Meridian Bancorp (EBSB) 10-Q 2018 Q1 Quarterly report

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 March 31, 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 and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post 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	☐	(Do not check if a small reporting company)	Small reporting company	☐
			Emerging Growth Company	☐

Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednot tousetheextended transition periodforcomplying withanyneworrevisedfinancialaccounting standardsprovidedpursuantto Section13(a)oftheExchangeAct.☐

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

As of May 1, 2018, there were 53,932,511 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 March 31, 2018 and December 31, 2017	3
	Consolidated Statements of Net Income for the three months ended March 31, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2018 and 2017	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.	Controls and Procedures	35
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	37
	Signatures	39
	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)

	March 31,			December 31,
	2018			2017
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	316,372		$	402,687
Certificates of deposit		44,133			69,326
Securities available for sale, at fair value		19,507			38,364
Equity securities, at fair value		14,722			—
Federal Home Loan Bank stock, at cost		27,572			24,947
Loans held for sale		1,136			3,772
Loans, net of fees and costs		4,947,824			4,667,983
Less: allowance for loan losses		(47,488	)		(45,185	)
Loans, net		4,900,336			4,622,798
Bank-owned life insurance		40,608			40,336
Premises and equipment, net		41,415			40,967
Accrued interest receivable		12,281			12,902
Deferred tax asset, net		15,737			15,244
Goodwill		19,638			19,638
Core deposit intangible		3,096			3,243
Other assets		4,145			5,231
Total assets	$	5,460,698		$	5,299,455
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing	$	487,096		$	477,428
Interest-bearing		3,702,278			3,630,433
Total deposits		4,189,374			4,107,861
Long-term debt		582,561			513,444
Accrued expenses and other liabilities		33,156			31,751
Total liabilities		4,805,091			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; 54,068,874    and 54,039,316 shares issued and outstanding at March 31, 2018 and    December 31, 2017, respectively		540			540
Additional paid-in capital		395,531			395,716
Retained earnings		278,450			268,533
Accumulated other comprehensive income (loss)		(616	)		128
Unearned compensation - ESOP, 2,526,595 and 2,557,036 shares at March 31, 2018 and    December 31, 2017, respectively		(18,298	)		(18,518	)
Total stockholders' equity		655,607			646,399
Total liabilities and stockholders' equity	$	5,460,698		$	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 March 31,
	2018			2017
	(Dollars in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	49,985		$	40,489
Interest on debt securities:
Taxable		126			119
Tax-exempt		15			10
Dividends on equity securities		148			277
Interest on certificates of deposit		203			212
Other interest and dividend income		1,522			645
Total interest and dividend income		51,999			41,752
Interest expense:
Interest on deposits		10,509			7,419
Interest on long-term debt		1,642			980
Total interest expense		12,151			8,399
Net interest income		39,848			33,353
Provision for loan losses		2,189			1,619
Net interest income, after provision for loan losses		37,659			31,734
Non-interest income:
Customer service fees		2,170			2,052
Loan fees		295			68
Mortgage banking gains, net		133			90
Gain on sales of securities available for sale, net		—			1,574
Loss on equity securities, net		(537	)		—
Income from bank-owned life insurance		272			288
Total non-interest income		2,333			4,072
Non-interest expenses:
Salaries and employee benefits		15,394			13,675
Occupancy and equipment		3,539			3,023
Data processing		1,683			1,379
Marketing and advertising		967			854
Professional services		965			1,135
Deposit insurance		797			691
Merger and acquisition		74			—
Other general and administrative		1,270			1,120
Total non-interest expenses		24,689			21,877
Income before income taxes		15,303			13,929
Provision for income taxes		3,309			4,685
Net income	$	11,994		$	9,244
Earnings per share:
Basic	$	0.23		$	0.18
Diluted	$	0.23		$	0.18
Weighted average shares:
Basic		51,531,835			50,949,634
Diluted		53,083,815			52,526,737

See accompanying notes to consolidated financial statements.

4

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31,
	2018			2017
	(In thousands)
Net income	$	11,994		$	9,244
Other comprehensive (loss) income:
Securities available for sale:
Unrealized holding (loss) gain		(381	)		1,958
Reclassification adjustment for gains realized in income (1)		—			(1,574	)
Net unrealized (loss) gain		(381	)		384
Tax effect		136			(156	)
Total other comprehensive (loss) income		(245	)		228
Comprehensive income	$	11,749		$	9,472

(1) Amount is included in gain on sales of securities available for sale, net in the Consolidated Statement of Net Income. Provision for income tax associated with the reclassification adjustment for the three months ended March 31, 2017 was $639,000.

See accompanying notes to consolidated financial statements.

5

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three Months Ended March 31, 2018 and 2017

(Unaudited)

	Shares of CommonStock Outstanding			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation - ESOP			Total
	(Dollars in thousands)
Three Months Ended March 31, 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		—			—			—			499			(499	)		—			—
Comprehensive income		—			—			—			11,994			(245	)		—			11,749
Dividends declared ($0.05 per share)		—			—			—			(2,576	)		—			—			(2,576	)
Repurchased stock related to buyback program		(100,000	)		(1	)		(1,995	)		—			—			—			(1,996	)
ESOP shares earned (30,441 shares)		—			—			405			—			—			220			625
Share-based compensation expense -    restricted stock, net of awards forfeited		(3,190	)		—			716			—			—			—			716
Share-based compensation expense - stock    options, net of awards forfeited		—			—			415			—			—			—			415
Stock options exercised		132,748			1			274			—			—			—			275
Balance at March 31, 2018		54,068,874		$	540		$	395,531		$	278,450		$	(616	)	$	(18,298	)	$	655,607
Three Months Ended March 31, 2017
Balance at December 31, 2016		53,596,105		$	536		$	390,065		$	234,290		$	1,806		$	(19,400	)	$	607,297
Comprehensive income		—			—			—			9,244			228			—			9,472
Dividends declared ($0.04 per share)		—			—			—			(2,062	)		—			—			(2,062	)
ESOP shares earned (30,441 shares)		—			—			351			—			—			220			571
Share-based compensation expense -    restricted stock, net of awards forfeited		(8,080	)		—			489			—			—			—			489
Share-based compensation expense - stock    options, net of awards forfeited		—			—			275			—			—			—			275
Stock options exercised		42,816			—			136			—			—			—			136
Balance at March 31, 2017		53,630,841		$	536		$	391,316		$	241,472		$	2,034		$	(19,180	)	$	616,178

See accompanying notes to consolidated financial statements.

6

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2018			2017
	(In thousands)
Cash flows from operating activities:
Net income	$	11,994		$	9,244
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of acquisition fair value adjustments		(21	)		(54	)
Amortization of core deposit intangible		147			—
ESOP shares earned expense		625			571
Provision for loan losses		2,189			1,619
Accretion of net deferred loan origination fees		(316	)		(217	)
Net amortization (accretion) of securities available for sale		13			(1	)
Depreciation and amortization expense		776			794
Gain on sales of securities, net		(154	)		(1,574	)
Unrealized losses on equity securities		691			—
Deferred income tax benefit		(357	)		(166	)
Income from bank-owned life insurance		(272	)		(288	)
Share-based compensation expense		1,131			764
Net changes in:
Loans held for sale		2,636			2,922
Accrued interest receivable		621			311
Other assets		1,086			(809	)
Accrued expenses and other liabilities		1,403			184
Net cash provided by operating activities		22,192			13,300
Cash flows from investing activities:
Purchases of certificates of deposit		(5,000	)		—
Maturities of certificates of deposit		30,193			—
Activity in securities, at fair value:
Proceeds from maturities, calls and principal payments		689			5,241
Purchase of mutual funds, net		—			(35	)
Proceeds from sales		3,010			8,393
Purchases		(495	)		(3,022	)
Loans originated, net of principal payments received		(279,416	)		(123,462	)
Purchases of premises and equipment		(1,203	)		(445	)
Purchase of Federal Home Loan Bank stock		(2,625	)		(454	)
Net cash used in investing activities		(254,847	)		(113,784	)
Cash flows from financing activities:
Net increase in deposits		81,518			180,801
Proceeds from Federal Home Loan Bank advances with maturities of three months or more		120,000			60,625
Repayment of Federal Home Loan Bank advances with maturities of three months or more		(50,883	)		(48,310	)
Cash dividends paid on common stock		(2,574	)		(1,528	)
Stock options exercised		275			136
Repurchase of common stock		(1,996	)		—
Net cash provided by financing activities		146,340			191,724
Net change in cash and cash equivalents		(86,315	)		91,240
Cash and cash equivalents at beginning of period		402,687			236,423
Cash and cash equivalents at end of period	$	316,372		$	327,663
Supplemental cash flow information:
Interest paid on deposits	$	10,445		$	7,192
Interest paid on borrowings		1,565			908
Income taxes paid, net of refunds		—			2,035

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 months ended March 31, 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 principal 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 requires 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.

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

8

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 inform 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 in the early stages of developing a project plan to facilitate the implementation of CECL. This plan will consider potential 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 the carrying amount of 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 March 31,
	2018		2017
	(Dollars in thousands, except per share amounts)
Net income available to common stockholders	$	11,994	$	9,244
Basic weighted average shares outstanding		51,531,835		50,949,634
Effect of dilutive stock options		1,551,980		1,577,103
Diluted weighted average shares outstanding		53,083,815		52,526,737
Earnings per share:
Basic	$	0.23	$	0.18
Diluted	$	0.23	$	0.18

For the three months ended March 31, 2018 options for the exercise of 33,356 shares were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive. For the three months ended March 31, 2017 there were no anti-dilutive options.

