical developments, interest rates, inflation and broader market volatility, we plan to revisit our outlook at mid-year this visibility improves. That concludes our comments, and we will now open up the line for questions.

[Operator Instructions]. Your first question comes from the line of Feddie Strickland from Hovde Group.

Good morning, everybody. Just wanted to start off with a clarification. I appreciate the new interest earning asset pricing slide, and it seems like that's maybe a big part of the margin expansion story at this point. But just as a point of clarification, it's as projected yield on that. Is that where the yield is rolling off? Or where you expect those loans to be priced at?

That's the yield rolling off. Yes. And Feddie, just to be clear on that, there is a footnote that sense is on a non-FTE basis. That's -- I'll give you an example. So if you see the total security yield of $310 million, we reported that for the quarter, securities were $38 million. That 8 basis point difference is the FTE adjustment on those assets.

Got it. And I guess of the fixed loans that are repricing. I mean, how much of that is kind of fixed over the next year? Just trying to get a sense for what the opportunity simply from backfill free pricing is.

Well, we -- I mean we I mean if you look at the columns. Yes, Q4 to 6%, 7% to 9%, 10% to 12%, right?

Yes. You can see, we tried to break this out and obviously, we'll be happy to take feedback on this since it's the first time we've done it. But we tried to characterize the portfolio in the loan portfolio into the three major groups. Floating is prime and SOFR. And in commercial, that's SOFR-based in consumer, that's prime. Those are the HELOCs. Intermediate repricing and then what's fixed. We aggregated that in buckets thinking that the most useful information was the current yield by maturity bucket or so than the exact mix of whether that's fixed or floating.

Now what you'll find is within 3 months is the whole floating bucket. Everything else is fixed or variable, meaning intermediate term fixed, and that represents the repricing opportunity.

That's super helpful. And just one more for me. There's been some news of some larger competitors moving into the Boston market on the wealth side. Can you talk about the extent to which you've run into them so far? Have you expect any pressure there?

Sure, Feddie. So yes, there's frequently news of entrance into the market. We're not alone in understanding the very strong demographics from a household income and wealth perspective in New England and in Massachusetts, in particular. But it's always been a very competitive market. We'd expect that to continue. So new entrants don't disturb us. We're well used to competing with others in the market and have been for many years.

Dennis, I would just add to that. A lot of those new entrants are focusing higher asset amounts than our core, bread and butter.

Our next question comes from the line of Justin Crowley from Piper Sandler.

Just wanted to keep on the margin. You left the guide unchanged. And I think last quarter included two cuts in the guide. So -- just kind of curious with the Fed likely on pause here, how you should think about that impacting the NIM and just the expansion that you've laid out?

Sure. Thanks, Justin. So I would go back to what we've been very consistent for quite a period of time now is we are essentially interest rate risk neutral to NII. We've talked about on past calls that a steeper deal curve is better than a flatter yield curve, but it's relatively modest. I pointed out 1 to 2 basis points positive margin impact up per 25 basis points of steepness. So the -- we feel good about the NIM. We feel really good about the core NIM as well.

The only challenge around margin is really just two things: One, it's the variability of accretion that we've talked about in the past. We tried to point out, it was down $3.1 million linked quarter here had an impact on the reported margin; and then the other side the other issues or things that we think about is just the size of the balance sheet and then the growing issue for the industry is the cost of deposits.

Okay. And so on that latter point, just on funding costs, is that sort of the aspect that gets you to have a bias towards just the lower end of the range on NII? Are you thinking about deposit pricing pressure any differently here as you sit here today?

Yes. So yes, we put out the original full year NIM of $1.20 billion to $1.050 billion. We're thinking we'll be within that range, but we're concerned about being on the lower end of that range. That's really driven by two factors: one, loan growth. It was -- we expected weaker loan growth in Q1. It was slightly -- it was down slightly more than we were expecting. And so that's a volume issue on the asset side. And then it's a price issue on the liability side around the deposit base. We had really good deposit performance in Q1 from a price perspective, a little less so on a volume perspective.

Okay. Got it. That's helpful. And then just one last one. Just on loans. If you could just give a little more color on the loan pipeline. I know it's at record levels, but just what that what that mix looks like and what gets you confident these pull-through as customers continue to get their arms around some of the uncertainty that still exists today.

Sure, Justin. Happy to do that. So first of all, as David mentioned, our loan growth was a little softer than we expected in the quarter. And some of that is why the pipeline is as large as it is. We had a pretty rough first quarter in this part of the country in terms of weather. So something slipped a little bit. But we have a very -- a record high pipeline beginning the second quarter here. So we do expect to have very, very good closings.

In terms of -- before I give you the numbers, would things slip a bit because of perhaps what's going on geopolitically or what have you, we don't think so. Certainly, with the pipeline as it stands today. These are pretty far along in the process. It's a good mix between commercial real estate, C&I and community development lending with commercial real estate being about 57% of the portfolio C&I just under 30% and then the rest is community development lending, which is more affordable housing lending typically. So a really good mix, and that also gives us a lot of confidence in where that commercial loan pipeline is headed. We also feel really good about our consumer home equity pipeline. David referenced that a little earlier we think that will have good progress second and into third quarter, too.

Your next question comes from the line of Jared Shaw from Barclays.

Maybe sticking with the deposit side. you have good betas through first quarter. I guess if we're in a flat rate environment with some of the expectation that competition increases. Is this sort of peak beta, do you think here? And that could go going forward, we could see a little bit of pressure?

Yes. I mean the short answer is, yes, I think there will be betas will be slower to come down than they were going up, our beta was 46%. The -- we -- again, I'll go back to my original question as part of the original question of we're roughly interest rate neutral. That's good. But we -- I would expect probably a 2 to 3 basis point incremental cost to deposits as the year unfolds here, which is probably translates into 1 or 2 basis points to the overall margin.

Okay. And then do you have the spot deposit rate at the end of the quarter?

Yes, it was 142 basis points versus 146 basis points for the whole -- for the full quarter.

Okay. Okay. And then when you're looking at the sort of the competitive pressure. Is that primarily for attracting new money to the bank? Or is that -- you're expecting now to have to pay more for retention, maybe especially of retention of Harbor One?

I think of it as a bit of all of the above when -- just a little bit more color, thanks. We've talked about smaller banks being competitive in certain parts of our market repeatedly. That's kind of the nature of this market up here. I think what's changed is you're now seeing more aggressive pricing from larger banks. Some of that's to support what they're trying to do in wealth management. Some of that is online, and some of that is just larger banks being more competitive. So those dynamics are changing, that affects everything that affects it attraction of new money, but it also impacts existing because of the flows that you see just across your deposit base in normal times. There's a certain amount of money that's always in flight.

I think, Jared, I'd just add, I think you know we spend a lot of time thinking about our deposit base. It's a wonderful deposit base. And we're just signaling that we see we see cost increasing. But if you look at the trend and how we've managed this deposit base through a merger with the company that had a higher cost of deposits than we, if you look on Slide 9, now Q3 cost of deposits was 155 basis points. So through the merger, we've still been able to bring it down, as David said, spot is 142. So we spent a lot of time thinking about this, but we do think it's fair just to signal that there is competitive pressure on deposits. And we think that we'll certainly be affected to a degree by it. But even within that, we manage this deposit base very, very intently.

Yes. Okay. I appreciate that. And then if I could just one final one. What would be, as we look at second quarter, with some of the moving parts on salaries and the closing of the deal, what sort of a good salary level for second quarter? And then should we expect marketing expenses to maybe trickle higher with some of this deposit initiative too?

So let me kind of just go down the whole list. Yes, salary will come down Salary will be down linked quarter because of the timing of the merger as well as normal onetime in the first quarter. The tackle come down, occupancy will come down. The only thing I'm really thinking on the expense side is we were under a bit on professional. That will probably tick up, [indiscernible].

And marketing, yes, it's fair to say that's seasonal as well. Home equity promotions will be much heavier in the spring season heading into summer. And yes, on the deposit side. So you should see marketing tick up in Q2.

Our next question comes from the line of Damon DelMonte from KBW.

And David, I was just looking for a little bit of clarification on the guidance slide. If you look at the -- if you try to back into like the average earning assets, when you look at the NII range that you provided in the margin ranges you provided, if you were to kind of take the midpoint of that, that kind of puts you at about $28 billion in average earning assets, which is where you guys hit this quarter. So just trying to connect the dots here of looking at where the average earning asset balance could be during the year, kind of given the outlook for loan growth.

Yes. So the issue will be we have a strong pipeline from what we think will be, let's say, at end of the second quarter, we'll be right back on our expectations on an ending period basis. I think the issue, the crux of your question is really around the averages. So even though with that strong pipeline, we'll get back to what internally we say is budget. I do believe the averages are going to take a little longer to catch up. So where -- that's the thought process around the lower end of the margin or the net interest income guide. Lower average balances on the asset side and then not lower averages on the deposit side, but slightly higher costs.

