The following excerpt is from the company's SEC filing.
MALVERN, Pa., January 31, 2022 — Meridian Corporation (Nasdaq: MRBK) today reported:
(Dollars in thousands, except per share data)
4th QTR
3rd QTR
2nd QTR
1st QTR
Income:
Net income
7,719
9,438
8,258
10,170
8,997
Diluted earnings per common share
Pre-tax, pre-provision income (1)
9,671
12,898
10,898
13,905
13,040
Pre-tax, pre-provision income - Bank (1)
6,829
8,896
7,811
7,891
6,294
(1) See Non-GAAP reconciliation in the Appendix
Christopher J. Annas, Chairman and CEO commented “Meridian’s fourth quarter revenue of
$35.3 million generated earnings of $7.7 million, or $1.24 per diluted share. Year-to-date earnings equaled $35.6 million compared to $26.4 million in 2020, a 35% increase. Loan and lease growth year-over-year equaled 19.5% (excluding PPP loans and mortgage loans held for sale) with strong contributions across all lending groups. The investment in new commercial lenders during 2020-21 supported this growth, almost entirely in our core Philadelphia metro lending area. We were able to replace most of the PPP payoffs with new core commercial growth, resulting in better margins and more opportunities for referral business. Our annualized net interest margin was 3.77%, and we’re fairly well positioned for a move up in rates. Non-interest bearing deposits grew from 16.4% to 19.0% of total deposits year-over-year, with a greater portion of this growth coming from our treasury management and business development teams.”
“Our mortgage group had a record year, despite a lack of homes for sale in our region and some late-year upward rate movement. We are focusing more on digital delivery with an application website/call center combination, which will let us compete in a broader area without infrastructure costs. This model will also help us better manage the seasonality and cyclicality.”
Mr. Annas added, “Our goal is to grow deeper in the core region of metro Philadelphia with our branch-lite model. As the pandemic wanes and face-to-face comes back, our investments in new growth should continue to pay off.”
Income Statement Highlights
Fourth quarter 2021 compared with third quarter 2021:
Net income was $7.7 million, a decrease of $1.7 million, or 18.2%, led by a lower level of non-interest income from our mortgage segment.
The return on average equity (“ROE”) and return on average assets (“ROA”) were 19.15% and 1.74%, respectively, for the fourth quarter 2021, compared to 24.07% and 2.15%, respectively, for the third quarter 2021.
Net interest income increased $65 thousand, or 0.40%, quarter-over-quarter. Net interest margin remained at 3.83%.
The provision for loan losses decreased $819 thousand due to a negative provision of $222 thousand as a result of significantly lower levels of loan deferrals and the improvement in several economic metrics that had previously been significantly impacted by COVD-19.
Non-interest income decreased $5.0 million or 22.8%, due to:
A decline in mortgage banking revenues of $5.1 million, or 27.2%, partially offset by an increase of $1.8 million in hedge gains, while fair values declined by $385 thousand.
A decline in SBA loan sale revenue of $1.2 million, or 45.1%.
Non-interest expenses decreased $1.7 million, or 6.8%, as a result of a lower level of salaries and benefits, and loan expenses largely related to variable compensation in the mortgage segment, partially offset by higher other expenses.
On January 27, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per common share, along with a special dividend of $1.00 per share, both payable February 21, 2022, to shareholders of record as of February 14, 2022.
Year ended December 31, 2021 compared with year ended December 31, 2020:
Net income was $35.6 million or $5.73 per diluted share, an increase of $9.2 million, or 34.6%. The increase was driven largely by growth in the balance sheet, which contributed $14.1 million, or 28.8%, in increased net interest income.
Pre-tax, pre-provision income for the year was $47.4 million, an increase of $4.5 million or 10.6%. A reconciliation of this non-GAAP measure is included in the Appendix.
Total revenue was $159.5 million, an increase of $9.9 million or 6.6%.
Non-interest income increased $1.1 million or 1.2%, driven by SBA loan sale income, wealth management income, other fee income, and mortgage hedging gains which were offset by unfavorable fair value changes in loans held for sale and derivative instruments.
SBA income was up $4.3 million, or 168.2% as the number and value of SBA loans sold increased to a record high for the bank.
Wealth management income was up $947 thousand, or 24.6%, the highest level of such income since Meridian Wealth Partners (“MWP”) was acquired in 2017.
