Form 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2011
OR
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o |
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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 001-33898
Meridian Interstate Bancorp, Inc.
(Exact name of registrant as specified in its charter)
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Massachusetts
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20-4652200 |
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.) |
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10 Meridian Street, |
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East Boston, Massachusetts
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02128 |
(Address of Principal Executive Offices)
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Zip Code |
(617) 567-1500
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and
(2) has been subject to such filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes o
No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Act). Yes o No þ
At May 3, 2011, the registrant had 22,412,374 shares of no par value common stock outstanding.
MERIDIAN INTERSTATE BANCORP, INC.
FORM 10-Q
INDEX
2
PART I FINANCIAL INFORMATION
Item 1. financial statements
MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
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March 31, |
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December 31, |
|
(Dollars in thousands) |
|
2011 |
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|
2010 |
|
ASSETS |
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|
Cash and due from banks |
|
$ |
187,197 |
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|
$ |
155,430 |
|
Federal funds sold |
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63 |
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|
63 |
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|
|
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Total cash and cash equivalents |
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187,260 |
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155,493 |
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Certificates of deposit affiliate bank |
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2,508 |
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Securities available for sale, at fair value |
|
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395,034 |
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360,602 |
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Federal Home Loan Bank stock, at cost |
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12,538 |
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12,538 |
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Loans held for sale |
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2,815 |
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13,013 |
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Loans |
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1,190,510 |
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|
1,183,717 |
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Less allowance for loan losses |
|
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(10,323 |
) |
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(10,155 |
) |
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Loans, net |
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1,180,187 |
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|
1,173,562 |
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Bank-owned life insurance |
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34,146 |
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33,829 |
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Foreclosed real estate, net |
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4,966 |
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|
4,080 |
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Investment in affiliate bank |
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11,982 |
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|
11,497 |
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Premises and equipment, net |
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35,260 |
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|
34,425 |
|
Accrued interest receivable |
|
|
7,164 |
|
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|
7,543 |
|
Prepaid deposit insurance |
|
|
2,439 |
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|
3,026 |
|
Deferred tax asset, net |
|
|
5,792 |
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|
5,441 |
|
Goodwill |
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13,687 |
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|
13,687 |
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Other assets |
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4,902 |
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7,094 |
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Total assets |
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$ |
1,900,680 |
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$ |
1,835,830 |
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Deposits: |
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Non interest-bearing |
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$ |
115,988 |
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$ |
111,423 |
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Interest-bearing |
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1,382,699 |
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1,343,792 |
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Total deposits |
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1,498,687 |
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1,455,215 |
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Short-term borrowings affiliate bank |
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11,455 |
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1,949 |
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Short-term borrowings other |
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10,042 |
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|
10,037 |
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Long-term debt |
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136,350 |
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136,697 |
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Accrued expenses and other liabilities |
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25,830 |
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|
16,321 |
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Total liabilities |
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1,682,364 |
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1,620,219 |
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Stockholders equity: |
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Common stock, no par value, 50,000,000 shares
authorized; 23,000,000 shares issued |
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Additional paid-in capital |
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97,165 |
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|
97,005 |
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Retained earnings |
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125,774 |
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122,563 |
|
Accumulated other comprehensive income |
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7,442 |
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|
8,038 |
|
Treasury stock, at cost, 215,554 and 192,918 shares
at March 31, 2011 and December 31, 2010, respectively |
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(2,425 |
) |
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(2,121 |
) |
Unearned compensation ESOP, 693,450 and 703,800 shares
at March 31, 2011 and December 31, 2010, respectively |
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|
(6,934 |
) |
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|
(7,038 |
) |
Unearned compensation restricted shares, 321,645 and 326,905
at March 31, 2011 and December 31, 2010, respectively |
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(2,706 |
) |
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(2,836 |
) |
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Total stockholders equity |
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218,316 |
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215,611 |
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Total liabilities and stockholders equity |
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$ |
1,900,680 |
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$ |
1,835,830 |
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|
See accompanying notes to unaudited consolidated financial statements.
3
MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
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Three Months Ended March 31, |
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(Dollars in thousands, except per share amounts) |
|
2011 |
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|
2010 |
|
Interest and dividend income: |
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Interest and fees on loans |
|
$ |
16,446 |
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$ |
16,210 |
|
Interest on debt securities |
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|
3,105 |
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|
3,441 |
|
Dividends on equity securities |
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|
253 |
|
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|
205 |
|
Interest on certificates of deposit |
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8 |
|
|
|
17 |
|
Interest on other interest-earning assets |
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|
85 |
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|
12 |
|
|
|
|
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|
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Total interest and dividend income |
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|
19,897 |
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|
19,885 |
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Interest expense: |
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|
|
|
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Interest on deposits |
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|
4,573 |
|
|
|
4,199 |
|
Interest on short-term borrowings |
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|
10 |
|
|
|
29 |
|
Interest on long-term debt |
|
|
879 |
|
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|
886 |
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|
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|
Total interest expense |
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5,462 |
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|
5,114 |
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Net interest income |
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|
14,435 |
|
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|
14,771 |
|
Provision for loan losses |
|
|
342 |
|
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|
1,374 |
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|
|
|
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|
Net interest income, after provision
for loan losses |
|
|
14,093 |
|
|
|
13,397 |
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|
|
|
|
|
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|
Non-interest income: |
|
|
|
|
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Customer service fees |
|
|
1,296 |
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|
|
1,414 |
|
Loan fees |
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|
231 |
|
|
|
158 |
|
Gain on sales of loans, net |
|
|
436 |
|
|
|
565 |
|
Gain on sales of securities, net |
|
|
867 |
|
|
|
|
|
Income from bank-owned life insurance |
|
|
317 |
|
|
|
292 |
|
Equity income on investment in affiliate bank |
|
|
485 |
|
|
|
70 |
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
3,632 |
|
|
|
2,499 |
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|
|
|
|
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|
Non-interest expenses: |
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|
|
|
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Salaries and employee benefits |
|
|
7,101 |
|
|
|
6,167 |
|
Occupancy and equipment |
|
|
2,216 |
|
|
|
1,783 |
|
Data processing |
|
|
809 |
|
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|
754 |
|
Marketing and advertising |
|
|
541 |
|
|
|
466 |
|
Professional services |
|
|
644 |
|
|
|
720 |
|
Foreclosed real estate |
|
|
37 |
|
|
|
154 |
|
Deposit insurance |
|
|
625 |
|
|
|
515 |
|
Other general and administrative |
|
|
651 |
|
|
|
790 |
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|
|
|
|
|
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|
Total non-interest expenses |
|
|
12,624 |
|
|
|
11,349 |
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
5,101 |
|
|
|
4,547 |
|
Provision for income taxes |
|
|
1,890 |
|
|
|
1,687 |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,211 |
|
|
$ |
2,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
Diluted |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
|
|
|
|
|
|
|
|
|
Weighted average shares: |
|
|
|
|
|
|
|
|
Basic |
|
|
21,982,714 |
|
|
|
22,133,155 |
|
Diluted |
|
|
22,095,617 |
|
|
|
22,133,155 |
|
See accompanying notes to unaudited consolidated financial statements.
4
MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
Three Months Ended March 31, 2011 and 2010
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|
Shares of No |
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Accumulated |
|
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Par Common |
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Additional |
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Other |
|
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|
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Unearned |
|
|
Unearned |
|
|
|
|
|
|
Stock |
|
|
Paid-in |
|
|
Retained |
|
|
Comprehensive |
|
|
Treasury |
|
|
Compensation |
|
|
Compensation |
|
|
|
|
(Dollars in thousands) |
|
Outstanding |
|
|
Capital |
|
|
Earnings |
|
|
Income |
|
|
Stock |
|
|
ESOP |
|
|
Restricted Shares |
|
|
Total |
|
Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009 |
|
|
22,098,565 |
|
|
$ |
100,972 |
|
|
$ |
109,189 |
|
|
$ |
5,583 |
|
|
$ |
(4,535 |
) |
|
$ |
(7,452 |
) |
|
$ |
(3,342 |
) |
|
$ |
200,415 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
2,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,860 |
|
Change in net unrealized gain on securities available
for sale, net of reclassification adjustment and tax
effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,694 |
|
Change in defined benefit plan prior service costs and actuarial
losses, net of reclassification adjustments and tax
effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,656 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP shares earned (10,350 shares) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
103 |
|
|
|
|
|
|
|
100 |
|
Issuance of 514,109 shares to Meridian Financial Services,
Incorporated, the mutual holding company |
|
|
514,109 |
|
|
|
(4,505 |
) |
|
|
|
|
|
|
|
|
|
|
4,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
|
2,620 |
|
|
|
121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
120 |
|
|
|
241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2010 |
|
|
22,615,294 |
|
|
$ |
96,585 |
|
|
$ |
112,049 |
|
|
$ |
7,379 |
|
|
$ |
(30 |
) |
|
$ |
(7,349 |
) |
|
$ |
(3,222 |
) |
|
$ |
205,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2010 |
|
|
22,480,877 |
|
|
$ |
97,005 |
|
|
$ |
122,563 |
|
|
$ |
8,038 |
|
|
$ |
(2,121 |
) |
|
$ |
(7,038 |
) |
|
$ |
(2,836 |
) |
|
$ |
215,611 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income : |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
3,211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,211 |
|
Change in net unrealized gain on securities available
for sale, net of reclassification adjustment and tax
effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(596 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
|
|
(23,336 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
(304 |
) |
ESOP shares earned (10,350 shares) |
|
|
|
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
104 |
|
|
|
|
|
|
|
133 |
|
Share-based compensation expense |
|
|
5,260 |
|
|
|
131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130 |
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2011 |
|
|
22,462,801 |
|
|
$ |
97,165 |
|
|
$ |
125,774 |
|
|
$ |
7,442 |
|
|
$ |
(2,425 |
) |
|
$ |
(6,934 |
) |
|
$ |
(2,706 |
) |
|
$ |
218,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to unaudited consolidated financial statements.
5
MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
3,211 |
|
|
$ |
2,860 |
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
|
|
|
|
|
|
|
|
Accretion of acquisition fair value adjustments |
|
|
(574 |
) |
|
|
(533 |
) |
Earned ESOP shares |
|
|
133 |
|
|
|
100 |
|
Provision for loan losses |
|
|
342 |
|
|
|
1,374 |
|
Amortization (accretion) of net deferred loan origination fees |
|
|
181 |
|
|
|
(672 |
) |
Net amortization of securities available for sale |
|
|
221 |
|
|
|
309 |
|
Depreciation and amortization expense |
|
|
597 |
|
|
|
591 |
|
Gain on sales of securities, net |
|
|
(867 |
) |
|
|
|
|
Gain on sales of loans held in portfolio, net |
|
|
|
|
|
|
(352 |
) |
Gain on sales and provision for foreclosed real estate, net |
|
|
(118 |
) |
|
|
(26 |
) |
Deferred income tax provision (benefit) |
|
|
66 |
|
|
|
(1,996 |
) |
Income from bank-owned life insurance |
|
|
(317 |
) |
|
|
(292 |
) |
Equity income on investment in affiliate bank |
|
|
(485 |
) |
|
|
(70 |
) |
Share-based compensation expense |
|
|
261 |
|
|
|
241 |
|
Net changes in: |
|
|
|
|
|
|
|
|
Loans held for sale |
|
|
10,198 |
|
|
|
1,842 |
|
Accrued interest receivable |
|
|
379 |
|
|
|
706 |
|
Prepaid deposit insurance |
|
|
587 |
|
|
|
321 |
|
Other assets |
|
|
2,192 |
|
|
|
3,968 |
|
Accrued expenses and other liabilities |
|
|
9,509 |
|
|
|
3,913 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
25,516 |
|
|
|
12,284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Cash provided by business combination |
|
|
|
|
|
|
14,422 |
|
Purchases of certificates of deposit |
|
|
(2,508 |
) |
|
|
|
|
Activity in securities available for sale: |
|
|
|
|
|
|
|
|
Proceeds from maturities, calls and principal payments |
|
|
32,135 |
|
|
|
15,619 |
|
Net purchase of mutual funds |
|
|
(10,435 |
) |
|
|
|
|
Proceeds from sales |
|
|
3,901 |
|
|
|
|
|
Purchases |
|
|
(60,245 |
) |
|
|
(24,270 |
) |
Loans originated, net of principal payments received |
|
|
(8,327 |
) |
|
|
(19,088 |
) |
Proceeds from sales of fixed-rate loans held in portfolio |
|
|
|
|
|
|
34,488 |
|
Purchases of premises and equipment |
|
|
(1,411 |
) |
|
|
(78 |
) |
Capitalized costs on foreclosed real estate |
|
|
(13 |
) |
|
|
(197 |
) |
Proceeds from sales of foreclosed real estate |
|
|
305 |
|
|
|
667 |
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(46,598 |
) |
|
|
21,563 |
|
|
|
|
|
|
|
|
(continued)
See accompanying notes to unaudited consolidated financial statements.