Got it. Okay. All right. And then with respect to the outlook for provision, again, the guided range didn't change from last quarter. But it came in later this quarter as you guys continue to work through credits where you need to reserve for. So I guess how are you thinking about the provision going forward, just kind of given the composition of nonperformers and expected growth?

Yes. I mean, again, we're not long post this merger. So there's -- admittedly, there's a little bit of conservatism in not lowering the guide. We Obviously, credit improved a lot in Q1. Provision expense coming in at 58%. If you run rate that would take us towards the low end of the $30 million to $40 million. But we're just being cautious there with the dynamic of still early in the Harbor One and with what's going on in the macro economy.

Your next question comes from the line of Laurie Hunsicker from Seaport Research.

I just wanted to go back to expenses here. Can you just share with us what was the FICA expense and what was the snow removal expense this quarter?

Well, let's think about it linked quarter. FICA was up $3.1 billion linked quarter. Snow was up about $650,000 linked quarter.

Okay. That's great. And then do you have a spot margin for March?

Sure. 365. So up two from the quarter.

Right. Okay. Okay. And that includes basically the same amount of accretion that you reported in the quarter?

I mean we talk about accretion being lumpy quarter-to-quarter. It's even more lumpy month-to-month. But that's a good number, Laurie. I know in past costs, sometimes I'll adjust it for you. This one doesn't need adjusting.

Okay. Perfect. And then just last question here on credit. Obviously love seeing the drop in commercial nonperformers. So 2 parts to this. Can you share with us the drop in office nonperformers at $37 million, down to $11 million. Can you just share with us the resolution there? And then second part, the industrial warehouse, it looks like the nonperformers there keep going higher. So you went linked quarter $25 million to $41 million. Can you just tell us a little bit about that since that book is larger?

Sure. So Laurie, that was just a coding error that we found on Harbor One loans. So they -- when we -- when we closed the deal, that specific loan was coded as construction, but construction had been completed, and it should have been classified as industrial warehouse. So there's really no change there. And that was all considered as part of the credit mark reserve established against, et cetera. Nothing changed there. It was merely a reclassification from construction to industrial.

Yes. And then just -- there's nothing unusual in the resolution of any of those loans. They just Yes. I mean they were financed by another party. That's basically it, Laurie. We had reserves established, et cetera. We went through a whole workout on them and they're -- that project is now with new borrowers, not financed by us. It's -- that's simply it. Some -- I mean, we did call out the gain on that one commercial loan. So there was a loan sale in there. We generated the $1.3 million gain, which just -- the final resolution was better than the remaining fair value mark. So it was a good guide this quarter.

next question comes from the line of Matthew Breese from Stephens Inc.

Thanks for having me on. Maybe just thinking about the deposit strategy a little more. Is there a growth component or target, meaning there's a certain dollar amount of deposits you're looking to bring in because I guess what I'm worried about is, a, you certainly don't want to dilute your most valuable characteristic too much or unnecessarily so.

And then B, as you think about the promotional rates just on your website, money market and CDs and kind of the high 3s, low 4s versus incremental loan yields in the high 5% or 6% range. It's just not great for the incremental margin. And so I wanted your thoughts on all that, where do you start to cut this off dollar-wise to come in.

So we guided to, David, 1% to 2% deposit growth for the year. So we don't have outsized expectations in terms of growth. Again, what we're just trying to signal is that we are seeing deposit competition increase in the marketplace, which is perhaps higher than we anticipated at this point. It's coming from smaller competitors and larger competitors. So we're just trying to bring some reality to our forecast on that, but we're not we're not guiding to significant increase in deposit growth. Again, it was 1% to 2% for the year.

And I mean you referenced CDs and money markets. We also have checking what we call stacked offer, meaning different rewards for different levels of account balances across checking accounts, which is something this company has done for years very successfully. So it's not all coming in. All those deposit flows don't come in at that highest money market or C&E rate. And then I would just reiterate, we are not the high in the market either. And I'd say again, Matt, what I referenced earlier, which is how we've managed the cost of deposits over the past several quarters even when adding a bank that has a higher deposit cost than the legacy company from 155 basis points in Q3 to a spot of 142 at the end of the first quarter.

So that's -- you're right, this is a very material component of the company, our deposit base, an important one, but we manage it very deliberately. Understood. And then tying that back to the margin, as I think about the NIM guide for the full year and where you sit today, is it fair to say that we kind of end the year closer to the high end of the range versus the low end? Or what is kind of the cadence of the NIM throughout the year given everything you've outlined. Well, the somewhat dependent on the pace in the second quarter, the build of loan and deposit balances, but the -- we're expecting the core NIM without purchase accounting to incrementally improve each quarter.

And so -- and then I'll go back to the -- when we announced the Harbor One transaction a year ago at this point, we telegraphed a 3.70% margin that's the middle of the guide we gave in January, and we still think we'll be in that 10 basis point range. And we ended Q1 on a spot basis at 3.65% which is the low end of it.

Okay. I appreciate that. Last one, I think about the -- some of the reductions and payoffs this quarter, how much of it was -- or is there an outsized portion of it that was acquired loans versus legacy Eastern? And is any of that strategic in nature, meaning you got your arms around Harbor One and maybe the a bit more transactional commercial real estate that might be better off kind of elsewhere than with you. Is that a component of it? And is that incorporated into the full year guide?

I think the only real color there, the Harbor One portfolio is nothing unexpected. We're so early in it, but there's nothing coming in either from a credit mark or from a payoff pace unexpected. There was, let's say, some elevated commercial real estate payoffs in the legacy portfolios, legacy now being defined as legacy or and Paper Trust. We actually think that's a sign of a healthy market. So that was a little higher than we expected, but we'll see if that continues or not. It's just a higher level of activity in the market.

Your next question comes from the line of Janet Lee from TD Bank.

So on the deposit cost commentary, so you're expecting some modest increase in deposit cost. A lot -- I guess some of that has to do with the retention of. Or does that have to do with retaining Harbor One deposit base, which is obviously a higher cost base that's -- is that part of that. Is that what's driving the increase along with the competitive deposit competition in your market. How much of the Harbor One retention is the factor in your deposit cost outlook? Is it harder to retain versus before?

No. It's more about just the market, pricing in the marketplace. I mean, certainly, an element of our deposit base. An important element is the Harbor One customer base -- but this is what's going on in the market broadly. And it's been -- it's consistent and expanded from the back half of last year, we saw this pricing really kick off with lower institutions. Now we're seeing it with institutions that are higher than us, so it's reflective of what's going on in the marketplace. But certainly, yes, we are engaged in very importantly retaining the Harbor One customer deposit base, and that's going very well. But it's mostly about what's happening in the market.

Got it. For loan growth, so it looks like the loan growth will be picking up in the coming quarters. But just given the lower base, is it fair to assume that it's coming in at the lower end? Or do you have more optimism that it could be somewhere in the middle or even at the upper end, how should we think about the cadence of loan growth picking up?

I think the original range is where our expectations are. It's a fairly tight range. So I don't want to shave that high or low at this point. As I would just go back to -- we -- loans were modestly down in Q1. It wasn't a surprise to us. That's normally what happens in Q1 and here in New England. It was a little worse because of the weather. But we have record pipelines. We feel good about it.

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

Thank you, everybody, for joining us. I appreciate your questions. We look forward to speaking with you at the end of our next quarter.

This concludes today's conference call. You may now disconnect.

Welcome to the Eastern Bankshares, Inc. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded for replay purposes.

In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com, which will be referenced during the call.

Today's call will include forward-looking statements. The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described in the company's earnings press release and most recent 10-K filed with the SEC.

Any forward-looking statements may represent management's views and estimates as of today, and the company undertakes no obligation to update these statements because of new information or future events. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release.

I would now like to turn the call over to Bob Rivers. Eastern Executive Chair and Chair of the Board of Directors.

Thank you, Julie. Good morning, everyone, and thank you for joining our call. We hope your 2026 is off to a great start. With me today is Eastern's CEO, Dennis Sheahan; and our CFO, David Rosato. As we close out the fourth quarter, I want to take a moment to reflect on another successful year and share my thoughts on the future.

First, I want to welcome our new colleagues from HarborOne and express my sincere gratitude to all of our employees for their tremendous work throughout the year. It is their efforts that elevate Eastern's brand every day and make us distinctive as Eastern New England's on town Bank.

2025 was a terrific year for Eastern, highlighted by a 62% increase in operating earnings, strong organic loan growth and a record level of wealth assets under management. We delivered strong financial metrics continue to return capital to shareholders, and our share price outperformed the Regional Banking Index.

Our results underscore the strength of our company, of our relationship banking model. and enhanced earnings power of the company.

