Meridian Bancorp (EBSB) 10-Q 2020 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, 2020

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)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	EBSB	The NASDAQ Stock Market, LLC

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Small reporting company	☐
		Emerging growth company	☐

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

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

As of May 1, 2020, there were 52,402,059 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, 2020 and December 31, 2019	3
	Consolidated Statements of Net Income for the three months ended March 31, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2020 and 2019	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three months ended March 31, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019	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	35
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	41

2

PART I – FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2020			2019
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	457,048		$	406,382
Certificates of deposit		247			247
Securities available for sale, at fair value		13,820			15,076
Marketable equity securities, at fair value		13,130			15,243
Federal Home Loan Bank stock, at cost		33,278			28,947
Loans held for sale		3,403			2,455
Loans, net of deferred fees and costs		5,690,801			5,747,862
Less: allowance for loan losses		(50,946	)		(50,322	)
Loans, net		5,639,855			5,697,540
Bank-owned life insurance		41,061			41,155
Premises and equipment, net		67,527			65,841
Accrued interest receivable		13,868			14,481
Deferred tax asset, net		16,782			16,726
Goodwill		20,378			20,378
Core deposit intangible		2,005			2,123
Other assets		26,152			17,100
Total assets	$	6,348,554		$	6,343,694
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing	$	572,847		$	524,154
Interest-bearing		4,249,102			4,397,379
Total deposits		4,821,949			4,921,533
Short-term borrowings		25,000			—
Long-term debt		720,873			636,245
Accrued expenses and other liabilities		61,111			59,329
Total liabilities		5,628,933			5,617,107
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; NaN issued		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized; 52,402,395 and    53,377,506 shares issued and outstanding at March 31, 2020 and December 31,    2019, respectively		524			534
Additional paid-in capital		360,901			377,213
Retained earnings		374,712			365,742
Accumulated other comprehensive income (loss)		19			(147	)
Unearned compensation - ESOP, 2,283,068 and 2,313,509  shares at March 31, 2020    and December 31, 2019, respectively		(16,535	)		(16,755	)
Total stockholders' equity		719,621			726,587
Total liabilities and stockholders' equity	$	6,348,554		$	6,343,694

See accompanying notes to consolidated financial statements.

3

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

	Three Months Ended March 31,
	2020			2019
	(Dollars in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	64,037		$	61,641
Interest on debt securities:
Taxable		87			110
Tax-exempt		13			13
Dividends on equity securities		94			105
Interest on certificates of deposit		1			27
Other interest and dividend income		1,786			2,577
Total interest and dividend income		66,018			64,473
Interest expense:
Interest on deposits		16,769			19,151
Interest on short-term borrowings		8			295
Interest on borrowings		4,143			2,430
Total interest expense		20,920			21,876
Net interest income		45,098			42,597
Provision for loan losses		725			843
Net interest income, after provision for loan losses		44,373			41,754
Non-interest (loss) income:
Customer service fees		2,097			2,097
Loan fees		674			77
Mortgage banking gains, net		411			40
(Loss) gain on marketable equity securities, net		(4,344	)		1,326
Income from bank-owned life insurance		297			281
Other income		34			7
Total non-interest (loss) income		(831	)		3,828
Non-interest expenses:
Salaries and employee benefits		15,914			15,632
Occupancy and equipment		3,924			3,596
Data processing		2,137			1,970
Marketing and advertising		1,230			1,162
Professional services		997			860
Deposit insurance		669			1,012
Other general and administrative		1,449			1,564
Total non-interest expenses		26,320			25,796
Income before income taxes		17,222			19,786
Provision for income taxes		4,245			4,715
Net income	$	12,977		$	15,071
Earnings per share:
Basic	$	0.26		$	0.29
Diluted	$	0.25		$	0.29
Weighted average shares outstanding:
Basic		50,634,983			51,120,599
Diluted		50,920,259			51,467,917

See accompanying notes to consolidated financial statements.

4

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended March 31,
	2020			2019
	(In thousands)
Net income	$	12,977		$	15,071
Other comprehensive income:
Securities available for sale:
Net unrealized gain on securities available for sale		230			256
Tax effect		(64	)		(72	)
Total other comprehensive income		166			184
Comprehensive income	$	13,143		$	15,255

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, 2020 and 2019

(Unaudited)

	Shares of Common Stock Outstanding			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation - ESOP			Total
	(Dollars in thousands)
Three Months Ended  March 31, 2020
Balance at December 31, 2019		53,377,506		$	534		$	377,213		$	365,742		$	(147	)	$	(16,755	)	$	726,587
Comprehensive income		—			—			—			12,977			166			—			13,143
Dividends declared ($0.08 per share)		—			—			—			(4,007	)		—			—			(4,007	)
Repurchased stock related to buyback    program		(1,000,000	)		(10	)		(17,670	)		—			—			—			(17,680	)
ESOP shares committed to be allocated    (30,441 shares)		—			—			287			—			—			220			507
Share-based compensation expense -    restricted stock, net of awards forfeited		(5,245	)		—			640			—			—			—			640
Share-based compensation expense -    stock options, net of awards forfeited		—			—			380			—			—			—			380
Stock options exercised		30,134			—			51			—			—			—			51
Balance at March 31, 2020		52,402,395		$	524		$	360,901		$	374,712		$	19		$	(16,535	)	$	719,621

Three Months Ended March 31, 2019
Balance at December 31, 2018	53,541,429		$	535		$	378,583		$	313,521		$	(348	)	$	(17,637	)	$	674,654
Comprehensive income (loss)	—			—			—			15,071			184			—			15,255
Dividends declared ($0.07 per share)	—			—			—			(3,569	)		—			—			(3,569	)
Repurchased stock related to buyback    program	(104,177	)		(1	)		(1,646	)		—			—			—			(1,647	)
ESOP shares committed to be allocated    (30,441 shares)	—			—			258			—			—			221			479
Share-based compensation expense -    restricted stock, net of awards forfeited	(455	)		—			681			—			—			—			681
Share-based compensation expense -    stock options, net of awards forfeited	—			—			407			—			—			—			407
Shares surrendered related to tax witholdings on stock options exercised	(4,458	)		—			(71	)		—			—			—			(71	)
Stock options exercised	110,307			1			198			—			—			—			199
Balance at March 31, 2019	53,542,646		$	535		$	378,410		$	325,023		$	(164	)	$	(17,416	)	$	686,388

See accompanying notes to consolidated financial statements.  

