MRBK Meridian Corporation

• Net income for the quarter ended September 30, 2024 was $4.7 million and pre-tax, pre-provision income was $8.5 million1.
• Return on average assets and return on average equity for the third quarter of 2024 were 0.80% and 11.41%, respectively.
• Net interest margin was 3.20% for the third quarter of 2024, with a loan yield of 7.41%.
• Total assets at September 30, 2024 were $2.4 billion, compared to $2.4 billion at June 30, 2024 and $2.2 billion at September 30, 2023.
• Commercial loans, excluding leases, increased $30.0 million, or 2% for the quarter and $158.0 million, or 11% year over year.
• Third quarter deposit growth was $63.5 million, or 3%, and $170.3 million, or 9.4% year over year.
• Non-interest-bearing deposits were up $13.2 million or 6%, quarter over quarter.
• On October 22, 2024, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable November 19, 2024 to shareholders of record as of November 12, 2024.

Christopher J. Annas, Chairman and CEO commented:

“Our third quarter earnings showed significant improvement from the second quarter, increasing by 42.6% to $4.7 million, or $0.42 per share. Key highlights include an improving net interest margin at 3.20% for the quarter, and strong results from our wealth and mortgage segments. Robust loan growth of 7.2% for the first nine months of the year reflects our strong sales culture and healthy economic conditions in our primary market areas.  We have great systems for lenders to be more effective, and that same technology for our customers to bank entirely online, which leads to better efficiencies. Deposit growth is consistent, and we are evaluating deposit-rich segments to accelerate growth that is less reliant on branch networks.

Our wealth segment is benefiting from local disruption and the cross-selling from our commercial/industrial and CRE lending units. A recent hire from a large local bank has accelerated growth and has a pipeline for adding advisors. The mortgage segment has recovered from the rate shock, and despite a continued lack of homes for sale, is hitting volume levels similar to pre-2019. The hard decisions made to cut back expenses and reposition the business are paying off. And if mortgage rates fall in 2025, there are many refinance opportunities.  

Since starting the bank in 2004, Meridian has built a great reputation for responsiveness and consistency. The business community heavily relies on these qualities in a bank to build and grow themselves. We are the go-to bank in the Philadelphia metro market, and in a great position to build ever larger market share."

Select Condensed Financial Information

Income Statement - Third Quarter 2024 Compared to Second Quarter 2024

Third quarter net income increased $1.4 million, or 42.6%, to $4.7 million led by increased net interest income and a lower quarterly provision for credit losses, combined with an increase in net operating income from the mortgage division.  Net interest income increased $1.4 million, or 8.3%, as the increase in interest income out-paced the increase in interest expense. Non-interest income increased $1.6 million or 17.2%, reflecting higher levels of mortgage banking income and an improvement in fair value changes of the pipeline as well as fair valued portfolio loans.  Non-interest expense increased $1.5 million, or 8.0%, due primarily to an increase in salaries and employee benefits expense, professional fees and other expense.  These increases were partially offset by a decrease in advertising and promotion expense. 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 $1.9 million quarter-over-quarter on a tax equivalent basis, driven by the level of average earning assets which increased by $55.3 million contributing $862 thousand to the interest income increase. In addition, the yield on earnings assets increased 8 basis points during the period.

Average total loans, excluding residential loans for sale, increased $25.0 million resulting in an increase due to volume in interest income of $456 thousand. The largest drivers of this increase were commercial, commercial real estate, and small business loans which on a combined basis increased $34.4 million on average, partially offset by a decrease in average leases of $11.6 million. Home equity, residential real estate, consumer and other loans held in portfolio increased on a combined basis $2.1 million on average.  The yield on total loans increased 10 basis points, helped by loan fees of $509 thousand, and the yield on cash and investments increased 3 basis points on a combined basis. 

Total interest expense increased $458 thousand, quarter-over-quarter, due to higher levels of deposits, particularly money market and time deposits having a bigger impact than rate changes. Interest expense on total deposits increased $322 thousand and interest expense on borrowings increased $134 thousand. During the period, money market accounts and time deposits increased $15.1 million and $8.6 million on average, respectively, while interest-bearing demand deposits decreased $640 thousand on average. Borrowings increased $9.1 million on average. Overall increase in interest expense on deposits due to volume changes was $1.1 million. 

The cost of interest-bearing deposits decreased 3 basis points driven by certain money market funds and wholesale time deposits which repriced at lower costs. The total decrease in interest expense on deposits attributable to rate changes was $782 thousand. Overall the net interest margin increased 14 basis points to 3.20% as the yield on earning assets improved, the cost of funds declined and non-interest bearing balances increased $18.7 million on average.

Provision for Credit Losses

The overall provision for credit losses for the third quarter decreased $398 thousand to $2.3 million, from $2.7 million in the second quarter.  The provision for funded loans decreased $670 thousand and the provision on unfunded loan commitments increased $272 thousand during the current quarter.  The third quarter provision for funded loans of $2.0 million declined from the prior quarter due largely to a decrease of $1.9 million in net charge-offs and was positively impacted by favorable changes in certain portfolio baseline loss rates.

