Eastern Bankshares, Inc. Q4 FY2025 Earnings Call

Welcome to the Eastern Bankshares, Inc. Fourth Quarter 2025 Earnings Conference Call. 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, which will be referenced during the call. 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 the company's earnings press release and most recent 10-K filed with the SEC. Any forward-looking statements made 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. The company will also discuss both GAAP and certain non-GAAP financial measures. For reconciliations, please refer to the company's earnings press release. I would now like to turn the call over to Bob Rivers, Eastern Executive Chair and Chair of the Board of Directors.

Thank you, Joelle. Good morning, everyone, and thank you for joining our call. We hope your 2026 is off to a great start. With me today is Eastern's CEO, Denis Sheahan; and our CFO, David Rosato. As we close out the fourth quarter, I want to take a moment to reflect on another successful year and share my thoughts on the future. First, I want to welcome our new colleagues from HarborOne and express my sincere gratitude to all of our employees for their tremendous work throughout the year. It is their efforts that elevate Eastern's brand every day and make us distinctive as Eastern New England's hometown bank. 2025 was a terrific year for Eastern, highlighted by a 62% increase in operating earnings, strong organic loan growth, and a record level of wealth assets under management. We delivered strong financial metrics, continued to return capital to shareholders, and our share price outperformed the regional banking index. Our results underscore the strength of our company, our relationship banking model, and the enhanced earnings power of the company. The merger with HarborOne was another important milestone in 2025. It strengthens our presence in key markets south of Boston and provides an entrance into Rhode Island. At $31 billion in assets and a highly concentrated footprint, we are the largest independent bank headquartered in Massachusetts and have the fourth-largest deposit market share in Greater Boston. Our scale allows us to invest in the franchise and better serve our customers while preserving a nimble community-focused approach. Looking ahead, we believe Eastern is well positioned for 2026 and beyond. Our foundation is firmly in place, and we have the size and scale to compete effectively. Now is the time for us to realize the full potential of what we have built to deliver organic growth and solid financial returns. As a result, we will not pursue any acquisitions as we are completely focused on organic growth and returning capital to our shareholders for the foreseeable future. We are excited about the organic growth opportunities we see in the market in both our banking and fee-based businesses and expect to continue returning excess capital through share repurchases and prudently growing the dividend. We believe this approach will deliver meaningful value to our shareholders. Now I'll turn it over to Denis.