6

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three Months Ended March 31,
	2020			2019
	(In thousands)
Cash flows from operating activities:
Net income	$	12,977		$	15,071
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of acquisition fair value adjustments		16			29
Amortization of core deposit intangible		118			136
ESOP shares expense		507			479
Provision for loan losses		725			843
Accretion of net deferred loan origination fees		(959	)		(454	)
Net amortization of securities available for sale		13			—
Depreciation and amortization expense		841			765
Loss (gain) on marketable equity securities, net		4,344			(1,326	)
Deferred income tax benefit		(120	)		(86	)
Income from bank-owned life insurance		(297	)		(281	)
Share-based compensation expense		1,020			1,088
Net changes in:
Loans held for sale		(948	)		(580	)
Accrued interest receivable		613			(712	)
Other assets		(9,052	)		1,037
Accrued expenses and other liabilities		1,168			(1,885	)
Net cash provided by operating activities		10,966			14,124
Cash flows from investing activities:
Activity in securities, at fair value:
Proceeds from maturities, calls and principal payments		1,473			512
Proceeds from sales		541			—
Purchases		(2,772	)		—
Loan principal payments (originations), net		57,898			(115,019	)
Proceeds from bank-owned life insurance distribution		391			—
Purchases of premises and equipment		(1,650	)		(3,018	)
Purchase of Federal Home Loan Bank stock		(4,331	)		—
Redemption of Federal Home Loan Bank stock		—			2,810
Net cash provided (used) in investing activities		51,550			(114,715	)
Cash flows from financing activities:
Net change in deposits		(99,579	)		138,831
Net change in borrowings with maturities less than three months		—			(50,000	)
Proceeds from Federal Home Loan Bank advances with maturities of three months or more		135,000			—
Repayment of Federal Home Loan Bank advances with maturities of three months or more		(25,372	)		(10,895	)
Cash dividends paid on common stock		(4,270	)		(3,562	)
Stock options exercised, net of cash paid in connection with income taxes		51			128
Repurchase of common stock		(17,680	)		(1,647	)
Net cash (used) provided by financing activities		(11,850	)		72,855
Net change in cash and cash equivalents		50,666			(27,736	)
Cash and cash equivalents at beginning of period		406,382			371,995
Cash and cash equivalents at end of period	$	457,048		$	344,259
Supplemental cash flow information:
Interest paid on deposits	$	18,246		$	18,822
Interest paid on borrowings		4,115			2,652
Income taxes paid, net of refunds		3,075			2,560

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 and Investment in Affordable Home Ownership, LLC, which is authorized to form partnerships with agencies to develop projects for affordable housing 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, 2020 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, 2019, which was filed with the Securities and Exchange Commission (“SEC”) on March 2, 2020, 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. A material estimate that is particularly susceptible to significant change in the near term relates to the determination of the allowance for loan losses.

2. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted During the Period

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2017-04, Intangibles — Goodwill and Other (Topic 350). The update intends to simplify the subsequent measurement of goodwill by requiring an entity to compare the fair value of a reporting unit to its carrying value, including goodwill. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment charge should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 became effective for the Company on January 1, 2020 is not expected to have a material impact on the Company’s financial statements. Goodwill testing will be completed during the fourth quarter or at such time as determined through a detailed assessment by management.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820). The update modifies the disclosure requirements primarily related to level 3 fair value measurements of the fair value hierarchy. ASU 2018-13 became effective for the Company on January 1, 2020 and did not have a material impact on the Company’s financial statement disclosures.

To be Adopted in Future Periods

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including loans, held-to-maturity debt securities and commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology, referred to as Current Expected Credit Loss, or CECL, that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to formulate credit loss estimates. Credit losses on available-for-sale debt securities will be measured in a manner similar to current GAAP, but will be recognized through an allowance rather than as a direct write-down. This update was to be effective for the Company on January 1, 2020. Based upon the parallel run for the fourth quarter of 2019, the Company had expected the adoption of the ASU to result in an approximate 15% decrease to its allowance for loan losses.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, a stimulus package signed into law on March 27, 2020 to address economic disruption caused by the COVID-19 pandemic, provides financial institutions with the option to defer adoption of ASU No. 2016-03 until the end of the pandemic or the end of 2020.  The Company has chosen to defer adoption of ASU No. 2016-13 based on management’s belief that the incurred loss impairment methodology provides a more practical measurement of credit losses

8

in the current economic environment.  Upon the Company’s future adoption of CECL, the change from the incurred loss methodology to the CECL methodology will be recognized through an adjustment to retained earnings.

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,
	2020		2019
	(Dollars in thousands, except share information)
Net income available to common stockholders	$	12,977	$	15,071
Basic weighted average shares outstanding		50,634,983		51,120,599
Effect of dilutive stock options		285,276		347,318
Diluted weighted average shares outstanding		50,920,259		51,467,917
Earnings per share:
Basic	$	0.26	$	0.29
Diluted	$	0.25	$	0.29

For the three months ended March 31, 2020 and 2019, options for the exercise of 93,545 shares and 140,527 shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive. An anti-dilutive option exists when the average stock price for the period is less than the exercise price of the option.

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, 2020
Debt securities:
Government-sponsored enterprises	$	608	$	20	$	—		$	628
Municipal bonds		2,082		48		—			2,130
Residential mortgage-backed securities:
Government-sponsored enterprises		10,001		368		(8	)		10,361
Private label		579		122		—			701
Total securities available for sale	$	13,270	$	558	$	(8	)	$	13,820
December 31, 2019
Debt securities:
Government-sponsored enterprises	$	1,528	$	28	$	—		$	1,556
Municipal bonds		2,085		66		—			2,151
Residential mortgage-backed securities:
Government-sponsored enterprises		10,559		168		(34	)		10,693
Private label		584		92		—			676
Total debt securities	$	14,756	$	354	$	(34	)	$	15,076

9

At March 31, 2020 debt securities with a fair value of $2.1 million and $284,000 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, 2020 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
	Through Five Years				After Five Years				Total
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
	(In thousands)
Government-sponsored enterprises	$	—	$	—	$	608	$	628	$	608	$	628
Municipal bonds		759		778		1,323		1,352		2,082		2,130
Residential mortgage-backed securities:
Government-sponsored enterprises		527		534		9,474		9,827		10,001		10,361
Private label		—		—		579		701		579		701
Total	$	1,286	$	1,312	$	11,984	$	12,508	$	13,270	$	13,820

Information pertaining to securities available for sale as of March 31, 2020 and December 31, 2019, 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, 2020
Debt securities:
Residential mortgage-backed securities:
Government-sponsored enterprises	$	6	$	601	$	2	$	149
Total temporarily impaired securities	$	6	$	601	$	2	$	149

	Less Than Twelve Months				Twelve Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
December 31, 2019
Debt securities:
Residential mortgage-backed securities:
Government-sponsored enterprises	$	—	$	—	$	34	$	3,370
Total temporarily impaired securities	$	—	$	—	$	34	$	3,370

The Company determined 0 debt securities were other-than-temporarily impaired for the three months ended March 31, 2020 and 2019. 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.

Marketable Equity Securities

Marketable equity securities consist of common stocks and money market mutual funds. The Company held equity securities with an aggregate fair value of $13.1 million and $15.2 million at March 31, 2020 and December 31, 2019, respectively.

10

The following is a summary of unrealized and realized gains and losses recognized in net income on marketable equity securities during the three months ended March 31, 2020 and 2019:

	Three Months Ended
	March 31, 2020			March 31, 2019
	(In thousands)
Net realized loss on marketable equity securities    sold during the period	$	(337	)	$	—
Net unrealized (loss) gain recognized during the reporting period    on marketable equity securities still held at the reporting date		(4,007	)		1,326
Net (loss) gains recognized during the period    on marketable equity securities	$	(4,344	)	$	1,326

5. LOANS

A summary of loans follows:

	March 31, 2020						December 31, 2019
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	657,245			11.5	%	$	659,366			11.5	%
Home equity lines of credit		78,016			1.4			69,491			1.2
Multi-family		972,122			17.1			1,003,418			17.4
Commercial real estate		2,622,379			46.0			2,696,671			46.9
Construction		716,477			12.6			707,370			12.3
Total real estate loans		5,046,239			88.6			5,136,316			89.3
Commercial and industrial		638,695			11.2			604,889			10.5
Consumer		11,888			0.2			12,196			0.2
Total loans		5,696,822			100.0	%		5,753,401			100.0	%
Allowance for loan losses		(50,946	)					(50,322	)
Net deferred loan origination fees		(6,021	)					(5,539	)
Loans, net	$	5,639,855					$	5,697,540

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, 2020 and December 31, 2019, the Company was servicing loans for participants aggregating $149.8 million and $173.7 million, respectively.