6
MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net increase in deposits |
|
|
43,642 |
|
|
|
32,389 |
|
Net change in borrowings with maturities
less than three months |
|
|
9,511 |
|
|
|
(8,638 |
) |
Proceeds from Federal Home Loan Bank advances
with maturities of three months or more |
|
|
|
|
|
|
15,000 |
|
Repayment of Federal Home Loan Bank advances
with maturities of three months or more |
|
|
|
|
|
|
(6,050 |
) |
Purchase of treasury stock |
|
|
(304 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
52,849 |
|
|
|
32,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
31,767 |
|
|
|
66,548 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
155,493 |
|
|
|
19,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
187,260 |
|
|
$ |
86,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid on deposits |
|
$ |
4,720 |
|
|
$ |
4,087 |
|
Interest paid on borrowings |
|
|
1,235 |
|
|
|
607 |
|
Income taxes paid, net of refunds |
|
|
40 |
|
|
|
15 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Transfers from loans to foreclosed real estate |
|
|
1,060 |
|
|
|
978 |
|
In conjunction with the purchase acquisition: |
|
|
|
|
|
|
|
|
Fair value of assets acquired, net of cash acquired |
|
|
|
|
|
|
453,031 |
|
Fair value of liabilities assumed |
|
|
|
|
|
|
467,453 |
|
See accompanying notes to unaudited consolidated financial statements.
7
MERIDIAN INTERSTATE BANCORP, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
Meridian Interstate Bancorp, Inc. (the Company or Meridian Interstate) is a Massachusetts
mid-tier stock holding company that was formed in 2006 by East Boston Savings Bank (the Bank) to
be its holding company. Meridian Interstate Bancorp owns all of East Boston Savings Banks capital
stock and directs, plans and coordinates East Boston Savings Banks business activities. In
addition, Meridian Interstate Bancorp owns approximately 40% of the capital stock of Hampshire
First Bank, a New Hampshire chartered bank, organized in 2006 and headquartered in Manchester, New
Hampshire. Meridian Financial Services, Incorporated is our Massachusetts-chartered mutual holding
company parent. As a mutual holding company, Meridian Financial Services is a non-stock company.
Meridian Financial Services owns 58.6% of Meridian Interstate Bancorps common stock.
The accompanying unaudited interim consolidated financial statements of Meridian Interstate
Bancorp, Inc. have been prepared in accordance with generally accepted accounting principles 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 generally
accepted accounting principles for complete financial statements. In the opinion of management,
all adjustments considered necessary for a fair presentation have been included. Such adjustments
were of a normal recurring nature. The results of operations for the three months ended March 31,
2011 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 Meridian Interstate included in Meridian Interstates Form 10-K for the year ended
December 31, 2010 which was filed with the Securities and Exchange Commission (SEC) on March 16,
2011, and is available through the SECs website at www.sec.gov.
In preparing consolidated financial statements in conformity with accounting principles
generally accepted in the United States of America, 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 reporting
period. Actual results could differ from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination of the allowance for
loan losses, the evaluation of goodwill for impairment, other-than-temporary impairment of
securities and the valuation of deferred tax assets and foreclosed real estate.
2. RECENT ACCCOUNTING PRONOUNCEMENT
In April 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2011-02, Receivables (Topic 310), A Creditors Determination of Whether a
Restructuring Is a Troubled Debt Restructuring. ASU 2011-02 provides additional guidance and
clarification to help creditors in determining whether a creditor has granted a concession and
whether a debtor is experiencing financial difficulties for purposes of determining whether a
restructuring constitutes a troubled debt restructuring (TDR). ASU 2011-02 is effective for the
first interim or annual period beginning on or after June 15, 2011, with retrospective application
to the beginning of the annual period of adoption. The measurement of impairment should be done
prospectively in the period of adoption for loans that are newly identified as TDRs upon adoption
of ASU 2011-02. In addition, the TDR disclosures required by ASU 2010-20, Receivables (Topic 310),
Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses
should be provided beginning in the period of adoption of ASU 2011-02. The Company will adopt ASU
2011-02 on July 1, 2011 and is currently evaluating the impact of adoption on its consolidated
financial statements.
3. FAIR VALUE HIERARCHY
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 Companys 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 instrument.
The Company groups its assets and liabilities measured at fair value in three levels, based on
the markets in which the assets and liabilities are traded and the reliability of the assumptions
used to determine fair value.
8
Level 1 Valuation is based on quoted prices in active markets for identical assets or
liabilities. Valuations are obtained from readily available pricing sources for market transactions
involving identical assets or liabilities.
Level 2 Valuation is based on observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in markets that are not active; or other
inputs that are observable or can be corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3 Valuation is based on unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities. Level 3 assets
and liabilities include financial instruments whose value is determined using unobservable inputs
to pricing models, discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires significant management judgment or
estimation.
The following methods and assumptions were used by the Company in estimating fair value
disclosures:
Cash and cash equivalents The carrying amounts of cash and short-term instruments
approximate fair values, based on the short-term nature of the assets.
Certificates of deposit Fair values of certificates of deposit are estimated using
discounted cash flow analyses based on current market rates for similar types of deposits.
Securities available for sale All fair value measurements are obtained from a third
party pricing service and are not adjusted by management, except for other debt securities. Due to
the illiquid market for other debt securities, the Company determined that the prices obtained from
a third party pricing service were not indicative of fair value. The Company uses an internal
valuation model to determine the fair value of these securities. Securities available for sale are
recorded at fair value on a recurring basis. Marketable equity securities are measured at fair
value utilizing quoted market prices (Level 1). Corporate bonds, obligations of
government-sponsored enterprises, 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). Other
debt securities are measured at fair value utilizing pricing models, discounted cash flow
methodologies, or similar techniques that require significant management judgment or estimation
(Level 3).
Federal Home Loan Bank stock The carrying value of Federal Home Loan Bank stock
approximates fair value based on the redemption provisions of the Federal Home Loan Bank.
Loans held for sale The fair value is based on commitments in effect from investors
or prevailing market prices.
Loans For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying values. Fair values for other loans are
estimated using discounted cash flow analyses, using market interest rates currently being offered
for loans with similar terms to borrowers of similar credit quality. Fair values for non-performing
loans are estimated using discounted cash flow analyses or underlying collateral values, where
applicable.
Deposits The fair values disclosed for non-certificate accounts, by definition,
equal to the amount payable on demand at the reporting date which is their carrying amounts. Fair
values for certificates of deposit are estimated using a discounted cash flow calculation that
applies market interest rates currently being offered on certificates to a schedule of aggregated
expected monthly maturities on time deposits.
Borrowings The fair value is estimated using discounted cash flow analyses based on
the Companys current incremental borrowing rates for similar types of borrowing arrangements.
Accrued interest The carrying amounts of accrued interest approximate fair value.
Off-balance sheet credit-related instruments Fair values for off-balance-sheet,
credit-related financial instruments are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and the counterparties
credit standing. The fair value of these instruments is considered immaterial.
9
Assets Measured at Fair Value on a Recurring Basis
Assets measured at fair value on a recurring basis are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair |
|
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
|
|
|
$ |
203,338 |
|
|
$ |
|
|
|
$ |
203,338 |
|
Government-sponsored enterprises |
|
|
|
|
|
|
83,757 |
|
|
|
|
|
|
|
83,757 |
|
Municipal bonds |
|
|
|
|
|
|
7,424 |
|
|
|
|
|
|
|
7,424 |
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
|
|
|
|
31,276 |
|
|
|
|
|
|
|
31,276 |
|
Private label |
|
|
|
|
|
|
9,557 |
|
|
|
|
|
|
|
9,557 |
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
|
|
|
|
335,352 |
|
|
|
641 |
|
|
|
335,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
|
34,719 |
|
|
|
|
|
|
|
|
|
|
|
34,719 |
|
Money market mutual funds |
|
|
24,322 |
|
|
|
|
|
|
|
|
|
|
|
24,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
59,041 |
|
|
|
|
|
|
|
|
|
|
|
59,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available for sale |
|
$ |
59,041 |
|
|
$ |
335,352 |
|
|
$ |
641 |
|
|
$ |
395,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair |
|
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Value |
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds |
|
$ |
|
|
|
$ |
222,038 |
|
|
$ |
|
|
|
$ |
222,038 |
|
Government-sponsored enterprises |
|
|
|
|
|
|
35,900 |
|
|
|
|
|
|
|
35,900 |
|
Municipal bonds |
|
|
|
|
|
|
6,493 |
|
|
|
|
|
|
|
6,493 |
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
|
|
|
|
34,542 |
|
|
|
|
|
|
|
34,542 |
|
Private label |
|
|
|
|
|
|
10,334 |
|
|
|
|
|
|
|
10,334 |
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
|
|
|
|
309,307 |
|
|
|
641 |
|
|
|
309,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
|
36,765 |
|
|
|
|
|
|
|
|
|
|
|
36,765 |
|
Money market mutual funds |
|
|
13,889 |
|
|
|
|
|
|
|
|
|
|
|
13,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
50,654 |
|
|
|
|
|
|
|
|
|
|
|
50,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities
available for sale |
|
$ |
50,654 |
|
|
$ |
309,307 |
|
|
$ |
641 |
|
|
$ |
360,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no liabilities measured at fair value on a recurring basis. There were no transfers
in or out of Levels 1, 2 and 3 for the three months ended March 31, 2011.
Assets Measured at Fair Value on a Non-recurring Basis
The Company may also be required, from time to time, to measure certain other assets on a
non-recurring basis in accordance with generally accepted accounting principles. These adjustments
to fair value usually result from the application of lower-of-cost-or market accounting or
write-downs of individual assets.
10
The following tables summarize the fair value hierarchy used to determine each adjustment and
the carrying value of the related individual assets. The gain/loss represents the amount of
write-down, charge-off or specific reserve recorded during the periods noted on the assets held at
period end. There were no liabilities measured at fair value on a non-recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
March 31, 2011 |
|
|
Total |
|
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Gains/(Losses) |
|
Impaired loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
7,035 |
|
|
$ |
41 |
|
Foreclosed real esate |
|
|
|
|
|
|
|
|
|
|
4,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
12,001 |
|
|
$ |
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010 |
|
|
|
December 31, 2010 |
|
|
Total |
|
(In thousands) |
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Gains/(Losses) |
|
Impaired loans |
|
$ |
|
|
|
$ |
|
|
|
$ |
6,274 |
|
|
$ |
(239 |
) |
Foreclosed real esate |
|
|
|
|
|
|
|
|
|
|
4,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10,354 |
|
|
$ |
(239 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain impaired loans were adjusted to fair value, less cost to sell, of the underlying
collateral securing these loans resulting in losses. The loss is not recorded directly as an
adjustment to current earnings, but rather as a component in determining the allowance for loan
losses. Fair value was measured using appraised values of collateral and adjusted as necessary by
management based on unobservable inputs for specific properties.
Certain properties in foreclosed real estate were adjusted to fair value using appraised
values of collateral, less cost to sell, and adjusted as necessary by management based on
unobservable inputs for specific properties. The loss on foreclosed assets represents adjustments
in valuation recorded during the time period indicated and not for losses incurred on sales.
Summary of Fair Values of Financial Instruments
The estimated fair values, and related carrying amounts, of the Companys 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
Carrying |
|
|
Fair |
|
|
Carrying |
|
|
Fair |
|
(In thousands) |
|
Amount |
|
|
Value |
|
|
Amount |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
187,260 |
|
|
$ |
187,260 |
|
|
$ |
155,493 |
|
|
$ |
155,493 |
|
Certificates of deposit |
|
|
2,508 |
|
|
|
2,523 |
|
|
|
|
|
|
|
|
|
Securities available for sale |
|
|
395,034 |
|
|
|
395,034 |
|
|
|
360,602 |
|
|
|
360,602 |
|
Federal Home Loan Bank stock |
|
|
12,538 |
|
|
|
12,538 |
|
|
|
12,538 |
|
|
|
12,538 |
|
Loans and loans held for sale, net |
|
|
1,183,002 |
|
|
|
1,191,884 |
|
|
|
1,186,575 |
|
|
|
1,195,661 |
|
Accrued interest receivable |
|
|
7,164 |
|
|
|
7,164 |
|
|
|
7,543 |
|
|
|
7,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
1,498,687 |
|
|
|
1,507,254 |
|
|
|
1,455,215 |
|
|
|
1,463,016 |
|
Borrowings |
|
|
157,847 |
|
|
|
162,028 |
|
|
|
148,683 |
|
|
|
153,618 |
|
Accrued interest payable |
|
|
1,154 |
|
|
|
1,154 |
|
|
|
1,131 |
|
|
|
1,131 |
|
11
4. 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. If rights to dividends on unvested options/awards are non-forfeitable, these unvested
awards/options are considered outstanding in the computation of basic earnings per share. Diluted
earnings per share is computed in a manner similar to that of basic earnings per share except that
the weighted-average number of common shares outstanding is increased to include the number of
incremental common shares (computed using the treasury method) that would have been outstanding if
all potentially dilutive common stock equivalents (such as options) were issued during the period.
Unallocated common shares held by the ESOP are shown as a reduction in stockholders equity and are
not included in the weighted-average number of common shares outstanding for either basic or
diluted earnings per share calculations.
