Meridian Interstate Bancorp, Inc. Reports Net Income for the Third Quarter and Nine Months Ended September 30, 2013

BOSTON, Oct. 22, 2013 (GLOBE NEWSWIRE) -- Meridian Interstate Bancorp, Inc. (the "Company" or "Meridian") (Nasdaq:EBSB), the holding company for East Boston Savings Bank (the "Bank"), which also operates under the name Mt. Washington Bank, a Division of East Boston Savings Bank ("Mt. Washington"), announced net income of $5.3 million, or $0.24 per diluted share, for the quarter ended September 30, 2013 compared to $2.7 million, or $0.12 per diluted share, for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, net income was $11.4 million, or $0.52 per diluted share compared to $10.3 million, or $0.47 per diluted share, for the nine months ended September 30, 2012. The Company's return on average assets was 0.83% for the quarter ended September 30, 2013 compared to 0.50% for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the Company's return on average assets was 0.62% compared to 0.67% for the nine months ended September 30, 2012. The Company's return on average equity was 8.79% for the quarter ended September 30, 2013 compared to 4.70% for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the Company's return on average equity was 6.35% compared to 6.05% for the nine months ended September 30, 2012.

During the second quarter of 2012, the Company recognized a pre-tax gain of $4.8 million on the sale of its investment in Hampshire First Bank, which was 43% owned by the Company, to NBT Bancorp, Inc. and NBT Bank, N.A. On an after-tax basis, this one-time gain increased net income by $2.9 million, or $0.13 per diluted share, for the nine months ended September 30, 2012.

Richard J. Gavegnano, Chairman and Chief Executive Officer, said, "I am pleased to report net income of $5.3 million, or $0.24 per share, for the third quarter and $11.4 million, or $0.52 per share, for the nine months ended September 30, 2013. Our total assets have risen to over $2.6 billion due to net loan growth of $326 million, or 18%, to $2.1 billion, and net deposit growth of $340 million, or 18%, to $2.2 billion for the first nine months of 2013. This continuing growth demonstrates our ability to attract customers in our Boston area markets with our banking products and services, particularly loans and checking accounts. Following our expansion into the lucrative markets of Belmont and Allston earlier this year, the November opening of our 27^th full service location in Somerville will further enhance our market share and franchise value."

Net interest income increased $2.7 million, or 16.2%, to $19.1 million for the quarter ended September 30, 2013 from $16.4 million for the quarter ended September 30, 2012. The net interest rate spread and net interest margin were 3.02% and 3.17%, respectively, for the quarter ended September 30, 2013 compared to 3.12% and 3.29%, respectively, for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, net interest income increased $6.4 million, or 13.1%, to $55.0 million from $48.7 million for the nine months ended September 30, 2012. The net interest rate spread and net interest margin were 3.09% and 3.24%, respectively, for the nine months ended September 30, 2013 compared to 3.25% and 3.42%, respectively, for the nine months ended September 30, 2012. The increases in net interest income were due primarily to loan growth along with declines in the cost of funds, partially offset by declines in yields on interest-earning assets for the third quarter and nine months ended September 30, 2013 compared to the same periods in 2012.

The average balance of the Company's loan portfolio increased $473.5 million, or 29.6%, to $2.071 billion, which was partially offset by the decline in the yield on loans of 37 basis points to 4.45% for the quarter ended September 30, 2013 compared to the quarter ended September 30, 2012. The Company's cost of total deposits declined six basis points to 0.83%, which was partially offset by the increase in the average balance of total deposits of $380.6 million, or 21.8%, to $2.123 billion for the quarter ended September 30, 2013 compared to the quarter ended September 30, 2012. The Company's yield on interest-earning assets declined 19 basis points to 4.02% for the quarter ended September 30, 2013 compared to 4.21% for the quarter ended September 30, 2012, while the cost of funds declined nine basis points to 0.90% for the quarter ended September 30, 2013 compared to 0.99% for the quarter ended September 30, 2012.

