Meridian Bancorp (EBSB) 10-Q 2021 Q2 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 June 30, 2021

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 July 30, 2021, there were 52,612,938 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 June 30, 2021 and December 31, 2020	3
	Consolidated Statements of Net Income for the three and six months ended June 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2021 and 2020	5
	Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Mine Safety Disclosures	38
Item 5.	Other Information	38
Item 6.	Exhibits	39
	Signatures	41

2

PART I – FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2021			2020
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	1,101,359		$	914,586
Securities available for sale, at fair value		9,810			11,326
Marketable equity securities, at fair value		9,112			12,189
Federal Home Loan Bank stock, at cost		26,184			30,658
Loans held for sale		5,711			8,224
Loans, net of deferred fees and costs		5,000,875			5,512,629
Less: allowance for credit losses on loans		(64,300	)		(68,824	)
Loans, net		4,936,575			5,443,805
Bank-owned life insurance		42,402			41,877
Premises and equipment, net		64,649			66,850
Accrued interest receivable		19,932			23,173
Deferred tax asset, net		21,437			21,355
Goodwill		20,378			20,378
Core deposit intangible		1,445			1,651
Other assets		28,147			23,776
Total assets	$	6,287,141		$	6,619,848
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non interest-bearing	$	801,612		$	711,573
Interest-bearing		4,062,115			4,369,594
Total deposits		4,863,727			5,081,167
Long-term debt		560,625			708,245
Accrued expenses and other liabilities		61,575			61,551
Total liabilities		5,485,927			5,850,963
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; 52,608,747  and    52,415,061 shares issued and outstanding at June 30, 2021 and December 31,    2020, respectively		526			524
Additional paid-in capital		365,607			363,995
Retained earnings		451,100			420,297
Accumulated other comprehensive loss		(146	)		(58	)
Unearned compensation - ESOP, 2,191,745 shares at June 30, 2021    and December 31, 2020, respectively		(15,873	)		(15,873	)
Total stockholders' equity		801,214			768,885
Total liabilities and stockholders' equity	$	6,287,141		$	6,619,848

See accompanying notes to consolidated financial statements.

3

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2021		2020			2021			2020
	(Dollars in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	54,918	$	61,445		$	112,080		$	125,482
Interest on debt securities		61		87			126			187
Dividends on marketable equity securities		90		145			214			239
Interest on certificates of deposit		—		—			—			1
Other interest and dividend income		361		473			731			2,259
Total interest and dividend income		55,430		62,150			113,151			128,168
Interest expense:
Interest on deposits		4,209		10,591			9,938			27,360
Interest on short-term borrowings		—		52			—			60
Interest on borrowings		3,453		4,136			7,044			8,279
Total interest expense		7,662		14,779			16,982			35,699
Net interest income		47,768		47,371			96,169			92,469
Provision (reversal) for credit losses		749		9,641			(4,487	)		10,366
Net interest income, after provision (reversal) for credit losses		47,019		37,730			100,656			82,103
Non-interest income:
Customer service fees		2,485		1,948			4,684			4,045
Loan fees (costs)		39		(35	)		134			639
Mortgage banking gains, net		45		118			627			529
Gain on sale of asset		—		4,195			—			4,195
Gain (loss) on marketable equity securities, net		200		2,025			1,985			(2,319	)
Income from bank-owned life insurance		264		273			525			570
Other income		17		134			26			168
Total non-interest income		3,050		8,658			7,981			7,827
Non-interest expenses:
Salaries and employee benefits		13,939		13,858			29,455			29,772
Occupancy and equipment		3,900		3,739			8,131			7,663
Data processing		2,273		2,133			4,514			4,270
Marketing and advertising		1,032		1,030			1,928			2,260
Professional services		691		695			1,421			1,692
Deposit insurance		345		606			858			1,275
Merger and acquisition		1,115		—			1,115			—
Other general and administrative		4,738		1,240			6,154			2,689
Total non-interest expenses		28,033		23,301			53,576			49,621
Income before income taxes		22,036		23,087			55,061			40,309
Provision for income taxes		5,490		5,808			14,195			10,053
Net income	$	16,546	$	17,279		$	40,866		$	30,256
Earnings per share:
Basic	$	0.33	$	0.34		$	0.81		$	0.60
Diluted	$	0.32	$	0.34		$	0.81		$	0.60
Weighted average shares outstanding:
Basic		50,375,468		50,131,249			50,307,961			50,383,116
Diluted		50,943,160		50,211,234			50,754,731			50,565,747

See accompanying notes to consolidated financial statements.

4

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
	(In thousands)
Net income	$	16,546		$	17,279		$	40,866		$	30,256
Other comprehensive income:
Securities available for sale:
Net unrealized (loss) gain		(20	)		113			(122	)		343
Tax effect		5			(32	)		34			(96	)
Total other comprehensive (loss) income		(15	)		81			(88	)		247
Comprehensive income	$	16,531		$	17,360		$	40,778		$	30,503

See accompanying notes to consolidated financial statements.

5

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Three and Six Months Ended June 30, 2021 and 2020

(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)
Six Months Ended June 30, 2021
Balance at December 31, 2020		52,415,061		$	524	$	363,995		$	420,297		$	(58	)	$	(15,873	)	$	768,885
Comprehensive income		—			—		—			24,320			(73	)		—			24,247
Dividends declared ($0.10 per share)		—			—		—			(5,024	)		—			—			(5,024	)
ESOP shares committed to be allocated    (30,441 shares)		—			—		292			—			—			220			512
Share-based compensation expense -    restricted stock, net of awards forfeited		(2,800	)		—		235			—			—			—			235
Share-based compensation expense -    stock options, net of awards forfeited		—			—		137			—			—			—			137
Stock options exercised		18,293			—		92			—			—			—			92
Balance at March 31, 2021		52,430,554		$	524	$	364,751		$	439,593		$	(131	)	$	(15,653	)	$	789,084
Comprehensive income		—			—		—			16,546			(15	)		—			16,531
Dividends declared ($0.10 per share)		—			—		—			(5,039	)		—			—			(5,039	)
ESOP shares committed to be allocated reversal    (30,441 shares)		—			—		(292	)		—			—			(220	)		(512	)
Share-based compensation expense -    restricted stock, net of awards forfeited		84,885			1		296			—			—			—			297
Share-based compensation expense -    stock options, net of awards forfeited		—			—		140			—			—			—			140
Stock options exercised		93,308			1		712			—			—			—			713
Balance at June 30, 2021		52,608,747		$	526	$	365,607		$	451,100		$	(146	)	$	(15,873	)	$	801,214

	Shares of Common Stock Outstanding			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation - ESOP			Total
Six Months Ended June 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 ($0.07 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

See accompanying notes to consolidated financial statements.  