At March 31, 2020, multi-family and commercial real estate loans with carrying values totaling $317.3 million and $1.203 billion, respectively, were pledged as collateral for FHLB borrowings.

11

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

	Three Months Ended March 31, 2020
	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, 2019	$	691		$	7,825		$	69		$	26,943		$	8,913	$	5,765		$	116		$	50,322
Provision (reversal) for   loan losses		103			(145	)		24			(215	)		544		398			16			725
Charge-offs		—			—			—			—			—		(50	)		(64	)		(114	)
Recoveries		—			—			1			—			—		1			11			13
Balance at March 31, 2020	$	794		$	7,680		$	94		$	26,728		$	9,457	$	6,114		$	79		$	50,946
	Three Months Ended March 31, 2019
	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, 2018	$	1,033		$	8,240		$	70		$	27,785		$	9,755	$	6,236		$	112		$	53,231
Provision (reversal) for   loan losses		(136	)		142			(10	)		409			265		127			46			843
Charge-offs		—			—			—			—			—		(10	)		(77	)		(87	)
Recoveries		—			—			1			—			—		—			9			10
Balance at March 31, 2019	$	897		$	8,382		$	61		$	28,194		$	10,020	$	6,353		$	90		$	53,997

	One- to four- family		Multi- family		Home equity lines of credit		Commercial real estate		Construction		Commercial and industrial		Consumer		Total
	(In thousands)
March 31, 2020
Amount of allowance for loan    losses for loans deemed to be    impaired	$	7	$	—	$	—	$	—	$	—	$	—	$	—	$	7
Amount of allowance for loan    losses for loans not deemed to    be impaired		787		7,680		94		26,728		9,457		6,114		79		50,939
	$	794	$	7,680	$	94	$	26,728	$	9,457	$	6,114	$	79	$	50,946
Loans deemed to be impaired	$	1,353	$	—	$	—	$	1,954	$	—	$	2,693	$	—	$	6,000
Loans not deemed to be impaired		655,892		972,122		78,016		2,620,425		716,477		636,002		11,888		5,690,822
	$	657,245	$	972,122	$	78,016	$	2,622,379	$	716,477	$	638,695	$	11,888	$	5,696,822
December 31, 2019
Amount of allowance for loan    losses for loans deemed to    be impaired	$	36	$	—	$	—	$	—	$	—	$	40	$	—	$	76
Amount of allowance for loan    losses for loans not deemed to    be impaired		655		7,825		69		26,943		8,913		5,725		116		50,246
	$	691	$	7,825	$	69	$	26,943	$	8,913	$	5,765	$	116	$	50,322
Loans deemed to be impaired	$	1,268	$	252	$	—	$	2,399	$	—	$	2,386	$	—	$	6,305
Loans not deemed to be impaired		658,098		1,003,166		69,491		2,694,272		707,370		602,503		12,196		5,747,096
	$	659,366	$	1,003,418	$	69,491	$	2,696,671	$	707,370	$	604,889	$	12,196	$	5,753,401

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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, 2020
Real estate loans:
Residential real estate:
One- to four-family	$	1,053	$	687	$	802	$	2,542	$	2,846
Home equity lines of credit		171		—		20		191		20
Commercial real estate		—		63		—		63		—
Total real estate loans		1,224		750		822		2,796		2,866
Commercial and industrial		618		49		323		990		323
Consumer		703		709		—		1,412		—
Total	$	2,545	$	1,508	$	1,145	$	5,198	$	3,189
December 31, 2019
Real estate loans:
Residential real estate:
One- to four-family	$	610	$	164	$	604	$	1,378	$	3,082
Home equity lines of credit		—		—		—		—		—
Commercial real estate		—		—		—		—		—
Total real estate loans		610		164		604		1,378		3,082
Commercial and industrial		8		—		323		331		323
Consumer		717		765		—		1,482		—
Total	$	1,335	$	929	$	927	$	3,191	$	3,405

At March 31, 2020 and December 31, 2019, the Company did 0t have any accruing loans past due 90 days or more.

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

	March 31, 2020						December 31, 2019
			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	$	794	$	1,131			$	570	$	908
Multi-family		—		—				252		252
Commercial real estate		1,954		1,954				2,399		2,399
Commercial and industrial		2,693		3,023				323		653
Total		5,441		6,108				3,544		4,212
Impaired loans with a valuation allowance:
One- to four-family		559		559	$	7		698		698	$	36
Commercial and industrial		—		—		—		2,063		2,063		40
Total		559		559		7		2,761	$	2,761		76
Total impaired loans	$	6,000	$	6,667	$	7	$	6,305	$	6,973	$	76

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	Three Months Ended March 31,
	2020						2019
					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	$	1,512	$	14	$	8	$	1,155	$	8	$	3
Multi-family		—		—		—		1,519		18		—
Commercial real estate		1,963		21		—		1,084		8		4
Commercial and industrial		2,539		26		—		1,481		17		—
Total impaired loans	$	6,014	$	61	$	8	$	5,239	$	51	$	7

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

	March 31,		December 31,
	2020		2019
	(In thousands)
TDRs on accrual status:
One- to four-family	$	1,843	$	2,084
Multi-family		—		252
Total TDRs on accrual status		1,843		2,336
TDRs on non-accrual status:
One- to four-family		793		706
Total TDRs on non-accrual status		793		706
Total TDRs	$	2,636	$	3,042

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.

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 - 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, generation of cash flows, 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.

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The following table provides the Company’s risk-rated loans by class:

	March 31, 2020								December 31, 2019
	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	$	972,122	$	2,605,199	$	716,477	$	592,605	$	1,000,783	$	2,679,330	$	707,370	$	573,835
Loans rated 7		—		16,899		—		16,433		—		16,626		—		2,009
Loans rated 8		—		281		—		29,657		2,635		715		—		29,045
Loans rated 9		—		—		—		—		—		—		—		—
Loans rated 10		—		—		—		—		—		—		—		—
Total	$	972,122	$	2,622,379	$	716,477	$	638,695	$	1,003,418	$	2,696,671	$	707,370	$	604,889

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,
	2020		2019
	(In thousands)
Noninterest-bearing demand deposits	$	572,847	$	524,154
Interest-bearing demand deposits		1,292,384		1,269,211
Money market deposits		699,026		675,702
Regular savings and other deposits		867,536		882,550
Total non-certificate accounts		3,431,793		3,351,617
Term certificates less than $250,000		1,058,287		1,206,598
Term certificates $250,000 and greater		331,869		363,318
Total certificate accounts		1,390,156		1,569,916
Total deposits	$	4,821,949	$	4,921,533

A summary of term certificates, by maturity, follows:

	March 31, 2020					December 31, 2019
			Weighted					Weighted
Maturing	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
Within 1 year	$	1,138,427		2.03	%	$	1,316,791		2.16	%
Over 1 year to 2 years		183,401		1.62			166,862		1.75
Over 2 years to 3 years		46,466		2.24			60,462		2.29
Over 3 years to 4 years		12,655		1.50			16,658		2.01
Over 4 years to 5 years		9,207		1.68			9,143		1.72
	$	1,390,156		1.98	%	$	1,569,916		2.12	%

The Company had certificate of deposit accounts obtained through a listing service, included in term certificates in the table above, totaling $63.5 million with a weighted average rate of 1.67% and $36.5 million with a weighted average rate of 2.35% at March 31, 2020 and December 31, 2019, respectively. The Company had brokered certificates of deposit, which are included in term certificates in the table above, totaling $288.0 million with a weighted average rate of 2.05% and $404.5 million with a weighted average rate of 2.19% at March 31, 2020 and December 31, 2019, respectively. In addition, the Company had $175.6 million and $150.6 million in brokered interest-bearing demand deposits at March 31, 2020 and December 31, 2019, respectively.

