MERIDIAN BANCORP, INC. 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 endedDecember 31, 2019 , filed with theSEC .
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
policies of the
• 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
• changes in the level and trends of loan delinquencies and charge-offs and
changes in estimates of the adequacy of the allowance for loan losses;
• the effects of any civil unrest;
• the effects of the COVID-19 pandemic on the business, customers, employees
and third-party service providers;
• diversion of management time on pandemic related issues;
• changes to statutes, regulations, or regulatory policies or practices
resulting from the COVID-19 pandemic;
• our ability to access cost-effective funding;
• fluctuations in real estate values and both residential and commercial
real estate market conditions;
• demand for loans and deposits in our market area;
• our ability to implement and changes in our business strategies;
• adverse changes in the securities or secondary mortgage markets;
• our ability to manage market risk, credit risk and operational risk in the
current economic conditions;
• failure or breaches of our IT security systems;
• our ability to successfully integrate any assets, liabilities, customers,
systems and management personnel we have acquired or may acquire into our
operations and our ability to realize related revenue synergies and cost
savings within expected time frames and any goodwill charges related
thereto;
• technological changes that may be more difficult or expensive than expected;
• the ability of third-party providers to perform their obligations to us;
24
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• the ability of theU.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 endedDecember 31, 2019 filed with theSEC onMarch 2, 2020 , under "Risk Factors," which is available through theSEC's website at www.sec.gov, as updated by subsequent filings with theSEC . 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 endedDecember 31, 2019 . Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes the allowance for loan losses is the most critical accounting policy.
Impact of COVID-19
The COVID-19 pandemic has created a significant economic disruption resulting in an unprecedented slow-down in economic activity and a related increase in unemployment. In response to the COVID-19 outbreak, theFederal Reserve has reduced the benchmark federal funds rate to a target range of 0% to 0.25%. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and passed legislation providing relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. The current impact of COVID-19 and the CARES Act is detailed throughout Management's Discussion and Analysis, however, the extent to which the effects of the CARES Act and any further legislation of its kind will impact the Company's financial results and operations during 2020 and beyond remains uncertain.
Comparison of Financial Condition at
Assets. Total assets increased$223.0 million , or 3.5%, to$6.567 billion atSeptember 30, 2020 from$6.344 billion atDecember 31, 2019 . Net loans decreased$113.7 million , or 2.0%, to$5.584 billion atSeptember 30, 2020 from$5.698 billion atDecember 31, 2019 . Cash and due from banks increased$295.8 million , or 72.8%, to$702.1 million atSeptember 30, 2020 from$406.4 million atDecember 31, 2019 Loan Portfolio Analysis. AtSeptember 30, 2020 , net loans were$5.584 billion , or 85.0% of total assets. During the nine months endedSeptember 30, 2020 , net loans decreased$113.7 million , or 2.0% fromDecember 31, 2019 . Loan originations totaled$955.3 million during the nine months endedSeptember 30, 2020 . The net decrease in loans resulted primarily from decreases of$101.5 million in commercial real estate loans,$62.0 million in multi-family loans and$55.3 million in one- to four-family loans and$41.0 million in construction loans, partially offset by increases of$161.5 million in commercial and industrial loans and$4.1 million in home equity lines of credit. The net decrease in loans for the nine months endedSeptember 30, 2020 reflects commercial loan payoffs totaling$700.6 million , comprised of$266.0 million in commercial real estate loans,$201.5 million in construction loans,$199.7 million in multi-family loans and$33.4 million in the commercial and industrial loans. Refer to Note 5, Loans, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding the loans held in the Company's loan portfolio. The CARES Act includes the establishment of the Paycheck Protection Program ("PPP"), a program designed to aid small- and medium-sized business through federally guaranteed loans distributed through financial institutions. These loans are intended to guarantee payroll and other costs to help those businesses remain viable and allow their workers to pay their bills. This program is being administered by theSmall Business Administration ("SBA") and backed by theFederal Reserve Bank . The Company originated 401 PPP loans totaling$123.7 million with associated fees of$3.4 million during the second quarter of 2020. 25 -------------------------------------------------------------------------------- The Company holds certain loans in the industries most heavily impacted by COVID-19, namely$683.5 million in the retail industry,$361.5 million in the hospitality industry and$20.1 million in the restaurant industry. These customers have been active in the PPP and the Company has made further accommodations, including principal and interest deferrals, to assist these customers in mitigating the financial and operational impact of COVID-19 on their businesses. As ofSeptember 30, 2020 , the Company has temporarily adjusted repayment terms on 9.3% of its total loan portfolio, including 34.4% of the loans in the retail, hospitality and restaurant industries, due to COVID-19. These amounts have declined since the end of the third quarter, as most of the initial modification periods end during the fourth quarter of 2020. The Bank has worked diligently with borrowers to improve their repayment status. As ofOctober 19, 2020 , the amount of loans with modified terms due to COVID-19 has decreased to 7.0% of the total loan portfolio, as most loans improve to either full payment or interest-only payments. Credit Risk Management. Our strategy for credit risk management focuses on having well-defined credit policies and uniform underwriting criteria and providing prompt attention to potential problem loans. Management of asset quality is accomplished by internal controls, monitoring and reporting of key risk indicators, and both internal and independent third-party loan reviews. The primary objective of our loan review process is to measure borrower performance and assess risk for the purpose of identifying loan weakness in order to minimize loan loss exposure. From the time of loan origination through final repayment, multi-family, commercial real estate, construction, and commercial and industrial loans are assigned a risk rating based on pre-determined criteria and levels of risk. The risk rating is monitored annually for most loans; however, it may change during the life of the loan as appropriate. Internal and independent third-party loan reviews vary by loan type, as well as the size and complexity of the loan. Depending on the size and complexity of the loan, some loans may warrant detailed individual review, while other loans may have less risk based upon size or be of a homogeneous nature reducing the need for detailed individual analysis. Assets with these characteristics, such as consumer loans and loans secured by residential real estate, may be reviewed on the basis of risk indicators such as delinquency or credit rating. In cases of significant concern, a total re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan. Some loans may be re-evaluated in terms of their fair market value or net realizable value in order to determine the likelihood of potential loss exposure and, consequently, the adequacy of specific and general loan loss reserves. When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status, including contacting the borrower by letter and phone at regular intervals. When the borrower is in default, we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Management informs the Executive Committee monthly of the amount of loans delinquent more than 30 days. Management provides detailed information to the Board of Directors on loans 60 or more days past due and all loans in foreclosure and repossessed property that we own. Delinquencies. Total past due loans increased$502,000 , or 15.7%, to$3.7 million atSeptember 30, 2020 from$3.2 million atDecember 31, 2019 . AtSeptember 30, 2020 , non-accrual loans exceeded loans 90 days or greater past due primarily due to loans which were placed on non-accrual status based on a determination that the ultimate collection of all principal and interest due was not expected and certain loans remain on non-accrual status until they attain a sustained contractual payment history of six consecutive months. Delinquencies do not include loans that have had COVID-19 related payment deferral modifications, as appropriate under the CARES Act. Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including TDRs on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection. AtSeptember 30, 2020 , we did not have any accruing loans past due 90 days or greater. For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. As ofSeptember 30, 2020 , there were no loans placed on non-accrual due to COVID-19 related repayment modifications, as appropriate under the CARES Act. Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value, less estimated costs to sell, at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction totaled$380,000 atSeptember 30, 2020 . 26
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The following table provides information with respect to our non-performing assets at the dates indicated.
