MALVERN, Pa., Oct. 27, 2023 (GLOBE NEWSWIRE) -- Meridian Corporation (Nasdaq: MRBK) today reported:
- Net income of $4.0 million and diluted earnings of $0.35 per share for the third quarter ended September 30, 2023.
- Return on average assets and return on average equity for the third quarter of 2023 were 0.73% and 10.17%, respectively.
- Net interest margin was 3.29% for the third quarter of 2023, with a loan yield of 7.08%.
- Total assets at September 30, 2023 and June 30, 2023 were $2.2 billion, compared to $1.9 billion at September 30, 2022.
- Third quarter overall commercial loan growth was $21.3 million, or 6.1% annualized; residential and home equity loans increased by $15.1 million on a combined basis, or 19.2% annualized.
- Third quarter deposit growth was $26.0 million, or 6.0% annualized.
- Raised $9.7 million in subordinated debt at 8.00% during the quarter for growth and capital purposes.
- On October 26, 2023, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable November 20, 2023 to shareholders of record as of November 13, 2023.
Total assets remained relatively flat quarter over quarter, however our portfolio loans increased $25.3 million, or 1.4% and total deposits increased $26.0 million, or 1.5%, during the period. "We were pleased with our growth in the third quarter as we prioritize our asset mix to emphasize relationship-based credits," said Christopher J. Annas, Chairman and CEO. "We continue to show growth in deposits, reduction in borrowings, and strengthening of our capital position. While our margin compressed slightly, we remain focused on high quality assets and prudent management of the balance sheet."
Mortgage banking revenue was down $231 thousand over the prior quarter reflecting lower than anticipated loan production along with lower gain on sale margins. "With the seasonal slowdown and increasing mortgage rates, mortgage origination decreased $14.5 million. The increase in the ten year Treasury and the lack of homes for sale continue to plague the division as we are simultaneously working to tailor operations to reasonable levels," Mr. Annas added.
Mr. Annas concluded, "Our growth this year in such a challenging environment is a strong indicator of our success in and our commitment to the regions we serve. We remain focused on opportunities that provide us with additional business and help foster long-term customer connections."
Select Condensed Financial Information
| As of or for the quarter ended (Unaudited) | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| (Dollars in thousands, except per share data) | |||||||||||||||||||
| Income: | |||||||||||||||||||
| Net income | $ | 4,005 | $ | 4,645 | $ | 4,021 | $ | 4,557 | $ | 5,798 | |||||||||
| Basic earnings per common share | 0.36 | 0.42 | 0.36 | 0.40 | 0.49 | ||||||||||||||
| Diluted earnings per common share | 0.35 | 0.41 | 0.34 | 0.39 | 0.48 | ||||||||||||||
| Net interest income | 17,224 | 17,098 | 17,677 | 18,518 | 18,026 | ||||||||||||||
| Balance Sheet: | |||||||||||||||||||
| Total assets | $ | 2,230,971 | $ | 2,206,877 | $ | 2,229,783 | $ | 2,062,228 | $ | 1,921,924 | |||||||||
| Loans, net of fees and costs | 1,885,629 | 1,859,839 | 1,818,189 | 1,743,682 | 1,610,349 | ||||||||||||||
| Total deposits | 1,808,645 | 1,782,605 | 1,770,413 | 1,712,479 | 1,673,553 | ||||||||||||||
| Non-interest bearing deposits | 244,668 | 269,174 | 262,636 | 301,727 | 290,169 | ||||||||||||||
| Stockholders' equity | 155,114 | 153,962 | 153,049 | 153,280 | 151,161 | ||||||||||||||
| Balance Sheet (Average Balances): | |||||||||||||||||||
| Total assets | $ | 2,184,385 | $ | 2,166,574 | $ | 2,088,599 | $ | 1,962,915 | $ | 1,868,194 | |||||||||
| Total interest earning assets | 2,086,331 | 2,070,640 | 1,995,460 | 1,877,967 | 1,791,255 | ||||||||||||||
| Loans, net of fees and costs | 1,876,648 | 1,847,736 | 1,783,322 | 1,674,215 | 1,565,861 | ||||||||||||||
| Total deposits | 1,782,140 | 1,775,444 | 1,759,571 | 1,698,597 | 1,597,648 | ||||||||||||||
| Non-interest bearing deposits | 253,485 | 266,675 | 296,037 | 312,297 | 295,975 | ||||||||||||||
| Stockholders' equity | 156,271 | 154,179 | 153,179 | 151,791 | 157,614 | ||||||||||||||
| Performance Ratios (Annualized): | |||||||||||||||||||
| Return on average assets | 0.73 | % | 0.86 | % | 0.78 | % | 0.92 | % | 1.23 | % | |||||||||
| Return on average equity | 10.17 | % | 12.08 | % | 10.65 | % | 11.91 | % | 14.59 | % | |||||||||
Income Statement - Third Quarter 2023 Compared to Second Quarter 2023
Net income of $4.0 million, decreased $640 thousand from $4.6 million for the second quarter driven by a lower level of non-interest income and a higher level of non-interest expense, partially offset by an increase in net interest income and lower loan loss provision. Non-interest income decreased $1.0 million or 11.4%, due to lower levels of gains on sale of mortgage and SBA loans. Non-interest expense increased $403 thousand, or 2.1% due primarily to increased salaries and benefits expense and professional fees. Net interest income increased $128 thousand, or 0.7%, on a tax equivalent basis due to an increase in earnings assets. 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.
