Eastern Bankshares, Inc. Common Stock Q2 2026 Earnings Call
Key Takeaways
- Eastern Bankshares reported record operating net income of $106.5 million for Q2, up 20% linked quarter and 30% year over year, driving an operating return on average tangible common equity of 15.3%.
- Loan balances increased by $325 million, or 1.4% linked quarter, driven by strong commercial loan production despite commercial real estate payoffs.
- Deposits grew $814 million, or 3.2%, linked quarter, supported by seasonal municipal inflows and broad-based business growth, improving the loan-to-deposit ratio to 91%.
- Wealth management assets reached a record $11.5 billion with strong year-over-year fee growth, enhancing recurring fee revenue and client engagement.
- Net interest income grew 3% from Q1 with margin expansion of three basis points to 3.66%, supported by higher asset yields offsetting increased funding costs.
- Operating non-interest income increased 28% linked quarter, led by an $8.9 million rise in income on investments for employee retirement benefits and growth in investment advisory fees and interest rate swap income.
- Non-interest expense decreased 15% linked quarter, driven by lower merger-related costs and cost synergies from the Harbor One integration, partially offset by higher professional services and operating expenses.
- Asset quality remained strong with stable net charge-offs at 17 basis points of average loans and a $29 million reduction in nonperforming loans to $109 million, or 0.47% of total loans.
- Capital ratios remained robust with CET1 at 13% and TCE at 10.1%, and the company returned $106 million to shareholders via dividends and share repurchases.
- The Board approved a new 5% share repurchase program and a 15 cent dividend to be paid in September.
Outlook
- Eastern Bankshares expects continued healthy commercial loan pipelines and an exceptional deposit base in the second half of 2026.
- The company anticipates solid profitability supported by strong asset quality, improved efficiency, continued wealth management momentum, and substantial capital flexibility.
- Loan growth outlook for full year 2026 has been narrowed to 3% to 4%, down from 3% to 5%, reflecting a slower start to the year but solid Q2 production and record commercial pipelines.
- Deposit growth outlook has been increased to 2% to 3%, up from 1% to 2%, reflecting meaningful Q2 deposit growth.
- Credit trends remain positive and provision expense outlook has been lowered to $25 million to $30 million from $30 million to $40 million.
- Operating fee income outlook has been narrowed to $195 million to $200 million from $190 million to $200 million.
- Operating non-interest expense outlook has been tightened to $655 million to $665 million from $655 million to $675 million.
- Operating tax rate and capital level outlooks remain unchanged.
Guidance
- Full year 2026 net interest income is now expected in the range of $1.005 billion to $1.020 billion, with an FTE margin of 3.60% to 3.65%, modestly lower than prior guidance.
- Provision expense is expected to be between $25 million and $30 million for 2026.
- Operating non-interest expense is guided to $655 million to $665 million for the full year.
- A 15 cent dividend has been declared to be paid in September 2026.
- The company is managing CET1 capital towards the KRE median of 12%.
- The new 5% share repurchase program authorizes repurchase of up to 11.3 million shares and expires December 31, 2027.
Executive Comments
- CEO Denis Sheahan highlighted strong Q2 performance reinforcing Eastern's position as a premier bank in Greater Boston with record operating net income and growth in loans, deposits, and wealth management assets.
- Sheahan emphasized the company's commitment to organic growth and capital return to shareholders, noting a 7% annualized increase in tangible book value per share despite significant capital returns.
- CFO David Rosato detailed financial results, noting positive operating leverage, margin expansion, diversified fee revenue growth, and strong asset quality.
- Rosato discussed the impact of competitive deposit costs and the importance of balancing deposit growth with margin performance.
- Management noted the strength and diversification of the commercial loan pipeline and the resilience of customers.
- Executives discussed the competitive landscape in Boston, affirming Eastern's local franchise strength and ability to compete effectively despite increased competition.
- Management confirmed that Harbor One merger cost synergies are fully realized and that expense discipline remains a priority while investing in technology and talent.
- The company remains open to talent acquisition opportunities in existing and new markets, including Connecticut.
- Management expects deposit competition to remain intense and anticipates modest margin pressure from deposit cost increases offsetting asset repricing gains.
Q&A
- Deposit competition costs held relatively constant in Q2 with modest acceleration; competition is expected to remain strong in the near term.
- Loan yields are expected to benefit from multi-year asset repricing, with commercial loan pipeline yields consistent with Q2 levels.
- Net interest income margin is expected to be flat to slightly down in the second half of 2026 due to deposit cost pressure offsetting asset repricing.
- Deposit growth in Q2 was primarily in money market accounts with some growth in CDs; money markets are expected to continue growing faster than CDs.
- Commercial real estate payoffs were elevated in Q2 but are expected to moderate in the second half of the year.
