The acronyms, abbreviations, and terms listed below are used in various sections of this report. As used throughout this report, the terms "Meridian", “we”, “our”, or “us” refer to Meridian Corporation and its consolidated subsidiaries, unless the context otherwise requires.

The Corporation’s unaudited consolidated financial statements have been prepared in accordance with U.S. ~~generally accepted accounting principles (“GAAP”)~~GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included.

The preparation of financial statements in conformity with U.S. ~~generally accepted accounting principles~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ~~Material estimates that are particularly susceptible~~Amounts subject to significant ~~change in the near term relate to the determination of~~estimates are items such as the allowance for loan ~~losses.~~

losses, lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill, intangible assets, and servicing assets.

These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the Securities and Exchange Commission ~~and, for periods prior to the completion of the holding company reorganization, the Bank’s filings with the FDIC, including the Bank’s most recent annual report~~(including our Annual Report on Form 10-K ~~(the “2017 Annual Report”)~~ for the year ended December 31, ~~2017, and~~2021), subsequently filed quarterly reports on Form ~~10-Q.~~ 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.

Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity. Operating results for the three and nine months ended September 30, ~~2018~~2022 are not necessarily indicative of the results for the year ~~ended~~ending December 31, ~~2018~~2022 or for any other period.

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the ~~period.~~period reduced by unearned ESOP Plan shares and treasury shares. Diluted earnings per common share takes into account the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common ~~stock.~~stock and if restricted stock awards were vested, and SERP plan liabilities were satisfied with common shares. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive.

The ~~Corporation’s goodwill and intangible assets related to~~following table presents the ~~acquisition of HJ Wealth in April 2017 are detailed below:~~

Balance

Balance

Amortization

December 31,

Accumulated

Fair Value

September 30,

Period
(dollars in thousands)

2017

Amortization

Adjustment

2018

(in years)
Goodwill - Wealth

$
899

—

—

899

Indefinite
Total Goodwill

899

—

—

899

Intangible assets - trade name

266

—

—

266

Indefinite
Intangible assets - customer relationships

3,930

(152)

—

3,778

20
Intangible assets - non competition agreements

223

(52)

—

171

4
Contingent asset

177

(177)

—

N/A
Total Intangible Assets

4,596

(204)

(177)

4,215

Total

$
5,495

(204)

(177)

5,114

We recognized amortization expense on intangible assets of $68 thousand and $204 thousand, respectively, during the three and nine month periods ended September 30, 2018. The contingent asset was being marked to fair value on a quarterly basis for 18 months after the closing date. As of September 30, 2018 the fair value of the contingent asset was marked to a fair value of $0 as it was determined during the current quarter that it no longer had value.

The Corporation performed its annual review of goodwill and identifiable intangible assets in accordance with ASC 350, “Intangibles - Goodwill and Other” as of December 31, 2017. For the period from January 1, 2018 through September 30, 2018, the Corporation determined there were no events that would necessitate impairment testing of goodwill and other intangible assets.

Although the Corporation’s investment portfolio overall is in a net unrealized loss position at September 30, ~~2018 and December 31, 2017 are as follows:~~

September 30, 2018

Gross

Gross

Amortized

unrealized

unrealized

Fair
(dollars in thousands)

cost

gains

losses

value
Securities available-for-sale:

U.S. government agency mortgage-backed securities

$
24,625

21

(431)

24,215
U.S. government agency collateralized mortgage obligations

13,159

—

(271)

12,888
State and municipal securities

9,946

—

(341)

9,605
Investments in mutual funds and other equity securities

1,000

—

(30)

970
Total securities available-for-sale

$
48,730

21

(1,073)

47,678
Securities held to maturity:

U.S. Treasuries

$
1,987

—

(18)

1,969
State and municipal securities

10,784

15

(196)

10,603
Total securities held-to-maturity

$
12,771

15

(214)

12,572

December 31, 2017

Gross

Gross

Amortized

unrealized

unrealized

Fair
(dollars in thousands)

cost

gains

losses

value
Securities available-for-sale:

U.S. government agency mortgage-backed securities

$
21,439

19

(190)

21,268
U.S. government agency collateralized mortgage obligations

7,875

2

(99)

7,778
State and municipal securities

10,079

14

(134)

9,959
Investments in mutual funds and other equity securities

1,000

1

—

1,001
Total securities available-for-sale

$
40,393

36

(423)

40,006
Securities held to maturity:

U.S. Treasuries

$
1,978

—

(8)

1,970
State and municipal securities

10,883

86

(70)

10,899
Total securities held-to-maturity

$
12,861

86

(78)

12,869

At September 30, 2018, the Corporation had twenty-six U.S. government sponsored agency mortgage‑backed securities, seventeen U.S. government sponsored agency collateralized mortgage obligations, twenty-nine state and municipal securities, one mutual fund, and two U.S. treasuries in unrealized loss positions. At December 31, 2017, the Corporation had nineteen U.S. government sponsored agency mortgage‑backed securities, eight U.S. government sponsored agency collateralized mortgage obligations, twenty-two state and municipal securities and one mutual fund in unrealized loss positions. At September 30, 2018,2022, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase ~~and the Corporation does not intend to sell these securities prior to recovery~~ and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be ~~other‑than‑temporarily~~other-than-temporarily impaired.

10

During the quarter-ended March 31, 2022, $27.7 million of municipal securities, previously classified as available-for-sale on the balance sheet, were transferred to the held-to-maturity portfolio at fair value. After transfer, $1.3 million of unrealized losses remain in accumulated other comprehensive income. No gain or loss was recognized as a result of the transfer.

As of September 30, 2022 and December 31, 2021, securities having a fair value of $76.5 million and $92.2 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

The following table shows the Corporation’s investment gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at ~~September 30, 2018 and December 31, 2017:~~

the dates indicated:

The amortized cost and carrying value of securities ~~at September 30, 2018~~ are shown below by contractual ~~maturities.~~maturities at the dates indicated. Actual maturities may differ from contractual maturities as issuers may have the right to call or repay obligations with or without call or prepayment penalties.

September 30, 2018

December 31, 2017

Available-for-sale

Held-to-maturity

Available-for-sale

Held-to-maturity

Amortized

Fair

Amortized

Fair

Amortized

Fair

Amortized

Fair
(dollars in thousands)

cost

value

cost

value

cost

value

cost

value
Due in one year or less

$
1,706

1,671

994

985

$
—

—

—

—
Due after one year through five years

8,229

8,070

3,746

3,702

5,630

5,587

3,803

3,791
Due after five years through ten years

6,593

6,322

8,031

7,885

6,298

6,228

7,180

7,156
Due after ten years

32,202

31,615

—

—

28,465

28,191

1,878

1,922
Total

$
48,730

47,678

12,771

12,572

$
40,393

40,006

12,861

12,869

~~(5)~~The following table presents the gross gain and (loss) on sale of investment securities available for sale on the dates indicated:

The following table presents loans detailed by category ~~as follows:~~

at the dates indicated:

Residential mortgage real estate loans that were originated by the Corporation and intended for sale in the secondary market to permanent investors, but were either repurchased or unsalable due to defect, and that the Corporation has the ability and intent to hold for the foreseeable future or until maturity or payoff are carried at fair value pursuant to the Corporation's election of the fair value option for these loans. The remaining loans, net ~~investment in leases~~of fees and costs are stated at ~~September 30, 2018~~their outstanding unpaid principal balances, net of deferred fees or costs, since the original intent for these loans was to hold them until payoff or maturity.

The following tables present an aging of the Corporation’s loans at the dates indicated:

(1) Includes $14,702 of loans at fair value of which $14,151 are current and $551 are nonaccrual.

(1) Includes $17,558 of loans at fair value of which $16,768 are current, $189 are 30-89 days past due and $601 are nonaccrual.

At September 30, 2022, there were no consumer mortgage loans secured by residential real estate properties (included in loans, net of fees and costs on the Consolidated Balance Sheets) for which formal foreclosure proceedings were in process.

We have no particular credit concentration. Our commercial loans have been proactively managed in an effort to achieve a balanced portfolio with no unusual exposure to one industry. Additionally, most of our lending activity occurs within our primary market areas which are concentrated in southeastern Pennsylvania, Delaware, and Maryland as well as other contiguous markets and represents a geographic concentration. Additionally, our loan portfolio is concentrated in commercial loans. Commercial loans are generally viewed as having more inherent risk of default than residential real estate loans or other consumer loans. Also, the commercial loan balance per borrower is typically larger than that for residential real estate loans and consumer loans, implying higher potential losses on an individual loan basis.

The Allowance is evaluated on at least a quarterly basis, as losses are estimated to be probable and incurred. The provision for loan and lease ~~portfolio as of September 30, 2018 and December 31, 2017, respectively:~~

Total

90+ days

Accruing

Nonaccrual

September 30, 2018

30-89 days

past due and

Total past

Loans and

loans and

Total loans

Delinquency

(dollars in thousands)

past due

still accruing

due

Current

leases

leases

and leases

percentage

Commercial mortgage

$
1,155

—

1,155

315,022

316,177

494

316,671

0.52
%
Home equity lines and loans

216

—

216

82,472

82,688

85

82,773

0.36

Residential mortgage

—

—

—

48,212

48,212

2,151

50,363

4.27

Construction

315

—

315

104,203

104,518

—

104,518

0.30

Commercial and industrial

—

—

—

252,768

252,768

192

252,960

0.08

Consumer

—

—

—

783

783

—

783

—

Leases

123

—

123

241

364

—

364

33.79

Total

$
1,809

—

1,809

803,701

805,510

2,922

808,432

0.59
%

Total

90+ days

Accruing

Nonaccrual

December 31, 2017

30-89 days

past due and

Total past

Loans and

loans and

Total loans

Delinquency

(dollars in thousands)

past due

still accruing

due

Current

leases

leases

and leases

percentage

Commercial mortgage

$
—

—

—

262,727

262,727

414

263,141

0.16
%
Home equity lines and loans

142

—

142

83,760

83,902

137

84,039

0.33

Residential mortgage

734

—

734

30,557

31,291

1,084

32,375

5.62

Construction

—

—

—

104,785

104,785

185

104,970

0.18

Commercial and industrial

—

—

—

208,670

208,670

1,326

209,996

0.63

Consumer

—

—

—

1,022

1,022

—

1,022

—

Leases

87

11

98

664

762

—

762

12.86

Total

$
963

11

974

692,185

693,159

3,146

696,305

0.59
%

~~(6) Allowance for Loan Losses (the “Allowance”)~~

~~The Allowance is established through provisions for loan~~ losses ~~charged against income.~~increase or decrease the ALLL, if deemed necessary. Loans deemed to be uncollectible are charged against the Allowance, and subsequent recoveries, if any, are credited to the Allowance.

The Allowance is maintained at a level considered adequate to provide for losses that are probable and estimable. Management’s periodic evaluation of the adequacy of the Allowance is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is subjective as it requires material estimates that may be susceptible to significant revisions as more information becomes available.

The following tables detail the ~~roll‑forward~~roll-forward of the Corporation’s Allowance, by portfolio segment, for the ~~three and nine month~~ periods ~~ended September 30, 2018 and 2017, respectively:~~

Balance,

Balance,
(dollars in thousands)

June 30, 2018

Charge-offs

Recoveries

Provision

September 30, 2018
Commercial mortgage

$
3,011

—

2

140

3,153
Home Equity lines and loans

269

—

10

37

316
Residential mortgage

166

—

—

14

180
Construction

1,438

—

—

59

1,497
Commercial and industrial

2,559

(50)

8

41

2,558
Consumer

3

—

1

—

4
Leases

3

—

—

—

3
Unallocated

—

—

—

—

—
Total

$
7,449

(50)

21

291

7,711

Balance,

Balance,
(dollars in thousands)

December 31, 2017

Charge-offs

Recoveries

Provision

September 30, 2018
Commercial mortgage

$
2,434

—

6

713

3,153
Home Equity lines and loans

280

(137)

14

159

316
Residential mortgage

82

—

61

37

180
Construction

1,689

—

—

(192)

1,497
Commercial and industrial

2,214

(244)

41

547

2,558
Consumer

5

—

3

(4)

4
Leases

5

—

—

(2)

3
Unallocated

—

—

—

—

—
Total

$
6,709

(381)

125

1,258

7,711

Balance,

Balance,
(dollars in thousands)

June 30, 2017

Charge-offs

Recoveries

Provision

September 30, 2017
Commercial mortgage

$
2,423

(52)

—

9

2,380
Home Equity lines and loans

228

—

52

(58)

222
Residential mortgage

79

—

—

(2)

77
Construction

1,388

—

—

93

1,481
Commercial and industrial

2,086

(528)

7

626

2,191
Consumer

2

—

1

(2)

1
Leases

8

—

—

(1)

7
Unallocated

—

—

—

—

—
Total

$
6,214

(580)

60

665

6,359

Balance,

Balance,
(dollars in thousands)

December 31, 2016

Charge-offs

Recoveries

Provision

September 30, 2017
Commercial mortgage

$
2,038

(83)

16

409

2,380
Home Equity lines and loans

460

(42)

46

(242)

222
Residential mortgage

85

—

2

(10)

77
Construction

690

—

—

791

1,481
Commercial and industrial

1,973

(647)

193

672

2,191
Consumer

2

—

4

(5)

1
Leases

5

—

—

2

7
Unallocated

172

—

—

(172)

—
Total

$
5,425

(772)

261

1,445

6,359

indicated:

The following tables detail the allocation of the allowance for loan and lease losses and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment ~~as of September 30, 2018 and December 31, 2017.~~

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

September 30, 2018

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

for impairment

for impairment

Total

for impairment

for impairment

Total

Commercial mortgage

$
—

3,153

3,153

$
1,703

314,968

316,671

Home Equity lines and loans

—

316

316

85

82,688

82,773

Residential mortgage

—

180

180

249

38,926

39,175

Construction

—

1,497

1,497

1,296

103,222

104,518

Commercial and industrial

7

2,551

2,558

3,143

249,817

252,960

Consumer

—

4

4

—

783

783

Leases

—

3

3

—

364

364

Unallocated

—

—

—

—

—

—

Total

$
7

7,704

7,711

$
6,476

790,768

797,244
(1)

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

December 31, 2017

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

for impairment

for impairment

Total

for impairment

for impairment

Total

Commercial mortgage

$
—

2,434

2,434

$
1,533

261,607

263,140

Home Equity lines and loans

—

280

280

137

83,902

84,039

Residential mortgage

—

82

82

249

22,155

22,404

Construction

—

1,689

1,689

260

104,710

104,970

Commercial and industrial

1

2,213

2,214

2,506

207,490

209,996

Consumer

—

5

5

—

1,022

1,022

Leases

—

5

5

—

762

762

Unallocated

—

—

—

—

—

—

Total

$
1

6,708

6,709

$
4,685

681,648

686,333
(1)
at the dates indicated:


	September 30, 2022
	Allowance on loans and leases						Carrying value of loans and leases
(dollars in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Commercial mortgage	$	—	$	4,089	$	4,089	$	4,196	$	541,540	$	545,736
Home equity lines and loans	—		237		237		878		56,770		57,648
Residential mortgage	—		706		706		1,464		137,347		138,811
Construction	—		2,859		2,859		1,206		243,229		244,435
Commercial and industrial	2,193		3,476		5,669		16,358		313,093		329,451
Small business loans	376		3,624		4,000		1,479		132,425		133,904
PPP (2)	—		—		—		—		8,837		8,837
MSLP (2)	—		—		—		—		597		597
Consumer	—		3		3		—		497		497
Leases, net	—		1,411		1,411		506		129,068		129,574
Total (1)	$	2,569	$	16,405	$	18,974	$	26,087	$	1,563,403	$	1,589,490


	December 31, 2021
	Allowance on loans and leases						Carrying value of loans and leases
(dollars in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Commercial mortgage	$	—	$	4,950	$	4,950	$	3,556	$	513,372	$	516,928
Home equity lines and loans	—		224		224		905		51,394		52,299
Residential mortgage	—		283		283		1,797		48,820		50,617
Construction	—		2,042		2,042		1,206		159,699		160,905
Commercial and industrial	2,900		3,633		6,533		17,361		276,410		293,771
Small business loans	376		3,361		3,737		792		113,366		114,158
PPP (2)	—		—		—		—		90,194		90,194
MSLP (2)	—		—		—		—		597		597
Consumer	—		3		3		—		419		419
Leases, net	—		986		986		212		88,030		88,242
Total (1)	$	3,276	$	15,482	$	18,758	$	25,829	$	1,342,301	$	1,368,130

	~~(1)~~
~~Excludes deferred fees and loans carried at fair value.~~

(1) Excludes deferred fees and loans carried at fair value.

(2) PPP and MSLP loans are not reserved against as they are 100% guaranteed.

Loans and Leases by Credit Ratings

As part of the process of determining the Allowance to the different segments of the loan and lease portfolio, ~~management~~Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by ~~management.~~Management. The results of these reviews are reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

·

~~Pass~~ ~~- Loans considered to be satisfactory with no indications of deterioration.~~

·

~~Special mention –~~ Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

•Pass – Loans considered to be satisfactory with no indications of deterioration.

·

~~Substandard –~~ Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

•Special mention – Loans classified as special mention have a potential weakness that deserves Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

15

•Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize

14

Table of Contents

the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

·

~~Doubtful –~~ Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing factors, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.

•Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to ~~allocate~~determine the allowance for loan and lease losses at the dates indicated:


	September 30, 2022
(dollars in thousands)	Pass		Special Mention		Substandard		Doubtful		Total
Commercial mortgage	$	511,993	$	28,382	$	5,361	$	—	$	545,736
Home equity lines and loans	56,290		—		1,358		—		57,648
Construction	235,464		8,971		—		—		244,435
Commercial and industrial	280,929		5,414		43,108		—		329,451
Small business loans	132,503		—		1,401		—		133,904
PPP	8,837		—		—		—		8,837
MSLP	597		—		—		—		597
Total	$	1,226,613	$	42,767	$	51,228	$	—	$	1,320,608

Commercial and industrial loans classified as substandard totaled $43.1 million as of September 30, ~~2018 and~~2022, an increase of $238 thousand, from $42.9 million as of December 31, ~~2017:~~

2021. The majority of this amount is comprised of 16 different loan relationships with no specific industry concentration and a $13.5 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021.


