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Meridian Bancorp, Inc. Announces Record Fourth Quarter Net Income and Full Year 2020 Results
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BOSTON, Jan. 26, 2021 (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 $18.1 million, or $0.36 per diluted share, for the quarter ended December 31, 2020, compared to $17.1 million, or $0.33 per diluted share, for the quarter ended December 31, 2019. For the year ended December 31, 2020, net income was $65.1 million, or $1.29 per diluted share, down from $67.0 million, or $1.30 per diluted share, for the year ended December 31, 2019. The Company’s return on average assets was 1.10% for the quarter ended December 31, 2020, compared to 1.08% for the quarter ended December 31, 2019. For the year ended December 31, 2020, the Company’s return on average assets was 1.01%, down from 1.06% for the year ended December 31, 2019. The Company’s return on average equity was 9.51% for the quarter ended December 31, 2020, compared to 9.45% for the quarter ended December 31, 2019. For the year ended December 31, 2020, the Company’s return on average equity was 8.76%, down from 9.56% for the year ended December 31, 2019.
Richard J. Gavegnano, Chairman, President and Chief Executive Officer, said, “I am pleased to report record net income of $18.1 million for the fourth quarter of 2020, an increase of $1.1 million, or 6.2% compared to the fourth quarter of 2019, and $65.1 million for the year 2020. These earnings reflect significant increases in net interest income for the quarter and year ended December 31, 2020, improving the net interest margin to 3.24% and 3.12%, respectively, a result of management’s focus on maintaining loan yields while aggressively decreasing our cost of funds. Also, with the adoption of CECL as of the end of the quarter, our percentage of allowance to total loans increased to 1.25% at December 31, 2020, from 0.87% at December 31, 2019, after provisions of $8.9 million and a $26.5 million for the quarter and year ended December 31, 2020, respectively.”
Mr. Gavegnano continued, “Our commercial lending team has worked diligently with our customers throughout the pandemic to ensure the Bank is providing these relationships with the support necessary to best address their needs in navigating through these unprecedented times. These efforts have resulted in a sharp decrease in the Bank’s COVID-19 related modifications, with substantially all remaining modifications being interest-only payments over a temporary period. As of December 31, 2020, the Bank had not executed any second modifications to customers that required full payment deferrals.”
The Company’s net interest income was $51.5 million for the quarter ended December 31, 2020, up $2.6 million, or 5.4%, from the quarter ended September 30, 2020, and up $7.8 million, or 17.9%, from the quarter ended December 31, 2019. The interest rate spread and net interest margin on a tax-equivalent basis were 3.06% and 3.24%, respectively, for the quarter ended December 31, 2020 compared to 2.91% and 3.13%, respectively, for the quarter ended September 30, 2020 and 2.51% and 2.84%, respectively, for the quarter ended December 31, 2019. For the year ended December 31, 2020, net interest income increased $19.8 million, or 11.4%, to $192.7 million from the year ended December 31, 2019. The interest rate spread and net interest margin on a tax-equivalent basis were 2.87% and 3.12% for the year ended December 31, 2020 compared to 2.52% and 2.86% for the year ended December 31, 2019. The increases in net interest income for the quarter and year ended December 31, 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 $62.3 million for the quarter ended December 31, 2020, up $733,000, or 1.2%, from the quarter ended September 30, 2020. The Company’s yield on interest-earning assets on a tax-equivalent basis was 3.92% for the quarter ended December 31, 2020, down two basis points from the quarter ended September 30, 2020 and 41 basis points from the quarter ended December 31, 2019. For the year ended December 31, 2020, the Company’s total interest and dividend income totaled $252.1 million, a decrease of $14.0 million, or 5.3%, from the year ended December 31, 2019, primarily due to a decrease in the yield on other interest-earning assets of 190 basis points to 0.58%. The Company’s yield on interest-earning assets on a tax-equivalent basis decreased 31 basis points to 4.06% for the year ended December 31, 2020 compared to the year ended December 31, 2019, primarily due to the increase of $224.2 million, or 65.6%, in the Company’s average other interest-earning assets to $566.0 million and a 190 basis point, or 73.6%, decrease in the yield on other interest-earning assets.