6

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2021			2020
	(In thousands)
Cash flows from operating activities:
Net income	$	40,866		$	30,256
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of acquisition fair value adjustments		66			34
Amortization of core deposit intangible		206			236
ESOP shares expense		—			845
Provision (reversal) for credit losses		(4,487	)		10,366
Accretion of net deferred loan origination fees		(2,822	)		(1,700	)
Net amortization of securities available for sale		29			29
Depreciation and amortization expense		1,814			1,692
(Gain) loss on marketable equity securities, net		(1,985	)		2,319
Gain on sale of asset		—			(4,195	)
Deferred income tax benefit		(48	)		(243	)
Income from bank-owned life insurance		(525	)		(570	)
Share-based compensation expense		809			1,979
Net changes in:
Loans held for sale		2,513			(1,227	)
Accrued interest receivable		3,241			(2,819	)
Other assets		(4,371	)		(6,676	)
Accrued expenses and other liabilities		(453	)		(136	)
Net cash provided by operating activities		34,853			30,190
Cash flows from investing activities:
Maturities of certificates of deposit		—			247
Activity in securities, at fair value:
Proceeds from maturities, calls and principal payments		1,366			2,369
Proceeds from sales		6,484			541
Purchases		(1,423	)		(4,019	)
Loan principal payments, net		514,464			34,521
Proceeds from bank-owned life insurance distribution		—			391
Proceeds from sale of asset		—			5,836
Purchases of premises and equipment		(167	)		(4,322	)
Purchase of Federal Home Loan Bank stock		—			(4,335	)
Redemption of Federal Home Loan Bank stock		4,474			—
Net cash provided by investing activities		525,198			31,229
Cash flows from financing activities:
Net change in deposits		(217,431	)		(101,127	)
Proceeds from Federal Home Loan Bank advances with maturities of three months or more		—			135,000
Repayment of Federal Home Loan Bank advances with maturities of three months or more		(50,000	)		(90,620	)
Proceeds from Federal Reserve PPPLF borrowings with maturities of three months or more		—			123,476
Repayment of Federal Reserve PPPLF borrowings with maturities of three months or more		(97,620	)		—
Cash dividends paid on common stock		(9,032	)		(8,277	)
Stock options exercised, net of cash paid in connection with income taxes		805			54
Repurchase of common stock		—			(17,680	)
Net cash (used in) provided by financing activities		(373,278	)		40,826
Net change in cash and cash equivalents		186,773			102,245
Cash and cash equivalents at beginning of period		914,586			406,382
Cash and cash equivalents at end of period	$	1,101,359		$	508,627
Supplemental cash flow information:
Interest paid on deposits	$	10,622		$	30,061
Interest paid on borrowings		7,330			8,431
Income taxes paid, net of refunds		19,893			6,420

See accompanying notes to consolidated financial statements.

7

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by such generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments were of a normal recurring nature. The results of operations for the six months ended June 30, 2021 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, 2020 which was filed with the Securities and Exchange Commission (“SEC”) on March 1, 2021, 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 credit losses.

On April 22, 2021, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Independent Bank Corp., a Massachusetts corporation ("Independent"), Bradford Merger Sub Inc. a direct, wholly owned subsidiary of Independent (“Merger Sub”), Rockland Trust Company, a Massachusetts-chartered trust company and wholly owned subsidiary of Independent ("Rockland Trust"), and the Bank. Pursuant to the Merger Agreement, Merger Sub will merge with and into the Company (the "Merger"), with the Company being the surviving corporation, and as soon as reasonably practicable following the Merger, the Company will merge with and into Independent, with Independent as the surviving entity (the “Holdco Merger”). The Merger Agreement further provides that immediately following the Holdco Merger, the Bank  will merge with and into Rockland Trust, with Rockland Trust as the surviving company (the “Bank Merger” and, together with the Merger and the Holdco Merger, the “Transaction”). Upon completion of the Merger, each outstanding share of Company common stock will convert into the right to receive 0.275 shares of Independent common stock (the "Merger Consideration"). Each outstanding option to acquire a share of Company common stock, whether or not vested, will be converted into the right to receive cash in an amount equal to the amount by which the per share cash equivalent of the Merger Consideration (calculated in accordance with the Merger Agreement) exceeds the exercise price of the option. In addition, each award of Company restricted stock, whether or not vested, that is outstanding immediately prior to the effective time of the Merger will fully vest and be cancelled and converted into the right to receive the Merger Consideration. Completion of the Merger is subject to customary closing conditions, including receipt of regulatory approvals and the approvals of the Company's stockholders and Independent's shareholders. The Company anticipates that the Merger will close in the fourth quarter of 2021.

8

2. 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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Dollars in thousands, except share information)
Net income available to common stockholders	$	16,546	$	17,279	$	40,866	$	30,256
Basic weighted average shares outstanding		50,375,468		50,131,249		50,307,961		50,383,116
Effect of dilutive stock options		567,692		79,985		446,770		182,631
Diluted weighted average shares outstanding		50,943,160		50,211,234		50,754,731		50,565,747
Earnings per share:
Basic	$	0.33	$	0.34	$	0.81	$	0.60
Diluted	$	0.32	$	0.34	$	0.81	$	0.60

For the three months ended June 30, 2021 and 2020, options for the exercise of 1,037 shares and 168,335 shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive. For the six months ended June 30, 2021 and 2020, options for the exercise of 27,209 and 130,490 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.

3. 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)
June 30, 2021
Debt securities:
Government-sponsored enterprises	$	309	$	17	$	—		$	326
Municipal bonds		2,070		125		—			2,195
Residential mortgage-backed securities:
Government-sponsored enterprises		6,362		270		(9	)		6,623
Private label		559		107		—			666
Total securities available for sale	$	9,300	$	519	$	(9	)	$	9,810
December 31, 2020
Debt securities:
Government-sponsored enterprises	$	346	$	21	$	—		$	367
Municipal bonds		2,075		146		—			2,221
Residential mortgage-backed securities:
Government-sponsored enterprises		7,706		359		(10	)		8,055
Private label		567		116		—			683
Total securities available for sale	$	10,694	$	642	$	(10	)	$	11,326

9

At June 30, 2021 debt securities with a fair value of $1.5 million and $270,000 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 June 30, 2021 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	$	—	$	—	$	309	$	326	$	309	$	326
Municipal bonds		519		556		1,551		1,639		2,070		2,195
Residential mortgage-backed securities:
Government-sponsored enterprises		345		354		6,017		6,269		6,362		6,623
Private label		—		—		559		666		559		666
Total	$	864	$	910	$	8,436	$	8,900	$	9,300	$	9,810

Information pertaining to securities available for sale as of June 30, 2021 and December 31, 2020, 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)
June 30, 2021
Debt securities:
Residential mortgage-backed securities:
Government-sponsored enterprises	$	—	$	—	$	9	$	594
Total temporarily impaired securities	$	—	$	—	$	9	$	594

	Less Than Twelve Months				Twelve Months or Longer
	Gross				Gross
	Unrealized		Fair		Unrealized		Fair
	Losses		Value		Losses		Value
	(In thousands)
December 31, 2020
Debt securities:
Residential mortgage-backed securities:
Government-sponsored enterprises	$	7	$	511	$	3	$	142
Total temporarily impaired securities	$	7	$	511	$	3	$	142

The Company determined 0 debt securities were other-than-temporarily impaired for the six months ended June 30, 2021 and 2020. 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 marketable equity securities with an aggregate fair value of $9.1 million and $12.2 million at June 30, 2021 and December 31, 2020, respectively.

10

The following is a summary of unrealized and realized gains and losses recognized in net income on marketable equity securities during the three and six months ended June 30, 2021 and 2020:

	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
	(In thousands)
Net realized gain (loss) on marketable equity securities    sold during the period	$	—	$	—	$	972	$	(337	)
Net unrealized gain (loss) recognized during the reporting period    on marketable equity securities still held at the reporting date		200		2,025		1,013		(1,982	)
Net gain (loss) recognized during the period    on marketable equity securities	$	200	$	2,025	$	1,985	$	(2,319	)

4. LOANS

A summary of loans follows:

	June 30,			December 31,
	2021			2020
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	489,310		$	564,146
Home equity lines of credit		56,032			68,721
Multi-family		809,317			880,552
Commercial real estate		2,295,030			2,499,660
Construction		645,622			731,432
Total real estate loans		4,295,311			4,744,511
Commercial and industrial		703,745			765,195
Consumer		9,749			10,707
Total loans		5,008,805			5,520,413
Allowance for credit losses		(64,300	)		(68,824	)
Net deferred loan origination fees		(7,930	)		(7,784	)
Loans, net	$	4,936,575		$	5,443,805

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 June 30, 2021 and December 31, 2020, the Company was servicing loans for participants aggregating $188.1 million and $176.4 million, respectively.