September 30, December 31,
2020 2019
(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential real estate:
One- to four-family $ 3,041 $ 3,082
Home equity lines of credit 20 -
Total real estate loans 3,061 3,082
Commercial and industrial 541 323
Total non-accrual loans (1) 3,602 3,405
Total non-performing assets $ 3,602 $ 3,405
Non-accrual loans to total loans 0.06 % 0.06 %
Non-accrual loans to total assets 0.05 % 0.05 %
Non-performing assets to total assets 0.05 % 0.05 %
(1) TDRs on accrual status not included above totaled
million at
Non-accrual loans increased$197,000 or 5.8%, to$3.6 million , or 0.06% of total loans outstanding atSeptember 30, 2020 , from$3.4 million , or 0.06% of total loans outstanding atDecember 31, 2019 . Achieving and maintaining a moderate risk profile by aggressively managing troubled assets has been and will continue to be a primary focus. AtSeptember 30, 2020 , our allowance for loan losses was$67.6 million , or 1.20% of total loans, compared to$50.3 million , or 0.87% of total loans atDecember 31, 2019 . The increases in the provision and coverage ratio reflect the application of economic uncertainties and market volatility caused by COVID-19 to the factors used to determine the Company's provision. Included in our allowance atSeptember 30, 2020 was a general component of$67.6 million , which is based upon our evaluation of various factors relating to loans not deemed to be impaired. Due to government guarantee, we have not currently provided for loan losses for PPP loans. We continue to believe our level of non-performing loans and assets, which declined significantly during the past three years, is manageable and we believe that we have sufficient capital and human resources to manage the collection of our non-performing assets in an orderly fashion.
At
Troubled Debt Restructurings and Other Loan Modifications. In the course of resolving loans to borrowers with financial difficulties, we may choose to restructure the contractual terms of certain loans, with terms modified to fit the ability of the borrower to repay in line with its current financial status. A loan is considered a TDR if, for reasons related to the debtor's financial difficulties, a concession is granted to the debtor that would not otherwise be considered. Total TDRs decreased$648,000 , or 21.3%, to$2.4 million atSeptember 30, 2020 from$3.0 million atDecember 31, 2019 , reflecting principal paydowns. Modifications of TDRs consist of rate reductions, loan term extensions or provisions for interest-only payments for specified periods up to 12 months. We have generally been successful with the concessions we have offered to borrowers to date. We generally return TDRs to accrual status when they have sustained payments for six consecutive months based on the restructured terms and future payments are reasonably assured. In response to COVID-19, the Company has provided temporary relief in the form of short-term loan modifications, including 90- to 180-day principal and interest deferment periods. The deferred payments and associated accrued interest are due and payable based on the specific terms of the modification. As ofSeptember 30, 2020 , the Company had executed modifications with full principal and interest deferrals representing outstanding loan balances of$391.5 million , or 6.9% of the total loan portfolio, and associated accrued interest of$7.4 million . As ofOctober 19, 2020 , these amounts have declined to$285.6 million , or 5.0% of the total loan portfolio. 27 -------------------------------------------------------------------------------- Potential Problem Loans. Certain loans are identified during our loan review process that are currently performing in accordance with their contractual terms and we ultimately expect to receive payment in full of principal and interest, but it is deemed probable that we will be unable to collect all the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. This may result from deteriorating conditions such as cash flows, collateral values or creditworthiness of the borrower. These loans are classified as impaired but are not accounted for on a non-accrual basis. Other potential problem loans are those loans that are currently performing, but where known information about possible credit problems of the borrowers causes us to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms. These other potential problem loans are generally loans classified as "substandard" or 8-rated loans in accordance with our ten-grade internal loan rating system that is consistent with guidelines established by banking regulators. AtSeptember 30, 2020 other potential problem loans totaled$19.0 million and consist of two commercial and industrial loans to non-profit educational organizations in easternMassachusetts with loan balances of$15.3 million and$3.6 million that were identified during our loan review process as having possible financial issues that, if not corrected, could result in some loss to the Company. It was determined that these loan relationships are performing in accordance with the terms of the loans with the current expectation that we will be repaid in full in accordance with those terms, but with continual credit monitoring of the relationships. Allowance for Loan Losses. The allowance for loan losses is maintained at levels considered adequate by management to provide for probable loan losses inherent in the loan portfolio as of the consolidated balance sheet reporting dates. The allowance for loan losses is based on management's assessment of various factors affecting the loan portfolio, including portfolio composition, delinquent and non-accrual loans, national and local business conditions and loss experience and an overall evaluation of the quality