| Quarter Ended | |||||||||||||||||||||
| (dollars in thousands) | September 30, 2023 | June 30, 2023 | $ Change | % Change | Change due to rate | Change due to volume | |||||||||||||||
| Interest income: | |||||||||||||||||||||
| Due from banks | $ | 244 | $ | 275 | $ | (31 | ) | (11.3 | )% | $ | 25 | $ | (56 | ) | |||||||
| Federal funds sold | 1 | 3 | (2 | ) | (66.7 | )% | 1 | (3 | ) | ||||||||||||
| Investment securities - taxable (1) | 901 | 992 | (91 | ) | (9.2 | )% | (18 | ) | (73 | ) | |||||||||||
| Investment securities - tax exempt (1) | 410 | 426 | (16 | ) | (3.8 | )% | (9 | ) | (7 | ) | |||||||||||
| Loans held for sale | 456 | 407 | 49 | 12.0 | % | 40 | 9 | ||||||||||||||
| Loans held for investment (1) | 33,526 | 31,810 | 1,716 | 5.4 | % | 1,213 | 503 | ||||||||||||||
| Total loans | 33,982 | 32,217 | 1,765 | 5.5 | % | 1,253 | 512 | ||||||||||||||
| Total interest income | $ | 35,538 | $ | 33,913 | $ | 1,625 | 4.8 | % | $ | 1,252 | $ | 373 | |||||||||
| Interest expense: | |||||||||||||||||||||
| Interest-bearing demand deposits | $ | 1,488 | $ | 1,840 | $ | (352 | ) | (19.1 | )% | $ | 42 | $ | (394 | ) | |||||||
| Money market and savings deposits | 6,755 | 5,371 | 1,384 | 25.8 | % | 796 | 588 | ||||||||||||||
| Time deposits | 7,300 | 6,812 | 488 | 7.2 | % | 537 | (49 | ) | |||||||||||||
| Total deposits | 15,543 | 14,023 | 1,520 | 10.8 | % | 1,375 | 145 | ||||||||||||||
| Borrowings | 2,086 | 2,129 | (43 | ) | (2.0 | )% | (103 | ) | 60 | ||||||||||||
| Subordinated debentures | 606 | 586 | 20 | 3.4 | % | 6 | 14 | ||||||||||||||
| Total interest expense | 18,235 | 16,738 | 1,497 | 8.9 | % | 1,278 | 219 | ||||||||||||||
| Net interest income differential | $ | 17,303 | $ | 17,175 | $ | 128 | 0.75 | % | $ | (26 | ) | $ | 154 | ||||||||
| (1) Reflected on a tax-equivalent basis. | |||||||||||||||||||||
Interest income increased $1.6 million on a tax equivalent basis, quarter-over-quarter, due to a higher yield on earning assets and higher levels of average earning assets. The yield on earnings assets rose 19 basis points during the period, while average earning assets increased by $15.7 million.
The yield on total loans increased 19 basis points and the yield on cash and investments decreased 1 basis point combined, reflecting the impact on rates from the Federal Reserve's monetary policy. Nearly $713.5 million in loans repriced during the quarter with an average increase of 25 basis points. Average total loans, excluding residential loans for sale, increased $28.9 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 $1.5 million, quarter-over-quarter, due primarily to market interest rate rises, and increases in both deposit and borrowing average balances. Interest expense on deposits increased $1.5 million as total average deposits increased $19.9 million and the cost of interest-bearing deposits increased 30 basis points to 4.03%. Interest expense on borrowings decreased $43 thousand as the cost of borrowings decreased 30 basis points due to the positive carry on a $75 million pay fixed swap, partially offset by the increase in average borrowings for the period.
Although net interest income increased quarter over quarter, the net interest margin decreased 4 basis points to 3.29% as the cost of funds outpaced the increase in yield on earnings assets. The margin was also affected by a reduction in average non-interest bearing deposits, which were down on average by $13.2 million for the quarter.
Provision for Credit Losses
The overall provision for credit losses is comprised of provisioning for funded loans as well as unfunded commitments. The combined provision decreased to $82 thousand for the third quarter from $705 thousand for the second quarter. The reduction was due in part to a decline in the overall exposure to unfunded loan balances at the end of the third quarter, causing a reduction in the unfunded reserve of $192 thousand. The remaining decrease in provisioning was due largely to favorable changes in some baseline loss rates and certain macroeconomic factors underlying the funded loss model.
Non-interest income
The following table presents the components of non-interest income for the periods indicated:
| Quarter Ended | |||||||||||||||
| (Dollars in thousands) | September 30, 2023 | June 30, 2023 | $ Change | % Change | |||||||||||
| Mortgage banking income | $ | 4,819 | $ | 5,050 | $ | (231 | ) | (4.6 | )% | ||||||
| Wealth management income | 1,258 | 1,235 | 23 | 1.9 | % | ||||||||||
| SBA loan income | 982 | 1,767 | (785 | ) | (44.4 | )% | |||||||||
| Earnings on investment in life insurance | 201 | 193 | 8 | 4.1 | % | ||||||||||
| Net change in the fair value of derivative instruments | 103 | 183 | (80 | ) | (43.7 | )% | |||||||||
| Net change in the fair value of loans held-for-sale | 111 | (199 | ) | 310 | (155.8 | )% | |||||||||
| Net change in the fair value of loans held-for-investment | (570 | ) | (219 | ) | (351 | ) | 160.3 | % | |||||||
| Net (loss) gain on hedging activity | 82 | (1 | ) | 83 | (8300.0 | )% | |||||||||
| Net loss on sale of investment securities available-for-sale | (3 | ) | (54 | ) | 51 | (94.4 | )% | ||||||||
| Other | 1,103 | 1,169 | (66 | ) | (5.6 | )% | |||||||||
| Total non-interest income | $ | 8,086 | $ | 9,124 | $ | (1,038 | ) | (11.4 | )% | ||||||
Total non-interest income decreased $1.0 million, or 11.4%, quarter-over-quarter as a result of lower mortgage banking income and lower SBA loan income. Mortgage banking income decreased $231 thousand, or 4.6% quarter-over-quarter, due to lower levels of mortgage loan originations, which decreased $14.5 million. In addition to lower volume, the gain on sale margin decreased 18 basis points over the prior quarter. The fair value of loans held for sale and loans held for investment, along with the fair value of derivatives instruments and net gain on hedging activity, decreased $38 thousand in total.