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7. BORROWINGS

At March 31, 2020, short-term borrowings consist of an FHLB advance totaling $25.0 million with a rate of 0.81% and an original maturity of less than one year. At December 31, 2019, the Company had 0 short-term borrowings. The Company has an available line of credit of $9.4 million with the FHLB at an interest rate that adjusts daily and $284,000 of borrowing capacity at the Federal Reserve Bank discount window. NaN amounts were drawn on the line of credit and 0 borrowings were outstanding with the Federal Reserve Bank discount window as of March 31, 2020 or December 31, 2019.

Long-term debt consists of FHLB advances as follows:

	March 31, 2020					December 31, 2019
			Weighted					Weighted
	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
Fixed rate advances maturing:
2020	$	110,248		2.41	%	$	135,620		2.30	%
2021		50,000		1.18			25,000		1.70
2022		150,625		2.00			150,625		2.00
2023		295,000		3.10			295,000		3.10
2024		20,000		2.61			20,000		2.61
2025		85,000		1.00			—		—
Thereafter		10,000		1.21			10,000		1.21
	$	720,873		2.35	%	$	636,245		2.57	%

At March 31, 2020, advances totaling $445.0 million, with a weighted average rate of 2.53%, are callable by the FHLB prior to maturity.

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, 2020, the Company pledged multi-family and commercial real estate loans with carrying values totaling $317.3 million and $1.203 billion, respectively.

8. 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.

16

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

	March 31,		December 31,
	2020		2019
	(In thousands)
Unadvanced portion of existing loans:
Construction	$	529,102	$	402,393
Home equity lines of credit		81,870		82,362
Other lines and letters of credit		343,950		363,955
Commitments to originate:
One- to four-family		43,604		26,246
Commercial real estate		42,635		63,344
Construction		140,335		333,870
Commercial and industrial		9,517		16,655
Other loans		409		100
Total loan commitments outstanding	$	1,191,422	$	1,288,925

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.

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, 2020, the Company had $13.3 million in cash pledged for collateral on its interest rate swaps with the third-party financial institution. At December 31, 2019, the Company had $5.4 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, 2020					December 31, 2019
	Maturity	Interest Rate Paid	Interest Rate Received	Notional Amount		Fair Value Asset (Liability)			Notional Amount		Fair Value Asset (Liability)
				(Dollars in thousands)
Customer interest rate swap	06/07/32	1 Mo. Libor + 200bp	Fixed (4.40%)	$	62,017	$	10,588		$	62,425	$	3,625
Third-party interest rate swap	06/07/32	Fixed (4.40%)	1 Mo. Libor + 200bp		62,017		(10,588	)		62,425		(3,625	)
Customer interest rate swap	10/17/33	1 Mo. Libor + 175bp	Fixed (4.1052%)	$	10,084	$	1,607		$	10,166	$	918
Third-party interest rate swap	10/17/33	Fixed (4.1052%)	1 Mo. Libor + 175bp		10,084		(1,607	)		10,166		(918	)
Customer interest rate swap	12/13/26	1 Mo. Libor + 205bp	Fixed (3.82%)	$	2,519	$	168		$	2,561	$	18
Third-party interest rate swap	12/13/26	Fixed (3.82%)	1 Mo. Libor + 205bp		2,519		(168	)		2,561		(18	)

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Other Commitments

As of March 31, 2020, the Company has an outstanding commitment of $7.6 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, including a severance payment in the event employment is terminated in conjunction with a defined change in control. 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.

Cold Spring Green, LLC and Hisham Ashkouri v. East Boston Savings Bank and Meridian Interstate Bancorp, Inc.

The Bank is a defendant in a lawsuit that was filed in 2015 in Middlesex Superior Court in Massachusetts. The plaintiffs seek damages related to the foreclosure of a loan that was originated in 2007 by Mt. Washington Bank, which the Bank acquired in 2010.  A similar suit by the same plaintiffs was filed in 2013 but subsequently dismissed.  Following a trial in October 2019, the jury returned a verdict that rejected each of the plaintiffs’ claims for breach of contract, fraudulent inducement and unjust enrichment. However, the jury found, in an advisory verdict, that the Bank intentionally acted unfairly and deceptively in violation of Massachusetts General Laws Chapter 93A (“G.L. c. 93A”), which states: "Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful."   The jury found that the Bank caused the plaintiffs damages in the amount of $1.0 million.

On November 25, 2019, the trial judge issued an opinion on the G.L. c. 93A count, adopting the jury’s advisory verdict and awarding the plaintiffs $1.0 million, which was then doubled as provided for in the statute for what was deemed to be a knowing and willing act on the part of the Bank. The trial judge also awarded the plaintiffs their reasonable attorneys’ fees and costs, resulting in a total award of $2.1 million plus attorneys’ fees, costs and interest.

If the judgment is upheld in full, the Company has estimated that the award, which includes attorney's fees, costs and interest, could be as high as $3 million. However, the Company believes there are strong grounds for appeal based on significant appellate case law and the intentions to vigorously defend its interests in this matter, including arguing for complete reversal on appeal, a Notice of Appeal was filed on March 9, 2020. Although the Company believes there is a strong basis to vacate the award, there remains a reasonable possibility that the judgment will be affirmed in whole or in part, with the possible range of loss from $0 to $3 million. The Company does not believe that the loss is probable at this time, as that term is used in assessing loss contingencies. Accordingly, in accordance with the authoritative guidance in the evaluation of contingencies, the Company has not recorded an accrual related to this matter.

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. Marketable 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 securities are determined by pricing models that consider standard input factors such as observable

18

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).

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized as follows.  

							Total Fair
	Level 1		Level 2		Level 3		Value
	(In thousands)
March 31, 2020
Assets:
Debt securities	$	—	$	13,820	$	—	$	13,820
Marketable equity securities		13,130		—		—		13,130
Loan level interest rate swaps		—		—		12,363		12,363
Total assets	$	13,130	$	13,820	$	12,363	$	39,313
Liabilities:
Loan level interest rate swaps	$	—	$	—	$	12,363	$	12,363
Total liabilities	$	—	$	—	$	12,363	$	12,363
							Total Fair
	Level 1		Level 2		Level 3		Value
	(In thousands)
December 31, 2019
Assets:
Debt securities	$	—	$	15,076	$	—	$	15,076
Marketable equity securities		15,243		—		—		15,243
Loan level interest rate swaps		—		—		4,561		4,561
Total assets	$	15,243	$	15,076	$	4,561	$	34,880
Liabilities:
Loan level interest rate swaps	$	—	$	—	$	4,561	$	4,561
Total liabilities	$	—	$	—	$	4,561	$	4,561

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 at fair value 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, 2020 and December 31, 2019 were $5.0 million and $4.6 million, respectively. The related gains and losses were immaterial for the three months ended March 31, 2020 and 2019.

