Meridian Interstate Bancorp, Inc. Reports Net Income for the Third Quarter and Nine Months Ended September 30, 2011

BOSTON, Oct. 25, 2011 (GLOBE NEWSWIRE) -- Meridian Interstate Bancorp, Inc. (the "Company" or "Meridian") (Nasdaq:EBSB), the holding company for East Boston Savings Bank (the "Bank"), which also operates under the name Mt. Washington Bank, a Division of East Boston Savings Bank ("Mt. Washington"), announced net income of $2.6 million, or $0.12 per diluted share, for the quarter ended September 30, 2011 compared to $3.0 million, or $0.13 per diluted share, for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, net income was $10.0 million, or $0.46 per diluted share compared to $9.1 million, or $0.41 per diluted share, for the nine months ended September 30, 2010. The Company's return on average assets was 0.54% for the quarter ended September 30, 2011 compared to 0.68% for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, the Company's return on average assets was 0.70% compared to 0.71% for the nine months ended September 30, 2010. The Company's return on average equity was 4.78% for the quarter ended September 30, 2011 compared to 5.64% for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, the Company's return on average equity was 6.08% compared to 5.83% for the nine months ended September 30, 2010.

Richard J. Gavegnano, Chairman and Chief Executive Officer, said, "I am pleased to report net income of $2.6 million and earnings per share of $0.12 for the third quarter of 2011. In the midst of an extended period of slow growth and low interest rates, we are continuing to position the Company to take advantage of increasing demand for banks that focus on the needs of consumers and businesses in their communities. Along with the establishment in the third quarter of our new commercial and industrial lending division, we have also expanded our residential and commercial real estate lending team with seven seasoned lenders. And following the opening of an East Boston Savings Bank branch and two Mt. Washington branches earlier in the year, we opened a new East Boston Savings Bank branch this month in Danvers with plans to open another new East Boston Savings Bank branch in Cambridge by year end. We expect these actions to significantly increase our market share and earnings potential."

Net interest income decreased $1.8 million, or 11.0%, to $14.2 million for the quarter ended September 30, 2011 from $16.0 million for the quarter ended September 30, 2010. The net interest rate spread and net interest margin were 2.98% and 3.15%, respectively, for the quarter ended September 30, 2011 compared to 3.75% and 3.93%, respectively, for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, net interest income decreased $3.3 million, or 7.2%, to $42.7 million from $46.0 million for the nine months ended September 30, 2010. The net interest rate spread and net interest margin were 3.08% and 3.25%, respectively, for the nine months ended September 30, 2011 compared to 3.72% and 3.90%, respectively, for the nine months ended September 30, 2010. The decreases in net interest income were due primarily to deposit growth that was in excess of loan growth along with declines in yields on loans and securities for the third quarter and nine months ended September 30, 2011 compared to the same periods in 2010.

The Company's yield on loans declined 51 basis points to 5.27%, which was partially offset by an increase in the average balance of the loan portfolio of $37.8 million, or 3.2%, to $1.239 billion for the quarter ended September 30, 2011 compared to the quarter ended September 30, 2010. The average balance of the Company's interest-bearing deposits increased $168.3 million, or 13.4%, to $1.427 billion, which was partially offset by a decline in the cost of interest-bearing deposits of 14 basis points to 1.23%. The Company's yield on interest-earning assets declined 92 basis points to 4.30% for the quarter ended September 30, 2011 compared to 5.22% for the quarter ended September 30, 2010, while the cost of interest-bearing liabilities declined 15 basis points to 1.32% for the quarter ended September 30, 2011 compared to 1.47% for the quarter ended September 30, 2010.

The Company's provision for loan losses was $1.6 million for the quarter ended September 30, 2011 compared to $77,000 for the quarter ended September 30, 2010.  For the nine months ended September 30, 2011, the provision for loan losses was $2.4 million compared to $2.2 million for the nine months ended September 30, 2010. These changes were based primarily on management's assessment of loan portfolio growth and composition changes, an ongoing evaluation of credit quality and current economic conditions. In addition, the increase in the provision for loan losses for the quarter ended September 30, 2011 reflects increases in net charge-offs and specific reserves recorded for impaired loans. The allowance for loan losses was $12.1 million or 0.97% of total loans outstanding at September 30, 2011, compared to $10.2 million or 0.86% of total loans outstanding at December 31, 2010.

