Meridian Corporation Reports Second Quarter 2022 Results

meridian corporate officeSource: Meridian

MALVERN, PA — Meridian Corporation (Nasdaq: MRBK) recently 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 the 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
2022 2022 2021 2021 2021
(Dollars in thousands, except per share data) 2nd QTR 1st QTR 4th QTR 3rd QTR 2nd QTR
Income:
Net income $ 5,938 $ 5,535 $ 7,719 $ 9,438 $ 8,258
Diluted earnings per common share 0.96 0.88 1.24 1.52 1.33
Pre-tax, pre-provision income (1) 8,248 7,704 9,671 12,898 10,898
Pre-tax, pre-provision income – Bank (1) 7,458 8,778 6,829 8,896 7,811
(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)
2022 2022 2021 2021 2021
(Dollars in thousands, except per share data) 2nd QTR 1st QTR 4th QTR 3rd QTR 2nd QTR
Income:
Net income – consolidated $ 5,938 $ 5,535 $ 7,719 $ 9,438 $ 8,258
Basic earnings per common share 0.99 0.92 1.29 1.56 1.37
Diluted earnings per common share 0.96 0.88 1.24 1.52 1.33
Net interest income – consolidated 17,551 16,035 16,322 16,257 15,412
At the Quarter Ended (Unaudited)
2022 2022 2021 2021 2021
June 30 March 31 December 31 September 30 June 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
At the Quarter Ended (Unaudited)
2022 2022 2021 2021 2021
June 30 March 31 December 31 September 30 June 30
Balance Sheet (Average Balances):
Total assets $ 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
Loans, net of fees and costs 1,465,891 1,397,002 1,449,361 1,351,634 1,345,672
Total deposits 1,567,325 1,504,241 1,468,575 1,409,534 1,385,250
Non-interest bearing deposits 296,521 281,123 287,801 254,843 255,964
Stockholders’ Equity 158,420 161,939 159,921 155,580 146,497
At the Quarter Ended (Unaudited)
2022 2022 2021 2021 2021
June 30 March 31 December 31 September 30 June 30
Performance Ratios (Annualized):
Return on average assets – consolidated 1.31 % 1.28 % 1.74 % 2.15 % 1.92 %
Return on average equity – consolidated 15.03 % 13.86 % 19.15 % 24.07 % 22.61 %
READ:  Enovis Announces Second Quarter 2022 Results
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.

READ:  Berwyn-based AMETEK Announces Record Sales for Second Quarter 2022

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 the Company’s 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.

READ:  EPAM Reports Results for Second Quarter 2022

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, the Company remains 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.

For additional information, visit their website at www.meridianbanker.com.

Related Articles

Thanks for visiting! Looking for some Chester County pride? We got you covered! Shop our MyChesCo store and show your love for Chester County, Pennsylvania. We got shirts, hats, and more – all with a unique ChesCo flair. Plus, proceeds from each purchase helps support our mission of bringing reliable information and resources to the people of Chester County.