of the underlying collateral. Changes in the allowance for loan losses during the periods indicated were as follows: Nine Months Ended September 30, 2020 2019 (Dollars in thousands) Beginning balance $ 50,322 $ 53,231 Provision for loan losses 17,529 (2,057 ) Charge-offs: Commercial and industrial 158 196 Consumer 135 211 Total charge-offs 293 407 Recoveries: One- to four-family 13 - Commercial real estate - 5 Commercial and industrial 9 - Home equity lines of credit 2 3 Consumer 57 56 Total recoveries 81 64 Net charge-offs 212 343 Ending balance $ 67,639 $ 50,831 Allowance to non-accrual loans 1,877.82 % 1,286.86 % Allowance to total loans outstanding 1.20 % 0.88 % Net charge-offs to average loans outstanding 0.00 % 0.01 % Our loan loss provision was$17.5 million for the nine months endedSeptember 30, 2020 compared to a reversal of$2.1 million for the nine months endedSeptember 30, 2019 . The increase in the allowance for loan losses atSeptember 30, 2020 compared toDecember 31, 2019 was primarily due to economic factors and industry conditions impacted by COVID-19. We continue to assess the adequacy of our allowance for loan losses in accordance with established policies and are closely monitoring the evolving pandemic to ensure proper evaluation of its impact on our loan portfolio. 28
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The following table sets forth the breakdown of the allowance for loan losses by loan category at the dates indicated:
September 30, 2020 December 31, 2019
Percent of Percent of
Percent of Loans in Percent of Loans in
Allowance Category Allowance Category
to Total of Total to Total of Total
Amount Allowance Loans Amount Allowance Loans
(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family $ 2,294 3.4 % 10.7 % $ 691 1.4 % 11.5 %
Multi-family 9,038 13.3 16.6 7,825 15.5 17.4
Home equity lines of credit 280 0.4 1.3 69 0.1 1.2
Commercial real estate 37,342 55.2 45.9 26,943 53.6 46.9
Construction 10,395 15.4 11.8 8,913 17.7 12.3
Total real estate loans 59,349 87.7 86.3 44,441 88.3 89.3
Commercial and industrial 8,231 12.2 13.5 5,765 11.5 10.5
Consumer 59 0.1 0.2 116 0.2 0.2
Total loans $ 67,639 100.0 % 100.0 % $ 50,322 100.0 % 100.0 %
The allowance consists of general and allocated components. The general
component relates to pools of non-impaired loans and is based on historical loss
experience adjusted for qualitative factors. The allocated component relates to
loans that are classified as impaired. A loan is considered impaired when, based
on current information and events, it is probable that we will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Factors considered by management in
determining impairment include payment status, collateral value and the
probability of collecting scheduled principal and interest payments when due.
Impairment is measured on a loan by loan basis by either the present value of
expected future cash flows discounted at the loan's effective interest rate, the
loan's obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.
We had impaired loans totaling $5.3 million and $6.3 million as of September 30,
2020 and December 31, 2019 , respectively. Our average investment in impaired
loans was $5.4 million and $4.4 million for the nine months ended September 30,
2020 and 2019, respectively.
Large groups of smaller balance homogeneous loans are collectively evaluated for
impairment based on payment status. Accordingly, we do not separately identify
individual one- to four-family residential real estate, home equity lines of
credit or consumer loans for impairment disclosures, unless such loans are
subject to a troubled debt restructuring. We periodically may agree to modify
the contractual terms of loans. When a loan is modified and a concession is made
to a borrower experiencing financial difficulty, the modification is considered
a TDR. All TDRs are initially classified as impaired.
Management has reviewed the collateral value for all impaired and non-accrual
loans that were collateral dependent as of September 30, 2020 and considered any
probable loss in determining the allowance for loan losses.
For residential loans measured for impairment based on the collateral value, we will do the following:
• When a loan becomes seriously delinquent, generally 60 days past due, we
obtain third-party appraisals that are generally the basis for charge-offs
when a loss is indicated, prior to the foreclosure sale, but usually no
later than when such loans are 180 days past due. We generally are able to
complete the foreclosure process within six to nine months from receipt of
the third-party appraisal.
• We make adjustments to appraisals based on updated economic information,
if necessary, prior to the foreclosure sale. We review current market
factors to determine whether, in management's opinion, downward
adjustments to the most recent appraised values may be warranted. If so,
we use our best estimate to apply an estimated discount rate to the
appraised values to reflect current market factors.
• Appraisals we receive are based on comparable property sales.
For commercial loans measured for impairment based on the collateral value, we will do the following:
• We obtain a third party appraisal at the time a loan is deemed to be in a
workout situation and there is no indication that the loan will return to
performing status, generally when the loan is 90 days or more past due.
One or more updated third
29
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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 ofcomparable property sales and income capitalization approaches. For loans
on construction projects involving residential properties, appraisals are
generally based on a discounted cash flow analysis assuming a bulk sale to
a single buyer.
