MALVERN, PA — Meridian Corporation (NASDAQ: MRBK) reported a 22% decline in third-quarter profit as weaker mortgage banking activity, lower small-business loan sales and valuation losses outweighed improved lending margins at the Pennsylvania-based financial institution.
Net income fell to $5.2 million, or 43 cents per diluted share, for the quarter ended Sept. 30, compared with $6.7 million, or 58 cents per share, a year earlier. Profit declined 10.3% from the second quarter’s $5.8 million.
The bank holding company’s noninterest income dropped 32.2% from the preceding quarter to $6.7 million, reflecting a slowdown in mortgage transactions, reduced Small Business Administration loan sales and a $955,000 loss from changes in the fair value of loans held for investment.
Mortgage banking income declined 20.7% to $4.9 million as mortgage loan sales fell $47.4 million and the margin on those sales narrowed by 10 basis points. The mortgage division recorded a pretax loss of $1.6 million, compared with a $507,000 pretax profit a year earlier.
Chairman and Chief Executive Officer Christopher J. Annas attributed the weakness partly to limited housing inventory, which he described as a greater constraint on mortgage activity than elevated interest rates.
“Our mortgage group had a down third quarter, which is historically the most productive, as closed loans declined 27% from the prior quarter,” Annas stated.
The company is adjusting mortgage operating costs to reflect lower transaction volumes.
SBA loan income swung to a $312,000 loss from $615,000 in the second quarter. Meridian sold $1.5 million in SBA loans during the latest quarter, compared with $11.9 million in the preceding period.
Those pressures were partially offset by higher net interest income, which increased to $23.4 million from $22.8 million in the second quarter. Net interest margin widened eight basis points to 3.77%, supported by higher loan yields and increased noninterest-bearing deposits.
The improvement included $388,000 in previously unaccrued interest recognized on a residential mortgage loan that returned to accrual status and was subsequently paid in full.
Credit costs also declined. Meridian recorded a $1.1 million provision for credit losses, down from $3 million in the second quarter, as net loan charge-offs decreased to $1.9 million from $2.6 million.
Nonperforming loans fell $3.8 million to $78.3 million at Sept. 30, representing 3.55% of total loans, compared with 3.68% three months earlier. Another $2.7 million in nonperforming loans was settled after quarter-end.
The company attributed the quarterly reduction partly to the reclassification of a $1.8 million land development loan as held for sale, changes in commercial mortgage classifications and lower nonperforming SBA balances.
SBA loans accounted for $23.6 million of nonperforming loans, including $13.6 million guaranteed by the federal agency.
Meridian’s wealth management business provided a counterweight to the mortgage downturn. Quarterly revenue rose 10% to $1.9 million, while pretax income increased approximately 35% from a year earlier to $689,000, supported by higher assets under management and operating efficiencies.
Total noninterest expenses increased 3.6% from the second quarter to $23 million, reflecting higher employee compensation, technology expenses, professional fees and costs associated with other real estate owned.
Meridian’s effective income tax rate fell to 13% from 22.4% in the preceding quarter, largely because the purchase of $10 million in renewable energy tax credits reduced quarterly tax expense by approximately $600,000.
The company’s balance sheet contracted modestly during the quarter. Total assets declined $21.6 million to $2.57 billion, while portfolio loans decreased $13.7 million to approximately $2.16 billion.
Deposits fell $27.6 million to $2.17 billion, including a $34.6 million reduction in interest-bearing deposits. Noninterest-bearing deposits increased $7.1 million.
Despite originating $363 million in lines of credit and term loans during the first nine months of 2026, Meridian reported relatively flat loan balances, reflecting repayments in its leasing and SBA portfolios and competition from private equity firms.
For the first nine months of the year, net income totaled $13 million, down from $14.7 million in the comparable 2025 period. Diluted earnings per share declined to $1.07 from $1.28.
Return on average assets was 0.80% in the third quarter, compared with 0.90% in the second quarter, while return on average equity declined to 9.97% from 11.42%.
Meridian’s tangible common equity ratio increased slightly to 7.80%, and its banking subsidiary’s leverage ratio rose to 9.93%.
The company is expanding its treasury and payments teams as part of an effort to strengthen deposit gathering, with management expecting improvements in 2027.
Meridian’s board declared a quarterly cash dividend of 14 cents per common share, payable Nov. 16 to shareholders of record Nov. 9.
Meridian Corporation operates through Meridian Bank, which provides commercial banking, mortgage lending, payments and wealth management services across Pennsylvania, New Jersey, Delaware, Maryland and Florida.
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