Non-performing loans increased to $49.1 million, or 3.94% of total loans outstanding at September 30, 2011, from $43.1 million, or 3.64% of total loans outstanding at December 31, 2010. Non-performing assets increased to $52.8 million, or 2.71% of total assets, at September 30, 2011, from $47.2 million, or 2.57% of total assets, at December 31, 2010. Non-performing assets at September 30, 2011 were comprised of $20.3 million of construction loans, $11.9 million of commercial real estate loans, $13.4 million of one-to four-family mortgage loans, $528,000 of multi-family mortgage loans, $2.0 million of home equity loans, $941,000 of commercial business loans and foreclosed real estate of $3.7 million. Non-performing assets at September 30, 2011 included $18.2 million of assets acquired in the Mt. Washington Co-operative Bank merger, comprised of $16.0 million of non-performing loans and $2.2 million of foreclosed real estate.

Non-interest income increased $286,000, or 8.6%, to $3.6 million for the quarter ended September 30, 2011 from $3.3 million for the quarter ended September 30, 2010, primarily due to increases of $564,000 in gain on sales of loans, net, and $169,000 in equity income from the Company's Hampshire First Bank affiliate, partially offset by decreases of $154,000 in customer service fees and $318,000 in gain on sales of securities, net. For the nine months ended September 30, 2011, non-interest income increased $4.7 million, or 57.8%, to $12.7 million from $8.0 million for the nine months ended September 30, 2010, primarily due to increases of $3.5 million in gain on sales of securities, net, $405,000 in gain on sales of loans, net, and $811,000 in equity income from Hampshire First Bank.  

Non-interest expense decreased $2.4 million, or 16.3%, to $12.3 million for the quarter ended September 30, 2011 from $14.6 million for the quarter ended September 30, 2010, primarily due to a $3.1 million charge during the quarter ended September 30, 2010 related to termination of the contract with Mt. Washington Co-operative Bank's data processing services provider and a $367,000 decrease in deposit insurance, partially offset by an increase of $699,000 in salaries and employee benefits.  For the nine months ended September 30, 2011, non-interest expense decreased $366,000, or 1.0%, to $37.4 million from $37.7 million for the nine months ended September 30, 2010, primarily due to the $3.1 million charge during the quarter ended September 30, 2010 related to termination of the contract with Mt. Washington Co-operative Bank's data processing services provider, partially offset by increases of $2.2 million in salaries and employee benefits and $686,000 in occupancy and equipment expenses. The increases in salaries and employee benefits and occupancy and equipment expenses were associated with the new branches opened this year and costs associated with the expansion of residential and commercial lending capacity. The Company's efficiency ratio was 70.58% for the quarter ended September 30, 2011 compared to 62.45% for the quarter ended September 30, 2010, excluding the charge to terminate Mt. Washington Co-operative Bank's data processing contract. For the nine months ended September 30, 2011, the efficiency ratio was 73.03% compared to 65.02% for the nine months ended September 30, 2010, excluding the charge to terminate Mt. Washington Co-operative Bank's data processing contract.

Mr. Gavegnano noted, "The increases in our staffing and occupancy costs and the efficiency ratio this year reflect our investment in expansion of lending capacity, additional sources of deposit funding and increasing market share. We are encouraged by our progress so far and believe these efforts will greatly enhance franchise value and stockholder value."

The Company recorded a provision for income taxes of $1.4 million for the quarter ended September 30, 2011, reflecting an effective tax rate of 34.5%, compared to $1.6 million, or 35.3%, for the quarter ended September 30, 2010. For the nine months ended September 30, 2011, the provision for income taxes was $5.7 million, reflecting an effective tax rate of 36.1%, compared to $5.0 million, or 35.7%, for the nine months ended September 30, 2010. The changes in the income tax provision were primarily due to the changes in pre-tax income.

