Meridian Bancorp, Inc. Reports Record First Quarter Net Income

BOSTON, April 25, 2017 (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 $9.2 million, or $0.18 per diluted share, for the quarter ended March 31, 2017, compared to $11.3 million, or $0.22 per diluted share, for the quarter ended December 31, 2016 and $7.5 million, or $0.14 per diluted share, for the quarter ended March 31, 2016. The Company’s return on average assets was 0.82% for the quarter ended March 31, 2017, compared to 1.05% for the quarter ended December 31, 2016 and 0.83% for the quarter ended March 31, 2016. The Company’s return on average equity was 6.03% for the quarter ended March 31, 2017, compared to 7.51% for the quarter ended December 31, 2016 and 5.11% for the quarter ended March 31, 2016.

Richard J. Gavegnano, Chairman, President and Chief Executive Officer, said, “I am pleased to report net income of $9.2 million, a new first quarter record, for 2017, up 24% from the first quarter of 2016 resulting from an 18% rise in net interest income. During the first quarter, our total assets grew to $4.6 billion reflecting net growth of $122 million, or 3%, in loans to $4.0 billion and of $181 million, or 5%, in deposits to $3.7 billion. We are continuing to attract new business and consumer relationships that are the key to our strong organic growth as we consider other opportunities to gain market share in the Boston area and build stockholder value.”

The Company’s net interest income was $33.4 million for the quarter ended March 31, 2017, down $66,000, or 0.2%, from the quarter ended December 31, 2016 and up $5.0 million, or 17.5%, from the quarter ended March 31, 2016. The interest rate spread and net interest margin on a tax-equivalent basis were 2.99% and 3.20%, respectively, for the quarter ended March 31, 2017 compared to 3.09% and 3.31%, respectively, for the quarter ended December 31, 2016 and 3.18% and 3.39%, respectively, for the quarter ended March 31, 2016. The decrease in net interest income as compared to the quarter ended December 31, 2016 was primarily due to growth in deposits and borrowings that exceeded loan growth, and a decline in the yield on loans with an increase in the cost of funds.  As compared to the quarter ended March 31, 2016, the increase in net interest income was primarily due to loan growth, partially offset by growth in deposits and borrowings along with a decline in the yield on loans and an increase in the cost of funds.

Total interest and dividend income increased to $41.8 million for the quarter ended March 31, 2017, up $503,000, or 1.2%, from the quarter ended December 31, 2016 and $7.6 million, or 22.1%, from the quarter ended March 31, 2016, primarily due to growth in the Company’s average loan balances to $4.001 billion, partially offset by declines in the yield on loans to 4.23% on a tax-equivalent basis, reflecting reductions in prepayment, late payment and other fees of $755,000 compared to the fourth quarter of 2016 and $661,000 compared to the first quarter of 2016. The Company’s yield on interest-earning assets on a tax-equivalent basis was 3.98% for the quarter ended March 31, 2017, down seven basis points from the quarter ended December 31, 2016 and eight basis points from the quarter ended March 31, 2016.

Total interest expense increased to $8.4 million for the quarter ended March 31, 2017, up $569,000, or 7.3%, from the quarter ended December 31, 2016 and $2.6 million, or 44.7%, from the quarter ended March 31, 2016. Interest expense on deposits increased to $7.4 million for the quarter ended March 31, 2017, up $457,000, or 6.6%, from the quarter ended December 31, 2016 and $2.2 million, or 41.9%, from the quarter ended March 31, 2016 primarily due to growth in average total deposits to $3.531 billion and an increase in the cost of average total deposits to 0.85%. Interest expense on borrowings increased to $980,000 for the quarter ended March 31, 2017, up $112,000, or 12.9%, from the quarter ended December 31, 2016 and $403,000, or 69.8%, from the quarter ended March 31, 2016 primarily due to growth in average total borrowings to $330.6 million, and an increase in the cost of average total borrowings to 1.20%. The Company’s cost of funds was 0.88% for the quarter ended March 31, 2017, up three basis points from the quarter ended December 31, 2016 and 10 basis points from the quarter ended March 31, 2016.