September 30, 2018			Special
								December 31, 2021
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total	(dollars in thousands)	Pass		Special mention		Substandard		Doubtful		Total
Commercial mortgage	$	311,857	4,539	275	—	316,671	Commercial mortgage	$	481,551	$	29,452	$	5,925	$	—	$	516,928
Home equity lines and loans		82,606	—	167	—	82,773	Home equity lines and loans	50,908		—		1,391		—		52,299
Construction		102,361	2,157	—	—	104,518	Construction	151,608		9,297		—		—		160,905
Commercial and industrial		234,055	16,016	2,859	30	252,960	Commercial and industrial	236,298		14,603		42,870		—		293,771
Small business loans							Small business loans	112,096		—		2,062		—		114,158
PPP							PPP	90,194		—		—		—		90,194
MSLP							MSLP	597		—		—		—		597
Total	$	730,879	22,712	3,301	30	756,922	Total	$	1,123,252	$	53,352	$	52,248	$	—	$	1,228,852

December 31, 2017



Special






(dollars in thousands)

Pass

mention

Substandard

Doubtful

Total
Commercial mortgage

$
258,337

3,917

887

—

263,141
Home equity lines and loans

83,902

—

137

—

84,039
Construction

103,118

1,852

—

—

104,970
Commercial and industrial

194,784

13,997

448

767

209,996
Total

$
640,141

19,766

1,472

767

662,146

(1) There were ~~seven~~four nonperforming residential mortgage loans at September 30, ~~2018~~2022 and four nonperforming residential mortgage loans at December 31, ~~2017~~2021 with a combined outstanding principal balance of ~~$1.9 million~~$551 thousand and ~~$826~~$601 thousand, respectively, which were carried at fair value and not included in the table above.

The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related ~~allowance for loan and lease losses~~Allowance and interest income recognized ~~for~~at the ~~periods.~~

dates indicated.

The restructuring of a loan is considered a ~~“troubled debt restructuring” (“TDR”)~~TDR if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted. The determination of whether a concession has been granted is very subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

17

There were no new loan modifications granted during the three months ended September 30, ~~2018~~2022 and ~~December 31, 2017 are as follows:~~

September 30,

December 31,
(dollars in thousands)

2018

2017
TDRs included in nonperforming loans and leases

$
554

741
TDRs in compliance with modified terms

3,463

1,900
Total TDRs

$
4,017

2,641

~~The following tables present information regarding~~1 new loan ~~and~~modification on a commercial mortgage for $684 thousand for the nine months ended September 30, 2022, while there were no loan or lease modifications granted during the three and nine months ~~ended~~ September 30, ~~2018~~2021 that were ~~categorized~~classified as ~~TDRs:~~

For the Three Months Ended September 30, 2018




Pre-Modification

Post-Modification


Outstanding

Outstanding

Number of

Recorded

Recorded

Related
(dollar in thousands)

Contracts

Investment

Investment

Allowance
Real Estate:

Land and Construction

1

$
796

$
796

$
—
Total

1

$
796

$
796

$
—

For the Nine Months Ended September 30, 2018




Pre-Modification

Post-Modification


Outstanding

Outstanding

Number of

Recorded

Recorded

Related
(dollar in thousands)

Contracts

Investment

Investment

Allowance
Real Estate:

Land and Construction

2

$
2,410

$
2,410

$
—
Commercial and industrial

1

120

120

—
Total

3

$
2,530

$
2,530

$
—

~~No loan~~a TDR, and ~~lease modifications granted during the three and nine months ended September 30, 2018 subsequently defaulted~~there were no subsequent defaults during the same time ~~period.~~

~~The following table presents information regarding loan and lease modifications granted during the nine months ended September 30, 2017 that were categorized as TDRs:~~

For the Nine Months Ended September 30, 2017




Pre-Modification

Post-Modification


Outstanding

Outstanding

Number of

Recorded

Recorded

Related
(dollar in thousands)

Contracts

Investment

Investment

Allowance
Real Estate:

Commercial and industrial

1

$
165

$
165

$
—
Total

1

$
165

$
165

$
—

No loan and lease modifications granted during the nine months ended September 30, 2017 subsequently defaulted during the same time period. There were no loan and lease modifications made for the three months ended September 30, 2017.

periods.

The Corporation’s ~~short‑term~~short-term borrowings generally consist of federal funds purchased and ~~short‑term~~short-term borrowings extended under agreements with the ~~Federal Home Loan Bank of Pittsburgh (“FHLB”).~~FHLB or other correspondent banks. The Corporation has two unsecured Federal ~~Funds~~funds borrowing facilities with correspondent banks: one of ~~$24,000,000~~$24 million and one of ~~$15,000,000.~~$15 million. Federal funds purchased generally represent one-day borrowings. The Corporation had $0 in Federal funds purchased ~~of $0 and $0~~ at September 30, ~~2018~~2022 and December 31, ~~2017, respectively.~~2021. The Corporation also has a facility with the Federal Reserve Bank discount window of ~~$10,667,121.~~$9.2 million. This facility is fully secured by investment ~~securities and loans.~~securities. There were no borrowings under this ~~facility~~ at September 30, ~~2018 or at~~2022 and December 31, ~~2017~~

~~Short‑term~~2021.

The following table presents short-term borrowings at the dates indicated:

The Corporation had no long-term debt as of September 30, 2018 consisted of short‑term advances from the FHLB in the amount of $40,755,700 with interest at 2.10%, $1,800,000 with an original term of 4 years with interest at 1.70% and $1,200,000 with an original term of 2 years and interest at 0.97%.

~~Short‑term borrowings as of~~2022 or December 31, 2017 consisted of short-term advances from the FHLB in the amount of $93,750,000 with interest at 1.54%, $2,500,000 with an original term of 5 years and interest at 1.92%, $1,200,000 with an original term of 2 years and interest at 0.97%, $1,000,000 with an original term of 4 years and interest at 1.68% and $1,300,000 with an original term of 4 years and interest at 1.55%.

~~Long‑term debt at September 30, 2018 and December 31, 2017 consisted of the following fixed rate notes with the FHLB and the acquisition purchase note issued in connection with HJ Wealth:~~

Balance as of

Maturity

Interest

September 30,

December 31,
(dollars in thousands)

date

rate

2018

2017
Mid-term Repo-fixed

06/26/19

1.70
%

—

1,800
Mid-term Repo-fixed

08/10/20

2.76
%

5,000

5,000
Acquisition Purchase Note

04/01/20

3.00
%

1,444

2,063

$
6,444

8,863

2021.

19

The Corporation has a maximum borrowing capacity with the FHLB of ~~$432,816,917~~$529.0 million as of September 30, ~~2018~~2022 and ~~$380,159,142~~$505.4 million as of December 31, ~~2017.~~2021. All advances and letters of credit from the FHLB are secured by ~~qualifying assets~~a blanket lien on non-pledged, mortgage-related loans and securities as part of the ~~Corporation.~~

Corporation’s borrowing agreement with the FHLB.

The Corporation sells certain residential mortgage loans and the guaranteed portion of certain SBA loans to third parties and retains servicing rights and receives servicing fees. All such transfers are accounted for as sales. When the Corporation sells a residential mortgage loan, it does not retain any portion of that loan and its continuing involvement in such transfers is limited to certain servicing responsibilities. While the Corporation may retain a portion of certain sold SBA loans, its continuing involvement in the portion of the loan that was sold is limited to certain servicing responsibilities. When the contractual servicing fees on loans sold with servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized.

The related MSR asset is amortized over the period of the estimated future net servicing life of the underlying assets. MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR. The Corporation serviced $1.0 billion of residential mortgage loans as of September 30, 2022 and December 31, 2021. During the three and nine months ended September 30, 2022, the Corporation recognized servicing fee income of $643 thousand and $1.9 million compared to $562 thousand and $1.4 million, during the three and nine months ended September 30, 2021, respectively.

Changes in the MSR balance are summarized as follows:

Activity in the valuation allowance for MSRs was as follows:

The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2022, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.11% and a discount rate equal to 9.50%. At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.23% and a discount rate equal to 9.00%. Due in part to market volatility as interest rates increased, the prepayment speed assumption has decreased from December 31, 2021 to September 30, 2022. As interest rates have started to increase and the number of mortgage refinancings have started to decline, model inputs have been adjusted to align the MSRs fair value with market conditions.

The sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a articular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets. SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset. The Corporation serviced $156.3 million and $115.1 million of SBA loans, as of September 30, 2022 and December 31, 2021, respectively.

Changes in the SBA loan servicing asset balance are summarized as follows:

Activity in the valuation allowance for SBA loan servicing assets was as follows:

The Corporation uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2022, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.88% and a discount rate equal to 12.24%. At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s SBA

loan servicing rights included a lifetime constant prepayment rate equal to 12.38% and a discount rate equal to 9.01%. The change in valuation allowance due to impairment, noted in the tables above, was largely due to the increased prepayment speed experienced in the current year periods and the rising interest rate environment.

The sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the SBA servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

The Corporation uses fair value measurements to record fair value adjustments to certain assets and ~~liabilities and to determine fair value disclosures.~~liabilities. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation techniques or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with this guidance, the Corporation groups its financial assets and financial liabilities ~~generally~~ measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

~~For~~Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis.

The fair value of securities available-for-sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

The fair value of loans held for sale is based on secondary market prices.

The fair value of mortgage loans held for investment is based on the price secondary markets are currently offering for similar loans using observable market data.

The fair values of forward commitments and interest rate swaps are based on market pricing and therefore are considered Level 2. Derivatives classified as Level 3 consist of interest rate lock commitments related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan, which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.

The following table presents assets measured at fair value on a nonrecurring basis at the dates indicated:

(1) Impaired loans are those in which the Corporation has measured impairment generally based on the fair value ~~measurements by level within~~of the ~~fair value hierarchy used at September 30, 2018 and December 31, 2017 are as follows:~~

September 30, 2018
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Impaired loans (2)

$
6,476

—

—

6,476
Other real estate owned (1)

—

—

—

—
Total

$
6,476

—

—

6,476

December 31, 2017
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Impaired loans (2)

$
4,685

—

—

4,685
Other real estate owned (1)

437

—

—

437
Total

$
5,122

—

—

5,122
loan’s collateral. Refer to the following page for further qualitative discussion around impaired loans.

The following table details the valuation techniques for Level 3 impaired loans.

~~(1)~~

~~Real estate properties acquired through, or~~

(dollars in ~~lieu~~thousands)

Fair Value

Valuation Technique

Significant Unobservable Input

Range of ~~foreclosure are to be sold~~Inputs

September 30, 2022

$

820

Appraisal of collateral

Management adjustments on appraisals for property type and ~~are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value~~recent activity

2%-15% discount

December 31, 2021

$

2,127

Appraisal of ~~the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. Appraised values may be discounted based~~collateral

Management adjustments on ~~management’s expertise, historical knowledge, changes in market conditions from the time of valuation and/or estimated costs to sell.~~

appraisals for property type and recent activity

2%-15% discount

~~(2)~~

Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third‑party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

The carrying amounts reported in the balance sheet for cash and ~~short‑term~~short-term instruments approximate those assets’ fair values.

~~(b)Securities~~

The fair value of securities available‑for‑sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

~~(c)Mortgage Loans Held for Sale~~

~~The fair value of mortgage loans held for sale is based on secondary market prices.~~

~~(d)~~

The fair value of loans receivable is estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest ~~rate‑risk~~rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value below is ~~not~~ reflective of an exit price.

~~(e)Mortgage Loans Held for Investment~~

The Corporation estimates the fair value of mortgage ~~loans held~~servicing rights and SBA loan servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for ~~investment is~~ the interest rates of the portfolios serviced. These servicing rights are classified within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the servicing rights portfolios on ~~the price secondary markets are currently offering~~a quarterly basis for ~~similar loans using observable market data~~.

~~(f)~~impairment.

Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third‑party appraisals of the properties, or discounted cash flows based upon the expected proceeds. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

~~(g)Restricted Investment~~ Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in ~~Bank Stock~~

~~The carrying amount of restricted investment in bank stock approximates fair value, and considers~~accordance with the ~~limited marketability of such securities.~~

~~(h)~~Allowance policy.

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for ~~fixed‑rate~~fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

~~(j)Short‑Term~~

The carrying amounts of ~~short‑term~~short-term borrowings approximate their fair values.

~~(k)Long‑Term Debt~~

Fair values of FHLB advances and the acquisition purchase note payable are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

~~(l)~~

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.

~~(m)Off‑Balance~~

Off-balance sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments and as a result they are not included in the table below. Fair values assigned to the notional value of interest rate lock commitments and forward sale contracts are based on market quotes.

~~(n)~~

The fair value of forward commitments and interest rate swaps is based on market pricing and therefore are considered Level 2. Derivatives classified as Level 3 consist of interest rate lock commitments ~~is based on investor quotes which consider pull-through rates, while the~~related to mortgage loan commitments. The determination of fair value ~~of forward commitments~~includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan, which is ~~based on~~a significant unobservable assumption. A significant increase or decrease in the external market ~~pricing.~~

price would result in a significantly higher or lower fair value measurement.

The following table presents the estimated fair values of the Corporation’s financial instruments at ~~September 30, 2018 and December 31, 2017 are as follows:~~

the dates indicated:

The Corporation is exposed to certain risk arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally related to the Corporation’s loan portfolio.

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans or interest rate locks at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Interest rate lock commitments and forward commitments are recorded within other assets/liabilities on the consolidated balance sheets, with changes in fair values during the period recorded within net change in the fair value of derivative instruments on the ~~unaudited~~ consolidated statements of income.

Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers to swap a fixed rate product for a variable rate product, or vice versa. The Corporation executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies. Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Corporation executes with a third party, such that the Corporation minimizes its net interest rate risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

~~Table of Contents~~

Interest rate lock commitments are considered Level 3 in the fair value hierarchy, while the forward commitments and interest rate swaps are considered Level 2 in the fair value hierarchy.

The following table presents a summary of the fair value gains and ~~losses~~(losses) on derivative financial instruments:

ASC Topic 280 – Segment Reporting identifies operating segments as components of an enterprise which are evaluated regularly by the Corporation’s Chief Operating Decision Maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

Our Banking segment (“Bank”) consists of commercial and retail banking. The Banking segment generates interest income from its lending (including leasing) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale of available for sale investment securities, ~~gains on the sale of residential mortgage loans,~~ service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income, title insurance fees, and other less significant non-interest income.

25

Meridian’s mortgage banking segment (“Mortgage”) consists of ~~one central loan production facility and several retail and profit sharing~~13 loan production offices ~~located~~ throughout ~~the Delaware Valley.~~suburban Philadelphia and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production ~~including servicing~~ to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale.

The unit also recognizes income from document preparation fees, changes in portfolio pipeline fair values and related net hedging gains (losses).

The table below summarizes income and expenses, directly attributable to each business line, which ~~has~~have been included in the statement of operations.

Three Months Ended September 30, 2018

Three Months Ended September 30, 2017
(dollars in thousands)

Bank

Wealth

Mortgage

Total

Bank

Wealth

Mortgage

Total
Net interest income

$
8,107

71

200

8,378

$
7,190

31

120

7,341
Provision for loan losses

(291)

—

—

(291)

(665)

—

—

(665)
Net interest income after provision

7,816

71

200

8,087

6,525

31

120

6,676

Non-interest Income

Mortgage banking income

105

—

8,169

8,274

67

—

9,837

9,904
Wealth management income

59

871

—

930

18

916

—

934
Net change in fair values

—

—

(333)

(333)

—

—

(547)

(547)
Other

363

—

(67)

296

353

—

(194)

159
Total non-interest income

527

871

7,769

9,167

438

916

9,096

10,450

Non-interest Expense

Salaries and employee benefits

3,264

445

5,192

8,901

3,237

411

6,682

10,330
Occupancy and equipment

521

29

370

920

575

26

391

992
Professional fees

590

9

115

714

394

5

82

481
Advertising and promotion

301

111

178

590

254

126

217

597
Other

1,259

314

1,055

2,628

1,238

198

1,176

2,612
Total non-interest expense

5,935

908

6,910

13,753

5,698

766

8,548

15,012

Operating Margin

$
2,408

34

1,059

3,501

$
1,265

181

668

2,114

Total assets for each segment is also provided.

On January 1, 2022, the Corporation adopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 12, Recent ~~Litigation~~

~~On November 21, 2017, three former employees~~Accounting Pronouncements. The Corporation’s operating leases consist of various retail branch locations and loan production offices. As of September 30, 2022, the Corporation’s leases have remaining lease terms ranging from 8 months to 13 years, including extension options that the Corporation is reasonably certain will be exercised.

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the ~~mortgage-banking division~~common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize ROU assets and lease liabilities for short-term leases.

As of September 30, 2022 the ~~Bank filed suit~~Corporation’s ROU assets and related lease liabilities were $9.5 million and $9.4 million, respectively. These amounts are included within other assets and other liabilities, respectively.

The components of lease expense were as follows:

Supplemental cash flow information related to leases was as follows:

Because we generally do not have access to the rate implicit in the ~~United States District Court for~~lease, we utilize our incremental borrowing rate as the ~~Eastern District~~discount rate. The weighted average discount rate associated with operating leases as of ~~Pennsylvania,~~ ~~Juan Jordan et al. v. Meridian Bank, Thomas Campbell and Christopher Annas, against~~September 30, 2022 is 2.61%.

As of September 30, 2022, the Bank purporting to be a class and collective action seeking unpaid and overtime wages under the Fair Labor Standards Act of 1938, the New Jersey Wage and Hour Law, and the Pennsylvania Minimum Wage Act of 1968 on behalf of similarly situated plaintiffs. In February 2018, the Bank answered the complaint and presented affirmative defenses. In March 2018, plaintiffs’ counsel and the Bank agreed to move forward with non-binding mediation. Although the Bank believes it has strong and meritorious defenses, given the uncertainty of litigation, the preliminary stage of the case, and the legal standardsCorporation had not entered into any material leases that must be met for, among other things, success on the merits, the Bank has recorded a $200 thousand reserve as a reasonable estimate for possible losses that may result from this action. This estimate may change from time to time, and actual losses could vary.

have not yet commenced.

