EBSB - Meridian Bancorp Inc. Announces Third Quarter 2020 Results

BOSTON, Oct. 27, 2020 (GLOBE NEWSWIRE) -- Meridian Bancorp, Inc. (the “Company” or “Meridian”) (NASDAQ: EBSB), the holding company for East Boston Savings Bank (the “Bank”), announced net income of $16.7 million, or $0.33 per diluted share, for the quarter ended September 30, 2020, compared to $19.7 million, or $0.38 per diluted share, for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, net income was $46.9 million, or $0.93 per diluted share, down from $49.9 million, or $0.97 per diluted share, for the nine months ended September 30, 2019. The Company’s return on average assets was 1.03% for the quarter ended September 30, 2020, compared to 1.24% for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, the Company’s return on average assets was 0.98%, down from 1.06% for the nine months ended September 30, 2019. The Company’s return on average equity was 8.94% for the quarter ended September 30, 2020, compared to 11.17% for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, the Company’s return on average equity was 8.50%, down from 9.60% for the nine months ended September 30, 2019.

Richard J. Gavegnano, Chairman, President and Chief Executive Officer, said, “Notwithstanding the economic impacts resulting from COVID-19, I am pleased to report net income of $16.7 million for the third quarter and $46.9 million for the first nine months of 2020. Net interest income increased significantly for the quarter and nine months ended September 30, 2020, raising the net interest margin to 3.13% and 3.07%, respectively, highlighting the successful efforts of prudent balance sheet management throughout these tumultuous times. We also continued to build our allowance for loan losses, increasing the percentage of allowance to total loans to 1.20%, compared to 0.87% at December 31, 2019. We reserved $7.2 million this quarter and $17.5 million for the nine months ended September 30, 2020 through the provision for loan losses, which represents increases of $10.1 million and $19.6 million, respectively, when compared to the same periods in 2019. These results also reflect a decline in the market valuation of our equities portfolio and decreased operating expenses, despite remaining open for our customers and adding three de novo branches during the third quarter.”

Mr. Gavegnano continued, “We continue to support our loan customers with temporary repayment modifications to assist them through the pandemic, including full payment deferrals and interest-only accommodations. We have remained in close contact with these borrowers to understand their needs as the initial modification periods come to end and we expect that most of these borrowers will be able to improve their repayment status, with many returning to either full payment or interest-only payments for an additional period. As of October 19, 2020, total COVID-19 related modifications have declined nearly 50% from those reported at June 30, 2020, a trend we anticipate to continue as the initial modifications expire.”

The Company’s net interest income was $48.8 million for the quarter ended September 30, 2020, up $1.4 million, or 3.0%, from the quarter ended June 30, 2020, and up $4.6 million, or 10.4%, from the quarter ended September 30, 2019. The interest rate spread and net interest margin on a tax-equivalent basis were 2.91% and 3.13%, respectively, for the quarter ended September 30, 2020 compared to 2.86% and 3.10%, respectively, for the quarter ended June 30, 2020 and 2.52% and 2.87%, respectively, for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, net interest income increased $12.0 million, or 9.3%, to $141.3 million from the nine months ended September 30, 2019. The interest rate spread and net interest margin on a tax-equivalent basis were 2.81% and 3.07% for the nine months ended September 30, 2020 compared to 2.52% and 2.86% for the nine months ended September 30, 2019. The increases in net interest income for the quarter and nine months ended September 30, 2020 compared to the respective prior periods were primarily due to the substantial reduction in the cost of funds.

Total interest and dividend income totaled $61.6 million for the quarter ended September 30, 2020, down $6.9 million, or 10.1%, from the quarter ended September 30, 2019, primarily due to a decrease in yield on loans on a tax-equivalent basis of 21 basis points and a decrease in yield on other interest-earning assets of 221 basis points. The Company’s yield on interest-earning assets on a tax-equivalent basis was 3.94% for the quarter ended September 30, 2020, down 12 basis points from the quarter ended June 30, 2020 and 48 basis points from the quarter ended September 30, 2019. For the nine months ended September 30, 2020, the Company’s total interest and dividend income totaled $189.8 million, a decrease of $9.5 million, or 4.8%, from the nine months ended September 30, 2019, primarily due to a decrease in the yield on other interest-earning assets of 199 basis points to 0.74%, and a decrease in the yield on loans on a tax-equivalent basis of seven basis points to 4.41% for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The Company’s yield on interest-earning assets on a tax-equivalent basis decreased 27 basis points to 4.11% for the nine months ended September 30, 2020, compared to the same period in 2019, primarily due to the increase of $168.9 million, or 51.8%, in the Company’s average other interest-earning assets to $495.1 million and a 199 basis point, or 72.9%, decrease in the yield on other interest-earning assets.

