Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

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

For the quarterly period ended June 30, 2021

2022

Or

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

For the transition period from __________ to __________

Commission File Number: 000-55983

mrbk-20220630_g1.jpg

(Exact name of registrant as specified in its charter)

Pennsylvania

83-1561918

Pennsylvania

83-1561918
(State or other jurisdiction of


incorporation or organization)

(I.R.S. Employer Identification No.)

incorporation or organization)

9 Old Lincoln Highway,, Malvern,, Pennsylvania19355

(Address of principal executive offices) (Zip Code)

(

(484)568-5000

(Registrant’s telephone number, including area code)

Title of class

Trading Symbol

Name of exchange on which registered

Common Stock, $1 par value

MRBK

The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

YesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-accelerated Filer

Smaller Reporting Company

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 13, 20215, 2022 there were 6,168,6236,017,247 outstanding shares of the issuer’s common stock, par value $1.00 per share.



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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

June 30, 

December 31, 

(dollars in thousands, except per share data)

    

2021

    

2020

Cash and due from banks

$

26,902

34,190

Federal funds sold

2,554

Cash and cash equivalents

26,902

36,744

Securities available-for-sale (amortized cost of $139,242 and $120,215 as of June 30, 2021 and December 31, 2020)

141,909

123,562

Securities held-to-maturity (fair value of $6,726 and $6,857 as of June 30, 2021 and December 31, 2020)

6,441

6,510

Equity investments

1,016

1,031

Mortgage loans held for sale (amortized cost of $130,789 and $225,007 as of June 30, 2021 and December 31, 2020), at fair value

132,348

229,199

Loans, net of fees and costs (includes $15,129 and $12,182 of loans at fair value, amortized cost of $14,539 and $11,514 as of June 30, 2021 and December 31, 2020)

1,362,750

1,284,764

Allowance for loan and lease losses

(18,361)

(17,767)

Loans, net of the allowance for loan and lease losses

1,344,389

1,266,997

Restricted investment in bank stock

5,357

7,861

Bank premises and equipment, net

8,160

7,777

Bank owned life insurance

12,269

12,138

Accrued interest receivable

5,519

5,482

Deferred income taxes

1,047

62

Servicing assets

10,327

5,617

Goodwill

899

899

Intangible assets

3,481

3,601

Other assets

8,946

12,717

Total assets

$

1,709,010

1,720,197

Liabilities:

Deposits:

Non-interest bearing

$

261,806

203,843

Interest bearing

1,151,474

1,037,492

Total deposits

1,413,280

1,241,335

Short-term borrowings

33,542

106,862

Long-term debt

48,614

165,546

Subordinated debentures

40,730

40,671

Accrued interest payable

120

1,154

Other liabilities

19,839

23,007

Total liabilities

1,556,125

1,578,575

Stockholders’ equity:

Common stock, $1 par value. Authorized 25,000,000 and 10,000,000 shares as of June 30, 2021 and December 31, 2020; issued 6,492,900 and 6,455,566 as of June 30, 2021 and December 31, 2020

6,493

6,456

Surplus

82,198

81,196

Treasury stock - 320,000 shares at June 30, 2021 and December 31, 2020

(5,828)

(5,828)

Unearned common stock held by employee stock ownership plan

(1,768)

(1,768)

Retained earnings

69,739

59,010

Accumulated other comprehensive income

2,051

2,556

Total stockholders’ equity

152,885

141,622

Total liabilities and stockholders’ equity

$

1,709,010

1,720,197

Seeaccompanying notes to the unaudited consolidated financial statements.

3

(Unaudited)
(dollars in thousands, except per share data)June 30,
2022
December 31,
2021
Cash and due from banks$37,093 $23,480 
Cash and cash equivalents37,093 23,480 
Securities available-for-sale (amortized cost of $139,833 and $158,387 as of June 30, 2022 and December 31, 2021)129,288 159,302 
Securities held-to-maturity (fair value of $33,497 and $6,591 as of June 30, 2022 and December 31, 2021)37,111 6,372 
Equity investments2,153 2,354 
Mortgage loans held for sale (amortized cost of $58,914 and $80,002 as of June 30, 2022 and December 31, 2021), at fair value58,938 80,882 
Loans, net of fees and costs (includes $16,212 and $17,558 of loans at fair value, amortized cost of $17,611 and $17,106 as of June 30, 2022 and December 31, 2021)1,518,893 1,386,457 
Allowance for loan and lease losses(18,805)(18,758)
Loans, net of the allowance for loan and lease losses1,500,088 1,367,699 
Restricted investment in bank stock4,719 5,117 
Bank premises and equipment, net12,185 11,806 
Bank owned life insurance22,778 22,503 
Accrued interest receivable5,108 5,009 
Deferred income taxes4,467 1,413 
Servicing assets12,860 12,765 
Goodwill899 899 
Intangible assets3,277 3,379 
Other assets22,055 10,463 
Total assets$1,853,019 $1,713,443 
Liabilities:
Deposits:
Non-interest bearing$291,925 $274,528 
Interest bearing1,276,089 1,171,885 
Total deposits1,568,014 1,446,413 
Short-term borrowings59,136 41,344 
Subordinated debentures40,567 40,508 
Accrued interest payable146 31 
Other liabilities29,069 19,787 
Total liabilities1,696,932 1,548,083 
Stockholders’ equity:
Common stock, $1 par value. Authorized 25,000,000 shares as of June 30, 2022 and December 31, 2021; issued 6,560,956 and 6,534,587 as of June 30, 2022 and December 31, 20216,561 6,535 
Surplus84,359 83,663 
Treasury stock - 524,078 and 426,693 shares at June 30, 2022 and December 31, 2021(11,896)(8,860)
Unearned common stock held by employee stock ownership plan(1,602)(1,602)
Retained earnings87,815 84,916 
Accumulated other comprehensive (loss) income(9,150)708 
Total stockholders’ equity156,087 165,360 
Total liabilities and stockholders’ equity$1,853,019 $1,713,443 

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(dollars in thousands, except per share data)

2021

    

2020

    

2021

    

2020

Interest income:

Loans, including fees

$

16,839

14,457

$

33,662

27,727

Securities:

Taxable

280

305

553

669

Tax-exempt

393

290

746

392

Cash and cash equivalents

5

3

8

61

Total interest income

17,517

15,055

34,969

28,849

Interest expense:

Deposits

1,368

2,575

2,934

5,829

Borrowings

737

883

1,502

1,757

Total interest expense

2,105

3,458

4,436

7,586

Net interest income

15,412

11,597

30,533

21,263

Provision for loan losses

96

1,631

695

3,183

Net interest income after provision for loan losses

15,316

9,966

29,838

18,080

Non-interest income:

Mortgage banking income

19,467

16,788

43,567

23,583

Wealth management income

1,163

853

2,299

1,874

SBA loan income

1,490

638

2,735

1,180

Earnings on investment in life insurance

65

69

131

139

Net change in the fair value of derivative instruments

(2,148)

2,364

(3,092)

3,318

Net change in the fair value of loans held-for-sale

1,235

633

(2,632)

1,493

Net change in the fair value of loans held-for-investment

41

143

(61)

81

Net gain (loss) on hedging activity

(674)

(3,301)

3,587

(4,726)

Net gain on sale of investment securities available-for-sale

55

48

55

Service charges

33

21

64

49

Other

1,060

428

2,134

866

Total non-interest income

21,732

18,691

48,780

27,912

Non-interest expenses:

Salaries and employee benefits

20,213

16,198

42,352

26,082

Occupancy and equipment

1,175

1,127

2,326

2,051

Professional fees

816

770

1,756

1,437

Advertising and promotion

921

605

1,707

1,214

Data processing

520

456

1,136

800

Information technology

464

388

889

706

Pennsylvania bank shares tax

163

254

326

480

Other

1,974

1,456

4,018

2,548

Total non-interest expenses

26,246

21,254

54,510

35,318

Income before income taxes

10,802

7,403

24,108

10,674

Income tax expense

2,544

1,690

5,680

2,445

Net income

$

8,258

5,713

$

18,428

8,229

Basic earnings per common share

$

1.37

0.94

$

3.06

1.33

Diluted earnings per common share

$

1.33

0.94

$

2.98

1.32

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

Three months ended

Six months ended

June 30, 

June 30, 

(dollars in thousands)

    

2021

    

2020

2021

    

2020

Net income:

$

8,258

5,713

18,428

8,229

Other comprehensive (loss) income:

Net change in unrealized gains on investment securities available for sale:

Net unrealized (losses) gains arising during the period, net of tax expense of $429, $515, ($163), and $617, respectively

1,414

1,756

(469)

2,185

Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $0, $12, ($12), and $12, respectively

(43)

(36)

(43)

Unrealized investment (losses) gains, net of tax expense of $429, $503, ($175), and $605, respectively

1,414

1,713

(505)

2,142

Total other comprehensive (loss) income

1,414

1,713

(505)

2,142

Total comprehensive income

$

9,672

7,426

17,923

10,371

Three months ended June 30,Six months ended June 30,
(dollars in thousands, except per share data)2022202120222021
Interest income:
Loans, including fees$19,120 $16,839 $36,339 $33,662 
Securities:
Taxable436 280 772 553 
Tax-exempt429 393 825 746 
Cash and cash equivalents52 65 
Total interest income20,037 17,517 38,001 34,969 
Interest expense:
Deposits1,818 1,368 3,107 2,934 
Borrowings668 737 1,308 1,502 
Total interest expense2,486 2,105 4,415 4,436 
Net interest income17,551 15,412 33,586 30,533 
Provision for loan losses602 96 1,217 695 
Net interest income after provision for loan losses16,949 15,316 32,369 29,838 
Non-interest income:
Mortgage banking income6,942 19,467 14,038 43,567 
Wealth management income1,254 1,163 2,558 2,299 
SBA loan income437 1,490 2,957 2,735 
Earnings on investment in life insurance137 65 275 131 
Net change in the fair value of derivative instruments(674)(2,148)(840)(3,092)
Net change in the fair value of loans held-for-sale268 1,235 (856)(2,632)
Net change in the fair value of loans held-for-investment(835)41 (1,613)(61)
Net gain on hedging activity1,715 (674)4,542 3,587 
Net gain on sale of investment securities available-for-sale— — — 48 
Service charges31 33 58 65 
Other1,128 1,060 2,386 2,133 
Total non-interest income10,403 21,732 23,505 48,780 
Non-interest expenses:
Salaries and employee benefits12,926 20,213 28,224 42,352 
Occupancy and equipment1,176 1,175 2,428 2,326 
Professional fees913 816 1,761 1,756 
Advertising and promotion1,189 921 2,175 1,707 
Data processing580 520 1,059 1,136 
Information technology728 464 1,438 889 
Pennsylvania bank shares tax212 163 411 326 
Other1,982 1,974 3,643 4,018 
Total non-interest expenses19,706 26,246 41,139 54,510 
Income before income taxes7,646 10,802 14,735 24,108 
Income tax expense1,708 2,544 3,262 5,680 
Net income$5,938 $8,258 $11,473 $18,428 
Basic earnings per common share$0.99 $1.37 $1.91 $3.06 
Diluted earnings per common share0.96 1.33 1.84 2.98 
See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

