Finance

Eastern's Margin Compression Reverses After Deposit Costs Rise

The Tip Desk · October 25, 2026 · 3 min read

Net interest margin on an FTE basis fell 4 bps to 3.62% as deposit costs more than offset higher asset yields, even as net interest income rose to $257.9 million.

Eastern Bankshares, Inc. (EBC), the holding company of Eastern Bank, reversed a second-quarter net interest margin expansion in the third quarter as deposit costs more than offset higher earning-asset yields. The fully tax-equivalent margin compressed 4 bps to 3.62%, after a 3 bps expansion to 3.66% in the second quarter.

Net interest income still rose $5.9 million, or 2.3%, to $257.9 million, as average loans increased 1.5% and average deposits increased 2.6%. The yield on total interest-earning assets rose 2 bps to 5.07% on higher loan and securities yields. The cost of total interest-bearing liabilities increased 8 bps to 2.09% on higher deposit costs. Chief Financial Officer David Rosato said the margin decline reflected that higher earning-asset yields were more than offset by increased deposit costs.

Period-end loans grew 1.1% to $23,974 million, slower than 1.4% linked-quarter growth in the second quarter. Chief Executive Officer Denis Sheahan said commercial real estate and commercial & industrial lending drove the increase, while CRE payoffs remained a headwind that moderated from the second quarter. Commercial loan pipelines remained strong, he said, although closings had been somewhat slower than anticipated as some clients took a more measured approach to investment amid interest-rate uncertainty.

Period-end deposits increased only 0.4% to $26,017 million, after 3.2% growth in the second quarter, despite seasonal municipal outflows. Sheahan said competition remained elevated and the company was committed to gathering core deposits to support its growth strategy. Total assets were $31,700 million. Cash and equivalents rose $291 million to $547 million. Securities were $4,778 million.

Non-performing loans fell $24.6 million to $84.8 million, or 0.36% of total loans, a third consecutive quarterly decline after the HarborOne merger, from $109.4 million, or 0.47%, at June 30. Net charge-offs were $5.2 million, or 0.09% of average loans, down from $9.8 million, or 0.17%, in the second quarter. The provision for loan losses was $6.8 million, unchanged. The allowance for loan losses was $327.2 million, or 1.39% of loans, which the company said reflected loan-portfolio growth.

Operating noninterest income fell $9.2 million to $48.7 million. Retirement-benefit investment income dropped $6.3 million to $0.6 million on weaker equity markets. Miscellaneous income and fees declined $3.1 million to $6.6 million after second-quarter gains on commercial-loan sales that did not recur. Investment advisory fees were $19.4 million. Mortgage banking income and card income each rose $0.4 million. Wealth assets under administration increased to $11.6 billion, including $10.8 billion under management, on positive net flows and market appreciation.

Operating noninterest expense decreased $6.7 million to $159.7 million, producing an operating efficiency ratio of 47.5%, down from 49.0%. Salaries and employee benefits fell $2.2 million to $94.8 million, occupancy and equipment fell $1.9 million to $11.4 million, and professional services fell $1.8 million to $3.9 million. FDIC insurance costs rose $1.0 million.

The company returned $89.1 million to shareholders, including $56.7 million of share repurchases (2.6 million shares at a weighted average $22.11) and $32.4 million of dividends, after $105.8 million of capital return in the second quarter. Ten million shares remained in the repurchase program, which expires December 31, 2027. The board declared a $0.15 quarterly cash dividend payable December 21, 2026. The preliminary CET1 capital ratio was 13.02%. Tangible shareholders’ equity to tangible assets declined 42 bps to 9.64%. Book value per share was $18.56 and tangible book value per share was $12.96.

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