Eastern Bankshares, Inc.

welcome to the eastern bank shares inc first quarter 2026 earnings conference call currently all participant 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 in connection with today's call the company posted a presentation on its investor relations website investor.easternbank.com which will be referenced during the call today's call will include four looking statements The company cautions investors that any forward-looking statement involves risks and uncertainties and is not a guarantee of future performance. Actual results may differ materially from those expressed or implied due to a variety of factors. These factors are described in the company's earnings press release and most recent 10-K files with the SEC. Any forward-looking statement made represents management's views and estimates as of today and the company undertakes no obligation to update these statements because of new information or future events. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release. I'd now like to turn the call over to Dennis Sheehan, Eastern Chief Executive Officer.

Thank you, Rob. Good morning, and thank you for joining our call. With me today on the call are Bob Rivers, Executive Chair and Chair of the Board of Directors, Quincy Miller, our President and Chief Operating Officer, and David Rosado, our Chief Financial Officer. Our first quarter performance was solid and in line with our expectations, with results reflecting the impact of typical seasonal trends. Operating income increased 31% and operating earnings per share increased 18% from a year ago, and generated an operating return on average tangible common equity of 12.8%. As expected, period end loan and deposit balances were down modestly from year end. However, customer sentiment remains positive and commercial loan pipelines ended the quarter at record high levels, giving us confidence for strong activity in the coming quarters. Following a record year of originations, Our commercial lending team remains energized and that momentum is carrying into 2026. Overall, we believe Eastern is well positioned to deliver meaningful value to shareholders by executing on organic growth opportunities and a consistent return of capital. We continue to see positive trends across many areas of the business. First quarter highlights include continued momentum in wealth management with positive net flows approaching $400 million in the quarter, solid build and loan pipelines for both commercial and home equity lending, strong asset quality, significant capital return to shareholders, and the successful completion of the HarborOne merger core system conversion. Wealth management is an important component of our long-term growth strategy. Beyond strong investment solutions and results, we provide comprehensive wealth services, including financial, tax, and estate planning, as well as private banking. Wealth assets increased to a record high of $10.3 billion, including $9.8 billion in assets under management, driven by strong positive net flows, partially offset by weaker equity market performance. We've been pleased with the integration of the Eastern and Cambridge wealth teams, which continue to capitalize on the deepening alignment within our banking business, elevating client engagement and referral activity. Notably, we have considerable opportunity to expand relationships within Eastern's client base, and our plan is to lean into that meaningfully over the next several years. Given the wealth demographics of our footprint, we are encouraged by the momentum of our business. As a quality continues to be a real strength for us net charge offs were 17 basis points and we saw a solid improvement and non performing loans, since your end. We remain very comfortable with our risk profile with limited exposure to current higher risk sectors, including private credit software life sciences and clean tech. Our lending to non-deposit financial institutions, or NDFIs as defined by the call report, is less than 3% of total loans and is low risk as it is largely centered on organizations that provide affordable housing in Massachusetts. REITs that lend in our market, mostly in the multifamily space, and a small number of asset-based lending relationships we know well. Overall credit trends are positive and reflect the quality of our underwriting and deep knowledge of our customers, communities, and local economy. Importantly, as the macro and geopolitical environment continues to evolve, we remain vigilant and closely engaged with our customers, and consistent with our proactive risk management approach, we will address any emerging issues prudently and quickly. Turning to capital, given our profitability, we continue to generate capital in excess of our growth needs. We remain focused on rightsizing our capital through a combination of organic growth, share repurchases, and quarterly dividends. This was evident in the first quarter as we repurchased 3.9 million shares for $75.1 million. As of quarter end, we've completed 59% of the current authorization and we expect to finish the program around mid-year, at which point we anticipate executing a new authorization subject to regulatory