Meridian Corporation Reports Net Income of $9.2 Million, or $1.51 Per Diluted Share, in 3Q 2020 and Declares Quarterly Cash Dividend of $0.125 Per Share.

MALVERN, Pa., October 26, 2020 - Meridian Corporation (Nasdaq: MRBK) today reported:

2020

2020

2020

2019

(Dollars in thousands, except per share data)

3rd QTR

2nd QTR

1st QTR

3rd QTR

Income:

Net income - consolidated

$

9,212

$

5,713

$

2,516

$

3,317

Diluted earnings per common share

$

1.51

$

0.94

$

0.39

$

0.52

"Meridian achieved historic earnings for the third quarter, with annualized return on average equity of 29.30% and annualized return on average assets of 2.29%. This resulted from cyclical and seasonally-high mortgage production, as well as growth in our core commercial loan business, including SBA loan and sale activities," said Christopher J. Annas, Chairman and CEO. "The strength in housing throughout our markets in PA/NJ/DE/MD has provided lending opportunities in our construction business, and tremendous demand in mortgage. Despite the pandemic, our consistent outreach efforts are resulting in double digit commercial loan growth, which includes our new leasing business. We have also benefited from executing PPP loans for non-customers who bring their other business to us."

"The mortgage business, which we expanded this year by bringing on a high-performing team in the MD/DC region, has been profitable for us each year since inception in 2010. It's been a good hedge recently, as declining rates boost the refinance and purchase business while it narrowed our net interest margin. With an estimated $10 trillion in refi-eligible mortgage loans remaining, we think the business can stay robust for the next few quarters."

"We are closely watching certain modified loans and other loans we consider at risk due to the COVID-19 induced economic slowdown. We added $4.0 million in loan loss provisions during the quarter to address the general deterioration in economic conditions," Annas continued. The ratio of allowance for loan losses to total loans held for investment, was 1.27% as of September 30, 2020, up from the 0.98% recorded as of December 31, 2019. 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), was 1.59% as of September 30, 2020, up from the 1.00% recorded as of December 31, 2019.

COVID-19 Pandemic Response Update

  • SBA Paycheck Protection Program. As of September 30, 2020, Meridian has assisted 928 clients in need of short-term funding by providing nearly $260 million in PPP loans. Our PPP team has now moved on to working with borrowers to assist them through the forgiveness process.
  • Industry Exposure. Meridian continues to monitor businesses substantially impacted by the pandemic. Commercial portfolios such as retail trade, hospitality, residential spec construction and advertising/marketing are notably more affected and have required assistance. At September 30, 2020, Meridian's exposure as a percent of the total commercial loan portfolio to these industries was 1.9%, 1.9%, 5.0%, and 1.5%, respectively.
  • Assistance Provided to Loan Customers. During the pandemic, Meridian also worked with commercial, construction and residential loan customers to provide assistance. In total, $154.1 million of loans covering approximately 200 borrowers were assisted with loan payment holidays of 3-6 months. As of October 23, 2020, $135.0 million of loans had returned to their original payment terms with $19.1 million in loans still in forbearance.
  • Loan Loss Reserve. Meridian recorded a provision for loan losses of $4.0 million for the third quarter of 2020, in addition to the $3.2 million already provided for during the first and second quarters of 2020 combined, due to the

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continued economic uncertainty brought on by the COVID-19 pandemic. $1.5 million of the third quarter provision was related to a specific reserve placed on an impaired commercial loan.

  • Liquidity and Capital Management. Meridian continues to be well positioned with adequate levels of cash, liquid assets, capital and reserves as of September 30, 2020. At September 30, 2020, Meridian's tangible common equity to average tangible asset ratio was 7.26% and total risked based capital was 14.71%. All capital ratios are well in excess of regulatory requirements.

