Meridian Bancorp (EBSB) 10-Q 2020 Q3 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 September 30, 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 November 2, 2020, there were 52,413,159 outstanding shares of the Registrant’s common stock.

MERIDIAN BANCORP, INC.

FORM 10-Q

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets at September 30, 2020 and December 31, 2019	3
	Consolidated Statements of Net Income for the three and nine months ended September 30, 2020 and 2019	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2020 and 2019	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	41
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults Upon Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits	43
	Signatures	45

2

PART I – FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,			December 31,
	2020			2019
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	702,138		$	406,382
Certificates of deposit		—			247
Securities available for sale, at fair value		12,183			15,076
Marketable equity securities, at fair value		16,203			15,243
Federal Home Loan Bank stock, at cost		33,282			28,947
Loans held for sale		11,662			2,455
Loans, net of deferred fees and costs		5,651,440			5,747,862
Less: allowance for loan losses		(67,639	)		(50,322	)
Loans, net		5,583,801			5,697,540
Bank-owned life insurance		41,606			41,155
Premises and equipment, net		67,917			65,841
Accrued interest receivable		21,460			14,481
Deferred tax asset, net		17,007			16,726
Goodwill		20,378			20,378
Core deposit intangible		1,769			2,123
Other assets		37,327			17,100
Total assets	$	6,566,733		$	6,343,694
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing	$	707,458		$	524,154
Interest-bearing		4,244,569			4,397,379
Total deposits		4,952,027			4,921,533
Short-term borrowings		25,000			—
Long-term debt		779,279			636,245
Accrued expenses and other liabilities		62,163			59,329
Total liabilities		5,818,469			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; 52,413,120 and    53,377,506 shares issued and outstanding at September 30, 2020 and December 31,    2019, respectively		524			534
Additional paid-in capital		363,093			377,213
Retained earnings		400,649			365,742
Accumulated other comprehensive income (loss)		91			(147	)
Unearned compensation - ESOP, 2,222,186 and 2,313,509 shares at September 30, 2020    and December 31, 2019, respectively		(16,093	)		(16,755	)
Total stockholders' equity		748,264			726,587
Total liabilities and stockholders' equity	$	6,566,733		$	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 September 30,					Nine Months Ended September 30,
	2020		2019			2020			2019
	(Dollars in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	60,918	$	66,121		$	186,400		$	191,802
Interest on debt securities:
Taxable		63		101			225			319
Tax-exempt		13		12			38			38
Dividends on equity securities		118		137			357			384
Interest on certificates of deposit		—		18			1			73
Other interest and dividend income		494		2,136			2,753			6,656
Total interest and dividend income		61,606		68,525			189,774			199,272
Interest expense:
Interest on deposits		8,746		20,178			36,106			59,982
Interest on short-term borrowings		52		1			112			296
Interest on borrowings		3,999		4,129			12,278			9,710
Total interest expense		12,797		24,308			48,496			69,988
Net interest income		48,809		44,217			141,278			129,284
Provision (reversal) for loan losses		7,163		(2,978	)		17,529			(2,057	)
Net interest income, after provision (reversal) for loan losses		41,646		47,195			123,749			131,341
Non-interest income:
Customer service fees		2,193		2,428			6,238			6,813
Loan fees		264		436			903			566
Mortgage banking gains, net		704		99			1,233			240
Gain on sale of asset		—		—			4,195			—
Gain (loss) on marketable equity securities, net		122		(463	)		(2,197	)		1,086
Income from bank-owned life insurance		272		285			842			846
Other income		17		64			185			80
Total non-interest income		3,572		2,849			11,399			9,631
Non-interest expenses:
Salaries and employee benefits		13,426		15,101			43,198			45,649
Occupancy and equipment		3,734		3,657			11,397			10,903
Data processing		2,196		2,026			6,466			6,005
Marketing and advertising		554		1,019			2,814			3,480
Professional services		688		680			2,380			2,324
Deposit insurance		692		10			1,967			1,951
Other general and administrative		1,540		1,354			4,229			4,448
Total non-interest expenses		22,830		23,847			72,451			74,760
Income before income taxes		22,388		26,197			62,697			66,212
Provision for income taxes		5,714		6,508			15,767			16,284
Net income	$	16,674	$	19,689		$	46,930		$	49,928
Earnings per share:
Basic	$	0.33	$	0.39		$	0.93		$	0.98
Diluted	$	0.33	$	0.38		$	0.93		$	0.97
Weighted average shares outstanding:
Basic		50,169,024		50,923,760			50,311,231			51,031,359
Diluted		50,248,048		51,454,186			50,459,326			51,477,206

See accompanying notes to consolidated financial statements.

4

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
	(In thousands)
Net income	$	16,674		$	19,689		$	46,930		$	49,928
Other comprehensive income:
Securities available for sale:
Net unrealized (loss) gain		(13	)		100			330			550
Tax effect		4			(28	)		(92	)		(154	)
Total other comprehensive (loss) income		(9	)		72			238			396
Comprehensive income	$	16,665		$	19,761		$	47,168		$	50,324

See accompanying notes to consolidated financial statements.

5

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three and Nine Months Ended September 30, 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)
Nine Months Ended September 30, 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
Shares surrendered related to tax    withholdings on stock options exercised		(709	)		—			—			—			—			—			—
Stock options exercised		30,843			—			51			—			—			—			51
Balance at March 31, 2020		52,402,395		$	524		$	360,901		$	374,712		$	19		$	(16,535	)	$	719,621
Comprehensive income		—			—			—			17,279			81			—			17,360
Dividends declared ($0.08 per share)		—			—			—			(4,008	)		—			—			(4,008	)
ESOP shares committed to be allocated    (30,441 shares)		—			—			117			—			—			221			338
Share-based compensation expense -    restricted stock, net of awards forfeited		4,320			—			597			—			—			—			597
Share-based compensation expense -    stock options, net of awards forfeited		—			—			362			—			—			—			362
Stock options exercised		464			—			3			—			—			—			3
Balance at June 30, 2020		52,407,179		$	524		$	361,980		$	387,983		$	100		$	(16,314	)	$	734,273
Comprehensive income		—			—			—			16,674			(9	)		—			16,665
Dividends declared ($0.08 per share)		—			—			—			(4,008	)		—			—			(4,008	)
ESOP shares committed to be allocated    (30,441 shares)		—			—			125			—			—			221			346
Share-based compensation expense -    restricted stock, net of awards forfeited		(180	)		—			617			—			—			—			617
Share-based compensation expense -    stock options, net of awards forfeited		—			—			344			—			—			—			344
Stock options exercised		6,121			—			27			—			—			—			27
Balance at September 30, 2020		52,413,120		$	524		$	363,093		$	400,649		$	91		$	(16,093	)	$	748,264