As an “emerging growth company” under the ~~Jumpstart Our Business Startups~~JOBS Act, ~~of 2012 (“JOBS Act”), Meridian~~the Corporation is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1,070,000,000 or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of our initial offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the fiscal year in which the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year. We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as ~~any~~ financial statements that we file inup to the ~~future,~~date we lose this designation (December 31, 2022) will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. If we do so, we will prominently disclose this decision in the first periodic report following our decision, and such decision is irrevocable.period. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public ~~entities.~~

entities

Issued in February 2016, ASU ~~2016‑02~~2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees ~~will be~~are required to recognize a lease ROU liability and a ~~right-of-use~~ROU asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ~~ASU 2016‑02 is~~In June 2020, the FASB approved a delay for the implementation of the ASU. Accordingly, the amendments in this update are effective for ~~public companies~~the Corporation for ~~the first interim period within annual periods~~fiscal years beginning after December 15, ~~2018,~~2021, and interim periods within fiscal years beginning after December 15, 2022. On January 1, 2022 the Corporation recognized a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition. The adoption of the ASU was on a prospective basis and therefore comparative prior periods are still presented under ASC 840. Refer to footnote 11 - leases, for further details.

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with ~~early~~a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in ASC Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023. The Corporation expects to recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the date of adoption. While the Corporation anticipates the allowance for credit losses will increase under current model assumptions, it expects the impact of adopting ASU 2016-13 will be influenced by the composition, characteristics and quality of its loan and investment securities portfolios, as well as general economic conditions and

forecasts at the date of adoption. Management is currently running parallel tests under different methods and using various assumptions to determine the best approach for when we adopt this ASU, and has engaged a third party vendor to perform a model validation prior to adoption.

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management is considering the impact of ASU 2019-04 while considering the impact of ASU 2016-13 as discussed above.

Issued in March 2020, ASU 2020-04 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The Corporation does not have a significant concentration of loans, derivative contracts, borrowings or other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The guidance under ASC-848 will be available for a limited time, generally through December 31, 2022. The Corporation expects to adopt the LIBOR transition relief allowed under this standard.

You should read the following discussion and analysis in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this Quarterly Report on Form ~~10‑Q~~10-Q and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, ~~2017 (the “2017 10‑K”)~~2021 included in Meridian ~~Bank’s~~Corporation’s Annual Report on Form ~~10‑K~~10-K filed with the ~~Federal Deposit Insurance Corporation~~Securities and Exchange Commission (the ~~“FDIC”~~“SEC”).

Meridian Corporation ~~(the “Corporation”)~~ may from time to time make written or oral “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 impact of the COVID-19 pandemic and government responses thereto; on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; and the risk that the Small Business Administration may not fund some or all PPP loan guaranties; increased competitive pressures; changes in the interest rate environment; changes in

general economic conditions and conditions within the securities markets; legislative and regulatory changes; geopolitical tensions; and the effects of inflation, a potential recession, 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, ~~and, for periods prior to the completion of the holding company reorganization, Meridian Bank’s filings with the FDIC,~~ including ~~Meridian Bank’s most recent annual report~~our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2021 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

Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgements are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. In particular, management has identified several accounting policies that, due to the estimates, assumptions and judgements inherent in those policies, are critical in understanding our financial statements.

These policies include (i) determining the provision and allowance for loan and lease losses, and (ii) the determination of fair value for financial instruments. Management has presented the application of these policies to the audit committee of our board of directors.

~~These~~ critical accounting policies ~~along with other significant~~are described in detail in the "Critical Accounting Policies" section within Item 7 of our 2021 Annual Form Form 10-K. The SEC defines "critical accounting ~~policies, are presented in in Note 1~~policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the ~~Corporation’s Consolidated Financial Statements as~~need to make estimates about the effect of matters that are inherently uncertain and ~~for~~may change in future periods. There have been no material changes in these policies during the ~~years~~nine months ended ~~December 31, 2017 and 2016 included in the 2017 10‑K.~~

~~Recent Acquisitions~~

~~As disclosed previously, Meridian Bank acquired HJ Wealth Management, LLC in April 2017.~~

September 30, 2022.

The following items highlight the Corporation’s changes in its financial condition as of September 30, 2022 compared to December 31, 2021 and the results of operations for the three and nine months ended September 30, ~~2018, as~~2022 compared to the same periods in ~~2017, and the changes in its financial condition as of September 30, 2018 as compared to December 31, 2017.~~2021. More detailed information related to these highlights can be found in the sections that follow.

The following table presents key financial performance ratios for the ~~three and nine months ended~~ ~~September~~ ~~30, 2018 and 2017 are shown in the table below:~~

periods indicated:

The following table presents certain key period-end balances and ratios ~~as of~~ ~~September~~ ~~30, 2018 and December 31, 2017:~~

September 30,

December 31,

(dollars in thousands, except per share amounts)

2018

2017

Book value per common share

$
16.70

$
15.86

Tangible book value per common share

$
15.91

$
15.00

Allowance as a percentage of loans and leases held for investment

0.96
%

0.96
%
Tier I capital to risk weighted assets

12.03
%

12.86
%
Tangible common equity ratio (1)

10.67
%

11.27
%
Loans held for investment

$
806,788

$
694,637

Total assets

$
959,829

$
856,035

Stockholders' equity

$
107,018

$
101,363

at the dates indicated:


(dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021
Book value per common share	$	25.86		$	27.07
Tangible book value per common share (1)	$	25.16		$	26.37
Allowance as a percentage of loans and leases held for investment	1.18		%	1.35		%
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)	1.20		%	1.46		%
Tier I capital to risk weighted assets	9.28		%	10.83		%
Tangible common equity to tangible assets ratio (1)	7.67		%	9.42		%
Loans, net of fees and costs	$	1,610,349		$	1,386,457
Total assets	$	1,921,924		$	1,713,443
Total stockholders’ equity	$	151,161		$	165,360

	~~(1)~~
~~Tangible common equity ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” below for a reconciliation of this measure to its most comparable GAAP measure.~~

(1) Non-GAAP financial measure. See “Non-GAAP Financial ~~Measures~~

~~Included in this Quarterly Report on Form 10‑Q is a financial performance measure not recognized by~~Measures” below for Non-GAAP to GAAP “tangible common equity”. Our management used the measure of the tangible common equity ratio to assess our capital strength. We believe that this non-GAAP financial measure is useful to investors because, by removing the impact of our goodwill and other intangible assets, it allows investors to more easily assess our capital adequacy. This non-GAAP financial measure should not be considered a substitute for any regulatory capital ratios and may not be comparable to other similarly titled measures used by other companies. The table below provides the non-GAAP reconciliation for our tangible common equity ratio:

September 30,

December 31,
(dollars in thousands)

2018

2017
Tangbile common equity ratio:

Total stockholders' equity

107,018

101,363
Less:

Goodwill

899

899
Intangible assets

4,215

4,596
Tangible common equity

101,904

95,868
Total assets

959,829

856,035
Less:

Goodwill

899

899
Intangible assets

4,215

4,596
Tangible assets

954,715

850,540
Tangible common equity ratio

10.67%

11.27%

reconciliation.

33

~~Table of Contents~~

~~The following sections discuss, in detail, the Corporation’s results of operations for the three and nine months ended~~ ~~September~~ ~~30, 2018, as compared to the same periods in 2017, and the changes in its financial condition as of~~ ~~September~~ ~~30, 2018 as compared to December 31, 2017.~~

Components of Net Income

Net income is comprised of five major elements:

·

~~Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;~~

·

~~Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;~~

•Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;

·

~~Non-interest Income,~~ which is made up primarily of mortgage banking income, wealth management income, gains and losses from the sale of loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;

•Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;

·

~~Non-interest Expense, which consists primarily of salaries and employee benefits, occupancy, loan expenses, professional fees and other operating expenses; and~~

•Non-interest Income, which is made up primarily of mortgage banking income, wealth management income, SBA loan sale income, fair value adjustments, gains and losses from the sale of loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;

·

~~Income Taxes, which include state and federal jurisdictions.~~

•Non-interest Expense, which consists primarily of salaries and employee benefits, occupancy, professional fees, advertising & promotion, data processing, information technology, loan expenses, and other operating expenses; and

•Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary for the three and nine months ended September 30, ~~2018~~2022 and ~~2017,~~2021, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the ~~results~~result of net free funding sources such as ~~noninterest~~non-interest bearing deposits and stockholders’ equity.

Total interest income for the three months ending September 30, 2018 was $11.6 million, which represented a $2.4 million, or 25.9%, increase compared with the three months ending September 30, 2017. The increase in income was attributable to a $147.1 million increase in average interest earning assets, year over year, helped by an increase of 23 basis points in yield on earning assets, to 5.12% from 4.89%, for same period in 2017. The commercial loan portfolio yield, in particular, rose 31 basis points over the same period in 2017. Total interest expense rose $1.3 million or 72.7% to $3.2 million for the third quarter of 2018, compared with $1.9 million for the third quarter of 2017. The increase was primarily due to an increase in average interest bearing deposits of $114.4 million, year over year, as well as an overall increase of 60 basis points in the cost of interest-bearing funds reflective of the overall increase in market rates.

Net interest income increased $1.1 million, or 14.1%, to $8.4 million for the three months ended September 30, 2018, compared to $7.3 million for the three months ended September 30, 2017. The net-interest margin, although strong, decreased 19 basis points for the third quarter of 2018 at 3.72%, compared with 3.91% for the third quarter of 2017. The decrease in net interest margin reflects the pressure from the rising cost of funds, which has outpaced the favorable trend in yield on interest earning assets during the quarter. The strength in the Corporation’s net-interest margin in the face of rising cost of funds reflects the size and asset quality of the loan portfolio, as well as the $20.8 million or 20.5% increase in average non-interest bearing deposits period over period.

Total interest income for the nine months ending September 30, 2018 was $32.3 million, which represented a $6.2 million, or 24.2%, increase compared with the nine months ending September 30, 2017. The increase in income was attributable to a $126.6 million increase in average interest earning assets, year over year, helped by an increase of 24 basis points in

34

31

Table of Contents

yield on earning assets, to 5.07% from 4.83%, for same period in 2017. The commercial loan portfolio and home equity loan portfolio yields, in particular, rose 36 and 46 basis points, respectively. Total interest expense rose $3.2 million or 65.6% to $8.0 million for the first nine months of 2018, compared with $4.8 million for the first nine months of 2017. The year-over-year increase was primarily due to an increase in average interest bearing deposits of $114.6 million, year over year, as well as an overall increase of 49 basis points in the cost of interest-bearing funds reflective of the overall increase in market rates.

Net interest income increased $3.1 million, or 14.7%, to $24.3 million for the nine months ended September 30, 2018, compared to $21.2 million for the nine months ended September 30, 2017. The net-interest margin, although strong, decreased 11 basis points for the first nine months of 2018 at 3.83%, compared with 3.94% for the first nine months of 2017. The strength in the Corporation’s net-interest margin reflects the size and asset quality of the loan portfolio, as well as the $13.6 million or 13.8% increase in average non-interest bearing deposits period over period.

Analyses of Interest Rates and Interest Differential

The tables below present the major asset and liability categories on an average daily balance basis for the periods presented, along with interest income, interest expense and key rates and yields on a tax equivalent basis.

2018

2017

Interest

Interest

For the Three Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
5,872

28

1.89%

$
3,642

11

1.20%
Federal funds sold

477

2

1.87%

945

3

1.26%
Investment securities(1)

57,574

350

2.41%

50,774

292

2.28%
Loans held for sale

39,847

462

4.64%

33,816

333

3.91%
Loans held for investment(1)

791,914

10,758

5.36%

659,430

8,596

5.17%
Total loans

831,761

11,220

5.33%

693,246

8,929

5.11%
Total interst-earning assets

895,684

11,600

5.12%

748,607

9,235

4.89%
Noninterest earning assets

40,645

40,051

Total assets

$
936,329

$
788,658

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
104,857

351

1.33%

$
83,165

135

0.64%
Money market and savings deposits

238,086

919

1.53%

214,956

499

0.92%
Time deposits

257,250

1,215

1.87%

187,642

573

1.21%
Total deposits

600,193

2,485

1.64%

485,763

1,207

0.99%
Short-term borrowings

85,026

491

2.29%

95,669

326

1.35%
Long-term borrowings

6,650

48

2.86%

12,388

74

2.37%
Total Borrowings

91,676

539

2.33%

108,057

400

1.47%
Subordinated Debentures

9,308

171

7.30%

13,376

244

7.24%
Total interest-bearing liabilities

701,177

3,195

1.81%

607,196

1,851

1.21%
Noninterest-bearing deposits

122,454

101,611

Other noninterest-bearing liabilities

6,193

8,472

Total liabilities

$
829,824

$
717,279

Total stockholders' equity

106,505

71,379

Total stockholders' equity and liabilities

$
936,329

$
788,658

Net interest income

$
8,405

$
7,384

Net interest spread

3.31%

3.68%
Net interest margin

3.72%

3.91%


	For the Three Months Ended September 30,
(dollars in thousands)	2022						2021						Change
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets:
Due from banks	$	15,678	$	92	2.33	%	$	40,249	$	16	0.16	%	$	(24,571)	$	76	2.17	%
Federal funds sold	219		1		1.81		23,013		1		0.02		(22,794)		—		1.79
Investment securities - taxable (1)	107,929		648		2.38		79,785		357		1.78		28,144		291		0.60
Investment securities - tax exempt (1)	63,711		451		2.81		67,250		377		2.22		(3,539)		74		0.59
Loans held for sale	37,857		479		5.02		110,905		824		2.97		(73,048)		(345)		2.05
Loans held for investment (1)	1,565,861		21,371		5.41		1,370,439		16,804		4.84		195,422		4,567		0.57
Total loans	1,603,718		21,850		5.41		1,481,344		17,628		4.72		122,374		4,222		0.69
Total interest-earning assets	1,791,255		23,042		5.10	%	1,691,641		18,379		4.31	%	99,614		4,663		0.79	%
Noninterest earning assets	76,939						48,207						28,732
Total assets	$	1,868,194					$	1,739,848					$	128,346
Liabilities and stockholders' equity:
Interest-bearing demand deposits	$	221,402	$	798	1.43	%	$	270,518	$	201	0.29	%	$	(49,116)	$	597	1.14	%
Money market and savings deposits	718,744		2,075		1.15		647,093		853		0.52		71,651		1,222		0.63
Time deposits	361,527		1,202		1.32		237,080		273		0.46		124,447		929		0.86
Total deposits	1,301,673		4,075		1.24		1,154,691		1,327		0.46		146,982		2,748		0.78
Borrowings	41,313		266		2.55		111,075		126		0.45		(69,762)		140		2.10
Subordinated debentures	40,578		591		5.78		40,740		596		5.85		(162)		(5)		(0.07)
Total interest-bearing liabilities	1,383,564		4,932		1.41		1,306,506		2,049		0.62		77,058		2,883		0.79
Noninterest-bearing deposits	295,975						254,843						41,132
Other noninterest-bearing liabilities	31,041						22,919						8,122
Total liabilities	1,710,580						1,584,268						126,312
Total stockholders' equity	157,614						155,580						2,034
Total stockholders' equity and liabilities	$	1,868,194					$	1,739,848					$	128,346
Net interest income and spread (1)			$	18,110	3.69				$	16,330	3.69				$	1,780	—
Net interest margin (1)					4.01	%					3.83	%					0.18	%

	~~(1)~~
~~Yields and net interest income are reflected on a tax-equivalent basis.~~

(1)Yieldsand net interest income are reflected on a tax-equivalent basis.

35

32

Table of Contents

2018

2017

Interest

Interest

For the Nine Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
5,175

64

1.66%

$
6,765

49

0.97%
Federal funds sold

784

11

1.89%

836

6

0.96%
Investment securities(1)

54,144

958

2.37%

49,526

828

2.24%
Loans held for sale

31,074

1,017

4.36%

28,419

833

3.92%
Loans held for investment(1)

755,925

30,209

5.28%

634,951

24,329

5.12%
Total loans

786,999

31,226

5.28%

663,370

25,162

5.07%
Total interst-earning assets

847,102

32,259

5.07%

720,497

26,045

4.83%
Noninterest earning assets

41,393

34,340

Total assets

$
888,495

$
754,837

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
103,623

851

1.10%

$
76,618

304

0.53%
Money market and savings deposits

228,107

2,212

1.30%

210,593

1,356

0.86%
Time deposits

247,244

3,109

1.68%

177,215

1,418

1.07%
Total deposits

578,974

6,172

1.43%

464,426

3,078

0.89%
Short-term borrowings

70,959

1,123

2.12%

88,711

788

1.19%
Long-term borrowings

6,720

142

2.83%

12,650

215

2.27%
Total Borrowings

77,679

1,265

2.18%

101,361

1,003

1.32%
Subordinated Debentures

9,527

525

7.37%

13,376

725

7.25%
Total interest-bearing liabilities

666,180

7,962

1.60%

579,163

4,806

1.11%
Noninterest-bearing deposits

112,616

99,001

Other noninterest-bearing liabilities

5,895

6,731

Total liabilities

$
784,691

$
684,895

Total stockholders' equity

103,804

69,942

Total stockholders' equity and liabilities

$
888,495

$
754,837

Net interest income

$
24,297

$
21,239

Net interest spread

3.47%

3.72%
Net interest margin

3.83%

3.94%


	For the Nine Months Ended September 30,
(dollars in thousands)	2022						2021						Change
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets:
Due from banks	$	23,612	$	153	0.87	%	$	24,340	$	22	0.12	%	$	(728)	$	131	0.75	%
Federal funds sold	1,440		4		0.37		18,991		3		0.02		(17,551)		1		0.35
Investment securities - taxable (1)	105,624		1,599		2.02		78,951		1,076		1.82		26,673		523		0.20
Investment securities - tax exempt (1)	63,848		1,240		2.60		64,023		1,094		2.28		(175)		146		0.32
Loans held for sale	52,495		1,580		4.02		139,101		2,922		2.80		(86,606)		(1,342)		1.22
Loans held for investment (1)	1,489,345		56,614		5.08		1,349,780		48,375		4.79		139,565		8,239		0.29
Total loans	1,541,840		58,194		5.05		1,488,881		51,297		4.61		52,959		6,897		0.44
Total interest-earning assets	1,736,364		61,190		4.71	%	1,675,186		53,492		4.27	%	61,178		7,698		0.44	%
Noninterest earning assets	74,313						44,388						29,925
Total assets	$	1,810,677					$	1,719,574					$	91,103
Liabilities and stockholders' equity:
Interest-bearing demand deposits	$	242,863	$	1,183	0.65	%	$	252,074	$	739	0.39	%	$	(9,211)	$	444	0.26	%
Money market and savings deposits	702,696		4,003		0.76		609,201		2,505		0.55		93,495		1,498		0.21
Time deposits	319,927		1,996		0.83		258,099		1,017		0.53		61,828		979		0.30
Total deposits	1,265,486		7,182		0.76		1,119,374		4,261		0.51		146,112		2,921		0.25
Borrowings	24,621		391		2.12		139,716		437		0.42		(115,095)		(46)		1.70
Subordinated debentures	40,548		1,775		5.85		40,711		1,787		5.87		(163)		(12)		(0.02)
Total interest-bearing liabilities	1,330,655		9,348		0.94		1,299,801		6,485		0.67		30,854		2,863		0.27
Noninterest-bearing deposits	291,261						248,355						42,906
Other noninterest-bearing liabilities	29,452						24,928						4,524
Total liabilities	1,651,368						1,573,084						78,284
Total stockholders' equity	159,309						146,490						12,819
Total stockholders' equity and liabilities	$	1,810,677					$	1,719,574					$	91,103
Net interest income and spread (1)			$	51,842	3.77				$	47,007	3.60				$	4,835	0.17
Net interest margin (1)					3.99	%					3.75	%					0.24	%

	~~(1)~~
~~Yields and net interest income are reflected on a tax-equivalent basis.~~

(1)Yieldsand net interest income are reflected on a tax-equivalent basis.