Loans that are partially charged off generally remain on non-accrual status until foreclosure or such time that they are performing in accordance with the terms of the loan and have a sustained contractual payment history of at least six consecutive months. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Loan losses are charged against the allowance when we believe the uncollectability of a loan balance is confirmed; for collateral-dependent loans, generally when appraised values (as adjusted values, if applicable), less estimated costs to sell, are less than our carrying values. Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles inthe United States of America , there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations. Securities Portfolio. AtSeptember 30, 2020 our securities portfolio was$28.4 million , or 0.4% of total assets, compared to$30.3 million , or 0.5% of total assets, atDecember 31, 2019 . During the nine months endedSeptember 30, 2020 , the securities portfolio decreased$1.9 million , or 6.4% primarily due to$3.2 million in maturities, calls and principal payments and a net unrealized loss recognized on marketable equity securities of$2.2 million , partially offset by purchases of$4.0 million . AtSeptember 30, 2020 , the securities portfolio consisted of$12.2 million , or 42.9%, in debt securities and$16.2 million , or 57.1%, in marketable equity securities. Refer to Note 4, Securities, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our securities portfolio. Deposits. Deposits are a major source of our funds for lending and other investment purposes. Our deposit base is comprised of noninterest-bearing demand, interest-bearing demand, money market, regular savings and other deposits, and certificates of deposit, which include brokered certificates of deposit. Total deposits increased$30.5 million , or 0.62%, to$4.952 billion atSeptember 30, 2020 from$4.921 billion atDecember 31, 2019 . Refer to Note 6, Deposits, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our deposits. The following table sets forth the average balances of deposits for the periods indicated. Nine Months Ended September 30, 2020 2019 Percent Percent Average Average of Total Average Average of Total Balance Rate Deposits Balance Rate Deposits (Dollars in thousands) Noninterest-bearing demand deposits$ 630,072 - % 14.3 %$ 498,037 - % 10.4 % Interest-bearing demand deposits 1,289,479 0.90 27.3 1,200,110 1.76 25.5 Money market deposits 728,024 0.84 15.9 685,892 1.28 13.9 Regular savings and other deposits 860,593 0.70 17.2 915,173 1.60 17.2 Certificates of deposit 1,356,139 1.81 25.3 1,662,818 2.14 33.0 Total$ 4,864,307 0.99 % 100.0 %$ 4,962,030 1.62 % 100.0 % 30
-------------------------------------------------------------------------------- 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 theFederal Reserve's PPPLF program to fund the origination of PPP loans. AtSeptember 30, 2020 andDecember 31, 2019 , FHLB advances totaled$680.6 million and$636.2 million , respectively, with a weighted average rate of 2.27% and 2.57%, respectively. Federal Reserve PPPLF borrowings totaled$123.7 million with a weighted average rate of 0.35% atSeptember 30, 2020 . There were noFederal Reserve borrowings atDecember 31, 2019 . Total borrowings increased$168.0 million , or 26.4%, during the nine months endedSeptember 30, 2020 , reflecting a$25.0 million increase in short-term advances and a$143.0 million increase in long-term debt, primarily due to participation in the PPPLF program. During the nine months endedSeptember 30, 2020 , the Bank entered into a short-term advance totaling$25.0 million with a term of nine months and an interest rate of 0.81%. The Bank entered into long-term FHLB advances totaling$110.0 million with terms ranging from one to five years and fixed interest rates ranging from 0.66% to 1.38% during the nine months endedSeptember 30, 2020 . Advances maturing with the FHLB during the nine months endedSeptember 30, 2020 totaled$90.0 million and consisted of advances with original terms ranging from one to three years and interest rates ranging from 1.81% to 2.79%. The Bank entered into long-term PPPLF borrowings totaling$123.7 million with terms ranging from two to five years and a rate of 0.35% during the nine months endedSeptember 30, 2020 . PPPLF borrowings paid off during the nine months endedSeptember 30, 2020 totaled$6,000 . AtSeptember 30, 2020 , we also had an available line of credit of$9.4 million with the FHLB at an interest rate that adjusts daily, none of which was outstanding at that date. Refer to Note 7, Borrowings, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our borrowings.
Information relating to borrowings is detailed in the following table.
Nine Months Ended September 30,
2020 2019
(Dollars in thousands)
Balance outstanding at end of period $ 804,279 $ 636,615
Average amount outstanding during the period $ 738,058 $ 579,335
Weighted average interest rate during the period 2.24 % 2.31 %
Maximum outstanding at any month end $ 804,285 $ 637,038
Weighted average interest rate at end of period 1.97 % 2.57 %
Stockholders' Equity. Total stockholders' equity increased $21.7 million , or
3.0%, to $748.3 million at September 30, 2020 , from $726.6 million at
December 31, 2019 . The increase for the nine months ended September 30, 2020 was
primarily due to net income of $46.9 million and $4.2 million related to
stock-based compensation plans, partially offset by the repurchase of one
million shares of the Company's common stock related to the stock repurchase
program at a total cost of $17.7 million and dividends of $0.24 per share
totaling $12.0 million . Stockholders' equity to assets was 11.39% at
September 30, 2020 , compared to 11.45% at December 31, 2019 . Book value per
share increased to $14.28 at September 30, 2020 from $13.61 at December 31,
2019 . At September 30, 2020 , the Company and the Bank continued to exceed all
regulatory capital requirements. Refer to "- Capital Management" within this
report for more information regarding capital requirements and actual capital
amounts and ratios for the Bank and the Company.
31--------------------------------------------------------------------------------
Results of Operations for the Three and Nine Months Ended
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 Nine Months Ended
September 30, Change September 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
(Dollars in thousands, except per share amounts)
Net interest income $ 48,809 $ 44,217 $ 4,592 10.4 % $ 141,278 $ 129,284 $ 11,994 9.3 %
Provision (reversal) for
loan losses 7,163 (2,978 ) 10,141 340.5 17,529 (2,057 ) 19,586 952.2
Non-interest income 3,572 2,849 723 25.4 11,399 9,631 1,768 18.4
Non-interest expenses 22,830 23,847 (1,017 ) (4.3 ) 72,451 74,760 (2,309 ) (3.1 )
Net income 16,674 19,689 (3,015 ) (15.3 ) 46,930 49,928 (2,998 ) (6.0 )
Basic earnings per share 0.33 0.39 (0.06 ) (15.4 ) 0.93 0.98 (0.05 ) (4.7 )
Diluted earnings per share 0.33 0.38 (0.05 ) (13.2 ) 0.93 0.97 (0.04 ) (4.1 )
Return on average assets 1.03 % 1.24 % (0.21 ) % (16.9 ) 0.98 % 1.06 % (0.08 ) % (7.5 ) Return on average equity 8.94 % 11.17 % (2.23 ) % (20.0 ) 8.50 % 9.60 % (1.10 ) % (11.5 )
32
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Net Interest Income.
