Meridian Corporation Reports Fourth Quarter 2023 Results and Announces a Quarterly Dividend of $0.125 per Common Share

Rhea-AI Summary

Meridian Corporation (MRBK) reported a decrease in net income to $571 thousand for the fourth quarter of 2023, down from $4.0 million in the prior quarter. The decline was attributed to additional provisions for non-performing commercial credit and negative impact from the rise in interest rates. However, the company saw a 9% increase in commercial loans, excluding leases, and a 3.18% net interest margin for the fourth quarter. The Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable February 20, 2024. The company's CEO expressed confidence in the existing reserves and expected resolution in the commercial credit in 2024, with continued growth in core portfolios and a stable business environment in the Philadelphia metro region.

Insights

Financial Analyst

Meridian Corporation's latest earnings report indicates a significant decline in net income from both the previous quarter and year-over-year. This decline is primarily attributed to additional provisions for non-performing commercial credits and the impact of rising interest rates on SBA and leasing businesses. The decrease in net interest margin from the previous quarter, due to higher deposit expenses, suggests a more competitive interest rate environment as customers seek better returns on their deposits.

The report highlights a 9% annual growth in core portfolios such as commercial real estate and construction lending, which is a positive indicator of the company's underlying business strength, particularly in the Philadelphia metro region. However, the growth in loan portfolios needs to be considered in the context of the increasing provisions for credit losses, which have grown substantially in the fourth quarter. This could indicate potential concerns about asset quality going forward.

Investors should note the declared quarterly cash dividend of $0.125 per common share, which reflects the company's commitment to shareholder returns despite the lower earnings. However, the sustainability of such dividends may be called into question if earnings continue to decline or if additional provisions are needed in the future.

Market Research Analyst

The performance of Meridian Corporation is closely tied to the economic conditions of the Philadelphia metro region, where it has a significant presence. The reported strong demand in construction lending for residential and multi-family units due to low housing inventory is a trend that aligns with the broader national housing market dynamics. However, the mortgage segment's downsizing throughout 2023, as mentioned in the report, is indicative of the challenges faced by the housing market, including higher interest rates and a lack of homes for sale.

With the Federal Reserve's historic interest rate hikes, the banking sector has faced margin pressures. Meridian's report of a reduced net interest margin echoes industry-wide challenges. Yet, the company's proactive adjustments and the CEO's optimistic outlook for a robust business environment, should forecasted rate declines materialize, provide a potential upside for investors to consider.

Economist

Meridian Corporation's financial results reflect the broader macroeconomic impact of the Federal Reserve's interest rate policy. The historical rise in interest rates has led to increased deposit expenses and challenged the profitability of the SBA and leasing segments. The company's ability to navigate these waters while maintaining loan growth is commendable, but the increased provision for credit losses may signal caution about future economic conditions and credit quality.

The reported asset quality summary, with a rise in the ratio of non-performing loans to total loans, suggests that the economic environment may be leading to some deterioration in loan performance. The impact of these factors on the stock market can be significant, as they may affect investor confidence in the banking sector, particularly regional banks like Meridian Corporation.

MALVERN, Pa., Jan. 26, 2024 (GLOBE NEWSWIRE) -- Meridian Corporation (Nasdaq: MRBK) today reported:

	Three Months Ended								Year Ended
(Dollars in thousands, except per share data)((Unaudited)	December 31, 2023				September 30, 2023				December 31, 2023				December 31, 2022
Income:
Net income	$	571			$	4,005			$	13,243			$	21,829
Diluted earnings per common share	$	0.05			$	0.35			$	1.16			$	1.79
Pre-tax, pre-provision income (1)	$	5,356			$	5,292			$	23,782			$	30,408
Pre-tax, pre-provision income - Bank (1)	$	5,757			$	6,399			$	27,751			$	31,004
(1) See Non-GAAP reconciliation in the Appendix

• Total assets at December 31, 2023 and September 30, 2023 were $2.2 billion, compared to $2.1 billion at December 31, 2022.
• Commercial loans, excluding leases, increased $15.7 million for the quarter and $114.6 million, or 9%, year over year.
• Pre-tax, pre-provision income for the Bank was $5.8 million for the quarter and $27.8 million for the year.
• Net interest margin was 3.18% for the fourth quarter of 2023, with a loan yield of 7.15%. Net interest margin was 3.35% with a loan yield of 6.94% for the year.
• On January 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable February 20, 2024 to shareholders of record as of February 12, 2024.
  

