The following excerpt is from the company's SEC filing.
MALVERN, Pa., August 1, 2022 — Meridian Corporation (Nasdaq: MRBK) today reported:
Net income of $5.9 million and diluted earnings per share of $0.96 for the second quarter ended June 30, 2022 compared to net income of $5.5 million and diluted earnings per share of $0.88 for the first quarter ended March 31, 2022
Return on average assets for the second quarter of 2022 was 1.31% compared to 1.28% for the first quarter of 2022; return on average equity for the second quarter was 15.03% compared to 13.86% for the prior quarter
Net interest margin increased to 4.07% in the second quarter of 2022 from 3.89% in t
he first quarter of 2022
Second quarter commercial loan growth, excluding Paycheck Protection Program ("PPP") loans, was $73.8 million, or 24% annualized; consumer loans increased by $19.1 million, or 36% annualized
Non-interest income of $10.4 million in the second quarter of 2022 compared to $13.1 million in the prior quarter
Non-interest expenses decreased by $1.7 million, to $19.7 million in the second quarter of 2022 from $21.4 million in the prior quarter; efficiency ratio at 70% for the second quarter of 2022 compared to 74% for the prior quarter
The Company repurchased 97,385 shares of its common stock at an average price of $31.14 per share during the second quarter ended June 30, 2022
On July 28, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per common share, payable August 22, 2022 to shareholders of record as of August 15, 2022
(Dollars in thousands, except per share data)
2nd QTR
1st QTR
4th QTR
3rd QTR
Income:
5,938
Diluted earnings per common share
Pre-tax, pre-provision income (1)
8,248
12,898
10,898
Pre-tax, pre-provision income - Bank (1)
7,458
(1) See Non-GAAP reconciliation in the Appendix
Christopher J. Annas, Chairman and CEO commented “Meridian’s second quarter revenue of $30.4 million generated earnings of $5.9 million, or $0.96 per diluted share. The results were very strong despite a break even in the mortgage segment. While we’re not happy with this, it does illuminate the excellent bank returns that sometimes get overshadowed. Exceptional loan growth and a strong margin drove much of the Bank’s success. Loan growth, excluding PPP, was $92.9 million or 25% annualized and all organic. The net interest margin increased to 4.07%, as PPP loans are being replaced by higher yielding commercial loans. The SBA division has consistently delivered loan sale income, and historically has done well in difficult economic times. We expected a decline in mortgage volume with the rate increases, but the lack of homes for sale in the region has made it worse. We continually forecast results in mortgage and make the appropriate adjustments.”
Mr. Annas added, “Despite the economic volatility, we have a strong pipeline of commercial business which should hold through year end. Meridian is the go-to bank for small and medium sized businesses in the Philadelphia metro market, and we will continue to get our opportunities. Our strong credit culture is a safeguard with a possible recession looming, so our scrutiny towards these opportunities will always be our first priority.”
Select Condensed Financial Information
For the Quarter Ended (Unaudited)
Net income - consolidated
5,535
7,719
9,438
8,258
Basic earnings per common share
Net interest income - consolidated
17,551
16,035
16,322
16,257
15,412
At the Quarter Ended (Unaudited)
December 31
September 30
Balance Sheet:
Total assets
1,853,019
1,831,589
1,713,443
1,762,445
1,709,010
Loans, net of fees and costs
1,518,893
1,431,906
1,386,457
1,378,670
1,362,750
Total deposits
1,568,014
1,564,851
1,446,413
1,439,047
1,413,280
Non-interest bearing deposits
291,925
291,379
274,528
265,842
261,806
Stockholders' Equity
156,087
157,684
165,360
158,416
152,885
Balance Sheet (Average Balances):
1,811,335
1,752,643
1,755,263
1,739,848
1,723,421
Total interest earning assets
1,736,547
1,680,070
1,696,473
1,691,641
1,678,721
1,465,891
1,397,002
1,449,361
1,351,634
1,345,672
1,567,325
1,504,241
1,468,575
1,409,534
1,385,250
296,521
281,123
287,801
254,843
255,964
158,420
161,939
159,921
155,580
146,497
Performance Ratios (Annualized):
Return on average assets - consolidated
Return on average equity - consolidated
15.03
13.86
19.15
24.07
22.61
Income Statement Summary
Second Quarter 2022 Compared to First Quarter 2022
Net income was $5.9 million, or $0.96 per diluted share, for the second quarter of 2022 compared to net income of $5.5 million, or $0.88 per diluted share, for the first quarter of 2022. The $403 thousand increase in net income quarter-over-quarter was driven by continued strong loan portfolio growth, which helped improve net interest income by $1.5 million. Non-interest expense decreased $1.7 million, but was offset by a decrease of $2.7 million in non-interest income.
