Eastern Bankshares Q1 2025 & Merger Earnings Report

Eastern Bankshares EPS Results

• Actual EPS: $0.34
• Consensus EPS: $0.33
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

Eastern Bankshares Revenue Results

• Actual Revenue: $222.40 million
• Expected Revenue: $226.98 million
• Beat/Miss: Missed by -$4.58 million
• YoY Revenue Growth: N/A

Eastern Bankshares Announcement Details

• Quarter: Q1 2025 & Merger
• Date: 4/24/2025
• Time: After Market Closes
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 9:00AM ET

Eastern Bankshares (NASDAQ:EBC) operates as the bank holding company for Eastern Bank that provides banking products and services primarily to retail, commercial, and small business customers. The company provides deposit accounts, interest checking accounts, money market accounts, savings accounts, and time certificates of deposit accounts. It also offers commercial and industrial, commercial real estate and construction, small business, residential real estate, and home equity loans; lines of credit; and other consumer loans comprising unsecured personal lines of credit, overdraft protection, automobile loans, home improvement loans, airplane loans, and other personal loans. In addition, the company provides trust, financial planning and portfolio management, automated lock box collection, cash management, and account reconciliation services; personal, business, and employee benefits insurance products. Eastern Bankshares, Inc. was founded in 1818 and is headquartered in Boston, Massachusetts.

Eastern Bankshares Q1 2025 & Merger Earnings Call Transcript

Presentation

[Robert Rivers, Executive Chairman & Chairman of Board of Directors at Eastern Bankshares]

Thanks, Chloe.

[Operator]

Welcome to the Eastern Bancshares Inc. First Quarter twenty twenty five Earnings and Announced Merger with Harbor One Corp. Conference Call. Currently, all participants' lines are in a listen only mode. Following the prepared remarks, there will be a question and answer session.

[Operator]

Please note this event is being recorded for replay purposes. Today's call will include forward looking statements. The company cautions investors that any forward looking statement involves risk 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 forward looking statements in the company's earnings press release and most recent 10 ks filed with the SEC.

[Operator]

Any forward looking statements made during this call 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. During the call, the company will also discuss both GAAP and certain non GAAP financial measures. For reconciliations, please refer to the company's earnings press release, which can be found at investor.easternbank.com. I'd now like to turn the call over to Bob Rivers, Eastern Executive Chair and Chair of the Board of Directors.

[Robert Rivers, Executive Chairman & Chairman of Board of Directors at Eastern Bankshares]

Thanks, Chloe, and good morning, everyone, and thank you for joining our call today. With me is our CEO, Dennis Sheehan and our CFO, David Rosado. Yesterday, we reported our first quarter earnings and announced we entered into a definitive merger agreement with Harbor One Bancorp, a $5,700,000,000 bank headquartered in Brockton, Massachusetts. As you noticed, we posted two presentations, one on the proposed merger and the other is our standard earnings presentation. On today's call, we will review both our first quarter results and the announced merger.

[Robert Rivers, Executive Chairman & Chairman of Board of Directors at Eastern Bankshares]

We are pleased with our solid first quarter performance, which included a successful and well executed investment portfolio repositioning that will further enhance our financial results. We continue to return capital to our shareholders with the repurchase of $48,700,000 worth of shares during the quarter and announced an 8% increase to the quarterly dividend. We are very excited about the partnership with Harbor One, which bolsters our already strong and longstanding presence in Greater Boston. Joining together, this is become a $30 plus billion bank, further solidifying Eastern as the largest bank headquartered in Massachusetts with leading commercial, small business, consumer, wealth and private banking offerings. This merger also represents Eastern's expansion in Rhode Island, providing an opportunity for growth in the neighboring states while strengthening our market presence South Of Boston.

[Robert Rivers, Executive Chairman & Chairman of Board of Directors at Eastern Bankshares]

There is tremendous synergy between the Harbor 1 and Eastern cultures. Both of us are committed to cultivating trusted relationships with commercial customers and small businesses, nonprofits, municipalities and individuals and families by providing banking solutions tailored to client needs. We are both deeply committed to strengthening the communities where we work and live and to providing our clients, our colleagues with professional growth opportunity. Like Eastern, Harbor One is recognized as one of the most charitable companies in Massachusetts. We will have more to say about the transaction.

[Robert Rivers, Executive Chairman & Chairman of Board of Directors at Eastern Bankshares]

However, before doing so, Dennis and David are going to walk you through our first quarter results. And with that, I'll hand it over to Dennis.

