Eastern Bankshares, Inc. Q1 FY2026 Earnings Call

Welcome to the Eastern Bancshares, Inc. First Quarter 2026 Earnings Conference Call. Please note that 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 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'd now like to turn the call over to Denis Sheahan, Eastern Chief Executive Officer.

Thank you, Rob. Good morning, and thank you for joining our call. With me today on the call are Bob Rivers, Executive Chair and Chair of the Board of Directors; Quinsey Miller, our President and Chief Operating Officer; and David Rosato, our Chief Financial Officer. Our first quarter performance was solid and in line with our expectations with results reflecting the impact of typical seasonal trends. Operating income increased 31% and operating earnings per share increased 18% from a year ago and generated an operating return on average tangible common equity of 12.8%. As expected, period-end loan and deposit balances were down modestly from year-end. However, customer sentiment remains positive and commercial loan pipelines ended the quarter at record high levels, giving us confidence for strong activity in the coming quarters. Following a record year of originations, our commercial lending team remains energized and that momentum is carrying into 2026. Overall, we believe Eastern is well positioned to deliver meaningful value to shareholders by executing on organic growth opportunities and a consistent return of capital. We continue to see positive trends across many areas of the business. First quarter highlights include continued momentum in Wealth Management with positive net flows approaching $400 million in the quarter. Solid build in loan pipelines for both commercial and home equity lending, strong asset quality, significant capital return to shareholders and the successful completion of the Harbor One merger core system conversion. Wealth management is an important component of our long-term growth strategy. Beyond strong investment solutions and results we provide comprehensive wealth services, including financial, tax and estate planning as well as private banking. Wealth assets increased to a record high of $10.3 billion including $9.8 billion in assets under management, driven by strong positive net flows, partially offset by weaker equity market performance. We've been pleased with the integration of the Eastern and Cambridge wealth teams, which continue to capitalize on the deepening alignment within our banking business, elevating client engagement and referral activity. Notably, we have considerable opportunity to expand relationships within Eastern's client base, and our plan is to lean into that meaningfully over the next several years. Given the wealth demographics of our footprint, we are encouraged by the momentum of our business. Asset quality continues to be a real strength for us. Net charge-offs were 17 basis points, and we saw a solid improvement in nonperforming loans since year-end. We remain very comfortable with our risk profile with limited exposure to current higher-risk sectors, including private credit, software, life sciences and clean tech. Our lending to non-deposit financial institutions or MDFIs as defined by the call report, is less than 3% of total loans and as low risk as it is largely centered on organizations that provide affordable housing in Massachusetts, REITs that lend in our market, mostly in the multifamily space, and a small number of asset-based lending relationships we know well. Overall credit trends are positive and reflect the quality of our underwriting and deep knowledge of our customers, communities and local economy. Importantly, as the macro and geopolitical environment continues to evolve, we remain vigilant and closely engaged with our customers and consistent with our proactive risk management approach we will address any emerging issues prudently and quickly. Turning to capital. Given our profitability, we continue to generate capital in excess of our growth needs, we remain focused on rightsizing our capital through a combination of organic growth, share repurchases and quarterly dividends. This was evident in the first quarter as we repurchased 3.9 million shares for $75.1 million. As of quarter end, we've completed 59% of the current authorization and we expect to finish the program around midyear, at which point we anticipate executing a new authorization subject to regulatory approval. In addition, we announced a 15% dividend increase, marking our sixth consecutive year of dividend growth since becoming a public company, reinforcing our commitment to deliver consistent capital returns to shareholders. In February, we successfully completed the Harbor One merger core system conversion. With this milestone behind us, we are excited to realize the full potential of the combined franchise. This achievement reflects the extraordinary efforts of our employees, particularly given the conversion was partly executed amid a significant snowstorm in Greater Boston. I want to sincerely thank everyone who contributed to this effort for their dedication and teamwork. Importantly, we remain on track to capture the merger's targeted cost savings and onetime charges are largely complete with approximately $2 million remaining in the second quarter, bringing the total to $67 million. Before turning the call over to David, I wanted to spend a moment on artificial intelligence, a topic we are frequently asked about. Everything we are doing in AI is centered on improving how we deliver for our clients. Our focus goes beyond streamlining processes and efficiency and is centered on the objective of knowing our customers better than we know them today. One of Eastern's long-standing strengths has been the depth of our client relationships and AI will allow us to scale that advantage in meaningful ways. It will enable us to better anticipate customer needs, provide more relevant product recommendations and engage customers at the right time with the right solutions. This will further differentiate our franchise through an even higher level of personalization that customers typically receive from much larger banks. As a result, we view AI not only as an efficiency tool — though it certainly will streamline workflows and improve productivity — but also as a driver of revenue growth. David, I'll hand it over to you to provide a review of our first quarter financials.