Income Statement Highlights

Third quarter 2020 compared with second quarter 2020:

  • Net income was $9.2 million, an increase of $3.5 million, or 61.3%, driven by strong non-interest income for the quarter.
  • Pre-tax,pre-provision income for the quarter was $15.9 million, an increase of $6.9 million or 76.5%. A reconciliation of this non-GAAP measure is included in the Appendix.
  • Total revenue was $44.9 million, an increase of $11.2 million or 33.2%.
  • Net interest income increased $1.1 million, or 9.7%, with interest expense down $293 thousand or 8.5%.
  • Non-interestincome increased $10.4 million or 55.5%, driven by mortgage banking revenue, fee income and gains on sale of securities.
    o Mortgage banking net revenue increased $5.0 million, or 29.9%, due to higher levels of originations and refinancings stemming from the historically low rate environment as well as the expansion of our mortgage division into Maryland that took place in the first quarter of 2020.
    o The increase in mortgage pipeline generated significant positive fair value changes in both derivative instruments as well as loans held-for-sale of $6.0 million, combined. These changes were partially offset by hedging losses of $2.6 million.
    o The net gain on sale of investment securities available for sale increased $1.3 million.
    o Other fee income was up $390 thousand, or 91.4%, as fees for various services were up quarter over quarter due to an increase in business activity.
  • Provision for loan losses was $4.0 million compared to the second quarter 2020 provision for loan losses of $1.6 million.
  • Non-interestexpenses increased $4.6 million, or 21.5%, driven by an increase in salaries and benefits.
  • On October 22, 2020, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable November 23, 2020, to shareholders of record as of November 9, 2020.

Balance Sheet Highlights

September 30, 2020 compared to December 31, 2019:

  • Total assets increased $608.6 million, or 52.9%, to $1.8 billion as of September 30, 2020.
  • Total loans increased $342.1 million, or 35.5%, to $1.3 billion as of September 30, 2020. PPP loans contributed $254.2 million net to this increase.
  • Mortgage loans held for sale increased $191.4 million, or 568%, to $225.2 million as of September 30, 2020.
  • Mortgage segment originated $1.5 billion in loans year-to-date September 30, 2020.
  • Total deposits grew $357.9 million, or 42.0%, to $1.2 billion as of September 30, 2020.
  • Non-interestbearing deposits grew $54.4 million, or 39.0%, to $193.9 million as of September 30, 2020.
  • Borrowings from the Federal Reserve's Paycheck Protection Program Liquidity Facility ("PPPLF") were $236.0 million as of September 30, 2020.
  • Meridian repurchased 316,625 shares of its common stock in the first quarter of 2020, at an average price of $18.10, fulfilling the previously announced repurchase authorization.

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  • Meridian Corporation established a $2 million stock purchase authorization with the Meridian Corporation Employee Stock Ownership Plan ("ESOP"). As of September 30, 2020 the ESOP had fully utilized the $2 million loan to purchase Meridian Corporation common shares.

Select Condensed Financial Information

For the Quarter Ended (Unaudited)

2020

2020

2020

2019

2019

(Dollars in thousands, except per share data)

September 30

June 30

March 31

December 31

September 30

Income:

Net income - consolidated

$

9,212

$

5,713

$

2,516

$

3,137

$

3,317

Basic earnings per common share

$

1.51

$

0.94

$

0.39

$

0.49

$

0.52

Diluted earnings per common share

$

1.51

$

0.94

$

0.39

$

0.49

$

0.52

Net interest income - consolidated

$

12,715

$

11,597

$

9,666

$

9,664

$

9,274

At the Quarter Ended (Unaudited)

2020

2020

2020

2019

2019

September 30

June 30

March 31

December 31

September 30

Balance Sheet:

Total assets

$

1,758,648

$

1,579,083

$

1,303,442

$

1,150,019

$

1,126,937

Loans, net of fees and costs

1,306,846

1,262,968

1,021,561

964,710

935,858

Total deposits

1,209,024

1,166,697

993,753

851,168

858,461

Non-interest bearing deposits

193,851

214,367

140,826

139,450

129,302

Stockholders' Equity

131,832

125,518

118,033

120,695

117,772

At the Quarter Ended (Unaudited)

2020

2020

2020

2019

2019

September 30

June 30

March 31

December 31

September 30

Balance Sheet (Average Balances):

Total assets

$

1,598,306

$

1,477,120

$

1,156,682

$

1,105,246

$

1,059,456

Loans, net of fees and costs

1,275,046

1,194,197

981,303

956,598

912,781

Total deposits

1,180,332

1,155,690

926,741

859,611

844,568

Non-interest bearing deposits

193,020

223,253

137,141

137,578

126,101

Stockholders' Equity

125,053

119,937

120,469

119,575

116,547

At the Quarter Ended (Unaudited)

