Meridian Corporation Reports 2Q 2021 Net Income of $8.3 Million, or $1.33 Per Diluted Share and Declares Quarterly Cash Dividend of $0.125 Per Share

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    Jasleen Kour
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Meridian Corporation (Nasdaq: MRBK) today reported:

Christopher J Annas Chairman and CEO commented Meridian achieved strong quarterly earnings generating revenues of $392 million and earning $83 million or $133 per diluted share Annualized ROE and ROA were 2261% and 192% respectively  The bank segment contributed 72% of the consolidated pre-tax pre-provision income and commercial loan growth (excluding PPP loans and loans held for sale) was 17% annualized as new additions to our lending staff coupled with market disruption produced strong results 

Mr Annas added In the current quarter we achieved record levels of SBA net loan sales revenue of $15 million and wealth management revenue of $12 million The mortgage segment added $195 million in revenue with $27 million in pre-tax income as the originations shift from refinancing to purchase loans  This mortgage revenue number is down from 2Q2020 affected by a lack of homes for sale and a slower refinance rate We manage the business for profitability not scale and see similar market conditions for the rest of 2021

Income Statement Highlights

Second quarter 2021 compared with first quarter 2021: 

  • Net income was $83 million a decrease of $19 million or 188% driven by a lower level of non-interest income
  • The return on average equity (ROE) and return on average assets (ROA) were 2261% and 192% respectively for the second quarter 2021 compared to 3006% and 243% respectively for the first quarter 2021
  • Net interest income increased $292 thousand or 19% driven by quarter over quarter increases in interest income on small business loans commercial real estate loans and leases combined with a $226 thousand decrease in interest expense
  • Non-interest income decreased $53 million or 197% driven by a $46 million or 192% decline in mortgage banking net revenue reflecting a decline of 15% in mortgage loan originations which is consistent with the market Partially offsetting this decline was record revenue for:
    • SBA net loan sale revenue was $15 million up $245 thousand or 197% as the volume of SBA 7 (a) loan sales increased from the prior quarter
    • Wealth management revenue was $12 million up $27 thousand or 24% due to assets under management that grew to $1 billion for the first time in Meridian Wealth Partners' history  
  • Provision for loan losses was $96 thousand compared to the first quarter 2021 provision for loan losses of $599 thousand a decline of 840%
  • Non-interest expenses decreased $20 million or 71% driven by a decrease in salaries and benefits largely related to variable compensation in the mortgage segment
  • On July 22 2021 the Board of Directors declared a quarterly cash dividend of $0125 per common share payable August 16 2021 to shareholders of record as of August 9 2021

Balance Sheet Highlights

June 30 2021 compared to March 31 2021:

  • Total assets decreased $350 million or 20% to $17 billion as of June 30 2021
  • Total loans net of allowance increased $82 million or 10% to $13 billion as of June 30 2021  Portfolio loans increased $489 million or 44% over this period while SBA Paycheck Protection Program (PPP) loans declined $407 million over this period The $407 million was comprised of $604 million in forgiven PPP loans while $197 million related to newly originated PPP loans
  • As of June 30 2021 we have assisted borrowers with the forgiveness of approximately 690 PPP round 1 loans totaling approximately $1734 million while at the same time helping borrowers to secure approximately 435 PPP round 2 loans totaling approximately $926 million
  • Mortgage loans held for sale decreased $379 million or 223% to $1323 million as of June 30 2021
  • Total deposits grew $297 million or 21% to $14 billion as of June 30 2021
  • Non-interest bearing deposits grew $40 million or 16% to $2618 million as of June 30 2021
  • Borrowings from the Federal Reserve's Paycheck Protection Program Liquidity Facility (PPPLF) were $363 million as of June 30 2021 a decrease of $743 million or 671% from March 31 2021

Select Condensed Financial Information

Income Statement Summary

Second Quarter 2021 Compared to First Quarter 2021

Net income was $83 million or $133 per diluted share for the second quarter of 2021 compared to net income of $102 million or $165 per diluted share for the first quarter of 2021 The $19 million decrease quarter-over-quarter was due largely to the slowdown in mortgage banking activity which reduced non-interest income by $53 million  Non-interest expense decreased $20 million and the provision for loan losses decreased $503 thousand partially offsetting the decline