COMPREHENSIVE INCOME

(Unaudited)

Unearned

Accumulated

Common

Other

Common

Treasury

Stock -

Retained

Comprehensive

(dollars in thousands)

    

Stock

    

Surplus

    

Stock

    

ESOP

Earnings

    

Income

    

Total

Balance, January 1, 2020

$

6,408

80,255

(62)

34,097

(3)

120,695

Comprehensive income:

Net income

2,516

2,516

Change in unrealized gains on securities available-for-sale, net of tax

429

429

Total comprehensive income

2,945

Share-based awards and exercises

6

26

32

Net purchase of treasury stock through publicly announced plans

63

(5,766)

(5,703)

Compensation expense related to stock option grants

64

64

Balance, March 31, 2020

$

6,414

80,408

(5,828)

36,613

426

118,033

Comprehensive income:

Net income

5,713

5,713

Change in unrealized gains on securities available-for-sale, net of tax

1,713

1,713

Total comprehensive income

7,426

Compensation expense related to stock option grants

59

59

Balance, June 30, 2020

$

6,414

80,467

(5,828)

42,326

2,139

125,518

Unearned

Accumulated

Common

Other

Common

Treasury

Stock -

Retained

Comprehensive

(dollars in thousands)

    

Stock

    

Surplus

    

Stock

ESOP

Earnings

    

Income

    

Total

Balance, January 1, 2021

$

6,456

81,196

(5,828)

(1,768)

59,010

2,556

141,622

Comprehensive income:

Net income

10,170

10,170

Net change in unrealized losses on securities available-for-sale, net of tax

(1,919)

(1,919)

Total comprehensive income

8,251

Dividends paid or accrued, $1.125 per share

(6,931)

(6,931)

Common stock issued through share-based awards and exercises

32

302

334

Stock based compensation

229

229

Balance, March 31, 2021

$

6,488

81,727

(5,828)

(1,768)

62,249

637

143,505

Comprehensive income:

Net income

8,258

8,258

Change in unrealized gains on securities available-for-sale, net of tax

1,414

1,414

Total comprehensive income

9,672

Dividends paid or accrued, $0.125 per share

(768)

(768)

Common stock issued through share-based awards and exercises

5

52

57

Stock based compensation

419

419

Balance, June 30, 2021

$

6,493

82,198

(5,828)

(1,768)

69,739

2,051

152,885

Three months ended June 30,Six months ended
June 30,
(dollars in thousands)2022202120222021
Net income:$5,938 $8,258 $11,473 $18,428 
Other comprehensive income:
Net change in unrealized gains on investment securities available for sale:
Net unrealized losses arising during the period, net of tax effect of $(1,025), $429, $(2,651), and $(163), respectively(3,481)1,414 (8,850)(469)
Less: reclassification adjustment for net gains realized in net income, net of tax effect of $0, $0, $(3), and $12, respectively— — (9)(36)
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax effect of $7, $0, $(301), and $0, respectively22 — (999)0
Unrealized investment losses, net of tax effect of $1,018, $429, $(2,955), and $175, respectively(3,459)1,414 (9,858)(505)
Total other comprehensive (loss) income(3,459)1,414 (9,858)(505)
Total comprehensive income$2,479 $9,672 $1,615 $17,923 
See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

STOCKHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands)
Common
Stock
SurplusTreasury
Stock
Unearned
Common
Stock
ESOP
Retained
Earnings
Accumulated
Other
Comprehensive (Loss)
Income
Total
Balance, January 1, 2021$6,456 $81,196 $(5,828)$(1,768)$59,010 $2,556 $141,622 
Comprehensive income:
Net income10,170 10,170 
Net change in unrealized investment losses, net of tax(1,919)(1,919)
Total comprehensive income8,251 
Dividends declared, $1.125 per share(6,931)(6,931)
Common stock issued through share-based awards and exercises32 302 334 
Stock based compensation229 229 
Balance, March 31, 20216,488 81,727 (5,828)(1,768)62,249 637 143,505 
Comprehensive income:
Net income8,258 8,258 
Net change in unrealized investment gains, net of tax1,414 1,414 
Total comprehensive income9,672 
Dividends paid or accrued, $0.125 per share(768)(768)
Common stock issued through share-based awards and exercises52 57 
Stock based compensation419 419 
Balance, June 30, 2021$6,493 $82,198 $(5,828)$(1,768)$69,739 $2,051 $152,885 
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Table of Contents

Six months ended

June 30, 

(dollars in thousands)

    

2021

    

2020

Net income

$

18,428

8,229

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Gain on sale of investment securities

(48)

(55)

Depreciation and amortization, net

(2,822)

(281)

Net amortization of investment premiums and discounts and change in fair value of equity securities

664

97

Provision for loan losses

695

3,183

Amortization of issuance costs on subordinated debt

59

53

Share-based compensation

648

123

Net change in fair value of derivative instruments

3,092

(3,318)

Net change in fair value of loans held for sale

2,632

(1,493)

Net change in fair value of loans held for investment

61

(81)

Gain on sale of OREO

(6)

Amortization and net impairment of servicing rights

364

334

Capitalization of servicing rights, net

(5,074)

(1,478)

SBA loan income

(2,735)

(1,180)

Proceeds from sale of loans

1,477,702

731,636

Loans originated for sale

(1,339,916)

(790,926)

Mortgage banking income

(43,567)

(23,583)

Increase in accrued interest receivable

(37)

(977)

Increase in other assets

(494)

(1,839)

Earnings from investment in life insurance

(131)

(139)

(Decrease) income in deferred income tax

(810)

809

(Decrease) increase in accrued interest payable

(1,034)

517

(Decrease) Increase in other liabilities

(1,994)

1,023

Net cash provided by (used in) operating activities

105,683

(79,352)

Cash flows from investing activities:

Activity in available-for-sale securities:

Maturities, repayments and calls

4,421

3,733

Sales

13,639

18,212

Purchases

(37,620)

(57,501)

Activity in held-to-maturity securities:

Maturities, repayments and calls

2,140

Proceeds from sale of OREO

126

Decrease in restricted stock

2,504

838

Net increase in loans

(71,761)

(295,701)

Purchases of premises and equipment

(1,093)

(469)

Net cash used in investing activities

(89,910)

(328,622)

Cash flows from financing activities:

Net increase in deposits

171,945

315,529

(Decrease) increase in short-term borrowings

(5,465)

10,001

Decrease in short-term borrowings with original maturity > 90 days

(67,855)

(46,220)

Repayment of long-term debt (subordinated debt)

(413)

(Repayment) proceeds from long-term debt, net

(116,932)

142,324

Issuance costs on subordinated debt

(206)

Net purchase of treasury stock

(5,703)

Dividends paid

(7,699)

Share based awards and exercises

391

32

Net cash (used in) provided by financing activities

(25,615)

415,344

Net change in cash and cash equivalents 

(9,842)

7,370

Cash and cash equivalents at beginning of period

36,744

39,371

Cash and cash equivalents at end of period

$

26,902

46,741

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

$

5,471

7,069

Income taxes

8,009

1,195

Supplemental disclosure of cash flow information:

Transfers from loans held for sale to loans held for investment

4,193

(dollars in thousands)
Common
Stock
SurplusTreasury
Stock
Unearned
Common
Stock
ESOP
Retained
Earnings
Accumulated
Other
Comprehensive (Loss)
Income
Total
Balance, January 1, 2022$6,535 $83,663 $(8,860)$(1,602)$84,916 $708 $165,360 
Comprehensive income:
Net income5,535 5,535 
Net change in unrealized investment losses, net of tax(6,399)(6,399)
Total comprehensive loss(864)
Dividends paid or accrued, $1.20 per share(7,347)(7,347)
Common stock issued through share-based awards and exercises21 254 275 
Stock based compensation260 260 
Balance, March 31, 20226,556 84,177 (8,860)(1,602)83,104 (5,691)157,684 
Comprehensive income:
Net income5,938 5,938 
Net change in unrealized investment losses, net of tax(3,459)(3,459)
Total comprehensive income2,479 
Dividends paid or accrued, $0.20 per share(1,227)(1,227)
Net purchase of treasury stock through publicly announced plans (97,385)(3,036)(3,036)
Common stock issued through share-based awards and exercises88 93 
Stock based compensation94 94 
Balance, June 30, 2022$6,561 $84,359 $(11,896)$(1,602)$87,815 $(9,150)$156,087 
Seeaccompanying notes to the unaudited consolidated financial statements.

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Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
(dollars in thousands)20222021
Net income$11,473 $18,428 
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on sale of investment securities— (48)
Net amortization of investment premiums and discounts and change in fair value of equity securities239 664 
Depreciation and amortization, net749 (2,822)
Provision for loan losses1,217 695 
Amortization of issuance costs on subordinated debt59 59 
Stock based compensation354 648 
Net change in fair value of derivative instruments840 3,092 
Net change in fair value of loans held for sale856 2,632 
Net change in fair value of loans held for investment1,613 61 
Amortization and net impairment of servicing rights1,327 364 
SBA loan income(2,957)(2,735)
Proceeds from sale of loans656,565 1,472,628 
Loans originated for sale(620,013)(1,339,916)
Mortgage banking income(14,038)(43,567)
Increase in accrued interest receivable(99)(37)
Decrease (increase) in other assets1,571 (494)
Earnings from investment in life insurance(275)(131)
Decrease in deferred income tax(153)(810)
Increase (decrease) in accrued interest payable115 (1,034)
Increase (decrease) in other liabilities(3,764)(1,994)
Net cash provided by operating activities35,679 105,683 
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls6,327 4,421 
Sales— 13,639 
Purchases(15,707)(37,620)
Activity in held-to-maturity securities:
Maturities, repayments and calls362 — 
Purchases(4,500)— 
Decrease in restricted stock398 2,504 
Net increase in loans(136,069)(71,761)
Purchases of premises and equipment(1,028)(1,093)
Net cash used in investing activities(150,217)(89,910)
Cash flows from financing activities:
Net increase in deposits121,601 171,945 
Decrease in short-term borrowings— (5,465)
Increase (decrease) in short-term borrowings with original maturity > 90 days17,792 (67,855)
Repayment of long-term debt, net— (116,932)
Net purchase of treasury stock(3,036)— 
Dividends paid(8,574)(7,699)
Share based awards and exercises368 391 
Net cash provided by (used in) financing activities128,151 (25,615)
Net change in cash and cash equivalents13,613 (9,842)
Cash and cash equivalents at beginning of period23,480 36,744 
Cash and cash equivalents at end of period$37,093 $26,902 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest4,301 5,471 
Income taxes3,265 8,009 
Supplemental disclosure of cash flow information:
Transfers from loans held for sale to loans held for investment2,848 4,193 
Net loans sold, not settled(962)(4,432)
Investment security purchases, not settled— (1,188)
Transfer of securities from AFS to HTM23,652 — 
Lease liabilities arising from obtaining right-of-use assets10,995 — 
See accompanying notes to the unaudited consolidated financial statements.
8

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1)     Basis of Presentation

The Corporation’s unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“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 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. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill and 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 (including our Annual Report on Form 10-K for the year ended December 31, 2020)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 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 six months ended June 30, 20212022 are not necessarily indicative of the results for the year ending December 31, 20212022 or for any other period.

