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Why This Small Bank Stock Is Surging Today

By Bram Berkowitz - Apr 8, 2021 at 11:59AM

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The bank last night announced an acquisition, representing a big shake-up in its local banking scene.

What happened

Class A shares of Century Bancorp (CNBKA), a $6.3 billion asset bank in the Boston area, jumped nearly 25% in the late morning today after the company announced that it plans to be acquired by Eastern Bankshares (EBC 1.57%).

So what

Eastern plans to acquire Century for roughly $642 million in cash, or the equivalent of $115.28 per Century share. The deal values Century at 175% tangible book value (equity minus goodwill and other intangible assets).

In doing so, Eastern will grow to roughly $22 billion in assets and cement its place as the top community bank deposit holder in the Boston metropolitan statistical area.

Two men shaking hands superimposed over a cityscape

Image source: Getty Images.

The purchase price will dilute Eastern's tangible book value by 9%, which it expects to earn back in roughly four years. However, it expects the deal to be 55% accretive to earnings per share by 2022. Eastern expects to eliminate 45% of Century's costs. Eastern also announced a 33% increase to its quarterly dividend at the same time of the deal.

Now what

I was certainly surprised to see Century Bancorp, the largest family-run bank in Massachusetts, decide to sell. But the bank's founder, Marshall Sloane, passed away in 2019.

The deal looks expensive considering what Century brings to the table, and it is fairly dilutive because it's an all-cash deal. But after raising $1.8 billion in an initial public offering six months ago, Eastern had been champing at the bit to make an in-market acquisition, and there are only so many potential targets out there.

The deal also brings substantial cost savings, and hopefully some revenue opportunities, and will ultimately make Eastern more profitable down the line because it allows the bank to gain scale. Shares of Eastern traded down roughly 1.2% as of 11:20 a.m. EDT.

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Stocks Mentioned

Century Bancorp, Inc. Stock Quote
Century Bancorp, Inc.
Eastern Bankshares, Inc. Stock Quote
Eastern Bankshares, Inc.
$18.81 (1.57%) $0.29

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