Eastern Bank has been a mutual holding company in Massachusetts since 1818
The mutual holding company of Eastern Bank and Eastern Insurance, the Eastern Bank Corporation, has announced plans that it will go public. Founded in 1818 as a local savings bank, Eastern Bank has functioned as a mutual holding company for 202 years. The company’s main two business segments include banking and insurance agency operations with consolidated total assets as of March 31, 2020, totaled $12.3 billion.
According to a company announcement, the Board, in a unanimously approved plan, voted to convert the company into a fully public stock holding company to be known as Eastern Bankshares, Inc. As part of the conversion to a public traded company, Eastern will donate a 4% equity interest of Eastern Bankshares to its Charitable Foundation. The company says that the company has historically donated an average of 10% of its net income each to charitable giving.
“We are proud of Eastern Bank’s history as the oldest and largest mutual bank in the United States and our enduring commitment to our customers, colleagues, and communities,” said Bob Rivers, Chair and CEO of Eastern Bank.
The company emphasizes that the conversion and stock offering will have no impact on the depositors, borrowers or other customers of Eastern Bank. It also notes that the transactions contemplated by the Plan of Conversion are subject to approval by the Board of Governors of the Federal Reserve System, the Massachusetts Commissioner of Banks and the corporators of Eastern Bank Corporation.
Mr. Rivers added, “The conversion also provides an opportunity to build upon the incredible commitment of our depositors, employees, corporators and community partners. We want to express our greatest appreciation to them and look forward to making this offering available. I am confident that Eastern’s dedication to building lasting relationships with our customers, colleagues and communities will remain as strong as ever after the conversion.”
Eastern states that initially the capital it raises from going public will be mainly used to “to better serve its customers and communities by making additional loans to businesses and consumers, investing in new technology and delivery systems to enhance existing or the development of new products and services, and supporting the advancement of its employees.”
The company goes on to say that the additional capital will allow it “…to pursue strategic growth opportunities primarily by acquiring other banking and insurance agency businesses as opportunities arise.” Eastern Insurance says that it typically acquires “smaller insurance agencies in existing and adjacent markets.”
Eastern Bank is planning a special meeting of Eastern’s corporators for later this summer with the expectation that the conversion will be completed by the end of 2020.
The SEC filing details Eastern Insurance’s $124 million acquisition strategy to reach over $90 million in commissions
Eastern Insurance Group LLC and Eastern Benefits Group are both wholly-owned subsidiaries of Eastern Bank. As measured by revenue, Eastern Insurance Group LLC states that it is the third-largest insurance agency in Massachusetts, the twenty-fourth largest insurance agency in the United States. It is also the third-largest insurance agency in the United States owned by a banking company.
According to one section of the filing with the Securities Exchange Committee, Eastern Insurance generated insurance commission income for the year ending December 31, 2019, of $90.6 million, or 49.7% of the bank’s non-interest income. However, in a later section of the filing, the 2019 income for the agency is stated as $92.7 million. The agency’s operating expenses for 2019 are listed as $79 million. As of March 31, 2020, Eastern Insurance had generated $27.5 million in commission income for the first quarter. The agency’s first-quarter result generated 82.3% of the bank’s non-interest income for the quarter.
Eastern Bank acquired the Allied American Insurance Agency, Inc. in 2002 from the Arbella Insurance Group. After rebranding the company as Eastern Insurance, the newly named insurance agency focused on growth. Per the filing, during the 14 year period from 2004 to 2018, Eastern Insurance acquired thirty-one independent insurance agencies having an average revenue of $1.4 million for an aggregate price of $124.9 million.
The purchase prices that Eastern Insurance paid for these agencies ranged from less than $1 million to $17.1 million, with the average purchase price placed at approximately $3.9 million. As stated on p. 108 of the filing, the revenue from these acquired agencies ranged from less than $1 million to $10.1 million, with the average revenue calculated to be about $1.4 million.
The company’s filing also discloses that during a specific five-year period, ending in December 2019, it acquired 12 different independent insurance agencies. Each of the 12 agencies had an average purchase price of $3.3 million with an average annual commission revenue of $1.4 million.
Presently, the agency operates twenty-two non-branch offices throughout Eastern Massachusetts in addition to one office in Keene, New Hampshire, as well as another one located in Providence, Rhode Island. As of March 31, 2020, Eastern Insurance serviced its locations and business with 411 full-time equivalent employees.
Looking forward, the company says that it expects to use a portion of the proceeds from its $1.2 billion public offering to fund additional independent insurance acquisitions by Eastern Insurance.
In reviewing the materials on Eastern Banks plans, it is clear that Eastern Insurance and its future within the contemplated public entity will play an important part in any future growth.
