Meridian Bancorp, Inc. - FORM 10-Q

Meridian Bancorp, Inc. - FORM 10-Q - August 9, 2017

Attached files

Attached files

Meridian Bancorp, Inc. Reports

file	filename
EX-32.0 - EX-32.0 - Meridian Bancorp, Inc.	d388370dex320.htm
EX-31.2 - EX-31.2 - Meridian Bancorp, Inc.	d388370dex312.htm
EX-31.1 - EX-31.1 - Meridian Bancorp, Inc.	d388370dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period Ended June 30, 2017

☐	Transition Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-36573

Meridian Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland

46-5396964

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

67 Prospect Street,

Peabody, Massachusetts

01960

(Address of Principal Executive Offices)

Zip Code

(617) 567-1500

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ☒ No ☐

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 ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

As of July 31, 2017, there were 53,918,760 outstanding shares of the Registrant’s common stock.

MERIDIAN BANCORP, INC.

FORM 10-Q

INDEX


		Page
PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets at June 30, 2017 and December 31, 2016		3

	Consolidated Statements of Net Income for the three and six months ended June 30, 2017 and 2016		4

	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016		5

	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2017 and 2016		6

	Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016		7

	Notes to Consolidated Financial Statements		9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		40

Item 4.	Controls and Procedures		41

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings		42

Item 1A.	Risk Factors		42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		42

Item 3.	Defaults Upon Senior Securities		42

Item 4.	Mine Safety Disclosures		42

Item 5.	Other Information		42

Item 6.	Exhibits		43

	Signatures		45

	Exhibit 31.1

	Exhibit 31.2

	Exhibit 32.0

PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30, 2017			December 31, 2016
	(Dollars in thousands)
ASSETS
Cash and due from banks	$	234,776		$	236,423
Certificates of deposit		85,323			80,323
Securities available for sale, at fair value		52,362			67,663
Federal Home Loan Bank stock, at cost		22,579			18,175
Loans held for sale		2,257			3,944
Loans, net of fees and costs		4,299,064			3,938,817
Less: allowance for loan losses		(43,229	)		(40,149	)

Loans, net		4,255,835			3,898,668
Bank-owned life insurance		41,325			40,745
Premises and equipment, net		40,621			41,427
Accrued interest receivable		11,068			10,381
Deferred tax asset, net		21,728			21,461
Goodwill		13,687			13,687
Other assets		5,853			3,105

Total assets	$	4,787,414		$	4,436,002

LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Non interest-bearing	$	457,009		$	431,222
Interest-bearing		3,202,908			3,044,615

Total deposits		3,659,917			3,475,837
Short-term borrowings		40,000			—
Long-term debt		434,015			322,512
Accrued expenses and other liabilities		26,753			30,356

Total liabilities		4,160,685			3,828,705

Stockholders’ equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized; none issued		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized; 53,649,946 and 53,596,105 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively		537			536
Additional paid-in capital		392,446			390,065
Retained earnings		250,800			234,290
Accumulated other comprehensive income		1,905			1,806
Unearned compensation — ESOP, 2,617,918 and 2,678,800 shares at June 30, 2017 and December 31, 2016, respectively		(18,959	)		(19,400	)

Total stockholders’ equity		626,729			607,297

Total liabilities and stockholders’ equity	$	4,787,414		$	4,436,002

See accompanying notes to consolidated financial statements.

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF NET INCOME

(Unaudited)


	Three Months Ended June 30,					Six Months Ended June 30,
	2017		2016			2017		2016
	(Dollars in thousands, except per share amounts)
Interest and dividend income:
Interest and fees on loans	$	43,195	$	34,828		$	83,684	$	67,925
Interest on debt securities:
Taxable		83		238			202		504
Tax-exempt		8		32			18		65
Dividends on equity securities		291		418			568		818
Interest on certificates of deposit		196		135			408		305
Other interest and dividend income		736		188			1,381		406

Total interest and dividend income		44,509		35,839			86,261		70,023

Interest expense:
Interest on deposits		7,935		5,661			15,354		10,889
Interest on short-term borrowings		4		—			4		6
Interest on long-term debt		1,114		723			2,094		1,294

Total interest expense		9,053		6,384			17,452		12,189

Net interest income		35,456		29,455			68,809		57,834
Provision for loan losses		1,497		3,952			3,116		5,018

Net interest income, after provision for loan losses		33,959		25,503			65,693		52,816

Non-interest income:
Customer service fees		2,214		2,137			4,266		4,086
Loan fees		1,634		(22	)		1,702		290
Mortgage banking gains, net		82		104			172		174
Gain on sales of securities, net		808		68			2,382		127
Income from bank-owned life insurance		292		296			580		598

Total non-interest income		5,030		2,583			9,102		5,275

Non-interest expenses:
Salaries and employee benefits		12,752		11,979			26,427		24,492
Occupancy and equipment		3,036		2,867			6,059		5,351
Data processing		1,474		1,254			2,853		2,511
Marketing and advertising		953		699			1,807		1,412
Professional services		1,106		720			2,241		1,333
Deposit insurance		813		532			1,504		984
Other general and administrative		1,271		1,271			2,391		2,469

Total non-interest expenses		21,405		19,322			43,282		38,552

Income before income taxes		17,584		8,764			31,513		19,539
Provision for income taxes		6,237		2,857			10,922		6,155

Net income	$	11,347	$	5,907		$	20,591	$	13,384

Earnings per share:
Basic	$	0.22	$	0.12		$	0.40	$	0.26
Diluted	$	0.22	$	0.11		$	0.39	$	0.26
Weighted average shares:
Basic		51,003,967		51,026,985			50,976,950		51,298,334
Diluted		52,422,486		52,137,475			52,474,761		52,400,698

See accompanying notes to consolidated financial statements.

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
	(In thousands)
Net income	$	11,347		$	5,907		$	20,591		$	13,384

Other comprehensive income:
Securities available for sale:
Unrealized holding gain		596			2,497			2,554			3,872
Reclassification adjustment for gains realized in income (1)		(808	)		(68	)		(2,382	)		(127	)

Net unrealized (loss) gain		(212	)		2,429			172			3,745
Tax effect		83			(980	)		(73	)		(1,554	)

Total other comprehensive (loss) income		(129	)		1,449			99			2,191

Comprehensive income	$	11,218		$	7,356		$	20,690		$	15,575

(1)

Amounts are included in gain on sales of securities, net in the Consolidated Statements of Net Income. Provision for income tax associated with the reclassification adjustments for the three months ended June 30, 2017 and 2016 were $316,000 and $27,000, respectively, and for the six months ended June 30, 2017 and 2016 were $1.0 million and $53,000, respectively.

See accompanying notes to consolidated financial statements.

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Six Months Ended June 30, 2017 and 2016

(Unaudited)


	Shares of Common Stock Outstanding			Common Stock			Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Unearned Compensation — ESOP			Total
	(Dollars in thousands)
*Six Months Ended June 30, 2017*
Balance at December 31, 2016		53,596,105		$	536		$	390,065		$	234,290		$	1,806		$	(19,400	)	$	607,297
Comprehensive income		—			—			—			20,591			99			—			20,690
Dividends declared ($0.08 per share)		—			—			—			(4,081	)		—			—			(4,081	)
ESOP shares earned (60,882 shares)		—			—			657			—			—			441			1,098
Share-based compensation expense — restricted stock, net of awards forfeited		(9,440	)		—			985			—			—			—			985
Share-based compensation expense — stock options, net of awards forfeited		—			—			556			—			—			—			556
Stock options exercised		63,281			1			183			—			—			—			184

Balance at June 30, 2017		53,649,946		$	537		$	392,446		$	250,800		$	1,905		$	(18,959	)	$	626,729

*Six Months Ended June 30, 2016*
Balance at December 31, 2015		54,875,237		$	549		$	403,737		$	206,214		$	(2,092	)	$	(20,282	)	$	588,126
Comprehensive income		—			—			—			13,384			2,191			—			15,575
Dividends declared ($0.06 per share)		—			—			—			(3,059	)		—			—			(3,059	)
Repurchased stock related to buyback program		(1,220,711	)		(12	)		(16,943	)		—			—			—			(16,955	)
ESOP shares earned (60,882 shares)		—			—			416			—			—			441			857
Share-based compensation expense — restricted stock, net of awards forfeited		(7,390	)		—			1,057			—			—			—			1,057
Share-based compensation expense — stock options, net of awards forfeited		—			—			593			—			—			—			593
Excess tax benefits in connection with share-based compensation		—			—			306			—			—			—			306
Stock options exercised		41,430			—			152			—			—			—			152

Balance at June 30, 2016		53,688,566		$	537		$	389,318		$	216,539		$	99		$	(19,841	)	$	586,652

See accompanying notes to consolidated financial statements.

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six Months Ended June 30,
	2017			2016
	(In thousands)
Cash flows from operating activities:
Net income	$	20,591		$	13,384
Adjustments to reconcile net income to net cash provided by operating activities:
Accretion of acquisition fair value adjustments		(80	)		(74	)
ESOP shares earned expense		1,098			857
Provision for loan losses		3,116			5,018
Accretion of net deferred loan origination fees		(479	)		(494	)
Net accretion of securities available for sale		(11	)		(33	)
Depreciation and amortization expense		1,580			1,462
Gain on sales of securities, net		(2,382	)		(127	)
Net loss and provision for foreclosed real estate		—			23
Deferred income tax benefit		(340	)		(540	)
Income from bank-owned life insurance		(580	)		(598	)
Share-based compensation expense		1,541			1,650
Net changes in:
Loans held for sale		1,687			2,272
Accrued interest receivable		(687	)		(672	)
Other assets		(2,145	)		(5,639	)
Accrued expenses and other liabilities		(4,116	)		(2,034	)

Net cash provided by operating activities		18,793			14,455

Cash flows from investing activities:
Purchases of certificates of deposit		(5,000	)		(20,292	)
Maturities of certificates of deposit		—			84,012
Activity in securities available for sale:
Proceeds from maturities, calls and principal payments		10,989			12,790
Purchase of mutual funds, net		(35	)		970
Proceeds from sales		11,584			5,023
Purchases		(5,274	)		(5,182	)
Loans originated, net of principal payments received		(359,775	)		(466,483	)
Purchases of premises and equipment		(733	)		(1,994	)
Purchase of Federal Home Loan Bank stock		(4,404	)		(6,887	)
Proceeds from sale of foreclosed real estate		—			432

Net cash used in investing activities		(352,648	)		(397,611	)

(Continued on next page)

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

(Unaudited)


Cash flows from financing activities:
Net increase in deposits		184,089			255,028
Net change in borrowings with maturities less than three months		40,000			(20,000	)
Proceeds from Federal Home Loan Bank advances with maturities of three months or more		205,625			210,000
Repayment of Federal Home Loan Bank advances with maturities of three months or more		(94,122	)		(36,602	)
Cash dividends paid on common stock		(3,568	)		(3,095	)
Stock options exercised		184			152
Repurchase of common stock		—			(16,955	)

Net cash provided by financing activities		332,208			388,528

Net change in cash and cash equivalents		(1,647	)		5,372
Cash and cash equivalents at beginning of period		236,423			96,363

Cash and cash equivalents at end of period	$	234,776		$	101,735

Supplemental cash flow information:
Interest paid on deposits	$	17,429		$	10,850
Interest paid on borrowings		1,982			1,206
Income taxes paid, net of refunds		14,035			12,241
Non-cash investing and financing activities:
Transfers from loans to foreclosed real estate		—			638
Net amounts due from broker on security transactions		603			—

See accompanying notes to consolidated financial statements.

MERIDIAN BANCORP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

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

The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by such generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Such adjustments were of a normal recurring nature. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the entire year or any other interim period. For additional information, refer to the financial statements and footnotes thereto of the Company included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission (the “SEC”) on March 1, 2017, and is available through the SEC’s website at www.sec.gov.

In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.