Christopher J. Annas, Chairman and CEO commented, “Meridian’s fourth quarter earnings totaled $571 thousand, which was down from the prior quarter. Contributing to the decline was a necessary additional provision for a non-performing commercial credit, which has experienced some deterioration. In addition, the historical rise in interest rates has had negative impact on our SBA and small-ticket leasing businesses, both of which required additional provisions. We are comfortable with the existing reserves and expect some resolution in the commercial credit in 2024. Annual loan growth in the core CRE, C&I and SBA portfolios was 9%, which reflects our continued outreach and a stable business environment in the Philadelphia metro region. Construction lending for residential and multi-family is still strong because of high housing demand, as housing inventory remains at historical lows.

Mr. Annas added, "Net interest margin was down from the prior quarter mostly due to higher deposit expense, as customers are increasingly rate conscious. We have adjusted well to the tumultuous environment created by the historic Federal Reserve interest rate moves, but the impact on margins continues.

The mortgage segment has been downsized throughout 2023 to match expected volumes. The lack of homes for sale remains the biggest issue, while the higher rates are less of a factor. We will continue to monitor the impact of market conditions on our mortgage operations and are prepared to make further adjustments if warranted."

Mr. Annas concluded, "Our continued growth results from being highly visible in our regions, and being the preferred bank in the Delaware Valley. If the forecasted rate declines materialize, the business environment should be robust."

Select Condensed Financial Information

	As of or for the quarter ended (Unaudited)
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
	(Dollars in thousands, except per share data)
Income:
Net income	$	571			$	4,005			$	4,645			$	4,021			$	4,557
Basic earnings per common share		0.05				0.36				0.42				0.36				0.40
Diluted earnings per common share		0.05				0.35				0.41				0.34				0.39
Net interest income		16,942				17,224				17,098				17,677				18,518
Balance Sheet:
Total assets	$	2,246,193			$	2,230,971			$	2,206,877			$	2,229,783			$	2,062,228
Loans, net of fees and costs		1,895,806				1,885,629				1,859,839				1,818,189				1,743,682
Total deposits		1,823,462				1,808,645				1,782,605				1,770,413				1,712,479
Non-interest bearing deposits		239,289				244,668				269,174				262,636				301,727
Stockholders' equity		158,022				155,114				153,962				153,049				153,280
Balance Sheet (Average Balances):
Total assets	$	2,219,340			$	2,184,384			$	2,166,574			$	2,088,599			$	1,962,915
Total interest earning assets		2,121,068				2,086,602				2,070,640				1,995,460				1,877,967
Loans, net of fees and costs		1,891,170				1,876,648				1,847,736				1,783,322				1,674,215
Total deposits		1,820,532				1,782,140				1,775,444				1,759,571				1,698,597
Non-interest bearing deposits		254,025				253,485				266,675				296,037				312,297
Stockholders' equity		157,210				156,271				154,179				153,179				151,791
Performance Ratios (Annualized):
Return on average assets		0.10	%			0.73	%			0.86	%			0.78	%			0.92	%
Return on average equity		1.44	%			10.17	%			12.08	%			10.65	%			11.91	%

Income Statement - Fourth Quarter 2023 Compared to Third Quarter 2023

Net income of $571 thousand for the fourth quarter decreased $3.4 million from $4.0 million for the third quarter mainly due to provisioning for general credit reserves, specific reserves on individually evaluated loans, and charge-offs. Net interest income decreased $288 thousand, or 1.6%, on a tax equivalent basis due to an increase in interest expense that out-paced the increase in interest income. Non-interest income increased $31 thousand or 0.4%, as fair value changes exceeded the lower level of gains on sale of mortgage loans. Non-interest expense decreased $315 thousand, or 1.6% due primarily to a decrease in salaries and benefits expense, partially offset by an increase in professional fees. Detailed explanations of the major categories of income and expense follow below.

Net Interest income

The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the periods indicated and allocated by rate and volume. Changes in interest income and/or expense related to changes attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.

	Quarter Ended
(dollars in thousands)	December 31, 2023				September 30, 2023				$ Change				% Change				Change due to rate				Change due to volume
Interest income:
Cash and cash equivalents		526				245			$	281				114.7	%		$	(3	)		$	284
Investment securities - taxable		1,020				901				119				13.2	%			65				54
Investment securities - tax exempt (1)		402				410				(8	)			(2.0	)%			4				(12	)
Loans held for sale		400				456				(56	)			(12.3	)%			36				(92	)
Loans held for investment (1)		34,071				33,526				545				1.6	%			285				260
Total loans		34,471				33,982				489				1.4	%			321				168
Total interest income	$	36,419			$	35,538			$	881				2.5	%		$	387			$	494
Interest expense:
Interest-bearing demand deposits	$	1,476			$	1,488			$	(12	)			(0.8	)%		$	51			$	(63	)
Money market and savings deposits		7,384				6,755				629				9.3	%			328				301
Time deposits		7,946				7,300				646				8.8	%			495				151
Total deposits		16,806				15,543				1,263				8.1	%			874				389
Borrowings		1,816				2,086				(270	)			(12.9	)%			(56	)			(214	)
Subordinated debentures		782				606				176				29.0	%			41				135
Total interest expense		19,404				18,235				1,169				6.4	%			859				310
Net interest income differential	$	17,015			$	17,303			$	(288	)			(1.66	)%		$	(472	)		$	184
(1) Reflected on a tax-equivalent basis.

