Capital Increase Pegged At Minimum Of $1.3 Billion
June 19, 2020
Boston-based Eastern Bank, the oldest and largest mutual bank in the United States, is going public. Its Board unanimously approved a plan to convert to a fully public stock holding company, which will be known as Eastern Bankshares Inc.
Based upon the valuation range in the preliminary prospectus filed with the Securities and Exchange Commission, Eastern assumes in the prospectus that the increase in its capital as a result of the conversion will range from approximately $1.3 billion to $1.7 billion. The appraisal is potentially subject to change prior to the completion of the offering based upon market conditions.
The Boston Globe reports Bob Rivers, chair and CEO of Eastern Bank, was driven by growth but he claims not growth at any cost. Rivers said Eastern needs to grow so it can “support the digital transformation he believes needs to happen for Eastern to better serve its customers.”
Rivers discussed with the Globe that this IPO in three years’ time does position Eastern to be sold to a larger bank. As the article pointed out, “This potential windfall has enticed some mutual bank executives in the past, allowing them to cash out with a nice retirement.” Rivers, who is 55, said he’s not looking to retire anytime soon, “But he concedes he eventually will be duty-bound to consider offers from bigger banks.”
Eastern now has more than $12 billion in assets. But it has been a slow march to get to this point. With a 2.4 percent market share in the Boston metro area, Eastern still has plenty of room to grow. Rivers has come around to the fact that to get much larger, he will need outside capital.
According to the Globe, Rivers cooled his heels as other banks in eastern New England came up for sale over the past five years. As a mutual bank, Eastern has limited capital for acquisitions. (Its last purchase was in 2014: Centrix Bank & Trust, in southern New Hampshire, for $134 million.) Rivers instead relied on organic growth, driving business through the bank’s existing footprint of 89 branches and 23 insurance offices.
The public offering of common stock by Eastern Bankshares that is anticipated for later this year will be made in a subscription offering to qualifying Eastern Bank depositors, Eastern tax qualified employee plans, and Eastern employees, directors and corporators. Depositors of Eastern Bank with qualifying deposits on March 29, 2019 will have priority, and depositors with qualifying deposits on March 31, 2020 will have second priority. The initial share price will be $10.
Shares not purchased in the subscription offering may be offered for sale to the general public in a “community offering,” with a preference given to residents of the communities served by Eastern Bank.
As part of the conversion, Eastern will make a one-time stock donation to the Eastern Bank Charitable Foundation. At the closing of the offering, the foundation will own 4% of the shares of Eastern Bankshares common stock then outstanding. The donation is expected to increase the size of the foundation’s endowment by approximately 50% to nearly $180 million, based upon the mid-point of the offering valuation range.
Since its founding in 1999, the foundation has exceeded more than $140 million. In 2019, the the foundation granted approximately $9.5 million in 1,500 grants towards local efforts addressing employment, education, health care, housing, childcare and other basic human services. In 2020 to date, the foundation has provided $8 million in total COVID-19 philanthropic financial support to the community.
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. A special meeting of Eastern’s corporators is expected to be held during the summer. It is anticipated that the conversion will be completed by the end of 2020.
The Bottom Line
Most financial institutions have tremendous excess capacity in their existing branches today.