EBSB - Meridian Bancorp Inc. Reports Record Fourth Quarter and Record Full Year Net Income Up 38% and 20% from Prior Year Periods

BOSTON, Jan. 28, 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 $17.1 million, or $0.33 per diluted share, for the quarter ended December 31, 2019, compared to $19.7 million, or $0.38 per diluted share, for the quarter ended September 30, 2019 and $12.4 million, or $0.24 per diluted share, for the quarter ended December 31, 2018. For the year ended December 31, 2019, net income was $67.0 million, or $1.30 per diluted share, up from $55.8 million, or $1.06 per diluted share, for the year ended December 31, 2018. The Company’s return on average assets was 1.08% for the quarter ended December 31, 2019, compared to 1.24% for the quarter ended September 30, 2019 and 0.83% for the quarter ended December 31, 2018. For the year ended December 31, 2019, the Company’s return on average assets was 1.06%, up from 0.99% for the year ended December 31, 2018. The Company’s return on average equity was 9.45% for the quarter ended December 31, 2019, compared to 11.17% for the quarter ended September 30, 2019, and 7.28% for the quarter ended December 31, 2018. For the year ended December 31, 2019, the Company’s return on average equity was 9.56%, up from 8.36% for the year ended December 31, 2018. 

Richard J. Gavegnano, Chairman, President and Chief Executive Officer, said, “I am pleased to report record net income of $67.0 million for the year 2019, up $11.2 million, or 20%, from 2018, while our net income for the quarter rose $4.7 million, or 38%, to $17.1 million, a new fourth quarter record, from the fourth quarter of 2018. These earnings increases reflect loan loss provision reversals of $2.6 million for the year 2019 and $504,000 in the fourth quarter resulting from $420 million of commercial loan payoffs and $219 million of construction loans that converted to permanent status in the second half of the year, along with continuing increases in net interest income and substantial improvements in the market valuations of our marketable equity securities portfolio during 2019. This high volume of loan payoffs continued to be driven by the competitive interest rate environment and the strength of commercial real estate market conditions in the metropolitan Boston area, although our loan pipelines also remain strong as we achieved the highest origination volume of the year at $361 million in the fourth quarter.”

The Company’s net interest income was $43.7 million for the quarter ended December 31, 2019, down $563,000, or 1.3%, from the quarter ended September 30, 2019 and up $1.5 million, or 3.5%, from the quarter ended December 31, 2018. The interest rate spread and net interest margin on a tax-equivalent basis were 2.51% and 2.84%, respectively, for the quarter ended December 31, 2019 compared to 2.52% and 2.87%, respectively, for the quarter ended September 30, 2019 and 2.62% and 2.93%, respectively, for the quarter ended December 31, 2018. For the year ended December 31, 2019, net interest income increased $8.5 million, or 5.2%, to $172.9 million from the year ended December 31, 2018. The interest rate spread and net interest margin on a tax-equivalent basis were 2.52% and 2.86%, respectively, for the year ended December 31, 2019, compared to 2.76% and 3.03%, respectively, for the year ended December 31, 2018. The decrease in net interest income for the quarter ended December 31, 2019 from the quarter ended September 30, 2019 was primarily due to a reduction in average loan balances. The increases in net interest income for the quarter and year ended December 31, 2019 compared to the respective periods of 2018 were primarily due to growth in average loan balances and yields on interest-earning assets, reflecting higher commercial loan prepayment fees, partially offset by increases in the average balances of total deposits and borrowings and the cost of funds.

