Eastern Bank to buy $80m in monthly loans from Embrace

Eastern Bank has reached an agreement with Rhode Island-based Embrace Home Loans to purchase about $80 million in loans each month as the bank seeks to reduce its securities portfolio.

Boston-based Eastern Bank has outsourced its loan processing to Embrace Loans since 2016, Eastern Bank chief financial officer Jim Fitzgerald said during the bank’s second-quarter conference call. Thanks to a new flow agreement with the mortgage company, he said, Eastern will now use monthly cash flows from its securities portfolio to purchase loans from Embrace Loans. These 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 securities totaled $8 billion at the end of the second quarter, down 3% from the first quarter, mainly due to falling market values, the bank said in its second quarter earnings release. trimester. The balance sheet also contained cash and cash equivalents of $369 million.

The bank had sought to reduce the size of its securities portfolio over the past year, Fitzgerald said, considering a few options before closing the stream deal with Embrace.

Fitzgerald said the program just kicked off in July and he doesn’t expect the deal to have a material impact on the third-quarter balance sheet.

“Our initial plan here is to get started, see what happens, make sure it works out well for us and Embrace,” Fitzgerald said in response to an analyst’s question about how much the bank plans to pay. add to its residential portfolio over the next. year. “We expect that we will let this go for the next two months, maybe until the end of the year, and we would reassess, and obviously Embrace would have to reassess 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 of the current Eastern 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 near the Eastern market.

The deal won’t change Eastern’s credit appetite, Fitzgerald said, noting the high credit quality of Eastern’s existing residential portfolio.

“Expectation, belief and trust is that [with] these mounts, credit quality will look like our own portfolio, minus the fact that they’re not just from Massachusetts,” Fitzgerald said.

Eastern’s residential portfolio totaled $1.99 billion as of June 30, and the bank also had a consumer real estate 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 reported net income of $51.2 million in the second quarter, or $0.31 per diluted share, compared to net income of $51.5 million, or $0.30 per diluted share, in the first quarter. quarter of 2022. Eastern Bank had completed its acquisition of Century Bank in November 2021. .

Total assets stood at $22.4 billion at the end of the second quarter, down 2% from the first quarter. Fitzgerald attributed the drop in part to the April transfer of Century Bank’s former 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 considering its organic growth.

“After a period of a few years where we were very busy with both the IPO and the integration of Century, really having a cleaner year, if you will, full and complete focus on continuing to build capabilities of the organization is really just a tremendous opportunity for us that we’re taking advantage of,” Rivers said.

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