The merger with HarborOne was another important milestone in 2025. It strengthens our presence in key markets, South of Boston, and provides an entrance into Rhode Island at $31 billion in assets and a highly concentrated footprint, we are the largest independent bank headquartered in Massachusetts and have the fourth largest deposit market share in Greater Boston.

Our scale allows us to invest in the franchise and better serve our customers while preserving a nimble, community-focused approach.

Looking ahead, we believe Eastern is well positioned for 2026 and beyond. Our foundation is firmly in place, and we have the size and scale to compete effectively. Now is the time for us to realize the full potential of what we have built to deliver organic growth and solid financial returns. As a result, we will not pursue any acquisitions as we are completely focused on organic growth and returning capital to our shareholders for the foreseeable future.

We are excited about the organic growth opportunities we see in the market in both our banking and fee-based businesses and expect to continue returning excess capital through share repurchases and prudently growing the dividend. We believe this approach will deliver meaningful value to our shareholders.

Now I'll turn it over to Dennis.

Thank you, Bob. I share Bob's comments and thanking the team for a successful 2025. We are well positioned entering 2026 to capture growth opportunities in our larger market, resulting in steady improvement in our profitability metrics.

Our balance sheet is healthy, well-capitalized, highly liquid and well reserved. We are frequently asked about M&A, and I want to echo Bob's comments. Simply put, we are not focused on M&A. We have plenty of opportunities to organically grow the company's earnings and enhance profitability, and that is our focus.

We will allocate capital towards organic growth efforts and returning excess capital to shareholders while still maintaining appropriate capital levels. What excites me most is the organic growth opportunity ahead of us in both our legacy and newer markets. We see a significant runway to take share with our commercial banking and wealth management businesses and improved deposit growth.

Strategic investments in hiring talent have been an important driver of growth. Eastern is a destination of choice for high-caliber talent, particularly those with large bank experience. We offer the size to compete effectively, yet are small enough for individuals to apply their expertise, make decisions and feel a sense of ownership.

As a result, our lending teams, both new hires and long-tenured relationship managers remain energized. Our commercial lending platform is a key differentiator driven by the strength of our culture and capabilities. We can deliver the products and services expected for much larger banks while retaining the certainty of execution of local decision-making and deep understanding of our customers and communities.

Our banking model continues to resonate with clients reinforcing trust, building long-term relationships and attracting new business. The positive impact of our new growth focus and investments in talent was evident in 2025. Excluding the merger impact, total loans grew $1 billion or 5.6% for the full year on a stand-alone basis, driven primarily by strong commercial lending results.

The Legacy Eastern commercial portfolio increased 6% from the beginning of the year, and pipelines remain solid heading into 2026. We originated $2.5 billion of commercial loans in 2025, with approximately half in commercial and industrial lending and half in commercial real estate.

Wealth management is an important component of our long-term growth strategy and the wealth demographics of our footprint provides significant opportunities. We have been pleased with the integration of the Eastern and Cambridge wealth teams and the progress made strengthening alignment between our wealth and banking businesses.

Wealth assets reached a record high of $10.1 billion at year-end including $9.6 billion in assets under management, driven by market appreciation and positive net flows. Still a lot of work to do, but we are encouraged by the momentum in wealth and optimistic about the growth opportunities in the years ahead.

Turning to capital. Our ratios remain strong and well positioned to support our organic growth initiatives. At the same time, we recognize that given our profitability. We expect to generate capital in excess of what can be efficiently deployed through organic growth alone. This dynamic reinforces our commitment to aggressively return excess capital to shareholders, primarily through share repurchases.

That commitment was evident in the fourth quarter as we repurchased 3.1 million shares for $55.4 million or 26% of the total authorization announced in October. We are committed to rightsizing our capital through organic growth, share repurchases and quarterly dividends. We ended 2025 with a CET1 ratio of 13.2%. Assuming we execute the remainder of our existing share repurchase authorization, we estimate the CET1 ratio will decline to approximately 12.7% by June 30. At which point, we anticipate seeking an additional share repurchase authorization subject to regulatory approval.

We expect to continue to generate excess capital, but plan to manage our CET1 ratio towards the median of the KRX, which is currently 12%. We are pleased with our performance in 2025 and feel well positioned for 2026 and beyond. We believe that focusing on meaningful growth -- organic growth opportunities we have in front of us and returning excess capital, not M&A, will deliver meaningful value to shareholders for the foreseeable future.

David, I'll hand it over to you to provide a review of our fourth quarter financials.

Thanks, Dennis, and good morning, everyone.

I'll begin on Slides 2 and 3 of the presentation. Q4 marked a strong finish to the year as we reported net income of $99.5 million or $0.46 per diluted share. Included in net income is a GAAP tax benefit related to losses from the investment portfolio repositioning completed in Q1 that accrued over the course of 2025 and nonoperating merger-related costs in the fourth quarter.

Operating earnings of $94.7 million increased 28% linked quarter, on a per diluted share basis, operating earnings increased 19% to $0.44. Results benefited from the partial quarter impact of the merger, which closed on November 1 and reflected continued organic loan growth and return of capital to shareholders.

Looking at Slide 4. We are pleased by the strength of quarterly trends across several key financial metrics, including operating ROA and operating return on average tangible common equity, reflecting stronger earnings performance and thoughtful balance sheet management.

Operating ROA of 130 basis points for the fourth quarter is up 24 basis points from a year ago, while return on average tangible common equity of 13.8% increased from 11.3% over the same period. We continue to generate positive operating leverage as evidenced by an operating efficiency ratio of 50.1%, which improved from over 57% in the prior year quarter.

Moving to the margin on Slide 5. Net interest income of $237.4 million or $243.4 million on an FTE basis increased $37.2 million from Q3. The growth was driven by margin improvement due to higher interest-earning asset yields. Included in net interest income was net discount accretion of $22.6 million compared to $10 million in the third quarter, reflecting the HarborOne merger impact.

The margin of 3.61% was up 14 basis points from 3.47%, the yield on interest-earning assets increased 21 basis points, while interest-bearing liability costs were up 4 basis points. Net discount accretion contributed 34 basis points to the margin compared to 17 basis points in the prior quarter.

Turning to Slide 6. Noninterest income of $46.1 million increased $4.8 million from the third quarter. Q4 results were highlighted by mortgage banking income, which increased $2.9 million to $3 million as we benefited from the addition of HarborOne's mortgage banking operations. Investment advisory fees increased $1.1 million to $18.6 million due to higher asset values as wealth assets reached a record high and interest rate swap income, which increased $500,000 to $1.4 million, the highest level since the third quarter of 2023, which benefited from our hiring last year of an experienced leader to head up foreign exchange and derivative sales.

Turning to Slide 7. We highlight Wealth Management, our primary fee business. Wealth assets reached a record high of $10.1 billion, including AUM of $9.6 billion, driven by market appreciation and positive net flows. Wealth fees in Q4 accounted for 40% of total operating noninterest income, which was lower than recent quarters. This was due to the addition of HarborOne, which did not have a wealth management business.

Moving to Slide 8. Noninterest expense was $189.4 million, an increase of $49 million linked quarter due to higher operating expenses and merger-related costs. Nonoperating expenses of $33.4 million, increased $30.2 million linked quarter due to a $26.7 million increase in merger-related costs and a $3.5 million lease impairment.

On an operating basis, expenses of $156.1 million increased $18.9 million due primarily to the addition of HarborOne.

Moving to the balance sheet, starting with deposits on Slide 9. Period-end deposits totaled $25.5 billion, an increase of $4.4 billion or 21% from Q3. Mostly due to the addition of $4.3 billion of HarborOne deposits, $163 million of Harbor One broker deposits matured in the quarter, and we anticipate the remaining $85 million to run off in Q1. Excluding the merger impact, deposits increased $20 million. Importantly, while still early, we have not experienced any material drawdowns of HarborOne deposits.

Total deposit cost of 159 basis points increased modestly from the third quarter primarily due to a mix shift from the addition of the HarborOne deposit base, partially offset by pricing actions undertaken in the quarter. We are focused on growing deposits to support our funding strategy and remain disciplined in balancing the needs of our very strong deposit base with that of the margin.

Looking ahead, as we thoughtfully integrate the HarborOne deposit base, we anticipate deposit costs to remain slightly elevated. However, we will work deposit costs down and target the positive betas like our experience during the most recent tightening cycle were about 45% to 50%, with lags relative to Fed actions.

Turning to Slide 10. Period-end loans increased $4.7 billion or 25% linked quarter, primarily due to the addition of $4.5 billion of HarborOne loans, excluding the merger impact, loans increased $255 million or 1.4%, primarily due to continued strong commercial lending.

On a full year basis, organic loan growth was $1 billion or 5.6% driven by commercial and steady growth in consumer home equity lines. Heading into 2026, commercial pipelines remain solid.