Net interest income increased $292 thousand or 19% to $154 million from $151 million for the first quarter of 2021  Growth for the second quarter of 2021 was due largely to a $239 million increase in average interest earnings assets over this period combined with a $17 million reduction of average interest bearing liabilities  The increase in average interest earning assets over this period was the result of an increase in SBA loans commercial real estate loans and lease financings  The cost of deposits contributed significantly to the growth in net interest income as it declined 9 basis points over the prior quarter The net interest margin was 370% for the second quarter of 2021 compared to 372% for the first quarter of 2021  The net interest margin excluding the impact from PPP improved 11 basis points to 375% for the second quarter 2021 from 364% for the first quarter of 2021 A reconciliation of this non-GAAP measure is included in the Appendix

The provision for loan losses was $96 thousand for the second quarter of 2021 compared to $599 thousand for the first quarter of 2021 The decline in the provision was due to our assessment that improvements in certain financial and economic factors reflected favorably in our valuation of the allowance for loan losses as of June 30 2021 and largely offset the provisioning due to loan growth

Total non-interest income for the second quarter of 2021 was $217 million down $53 million or 197% from the first quarter of 2021 This decrease came primarily from our mortgage segment as mortgage banking net revenue decreased $46 million or 192% over the first quarter of 2021  The decrease was due to lower levels of mortgage loan originations when comparing the second quarter to the first quarter of 2021  Our mortgage segment originated $6166 million in loans during the three months ended June 30 2021 a decrease of $1094 million or 151% from the prior quarter Refinance activity represented 44% of the total residential mortgage loans originated for the second quarter of 2021 compared to 64% for the first quarter of 2021  The fair value of derivative instruments and loans held for sale increased a combined $39 million during the second quarter of 2021 compared to the first quarter of 2021 while there was a $674 thousand loss on hedging activity for the second quarter of 2021 compared to a $43 million gain on hedging activity for the first quarter of 2021

Wealth management revenue increased $27 thousand or 24% quarter-over-quarter due to the more favorable market conditions that existed in the second quarter of 2021 compared to the first quarter of 2021  Due to these favorable market conditions combined with customer growth assets under management grew above $1 billion for the first time in the history of our Meridian Wealth Partners segment  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 second quarter was impacted by the rebound of the financial markets at the end of the first quarter

Net revenue from the sale of SBA 7(a) loans was up $245 thousand from the first quarter of 2021 as the value of loans sold increased to $135 million in the second quarter of 2021 compared to $130 million in loans sold in the first quarter of 2021

Total non-interest expense for the second quarter of 2021 was $262 million down $20 million or 71% from the first quarter of 2021  Total salaries and employee benefits expense was $202 million a net decrease of $19 million or 87% compared to the first quarter of 2021 Of this decrease $22 million related to the mortgage segment which recognizes variable compensation based on originations Salary and employee benefits were up $250 thousand for bank and wealth due to an increase in stock based compensation expense Professional fees decreased $124 thousand or 132% from the first quarter of 2021 due to the timing of certain year-end legal consulting and audit costs in the first quarter of 2021 that were not repeated in the second quarter  Advertising and promotion expenses increased $136 thousand or 173% from the first quarter of 2021 as business development and community outreach efforts increased as  COVID-19 restrictions continued to lessen and allow for more in person gatherings 

Second Quarter 2021 Compared to Second Quarter 2020

Net income was $83 million or $133 per diluted share for the second quarter of 2021 compared to net income of $57 million or $094 per diluted share for the second quarter of 2020 The increase of $25 million or 445% was due largely to the increase in interest income on portfolio loans combined with an increase in SBA loan sales and wealth management revenue as well as an increase in mortgage banking activity

Net interest income was $154 million an increase of $38 million or 329% over net interest income for the second quarter of 2020  This net interest income growth reflects an increase in average interest earning assets of $2472 million and an increase in the net interest margin of 43 basis points The increase in net interest margin is a result of a 55 basis point decline in the cost of funds despite a $1968 million increase in average interest bearing deposits and a slight decline of 4 basis points in the yield in average loan balances

The provision for loan losses of $96 thousand for the second quarter of 2021 decreased $15 million or 941% from the provision for loan losses recorded for the second quarter of 2020 The second quarter 2020 provision was calculated at the time the COVID-19 pandemic was intensifying locally and nationally and was therefore impacted by qualitative provisioning for the economic uncertainty as a result of the pandemic while the second quarter 2021 provision had less such impact as certain financial and economic indicators have improved period over period    

