Mortgage snafu forces Pa. bank to disclose material weakness
Meridian Corp. in Malvern, Pa., disclosed that it originated loans in a neighboring state where it lacked a license.
As a result, the $1 billion-asset parent of Meridian Bank might have breached sales agreements for $98 million in loans dating back to 2012. While the outstanding balances as of March 31 are now lower due to borrower payments, payoffs and refinancing, Meridian did not specify the current balances.
Meridian said in a regulatory filing Thursday that it is licensed, or has an exemption from being licensed, in all other states where it originates mortgages. The company did not disclose the state involved.
The company said it expects to report a material weakness for the first quarter. Meridian, which has not announced first-quarter earnings, said it will do so "as soon as practicable."
Meridian expects to make "immaterial" adjustments to its earnings to reflect costs tied to resolving the issue.
The issues could create other challenges for Meridian, Sandler O'Neill analyst Frank Schiraldi wrote in a note to clients.
"We cannot rule out additional regulatory action," Schiraldi said.
"Though capital does not seem to be of concern, we do worry about potential for buybacks of these mortgages from investors given that the range of origination includes years where mortgage rates were at record lows," he added. "We would assume this is on the table given breaches of [representations and] warranties."