Slide 11 is an overview of our high-quality investment portfolio. The portfolio yield was up 1 basis point to 3.04% from Q3. In addition, the AFS unrealized loss position ended the quarter at $259 million after tax, compared to $280 million at September 30.

In addition, securities acquired from HarborOne totaling $298 million were sold following the completion of the merger and the proceeds used to reduce HarborOne's wholesale funding.

Turning to Slide 12. Our capital position remains strong as indicated by CET1 and TCE ratios of 13.2% and 10.4%, respectively. As Dennis stated earlier, we are committed to rightsizing capital through organic growth, share repurchases and quarterly dividends. This commitment was evident in Q4 with the repurchase of 3.1 million shares for $55.4 million or 26% of the authorization announced in October at an average price of $1,779, which was $0.44 below the [ Vivo ] app for the quarter.

Our diluted common shares outstanding were $224.4 million as of the year-end. Start 2026, we have repurchased an additional 635,000 shares grew yesterday for a total cost of $12.3 million and now have 8.1 million shares remaining in our authorization that runs through the end of October. However, we currently anticipate completing the authorization around midyear. Additionally, our Board approved a $0.13 dividend for the first quarter.

As displayed on Slide 13, asset quality remains excellent as evidenced by net charge-offs to average total loans of 18 basis points and reflects the quality of our underwriting and proactive risk management approach addressing issues prudently and quickly.

Nonperforming loans increased as expected by $103 million linked quarter, mostly due to $94 million of loans acquired from HarborOne that were thoroughly assessed and adequately reserved. We have very strong reserve coverage of 35% on these loans. The HarborOne NPLs are largely driven by a handful of larger Cree loans across a mix of property types and on C&I loan.

We expect to see resolution of several credits in the first half of 2026. Others may take longer, but we have action plans for each loan and our managed asset group has strong experience in working through acquired nonaccruing loans. Reserve levels remained strong as demonstrated by an allowance for loan losses with $332 million or 144 basis points of total loans. These metrics are up from $233 million or 126 basis points at the end of Q3 due to the initial allowance established for acquired HarborOne loans.

Criticized and classified loans of $793 million or 5% of total loans increased from 495 or 3.8% of total loans at the end of Q3. The increase is entirely from HarborOne loans as Eastern legacy criticized and classified loans decreased $23 million.

Finally, we booked a provision of $4.9 million, down from $7.1 million in the prior quarter.

On Slide 15, we provide details on total CRE and pre-investor office exposures. Total commercial real estate loans are $9.5 billion, our exposure is largely within local markets that we know well and is diversified by sector. The largest concentration is the multifamily at $3.1 billion, which is a strong asset class in Greater Boston due to ongoing housing shortages.

Within our Eastern legacy portfolio, we have had no multifamily nonperforming loans and have had no charge-offs in this portfolio for well over the past decade. We remain focused on investor office loans. The portfolio is now $1.1 billion or 5% of our total loan book with the addition of HarborOne.

Criticized and classified loans of $178 million or about 16% of total investor office loans compared to $138 million or 17% and of total investor loans at the end of Q3. In addition, our reserve level of 5% remains conservative.

Before discussing our outlook, I want to briefly review the HarborOne merger financials, starting on Slide 16. We were on track to achieve the merger-related financial targets set forth at the time of our announcement last year. Notably, as indicated on our third quarter call, we early adopted the CECL accounting standard ASU 2025. which marginally reduced accretion and marginally helped tangible book value due to the elimination of the day 2 credit reserve.

Slide 17 outlines the final purchase accounting adjustments relative to estimates at time of announcement. These came in as expected. The interest rate fair value mark on loans of $246 million was modestly higher than estimated at announcement. The credit mark of $104 million at closing was spot on [indiscernible] consistent with expectations and the result of a very thorough review of Harbor of the Harbor -- on loan portfolio.

On Slide 18, we provide an estimated schedule of accretion and amortization for the fair value marks that will impact earnings going forward from the HarborOne merger. Most notable is the accretion of the discount on acquired loans. We expect this will create net interest income of approximately $12 million to $13 million each quarter for the next year.

Through acquisitions prior to HarborOne, we anticipate accretion will provide net interest income of approximately $9 million to $10 million per quarter in 2026. The we have modeled the loan accretion schedule based on the best information we have available, but actual accretion recognized is subject to loan prepayments over time.

We provided a similar schedule following the close of the Cambridge transaction, and the actual results have been generally consistent with our projections, which reinforces our confidence in these estimates.

Also provided on Slide 18 is the expected amortization of the core deposit intangible for HarborOne, which will be reported in noninterest expense. We anticipate this noncash expense to be approximately $8 million to $9 million per quarter over the next year. We are focused on merger integration and ensuring a smooth transition for customers and employees while capturing the projected cost savings and other long-term benefits of the transaction. As a reminder, the core system conversion is scheduled for February.

On Slide 19, we provide our full year outlook for 2026. Loan growth for 2026 is anticipated to be 3% to 5% and deposit growth of 1% to 2%. Based on market forwards as of year-end, we anticipate net interest income to be in the range of $1.02 billion to $1.05 billion with a full year FTE margin of $3.65 to $3.75 million. While provision will be based on the evolution of credit trends in 2026, we currently expect $30 million to $40 million of provision expense.

Operating noninterest income is expected to be between $190 million and $200 million. This assumes no market appreciation impacting our wealth management business. Also, fee income is seasonally weaker in the first quarter and grow in subsequent quarters. Operating noninterest expense should be in the range of $655 million to $675 million. As a reminder, Q1 expenses are impacted by seasonally higher payroll and benefit costs of approximately $2 million to $3 million. We expect the full year tax rate on an operating basis of approximately 23%. We will maintain a strong capital position as we manage our CET1 ratio towards 12%.

Continuing our 2026 outlook on Slide 20, we have significant capital return opportunities. We believe focusing on organic growth within our existing footprint returning capital through share repurchases and prudently growing the dividend and not pursuing acquisitions will deliver meaningful value to shareholders for the foreseeable future.

This concludes our comments, and we will now open up the line for questions.

[Operator Instructions]. And your first question comes from Freddie Strickland from Hovde.

Just wanted to drill down on the margin. I appreciate the guide, but is the idea that we maybe see the core margin relatively flat near term as you focus on growing deposits and holding on to the HarborOne deposits. And then maybe we see more expansion later in the year.

Feddie, it's David. Yes, that is accurate. Our margin forecast does ramp up each -- marginally each quarter accelerates a little bit in the back half of the year. Just as a reminder, we -- that forecast is based on market forwards of 2 rate cuts in June and September. So the impact as -- if those 2 cuts come to be, steeper yield curve and margin expansion.

Great. And just one more, if you could talk about pipeline mix today? And what percentage of maybe C&I versus owner-occupied CRE, [indiscernible] occupied CRE and HELOCs, we might see in terms of loan growth over the next couple of quarters?

Yes. Feddie, it's Dennis here. The pipeline remains strong across our different commercial businesses, whether it's commercial real estate, community development lending and C&I. It's down somewhat from our peak, which was during the fourth quarter, but we have a good mix. It's about a little bit more than 50% between CRE and community development lending and the other, say, 45% is C&I. We had a lot of closings here to end the year. So it's good. We'll expect it to continue to grow certainly in the first and second quarter.

Your next question comes from Damon DelMonte from KBW.

Everybody is doing well today. So just curious on the outlook for the provision of $30 million to $40 million. Just wondering, that's higher than we saw this year for realized provision. Just kind of curious on your thoughts of the credit landscape? And are you sensing there's some softness, which is leading you to kind of step that up on a year-over-year basis?

The guidance is similar to what we gave last year. And then in '25, we outperformed the guidance. Our thoughts are generally the same. We tend to leave lean a little conservative and hope to outperform what we have there. But I wouldn't read too much into concerns that we have on the credit front.

Yes. We're not seeing -- Damon, it's Dennis here. We're not seeing any material shift in our credit metrics, credit trends in the marketplace. I think as David said, he outlined sort of the rationale for the provision, but there's nothing underneath it that has us concerned.

Okay. Great. And then just given the timing of the deal closing during the quarter, David, can you give us a little guidance on what a pro forma average earning asset base would be in the first quarter? Also considering that you paid out some brokered CDs and wholesale stuff from the HarborOne side?

Sure, Damon. I see -- there was very modest deleveraging, as you know, in the securities portfolio, it was $298 million. So I would take the period-end balance sheet and 12/31 and then the growth numbers that we've laid out for loans and deposits.

The only thing I'd add to that would be a slight uptick, maybe 1% of total assets in the securities portfolio, but that will be throughout the year. We haven't been reinvesting in bonds for a while. So we're going to -- we're targeting about 15% of total assets and securities. So a little growth there.

