Meridian (MRBK) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1 Financial Statements (Unaudited) Unaudited Q1 2022 financial statements show net income decreased to $5.5 million, total assets grew to $1.83 billion, and stockholders' equity declined to $157.7 million Consolidated Balance Sheets Consolidated Balance Sheets show total assets increased to $1.83 billion and total stockholders' equity decreased to $157.7 million | (dollars in thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $68,888 | $23,480 | | Loans, net | $1,413,080 | $1,367,699 | | Total assets | $1,831,589 | $1,713,443 | | Liabilities & Equity | | | | Total deposits | $1,564,851 | $1,446,413 | | Total liabilities | $1,673,905 | $1,548,083 | | Total stockholders' equity | $157,684 | $165,360 | | Total liabilities and stockholders' equity | $1,831,589 | $1,713,443 | - Total assets increased by $118.2 million, or 6.9%, from December 31, 2021, to March 31, 2022, primarily driven by growth in net loans and cash[9] - Total stockholders' equity decreased by $7.7 million, or 4.6%, from year-end 2021, mainly due to a shift in accumulated other comprehensive income from a gain of $708 thousand to a loss of $5.7 million[9] Consolidated Statements of Income Consolidated Statements of Income show a significant decrease in net income to $5.5 million, primarily due to a sharp drop in mortgage banking income | (dollars in thousands, except per share data) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net interest income | $16,035 | $15,120 | | Provision for loan losses | $615 | $599 | | Non-interest income | $13,102 | $27,048 | | Non-interest expenses | $21,433 | $28,263 | | Net income | $5,535 | $10,170 | | Diluted earnings per common share | $0.88 | $1.65 | - Net income for Q1 2022 was $5.5 million, a 45.6% decrease from $10.2 million in Q1 2021, primarily driven by a sharp drop in mortgage banking income from $24.1 million to $7.1 million year-over-year[12] - Net interest income grew by 6.0% YoY to $16.0 million, while non-interest expenses decreased by 24.2% YoY, mainly due to lower salaries and employee benefits tied to mortgage activity[12] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows indicate a significant decrease in cash from operating activities, offset by a substantial increase from financing activities | (dollars in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,454 | $62,764 | | Net cash used in investing activities | ($67,204) | ($81,014) | | Net cash provided by financing activities | $106,158 | $12,510 | | Net change in cash and cash equivalents | $45,408 | ($5,740) | - Cash from operating activities significantly decreased, primarily due to lower proceeds from the sale of loans and reduced mortgage banking income compared to the prior year period[20] - Financing activities provided a significant source of cash, driven by a $118.4 million net increase in deposits[20] Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements detail portfolio changes, asset quality metrics, and the impact of new accounting standards - During Q1 2022, the Corporation transferred $27.7 million of municipal securities from the available-for-sale portfolio to the held-to-maturity portfolio at fair value[30] - The total loan and lease portfolio grew to $1.43 billion as of March 31, 2022, from $1.39 billion at year-end 2021, with notable growth in commercial mortgage, construction, and lease categories, while Paycheck Protection Program (PPP) loans decreased from $90.2 million to $50.9 million[36] - The allowance for loan and lease losses was $18.8 million, or 1.31% of total portfolio loans and leases, as of March 31, 2022, a slight increase from $18.76 million at year-end 2021[9][42] - The Corporation adopted the new lease accounting standard (ASU 2016-02, Topic 842) on January 1, 2022, recognizing right-of-use (ROU) assets of $10.5 million and lease liabilities of $10.3 million[124][126][131] - The Mortgage banking segment reported a pre-tax loss of $1.6 million in Q1 2022, a significant reversal from a $5.8 million pre-tax income in Q1 2021, reflecting the slowdown in the mortgage market[123] Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2022 net income decrease to lower mortgage banking, offset by strong core banking loan growth and an expanded net interest margin of 3.89% Financial Condition and Results of Operations Overview The company experienced asset and deposit growth in Q1 2022, with strong portfolio loan growth, while key performance ratios declined due to lower net income - Total assets increased by $118.1 million (6.9%) to $1.8 billion in Q1 2022, while portfolio loans, excluding PPP loans, grew $84.1 million (6.5%), representing a 26% annualized growth rate[146] - Total deposits grew $118.4 million (8.2%) to $1.6 billion, with non-interest bearing deposits increasing by $16.9 million (6.1%)[146] | Key Performance Ratios | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Annualized return on average equity | 13.86% | 30.06% | | Annualized return on average assets | 1.28% | 2.43% | | Net interest margin (tax effected yield) | 3.89% | 3.72% | | Diluted earnings per share | $0.88 | $1.65 | - The company returned $7.7 million to shareholders in Q1 2022 through a $1.00 special dividend and a $0.20 quarterly dividend[146] Net Interest Income and Market Risk Net interest income increased due to higher volumes, and the balance sheet is liability sensitive in the near term but asset sensitive with larger rate increases - Net interest income increased 6.1% YoY to $16.1 million (tax-equivalent basis), with the net interest margin expanding by 17 basis points to 3.89% for Q1 2022, up from 3.72% in Q1 2021[161] - The increase in net interest income was driven by a $1.2 million positive impact from higher loan and investment volumes, which offset a $681 thousand negative impact from rate changes[167][168] | Interest Rate Sensitivity (Rate Ramp) | Estimated % change in Net Interest Income over 12 months | | :--- | :--- | | +300 basis points | 0.93% | | +200 basis points | 0.44% | | +100 basis points | (0.10)% | | -100 basis points | (0.15)% | - As of March 31, 2022, the balance sheet is liability sensitive in the near term, with a 100 bps rate increase projected to have a slightly negative impact on NII, but becomes asset sensitive with larger rate increases (+200 bps and +300 bps)[173] Asset Quality Asset quality remains stable with a slight increase in loan loss provision and consistent non-performing loan levels - The provision for loan losses was $615 thousand for Q1 2022, a slight increase from $599 thousand in Q1 2021, reflecting loan growth and a specific reserve on a non-performing commercial loan[178] - Total non-performing loans were stable at $22.8 million as of March 31, 2022, compared to $23.0 million at year-end 2021, with the ratio of non-performing assets to total assets at 1.25%[180][186] - The allowance for loan losses to total loans (excluding PPP and fair value loans) was 1.38% as of March 31, 2022, down from 1.46% at December 31, 2021[181][186] Non-Interest Income and Expense Non-interest income significantly decreased due to lower mortgage banking revenue, partially offset by increased SBA loan sales, while non-interest expenses also declined - Non-interest income fell 51.6% YoY to $13.1 million, driven by a $17.0 million (70.6%) decrease in mortgage banking net revenue due to lower origination volumes[187] - Net revenue from the sale of SBA 7(a) loans increased by $1.3 million (93.0%) YoY, providing a partial offset to the mortgage decline[188] - Non-interest expense decreased 24.2% YoY to $21.4 million, primarily due to a $6.8 million (30.9%) reduction in salaries and employee benefits, mostly related to lower variable compensation in the mortgage segment[189] Capital and Liquidity Stockholders' equity decreased due to dividends and AOCI decline, yet all capital ratios remain above 'well capitalized' thresholds, with substantial available liquidity - Stockholders' equity decreased to $157.7 million from $165.4 million at year-end 2021, impacted by $7.3 million in dividends and a $6.4 million decline in accumulated other comprehensive income[197] - All capital ratios remain above the 'well capitalized' thresholds, with the Corporation's Tier 1 leverage ratio at 9.10% as of March 31, 2022, exceeding the 8.00% requirement under the CBLR framework[198][199] - Total available liquidity was $331.9 million at March 31, 2022, and the company has a maximum borrowing capacity with the FHLB of $524.3 million[201][202] Item 3 Quantitative and Qualitative Disclosures about Market Risk This section directs readers to Item 2 for detailed disclosures on market risk, specifically interest rate risk analysis - The company's disclosures about market risk, particularly interest rate risk, are detailed within the Management's Discussion and Analysis (MD&A) section of this report[211] Item 4 Controls and Procedures Management confirmed effective disclosure controls and procedures as of March 31, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective[212] - There were no changes in internal control over financial reporting during the quarter ended March 31, 2022, that materially affected or are likely to materially affect internal controls[213] PART II OTHER INFORMATION Item 1 Legal Proceedings and Item 1A Risk Factors No material changes to legal proceedings or risk factors from the 2021 Form 10-K are reported, with other items being not applicable - There have been no material changes in the risk factors from those disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021[216] - The company reports no information for Legal Proceedings, Unregistered Sales of Equity Securities and Use of Proceeds, or Defaults Upon Senior Securities[216][217]