Thanks, Denis, and good morning, everyone. I'll begin on Slide 3 of the presentation. The first quarter marked a solid start to the year and was mostly in line with our expectations. We reported net income of $65.3 million or $0.29 per diluted share. Included in net income was $30.8 million of nonoperating costs, mostly related to the Harbor One merger. On an operating basis, earnings were $88.6 million or $0.40 per diluted share. While operating earnings decreased 6% linked quarter, they were up 31% year-over-year reflecting the enhanced earnings power of the company. Looking at Slide 4. We are pleased with the continued strength of our profitability metrics while operating ROA of 117 basis points and return on average tangible common equity of 12.8% were down from Q4. Both metrics improved from a year ago when operating ROA was 109 basis points and operating return on average tangible common equity was 11.7%. We remain focused on driving sustainable growth and profitability. Moving to the margin on Slide 5. Net interest income of $244.7 million or $250.8 million on an FTE basis increased 3% from Q4. The growth was driven by margin improvement due to lower cost of funds, partially offset by $3.1 million of lower net discount accretion, which totaled $19.5 million compared to $22.6 million in the prior quarter. Excluding accretion, net interest income increased approximately 5%. As you all know, quarterly accretion income can be lumpy. Looking ahead, we expect accretion to average $21 million to $22 million per quarter. In Q1, accretion of $19.5 million was about $2 million below trend. The net interest margin expanded 2 basis points linked quarter to 3.63%. The improvement was driven by a 16 basis point reduction in interest-bearing and liability costs, reflecting improved deposit pricing. This more than offset a 7 basis point decline in yield on interest-earning assets, primarily due to lower loan yields, partially offset by higher security yields. Net discount accretion contributed 28 basis points to the margin compared to 34 basis points in Q4. Excluding the impact of accretion, the margin expanded approximately 8 basis points from the fourth quarter, highlighting the underlying strength of our core margin performance. We have included a new disclosure report on the repricing characteristics of our interest-earning assets on Page 18 in the appendix. Excluding the impact of cash flow hedges, which are in runoff mode, $1 billion or approximately 35% of our total loan portfolio is floating at current rates. The remaining $14.9 billion is comprised of variable and fixed rate loans of $4.1 billion and $10.8 billion, respectively. The time buckets reflect the dollar value of any repricing or cash flow events for the portfolio, including projected prepayments based on the forward yield curve. We have also disclosed the projected yields as assets run off the balance sheet, inclusive of purchase accounting. Current loan origination yields are 5.75% to 6% for commercial, 5.5% to 6% for residential, and HELOCs are indexed to prime. Excluding floating rate loans, we expect approximately $2.8 billion of turnover for repricing over the next 3 years. Based on current origination yields, this activity is expected to be accretive to NII and margin. For the securities portfolio, we expect approximately $1.5 billion of principal cash flow in the next 3 years at a weighted average book yield of 2.86%. Again, this cash flow will be accretive to NII and margin. Turning to Slide 6. Noninterest income for the quarter was $43.6 million, a decrease of $2.5 million compared to the fourth quarter. On an operating basis, noninterest income was $45.1 million, down $1.6 million. The largest contributor to the variance was a $1.9 million loss on investments related to employee retirement benefits, reflecting weaker equity market performance. This compares to $1.7 million in income for the prior quarter, resulting in a $3.6 million quarter-over-quarter reduction in noninterest income. The unfavorable impact on income was partially offset by a $1.2 million improvement in related benefit costs reported in noninterest expense. Conversely, noninterest income benefited from a $2.9 million increase in miscellaneous income and fees, primarily driven by a $1.7 million gain on the sale of commercial loans. This gain is related to a Harbor One loan workout that resulted in a note sale above our remaining fair value mark. Turning to Slide 7, we highlight Wealth Management, which is our primary fee business and