Non-interest income

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

Total non-interest income increased $1.6 million, or 17.2%, quarter-over-quarter as mortgage banking income increased $1.1 million, or 19.4%. Mortgage loan sales increased $47.8 million or 24.1% quarter over quarter driving higher gain on sale income at a slightly higher margin.  SBA and other income decreased $168 thousand combined due largely to lower levels of SBA loan sales.  SBA loans sold for the quarter-ended September 30, 2024 totaled $11.9 million, down $246 thousand, or 2.0%, compared to the quarter-ended June 30, 2024. The gross margin on SBA sales was 7.9% for the quarter, down from 8.8% for the previous quarter. 

Non-interest expense

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

Salaries and employee benefits increased $1.4 million overall, with bank and wealth segments combined having increased $588 thousand, and the mortgage segment increased $804 thousand.  Mortgage segment salaries, commissions, and employee benefits are impacted by volume and therefore increased as originations increased $17.2 million over the prior quarter.

Professional fees increased $77 thousand during the current quarter due to an increased level of legal expense related to non-performing assets.  Advertising and promotion expense decreased $272 thousand from the prior quarter as a result of a seasonal decrease in business development expenses.  Other expense increased $365 thousand from the prior quarter due to an increase in employee travel and trainings, combined with an increase in loan fees.

Balance Sheet - September 30, 2024 Compared to June 30, 2024

Total assets increased $36.1 million, or 1.5%, to $2.4 billion as of September 30, 2024 from $2.4 billion at June 30, 2024. This increase was driven by strong loan growth and an increase in investments.  Interest-bearing cash increased $4.2 million, or 26.9%, to $19.8 million as of September 30, 2024, from June 30, 2024.

Portfolio loan growth was $20.3 million, or 1.0% quarter-over-quarter.  The portfolio growth was generated from commercial mortgage loans which increased $25.6 million, or 3.3%, commercial & industrial loans which increased $11.4 million, or 3.2%, and small business loans which increased $5.0 million despite the sale of $11.9 million in small business loan during the quarter.  Lease financings decreased $10.9 million, or 11.2% from June 30, 2024, partially offsetting the above noted loan growth, but this decline was expected as we continue to refocus away from lease originations. Other assets increased by $7.1 million quarter-over-quarter, due largely to certain SBA loan sales that settled after quarter-end. 

Total deposits increased $63.5 million, or 3.3% quarter-over-quarter, due largely to higher levels of money market accounts and time deposits to a lesser degree.  Money market accounts and savings accounts increased a combined $35.4 million, while time deposits increased $11.6 million from largely wholesale efforts, and interest bearing demand deposits increased $3.4 million.  Non-interest bearing deposits increased $13.2 million. Overall borrowings decreased $42.4 million, or 22.6% quarter-over-quarter.

Total stockholders’ equity increased by $5.1 million from June 30, 2024, to $167.5 million as of September 30, 2024.  Changes to equity for the current quarter included net income of $4.7 million, less dividends paid of $1.4 million, plus an increase of $1.3 million in other comprehensive income due to the positive impact that declining interest rate environment had on the investment portfolio.  The Community Bank Leverage Ratio for the Bank was 9.32% at September 30, 2024.

Asset Quality Summary

Non-performing loans increased $7.5 million to $45.1 million at September 30, 2024 compared to $37.6 million at June 30, 2024. As a result of the increase, the ratio of non-performing loans to total loans increased to 2.20% as of September 30, 2024, from 1.84% as of June 30, 2024, and the ratio of non-performing assets to total assets increased to 1.97% as of September 30, 2024, compared to 1.68% as of June 30, 2024. The increase in non-performing assets was led by a $4.2 million increase in non-performing residential mortgage loans and a $1.8 million increase in non-performing commercial loans as the bank repurchased at a discount of $574 thousand, the remaining balance of a commercial loan participation to another bank. The impact of this loan repurchase increased the balance of non-performing loans by $2.1 million and also increased the ACL by the amount of the discount. 

Meridian realized net charge-offs of 0.11% of total average loans for the quarter ended September 30, 2024, down from 0.20% for the quarter ended June 30, 2024.  Net charge-offs decreased to $2.3 million for the quarter ended September 30, 2024, compared to net charge-offs of $4.1 million for the quarter ended June 30, 2024.  Third 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 $1.1 million in SBA loans.  Overall there were recoveries of $153 thousand, largely related to leases and small business loans.

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 September 30, 2024, consistent with the coverage ratio of 1.10% as of June 30, 2024.  As of September 30, 2024 there were specific reserves of $6.8 million against individually evaluated loans, a decrease of $394 thousand from $7.2 million in specific reserves as of June 30, 2024.  The specific reserve decline over the prior quarter was the result of a drop in SBA loan related reserves driven by charge-offs during the current quarter, partially offset by an increase in specific reserve as the result of repurchasing a commercial loan participation from another bank as discussed above.

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.

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. Annas 484.568.5001 CAnnas@meridianbanker.com

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