Damon, just one other thought is -- similar to this year, residential mortgage balances will be basically flat. So the growth will come, as Dennis said, in commercial and then HELOCs consistent with 2025.

Your next question comes from Gregory Zingone from Piper Sandler.

First question. Nice quarter on the AUM growth. Would you be able to break out the growth between market appreciation and the net flows?

Yes. We had about $200 million of net flows in the fourth quarter, really strong, good momentum building in terms of the integration of the business here at Eastern, referrals from our colleagues across the bank, whether it be from the commercial banking division, or the retail division into wealth management or building nicely. So we're very pleased with the progress there. And hopefully, that will continue into 2026.

Awesome. And then pivoting back to credit for a second, would you be able to give us a little more color on those nonperforming credits, maybe including whether or not these loans were located in downtown Boston.

Sure. They -- first of all, they are not located in downtown Boston. NPLs were completely driven by HarborOne. And what I would point you to, it's they're mostly CRE. There's one C&I loan in there. There's no surprises in there whatsoever to us. We followed these loans from the beginning of due diligence all the way through to today, we have plans, resolution plans for each one of those. Some will actually be resolved this quarter. And I'd point you to the originally telegraph credit mark and the final credit mark, which is exactly the same. So there was no surprise whatsoever in that book.

And at what point in your workout is would you guys entertain a larger-sized loan sale for any of these portfolios, whether they're nonperforming or criticized?

We don't see that as necessary here. We certainly -- in terms of resolving the loans, you might look at individual loan sales, but we don't think that this is significant enough to entertain sort of a blanket portfolio sale. Again, as David said, we have these well identified through the merger process, the merger evaluation. These loans are being closely monitored by HARBOROne. They may not have been accruing -- but there's some deterioration that we expected, and that's why we had a significant credit mark in those, and that was part of our overall evaluation of the firm and of the merger. So we're confident in our ability to resolve these here relatively quickly, and we don't think we need to do any kind of a bulk portfolio sale.

[Operator Instructions]. Your next question comes from Laura Hunsicker from Seaport Research.

So David, if I could just come back to you on margin. Just a couple of things here. When in the quarter did you guys do the whole investment portfolio repositioning on honey?

Right out of the chute. So the first couple of days of November.

Perfect. Okay. Cool. And then do you have a spot margin for December?

I do -- similar to, I think, 2 quarters ago, let me give you an adjusted spot margin because there was a bunch of accretion that came through in December. I think the most representative number would be $364 million from December. So Yes. No, so what I was going to say is just the basis point below the lower end of our margin guidance. Together with the comments I said that the margin will incrementally creep up over the course of the year.

Got you. Got you. Okay. And then just looking at Slide 18, I love this slide. Really appreciate you including it. So your actual accretion impact, the 11.4%, that's 17 basis points on margin, and I look for first quarter. So it looks like that's going to be about 20 basis points or so kind of that's the run rate 19 to 20 basis points of accretion income on margin. Is that correct? So just thinking about your guide of $365 million to $375 million, that's obviously inclusive of that. Just making Double Star here.

Yes. The guide includes the numbers you see on Slide 18. Again, I just want to caution everyone there's variability quarter-to-quarter. If you go back to third quarter -- second quarter and third quarter of last year, we had a $6.5 million swing linked quarter. So this is our best estimate based on a lot of analytical work and what happened. Though there is variability quarter-to-quarter in Cambridge Trust, life of the deal, we're basically spot on. That's the good news. But it will bounce around each quarter.

And to be clear, Laurie this is -- what you see on the schedule is the accretion for HarborOne. As David indicated in his comments, there's an additional $9 million to $10 million of accretion from former mergers that being mostly Cambridge but also Century.

Yes. And Laurie, just to make sure you read the footnotes, everyone read the footnote because we've laid out the remaining accretion and amortization expense for each deal.

Okay. Sorry, where is that?

It's just the footnotes, the bottom of Page 18.

All right. Okay. Okay. And then just going back over to credit. I just want to make sure I got right. So looking at the increase in the commercial nonperformers $51 million to $147 million, $96 million, $94 million came from Honey and that's 35% reserved.

Yes. Yes.

And then as we look throughout the year, you said you'd reduce it. Can you just help us think about when is that $94 million gone?

It's -- that's difficult to answer. I know it's a handful of loans. I know there will be some resolutions in the first and second quarter. I can't be more specific than that. We -- I would point you back to our experience with Cambridge Trust. We had an initial jump up in NPLs, and we work those down quite quickly. It took a couple of quarters, but a year after that deal, all that stuff has been worked through. But I would expect similar experience here, maybe even a little faster.

Perfect. Perfect. And then NBFI exposure, do you have an update there?

Yes. I mean it's -- Laurie, it's still -- it's in the same ballpark, a little over $500 million. And again, for us, a big chunk of this is affordable housing. It's lending to organizations that provide affordable housing in the state. That's about $120 million of that $0.5 billion. There's another $250 million is to REITs that lend in our market. These are direct loans that we look at, and we underwrite right alongside the REIT. It's in the multifamily space largely. And then there's about $100 million of asset-based lending that are fully followed asset-based credits. So it's not a particularly large segment for us, and that constitutes the the composition of the portfolio.

Right. Okay. Okay. And then just shifting over here. The $3.5 million lease impairment, where is that showing up exactly? Is that a credit against your other noninterest income? Or is that sort of a separate sale of other assets category, where you -- where is that line?

The nonoperating expense line. So it was -- yes, it was a building

But on the income statement, it's

Through the nonoperating expense, yes.

Okay. Okay. It's in that the other Okay. And then can you just talk a little bit about -- you had a you had a drop in that sort of -- within sort of other is broken out at the end, the sale of other assets, the loss of $700,000, what's that relative to -- it was $1.5 million last quarter.

Yes. That was just the associated leasehold improvements in that building that had the operator that had the lease. So there's 2 components.

Okay. And how should we think about that running?

One time of that.

Okay. Okay. Okay. So that line should run 0 yes.

Yes.

Okay. Okay. Okay. And then last question, Dennis, to you. Can you just share a little bit about -- and this maybe kind of circles back to holdco. I realize you're not probably going to comment. But again, your outlook takes $20 million last bullet, not pursuing acquisitions all involved. I mean I think that's great. It's certainly more definitive than we were last quarter.

So directionally, you got you stronger on that. Can you just share a little bit about your thinking around that and how you come to be. And certainly, we love that you're leaning more into buybacks. But just can you share a little bit about how you came to this position.

Well, we've outlined, Laurie, just look, we're not pursuing acquisitions. We're entirely focused on the growth of this company, the organic growth. We're excited about the potential in each of our businesses. That's what we're leaning into we recognize returning capital to our shareholders is the best use in terms of that excess capital. And so we're leaning heavily into buybacks.

As I said in my comments, we think we'll manage our CET ratio down over time towards 12%, which is pretty significant decline from where it is today. And we still think it leaves us with very comfortable and safe capital levels. So we're going to lean into buybacks.

We're going to do all the blocking and tackling of growing this business one customer at a time, and that's what we're looking forward to. And we're just -- we're not pursuing acquisitions.

Your next question comes from Janet Lee from TD Cowen.

I don't know if this has talked about yet. For your fee income, could there be -- where do you see better upside and then did you also talk about what you would do with Harbor One's mortgage banking business? Would you be beneficiary of mortgage comes back more fully if the rates were to go down a little more? And what's sort of your outlook for other fee income line for the investment advisory business fees or others that could be -- that could potentially surprise to the upside versus where you have on your guide?

Sure, Janet. So I called out in my comments that the guide was assuming no market appreciation in the wealth management business. So you can make a judgment of expected returns of the S&P 500. And if it's up, there's additional fee income that will be derived there. So I wanted to make sure we're clear about that. The -- I think over over time, fee income from HarborOne's mortgage business will probably be 8% to 10% of total fee income we will -- you're right, we would be a large beneficiary if there's a drop in rates, there's an increase in refi activity or even purchase activity.

We're not counting on that. We're not -- we're -- time will tell if that's true. It's a highly efficient well oil business that they run. We're still in the process of integrating that into Legacy Eastern that -- that business will be part of the system conversion next month. But it gives us an option on fee income, and it also gives us an option on the ability to feed our balance sheet with residential mortgage if we ever choose to do so.

That's not -- as I said, today and our expectation is we're going to keep our residential mortgage portfolio flat in 2026 just as we did in 2025 and favor HELOC and commercial loan growth.

Got it. And just one follow-up. I really appreciate the comment around how you're staying focused on organic and probably there's more opportunities for buyback. You talked about 12 getting that CET1 down to 12.7% by June quarter. When you say managing towards that 12%, is there sort of a time line around when you want to get down to that peer level beyond that June guidance that you gave?

