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HomeBankersWhy Eastern Bank is paying top dollar for longtime rival

Why Eastern Bank is paying top dollar for longtime rival

Eastern Bankshares has returned to bank acquisitions with a deal that will likely shake up the landscape in Boston.

The $16 billion-asset company announced late Wednesday that it plans to buy Century Bancorp in Medford, Mass., for $643 million in cash.

The proposed deal, which would be Eastern’s first bank acquisition since it bought Centrix Bank & Trust in 2014, comes six months after the former mutual raised $1.7 billion from an initial public offering. It would cement Eastern’s place as Boston’s biggest community bank while removing one of the last banks in the market that would have provided a competitor with instant scale.

“We talked about our intention to do this in a disciplined way that improved our market position, financial performance and return to our shareholders,” Chairman and CEO Robert Rivers said during a Thursday conference call to discuss the deal. “We believe that this transaction does all of these.”

Eastern moved with haste, industry observers said, to ensure it was on the front end of a mounting M&A wave in New England.

“They made it clear with the conversion that they wanted to take advantage of deal opportunities quickly,” said Damon DelMonte, an analyst at Keefe, Bruyette & Woods.

Since 2018, at least six banks with Boston-area operations have sold, or are in the process of selling. Those banks collectively account for nearly $20 billion of deposits in the market, according to the Federal Deposit Insurance Corp.

Two other deals announced this year will lead to deposits changing hands.

The $97 billion-asset SVB Financial Group in Santa Clara, Calif., agreed in January to buy the $9.7 billion-asset Boston Private Financial Holdings. The $63 billion-asset People’s United in Bridgeport, Conn., which has more than 50 branches and $6.8 billion of Boston-area deposits, announced plans in February to sell to the $143 billion-asset M&T Bank in Buffalo, N.Y.

Buying Century would boost Eastern’s deposit market share in the Boston area from 2.5% to 3.7%, based on June 2020 data from the Federal Deposit Insurance Corp. It would put the company just a hair behind TD Bank’s 3.9% share.

It also puts a considerable amount of daylight between Eastern and other community banks, and would make it a more attractive bank for anyone looking to eventually enter the market, industry observers said.

Boston had a median household salary of $94,000 in 2019, or roughly $29,000 more than the national media, according to data from the Census Bureau. With $439 billion of deposits, Boston is among the eight-biggest markets in the nation, based on FDIC data. The city also is home to 14 Fortune 500 companies.

Eastern “now has a Boston moat that can’t be replicated,” Laurie Hunsicker, an analyst at Compass Point Trading & Research, said in a Thursday client note. It came with a price, with Hunsicker noting the “outsized” dilution of a deal that valued Century ad 175% of its tangible book value.

Eastern said it…

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