accounts for more than 40% of noninterest income. Wealth assets increased to a record $10.3 billion, including AUM of $9.8 billion, driven by strong positive net flows. We're particularly pleased with this performance given that weaker equity market conditions during the quarter created headwinds for asset values, yet we were still able to deliver growth, underscoring the strength of our client relationships and full-service capabilities. Fees decreased modestly from the fourth quarter, but increased nearly 12% from a year ago primarily driven by strong growth in assets. Moving to Slide 8. Noninterest expense was $198.6 million, an increase of $9.2 million compared to the fourth quarter. The increase was primarily driven by seasonal costs and a full quarter of Harbor One operating expenses, partially offset by lower nonoperating costs. On an operating basis, noninterest expense was $167.9 million, up $11.8 million from the prior quarter. The increase reflects seasonally higher payroll and benefit-related costs as well as the full quarter impact of Harbor One. The largest contributors to the quarter-over-quarter increase were salaries and benefits of $10.6 million. Occupancy and equipment costs increased $2.1 million and technology and data processing expenses rose $1.2 million. These increases were partially offset by a $2.2 million reduction in professional services expense. Nonoperating noninterest expense of $30.8 million decreased $2.6 million, primarily due to $1.8 million of lower merger-related costs and $800,000 lower other nonoperating expenses. As a reminder, the first quarter typically represents a seasonally high point for expenses, and we expect a moderation in the quarterly expense run rate over the remainder of 2026. Importantly, with the completion of the Harbor One core system conversion in February, we remain on track to achieve the projected merger cost savings. Moving to the balance sheet, starting with deposits on Slide 9. As expected, balances declined from year-end. Deposits finished the quarter at $25.1 billion, down $366 million or 1.4%, primarily due to seasonal outflows and elevated competition for deposits. In addition, $81 million of Harbor One's broker deposits matured in Q1. Total deposit costs decreased 13 basis points to 1.46% and were primarily driven by lower costs in time deposits and money market accounts. We are committed to increasing deposits to support our loan growth strategies. The New England deposit environment remains competitive, and we are taking targeted actions to ensure our offerings are appropriately positioned to defend and grow share. While these efforts will result in some upward pressure on costs, we remain focused on balancing growth of our high-quality deposit base with that of the margin. Notably, retention of Harbor One deposits has been consistent with our expectations. Turning to Slide 10. Total loans declined modestly from year-end, consistent with our expectations. Period-end balances were down $187 million or less than 1%. The decrease was driven in part by nonperforming loan resolutions of $35 million and commercial real estate payoffs. We are pleased C&I continue to be a source of growth with balances increasing $49 million or 1.1% from year-end. We finished the quarter with record commercial pipeline of approximately $800 million, which gives us confidence in strong origination activity in the coming quarters and supports a favorable growth outlook as we move through the year. We continue to benefit from the strategic investments we have made in hiring talent and our differentiation in the market. We can deliver the breadth of products and services typically associated with much larger banks while retaining the certainty of execution that comes from local decision-making and a deep understanding of our customers and communities. Turning to consumer lending. Home equity balances grew slightly during the quarter. We are underpenetrated in this line of business, and growth has been somewhat episodic, largely due to capacity constraints within our legacy origination platform. We are in the process of implementing a new home equity origination platform, which we expect will improve speed, scalability and consistency, enabling more sustained growth. Given the strong underlying consumer demand across our footprint for this product, we are excited about the opportunity ahead and we see home equity as an attractive area of growth. Residential mortgage balances were down approximately 1% from year-end. Our expectation