Eastern Bankshares Q3 2026 Earnings: Net Interest Income Rises despite Margin Pressure

Eastern Bankshares (NASDAQ: EBC) reported Q3 2026 revenue of $306.6 million, up 27% from $241.5 million a year earlier, while diluted EPS was $0.51, down 4% from $0.53. Net income increased 5% to $111.0 million, but the prior-year tax benefit and a higher diluted share count limited EPS growth despite substantially higher pretax income. Sequential loan growth, lower expenses, and improving credit metrics supported the quarter, while rising deposit costs reduced the net interest margin.

Core Earnings Results

Net interest income was the main revenue driver, increasing 29% year over year to $257.9 million. Noninterest income also rose from the prior year, although it declined sequentially because of weaker income from employee retirement benefit investments, lower tax preparation fees, and the absence of second-quarter commercial loan sale gains.

Revenue grew faster than noninterest expense, lifting pretax income by 49% and improving operating efficiency. On a sequential basis, noninterest expense fell 4.9% to $159.7 million, reflecting lower employee benefit, occupancy, professional services, and other operating costs.

Current-quarter GAAP and operating net income were both $111.0 million because the quarter contained no operating-result adjustments under the company’s non-GAAP framework.

Business and Portfolio Performance

Period-end loans increased $261 million, or 1.1%, from Q2 to $23.97 billion. Commercial real estate loans rose by approximately $229 million to $9.62 billion, while commercial and industrial loans increased by $93 million to $4.78 billion. These gains more than offset declines in commercial construction and business banking loans.

Management said commercial real estate payoffs remained a headwind, though the pace moderated from the second quarter. Commercial pipelines remained strong, but some clients delayed investment decisions amid interest-rate uncertainty, resulting in slower closings than the company had anticipated.

Deposits increased $98 million, or 0.4%, sequentially to $26.02 billion despite seasonal municipal outflows. Money market balances grew, while demand deposits, savings accounts, and certificates of deposit declined from Q2. The period-end loan-to-deposit ratio increased to 92% from 91%.

Wealth assets under administration reached $11.6 billion, including $10.8 billion of assets under management, supported by positive net flows and market appreciation. Investment advisory fees nevertheless slipped $0.3 million sequentially to $19.4 million because higher asset-management revenue was more than offset by seasonally lower tax preparation fees.

Profitability, Credit Quality, and Capital

Balance-Sheet Growth Supported Interest Income as Funding Costs Rose

Net interest income increased $5.9 million from Q2 even though the fully taxable-equivalent net interest margin declined four basis points to 3.62%. The yield on interest-earning assets rose two basis points to 5.07%, but the cost of interest-bearing liabilities increased eight basis points to 2.09% because of higher deposit costs.

Net discount accretion contributed $19.0 million and 26 basis points to the quarter’s net interest margin, compared with $19.7 million and 28 basis points in Q2. Excluding the direction of this contribution, the underlying funding-cost pressure remains an important factor to monitor.

Expense control helped offset the margin decline. The operating efficiency ratio improved to 47.5% from 49.0% in Q2 and 52.8% a year earlier. Return on average assets was 1.41%, while non-GAAP return on average tangible common equity was 15.7%.

Credit Metrics Improved for a Third Consecutive Quarter

Nonperforming loans declined $24.6 million sequentially to $84.8 million, representing 0.36% of total loans versus 0.47% in Q2. The company described this as the third consecutive quarterly reduction following the HarborOne merger.

Net charge-offs fell to $5.2 million, or 0.09% of average loans, from $9.8 million and 0.17% in Q2. The provision for loan losses was unchanged at $6.8 million. The allowance for loan losses increased slightly to $327.2 million because of portfolio growth, while its ratio to total loans declined one basis point to 1.39%.

Capital Returns Continued While Tangible Capital Measures Declined

The preliminary CET1 capital ratio was broadly stable at 13.02%, compared with 13.00% in Q2. However, tangible shareholders’ equity as a percentage of tangible assets declined to 9.64% from 10.06%, and tangible book value per share fell to $12.96 from $13.13.

Eastern returned $89.1 million to shareholders, consisting of $56.7 million in repurchases and $32.4 million in dividends. It repurchased 2.6 million shares at a weighted average price of $22.11. The company ended the quarter with 10.1 million shares remaining under the repurchase authorization that expires on December 31, 2027.

Pretax Growth Did Not Fully Reach EPS

The difference between pretax growth and per-share results is a central feature of the quarter. Pretax income increased $46.2 million, or 49%, but net income rose only $4.9 million because Q3 2025 included a $12.2 million income tax benefit, compared with a $29.1 million tax expense in Q3 2026.

The diluted weighted-average share count also increased 9% to 217.2 million shares from 199.5 million. As a result, GAAP diluted EPS declined 4% even though net income increased. By contrast, operating diluted EPS rose 38% to $0.51, reflecting stronger underlying operating income and the different non-GAAP comparison with the prior year.

Management Commentary

CEO Denis Sheahan emphasized organic loan growth and capital returns but acknowledged that interest-rate uncertainty was slowing some customers’ investment decisions. Management also said competition for deposits remained elevated and identified core deposit gathering as necessary to support further growth.

CFO David Rosato attributed positive operating leverage to higher net interest income and controlled expenses. He also highlighted the third consecutive reduction in nonperforming loans and the decline in the net charge-off ratio.

Recent Insider Transactions

Over the latest six-month period provided, EBC insiders purchased 78,208 shares across 17 transactions and sold 110,109 shares across 11 transactions, resulting in net sales of 31,901 shares. Insiders held approximately 2.75 million shares, and net sales represented 1.10% of that total.

Eight of the 10 most recent reported entries were identified as sales with disclosed values. The other two entries, involving the CEO and CFO on September 3, did not provide a transaction direction, price, or value and are therefore excluded from the table.

The disclosed values of these eight sales totaled approximately $2.13 million. The transactions alone do not establish insiders’ views of the company’s future performance.

Risks Investors Should Monitor

• Deposit pricing pressure: The cost of interest-bearing liabilities increased faster than earning-asset yields, reducing the net interest margin by four basis points sequentially.
• Funding needs: Loans grew by $261 million while deposits increased by only $98 million. Borrowed funds rose to $903.9 million from $398.6 million, making the funding mix and its cost important future variables.
• Commercial lending pace: Management reported slower-than-anticipated closings and continued commercial real estate payoffs as clients remained cautious amid interest-rate uncertainty.
• Commercial real estate exposure: Commercial real estate loans totaled $9.62 billion, approximately 40% of total loans. Current credit metrics improved, but the size of this portfolio makes future performance significant to asset quality.
• Noninterest income variability: Market-sensitive employee benefit investment income and seasonal tax preparation fees caused a sequential decline in fee-related revenue during the quarter.

Summary

Eastern Bankshares generated higher revenue and pretax income in Q3 2026 as balance-sheet growth and expense control outweighed a modest decline in net interest margin. Loan growth and credit quality moved in favorable directions, but deposit costs, slower commercial closings, increased borrowing, and lower tangible capital measures remain key areas to watch. GAAP EPS declined despite higher net income because the prior-year tax benefit did not recur and the diluted share count increased.