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Eastern Bankshares, Inc.
4/25/2025
then Bankshare Inc. first quarter 2025 earnings and announced merger with HarborOne 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. 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 then care filed with the SEC. 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 reconciliation. Please refer to the company's earnings press release, which can be found at .easternbank.com. I'd now like to turn the call over to Bob Rivers, Eastern Executive Chair and Chair of the Board of Directors.
Thank you, 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 Bank Corp, a $5.7 billion 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. 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 a repurchase of 48.7 million 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, allows us to 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 a neighboring state while strengthening our market presence south of Boston. There is tremendous synergy between the Harbor One 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, 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. 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.
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 $67.5 million benefited from a 33 basis point expansion link quarter in the net interest margin and continued improvement in the operating efficiency ratio to .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 link quarter to .7% and operating return on average assets was up three basis points to 1.09%. The lending environment remains tempered as economic uncertainty and ongoing changes in trade policies lay 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 and add to the market adding growth oriented talent and 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 help drive 3% annualized loan growth in the quarter, primarily due to higher CNI balances. 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 more likely to seek professional advice. Assets under management increased to $8.4 billion 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. Non-performing 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 were encouraged about credit trends as we closely monitor evolving economic conditions and policies that could impact business and communities and the markets we serve. David, I'll hand it over to you to review our first quarter financials. 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 gap net loss of $1.08 per diluted share driven by the strategic repositioning of 1.3 billion 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 13 cents accretive to 2025 operating EPS. 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 34 cents per diluted share were consistent link 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 .7% increased from .7% over the same period. 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 $188.9 million increased 9.7 million link 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 trial 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. In addition, the margin was favorably impacted by a 28 basis point reduction in interest bearing liability costs. Turning to slide six, non-interest income was a loss of $236.9 million on a gap basis compared to 37.3 million of income in the prior quarter. The decrease was due to the pre-tax non-operating losses on the sale of AFS securities of $269.6 million related to the investment portfolio repositioning. Operating non-interest income was 34.2 million, a decrease of 2.7. This decline was primarily driven by lower wealth management fees of $1.5 million and a reduction in income from investments held in Rabbi Trust of 1.3 million. The lower income from Rabbi Trust was partially offset by approximately $800,000 in reduced benefit costs reported in non-interest expense. As a reminder, wealth management fees in the prior quarter included a favorable one-time item of 1.2 million. Excluding this item, wealth management fees declined $300,000 late quarter and total operating non-interest income would have been down 1.5 million. 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 non-interest income, are less sensitive to interest rate fluctuations, thereby helping to diversify earnings. 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 8.4 billion 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 $130.1 million, a decrease of 7.4 million. The first quarter did not incur any merger-related costs compared to 3.8 million in the prior quarter. Operating non-interest expense was also $130.1 million, a decrease of $3.8 million, 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 $20.8 billion, a decrease of $522 million, primarily driven by seasonal outflows and runoff of high-cost CDs. 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 data 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. Our approach to gathering deposits prioritizes balancing liquidity needs with margin protection. On slide 10, period-end loans increased $125 million for approximately 3% annualized from year-end, despite a few larger payoffs in CNI and CRE. The increase primarily reflected higher CNI balances, partially offset by lower residential and other consumer balances. Home equity lines recorded another quarter of growth, with balances increase in approximately $20 million from year-end. We continue to have solid commercial pipelines of approximately $500 million, which is up about $100 million link quarter. Looking at our high quality investment portfolio on slide 11, the quarter was highlighted by the sale of 1.3 billion 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 15 and 30-year collateral. The securities sold had an average yield of 1.43%, while purchase securities carried a significantly higher yield of 5%. 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 pre-tax earnings accretion of approximately $35 million for 2025. Before turning to capital, I'd like to briefly address the tax implications of our securities repositioning. Although we recorded a net gap loss for the quarter, we reported tax expense of $33.7 million. The first quarter gap 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 to $9 million. Turning to slide 12, capital levels remain robust, and we continue to strategically deploy capital, repurchasing approximately 2.9 million shares for $48.7 million at an average price of $16.62, which was 61 cents below the VWAP for the quarter. We now have 6.2 million shares remaining in our authorization that runs through the end of July, and the diluted common shares outstanding were 199.4 million as of March 31st. 