Estimates for the allowance for loan and lease losses at June 30, 2021 include probable losses related to the COVID-19 pandemic.  While there have been signals of economic recovery and a resumption of many types of business activity, there remains significant uncertainty involved in the measurement of these losses.  If economic conditions deteriorate further, then additional provision for loan losses may be required in future periods.  It is unknown how long these conditions will last and what the ultimate financial impact will be to the Corporation.

8


Table of Contents

(2)     Earnings per Common Share

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 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 and if restricted stock awards were vested.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.

Three Months Ended
June 30,
Six Months Ended June 30,
(dollars in thousands, except per share data)2022202120222021
Numerator:
Net income available to common stockholders$5,938 8,258 11,473 18,428 
Denominator for basic earnings per share
Weighted average shares outstanding6,101 6,147 6,115 6,135 
Average unearned ESOP shares(102)(115)(104)(117)
Basic weighted averages shares outstanding5,999 6,032 6,011 6,018 
Dilutive effects of assumed exercises of stock options128 171 149 159 
Dilutive effects of SERP shares72 — 69 — 
Denominator for diluted earnings per share - adjusted weighted average shares outstanding6,199 6,203 6,229 6,177 
Basic earnings per share$0.99 1.37 1.91 3.06 
Diluted earnings per share$0.96 1.33 1.84 2.98 
Antidilutive shares excluded from computation of average dilutive earnings per share136 140 21 140 
9

Table of Contents

Three Months Ended

Six Months Ended

June 30, 

June 30, 

(dollars in thousands, except per share data)

    

2021

    

2020

2021

    

2020

Numerator:

Net income available to common stockholders

$

8,258

5,713

$

18,428

8,229

Denominator for basic earnings per share

Weighted average shares outstanding

6,147

6,094

6,135

6,210

Average unearned ESOP shares

(115)

(117)

Basic weighted averages shares outstanding

6,032

6,094

6,018

6,210

Effect of dilutive common shares

171

13

159

25

Denominator for diluted earnings per share - adjusted weighted average shares outstanding

6,203

6,107

6,177

6,235

Basic earnings per share

$

1.37

0.94

$

3.06

1.33

Diluted earnings per share

$

1.33

0.94

$

2.98

1.32

Antidilutive shares excluded from computation of average dilutive earnings per share

140

281

140

204


(3)    Securities

The amortized cost and fair value of securities as of June 30, 20212022 and December 31, 20202021 are as follows:

June 30, 2021

Gross

Gross

# of Securities

Amortized

unrealized

unrealized

Fair

in unrealized

(dollars in thousands)

    

cost

    

gains

    

losses

    

value

loss position

Securities available-for-sale:

U.S. asset backed securities

$

26,300

468

(33)

26,735

8

U.S. government agency mortgage-backed securities

3,750

155

3,905

U.S. government agency collateralized mortgage obligations

21,501

627

(104)

22,024

6

State and municipal securities

73,750

1,590

(159)

75,181

11

U.S. Treasuries

7,991

38

8,029

Corporate bonds

5,950

95

(10)

6,035

2

Total securities available-for-sale

$

139,242

2,973

(306)

141,909

27

Securities held-to-maturity:

State and municipal securities

6,441

285

6,726

Total securities held-to-maturity

$

6,441

285

6,726

9

June 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$14,046 10 (316)13,740 12 
U.S. government agency mortgage-backed securities10,110 — (470)9,640 10 
U.S. government agency collateralized mortgage obligations21,875 (1,276)20,606 26 
State and municipal securities45,070 — (5,354)39,716 34 
U.S. Treasuries32,979 — (2,555)30,424 25 
Non-U.S. government agency collateralized mortgage obligations9,303 — (332)8,971 
Corporate bonds6,450 — (259)6,191 11 
Total securities available-for-sale$139,833 17 (10,562)129,288 127 
June 30, 2022
Amortized
cost
Gross
unrecognized
gains
Gross
unrecognized
losses
Fair
value
# of Securities
in unrecognized
loss position
Securities held-to-maturity:
State and municipal securities37,111 (3,621)33,497 21 
Total securities held-to-maturity$37,111 (3,621)33,497 21 
December 31, 2021
(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$16,850 55 (68)16,837 10 
U.S. government agency mortgage-backed securities9,749 124 (60)9,813 
U.S. government agency collateralized mortgage obligations22,276 358 (253)22,381 10 
State and municipal securities72,099 1,379 (496)72,982 12 
U.S. Treasuries29,973 (246)29,728 21 
Non-U.S. government agency collateralized mortgage obligations990 — (15)975 
Corporate bonds6,450 154 (18)6,586 
Total securities available-for-sale$158,387 2,071 (1,156)159,302 62 
Securities held-to-maturity:
State and municipal securities6,372 219 — 6,591 — 
Total securities held-to-maturity$6,372 219 — 6,591 — 

10

Table of Contents

December 31, 2020

Gross

Gross

# of Securities

Amortized

unrealized

unrealized

Fair

in unrealized

(dollars in thousands)

    

cost

    

gains

    

losses

    

value

loss position

Securities available-for-sale:

U.S. asset backed securities

$

25,303

364

(75)

25,592

8

U.S. government agency mortgage-backed securities

3,854

192

4,046

U.S. government agency collateralized mortgage obligations

23,010

916

(17)

23,909

1

State and municipal securities

63,848

2,025

(63)

65,810

3

Corporate bonds

4,200

7

(2)

4,205

2

Total securities available-for-sale

$

120,215

3,504

(157)

123,562

14

Securities held-to-maturity:

State and municipal securities

6,510

347

6,857

Total securities held-to-maturity

$

6,510

347

6,857

Although the Corporation’s investment portfolio overall is in a net unrealized gainloss position at June 30, 2021,2022, 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, 0no securities are deemed to be other-than-temporarily impaired.

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 June 30, 20212022 and December 31, 2020,2021, securities having a fair value of $63.6$81.9 million and $55.9$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 June 30, 20212022 and December 31, 2020:

June 30, 2021

Less than 12 Months

12 Months or more

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(dollars in thousands)

    

value

    

losses

    

value

    

losses

    

value

    

losses

Securities available-for-sale:

U.S. asset backed securities

$

4,304

(19)

4,746

(14)

9,050

(33)

U.S. government agency collateralized mortgage obligations

6,673

(104)

6,673

(104)

State and municipal securities

14,039

(159)

14,039

(159)

Corporate bonds

940

(10)

940

(10)

Total securities available-for-sale

$

25,956

(292)

4,746

(14)

30,702

(306)

2021:

10

June 30, 2022
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Securities available-for-sale:
U.S. asset backed securities$10,771 (295)747 (21)11,518 (316)
U.S. government agency mortgage-backed securities9,610 (470)— — 9,610 (470)
U.S. government agency collateralized mortgage obligations15,599 (828)3,897 (448)19,496 (1,276)
State and municipal securities38,130 (5,092)1,585 (262)39,715 (5,354)
U.S. Treasuries30,424 (2,555)— — 30,424 (2,555)
Non-U.S. government agency collateralized mortgage obligations8,007 (332)— — 8,007 (332)
Corporate bonds6,191 (259)— — 6,191 (259)
Total securities available-for-sale$118,732 (9,831)6,229 (731)124,961 (10,562)
June 30, 2022
Less than 12 Months12 Months or moreTotal
Fair
value
Unrecognized
losses
Fair
value
Unrecognized
losses
Fair
value
Unrecognized
losses
Securities held-to-maturity:
State and municipal securities— — 24,955 (3,621)24,955 (3,621)
Total securities held-to-maturity$— — 24,955 (3,621)24,955 (3,621)

11

Table of Contents

December 31, 2020

Less than 12 Months

12 Months or more

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(dollars in thousands)

    

value

    

losses

    

value

    

losses

    

value

    

losses

Securities available-for-sale:

U.S. asset backed securities

$

2,884

(4)

7,443

(71)

10,327

(75)

U.S. government agency collateralized mortgage obligations

2,284

(17)

2,284

(17)

State and municipal securities

4,163

(63)

4,163

(63)

Corporate bonds

1,198

(2)

1,198

(2)

Total securities available-for-sale

$

10,529

(86)

7,443

(71)

17,972

(157)

December 31, 2021
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Fair
value
Unrealized
losses
Securities available-for-sale:
U.S. asset backed securities$12,330 (68)— — 12,330 (68)
U.S. government agency mortgage-backed securities3,852 (60)— — 3,852 (60)
U.S. government agency collateralized mortgage obligations8,836 (187)1,657 (66)10,493 (253)
State and municipal securities14,994 (427)2,019 (69)17,013 (496)
U.S. Treasuries28,750 (246)— — 28,750 (246)
Non-U.S. government agency collateralized mortgage obligations975 (15)— — 975 (15)
Corporate bonds2,232 (18)— — 2,232 (18)
Total securities available-for-sale$71,969 (1,021)3,676 (135)75,645 (1,156)

The amortized cost and carrying value of securities at June 30, 20212022 and December 31, 20202021 are shown below by contractual maturities. 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.

