Meridian Reports 4Q 2018 Operating Results and Record Annual Earnings

MALVERN, Pa., Jan. 25, 2019 /PRNewswire/ -- Meridian Corporation MRBK today reported net income of $2.4 million, or $0.37 per diluted share for the fourth quarter of 2018, which generated a return on average assets and return on average equity of 0.99% and 8.64%, respectively.

Christopher J. Annas, Chairman and CEO, commented "Meridian Corporation had an excellent quarter contributing to record earnings for 2018. Quarterly profit of $2.4 million was more than triple fourth quarter 2017 even before the tax adjustment.  The bank earnings growth was due to continued strong commercial loan growth, which exceeded 20% annually for the third consecutive year. While we take advantage of any disruption in our market, Meridian's sales culture is the principal driver in this robust performance.

Our mortgage unit had a profitable quarter as the Delaware Valley residential market remains very active, and we continue to manage the seasonality to maximize profitability. Market studies suggest a moderation in 2019 and we are planning accordingly.

In the fourth quarter we brought on a five-person SBA team from another local bank, where they were a top 10 lender. This gives Meridian an immediate presence in this business line, where previously we had little volume. We also hired a two-person team from another acquired bank that formed our new private banking unit. We expect some great synergies in this group from our commercial unit and Meridian Wealth Partners."

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 available to common stockholders for the three and twelve months ended December 31, 2018 was $2.4 million, and $8.2 million, respectively, reflecting an increase of $2.4 million and $6.3 million as compared to net income available to common stockholders for the same periods in 2017.

• Total assets of $997.4 million as of December 31, 2018 increased $141.4 million, or 16.5% year-over-year.
  
                                                                 
• Total portfolio loans and leases of $838.1 million as of December 31, 2018 increased $143.5 million, or 20.7% year-over-year.
  
                                                     
• Total deposits of $752.1 million as of December 31, 2018 increased $125.0 million, or 19.9% year-over-year.
  
                                                        
• Non-interest bearing deposits of $126.2 million as of December 31, 2018 increased $25.7 million, or 25.6% year-over-year.
  
                                                                  
• Net interest income increased $608 thousand, or 7.8% and $3.7 million or 12.9% for the three and twelve months ended December 31, 2018 over the same periods in 2017.

Income Statement Summary

Net income available to common stockholders was $2.4 million, or $0.37 per diluted share for the three months ended December 31, 2018 compared to a net loss $12 thousand, or $0.00 per diluted share, for the same period in 2017.  The increase was largely attributable to an increase in net interest income of $608 thousand, in addition to a lower level of provision for loan loss and the elimination of dividends payable to preferred stockholders.  The increase in net income available to common stockholders was also impacted by an additional $737 thousand in income tax expense for the three months ended December 31, 2017 resulting from a deferred tax adjustment upon implementation of the Tax Cuts and Jobs Act (the Act) which lowered the top federal corporate tax rate from 35% to 21%.  Non-interest income for the three months ended December 31, 2018 decreased $1.7 million, but was more than offset by the $2.1 million decrease in non-interest expense, further contributing to the increase in net income available to common stockholders.  Net income available to common stockholders was $8.2 million, or $1.27 per diluted share for the twelve months ended December 31, 2018 compared to $1.9 million, or $0.49 per diluted share, for the same period in 2017.

Net interest income increased $608 thousand, or 7.8%, for the three months ended December 31, 2018 to $8.4 million from $7.8 million for the same period in 2017. Net interest income increased $3.7 million, or 12.9%, to $32.7 million for the twelve months ended December 31, 2018, compared to $28.9 million for the twelve months ended December 31, 2017.  The growth in interest income for the three months ended December 31, 2018 compared to the same period in 2017 reflects an increase in average interest earning assets of $128.3 million. The growth in interest income for the twelve months ended December 31, 2018 compared to the same period in 2017 reflects an increase in average interest earning assets of $162.2 million.  Increases over both periods were partially offset by the decreases in the net interest margin.  The net interest margin was 3.70%, and 3.80%, for the three and twelve months ended December 31, 2018, respectively, compared to 4.01% and 3.96% for the same periods in 2017. The decrease in net interest margin reflects the pressure from the rising cost of funds, which has outpaced the favorable trend in yield on interest earning assets over both periods. The provision for loan losses decreased $397 thousand to $319 thousand for the three months ended December 31, 2018 and $584 thousand to $1.6 million for the twelve months ended December 31, 2018 due to strong asset quality and lower levels of net charge-offs for both periods year-over-year.

Total non-interest income for the three months ended December 31, 2018 was $7.5 million, down $1.7 million, or 18.7%, from the comparable period in 2017.  Total non-interest income for the twelve months ended December 31, 2018 was $32.4 million, down $4.4 million, or 11.8%, from the same period in 2017.  These overall decreases in non-interest income came primarily from our mortgage division. Mortgage banking revenue decreased over both periods due primarily to a decline in mortgage originations and lower margins, which decreased 60 basis points and 53 basis points, for the three and twelve months, respectively.  The overall decline in mortgage banking revenue was

partially offset by hedging gains and fair value adjustments period over period.  Realized gains on derivatives related to mortgage banking, included in other non-interest income, increased $1.4 million for the twelve months ended December 31, 2018 to $627 thousand, compared to a loss of $724 thousand for the same period in 2017. There was also a $55 thousand decline in fair value adjustments related to mortgage banking for the same period in 2017. Wealth management revenue was relatively flat for the three months ended December 31, 2018 compared to three months ended December 31, 2017, but up $1.1 million for the twelve months ended December 31, 2018 compared to the same period in 2017 as Meridian Wealth Partners was included in our results for a full year in 2018.