6

	Shares of Common Stock Outstanding			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation - ESOP			Total
	(Dollars in thousands)
Nine Months Ended September 30, 2019
Balance at December 31, 2018		53,541,429		$	535		$	378,583		$	313,521		$	(348	)	$	(17,637	)	$	674,654
Comprehensive income		—			—			—			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 withholdings 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
Comprehensive income		—			—			—			15,168			140			—			15,308
Dividends declared ($0.07 per share)		—			—			—			(3,563	)		—			—			(3,563	)
Repurchased stock related to buyback program		(236,842	)		(2	)		(4,073	)		—			—			—			(4,075	)
ESOP shares committed to be allocated    (30,441 shares)		—			—			300			—			—			220			520
Share-based compensation expense -    restricted stock, net of awards forfeited		11,820			—			689			—			—			—			689
Share-based compensation expense -    stock options, net of awards forfeited		—			—			411			—			—			—			411
Stock options exercised		4,181			—			23			—			—			—			23
Balance at June 30, 2019		53,321,805		$	533		$	375,760		$	336,628		$	(24	)	$	(17,196	)	$	695,701
Comprehensive income		—			—			—			19,689			72			—			19,761
Dividends declared ($0.07 per share)		—			—			—			(3,559	)		—			—			(3,559	)
Repurchased stock related to buyback program		(87,801	)		(1	)		(1,547	)		—			—			—			(1,548	)
ESOP shares committed to be allocated    (30,441 shares)		—			—			333			—			—			221			554
Share-based compensation expense -    restricted stock, net of awards forfeited		(6,200	)		—			695			—			—			—			695
Share-based compensation expense -    stock options, net of awards forfeited		(7,067	)		—			414			—			—			—			414
Shares surrendered related to tax    withholdings on stock options exercised		—			—			(131	)		—			—			—			(131	)
Stock options exercised		76,324			1			94			—			—			—			95
Balance at September 30, 2019		53,297,061		$	533		$	375,618		$	352,758		$	48		$	(16,975	)	$	711,982

See accompanying notes to consolidated financial statements.  

7

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30,
	2020			2019
	(In thousands)
Cash flows from operating activities:
Net income	$	46,930		$	49,928
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of acquisition fair value adjustments		66			50
Amortization of core deposit intangible		354			399
ESOP shares expense		1,191			1,553
Provision (reversal) for loan losses		17,529			(2,057	)
Accretion of net deferred loan origination fees		(2,452	)		(1,786	)
Net amortization of securities available for sale		47			35
Depreciation and amortization expense		2,560			2,370
Loss (gain) on marketable equity securities, net		2,197			(1,086	)
Gain on sale of asset		(4,195	)		—
Deferred income tax benefit		(373	)		(351	)
Income from bank-owned life insurance		(842	)		(846	)
Gain on life insurance distribution		—			(52	)
Share-based compensation expense		2,940			3,297
Net changes in:
Loans held for sale		(9,207	)		(1,419	)
Accrued interest receivable		(6,979	)		(38	)
Other assets		(20,227	)		(7,668	)
Accrued expenses and other liabilities		2,725			7,758
Net cash provided by operating activities		32,264			50,087
Cash flows from investing activities:
Maturities of certificates of deposit		247			5,000
Activity in securities, at fair value:
Proceeds from maturities, calls and principal payments		3,176			1,862
Proceeds from sales		862			223
Purchases		(4,019	)		—
Loan principal payments (originations), net		98,582			(100,438	)
Proceeds from bank-owned life insurance distribution		391			365
Proceeds from sale of asset		5,836			—
Purchases of premises and equipment		(5,906	)		(4,691	)
Purchase of Federal Home Loan Bank stock		(4,335	)		(2,570	)
Redemption of Federal Home Loan Bank stock		—			2,810
Net cash provided by (used in) investing activities		94,834			(97,439	)
Cash flows from financing activities:
Net change in deposits		30,508			71,532
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			160,000
Repayment of Federal Home Loan Bank advances with maturities of three months or more		(90,620	)		(60,265	)
Proceeds from Federal Reserve PPPLF borrowings with maturities of three months or more		123,660			—
Repayment of Federal Reserve PPPLF borrowings with maturities of three months or more		(6	)		—
Cash dividends paid on common stock		(12,285	)		(10,694	)
Stock options exercised, net of cash paid in connection with income taxes		81			115
Repurchase of common stock		(17,680	)		(7,270	)
Net cash provided by financing activities		168,658			103,418
Net change in cash and cash equivalents		295,756			56,066
Cash and cash equivalents at beginning of period		406,382			371,995
Cash and cash equivalents at end of period	$	702,138		$	428,061
Supplemental cash flow information:
Interest paid on deposits	$	39,413		$	58,947
Interest paid on borrowings		12,373			9,449
Income taxes paid, net of refunds		25,144			17,625

See accompanying notes to consolidated financial statements.

8

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 and nine months ended September 30, 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 and 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 earlier of the end of the pandemic or the end of 2020.  The Company has chosen to defer adoption of ASU

9

No. 2016-13 based on management’s belief that the incurred loss impairment methodology provides a more practical measurement of credit losses 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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
	(Dollars in thousands, except share information)
Net income available to common stockholders	$	16,674	$	19,689	$	46,930	$	49,928
Basic weighted average shares outstanding		50,169,024		50,923,760		50,311,231		51,031,359
Effect of dilutive stock options		79,024		530,426		148,095		445,847
Diluted weighted average shares outstanding		50,248,048		51,454,186		50,459,326		51,477,206
Earnings per share:
Basic	$	0.33	$	0.39	$	0.93	$	0.98
Diluted	$	0.33	$	0.38	$	0.93	$	0.97

For the three months ended September 30, 2020 and 2019, options for the exercise of 132,569 shares and 86,110 shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive. For the nine months ended September 30, 2020 and 2019, options for the exercise of 131,483 and 116,082 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.

10

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)
September 30, 2020
Debt securities:
Government-sponsored enterprises	$	373	$	24	$	—		$	397
Municipal bonds		2,077		143		—			2,220
Residential mortgage-backed securities:
Government-sponsored enterprises		8,512		373		(11	)		8,874
Private label		571		121		—			692
Total securities available for sale	$	11,533	$	661	$	(11	)	$	12,183
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 securities available for sale	$	14,756	$	354	$	(34	)	$	15,076

At September 30, 2020 debt securities with a fair value of $1.9 million and $278,000 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 September 30, 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	$	—	$	—	$	373	$	397	$	373	$	397
Municipal bonds		523		570		1,554		1,650		2,077		2,220
Residential mortgage-backed securities:
Government-sponsored enterprises		504		516		8,008		8,358		8,512		8,874
Private label		—		—		571		692		571		692
Total	$	1,027	$	1,086	$	10,506	$	11,097	$	11,533	$	12,183

11

Information pertaining to securities available for sale as of September 30, 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)
September 30, 2020
Debt securities:
Residential mortgage-backed securities:
Government-sponsored enterprises	$	8	$	520	$	3	$	144
Total temporarily impaired securities	$	8	$	520	$	3	$	144

	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 nine months ended September 30, 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 $16.2 million and $15.2 million at September 30, 2020 and December 31, 2019, respectively.