33

Table of Contents

Rate/Volume Analysis ~~(tax-equivalent basis)~~

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 three and nine months ended September 30, ~~2018~~2022 as compared to the same periods in ~~2017,~~2021, allocated by rate and

36

~~Table of Contents~~

volume. Changes in interest income and/or expense attributable to both ~~volume~~rate and ~~rate~~volume have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.

2018 Compared to 2017

Three Months Ended

Nine Months Ended

September 30,

September 30,
(dollars in thousands)

Rate

Volume

Total

Rate

Volume

Total
Interest income:

Due from banks

$
8

9

17

$
35

(20)

15
Federal funds sold

5

(6)

(1)

6

(1)

5
Investment securities(1)

17

41

58

49

81

130
Loans held for sale

66

63

129

101

83

184
Loans held for investment(1)

341

1,821

2,162

819

5,061

5,880
Total loans

407

1,884

2,291

920

5,144

6,064
Total interest income

$
437

1,928

2,365

$
1,008

5,206

6,214
Interest expense:

Interest checking

$
174

42

216

$
412

135

547
Money market and savings deposits

361

59

420

735

121

856
Time deposits

383

259

642

999

692

1,691
Total interest-bearing deposits

918

360

1,278

2,146

948

3,094
Short-term borrowings

390

(225)

165

603

(268)

335
Long-term borrowings

76

(102)

(26)

67

(140)

(73)
Total borrowings

466

(327)

139

670

(408)

262
Subordinated debentures

14

(87)

(73)

19

(219)

(200)
Total interest expense

1,398

(54)

1,344

2,836

320

3,156
Interest differential

$
(961)

1,982

1,021

$
(1,828)

4,886

3,058


	2022 Compared to 2021
	Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	Rate		Volume		Total		Rate		Volume		Total
Interest income:
Due from banks	$	91	$	(15)	$	76	$	132	$	(1)	$	131
Federal funds sold	2		(2)		—		6		(5)		1
Investment securities - taxable (1)	143		148		291		129		394		523
Investment securities - tax exempt (1)	95		(21)		74		149		(3)		146
Loans held for sale	382		(727)		(345)		942		(2,284)		(1,342)
Loans held for investment (1)	2,020		2,547		4,567		3,046		5,193		8,239
Total loans	2,402		1,820		4,222		3,988		2,909		6,897
Total interest income	$	2,733	$	1,930	$	4,663	$	4,404	$	3,294	$	7,698
Interest expense:
Interest-bearing demand deposits	$	640	$	(43)	$	597	$	472	$	(28)	$	444
Money market and savings deposits	1,118		104		1,222		1,071		427		1,498
Time deposits	727		202		929		694		285		979
Total deposits	2,485		263		2,748		2,237		684		2,921
Borrowings	263		(123)		140		561		(607)		(46)
Subordinated debentures	(3)		(2)		(5)		(5)		(7)		(12)
Total interest expense	$	2,745	$	138	$	2,883	$	2,793	$	70	$	2,863
Interest differential	$	(12)	$	1,792	$	1,780	$	1,611	$	3,224	$	4,835

(1)Yields and net interest income are reflected on a tax-equivalent basis.

Three Months Ended September 30, 2022 Compared to the Same Period in 2021

For the three months ended September 30, ~~2018~~2022 as compared to the same period in ~~2017, the~~2021, tax-equivalent interest income increased $4.7 million as favorable rate and volume changes contributed $2.7 million, and $1.9 million, respectively. The favorable change in ~~net~~rates was driven by increased yield on loans held for sale (up 205 basis points) and loans held for investment (up 57 basis points) that favorably impact interest income ~~due~~by $2.4 million, combined. The loans held for investment average balances increased $195.4 million, leading to a favorable volume ~~changes was driven largely from growth~~impact on interest income of $2.5 million, while the decline in loans held for sale average balances of $73.0 million had an unfavorable impact to interest income of $727 thousand as shown in the ~~loan~~table above. Within the loans held for investment portfolio, ~~which~~average balances on commercial loans and leases increased ~~$138.5~~$33.6 million, onand $54.0 million, respectively, construction loans were up $65.3 million, and residential real estate loans average ~~over~~balances increased $78.2 million, while the ~~three month periods. This increase contributed $1.9~~average balance of PPP loans decreased $132.4 million as such loans continue to ~~interest income. Total investment securities, cash and cash equivalents were relatively flat, period over period.~~ be forgiven by the SBA.

On the funding side, interest ~~checking and~~expense increased $2.9 million due to the impact from rate hikes issued by the Fed, which were partially offset by volume declines on borrowings. The cost of deposits were up across the board, causing a $2.5 million increase to interest expense. The cost of interest-bearing demand deposits, money market and savings accounts ~~together rose $42.3~~and time deposits increased 114 basis points, 63 basis points and 86 basis points, respectively, while the cost of borrowings increased 210 basis points. Money market/savings accounts and time deposit average balances increased $71.7 million, and $124.4 million, respectively, while interest-bearing demand deposits decreased $49.1 million on average, ~~reducing~~and borrowings decreased $69.8 million on average.

Overall, the $1.8 million increase in net interest income was derived by ~~$94 thousand. Time deposits~~volume changes as the impact from increased ~~$72.1~~average earning assets and the $41.1 million onin free funding outpaced the increase in average ~~causing an increase to~~ interest ~~expense of $259 thousand. Lower levels of borrowings, down $16.4 million on average affected net interest income $327 thousand favorably, and lower levels of subordinated debt contributed $87 thousand~~bearing liabilities.

Nine Months Ended September 30, 2022 Compared to the ~~net interest income over the three month periods compared.~~

Same Period in 2021

For the ~~three~~nine months ended September 30, ~~2018~~2022 as compared to the same period in ~~2017, the unfavorable~~2021, tax-equivalent interest income increased $7.7 million as positive rate changes on average earning assets contributed $4.4 million and favorable volume changes helped to increase interest income by $3.3 million. The favorable change in ~~net~~ interest income due to rate changes was driven largely from the increase in cost of funds, particularly from wholesale funding such as borrowings and time deposits, which rose 86 and 65 basis points, respectively. Core deposits, such as interest checking and money market accounts rose 69 and 63 basis points, respectively. These unfavorable rate changes were partially offset by favorable rate changes in interest earning assets. Overall, the increase in interest income from volume changes contributed $2.0 million and out-paced the unfavorable rate changes to improve net interest income by $1.0 million.

~~For the nine months ended September 30, 2018 as compared to the same period in 2017, the favorable change in net interest income due to volume changes was driven largely from~~ growth in the loans held for sale (increase of 122 basis points) and the overall loans held for investment portfolio (increase of 29 basis points). This large

34

Table of Contents

increase in the yield on loans held for sale was the result of interest rates hovering at historical lows throughout much of 2021, but then as the Fed raised interest rates in 2022, the yield benefited from this action. The $3.3 million positive impact that volume changes had to interest income was largely the result of loan ~~portfolio,~~average balance increases, which ~~increased $123.6 million on average over the nine month periods. This increase~~ contributed ~~$5.1~~$5.2 million to interest income, offset by a decline in the volume of loans held or sale which had an unfavorable impact of $2.3 million on interest income. ~~Cash and cash equivalents were relatively flat, period over period, while~~The increase in loans held for investment ~~securities~~ average balances ~~increased $4.6~~were led by an increases in commercial loans, small business loans and leases of $30 million, ~~period over period.~~ $58.1 million, and $56.5 million, respectively, construction loans of $50.8 million, and residential loans held for investment of $47.3 million, offset somewhat by a $152.3 million decline in PPP loan balances as they continue to be forgiven by the SBA.

On the funding side, interest ~~checking and~~expense increased $2.9 million. The cost of deposits was up, having a $2.9 million negative effect on interest expense. The cost of interest-bearing demand deposits, money market and savings deposits, and time deposits increased 26 basis points, 21 basis points, and 30 basis points, respectively, while the cost of borrowings increased 170 basis points. Money market and savings accounts, ~~together rose $44.5~~and time deposits increased $93.5 million, and $61.8 million on average ~~reducing net~~respectively, while interest ~~income by $256 thousand. Time~~bearing demand deposits ~~increased $70.0~~and borrowings were down $9.2 million and $115.1 million on average, ~~causing an increase~~respectively, leading to ~~interest expense of $692 thousand. Lower levels of borrowings, down $23.7 million on average affected net interest income $408~~

37

~~Table of Contents~~

a $70 thousand ~~favorably, and lower levels of subordinated debt contributed $219 thousand to the net interest income over the nine month periods compared.~~

For the nine months ended September 30, 2018 as compared to the same period in 2017, the unfavorable change in net interest income due to rate changes was driven largely from the increase in cost of funds, particularly from wholesale funding such as borrowings and time deposits, which rose 86 and 61 basis points, respectively. Core deposits, such as interest checking and money market accounts rose 57 and 44 basis points, respectively. These unfavorable rate changes were partially offset by favorable rate changes in interest earning assets. Overall, the increase in interest ~~income from volume changes contributed $4.9~~expense.

Overall, the $4.8 million ~~to interest income and out-paced the unfavorable rate changes to improve net interest income by $3.1 million.~~

~~Interest Rate Sensitivity~~

The Corporation actively manages its interest rate sensitivity position. The objectives of interest rate risk management are to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth in net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures approved by the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offerings of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window and certificates of deposit from institutional brokers, including the Certificate of Deposit Account Registry Service (“CDARS”), and listing services.

The Corporation uses several tools to measure its interest rate risk including interest rate sensitivity analysis, or gap analysis, market value of portfolio equity analysis, interest rate simulations under various rate scenarios and tax-equivalent net interest margin trend reports. The results of these reports are compared to limits established by the Corporation’s ALCO policies and appropriate adjustments are made if the results are outside the established limits.

The following table demonstrates the annualized result of an interest rate simulation. The simulation assumes rate shifts occur upward and downward on the yield curve in even increments over the first twelve months (ramp). This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over the next twelve months. The changes to net interest income shown below are in compliance with the Corporation’s policy guidelines.

~~Summary of Interest Rate Simulation~~

Change in Net Interest

Change in Net Interest

Income Over the Twelve

Income Over the Twelve

Months Beginning After

Months Beginning After

September 30, 2018

December 31, 2017

(dollars in thousands)

Amount

Percentage

Amount

Percentage

+300 basis points

$
206

0.65
%
$
1,561

5.29
%
+200 basis points

$
157

0.50
%
$
1,035

3.50
%
+100 basis points

$
93

0.29
%
$
518

1.75
%
-100 basis points

$
(237)

(0.75)
%
$
(601)

(2.04)
%

The above interest rate simulation suggests that the Corporation’s balance sheet is slightly asset sensitive as of September 30, 2018 and December 31, 2017. The table indicates that a 100, 200 or 300 basis point increase in interest rates would have a modestly positive impact from rising rates on net interest income over the next 12 months. The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results continue to drive our funding strategy of increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.

38

~~Table of Contents~~

~~Gap Analysis~~

Management measures and evaluates the potential effects of interest rate movements on earnings through an interest rate sensitivity “gap” analysis. Given the size and turnover rate of the originated mortgage loans held for sale, these loans are treated as having a maturity of 12 months or less. Interest rate sensitivity reflects the potential effect on net interest income when there is movement in interest rates. An institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets repricing within a given period exceeds the amount of its interest-bearing liabilities also repricing within that time period. Conversely, an institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities repricing within a given period exceeds the amount of its interest-earning assets also within that time period. During a period of rising interest rates, a negative gap would tend to decrease net interest income, while a positive gap would tend to increase net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income ~~while a positive gap would tend to decrease net interest income.~~

~~The following tables present~~was derived by volume changes as the ~~interest rate gap analysis of our~~impact from increased average earning assets and ~~liabilities as of September 30, 2018 and December 31, 2017.~~

As of September 30, 2018
(dollars in thousands)

12 Months
or Less

1-2 Years

2-5 Years

Greater Than 5
years and Not
Rate Sensitive

Total
Cash and investments

$
40,738

5,754

12,255

27,525

86,272
Loans, net (1)

450,571

90,119

242,404

50,027

833,121
Other Assets

—

—

—

40,436

40,436
Total Assets

491,309

95,873

254,659

117,988

959,829

Liabilities and Equity:

Noninterest-bearing deposits

16,566

9,080

16,852

82,057

124,555
Interest-bearing deposits

379,611

—

—

—

379,611
Time deposits

255,720

10,330

11,411

—

277,461
FHLB advances

43,755

5,000

—

—

48,755
Other Liabilities

1,444

—

—

20,985

22,429
Total stockholders' equity

—

—

—

107,018

107,018
Total liabilities and stockholders' equity

$
697,096

24,410

28,263

210,060

959,829
Repricing gap-positive

(Negative) Positive

$
(205,787)

71,463

226,396

(92,072)

—
Cumulative repricing gap: Dollar amount

$
(205,787)

(134,324)

92,072

—

Percent of total assets

(21.44)%

(13.99)%

9.59%

—

the $42.9 million in free funding outpaced the increase in average interest bearing liabilities.

~~(1)~~

~~Loans include portfolio loans and loans held for sale~~

39

~~Table of Contents~~

As of December 31, 2017
(dollars in thousands)

12 Months
or Less

1-2 Years

2-5 Years

Greater Than 5
years and Not
Rate Sensitive

Total
Cash and investments

$
26,648

7,475

8,523

52,542

95,188
Loans, net (1)

420,500

75,629

202,736

30,794

729,659
Other Assets

—

—

—

31,188

31,188
Total Assets

447,148

83,104

211,259

114,524

856,035

Liabilities and Equity:

Noninterest-bearing deposits

11,414

10,116

23,960

54,964

100,454
Interest-bearing deposits

253,664

27,291

27,292

—

308,247
Time deposits

159,808

52,830

5,770

—

218,408
FHLB advances

99,750

1,800

7,063

13,308

121,921
Other Liabilities

—

—

—

5,642

5,642
Total stockholders' equity

—

—

—

101,363

101,363
Total liabilities and stockholders' equity

$
524,636

92,037

64,085

175,277

856,035
Repricing gap-positive

(Negative) Positive

(77,488)

(8,933)

147,174

(60,753)

—
Cumulative repricing gap: Dollar amount

$
(77,488)

(86,421)

60,753

—

Percent of total assets

(9.05)%

(10.10)%

6.88%

—

~~(1)~~

~~Loans include portfolio loans and loans held for sale~~

Under the repricing gap analysis for both periods, we are liability-sensitive in the short-term mainly due to recent loan growth which has out-paced our core deposit growth. In addition, customer preference has been for short-term or liquid deposits. We generally manage our interest rate risk profile close to neutral, using a strategy that is focused on increasing our concentration of relationship-based transaction accounts through efforts of our business developers and new branches. The gap results presented could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis. Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time and offers only an approximate estimate of the relative sensitivity of our interest-earning assets and interest-bearing liabilities to changes in market interest rates. In addition, the impact of certain optionality is embedded in our balance sheet such as contractual caps and floors, and trends in asset and liability growth. Accordingly, we combine the use of gap analysis with the use of an earnings simulation model that provides a dynamic assessment of interest rate sensitivity.

PROVISION FOR LOAN AND LEASE LOSSES

~~For the three months ended~~

Three Months Ended September 30, ~~2018,~~2022 Compared to the ~~Corporation recorded~~Same Period in 2021

The provision for loan losses decreased $71 thousand due to decreases in specific reserves on non-performing loans as the underlying credit quality improved and certain qualitative factors improved as well, partially offset by providing for continued loan growth and charge-offs on small ticket equipment leases.

Nine Months Ended September 30, 2022 Compared to the Same Period in 2021

The provision for loan losses increased $451 thousand to provide for the significant level of loan growth year over year, partially offset by the impact of decreases to specific reserves and qualitative factors noted above.

Asset Quality Summary

Meridian's credit culture is strong and asset quality remains a ~~Provision~~primary focus of ~~$291~~management. The ratio of non-performing assets to total assets declined to 1.20% as of September 30, 2022, from 1.34% as of December 31, 2021. There was no other real estate property included in non-performing assets for either period. Total non-performing loans were $23.1 million and $23.0 million as of September 30, 2022 and December 31, 2021, respectively, however subsequent to September 30, 2022, principal payments of $3.2 million and $307 thousand on a non-performing loan relationship were received.

Meridian realized net charge-offs of 0.10% of total average loans for the year ending September 30, 2022 which ~~was a $374 thousand decrease from~~is higher than the 0.01% over the same period in ~~2017. Net~~2021. Charge-offs amounted to $431 thousand for the quarter ending September 30, 2022, while recoveries were $74 thousand during this quarter. Nearly all of the charge-offs for the ~~three months ended~~quarter ending September 30, ~~2018~~2022 were ~~$29 thousand as compared~~from small ticket equipment leases, while recoveries were split between commercial loans and home equity loans. The ratio of allowance for loan losses to ~~$520 thousand~~total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure, see reconciliation in the ~~same period in 2017.~~

~~For the nine months ended September 30, 2018, the Corporation recorded a Provision of $1.3 million which~~Appendix), was a $187 thousand decrease from the same period in 2017. Net charge-offs for the nine months ended September 30, 2018 were $256 thousand as compared to $511 thousand of net charge-offs for the same period in 2017.