Change in accounting principle — Share-based compensation

In March 2016, the Financial Accounting Standards Board (the “FASB”) issued an Accounting Standards Update (“ASU”), No. 2016-09, Compensation — Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This Update amends its guidance on certain aspects of accounting for share-based payments to employees. The provisions of this Update became effective on January 1, 2017. The various changes applicable to adopting this Update include the following:

Accounting for Income Taxes

Entities will no longer record the excess tax benefits or deficiencies related to share-based compensation in additional paid-in capital. Instead, they will record excess tax benefits or deficiencies in income tax expense or benefit in the income statement as part of the provision for income taxes on a prospective basis. For interim reporting purposes the excess tax benefits or deficiencies will be recorded as discrete items in the period in which they occur. The presentation of the excess tax benefits will be presented as an operating activity in the statement of cash flows. In addition, under the new guidance, when calculating incremental shares for earnings per share, entities exclude from assumed proceeds excess tax benefits that previously would have been recorded in additional paid-in capital. The total income tax benefit recorded in the provision for income taxes for the six months ended June 30, 2017 was $358,000.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of this ASU was to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards. The guidance in this ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. For public entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. As significantly all of the Company’s revenues are excluded from the scope of the guidance, adoption is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments — Overall, (Subtopic 825-10). The amendments in this update address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Targeted changes to GAAP include the requirement for equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income and the elimination of the requirement for public business entities to disclose the methods and significant assumptions used to estimate the fair value for financial instruments measured at amortized cost. The amendments in this update are effective for fiscal years

beginning after December 15, 2017, including interim periods within those fiscal years. The Company has a portfolio of equity investments and if such guidance were effective for the year ending December 31, 2017, a net unrealized gain of approximately $243,000 and related deferred tax provision of $85,000 would have been recognized in net income for the six months ended June 30, 2017, instead of in other comprehensive income. The impact of this guidance on future periods is dependent on future market conditions and investment activity.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This update is intended to improve financial reporting about leasing transactions and the key provision impacting the Company is the requirement for a lessee to record a right-to-use asset and liability representing the obligation to make lease payments for long-term operating leases. The update will be effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As of December 31, 2016, the Company had future minimum lease payments of $14,993,000, all under operating lease agreements. Upon adoption, the Company expects its assets and liabilities to increase based on the present value of the future minimum lease payments, using the discount rate applicable at the outset of the lease agreement. However, the adoption of this ASU is not expected to be material to the Company’s results of operations or financial position.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments — Credit Losses (Topic 326). The main objective of this update is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments, including loans, held-to-maturity debt securities and commitments to extend credit held by a reporting entity at each reporting date. To achieve this objective, the amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology, referred to as Current Expected Credit Loss, or CECL, that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Credit losses on available-for-sale debt securities will be measured in a manner similar to current GAAP, but will be recognized through an allowance rather than as a direct write-down. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is in the early stages of developing a project plan to facilitate the implementation of CECL. This plan will consider potential enhancements to internal controls, loan pool segmentation, loan loss estimation methodology, data gathering resources, data analytics and necessary disclosures. Upon adoption, the Company currently expects an increase to the allowance for loan losses with a resulting adjustment to reduce retained earnings.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles — Goodwill and Other (Topic 350). The update intends to simplify the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment charge should not exceed the total amount of goodwill allocated to that reporting unit. This update will be effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this ASU is not expected to be material to the Company’s results of operations or financial position.

3. EARNINGS PER SHARE

Basic earnings per share excludes dilution and is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period. Rights to dividends on unvested stock awards are non-forfeitable, therefore these unvested stock awards are considered outstanding in the computation of basic earnings per share. Diluted earnings per share is computed in a manner similar to that of basic earnings per share except that the weighted-average number of common shares outstanding is increased to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all potentially dilutive common stock equivalents (such as options) were issued during the period. Unallocated common shares held by the ESOP are shown as a reduction in stockholders’ equity and are not included in the weighted-average number of common shares outstanding for either basic or diluted earnings per share calculations.

Basic and diluted earnings per share have been computed based on the following:


	Three Months Ended June 30,				Six Months Ended June 30,
	2017		2016		2017		2016
	(Dollars in thousands, except per share amounts)
Net income available to common stockholders	$	11,347	$	5,907	$	20,591	$	13,384

Basic weighted average shares outstanding		51,003,967		51,026,985		50,976,950		51,298,334
Effect of dilutive stock options		1,418,519		1,110,490		1,497,811		1,102,364

Diluted weighted average shares outstanding	$	52,422,486		52,137,475	$	52,474,761		52,400,698

Earnings per share:
Basic	$	0.22	$	0.12	$	0.40	$	0.26
Diluted	$	0.22	$	0.11	$	0.39	$	0.26

For the three and six months ended June 30, 2017 there were no anti-dilutive options. An anti-dilutive option exists when the average stock price for the period is less than the exercise price of the option. For the three and six months ended June 30, 2016, options for the exercise of 248,904 shares and 320,829 shares, respectively, were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive.

On July 31, 2017, the Company granted 682,750 stock options and 272,750 restricted stock awards under the 2015 Equity Incentive Plan to its directors and officers, including named executive officers of the Company. Awards vest 20% per year over a period of five years beginning one year from the date of grant.

4. SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available for sale, with gross unrealized gains and losses, follows:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(In thousands)
June 30, 2017
Debt securities:
Corporate bonds-financial services	$	5,001	$	—	$	(1	)	$	5,000
Municipal bonds		626		15		—			641
Residential mortgage-backed securities:
Government-sponsored enterprises		4,574		288		(2	)		4,860
Private label		76		6		—			82

Total debt securities		10,277		309		(3	)		10,583

Marketable equity securities:
Common stocks:
Basic materials		4,561		323		(561	)		4,323
Consumer products and services		11,775		1,059		(655	)		12,179
Financial services		6,019		1,189		(25	)		7,183
Healthcare		8,596		1,294		(2	)		9,888
Industrials		4,245		633		(42	)		4,836
Technology		3,043		376		(86	)		3,333

Total common stocks		38,239		4,874		(1,371	)		41,742
Money market mutual funds		37		—		—			37

Total marketable equity securities		38,276		4,874		(1,371	)		41,779

Total securities available for sale	$	48,553	$	5,183	$	(1,374	)	$	52,362

December 31, 2016
Debt securities:
Corporate bonds:
Financial services	$	12,989	$	16	$	(3	)	$	13,002
Industrials		1,000		3		—			1,003

Total corporate bonds		13,989		19		(3	)		14,005
Municipal bonds		1,202		17		—			1,219
Residential mortgage-backed securities:
Government-sponsored enterprises		5,284		325		(3	)		5,606
Private label		779		22		—			801

Total debt securities		21,254		383		(6	)		21,631

Marketable equity securities:
Common stocks:
Basic materials		6,763		901		(232	)		7,432
Consumer products and services		13,567		1,093		(382	)		14,278
Financial services		5,953		970		—			6,923
Healthcare		8,225		533		(456	)		8,302
Industrials		4,181		624		(11	)		4,794
Technology		4,081		440		(220	)		4,301

Total common stocks		42,770		4,561		(1,301	)		46,030
Money market mutual funds		2		—		—			2

Total marketable equity securities		42,772		4,561		(1,301	)		46,032

Total securities available for sale	$	64,026	$	4,944	$	(1,307	)	$	67,663

At June 30, 2017, securities with an amortized cost of $3.6 million and $483,000 were pledged as collateral for Federal Home Loan Bank of Boston (“FHLB”) borrowings and for the Federal Reserve Bank discount window borrowings, respectively.

The amortized cost and fair value of debt securities by contractual maturity at June 30, 2017 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.


	One Year or Less				After One Year Through Five Years				After Five Years				Total
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(In thousands)
Corporate bonds-financial services	$	5,001	$	5,000	$	—	$	—	$	—	$	—	$	5,001	$	5,000
Municipal bonds		626		641		—		—		—		—		626		641
Residential mortgage-backed securities:
Government-sponsored enterprises		—		—		1		1		4,573		4,859		4,574		4,860
Private label		—		—		—		—		76		82		76		82

Total	$	5,627	$	5,641	$	1	$	1	$	4,649	$	4,941	$	10,277	$	10,583

For the three months ended June 30, 2017 and 2016, proceeds from sales of securities available for sale amounted to $3.2 million and $1.1 million, respectively. Gross gains of $808,000 and $324,000, respectively, were realized on those sales. There were $256,000 in gross losses realized on the sales for the three months ended June 30, 2016. For the six months ended June 30, 2017 and 2016, proceeds from the sales of securities available for sale amounted to $11.6 million and $5.0 million, respectively. Gross gains of $2.4 million and $1.2 million and gross losses of $21,000 and $1.1 million, respectively, were realized on those sales.

Information pertaining to securities available for sale as of June 30, 2017 and December 31, 2016, with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:


	Less Than Twelve Months				Twelve Months or Longer
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In thousands)
June 30, 2017
Debt securities:
Corporate bonds-financial services	$	1	$	5,000	$	—	$	—
Residential mortgage-backed securities:
Government-sponsored enterprises		—		—		2		176

Total debt securities		1		5,000		2		176

Marketable equity securities:
Common stocks:
Basic materials		149		1,592		412		1,388
Consumer products and services		512		2,862		143		1,065
Financial services		25		488		—		—
Healthcare		2		1,119		—		—
Industrials		42		694		—		—
Technology		32		968		54		291

Total common stocks and marketable equity securities		762		7,723		609		2,744

Total temporarily impaired securities	$	763	$	12,723	$	611	$	2,920


	Less Than Twelve Months				Twelve Months or Longer
	Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value
	(In thousands)
December 31, 2016
Debt securities:
Corporate bonds-financial services	$	3	$	5,000	$	—	$	—
Residential mortgage-backed securities:
Government-sponsored enterprises		—		—		3		205

Total debt securities		3		5,000		3		205

Marketable equity securities:
Common stocks:
Basic materials		—		—		232		1,568
Consumer products and services		237		3,496		145		1,618
Healthcare		259		2,039		197		1,377
Industrials		11		450		—		—
Technology		—		—		220		1,681

Total common stocks and marketable equity securities		507		5,985		794		6,244

Total temporarily impaired securities	$	510	$	10,985	$	797	$	6,449

The Company determined no securities were other-than-temporarily impaired for the six months ended June 30, 2017, and 2016. 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.

At June 30, 2017, 19 marketable equity securities with a fair value of $10.5 million had gross unrealized losses totaling $1.4 million, or an aggregate depreciation of 11.6% from the Company’s cost basis. These marketable equity securities consisted of 13 securities with a fair value of $7.7 million and a gross unrealized loss of $762,000 for less than 12 months and six securities with a fair value of $2.7 million and a gross unrealized loss of $609,000 for 12 months or longer. The marketable equity securities in a gross unrealized loss position for 12 months or longer were comprised of three securities in the basic materials sector with a fair value of $1.4 million and a gross unrealized loss of $412,000, two securities in the consumer products and services sector with a fair value of $1.1 million and a gross unrealized loss of $143,000, and one security in the technology sector with a fair value of $291,000 and a gross unrealized loss of $54,000.

In analyzing an equity issuer’s 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 write-down. 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.

Although issuers within the marketable equity securities portfolio had price declines resulting in unrealized losses, management does not believe these declines in market value are other than temporary and the Company currently has the ability and intent to hold these investments until a recovery of fair value.

5. LOANS

A summary of loans follows:


	June 30, 2017						December 31, 2016
	Amount			Percent			Amount			Percent
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	552,762			12.8	%	$	532,450			13.5	%
Home equity lines of credit		42,599			1.0			42,913			1.1
Multi-family		695,602			16.2			562,948			14.3
Commercial real estate		1,927,572			44.8			1,776,601			45.1
Construction		517,471			12.0			502,753			12.8

Total real estate loans		3,736,006			86.8			3,417,665			86.8
Commercial and industrial		557,443			13.0			515,430			13.0
Consumer		10,058			0.2			9,712			0.2

Total loans		4,303,507			100.0	%		3,942,807			100.0	%

Allowance for loan losses		(43,229	)					(40,149	)
Net deferred loan origination fees		(4,443	)					(3,990	)

Loans, net	$	4,255,835					$	3,898,668

The Company has transferred a portion of its originated commercial real estate loans to participating lenders. The amounts transferred have been accounted for as sales and are therefore not included in the Company’s accompanying balance sheets. The Company and participating lenders share ratably in any gains or losses that may result from a borrower’s lack of compliance with contractual terms of the loan. The Company continues to service the loans on behalf of the participating lenders and, as such, collects cash payments from the borrowers, remits payments to participating lenders and disburses required escrow funds to relevant parties. At June 30, 2017 and December 31, 2016, the Company was servicing loans for participants aggregating $252.5 million and $210.5 million, respectively.

At June 30, 2017, multi-family and commercial real estate loans with carrying values totaling $66.3 million and $451.4 million, respectively, were pledged as collateral for FHLB borrowings.