Basic and diluted earnings per share have been computed based on the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
(Dollars in thousands, except per share amounts) |
|
2011 |
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
Net income available to common stockholders |
|
$ |
3,211 |
|
|
$ |
2,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number of common shares outstanding |
|
|
21,773,621 |
|
|
|
21,866,229 |
|
Effect of unvested stock awards |
|
|
209,093 |
|
|
|
266,926 |
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
21,982,714 |
|
|
|
22,133,155 |
|
Effect of dilutive stock options |
|
|
112,903 |
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average shares outstanding |
|
|
22,095,617 |
|
|
|
22,133,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
Diluted |
|
$ |
0.15 |
|
|
$ |
0.13 |
|
Options for 7,500 and 889,440 shares, respectively, were not included in the computation of
diluted earnings per share because to do so would have been anti-dilutive for the three months
ended March 31, 2011 and 2010.
4. SECURITIES
All securities held by the Company as of March 31, 2011 and December 31, 2010 were classified
as available for sale and are carried at fair value. Unrealized gains and losses, net of tax, are
excluded from earnings and reported as a separate component of stockholders equity. Gains or
losses on the sale of available-for-sale securities are determined using the specific
identification method. Premiums and discounts are recognized in interest income using the effective
interest method over the period to maturity.
At March 31, 2011, the securities portfolio was $395.0 million, or 20.8% of total assets. At
that date, 51.5% of the securities portfolio, or $203.3 million, was invested in corporate bonds.
As of March 31, 2011, the fair value of corporate debt and marketable equity securities in the
financial services sector amounted to $86.2 million and $6.5 million, respectively.
12
The following table sets forth the amortized cost and fair value of securities, all of which
at the dates indicated were available for sale.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services |
|
$ |
84,405 |
|
|
$ |
2,063 |
|
|
$ |
(272 |
) |
|
$ |
86,196 |
|
Industry and manufacturing |
|
|
29,821 |
|
|
|
1,464 |
|
|
|
|
|
|
|
31,285 |
|
Consumer products and services |
|
|
33,641 |
|
|
|
1,705 |
|
|
|
|
|
|
|
35,346 |
|
Technology |
|
|
15,256 |
|
|
|
766 |
|
|
|
|
|
|
|
16,022 |
|
Healthcare |
|
|
21,685 |
|
|
|
736 |
|
|
|
|
|
|
|
22,421 |
|
Other |
|
|
11,686 |
|
|
|
382 |
|
|
|
|
|
|
|
12,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate bonds |
|
|
196,494 |
|
|
|
7,116 |
|
|
|
(272 |
) |
|
|
203,338 |
|
Government-sponsored enterprises |
|
|
84,111 |
|
|
|
75 |
|
|
|
(429 |
) |
|
|
83,757 |
|
Municipal bonds |
|
|
7,501 |
|
|
|
16 |
|
|
|
(93 |
) |
|
|
7,424 |
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
30,492 |
|
|
|
786 |
|
|
|
(2 |
) |
|
|
31,276 |
|
Private label |
|
|
8,870 |
|
|
|
695 |
|
|
|
(8 |
) |
|
|
9,557 |
|
Other debt securities |
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
328,109 |
|
|
|
8,688 |
|
|
|
(804 |
) |
|
|
335,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
|
29,517 |
|
|
|
5,448 |
|
|
|
(246 |
) |
|
|
34,719 |
|
Money market mutual funds |
|
|
24,339 |
|
|
|
|
|
|
|
(17 |
) |
|
|
24,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
53,856 |
|
|
|
5,448 |
|
|
|
(263 |
) |
|
|
59,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
381,965 |
|
|
$ |
14,136 |
|
|
$ |
(1,067 |
) |
|
$ |
395,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services |
|
$ |
79,896 |
|
|
$ |
1,983 |
|
|
$ |
(266 |
) |
|
$ |
81,613 |
|
Industry and manufacturing |
|
|
32,875 |
|
|
|
1,595 |
|
|
|
|
|
|
|
34,470 |
|
Consumer products and services |
|
|
39,173 |
|
|
|
1,895 |
|
|
|
|
|
|
|
41,068 |
|
Technology |
|
|
29,280 |
|
|
|
948 |
|
|
|
|
|
|
|
30,228 |
|
Healthcare |
|
|
21,687 |
|
|
|
783 |
|
|
|
|
|
|
|
22,470 |
|
Other |
|
|
11,714 |
|
|
|
475 |
|
|
|
|
|
|
|
12,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate bonds |
|
|
214,625 |
|
|
|
7,679 |
|
|
|
(266 |
) |
|
|
222,038 |
|
Government-sponsored enterprises |
|
|
36,062 |
|
|
|
77 |
|
|
|
(239 |
) |
|
|
35,900 |
|
Municipal bonds |
|
|
6,583 |
|
|
|
10 |
|
|
|
(100 |
) |
|
|
6,493 |
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
33,625 |
|
|
|
927 |
|
|
|
(10 |
) |
|
|
34,542 |
|
Private label |
|
|
9,737 |
|
|
|
687 |
|
|
|
(90 |
) |
|
|
10,334 |
|
Other debt securities |
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
301,273 |
|
|
|
9,380 |
|
|
|
(705 |
) |
|
|
309,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
|
31,344 |
|
|
|
5,596 |
|
|
|
(175 |
) |
|
|
36,765 |
|
Money market mutual funds |
|
|
13,904 |
|
|
|
|
|
|
|
(15 |
) |
|
|
13,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
45,248 |
|
|
|
5,596 |
|
|
|
(190 |
) |
|
|
50,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale |
|
$ |
346,521 |
|
|
$ |
14,976 |
|
|
$ |
(895 |
) |
|
$ |
360,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
The amortized cost and fair value of debt securities by contractual maturity at March 31, 2011
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within 1 year |
|
|
Over 1 year to 5 years |
|
|
Over 5 years |
|
|
Total |
|
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
|
Amortized |
|
|
Fair |
|
(In thousands) |
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
|
Cost |
|
|
Value |
|
Corporate bonds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial services |
|
$ |
17,011 |
|
|
$ |
17,429 |
|
|
$ |
58,442 |
|
|
$ |
59,938 |
|
|
$ |
8,952 |
|
|
$ |
8,829 |
|
|
$ |
84,405 |
|
|
$ |
86,196 |
|
Industry and manufacturing |
|
|
6,611 |
|
|
|
6,800 |
|
|
|
23,210 |
|
|
|
24,485 |
|
|
|
|
|
|
|
|
|
|
|
29,821 |
|
|
|
31,285 |
|
Consumer products and services |
|
|
8,946 |
|
|
|
9,256 |
|
|
|
24,695 |
|
|
|
26,090 |
|
|
|
|
|
|
|
|
|
|
|
33,641 |
|
|
|
35,346 |
|
Technology |
|
|
7,281 |
|
|
|
7,511 |
|
|
|
7,975 |
|
|
|
8,511 |
|
|
|
|
|
|
|
|
|
|
|
15,256 |
|
|
|
16,022 |
|
Healthcare |
|
|
3,010 |
|
|
|
3,037 |
|
|
|
18,675 |
|
|
|
19,384 |
|
|
|
|
|
|
|
|
|
|
|
21,685 |
|
|
|
22,421 |
|
Other |
|
|
4,064 |
|
|
|
4,125 |
|
|
|
7,622 |
|
|
|
7,943 |
|
|
|
|
|
|
|
|
|
|
|
11,686 |
|
|
|
12,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total corporate bonds |
|
|
46,923 |
|
|
|
48,158 |
|
|
|
140,619 |
|
|
|
146,351 |
|
|
|
8,952 |
|
|
|
8,829 |
|
|
|
196,494 |
|
|
|
203,338 |
|
Government-sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
42,866 |
|
|
|
42,823 |
|
|
|
41,245 |
|
|
|
40,934 |
|
|
|
84,111 |
|
|
|
83,757 |
|
Municipal bonds |
|
|
|
|
|
|
|
|
|
|
2,580 |
|
|
|
2,574 |
|
|
|
4,921 |
|
|
|
4,850 |
|
|
|
7,501 |
|
|
|
7,424 |
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
|
|
|
|
|
|
|
|
7 |
|
|
|
7 |
|
|
|
30,485 |
|
|
|
31,269 |
|
|
|
30,492 |
|
|
|
31,276 |
|
Private label |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,870 |
|
|
|
9,557 |
|
|
|
8,870 |
|
|
|
9,557 |
|
Other debt securities |
|
|
|
|
|
|
|
|
|
|
140 |
|
|
|
140 |
|
|
|
501 |
|
|
|
501 |
|
|
|
641 |
|
|
|
641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
46,923 |
|
|
$ |
48,158 |
|
|
$ |
186,212 |
|
|
$ |
191,895 |
|
|
$ |
94,974 |
|
|
$ |
95,940 |
|
|
$ |
328,109 |
|
|
$ |
335,993 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2011, proceeds from sales of securities available
for sale amounted to $3.9 million. Gross gains and losses of $867,000 and $0, respectively, were
realized on those sales.
Information pertaining to securities available for sale as of March 31, 2011 and December 31,
2010, 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 |
|
|
Over Twelve Months |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds financial services |
|
$ |
261 |
|
|
$ |
15,747 |
|
|
$ |
11 |
|
|
$ |
2,989 |
|
Government-sponsored enterprises |
|
|
429 |
|
|
|
52,647 |
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
93 |
|
|
|
4,989 |
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
2 |
|
|
|
218 |
|
|
|
|
|
|
|
|
|
Private label |
|
|
8 |
|
|
|
493 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
793 |
|
|
|
74,094 |
|
|
|
11 |
|
|
|
2,989 |
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
|
193 |
|
|
|
3,794 |
|
|
|
53 |
|
|
|
492 |
|
Money market mutual funds |
|
|
17 |
|
|
|
972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
210 |
|
|
|
4,766 |
|
|
|
53 |
|
|
|
492 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
$ |
1,003 |
|
|
$ |
78,860 |
|
|
$ |
64 |
|
|
$ |
3,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than Twelve Months |
|
|
Over Twelve Months |
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
(In thousands) |
|
Losses |
|
|
Value |
|
|
Losses |
|
|
Value |
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds financial services |
|
$ |
213 |
|
|
$ |
18,533 |
|
|
$ |
53 |
|
|
$ |
5,947 |
|
Government-sponsored enterprises |
|
|
239 |
|
|
|
25,254 |
|
|
|
|
|
|
|
|
|
Municipal bonds |
|
|
100 |
|
|
|
4,983 |
|
|
|
|
|
|
|
|
|
Residential mortgage-backed securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Government-sponsored enterprises |
|
|
10 |
|
|
|
271 |
|
|
|
|
|
|
|
|
|
Private label |
|
|
90 |
|
|
|
1,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities |
|
|
652 |
|
|
|
50,974 |
|
|
|
53 |
|
|
|
5,947 |
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks |
|
|
86 |
|
|
|
2,556 |
|
|
|
89 |
|
|
|
735 |
|
Money market mutual funds |
|
|
15 |
|
|
|
968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities |
|
|
101 |
|
|
|
3,524 |
|
|
|
89 |
|
|
|
735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired securities |
|
$ |
753 |
|
|
$ |
54,498 |
|
|
$ |
142 |
|
|
$ |
6,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company determined no securities were other-than-temporarily impaired for the three months
ended March 31, 2011. Management evaluates 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.
As of March 31, 2011, the net unrealized gain on the total debt securities portfolio was $7.9
million. At March 31, 2011, 53 debt securities had unrealized losses with aggregate depreciation of
1.0% from the Companys amortized cost basis. In analyzing a debt issuers financial condition,
management considers whether the securities are issued by the federal government or its agencies,
whether downgrades by bond rating agencies have occurred, industry analysts reports and, to a
lesser extent given the relatively insignificant levels of depreciation in the Companys debt
portfolio, spread differentials between the effective rates on instruments in the portfolio
compared to risk-free rates. The unrealized losses are primarily caused by (a) recent declines in
profitability and near-term profit forecasts by industry analysts resulting from a decline in the
level of business activity and (b) recent downgrades by several industry analysts. The contractual
terms of these investments do not permit the companies to settle the security at a price less than
the par value of the investment. The Company currently does not believe it is probable that it will
be unable to collect all amounts due according to the contractual terms of the investments.
Therefore, it is expected that the bonds would not be settled at a price less than the par value of
the investment. Because (1) the Company does not intend to sell the securities; (2) the Company
does not believe it is more likely than not that the Company will be required to sell the
securities before recovery of its amortized cost basis; and (3) the present value of expected cash
flows is sufficient to recover the entire amortized cost basis of the securities, the Company does
not consider these investments to be other-than-temporarily impaired at March 31, 2011.
As of March 31, 2011, the net unrealized gain on the total equity portfolio was $5.2 million.
At March 31, 2011, 12 marketable equity securities had unrealized losses with aggregate
depreciation of 4.7% from the Companys cost basis. Although the issuers have shown declines in
earnings as a result of the weakened economy, no credit issues have been identified that cause
management to believe the decline in market value is other than temporary, and the Company has the
ability and intent to hold these investments until a recovery of fair value. In analyzing an equity
issuers financial condition, management considers industry analysts reports, financial
performance and projected target prices of investment analysts within a one-year time frame. A
decline of 10% or more in the value of an acquired equity security is generally the triggering
event for management to review individual securities for liquidation and/or classification as
other-than-temporarily impaired. Impairment losses are recognized when management concludes that
declines in the value of equity securities are other than temporary, or when they can no longer
assert that they have the intent and ability to hold depreciated equity securities for a period of
time sufficient to allow for any anticipated recovery in fair value. Unrealized losses on
marketable equity securities that are in excess of 25% of cost and that have been sustained for
more than twelve months are generally considered-other-than temporary and charged to earnings as
impairment losses, or realized through sale of the security.