Total non-interest expense was $12.6 million for the three months ended December 31, 2018, down $2.1 million, or 14.2%, from $14.6 million for the three months ended December 31, 2017 and $53.0 million for twelve months ended December 31, 2018, down $4.8 million, or 8.2%, from the same period in the 2017. The decrease is mainly attributable to a reduction in salaries and employee benefits expense, as full-time equivalent employees, particularly in the mortgage division were reduced. In addition, variable loan expenses decreased reflecting the lower level of mortgage originations. Occupancy and equipment expense was relatively flat for the comparable three month and twelve month periods.  Professional fees decreased $249 thousand and advertising and promotion expense decreased $159 thousand over the comparable three month period, while such expenses increased modestly over the comparable twelve month period. Data processing expenses were up over both periods due mainly to the increased transaction volume from growth in the loan portfolios. Other expenses were up over both periods presented. The increase year-over-year related to amortization of intangible assets and a one-time fair market value adjustment of $177 thousand to contingent assets, a $200 thousand reserve established for the open litigation as well as higher levels of other employee-related expenses, shares tax expense, and other expense.

Balance Sheet Summary

As of December 31, 2018, total assets were $997.4 million compared with $856.0 million as of December 31, 2017 and $959.8 million as of September 30, 2018. Total assets increased $141.4 million, or 16.5%, on a year-over-year basis primarily due to strong loan growth.  Total assets increased $37.6 million, or 3.9%, from the previous quarter, mostly due to an increase in portfolio loans of $31.3 million.

Total loans, excluding mortgage loans held for sale, grew $143.5 million, or 20.7%, to $838.1 million as of December 31, 2018, from $694.6 million as of December 31, 2017. This was an increase of $31.3 million, or 3.9%, from $806.8 million as of September 30, 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 $52.9 million, or 26.3%, year-over-year.  Commercial real estate and commercial construction loans combined increased $74.0 million, or 20.2%, year-over-year. Residential loans held in portfolio increased $21.1 million, or 64.6%, year-over-year as certain loan products or terms were targeted to hold in portfolio. Residential mortgage loans held for sale increased $2.7 million, or 7.6%, to $37.7 million as of December 31, 2018 from December 31, 2017.

Deposits were $752.1 million as of December 31, 2018, up $125.0 million, or 19.9%, from December 31, 2017, and down $29.8 million, or 3.8%, from September 30, 2018. Non-interest bearing deposits increased $25.7 million, or 25.6%, from December 31, 2017 and increased $1.3 million, or 1.0%, from September 30, 2018. New business relationships fueled the increases.  Money market accounts/savings accounts increased $6.3 million, or 2.8%, since December 31, 2017 and decreased $43.6 million, or 15.8%, since September 30, 2018 while interest-bearing checking accounts increased $32.7 million, or 40.0%, during the year, and increased $11.3 million or 10.9% quarter over quarter. Certificates of deposit increased $60.3 million, or 27.6%, during the year and $1.3 million, or 0.5%, quarter over quarter.

Consolidated stockholders' equity of the Corporation was $109.9 million, or 11.02% of total assets as of December 31, 2018, as compared to $101.4 million, or 11.84% of total assets as of December 31, 2017. As of December 31, 2018, the Tier 1 leverage ratio was 11.20%, the Tier 1 risk-based capital and common equity ratios were 11.76%, and total risk-based capital was 13.70%. Quarter-end numbers show a tangible common equity to tangible assets ratio of 10.56%. Tangible book value per share was $16.36 as of December 31, 2018, compared with $15.00 as of December 31, 2017.

Asset Quality Summary

Asset quality remains strong. The Bank realized net charge-offs of 0.00% of total average loans for the quarter ending December 31, 2018, compared with net charge-offs of 0.09% for the quarter ending December 31, 2017. Total non-performing assets, including loans and other real estate property, were $3.9 million as of December 31, 2018, $3.2 million as of December 31, 2017, and $2.9 million as of September 30, 2018. The ratio of non-performing assets to total assets as of December 31, 2018 was 0.39% compared to 0.42% as of December 31, 2017 and 0.30% as of September 30, 2018. As of December 31, 2018, the ratio of allowance for loan losses to total loans, excluding mortgages held for sale, was 0.96%, consistent with both December 31, 2017 and September 30, 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 and, for periods prior to the completion of the holding company reorganization, Meridian Bank's filings with the FDIC, including Meridian Bank's most recent 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.

Contact: Jessica Annas

jannas@meridianbanker.com   

484.568.5035

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SOURCE Meridian Bank