The newly public Eastern Bankshares (NASDAQ:EBC) just released its third-quarter earnings results, and they're one more reason I'm bullish on this $14 billion asset bank. Eastern's stock is already up more than 40% in a little over a month of trading, and there should be more room to run. Here's why.
The Boston-based Eastern turned a profit of $28.5 million in the third quarter. That's down about 20% from the same period of 2019, but still very solid when you consider what the coronavirus pandemic has done to the banking sector and the ultra-low-rate environment that is cutting into banks' loan margins. And that same low-rate environment has brought down Eastern's cost of deposits to just 0.12% at the end of the third quarter, which is superb.
The bank's credit quality is also holding up exceptionally well. Net charge-offs (debt unlikely to be collected) only made up 0.07% of total average outstanding loans on an annualized basis, and is only up four basis points from the third quarter of 2019. Non-performing loans, those that are more than 90 days past due, made up 0.45% of total loans and are down year over year.
The only part of Eastern that concerns me a little bit right now is the bank's coronavirus-related loan deferrals. At the end of the third quarter, 7.1% of Eastern's total loan book was still on some kind of deferral program, and the majority of those were in the hard-hit retail, restaurant, and hotel industries. That's down from 9.5% at the end of the second quarter, but I was hoping to see a sharper decline. At the end of the third quarter, some of Eastern's competitors like Independent Bank Corp. (NASDAQ:INDB) only had 6.2% of its total loan book on deferral. Brookline Bancorp (NASDAQ:BRKL) only had 3.8% of its loan book still on deferral, and Berkshire Hills Bancorp (NYSE:BHLB) only had 5% on deferral.
The good news is that most of these deferral programs expire by the end of the year, so we'll have a better idea of where that pool of loans stands next quarter. Additionally, Eastern took a pretty small credit provision for future potential loan losses in the third quarter, and the total allowance for future loan losses as a percentage of total loans actually declined. That could mean the bank has already set aside reserves for potential losses it expects to materialize from the deferral bucket, although it's hard to know for sure.
Lots going for it
Because of Eastern's unique corporate structure as a mutual bank before going public, the bank's offering price of $10 per share priced it at a huge discount. Trading at $14.16 per share at Thursday's close, the stock is still below tangible book value. The investment bank and research firm Keefe, Bruyette & Woods, which recently initiated coverage on the bank, estimates the bank's tangible book value per share to be roughly $15.85.
Eastern's stock should continue to tick up as more analysts initiate coverage and as it approaches the first anniversary of its IPO, which is when it could potentially launch a stock buyback program. A few things to keep an eye on are obviously the bank's remaining loan deferrals, and any mergers or acquisitions. Eastern's CEO, Bob Rivers, has expressed interest in using IPO proceeds to buy another bank, which can be tricky to pull off. But with a great deposit franchise, very good credit, and solid earnings, it's hard not to see a bright future for the bank.