0001564590-18-028924.txt : 20181109 0001564590-18-028924.hdr.sgml : 20181109 20181109160708 ACCESSION NUMBER: 0001564590-18-028924 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 70 CONFORMED PERIOD OF REPORT: 20180930 FILED AS OF DATE: 20181109 DATE AS OF CHANGE: 20181109 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Meridian Bancorp, Inc. CENTRAL INDEX KEY: 0001600125 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-36573 FILM NUMBER: 181173143 BUSINESS ADDRESS: STREET 1: 10 MERIDIAN STREET CITY: EAST BOSTON STATE: MA ZIP: 02128 BUSINESS PHONE: (617) 567-1500 MAIL ADDRESS: STREET 1: 10 MERIDIAN STREET CITY: EAST BOSTON STATE: MA ZIP: 02128 10-Q 1 ebsb-10q_20180930.htm 10-Q ebsb-10q_20180930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Quarterly Period Ended September 30, 2018

OR

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

Commission file number 001-36573

 

Meridian Bancorp, Inc.

(Exact name of registrant as specified in its charter)

 

 

Maryland

46-5396964

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

 

67 Prospect Street,

Peabody, Massachusetts

01960

(Address of Principal Executive Offices)

Zip Code

 

(617) 567-1500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

  

Accelerated filer

Non-accelerated filer

 

 

  

Small reporting company

 

 

 

 

 

Emerging Growth Company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes      No    

As of November 1, 2018, there were 54,157,365 outstanding shares of the Registrant’s common stock.

 

 

 


MERIDIAN BANCORP, INC.

FORM 10-Q

 

INDEX

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements (Unaudited)

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets at September 30, 2018 and December 31, 2017

 

3

 

 

 

 

 

 

 

Consolidated Statements of Net Income for the three and nine months ended September 30, 2018 and 2017

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2018 and 2017

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2018 and 2017

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017

 

7

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

23

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

39

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

40

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

41

 

 

 

 

 

Item 1A.

 

Risk Factors

 

41

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

41

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

41

 

 

 

 

 

Item 5.

 

Other Information

 

41

 

 

 

 

 

Item 6.

 

Exhibits

 

42

 

 

 

 

 

 

 

Signatures

 

44

 

 

 

 

 

 

 

Exhibit 10.21

 

 

 

 

 

 

 

 

 

Exhibit 31.1

 

 

 

 

 

 

 

 

 

Exhibit 31.2

 

 

 

 

 

 

 

 

 

Exhibit 32.0

 

 

 

 

2


PART I – FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

September 30,

 

 

December 31,

 

 

2018

 

 

2017

 

 

(Dollars in thousands)

 

ASSETS

 

Cash and due from banks

$

313,668

 

 

$

402,687

 

Certificates of deposit

 

20,891

 

 

 

69,326

 

Securities available for sale, at fair value

 

17,510

 

 

 

38,364

 

Equity securities, at fair value

 

16,135

 

 

 

 

Federal Home Loan Bank stock, at cost

 

31,100

 

 

 

24,947

 

Loans held for sale

 

843

 

 

 

3,772

 

Loans, net of fees and costs

 

5,275,510

 

 

 

4,667,983

 

Less: allowance for loan losses

 

(49,609

)

 

 

(45,185

)

Loans, net

 

5,225,901

 

 

 

4,622,798

 

Bank-owned life insurance

 

41,164

 

 

 

40,336

 

Premises and equipment, net

 

42,448

 

 

 

40,967

 

Accrued interest receivable

 

13,409

 

 

 

12,902

 

Deferred tax asset, net

 

15,998

 

 

 

15,244

 

Goodwill

 

19,638

 

 

 

19,638

 

Core deposit intangible

 

2,801

 

 

 

3,243

 

Other assets

 

13,822

 

 

 

5,231

 

Total assets

$

5,775,328

 

 

$

5,299,455

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

Deposits:

 

 

 

 

 

 

 

Non interest-bearing

$

490,703

 

 

$

477,428

 

Interest-bearing

 

3,920,550

 

 

 

3,630,433

 

Total deposits

 

4,411,253

 

 

 

4,107,861

 

Short-term borrowings

 

40,000

 

 

 

 

Long-term debt

 

610,772

 

 

 

513,444

 

Accrued expenses and other liabilities

 

34,160

 

 

 

31,751

 

