Banker & Tradesman file photo
Eastern Bank is resolving its three troubled office loans from the third quarter of last year, plus a new non-performing real estate loan that cropped up in the fourth quarter, by selling them back to the market with some losses incurred.
The first three loans are for buildings in Boston’s Financial District, executives said during the bank’s earnings call Friday. The first sold for $9 million in the fourth quarter, incurring a $4 million charge-off loss. The second office loan, which executives characterized as “smaller,” is under contract for sale in the current quarter while the third office loan is currently being marketed for sale and is the largest of the three loans.
Jim Fitzgerald, Eastern’s CFO and treasurer, said during the bank’s earnings call on Friday that a fourth commercial real estate loan shifted to non-performing status, but is expected to be resolved this quarter. He clarified that it is not an office loan, and is valued at around $15 million.
The bank’s dollar volume of non-performing loans increased to $52.6 million in the fourth quarter of 2023, from $47.5 million the quarter before, while net charge-offs increased to $11.4 million in the quarter, which it said were in line with expectations.
Eastern said it is actively managing its $706 million investor-owned office loan portfolio, which is equivalent to 5 percent of its total loans. It also has $92 million criticized and classified loans, meaning the borrowers are showing weakness in repayment ability given current market conditions, the bank said.
Fourth-Quarter Earnings
Eastern’s net profit jumped quarter-on-quarter as the bank recorded the $515 million sale of its Eastern Insurance Group to Arthur J. Gallagher & Co. in September.
Net income surged to $318.5 million from $59.1 million in the third quarter primarily due to the $294.5 million after-tax gain from the insurance group sale.
Net interest income was down $133.3 million from $137.2 million in the prior quarter, while net interest margin also declined to 2.69 percent from 2.77 percent. This is due to the 20-basis-point increase in cost of interest-bearing liabilities outpacing the 1-basis-point increase in asset yields as more depositors shift to higher-yielding accounts.
Excluding brokered deposits, core deposits increased by $516.2 million to $17.5 billion compared to $17 billion in the previous quarter.
Fitzgerald told investors Friday that the cash from the insurance business sale plus the increase in deposits were used to pay down $1 billion worth of borrowings and brokered deposits, reducing it to around $100,000 from $1.1 billion a quarter ago.
Total loans increased to $14 billion from $13.9 billion as all segments of consumer, residential, and commercial recorded modest growth.
The bank said that for Eastern’s side of the business, the upcoming Federal Reserve interest rate cuts this year will have an impact on income and margins late this year and in the full year of 2025. It is expecting non-performing loans to “increase but to be contained” this year as trends normalize.
If Eastern’s planned acquisition of Cambridge Trust closes early in the second quarter, as executives hope, the bank will focus on integrating the banking division in the second quarter, while the wealth division will be integrated in the third quarter.
Eastern executives also noted two projects costing $6 million that are set to be completed in the first half of this year, including the move of its corporate office in downtown Boston ($3 million in costs), and the update of its online and mobile banking platforms ($3 million).
