Eastern Bankshares Inc has announced the sale of Eastern Insurance to A.J. Gallagher and a merger agreement with Cambridge Trust during the third quarter of 2023. The sale and merger are expected to close next week and in the first quarter of 2024, respectively. The company also reported a 10% increase in its dividend, modest loan growth, stable net interest margin, and a decline in total assets. Confidence in future growth was expressed, despite a decrease in net interest income and an increase in nonperforming loans.
Key takeaways from the call include:
The company experienced 6% annualized growth and 2% growth in consumer loans.
Asset quality remained strong with no net loan charge-offs and non-performing loans (NPLs) at 34 basis points of loans.
* The balance sheet decreased by $400 million to $21.1 billion, largely due to a reduction in cash, lower market values of securities, and the sale of shared national credit loans.
* Net income was $59.1 million or $0.36 per diluted share, and operating net income was $52.1 million or $0.32 per diluted share.
* The company sold approximately $200 million of shared national credit loans at a loss.
The company expects to close the insurance transaction with a gain of approximately $260 million.
A decline in net interest margin and net interest income is anticipated in Q4 and early 2024 due to seasonal low funding and higher levels of wholesale funding requirements.
The company's share repurchase authorization expired in Q3, and they are restricted from repurchasing shares while the merger with Cambridge is pending. They are confident in closing the merger by the end of the first quarter and expect a 20% earnings accretion.
During the earnings call, it was announced that the company plans to increase marketing expenses by $2 million in Q4 compared to Q3 due to year-end expenses. The company is working with borrowers to sell three office loans that are facing vacancies and cash flow issues. The original loan-to-value ratio (LTV) for these buildings was 60%.
The company expects modest loan growth in Q4 and Q1 of the next year. The economic outlook remains strong, so the company does not anticipate significant provision levels. The three nonperforming office loans are located in the Boston Financial District, and the company is closely monitoring the entire portfolio for any signs of stress. Specific reserves have been set aside for the three loans.
During the call, Jim Fitzgerald provided some details regarding SNC sales and the impact on margin. The sales involved multiple loans and occurred earlier in the quarter. The exit margin for the quarter was in the 260s, consistent with the company's guidance for Q4. Fitzgerald also mentioned that the loans were variable, priced over sopher. In regards to CATC's office book, Fitzgerald stated that they have conducted extensive due diligence and found similarities between the portfolio and Eastern's portfolio. More updates will be provided closer to closing. The call concluded with best wishes for the remainder of the year and the holidays.
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