Mr. Gavegnano noted, “Our average loan balances in the first quarter increased by 5% from the fourth quarter and 27% from the first quarter of last year while our loan yield decreased to 4.23% from the prior quarters due primarily to lower fees recognized on early repayments and late payments on loans. Our average total deposits and borrowings also increased by 5% from the fourth quarter and 28% from the first quarter of last year and our cost of funds increased to 0.88% as we built and maintained liquidity to fund our strong lending pipeline.”

The Company's provision for loan losses was $1.6 million for the quarter ended March 31, 2017, up $315,000 from the quarter ended December 31, 2016 and $553,000 from the quarter ended March 31, 2016. The allowance for loan losses was $41.8 million or 1.03% of total loans at March 31, 2017, compared to $40.1 million or 1.02% of total loans at December 31, 2016 and $34.4 million or 1.06% of total loans at March 31, 2016. The changes in the provision and the allowance for loan losses were based on management’s assessment of loan portfolio growth and composition changes, declines in historical charge-off trends, reduced levels of problem loans and other improving asset quality trends.

Net charge-offs totaled $3,000 for the quarter ended March 31, 2017, or less than 0.01% of average loans outstanding on an annualized basis compared to net recoveries of $147,000 for the quarter ended December 31, 2016, or 0.02% of average loans outstanding on an annualized basis and net charge-offs of $81,000 for the quarter ended March 31, 2016, or 0.01% of average loans outstanding on an annualized basis.

Non-accrual loans were $13.7 million, or 0.34% of total loans outstanding, at March 31, 2017, up $250,000, or 1.9%, from December 31, 2016 and down $17.0 million, or 55.4%, from March 31, 2016. The reductions in non-accrual loans from March 31, 2016 were primarily due to the sale at foreclosure during the third quarter of 2016 of an $11.5 million multi-family construction loan in Boston that was originally placed on non-accrual status during the second quarter of 2015, along with reductions across all categories of non-accrual loans. Non-performing assets were $13.7 million, or 0.30% of total assets, at March 31, 2017, compared to $13.4 million, or 0.30% of total assets, at December 31, 2016 and $31.3 million, or 0.84% of total assets, at March 31, 2016.

Mr. Gavegnano commented, “Our asset quality continued to be outstanding during the first quarter of 2017, as our delinquent and non-performing loans remained at historically low levels and net loan charge-offs were near zero. We remain vigilant in maintaining our strong loan underwriting, credit monitoring and loan collection processes.”

Non-interest income was $4.1 million for the quarter ended March 31, 2017, down from $5.6 million for the quarter ended December 31, 2016 and up from $2.7 million for the quarter ended March 31, 2016. Non-interest income decreased $1.5 million, or 27.5%, as compared to the quarter ended December 31, 2016, primarily due to decreases of $1.1 million in gain on sales of securities, net, $179,000 in customer service fees and $214,000 in loan fees. As compared to the quarter ended March 31, 2016, non-interest income increased $1.4 million, or 51.3%, primarily due to increases of $1.5 million in gain on sales of securities, net, and $105,000 in customer service fees, partially offset by a decrease of $244,000 in loan fees.

Non-interest expenses were $21.9 million, or 1.94% of average assets for the quarter ended March 31, 2017, compared to $19.8 million, or 1.84% of average assets for the quarter ended December 31, 2016 and $19.2 million, or 2.13% of average assets for the quarter ended March 31, 2016. Non-interest expenses increased $2.1 million, or 10.6%, as compared to the quarter ended December 31, 2016, primarily due to increases of $1.5 million in salaries and employee benefits, $142,000 in occupancy and equipment expenses, $166,000 in professional services and $210,000 in deposit insurance premiums. As compared to the quarter ended March 31, 2016, non-interest expenses increased $2.6 million, or 13.8%, primarily due to increases of $1.2 million in salaries and employee benefits, $539,000 in occupancy and equipment expenses, $122,000 in data processing, $141,000 in marketing and advertising, $522,000 in professional services and $239,000 in deposit insurance premiums. The increases in salaries and employee benefits expenses reflect annual increases in employee compensation and health benefits during the three months ended March 31, 2017.  In addition, the increases in salaries and employee benefits, occupancy and equipment expenses and other general and administrative expenses include costs associated with the opening of two new branches, the introduction of our new mobile branch in 2016 and an expansion of our regulatory compliance staff.  Professional services increased primarily due to additional costs related to regulatory compliance projects.  The Company’s efficiency ratio was 61.02% for the quarter ended March 31, 2017 compared to 54.33% for the quarter ended December 31, 2016 and 62.01% for the quarter ended March 31, 2016.

