Meridian Bank, a regional community bank headquartered in Malvern, Pennsylvania, has established itself as a formidable player in the banking landscape. With a focus on serving the financial needs of individuals and businesses in the Mid-Atlantic region, Meridian Bank has consistently demonstrated its ability to navigate the ever-evolving banking industry.
Financial Performance Highlights
For the fiscal year ended December 31, 2023, Meridian Bank reported an annual net income of $13,243,000 and annual revenue of $168,299,000. The company's annual operating cash flow stood at $6,656,000, while its annual free cash flow reached $4,833,000. These figures underscore Meridian Bank's financial strength and its ability to generate consistent returns for its shareholders.
In the latest quarter, ended March 31, 2024, Meridian Bank reported net income of $2,676,000, a decrease of 33.4% compared to the same period in the previous year. This decline was primarily driven by an increase in interest expense and the provision for credit losses, partially offset by improvements in interest income and non-interest income.
Net Interest Income and Margin
Meridian Bank's net interest income for the first quarter of 2024 was $16,609,000, down from $17,677,000 in the same period of 2023. The decrease in net interest income was largely due to the impact of deposit and borrowing repricing outpacing the repricing of interest-earning assets, mainly loans. As a result, the company's net interest margin decreased to 3.09% from 3.61% during the same period.
Provision for Credit Losses
The overall provision for credit losses increased by $1.5 million when comparing the first quarter of 2024 to the same period in 2023. This increase was primarily driven by 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, partially offset by a reduction of $508,000 in the provision for unfunded loans.
Non-Interest Income and Expense
Non-interest income increased by $1.3 million, or 20.3%, to $8.0 million in the first quarter of 2024, driven by a $362,000 increase in mortgage banking income, a $273,000 increase in SBA loan income, a $121,000 increase in wealth management fee income, and a $743,000 increase in other income.
Non-interest expense increased by $385,000, or 2.2%, to $18.2 million in the first quarter of 2024, primarily due to increases in professional fees, data processing and software expense, and other non-interest expense, partially offset by a decrease in salaries and employee benefits expense.
Balance Sheet and Liquidity
As of March 31, 2024, Meridian Bank's total assets stood at $2.3 billion, an increase of 2.1% from December 31, 2023. The growth in assets was primarily driven by a 3.3% increase in the loan portfolio, which reached $2.0 billion as of March 31, 2024.
The company's total deposits increased by 4.2% to $1.9 billion as of March 31, 2024, compared to December 31, 2023. This growth was largely due to a 6.1% increase in interest-bearing deposits, which offset a 7.8% decrease in non-interest-bearing deposits.
Meridian Bank maintains a strong liquidity position, with access to approximately $1.0 billion in liquidity from various sources, including its borrowing capacity with the FHLB and other financial institutions, as well as funding through the CDARS program and brokered CD arrangements.
Asset Quality
Meridian Bank's non-performing assets to total assets ratio increased to 1.74% as of March 31, 2024, up from 1.58% as of December 31, 2023. This increase was primarily due to risk rating downgrades of several SBA loans and small ticket equipment leases, partially offset by charge-offs.
The ratio of allowance for credit losses to total loans held for investment, excluding loans at fair value and PPP loans, was 1.19% as of March 31, 2024, compared to 1.17% as of December 31, 2023. The increase in this ratio was driven by the establishment of $1.6 million in specific reserves for SBA loan relationships and smaller increases in specific reserves for other commercial loans.
Meridian Bank continues to be proactive in its credit underwriting process and loan review, including the engagement of an independent outside loan review firm, to identify and address developing credit issues in a timely manner.
Capital and Shareholder Returns
As of March 31, 2024, Meridian Bank's consolidated stockholders' equity stood at $159.9 million, or 7.0% of total assets. The company's tangible common equity to tangible assets ratio (a non-GAAP measure) was 6.82% as of the same date.
On April 25, 2024, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable on May 20, 2024, to shareholders of record as of May 13, 2024.
Business Overview
Meridian Bank operates through three principal segments: Banking, Mortgage Banking, and Wealth Management. The Banking segment generates interest income from its lending and investing activities, as well as non-interest income from various sources, including service charges on deposit accounts, cash sweep fees, and other fees.
The Mortgage Banking segment originates 1-4 family residential mortgages and sells nearly all of its production to third-party investors, earning fee income primarily from gain on sales. The Wealth Management segment, through its registered investment advisor subsidiary, provides a comprehensive array of wealth management services and products to its clients.
Geographical Footprint
Meridian Bank's primary market areas are concentrated in southeastern Pennsylvania, Delaware, and Maryland, as well as other contiguous markets. The company's lending activity and deposit base are well diversified across its regional footprint, with no unusual exposure to any particular industry or geographic concentration.
Risks and Challenges
Meridian Bank faces several risks and challenges, including:
1. Interest rate risk: The company's net interest margin and profitability are susceptible to changes in interest rates, which can impact the repricing of its interest-earning assets and interest-bearing liabilities.
2. Credit risk: As a commercial bank, Meridian Bank is exposed to credit risk through its loan portfolio, particularly in the commercial real estate, commercial and industrial, and small business loan segments.
3. Regulatory environment: The banking industry is subject to extensive regulation, and changes in laws and regulations can have a significant impact on the company's operations and compliance costs.
4. Competition: Meridian Bank operates in a highly competitive regional banking market, which can pressure its ability to attract and retain customers, as well as maintain its net interest margin and fee income.
Outlook
Meridian Bank has not provided any specific financial guidance for the remainder of 2024. However, the company's management has expressed cautious optimism about the overall economic environment and its ability to navigate the challenges facing the banking industry.
Conclusion
Meridian Bank's performance in the first quarter of 2024 reflects the company's ability to adapt to a changing interest rate environment and maintain its strong market position in the Mid-Atlantic region. While the company faces various risks and challenges, its diversified business model, prudent risk management practices, and commitment to serving its local communities position it well for continued success. As Meridian Bank continues to execute its strategic initiatives, investors will closely monitor the company's ability to drive sustainable growth and deliver consistent returns.