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


	Three Months Ended June 30, 2017
	One- to four- family			Multi- family		Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Beginning balance	$	1,352		$	4,704	$	84		$	19,141	$	9,911		$	6,480		$	92		$	41,764
Provision (credit) for loan losses		(188	)		844		(13	)		1,457		(1,068	)		421			44			1,497
Charge-offs		—			—		—			—		(2	)		—			(75	)		(77	)
Recoveries		3			1		—			—		5			—			36			45

Ending balance	$	1,167		$	5,549	$	71		$	20,598	$	8,846		$	6,901		$	97		$	43,229


	Three Months Ended June 30, 2016
	One- to four- family			Multi- family		Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Beginning balance	$	1,385		$	3,487	$	96		$	15,083	$	7,789		$	6,459		$	91		$	34,390
Provision (credit) for loan losses		(65	)		515		(4	)		1,867		1,294			284			61			3,952
Charge-offs		—			—		—			—		—			—			(70	)		(70	)
Recoveries		—			—		—			—		7			8			30			45

Ending balance	$	1,320		$	4,002	$	92		$	16,950	$	9,090		$	6,751		$	112		$	38,317


	Six Months Ended June 30, 2017
	One- to four- family			Multi- family		Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Beginning balance	$	1,367		$	4,514	$	73		$	18,725	$	8,931		$	6,452		$	87		$	40,149
Provision (credit) for loan losses		(233	)		1,034		(2	)		1,873		(133	)		449			128			3,116
Charge-offs		—			—		—			—		(2	)		—			(166	)		(168	)
Recoveries		33			1		—			—		50			—			48			132

Ending balance	$	1,167		$	5,549	$	71		$	20,598	$	8,846		$	6,901		$	97		$	43,229


	Six Months Ended June 30, 2016
	One- to four- family			Multi- family		Home equity lines of credit			Commercial real estate		Construction			Commercial and industrial			Consumer			Total
	(In thousands)
Beginning balance	$	1,354		$	3,385	$	144		$	14,497	$	8,313		$	5,620		$	92		$	33,405
Provision (credit) for loan losses		(34	)		617		(52	)		2,453		763			1,167			104			5,018
Charge-offs		—			—		—			—		—			(44	)		(134	)		(178	)
Recoveries		—			—		—			—		14			8			50			72

Ending balance	$	1,320		$	4,002	$	92		$	16,950	$	9,090		$	6,751		$	112		$	38,317


	One- to four- family		Multi- family		Home equity lines of credit		Commercial real estate		Construction		Commercial and industrial		Consumer		Total
	(In thousands)
June 30, 2017
Amount of allowance for loan losses for loans deemed to be impaired	$	51	$	133	$	—	$	2	$	—	$	—	$	—	$	186
Amount of allowance for loan losses for loans not deemed to be impaired		1,116		5,416		71		20,596		8,846		6,901		97		43,043

	$	1,167	$	5,549	$	71	$	20,598	$	8,846	$	6,901	$	97	$	43,229

Loans deemed to be impaired	$	1,384	$	1,337	$	—	$	2,667	$	173	$	1,616	$	—	$	7,177
Loans not deemed to be impaired		551,378		694,265		42,599		1,924,905		517,298		555,827		10,058		4,296,330

	$	552,762	$	695,602	$	42,599	$	1,927,572	$	517,471	$	557,443	$	10,058	$	4,303,507

December 31, 2016
Amount of allowance for loan losses for loans deemed to be impaired	$	49	$	137	$	—	$	—	$	—	$	—	$	—	$	186
Amount of allowance for loan losses for loans not deemed to be impaired		1,318		4,377		73		18,725		8,931		6,452		87		39,963

	$	1,367	$	4,514	$	73	$	18,725	$	8,931	$	6,452	$	87	$	40,149

Loans deemed to be impaired	$	1,422	$	1,359	$	—	$	2,807	$	988	$	1,808	$	—	$	8,384
Loans not deemed to be impaired		531,028		561,589		42,913		1,773,794		501,765		513,622		9,712		3,934,423

	$	532,450	$	562,948	$	42,913	$	1,776,601	$	502,753	$	515,430	$	9,712	$	3,942,807

The following table provides information about the Company’s past due and non-accrual loans:


	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Loans on Non-accrual
	(In thousands)
June 30, 2017
Real estate loans:
Residential real estate:
One- to four-family	$	903	$	702	$	892	$	2,497	$	7,667
Home equity lines of credit		786		297		115		1,198		619
Commercial real estate		102		—		1,790		1,892		2,666

Total real estate loans		1,791		999		2,797		5,587		10,952
Commercial and industrial		5		—		529		534		529
Consumer		816		405		—		1,221		—

Total	$	2,612	$	1,404	$	3,326	$	7,342	$	11,481

December 31, 2016
Real estate loans:
Residential real estate:
One- to four-family	$	641	$	834	$	2,902	$	4,377	$	8,487
Home equity lines of credit		707		131		672		1,510		674
Commercial real estate		105		—		1,904		2,009		2,807
Construction		—		—		815		815		815

Total real estate loans		1,453		965		6,293		8,711		12,783
Commercial and industrial		—		—		653		653		653
Consumer		679		392		—		1,071		—

Total	$	2,132	$	1,357	$	6,946	$	10,435	$	13,436

At June 30, 2017 and December 31, 2016, the Company did not have any accruing loans past due 90 days or more.

The following tables provide information with respect to the Company’s impaired loans:


	June 30, 2017						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
	(In thousands)
Impaired loans without a valuation allowance:
One- to four-family	$	812	$	1,263			$	841	$	1,281
Multi-family		66		66				74		74
Commercial real estate		2,256		2,565				2,807		3,102
Construction		173		173				988		1,083
Commercial and industrial		1,616		1,946				1,808		2,138

Total		4,923		6,013				6,518		7,678

Impaired loans with a valuation allowance:
One- to four-family		572		572	$	51		581		581	$	49
Multi-family		1,271		1,271		133		1,285		1,285		137
Commercial real estate		411		411		2		—		—		—

Total		2,254		2,254		186		1,866	$	1,866		186

Total impaired loans	$	7,177	$	8,267	$	186	$	8,384	$	9,544	$	186

At June 30, 2017, additional funds committed to be advanced in connection with impaired construction loans were immaterial.


	Three Months Ended June 30,
	2017						2016
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In thousands)
One- to four-family	$	1,550	$	16	$	11	$	1,699	$	16	$	10
Multi-family		1,342		13		—		1,385		14		—
Commercial real estate		2,762		24		24		3,937		14		14
Construction		173		2		—		14,017		9		6
Commercial and industrial		1,638		16		—		1,980		18		—

Total impaired loans	$	7,465	$	71	$	35	$	23,018	$	71	$	30


	Six Months Ended June 30,
	2017						2016
	Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis		Average Recorded Investment		Interest Income Recognized		Interest Income Recognized on Cash Basis
	(In thousands)
One- to four-family	$	1,559	$	35	$	25	$	1,709	$	36	$	25
Multi-family		1,348		27		—		1,390		27		—
Commercial real estate		2,781		33		33		3,805		53		53
Construction		580		4		—		14,771		17		10
Commercial and industrial		1,714		32		—		1,376		49		13

Total impaired loans	$	7,982	$	131	$	58	$	23,051	$	182	$	101

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


	June 30, 2017		December 31, 2016
	(In thousands)
TDRs on accrual status:
One- to four-family	$	2,182	$	2,219
Multi-family		1,337		1,359
Home equity lines of credit		17		18
Commercial real estate		9,331		9,460
Construction		173		174
Commercial and industrial		24		27

Total TDRs on accrual status		13,064		13,257

TDRs on non-accrual status:
One- to four-family		1,095		1,123

Total TDRs on non-accrual status		1,095		1,123

Total TDRs	$	14,159	$	14,380

The Company generally places loans modified as TDRs on non-accrual status for a minimum period of six months. Loans modified as TDRs qualify for return to accrual status once they have demonstrated performance with the modified terms of the loan agreement for a minimum of six months and future payments are reasonably assured. TDRs are initially reported as impaired loans with an allowance established as part of the allocated component of the allowance for loan losses when the discounted cash flows of the impaired loan is lower than the carrying value of that loan. TDRs may be removed from impairment disclosures in the year following the restructure if the borrower demonstrates compliance with the modified terms and the restructuring agreement specifies an interest rate equal to that which would be provided to a borrower with similar credit at the time of restructuring. At both June 30, 2017 and December 31, 2016, the allowance for loan losses included an allocated component related to TDRs of $186,000. There were no charge-offs related to the TDRs modified during the six months ended June 30, 2017 and 2016. TDRs that defaulted and became 90 days past due in the first twelve months after being restructured were immaterial for the six months ended June 30, 2017, and 2016.

The Company utilizes a ten-grade internal loan rating system for multi-family, commercial real estate, construction, and commercial and industrial loans as follows:

•

Loans rated 1, 2, 3, 4, 5 and 6: Loans in these categories are considered “pass” rated loans with low to average risk.

•

Loans rated 7: Loans in these categories are considered “special mention.” These loans are starting to show signs of potential weakness and are being closely monitored by management.

•

Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected.

•

Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.

•

Loans rated 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.

On an annual basis, or more often if needed, the Company formally reviews the ratings on multi-family, commercial real estate, construction, and commercial and industrial loans. The Company also engages an independent third-party to review a significant portion of loans within these segments on at least an annual basis. Management uses the results of these reviews as part of its annual review process.

The following tables provide the Company’s risk-rated loans by class:


	June 30, 2017								December 31, 2016
	Multi-family residential real estate		Commercial real estate		Construction		Commercial and industrial		Multi-family residential real estate		Commercial real estate		Construction		Commercial and industrial
	(In thousands)
Loans rated 1 - 6	$	690,236	$	1,923,617	$	517,298	$	501,746	$	556,892	$	1,771,671	$	500,565	$	465,979
Loans rated 7		818		1,289		—		27,888		841		2,123		—		22,820
Loans rated 8		4,548		2,666		173		27,809		5,215		2,807		2,188		26,631
Loans rated 9		—		—		—		—		—		—		—		—
Loans rated 10		—		—		—		—		—		—		—		—

Total	$	695,602	$	1,927,572	$	517,471	$	557,443	$	562,948	$	1,776,601	$	502,753	$	515,430

For one- to four-family residential real estate loans, home equity lines of credit and consumer loans, management uses delinquency reports as the key credit quality indicator.

6. DEPOSITS

A summary of deposit balances, by type, follows:


	June 30, 2017		December 31, 2016
	(In thousands)
Demand deposits	$	457,009	$	431,222
NOW deposits		779,208		630,413
Money market deposits		972,720		980,344
Regular savings and other deposits		321,674		305,632

Total non-certificate accounts		2,530,611		2,347,611

Term certificates less than $250,000		842,316		850,565
Term certificates $250,000 and greater		286,990		277,661

Total certificate accounts		1,129,306		1,128,226

Total deposits	$	3,659,917	$	3,475,837

A summary of term certificates, by maturity, follows:


	June 30, 2017					December 31, 2016
Maturing	Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Within 1 year	$	632,469		1.20	%	$	539,903		1.16	%
Over 1 year to 2 years		187,715		1.29			306,120		1.29
Over 2 years to 3 years		223,809		1.94			122,952		1.69
Over 3 years to 4 years		59,347		1.92			133,256		2.02
Over 4 years to 5 years		22,371		1.88			22,483		1.61
Greater than 5 years		3,595		5.50			3,512		5.50

	$	1,129,306		1.43	%	$	1,128,226		1.38	%

The Company had brokered certificates of deposit, which are included in term certificates in the tables above, totaling $152.9 million with a weighted average rate of 1.49% and $158.5 million with a weighted average rate of 1.33% at June 30, 2017 and December 31, 2016, respectively. At June 30, 2017 and December 31, 2016, the Company also had brokered NOW deposits totaling $436.6 million and $296.3 million representing reciprocal deposits received from other financial institutions through Authorized Bank Deposit Placement Network Sponsor to facilitate full federal deposit insurance coverage for certain Bank customers.

7. BORROWINGS

At June 30, 2017, short-term borrowings with an original maturity of less than one year consisted of an FHLB advance totaling $40.0 million with a rate of 1.30% that matured on July 3, 2017. The Company had no short-term borrowings on December 31, 2016. The Company has an available line of credit of $9.4 million with the FHLB at an interest rate that adjusts daily and $483,000 of borrowing capacity at the Federal Reserve Bank discount window. No amounts were drawn on the line of credit and no borrowings were outstanding with the Federal Reserve Bank discount window as of June 30, 2017 or December 31, 2016.

