Eastern Bankshares (EBC) Q3 2026 Earnings Call: Record Profit and NIM Outlook

Key Takeaways

• Eastern Bankshares reported record operating net income of $111 million, or $0.51 per diluted share, up 4% from Q2 and 50% from a year earlier.
• Total revenue increased 1% sequentially to $306.6 million. Operating expenses declined, lifting the operating efficiency ratio to 47.5% and operating return on average tangible common equity to 15.7%.
• Net interest margin fell 4 basis points to 3.62% as higher deposit costs outweighed improving asset yields. Management expects NIM to remain relatively stable in Q4 and improve modestly in 2027.
• Period-end loans grew $261 million, or 1.1%, led by $229 million of commercial real estate growth and $93 million of C&I growth. The commercial loan pipeline ended September at approximately $1 billion.
• Asset quality improved, with net charge-offs falling to 9 basis points of average loans and nonperforming loans declining to $84.8 million, or 36 basis points of total loans.
• The company returned $89.1 million to shareholders through $56.7 million of share repurchases and $32.4 million of dividends during the quarter.

Key Financial Data

Business and Operating Performance

Commercial lending drove balance-sheet growth. Commercial real estate balances rose $229 million as originations remained strong and payoffs moderated from Q2. C&I balances increased $93 million, reflecting broad-based client activity. Management said pipelines remain robust, although higher interest rates have slowed some investment decisions and loan closings.

Home equity balances increased $44 million, while residential mortgages were modestly higher. The company continues to favor HELOC and commercial loan growth and expects the residential mortgage portfolio to remain relatively flat in 2026.

Period-end deposits increased $98 million, while average deposits rose $667 million, or 2.6%, from Q2. Total deposit costs increased 9 basis points to 1.56%, with the September spot cost reaching 1.59%. Money market balances continued to grow as customers favored liquidity.

Wealth Management assets under administration reached $11.6 billion, including $10.8 billion of assets under management. AUM increased $156 million sequentially, supported by $97 million of positive net flows. Wealth management fees rose 10% year over year, although they declined modestly from Q2 due to seasonally lower tax preparation fees.

Operating noninterest expense declined $6.7 million sequentially. Lower employee benefit, occupancy, professional services and other operating costs more than offset a $1 million increase in FDIC insurance expense.

Eastern repurchased 2.6 million shares for $56.7 million at an average price of $22.11 during Q3. It also repurchased another 1.6 million shares for $33.8 million through the day before the call, leaving 8.5 million shares under its authorization through the end of 2027.

Management Guidance

Management maintained its July 2026 full-year guidance. Year-to-date NIM of 3.64% remained within the company’s 3.60% to 3.65% full-year range.

The company expects NIM to remain relatively stable in Q4 and improve modestly in 2027. This outlook includes additional rate increases. Management believes fixed-rate asset repricing should outpace further increases in deposit costs, with approximately $1 billion of assets repricing in Q4 and about $800 million per quarter in 2027.

Management expects the effective tax rate to return to approximately 22%. Q4 expenses are expected to rise from Q3, with an underlying quarterly expense base of roughly $163 million to $164 million based on the average of Q2 and Q3.

For 2027, management expects expenses to increase modestly, including higher technology and AI-related spending, while remaining controlled. Formal 2027 guidance is expected in January after the company further assesses the higher-rate environment.

Risks and Areas to Watch

Deposit competition remains elevated across the New England market and could continue into Q4 and 2027, particularly if interest rates rise further. Management acknowledged that Q3 deposit pricing pressure was stronger than it had anticipated.

Higher rates are slowing some commercial loan decisions and may require borrowers to contribute more equity to maintain debt-service coverage. They could also reduce loan demand or delay transaction closings.

Commercial criticized and classified loans increased modestly due to a small number of relationships. Management nevertheless described overall asset quality as strong and said most acquired HarborOne credit issues have been addressed, with remaining work potentially extending into Q1.

Other uncertainties cited by management include inflationary pressure, evolving rate expectations and broader macroeconomic conditions, which could affect the pace of loan and earnings growth in 2027.