[Denis Sheahan, CEO at Eastern Bankshares]

Thank you, Bob. Our first quarter performance marked a solid start to the year, and there were positive trends in many areas of the business. Operating earnings of $67,500,000 benefited from a 33 basis point expansion linked quarter in the net interest margin and continued improvement in the operating efficiency ratio to 53.7% due to higher revenues and lower expenses. These results generated further improvement in profitability metrics. Operating return on average tangible common equity increased 40 basis points linked quarter to 11.7%, and operating return on average assets was up three basis points to 1.09%.

[Denis Sheahan, CEO at Eastern Bankshares]

The lending environment remains tempered as economic uncertainty and ongoing changes in trade policies weigh on customer sentiment and loan demand. While we cannot control external factors, we will continue to control what we can, such as making strategic investments for long term growth, maintaining underwriting discipline and partnering with our customers. We will continue to be opportunistic in adding growth oriented talent in key lines of business. This was evidenced by the recent expansion of our franchise lending group with the arrival of two seasoned leaders who bring extensive expertise to this business. Actions such as these helped drive 3% annualized loan growth in the quarter, primarily due to higher C and I balances.

[Denis Sheahan, CEO at Eastern Bankshares]

While loan growth was slightly ahead of our expectations and we are well positioned to serve customers when loan demand strengthens, we remain cautious in our outlook for the remainder of the year. As we continue to capitalize on synergies from the Cambridge merger, we are particularly pleased with the deepening alignment between our wealth management and banking businesses. We are generating strong momentum in wealth management. The Cambridge Trust brand and our extensive capabilities continue to resonate with customers. We are confident in our ability to generate sustainable wealth management growth over time and create value, especially during periods of uncertainty when clients are more likely to seek professional advice.

[Denis Sheahan, CEO at Eastern Bankshares]

Assets under management increased to $8,400,000,000 due to net client flows, partially offset by market performance. Net client flows did benefit from a large short term inflow, which will reverse in the second quarter. Credit trends were positive. Nonperforming loans and net charge offs meaningfully improved compared to the prior quarter, reflecting the quality of our underwriting and proactive risk management approach, which allows us to address issues prudently and quickly. Looking ahead, our loan portfolios are well positioned, and we are encouraged about credit trends as we closely monitor evolving economic conditions and policies that could impact business and communities in the markets we serve.

[Denis Sheahan, CEO at Eastern Bankshares]

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

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Thanks, Dennis, and good morning, everyone. As Bob mentioned, we have posted the first quarter earnings presentation on our website, and we encourage you to review it as I will reference a number of those slides in my commentary. Let's begin on Slides two and three. We reported a GAAP net loss of $1.08 per diluted share, driven by the strategic repositioning of $1,300,000,000 of securities. While this transaction resulted in a non operating loss in the quarter, it further accelerates improvement in our financial performance and is expected to be $0.13 accretive to 2025 operating EPS.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We were pleased with the treasury team's successful execution of the transaction. And importantly, all metrics related to the repositioning are in line with guidance we shared in January. On an operating basis, earnings of $0.34 per diluted share were consistent linked quarter and increased 42% from a year ago, reflecting the enhanced earnings power of the company with the addition of Cambridge. Looking at Slide four, we are encouraged by the improving quarterly trends across several key financial metrics, including operating ROA and operating return on average tangible common equity, reflecting stronger earnings performance and a disciplined balance sheet management. Operating ROA of 109 basis points for the first quarter is up 33 basis points from a year ago, while return on average tangible common equity of 11.7% increased from 6.7% over the same period.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We continue to generate positive operating leverage as evidenced by an operating efficiency ratio of 53.7%, which improved for the third consecutive quarter, supported by both higher revenues and effective cost management. Moving to the margin on slide five. Net interest income of $188,900,000 increased $9,700,000 linked quarter due to margin improvement attributable to higher asset yields and lower cost of funds. The margin expanded 33 basis points and is 74 basis points above the trough just three quarters ago. Asset yields increased 16 basis points from the prior quarter, primarily driven by higher investment yields, partially offset by a modest decline in loan yields.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

In addition, the margin was favorably impacted by a 28 basis point reduction in interest bearing liability costs. Turning to slide six. Noninterest income was a loss of $236,900,000 on a GAAP basis compared to $37,300,000 of income in the prior quarter. The decrease was due to the pretax non operating losses on the sale of AFS Securities of $269,600,000 related to the investment portfolio repositioning. Operating noninterest income was $34,200,000 a decrease of 2,700,000.0 This decline was primarily driven by lower wealth management fees of $1,500,000 and a reduction in income from investments held in Rabbi Trust of $1,300,000 The lower income from Rabbi Trust was partially offset by approximately $800,000 and reduced benefit costs reported in non interest expense.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