Average Balance Sheets and Related Yields and Rates. The following tables
present information regarding average balances of assets and liabilities, the
total dollar amounts of interest income and dividends from average
interest-earning assets, the total dollar amounts of interest expense on average
interest-bearing liabilities and the resulting annualized average yields and
costs. The yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. For purposes of the tables, average
balances have been calculated using daily average balances, and include
non-accrual loans and purchase accounting related premium and discounts. The
loan yields include the effect of amortization or accretion of deferred loan
fees/costs and purchase accounting premiums/discounts to interest and fees on
loans.
Three Months Ended September 30,
2020 2019
Average Yield Average Yield
Balance Interest (1) Cost (1)(6) Balance Interest (1) Cost (1)(6)
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (2) $ 5,671,957 $ 61,682 4.33 % $ 5,840,885 $ 66,837 4.54 %
Securities and certificates of
deposits 29,263 219 2.98 34,108 289 3.36
Other interest-earning assets
(3) 604,916 494 0.32 335,400 2,136 2.53
Total interest-earning assets 6,306,136 62,395 3.94 6,210,393 69,262 4.42
Noninterest-earning assets 161,886 145,445
Total assets $ 6,468,022 $ 6,355,838
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 1,291,341 1,946 0.60 $ 1,195,266 5,258 1.75
Money market deposits 769,571 1,270 0.66 683,201 2,281 1.32
Regular savings and other
deposits 834,368 966 0.46 870,677 3,199 1.46
Certificates of deposit 1,262,433 4,564 1.44 1,705,718 9,440 2.20
Total interest-bearing
deposits 4,157,713 8,746 0.84 4,454,862 20,178 1.80
Borrowings 804,281 4,051 2.00 627,063 4,130 2.61
Total interest-bearing
liabilities 4,961,994 12,797 1.03 5,081,925 24,308 1.90
Noninterest-bearing demand
deposits 702,717 516,020
Other noninterest-bearing
liabilities 57,636 52,663
Total liabilities 5,722,347 5,650,608
Total stockholders' equity 745,675 705,230
Total liabilities and
stockholders' equity $ 6,468,022 $ 6,355,838
Net interest-earning assets $ 1,344,142 $ 1,128,468
Fully tax-equivalent net
interest income 49,598 44,954
Less: tax-equivalent
adjustments (789 ) (737 )
Net interest income $ 48,809 $ 44,217
Interest rate spread (1)(4) 2.91 % 2.52 %
Net interest margin (1)(5) 3.13 % 2.87 %
Average interest-earning
assets to average
interest-bearing liabilities 127.09 % 122.21 %
Supplemental Information:
Total deposits, including
noninterest-bearing
demand deposits $ 4,860,430 $ 8,746 0.72 % $ 4,970,882 $ 20,178 1.61 %
Total deposits and borrowings,
including
noninterest-bearing demand
deposits $ 5,664,711 $ 12,797 0.90 % $ 5,597,945 $ 24,308 1.72 %
----------------------
(1) Income on debt securities, equity securities and revenue bonds included in
commercial real estate loans, as well as resulting yields, interest rate
spread and net interest margin, are presented on a tax-equivalent basis. The
tax-equivalent adjustments are deducted from tax-equivalent net interest
income to agree to amounts reported in the consolidated statements of net
income. For the three months ended
loans before tax-equivalent adjustments were 4.27% and 4.49%, respectively,
yields on securities and certificates of deposit before tax-equivalent
adjustments were 2.64% and 3.12%, respectively, and yields on total
interest-earning assets before tax-equivalent adjustments were 3.89% and
4.38%, respectively. Interest rate spread before tax-equivalent adjustments
for the three months ended
respectively, while net interest margin before tax-equivalent adjustments for
the three months ended September 30, 2020 and 2019 was 3.08% and 2.82%,
respectively.
33
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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.
Nine Months Ended September 30,
2020 2019
Average Yield Average Yield
Balance Interest (1) Cost (1)(6) Balance Interest (1) Cost (1)(6)
(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (2) $ 5,711,852 $ 188,603 4.41 % $ 5,782,319 $ 193,902 4.48 %
Securities and certificates of
deposits 29,201 676 3.09 35,679 873 3.27
Other interest-earning assets
(3) 495,054 2,753 0.74 326,166 6,656 2.73
Total interest-earning assets 6,236,107 192,032 4.11 6,144,164 201,431 4.38
Noninterest-earning assets 159,039 133,279
Total assets $ 6,395,146 $ 6,277,443
Liabilities and stockholders'
equity:
Interest-bearing liabilities:
Interest-bearing demand
deposits $ 1,289,479 8,736 0.90 $ 1,200,110 15,782 1.76
Money market deposits 728,024 4,551 0.84 685,892 6,587 1.28
Regular savings and other
deposits 860,593 4,493 0.70 915,173 10,962 1.60
Certificates of deposit 1,356,139 18,326 1.81 1,662,818 26,651 2.14
Total interest-bearing
deposits 4,234,235 36,106 1.14 4,463,993 59,982 1.80
Borrowings 738,058 12,390 2.24 579,335 10,006 2.31
Total interest-bearing
liabilities 4,972,293 48,496 1.30 5,043,328 69,988 1.86
Noninterest-bearing demand
deposits 630,072 498,037
Other noninterest-bearing
liabilities 56,420 42,493
Total liabilities 5,658,785 5,583,858
Total stockholders' equity 736,361 693,585
Total liabilities and
stockholders' equity $ 6,395,146 $ 6,277,443
Net interest-earning assets $ 1,263,814 $ 1,100,836
Fully tax-equivalent net
interest income 143,536 131,443
Less: tax-equivalent
adjustments (2,258 ) (2,159 )
Net interest income $ 141,278 $ 129,284
Interest rate spread (1)(4) 2.81 % 2.52 %
Net interest margin (1)(5) 3.07 % 2.86 %
Average interest-earning
assets to average
interest-bearing liabilities 125.42 % 121.83 %
Supplemental Information:
Total deposits, including
noninterest-bearing
demand deposits $ 4,864,307 $ 36,106 0.99 % $ 4,962,030 $ 59,982 1.62 %
Total deposits and borrowings,
including
noninterest-bearing demand
deposits $ 5,602,365 $ 48,496 1.16 % $ 5,541,365 $ 69,988 1.69 %
(1) Income on debt securities, equity securities and revenue bonds included in
commercial real estate loans, as well as resulting yields, interest rate
spread and net interest margin, are presented on a tax-equivalent basis. The
tax-equivalent adjustments are deducted from tax-equivalent net interest
income to agree to amounts reported in the consolidated statements of net
income. For the nine months ended
loans before tax-equivalent adjustments were 4.36% and 4.43%, respectively,
yields on securities and certificates of deposit before tax-equivalent
adjustments were 2.84% and 3.05%, respectively, and yields on total
interest-earning assets before tax-equivalent adjustments were 4.06% and
4.34%, respectively. Interest rate spread before tax-equivalent adjustments
for the nine months ended
respectively, while net interest margin before tax-equivalent adjustments for
the nine months ended September 30, 2020 and 2019 was 3.03% and 2.81%,
respectively.