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 million or 125 basis points of total loans. These metrics are down modestly late quarter from 229 million or 129 basis points, primarily due to charge-off activity. Credit trends improved during the quarter. Charge-offs totaled 11.2 million or 26 basis points to average loans, a decrease from 31.7 million or 71 basis points in the fourth quarter. Net charge-offs in the first quarter were concentrated in investor office loans. Non-performing loans decreased 44.2 million to 91.6 million or 51 basis points of total loans. This improvement was primarily driven by charge-off and payoff activity. Criticized and classified loans of 596 million or .8% of total loans were essentially flat with the prior quarter. Finally, we booked a provision of $6.6 million down slightly from 6.8 million in the prior quarter. On slides 14 and 15, we provide details on total CRE and CRE investor office exposures. Total commercial real estate loans are 7.2 billion. 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 2.5 billion, which is a very strong asset class in greater Boston due to ongoing housing shortages. We have no multifamily non-performing 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 million or 5% of our total loan book. Criticized and classified loans ended the quarter at 163 million or about 19% of total investor office loans. In addition, our reserve level of .9% remains conservative. We continue to take a proactive approach in managing investor office exposures. Our credit team 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. 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. 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 mid-year. 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. 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 Harvard One brings much opportunity with solid earnings accretion, opportunity to improve operating leverage, a price, a tangible book value, and a reasonable dilution earned back at less than three years. Turning to page two of the merger presentation, the combination with Harvard 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 at Boston, strengthens our market presence south of Boston, and into Rhode Island. We look forward to introducing Harvard One's customers to a broader set of products and services offered by 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 earned back of 2.8 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 in commercial business within Harvard 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. Harvard 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 forma balance sheet of the combined company is strong with robust capital, liquidity and reserve levels, provides flexibility for future deployment of capital. Moving to page three, Harvard One with $5.7 billion of total assets, including $4.8 billion in loans has been serving the financial needs of local communities for over a century. And its subsidiary, Harvard 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 $4.6 billion, Harvard One 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 Harvard One solidifies Eastern's position as the largest Boston mid-sized bank by deposits. Looking at page four, the pro forma company maintains the number four deposit market share in the Boston MSA, but is well positioned to possibly move to number three over time. With $31 billion in assets and approximately $8.5 billion 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.
Thanks, Dennis. As outlined on page five, this is a financially attractive merger highlighted by meaningful EPS secretion with manageable tangible book value dilution and increased earnings generation and profitability. The transaction is projected to provide approximately 16% EPS secretion, underscoring the strong synergy potential and a creative 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 earnback is 2.8 years. 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, which 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 forma fully synergized basis, our profitability metrics for 2026 are expected to show meaningful improvement compared to Q1 25 standalone results. These improvements reflect both Eastern's 2026 consensus estimates and anticipated merger impacts. Net interest margin is projected to expand by over 30 basis points to 370. 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 .7% to approximately 15.5%. These improvements reflect the financial strength and strategic rationale of the combined organizations and position the company's performance within the top quartile of all banks in the KRX. 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 75% and 85% 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 25.2 million shares of common stock and paying an aggregate amount of $99 million in cash in the merger. Based upon Eastern's $15.48 per share closing price on April 23rd, the transaction is valued at approximately $490 million. The transaction is subject to customary approvals from three bank regulators and approval by Harbor One's shareholders. 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 31st. Otherwise, because of year-end closing challenges, we might defer closing into Q1 26. 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 million pre-tax or approximately 40% of Harbor One's operating non-interest expense. These savings are projected to be realized with 75% phased in during the first half of 26 and 100% thereafter. Additionally, one-time merger related charges are estimated to be approximately $65 million pre-tax or $53 million after tax. Our model assumes a conservative gross credit mark of 2% of total loans or $104 million 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. The day two CESA reserve of one-times non-PCD credit mark or $32 million after tax will be fully reflected in pro forma capital at closing. The model rate mark is $234 million pre-tax accreted over five years and the core deposit intangible is 3% of all non-brokered, non-time deposits amortized over 10 years. Of course, these are subject to interest rates and will fluctuate between now and closing. Importantly, I wanna highlight no equity capital raise or debt is needed to complete the merger. The transaction results in meaningful EPS accretion post-close. 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 million, we project 36 million of income from loan mark accretion and 44 million 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 is 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. 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. 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 2026. 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 state of 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. 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 forma 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.