9

4. SECURITIES

Securities Available for Sale

The amortized cost and fair values of securities available for sale, with gross unrealized gains and losses, follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
March 31, 2018
Debt securities:
Government-sponsored enterprises	$	1,949	$	—	$	(47	)	$	1,902
Municipal bonds		2,421		1		(56	)		2,366
Residential mortgage-backed securities:
Government-sponsored enterprises		14,607		139		(268	)		14,478
Private label		674		91		(4	)		761
Total securities available for sale	$	19,651	$	231	$	(375	)	$	19,507
December 31, 2017
Debt securities:
Government-sponsored enterprises	$	1,942	$	—	$	—		$	1,942
Municipal bonds		2,424		2		—			2,426
Residential mortgage-backed securities:
Government-sponsored enterprises		15,916		231		(2	)		16,145
Private label		70		6		—			76
Total debt securities		20,352		239		(2	)		20,589
Equity securities:
Common stocks:
Basic materials		3,498		207		(250	)		3,455
Consumer products and services		5,832		377		(415	)		5,794
Financial services		1,241		294		—			1,535
Healthcare		1,933		111		(137	)		1,907
Industrials		2,939		469		—			3,408
Technology		1,628		194		(156	)		1,666
Total common stocks		17,071		1,652		(958	)		17,765
Money market mutual funds		10		—		—			10
Total equity securities		17,081		1,652		(958	)		17,775
Total securities available for sale	$	37,433	$	1,891	$	(960	)	$	38,364

At March 31, 2018, debt securities with an amortized cost of $3.0 million and $466,000 were pledged as collateral for Federal Home Loan Bank of Boston (“FHLB”) borrowings and for the Federal Reserve Bank discount window borrowings, respectively.

The amortized cost and fair value of debt securities by contractual maturity at March 31, 2018 are as follows. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without prepayment penalties.

					After One Year
	One Year or Less				Through Five Years				After Five Years				Total
	Amortized		Fair		Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value		Cost		Value
	(In thousands)
Government-sponsored enterprises	$	—	$	—	$	—	$	—	$	1,949	$	1,902	$	1,949	$	1,902
Municipal bonds		320		321		—		—		2,101		2,045		2,421		2,366
Residential mortgage-backed securities:
Government-sponsored enterprises		11,222		10,990		1		1		3,384		3,487		14,607		14,478
Private label		—		—		—		—		674		761		674		761
Total	$	11,542	$	11,311	$	1	$	1	$	8,108	$	8,195	$	19,651	$	19,507

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Information pertaining to securities available for sale as of March 31, 2018 and December 31, 2017, with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months				Twelve Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
March 31, 2018
Debt securities:
Government-sponsored enterprises	$	47	$	1,902	$	—	$	—
Municipal bonds		56		2,366		—		—
Residential mortgage-backed securities:
Government-sponsored enterprises		265		9,202		3		474
Private label		4		176		—		—
Total temporarily impaired securities	$	372	$	13,646	$	3	$	474

	Less Than Twelve Months				Twelve Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
December 31, 2017
Debt securities:
Residential mortgage-backed securities:
Government-sponsored enterprises	$	—	$	—	$	2	$	171
Total debt securities		—		—		2		171
Equity securities:
Common stocks:
Basic materials		87		791		163		641
Consumer products and services		24		1,196		391		1,273
Healthcare		137		1,102		—		—
Technology		100		408		56		426
Total equity securities		348		3,497		610		2,340
Total temporarily impaired securities	$	348	$	3,497	$	612	$	2,511

The Company determined no debt securities were other-than-temporarily impaired for the three months ended March 31, 2018 and 2017. Management evaluates debt securities for other-than-temporary impairment on a quarterly basis, with more frequent evaluation for selected issuers or when economic or market concerns warrant such evaluations.

Equity Securities

Equity securities consist of common stocks and money market mutual funds.  The Company held equity securities with an aggregate fair value of $14.7 million and $17.8 million at March 31, 2018 and December 31, 2017, respectively.  Prior to January 1, 2018, equity securities were stated at fair value with unrealized gains and losses reported as a separate component of AOCI, net of tax.  At December 31, 2017, net unrealized gains of $694,000 had been recognized in AOCI. On January 1, 2018 these unrealized gains and losses were reclassified out of AOCI and into retained earnings with subsequent changes in fair value being recognized in net income.

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2018:

	Three Months Ended
	March 31, 2018
	(In thousands)
Net gains and (losses) recognized during the period on equity securities	$	(537	)
Less:  Net gains and (losses) recognized during the period on equity securities sold during the period		154
Unrealized gain and (losses) recognized during the reporting period on equity securities still held at the reporting date	$	(691	)

11

5. LOANS

A summary of loans follows:

	March 31, 2018						December 31, 2017
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	614,043			12.4	%	$	603,680			12.9	%
Home equity lines of credit		45,193			0.9			48,393			1.0
Multi-family		858,894			17.3			779,637			16.7
Commercial real estate		2,253,014			45.5			2,063,781			44.2
Construction		638,751			12.9			641,306			13.7
Total real estate loans		4,409,895			89.0			4,136,797			88.5
Commercial and industrial		533,056			10.8			525,604			11.3
Consumer		10,466			0.2			10,761			0.2
Total loans		4,953,417			100.0	%		4,673,162			100.0	%
Allowance for loan losses		(47,488	)					(45,185	)
Net deferred loan origination fees		(5,593	)					(5,179	)
Loans, net	$	4,900,336					$	4,622,798

The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying balance sheets. The Company and participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders and disburses required escrow funds to relevant parties. At March 31, 2018 and December 31, 2017, the Company was servicing loans for participants aggregating $213.4 million and $247.8 million, respectively.

At March 31, 2018, multi-family and commercial real estate loans with carrying values totaling $116.6 million and $657.1 million, respectively, were pledged as collateral for FHLB borrowings.

An analysis of the allowance for loan losses and related information follows:

	One- to four-family			Multi- family		Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Balance at December 31, 2017	$	1,001		$	6,263	$	62		$	21,513	$	10,166		$	6,084		$	96		$	45,185
Provision (credit) for loan losses		(76	)		726		(1	)		2,355		(760	)		(106	)		51			2,189
Charge-offs		—			—		—			—		—			—			(80	)		(80	)
Recoveries		—			—		1			5		175			—			13			194
Balance at March 31, 2018	$	925		$	6,989	$	62		$	23,873	$	9,581		$	5,978		$	80		$	47,488
Balance at December 31, 2016		1,367			4,514		73			18,725		8,931			6,452			87			40,149
Provision (credit) for loan losses		(45	)		190		11			416		935			28			84			1,619
Charge-offs		—			—		—			—		—			—			(91	)		(91	)
Recoveries		30			—		—			—		45			—			12			87
Balance at March 31, 2017	$	1,352		$	4,704	$	84		$	19,141	$	9,911		$	6,480		$	92		$	41,764

12

	One- to four-family		Multi- family		Home equity lines of credit		Commercial real estate		Construction		Commercial and industrial		Consumer		Total
	(In thousands)
March 31, 2018
Amount of allowance for loan losses    for loans deemed to be impaired	$	65	$	128	$	—	$	—	$	—	$	—	$	—	$	193
Amount of allowance for loan losses    for loans not deemed to be impaired		860		6,861		62		23,873		9,581		5,978		80		47,295
	$	925	$	6,989	$	62	$	23,873	$	9,581	$	5,978	$	80	$	47,488
Loans deemed to be impaired	$	1,228	$	1,303	$	—	$	831	$	—	$	1,504	$	—	$	4,866
Loans not deemed to be impaired		612,815		857,591		45,193		2,252,183		638,751		531,552		10,466		4,948,551
	$	614,043	$	858,894	$	45,193	$	2,253,014	$	638,751	$	533,056	$	10,466	$	4,953,417
December 31, 2017
Amount of allowance for loan losses    for loans deemed to be impaired	$	51	$	133	$	—	$	—	$	—	$	—	$	—	$	184
Amount of allowance for loan losses    for loans not deemed to be impaired		950		6,130		62		21,513		10,166		6,084		96		45,001
	$	1,001	$	6,263	$	62	$	21,513	$	10,166	$	6,084	$	96	$	45,185
Loans deemed to be impaired	$	1,245	$	1,315	$	—	$	846	$	—	$	1,539	$	—	$	4,945
Loans not deemed to be impaired		602,435		778,322		48,393		2,062,935		641,306		524,065		10,761		4,668,217
	$	603,680	$	779,637	$	48,393	$	2,063,781	$	641,306	$	525,604	$	10,761	$	4,673,162

The following table provides information about the Company’s past due and non-accrual loans:

	30-59		60-89		90 Days
	Days		Days		or Greater		Total		Loans on
	Past Due		Past Due		Past Due		Past Due		Non-accrual
	(In thousands)
March 31, 2018
Real estate loans:
Residential real estate:
One- to four-family	$	418	$	645	$	1,054	$	2,117	$	6,568
Home equity lines of credit		229		228		143		600		562
Commercial real estate		371		—		—		371		378
Total real estate loans		1,018		873		1,197		3,088		7,508
Commercial and industrial		36		—		523		559		523
Consumer		760		562		—		1,322		—
Total	$	1,814	$	1,435	$	1,720	$	4,969	$	8,031
December 31, 2017
Real estate loans:
Residential real estate:
One- to four-family	$	1,537	$	664	$	1,532	$	3,733	$	6,890
Home equity lines of credit		195		42		521		758		562
Commercial real estate		98		—		—		98		388
Total real estate loans		1,830		706		2,053		4,589		7,840
Commercial and industrial		5		—		523		528		523
Consumer		887		568		—		1,455		—
Total	$	2,722	$	1,274	$	2,576	$	6,572	$	8,363

At March 31, 2018 and December 31, 2017, the Company did not have any accruing loans past due 90 days or more.

13

The following tables provide information with respect to the Company’s impaired loans:

	March 31, 2018						December 31, 2017
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
	Investment		Balance		Allowance		Investment		Balance		Allowance
	(In thousands)
Impaired loans without a valuation allowance:
One- to four-family	$	682	$	1,001			$	693	$	1,007
Multi-family		55		55				59		59
Commercial real estate		831		831				846		846
Commercial and industrial		1,504		1,834				1,539		1,870
Total		3,072		3,721				3,137		3,782
Impaired loans with a valuation allowance:
One- to four-family		546		546	$	65		552		552	$	51
Multi-family		1,248		1,248		128		1,256		1,256		133
Total		1,794		1,794		193		1,808	$	1,808		184
Total impaired loans	$	4,866	$	5,515	$	193	$	4,945	$	5,590	$	184

	Three Months Ended March 31,
	2018						2017
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		on Cash Basis		Investment		Recognized		on Cash Basis
	(In thousands)
One- to four-family	$	1,390	$	15	$	12	$	1,569	$	19	$	14
Multi-family		1,309		13		—		1,353		13		—
Commercial real estate		839		10		5		2,800		10		10
Construction		—		—		—		988		2		—
Commercial and industrial		1,525		14		—		1,789		16		—
Total impaired loans	$	5,063	$	52	$	17	$	8,499	$	60	$	24

At March 31, 2018, additional funds committed to be advanced in connection with impaired construction loans were immaterial.

