Meridian Corporation Reports Second Quarter 2024 Results and Announces a Quarterly Dividend of $0.125 per Common Share

MALVERN, Pa., July 26, 2024 (GLOBE NEWSWIRE) — Meridian Corporation (Nasdaq: MRBK) today reported:

• Commercial loans, excluding leases, increased $40.7 million, or 3%, for the quarter and $112.3 million, or 8%, year over year.
• Total assets at June 30, 2024 were $2.4 billion, compared to $2.3 billion at March 31, 2024 and $2.2 billion at June 30, 2023.
• Pre-tax, pre-provision income was $7.1 million for the quarter, with $545 thousand from the mortgage division.
• Net interest margin was 3.06% for the second quarter of 2024, with a loan yield of 7.31%.
• On July 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable August 19, 2024 to shareholders of record as of August 12, 2024.

Christopher J. Annas, Chairman and CEO commented:

“Our second quarter earnings showed significant improvement from the first quarter, increasing by 24.3% to $3.3 million, or $0.30 per share. Key highlights include a steady net interest margin at 3.06% for the quarter and a quarterly profit in our mortgage segment. Total loan growth in the first half was 6.5% as we continue to bring on new relationships and take advantage of market disruption. Real estate loan growth is particularly strong in residential and multi-family, which are both in high demand.

The Philadelphia metro region remains healthy, with a continued shortage of homes for sale. A recent comment from DR Horton highlighted that the US needs 5 million more homes nationally to meet demand, a deficiency that is evident in our region. Private equity’s significant ownership and rental of homes nationally contributes to this problem. Despite these challenges our volume has improved from 2023, and if rates come down the demand could strengthen.

Meridian continues to gain market share in our region. While navigating the rate rise has presented some obstacles, our core businesses remain healthy. We are excited about our prospects and the generally stable economic landscape.”   

Select Condensed Financial Information

Income Statement – Second Quarter 2024 Compared to First Quarter 2024

Net income for the second quarter increased $650 thousand, or 24.3%, to $3.3 million mainly due to a seasonal increase in net operating income from the mortgage division, as well as increased net interest income and lower quarterly provision for credit losses. Net interest income increased $237 thousand, or 1.4%, on a tax equivalent basis, as commercial loan fees of $238 thousand boosted overall interest income and out-paced the increase in interest expense. Non-interest income increased $1.3 million or 15.8%, reflecting the improved level of mortgage banking income. Non-interest expense increased $844 thousand, or 4.6%, due primarily to an increase in salaries and benefits expense, loan expenses and advertising and promotion. These increases were partially offset by a decrease in professional fees. Detailed explanations of the major categories of income and expense follow below.

Net Interest income

The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the periods indicated and allocated by rate and volume. Changes in interest income and/or expense related to changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.

Interest income increased $1.2 million quarter-over-quarter on a tax equivalent basis, driven by the increased levels of average earning assets. Average earning assets increased by $49.0 million contributing $830 thousand to the increase. In addition, the yield on earnings assets increased 8 basis points during the period, which benefited from commercial loan fees.

Average total loans, excluding residential loans for sale, increased $28.5 million resulting in an increase in interest income of $517 thousand. The largest drivers of this increase were commercial, commercial real estate, and small business loans which on a combined basis increased $36.0 million on average, partially offset by a decrease in average leases of $13.2 million. Home equity, residential real estate, consumer and other loans held in portfolio increased on a combined basis $5.9 million on average. The yield on total loans increased 7 basis points and the yield on cash and investments increased 13 basis points on a combined basis.

Total interest expense increased $1.0 million, quarter-over-quarter, due to higher levels of deposits, particularly time deposits. Interest expense on total deposits increased $1.6 million while interest expense on borrowings decreased $584 thousand. Non-interest bearing balances decreased $6.7 million on average, while time deposits increased $94.7 million on average. The cost of deposits increased 14 basis points to 3.98% causing an increase of $377 thousand in interest expense. Interest expense on borrowings decreased $564 thousand due to volume changes as average borrowings decreased $46.0 million for the period, while the cost of borrowings were relatively flat period over period.

