Q1 2025 Eastern Bankshares Inc Earnings Call
Thank you, Chloe.
Speaker Change: Welcome to the Eastern Bank Share Inc. first quarter 2025 earnings and announced merger
Speaker Change: Information or future events.
Speaker Change: During the call. The company will also discuss both GAAP and certain non-GAAP financial measures. Let me close Tiliaceous. Please refer to the company's earnings press release, which can be found that investors that eastern back about cop.
Bob: I'd now like to turn the call over to Bob reverse you signed executive Chair and chair of the board of directors.
Speaker Change: Thankfully.
Bob: Good morning, everyone and thank you for joining our call today.
Speaker Change: With me as a CEO and a ship and our CFO David Herzog.
Yesterday, we reported our first quarter earnings and announced we entered into a definitive merger agreement with Harbor, one Bancorp a $5 7 billion dollar bank headquartered in Brockton, Massachusetts.
Speaker Change: As you noticed we posted two presentations.
Speaker Change: The proposed merger and the other is our standard earnings presentation.
Speaker Change: On today's call, we will review, both our first quarter results and the announced merger.
Speaker Change: We were pleased with our solid first quarter performance, which included a successful and well executed investment portfolio repositioning that will further enhance our financial results.
Speaker Change: We continue to return capital to our shareholders with the repurchase of $48 7 million worth of shares during the quarter and announced an 8% increase to the quarterly dividend.
Speaker Change: We are very excited about the partnership with HOKA, one, which bolsters, our already strong and long standing presence in greater Boston joining.
Speaker Change: Joining together.
Speaker Change: Supposed to become a 30 plus billion dollar back.
Further solidifying eastern is the largest bank headquartered in Massachusetts, with leading commercial small business consumer wealth and private banking offer.
Speaker Change: This merger also represents eastern expansion in Rhode Island, providing an opportunity for growth in the neighboring states, while strengthening our market presence south of boss.
Speaker Change: Okay.
Speaker Change: There is tremendous synergy between the harbor one in eastern cultures, both of US are committed to cultivating trusted relationships with commercial customers and small businesses nonprofit municipalities and individuals and families by providing banking solutions tailored to client needs.
Speaker Change: We were 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.
Speaker Change: We'll 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.
Dennis: Thank you Bob.
Dennis: First quarter performance marked a solid start to the year and there are positive trends in many areas of the business.
Dennis: Operating earnings of 67 $5 million benefited from a 33 basis point expansion linked quarter and the net interest margin and continued.
Dennis: Improvement in the operating efficiency ratio.
Dennis: 53, 7% due to higher revenues and lower expenses.
Dennis: 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%.
Dennis: The lending environment remains tempered economic uncertainty and ongoing changes in trade policies play on customer sentiment alone Tibet.
Dennis: While we cannot control external factors, we will continue to control what we can such as making strategic investments for long term growth maintaining.
Dennis: Maintaining underwriting discipline and partnering with our customers.
Dennis: We will continue to be opportunistic in adding growth oriented talent in key lines of business.
Dennis: This was evidenced by the recent expansion of our franchise lending group, but the arrival of two seasoned leaders, who bring extensive expertise to this business.
Dennis: Actions such as these help drive 3% annualized loan growth in the quarter, primarily due to higher C&I balances.
Dennis: Our loan growth was slightly ahead of our expectations and we are well positioned to serve customers with loan demand strengths we.
Dennis: We remain cautious in our outlook for the remainder of the year.
Dennis: 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.
Dennis: We are generating strong momentum in wealth management the.
Dennis: Cambridge Trust brand and our extensive capabilities continue to resonate with customers.
Dennis: We are confident in our ability to generate sustainable wealth management grows over time and create value, especially during periods of uncertainty that clients are more likely to seek professional advice.
Dennis: Assets under management increased to $8 $4 billion due to net client flows partially offset by market performance.
Dennis: That client so that did benefit from a large short term inflow, which will reverse in the second quarter.
Dennis: Credit trends are positive.
Dennis: 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.
Dennis: Looking ahead, our loan portfolios are well positioned.
Dennis: 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.
David Herzog: Thanks, Dennis and good morning, everyone as Bob mentioned, we have posted in the first quarter earnings presentation on our website and we encourage you to review, but as I referenced a number of those slides in my commentary.
Dennis: Let's begin on slides two and three.
Dennis: We reported a GAAP net loss of $1 eight per diluted share driven by the strategic repositioning of $1 3 billion of securities.
Dennis: 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.
Dennis: 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.
Dennis: On an operating basis earnings of 30, 34 cents per diluted share were consistent linked quarter and increased 42% from a year ago.