Thank you, Bob. I echo Bob's appreciation for the team's successful 2025. We are well positioned as we enter 2026 to capture growth opportunities in our larger market, which should lead to steady improvements in our profitability metrics. Our balance sheet remains healthy, well capitalized, highly liquid, and appropriately reserved. We've been asked frequently about mergers and acquisitions, and I want to reiterate Bob's points. Simply put, we are not focusing on M&A at this time. There are ample opportunities for us to grow the company's earnings organically and enhance profitability, which is our primary focus. We will direct our capital towards organic growth initiatives and returning any excess capital to our shareholders while ensuring we maintain adequate capital levels. What excites me most is the organic growth potential in both our established and newer markets. We see considerable opportunities to gain market share with our commercial banking and wealth management services and improve deposit growth. Our strategic investments in attracting talent have been crucial for driving growth. Eastern is a preferred destination for high-caliber talent, especially those with large bank experience. We have the scale to compete effectively while being small enough for individuals to utilize their expertise, make decisions, and feel a sense of ownership. Consequently, our lending teams, both new hires and experienced relationship managers, are motivated and energized. Our commercial lending platform stands out, driven by the strength of our culture and capabilities. We can offer the products and services expected from larger banks while ensuring local decision-making and a deep understanding of our clients and communities. Our banking model resonates well with clients, building trust, long-term relationships, and attracting new business. The positive effects of our renewed focus on growth and talent investment were clear in 2025. Excluding merger impacts, total loans increased by $1 billion or 5.6% for the full year on a stand-alone basis, primarily due to strong commercial lending results. The legacy Eastern commercial portfolio grew by 6% since the beginning of the year, and our pipelines remain strong as we head into 2026. We originated $2.5 billion in commercial loans in 2025, split roughly equally between commercial and industrial lending and commercial real estate. Wealth Management is a vital part of our long-term growth strategy, and the demographic trends within our footprint present substantial opportunities. We are pleased with how the integration of the Eastern and Cambridge wealth teams is progressing and the growing alignment between our wealth and banking sectors. Wealth assets reached an all-time high of $10.1 billion at year-end, which includes $9.6 billion in assets under management, driven by market appreciation and positive net flows. There's still much work ahead, but we are motivated by the momentum in wealth management and optimistic about growth opportunities in the coming years. Regarding our capital, our ratios are strong and well-positioned to support organic growth initiatives. However, we acknowledge that given our profitability, we expect to generate capital beyond what can be efficiently used for organic growth alone. This reinforces our commitment to return excess capital to shareholders, mainly through share repurchases. This commitment was evident in the fourth quarter when we repurchased 3.1 million shares for $55.4 million, representing 26% of the total authorization announced in October. We remain dedicated to optimizing our capital through organic growth, share repurchases, and quarterly dividends. We ended 2025 with a CET1 ratio of 13.2%. Assuming we complete the current share repurchase authorization, we anticipate the CET1 ratio will decline to approximately 12.7% by June 30, at which point we plan to seek an additional share repurchase authorization pending regulatory approval. We expect to continue generating excess capital but aim to manage our CET1 ratio towards the median of the KRX, currently at 12%. We are satisfied with our performance in 2025 and feel well-prepared for 2026 and beyond. We believe that our focus on meaningful organic growth opportunities and returning excess capital, rather than pursuing M&A, will create significant value for our shareholders in the future. David, I'll pass it to you to review our fourth quarter financials.