Long-term debt consists of FHLB advances as follows:


	June 30, 2017					December 31, 2016
	Amount		Weighted Average Rate			Amount		Weighted Average Rate
	(Dollars in thousands)
Fixed rate advances maturing:
2017	$	17,132		1.07	%	$	89,632		1.32	%
2018		43,000		1.25			43,000		1.25
2019		3,986		1.23			4,891		1.23
2020		54,272		1.79			4,989		1.22
2021		60,000		1.42			45,000		1.46
2022		60,625		1.75			—		—
2023		10,000		2.10			10,000		2.10
2026		10,000		0.69			20,000		0.59
2027		25,000		1.38			—		—
2031		20,000		0.88			20,000		0.88
2032		45,000		1.03			—		—

		349,015		1.41			237,512		1.26

Variable rate advances maturing:
2020		—		—			25,000		0.27
2021		35,000		0.58			60,000		0.31
2022		30,000		0.26			—		—
2024		20,000		0.22			—		—

		85,000		0.38			85,000		0.29

Total advances	$	434,015		1.21	%	$	322,512		1.01	%

At June 30, 2017, advances amounting to $290.0 million are callable by the FHLB prior to maturity, including advances totaling $35.0 million with variable rates based on the 3-Month London Interbank Offered Rate (“LIBOR”), less 60 basis points, during the first two years and $50.0 million with variable rates based on the 3-Month LIBOR, less 100 basis points, during the first year.

All borrowings from the FHLB are secured by investment securities and qualified collateral, consisting of a blanket lien on one- to four-family loans and certain multi-family and commercial real estate loans held in the Company’s portfolio. At June 30, 2017, the Company pledged multi-family and commercial real estate loans with carrying values totaling $66.3 million and $451.4 million, respectively.

8. OTHER COMMITMENTS AND CONTINGENCIES AND DERIVATIVES

In the normal course of business, there are outstanding commitments and contingencies which are not reflected in the accompanying consolidated financial statements.

Loan Commitments

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers and to reduce its own exposure to fluctuations in interest rates. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the accompanying consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

The Company’s exposure to credit loss in the event of nonperformance by the counterparty to the financial instrument for loan commitments is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments.

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


	June 30, 2017		December 31, 2016
	(In thousands)
Unadvanced portion of existing loans:
Construction	$	558,108	$	503,586
Home equity lines of credit		39,824		36,722
Other lines and letters of credit		287,990		314,225
Commitments to originate:
One- to four-family		33,613		18,272
Commercial real estate		83,746		42,141
Construction		185,076		231,274
Commercial and industrial		6,300		31,463
Other loans		—		350

Total loan commitments outstanding	$	1,194,657	$	1,178,033

Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments are expected to expire without being drawn upon, the total commitments do not necessarily represent future cash requirements. The Company evaluates each customer’s credit worthiness on a case by case basis. The amount of collateral obtained, if deemed necessary by the Company for the extension of credit, is based upon management’s credit evaluation of the borrower. Collateral held includes, but is not limited to, residential real estate and deposit accounts.

Unfunded commitments under lines of credit are commitments for possible future extensions of credit to existing customers. These lines of credit are collateralized if deemed necessary and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed. Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Interest Rate Swaps

The Company is a party to interest rate derivatives that are not designated as hedging instruments. These derivatives relate to interest rate swaps that the Company enters into with commercial business customers to synthetically convert their loans from a variable rate to a fixed rate. The Company pays interest to the customer at a floating rate on the notional amount and receives interest from the customer at a fixed rate for the same notional amount. Concurrently, the Company enters into an offsetting interest rate swap with a third party financial institution. In the offsetting swap, the Company pays the other financial institution interest at the same fixed rate on the same notional amount as the swap entered into with the customer, and receives interest from the financial institution for the same floating rate on the same notional amount. The changes in the fair value of the swaps offset each other, except for the credit risk of the counterparties, which is determined by taking into consideration the risk rating and probability of default. At June 30, 2017 and December 31, 2016, the Company had $3.2 million and $1.8 million, respectively, in cash pledged for collateral on its interest rate swaps with the third-party financial institution.

Summary information regarding these derivatives is presented below:


					June 30, 2017					December 31, 2016
	Maturity		Interest Rate Paid	Interest Rate Received	Notional Amount		Fair Value			Notional Amount		Fair Value
					(Dollars in thousands)
Customer interest rate swap		06/06/32	1 Mo. LIBOR + 200bp	Fixed (4.40%)	$	66,240	$	1,059		$	—	$	—
Third-party interest rate swap		06/06/32	Fixed (4.40%)	1 Mo. LIBOR + 200bp		66,240		(1,059	)		—		—

Customer interest rate swap		10/17/33	1 Mo. LIBOR + 175bp	Fixed (4.1052%)	$	10,818	$	828		$	10,922	$	839
Third-party interest rate swap		10/17/33	Fixed (4.1052%)	1 Mo. LIBOR + 175bp		10,818		(828	)		10,922		(839	)

Customer interest rate swap		12/13/26	1 Mo. LIBOR + 205bp	Fixed (3.82%)	$	2,961	$	(53	)	$	3,036	$	(60	)
Third-party interest rate swap		12/13/26	Fixed (3.82%)	1 Mo. LIBOR + 205bp		2,961		53			3,036		60

Other Commitments

As of June 30, 2017, the Company has an outstanding commitment of $19.5 million with its core data processing provider through December 2021.

Employment and Change in Control Agreements

The Company has entered into employment agreements with certain senior executives which provide for a minimum annual salary, subject to increase at the discretion of the Board of Directors, and other benefits. The agreements may be terminated for cause by the Company without further liability on the part of the Company, or by the executives with prior written notice to the Board of Directors. The Company also has change in control agreements with several officers which provide a severance payment in the event employment is terminated in conjunction with a defined change in control.

Legal Claims

Various legal claims may arise from time to time in the normal course of business, but in the opinion of management, these claims are not expected to have a material effect on the Company’s consolidated financial statements.

9. FAIR VALUES OF ASSETS AND LIABILITIES

Determination of Fair Value

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. The fair value of assets and liabilities is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

The following methods and assumptions were used by the Company in estimating fair value disclosures:

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. Marketable equity securities are measured at fair value utilizing quoted market prices (Level 1). Corporate bonds, obligations of government-sponsored enterprises, U.S. treasury securities, municipal bonds and mortgage-backed securities are determined by pricing models that consider standard input factors such as observable market data, benchmark yields, reported trades, broker/dealer quotes, credit spreads, benchmark securities, as well as new issue data, monthly payment information, and collateral performance, among others (Level 2).

FHLB stock — The carrying value of FHLB stock approximates fair value based on the redemption provisions of the FHLB.

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-accrual loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits — The fair values disclosed for non-certificate accounts are, 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 current incremental borrowing rates in the market for similar types of borrowing arrangements.

Accrued interest — The carrying amounts of accrued interest approximate fair value.

Loan level interest rate swaps — The fair value is based on settlement values adjusted for credit risks associated with the counterparties and the Company and observable market interest rate curves.

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.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets measured at fair value on a recurring basis are summarized as follows. There were no liabilities measured at fair value on a recurring basis.


	Level 1		Level 2		Level 3		Total Fair Value
	(In thousands)
June 30, 2017
Assets:
Debt securities	$	—	$	10,583	$	—	$	10,583
Marketable equity securities		41,779		—		—		41,779
Loan level interest rate swaps		—		1,834		—		1,834

Total assets	$	41,779	$	12,417	$	—	$	54,196

Liabilities:
Loan level interest rate swaps		—		1,834		—		1,834

Total liabilities	$	—	$	1,834	$	—	$	1,834


	Level 1		Level 2		Level 3		Total Fair Value
	(In thousands)
December 31, 2016
Assets:
Debt securities	$	—	$	21,631	$	—	$	21,631
Marketable equity securities		46,032		—		—		46,032
Loan level interest rate swaps		—		779		—		779

Total assets	$	46,032	$	22,410	$	—	$	68,442

Liabilities:
Loan level interest rate swaps		—		779		—		779

Total liabilities	$	—	$	779	$	—	$	779

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.

Certain impaired loans were adjusted to fair value, less cost to sell, of the underlying collateral securing these loans resulting in losses. The loss is not recorded directly as an adjustment to current earnings, but rather as a component in determining the allowance for loan losses. Fair value was measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for specific properties. Impaired loans measured at fair value at June 30, 2017 and December 31, 2016 were $3.7 million and $4.9 million, respectively. The related gains and losses were immaterial for the three and six months ended June 30, 2017 and 2016.

Summary of Fair Values of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company’s financial instruments are as follows. Certain financial instruments and all nonfinancial instruments are exempt from disclosure requirements. Accordingly, the aggregate fair value amounts presented herein do not represent the underlying fair value of the Company.


	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
June 30, 2017
Financial assets:
Cash and due from banks	$	234,776	$	234,776	$	—	$	—	$	234,776
Certificates of deposit		85,323		—		85,646		—		85,646
Securities available for sale		52,362		41,779		10,583		—		52,362
Federal Home Loan Bank stock		22,579		—		—		22,579		22,579
Loans and loans held for sale, net		4,258,092		—		—		4,334,575		4,334,575
Accrued interest receivable		11,068		—		—		11,068		11,068
Financial liabilities:
Deposits		3,659,917		—		—		3,605,013		3,605,013
Borrowings		474,015		—		475,294		—		475,294
Accrued interest payable		1,532		—		—		1,532		1,532
On-balance sheet derivative financial instruments:
Assets:
Loan level interest rate swaps		1,834		—		1,834		—		1,834
Liabilities:
Loan level interest rate swaps		1,834		—		1,834		—		1,834

	Carrying Amount		Fair Value
	Carrying Amount		Level 1		Level 2		Level 3		Total
	(In thousands)
December 31, 2016
Financial assets:
Cash and due from banks	$	236,423	$	236,423	$	—	$	—	$	236,423
Certificates of deposit		80,323		—		80,710		—		80,710
Securities available for sale		67,663		46,032		21,631		—		67,663
Federal Home Loan Bank stock		18,175		—		—		18,175		18,175
Loans and loans held for sale, net		3,902,612		—		—		3,970,896		3,970,896
Accrued interest receivable		10,381		—		—		10,381		10,381
Financial liabilities:
Deposits		3,475,837		—		—		3,485,618		3,485,618
Borrowings		322,512		—		322,928		—		322,928
Accrued interest payable		1,384		—		—		1,384		1,384
On-balance sheet derivative financial instruments:
Assets:
Loan level interest rate swaps		779		—		779		—		779
Liabilities:
Loan level interest rate swaps		779		—		779		—		779

10. PENDING ACQUISITION

On June 26, 2017, the Company announced the signing of a definitive merger agreement to acquire Meetinghouse Bancorp, Inc. (“Meetinghouse”) and for the Bank to acquire Meetinghouse Bank. The transaction has been unanimously approved by the boards of

directors of both companies. Under the terms of the agreement, Meetinghouse shareholders will receive $26.00 in cash for each of their outstanding shares of Meetinghouse common stock, representing a total transaction value of approximately $17.8 million. Meetinghouse Bank has approximately $117 million in assets, $80 million in loans and $98 million in deposits as of June 30, 2017 and conducts its operations from two offices located in the Boston communities of Dorchester and Roslindale. The closing of the acquisition is anticipated to occur during the fourth quarter of 2017, subject to approval by Meetinghouse’s shareholders, the receipt of required regulatory approvals and the satisfaction of other customary closing conditions. For more information, refer to the Current Report on Form 8-K filed with the SEC on June 26, 2017.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion and analysis contains information from our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. You should read the information in this section in conjunction with the Consolidated Financial Statements and related notes in Part I, Item 1 of this report and the business and financial information and the Consolidated Financial Statements and related notes that are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC.

