Meridian Corp [MRBK] Filings

10-Q 1 mrbk-20220331.htm 10-Q mrbk-20220331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022


☐			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: 000-55983

(Exact name of registrant as specified in its charter)


Pennsylvania			83-1561918
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

9 Old Lincoln Highway, Malvern, Pennsylvania 19355

(Address of principal executive offices) (Zip Code)

(484) 568-5000

(Registrant’s telephone number, including area code)


Title of class	Trading Symbol	Name of exchange on which registered
Common Stock, $1 par value	MRBK	The NASDAQ Stock Market

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 (or for such shorter period that the registrant was required to file such reports), 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 every Interactive Data File required to be submitted 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 such files).

☒Yes ☐No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☒

Emerging Growth Company

☒

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 Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 9, 2022 there were 6,114,424 outstanding shares of the issuer’s common stock, par value $1.00 per share.

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TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)			3

Consolidated Balance Sheets – March 3 1 , 202 2 and December 31, 2021			3

Consolidated Statements of Income – Three Months Ended March 3 1 , 202 2 and 2021			4

Consolidated Statements of Comprehensive (Loss) Income – Three Months Ended March 3 1 , 202 2 and 2021			5

Consolidated Statements of Stockholders’ Equity – Three Months Ended March 3 1 , 202 2 and 2021			6

Consolidated Statements of Cash Flows – Three Months Ended March 3 1 , 202 2 and 2021			7

Notes to Consolidated Financial Statements (Unaudited)			8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			34

Item 3 Quantitative and Qualitative Disclosures about Market Risk			49

Item 4 Controls and Procedures			49

PART II OTHER INFORMATION

Item 1 Legal Proceedings			50

Item 1A Risk Factors			50

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			50

Item 3 Defaults Upon Senior Securities			50

Item 4 Mine Safety Disclosures			50

Item 5 Other Information			50

Item 6 Exhibits			50

Signatures			52

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(dollars in thousands, except per share data)	March 31, 2022		December 31, 2021
Cash and due from banks	$	56,022	$	23,480
Federal funds sold	12,866		—
Cash and cash equivalents	68,888		23,480
Securities available-for-sale (amortized cost of $136,745 and $158,387 as of March 31, 2022 and December 31, 2021)	130,653		159,302
Securities held-to-maturity (fair value of $33,556 and $6,591 as of March 31, 2022 and December 31, 2021)	34,977		6,372
Equity investments	2,240		2,354
Mortgage loans held for sale (amortized cost of $81,502 and $80,002 as of March 31, 2022 and December 31, 2021), at fair value	81,258		80,882
Loans, net of fees and costs (includes $17,375 and $17,558 of loans at fair value, amortized cost of $17,375 and $17,106 as of March 31, 2022 and December 31, 2021)	1,431,906		1,386,457
Allowance for loan and lease losses	(18,826)		(18,758)
Loans, net of the allowance for loan and lease losses	1,413,080		1,367,699
Restricted investment in bank stock	4,330		5,117
Bank premises and equipment, net	11,883		11,806
Bank owned life insurance	22,641		22,503
Accrued interest receivable	4,848		5,009
Deferred income taxes	3,190		1,413
Servicing assets	13,396		12,765
Goodwill	899		899
Intangible assets	3,328		3,379
Other assets	35,978		10,463
Total assets	$	1,831,589	1,713,443
Liabilities:
Deposits:
Non-interest bearing	$	291,379	274,528
Interest bearing	1,273,472		1,171,885
Total deposits	1,564,851		1,446,413
Short-term borrowings	36,136		41,344
Subordinated debentures	40,538		40,508
Accrued interest payable	575		31
Other liabilities	31,805		19,787
Total liabilities	1,673,905		1,548,083
Stockholders’ equity:
Common stock, $1 par value. Authorized 25,000,000 shares as of March 31, 2022 and December 31, 2021; issued 6,555,909 and 6,534,587 as of March 31, 2022 and December 31, 2021	6,556		6,535
Surplus	84,177		83,663
Treasury stock - 426,693 shares at March 31, 2022 and December 31, 2021	(8,860)		(8,860)
Unearned common stock held by employee stock ownership plan	(1,602)		(1,602)
Retained earnings	83,104		84,916
Accumulated other comprehensive (loss) income	(5,691)		708
Total stockholders’ equity	157,684		165,360
Total liabilities and stockholders’ equity	$	1,831,589	1,713,443