15
5. LOANS
The Companys loan portfolio consists primarily of residential real estate, commercial real
estate, construction, commercial and consumer segments. The residential real estate loans include
classes for one-to four-family, multi-family and home equity lines of credit. There are no foreign
loans outstanding. Interest rates charged on loans are affected principally by the demand for such
loans, the supply of money available for lending purposes and the rates offered by our competitors.
Loan detail by category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
(Dollars in thousands) |
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
390,832 |
|
|
|
32.7 |
% |
|
$ |
402,887 |
|
|
|
34.0 |
% |
Multi-family |
|
|
160,533 |
|
|
|
13.5 |
|
|
|
135,290 |
|
|
|
11.4 |
|
Home equity lines of credit |
|
|
62,666 |
|
|
|
5.3 |
|
|
|
62,750 |
|
|
|
5.3 |
|
Commercial real estate |
|
|
451,305 |
|
|
|
37.9 |
|
|
|
433,504 |
|
|
|
36.6 |
|
Construction |
|
|
87,756 |
|
|
|
7.4 |
|
|
|
113,142 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
1,153,092 |
|
|
|
96.8 |
|
|
|
1,147,573 |
|
|
|
96.9 |
|
Commercial business loans |
|
|
31,843 |
|
|
|
2.7 |
|
|
|
30,189 |
|
|
|
2.6 |
|
Consumer |
|
|
5,659 |
|
|
|
0.5 |
|
|
|
6,043 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
1,190,594 |
|
|
|
100.0 |
% |
|
|
1,183,805 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
|
(10,323 |
) |
|
|
|
|
|
|
(10,155 |
) |
|
|
|
|
Net deferred loan origination fees |
|
|
(84 |
) |
|
|
|
|
|
|
(88 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net |
|
$ |
1,180,187 |
|
|
|
|
|
|
$ |
1,173,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys accompanying balance sheets. The Company and participating lenders
share ratably in any gains or losses that may result from a borrowers lack of compliance with
contractual terms of the loan. The Company continues to service the loans on behalf of the
participating lenders and, as such, collects cash payments from the borrowers, remits payments to
participating lenders and disburses required escrow funds to relevant parties. At March 31, 2011
and December 31, 2010, the Company was servicing loans for participants aggregating $23.1 million
and $22.5 million, respectively.
As a result of the Mt. Washington Co-operative Bank (Mt. Washington) acquisition in January
2010, the Company acquired loans at fair value of $345.3 million. Included in this amount was $27.7
million of loans with evidence of deterioration of credit quality since origination for which it
was probable, at the time of the acquisition, that the Company would be unable to collect all
contractually required payments receivable. The Companys evaluation of loans with evidence of
credit deterioration as of the acquisition date resulted in a nonaccretable discount of $7.6
million, which is defined as the loans contractually required payments receivable in excess of the
amount of its cash flows expected to be collected. The Company considered factors such as payment
history, collateral values, and accrual status when determining whether there was evidence of
deterioration of the loans credit quality at the acquisition date.
16
The following is a summary of the outstanding balance of the acquired loans with evidence
of credit deterioration:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
Residential real estate: |
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
9,027 |
|
|
$ |
10,685 |
|
Multi-family |
|
|
2,109 |
|
|
|
2,120 |
|
Home equity lines of credit |
|
|
393 |
|
|
|
667 |
|
Commercial real estate |
|
|
3,586 |
|
|
|
4,769 |
|
Construction |
|
|
2,426 |
|
|
|
2,361 |
|
|
|
|
|
|
|
|
Total mortgage loans on real estate |
|
|
17,541 |
|
|
|
20,602 |
|
|
|
|
|
|
|
|
Other loans: |
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
106 |
|
|
|
111 |
|
Consumer |
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
111 |
|
|
|
116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding principal balance |
|
|
17,652 |
|
|
|
20,718 |
|
Nonaccretable discount |
|
|
(3,870 |
) |
|
|
(4,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amount |
|
$ |
13,782 |
|
|
$ |
16,502 |
|
|
|
|
|
|
|
|
Changes in the allowance for loan losses during the periods indicated were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three Months Ended March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
Home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to |
|
|
Multi- |
|
|
equity lines |
|
|
Commercial |
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
four-family |
|
|
family |
|
|
of credit |
|
|
real estate |
|
|
Construction |
|
|
business |
|
|
Consumer |
|
|
Unallocated |
|
|
Total |
|
Beginning Balance |
|
$ |
1,130 |
|
|
$ |
1,038 |
|
|
$ |
227 |
|
|
$ |
5,238 |
|
|
$ |
2,042 |
|
|
$ |
448 |
|
|
$ |
32 |
|
|
$ |
|
|
|
$ |
10,155 |
|
Provision for loan loss |
|
|
50 |
|
|
|
233 |
|
|
|
(24 |
) |
|
|
812 |
|
|
|
(806 |
) |
|
|
63 |
|
|
|
14 |
|
|
|
|
|
|
|
342 |
|
Charge-offs |
|
|
(104 |
) |
|
|
|
|
|
|
(27 |
) |
|
|
(74 |
) |
|
|
(194 |
) |
|
|
(19 |
) |
|
|
(30 |
) |
|
|
|
|
|
|
(448 |
) |
Recoveries |
|
|
2 |
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
254 |
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
1,078 |
|
|
$ |
1,273 |
|
|
$ |
177 |
|
|
$ |
5,976 |
|
|
$ |
1,296 |
|
|
$ |
492 |
|
|
$ |
31 |
|
|
$ |
|
|
|
$ |
10,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of allowance for loan losses for
loans deemed to be impaired |
|
$ |
12 |
|
|
$ |
|
|
|
$ |
8 |
|
|
$ |
59 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
79 |
|
Amount of allowance for loan losses for
loans not deemed to be impaired |
|
|
1,066 |
|
|
|
1,273 |
|
|
|
169 |
|
|
|
5,917 |
|
|
|
1,296 |
|
|
|
492 |
|
|
|
31 |
|
|
|
|
|
|
|
10,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,078 |
|
|
$ |
1,273 |
|
|
$ |
177 |
|
|
$ |
5,976 |
|
|
$ |
1,296 |
|
|
$ |
492 |
|
|
$ |
31 |
|
|
$ |
|
|
|
$ |
10,323 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of allowance for loan losses for
loans acquired with deteriored credit
quality included above |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans deemed to be impaired
as of March 31, 2011 |
|
$ |
3,836 |
|
|
$ |
4,393 |
|
|
$ |
125 |
|
|
$ |
13,842 |
|
|
$ |
25,871 |
|
|
$ |
59 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
48,126 |
|
Loans not deemed to be impaired
as of March 31, 2011 |
|
|
386,996 |
|
|
|
156,140 |
|
|
|
62,541 |
|
|
|
437,463 |
|
|
|
61,885 |
|
|
|
31,784 |
|
|
|
5,659 |
|
|
|
|
|
|
|
1,142,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
390,832 |
|
|
$ |
160,533 |
|
|
$ |
62,666 |
|
|
$ |
451,305 |
|
|
$ |
87,756 |
|
|
$ |
31,843 |
|
|
$ |
5,659 |
|
|
$ |
|
|
|
$ |
1,190,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
Amount of allowance for loan losses for
loans deemed to be impaired |
|
$ |
37 |
|
|
$ |
|
|
|
$ |
8 |
|
|
$ |
38 |
|
|
$ |
18 |
|
|
$ |
19 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
120 |
|
Amount of allowance for loan losses for
loans not deemed to be impaired |
|
|
1,093 |
|
|
|
1,038 |
|
|
|
219 |
|
|
|
5,200 |
|
|
|
2,024 |
|
|
|
429 |
|
|
|
32 |
|
|
|
|
|
|
|
10,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,130 |
|
|
$ |
1,038 |
|
|
$ |
227 |
|
|
$ |
5,238 |
|
|
$ |
2,042 |
|
|
$ |
448 |
|
|
$ |
32 |
|
|
$ |
|
|
|
$ |
10,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of allowance for loan losses for
loans acquired with deteriored credit
quality as of December 31, 2010 |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans deemed to be impaired
as of December 31, 2010 |
|
$ |
4,200 |
|
|
$ |
3,732 |
|
|
$ |
125 |
|
|
$ |
11,794 |
|
|
$ |
18,474 |
|
|
$ |
186 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
38,511 |
|
Loans not deemed to be impaired
as of December 31, 2010 |
|
|
398,687 |
|
|
|
131,558 |
|
|
|
62,625 |
|
|
|
421,710 |
|
|
|
94,668 |
|
|
|
30,003 |
|
|
|
6,043 |
|
|
|
|
|
|
|
1,145,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
402,887 |
|
|
$ |
135,290 |
|
|
$ |
62,750 |
|
|
$ |
433,504 |
|
|
$ |
113,142 |
|
|
$ |
30,189 |
|
|
$ |
6,043 |
|
|
$ |
|
|
|
$ |
1,183,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Three Months Ended March 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
Home |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to |
|
|
Multi- |
|
|
equity lines |
|
|
Commercial |
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
four-family |
|
|
family |
|
|
of credit |
|
|
real estate |
|
|
Construction |
|
|
business |
|
|
Consumer |
|
|
Unallocated |
|
|
Total |
|
Beginning Balance |
|
$ |
1,730 |
|
|
$ |
467 |
|
|
$ |
128 |
|
|
$ |
4,435 |
|
|
$ |
1,859 |
|
|
$ |
586 |
|
|
$ |
37 |
|
|
$ |
|
|
|
$ |
9,242 |
|
Provision for loan loss |
|
|
179 |
|
|
|
451 |
|
|
|
1 |
|
|
|
434 |
|
|
|
527 |
|
|
|
(329 |
) |
|
|
111 |
|
|
|
|
|
|
|
1,374 |
|
Charge-offs |
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(21 |
) |
|
|
|
|
|
|
(22 |
) |
Recoveries |
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
$ |
1,931 |
|
|
$ |
918 |
|
|
$ |
129 |
|
|
$ |
4,869 |
|
|
$ |
2,386 |
|
|
$ |
257 |
|
|
$ |
139 |
|
|
$ |
|
|
|
$ |
10,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of allowance for loan losses for
loans deemed to be impaired |
|
$ |
576 |
|
|
$ |
11 |
|
|
$ |
|
|
|
$ |
195 |
|
|
$ |
320 |
|
|
$ |
60 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,162 |
|
Amount of allowance for loan losses for
loans not deemed to be impaired |
|
|
1,355 |
|
|
|
907 |
|
|
|
129 |
|
|
|
4,674 |
|
|
|
2,066 |
|
|
|
197 |
|
|
|
139 |
|
|
|
|
|
|
|
9,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,931 |
|
|
$ |
918 |
|
|
$ |
129 |
|
|
$ |
4,869 |
|
|
$ |
2,386 |
|
|
$ |
257 |
|
|
$ |
139 |
|
|
$ |
|
|
|
$ |
10,629 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of allowance for loan losses for
loans acquired with deteriored credit
quality included above |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans deemed to be impaired
as of March 31, 2010 |
|
$ |
3,535 |
|
|
$ |
2,862 |
|
|
$ |
100 |
|
|
$ |
7,382 |
|
|
$ |
15,176 |
|
|
$ |
4 |
|
|
$ |
4 |
|
|
$ |
|
|
|
$ |
29,063 |
|
Loans not deemed to be impaired
as of March 31, 2010 |
|
|
422,801 |
|
|
|
119,005 |
|
|
|
72,797 |
|
|
|
367,414 |
|
|
|
105,989 |
|
|
|
28,817 |
|
|
|
7,791 |
|
|
|
|
|
|
|
1,124,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
426,336 |
|
|
$ |
121,867 |
|
|
$ |
72,897 |
|
|
$ |
374,796 |
|
|
$ |
121,165 |
|
|
$ |
28,821 |
|
|
$ |
7,795 |
|
|
$ |
|
|
|
$ |
1,153,677 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the breakdown of the allowance for loan losses by loan category
at the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
Loans in |
|
|
|
|
|
|
% of |
|
|
Loans in |
|
|
|
|
|
|
|
Allowance |
|
|
Category |
|
|
|
|
|
|
Allowance |
|
|
Category |
|
|
|
|
|
|
|
to Total |
|
|
of Total |
|
|
|
|
|
|
to Total |
|
|
of Total |
|
(Dollars in thousands) |
|
Amount |
|
|
Allowance |
|
|
Loans |
|
|
Amount |
|
|
Allowance |
|
|
Loans |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
1,078 |
|
|
|
10.4 |
% |
|
|
32.7 |
% |
|
$ |
1,130 |
|
|
|
11.1 |
% |
|
|
34.0 |
% |
Multi-family |
|
|
1,273 |
|
|
|
12.3 |
|
|
|
13.5 |
|
|
|
1,038 |
|
|
|
10.2 |
|
|
|
11.4 |
|
Home equity lines of credit |
|
|
177 |
|
|
|
1.7 |
|
|
|
5.3 |
|
|
|
227 |
|
|
|
2.2 |
|
|
|
5.3 |
|
Commercial real estate |
|
|
5,976 |
|
|
|
57.9 |
|
|
|
37.9 |
|
|
|
5,238 |
|
|
|
51.7 |
|
|
|
36.6 |
|
Construction |
|
|
1,296 |
|
|
|
12.6 |
|
|
|
7.4 |
|
|
|
2,042 |
|
|
|
20.1 |
|
|
|
9.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
9,800 |
|
|
|
94.9 |
|
|
|
96.8 |
|
|
|
9,675 |
|
|
|
95.3 |
|
|
|
96.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
492 |
|
|
|
4.8 |
|
|
|
2.7 |
|
|
|
448 |
|
|
|
4.4 |
|
|
|
2.6 |
|
Consumer |
|
|
31 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
32 |
|
|
|
0.3 |
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
$ |
10,323 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
$ |
10,155 |
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance to non-accrual loans |
|
|
20.32 |
% |
|
|
|
|
|
|
|
|
|
|
23.54 |
% |
|
|
|
|
|
|
|
|
Allowance to total loans outstanding |
|
|
0.87 |
% |
|
|
|
|
|
|
|
|
|
|
0.86 |
% |
|
|
|
|
|
|
|
|
Net charge-offs to average loans
outstanding (annualized) |
|
|
0.06 |
% |
|
|
|
|
|
|
|
|
|
|
0.19 |
% |
|
|
|
|
|
|
|
|
18
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, whereby an