Total assets increased $108.8 million, or 5.9%, to $1.945 billion at September 30, 2011 from $1.836 billion at December 31, 2010. Cash and cash equivalents increased $73.7 million, or 47.4%, to $229.2 million at September 30, 2011 from $155.5 million at December 31, 2010. Securities available for sale decreased $21.5 million, or 6.0%, to $339.1 million at September 30, 2011 from $360.6 million at December 31, 2010. Net loans increased $61.0 million, or 5.2%, to $1.235 billion at September 30, 2011 from $1.174 billion at December 31, 2010.

Total deposits increased $111.0 million, or 7.6%, to $1.566 billion at September 30, 2011 from $1.455 billion at December 31, 2010, reflecting net growth of $128.2 million in core deposits. The net deposit growth also reflects $37.4 million of new deposits in the three branches opened during 2011. Total borrowings decreased $15.5 million, or 10.4%, to $133.2 million at September 30, 2011 from $148.7 million at December 31, 2010, reflecting $21.0 million of reductions in Federal Home Loan Bank advances partially offset by a $5.5 million increase in short-term borrowings.

Mr. Gavegnano added, "We are gratified that our core deposit growth initiatives this year have resulted in an increase in these non-term balances to $886.1 million, representing 56.6% of total deposits at September 30, 2011."

Total stockholders' equity increased $1.8 million, or 0.8%, to $217.4 million at September 30, 2011, from $215.6 million at December 31, 2010. The increase for the nine months ended September 30, 2011 was due primarily to $10.0 million in net income, partially offset by a $4.8 million increase in treasury stock resulting from the Company's repurchase of 360,801 shares and a $4.6 million 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 11.18% at September 30, 2011, compared to 11.74% at December 31, 2010. Book value per share increased to $9.82 at September 30, 2011 from $9.59 at December 31, 2010. Tangible book value per share increased to $9.21 at September 30, 2011 from $8.98 at December 31, 2010. Market price per share decreased $0.88, or 7.5%, to $10.91 at September 30, 2011 from $11.79 at December 31, 2010. At September 30, 2011, the Company and the Bank continued to exceed all regulatory capital requirements.

On August 9, 2011, the Company announced that it had completed its third stock repurchase program, which consisted of 472,428 shares at an average price of $12.53 and adopted a fourth repurchase program for up to 904,224 shares of its common stock. As of September 30, 2011, the Company had repurchased 77,200 shares of its stock at an average price of $12.54 per share, or 8.5% of the shares authorized for repurchase under the fourth repurchase program.

Mr. Gavegnano said, "With completion of the third stock repurchase program and commencement of the fourth program, we have repurchased a total of 1,481,128 shares since late 2008. Along with additional stock repurchases, we continue to consider various other opportunities to enhance stockholder value."

Meridian Interstate Bancorp, Inc. is the holding company for East Boston Savings Bank. East Boston Savings Bank, a Massachusetts-chartered stock savings bank founded in 1848, operates 23 full service locations in the greater Boston metropolitan area including eight full service locations in its Mt. Washington Bank Division.  We offer a variety of deposit and loan products to individuals and businesses located in our primary market, which consists of Essex, Middlesex and Suffolk Counties, Massachusetts. For additional information, visit www.ebsb.com.

Forward Looking Statements

Certain statements herein constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as "believes," "will," "expects," "project," "may," "could," "developments," "strategic," "launching," "opportunities," "anticipates," "estimates," "intends," "plans," "targets" and similar expressions. These statements are based upon the current beliefs and expectations of Meridian Interstate Bancorp, Inc.'s management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements as a result of numerous factors. Factors that could cause such differences to exist include, but are not limited to, general economic conditions, changes in interest rates, regulatory considerations, and competition and the risk factors described in the Company's filings with the Securities and Exchange Commission. Should one or more of these risks materialize or should underlying beliefs or assumptions prove incorrect, Meridian Interstate Bancorp, Inc.'s actual results could differ materially from those discussed. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this release.