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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, 2020
Financial assets:
Cash and due from banks	$	457,048	$	457,048	$	—	$	—	$	457,048
Certificates of deposit		247		—		247		—		247
Securities available for sale, at fair value		13,820		—		13,820		—		13,820
Marketable equity securities, at fair value		13,130		13,130		—		—		13,130
Federal Home Loan Bank stock		33,278		—		—		33,278		33,278
Loans and loans held for sale, net		5,643,258		—		—		5,663,014		5,663,014
Accrued interest receivable		13,868		—		—		13,868		13,868
Loan level interest rate swaps		12,363		—		—		12,363		12,363
Financial liabilities:
Deposits		4,821,949		—		—		4,838,433		4,838,433
Borrowings		745,873		—		772,646		—		772,646
Accrued interest payable		4,526		—		—		4,526		4,526
Loan level interest rate swaps		12,363		—		—		12,363		12,363
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
December 31, 2019
Financial assets:
Cash and due from banks	$	406,382	$	406,382	$	—	$	—	$	406,382
Certificates of deposit		247		—		247		—		247
Securities available for sale, at fair value		15,076		—		15,076		—		15,076
Marketable equity securities, at fair value		15,243		15,243		—		—		15,243
Federal Home Loan Bank stock		28,947		—		—		28,947		28,947
Loans and loans held for sale, net		5,669,995		—		—		5,489,521		5,489,521
Accrued interest receivable		14,481		—		—		14,481		14,481
Loan level interest rate swaps		4,561		—		—		4,561		4,561
Financial liabilities:
Deposits		4,921,533		—		—		4,714,313		4,714,313
Borrowings		636,245		—		582,861		—		582,861
Accrued interest payable		5,962		—		—		5,962		5,962
Loan level interest rate swaps		4,561		—		—		4,561		4,561

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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, 2019, 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 “will”, “continue”, “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;

• the effects of the COVID-19 pandemic on the business, customers, employees and third-party service providers;

• diversion of management time on pandemic related issues;

• changes to statutes, regulations, or regulatory policies or practices resulting from the COVID-19 pandemic;

• 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;

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• the effects of federal government shutdowns;

• our ability to successfully introduce new products and services; and

• our ability to retain key employees.

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, 2019 filed with the SEC on March 2, 2020, 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, 2019. 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 the allowance for loan losses is the most critical accounting policy.

Impact of COVID-19

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment.  Since the COVID-19 outbreak, millions of individuals have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).  The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.  Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. The current impact of COVID-19 and the CARES Act is detailed throughout Management’s Discussion and Analysis, however, the extent to which the effects of the CARES Act and any further legislation of its kind will impact the Company’s financial results and operations during 2020 and beyond remains uncertain.

Comparison of Financial Condition at March 31, 2020 and December 31, 2019

Assets. Total assets increased $4.9 million, or 0.1%, to $6.349 billion at March 31, 2020 from $6.344 billion at December 31, 2019. Net loans decreased $57.7 million, or 1.0%, to $5.640 billion at March 31, 2020 from $5.698 billion at December 31, 2019. Cash and due from banks increased $50.7 million, or 12.5%, to $457.0 million at March 31, 2020 from $406.4 million at December 31, 2019. Securities at fair value decreased $3.4 million, or 11.1%, to $26.9 million at March 31, 2020 from $30.3 million at December 31, 2019.

Loan Portfolio Analysis. At March 31, 2020, net loans were $5.640 billion, or 88.8% of total assets. During the three months ended March 31, 2020, net loans decreased $57.7 million, or 1.0% from December 31, 2019. Loan originations totaled $439.6 million during the three months ended March 31, 2020. The decrease in net loans resulted primarily from decreases of $74.3 million in commercial real estate loans, $31.3 million in multi-family loans and $2.1 million in one- to four-family loans, partially offset by increases of $33.8 million in commercial and industrial loans, $9.1 million in construction loans and $8.5 million in home equity lines of credit. The net decrease in loans for the quarter ended March 31, 2020 reflects commercial loan payoffs totaling $343.4 million, comprised of $164.3 million in commercial real estate, $84.9 million in construction, $81.7 million in multi-family, and $12.5 million in the commercial and industrial loan categories. 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.

The CARES Act includes the establishment of the Payroll Protection Program (“PPP”), a program designed to aid small- and medium-sized business through federally guaranteed loans distributed through financial institutions.  The program originally included $349 billion of funding and was later increased by an additional $310 billion, for a total of $659 billion of funding dedicated to this program.  These loans are intended to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.  This program is being administered by the Small Business Administration (“SBA”) and backed

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by the Federal Reserve Bank. The Company has obtained approvals for approximately 212 customers totaling approximately $104.2 million in approved loans with associated fees of $2.6 million through April 30, 2020.

The Company holds a moderate level of loans in the industries most heavily impacted by COVID-19, namely $586.3 million in the retail industry, $347.3 million in the hospitality industry and $12.2 million in the restaurant industry. The Company’s total outstanding loan balances to businesses in these industries was $945.8 million at March 31, 2020, or 19.1% of the Company’s commercial loan portfolio.  These customers have been active in the PPP and the Company is also working on further accommodations, including principal and interest deferrals, to assist these customers in mitigating the financial and operational impact of COVID-19 on their businesses.

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.

Delinquencies. Total past due loans increased $2.0 million, or 62.9%, to $5.2 million at March 31, 2020 from $3.2 million at December 31, 2019, reflecting net increases of $1.2 million in loans 30 to 59 days past due, $579,000 in loans 60 to 89 days past due and $218,000 in loans 90 days or greater past due. At March 31, 2020, 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, 2020, 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 $535,000 at March 31, 2020.

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The following table provides information with respect to our non-performing assets at the dates indicated.

	March 31,			December 31,
	2020			2019
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential real estate:
One- to four-family	$	2,846		$	3,082
Home equity lines of credit		20			—
Total real estate loans		2,866			3,082
Commercial and industrial		323			323
Total non-accrual loans (1)		3,189			3,405
Total non-performing assets	$	3,189		$	3,405
Non-accrual loans to total loans		0.06	%		0.06	%
Non-accrual loans to total assets		0.05	%		0.05	%
Non-performing assets to total assets		0.05	%		0.05	%

(1) TDRs on accrual status not included above totaled $1.8 million and $2.3 million at March 31, 2020 and December 31, 2019, respectively.

Non-accrual loans decreased $216,000, or 6.3%, to $3.2 million, or 0.06% of total loans outstanding at March 31, 2020, from $3.4 million, or 0.06% of total loans outstanding at December 31, 2019, due to a decrease of $236,000 in one- to four-family loans, partially offset by a $20,000 increase in home equity lines of credit.

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, 2020, our allowance for loan losses was $50.9 million, or 0.89% of total loans and 1,597.55% of non-accrual loans, compared to $50.3 million, or 0.87% of total loans and 1,477.89% of non-accrual loans at December 31, 2019. The increase in the allowance for loan losses was primarily due to a $2.8 million increase for inherent losses in the Bank’s loan portfolio based on management’s assessment of qualitative economic factors related to the effects of COVID-19, which offset changes in other key factors that would have resulted in a decrease in the allowance for loan losses. Included in our allowance at March 31, 2020 was a general component of $50.9 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 three 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, 2020 and December 31, 2019, the Company did not hold any foreclosed real estate. We continue to be actively engaged with our borrowers in resolving remaining problem assets.