is the residential portfolio will remain relatively flat in 2026 as we favor HELOC and commercial loan growth. Turning to securities on Slide 11. We continue to be pleased with the overall quality and positioning of the portfolio. Balances increased $171 million since year-end, reflecting disciplined deployment into attractive opportunities. The portfolio yield increased 14 basis points to 3.18% for the quarter, supported by recent purchases. From a valuation perspective, AFS unrealized losses totaled $277 million at quarter end compared to $259 million at year-end. Turning to Slide 12. Our capital position remains strong, as indicated by CET1 and TCE ratios of 13.2% and 10.2%, respectively. As Denis stated earlier, we are focused on rightsizing capital through organic growth, share repurchases and quarterly dividends. We expect to generate excess capital but plan to manage our CET1 towards the median of the KRX, which is currently 12%. Our commitment to rightsizing capital was evident in Q1 with the repurchase of 3.9 million shares for $75.1 million at an average price of $19.33 which was $0.68 below the VWAP for the quarter. As a result, our diluted common shares outstanding were 220.8 million as of March 31. Second quarter to date, we have repurchased an additional 740,000 shares through yesterday for a total cost of $14.4 million and now have 4.2 million shares remaining on our authorization. We have now completed 65% of the buyback. We currently anticipate completing the buyback around midyear, at which point we anticipate executing a new authorization subject to regulatory approval. Additionally, if the Basel III proposal to reduce risk weights on certain assets is adopted, our preliminary estimates suggest an increase to Eastern's risk-based ratios of approximately 1%, which will support additional share buybacks over time. As displayed on Slide 13, asset quality remains excellent as evidenced by net charge-offs to average total loans of 17 basis points. Nonperforming loans improved as expected, falling nearly $35 million linked quarter to $138 million or 60 basis points of total loans. NPLs were lower in both the legacy Eastern and acquired Harbor One portfolios. Progress has continued in the second quarter, and we expect further credit resolutions in the quarters ahead. Reserve levels remain robust as demonstrated by an allowance for loan losses of $37.9 million or 143 basis points of total loans. Criticized and classified loans of $801 million or 5.1% of total loans, were up modestly from $793 million or 5% of total loans at year-end. The increase was driven by higher criticized balances on the Harbor One portfolio, largely offset by continued improvement in legacy Eastern loans. As we deepen our knowledge of the acquired portfolio, we further refined risk ratings and this led to the increase in Q1. In addition, we booked a provision of $5.8 million, up from $4.9 million in the prior quarter. Finally, slides covering our CRE and investor office portfolios can now be found in the appendix. We remain focused on the investor office portfolio and believe the worst of the office loan issues are behind us, so we remain realistic in our outlook. The portfolio totals $1 billion or 4% of total loans. Criticized and classified loans are $160 million — an improvement from over $170 million at year-end. Our reserve level of 6% remains conservative. Importantly, we reunderwrite all investor office loans of $5 million or more each year, and we recently completed that process during the first quarter with no unexpected findings. Before turning to Q&A, I'd like to briefly address our 2026 outlook on Slide 14. At this time, we are not making any changes to full year guidance as the first quarter performance was mostly in line with our expectations. While there were some offsetting factors in the quarter, none alter our overall view of the year, and we remain confident in achieving the projections in the outlook. With that said, based on Q1 results, we may trend towards the lower end of the NII guidance range we shared in January. In addition, we are mindful that the economic environment remains fluid. We continue to closely monitor conditions impacting our business, our customers and the communities we serve. Given the ongoing uncertainty around geopolitical developments, interest rates, inflation and broader market volatility, we plan to revisit our outlook at mid-year as this visibility improves. That concludes our comments, and we will now open up the line for questions.

