Meridian Earnings 2020-06-30

Balance Sheet	Income Statement	Cash Flow

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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 June 30, 2020

☐	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	(I.R.S. Employer Identification No.)
incorporation or organization)

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 August 10, 2020 there were 6,095,030 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 – June 30, 2020 and December 31, 2019	3

Consolidated Statements of Income – Three and Six Months Ended June 30, 2020 and 2019	4

Consolidated Statements of Comprehensive Income – Three and Six Months Ended June 30, 2020 and 2019	5

Consolidated Statements of Stockholders’ Equity – Three and Six Months Ended June 30, 2020 and 2019	6

Consolidated Statements of Cash Flows – Six Months Ended June 30, 2020 and 2019	7

Notes to Consolidated Financial Statements (Unaudited)	8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	35

Item 3 Quantitative and Qualitative Disclosures about Market Risk	55

Item 4 Controls and Procedures	55

PART II OTHER INFORMATION

Item 1 Legal Proceedings	56

Item 1A Risk Factors	56

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3 Defaults Upon Senior Securities	58

Item 4 Mine Safety Disclosures	58

Item 5 Other Information	58

Item 6 Exhibits	58

Signatures	60

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


	June 30,		December 31,
(dollars in thousands, except per share data)	2020		2019
Cash and due from banks	$	45,029	19,106
Federal funds sold		1,712	20,265
Cash and cash equivalents		46,741	39,371
Securities available-for-sale (amortized cost of $94,371 and $58,874 as of June 30, 2020 and December 31, 2019)		97,100	58,856
Securities held-to-maturity (fair value of $6,926 and $9,003 as of June 30, 2020 and December 31, 2019)		6,578	8,780
Equity investments		1,034	1,009
Mortgage loans held for sale (amortized cost of $115,853 and $33,363 as of June 30, 2020 and December 31, 2019), at fair value		117,691	33,704
Loans, net of fees and costs (includes $10,350 and $10,546 of loans at fair value, amortized cost of $9,925 and $10,186 as of June 30, 2020 and December 31, 2019)		1,262,968	964,710
Allowance for loan and lease losses		(12,706)	(9,513)
Loans, net of the allowance for loan and lease losses		1,250,262	955,197
Restricted investment in bank stock		7,234	8,072
Bank premises and equipment, net		8,284	8,636
Bank owned life insurance		11,999	11,859
Accrued interest receivable		4,125	3,148
Other real estate owned		—	120
Deferred income taxes		621	2,115
Goodwill		899	899
Intangible assets		3,737	3,874
Other assets		22,778	14,379
Total assets	$	1,579,083	1,150,019

Liabilities:
Deposits:
Noninterest bearing	$	214,367	139,450
Interest bearing		952,330	711,718
Total deposits		1,166,697	851,168
Short-term borrowings		87,044	123,676
Long-term debt		145,447	3,123
Subordinated debentures		40,809	40,962
Accrued interest payable		1,605	1,088
Other liabilities		11,963	9,307
Total liabilities		1,453,565	1,029,324

Stockholders’ equity:
Common stock, $1 par value. Authorized 10,000,000 shares; issued 6,414,341 and 6,407,685 as of June 30, 2020 and December 31, 2019		6,414	6,408
Surplus		80,467	80,255
Treasury stock - 320,000 and 3,375 shares at June 30, 2020 and December 31, 2019, respectively		(5,828)	(62)
Retained earnings		42,326	34,097
Accumulated other comprehensive income (loss)		2,139	(3)
Total stockholders’ equity		125,518	120,695
Total liabilities and stockholders’ equity	$	1,579,083	1,150,019

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			Six months ended
	June 30,			June 30,
(dollars in thousands, except per share data)	2020		2019	2020	2019
Interest income:
Loans, including fees	$	14,457	12,647	27,727	24,534
Securities:
Taxable		305	278	669	556
Tax-exempt		290	100	392	209
Cash and cash equivalents		3	48	61	98
Total interest income		15,055	13,073	28,849	25,397
Interest expense:
Deposits		2,575	3,715	5,829	6,951
Borrowings		883	436	1,757	1,048
Total interest expense		3,458	4,151	7,586	7,999
Net interest income		11,597	8,922	21,263	17,398
Provision for loan losses		1,631	14	3,183	233
Net interest income after provision for loan losses		9,966	8,908	18,080	17,165
Non-interest income:
Mortgage banking income		18,763	6,321	26,665	11,229
Wealth management income		853	912	1,874	1,776
SBA loan income		658	515	1,227	515
Earnings on investment in life insurance		69	72	139	144
Net change in the fair value of derivative instruments		2,364	(32)	3,318	(16)
Net change in the fair value of loans held-for-sale		633	(226)	1,493	(136)
Net change in the fair value of loans held-for-investment		143	90	81	414
Net loss on hedging activity		(3,301)	(218)	(4,726)	(493)
Net gain on sale of investment securities available-for-sale		55	139	55	139
Service charges		21	27	49	54
Other		428	328	866	749
Total non-interest income		20,686	7,928	31,041	14,375
Non-interest expenses:
Salaries and employee benefits		16,198	8,742	26,082	16,469
Occupancy and equipment		1,127	936	2,051	1,899
Loan expenses		2,327	668	3,402	1,136
Professional fees		770	709	1,437	1,180
Advertising and promotion		605	730	1,214	1,196
Data processing		456	324	800	648
Information technology		388	319	706	585
Communications		187	162	317	354
Other		1,191	1,654	2,438	2,893
Total non-interest expenses		23,249	14,244	38,447	26,360
Income before income taxes		7,403	2,592	10,674	5,180
Income tax expense		1,690	570	2,445	1,152
Net income	$	5,713	2,022	8,229	4,028
Basic earnings per common share	$	0.94	0.32	1.33	0.63
Diluted earnings per common share	$	0.94	0.31	1.32	0.63