SBA loan income decreased $785 thousand, or 44.4%, due to a combination of a decrease in the gain on sale of SBA loans and an increase in servicing asset impairment quarter over quarter. While the value of SBA loans sold for the quarter-ended September 30, 2023 was only slightly less than the volume sold for the quarter-ended June 30, 2023 ($26.2 million vs $27.8 million), the gross margin on sale was 6.2% for the quarter-ended September 30, 2023 compared to 7.0% for the quarter-ended June 30, 2023. Also contributing to the decrease in SBA loan income was an increase in servicing asset impairment, led by an increase in the prepayment assumption that drives the servicing asset valuation.
Non-interest expense
The following table presents the components of non-interest expense for the periods indicated:
| Quarter Ended | |||||||||||||||
| (Dollars in thousands) | September 30, 2023 | June 30, 2023 | $ Change | % Change | |||||||||||
| Salaries and employee benefits | $ | 12,420 | $ | 12,152 | $ | 268 | 2.2 | % | |||||||
| Occupancy and equipment | 1,226 | 1,140 | 86 | 7.5 | % | ||||||||||
| Professional fees | 1,104 | 1,004 | 100 | 10.0 | % | ||||||||||
| Advertising and promotion | 848 | 1,091 | (243 | ) | (22.3 | )% | |||||||||
| Data processing and software | 1,652 | 1,681 | (29 | ) | (1.7 | )% | |||||||||
| Pennsylvania bank shares tax | 244 | 245 | (1 | ) | (0.4 | )% | |||||||||
| Other | 2,524 | 2,302 | 222 | 9.6 | % | ||||||||||
| Total non-interest expense | $ | 20,018 | $ | 19,615 | $ | 403 | 2.1 | % | |||||||
Salaries and employee benefits increased $268 thousand overall, with bank and wealth segments combined having increased $234 thousand, and the mortgage segment increased $34 thousand. Bank and wealth segment salaries and employee benefits were up due to one-time payment of severance to a former Meridian Equipment Finance officer as well as stock based compensation.
Professional fees increased $100 thousand during the current quarter due to an increase in loan and lease workout expenses which has helped lead to an increase in recoveries when compared to the prior year. Professional fees were also impacted by system conversion fees for a new loan servicing platform for our mortgage segment. Occupancy expenses were up due to branch re-locations, equipment and some repairs/maintenance. Advertising and promotion expense decreased $243 thousand from the prior quarter as a result of a decrease in business development expense and certain advertising expense due to seasonality. Other non-interest expense increased $222 thousand over the prior quarter due largely to an increase in FDIC insurance expense, an increase in certain commercial and consumer related loan expenses due to portfolio growth, and an increase in our mortgage related representations and warranties reserves, offset by a reduction in the unfunded allowance for credit losses.
Balance Sheet - September 30, 2023 Compared to June 30, 2023
As of September 30, 2023, total assets increased $24.1 million, or 1.1%, to $2.2 billion from June 30, 2023. This increase was due to an increase in cash and cash equivalents and an increase in loans. Interest-bearing cash increased $9.7 million, or 26.8%, to $46.0 million as of September 30, 2023, from June 30, 2023.
Portfolio loan growth was $25.3 million, or 1.4% quarter-over-quarter. Commercial mortgage loans increased $47.9 million, or 7.4%, residential real estate loans held in portfolio increased $8.5 million, or 3.4%, while home equity lines and loans increased $6.6 million, or 9.8% as well. Partially offsetting portfolio loan growth were commercial & industrial loans which decreased $10.4 million, or 3.4%, construction loans which decreased $9.5 million, or 3.3%, small business loans which decreased $6.7 million, or 4.5%, due to loan sales during the period, and lease financings that decreased $11.1 million, or 7.4% from June 30, 2023.
Total deposits increased $26.0 million, or 1.5% quarter-over-quarter, due largely to higher levels of money market deposits which increased $36.1 million. Much of the increase came from business accounts as well as some seasonal deposits related to school tuition and taxes. Noninterest-bearing deposits decreased $24.5 million, during the period. Servicing deposits of approximately $7.2 million also paid out seasonally, with much of the rest of the change in non-interest bearing accounts migrating to other accounts. Time deposits increased $13.9 million, or 2.1%, from retail and wholesale efforts as customers opt for higher term interest rates.
In September, Meridian Corporation raised $9.7 million in subordinated debt at 8.00% with a term of 10 years. The funds will be used for general corporate purposes, including providing capital to Meridian Bank and supporting organic growth.
Consolidated stockholders' equity of the Corporation increased by $1.2 million from June 30, 2023, to $155.1 million as of September 30, 2023. Changes to equity for the current quarter included net income of $4.0 million, partially offset by a $1.5 million decline in other comprehensive income and prior quarter dividends paid of $1.4 million. The Community Bank Leverage Ratio for the Bank was 9.65% at September 30, 2023.