The following table summarizes the Company’s troubled debt restructurings (“TDRs”) at the dates indicated:

	March 31,		December 31,
	2018		2017
	(In thousands)
TDRs on accrual status:
One- to four-family	$	2,109	$	2,125
Multi-family		1,304		1,315
Commercial real estate		9,110		9,200
Commercial and industrial		18		20
Total TDRs on accrual status		12,541		12,660
TDRs on non-accrual status:
One- to four-family		1,031		1,046
Total TDRs on non-accrual status		1,031		1,046
Total TDRs	$	13,572	$	13,706

The Company generally places loans modified as TDRs on non-accrual status for a minimum period of six months. Loans modified as TDRs qualify for return to accrual status once they have demonstrated performance with the modified terms of the loan agreement for a minimum of six consecutive months and future payments are reasonably assured. TDRs are initially reported as impaired loans with an allowance established as part of the allocated component of the allowance for loan losses when the discounted cash flows of the impaired loan is lower than the carrying value of that loan. TDRs may be removed from impairment disclosures in the year following the restructure if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring.

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The Company utilizes a ten-grade internal loan rating system for multi-family, commercial real estate, construction, and commercial and industrial loans as follows:

• Loans rated 1, 2, 3, 4, 5 and 6:    Loans in these categories are considered “pass” rated loans with low to average risk.

• Loans rated 7:    Loans in these categories are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

• Loans rated 8:    Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

• Loans rated 9:    Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

• Loans rated 10:    Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on multi-family, commercial real estate, construction, and commercial and industrial loans. The Company also engages an independent third-party to review a significant portion of loans within these segments on at least an annual basis. Management uses the results of these reviews as part of its annual review process.

The following tables provide the Company’s risk-rated loans by class:

	March 31, 2018								December 31, 2017
	Multi-family						Commercial		Multi-family						Commercial
	residential		Commercial				and		residential		Commercial				and
	real estate		real estate		Construction		industrial		real estate		real estate		Construction		industrial
	(In thousands)
Loans rated 1 - 6	$	854,233	$	2,235,266	$	638,751	$	479,346	$	774,919	$	2,045,905	$	641,306	$	471,793
Loans rated 7		272		16,917		—		6,596		275		17,030		—		6,380
Loans rated 8		4,389		831		—		47,114		4,443		846		—		47,431
Loans rated 9		—		—		—		—		—		—		—		—
Loans rated 10		—		—		—		—		—		—		—		—
Total	$	858,894	$	2,253,014	$	638,751	$	533,056	$	779,637	$	2,063,781	$	641,306	$	525,604

For one- to four-family residential real estate loans, home equity lines of credit and consumer loans, management uses delinquency reports as the key credit quality indicator.

6. DEPOSITS

A summary of deposit balances, by type, follows:

	March 31,		December 31,
	2018		2017
	(In thousands)
Noninterest-bearing demand deposits	$	487,096	$	477,428
Interest-bearing demand deposits		1,098,646		1,004,155
Money market deposits		851,702		921,895
Regular savings and other deposits		343,466		333,774
Total non-certificate accounts		2,780,910		2,737,252
Term certificates less than $250,000		1,027,748		999,531
Term certificates $250,000 and greater		380,716		371,078
Total certificate accounts		1,408,464		1,370,609
Total deposits	$	4,189,374	$	4,107,861

15

A summary of term certificates, by maturity, follows:

	March 31, 2018					December 31, 2017
			Weighted					Weighted
Maturing	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
Within 1 year	$	580,563		1.37	%	$	600,012		1.23	%
Over 1 year to 2 years		426,267		1.80			356,203		1.60
Over 2 years to 3 years		294,600		2.07			290,909		2.05
Over 3 years to 4 years		72,250		2.02			78,461		1.88
Over 4 years to 5 years		34,784		2.55			44,798		2.34
Greater than 5 years		—		—			226		2.13
	$	1,408,464		1.71	%	$	1,370,609		1.57	%

The Company had brokered certificates of deposit, which are included in term certificates in the table above, totaling $286.7 million with a weighted average rate of 1.87% and $232.7 million with a weighted average rate of 1.73% at March 31, 2018 and December 31, 2017, respectively. The Company also had certificate of deposit accounts obtained through a listing service, included in term certificates in the table above, totaling $10.9 million with a weighted average rate of 2.10% and $943,000 with a weighted average rate of 1.28% at March 31, 2018 and December 31, 2017, respectively. At March 31, 2018 and December 31, 2017, the Company also had brokered interest-bearing demand deposits totaling $604.8 million and $569.4 million, representing reciprocal deposits received from other financial institutions through Authorized Bank Deposit Placement Network Sponsor to facilitate full federal deposit insurance coverage for certain Bank customers.

7. BORROWINGS

The Company had no short-term borrowings at March 31, 2018 or December 31, 2017. The Company has an available line of credit of $9.4 million with the FHLB at an interest rate that adjusts daily and $466,000 of borrowing capacity at the Federal Reserve Bank discount window. No amounts were drawn on the line of credit and no borrowings were outstanding with the Federal Reserve Bank discount window as of March 31, 2018 or December 31, 2017.

Long-term debt consists of FHLB advances as follows:

	March 31, 2018					December 31, 2017
			Weighted					Weighted
	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
Fixed rate advances maturing:
2018		43,000		1.25	%		48,000		1.26	%
2019		5,748		1.70			6,268		1.66
2020		28,188		1.74			53,551		1.80
2021		25,000		1.70			45,000		1.46
2022		105,625		1.79			105,625		1.79
2023		30,000		2.21			—		—
Thereafter		90,000		1.11			100,000		1.21
		327,561		1.53			358,444		1.51
Variable rate advances maturing:
2021		35,000		1.28			35,000		0.82
2022		100,000		1.00			100,000		0.43
2023		100,000		0.47			20,000		0.49
Thereafter		20,000		1.02			—		—
		255,000		0.83			155,000		0.53
Total advances	$	582,561		1.24	%	$	513,444		1.22	%

16

At March 31, 2018, advances amounting to $455.0 million are callable by the FHLB prior to maturity, including advances totaling $35.0 million with variable rates based on the 3-month London Interbank Offered Rate (LIBOR), less 60 basis points, during the first two years, $20.0 million with variable rates based on the 3-month LIBOR, less 130 basis points, during the first year, $80.0 million with variable rates based on the 3-month LIBOR, less 100 basis points, during the first year, $25.0 million with variable rates based on the 3-month LIBOR, less 125 basis points, during the first year, $20.0 million with variable rates based on the 3-month LIBOR, less 100 basis points, during the first two years, $25.0 million with variable rates based on the 3-month LIBOR, less 75 basis points, during the first year, and $50.0 million with variable rates based on the 3-month LIBOR, less 200 basis points, during the first year.

All borrowings from the FHLB are secured by investment securities and qualified collateral, consisting of a blanket lien on one- to four-family loans and certain multi-family and commercial real estate loans held in the Company’s portfolio. At March 31, 2018, the Company pledged multi-family and commercial real estate loans with carrying values totaling $116.6 million and $695.3 million, respectively.

8. OTHER COMMITMENTS AND CONTINGENCIES AND DERIVATIVES

In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the accompanying consolidated financial statements.

Loan Commitments

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for loan commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

A summary of outstanding loan commitments whose contract amounts represent credit risk is as follows:

	March 31,		December 31,
	2018		2017
	(In thousands)
Unadvanced portion of existing loans:
Construction	$	506,653	$	603,557
Home equity lines of credit		49,600		46,352
Other lines and letters of credit		346,303		301,285
Commitments to originate:
One- to four-family		15,784		25,432
Commercial real estate		151,742		116,314
Construction		185,647		81,937
Commercial and industrial		7,122		30,589
Total loan commitments outstanding	$	1,262,851	$	1,205,466

Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Company for the extension of credit, is based upon management’s credit evaluation of the borrower. Collateral held includes, but is not limited to, residential real estate and deposit accounts.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized if deemed necessary and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

17

Interest Rate Swaps

The Company is a party to interest rate derivatives that are not designated as hedging instruments. These derivatives relate to interest rate swaps that the Company enters into with commercial business customers to synthetically convert their loans from a variable rate to a fixed rate. The Company pays interest to the customer at a floating rate on the notional amount and receives interest from the customer at a fixed rate for the same notional amount. Concurrently, the Company enters into an offsetting interest rate swap with a third party financial institution. In the offsetting swap, the Company pays the other financial institution interest at the same fixed rate on the same notional amount as the swap entered into with the customer, and receives interest from the financial institution for the same floating rate on the same notional amount. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating and probability of default. At March 31, 2018 and December 31, 2017, the Company had $1.3 million in cash pledged for collateral on its interest rate swaps with the third-party financial institution.

Summary information regarding these derivatives is presented below:

				March 31, 2018					December 31, 2017
	Maturity	Interest Rate Paid	Interest Rate Received	Notional Amount		Fair Value			Notional Amount		Fair Value
				(Dollars in thousands)
Customer interest rate swap	06/07/32	1 Mo. Libor + 200bp	Fixed (4.40%)	$	65,133	$	(1,749	)	$	65,514	$	486
Third-party interest rate swap	06/07/32	Fixed (4.40%)	1 Mo. Libor + 200bp		65,133		1,749			65,514		(486	)
Customer interest rate swap	10/17/33	1 Mo. Libor + 175bp	Fixed (4.1052%)	$	10,648	$	462		$	10,709	$	720
Third-party interest rate swap	10/17/33	Fixed (4.1052%)	1 Mo. Libor + 175bp		10,648		(462	)		10,709		(720	)
Customer interest rate swap	12/13/26	1 Mo. Libor + 205bp	Fixed (3.82%)	$	2,845	$	(138	)	$	2,884	$	(78	)
Third-party interest rate swap	12/13/26	Fixed (3.82%)	1 Mo. Libor + 205bp		2,845		138			2,884		78

Other Commitments

As of March 31, 2018, the Company has an outstanding commitment of $16.2 million with its core data processing provider through December 2021.

