Eastern Bankshares Inc (EBC) 2025 Q1 法說會逐字稿

Welcome to the Eastern Bankshares Inc., first-quarter 2025 earnings and merger with HarborOne Corp. conference call. (Operator Instructions) 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 risks 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 10k 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 reconciliations, please refer to the company's earnings press release which can be found at investor.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, [Choy], and good morning, everyone, and thank you for joining our call today. With me is our CEO, Denis Sheahan; and our CFO, David Rosato.

Yesterday, we reported our first quarter earnings and announced we entered into a definitive merger agreement with HarborOne Bancorp, 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 the 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 HarborOne, which bolsters our already strong and long-standing presence in Greater Boston. Joining together is to become a $30 billion-plus bank, further solidifying Eastern as the largest bank headquartered in Massachusetts with leading commercial, small business, consumer, wealth and private banking offers.

This merger also represents Eastern's expansion in Rhode Island, providing an opportunity for growth in neighboring states while strengthening our market presence south of Boston. There is tremendous synergy between the HarborOne and Eastern cultures. Both of us are committed to cultivating trusted relationships with commercial customers and small businesses, nonprofits, municipalities, in 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 opportunities. Like Eastern, HarborOne is recognized as one of the most charitable companies in Massachusetts. We will have more to say about the transaction. However, before doing so, Denis and David are going to walk you through our first quarter results.

And with that, I'll hand it over to Denis.

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 linked quarter in the net interest margin and continued improvement in the operating efficiency ratio to 53.7% 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 linked quarter to 11.7%, and operating return on average assets was up 3 basis points to 1.09%.

The -- the lending environment remains tempered as economic uncertainty and ongoing changes in trade policies play 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 in adding growth-oriented talent in 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 helped drive 3% annualized loan growth in the quarter, primarily due to higher C&I 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. 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.

Looking ahead, our loan portfolios are well positioned, and we are encouraged about credit trends as we closely monitor evolving economic conditions and policies that could impact business and communities in the markets we serve.

David, I'll hand it over to you to review our first quarter financials.

Thanks, Denis, 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 2 and 3. We reported a GAAP 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 nonoperating loss in the quarter, it further accelerates improvement in our financial performance, and is expected to be $0.13 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 $0.30 -- $0.34 per diluted share were consistent linked quarter and increased 42% from a year ago, reflecting the enhanced earnings power of the company with the addition of Cambridge.

Looking at slide 4. 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 11.7% and -- increased from 6.7% over the same period. We continue to generate positive operating leverage as evidenced by an operating efficiency ratio of 53.7%, and -- which improved for the third consecutive quarter, supported by both higher revenues and effective cost management.

Moving to the margin on slide 5. Net interest income of $188.9 million increased $9.7 million linked 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 6. Noninterest income was a loss of $236.9 million on a GAAP basis compared to $37.3 million of income in the prior quarter. The decrease was due to the pretax nonoperating losses on the sale of AFS securities of $269.6 million related to the investment portfolio repositioning.

Operating noninterest income was $34.2 million, a decrease of $2.7 million. 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 noninterest expense.

As a reminder, wealth management fees in the prior quarter included a favorable onetime item of $1.2 million. Excluding this item, wealth management fees declined $300,000 linked quarter, and total operating noninterest 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 out at Rabbi Trust and Rabbi Trust employee benefit expense. We have conformed all comparative periods.

Turning to slide 7. 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 noninterest income are less sensitive to interest rate fluctuations, thereby helping to diversify earnings.

As Denis 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 8, Noninterest 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 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. 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 9. I -- 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 and 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 betas 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 or approximately 3% annualized from year-end despite a few larger payoffs in C&I and CRE. The increase primarily reflected higher C&I balances, partially offset by lower residential and other consumer balances. Home equity lines recorded another quarter of growth with balances increasing approximately $20 million from year-end. We continue to have solid commercial pipelines of approximately $500 million, which is up about $100 million linked quarter.

Looking at our high-quality investment portfolio on slide 11, and -- 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 position their 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 at 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 pretax earnings accretion and -- 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 GAAP loss for the quarter, we reported tax expense of $33.7 million. The first quarter GAAP tax loss benefit will accrue over the course of 2025. Our expected full year tax rate should be approximately 11% and implying a net tax benefit each quarter ranging from $6 million 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 $0.61 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 31.

The -- 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 linked 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.

Nonperforming loans decreased $44.2 million to $91.6 million or 51 basis points of total loans. This improvement was primarily driven by charge-offs and payoff activity. Criticized and classified loans of $596 million or 4.8% 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 nonperforming 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 4.9% remains conservative.