Total interest expense totaled $10.9 million for the quarter ended December 31, 2020, down $1.9 million, or 14.9%, from the quarter ended September 30, 2020, and down $12.3 million, or 53.0%, from the quarter ended December 31, 2019. Interest expense on deposits decreased to $6.9 million for the quarter ended December 31, 2020, down $1.9 million, or 21.3%, from the quarter ended September 30, 2020 and down $12.1 million, or 63.8%, from the quarter ended December 31, 2019 primarily due to a decrease in the cost of average total deposits to 0.55% from 0.72% for the quarter ended September 30, 2020, and 1.53% for the quarter ended December 31, 2019. Interest expense on borrowings totaled $4.0 million for the quarter ended December 31, 2020, down $180,000, or 4.3%, from the quarter ended December 31, 2019. The Company’s total cost of funds was 0.75% for the quarter ended December 31, 2020, down 15 basis points from the quarter ended September 30, 2020 and down 90 basis points from 1.65% for the quarter ended December 31, 2019. Interest expense totaled $59.4 million for the year ended December 31, 2020, down $33.8 million, or 36.3%, from the year ended December 31, 2019. Interest expense on deposits decreased to $43.0 million for the year ended December 31, 2020, down $36.0 million, or 45.6%, primarily due to a decrease in the cost of average total deposits to 0.88% from 1.59% for the year ended December 31, 2019. Interest expense on borrowings totaled $16.4 million for the year ended December 31, 2020, up $2.2 million, or 15.5%, from the year ended December 31, 2019 primarily due to an increase in average total borrowings to $750.6 million. The Company’s total cost of funds was 1.05% for the year ended December 31, 2020, down 63 basis points from 1.68% for the year ended December 31, 2019.
Mr. Gavegnano noted, “Our net interest margin improved to 3.24% for the quarter and 3.12% for the year ended December 31, 2020, due to increases in net interest income of 17.9% and 11.5%, respectively. These increases are primarily driven from the decline in our cost of funds, decreasing 90 basis points to 0.75% for the fourth quarter of 2020 and 63 basis points to 1.05% for the year 2020, from 1.65% and 1.68%, respectively, from the same periods in 2019.”
The Company’s provision for credit losses was $8.9 million for the quarter ended December 31, 2020, compared to $7.2 million for the quarter ended September 30, 2020 and a reversal of $504,000 for the quarter ended December 31, 2019. The provision for credit losses was $26.5 million for the year ended December 31, 2020, compared to a reversal of $2.6 million for 2019. The allowance for credit losses on loans was $68.8 million or 1.25% of total loans at December 31, 2020, compared to $67.6 million or 1.20% of total loans at September 30, 2020, and $50.3 million or 0.87% of total loans at December 31, 2019. In accordance with Financial Accounting Standards Board’s Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments – Credit Losses (Topic 326), the Company adopted the new credit loss accounting standard as of December 31, 2020, with a retroactive adjustment as of January 1, 2020. The Company previously deferred the adoption of ASU No. 2016-03, an option provided under the CARES Act. The adoption resulted in a $7.7 million decrease in the allowance for credit losses on loans recognized through an adjustment to retained earnings, net of deferred taxes.
Net charge-offs totaled $43,000 for the quarter ended December 31, 2020 compared to net charge-offs of $5,000 for the quarter ended December 31, 2019. For the year ended December 31, 2020, net charge-offs totaled $255,000 compared to net charge-offs of $348,000 for year ended December 31, 2019. Non-performing assets were $3.2 million, or 0.05% of total assets, at December 31, 2020, compared to $3.4 million, or 0.05% of total assets, at December 31, 2019.
Mr. Gavegnano noted, “Management has been very successful in sustaining the Company’s historically low levels of non-performing assets and substandard loans. Our asset quality, despite the COVID-19 related modifications, has the Company well-positioned as we approach the latter stages of the pandemic response and look to the resumption of economic activity, even in the hardest hit industries. We are confident that the work we have put in to strengthening our loan relationships has not only protected these relationships during the pandemic but also reinforces our position as reliable business partners when executing their post-pandemic strategies.”
