MRBK Meridian Corporation

• Total assets at December 31, 2023 and September 30, 2023 were $2.2 billion, compared to $2.1 billion at December 31, 2022.
• Commercial loans, excluding leases, increased $15.7 million for the quarter and $114.6 million, or 9%, year over year.
• Pre-tax, pre-provision income for the Bank was $5.8 million for the quarter and $27.8 million for the year.
• Net interest margin was 3.18% for the fourth quarter of 2023, with a loan yield of 7.15%. Net interest margin was 3.35% with a loan yield of 6.94% for the year.
• On January 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable February 20, 2024 to shareholders of record as of February 12, 2024.

Christopher J. Annas, Chairman and CEO commented, “Meridian’s fourth quarter earnings totaled $571 thousand, which was down from the prior quarter. Contributing to the decline was a necessary additional provision for a non-performing commercial credit, which has experienced some deterioration. In addition, the historical rise in interest rates has had negative impact on our SBA and small-ticket leasing businesses, both of which required additional provisions. We are comfortable with the existing reserves and expect some resolution in the commercial credit in 2024. Annual loan growth in the core CRE, C&I and SBA portfolios was 9%, which reflects our continued outreach and a stable business environment in the Philadelphia metro region. Construction lending for residential and multi-family is still strong because of high housing demand, as housing inventory remains at historical lows.

Mr. Annas added, "Net interest margin was down from the prior quarter mostly due to higher deposit expense, as customers are increasingly rate conscious. We have adjusted well to the tumultuous environment created by the historic Federal Reserve interest rate moves, but the impact on margins continues.

The mortgage segment has been downsized throughout 2023 to match expected volumes. The lack of homes for sale remains the biggest issue, while the higher rates are less of a factor. We will continue to monitor the impact of market conditions on our mortgage operations and are prepared to make further adjustments if warranted."

Mr. Annas concluded, "Our continued growth results from being highly visible in our regions, and being the preferred bank in the Delaware Valley. If the forecasted rate declines materialize, the business environment should be robust."

Select Condensed Financial Information

Income Statement - Fourth Quarter 2023 Compared to Third Quarter 2023

Net income of $571 thousand for the fourth quarter decreased $3.4 million from $4.0 million for the third quarter mainly due to provisioning for general credit reserves, specific reserves on individually evaluated loans, and charge-offs. Net interest income decreased $288 thousand, or 1.6%, on a tax equivalent basis due to an increase in interest expense that out-paced the increase in interest income. Non-interest income increased $31 thousand or 0.4%, as fair value changes exceeded the lower level of gains on sale of mortgage loans. Non-interest expense decreased $315 thousand, or 1.6% due primarily to a decrease in salaries and benefits expense, partially offset by an increase 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 $881 thousand quarter-over-quarter, on a tax equivalent basis, due to a higher yield on earning assets and higher levels of average earning assets. The yield on earnings assets rose 5 basis points during the period, while average earning assets increased by $34.5 million.

The yield on total loans increased 7 basis points and the yield on cash and investments increased 9 basis points combined. Average total loans, excluding residential loans for sale, increased $14.5 million. Construction, commercial real estate, and small business loans increased $19.3 million on average, combined, while home equity loans and residential real estate loans held in portfolio increased $15.9 million on average, combined.

Total interest expense increased $1.2 million, quarter-over-quarter, due primarily to market interest rate rises, and an increase in deposit average balances. Interest expense on deposits increased $1.3 million as total average deposits increased $37.9 million and the cost of interest-bearing deposits increased 23 basis points to 4.26%. Interest expense on borrowings decreased $270 thousand as the cost of borrowings decreased 14 basis points due to the positive carry on a $75 million pay fixed swap, and average borrowings decreased for the period, while the average balance of subordinated debentures increased for the period due to the $9.7 million raised in the prior quarter.

The net interest margin decreased 11 basis points to 3.18% as the cost of funds outpaced the increase in yield on earnings assets. The average balance on non-interest bearing deposits increased $540 thousand for the quarter which helped offset somewhat the impact of the increase in cost of funds.

Provision for Credit Losses

The overall provision for credit losses is comprised of provisioning for funded loans as well as unfunded loan commitments. The combined provision increased to $4.6 million for the fourth quarter, from $82 thousand for the third quarter, with the provision for unfunded loan commitments representing only $8 thousand of the combined provision. The increase in provision for funded loans was due to a $3.9 million increase in specific reserves on new, mainly small business loans, and existing non-accrual loans combined with provisioning for loan growth and charge-offs. $2.3 million of the increase in specific reserves related to a commercial loan relationship for which new information became available related to the value of the underlying collateral, and an estimate of disposition costs. This increase was partially offset by the impact of 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 $31 thousand, or 0.4%, quarter-over-quarter as a result of an increase in the net change in fair values and an increase in other income, largely offset by lower mortgage banking income. Other income increased $409 thousand due to swap fee income and gains in fair value of equity securities. Mortgage banking income decreased $1.4 million, or 29.6% quarter-over-quarter, due to lower levels of mortgage loan originations, which decreased $39.8 million. In addition to lower volume, the gain on sale margin increased 5 basis points over the prior quarter. The fair value of loans held for investment increased $1.4 million due to the recent decline in interest rates.