- Accretion income remained stable at approximately $20 million per quarter and is expected to trend slightly lower going forward.
- Wealth management remains competitive with robust pipelines and growth opportunities within Eastern's existing customer base.
- Commercial loan pipeline is broad-based across many industries, reflecting strong commercial lending activity and customer optimism.
- Expense management is a daily focus balancing cost discipline with strategic investments in technology and talent; Harbor One cost synergies are fully realized.
- Noninterest bearing deposits are expected to grow modestly, serving as a key component of new customer acquisition and relationship growth.
- Share repurchase cadence will balance core capital return and opportunistic purchases based on market valuations, targeting CET1 capital near 12%.
- Borrowings fluctuate based on loan and deposit growth dynamics; borrowings are expected to remain variable depending on securities portfolio and deposit competition.
- Each 25 basis point change in interest rates impacts net interest margin by approximately 1 to 2 basis points.
- Investment income related to employee retirement benefits is influenced by equity market performance and is modeled neutrally without market impact assumptions.
- Eastern is open to talent acquisition opportunities in Connecticut and other markets, leveraging its wealth management presence.
- Competition in Boston banking is intense but Eastern maintains a strong local franchise and niche, particularly on the consumer side.
Welcome to the Eastern Bankshares, Inc. second quarter 2026 earnings conference call. Currently, all participant lines are in a listen-only mode. Following the prepared remarks, there will be a question-and-answer session. Please note, this event is being recorded for replay purposes. In connection with today's call, the company posted a presentation on its investor relations website, investor.easternbank.com. 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. Please refer to the company's forward-looking statement on slide 21 of this presentation, as well as the risk factors described in the company's SEC filings. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release and SEC filings.
I'd now like to turn the call over to Denis K. Sheahan, Eastern Chief Executive Officer.
Thank you. Good morning, and thank you for joining us. On the call with me today are Executive Chair and Chair of the Board of Directors, Bob Rivers, President and Chief Operating Officer, Quincy Miller, and Chief Financial Officer, David Rosato. We are pleased with our strong second quarter performance, which reflects the enhanced earning power of the franchise and further reinforces Eastern's position as the premier bank in Greater Boston, one of the nation's largest and most affluent banking markets. Record operating net income increased 20% same quarter and 30% from a year ago, driving an operating return on average tangible common equity of 15.3%. Our results are a reflection of the priorities we have consistently communicated to investors, organically growing both banking and fee-based businesses and returning capital to shareholders.
During the quarter, we grew loan balances and built healthy pipelines, generated meaningful deposit growth, increased wealth management assets to another record level, and produced positive operating leverage. Combined with the return of a significant amount of capital to shareholders, these results demonstrate we are successfully executing on those priorities and delivering on our commitments. Turning to lending. The increase in period end loan balances was primarily driven by broad-based growth in the C&I loan portfolio. Partially offsetting this growth were headwinds from commercial real estate payoffs, some of which were expected as we continue to work out acquired non-performing loans. Looking forward, we were encouraged by the resiliency of customers as the commercial loan pipeline finished June at a record quarter-end level and is well diversified across businesses. We continue to benefit from the investments we've made in talent in recent years.
In addition, our ability to combine local decision-making with the breadth of products and services typically associated with larger banks continues to differentiate Eastern and contribute to growth. The meaningful increase in deposits was due to seasonal municipal inflows and broad-based growth across business lines. As a result, the loan to deposit ratio improved to 91% at quarter end, compared to 93% at March 31st. While the deposit environment remains competitive and costs move modestly higher, we remain committed to balancing deposit growth with margin performance. Importantly, the strength of our core deposit base and limited reliance on wholesale funding provide us with the flexibility to stay disciplined. Wealth management is an important component of the Eastern franchise and our long-term growth strategy. Momentum continued as wealth assets increased to another record high at $11.5 billion. Fees had strong growth year-over-year.
Our wealth business not only provides recurring fee revenue and earnings diversification, but also strengthens customer relationships across the franchise. The growing connectivity between our wealth and banking teams, including private banking, continues to create more client engagement and new business opportunities. Our comprehensive solutions-oriented approach is resonating with clients, reinforcing our value proposition. Given the wealth demographics and strength of the Cambridge Trust brand and our footprint, we are encouraged by the long-term outlook of the business. Asset quality remains strong. Net charge-offs were stable, but non-performing loans improved for the second consecutive quarter following the HarborOne merger. We are very confident in our credit profile, including the sectors that have received greater attention in Boston, such as life science, which we have limited exposure. We know our office portfolio exceptionally well, and it continues to perform within our expectations.
Importantly, every office loan over $5 million is re-underwritten annually, providing us with a current and comprehensive view of each property. Overall, we view our asset quality as a source of strength, reflecting conservative underwriting and proactive risk management. Finally, given our profitability, we continue to generate capital in excess of our growth needs.