| | | | | | | | | | | | | | | | | | |
| | Nine Months Ended September 30, 2018 | | Nine Months Ended September 30, 2017 |
(dollars in thousands) | | Bank | | Wealth | | Mortgage | | Total | | Bank | | Wealth | | Mortgage | | Total |
Net interest income | | $ | 23,597 | | 217 | | 402 | | 24,216 | | $ | 20,733 | | 70 | | 302 | | 21,105 |
Provision for loan losses | | | (1,258) | | — | | — | | (1,258) | | | (1,445) | | — | | — | | (1,445) |
Net interest income after provision | | | 22,339 | | 217 | | 402 | | 22,958 | | | 19,288 | | 70 | | 302 | | 19,660 |
| | | | | | | | | | | | | | | | | | |
Non-interest Income | | | | | | | | | | | | | | | | | | |
Mortgage banking income | | | 148 | | — | | 20,259 | | 20,407 | | | 67 | | — | | 25,022 | | 25,089 |
Wealth management income | | | 149 | | 2,847 | | — | | 2,996 | | | 233 | | 1,672 | | — | | 1,905 |
Net change in fair values | | | — | | — | | (471) | | (471) | | | — | | — | | 100 | | 100 |
Other | | | 1,136 | | — | | 823 | | 1,959 | | | 995 | | — | | (567) | | 428 |
Total non-interest income | | | 1,433 | | 2,847 | | 20,611 | | 24,891 | | | 1,295 | | 1,672 | | 24,555 | | 27,522 |
| | | | | | | | | | | | | | | | | | |
Non-interest Expense | | | | | | | | | | | | | | | | | | |
Salaries and employee benefits | | | 10,390 | | 1,373 | | 14,956 | | 26,719 | | | 9,874 | | 856 | | 19,023 | | 29,753 |
Occupancy and equipment | | | 1,599 | | 99 | | 1,172 | | 2,870 | | | 1,666 | | 52 | | 1,100 | | 2,818 |
Professional feees | | | 1,325 | | 20 | | 325 | | 1,670 | | | 943 | | 125 | | 316 | | 1,384 |
Advertising and promotion | | | 917 | | 319 | | 566 | | 1,802 | | | 746 | | 205 | | 586 | | 1,537 |
Other | | | 3,827 | | 613 | | 2,888 | | 7,328 | | | 3,766 | | 303 | | 3,496 | | 7,565 |
Total non-interest expense | | | 18,058 | | 2,424 | | 19,907 | | 40,389 | | | 16,995 | | 1,541 | | 24,521 | | 43,057 |
| | | | | | | | | | | | | | | | | | |
Operating Margin | | $ | 5,714 | | 640 | | 1,106 | | 7,460 | | $ | 3,588 | | 201 | | 336 | | 4,125 |
(11) Recent Litigation
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| | Nine Months Ended September 30, 2020 | | Nine Months Ended September 30, 2019 |
(Dollars in thousands) | | Bank | | Wealth | | Mortgage | | Total | | Bank | | Wealth | | Mortgage | | Total |
Net interest income | | $ | 32,725 | | (24) | | 1,277 | | 33,978 | | $ | 26,437 | | 68 | | 167 | | 26,672 |
Provision for loan losses | | | 7,139 | | — | | — | | 7,139 | | | 938 | | — | | — | | 938 |
Net interest income after provision | | | 25,586 | | (24) | | 1,277 | | 26,839 | | | 25,499 | | 68 | | 167 | | 25,734 |
| | | | | | | | | | | | | | | | | | |
Non-interest Income | | | | | | | | | | | | | | | | | | |
Mortgage banking income | | | 973 | | — | | 44,422 | | 45,395 | | | 175 | | — | | 17,442 | | 17,617 |
Wealth management income | | | — | | 2,825 | | — | | 2,825 | | | 110 | | 2,588 | | — | | 2,698 |
SBA income | | | 1,821 | | — | | — | | 1,821 | | | 1,150 | | — | | — | | 1,150 |
Net change in fair values | | | (68) | | — | | 11,012 | | 10,944 | | | (49) | | — | | 341 | | 292 |
Net (loss) on hedging activity | | | — | | — | | (7,363) | | (7,363) | | | — | | — | | (792) | | (792) |
Other | | | 2,931 | | 14 | | 405 | | 3,350 | | | 1,409 | | — | | 282 | | 1,691 |
Non-interest income | | | 5,657 | | 2,839 | | 48,476 | | 56,972 | | | 2,795 | | 2,588 | | 17,273 | | 22,656 |
Non-interest expense | | | 23,341 | | 2,363 | | 35,448 | | 61,152 | | | 20,312 | | 2,268 | | 16,400 | | 38,980 |
Income before income taxes | | $ | 7,902 | | 452 | | 14,305 | | 22,659 | | $ | 7,982 | | 388 | | 1,040 | | 9,410 |
Total Assets | | $ | 1,525,883 | | 5,399 | | 227,366 | | 1,758,648 | | $ | 1,071,450 | | 5,398 | | 50,089 | | 1,126,937 |
(12) Stockholders’ Equity
On November 21, 2017, three former employees ofAugust 31, 2020, the mortgage-banking division ofCorporation announced that the Bank filed suit inMeridian Corporation Employee Stock Ownership Plan Trust (together with the United States District Court forrelated employee stock ownership plan, the Eastern District of Pennsylvania, Juan Jordan et al. v. Meridian Bank, Thomas Campbell and Christopher Annas, against the Bank purporting“ESOP”) had established a $2 million stock purchase authorization with no expiration date. Purchases are authorized to be a class and collective action seeking unpaid and overtime wages under the Fair Labor Standards Act of 1938, the New Jersey Wage and Hour Law, and the Pennsylvania Minimum Wage Act of 1968 on behalf of similarly situated plaintiffs. In February 2018, the Bank answered the complaint and presented affirmative defenses. In March 2018, plaintiffs’ counsel and the Bank agreed to move forward with non-binding mediation. Although the Bank believes it has strong and meritorious defenses, given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, the Bank has recorded a $200 thousand reserve as a reasonable estimate for possible losses that may result from this action. This estimate may changemade from time to time in either the open market or through privately negotiated transactions. The Corporation loaned the ESOP $2 million to facilitate the ESOP’s purchase of the shares.During September 2020 the ESOP purchased 133,601 shares of the Corporation’s common stock at an average price of $14.97, using the full $2 million loan. The ESOP loan, which bears an interest rate of 1.17%, is to be repaid in annual installments commencing on December 31, 2020, and actual losses could vary.on the final day of each of the next nine calendar years. As of September 30, 2020 there were 0 shares commited to be released.