Analyst Q&A Highlights

• Loan growth: Management remains confident in its 2026 targets. C&I represents the largest part of the approximately $1 billion commercial pipeline, but higher rates are slowing some customer decisions.
• Margin and deposit beta: Eastern continues to target a deposit beta near its historical 50% level. Management expects asset repricing to support modest margin improvement even if rates rise further.
• Loan pricing: Core CRE and C&I spreads are generally holding at 175 to 200 basis points. Greater competition is concentrated among larger, high-profile borrowers that can also generate fee income.
• Funding capacity: The company had approximately $2 billion more deposits than loans at September 30. Management does not currently view funding as a constraint on loan growth.
• Securities portfolio: Eastern expects continued reinvestment and modest net securities growth in Q4. Recent purchases have carried yields of approximately 6% to 6.5%, depending on asset class.
• Strategic priorities: Management said it is focused on organic growth, profitability and capital returns rather than whole-bank M&A. It also has no broad branch rationalization program.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Welcome to the Eastern Bankshares, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] 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 19 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 Sheahan, Eastern Chief Executive Officer.

Denis Sheahan

Thank you. Good morning, everyone, and thank you for joining us. On the call today with me are Executive Chair and Chair of the Board of Directors, Bob Rivers; President and Chief Operating Officer, Quincy Miller; and our Chief Financial Officer, David Rosato. We're pleased with our third quarter performance, which reflects disciplined execution of our priorities. We delivered record operating earnings, generated attractive returns, maintained excellent asset quality and returned meaningful capital to shareholders, all while continuing to drive organic growth across both our banking and fee-based businesses.

These results further reinforce Eastern's standing as a premier bank in Greater Boston, one of the nation's largest and most affluent banking markets. The increase in period-end loan balances was primarily driven by strong commercial real estate originations and broad-based C&I growth. As expected, CRE payoffs moderated from the second quarter, leading to solid growth overall in commercial real estate.

Commercial loan pipelines remain strong, although the pace of closings has been somewhat slower than anticipated as some clients take a more measured approach to investment decisions amid interest rate uncertainty. Overall, customers remain resilient as business activity continues to generate demand for financing. We believe there are a lot of opportunities in the Commercial Banking segment, and we are well positioned to gain share. Customers value our ability to deliver a broad set of commercial capabilities typically associated with larger institutions while also providing the certainty of execution that comes from local decision-making and knowledge.

The Eastern brand is highly regarded across our market and the franchise is deeply rooted. We live and work here, and our extensive involvement in the communities we serve resonates with customers. On the funding side, period-end deposits grew modestly despite seasonal municipal outflows. While the deposit environment remains competitive and costs move higher, we remain committed to gathering core deposits to support our growth strategy and balancing these efforts 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 while also supporting customer relationships. Wealth Management is an important component of our long-term growth strategy, and we achieved another successful quarter. Assets under management and administration increased from the end of the second quarter, driven by both positive net flows and market appreciation. Our comprehensive team-based approach continues to differentiate us across our target market of $2 million to $20 million in investable assets. We offer a level of service to this segment that larger firms typically cannot deliver. Importantly, we get compensated well for these services with an average fee ratio of approximately 70 basis points.

While we're in the early stages of capitalizing on the full potential of this business, the increasing alignment between our wealth and banking teams, combined with the attractive wealth demographics across our footprint is generating meaningful momentum, and we are encouraged about its long-term outlook. Our asset quality remains a clear source of strength, reflecting conservative underwriting and proactive risk management.

Net charge-offs declined linked quarter and as anticipated, nonperforming loans improved for the third consecutive quarter following the HarborOne merger. We are 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 investor office portfolio exceptionally well, and it represents only 4% of total loans. The portfolio is well reserved and continues to perform within our expectations.

While overall credit trends remain favorable, our experienced credit team continues to actively monitor the macro environment and local market for emerging risks that could impact our customers, positioning us to respond quickly and decisively when needed. Finally, given our profitability, we continue to generate capital in excess of our growth needs. As we have consistently communicated, we are committed to thoughtfully rightsizing our capital position over time. That commitment was evident again this quarter as we returned meaningful capital to shareholders through both share repurchases and quarterly dividend while continuing to support organic growth opportunities.

As always, our results reflect the efforts of an exceptional team, and I want to thank our colleagues for their continued commitment and execution. I also want to express my gratitude to our customers for choosing Eastern as our financial partner and to shareholders for their ongoing trust and support. We never take these relationships for granted. And every day, we are focused on delivering strong, sustainable performance and value for all stakeholders.

