Meridian Corporation Reports First Quarter 2024 Results and Announces a Quarterly Dividend of $0.125 per Common Share.

MALVERN, PA., April 26, 2024 — Meridian Corporation (Nasdaq: MRBK) today reported:

•Commercial loans, excluding leases, increased $71.6 million, or 5%, for the quarter and $137.1 million, or 10%, year over year.

•Total assets at March 31, 2024 were $2.3 billion, compared to $2.2 billion at December 31, 2023 and March 31, 2023.

•Pre-tax, pre-provision income for the Bank was $6.4 million for the quarter.

•Net interest margin was 3.09% for the first quarter of 2024, with a loan yield of 7.24%.

•On April 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable May 20, 2024 to shareholders of record as of May 13, 2024.

Christopher J. Annas, Chairman and CEO commented, “Our first quarter earnings improved measurably from last quarter, totaling $2.7 million and $0.24 cents per share. We continue to manage through the dramatic rate rise effects, both with our bank and with our customers. The net interest margin contracted to 3.09% for the quarter, but shows signs of stabilizing.

The economic environment in the Philadelphia metro region remains healthy, and growth continues around 10% over the prior year across our main commercial business lines. The housing market is still tight with low inventory, so home construction financing is strong with quick settlements. There has been some disruption with larger banks closing branches and a few mid-size banks with management changes, which gives us continued customer acquisition opportunities.

Meridian is a credit driven bank, with a broad product line to service all but the biggest customers. This segment is credit dependent, and the businesses have been adjusting to the change. Provisioning reflects the strain on our customers, particularly small businesses, and was still elevated in 1Q due mostly to our SBA and equipment leasing divisions.

The mortgage segment had a seasonal loss for the quarter, but achieved higher volumes than in the prior year comparable quarter. Despite the headwinds of higher rates and low inventory, housing turnover happens for many reasons such as retirements and transfers. This volume should follow the typical seasonality, and our prior year’s expense reductions should allow for some profitability.

Meridian continues to grow and earn a higher market share in our region. Navigating through the rate rise has created some obstacles but our core businesses remain healthy. We’re excited about our prospects and a generally improving economic landscape." Net income for the first quarter increased by $2.1 million to $2.7 million mainly due to a decline in the quarterly provision for credit losses, combined with a reduction in non-interest expenses.

Net interest income decreased $324 thousand, or 2.0%, on a tax equivalent basis as the strong growth in interest income on loans and investments was out-paced by an increase in interest expense on deposits and borrowings. Non-interest income decreased $133 thousand or 1.6%, as fair value changes exceeded the improved level of mortgage banking income and wealth management income. Non-interest expense decreased $1.5 million, or 7.8% 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.

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.

Interest income increased $878 thousand quarter-over-quarter, on a tax equivalent basis, driven by the increased levels of average earning assets and the continued improvement in yield on earning assets. Average earning assets increased by $52.1 million as the yield on earnings assets increased 9 basis points during the period.

Average total loans, excluding residential loans for sale, increased $53.1 million driving an increase in interest income of $870 thousand. The largest drivers of this increase were commercial, commercial real estate, and small business loans which on a combined basis increased $80.6 million on average, partially offset by a decrease in average construction loans of $17.9 million and a decrease in average leases of $12.8 million. Home equity, residential real estate, consumer and other loans held in portfolio increased on a combined basis $3.0 million on average. The yield on total loans increased 9 basis points and the yield on cash and investments was relatively unchanged from the prior period on a combined basis.

Total interest expense increased $1.2 million, quarter-over-quarter, due to both rate and volume. Interest expense on total deposits increased $586 thousand and interest expense on borrowings increased $616 thousand. Non-interest bearing balances decreased $24.4 million on average and were replaced by interest bearing deposits. Interest bearing deposits increased $23.8 million on average causing an increase of $274 thousand in interest expense. The cost of deposits increased 19 basis points to 4.00% causing an increase of $312 thousand in interest expense. Interest expense on borrowings increased $572 thousand due to an average borrowings increase of $46.6 million for the period, and the cost of borrowings increased $44 thousand due to an 18 basis point increase from rates, despite the positive carry on a $75 million pay fixed swap.

Overall the net interest margin decreased 9 basis points to 3.09% as the cost of funds outpaced the increase in yield on earnings assets.

The overall provision for credit losses is comprised of provisioning for funded loans as well as unfunded loan commitments. The combined provision for the first quarter decreased to $2.9 million from $4.6 million for the fourth quarter, with the provision for unfunded loan commitments representing a reduction of $508 thousand of the combined provision during the current quarter. The first quarter provision for funded loans of $3.4 million was due to a $2.0 million increase in specific reserves, mainly on small business loans and existing non-accrual loans, combined with provisioning for loan growth and charge-offs. This decline in the overall provision was also positively impacted by favorable changes in certain portfolio baseline loss rates and some macroeconomic factors underlying the funded loss model.