Dennis: Reflecting the enhanced earnings power of the company with the addition of Cambridge.
Dennis: Looking at slide four we are encouraged by the improving quarterly trends across several key financial metrics, including operating.
Dennis: And the operating return on average tangible common equity, reflecting stronger earnings performance and disciplined balance sheet management.
Dennis: Operating ROA of 109 basis points for the first quarter is up 33 basis points from a year ago.
Dennis: While return on average tangible common equity of 11, 7% increased from six 7% over the same period.
Dennis: We continue to generate positive operating leverage as evidenced by an operating efficiency ratio of 53, 7%, which.
Dennis: Which improved for the third consecutive quarter supported by both higher rapidly.
Dennis: And effective cost management.
Dennis: Moving to the March it on slide five net interest income of $188 $9 million increase $9 7 billion linked quarter due to margin improvement attributable to higher asset yields and lower cost of funds.
Dennis: The margin expanded 33 basis points, and a 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.
Dennis: In addition, the margin was favorably impacted by a 28 basis point reduction in interest bearing liability costs.
Dennis: Turning to slide six noninterest income was a loss of $236 9 billion on a GAAP basis.
Dennis: Compared to $37 3 million of income in the prior quarter.
Dennis: The decrease was due to the pre tax non operating losses on the say Oh, they have a securities of $269.6 million related to the investment portfolio repositioning.
Dennis: Operating non interest income was $34 2 million a decrease of $2 seven.
Dennis: This decline was primarily driven by lower wealth management fees of one and a half million dollars in it.
Dennis: A reduction in income from investments held in Rabbi Trust of $1 3 billion.
Dennis: The lower income from Rabbi Trust was partially offset by approximately $800000 in reduced benefit costs reported in non interest expense.
Dennis: As a reminder, wealth management fees in the prior quarter included a favorable one time items of $1 2 million.
Dennis: Excluding this item wealth management fees declined $300000 linked quarter and total operating noninterest income would have been down one and a half million dollars.
Dennis: 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.
Dennis: We have conformed all comparative periods.
Dennis: Yeah.
Dennis: Turning to slide seven we highlight our wealth management business, which is an important component of our long term growth strategy.
Dennis: 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.
Dennis: As then as Dennis mentioned earlier, we are pleased with the deepening alignment between our wealth management and banking business.
Dennis: Wealth management posted a solid performance in the first quarter.
Dennis: Growth in assets under management.
Dennis: $8 4 billion was driven by net client flows partially offset by market performance.
Dennis: Net client flows benefited from a large short term inflows, which will reverse in the second quarter.
Dennis: On slide eight noninterest expense was $130 1 billion a.
Dennis: A decrease of seven 4 million.
Dennis: The first quarter did not incur any more merger related costs.
Dennis: <unk> to $3 8 million in the prior quarter.
Dennis: Operating noninterest 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.
Dennis: First quarter expenses were better than our expectations.
Dennis: However, we anticipate a modest uptick in our expense run rate over the next couple of quarters.
Dennis: Yeah.
Dennis: Moving to the balance sheet, starting with deposits on slide nine.
Dennis: And deposits totaled 28 billion, a decrease of 522 million, primarily driven by seasonal outflows and run off of high cost Cds.
Dennis: We continue to benefit from a favorable deposit mix with 50% of deposits in checking accounts, providing a stable low cost funding base.
Dennis: Additionally, we remain fully deposit funded with essentially no wholesale funding, which further enhances our balance sheet strength.
Dennis: We were able to reduce deposit costs by 21 basis points to 148 basis points in the quarter.
Dennis: If the fed continues to ease we will target deposit betas similar to our experience during the most recent tightening cycle or about 45% to 50%.
Dennis: With modest lilacs relative to fed actions, while monitoring balances and competition.
Dennis: While we remain focused on growing deposits to support our funding strategy. We are committed to doing so in a disciplined manner.
Dennis: Our approach to gathering deposits prioritizes balancing liquidity needs with margin protection.
Dennis: On slide 10 period end loans increased $125 million or approximately 3% annualized from year end. Despite a few larger payoffs in C&I and Chris.
Dennis: The increase primarily reflected higher C&I balances, partially offset by lower residential and other consumer balances.
Dennis: Home equity lines recorded another quarter of growth with balances increasing approximately $20 million from year end.
Dennis: Yeah.
Dennis: We continue to have solid commercial pipelines of approximately $500 million.
Dennis: Which is up about $100 million linked.
Dennis: <unk> quarter.
Dennis: Looking at our high quality investment portfolio on slide 11.
Dennis: The quarter was highlighted by the sale of $1 3 billion low yielding a F S securities with proceeds reinvested at market rates.
