In a major culture shift, Eastern Bank prepares to go public

The nation's largest mutually owned bank traces it roots back two centuries to Salem.

Boston, MA - 3/27/20 - Bob Rivers, CEO of Eastern Bank poses for a portrait in his office on March 27, 2020. Rivers says despite the empty office, they are still very busy during the COVID-19 epidemic. (Blake Nissen/ For The Boston Globe) Reporter: Topic: Blake Nissen/The Boston Globe

Can Bob Rivers bring Boston its next big, independent bank?

We’re about to find out: The Eastern Bank chief executive told his 1,800-plus employees on Thursday that the Boston-based mutual bank has filed a prospectus to go public with the Securities and Exchange Commission, detailing plans to raise as much as $2 billion.

A dive into the public markets represents a surprising culture shift for the country’s largest mutual bank. Perhaps no one has extolled the virtues of being a mutual bank more than Rivers.

Not having to answer to public shareholders allowed Rivers to focus some of Eastern’s resources on causes that can have a powerful impact on the region: championing LGBTQ rights, boosting early childhood education, investing in Black-owned businesses in Boston, lending to underserved Latinos in Lawrence.

Much was made possible by Eastern’s longstanding practice of hiving off 10 percent of its annual profits to its charitable foundation. (Eastern reported $135 million in net income last year, on $594 million in revenue.) The size of this annual contribution will likely shrink once Eastern converts from a mutual bank to a publicly traded one.

So why is Rivers doing it? One word: growth. Not growth at any cost, he says, but the growth that can support the digital transformation he believes needs to happen for Eastern to better serve its customers.

Rivers has had to cool his heels as other banks in eastern New England came up for sale over the past five years. As a mutual bank, Eastern has limited capital for acquisitions. (Its last purchase was in 2014: Centrix Bank & Trust, in southern New Hampshire, for $134 million.) Rivers instead relied on organic growth, driving business through the bank’s existing footprint of 89 branches and 23 insurance offices.

Eastern now has more than $12 billion in assets. But it has been a slow march to get to this point. With a 2.4 percent market share in the Boston metro area, Eastern still has plenty of room to grow. Rivers has come around to the fact that to get much larger, he will need outside capital.

First, though, the insiders will get a crack. The initial public offering, expected this fall, will allow qualified Eastern depositors the first opportunity to buy shares, followed by employee retirement plans. Then employees, directors, corporators. The share price will be fixed at $10. The IPO could raise between $1.3 billion and $2 billion, depending on how many shares are sold.

Rivers maintains the IPO will allow the bank to continue to serve its communities at the same level, or make even bigger investments. Here’s how: Eastern’s foundation will get 4 percent of the IPO proceeds, estimated at $60 million. That one-time injection will bring its assets to $180 million, or thereabouts — enough to throw off at least $9 million a year for grants and other good deeds in perpetuity.

Then there are the donations Eastern will continue to make out of its operations, albeit at an unspecified reduced level, as a public company. Getting bigger, Rivers said, will give Eastern more clout and financial muscle.

That’s great. But there’s one inevitable downside to going public: State rules allow banks to be sold to a bigger acquirer three years after an IPO. This potential windfall has enticed some mutual bank executives in the past, allowing them to cash out with a nice retirement.

Rivers says selling the bank is the last thing on his mind. He’s 55, and has no plans to leave. But he concedes he eventually will be duty-bound to consider offers from bigger banks.

Decades of M&A activity have left Boston without a flagship retail bank of significant size. Rivers wants to fill that hole. The last to go was Fleet, swallowed by Bank of America in 2004. BofA chief Brian Moynihan, a former Fleet exec, lives here, but the bank is headquartered elsewhere. Santander’s US arm is based here, but it’s part of a Spanish conglomerate. Several top Citizens executives are here, too, but the bank is run out of Rhode Island. And while State Street technically remains a big bank, it has long forgone traditional banking to focus on the money management industry.

Two other local banks, Berkshire and Rockland Trust (both public), are around Eastern’s size today. If the public markets help Eastern become a dominant player in Boston’s banking circles, it would be an unexpected evolution for a company with modest North Shore roots. The bank started as a mutual savings bank in Salem, in 1818. Its modern incarnation as Eastern was formed when First East Bank of Lynn merged with Salem Savings in 1981. The relocation to Boston didn’t happen until 2000.

Assuming regulators and the bank corporators approve the IPO plan, two centuries of mutual ownership are about to end.

The bank’s independence should remain intact. There are no guarantees, of course — particularly not when an attractive banking franchise in an attractive market becomes available to potential acquirers.

But if Rivers has his way, the IPO will put Eastern on the right path to thrive for the next two centuries. For Boston’s sake, let’s hope he is right.