June 30, 2021

December 31, 2020

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

Investment securities:

Due in one year or less

$

$

Due after one year through five years

3,149

3,228

3,181

3,288

Due after five years through ten years

20,009

20,157

3,292

3,498

12,035

12,095

3,329

3,569

Due after ten years

93,982

95,822

81,316

83,512

Subtotal

113,991

115,979

6,441

6,726

93,351

95,607

6,510

6,857

Mortgage-related securities

25,251

25,930

26,864

27,955

Total

$

139,242

141,909

6,441

6,726

$

120,215

123,562

6,510

6,857

June 30, 2022December 31, 2021
Available-for-saleHeld-to-maturityAvailable-for-saleHeld-to-maturity
(dollars in thousands)Amortized
cost
Fair
value
Amortized
cost
Fair
value
Amortized
cost
Fair
value
Amortized
cost
Fair
value
Investment securities:
 Due in one year or less$— — — — $— — 763 769 
 Due after one year through five years17,889 16,823 3,768 3,760 12,934 12,885 2,354 2,397 
 Due after five years through ten years27,543 25,337 4,090 3,885 30,890 30,798 3,255 3,425 
 Due after ten years53,113 47,911 29,253 25,852 81,548 82,450 — — 
 Subtotal98,545 90,071 37,111 33,497 125,372 126,133 6,372 6,591 
Mortgage-related securities41,288 39,217 — — 33,015 33,169 — — 
 Total$139,833 129,288 37,111 33,497 $158,387 159,302 6,372 6,591 
There were 0 sales of available for sale investment securities for the three and six months ended June 30, 2022. Proceeds from the sale of available for sale investment securities totaled $0 for the three months ended June 30, 2021 and $13.6 milllionmillion for the six months ended June 30, 2021, resulting in a gross gain on sale of $248 thousand and a gross loss on sale of $200 thousand for the six months ended June 30, 2021. Proceeds from the sale of available for sale investment securities totaled $18.2 million for the three and six months ended June 30, 2020, resulting in a gross gain on sale of $257 thousand and a gross loss on sale of $202 thousand for the periods.

period.

11

12

Table of Contents

(4)    Loans Receivable

Loans and leases outstanding at June 30, 20212022 and December 31, 20202021 are detailed by category as follows:

(dollars in thousands)June 30, 2022December 31, 2021
Mortgage loans held for sale$58,938 80,882 
Real estate loans:
Commercial mortgage548,267 516,928 
Home equity lines and loans56,613 52,299 
Residential mortgage (1)112,549 68,175 
Construction201,163 160,905 
Total real estate loans918,592 798,307 
Commercial and industrial335,759 293,771 
Small business loans120,920 114,158 
Paycheck Protection Program loans ("PPP")21,867 90,194 
Main Street Lending Program Loans ("MSLP")597 597 
Consumer446 419 
Leases, net115,872 88,242 
Total portfolio loans and leases1,514,053 1,385,688 
Total loans and leases$1,572,991 1,466,570 
Loans with predetermined rates$473,637 488,220 
Loans with adjustable or floating rates1,099,354 978,350 
Total loans and leases$1,572,991 1,466,570 
Net deferred loan origination costs$4,840 769 

June 30, 

December 31, 

(dollars in thousands)

    

2021

    

2020

Mortgage loans held for sale

$

132,348

229,199

Real estate loans:

Commercial mortgage

530,163

485,103

Home equity lines and loans

54,076

64,987

Residential mortgage (1)

55,497

52,454

Construction

132,547

140,246

Total real estate loans

772,283

742,790

Commercial and industrial

263,030

261,750

Small business loans

74,987

49,542

Paycheck Protection Program loans ("PPP")

189,337

203,543

Main Street Lending Program Loans ("MSLP")

588

580

Consumer

526

511

Leases, net

64,542

31,040

Total portfolio loans and leases

1,365,293

1,289,756

Total loans and leases

$

1,497,641

1,518,955

Loans with predetermined rates

$

607,507

658,458

Loans with adjustable or floating rates

890,134

860,497

Total loans and leases

$

1,497,641

1,518,955

Net deferred loan origination (fees) costs

$

(2,543)

(4,992)

(1)Includes $15,129 and $12,182 of loans at fair value as of June 30, 2021 and December 31, 2020, respectively.
(1) Includes $16,212 and $17,558 of loans at fair value as of June 30, 2022 and December 31, 2021, respectively.


Components of the net investment in leases at June 30, 20212022 and December 31, 20202021 are detailed as follows:

June 30, 

December 31, 

(dollars in thousands)

    

2021

    

2020

Minimum lease payments receivable

$

78,233

37,919

Unearned lease income

(13,691)

(6,879)

Total

$

64,542

31,040

12

(dollars in thousands)June 30,
2022
December 31,
2021
Minimum lease payments receivable$137,340 105,608 
Unearned lease income(21,468)(17,366)
Total$115,872 88,242 

13

Table of Contents

Age Analysis of Past Due Loans and Leases

The following tables present an aging of the Corporation’s loan and lease portfolio as of June 30, 20212022 and December 31, 2020,2021, respectively:

June 30, 202230-89 days
past due
90+ days
past due and
still accruing
Total past
due
CurrentTotal
Accruing
Loans and
leases
Nonaccrual
loans and
leases
Total loans
portfolio
and leases
Delinquency
percentage
(dollars in thousands)
Commercial mortgage$— — — 548,267 548,267 — 548,267 — %
Home equity lines and loans— 55,574 55,575 1,038 56,613 1.84 
Residential mortgage (1)— — — 110,497 110,497 2,052 112,549 1.82 
Construction— — — 201,163 201,163 — 201,163 — 
Commercial and industrial— — — 317,361 317,361 18,398 335,759 5.48 
Small business loans— — — 119,519 119,519 1,401 120,920 1.16 
Paycheck Protection Program loans— — — 21,867 21,867 — 21,867 — 
Main Street Lending Program loans— — — 597 597 — 597 — 
Consumer— — — 446 446 — 446 — 
Leases, net948 — 948 114,829 115,777��95 115,872 0.90 
Total$949 — 949 1,490,120 1,491,069 22,984 1,514,053 1.58 %
(1)

Total

90+ days

Accruing

Nonaccrual

Total loans

June 30, 2021

30-89 days

past due and

Total past

Loans and

loans and

portfolio

Delinquency

(dollars in thousands)

    

past due

    

still accruing

    

due

    

Current

    

leases

    

leases

    

and leases

    

percentage

 

Commercial mortgage

$

530,163

530,163

530,163

%

Home equity lines and loans

53,160

53,160

916

54,076

1.69

Residential mortgage (1)

52,795

52,795

2,702

55,497

4.87

Construction

231

231

132,316

132,547

132,547

0.17

Commercial and industrial

1,856

1,856

257,514

259,370

3,660

263,030

2.10

Small business loans

74,070

74,070

917

74,987

1.22

Paycheck Protection Program loans

189,337

189,337

189,337

Main Street Lending Program loans

588

588

588

Consumer

526

526

526

Leases, net

155

155

64,387

64,542

64,542

0.24

Total

$

2,242

2,242

1,354,856

1,357,098

8,195

1,365,293

0.76

%

(1) Includes $15,129$16,212 of loans at fair value as of June 30, 20212022 ($14,23515,636 are current and $894$576 are nonaccrual).

Total

90+ days

Accruing

Nonaccrual

Total loans

December 31, 2020

30-89 days

past due and

Total past

Loans and

loans and

portfolio

Delinquency

(dollars in thousands)

    

past due

    

still accruing

    

due

    

Current

    

leases

    

leases

    

and leases

    

percentage

 

Commercial mortgage

$

482,042

482,042

3,061

485,103

0.63

%

Home equity lines and loans

64,128

64,128

859

64,987

1.32

Residential mortgage (1)

3,595

3,595

46,134

49,729

2,725

52,454

12.05

Construction

140,246

140,246

140,246

Commercial and industrial

260,465

260,465

1,285

261,750

0.49

Small business loans

49,542

49,542

49,542

Paycheck Protection Program loans

203,543

203,543

203,543

Main Street Lending Program loans

580

580

580

Consumer

511

511

511

Leases, net

109

109

30,931

31,040

31,040

0.35

Total

$

3,704

3,704

1,278,122

1,281,826

7,930

1,289,756

0.90

%

(1)Includes $12,182 of loans at fair value as of December 31, 2020 ($10,314 are current, $958 are 30-89 days past due and $910 are nonaccrual).

13

December 31, 202130-89 days
past due
90+ days
past due and
still accruing
Total past
due
CurrentTotal
Accruing
Loans and
leases
Nonaccrual
loans and
leases
Total loans
portfolio
and leases
Delinquency
percentage
(dollars in thousands)
Commercial mortgage$— — — 516,928 516,928 — 516,928 — %
Home equity lines and loans103 — 103 51,285 51,388 911 52,299 1.94 
Residential mortgage (1)600 — 600 65,177 65,777 2,398 68,175 4.40 
Construction— — — 160,905 160,905 — 160,905 — 
Commercial and industrial— — — 274,970 274,970 18,801 293,771 6.40 
Small business loans— — — 113,492 113,492 666 114,158 0.58 
Paycheck Protection Program loans— — — 90,194 90,194 — 90,194 — 
Main Street Lending Program loans— — — 597 597 — 597 — 
Consumer— — — 419 419 — 419 — 
Leases, net390 — 390 87,640 88,030 212 88,242 0.68 
Total$1,093 — 1,093 1,361,607 1,362,700 22,988 1,385,688 1.74 %
(1)Includes $17,558 of loans at fair value as of December 31, 2021 ($16,768 are current, $189 are 30-89 days past due and $601 are nonaccrual).
14

Table of Contents

(5)    Allowance for Loan Losses (the “Allowance”)

The Allowance is established through provisionsevaluated on at least a quarterly basis, as losses are estimated to be probable and incurred.The provision for loan and lease 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 estimatable.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.  Estimates for the allowance for loan and lease losses at June 30, 2021 include probable losses related to the COVID-19 pandemic.  


