Eastern Bank’s Margin Set to Crawl, Then Climb

Date of Call: Jan 23, 2026

Financials Results

• EPS: $0.46 per diluted share (net income), $0.44 per diluted share (operating earnings), up 19% sequentially
• Operating Margin: Operating ROA of 130 basis points, up 24 basis points YOY; operating efficiency ratio of 50.1%, improved from over 57% in the prior year quarter

Guidance:

• Loan growth for 2026 anticipated to be 3% to 5%.
• Deposit growth of 1% to 2%.
• Net interest income expected in range of $1.20B to $1.50B.
• FTE margin of 3.65% to 3.75%.
• Provision expense expected $30M to $40M.
• Operating noninterest income between $190M and $200M (assuming no market appreciation).
• Operating noninterest expense in range of $655M to $675M.
• Full year tax rate approximately 23%.
• CET1 ratio managed towards 12%.

Business Commentary:

Financial Performance and Growth Strategy:

• Eastern Bankshares reported net income of $99.5 million or $0.46 per diluted share for Q4 2025, with operating earnings increasing by 28% linked quarter.
• The strong financial performance was supported by a 62% increase in operating earnings for the year, driven by organic loan growth and a record level of wealth assets under management.

Loan and Deposit Growth:

• Total loans grew by 5.6% on an organic basis for the full year 2025, with the legacy Eastern commercial portfolio increasing by 6%.
• Deposits increased by 21% from Q3 to Q4, largely due to the addition of HarborOne deposits, though excluding the merger impact, deposits increased by only $20 million.

Wealth Management Expansion:

• Wealth assets reached a record high of $10.1 billion, including $9.6 billion in assets under management, driven by market appreciation and positive net flows.
• The integration of the Eastern and Cambridge wealth teams has strengthened alignment between wealth and banking businesses, contributing to the growth.

Capital Management and Shareholder Returns:

• Eastern Bankshares repurchased 3.1 million shares for $55.4 million in Q4 2025, representing 26% of the total authorization announced in October.
• The company plans to continue returning excess capital to shareholders through share repurchases, with an anticipated CET1 ratio decline to approximately 12.7% by June 30, 2026.

Non-Interest Income and Margin Improvement:

• Noninterest income increased by $4.8 million from Q3, with mortgage banking income rising by $2.9 million due to the addition of HarborOne's operations.
• The net interest margin improved to 3.61% for Q4, up 14 basis points from the previous quarter, driven by higher interest-earning asset yields.

Sentiment Analysis:

Overall Tone: Positive

• Management described 2025 as 'a terrific year' with 'a 62% increase in operating earnings' and 'strong organic loan growth.' The tone was optimistic about organic growth opportunities, stating 'Eastern is well positioned for 2026 and beyond' and 'we believe this approach will deliver meaningful value to our shareholders.'

Q&A:

• Question from Feddie Strickland (Hovde Group, LLC): 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?
  Response: Yes, the margin forecast is expected to ramp up marginally each quarter, accelerating in the back half, based on market forwards of 2 rate cuts.

• Question from Feddie Strickland (Hovde Group, LLC): And just one more, if you could talk about the pipeline mix today and what percentage of maybe C&I versus owner-occupied CRE, nonowner-occupied CRE and HELOCs we might see in terms of loan growth over the next couple of quarters?
  Response: Pipeline is strong, about a little more than 50% CRE (including community development lending) and about 45% C&I, with HELOC growth steady.

• Question from Damon Del Monte (Keefe, Bruyette, & Woods, Inc.): So just curious on the outlook for the provision of $30 million to $40 million. Just wondering if 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?
  Response: Provision guidance is similar to last year, and they outperformed; the range is conservative and not indicative of credit concerns, with no material shift in credit trends.

• Question from Damon Del Monte (Keefe, Bruyette, & Woods, Inc.): 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 off some brokered CDs and wholesale stuff from the HarborOne side?
  Response: Use the 12/31 balance sheet and growth numbers for loans and deposits; securities portfolio will have slight uptick to reach 15% of total assets, and residential mortgage balances will be flat.