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended March 31,
(dollars in thousands, except per share data)	2022		2021
Interest income:
Loans, including fees	17,219		16,822
Securities:
Taxable	336		273
Tax-exempt	396		353
Cash and cash equivalents	13		3
Total interest income	17,964		17,451
Interest expense:
Deposits	1,289		1,566
Borrowings	640		765
Total interest expense	1,929		2,331
Net interest income	16,035		15,120
Provision for loan losses	615		599
Net interest income after provision for loan losses	15,420		14,521
Non-interest income:
Mortgage banking income	7,096		24,100
Wealth management income	1,304		1,136
SBA loan income	2,520		1,245
Earnings on investment in life insurance	138		66
Net change in the fair value of derivative instruments	(166)		(944)
Net change in the fair value of loans held-for-sale	(1,124)		(3,867)
Net change in the fair value of loans held-for-investment	(778)		(102)
Net gain on hedging activity	2,827		4,261
Net gain on sale of investment securities available-for-sale	—		48
Service charges	27		32
Other	1,258		1,073
Total non-interest income	13,102		27,048
Non-interest expenses:
Salaries and employee benefits	15,298		22,139
Occupancy and equipment	1,252		1,152
Professional fees	848		940
Advertising and promotion	986		785
Data processing	479		616
Information technology	710		425
Pennsylvania bank shares tax	199		163
Other	1,661		2,043
Total non-interest expenses	21,433		28,263
Income before income taxes	7,089		13,306
Income tax expense	1,554		3,136
Net income	$	5,535	10,170
Basic earnings per common share	$	0.92	1.70
Diluted earnings per common share	$	0.88	1.65

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(Unaudited)


	Three months ended March 31,
(dollars in thousands)	2022		2021
Net income:	$	5,535	10,170

Other comprehensive (loss) income:
Net change in unrealized gains on investment securities available for sale:
Net unrealized losses arising during the period, net of tax benefit of $1,626, and $592, respectively	(5,369)		(1,883)
Less: reclassification adjustment for net gains realized in net income, net of tax expense of $3, and $12, respectively	(9)		(36)
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax benefit of $308, and $0, respectively	(1,021)		—
Unrealized investment losses, net of tax benefit of $1,936, and $604, respectively	(6,399)		(1,919)
Total other comprehensive loss	(6,399)		(1,919)
Total comprehensive (loss) income	$	(864)	8,251

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


(dollars in thousands)	Common Stock		Surplus	Treasury Stock	Unearned Common Stock ESOP	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total
Balance, January 1, 2021	$	6,456	81,196	(5,828)	(1,768)	59,010	2,556	141,622
Comprehensive income:
Net income						10,170		10,170
Net change in unrealized investment losses, net of tax							(1,919)	(1,919)
Total comprehensive income								8,251
Dividends declared, $1.125 per share						(6,931)		(6,931)
Common stock issued through share-based awards and exercises	32		302					334
Stock based compensation			229					229
Balance, March 31, 2021	$	6,488	81,727	(5,828)	(1,768)	62,249	637	143,505


(dollars in thousands)	Common Stock		Surplus	Treasury Stock	Unearned Common Stock ESOP	Retained Earnings	Accumulated Other Comprehensive (Loss) Income	Total
Balance, January 1, 2022	$	6,535	83,663	(8,860)	(1,602)	84,916	708	165,360
Comprehensive income:
Net income						5,535		5,535
Net change in unrealized investment losses, net of tax							(6,399)	(6,399)
Total comprehensive loss								(864)
Dividends declared, $1.20 per share						(7,347)		(7,347)
Common stock issued through share-based awards and exercises	21		254					275
Stock based compensation			260					260
Balance, March 31, 2022	$	6,556	84,177	(8,860)	(1,602)	83,104	(5,691)	157,684