Forward Looking Statements

This report contains forward-looking statements that are based on assumptions and may describe future plans, strategies and expectations of the Company. These forward-looking statements, can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “plan,” “seek,” “expect” and words of similar meaning. The Company’s ability to predict results or actual effect of future plans is inherently uncertain. Factors which could have a material adverse effect on the operations of the Company and its subsidiaries include, but are not limited to:

•

general economic conditions, either nationally or in our market areas, that are worse than expected;

•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments or the origination levels in our lending business, or increase the level of defaults, losses and prepayments on loans we have made and make whether held in portfolio or sold in the secondary markets;

•

competition among depository and other financial institutions;

•

changes in consumer spending, borrowing and savings habits;

•

our ability to enter new markets successfully and capitalize on growth opportunities;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own;

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board or the SEC;

•

changes in the level and trends of loan delinquencies and charge-offs and changes in estimates of the adequacy of the allowance for loan losses;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and changes in our business strategies;

•

adverse changes in the securities or secondary mortgage markets;

•

the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the implementing regulations;

•

our ability to manage market risk, credit risk and operational risk in the current economic conditions;

•

our ability to successfully integrate any assets, liabilities, customers, systems and management personnel we have acquired or may acquire into our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;

•

our ability to retain key employees; and

•

significant increases in our loan losses.

Management’s ability to predict results or the effect of future plans or strategies is inherently uncertain. Additional factors that may affect our results are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 filed with the

SEC on March 1, 2017, under “Risk Factors,” which is available through the SEC’s website at www.sec.gov, as updated by subsequent filings with the SEC. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except required by applicable law or regulation, the Company does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Critical Accounting Policies

A summary of significant accounting policies is described in Note 1 to the Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2016. Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. Management believes that the most critical accounting policies are the determination of the allowance for loan losses and the evaluation of securities for other-than-temporary impairment.

Comparison of Financial Condition at June 30, 2017 and December 31, 2016

Assets. Our total assets increased $351.4 million, or 7.9%, to $4.787 billion at June 30, 2017 from $4.436 billion at December 31, 2016. Net loans increased $357.2 million, or 9.2%, to $4.256 billion at June 30, 2017 from $3.899 billion at December 31, 2016. Securities available for sale decreased $15.3 million, or 22.6%, to $52.4 million at June 30, 2017 from $67.7 million at December 31, 2016.

Loan Portfolio Analysis. At June 30, 2017, net loans were $4.256 billion, or 88.9% of total assets. During the six months ended June 30, 2017, net loans increased $357.2 million, or 9.2%. Loan originations totaled $826.7 million during the six months ended June 30, 2017. The increase in net loans resulted primarily from increases of $151.0 million in commercial real estate loans, $132.7 million in multi-family loans, $42.0 million in commercial and industrial loans, $20.3 million in one- to four-family loans, and $14.7 million in construction loans. Refer to Note 5, Loans, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding the loans held in the Company’s loan portfolio.

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

Internal and independent third-party loan reviews vary by loan type, as well as the size and complexity of the loan. Some loans may warrant detailed individual review, while other loans may have less risk based upon size, or be of a homogeneous nature reducing the need for detailed individual analysis. Assets with these characteristics, such as consumer loans and loans secured by residential real estate, may be reviewed on the basis of risk indicators such as delinquency or credit rating. In cases of significant concern, a total re-evaluation of the loan and associated risks are documented by completing a loan risk assessment and action plan. Some loans may be re-evaluated in terms of their fair market value or net realizable value in order to determine the likelihood of potential loss exposure and, consequently, the adequacy of specific and general loan loss reserves.

When a borrower fails to make a required loan payment, we take a number of steps to have the borrower cure the delinquency and restore the loan to current status, including contacting the borrower by letter and phone at regular intervals. When the borrower is in default, we may commence collection proceedings. If a foreclosure action is instituted and the loan is not brought current, paid in full, or refinanced before the foreclosure sale, the real property securing the loan generally is sold at foreclosure. Management informs the Executive Committee monthly of the amount of loans delinquent more than 30 days. Management provides detailed information to the Board of Directors on loans 60 or more days past due and all loans in foreclosure and repossessed property that we own.

Delinquencies. Total past due loans decreased $3.1 million, or 29.6%, to $7.3 million at June 30, 2017 from $10.4 million at December 31, 2016, reflecting a decrease of $3.6 million in loans 90 days or greater past due, offset by increases of $47,000 in loans 60 to 89 days past due and $480,000 in loans 30 to 59 days past due. At June 30, 2017, non-accrual loans (which totaled $11.5 million) exceeded loans 90 days or greater past due (which totaled $3.3 million) primarily due to loans which were placed on non-accrual status based on a determination that the ultimate collection of all principal and interest due was not expected and certain loans remain on non-accrual status until they attain a sustained payment history of six consecutive months.

Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status, including TDRs on non-accrual status, and real estate and other loan collateral acquired through foreclosure and repossession. Loans 90 days or greater past due may remain on an accrual basis if adequately collateralized and in the process of collection. At June 30, 2017, we did not have any accruing loans past due 90 days or greater. For non-accrual loans, interest previously accrued but not collected is reversed and charged against income at the time a loan is placed on non-accrual status. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Real estate that we acquire as a result of foreclosure or by deed-in-lieu of foreclosure is classified as foreclosed real estate until it is sold. When property is acquired, it is initially recorded at the fair value less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Holding costs and declines in fair value after acquisition of the property result in charges against income. The recorded investment of consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings are in process according to local requirements of the applicable jurisdiction totaled $686,000 at June 30, 2017.

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


	June 30, 2017			December 31, 2016
	(Dollars in thousands)
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential real estate:
One- to four-family	$	7,667		$	8,487
Home equity lines of credit		619			674
Commercial real estate		2,666			2,807
Construction		—			815

Total real estate loans		10,952			12,783
Commercial and industrial		529			653

Total non-accrual loans (1)		11,481			13,436

Total non-performing assets	$	11,481		$	13,436

Non-accrual loans to total loans		0.27	%		0.34	%
Non-accrual loans to total assets		0.24	%		0.30	%
Non-performing assets to total assets		0.24	%		0.30	%

(1)	TDRs on accrual status not included above totaled $13.1 million at June 30, 2017 and $13.3 million at December 31, 2016.

Non-performing assets were $11.5 million, or 0.24% of total assets, at June 30, 2017, compared to $13.4 million, or 0.30% of total assets, at December 31, 2016. We recognized $270,000 of interest income on non-accrual loans for the six months ended June 30, 2017. Additional interest income that would have been recorded for the six months ended June 30, 2017 had non-accruing loans been current according to their original terms amounted to $11,000.

Non-accrual loans decreased $2.0 million, or 14.6%, to $11.5 million, or 0.27% of total loans outstanding at June 30, 2017, from $13.4 million, or 0.34% of total loans outstanding at December 31, 2016, primarily due to an $820,000 decrease in non-accrual, one- to four-family loans and an $815,000 decrease in non-accrual, construction loans.

Achieving and maintaining a moderate risk profile by aggressively managing troubled assets has been and will continue to be a primary focus for us. At June 30, 2017, our allowance for loan losses was $43.2 million, or 1.00% of total loans and 376.53% of non-accrual loans, compared to $40.1 million, or 1.02% of total loans and 298.82% of non-accrual loans at December 31, 2016. We increased our allowance primarily as a result of growth in the loan portfolio, in particular, commercial loans. Included in our allowance at June 30, 2017 was a general component of $43.0 million, which is based upon our evaluation of various factors relating to loans not deemed to be impaired. We continue to believe our level of non-performing loans and assets, which declined significantly during the past two years, is manageable and we believe that we have sufficient capital and human resources to manage the collection of our non-performing assets in an orderly fashion.

At June 30, 2017 and December 31, 2016, the Company did not hold any foreclosed real estate. We continue to be actively engaged with our borrowers in resolving remaining problem assets and with the effective management of real estate owned as a result of foreclosures.

Troubled Debt Restructurings. In the course of resolving loans of borrowers with financial difficulties, we may choose to restructure the contractual terms of certain loans, with terms modified to fit the ability of the borrower to repay in line with its current financial status. A loan is considered a TDR if, for reasons related to the debtor’s financial difficulties, a concession is granted to the debtor that would not otherwise be considered.

Total TDRs decreased $221,000 to $14.2 million at June 30, 2017 from $14.4 million at December 31, 2016, reflecting principal paydowns. Modifications of TDRs consist of rate reductions, loan term extensions or provisions for interest-only payments for specified periods up to 12 months. We have generally been successful with the concessions we have offered to borrowers to date. We generally return TDRs to accrual status when they have sustained payments for six consecutive months based on the restructured terms and future payments are reasonably assured. We recognized $305,000 of interest income on TDRs for the six months ended June 30, 2017.

Potential Problem Loans. Certain loans are identified during our loan review process that are currently performing in accordance with their contractual terms and we ultimately expect to receive payment in full of principal and interest, but it is deemed probable that we will be unable to collect all the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. This may result from deteriorating conditions such as cash flows, collateral values or creditworthiness of the borrower. These loans are classified as impaired but are not accounted for on a non-accrual basis.

Other potential problem loans are those loans that are currently performing, but where known information about possible credit problems of the borrowers causes us to have concerns as to the ability of such borrowers to comply with contractual loan repayment terms. These other potential problem loans are generally loans classified as “substandard” or 8-rated loans in accordance with our ten-grade internal loan rating system that is consistent with guidelines established by banking regulators. At June 30, 2017, other potential problem loans totaled $29.4 million, including $26.2 million of commercial and industrial loans and $3.2 million of multi-family loans.

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

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


	Six Months Ended June 30,
	2017			2016
	(Dollars in thousands)
Beginning balance	$	40,149		$	33,405
Provision for loan losses		3,116			5,018
Charge-offs:
Construction		(2	)		—
Commercial and industrial		—			(44	)
Consumer		(166	)		(134	)

Total charge-offs		(168	)		(178	)

Recoveries:
One- to four-family		33			—
Multi-family		1			—
Construction		50			14
Commercial and industrial		—			8
Consumer		48			50

Total recoveries		132			72

Net charge-offs		(36	)		(106	)

Ending balance	$	43,229		$	38,317

Allowance to non-accrual loans		376.53	%		130.22	%
Allowance to total loans outstanding		1.00	%		1.08	%
Net charge-offs to average loans outstanding		0.00	%		0.01	%

Our provision for loan losses was $3.1 million for the six months ended June 30, 2017 compared to $5.0 million for the six months ended June 30, 2016. For the six months ended June 30, 2017, the provision for loan losses was primarily due to growth in the commercial loan categories. The changes in the provision and the allowance for loan losses were based on management’s assessment of loan portfolio growth and composition changes, declines in historical charge-off trends, reduced levels of problem loans and other improving asset quality trends. The increase in the allowance for loan losses at June 30, 2017 compared to June 30, 2016 was primarily due to increases in the multi-family, commercial real estate, construction, and commercial and industrial loan categories; as such loans have higher inherent credit risk than one- to four- family loans and home equity lines of credit. We continue to assess the adequacy of our allowance for loan losses in accordance with established policies.

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


	June 30, 2017								December 31, 2016
	Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category of Total Loans			Amount		Percent of Allowance to Total Allowance			Percent of Loans in Category of Total Loans
	(Dollars in thousands)
Real estate loans:
Residential real estate:
One- to four-family	$	1,167		2.7	%		12.8	%	$	1,367		3.4	%		13.5	%
Multi-family		5,549		12.8			16.2			4,514		11.2			14.3
Home equity lines of credit		71		0.2			1.0			73		0.2			1.1
Commercial real estate		20,598		47.6			44.8			18,725		46.7			45.1
Construction		8,846		20.5			12.0			8,931		22.2			12.8

Total real estate loans		36,231		83.8			86.8			33,610		83.7			86.8
Commercial and industrial		6,901		16.0			13.0			6,452		16.1			13.0
Consumer		97		0.2			0.2			87		0.2			0.2

Total	$	43,229		100.0	%		100.0	%	$	40,149		100.0	%		100.0	%

The allowance consists of general and allocated components. The general component relates to pools of non-impaired loans and is based on historical loss experience adjusted for qualitative factors. The allocated component relates to loans that are classified as impaired. A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.

We had impaired loans totaling $7.2 million and $8.4 million as of June 30, 2017 and December 31, 2016, respectively. At June 30, 2017, impaired loans totaling $2.3 million had a valuation allowance of $186,000. Impaired loans totaling $1.9 million had a valuation allowance of $186,000 at December 31, 2016. Our average investment in impaired loans was $8.0 million and $23.1 million for the six months ended June 30, 2017 and 2016, respectively.

Large groups of smaller balance homogeneous loans are collectively evaluated for impairment based on payment status. Accordingly, we do not separately identify individual one- to four-family residential real estate, home equity lines of credit and consumer loans for impairment disclosures, unless such loans are subject to a troubled debt restructuring. We periodically may agree to modify the contractual terms of loans. When a loan is modified and a concession is made to a borrower experiencing financial difficulty, the modification is considered a TDR. All TDRs are initially classified as impaired.