Thanks, Denis, and good morning, everyone. I'll begin on Slides 2 and 3 of the presentation. Q4 marked a strong finish to the year as we reported net income of $99.5 million or $0.46 per diluted share. Included in net income is a GAAP tax benefit related to losses from the investment portfolio repositioning completed in Q1 that accrued over the course of 2025 and non-operating merger-related costs in the fourth quarter. Operating earnings of $94.7 million increased 28% linked quarter. On a per diluted share basis, operating earnings increased 19% to $0.44. Results benefited from the partial quarter impact of the merger, which closed on November 1, and reflected continued organic loan growth and return of capital to shareholders. Looking at Slide 4, we are pleased by the strength of quarterly trends across several key financial metrics, including operating ROA and operating return on average tangible common equity, reflecting stronger earnings performance and thoughtful balance sheet management. Operating ROA of 130 basis points for the fourth quarter is up 24 basis points from a year ago, while return on average tangible common equity of 13.8% increased from 11.3% over the same period. We continue to generate positive operating leverage as evidenced by an operating efficiency ratio of 50.1%, which improved from over 57% in the prior year quarter. Moving to the margin on Slide 5. Net interest income of $237.4 million or $243.4 million on an FTE basis increased $37.2 million from Q3. The growth was driven by margin improvement due to higher interest-earning asset yields. Included in net interest income was net discount accretion of $22.6 million compared to $10 million in the third quarter, reflecting the HarborOne merger impact. The margin of 3.61% was up 14 basis points from 3.47%. The yield on interest-earning assets increased 21 basis points, while interest-bearing liability costs were up 4 basis points. Net discount accretion contributed 34 basis points to the margin compared to 17 basis points in the prior quarter. Turning to Slide 6, non-interest income of $46.1 million increased $4.8 million from the third quarter. Q4 results were highlighted by mortgage banking income, which increased $2.9 million to $3 million as we benefited from the addition of HarborOne's mortgage banking operations. Investment advisory fees increased $1.1 million to $18.6 million due to higher asset values as wealth assets reached a record high and interest rate swap income, which increased $500,000 to $1.4 million, the highest level since the third quarter of 2023, benefiting from our hiring last year of an experienced leader to head up foreign exchange and derivative sales. Turning to Slide 7, we highlight Wealth Management, our primary fee business. Wealth assets reached a record high of $10.1 billion, including AUM of $9.6 billion, driven by market appreciation and positive net flows. Wealth fees in Q4 accounted for 40% of total operating non-interest income, which was lower than recent quarters. This was due to the addition of HarborOne, which did not have a wealth management business. Moving to Slide 8, non-interest expense was $189.4 million, an increase of $49 million linked quarter due to higher operating expenses and merger-related costs. Non-operating expenses of $33.4 million increased $30.2 million linked quarter due to a $26.7 million increase in merger-related costs and a $3.5 million lease impairment. On an operating basis, expenses of $156.1 million increased $18.9 million due primarily to the addition of HarborOne. Moving to the balance sheet, starting with deposits on Slide 9. Period-end deposits totaled $25.5 billion, an increase of $4.4 billion or 21% from Q3, mostly due to the addition of $4.3 billion of HarborOne deposits. $163 million of HarborOne brokered deposits matured in the quarter, and we anticipate the remaining $85 million to run off in Q1. Excluding the merger impact, deposits increased $20 million. Importantly, while still early, we have not experienced any material drawdowns of HarborOne deposits. Total deposit costs of 159 basis points increased modestly from the third quarter, primarily due to a mix shift from the addition of the HarborOne deposit base, partially offset by pricing actions undertaken in the quarter. We are focused on growing deposits to support our funding strategy and remain disciplined in balancing the needs of our very strong deposit base with that of the margin. Looking ahead, as we thoughtfully integrate the HarborOne deposit base, we anticipate deposit costs to remain slightly elevated. However, we will work deposit costs down and target deposit betas like our experience during the most recent tightening cycle or about 45% to 50% with lags relative to Fed actions. Turning to Slide 10, period-end loans increased $4.7 billion or 25% linked quarter, primarily due to the addition of $4.5 billion of HarborOne loans. Excluding the merger impact, loans increased $255 million or 1.4%, primarily due to continued strong commercial lending. On a full year basis, organic loan growth was $1 billion or 5.6%, driven by commercial and steady growth in consumer home equity lines. Heading into 2026, commercial pipelines remain solid. Slide 11 is an overview of our high-quality investment portfolio. The portfolio yield was up 1 basis point to 3.04% from Q3. In addition, the AFS unrealized loss position ended the quarter at $259 million after tax compared to $280 million at September 30. In addition, securities acquired from HarborOne totaling $298 million were sold following the completion of the merger and the proceeds used to reduce HarborOne's wholesale funding. Turning to Slide 12, our capital position remains strong as indicated by CET1 and TCE ratios of 13.2% and 10.4%, respectively. As Denis stated earlier, we are committed to rightsizing capital through organic growth, share repurchases, and quarterly dividends. This commitment was evident in Q4 with the repurchase of 3.1 million shares for $55.4 million or 26% of the authorization announced in October at an average price of $17.79, which was $0.44 below the VWAP for the quarter. Our diluted common shares outstanding were 224.4 million as of year-end. To start 2026, we have repurchased an additional 635,000 shares through yesterday for a total cost of $12.3 million and now have 8.1 million shares remaining in our authorization that runs through the end of