The following is a summary of unrealized and realized gains and losses recognized in net income on marketable equity securities during the three and nine months September 30, 2020 and 2019:

	Three Months Ended					Nine Months Ended
	September 30, 2020		September 30, 2019			September 30, 2020			September 30, 2019
	(In thousands)
Net realized gain (loss) on marketable equity securities    sold during the period	$	70	$	—		$	(267	)	$	(155	)
Net unrealized gain (loss) recognized during the reporting period    on marketable equity securities still held at the reporting date		52		(463	)		(1,930	)		1,241
Net gain (loss) recognized during the period    on marketable equity securities	$	122	$	(463	)	$	(2,197	)	$	1,086

12

5. LOANS

A summary of loans follows:

	September 30, 2020						December 31, 2019
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	604,037			10.7	%	$	659,366			11.5	%
Home equity lines of credit		73,581			1.3			69,491			1.2
Multi-family		941,409			16.6			1,003,418			17.4
Commercial real estate		2,595,124			45.9			2,696,671			46.9
Construction		666,375			11.8			707,370			12.3
Total real estate loans		4,880,526			86.3			5,136,316			89.3
Commercial and industrial		766,418			13.5			604,889			10.5
Consumer		12,213			0.2			12,196			0.2
Total loans		5,659,157			100.0	%		5,753,401			100.0	%
Allowance for loan losses		(67,639	)					(50,322	)
Net deferred loan origination fees		(7,717	)					(5,539	)
Loans, net	$	5,583,801					$	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 September 30, 2020 and December 31, 2019, the Company was servicing loans for participants aggregating $126.5 million and $173.7 million, respectively.

At September 30, 2020, multi-family and commercial real estate loans with carrying values totaling $329.5 million and $1.423 billion, respectively, were pledged as collateral for FHLB borrowings.

13

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

	Three Months Ended September 30, 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 June 30, 2020	$	1,530		$	8,477		$	178		$	31,669		$	11,291		$	7,332		$	70		$	60,547
Provision (reversal) for   loan losses		764			561			101			5,673			(896	)		921			39			7,163
Charge-offs		—			—			—			—			—			(25	)		(55	)		(80	)
Recoveries		—			—			1			—			—			3			5			9
Balance at September 30, 2020	$	2,294		$	9,038		$	280		$	37,342		$	10,395		$	8,231		$	59		$	67,639
	Three Months Ended September 30, 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 June 30, 2019	$	835		$	8,593		$	66		$	27,786		$	10,254		$	6,238		$	93		$	53,865
Provision (reversal) for   loan losses		(202	)		(150	)		(7	)		(380	)		(1,718	)		(580	)		59			(2,978	)
Charge-offs		—			—			—			—			—			—			(74	)		(74	)
Recoveries		—			—			1			—			—			—			17			18
Balance at September 30, 2019	$	633		$	8,443		$	60		$	27,406		$	8,536		$	5,658		$	95		$	50,831
	Nine Months Ended September 30, 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		1,590			1,213			209			10,399			1,482			2,615			21			17,529
Charge-offs		—			—			—			—			—			(158	)		(135	)		(293	)
Recoveries		13			—			2			—			—			9			57			81
Balance at September 30, 2020	$	2,294		$	9,038		$	280		$	37,342		$	10,395		$	8,231		$	59		$	67,639
	Nine Months Ended September 30, 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		(400	)		203			(13	)		(384	)		(1,219	)		(382	)		138			(2,057	)
Charge-offs		—			—			—			—			—			(196	)		(211	)		(407	)
Recoveries		—			—			3			5			—			—			56			64
Balance at September 30, 2019	$	633		$	8,443		$	60		$	27,406		$	8,536		$	5,658		$	95		$	50,831

14

	One- to four- family		Multi- family		Home equity lines of credit		Commercial real estate		Construction		Commercial and industrial		Consumer		Total
	(In thousands)
September 30, 2020
Amount of allowance for loan    losses for loans deemed to be    impaired	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	1
Amount of allowance for loan    losses for loans not deemed to    be impaired		2,293		9,038		280		37,342		10,395		8,231		59		67,638
	$	2,294	$	9,038	$	280	$	37,342	$	10,395	$	8,231	$	59	$	67,639
Loans deemed to be impaired	$	834	$	—	$	—	$	1,922	$	—	$	2,590	$	—	$	5,346
Loans not deemed to be impaired		603,203		941,409		73,581		2,593,202		666,375		763,828		12,213		5,653,811
	$	604,037	$	941,409	$	73,581	$	2,595,124	$	666,375	$	766,418	$	12,213	$	5,659,157
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

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)
September 30, 2020
Real estate loans:
Residential real estate:
One- to four-family	$	892	$	491	$	868	$	2,251	$	3,041
Home equity lines of credit		1		—		20		21		20
Total real estate loans		893		491		888		2,272		3,061
Commercial and industrial		17		—		360		377		541
Consumer		664		380		—		1,044		—
Total	$	1,574	$	871	$	1,248	$	3,693	$	3,602
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		—		—		—		—		—
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

15

At September 30, 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:

	September 30, 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	$	650	$	988			$	570	$	908
Multi-family		—		—				252		252
Commercial real estate		1,922		1,922				2,399		2,399
Commercial and industrial		2,590		2,919				323		653
Total		5,162		5,829				3,544		4,212
Impaired loans with a valuation allowance:
One- to four-family		184		184	$	1		698		698	$	36
Commercial and industrial		—		—		—		2,063		2,063		40
Total		184		184		1		2,761	$	2,761		76
Total impaired loans	$	5,346	$	6,013	$	1	$	6,305	$	6,973	$	76

	Three Months Ended September 30,
	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	$	992	$	8	$	6	$	1,286	$	18	$	8
Multi-family		—		—		—		683		10		—
Commercial real estate		1,928		22		—		742		8		—
Commercial and industrial		2,451		22		—		1,135		16		—
Total impaired loans	$	5,371	$	52	$	6	$	3,846	$	52	$	8
	Nine Months Ended September 30,
	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	$	997	$	27	$	20	$	1,295	$	39	$	19
Multi-family		—		—		—		1,004		44		—
Commercial real estate		1,944		64		—		758		25		—
Commercial and industrial		2,494		65		—		1,321		48		—
Total impaired loans	$	5,435	$	156	$	20	$	4,378	$	156	$	19

16

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

	September 30,		December 31,
	2020		2019
	(In thousands)
TDRs on accrual status:
One- to four-family	$	1,744	$	2,084
Multi-family		—		252
Total TDRs on accrual status		1,744		2,336
TDRs on non-accrual status:
One- to four-family		650		706
Total TDRs on non-accrual status		650		706
Total TDRs	$	2,394	$	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. Refer to Troubled Debt Restructurings and Other Loan Modifications, in Management’s Discussion and Analysis of Financial Condition and Results of Operations within this report for more detail regarding loans deferred or modified under the CARES Act and not included in TDRs.

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.