Well, John, this is Dennis. I think assuming there's a lot of assumptions in there. The first one being that we're -- we finish, and we believe we will. Let's see the existing buyback authorization by about midyear. And at that point, we would look to request approval for another buyback and thinking about the profitability of the company, the amount of excess capital we believe we will generate because organic growth will not absorb that excess capital. So it'll give us room to continue to execute and do buybacks.

We will continue to manage down that pro forma, say, 12.7% and to a lower level and towards 12% as we execute that additional buyback. So we don't have a precise point in time, but our intent is to continue to manage it. is, of course, subject to where the stock price, et cetera, we want to be disciplined and responsible as we execute the buyback. But nonetheless, that is our intent.

And your next question comes from Freddie Strickland from Hovde.

Just had a quick follow-up on loan growth. Is there any seasonality or particularly slower or faster quarter in terms of loan growth, just as we think about the guidance in the course of the year.

Yes. Yes. It's a little bit like a frozen tundra here in the first quarter. So it would build more throughout the year, Feddie. Pipelines built into the first quarter. But certainly, as you get late Q1 into Q2 and Q3, that's typically when -- most of our production happens and round off the end of the year nicely as we did this year. But typically, Q1 is a little slower. Do you agree, David?

Yes, 100%.

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

Well, thanks again, folks who are joining our call this morning. Hope you very well during the winter and look forward to talking with you again in the spring.

This concludes today's conference call. You may now disconnect. Thank you.

Welcome to the Eastern Bankshares, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its Investor Relations website, investor.easternbank.com which will be referenced during the call.

Today's call will include forward-looking statements. The company cautions investors that any forward-looking statements involve risks and uncertainties and is not a guarantee of future performance. Actual results may materially differ from those expressed or implied in the forward-looking statements due to a variety of factors. These factors are described in the company's earnings press release and most recent 10-K filed with the SEC. Any forward-looking statements made represent management's views and estimates as of today, and the company undertakes no obligation to update these statements because of new information or future events.

The company will also discuss both GAAP and certain non-GAAP financial result measures. For reconciliations, please refer to the company's earnings press release.

I'd now like to turn the call over to Bob Rivers, Easter Executive Chair and Chair of Board of Directors.

Thank you, Joelle. Good morning, everyone, and thank you for joining our call. With me today is Eastern's CEO, Denis Sheahan; and our CFO, David Rosato. Eastern recently celebrated its fifth anniversary as a public company. Before Denis and David walked through our results, I wanted to take a moment to acknowledge this important milestone and share why I'm excited about our future.

As shown on Slide 2, today, Eastern is a $25.5 billion organization with the fourth largest deposit market share in Greater Boston, and we are the largest independent bank headquartered in Massachusetts. Since our IPO, we have very intentionally expanded our footprint across attractive markets and build the scale we need to invest in the business and engagement that makes us our regions hometown bank. This strategy and most importantly, our people, our culture and our extensive community involvement are what enable us to expand and deepen customer relationships, attract top talent and capture growth opportunities.

This has driven meaningful improvement in earnings, profitability and shareholder returns. One of the keys to our success has been our ability to stay true to who we are while growing and positioning Eastern for the future, that includes bringing in talented people to complement the many long-time Eastern employees who have contributed to our success. I'm so proud of what we've accomplished together. We are well positioned to serve our customers and communities with excellence, which underpins our ability to drive continued shareholder value.

Now I'll turn it to Denis.

Thank you, Bob. As someone who's been in the Boston market for more than 3 decades, I can attest to how impressive the transformation of Eastern has been over the last 5 years. I'm incredibly proud to be part of this team and I share Bob's enthusiasm about the future and the opportunities ahead.

Turning now to the quarter. We are very pleased to have received the required regulatory approvals for our merger with HarborOne which is on track for a November 1 close. This partnership strengthens Eastern's leading presence in Greater Boston and expands our branch footprint into Rhode Island, providing even more opportunities for organic growth. We're excited to bring together 2 banks that share a strong commitment to customers, community partners and employees.

I want to thank the teams from both organizations for their outstanding efforts, and we look forward to welcoming our new customers and colleagues to Eastern as we build on the strong legacies of both institutions. We're also pleased to announce today the resumption of our share buyback program, which underscores our confidence in the future. Third quarter operating earnings of $74.1 million increased 44% from a year ago and generated solid returns. Operating return on assets of 1.16% and was up 34 basis points from the prior year quarter and operating return on average tangible common equity increased 300 basis points to 11.7% over the same period. On a linked quarter basis, operating income was down from a very strong second quarter, which benefited from higher-than-expected net discount accretion due to early loan payoffs at fee income.

Our ongoing strategic investments hiring talent and commercial lending continued to deliver strong results. Over the past year, we have increased the number of relationship managers by approximately 10%. The Eastern has become an attractive destination for high-quality talent, particularly those with large bank experience. We have the size to matter competitively, yet are small enough for them to apply their trade and provide a sense of ownership in building a business. Our loan growth continues to reflect the impact of this strategy. Total loans grew 1.3% linked quarter and 4.1% year-to-date, driven primarily by strong commercial lending results. The commercial portfolio has grown just under 6% since the beginning of the year, and the pipeline remains solid ending the quarter at approximately $575 million. Wealth management is an important component of our long-term growth strategy, and the wealth demographic and our footprint provides significant opportunities.

Beyond strong investment solutions and results we provide comprehensive wealth services, including financial, tax and estate planning as well as private banking. Assets under management reached a record high of $9.2 billion in the third quarter driven by market appreciation and modest positive net flows. We've been pleased with the integration of the Eastern and Cambridge Trust wealth teams and the strong retention of clients and talent since the merger. We're also enhancing our internal distribution capabilities. Our retail branch network through training and great awareness is becoming a meaningful driver of referrals. Notably, in the first half of this year, retail generated more funded wealth business than Eastern achieved in any prior full year.

On the commercial side, the strengthening alignment between our wealth management and banking businesses is in the early stages, but beginning to produce results. There is still a lot more work ahead, but we are encouraged by the momentum of our wealth business, which was recently named the largest bank-owned independent adviser in Massachusetts for the second consecutive year. Finally, our capital position remains robust, and we continue to generate excess capital. Tangible book value per share at quarter end was $13.14, an increase of 5% from June 30 and up 10% from the beginning of the year. In addition to using capital for organic growth, we are committed to returning capital to shareholders through opportunistic share repurchases and consistent and sustainable dividend growth. As such, we are very pleased the Board authorized a new 5% share repurchase program of up to 11.9 million shares.

David, I'll hand it over to you to review our third quarter financials.

Thanks, Denis, and good morning, everyone. I'll begin on Slides 4 and 5. We reported net income of $106.1 million or $0.53 per diluted share for the third quarter. Included in net income is a GAAP tax benefit related to losses from the investment portfolio repositioning completed in Q1 that proves over the course of 2025. On an operating basis, earnings of $74.1 million or $0.37 per diluted share decreased from a very strong second quarter which benefited from higher-than-expected debt discount accretion and fee income. Compared to the prior year quarter, operating net income increased 44% reflecting margin expansion of 50 basis points and significant improvement in the efficiency ratio from 59.7% to 52.8% and driven by higher revenues and thoughtful expense management.

We are pleased with the continued strength of our profitability metrics. While operating ROA of 116 basis points and return on average tangible common equity of 11.7% were down from second quarter metrics. Both meaningfully improved from a year ago when operating ROA was 82 basis points and operating return on average tangible common equity was 8.7%. We remain focused on driving sustainable growth and profitability and delivering top quartile financial performance.

Moving to the margin on Slide 6. Net interest income and margin declined from the second quarter primarily due to higher deposit costs and lower net discount accretion. Net interest income of $200.2 million or $205.4 million on an FTE basis, decreased 1%. The Included in net interest income with net discount accretion of $10 million compared to $16.5 million in the second quarter, which was higher than expected due to early loan payoffs. Excluding net discount accretion, net interest income would have increased approximately 3%. The margin of 3.47% was down 12 basis points from 3.59%. The yield on interest-earning assets decreased 6 basis points, while interest-bearing liability costs were up 7 basis points. Net discount accretion contributed 17 basis points to the margin. compared to 29 basis points in the prior quarter. Excluding net discount accretion, the margin would have been flat quarter-over-quarter.

Turning to Slide 7. Noninterest income of $41.3 million declined $1.6 million from the second quarter. On an operating basis, noninterest income of $39.7 million was down $2.5 million. The decrease was driven primarily by $1.9 million in lower income from investments held for employee retirement benefits compared to a very strong Q2. This decline was partially offset by $1 million in lower benefit costs reported in noninterest expense. In addition, miscellaneous income and fees were down $1.2 million due primarily to a loss on sale of commercial loans from our managed assets group and lower commercial loan and line fees. These headwinds and fee income were partially offset by deposit service charges and investment advisory fees, which both increased $300,000 in the quarter.