Asset Quality Summary
The ratio of non-performing loans to total loans increased to 1.53% as of September 30, 2023, from 1.44% as of June 30, 2023, while non-performing assets to total assets was up to 1.38% as of September 30, 2023, compared to 1.32% at June 30, 2023. Total non-performing loans of $29.1 million as of September 30, 2023, increased $1.7 million from $27.4 million as of June 30, 2023 due to downgrades of several SBA loans and residential real estate loans, offset somewhat by the impact of returning a residential real estate loan to accrual status, and charge-offs in commercial and SBA loans as of September 30, 2023.
Meridian realized net charge-offs of 0.05% of total average loans for the quarter ended September 30, 2023, consistent with the quarter ended June 30, 2023 level of 0.05%. Net charge-offs for the quarter ended September 30, 2023 were $913 thousand, comprised of $1.0 million in charge-offs, with $95 thousand in recoveries for the quarter. While a large percentage of charge-offs for the quarter ended September 30, 2023 continue to come from small ticket equipment leases, the level of charge-offs in this portfolio declined by $169 thousand, while we also realized $90 thousand of recoveries related to the small ticket equipment lease portfolio. There were also charge-offs of $272 thousand on SBA loans that had previously been classified as non-performing loans in a prior period.
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 1.05% as of September 30, 2023 compared to 1.10% as of June 30, 2023. As of September 30, 2023 there were specific reserves of $2.6 million against non-performing loans, an increase from $2.5 million as of June 30, 2023 due to the increase of the existing specific reserve on a commercial loan relationship classified as a non-performing, combined with the impact of establishing a new specific reserve on an SBA loan relationship during the current quarter.
Bank Sector Considerations
Meridian is a regional community bank with loans and deposits that are well diversified in size, type, location and industry. We manage this diversification carefully, while avoiding concentrations in business lines. Meridian's model continues to build on our strong and stable financial position, which serves our regional customers and communities with the banking products and services needed to help build their prosperity.
As a commercial bank, the majority of Meridian's deposit base is comprised of business deposits (58%), with consumer deposits amounting to 12% at September 30, 2023. Municipal deposits (8%) and brokered deposits (22%) provide growth funding. Historically, business deposits lag loan fundings. A typical business relationship maintains operating accounts, investment accounts or sweep accounts and business owners may also have personal savings or wealth accounts. Deposit balances in business accounts have a tendency to be higher on average than consumer accounts. At September 30, 2023, 63% of business accounts and 88% of consumer accounts were fully insured by the FDIC. The municipal deposits are 100% collateralized and brokered deposits are 100% FDIC insured. The level of uninsured deposits for the entire deposit base was 23% at September 30, 2023.
Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $1.0 billion in liquidity from numerous sources, including its borrowing capacity with the FHLB and other financial institutions, as well as funding through the CDARS program or through brokered CD arrangements. In addition, the Bank is eligible to receive funds under the new Bank Term Funding Program ("BTFP") announced by the Federal Reserve. At September 30, 2023 Meridian elected to secure $33 million in borrowings from the Federal Reserve under the BTFP due to the favorable rate. Management believes that the above sources of liquidity provide Meridian with the necessary resources to meet its short-term and long-term funding requirements.
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 20 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.
Contact:
Christopher Annas
cannas@meridianbanker.com
484-568-5000
MERIDIAN CORPORATION AND SUBSIDIARIES
FINANCIAL RATIOS (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)
| Quarter Ended | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Earnings and Per Share Data: | |||||||||||||||||||
| Net income | $ | 4,005 | $ | 4,645 | $ | 4,021 | $ | 4,557 | $ | 5,798 | |||||||||
| Basic earnings per common share | $ | 0.36 | $ | 0.42 | $ | 0.36 | $ | 0.40 | $ | 0.49 | |||||||||
| Diluted earnings per common share | $ | 0.35 | $ | 0.41 | $ | 0.34 | $ | 0.39 | $ | 0.48 | |||||||||
| Common shares outstanding | 11,178 | 11,178 | 11,305 | 11,466 | 11,689 | ||||||||||||||
| Performance Ratios: | |||||||||||||||||||