34
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(2) Loans on non-accrual status are included in average balances.
(3) Includes FHLB stock and associated dividends.
(4) Interest rate spread represents the difference between the tax-equivalent
yield on interest-earning assets and the cost of interest-bearing
liabilities.
(5) Net interest margin represents net interest income (tax-equivalent basis)
divided by average interest-earning assets.
(6) Annualized.
Rate/Volume Analysis. The following table sets forth the effects of changing
rates and volumes on our fully tax-equivalent net interest income. The rate
column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume). The volume column shows the effects attributable to
changes in volume (changes in volume multiplied by prior rate). The net column
represents the sum of the prior columns. For purposes of this table, changes
attributable to changes in both rate and volume that cannot be segregated have
been allocated proportionally based on the changes due to rate and the changes
due to volume.
Three Months Ended September 30, Nine Months Ended September 30,
2020 Compared to 2019 2020 Compared to 2019
Increase (Decrease) Due to Increase (Decrease) Due to
Volume Rate Net Volume Rate Net
(In thousands)
Interest income:
Loans $ (1,963 ) $ (3,192 ) $ (5,155 ) $ (2,272 ) $ (3,027 ) $ (5,299 )
Securities and certificates of
deposit (39 ) (31 ) (70 ) (151 ) (46 ) (197 )
Other interest-earning assets 993 (2,635 ) (1,642 )
2,409 (6,312 ) (3,903 )
Total (1,009 ) (5,858 ) (6,867 ) (14 ) (9,385 ) (9,399 )
Interest expense:
Deposits (1,576 ) (9,856 ) (11,432 ) (3,620 ) (20,256 ) (23,876 )
Borrowings 1,009 (1,088 ) (79 ) 2,680 (296 ) 2,384
Total (567 ) (10,944 ) (11,511 ) (940 ) (20,552 ) (21,492 )
Change in fully tax-equivalent
net interest
income $ (442 ) $ 5,086 $ 4,644 $ 926 $ 11,167 $ 12,093
The interest rate spread and net interest margin on a tax-equivalent basis were
2.91% and 3.13%, respectively, for the three months ended September 30, 2020
compared to 2.52% and 2.87%, respectively, for the three months ended September
30, 2019 . For the nine months ended September 30, 2020 , the interest rate spread
and net interest margin on a tax-equivalent basis were 2.81% and 3.07%,
respectively, compared to 2.52% and 2.86%, respectively, for the nine months
ended September 30, 2019 . Net interest income increased 10.4% and 9.3% for the
three and nine months ended September 30, 2020 , respectively, compared to the
respective prior periods and was primarily due to the substantial reduction in
the cost of funds.
The yield on interest-earning assets on a tax-equivalent basis decreased 48
basis points to 3.94% for the three months ended September 30, 2020 , compared to
4.42% for the three months ended September 30, 2019 , while the cost of funds
decreased 82 basis points to 0.90% from 1.72% for the three months ended
September 30, 2020 and 2019, respectively. The decrease in interest income was
primarily due to a decrease in yield on loans of 21 basis points to 4.33% on a
tax-equivalent basis, from 4.54%, and a 221 basis point decrease in yield on
other earning assets to 0.32%, from 2.53%, for the three months ended September
30, 2019 . The decrease in interest expense on deposits was primarily due to the
decrease in the average total cost of deposits of 89 basis points to 0.72% for
the three months ended September 30, 2020 compared to 1.61% for the same period
in 2019. The decrease in interest expense on borrowings was primarily due to a
61 basis point decrease in the cost of average borrowings to 2.00% from 2.61%
for the three months ended September 30, 2019 , partially offset by an increase
in average total borrowings of $177.2 million , or 28.3%, to $804.3 million for
the three months ended September 30, 2020 compared to the three months ended
September 30, 2019 .
The yield on interest-earning assets on a tax-equivalent basis decreased 27
basis points to 4.11% for the nine months ended September 30, 2020 , compared to
4.38% for the nine months ended September 30, 2019 , while the cost of funds
decreased 53 basis points to 1.16% from 1.69% for the nine months ended
September 30, 2020 and 2019, respectively. The decrease in interest income was
primarily due to a decrease in the yield on other earning assets of 199 basis
points to 0.74%, from 2.73%, and a decrease in the yield on loans on a
tax-equivalent basis of seven basis points to 4.41%, from 4.48%, for the nine
months ended September 30, 2020 compared to the nine months ended September 30,
2019 . The decrease in interest expense on deposits was primarily due to the
decrease in the average total cost of deposits of 63 basis points to 0.99% for
the nine months ended September 30, 2020 compared to 1.62% for the same period
in 2019. The increase in interest expense on borrowings was primarily due to an
increase in average borrowings of $158.7 million , or 27.4%, to $738.1 million ,
partially offset by a decrease in the cost of average borrowings of seven basis
points to 2.24% for the nine months ended September 30, 2020 compared to 2.31%
for the nine months ended September 30, 2019 .
