CEO Interview: Meridian Interstate Bancorp, Inc. (EBSB) - Richard Gavegnano
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Richard Gavegnano spent 37 years in the investment business with national New York Stock Exchange-member firms, and he retired in 2006, ending his career as a Vice President with A.G. Edwards & Sons, Inc. He has been associated with East Boston Savings Bank for 35 years, serving as Corporator, Trustee and Director. Mr. Gavegnano is the Chairman of the board of East Boston Savings Bank, Meridian Interstate Bancorp and Meridian Financial Services. In 2007 he was appointed CEO of Meridian Interstate Bancorp and Meridian Financial Services, in addition to Investor Relations Officer of Meridian Interstate Bancorp. Mr. Gavegnano has served as Chairman of the board of Hampshire First Bank since 2006.
TWST: Please begin with a brief overview of your company, including some highlights from your history and the key things you have going on right now.
Mr. Gavegnano: The holding company is Meridian Financial Services, Inc. (EBSB), and Meridian Interstate Bancorp is the parent holding company for East Boston Savings Bank. The first East Boston Savings Bank branch was established in 1848, in East Boston, in Suffolk County. As the demographics changed in East Boston and with each generation becoming more educated and more successful, they migrated north to the suburbs. Basically we followed the trail of the generations and money flow. That is how we ended up with 13 branches, three of which are still in East Boston, where we control 75% of the market, and the rest are in the suburbs north of Boston. We decided to do a public offering and sell 45% of the bank to raise additional capital. This was done in January of 2008. We raised an additional $100 million and doubled our capital. We deployed the capital with a very conservative and disciplined plan. In January of 2010, we were able to acquire a seven-branch mutual bank in Suffolk County by the name of Mt. Washington, which had $500 million in assets. It was the first time in Massachusetts that a MHC structure acquired a mutual bank.
TWST: Your Q1 2010 results were very good - you generated a profit as opposed to a loss in the first quarter of 2009. What factors contributed to that improvement, and what assurance would you give to investors that you will continue on that path?
Mr. Gavegnano: There were a lot of transition costs, one-time costs, in the first quarter of 2009 that we are not recurring. We were able in the first quarter of 2010 to really benefit from all of the things that were put into effect for 2009. It started to trend completely in our favor. You had the yield curve come back to a more favorable trend. The cost of funds certainly helped current and record lows. We deployed quite a bit of capital; we had a record year in lending in 2009, which came to the bottom line in the first quarter of 2010, and our yields on real estate loans have held up quite nicely. We were able to create efficiencies and deploy additional capital in very attractive new commercial real estate loans in the Boston market.
TWST: With today's troubled credit markets, how were you able to increase your lending?
Mr. Gavegnano: We were able to increase our lending because of the mega banks - the bad publicity with the mega banks. And many of them have tightened their credit policies, have pulled back in the environment of commercial lending and construction lending. What it has done is gravitate people toward a community bank because of the service that we were able to offer on a personal basis. Our customers can deal directly with senior officers, conduct their business and get the answers to questions they need. We were in a position where we had very strong capital due to our disciplined credit underwriting. And due to the stock offering, that put us in a very liquid position in a market environment that created a lot of opportunities. We capitalized on gaining more market share.
TWST: What was your strategy behind the Mt. Washington acquisition? Why was that the right choice for you?
Mr. Gavegnano: It was the right choice for us for many reasons. First of all, when we deployed the stock offering, my strategy, as presented in the prospectus and as presented to investors, was that we had gone as far north as we chose to go. We wanted to head back to where our core demographics were the strongest and penetrate even more the populated areas in Boston and surrounding Boston. This acquisition couldn't have come at a better time. It represented seven branches, $500 million in assets, $400 million in deposits in the lucrative Suffolk County market area. Basically, it was acquiring another well-respected community bank in Suffolk County, where we were focusing on growing anyway. We acquired a $500 million institution without any capital leaving our bank - a unique transaction in Massachusetts.
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