Other fee income from mortgage fees, wire fees, swap fees and other less significant fees increased $1.8 million, or 68.5%.
Mortgage banking net revenue decreased $529 thousand, or 0.7%, due to lower levels of originations and refinancings, combined with a decline in sales margin.
Provision for loan losses was $1.1 million in 2021, compared to
$8.3 million in 2020.
Non-interest expense increased $10.7 million, or 11.4%, driven mostly by an increase in salaries and benefits, loan fees, and other corporate expenses.
Balance Sheet Highlights
December 31, 2021 compared to September 30, 2021:
Total assets at December 31, 2021 were $1.71 billion, down $49.0 million, or 2.8%, compared to $1.76 billion as of September 30, 2021.
Cash, cash equivalents and investments decreased a combined $39.6 million, or 62.8%, due to a pay down of borrowings.
Portfolio loans increased $7.8 million, or 0.6%, despite SBA Paycheck Protection Program (“PPP”) loans declining $27.3 million, or 23.6%, and mortgage loans held for sale decreased $37.1 million, or 31.5%.
Between September 30, 2021 and December 31, 2021 we assisted borrowers with the forgiveness of another 143 PPP loans, bringing the total of PPP loans forgiven to 1,129, or 78% of all PPP loans originated.
Our combined servicing asset portfolio (which includes both mortgage servicing rights and SBA servicing assets) increased $833 thousand, or 7.0%, to $12.8 million as of December 31, 2021.
Furniture, fixtures and equipment increased $3.6 million due to the purchase of an operations building.
Total deposits grew $7.4 million, or 0.5%, to $1.4 billion as of December 31, 2021. Non-interest bearing deposits, representing 19% of total deposits, grew $8.7 million, or 3.3%, to $274.5 million as of December 31, 2021.
Total borrowings decreased $59.3 million due to the pay down of the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”), partially offset by increases in other short-term borrowings.
Meridian repurchased 23,799 shares of its common stock in the fourth quarter of 2021, at an average price of $29.91.
Select Condensed Financial Information
For the Quarter Ended (Unaudited)
June 30
March 31
Net income - consolidated
Basic earnings per common share
Net interest income - consolidated
16,322
16,257
15,412
15,120
15,018
At the Quarter Ended (Unaudited)
Balance Sheet:
1,713,443
1,762,445
1,709,010
1,743,977
1,720,197
Loans, net of fees and costs
1,386,457
1,378,670
1,362,750
1,354,551
1,284,764
1,446,413
1,439,047
1,413,280
1,383,590
1,241,335
274,528
265,842
261,806
257,730
203,843
Stockholders' Equity
165,360
158,416
152,885
143,505
141,622
Balance Sheet (Average Balances):
1,755,263
1,739,848
1,723,421
1,694,961
1,709,298
Total interest earning assets
1,696,473
1,691,641
1,678,721
1,654,791
1,671,164
1,449,361
1,351,634
1,345,672
1,296,242
1,281,390
1,468,575
1,409,534
1,385,250
1,307,280
1,239,810
287,801
254,843
255,964
234,030
207,204
159,921
155,580
146,497
137,189
129,292
Performance Ratios:
Return on average assets - consolidated
Return on average equity - consolidated
22.61%
30.06%
27.68%
Income Statement Summary
Fourth Quarter 2021 Compared to Third Quarter 2021
Net income was $7.7 million, or $1.24 per diluted share, for the fourth quarter of 2021 compared to net income of $9.4 million, or $1.52 per diluted share, for the third quarter of 2021. The $1.7 million decrease in net income quarter-over-quarter was due largely to a $5.0 million decrease in non-interest income, partially offset by an increase in net interest
income of $65 thousand, a decrease of $819 thousand in the provision for loan losses, a $1.7 million decline in non-interest expense, and a $689 thousand decrease in income tax expense.
Net interest income increased $65 thousand, or 0.4%, to $16.3 million for the fourth quarter of 2021. Interest income decreased $58 thousand, or 0.3%, to $18.2 million from $18.3 million for the third quarter of 2021. The decline was due largely to lower levels of PPP loans and loans HFS, partially offset by growth of $43.9 million on average for the fourth quarter of 2021 in small business loans, commercial construction loans, and lease financing portfolios combined. These factors helped drive the yield on loans up 2 basis points to 4.74%. Offsetting the loan yield expansion was a 6 basis point decrease in the yield on cash, cash equivalents and investments. As a result overall, the yield on average interest earning assets decreased 3 basis points to 4.28% from 4.31% for the prior quarter.