approval. In addition, we announced a 15% dividend increase, marking our sixth consecutive year of dividend growth since becoming a public company, reinforcing our commitment to deliver consistent capital returns to shareholders. In February, We successfully completed the HarborOne merger core system conversion. With this milestone behind us, we are excited to realize the full potential of the combined franchise. This achievement reflects the extraordinary efforts of our employees, particularly given the conversion was partly executed amid a significant snowstorm in Greater Boston. I want to sincerely thank everyone who contributed to this effort for their dedication and teamwork. Importantly, we remain on track to capture the merger's targeted cost savings, and one-time charges are largely complete with approximately $2 million remaining in the second quarter, bringing the total to $67 million. Before turning the call over to David, I wanted to spend a moment on artificial intelligence, a topic we are frequently asked about. Everything we are doing in AI is centered on improving how we deliver for our clients. Our focus goes beyond streamlining processes and efficiency, and is centered on the objective of knowing our customers better than we know them today. One of Eastern's longstanding strengths has been the depth of our client relationships, and AI will allow us to scale that advantage in meaningful ways. It will enable us to better anticipate customer needs, provide more relevant product recommendations, and engage customers at the right time with the right solutions. This will further differentiate our franchise to an even higher level of personalization than customers typically receive from much larger banks. As a result, we view AI not only as an efficiency tool, though it certainly will streamline workflows and improve productivity, but also as a driver of revenue growth. David, I'll hand it over to you to provide a review of our first quarter financials.

Thanks, Dennis, and good morning, everyone. I'll begin on slide three of the presentation. The first quarter marked a solid start to the year and was mostly in line with our expectations. We reported net income of $65.3 million, or $0.29 per diluted share. Included in net income was $30.8 million of non-operating costs, mostly related to the Harbor One merger. On an operating basis, earnings were 88.6 million, or 40 cents per diluted share. While operating earnings decreased 6% length quarter, they were up 31% year over year, reflecting the enhanced earnings power of the company. Looking at slide four, we are pleased with the continued strength of our profitability metrics. While operating ROA of 117 basis points, and return on average tangible common equity of 12.8% were down from Q4. Both metrics improved from a year ago when operating ROA was 109 basis points and operating return on average tangible common equity was 11.7%. We remain focused on driving sustainable growth and profitability. Moving to the margin on slide five, Net interest income of $244.7 million or $250.8 million on an FTE basis increased 3% from Q4. The growth was driven by margin improvement due to lower cost of funds, partially offset by $3.1 million of lower net discount accretion, which totaled $19.5 million compared to $22.6 million in the prior quarter. Excluding accretion, net interest income increased approximately 5%. As you all know, quarterly accretion income can be lumpy. Looking ahead, we expect accretion to average $21 to $22 million per quarter. In Q1, accretion of $19.5 million was about $2 million below trend. The net interest margin expanded two basis points linked quarter to 363. The improvement was driven by a 16 basis point reduction in interest-bearing liability costs, reflecting improved deposit pricing. This more than offset a seven basis point decline in yield on interest-earning assets, primarily due to lower loan yields, partially offset by higher security yields. Net discount accretion contributed 28 basis points to the margin, compared to 34 basis points in Q4. Excluding the impact of accretion, the margin expanded approximately eight basis points from the fourth quarter, highlighting the underlying strength of our core margin performance. We have included a new disclosure on the repricing characteristics of our interest earning assets on page 18 in the appendix. Excluding the impact of cash flow hedges, which are in runoff mode, 8.1 billion or approximately 35% of our total loan portfolio is floating at current rates. The remaining $14.9 billion is comprised of variable and fixed rate loans of $4.1 billion and $10.8 billion, respectively. The time buckets reflect the dollar value of any repricing or cash flow events for the portfolio, including projected prepayments based on the forward yield curve. We have also disclosed the projected yields as assets assets run off the balance sheet inclusive of purchase accounting current loan origination yields are five and three quarters to six percent for commercial five and a half to six percent for residential and helocs are indexed to prime excluding floating rate loans we expect approximately 2.8 billion of turnover or repricing over the