Troubled Debt Restructurings and Other Loan Modifications. 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 $406,000, or 13.3%, to $2.6 million at March 31, 2020 from $3.0 million at December 31, 2019, 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.

In response to COVID-19, the Company has provided temporary relief in the form of short-term loan modifications to our customer’s most effected by the pandemic.  These modifications are primarily for customers in the retail, hospitality and restaurant industries.  These modifications include 90- to 180-day interest-only or full principal and interest deferment periods.  The deferred payments and associated accrued interest are due and payable based upon the specific terms of the modification.  As of April 30, 2020, the Company had executed loan modifications for 78 borrowers, representing outstanding loan balances of $116.7 million and deferred interest payments totaling $1.7 million. In addition, the Company had approved $343.2 million in loan modifications that have not been executed as of April 30, 2020.    

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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, 2020 other potential problem loans totaled $25.3 million and consist of commercial and industrial loans. The $25.3 million in 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 $21.1 million and $4.2 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 this loan relationship is performing in accordance with the terms of the loans with the current expectation that we will be repaid in full in accordance with those terms, but with continual credit monitoring of the relationship.

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,
	2020			2019
	(Dollars in thousands)
Beginning balance	$	50,322		$	53,231
Provision for loan losses		725			843
Charge-offs:
Commercial and industrial		50			10
Consumer		64			77
Total charge-offs		114			87
Recoveries:
Home equity lines of credit		1			1
Commercial and industrial		1			—
Consumer		11			9
Total recoveries		13			10
Net charge-offs		101			77
Ending balance	$	50,946		$	53,997
Allowance to non-accrual loans		1,597.55	%		715.76	%
Allowance to total loans outstanding		0.89	%		0.94	%
Net charge-offs to average loans outstanding		0.01	%		0.00	%

Our loan loss provision was $725,000 for the three months ended March 31, 2020 compared to $843,000 for the three months ended March 31, 2019. The provision for the three month ended March 31, 2020 reflects a $2.8 million increase for inherent losses in the Bank’s loan portfolio based on management’s assessment of qualitative economic factors related to the effects of COVID-19, which offset changes in other key factors that would have resulted in a provision reversal. The increase in the allowance for loan losses at March 31, 2020 compared to December 31, 2019 was primarily due to increased allocations in the construction, commercial and industrial and one- to four-family loan categories, partially offset by an decreased allocations in the commercial real estate and multi-family 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.

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

	March 31, 2020								December 31, 2019
						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	$	794		1.5			11.5	%	$	691		1.4	%		11.5	%
Multi-family		7,680		15.0			17.1			7,825		15.5			17.4
Home equity lines of credit		94		0.2			1.4			69		0.1			1.2
Commercial real estate		26,728		52.5			46.0			26,943		53.6			46.9
Construction		9,457		18.6			12.6			8,913		17.7			12.3
Total real estate loans		44,753		87.8			88.6			44,441		88.3			89.3
Commercial and industrial		6,114		12.0			11.2			5,765		11.5			10.5
Consumer		79		0.2			0.2			116		0.2			0.2
Total loans	$	50,946		100.0	%		100.0	%	$	50,322		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 $6.0 million and $6.3 million as of March 31, 2020 and December 31, 2019, respectively. At March 31, 2020, impaired loans totaling $559,000 had a valuation allowance of $7,000. Impaired loans totaling $2.8 million had a valuation allowance of $76,000 at December 31, 2019. Our average investment in impaired loans was $6.0 million and $5.2 million for the three months ended March 31, 2020 and 2019, 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 or 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, 2020 and considered any probable loss in determining the allowance for loan losses.

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.

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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, 2020 our securities portfolio was $26.9 million, or 0.4% of total assets, compared to $30.3 million, or 0.5% of total assets, at December 31, 2019. During the three months ended March 31, 2020, the securities portfolio decreased $3.4 million, or 11.1% primarily due to $1.5 million in maturities, calls and principal payments and a net unrealized loss recognized on marketable equity securities of $4.0 million, partially offset by purchases of $2.8 million. At March 31, 2020, the securities portfolio consisted of $13.8 million, or 51.3%, in debt securities and $13.1 million, or 48.7%, in marketable 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 marketable 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, 2020 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.

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 noninterest-bearing demand, interest-bearing demand, money market, regular savings and other deposits, and certificates of deposit, which include brokered certificates of deposit. We consider noninterest-bearing demand, interest-bearing demand, money market, and regular savings and other deposits to be core deposits. Total deposits decreased $99.6 million, or 2.0%, to $4.822 billion at March 31, 2020 from $4.921 billion at December 31, 2019. Our continuing focus on the acquisition and expansion of core deposit relationships resulted in net growth in core deposits of $80.2 million, or 2.4%, to $3.432 billion, or 71.2% of total deposits. The increase in core deposits for the three months ended March 31, 2020 includes a $48.7 million increase, or 9.3%, in noninterest-bearing demand deposits to $572.8 million. Refer to Note 6, Deposits, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our deposits.

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

	March 31,
	2020								2019
						Percent								Percent
	Average		Average			of Total			Average		Average			of Total
	Balance		Rate			Deposits			Balance		Rate			Deposits
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	535,182		—	%		11.9	%	$	482,634		—	%		9.9	%
Interest-bearing demand deposits		1,280,003		1.41			26.8			1,189,166		1.68			24.2
Money market deposits		691,897		1.19			14.5			699,807		1.24			13.6
Regular savings and other deposits		906,100		1.12			18.0			920,579		1.67			19.2
Certificates of deposit		1,475,016		2.10			28.8			1,621,436		2.07			33.1
Total	$	4,888,198		1.38	%		100.0	%	$	4,913,622		1.58	%		100.0	%

Borrowings. We use borrowings from the FHLB to supplement our supply of funds for loans and investments. At March 31, 2020 and December 31, 2019, FHLB advances totaled $745.9 million and $636.2 million, respectively, with a weighted average rate of 2.29% and 2.57%, respectively. Total borrowings increased $109.6 million, or 17.2%, during the three months ended March 31, 2020, reflecting a $25.0 million increase in short-term advances and an $84.6 million increase in long-term advances. During the three months ended March 31, 2020, the Bank entered into a short-term advance totaling $25.0 million with a term of nine months and an interest rate of 0.81%. The Bank entered into long-term advances totaling $110.0 million with terms ranging from one to five years and fixed interest rates ranging from 0.66% to 1.38% during the three months ended March 31, 2020. Advances maturing with the FHLB during the three months ended March 31, 2020 consisted of a $25.0 million long-term advance with a term of three years and a rate of 1.81%. At March 31, 2020, 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,
	2020			2019
	(Dollars in thousands)
Balance outstanding at end of period	$	745,873		$	525,985
Average amount outstanding during the period	$	654,740		$	577,954
Weighted average interest rate during the period		2.55	%		1.91	%
Maximum outstanding at any month end	$	745,873		$	586,582
Weighted average interest rate at end of period		2.29	%		2.10	%

Stockholders’ Equity. Total stockholders’ equity decreased $7.0 million, or 1.0%, to $719.6 million at March 31, 2020, from $726.6 million at December 31, 2019. The decrease for the three months ended March 31, 2020 was primarily due to the repurchase of 1,000,000 shares of the Company’s common stock related to the stock repurchase program at a total cost of $17.7 million and dividends of $0.08 per share totaling $4.0 million, partially offset by net income of $13.0 million and $1.6 million related to stock-based compensation plans. Stockholders’ equity to assets was 11.34% at March 31, 2020, compared to 11.45% at December 31, 2019. Book value per share increased to $13.73 at March 31, 2020 from $13.61 at December 31, 2019. At March 31, 2020, 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.