Interest expense decreased $123 thousand, or 6.0%, to $1.9 million for the fourth quarter of 2021 from $2.0 million for the third quarter of 2021. The cost of deposits declined 4 basis points over the prior quarter, as rates in money market and interest checking accounts rates moved modestly lower. The net interest margin for the fourth quarter of 2021 remained at 3.83%. The net interest margin, excluding the impact from PPP loans, was 3.76% for the fourth quarter 2021, compared to 3.73% for the third quarter of 2021. A reconciliation of this non-GAAP measure is included in the Appendix.
The provision for loan losses declined $819 thousand to a negative $222 thousand, compared to $597 thousand for the third quarter of 2021. The reduction in the provision was due to the continued improvement in economic conditions captured in our qualitative provisioning as well as a decline in outstanding loan deferrals provided to customers, partially offset by provisioning for loan growth during the fourth quarter of 2021, as well as a $1.4 million specific reserve placed against a non-performing loan relationship, describe further below in the Asset Quality Summary section.
Total non-interest income for the fourth quarter of 2021 was $17.1 million, down $5.0 million, or 22.8%, from the third quarter of 2021. The decrease in non-interest income was the result of a decline in the gain on sale margin of 52 basis points, as well as a decline in mortgage loans sold quarter-over-quarter as well. Mortgage loan originations also declined $94.6 million, or 18.1%, during the fourth quarter of 2021 to $428.2 million. Refinance activity represented 33.2% of the total residential mortgage loans originated for the fourth quarter of 2021. The changes in the fair value of derivative instruments and loans held for sale declined a combined $385 thousand during the fourth quarter of 2021 compared to the third quarter of 2021, while there was a $563 thousand gain on hedging activity for the fourth quarter of 2021, compared to a $1.2 million loss on hedging activity for the third quarter of 2021.
Wealth management revenue from our wealth segment increased $38 thousand, or 3.1%, quarter-over-quarter. Assets under management reached $1.1 billion and the wealth segment has continued to benefit from business development synergies realized between our segments. Wealth management revenue is largely based on the valuation of assets under management measured at the end of the prior quarter, therefore this revenue for the fourth quarter was impacted by the rebound of the financial markets at the end of the third quarter.
Total non-interest expense for the fourth quarter of 2021 was $23.7 million, down $1.7 million or 6.8%, from the third quarter of 2021. Total salaries and employee benefits expense was $17.0 million, a net decrease of $2.4 million or 12.5%, compared to the third quarter of 2021. Of this net decrease, $2.7 million related to the mortgage segment, which recognizes variable compensation based on loan origination volume. Salary and employee benefits were up $292 thousand for the bank and wealth segments due to increases in incentive compensation expense, combined with an increase in average full-time equivalent employees (FTE’s) of 4. Information technology expenses increased $391 thousand, or 82.1%, from the prior quarter as the bank continued with the strategy to invest in technology that focuses on improving back-office efficiencies through automation and workflow processes, as well improving the scalability of our IT systems overall with a focus on cloud based computing. Other non-interest expense increased $524 thousand, or 29.8%, from the prior quarter. This increase was due to several items including an increase in insurance, director compensation, employee expenses and other less significant items.
Fourth Quarter 2021 Compared to Fourth Quarter 2020
Net income was $7.7 million, or $1.24 per diluted share for the fourth quarter of 2021 compared to net income of $9.0 million, or $1.48 per diluted share, for the fourth quarter of 2020. The decrease of $1.3 thousand, or 14.2%, was driven largely by a decline in mortgage banking activity over the period, partially offset by an increase in net interest income, a decline in the provision for loan losses, an increase in SBA 7(a) loan sales, wealth management revenue, and other fee income, and a decline in non-interest expenses.
Net interest income was $16.3 million, an increase of $1.3 million, or 8.7%, over net interest income for the fourth quarter of 2020. This net interest income growth reflects an 18 basis point increase in the yield on loans, despite a $41.9 million decrease in total average loan balances, including loans held for sale, helping lead to a 24 basis point expansion of the net interest margin. Further contributing to the increase in net interest margin was a 26 basis point decline in the cost of funds, let by a 28 basis point decline in the cost of deposits. This decline in the cost of deposits, despite a $148.2 million increase in average interest bearing deposits, is the result of management’s continued focus on the preservation of the net interest margin through deposit rate reductions.