October. However, we currently anticipate completing the authorization around mid-year. Additionally, our Board approved a $0.13 dividend for the first quarter. As displayed on Slide 13, asset quality remains excellent as evidenced by net charge-offs to average total loans of 18 basis points, reflecting the quality of our underwriting and proactive risk management approach, addressing issues prudently and quickly. Non-performing loans increased as expected by $103 million linked quarter, mostly due to $94 million of loans acquired from HarborOne that were thoroughly assessed and adequately reserved. We have very strong reserve coverage of 35% on these loans. The HarborOne non-performing loans are largely driven by a handful of larger commercial real estate loans across a mix of property types and one commercial and industrial loan. We expect to see resolutions of several credits in the first half of 2026. Others may take longer, but we have action plans for each loan and our managed asset group has strong experience in working through acquired non-accruing loans. Reserve levels remain strong as demonstrated by an allowance for loan losses of $332 million or 144 basis points of total loans. These metrics are up from $233 million or 126 basis points at the end of Q3, due to the initial allowance established for acquired HarborOne loans. Criticized and classified loans of $793 million or 5% of total loans increased from $495 million or 3.8% of total loans at the end of Q3. The increase is entirely from HarborOne loans, as Eastern legacy criticized and classified loans decreased by $23 million. Finally, we booked a provision of $4.9 million, down from $7.1 million in the prior quarter. On Slides 14 and 15, we provide details on total commercial real estate and commercial real estate investor office exposures. Total commercial real estate loans are $9.5 billion. Our exposure is largely within local markets that we know well and is diversified by sector. The largest concentration is in multifamily at $3.1 billion, which is a strong asset class in Greater Boston due to ongoing housing shortages. Within our Eastern legacy portfolio, we have had no multifamily non-performing loans and have had no charge-offs in this portfolio for well over the past decade. We remain focused on investor office loans. The portfolio is now $1.1 billion or 5% of our total loan book with the addition of HarborOne. Criticized and classified loans of $178 million or about 16% of total investor office loans compared to $138 million or 17% of total investor loans at the end of Q3. In addition, our reserve level of 5% remains conservative. Before discussing our 2026 outlook, I want to briefly review the HarborOne merger financials starting on Slide 16. We are on track to achieve the merger-related financial targets set forth at the time of our announcement last year. Notably, as indicated on our third quarter call, we early adopted the CECL accounting standard ASU 2025-08, which marginally reduced accretion and marginally helped tangible book value due to the elimination of the day 2 credit reserve. Slide 17 outlines the final purchase accounting adjustments relative to estimates made at the time of the announcement. These came in as expected. The interest rate fair value mark on loans of $246 million was modestly higher than estimated at announcement. The credit mark of $104 million at closing was spot on, consistent with expectations and the result of a very thorough review of the HarborOne loan portfolio. On Slide 18, we provide an estimated schedule of accretion and amortization for the fair value marks that will impact earnings going forward from the HarborOne merger. Most notable is the accretion of the discount on acquired loans. We expect this will create net interest income of approximately $12 million to $13 million each quarter for the next year. For acquisitions prior to HarborOne, we anticipate accretion will provide net interest income of approximately $9 million to $10 million per quarter in 2026. We have modeled the loan accretion schedule based on the best information we have available, but actual accretion recognized is subject to loan prepayments over time. We provided a similar schedule following the close of the Cambridge transaction, and the actual results have been generally consistent with our projections, which reinforces our confidence in these estimates. Also provided on Slide 18 is the expected amortization of the core deposit intangible for HarborOne, which will be reported in non-interest expense. We anticipate this non-cash expense to be approximately $8 million to $9 million per quarter over the next year. We are focused on merger integration and ensuring a smooth transition for customers and employees while capturing the projected cost savings and other long-term benefits of the transaction. As a reminder, the core system conversion is scheduled for February. On Slide 19, we provide our full year outlook for 2026. Loan growth for 2026 is anticipated to be 3% to 5% and deposit growth of 1% to 2%. Based on market forwards as of year-end, we anticipate net interest income to be in the range of $1.20 billion to $1.50 billion with a full year FTE margin of 3.65% to 3.75%. While provision will be based on the evolution of credit trends in 2026, we currently expect $30 million to $40 million of provision expense. Operating non-interest income is expected to be between $190 million and $200 million; this assumes no market appreciation impacting our wealth management business. Also, fee income is seasonally weaker in the first quarter and grows in subsequent quarters. Operating non-interest expense should be in the range of $655 million to $675 million. As a reminder, Q1 expenses are impacted by seasonally higher payroll and benefit costs of approximately $2 million to $3 million. We expect a full year tax rate on an operating basis of approximately 23%. We will maintain a strong capital position as we manage our CET1 ratio towards 12%. Continuing our 2026 outlook on Slide 20, we have significant capital return opportunities. We believe focusing on organic growth within our existing footprint, returning capital through share repurchases, and prudently growing the dividend, and not pursuing acquisitions will deliver meaningful value to shareholders for the foreseeable future. This concludes our comments, and we will now open up the line for questions.