Dennis: The transaction improved total portfolio yield.
Dennis: And enhance flexibility in managing the portfolio with approximately 30% of the investments now positioned their market rates.
Dennis: The purchases and sales were at similar security types, New MBS purchases were a mix of hybrid arms with shorter durations as well as 15 to 30 year collateral.
Dennis: The Securities sold had an average yield of 143% while purchased securities carries a significantly higher yield of 5%.
Dennis: 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.
Dennis: Before turning to capital I'd like to briefly address the tax implications of our securities repositioning.
Dennis: Although we recorded a net GAAP loss for the quarter, we reported tax expense of 33.7.
Dennis: $7 million.
Dennis: First quarter GAAP tax loss benefit will accrue over the course of 2025.
Dennis: Our expected full year tax rate should be approximately 11%.
Dennis: Implying a net tax benefit each quarter, ranging from $6 million to $9 million.
Dennis: Yeah.
Dennis: Turning to slide 12 capital levels remain robust and we continue to strategically deploy capital.
Dennis: Repurchasing approximately $2 9 million shares for $48 7 million at an average price of $16 62.
Dennis: <unk> was 61 basis 61 cents below <unk> for the quarter.
Dennis: We now have $6 2 million shares remaining in our authorization that runs through the end of July.
Dennis: Diluted common shares outstanding were $199 4 million as of March 31.
Dennis: In addition, the board approved an 8% increase to the quarterly dividend.
Dennis: This marks the fifth consecutive year of dividend growth and highlights our consistent return of capital to shareholders since our IPO in 2020.
Dennis: Looking at overall asset quality on slide 13 reserved levels remained strong as evidenced by an allowance for loan losses of $224 million or 125 basis points of total loans.
Dennis: These metrics are down modestly linked quarter from $229 million were 129 basis points, primarily due to charge off activity.
Dennis: Credit trends improved during the quarter.
Dennis: 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.
Dennis: Net charge offs in the first quarter were concentrated in Investor office loans.
Dennis: Nonperforming loans decreased $44 2 million to $91 6 million or 51 basis points of total loans.
Dennis: This improvement was primarily driven by charge offs and payoff activity.
Criticized and classified loans of $596 million or four 8% of total loans were essentially flat with the prior quarter.
Dennis: Finally, we booked a provision of $6 6 million down slightly from $6 8 million in the prior quarter.
Dennis: On slides 14, and 15, we provide details on total Cree and Cree Investor Office exposures.
Dennis: Total commercial real estate loans are $7 2 billion.
Dennis: Our exposure is largely within local markets that we know well and is diversified by sector.
Dennis: 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.
Dennis: We have no multifamily nonperforming loans and have had no charge offs in this portfolio in the past decade.
Dennis: Our credit focus continues to be an investor office launch the Investor office portfolio is $876 million or 5% of our total loan book.
Dennis: Criticized and classified loans ended the quarter at $163 million or about 19% of total investor office loans.
Dennis: In addition, our reserve level of 4.9% remains conservative.
Dennis: We continue to take a proactive approach in managing Investor office exposures. Our credit teams performed thorough assessment of the portfolio on a quarterly basis and our larger lower risk rated credits we conduct ongoing monthly reviews.
This in depth knowledge enables our credit team to make timely and decisive actions.
Dennis: Finally, before turning the call back to Dennis to further discuss yesterdays merger announcement I'd like to take a moment to address our 2025 I don't look.
Dennis: At this time, we are not making any changes to full year guidance.
Dennis: 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 resource.
Dennis: Do not affect our current outlook.
Dennis: Overall, we remain optimistic about achieving the projections we shared in January.
Dennis: 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.
Dennis: 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.
Dennis: That concludes our comments on first quarter earnings let me pass it back to Dennis.
Speaker Change: Thanks, David.
Speaker Change: We are very satisfied with the company's performance in the first quarter with continued improvement in profitability.
Speaker Change: Proven and asset quality measures and sound progress on growth initiatives and lending and wealth management.
Speaker Change: As we have said for a while now is and will remain our focus.
Speaker Change: We've also said if we were welcomed into a merger opportunity we will engage in a disciplined manner.
Speaker Change: And that's exactly what we've done.
Speaker Change: The merger with hover one brings much opportunity.
Speaker Change: With solid earnings accretion.
Speaker Change: Opportunity to improve operating leverage.
Speaker Change: Price of tangible book value and a reasonable dilution earn back at less than three years.
Speaker Change: Turning to page two of the merger presentation.
Speaker Change: The combination with harbor, one is a natural fit with shared values vision and focus on community based banking.