Turning to Slide 8. We highlight wealth management, our primary fee business. Assets under management reached a record $9.2 billion, driven by market appreciation and modest positive net flows. Wealth management fees, which account for nearly half of total noninterest income were up $300,000 or 2% from Q2, primarily due to higher asset values. In addition, the prior quarter benefited from approximately $700,000 in seasonally higher tax preparation fees.

Moving to Slide 9. Noninterest expense was $100 million and $40.4 million, an increase of $3.5 million from the second quarter due to higher operating expenses and merger-related costs. Merger costs of $3.2 million were up $600,000 from the prior quarter. Operating noninterest expense was $137.2 million, up $2.8 million. The increase was primarily driven by $3.3 million in higher salaries and benefits, primarily due to higher performance-based incentives, one additional pay period in Q3 and seasonal staff. In addition, technology and data processing costs increased $1.4 million, and occupancy and equipment expenses were up $500,000. These increases were partially offset by a $2.3 million reduction in other operating expenses.

Moving to the balance sheet, starting with deposits on Slide 10. Period-end deposits totaled $21.1 billion, a decrease of $104 million or less than 1% from Q2. A decline in checking balances was partially offset by higher balances in money market accounts and CDs. On an average basis, deposits were up 1.4%. We continue to benefit from a favorable deposit mix with nearly half of deposits and checking accounts, providing a stable and low-cost funding base. Importantly, we remain fully deposit funded with essentially no wholesale funding which further enhances our balance sheet strength. Total deposit costs of 155 basis points increased modestly from the second quarter as the cost of interest-bearing deposits increased 8 basis points. primarily driven by money market accounts. We remain focused on growing deposits to support our funding strategy.

As competition for deposits has become heightened in our region, we are disciplined in balancing the needs of our very strong deposit base with that of the margin. Looking ahead, as we thoughtfully integrate HarborOne deposits. We anticipate deposit costs to remain somewhat elevated. However, as the Fed eases, we will work deposit costs down and target deposit betas like our experience during the most recent tightening cycle or about 45% to 50%, with lags relative to Fed actions.

Turning to Slide 11. Period-end loans increased $239 million or 1.3% linkwater led by [indiscernible] commercial. Continued momentum from Q2 and CRE drove balances higher by $133 million, while strong broad-based growth at C&I increased balances by $104 million. Consumer home equity lines continued a steady trajectory of quarterly growth, adding $45 million in outstandings. Commercial has delivered strong year-to-date performance with nearly $700 million of loan growth from year-end. This performance reflects the impact of our opportunistic hiring of growth-oriented talent, continued strength of Eastern's brand and our long-tenured relationship managers. Our combination of meaningful scale, which allows us to offer a broad suite of products and services and deep local expertise and presence is what differentiates us.

Slide 12 is an overview of our high-quality investment portfolio. The portfolio yield was up 1 basis point to 3.03% from Q2. In addition, the AFS unrealized loss position continued to decline as it ended the quarter at $280 million after tax compared to $313 million at June 30 at $584 million at year-end.

Turning to Slide 13. Capital levels remain robust as indicated by CET1 and TCE ratios of 14.7% and 11.4%, respectively. Consistent with our commitment of returning capital to shareholders, the Board authorized a new share repurchase program of up to 11.9 million shares or 5% of shares outstanding after completion of the HarborOne merger. The program expires on October 31, 2026. In addition, the Board approved a $0.13 dividend to be paid in December.

As displayed on Slide 14, asset quality remains excellent, as evidenced by net charge-offs to average loans of 13 basis points and reflects the quality of our underwriting and proactive risk management approach address the issues quickly and previously. While nonperforming loans rose $14 million linked quarter to $69 million, the increase was driven primarily by a single mixed-use office loan which has been in managed assets for some time. A portion of this loan was charged off during the quarter and had been previously reserved. Importantly, we continue to believe the worst of the office loan problems is mostly behind us. We remain cautiously optimistic in our outlook on credit as overall trends continue to be positive. Reserve levels remain strong, as demonstrated by an allowance for loan losses of $233 million or 126 basis points of total loans. These metrics are consistent with $232 million or 127 basis points at the end of Q2.

Criticized and classified loans of $495 million or 3.82% of total loans increased modestly from $459 million or 3.6% at the end of Q2. Finally, we booked a provision of $7.1 million, down from $7.6 million in the prior quarter. On Slides 15 and 16, we provide details on total CRE and CRE investment -- investor office exposures. Total commercial real estate loans are $7.4 billion. Our exposure is largely within local markets we know well and is diversified by sector. The large concentration is the multifamily at $2.7 billion, which is a strong asset class in Greater Boston due to ongoing housing shortages. We have no multifamily nonperforming loans, and we have had no charge-offs in this portfolio for well over the past decade. We remain focused on investor office loans. The portfolio of $813 million or 4% of our total loan book decreased $15 million linked quarter. Criticized and classified loans of $138 million were about 17% of total investor office loans compared to $118 million or 14% of total investor loans at the end of Q2.

In addition, our reserve level of 5.1% remains conservative. As disclosed last quarter, the investor office loan portfolio includes our relatively limited exposure to the lab life science sector, consisting of 4 loans totaling $99 million or less than 1% of total loans. None of these loans were originated as speculative construction transactions. All loans are accruing, and we continue to monitor these loans as part of our ongoing review of the office portfolio.

Before turning it back to Denis, I wanted to give a brief update on the HarborOne merger, which is expected to close November 1. We are reiterating the key assumptions we announced earlier this year and are on track to deliver on our estimated cost savings, onetime charges and gross credit market. We will disclose updated interest rate marks on our fourth quarter call in January. As a reminder, the original announcement assumed 80% stock consideration, the midpoint of the range. Based on the performance of our stock, our current estimate assumes 85% stock consideration. Furthermore, we continue to plan for the sale of HarborOne securities portfolio. The deleveraging of HarborOne's securities portfolio with proceeds intend to pay down FHLB borrowings.

HarborOne's period-end loans and deposits at September 30 were 4.763 billion and 4.433 billion, respectively. And it didn't, if approved, we intend to early adopt the changes to the CECL accounting standard designed to remove the current double counting of expected credit losses.

I'd now like to turn it back over to Denis.

Thanks, David. We are pleased with this quarter's results and are excited about closing the HarborOne merger. We're the leading local bank in Massachusetts, and this merger strengthens our presence south of Boston and into new markets in Rhode Island, providing opportunities for organic growth for many years to come. The continued improvement in our profitability will allow us to return meaningful amounts of capital and enhance shareholder value. This concludes the presentation. I will now open the call for questions.

[Operator Instructions] Your first question comes from Damon DelMonte with KBW.

First question, just with regards to -- I know it's a tricky quarter because you have HarborOne closing next week and we're in the middle of the fourth quarter here. But David, as we kind of think about the margin, obviously, a bunch of noise on the fair value accretion side of things. But if you look at the core margin, as you noted, it's flat quarter-over-quarter. Do you think that kind of can hold steady here in the fourth quarter and then kind of grind higher into 26? Or do you think that the competitive pressures on deposits will probably weigh on that a little bit?

Let's talk about both sides of that, Damon, and good morning. So the core eastern margin, there's 2 key drivers, right? There's accretion income, which unfortunately, in Q3 was down $6.5 million. That's the wildcard here. The average run rate is, call it, $11 million to $12 million. So last quarter, we were above trend. This quarter, we were a little below trend. And you saw that ripple through asset yields, that's the wildcard. On the other side, on the deposit side, the competition has heated up here. We've talked -- I think we talked about this last quarter as well in retail and government banking. I think that pressure remains in Q4. So that leads me to roughly flat deposit costs with a little bit of a wildcard on the asset side. The -- from a -- and then just as a reminder, we'll have months of HarborOne in our Q4 numbers. Our thinking is that the original margin expansion and numbers that we put out back in April for the combined institution are still good numbers.

Okay. Great. And then how about as far as just like on the expense side, it was higher this quarter, you had some elevated comp and benefit type costs and stuff. Again, kind of looking at the core Eastern expenses, do you think that kind of stays at a similar level here going into fourth quarter? Or could it tick even higher just given year-end accrual true-ups and things of that nature? .

I think we were a little inflated on the comp line this quarter. I think that will tend to settle down in Q4. There's been a little uptick in tech expense. That is -- will probably be consistent. So I'm not overly concerned about our expense base at this point. And with telegraph roughly flat in Q2 overall to down a touch.

Okay. Great. And then with the deal closing here next week, kind of just curious on your updated thoughts on appetite for additional deals over the coming months or in 2026. Is that something you guys are considering? Or I think messaging has also been more about a focus towards organic growth. So just kind of wondering how you balance those 2 avenues. .

