Is Eastern Insurance Up For Sale?

Eastern Insurance Is Massachusetts’s Third-Largest Insurance Broker

Eastern Bank has engaged global investment bank Piper Sandler to explore a potential sale of its insurance brokerage unit Eastern Insurance, according to a report last week from The Insurer. With around $100 million in annual revenue, Eastern Insurance ranks among Massachusetts’s largest independent insurance agencies.

Eastern Insurance Group, LLC is a wholly-owned subsidiary of Eastern Bank. The agency’s origins, however, date from almost 20 years ago, when in 2002 the Eastern Bank acquired the Allied American Agency, Inc. from the Arbella Insurance Group. From 2004 through 2022, the Insurance Group experienced exponential growth evolving into Massachusetts’s third-largest insurance broker and the 39th largest in the country as of 2022 and is now considered a steady profit driver for the regional lender.

This growth primarily stems from the Group’s 37 acquisitions of various independent insurance agencies across the state over the past 20 years, with deal sizes ranging from under $1 million to as high as $17 million. For example, just this year, Eastern Insurance notched two more agency acquisitions, with the additions of the Michals Insurance Agency and the John T. Burns Insurance Agency. While the Insurance Group continues to consolidate market share in Massachusetts, it now appears, however, that Eastern Bank is open to cashing out of the insurance brokerage business.

As for Eastern Insurance’s leadership, in 2022, the Insurance Group announced the appointment of Timothy J. Lodge to President and CEO of Eastern Insurance as part of its succession planning. For those interested in learning more about Mr. Lodge, please refer to our May 2022 interview with him entitled, “21 Facts About Eastern Insurance’s New President.“

Accepting Bids

Piper Sandler was said to be soliciting bids for Eastern Insurance last week from private equity firms and other potential acquirers. A sale could fetch a substantial premium given the scarcity of independent insurance brokerages with significant scale.

The potential sale comes as Eastern Bankshares, the parent company of Eastern Bank, reported stronger second-quarter results on the back of its own restructuring initiatives.

Eastern Bankshares Benefits from Balance Sheet Overhaul

Eastern Bankshares (NASDAQ: EBC) posted stronger second-quarter results as the regional lender’s balance sheet restructuring earlier this year continues to pay dividends.

The Boston-based company reported Q2 net income of $48.7 million, rebounding from a $194 million loss in the first quarter. Excluding one-time items, Eastern’s operating profit came in at $45.3 million, down from $61.1 million last quarter.

Behind the swing back to profitability was Eastern’s decision to unload $1.9 billion of securities in Q1 to reduce wholesale borrowings and free up capital for new lending. That move resulted in a $280 million loss but is now boosting net interest income.

“Our second quarter results show the tangible benefits of the balance sheet repositioning completed in the first quarter,” said CEO Bob Rivers in the earnings release.

Specifically, Eastern’s net interest margin expanded by 14 basis points to 2.80% last quarter as higher-yielding assets replaced securities. Total loans also increased 2.1% from the prior period to $14 billion, funded in part by the securities sale proceeds.

Just as importantly, Eastern slashed its reliance on wholesale funding down to less than 5% of assets. Analysts had criticized the bank for a bloated securities portfolio generating paltry returns.

Shedding those bonds shrinks capital tied up in low-yield assets while providing dry powder to expand lending. The question now is whether Eastern can sustain stronger loan growth as the economy slows.

But for the moment, the bank looks better positioned to weather a downturn after proactively reworking its balance sheet. With asset quality still solid, Eastern seems poised to deliver improving profits over the back half of 2023.

Q2 results affirmed Eastern’s repositioning is having the desired effects. By biting the bullet on a restructuring charge last quarter, the bank has set itself up for margin expansion and earnings recovery from here.

While not directly related to the balance sheet restructuring, the potential sale of Eastern Insurance does fit into a broader streamlining at Eastern Bankshares. Shedding the brokerage unit would allow Eastern Bankshares to focus on its core banking business and redeploy capital from the sale into other areas.

With its balance sheet now rightsized and non-core assets on the block, Eastern Bankshares appears to be undertaking a strategic overhaul to boost performance. The payoff is already being realized in improved Q2 results, with more benefits likely on the horizon.

Agency Checklists will strive to keep our readers informed as to any further developments on a potential sale.