• Question from Gregory Zingone (Piper Sandler & Co.): First question, nice quarter on the AUM growth. Would you be able to break out the growth between market appreciation and the net flows?
  Response: AUM growth was $200M from net flows in Q4, driven by strong referrals and integration of the Cambridge wealth team.

• Question from Gregory Zingone (Piper Sandler & Co.): 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?
  Response: Nonperforming loans are not in downtown Boston, are mostly CRE from HarborOne, and were expected; resolution plans are in place with no surprises.

• Question from Gregory Zingone (Piper Sandler & Co.): And at what point in your workout phase would you guys entertain a larger sized loan sale for any of these portfolios, whether they're nonperforming or criticized?
  Response: No need for a bulk portfolio sale; confident in resolving individual loans quickly, similar to the Cambridge Trust experience.

• Question from Laura Havener Hunsicker (Seaport Research Partners): 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 HONE?
  Response: Repositioning was done in the first couple of days of November.

• Question from Laura Havener Hunsicker (Seaport Research Partners): And then do you have a spot margin for December?
  Response: December spot margin was approximately 3.64%, just below the lower end of guidance, with incremental creep expected through the year.

• Question from Laura Havener Hunsicker (Seaport Research Partners): And then just looking at Slide 18, I love this slide. I really appreciate you including it. So your actual accretion impact, the 11.4%, that's 17 basis points on margin, and I look to 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 3.65% to 3.75%, that's obviously inclusive of that, just making double share here.
  Response: Yes, the guide includes the accretion schedule (HarborOne plus $9M-$10M from prior mergers), though there may be quarterly variability.

• Question from Laura Havener Hunsicker (Seaport Research Partners): 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 from $51 million to $147 million, $96 million, $94 million came from HONE and that's 35% reserved?
  Response: Yes, the $94M increase from HarborOne is 35% reserved.

• Question from Laura Havener Hunsicker (Seaport Research Partners): 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?
  Response: Resolutions expected in first and second quarter; similar to Cambridge Trust, likely worked through within a year, maybe faster.

• Question from Laura Havener Hunsicker (Seaport Research Partners): And then MBFI exposure, do you have an update there?
  Response: MBFI exposure is a little over $500M, mostly affordable housing, multifamily REITs, and asset-based lending.

• Question from Laura Havener Hunsicker (Seaport Research Partners): 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 separate sale of other assets category? Where do you -- where is that line?
  Response: The $3.5M lease impairment is a nonoperating expense, through the other noninterest income line, and is a one-time event.

• Question from Laura Havener Hunsicker (Seaport Research Partners): And then can you just talk a little bit about -- you had a drop in that sort of the -- within sort of other -- it's 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.
  Response: The $700K loss was associated leasehold improvements; a one-time event, so expect it to run zero going forward.

• Question from Laura Havener Hunsicker (Seaport Research Partners): And then last question, Denis, 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, Page 20, last bullet, not pursuing acquisitions, all in bold. I mean, I think that's great. It's certainly more definitive than we were last quarter. So directionally, you've gotten 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?
  Response: Focus is entirely on organic growth and returning excess capital via buybacks; CET1 ratio will be managed down towards 12% as buybacks continue, with no need for acquisitions.

• Question from Sun Young Lee (TD Cowen): For -- I don't know if this is 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 HarborOne's mortgage banking business? Would you be beneficiary if 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?
  Response: Fee income guide assumes no market appreciation; upside possible with S&P 500 gains. HarborOne mortgage business is 8-10% of total fee income, would benefit from rate drops, but residential portfolio will remain flat in 2026.

• Question from Sun Young Lee (TD Cowen): And just one follow-up. 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 the 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?
  Response: After completing the existing buyback authorization by midyear and seeking approval for another, intent is to manage CET1 ratio lower towards 12%, but timing is subject to stock price and discipline.

• Question from Feddie Strickland (Hovde Group, LLC): Just had a quick follow-up on loan growth. Is there any seasonality or particular slower or faster quarter in terms of loan growth just as we think about the guide within the course of the year?
  Response: Yes, Q1 is typically slower, with production building through the year, rounding off nicely by year-end.

Contradiction Point 1

Net Interest Margin (NIM) Outlook and Deposit Cost Management

Contradiction on the trajectory and drivers of the net interest margin, impacting financial forecasting and investor expectations.