next three years Based on current origination yields, this activity is expected to be accretive to NII and margin. For the securities portfolio, we expect approximately $1.5 billion of principal cash flow in the next three years at a weighted average book yield of 2.86%. Again, this cash flow will be accretive to NII and margin. Turning to slide six, non-interest income for the quarter was $43.6 million, a decrease of $2.5 million compared to the fourth quarter. On an operating basis, non-interest income was $45.1 million down $1.6 million. The largest contributor to the variance was a $1.9 million loss on investments related to employee retirement benefits. reflecting weaker equity market performance. This compares to 1.7 million in income for the prior quarter, resulting in a $3.6 million quarter-over-quarter reduction in non-interest income. The unfavorable impact on income was partially offset by a $1.2 million improvement in related benefit costs reported in non-interest expense. Conversely, non-interest income benefited from a $2.9 million increase in miscellaneous income and fees, primarily driven by a $1.7 million gain on the sale of commercial loans. This gain is related to a HarborOne loan workout that resulted in a note sale above our remaining fair value mark. Turning to slide seven, we highlight wealth management, which is our primary fee business and accounts for more than 40% non-interest income. Wealth assets increased to a record 10.3 billion, including AUM of 9.8 billion, driven by strong positive net flows. We're particularly pleased with this performance, given that weaker equity market conditions during the quarter created headwinds for asset values. Yet we were still able to deliver growth. Underscoring the strength of our client relationships, and full service capabilities. These decreased modestly from the fourth quarter, but increased nearly 12% from a year ago, primarily driven by strong growth in assets. Moving to slide eight, non-interest expense was $198.6 million, an increase of $9.2 million compared to the fourth quarter. The increase was primarily driven by seasonal costs and a full quarter of HarborOne operating expenses, partially offset by lower non-operating costs. On an operating basis, non-interest expense was $167.9 million, up $11.8 million from the prior quarter. The increase reflects seasonally higher payroll and benefit-related costs, as well as the full quarter impact of HarborOne. The largest contributors to the quarter-over-quarter increase were salaries and benefits of $10.6 million, occupancy and equipment costs increased $2.1 million, and technology and data processing expenses rose $1.2 million. These increases were partially offset by a $2.2 million reduction in professional services expenses. Non-operating non-interest expense of $30.8 million decreased $2.6 million, primarily due to $1.8 million of lower merger-related costs and $800,000 lower other non-operating expenses. As a reminder, the first quarter typically represents a seasonally high point for expenses, and we expect a moderation in the quarterly expense run rate over the remainder of 2026. Importantly, with the completion of the HarborOne Core System conversion in February, we remain on track to achieve the projected merger cost savings. Moving to the balance sheet, starting with deposits on slide 9. As expected, balances declined from year end. Deposits finished the quarter at $25.1 billion down $366 million, or 1.4%, primarily due to seasonal outflows and elevated competition for deposits. In addition, $81 million of Harbor One's broker deposits matured in Q1. Total deposit costs decreased 13 basis points to 1.46%, primarily driven by lower costs in time deposits and money market accounts. We are committed to increasing deposits to support our loan growth strategies. The New England deposit environment remains competitive and we are taking targeted actions to ensure our offerings are appropriately positioned to defend and grow share. While these efforts will result in some upward pressure on costs, we remain focused on balancing growth of our high quality deposit base with that of the margin. Notably, retention of HarborOne deposits has been consistent with our expectations. Turning to slide 10, total loans declined modestly from year end, consistent with our expectations. Period end balances were down $187 million or less than 1%. The decrease was driven in part by non-performing loan resolutions of $35 million and commercial real estate payoffs. We are pleased CNI continued to be a source of growth with balances increasing $49 million or 1.1% from year end. We finished the quarter with record commercial pipeline of approximately $800 million, which gives us confidence and strong origination activity in the coming quarters and supports a favorable growth outlook as we move through the year. We continue to benefit from the strategic investments we have made in hiring talent and our differentiation in the market. We can deliver the breadth and products and services typically associated with much larger banks by retaining the certainty of execution that comes from local decision-making and a deep understanding of our customers and