allowance is established when the discounted cash flows, collateral value or observable market
price of the impaired loan is lower than the carrying value of that loan
The following table provides information about delinquencies in the Companys loan portfolio
at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
30-59 |
|
|
60-89 |
|
|
90 Days |
|
|
|
|
|
|
30-59 |
|
|
60-89 |
|
|
90 Days |
|
|
|
|
|
|
Days |
|
|
Days |
|
|
or Greater |
|
|
Total |
|
|
Days |
|
|
Days |
|
|
or Greater |
|
|
Total |
|
(In thousands) |
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
4,378 |
|
|
$ |
679 |
|
|
$ |
4,878 |
|
|
$ |
9,935 |
|
|
$ |
4,434 |
|
|
$ |
799 |
|
|
$ |
7,400 |
|
|
$ |
12,633 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
710 |
|
|
|
710 |
|
|
|
2,630 |
|
|
|
|
|
|
|
860 |
|
|
|
3,490 |
|
Home equity lines of credit |
|
|
954 |
|
|
|
186 |
|
|
|
1,156 |
|
|
|
2,296 |
|
|
|
1,129 |
|
|
|
322 |
|
|
|
1,769 |
|
|
|
3,220 |
|
Commercial real estate |
|
|
616 |
|
|
|
541 |
|
|
|
2,154 |
|
|
|
3,311 |
|
|
|
1,265 |
|
|
|
534 |
|
|
|
2,735 |
|
|
|
4,534 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
11,822 |
|
|
|
11,822 |
|
|
|
|
|
|
|
|
|
|
|
6,969 |
|
|
|
6,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
5,948 |
|
|
|
1,406 |
|
|
|
20,720 |
|
|
|
28,074 |
|
|
|
9,458 |
|
|
|
1,655 |
|
|
|
19,733 |
|
|
|
30,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
617 |
|
|
|
164 |
|
|
|
437 |
|
|
|
1,218 |
|
|
|
15 |
|
|
|
48 |
|
|
|
385 |
|
|
|
448 |
|
Consumer |
|
|
364 |
|
|
|
179 |
|
|
|
|
|
|
|
543 |
|
|
|
293 |
|
|
|
245 |
|
|
|
5 |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,929 |
|
|
$ |
1,749 |
|
|
$ |
21,157 |
|
|
$ |
29,835 |
|
|
$ |
9,766 |
|
|
$ |
1,948 |
|
|
$ |
20,123 |
|
|
$ |
31,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table provides information with respect to the Companys non-performing
assets at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2011 |
|
|
2010 |
|
Loans accounted for on a non-accrual basis: |
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
One-to four family |
|
$ |
11,737 |
|
|
$ |
11,529 |
|
Multi-family |
|
|
4,158 |
|
|
|
2,246 |
|
Home equity lines of credit |
|
|
2,484 |
|
|
|
2,408 |
|
Commercial real estate |
|
|
9,535 |
|
|
|
11,290 |
|
Construction |
|
|
22,852 |
|
|
|
15,326 |
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
50,766 |
|
|
|
42,799 |
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
44 |
|
|
|
335 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans |
|
|
50,810 |
|
|
|
43,134 |
|
|
|
|
|
|
|
|
|
|
Foreclosed assets |
|
|
4,966 |
|
|
|
4,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
55,776 |
|
|
$ |
47,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans |
|
|
4.27 |
% |
|
|
3.64 |
% |
Non-performing loans to total assets |
|
|
2.67 |
% |
|
|
2.35 |
% |
Non-performing assets to total assets |
|
|
2.93 |
% |
|
|
2.57 |
% |
19
The following tables provide information with respect to the Companys impaired loans at the
dates and for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2011 |
|
|
|
March 31, 2011 |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
Income |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
Recognized |
|
(In thousands) |
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
|
on Cash Basis |
|
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
3,104 |
|
|
$ |
3,104 |
|
|
$ |
|
|
|
$ |
3,274 |
|
|
$ |
59 |
|
|
$ |
47 |
|
Multi-family |
|
|
4,393 |
|
|
|
4,393 |
|
|
|
|
|
|
|
4,063 |
|
|
|
152 |
|
|
|
145 |
|
Home equity lines of credit |
|
|
100 |
|
|
|
100 |
|
|
|
|
|
|
|
100 |
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
7,327 |
|
|
|
7,444 |
|
|
|
|
|
|
|
6,347 |
|
|
|
182 |
|
|
|
136 |
|
Construction |
|
|
25,009 |
|
|
|
25,871 |
|
|
|
|
|
|
|
21,647 |
|
|
|
660 |
|
|
|
443 |
|
Commercial business loans |
|
|
59 |
|
|
|
59 |
|
|
|
|
|
|
|
113 |
|
|
|
13 |
|
|
|
13 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
39,992 |
|
|
|
40,971 |
|
|
|
|
|
|
|
35,544 |
|
|
|
1,066 |
|
|
|
784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
|
720 |
|
|
|
732 |
|
|
|
12 |
|
|
|
720 |
|
|
|
11 |
|
|
|
9 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home equity lines of credit |
|
|
16 |
|
|
|
25 |
|
|
|
8 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
6,299 |
|
|
|
6,398 |
|
|
|
59 |
|
|
|
6,344 |
|
|
|
104 |
|
|
|
71 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
8 |
|
|
|
|
|
Commercial business loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
7,035 |
|
|
|
7,155 |
|
|
|
79 |
|
|
|
7,167 |
|
|
|
123 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
47,027 |
|
|
$ |
48,126 |
|
|
$ |
79 |
|
|
$ |
42,711 |
|
|
$ |
1,189 |
|
|
$ |
864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2010 |
|
|
|
December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
|
|
Unpaid |
|
|
|
|
|
|
Average |
|
|
Interest |
|
|
Income |
|
|
|
Recorded |
|
|
Principal |
|
|
Related |
|
|
Recorded |
|
|
Income |
|
|
Recognized |
|
(In thousands) |
|
Investment |
|
|
Balance |
|
|
Allowance |
|
|
Investment |
|
|
Recognized |
|
|
on Cash Basis |
|
Impaired loans without a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
3,255 |
|
|
$ |
3,255 |
|
|
$ |
|
|
|
$ |
2,295 |
|
|
$ |
41 |
|
|
$ |
28 |
|
Multi-family |
|
|
3,732 |
|
|
|
3,732 |
|
|
|
|
|
|
|
4,755 |
|
|
|
128 |
|
|
|
83 |
|
Home equity lines of credit |
|
|
100 |
|
|
|
100 |
|
|
|
|
|
|
|
118 |
|
|
|
2 |
|
|
|
5 |
|
Commercial real estate |
|
|
6,494 |
|
|
|
6,578 |
|
|
|
|
|
|
|
852 |
|
|
|
23 |
|
|
|
7 |
|
Construction |
|
|
17,422 |
|
|
|
18,285 |
|
|
|
|
|
|
|
14,669 |
|
|
|
259 |
|
|
|
173 |
|
Commercial business loans |
|
|
167 |
|
|
|
167 |
|
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
31,170 |
|
|
|
32,117 |
|
|
|
|
|
|
|
22,694 |
|
|
|
454 |
|
|
|
297 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans with a valuation allowance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
|
908 |
|
|
|
945 |
|
|
|
37 |
|
|
|
1,897 |
|
|
|
33 |
|
|
|
29 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
796 |
|
|
|
12 |
|
|
|
10 |
|
Home equity lines of credit |
|
|
17 |
|
|
|
25 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial real estate |
|
|
5,178 |
|
|
|
5,216 |
|
|
|
38 |
|
|
|
2,839 |
|
|
|
77 |
|
|
|
39 |
|
Construction |
|
|
171 |
|
|
|
189 |
|
|
|
18 |
|
|
|
742 |
|
|
|
14 |
|
|
|
|
|
Commercial business loans |
|
|
|
|
|
|
19 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
6,274 |
|
|
|
6,394 |
|
|
|
120 |
|
|
|
6,274 |
|
|
|
136 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total impaired loans |
|
$ |
37,444 |
|
|
$ |
38,511 |
|
|
$ |
120 |
|
|
$ |
28,968 |
|
|
$ |
590 |
|
|
$ |
375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
The Company utilizes a nine grade internal loan rating system for multi-family,
commercial real estate, construction and commercial loans as follows:
|
|
|
Loans rated 1, 2, 3 and 3A: Loans in these categories are considered pass rated loans
with low to average risk. |
|
|
|
Loans rated 4 and 4A: Loans in this category are considered special mention. These
loans are starting to show signs of potential weakness and are being closely monitored by
management. |
|
|
|
Loans rated 5: Loans in this category are considered substandard. Generally, a loan is
considered substandard if it is inadequately protected by the current net worth and paying
capacity of the obligors and/or the collateral pledged. There is a distinct possibility that
the Company will sustain some loss if the weakness is not corrected. |
|
|
|
Loans rated 6: 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 7: 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 all
multi-family, commercial real estate, construction and commercial loans. The Company also engages
an independent third-party to review a significant portion of loans within these segments on at
least an annual basis. Management uses the results of these reviews as part of its annual review
process.
The following tables provide information with respect to the Companys risk rating at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
residential |
|
|
Commercial |
|
|
|
|
|
|
Commercial |
|
(In thousands) |
|
real estate |
|
|
real estate |
|
|
Construction |
|
|
business |
|
Loans rated 1 - 4 |
|
$ |
152,847 |
|
|
$ |
443,338 |
|
|
$ |
68,916 |
|
|
$ |
31,543 |
|
Loans rated 5 |
|
|
7,686 |
|
|
|
7,967 |
|
|
|
18,840 |
|
|
|
300 |
|
Loans rated 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans rated 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
160,533 |
|
|
$ |
451,305 |
|
|
$ |
87,756 |
|
|
$ |
31,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010 |
|
|
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
|
|
|
residential |
|
|
Commercial |
|
|
|
|
|
|
Commercial |
|
(In thousands) |
|
real estate |
|
|
real estate |
|
|
Construction |
|
|
business |
|
Loans rated 1 - 4 |
|
$ |
132,176 |
|
|
$ |
425,010 |
|
|
$ |
93,092 |
|
|
$ |
29,872 |
|
Loans rated 5 |
|
|
3,114 |
|
|
|
8,494 |
|
|
|
20,050 |
|
|
|
317 |
|
Loans rated 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans rated 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
135,290 |
|
|
$ |
433,504 |
|
|
$ |
113,142 |
|
|
$ |
30,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Managements discussion and analysis of the financial condition and results of operations is
intended to assist in understanding the financial condition and results of operations of Meridian
Interstate Bancorp. The following discussion should be read in conjunction with the consolidated
financial statements, notes and tables included in the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2010, filed with the Securities and Exchange Commission.
Forward Looking Statements
This report contains forward-looking statements that are based on assumptions and may describe
future plans, strategies and expectations of Meridian Interstate Bancorp. These forward-looking
statements are generally identified by use of the words believe, expect, intend,
anticipate, estimate, project or similar expressions. Meridian Interstate Bancorps ability
to predict results or the actual effect of future plans or strategies is inherently uncertain.
Factors which could have a material adverse effect on the operations of Meridian Interstate Bancorp
and its subsidiaries include, but are not limited to:
|
|
|
general economic conditions, either nationally or in our market area, that are worse than
expected; |
|
|
|
inflation and changes in the interest rate environment that reduce our interest margins
or reduce the fair value of financial instruments; |
|
|
|
increased competitive pressures among financial services companies; |
|
|
|
changes in consumer spending, borrowing and savings habits; |
|
|
|
our ability to enter new markets successfully and take advantage of growth opportunities,
and the possible dilutive effect of potential acquisitions or de novo branches, if any; |
|
|
|
legislative or regulatory changes that adversely affect our business; |
|
|
|
adverse changes in the securities markets; |
|
|
|
changes in accounting policies and practices, as may be adopted by the bank regulatory
agencies, the Financial Accounting Standards Board or the Securities and Exchange
Commission; |
|
|
|
inability of third-party providers to perform their obligations to us; and |
|
|
|
changes in our organization, compensation and benefit plans. |
Managements ability to predict results or the effect of future plans or strategies is
inherently uncertain. These factors include, but are not limited to, general economic conditions,
changes in the interest rate environment, legislative or regulatory changes that may adversely
affect our business, changes in accounting policies and practices, changes in competition and
demand for financial services, adverse changes in the securities markets and changes in the quality
or composition of Meridian Interstate Bancorps loan or investment portfolios. Additional factors
that may affect our results are discussed in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2010 filed with the Securities and Exchange Commission on March 16, 2011, under
Risk Factors, which is available through the SECs 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 as
required by applicable law or regulation, Meridian Interstate Bancorp 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.