Mr. Gavegnano noted, "Since September of last year, strong growth of $492 million, or 30%, in our loan portfolio and $356 million, or 31%, in core deposits contributed to our ninth consecutive quarterly rise in net interest income. This continuing growth has moderated the declines in our net interest margin despite falling loan yields."

The Company's provision for loan losses was $151,000 for the quarter ended September 30, 2013 compared to $2.3 million for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the provision for loan losses was $4.6 million compared to $5.8 million for the nine months ended September 30, 2012. These changes were based primarily on management's assessment of loan portfolio growth and composition changes, an ongoing evaluation of credit quality and current economic conditions. In addition, the reductions in the provision for loan losses reflected lower provision expense related to specific reserves recorded for impaired loans for the third quarter and nine months ended September 30, 2013 compared to the same periods in 2012. The allowance for loan losses was $23.7 million or 1.11% of total loans outstanding at September 30, 2013, compared to $20.5 million or 1.13% of total loans outstanding at December 31, 2012. Net recoveries totaled $79,000 for the quarter ended September 30, 2013, or 0.02% of average loans outstanding, and net charge-offs totaled $1.5 million for the nine months ended September 30, 2013, or 0.10% of average loans outstanding.

Non-performing loans increased $4.0 million, or 10.1%, to $43.6 million, or 2.04% of total loans outstanding, at September 30, 2013, from $39.6 million, or 2.19% of total loans outstanding, at December 31, 2012, primarily due to a net increase of $5.6 million in non-performing construction loans. Non-performing assets increased $3.2 million, or 7.6%, to $45.4 million, or 1.71% of total assets, at September 30, 2013, from $42.2 million, or 1.85% of total assets, at December 31, 2012. Non-performing assets at September 30, 2013 were comprised of $13.4 million of construction loans, $9.0 million of commercial real estate loans, $17.2 million of one- to four-family mortgage loans, $2.7 million of home equity loans, $1.3 million of commercial business loans and foreclosed real estate of $1.8 million. Non-performing assets at September 30, 2013 included $16.7 million of assets acquired in the January 2010 Mt. Washington Co-operative Bank merger, comprised of $16.2 million of non-performing loans and $473,000 of foreclosed real estate.

Non-interest income increased $695,000, or 15.3%, to $5.2 million for the quarter ended September 30, 2013 from $4.5 million for the quarter ended September 30, 2012, primarily due to increases of $1.4 million in gain on sales of securities, net, and $134,000 in loan fees,  partially offset by a decrease of $852,000 in mortgage banking gains, net. For the nine months ended September 30, 2013, non-interest income decreased $2.8 million, or 16.2%, to $14.3 million from $17.1 million for the nine months ended September 30, 2012, primarily due to the prior year $4.8 million gain on sale of the Hampshire First Bank affiliate and a decrease of $1.5 million in mortgage banking gains, net, partially offset by increases of $3.5 million in gain on sales of securities, net and $301,000 in customer service fees. The decreases in mortgage banking gains, net are primarily due to declines in mortgage loans sales along with related derivative valuations on commitments to originate loans for sale and contracts to sell loans. 

Non-interest expenses increased $1.2 million, or 8.5%, to $15.6 million for the quarter ended September 30, 2013 from $14.4 million for the quarter ended September 30, 2012, primarily due to increases of $1.4 million in salaries and employee benefits, $221,000 in occupancy and equipment and $193,000 in data processing, partially offset by decreases of $274,000 in professional services, $239,000 in foreclosed real estate and $149,000 in other non-interest expenses. For the nine months ended September 30, 2013, non-interest expenses increased $3.0 million, or 6.8%, to $47.5 million from $44.4 million for the nine months ended September 30, 2012, primarily due to increases of $3.0 million in salaries and employee benefits, $546,000 in occupancy and equipment expense, $574,000 in data processing, $276,000 in marketing and advertising and $224,000 in deposit insurance, partially offset by decreases of $839,000 in professional services reflecting a decline in legal and consulting expenses, $333,000 in foreclosed real estate expense and $402,000 in other non-interest expenses. The increases in salaries and employee benefits and occupancy and equipment expenses were primarily associated with the opening of new branches and costs associated with the expansion of residential and commercial lending capacity. The Company's efficiency ratio was 73.05% for the quarter ended September 30, 2013 compared to 74.14% for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the efficiency ratio was 76.62% compared to 77.93% for the nine months ended September 30, 2012, excluding the gain on sale of the Hampshire First Bank affiliate.