Employment and Change in Control Agreements

The Company has entered into employment agreements with certain senior executives which provide for a minimum annual salary, subject to increase at the discretion of the Board of Directors, and other benefits. The agreements may be terminated for cause by the Company without further liability on the part of the Company, or by the executives with prior written notice to the Board of Directors. The Company also has change in control agreements with several officers which provide a severance payment in the event employment is terminated in conjunction with a defined change in control.

Legal Claims

Various legal claims may arise from time to time in the normal course of business, but in the opinion of management, these claims are not expected to have a material effect on the Company’s consolidated financial statements.

9. FAIR VALUES OF ASSETS AND LIABILITIES

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

The following methods and assumptions were used by the Company in estimating fair value disclosures:

Securities, at fair value— All fair value measurements are obtained from a third party pricing service and are not adjusted by management. Equity securities are measured at fair value utilizing quoted market prices (Level 1). Corporate bonds, obligations of government-sponsored enterprises, U.S. treasury securities, municipal bonds and mortgage-backed

18

securities are determined by pricing models that consider standard input factors such as observable market data, benchmark yields, reported trades, broker/dealer quotes, credit spreads, benchmark securities, as well as new issue data, monthly payment information, and collateral performance, among others (Level 2).

FHLB stock — The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

Loans held for sale — The fair value is based on commitments in effect from investors or prevailing market prices.

Accrued interest — The carrying amounts of accrued interest approximate fair value.

Loan level interest rate swaps — The fair value is based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves.

Off-balance sheet credit-related instruments — Fair values for off-balance-sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of these instruments is considered immaterial.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized as follows. There were no liabilities measured at fair value on a recurring basis.

							Total Fair
	Level 1		Level 2		Level 3		Value
	(In thousands)
March 31, 2018
Assets:
Debt securities	$	—	$	19,507	$	—	$	19,507
Equity securities		14,722		—		—		14,722
Loan level interest rate swaps		—		—		2,349		2,349
Total assets	$	14,722	$	19,507	$	2,349	$	36,578
Liabilities:
Loan level interest rate swaps		—		—		2,349		2,349
Total liabilities	$	—	$	—	$	2,349	$	2,349
							Total Fair
	Level 1		Level 2		Level 3		Value
	(In thousands)
December 31, 2017
Assets:
Debt securities	$	—	$	20,589	$	—	$	20,589
Equity securities		17,775		—		—		17,775
Loan level interest rate swaps		—		—		1,284		1,284
Total assets	$	17,775	$	20,589	$	1,284	$	39,648
Liabilities:
Loan level interest rate swaps		—		—		1,284		1,284
Total liabilities	$	—	$	—	$	1,284	$	1,284

Assets Measured at Fair Value on a Non-recurring Basis

The Company may also be required, from time to time, to measure certain other assets on a non-recurring basis in accordance with generally accepted accounting principles. These adjustments to fair value usually result from the application of lower-of-cost-or market accounting or write-downs of individual assets.

Certain impaired loans were adjusted to fair value, less cost to sell, of the underlying collateral securing these loans resulting in losses. The loss is not recorded directly as an adjustment to current earnings, but rather as a component in determining the allowance for loan losses. Fair value was measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. Impaired loans measured at fair value at March 31, 2018 and December 31, 2017 were $1.7 million and $1.9 million, respectively.  

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Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein do not represent the underlying fair value of the Company.

	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
March 31, 2018
Financial assets:
Cash and due from banks	$	316,372	$	316,372	$	—	$	—	$	316,372
Certificates of deposit		44,133		—		44,429		—		44,429
Securities available for sale, at fair value		19,507		—		19,507		—		19,507
Equity securities, at fair value		14,722		14,722		—		—		14,722
Federal Home Loan Bank stock		27,572		—		—		27,572		27,572
Loans and loans held for sale, net		4,901,472		—		—		4,872,192		4,872,192
Accrued interest receivable		12,281		—		—		12,281		12,281
Financial liabilities:
Deposits		4,189,374		—		—		3,962,891		3,962,891
Borrowings		582,561		—		573,841		—		573,841
Accrued interest payable		2,171		—		—		2,171		2,171
On-balance sheet derivative financial instruments:
Assets:
Loan level interest rate swaps		2,349		—		—		2,349		2,349
Liabilities:
Loan level interest rate swaps		2,349		—		—		2,349		2,349
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
December 31, 2017
Financial assets:
Cash and due from banks	$	402,687	$	402,687	$	—	$	—	$	402,687
Certificates of deposit		69,326		—		69,615		—		69,615
Securities available for sale, at fair value		38,364		17,775		20,589		—		38,364
Federal Home Loan Bank stock		24,947		—		—		24,947		24,947
Loans and loans held for sale, net		4,626,570		—		—		4,590,543		4,590,543
Accrued interest receivable		12,902		—		—		12,902		12,902
Financial liabilities:
Deposits		4,107,861		—		—		3,995,215		3,995,215
Borrowings		513,444		—		508,411		—		508,411
Accrued interest payable		2,025		—		—		2,025		2,025
On-balance sheet derivative financial instruments:
Assets:
Loan level interest rate swaps		1,284		—		—		1,284		1,284
Liabilities:
Loan level interest rate swaps		1,284		—		—		1,284		1,284

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with our business and financial information and the Consolidated Financial Statements and related notes that are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC.

Forward Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. The Company’s ability to predict results or actual effect of future plans is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:

• general economic conditions, either nationally or in our market areas, that are worse than expected;

• inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

• competition among depository and other financial institutions;

• changes in consumer spending, borrowing and savings habits;

• our ability to enter new markets successfully and capitalize on growth opportunities;

• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;

• changes in monetary or fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board;

• changes in the financial condition, results of operations or future prospects of issuers of securities that we own;

• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the SEC;

• changes in the level and trends of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

• our ability to access cost-effective funding;

• fluctuations in real estate values and both residential and commercial real estate market conditions;

• demand for loans and deposits in our market area;

• our ability to implement and changes in our business strategies;

• adverse changes in the securities or secondary mortgage markets;

• our ability to manage market risk, credit risk and operational risk in the current economic conditions;

• failure or breaches of our IT security systems;

• our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

• technological changes that may be more difficult or expensive than expected;

• the ability of third-party providers to perform their obligations to us;

• the ability of the U.S. Government to manage federal debt limits;

• our ability to successfully introduce new products and services;

• our ability to retain key employees; and

• significant increases in our loan losses.

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Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 filed with the SEC on March 1, 2018, under “Risk Factors,” which is available through the SEC’s website at www.sec.gov, as updated by subsequent filings with the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

A summary of significant accounting policies is described in Note 1 to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2017. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies are the determination of the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.

Comparison of Financial Condition at March 31, 2018 and December 31, 2017

Assets. Total assets increased $161.2 million, or 3.0%, to $5.461 billion at March 31, 2018 from $5.299 billion at December 31, 2017. Net loans increased $277.5 million, or 6.0%, to $4.900 billion at March 31, 2018 from $4.623 billion at December 31, 2017. Cash and due from banks decreased $86.3 million, or 21.4%, to $316.4 million at March 31, 2018 from $402.7 million at December 31, 2017. Certificates of deposit decreased $25.2 million, or 36.3%, to $44.1 million at March 31, 2018 from $69.3 million at December 31, 2017, primarily due to maturities of $30.2 million, partially offset by purchases of $5.0 million. Securities at fair value decreased $4.1 million, or 10.8%, to $34.2 million at March 31, 2018 from $38.4 million at December 31, 2017.

Loan Portfolio Analysis. At March 31, 2018, net loans were $4.900 billion, or 89.7% of total assets. During the three months ended March 31, 2018, net loans increased $277.5 million, or 6.0%. Loan originations totaled $349.7 million during the three months ended March 31, 2018. The increase in net loans resulted primarily from increases of $189.2 million in commercial real estate loans, $79.3 million in multi-family loans, $10.4 million in one- to four-family loans and $7.5 million in commercial and industrial loans. Refer to Note 5, Loans, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding the loans held in the Company’s loan portfolio.

Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. Management of asset quality is accomplished by internal controls, monitoring and reporting of key risk indicators, and both internal and independent third-party loan reviews. The primary objective of our loan review process is to measure borrower performance and assess risk for the purpose of identifying loan weakness in order to minimize loan loss exposure. From the time of loan origination through final repayment, multi-family, commercial real estate, construction, and commercial and industrial loans are assigned a risk rating based on pre-determined criteria and levels of risk. The risk rating is monitored annually for most loans; however, it may change during the life of the loan as appropriate.

Internal and independent third-party loan reviews vary by loan type, as well as the size and complexity of the loan. Depending on the size and complexity of the loan, some loans may warrant detailed individual review, while other loans may have less risk based upon size, or be of a homogeneous nature reducing the need for detailed individual analysis. Assets with these characteristics, such as consumer loans and loans secured by residential real estate, may be reviewed on the basis of risk indicators such as delinquency or credit rating. In cases of significant concern, a total re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan. Some loans may be re-evaluated in terms of their fair market value or net realizable value in order to determine the likelihood of potential loss exposure and, consequently, the adequacy of specific and general loan loss reserves.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status, including contacting the borrower by letter and phone at regular intervals. When the borrower is in default, we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Management informs the Executive Committee monthly of the amount of loans delinquent more than 30 days. Management provides detailed information to the Board of Directors on loans 60 or more days past due and all loans in foreclosure and repossessed property that we own.

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Delinquencies. Total past due loans decreased $1.6 million, or 24.4%, to $5.0 million at March 31, 2018 from $6.6 million at December 31, 2017, reflecting decreases of $856,000 in loans 90 days or greater past due and $747,000 in loans 30 to 89 days past due. At March 31, 2018, non-accrual loans exceeded loans 90 days or greater past due primarily due to loans which were placed on non-accrual status based on a determination that the ultimate collection of all principal and interest due was not expected and certain loans remain on non-accrual status until they attain a sustained contractual payment history of six consecutive months.

Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including TDRs on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection. At March 31, 2018, we did not have any accruing loans past due 90 days or greater. For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value, less estimated costs to sell, at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction totaled $1.3 million at March 31, 2018. The following table provides information with respect to our non-performing assets at the dates indicated.

	March 31,			December 31,
	2018			2017
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential real estate:
One- to four-family	$	6,568		$	6,890
Home equity lines of credit		562			562
Commercial real estate		378			388
Total real estate loans		7,508			7,840
Commercial and industrial		523			523
Total non-accrual loans (1)		8,031			8,363
Total non-performing assets	$	8,031		$	8,363
Non-accrual loans to total loans		0.16	%		0.18	%
Non-accrual loans to total assets		0.15	%		0.16	%
Non-performing assets to total assets		0.15	%		0.16	%

(1) TDRs on accrual status not included above totaled $12.5 million at March 31, 2018 and $12.7 million at December 31, 2017.

Non-accrual loans decreased $332,000, or 4.0%, to $8.0 million, or 0.16% of total loans outstanding at March 31, 2018, from $8.4 million, or 0.18% of total loans outstanding at December 31, 2017, primarily due to decrease of $322,000 in non-accrual, one- to four-family loans.

Achieving and maintaining a moderate risk profile by aggressively managing troubled assets has been and will continue to be a primary focus for us. At March 31, 2018, our allowance for loan losses was $47.5 million, or 0.96% of total loans and 591.31% of non-accrual loans, compared to $45.2 million, or 0.97% of total loans and 540.30% of non-accrual loans at December 31, 2017. We increased our allowance primarily as a result of growth in the loan portfolio, in particular, commercial loans. Included in our allowance at March 31, 2018 was a general component of $47.3 million, which is based upon our evaluation of various factors relating to loans not deemed to be impaired. We continue to believe our level of non-performing loans and assets, which declined significantly during the past two years, is manageable and we believe that we have sufficient capital and human resources to manage the collection of our non-performing assets in an orderly fashion.

At March 31, 2018 and December 31, 2017, the Company did not hold any foreclosed real estate. We continue to be actively engaged with our borrowers in resolving remaining problem assets and with the effective management of real estate owned as a result of foreclosures.

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Troubled Debt Restructurings. In the course of resolving loans to borrowers with financial difficulties, we may choose to restructure the contractual terms of certain loans, with terms modified to fit the ability of the borrower to repay in line with its current financial status. A loan is considered a TDR if, for reasons related to the debtor’s financial difficulties, a concession is granted to the debtor that would not otherwise be considered.

Total TDRs decreased $134,000 to $13.6 million at March 31, 2018 from $13.7 million at December 31, 2017, reflecting principal paydowns. Modifications of TDRs consist of rate reductions, loan term extensions or provisions for interest-only payments for specified periods up to 12 months. We have generally been successful with the concessions we have offered to borrowers to date. We generally return TDRs to accrual status when they have sustained payments for six consecutive months based on the restructured terms and future payments are reasonably assured.

Potential Problem Loans. Certain loans are identified during our loan review process that are currently performing in accordance with their contractual terms and we ultimately expect to receive payment in full of principal and interest, but it is deemed probable that we will be unable to collect all the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. This may result from deteriorating conditions such as cash flows, collateral values or creditworthiness of the borrower. These loans are classified as impaired but are not accounted for on a non-accrual basis.

Other potential problem loans are those loans that are currently performing, but where known information about possible credit problems of the borrowers causes us to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms. These other potential problem loans are generally loans classified as “substandard” or 8-rated loans in accordance with our ten-grade internal loan rating system that is consistent with guidelines established by banking regulators. At March 31, 2018, other potential problem loans totaled $48.7 million, including $45.6 million of commercial and industrial loans and $3.1 million of multi-family loans. The $45.6 million of commercial and industrial loan relationships classified as substandard are comprised of two loans to non-profit educational organizations in eastern Massachusetts with loan balances of $24.3 million and $21.3 million that were identified during our loan review process as having possible financial issues that, if not corrected, could result in some loss to the Company. It was determined that both of these loan relationships are performing in accordance with the terms of their loans with the current expectation that we will be repaid in full in accordance with those terms, but with continual credit monitoring of the relationships.

Allowance for Loan Losses. The allowance for loan losses is maintained at levels considered adequate by management to provide for probable loan losses inherent in the loan portfolio as of the consolidated balance sheet reporting dates. The allowance for loan losses is based on management’s assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and non-accrual loans, national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral.

Changes in the allowance for loan losses during the periods indicated were as follows:

	Three Months Ended March 31,
	2018				2017
	(Dollars in thousands)
Beginning balance	$	45,185			$	40,149
Provision for loan losses		2,189				1,619
Charge-offs:
Consumer		(80	)			(91	)
Total charge-offs		(80	)			(91	)
Recoveries:
One- to four-family		—				30
Commercial real estate		5				—
Construction		175				45
Home equity lines of credit		1				—
Consumer		13				12
Total recoveries		194				87
Net recoveries (charge-offs)		114				(4	)
Ending balance	$	47,488			$	41,764
Allowance to non-accrual loans		591.31		%		305.16		%
Allowance to total loans outstanding		0.96		%		1.03		%
Net recoveries (charge-offs) to average loans outstanding		0.01		%		(0.00	)	%

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Our provision for loan losses was $2.2 million for the three months ended March 31, 2018 compared to $1.6 million for the three months ended March 31, 2017.  For the three months ended March 31, 2018, the increase in the provision for loan losses was primarily due to growth in the commercial loan categories. The changes in the provision and the allowance for loan losses coverage ratio 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. The increase in the allowance for loan losses at March 31, 2018 compared to December 31, 2017 was primarily due to increases in the commercial real estate and multi-family loan categories. Generally, multi-family, commercial real estate, construction and commercial and industrial loan categories have higher inherent credit risks than one- to four- family loans and home equity lines of credit. We continue to assess the adequacy of our allowance for loan losses in accordance with established policies.

The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated:

	March 31, 2018								December 31, 2017
						Percent of								Percent of
			Percent of			Loans in					Percent of			Loans in
			Allowance			Category					Allowance			Category
			to Total			of Total					to Total			of Total
	Amount		Allowance			Loans			Amount		Allowance			Loans
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	925		1.9	%		12.4	%	$	1,001		2.2	%		12.9	%
Multi-family		6,989		14.7			17.3			6,263		13.9			16.7
Home equity lines of credit		62		0.1			0.9			62		0.1			1.0
Commercial real estate		23,873		50.3			45.5			21,513		47.6			44.2
Construction		9,581		20.2			12.9			10,166		22.5			13.7
Total real estate loans		41,430		87.2			89.0			39,005		86.3			88.5
Commercial and industrial		5,978		12.6			10.8			6,084		13.5			11.3
Consumer		80		0.2			0.2			96		0.2			0.2
Total loans	$	47,488		100.0	%		100.0	%	$	45,185		100.0	%		100.0	%

The allowance consists of general and allocated components. The general component relates to pools of non-impaired loans and is based on historical loss experience adjusted for qualitative factors. The allocated component relates to loans that are classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

We had impaired loans totaling $4.9 million as of March 31, 2018 and December 31, 2017. At March 31, 2018, impaired loans totaling $1.8 million had a valuation allowance of $193,000. Impaired loans totaling $1.8 million had a valuation allowance of $184,000 at December 31, 2017. Our average investment in impaired loans was $5.1 million and $8.5 million for the three months ended March 31, 2018 and 2017, respectively.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment based on payment status. Accordingly, we do not separately identify individual one- to four-family residential real estate, home equity lines of credit and consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring. We periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a TDR. All TDRs are initially classified as impaired.

Management has reviewed the collateral value for all impaired and non-accrual loans that were collateral-dependent as of March 31, 2018 and considered any probable loss in determining the allowance for loan losses.

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For residential loans measured for impairment based on the collateral value, we will do the following:

• When a loan becomes seriously delinquent, generally 60 days past due, we obtain third-party appraisals that are generally the basis for charge-offs when a loss is indicated, prior to the foreclosure sale, but usually no later than when such loans are 180 days past due. We generally are able to complete the foreclosure process within six to nine months from receipt of the third-party appraisal.

• We make adjustments to appraisals based on updated economic information, if necessary, prior to the foreclosure sale. We review current market factors to determine whether, in management’s opinion, downward adjustments to the most recent appraised values may be warranted. If so, we use our best estimate to apply an estimated discount rate to the appraised values to reflect current market factors.

• Appraisals we receive are based on comparable property sales.

For commercial loans measured for impairment based on the collateral value, we will do the following:

• We obtain a third party appraisal at the time a loan is deemed to be in a workout situation and there is no indication that the loan will return to performing status, generally when the loan is 90 days or more past due. One or more updated third party appraisals are obtained prior to foreclosure depending on the foreclosure timeline. In general we order new appraisals annually on loans in the process of foreclosure.

• We make downward adjustments to appraisals when conditions warrant. Adjustments are made by applying a discount to the appraised value based on occupancy, recent changes in condition to the property and certain other factors. Adjustments are also made to appraisals for construction projects involving residential properties based on recent sales of units. Losses are recognized if the appraised value less estimated costs to sell is less than our carrying value of the loan.

• Appraisals we receive are generally based on a reconciliation of comparable property sales and income capitalization approaches. For loans on construction projects involving residential properties, appraisals are generally based on a discounted cash flow analysis assuming a bulk sale to a single buyer.