SBA loan income increased $40 thousand, or 4.1%, quarter-over-quarter. While the value of SBA loans sold for the quarter-ended December 31, 2023 was $6.1 million, or 23.3%, less than the quarter-ended September 30, 2023, the gross margin on sale was 6.4% for the quarter-ended December 31, 2023 compared to 6.2% for the quarter-ended September 30, 2023. Also contributing to the increase in SBA loan income was a decrease in amortization expense and in servicing asset impairment.

Non-interest expense

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

Salaries and employee benefits decreased $676 thousand overall, with bank and wealth segments combined having increased $332 thousand, and the mortgage segment decreased $1.0 million. Bank and wealth segment salaries and employee benefits were up due to increased full-time-equivalent employees, and expense related to the issuance of stock options during the quarter.

Professional fees increased $278 thousand during the current quarter due to an increase in loan and lease workout expenses and other legal expenses. Advertising and promotion expense increased $83 thousand from the prior quarter as a result of an increase in advertising and business development expense during the holiday season.

Balance Sheet - December 31, 2023 Compared to September 30, 2023

As of December 31, 2023, total assets increased $15.2 million, or 0.7%, to $2.2 billion from September 30, 2023. This increase was due to an increase in cash and cash equivalents and an increase in loans. Interest-bearing cash decreased $395 thousand, or 0.8%, to $46.6 million as of December 31, 2023, from September 30, 2023.

Portfolio loan growth was $10.0 million, or 0.5% quarter-over-quarter. Commercial mortgage loans increased $41.7 million, or 6.0%, commercial & industrial loans increased $3.0 million, or 1.0%, while residential real estate loans held in portfolio increased $4.3 million, or 1.7%, and home equity lines and loans increased $2.4 million, or 3.3%. Partially offsetting portfolio loan growth were construction loans which decreased $30.2 million, or 10.9%, and lease financings that decreased $12.4 million, or 8.9% from September 30, 2023.

Total deposits increased $14.8 million, or 0.8% quarter-over-quarter, due largely to higher levels of certificates of deposits. Time deposits increased $24.6 million, or 3.7%, from retail and wholesale efforts as customers continue to opt for higher term interest rates. Money market accounts and savings accounts increased a combined $1.2 million while interest bearing demand deposits decreased $5.6 million. Non-interest bearing deposits decreased $5.4 million, reflecting typical business cash out at the end of the year for distributions and profit-sharing.

Consolidated stockholders’ equity of the Corporation increased by $2.9 million from September 30, 2023, to $158.0 million as of December 31, 2023. Changes to equity for the current quarter included net income of $571 thousand, $199 thousand in ESOP loan payments, an increase of a $2.9 million in other comprehensive income, partially offset by quarter dividends paid of $1.4 million. The Community Bank Leverage Ratio for the Bank was 9.46% at December 31, 2023.

Asset Quality Summary

The ratio of non-performing loans to total loans increased to 1.76% as of December 31, 2023, from 1.53% as of September 30, 2023, while the ratio of non-performing assets to total assets increased to 1.58% as of December 31, 2023, compared to 1.38% at September 30, 2023. Driving the increase in these ratios were total non-performing loans which increased $4.7 million from $29.1 million as of September 30, 2023, to $33.8 million as of December 31, 2023, due to risk rating downgrades of several SBA loans and small ticket equipment leases, partially offset by charge-offs of leases and SBA loans as of December 31, 2023.

Meridian realized net charge-offs of 0.11% of total average loans for the quarter ended December 31, 2023, compared with the quarter ended September 30, 2023 level of 0.05%, as net charge-offs increased to $2.2 million for the quarter ended December 31, 2023, compared to net-charge-offs of $913 thousand for the quarter ended September 30, 2023. Fourth quarter charge-offs were comprised of $1.2 million from small ticket equipment leases which are charged-off after becoming more than 120 days past due, and $890 thousand for an SBA loan. There were recoveries of $17 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 1.17% as of December 31, 2023 compared to 1.05% as of September 30, 2023. As of December 31, 2023 there were specific reserves of $6.5 million against individually evaluated loans, an increase from $2.6 million as of September 30, 2023. The drivers of the increase related to a $2.3 million increase in a commercial loan relationship specific reserve for which new information became available related to the value of the underlying collateral, combined with the net impact of establishing $2.3 million in specific reserves on SBA loan relationships classified as non-performing, netted with the charge-off an SBA loan during the quarter that had a specific reserve of $890 thousand in the prior quarter.

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, 2022 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.

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

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

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

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

MERIDIAN CORPORATION AND SUBSIDIARIESAPPENDIX: 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.

Contact: Christopher J. Annas484.568.5001CAnnas@meridianbanker.com

Meridian (NASDAQ:MRBK)
Historical Stock Chart
From Mar 2024 to Apr 2024

Meridian (NASDAQ:MRBK)
Historical Stock Chart
From Apr 2023 to Apr 2024