~~The decreased provision over both the three and nine month periods was the result of strong asset quality and the lower level of net charge-offs.~~

40

~~Table of Contents~~

~~Asset Quality and Analysis of Credit Risk~~

~~Asset quality remains strong~~1.20% as of September 30, ~~2018, evidenced by total nonperforming loans~~2022 and leases having decreased by $300 thousand, to $2.9 million, representing 0.36% of loans and leases held-for-investment as of September 30, 2018, compared to $3.2 million, or 0.45% of loans and leases held-for-investment,1.46% as of December 31, ~~2017. The decrease to nonperforming loans resulted from the pay-downs in the commercial and industrial portfolio as well as in the commercial construction portfolio.~~

~~The Allowance represented 0.96% of loans and leases held-for-investment, as~~2021. As of September 30, ~~2018 and December 31, 2017. The Allowance to~~2022 there were specific reserves of $2.8 million against a non-performing loans, ~~increased~~down from ~~212.51%~~$3.2 million as of December 31, ~~2017~~2021 due to ~~263.89% as of September 30, 2018.~~

As of September 30, 2018, the Corporation did not have OREO, as compared to $437 thousand as of December 31, 2017. The balance of OREO as of December 31, 2017 was comprised of one foreclosure, which consisted of two properties. These properties were soldimprovement in the ~~quarter ended September 30, 2018 and~~underlying credit quality for certain loans, as discussed in the ~~Corporation recorded a gain on sale of $57 thousand which is recorded in non-interest income. All OREO properties are recorded at the lower of cost or fair value less cost to sell.~~

As of September 30, 2018, the Corporation had $4.0 million of troubled debt restructurings (“TDRs”), of which $3.5 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2017, the Corporation had $2.6 million of TDRs, of which $1.9 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of September 30, 2018, the Corporation had a recorded investment of $6.5 million of impaired loans and leases which included $4.0 million of TDRs.

above paragraph.

The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.

41

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Table of Contents

Nonperforming Assets and Related Ratios

As of

September 30,

December 31,
(dollars in thousands)

2018

2017
Non-performing assets:

Nonaccrual loans:

Real estate loans:

Commercial mortgage

$
494

$
414
Home equity lines and loans

85

137
Residential mortgage

2,151

1,084
Commercial construction

—

185
Total real estate loans

$
2,730

$
1,820
Commercial and industrial

192

1,326
Total nonaccrual loans

$
2,922

$
3,146
Loans 90 days or more past due and accruing

—

11
Other real estate owned

—

437
Total non-performing loans

$
2,922

3,157
Total non-performing assets

$
2,922

3,594

Troubled debt restructurings:

TDRs included in non-performing loans

554

741
TDRs in compliance with modified terms

3,463

1,900
Total TDRs

$
4,017

$
2,641

Asset quality ratios:

Non-performing assets to total assets

0.30%

0.42%
Non-performing loans to:

Total loans

0.35%

0.43%
Total loans held-for-investment

0.36%

0.45%
Allowance for loan losses to:

Total loans

0.92%

0.92%
Total loans held-for-investment

0.96%

0.96%
Non-performing loans

263.89%

212.51%

Total loans and leases

$
840,832

$
729,661
Total loans and leases held-for-investment

$
806,788

$
694,637
Allowance for loan and lease losses

$
7,711

$
6,709
The following table presents nonperforming assets and related ratios for the periods indicated:


(dollars in thousands)	September 30, 2022			December 31, 2021
Non-performing assets:
Nonaccrual loans:
Real estate loans:

Home equity lines and loans	$	878		$	911
Residential mortgage	2,097			2,398

Total real estate loans	2,975			3,309
Commercial and industrial	18,202			18,801
Small business loans	1,401			666
Leases	506			212
Total nonaccrual loans	23,084			22,988

Total non-performing assets	$	23,084		$	22,988

Troubled debt restructurings:
TDRs included in non-performing loans and leases	$	193		$	361
TDRs in compliance with modified terms	3,637			3,446
Total TDRs	$	3,830		$	3,807

Asset quality ratios:
Non-performing assets to total assets	1.20		%	1.34		%
Non-performing loans to:
Total loans and leases	1.40		%	1.57		%
Total loans held-for-investment	1.43		%	1.66		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)	1.45		%	1.80		%
Allowance for loan losses to:
Total loans and leases	1.15		%	1.28		%
Total loans held-for-investment	1.18		%	1.35		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)	1.20		%	1.46		%
Non-performing loans	82.20		%	81.60		%

Total loans and leases	$	1,644,149		$	1,467,339
Total loans and leases held-for-investment	$	1,610,349		$	1,386,457
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)	$	1,587,037		$	1,280,654
Allowance for loan and lease losses	$	18,974		$	18,758

(1) The allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure.

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Table of Contents

NON-INTEREST INCOME

Three Months Ended September 30, ~~2018~~2022 Compared to the Same Period in ~~2017~~

~~Total~~2021

The following table presents the components of non-interest income for the ~~three months ended September 30, 2018 was $9.2 million, down $1.3 million, or 12.3%, from the comparable period in 2017. The overall decrease in~~periods indicated:


	Quarter Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change
Mortgage banking income	$	7,329	$	18,726	$	(11,397)	(60.9)	%
Wealth management income	1,114		1,232		(118)		(9.6)	%
SBA loan income	989		2,688		(1,699)		(63.2)	%
Earnings on investment in life insurance	138		93		45		48.4	%
Net change in the fair value of derivative instruments	127		(339)		466		(137.5)	%
Net change in the fair value of loans held-for-sale	(237)		(532)		295		(55.5)	%
Net change in the fair value of loans held-for-investment	(886)		37		(923)		(2494.6)	%
Net gain on hedging activity	399		(1,189)		1,588		(133.6)	%
Net gain on sale of investment securities available-for-sale	—		314		(314)		(100.0)	%
Service charges	32		35		(3)		(8.6)	%
Other	1,219		1,057		162		15.3	%
Total non-interest income	$	10,224	$	22,122	$	(11,898)	(53.8)	%

Total non-interest income ~~came primarily from our mortgage division. Mortgage banking revenue~~ decreased ~~over the period~~$11.9 million due primarily to lower ~~margins,~~income from our mortgage segment, which ~~decreased 50 basis points for~~was impacted by lower levels of mortgage loan originations in a rising rate environment and a lack of housing inventory. Partially offsetting the ~~three month period. The~~impact of the decline in mortgage banking ~~revenue was offset slightly by a $214 thousand increase~~income were net changes in the fair value ~~adjustments related~~of derivative instruments and loans held-for-sale, along with an improvement in net gains on hedging activity which increased $2.3 million, combined.

SBA loan income decreased $1.7 million as a higher volume of SBA loans were sold into the secondary market in the prior year comparable quarter: $20.8 million of loans were sold in the quarter-ending September 30, 2022 compared to ~~mortgage banking~~$25.0 million in loans sold in the quarter-ending September 30, 2021. Contributing to ~~($333) thousand~~lower SBA loan income, margins on the SBA loan sales decreased from ~~($547)~~the prior year due to the upward movement in interest rates, which drove SBA loan prices down.

The net change in the fair value of loans held-for-investment decreased to a loss of $886 thousand for the ~~same period in 2017. Wealth management revenue was relatively flat for the three months~~quarter ended September 30, ~~2018~~2022, compared to ~~three months ended September 30, 2017.~~

a gain of $37 thousand for the comparable prior year quarter, due to the negative impact the rising interest rate environment had on the fair value of the loans in portfolio that are held at fair value. Other non-interest income was up $162 thousand due to increases in title fee income, FHLB stock dividend income and broker fee income.

42

~~Table of Contents~~

Nine Months Ended September 30, ~~2018~~2022 Compared to the Same Period in ~~2017~~

~~Total~~2021

The following table presents the components of non-interest income for the ~~nine months ended September 30, 2018 was $24.9 million, down $2.6 million, or 9.6%, from the same period in 2017. The overall decrease in~~periods indicated:


	Year Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change
Mortgage banking income	$	21,367	$	62,293	$	(40,926)	(65.7)	%
Wealth management income	3,672		3,531		141		4.0	%
SBA loan income	3,946		5,423		(1,477)		(27.2)	%
Earnings on investment in life insurance	413		224		189		84.4	%
Net change in the fair value of derivative instruments	(713)		(3,431)		2,718		(79.2)	%
Net change in the fair value of loans held-for-sale	(1,094)		(3,164)		2,070		(65.4)	%
Net change in the fair value of loans held-for-investment	(2,499)		(24)		(2,475)		10312.5	%
Net gain on hedging activity	4,941		2,397		2,544		106.1	%
Net gain on sale of investment securities available-for-sale	—		362		(362)		(100.0)	%
Service charges	90		99		(9)		(9.1)	%
Other	3,605		3,192		413		12.9	%
Total non-interest income	$	33,728	$	70,902	$	(37,174)	(52.4)	%

Total non-interest income ~~came primarily from our mortgage division. Mortgage banking revenue~~ decreased ~~over the period~~ due primarily to lower ~~margins,~~income from our mortgage segment, which ~~decreased 26 basis points for the nine month period. The decline~~was impacted by lower levels of mortgage loan originations in ~~mortgage banking revenue was offset slightly by hedging gains~~a rising rate environment and fair value adjustments period over period. Realized gains on derivatives related to mortgage banking, included in other non-interest income, increased $1.3 million for the nine months ended September 30, 2018 to $534 thousand, compared to a ~~loss~~lack of ($798) thousand for the same period in 2017. The increase in realized gains was offset somewhat by a $572 thousand decline in fair value adjustments related to mortgage banking to ($472) thousand from $100 thousand for the same period in 2017. Wealth management revenue was up $1.1 million for the nine months ended September 30, 2018 compared to the same period in 2017.

housing inventory.

37

Table of Contents

NON-INTEREST EXPENSE

Three Months Ended September 30, ~~2018~~2022 Compared to the Same Period in ~~2017~~

2021

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


	Quarter Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change
Salaries and employee benefits	$	13,360	$	19,472	$	(6,112)	(31.4)	%
Occupancy and equipment	1,191		1,133		58		5.1	%
Professional fees	899		873		26		3.0	%
Advertising and promotion	1,165		1,089		76		7.0	%
Data processing	574		530		44		8.3	%
Information technology	868		476		392		82.4	%
Pennsylvania bank shares tax	202		152		50		32.9	%
Other	2,002		1,756		246		14.0	%
Total non-interest expense	$	20,261	$	25,481	$	(5,220)	(20.5)	%

Total non-interest expense ~~was $13.8 million for the three months ended September 30, 2018, down $1.3 million, or 8.4%, from $15.0 million for the three months ended September 30, 2017. The decrease is mainly~~decreased largely attributable to a ~~reduction~~decrease in salaries and employee benefits expense ~~which decreased $1.4 million or 13.8%, as full-time equivalent employees, particularly~~ in the mortgage ~~division were reduced. In addition,~~segment, which had reduced fixed and variable ~~loan expenses decreased $231~~based compensation.

Information technology expense increased $392 thousand ~~or 23.1%, reflecting~~due to cybersecurity improvements, cloud-based costs and other software upgrades, all as a result of growth. Other non-interest expense increased $246 thousand due to the ~~lower~~increased level of ~~mortgage originations. Occupancy~~client engagement and ~~equipment, data processing and advertising and promotion expenses~~business development our employees were ~~relatively flat for~~able to do in the ~~comparable third quarters. Professional and consulting expense for~~current period versus the ~~three months ended September 30, 2018 included $230 thousand in costs related~~prior year due to the formation of the holding company. Other expenses increased $454 thousand or 41.6%, related to a one-time fair market value adjustment of $177 thousand to contingent assets, as well as higher levels of other employee-related expenses, shares tax expense, and other expense.

COVID-19 pandemic restrictions.

Nine Months Ended September 30, ~~2018~~2022 Compared to the Same Period in ~~2017~~

2021

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


	Year Ended
(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change
Salaries and employee benefits	$	41,585	$	61,824	$	(20,239)	(32.7)	%
Occupancy and equipment	3,619		3,460		159		4.6	%
Professional fees	2,659		2,629		30		1.1	%
Advertising and promotion	3,340		2,795		545		19.5	%
Data processing	1,633		1,666		(33)		(2.0)	%
Information technology	2,306		1,365		941		68.9	%
Pennsylvania bank shares tax	612		478		134		28.0	%
Other	5,646		5,773		(127)		(2.2)	%
Total non-interest expense	$	61,400	$	79,990	$	(18,590)	(23.2)	%

Total non-interest expense ~~was $40.4 million for the nine months ended September 30, 2018, down $2.7 million, or 6.2%, from the same period in the 2017. The decrease is mainly~~decreased largely attributable to a ~~reduction~~decrease in salaries and employee benefits expense ~~which decreased $3.0 million or 10.2%, as full-time equivalent employees, particularly in~~at the mortgage ~~division were reduced. In addition,~~segment, which recognized decreased and variable ~~loan expenses decreased $1.0 million or 34.8%, reflecting~~compensation. Partially offsetting this decrease was an increase in salaries & benefits expense for the ~~lower~~bank and wealth segments due to an increase in FTEs and a higher level of ~~mortgage originations. Occupancy and equipment, data processing and advertising~~stock-based compensation expense year-over-year.

Advertising and promotion ~~expenses~~expense increased ~~$52~~$545 thousand ~~$53~~as the result of a renewed and focused priority placed on business development and community outreach efforts. Information technology expense increased $941 thousand due to cybersecurity improvements, cloud-based costs and ~~$265 thousand, respectively, for the year-to-date period due largely to new business locations. Professional and consulting expense included $230 thousand in costs related to the formation~~other software upgrades, all as a result of the holding company. Other expenses were up $877 thousand or 27.4% compared to the prior year period. The increase year-over-year related to amortization of intangible assets of $68 thousand, a one-time fair market value adjustment of $177 thousand to contingent assets, a $200 thousand reserve established for the open litigation as well as higher levels of other employee-related expenses, shares tax expense, up by $45 thousand and $192 thousand, respectively.

growth.

INCOME ~~TAXES~~

TAX EXPENSE

Income tax expense for the three months ended September 30, ~~2018~~2022 was ~~$774 thousand,~~$1.7 million, as compared to ~~$716 thousand~~$2.9 million for the same period in ~~2017, despite~~2021. The decrease in income tax expense was attributable to the ~~$1.3 million increase~~decrease in ~~pre-tax income~~earnings, period over ~~this~~ period. Our effective tax rate was ~~22.1%~~22.3% for the ~~third quarter of 2018~~three months ended September 30, 2022 and ~~33.9%~~23.3% for the third quarter of 2017. The effective tax rate decreased primarily due to the reduction in the Federal statutory tax rate to 21% in 2018 from 34% in 2017, due to the enactment of the Tax Cuts and Jobs Act, which was effective January 1, 2018.

three months ended September 30, 2021.

Income tax expense for the nine months ended September 30, ~~2018~~2022 was ~~$1.7~~$4.9 million, as compared to ~~$1.4~~$8.5 million for the same period in ~~2017, despite~~2021. The decrease in income tax expense was attributable to the ~~$3.4 million increase~~decrease in ~~pre-tax income~~earnings, period over ~~this~~ period. Our effective tax rate was ~~22.3%~~

22.2% for the nine months ended September 30, 2022 and 23.5% for the nine months ended June 30, 2021.

43

38

Table of Contents

for the first nine months of 2018 compared to 35.1% for the first nine months of 2017. As noted above, the effective tax rate decreased primarily due to the reduction in the Federal statutory tax rate to 21% in 2018 from 34% in 2017, due to the enactment of the Tax Cuts and Jobs Act, which was effective January 1, 2018.

BALANCE SHEET ANALYSIS

As of September 30, ~~2018,~~2022, total assets were ~~$959.8~~$1.92 billion which increased $208.5 million, ~~compared with $856.0~~or 12.2%, from December 31, 2021. This growth in assets over the prior period was due primarily to loan portfolio growth, as detailed in the following table:


(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Mortgage loans held for sale	$	33,800	$	80,882	$	(47,082)	(58.2)	%
Real estate loans:
Commercial mortgage	545,736		516,928		28,808		5.6	%
Home equity lines and loans	57,648		52,299		5,349		10.2	%
Residential mortgage (1)	153,513		68,175		85,338		125.2	%
Construction	244,435		160,905		83,530		51.9	%
Total real estate loans	1,001,332		798,307		203,025		25.4	%

Commercial and industrial	329,451		293,771		35,680		12.1	%
Small business loans	133,904		114,158		19,746		17.3	%
Paycheck Protection Program loans	8,837		90,194		(81,357)		(90.2)	%
Main Street Lending Program Loans	597		597		—		—	%
Consumer	497		419		78		18.6	%
Leases, net	129,574		88,242		41,332		46.8	%
Total portfolio loans and leases	$	1,604,192	$	1,385,688	$	218,504	15.8	%
Total loans and leases	$	1,637,992	$	1,466,570	$	171,422	11.7	%

Portfolio loans increased grew $218.5 million, or 15.8%, to $1.6 billion as of September 30, 2022, from $1.4 billion as of December 31, ~~2017. Total assets~~2021. Overall portfolio loan growth, excluding PPP loans, was 23.1% since December 31, 2021, or 30.9% on an annualized basis for 2022. Commercial loans increased ~~$103.8~~$35.7 million, or 12.1%, ~~on a year-to-date basis primarily due to strong loan growth, partially offset by lower levels of cash.~~

~~Total~~commercial real estate loans ~~excluding mortgage loans held for sale, grew $112.2~~increased $28.8 million, or ~~16.1%~~5.6%, to $806.8 million as of September 30, 2018, from $694.6 million as of December 31, 2017. The increase in loans is attributable to several commercial categories as we continue to grow our presence in the Philadelphia market area. Commercialconstruction loans increased ~~$46.5~~$83.5 million, or ~~22.2%~~51.9%, ~~during the first nine months of the year. Commercial~~residential real estate ~~and commercial construction loans combined increased $52.9 million, or 14.4%, during the first nine months of the year. Residential~~ loans held in portfolio increased ~~$18.0~~$85.3 million, or ~~55.2%~~125.2%, ~~during the first nine months as certain loan products~~and lease financings increased $41.3 million, or ~~terms were targeted to hold in portfolio.Residential mortgage loans held for sale decreased $980 thousand, or 2.8%, to $34.0 million as of September 30, 2018~~46.8% from December 31, ~~2017.~~

~~Deposits were $781.9 million as~~2021. Partially offsetting the growth in portfolio loans was a decrease of ~~September 30, 2018, up $154.8~~$81.4 million, or ~~24.7%~~90.2%, ~~from December 31, 2017. Non-interest bearing~~in PPP loan balances as such loans continue to be paid off by the SBA.