Loans that are partially charged off generally remain on non-accrual status until foreclosure or such time that they are performing in accordance with the terms of the loan and have a sustained contractual payment history of at least six consecutive months. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Loan losses are charged against the allowance when we believe the uncollectability of a loan balance is confirmed; for collateral-dependent loans, generally when appraised values (as adjusted values, if applicable), less estimated costs to sell, are less than our carrying values.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles in the United States of America, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Securities Portfolio. At March 31, 2018, our securities portfolio was $34.2 million, or 0.6% of total assets. During the three months ended March 31, 2018, the securities portfolio decreased $4.1 million, or 10.8%, primarily due to $726,000 in maturities, calls and principal payments and $3.0 million in sales, partially offset by $495,000 in purchases. At March 31, 2018, the securities portfolio consisted of $19.5 million, or 57.0%, in debt securities and $14.7 million, or 43.0%, in equity securities. The debt securities within the portfolio are government-sponsored enterprises, municipal bonds, and mortgage-backed securities issued by government-sponsored enterprises and private companies. Included in marketable equity securities are common stocks and money market mutual funds. We purchase equity securities with the intent to generate long-term capital gains through purchasing investment grade dividend paying securities in companies with relatively low long-term debt and a history of sustained earnings and above-average growth. We typically initiate a securities position based on market opportunities. At March 31, 2018, we had no investments in a single company or entity that had an aggregate book value in excess of 10% of our stockholders’ equity. Refer to Note 4, Securities, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our securities portfolio.

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Deposits. Deposits are a major source of our funds for lending and other investment purposes. Deposit inflows and outflows are significantly influenced by general interest rates and money market conditions. Our deposit base is comprised of demand, interest-bearing checking, money market, regular savings and other deposits, and certificates of deposit, which include brokered certificates of deposit. We consider demand, interest-bearing checking, money market, and regular savings and other deposits to be core deposits. Total deposits increased $81.5 million, or 2.0%, to $4.189 billion at March 31, 2018 from $4.108 billion at December 31, 2017. Our continuing focus on the acquisition and expansion of core deposit relationships resulted in net growth in core deposits of $43.7 million, or 1.6%, to $2.781 billion, or 66.4% of total deposits. Refer to Note 6, Deposits, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our deposits.

The following table sets forth the average balances of deposits for the periods indicated.

	Three Months Ended March 31,
	2018								2017
						Percent								Percent
	Average		Average			of Total			Average		Average			of Total
	Balance		Rate			Deposits			Balance		Rate			Deposits
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	488,459		—	%		11.6	%	$	425,353		—	%		11.9	%
Interest-bearing demand deposits		1,032,514		1.10			26.3			654,977		0.75			20.5
Money market deposits		883,549		0.94			20.3			1,008,392		0.90			27.5
Regular savings and other deposits		335,288		0.14			8.2			307,940		0.14			8.8
Certificates of deposit		1,376,113		1.63			33.6			1,134,329		1.38			31.3
Total	$	4,115,923		1.04	%		100.0	%	$	3,530,991		0.85	%		100.0	%

Borrowings. We use borrowings from the FHLB to supplement our supply of funds for loans and investments. At March 31, 2018 and December 31, 2017, FHLB advances totaled $582.6 million and $513.4 million, respectively, with a weighted average rate of 1.24% and 1.22%, respectively. Total borrowings increased $69.1 million, or 13.5%, during the three months ended March 31, 2018. During the three months ended March 31, 2018 the Bank entered into long-term advances with the FHLB totaling $120.0 million with original terms of five years and initial interest rates ranging from 0.20% to 2.26%. The maturing advances with the FHLB during the three months ended March 31, 2018 totaled $5.0 million and consisted of a long term advance with an original term of two years and a fixed interest rate of 1.35%. The called advances with the FHLB during the three months ended March 31, 2018 totaled $45.0 million and consisted of long term advances with original terms ranging from four to five years and interest rates at the time of call ranging from 0.28% to 1.15%. At March 31, 2018, we also had an available line of credit of $9.4 million with the FHLB at an interest rate that adjusts daily, none of which was outstanding at that date. Refer to Note 7, Borrowings, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our borrowings.

Information relating to borrowings is detailed in the following table.

	Three Months Ended March 31,
	2018			2017
	(Dollars in thousands)
Balance outstanding at end of period	$	582,561		$	334,827
Average amount outstanding during the period	$	521,090		$	330,604
Weighted average interest rate during the period		1.28	%		1.20	%
Maximum outstanding at any month end	$	582,561		$	334,827
Weighted average interest rate at end of period		1.24	%		1.23	%

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Stockholders’ Equity. Total stockholders’ equity increased $9.2 million, or 1.4%, to $655.6 million at March 31, 2018, from $646.4 million at December 31, 2017. The increase for the three months ended March 31, 2018 was due primarily to net income of $12.0 million and $2.0 million related to stock-based compensation plans, partially offset by the repurchase of 100,000 shares of the Company’s stock at a total cost of $2.0 million, dividends of $0.05 per share totaling $2.6 million and $245,000 in accumulated other comprehensive loss, reflecting a decrease in the fair value of available-for-sale securities. Stockholders’ equity to assets was 12.01% at March 31, 2018, compared to 12.20% at December 31, 2017. Book value per share increased to $12.13 at March 31, 2018 from $11.96 at December 31, 2017. At March 31, 2018, the Company and the Bank continued to exceed all regulatory capital requirements. Refer to “Capital Management” within this report for more information regarding capital requirements and actual capital amounts and ratios for the Bank and the Company.

Results of Operations for the Three Months Ended March 31, 2018 and 2017

Net Income. Our primary source of income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is non-interest income, which includes revenue that we receive from providing products and services. The majority of our non-interest income generally comes from customer service fees, loan fees, bank-owned life insurance, mortgage banking gains and gains on sales of securities.

Net income information is as follows:

	Three Months Ended March 31,						Change
	2018			2017			Amount				Percent
	(Dollars in thousands)
Net interest income	$	39,848		$	33,353		$	6,495				19.5		%
Provision for loan losses		2,189			1,619			570				35.2
Non-interest income		2,333			4,072			(1,739	)			(42.7	)
Non-interest expenses		24,689			21,877			2,812				12.9
Net income		11,994			9,244			2,750				29.7
Basic earnings per share		0.23			0.18			0.05				29.3
Diluted earnings per share		0.23			0.18			0.04				22.2
Return on average assets		0.90	%		0.82	%		0.08		%		9.8
Return on average equity		7.35	%		6.03	%		1.32		%		21.9

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Net Interest Income.

Average Balance Sheets and Related Yields and Rates. The following table presents information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average balances of assets or liabilities, respectively, for the periods presented. For purposes of this table, average balances have been calculated using daily average balances, and include non-accrual loans and purchase accounting related premium and discounts. The loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/discounts to interest and fees on loans.

	Three Months Ended March 31,
	2018									2017
	Average Balance		Interest (1)				Yield Cost (1)(6)			Average Balance		Interest (1)				Yield Cost (1)(6)
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (2)	$	4,776,876	$	50,573				4.29	%	$	4,000,857	$	41,689				4.23	%
Securities and certificates of deposits		96,511		523				2.20			145,841		725				2.02
Other interest-earning assets (3)		317,883		1,522				1.94			243,478		646				1.07
Total interest-earning assets		5,191,270		52,618				4.11			4,390,176		43,060				3.98
Noninterest-earning assets		125,293									111,757
Total assets	$	5,316,563								$	4,501,933
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,032,514		2,791				1.10		$	654,977		1,219				0.75
Money market deposits		883,549		2,057				0.94			1,008,392		2,230				0.90
Regular savings and other deposits		335,288		114				0.14			307,940		108				0.14
Certificates of deposit		1,376,113		5,547				1.63			1,134,329		3,862				1.38
Total interest-bearing deposits		3,627,464		10,509				1.17			3,105,638		7,419				0.97
Borrowings		521,090		1,642				1.28			330,604		980				1.20
Total interest-bearing liabilities		4,148,554		12,151				1.19			3,436,242		8,399				0.99
Noninterest-bearing demand deposits		488,459									425,353
Other noninterest-bearing liabilities		26,638									27,312
Total liabilities		4,663,651									3,888,907
Total stockholders' equity		652,912									613,026
Total liabilities and stockholders' equity	$	5,316,563								$	4,501,933
Net interest-earning assets	$	1,042,716								$	953,934
Fully tax-equivalent net interest income				40,467									34,661
Less: tax-equivalent adjustments				(619	)								(1,308	)
Net interest income			$	39,848								$	33,353
Interest rate spread (1)(4)								2.92	%								2.99	%
Net interest margin (1)(5)								3.16	%								3.20	%
Average interest-earning assets to average    interest-bearing liabilities				125.13		%							127.76		%
Supplemental Information:
Total deposits, including noninterest-bearing    demand deposits	$	4,115,923	$	10,509				1.04	%	$	3,530,991	$	7,419				0.85	%
Total deposits and borrowings, including    noninterest-bearing demand deposits	$	4,637,013	$	12,151				1.06	%	$	3,861,595	$	8,399				0.88	%

(1) Income on debt securities, equity securities and revenue bonds included in commercial real estate loans, as well as resulting yields, interest rate spread and net interest margin, are presented on a tax-equivalent basis. The tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of net income. For the three months ended March 31, 2018 and 2017, yields on loans before tax-equivalent adjustments were 4.24% and 4.10%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 2.07% and 1.71%, respectively, and yields on total interest-earning assets before tax-equivalent adjustments were 4.06% and 3.86%, respectively. Interest rate spread before tax-equivalent adjustments for the three months ended March 31, 2018 and 2017 was 2.87% and

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2.87%, respectively, while net interest margin before tax-equivalent adjustments for the three months ended March 31, 2018 and 2017 was 3.11% and 3.08%, respectively.

(2) Loans on non-accrual status are included in average balances.

(3) Includes FHLB stock and associated dividends.

(4) Interest rate spread represents the difference between the tax-equivalent yield on interest-earning assets and the cost of interest-bearing liabilities.

(5) Net interest margin represents net interest income (tax-equivalent basis) divided by average interest-earning assets.

(6) Annualized.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our fully tax-equivalent net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.