17

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

	September 30, 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	$	941,409	$	2,579,204	$	666,375	$	725,056	$	1,000,783	$	2,679,330	$	707,370	$	573,835
Loans rated 7		—		15,657		—		18,172		—		16,626		—		2,009
Loans rated 8		—		263		—		23,190		2,635		715		—		29,045
Loans rated 9		—		—		—		—		—		—		—		—
Loans rated 10		—		—		—		—		—		—		—		—
Total	$	941,409	$	2,595,124	$	666,375	$	766,418	$	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:

	September 30,		December 31,
	2020		2019
	(In thousands)
Noninterest-bearing demand deposits	$	707,458	$	524,154
Interest-bearing demand deposits		1,353,153		1,269,211
Money market deposits		789,712		675,702
Regular savings and other deposits		850,810		882,550
Total non-certificate accounts		3,701,133		3,351,617
Term certificates less than $250,000		919,432		1,206,598
Term certificates $250,000 and greater		331,462		363,318
Total certificate accounts		1,250,894		1,569,916
Total deposits	$	4,952,027	$	4,921,533

A summary of term certificates, by maturity, follows:

	September 30, 2020					December 31, 2019
			Weighted					Weighted
Maturing	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
Within 1 year	$	862,941		1.24	%	$	1,316,791		2.16	%
Over 1 year to 2 years		233,524		1.20			166,862		1.75
Over 2 years to 3 years		49,770		1.54			60,462		2.29
Over 3 years to 4 years		55,833		0.77			16,658		2.01
Over 4 years to 5 years		48,826		0.73			9,143		1.72
	$	1,250,894		1.21	%	$	1,569,916		2.12	%

The Company had certificates of deposit accounts obtained through a listing service included in term certificates in the table above, totaling $72.6 million with a weighted average rate of 0.90% and $36.5 million with a weighted average rate of 2.35% at September 30, 2020 and December 31, 2019, respectively. The Company had brokered certificates of deposit, which are included in term certificates in the table above, totaling $217.1 million with a weighted average rate of 1.31% and $404.5 million with a weighted average rate of 2.19% at September 30, 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 September 30, 2020 and December 31, 2019, respectively.

18

7. BORROWINGS

At September 30, 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. At September 30, 2020, long-term debt consisted of $655.6 million in FHLB advances and $123.7 million in borrowings from the Federal Reserve Bank discount window through the Paycheck Protection Program Liquidity Facility (“PPPLF”). The Company has an available line of credit of $9.4 million with the FHLB at an interest rate that adjusts daily. NaN amounts were drawn on the line of credit at September 30,2020 or December 31, 2019.

Long-term, fixed rate FHLB advances and maturities are as follows:

	September 30, 2020					December 31, 2019
			Weighted					Weighted
	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
2020	$	45,000		2.16	%	$	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
	$	655,625		2.32	%	$	636,245		2.57	%

At September 30, 2020, FHLB 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 September 30, 2020, the Company pledged multi-family and commercial real estate loans with carrying values totaling $329.5 million and $1.423 billion, respectively.

At September 30, 2020, the Company had $123.7 million in borrowings from the PPPLF program. These borrowings have maturities ranging from two to five years and a rate of 0.35%. At December 31, 2019, the Company had 0 borrowings through the PPPLF program.

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.

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

	September 30,		December 31,
	2020		2019
	(In thousands)
Unadvanced portion of existing loans:
Construction	$	431,026	$	402,393
Home equity lines of credit		78,945		82,362
Other lines and letters of credit		380,504		363,955
Commitments to originate:
One- to four-family		57,186		26,246
Commercial real estate		17,426		63,344
Construction		201,611		333,870
Commercial and industrial		30,348		16,655
Other loans		—		100
Total loan commitments outstanding	$	1,197,046	$	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 September 30, 2020, the Company had $13.8 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:

				September 30, 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%)	$	61,203	$	10,390		$	62,425	$	3,625
Third-party interest rate swap	06/07/32	Fixed (4.40%)	1 Mo. Libor + 200bp		61,203		(10,390	)		62,425		(3,625	)
Customer interest rate swap	10/17/33	1 Mo. Libor + 175bp	Fixed (4.1052%)	$	9,921	$	1,559		$	10,166	$	918
Third-party interest rate swap	10/17/33	Fixed (4.1052%)	1 Mo. Libor + 175bp		9,921		(1,559	)		10,166		(918	)
Customer interest rate swap	12/13/26	1 Mo. Libor + 205bp	Fixed (3.82%)	$	2,434	$	175		$	2,561	$	18
Third-party interest rate swap	12/13/26	Fixed (3.82%)	1 Mo. Libor + 205bp		2,434		(175	)		2,561		(18	)

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Other Commitments

As of September 30, 2020, the Company has an outstanding commitment of $5.4 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 and, 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

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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)
September 30, 2020
Assets:
Debt securities	$	—	$	12,183	$	—	$	12,183
Marketable equity securities		16,203		—		—		16,203
Loan level interest rate swaps		—		—		12,124		12,124
Total assets	$	16,203	$	12,183	$	12,124	$	40,510
Liabilities:
Loan level interest rate swaps	$	—	$	—	$	12,124	$	12,124
Total liabilities	$	—	$	—	$	12,124	$	12,124
							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

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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 September 30, 2020 and December 31, 2019 were $4.2 million and $4.6 million, respectively. The related gains and losses were immaterial for the three and nine months ended September 30, 2020 and 2019.

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)
September 30, 2020
Financial assets:
Cash and due from banks	$	702,138	$	702,138	$	—	$	—	$	702,138
Securities available for sale, at fair value		12,183		—		12,183		—		12,183
Marketable equity securities, at fair value		16,203		16,203		—		—		16,203
Federal Home Loan Bank stock		33,282		—		—		33,282		33,282
Loans and loans held for sale, net		5,595,463		—		—		5,611,568		5,611,568
Accrued interest receivable		21,460		—		—		21,460		21,460
Loan level interest rate swaps		12,124		—		—		12,124		12,124
Financial liabilities:
Deposits		4,952,027		—		—		5,075,657		5,075,657
Borrowings		804,279		—		830,884		—		830,884
Accrued interest payable		2,686		—		—		2,686		2,686
Loan level interest rate swaps		12,124		—		—		12,124		12,124
	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 any civil unrest;

• 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;

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

• 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 created a significant economic disruption resulting in an unprecedented slow-down in economic activity and a related increase in unemployment.  In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark federal funds rate to a target range of 0% to 0.25%. 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 passed legislation providing 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 September 30, 2020 and December 31, 2019

Assets. Total assets increased $223.0 million, or 3.5%, to $6.567 billion at September 30, 2020 from $6.344 billion at December 31, 2019. Net loans decreased $113.7 million, or 2.0%, to $5.584 billion at September 30, 2020 from $5.698 billion at December 31, 2019. Cash and due from banks increased $295.8 million, or 72.8%, to $702.1 million at September 30, 2020 from $406.4 million at December 31, 2019

Loan Portfolio Analysis. At September 30, 2020, net loans were $5.584 billion, or 85.0% of total assets. During the nine months ended September 30, 2020, net loans decreased $113.7 million, or 2.0% from December 31, 2019. Loan originations totaled $955.3 million during the nine months ended September 30, 2020. The net decrease in loans resulted primarily from decreases of $101.5 million in commercial real estate loans, $62.0 million in multi-family loans and $55.3 million in one- to four-family loans and $41.0 million in construction loans, partially offset by increases of $161.5 million in commercial and industrial loans and $4.1 million in home equity lines of credit. The net decrease in loans for the nine months ended September 30, 2020 reflects commercial loan payoffs totaling $700.6 million, comprised of $266.0 million in commercial real estate loans, $201.5 million in construction loans, $199.7 million in multi-family loans and $33.4 million in the commercial and industrial loans. Refer to Note 5, Loans, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding the loans held in the Company’s loan portfolio.