| Return on average assets | 0.73 | % | 0.86 | % | 0.78 | % | 0.92 | % | 1.23 | % | |||||||||
| Return on average equity | 10.17 | 12.08 | 10.65 | 11.91 | 14.59 | ||||||||||||||
| Net interest margin (tax-equivalent) | 3.29 | 3.33 | 3.61 | 3.93 | 4.01 | ||||||||||||||
| Yield on earning assets (tax-equivalent) | 6.76 | 6.57 | 6.31 | 5.88 | 5.10 | ||||||||||||||
| Cost of funds | 3.63 | 3.39 | 2.83 | 2.07 | 1.17 | ||||||||||||||
| Efficiency ratio | 79.09 | % | 74.80 | % | 73.16 | % | 75.61 | % | 71.72 | % | |||||||||
| Asset Quality Ratios: | |||||||||||||||||||
| Net charge-offs (recoveries) to average loans | 0.05 | % | 0.05 | % | 0.08 | % | 0.05 | % | 0.02 | % | |||||||||
| Non-performing loans to total loans | 1.53 | 1.44 | 1.25 | 1.20 | 1.40 | ||||||||||||||
| Non-performing assets to total assets | 1.38 | 1.32 | 1.11 | 1.11 | 1.20 | ||||||||||||||
| Allowance for credit losses to: | |||||||||||||||||||
| Total loans held for investment | 1.04 | 1.09 | 1.12 | 1.08 | 1.18 | ||||||||||||||
| Total loans held for investment (excluding loans at fair value) (1) | 1.05 | 1.10 | 1.13 | 1.09 | 1.20 | ||||||||||||||
| Non-performing loans | 67.61 | % | 73.97 | % | 88.41 | % | 88.66 | % | 82.20 | % | |||||||||
| Capital Ratios: | |||||||||||||||||||
| Book value per common share | $ | 13.88 | $ | 13.77 | $ | 13.54 | $ | 13.37 | $ | 12.93 | |||||||||
| Tangible book value per common share | $ | 13.53 | $ | 13.42 | $ | 13.18 | $ | 13.01 | $ | 12.58 | |||||||||
| Total equity/Total assets | 6.95 | % | 6.98 | % | 6.86 | % | 7.43 | % | 7.87 | % | |||||||||
| Tangible common equity/Tangible assets - Corporation (1) | 6.79 | 6.81 | 6.70 | 7.25 | 7.67 | ||||||||||||||
| Tangible common equity/Tangible assets - Bank (1) | 8.89 | 8.54 | 8.26 | 8.80 | 9.61 | ||||||||||||||
| Tier 1 leverage ratio - Corporation | 7.52 | 7.46 | 7.65 | 8.13 | 8.54 | ||||||||||||||
| Tier 1 leverage ratio - Bank | 9.65 | 9.22 | 9.32 | 9.95 | 10.52 | ||||||||||||||
| Common tier 1 risk-based capital ratio - Corporation | 8.43 | 8.38 | 8.44 | 8.77 | 9.28 | ||||||||||||||
| Common tier 1 risk-based capital ratio - Bank | 10.82 | 10.35 | 10.27 | 10.73 | 11.44 | ||||||||||||||
| Tier 1 risk-based capital ratio - Corporation | 8.43 | 8.38 | 8.44 | 8.77 | 9.28 | ||||||||||||||
| Tier 1 risk-based capital ratio - Bank | 10.82 | 10.35 | 10.27 | 10.73 | 11.44 | ||||||||||||||
| Total risk-based capital ratio - Corporation | 11.96 | 11.49 | 11.63 | 12.05 | 12.80 | ||||||||||||||
| Total risk-based capital ratio - Bank | 11.85 | % | 11.43 | % | 11.41 | % | 11.87 | % | 12.70 | % | |||||||||
| (1) See Non-GAAP reconciliation in the Appendix | |||||||||||||||||||
MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)
| Three Months Ended | Nine Months Ended | ||||||||||||||||||
| September 30, 2023 | June 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||||
| Interest income: | |||||||||||||||||||
| Loans and other finance receivables, including fees | $ | 33,980 | $ | 32,215 | $ | 21,848 | $ | 95,612 | $ | 58,187 | |||||||||
| Securities - taxable | 901 | 992 | 648 | 2,853 | 1,599 | ||||||||||||||
| Securities - tax-exempt | 333 | 351 | 369 | 1,038 | 1,015 | ||||||||||||||
| Cash and cash equivalents | 245 | 278 | 93 | 741 | 157 | ||||||||||||||
| Total interest income | 35,459 | 33,836 | 22,958 | 100,244 | 60,958 | ||||||||||||||
| Interest expense: | |||||||||||||||||||
| Deposits | 15,543 | 14,023 | 4,075 | 41,013 | 7,182 | ||||||||||||||
| Borrowings | 2,692 | 2,715 | 857 | 7,230 | 2,166 | ||||||||||||||
| Total interest expense | 18,235 | 16,738 | 4,932 | 48,243 | 9,348 | ||||||||||||||
| Net interest income | 17,224 | 17,098 | 18,026 | 52,001 | 51,610 | ||||||||||||||
| Provision for credit losses | 82 | 705 | 526 | 2,186 | 1,743 | ||||||||||||||
| Net interest income after provision for credit losses | 17,142 | 16,393 | 17,500 | 49,815 | 49,867 | ||||||||||||||
| Non-interest income: | |||||||||||||||||||
| Mortgage banking income | 4,819 | 5,050 | 7,329 | 13,143 | 21,367 | ||||||||||||||
| Wealth management income | 1,258 | 1,235 | 1,114 | 3,689 | 3,672 | ||||||||||||||
| SBA loan income | 982 | 1,767 | 989 | 3,463 | 3,946 | ||||||||||||||
| Earnings on investment in life insurance | 201 | 193 | 138 | 585 | 413 | ||||||||||||||
| Net change in the fair value of derivative instruments | 103 | 183 | 127 | 217 | (713 | ) | |||||||||||||
| Net change in the fair value of loans held-for-sale | 111 | (199 | ) | (237 | ) | (88 | ) | (1,094 | ) | ||||||||||
| Net change in the fair value of loans held-for-investment | (570 | ) | (219 | ) | (886 | ) | (673 | ) | (2,499 | ) | |||||||||
| Net (loss) gain on hedging activity | 82 | (1 | ) | 399 | 81 | 4,941 | |||||||||||||