Speaker Change: As Bob mentioned at the start of the call the partnership bolsters, our leading position in Boston.
Speaker Change: <unk>, our market presence south of Boston and into Rhode Islands.
Speaker Change: We look forward to introducing harbor ones customers to a broader set of products and services offered by <unk> and.
Speaker Change: And wealth management businesses, which provides meaningful upside opportunities in the merger.
Speaker Change: Importantly, it is an attractively priced and financially compelling merger delivering sizable earnings accretion of approximately 16%.
Speaker Change: And tangible book value earn back of two eight years.
Speaker Change: The combination presents a clear path to generate higher returns and improve operating efficiency positioning the company to achieve top quartile profitability.
Speaker Change: In addition to capturing a greater share of wealth and commercial business within harbor ones markets, we see meaningful opportunities to drive further upside from the merger.
Speaker Change: By enhancing the combined mortgage business and aligning deposit strategies across the combined franchise.
Speaker Change: This is an in market low execution risk merger.
Speaker Change: However, one in season management team are well known to us and we have modeled a conservative merger assumptions.
Speaker Change: Our experienced and disciplined approach to this transaction should provide confidence in our ability to execute and realize the full potential of this combination.
Speaker Change: 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.
Speaker Change: Moving to page three.
Speaker Change: However, one with $5 7 billion of total assets, including $4 8 billion in loans has been serving the financial meetings local communities for over a century.
Speaker Change: And its subsidiary Harbor, one mortgage headquartered in Manchester, New Hampshire provides residential lending solutions throughout new England.
Speaker Change: With 30 branches across our footprint and a deposit base of $4 $6 billion. However, one has established strong deposit market share positions ranking in the top five and over half of the markets. They serve.
Speaker Change: Accordingly, the bank maintains a particularly strong presence in the attractive banking markets of Plymouth County in Massachusetts.
Speaker Change: The combination with harbor, one solidifies eastern's position as the largest Boston mid sized bank by deposits.
Speaker Change: 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 overtime.
Speaker Change: With $31 billion in assets and approximately $8 $5 billion in wealth assets under management.
Speaker Change: And scale of the combined franchise helped to deliver top financial performance as evidenced by a projected fully synergize 2026, ROA of 140 basis points and return on tangible common capital of 15.
Speaker Change: 25%.
Speaker Change: 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 Herzog: Thanks Dennis.
Speaker Change: As outlined on page five this is a financially attractive merger highlighting highlighted by meaningful EPS accretion with manageable tangible book value dilution and increased earnings generation and profitability.
Speaker Change: The transaction is projected to provide approximately 16% EPS accretion underscoring the strong synergy potential and accretive nature of the deal.
Speaker Change: We anticipate a robust IRR of more than 18%.
Speaker Change: While the transaction results in an estimated tangible book value dilution of approximately 7%. The earn back is two eight years.
Speaker Change: Overall capital levels are expected to remain strong following the close of the deal with a CET one projected to be well above 12%.
Speaker Change: The ample capital and liquidity levels provide flexibility to Delever harbor one's balance sheet overtime.
This includes includes the planned sale of Harbor, one securities portfolio with proceeds intended to pay down FH L. P borrowings and further strengthen the combined company's financial position.
The merger enhances earnings power and drives increased profitability.
Speaker Change: As displayed on page six on a pro forma fully synergize basis, our profitability metrics for 2026 are expected to show meaningful improvement compared to Q1, 'twenty five standalone resource.
Speaker Change: These improvements reflect both eastern's 'twenty 'twenty six consensus consensus estimates and anticipated merger impacts.
Speaker Change: Net interest margin is projected to expand by over 30 basis points to 370.
Speaker Change: The operating efficiency ratio is anticipated to improve by approximately 4%.
Speaker Change: Demonstrating the impact of cost synergies and scale.
Speaker Change: Operating ROE is expected to increase by over 30 basis points to 140 basis points.
Speaker Change: Our operating return on average tangible common equity is projected to rise from 11, 7% to approximately 15 and a half first time.
Speaker Change: These improvements reflect the financial strength and strategic rationale of the combined organization and position the Companys performance within the top quartile of all banks in the K Rx.
Speaker Change: On page seven we provide a transaction summary, and key assumptions.
Speaker Change: Under the terms of the merger agreement, which has been <unk> 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.
Speaker Change: 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.
Speaker Change: Of Harbor, one common stock outstanding immediately prior to the completion of the merger.
Speaker Change: The stock consideration attractively priced at harbor ones tangible book value.
Speaker Change: 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 $99 million in cash and the merger.
Speaker Change: Based upon these turns $15.48 per share closing price on April 23rd.