communities. Turning to consumer lending, Home equity balances grew slightly during the quarter. We are under-penetrated in this line of business, and growth has been somewhat episodic, largely due to capacity constraints within our legacy origination platform. We are in the process of implementing a new home equity origination platform, which we expect will improve speed, scalability, and consistency, enabling more sustained growth. Given the strong underlying consumer demand across our footprint for this product, we are excited about the opportunity ahead, and we see home equity as an attractive area of growth. Residential mortgage balances were down approximately 1% from year end. Our expectation is the residential portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth. Turning to securities on slide 11, we continue to be pleased with the overall quality and positioning of the portfolio. Balances increased $171 million since year end, reflecting disciplined deployment into attractive opportunities. The portfolio yield increased 14 basis points to 318 for the quarter, supported by recent purchases. From a valuation perspective, AFS unrealized losses, total $277 million at quarter end compared to $259 million at year end. Turning to slide 12, our capital position remains strong as indicated by CET1 and TCE ratios of 13.2% and 10.2% respectively. As Dennis stated earlier, we are focused on right-sizing capital through organic growth, share repurchases, and quarterly dividends. We expect to generate excess capital, but plan to manage our CET1 towards the median of the KRX, which is currently 12%. Our commitment to right-sizing capital was evident in Q1 with the repurchase of 3.9 million shares for $75.1 million and an average price of $19.33. which was 68 cents below the VWAP for the quarter. As a result, our diluted common shares outstanding were 220.8 million as of March 31st. Second quarter to date, we have repurchased an additional 740,000 shares through yesterday for a total cost of 14.4 million and now have 4.2 million shares remaining on our authorization. We have now completed 65% of the buyback. We're currently anticipating completing the buyback around mid-year, at which point we anticipate executing a new authorization subject to regulatory approval. Additionally, if the Basel III proposal to reduce risk weights on certain assets is adopted, Our preliminary estimates suggest an increase to Eastern's risk-based ratios of approximately 1%, which will support additional share buybacks over time. As displayed on slide 13, asset quality remains excellent, as evidenced by net charge-offs to average total loans of 17 basis points. Non-performing loans improved as expected, falling nearly $35 million linked quarter to $138 million, or 60 basis points of total loans. NPLs were lower in both the legacy Eastern and acquired HarborOne portfolios. Progress has continued in the second quarter, and we expect further credit resolutions in the quarters ahead. Reserve levels remain robust, as demonstrated by an allowance for loan losses $327.9 million, or 143 basis points of total loans. Criticized and classified loans of $801 million, or 5.1% of total loans, were up modestly from $793 million, or 5% of total loans at year-end. The increase was driven by higher criticized balances on the HarborOne portfolio, largely offset by continued improvement in legacy Eastern loans. As we deepen our knowledge of the acquired portfolio, we further refined risk ratings, and this led to the increase in Q1. In addition, we booked a provision of $5.8 million, up from $4.9 million in the prior quarter. Finally, slides covering our CREE and investor office portfolios can now be found in the appendix. We remain focused on the investor office portfolio and believe the worst of the office loan issues are behind us, though we remain realistic in our outlook. The portfolio totals $1 billion or 4% of total loans. Criticized and classified loans are $160 million and improvement from over $170 million at year end. Our reserve level of 6% remains conservative. Importantly, we re-underwrite all investor office loans of $5 million or more each year, and we recently completed that process during the first quarter with no unexpected findings. Before turning to Q&A, I'd like to briefly address our 26 outlook on slide 14. At this time, we are not making any changes to full-year guidance as the first quarter performance was mostly in line with our expectations. While there were some offsetting factors in the quarter, none alter our overall view of the year, and we remain confident in achieving the projections in the outlook. With that said, based on Q1 results, we may trend towards the lower end of the NII guidance range we shared in January. In addition, we are mindful that the economic environment remains fluid. We continue to closely monitor conditions impacting our business, our customers, and the communities we serve. Given the ongoing uncertainty around geopolitical developments, interest rates, inflation, and broader market volatility, we plan to revisit our outlook at mid-year as visibility improves. That concludes our comments, and we will now open up the line for questions.