Your first question comes from Feddie Strickland from Hovde Group. Regarding the NII guidance range we shared in January, we are mindful that the economic environment remains fluid. We continue to closely monitor conditions affecting our business, our customers, and the communities we serve. Given ongoing uncertainty around geopolitical developments, interest rates, inflation, and broader market volatility, we plan to revisit our outlook at mid-year as visibility improves. That concludes our comments, and we will now open the line for questions.

Good morning, everybody. Just wanted to start off with a clarification. I appreciate the new interest earning asset pricing slide, and it seems like that's maybe a big part of the margin expansion story at this point. But just as a point of clarification, is that the projected yield where the yield is rolling off? Or where you expect those loans to be priced at?

That's the yield rolling off. Yes. And Feddie, just to be clear on that, there is a footnote that says this is on a non-FTE basis. I'll give you an example. So if you see the total security yield of $310 million, we reported that for the quarter, securities were $38 million. That 8 basis point difference is the FTE adjustment on those assets.

Got it. And I guess of the fixed loans that are repricing, how much of that is kind of fixed over the next year? Just trying to get a sense for what the opportunity simply from backfill free pricing is.

If you look at the columns, you'll see the repricing buckets: 0 to 3 months, 4 to 9 months, 10 to 12 months, etc. We tried to break this out and obviously we'll be happy to take feedback on this since it's the first time we've done it. We tried to characterize the loan portfolio into the three major groups. Floating is prime and SOFR — and in commercial that's SOFR-based and in consumer that's prime for HELOCs. Then there's intermediate repricing and what's fixed. We aggregated that in buckets thinking that the most useful information was the current yield by maturity bucket rather than the exact mix of whether that's fixed or floating. What you'll find is within 3 months is the whole floating bucket. Everything else is fixed or variable meaning intermediate term fixed, and that represents the repricing opportunity.

Yes. You can see, we tried to break this out and obviously, we'll be happy to take feedback on this since it's the first time we've done it. But we tried to characterize the portfolio in the loan portfolio into the three major groups. Floating is prime and SOFR. And in commercial, that's SOFR-based; in consumer, that's prime. Those are the HELOCs. Intermediate repricing and then what's fixed. We aggregated that in buckets thinking that the most useful information was the current yield by maturity bucket rather than the exact mix of whether that's fixed or floating. Now what you'll find is within 3 months is the whole floating bucket. Everything else is fixed or variable, meaning intermediate term fixed, and that represents the repricing opportunity.

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

Just wanted to keep on the margin. You left the guide unchanged. And I think last quarter included two cuts in the guide. So I'm just kind of curious with the Fed likely on pause here, how should we think about that impacting the NIM and just the expansion that you've laid out?

So I would go back to what we've been very consistent on for quite a period of time: we are essentially interest rate risk neutral to NII. We've talked about on past calls that a steeper yield curve is better than a flatter yield curve, but it's relatively modest. I pointed out 1 to 2 basis points positive margin impact per 25 basis points of steepness. So we feel good about the NIM. We feel really good about the core NIM as well. The only challenges around margin are really two things: one is the variability of accretion that we've talked about in the past — we tried to point out it was down $3.1 million linked quarter here and had an impact on the reported margin; and then the other thing we think about is just the size of the balance sheet and the growing issue for the industry is the cost of deposits.

Okay. And so on that latter point, just on funding costs, is that sort of the aspect that gets you to have a bias towards just the lower end of the range on NII? Are you thinking about deposit pricing pressure any differently here as you sit here today?

Yes. We put out the original full year NII guide of $1.050 billion to $1.20 billion. We're thinking we'll be within that range, but we're concerned about being on the lower end of that range. That's really driven by two factors: one, loan growth. We expected weaker loan growth in Q1 and it was slightly down more than we were expecting, so that's a volume issue on the asset side. And then it's a price issue on the liability side around the deposit base. We had really good deposit performance in Q1 from a price perspective, a little less so on a volume perspective.

Got it. That's helpful. And then just one last one. Just on loans: if you could give a little more color on the loan pipeline. I know it's at record levels, but what does that mix look like and what gets you confident these pull through as customers continue to get their arms around some of the uncertainty that still exists today?

