Meridian (US:MRBK)2020-11-09 21:39PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Unaudited consolidated financial statements for Q3 2020 and 2019 are presented, detailing financial position, performance, and cash flows, including COVID-19 and PPP impacts Consolidated Balance Sheets Total assets grew significantly to $1.76 billion by September 30, 2020, driven by loans and mortgage loans held for sale, with corresponding increases in deposits and long-term debt Consolidated Balance Sheet Highlights | Account | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Total Assets | $1,758,648 | $1,150,019 | +52.9% | | Cash and cash equivalents | $75,869 | $39,371 | +92.7% | | Mortgage loans held for sale | $225,150 | $33,704 | +568.0% | | Loans, net | $1,290,273 | $955,197 | +35.1% | | Total Liabilities | $1,626,816 | $1,029,324 | +58.1% | | Total deposits | $1,209,024 | $851,168 | +42.0% | | Long-term debt | $250,131 | $3,123 | +7910.0% | | Total Stockholders' Equity | $131,832 | $120,695 | +9.2% | Consolidated Statements of Income Net income significantly increased to $9.2 million in Q3 2020 and $17.4 million for the nine months, primarily driven by a surge in non-interest income from mortgage banking activities Income Statement Summary | Metric | Q3 2020 (in thousands) | Q3 2019 (in thousands) | 9 Months 2020 (in thousands) | 9 Months 2019 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $12,715 | $9,274 | $33,978 | $26,672 | | Provision for loan losses | $3,956 | $705 | $7,139 | $938 | | Non-interest income | $29,060 | $9,209 | $56,972 | $22,656 | | Non-interest expenses | $25,834 | $13,547 | $61,152 | $38,980 | | Net income | $9,212 | $3,317 | $17,441 | $7,345 | | Diluted EPS | $1.51 | $0.52 | $2.82 | $1.14 | - Mortgage banking income was the primary driver of non-interest income growth, increasing to $21.8 million in Q3 2020 from $7.3 million in Q3 201910 Consolidated Statements of Cash Flows Significant cash outflows from operating and investing activities for the nine months ended September 30, 2020, were offset by substantial financing inflows from deposits and long-term debt Cash Flow Summary - Nine Months Ended Sep 30 | Activity | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(161,648) | $4,419 | | Net cash used in investing activities | $(378,987) | $(105,165) | | Net cash provided by financing activities | $577,133 | $117,326 | | Net change in cash and cash equivalents | $36,498 | $16,580 | Notes to Consolidated Financial Statements (Unaudited) Notes detail COVID-19 and PPP impacts, loan portfolio composition including PPP loans, increased allowance for loan losses, derivative instruments, and segment performance for Banking, Wealth Management, and Mortgage - The company actively participated in the Paycheck Protection Program (PPP) under the CARES Act, providing federally guaranteed loans to small and medium-sized businesses30 Loan Portfolio Composition | Loan Category | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Commercial mortgage | $460,952 | $362,590 | | Commercial and industrial | $256,452 | $273,301 | | Paycheck Protection Program loans | $259,723 | $— | | Construction | $151,226 | $172,044 | | Total portfolio loans and leases | $1,313,489 | $966,499 | - The allowance for loan losses increased to $16.6 million at September 30, 2020, from $9.5 million at year-end 2019, with the provision for the nine-month period rising to $7.1 million from $0.9 million in the prior year, reflecting increased economic uncertainty48 - The Mortgage segment was the primary driver of profitability, with income before taxes of $9.3 million in Q3 2020, compared to $1.3 million in Q3 2019127 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2020 performance to record mortgage banking revenue, despite net interest margin compression and increased loan loss provisions, while detailing COVID-19 and PPP impacts, asset growth, and capital adequacy - As of September 30, 2020, the company originated $259.7 million in PPP loans for 928 clients, supporting nearly 16,660 employees160 - The company provided loan modifications on $154.1 million of loans to pandemic-affected customers, with $19.1 million remaining active as of October 26, 202063160 Key Performance Ratios | Ratio | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Annualized ROA | 2.29% | 1.24% | 1.65% | 0.97% | | Annualized ROE | 29.30% | 11.29% | 18.85% | 8.65% | | Net Interest Margin | 3.26% | 3.61% | 3.33% | 3.67% | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to market risk analysis in Item 2, highlighting interest rate risk management and the company's asset-sensitive balance sheet as of September 30, 2020 - The company's interest rate simulation as of September 30, 2020, indicates an asset-sensitive position, with a 100 basis point gradual rate increase estimated to boost Net Interest Income by 0.15%209 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded the Corporation's disclosure controls and procedures were effective as of September 30, 2020269 - No material changes to internal control over financial reporting were identified during the quarter270 PART II OTHER INFORMATION Item 1. Legal Proceedings No material legal proceedings against the company are disclosed in this report Item 1A. Risk Factors Updated risk factors focus on the COVID-19 pandemic's economic impact, including potential loan delinquencies and declining collateral values, and the credit, compliance, and litigation risks associated with PPP participation - The economic impact of the COVID-19 outbreak poses a primary risk, potentially leading to decreased demand, increased loan delinquencies, and reduced net interest margin274275282 - Participation in the PPP exposes the company to risks, including potential credit losses if borrowers fail to qualify for forgiveness, and litigation or compliance actions due to program rule ambiguity278279280 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the reporting period Item 6. Exhibits This section lists exhibits filed with the quarterly report, including certifications by the Principal Executive Officer and Principal Financial Officer - The report includes CEO and CFO certifications as required by Rule 13a-14(a)/15d-14(a) and Section 1350294