Interest income increased $881 thousand quarter-over-quarter, on a tax equivalent basis, due to a higher yield on earning assets and higher levels of average earning assets. The yield on earnings assets rose 5 basis points during the period, while average earning assets increased by $34.5 million.

The yield on total loans increased 7 basis points and the yield on cash and investments increased 9 basis points combined. Average total loans, excluding residential loans for sale, increased $14.5 million. Construction, commercial real estate, and small business loans increased $19.3 million on average, combined, while home equity loans and residential real estate loans held in portfolio increased $15.9 million on average, combined.

Total interest expense increased $1.2 million, quarter-over-quarter, due primarily to market interest rate rises, and an increase in deposit average balances. Interest expense on deposits increased $1.3 million as total average deposits increased $37.9 million and the cost of interest-bearing deposits increased 23 basis points to 4.26%. Interest expense on borrowings decreased $270 thousand as the cost of borrowings decreased 14 basis points due to the positive carry on a $75 million pay fixed swap, and average borrowings decreased for the period, while the average balance of subordinated debentures increased for the period due to the $9.7 million raised in the prior quarter.

The net interest margin decreased 11 basis points to 3.18% as the cost of funds outpaced the increase in yield on earnings assets. The average balance on non-interest bearing deposits increased $540 thousand for the quarter which helped offset somewhat the impact of the increase in cost of funds.

Provision for Credit Losses

The overall provision for credit losses is comprised of provisioning for funded loans as well as unfunded loan commitments. The combined provision increased to $4.6 million for the fourth quarter, from $82 thousand for the third quarter, with the provision for unfunded loan commitments representing only $8 thousand of the combined provision. The increase in provision for funded loans was due to a $3.9 million increase in specific reserves on new, mainly small business loans, and existing non-accrual loans combined with provisioning for loan growth and charge-offs. $2.3 million of the increase in specific reserves related to a commercial loan relationship for which new information became available related to the value of the underlying collateral, and an estimate of disposition costs. This increase was partially offset by the impact of favorable changes in certain portfolio baseline loss rates and some macroeconomic factors underlying the funded loss model.

Non-interest income

The following table presents the components of non-interest income for the periods indicated:

	Quarter Ended
(Dollars in thousands)	December 31, 2023				September 30, 2023				$ Change				% Change
Mortgage banking income	$	3,394			$	4,819			$	(1,425	)			(29.6	)%
Wealth management income		1,239				1,258				(19	)			(1.5	)%
SBA loan income		1,022				982				40				4.1	%
Earnings on investment in life insurance		204				201				3				1.5	%
Net change in the fair value of derivative instruments		(126	)			103				(229	)			(222.3	)%
Net change in the fair value of loans held-for-sale		120				111				9				8.1	%
Net change in the fair value of loans held-for-investment		805				(570	)			1,375				(241.2	)%
Net gain on hedging activity		(53	)			82				(135	)			(164.6	)%
Net loss on sale of investment securities available-for-sale		—				(3	)			3				(100.0	)%
Other		1,512				1,103				409				37.1	%
Total non-interest income	$	8,117			$	8,086			$	31				0.4	%

Total non-interest income increased $31 thousand, or 0.4%, quarter-over-quarter as a result of an increase in the net change in fair values and an increase in other income, largely offset by lower mortgage banking income. Other income increased $409 thousand due to swap fee income and gains in fair value of equity securities. Mortgage banking income decreased $1.4 million, or 29.6% quarter-over-quarter, due to lower levels of mortgage loan originations, which decreased $39.8 million. In addition to lower volume, the gain on sale margin increased 5 basis points over the prior quarter. The fair value of loans held for investment increased $1.4 million due to the recent decline in interest rates.

SBA loan income increased $40 thousand, or 4.1%, quarter-over-quarter. While the value of SBA loans sold for the quarter-ended December 31, 2023 was $6.1 million, or 23.3%, less than the quarter-ended September 30, 2023, the gross margin on sale was 6.4% for the quarter-ended December 31, 2023 compared to 6.2% for the quarter-ended September 30, 2023. Also contributing to the increase in SBA loan income was a decrease in amortization expense and in servicing asset impairment.