Total non-interest income for the second quarter of 2021 was $217 million up $30 million or 163% from the comparable period in 2020 This overall increase in non-interest income came largely from our mortgage segment Mortgage banking net revenue increased $27 million or 160% over the second quarter of 2020  The significant increase in second quarter 2021 came from increased levels of mortgage loan originations due to the expansion of the segment into Maryland as well as the favorable rate environment Our mortgage segment originated $6152 million in loans during the second quarter of 2021 an increase of $793 million or 148% from the second quarter of 2020  The fair value of derivative instruments and loans held for sale decreased a combined $39 million over the period  Net hedging activity improved as the net loss decreased $26 million to a net loss of $674 thousand for the second quarter of 2021

Non-interest income from the sales of SBA 7(a) loans increased $852 thousand as $135 million in loans were sold in the second quarter of 2021 compared to $97 million in loans sold in the second quarter of 2020 an increase of nearly 40%  Wealth management revenue increased $310 thousand year-over-year due to the favorable market conditions discussed above  Other fee income was up $632 thousand or 1477% from the second quarter of 2020 to $11 million due to increases period over period in wire transfer fee income title transfer fee income and mortgage servicing fee income

Total non-interest expense for the second quarter of 2021 was $262 million up $50 million or 235% from the comparable period in 2020  The increase in non-interest expense is largely attributable to an increase in salaries and employee benefits expense which increased $40 million or 248% from the comparable period in 2020  Of this increase $25 million relates to the mortgage segment 

Advertising and promotion expense increased $316 thousand or 522% from the comparable period in 2020 as the result of an increase in the business development and community outreach efforts that our employees were more able to do in the second quarter of 2021 as the weather improved and COVID-19 restrictions continued to lessen and allow for more in person gatherings  

Other non-interest expenses were up $518 thousand or 356% from the comparable period in 2020 largely due to amortization expense on both mortgage and SBA loan servicing rights as these continue to grow as loan originations continued to grow in both portfolios  

Six Months Ended June 30 2021 Compared to Six Months Ended June 30 2020

Net income was $184 million or $298 per diluted share for the six months ended June 30 2021 compared to net income of $82 million or $132 per diluted share for the six months ended June 30 2020 The increase was due largely to the increase in net interest income of $93 million combined with increased non-interest income of $209 million and a $25 million decrease in the provision for loan losses partially offset by increases in non-interest expense and income taxes of $192 million and $32 million respectively 

Net interest income increased $93 million or 436% to $305 million from $213 million for the six months ended June 30 2021  The growth in net interest income period over period reflects an increase in interest income of $61 million in addition to a favorable decrease in interest expense of $32 million  The increase in interest income was the result of an increase in PPP interest and fee income of $32 million as loans from round one are in the forgiveness phase In addition growth in portfolio loans most notably commercial real estate loans and lease financings contributed $2 million  Interest on loans held for sale contributed $896 thousand The net interest margin increased to 371% for the six months ended June 30 2021 from 337% for the six months ended June 30 2020 The margin in 2020 was negatively impacted by the rapid decline in Fed fund rates as well as the effects of the PPP loan program 

The provision for loan losses was $695 thousand for the six months ended June 30 2021 compared to a $32 million provision for the six months ended June 30 2020 The decline in the provision period over period is the result of an improvement in the trend of certain financial and economic factors used in the allowance for loan losses that had been negatively impacted in 2020 due to the COVID-19 pandemic which have since started to rebound as the economy continues to recover

Total non-interest income for the six months ended June 30 2021 was $488 million up $209 million or 748% from the six months ended June 30 2020 This increase in non-interest income came primarily from our mortgage segment as mortgage banking net revenue increased $200 million or 847% over the prior year period  The significant increase in the current year period came from increased levels of mortgage loan originations due to both the expansion of the segment into Maryland as well as the favorable rate environment Our mortgage segment originated $13 billion in loans during the six months ended June 30 2021 an increase of $5494 million or 695% from the prior year period  Refinance activity represented 55% of the total residential mortgage loans originated for the six months ended June 30 2021 compared to 63% for the six months ended June 30 2020  The changes in the mortgage pipeline as a result of the expansion and the refinance activity generated significant fair value changes in derivative instruments and loans held-for-sale  These fair value changes decreased non-interest income a combined $105 million during the six months ended June 30 2021 compared to the six months ended June 30 2020  These changes were offset by increases in net hedging gains of $83 million

Wealth management revenue increased $411 thousand or 219% year-over-year due to the more favorable market conditions that existed in the six months ended June 30 2021 compared to the prior year comparable period 