Management has reviewed the collateral value for all impaired and non-accrual loans that were collateral-dependent as of June 30, 2017 and considered any probable loss in determining the allowance for loan losses.

For residential loans measured for impairment based on the collateral value, we will do the following:

•

When a loan becomes seriously delinquent, generally 60 days past due, we obtain third-party appraisals that are generally the basis for charge-offs when a loss is indicated, prior to the foreclosure sale, but usually no later than when such loans are 180 days past due. We generally are able to complete the foreclosure process within six to nine months from receipt of the third-party appraisal.

•

We make adjustments to appraisals based on updated economic information, if necessary, prior to the foreclosure sale. We review current market factors to determine whether, in management’s opinion, downward adjustments to the most recent appraised values may be warranted. If so, we use our best estimate to apply an estimated discount rate to the appraised values to reflect current market factors.

•

Appraisals we receive are based on comparable property sales.

For commercial loans measured for impairment based on the collateral value, we will do the following:

•

We obtain a third-party appraisal at the time a loan is deemed to be in a workout situation and there is no indication that the loan will return to performing status, generally when the loan is 90 days or more past due. One or more updated third-party appraisals are obtained prior to foreclosure depending on the foreclosure timeline. In general we order new appraisals annually on loans in the process of foreclosure.

•

We make downward adjustments to appraisals when conditions warrant. Adjustments are made by applying a discount to the appraised value based on occupancy, recent changes in condition to the property and certain other factors. Adjustments are also made to appraisals for construction projects involving residential properties based on recent sales of units. Losses are recognized if the appraised value less estimated costs to sell is less than our carrying value of the loan.

•

Appraisals we receive are generally based on a reconciliation of comparable property sales and income capitalization approaches. For loans on construction projects involving residential properties, appraisals are generally based on a discounted cash flow analysis assuming a bulk sale to a single buyer.

Loans that are partially charged off generally remain on non-accrual status until foreclosure or such time that they are performing in accordance with the terms of the loan and have a sustained payment history of at least six consecutive months. The accrual of interest is generally discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. Loan losses are charged against the allowance when we believe the uncollectability of a loan balance is confirmed; for collateral-dependent loans, generally when appraised values (as adjusted values, if applicable) less estimated costs to sell, are less than our carrying values.

Although we believe that we use the best information available to establish the allowance for loan losses, future adjustments to the allowance for loan losses may be necessary and our results of operations could be adversely affected if circumstances differ substantially from the assumptions used in making the determinations. Furthermore, while we believe we have established our allowance for loan losses in conformity with generally accepted accounting principles in the United States of America, there can be no assurance that regulators, in reviewing our loan portfolio, will not require us to increase our allowance for loan losses. In addition, because future events affecting borrowers and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is adequate or that increases will not be necessary should the quality of any loans deteriorate as a result of the factors discussed above. Any material increase in the allowance for loan losses may adversely affect our financial condition and results of operations.

Securities Portfolio. At June 30, 2017, our securities portfolio was $52.4 million, or 1.1% of total assets. During the six months ended June 30, 2017, the securities portfolio decreased $15.3 million, or 22.6%, primarily due to $11.0 million in maturities, calls and principal payments and $11.6 million in sales, partially offset by $5.3 million in purchases. At June 30, 2017, the securities portfolio consisted of $10.6 million, or 20.2%, in debt securities and $41.8 million, or 79.8%, in marketable equity securities. The debt securities within the portfolio are corporate bonds, municipal bonds, and mortgage-backed securities issued by government-sponsored enterprises and private companies. Included in marketable equity securities are common stocks and money market mutual funds. We purchase marketable equity securities with the intent to generate long-term capital gains through purchasing investment grade dividend paying securities in companies with relatively low long-term debt and a history of sustained earnings and above-average growth. We typically initiate a securities position based on market opportunities. At June 30, 2017, we had no investments in a single company or entity that had an aggregate book value in excess of 10% of our equity. Refer to Note 4, Securities Available for Sale, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our securities portfolio.

Deposits. Deposits are a major source of our funds for lending and other investment purposes. 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 savings and other deposits, and certificates of deposit, which include brokered certificates of deposit. We consider demand, NOW, money market, and regular savings and other deposits to be core deposits. Total deposits increased $184.1 million, or 5.3%, to $3.660 billion at June 30, 2017 from $3.476 billion at December 31, 2016. Our continuing focus on the acquisition and expansion of core deposit relationships resulted in net growth in core deposits of $183.0 million, or 7.8%, to $2.531 billion, or 69.1% of total deposits. Refer to Note 6, Deposits, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our deposits.

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


	Six Months Ended June 30,
	2017								2016
	Average Balance		Average Rate			Percent of Total Deposits			Average Balance		Average Rate			Percent of Total Deposits
	(Dollars in thousands)
Demand deposits	$	440,986		—	%		12.4	%	$	364,760		—	%		12.5	%
NOW deposits		704,681		0.81			21.3			401,952		0.57			15.1
Money market deposits		1,000,343		0.90			26.6			843,700		0.80			27.1
Regular savings and other deposits		312,825		0.14			8.8			293,550		0.14			10.0
Certificates of deposit		1,140,921		1.39			30.9			971,219		1.28			35.3

Total	$	3,599,756		0.86	%		100.0	%	$	2,875,181		0.76	%		100.0	%

Borrowings. We use borrowings from the FHLB to supplement our supply of funds for loans and investments. At June 30, 2017 and December 31, 2016, FHLB advances totaled $474.0 million and $322.5 million, respectively, with a weighted average rate of 1.21% and 1.01%, respectively. Total borrowings increased $151.5 million, or 47.0%, during the six months ended June 30, 2017. The Bank entered into a short-term advance with a term of three days and a fixed rate of 1.30% and long-term advances with the FHLB totaling $205.6 million with original terms ranging from three to 15 years and initial interest rates ranging from 0.04% to 2.21% during the six months ended June 30, 2017. The maturing advances with the FHLB during the six months ended June 30, 2017 totaled $94.1 million and consisted of long-term advances with original terms ranging from three to five years and fixed interest rates ranging from of 0.31% to 1.57%. At June 30, 2017, we also had an available line of credit of $9.4 million with the FHLB at an interest rate that adjusts daily, none of which was outstanding at that date. Refer to Note 7, Borrowings, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our borrowings.

Information relating to borrowings is detailed in the following table.


	Six Months Ended June 30,
	2017			2016
	(Dollars in thousands)
Balance outstanding at end of period	$	474,015		$	320,624
Average amount outstanding during the period	$	343,536		$	231,920
Weighted average interest rate during the period		1.23	%		1.13	%
Maximum outstanding at any month end	$	474,015		$	320,624
Weighted average interest rate at end of period		1.21	%		1.01	%

Stockholders’ Equity. Total stockholders’ equity increased $19.4 million, or 3.2%, to $626.7 million at June 30, 2017, from $607.3 million at December 31, 2016. The increase for the six months ended June 30, 2017 was due primarily to net income of $20.6 million, $2.8 million related to stock-based compensation plans and $99,000 in accumulated other comprehensive income, reflecting an increase in the fair value of available-for-sale securities, partially offset by dividends of $0.08 per share totaling $4.1 million. Stockholders’ equity to assets was 13.09% at June 30, 2017, compared to 13.69% at December 31, 2016. Book value per share increased to $11.68 at June 30, 2017 from $11.33 at December 31, 2016. At June 30, 2017, the Company and the Bank continued to exceed all regulatory capital requirements. Refer to “Capital Management” within this report for more information regarding capital requirements and actual capital amounts and ratios for the Bank and the Company.

Results of Operations for the Three and Six Months Ended June 30, 2017 and 2016

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, mortgage banking gains and gains on sales of securities, net.

Net income information is as follows:


	Three Months Ended June 30,						Change						Six Months Ended June 30,						Change
	2017			2016			Amount			Percent			2017			2016			Amount			Percent
	(Dollars in thousands)
Net interest income	$	35,456		$	29,455		$	6,001			20.4	%	$	68,809		$	57,834		$	10,975			19.0	%
Provision for loan losses		1,497			3,952			(2,455	)		(62.1	)		3,116			5,018			(1,902	)		(37.9	)
Non-interest income		5,030			2,583			2,447			94.7			9,102			5,275			3,827			72.5
Non-interest expenses		21,405			19,322			2,083			10.8			43,282			38,552			4,730			12.3
Net income		11,347			5,907			5,440			92.1			20,591			13,384			7,207			53.8
Basic earnings per share		0.22			0.12			0.10			83.3			0.40			0.26			0.14			53.8
Diluted earnings per share		0.22			0.11			0.11			100.0			0.39			0.26			0.13			50.0
Return on average assets		0.97	%		0.62	%		0.35	%		56.5			0.90	%		0.72	%		0.18	%		25.0
Return on average equity		7.28	%		4.03	%		3.25	%		80.6			6.66	%		4.57	%		2.09	%		45.7

Net Interest Income.

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 this table, average balances have been calculated using daily average balances, and include non-accrual loans and purchase accounting related premium and discounts. The loan yields include the effect of amortization or accretion of deferred loan fees/costs and purchase accounting premiums/discounts to interest and fees on loans.


	Three Months Ended June 30,
	2017								2016
	Average Balance		Interest (1)			Yield Cost (1)(6)			Average Balance		Interest (1)			Yield Cost (1)(6)
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (2)	$	4,180,602	$	44,431			4.26	%	$	3,422,193	$	36,000			4.23	%
Securities and certificates of deposits		142,159		691			1.95			199,596		995			2.00
Other interest-earning assets (3)		239,590		736			1.23			69,914		188			1.08

Total interest-earning assets		4,562,351		45,858			4.03			3,691,703		37,183			4.05

Noninterest-earning assets		110,509								124,147

Total assets	$	4,672,860							$	3,815,850

Liabilities and stockholders’ equity:
Interest-bearing liabilities:
NOW deposits	$	753,839		1,598			0.85		$	462,543		646			0.56
Money market deposits		992,382		2,219			0.90			813,625		1,609			0.80
Regular savings and other deposits		317,656		114			0.14			296,638		106			0.14
Certificates of deposit		1,147,440		4,004			1.40			1,005,764		3,300			1.32

Total interest-bearing deposits		3,211,317		7,935			0.99			2,578,570		5,661			0.88
Borrowings		356,325		1,118			1.26			264,060		723			1.10

Total interest-bearing liabilities		3,567,642		9,053			1.02			2,842,630		6,384			0.90

Noninterest-bearing demand deposits		456,447								364,327
Other noninterest-bearing liabilities		25,732								22,909

Total liabilities		4,049,821								3,229,866
Total stockholders’ equity		623,039								585,984

Total liabilities and stockholders’ equity	$	4,672,860							$	3,815,850

Net interest-earning assets	$	994,709							$	849,073

Fully tax-equivalent net interest income				36,805								30,799
Less: tax-equivalent adjustments				(1,349	)							(1,344	)

Net interest income			$	35,456							$	29,455

Interest rate spread (1)(4)							3.01	%							3.15	%
Net interest margin (1)(5)							3.24	%							3.36	%
Average interest-earning assets to average interest-bearing liabilities				127.88	%							129.87	%
Supplemental Information:
Total deposits, including noninterest-bearing demand deposits	$	3,667,764	$	7,935			0.87	%	$	2,942,897	$	5,661			0.77	%
Total deposits and borrowings, including noninterest-bearing demand deposits	$	4,024,089	$	9,053			0.90	%	$	3,206,957	$	6,384			0.80	%

(1)

Income on debt securities, equity securities and revenue bonds included in commercial real estate loans, as well as resulting yields, interest rate spread and net interest margin, are presented on a tax-equivalent basis. The tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of net income. For the three months ended June 30, 2017 and 2016, yields on loans before tax-equivalent adjustments were 4.14% and 4.09%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 1.63% and 1.66%, respectively, and yield on total interest-earning assets before tax-equivalent adjustments were 3.91% and 3.90%, respectively. Interest rate spread before tax-equivalent adjustments for the three months ended June 30, 2017 and 2016 was 2.89% and 3.00%, respectively, while net interest margin before tax-equivalent adjustments for the three months ended June 30, 2017 and 2016 was 3.12% and 3.21%, respectively.

(2)	Loans on non-accrual status are included in average balances.

(3)	Includes FHLB stock and associated dividends.

