Banker & Tradesman file photo
The dollar volume of Eastern Bank’s non-performing loans jumped to $47.5 million in the third quarter from $30.6 million during the second quarter thanks to three non-performing loans on office buildings in Boston’s Financial District.
During Friday’s earnings call, bank executives said the buildings were bought before the pandemic, and that owners are “battling vacancies and cash flow issues.”The bank is helping the investors to sell the properties and setting aside specific reserves to cover the losses of the three defaulting loans, therefore increasing provision for credit losses.
“We will work with our borrowers if they work through the challenges and try to get to the other side. If they can’t or won’t do that, we’ll protect our interest and manage to work out to optimize our proceeds,” Jim Fitzgerald, Eastern’s chief financial officer, said during the earnings call.
The loans represent around a third of 1 percent of the bank’s total loan book.
Despite the three troubled loans, Eastern reported higher third-quarter net income.
Eastern’s net income totaled to $59.1 million, or $0.36 per diluted share, which is higher than the $48.7 million, or $0.30 per diluted share, it posted the prior quarter. The bank realized an income tax benefit, eliminating the $14.6 million valuation allowance it had as a result of its securities sale at a loss in the first quarter.
The bank noted that it also incurred a loss of $4.4 million on discontinued operations of the insurance business. The sale of this insurance business, which Eastern expects to be finalized a week from now, contributed to the bank’s higher third-quarter net income.
“Our results continue to demonstrate our robust capital position and the strength of our franchise. We are confident in our earnings capacity and remain focused on long-term shareholder value, and the increase in our quarterly dividend is further evidence of that confidence and commitment,” Eastern’s Chairman and CEO Bob Rivers said in a statement.
Excluding the impacts of the insurance business sale, net interest income declined to $137.2 million from $141.6 million a quarter ago, while net interest margin also slid to 2.77 percent from 2.8 percent in the last quarter. Eastern had the same experience as other banks where the cost of funding accelerated faster than yields on loans in a high-interest rate environment.
Total deposits went down to $17.4 billion from $18.2 billion quarter-on-quarter as the bank experienced a seasonal decrease in municipal deposits of $375 million as well as a $306 million decrease in high-cost brokered deposits.
Total loans remained mostly flat, only decreasing by $43 million and ending at $13.9 billion. Rivers said during the bank’s earnings call that loan customers remained cautious in lending due to the higher loan rates.
Total assets were reduced to $21.1 billion from $21.6 billion the last quarter.