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
(dollars in thousands)	2022		2021
Net income	$	5,535	10,170
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on sale of investment securities	—		(48)
Net amortization of investment premiums and discounts and change in fair value of equity securities	(27)		331
Depreciation and amortization, net	50		(1,709)
Provision for loan losses	615		599
Amortization of issuance costs on subordinated debt	30		30
Stock based compensation	260		229
Net change in fair value of derivative instruments	166		944
Net change in fair value of loans held for sale	1,124		3,867
Net change in fair value of loans held for investment	778		102
Amortization and net impairment of servicing rights	494		(2,661)
SBA loan income	(2,520)		(1,245)
Proceeds from sale of loans	319,610		803,858
Loans originated for sale	(313,485)		(724,675)
Mortgage banking income	(7,096)		(24,100)
Decrease (increase) in accrued interest receivable	161		(85)
Increase in other assets	(9,962)		(5,246)
Earnings from investment in life insurance	(138)		(66)
Increase (decrease) in deferred income tax	159		(1,865)
Increase (decrease) in accrued interest payable	544		(411)
Increase in other liabilities	10,156		4,745
Net cash provided by operating activities	6,454		62,764
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls	3,843		2,343
Sales	—		13,639
Purchases	(9,885)		(28,151)
Activity in held-to-maturity securities:
Maturities, repayments and calls	390		—
Purchases	(2,500)		—
Decrease in restricted stock	787		2,747
Net increase in loans	(59,762)		(70,915)
Purchases of premises and equipment	(77)		(677)
Net cash used in investing activities	(67,204)		(81,014)
Cash flows from financing activities:
Net increase in deposits	118,438		142,255
Decrease in short-term borrowings	(5,208)		(5,465)
Decrease in short-term borrowings with original maturity > 90 days	—		(75,021)

(Repayment) proceeds from long-term debt, net	—		(42,662)


Dividends paid	(7,347)		(6,931)
Share based awards and exercises	275		334
Net cash provided by financing activities	106,158		12,510
Net change in cash and cash equivalents	45,408		(5,740)
Cash and cash equivalents at beginning of period	23,480		36,744
Cash and cash equivalents at end of period	$	68,888	31,004
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	1,386	2,742


Supplemental disclosure of cash flow information:
Transfers from loans held for sale to loans held for investment	1,653		2,390
Net loans sold, not settled	(13,857)		(4,432)
Investment security purchases, not settled	(2,761)		(1,188)
Transfer of securities from AFS to HTM	23,522		—
Lease liabilities arising from obtaining right-of-use assets	10,995		—

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Basis of Presentation

The Corporation’s unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill and intangible assets, and servicing assets.

These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the Securities and Exchange Commission (including our Annual Report on Form 10-K for the year ended December 31, 2021) and, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.

Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or for any other period.

(2) Earnings per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period reduced by unearned ESOP Plan shares and treasury shares. Diluted earnings per common share takes into account the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock and if restricted stock awards were vested, and SERP plan liabilities were satisfied with common shares. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive.


	Three Months Ended March 31,
(dollars in thousands, except per share data)	2022		2021
Numerator:
Net income available to common stockholders	$	5,535	10,170
Denominator for basic earnings per share
Weighted average shares outstanding	6,128		6,119
Average unearned ESOP shares	(105)		(119)
Basic weighted averages shares outstanding	6,023		6,000
Dilutive effects of assumed exercises of stock options	173		93
Dilutive effects of SERP shares	66		53
Denominator for diluted earnings per share - adjusted weighted average shares outstanding	6,262		6,146
Basic earnings per share	$	0.92	1.70
Diluted earnings per share	$	0.88	1.65
Antidilutive shares excluded from computation of average dilutive earnings per share	21		22

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(3) Securities

The amortized cost and fair value of securities as of March 31, 2022 and December 31, 2021 are as follows:


	March 31, 2022
(dollars in thousands)	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value	# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities	$	14,664	35	(177)	14,522	10
U.S. government agency mortgage-backed securities	9,352		2	(221)	9,133	8
U.S. government agency collateralized mortgage obligations	22,037		30	(871)	21,196	21
State and municipal securities	45,385		107	(2,832)	42,660	31
U.S. Treasuries	32,978		—	(1,881)	31,097	25
Non-U.S. government agency collateralized mortgage obligations	5,879		—	(165)	5,714	5
Corporate bonds	6,450		24	(143)	6,331	9
Total securities available-for-sale	$	136,745	198	(6,290)	130,653	109