David, I'll hand it over to you to provide further details on third quarter financials.

R. Rosato

Thanks, Denis, and good morning, everyone. Our third quarter financial performance was strong and highlighted by record operating net income, further improvement in key profitability metrics, including return on average assets and return on average tangible common equity. Positive operating leverage driven by an increase in net interest income and lower expenses, solid balance sheet growth, supported by strong commercial lending activity, sustained excellent asset quality and meaningful capital returns to shareholders.

The third quarter also benefited from a modestly lower effective tax rate, primarily reflecting a higher level of tax-preferenced items. Going forward, we expect the effective tax rate to return to about 22%. We reported record operating net income of $111 million or $0.51 per diluted share, an increase of 4% linked quarter and 50% from a year ago, reflecting the enhanced earnings power of the company. Net interest income growth, combined with well-controlled expenses, produced another quarter of positive operating leverage. As a result, the operating efficiency ratio improved to 47.5%, contributing to a 3 basis point increase in operating ROAA to 141 basis points and a 37 basis point improvement in operating return on average tangible common equity to 15.7% compared to the second quarter.

Total revenue of $306.6 million increased 1% linked quarter as growth in net interest income was offset by lower fee income. Starting with Slide 5 of the presentation. Net interest income grew 2% linked quarter, reflecting the benefit of continued balance sheet growth. Net interest margin declined 4 basis points to 3.62%, which was in line with our expectations as higher funding costs more than offset improvement in asset yields. Asset yields increased 2 basis points, driven by favorable loan and securities repricing, while interest-bearing liability costs rose 8 basis points due to higher deposit costs.

Net discount accretion contributed 26 basis points to the margin compared to 28 basis points in the prior quarter. Excluding accretion, the margin declined 2 basis points linked quarter. Importantly, our year-to-date net interest margin of 3.64% remains well within our full year guidance range of 3.60% to 3.65%. While the benefits of a steeper yield curve and higher rates are supporting asset repricing, those tailwinds continue to be offset by competitive deposit pricing. As a result, we currently expect net interest margin to remain relatively stable in the fourth quarter and to modestly improve into next year.

We show the repricing characteristics of our interest-earning assets on Slide 6. We have approximately $8.8 billion of floating rate assets repricing constantly with short-term rates. Beyond that, we expect approximately $1 billion of fixed rate variable assets repricing in the fourth quarter and roughly $800 million per quarter in 2027.

As detailed on Slide 7, operating noninterest income decreased $9.2 million or 16% compared to a particularly strong second quarter results. The largest contributor to the variance was a $6.3 million decrease in income from investments for employee retirement benefits, reflecting weaker equity market performance. This unfavorable impact on fee income was partially offset by a $2.5 million reduction in related benefit costs reported in noninterest expense.

Miscellaneous income and fees also decreased $3.1 million, largely as a result of gains on the sale of commercial loans recognized in Q2 that did not reoccur in Q3.

Turning to Wealth Management on Slide 8. Assets under administration increased to $11.6 billion, including $10.8 billion in assets under management. AUM increased $156 million linked quarter, primarily driven by $97 million in positive net flows, highlighting the continued momentum in the business. Wealth management fees declined modestly from the prior quarter as growth in AUM revenues was more than offset by lower tax preparation fees, which are seasonally higher in the second quarter. Compared to Q3 '25, fees increased 10%, reflecting strong organic and market-driven asset growth over the last year.

As detailed on Slide 9, the third quarter demonstrated our ongoing focus on prudent expense management and operating efficiency as noninterest expense decreased $8.3 million or 5% linked quarter. Notably, we did not incur any nonoperating costs in the current quarter compared to $1.6 million in Q2. On an operating basis, noninterest expense was down $6.7 million.

The current quarter benefited from the following: $2.2 million decrease in salaries and employee benefits, primarily due to lower costs related to employee retirement benefits that I referenced earlier; a $1.9 million decrease in occupancy and equipment expenses, reflecting lower depreciation and maintenance costs; a $1.8 million decrease in professional services, primarily due to shareholder advisory fees in Q2 that did not reoccur in the third quarter, and a $1.9 million decrease in other operating expenses, largely driven by a release of unfunded commitment reserves. These declines in noninterest expense were partially offset by a $1 million increase in FDIC insurance costs.