22
Critical Accounting Policies
The Companys summary of significant accounting policies are described in Note 1 to the
Consolidated Financial Statements included in the 2010 Annual Report on Form 10-K for the year
ended December 31, 2010. The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Actual results could
differ from those estimates. Management has identified accounting for the allowance for loan
losses, the valuation of goodwill and analysis for impairment, other-than-temporary impairment of
securities and the valuation of deferred tax assets and foreclosed real estate as the Companys
critical accounting policies.
Comparison of Financial Condition at March 31, 2011 and December 31, 2010
Assets
Total assets increased $64.9 million, or 3.5%, to $1.901 billion at March 31, 2011 from $1.836
billion at December 31, 2010. Cash and cash equivalents increased $31.8 million, or 20.4% to
$187.3 million at March 31, 2011 from $155.5 million at December 31, 2010. Securities available
for sale increased $34.4 million, or 9.5%, to $395.0 million at March 31, 2011 from $360.6 million
at December 31, 2010. Net loans increased $6.6 million, or 0.6%, to $1.180 billion at March 31,
2011 from $1.174 billion at December 31, 2010.
Asset Quality
Credit Risk Management
Our strategy for credit risk involves management to focus on having well-defined credit
policies and uniform underwriting criteria and providing prompt attention to potential problem
loans.
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
The following table provides information about delinquencies in our loan portfolio at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
30-59 |
|
|
60-89 |
|
|
90 Days |
|
|
|
|
|
|
30-59 |
|
|
60-89 |
|
|
90 Days |
|
|
|
|
|
|
Days |
|
|
Days |
|
|
or Greater |
|
|
Total |
|
|
Days |
|
|
Days |
|
|
or Greater |
|
|
Total |
|
(In thousands) |
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
|
Past Due |
|
Real estate loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
4,378 |
|
|
$ |
679 |
|
|
$ |
4,878 |
|
|
$ |
9,935 |
|
|
$ |
4,434 |
|
|
$ |
799 |
|
|
$ |
7,400 |
|
|
$ |
12,633 |
|
Multi-family |
|
|
|
|
|
|
|
|
|
|
710 |
|
|
|
710 |
|
|
|
2,630 |
|
|
|
|
|
|
|
860 |
|
|
|
3,490 |
|
Home equity lines of credit |
|
|
954 |
|
|
|
186 |
|
|
|
1,156 |
|
|
|
2,296 |
|
|
|
1,129 |
|
|
|
322 |
|
|
|
1,769 |
|
|
|
3,220 |
|
Commercial real estate |
|
|
616 |
|
|
|
541 |
|
|
|
2,154 |
|
|
|
3,311 |
|
|
|
1,265 |
|
|
|
534 |
|
|
|
2,735 |
|
|
|
4,534 |
|
Construction |
|
|
|
|
|
|
|
|
|
|
11,822 |
|
|
|
11,822 |
|
|
|
|
|
|
|
|
|
|
|
6,969 |
|
|
|
6,969 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
5,948 |
|
|
|
1,406 |
|
|
|
20,720 |
|
|
|
28,074 |
|
|
|
9,458 |
|
|
|
1,655 |
|
|
|
19,733 |
|
|
|
30,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
617 |
|
|
|
164 |
|
|
|
437 |
|
|
|
1,218 |
|
|
|
15 |
|
|
|
48 |
|
|
|
385 |
|
|
|
448 |
|
Consumer |
|
|
364 |
|
|
|
179 |
|
|
|
|
|
|
|
543 |
|
|
|
293 |
|
|
|
245 |
|
|
|
5 |
|
|
|
543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,929 |
|
|
$ |
1,749 |
|
|
$ |
21,157 |
|
|
$ |
29,835 |
|
|
$ |
9,766 |
|
|
$ |
1,948 |
|
|
$ |
20,123 |
|
|
$ |
31,837 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Delinquent loans at March 31, 2011 included $11.7 million of loans acquired in the Mt.
Washington merger, including $4.5 million that were 30 to 59 days past due, $839,000 that were 60
to 89 days past due and $6.4 million that were 90 days or more past due. At March 31, 2011,
non-accrual loans exceed loans 90 days or more 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.
Non-performing Assets
Non-performing assets include loans that are 90 or more days past due or on non-accrual status
and real estate and other loan collateral acquired through foreclosure and repossession. Loans 90
days or more past due may remain on an accrual basis if adequately collateralized and in the
process of collection. At March 31, 2011, the Company did not have any accruing loans past due 90
days or more. 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. Interest income is not
recognized until the loan is returned to accrual status. Loans are returned to accrual status when
all the principal and interest amounts contractually due are brought current and future payments
are reasonably assured.
Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as foreclosed real estate until it is sold. When property is acquired, it is initially
recorded at the fair value less 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 following table provides information with respect to our non-performing assets at the
dates indicated.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(Dollars in thousands) |
|
2011 |
|
|
2010 |
|
Loans accounted for on a non-accrual basis: |
|
|
|
|
|
|
|
|
Real estate loans: |
|
|
|
|
|
|
|
|
Residential real estate: |
|
|
|
|
|
|
|
|
One-to four family |
|
$ |
11,737 |
|
|
$ |
11,529 |
|
Multi-family |
|
|
4,158 |
|
|
|
2,246 |
|
Home equity lines of credit |
|
|
2,484 |
|
|
|
2,408 |
|
Commercial real estate |
|
|
9,535 |
|
|
|
11,290 |
|
Construction |
|
|
22,852 |
|
|
|
15,326 |
|
|
|
|
|
|
|
|
Total real estate loans |
|
|
50,766 |
|
|
|
42,799 |
|
|
|
|
|
|
|
|
|
|
Commercial business loans |
|
|
44 |
|
|
|
335 |
|
Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-accrual loans |
|
|
50,810 |
|
|
|
43,134 |
|
|
|
|
|
|
|
|
|
|
Foreclosed assets |
|
|
4,966 |
|
|
|
4,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets |
|
$ |
55,776 |
|
|
$ |
47,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans |
|
|
4.27 |
% |
|
|
3.64 |
% |
Non-performing loans to total assets |
|
|
2.67 |
% |
|
|
2.35 |
% |
Non-performing assets to total assets |
|
|
2.93 |
% |
|
|
2.57 |
% |
Non-performing loans increased to $50.8 million, or 4.27% of total loans outstanding at March
31, 2011, from $43.1 million, or 3.64% of total loans outstanding at December 31, 2010 primarily
due to an increase of $7.5 million in non-accrual construction loans and $1.9 million in
non-accrual multi-family loans. Non-performing assets increased to $55.8 million, or 2.93% of
total assets, at March 31, 2011, from $47.2 million, or 2.57% of total assets, at December 31,
2010. Non-performing assets at March 31, 2011 included $16.2 million acquired in the Mt.
Washington merger, comprised of $13.2 million of non-performing loans and $3.0 million of
foreclosed real estate. Interest income that would have been recorded for the three months ended
March 31, 2011 had nonaccruing loans and accruing loans past due 90 days or more been current
according to their original terms amounted to $524,000 as compared to $734,000 for the three months
ended March 31, 2010.
24
Impaired Loans
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 loans effective
interest rate, the loans obtainable market price, or the fair value of the collateral if the loan
is collateral dependent.
Large groups of smaller balance homogeneous loans are collectively evaluated for impairment.
Accordingly, we do not separately identify individual one-to four-family residential and consumer
loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring
(TDR). The Company 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.
We review residential and commercial loans for impairment based on the fair value of
collateral, if collateral-dependent, or expected cash flows. Management has reviewed the collateral
value for all impaired and non-accrual loans that were collateral-dependent as of March 31, 2011
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, internal valuations
are completed by our in-house appraiser who is a Massachusetts certified residential
appraiser. We obtain third party appraisals, which are generally the basis for charge-offs
when a loss is indicated, prior to the foreclosure sale. We generally are able to complete
the foreclosure process within nine to 12 months from receipt of the internal valuation. |
|
|
|
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
managements 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 every 180 days 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. |
Troubled Debt Restructurings
In the course of resolving non-performing loans, the Bank 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 troubled debt restructure if, for
reasons related to the debtors financial difficulties, a concession is granted to the debtor that
would not otherwise be considered.
25
The following table summarizes the Companys TDRs at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
TDRs on accrual status: |
|
|
|
|
|
|
|
|
One-to four-family |
|
$ |
659 |
|
|
$ |
1,289 |
|
|
|
|
|
|
|
|
|
|
|
659 |
|
|
|
1,289 |
|
TDRs on non-accrual status: |
|
|
|
|
|
|
|
|
One-to four-family |
|
|
586 |
|
|
|
288 |
|
Multi-family |
|
|
3,448 |
|
|
|
|
|
Commercial real estate |
|
|
4,770 |
|
|
|
4,797 |
|
Construction |
|
|
5,032 |
|
|
|
3,487 |
|
|
|
|
|
|
|
|
|
|
|
13,836 |
|
|
|
8,572 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total TDRs |
|
$ |
14,495 |
|
|
$ |
9,861 |
|
|
|
|
|
|
|
|
The increase in multi-family TDRs during the first three months of 2011 was due to a $3.5
million loan which was originated to consolidate five loans of an existing six-loan relationship.
Of this amount, $375,000 was utilized to pay delinquent real estate taxes and other fees. The
restructure and consolidation of this relationship reflected a slight increase in the monthly
payment amount based on the combined monthly payment of the loans prior to consolidation and a
slight increase in the interest rate to 6.875% (previous blended rate was 6.60%). The interest rate
is equal to the Five Year Federal Home Loan Bank Advance Rate plus 275 basis points and the loan
term is 30 years. No charge offs have been incurred on this loan.
The increase in construction TDRs was due to a $1.9 million loan which was originated to
consolidate a two-loan relationship. The restructure and consolidation of this relationship
reflects a six month interest only balloon note with a fixed interest rate of 6% (a reduction of 50
basis points from the original loan). The Bank incurred charge offs totaling $194,000 on this loan
during the first three months of 2011.
Modifications of one-to four-family TDRs consist of either rate reductions, loan term
extensions or provisions for interest-only payments for specified periods up to 12 months. The
Company has generally been successful with the concessions it has offered to borrowers to date. The
Company generally returns TDRs to accrual status when they have sustained payments for six months
based on the restructured terms.
Potential Problem Loans
Certain loans are identified during the Companys loan review process that are currently
performing in accordance with their contractual terms and we 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. There were no potential problem loans identified at March 31, 2011 other
than those already classified as non-performing, impaired or troubled debt restructurings.
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 managements 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.
The Companys provision for loan losses was $342,000 for the three months ended March 31, 2011
compared to $1.4 million for the three months ended March 31, 2010. This change was based primarily
on managements assessment of loan portfolio growth and composition changes, an ongoing evaluation
of credit quality and current economic conditions. The allowance for loan losses was $10.3 million
or 0.87% of total loans outstanding at March 31, 2011, compared to $10.2 million, or 0.86% of total
loans outstanding at December 31, 2010. The Company continues to assess the adequacy of its
allowance for loan losses in accordance with established policies.
26
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
payment history of at least six 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 collectibility of principal or interest, even though the loan is currently
performing. Loan losses are charged against the allowance when we believe the uncollectibility of a
loan balance is confirmed, generally when appraised values (as adjusted values, if applicable) less
estimated costs to sell, are less than the Companys carrying values.
Although we believe that we use the best information available to establish the allowance for
loan losses, future adjustments to the allowance for loan losses may be necessary and our results
of operations could be adversely affected if circumstances differ substantially from the
assumptions used in making the determinations. Furthermore, while we believe we have established
our allowance for loan losses in conformity with generally accepted accounting principles in the
United States of America, there can be no assurance that regulators, in reviewing our loan
portfolio, will not require us to increase our allowance for loan losses. In addition, because
future events affecting borrowers and collateral cannot be predicted with certainty, there can be
no assurance that the existing allowance for loan losses is adequate or that increases will not be
necessary should the quality of any loans deteriorate as a result of the factors discussed above.
Any material increase in the allowance for loan losses may adversely affect our financial condition
and results of operations.
Deposits
Deposits are a major source of our funds for lending and other investment purposes. Deposit
inflows and outflows are significantly influenced by general interest rates and money market
conditions. Our deposit base is comprised of demand, NOW, money market, regular and other deposits,
and certificates of deposit. We consider demand, NOW, money market, and regular and other deposits
to be core deposits. At March 31, 2011, core deposits were 53.1% of total deposits. Deposits
increased $43.5 million, or 3.0%, to $1.499 billion at March 31, 2011 from $1.455 million at
December 31, 2010, primarily as a result of growth of $38.1 million in core deposits. The growth
for the quarter ended March 31, 2011 also reflects $18.2 million of new deposits in the two
branches opened in January 2011.