(12)
On October 22, 2020, the Corporation’s Board of Directors declared a cash dividend of $0.125 per common share, payable on November 23, 2020 to shareholders of record as of November 9, 2020. During the third quarter of 2020, the Corporation paid or accrued, as applicable, a quarterly dividend of $0.125 per share. This dividend totaled $763 thousand, based on outstanding shares as of August 10, 2020 of 6,098,573.
(13) Recent Accounting Pronouncements
As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), Meridian Corporationthe Bank is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1,070,000,000 or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of our initialthis offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the fiscal year in which the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year. We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. If we do so, we will prominently disclose this decision in the first periodic report following our decision, and such decision is irrevocable. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities.
FASB Accounting Standards Update (“ASU”) No. 2014‑09 (Topic 606), “Revenue from Contracts with Customers”
Issued in May 2014, ASU 2014‑09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015‑14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment defers the effective date of ASU 2014‑09 by one year. In March 2016, the FASB issued ASU 2016‑ 08”, “Principal versus Agent Considerations (Reporting Gross versus Net),” which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016‑20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” and 2016‑12, “Narrow-Scope Improvements and Practical Expedients”, both of which provide additional clarification of certain provisions in Topic 606. These Accounting Standards Codification (“ASC”) updates are effective for public companies for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the ‘retrospective’ or ‘retrospectively with the cumulative effect’ transition method. For non-public companies, the ASC updates are effective for annual reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019. The Corporation expects to adopt ASU 2014-09 for the fiscal year ending December 31, 2019 and is evaluating all revenue streams, accounting policies, practices and reporting to identify and understand any impact on the Corporation’s Consolidated Financial Statements and related disclosures.
FASB ASU 2017‑042017-01 (Topic 350)805), “Intangibles – Goodwill and Others”“Business Combinations”
Issued in January 2017, ASU 2017‑04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017‑04 is effective for public companies for annual periods beginning after December 15, 2019 including interim periods within those periods. ASU 2017‑04 is effective for non-public companies for annual periods beginning after December 15, 2021 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017‑04 will have on its consolidated financial statements and related disclosures.
FASB ASU 2017‑01 (Topic 805), “Business Combinations”
Issued in January 2017, ASU 2017‑012017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017‑012017-01 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those periods, while for non-public companies the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The adoption of this standard on January 1, 2019 did not have a material impact on the Corporation’s consolidated financial statements and related disclosures.
FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”
Issued in June 2018, ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.
The amendments in this update became effective for us January 1, 2020. The adoption did not have an impact on our consolidated financial statements and related disclosures as the Corporation did not and has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting.
FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"
Issued in August 2018, ASU 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. ASU 2018-13 was effective for the Corporation on January 1, 2020. Adoption is evaluatingrequired on both a prospective and retrospective basis depending on the effect thatamendment. The adoption of this ASU 2017‑01 willdid not have a material impact on itsour consolidated financial statements and related disclosures.
FASB ASU 2016‑15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”
Issued in August 2016, ASU 2016‑15 provides guidance on eight specific cash flow issues and their disclosure in the consolidated statements of cash flows. The issues addressed include debt prepayment, settlement of zero-coupon debt, contingent consideration in business combinations, proceeds from settlement of insurance claims, proceeds from settlement of BOLI, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the Predominance principle. ASU 2016‑15 is effective for public companies for the annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted. For non-public companies ASU 2016‑15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Corporation
is evaluating the impact of this guidance and does not anticipate a material impact on its consolidated financial statements.
FASB ASU 2016‑132016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016‑132016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. The newThis ASU requires businesses and other organizations to measure the current expected credit losses (“CECL”) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss model will require companies to immediately recognize an estimate ofmethodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to occur overinform credit loss estimates. An entity should apply the remaining lifeamendments through a cumulative-effect adjustment to retained earnings as of the financial assets that are in the scopebeginning of the standard. The ASU also makes targeted amendments tofirst reporting period in which the current impairment model for available-for-sale debt securities. ASU 2016‑13guidance is effective (modified retrospective approach). Acquired credit impaired loans for public companieswhich the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. For non-public companiesimplementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within the fiscal years beginning after December 31, 2021. will be January 1, 2023. The Corporation is evaluatingcurrently determining under which method we
