When Eastern Bank completes its planned initial public offering later this year, it will go from being the country’s oldest and largest mutual bank to a stock bank. 

And this transformation will affect more than the place the Boston-based bank, which entered the New Hampshire market in 2014 when it bought Centrix Bank & Trust, holds in in the banking landscape. It could reverberate throughout the state’s banking industry. 

With Eastern Bank planning to use some of the capital raised from the public offering on technology, community banks could face even more pressure to keep up, particularly as the pandemic has accelerated customers’ adoption of digital banking. Because Eastern also plans to look for mergers and acquisitions, some banks could decide to put themselves up for sale.  

As the coming years likely see more acquisitions and a changing banking landscape, another possibility looms – that Eastern could decide to sell itself.  

All this potential consolidation could leave a void in communities still accustomed to the bank’s presence, a void the remaining mutual banks and credit unions could fill. 

“There’s good news for the mutuals that are the next tier below Eastern in size,” said Arthur Loomis, president of Loomis & Co., a New York-based investment bank that works extensively with community banks in the Northeast on mergers and acquisitions. “Mutuals will be the long-term survivors. It won’t be the shareholder-owned ones because they’re going to gradually all be acquired.” 

Technology Push Planned 

Eastern had total assets of $12.34 billion as of March 31, deposits of $10.3 billion and net loans of about $9 billion. Year-to-date net income through March 31 was $8.64 million, and $135.43 million for all of 2019. 

The portfolio includes $6.4 billion in commercial loans and $2.5 billion, in residential, according to a filing with the Securities and Exchange Commission. It also participates with other lenders in $1 billion worth of other loans. 

Eastern declined to speak to The Registry Review, citing regulatory restrictions. But in its securities filing, the bank said its public offering was necessary to position the bank for what its leaders believe will be a rapidly evolving competitive landscape.  

“As we anticipate the competitive landscape that will emerge after our economy recovers from the negative impacts of the COVID-19 pandemic, we believe the most significant systemic challenge we will face is the accelerating pace of technological change driven by ubiquitous digital adoption by both consumer and commercial banking customers,” Eastern said. “We believe this trend has greatly amplified the importance of scale in banking, and the increasing benefit of scale exacerbates the challenge of competing with significantly larger banks and large information technology and e-commerce companies.” 

By raising capital, Eastern would have opportunities to work with financial technology firms on implementing newer products, including offerings banks and consumers didn’t realize they needed before the pandemic, said Kevin Olsen, senior vice president of payment solutions at the financial software company VSoft. 

“I really applaud them for what they’re doing,” Olsen said. “I think it’s awesome to see, and I expect great things to come out of it, but in a short period of time.” 

Eastern also plans to use the capital to offer relief for borrowers affected by COVID–19, it said. Long-term, the bank said it wanted to pursue profitable loan and deposit growth.  

Pressure on Smaller Banks 

More capital and status as a stock bank would also make Eastern more competitive when bidding for mergers and acquisitions, the bank said in its filing. Eastern’s last purchase was the 2014 Centrix deal and due to restrictions on mutual banks, has made only limited acquisitions in the last 20 years. 

David Bishop, a senior vice president and senior research analyst with D.A. Davidson who covers Northeast stock banks like United Bank, said now might be a good time for a bank like Eastern to enter the market to generate a significant amount of capital.  

Eastern’s existing technological lead and new investments fueled by the conversion could position it well for acquisitions. As banks assess the effects of the pandemic, including their digital offerings, Bishop said, they could seek out mergers, especially since the interest rate environment will continue to squeeze banks’ margins and limit technology investments they could make on their own. 

“I think Eastern will be in good shape to be acquisitive in the next couple of years,” Bishop said. 

Banks must wait three years after going public before being sold. Research by Compass Point Managing Director Laurie Havener Hunsicker shows that of 733 conversions since 1990, excluding mutual holding companies, 81 percent of those that were eligible ended up being sold. She added that sales happen on average five-and-a-half years after the initial public offering. 

Loomis also said that Eastern Bank could end up selling itself, bulking up its size through acquisitions, perhaps even outside its region, before being acquired by another bank.  

Loomis said he was surprised by Eastern’s decision to go public, noting that mutual banks do not have to worry about shareholder returns and have more control over their destinies. Being a stock bank will also give Eastern more opportunities to do stock transactions during mergers and acquisitions. 

As more stock banks get acquired, Loomis said this could offer the state’s remaining mutual banks opportunities to thrive in their markets. New Hampshire offers an example, he said. Almost all of the state’s stock banks have been acquired at this point, leaving opportunities for Bank of New Hampshire and the banks in the New Hampshire Mutual Bancorp. family to focus on the local market.