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three months ended		Six months ended
		June 30,		June 30,
(dollars in thousands)		2020	2019	2020	2019
Net income:	$	5,713	2,022	8,229	4,028

Other comprehensive income:
Net change in unrealized gains on investment securities available for sale:
Net unrealized gains arising during the period, net of tax expense of $515, $95, $617 and $202, respectively		1,756	330	2,185	703
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $12, ($31), $12, and ($31), respectively		(43)	(108)	(43)	(108)
Unrealized investment gains, net of tax expense of $503, $64, $605, and $171, respectively		1,713	222	2,142	595
Total other comprehensive income		1,713	222	2,142	595
Total comprehensive income	$	7,426	2,244	10,371	4,623

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)


						Accumulated
						Other
		Common		Treasury	Retained	Comprehensive
(dollars in thousands)		Stock	Surplus	Stock	Earnings	Income (Loss)	Total
Balance, January 1, 2019	$	6,407	79,919	—	23,616	(390)	109,552
Comprehensive income:
Net income					2,006		2,006
Change in unrealized gains on securities available-for-sale, net of tax						373	373
Total comprehensive income							2,379
Compensation expense related to stock option grants			61				61
Balance, March 31, 2019	$	6,407	79,980	—	25,622	(17)	111,992
Comprehensive income:
Net income					2,022		2,022
Change in unrealized gains on securities available-for-sale, net of tax						222	222
Total comprehensive income							2,244
Compensation expense related to stock option grants			143				143
Balance, June 30, 2019	$	6,407	80,123	—	27,644	205	114,379


						Accumulated
						Other
		Common		Treasury	Retained	Comprehensive
(dollars in thousands)		Stock	Surplus	Stock	Earnings	Income (Loss)	Total
Balance, January 1, 2020	$	6,408	80,255	(62)	34,097	(3)	120,695
Comprehensive income:
Net income					2,516		2,516
Change in unrealized gains on securities available-for-sale, net of tax						429	429
Total comprehensive income							2,945
Share-based award exercises		6	26				32
Net purchase of treasury stock through publicly announced plans			63	(5,766)			(5,703)
Compensation expense related to stock option grants			64				64
Balance, March 31, 2020	$	6,414	80,408	(5,828)	36,613	426	118,033
Comprehensive income:
Net income					5,713		5,713
Change in unrealized gains on securities available-for-sale, net of tax						1,713	1,713
Total comprehensive income							7,426
Compensation expense related to stock option grants			59				59
Balance, June 30, 2020	$	6,414	80,467	(5,828)	42,326	2,139	125,518