Just wanted to drill down on the margin. I appreciate the guide, but is the idea that we maybe see the core margin relatively flat near term as you focus on growing deposits and holding on to the HarborOne deposits, and then maybe we see more expansion later in the year?

Yes, that's correct. Our margin forecast does increase slightly each quarter, with a bit more acceleration in the latter half of the year. Just to remind you, this forecast is based on expectations of two rate cuts in June and September. If those cuts occur, we would likely see a steeper yield curve and an expansion in margins.

Great. And just one more, if you could talk about the pipeline mix today and what percentage of maybe C&I versus owner-occupied CRE, non-owner-occupied CRE, and HELOCs we might see in terms of loan growth over the next couple of quarters?

Yes. Feddie, it's Denis here. The pipeline remains strong across our different commercial businesses, whether it's commercial real estate, community development lending, and C&I. It's down somewhat from our peak, which was during the fourth quarter, but we have a good mix. It's a little bit more than 50% CRE, between CRE and community development lending, and the other, say, 45%, is C&I. But we had a lot of closings here to end the year. So it's good. We'll expect it to continue to grow certainly in the first and second quarters.

So just curious on the outlook for the provision of $30 million to $40 million. Just wondering if that's higher than we saw this year for realized provision. Just kind of curious on your thoughts of the credit landscape. And are you sensing there's some softness, which is leading you to kind of step that up on a year-over-year basis?

The guidance is similar to what we gave last year. And then in '25, we outperformed the guidance. Our thoughts are generally the same. We tend to lean a little conservative and hope to outperform what we have there. But I wouldn't read too much into concerns that we have on the credit front.

Yes, we're not seeing any material shift in our credit metrics or trends in the marketplace. As David mentioned, he outlined the rationale for the provision, but there's nothing underlying that raises our concerns.

Okay. Great. And then just given the timing of the deal closing during the quarter, David, can you give us a little guidance on what a pro forma average earning asset base would be in the first quarter, also considering that you paid off some brokered CDs and wholesale stuff from the HarborOne side?

Sure, Damon. There was very modest deleveraging in the securities portfolio, amounting to $298 million. I would refer to the period-end balance sheet as of December 31 and then the growth numbers we provided for loans and deposits. Additionally, I would note a slight increase, perhaps 1% of total assets in the securities portfolio, but this will occur throughout the year. We haven't been reinvesting in bonds for some time, so we are aiming for about 15% of total assets in securities, indicating minimal growth in that area. Also, just to add, similar to this year, residential mortgage balances will remain basically flat. The growth will be seen, as Denis mentioned, in commercial and HELOCs, consistent with 2025.

First question, nice quarter on the AUM growth. Would you be able to break out the growth between market appreciation and the net flows?

Yes. We had about $200 million of net flows in the fourth quarter, really strong, good momentum building in terms of the integration of the business here at Eastern. Referrals from our colleagues across the bank, whether it be from the Commercial Banking division or the retail division into Wealth Management are building nicely. So we're very pleased with the progress there. And hopefully, that will continue into 2026.

Awesome. And then pivoting back to credit for a second. Would you be able to give us a little more color on those nonperforming credits, maybe including whether or not these loans were located in downtown Boston?