| Net loss on sale of investment securities available-for-sale | (3 | ) | (54 | ) | - | (58 | ) | - | |||||||||||
| Other | 1,103 | 1,169 | 1,251 | 3,489 | 3,695 | ||||||||||||||
| Total non-interest income | 8,086 | 9,124 | 10,224 | 23,848 | 33,728 | ||||||||||||||
| Non-interest expense: | |||||||||||||||||||
| Salaries and employee benefits | 12,420 | 12,152 | 13,360 | 35,633 | 41,585 | ||||||||||||||
| Occupancy and equipment | 1,226 | 1,140 | 1,191 | 3,610 | 3,619 | ||||||||||||||
| Professional fees | 1,104 | 1,004 | 899 | 2,930 | 2,659 | ||||||||||||||
| Advertising and promotion | 848 | 1,091 | 1,165 | 2,799 | 3,340 | ||||||||||||||
| Data processing and software | 1,652 | 1,681 | 1,442 | 4,764 | 3,939 | ||||||||||||||
| Pennsylvania bank shares tax | 244 | 245 | 202 | 735 | 612 | ||||||||||||||
| Other | 2,524 | 2,302 | 2,002 | 6,951 | 5,646 | ||||||||||||||
| Total non-interest expense | 20,018 | 19,615 | 20,261 | 57,422 | 61,400 | ||||||||||||||
| Income before income taxes | 5,210 | 5,902 | 7,463 | 16,241 | 22,195 | ||||||||||||||
| Income tax expense | 1,205 | 1,257 | 1,665 | 3,568 | 4,927 | ||||||||||||||
| Net income | $ | 4,005 | $ | 4,645 | $ | 5,798 | $ | 12,673 | $ | 17,268 | |||||||||
| Basic earnings per common share | $ | 0.36 | $ | 0.42 | $ | 0.49 | $ | 1.14 | $ | 1.45 | |||||||||
| Diluted earnings per common share | $ | 0.35 | $ | 0.41 | $ | 0.48 | $ | 1.11 | $ | 1.40 | |||||||||
| Basic weighted average shares outstanding | 11,057 | 11,062 | 11,736 | 11,130 | 11,928 | ||||||||||||||
| Diluted weighted average shares outstanding | 11,363 | 11,304 | 12,118 | 11,449 | 12,344 | ||||||||||||||
MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
| (Dollar amounts and shares in thousands, except per share amounts) | September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | ||||||||||||||
| Assets: | |||||||||||||||||||
| Cash and due from banks | $ | 13,737 | $ | 10,576 | $ | 8,473 | $ | 11,299 | $ | 12,114 | |||||||||
| Interest-bearing deposits at other banks | 46,022 | 36,290 | 100,030 | 27,092 | 20,774 | ||||||||||||||
| Cash and cash equivalents | 59,759 | 46,866 | 108,503 | 38,391 | 32,888 | ||||||||||||||
| Securities available-for-sale, at fair value | 122,218 | 126,668 | 142,933 | 135,346 | 127,999 | ||||||||||||||
| Securities held-to-maturity, at amortized cost | 36,232 | 36,463 | 36,525 | 37,479 | 37,922 | ||||||||||||||
| Equity investments | 2,019 | 2,097 | 2,110 | 2,086 | 2,092 | ||||||||||||||
| Mortgage loans held for sale, at fair value | 23,144 | 40,422 | 35,701 | 22,243 | 33,800 | ||||||||||||||
| Loans and other finance receivables, net of fees and costs | 1,885,629 | 1,859,839 | 1,818,189 | 1,743,682 | 1,610,349 | ||||||||||||||
| Allowance for credit losses | (19,683 | ) | (20,242 | ) | (20,442 | ) | (18,828 | ) | (18,974 | ) | |||||||||
| Loans and other finance receivables, net of the allowance for credit losses | 1,865,946 | 1,839,597 | 1,797,747 | 1,724,854 | 1,591,375 | ||||||||||||||
| Restricted investment in bank stock | 8,309 | 9,157 | 10,173 | 6,931 | 5,217 | ||||||||||||||
| Bank premises and equipment, net | 13,310 | 13,234 | 13,281 | 13,349 | 12,835 | ||||||||||||||
| Bank owned life insurance | 28,641 | 28,440 | 28,247 | 28,055 | 22,916 | ||||||||||||||
| Accrued interest receivable | 8,984 | 7,651 | 7,651 | 7,363 | 6,008 | ||||||||||||||
| Other real estate owned | 1,703 | 1,703 | 1,703 | 1,703 | - | ||||||||||||||
| Deferred income taxes | 4,993 | 4,258 | 4,017 | 3,936 | 5,722 | ||||||||||||||
| Servicing assets | 11,835 | 12,193 | 12,125 | 12,346 | 12,807 | ||||||||||||||
| Goodwill | 899 | 899 | 899 | 899 | 899 | ||||||||||||||
| Intangible assets | 3,022 | 3,073 | 3,124 | 3,175 | 3,226 | ||||||||||||||
| Other assets | 39,957 | 34,156 | 25,044 | 24,072 | 26,218 | ||||||||||||||
| Total assets | $ | 2,230,971 | $ | 2,206,877 | $ | 2,229,783 | $ | 2,062,228 | $ | 1,921,924 | |||||||||
| Liabilities: | |||||||||||||||||||
| Deposits: | |||||||||||||||||||
| Non-interest bearing | $ | 244,668 | $ | 269,174 | $ | 262,636 | $ | 301,727 | $ | 290,169 | |||||||||
| Interest bearing | |||||||||||||||||||
| Interest checking | 156,537 | 155,907 | 232,616 | 219,838 | 236,562 | ||||||||||||||
| Money market and savings deposits | 746,599 | 710,546 | 647,904 | 697,564 | 709,127 | ||||||||||||||
| Time deposits | 660,841 | 646,978 | 627,257 | 493,350 | 437,695 | ||||||||||||||
| Total interest-bearing deposits | 1,563,977 | 1,513,431 | 1,507,777 | 1,410,752 | 1,383,384 | ||||||||||||||
| Total deposits | 1,808,645 | 1,782,605 | 1,770,413 | 1,712,479 | 1,673,553 | ||||||||||||||
| Borrowings | 177,959 | 194,636 | 233,883 | 122,082 | 23,458 | ||||||||||||||
| Subordinated debentures | 50,079 | 40,348 | 40,319 | 40,346 | 40,597 | ||||||||||||||