Total interest and dividend income totaled $66.8 million for the quarter ended December 31, 2019, down $1.7 million, or 2.5%, from the quarter ended September 30, 2019, primarily due to a $68.1 million, or 1.2%, decrease in the Company’s average loan balances to $5.773 billion and a decrease in yield on loans on a tax-equivalent basis of four basis points to 4.50%. Compared to the quarter ended December 31, 2018,  total interest and dividend income increased $5.1 million, or 8.3%, primarily due to growth in the Company’s average loan balances of $338.7 million, or 6.2%, and an increase in the yield on loans on a tax-equivalent basis of 11 basis points. Interest and fees on loans included commercial loan prepayment fees of $851,000 for the quarter ended December 31, 2019, down from $873,000 for the quarter ended September 30, 2019 and up from $435,000 for the quarter ended December 31, 2018. The Company’s yield on interest-earning assets on a tax-equivalent basis was 4.33% for the quarter ended December 31, 2019, down nine basis points from the quarter ended September 30, 2019 and up seven basis points from the quarter ended December 31, 2018. For the year ended December 31, 2019, the Company’s total interest and dividend income increased $38.4 million, or 16.9%, to $266.1 million from the year ended December 31, 2018, primarily due to growth in the Company’s average loan balances of $660.8 million, or 12.9%, to $5.780 billion and an increase in the yield on loans on a tax-equivalent basis of 16 basis points to 4.49% for the year ended December 31, 2019 compared to the year ended December 31, 2018. Interest and fees on loans included commercial loan prepayment fees of $2.1 million for the year ended December 31, 2019, up from $1.1 million for the year ended December 31, 2018. The Company’s yield on interest-earning assets on a tax-equivalent basis increased 19 basis points to 4.37% for the year ended December 31, 2019 compared to the same period in 2018.

Total interest expense totaled $23.2 million for the quarter ended December 31, 2019, down $1.1 million, or 4.7%, from the quarter ended September 30, 2019, and up $3.6 million, or 18.6%, from the quarter ended December 31, 2018. Interest expense on deposits decreased $1.2 million, or 5.9%, to $19.0 million for the quarter ended December 31, 2019, from the quarter ended September 30, 2019, primarily due to decreases of $39.5 million in average total deposits to $4.931 billion and eight basis points in the cost of average total deposits to 1.53%. Interest expense on deposits increased $1.9 million, or 11.2%, from the quarter ended December 31, 2018, primarily due to increases of $293.9 million, or 6.3%, in average total deposits and seven basis points in the cost of average total deposits from the quarter ended December 31, 2018. Interest expense on borrowings increased to $4.2 million for the quarter ended December 31, 2019, up $51,000, or 1.2%, from the quarter ended September 30, 2019 and $1.7 million, or 70.7%, from the quarter ended December 31, 2018, primarily due to growth in average total borrowings to $636.4 million and increases in the average cost of borrowings to 2.61%, unchanged from the quarter ended September 30, 2019, and up from 1.67% for the quarter ended December 31, 2018. The Company’s total cost of funds was 1.65% for the quarter ended December 31, 2019, down seven basis points from the quarter ended September 30, 2019 and up 16 basis points from the quarter ended December 31, 2018. Total interest expense increased $29.9 million, or 47.3%, to $93.2 million for the year ended December 31, 2019 from the year ended December 31, 2018. Interest expense on deposits increased $24.3 million, or 44.6%, to $79.0 million for the year ended December 31, 2019 from the year ended December 31, 2018 due to growth in average total deposits of $598.2 million, or 13.7%, to $4.954 billion and an increase in the cost of average total deposits of 34 basis points to 1.59%. Interest expense on borrowings increased $5.6 million, or 64.9%, to $14.2 million for the year ended December 31, 2019 from the year ended December 31, 2018 due to an increase in the cost of average total borrowings of 90 basis points to 2.39% and an increase in average total borrowings of $16.8 million, or 2.9%, to $593.7 million. The Company’s cost of funds increased 40 basis points to 1.68% for the year ended December 31, 2019 compared to the year ended December 31, 2018.