Total liabilities

 

5,096,185

 

 

 

4,653,056

 

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; 54,233,331 and

   54,039,316 shares issued and outstanding at September 30, 2018 and December 31,

   2017, respectively

 

542

 

 

 

540

 

Additional paid-in capital

 

392,545

 

 

 

395,716

 

Retained earnings

 

304,725

 

 

 

268,533

 

Accumulated other comprehensive income (loss)

 

(812

)

 

 

128

 

Unearned compensation - ESOP, 2,465,713 and 2,557,036 shares at September 30, 2018

   and December 31, 2017, respectively

 

(17,857

)

 

 

(18,518

)

Total stockholders' equity

 

679,143

 

 

 

646,399

 

Total liabilities and stockholders' equity

$

5,775,328

 

 

$

5,299,455

 

 

See accompanying notes to consolidated financial statements.

 

3


MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

(Dollars in thousands, except per share amounts)

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

$

55,849

 

 

$

46,597

 

 

$

159,738

 

 

$

130,281

 

Interest on debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxable

 

115

 

 

 

58

 

 

 

367

 

 

 

260

 

Tax-exempt

 

13

 

 

 

 

 

 

43

 

 

 

18

 

Dividends on equity securities

 

101

 

 

 

275

 

 

 

383

 

 

 

843

 

Interest on certificates of deposit

 

104

 

 

 

221

 

 

 

448

 

 

 

629

 

Other interest and dividend income

 

1,932

 

 

 

819

 

 

 

4,981

 

 

 

2,200

 

Total interest and dividend income

 

58,114

 

 

 

47,970

 

 

 

165,960

 

 

 

134,231

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on deposits

 

14,284

 

 

 

8,528

 

 

 

37,544

 

 

 

23,882

 

Interest on borrowings

 

2,463

 

 

 

1,388

 

 

 

6,154

 

 

 

3,486

 

Total interest expense

 

16,747

 

 

 

9,916

 

 

 

43,698

 

 

 

27,368

 

Net interest income

 

41,367

 

 

 

38,054

 

 

 

122,262

 

 

 

106,863

 

Provision for loan losses

 

226

 

 

 

2,458

 

 

 

4,285

 

 

 

5,574

 

Net interest income, after provision for loan losses

 

41,141

 

 

 

35,596

 

 

 

117,977

 

 

 

101,289

 

Non-interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer service fees

 

2,242

 

 

 

2,081

 

 

 

6,694

 

 

 

6,347

 

Loan fees

 

301

 

 

 

180

 

 

 

438

 

 

 

1,882

 

Mortgage banking gains, net

 

74

 

 

 

176

 

 

 

270

 

 

 

348

 

Gain on sales of securities available for sale, net

 

 

 

 

865

 

 

 

 

 

 

3,247

 

Gain on equity securities, net

 

781

 

 

 

 

 

 

632

 

 

 

 

Income from bank-owned life insurance

 

279

 

 

 

294

 

 

 

828

 

 

 

874

 

Gain on life insurance distribution

 

 

 

 

1,657

 

 

 

 

 

 

1,657

 

Other income

 

 

 

 

 

 

 

6

 

 

 

 

Total non-interest income

 

3,677

 

 

 

5,253

 

 

 

8,868

 

 

 

14,355

 

Non-interest expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

14,386

 

 

 

12,973

 

 

 

44,218

 

 

 

39,400

 

Occupancy and equipment

 

2,981

 

 

 

2,676

 

 

 

9,545

 

 

 

8,735

 

Data processing

 

1,747

 

 

 

1,528

 

 

 

5,083

 

 

 

4,381

 

Marketing and advertising

 

832

 

 

 

715

 

 

 

2,805

 

 

 

2,522

 

Professional services

 

683

 

 

 

624

 

 

 

2,648

 

 

 

2,865

 

Deposit insurance

 

851

 

 

 

660

 

 

 

2,430

 

 

 

2,164

 

Merger and acquisition

 

26

 

 

 

271

 

 

 

114

 

 

 

271

 

Other general and administrative

 

1,501

 

 

 

1,367

 

 

 

4,318

 

 

 

3,758

 

Total non-interest expenses

 

23,007

 

 

 

20,814

 

 

 

71,161

 

 

 

64,096

 

Income before income taxes

 

21,811

 

 

 

20,035

 

 

 