35
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Provision for Loan Losses. The provision for loan loss for the three months
ended September 30, 2020 was $7.2 million compared to a reversal of $3.0 million
for the three months ended September 30, 2019 . For the nine months ended
September 30, 2020 , the provision for loan loss was $17.5 million compared to a
reversal of $2.1 million for the nine months ended September 30, 2019 . The
increases in the provision reflect the application of economic uncertainties and
market volatility caused by COVID-19 to the factors used to determine the
Company's provision. For further discussion of the changes in the provision and
allowance for loan losses, refer to "Comparison of Financial Condition at
September 30, 2020 and December 31, 2019 - Allowance for Loan Losses."
Non-Interest Income. Non-interest income information is as follows:
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
(Dollars in thousands)
Customer service fees $ 2,193 $ 2,428 $ (235 ) (9.7 ) % $ 6,238 $ 6,813 $ (575 ) (8.4 ) %
Loan fees 264 436 (172 ) (39.4 ) 903 566 337 59.5
Mortgage banking gains,
net 704 99 605 611.1 1,233 240 993 413.8
Gain on sale of asset - - - - 4,195 - 4,195 -
Gain (loss) gain on
marketable equity
securities, net 122 (463 ) 585 126.3 (2,197 ) 1,086 (3,283 ) (302.3 )
Income from bank-owned
life
insurance 272 285 (13 ) (4.6 ) 842 846 (4 ) (0.5 )
Other income 17 64 (47 ) (73.4 ) 185 80 105 131.3
Total non-interest income $ 3,572 $ 2,849 $ 723 25.4 % $ 11,399 $ 9,631 $ 1,768 18.4 %
The increase in non-interest income for the three months ended September 30,
2020 was due primarily to increases of $605,000 in mortgage banking gains, net,
and a $585,000 valuation increase on equity securities, net, partially offset by
decreases of $235,000 in customer service fees and $172,000 in loan fees. The
increase in non-interest income for the nine months ended September 30, 2020 was
due primarily to a $4.2 million gain on sale of asset, reflecting the sale of
the Bank's former operation center in South Boston , and an increase of $1.0
million in mortgage banking gains, net, partially offset by a $3.3 million
valuation decrease on marketable equity securities, net for the nine months
ended September 30, 2020 , compared to the nine months ended September 30, 2019 .
Refer to Note 4, Securities, in the Notes to the Unaudited Consolidated
Financial Statements within this report for more detail regarding our securities
portfolio.
Non-Interest Expense. Non-interest expense information is as follows:
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2020 2019 Amount Percent 2020 2019 Amount Percent
(Dollars in thousands) (Dollars in thousands)
Salaries and employee benefits
(11.1 ) %$ 43,198 $ 45,649 $ (2,451 ) (5.4 ) % Occupancy and equipment 3,734 3,657 77 2.1 11,397 10,903 494 4.5 Data processing 2,196 2,026 170 8.4 6,466 6,005 461 7.7 Marketing and advertising 554 1,019 (465 ) (45.6 ) 2,814 3,480 (666 ) (19.1 ) Professional services 688 680 8 1.2 2,380 2,324 56 2.4 Deposit insurance 692 10 682 6,820.0 1,967 1,951 16 0.8 Other general and administrative 1,540 1,354 186 13.7 4,229 4,448 (219 ) (4.9 ) Total non-interest expenses$ 22,830 $ 23,847 $ (1,017 ) (4.3 ) %$ 72,451 $ 74,760 $ (2,309 ) (3.1 ) % The Company's successful efforts to limit overhead expenses during the COVID-19 shutdown led to decreases in salaries and employee benefits, marketing and advertising expenses and other general and administrative. The increases in occupancy and equipment expenses and data processing include costs associated with the expansion of our branch network, including four new branches opened in the past 12 months, three of which were opened in the third quarter of 2020. Income Tax Provision. The Company recorded a provision for income taxes of$5.7 million for the three months endedSeptember 30, 2020 , reflecting an effective tax rate of 25.5%, compared to$6.5 million , or a 24.8% effective tax rate, for the three months endedSeptember 30, 2019 . For the nine months endedSeptember 30, 2020 , the provision for income taxes was$15.8 million , reflecting an effective rate of 25.1%, compared to$16.3 million , or an effective rate of 24.6% for the nine months endedSeptember 30, 2019 .
Liquidity Management. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, sales, maturities and payments on investment securities and
36
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borrowings from the FHLB. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.