Roll-Forward of Allowance by Portfolio Segment

The following tables detail the roll-forward of the Corporation’s Allowance, by portfolio segment, for the three and six month periods ended June 30, 2022 and 2021, and 2020, respectively:

Balance,

Balance,

(dollars in thousands)

    

March 31, 2021

    

Charge-offs

    

Recoveries

    

Provision

    

June 30, 2021

Commercial mortgage

$

7,655

(509)

7,146

Home equity lines and loans

310

2

(31)

281

Residential mortgage

314

2

8

324

Construction

2,311

(70)

2,241

Commercial and industrial

5,286

13

61

5,360

Small business loans

1,920

315

2,235

Consumer

4

1

(1)

4

Leases

576

(129)

323

770

Total

$

18,376

(129)

18

96

18,361

Balance,

Balance,

(dollars in thousands)

    

December 31, 2020

    

Charge-offs

    

Recoveries

    

Provision

    

June 30, 2021

Commercial mortgage

$

7,451

(305)

7,146

Home equity lines and loans

434

4

(157)

281

Residential mortgage

385

4

(65)

324

Construction

2,421

(180)

2,241

Commercial and industrial

5,431

18

(89)

5,360

Small business loans

1,259

976

2,235

Consumer

4

2

(2)

4

Leases

382

(129)

517

770

Total

$

17,767

(129)

28

695

18,361

Balance,

Balance,

(dollars in thousands)

    

March 31, 2020

    

Charge-offs

    

Recoveries

    

Provision

    

June 30, 2020

Commercial mortgage

$

4,112

1,165

5,277

Home equity lines and loans

484

(13)

2

199

672

Residential mortgage

219

2

125

346

Construction

2,381

(362)

2,019

Commercial and industrial

3,169

(9)

4

442

3,606

Small business loans

725

22

747

Consumer

4

(10)

1

9

4

Leases

4

31

35

Total

$

11,098

(32)

9

1,631

12,706

14


(dollars in thousands)Balance,
March 31, 2022
Charge-offsRecoveriesProvision (Credit)Balance,
June 30, 2022
Commercial mortgage$4,150 — — 177 4,327 
Home equity lines and loans208 — 30 240 
Residential mortgage357 — — 132 489 
Construction2,257 — — 224 2,481 
Commercial and industrial7,369 — (1,091)6,287 
Small business loans3,372 — — 309 3,681 
Consumer— (1)
Leases1,110 (696)61 822 1,297 
Total$18,826 (696)73 602 18,805 
(dollars in thousands)
Balance,
December 31, 2021
Charge-offsRecoveriesProvision (Credit)
Balance,
June 30, 2022
Commercial mortgage$4,950 — — (623)4,327 
Home equity lines and loans224 — 240 
Residential mortgage283 — 204 489 
Construction2,042 — — 439 2,481 
Commercial and industrial6,533 — 20 (266)6,287 
Small business loans3,737 — — (56)3,681 
Consumer— (2)
Leases986 (1,263)61 1,513 1,297 
Total$18,758 (1,263)93 1,217 18,805 

15

Table of Contents

(dollars in thousands)Balance,
March 31, 2021
Charge-offsRecoveriesProvision (Credit)June 30, 2021
Commercial mortgage$7,655 — — (509)7,146 
Home equity lines and loans310 — (31)281 
Residential mortgage314 — 324 
Construction2,311 — — (70)2,241 
Commercial and industrial5,286 — 13 61 5,360 
Small business loans1,920 — — 315 2,235 
Consumer— (1)
Leases576 (129)— 323 770 
Total$18,376 (129)18 96 18,361 
(dollars in thousands)
Balance,
December 31, 2020
Charge-offsRecoveriesProvision (Credit)
Balance,
June 30, 2021
Commercial mortgage$7,451 — — (305)7,146 
Home equity lines and loans434 — (157)281 
Residential mortgage385 — (65)324 
Construction2,421 — — (180)2,241 
Commercial and industrial5,431 — 18 (89)5,360 
Small business loans1,259 — — 976 2,235 
Consumer— (2)
Leases382 (129)— 517 770 
Total$17,767 (129)28 695 18,361 


Balance,

Balance,

(dollars in thousands)

    

December 31, 2019

    

Charge-offs

    

Recoveries

    

Provision

    

June 30, 2020

Commercial mortgage

$

3,426

1,851

5,277

Home equity lines and loans

342

(13)

4

339

672

Residential mortgage

179

4

163

346

Construction

2,362

(343)

2,019

Commercial and industrial

2,684

(9)

32

899

3,606

Small business loans

509

238

747

Consumer

6

(10)

2

6

4

Leases

5

30

35

Total

$

9,513

(32)

42

3,183

12,706

Allowance Allocated by Portfolio Segment

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 June 30, 20212022 and December 31, 2020.

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

June 30, 2021

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

    

for impairment

    

for impairment

    

Total

    

for impairment

    

for impairment

    

Total

Commercial mortgage

$

7,146

7,146

$

722

529,441

530,163

Home equity lines and loans

6

275

281

916

53,160

54,076

Residential mortgage

68

256

324

1,808

38,560

40,368

Construction

2,241

2,241

1,206

131,341

132,547

Commercial and industrial

1,528

3,832

5,360

4,062

258,968

263,030

Small business loans

376

1,859

2,235

1,072

73,915

74,987

Paycheck Protection Program loans

189,337

189,337

(2)

Main Street Lending Program

588

588

(2)

Consumer

4

4

526

526

Leases, net

770

770

64,542

64,542

Total

$

1,978

16,383

18,361

$

9,786

1,340,378

1,350,164

(1)

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

December 31, 2020

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

    

for impairment

    

for impairment

    

Total

    

for impairment

    

for impairment

    

Total

Commercial mortgage

$

7,451

7,451

$

1,606

483,497

485,103

Home equity lines and loans

9

425

434

921

64,066

64,987

Residential mortgage

73

312

385

1,817

38,455

40,272

Construction

2,421

2,421

1,206

139,040

140,246

Commercial and industrial

1,563

3,868

5,431

4,645

257,105

261,750

Small business loans

1,259

1,259

185

49,357

49,542

Paycheck Protection Program loans

203,543

203,543

(2)

Main Street Lending Program

580

580

(2)

Consumer

4

4

511

511

Leases, net

382

382

31,040

31,040

Total

$

1,645

16,122

17,767

$

10,380

1,267,194

1,277,574

(1)

2021.
Allowance on loans and leasesCarrying value of loans and leases
June 30, 2022Individually
evaluated
for impairment
Collectively
evaluated
for impairment
TotalIndividually
evaluated
for impairment
Collectively
evaluated
for impairment
Total
(dollars in thousands)
Commercial mortgage$— 4,327 4,327 4,223 544,044 548,267 
Home equity lines and loans— 240 240 1,038 55,575 56,613 
Residential mortgage— 489 489 1,476 94,861 96,337 
Construction— 2,481 2,481 1,206 199,957 201,163 
Commercial and industrial2,440 3,847 6,287 16,553 319,206 335,759 
Small business loans376 3,305 3,681 1,495 119,425 120,920 
Paycheck Protection Program loans— — — — 21,867 21,867 (2)
Main Street Lending Program— — — — 597 597 (2)
Consumer— — 446 446 
Leases, net— 1,297 1,297 95 115,777 115,872 
Total$2,816 15,989 18,805 26,086 1,471,755 1,497,841 (1)
16

Table of Contents
Allowance on loans and leasesCarrying value of loans and leases
December 31, 2021Individually
evaluated
for impairment
Collectively
evaluated
for impairment
TotalIndividually
evaluated
for impairment
Collectively
evaluated
for impairment
Total
(dollars in thousands)
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 industrial2,900 3,633 6,533 17,361 276,410 293,771 
Small business loans376 3,361 3,737 792 113,366 114,158 
Paycheck Protection Program loans— — — — 90,194 90,194 (2)
Main Street Lending Program— — — — 597 597 (2)
Consumer— — 419 419 
Leases, net— 986 986 212 88,030 88,242 
Total$3,276 15,482 18,758 25,829 1,342,301 1,368,130 (1)
(1)Excludes deferred fees and loans carried at fair value.
(2)PPP and MSLP loans are not reserved against as they are 100% guaranteed.

15

(1)Excludes deferred fees and loans carried at fair value.
(2)PPP and MSLP loans are not reserved against as they are 100% guaranteed.

Table of Contents

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 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. 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.
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.
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.
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.
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.
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.






17

Table of Contents
The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the allowance for loan and lease losses as of June 30, 20212022 and December 31, 2020:

2021:

June 30, 2022PassSpecial
mention
SubstandardDoubtfulTotal
(dollars in thousands)
Commercial mortgage$514,251 28,606 5,410 — 548,267 
Home equity lines and loans55,107 — 1,506 — 56,613 
Construction192,163 9,000 — — 201,163 
Commercial and industrial279,864 11,488 44,407 — 335,759 
Small business loans119,519 — 1,401 — 120,920 
Paycheck Protection Program loans21,867 — — — 21,867 
Main Street Lending Program loans597 — — — 597 
Total$1,183,368 49,094 52,724 — 1,285,186 
Commercial and industrial loans classified as substandard totaled $44.4 million as of June 30, 2022, an increase of $1.5 million, from $42.9 million as of December 31, 2021. The majority of this amount is comprised of 19 different loan relationships with no specific industry concentration, and a $13.8 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021.

June 30, 2021

    

    

Special

    

    

    

(dollars in thousands)

Pass

mention

Substandard

Doubtful

Total

Commercial mortgage

$

492,532

34,509

3,122

530,163

Home equity lines and loans

52,677

1,399

54,076

Construction

123,389

9,158

132,547

Commercial and industrial

207,105

36,451

16,133

3,341

263,030

Small business loans

71,459

3,528

74,987

Paycheck Protection Program loans

189,337

189,337

Main Street Lending Program loans

588

588

Total

$

1,137,087

80,118

24,182

3,341

1,244,728

December 31, 2020

    

    

Special

    

    

    

(dollars in thousands)

Pass

mention

Substandard

Doubtful

Total

Commercial mortgage

$

449,545

32,059

3,499

485,103

Home equity lines and loans

63,923

1,064

64,987

Construction

132,286

7,960

140,246

Commercial and industrial

227,349

21,721

9,000

3,680

261,750

Small business loans

46,789

2,753

49,542

Paycheck Protection Program loans

203,543

203,543

Main Street Lending Program loans

580

580

Total

$

1,124,015

61,740

16,316

3,680

1,205,751

December 31, 2021PassSpecial
mention
SubstandardDoubtfulTotal
(dollars in thousands)
Commercial mortgage$481,551 29,452 5,925 — 516,928 
Home equity lines and loans50,908 — 1,391 — 52,299 
Construction151,608 9,297 — — 160,905 
Commercial and industrial236,298 14,603 42,870 — 293,771 
Small business loans112,096 — 2,062 — 114,158 
Paycheck Protection Program loans90,194 — — — 90,194 
Main Street Lending Program loans597 — — — 597 
Total$1,123,252 53,352 52,248 — 1,228,852 
In addition to credit quality indicators as shown in the above tables, allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status as of June 30, 20212022 and

16

Table of Contents

December 31, 2020. NaN2021.

June 30, 2022December 31, 2021
(dollars in thousands)PerformingNonperformingTotalPerformingNonperformingTotal
Residential mortgage (1)
$94,285 2,052 96,337 $48,820 1,797 50,617 
Consumer446 — 446 419 — 419 
Leases, net115,777 95 115,872 88,030 212 88,242 
Total$210,508 2,147 212,655 $137,269 2,009 139,278 
(1) There were 4 nonperforming residential mortgage loans at June 30, 2022 and 4 nonperforming residential mortgage loans at December 31, 2021 with a combined outstanding principal balance of $576 thousand and $601 thousand, respectively, which were carried at fair value and not included in the table above. This decrease was largely due to a residential mortgage loan that was nonperforming at December 31, 2021, which subsequently paid off before June 30, 2022.
No troubled debt restructurings performing according to modified terms are included in performing residential mortgages below as of June 30, 20212022 and December 31, 2020.