Mr. Gavegnano added, "We are progressively growing into our expanded lending and core deposit funding capacity while we are becoming increasingly efficient. Our efficiency ratio improved to 73.05% for the third quarter and 76.62% for the year-to-date, with net interest income rising at more than twice the level of non-interest expenses so far this year. Although our costs have increased at a moderate pace, our investments in staffing, infrastructure and technology are resulting in increased market share and improved operating profitability. We will continue to emphasize prudent management of our overhead expenses as we grow."

The Company recorded a provision for income taxes of $3.3 million for the quarter ended September 30, 2013, reflecting an effective tax rate of 38.1%, compared to $1.6 million, or 36.4%, for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, the provision for income taxes was $5.8 million, reflecting an effective tax rate of 33.8%, compared to $5.3 million, or 33.7%, for the nine months ended September 30, 2012. The change in the effective tax rate was primarily due to changes in the components of pre-tax income.

Total assets increased $376.2 million, or 16.5%, to $2.655 billion at September 30, 2013 from $2.279 billion at December 31, 2012. Net loans increased $326.1 million, or 18.3%, to $2.112 billion at September 30, 2013 from $1.786 billion at December 31, 2012. The net increase in loans for the nine months ended September 30, 2013 was primarily due to increases of $177.4 million in commercial real estate loans, $103.1 million in multi-family loans, $19.7 million in construction loans and $32.9 million in commercial business loans. Cash and cash equivalents increased $113.0 million, or 121.3%, to $206.2 million at September 30, 2013 from $93.2 million at December 31, 2012. Securities available for sale decreased $57.9 million, or 22.0%, to $204.9 million at September 30, 2013 from $262.8 million at December 31, 2012.

Total deposits increased $339.7 million, or 18.2%, to $2.205 billion at September 30, 2013 from $1.865 billion at December 31, 2012, including net growth in core deposits of $280.9 million, or 22.7%, to $1.518 billion, or 68.8% of total deposits. Total borrowings increased $26.4 million, or 16.4%, to $187.7 million at September 30, 2013 from $161.3 million at December 31, 2012.

Total stockholders' equity increased $9.7 million, or 4.1%, to $243.7 million at September 30, 2013, from $233.9 million at December 31, 2012. The increase for the nine months ended September 30, 2013 was due primarily to $11.4 million in net income, partially offset by a decrease of $1.6 million in accumulated other comprehensive income reflecting a decrease in the fair value of available for sale securities, net of tax and a $1.6 million increase in treasury stock resulting from the Company's repurchase of 91,086 shares. Stockholders' equity to assets was 9.18% at September 30, 2013, compared to 10.27% at December 31, 2012. Book value per share increased to $11.04 at September 30, 2013 from $10.57 at December 31, 2012. Tangible book value per share increased to $10.42 at September 30, 2013 from $9.95 at December 31, 2012. Market price per share increased $5.01, or 29.9%, to $21.79 at September 30, 2013 from $16.78 at December 31, 2012. At September 30, 2013, the Company and the Bank continued to exceed all regulatory capital requirements.

As of September 30, 2013, the Company had repurchased 287,652 shares of its stock at an average price of $14.68 per share, or 31.8% of the 904,224 shares authorized for repurchase under the Company's fourth repurchase program as adopted during 2011. The Company has repurchased 1,691,580 shares at an average price of $10.89 per share since December 2008.

Mr. Gavegnano concluded, "The Company and East Boston Savings Bank plan to take full advantage of our capacity to profitably grow our franchise as we consider various opportunities to enhance stockholder value."

Meridian Interstate 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 26 full service locations in the greater Boston metropolitan area including nine full-service locations in its Mt. Washington Bank Division.  We offer a variety of deposit and loan products to individuals and businesses located in our primary market, which consists of Essex, Middlesex 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 Interstate 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 Interstate 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.