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Results of Operations for the Three Months Ended March 31, 2020 and 2019

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, and mortgage banking gains.

Net income information is as follows:

	Three Months Ended March 31,							Change
	2020				2019			Amount				Percent
	(Dollars in thousands)
Net interest income	$	45,098			$	42,597		$	2,501				5.9		%
Provision for loan losses		725				843			(118	)			(14.0	)
Non-interest (loss) income		(831	)			3,828			(4,659	)			(121.7	)
Non-interest expenses		26,320				25,796			524				2.0
Net income		12,977				15,071			(2,094	)			(13.9	)
Basic earnings per share		0.26				0.29			(0.03	)			(10.3	)
Diluted earnings per share		0.25				0.29			(0.04	)			(13.8	)
Return on average assets		0.82		%		0.97	%		(0.15	)	%		(15.5	)
Return on average equity		7.09		%		8.84	%		(1.75	)	%		(19.8	)

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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,
	2020									2019
	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)	$	5,741,852	$	64,758				4.54	%	$	5,694,639	$	62,325				4.44	%
Securities and certificates of deposits		29,290		211				2.90			36,510		272				3.02
Other interest-earning assets (3)		400,315		1,786				1.79			353,201		2,577				2.96
Total interest-earning assets		6,171,457		66,755				4.35			6,084,350		65,174				4.34
Noninterest-earning assets		157,398									117,927
Total assets	$	6,328,855								$	6,202,277
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,280,003		4,497				1.41		$	1,189,166		4,940				1.68
Money market deposits		691,897		2,055				1.19			699,807		2,148				1.24
Regular savings and other deposits		906,100		2,531				1.12			920,579		3,802				1.67
Certificates of deposit		1,475,016		7,686				2.10			1,621,436		8,261				2.07
Total interest-bearing deposits		4,353,016		16,769				1.55			4,430,988		19,151				1.75
Borrowings		654,740		4,151				2.55			577,954		2,725				1.91
Total interest-bearing liabilities		5,007,756		20,920				1.68			5,008,942		21,876				1.77
Noninterest-bearing demand deposits		535,182									482,634
Other noninterest-bearing liabilities		53,688									29,048
Total liabilities		5,596,626									5,520,624
Total stockholders' equity		732,229									681,653
Total liabilities and stockholders' equity	$	6,328,855								$	6,202,277
Net interest-earning assets	$	1,163,701								$	1,075,408
Fully tax-equivalent net interest income				45,835									43,298
Less: tax-equivalent adjustments				(737	)								(701	)
Net interest income			$	45,098								$	42,597
Interest rate spread (1)(4)								2.67	%								2.57	%
Net interest margin (1)(5)								2.99	%								2.89	%
Average interest-earning assets to average    interest-bearing liabilities				123.24		%							121.47		%
Supplemental Information:
Total deposits, including noninterest-bearing    demand deposits	$	4,888,198	$	16,769				1.38	%	$	4,913,622	$	19,151				1.58	%
Total deposits and borrowings, including    noninterest-bearing demand deposits	$	5,542,938	$	20,920				1.52	%	$	5,491,576	$	21,876				1.62	%

(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, 2020 and 2019, yields on loans before tax-equivalent adjustments were 4.49% and 4.39%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 2.68% and 2.83%, respectively, and yields on total interest-earning assets before tax-equivalent adjustments were 4.30% and 4.30%, respectively. Interest rate spread before tax-equivalent adjustments for the three months ended March 31, 2020 and 2019 was 2.62% and 2.53%, respectively, while net interest margin before tax-equivalent adjustments for the three months ended March 31, 2020 and 2019 was 2.94% and 2.84%, respectively.

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(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,
	2020 Compared to 2019
	Increase (Decrease) Due to
	Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	667		$	1,766		$	2,433
Securities and certificates of deposit		(50	)		(11	)		(61	)
Other interest-earning assets		318			(1,109	)		(791	)
Total		935			646			1,581
Interest expense:
Deposits		(406	)		(1,976	)		(2,382	)
Borrowings		406			1,020			1,426
Total		—			(956	)		(956	)
Change in fully tax-equivalent net interest    income	$	935		$	1,602		$	2,537

The interest rate spread and net interest margin on a tax-equivalent basis were 2.67% and 2.99%, respectively, for the three months ended March 31, 2020 compared to 2.57% and 2.89%, respectively, for the three months ended March 31, 2019. The increase in net interest income for the three months ended March 31, 2020 was primarily due to maintaining yields on interest-earning assets while substantially reducing cost of funds.

The yield on interest-earning assets on a tax-equivalent basis increased one basis points to 4.35% for the three months ended March 31, 2020, compared to 4.34% for the three months ended March 31, 2019, while the cost of funds decreased 10 basis points to 1.52% from 1.62% for the three months ended March 31, 2020 and 2019, respectively. The increase in interest income was primarily due to growth in the Company’s average loan balances of $47.2 million, or 0.83%, to $5.742 billion and a 10 basis point increase in the yield on loans to 4.54% on a tax-equivalent basis, from 4.44% for the three months ended March 31, 2019. Interest and fees on loans included commercial loan prepayment fees of $877,000 and $201,000 for the three months ended March 31, 2020 and 2019, respectively. Interest and fees on loans also included earned mortgage point income of $959,000 and $454,000 for the three months ended March 31, 2020 and 2019, respectively. The decrease in interest expense on deposits was primarily due to the decrease in average total deposits of $25.4 million, or 0.5%, to $4.888 billion and an decrease in the average total cost of deposits of 20 basis points to 1.38% for the three months ended March 31, 2020 compared to 1.58% for the same period in 2019. The increase in interest expense on borrowings was primarily due to an increase in the cost of average borrowings of 64 basis points to 2.55% for the three months ended March 31, 2020 compared to 1.91% for the three months ended March 31, 2019, and by an increase in average borrowings of $76.8 million, or 13.3%, to $654.7 million. 

Provision for Loan Losses. The provision for loan loss for the three months ended March 31, 2020 was $725,000 compared to $843,000 for the three months ended March 31, 2019. The provision for the first quarter of 2020 reflects a $2.8 million increase for inherent losses in the Bank’s loan portfolio based on management’s assessment of qualitative economic factors related to the effects of COVID-19, which offset changes in other key factors that would have resulted in a provision reversal. For further discussion of the changes in the provision and allowance for loan losses, refer to “Comparison of Financial Condition at March 31, 2020 and December 31, 2019 - Allowance for Loan Losses.”