Overall the net interest margin decreased 3 basis points to 3.06% as the cost of funds outpaced the increase in yield on earnings assets.

Provision for Credit Losses

The overall provision for credit losses is comprised of expected loan loss recorded for funded loans as well as unfunded loan commitments. The overall expense for the second quarter decreased $186 thousand to $2.7 million, from $2.9 million in the first quarter, with the provision for unfunded loan commitments representing an increase of $34 thousand of the combined provision during the current quarter. The second quarter provision for funded loans of $2.6 million was driven by an increase in overall loan portfolio growth as well as an increase in net charge-offs during the quarter, offset somewhat by a decrease in specific reserves on individually evaluated loans. This decline in the overall provision was also positively impacted by favorable changes in certain portfolio baseline loss rates and some macroeconomic factors underlying the funded loss model.

Non-interest income

The following table presents the components of non-interest income for the periods indicated:

Total non-interest income increased $1.3 million, or 15.8%, quarter-over-quarter as mortgage banking income increased $1.8 million, or 49.1%. Mortgage loan sales increased $68.3 million or 52.6% quarter over quarter driving higher gain on sale income at a slightly lower margin. SBA and other income decreased $869 thousand combined due to lower levels of SBA loan sales and other mortgage related fees. SBA loans sold for the quarter-ended June 30, 2024 totaled $12.1 million, down $3.4 million, or 21.7%, compared to the quarter-ended March 31, 2024. The gross margin on SBA sales was 8.8% for the quarter, up from 8.1% for the previous quarter. Contributing to the increased margin on sale was an increase in the average yield on loans sold over the prior quarter.

Non-interest expense

The following table presents the components of non-interest expense for the periods indicated:

Salaries and employee benefits increased $864 thousand overall, with bank and wealth segments combined having increased $80 thousand, and the mortgage segment increased $784 thousand. Mortgage segment salaries, commissions, and employee benefits are impacted by volume and therefore increased as originations increased $85.4 million over the prior quarter.

Professional fees decreased $469 thousand during the current quarter due to lower legal expenses. Advertising and promotion expense increased $241 thousand from the prior quarter as a result of an increase in business development expenses. Other expense increased $237 thousand from the prior quarter due to an increase in employee travel and trainings, combined with an increase in FDIC premiums.

Balance Sheet – June 30, 2024 Compared to March 31, 2024

Total assets increased $58.7 million, or 2.6%, to $2.4 billion as of June 30, 2024 from $2.3 billion at March 31, 2024. This increase was driven by strong loan growth and an increase in investments. Interest-bearing cash increased $1.5 million, or 10.7%, to $15.6 million as of June 30, 2024, from March 31, 2024.

Portfolio loan growth was $33.1 million, or 1.7% quarter-over-quarter. The portfolio growth was generated from commercial & industrial loans which increased $24.3 million, or 7.4%, commercial mortgage loans which increased $11.9 million, or 1.6%, and small business loans which increased $4.9 million despite the sale of $12.1 million in small business loan during the quarter. Lease financings decreased $11.3 million, or 10.3% from March 31, 2024, partially offsetting the above noted loan growth, but this decline was expected as we continue to refocus away from lease originations. Other assets decreased by $10.2 million quarter-over-quarter due to certain SBA loan sales that settled after quarter-end.

Total deposits increased $14.7 million, or 0.8% quarter-over-quarter, due largely to higher levels of certificates of deposits. Time deposits increased $12.5 million, or 1.6%, from largely wholesale efforts, as customers continue to opt for higher rate term deposits. Money market accounts and savings accounts decreased a combined $10.0 million while interest bearing demand deposits increased $8.9 million. Non-interest bearing deposits increased $3.5 million. Overnight borrowings increased $41.5 million, or 28.4% quarter-over-quarter, in support of loan growth, particularly residential mortgage loans available for sale which are up over $25 million seasonally.