Total interest expense totaled $12.8 million for the quarter ended September 30, 2020, down $2.0 million, or 13.4%, from the quarter ended June 30, 2020, and down $11.5 million, or 47.4%, from the quarter ended September 30, 2019. Interest expense on deposits decreased to $8.7 million for the quarter ended September 30, 2020, down $1.8 million, or 17.4%, from the quarter ended June 30, 2020 and down $11.4 million, or 56.7%, from the quarter ended September 30, 2019 primarily due to a decrease in the cost of average total deposits to 0.72% from 0.88% for the quarter ended June 30, 2020, and 1.61% for the quarter ended September 30, 2019. Interest expense on borrowings totaled $4.1 million for the quarter ended September 30, 2020, down $79,000, or 1.9%, from the quarter ended September 30, 2019, primarily due to a decrease of 61 basis points in the average cost of borrowings, partially offset by an increase of $177.2 million, or 28.3%, in average total borrowings to $804.3 million. The Company’s total cost of funds was 0.90% for the quarter ended September 30, 2020, down 16 basis points from the quarter ended June 30, 2020 and down 82 basis points from 1.72% for the quarter ended September 30, 2019. Interest expense totaled $48.5 million for the nine months ended September 30, 2020, down $21.5 million, or 30.7%, from the nine months ended September 30, 2019. Interest expense on deposits decreased to $36.1 million for the nine months ended September 30, 2020, down $23.9 million, or 39.8%, primarily due to a decrease in the cost of average total deposits to 0.99% from 1.62% for the nine months ended September 30, 2019. Interest expense on borrowings totaled $12.4 million for the nine months ended September 30, 2020, up $2.4 million, or 23.8%, from the nine months ended September 30, 2019, primarily due to an increase in average total borrowings to $738.1 million. The Company’s total cost of funds was 1.16% for the nine months ended September 30, 2020, down 53 basis points from 1.69% for the nine months ended September 30, 2019.

Mr. Gavegnano noted, “Our net interest margin improved to 3.13% for the quarter and 3.07% for the nine months ended September 30, 2020, due to increases in net interest income of 10% and 9%, respectively. We have been steadfast in maintaining loan yields, with the decline in yields on excess cash reserves being the primary driver of the decline in overall asset yields. However, these declines were easily outpaced by the decrease in our cost of funds, resulting in the margin improvements in the periods presented.”

The Company’s provision for loan losses was $7.2 million for the quarter ended September 30, 2020, compared to $9.6 million for the quarter ended June 30, 2020, and a reversal of $3.0 million for the quarter ended September 30, 2019. The provision for loan losses was $17.5 million for the nine months ended September 30, 2020, compared to a reversal of $2.1 million for the same period in 2019. The allowance for loan losses was $67.6 million or 1.20% of total loans at September 30, 2020, compared to $60.5 million or 1.06% of total loans at June 30, 2020, and $50.3 million or 0.87% of total loans at December 31, 2019. The increases in the provision and coverage ratio reflect the application of economic uncertainties and market volatility caused by COVID-19 to the factors used to determine the Company’s provision.

Net charge-offs totaled $71,000 for the quarter ended September 30, 2020 compared to net charge-offs of $56,000 for the quarter ended September 30, 2019. For the nine months ended September 30, 2020, net charge-offs totaled $212,000 compared to net charge-offs of $343,000 for nine months ended September 30, 2019.

Non-accrual loans were $3.6 million, or 0.06% of total loans outstanding, at September 30, 2020, up $197,000, or 5.8%, from December 31, 2019. Non-performing assets were $3.6 million, or 0.05% of total assets, at September 30, 2020, compared to $3.4 million, or 0.05% of total assets, at December 31, 2019.

Mr. Gavegnano noted, “We have continued to build our allowance for loan losses as we assess both the short-term and long-term impacts of the pandemic on our portfolio. The increases in our provision for loan losses, and ultimately the coverage ratio, reflect the status of COVID-19 related modifications as well as the current and expected economic climate in our market. We will continue our focus on monitoring modified loans and communicating with customers as we navigate through the pandemic, providing an important component in our determination of an appropriate provision for loan losses.”