Non-interest income was $5.9 million for the quarter ended December 31, 2020, up from $3.6 million for the quarter ended September 30, 2020 and up from $3.7 million for the quarter ended December 31, 2019. Non-interest income increased $2.3 million, or 64.2%, compared to the quarter ended September 30, 2020, due primarily to an increase of $2.7 million in gain on marketable equity securities, net, reflecting increases in market valuations in the fourth quarter of 2020, partially offset by a decrease of $686,000 in loan fees. Compared to the quarter ended December 31, 2019, non-interest income increased $2.2 million, or 59.3%, due primarily to increases of $1.9 million in valuation increase on marketable equity securities, net, and $659,000 in mortgage banking gains, net, partially offset by a decrease of $405,000 in loan fees. For the year ended December 31, 2020, non-interest income increased $4.0 million, or 29.7%, to $17.3 million from $13.3 million for the year ended December 31, 2019, due primarily to a $4.2 million gain on sale of asset and an increase of $1.7 million in mortgage banking gains, net, partially offset by a $1.4 million valuation decrease on marketable equity securities, net, and a $627,000 decrease in customer service fees for the year ended December 31, 2020, compared to the year ended December 31, 2019.
Non-interest expenses were $24.1 million, or 1.46% of average assets for the quarter ended December 31, 2020, compared to $25.3 million, or 1.59% of average assets for the quarter ended December 31, 2019. Non-interest expenses decreased $1.2 million, or 4.6%, compared to the quarter ended December 31, 2019, due primarily to decreases of $1.0 million in salaries and employee benefits. For the year ended December 31, 2020, non-interest expenses decreased $3.5 million, or 3.5%, to $96.5 million from $100.0 million for the year ended December 31, 2019, due primarily to decreases of $3.5 million in salaries and employee benefits, $652,000 in marketing and advertising and $542,000 in other general and administrative, partially offset by increases of $636,000 in occupancy and equipment and $592,000 in data processing. The Company’s efficiency ratio was 44.23% for the quarter ended December 31, 2020 compared to 43.69% for the quarter ended September 30, 2020 and 54.44% for the quarter ended December 31, 2019. For the year ended December 31, 2020 the efficiency ratio was 47.07%, a decrease of 722 basis points compared to 54.29% for the year ended December 31, 2019.
Mr. Gavegnano added, “We decreased our efficiency ratio to 47% for the year ended December 31, 2020, from 54% for 2019. The Company’s efforts towards limiting operating expenses throughout the pandemic proved successful, even as we opened three de novo branches in Brookline, Salem and Woburn during 2020.”
The Company recorded a provision for income taxes of $6.2 million for the quarter ended December 31, 2020, reflecting an effective tax rate of 25.4%, compared to $5.5 million, or an effective tax rate of 24.4%, for the quarter ended December 31, 2019. For the year ended December 31, 2020 the provision for income taxes was $21.9 million, reflecting an effective tax rate of 25.2%, compared to $21.8 million, reflecting an effective rate of 24.5% for the year ended December 31, 2019.
Total assets were $6.620 billion at December 31, 2020, up $276.2 million, or 4.4%, from $6.344 billion at December 31, 2019. Net loans were $5.444 billion at December 31, 2020 down $253.7 million, or 4.5%, from December 31, 2019. Loan originations totaled $505.2 million during the quarter ended December 31, 2020 and $1.461 billion for the year ended December 31, 2020. The net decrease in loans for the year ended December 31, 2020 was primarily due to decreases of $197.0 million in commercial real estate loans, $122.9 million in multi-family loans and $95.2 million in one- to four-family loans, partially offset by increases of $160.3 million in commercial and industrial loans and $24.1 million in construction loans. The increase in commercial and industrial loans includes the origination of $123.7 million in PPP loans. The allowance for credit losses on loans increased $18.5 million, or 36.8%, to $68.8 million during the year ended December 31, 2020. Cash and due from banks was $914.6 million at December 31, 2020, an increase of $508.2 million, or 125.1% from December 31, 2019.
Total deposits were $5.081 billion at December 31, 2020, up $159.6 million, or 3.2%, from $4.922 billion at December 31, 2019. Core deposits, which exclude certificates of deposit, increased $510.3 million, or 15.2%, during the year ended December 31, 2020 to $3.862 billion, or 76.0% of total deposits, compared to 68.1% at December 31, 2019. The net increase in deposits for the year ended December 31, 2020 includes a $187.4 million increase, or 35.8%, in non-interest bearing demand deposits and a $350.7 million decrease in certificates of deposit, including a $192.5 million reduction in brokered deposits. Total borrowings were $708.2 million at December 31, 2020, up $72.0 million, or 11.3%, from December 31, 2019.