As noted above, in the fourth quarter of 2021 the allowance for loan losses was reduced by a $222 thousand negative provision for loan losses, compared to a provision for loan losses of $1.2 million for the fourth quarter of 2020. Continued improvement in economic conditions captured in our qualitative provisioning and a decline in outstanding loan deferrals provided to customers impacted the allowance favorably and out-paced the impact of a $1.4 million specific reserve on a non-performing loan relationship and the provisioning for loan growth during the fourth quarter of 2021. The fourth quarter 2020 provision of $1.2 million was calculated at the time the COVID-19 pandemic was intensifying locally and nationally and loan deferrals were at a much higher level.
Total non-interest income for the fourth quarter of 2021 was $17.1 million, down $12.9 million or 42.9% from the comparable period in 2020. This overall decrease in non-interest income came largely from our mortgage segment. Mortgage banking net revenue decreased $17.4 million, or 56.1%, over the fourth quarter of 2020. The decrease in fourth quarter 2021 resulted from decreased levels of mortgage loan sales and mortgage loan originations. Our mortgage segment originated $428.2 million in loans during the fourth quarter of 2021, a decrease of $440.2 million, or 50.7%, from the fourth quarter of 2020. In the fourth quarter of 2020, we witnessed a record level of loan originations as this was the middle of the period of historically low interest rates, where 62% of originations were refinancings while in the fourth quarter of 2021 refinancings represented 33% of originations. The changes in the fair value of derivative instruments and loans held for sale increased a combined $581 thousand over the period. Net hedging activity improved $2.6 million to a net gain of $563 thousand for the fourth quarter of 2021.
Net revenue from the sales of SBA 7(a) loans increased $724 thousand as $15.6 million in loans were sold in the fourth quarter of 2021 compared to $11.6 million in loans sold in the fourth quarter of 2020, an increase of nearly 35%. Wealth management revenue increased $241 thousand year-over-year due to an increase of $199.6 million in average assets under management over this period, which benefit from the more favorable market conditions, as discussed above. Other fee income was up $278 thousand, or 33.2%, from the fourth quarter of 2020, to $1.1 million, due mainly to an increase in servicing fee income.
Total non-interest expense for the fourth quarter of 2021 was $23.7 million, down $8.2 million, or 25.6%, from the comparable period in 2020. The decrease in non-interest expense is largely attributable to a decrease in salaries and employee benefits expense, which decreased $8.6 million or 33.5%, from the comparable period in 2020. Of this decrease, $9.6 million relates to the mortgage segment, while there was an increase of $1.0 million for the bank and wealth segments due to an increase of 27 in FTE’s and a higher valuation of stock-based compensation expense.
Twelve Months Ended December 31, 2021 Compared to Twelve Months Ended December 31, 2020
Net income was $35.6 million, or $5.73 per diluted share, for the twelve months ended December 31, 2021 compared to net income of $26.4 million, or $4.27 per diluted share, for the twelve months ended December 31, 2020. The increase was due largely to the increase in net interest income of $14.1 million, combined with a $1.1 million increase in non-interest income and a $7.2 million decline in the provision for loan losses, partially offset by increases in non-interest expense and income taxes of $10.7 million and $2.6 million, respectively.
Net interest income increased $14.1 million, or 28.8%, to $63.1 million from $49.0 million, for the twelve months ended December 31, 2021, compared to the twelve months ended December 31, 2020. Growth in net interest income period over period reflects an increase in interest income of $8.9 million along with a decrease in interest expense of $5.2 million. The increase in interest income was led by growth in portfolio loans, most notably commercial real estate loans, lease financings, and SBA loans, that contributed $3.6 million, $3.5 million and $2.9 million, respectively, to the increase in interest income, while the continued forgiveness of PPP loans led to an increase in interest and fee income of $2.3 million, period over period. As of December 31, 2021 there was approximately $2 million in PPP fees yet to be recorded in income.