At June 30, 2021, multi-family and commercial real estate loans with carrying values totaling $220.2 million and $1.188 billion, respectively, were pledged as collateral for FHLB borrowings.

11

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

	Three Months Ended June 30,  2021
	One- to four- family			Multi- family			Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Balance at March 31, 2021	$	1,617		$	1,722		$	166		$	29,433	$	21,586		$	8,467		$	445		$	63,436
Provision (reversal) for   credit losses		(239	)		(205	)		(30	)		871		607			(257	)		2			749
Charge-offs		—			—			—			—		—			(50	)		(23	)		(73	)
Recoveries		73			—			2			—		100			1			12			188
Balance at June 30,  2021	$	1,451		$	1,517		$	138		$	30,304	$	22,293		$	8,161		$	436		$	64,300
	Three Months Ended June 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 March 31, 2020	$	794		$	7,680		$	94		$	26,728	$	9,457		$	6,114		$	79		$	50,946
Provision (reversal) for credit losses		723			797			84			4,941		1,834			1,296			(34	)		9,641
Charge-offs		—			—			—			—		—			(83	)		(16	)		(99	)
Recoveries		13			—			—			—		—			5			41			59
Balance at June 30,  2020	$	1,530		$	8,477		$	178		$	31,669	$	11,291		$	7,332		$	70		$	60,547
	Six Months Ended June 30,  2021
	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, 2020	$	2,076		$	2,251		$	206		$	30,145	$	25,197		$	8,453		$	496		$	68,824
Provision (reversal) for   loan losses		(630	)		(734	)		(70	)		159		(3,004	)		(169	)		(39	)		(4,487	)
Charge-offs		(68	)		—			—			—		—			(139	)		(57	)		(264	)
Recoveries		73			—			2			—		100			16			36			227
Balance at June 30,  2021	$	1,451		$	1,517		$	138		$	30,304	$	22,293		$	8,161		$	436		$	64,300
	Six Months Ended June 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		826			652			108			4,726		2,378			1,694			(18	)		10,366
Charge-offs		—			—			—			—		—			(133	)		(80	)		(213	)
Recoveries		13			—			1			—		—			6			52			72
Balance at June 30,  2020	$	1,530		$	8,477		$	178		$	31,669	$	11,291		$	7,332		$	70		$	60,547

12

	One- to four- family		Multi- family		Home equity lines of credit		Commercial real estate		Construction		Commercial and industrial		Consumer		Total
	(In thousands)
June 30, 2021
Amount of allowance for credit    losses for loans deemed to be    impaired	$	—	$	—	$	—	$	2,326	$	—	$	166	$	—	$	2,492
Amount of allowance for credit    losses for loans not deemed to    be impaired		1,451		1,517		138		27,978		22,293		7,995		436		61,808
	$	1,451	$	1,517	$	138	$	30,304	$	22,293	$	8,161	$	436	$	64,300
Loans deemed to be impaired	$	109	$	—	$	—	$	8,176	$	—	$	635	$	—	$	8,920
Loans not deemed to be impaired		489,201		809,317		56,032		2,286,854		645,622		703,110		9,749		4,999,885
	$	489,310	$	809,317	$	56,032	$	2,295,030	$	645,622	$	703,745	$	9,749	$	5,008,805
December 31, 2020
Amount of allowance for credit    losses for loans deemed to    be impaired	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Amount of allowance for credit    losses for loans not deemed to    be impaired		2,076		2,251		206		30,145		25,197		8,453		496		68,824
	$	2,076	$	2,251	$	206	$	30,145	$	25,197	$	8,453	$	496	$	68,824
Loans deemed to be impaired	$	602	$	—	$	—	$	1,648	$	—	$	2,075	$	—	$	4,325
Loans not deemed to be impaired		563,544		880,552		68,721		2,498,012		731,432		763,120		10,707		5,516,088
	$	564,146	$	880,552	$	68,721	$	2,499,660	$	731,432	$	765,195	$	10,707	$	5,520,413

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)
June 30,  2021
Real estate loans:
Residential real estate:
One- to four-family	$	392	$	200	$	595	$	1,187	$	1,633
Home equity lines of credit		—		—		20		20		20
Multi-family		3,943		—		—		3,943		—
Commercial real estate		8,176		—		—		8,176		8,176
Total real estate loans		12,511		200		615		13,326		9,829
Commercial and industrial		—		146		489		635		635
Consumer		667		176		—		843		—
Total	$	13,178	$	522	$	1,104	$	14,804	$	10,464
December 31, 2020
Real estate loans:
Residential real estate:
One- to four-family	$	504	$	231	$	1,116	$	1,851	$	2,617
Home equity lines of credit		—		—		20		20		20
Total real estate loans		504		231		1,136		1,871		2,637
Commercial and industrial		390		—		360		750		527
Consumer		448		245		—		693		—
Total	$	1,342	$	476	$	1,496	$	3,314	$	3,164

13

At June 30, 2021 and December 31, 2020, 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:

	June 30,  2021						December 31, 2020
			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	$	109	$	185			$	602	$	940
Commercial real estate		—		—				1,648		1,648
Commercial and industrial		469		799				2,075		2,404
Total		578		984				4,325		4,992
Impaired loans with a valuation allowance:
Commercial real estate	$	8,176	$	8,176	$	2,326	$	—	$	—	$	—
Commercial and industrial		166		207		166		—		—		—
Total		8,342		8,383		2,492		—	$	—		—
Total impaired loans	$	8,920	$	9,367	$	2,492	$	4,325	$	4,992	$	—

	Three Months Ended June 30,
	2021						2020
					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	$	109	$	4	$	4	$	1,213	$	13	$	6
Commercial real estate		2,727		81		—		2,136		21		—
Commercial and industrial		635		—		—		2,495		17		—
Total impaired loans	$	3,471	$	85	$	4	$	5,844	$	51	$	6
	Six Months Ended June 30,
	2021						2020
					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	$	110	$	4	$	4	$	1,216	$	27	$	14
Commercial real estate		1,367		161		—		2,049		42		—
Commercial and industrial		640		4		4		2,517		43		—
Total impaired loans	$	2,117	$	169	$	8	$	5,782	$	112	$	14

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

	June 30,		December 31,
	2021		2020
	(In thousands)
TDRs on accrual status:
One- to four-family	$	1,492	$	1,731
Total TDRs on accrual status		1,492		1,731
TDRs on non-accrual status:
One- to four-family		109		420
Total TDRs on non-accrual status		109		420
Total TDRs	$	1,601	$	2,151

14

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 credit 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.

In response to COVID-19, the Company has provided temporary relief in the form of short-term loan modifications, generally with deferred payments and associated accrued interest due and payable based on the specific terms of the modification. As of June 30, 2021, the Company had $268.6 million in loans making interest-only payments under COVID-19 related loan modifications, representing 5.4% of the total loan portfolio.

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.

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

	June 30, 2021								December 31, 2020
	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	$	809,317	$	2,200,420	$	645,622	$	648,965	$	880,552	$	2,483,867	$	731,432	$	704,534
Loans rated 7		—		86,434		—		34,036		—		15,793		—		37,093
Loans rated 8		—		8,176		—		20,744		—		—		—		23,568
Loans rated 9		—		—		—		—		—		—		—		—
Loans rated 10		—		—		—		—		—		—		—		—
Total	$	809,317	$	2,295,030	$	645,622	$	703,745	$	880,552	$	2,499,660	$	731,432	$	765,195

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.