	Three Months Ended March 31,
	2018 Compared to 2017
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	8,206		$	678		$	8,884
Securities and certificates of deposit		(263	)		61			(202	)
Other interest-earning assets		241			635			876
Total		8,184			1,374			9,558
Interest expense:
Deposits		1,508			1,582			3,090
Borrowings		597			65			662
Total		2,105			1,647			3,752
Change in fully tax-equivalent net interest income	$	6,079		$	(273	)	$	5,806

The interest rate spread and net interest margin on a tax-equivalent basis were 2.92% and 3.16%, respectively, for the three months ended March 31, 2018 compared to 2.99% and 3.20%, respectively, for the three months ended March 31, 2017. The 19.5% increase in net interest income for the three months ended March 31, 2018 was primarily due to loan growth, partially offset by growth in deposits and borrowings along with an increase in the cost of funds. The interest rate spread and interest rate margin on a tax-equivalent basis for the three months ended March 31, 2018 reflect the reduction in the statutory federal income tax rate to 21% from 35%.

The yield on interest-earning assets on a tax-equivalent basis increased 13 basis points to 4.11% for the three months ended March 31, 2018 compared to 3.98% for the three months ended March 31, 2017, while the cost of funds increased 18 basis points to 1.06% from 0.88% for the three months ended March 31, 2018 and 2017, respectively. The increase in interest income was primarily due to growth in the Company’s average loan balances of $776.0 million, or 19.4%, to $4.777 billion, and an increase in the yield on loans on a tax-equivalent basis of six basis points to 4.29% for the three months ended March 31, 2018 compared to 4.23% for the three months ended March 31, 2017. The yields on loans and interest-earning assets on a tax-equivalent basis for the three months ended March 31, 2018 reflect the reduction in the statutory federal income tax rate to 21% from 35%. The increase in interest expense on deposits was primarily due to the growth in average total deposits of $584.9 million, or 16.6%, to $4.116 billion and an increase in the average total cost of deposits of 19 basis points to 1.04% for the three months ended March 31, 2018 compared the same period in March 31, 2017. The increase in interest expense on borrowings was primarily due to the increase in average borrowings of $190.5 million, or 57.6%, to $521.1 million, and an increase in the cost of average borrowings of eight basis points to 1.28% for the three months ended March 31, 2018 compared to 1.20% for the three months ended March 31, 2017.

Provision for Loan Losses. The provision for loan losses was $2.2 million for the three months ended March 31, 2018 compared to $1.6 million for the three months ended March 31, 2017. For further discussion of the changes in the provision and allowance for loan losses, refer to “Allowance for Loan Losses.”

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Non-Interest Income. Non-interest income information is as follows:

	Three Months Ended March 31,					Change
	2018			2017		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	2,170		$	2,052	$	118			5.8		%
Loan fees		295			68		227			333.8
Mortgage banking gains, net		133			90		43			47.8
Gain on sales of securities available for sale, net		—			1,574		(1,574	)		(100.0	)
Loss on equity securities, net		(537	)		—		(537	)		—
Income from bank-owned life insurance		272			288		(16	)		(5.6	)
Total non-interest income	$	2,333		$	4,072	$	(1,739	)		(42.7	)	%

There were no sales of securities available for sale during the three months ended March 31, 2018. Equity securities sold during the three months ended March 31, 2018 resulted in a gain of $154,000.  This gain was offset by a $691,000 unrealized loss recognized during the reporting period for equity securities held in the portfolio at fair value as of March 31, 2018. This change in reporting classification is due to the implementation of ASU 2016-01 on January 1, 2018. See Note 4 - Securities for additional disclosures.

Non-Interest Expense. Non-interest expense information is as follows:

	Three Months Ended March 31,				Change
	2018		2017		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	15,394	$	13,675	$	1,719			12.6		%
Occupancy and equipment		3,539		3,023		516			17.1
Data processing		1,683		1,379		304			22.0
Marketing and advertising		967		854		113			13.2
Professional services		965		1,135		(170	)		(15.0	)
Deposit insurance		797		691		106			15.3
Merger and acquisition		74		—		74			—
Other general and administrative		1,270		1,120		150			13.4
Total non-interest expenses	$	24,689	$	21,877	$	2,812			12.9		%

The increase in salaries and employee benefits expense reflects annual increases in employee compensation and health benefits during the three months ended March 31, 2018. In addition, the increase in salaries and employee benefits, occupancy and equipment expenses and data processing include costs associated with the expansion of our branch and support staff, including two branches acquired from Meetinghouse Bank on December 29, 2017, one new branch opened in the first quarter of 2018 and four new branch openings planned for later in 2018.  Professional services decreased primarily due to additional costs incurred in the three months ended March 31, 2017 related to regulatory compliance projects undertaken to enhance our regulatory compliance infrastructure. Other general and administrative expenses increased primarily due to core deposit intangible amortization initiated in the three months ended March 31, 2018.

The Company’s efficiency ratio was 57.62% for the quarter ended March 31, 2018 compared to 61.02% for the quarter ended March 31, 2017. The efficiency ratio is a non-GAAP measure representing non-interest expense, excluding merger and acquisition expenses, divided by the sum of net interest income and non-interest income excluding gains or losses on sales of securities, and gains or losses on equity securities. The efficiency ratio is a common measure used by banks to understand expenses related to the generation of revenue. We have removed gains or losses on sales of securities and gains or losses on equity securities as management deems them to be either discretionary or market driven and not representative of operating performance. We have removed merger and acquisition expenses as management deems them to be not representative of operating performance.

Income Tax Provision. We recorded a provision for income taxes of $3.3 million for the three months ended March 31, 2018, reflecting an effective tax rate of 21.6%, compared to $4.7 million, or a 33.6% effective tax rate, for the three months ended March 31, 2017. The reductions in the provision for income taxes and the effective tax rate for the quarter ended March 31, 2018 reflect the decrease in the statutory federal income tax rate to 21% from 35% effective January 1, 2018 as a result of the Tax Cuts and Jobs Act.

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Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, sales, maturities and payments on investment securities and borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and due from banks, and certificates of deposit with other banks. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At March 31, 2018, cash and due from banks totaled $316.4 million and certificates of deposit totaled $44.1 million. In addition, at March 31, 2018, we had $105.0 million of available borrowing capacity with the FHLB, including a $9.4 million line of credit. On March 31, 2018, we had $582.6 million of advances outstanding. We periodically pledge additional multi-family and commercial real estate loans held in the Bank’s portfolio as qualified collateral to increase our borrowing capacity with the FHLB. Based on such additions to our qualified collateral, our available borrowing capacity with the FHLB increased to $258.5 million as of April 30, 2018.

Our primary investing activities are the origination of loans and the purchase and sale of securities. Our primary financing activities consist of activity in deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

A significant use of our liquidity is the funding of loan originations. At March 31, 2018 and December 31, 2017, we had total loan commitments outstanding of $1.263 billion and $1.205 billion, respectively. Historically, many of the commitments expire without being fully drawn; therefore the total amount of commitments does not necessarily represent future cash requirements. Refer to Note 8, Commitments and Derivatives, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our outstanding commitments.

Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of March 31, 2018 totaled $580.6 million, or 41.2% of total certificates of deposit. If these maturing deposits do not remain with us, we will be required to utilize other sources of funds. Historically, a significant portion of certificates of deposit that mature have remained with us. We have the ability to attract and retain deposits by adjusting the interest rates offered and accepting brokered certificates of deposit when it is deemed cost effective.  

Meridian Bancorp, Inc. is a separate legal entity from East Boston Savings Bank and it must provide for its own liquidity to pay dividends and repurchase its common stock and for other corporate purposes. Meridian Bancorp, Inc.’s primary source of liquidity is the remaining proceeds from the 2014 second-step offering, and to a lesser extent dividend payments received from East Boston Savings Bank. The ability of East Boston Savings Bank to pay dividends is subject to regulatory requirements. At March 31, 2018, Meridian Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents, certificates of deposit and equity securities totaling $86.6 million.

Capital Management. Both the Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve Board and the Federal Deposit Insurance Corporation, respectively, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2018, both the Company and the Bank exceeded all of their respective regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines.

Federal banking regulations include minimum capital requirements for financial institutions. The regulation includes a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6% and a minimum leverage ratio of 4% for all banking organizations. Additionally, financial institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total to risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. The capital conservation buffer is being phased in over three years, beginning on January 1, 2016. Also, certain new deductions from and adjustments to regulatory capital will be phased in over several years. Management believes that the Company will remain characterized as “well-capitalized” throughout the phase-in periods.

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The Company may use capital management tools such as cash dividends and common share repurchases. We are subject to the Federal Reserve Board’s notice provisions for stock repurchases. In August 2015, the Company received regulatory approval from the Massachusetts Commissioner of Banks and a non-objection from the Federal Reserve Bank to adopt a stock repurchase program for up to 5% of its common stock. As of March 31, 2018, the Company had repurchased 2,159,611 shares of its stock at an average price of $14.00 per share, or 78.9% of the 2,737,334 shares authorized for repurchase under the Company’s repurchase program. The Company’s Board of Directors declared a quarterly cash dividend of $0.05 per common share on March 1, 2018.  The dividend was paid on April 3, 2018 to stockholders of record at the close of business on March 20, 2018.