(4)	Interest rate spread represents the difference between the tax-equivalent yield on interest-earning assets and the cost of interest-bearing liabilities.

(5)	Net interest margin represents net interest income (tax-equivalent basis) divided by average interest-earning assets.

(6)	Annualized.


	Six Months Ended June 30,
	2017								2016
	Average Balance		Interest (1)			Yield Cost (1)(6)			Average Balance		Interest (1)			Yield Cost (1)(6)
	(Dollars in thousands)
Assets:
Interest-earning assets:
Loans (2)	$	4,091,226	$	86,121			4.24	%	$	3,284,321	$	70,104			4.29	%
Securities and certificates of deposits		143,990		1,418			1.99			215,600		2,028			1.89
Other interest-earning assets (3)		241,523		1,381			1.15			96,695		406			0.84

Total interest-earning assets		4,476,739		88,920			4.01			3,596,616		72,538			4.06

Noninterest-earning assets		111,130								118,614

Total assets	$	4,587,869							$	3,715,230

Liabilities and stockholders’ equity:
Interest-bearing liabilities:
NOW deposits	$	704,681		2,817			0.81		$	401,952		1,146			0.57
Money market deposits		1,000,343		4,449			0.90			843,700		3,355			0.80
Regular savings and other deposits		312,825		222			0.14			293,550		209			0.14
Certificates of deposit		1,140,921		7,866			1.39			971,219		6,179			1.28

Total interest-bearing deposits		3,158,770		15,354			0.98			2,510,421		10,889			0.87
Borrowings		343,536		2,098			1.23			231,920		1,300			1.13

Total interest-bearing liabilities		3,502,306		17,452			1.00			2,742,341		12,189			0.89

Noninterest-bearing demand deposits		440,986								364,760
Other noninterest-bearing liabilities		26,517								22,413

Total liabilities		3,969,809								3,129,514
Total stockholders’ equity		618,060								585,716

Total liabilities and stockholders’ equity	$	4,587,869							$	3,715,230

Net interest-earning assets	$	974,433							$	854,275

Fully tax-equivalent net interest income				71,468								60,349
Less: tax-equivalent adjustments				(2,659	)							(2,515	)

Net interest income			$	68,809							$	57,834

Interest rate spread (1)(4)							3.01	%							3.17	%
Net interest margin (1)(5)							3.22	%							3.37	%
Average interest-earning assets to average interest-bearing liabilities				127.82	%							131.15	%
Supplemental Information:
Total deposits, including noninterest-bearing demand deposits	$	3,599,756	$	15,354			0.86	%	$	2,875,181	$	10,889			0.76	%
Total deposits and borrowings, including noninterest-bearing demand deposits	$	3,943,292	$	17,452			0.89	%	$	3,107,101	$	12,189			0.79	%

(1)

Income on debt securities, equity securities and revenue bonds included in commercial real estate loans, as well as resulting yields, interest rate spread and net interest margin, are presented on a tax-equivalent basis. The tax-equivalent adjustments are deducted from tax-equivalent net interest income to agree to amounts reported in the consolidated statements of net income. For the six months ended June 30, 2017 and 2016, yields on loans before tax-equivalent adjustments were 4.12% and 4.16%, respectively, yields on securities and certificates of deposit before tax-equivalent adjustments were 1.67% and 1.58%, respectively, and yield on total interest-earning assets before tax-equivalent adjustments were 3.89% and 3.92%, respectively. Interest rate spread before tax-equivalent adjustments for the six months ended June 30, 2017 and 2016 was 2.89% and 3.03%, respectively, while net interest margin before tax-equivalent adjustments for the six months ended June 30, 2017 and 2016 was 3.10% and 3.23%, respectively.

(2)	Loans on non-accrual status are included in average balances.

(3)	Includes FHLB stock and associated dividends.

(4)	Interest rate spread represents the difference between the tax-equivalent yield on interest-earning assets and the cost of interest-bearing liabilities.

(5)	Net interest margin represents net interest income (tax-equivalent basis) divided by average interest-earning assets.

(6)	Annualized.

Rate/Volume Analysis. The following table sets forth the effects of changing rates and volumes on our fully tax-equivalent net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. For purposes of this table, changes attributable to changes in both rate and volume that cannot be segregated have been allocated proportionally based on the changes due to rate and the changes due to volume.


	Three Months Ended June 30, 2017 Compared to 2016 Increase (Decrease) Due to									Six Months Ended June 30, 2017 Compared to 2016 Increase (Decrease) Due to
	Volume			Rate			Net			Volume			Rate			Net
	(In thousands)
Interest income:
Loans	$	8,154		$	277		$	8,431		$	16,808		$	(791	)	$	16,017
Securities and certificates of deposits		(277	)		(27	)		(304	)		(706	)		96			(610	)
Other interest-earning assets		518			30			548			784			191			975

Total		8,395			280			8,675			16,886			(504	)		16,382

Interest expense:
Deposits		1,410			864			2,274			2,888			1,577			4,465
Borrowings		280			115			395			669			129			798

Total		1,690			979			2,669			3,557			1,706			5,263

Change in fully tax-equivalent net interest income	$	6,705		$	(699	)	$	6,006		$	13,329		$	(2,210	)	$	11,119

The interest rate spread and net interest margin on a tax-equivalent basis were 3.01% and 3.24%, respectively, for the three months ended June 30, 2017 compared to 3.15% and 3.36%, respectively, for the three months ended June 30, 2016. For the six months ended June 30, 2017, the interest rate spread and net interest margin on a tax-equivalent basis was 3.01% and 3.22%, respectively, compared to 3.17% and 3.37%, respectively, for the six months ended June 30, 2016. Net interest income increased 20.4% and 19.0% for the three and six months ended June 30, 2017, respectively, compared to the respective prior periods and was primarily due to loan growth, partially offset by increases in the average balances and costs of total deposits and borrowings.

The Company’s yield on interest-earning assets on a tax-equivalent basis decreased two basis points to 4.03% for the three months ended June 30, 2017 compared to 4.05% for the three months ended June 30, 2016, while the cost of funds increased 10 basis points to 0.90% from 0.80% for the three months ended June 30, 2017 and 2016, respectively. The increase in interest income was primarily due to growth in the Company’s average loan balances of $758.4 million, or 22.2%, to $4.181 billion and a three basis point increase in the yield on loans on a tax-equivalent basis to 4.26% for the three months ended June 30, 2017 compared to 4.23% for the three months ended June 30, 2016. The increase in interest expense on deposits was primarily due to the growth in average total deposits of $724.9 million, or 24.6%, to $3.668 billion and an increase in the average total cost of deposits of 10 basis points to 0.87% for the three months ended June 30, 2017 compared to 0.77% for the same period in 2016. The increase in interest expense on borrowings was primarily due to the increase in average borrowings of $92.3 million, or 34.9%, to $356.3 million, and an increase in the cost of average borrowings of 16 basis points to 1.26% for the three months ended June 30, 2017 compared to 1.10% for the three months ended June 30, 2016.

The Company’s yield on interest-earning assets on a tax-equivalent basis decreased five basis points to 4.01% for the six months ended June 30, 2017 compared to 4.06% for the six months ended June 30, 2016, while the cost of funds increased 10 basis points to 0.89% from 0.79% for the six months ended June 30, 2017 and 2016, respectively. The increase in interest income was primarily due to growth in the Company’s average loan balances of $806.9 million, or 24.6%, to $4.091 billion, partially offset by a five basis point decrease in the yield on loans on a tax-equivalent basis to 4.24% for the six months ended June 30, 2017 compared to 4.29% for the six months ended June 30, 2016, reflecting a reduction in prepayment fees on commercial real estate loans of $563,000 compared to the first six months of 2016. The increase in interest expense on deposits was primarily due to the growth in average total deposits of $724.6 million, or 25.2%, to $3.600 billion and an increase in the average total cost of deposits of 10 basis points to 0.86% for the six months ended June 30, 2017 compared to 0.76% for the same period in 2016. The increase in interest expense on borrowings was primarily due to the increase in average borrowings of $111.6 million, or 48.1%, to $343.5 million, and an increase in the cost of average borrowings of 10 basis points to 1.23% for the six months ended June 30, 2017 compared to 1.13% for the six months ended June 30, 2016.

Provision for Loan Losses. Our provision for loan losses was $1.5 million for the three months ended June 30, 2017 compared to $4.0 million for the three months ended June 30, 2016. For the six months ended June 30, 2017, the provision for loan losses was $3.1 million compared to $5.0 million for the six months ended June 30, 2016. For further discussion of the changes in the provision and allowance for loan losses, refer to “Allowance for Loan Losses.”

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


	Three Months Ended June 30,					Change						Six Months Ended June 30,				Change
	2017		2016			Amount			Percent			2017		2016		Amount			Percent
	(Dollars in thousands)
Customer service fees	$	2,214	$	2,137		$	77			3.6	%	$	4,266	$	4,086	$	180			4.4	%
Loan fees		1,634		(22	)		1,656			7,527.3			1,702		290		1,412			486.9
Mortgage banking gains, net		82		104			(22	)		(21.2	)		172		174		(2	)		(1.1	)
Gain on sales of securities, net		808		68			740			1,088.2			2,382		127		2,255			1,775.6
Income from bank-owned life insurance		292		296			(4	)		(1.4	)		580		598		(18	)		(3.0	)

Total non-interest income	$	5,030	$	2,583		$	2,447			94.7	%	$	9,102	$	5,275	$	3,827			72.5	%

The increase in loan fees for the three and six months ended June 30, 2017 compared to the same periods in 2016, was primarily due to $1.3 million of loan swap fee income recognized in the second quarter of 2017. The increase in gain on sales of securities, net, reflected an increase in the prices of the marketable equity securities sold during the three and six months ended June 30, 2017 compared to the same periods in June 30, 2016.

Non-Interest Expense. Non-interest expense information is as follows:


	Three Months Ended June 30,				Change					Six Months Ended June 30,				Change
	2017		2016		Amount		Percent			2017		2016		Amount			Percent
	(Dollars in thousands)
Salaries and employee benefits	$	12,752	$	11,979	$	773		6.5	%	$	26,427	$	24,492	$	1,935			7.9	%
Occupancy and equipment		3,036		2,867		169		5.9			6,059		5,351		708			13.2
Data processing		1,474		1,254		220		17.5			2,853		2,511		342			13.6
Marketing and advertising		953		699		254		36.3			1,807		1,412		395			28.0
Professional services		1,106		720		386		53.6			2,241		1,333		908			68.1
Deposit insurance		813		532		281		52.8			1,504		984		520			52.8
Other general and administrative		1,271		1,271		—		—			2,391		2,469		(78	)		(3.2	)

Total non-interest expenses	$	21,405	$	19,322	$	2,083		10.8	%	$	43,282	$	38,552	$	4,730			12.3	%

The increase in salaries and employee benefits expense reflects annual increases in employee compensation and health benefits during the first quarter of 2017. In addition, the increase in salaries and employee benefits and occupancy and equipment expenses include costs associated with the expansion of our branch and regulatory compliance staff. Professional services increased primarily due to additional costs related to regulatory compliance projects. The Company’s efficiency ratio improved to 53.95% for the quarter ended June 30, 2017 compared to 60.44% for the quarter ended June 30, 2016. For the six months ended June 30, 2017, the efficiency ratio was 57.31%, compared to 61.21% for the six months ended June 30, 2016.

Income Tax Provision. We recorded a provision for income taxes of $6.2 million for the three months ended June 30, 2017, reflecting an effective tax rate of 35.5%, compared to $2.9 million, or a 32.6% effective tax rate, for the three months ended June 30, 2016. For the six months ended June 30, 2017, the provision for income taxes was $10.9 million, reflecting an effective tax rate of 34.7%, compared to $6.2 million, or an effective tax rate of 31.5% for the six months ended June 30, 2016. The changes in the income tax provision and effective tax rate were primarily due to changes in the components of pre-tax income.

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

We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management policy.

Our most liquid assets are cash and due from banks, and certificates of deposit with other banks. The levels of these assets depend on our operating, financing, lending and investing activities during any given period. At June 30, 2017, cash and due from banks totaled $234.8 million and certificates of deposit with other banks totaled $85.3 million. In addition, at June 30, 2017, we had $57.1 million of available borrowing capacity with the FHLB, including a $9.4 million line of credit. On June 30, 2017, we had $474.0 million of advances outstanding. We periodically pledge additional multi-family and commercial real estate loans held in the Bank’s portfolio as qualified collateral to increase our borrowing capacity with the FHLB.

