Meridian (MRBK) - 2021 Q4 - Annual Report

PART I Business Meridian Corporation, a bank holding company, offers commercial, mortgage, and wealth management services in the Delaware Valley and Central Maryland - The Corporation operates through three principal business lines: Commercial Banking, Mortgage Banking, and Wealth Management and Advisory Services[18][19][26] - The primary market area is the five-county Philadelphia metropolitan area, with a secondary market in the five-county Baltimore metropolitan area. The company operates six full-service branches and 19 other loan production and corporate offices[28][29][30] Human Capital Overview (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Total Employees | 413 | | Women in Workforce | 48% | | Women Officers | 32% | | Employee Distribution by Segment | | | Banking | 36% | | Mortgage | 62% | | Wealth | 2% | - The company qualifies as an "emerging growth company" under the JOBS Act, which allows it to take advantage of reduced reporting requirements and an extended transition period for complying with new accounting standards[45][46] - Meridian and its subsidiaries are subject to extensive regulation and supervision by the FDIC, the Pennsylvania Department of Banking and Securities (PDBS), the Federal Reserve, and the SEC[52][53] Risk Factors The company faces significant risks from economic conditions, cybersecurity, real estate market fluctuations, interest rate changes, and an evolving regulatory environment - Business and operations are sensitive to economic conditions in its primary markets of Pennsylvania, New Jersey, Delaware, and Maryland, which can affect credit quality, loan demand, and collateral values[129][132] - The company faces significant risks from fraudulent activity and cybersecurity incidents, which could result in financial losses, disclosure of confidential information, and reputational damage. It is also dependent on the information technology systems of third-party providers[157][163] - A significant portion of the loan portfolio is secured by real estate, making the business highly dependent on the real estate markets in which it operates. Declines in property values could lead to deterioration in credit quality[196] - The mortgage lending business is highly competitive and susceptible to changes in market interest rates, the availability of an active secondary market, and programs offered by government-sponsored entities (GSEs)[184][186][188] - Fluctuations in market interest rates can negatively impact net interest margin and net interest income, as well as the volume of mortgage originations and the value of assets under management in the wealth division[199][202][203] - The company is subject to extensive regulation and supervision, and changes in laws, regulations, or capital adequacy requirements could adversely affect operations and increase costs[205][208] Unresolved Staff Comments The company reports that there are no unresolved staff comments - None[215] Properties The Corporation's properties include its Malvern, PA headquarters, six branches, and 19 other offices, with a net book value of $5.8 million as of December 31, 2021 - The company's main office is in Malvern, PA, with six full-service branches serving the surrounding counties of Philadelphia[216][218] - There are 19 other offices, including headquarters for Corporate, Operations, Wealth, and Mortgage divisions. All offices except the corporate and operations headquarters are leased[216][218][227] - The net book value of all locations was $5.8 million at December 31, 2021[216] Legal Proceedings The company reports no legal proceedings - None[221] Mine Safety Disclosures This section is not applicable to the company - Not applicable[222] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under MRBK, with 28,202 shares repurchased in Q4 2021 and increased quarterly dividends - The Corporation's common stock trades on the NASDAQ Global Select Market under the symbol "MRBK"[224] Share Repurchases in Q4 2021 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2021 | 25,935 | $29.56 | | Nov 2021 | 2,267 | $31.71 | | Total | 28,202 | $29.91 | - On August 30, 2021, the stock repurchase plan was increased to $20 million over a two-year period[228] 2021 Dividend Declarations | Type | Per Share Amount | Declaration Date | | :--- | :--- | :--- | | Quarterly | $0.125 | Jan 28, 2021 | | Special | $1.00 | Feb 16, 2021 | | Quarterly | $0.125 | Apr 22, 2021 | | Quarterly | $0.125 | Jul 22, 2021 | | Quarterly | $0.200 | Oct 28, 2021 | Selected Financial Data This section summarizes key historical financial data, reporting $1.71 billion in total assets, $35.6 million net income, and $5.73 diluted EPS for 2021 Selected Financial Data (2020 vs 2021) | (In thousands, except per share data) | 2021 | 2020 | | :--- | :--- | :--- | | Balance Sheet Data: | | | | Total assets | $1,713,443 | $1,720,197 | | Loans receivable, gross | $1,386,457 | $1,284,764 | | Total deposits | $1,446,413 | $1,241,335 | | Total stockholders' equity | $165,360 | $141,622 | | Income Statement Data: | | | | Net interest income | $63,111 | $48,996 | | Non-interest income | $87,988 | $86,918 | | Net income | $35,585 | $26,438 | | Per Share Data: | | | | Earnings per common share, diluted | $5.73 | $4.27 | | Book value per common share | $27.07 | $23.08 | | Performance Metrics: | | | | Return on average assets (ROAA) | 2.06% | 1.78% | | Return on average equity (ROAE) | 23.74% | 21.33% | | Net interest margin (NIM) | 3.77% | 