2020

2020

2020

2019

2019

September 30

June 30

March 31

December 31

September 30

Performance Ratios:

Return on average assets - consolidated

2.29%

1.56%

0.87%

1.13%

1.24%

Return on average equity - consolidated

29.30%

19.16%

8.40%

10.41%

11.29%

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Income Statement Summary

Third Quarter 2020 Compared to Second Quarter 2020

Net income was $9.2 million, or $1.51 per diluted share, for the third quarter of 2020 compared to net income of $5.7 million, or $0.94 per diluted share, for the second quarter of 2020. The increase quarter-over-quarter was due largely to the increase in net interest income of $1.1 million, combined with increased non-interest income of $10.4 million, partially offset by increases in the provision for loan losses, non-interest expense and income taxes of $2.3 million, $4.6 million, and $1.1 million, respectively.

Net interest income increased $1.1 million, or 9.7%, to $12.7 million from $11.6 million for the second quarter of 2020. The growth in net interest income for the third quarter of 2020 compared to the second quarter of 2020 reflects an increase in average interest earning assets of $127.2 million. The increase in average interest earning assets over this period was the result of increased PPP loans, commercial real estate loans, along with an increase to the average balance on residential real estate loans held for sale. The net interest margin held steady at 3.26% for the third quarter of 2020 compared to 3.27% for the second quarter due to a 21 basis point decline in interest expense on deposits which nearly offset the decline in the yield on the loan portfolio. The margin was impacted 21 basis points from the effects of the PPP loan program combined with the use of PPPLF borrowings.

The provision for loan losses was $4.0 million for the third quarter of 2020, compared to a $1.6 million provision for the second quarter of 2020. These provisions were due largely to qualitative provisioning for the continued economic uncertainty as a result of the COVID-19 pandemic, while the third quarter provision was also impacted by a $1.5 million specific reserve placed on an impaired commercial loan.

Total non-interest income for the third quarter of 2020 was $29.1 million, up $10.4 million or 55.5%, from the second quarter of 2020. This increase in non-interest income came primarily from our mortgage division. Mortgage banking net revenue increased $5.0 million or 29.9% over the second quarter of 2020. The significant increase in the third quarter of 2020 came from increased levels of mortgage loan originations due to both the expansion of the division into Maryland as well as the favorable rate environment for refinance activity. Our mortgage division originated $708.1 million in loans during the three months ended September 30, 2020, an increase of $172.2 million, or 32.1%, from the prior quarter. Refinance activity represented 54% of the total residential mortgage loans originated for the third quarter of 2020, compared to 64% for the second quarter of 2020. The increase in the mortgage pipeline as a result of the expansion and the refinance activity generated significant positive fair value changes in derivative instruments and loans held-for-sale. These fair value changes increased non-interest income a combined $3.0 million during the third quarter of 2020 compared to the second quarter of 2020. The decrease in net hedging losses of $664 thousand also had a positive impact on non-interest income.

Wealth management revenue increased $98 thousand, or 11.5%, quarter-over-quarter due to the more favorable market conditions that existed in the third quarter, compared to the second quarter. Wealth management revenue is largely based on the valuation of assets under management measured at the end of the prior quarter, therefore this revenue for the third quarter was aided by the rebound of the financial markets at the end of the second quarter, despite the impact of the pandemic.

Non-interest income from the sales of investments amounted to $1.3 million during the quarter. Other fee income was up $390 thousand or 91.1% from the second quarter of 2020 due to $188 thousand in swap fee income recorded in the third quarter of 2020, combined with an increase of $85 thousand in MLSS fee income as loan closing activity increased quarter over quarter. Fee income was also up due to an increase of $73 thousand in other mortgage fee income.

Total non-interest expense for the third quarter of 2020 was $25.8 million, up $4.6 million or 21.5%, from the second quarter of 2020. The increase is largely attributable to the variable expenses from our mortgage division during the quarter, particularly commissions. Total salaries and employee benefits expense was $20.4 million, an increase of $4.2 million or 26.2%, compared to the second quarter of 2020. Of this increase, $3.0 million relates to the mortgage division. Full-time equivalent employees, particularly in the mortgage division, increased quarter over quarter. As noted above, in

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Meridian Corporation published this content on 29 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 30 October 2020 08:54:06 UTC