Interest income increased $2.0 million, or 11.5%, to $20.0 million from $18.0 million, for the second quarter of 2022. Quarter-over-quarter, there was combined average balance growth of $57.4 million on commercial loans and leases, small business loans, and residential real estate loans. In addition, the yield on loans rose 28 basis points, to 4.99% for the second quarter of 2022. This yield increase is partially due to these portfolios realizing the impact of interest rate rises in the market, combined with the positive impact of PPP loan balances being paid off and replaced by higher yielding commercial loans and leases.
Interest expense increased $557 thousand, or 28.9%, to $2.5 million as interest rates rose during the period. The cost of deposits increased 12 basis points over the prior quarter, as rates in interest checking, money market accounts, and time deposits moved up 21, 12, and 13 basis points, respectively.
The net interest margin was 4.07% for the second quarter of 2022 compared to 3.89% for the first quarter of 2022. Excluding the impact from PPP, the net interest margin increased 13 basis points to 3.95% for the second quarter 2022 from 3.82% for the first quarter of 2022. A reconciliation of this non-GAAP measure is included in the Appendix. Overall, net interest income increased $1.5 million, or 9.5%, to $17.6 million from $16.0 million for the first quarter of 2022.
The provision for loan losses was $602 thousand for the second quarter of 2022, compared to a $615 thousand provision for the first quarter of 2022. The second quarter provision was the result of new loan growth as well as covering $695 thousand in charge-offs on small ticket equipment leases, partially offset by decreases in specific reserves on non-performing loans as the underlying credit quality improved.
Total non-interest income for the second quarter of 2022 was $10.4 million, down $2.7 million or 20.6%, from the first quarter of 2022. Non-interest income was primarily down as a result of lower SBA loan income, which decreased $2.1 million. Mortgage banking revenue and wealth management revenue also decreased slightly, down $154 thousand or 2.2%, and $50 thousand, or 3.8%, respectively.
SBA loan income for the second quarter of 2022 was $437 thousand, a decline of $2.1 million, or 82.7%, from the first quarter of 2022. The decline was the result of a lower level of SBA loans sold ($12.8 million in the second quarter of 2022 compared to $25.2 million in loans sold in the first quarter of 2022), as well as lower margins on the sale.
The mortgage segment originated $332.4 million in loans during the second quarter of 2022, an increase of $8.6 million, or 2.6%, from the prior quarter, but the gain on sale margin declined 73 basis points. Refinance activity was down as interest rates continue to rise, representing 15% of the total residential mortgage loans originated for the second quarter of 2022, compared to 36% for the first quarter of 2022. The changes in the fair value of derivative instruments and loans held for sale increased a combined $884 thousand during the second quarter of 2022 compared to the first quarter of 2022, while there was a $1.7 million gain on hedging activity for the second quarter of 2022, compared to a $2.8 million gain for the first quarter of 2022.
Wealth management revenue from our wealth segment decreased $50 thousand, or 3.8%, quarter-over-quarter due to impacts from unfavorable market conditions.