15

5. DEPOSITS

A summary of deposit balances, by type, follows:

	June 30,		December 31,
	2021		2020
	(In thousands)
Noninterest-bearing demand deposits	$	801,612	$	711,573
Interest-bearing demand deposits		1,270,484		1,364,548
Money market deposits		863,526		930,507
Regular savings and other deposits		866,191		855,329
Total non-certificate accounts		3,801,813		3,861,957
Term certificates less than $250,000		747,134		883,133
Term certificates $250,000 and greater		314,780		336,077
Total certificate accounts		1,061,914		1,219,210
Total deposits	$	4,863,727	$	5,081,167

A summary of term certificates, by maturity, follows:

	June 30, 2021					December 31, 2020
			Weighted					Weighted
Maturing	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
Within 1 year	$	828,443		0.81	%	$	883,747		1.03	%
Over 1 year to 2 years		106,428		1.21			194,698		1.29
Over 2 years to 3 years		39,602		0.81			40,338		1.21
Over 3 years to 4 years		51,924		0.65			53,580		0.75
Over 4 years to 5 years		35,431		0.62			46,847		0.68
Greater than 5 years		86		0.79			—		—
	$	1,061,914		0.84	%	$	1,219,210		1.05	%

The Company had certificates of deposit accounts obtained through a listing service included in term certificates in the table above, totaling $36.7 million with a weighted average rate of 1.16% and $50.6 million with a weighted average rate of 1.01% at June 30, 2021 and December 31, 2020, respectively. The Company had brokered certificates of deposit, which are included in term certificates in the table above, totaling $143.7 million with a weighted average rate of 1.18% and $212.0 million with a weighted average rate of 1.29% at June 30, 2021 and December 31, 2020, respectively. At June 30, 2021, the Company had 0 brokered interest-bearing demand deposits. The Company had brokered interest-bearing demand deposits totaling $175.6 million at December 31, 2020.

16

6. BORROWINGS

At June 30, 2021, and December 31, 2020, the Company had 0 short-term borrowings. At June 30, 2021, long-term debt consisted of $560.6 million in FHLB advances. The Company has an available line of credit of $10.0 million with the FHLB at an interest rate that adjusts daily. NaN amounts were drawn on the line of credit at June 30, 2021 or December 31, 2020.

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

	June 30,  2021					December 31, 2020
			Weighted					Weighted
	Amount		Average Rate			Amount		Average Rate
	(Dollars in thousands)
2021	$	—		—	%	$	50,000		1.18	%
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			85,000		1.00
2026		—		—			—		—
Thereafter		10,000		1.21			10,000		1.21
	$	560,625		2.44	%	$	610,625		2.33	%

At June 30, 2021, 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 June 30, 2021, the Company pledged multi-family and commercial real estate loans with carrying values totaling $220.2 million and $1.188 billion, respectively.

At June 30, 2021, the Company had 0 borrowings through the PPPLF program. At December 31, 2020, the Company had $97.6 million in borrowings from the PPPLF program. These borrowings had maturities ranging from two to five years and a rate of 0.35%.

7. 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.

17

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

	June 30,		December 31,
	2021		2020
	(In thousands)
Unadvanced portion of existing loans:
Construction	$	430,375	$	501,911
Home equity lines of credit		81,744		79,579
Other lines and letters of credit		370,567		350,708
Commitments to originate:
One- to four-family		24,872		41,454
Commercial real estate		14,663		16,540
Construction		82,291		76,615
Commercial and industrial		21,622		8,413
Total loan commitments outstanding	$	1,026,134	$	1,075,220

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 June 30, 2021, the Company had $7.2 million in cash pledged for collateral on its interest rate swaps with the third-party financial institution. At December 31, 2020, the Company had $11.4 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:

				June 30,  2021					December 31, 2020
	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%)	$	59,925	$	6,026		$	60,782	$	8,886
Third-party interest rate swap	06/07/32	Fixed (4.40%)	1 Mo. Libor + 200bp		59,925		(6,026	)		60,782		(8,886	)
Customer interest rate swap	10/17/33	1 Mo. Libor + 175bp	Fixed (4.1052%)	$	9,644	$	1,078		$	9,831	$	1,401
Third-party interest rate swap	10/17/33	Fixed (4.1052%)	1 Mo. Libor + 175bp		9,644		(1,078	)		9,831		(1,401	)
Customer interest rate swap	12/13/26	1 Mo. Libor + 205bp	Fixed (3.82%)	$	2,302	$	96		$	2,390	$	154
Third-party interest rate swap	12/13/26	Fixed (3.82%)	1 Mo. Libor + 205bp		2,302		(96	)		2,390		(154	)

18

Other Commitments

As of June 30, 2021, the Company has an outstanding commitment of $2.2 million with its core data processing provider through December 2021.

Employment and Change in Control Agreements

The Company has entered into employment agreements with certain senior executives which provide for a minimum annual salary, subject to increase at the discretion of the Board of Directors, and other benefits, 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. The Bank appealed the judgment and the Appeals Court heard oral arguments on the case on May 4, 2021. On June 21, 2021, the appeals court issued its decision, in which it affirmed the trials court’s judgment. The Bank did not file a petition for further appellate review. The Bank accrued an estimated judgment of $3.3 million in June 2021, and subsequently paid the judgment in full in July 2021.

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8. 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 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)
June 30, 2021
Assets:
Debt securities	$	—	$	9,810	$	—	$	9,810
Marketable equity securities		9,112		—		—		9,112
Loan level interest rate swaps		—		—		7,200		7,200
Total assets	$	9,112	$	9,810	$	7,200	$	26,122
Liabilities:
Loan level interest rate swaps	$	—	$	—	$	7,200	$	7,200
Total liabilities	$	—	$	—	$	7,200	$	7,200
							Total Fair
	Level 1		Level 2		Level 3		Value
	(In thousands)
December 31, 2020
Assets:
Debt securities	$	—	$	11,326	$	—	$	11,326
Marketable equity securities		12,189		—		—		12,189
Loan level interest rate swaps		—		—		10,441		10,441
Total assets	$	12,189	$	11,326	$	10,441	$	33,956
Liabilities:
Loan level interest rate swaps	$	—	$	—	$	10,441	$	10,441
Total liabilities	$	—	$	—	$	10,441	$	10,441

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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 credit 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 June 30, 2021 and December 31, 2020 were $8.8 million and $3.7 million, respectively. The related losses for the three and six months ended June 30, 2021 include a $2.3 million loss associated with an $8.2 million commercial real estate loan. The related gains and losses were immaterial for the three and six months ended June 30, 2020.

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)
June 30,  2021
Financial assets:
Cash and due from banks	$	1,101,359	$	1,101,359	$	—	$	—	$	1,101,359
Securities available for sale, at fair value		9,810		—		9,810		—		9,810
Marketable equity securities, at fair value		9,112		9,112		—		—		9,112
Federal Home Loan Bank stock		26,184		—		—		26,184		26,184
Loans and loans held for sale, net		4,942,286		—		—		5,000,222		5,000,222
Accrued interest receivable		19,932		—		—		19,932		19,932
Loan level interest rate swaps		7,200		—		—		7,200		7,200
Financial liabilities:
Deposits		4,863,727		—		—		4,810,887		4,810,887
Borrowings		560,625		—		578,120		—		578,120
Accrued interest payable		1,872		—		—		1,872		1,872
Loan level interest rate swaps		7,200		—		—		7,200		7,200
	Carrying		Fair Value
	Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
December 31, 2020
Financial assets:
Cash and due from banks	$	914,586	$	914,586	$	—	$	—	$	914,586
Securities available for sale, at fair value		11,326		—		11,326		—		11,326
Marketable equity securities, at fair value		12,189		12,189		—		—		12,189
Federal Home Loan Bank stock		30,658		—		—		30,658		30,658
Loans and loans held for sale, net		5,452,029		—		—		5,480,258		5,480,258
Accrued interest receivable		23,173		—		—		23,173		23,173
Loan level interest rate swaps		10,441		—		—		10,441		10,441
Financial liabilities:
Deposits		5,081,167		—		—		5,172,060		5,172,060
Borrowings		708,245		—		732,302		—		732,302
Accrued interest payable		2,832		—		—		2,832		2,832
Loan level interest rate swaps		10,441		—		—		10,441		10,441

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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, 2020, 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 credit losses;

• the effects of any civil unrest;

• the effects of the COVID-19 pandemic on our 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, 2020 filed with the SEC on March 1, 2021, 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, 2020. 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 credit losses is the most critical accounting policy.