55,684

 

 

 

51,548

 

Provision for income taxes

 

4,454

 

 

 

6,702

 

 

 

12,271

 

 

 

17,624

 

Net income

$

17,357

 

 

$

13,333

 

 

$

43,413

 

 

$

33,924

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.34

 

 

$

0.26

 

 

$

0.84

 

 

$

0.66

 

Diluted

$

0.33

 

 

$

0.25

 

 

$

0.82

 

 

$

0.65

 

Weighted average shares:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

51,492,448

 

 

 

51,229,203

 

 

 

51,487,192

 

 

 

51,061,959

 

Diluted

 

52,732,340

 

 

 

52,672,962

 

 

 

52,894,503

 

 

 

52,541,752

 

 

See accompanying notes to consolidated financial statements.

 

4


MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

(In thousands)

 

Net income

$

17,357

 

 

$

13,333

 

 

$

43,413

 

 

$

33,924

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss)

 

(156

)

 

 

2,067

 

 

 

(654

)

 

 

4,621

 

Reclassification adjustment for gains realized in income (1)

 

 

 

 

(865

)

 

 

 

 

 

(3,247

)

Net unrealized gain (loss)

 

(156

)

 

 

1,202

 

 

 

(654

)

 

 

1,374

 

Tax effect

 

43

 

 

 

(485

)

 

 

217

 

 

 

(558

)

Total other comprehensive income (loss)

 

(113

)

 

 

717

 

 

 

(437

)

 

 

816

 

Comprehensive income

$

17,244

 

 

$

14,050

 

 

$

42,976

 

 

$

34,740

 

 

(1)

Amount is included in gain on sales of securities available for sale, net in the Consolidated Statements of Net Income. Provision for income tax associated with the reclassification adjustment for the three and nine months ended September 30, 2017 was $349,000 and $1.3 million, respectively.

See accompanying notes to consolidated financial statements.

 

5


MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Nine Months Ended September 30, 2018 and 2017

(Unaudited)

 

 

 

Shares of

Common Stock

Outstanding

 

 

Common

Stock

 

 

Additional

Paid-in

Capital

 

 

Retained

Earnings

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Unearned

Compensation -

ESOP

 

 

Total

 

 

 

(Dollars in thousands)

 

Nine Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

54,039,316

 

 

$

540

 

 

$

395,716

 

 

$

268,533

 

 

$

128

 

 

$

(18,518

)

 

$

646,399

 

Cumulative effect of adopting Accounting

   Standards Update 2016-01

 

 

 

 

 

 

 

 

 

 

 

503

 

 

 

(503

)

 

 

 

 

 

 

Comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

43,413

 

 

 

(437

)

 

 

 

 

 

42,976

 

Dividends declared ($0.15 per share)

 

 

 

 

 

 

 

 

 

 

 

(7,724

)

 

 

 

 

 

 

 

 

(7,724

)

Repurchased stock related to buyback

   program

 

 

(314,010

)

 

 

(3

)

 

 

(6,058

)

 

 

 

 

 

 

 

 

 

 

 

(6,061

)

ESOP shares committed to be allocated (91,323 shares)

 

 

 

 

 

 

 

 

1,113

 

 

 

 

 

 

 

 

 

661

 

 

 

1,774

 

Share-based compensation expense -

   restricted stock, net of awards forfeited

 

 

7,100

 

 

 

 

 

 

2,110

 

 

 

 

 

 

 

 

 

 

 

 

2,110

 

Share-based compensation expense - stock

   options, net of awards forfeited

 

 

 

 

 

 

 

 

1,235

 

 

 

 

 

 

 

 

 

 

 

 

1,235

 

Shares surrendered related to tax

   withholdings on stock options exercised

 

 

(117,313

)

 

 

(1

)

 

 

(2,030

)

 

 

 

 

 

 

 

 

 

 

 

(2,031

)

Stock options exercised

 

 

618,238

 

 

 

6

 

 

 

459

 

 

 

 

 

 

 

 

 

 

 

 

465

 

Balance at September 30, 2018

 

 

54,233,331

 

 

$

542

 

 

$

392,545

 

 

$

304,725

 

 

$

(812

)

 

$

(17,857

)

 

$

679,143

 

Nine Months Ended September 30, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2016

 

 

53,596,105

 

 

$

536

 

 

$

390,065

 

 

$

234,290

 

