Eastern Bank has entered into an agreement with Rhode Island-based Embrace Home Loans to purchase about $80 million in loans each month as the bank looks to reduce its securities portfolio.
Boston-based Eastern Bank has outsourced its loan processing to Embrace Loans since 2016, said Eastern Bank Chief Financial Officer Jim Fitzgerald during the bank’s second quarter conference call. Through a new flow agreement with the mortgage company, he said, Eastern will now use monthly cash flow from its securities portfolio to purchase loans from Embrace Loans. Those loans will be added to Eastern’s balance sheet as part of its residential loan portfolio.
Fitzgerald said the bank’s goal is to reduce its securities portfolio by about $80 million each month. Eastern’s securities totaled $8 billion at the end of the second quarter, down 3 percent from the first quarter, due mainly to lower market values, the bank said in its second quarter earnings statement. The balance sheet also held cash and cash equivalents of $369 million.
The bank had been looking to reduce the size of its securities portfolio during the past year, Fitzgerald said, considering a few options before entering into the flow agreement with Embrace.
Fitzgerald said the program just started in July, and he does not expect the agreement to have much of an impact on the third quarter balance sheet.
“Our initial plan here is to just get started, see what happens, make sure it’s working well for both ourselves and Embrace,” Fitzgerald said in response to an analyst’s question about how much the bank plans to add to its residential portfolio over the next year. “Our expectation is we would let this go for the next couple of months, maybe through the end of the year, and we would reevaluate, and obviously Embrace would have to reevaluate as well.”
In addition to purchasing the loans for its balance sheet, Eastern will service the mortgages. Some of the loans will be made outside Eastern’s current market of Massachusetts, New Hampshire and Rhode Island. In response to an analyst’s question, Fitzgerald said the loans would be made on the East Coast, with most occurring close to Eastern’s market.
The agreement will not change Eastern’s credit appetite, Fitzgerald said, noting the high credit quality of Eastern’s existing residential portfolio.
“The expectation and belief and confidence is that [with] these originations, the credit quality will look like our own portfolio, absent the fact that they’re not just from Massachusetts,” Fitzgerald said.
Eastern’s residential portfolio totaled $1.99 billion on June 30, and the bank also had a consumer home equity portfolio of $1.15 billion.
Eastern’s total loans were $12.4 billion, up $216.5 million from the first quarter. Deposits totaled $19.2 billion in the second quarter, down $229 million from the first quarter.
Eastern Bank had second quarter net income of $51.2 million, or $0.31 per diluted share, compared to net income of $51.5 million, or $0.30 per diluted share, in the first quarter of 2022. Eastern Bank had completed its acquisition of Century Bank in November 2021.
Total assets were $22.4 billion at the end of the second quarter, down 2 percent from the first quarter. Fitzgerald attributed the decrease in part to the April transfer of the former Century Bank cannabis business to Needham Bank.
In response to an analyst’s question, Eastern Bank CEO and Chairman Bob Rivers said the bank remains interested in opportunities to make another acquisition. But he added that Eastern is also looking at its organic growth.
“After a period of a couple years where we were very busy with both the IPO and the integration of Century, to really have a year that’s cleaner, if you will, to focus fully and entirely on continuing to build the organization’s capability is really just a tremendous opportunity for us and one that we’re taking advantage of,” Rivers said.