Total non-interest expense for the second quarter of 2022 was $19.7 million, down $1.7 million or 8.1%, from the first quarter of 2022. Total salaries and employee benefits expense was $12.9 million, a net decrease of $2.4 million or 15.5%, compared to the first quarter of 2022. Of this decrease, $1.9 million related to the mortgage segment, which recognizes variable compensation based on loan origination volume, as well as a general reduction in workforce. Salary and employee benefits were down $442 thousand for the bank and wealth segments due to a decline in the value of stock based compensation quarter-over-quarter.
Partially offsetting the decrease in salaries and benefits, advertising expense was up $203 thousand, or 20.6%, and other non-interest expense increased $321 thousand, or 19.3%. Increases in other expense related to employee business and travel expenses, communications and other lesser expenses related to growth.
Balance Sheet Summary
As of June 30, 2022, total assets were $1.9 billion, an increase of $21.4 million, or 1.2%, from March 31, 2022. This growth in assets was due to loan portfolio growth, partially funded by a reduction in cash and investments of $31.1 million.
Portfolio loans grew $87.0 million, or 6.1%, to $1.5 billion as of June 30, 2022, from $1.4 billion as of March 31, 2022. Portfolio loan growth, excluding PPP loans, was $115.2 million, or 8% quarter-over-quarter. Commercial loans increased $16.9 million, or 7.7%, commercial real estate loans increased $17.5 million, or 3.2%, construction loans increased $13.0 million, or 7.9%, residential real estate loans held in portfolio increased $35.4 million, or 45.0%, and lease financings increased $15.1 million, or 14.1% from March 31, 2022. Partially offsetting the growth in portfolio loans was a decrease of $66.8 million, or 75.7%, in PPP loan balances as they continue to be forgiven by the SBA.
Deposits were $1.6 billion as of June 30, 2022, up $3.2 million, or 0.2%, from March 31, 2022. Non-interest bearing deposits increased $546 thousand, or 0.2%, from March 31, 2022. Interest-bearing checking accounts decreased $47.0 million, or 18.6%, while money market accounts/savings accounts combined increased $40.8 million, or 5.9%, since March 31, 2022. Certificates of deposits increased $8.8 million, or 2.7%, from March 31, 2022, as some wholesale deposits shifted from interest-bearing checking due to more favorable interest rates.
Consolidated stockholders’ equity of the Corporation was $156.1 million, or 8.4% of total assets as of June 30, 2022, as compared to $157.7 million, or 8.6% of total assets as of March 31, 2022. The change in stockholders’ equity is the result of net income of $5.9 million for the quarter, offset by dividends of $1.2 million paid during the second quarter, as well as $3.0 million in treasury share purchases, and a $3.5 million decline in accumulated other comprehensive income from the investment security portfolio due to changes in interest rates over this period.
As of June 30, 2022, the Tier 1 leverage ratio was 8.87% for the Corporation and 10.86% for the Bank, the Tier 1 risk-based capital and common equity ratios were 9.79% for the Corporation and 11.98% for the Bank, and total risk-based capital was 13.50% for the Corporation and 13.33% for the Bank. Based on these capital ratio levels, we remain above the Community Bank Leverage Ratio ("CBLR") requirement of 8%. Quarter-end numbers show a tangible common equity to tangible assets ratio (a non-GAAP measure) of 8.22% for the Corporation and 10.18% for the Bank. A reconciliation of this non-GAAP measure is included in the Appendix. Tangible book value per share was $25.16 as of June 30, 2022, compared with $25.04 as of March 31, 2022.
Asset Quality Summary
Meridian credit culture is strong and asset quality remains a primary focus of management. Total non-performing loans were $23.0 million as of June 30, 2022, relatively flat over the prior period. The ratio of non-performing assets to total assets declined to 1.24% as of June 30, 2022, from 1.25% as of March 31, 2022. There was no other real estate property included in non-performing assets for either period.