Non-interest expense

The following table presents the components of non-interest expense for the periods indicated:

	Quarter Ended
(Dollars in thousands)	December 31, 2023				September 30, 2023				$ Change				% Change
Salaries and employee benefits	$	11,744			$	12,420			$	(676	)			(5.4	)%
Occupancy and equipment		1,232				1,226				6				0.5	%
Professional fees		1,382				1,104				278				25.2	%
Advertising and promotion		931				848				83				9.8	%
Data processing and software		1,651				1,652				(1	)			(0.1	)%
Pennsylvania bank shares tax		233				244				(11	)			(4.5	)%
Other		2,530				2,524				6				0.2	%
Total non-interest expense	$	19,703			$	20,018			$	(315	)			(1.6

Salaries and employee benefits decreased $676 thousand overall, with bank and wealth segments combined having increased $332 thousand, and the mortgage segment decreased $1.0 million. Bank and wealth segment salaries and employee benefits were up due to increased full-time-equivalent employees, and expense related to the issuance of stock options during the quarter.

Professional fees increased $278 thousand during the current quarter due to an increase in loan and lease workout expenses and other legal expenses. Advertising and promotion expense increased $83 thousand from the prior quarter as a result of an increase in advertising and business development expense during the holiday season.

Balance Sheet - December 31, 2023 Compared to September 30, 2023

As of December 31, 2023, total assets increased $15.2 million, or 0.7%, to $2.2 billion from September 30, 2023. This increase was due to an increase in cash and cash equivalents and an increase in loans. Interest-bearing cash decreased $395 thousand, or 0.8%, to $46.6 million as of December 31, 2023, from September 30, 2023.

Portfolio loan growth was $10.0 million, or 0.5% quarter-over-quarter. Commercial mortgage loans increased $41.7 million, or 6.0%, commercial & industrial loans increased $3.0 million, or 1.0%, while residential real estate loans held in portfolio increased $4.3 million, or 1.7%, and home equity lines and loans increased $2.4 million, or 3.3%. Partially offsetting portfolio loan growth were construction loans which decreased $30.2 million, or 10.9%, and lease financings that decreased $12.4 million, or 8.9% from September 30, 2023.

Total deposits increased $14.8 million, or 0.8% quarter-over-quarter, due largely to higher levels of certificates of deposits. Time deposits increased $24.6 million, or 3.7%, from retail and wholesale efforts as customers continue to opt for higher term interest rates. Money market accounts and savings accounts increased a combined $1.2 million while interest bearing demand deposits decreased $5.6 million. Non-interest bearing deposits decreased $5.4 million, reflecting typical business cash out at the end of the year for distributions and profit-sharing.

Consolidated stockholders’ equity of the Corporation increased by $2.9 million from September 30, 2023, to $158.0 million as of December 31, 2023. Changes to equity for the current quarter included net income of $571 thousand, $199 thousand in ESOP loan payments, an increase of a $2.9 million in other comprehensive income, partially offset by quarter dividends paid of $1.4 million. The Community Bank Leverage Ratio for the Bank was 9.46% at December 31, 2023.

Asset Quality Summary

The ratio of non-performing loans to total loans increased to 1.76% as of December 31, 2023, from 1.53% as of September 30, 2023, while the ratio of non-performing assets to total assets increased to 1.58% as of December 31, 2023, compared to 1.38% at September 30, 2023. Driving the increase in these ratios were total non-performing loans which increased $4.7 million from $29.1 million as of September 30, 2023, to $33.8 million as of December 31, 2023, due to risk rating downgrades of several SBA loans and small ticket equipment leases, partially offset by charge-offs of leases and SBA loans as of December 31, 2023.

Meridian realized net charge-offs of 0.11% of total average loans for the quarter ended December 31, 2023, compared with the quarter ended September 30, 2023 level of 0.05%, as net charge-offs increased to $2.2 million for the quarter ended December 31, 2023, compared to net-charge-offs of $913 thousand for the quarter ended September 30, 2023. Fourth quarter charge-offs were comprised of $1.2 million from small ticket equipment leases which are charged-off after becoming more than 120 days past due, and $890 thousand for an SBA loan. There were recoveries of $17 thousand, largely related to leases.

The ratio of allowance for credit losses to total loans held for investment, excluding loans at fair value (a non-GAAP measure, see reconciliation in the Appendix), was 1.17% as of December 31, 2023 compared to 1.05% as of September 30, 2023. As of December 31, 2023 there were specific reserves of $6.5 million against individually evaluated loans, an increase from $2.6 million as of September 30, 2023. The drivers of the increase related to a $2.3 million increase in a commercial loan relationship specific reserve for which new information became available related to the value of the underlying collateral, combined with the net impact of establishing $2.3 million in specific reserves on SBA loan relationships classified as non-performing, netted with the charge-off an SBA loan during the quarter that had a specific reserve of $890 thousand in the prior quarter.