The CARES Act includes the establishment of the Paycheck Protection Program (“PPP”), a program designed to aid small- and medium-sized business through federally guaranteed loans distributed through financial institutions. These loans are intended to guarantee 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 by the Federal Reserve Bank. The Company originated 401 PPP loans totaling $123.7 million with associated fees of $3.4 million during the second quarter of 2020.

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The Company holds certain loans in the industries most heavily impacted by COVID-19, namely $683.5 million in the retail industry, $361.5 million in the hospitality industry and $20.1 million in the restaurant industry. These customers have been active in the PPP and the Company has made further accommodations, including principal and interest deferrals, to assist these customers in mitigating the financial and operational impact of COVID-19 on their businesses. As of September 30, 2020, the Company has temporarily adjusted repayment terms on 9.3% of its total loan portfolio, including 34.4% of the loans in the retail, hospitality and restaurant industries, due to COVID-19. These amounts have declined since the end of the third quarter, as most of the initial modification periods end during the fourth quarter of 2020. The Bank has worked diligently with borrowers to improve their repayment status.  As of October 19, 2020, the amount of loans with modified terms due to COVID-19 has decreased to 7.0% of the total loan portfolio, as most loans improve to either full payment or interest-only payments.

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 $502,000, or 15.7%, to $3.7 million at September 30, 2020 from $3.2 million at December 31, 2019. At September 30, 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. Delinquencies do not include loans that have had COVID-19 related payment deferral modifications, as appropriate under the CARES Act.

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 September 30, 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. As of September 30, 2020, there were no loans placed on non-accrual due to COVID-19 related repayment modifications, as appropriate under the CARES Act.  

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 $380,000 at September 30, 2020.

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

	September 30,			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	$	3,041		$	3,082
Home equity lines of credit		20			—
Total real estate loans		3,061			3,082
Commercial and industrial		541			323
Total non-accrual loans (1)		3,602			3,405
Total non-performing assets	$	3,602		$	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 $1.7 million and $2.3 million at September 30, 2020 and December 31, 2019, respectively.

Non-accrual loans increased $197,000 or 5.8%, to $3.6 million, or 0.06% of total loans outstanding at September 30, 2020, from $3.4 million, or 0.06% of total loans outstanding at December 31, 2019.

Achieving and maintaining a moderate risk profile by aggressively managing troubled assets has been and will continue to be a primary focus. At September 30, 2020, our allowance for loan losses was $67.6 million, or 1.20% of total loans, compared to $50.3 million, or 0.87% of total loans at December 31, 2019. The increases in the provision and coverage ratio reflect the application of economic uncertainties and market volatility caused by COVID-19 to the factors used to determine the Company’s provision. Included in our allowance at September 30, 2020 was a general component of $67.6 million, which is based upon our evaluation of various factors relating to loans not deemed to be impaired. Due to government guarantee, we have not currently provided for loan losses for PPP loans. 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 September 30, 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 $648,000, or 21.3%, to $2.4 million at September 30, 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, including 90- to 180-day principal and interest deferment periods.  The deferred payments and associated accrued interest are due and payable based on the specific terms of the modification. As of September 30, 2020, the Company had executed modifications with full principal and interest deferrals representing outstanding loan balances of $391.5 million, or 6.9% of the total loan portfolio, and associated accrued interest of $7.4 million. As of October 19, 2020, these amounts have declined to $285.6 million, or 5.0% of the total loan portfolio.

27

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 September 30, 2020 other potential problem loans totaled $19.0 million and consist of two commercial and industrial loans to non-profit educational organizations in eastern Massachusetts with loan balances of $15.3 million and $3.6 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 these loan relationships are 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 relationships.

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

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

	Nine Months Ended September 30,
	2020			2019
	(Dollars in thousands)
Beginning balance	$	50,322		$	53,231
Provision for loan losses		17,529			(2,057	)
Charge-offs:
Commercial and industrial		158			196
Consumer		135			211
Total charge-offs		293			407
Recoveries:
One- to four-family		13			—
Commercial real estate		—			5
Commercial and industrial		9			—
Home equity lines of credit		2			3
Consumer		57			56
Total recoveries		81			64
Net charge-offs		212			343
Ending balance	$	67,639		$	50,831
Allowance to non-accrual loans		1,877.82	%		1,286.86		%
Allowance to total loans outstanding		1.20	%		0.88		%
Net charge-offs to average loans outstanding		0.00	%		0.01		%

Our loan loss provision was $17.5 million for the nine months ended September 30, 2020 compared to a reversal of $2.1 million for the nine months ended September 30, 2019. The increase in the allowance for loan losses at September 30, 2020 compared to December 31, 2019 was primarily due to economic factors and industry conditions impacted by COVID-19.   We continue to assess the adequacy of our allowance for loan losses in accordance with established policies and are closely monitoring the evolving pandemic to ensure proper evaluation of its impact on our loan portfolio.

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

	September 30, 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	$	2,294		3.4	%		10.7	%	$	691		1.4	%		11.5	%
Multi-family		9,038		13.3			16.6			7,825		15.5			17.4
Home equity lines of credit		280		0.4			1.3			69		0.1			1.2
Commercial real estate		37,342		55.2			45.9			26,943		53.6			46.9
Construction		10,395		15.4			11.8			8,913		17.7			12.3
Total real estate loans		59,349		87.7			86.3			44,441		88.3			89.3
Commercial and industrial		8,231		12.2			13.5			5,765		11.5			10.5
Consumer		59		0.1			0.2			116		0.2			0.2
Total loans	$	67,639		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 $5.3 million and $6.3 million as of September 30, 2020 and December 31, 2019, respectively. Our average investment in impaired loans was $5.4 million and $4.4 million for the nine months ended September 30, 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 September 30, 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.

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

29

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 September 30, 2020 our securities portfolio was $28.4 million, or 0.4% of total assets, compared to $30.3 million, or 0.5% of total assets, at December 31, 2019. During the nine months ended September 30, 2020, the securities portfolio decreased $1.9 million, or 6.4% primarily due to $3.2 million in maturities, calls and principal payments and a net unrealized loss recognized on marketable equity securities of $2.2 million, partially offset by purchases of $4.0 million. At September 30, 2020, the securities portfolio consisted of $12.2 million, or 42.9%, in debt securities and $16.2 million, or 57.1%, in marketable equity securities. 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. 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. Total deposits increased $30.5 million, or 0.62%, to $4.952 billion at September 30, 2020 from $4.921 billion at December 31, 2019. Refer to Note 6, Deposits, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our deposits.