 

$

1,806

 

 

$

(19,400

)

 

$

607,297

 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

33,924

 

 

 

816

 

 

 

 

 

 

34,740

 

Dividends declared ($0.12 per share)

 

 

 

 

 

 

 

 

 

 

 

(6,135

)

 

 

 

 

 

 

 

 

(6,135

)

ESOP shares committed to be allocated (91,323 shares)

 

 

 

 

 

 

 

 

968

 

 

 

 

 

 

 

 

 

661

 

 

 

1,629

 

Share-based compensation expense -

   restricted stock, net of awards forfeited

 

 

255,196

 

 

 

2

 

 

 

1,629

 

 

 

 

 

 

 

 

 

 

 

 

1,631

 

Share-based compensation expense - stock

   options, net of awards forfeited

 

 

 

 

 

 

 

 

923

 

 

 

 

 

 

 

 

 

 

 

 

923

 

Stock options exercised

 

 

96,093

 

 

 

1

 

 

 

318

 

 

 

 

 

 

 

 

 

 

 

 

319

 

Balance at September 30, 2017

 

 

53,947,394

 

 

$

539

 

 

$

393,903

 

 

$

262,079

 

 

$

2,622

 

 

$

(18,739

)

 

$

640,404

 

 

See accompanying notes to consolidated financial statements.  

6


MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

43,413

 

 

$

33,924

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Net amortization (accretion) of acquisition fair value adjustments

 

 

72

 

 

 

(122

)

Amortization of core deposit intangible

 

 

442

 

 

 

 

ESOP shares expense

 

 

1,774

 

 

 

1,629

 

Provision for loan losses

 

 

4,285

 

 

 

5,574

 

Accretion of net deferred loan origination fees

 

 

(1,158

)

 

 

(913

)

Net amortization (accretion) of securities available for sale

 

 

40

 

 

 

(5

)

Depreciation and amortization expense

 

 

2,170

 

 

 

2,333

 

Gain on sales of securities available for sale, net

 

 

 

 

 

(3,247

)

Gain on equity securities, net

 

 

(632

)

 

 

 

Deferred income tax benefit

 

 

(537

)

 

 

(584

)

Income from bank-owned life insurance

 

 

(828

)

 

 

(874

)

Gain on life insurance distribution

 

 

 

 

 

(1,657

)

Share-based compensation expense

 

 

3,345

 

 

 

2,554

 

Net changes in:

 

 

 

 

 

 

 

 

Loans held for sale

 

 

2,929

 

 

 

237

 

Accrued interest receivable

 

 

(507

)

 

 

(1,199

)

Other assets

 

 

(8,591

)

 

 

(5,719

)

Accrued expenses and other liabilities

 

 

2,403

 

 

 

(1,410

)

Net cash provided by operating activities

 

 

48,620

 

 

 

30,521

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of certificates of deposit

 

 

(5,000

)

 

 

(5,000

)

Maturities of certificates of deposit

 

 

53,435

 

 

 

10,131

 

Activity in securities, at fair value:

 

 

 

 

 

 

 

 

Proceeds from maturities, calls and principal payments

 

 

2,385

 

 

 

16,454

 

Proceeds from sales

 

 

3,867

 

 

 

17,221

 

Purchases

 

 

(1,595

)

 

 

(6,361

)

Loans originated, net of principal payments received

 

 

(606,335

)

 

 

(609,507

)

Proceeds from bank-owned life insurance distribution

 

 

 

 

 

3,224

 

Purchases of premises and equipment

 

 

(3,589

)

 

 

(921

)

Purchase of Federal Home Loan Bank stock

 

 

(6,153

)

 

 

(4,801

)

Net cash used in investing activities

 

 

(562,985

)

 

 

(579,560

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net increase in deposits

 

 

303,348

 

 

 

469,646

 

Net change in borrowings with maturities less than three months

 

 

40,000

 

 

 

 

Proceeds from Federal Home Loan Bank advances with maturities of three months or more

 

 

325,000

 

 

 

260,625

 

Repayment of Federal Home Loan Bank advances with maturities of three months or more

 

 

(227,657

)

 

 

(112,068

)

Cash dividends paid on common stock

 

 

(7,718

)

 

 

(5,609

)

Stock options exercised, net of cash paid in connection with income taxes

 

 

(1,566

)

 

 

319

 

