Meridian (MRBK) - 2024 Q1 - Quarterly Results

Meridian Corporation Q1 2024 Earnings Release This report details Meridian Corporation's Q1 2024 financial performance, including earnings, balance sheet analysis, and segment results Financial & Operational Highlights The company reported improved Q1 2024 net income of $2.7 million, driven by operational successes despite net interest margin contraction Q1 2024 Key Financial Results | Metric | Q1 2024 | Q4 2023 | Q1 2023 | | :--- | :--- | :--- | :--- | | Net Income | $2,676 thousand | $571 thousand | $4,021 thousand | | Diluted EPS | $0.24 | $0.05 | $0.34 | | Pre-tax, pre-provision income (Non-GAAP) | $6,419 thousand | $5,356 thousand | $6,526 thousand | - CEO Christopher J. Annas noted that Q1 earnings improved measurably from the last quarter, despite the net interest margin contracting to 3.09%, which is now showing signs of stabilizing[2] - Commercial loans (excluding leases) grew by $137.1 million, or 10%, year-over-year, and total assets stood at $2.3 billion as of March 31, 2024[6] - The Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable on May 20, 2024[6] Detailed Financial Analysis The analysis details income statement and balance sheet changes, highlighting drivers of net income and shifts in asset quality Income Statement Analysis (Q1 2024 vs. Q4 2023) Q1 2024 net income rose by $2.1 million, primarily due to lower credit provisions and non-interest expenses - Net income increased by $2.1 million quarter-over-quarter, mainly due to a decline in the provision for credit losses and a reduction in non-interest expenses[9] Net Interest Income Net interest income decreased slightly as rising interest expense outpaced interest income growth, compressing the net interest margin Change in Net Interest Income (Q1 2024 vs Q4 2023) | Component | Change ($ thousands) | Primary Driver | | :--- | :--- | :--- | | Total Interest Income | +$878 | Volume (+853) | | Total Interest Expense | +$1,202 | Volume (+846) & Rate (+356) | | Net Interest Income | -$324 | Rate (-$331) | - The net interest margin decreased by 9 basis points to 3.09% as the increase in the cost of funds outpaced the increase in yield on earning assets[16] - Total interest expense increased by $1.2 million QoQ, driven by a $586 thousand increase in deposit interest expense and a $616 thousand increase in borrowing interest expense[15] Provision for Credit Losses The provision for credit losses decreased significantly to $2.9 million from $4.6 million in the prior quarter - The combined provision for credit losses decreased to $2.9 million in Q1 2024 from $4.6 million in Q4 2023, positively impacted by favorable changes in portfolio baseline loss rates and some macroeconomic factors[17] Non-interest Income Non-interest income slightly decreased to $8.0 million due to a negative fair value adjustment on loans Key Non-interest Income Components (Q1 2024 vs Q4 2023) | Component | Q1 2024 ($ thousands) | Q4 2023 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Mortgage banking income | 3,634 | 3,394 | +7.1% | | Net change in fair value of loans held-for-investment | (175) | 805 | -121.7% | | Other | 1,961 | 1,512 | +29.7% | | Total non-interest income | 7,984 | 8,117 | -1.6% | Non-interest Expense Total non-interest expense declined by $1.5 million, driven by a significant reduction in salaries and employee benefits Key Non-interest Expense Components (Q1 2024 vs Q4 2023) | Component | Q1 2024 ($ thousands) | Q4 2023 ($ thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and employee benefits | 10,573 | 11,744 | -10.0% | | Professional fees | 1,498 | 1,382 | +8.4% | | Total non-interest expense | 18,174 | 19,703 | -7.8% | - The decrease in salaries and benefits was driven by a $641 thousand reduction in the bank and wealth segments and a $530 thousand decrease in the mortgage segment[21] Balance Sheet Analysis (March 31, 2024 vs. December 31, 2023) Total assets grew to $2.3 billion, fueled by strong loan growth funded through an increase in total deposits - Portfolio loan growth was $61.6 million (3.3%) QoQ, led by increases in commercial mortgage loans (+$25.5M), commercial & industrial loans (+$25.3M), and construction loans (+$16.6M)[24] - Total deposits increased by $77.2 million (4.2%) QoQ, largely due to a $75.9 million increase in time deposits from wholesale efforts[25] - Borrowings decreased by $29.1 million (16.6%) QoQ, mainly due to the maturity of the Federal Reserve's BTFP facility[25] Asset Quality Asset quality metrics showed slight deterioration, with the non-performing loans to total loans ratio increasing to 1.93% Asset Quality Ratios | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Non-performing loans to total loans | 1.93% | 1.76% | | Non-performing assets to total assets | 1.74% | 1.58% | | Net charge-offs to average loans (annualized) | 0.12% | 0.11% | - Non-performing loans increased by $4.5 million to $38.2 million, primarily due to risk rating downgrades of several SBA loans and small ticket equipment leases[27] - The allowance for credit losses to total loans held for investment was 1.19% as of March 31, 2024, compared to 1.17% as of December 31, 2023[29] Financial Statements and Data This section provides detailed unaudited financial statements, key ratios, and segment-level data for the quarter Key Financial Ratios A summary of key performance, asset quality, and capital ratios highlights a 0.47% ROA and 3.09% NIM for Q1 2024 Selected Performance Ratios (Q1 2024) | Ratio | Q1 2024 | | :--- | :--- | | Return on average assets | 0.47% | | Return on average equity | 6.73% | | Net interest margin (tax-equivalent) | 3.09% | | Efficiency ratio | 73.90% | Condensed Consolidated Statements of Income The income statement details revenues and expenses for Q1 2024, showing a net income of $2.7 million - The full unaudited Condensed Consolidated Statements of Income for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023 are provided[37] Condensed Consolidated Statements of Condition The balance sheet presents assets, liabilities, and equity, with total assets reaching $2.3 billion at quarter-end - The full unaudited Condensed Consolidated Statements of Condition as of March 31, 2024 and four preceding quarters are provided[39] Segment Information Financial performance is detailed by Bank, Wealth, and Mortgage segments, with the Mortgage segment showing an improved loss Income (Loss) Before Income Taxes by Segment (Q1 2024) | Segment | Q1 2024 ($ thousands) | Q1 2023 ($ thousands) | | :--- | :--- | :--- | | Bank | 3,540 | 6,959 | | Wealth | 478 | 231 | | Mortgage | (465) | (2,063) | | Total | 3,553 | 5,127 | Appendix: Non-GAAP Measures This appendix provides reconciliations of non-GAAP financial measures to their comparable GAAP counterparts for clarity - Provides a reconciliation of GAAP income before income tax expense to the non-GAAP measure of Pre-tax, pre-provision income[44] - Includes a reconciliation of the GAAP allowance for credit losses to loans ratio to a non-GAAP ratio that excludes loans carried at fair value[46] - Details the calculation of non-GAAP tangible common equity and tangible book value per share by removing goodwill and intangible assets from GAAP stockholders' equity[47][49]