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

	Nine Months Ended September 30,
	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	$	630,072		—	%		14.3	%	$	498,037		—	%		10.4	%
Interest-bearing demand deposits		1,289,479		0.90			27.3			1,200,110		1.76			25.5
Money market deposits		728,024		0.84			15.9			685,892		1.28			13.9
Regular savings and other deposits		860,593		0.70			17.2			915,173		1.60			17.2
Certificates of deposit		1,356,139		1.81			25.3			1,662,818		2.14			33.0
Total	$	4,864,307		0.99	%		100.0	%	$	4,962,030		1.62	%		100.0	%

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Borrowings. We use borrowings from the FHLB to supplement our supply of funds for loans and investments. Beginning in the second quarter of 2020, we utilized borrowings from the Federal Reserve’s PPPLF program to fund the origination of PPP loans. At September 30, 2020 and December 31, 2019, FHLB advances totaled $680.6 million and $636.2 million, respectively, with a weighted average rate of 2.27% and 2.57%, respectively. Federal Reserve PPPLF borrowings totaled $123.7 million with a weighted average rate of 0.35% at September 30, 2020. There were no Federal Reserve borrowings at December 31, 2019. Total borrowings increased $168.0 million, or 26.4%, during the nine months ended September 30, 2020, reflecting a $25.0 million increase in short-term advances and a $143.0 million increase in long-term debt, primarily due to participation in the PPPLF program. During the nine months ended September 30, 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 FHLB 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 nine months ended September 30, 2020. Advances maturing with the FHLB during the nine months ended September 30, 2020 totaled $90.0 million and consisted of advances with original terms ranging from one to three years and interest rates ranging from 1.81% to 2.79%. The Bank entered into long-term PPPLF borrowings totaling $123.7 million with terms ranging from two to five years and a rate of 0.35% during the nine months ended September 30, 2020. PPPLF borrowings paid off during the nine months ended September 30, 2020 totaled $6,000. At September 30, 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.

	Nine Months Ended September 30,
	2020			2019
	(Dollars in thousands)
Balance outstanding at end of period	$	804,279		$	636,615
Average amount outstanding during the period	$	738,058		$	579,335
Weighted average interest rate during the period		2.24	%		2.31	%
Maximum outstanding at any month end	$	804,285		$	637,038
Weighted average interest rate at end of period		1.97	%		2.57	%

Stockholders’ Equity. Total stockholders’ equity increased $21.7 million, or 3.0%, to $748.3 million at September 30, 2020, from $726.6 million at December 31, 2019. The increase for the nine months ended September 30, 2020 was primarily due to net income of $46.9 million and $4.2 million related to stock-based compensation plans, partially offset by the repurchase of one million shares of the Company’s common stock related to the stock repurchase program at a total cost of $17.7 million and dividends of $0.24 per share totaling $12.0 million. Stockholders’ equity to assets was 11.39% at September 30, 2020, compared to 11.45% at December 31, 2019. Book value per share increased to $14.28 at September 30, 2020 from $13.61 at December 31, 2019. At September 30, 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 and Nine Months Ended September 30, 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 September 30,							Change								Nine Months Ended September 30,							Change
	2020			2019				Amount				Percent				2020			2019				Amount				Percent
	(Dollars in thousands, except per share amounts)
Net interest income	$	48,809		$	44,217			$	4,592				10.4		%	$	141,278		$	129,284			$	11,994				9.3		%
Provision (reversal) for loan losses		7,163			(2,978	)			10,141				340.5				17,529			(2,057	)			19,586				952.2
Non-interest income		3,572			2,849				723				25.4				11,399			9,631				1,768				18.4
Non-interest expenses		22,830			23,847				(1,017	)			(4.3	)			72,451			74,760				(2,309	)			(3.1	)
Net income		16,674			19,689				(3,015	)			(15.3	)			46,930			49,928				(2,998	)			(6.0	)
Basic earnings per share		0.33			0.39				(0.06	)			(15.4	)			0.93			0.98				(0.05	)			(4.7	)
Diluted earnings per share		0.33			0.38				(0.05	)			(13.2	)			0.93			0.97				(0.04	)			(4.1	)
Return on average assets		1.03	%		1.24		%		(0.21	)	%		(16.9	)			0.98	%		1.06		%		(0.08	)	%		(7.5	)
Return on average equity		8.94	%		11.17		%		(2.23	)	%		(20.0	)			8.50	%		9.60		%		(1.10	)	%		(11.5	)

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Net Interest Income.

Average Balance Sheets and Related Yields and Rates. The following tables present 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 the tables, 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 September 30,
	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)	$	5,671,957	$	61,682				4.33	%	$	5,840,885	$	66,837				4.54	%
Securities and certificates of deposits		29,263		219				2.98			34,108		289				3.36
Other interest-earning assets (3)		604,916		494				0.32			335,400		2,136				2.53
Total interest-earning assets		6,306,136		62,395				3.94			6,210,393		69,262				4.42
Noninterest-earning assets		161,886									145,445
Total assets	$	6,468,022								$	6,355,838
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,291,341		1,946				0.60		$	1,195,266		5,258				1.75
Money market deposits		769,571		1,270				0.66			683,201		2,281				1.32
Regular savings and other deposits		834,368		966				0.46			870,677		3,199				1.46
Certificates of deposit		1,262,433		4,564				1.44			1,705,718		9,440				2.20
Total interest-bearing deposits		4,157,713		8,746				0.84			4,454,862		20,178				1.80
Borrowings		804,281		4,051				2.00			627,063		4,130				2.61
Total interest-bearing liabilities		4,961,994		12,797				1.03			5,081,925		24,308				1.90
Noninterest-bearing demand deposits		702,717									516,020
Other noninterest-bearing liabilities		57,636									52,663
Total liabilities		5,722,347									5,650,608
Total stockholders' equity		745,675									705,230
Total liabilities and stockholders' equity	$	6,468,022								$	6,355,838
Net interest-earning assets	$	1,344,142								$	1,128,468
Fully tax-equivalent net interest income				49,598									44,954
Less: tax-equivalent adjustments				(789	)								(737	)
Net interest income			$	48,809								$	44,217
Interest rate spread (1)(4)								2.91	%								2.52	%
Net interest margin (1)(5)								3.13	%								2.87	%
Average interest-earning assets to average    interest-bearing liabilities				127.09		%							122.21		%
Supplemental Information:
Total deposits, including noninterest-bearing    demand deposits	$	4,860,430	$	8,746				0.72	%	$	4,970,882	$	20,178				1.61	%
Total deposits and borrowings, including    noninterest-bearing demand deposits	$	5,664,711	$	12,797				0.90	%	$	5,597,945	$	24,308				1.72	%

----------------------

(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 September 30, 2020 and 2019, yields on loans before tax-equivalent adjustments were 4.27% and 4.49%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 2.64% and 3.12%, respectively, and yields on total interest-earning assets before tax-equivalent adjustments were 3.89% and 4.38%, respectively. Interest rate spread before tax-equivalent adjustments for the three months ended September 30, 2020 and 2019 was 2.86% and 2.48%, respectively, while net interest margin before tax-equivalent adjustments for the three months ended September 30, 2020 and 2019 was 3.08% and 2.82%, respectively.

33

(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.

