Meridian's Net Interest Margin Reverses After a Quarter of Expansion

The Tip Desk · July 30, 2026 · 4 min read

The Pennsylvania community bank's tax-equivalent margin fell 13 bps to 3.69% as net interest income slipped to $22.8 million.

Meridian Corporation (MRBK), a Pennsylvania community bank, reversed a quarter of net interest margin expansion in the three months ended June 30, 2026, as the tax-equivalent margin compressed 13 bps to 3.69% from 3.82%.

Net interest income declined $411 thousand, or 1.8%, to $22.8 million, after a similar 1.8% drop in the first quarter. The yield on interest-earning assets fell 10 bps, which the company said reduced interest income by $256 thousand, while the average balance of interest-earning assets rose $12.7 million and added $323 thousand. Cost of funds rose 4 bps. Interest expense increased $479 thousand, largely on a higher cost of interest-bearing deposits.

The loan yield dropped 14 bps, the company said, due to an $885 thousand interest reversal tied to new nonaccrual loans. Average total loans excluding residential loans for sale increased $4.9 million. Commercial, commercial real estate and home equity averages together rose $21.2 million, offset in part by lower SBA, residential held-for-investment and lease balances. Average loans held for sale rose $16.9 million.

Pre-provision net revenue was $10.4 million, up 3.6% from the prior quarter.

The provision for credit losses fell $4.5 million to $3.0 million from $7.5 million. The company attributed the lower provision to fewer charge-offs and slower loan growth. Excluding a $3.9 million charge-off and related provision on a single commercial mortgage in the first quarter, second-quarter charge-offs declined $1.3 million. SBA and lease net charge-offs were down $2.3 million. Net charge-offs were $2.6 million, or 0.12% of average loans, versus $7.8 million, or 0.35%, in the first quarter. The allowance for credit losses to loans held for investment was 0.99% at June 30.

Non-performing loans rose $23.4 million to $82.1 million, or 3.68% of total loans, from $58.7 million, or 2.64%. The company said the largest increases were $20.0 million in land development and $5.5 million in commercial mortgage relationships that were downgraded and well collateralized, requiring no specific reserve. Specific reserves on individually evaluated loans were $3.3 million. SBA loans accounted for $24.6 million of non-performing loans, of which $11.9 million, or 48.4%, was SBA-guaranteed.

Total non-interest income increased $2.8 million, or 40.4%, to $9.9 million. Mortgage banking income rose $2.1 million to $6.2 million as loans sold increased $81.1 million, or 20%, even as the sales margin fell 33 bps. SBA loan income rose $465 thousand to $615 thousand on $11.9 million of loans sold, versus $6.7 million in the first quarter. Wealth management income was $1.7 million.

Non-interest expense rose $2.1 million, or 10.3%, to $22.2 million, lifting the efficiency ratio to 68.03% from 66.66%. Salaries and benefits increased $807 thousand, which the company tied to variable pay in the mortgage segment and higher incentive compensation. Advertising and promotion rose $625 thousand. Professional fees rose $190 thousand, which the company said related to non-performing loans. Other expense rose $425 thousand, mainly on OREO and non-salary employee costs.

Total portfolio loans decreased $3.2 million, or 0.1%. Commercial mortgage loans grew $41.2 million, commercial and industrial loans $1.2 million and home equity $3.0 million. Those gains were offset by a $27.9 million drop in construction and land development, a $9.9 million drop in SBA loans and a $5.7 million drop in leases. Commercial loans excluding leases rose $4.6 million, or 0.3%. The company said commercial loan growth would have been $54 million, or 3.0%, absent $38 million of commercial and CRE payoffs and $11.9 million of SBA sales.

Total deposits increased $24.5 million, or 1.1%, to $2.19 billion. Non-interest-bearing deposits rose $2.9 million, or 1.2%. Borrowings fell $12.8 million, or 10.6%. Total assets were $2.6 billion. Stockholders’ equity was $204.8 million. The Community Bank Leverage Ratio was 9.72% and the bank’s common tier 1 risk-based capital ratio was 10.65%.

The board declared a quarterly cash dividend of $0.14 a share, payable August 17, 2026. Chairman and CEO Christopher J. Annas said the mortgage group remained impacted by low inventory, that mortgage banking income was up 6% from the year-earlier quarter, and that third-quarter originations looked promising even as refi activity had fallen as rates ticked up.