Meridian realized net charge-offs of 0.03% of total average loans for the quarter ended June 30, 2022, down from the quarter ended March 31, 2022 level of 0.04%. Net charge-offs for the quarter ended June 30, 2022 were $622 thousand, comprised of $695 thousand in charge-offs, with $73 thousand in recoveries for the quarter. Nearly all of the charge-offs for the quarter ended June 30, 2022 were from small ticket equipment leases. 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 1.27% as of June 30, 2022 compared to 1.38% as of March 31, 2022. As of June 30, 2022 there were specific reserves of $2.8 million against non-performing loans, down from $4.2 million as of March 31, 2022 due to improvement in the underlying credit quality for certain loans.
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 impact of the COVID-19 pandemic and government responses thereto; on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; and the risk that the Small Business Administration may not fund some or all Paycheck Protection Program (PPP) loan guaranties; increased competitive pressures; changes in the interest rate environment; changes in general economic conditions and conditions within the securities markets; legislative and regulatory changes; and the effects of inflation, a potential recession, 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, 2021 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.
FINANCIAL TABLES FOLLOW
APPENDIX - FINANCIAL RATIOS
Quarterly
(Dollars in thousands, except per share data)
3rd QTR
2nd QTR
Earnings and Per Share Data
Common shares outstanding
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 - consolidated
Asset Quality Ratios
Net charge-offs (recoveries) to average loans
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
81.82%
82.41%
81.47%
206.42%
224.63%
Capital Ratios
Book value per common share
Tangible book value per common share
Total equity/Total assets
Tangible common equity/Tangible assets - Corporation (1)
Tangible common equity/Tangible assets - Bank (1)
10.40%
11.54%
10.90%
10.92%
Tier 1 leverage ratio - Corporation
Tier 1 leverage ratio - Bank
11.20%
11.51%
11.55%
11.28%
Common tier 1 risk-based capital ratio - Corporation
10.09%
10.83%
10.64%
10.16%
Common tier 1 risk-based capital ratio - Bank
12.41%
13.27%
13.25%
12.80%
Tier 1 risk-based capital ratio - Corporation
Tier 1 risk-based capital ratio - Bank
Total risk-based capital ratio - Corporation
13.91%
14.81%
14.72%
14.23%
Total risk-based capital ratio - Bank
13.76%
14.63%
14.62%
14.18%
Non-GAAP measure. See reconciliation in the Appendix.
Statements of Income (Unaudited)
Three Months Ended
Six Months Ended
June 30, 2021
Interest Income
Interest and fees on loans
19,120
16,839
36,339
33,662
Investments and cash
1,662
1,307
Total interest income
20,037
17,517
38,001
34,969
Interest Expense
1,818
1,368
3,107
2,934
Borrowings
1,308
1,502
Total interest expense
2,486
2,105
4,415
4,436
33,586
30,533
Provision for loan losses
1,217
Net interest income after provision for loan losses
16,949
15,316
32,369
29,838
Non-Interest Income
Mortgage banking income
6,942
19,467
14,038
43,567
Wealth management income
1,254
1,163
2,558
2,299
SBA income
1,490
2,957
2,735
Earnings on investment in life insurance
Net change in fair value of derivative instruments
(2,148)
(3,092)
Net change in fair value of loans held for sale
1,235
(2,632)
Net change in fair value of loans held for investment
(1,613)
Net gain (loss) on hedging activity
1,715
4,542
3,587
Net gain on sale of investment securities available-for-sale