	Nine Months Ended September 30,
	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)	$	5,711,852	$	188,603				4.41	%	$	5,782,319	$	193,902				4.48	%
Securities and certificates of deposits		29,201		676				3.09			35,679		873				3.27
Other interest-earning assets (3)		495,054		2,753				0.74			326,166		6,656				2.73
Total interest-earning assets		6,236,107		192,032				4.11			6,144,164		201,431				4.38
Noninterest-earning assets		159,039									133,279
Total assets	$	6,395,146								$	6,277,443
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,289,479		8,736				0.90		$	1,200,110		15,782				1.76
Money market deposits		728,024		4,551				0.84			685,892		6,587				1.28
Regular savings and other deposits		860,593		4,493				0.70			915,173		10,962				1.60
Certificates of deposit		1,356,139		18,326				1.81			1,662,818		26,651				2.14
Total interest-bearing deposits		4,234,235		36,106				1.14			4,463,993		59,982				1.80
Borrowings		738,058		12,390				2.24			579,335		10,006				2.31
Total interest-bearing liabilities		4,972,293		48,496				1.30			5,043,328		69,988				1.86
Noninterest-bearing demand deposits		630,072									498,037
Other noninterest-bearing liabilities		56,420									42,493
Total liabilities		5,658,785									5,583,858
Total stockholders' equity		736,361									693,585
Total liabilities and stockholders' equity	$	6,395,146								$	6,277,443
Net interest-earning assets	$	1,263,814								$	1,100,836
Fully tax-equivalent net interest income				143,536									131,443
Less: tax-equivalent adjustments				(2,258	)								(2,159	)
Net interest income			$	141,278								$	129,284
Interest rate spread (1)(4)								2.81	%								2.52	%
Net interest margin (1)(5)								3.07	%								2.86	%
Average interest-earning assets to average    interest-bearing liabilities				125.42		%							121.83		%
Supplemental Information:
Total deposits, including noninterest-bearing    demand deposits	$	4,864,307	$	36,106				0.99	%	$	4,962,030	$	59,982				1.62	%
Total deposits and borrowings, including    noninterest-bearing demand deposits	$	5,602,365	$	48,496				1.16	%	$	5,541,365	$	69,988				1.69	%

(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 nine months ended September 30, 2020 and 2019, yields on loans before tax-equivalent adjustments were 4.36% and 4.43%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 2.84% and 3.05%, respectively, and yields on total interest-earning assets before tax-equivalent adjustments were 4.06% and 4.34%, respectively. Interest rate spread before tax-equivalent adjustments for the nine months ended September 30, 2020 and 2019 was 2.76% and 2.48%, respectively, while net interest margin before tax-equivalent adjustments for the nine months ended September 30, 2020 and 2019 was 3.03% and 2.81%, 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 September 30,									Nine Months Ended September 30,
	2020 Compared to 2019									2020 Compared to 2019
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	(1,963	)	$	(3,192	)	$	(5,155	)	$	(2,272	)	$	(3,027	)	$	(5,299	)
Securities and certificates of deposit		(39	)		(31	)		(70	)		(151	)		(46	)		(197	)
Other interest-earning assets		993			(2,635	)		(1,642	)		2,409			(6,312	)		(3,903	)
Total		(1,009	)		(5,858	)		(6,867	)		(14	)		(9,385	)		(9,399	)
Interest expense:
Deposits		(1,576	)		(9,856	)		(11,432	)		(3,620	)		(20,256	)		(23,876	)
Borrowings		1,009			(1,088	)		(79	)		2,680			(296	)		2,384
Total		(567	)		(10,944	)		(11,511	)		(940	)		(20,552	)		(21,492	)
Change in fully tax-equivalent net interest    income	$	(442	)	$	5,086		$	4,644		$	926		$	11,167		$	12,093

The interest rate spread and net interest margin on a tax-equivalent basis were 2.91% and 3.13%, respectively, for the three months ended September 30, 2020 compared to 2.52% and 2.87%, respectively, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the interest rate spread and net interest margin on a tax-equivalent basis were 2.81% and 3.07%, respectively, compared to 2.52% and 2.86%, respectively, for the nine months ended September 30, 2019. Net interest income increased 10.4% and 9.3% for the three and nine months ended September 30, 2020, respectively, compared to the respective prior periods and was primarily due to the substantial reduction in the cost of funds.

The yield on interest-earning assets on a tax-equivalent basis decreased 48 basis points to 3.94% for the three months ended September 30, 2020, compared to 4.42% for the three months ended September 30, 2019, while the cost of funds decreased 82 basis points to 0.90% from 1.72% for the three months ended September 30, 2020 and 2019, respectively. The decrease in interest income was primarily due to a decrease in yield on loans of 21 basis points to 4.33% on a tax-equivalent basis, from 4.54%, and a 221 basis point decrease in yield on other earning assets to 0.32%, from 2.53%, for the three months ended September 30, 2019. The decrease in interest expense on deposits was primarily due to the decrease in the average total cost of deposits of 89 basis points to 0.72% for the three months ended September 30, 2020 compared to 1.61% for the same period in 2019. The decrease in interest expense on borrowings was primarily due to a 61 basis point decrease in the cost of average borrowings to 2.00% from 2.61% for the three months ended September 30, 2019, partially offset by an increase in average total borrowings of $177.2 million, or 28.3%, to $804.3 million for the three months ended September 30, 2020 compared to the three months ended September 30, 2019.

The yield on interest-earning assets on a tax-equivalent basis decreased 27 basis points to 4.11% for the nine months ended September 30, 2020, compared to 4.38% for the nine months ended September 30, 2019, while the cost of funds decreased 53 basis points to 1.16% from 1.69% for the nine months ended September 30, 2020 and 2019, respectively. The decrease in interest income was primarily due to a decrease in the yield on other earning assets of 199 basis points to 0.74%, from 2.73%, and a decrease in the yield on loans on a tax-equivalent basis of seven basis points to 4.41%, from 4.48%, for the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019. The decrease in interest expense on deposits was primarily due to the decrease in the average total cost of deposits of 63 basis points to 0.99% for the nine months ended September 30, 2020 compared to 1.62% for the same period in 2019. The increase in interest expense on borrowings was primarily due to an increase in average borrowings of $158.7 million, or 27.4%, to $738.1 million, partially offset by a decrease in the cost of average borrowings of seven basis points to 2.24% for the nine months ended September 30, 2020 compared to 2.31% for the nine months ended September 30, 2019.

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Provision for Loan Losses. The provision for loan loss for the three months ended September 30, 2020 was $7.2 million compared to a reversal of $3.0 million for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the provision for loan loss was $17.5 million compared to a reversal of $2.1 million for the nine months ended September 30, 2019. The increases in the provision reflect the application of economic uncertainties and market volatility caused by COVID-19 to the factors used to determine the Company’s provision. For further discussion of the changes in the provision and allowance for loan losses, refer to “Comparison of Financial Condition at September 30, 2020 and December 31, 2019 - Allowance for Loan Losses.”