Mr. Gavegnano continued, “Our net interest income rose 5% while our net interest margin remained steady throughout most of 2019. The slight declines of 1.3% in our net interest income and three basis points in our net interest margin to 2.84% for the fourth quarter from the third quarter of 2019 resulted from a net reduction of $68 million, or 2.5%, in the loan portfolio for the second half of 2019 due to the rise in commercial loan payoffs.  Following its peak in the second quarter, our cost of funds was reduced by seven basis points in the fourth quarter to 1.65%. We expect to maintain and expand our margin in the coming months as the loans in our origination pipeline are funded and our loan yields rise while funding costs continue to decline.”

The Company recognized a reversal of $504,000 in its provision for loan losses for the quarter ended December 31, 2019, compared to a reversal of $3.0 million for the quarter ended September 30, 2019 and a provision of $3.6 million for the quarter ended December 31, 2018. For the year ended December 31, 2019, there was a loan loss provision reversal of $2.6 million compared to a provision expense of $7.8 million for the year ended December 31, 2018. The reductions in the provision for loan losses were primarily due to substantial payoffs of multi-family, commercial real estate and commercial and industrial loans, the conversion of construction loans to permanent status in the commercial loan categories and continuing improvements in credit quality trends during the year ended December 31, 2019. The allowance for loan losses was $50.3 million or 0.87% of total loans at December 31, 2019, compared to $50.8 million or 0.88% of total loans at September 30, 2019, and $53.2 million or 0.94% of total loans at December 31, 2018. The declines in the allowance for loan losses coverage ratio were based on management’s assessment of the loan portfolio balance and composition changes, declines in historical charge-off trends, reduced levels of problem loans and other improvements in asset quality trends.

Net charge-offs totaled $5,000 for the quarter ended December 31, 2019 compared to net charge-offs of $56,000 for the quarter ended September 30, 2019 and net recoveries of $59,000 for the quarter ended December 31, 2018. For the year ended December 31, 2019, net charge-offs totaled $348,000 compared to net recoveries of $198,000 for the year ended December 31, 2018.

Non-accrual loans were $3.4 million, or 0.06% of total loans outstanding, at December 31, 2019; down $545,000, or 13.8%, from September 30, 2019; and down $3.5 million, or 50.7%, from December 31, 2018. Non-performing assets were $3.4 million, or 0.05% of total assets, at December 31, 2019, compared to $3.9 million, or 0.06% of total assets, at September 30, 2019, and $6.9 million, or 0.11% of total assets, at December 31, 2018.

Mr. Gavegnano noted, “Our asset quality continued to improve over the past year to historically strong levels. Along with the reduction of non-performing loans in 2019 to only $3.4 million, or 0.05% of total assets, with no past due multi-family, commercial real estate or construction loans outstanding, our residential loan delinquencies declined by two thirds.”

Non-interest income was $3.7 million for the quarter ended December 31, 2019, up from $2.8 million for the quarter ended September 30, 2019 and $135,000 for the quarter ended December 31, 2018. Non-interest income increased $833,000, or 29.2%, compared to the quarter ended September 30, 2019, primarily due to a $930,000 gain on marketable equity securities, net, reflecting increases in market valuations in the fourth quarter of 2019 compared to a $463,000 loss on marketable equity securities, net, in the third quarter of 2019, partially offset by decreases of $453,000 in loan fees. The decrease in loan fees is due primarily to $308,000 of loan swap fee income recognized in the third quarter of 2019. Compared to the quarter ended December 31, 2018, non-interest income increased $3.5 million primarily due to a $930,000 gain on marketable equity securities, net, in the fourth quarter of 2019 compared to a $2.7 million loss on marketable equity securities, net, in the fourth quarter of 2018. For the year ended December 31, 2019, non-interest income increased $4.3 million, or 47.9%, to $13.3 million from $9.0 million for the year ended December 31, 2018, primarily due to a $2.0 million gain on marketable equity securities, net, reflecting increases in market valuations for the year ended December 31, 2019, compared to a $2.1 million loss on marketable equity securities, net, for the year ended December 31, 2018.