Non-interest income was $3.6 million for the quarter ended September 30, 2020, down from $8.7 million for the quarter ended June 30, 2020 and up from $2.8 million for the quarter ended September 30, 2019. Non-interest income decreased $5.1 million, or 58.7%, compared to the quarter ended June 30, 2020, due primarily to a $4.2 million gain on sale of assets realized in the second quarter of 2020 and a decrease of $1.9 million in gain on marketable equity securities, net, reflecting decreases in market valuations in the third quarter of 2020, partially offset by increases of $586,000 in mortgage banking gains, net. Compared to the quarter ended September 30, 2019, non-interest income increased $723,000, or 25.4%, due primarily to increases of $605,000 in mortgage banking gains, net and $585,000 valuation increase on marketable equity securities, net, partially offset by decreases of $235,000 in customer service fees and $172,000 in loan fees. For the nine months ended September 30, 2020, non-interest income increased $1.8 million, or 18.4%, to $11.4 million from $9.6 million for the nine months ended September 30, 2019, due primarily to a $4.2 million gain on sale of asset, and an increase of $1.0 million in mortgage banking gains, net, partially offset by a $3.3 million valuation decrease on marketable equity securities, net for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019.

Non-interest expenses were $22.8 million, or 1.41% of average assets for the quarter ended September 30, 2020, compared to $23.8 million, or 1.50% of average assets for the quarter ended September 30, 2019. Non-interest expenses decreased $1.0 million, or 4.3%, compared to the quarter ended September 30, 2019, due primarily to decreases of $1.7 million in salaries and employee benefits and $465,000 in marketing and advertising, partially offset by an increase of $682,000 in deposit insurance. For the nine months ended September 30, 2020, non-interest expenses decreased $2.3 million, or 3.1%, to $72.5 million from $74.8 million for the nine months ended September 30, 2019, due primarily to decreases of $2.5 million in salaries and employee benefits and $666,000 in marketing and advertising, partially offset by increases of $494,000 in occupancy and equipment and $461,000 in data processing. The increases in occupancy and equipment expenses and data processing include costs associated with the expansion of our branch network, including four new branches that opened in the past 12 months, three of which were opened in the third quarter of 2020. The Company’s efficiency ratio was 43.69% for the quarter ended September 30, 2020 compared to 46.79% for the quarter ended June 30, 2020 and 50.18% for the quarter ended September 30, 2019. For the nine months ended September 30, 2020 the efficiency ratio was 48.10%, a decrease of 614 basis points compared to 54.24% for the nine months ended September 30, 2019.

Mr. Gavegnano added, “We lowered our efficiency ratio to 44% and 48%, respectively, for the quarter and nine months ended September 30, 2020, due to the efforts made to limit overhead expenses throughout the pandemic. We also were able to do this while completing our most recent expansion to our branch network, opening new locations in Salem, Woburn and Brookline during the third quarter.”

The Company recorded a provision for income taxes of $5.7 million for the quarter ended September 30, 2020, reflecting an effective tax rate of 25.5%, compared to $6.5 million, or an effective tax rate of 24.8%, for the quarter ended September 30, 2019. For the nine months ended September 30, 2020 the provision for income taxes was $15.8 million, reflecting an effective tax rate of 25.1%, compared to $16.3 million, reflecting an effective rate of 24.6% for the nine months ended September 30, 2019.

Total assets were $6.567 billion at September 30, 2020, up $223.0 million, or 3.5%, from $6.344 billion at December 31, 2019. Net loans were $5.584 billion at September 30, 2020, down $113.7 million, or 2.0%, from December 31, 2019. Loan originations totaled $162.6 million during the quarter ended September 30, 2020 and $955.3 million for the nine months ended September 30, 2020. The net decrease in loans for the nine months ended September 30, 2020 was primarily due to decreases of $101.5 million in commercial real estate loans, $62.0 million in multi-family loans, $55.3 million in one- to four-family loans and $41.0 million in construction loans, partially offset by increases of $161.5 million in commercial and industrial loans and $4.1 million in home equity lines of credit. The increase in commercial and industrial loans includes the origination of $123.7 million in PPP loans. The allowance for loan losses increased $17.3 million, or 34.4%, to $67.6 million during the nine months ended September 30, 2020. Cash and due from banks was $702.1 million at September 30, 2020, an increase of $295.8 million, or 72.8% from December 31, 2019.