Impact of COVID-19

The COVID-19 pandemic 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 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. 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 2021 and beyond remains uncertain.

Comparison of Financial Condition at June 30, 2021 and December 31, 2020

Assets. Total assets decreased $332.7 million, or 5.0%, to $6.287 billion at June 30, 2021 from $6.620 billion at December 31, 2020. Net loans decreased $507.2 million, or 9.3%, to $4.937 billion at June 30, 2021 from $5.444 billion at December 31, 2020. Cash and due from banks increased $186.8 million, or 20.4%, to $1.101 billion at June 30, 2021 from $914.6 million at December 31, 2020.

Loan Portfolio Analysis. At June 30, 2021, net loans were $4.937 billion, or 78.5% of total assets. During the six months ended June 30, 2021, net loans decreased $507.2 million, or 9.3% from December 31, 2020. The net decrease for the six months ended June 30, 2021 reflects commercial loan payoffs totaling $633.2 million, which exceeded loan originations of $449.7 million during the same period. The net decrease in loans resulted primarily from decreases of $204.6 million in commercial real estate loans, $85.8 million in construction loans, $74.8 million in one- to four-family loans, $71.2 million in multi-family loans, and $61.4 million in commercial and industrial loans. Refer to Note 4, 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 350 PPP loans in the six months ended June 30, 2021, totaling $62.3 million with associated fees of $2.6 million. As of June 30, 2021, the Company has $82.4 million of PPP loans in its commercial and industrial loan portfolio.

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

23

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 $11.5 million, or 346.7%, to $14.8 million at June 30, 2021 from $3.3 million at December 31, 2020, reflecting a net increase of $11.8 million in loans 30 to 59 days past due, partially offset by a net decrease of $392,000 in loans 90 days or greater past due. At June 30, 2021, 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 June 30, 2021, 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 June 30, 2021, there were no loans placed on non-accrual due to COVID-19 related repayment modifications, per provisions of 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 $596,000 at June 30, 2021.

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

	June 30,			December 31,
	2021			2020
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential real estate:
One- to four-family	$	1,633		$	2,617
Home equity lines of credit		20			20
Commercial real estate		8,176			—
Total real estate loans		9,829			2,637
Commercial and industrial		635			527
Total non-accrual loans (1)		10,464			3,164
Total non-performing assets	$	10,464		$	3,164
Non-accrual loans to total loans		0.21	%		0.06	%
Non-accrual loans to total assets		0.17	%		0.05	%
Non-performing assets to total assets		0.17	%		0.05	%

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(1) TDRs on accrual status not included above totaled $1.5 million and $1.7 million at June 30, 2021 and December 31, 2020, respectively.

Non-accrual loans increased $7.3 million or 230.7%, to $10.5 million, or 0.21% of total loans outstanding at June 30, 2021, from $3.2 million, or 0.06% of total loans outstanding at December 31, 2020. The increase in non-accrual loans includes an impaired $8.2 million commercial real estate loan with a related allowance of $2.3 million at June 30, 2021.

Achieving and maintaining a moderate risk profile by aggressively managing troubled assets has been and will continue to be a primary focus. At June 30, 2021, our allowance for credit losses was $64.3 million, or 1.28% of total loans, compared to $68.8 million, or 1.25% of total loans at December 31, 2020. The decreases in the allowance reflect decreases in the loan portfolio and changes in economic uncertainties and market volatility caused by COVID-19 to the factors used to determine the Company’s provision. Included in our allowance at June 30, 2021 was a general component of $61.8 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 credit losses for PPP loans. We continue to believe our level of non-performing loans and assets 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 June 30, 2021 and December 31, 2020, 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 $550,000, or 25.6%, to $1.6 million at June 30, 2021 from $2.2 million at December 31, 2020, 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, generally with deferred payments and associated accrued interest due and payable based on the specific terms of the modification. As of June 30, 2021, the Company had $268.6 million in loans making interest-only payments under COVID-19 related loan modifications, representing 5.4% of the total loan portfolio.

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 June 30, 2021 other potential problem loans totaled $20.1 million and consist of two commercial and industrial loans to non-profit educational organizations in eastern Massachusetts with loan balances of $16.5 million and $3.5 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 Credit Losses. The allowance for credit losses is maintained at levels considered adequate by management to provide for probable credit losses inherent in the loan portfolio as of the consolidated balance sheet reporting dates. The allowance for credit 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.

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Changes in the allowance for credit losses on loans during the periods indicated were as follows:

	Six Months Ended June 30,
	2021				2020
	(Dollars in thousands)
Beginning balance	$	68,824			$	50,322
Provision (reversal) for credit losses on loans		(4,487	)			10,366
Charge-offs:
One- to four-family		68				—
Commercial and industrial		139				133
Consumer		57				80
Total charge-offs		264				213
Recoveries:
One- to four-family		73				13
Construction		100				—
Commercial and industrial		16				6
Home equity lines of credit		2				1
Consumer		36				52
Total recoveries		227				72
Net charge-offs		37				141
Ending balance	$	64,300			$	60,547
Allowance to non-accrual loans		614.49		%		1,585.00	%
Allowance to total loans outstanding		1.28		%		1.06	%
Net charge-offs to average loans outstanding		0.00		%		0.00	%

Our loan loss provision was a reversal of $4.5 million for the six months ended June 30, 2021 compared to a provision of $10.4 million for the six months ended June 30, 2020. The decrease in the allowance for credit losses at June 30, 2021 compared to December 31, 2020 was primarily due to decreases in the loan portfolio, partially offset by a $2.3 million specific reserve on a non-owner occupied commercial real estate property. We continue to assess the adequacy of our allowance for credit losses in accordance with established policies and are closely monitoring the evolving pandemic to ensure proper evaluation of its impact on our loan portfolio.

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

	June 30, 2021								December 31, 2020
						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	$	1,451		2.3	%		9.8	%	$	2,076		3.0	%		10.2	%
Multi-family		1,517		2.4			1.1			2,251		3.3			16.0
Home equity lines of credit		138		0.2			16.2			206		0.3			1.2
Commercial real estate		30,304		47.0			45.8			30,145		43.8			45.3
Construction		22,293		34.7			12.9			25,197		36.6			13.2
Total real estate loans		55,703		86.6			85.8			59,875		87.0			85.9
Commercial and industrial		8,161		12.7			14.0			8,453		12.3			13.9
Consumer		436		0.7			0.2			496		0.7			0.2
Total loans	$	64,300		100.0	%		100.0	%	$	68,824		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

26

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 $8.9 million and $4.3 million as of June 30, 2021 and December 31, 2020, respectively. The increase in impaired loans includes the addition of an $8.2 million commercial real estate loan with a related allowance of $2.3 million at June 30, 2021. Our average investment in impaired loans was $2.1 million and $5.8 million for the six months ended June 30, 2021 and 2020, 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 June 30, 2021 and considered any probable loss in determining the allowance for credit 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 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 credit losses, future adjustments to the allowance for credit 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 credit 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 credit losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing

27

allowance for credit 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 credit losses may adversely affect our financial condition and results of operations.