As a reminder, wealth management fees in the prior quarter included a favorable one time item of 1,200,000.0 Excluding this item, wealth management fees declined 300,000 linked quarter and total operating non interest income would have been down 1,500,000.0 It is important to note, starting this year, we changed the computation of operating net income to include income from investments held at Rabbi Trust and Rabbi Trust employee benefit expense. We have conformed all comparative periods. Turning to Slide seven. We highlight our wealth management business, which is an important component of our long term growth strategy. Wealth management fees, which account for nearly half of total operating noninterest income, are less sensitive to interest rate fluctuations, thereby helping to diversify earnings.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

As Dennis mentioned earlier, we are pleased with the deepening alignment between our Wealth Management and Banking business. Wealth Management posted a solid performance in the first quarter. Growth in assets under management to $8,400,000,000 was driven by net client flows, partially offset by market performance. Net client flows benefited from a large short term inflow, which will reverse in the second quarter. On Slide eight, non interest expense was $130,100,000 a decrease of $7,400,000 The first quarter did not incur any merger related costs compared to $3,800,000 in the prior quarter.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Operating non interest expense was also $130,100,000 a decrease of $3,800,000 primarily driven by lower data processing, marketing and FDIC insurance costs, partially offset by higher salaries and benefits. First quarter expenses were better than our expectations. However, we anticipate a modest uptick in our expense run rate over the next couple of quarters. Moving to the balance sheet, starting with deposits on Slide nine. Period end deposits totaled $20,800,000,000 a decrease of $522,000,000 primarily driven by seasonal outflows and runoff of high cost CDs.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We continue to benefit from a favorable deposit mix with 50% of deposits in checking accounts, providing a stable low cost funding base. Additionally, we remain fully deposit funded with essentially no wholesale funding, which further enhances our balance sheet strength. We were able to reduce deposit costs by 21 basis points to 148 basis points in the quarter. If the Fed continues to ease, we will target deposit beta similar to our experience during the most recent tightening cycle or about 45% to 50%, with modest lags relative to Fed actions while monitoring balances and competition. While we remain focused on growing deposits to support our funding strategy, we are committed to doing so in a disciplined manner.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Our approach to gathering deposits prioritizes balancing liquidity needs with margin protection. On Slide 10, period end loans increased $125,000,000 or approximately 3% annualized from year end despite a few larger payoffs in C and I and CRE. The increase primarily reflected higher C and I balances, partially offset by lower residential and other consumer balances. Home equity lines recorded another quarter of growth with balances increasing approximately $20,000,000 from year end. We continue to have solid commercial pipelines of approximately $500,000,000 which is up about $100,000,000 linked quarter.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Looking at our high quality investment portfolio on Slide 11, the quarter was highlighted by the sale of $1,300,000,000 low yielding AFS securities with proceeds reinvested at market rates. The transaction improved total portfolio yield and enhanced flexibility in managing the portfolio, with approximately 30% of the investments now positioned near market rates. The purchases and sales were in similar security types. New MBS purchases were a mix of hybrid ARMs with shorter durations as well as fifteen- and thirty year collateral. The securities sold had an average yield of 1.43%, while purchased securities carried a significantly higher yield of 5%.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

As I mentioned earlier, all metrics related to the securities repositioning are consistent with previous guidance, and we continue to expect the transaction to provide pretax earnings accretion of approximately $35,000,000 for 2025. Before turning to capital, I'd like to briefly address the tax implications of our securities repositioning. Although we recorded a net GAAP loss for the quarter, we reported tax expense of $33,700,000 The first quarter GAAP tax loss benefit will accrue over the course of 2025. Our expected full year tax rate should be approximately 11%, implying a net tax benefit each quarter ranging from 6,000,000 to $9,000,000 Turning to slide 12. Capital levels remain robust, and we continue to strategically deploy capital, repurchasing approximately 2,900,000.0 shares for $48,700,000 at an average price of $16.62 which was $0.61 below the VWAP for the quarter.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We now have 6,200,000.0 shares remaining in our authorization that runs through the July, and the diluted common shares outstanding were 199,400,000.0 as of March 31. In addition, the Board approved an 8% increase to the quarterly dividend. This marks the fifth consecutive year of dividend growth and highlights our consistent return of capital to shareholders since our IPO in 2020. Looking at overall asset quality on Slide 13, reserve levels remain strong as evidenced by an allowance for loan losses of $224,000,000 or 125 basis points of total loans. These metrics are down modestly linked quarter from two twenty nine million dollars or 129 basis points, primarily due to charge off activity.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Credit trends improved during the quarter. Charge offs totaled $11,200,000 or 26 basis points to average loans, a decrease from $31,700,000 or 71 basis points in the fourth quarter. Net charge offs in the first quarter were concentrated in investor office loans. Nonperforming loans decreased $44,200,000 to $91,600,000 or 51 basis points of total loans. This improvement was primarily driven by charge off and payoff activity.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Criticized and classified loans of $596,000,000 or 4.8% of total loans were essentially flat with the prior quarter. Finally, we booked a provision of $6,600,000 down slightly from $6,800,000 in the prior quarter. On Slides fourteen and fifteen, we provide details on total CRE and CRE investor office exposures. Total commercial real estate loans are $7,200,000,000 Our exposure is largely within local markets that we know well and is diversified by sector. Our largest exposure is to the multifamily sector at $2,500,000,000 which is a very strong asset class in Greater Boston due to ongoing housing shortages.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We have no multifamily nonperforming loans and have had no charge offs in this portfolio in the past decade. Our credit focus continues to be on investor office loans. The investor office portfolio is $876,000,000 or 5% of our total loan book. Criticized and classified loans ended the quarter at $163,000,000 or about 19% of total investor office loans. In addition, our reserve level of 4.9% remains conservative.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We continue to take a proactive approach in managing investor office exposures. Our credit teams perform thorough assessments of the portfolio on a quarterly basis. And on larger, lower risk rated credits, we conduct ongoing monthly reviews. This in-depth knowledge enables our credit team to make timely and decisive actions. Finally, before turning the call back to Dennis to further discuss yesterday's merger announcement, I'd like to take a moment to address our 2025 outlook.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

