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After a record year for commercial loan originations, Boston-based Eastern Bank expects slower loan growth in 2023 and plans to make broad-based reductions in operating expenses.
In its second full year as a publicly traded bank and its first year after acquiring Century Bank, Eastern Bank had record net income in 2022 of $199.76 million, or $1.21 per diluted share, up 29 percent compared to 2021, when net income was $154.66 million, or $0.90 per diluted share.
The bank’s fourth quarter net income was $42.3 million, or $0.26 per diluted share, compared to net income of $54.8 million, or $0.33 per diluted share, in the third quarter. Net income in the fourth quarter of 2021, when the bank acquired Century Bank, was $35.09 million.
Eastern had total loans at the end of the fourth quarter of $13.6 billion, up $671.6 million, or 5 percent, from the third quarter.
Eastern Chairman and CEO Bob Rivers said during the bank’s fourth quarter earnings call on Friday that Eastern had record commercial loan and home equity originations in 2022. For 2023, Rivers said higher interest rates and a softening economy would reduce loan demand. The bank expects commercial loan growth in the low single digits.
“Given the current environment, as we look into 2023, we are prioritizing profitability over growth,” Rivers said.
This change in focus includes a reduction in the bank’s operating expenses. The bank in its third quarter investor presentation had an early outlook for operating non-interest expenses, a non-GAAP measure, between $490 million to $510 million, citing plans to invest in growth through technology and staff.
The bank’s outlook now calls for $465 million to $475 million in operating non-interest expenses. In response to an analyst’s questions about the reduction, Eastern’s chief administration and chief financial officer, Jim Fitzgerald, cited the changing economy.
“2022 was a very strong year for the company; we were on a very good growth path,” Fitzgerald said. “The environment changed.
The reductions in expenses will come “from basically everywhere,” Fitzgerald said. The bank plans to pull back from growth plans, he said, and will take other measures, including general belt-tightening and reviewing branches and other real estate. He said the expense reductions were ongoing.
Eastern had total assets of $22.6 billion at the end of 2022, up 3 percent from the end of the third quarter. Deposits totaled $19 billion, up 1 percent from Sept. 30. The bank added to its brokered certificates of deposit to help fund loan growth and had $928.6 million at the end of 2022 in brokered CDs.
Despite the shift in focus away from growth, Rivers said in response to an analyst’s question that the bank remains open to mergers and acquisitions of both banks and insurance companies, particularly deals within or adjacent to its footprint.
“If other opportunities fall outside of that geography and they come along, we’ll continue to take a look,” Rivers said. “We have in the past – we tend to be less interested in those for a number of reasons – but certainly we will consider those.”