3.40% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management reports $35.6 million net income in 2021, driven by increased net interest income and lower loan loss provisions, despite higher non-interest expenses and a rise in non-performing assets Results of Operations (2021 vs. 2020) | (In millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net Interest Income | $63.1 | $49.0 | | Provision for Loan Losses | $1.1 | $8.3 | | Non-interest Income | $88.0 | $86.9 | | Non-interest Expense | $103.7 | $93.1 | | Net Income | $35.6 | $26.4 | | Diluted EPS | $5.73 | $4.27 | - The net interest margin expanded by 37 basis points to 3.77% in 2021, benefiting from PPP loan forgiveness, growth in non-interest bearing deposits, and a 59 basis point decrease in the cost of deposits[247] - Total loans, net of allowance, grew by $101 million (7.9%) to $1.4 billion, driven by increases in small business loans (+$64.6 million), commercial real estate (+$31.8 million), and lease financings (+$57.2 million). This growth was offset by decreases in residential loans held for sale (-$148.3 million) and PPP loans (-$113.3 million)[271] - Non-performing assets to total assets increased to 1.34% from 0.46% in 2020, primarily due to one commercial loan relationship of $13.8 million becoming non-performing[293] - Deposits grew by $205.1 million (16.5%) to $1.4 billion, with strong growth in core deposits, including a 34.7% increase in non-interest bearing deposits[302] - The Corporation and Bank remain "well capitalized" for regulatory purposes, adopting the Community Bank Leverage Ratio (CBLR) framework in Q1 2020[313][316] Quantitative and Qualitative Disclosures About Market Risk The company manages primary market risk, mainly interest rate volatility, through ALCO's gap analysis and simulation models, showing varied impacts on net interest income and economic value of equity from rate changes - The primary market risk is interest rate volatility, managed by the Asset/Liability Committee (ALCO) using repricing gap analysis, net interest income simulation, and economic value of equity simulation[318][320][321] Net Interest Income Sensitivity (as of Dec 31, 2021) | Rate Change Scenario (Ramp over 12 months) | Estimated % Change in Net Interest Income | | :--- | :--- | | +300 basis points | 0.21% | | +200 basis points | (0.18)% | | +100 basis points | (0.31)% | | -100 basis points | (0.22)% | | -200 basis points | (2.34)% | Economic Value of Equity Sensitivity (as of Dec 31, 2021) | Rate Change Scenario (Instantaneous Shift) | Estimated % Change in Net Economic Value | | :--- | :--- | | +300 basis points | 60% | | +200 basis points | 45% | | +100 basis points | 26% | | -100 basis points | (37)% | | -200 basis points | (97)% | Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021 and 2020, including balance sheets, income statements, and cash flows, with an unqualified opinion from Crowe LLP - The independent registered public accounting firm, Crowe LLP, issued an unqualified opinion on the financial statements, stating they are presented fairly in all material respects in conformity with U.S. GAAP[336] Consolidated Balance Sheet Highlights (Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $1,713,443 | | Loans, net | $1,367,699 | | Total Deposits | $1,446,413 | | Total Liabilities | $1,548,083 | | Total Stockholders' Equity | $165,360 | Consolidated Income Statement Highlights (Year Ended Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Net Interest Income | $63,111 | | Provision for Loan Losses | $1,070 | | Non-interest Income | $87,988 | | Non-interest Expense | $103,727 | | Net Income | $35,585 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None[601] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes identified - Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2021[601] - Based on an assessment against the COSO framework (2013), management concluded that the Corporation's system of internal control over financial reporting was effective as of December 31, 2021[606] - There were no changes in internal control over financial reporting during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, these controls[608] Other Information The company reports no other information - None[609] PART III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Shareholders[611] Executive Compensation Information on executive and director compensation is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Shareholders[612] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and equity compensation plans is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Shareholders[613] Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Shareholders[613] Principal Accounting Fees and Services Information detailing fees paid to the principal accountant is incorporated by reference from the 2022 Annual Meeting of Shareholders proxy statement - Information is incorporated by reference from the definitive proxy statement for the 2022 Annual Meeting of Shareholders[614] PART IV Exhibits, Financial Statement Schedules This section lists financial statements from Item 8 and exhibits filed with the Form 10-K, noting the omission of inapplicable financial statement schedules - Lists the consolidated financial statements set forth in Item 8[617] - Provides a list of exhibits filed with the Form 10-K, including articles of incorporation, bylaws, material contracts, and certifications[618] Form 10-K Summary The company reports that there is no Form 10-K summary - None[619][620]