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Changes to its outlook for liquidity has led Eastern Bank to discontinue a program launched in July that reduced its securities portfolio by purchasing mortgages.
Boston-based Eastern Bank plans to stop using the monthly cash flow from its securities portfolio to purchase loans from Embrace Home Loans, Eastern Bank’s Chief Financial Officer Jim Fitzgerald said during the bank’s third quarter earnings call. The bank had started purchasing loans from Embrace Home Loans in July.
“Although the program was working well, the challenging outlook for deposits and liquidity has reduced our appetite,” Fitzgerald said.
Eastern Bank, which started outsourcing its loan processing to Embrace Home Loans in 2016, had set up a flow agreement with the Rhode Island-based mortgage company to use monthly cash flow from Eastern’s securities portfolio to purchase loans from Embrace. Those loans were added to Eastern’s balance sheet as part of its residential loan portfolio.
During the bank’s second quarter earnings call in late July, Fitzgerald said the cash flow from the securities portfolio totaled $80 million per month. Even in July, Fitzgerald had said the bank would evaluate the program after a few months to see how it was working for both Eastern Bank and Embrace.
Fitzgerald said in today’s call that the bank had a different outlook for liquidity earlier in the year when it decided to purchase Embrace’s loans. Eastern, which is also servicing the loans, will continue to purchase mortgages already in the pipeline. Fitzgerald said the pipeline should close in 90 days.
Eastern had purchased loans from Embrace totaling $77.7 million as of Sept. 30, according to the bank’s third quarter earnings statement.
Fitzgerald said in response to an analyst’s question that Eastern Bank expects to continue to reduce its securities portfolio by receiving the cash flow, which he said is $800 million per year, and use that money to fund loans.
Eastern Bank had total loans at the end of the third quarter of $12.9 billion, up $505.3 million, or 4 percent, from the end of the second quarter. The bank had loan growth in all major categories, and Eastern CEO Bob Rivers said the bank had record commercial and home equity loan production during the quarter.
Eastern Bank had third quarter net income of $54.8 million, or $0.33 per diluted share, compared to net income of $51.2 million, or $0.31 per diluted share, in the second quarter of 2022. Before Eastern Bank completed its acquisition of Century Bank in November 2021, the bank had third quarter 2021 net income of $37.1 million, or $0.22 per diluted share.
Fitzgerald declined to disclose the current loan pipeline in response to an analyst’s question, but noted that the pipeline entering the fourth quarter was similar to what the bank had in the third quarter. While Eastern expects loan activity to slow down in 2023, Fitzgerald had a positive long-term outlook for the bank.
“Although we expect the environment to be challenging in 2023, we’re confident that we are well-positioned in an excellent market for long-term growth,” Fitzgerald said.