Sure. First of all, they are not located in downtown Boston. The non-performing loans were entirely driven by HarborOne. I would like to point out that they are mostly related to commercial real estate, with one commercial and industrial loan involved. There are no surprises for us. We have been monitoring these loans from the beginning of due diligence to the present day. We have resolution plans in place for each of them, and some of these will actually be resolved this quarter. Additionally, I would like to highlight that the originally communicated credit mark and the final credit mark are exactly the same, so there has been no surprise in that portfolio.

Okay. And at what point in your workout phase would you guys entertain a larger-sized loan sale for any of these portfolios, whether they're non-performing or criticized?

We don't see that as necessary. While you might consider individual loan sales to resolve the loans, we don't believe a blanket portfolio sale is significant enough to pursue. As David mentioned, we have these loans well identified through the merger evaluation process, and they are being closely monitored by HarborOne. Although they may not have been non-accruing, we anticipated some deterioration, which is why we included a significant credit mark in our assessment. This was part of our overall evaluation of the firm and the merger. We are confident in our ability to resolve these issues quickly and do not feel the need for a bulk portfolio sale.

So David, if I could just come back to you on margin. Just a couple of things here. When in the quarter did you guys do the whole investment portfolio repositioning on HarborOne?

Right out of the chute. So the first couple of days of November.

Perfect. Okay. Cool. And then do you have a spot margin for December?

I want to provide you with an adjusted spot margin. The most representative number would be 3.64% from December, which is just a basis point below the lower end of our margin guidance. I also mentioned that the margin will gradually increase throughout the year.

Got you. Got you. Okay. And then just looking at Slide 18, I love this slide. I really appreciate you including it. So your actual accretion impact, the 11.4%, that's 17 basis points on margin, and I look to first quarter, so it looks like that's going to be about 20 basis points or so, kind of that's the run rate, 19 to 20 basis points of accretion income on margin. Is that correct? So just thinking about your guide of 3.65% to 3.75%, that's obviously inclusive of that, just making double share here.

Yes. The guide includes the numbers you see on Slide 18. Again, I just want to caution everyone, there's variability quarter-to-quarter. If you go back to the second and third quarters of last year, we had a $6.5 million swing linked quarter. So this is our best estimate based on a lot of analytical work and what happened. Though there's variability quarter-to-quarter in Cambridge Trust. Life of the deal, we're basically spot on. That's the good news. But it will bounce around each quarter.

And to be clear, Laurie, this is what you see in the schedule is the accretion for HarborOne. As David indicated in his comments, there's an additional $9 million to $10 million of accretion from former mergers that are being mostly Cambridge, but also Century.

Yes. Thank you, Denis. And Laurie, just make sure you read the footnotes. Everyone read the footnotes because we've laid out the remaining accretion and amortization expense for each deal.

Right. Okay. Got you. Got you. Got you. Okay. And then going back over to credit. I just want to make sure I got right. So looking at the increase in the commercial nonperformers from $51 million to $147 million, $96 million, $94 million came from HarborOne, and that's 35% reserved?

Yes. Yes.

Okay. And then as we look throughout the year, you said you'd reduce it. Can you just help us think about when is that $94 million gone?

That's difficult to answer. I know it's a handful of loans. I know there will be some resolutions in the first and second quarters. I can't be more specific than that. I would point you back to our experience with Cambridge Trust. We had an initial jump up in non-performing loans, and we worked those down quite quickly. It took a couple of quarters, but a year after that deal, all that stuff had been worked through. And I would expect similar experience here, maybe even a little faster.

Perfect. Perfect. And then MBFI exposure, do you have an update there?

Yes, it's still around $500 million. A significant portion of this is allocated to affordable housing, which amounts to about $120 million. Additionally, there is $250 million directed towards REITs that lend in our market, consisting of direct loans that we underwrite alongside the REIT, primarily in the multifamily sector. Finally, we have about $100 million in asset-based lending that involves fully underwritten asset-based credits. Overall, this is not a particularly large segment for us, and this describes the composition of the portfolio.