Moving to the balance sheet, starting with deposits on Slide 10. Period-end balances increased $98 million linked quarter despite seasonal municipal outflows. On an average basis, deposits increased $667 million or 2.6% from the second quarter. Consistent with recent trends, money market balances continue to grow as customers maintained a preference for liquidity. Total deposit costs of 156 basis points increased 9 basis points linked quarter with a September spot rate of 159 basis points, reflecting elevated competition for deposits in the New England market.

In response to higher short-term rates, we took targeted actions to appropriately position offerings to defend and grow market share. Looking ahead, we remain focused on gathering core deposits while balancing growth with margin performance.

Looking at loans on Slide 11. Period-end balances increased $261 million or 1.1% linked quarter. CRE balances grew $229 million, supported by strong originations, although payoffs remained a headwind despite moderating from Q2 levels. C&I balances increased $93 million, reflecting broad-based growth across the portfolio and continued client activity. Commercial pipelines remain strong and ended September at approximately $1 billion, with a balanced mix between CRE and C&I.

Turning to consumer lending. Home equity balances increased $44 million. Given the strong underlying demand across our footprint for this product, we continue to see home equity as an attractive area of growth. Residential mortgage balances were up modestly from Q2. However, our expectation is the residential portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth.

Moving to Slide 13. Our capital position remains strong as indicated by CET1 and TCE ratios of 13% and 9.6%, respectively. We are focused on rightsizing capital through organic growth, share repurchases and quarterly dividends. We expect to continue to generate excess capital but are managing our CET1 towards the median of the KRX. Tangible book value per share of $12.96 declined 1% linked quarter, primarily driven by higher unrealized losses in the available-for-sale securities portfolio reflected in AOCI. Excluding this mark-to-market impact, tangible book value per share would have increased approximately 2% from Q2 despite returning $89.1 million of capital to shareholders during the quarter.

In addition to $32.4 million of cash dividends paid, we repurchased 2.6 million shares for $56.7 million at an average price of $22.11, which was $0.30 below the VWAP for the quarter. As a result, our diluted common shares outstanding were 215.5 million as of September 30. Fourth quarter to date, we have also repurchased an additional 1.6 million shares through yesterday for a total cost of $33.8 million and now have 8.5 million shares remaining in our authorization that runs through the end of 2027.

We continue to view our buyback through 2 lenses: core and opportunistic. The core component reflects our need to consistently repurchase shares to steadily reduce capital levels. The opportunistic component is more price sensitive. As we remain disciplined and focused on creating value for shareholders. As a result, the pace of repurchases may vary from quarter-to-quarter based on market conditions and the stock's valuation. While we control capital generation and the pace of buybacks, we do not control valuation.

As displayed on Slide 14, asset quality remains excellent. Net charge-offs to average total loans of 9 basis points declined from 17 basis points in Q2, and NPLs improved by $24.6 million to $84.8 million or 36 basis points of total loans. Notably, NPLs continued to improve in both the Legacy Eastern and acquired HarborOne portfolios. Commercial criticized and classified loans increased modestly from the second quarter, reflecting higher balances in both the Legacy Eastern and HarborOne portfolios. The increase was primarily driven by a small number of relationships.

To conclude, our third quarter results underscore the strength of the franchise. We generated record operating net income, produced positive operating leverage and maintained excellent asset quality, all while executing against our priorities of growing organically and returning capital to shareholders. As we look ahead, we remain encouraged by the underlying momentum across the franchise. At the same time, we continue to operate in a dynamic environment characterized by elevated deposit competition, evolving interest rate expectations, inflationary pressures and broader macroeconomic uncertainty. While these factors may influence the pace of loan and earnings growth in 2027, we believe our relationship-based banking model, disciplined expense management and strong balance sheet position us well to continue delivering attractive returns to shareholders.

This concludes our remarks, and we'll now open up the call for questions.

Operator

[Operator Instructions] your first question comes from the line of Damon DelMonte with Keefe, Bruyette & Woods.

Question-and-Answer Session

Damon Del Monte

Just want to start off on loan growth kind of around the commentary with the C&I outlook with kind of a bit of a pause from customers. Just wondering if that impacts your outlook for the full year at all or if you think you're still on track for your updated guide that you provided last quarter?