2021.


June 30, 2021

December 31, 2020

(dollars in thousands)

    

Performing

    

Nonperforming

    

Total

    

Performing

    

Nonperforming

    

Total

Residential mortgage

$

38,560

1,808

40,368

$

38,457

1,815

40,272

Consumer

526

526

511

511

Leases, net

64,542

64,542

31,040

31,040

Total

$

103,628

1,808

105,436

$

70,008

1,815

71,823


There were 5 nonperforming residential mortgage loans at June 30, 2021 and 5 nonperforming residential mortgage loans at December 31, 2020 with a combined outstanding principal balance

18

Table of $894 thousand and $910 thousand, respectively, which were carried at fair value and not included in the table above.

Contents


Impaired Loans

The following table detailstables detail the recorded investment and principal balance of impaired loans by portfolio segment, and their related allowanceAllowance and interest income recognized for loan and lease losses.

As of June 30, 2021

As of December 31, 2020

Recorded

Principal

Related

Recorded

Principal

Related

(dollars in thousands)

    

investment

    

balance

    

allowance

    

investment

    

balance

    

allowance

Impaired loans with related allowance:

Commercial and industrial

$

3,271

3,362

1,528

3,860

3,902

1,563

Small business loans

916

3,415

376

Home equity lines and loans

92

104

6

95

105

9

Residential mortgage

684

684

68

689

689

73

Total

$

4,963

7,565

1,978

4,644

4,696

1,645

Impaired loans without related allowance:

Commercial mortgage

$

722

722

1,606

1,642

Commercial and industrial

791

896

785

862

Small business loans

156

1,091

185

185

Home equity lines and loans

824

837

826

839

Residential mortgage

1,124

1,124

1,128

1,128

Construction

1,206

1,206

1,206

1,206

Leases

Total

4,823

5,876

5,736

5,862

Grand Total

$

9,786

13,441

1,978

10,380

10,558

1,645

the periods.

17

As of June 30, 2022As of December 31, 2021
(dollars in thousands)Recorded
investment
Principal
balance
Related
allowance
Recorded
investment
Principal
balance
Related
allowance
Impaired loans with related allowance:
Commercial and industrial$16,281 16,582 2,440 17,147 17,310 2,900 
Small business loans666 666 376 666 666 376 
Home equity lines and loans— — — — — — 
Residential mortgage— — — — — — 
Total$16,947 17,248 2,816 17,813 17,976 3,276 
Impaired loans without related allowance:
Commercial mortgage$4,223 4,233 — 3,556 3,559 — 
Commercial and industrial272 334 — 214 269 — 
Small business loans829 829 — 126 126 — 
Home equity lines and loans1,038 1,074 — 905 935 — 
Residential mortgage1,476 1,476 — 1,797 1,797 — 
Construction1,206 1,206 — 1,206 1,206 — 
Leases95 95 — 212 212 — 
Total9,139 9,247 — 8,016 8,104 — 
Grand Total$26,086 26,495 2,816 25,829 26,080 3,276 

Table of Contents

The following table details the average recorded investment and interest income recognized on impaired loans by portfolio segment.

Three Months Ended June 30, 2022Three Months Ended June 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$16,412 — 3,309 
Small business loans666 — 917 — 
Home equity lines and loans— — 93 — 
Residential mortgage— — 686 — 
Total$17,078 — 5,005 
Impaired loans without related allowance:
Commercial mortgage$4,241 29 726 
Commercial and industrial293 — 969 — 
Small business loans835 161 
Home equity lines and loans1,040 23 824 — 
Residential mortgage1,480 166 1,125 
Construction1,206 16 1,206 14 
Leases102 — 39 — 
Total$9,197 236 5,050 29 
Grand Total$26,275 236 10,055 34 
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Three Months Ended

Three Months Ended

June 30, 2021

June 30, 2020

Average

Interest

Average

Interest

recorded

Income

recorded

Income

(dollars in thousands)

    

investment

Recognized

investment

Recognized

Impaired loans with related allowance:

Commercial and industrial

$

3,309

5

446

5

Small business loans

917

Home equity lines and loans

93

357

Residential mortgage

686

Total

$

5,005

5

803

5

Impaired loans without related allowance:

Commercial mortgage

$

726

8

2,106

21

Commercial and industrial

969

1,109

4

Small business loans

161

4

220

5

Home equity lines and loans

824

400

Residential mortgage

1,125

3

4,310

92

Construction

1,206

14

1,206

15

Leases

39

Total

$

5,050

29

9,351

137

Grand Total

$

10,055

34

10,154

142

Six Months Ended

Six Months Ended

June 30, 2021

June 30, 2020

Average

Interest

Average

Interest

recorded

Income

recorded

Income

(dollars in thousands)

investment

Recognized

investment

Recognized

Impaired loans with related allowance:

Commercial and industrial

$

3,339

10

449

10

Small business loans

917

Home equity lines and loans

94

360

Residential mortgage

687

Total

$

5,037

10

809

10

Impaired loans without related allowance:

Commercial mortgage

$

730

16

2,117

42

Commercial and industrial

1,002

1,122

8

Small business loans

169

8

227

11

Home equity lines and loans

824

400

Residential mortgage

1,126

3

4,317

92

Construction

1,206

29

1,210

32

Leases

80

Total

$

5,137

56

9,393

185

Grand Total

$

10,174

66

10,202

195

Six Months Ended
June 30, 2022
Six Months Ended
June 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$16,449 — 3,339 10 
Small business loans666 — 917 — 
Home equity lines and loans— — 94 — 
Residential mortgage— — 687 — 
Total17,115 — 5,037 10 
Impaired loans without related allowance:
Commercial mortgage4,279 48 730 16 
Commercial and industrial297 — 1,002 — 
Small business loans844 169 
Home equity lines and loans1,044 23 824 — 
Residential mortgage1,483 168 1,126 
Construction1,206 31 1,206 29 
Leases103 — 80 — 
Total9,256 275 5,137 56 
Grand Total$26,371 275 10,174 66 

Troubled Debt Restructuring

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,

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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.

The balance of

TDRs at June 30, 20212022 and December 31, 20202021 are as follows:

June 30, 

December 31, 

(dollars in thousands)

    

2021

    

2020

TDRs included in nonperforming loans and leases

$

239

  

244

TDRs in compliance with modified terms

 

2,486

  

3,362

Total TDRs

$

2,725

  

3,606

June 30, 2022December 31, 2021
(dollars in thousands)
TDRs included in nonperforming loans and leases$197 361 
TDRs in compliance with modified terms3,679 3,446 
Total TDRs$3,876 3,807 
There were 0was 1 new loan and lease modificationsmodification for $700 thousand granted during the three and six months ended June 30, 20212022 for a commercial mortgage, and 1there were no loan and lease modification granted during the three and six months ended June 30, 2020 that were categorized as a TDR.  NaN loan andor lease modifications granted during the three and six months ended June 30, 2021 that were categorized as a TDR, and 2020 subsequently defaultedno subsequent defaults during the same time period.

In accordance with Section 4013periods.




20

Table of the CARES Act, loan deferrals granted to customers that resulted from the impact of COVID-19 and who were not past due at the time of deferral were not considered trouble debt restructurings under ASC 310-40 as of June 30, 2021. COVID-19 loan modifications provided to borrowers amounted to $29.0 million as of June 30, 2021, up slightly from $26.9 million as of December 31, 2020, while down from the $144.1 million as of June 30, 2020.

This provision was extended to January 1, 2022 under the Consolidated Appropriations Act, 2021. Management continues to monitor these deferrals and has adequately considered these credits in the June 30, 2021 allowance for loan losses balance.  These modified loans are classified as performing and are not considered past due. Loans are to be placed on non-accrual when it becomes apparent that payment of interest or recovery of all principal is questionable, and the COVID-19 related modification is no longer considered short-term or the modification is deemed ineffective.

Contents


(6)    Short-Term Borrowings and Long-Term Debt

The Corporation’s short-term borrowings generally consist of federal funds purchased and short-term borrowings extended under agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”). The Corporation has 2 unsecured Federal Fundsfunds borrowing facilities with correspondent banks: one of $24 million and one of $15 million. Federal Fundsfunds purchased generally represent one-day borrowings. The Corporation had 0$0 in Federal Fundsfunds purchased at June 30, 20212022 and December 31, 2020.2021. The Corporation also has a facility with the Federal Reserve Bank (“FRB”) of Philadelphia discount window of $3.7$11.5 million. This facility is fully secured by investment securities. There were 0no borrowings under this at June 30, 2021 and $10 million2022 or at December 31, 2020.

2021.

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Short-term borrowings at June 30, 20212022 and December 31, 20202021 consisted of the following notes:

Balance as of

Maturity

Interest

June 30, 

December 31, 

(dollars in thousands)

date

    

rate

    

2021

    

2020

Open Repo Plus Weekly

05/31/2022

0.33

%  

13,542

60,416

Federal Reserve Discount Window

03/31/2021

0.25

10,000

Mid-term Repo-fixed

01/13/2021

0.36

4,605

Mid-term Repo-fixed

06/10/2021

0.10

6,376

Mid-term Repo-fixed

09/10/2021

0.11

10,000

10,000

Mid-term Repo-fixed

12/10/2021

0.16

10,000

10,000

Mid-term Repo-fixed

01/27/2021

0.23

5,465

Total

$

33,542

106,862

As part

Balance as of
(dollars in thousands)Maturity
date
Interest
rate
June 30,
2022
December 31,
2021
Open Repo Plus Weekly6/5/20231.75 %54,250 36,458 
Mid-term Repo-fixed9/12/20220.23 4,886 4,886 
Total$59,136 41,344 
The Corporation had no long-term debt as of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program.  Advances from this facility are secured 100% by the aggregate face value of pools comprised of loans with common maturity dates. PPPLF advances mature concurrently with the loans in a given pool. At June 30, 2021, the Corporation pledged $36.3 million of PPP loans to the FRB of Philadelphia to borrow $36.3 million of funds at a rate of 0.35%.  Advances made on the PPPLF can be made through July 30, 2021.

