MALVERN, PA — Meridian Corporation (Nasdaq: MRBK) nearly tripled second-quarter profit from the prior period as lower credit-loss provisions and stronger fee income offset rising expenses, though non-performing loans increased sharply during the quarter.
Net income rose to $5.8 million, or $0.48 per diluted share, from $2 million, or $0.17 per share, in the first quarter. Compared with the year-earlier period, profit increased from $5.6 million while diluted earnings slipped by one cent because of a higher share count.
The provision for credit losses fell to $3 million from $7.5 million in the prior quarter, reflecting lower charge-offs and slower loan growth. Net charge-offs declined to $2.6 million, or 0.12% of average loans, from $7.8 million, or 0.35%, during the first quarter.
Non-performing loans, however, climbed by $23.4 million to $82.1 million, driven primarily by downgraded land-development and commercial-mortgage relationships. The ratio of non-performing loans to total loans increased to 3.68% from 2.64% three months earlier.
Meridian indicated that the newly downgraded real estate loans were well collateralized and did not require specific reserves at June 30. Chief Executive Officer Christopher J. Annas acknowledged the increase but pointed to the collateral positions and the company’s historically low charge-off rate.
Non-interest income increased 40.4% from the first quarter to $9.9 million. Mortgage banking income rose 51.4% to $6.2 million as mortgage-loan sales increased, while income from Small Business Administration loan sales climbed to $615,000 from $150,000.
The increase in fee income was partly offset by a 10.3% rise in non-interest expenses to $22.2 million. Salaries and benefits, advertising, professional fees and other operating costs all increased during the period.
Net interest income declined to $22.8 million from $23.2 million in the prior quarter as deposit costs increased and the yield on earning assets decreased. Net interest margin narrowed to 3.69% from 3.82%.
Total portfolio loans decreased 0.1% to $2.18 billion, as growth in commercial mortgages and commercial-and-industrial lending was offset by declines in construction, SBA and equipment-finance balances. Total deposits increased 1.1% to $2.19 billion.
Meridian’s board declared a quarterly cash dividend of $0.14 per common share, payable Aug. 17 to shareholders of record as of Aug. 10.
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