Mr. Gavegnano added, “The rise in our efficiency ratio to 61.02% for the first quarter of 2017 was largely due to increases in professional fees and employee compensation costs associated with initiatives undertaken in the fourth quarter of last year to enhance our regulatory compliance infrastructure as we meet the needs of our growing bank. Based on our expectations for steadily rising net interest income driven by strong loan demand and prudent management of recurring non-interest expenses, we believe our operating efficiency will return to an improving trend in the coming periods.”

The Company recorded a provision for income taxes of $4.7 million for the quarter ended March 31, 2017, reflecting an effective tax rate of 33.6%, compared to $6.6 million, or an effective tax rate of 37.0%, for the quarter ended December 31, 2016,  and $3.3 million, or an  effective tax rate of 30.6%, for the quarter ended March 31, 2016. The changes in the income tax provision and effective tax rate were primarily due to changes in the components of pre-tax income.

Total assets were $4.639 billion at March 31, 2017, an increase of $202.7 million, or 4.6%, from $4.436 billion at December 31, 2016.  Net loans were $4.021 billion at March 31, 2017, an increase of $122.1 million, or 3.1%, from December 31, 2016. Loan originations totaled $426.0 million during the quarter ended March 31, 2017. The net increase in loans for the three months ended March 31, 2017 was primarily due to increases of $64.6 million in construction loans, $24.2 million in multi-family loans, $14.9 million in commercial real estate loans, $11.6 million in one- to four-family loans and $9.3 million in commercial and industrial loans. Cash and due from banks was $327.7 million at March 31, 2017, an increase of $91.2 million, or 38.6%, from December 31, 2016. Securities available for sale were $59.1 million at March 31, 2017, a decrease of $8.6 million, or 12.7%, from $67.7 million at December 31, 2016.

Total deposits were $3.657 billion at March 31, 2017, an increase of $180.8 million, or 5.2%, from $3.476 billion at December 31, 2016. Core deposits, which exclude certificate of deposits, increased $168.8 million, or 7.2%, during the three months ended March 31, 2017 to $2.516 billion, or 68.8% of total deposits. Total borrowings were $334.8 million, an increase of $12.3 million, or 3.8%, from December 31, 2016.

Total stockholders’ equity increased $8.9 million, or 1.5%, to $616.2 million at March 31, 2017 from $607.3 million at December 31, 2016. The increase for the three months ended March 31, 2017 was primarily due to net income of $9.2 million, $1.5 million related to stock-based compensation plans and $228,000 in accumulated other comprehensive income, reflecting an increase in the fair value of available-for-sale securities, partially offset by a dividend of $0.04 per share totaling $2.1 million. Stockholders’ equity to assets was 13.28% at March 31, 2017, compared to 13.69% at December 31, 2016. Book value per share increased to $11.49 at March 31, 2017 from $11.33 at December 31, 2016. Tangible book value per share increased to $11.23 at March 31, 2017 from $11.08 at December 31, 2016. Market price per share decreased $0.60, or 3.2%, to $18.30 at March 31, 2017 from $18.90 at December 31, 2016. At March 31, 2017, the Company and the Bank continued to exceed all regulatory capital requirements.

As of the quarter ended March 31, 2017, the Company had repurchased  2,059,611 shares of its stock at an average price of $13.71 per share, or 75.2% of the 2,737,334 shares authorized for repurchase under the Company’s repurchase program as adopted in August 2015. The Company did not repurchase any of its shares during the quarter ended March 31, 2017.

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 31 full-service locations and one mobile location in the greater Boston metropolitan area. 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.