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

Total non-interest income decreased $133 thousand, or 1.6%, quarter-over-quarter as a result of a decrease in the fair value of loans held for investment, partially offset by an increase in mortgage banking income, fair value of derivative instruments and other income. Mortgage banking income increased $240 thousand, or 7.1% quarter-over-quarter, due to a 20 basis point increase in the gain on sale margin and a decrease in direct loan expenses related to consistent loan volume quarter-over-quarter. Other income increased $449 thousand due to an increase in FHLB stock income, increases in broker fees and other mortgage segment related income, partially offset by a decline in swap fee income as no new swaps were entered into in the current quarter. The fair value of loans held for investment decreased $1.0 million due to the recent decline in interest rates.

While the value of SBA loans sold for the quarter-ended March 31, 2024 was $4.6 million, or 22.9%, less than the quarter-ended December 31, 2023, the gross margin on sale was 8.1% for the quarter-ended March 31, 2024 compared to 6.4% for the quarter-ended December 31, 2023, helping to generate nearly $1 million in SBA loan income for the quarter.

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

Salaries and employee benefits decreased $1.2 million overall, with bank and wealth segments combined having decreased $641 thousand, and the mortgage segment decreased $530 thousand. Bank and wealth segment salaries and employee benefits were down due to a reduction in incentive expense compared to the prior quarter, and mortgage segment salaries and employee benefits were down in the current quarter due to the continuing impact of cost reduction measures put in place in the prior quarter.

Professional fees increased $116 thousand during the current quarter due to an increase in loan and lease workout expenses and other legal expenses. Advertising and promotion expense decreased $183 thousand from the prior quarter as a result of an increase in advertising and business development expense during the year-end holiday season. Other expense decreased $214 thousand from the prior quarter due to a decline in certain loan expenses and employee related expenses.

Total assets increased $46.7 million, or 2.1%, to $2.3 billion as of March 31, 2024 from $2.2 billion at December 31, 2023. This increase was driven by strong loan growth and an increase in investments, partially offset by a decrease in cash and cash equivalents. Interest-bearing cash decreased $32.5 million, or 69.8%, to $14.1 million as of March 31, 2024, from December 31, 2023.

Portfolio loan growth was $61.6 million, or 3.3% quarter-over-quarter. Commercial mortgage loans increased $25.5 million, or 3.5%, commercial & industrial loans increased $25.3 million, or 8.3%, construction loans increased $16.6 million, or 6.7%, and small business loans increased $4.3 million despite the sale of $15.5 million in small business loan during the quarter. Lease financings decreased $12.7 million, or 10.5% from December 31, 2023, partially offsetting the above noted strong loan growth, but this decline was expected as we continue to refocus away from lease originations. Other assets increased by $11.3 million quarter-over-quarter due to certain SBA loan sales that settled after quarter-end.

Total deposits increased $77.2 million, or 4.2% quarter-over-quarter, due largely to higher levels of certificates of deposits. Time deposits increased $75.9 million, or 11.1%, from largely wholesale efforts, as customers continue to opt for higher rate term deposits. Money market accounts and savings accounts increased a combined $49.7 million while interest bearing demand deposits decreased $29.7 million. Non-interest bearing deposits decreased $18.7 million. Borrowings decreased $29.1 million, or 16.6% quarter-over-quarter, due mainly to the maturity of the Federal Reserve’s BTFP which had a balance of $33 million up until maturity in the current quarter.

Consolidated stockholders’ equity of the Corporation increased by $1.9 million from December 31, 2023, to $159.9 million as of March 31, 2024. Changes to equity for the current quarter included net income of $2.7 million and an improvement of $473 thousand in other comprehensive income as the result of the positive impact that rising interest rates had on the cash flow hedge, offset by a relatively small increase in unrealized losses on the investment portfolio. The Community Bank Leverage Ratio for the Bank was 9.42% at March 31, 2024.

The ratio of non-performing loans to total loans increased to 1.93% as of March 31, 2024, from 1.76% as of December 31, 2023, while the ratio of non-performing assets to total assets increased to 1.74% as of March 31, 2024, compared to 1.58% at December 31, 2023. The increase in these ratios were due to a higher level of non-performing loans which increased $4.5 million from $33.8 million as of December 31, 2023, to $38.2 million as of March 31, 2024. The changes were the result of risk rating downgrades of several SBA loans and small ticket equipment leases, partially offset by charge-offs as of March 31, 2024.

Meridian realized net charge-offs of 0.12% of total average loans for the quarter ended March 31, 2024, compared with 0.11% for the quarter ended December 31, 2023. The level of net charge-offs increased slightly to $2.3 million for the quarter ended March 31, 2024, compared to net-charge-offs of $2.2 million for the quarter ended December 31, 2023. First quarter charge-offs were comprised of $2.1 million from small ticket equipment leases which are charged-off after becoming more than 120 days past due, and $87 thousand for an SBA loan. There were recoveries of $133 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 1.19% as of March 31, 2024 compared to 1.17% as of December 31, 2023. As of March 31, 2024 there were specific reserves of $8.5 million against individually evaluated loans, an increase of $2.0 million from $6.5 million in specific reserves as of December 31, 2023. During the quarter $1.6 million in specific reserves were established for SBA loan relationships along with smaller increases in specific reserves for other commercial loans.

Meridian Bank, the wholly owned subsidiary of Meridian Corporation, is an innovative community bank serving Pennsylvania, New Jersey, Delaware and Maryland. Through its 16 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.

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, 2023 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 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.