At this time, we are not making any changes to full year guidance. Our performance in the first quarter was solid with positive trends in many areas of our business. While there were some puts and takes in the results, they do not affect our current outlook. Overall, we remain optimistic about achieving the projections we shared in January. With that said, we are mindful of the fluid and evolving nature of the current economic environment.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

We continue to closely monitor the impact on our business as well as on customers and the communities we serve. Given the ongoing uncertainty surrounding key external factors such as trade policies, interest rates, inflation and market volatility, we intend to revisit our outlook at midyear.

[Denis Sheahan, CEO at Eastern Bankshares]

That concludes our comments on first quarter earnings. Let me pass it back to Dennis. Thanks, David. We are very satisfied with the company's performance in the first quarter with continued improvement in profitability, improvement in asset quality measures and sound progress on growth initiatives in lending and wealth management. As we have said for a while now, this is and will remain our focus.

[Denis Sheahan, CEO at Eastern Bankshares]

We've also said if we are welcomed into a merger opportunity, we will engage in a disciplined manner, and that's exactly what we have done. The merger with HAVEL ONE brings much opportunity with solid earnings accretion, opportunity to improve operating leverage, a price at tangible book value and a reasonable dilution earn back at less than three years. Turning to Page two of the merger presentation. The combination with Harbor One is a natural fit with shared values, vision and focus on community based banking. As Bob mentioned at the start of the call, the partnership bolsters our leading position in Boston, strengthens our market presence South Of Boston and into Rhode Island.

[Denis Sheahan, CEO at Eastern Bankshares]

We look forward to introducing Harbor One's customers to a broader set of products and services offered by our banking and wealth management businesses, which provides meaningful upside opportunities in the merger. Importantly, it is an attractively priced and financially compelling merger delivering sizable earnings accretion of approximately 16% and tangible book value earn back of two point eight years. The combination presents a clear path to generate higher returns and improve operating efficiency, positioning the company to achieve top quartile profitability. In addition to capturing a greater share of wealth commercial business within Harbor One's markets, we see meaningful opportunities to drive further upside from the merger by enhancing the combined mortgage business and aligning deposit strategies across the combined franchise. This is an in market, low execution risk merger.

[Denis Sheahan, CEO at Eastern Bankshares]

Harbor One and its seasoned management team are well known to us, and we have modeled conservative merger assumptions. Our experience and disciplined approach to this transaction should provide confidence in our ability to execute and realize the full potential of this combination. Finally, the pro form a balance sheet of the combined company is strong with robust capital, liquidity and reserve levels, but provides flexibility for future deployment of capital. Moving to Page three. Harbor One with 5,700,000,000 of total assets, including $4,800,000,000 in loans, has been serving the financial needs of local communities for over a century.

[Denis Sheahan, CEO at Eastern Bankshares]

And its subsidiary, Harbor One Mortgage, headquartered in Manchester, New Hampshire, provides residential lending solutions throughout New England. With 30 branches across their footprint and a deposit base of $4,600,000,000 Harbor 1 has established strong deposit market share positions, ranking in the top five in over half of the markets they serve. Importantly, the bank maintains a particularly strong presence in the attractive banking market of Plymouth County in Massachusetts. The combination with Harbor One solidifies Eastern's position as the largest Boston mid sized bank by deposits. Looking at Page four, the pro form a company maintains the number four deposit market share in the Boston MSA, but is well positioned to possibly move to number three over time.