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

	Three Months Ended March 31,					Change
	2020			2019		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	2,097		$	2,097	$	—			—		%
Loan fees		674			77		597			775.3
Mortgage banking gains, net		411			40		371			927.5
(Loss) gain on marketable equity    securities, net		(4,344	)		1,326		(5,670	)		(427.6	)
Income from bank-owned life    insurance		297			281		16			5.7
Other income		34			7		27			385.7
Total non-interest income (loss)	$	(831	)	$	3,828	$	(4,659	)		(121.7	)	%

The decrease in non-interest income for the three months ended March 31, 2020 was due primarily to a $4.3 million loss on marketable equity securities, net, reflecting decreases in market valuations in the first quarter for 2020 compared to a $1.3 million gain on marketable equity securities, net, in the first quarter of 2019, partially offset by increases of $597,000 in loan fees and $371,000 in mortgage banking gains, net. Refer to Note 4, Securities, in the Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our securities portfolio.

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

	Three Months Ended March 31,				Change
	2020		2019		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	15,914	$	15,632	$	282			1.8		%
Occupancy and equipment		3,924		3,596		328			9.1
Data processing		2,137		1,970		167			8.5
Marketing and advertising		1,230		1,162		68			5.9
Professional services		997		860		137			15.9
Deposit insurance		669		1,012		(343	)		(33.9	)
Other general and administrative		1,449		1,564		(115	)		(7.4	)
Total non-interest expenses	$	26,320	$	25,796	$	524			2.0		%

The increases in salaries and employee benefits expense were primarily due to annual increases in employee compensation, payroll taxes and employee benefits, while the increases in occupancy and equipment expenses and data processing include costs associated with the expansion of our branch network, including one new branch opened in July 2019, and one new branch opened in December 2019.

Income Tax Provision. The Company recorded a provision for income taxes of $4.2 million for the three months ended March 31, 2020, reflecting an effective tax rate of 24.6%, compared to $4.7 million, or a 23.8% effective tax rate, for the three months ended March 31, 2019.

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, 2020, cash and due from banks totaled $457.0 million and certificates of deposit totaled $247,000. In addition, at March 31, 2020, we had $516.3 million of available borrowing capacity with the FHLB, including a $9.4 million line of credit. On March 31, 2020, we had $745.9 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.

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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, 2020 and December 31, 2019, we had total loan commitments outstanding of $1.191 billion and $1.289 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 Contingencies 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, 2020 totaled $1.138 billion, or 81.9% 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, which may be augmented by 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, 2020, Meridian Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents, certificates of deposit and equity securities totaling $6.2 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, 2020, 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 as set forth in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of Total, Tier 1 and 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, including dividend payments and stock repurchases, and discretionary bonuses.

As a result of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a “Community Bank Leverage Ratio” (“CBLR”) (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion. A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies have set 9% as the minimum capital for the Community CBLR, effective March 31, 2020. On April 6, 2020, the federal banking agencies issued two interim final rules related to Section 4012 of the CARES Act, which requires the agencies to lower the CBLR requirement to 8%. The second rule provides a transition from the temporary 8% requirement back to the 9%. The CBLR requirement will transition from greater than 8% from the second quarter through the fourth quarter of 2020, to greater than 8.5% during calendar year 2021, to a requirement of greater than 9% in 2022. The Company and the Bank elected to be subject to the CBLR at March 31, 2020.

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. The Company repurchased 1,000,000 shares of its common stock at an average price of $17.68 during the three months ended March 31, 2020. During the three months ended March 31, 2020 the Company’s Board of Directors declared a quarterly cash dividend of $0.08 per common share on February 27, 2020. The dividend was paid on April 2, 2020 to stockholders of record at the close of business on March 19, 2020.

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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, 2020
Community Bank Leverage Ratio:
Company	$	697,219		11.1	%	N/A		N/A			$	567,308		9.0	%
Bank		675,688		10.7		N/A		N/A				567,258		9.0
December 31, 2019
Total Capital (to Risk Weighted Assets):
Company	$	754,555		12.6	%	$	478,497	8.0		%	N/A		N/A
Bank		711,405		11.9			478,302	8.0			$	597,877		10.0	%
Tier 1 Capital (to Risk Weighted Assets):
Company		704,233		11.8			358,873		6.0		N/A		N/A
Bank		661,083		11.1			358,726		6.0			478,302		8.0
Common Equity Tier 1 Capital (to Risk    Weighted Assets):
Company		704,233		11.8			269,155		4.5		N/A		N/A
Bank		661,083		11.1			269,045		4.5			388,620		6.5
Tier 1 Capital (to Average Assets):
Company		704,233		11.1			252,862		4.0		N/A		N/A
Bank		661,083		10.5			252,623		4.0			315,779		5.0

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

	March 31,						December 31,
	2020						2019
	Consolidated			Bank			Consolidated			Bank
	(In thousands)
Total stockholders' equity per financial statements	$	719,621		$	698,090		$	726,587		$	683,437
Adjustments to Tier 1 and Common Equity Tier 1    capital:
Accumulated other comprehensive loss (income)		(19	)		(19	)		147			147
Goodwill disallowed		(20,378	)		(20,378	)		(20,378	)		(20,378	)
Core deposit intangible		(2,005	)		(2,005	)		(2,123	)		(2,123	)
Total Tier 1 and Common Equity Tier 1 capital		697,219			675,688			704,233			661,083
Adjustments to total capital:
Allowance for loan losses		50,946			50,946			50,322			50,322
Total regulatory capital	$	748,165		$	726,634		$	754,555		$	711,405

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, 2020, 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.

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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.

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, 2020									December 31, 2019
in Market Interest Rates	Amount		Change			Percent				Amount		Change			Percent
	(Dollars in thousands)
300	$	177,078	$	(23,256	)		(11.61	)	%	$	149,190	$	(30,374	)		(16.92	)	%
Flat		200,334									179,564
-100		202,404		2,070			1.03				185,647		6,083			3.39

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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

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in the Company’ Annual Report on Form 10-K for the fiscal year ended December 31, 2019, filed with the SEC on March 2, 2020, which is available through the SEC’s website at www.sec.gov. 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. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

In December 2019, a coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 outbreak in the United States a national emergency.  The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home.  This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment.  Since the COVID-19 outbreak, millions of individuals have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value.  In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows.  Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees).  The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak.  Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.  Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.  We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.  As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

• demand for our products and services may decline, making it difficult to grow assets and income;

• if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

• our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

• as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

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• a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend,

• our cyber security risks are increased as the result of an increase in the number of employees working remotely;

• we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

• Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs;

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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, 2020		—	$	—		—		1,000,000
February 1-29, 2020		839,900	$	17.87		839,900		160,100
March 1- 31, 2020		160,100	$	16.69		160,100		—
		1,000,000	$	17.68		1,000,000		—

(1) In April 2019, the Company announced that it had adopted a new stock repurchase program of up to 0.9% of its outstanding common stock, or 500,000 shares of its common stock. In October 2019, the repurchase program was amended to increase the number of shares available for repurchase by up to 824,544, or 1.5% of the Company’s outstanding common stock. The Company completed the repurchase of the 1,324,544 shares under this plan in March 2020.

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)
4.1	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)
4.2	Description of Registrant’s Securities filed as an exhibit to Form 10-K filed on March 2, 2020
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
10.21	Amendment Number One to Meridian Bancorp, Inc. 2008 Equity Incentive Plan dated August 15, 2018 filed as an exhibit to Form 10-Q filed on November 9, 2018
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 Inline 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	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL 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 11, 2020	By:	/s/    Richard J. Gavegnano
		Richard J. Gavegnano Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: May 11, 2020	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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