Total deposits were $4.952 billion at September 30, 2020, up $30.5 million, or 0.6%, from $4.922 billion at December 31, 2019. Core deposits, which exclude certificates of deposit, increased $349.5 million, or 10.4%, during the nine months ended September 30, 2020 to $3.701 billion, or 74.7% of total deposits, compared to 68.1% at December 31, 2019. The net increase in deposits for the nine months ended September 30, 2020 includes a $183.3 million increase, or 35.0%, in non-interest bearing demand deposits and a $319.0 million decrease in certificates of deposit, including a $187.4 million reduction in brokered deposits. Total borrowings were $804.3 million at September 30, 2020, up $168.0 million, or 26.4%, from December 31, 2019.

Total stockholders’ equity increased $21.7 million, or 3.0%, to $748.3 million at September 30, 2020 from $726.6 million at December 31, 2019. The increase for the nine months ended September 30, 2020 was primarily due to net income of $46.9 million and $4.2 million related to stock-based compensation plans, partially offset by the repurchase of one million shares of the Company’s common stock related to the stock repurchase program at a total cost of $17.7 million and dividends of $0.24 per share totaling $12.0 million. Stockholders’ equity to assets was 11.39% at September 30, 2020, compared to 11.45% at December 31, 2019. Book value per share increased to $14.28 at September 30, 2020 from $13.61 at December 31, 2019. Tangible book value per share increased to $13.85 at September 30, 2020 from $13.19 at December 31, 2019. Market price per share decreased 48.5% to $10.35 at September 30, 2020 from $20.09 at December 31, 2019. The Company and the Bank elected to be subject to the Community Bank Leverage Ratio and at September 30, 2020 exceeded the minimum requirement to be considered well capitalized.

Mr. Gavegnano concluded, “COVID-19 has and will continue to challenge the strength of the overall economy, especially the financial services industry. We are prepared to continue to meet the challenges faced by the Bank, leveraging our industry experience, seasoned risk management practices and strong liquidity and capital positions to support our customers through the pandemic and its current and future impacts on the economy.”

Meridian Bancorp, Inc. is the holding company for East Boston Savings Bank. East Boston Savings Bank, a Massachusetts-chartered stock savings bank founded in 1848, operates 43 branches in the greater Boston metropolitan area, including 42 full-service locations and one mobile branch. We offer a variety of deposit and loan products to individuals and businesses located in our primary market, which consists of Essex, Middlesex, Norfolk and Suffolk Counties, Massachusetts. For additional information, visit www.ebsb.com .

Forward Looking Statements

Certain statements herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as “believes,” “will,” “expects,” “project,” “may,” “could,” “developments,” “strategic,” “launching,” “opportunities,” “anticipates,” “estimates,” “intends,” “plans,” “targets” and similar expressions. These statements are based upon the current beliefs and expectations of Meridian Bancorp, Inc.’s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, general economic conditions, the effects of any health pandemic, changes in interest rates, regulatory considerations, and competition and the risk factors described in the Company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q as filed with the Securities and Exchange Commission. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Meridian Bancorp, Inc.’s actual results could differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release.

________________
(1) Income on debt securities, equity securities and revenue bonds included in commercial real estate loans, as well as resulting yields, interest rate spread and net interest margin, are presented on a tax-equivalent basis. The tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of net income. For the three months ended September 30, 2020, June 30, 2020 and September 30, 2019, yields on loans before tax-equivalent adjustments were 4.27%, 4.32% and 4.49%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 2.64%, 2.80% and 3.12%, respectively, and yield on total interest-earning assets before tax-equivalent adjustments were 3.89%, 4.01% and 4.38%, respectively. Interest rate spread before tax-equivalent adjustments for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019 was 2.86%, 2.81% and 2.48%, respectively, while net interest margin before tax-equivalent adjustments for the three months ended September 30, 2020, June 30, 2020 and September 30, 2019 was 3.08%, 3.06% and 2.82%, respectively.
(2) Loans on non-accrual status are included in average balances.
(3) Includes Federal Home Loan Bank stock and associated dividends.
(4) Interest rate spread represents the difference between the tax-equivalent yield on interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income (tax-equivalent basis) divided by average interest-earning assets.
(6) Annualized.