The following table summarizes the period end balance and the composition of deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011 |
|
|
December 31, 2010 |
|
|
|
|
|
|
|
Percent of |
|
|
|
|
|
|
Percent of |
|
(Dollars in thousands) |
|
Balance |
|
|
Total Deposits |
|
|
Balance |
|
|
Total Deposits |
|
Demand deposits |
|
$ |
115,988 |
|
|
|
7.7 |
% |
|
$ |
111,423 |
|
|
|
7.7 |
% |
NOW deposits |
|
|
127,848 |
|
|
|
8.5 |
|
|
|
134,677 |
|
|
|
9.3 |
|
Money market deposits |
|
|
354,947 |
|
|
|
23.7 |
|
|
|
323,619 |
|
|
|
22.2 |
|
Regular and other deposits |
|
|
197,191 |
|
|
|
13.2 |
|
|
|
188,178 |
|
|
|
12.9 |
|
Certificates of deposit |
|
|
702,713 |
|
|
|
46.9 |
|
|
|
697,318 |
|
|
|
47.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,498,687 |
|
|
|
100.0 |
% |
|
$ |
1,455,215 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
We use borrowings from the Federal Home Loan Bank of Boston to supplement our supply of funds
for loans and investments. In addition, we also purchase federal funds from local banking
institutions as an additional funding source for the Bank. At March 31, 2011, total borrowings
increased $9.2 million, or 6.2%, to $157.8 million at March 31, 2011 from $148.7 million at
December 31, 2010, reflecting a $9.5 million increase in short-term borrowings. At March 31, 2011
and December 31, 2010, FHLB advances totaled $136.4 million and $136.7 million, respectively, with
a weighted average rate of 2.63% at the end of each period. At March 31, 2011 and December 31,
2010, federal funds purchased totaled $21.5 million and $12.0 million, respectively, with a
weighted average rate of 0.20% at the end of each of the period. At March 31, 2011, we also had an
available line of credit of $9.4 million with the Federal Home Loan Bank of Boston at an interest
rate that adjusts daily, none of which was outstanding at that date.
27
Stockholders Equity
Total stockholders equity increased $2.7 million, or 1.3%, to $218.3 million at March 31,
2011, from $215.6 million at December 31, 2010. The increase was due primarily to $3.2 million in
net income partially offset by a $596,000 decrease in accumulated other comprehensive income
reflecting a decrease in the fair value of available for sale securities, net of tax. Stockholders
equity to assets was 11.49% at March 31, 2011, compared to 11.74% at December 31, 2010. Book value
per share increased to $9.72 at March 31, 2011 from $9.59 at December 31, 2010. Tangible book
value per share increased to $9.11 at March 31, 2011 from $8.98 at December 31, 2010. Market price
per share increased $2.26, or 19.2%, to $14.05 at March 31, 2011 from $11.79 at December 31, 2010.
At March 31, 2011, the Company and the Bank continued to exceed all regulatory capital
requirements.
28
Average Balance Sheets and Related Yields and Rates
The following table presents information regarding average balances of assets and liabilities,
the total dollar amounts of interest income and dividends from average interest-earning assets, the
total dollar amounts of interest expense on average interest-bearing liabilities and the resulting
annualized average yields and costs. The yields and costs for the periods indicated are derived by
dividing income or expense by the average balances of assets or liabilities, respectively, for the
periods presented. For purposes of these tables, average balances have been calculated using daily
average balances, and non-accrual loans are included in average balances but are not deemed
material. Loan fees are included in interest income on loans but are not material. None of the
income reflected in the following table is tax-exempt income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 |
|
|
2010 |
|
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
|
Average |
|
|
|
|
|
|
Yield/ |
|
(Dollars in thousands) |
|
Balance |
|
|
Interest |
|
|
Cost (4) |
|
|
Balance |
|
|
Interest |
|
|
Cost (4) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans (1) |
|
$ |
1,194,169 |
|
|
$ |
16,446 |
|
|
|
5.59 |
% |
|
$ |
1,151,328 |
|
|
$ |
16,210 |
|
|
|
5.71 |
% |
Securities and certificates of deposits |
|
|
372,945 |
|
|
|
3,366 |
|
|
|
3.66 |
|
|
|
341,330 |
|
|
|
3,663 |
|
|
|
4.35 |
|
Other interest-earning assets |
|
|
154,304 |
|
|
|
85 |
|
|
|
0.22 |
|
|
|
35,279 |
|
|
|
12 |
|
|
|
0.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning assets |
|
|
1,721,418 |
|
|
|
19,897 |
|
|
|
4.69 |
|
|
|
1,527,937 |
|
|
|
19,885 |
|
|
|
5.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-earning assets |
|
|
137,038 |
|
|
|
|
|
|
|
|
|
|
|
138,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,858,456 |
|
|
|
|
|
|
|
|
|
|
$ |
1,666,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW deposits |
|
$ |
129,029 |
|
|
|
148 |
|
|
|
0.47 |
|
|
$ |
107,768 |
|
|
|
128 |
|
|
|
0.48 |
|
Money market deposits |
|
|
336,768 |
|
|
|
867 |
|
|
|
1.04 |
|
|
|
300,778 |
|
|
|
893 |
|
|
|
1.20 |
|
Regular and other deposits |
|
|
191,668 |
|
|
|
260 |
|
|
|
0.55 |
|
|
|
178,937 |
|
|
|
246 |
|
|
|
0.56 |
|
Certificates of deposit |
|
|
699,128 |
|
|
|
3,298 |
|
|
|
1.91 |
|
|
|
611,717 |
|
|
|
2,932 |
|
|
|
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing deposits |
|
|
1,356,593 |
|
|
|
4,573 |
|
|
|
1.37 |
|
|
|
1,199,200 |
|
|
|
4,199 |
|
|
|
1.42 |
|
Borrowings |
|
|
156,151 |
|
|
|
889 |
|
|
|
2.31 |
|
|
|
156,537 |
|
|
|
915 |
|
|
|
2.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing liabilities |
|
|
1,512,744 |
|
|
|
5,462 |
|
|
|
1.46 |
|
|
|
1,355,737 |
|
|
|
5,114 |
|
|
|
1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest-bearing demand deposits |
|
|
113,209 |
|
|
|
|
|
|
|
|
|
|
|
95,943 |
|
|
|
|
|
|
|
|
|
Other noninterest-bearing liabilities |
|
|
14,399 |
|
|
|
|
|
|
|
|
|
|
|
10,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,640,352 |
|
|
|
|
|
|
|
|
|
|
|
1,462,650 |
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
218,104 |
|
|
|
|
|
|
|
|
|
|
|
203,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders
equity |
|
$ |
1,858,456 |
|
|
|
|
|
|
|
|
|
|
$ |
1,666,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest-earning assets |
|
$ |
208,674 |
|
|
|
|
|
|
|
|
|
|
$ |
172,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
$ |
14,435 |
|
|
|
|
|
|
|
|
|
|
$ |
14,771 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate spread (2) |
|
|
|
|
|
|
|
|
|
|
3.23 |
% |
|
|
|
|
|
|
|
|
|
|
3.75 |
% |
Net interest margin (3) |
|
|
|
|
|
|
|
|
|
|
3.40 |
% |
|
|
|
|
|
|
|
|
|
|
3.92 |
% |
Average interest-earning assets to
average interest-bearing liabilities |
|
|
|
|
|
|
113.79 |
% |
|
|
|
|
|
|
|
|
|
|
112.70 |
% |
|
|
|
|
|
|
|
(1) |
|
Loans on non-accrual status are included in average balances. |
|
(2) |
|
Interest rate spread represents the difference between the yield on interest-earning assets and
the cost of interest-bearing liabilities. |
|
(3) |
|
Net interest margin represents net interest income divided by average interest-earning assets. |
|
(4) |
|
Annualized. |
29
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on our net interest
income. The rate column shows the effects attributable to changes in rate (changes in rate
multiplied by prior volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The net column represents the sum of the prior
columns. For purposes of this table, changes attributable to changes in both rate and volume that
cannot be segregated have been allocated proportionally based on the changes due to rate and the
changes due to volume.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2011 Compared to 2010 |
|
|
|
Increase (Decrease) Due to |
|
(In thousands) |
|
Volume |
|
|
Rate |
|
|
Net |
|
Interest Income: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans |
|
$ |
595 |
|
|
$ |
(359 |
) |
|
$ |
236 |
|
Securities and certificates of deposits |
|
|
319 |
|
|
|
(616 |
) |
|
|
(297 |
) |
Other interest-earning assets |
|
|
62 |
|
|
|
11 |
|
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
976 |
|
|
|
(964 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense: |
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
555 |
|
|
|
(181 |
) |
|
|
374 |
|
Borrowings |
|
|
(2 |
) |
|
|
(24 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
553 |
|
|
|
(205 |
) |
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income |
|
$ |
423 |
|
|
$ |
(759 |
) |
|
$ |
(336 |
) |
|
|
|
|
|
|
|
|
|
|
Results of Operations for the Three Months Ended March 31, 2011 and 2010
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 gains on sales of loans and securities.
For the three months ended March 31, 2011, net income was $3.2 million, or $0.15 per share
(basic and diluted) compared to net income of $2.9 million, or $0.13 per share (basic and diluted),
for the three months ended March 31, 2010. Income before income tax expense increased $554,000 to
$5.1 million, the net result of a decrease in the provision for loan loss of $1.0 million and an
increase in non-interest income of $1.1 million, partially offset by a decrease in net interest
income of $336,000 and an increase in non-interest expense of $1.3 million.
The return on average assets was 0.69% for each of the quarters ended March 31, 2011 and March
31, 2010. For the quarter ended March 31, 2011, the return on average equity increased to 5.89%
from 5.62% for the quarter ended March 31, 2010.
Net Interest Income
Net interest income decreased $336,000, or 2.3%, to $14.4 million for the quarter ended March
31, 2011 from $14.8 million for the quarter ended March 31, 2010. The net interest rate spread and
net interest margin were 3.23% and 3.40%, respectively, for the quarter ended March 31, 2011,
compared to 3.75% and 3.92%, respectively, for the quarter ended March 31, 2010. The decrease in
net interest income was due primarily to deposit growth that was in excess of loan growth along
with declines in yields on loans and securities for the quarter ended March 31, 2011 compared to
the quarter ended March 31, 2010. The average balance of the Companys loan portfolio increased
$42.8 million, or 3.7%, to $1.194 billion, which was partially offset by a decline in the yield on
loans of 12 basis points to 5.59% for the quarter ended March 31, 2011 compared to the quarter
ended March 31, 2010. The average balance of the Companys interest-bearing deposits increased
$157.4 million, or 13.1%, to $1.357 billion, which was partially offset by a decline in the cost of
deposits of five basis points to 1.37% for the quarter ended March 31, 2011 compared to the quarter
ended March 31, 2010. The Companys average balance of interest-earning assets increased $193.5
million, or 12.7%, to $1.721 billion, which was substantially offset by a decline in the yield on
interest-earning assets of 59 basis points to 4.69% for the quarter ended March 31, 2011 compared
for the quarter ended March 31, 2010. The Companys cost of interest-bearing liabilities declined
seven basis points to 1.46%, which was which was partially offset by an increase in the average
balance of interest-bearing liabilities, which increased $157.0 million, or 11.6%, to $1.513
billion for the quarter ended March 31, 2011 compared to the quarter ended March 31, 2010.
30
Provision for Loan Losses
The Companys provision for loan losses was $342,000 for the quarter ended March 31, 2011
compared to $1.4 million for the quarter ended March 31, 2010. An analysis of the changes in the
allowance for loan losses including the provision for loans losses is presented under Managements
Discussion and Analysis of Results of Operations and Financial Condition -Allowance for Loan
Losses.
Non-Interest Income
Non-interest income increased $1.1 million, or 45.3%, to $3.6 million for the quarter ended
March 31, 2011 from $2.5 million for the quarter ended March 31, 2010, primarily due to increases
of $867,000 in gain on sales of securities and $415,000 in equity income on investment from the
Companys Hampshire First Bank affiliate, partially offset by decreases of $118,000 in customer
service fees and $129,000 in gain on sales of loans.
Non-Interest Expense
Non-interest expense increased $1.3 million, or 11.2%, to $12.6 million for the quarter ended
March 31, 2011 from $11.3 million for the quarter ended March 31, 2010. This increase was due
primarily to increases of $934,000 in salaries and employee benefits, $433,000 in occupancy and
equipment expenses, and $110,000 in deposit insurance premiums, partially offset by decreases of
$117,000 in foreclosed real estate expenses and $139,000 in other general and administrative
expenses. The increases in non-interest expenses include employee, occupancy and equipment expenses
associated with two new branches opened during the quarter ended March 31, 2011 and costs
associated with the expansion of residential and commercial lending capacity. The Companys
efficiency ratio was 73.40% for the quarter ended March 31, 2011 as compared to 65.72% for the
quarter ended March 31, 2010.