Total stockholders’ equity increased by $2.4 million from March 31, 2024, to $162.4 million as of June 30, 2024. Changes to equity for the current quarter included net income of $3.3 million, less dividends paid of $1.4 million, plus an increase of $361 thousand in other comprehensive income as the result of the positive impact that rising interest rates had on the investment portfolio. The Community Bank Leverage Ratio for the Bank was 9.33% at June 30, 2024.

Asset Quality Summary

Non-performing assets decreased $604 thousand to $37.6 million at June 30, 2024 compared to $38.2 million at March 31, 2024. As a result of the decrease, the ratio of non-performing loans to total loans decreased to 1.84% as of June 30, 2024, from 1.93% as of March 31, 2024, and the ratio of non-performing assets to total assets decreased to 1.68% as of June 30, 2024, compared to 1.74% as of March 31, 2024. The changes were primarily the result of charge-offs in addition to principal paydowns of $645 thousand on 2 commercial loans classified as non-performing.

Meridian realized net charge-offs of 0.20% of total average loans for the quarter ended June 30, 2024, compared with 0.12% for the quarter ended March 31, 2024. The level of net charge-offs increased to $4.1 million for the quarter ended June 30, 2024, compared to net charge-offs of $2.3 million for the quarter ended March 31, 2024. Second quarter charge-offs were comprised of $1.3 million from small ticket equipment leases which are charged-off after becoming more than 120 days past due, a $1.3 million charge off of 1 commercial loan, and $1.4 million for SBA loans. There were recoveries of $237 thousand, largely related to leases.

The ratio of allowance for credit losses to total loans held for investment, excluding loans at fair value (a non-GAAP measure, see reconciliation in the Appendix), was 1.10% as of June 30, 2024 compared to 1.19% as of March 31, 2024. As of June 30, 2024 there were specific reserves of $7.2 million against individually evaluated loans, a decrease of $1.3 million from $8.5 million in specific reserves as of March 31, 2024. The specific reserve decline over the prior quarter was the result of a drop in both commercial and SBA loan related reserves driven by charge-offs.

About Meridian Corporation

Meridian Bank, the wholly owned subsidiary of Meridian Corporation, is an innovative community bank serving Pennsylvania, New Jersey, Delaware and Maryland. Through its 17 offices, including banking branches and mortgage locations, Meridian offers a full suite of financial products and services. Meridian specializes in business and industrial lending, retail and commercial real estate lending, electronic payments, and wealth management solutions through Meridian Wealth Partners. Meridian also offers a broad menu of high-yield depository products supported by robust online and mobile access. For additional information, visit our website at www.meridianbanker.com. Member FDIC.

“Safe Harbor” Statement

In addition to historical information, this press release may contain “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Meridian Corporation’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Meridian Corporation’s control). Numerous competitive, economic, regulatory, legal and technological factors, risks and uncertainties that could cause actual results to differ materially include, without limitation, credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses, or ACL; cyber-security concerns; rapid technological developments and changes; increased competitive pressures; changes in spreads on interest-earning assets and interest-bearing liabilities; changes in general economic conditions and conditions within the securities markets; unanticipated changes in our liquidity position; unanticipated changes in regulatory and governmental policies impacting interest rates and financial markets; legislation affecting the financial services industry as a whole, and Meridian Corporation, in particular; changes in accounting policies, practices or guidance; developments affecting the industry and the soundness of financial institutions and further disruption to the economy and U.S. banking system; among others, could cause Meridian Corporation’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements. Meridian Corporation cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Meridian Corporation’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2023 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.

Contact: Christopher J. Annas
484.568.5001
CAnnas@meridianbanker.com 

MERIDIAN CORPORATION AND SUBSIDIARIES
FINANCIAL RATIOS (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SEGMENT INFORMATION (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

MERIDIAN CORPORATION AND SUBSIDIARIES
APPENDIX: NON-GAAP MEASURES (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts. The non-GAAP disclosure have limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.