Long-term debt at June 30, 2021 and2022 or December 31, 2020 consisted of the following notes:

Balance as of

Maturity

Interest

June 30, 

December 31, 

(dollars in thousands)

    

date

    

rate

    

2021

    

2020

PPPLF Advances

2022

0.35

%  

153,269

PPPLF Advances

2026

0.35

$

36,337

Mid-term Repo-fixed

06/29/2022

0.32

7,392

7,392

Mid-term Repo-fixed

09/12/2022

0.23

4,885

4,885

Total

`

$

48,614

165,546

2021.

The FHLB of Pittsburgh has also issued $108$56.1 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers. These letters of credit expire throughout 2021.

2022.

The Corporation has a maximum borrowing capacity with the FHLB of $549.0$484.1 million as of June 30, 20212022 and $638.9$505.4 million as of December 31, 2020.2021. All advances and letters of credit from the FHLB are secured by a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.


(7)    Servicing Assets

The Corporation sells certain residential mortgage loans and the guaranteed portion of certain small businessSBA loans (“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 Corporation accounts for the transfers and servicing of financial assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

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Residential Mortgage Loans

The mortgage servicing rights (“MSRs”) are amortized over the period of the estimated future net servicing life of the underlying assets. MSR’sMSRs 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 $863.2 million and $506.0 million$1.0 billion of residential mortgage loans as of June 30, 20212022 and December 31, 2020, respectively.2021. During the three and six months ended June 30, 2021,2022, the Corporation recognized servicing fee income of $653 thousand and $1.3 million, compared to $481 thousand and $842 thousand, respectively, compared to $67 thousand and $107 thousand, during the three and six months ended June 30, 2020,2021, respectively.




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Changes in the MSR balance are summarized as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

(dollars in thousands)

2021

    

2020

2021

    

2020

Balance at beginning of the period

$

7,118

423

$

4,647

446

Servicing rights capitalized

2,154

952

4,496

1,136

Amortization of servicing rights

(271)

(50)

(470)

(83)

Change in valuation allowance

(59)

(31)

269

(205)

Balance at end of the period

$

8,942

1,294

$

8,942

1,294

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2022202120222021
Balance at beginning of the period$10,888 7,118 $10,756 4,647 
Servicing rights capitalized51 2,154 583 4,496 
Amortization of servicing rights(332)(271)(736)(470)
Change in valuation allowance(59)269 
Balance at end of the period$10,610 8,942 $10,610 8,942 
Activity in the valuation allowance for MSR’sMSRs was as follows:

Three Months Ended June 30, 

Six Months Ended June 30, 

(dollars in thousands)

2021

    

2020

2021

    

2020

Valuation allowance, beginning of period

$

(107)

(272)

$

(435)

(98)

Impairment

(59)

(31)

(205)

Recovery

269

Valuation allowance, end of period

$

(166)

(303)

$

(166)

(303)

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2022202120222021
Valuation allowance, beginning of period$(4)(107)$(8)(435)
Impairment— (59)— — 
Recovery— 269 
Valuation allowance, end of period$(1)(166)$(1)(166)
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 June 30, 2022, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.13% and a discount rate equal to 9.00%. 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 7.61%7.23% and a discount rate equal to 9.00%. At December 31, 2020,Due in part to market volatility as interest rates increased, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 9.39% and a discount rate equal to 9.00%.  The prepayment speed assumption has declineddecreased from December 31, 20202021 to June 30, 2021 as2022. As interest rates have started to increase and the number of mortgage refinancings have started to decline, whilemodel inputs have been adjusted to align the MSRs fair value with market conditions. The discount rate assumption is unchanged over this period as the underlying credit quality of the loans sold in each period is relatively unchanged.

21

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At June 30, 20212022 and December 31, 2020,2021, 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.

(dollars in thousands)June 30, 2022December 31, 2021
Fair value of residential mortgage servicing rights$12,270 $11,241 
Weighted average life (months)1611
Prepayment speed7.13 %7.23 %
Impact on fair value:
10% adverse change$(445)$(376)
20% adverse change(862)(731)
Discount rate9.00 %9.00 %
Impact on fair value:
10% adverse change$(490)$(436)
20% adverse change(945)(840)
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(dollars in thousands)

June 30, 2021

    

December 31, 2020

Fair value of residential mortgage servicing rights

$

9,024

$

4,647

Weighted average life (years)

7.0

5.0

Prepayment speed

7.61%

9.39%

Impact on fair value:

10% adverse change

$

(321)

$

(183)

20% adverse change

(629)

(354)

Discount rate

9.00%

9.00%

Impact on fair value:

10% adverse change

$

(347)

$

(168)

20% adverse change

(669)

(329)

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 particulararticular 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 Loans

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 $79.5$143.2 million and $55.9$115.1 million of SBA loans, as of June 30, 20212022 and December 31, 2020,2021, respectively.

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

Three Months Ended June 30, 

Six Months Ended June 30, 

(dollars in thousands)

2021

    

2020

2021

    

2020

Balance at beginning of the period

$

1,160

469

$

970

337

Servicing rights capitalized

304

183

578

342

Amortization of servicing rights

(87)

(28)

(154)

(47)

Change in valuation allowance

8

8

(9)

Balance at end of the period

$

1,385

632

$

1,385

632

22

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2022202120222021
Balance at beginning of the period$2,508 1,160 $2,009 970 
Servicing rights capitalized247 304 840 578 
Amortization of servicing rights(225)(87)(350)(154)
Change in valuation allowance(280)(249)(9)
Balance at end of the period$2,250 1,385 $2,250 1,385 

Table of Contents

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

Three Months Ended June 30, 

Six Months Ended June 30, 

(dollars in thousands)

2021

    

2020

2021

    

2020

Valuation allowance, beginning of period

$

(56)

(34)

$

(39)

(26)

Impairment

(9)

Recovery

8

8

Valuation allowance, end of period

$

(48)

(26)

$

(48)

(26)

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2022202120222021
Valuation allowance, beginning of period$(65)(56)$(96)(39)
Impairment(280)— (249)(9)
Recovery— — — 
Valuation allowance, end of period$(345)(48)$(345)(48)
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 June 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 13.00%, and a discount rate equal to 12.38%. 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 13.28%12.38%, and a discount rate equal to 5.82%9.01%. At December 31, 2020,The change in valuation allowance due to impairment, noted in the key assumptions usedtables above, was largely due to determine the fair value ofincreased prepayment speed experienced in the Corporation’s SBA loan servicing rights included a lifetime constant prepaymentcurrent year periods and the rising interest rate equal to 12.73%, and a discount rate equal to 8.33%.  

environment.

At June 30, 20212022 and December 31, 2020,2021, 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.

23

Table of Contents

(dollars in thousands)

June 30, 2021

    

December 31, 2020

Fair value of SBA loan servicing rights

$

1,520

$

1,010

Weighted average life (years)

3.6

3.7

Prepayment speed

13.28%

12.73%

Impact on fair value:

10% adverse change

$

(62)

$

(37)

20% adverse change

(118)

(71)

Discount rate

5.82%

8.33%

Impact on fair value:

10% adverse change

$

(41)

$

(25)

20% adverse change

(79)

(49)

(dollars in thousands)June 30, 2022December 31, 2021
Fair value of SBA loan servicing rights$2,295 $2,107 
Weighted average life (years)3.83.8
Prepayment speed13.00 %12.38 %
Impact on fair value:
10% adverse change$(74)$(69)
20% adverse change(137)(132)
Discount rate12.38 %9.01 %
Impact on fair value:
10% adverse change$(59)$(54)
20% adverse change(108)(106)
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.

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Table of Contents

(8)    Fair Value Measurements and Disclosures

The Corporation uses fair value measurements to record fair value adjustments to certain assets and 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 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
24

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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.

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

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.

Mortgage Loans Held for Sale

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

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Table of Contents

Mortgage Loans Held for Investment

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.

Derivative Financial Instruments

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.


25

Table of Contents

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 20212022 and December 31, 20202021 are as follows:

June 30, 2021

(dollars in thousands)

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets

Securities available for sale:

U.S. asset backed securities

$

26,735

26,735

U.S. government agency mortgage-backed securities

3,905

3,905

U.S. government agency collateralized mortgage obligations

22,024

22,024

State and municipal securities

75,181

75,181

U.S. Treasuries

8,029

8,029

Corporate bonds

6,035

6,035

Equity investments

1,016

1,016

Mortgage loans held for sale

132,348

132,348

Mortgage loans held for investment

15,129

15,129

Interest rate lock commitments

2,667

2,667

Forward commitments

13

13

Customer derivatives - interest rate swaps

1,118

1,118

Total

$

294,200

291,533

2,667

Liabilities

Interest rate lock commitments

259

259

Forward commitments

291

291

Customer derivatives - interest rate swaps

1,181

1,181

$

1,731

1,472

259

25

June 30, 2022
(dollars in thousands)TotalLevel 1Level 2Level 3
Assets
Securities available for sale:
U.S. asset backed securities$13,740 — 13,740 — 
U.S. government agency mortgage-backed securities9,640 — 9,640 — 
U.S. government agency collateralized mortgage obligations20,606 — 20,606 — 
State and municipal securities39,716 — 39,716 — 
U.S. Treasuries30,424 30,424 — — 
Non-U.S. government agency collateralized mortgage obligations8,971 — 8,971 0
Corporate bonds6,191 — 6,191 — 
Equity investments2,153 — 2,153 — 
Mortgage loans held for sale58,938 — 58,938 — 
Mortgage loans held for investment16,212 — 16,212 — 
Interest rate lock commitments374 — — 374 
Forward commitments67 — 67 — 
Customer derivatives - interest rate swaps2,893 — 2,893 — 
Total$209,925 30,424 179,127 374 
Liabilities
Interest rate lock commitments430 — — 430 
Forward commitments77 — 77 — 
Customer derivatives - interest rate swaps2,847 — 2,847 — 
Total$3,354 — 2,924 430 

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Table of Contents

December 31, 2020

(dollars in thousands)

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets

Securities available for sale:

