Meridian Corporation Reports Net Income of $2.0 Million, or $0.31 Per Diluted Share, in 2Q 2019

MALVERN, Pa., July 29, 2019 /PRNewswire/ -- Meridian Corporation (Nasdaq: MRBK) today reported net income increased 12.2% to $2.0 million, or $0.31 per diluted share for the second quarter of 2019, compared to $1.8 million, or $0.28 per diluted share, in the second quarter of 2018, generating a return on average assets and return on average equity of 0.81% and 7.14%, respectively, for the current quarter.  Pretax income for the second quarter of 2019 was reduced by $665 thousand for a class action litigation settlement. This $665 thousand decrease in pretax income reduced second quarter 2019 net income by $517 thousand, or $0.08 per basic and diluted share.

In the first six months of 2019, Meridian's net income increased 31.1% to $4.0 million, or $0.63 per diluted share, compared to $3.1 million, or $0.48 per diluted share, in the first six months of 2018.

"Meridian's second quarter operating results were highlighted by strong loan and core deposit growth and solid net interest income, reflecting earning asset expansion and a relatively stable net interest margin," said Christopher J. Annas, Chairman and CEO. "Loan balances were 13% higher and deposit balances grew 23% at the end of the second quarter compared to a year ago, contributing to our higher profitability. 

"Our SBA lending team that joined Meridian in late 2018 is doing outstanding work serving the entrepreneurs in our markets.  We have the right team in place and are optimistic about this new loan segment and its potential for growth.

"The markets we serve in Pennsylvania, Delaware and New Jersey continue to demonstrate strong economic growth.  This growth, along with the consolidation we are seeing in the banking industry, continues to present opportunities for us to gain market share."

Select Condensed Financial Information

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 to evaluate performance trends and the adequacy of common equity. 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.

Meridian believes adjusted net income, adjusted earnings per common share, adjusted ROAA and adjusted ROAE provide a greater understanding of ongoing operations and enhances comparability of results with prior periods. Because management believes that these adjustments are not incurred as a result of ongoing operations, they are not as helpful a measure of the performance of our underlying business, particularly in light of their unpredictable nature and are difficult to forecast. This supplemental presentation should not be construed as an inference that Meridian's future results will be unaffected by similar adjustments to these measures determined in accordance with GAAP.

Financial Highlights

• Net income for the three and six months ended June 30, 2019 was $2.0 million and $4.0 million, respectively, increases of $220 thousand or 12.2% and $1.0 million or 31.1% as compared to net income for the same periods in 2018.

• Total assets of $1.1 billion as of June 30, 2019 increased $58.4 million, or 5.9% year-to-date and $110.4 million or 11.7% year-over-year.

• Total portfolio loans and leases of $885.2 million as of June 30, 2019 increased $47.1 million, or 5.6% year-to-date and $103.6 million or 13.2% year-over-year.

• Total deposits of $840.7 million as of June 30, 2019 increased $88.6 million, or 11.8% year-to-date and $157.5 million or 23.0% year-over-year.

• Non-interest bearing deposits of $127.2 million as of June 30, 2019 increased $1.0 million, or 0.8% year-to-date and $20.2 million or 18.9% year-over-year.

• Net interest income increased $776 thousand or 9.5% and $1.6 million or 9.9% for the three and six months ended June 30, 2019 over the same periods in 2018.

Income Statement Summary

Net income was $2.0 million, or $0.31 per diluted share for the three months ended June 30, 2019 compared to net income of $1.8 million, or $0.28 per diluted share, for the same period in 2018. The increase was largely attributable to an increase in net interest income of $776 thousand, in addition to a lower level of provision for loan losses due to net recoveries recorded in the current quarter. Non-interest income for the three months ended June 30, 2019 decreased $740 thousand. Net income was $4.0 million, or $0.63 per diluted share for the six months ended June 30, 2019 compared to $3.1 million, or $0.48 per diluted share, for the same period in 2018.

Net interest income increased $776 thousand, or 9.5%, to $8.9 million for the three months ended June 30, 2019, from $8.2 million for the same period in 2018. Net interest income increased $1.6 million, or 9.9%, to $17.4 million for the six months ended June 30, 2019, from $15.8 million for the same period in 2018. The growth in interest income for the three months ended June 30, 2019 compared to the same period in 2018 reflects an increase in average interest earning assets of $120.5 million. The growth in interest income for the six months ended June 30, 2019 compared to the same period in 2018 reflects an increase in average interest earning assets of $129.2 million.  Increases over both periods were partially offset by the decrease in the net interest margin. The net interest margin was 3.72%, and 3.69%, for the three and six months ended June 30, 2019, respectively, compared to 3.88% and 3.89% for the same periods in 2018. The decrease in net interest margin reflects pressure from the rising cost of funds, which has outpaced the favorable trend in yield on interest earning assets during the quarter and six month periods.