Total stockholders’ equity increased $42.3 million, or 5.8%, to $768.9 million at December 31, 2020 from $726.6 million at December 31, 2019. The increase for the year ended December 31, 2020 was primarily due to net income of $65.1 million, $5.5 million related to the adoption of ASU 2016-13, net of taxes, and $5.3 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 $0.32 per share totaling $16.0 million. Stockholders’ equity to assets was 11.61% at December 31, 2020, compared to 11.45% at December 31, 2019. Book value per share increased to $14.67 at December 31, 2020 from $13.61 at December 31, 2019. Tangible book value per share increased to $14.25 at December 31, 2020 from $13.19 at December 31, 2019. Market price per share decreased 25.8% to $14.91 at December 31, 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 December 31, 2020 exceeded the minimum requirement to be considered well capitalized.
Mr. Gavegnano concluded, “The year 2020 and the COVID-19 pandemic have posed unprecedented challenges to the integrity of the economy and financial markets, especially the financial services industry. Management’s depth in industry experience, along with strong capital and liquidity positions, have the Company prepared to meet the challenges of 2021 and beyond. We will continue to support our customers and communities we serve through these difficult times, testing our steadfast resolve to be a true community bank.”
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.
MERIDIAN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
December 31, 2020
September 30, 2020
December 31, 2019
(Dollars in thousands)
ASSETS
Cash and due from banks
$
914,586
$
702,138
$
406,382
Certificates of deposit
—
—
247
Securities available for sale, at fair value
11,326
12,183
15,076
Marketable equity securities, at fair value
12,189
16,203
15,243
Federal Home Loan Bank stock, at cost
30,658
33,282
28,947
Loans held for sale
8,224
11,662
2,455
Loans:
One- to four-family
564,146
604,037
659,366
Home equity lines of credit
68,721
73,581
69,491
Multi-family
880,552
941,409
1,003,418
Commercial real estate
2,499,660
2,595,124
2,696,671
Construction
731,432
666,375
707,370
Commercial and industrial
765,195
766,418
604,889
Consumer
10,707
12,213
12,196
Total loans
5,520,413
5,659,157
5,753,401
Allowance for credit losses on loans
(68,824
)
(67,639
)
(50,322
)
Net deferred loan origination fees
(7,784
)
(7,717
)
(5,539
)
Loans, net
5,443,805
5,583,801
5,697,540
Bank-owned life insurance
41,877
41,606
41,155
Premises and equipment, net
66,850
67,917
65,841
Accrued interest receivable
23,173
21,460
14,481
Deferred tax asset, net
21,355
17,007
16,726
Goodwill
20,378
20,378
20,378
Core deposit intangible
1,651
1,769
2,123
Other assets
23,776
37,327
17,100
Total assets
$
6,619,848
$
6,566,733
$
6,343,694
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing demand deposits
$
711,573
$
707,458
$
524,154
Interest-bearing demand deposits
1,364,548
1,353,153
1,269,211
Money market deposits
930,507
789,712
675,702
Regular savings and other deposits
855,329
850,810
882,550
Certificates of deposit
1,219,210
1,250,894
1,569,916
Total deposits
5,081,167
4,952,027
4,921,533
Short-term borrowings
—
25,000
—
Long-term debt
708,245
779,279
636,245
Accrued expenses and other liabilities
61,551
62,163
59,329
Total liabilities
5,850,963
5,818,469
5,617,107
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; none issued
—
—
—
Common stock, $0.01 par value, 100,000,000 shares authorized; 52,415,061, 52,413,120 and 53,377,506 shares issued at December 31, 2020, September 30, 2020 and December 31, 2019, respectively
524
524
534
Additional paid-in capital
363,995
363,093
377,213
Retained earnings
420,297
400,649
365,742
Accumulated other comprehensive income (loss)
(58
)
91
(147
)
Unearned compensation - ESOP; 2,191,745, 2,222,186 and 2,313,509 shares at December 31, 2020, September 30, 2020 and December 31, 2019, respectively
(15,873
)
(16,093
)
(16,755
)
Total stockholders' equity
768,885
748,264
726,587
Total liabilities and stockholders' equity
$
6,619,848
$
6,566,733
$
6,343,694
MERIDIAN BANCORP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF NET INCOME (Unaudited)
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. It offers a variety of deposit and loan products to individuals and businesses located in its primary market, which consists of Essex, Middlesex, Norfolk and Suffolk Counties, Massachusetts.