The net interest margin increased 37 basis points to 3.77% for the twelve months ended December 31, 2021 from 3.40% for the twelve months ended December 31, 2020. The margin in 2020 was negatively impacted by the rapid decline in Fed fund rates as well as the effects of the PPP loan program, while the margin in 2021 felt a positive impact from the PPP loan program as approximately 78% of these loans were forgiven during 2021, leading to a yield on PPP loans of 4.41% for the twelve months ended December 31, 2021, compared to 3.09% for the same period in 2020. Other contributors to the margin expansion for 2021 related to the increase in non-interest bearing deposits, which rose $69.7 million on average, and the cost of deposits decrease (50 basis points).
The provision for loan losses was $1.1 million for the twelve months ended December 31, 2021, compared to an $8.3 million provision for the twelve months ended December 31, 2020. The decline in the provision period over period is the result of an improvement in the trend of economic factors used in the allowance for loan losses calculation that had been negatively impacted in 2020 due to the COVID-19 pandemic, which have subsequently rebounded as the economy continues to recover.
Total non-interest income for the twelve months ended December 31, 2021 was $88.0 million, up $1.1 million, or 1.2%, from the twelve months ended December 31, 2020. This increase in non-interest income was largely the result of an increase of $4.3 million in SBA loan sales income as fiscal year 2021 sales of SBA 7(a) loans amounted to $67.2 million, an increase of $26.1 million, or 63.5%, compared to fiscal year 2020.
Wealth management revenue increased $947 thousand, or 24.6%, year-over-year due to an increase in average assets under management of $295 million over this period. In addition, these assets benefited from the more favorable market conditions that existed in the twelve months ended December 31, 2021, compared to the prior year period.
Other fee income was up $1.8 million, or 68.5%, for the twelve months ended December 31, 2021, from the twelve months ended December 31, 2020 due to increases in mortgage fees, wire fees, title fee income, as well as an increase in in mortgage and SBA servicing fee income.
Mortgage banking net revenue decreased $529 thousand, or 0.7%, over the prior year period. The decrease in the 2021 income was the result of a decline in the gain on sale margin of 48 basis points, despite the increase in mortgage loans sold over 2020. Mortgage loan originations, however, decreased $74.7 million from $2.37 billion in 2020 to $2.29 billion in 2021, with refinancing activity representing 60% of the total residential mortgage loans originated in 2021, compared to 47% in 2020. The refinancing opportunities have declined significantly with the change in mortgage rates recently causing the current period end pipeline to be lower at December 31, 2021, compared to December 31, 2020.
The changes in the mortgage pipeline generated significant fair value changes in derivative instruments (predominantly interest rate lock commitments) and loans held-for-sale. These fair value changes decreased non-interest income a combined $17.0 million during the twelve months ended December 31, 2021 compared to the twelve months ended December 31, 2020. These changes were offset by increases in net hedging gains of $12.4 million.
Total non-interest expense for the twelve months ended December 31, 2021 was $103.7 million, up $10.7 million or 11.4%, from the twelve months ended December 31, 2020. Total salaries and employee benefits expense was $78.9 million, an increase of $6.7 million or 9.3%, compared to the twelve months ended December 31, 2020. Salaries and benefits for the Bank and Wealth segments increased $5.4 million due to an increased level of full-time equivalent employees as well as increase in the value of stock-based compensation expense. $1.3 million of the overall increase relates to the Mortgage segment as the number of employees in this segment have increased period over period.
Professional fees were up $445 thousand, or 14.3% year over year, while information technology expenses were up $690 thousand, or 44.7% year over year. Increases in these two categories of expense were largely the result of Meridian’s ongoing strategy to invest in technology that focuses on improving back-office efficiencies through automation and workflow processes, as well improving the scalability of our IT systems overall with a focus on cloud based computing. The increase in professional fees was also impacted by one-time consent fees incurred in 2021 related to the filing of the Corporation’s December 31, 2020 Form 10K, in conjunction with the change in Accountants made in 2020.
Advertising and promotion expenses were up $862 thousand, or 30.2%, over the same period due to the improvements to the economy and a pull back on COVID-19 related restrictions that has allowed bank employees to spend more time in a business development and community outreach capacity, combined with increased spend year over year in different advertising campaigns, including mortgage segment lead generation expenses. Other non-interest expense was up $1.9 million, or 30.6%, from the prior year due to an increase in employee travel and training expenses as 2021 allowed for more travel opportunities due to a pullback in COVID-19 restrictions.