Speaker Change: The transaction is valued at approximately $490 million.
Speaker Change: Yeah.
Speaker Change: The transaction is subject to customary approvals from three bank regulators and approval by Harbor one shareholders.
Speaker Change: No vote of eastern shareholders is required.
Speaker Change: We anticipate closing the transaction in mid Q.
Speaker Change: Q4.
Speaker Change: Regulatory approvals and exploration of required waiting periods occur before October 31.
Speaker Change: Otherwise because of yearend closing challenges, we might defer closing into Q1 'twenty six.
Speaker Change: We will provide more color in July on our next earnings call in Conjunct, Inc. In connection with the closing.
Speaker Change: Okay and one other director from Harbor, one are expected to join Eastern's Board of directors.
Speaker Change: To highlight some of the key assumptions.
Speaker Change: Merger is expected to generate cost savings of approximately $55 million pre tax or approximately 40% of harbor ones operating noninterest expense.
Speaker Change: These savings are projected to be realized with 75% phased in during the first half of 'twenty six and 100% thereafter.
Speaker Change: Additionally, one time merger related charges are estimated to be approximately $65 billion pre tax or $53 million after tax.
Speaker Change: Our model assumes a conservative gross credit mark of 2% of total loans or $104 million with roughly 60% designated P. C D and 40% non P. C D.
Speaker Change: The non PCB Mark is accreted back into earnings over five years.
Speaker Change: As Dennis stated earlier, we believe this conservative approach is prudent.
Speaker Change: And the current economic environment.
Speaker Change: The day to cease a reserve of one times non PCB credit Mark or.
Speaker Change: There were $32 million after tax will be fully reflected in pro forma capital at closing.
Speaker Change: The model right Mark is $234 million pretax accreted over five years and the core deposit intangible is 3% above non brokered time deposits amortized over 10 years.
Speaker Change: Of course, these are subject to interest rates and will fluctuate between now and clubs.
Speaker Change: Importantly, I want to highlight no equity capital raise or that is needed to complete the merger.
Speaker Change: The transaction results in meaningful EPS accretion post close of the war.
Speaker Change: <unk> on page eight provides a breakdown of the earnings impact of the merger on an after tax annualized basis.
Speaker Change: 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.
Speaker Change: We view the accretion income as a sustainable source of earnings in the current rate environment.
Speaker Change: Partially offsetting these favorable items are other merger impacts such as amortization of CDI and loss interchange.
Speaker Change: Yes.
Speaker Change: Not modeled were reflected in the waterfall.
Speaker Change: Our 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.
Speaker Change: <unk> markets.
Speaker Change: Turning to page nine we highlight our comprehensive due diligence and integration plan.
Speaker Change: As part of our process, we conducted a thorough review across all key areas of the business.
Speaker Change: This included an in depth evaluation of harbor ones lending or credit.
Speaker Change: Reviewing approximately 65% of the commercial loan portfolio with a focus on larger credits and commercial real estate.
Speaker Change: We continue to evaluate the combined branch network in collaboration with Harbor ones management teams. Our objective is to identify the best branch locations that align with growth objectives operational efficiency and customer accessibility.
Speaker Change: A detailed assessment of harbor, one mortgage was conducted to evaluate performance and opportunities for the business.
Speaker Change: 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 do the due diligence process and ability to successfully integrate mergers as evidenced by our proven track record.
Speaker Change: Eastern is an experienced acquirer and delivered on state of financial targets, most notably with our two most recent mergers following our 2020 IPO.
Speaker Change: In closing the transaction bolsters, greater Boston density strengthens eastern footprint, South of Boston and expands into the Rhode Island market.
Speaker Change: Just financially compelling and resorts in top quartile profitability.
Speaker Change: It provides meaningful upside opportunities by delivering a broader products and services and harbor ones markets.
Speaker Change: This is an in market transaction with Kurt conservative assumptions and low execution risk.
Speaker Change: Generates a pro forma balance sheet with robust capital liquidity and reserves.
Speaker Change: This concludes our comments on the announced merger and we will now open the line for questions.
Speaker Change: At this time, if you would like to ask a 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.
Speaker Change: Pause for just a moment to compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Your first question comes from the line of famine Dormont <unk> from Keybanc capital. Your line is cell phone.
Speaker Change: Hey, good morning, guys hope everybody's doing well today per thanks on the great detail in the slide deck on the transaction should make us make modeling a little less onerous for us.
Speaker Change: With regards to with the with regards to the the outlook David remaining somewhat unchanged just curious as to your thoughts on this.
Speaker Change: The share buyback you know kind of in this period of of the deal pending.