Non-interest expenses were $25.3 million, or 1.59% of average assets for the quarter ended December 31, 2019, compared to $23.8 million, or 1.50% of average assets for the quarter ended September 30, 2019 and $23.6 million, or 1.59% of average assets for the quarter ended December 31, 2018. Non-interest expenses increased $1.4 million, or 5.9%, compared to the quarter ended September 30, 2019, due primarily to increases of $621,000 in salaries and employee benefits, $245,000 in deposit insurance, $178,000 in professional services, $158,000 in general and administrative and $132,000 in marketing and advertising. Non-interest expenses increased $1.6 million, or 6.9%, compared to the quarter ended December 31, 2018, due primarily to increases of $1.1 million in salaries and employee benefits, $477,000 in occupancy and equipment, $242,000 in data processing and $132,000 in other general and administrative, partially offset by a decrease of $321,000 in deposit insurance. For the year ended December 31, 2019, non-interest expenses increased $5.2 million, or 5.5%, to $100.0 million from $94.8 million for the year ended December 31, 2018, due primarily to increases of $2.5 million in salaries and employee benefits, $1.8 million in occupancy and equipment, $1.2 million in data processing, $574,000 in marketing and advertising and $262,000 in other general and administrative, partially offset by decreases of $800,000 in deposit insurance and $201,000 in professional services. The decreases in deposit insurance reflect the application of $1.2 million in Small Bank Assessment Credits by the Federal Deposit Insurance Corporation for the third and fourth quarters of 2019. The increases in salaries and employee benefits were primarily due to annual increases in employee compensation, payroll taxes and employee benefits, while the increases in occupancy and equipment expenses and data processing include costs associated with the expansion of our branch network, including one new branch that opened late in the first quarter of 2018, three new branch openings in the fourth quarter of 2018, one new branch opened in July 2019, and one new branch opened in December 2019. The Company’s efficiency ratio was 54.44% for the quarter ended December 31, 2019 compared to 50.18% for the quarter ended September 30, 2019 and 52.52% for the quarter ended December 31, 2018. For the year ended December 31, 2019, the efficiency ratio was 54.29% compared to 53.95% for the year ended December 31, 2018.

Mr. Gavegnano added, “In 2019, we effectively maintained our efficiency ratio at 54% while improving our ratio of non-interest expenses to average assets to 1.59% from 1.68% for 2018, even with the addition of six new branches over the last two years. In December, we celebrated the opening of our 40th branch in Boston’s Brighton neighborhood, and our demonstrated growth and overhead management strategies will continue as we plan the opening of three new branches planned in the first half of 2020 in the metropolitan Boston area communities of Salem, Woburn and Brookline.”

The Company recorded a provision for income taxes of $5.5 million for the quarter ended December 31, 2019, reflecting an effective tax rate of 24.4%, compared to $6.5 million, or an effective tax rate of 24.8%, for the quarter ended September 30, 2019, and $2.7 million, or an effective tax rate of 18.2%, for the quarter ended December 31, 2018. For the year ended December 31, 2019, the provision for income taxes was $21.8 million, reflecting an effective tax rate of 24.5%, compared to $15.0 million, or an effective tax rate of 21.2%, for the year ended December 31, 2018.

Total assets were $6.344 billion at December 31, 2019, down $19.4 million, or 0.3%, from $6.363 billion at September 30, 2019 and up $165.1 million, or 2.7%, from $6.179 billion at December 31, 2018. Net loans were $5.698 billion at December 31, 2019, down $80,000 from September 30, 2019, and up $104.1 million, or 1.9%, from December 31, 2018. The net decrease in loans for the quarter ended December 31, 2019 reflects commercial loan payoffs totaling $173.0 million, comprised of $59.8 million in the multi-family, $54.6 million in the commercial real estate, $2.4 million in the commercial and industrial and $56.2 million in the construction loan categories. Loan originations totaled $361.1 million during the quarter ended December 31, 2019 and $1.098 billion during the year ended December 31, 2019. The net increase in loans for the year ended December 31, 2019 was primarily due to increases of $74.7 million in commercial real estate loans, $20.4 million in construction loans, $19.4 million in home equity lines of credit and $12.0 million in one- to four-family loans, partially offset by decreases of $20.1 million in commercial and industrial loans and $7.1 million in multi-family loans. These balance changes reflect commercial loan payoffs totaling $612.5 million and construction loans that converted to permanent status totaling $340.1 million during the year ended December 31, 2019. Cash and due from banks was $406.4 million at December 31, 2019, an increase of $34.4 million, or 9.2% from December 31, 2018. Securities, at fair value, were $30.3 million at December 31, 2019, a decrease of $277,000, or 0.9%, from $30.6 million at December 31, 2018.