Income Tax Provision
The Company recorded a provision for income taxes of $1.9 million for the quarter ended March
31, 2011, reflecting an effective tax rate of 37.1%, compared to $1.7 million, or 37.1%, for the
quarter ended March 31, 2010. The increase in the income tax provision was primarily due to an
increase in pre-tax income.
31
Liquidity and Capital Management
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, maturities of and
payments on investment securities and borrowings from the Federal Home Loan Bank of Boston. 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 cash equivalents. The levels of these assets depend on our
operating, financing, lending and investing activities during any given period. At March 31, 2011,
cash and cash equivalents totaled $187.3 million. In addition, at March 31, 2011, we had $58.2
million of available borrowing capacity with the Federal Home Loan Bank of Boston, including a $9.4
million line of credit. On March 31, 2011, we had $136.4 million of advances outstanding.
A significant use of our liquidity is the funding of loan originations. At March 31, 2011 and
December 31, 2010, we had total loan commitments outstanding, as follows:
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
December 31, |
|
(In thousands) |
|
2011 |
|
|
2010 |
|
Unadvanced portion of existing loans: |
|
|
|
|
|
|
|
|
Construction |
|
$ |
58,185 |
|
|
$ |
64,722 |
|
Home equity line of credit |
|
|
38,878 |
|
|
|
39,791 |
|
Other lines and letters of credit |
|
|
9,473 |
|
|
|
7,095 |
|
Commitments to originate: |
|
|
|
|
|
|
|
|
One-to four-family |
|
|
6,324 |
|
|
|
15,362 |
|
Commercial real estate |
|
|
71,138 |
|
|
|
65,187 |
|
Construction |
|
|
17,940 |
|
|
|
12,625 |
|
Other loans |
|
|
2,986 |
|
|
|
2,783 |
|
|
|
|
|
|
|
|
Total loan commitments outstanding |
|
$ |
204,924 |
|
|
$ |
207,565 |
|
|
|
|
|
|
|
|
Historically, many of the commitments expire without being fully drawn; therefore the total
amount of commitments does not necessarily represent future cash requirements. The Bank provided
participating checking accounts with overdraft account protection covering $14.3 million of
balances as of March 31, 2011. We also have a seven year contract with our core data processing
provider with an outstanding commitment of $15.1 million as of March 31, 2011, with total annual
payments of $2.2 million. In addition, we had outstanding commitments as of March 31, 2011
totaling $583,000 for the construction of a new branch on leased property in the South End area of
Boston, Massachusetts. The Bank is also developing plans to open a new branch on leased property
in Cambridge, Massachusetts later in 2011.
Another significant use of our liquidity is the funding of deposit withdrawals. Certificates
of deposit due within one year of March 31, 2011 totaled $438.4 million, or 62.4% 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 at the Company. We have the ability to attract and retain deposits by
adjusting the interest rates offered.
Our primary investing activities are the origination of loans and the purchase of securities.
Our primary financing activities consist of activity in deposit accounts and Federal Home Loan Bank
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.
32
Capital Management
Both Meridian Interstate Bancorp and East Boston Savings Bank are subject to various
regulatory capital requirements administered by the Federal Reserve Board and Federal Deposit
Insurance Corporation, respectively, including a risk-based capital measure. The risk-based capital
guidelines include both a definition of capital and a framework for calculating risk-weighted
assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At
March 31, 2011, both Meridian Interstate Bancorp and East Boston Savings Bank exceeded all of their
respective regulatory capital requirements.
We may use capital management tools such as cash dividends and common share repurchases.
However, Massachusetts Commissioner of Banks regulations restrict stock repurchases by Meridian
Interstate Bancorp within three years of the stock offering completed in January 2008 unless the
repurchase: (i) is part of a general repurchase made on a pro rata basis pursuant to an offering
approved by the Commissioner of the Banks and made to all stockholders of Meridian Interstate
Bancorp (other than Meridian Financial Services with the approval of the Commissioner of Banks);
(ii) is limited to the repurchase of qualifying shares of a director; (iii) is purchased in the
open market by a tax-qualified or non tax-qualified employee stock benefit plan of Meridian
Interstate Bancorp or East Boston Savings Bank in an amount reasonable and appropriate to fund the
plan; or (iv) is limited to stock repurchases of no greater than 5% of the outstanding capital
stock of Meridian Interstate Bancorp where compelling and valid business reasons are established to
the satisfaction of the Commissioner of Banks. In addition, pursuant to Federal Reserve Board
approval conditions imposed in connection with the formation of Meridian Interstate Bancorp,
Meridian Interstate Bancorp has committed (i) to seek the Federal Reserve Boards prior approval
before repurchasing any equity securities from Meridian Financial Services and (ii) that any
repurchases of equity securities from stockholders other than Meridian Financial Services will be
at the current market price for such stock repurchases. Meridian Interstate Bancorp will also be
subject to the Federal Reserve Boards notice provisions for stock repurchases.
In April 2010, the Commonwealth of Massachusetts Office of the Commissioner of Banks approved
the Companys application to repurchase up to 5% of its outstanding common stock not held by its
mutual holding company parent, or 472,428 shares of its common stock. As of March 31, 2011, the
Company had repurchased 212,163 shares of its stock at an average price of $11.29 per share as
included in treasury stock, or 44.9% of the shares authorized for repurchase under the Companys
third stock repurchase program. The Company has repurchased 1,143,663 shares since December 2008.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage in a variety of financial transactions that, in
accordance with generally accepted accounting principles in the United States of America are not
recorded in our financial statements. These transactions involve, to varying degrees, elements of
credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers
requests for funding and take the form of loan commitments and lines of credit.
For the three months ended March 31, 2011, 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.
33
Item 3. quantitative and qualitative disclosures 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 15 years that we originate;
and promoting core deposit products and short-term time deposits.
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 in the repricing of certain assets and liabilities when
market rates change and the changes in spreads between different market rates. The simulation
analysis incorporates managements 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 at April 1,
2011 through March 31, 2012.
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) |
|
|
|
|
|
|
in Market Interest |
|
Net Interest Income |
|
Rates (Rate Shock) |
|
Amount |
|
|
Change |
|
|
Percent |
|
(Dollars in Thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
300 |
|
$ |
54,703 |
|
|
$ |
(4,787 |
) |
|
|
(8.05 |
)% |
Flat |
|
|
59,490 |
|
|
|
|
|
|
|
|
|
-50 |
|
|
57,956 |
|
|
|
(1,534 |
) |
|
|
(2.58 |
) |
34
Item 4. Controls and Procedures
|
(a) |
|
Disclosure Controls and Procedures Meridian Interstate Bancorps management, including
Meridian Interstate Bancorps principal executive officer and principal financial officer,
have evaluated the effectiveness of Meridian Interstate Bancorps 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, Meridian Interstate Bancorps disclosure controls and
procedures were effective for the purpose of ensuring that the information required to be
disclosed in the reports that Meridian Interstate Bancorp files or submits under the
Exchange Act with the Securities and Exchange Commission (the SEC) (1) is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and
forms and (2) is accumulated and communicated to Meridian Interstate Bancorps management,
including its principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure. |
|
(b) |
|
Internal Control over Financial Reporting There have not been any changes in Meridian
Interstate Bancorps 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, Meridian Interstate Bancorps internal control over financial reporting. |
35
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 our 2010 Annual Report on
Form 10-K, filed with the SEC on March 16, 2011, which is available through the SECs website at
www.sec.gov. As of March 31, 2011, our risk factors have not changed materially from those
reported in the annual report. The risks described in our annual report are not the only risks that
we face. Additional risks not presently known to us, or that we currently deem immaterial, may
also adversely affect our business, financial condition or results of operations.
Item 2. unregistered sales of equity securities and use of proceeds
|
|
|
(a.) (b.) Not applicable. |
|
|
|
(c.) The following table sets forth information with respect to any purchase made by or on
behalf of the Company during the indicated periods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
|
(b) |
|
|
(c) |
|
|
(d) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(or Approximate |
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Dollar Value) of |
|
|
|
|
|
|
|
|
|
|
|
Shares (or Units) |
|
|
Shares (or Units) |
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
|
that May Yet Be |
|
|
|
Total Number of |
|
|
Average Price |
|
|
of Publicly |
|
|
Purchased Under |
|
|
|
Shares (or Units) |
|
|
Paid Per Share (or |
|
|
Announced Plans |
|
|
the Plans or |
|
Period |
|
Purchased |
|
|
Unit) |
|
|
or Programs (1) |
|
|
Programs |
|
January 1 31, 2011 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
283,601 |
|
February 1 28, 2011 |
|
|
12,934 |
|
|
$ |
12.96 |
|
|
|
12,934 |
|
|
|
270,667 |
|
March 1 31, 2011 |
|
|
10,402 |
|
|
$ |
13.07 |
|
|
|
10,402 |
|
|
|
260,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
23,336 |
|
|
$ |
13.01 |
|
|
|
23,336 |
|
|
|
260,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
In April 2010, the Commonwealth of Massachusetts Office of the Commissioner of Banks
approved the Companys application to repurchase up to 5% of its outstanding common stock not
held by its mutual holding company parent, or 472,428 shares of its common stock. |
Item 3. defaults upon senior secutiries
Not applicable.
Item 4. [removed and reserved]
Item 5. other information
None.
36
Item 6. Exhibits
|
|
|
|
|
|
3.1 |
|
|
Amended and Restated Articles of Organization of Meridian Interstate Bancorp, Inc.* |
|
3.2 |
|
|
Amended and Restated Bylaws of Meridian Interstate Bancorp, Inc.* |
|
3.3 |
|
|
Articles of Correction of Meridian Interstate Bancorp, Inc.*** |
|
4 |
|
|
Form of Common Stock Certificate of Meridian Interstate Bancorp, Inc.* |
|
10.1 |
|
|
Form of East Boston Savings Bank Employee Stock Ownership Plan* |
|
10.2 |
|
|
Form of East Boston Savings Bank Employee Stock Ownership Plan Trust Agreement* |
|
10.3 |
|
|
East Boston Savings Bank Employee Stock Ownership Plan Loan Agreement, Pledge Agreement and Promissory
Note* |
|
10.4 |
|
|
Form of Amended and Restated Employment Agreement* |
|
10.5 |
|
|
Form of East Boston Savings Bank Employee Severance Compensation Plan* |
|
10.6 |
|
|
Form of Supplemental Executive Retirement Agreements with certain directors* |
|
10.7 |
|
|
[Reserved] |
|
10.8 |
|
|
Form of Separation Agreement with Leonard V. Siuda incorporated by reference to the Form 8-K filed on
April 7, 2009 |
|
10.9 |
|
|
Form of Separation Agreement with Philip F. Freehan incorporated by reference to the Form 8-K filed on
April 7, 2009 |
|
10.10 |
|
|
Form of Supplemental Executive Retirement Agreement with Richard J. Gavegnano filed as an exhibit to
Form 10-Q filed on May 14, 2008 |
|
10.11 |
|
|
Form of Employment Agreement with Richard J. Gavegnano incorporated by reference to the Form 8-K filed
on January 12, 2009 |
|
10.12 |
|
|
Form of Employment Agreement with Deborah J. Jackson incorporated by reference to the Form 8-K filed on
January 22, 2009 |
|
10.13 |
|
|
Form of Supplemental Executive Retirement Agreement with Deborah J. Jackson incorporated by reference to
the Form 8-K filed on January 22, 2009 |
|
10.14 |
|
|
2008 Equity Incentive Plan** |
|
10.15 |
|
|
Amendment to Supplemental Executive Retirement Agreements with Certain Directors incorporated by
reference to the Form 10-K/A filed on April 8, 2009 |
|
10.16 |
|
|
Agreement and Plan of Merger incorporated by reference to the Form 8-K filed on July 24, 2009 |
|
10.17 |
|
|
Employment Agreement between Edward J. Merritt and East Boston Savings Bank*** |
|
10.18 |
|
|
Supplemental Executive Retirement Agreement between East Boston Savings Bank and Edward J. Merritt*** |
|
10.19 |
|
|
Joint Beneficiary Designation Agreement between Edward J. Merritt and Mt. Washington Co-operative Bank*** |
|
10.20 |
|
|
First Amendment to Joint Beneficiary Designation Agreement between Edward J. Merritt and Mt. Washington
Co-operative Bank*** |
|
10.21 |
|
|
Change in Control Agreement between Mark Abbate and East Boston Savings Bank incorporated by reference
to the Form 8-K filed on December 15, 2009 |
|
21 |
|
|
Subsidiaries of Registrant* |
|
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 |
|
|
|
* |
|
Incorporated by reference to the Registration Statement on Form S-1 of Meridian Interstate Bancorp, Inc. (File No.
333-146373), originally filed with the Securities and Exchange Commission on September 28, 2007. |
|
** |
|
Incorporated by reference to Appendix A to the Companys Definitive Proxy Statement for its 2008 Annual Meeting, as
filed with the Securities and Exchange Commission on July 11, 2008. |
|
*** |
|
Incorporated by reference to the Companys Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 16, 2010. |
37
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 INTERSTATE BANCORP, INC.
(Registrant)
|
|
Dated: May 10, 2011 |
/s/ Richard J. Gavegnano
|
|
|
Richard J. Gavegnano |
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
Dated: May 10, 2011 |
/s/ Mark L. Abbate
|
|
|
Mark L. Abbate |
|
|
Senior Vice President, Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer) |
|
38