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended
	June 30,
(dollars in thousands)	2020		2019
Net income	$	8,229	4,028
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment securities		(55)	(139)
Depreciation and amortization		(281)	(329)
Net amortization of investment premiums and discounts		97	800
Provision for loan losses		3,183	233
Amortization of issuance costs on subordinated debt		53	—
Compensation expense for stock options		123	204
Net change in fair value of loans held for investment		(81)	(414)
Net change in fair value of loans held for sale		(1,493)	136
Net change in fair value of derivative instruments		(3,318)	16
Gain on sale of OREO		(6)	—
SBA loan income		(1,227)	(515)
Proceeds from sale of loans		734,718	243,495
Loans originated for sale		(790,546)	(230,393)
Mortgage banking income		(26,665)	(11,229)
Increase in accrued interest receivable		(977)	(455)
Increase in other assets		(3,317)	(295)
Earnings from investment in life insurance		(139)	(144)
Deferred income tax		809	45
Increase in accrued interest payable		517	22
Increase in other liabilities		1,024	1,394
Net cash (used) provided by operating activities		(79,352)	6,460
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls		3,733	5,231
Sales		18,212	16,665
Purchases		(57,501)	(18,816)
Activity in held-to-maturity securities:
Maturities, repayments and calls		2,140	—
Proceeds from sale of OREO		126	—
Settlement of forward contracts		—	(61)
Decrease in restricted stock		838	1,130
Net increase in loans		(295,701)	(55,354)
Purchases of premises and equipment		(469)	(487)
Net cash used in investing activities		(328,622)	(51,692)
Cash flows from financing activities:
Net increase in deposits		315,529	88,584
Increase (decrease) in short term borrowings		10,001	(39,321)
Decrease in short term borrowings with original maturity > 90 days		(46,220)	—
Repayment of long term debt (Acquisition note)		(413)	(413)
Repayment of long term debt (Subordinated debt)		—	(63)
Proceeds from long term debt		142,324	3,123
Issuance costs on subordinated debt		(206)	—
Net purchase of treasury stock through publicly announced plans		(5,703)	—
Share based awards and exercises		32	—
Net cash provided by financing activities		415,344	51,910
Net change in cash and cash equivalents		7,370	6,678
Cash and cash equivalents at beginning of period		39,371	23,952
Cash and cash equivalents at end of period	$	46,741	30,630
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	7,069	7,977
Income taxes		1,195	737
Supplemental disclosure of cash flow information:
Transfers from loans and leases to real estate owned		—	120
Transfers from loans held for sale to loans held for investment		—	3,602
Net loans sold, not settled		—	6,439

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, 2019) 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. For periods prior to the completion of the holding company reorganization, the Bank’s filings with the FDIC, including the Bank’s annual report on Form 10-K for the year ended December 31, 2017. Certain prior period amounts have been reclassified to conform with current period presentation. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020 or for any other period.

Impact of COVID-19

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Corporation’s customers operate and could impair their ability to fulfill their financial obligations to the Corporation. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Corporation operates.

Although the Corporation’s current estimates contemplate current conditions and how we expect them to change in the future, due to the impact that the COVID-19 has had on financial markets and the economy both locally and nationally, it is reasonably possible that this could materially affect these significant estimates and the Corporation’s results of operations and financial condition.

The Corporation has been working with customers directly affected by COVID-19 since it was declared a pandemic, to provide short-term assistance in accordance with regulatory guidelines. Should economic conditions continue to worsen, the Corporation could experience further increases in its required allowance for loan loss and record additional provision for loan loss expense. It is possible that the Corporation’s asset quality measures could worsen at future measurement periods due to the continuing effects of COVID-19 may have on borrowers.

COVID-19 could cause a further and sustained decline in the Corporation’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform goodwill and intangible asset impairment tests and result in an impairment charge being recorded for that period. In the event that the Corporation concludes that all or a portion of its goodwill or intangible assets are impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

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(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. 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. 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				Six Months Ended
	June 30,				June 30,
(dollars in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net income available to common stockholders	$	5,713		2,022	$	8,229		4,028
Denominator for basic earnings per share - weighted average shares outstanding		6,094		6,407		6,210		6,407
Effect of dilutive common shares		13		29		25		29
Denominator for diluted earnings per share - adjusted weighted average shares outstanding		6,107		6,436		6,235		6,436
Basic earnings per share	$	0.94		0.32	$	1.33		0.63
Diluted earnings per share	$	0.94		0.31	$	1.32		0.63
Antidilutive shares excluded from computation of average dilutive earnings per share

Price	17.69	EPS	1
Shares	6	P/E	15
MCap	113	P/FCF	26
Net Debt	-41	EBIT	24
TEV	73	TEV/EBIT	3
TTM 2019-09-30, in MM, except price, ratios

10-Q	2020-06-30	Filed 2020-08-10
10-Q	2020-03-31	Filed 2020-05-11
10-K	2019-12-31	Filed 2020-03-30
10-Q	2019-09-30	Filed 2019-11-13
10-Q	2019-06-30	Filed 2019-08-14
10-Q	2019-03-31	Filed 2019-05-29
10-K	2018-12-31	Filed 2019-04-01

8-K	2020-08-31	Other Events
8-K	2020-07-29	Regulation FD, Exhibits
8-K	2020-07-27	Earnings, Other Events, Exhibits
8-K	2020-06-11
8-K	2020-05-05
8-K	2020-04-27
8-K	2020-03-12
8-K	2020-02-05
8-K	2020-02-03
8-K	2020-01-27
8-K	2019-12-18
8-K	2019-10-24
8-K	2019-07-29
8-K	2019-05-29
8-K	2019-05-23
8-K	2019-05-23
8-K	2019-05-17
8-K	2019-04-11
8-K	2019-03-07
8-K	2019-01-25

EX-31.1	mrbk-20200630xex31d1.htm
EX-31.2	mrbk-20200630xex31d2.htm
EX-32	mrbk-20200630xex32.htm

MRBK 10Q Quarterly Report

Meridian Earnings 2020-06-30