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 its 17 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, credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses, or ACL; cyber-security concerns; rapid technological developments and changes; increased competitive pressures; changes in spreads on interest-earning assets and interest-bearing liabilities; changes in general economic conditions and conditions within the securities markets; unanticipated changes in our liquidity position; unanticipated changes in regulatory and governmental policies impacting interest rates and financial markets; legislation affecting the financial services industry as a whole, and Meridian Corporation, in particular; changes in accounting policies, practices or guidance; developments affecting the industry and the soundness of financial institutions and further disruption to the economy and U.S. banking system; 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, 2022 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.

MERIDIAN CORPORATION AND SUBSIDIARIES
FINANCIAL RATIOS (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

	Quarter Ended
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Earnings and Per Share Data:
Net income	$	571			$	4,005			$	4,645			$	4,021			$	4,557
Basic earnings per common share	$	0.05			$	0.36			$	0.42			$	0.36			$	0.40
Diluted earnings per common share	$	0.05			$	0.35			$	0.41			$	0.34			$	0.39
Common shares outstanding		11,183				11,178				11,178				11,305				11,466
Performance Ratios:
Return on average assets		0.10	%			0.73	%			0.86	%			0.78	%			0.92	%
Return on average equity		1.44				10.17				12.08				10.65				11.91
Net interest margin (tax-equivalent)		3.18				3.29				3.33				3.61				3.93
Yield on earning assets (tax-equivalent)		6.81				6.76				6.57				6.31				5.88
Cost of funds		3.81				3.63				3.39				2.83				2.07
Efficiency ratio		78.63	%			79.09	%			74.80	%			73.16	%			75.61	%
Asset Quality Ratios:
Net charge-offs (recoveries) to average loans		0.11	%			0.05	%			0.05	%			0.08	%			0.05	%
Non-performing loans to total loans		1.76				1.53				1.44				1.25				1.20
Non-performing assets to total assets		1.58				1.38				1.32				1.11				1.11
Allowance for credit losses to:
Total loans held for investment		1.17				1.04				1.09				1.12				1.08
Total loans held for investment (excluding loans at fair value) (1)		1.17				1.05				1.10				1.13				1.09
Non-performing loans		65.48	%			67.61	%			73.97	%			88.41	%			88.66	%
Capital Ratios:
Book value per common share	$	14.13			$	13.88			$	13.77			$	13.54			$	13.37
Tangible book value per common share	$	13.78			$	13.53			$	13.42			$	13.18			$	13.01
Total equity/Total assets		7.04	%			6.95	%			6.98	%			6.86	%			7.43	%
Tangible common equity/Tangible assets - Corporation (1)		6.87				6.79				6.81				6.70				7.25
Tangible common equity/Tangible assets - Bank (1)		8.94				8.89				8.54				8.26				8.80
Tier 1 leverage ratio - Bank		9.46				9.65				9.22				9.32				9.95
Common tier 1 risk-based capital ratio - Bank		10.10				10.82				10.35				10.27				10.73
Tier 1 risk-based capital ratio - Bank		10.10				10.82				10.35				10.27				10.73
Total risk-based capital ratio - Bank		11.17	%			11.85	%			11.43	%			11.41	%			11.87	%
(1) See Non-GAAP reconciliation in the Appendix

MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

	Three Months Ended												Year Ended
	December 31, 2023				September 30, 2023				December 31, 2022				December 31, 2023				December 31, 2022
Interest income:
Loans and other finance receivables, including fees	$	34,469			$	33,980			$	26,440			$	130,081			$	84,627
Securities - taxable		1,020				901				821				3,873				2,420
Securities - tax-exempt		331				333				373				1,369				1,388
Cash and cash equivalents		526				245				129				1,266				286
Total interest income		36,346				35,459				27,763				136,589				88,721
Interest expense:
Deposits		16,806				15,543				8,215				57,819				15,397
Borrowings		2,598				2,692				1,030				9,828				3,196
Total interest expense		19,404				18,235				9,245				67,647				18,593
Net interest income		16,942				17,224				18,518				68,942				70,128
Provision for credit losses		4,628				82				746				6,815				2,488
Net interest income after provision for credit losses		12,314				17,142				17,772				62,127				67,640
Non-interest income:
Mortgage banking income		3,394				4,819				3,958				16,537				25,325
Wealth management income		1,239				1,258				1,061				4,928				4,733
SBA loan income		1,022				982				522				4,485				4,467
Earnings on investment in life insurance		204				201				140				789				553
Net change in the fair value of derivative instruments		(126	)			103				10				91				(703	)
Net change in the fair value of loans held-for-sale		120				111				249				32				(844	)
Net change in the fair value of loans held-for-investment		805				(570	)			91				132				(2,408	)
Net gain on hedging activity		(53	)			82				498				28				5,439
Net loss on sale of investment securities available-for-sale		—				(3	)			—				(58	)			—
Other		1,512				1,103				1,467				5,001				5,162
Total non-interest income		8,117				8,086				7,996				31,965				41,724
Non-interest expense:
Salaries and employee benefits		11,744				12,420				12,794				47,377				54,378
Occupancy and equipment		1,232				1,226				1,218				4,842				4,837
Professional fees		1,382				1,104				976				4,312				3,635
Advertising and promotion		931				848				996				3,730				4,336
Data processing and software		1,651				1,652				1,513				6,415				5,451
Pennsylvania bank shares tax		233				244				181				968				793
Other		2,530				2,524				2,369				9,481				8,014
Total non-interest expense		19,703				20,018				20,047				77,125				81,444
Income before income taxes		728				5,210				5,721				16,967				27,920
Income tax expense		157				1,205				1,164				3,724				6,091
Net income	$	571			$	4,005			$	4,557			$	13,243			$	21,829
Basic earnings per common share	$	0.05			$	0.36			$	0.40			$	1.19			$	1.85
Diluted earnings per common share	$	0.05			$	0.35			$	0.39			$	1.16			$	1.79
Basic weighted average shares outstanding		11,070				11,057				11,389				11,115				11,792
Diluted weighted average shares outstanding		11,206				11,363				11,795				11,387				12,204

MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Assets:
Cash and due from banks	$	10,067			$	12,734			$	10,576			$	8,473			$	11,299
Interest-bearing deposits at other banks		46,630				47,025				36,290				100,030				27,092
Cash and cash equivalents		56,697				59,759				46,866				108,503				38,391
Securities available-for-sale, at fair value		146,019				122,218				126,668				142,933				135,346
Securities held-to-maturity, at amortized cost		35,781				36,232				36,463				36,525				37,479
Equity investments		2,121				2,019				2,097				2,110				2,086
Mortgage loans held for sale, at fair value		24,816				23,144				40,422				35,701				22,243
Loans and other finance receivables, net of fees and costs		1,895,806				1,885,629				1,859,839				1,818,189				1,743,682
Allowance for credit losses		(22,107	)			(19,683	)			(20,242	)			(20,442	)			(18,828	)
Loans and other finance receivables, net of the allowance for credit losses		1,873,699				1,865,946				1,839,597				1,797,747				1,724,854
Restricted investment in bank stock		8,072				8,309				9,157				10,173				6,931
Bank premises and equipment, net		13,557				13,310				13,234				13,281				13,349
Bank owned life insurance		28,844				28,641				28,440				28,247				28,055
Accrued interest receivable		9,325				8,984				7,651				7,651				7,363
Other real estate owned		1,703				1,703				1,703				1,703				1,703
Deferred income taxes		4,201				4,993				4,258				4,017				3,936
Servicing assets		11,748				11,835				12,193				12,125				12,346
Goodwill		899				899				899				899				899
Intangible assets		2,971				3,022				3,073				3,124				3,175
Other assets		25,740				39,957				34,156				25,044				24,072
Total assets	$	2,246,193			$	2,230,971			$	2,206,877			$	2,229,783			$	2,062,228
Liabilities:
Deposits:
Non-interest bearing	$	239,289			$	244,668			$	269,174			$	262,636			$	301,727
Interest bearing
Interest checking		150,898				156,537				155,907				232,616				219,838
Money market and savings deposits		747,803				746,599				710,546				647,904				697,564
Time deposits		685,472				660,841				646,978				627,257				493,350
Total interest-bearing deposits		1,584,173				1,563,977				1,513,431				1,507,777				1,410,752
Total deposits		1,823,462				1,808,645				1,782,605				1,770,413				1,712,479
Borrowings		174,896				177,959				194,636				233,883				122,082
Subordinated debentures		49,836				50,079				40,348				40,319				40,346
Accrued interest payable		10,324				7,814				5,612				3,836				2,389
Other liabilities		29,653				31,360				29,714				28,283				31,652
Total liabilities		2,088,171				2,075,857				2,052,915				2,076,734				1,908,948
Stockholders’ equity:
Common stock		13,186				13,181				13,181				13,180				13,156
Surplus		80,325				79,731				79,650				79,473				79,072
Treasury stock		(26,079	)			(26,079	)			(26,079	)			(24,512	)			(21,821	)
Unearned common stock held by employee stock ownership plan		(1,204	)			(1,403	)			(1,403	)			(1,403	)			(1,403	)
Retained earnings		101,216				102,043				99,434				96,180				95,815
Accumulated other comprehensive loss		(9,422	)			(12,359	)			(10,821	)			(9,869	)			(11,539	)
Total stockholders’ equity		158,022				155,114				153,962				153,049				153,280
Total liabilities and stockholders’ equity	$	2,246,193			$	2,230,971			$	2,206,877			$	2,229,783			$	2,062,228

MERIDIAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SEGMENT INFORMATION (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

	Three Months Ended
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Interest income	$	36,346			$	35,459			$	33,836			$	30,947			$	27,763
Interest expense		19,404				18,235				16,738				13,270				9,245
Net interest income		16,942				17,224				17,098				17,677				18,518
Provision for credit losses		4,628				82				705				1,399				746
Non-interest income		8,117				8,086				9,124				6,638				7,996
Non-interest expense		19,703				20,018				19,615				17,789				20,047
Income before income tax expense		728				5,210				5,902				5,127				5,721
Income tax expense		157				1,205				1,257				1,106				1,164
Net Income	$	571			$	4,005			$	4,645			$	4,021			$	4,557
Basic weighted average shares outstanding		11,070				11,057				11,062				11,272				11,389
Basic earnings per common share	$	0.05			$	0.36			$	0.42			$	0.36			$	0.40
Diluted weighted average shares outstanding		11,206				11,363				11,304				11,656				11,795
Diluted earnings per common share	$	0.05			$	0.35			$	0.41			$	0.34			$	0.39

	Segment Information
	Three Months Ended December 31, 2023																Three Months Ended December 31, 2022
(dollars in thousands)	Bank				Wealth				Mortgage				Total				Bank				Wealth				Mortgage				Total
Net interest income	$	16,908			$	(15	)		$	49			$	16,942			$	18,376			$	68			$	74			$	18,518
Provision for credit losses		4,628				—				—				4,628				746				—				—				746
Net interest income after provision		12,280				(15	)			49				12,314				17,630				68				74				17,772
Non-interest income		2,051				1,239				4,827				8,117				1,291				1,061				5,644				7,996
Non-interest expense		13,202				957				5,544				19,703				12,939				918				6,190				20,047
Income (loss) before income taxes	$	1,129			$	267			$	(668	)		$	728			$	5,982			$	211			$	(472	)		$	5,721
Efficiency ratio		70	%			78	%			114	%			79	%			66	%			81	%			108	%			76	%
	Year Ended December 31, 2023																Year Ended December 31, 2022
(dollars in thousands)	Bank				Wealth				Mortgage				Total				Bank				Wealth				Mortgage				Total
Net interest income	$	68,835			$	(27	)		$	134			$	68,942			$	68,570			$	697			$	861			$	70,128
Provision for credit losses		6,815				—				—				6,815				2,488				—				—				2,488
Net interest income after provision		62,020				(27	)			134				62,127				66,082				697				861				67,640
Non-interest income		7,743				4,928				19,294				31,965				7,556				4,732				29,436				41,724
Non-interest expense		48,827				3,661				24,637				77,125				45,122				3,399				32,923				81,444
Income (loss) before income taxes	$	20,936			$	1,240			$	(5,209	)		$	16,967			$	28,516			$	2,030			$	(2,626	)		$	27,920
Efficiency ratio		64	%			75	%			127	%			76	%			59	%			63	%			109	%			73	%

MERIDIAN CORPORATION AND SUBSIDIARIES
APPENDIX: NON-GAAP MEASURES (Unaudited)
(Dollar amounts and shares in thousands, except per share amounts)

Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts. The non-GAAP disclosure have 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
	Three Months Ended								Year Ended
(Dollars in thousands, except per share data)((Unaudited)	December 31, 2023				September 30, 2023				December 31, 2023				December 31, 2022
Income before income tax expense	$	728			$	5,210			$	16,967			$	27,920
Provision for credit losses		4,628				82				6,815				2,488
Pre-tax, pre-provision income	$	5,356			$	5,292			$	23,782			$	30,408

	Pre-tax, Pre-provision Reconciliation
	Three Months Ended								Year Ended
(Dollars in thousands, except per share data)((Unaudited)	December 31, 2023				September 30, 2023				December 31, 2023				December 31, 2022
Bank	$	5,757			$	6,399			$	27,751			$	31,004
Wealth		267				417				1,240				2,030
Mortgage		(668	)			(1,524	)			(5,209	)			(2,626	)
Pre-tax, pre-provision income	$	5,356			$	5,292			$	23,782			$	30,408