Balance Sheet Summary
As of December 31, 2021, total assets were $1.7 billion, a decrease of $6.8 million from December 31, 2020.
Total loans, net of allowance, grew $101 million, or 7.9%, to $1.4 billion as of December 31, 2021, from $1.3 billion as of December 31, 2020. There was growth in several commercial loan categories from December 31, 2020, as we continue to expand our presence in the Philadelphia market region and beyond. Small business loans increased $65.1 million, or 130.5%, commercial real estate loans increased $37.7 million, or 7.5%, and lease financings increased $60.1 million, or 181.8%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong growth trajectory after starting up in early 2020. Additionally, commercial & industrial loans, shared national credits and commercial construction loans combined increased $46.6 million in total over the period. Residential real estate loans held for sale decreased $148.3 million, or 64.7%, to $80.9 million as of December 31, 2021, while PPP loans decreased $110.3 million, or 55.5%, over this period, as our SBA and commercial lending teams are making a strong effort to assist our PPP loan customers in obtaining forgiveness on their loans with the SBA. As of December 31, 2021 there was approximately $88.3 million in PPP loans remaining to be forgiven.
Deposits were $1.4 billion as of December 31, 2021, up $205.1 million, or 16.5%, from December 31, 2020. Non-interest bearing deposits increased $70.7 million, or 34.7%, from December 31, 2020. Interest-bearing checking accounts increased $61.7 million, or 29.9%, from December 31, 2020, while money market accounts/savings accounts increased $125.0 million, or 21.8%, since December 31, 2020. Increases in core deposits were driven from loan customers as part of new business and municipal relationships and also as a result of the PPP loan process. Certificates of deposits decreased $52.3 million, or 20.2%, from December 31, 2020, as lower levels of wholesale funding have been replaced by core deposits that bear lower interest rates.
Consolidated stockholders’ equity of the Corporation was $165.4 million, or 9.7% of total assets as of December 31, 2021, as compared to $141.6 million, or 8.2% of total assets as of December 31, 2020. The change in stockholders’ equity is the result of year-to-date net income of $35.6 million, partially offset by dividends of $9.7 million paid during 2021.
Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single "Community Bank Leverage Ratio" (“CBLR”) of between 8 and 10%. Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic.
During the first quarter of 2020, the Bank adopted the CBLR framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.
As of December 31, 2021, the Tier 1 leverage ratio was 9.39% for the Corporation and 11.51% for the Bank, the Tier 1 risk-based capital and common equity ratios were 10.83% for the Corporation and 13.27% for the Bank, and total risk-based capital was 14.81% for the Corporation and 14.63% for the Bank. Quarter-end numbers show a tangible common equity to tangible assets ratio (a non-GAAP measure) of 9.42% for the Corporation and 11.54% for the Bank. A reconciliation of this non-GAAP measure is included in the Appendix. Tangible book value per share was $26.37 as of December 31, 2021, compared with $22.35 as of December 31, 2020.
Asset quality remains a strong focus of management, which is committed to working with customers significantly impacted by the COVID-19 pandemic. While COVID-19 loan deferrals provided to borrowers amounted to only $2.4 million as of December 31, 2021, down from $24.9 million as of September 30, 2021, one loan relationship for $13.8 million became a non-performing loan relationship with a specific reserve of $1.4 million during the quarter ending December 31, 2021. This change in status caused non-performing loans to increase to $23.0 million (not including past due PPP loans of $63 thousand) as of December 31, 2021, compared to $9.2 million as of September 30, 2021. Consequently the ratio of non-performing assets to total assets as of December 31, 2021 was 1.34% compared to 0.52% as of September 30, 2021. Despite the near-term impact to these ratios resulting from this loan relationship downgrade, management feels that overall asset quality remains strong. There was no other real estate property included in non-performing assets for either period.
Meridian realized net recoveries of $3 thousand, or (0.00%), of total average loans for both the quarter ending December 31, 2021 and the quarter ending September 30, 2021. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure, see reconciliation in the Appendix), was 1.46% as of December 31, 2021 and 1.52% as of September 30, 2021. As noted earlier, the reduction in the allowance for loan losses was due to the favorable impact of economic conditions out-pacing loan growth and the change in specific reserves for the period.