[Denis Sheahan, CEO at Eastern Bankshares]

With $31,000,000,000 in assets and approximately $8,500,000,000 in wealth assets under management, the enhanced scale of the combined franchise helps to deliver top financial performance as evidenced by a projected fully synergized 2026 ROA of 140 basis points and return on tangible common capital of 15.5%. I'm confident we will capitalize on the synergies and opportunities this merger presents, creating long term value for shareholders, customers and communities. With that, I'll turn it back to David.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Thanks, Dennis. As outlined on Page five, this is a financially attractive merger, highlighted by meaningful EPS accretion with manageable tangible book value dilution and increased earnings generation and profitability. The transaction is projected to provide approximately 16% EPS accretion, underscoring the strong synergy potential and accretive nature of the deal. We anticipate a robust IRR of more than 18%. While the transaction results in an estimated tangible book value dilution of approximately 7%, the earn back is two point eight years.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Overall capital levels are expected to remain strong following the close of the deal, with a CET1 projected to be well above 12%. The ample capital and liquidity levels provide flexibility to delever Harbor One's balance sheet over time. This includes the planned sale of Harbor One's securities portfolio with proceeds intended to pay down FHLB borrowings and further strengthen the combined company's financial position. The merger enhances earnings power and drives increased profitability. As displayed on page six, on a pro form a fully synergized basis, our profitability metrics for 2026 are expected to show meaningful improvement compared to Q1 twenty twenty five standalone results.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

These improvements reflect both Eastern's twenty twenty six consensus estimates and anticipated merger impact. Net interest margin is projected to expand by over 30 basis points to 3.7%. The operating efficiency ratio is anticipated to improve by approximately 4%, demonstrating the impact of cost synergies and scale. Operating ROA is expected to increase by over 30 basis points to 140 basis points, while operating return on average tangible common equity is projected to rise from 11.7% to approximately 15.5%. These improvements reflect the financial strength and strategic rationale of the combined organization and position the company's performance within the top quartile of all banks in the KRX.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

On Page seven, we provide a transaction summary and key assumptions. Under the terms of the merger agreement, which has been unanimously adopted by both Boards of Directors, shareholders of Harbor One will receive for each share of Harbor One common stock either 0.765 shares of Eastern common stock or $12 in cash, subject to allocation procedures to ensure that the total number of shares of Harbor One common stock that received the stock consideration represents between 7585% of the total number of shares of Harbor One common stock outstanding immediately prior to the completion of the merger. The stock consideration is attractively priced at Harbor One's tangible book value. Assuming 80% stock consideration, the midpoint of the range, we anticipate issuing approximately 25,200,000.0 shares of common stock and paying an aggregate amount of $99,000,000 in cash in the merger. Based upon Eastern's fifteen point four eight dollars per share closing price on April 23, The transaction is valued at approximately $490,000,000 The transaction is subject to customary approvals from three bank regulators and approval by Harbor One's shareholders.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

No vote of Eastern shareholders is required. We anticipate closing the transaction in mid Q4 if regulatory approvals and expiration of required waiting periods occur before October 31. Otherwise, because of year end closing challenges, we might defer closing into Q1 twenty twenty six. We will provide more color in July on our next earnings call In connection with the closing, Joe Casey and one other director from Harbor One are expected to join Eastern's Board of Directors. To highlight some of the key assumptions, the merger is expected to generate cost savings of approximately $55,000,000 pretax or approximately 40% of Harbor One's operating non interest expense.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

These savings are projected to be realized with 75% phased in during the first half of 'twenty six and one hundred percent thereafter. Additionally, one time merger related charges are estimated to be approximately $65,000,000 pretax or $53,000,000 after tax. Our model assumes a conservative gross credit mark of 2% of total loans or $104,000,000 with roughly 60% designated PCD and 40% non PCD. The non PCD mark is accreted back into earnings over five years. As Dennis stated earlier, we believe this conservative approach is prudent in the current economic environment.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

The day two CECL reserve of one times non PCD credit mark or $32,000,000 after tax will be fully reflected in pro form a capital at closing. The modeled rate mark is $234,000,000 pretax accreted over five years, and the core deposit intangible is 3% of all non brokered, non time deposits amortized over ten years. Of course, these are subject to interest rates and will fluctuate between now and closing. Importantly, I want to highlight no equity capital raise or debt is needed to complete the merger. The transaction results in meaningful EPS accretion post close.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