The provision for loan losses decreased $399 thousand to $14 thousand and $734 thousand to $233 thousand for the three and six months ended June 30, 2019, respectively.  The allowance was largely funded by net recoveries of $339 thousand for the six months ended June 30, 2019 compared to net charge-offs of $227 thousand for the same period in 2018.

Total non-interest income for the three months ended June 30, 2019 was $7.9 million, down $740 thousand, or 8.5%, from the comparable period in 2018. Total non-interest income for the six months ended June 30, 2019 was $14.4 million, down $1.3 million, or 8.6%, from the comparable period in 2018. These overall decreases in non-interest income came primarily from our mortgage division.  Also affecting non-interest income, wealth management revenue was down $76 thousand for the three months ended June 30, 2019 compared to the same period in 2018 and $290 thousand for the six months ended June 30, 2019 compared to the same period in 2018.  Fee income for both periods reflected market value changes in assets under management, which decreased correspondingly to changes in the stock market.  These decreases in non-interest income were partially offset by $515 thousand in gains recognized on the sale of SBA loans, as well as $139 thousand in gain on sale of securities, all in the three months ended June 30, 2019. There were no SBA loan sales or sales of securities in the prior year comparable periods. The new SBA lending team, brought on late in 2018, originated $12 million in SBA loans during the first six months of 2019.

Mortgage banking revenue, for the three and six months ended June 30, 2019, was $6.3 million, down $991 thousand, or 13.6%, and $11.2 million, down $904 thousand or 7.5%, from the comparable periods in 2018. These declines in mortgage banking revenue were due primarily to a decline in mortgage originations year over year, despite an increase in the margin on loan sales of 72 basis points and 48 basis points for the three and six months, respectively, due in part to rising interest rates year over year. The net change in fair value of mortgage banking related financial instruments increased $400 thousand for the six months ended June 30, 2019, compared to the same period in 2018. Additionally, realized gains on derivatives related to mortgage banking, included in other non-interest income, decreased $222 thousand for the three months ended June 30, 2019 to a loss of $218 thousand, compared to a gain of $4 thousand for the same period in 2018, while realized gains decreased $1.2 million for the six months ended June 30, 2019 to a loss of $493 thousand, compared to a gain of $704 thousand for the same period in 2018.

Total non-interest expense was $14.2 million for the three months ended June 30, 2019, up $170 thousand, or 1.2%, from $14.1 million for the three months ended June 30, 2018 and $26.4 million for six months ended June 30, 2019, down $276 thousand, or 1.0%, from $26.6 million for the same period in the 2018.  There was a reduction in salaries and employee benefits expense of $640 thousand or 6.8% for the three months ended June 30, 2019 and $1.4 million or 7.6% for the six months ended June 30, 2019, compared to prior year, as full-time equivalent employees, particularly in the mortgage division declined. In addition, variable loan expenses decreased by $55 thousand and $57 thousand over the three and six month periods ended June 30, 2019, respectively, reflecting the lower level of mortgage originations year-over-year. Occupancy and equipment expense was down slightly for both the comparable three month and six month periods, while data processing and information technology expenses were up slightly over these same periods due to increased customer transaction volume.  Professional fees were up $232 thousand and $224 thousand for the three and six month periods ended June 30, 2019 due largely to legal and accounting fees incurred as part of the Maryland mortgage licensing issue announced in the prior quarter, in addition to legal fees incurred related to the litigation matter discussed below. 

Other non-interest expenses increased $568 thousand to $1.7 million for the three months ended June 30, 2019, and $1 million to $2.9 million for the six months ended June 30, 2019, when compared to the prior year comparable periods. The settlement of an outstanding litigation matter contributed $665 thousand to other non-interest expense for the three months ended June 30, 2019, while the impact to other non-interest expense for the six months ended June 30, 2019 was $790 thousand. On July 24, 2019 the Bank agreed to settle outstanding litigation related to former mortgage division employees for a total cost of $990 thousand.  Additionally, for the six months ended June 30, 2019, $79 thousand of other expense was incurred for the current period impact of the Maryland mortgage licensing issue previously disclosed.  Other contributors to the increase for the six months ended June 30, 2019 are increases in the FDIC insurance assessment, as well as the PA shares tax assessment due to the growth of the Bank from the prior year.