Our loan growth was a little softer than we expected in the quarter and some of that is why the pipeline is as large as it is. We had a pretty rough first quarter in this part of the country in terms of weather so something slipped a little bit. But we have a record high pipeline beginning the second quarter. These opportunities are pretty far along in the process. It's a good mix between commercial real estate, C&I and community development lending with commercial real estate being about 57% of the portfolio, C&I just under 30%, and then the rest is community development lending, which is more affordable housing lending typically. So it's a really good mix, and that also gives us a lot of confidence in where that commercial loan pipeline is headed. We also feel really good about our consumer home equity pipeline. We think that will show good progress in the second and into the third quarter as well.

Our next question comes from the line of Jared Shaw from Barclays.

Maybe sticking with the deposit side. You have good betas through first quarter. I guess if we're in a flat rate environment with some expectation that competition increases, is this sort of peak beta here? Could we see a little bit of pressure going forward?

Short answer is yes, I think betas will be slower to come down than they were going up. Our beta was 46%. We are roughly interest rate neutral which is good. I would expect probably a 2 to 3 basis point incremental cost to deposits as the year unfolds, which probably translates into 1 or 2 basis points to the overall margin.

Okay. Do you have the spot deposit rate at the end of the quarter?

Yes, spot deposit cost was 142 basis points versus 146 basis points for the whole quarter.

When you're looking at the competitive pressure, is that primarily for attracting new money to the bank? Or do you expect to have to pay more for retention, maybe especially of Harbor One deposits?

It's a bit of all of the above. Smaller banks have been competitive in parts of our market for a while, and what has changed is we're now seeing more aggressive pricing from larger banks. Some of that's to support wealth management strategies, some is online, and some is just larger banks being more competitive. Those dynamics affect both attraction of new money and retention of existing deposits since there's always some amount of money in flight.

We spend a lot of time thinking about our deposit base — it's a very good deposit base. We're signaling that we see cost increasing. If you look at the trend and how we've managed this deposit base through the merger with a company that had a higher cost of deposits than we did, you'll see Q3 cost of deposits was 155 basis points. Through the merger, we've still been able to bring it down — spot is 142. So we spend a lot of time thinking about this, and we do think we'll be affected to a degree by competitive pressure on deposits, but we manage this deposit base very intently.

I appreciate that. One final one: as we look at second quarter, with some of the moving parts on salaries and the closing of the deal, what sort of a good salary level for second quarter? And should we expect marketing expenses to maybe tick higher with some deposit initiatives too?

Let me go through the items: salary will come down linked quarter because of the timing of the merger as well as normal one-time items in the first quarter. It'll come down, occupancy will come down. The only thing on the expense side we were under a bit on is professional services — that will probably tick up as well.

And marketing, yes, it's fair to say that's seasonal as well. Home equity promotions will be much heavier in the spring heading into summer. And yes, on the deposit side, you should see marketing tick up in Q2.

Our next question comes from the line of Damon DelMonte from KBW.

David, I was looking for a little clarification on the guidance slide. If you try to back into average earning assets, when you look at the NII range and margin ranges you provided, taking the midpoint kind of puts you at about $28 billion in average earning assets, which is where you guys hit this quarter. So I'm just trying to connect the dots given the outlook for loan growth.

The issue is averages. We have a strong pipeline and we think by the end of the second quarter we'll be back to our expectations on an ending period basis. But averages will take a little longer to catch up, which is the thought process around the lower end of the NII guide. Lower average balances on the asset side and then slightly higher costs on the deposit side.

Got it. And then with respect to the outlook for provision, again, the guided range didn't change from last quarter but it came in lower this quarter as you guys continue to work through credits where you need to reserve. How are you thinking about the provision going forward, given the composition of nonperformers and expected growth?

We're being cautious. Credit improved a lot in Q1 and provision expense was $5.8 million. If you run-rate that it would take us toward the low end of the $30 million to $40 million range, but we're being conservative given we're still early in integrating Harbor One and given macro uncertainty.

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

I wanted to go back to expenses. Can you share what was the FICA expense and what was the snow removal expense this quarter?

Linked quarter, FICA was up $3.1 million. Snow removal was up about $650,000 linked quarter.

Do you have a spot margin for March?

Sure. Spot margin for March was 3.65%, up two basis points from the quarter.

That includes basically the same amount of accretion that you reported in the quarter?