Securities Portfolio. At June 30, 2021 our securities portfolio was $18.9 million, or 0.3% of total assets, compared to $23.5 million, or 0.4% of total assets, at December 31, 2020. During the six months ended June 30, 2021, the securities portfolio decreased $4.6 million, or 19.5% primarily due to $5.5 million in sales of marketable equity securities and $1.4 million in maturities, calls, and principal payments, partially offset by purchases of $1.4 million in marketable equity securities and a net unrealized gain recognized on marketable equity securities of $1.0 million. At June 30, 2021, the securities portfolio consisted of $9.8 million, or 51.8%, in debt securities and $9.1 million, or 48.2%, 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 decreased $217.4 million, or 4.3%, to $4.864 billion at June 30, 2021 from $5.081 billion at December 31, 2020. The decrease during the six months ended June 30, 2021 includes decreases of $175.6 million in brokered interest-bearing demand deposits and $68.3 million in brokered certificates of deposit. 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.

	Six Months Ended June 30,
	2021								2020
						Percent								Percent
	Average		Average			of Total			Average		Average			of Total
	Balance		Rate			Deposits			Balance		Rate			Deposits
	(Dollars in thousands)
Noninterest-bearing demand deposits	$	756,122		—	%		16.5	%	$	593,350		—	%		14.7	%
Interest-bearing demand deposits		1,432,595		0.33			26.1			1,288,538		1.06			26.8
Money market deposits		868,350		0.29			17.8			707,022		0.93			15.7
Regular savings and other deposits		865,998		0.20			17.8			873,850		0.81			17.3
Certificates of deposit		1,169,837		0.94			21.8			1,403,507		1.97			25.5
Total	$	5,092,902		0.39	%		100.0	%	$	4,866,267		1.13	%	$	100.0	%

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 Paycheck Protection Program Liquidity Facility (“PPPLF”) program to fund the origination of PPP loans. At June 30, 2021 and December 31, 2020, FHLB advances totaled $560.6 million and $610.6 million, respectively, with a weighted average rate of 2.44% and 2.33%, respectively. There were no Federal Reserve PPPLF borrowings at June 30, 2021. Federal Reserve PPPLF borrowings totaled $97.6 million with a weighted average rate of 0.35% at December 31, 2020. Total borrowings decreased $147.6 million, or 20.8%, during the six months ended June 30, 2021, reflecting decreases of $50.0 million in FHLB advances and $97.6 million in PPPLF borrowings. Advances maturing with the FHLB during the six months ended June 30, 2021 totaled $50.0 million and consisted of advances with original terms ranging from one to five years and interest rates ranging from 0.66% to 1.78%. The Bank paid off PPPLF borrowings totaling $97.6 million with terms ranging from two to five years and a rate of 0.35% during the six months ended June 30, 2021. At June 30, 2021, we also had an available line of credit of $10.0 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.

	Six Months Ended June 30,
	2021			2020
	(Dollars in thousands)
Balance outstanding at end of period	$	560,625		$	804,101
Average amount outstanding during the period	$	613,447		$	704,583
Weighted average interest rate during the period		2.32	%		2.38	%
Maximum outstanding at any month end	$	699,703		$	804,101
Weighted average interest rate at end of period		2.44	%		1.97	%

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Stockholders’ Equity. Total stockholders’ equity increased $32.3 million, or 4.2%, to $801.2 million at June 30, 2021, from $768.9 million at December 31, 2020. The increase for the six months ended June 30, 2021 was primarily due to net income of $40.9 million, partially offset dividends of $0.20 per share totaling $10.1 million. Stockholders’ equity to assets was 12.74% at June 30, 2021, compared to 11.61% at December 31, 2020. Book value per share increased to $15.23 at June 30, 2021 from $14.67 at December 31, 2020. At June 30, 2021, the Company and the Bank continued to exceed all regulatory capital requirements. Refer to “- Capital Management” within this report for more information regarding capital requirements and actual capital amounts and ratios for the Bank and the Company.

Results of Operations for the Three and Six Months Ended June 30, 2021 and 2020

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 June 30,						Change								Six Months Ended June 30,							Change
	2021			2020			Amount				Percent				2021				2020			Amount				Percent
	(Dollars in thousands, except per share amounts)
Net interest income	$	47,768		$	47,371		$	397				0.8		%	$	96,169			$	92,469		$	3,700				4.0		%
Provision (reversal) for credit losses		749			9,641			(8,892	)			(92.2	)			(4,487	)			10,366			(14,853	)			(143.3	)
Non-interest income		3,050			8,658			(5,608	)			(64.8	)			7,981				7,827			154				2.0
Non-interest expenses		28,033			23,301			4,732				20.3				53,576				49,621			3,955				8.0
Net income		16,546			17,279			(733	)			(4.2	)			40,866				30,256			10,610				35.1
Basic earnings per share		0.33			0.34			(0.01	)			(2.9	)			0.81				0.60			0.21				35.3
Diluted earnings per share		0.32			0.34			(0.02	)			(5.9	)			0.81				0.60			0.21				34.6
Return on average assets		1.03	%		1.08	%		(0.05	)	%		(4.6	)			1.25		%		0.95	%		0.30		%		31.6
Return on average equity		8.32	%		9.45	%		(1.13	)	%		(12.0	)			10.36		%		8.27	%		2.09		%		25.3

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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 June 30,
	2021									2020
	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)	$	5,160,579	$	55,702				4.33	%	$	5,722,186	$	62,164				4.37	%
Securities and certificates of deposits		19,445		171				3.53			33,282		262				3.17
Other interest-earning assets (3)		1,099,850		361				0.13			478,725		473				0.40
Total interest-earning assets		6,279,874		56,234				3.59			6,234,193		62,899				4.06
Noninterest-earning assets		154,470									153,567
Total assets	$	6,434,344								$	6,387,760
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,403,276		959				0.27		$	1,297,072		2,293				0.71
Money market deposits		859,189		471				0.22			722,148		1,227				0.68
Regular savings and other deposits		870,508		333				0.15			841,600		995				0.48
Certificates of deposit		1,116,928		2,446				0.88			1,331,999		6,076				1.83
Total interest-bearing deposits		4,249,901		4,209				0.40			4,192,819		10,591				1.02
Borrowings		560,625		3,453				2.47			754,426		4,188				2.23
Total interest-bearing liabilities		4,810,526		7,662				0.64			4,947,245		14,779				1.20
Noninterest-bearing demand deposits		777,688									651,517
Other noninterest-bearing liabilities		50,409									57,922
Total liabilities		5,638,623									5,656,684
Total stockholders' equity		795,721									731,076
Total liabilities and stockholders' equity	$	6,434,344								$	6,387,760
Net interest-earning assets	$	1,469,348								$	1,286,948
Fully tax-equivalent net interest income				48,572									48,120
Less: tax-equivalent adjustments				(803	)								(749	)
Net interest income			$	47,769								$	47,371
Interest rate spread (1)(4)								2.95	%								2.86	%
Net interest margin (1)(5)								3.10	%								3.10	%
Average interest-earning assets to average    interest-bearing liabilities				130.54		%							126.01		%
Supplemental Information:
Total deposits, including noninterest-bearing    demand deposits	$	5,027,589	$	4,209				0.34	%	$	4,844,336	$	10,591				0.88	%
Total deposits and borrowings, including    noninterest-bearing demand deposits	$	5,588,214	$	7,662				0.55	%	$	5,598,762	$	14,779				1.06	%

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

(1) Income on debt securities, marketable 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 June 30, 2021 and 2020, yields on loans before tax-equivalent adjustments were 4.27% and 4.32%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 3.11% and 2.80%, respectively, and yields on total interest-earning assets before tax-equivalent adjustments were 3.54% and 4.01%, respectively. Interest rate spread before tax-equivalent adjustments for the three months ended June 30, 2021 and 2020 was 2.90% and 2.81%, respectively, while net interest margin before tax-equivalent adjustments for the three months ended June 30, 2021 and 2020 was 3.05% and 3.06%, 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.