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 more than 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, the current COVID-19 pandemic and government responses thereto, 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, 2020 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.
FINANCIAL TABLES FOLLOW
APPENDIX - FINANCIAL RATIOS
Quarterly
(Dollars in thousands, except per share data)
3rd QTR
2nd QTR
Earnings and Per Share Data
7,719
9,438
8,258
10,170
Common shares outstanding
6,108
6,173
6,168
6,136
Net interest margin (TEY)
Net interest margin (TEY, excluding PPP loans and borrowings) (1)
Yield on earning assets (TEY)
Yield on earning assets (TEY, excluding PPP loans) (1)
Cost of funds
Efficiency ratio
Asset Quality Ratios
Net charge-offs (recoveries) to average loans
(0.00)%
Non-performing loans/Total loans
Non-performing assets/Total assets
Allowance for loan losses/Total loans held for investment
Allowance for loan losses/Total loans held for investment (excluding loans at fair value and PPP loans) (1)
Allowance for loan losses/Non-performing loans
81.47%
206.42%
224.63%
214.44%
224.04%
Capital Ratios
Book value per common share
27.07
25.94
24.77
23.27
23.08
Tangible book value per common share
26.37
25.23
24.06
22.55
22.35
Total equity/Total assets
Tangible common equity/Tangible assets - Corporation (1)
Tangible common equity/Tangible assets - Bank (1)
10.90%
10.92%
10.22%
10.25%
Tier 1 leverage ratio - Corporation
Tier 1 leverage ratio - Bank
11.55%
11.28%
11.34%
Common tier 1 risk-based capital ratio - Corporation
10.64%
10.16%
Common tier 1 risk-based capital ratio - Bank
13.25%
12.80%
12.66%
13.15%
Tier 1 risk-based capital ratio - Corporation
Tier 1 risk-based capital ratio - Bank
Total risk-based capital ratio - Corporation
14.72%
14.23%
14.05%
14.55%
Total risk-based capital ratio - Bank
14.62%
14.18%
14.03%
14.54%
Non-GAAP measure.
See reconciliation in the Appendix.
Statements of Income (Unaudited)
Statements of Income (Unaudited)
Three Months Ended
(Dollars in thousands)
Interest Income
Interest and fees on loans
17,535
17,309
68,822
60,357
Investments and cash
2,700
2,299
Total interest income
18,248
17,927
71,522
62,656
Interest Expense
1,233
1,906
5,494
9,970
Borrowings
1,003
2,917
3,690
Total interest expense
1,926
2,909
8,411
13,660
63,111
48,996
(222)
1,163
1,070
8,302
Net interest income after provision for loan losses
16,544
13,855
62,041
40,694
Non-Interest Income
Mortgage banking income
13,639
31,065
75,932
76,461
1,270
1,029
4,801
3,854
1,475
6,898
2,572
Earnings on investment in life insurance
Net change in fair value of derivative instruments
(907)
(1,371)
(4,338)
4,975
Net change in fair value of loans held for sale
(147)
(578)
(3,311)
3,847
Net change in fair value of loans held for investment
(165)
(189)
Net gain (loss) on hedging activity
(2,037)
2,961
(9,400)
Net gain on sale of investment securities available-for-sale
Service charges
1,115
4,305
2,555
17,086
29,945
87,988
86,918
Non-Interest Expenses
Salaries and employee benefits
17,042
25,618
78,866
72,147
Occupancy and equipment
1,085
1,133
4,545
4,292
3,558
3,113
3,714
2,852
Data processing
2,150
1,913
2,232
1,542
Pennsylvania bank shares tax
1,049
2,280
1,910
8,053
6,168
Total non-interest expenses
23,737
31,923
103,727
93,076
Income before income taxes
9,893
11,877
46,302
34,536
Income tax expense
2,174
2,880
10,717
8,098
Net Income
35,585
26,438
Weighted-average basic shares outstanding
5,978
5,982
6,019
6,122
Adjusted weighted-average diluted shares outstanding
6,210
6,071
6,206
6,187
Statement of Condition (Unaudited)
June 30, 2021
March 31, 2021
December 31, 2020
Cash & cash equivalents
23,480
63,121
26,902
31,004
36,744
