What happened
Shares of Eastern Bankshares (EBC 1.00%) traded roughly 11% lower as of 12:07 p.m. ET today after the bank reported earnings results for the fourth quarter of 2022.
So what
Eastern reported diluted earnings per share of $0.26 on total revenue of $194.5 million, both numbers that missed earnings estimates for the quarter.
The culprit for the sell-off, however, looks to be more broadly tied to increased funding costs that Eastern, as well as much of the industry, has been dealing with. The interest rate that Eastern pays on its total deposits rose from 0.10% in the third quarter to 0.37% in the fourth quarter, as the Federal Reserve's interest rate hikes started to more significantly impact the industry.
Eastern saw outflows in its lower-rate deposit products and then brought on higher-cost deposits and borrowings, which is what led to the decline in the bank's margin. But Eastern also saw healthy loan growth in the quarter, growing total commercial loans by 3% and total loans by 5% from the third quarter, so the basis for bringing on this higher funding may have been to fund the loan growth.
Eastern's guidance, however, remains uncertain. Commercial loan growth for this year is only expected to be in the low-single-digit percentage range, and the bank said to expect further margin pressure until funding stabilizes.
Now what
All banks are currently facing funding challenges as the high-rate environment starts to really hit the economy, and Eastern is not immune. While the industry is in uncharted waters and nobody really knows how fast deposit costs will rise over the next few quarters, Eastern has historically had an extremely strong deposit base. I still really like this stock long term.