Denis Sheahan

Damon, thanks for joining us. So pipeline still remain very robust. And actually, the C&I segment is the largest component of our pipeline overall. So we feel really good about that. But certainly, the increase in interest rates, as you might expect, has an impact. We -- more conversations with clients about the fact that rates have gone up. And so it does slow things down somewhat, but we're still optimistic overall and certainly regarding the targets we provided for this year. As we look ahead into next year, we'll have to reassess and we'll provide new guidance at the beginning of the year in terms of -- once we've had more time to digest the higher rate environment, what our outlook for '27 would be.

Damon Del Monte

Okay. Great. And then on the CRE side, are you seeing similar trends with payoffs kind of moderating so far here in the fourth quarter?

Denis Sheahan

Well, certainly, I'll speak to the third quarter. Payoffs did moderate. We did expect them to. If we go back to the beginning of the year, we did expect elevated payoffs in part because of the environment, but also because of the HarborOne merger. And as we anticipated in Q3, they did modify somewhat, although at an elevated level overall. But in a higher rate environment, yes, we would expect payoffs to slow to some degree.

Damon Del Monte

Okay. Great. And then just one for David on securities, the average securities this quarter were up linked quarter. Could you just remind us, was that kind of a full quarter impact from activity in the second quarter? Or were those purchases here in the third quarter?

Denis Sheahan

It was both -- Damon, so we had -- we cash flow about $40 million a month, which we have been reinvesting this year, plus we've added to that both last quarter and this quarter.

Damon Del Monte

Okay. And can we expect there to be a little bit more growth in the securities portfolio?

Denis Sheahan

Yes, sorry. And I think that trend of reinvestment and net growth -- net modest growth will continue into Q4.

Operator

Your next question comes from the line of Justin Crowley with Piper Sandler.

Justin Crowley

I was wondering if you could frame up for us the state of play on the deposit side a bit more. And I think you kind of alluded to this, David, but is your sense or it sounds like it's your sense that competition, and I suppose yourselves included, moved on rate just in advance of the December hike. Or could there -- could that be less of the case and we could see a longer lag here, especially if we think about a couple of more hikes that may be on the way? How are you thinking about that going forward?

R. Rosato

Yes, it's the million-dollar question, Justin. The deposit pressure continues. It's -- I would say it's broadened out to -- it's from smaller banks to larger regionals as well. We think it's going to continue into Q4 and into next year if we do, in fact, see another 75 basis points of tightening from the Fed.

The good news from our perspective is, and we called it out in our comments, the $1 billion of fixed rate asset repricing in Q4 and the $800 million or so a quarter next year. We believe that the fixed rate asset repricing will outpace deposit cost increases, leading to a slightly better margin. But we underestimated deposit pricing in Q3, frankly, as you can see in our results. Our Q margin, if you adjust for a little slowdown in accretion in the residential mortgage portfolio was down 2 basis points.

Justin Crowley

Okay. Got it. That's helpful. And then just flipping to the lending side. You talked about higher rates and what it's doing as far as customers, some of the uncertainty. But curious for you folks and not that you go that far out on the risk spectrum, but just if you guys at all are tightening up the credit box in any meaningful way and if there are just some deals that don't work with the move in interest rates.

Denis Sheahan

Well, we can give you a couple of examples. We're just talking to a senior lender about this of loans that sort of had to be reworked because of the change in interest rates. And it's a combination of, as you'd imagine, with higher rates, the debt service coverage ratio changes. So that requires that the borrower has to put in more equity to meet -- to satisfy our requirements. And that happened in that situation, perhaps in some other situations, it may not.

The other thing that is -- has an effect here is with higher rates, sometimes the sale price of a property would need to be renegotiated modestly to accommodate for the buyers' need to pay a higher rate on the loan. So those things have an effect and they can have an effect on the speed to close those loans. It can also have an effect on demand. But we've been through this before, different rate cycles, and I'm confident in the team's ability to sort of weather through this period.

R. Rosato

Justin, I would just add to that because our credit box is fairly tight and conservative. Our customer base has the ability to put up more equity in the example that Denis cited rather than a more highly levered client base who doesn't have those -- that ability. So on a relative basis, I think we have a better ability to manage through this.

Justin Crowley

Okay. Great. That makes sense. And then just one last one. You guys have, of course, done a lot of work on just improving asset quality. You called that out and maybe selectively moving some credits out of the bank if we think about the acquired portfolio. So I guess I'm curious where you think you are there? And is the legwork basically complete at this point? Or is there still a little room left to go?