Investment securities
168,028
153,566
149,366
141,654
131,103
Mortgage loans held for sale
80,882
117,996
132,348
170,248
229,199
Allowance for loan losses
(18,758)
(18,976)
(18,361)
(18,376)
(17,767)
Bank premises and equipment, net
11,806
8,242
8,160
8,080
7,777
Bank owned life insurance
22,503
22,362
12,269
12,204
12,138
Servicing assets
12,765
11,932
10,327
8,278
5,617
Goodwill and intangible assets
4,278
4,329
4,380
4,432
4,500
Other assets
22,002
21,203
20,869
31,902
26,122
Total Assets
Liabilities & Stockholders’ Equity
Interest bearing deposits
Interest checking
268,248
279,659
257,939
243,832
206,572
Money market / savings accounts
697,628
670,101
631,604
592,260
572,623
206,009
223,445
261,931
289,768
258,297
Total interest bearing deposits
1,171,885
1,173,205
1,151,474
1,125,860
1,037,492
41,344
100,683
82,156
149,260
272,408
Subordinated debt
40,508
40,760
40,730
40,701
40,671
Other liabilities
19,818
23,539
19,959
26,921
24,161
Total Liabilities
1,548,083
1,604,029
1,556,125
1,600,472
1,578,575
Total Liabilities & Stockholders’ Equity
Condensed Statements of Income (Unaudited)
Three Months Ended
18,306
17,517
17,451
2,049
2,105
2,331
22,122
21,732
27,048
25,481
26,246
28,263
Income before income tax expense
12,301
10,802
13,306
2,863
2,544
3,136
6,045
6,032
6,000
6,231
6,203
6,146
Segment Information
Three Months Ended December 31, 2021
Three Months Ended December 31, 2020
15,931
14,272
16,153
13,109
2,305
13,511
2,031
26,885
11,407
1,009
11,321
10,009
21,066
7,051
2,556
5,131
6,589
Year Ended December 31, 2021
Year Ended December 31, 2020
61,032
2,064
46,997
2,047
59,962
38,695
10,779
4,802
72,407
7,688
3,868
75,362
40,392
3,496
59,839
33,351
3,213
56,512
30,349
1,321
14,632
13,032
20,897
Reconciliation of Non-GAAP Financial Measures
Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts. This non-GAAP disclosure has 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.
Pre-tax, Pre-provision Reconciliation (Unaudited)
(Dollars in thousands)
9,893
12,301
10,802
13,306
11,877
1,163
9,671
12,898
10,898
13,905
13,040
Pre-tax, Pre-provision Income by Segment (Unaudited)
6,829
8,896
7,811
7,891
6,294
2,556
3,570
2,711
5,787
6,589
Reconciliation of pre-tax, pre-provision income
46,302
34,536
1,070
8,302
47,372
42,838
Reconciliation of pre-tax, pre-provision income by segment
31,419
21,334
1,321
14,632
20,897
Reconciliation of PPP / PPPLF Impacted Yields (Unaudited)
Impact of PPP loans and PPPLF borrowings
(0.07)%
(0.10)%
(0.08)%
Net interest margin (TEY, excluding PPP loans and PPPLF borrowings)
(0.05)%
(0.03)%
(0.01)%
Reconciliation of Allowance for Loan Losses / Total loans (Unaudited)
Allowance for loan losses / Total loans held for investment
Less: Impact of loans held for investment - fair valued
Less: Impact of PPP loans
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)
Tangible Common Equity Ratio Reconciliation - Corporation (Unaudited)
Total stockholders' equity
165,360
158,416
152,885
143,505
141,622
(4,278)
(4,329)
(4,380)
(4,432)
(4,500)
161,082
154,087
148,505
139,073
137,122
1,713,443
1,762,445
1,709,010
1,743,977
1,720,197
1,709,165
1,758,116
1,704,629
1,739,544
1,715,697
Tangible common equity ratio - Corporation
Tangible Common Equity Ratio Reconciliation - Bank (Unaudited)
201,486
196,009
190,477
182,171
180,288
197,208
191,680
186,097
177,739
175,788
1,713,318
1,762,415
1,709,006
1,743,945
1,720,166
1,709,040
1,758,086
1,704,626
1,739,513
1,715,666
Tangible common equity ratio - Bank
Tangible Book Value Reconciliation (Unaudited)
Less: Impact of goodwill and intangible assets
The above information was disclosed in a filing to the SEC. To see the filing, click here.
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