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Eastern Bank in Boston has not been much of an acquirer in recent years, but that could change under its new chairman and chief executive, Richard E. Holbrook.
January 9
It would be easy to declare Eastern Bank Corp.'s deal for Wainwright Bank and Trust Co. in Boston a turning point.
Community bankers have been thirsting for more merger and acquisition activity, and Eastern's announcement Tuesday of a $163 million deal for Wainwright is the second-biggest proposed bank acquisition of the year.
Yet its robust price — two times book value — and several unusual market conditions likely make the proposed sale an aberration.
"I think it's a strategic and unique transaction for Eastern Bank and Wainwright Bank, but I don't think that the pricing is an indication of a return to those lofty levels anytime soon," said John Carusone, the president of Bank Analysis Center Inc. in Hartford, Conn.
The industry's largest buyout this year was Toronto-Dominion Bank's acquisition of South Financial Group Inc. in South Carolina for $191.7 million, or 28 cents a share.
In particular, the acquisition of the $1.1 billion-asset Wainwright would fill a V-shaped void in Eastern's market in and around Boston, said Richard Holbrook, the chief executive of the $6.6 billion-asset mutual company. It's a void Eastern has aimed to fill for the past several years, Holbrook said in an interview, and Wainwright's allure grew as the list of acquisition targets shrank.
"There is scarcity value these days," Holbrook said. "There are fewer and fewer public institutions in the marketplace as consolidation continues. And Wainwright was the most attractive on our list for institutions we'd like to acquire in order to beef up our distribution network."
Another draw is Wainwright's pristine balance sheet. It has had little exposure to construction and development loans — which have caused problems for some Massachusetts companies — and holds few problem loans. As of March 31, loans 30 days or more past due accounted for just 1.2% of its total loans.
The company is a leader in lending for socially responsible development projects, a mission that Eastern shares, Holbrook said. Eastern donates 10% of its annual net income to charity, and has supported affordable housing, education and health care initiatives.
"Wainwright is almost an activist in leading the charge in some of these areas, whereas we've tended to be more low key but still supportive of the same issues," Holbrook said.
The combined company would have assets of more than $8 billion, with more than 90 branches, including 22 in the Boston area. The deal is expected to close in the fourth quarter. After a three- to sixth-month transition period, Wainwright would be absorbed by Eastern, which is the largest mutual in New England.
Wainwright's chief executive, Jan Miller, said in an interview that there's bound to be some weakening of a brand after a merger, but emphasized that Eastern plans to keep the Wainwright culture alive. That includes maintaining a social justice award for local community organizations. And Wainwright's two co-founders will serve on Eastern's board of directors.
Miller will oversee Eastern's commercial banking operations, including Wainwright's community development team, which will move to Eastern. "Clearly, the things that Eastern stands for are very similar to what we have in the past," said Miller, who also will become president of Eastern Bank Corp. "I don't think we could have found a better partner."
The deal also is a boon for Wainwright shareholders, who will receive $19 a share in the deal, a whopping 98% premium to Monday's closing price. Shares soared on the news Tuesday, closing at $18.67 after closing Monday at $9.62.
Though it's unusual for a mutual to buy a publicly traded company, for Eastern it's old hat — Wainwright would be its sixth such purchase.
Industry observers don't expect many deals like this to follow, but said the sale will be closely watched and might have some ripple effects.
Matthew Breese, an associate analyst with Sterne, Agee & Leach Inc., said that most deals between healthier banks have had a premium of 1.4 to 1.5 times book value. This deal could change pricing dynamics for banks shopping for acquisitions in the region.
"The other banks will view it as a local neighborhood comp and expect to be put on the same plane," Breese said. "This sets the bar in eastern Massachusetts a little higher."
Theodore Kovaleff, an analyst for Horwitz & Associates, said Massachusetts banks typically had high valuations before the financial meltdown, when it wasn't unheard of for a bank to fetch a price higher than three times tangible book.
"In close history, it seems very generous," he said. "But in the longer perspective, it isn't. And that could signal that things are turning around."
Breese said he doesn't expect the deal to make much of a splash outside the two companies' market.
The Northeast is uniquely positioned to be a hotbed of M&A activity, he said, given the preponderance of overcapitalized mutuals and former mutuals, which have tangible common equity ratios well above 10%, and few stressed institutions compared with the rest of the country.
"There is an abundance of capital that needs to be deployed in that market," Breese said.