Speaker Change: There'll be active supporting the shares or you kind of take a pause just kind of with the deal.
Speaker Change: And through the completion process.
Speaker Change: Sure. Good question Damon and good morning, Thanks for the feedback on the deal.
Speaker Change: We will be out of the market since we will be using an equity component.
Speaker Change: In consideration at least until after their shareholder approval.
Speaker Change: Yeah.
Speaker Change: 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 theres any delay or prolonged process that you might just kick it over to one one is that what you said.
Speaker Change: Yeah.
Speaker Change: The merger agreement.
Speaker Change: Has us closing prior to 10 31 as long as the.
Speaker Change: Regulatory approvals occur as well as the required waiting period.
Speaker Change: Because of the timing of this gets late into Q4.
Speaker Change:
Speaker Change: We have the option to delay closings until Q1, just because we don't want to close right before year end.
Speaker Change: Got it okay that makes sense.
Speaker Change: And then just lastly on could you just talk a little bit more about the franchise lending group that you guys hired on kind of what's the is there a specialty that they focus on kind of what are the size of those loans in and kind of what is the potential for growth in that portfolio.
Speaker Change: So Damien Hi, it's Dennis.
Speaker Change: Get the.
Speaker Change: We hired two individuals to sort of complement what we already had in terms of resource and franchise lending and a very very seasoned experienced.
Speaker Change: Tenders from larger institutions and with that.
Speaker Change: Resulted in nice growth in that category in the first quarter end.
Speaker Change: We're very hopeful for continued growth in that segment of our pipeline is building.
Speaker Change: Effectively and they they have expertise across a range of different categories and fast food for example.
Speaker Change: And.
Speaker Change: Again, we're hopeful that that will the growth will continue in that segment that will look to build out that business further.
Speaker Change: Got it Okay. That's helpful. That's all that I had for now thank you.
Simon: Thanks Simon.
Speaker Change: Your next question comes from the line of Mike <unk> from Piper Sandler Your line is open.
Speaker Change: Hey, guys good morning.
David Herzog: David just to clarify would.
Speaker Change: Would you mind repeating your comments on the effective tax rate for the remainder of this year.
Mark: Yeah, Hi, Mark good question.
Mark: 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.
Mark: Expense.
Mark: We.
Mark: But I was trying to say maybe not as well.
Mark: We thought was that we were expecting.
Mark: Net of tax expense in subsequent quarters producing in effect today, we believe an effective.
Mark: And.
Mark: For the year of about 11%.
Mark: Okay great.
Mark: And then secondly, I was curious on harbor ones mortgage business.
Mark: It sounded like you plan to kind of merge it with your own is there is there sort of thoughts around <unk>.
Mark: Becoming a bigger player in the mortgage business longer term.
Mark: <unk>.
Mark: Well I think the reality is today there are much bigger player than we are they.
Mark: They originated.
Mark: Last year in 'twenty and 2024.
Mark: Just south of $700 million.
Mark: 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 I did it as a $5 billion banks. So we.
Mark: We see that it's a very well run operation.
Mark: Set up as a separate subsidiary of the Bank. Our plan is is to think through our business and their business and.
Speaker Change: Optimizing what.
Speaker Change: But we think that the combined entity should look like for for eastern.
Speaker Change: Yes.
Speaker Change: It's.
Speaker Change: Yeah.
Speaker Change: Our business is also mostly rod from a gain on sale perspective.
Speaker Change: Where ours was mostly run for.
Speaker Change: Jumbo mortgages coming on to our balance sheet. So for example.
Speaker Change: They did.
Speaker Change: In 2024, they did about two five 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.
Speaker Change: That's available to us but again.
Speaker Change: We have to work through this with <unk>, we have to right size or optimize it for our vision and that will take a bit of time.
Speaker Change: Okay, and then lastly, I was just curious if this was a negotiated or an auction process.
Dennis: So mark this is Dennis I mean, as you as you might expect.
Dennis: Both Bob and I maintain contact with a number of other bank Ceos Ceos throughout our marketplace and.
Dennis: We.
Dennis: At a very good relationship with Joe Casey and at Harbor one.
Dennis: And we were approached about a potential opportunity to merge with them. It's we don't control when somebody welcomed Dusty Scotsman.
Dennis: And.
Dennis: We entered into negotiations with them over the last few months and and it's resulted in an emergence that were very pleased about.
Speaker Change: Thank you.
Dennis: Yes.
Thanks Mark.
Dennis: Yes.
Dennis: Okay.
Speaker Change: Your next question comes from the line of Laurie Hunsicker from C Corp Research partners. Your line is cell phone.
Laurie Hunsicker: Hey, Thanks, good morning.
