Meridian (MRBK) - 2020 Q4 - Annual Report

Part I Item 1. Business Meridian Corporation, a bank holding company, operates through Meridian Bank across three segments: Commercial Banking, Mortgage Banking, and Wealth Management - Meridian Corporation operates as a bank holding company through Meridian Bank in the Delaware Valley tri-state market and Maryland[12] - The company's diversified model includes Commercial Banking, Mortgage Banking, and Wealth Management, generating significant non-interest income[12][14] - In 2020, Meridian originated $259.7 million in PPP loans, with $203.5 million outstanding as of December 31, 2020[47] - Loan payment holidays totaling $156.3 million were provided to approximately 200 borrowers, with $129.4 million returning to original terms by year-end 2020[47] - As of December 31, 2020, the company employed 381 individuals, with 41% in banking, 56% in mortgage, and 3% in wealth segments[26] - The company qualifies as an 'emerging growth company' under the JOBS Act, allowing reduced reporting and extended accounting standard transition[28][31] Item 1A. Risk Factors The company faces significant risks from economic conditions, interest rate fluctuations, regulatory oversight, and its concentration in real estate lending - Business performance is sensitive to economic conditions, with low interest rates impacting deposit attraction and portfolio earnings[127] - The COVID-19 pandemic poses a significant risk, disrupting the economy, financial markets, and customer behavior[170] - A significant portion of the loan portfolio is secured by real estate in Pennsylvania, Delaware, and New Jersey, creating market dependency[188][190] - Mortgage lending is highly competitive and susceptible to interest rate changes and secondary market conditions[182][184] - Extensive regulation and potential changes in laws or accounting standards could increase costs and limit business opportunities[197][198] - Liquidity risk exists if the company cannot raise funds, as primary funding from customer deposits can fluctuate[138] - Dependence on third-party IT systems exposes the company to risks of system failures, interruptions, or data breaches[158] Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments as of the report date - There are no unresolved staff comments as of the report date[206] Item 2. Properties The company operates six branches and 17 offices, primarily leased, with a net book value of $5.8 million as of December 31, 2020 - The Corporation is headquartered in Malvern, PA, operating six full-service branches and 17 other offices[207] - All properties are leased, except the corporate headquarters, with a net book value of $5.8 million at December 31, 2020[207] Item 3. Legal Proceedings A 2017 lawsuit by former mortgage-banking employees for unpaid wages was settled for $990 thousand, with a final payment of $1.0 million in February 2020 - A 2017 class action lawsuit by former mortgage-banking employees was settled for $990 thousand[209] - A final payment of $1.0 million was made on February 29, 2020, fully settling the matter[212] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[213] Part II Item 5. 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', initiated quarterly dividends in 2020, and declared a special dividend in 2021 - The company's common stock trades on the NASDAQ Global Select Market under the symbol 'MRBK'[215] - In 2020, the Corporation began paying a quarterly cash dividend of $0.125 per common share[217] - A special dividend of $1.00 per share was declared on February 16, 2021[218] - No share repurchase activity occurred during the fourth quarter of 2020[216] Item 6. Selected Financial Data This section summarizes five years of consolidated financial data, highlighting significant growth in assets, loans, deposits, and net income in 2020 Selected Historical Consolidated Financial Data (2019 vs 2020) | (Dollars in thousands, except per share data) | 2020 | 2019 | | :--- | :--- | :--- | | Balance Sheet Data (End of Period): | | | | Total assets | $1,720,197 | $1,150,019 | | Loans receivable, gross | $1,284,764 | $964,710 | | Total deposits | $1,241,335 | $851,168 | | Total Stockholders' equity | $141,622 | $120,695 | | Income Statement Data: | | | | Net interest income | $48,996 | $36,336 | | Non-interest income | $86,918 | $32,893 | | Net income available to common stockholders | $26,438 | $10,481 | | Per Share Data: | | | | Earnings per common share, diluted | $4.27 | $1.63 | | Book value per common share | $23.08 | $18.84 | | Performance Metrics: | | | | Return on average assets (ROAA) | 1.78% | 1.01% | | Return on average equity (ROAE) | 21.33% | 9.09% | | Net interest margin (NIM) | 3.40% | 3.65% | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong 2020 financial performance, driven by increased net income, asset growth, and significant non-interest income from mortgage operations - Net income for 2020 was $26.4 million ($4.27 per diluted share), significantly up from $10.5 million ($1.63 per diluted share) in 2019[233] - Total assets grew 49.6% to $1.7 billion at year-end 2020, driven by 33.2% loan growth and 45.8% deposit growth[252][253] - Non-interest income surged 164.1% to $86.9 million, primarily from a $50.5 million increase in mortgage banking revenue, with $2.4 billion in loan originations[244] - The provision for loan losses increased to $8.3 million in 2020 from $901 thousand in 2019, mainly due to COVID-19 related uncertainty[243] - Net interest margin (NIM) decreased to 3.40% in 2020 from 3.65% in 2019, reflecting declining asset yields offset by lower funding costs[234] - The company adopted the Community