We continue to take a proactive approach in managing investor office exposures. Our credit teams performed 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 Denis 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 resource, 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 midyear.

That concludes our comments on first quarter earnings. Let me pass it back to Denis.

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 and 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 HarborOne brings much opportunity with solid earnings accretion, opportunity to improve operating leverage a price at tangible book value and a reasonable dilution earn back at less than three years.

Turning to page 2 of the merger presentation. The combination with HarborOne 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 in Boston, strengthens our market presence south of Boston and into Rhode Island. We look forward to introducing HarborOne's customers to a broader set of products and services offered by (inaudible) 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 earn 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 and commercial business within HarborOne'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. HarborOne and seasoned management team are well known to us, and we have modeled conservative merger of 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 as a combined company is strong with robust capital, liquidity and reserve levels and provides flexibility for future deployment of capital.

Moving to page 3. We -- HarborOne, 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, HarborOne Mortgage,headquartered in Manchester, New Hampshire, provides residential lending solutions throughout New England.

With 30 branches across our footprint and a deposit base of $4.6 billion, HarborOne has established strong deposit market share positions, ranking in the top five and 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 HarborOne solidifies Eastern's position as the largest Boston midsized bank by deposits.

Looking at page 4, 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 our 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, Denis. As outlined on page 5, this is a financially attractive merger, highlighted by meaningful EPS accretion with manageable tangible book value dilution and increased earnings generation and profitability. The transaction is projected to provide approximately 16% EPS accretion, and -- underscoring the strong synergy potential and accretive nature of the deal. We anticipate a robust IRR of more than 18%. And -- while the transaction results in an estimated tangible book value dilution of approximately 7%, the earn-back 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 HarborOne securities portfolio with 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 6, on a pro forma, fully synergized basis, our profitability metrics for 2026 are expected to show meaningful improvement compared to Q1 '25 stand-alone 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 3.70%. 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 11.7% to approximately 15.5%.

We -- these improvements reflect the financial strength and strategic rationale of the combined organization and position the company's performance within the top quartile of all banks in the KRX.

On page 7, 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 HarborOne will receive for each share of HarborOne 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 HarborOne common stock that received the stock consideration represents between 75% and 85% of the total number of shares of HarborOne common stock outstanding immediately prior to the completion of the merger.

The stock consideration is attractively priced at HarborOne's tangible book value. Assuming an 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 23, the transaction is valued at approximately $490 million.

The transaction is subject to customary approvals from three bank regulators and approval by HarborOne'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 31. The -- 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 HarborOne 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 pretax or approximately 40% of HarborOne's operating noninterest expense. These savings are projected to be realized with 75% phased in during the first half of '26 and 100% thereafter. Additionally, onetime merger-related charges are estimated to be approximately $65 million pretax 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 Denis stated earlier, we believe this conservative approach is prudent in the current economic environment. The day two CECL reserve of 1 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 pretax accreted over five years, and the core deposit intangible is 3% of all nonbrokered non-time deposits, amortized over 10 years.

Of course, these are subject to interest rates and will fluctuate between now and closing. Importantly, I want to 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 8 provides a breakdown of the earnings impact of the merger on an after-tax annualized basis. In addition to HarborOne'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 were 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 HarborOne's markets.

Turning to page 9, 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 HarborOne'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 HarborOne'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 HarborOne 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. The -- we are confident in the strength of our 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.

We -- in closing, the transaction bolsters Greater Boston density, strengthens Eastern's footprint south of Boston and expands into the Rhode Island market. It is financially compelling and results in top quartile profitability. It provides meaningful upside opportunities by delivering our broader products and services in HarborOne'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.

(Operator Instructions) Damon DelMonte, KBW.

Hope everybody is 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 -- 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. Are you guys will be active supporting the shares? Or do you kind of take a pause just kind of with the deal going through the completion process.

Sure. Good question, Damon. 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 October 31 closing and if there's any slight delay or prolonged process that you might just kick it over to January 1. Is that what you said? .

Yes. The merger agreement has us closing prior to October 31 as long as the regulatory approvals occur as well as the required waiting period. The -- because of the timing of this gets late into Q4, we have the option to delay closing until the Q1 just because we don't want to close right before year-end.

Got it. That makes sense. And then just lastly, could you just talk a little bit more about the franchise lending group that you guys hired kind of what's the -- is there a specialty that they focus on? Kind of what are the size of those loans? And -- and kind of what is the potential for growth in that portfolio?