Martin Lawrence: Martin Lawrence.
Speaker Change: Just wondered just wondering David can you tell us the timing when in the quarter the $1 3 billion securities.
Martin Lawrence: Repositioning was completed.
Laurie Hunsicker: And then also if you happen to have us at margin for Mark.
Martin Lawrence:
Martin Lawrence: Sure. So I'll start with the easy one which is the March spot margins $3 49.
Martin Lawrence:
Martin Lawrence: The it was mostly done in.
Martin Lawrence: Late January there were some further trades into February.
Martin Lawrence: Goodbye.
Martin Lawrence: No.
Speaker Change: If you have to pick a day or a week. It's end of January 1st week of February and the only reason it wasn't all done exactly at once was we were really targeting the number $200 million after tax.
Speaker Change: And we had to let security saddle 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 stretched over.
Speaker Change: Call It a two week period.
Speaker Change: Gotcha Okay.
Speaker Change: I think that we telegraphed that would happen in January occurred exactly just telegraphed.
Speaker Change: Okay. That's helpful.
Speaker Change: And then the accretion income and net interest income up one 2 million I just want to make sure that I heard the number right. So merger accretion for the full year.
Speaker Change: Excluding honey and 35 million and then honey is going to add another $36 million or so next year of Mercury accretion into NII did I get those two numbers right.
Speaker Change: So honey is as your code for hardware one.
Speaker Change: Yes, I'm, sorry, yes Harper one.
Speaker Change: I want to make sure.
Speaker Change: Hey.
Speaker Change: [laughter].
Speaker Change: So the accretion that we experienced its fifth day on.
Speaker Change: Cambridge Trust has been exactly as advertised mostly because of the fact that the very low coupon mortgages and the pay off experience.
Speaker Change: It's been as originally model. So we're very pleased with that.
Speaker Change: And then the.
Speaker Change: The second part of your question was repeat it please.
Speaker Change: Yeah, no. So I just wanted to make sure so merger accretion.
Speaker Change: But 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.
Speaker Change: And I just wanted to make sure the merger accretion for this year 2025.
Speaker Change: Excluding Harper one is $35 million is that correct.
Speaker Change: It's about <unk>.
Speaker Change: Call it $12 million to $13 million in the first couple of quarters.
Speaker Change: It will start to tail off in the back half of our years and stepped out $10 million to $11 million for the last two quarters.
Speaker Change: Perfect Perfect and then.
Speaker Change: Yes, so that's about a $45 million number full year.
Speaker Change: Oh, yes gotcha okay.
Speaker Change: Okay, and then when I look at Harper one that the accretion that's expected there in the top line pressure.
Speaker Change: How should we think about that.
Speaker Change: 36 30.
Speaker Change: That's 26 now.
Speaker Change: Okay.
Speaker Change: Sorry, that's 26 million.
Speaker Change: Yeah.
Speaker Change: 26 2026.
Speaker Change: Plenty of money.
Speaker Change: 6 million gotcha, Okay.
Speaker Change: Yeah Gotcha Okay.
Speaker Change: Okay that makes sense and then just going back to your.
Speaker Change: Reconfirming of expense guide them to your point expenses lower than expected.
Speaker Change: I'm not saying that there were there were no merger charges holding up her for a C and D C. But just looking at your expenses this quarter.
Speaker Change: The $130 million.
Speaker Change: <unk>.
Speaker Change: It 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.
Speaker Change: What that's looking like and are you talking about Theyre gobbling up off of the $130 million with.
Speaker Change: Was outsized for the payroll tax and this now or how should we think about that.
Speaker Change: If you look on that page you see there was an uptick in the expense line for salary and benefits normal Q1 al Al I was.
Speaker Change: We were pleasantly surprised with first quarter expenses I would like nothing more than that with confidence to say that that's a run rate, but I'm not there yet so I there.
Speaker Change: There was a bit of timing in the first quarter the marketing expense.
Speaker Change: We'll pick up the technology expense will pick up a bit.
Speaker Change: So we were very pleased with first quarter we.
Speaker Change: It's just too early to call that a new run rate.
Speaker Change: That's all I was trying to say there.
Speaker Change: Gotcha Gotcha, Okay, and then tax rate am I appreciate your clarification for 2025, but as we look out to 2020 six.
Speaker Change: How should we think about that.
Speaker Change: I think it normalizes to what our run rate has has historically been so that's a probably a if I'm thinking 26 at this point.
Speaker Change: I would bracket it at 21% to 23% again.
Speaker Change: That's core run rate the security sales, that's what caused a bit of noise for for this full year tax rate.