Damon, it's Denis here. And that sort of remains consistent. Look, our focus right now is clearly on continuing to build on the good organic growth that we've had in recent quarters. on the important integration of the HarborOne merger, we feel good about that opportunity and are looking forward, as I said in my comments earlier, to working with our new customers, our new colleagues at HarborOne but as you can well imagine, there's a lot of work to do there on that integration. We have no plans in terms of additional mergers in the near term. But that said, we think if a merger opportunity were to arise, it's in our shareholders' best interest for us to evaluate the opportunity. It doesn't mean we would execute but certainly, it's lower on our list of priorities when we think about capital allocation.

But as Bob indicated with his opening statements, and you look at the progress at Eastern Bank since we had our IPO, the performance improvement is very material and significant and the opportunity of the new markets that those mergers provided are a meaningful contributor to our operating performance so we think it's -- if the opportunity arises, it's in our best shareholders' best interest to consider it, but it's not our focus today.

I would just add to that. It's clear when you think about deployment of capital from our perspective, nothing has changed. It's organic growth. It's now we're excited that with the Board's approval of the share repurchase, so we can be back in the market. It's supported the dividend. And then by far, #4 is anything around M&A.

Got it. Okay. Great. And then just lastly, David, real quick. You had mentioned before, like last quarter about the possibility of another restructuring but it would kind of depend on market conditions and kind of how you felt the best use of capital once HarborOne has closed. Any updated thoughts on that if you're considering that still? Or is it the focus more on organic growth in bitocs-only? .

It's really -- we're really not focused at all on any type of further portfolio restructuring of Eastern Bank. It is organic growth, where -- which we've had a very good track record of success year-to-date. As Denis referenced, the pipeline is robust, and our brand is resonating in the market. So it's that, it's being back in the market. for buybacks. And it's not no contemplation at all right now of any type of further portfolio restructuring.

Your next question comes from Mark Fitzgibbon with Piper Sandler.

David, you had mentioned in your comments earlier on the Wealth Management business. I think there was $550 million increase in AUM this quarter. A lot of that was market driven. Could you break out for us how much of the $550 million was market-driven versus flows?

Yes, it was predominantly market-driven good equity and fixed income markets. The net flows in the quarter were a little over $50 million positive.

Okay. Great. And then secondly, are there plans within the wealth management business to hire more people or to acquire other RIAs or wealth businesses?

Mark, this is Denis. So yes, we are looking for talent, and we have brought on some existing talent and in the wealth area. We're active and engaged in opportunities to bring in talent, whether it be in business development or portfolio relationship management. So hopefully, you'll hear more from us about that in the coming quarters. And in terms of M&A in the RIA space, no, we're not interested in that to any degree. It's challenging for those opportunities to work from a variety of perspectives. One being culture and integration and another being the financially challenging to make them work. So we're not interested at this point in any kind of M&A there.

Okay. And then Denis, I guess I'm curious, and I know it's a little awkward, but any comments on the slide presentation that Holdco put out earlier this week. I guess I'm curious do you agree with it? Do you plan to implement any of the things that they've proposed and do you plan to meet with them?

Well, Mark, as you know, we're very open to engaging with our shareholders. We do a lot of investor conferences and investor road shows, et cetera, and we're happy to engage with any of our investors and we've -- what we believe is a shared goal, we and our investors of driving the performance of the company even higher than we've already done and to build long-term value creation for our shareholders. So we welcome that dialogue from whomever. But I would say most importantly, I really want to turn our focus to the future and think about -- we're excited about the future of the company. We feel very well positioned here today and even more so with the combination with HarborOne to execute the strategy that we've built to really drive that top quartile financial performance, that's the mantra at the company. That's what we're aiming for. That's our aspiration.

And that's really, really focused on. And we think that's going to deliver very, very attractive shareholder returns. So that's our focus. I'm not going to comment on anything in any particular disclosure that someone has made. But rest assured, that this team is focused on driving performance, and that's what gets us up every day. That's what gets us excited. And as I said, we're going to continue to focus on that.

Your next question comes from Laurie Hunsicker with Seaport Research.

Just wanted to go over to Slide 16, your office exposure here. And I just want to make sure I'm reading this right. It looks like your office nonperformers jump linked quarter. But I guess what's also new is you've got $19 million now in nonaccruals maturing in the first quarter there at '26. And so I'm just wondering how we should think about that with respect to the provision just since that's new, can you help us understand that a little bit?

Sure, Laurie. So it's one loan just with a little background, that loan was originated in 2016. It's been -- so pre-COVID, we've been watching it since COVID for quite a few years here. This is consistent with what we've said all along, there will be a couple of loans in the portfolio that we'll have to deal with. In the grand scheme of things, small numbers, this loan, we started building reserves that will mature next year. That's why it hit the schedule. We will have it probably full resolution, probably not in Q4 but into Q1. It's on our books at what we believe will be the final resolution economics. So there's real -- it is one loan, but there's really no story there or anything different worth mentioning about that loan or about the rest of the portfolio.

Okay. And then just with respect to that loan, I mean, can you share with us occupancy or anything around that? Or if you expect to extend or just how you think about it.

I will share one fact. It's 85% occupied.

That's great. That's helpful. Okay. And then spot margin, do you have an update on that for September?

Did you say spot margin?

Yes. Do you have a set [indiscernible]? Yes. So it was 3.48%. So 1 basis point higher than the quarter.

Your next question comes from Janet Lee with TD Cowen.

Apologies if I missed it in the prepared remarks earlier, but if I were to interpret your comments around NIM, so basically, as we look into 2026, although maybe deposit costs were a little bit more elevated this quarter because of competition as rates come down, you're able to still sustain your NIM? Or is that the way -- where is that the right way to think about this? .

Yes. generally true statement. What I was trying to elaborate on a little bit from Damon's question, is 2 drivers, right? There's the accretion income, which bounces around last quarter is a little above trend this quarter a little bit below trend. Hard to predict, as we all know. On the deposit side, we've -- we were -- there was one Fed move so far. We were slow in our repricing down. So less than our historical long-term beta of 45% to 50% competition in our market remains intense or have the -- we're 5 days away from seems to be a foregone conclusion the Fed's going to move again followed by another move in December.

So we will be pricing down as we get covered from the Fed. Our message is, in the near term, a little slow, a little slower to maintain and eventually grow market share, but longer term through this full cycle we should expect us to achieve our full basis.

Got it. That's helpful. And a follow-up on higher -- bigger picture. So Denis, it's been a little over a year since you joined Eastern from Cambridge. So I believe you have assessed Eastern franchise or the business overall. So given its historical roots as a mutual conversion and given a lot of the M&As that you guys have done, I mean growth has been slow or slower versus, I guess, stand-alone Cambridge or Eastern. As you look at Eastern's franchise, like what parts of the business are perhaps underutilized? Or where do you see the most upside to growth or increase in profitability? I get that you guys are seeing acceleration in C&I opportunities, but are there other parts of the business where you think could be improved?

Janet, thanks for your question. So I would reflect on it this way. We have seen very significant increase in the company's profitability. That's really riding on the back of the strategy that the team before David and I had, very significant, and it positions us well. In terms of continuing to grow profitability, I think of it about the areas that you hear us emphasizing in our comments, the commercial lending team, it was, frankly, one of the things that attracted me when I was thinking about merging Cambridge into Eastern is the journey that Eastern has gone on for several years, including as a mutual and when it converted to build out that commercial banking division. The talent on the team is terrific. -- they can execute. They're excited about the growth that we're -- we have and that we're continuing to embark on.

So I think the Commercial Banking division is certainly one. Second, and this isn't necessarily an order of priority. All our businesses are important, but wealth management. The market in Massachusetts and New England broadly, from a demographic perspective, we don't have significant population growth, but what we do have is a very good wealth and household income demographic. So our ability to lean into that business Further, over the years, it takes time. I've seen this in my past and how you build out a wealth management business successfully. I think we will significantly improve our performance. It's low capital intensive, very beneficial to ROA. And we have a good -- a really strong capability in that area. I think about our retail and deposit franchise.

We have new leadership in that area, a terrific team, and I feel very good about our prospects in that area of the company as well. So that's a lot, Janet, but we're fortunate to have a lot. And it comes down to the talent on the team and our ability to execute in the market, including our newer markets. When I think about our markets, you have to really -- the merger integrations well done take years. if I go back to the Century merger, in my view, is not fully integrated. Have we maximized the potential of our opportunity in this old Century markets, in the old Cambridge markets and the soon-to-be HarborOne markets, absolutely not. So I think there's a lot of opportunity ahead. The management team is excited. We're pumped. So that's how I would answer your question, Jan.

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

Well, thanks again, everyone, for joining us this morning. Best wishes for a very happy and healthy holidays, and we look forward to talking with you again in the new year.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.