At this time, if you would like to ask the question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Damond O'Monter from KBW, your line is open.
Hey, good morning guys. Hope everybody's 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. With regards to the outlook, David, remaining somewhat unchanged, just curious as to your thoughts on the share buyback kind of in this period of the deal pending, you guys still be active supporting the shares or do you kind of take a pause just kind of with the deal, you know, going through the completion process?
Sure, good question, Damon 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.
Got it, okay. And then did you say that if approvals go according to plan, you guys are kind of targeting a 1031 closing and if there's any slight delay or prolonged process that you might just kick it over to one one, is that what you said?
Yeah, the merger agreement has us closing prior to 1031 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 wanna close right before year end.
Got it, can that make 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, is there a specialty that they focus on? Kind of what are the sides of those loans and kind of what is the potential for growth in that portfolio?
So Damon, hi, it's Dennis. We hired two individuals to sort of compliment what we already had in terms of resource and franchise lending and very, very seasoned, experienced lenders from larger institutions. And with that, you know, 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. And again, we're hopeful that the growth will continue in that segment and we'll look to build out that business further.
Got it, okay, that's helpful. That's all that I had for now, so thank you. Thanks,
Damon.
Your next question comes from the line of Mark Vickabund from Piper Sounder, your line is open.
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?
Yeah, hi, Mark, good question. The, so essentially we had a large gap loss in the first quarter. However, when the tax provision within the quarter needs to reflect the expected full year tax expense. So we, what I was trying to say, maybe not as well as we thought, was that we were 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. And then secondly, I was curious on Harbor One's mortgage business. It sounded like you planned to kind of merge it with your own, is there sort of thoughts around becoming a bigger player in the mortgage business longer term?
Well, I think the reality is today they're a much bigger player than we are. They originated last year in 20, in 2024, just south of $700 million. And what was essentially a fairly slow mortgage market by comparison, we did just south of $300 million. So a little bit more than twice what we did. Now, we did it as a $25 billion bank, they did it as a $5 billion bank. So we see that 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. So it's, their business is also mostly run from a gain on sale perspective, where ours was mostly run for jumbo mortgages coming onto our balance sheet. So for example, they did last in 2024, they did about two and a half times the originations that we did, but they did about six times as much for gain on sale. So there's a real fee opportunity that we need to think about that's available to us. But again, we have to work through this with 13, we have to right size or optimize it for our vision and that'll take a bit of time.
Okay. And then lastly, I was just curious if this was a negotiated or an auction process.
So Mark, this is Dennis. I mean, 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 opportunity to merge with them. We don't control the time when somebody welcomes us into a discussion. And we entered into negotiations with them over the last few months, and it's resulted in a merger that we're very pleased about.
Thank you. Thanks Mark.
Your next question comes from the line of Lori Hansaker from C-Corp Research Partners, your line is open.
Hey, thanks, good morning. Morning Lori. Just wondering here, David, can you tell us the timing when in the quarter the 1.3 billion securities repositioning was completed? And then also if you happen to have a spot margin for March?
Sure, so I'll start with the easy one, which is the March spot margin 349. It was mostly done in late January. There were some further trades into February. If you have to pick a date or a week, it's end of January, first week of February. And the only reason it wasn't all done exactly at once was we were really targeting the number of $200 million after tax. And we had to let security 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 that it stretched over, call it a two week period.
Gotcha, okay.
Everything that we telegraphed that would happen in January occurred exactly as telegraphed.