Service charges
1,128
1,060
2,386
2,134
10,403
21,732
23,505
48,780
Non-Interest Expenses
Salaries and employee benefits
12,926
20,213
28,224
42,352
Occupancy and equipment
1,176
1,175
2,428
2,326
Professional fees
1,761
1,756
Advertising and promotion
1,189
2,175
1,707
Data processing
1,059
1,136
Information technology
1,438
Pennsylvania bank shares tax
1,982
1,974
3,643
4,018
Total non-interest expenses
19,706
26,246
41,139
54,510
Income before income taxes
7,646
10,802
14,735
24,108
Income tax expense
1,708
2,544
3,262
5,680
Net Income
11,473
18,428
Weighted-average basic shares outstanding
5,999
6,032
6,011
6,018
Adjusted weighted-average diluted shares outstanding
6,199
6,203
6,229
6,177
Statement of Condition (Unaudited)
(Dollars in thousands)
September 30, 2021
Assets
Cash & cash equivalents
37,093
68,888
23,480
63,121
26,902
Investment securities
168,552
167,870
168,028
153,566
149,366
Mortgage loans held for sale
58,938
81,258
80,882
117,996
132,348
(18,805)
(18,826)
(18,758)
(18,976)
(18,361)
Bank premises and equipment, net
12,185
11,883
11,806
8,242
8,160
Bank owned life insurance
22,778
22,641
22,503
22,362
12,269
Servicing assets
12,860
13,396
12,765
11,932
10,327
Goodwill and intangible assets
4,176
4,227
4,278
4,329
4,380
Other assets
36,349
48,346
22,002
21,203
20,869
Total Assets
Liabilities & Stockholders’ Equity
Interest bearing deposits
Interest checking
205,298
252,298
268,248
279,659
257,939
Money market / savings accounts
728,886
688,117
697,628
670,101
631,604
341,905
333,057
206,009
223,445
261,931
Total interest bearing deposits
1,276,089
1,273,472
1,171,885
1,173,205
1,151,474
59,136
36,136
41,344
100,683
82,156
Subordinated debt
40,567
40,538
40,508
40,760
40,730
Other liabilities
29,215
32,380
19,818
23,539
19,959
Total Liabilities
1,696,932
1,673,905
1,548,083
1,604,029
1,556,125
Total Liabilities & Stockholders’ Equity
Condensed Statements of Income (Unaudited)
Three Months Ended
17,964
18,248
18,306
1,929
1,926
2,049
Provision (credit) for loan losses
13,102
17,086
22,122
21,433
23,737
25,481
Income before income tax expense
7,089
9,893
12,301
1,554
2,174
2,863
6,023
5,978
6,045
6,262
6,210
6,231
Segment Information
Three Months Ended June 30, 2022
Three Months Ended June 30, 2021
16,923
14,824
16,321
14,728
18,167
10,624
16,042
Six Months Ended June 30, 2022
Six Months Ended June 30, 2021
32,533
29,324
1,220
31,316
28,629
4,535
16,412
4,724
41,757
20,833
1,700
18,606
18,348
1,684
34,478
15,018
1,269
(1,552)
15,005
8,499
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)
1st QTR
Pre-tax, Pre-provision Income by Segment (Unaudited)
8,778
6,829
8,896
7,811
(1,593)
2,556
3,570
2,711
Reconciliation of PPP / PPPLF Impacted Yields (Unaudited)
Impact of PPP loans and PPPLF borrowings
(0.12)
(0.07)
(0.10)
Net interest margin (TEY, excluding PPP loans and PPPLF borrowings)
(0.11)
(0.04)
(0.05)
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
(4,176)
(4,227)
(4,278)
(4,329)
(4,380)
151,911
153,457
161,082
154,087
148,505
1,848,843
1,827,362
1,709,165
1,758,116
1,704,629
Tangible common equity ratio - Corporation
Tangible Common Equity Ratio Reconciliation - Bank (Unaudited)
192,212
194,347
201,486
196,009
190,477
188,036
190,120
197,208
191,680
186,097
1,852,998
1,831,461
1,713,318
1,762,415
1,709,006
1,848,822
1,827,234
1,709,040
1,758,086
1,704,626
Tangible common equity ratio - Bank
Tangible Book Value Reconciliation (Unaudited)
25.85
25.73
27.07
25.94
24.77
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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