The following table presents the major categories of deposits at the dates indicated:


(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change
Noninterest-bearing deposits	$	290,169	$	274,528	$	15,641	5.7	%
Interest-bearing deposits:
Interest-bearing demand deposits	236,562		268,248		(31,686)		(11.8)	%
Money market and savings deposits	709,127		697,628		11,499		1.6	%
Time deposits	437,695		206,009		231,686		112.5	%
Total interest-bearing deposits	1,383,384		1,171,885		211,499		18.0	%
Total deposits	$	1,673,553	$	1,446,413	$	227,140	15.7	%

Total deposits increased ~~$24.4~~$227.1 million, or ~~24.3%, from December 31, 2017. New business relationships fueled the increases. Money market accounts/savings accounts increased $49.9 million, or 22.0%~~15.7%, since December 31, ~~2017 while interest-bearing checking accounts~~2021. While noninterest-bearing deposits increased ~~$21.5~~$15.6 million over this period, the largest increase was in time deposits, $211.5 million, or ~~26.2%~~18.0%, ~~during the year. Certificates of deposit increased $59.1 million, or 27.0%, during the past nine months, paying off borrowings as a result of~~largely from retail and wholesale ~~funds management in the rising rate environment.~~

time deposits due to more favorable interest rates.

Capital

Consolidated ~~stockholder’s~~stockholders’ equity of the Corporation was ~~$107.0~~$151.2 million, or ~~11.15%~~7.9% of total assets as of September 30, ~~2018,~~2022, as compared to ~~$101.4~~$165.4 million, or ~~11.84%~~9.7% of total assets as of December 31, ~~2017.At September 30, 2018, the Tier 1 leverage ratio was 11.02%, the Tier 1 risk-based capital and~~2021.

Period end numbers show a tangible common equity ~~ratios were 12.03%,~~to tangible assets ratio (a non-GAAP measure) of 7.7% for the Corporation and ~~total risk-based capital was 14.03%. At December 31, 2017,~~9.6% for the ~~Tier 1 leverage ratio was 12.37%, the Tier 1 risk-based capital and common equity ratios were 12.86%, and total risk-based capital was 15.53%.~~Bank. Tangible book value per share (a non-GAAP measure) was ~~$15.91~~$25.16 as of September 30, ~~2018,~~2022, compared with ~~$15.00~~26.37 as of December 31, ~~2017.~~

2021. A reconciliation of these non-GAAP measures is below.

39

Table of Contents

The following table presents the Corporation’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators asat the periods indicated:


	Corporation				Bank				Well-capitalized minimum
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Tier 1 leverage ratio	8.54	%	9.39	%	10.52	%	11.51	%	5.00	%
Common tier 1 risk-based capital ratio	9.28	%	10.83	%	11.44	%	13.27	%	6.50	%
Tier 1 risk-based capital ratio	9.28	%	10.83	%	11.44	%	13.27	%	8.00	%
Total risk-based capital ratio	12.80	%	14.81	%	12.70	%	14.63	%	10.00	%

Under the Community Bank Leverage Ratio framework, a community banking organization that is less than $10 billion in total consolidated assets, and has limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9% can elect to report a single regulatory capital ratio. The Corporation has elected to be measured under this framework for Bank capital adequacy and had ratios of 10.52% and 11.51% at September 30, ~~2018~~2022 and December 31, ~~2017:~~

September 30, 2018

To be well capitalized under

For capital adequacy

prompt corrective action

Actual

purposes *

provisions
(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)

$
119,825

14.03%

$
68,312

8.00%

$
85,389

10.00%
Common equity tier 1 capital (to risk-weighted assets)

102,688

12.03%

38,425

4.50%

55,503

6.50%
Tier 1 capital (to risk-weighted assets)

102,688

12.03%

51,234

6.00%

68,312

8.00%
Tier 1 capital (to average assets)

102,688

11.02%

37,260

4.00%

46,575

5.00%

44

~~Table of Contents~~

December 31, 2017

To be well capitalized under

For capital adequacy

prompt corrective action

Actual

purposes *

provisions
(dollars in thousands):

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)

$
117,239

15.53%

$
60,376

8.00%

$
75,469

10.00%
Common equity tier 1 capital (to risk-weighted assets)

101,661

12.86%

33,961

4.50%

49,055

6.50%
Tier 1 capital (to risk-weighted assets)

97,084

12.86%

45,282

6.00%

60,376

8.00%
Tier 1 capital (to average assets)

97,084

12.37%

31,582

4.00%

39,478

5.00%

*Excludes capital conservation buffer of 1.25% for 2017 and 1.875% for 2018.

2021, respectively. The ~~capital ratios for~~Corporation is exempt from CBLR. The bank regulatory agencies temporarily lowered the ~~Corporation, as of September 30, 2018, as shown in the above tables, indicate levels above the regulatory minimum~~CBLR to ~~be considered “well capitalized.” The capital ratios to risk-weighted assets have all decreased from their December 31, 2017 levels largely~~8% as a result of the ~~increase in risk-weighted assets, much of which was in the commercial mortgage, construction, and commercial and industrial segments of the loan portfolio, which are typically risk-weighted at 100%.~~

COVID-19 pandemic.

Liquidity

Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Meridian’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization or that can be used as collateral to secure funding. In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of shared national credits (“SNCs”), which have a national market and can be sold in a timely manner. Meridian’s ~~primary~~available liquidity, which totaled ~~$133.9~~$264.7 million at September 30, ~~2018,~~2022, compared to ~~$125.9~~$263.6 million at December 31, ~~2017,~~2021, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities. Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.

In addition, Meridian maintains borrowing arrangements with various correspondent banks, the ~~Federal Home Loan Bank of Pittsburgh (“FHLB”)~~FHLB and the Federal Reserve Bank of Philadelphia ~~(Federal Reserve)~~ to meet short-term liquidity needs. Through its relationship at the Federal Reserve, Meridian had available credit of approximately ~~$10.7~~$9.2 million at September 30, ~~2018.~~2022. At September 30, 2022, Meridian had no borrowings from the Federal Reserve. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of September 30, ~~2018,~~2022, Meridian’s maximum borrowing capacity with the FHLB was ~~$432.8~~$529.2 million. At September 30, ~~2018,~~2022, Meridian had borrowed ~~$137.1~~$23.4 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling ~~$88.1~~$74.8 million against its available credit lines. At September 30, ~~2018,~~2022, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as ~~$95.9~~$214.7 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and ~~$124.7~~$333.1 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

Discussion of Segments

As of September 30, ~~2018,~~2022, the Corporation has three principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking, Mortgage Banking and Wealth Management (see Note 10 in the accompanying Notes to Unaudited Consolidated Financial Statements).

The Banking Segment recorded ~~net~~ income before tax ~~(“operating margin”)~~ of ~~$2.4~~$7.5 million and ~~$5.7~~$22.5 million for the three and nine months ended September 30, ~~2018, respectively,~~2022 as compared to ~~operating margin~~income before tax of ~~$1.3~~$8.3 million and ~~and $3.6~~$23.5 million for the same ~~respective~~ periods in 2017. Non-interest expense for both the three months and nine months ended September 30, 2018 includes $230 thousand in professional and consulting expense incurred related to the formation of the holding company.2021. The Banking Segment provided ~~68.8%~~100.6% and ~~76.6%~~101.4% of the ~~Bank’s~~Corporation’s pre-tax profit for the three and

45

~~Table of Contents~~

nine month periods ended September 30, ~~2018, respectively,~~2022, as compared to ~~59.8%~~69.0% and ~~87.0%~~65.9% for the same ~~respective periods~~period in ~~2017.~~

2021.

The Wealth Management Segment recorded ~~operating margin~~income before tax of ~~$34~~$552 thousand and $640 thousand for the three and nine months ended September 30, 2018, respectively, as compared to operating margin of $181 thousand and $201 thousand for the same respective periods in 2017. Non-interest expense for both the three months and nine months ended September 30, 2018 includes the impact of the one-time fair market value adjustment of $177 thousand to contingent assets. Prior to our wealth management expansion due to the acquisition in April of 2017, revenue and expenses for wealth management services were immaterial and were included in the Banking Segment.

~~The Mortgage Banking Segment recorded operating margin of $1.1~~$1.8 million for the three and nine months ended September 30, ~~2018,~~2022 as compared to ~~operating margins~~income before tax of ~~$668~~$432 thousand and ~~$335~~$796 thousand for the same ~~respective~~ periods in ~~2017.~~2021. The increase in income in this segment came from an increase in customer based as the number of accounts grew 2.5% and 4.5%, for the three and nine months ended September 30, 2022, respectively.

The Mortgage Banking Segment recorded a loss before tax of $603 thousand and a loss before tax of $2.2 million for the three and nine months ended September 30, 2022 as compared to income before tax of $3.6 million and $12.1 million for the same periods in 2021. Mortgage Banking income and expenses related to loan originations and sales decreased due to lower ~~margins and~~ origination volume.

40

Table of Contents

Off Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, ~~and~~ standby letters of ~~credit.~~

credit, and loan repurchase commitments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, ~~2018~~2022 were ~~$261.2~~$505.9 million as compared to ~~$220.2~~$486.6 million at December 31, ~~2017.~~

2021.

Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at September 30, ~~2018~~2022 amounted to ~~$2.5~~$21.5 million as compared to ~~$1.8~~$26.0 million at December 31, ~~2017.~~

2021.

Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.

~~Recent Litigation~~

~~See “Part II, Item 1. Legal Proceedings” below for information~~

In certain circumstances the Corporation may be required to repurchase residential mortgage loans from investors under the terms of loan sale agreements. Generally, these circumstances include the breach of representations and warranties made to investors regarding borrower default or early payment, as well as a ~~lawsuit filed in November 2017 against the Corporation.~~

~~Regulatory Update~~

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Mostviolation of the ~~changes~~applicable federal, state, or local lending laws. The Corporation agrees to repurchase loans if the representations and warranties made with respect to such loans are breached. Based on the obligations described above, the Corporation repurchased one loan totaling $126 thousand for the three months ended September 30, 2022 and seven loans totaling $1.6 million for the nine months ended September 30, 2022, and repurchased one loan in the amount of $115 thousand for the three months ended September 30, 2021 and four loans totaling $561 thousand for the nine months ended September 30, 2021.

Non-GAAP Financial Measures

Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate performance trends and the ~~Act can~~adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be ~~grouped into five general areas: mortgage lending; certain regulatory relief~~viewed as a substitute for ~~“community” banks; enhanced consumer protections~~performance and financial condition measures determined in ~~specific areas, including subjecting credit reporting agencies~~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 ~~additional requirements; certain regulatory relief for large financial institutions, including increasing~~non-GAAP performance measures that may be presented by other companies.

Our management used the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes to federal securities regulations designed to promote capital formation. Somemeasure of the ~~key provisions~~tangible common equity ratio to assess our capital strength. We believe that this non-GAAP financial measure is useful to investors because, by removing the impact of our goodwill and other intangible assets, it allows investors to more easily assess our capital adequacy. This non-GAAP financial measure should not be considered a substitute for any regulatory capital ratios and may not be comparable to other similarly titled measures used by other companies.

The table below provides the ~~Act as it relates to community banks~~non-GAAP reconciliation for our tangible common equity ratio and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal

tangible book value per common share:

46


(dollars in thousands)	September 30, 2022			December 31, 2021
Total stockholders' equity (GAAP)	$	151,161		$	165,360
Less: Goodwill and intangible assets	4,125			4,278
Tangible common equity (non-GAAP)	147,036			161,082

Total assets (GAAP)	1,921,924			1,713,443
Less: Goodwill and intangible assets	4,125			4,278
Tangible assets (non-GAAP)	$	1,917,799		$	1,709,165

Stockholders' equity to total assets (GAAP)	7.87		%	9.65		%
Tangible common equity to tangible assets (non-GAAP)	7.67		%	9.42		%

Shares outstanding	5,844			6,108

Book value per share (GAAP)	$	25.86		$	27.07
Tangible book value per share (non-GAAP)	$	25.16		$	26.37

41

Table of Contents

~~banking agencies~~The following is a reconciliation of the allowance for loan losses to ~~establish~~total loans held for investment ratio at September 30, 2022. This is considered a ~~community bank leverage ratio~~non-GAAP measure as the calculation excludes the impact of ~~tangible equity to average consolidate assets~~loans held for investment that are fair valued and the impact of PPP loans as these loan types are not ~~less than 8% or more than 10% and provide that banks that maintain tangible equity~~included in ~~excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception~~the allowance for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. The Corporation continues to analyze the changes implemented by the Act and further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact the Corporation’s business, operations, or financial results.

loan losses calculation.


	September 30, 2022			December 31, 2021
Allowance for loan and lease losses	$	18,974		$	18,758

Loans, net of fees and costs (GAAP)	1,610,349			1,386,457
Less: PPP loans	(8,610)			(88,245)
Less: Loans fair valued	(14,702)			(17,558)
Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	$	1,587,037		$	1,280,654

Allowance for loan and leases losses to loans, net of fees and costs (GAAP)	1.18		%	1.35		%
Allowance for loan and leases losses to loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	1.20		%	1.46		%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~See~~

Simulations of Net Interest Income

We use a simulation model on a quarterly basis to measure and evaluate potential changes in our net interest income resulting from various hypothetical interest rate scenarios. Our model incorporates various assumptions that management believes to be reasonable, but which may have a significant impact on results such as:

•The timing of changes in interest rates;

•Shifts or rotations in the ~~discussion~~yield curve;

•Repricing characteristics for market rate sensitive instruments on the balance sheet;

•Differing sensitivities of ~~quantitative~~financial instruments due to differing underlying rate indices;

•Varying timing of loan prepayments for different interest rate scenarios;

•The effect of interest rate floors, periodic loan caps and ~~qualitative disclosures about~~lifetime loan caps;

•Overall growth rates and product mix of interest-earning assets and interest-bearing liabilities.

Because of the limitations inherent in any approach used to measure interest rate risk, simulated results are not intended to be used as a forecast of the actual effect of a change in market ~~risks~~interest rates on our results, but rather as a means to better plan and execute appropriate Asset / Liability Management (“ALM”) strategies.

Potential increase (decrease) to our net interest income between a flat interest rate scenario and hypothetical rising and declining interest rate scenarios, measured over a one-year period as of the dates indicated, are presented in ~~“Management’s Discussion~~the following table which assuming rate shifts occur upward and ~~Analysis~~downward on the yield curve in even increments over the first twelve months (ramp) followed by rates held constant thereafter.


	Nine Months Ended September 30,
Changes in Market Interest Rates	2022		2021
+300 basis points over next 12 months	0.13	%	1.75	%
+200 basis points over next 12 months	0.29	%	1.01	%
+100 basis points over next 12 months	0.15	%	0.43	%
No Change
-100 basis points over next 12 months	(1.40)	%	(0.68)	%
-200 basis points over next 12 months	(3.19)	%	(3.03)	%

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of ~~Results~~September 30, 2022. In its current position, the table indicates that a 100 basis point increase in interest rates would have a positive impact from rising rates on net interest income over the next 12 months as well as in a 200 and 300 basis point increase. The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results continue to drive our funding strategy of ~~Operations –~~increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.

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Table of Contents

Simulation of economic value of equity

To quantify the amount of capital required to absorb potential losses in value of our interest-earning assets and interest-bearing liabilities resulting from adverse market movements, we calculate economic value of equity on a quarterly basis. We define economic value of equity as the net present value of our balance sheet’s cash flow, and we calculate economic value of equity by discounting anticipated principal and interest cash flows under the prevailing and hypothetical interest rate environments. Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios are presented in the following table. The projections assume shifts upward and downward in the yield curve of 100, 200 and 300 basis points occurring immediately.


Changes in Market Interest Rates	September 30, 2022		September 30, 2021
+300 basis points	5	%	62	%
+200 basis points	6	%	47	%
+100 basis points	4	%	28	%
No Change
-100 basis points	(9)	%	(41)	%
-200 basis points	(25)	%	(103)	%

This economic value of equity profile at September 30, 2022 suggests that we would experience a positive effect from an increase in rates, and that the impact would remain stable as rates continue to rise. Conversely, we would experience a negative effect from a decrease in rates. While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact. Since economic value of equity measures the discounted present value of cash flows over the estimated lives of instruments, the change in economic value of equity does not directly correlate to the degree that earnings would be impacted over a shorter time horizon.

The results of our net interest income and economic value of equity simulation analysis are purely hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from that projected, our net interest income might vary significantly. Non-parallel yield curve shifts or changes in interest rate spreads would also cause our net interest income to be different from that projected. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term interest-bearing liabilities reprice faster than expected or faster than our interest-earning assets. Actual results could differ from those projected if we grow interest-earning assets and interest-bearing liabilities faster or slower than estimated, or otherwise change its mix of products. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Furthermore, the results do not take into account the impact of changes in loan prepayment rates on loan discount accretion. If prepayment rates were to increase on our loans, we would recognize any remaining loan discounts into interest income. This would result in a current period offset to declining net interest income caused by higher rate loans prepaying. Finally, these simulation results do not contemplate all the actions that we may undertake in response to changes in interest rates, such as changes to our loan, investment, deposit, funding or other strategies.

Finally, these simulation results do not contemplate all the actions that we may undertake in response to changes in interest rates, such as changes to our loan, investment, deposit, funding or other strategies.

Management has and continues to employ strategies to mitigate risk in the Net Interest ~~Rate Summary,” “– Interest Rate Sensitivity,”~~Income and ~~“Gap Analysis”~~Economic Value simulations. Strategies include actively lowering deposit and funding rates, adding and maintaining interest rate floors on assets and lengthening liabilities in the low rate environment.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form ~~10‑Q.~~

~~Item 4. Controls and Procedures~~

~~Disclosure Controls and Procedures~~

Management, with the participation of the Corporation’s President and Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined in Rule l3a-l5 (e) promulgated under the Exchange Act) as of September 30, 2018.10-Q. Based on this evaluation, the Corporation’s ~~President~~CEO and ~~Chief Executive Officer and Chief Financial Officer~~CFO have concluded that the Corporation’s disclosure controls and procedures ~~are~~were effective as of September 30, ~~2018~~2022 to ensure that the information required to be disclosed by the Corporation in the reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized, and reported completely and accurately within the time periods specified in SEC rules and forms.

