Eastern Bankshares (NASDAQ:EBC) reported record third-quarter operating earnings as commercial lending growth, expense control and improved credit metrics supported profitability, while management said competition for deposits and uncertainty around interest rates remain key factors entering the fourth quarter.
Chief Executive Officer Denis Sheahan said the company’s performance reflected “disciplined execution” of its priorities, including organic growth in banking and fee-based businesses, capital returns and conservative credit management. He said period-end loan growth was led by commercial real estate originations and broad-based commercial and industrial lending, while commercial loan pipelines remained strong.
However, Sheahan said some clients have taken a more measured approach to investment decisions because of interest-rate uncertainty, slowing the pace of loan closings relative to expectations. He said Eastern remains optimistic about its previously communicated full-year targets and plans to provide 2027 guidance after further assessing the higher-rate environment.
Record Operating Earnings and Higher Returns
Chief Financial Officer David Rosato said Eastern posted record operating net income of $111 million, or $0.51 per diluted share, up 4% from the prior quarter and 50% from a year earlier. The quarter benefited from net interest income growth, lower expenses and a modestly lower effective tax rate driven mainly by a greater level of tax-preferenced items.
Rosato said the effective tax rate is expected to return to approximately 22% going forward.
Total revenue was $306.6 million, up 1% from the prior quarter. Net interest income increased 2%, while operating noninterest income declined $5.2 million, or 16%, from a particularly strong second quarter. The decline largely reflected a $6.3 million reduction in income from investments for employee retirement benefits amid weaker equity market performance, as well as lower miscellaneous income and fees following commercial loan sale gains recognized in the second quarter.
Operating efficiency improved, with the operating efficiency ratio declining to 47.5%. Operating return on average assets increased 3 basis points to 1.41%, while operating return on average tangible common equity increased 37 basis points to 15.7% from the second quarter.
Noninterest expense fell $8.3 million, or 5%, from the preceding quarter. On an operating basis, expenses declined $6.7 million, aided by reduced employee retirement-benefit costs, occupancy and equipment expense, professional-services costs and other operating expenses. Rosato cautioned that expenses should rise somewhat in the fourth quarter from third-quarter levels and said investors should consider an expense base nearer the average of the second and third quarters.
Margin Pressure Offset by Asset Repricing
Net interest margin declined 4 basis points sequentially to 3.62%, as higher funding costs more than offset a modest improvement in asset yields. Interest-bearing liability costs increased 8 basis points as deposit costs rose, while total deposit costs increased 9 basis points to 1.56%; the September spot rate was 1.59%.
Excluding discount accretion, net interest margin declined 2 basis points from the prior quarter. Eastern’s year-to-date margin of 3.64% remained within its full-year guidance range of 3.60% to 3.65%.
Rosato said management expects margin to remain relatively stable in the fourth quarter and improve modestly next year, including under a scenario involving additional Federal Reserve rate increases. He said the company expects fixed-rate asset repricing to outpace increases in deposit costs, citing about $1 billion of fixed-rate assets repricing in the fourth quarter and roughly $800 million per quarter in 2027.
Eastern has also been reinvesting securities cash flows and adding modestly to its securities portfolio. Rosato said the company has been purchasing securities with yields of roughly 6% to 6.5%, depending on asset class.
Loans, Deposits and Wealth Management
Period-end loans increased $261 million, or 1.1%, from the second quarter. Commercial real estate balances grew $229 million, supported by strong originations as payoffs moderated from second-quarter levels. C&I balances rose $93 million, with growth described as broad-based across the portfolio. Commercial loan pipelines ended September at approximately $1 billion, balanced between CRE and C&I lending.
Home-equity balances increased $44 million, and residential mortgage balances rose modestly. Management said it expects the residential mortgage portfolio to remain relatively flat in 2026 as it emphasizes home-equity and commercial lending growth.
Period-end deposits grew $98 million despite seasonal municipal outflows, while average deposits increased $667 million, or 2.6%, from the prior quarter. Rosato said customers continued to favor liquidity, contributing to growth in money-market balances. He added that Eastern has about $2 billion more deposits than loans and does not view funding as a current constraint on loan growth.
Wealth assets under administration increased to $11.6 billion, including $10.8 billion in assets under management. AUM rose $156 million sequentially, driven primarily by $97 million of positive net flows. Wealth-management fees declined modestly from the previous quarter because lower seasonal tax-preparation fees more than offset higher AUM-related revenue, but were up 10% from the year-earlier quarter.
Asset Quality, Capital Returns and Strategy
Asset quality improved during the quarter. Net charge-offs fell to 9 basis points of average total loans from 17 basis points in the second quarter, while nonperforming loans declined $24.6 million to $84.8 million, or 36 basis points of total loans. Rosato said nonperforming loans improved in both Eastern’s legacy portfolio and the acquired HarborOne portfolio, though commercial criticized and classified loans increased modestly due to a small number of relationships.
Sheahan said Eastern has limited exposure to Boston’s life-science sector and that investor-office loans represent 4% of total loans. He said the office portfolio is well reserved and performing within management’s expectations.
Eastern’s CET1 ratio was 13% and its tangible common equity ratio was 9.6%. During the quarter, the company returned $89.1 million to shareholders through $32.4 million in dividends and $56.7 million of share repurchases. Eastern repurchased 2.6 million shares at an average price of $22.11 and had repurchased another 1.6 million shares for $33.8 million through the date of the call.
Management said it is focused on managing capital toward the median of the KRX group through organic growth, dividends and share repurchases. Sheahan also said the company is not focused on whole-bank acquisitions, while noting Eastern has benefited from commercial-market consolidation through talent recruitment and opportunities to gain market share.
About Eastern Bankshares (NASDAQ:EBC)
Eastern Bankshares, Inc (NASDAQ:EBC) is the holding company for Eastern Bank, a full-service commercial bank headquartered in Boston, Massachusetts. Founded in 1818, Eastern Bank is one of the oldest and largest mutual banks in the United States to have converted to public ownership.
Eastern Bank provides a range of personal and business banking products, including checking and savings accounts, residential and commercial real estate loans, consumer lending, commercial loans, cash-management services and online banking.