So Damon, it's Denis. We hired two individuals to sort of to complement what we already had in terms of resource and franchise lending and very, very seasoned, experienced vendors from larger institutions. And with that, 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, that will -- the growth will continue in that segment, and we'll look to build out that business further.

Mark Fitzgibbon, Piper Sandler

David, just to clarify, would you mind repeating your comments on the effective tax rate for the remainder of this year?

Yes, Mark, good question. The -- 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 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 HarborOne's mortgage business. it sounded like you plan 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 2024 just south of $700 million in 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 as a $5 billion bank.

So we -- there's -- we see -- 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.

It's -- their business is also mostly run from a gain on sale perspective, where ours was mostly run for jumbo mortgages coming on to our balance sheet. So for example, they did last -- in 2024, they did about 2.5 times the originations that we did, but they did about 6 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 rightsize or optimize it for our vision. And it will 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 Denis. I mean as you might expect, both Bob and I maintain contact with a number of other bank CEOs CEO throughout our marketplace. And the had a very good relationship with Joe Casey and HarborOne. And we were approached about a potential opportunity to merge with them is we don't control the timing when somebody welcomed us in 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. .

Laurie Hunsicker, Seaport Research Partners.

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 3.49%. The -- it was mostly done in late January. There were some further trades into February. If I -- if you have to pick a day 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, $200 million after tax. And we had to let securities settle, make sure we work 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's stretched over, call it, a two-week period.

Got you.

We think that we telegraphed that would happen in January occurred exactly as telegraph.

Okay. That's helpful. And then the accretion income in net interest income, $12.2 million. I just want to make sure that I heard the number right. So merger accretion for the full year, excluding Honey, is $35 million and then Honey is going to 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 HarborOne?

Yes, I'm sorry, yes, HarborOne.

I want to make sure. The -- so the accretion that we experienced to date 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?

Yes. 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 want to make sure the merger accretion just for this year 2025, excluding HarborOne, is $35 million. Is that correct?

It's about, call it, $12 million to $13 million in the first couple of quarters. It will start to tail off in the back half of our year and step down to $10 million to $11 million for the last two quarters.

Perfect Okay. Perfect. And then --

Yes. So that's about a $45 million number full year.

Full year, -- got you. Okay. Okay. And then when I look at HarborOne, the accretion that's expected there in the top line, how should we think about that?

That's '26.

Sorry, that $26 million?

Yes, 2026.

2026 is $36 million got you. Okay.

Yes.

Got you Okay. Okay. That makes sense. And then just going back to your reconfirming of expense guide. To your point, expenses lower than expected, I love seeing that there were no merger charges holding over for CATC.

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 going to 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 in that 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. We -- it's just too early to call that a new run rate. That's all I was trying to say there.

Got it, got it. Okay. And then tax rate, I appreciate your clarification for 2025. But as we look out to 2026, how should we think about that?

I think it normalizes to what our run rate has historically been. So that's probably -- if I'm thinking '26 at this point, I bracket it at 21% to 23%. Again, that core run rate, the security sales is what costs a bit of noise for this full year tax rate?

Right, right. Okay. And then on to office, obviously, I saw you had a nice drop in office nonperformers. 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 a drop in nonperformers, drop in charge-offs. We're really not going to comment on disposal of assets, whether they're payoffs, charge-offs, short sales, et cetera.

The one thing I would say is we've 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 the resource for another quarter.

The criticized, classified, flat work through credits that had been identified. You look at maturity schedules that we have in the deck and you see there's everything is accruing except one small loan that's all the way out in first quarter of '26 for investor. So we want to send a good message on credit, and we're well reserved and a shout out to our credit team business.

Yes. And so I guess, along those lines, I mean, if we strip out office, and to your point, you've already obviously marked the CATC book. 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.

Yes. So I guess a couple of thoughts. From -- when we -- if we think about CRE 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 what we -- 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 C&I 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 is 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 going to 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, it's $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? One or both of you.

Laurie, this is Denis. And what I'd say is we don't focus on asset size. 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 has really been enhanced by that increased scale.

But we focus on 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 HarborOne.

And in terms of your second question was were we company A? We're here to talk about the merger with HarborOne today. We're not going to engage in conversation about other companies. We're focused on Eastern Bank and on HarborOne.

Okay. And then just last question on Rhode Island. So now that this puts you into Rhode Island was $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?

So, we're very happy to be entering Rhode Island. We're going to look to grow in the state. We're not going to 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.

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 the summer. .

This concludes today's conference call. You may now disconnect.