Changes inInternal Control Over Financial Reporting

There was no change in the Corporation’s internal control over financial reporting identified during the quarter ended September 30, ~~2018~~2022 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

47

43

Table of Contents

PART II–OTHER INFORMATION

Item 1. Legal Proceedings.

~~On November 21, 2017, three former employees of the mortgage-banking division of the Bank filed suit in the United States District Court for the Eastern District of Pennsylvania,~~ ~~Juan Jordan et al. v. Meridian Bank, Thomas Campbell and Christopher Annas~~, against the Bank purporting to be a class and collective action seeking unpaid and overtime wages under the Fair Labor Standards Act of 1938, the New Jersey Wage and Hour Law, and the Pennsylvania Minimum Wage Act of 1968 on behalf of similarly situated plaintiffs. In February 2018, the Bank answered the complaint and presented affirmative defenses. In March 2018, plaintiffs’ counsel and the Bank agreed to move forward with non-binding mediation. Although the Bank believes it has strong and meritorious defenses, given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, the Bank has recorded a $200 thousand reserve as a reasonable estimate for possible losses that may result from this action. This estimate may change from time to time, and actual losses could vary.

None

Item 1A. Risk Factors.

~~Not applicable.~~

There have been no material changes in the risk factors faced by the Corporation from those disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~None.~~

The following table presents the shares repurchased by the Corporation during the quarter ended September 30, 2022:


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value that May Yet Be Purchased Under the Plan or Programs (1)($000's)
	(Dollars in thousands, except shares and per share amounts)
July 1 to July 31, 2022	16,370	$	28.74	16,370
August 1 to August 31, 2022	159,010	$	30.53	159,010
September 1 to September 30, 2022	22,469	$	29.90	22,469
Total	197,849	$	29.76		$5,610

(1) On August 30, 2021, the Corporation announced a stock repurchase plan pursuant to which the Corporation may repurchase up to $20 million of the company’s outstanding common stock, par value $1.00 per share. Stock is purchased under the plan from time to time in the open market or through privately negotiated transactions, or otherwise, at the discretion of management of the company in accordance with legal requirements.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On August 24, 2018, Meridian Corporation (the “Corporation”), acquired the Bank in a merger and reorganization effected under Pennsylvania law and in accordance with the terms of a Plan of Merger and Reorganization dated April 26, 2018 (the “Agreement”). Pursuant to the Agreement, on August 24, 2018 at 5:00 p.m. each of the 6,402,385 outstanding shares of the Bank’s $1.00 par value common stock formerly held by its shareholders was converted into and exchanged for one newly issued share of the Corporation’s par value common stock, and the Bank became a subsidiary of the Corporation.

~~Item 6. Exhibits.~~

~~The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 49.~~

48

None.

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Table of Contents

Item 6. Exhibits.

EXHIBIT INDEX

Exhibit Number	~~Description~~
~~2.1~~ Exhibit Number		Description
2.1		Plan of Merger and Reorganization dated April 26, 2018 by and between Registrant, Bank and Meridian Interim Bank, filed as Exhibit 2.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.
3.1		Amended Articles of Incorporation of Registrant, filed ~~as Exhibit 3.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.~~herewith.
3.2		Bylaws of Registrant, filed as Exhibit 3.2 to Form 8-K on August 24, 2018 and incorporated herein by reference.
~~31.1~~ 4.2		Indenture, dated as of December 18, 2019, between Meridian Corporation, as Issuer, and U.S. Bank National Association, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed with the SEC on December 18, 2019.
4.3		Form of 5.375% Subordinated Note due 2029 (included as Exhibit A-1 and Exhibit A-2 to the Indenture incorporated by reference as Exhibit 4.2 hereto), filed with the SEC on December 18, 2019.
31.1		Rule ~~13a‑14(a)~~13a-14(a)/ ~~15d‑14(a)~~15d-14(a) Certification of the Principal Executive Officer,, filed herewith.
31.2		Rule ~~13a‑14(a)~~13a-14(a)/ ~~15d‑14(a)~~15d-14(a) Certification of the Principal Financial Officer,, filed herewith.
32		Section 1350 Certifications,, filed herewith.
101.INS		XBRL Instance Document – The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104
	Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

49

45

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Date:~~	~~November 14, 2018~~	~~Meridian Bank~~
Date:			November 9, 2022	Meridian Corporation
				~~By:~~
				By:	/s/ Christopher J. Annas
					Christopher J. Annas
			President and Chief Executive Officer
			(Principal Executive Officer)

				By:	/s/ Denise Lindsay
					Denise Lindsay
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

50

46

~~Pennsylvania~~	~~32-0116054~~
Pennsylvania		83-1561918
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
~~incorporation or organization)~~


Title of class	Trading Symbol	Name of exchange on which registered
Common Stock, $1 par value	MRBK	The NASDAQ Stock Market


PART I FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)			3

Consolidated Balance Sheets – September 30, ~~2018~~ 2022 and December 31, ~~2017~~ 2021			3

Consolidated Statements of Income – Three and Nine Months Ended September 30, ~~2018~~2022 and ~~2017~~ 2021			4

Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, ~~2018~~2022 and ~~2017~~ 2021			5

Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, ~~2018~~2022 and ~~2017~~ 2021			6

Consolidated Statements of Cash Flows – Nine Months EndedSeptember 30, ~~2018~~2022 and ~~2017~~ 2021			7

Notes to Consolidated Financial Statements (Unaudited)			8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			30 29

Item 3 Quantitative and Qualitative Disclosures about Market Risk			47 42

Item 4 Controls and Procedures			47 43

PART II OTHER INFORMATION

Item 1 Legal Proceedings			48 44

Item 1A Risk Factors			48 44

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			48 44

Item 3 Defaults Upon Senior Securities			48 44

Item 4 Mine Safety Disclosures			48 44

Item 5 Other Information			48 44

Item 6 Exhibits			48 45

Signatures			50 46


	(Unaudited)
	September 30,		December 31,
(dollars in thousands, except per share data)	2018		2017
Cash and due from banks	$	25,118	24,893
Federal funds sold		705	10,613
Cash and cash equivalents		25,823	35,506
Securities available-for-sale (amortized cost of $48,730 and $40,393 as of September 30, 2018 and December 31, 2017)		47,678	40,006
Securities held-to-maturity (fair value of $12,572 and $12,869 as of September 30, 2018 and December 31, 2017)		12,771	12,861
Mortgage loans held for sale (amortized cost of $33,934 and $34,673 as of September 30, 2018 and December 31, 2017)		34,044	35,024
Loans, net of fees and costs (includes $11,188 and $9,972 of loans at fair value, amortized cost of $11,308 and $9,788 as of September 30, 2018 and December 31, 2017)		806,788	694,637
Allowance for loan losses		(7,711)	(6,709)
Loans, net of the allowance for loan losses		799,077	687,928
Restricted investment in bank stock		4,581	6,814
Bank premises and equipment, net		9,947	9,741
Bank owned life insurance		11,494	11,269
Accrued interest receivable		2,913	2,536
Other real estate owned		—	437
Deferred income taxes		1,932	1,312
Goodwill and intangible assets		5,114	5,495
Other assets		4,455	7,106
Total assets	$	959,829	856,035
Liabilities:
Deposits:
Noninterest bearing	$	124,855	100,454
Interest-bearing		657,072	526,655
Total deposits		781,927	627,109
Short-term borrowings		43,755	99,750
Long-term debt		6,444	8,863
Subordinated debentures		9,308	13,308
Accrued interest payable		353	216
Other liabilities		11,024	5,426
Total liabilities		852,811	754,672
Stockholders’ equity:
Common stock, $1 par value. Authorized 10,000,000 shares; issued and outstanding 6,406,795 and 6,392,287 as of September 30, 2018 and December 31, 2017		6,407	6,392
Surplus		79,852	79,501
Retained earnings		21,567	15,768
Accumulated other comprehensive loss		(808)	(298)
Total stockholders’ equity		107,018	101,363
Total liabilities and stockholders’ equity	$	959,829	856,035


(dollars in thousands, except per share data)	September 30, 2022		December 31, 2021
Assets:
Cash and due from banks	$	12,114	$	3,966
Interest-bearing deposits at other banks	20,774		19,514

Cash and cash equivalents	32,888		23,480
Securities available-for-sale, at fair value (amortized cost of $143,581 and $158,387, respectively)	127,999		159,302
Securities held-to-maturity, at amortized cost (fair value of $32,323 and $6,591, respectively)	37,922		6,372
Equity investments	2,092		2,354
Mortgage loans held for sale	33,800		80,882
Loans, net of fees and costs	1,610,349		1,386,457
Allowance for loan and lease losses	(18,974)		(18,758)
Loans, net of the allowance for loan and lease losses	1,591,375		1,367,699
Restricted investment in bank stock	5,217		5,117
Bank premises and equipment, net	12,835		11,806
Bank owned life insurance	22,916		22,503
Accrued interest receivable	6,008		5,009
Deferred income taxes	5,722		1,413
Servicing assets	12,807		12,765
Goodwill	899		899
Intangible assets	3,226		3,379
Other assets	26,218		10,463
Total assets	$	1,921,924	$	1,713,443

Liabilities:
Deposits:
Non-interest bearing	$	290,169	$	274,528
Interest bearing	1,383,384		1,171,885
Total deposits	1,673,553		1,446,413
Short-term borrowings	23,458		41,344

Subordinated debentures	40,597		40,508
Accrued interest payable	1,154		31
Other liabilities	32,001		19,787
Total liabilities	1,770,763		1,548,083

Stockholders’ equity:
Common stock, $1 par value per share. 25,000,000 shares authorized; 6,566,356 and 6,534,587 shares issued and outstanding, respectively	6,566		6,535
Surplus	84,848		83,663
Treasury stock, 721,927 and 426,693 shares, respectively, at cost	(18,033)		(8,860)
Unearned common stock held by employee stock ownership plan	(1,602)		(1,602)
Retained earnings	92,405		84,916
Accumulated other comprehensive (loss) income	(13,023)		708
Total stockholders’ equity	151,161		165,360
Total liabilities and stockholders’ equity	$	1,921,924	$	1,713,443


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Acronym			Description

ALLL			Allowance for loan and lease losses
AOCI			Accumulated other comprehensive (loss) income
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
BOLI			Bank owned life insurance
CECL			Current expected credit losses
CET1			Common equity tier 1
CMO			Collateralized mortgage obligation
ESOP			Employee Stock Ownership Plan
FASB			Financial Accounting Standards Board
FHLB			Federal Home Loan Bank of Pittsburgh
FRB			Board of Governors of the Federal Reserve System
FTE			Fully taxable equivalent
GAAP			U.S. generally accepted accounting principles
JOBS Act			Jumpstart Our Business Startups Act of 2012
LIBOR			London Inter-bank Offering Rate
MBS			Mortgage-backed securities
MSLP			Main Street Lending Programs
MSR			Mortgage servicing rights

PPP			Paycheck Protection Program
ROU			Right-of-use
SBA			Small Business Administration
SEC			Securities and Exchange Commission
SERP			Supplemental Executive Retirement Plan
TDR			Troubled debt restructuring


	Three months ended			Nine months ended
	September 30,			September 30,			Three months ended September 30,				Nine months ended September 30,
(dollars in thousands, except per share data)	2018		2017	2018	2017	(dollars in thousands, except per share data)	2022		2021		2022		2021
Interest income:						Interest income:
Loans, including fees	$	11,218	8,924	31,217	25,148	Loans, including fees	$	21,848	$	17,626	$	58,187	$	51,287
Securities:
Taxable		213	143	549	366
Tax-exempt		112	110	336	343
Securities - taxable						Securities - taxable	648		357		1,599		1,076
Securities - tax-exempt						Securities - tax-exempt	369		306		1,015		886
Cash and cash equivalents		30	14	75	55	Cash and cash equivalents	93		17		157		25
Total interest income		11,573	9,191	32,177	25,912	Total interest income	22,958		18,306		60,958		53,274
Interest expense:						Interest expense:
Deposits		2,485	1,207	6,171	3,079	Deposits	4,075		1,327		7,182		4,261
Borrowings		710	643	1,790	1,728	Borrowings	857		722		2,166		2,224
Total interest expense		3,195	1,850	7,961	4,807	Total interest expense	4,932		2,049		9,348		6,485
Net interest income		8,378	7,341	24,216	21,105	Net interest income	18,026		16,257		51,610		46,789
Provision for loan losses		291	665	1,258	1,445	Provision for loan losses	526		597		1,743		1,292
Net interest income after provision for loan losses		8,087	6,676	22,958	19,660	Net interest income after provision for loan losses	17,500		15,660		49,867		45,497
Non-interest income:						Non-interest income:
Mortgage banking income		8,274	9,904	20,407	25,089	Mortgage banking income	7,329		18,726		21,367		62,293
Wealth management income		930	934	2,996	1,905	Wealth management income	1,114		1,232		3,672		3,531
SBA loan income						SBA loan income	989		2,688		3,946		5,423
Earnings on investment in life insurance		74	83	225	194	Earnings on investment in life insurance	138		93		413		224
Net change in the fair value of derivative instruments		70	(503)	59	(115)	Net change in the fair value of derivative instruments	127		(339)		(713)		(3,431)
Net change in the fair value of loans held-for-sale		(300)	(115)	(241)	102	Net change in the fair value of loans held-for-sale	(237)		(532)		(1,094)		(3,164)
Net change in the fair value of loans held-for-investment		(103)	71	(289)	113	Net change in the fair value of loans held-for-investment	(886)		37		(2,499)		(24)
Gain on sale of investment securities available-for-sale		—	—	—	4
Net gain (loss) on hedging activity						Net gain (loss) on hedging activity	399		(1,189)		4,941		2,397
Net gain on sale of investment securities available-for-sale						Net gain on sale of investment securities available-for-sale	—		314		—		362
Service charges		27	22	87	62	Service charges	32		35		90		99
Other		195	54	1,647	168	Other	1,219		1,057		3,605		3,192
Total non-interest income		9,167	10,450	24,891	27,522	Total non-interest income	10,224		22,122		33,728		70,902
Non-interest expenses:
Non-interest expense:						Non-interest expense:
Salaries and employee benefits		8,901	10,330	26,719	29,753	Salaries and employee benefits	13,360		19,472		41,585		61,824
Occupancy and equipment		920	992	2,870	2,818	Occupancy and equipment	1,191		1,133		3,619		3,460
Loan expenses		769	1,000	1,962	3,008
Professional fees		714	481	1,670	1,384	Professional fees	899		873		2,659		2,629
Advertising and promotion		590	597	1,802	1,537	Advertising and promotion	1,165		1,089		3,340		2,795
Data processing		334	337	924	871	Data processing	574		530		1,633		1,666
FDIC assessment		179	183	358	479
Information technology						Information technology	868		476		2,306		1,365
Pennsylvania bank shares tax						Pennsylvania bank shares tax	202		152		612		478
Other		1,346	1,092	4,084	3,207	Other	2,002		1,756		5,646		5,773
Total non-interest expenses		13,753	15,012	40,389	43,057
Total non-interest expense						Total non-interest expense	20,261		25,481		61,400		79,990
Income before income taxes		3,501	2,114	7,460	4,125	Income before income taxes	7,463		12,301		22,195		36,409
Income tax expense		774	716	1,661	1,381	Income tax expense	1,665		2,863		4,927		8,543
Net income		2,727	1,398	5,799	2,744	Net income	$	5,798	$	9,438	$	17,268	$	27,866
Dividends on preferred stock		—	(289)	—	(867)
Net income for common stockholders	$	2,727	1,109	5,799	1,877

Basic earnings per common share	$	0.43	0.30	0.91	0.51	Basic earnings per common share	$	0.99	$	1.56	$	2.90	$	4.62

Diluted earnings per common share	$	0.42	0.30	0.90	0.51	Diluted earnings per common share	$	0.96	$	1.52	$	2.80	$	4.49
Basic weighted average shares outstanding						Basic weighted average shares outstanding	5,868		6,045		5,964		6,033
Diluted weighted average shares outstanding						Diluted weighted average shares outstanding	6,060		6,231		6,172		6,201


	For the Nine Months Ended September 30, 2018
					Accumulated
					Other
	Common			Retained	Comprehensive
(dollars in thousands)	Stock		Surplus	Earnings	Income (Loss)	Total
Balance, December 31, 2017	$	6,392	79,501	15,768	(298)	101,363
Comprehensive income:
Net income				5,799		5,799
Change in unrealized gains on securities available-for-sale, net of tax					(510)	(510)
Total comprehensive income						5,289
Share-based awards and exercises		15				15
Compensation expense related to stock option grants			351			351
Balance, September 30, 2018	$	6,407	79,852	21,567	(808)	107,018


(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total
Balance at June 30, 2022	$	6,561	$	84,359	$	(11,896)	$	(1,602)	$	87,815	$	(9,150)	$	156,087
Net income	—		—		—		—		5,798		—		5,798
Other comprehensive loss	—		—		—		—		—		(3,873)		(3,873)
Dividends paid or accrued, $0.20 per share	—		—		—		—		(1,208)		—		(1,208)
Net purchase of treasury stock through publicly announced plans (197,849 shares)	—		—		(6,137)		—		—		—		(6,137)
Common stock issued through share-based awards and exercises	5		112		—		—		—		—		117
Stock based compensation expense	—		377		—		—		—		—		377
Balance at September 30, 2022	$	6,566	$	84,848	$	(18,033)	$	(1,602)	$	92,405	$	(13,023)	$	151,161


	Balance				Balance	Amortization
	December 31,		Accumulated	Fair Value	September 30,	Period
(dollars in thousands)	2017		Amortization	Adjustment	2018	(in years)
Goodwill - Wealth	$	899	—	—	899	Indefinite
Total Goodwill		899	—	—	899

Intangible assets - trade name		266	—	—	266	Indefinite
Intangible assets - customer relationships		3,930	(152)	—	3,778	20
Intangible assets - non competition agreements		223	(52)	—	171	4
Contingent asset		177		(177)	—	N/A
Total Intangible Assets		4,596	(204)	(177)	4,215
Total	$	5,495	(204)	(177)	5,114