Denis Sheahan

I think we feel like we're on track. We -- as we mentioned at the beginning of the year, we knew we'd have sort of an increase in the nonperforming assets, nonaccrual loans, and we'd work our way through it. So if you look at our level of nonperformers at the end of the quarter, 36 basis points, that's a pretty normalized level. And so we think we're through most of the issues we needed to work through on the acquired portfolio.

R. Rosato

Yes. As Denis says, we're right on track. There's probably another quarter into Q1 at most of working through that portfolio. As you can see, that 36 basis points that Denis referenced, it is essentially half HarborOne and half Legacy split right down the middle.

Operator

Your next question comes from the line of Feddie Strickland with Hovde Group.

Feddie Strickland

I wanted to clarify on the directional NIM guide. Thanks David, for that. Does that include any rate hikes? And does the fixed rate repricing story still outpace funding costs in a scenario where we get, let's call it, 2 more hikes over the next couple of quarters?

R. Rosato

Yes. Good question, Feddie. Yes, it does include additional rate hikes. And the conclusion still holds.

Feddie Strickland

Okay. And then just one more piece to that. Just again, I appreciate the detail on the fixed rate asset repricing. Can you give us a sense for the rate that you're able to get on the new securities purchases as well as kind of where these loans are repricing up to?

R. Rosato

Well, on the securities portfolio, if you look in the page that we have there, we've been able to drive up security purchases on average about 10 basis points a quarter through the last year, some quarters a little higher, some quarters a little lower. We're putting in -- depending what asset class you're talking about, whether it's mortgage-backs, which were primarily doing hybrid ARMs or municipal bonds, you're putting in yields at 6% to 6.5%, depending on asset class. So quite additive to the portfolio.

And then the second part of your question was just on the loan -- was on the loan side. And with as much talk about competition on loan spreads, we're actually seeing loan spreads for the most part, being held relatively stable. So you're talking 175 to 200 basis points across our bread and butter CRE and C&I portfolios. It's -- where we're really seeing spread competition is what I would call them, the larger, more marquee names in the markets that also would have strong fee income opportunities.

Feddie Strickland

Got it. That's helpful. And just one more for me, just on expenses. Are there any items that could meaningfully add to the expense base in the fourth quarter? And directionally, as we think out to '27, just given the step down in expenses in the third quarter, could we potentially see expenses either flat or maybe even slightly lower for the year? Just trying to get a sense for where they could go.

R. Rosato

I would caution you a touch there. I would expect expenses to tick up a bit in Q4 relative to Q3. We kind of went, the investment advisory fees that we called out linked quarter drove that down. That's not repeatable. Maintenance operating expense there was a little below trend. I would think more about the average of the second and third quarter, which puts that expense base, call it, $163 million, $164 million in that neighborhood.

Operator

Your next question comes from the line of Tyler Cacciatori with Stephens.

Tyler Cacciatori

This is Tyler on for M. Breese. I was wondering if you could talk a little bit about the loan-to-deposit ratio. I know the seasonal muni outflows played a role this quarter, but is there any level you start to pull back on loan growth if deposit growth doesn't keep pace? Or is that not really a constraint you're focused on today?

R. Rosato

If you look over many years, our loan-to-deposit ratio has ticked up. But if you look at our 9/30 balance sheet, we have $2 billion more deposits than we have loans today. And we've made comments about our residential mortgage portfolio being a little larger than normal because of acquisitions. So we're certainly focused on growing our deposit base to fund loan growth, but we're not at a point where we believe it would be a constraint on loan growth.

Tyler Cacciatori

Okay. Great. And then just one more quick one. Do you happen to have the spot cost of deposits maybe at quarter end or in the month of September?

R. Rosato

Yes, we do. So it was 1.56%, as we said, for the quarter. We ended September at 1.59%.

Operator

Your next question comes from the line of Laurie Hunsicker with Seaport Research Partners.

Laura Havener Hunsicker

Just staying on margin. By the way, I love Slide 6. That's super helpful. Spot margin, do you have that?

R. Rosato

Sure. The spot margin for September was 3.62%.