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

	Three Months Ended September 30,					Change							Nine Months Ended September 30,					Change
	2020		2019			Amount			Percent				2020			2019		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	2,193	$	2,428		$	(235	)		(9.7	)	%	$	6,238		$	6,813	$	(575	)		(8.4	)	%
Loan fees		264		436			(172	)		(39.4	)			903			566		337			59.5
Mortgage banking gains, net		704		99			605			611.1				1,233			240		993			413.8
Gain on sale of asset		—		—			—			—				4,195			—		4,195			—
Gain (loss) gain on marketable equity    securities, net		122		(463	)		585			126.3				(2,197	)		1,086		(3,283	)		(302.3	)
Income from bank-owned life    insurance		272		285			(13	)		(4.6	)			842			846		(4	)		(0.5	)
Other income		17		64			(47	)		(73.4	)			185			80		105			131.3
Total non-interest income	$	3,572	$	2,849		$	723			25.4		%	$	11,399		$	9,631	$	1,768			18.4		%

The increase in non-interest income for the three months ended September 30, 2020 was due primarily to increases of $605,000 in mortgage banking gains, net, and a $585,000 valuation increase on equity securities, net, partially offset by decreases of $235,000 in customer service fees and $172,000 in loan fees. The increase in non-interest income for the nine months ended September 30, 2020 was due primarily to a $4.2 million gain on sale of asset, reflecting the sale of the Bank’s former operation center in South Boston, and an increase of $1.0 million in mortgage banking gains, net, partially offset by a $3.3 million valuation decrease on marketable equity securities, net for the nine months ended September 30, 2020, compared to the nine months ended September 30, 2019. 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 September 30,				Change							Nine Months Ended September 30,				Change
	2020		2019		Amount			Percent				2020		2019		Amount			Percent
	(Dollars in thousands)											(Dollars in thousands)
Salaries and employee benefits	$	13,426	$	15,101	$	(1,675	)		(11.1	)	%	$	43,198	$	45,649	$	(2,451	)		(5.4	)	%
Occupancy and equipment		3,734		3,657		77			2.1				11,397		10,903		494			4.5
Data processing		2,196		2,026		170			8.4				6,466		6,005		461			7.7
Marketing and advertising		554		1,019		(465	)		(45.6	)			2,814		3,480		(666	)		(19.1	)
Professional services		688		680		8			1.2				2,380		2,324		56			2.4
Deposit insurance		692		10		682			6,820.0				1,967		1,951		16			0.8
Other general and administrative		1,540		1,354		186			13.7				4,229		4,448		(219	)		(4.9	)
Total non-interest expenses	$	22,830	$	23,847	$	(1,017	)		(4.3	)	%	$	72,451	$	74,760	$	(2,309	)		(3.1	)	%

The Company’s successful efforts to limit overhead expenses during the COVID-19 shutdown led to decreases in salaries and employee benefits, marketing and advertising expenses and other general and administrative. The increases in occupancy and equipment expenses and data processing include costs associated with the expansion of our branch network, including four new branches opened in the past 12 months, three of which were opened in the third quarter of 2020.

Income Tax Provision. The Company recorded a provision for income taxes of $5.7 million for the three months ended September 30, 2020, reflecting an effective tax rate of 25.5%, compared to $6.5 million, or a 24.8% effective tax rate, for the three months ended September 30, 2019. For the nine months ended September 30, 2020, the provision for income taxes was $15.8 million, reflecting an effective rate of 25.1%, compared to $16.3 million, or an effective rate of 24.6% for the nine months ended September 30, 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

36

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. The level of this asset depends on our operating, financing, lending and investing activities during any given period. At September 30, 2020, cash and due from banks totaled $702.1 million. In addition, at September 30, 2020, we had $684.8 million of available borrowing capacity with the FHLB, including a $9.4 million line of credit. On September 30, 2020, we had $680.6 million of FHLB 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.

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 September 30, 2020 and December 31, 2019, we had total loan commitments outstanding of $1.197 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 September 30, 2020 totaled $862.9 million, or 69.0% 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 September 30, 2020, Meridian Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents and equity securities totaling $15.6 million, reflecting an $18.0 million dividend received from the Bank during the second quarter of 2020.

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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 September 30, 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 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 did not repurchase any of its common stock during the three months ended September 30, 2020. During the nine months ended September 30, 2020 the Company repurchased one million shares of its common stock at a total cost of $17.7 million. As of September 30, 2020, the Company had repurchased 4,698,165 shares of its stock at an average price of $15.66 per share since August of 2015. During the nine months ended September 30, 2020 the Company’s Board of Directors declared three quarterly cash dividends of $0.08 per common share on February 27, 2020, May 28, 2020 and August 27, 2020. The dividend declared on August 27, 2020 was paid on October 1, 2020 to stockholders of record at the close of business on September 17, 2020.

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)
September 30, 2020
Community Bank Leverage Ratio:
Company	$	726,026		11.3	%	N/A		N/A			$	515,670		8.0	%
Bank		694,496		10.8		N/A		N/A				515,699		8.0
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

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

	September 30,						December 31,
	2020						2019
	Consolidated			Bank			Consolidated			Bank
	(In thousands)
Total stockholders' equity per financial statements	$	748,264		$	716,734		$	726,587		$	683,437
Adjustments to Tier 1 and Common Equity Tier 1    capital:
Accumulated other comprehensive loss (income)		(91	)		(91	)		147			147
Goodwill disallowed		(20,378	)		(20,378	)		(20,378	)		(20,378	)
Core deposit intangible		(1,769	)		(1,769	)		(2,123	)		(2,123	)
Total Tier 1 and Common Equity Tier 1 capital		726,026			694,496			704,233			661,083
Adjustments to total capital:
Allowance for loan losses		67,639			67,639			50,322			50,322
Total regulatory capital	$	793,665		$	762,135		$	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 nine months ended September 30, 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.

39

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)	September 30, 2020									December 31, 2019
in Market Interest Rates	Amount		Change			Percent				Amount		Change			Percent
	(Dollars in thousands)
300	$	193,388	$	(8,768	)		(4.34	)	%	$	149,190	$	(30,374	)		(16.92	)	%
Flat		202,156									179,564
-100		199,590		(2,566	)		(1.27	)			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

For information regarding our risk factors, see “Risk Factors,” in the Company’s 2019 Annual Report on Form 10-K, filed with the SEC on March 2, 2020, which is available through the SEC’s website at www.sec.gov. As of September 30, 2020, our risk factors had not changed materially from those reported in the annual report, except for those disclosed in our March 31, 2020 Form 10-Q, filed with the SEC on May 11, 2020. The risks described in the Annual Report and the March 31, 2020 Form 10-Q are not the only risks that we face. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

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

(a.) Not applicable

(b.) Not applicable

(c.) For the three months ended September 30, 2020 there were no repurchases of Meridian Bancorp, Inc. stock. 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.  

42

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	Incentive Compensation Plan filed as an exhibit to Form 10-K filed on March 17, 2014
10.14	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
10.15	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
10.16	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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10.17	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
10.18	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
10.19	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
10.20	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: November 9, 2020	By:	/s/    Richard J. Gavegnano
		Richard J. Gavegnano Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: November 9, 2020	By:	/s/    Kenneth R. Fisher
		Kenneth R. Fisher
		Executive Vice President, Treasurer and Chief Financial Officer
		(Principal Financial and Accounting Officer)

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