Our primary investing activities are the origination of loans and the purchase and sale of securities. Our primary financing activities consist of activity in deposit accounts and FHLB advances. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive. Occasionally, we offer promotional rates on certain deposit products to attract deposits.

A significant use of our liquidity is the funding of loan originations. At June 30, 2017 and December 31, 2016, we had total loan commitments outstanding of $1.195 billion and $1.178 billion, respectively. Historically, many of the commitments expire without being fully drawn; therefore the total amount of commitments does not necessarily represent future cash requirements. Refer to Note 8, Commitments and Derivatives, in Notes to the Unaudited Consolidated Financial Statements within this report for more detail regarding our outstanding commitments.

Another significant use of our liquidity is the funding of deposit withdrawals. Certificates of deposit due within one year of June 30, 2017 totaled $632.5 million, or 56.0% of total certificates of deposit. If these maturing deposits do not remain with us, we will be required to utilize other sources of funds. Historically, a significant portion of certificates of deposit that mature have remained with us. We have the ability to attract and retain deposits by adjusting the interest rates offered and accepting brokered certificates of deposit when it is deemed cost effective.

Meridian Bancorp, Inc. is a separate legal entity from East Boston Savings Bank and it must provide for its own liquidity to pay dividends and repurchase its common stock and for other corporate purposes. Meridian Bancorp, Inc.’s primary source of liquidity is proceeds from the 2014 second-step offering, and to a lesser extent dividend payments received from East Boston Savings Bank. The ability of East Boston Savings Bank to pay dividends is subject to regulatory requirements. At June 30, 2017, Meridian Bancorp, Inc. (on an unconsolidated basis) had cash and cash equivalents, certificates of deposit and securities available for sale totaling $110.2 million.

The net proceeds from the 2014 stock offering significantly increased our liquidity and capital resources. Over time, our level of liquidity may be reduced as the net proceeds from the stock offering are used for general corporate purposes, including the funding of loans. Our financial condition and results of operations are expected to be enhanced and result in increases in net interest-earning assets and net interest income. However, due to the increase in equity from the stock offering proceeds, our return on equity has been lower but is expected to increase over time.

Capital Management. Both the Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve Board and the Federal Deposit Insurance Corporation, respectively, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At June 30, 2017, both the Company and the Bank exceeded all of their respective regulatory capital requirements. The Bank is considered “well capitalized” under regulatory guidelines.

Federal banking regulations include minimum capital requirements for financial institutions. The regulations include a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5%, a minimum ratio of Tier 1 capital to risk-weighted assets of 6% and a minimum leverage ratio of 4% for all banking organizations. Additionally, financial institutions must maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of total to risk-weighted assets to avoid being subject to limitations on capital distributions and discretionary bonuses. The capital conservation buffer is being phased in over three years, which began on January 1, 2016. Also, certain new deductions from and adjustments to regulatory capital will be phased in over several years. Management believes that the Company will remain characterized as “well-capitalized” throughout the phase-in periods.

The Company may use capital management tools such as cash dividends and stock repurchases. Massachusetts regulations restrict repurchases for the first three years following the second-step conversion except where compelling and valid business reasons are established to the satisfaction of the Massachusetts Commissioner of Banks. We are also subject to the Federal Reserve Board’s notice provisions for stock repurchases. In August 2015, the Company received regulatory approval from the Massachusetts Commissioner of Banks and a non-objection from the Federal Reserve Bank to adopt a stock repurchase program for up to 5% of its common stock. As of June 30, 2017, the Company had repurchased 2,059,611 shares of its stock at an average price of $13.71 per share, or 75.2% of the 2,737,334 shares authorized for repurchase under the Company’s repurchase program. The Company did not repurchase any of its shares during the six months ended June 30, 2017. During the six months ended June 30, 2017 the Company’s Board of Directors declared two quarterly cash dividends of $0.04 per common share on March 1, 2017 and June 1, 2017.

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


	Actual					Minimum Capital Requirement					Minimum to be Considered Well Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(Dollars in thousands)
June 30, 2017
Total Capital (to Risk Weighted Assets):
Company	$	655,942		14.2	%	$	370,354		8.0	%	$	462,943		10.0	%
Bank		519,997		11.3			368,587		8.0			460,736		10.0
Tier 1 Capital (to Risk Weighted Assets):
Company		611,137		13.2			277,766		6.0			370,354		8.0
Bank		475,192		10.3			276,441		6.0			368,587		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company		611,137		13.2			208,324		4.5			300,913		6.5
Bank		475,192		10.3			207,330		4.5			299,478		6.5
Tier 1 Capital (to Average Assets):
Company		611,137		13.1			186,915		4.0			233,643		5.0
Bank		475,192		10.4			182,608		4.0			228,262		5.0
December 31, 2016
Total Capital (to Risk Weighted Assets):
Company	$	633,420		15.0	%	$	338,278		8.0	%	$	423,597		10.0	%
Bank		493,944		11.7			337,058		8.0			421,323		10.0
Tier 1 Capital (to Risk Weighted Assets):
Company		591,804		14.0			254,158		6.0			338,878		8.0
Bank		452,328		10.7			252,794		6.0			337,058		8.0
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company		591,804		14.0			190,619		4.5			275,338		6.5
Bank		452,328		10.7			189,595		4.5			273,860		6.5
Tier 1 Capital (to Average Assets):
Company		591,804		13.8			171,854		4.0			214,817		5.0
Bank		452,328		10.7			168,518		4.0			210,648		5.0

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


	June 30, 2017						December 31, 2016
	Consolidated			Bank			Consolidated			Bank
	(In thousands)
Total stockholders’ equity per financial statements	$	626,729		$	490,784		$	607,297		$	467,821
Adjustments to Tier 1 and Common Equity Tier 1 capital:
Accumulated other comprehensive gain		(1,905	)		(1,905	)		(1,806	)		(1,806	)
Goodwill disallowed		(13,687	)		(13,687	)		(13,687	)		(13,687	)

Total Tier 1 and Common Equity Tier 1 capital		611,137			475,192			591,804			452,328

Adjustments to total capital:
Allowance for loan losses		43,229			43,229			40,149			40,149
45% of net unrealized gains on marketable equity securities		1,576			1,576			1,467			1,467

Total regulatory capital	$	655,942		$	519,997		$	633,420		$	493,944

Off-Balance Sheet Arrangements. In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles in the United States of America, are not recorded in our financial statements. These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments and lines of credit.

For the six months ended June 30, 2017, 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.

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

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

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

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

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

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

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

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


Increase (Decrease)	June 30, 2017								December 31, 2016
in Market Interest Rates	Amount		Change			Percent			Amount		Change			Percent
	(Dollars in thousands)
300	$	125,805	$	(19,231	)		(13.26	)%	$	115,819	$	(17,805	)		(13.32	)%
Flat		145,036								133,624
-100		144,584		(452	)		(0.31	)		131,636		(1,988	)		(1.49	)

ITEM 4.

CONTROLS AND PROCEDURES

(a)

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The Company’s management, including the Company’s principal executive officer and principal financial officer, have evaluated the effectiveness of the Company’s “disclosure controls and procedures,” as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (2) is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

(b)

Changes in Internal Controls over Financial Reporting There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

Periodically, there have been various claims and lawsuits against us, such as claims to enforce liens, condemnation proceedings on properties in which we hold security interests, claims involving the making and servicing of real property loans and other issues incident to our business. We are not a party to any pending legal proceedings that we believe would have a material adverse effect on our financial condition, results of operations or cash flows.

ITEM 1A.

RISK FACTORS

For information regarding our risk factors, see “Risk Factors,” in the Company’s 2016 Annual Report on Form 10-K, filed with the SEC on March 1, 2017, which is available through the SEC’s website at www.sec.gov. As of June 30, 2017, our risk factors have not changed materially from those reported in the annual report. The risks described in the 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.)

Not applicable

(b.)

Not applicable

(c.)

For the three months ended June 30, 2017 there were no repurchases of Meridian Bancorp, Inc. stock. In August 2015, the Company adopted a repurchase program for 2,737,334 shares of common stock. The program has no expiration date. As of June 30, 2017, the Company had repurchased 2,059,611 shares of common stock under the repurchase program.

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

ITEM 6.

EXHIBITS



3.1		Articles of Incorporation of Meridian Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Meridian Bancorp, Inc. (File No. 333-194454), originally filed with the Securities and Exchange Commission on March 10, 2014)

3.2		Bylaws of Meridian Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Meridian Bancorp, Inc. (File No. 333-194454), originally filed with the Securities and Exchange Commission on March 10, 2014)

4		Form of Common Stock Certificate of Meridian Bancorp, Inc. (Incorporated by reference to the Registration Statement on Form S-1 of Meridian Bancorp, Inc. (File No. 333-194454), originally filed with the Securities and Exchange Commission on March 10, 2014)

10.1		Meridian Bancorp, Inc. 2015 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for the Annual Meeting of Stockholders (File No. 001-36573), filed with the Securities and Exchange Commission on August 18, 2015)

10.2		Form of Employee Stock Option Agreement under the Meridian Bancorp, Inc. 2015 Equity Incentive Plan filed as an exhibit to Form 8-K filed on November 5, 2015

10.3		Form of Director Stock Option Agreement under the Meridian Bancorp, Inc. 2015 Equity Incentive Plan filed as an exhibit to Form 8-K filed on November 5, 2015

10.4		Amended and Restated Employment Agreement with Richard J. Gavegnano and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014

10.5		East Boston Savings Bank Amended and Restated Employee Severance Compensation Plan filed as an exhibit to Form 10-Q filed on November 10, 2014

10.6		Form of Amended and Restated Supplemental Executive Retirement Agreements with Directors Domenic A. Gambardella, Gregory F. Natalucci, and James G. Sartori filed as an exhibit to Form 10-Q filed on November 10, 2014

10.7		Amended and Restated Supplemental Executive Retirement Agreement with Richard J. Gavegnano filed as an exhibit to Form 10-Q filed on November 10, 2014

10.8		2008 Equity Incentive Plan (Incorporated by reference to Appendix A to the Company’s Definitive Proxy Statement for its 2008 Annual Meeting, as filed with the Securities and Exchange Commission on July 11, 2008)

10.9		Termination Amendment for the Amended and Restated Employment Agreement between Edward J. Merritt and East Boston Savings Bank dated December 10, 2015 filed as an exhibit to Form 8-K filed on December 10, 2015

10.10		Amended and Restated Supplemental Executive Retirement Agreement between East Boston Savings Bank and Edward J. Merritt dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014

10.11		Joint Beneficiary Designation Agreement between Edward J. Merritt and Mt. Washington Co-operative Bank (Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 16, 2010)

10.12		First Amendment to Joint Beneficiary Designation Agreement between Edward J. Merritt and Mt. Washington Co-operative Bank (Incorporated by reference to the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 16, 2010)

10.13		Amended and Restated Two-Year Change in Control Agreement between Mark Abbate and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014

10.14		Incentive Compensation Plan filed as an exhibit to Form 10-K filed on March 17, 2014

10.15		Amended and Restated Two-Year Change in Control Agreement between John Migliozzi and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014

10.16		East Boston Non-Qualified Supplemental Employee Stock Ownership Plan dated October 1, 2014 filed as an exhibit to Form 10-Q filed on November 10, 2014

10.17		Amended and Restated Two-Year Change in Control Agreement between Frank Romano and East Boston Savings Bank dated July 28, 2014 filed as an exhibit to Form 10-K filed on March 13, 2015

10.18		Form of Restricted Stock Award Agreement under the Meridian Bancorp, Inc. 2015 Equity Incentive Plan filed as an exhibit to Form 8-K filed on November 5, 2015

10.19		Two-Year Change in Control Agreement between Edward J. Merritt and East Boston Savings Bank dated December 10, 2015 filed as an exhibit to Form 8-K filed on December 10, 2015

10.20		Freeze Amendment to the Amended and Restated Supplemental Executive Retirement Agreement between East Boston Savings Bank and Edward J. Merritt dated December 10, 2015 filed as an exhibit to Form 8-K filed on December 10, 2015

21		Subsidiaries of Registrant filed as an exhibit to Form 10-Q filed on November 10, 2014

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002



32		Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101		The following financial statements formatted in XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Net Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) the Notes to the Consolidated Financial Statements.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Labels Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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.

Large accelerated filer

Accelerated filer

Non-accelerated filer

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Small reporting company

Emerging Growth Company