	March 31, 2022
	Amortized cost		Gross unrecognized gains	Gross unrecognized losses	Fair value	# of Securities in unrecognized loss position
Securities held-to-maturity:
State and municipal securities	34,977		25	(1,446)	33,556	15
Total securities held-to-maturity	$	34,977	25	(1,446)	33,556	15


	December 31, 2021
(dollars in thousands)	Amortized cost		Gross unrealized gains	Gross unrealized losses	Fair value	# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities	$	16,850	55	(68)	16,837	10
U.S. government agency mortgage-backed securities	9,749		124	(60)	9,813	3
U.S. government agency collateralized mortgage obligations	22,276		358	(253)	22,381	10
State and municipal securities	72,099		1,379	(496)	72,982	12
U.S. Treasuries	29,973		1	(246)	29,728	21
Non-U.S. government agency collateralized mortgage obligations	990		—	(15)	975	1
Corporate bonds	6,450		154	(18)	6,586	5
Total securities available-for-sale	$	158,387	2,071	(1,156)	159,302	62
Securities held-to-maturity:
State and municipal securities	6,372		219	—	6,591	—
Total securities held-to-maturity	$	6,372	219	—	6,591	—

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Although the Corporation’s investment portfolio overall is in a net unrealized loss position at March 31, 2022, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.

During the quarter-ended March 31, 2022, $27.7 million of municipal securities, previously classified as available-for-sale on the balance sheet, were transferred to the held-to-maturity portfolio at fair value. After transfer, $1.3 million of unrealized losses remain in accumulated other comprehensive income. No gain or loss was recognized as a result of the transfer.

As of March 31, 2022 and December 31, 2021, securities having a fair value of $83.6 million and $92.2 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

The following table shows the Corporation’s investment gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at March 31, 2022 and December 31, 2021:


	March 31, 2022
	Less than 12 Months				12 Months or more		Total
(dollars in thousands)	Fair value			Unrealized losses	Fair value	Unrealized losses	Fair value	Unrealized losses
Securities available-for-sale:
U.S. asset backed securities	$	10,458		(177)	—	—	10,458	(177)
U.S. government agency mortgage-backed securities	8,979			(221)	—	—	8,979	(221)
U.S. government agency collateralized mortgage obligations	13,740			(513)	4,196	(358)	17,936	(871)
State and municipal securities	37,982			(2,794)	535	(38)	38,517	(2,832)
U.S. Treasuries	31,097			(1,881)	—	—	31,097	(1,881)
Non-U.S. government agency collateralized mortgage obligations	4,741			(165)	—	—	4,741	(165)
Corporate bonds	4,807		—	(143)	—	—	4,807	(143)
Total securities available-for-sale	$	111,804		(5,894)	4,731	(396)	116,535	(6,290)

	March 31, 2022
	Less than 12 Months				12 Months or more		Total
	Fair value			Unrecognized losses	Fair value	Unrecognized losses	Fair value	Unrecognized losses
Securities held-to-maturity:
State and municipal securities	—			—	24,955	(1,446)	24,955	(1,446)
Total securities held-to-maturity	$	—		—	24,955	(1,446)	24,955	(1,446)

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	December 31, 2021
	Less than 12 Months			12 Months or more		Total
(dollars in thousands)	Fair value		Unrealized losses	Fair value	Unrealized losses	Fair value	Unrealized losses
Securities available-for-sale:
U.S. asset backed securities	$	12,330	(68)	—	—	12,330	(68)
U.S. government agency mortgage-backed securities	3,852		(60)	—	—	3,852	(60)
U.S. government agency collateralized mortgage obligations	8,836		(187)	1,657	(66)	10,493	(253)
State and municipal securities	14,994		(427)	2,019	(69)	17,013	(496)
U.S. Treasuries	28,750		(246)	—	—	28,750	(246)
Non-U.S. government agency collateralized mortgage obligations	975		(15)	—	—	975	(15)
Corporate bonds	2,232		(18)	—	—