Balance Sheet Summary

As of June 30, 2019, total assets were $1.1 billion compared with $945.5 million as of June 30, 2018 and $997.5 million as of December 31, 2018. Total assets increased $110.4 million, or 11.7%, on a year-over-year basis primarily due to strong loan growth. Total assets increased $58.4 million, or 5.9%, from year-end, mostly due to an increase in portfolio loans of $47.1 million.

Total loans, excluding mortgage loans held for sale, grew $103.6 million, or 13.2%, to $885.2 million as of June 30, 2019, from $781.6 million as of June 30, 2018. For the six month period ending June 30, 2019, loans, excluding mortgages held for sale increased $47.1 million, or 5.6%, from $838.1 million as of December 31, 2018. The increase in loans for both periods is attributable to several commercial categories as we continue to grow our presence in the Philadelphia market area. Commercial loans increased a net $2.9 million, or 1.61%, year-over-year.  Commercial real estate and commercial construction loans combined increased $76.0 million, or 18.9%, year-over-year. Residential loans held in portfolio increased $8.9 million, or 18.5%, year-over-year as certain loan products or terms were targeted to hold in portfolio. Residential mortgage loans held for sale decreased $6.3 million, or 13.8%, to $39.3 million as of June 30, 2019 from June 30, 2018.

Deposits were $840.7 million as of June 30, 2019, up $157.5 million, or 23.0%, from June 30, 2018, and up $88.6 million, or 11.8%, from December 31, 2018. Non-interest bearing deposits increased $20.2 million, or 18.9%, from June 30, 2018 and increased $1.0 million, or 0.8%, from December 31, 2018. New business relationships fueled the increases year-over-year.  Money market accounts/savings accounts increased $69.6 million, or 32.4%, since June 30, 2018 and $52.0 million, or 22.4%, since December 31, 2018 due to new business relationship money market accounts.  Interest-bearing checking accounts decreased $22.2 million, or 20.1%, year-over-year, and decreased $26.6 million or 23.2% from December 31, 2018 due largely to term preference of municipal deposits. Certificates of deposit increased $89.8 million, or 35.8%, since June 30, 2018 and $62.1 million, or 22.3%, since December 31, 2018.

Consolidated stockholders' equity of the Corporation was $114.4 million, or 10.83% of total assets as of June 30, 2019, as compared to $104.1 million, or 11.01% of total assets as of June 30, 2018. As of June 30, 2019, the Tier 1 leverage ratio was 10.96%, the Tier 1 risk-based capital and common equity ratios were 11.37%, and total risk-based capital was 13.23%. Quarter-end numbers show a tangible common equity to tangible assets ratio of 10.83%. Tangible book value per share was $17.09 as of June 30, 2019, compared with $15.43 as of June 30, 2018.

Asset Quality Summary

Asset quality remains strong year-over-year. The Bank realized net recoveries of 0.04% of total average loans for the quarter ending June 30, 2019, compared with net charge-offs of 0.01% for the quarter ending June 30, 2018. Total non-performing assets, including loans and other real estate property, were $4.3 million as of June 30, 2019, $2.8 million as of June 30, 2018, and $3.9 million as of December 31, 2018. The ratio of non-performing assets to total assets as of June 30, 2019 was 0.40% compared to 0.30% as of June 30, 2018 and 0.39% as of December 31, 2018. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value, was 0.99% as of June 30, 2019, an improvement from the 0.97% recorded as of June 30, 2018 and December 31, 2018.

About Meridian Corporation

Meridian Bank, the wholly owned subsidiary of Meridian Corporation, is a full-service commercial bank headquartered in Malvern, Pennsylvania with 23 offices in the greater Philadelphia Metro market. The Bank offers a full range of commercial and retail loan and deposit products, along with wealth management and electronic payment services. Meridian Mortgage, a division of the Bank, is a top tier provider of residential mortgage loans. 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, 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, 2018) and, for periods prior to the completion of the holding company reorganization, Meridian Bank's filings with the FDIC, including Meridian Bank's Annual Report on Form 10‑K for the year ended December 31, 2017, 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

Contact: Jessica Annas
jannas@meridianbanker.com 
484.568.5035

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SOURCE Meridian Corporation