	Allowance For Loan Losses to Loans, Net of Fees and Costs, Excluding and Loans at Fair Value
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Allowance for credit losses (GAAP)	$	22,107			$	19,683			$	20,242			$	20,442			$	18,828
Loans, net of fees and costs (GAAP)		1,895,806				1,885,629				1,859,839				1,818,189				1,743,682
Less: Loans fair valued		(13,726	)			(13,231	)			(14,403	)			(14,434	)			(14,502	)
Loans, net of fees and costs, excluding loans at fair value (non-GAAP)	$	1,882,080			$	1,872,398			$	1,845,436			$	1,803,755			$	1,729,180
Allowance for credit losses to loans, net of fees and costs (GAAP)		1.17	%			1.04	%			1.09	%			1.12	%			1.08	%
Allowance for credit losses to loans, net of fees and costs, excluding loans at fair value (non-GAAP)		1.17	%			1.05	%			1.10	%			1.13	%			1.09	%

	Tangible Common Equity Ratio Reconciliation - Corporation
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Total stockholders' equity (GAAP)	$	158,022			$	155,114			$	153,962			$	153,049			$	153,280
Less: Goodwill and intangible assets		(3,870	)			(3,921	)			(3,972	)			(4,023	)			(4,074	)
Tangible common equity (non-GAAP)		154,152				151,193				149,990				149,026				149,206
Total assets (GAAP)		2,246,193				2,230,971				2,206,877				2,229,783				2,062,228
Less: Goodwill and intangible assets		(3,870	)			(3,921	)			(3,972	)			(4,023	)			(4,074	)
Tangible assets (non-GAAP)	$	2,242,323			$	2,227,050			$	2,202,905			$	2,225,760			$	2,058,154
Tangible common equity to tangible assets ratio - Corporation (non-GAAP)		6.87	%			6.79	%			6.81	%			6.70	%			7.25	%

	Tangible Common Equity Ratio Reconciliation - Bank
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Total stockholders' equity (GAAP)	$	204,132			$	201,996			$	192,209			$	187,954			$	185,039
Less: Goodwill and intangible assets		(3,870	)			(3,921	)			(3,972	)			(4,023	)			(4,074	)
Tangible common equity (non-GAAP)		200,262				198,075				188,237				183,931				180,965
Total assets (GAAP)		2,244,893				2,232,297				2,208,252				2,229,721				2,059,557
Less: Goodwill and intangible assets		(3,870	)			(3,921	)			(3,972	)			(4,023	)			(4,074	)
Tangible assets (non-GAAP)	$	2,241,023			$	2,228,376			$	2,204,280			$	2,225,698			$	2,055,483
Tangible common equity to tangible assets ratio - Bank (non-GAAP)		8.94	%			8.89	%			8.54	%			8.26	%			8.80	%
	Tangible Book Value Reconciliation
	December 31, 2023				September 30, 2023				June 30, 2023				March 31, 2023				December 31, 2022
Book value per common share	$	14.13			$	13.88			$	13.77			$	13.54			$	13.37
Less: Impact of goodwill /intangible assets		0.35				0.35				0.35				0.36				0.36
Tangible book value per common share	$	13.78			$	13.53			$	13.42			$	13.18			$	13.01

Contact: Christopher J. Annas
484.568.5001
CAnnas@meridianbanker.com

FAQ

What was Meridian Corporation's (MRBK) net income for the fourth quarter of 2023?

Meridian Corporation reported a net income of $571 thousand for the fourth quarter of 2023.

What was the reason behind the decrease in net income for Meridian Corporation (MRBK) in the fourth quarter of 2023?

The decrease in net income was attributed to additional provisions for non-performing commercial credit and negative impact from the rise in interest rates.

What was the percentage increase in commercial loans, excluding leases, for Meridian Corporation (MRBK) in 2023?

Meridian Corporation saw a 9% increase in commercial loans, excluding leases, in 2023.

What was the net interest margin for Meridian Corporation (MRBK) in the fourth quarter of 2023?

The net interest margin for Meridian Corporation was 3.18% for the fourth quarter of 2023.

What was the quarterly cash dividend declared by the Board of Directors for Meridian Corporation (MRBK)?

The Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable February 20, 2024.

What did the CEO of Meridian Corporation (MRBK) express confidence in?

The CEO expressed confidence in the existing reserves and expected resolution in the commercial credit in 2024, with continued growth in core portfolios and a stable business environment in the Philadelphia metro region.