	September 30, 2022
(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities	$	15,763	$	21	$	(311)	$	15,473	14
U.S. government agency MBS	12,079		—		(735)		11,344		13
U.S. government agency CMO	21,248		—		(2,079)		19,169		28
State and municipal securities	44,885		—		(7,646)		37,239		34
U.S. Treasuries	32,980		—		(3,699)		29,281		25
Non-U.S. government agency CMO	9,426		—		(599)		8,827		11
Corporate bonds	7,200		—		(534)		6,666		12
Total securities available-for-sale	$	143,581	$	21	$	(15,603)	$	127,999	137

Securities held-to-maturity:
State and municipal securities	$	37,922	$	—	$	(5,599)	$	32,323	27
Total securities held-to-maturity	$	37,922	$	—	$	(5,599)	$	32,323	—


	September 30, 2018
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. government agency mortgage-backed securities	$	24,625	21	(431)	24,215
U.S. government agency collateralized mortgage obligations		13,159	—	(271)	12,888
State and municipal securities		9,946	—	(341)	9,605
Investments in mutual funds and other equity securities		1,000	—	(30)	970
Total securities available-for-sale	$	48,730	21	(1,073)	47,678
Securities held to maturity:
U.S. Treasuries	$	1,987	—	(18)	1,969
State and municipal securities		10,784	15	(196)	10,603
Total securities held-to-maturity	$	12,771	15	(214)	12,572


	December 31, 2017
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. government agency mortgage-backed securities	$	21,439	19	(190)	21,268
U.S. government agency collateralized mortgage obligations		7,875	2	(99)	7,778
State and municipal securities		10,079	14	(134)	9,959
Investments in mutual funds and other equity securities		1,000	1	—	1,001
Total securities available-for-sale	$	40,393	36	(423)	40,006
Securities held to maturity:
U.S. Treasuries	$	1,978	—	(8)	1,970
State and municipal securities		10,883	86	(70)	10,899
Total securities held-to-maturity	$	12,861	86	(78)	12,869


	September 30, 2018
	Less than 12 Months			12 Months or more		Total			September 30, 2022
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized		Less than 12 Months				12 Months or more				Total
(dollars in thousands)	value		losses	value	losses	value	losses	(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Securities
U.S. government agency mortgage-backed securities	$	11,483	(128)	9,702	(303)	21,185	(431)
U.S. government agency collateralized mortgage obligations		8,627	(102)	4,261	(169)	12,888	(271)
Securities available-for-sale:								Securities available-for-sale:
U.S. asset backed securities								U.S. asset backed securities	$	10,122	$	(129)	$	3,254	$	(182)	$	13,376	$	(311)
U.S. government agency MBS								U.S. government agency MBS	9,795		(638)		1,549		(97)		11,344		(735)
U.S. government agency CMO								U.S. government agency CMO	10,526		(850)		8,617		(1,229)		19,143		(2,079)
State and municipal securities		5,019	(112)	4,587	(229)	9,606	(341)	State and municipal securities	34,801		(7,077)		2,438		(569)		37,239		(7,646)
Investments in mutual funds and other equity securities		970	(30)	—	—	970	(30)
U.S. Treasuries								U.S. Treasuries	15,468		(1,443)		13,813		(2,256)		29,281		(3,699)
Non-U.S. government agency CMO								Non-U.S. government agency CMO	8,112		(470)		715		(129)		8,827		(599)
Corporate bonds								Corporate bonds	5,565		(384)		1,101		(150)		6,666		(534)
Total securities available-for-sale	$	26,099	(372)	18,550	(701)	44,649	(1,073)	Total securities available-for-sale	$	94,389	$	(10,991)	$	31,487	$	(4,612)	$	125,876	$	(15,603)

Securities held-to-maturity:								Securities held-to-maturity:
U.S. Treasuries	$	1,950	(18)	—	—	1,950	(18)
State and municipal securities		6,537	(98)	2,211	(98)	8,748	(196)	State and municipal securities	$	—	$	—	$	24,955	$	(5,599)	$	24,955	$	(5,599)
Total securities held-to-maturity	$	8,487	(116)	2,211	(98)	10,698	(214)	Total securities held-to-maturity	$	—	$	—	$	24,955	$	(5,599)	$	24,955	$	(5,599)


	September 30, 2018					December 31, 2017
	Available-for-sale			Held-to-maturity		Available-for-sale			Held-to-maturity
	Amortized		Fair	Amortized	Fair	Amortized		Fair	Amortized	Fair
(dollars in thousands)	cost		value	cost	value	cost		value	cost	value
Due in one year or less	$	1,706	1,671	994	985	$	—	—	—	—
Due after one year through five years		8,229	8,070	3,746	3,702		5,630	5,587	3,803	3,791
Due after five years through ten years		6,593	6,322	8,031	7,885		6,298	6,228	7,180	7,156
Due after ten years		32,202	31,615	—	—		28,465	28,191	1,878	1,922
Total	$	48,730	47,678	12,771	12,572	$	40,393	40,006	12,861	12,869


	September 30, 2022
(dollars in thousands)	30-89 days past due		90+ days past due and still accruing		Total past due		Current		Total Accruing Loans and leases		Nonaccrual loans and leases		Total loans		% Delinquent
Commercial mortgage	$	684	$	—	$	684	$	543,208	$	543,892	$	1,844	$	545,736	0.46	%
Home equity lines and loans	189		—		189		56,581		56,770		878		57,648		1.85
Residential mortgage (1)	819		—		819		150,679		151,498		2,015		153,513		1.85
Construction	—		—		—		244,435		244,435		—		244,435		—
Commercial and industrial	887		—		887		312,220		313,107		16,344		329,451		5.23
Small business loans	1,803		—		1,803		130,700		132,503		1,401		133,904		2.39
PPP	—		—		—		8,837		8,837		—		8,837		—


						Total
			90+ days			Accruing	Nonaccrual
September 30, 2018	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	1,155	—	1,155	315,022	316,177	494	316,671	0.52	%
Home equity lines and loans		216	—	216	82,472	82,688	85	82,773	0.36
Residential mortgage		—	—	—	48,212	48,212	2,151	50,363	4.27
Construction		315	—	315	104,203	104,518	—	104,518	0.30
Commercial and industrial		—	—	—	252,768	252,768	192	252,960	0.08
Consumer		—	—	—	783	783	—	783	—
Leases		123	—	123	241	364	—	364	33.79
Total	$	1,809	—	1,809	803,701	805,510	2,922	808,432	0.59	%


	Balance,					Balance,
(dollars in thousands)	June 30, 2018		Charge-offs	Recoveries	Provision	September 30, 2018
Commercial mortgage	$	3,011	—	2	140	3,153
Home Equity lines and loans		269	—	10	37	316
Residential mortgage		166	—	—	14	180
Construction		1,438	—	—	59	1,497
Commercial and industrial		2,559	(50)	8	41	2,558
Consumer		3	—	1	—	4
Leases		3	—	—	—	3
Unallocated		—	—	—	—	—
Total	$	7,449	(50)	21	291	7,711


	Three Months Ended September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Credit)		Ending Balance
Commercial mortgage	$	4,327	$	—	$	—	$	(238)	$	4,089
Home equity lines and loans	240		(12)		34		(25)		237
Residential mortgage	489		—		—		217		706
Construction	2,481		—		—		378		2,859
Commercial and industrial	6,287		—		39		(657)		5,669
Small business loans	3,681		—		—		319		4,000
Consumer	3		—		1		(1)		3
Leases	1,297		(419)		—		533		1,411
Total	$	18,805	$	(431)	$	74	$	526	$	18,974

	Nine Months Ended September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Credit)		Ending Balance
Commercial mortgage	$	4,950	$	—	$	—	$	(861)	$	4,089
Home equity lines and loans	224		(12)		42		(17)		237
Residential mortgage	283		—		2		421		706
Construction	2,042		—		—		817		2,859
Commercial and industrial	6,533		—		58		(922)		5,669
Small business loans	3,737		—		—		263		4,000
Consumer	3		—		3		(3)		3
Leases	986		(1,682)		62		2,045		1,411
Total	$	18,758	$	(1,694)	$	167	$	1,743	$	18,974


	Three Months Ended September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Credit)		Ending Balance
Commercial mortgage	$	7,146	$	—	$	—	$	(604)	$	6,542
Home equity lines and loans	281		—		1		(9)		273
Residential mortgage	324		—		1		(49)		276
Construction	2,241		—		—		44		2,285
Commercial and industrial	5,360		—		15		239		5,614
Small business loans	2,235		—		—		864		3,099
Consumer	4		—		1		(2)		3
Leases	770		—		—		114		884
Total	$	18,361	$	—	$	18	$	597	$	18,976

	Nine Months Ended September 30, 2021
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Credit)		Ending Balance
Commercial mortgage	$	7,451	$	—	$	—	$	(909)	$	6,542
Home equity lines and loans	434		—		5		(166)		273
Residential mortgage	385		—		5		(114)		276
Construction	2,421		—		—		(136)		2,285
Commercial and industrial	5,431		—		33		150		5,614
Small business loans	1,259		—		—		1,840		3,099
Consumer	4		—		3		(4)		3
Leases	382		(129)		—		631		884
Total	$	17,767	$	(129)	$	46	$	1,292	$	18,976


	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
September 30, 2018	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	3,153	3,153	$	1,703	314,968	316,671
Home Equity lines and loans		—	316	316		85	82,688	82,773
Residential mortgage		—	180	180		249	38,926	39,175
Construction		—	1,497	1,497		1,296	103,222	104,518
Commercial and industrial		7	2,551	2,558		3,143	249,817	252,960
Consumer		—	4	4		—	783	783
Leases		—	3	3		—	364	364
Unallocated		—	—	—		—	—	—
Total	$	7	7,704	7,711	$	6,476	790,768	797,244	(1)


	At September 30, 2018					At December 31, 2017
					Average				Average
	Recorded		Principal	Related	recorded	Recorded	Principal	Related	recorded		September 30, 2022						December 31, 2021
(dollars in thousands)	investment		balance	allowance	investment	investment	balance	allowance	investment	(dollars in thousands)	Recorded investment		Principal balance		Related allowance		Recorded investment		Principal balance		Related allowance
Impaired loans with related allowance:										Impaired loans with related allowance:
Commercial mortgage	$	—	—	—	—	—	—	—	—
Commercial and industrial		479	479	7	476	124	491	1	173	Commercial and industrial	$	16,095	$	16,552	$	2,193	$	17,147	$	17,310	$	2,900
Home equity lines and loans		—	—	—	—	—	—	—	—
Residential mortgage		—	—	—	—	—	—	—	—
Construction		—	—	—	—	—	—	—	—
Small business loans										Small business loans	666		666		376		666		666		376

Total		479	479	7	476	124	491	1	173	Total	$	16,761	$	17,218	$	2,569	$	17,813	$	17,976	$	3,276
Impaired loans without related allowance:										Impaired loans without related allowance:
Commercial mortgage	$	1,703	2,136	—	1,698	1,534	2,025	—	1,537	Commercial mortgage	$	4,196	$	4,206	$	—	$	3,556	$	3,559	$	—
Commercial and industrial		2,664	2,746	—	2,748	1,907	3,180	—	2,945	Commercial and industrial	263		329		—		214		269		—
Small business loans										Small business loans	813		813		—		126		126		—
Home equity lines and loans		85	89	—	86	137	137	—	137	Home equity lines and loans	878		878		—		905		935		—
Residential mortgage		249	258	—	254	249	249	—	249	Residential mortgage	1,464		1,464		—		1,797		1,797		—
Construction		1,296	1,296	—	1,401	260	260	—	267	Construction	1,206		1,206		—		1,206		1,206		—
Leases										Leases	506		506		—		212		212		—
Total		5,997	6,525	—	6,187	4,087	5,851	—	5,135	Total	$	9,326	$	9,402	$	—	$	8,016	$	8,104	$	—
Grand Total	$	6,476	7,004	7	6,663	4,211	6,342	1	5,308	Grand Total	$	26,087	$	26,620	$	2,569	$	25,829	$	26,080	$	3,276


	Three Months Ended September 30, 2022				Three Months Ended September 30, 2021
(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average recorded investment		Interest income recognized
Impaired loans with related allowance:
Commercial and industrial	$	16,195	$	—	$	3,242	$	5
Small business loans	666		—		916		—
Home equity lines and loans	—		—		89		—
Residential mortgage	—		—		169		—
Total	$	16,861	$	—	$	4,416	$	5
Impaired loans without related allowance:
Commercial mortgage	$	4,212	$	29	$	2,573	$	8
Commercial and industrial	286		—		473		19
Small business loans	819		2		147		3
Home equity lines and loans	878		15		823		—
Residential mortgage	1,468		22		1,636		6
Construction	1,206		20		1,206		17
Leases	500		—		—		—
Total	$	9,369	$	88	$	6,858	$	53
Grand Total	$	26,230	$	88	$	11,274	$	58


	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
(dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Impaired loans with related allowance:
Commercial and industrial	$	16,363	$	—	$	3,306	$	15
Small business loans	666		—		917		—


	For the Three Months Ended September 30, 2018
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Related
(dollar in thousands)	Contracts	Investment		Investment		Allowance
Real Estate:
Land and Construction	1	$	796	$	796	$	—
Total	1	$	796	$	796	$	—


	~~For the Three Months Ended~~		~~For the Three Months Ended~~
	~~September 30, 2018~~		~~September 30, 2017~~
		~~Interest Rate~~		~~Interest Rate~~
	~~Loan Term~~	~~Change and Loan~~	~~Loan Term~~	~~Change and Loan~~
	~~Extension~~	~~Term Extension~~	~~Extension~~	~~Term Extension~~
~~Land and Construction~~	1	—	—	—
~~Total~~	1	—	—	—


	For the Nine Months Ended		For the Nine Months Ended
	September 30, 2018		September 30, 2017
		Interest Rate		Interest Rate
	Loan Term	Change and Loan	Loan Term	Change and Loan
	Extension	Term Extension	Extension	Term Extension
Land and Construction	2	—	—	—
Commercial and industrial	—	1	—	1
Total	2	1	—	1


(dollars in thousands)	Maturity date	Interest rate		September 30, 2022		December 31, 2021
Open Repo Plus Weekly	6/5/2023	3.11	%	$	23,458	$	36,458
Mid-term Repo-fixed	9/12/2022	0.23		—		4,886
Total				$	23,458	$	41,344


				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2018		2017
Mid-term Repo-fixed	06/26/19	1.70	%		—	1,800
Mid-term Repo-fixed	08/10/20	2.76	%		5,000	5,000
Acquisition Purchase Note	04/01/20	3.00	%		1,444	2,063
				$	6,444	8,863


	Three Months Ended September 30, 2018					Three Months Ended September 30, 2017
(dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	8,107	71	200	8,378	$	7,190	31	120	7,341
Provision for loan losses		(291)	—	—	(291)		(665)	—	—	(665)
Net interest income after provision		7,816	71	200	8,087		6,525	31	120	6,676

Non-interest Income
Mortgage banking income		105	—	8,169	8,274		67	—	9,837	9,904
Wealth management income		59	871	—	930		18	916	—	934
Net change in fair values		—	—	(333)	(333)		—	—	(547)	(547)
Other		363	—	(67)	296		353	—	(194)	159
Total non-interest income		527	871	7,769	9,167		438	916	9,096	10,450

Non-interest Expense
Salaries and employee benefits		3,264	445	5,192	8,901		3,237	411	6,682	10,330
Occupancy and equipment		521	29	370	920		575	26	391	992
Professional fees		590	9	115	714		394	5	82	481
Advertising and promotion		301	111	178	590		254	126	217	597
Other		1,259	314	1,055	2,628		1,238	198	1,176	2,612
Total non-interest expense		5,935	908	6,910	13,753		5,698	766	8,548	15,012

Operating Margin	$	2,408	34	1,059	3,501	$	1,265	181	668	2,114


	Segment Information
	Three Months Ended September 30, 2022								Three Months Ended September 30, 2021
(Dollars in thousands)	Bank		Wealth		Mortgage		Total		Bank		Wealth		Mortgage		Total
Net interest income	$	17,664	$	218	$	144	$	18,026	$	15,777	$	2	$	478	$	16,257
Provision for loan losses	526		—		—		526		597		—		—		597
Net interest income after provision	17,138		218		144		17,500		15,180		2		478		15,660

Non-interest Income
Mortgage banking income	72		—		7,257		7,329		215		—		18,511		18,726
Wealth management income	—		1,114		—		1,114		—		1,232		—		1,232
SBA loan income	989		—		—		989		2,688		—		—		2,688
Net change in fair values	47		—		(1,043)		(996)		13		—		(847)		(834)
Net gain on hedging activity	—		—		399		399		—		—		(1,189)		(1,189)
Other	622		—		767		1,389		836		—		663		1,499
Non-interest income	1,730		1,114		7,380		10,224		3,752		1,232		17,138		22,122
Non-interest expense	11,354		780		8,127		20,261		10,633		802		14,046		25,481
Income (loss) before income taxes	$	7,514	$	552	$	(603)	$	7,463	$	8,299	$	432	$	3,570	$	12,301

Total Assets	$	1,858,770	$	7,927	$	55,227	$	1,921,924	$	1,625,468	$	6,396	$	130,581	$	1,762,445


	Nine Months Ended September 30, 2018					Nine Months Ended September 30, 2017
(dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	23,597	217	402	24,216	$	20,733	70	302	21,105
Provision for loan losses		(1,258)	—	—	(1,258)		(1,445)	—	—	(1,445)
Net interest income after provision		22,339	217	402	22,958		19,288	70	302	19,660

Non-interest Income
Mortgage banking income		148	—	20,259	20,407		67	—	25,022	25,089
Wealth management income		149	2,847	—	2,996		233	1,672	—	1,905
Net change in fair values		—	—	(471)	(471)		—	—	100	100
Other		1,136	—	823	1,959		995	—	(567)	428
Total non-interest income		1,433	2,847	20,611	24,891		1,295	1,672	24,555	27,522

Non-interest Expense
Salaries and employee benefits		10,390	1,373	14,956	26,719		9,874	856	19,023	29,753
Occupancy and equipment		1,599	99	1,172	2,870		1,666	52	1,100	2,818
Professional feees		1,325	20	325	1,670		943	125	316	1,384
Advertising and promotion		917	319	566	1,802		746	205	586	1,537
Other		3,827	613	2,888	7,328		3,766	303	3,496	7,565
Total non-interest expense		18,058	2,424	19,907	40,389		16,995	1,541	24,521	43,057

Operating Margin	$	5,714	640	1,106	7,460	$	3,588	201	336	4,125


(dollars in thousands)	Nine Months Ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	563
ROU asset obtained in exchange for lease liabilities	$	10,995