The Company’s and the Bank’s actual capital amounts and ratios follow:

	Actual					Minimum Capital Requirement					Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
March 31, 2018
Total Capital (to Risk Weighted Assets):
Company	$	680,977		13.1	%	$	415,597	8.0			N/A		N/A
Bank		571,337		11.0			414,783	8.0			$	518,479		10.0	%
Tier 1 Capital (to Risk Weighted Assets):
Company		633,489		12.2			311,698		6.0		N/A		N/A
Bank		523,849		10.1			311,088		6.0			414,783		8.0
Common Equity Tier 1 Capital (to Risk    Weighted Assets):
Company		633,489		12.2			233,773		4.5		N/A		N/A
Bank		523,849		10.1			233,316		4.5			337,012		6.5
Tier 1 Capital (to Average Assets):
Company		633,489		11.9			212,663		4.0		N/A		N/A
Bank		523,849		10.0			209,366		4.0			261,707		5.0
December 31, 2017
Total Capital (to Risk Weighted Assets):
Company	$	669,536		13.6	%	$	393,875	8.0		%	N/A		N/A
Bank		555,737		11.3			392,729	8.0			$	490,911		10.0	%
Tier 1 Capital (to Risk Weighted Assets):
Company		624,039		12.7			295,406		6.0		N/A		N/A
Bank		510,240		10.4			294,546		6.0			392,729		8.0
Common Equity Tier 1 Capital (to Risk    Weighted Assets):
Company		624,039		12.7			221,554		4.5		N/A		N/A
Bank		510,240		10.4			220,910		4.5			319,092		6.5
Tier 1 Capital (to Average Assets):
Company		624,039		12.1			206,293		4.0		N/A		N/A
Bank		510,240		10.1			202,224		4.0			252,780		5.0

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A reconciliation of the Company’s and Bank’s stockholders’ equity to regulatory capital follows:

	March 31,						December 31,
	2018						2017
	Consolidated			Bank			Consolidated			Bank
	(In thousands)
Total stockholders' equity per financial statements	$	655,607		$	545,967		$	646,399		$	532,600
Adjustments to Tier 1 and Common Equity Tier 1    capital:
Accumulated other comprehensive loss (income)		616			616			(128	)		(128	)
Goodwill disallowed		(19,638	)		(19,638	)		(19,638	)		(19,638	)
Core deposit intangible, net of deferred tax liability disallowed		(3,096	)		(3,096	)		(2,594	)		(2,594	)
Total Tier 1 and Common Equity Tier 1 capital		633,489			523,849			624,039			510,240
Adjustments to total capital:
Allowance for loan losses		47,488			47,488			45,185			45,185
45% of net unrealized gains on  marketable equity    securities		—			—			312			312
Total regulatory capital	$	680,977		$	571,337		$	669,536		$	555,737

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles in the United States of America, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the three months ended March 31, 2018, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk Management. Our earnings and the market value of our assets and liabilities are subject to fluctuations caused by changes in the level of interest rates. We manage the interest rate sensitivity of our interest-bearing liabilities and interest-earning assets in an effort to minimize the adverse effects of changes in the interest rate environment. Deposit accounts typically react more quickly to changes in market interest rates than mortgage loans because of the shorter maturities of deposits. As a result, sharp increases in interest rates may adversely affect our earnings while decreases in interest rates may beneficially affect our earnings. To reduce the potential volatility of our earnings, we have sought to improve the match between asset and liability maturities and rates, while maintaining an acceptable interest rate spread. Our strategy for managing interest rate risk emphasizes: originating loans with adjustable interest rates; selling the residential real estate fixed-rate loans with terms greater than 10 years that we originate; promoting core deposit products; and adjusting the interest rates and maturities of funding sources, as necessary.

We have an Asset/Liability Management Committee to coordinate all aspects of asset/liability management. The committee establishes and monitors the volume, maturities, pricing and mix of assets and funding sources with the objective of managing assets and funding sources to provide results that are consistent with liquidity, growth, risk limits and profitability goals.

Net Interest Income Simulation Analysis. We analyze our interest rate sensitivity position to manage the risk associated with interest rate movements through the use of interest income simulation. The matching of assets and liabilities may be analyzed by examining the extent to which such assets and liabilities are “interest sensitive.” An asset or liability is said to be interest rate sensitive within a specific time period if it will mature or reprice within that time period.

Our goal is to manage asset and liability positions to moderate the effects of interest rate fluctuations on net interest income. Interest income simulations are completed quarterly and presented to the Asset/Liability Committee and the Board of Directors. The simulations provide an estimate of the impact of changes in interest rates on net interest income under a range of assumptions. The numerous assumptions used in the simulation process are reviewed by the Asset/Liability Committee and the Executive Committee on a quarterly basis. Changes to these assumptions can significantly affect the results of the simulation. The simulation incorporates assumptions regarding the potential timing of the repricing of certain assets and liabilities when market rates change and the changes in spreads between different market rates. The simulation analysis incorporates management’s current assessment of the risk that pricing margins will change adversely over time due to competition or other factors.

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Simulation analysis is only an estimate of our interest rate risk exposure at a particular point in time. We continually review the potential effect changes in interest rates could have on the repayment of rate sensitive assets and funding requirements of rate sensitive liabilities.

The simulation uses projected repricing of assets and liabilities on the basis of contractual maturities, anticipated repayments and scheduled rate adjustments. Prepayment rates can have a significant impact on interest income simulation. Because of the large percentage of loans we hold, rising or falling interest rates have a significant impact on the prepayment speeds of our earning assets that in turn affect the rate sensitivity position. When interest rates rise, prepayments tend to slow. When interest rates fall, prepayments tend to rise. Our asset sensitivity would be reduced if prepayments slow and vice versa. While we believe such assumptions to be reasonable, there can be no assurance that assumed prepayment rates will approximate actual future mortgage-backed security and loan repayment activity.

The following table reflects changes in estimated net interest income for the Bank due to immediate non-parallel changes in interest rates for the subsequent one year period as of the dates indicated.

Increase (Decrease)	March 31, 2018									December 31, 2017
in Market Interest Rates	Amount		Change			Percent				Amount		Change			Percent
	(Dollars in thousands)
300	$	153,358	$	(6,543	)		(4.09	)	%	$	149,829	$	(6,785	)		(4.30	)	%
Flat		159,901									156,614
-100		168,974		9,073			5.67				159,112		2,498			1.60

ITEM 4.     CONTROLS AND PROCEDURES

(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b) Changes in Internal Controls over Financial Reporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 1A.     RISK FACTORS

For information regarding our risk factors, see “Risk Factors,” in the Company’s 2017 Annual Report on Form 10-K, filed with the SEC on March 1, 2018, which is available through the SEC’s website at www.sec.gov. As of March 31, 2018, our risk factors have not changed materially from those reported in the annual report. The risks described in the annual report are not the only risks that we face. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

ITEM 2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a.) Not applicable

(b.) Not applicable

(c.) The following table sets forth information with respect to any purchase made by or on behalf of the Company during the indicated periods:

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs (1)		(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January 1 – 31, 2018		—	$	—		—		677,723
February 1 – 28, 2018		100,000	$	19.96		100,000		577,723
March 1 – 31, 2018		—	$	—		—		577,723
		100,000	$	19.96		100,000		577,723

(1) In August 2015, the Company’s Board of Directors voted to adopt a stock repurchase program of up to 5% of its outstanding common stock, or 2,737,334 shares of its common stock.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.     OTHER INFORMATION

Not applicable.

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ITEM 6.    EXHIBITS

3.1	Articles of Incorporation of Meridian Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Meridian Bancorp, Inc. (File No. 333-194454), originally filed with the Securities and Exchange Commission on March 10, 2014)
3.2	Bylaws of Meridian Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Meridian Bancorp, Inc. (File No. 333-194454), originally filed with the Securities and Exchange Commission on March 10, 2014)
4	Form of Common Stock Certificate of Meridian Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Meridian Bancorp, Inc. (File No. 333-194454), originally filed with the Securities and Exchange Commission on March 10, 2014)
10.1	Meridian Bancorp, Inc. 2015 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the Annual Meeting of Stockholders (File No. 001-36573), filed with the Securities and Exchange Commission on August 18, 2015)
10.2	Form of Employee Stock Option Agreement under the Meridian Bancorp, Inc. 2015 Equity Incentive Plan filed as an exhibit to Form 8-K filed on November 5, 2015
10.3	Form of Director Stock Option Agreement under the Meridian Bancorp, Inc. 2015 Equity Incentive Plan filed as an exhibit to Form 8-K filed on November 5, 2015
10.4	Amended and Restated Employment Agreement with Richard J. Gavegnano and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014
10.5	East Boston Savings Bank Amended and Restated Employee Severance Compensation Plan filed as an exhibit to Form 10-Q filed on November 10, 2014
10.6	Form of Amended and Restated Supplemental Executive Retirement Agreements with Directors Domenic A. Gambardella, Gregory F. Natalucci, and James G. Sartori filed as an exhibit to Form 10-Q filed on November 10, 2014
10.7	Amended and Restated Supplemental Executive Retirement Agreement with Richard J. Gavegnano filed as an exhibit to Form 10-Q filed on November 10, 2014
10.8	2008 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for its 2008 Annual Meeting, as filed with the Securities and Exchange Commission on July 11, 2008)
10.9	Termination Amendment for the Amended and Restated Employment Agreement between Edward J. Merritt and East Boston Savings Bank dated December 10, 2015 filed as an exhibit to Form 8-K filed on December 10, 2015
10.10	Amended and Restated Supplemental Executive Retirement Agreement between East Boston Savings Bank and Edward J. Merritt dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014
10.11	Joint Beneficiary Designation Agreement between Edward J. Merritt and Mt. Washington Co-operative Bank (Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 16, 2010)
10.12	First Amendment to Joint Beneficiary Designation Agreement between Edward J. Merritt and Mt. Washington Co-operative Bank (Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 16, 2010)
10.13	Amended and Restated Two-Year Change in Control Agreement between Mark Abbate and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014
10.14	Incentive Compensation Plan filed as an exhibit to Form 10-K filed on March 17, 2014
10.15	Amended and Restated Two-Year Change in Control Agreement between John Migliozzi and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014
10.16	East Boston Non-Qualified Supplemental Employee Stock Ownership Plan dated October 1, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014
10.17	Amended and Restated Two-Year Change in Control Agreement between Frank Romano and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-K filed on March 13, 2015

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10.18	Form of Restricted Stock Award Agreement under the Meridian Bancorp, Inc. 2015 Equity Incentive Plan filed as an exhibit to Form 8-K filed on November 5, 2015
10.19	Two-Year Change in Control Agreement between Edward J. Merritt and East Boston Savings Bank dated December 10, 2015 filed as an exhibit to Form 8-K filed on December 10, 2015
10.20	Freeze Amendment to the Amended and Restated Supplemental Executive Retirement Agreement between East Boston Savings Bank and Edward J. Merritt dated December 10, 2015 filed as an exhibit to Form 8-K filed on December 10, 2015
21	Subsidiaries of Registrant filed as an exhibit to Form 10-Q filed on November 10, 2014
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101	The following financial statements formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MERIDIAN BANCORP, INC. (Registrant)
Date: May 10, 2018	By:	/s/    Richard J. Gavegnano
		Richard J. Gavegnano Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: May 10, 2018	By:	/s/    Mark L. Abbate
		Mark L. Abbate
		Executive Vice President, Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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