	Six Months Ended June 30,
	2021								2020
	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)	$	5,294,203	$	113,656			4.33	%	$	5,732,019	$	126,922				4.45	%
Securities and certificates of deposits		20,138		373			3.74			29,170		464				3.20
Other interest-earning assets (3)		1,078,675		731			0.14			439,520		2,259				1.03
Total interest-earning assets		6,393,016		114,760			3.62			6,200,709		129,645				4.20
Noninterest-earning assets		154,817								157,599
Total assets	$	6,547,833							$	6,358,308
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Interest-bearing demand deposits	$	1,432,595		2,368			0.33		$	1,288,538		6,790				1.06
Money market deposits		868,350		1,251			0.29			707,022		3,281				0.93
Regular savings and other deposits		865,998		868			0.20			873,850		3,527				0.81
Certificates of deposit		1,169,837		5,451			0.94			1,403,507		13,762				1.97
Total interest-bearing deposits		4,336,780		9,938			0.46			4,272,917		27,360				1.29
Borrowings		613,447		7,044			2.32			704,583		8,339				2.38
Total interest-bearing liabilities		4,950,227		16,982			0.69			4,977,500		35,699				1.44
Noninterest-bearing demand deposits		756,122								593,350
Other noninterest-bearing liabilities		52,859								55,805
Total liabilities		5,759,208								5,626,655
Total stockholders' equity		788,625								731,653
Total liabilities and stockholders' equity	$	6,547,833							$	6,358,308
Net interest-earning assets	$	1,442,789							$	1,223,209
Fully tax-equivalent net interest income				97,778								93,946
Less: tax-equivalent adjustments				(1,609	)							(1,477	)
Net interest income			$	96,169							$	92,469
Interest rate spread (1)(4)							2.93	%								2.76	%
Net interest margin (1)(5)							3.08	%								3.05	%
Average interest-earning assets to average    interest-bearing liabilities							129.15	%				124.57		%
Supplemental Information:
Total deposits, including noninterest-bearing    demand deposits	$	5,092,902	$	9,938			0.39	%	$	4,866,267	$	27,360				1.13	%
Total deposits and borrowings, including    noninterest-bearing demand deposits	$	5,706,349	$	16,982			0.60	%	$	5,570,850	$	35,699				1.29	%

(1) Income on debt securities, marketable 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 six months ended June 30, 2021 and 2020, yields on loans before tax-equivalent adjustments were 4.27% and 4.40%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 3.40% and 2.94%, respectively, and yields on total interest-earning assets before tax-equivalent adjustments were 3.57% and 4.16%, respectively. Interest rate spread before tax-equivalent adjustments for the six months ended June 30, 2021 and 2020 was 2.88% and 2.72%, respectively, while net interest margin before tax-equivalent adjustments for the six months ended June 30, 2021 and 2020 was 3.03% and 3.00%, 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 June 30,									Six Months Ended June 30,
	2021 Compared to 2020									2021 Compared to 2020
	Increase (Decrease) Due to									Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	(5,911	)	$	(551	)	$	(6,462	)	$	(9,729	)	$	(3,537	)	$	(13,266	)
Securities and certificates of deposit		(118	)		27			(91	)		(160	)		69			(91	)
Other interest-earning assets		345			(457	)		(112	)		1,491			(3,019	)		(1,528	)
Total		(5,684	)		(981	)		(6,665	)		(8,398	)		(6,487	)		(14,885	)
Interest expense:
Deposits		(451	)		(5,931	)		(6,382	)		(739	)		(16,683	)		(17,422	)
Borrowings		(1,152	)		417			(735	)		(1,071	)		(224	)		(1,295	)
Total		(1,603	)		(5,514	)		(7,117	)		(1,810	)		(16,907	)		(18,717	)
Change in fully tax-equivalent net interest    income	$	(4,081	)	$	4,533		$	452		$	(6,588	)	$	10,420		$	3,832

The interest rate spread and net interest margin on a tax-equivalent basis were 2.95% and 3.10%, respectively, for the three months ended June 30, 2021 compared to 2.86% and 3.10%, respectively, for the three months ended June 30, 2020. For the six months ended June 30, 2021, the interest rate spread and net interest margin on a tax-equivalent basis were 2.93% and 3.08%, respectively, compared to 2.76% and 3.05%, respectively, for the six months ended June 30, 2020. The increase in net interest income for the three and six months ended June 30, 2021 was primarily due to the substantial reduction in the cost of funds, partially offset by a decrease in average loan volume.

The yield on interest-earning assets on a tax-equivalent basis decreased 47 basis points to 3.59% for the three months ended June 30, 2021, compared to 4.06% for the three months ended June 30, 2021, while the cost of funds decreased 51 basis points to 0.55% from 1.06% for the three months ended June 30, 2021 and 2020, respectively. The decrease in interest income was primarily due to a decrease of $561.6 million, or 9.8%, in the Company’s average net loans to $5.161 billion and a 27 basis point decrease in yield on other earning assets to 0.13%, from 0.40%, for the three months ended June 30, 2020. The decrease in interest expense on deposits was primarily due to the decrease in the average total cost of deposits of 54 basis points to 0.34% for the three months ended June 30, 2021 compared to 0.88% for the same period in 2020. The decrease in interest expense on borrowings was primarily due to a $193.8 million decrease, or 25.7%, in the Company’s average borrowings to $560.6 million for the three months ended June 30, 2021 from $754.4 million for the three months ended June 30, 2020.

The yield on interest-earning assets on a tax-equivalent basis decreased 58 basis points to 3.62% for the six months ended June 30, 2021, compared to 4.20% for the six months ended June 30, 2020, while the cost of funds decreased 69 basis points to 0.60% from 1.29% for the six months ended June 30, 2021 and 2020, respectively. The decrease in interest income was primarily due to a decrease of $437.8 million, or 7.6%, in the Company’s average net loans to $5.294 billion and an 89 basis point decrease in yield on other earning assets to 0.14% from 1.03%, for the six months ended June 30, 2020. The decrease in interest expense on deposits was primarily due to the decrease in the average total cost of deposits of 74 basis points to 0.39% for the six months ended June 30, 2021 compared to 1.13% for the same period in 2020. The decrease in interest expense on borrowings was primarily due to a $91.1 million decrease, or 12.9%, in the Company’s average borrowings to $613.4 million for the six months ended June 30, 2021 from $704.6 million for the six months ended June 30, 2020.

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Provision for Credit Losses. The provision for credit losses for the three months ended June 30, 2021 was $749,000 compared to a provision of $9.6 million for the three months ended June 30, 2020. For the six months ended June 30, 2021, the provision for credit losses was a reversal of $4.5 million compared to a provision of $10.4 million for June 30, 2020. For further discussion of the changes in the provision and allowance for credit losses, refer to “Comparison of Financial Condition at June 30, 2021 and December 31, 2020 - Allowance for Credit losses.”