The waterfall on Page eight provides a breakdown of the earnings impact of the merger on an after tax annualized basis. In addition to Harbor One's consensus earnings expectations of $39,000,000 we project $36,000,000 of income from loan mark accretion and $44,000,000 from cost savings. We view the accretion income as a sustainable source of earnings in the current rate environment. Partially offsetting these favorable items are other merger impacts such as amortization of CDI and loss interchange fees. Not modeled or reflected in the waterfall, these earnings derived from upside opportunities, including the alignment of deposit costs, enhancing the combined mortgage businesses and capturing greater share of wealth and commercial banking opportunities in Harbor One's markets.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Turning to Page nine, we highlight our comprehensive due diligence and integration plan. As part of our process, we conducted a thorough review across all key areas of the business. This included an in-depth evaluation of Harbor One's lending and credit, reviewing approximately 65% of the commercial loan portfolio with a focus on larger credits and commercial real estate. We continue to evaluate the combined branch network in collaboration with Harbor One's management team. Our objective is to identify the best branch locations that align with growth objectives, operational efficiency and customer accessibility.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

A detailed assessment of Harbor One mortgage was conducted to evaluate performance and opportunities for the business. Additionally, planning is underway for bank systems integration, which is targeted for completion in the first quarter of twenty twenty six. We are confident in the strength of our due diligence process and ability to successfully integrate mergers, as evidenced by our proven track record. Eastern is an experienced acquirer and delivered on stated financial targets, most notably with our two most recent mergers following our 2020 IPO. In closing, the transaction bolsters Greater Boston density, strengthens Eastern's footprint South Of Boston and expands into the Rhode Island market.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

It's financially compelling and results in top quartile profitability. It provides meaningful upside opportunities by delivering our broader products and services in Harbor One's markets. This is an in market transaction with conservative assumptions and low execution risk and generates a pro form a balance sheet with robust capital, liquidity and reserves. This concludes our comments on the announced merger, and we will now open the line for questions.

[Operator]

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

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, good morning guys. Hope everybody is doing well today. First, thanks on the great detail on the slide deck on the transaction should make modeling a little less onerous for us. You know, with regards to, you know, with the with regards to the, the outlook, David, remaining somewhat unchanged. Just curious as to your thoughts on, the share buyback, you know, kind of in this period of of, the deal pending.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

You know, you you guys still be active supporting the shares, or do you kinda take a pause just kind of with the deal, you know, going through the completion process?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Sure. Good question, Damon, and and and good morning. Thanks for the feedback on the deal. We will be out of the market since we'll be using an equity component in consideration at least until after their shareholder approval.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. And then did you say that if if, approvals go according to plan, you guys are kind of targeting a 10/31 closing and if there's any, you know, slight delay or prolonged process that you might just kick it over to one one? Is that what you had said?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Yes. The merger agreement has us closing prior to tenthirty one as long as the regulatory approvals occur as well as the required waiting period. Because of the timing, if this gets late into Q4, we have the option to delay closing until Q1 just because we don't want to close right before year end.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. That makes sense. And then just lastly, could you just talk a little bit more about the franchise lending group that you guys hired? Kind of, you know, what's the the is there a specialty that they focus on? Kind of what are the size of those loans?

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

And kind of what is the potential for growth in that portfolio?

[Denis Sheahan, CEO at Eastern Bankshares]

Damon, hi, it's Dennis. We hired two individuals to complement what we already had in terms of resource and franchise lending and very, very seasoned, experienced lenders from larger institutions. And with that, resulted in nice growth in that category in the first quarter, and we're very hopeful for continued growth in that segment. Our pipeline is building effectively. And they have expertise across a range of different categories, like in fast food, for example.

[Denis Sheahan, CEO at Eastern Bankshares]

And again, we're hopeful that that will the growth will continue in that segment, and we'll look to build out that business further.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. That's helpful. That's all that I had for now, so thank you.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Thanks, Damon.

[Operator]

Your next question comes from the line of Mark Vidgibbon from Piper Sandler. Your line is open.

[Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies]

Hey, guys. Good morning. David, just to clarify, would you mind repeating your comments on the effective tax rate for the remainder of this year?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Yes. Hi, Mark. Good question. So essentially, we had a large GAAP loss in the first quarter. However, when the tax provision within the quarter needs to reflect the expected full year tax expense.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

So we what I was trying to say, maybe not as well as we thought, was that we are expecting negative tax expense in subsequent quarters, producing an effect today, we believe, an effective tax rate for the full year of about 11%. Okay, great.

[Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies]

And then secondly, I was curious on Harbor One's mortgage business. It sounded like you plan to kind of merge it with your own. Is there sort of thoughts around becoming a bigger player in the mortgage business longer term?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Well, I think the reality is, today, they're a much bigger player than we are. They originated last year in 2024 just south of $700,000,000 in what was essentially a fairly slow mortgage market. By comparison, we did just south of $300,000,000 so a little bit more than twice what we did. Now we did it as a $25,000,000,000 bank. They did it as a $5,000,000,000 bank.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

So we there's we see it's a very well run operation set up as a separate subsidiary of the bank. Our plan is to think through our business and their business and optimize what we think the combined entity should look like for Eastern. Their business is also mostly run from a gain on sale perspective, where ours was mostly run for jumbo mortgages coming on to our balance sheet. So for example, they did last in 2024, did about 2.5x the originations that we did, but they did about 6x as much for gain on sale. So there's a real fee opportunity that we need to think about that's available to us.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

But, again, we have to work through this with their team. We have to rightsize or optimize it for our vision, and and that'll take a bit of time.

[Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies]

Okay. And then lastly, I was just curious if this was a negotiated or an auction process.

[Denis Sheahan, CEO at Eastern Bankshares]

So, Mark, this is Dennis. I mean, as you as you might expect, both Bob and I maintain contact with a number of other bank CEOs throughout our marketplace. And we had a very good relationship with Joe Casey and Harbor One. And we were approached about a potential, you know, opportunity to merge with them. It's we don't control the time when somebody welcomes us into a discussion.

[Denis Sheahan, CEO at Eastern Bankshares]

And, you know, we entered into negotiations with them over the last few months, and it's resulted in a merger that we're very pleased about.

[Operator]

Your next question comes from the line of Laurie Hunsicker from C Corp Research Partners. Your line is open.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Hey, thanks. Good morning.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Good morning, Laurie.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Just wondered wondering here, David, can you tell us the the timing when in the quarter, the 1,300,000,000.0 securities repositioning was completed? And then also if you happen to have a spot margin for March?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Sure. So I'll I'll start with the easy one, which is the March spot margin, three forty nine. The it was mostly done in late January. There were some further trades into February. If if I just if you have to pick a date or a week, it's January, first week of February.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

And the only reason it wasn't all done exactly at once was we were really targeting the number $200,000,000 after tax. And we had to let securities settle, make sure we worked through all the mechanics. We had a few cleanup trades to hone in on the final after tax loss amount. That's the only reason it it stretched over, call it, a two week period.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Gotcha.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

But Okay. Everything that we telegraphed that would happen in January occurred exactly as telegraphed.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Okay. That's helpful. And then the accretion income in net interest income, 12,200,000.0. I just wanna make sure that I heard the number right. So merger accretion for the full year, excluding Honey, is 35,000,000, and then Honey is gonna add another 36,000,000 or so next year of merger accretion into NII.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Did I get those two numbers right?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

So Honey is co is your code for Harbor One?

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Yes. I'm sorry. Yes. Harbor One.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

I wanna make sure. The so the accretion that we've experienced today on Cambridge Trust has been exactly as advertised, mostly because of the fact that they're very low coupon mortgages and the payoff experience has been as originally modeled. So we're very pleased with that. And then the second part of your question was repeat it, please.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Yeah. No. So I just wanted to make sure. So merger accretion expected for this year. For some reason, I had 47,000,000 in my 2025 model, and I thought I heard you say 35,000,000 in the call.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

And I just wanna make sure. So merger accretion just for this year, 2025, excluding Harbor One, is 35,000,000. Is that correct?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

It's about, call it, twelve to thirteen million dollars in the first couple quarters. It it will start to tail off in the back half of our years and step down to 10 to 11,000,000 for the last two quarters.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Perfect. Okay, perfect. And then

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Yes. So that's about a $45,000,000 number full year.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Full year. Got you. Okay. Okay. And then when I look at Harbor One, the accretion that's expected there in the top line, how should we think about that?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

36,000,000 Yes. That's 30,000,000 and that's 26

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Sorry. That's 26,000,000?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

No. $20.20 6. 20 20 6.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

20 20 2 is 36,000,000. Gotcha. Okay.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Yeah.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Gotcha.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Yeah.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Okay. Okay. That makes sense. And then just going back to your reconfirming of expense guide, to your point, expenses lower than expected. Love seeing that there were no merger charges holding over for CFTC.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

But just looking at your expenses this quarter, the 130,000,000 looks like a good number, but obviously that included FICO and snow removal. So expenses should be coming down. So help us think about when you say expenses are going to be going up in coming quarters, help us think about what that's looking like. And are you talking about they're going up off of the $130,000,000 which was outsized for the payroll tax in the snow? Or how should we think about that?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

If you look

[David Rosato, CFO & Treasurer at Eastern Bankshares]

on that page, you see there was an uptick in the expense line for salary and benefits, normal Q1. All I was we were pleasantly surprised with first quarter expenses. I would like nothing more than with confidence to say that's a run rate, but I'm not there yet. So there was a bit of timing in the first quarter. The marketing expense will pick up.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

The technology expense will pick up a bit. So we were very pleased with first quarter. We it's just too early to call that a new run rate. That's all I was trying to say there.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Got you. Got you. Okay. And then tax rate, I appreciate your clarification for 2025. But as we look out to 2026, how should we think about that?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

I think it normalizes to what our run rate has historically been. So that's probably a if I'm thinking 26% at this point, I'd bracket it 21% to 23%. Again, that's core run rate. The security sales is what caused a bit of noise for this full year tax rate.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Right. Right. Okay. And then on to office, obviously, saw you had a nice drop in office non performers. Just wondered, was that a short sale?