| Accrued interest payable | 7,814 | 5,612 | 3,836 | 2,389 | 1,154 | ||||||||||||||
| Other liabilities | 31,360 | 29,714 | 28,283 | 31,652 | 32,001 | ||||||||||||||
| Total liabilities | 2,075,857 | 2,052,915 | 2,076,734 | 1,908,948 | 1,770,763 | ||||||||||||||
| Stockholders' equity: | |||||||||||||||||||
| Common stock | 13,181 | 13,181 | 13,180 | 13,156 | 13,101 | ||||||||||||||
| Surplus | 79,731 | 79,650 | 79,473 | 79,072 | 78,313 | ||||||||||||||
| Treasury stock | (26,079 | ) | (26,079 | ) | (24,512 | ) | (21,821 | ) | (18,033 | ) | |||||||||
| Unearned common stock held by employee stock ownership plan | (1,403 | ) | (1,403 | ) | (1,403 | ) | (1,403 | ) | (1,602 | ) | |||||||||
| Retained earnings | 102,043 | 99,434 | 96,180 | 95,815 | 92,405 | ||||||||||||||
| Accumulated other comprehensive loss | (12,359 | ) | (10,821 | ) | (9,869 | ) | (11,539 | ) | (13,023 | ) | |||||||||
| Total stockholders' equity | 155,114 | 153,962 | 153,049 | 153,280 | 151,161 | ||||||||||||||
| Total liabilities and stockholders' equity | $ | 2,230,971 | $ | 2,206,877 | $ | 2,229,783 | $ | 2,062,228 | $ | 1,921,924 | |||||||||
MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SEGMENT INFORMATION (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)
| Three Months Ended | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Interest income | $ | 35,459 | $ | 33,836 | $ | 30,947 | $ | 27,763 | $ | 22,958 | |||||||||
| Interest expense | 18,235 | 16,738 | 13,270 | 9,245 | 4,932 | ||||||||||||||
| Net interest income | 17,224 | 17,098 | 17,677 | 18,518 | 18,026 | ||||||||||||||
| Provision for credit losses | 82 | 705 | 1,399 | 746 | 526 | ||||||||||||||
| Non-interest income | 8,086 | 9,124 | 6,638 | 7,996 | 10,224 | ||||||||||||||
| Non-interest expense | 20,018 | 19,615 | 17,789 | 20,047 | 20,261 | ||||||||||||||
| Income before income tax expense | 5,210 | 5,902 | 5,127 | 5,721 | 7,463 | ||||||||||||||
| Income tax expense | 1,205 | 1,257 | 1,106 | 1,164 | 1,665 | ||||||||||||||
| Net Income | $ | 4,005 | $ | 4,645 | $ | 4,021 | $ | 4,557 | $ | 5,798 | |||||||||
| Basic weighted average shares outstanding | 11,057 | 11,062 | 11,272 | 11,389 | 11,736 | ||||||||||||||
| Basic earnings per common share | $ | 0.36 | $ | 0.42 | $ | 0.36 | $ | 0.40 | $ | 0.49 | |||||||||
| Diluted weighted average shares outstanding | 11,363 | 11,304 | 11,656 | 11,795 | 12,118 | ||||||||||||||
| Diluted earnings per common share | $ | 0.35 | $ | 0.41 | $ | 0.34 | $ | 0.39 | $ | 0.48 | |||||||||
| Segment Information | |||||||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | Three Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||
| (dollars in thousands) | Bank | Wealth | Mortgage | Total | Bank | Wealth | Mortgage | Total | |||||||||||||||||||||||
| Net interest income | $ | 17,205 | $ | (15 | ) | $ | 34 | $ | 17,224 | $ | 17,664 | $ | 218 | $ | 144 | $ | 18,026 | ||||||||||||||
| Provision for credit losses | 82 | - | - | 82 | 526 | - | - | 526 | |||||||||||||||||||||||
| Net interest income after provision | 17,123 | (15 | ) | 34 | 17,142 | 17,138 | 218 | 144 | 17,500 | ||||||||||||||||||||||
| Non-interest income | 1,758 | 1,258 | 5,070 | 8,086 | 1,730 | 1,114 | 7,380 | 10,224 | |||||||||||||||||||||||
| Non-interest expense | 12,564 | 826 | 6,628 | 20,018 | 11,354 | 780 | 8,127 | 20,261 | |||||||||||||||||||||||
| Income (loss) before income taxes | $ | 6,317 | $ | 417 | $ | (1,524 | ) | $ | 5,210 | $ | 7,514 | $ | 552 | $ | (603 | ) | $ | 7,463 | |||||||||||||
| Efficiency ratio | 66 | % | 66 | % | 130 | % | 79 | % | 59 | % | 59 | % | 108 | % | 72 | % | |||||||||||||||
| Nine Months Ended September 30, 2023 | Nine Months Ended September 30, 2022 | ||||||||||||||||||||||||||||||
| (dollars in thousands) | Bank | Wealth | Mortgage | Total | Bank | Wealth | Mortgage | Total | |||||||||||||||||||||||
| Net interest income | $ | 51,928 | $ | (12 | ) | $ | 85 | $ | 52,001 | $ | 50,197 | $ | 628 | $ | 785 | $ | 51,610 | ||||||||||||||
| Provision for credit losses | 2,186 | - | - | 2,186 | 1,743 | - | - | 1,743 | |||||||||||||||||||||||
| Net interest income after provision | 49,742 | (12 | ) | 85 | 49,815 | 48,454 | 628 | 785 | 49,867 | ||||||||||||||||||||||
| Non-interest income | 5,696 | 3,689 | 14,463 | 23,848 | 6,267 | 3,671 | 23,790 | 33,728 | |||||||||||||||||||||||
| Non-interest expense | 35,608 | 2,704 | 19,110 | 57,422 | 32,186 | 2,480 | 26,734 | 61,400 | |||||||||||||||||||||||
| Income (loss) before income taxes | $ | 19,830 | $ | 973 | $ | (4,562 | ) | $ | 16,241 | $ | 22,535 | $ | 1,819 | $ | (2,159 | ) | $ | 22,195 | |||||||||||||
| Efficiency ratio | 62 | % | 74 | % | 131 | % | 76 | % | 57 | % | 58 | % | 109 | % | 72 | % | |||||||||||||||
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.