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

	Three Months Ended June 30,					Change							Six Months Ended June 30,					Change
	2021		2020			Amount			Percent				2021		2020			Amount			Percent
	(Dollars in thousands)
Customer service fees	$	2,485	$	1,948		$	537			27.6		%	$	4,684	$	4,045		$	639			15.8		%
Loan fees		39		(35	)		74			211.4				134		639			(505	)		(79.0	)
Mortgage banking gains, net		45		118			(73	)		(61.9	)			627		529			98			18.5
Gain on sale of asset		—		4,195			(4,195	)		(100.0	)			—		4,195			(4,195	)		(100.0	)
Gain (loss) gain on marketable equity    securities, net		200		2,025			(1,825	)		(90.1	)			1,985		(2,319	)		4,304			185.6
Income from bank-owned life    insurance		264		273			(9	)		(3.3	)			525		570			(45	)		(7.9	)
Other income		17		134			(117	)		(87.3	)			26		168			(142	)		(84.5	)
Total non-interest income (loss)	$	3,050	$	8,658		$	(5,608	)		(64.8	)	%	$	7,981	$	7,827		$	154			2.0		%

The decrease in non-interest income for the three months ended June 30, 2021 was due primarily to a $4.2 million gain on sale of asset recognized in the second quarter of 2020 and a $1.8 million in valuation decrease on marketable equity securities, net. The increase in non-interest income for the six months ended June 30, 2021 was due primarily to a $3.0 million valuation increase in marketable equity securities, net, a $1.3 million increase in gain on sale of marketable equity securities, net, partially offset by a $4.2 million gain on sale of asset realized in 2020. 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 June 30,				Change							Six Months Ended June 30,				Change
	2021		2020		Amount			Percent				2021		2020		Amount			Percent
	(Dollars in thousands)											(Dollars in thousands)
Salaries and employee benefits	$	13,939	$	13,858	$	81			0.6		%	$	29,455	$	29,772	$	(317	)		(1.1	)	%
Occupancy and equipment		3,900		3,739		161			4.3				8,131		7,663		468			6.1
Data processing		2,273		2,133		140			6.6				4,514		4,270		244			5.7
Marketing and advertising		1,032		1,030		2			0.2				1,928		2,260		(332	)		(14.7	)
Professional services		691		695		(4	)		(0.6	)			1,421		1,692		(271	)		(16.0	)
Deposit insurance		345		606		(261	)		(43.1	)			858		1,275		(417	)		(32.7	)
Merger and acquisition		1,115		—		1,115			—				1,115		—		1,115			—
Other general and administrative		4,738		1,240		3,498			282.1				6,154		2,689		3,465			128.9
Total non-interest expenses	$	28,033	$	23,301	$	4,732			20.3		%	$	53,576	$	49,621	$	3,955			8.0		%

The increase in the Company’s non-interest expenses for the three and six months ended June 30, 2021 was due primarily to $3.3 million in expense for a legal judgment related to a loan assumed in the Mt. Washington Bank acquisition, included in other general and administrative expense, and $1.1 million in merger and acquisition related expenses realized in the second quarter of 2021.

Income Tax Provision. The Company recorded a provision for income taxes of $5.5 million for the three months ended June 30, 2021, reflecting an effective tax rate of 24.9%, compared to $5.8 million, or a 25.2% effective tax rate, for the three months ended June 30, 2020. For the six months ended June 30, 2021, the provision for income taxes was $14.2 million, reflecting an effective tax rate of 25.8%, compared to $10.1 million, or a 24.9% effective tax rate, for the six months ended June 30, 2020.

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

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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 June 30, 2021, cash and due from banks totaled $1.101 billion. In addition, at June 30, 2021, we had $530.6 million of available borrowing capacity with the FHLB, including a $10.0 million line of credit. On June 30, 2021, we had $560.6 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 June 30, 2021 and December 31, 2020, we had total loan commitments outstanding of $1.026 billion and $1.075 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 June 30, 2021 totaled $828.4 million, or 78.0% 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 dividend payments received from East Boston Savings Bank. The ability of East Boston Savings Bank to pay dividends is subject to regulatory requirements. At June 30, 2021, Meridian Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents totaling $42.7 million, reflecting a $40.0 million dividend received from the Bank during the quarter ended June 30, 2021.

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 June 30, 2021, 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 9%. The CBLR requirement transitioned from greater than 8% from the second quarter through the fourth quarter of 2020, to greater than 8.5% during calendar year 2021, and will transition to a requirement of greater than 9% in 2022. The Company and the Bank elected to be subject to the CBLR at June 30, 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 June 30, 2021. As of June 30, 2021, 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 six months ended June 30, 2021 the Company’s Board of Directors declared two quarterly cash dividends of $0.10 per common share on February 24, 2021 and May 27, 2021. The dividend declared on May 27, 2021 was paid on July 1, 2021 to stockholders of record at the close of business on June 17, 2021.

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

	Actual					Minimum Capital Requirement		Minimum to be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio			Amount	Ratio	Amount		Ratio
	(Dollars in thousands)
June 30, 2021
Community Bank Leverage Ratio:
Company	$	779,537		12.2	%	N/A	N/A	$	545,031		8.5	%
Bank		722,109		11.3		N/A	N/A		545,119		8.5
December 31, 2020
Community Bank Leverage Ratio:
Company	$	746,914		11.6	%	N/A	N/A	$	515,439		8.0	%
Bank		719,372		11.2		N/A	N/A		515,509		8.0

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

	June 30,						December 31,
	2021						2020
	Consolidated			Bank			Consolidated			Bank
	(In thousands)
Total stockholders' equity per financial statements	$	801,214		$	743,786		$	768,885		$	741,343
Adjustments to Tier 1 and Common Equity Tier 1    capital:
Accumulated other comprehensive loss		146			146			58			58
Goodwill disallowed		(20,378	)		(20,378	)		(20,378	)		(20,378	)
Core deposit intangible		(1,445	)		(1,445	)		(1,651	)		(1,651	)
Total Tier 1 and Common Equity Tier 1 capital		779,537			722,109			746,914			719,372
Adjustments to total capital:
Allowance for credit losses		64,300			64,300			68,824			68,824
Total regulatory capital	$	843,837		$	786,409		$	815,738		$	788,196

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 six months ended June 30, 2021, we engaged in no off-balance sheet transactions reasonably likely to have a material effect on our financial condition, results of operations or cash flows.

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ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

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

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

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

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

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

Increase (Decrease)	June 30,  2021									December 31, 2020
in Market Interest Rates	Amount		Change			Percent				Amount		Change			Percent
	(Dollars in thousands)
300	$	188,938	$	1,981			1.06		%	$	193,093	$	(5,621	)		(2.83	)	%
Flat		186,957									198,714
-100		168,965		(17,992	)		(9.62	)			189,900		(8,814	)		(4.44	)

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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 2020 Annual Report on Form 10-K, filed with the SEC on March 1, 2021, which is available through the SEC’s website at www.sec.gov. The risks described in the Annual Report and the March 31, 2021 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.) The Company did not repurchase any of its shares during the quarter ended June 30, 2021. In February 2021, the Company announced that it had adopted a new stock repurchase program for up to 1,000,000 shares, or approximately 1.9% of its common stock. The Company has repurchased 4,698,165 shares of its common stock at an average price of $15.66 per share since August 2015.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.     MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.     OTHER INFORMATION

Not applicable.  

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ITEM 6.     EXHIBITS

2.1	Agreement and Plan of Merger by and among Independent Bank Corp., Bradford Merger Sub Inc., Rockland Trust Company, Meridian Bancorp, Inc. and East Boston Savings Bank, dated April 22, 2021 (incorporated by reference to Exhibit 2.1 of Independent Bank Corp.'s Current Report Form 8-K (File No. 001-09047), filed with the SEC on April 26, 2021).*
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 (Incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission 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	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
10.6	Amended and Restated Supplemental Executive Retirement Agreement with Richard J. Gavegnano filed as an exhibit to Form 10-Q filed on November 10, 2014
10.7	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)
10.8	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
10.9	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
10.10	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)
10.11	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)
10.12	Incentive Compensation Plan filed as an exhibit to Form 10-K filed on March 17, 2014
10.13	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
10.14	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
10.15	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

39

10.16	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
10.17	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
10.18	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
10.19	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
10.20	Two Year Change in Control Agreement between Kenneth R. Fisher and East Boston Savings Bank dated February 3, 2021 filed as an exhibit to Form 8-K on February 5, 2021
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)

______________

* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K.

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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: August 9, 2021	By:	/s/    Richard J. Gavegnano
		Richard J. Gavegnano Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: August 9, 2021	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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