Right. And then regarding the $3.5 million lease impairment, where is that reflected? Is it counted as a credit against your other non-interest income, or does it fall under a separate sale of other assets category? Where is that line?

It runs through the non-operating expense line.

Can you discuss the decline in other assets, specifically the $700,000 loss related to the sale of other assets, which is down from $1.5 million last quarter?

Yes. That was just the associated leasehold improvements in that building that had the lease. So there are two components.

Okay. And how should we think about that running?

One time event.

Okay. And then last question, Denis, can you share a little bit about your outlook? I see on Page 20, the last bullet mentions not pursuing acquisitions, which is a solid and clearer stance than we had last quarter. It shows you're more resolute on that. Can you explain your thought process in reaching this decision? We appreciate that you're focusing more on buybacks, but could you elaborate on how you arrived at this position?

We are not pursuing acquisitions and are entirely focused on the organic growth of the company. We are excited about the potential in each of our businesses and are committed to that direction. We believe that returning capital to our shareholders is the best use of excess capital, so we are heavily focusing on buybacks. We expect to manage our CET ratio down towards 12% over time, which is a significant reduction from its current level, while still maintaining comfortable and safe capital levels. We will concentrate on buybacks and the fundamental work of growing this business one customer at a time.

I am not sure if this has been discussed yet. Regarding your fee income, where do you see the most potential for growth? Additionally, do you have any insights on your plans for HarborOne's mortgage banking business? Would you benefit if the mortgage market improves with lower rates? Also, what is your outlook for other fee income areas such as investment advisory fees or others that could exceed your current projections?

Sure, Janet. I mentioned that our guidance assumes there won't be any market appreciation in the Wealth Management sector. You can assess the expected returns of the S&P 500, and if it rises, we would see additional fee income from that. I want to clarify that. Over time, I believe fee income from HarborOne's mortgage business will likely represent 8% to 10% of total fee income. You're right; we would benefit significantly if rates drop, boosting refinancing or purchase activity. However, we're not relying on that happening. Time will reveal the outcome. It's a highly efficient and well-managed operation they have. We are still in the process of integrating it into legacy Eastern, and that business will be included in the system conversion next month. It provides us an opportunity for fee income and also allows us to potentially support our balance sheet with residential mortgages if we decide to pursue that. As I mentioned to Damon, we expect to maintain our residential mortgage portfolio at the same level in 2026 as we did in 2025, while prioritizing growth in HELOC and commercial loans.

Got it. And just one follow-up. I appreciate the comment on how you're focusing on organic growth and potentially looking at more buyback opportunities. You mentioned lowering the CET1 to 12.7% by the June quarter. When you refer to managing towards that 12%, is there a specific timeline for reaching that peer level beyond the guidance you provided for June?

Well, Janet, it's Denis. I think assuming there's a lot of assumptions in there. The first one being that we finish and we believe we will, let's see the existing buyback authorization by about mid-year. And at that point, we would look to request approval for another buyback. And thinking about the profitability of the company, the amount of excess capital we believe we will generate because organic growth will not absorb that excess capital. So it will give us room to continue to execute and do buybacks. We will continue to manage down that pro forma, say, 12.7% to a lower level and towards 12% as we execute that additional buyback. So we don't have a precise point in time, but our intent is to continue to manage it. It's, of course, subject to where stock price, etc. We want to be disciplined and responsible as we execute the buyback. But nonetheless, that is our intent.

Just had a quick follow-up on loan growth. Is there any seasonality or particular slower or faster quarter in terms of loan growth just as we think about the guide within the course of the year?

Yes. It's a little bit like a frozen thunder here in the first quarter. So it would build more throughout the year, Feddie. Pipelines build into the first quarter. But certainly, as you get late Q1 into Q2 and Q3, that's typically when most of our production happens and round off the end of the year nicely as we did this year. But typically, Q1 is a little slower. Do you agree, David?

Yes, 100%.

Well, thanks again, folks for joining our call this morning. We hope you fare well during the winter and look forward to talking with you again in the spring.

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