Bank Leverage Ratio (CBLR) framework in Q1 2020 and is considered 'well capitalized' for regulatory purposes[291][294] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, managed by ALCO using NII and EVE simulations, indicating an asset-sensitive balance sheet - The company's primary market risk is interest rate volatility, managed by its Asset/Liability Committee (ALCO) using gap analysis, NII, and EVE simulations[299][301][302] - Gap analysis as of December 31, 2020, indicates the company is modestly asset-sensitive, with a positive gap of 1.0% of total assets for maturities of 12 months or less[305][306] Net Interest Income (NII) Sensitivity Analysis (Rate Ramp) | Changes in Market Interest Rates | Estimated % Change in NII (2020) | Estimated % Change in NII (2019) | | :--- | :--- | :--- | | +300 basis points | 1.87% | 0.40% | | +200 basis points | 1.02% | 0.60% | | +100 basis points | 0.50% | 0.40% | | -100 basis points | (1.73)% | (0.60)% | | -200 basis points | (5.21)% | (2.30)% | Economic Value of Equity (EVE) Sensitivity Analysis | Changes in Market Interest Rates | Estimated % Change in EVE (2020) | Estimated % Change in EVE (2019) | | :--- | :--- | :--- | | +300 basis points | 103% | 13% | | +200 basis points | 78% | 11% | | +100 basis points | 45% | 7% | | -100 basis points | (67)% | (12)% | | -200 basis points | (175)% | (32)% | Item 8. Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2020 and 2019, including auditor reports, core statements, and detailed notes Report of Independent Registered Public Accounting Firm Independent auditors Crowe LLP and KPMG LLP issued unqualified opinions on the 2020 and 2019 financial statements, respectively - Crowe LLP issued an unqualified opinion on the 2020 financial statements[320][323] - KPMG LLP issued an unqualified opinion on the 2019 financial statements[325][329] Consolidated Financial Statements The consolidated financial statements show total assets of $1.72 billion and net income of $26.4 million in 2020, reflecting strong growth Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Total assets | $1,720,197 | $1,150,019 | | Loans, net | $1,266,997 | $955,197 | | Liabilities & Equity | | | | Total deposits | $1,241,335 | $851,168 | | Total liabilities | $1,578,575 | $1,029,324 | | Total stockholders' equity | $141,622 | $120,695 | Consolidated Income Statement Highlights (in thousands) | | Year ended Dec 31, 2020 | Year ended Dec 31, 2019 | | :--- | :--- | :--- | | Net interest income | $48,996 | $36,336 | | Provision for loan losses | $8,302 | $901 | | Non-interest income | $86,918 | $32,893 | | Non-interest expenses | $93,076 | $54,814 | | Net income | $26,438 | $10,481 | Notes to Consolidated Financial Statements Notes detail accounting policies, loan portfolio concentration in commercial real estate, increased loan loss allowance, servicing assets, and capital adequacy - The loan portfolio has a significant concentration in commercial real estate-backed loans, totaling 38% of loans held for investment as of December 31, 2020[345] Allowance for Loan and Lease Losses Roll-Forward (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Balance, Beginning of Year | $9,513 | $8,053 | | Charge-offs | (131) | (30) | | Recoveries | 83 | 589 | | Provision | 8,302 | 901 | | Balance, End of Year | $17,767 | $9,513 | - The company serviced $506.0 million in residential mortgage loans and $55.9 million in SBA loans as of December 31, 2020[459][464] - As of December 31, 2020, unfunded loan commitments totaled $421.4 million, and mortgage loan commitments were $428.8 million[503][505] - The company adopted the Community Bank Leverage Ratio (CBLR) framework in Q1 2020 and was categorized as well capitalized by the FDIC[515][516] Item 9. 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 reported[585] Item 9A. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded the Corporation's disclosure controls and procedures were effective as of December 31, 2020[585] - Management assessed and concluded internal control over financial reporting was effective as of December 31, 2020, based on COSO 2013[590] - No material changes in internal control over financial reporting occurred during Q4 2020[592] Item 9B. Other Information The company reports no other information under this item - None[593] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 proxy statement - Information regarding directors, executive officers, corporate governance, and the audit committee is incorporated by reference from the 2021 proxy statement[595] Item 11. Executive Compensation Information on executive and director compensation is incorporated by reference from the 2021 proxy statement - Information regarding executive compensation is incorporated by reference from the 2021 proxy statement[596] Item 12. 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 2021 proxy statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the 2021 proxy statement[597] Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2021 proxy statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 proxy statement[597] Item 14. Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2021 proxy statement - Information regarding principal accounting fees and services is incorporated by reference from the 2021 proxy statement[598] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements from Item 8 and exhibits filed with the Form 10-K, omitting inapplicable financial schedules - This item lists the consolidated financial statements filed under Item 8 and all exhibits filed with the Form 10-K[601][602] Item 16. Form 10-K Summary The company reports no summary for this item - None[603]