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842). During the year ended December 31, 2019, premises and equipment, net increased $20.7 million to $65.8 million and accrued expenses and other liabilities increased $26.4 million to $59.3 million at December 31, 2019, reflecting the recognition of operating lease assets and liabilities totaling $17.7 million based on the present value of future minimum lease payments as required by ASU No. 2016-02.

Total deposits were $4.921 billion at December 31, 2019, down $34.2 million, or 0.7%, from $4.956 billion at September 30, 2019 and up $37.3 million, or 0.8%, from $4.884 billion at December 31, 2018. The net decrease in deposits for the quarter ended December 31, 2019 reflects a $70.4 million decrease in certificates of deposit including a $26.6 million reduction in brokered deposits. Core deposits, which exclude certificates of deposit, increased $153.5 million, or 4.8%, during the year ended December 31, 2019 to $3.352 billion, or 68.1% of total deposits. Certificates of deposit decreased $116.2 million, or 6.9%, during the year ended December 31, 2019 to $1.570 billion, or 31.9% of total deposits. Total borrowings were $636.2 million, down $370,000, or 0.1%, from September 30, 2019 and up $49.4 million, or 8.4%, from December 31, 2018.

Total stockholders’ equity increased $14.6 million, or 2.1%, to $726.6 million at December 31, 2019 from $712.0 million at September 30, 2019, and $51.9 million, or 7.7%, from $674.7 million at December 31, 2018. The increase for the year ended December 31, 2019 was primarily due to net income of $67.0 million and $7.1 million related to stock-based compensation plans, partially offset by dividends of $0.29 per share totaling $14.8 million and the repurchase of 428,820 shares of the Company’s common stock related to the stock repurchase programs at a total cost of $7.3 million. Stockholders’ equity to assets was 11.45% at December 31, 2019, compared to 11.19% at September 30, 2019 and 10.92% at December 31, 2018. Book value per share increased to $13.61 at December 31, 2019 from $12.60 at December 31, 2018. Tangible book value per share increased to $13.19 at December 31, 2019 from $12.17 at December 31, 2018. Market price per share increased $5.77 or 40.3%, to $20.09 at December 31, 2019 from $14.32 at December 31, 2018. At December 31, 2019, the Company and the Bank continued to exceed all regulatory capital requirements.

The Company did not repurchase any of its shares during the quarter ended December 31, 2019. As of December 31, 2019, the Company has repurchased 324,544 shares of its stock at an average price of $17.32, or 24.50%, of the 1,324,544 shares authorized for repurchase under the Company’s repurchase program adopted in April 2019 and amended in October 2019. As of December 31, 2019, 1,000,000 shares remain available for repurchase under the plan. The Company has repurchased 3,698,165 shares at an average price of $15.11 per share since August 2015.

Mr. Gavegnano concluded, “Our Board of Directors voted to expand our repurchase program by one million shares in the fourth quarter to enable opportunistic stock repurchases, along with the increase in our quarterly dividend by $0.01 per share, or 14%, to $0.08 per share as paid on January 2, 2020, as we continue our focus on initiatives to enhance stockholder value.”

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 40 branches in the greater Boston metropolitan area, including 39 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, 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.

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