Will core margins remain flat near-term as you focus on deposit growth and retaining HarborOne deposits, with potential expansion later in the year? - Feddie Strickland (Hovde Group, LLC)

2025Q4: Yes, the margin forecast is for marginal quarterly improvement, accelerating in the back half of the year. - R. Rosato(CFO)

What is the NIM outlook for Q4 and 2026, given competitive deposit pressures and the HarborOne merger impact? - Damon Del Monte (Keefe, Bruyette, & Woods)

2025Q3: The full-year combined NIM outlook... remains unchanged from the April guidance. For Q4, the margin is expected to be roughly flat quarter-over-quarter. - R. Rosato(CFO)

Contradiction Point 2

Outlook for Additional Mergers/Acquisitions

Contradiction on the strategic priority and appetite for future mergers, affecting company strategy and market perception.

Can you explain the rationale for not pursuing acquisitions as outlined in Page 20's last bullet point? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q4: The bank is entirely focused on organic growth opportunities within its existing footprint.... The plan is to manage the CET1 ratio down over time toward 12%... - Denis Sheahan(CEO)

How does the company balance near-term merger activity with its focus on organic growth? - Damon Del Monte (Keefe, Bruyette, & Woods)

2025Q3: The current focus is on organic growth and integrating the HarborOne merger. There are no plans for additional mergers in the near term. However, the company would evaluate a merger opportunity if it arose... - Denis Sheahan(CEO) and R. Rosato(CFO)

Contradiction Point 3

Strategy for Resolving Nonperforming Loans (NPLs)

Contradiction on the primary method for reducing NPLs (sales vs. payoffs), impacting credit risk management strategy.

At what stage in the workout process would you consider a larger loan sale for nonperforming or criticized portfolios? - Gregory Zingone (Piper Sandler & Co.)

2025Q4: A bulk portfolio sale is not seen as necessary. The bank has detailed resolution plans for each loan and is confident in its ability to resolve the HarborOne NPLs relatively quickly through individual sales or other means. - Denis Sheahan(CEO)

What caused the ~$40 million decrease in nonperforming loans (NPLs) this quarter, and were loan sales involved? - Mark Fitzgibbon (Piper Sandler)

2025Q2: The reduction in NPLs was driven by the Managed Asset Group resolving five credits through payoffs, not sales. - R. Rosato(CFO)

Contradiction Point 4

Outlook on Mortgage Business Contribution and Strategy

Contradiction on the strategic role and expected contribution of the HarborOne mortgage business, affecting fee income projections.

Where do you see the best upside for fee income, what are your plans for HarborOne's mortgage banking business, would lower interest rates benefit that business, and do you expect other fee income areas like investment advisory to exceed guidance? - Sun Young Lee (TD Cowen)

2025Q4: HarborOne's mortgage banking business is expected to contribute 8-10% of total fee income over time. The bank would benefit from lower rates... but this is not relied upon in the guidance. The plan for 2026 is to keep the residential mortgage portfolio flat, focusing instead on HELOC and commercial loan growth. - R. Rosato(CFO)

What is the strategy for the HarborOne mortgage business, and what are the long-term goals for expanding its role in the mortgage market? - Mark Fitzgibbon (Piper Sandler)

2025Q1: HarborOne is a much bigger player... The plan is to optimize the combined mortgage business for Eastern, considering their gain-on-sale model versus Eastern’s jumbo mortgage model. There is a real fee opportunity to consider. - R. Rosato(CFO)

Contradiction Point 5

Outlook on Tax Rate for 2026

Contradiction on providing a specific forecast for the 2026 tax rate, affecting financial guidance clarity.

Can you confirm that the increase in commercial nonperformers to $147 million includes $94 million from HONE with a 35% reserve? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q4: The margin guidance includes the accretion schedules. There is expected variability from quarter-to-quarter, as seen with the Cambridge Trust acquisition. - R. Rosato(CFO) and Denis Sheahan(COO)

What tax rate should be expected for 2026? - Laura Havener Hunsicker (Seaport Research Partners)

2025Q1: The tax rate for 2026 should normalize to the historical core run rate, expected to be between 21% and 23%. - R. Rosato(CFO)