Okay, that's helpful. And then the accretion income in net interest income, 12.2 million, I just wanna make sure that I heard the number right. So merger accretion for the full year, excluding Honey, is 35 million and then Honey is gonna add another 36 million or so next year of merger accretion into NII. Did I get those two numbers right?
So Honey is your code for Harbor One?
Yes, I'm sorry, yes, Harbor One.
I wanna make sure. So the accretion that we've experienced today on Cambridge Trust has been exactly as advertised, mostly because of the fact that the 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.
Yeah, no, so I just wanted to make sure. So merger accretion expected for this year, for some reason I had 47 million in my 2025 model and I thought I heard you say 35 million in the call. And I just wanna make sure. So merger accretion just for this year 2025, excluding Harbor One is 35 million, is that correct?
It's about, call it 12 to $13 million in the first couple quarters. It will start to tail off in the back half of our years and step down to 10 to 11 million for the last two quarters.
Perfect, perfect. And then.
Yeah, so that's about a $45 million number full year. Full year, gotcha,
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?
36.
Yeah, that's
36
and that's 26. So.
Sorry, that's 26 million?
No, 20, 26, 2026.
2026 is 36 million, gotcha, okay. Yeah. Gotcha. Yeah. 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 CHPC. But just looking at your expenses this quarter, the 130 million, 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 gonna 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 million which was outsized for the payroll tax and the snow, or how should we think about that?
If you look 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, the technology expense will pick up a bit. So we were very pleased with first quarter. It's just too early to call that a new run rate. That's all I was trying to say there.
Got this, got it, okay. And then tax rate, I appreciate your clarification for 2025, but as we look at the 2026, how should we think about that?
I think it normalizes to what our run rate has historically been. So that's a probably, if I'm thinking 26 at this point,
I
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.
Right, right. Okay, and then onto office, obviously saw you had a nice drop in office and on performers, just wondered, was that a short sale? Can you share any details around that? And then also, can you remind us what your Cambridge exposure is?
So, I mean, we had very nice credit performance in the quarter. You can see drop in non-performers, drop in charge-offs. We're really not gonna comment on disposal of assets, whether they're payoffs, charge-offs, short sales, et cetera. The one thing I would say is we 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 Tesla Resorts for another quarter. The criticized classifieds flat, worked through credits that had been identified. You look at maturity schedules that we have in the deck and you see everything's accruing except one small loan that's all the way out in first quarter of 26 for investor. So, we wanna send a good message on credit and we're well-reserved and a shout out to our credit team.
Yeah, and so I guess along those lines, I mean, if we strip out office, and to your point, you've already obviously marked the CAPC both, but if we strip out office charge-offs, I mean, your charge-offs are negligible. How should we be thinking about a normalized charge-off rate assuming that we're not in a recession? How should we be thinking about a charge-off rate for maybe next year and the year following?
Yeah, so I guess a couple thoughts from, if we think about Cree office, we feel very good about that and we appreciate your comments about the great experience. The, my only hesitation to put out a number is, 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 CNI books and thinking about implications of those policy, not only those policies, but just the uncertainty in the environment. We, our credit teams are engaging with our RMs and engaging with our customer base. 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, a provision expense in 26 or 27 should be X at this point.
Okay, okay. And then just one last sort of macro question. Now that you're gonna be 31 billion 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 million round numbers and deposits, what would you like that number to do over the next three or four years? And then last question, can you guys comment? Were you the company A on Brookline?
So
Robert Dennis, so one or both of you, thanks.
So, Laurie, this is Dennis. And what I'd say is we don't focus on asset size. You know, 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. But we focus on, you know, 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 gonna engage in conversation about other companies. We're focused on Eastern Bank and on Harbor One.
Okay, and then just last question on Rhode Island. So now that this puts you into Rhode Island with 700 million 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,
Larry. So we're very happy to be entering Rhode Island. We're gonna look to grow in the state. We're not gonna 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.
Great, thanks so much. Thank
you. Thanks, Larry.
There are no further questions at this time. I will now turn the call over to Bob Rivers for closing remarks.
Once again, thanks for joining us this morning and really appreciate your questions and we look forward to talking with you again during this talk.
This concludes today's conference call. You may now disconnect.