Speaker Change: Right right, Okay, and then onto offense. Obviously saw you you had a nice drop in office nonperformer with wonder.
Speaker Change: Was that a short sale can you share any details around that and then also can you remind us what your Cambridge that was Europe.
Speaker Change: So I mean.
Speaker Change: We had very nice credit.
Speaker Change: Performance in the quarter you can you can see.
Speaker Change: Drop in non performers drop in charge offs.
Speaker Change: We're really not going to comment on disposal of assets, whether they're payoffs charge offs short sales et cetera.
Speaker Change: The one thing I would say is we decided to maintain the bifurcation in these numbers for this year between legacy eastern.
Speaker Change: Cambridge Trust just to help people follow through.
Speaker Change: The credit impacts of that merger, which I would say whether you are just talking legacy eastern or Cambridge troughs really we're really pleased with the performance of our credit team and the results are another another quarter.
Speaker Change: Criticized classifieds flat worked through credits that had been identified you look at.
Speaker Change: Maturity schedules that we have in the deck and you see theres everythings accruing, except one small loan and if all the way out in.
Speaker Change: First quarter of 'twenty six for Investor So.
Speaker Change: We want to send a good message on credit.
Speaker Change: And we're well reserved.
Speaker Change: Sat out to our credit team.
Speaker Change: Yeah, and so I guess, along those lines I mean, if if we strip out office.
Speaker Change: And to your point, you've already obviously, mark Mark the C. A T see about that.
Speaker Change: We can strip out.
Speaker Change: Office charge off and your charge offs. There are negligible you know how should we be thinking about a normalized charge off rate.
Speaker Change: I mean, that's you know we're not in a recession, how should we be thinking about a charge off rate for maybe next year in your filing.
Speaker Change: Yeah. So.
Speaker Change: I guess, a couple of thoughts from from.
Speaker Change: When we if we think about.
Speaker Change: Cree office, we feel very good about that and.
Speaker Change: <unk>.
Speaker Change: We appreciate your comments about the great experience. They my only hesitation to put out a number is.
Speaker Change: We.
Speaker Change: There's so much uncertainty in the economic environment with what's going on in Washington, whether it's tariffs.
Speaker Change: Our immigration.
Speaker Change: That.
Speaker Change: We're spending a lot of time thinking about our C&I books and thinking about implications of those policy not only those policies put just the uncertainty in the environment.
Speaker Change: Our credit teams are engaging with our rems.
Speaker Change: And engaging with our customer base everything that's been we're finding is our customers are being very thoughtful.
Speaker Change: <unk>.
Speaker Change: Proactive.
Speaker Change: Just a little hesitant at this point because of the uncertainty to saying these things.
Speaker Change: A.
Speaker Change: Provision expense in 2006 or 27 should be X at this point.
Speaker Change: Okay. Okay.
Speaker Change: And then just one last sort of macro question.
Speaker Change: And then now that you're going to be 31 billion in assets can you help us think is as we look forward, maybe three or four years.
Speaker Change: What your asset size might look like and then obviously now that youre expanded into Rhode Island at 700 million round numbers and then deposits what would you like that number to do over the next three or four years and then last question can.
Speaker Change: Can you guys comment where you as a company I am Brookline.
Speaker Change: So Dan I'll take that one.
Speaker Change: Thanks.
Speaker Change: So Laurie this is Dennis what I would 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 <unk> performance over the last several years has really been enhanced by that increased scale, but.
Speaker Change: But we focus on.
Speaker Change: Top tier profitability and that's we're very pleased to say that that's where.
Speaker Change: Where we're where we're headed very quickly following the consummation of our merger with with Harbor one.
Speaker Change: And in terms of your second question was what we were where we company a we're here to talk about the merger with Hopper. One today, we're not going to engage in conversation about other companies we're focused on.
On Eastern Bank on October one.
Speaker Change: Okay and then just last question Hungered Islands. So now that that puts you into Rhode Island with $700 million of deposits round numbers. How do you think about that in the coming years, where would you like that number to Greg Hill.
Speaker Change: So.
Speaker Change: We're very happy to be entering Rhode Island that look to grow in the state were not going to put a number on it today, but clearly this opportunity for us when you look at our market share in that state it's dominated by larger companies and we're going to try and make a dent in that.
Speaker Change: Yeah.
Speaker Change: Great. Thanks, so much.
Speaker Change: Thank you thanks Laurie.
Chip: There are no further questions at this time I will now turn the call over to chip off business for closing remarks.
Speaker Change: Once again, thanks for joining us this morning, and really appreciate your questions and we look forward to talking with you again.
Chip: During this time.
Chip: This concludes today's conference call you may now disconnect.
Chip: [noise].