We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy. Our most liquid assets are cash and due from banks. The level of this asset depends on our operating, financing, lending and investing activities during any given period. AtSeptember 30, 2020 , cash and due from banks totaled$702.1 million . In addition, atSeptember 30, 2020 , we had$684.8 million of available borrowing capacity with the FHLB, including a$9.4 million line of credit. OnSeptember 30, 2020 , we had$680.6 million of FHLB advances outstanding. We periodically pledge additional multi-family and commercial real estate loans held in the Bank's portfolio as qualified collateral to increase our borrowing capacity with the FHLB. Our primary investing activities are the origination of loans and the purchase and sale of securities. Our primary financing activities consist of activity in deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits. A significant use of our liquidity is the funding of loan originations. AtSeptember 30, 2020 andDecember 31, 2019 , we had total loan commitments outstanding of$1.197 billion and$1.289 billion , respectively. Historically, many of the commitments expire without being fully drawn; therefore, the total amount of commitments does not necessarily represent future cash requirements. Refer to Note 8, Commitments and Contingencies and Derivatives, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our outstanding commitments. Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year ofSeptember 30, 2020 totaled$862.9 million , or 69.0% of total certificates of deposit. If these maturing deposits do not remain with us, we will be required to utilize other sources of funds. Historically, a significant portion of certificates of deposit that mature have remained with us. We have the ability to attract and retain deposits by adjusting the interest rates offered and accepting brokered certificates of deposit when it is deemed cost effective.Meridian Bancorp, Inc. is a separate legal entity fromEast Boston Savings Bank , and it must provide for its own liquidity to pay dividends and repurchase its common stock and for other corporate purposes.Meridian Bancorp, Inc.'s primary source of liquidity is the remaining proceeds from the 2014 second-step offering, which may be augmented by dividend payments received fromEast Boston Savings Bank . The ability ofEast Boston Savings Bank to pay dividends is subject to regulatory requirements. AtSeptember 30, 2020 ,Meridian Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents and equity securities totaling$15.6 million , reflecting an$18.0 million dividend received from the Bank during the second quarter of 2020. 37 -------------------------------------------------------------------------------- Capital Management. Both the Company and the Bank are subject to various regulatory capital requirements administered by theFederal Reserve Board and theFederal 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. AtSeptember 30, 2020 , both the Company and the Bank exceeded all of their respective regulatory capital requirements. The Bank is considered "well capitalized" under regulatory guidelines. Federal banking regulations include minimum capital requirements as set forth in the following table. Additionally, community banking institutions must maintain a capital conservation buffer of Total, Tier 1 and common equity Tier 1 capital in an amount greater than 2.5% of total to risk-weighted assets to avoid being subject to limitations on capital distributions, including dividend payments and stock repurchases, and discretionary bonuses. As a result of the Economic Growth, Regulatory Relief, and Consumer Protection Act, the federal banking agencies were required to develop a "Community Bank Leverage Ratio" ("CBLR") (the ratio of a bank's tangible equity capital to average total consolidated assets) for financial institutions with assets of less than$10 billion . A "qualifying community bank" that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered "well capitalized" under Prompt Corrective Action statutes. The federal banking agencies may consider a financial institution's risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies have set 9% as the minimum capital for the Community CBLR, effectiveMarch 31, 2020 . OnApril 6, 2020 , the federal banking agencies issued two interim final rules related to Section 4012 of the CARES Act, which requires the agencies to lower the CBLR requirement to 8%. The second rule provides a transition from the temporary 8% requirement back to the 9%. The CBLR requirement will transition from greater than 8% from the second quarter through the fourth quarter of 2020, to greater than 8.5% during calendar year 2021, to a requirement of greater than 9% in 2022. The Company and the Bank elected to be subject to the CBLR atMarch 31, 2020 . The Company may use capital management tools such as cash dividends and common share repurchases. We are subject to theFederal Reserve Board's notice provisions for stock repurchases. The Company did not repurchase any of its common stock during the three months endedSeptember 30, 2020 . During the nine months endedSeptember 30, 2020 the Company repurchased one million shares of its common stock at a total cost of$17.7 million . As ofSeptember 30, 2020 , the Company had repurchased 4,698,165 shares of its stock at an average price of$15.66 per share since August of 2015. During the nine months endedSeptember 30, 2020 the Company's Board of Directors declared three quarterly cash dividends of$0.08 per common share onFebruary 27, 2020 ,May 28, 2020 andAugust 27, 2020 . The dividend declared onAugust 27, 2020 was paid onOctober 1, 2020 to stockholders of record at the close of business onSeptember 17, 2020 .
The Company's and the Bank's actual capital amounts and ratios follow:
Minimum Minimum to be Well
Capital Capitalized Under Prompt
Actual Requirement Corrective Action Provisions
Amount Ratio Amount Ratio Amount Ratio
(Dollars in thousands)
September 30, 2020
Community Bank Leverage
Ratio:
Company $ 726,026 11.3 % N/A N/A $ 515,670 8.0 %
Bank 694,496 10.8 N/A N/A 515,699 8.0
December 31, 2019
Total Capital (to Risk
Weighted Assets):
Company $ 754,555 12.6 % $ 478,497 8.0 % N/A N/A
Bank 711,405 11.9 478,302 8.0 $ 597,877 10.0 %
Tier 1 Capital (to Risk
Weighted Assets):
Company 704,233 11.8 358,873 6.0 N/A N/A
Bank 661,083 11.1 358,726 6.0 478,302 8.0
Common Equity Tier 1
Capital (to Risk
Weighted Assets):
Company 704,233 11.8 269,155 4.5 N/A N/A
Bank 661,083 11.1 269,045 4.5 388,620 6.5
Tier 1 Capital (to Average
Assets):
Company 704,233 11.1 252,862 4.0 N/A N/A
Bank 661,083 10.5 252,623 4.0 315,779 5.0
38
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A reconciliation of the Company's and Bank's stockholders' equity to regulatory
capital follows:
September 30, December 31,
2020 2019
Consolidated Bank Consolidated Bank
(In thousands)
Total stockholders' equity per
financial statements $ 748,264 $ 716,734 $ 726,587 $ 683,437
Adjustments to Tier 1 and Common
Equity Tier 1
capital:
Accumulated other comprehensive loss (income) (91 ) (91 ) 147 147 Goodwill disallowed (20,378 ) (20,378 ) (20,378 ) (20,378 ) Core deposit intangible (1,769 ) (1,769 ) (2,123 ) (2,123 ) Total Tier 1 and Common Equity Tier 1 capital 726,026 694,496 704,233 661,083 Adjustments to total capital: Allowance for loan losses 67,639 67,639 50,322 50,322 Total regulatory capital$ 793,665 $ 762,135 $ 754,555 $ 711,405 Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles inthe United States of America , are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers' requests for funding and take the form of loan commitments and lines of credit.
For the nine months ended
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