Accretion is lumpy month-to-month, but that's a good number and doesn't need adjusting.

On credit: I love seeing the drop in commercial nonperformers. Two parts: can you share the drop in office nonperformers from $37 million down to $11 million — what was the resolution there? Second, industrial warehouse nonperformers went from $25 million to $41 million linked quarter — can you tell us a bit about that, since that book is larger?

Sure. That was really a coding reclassification we found on Harbor One loans. When we closed the deal, that specific loan was coded as construction but construction had been completed and it should have been classified as industrial warehouse. So there's no substantive change — it was merely a reclassification. It was considered as part of the credit mark and reserve established against the portfolio.

There's nothing unusual in the resolution of any of those loans. They were financed by another party; we had reserves established; we went through a workout and that project is now with new borrowers not financed by us. Also, we did have a loan sale that generated a $1.3 million gain — the final resolution was better than our remaining fair value mark.

Next question comes from the line of Matthew Breese from Stephens Inc.

Maybe thinking about deposit strategy a bit more: is there a growth target in dollars for deposits you're looking to bring in? I worry about diluting your core deposit characteristics. Also, with promotional rates on your website for money market and CDs in the high 3s, low 4s versus incremental loan yields in the high 5% or 6% range, that's not great for incremental margin. How do you think about where to cut that off dollar-wise?

We guided to 1% to 2% deposit growth for the year. We don't have outsized expectations for deposit growth. We're just signaling that deposit competition has increased in the marketplace, coming from both smaller and larger competitors. It's not all coming in at the highest advertised rates — we also have checking 'stacked offer' programs that reward different balances, and historically we've managed that well. We've managed to reduce cost of deposits even through the Harbor One merger, from 155 basis points to a spot of 142, so we manage the deposit base deliberately.

Tying that back to the margin, thinking about the NIM guide and where you sit today, is it fair to say we end the year closer to the high end of the range versus the low end? What's the cadence of the NIM throughout the year given everything you've outlined?

Somewhat dependent on the pace in Q2 of building loan and deposit balances. We're expecting the core NIM excluding purchase accounting to incrementally improve each quarter. When we announced the Harbor One transaction a year ago we telegraphed a 3.70% margin as the midpoint of the guide and we still think we'll be in that roughly 10 basis point range. We ended Q1 on a spot basis at 3.65%, which is the low end of that range.

Last one: on the reductions and payoffs this quarter, how much of it was acquired loans versus legacy Eastern? Any of that strategic, meaning you decided some acquired, more transactional CRE might be better elsewhere? Is that a component and incorporated into the full year guide?

The Harbor One portfolio is nothing unexpected — we're early in it but there's nothing surprising in payoffs or credit marks. There were some elevated commercial real estate payoffs in our legacy portfolios, which we think is a sign of a healthy market. That was a little higher than we expected but not unexpected moving forward.

Your next question comes from the line of Janet Lee from TD Bank.

On the deposit cost commentary, you're expecting some modest increase in deposit cost. Does that have to do with retaining Harbor One's deposit base, which is obviously a higher cost base? Is that part of what is driving the increase along with competitive pressure in your market? How much of Harbor One retention is a factor in your deposit cost outlook? Is it harder to retain versus before?

No, it's more about market pricing broadly. Certainly Harbor One's deposit base is an important element, and we're actively engaged in retaining those deposits and it's going well. But the increase we're seeing is reflective of broader pricing activity in the marketplace. We saw this pricing kick off in the back half of last year with lower institutions and now we're seeing it with institutions that are higher than us.

For loan growth, it looks like loan growth will pick up in the coming quarters, but given the lower base, should we assume it's coming in at the lower end of your range? Or do you have more optimism that it could be in the middle or upper end? How should we think about the cadence?

We expect to remain within our original guided range; it's a fairly tight range for the year. Loans were modestly down in Q1, which is normal and exacerbated a bit by winter weather. But we have record pipelines and feel good about the outlook for origination activity.

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

Thank you, everybody, for joining us. I appreciate your questions. We look forward to speaking with you at the end of our next quarter.

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