Income from the sales of SBA 7(a) loans increased $16 million or 1318% from the prior year period to $27 million as the bank sold $66 million or 332% more loans in the current year period Other fee income was up $13 million or 1479% for the six months ended June 30 2021 from the six months ended June 30 2020 due to increases in wire transfer fee income title fee income as well as an increase in income recorded on interest rate swaps entered into with several loan customers and an increase in mortgage servicing fee income

Total non-interest expense for the six months ended June 30 2021 was $545 million up $192 million or 543% from the six months ended June 30 2020  The increase is largely attributable to the variable expenses from loan originations overall particularly mortgage commissions   Total salaries and employee benefits expense was $424 million an increase of $163 million or 624% compared to the six months ended June 30 2020 Of this increase $133 million relates to the mortgage segment as the number of employees in this segment have increased period over period

Occupancy and equipment expense increased $275 thousand or 134% over the period due largely to the expansion of our physical office footprint into Maryland with 8 mortgage loan production offices having opened since early 2020  Professional fees were up $319 thousand or 222% over the period due to largely to a one-time consent fees related to the change in accountants early in 2021 not in 2020 This is combined with an increase in consulting fees as the bank continues to invest in various company-wide technology focused projects  Advertising and promotion expenses were up $493 thousand or 406% over the same period due to the improvements to the economy and a pull back on COVID-19 related restrictions that has allowed bank employees to spend more time in business development and community outreach capacity

Balance Sheet Summary

As of June 30 2021 total assets were $17 billion a decrease of $112 million from December 31 2020  Total assets increased $1299 million or 82% from June 30 2020 primarily due to strong loan growth

Total loans net of allowance grew $760 million or 60% to $13 billion as of June 30 2021 from $13 billion as of December 31 2020  There was growth in several commercial categories from December 31 2020 as we continue to expand our presence in the Philadelphia market region Commercial real estate loans increased $442 million or 88% small business loans increased $258 million or 517% and lease financings increased $354 million or 1072% as our Meridian Equipment Finance (MEF) leasing team continued their strong growth pattern after starting up in early 2020  Residential mortgage loans held for sale decreased $955 million or 417% to $1337 million as of June 30 2021 while PPP loans decreased $137 million or 69% over this period

Deposits were $14 billion as of June 30 2021 up $1719 million or 139% from December 31 2020 Non-interest bearing deposits increased $580 million or 284% from December 31 2020 Interest-bearing checking accounts increased $514 million or 249% from December 31 2020 while money market accounts/savings accounts increased $590 million or 103% since December 31 2020  Increases in core deposits were driven from loan customers as part of new business and municipal relationships and also as a result of the PPP loan process  Certificates of deposits increased $36 million or 14% from December 31 2020

Consolidated stockholders' equity of the Corporation was $1529 million or 89% of total assets as of June 30 2021 as compared to $1416 million or 82% of total assets as of December 31 2020 The change in stockholders' equity is the result of year-to-date net income of $184 million partially offset by dividends of $78 million paid during the first six months of 2021  As of June 30 2021 the Tier 1 leverage ratio was 897% for the Corporation and 1128% for the Bank the Tier 1 risk-based capital and common equity ratios were 1016% for the Corporation and 1280% for the Bank and total risk-based capital was 1423% for the Corporation and 1418% for the Bank Quarter-end numbers show a tangible common equity to tangible assets ratio (a non-GAAP measure) of 871% for the Corporation and 1092% for the Bank A reconciliation of this non-GAAP measure is included in the Appendix  Tangible book value per share was $2406 as of June 30 2021 compared with $2255 as of March 31 2021

Asset Quality Summary

Asset quality remains strong despite the pressures that the COVID-19 pandemic has had on businesses and the economy locally and nationally COVID-19 loan modifications provided to borrowers amounted to $290 million as of June 30 2021 up slightly from $288 million as of March 31 2021  Meridian realized net charge-offs of 001% of total average loans for the quarter ending June 30 2021 slightly up from the quarter ended March 31 2021 Total non-performing assets including loans and other real estate property were $82 million as of June 30 2021 compared to $86 million as of March 31 2021 The ratio of non-performing assets to total assets as of June 30 2021 was 048% compared to 049% as of March 31 2021  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 158% as of June 30 2021 and 165% as of March 31 2021 PPP loans are excluded from calculation of this ratio as they are guaranteed by the SBA and therefore we have not provided for in the allowance for loan losses A reconciliation of this non-GAAP measure is included in the Appendix

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 more than 20 office 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 wwwmeridianbankercom  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 the current COVID-19 pandemic and government responses thereto 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 2020 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

FINANCIAL TABLES FOLLOW

APPENDIX  -    FINANCIAL RATIOS

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 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

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