Repurchase of common stock

 

 

(6,061

)

 

 

 

Net cash provided by financing activities

 

 

425,346

 

 

 

612,913

 

Net change in cash and cash equivalents

 

 

(89,019

)

 

 

63,874

 

Cash and cash equivalents at beginning of period

 

 

402,687

 

 

 

236,423

 

Cash and cash equivalents at end of period

 

$

313,668

 

 

$

300,297

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Interest paid on deposits

 

$

37,030

 

 

$

23,690

 

Interest paid on borrowings

 

 

5,868

 

 

 

3,312

 

Income taxes paid, net of refunds

 

 

20,722

 

 

 

21,285

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Transfers from loans to foreclosed real estate

 

 

 

 

 

1,690

 

Net amounts due from broker on security transactions

 

 

 

 

 

316

 

 

See accompanying notes to consolidated financial statements.

7


MERIDIAN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

The consolidated financial statements include the accounts of Meridian Bancorp, Inc. (the “Company”) and all other entities in which it has a controlling financial interest. The Company owns 100% of the outstanding shares of East Boston Savings Bank (the “Bank”). The Bank’s subsidiaries include: (1) Prospect, Inc., which engages in securities transactions on its own behalf; (2) EBOSCO, LLC, which can hold foreclosed real estate; and (3) East Boston Investment Services, Inc., which is authorized for third-party investment sales and is currently inactive. All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by such generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments were of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the entire year or any other interim period. For additional information, refer to the financial statements and footnotes thereto of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2018, and is available through the SEC’s website at www.sec.gov.

In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.

 

2. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted During the Period

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of this ASU is to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance does not apply to revenue associated with financial instruments, including loans and investment securities that are accounted for under GAAP, which comprise a significant portion of our revenue stream. ASU 2014-09 became effective for the Company on January 1, 2018 and had no material effect on how the Company recognizes revenue in our consolidated financial statements and disclosures.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall, (Subtopic 825-10). The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Targeted changes to GAAP include the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income and the elimination of the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost. The ASU required a cumulative-effect adjustment to retained earnings as of the beginning of the reporting period of adoption to reclassify the cumulative change in fair value of equity securities previously recognized in Accumulated Other Comprehensive Income (“AOCI”). ASU 2016-01 become effective for the Company on January 1, 2018. The adoption of the guidance resulted in an insignificant cumulative-effect adjustment that increased retained earnings, with an offsetting adjustment to deferred taxes and AOCI. See Note 4 – Securities for disclosures related to equity securities.

 

 

8


To be Adopted in Future Periods

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update is intended to improve financial reporting about leasing transactions and the key provision impacting the Company is the requirement for a lessee to record a right-to-use asset and liability representing the obligation to make lease payments for long-term operating leases. The update will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As of December 31, 2017, the Company had future minimum lease payments of $15.5 million, all under operating lease agreements. Upon adoption, the Company expects its assets and liabilities to increase based on the present value of the future minimum lease payments, using the discount rate applicable at the outset of the lease agreement. However, the adoption of this ASU is not expected to be material to the Company’s results of operations or financial position.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including loans, held-to-maturity debt securities and commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology, referred to as Current Expected Credit Loss, or CECL, that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to formulate credit loss estimates. Credit losses on available-for-sale debt securities will be measured in a manner similar to current GAAP, but will be recognized through an allowance rather than as a direct write-down. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is developing a project plan to facilitate the implementation of CECL. This plan considers enhancements to internal controls, loan pool segmentation, loan loss estimation methodology, data gathering resources, data analytics and necessary disclosures. The adoption of this ASU may result in material changes to the allowance for loan losses with a resulting adjustment to retained earnings, however any potential adjustment will be dependent on the credit risks within the portfolio and the economic environment at the time of adoption.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350). The update intends to simplify the subsequent measurement of goodwill by requiring an entity to compare the fair value of a reporting unit to its carrying value, including goodwill. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment charge should not exceed the total amount of goodwill allocated to that reporting unit. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this ASU is not expected to be material to the Company’s results of operations or financial position.

 

 

3. EARNINGS PER SHARE

Basic earnings per share excludes dilution and is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Rights to dividends on unvested stock awards are non-forfeitable, therefore these unvested stock awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents (such as options) were issued during the period. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

Basic and diluted earnings per share have been computed based on the following:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017