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Can you share any details around that? And then also, can you remind us what your Cambridge exposure is?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

So I mean, we had very nice credit performance in the quarter. You can see drop in nonperformers, drop in charge offs. We're really not going to comment on disposal of assets, whether they're payoffs, charge offs, short sales, etcetera. The one thing I would say is we've decided to maintain the bifurcation in these numbers for this year between legacy Eastern and Cambridge Trust, just to help people follow through the credit impacts of that merger, which I would say, whether you're just talking Legacy, Eastern or Cambridge Trust, really we're really pleased with the performance of our credit team and their results for another quarter. The criticizedclassifieds flat, work through credits that had been identified.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

You look at maturity schedules that we have in the deck, and you see there's everything's accruing except one small loan, and it's all the way out in first quarter of twenty six for investor. So we wanna send a good message on credit, and and we're well reserved, and a a shout out to our credit team.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Yeah. And so, I guess, along those lines, I mean, if if we strip out office, you know, and to your point, you've already obviously marked marked the CATC book. But if we strip out office charge off, I mean, your your charge offs are are negligible. You know, how should we be thinking about a normalized charge off rate assuming that, you know, we're not in a recession? How should we be thinking about a charge off rate for maybe next year and the year following?

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Yeah. So I guess a couple thoughts. From from when we if we think about pre office, we feel very good about that, and and we appreciate your comments about the great experience. The my only hesitation to put out a number is we there's so much uncertainty in the economic environment with what's going on in Washington, whether it's tariffs or immigration, that we're spending a lot of time thinking about our C and I books and thinking about implications of those policy not only those policies, but just the uncertainty in the environment. We've our credit teams are engaging with our RMs and engaging with our customer base.

[David Rosato, CFO & Treasurer at Eastern Bankshares]

Everything that's being we're finding as our customers are being very thoughtful and proactive. I'm just a little hesitant at this point because of the uncertainty to saying we think, you know, a a provision expense in '26 or '27 should be x at this point.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Okay. Okay. And then just one last sort of macro question. Now that you're going to be $31,000,000,000 in assets, can you help us think, as we look forward maybe three or four years, what your asset size might look like? And then obviously now that you're expanded into Rhode Island at $700,000,000 round numbers and deposits, what would you like that number to do over the next three or four years?

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

And then last question, can you guys comment were you the company A on Brookline? Rob or Dennis? So one or both of you? Thanks.

[Denis Sheahan, CEO at Eastern Bankshares]

So Laurie, this is Dennis. And what I'd say is we don't focus on asset size. We focus on profitability. Certainly, increased scale helps with operating leverage, for sure. And you look at Eastern's performance over the last several years, it's really been enhanced by that increased scale.

[Denis Sheahan, CEO at Eastern Bankshares]

But we focus on top tier profitability, and that's we're very pleased to say that that's where we're headed very quickly following the consummation of the merger with Harbor One. And in terms of your second question was, were we company A? We're here to talk about the merger with Harbor One today. We're not going to engage in conversation about other companies. We're focused on Eastern Bank and on Harbor One.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Okay. And then just last question. On Rhode Island, so now that this puts you into Rhode Island with $700,000,000 in deposits round numbers, how do you think about that in sort of the coming years? Where would you like that number to grow to? Thanks for

[Denis Sheahan, CEO at Eastern Bankshares]

So we're very happy to be entering Rhode Island. We're going to look to grow in the state. We're not going to put a number on it today, but clearly, there's opportunity for us. When you look at the market share in that state, It's dominated by larger companies, and we're going to try and make a dent in that.

[Laurie Hunsicker, Senior Analyst at Seaport Research Partners]

Great. Thanks so much.

[Denis Sheahan, CEO at Eastern Bankshares]

Thank you. Thanks, Laurie.

[Operator]

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

[Robert Rivers, Executive Chairman & Chairman of Board of Directors at Eastern Bankshares]

Once again, thanks for joining us this morning and really appreciate your questions. And we look forward to talking with you again during this time.

[Operator]

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

Participants

Executives

• Robert Rivers, Executive Chairman & Chairman of Board of Directors
• Denis Sheahan, CEO
• David Rosato, CFO & Treasurer

Analysts

• Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)
• Mark Fitzgibbon, Head of FSG Research at Piper Sandler Companies
• Laurie Hunsicker, Senior Analyst at Seaport Research Partners