| Allowance For Loan Losses to Loans, Net of Fees and Costs, Excluding PPP Loans and Loans at Fair Value | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Allowance for credit losses (GAAP) | $ | 19,683 | $ | 20,242 | $ | 20,442 | $ | 18,828 | $ | 18,974 | |||||||||
| Loans, net of fees and costs (GAAP) | 1,885,629 | 1,859,839 | 1,818,189 | 1,743,682 | 1,610,349 | ||||||||||||||
| Less: PPP loans | (289 | ) | (187 | ) | (238 | ) | (4,579 | ) | (8,610 | ) | |||||||||
| Less: Loans fair valued | (13,231 | ) | (14,403 | ) | (14,434 | ) | (14,502 | ) | (14,702 | ) | |||||||||
| Loans, net of fees and costs, excluding loans at fair value and PPP loans (non-GAAP) | $ | 1,872,109 | $ | 1,845,249 | $ | 1,803,517 | $ | 1,724,601 | $ | 1,587,037 | |||||||||
| Allowance for credit losses to loans, net of fees and costs (GAAP) | 1.04 | % | 1.09 | % | 1.12 | % | 1.08 | % | 1.18 | % | |||||||||
| Allowance for credit losses to loans, net of fees and costs, excluding PPP loans and loans at fair value (non-GAAP) | 1.05 | % | 1.10 | % | 1.13 | % | 1.09 | % | 1.20 | % | |||||||||
| Tangible Common Equity Ratio Reconciliation - Corporation | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Total stockholders' equity (GAAP) | $ | 155,114 | $ | 153,962 | $ | 153,049 | $ | 153,280 | $ | 151,161 | |||||||||
| Less: Goodwill and intangible assets | (3,921 | ) | (3,972 | ) | (4,023 | ) | (4,074 | ) | (4,125 | ) | |||||||||
| Tangible common equity (non-GAAP) | 151,193 | 149,990 | 149,026 | 149,206 | 147,036 | ||||||||||||||
| Total assets (GAAP) | 2,230,971 | 2,206,877 | 2,229,783 | 2,062,228 | 1,921,924 | ||||||||||||||
| Less: Goodwill and intangible assets | (3,921 | ) | (3,972 | ) | (4,023 | ) | (4,074 | ) | (4,125 | ) | |||||||||
| Tangible assets (non-GAAP) | $ | 2,227,050 | $ | 2,202,905 | $ | 2,225,760 | $ | 2,058,154 | $ | 1,917,799 | |||||||||
| Tangible common equity to tangible assets ratio - Corporation (non-GAAP) | 6.79 | % | 6.81 | % | 6.70 | % | 7.25 | % | 7.67 | % | |||||||||
| Tangible Common Equity Ratio Reconciliation - Bank | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Total stockholders' equity (GAAP) | $ | 201,996 | $ | 192,209 | $ | 187,954 | $ | 185,039 | $ | 188,386 | |||||||||
| Less: Goodwill and intangible assets | (3,921 | ) | (3,972 | ) | (4,023 | ) | (4,074 | ) | (4,125 | ) | |||||||||
| Tangible common equity (non-GAAP) | 198,075 | 188,237 | 183,931 | 180,965 | 184,261 | ||||||||||||||
| Total assets (GAAP) | 2,232,297 | 2,208,252 | 2,229,721 | 2,059,557 | 1,921,714 | ||||||||||||||
| Less: Goodwill and intangible assets | (3,921 | ) | (3,972 | ) | (4,023 | ) | (4,074 | ) | (4,125 | ) | |||||||||
| Tangible assets (non-GAAP) | $ | 2,228,376 | $ | 2,204,280 | $ | 2,225,698 | $ | 2,055,483 | $ | 1,917,589 | |||||||||
| Tangible common equity to tangible assets ratio - Bank (non-GAAP) | 8.89 | % | 8.54 | % | 8.26 | % | 8.80 | % | 9.61 | % | |||||||||
| Tangible Book Value Reconciliation | |||||||||||||||||||
| September 30, 2023 | June 30, 2023 | March 31, 2023 | December 31, 2022 | September 30, 2022 | |||||||||||||||
| Book value per common share | $ | 13.88 | $ | 13.77 | $ | 13.54 | $ | 13.37 | $ | 12.93 | |||||||||
| Less: Impact of goodwill /intangible assets | 0.35 | 0.35 | 0.36 | 0.36 | 0.35 | ||||||||||||||
| Tangible book value per common share | $ | 13.53 | $ | 13.42 | $ | 13.18 | $ | 13.01 | $ | 12.58 | |||||||||