Laura Havener Hunsicker

Okay. Great. And then just going back to expenses more broadly. And I realize you haven't yet given guidance for next year, but can you help us think about where you all sit in terms of sort of a tech AI spend relative to where you were this year and then branch rationalization, which is something that certainly some of your peers are looking at. How do you approach that?

R. Rosato

So we are certainly focused -- we have seen tech AI spend go up this year modestly. We're in the middle of a budget process where we are seeing increased ask for tech spend and people to support that tech spend. At the end of the day, we will be able to absorb that in our full expense base in a manner that puts year-over-year expenses well under control. They will increase, and they will increase modestly, but we don't think the tech AI spend is -- we're going to be sitting here in January, delivering bad news on the expense line.

Denis Sheahan

And then I'll jump in as far as your question about branch rationalization. We don't have a program you referred that some others may have of rationalizing a branch no more than we would in any other period. Anything we think about there, whether it's expansion or potential branch closure, is sort of onesie-twosie. We evaluate each of our markets and our presence there in terms of its growth potential, our profitability, et cetera. So we don't have a significant plan in terms of branch rationalization.

Laura Havener Hunsicker

Okay. That's helpful. And then just very high level, Denis, maybe you can comment. I think we know the answer, but just would like to hear you say it, whole bank M&A. Where do you sit on that at the moment?

Denis Sheahan

Yes. Laurie, our position remains the same as it has been for quite some time. We're focused on -- we're very pleased to deliver a nice clean quarter with sort of no non-operating items, as David referenced. The profitability performance of the company is improving significantly. We're generating a lot of capital. We're returning a lot of capital, and that's exactly what we're focused on. We're not focused on M&A at all.

Operator

[Operator Instructions] your next question comes from the line of Jared Shaw with Barclays Capital.

Jared David Shaw

Should we assume with the removal of the guidance side, is that -- are we -- are you removing guidance? Or how should we think about guidance from last quarter?

R. Rosato

Yes. Jared, I did chuckle to myself when I read your note last night. The -- our practice is guidance in January, midyear update in July, not quarterly guidance. So there really wasn't -- we haven't removed anything. That's just what our practice is.

Jared David Shaw

Okay. So it's not -- so what was left from July is still sort of we can call that still the current guidance?

R. Rosato

100%. And I slightly referenced that in the comments around the margin. Even though the margin was down, it's still within that guidance. But we have not changed any of our thoughts for full year '26 relative to what we put out on -- in July.

Denis Sheahan

Other than your earlier comments during Q&A, you referenced expenses in Q4, the tax rate. So Jared, it's largely, it's the same guidance.

Jared David Shaw

Got it. Okay. And then what are your thoughts on expected beta given the sort of the changed rate outlook and the competition that you referenced? How should we think about your thoughts of deposit beta through the cycle here?

R. Rosato

Yes. So again, a really important question. Our goal, our thought today is we'll be able to achieve the historic 50% deposit betas that we have done -- that we did in the last up cycle. Every one of these cycles is different, as we all know. What's different this cycle is the industry moved before the Fed moved, right? That's kind of what we're experiencing on deposit costs last quarter and slightly in Q2. The -- it's the level of deposit competition, which is also driven by the level of loan demand, ultimately is going to control that beta.

But there's nothing other than the fact that the industry moves sooner that should be different this cycle. The deposit power of our franchise is only stronger now than it has been in the past as we're bigger and more important in our market. So we stand by the historical averages we've been able to achieve, which is essentially a 50% beta.

Jared David Shaw

Okay. All right. And then just finally for me, any update on the competitive environment on commercial with some of the consolidation that we've seen? Is that flowing through to the potential to -- to see some movement among borrowers?

Denis Sheahan

Jared, yes. I mean, certainly, there has been a change in the competitive environment with some of the consolidation that's happened. We've been able to attract talent to our company. We're very pleased with that, very high-caliber talent. And we've been able to keep our pipeline at an elevated level and good growth in C&I and now growth returning in CRE. So we are benefiting to a degree, yes, from the consolidation and our outlook would -- absent higher rates, we'll give you some guidance in January as to what we think 2027 will look like. But the team is in place to be able to take more share in the market.

Operator

There are no further questions at this time. I will now turn the call over to Denis Sheahan for closing remarks.

Denis Sheahan

Thank you for joining us. We look forward to speaking with you following our next quarterly earnings.

Operator

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