U.S. asset backed securities

$

25,592

25,592

U.S. government agency mortgage-backed securities

4,046

4,046

U.S. government agency collateralized mortgage obligations

23,909

23,909

State and municipal securities

65,810

65,810

Corporate bonds

4,205

4,205

Equity investments

1,031

1,031

Mortgage loans held for sale

229,199

229,199

Mortgage loans held for investment

12,182

12,182

Interest rate lock commitments

6,932

6,932

Forward commitments

Customer derivatives - interest rate swaps

1,118

1,118

Total

$

374,024

367,092

6,932

Liabilities

Interest rate lock commitments

100

100

Forward commitments

1,572

1,572

Customer derivatives - interest rate swaps

1,219

1,219

$

2,891

2,791

100

Financial assets
December 31, 2021
(dollars in thousands)TotalLevel 1Level 2Level 3
Assets
Securities available for sale:
U.S. asset backed securities$16,837 — 16,837 — 
U.S. government agency mortgage-backed securities9,813 — 9,813 — 
U.S. government agency collateralized mortgage obligations22,381 — 22,381 — 
State and municipal securities72,982 — 72,982 — 
U.S. Treasuries29,728 29,728 — — 
Non-U.S. government agency collateralized mortgage obligations975 — 975 — 
Corporate bonds6,586 — 6,586 — 
Equity investments2,354 — 2,354 — 
Mortgage loans held for sale80,882 — 80,882 — 
Mortgage loans held for investment17,558 — 17,558 — 
Interest rate lock commitments1,122 — — 1,122 
Forward commitments65 — 65 — 
Customer derivatives - interest rate swaps961 — 961 — 
Total$262,244 29,728 231,394 1,122 
Liabilities
Interest rate lock commitments203 — — 203 
Forward commitments106 — 106 — 
Customer derivatives - interest rate swaps1,018 — 1,018 — 
Total$1,327 — 1,124 203 

Assets measured at fair value on a nonrecurring basis at June 30, 2022 and December 31, 2021 are considered Level 3 assetsas follows:
June 30, 2022December 31, 2021
(dollars in thousands)Fair ValueFair Value
Mortgage servicing rights$10,610 10,756 
SBA loan servicing rights2,250 2,009 
Impaired loans (1)
     Commercial and industrial8231,837
     Small business loans290
Total$13,683 14,892 
(1)Impaired loans are those in which the Corporation has measured impairment generally based on the fair value hierarchy.  of the loan’s collateral. Refer to the following page for further qualitative discussion around impaired loans.







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The fair value used at June 30, 2021 and December 31, 2020 are as follows:

June 30, 2021

December 31, 2020

(dollars in thousands)

    

Fair Value

    

    

Fair Value

Mortgage servicing rights

$

8,942

4,647

SBA loan servicing rights

1,385

970

Impaired loans (1)

2,985

2,998

Total

$

13,312

8,615

following table details the valuation techniques for Level 3 impaired loans.
(1)
Impaired loans are thoseFair ValueValuationRange of
(dollars in which the Corporation has measured impairment generally basedthousands)Level 3TechniqueSignificant Unobservable InputInputs
June 30, 2022$823 Appraisal of collateralManagement adjustments on the fair valueappraisals for property type and recent activity2%-15% discount
December 31, 2021$2,127 Appraisal of the loan’s collateral.  Fair value is generally determined based upon independent third-partycollateralManagement adjustments on appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values.for property type and recent activity2%-15% discount

Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Corporation’s balance sheet. The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair value of the Corporation’s financial instruments:

Cash and Cash Equivalents

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

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Table of Contents

Loans Receivable

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 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 reflective of an exit price.

Loan

Servicing Rights

Assets

The Corporation estimates the fair value of mortgage 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 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 a quarterly basis for impairment.

Impaired Loans

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-partythird‑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.

Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the Allowance policy.


Accrued Interest Receivable and Payable

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

Deposit Liabilities

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
28

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values for 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.

Short-Term Borrowings

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

Long-Term Debt

Fair values of FHLB advances 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.

Subordinated Debt

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.

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Off-Balance Sheet Financial Instruments

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.

Derivative Financial Instruments
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 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.
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The estimated fair values of the Corporation’s financial instruments at June 30, 20212022 and December 31, 20202021 are as follows:

June 30, 2021

December 31, 2020

Fair Value

Carrying

Carrying

(dollars in thousands)

    

Hierarchy Level

    

amount

    

Fair value

    

amount

    

Fair value

Financial assets:

Cash and cash equivalents

Level 1

$

26,902

26,902

36,744

36,744

Securities available-for-sale

Level 2

141,909

141,909

123,562

123,562

Securities held-to-maturity

Level 2

6,441

6,726

6,510

6,857

Equity investments

Level 2

1,016

1,016

1,031

1,031

Mortgage loans held for sale

Level 2

132,348

132,348

229,199

229,199

Loans receivable, net of the allowance for loan and lease losses

Level 3

1,329,260

1,376,721

1,272,582

1,289,776

Mortgage loans held for investment

Level 2

15,129

15,129

12,182

12,182

Interest rate lock commitments

Level 3

2,667

2,667

6,932

6,932

Forward commitments

Level 2

13

13

Restricted investment in bank stock

NA

5,357

NA

7,861

NA

Accrued interest receivable

Level 3

5,519

5,519

5,482

5,482

Customer derivatives - interest rate swaps

Level 2

1,118

1,118

1,118

1,118

Financial liabilities:

Deposits

Level 2

1,413,280

1,523,900

1,241,335

1,392,500

Short-term borrowings

Level 2

33,542

33,542

106,862

106,862

Long-term debt

Level 2

48,614

49,102

165,546

168,000

Subordinated debentures

Level 2

40,730

41,961

40,671

38,375

Accrued interest payable

Level 2

120

120

1,154

1,154

Interest rate lock commitments

Level 3

259

259

100

100

Forward commitments

Level 2

291

291

1,572

1,572

Customer derivatives - interest rate swaps

Level 2

1,181

1,181

1,219

1,219

Notional

Notional

Off-balance sheet financial instruments:

    

    

amount

    

Fair value

    

amount

    

Fair value

Commitments to extend credit

Level 2

$

461,207

2,667

421,399

6,932

Letters of credit

Level 2

16,975

8,928

June 30, 2022December 31, 2021
(dollars in thousands)Fair Value
Hierarchy Level
Carrying
amount
Fair valueCarrying
amount
Fair value
Financial assets:
Cash and cash equivalentsLevel 1$37,093 37,093 23,480 23,480 
Securities available-for-sale (1)Level 2129,288 129,288 159,302 159,302 
Securities held-to-maturityLevel 237,111 33,497 6,372 6,591 
Equity investmentsLevel 22,153 2,153 2,354 2,354 
Mortgage loans held for saleLevel 258,938 58,938 80,882 80,882 
Loans receivable, net of the allowance for loan and lease lossesLevel 31,502,681 1,456,650 1,368,899 1,370,885 
Mortgage loans held for investmentLevel 216,212 16,212 17,558 17,558 
Interest rate lock commitmentsLevel 3374 374 1,122 1,122 
Forward commitmentsLevel 267 67 65 65 
Restricted investment in bank stockNA4,719 NA5,117 NA
Accrued interest receivableLevel 35,108 5,108 5,009 5,009 
Customer derivatives - interest rate swapsLevel 22,893 2,893 961 961 
Financial liabilities:
DepositsLevel 21,568,014 1,484,100 1,446,413 1,549,100 
Short-term borrowingsLevel 259,136 59,136 41,344 41,344 
Subordinated debenturesLevel 240,567 38,054 40,508 40,803 
Accrued interest payableLevel 2146 146 31 31 
Interest rate lock commitmentsLevel 3430 430 203 203 
Forward commitmentsLevel 277 77 106 106 
Customer derivatives - interest rate swapsLevel 22,847 2,847 1,018 1,018 
NotionalNotional
Off-balance sheet financial instruments:amountFair valueamountFair value
 Commitments to extend creditLevel 2$488,561 — 486,632 0
 Letters of creditLevel 222,880 — 25,986 0
(1) U.S. Treasury securities available-for-sale are classified as Level 1.
The following table includes a rollforward of interest rate lock commitments for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three and six month peiodsperiods ended June 30, 20212022 and 2020.

Three Months Ended June 30, 

Six Months Ended June 30, 

2021

    

2020

2021

    

2020

Balance at beginning of the period

$

4,595

4,021

$

6,932

504

(Decrease) increase in value

(1,928)

574

(4,265)

4,091

Balance at end of the period

$

2,667

4,595

$

2,667

4,595

2021.

28

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Balance at beginning of the period$587 4,595 1,122 6,932 
Decrease in value(213)(1,928)(748)(4,265)
Balance at end of the period$374 2,667 374 2,667 




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The following table details the valuation techniques for Level 3 interest rate lock commitments.

Significant

Fair Value

Unobservable

Range of

Weighted

  

Level 3

  

Valuation Technique

  

Input

  

Inputs

  

Average

  

June 30, 2021

$

2,667

Market comparable pricing

Pull through

1 - 99

%

89.91

%

December 31, 2020

6,932

Market comparable pricing

Pull through

1 - 99

83.08

Fair Value
Level 3
Valuation TechniqueSignificant
Unobservable
Input
Range of
Inputs
Weighted
Average
June 30, 2022$374 Market comparable pricingPull through1 - 9988.93%
December 31, 20211,122 Market comparable pricingPull through1 - 9987.66
Net realized gains and losses due to changes in the fair value of interest rate lock commitments, which are classified as Level 3 assets and liabilities, are recorded in non-interest income as net change in the fair value of derivative instruments in the Corporation’sCorporation's consolidated statements of income. Net realized gains of $165 thousand and net realized losses of $975 thousand were recorded for the three and six months ended June 30, 2022, while net realized gains of $13 thousand and net realized losses of $4.4 million were recorded for the three and six months ended June 30, 2021, respsectively, while net realized gains of $724 thousand and $4.1 million were recorded for the three and six months ended June 30, 2020, respectively.

(9)    Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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.

Mortgage Banking Derivatives

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. The fair value of interestInterest 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.


Customer Derivatives – Interest Rate Swaps

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.  The fair value of interest rate derivatives are recorded within other assets/liabilities on the consolidated balance sheets.  As the interest rate

29

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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.

31

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The following table presents a summary of the notional amounts and fair values of derivative financial instruments:

June 30, 2021

December 31, 2020

(dollars in thousands)

Balance Sheet Line Item

Notional
Amount

    

Asset
(Liability)
Fair Value

    

Notional
Amount

    

Asset
(Liability)
Fair Value

Interest Rate Lock Commitments

Positive fair values

Other assets

$

202,834

2,667

406,422

6,932

Negative fair values

Other liabilities

45,797

(259)

22,406

(100)

Total

248,631

2,408

428,828

6,832

Forward Commitments

Positive fair values

Other assets

10,500

13

Negative fair values

Other liabilities

119,000

(291)

218,000

(1,572)

Total

129,500

(278)

218,000

(1,572)

Customer Derivatives - Interest Rate Swaps

Positive fair values

Other assets

36,132

1,118

20,979

1,118

Negative fair values

Other liabilities

36,132

(1,181)

20,979

(1,219)

Total

72,264

(63)

41,958

(101)

Total derivative financial instruments

$

450,395

2,067

688,786

5,159

June 30, 2022December 31, 2021
(dollars in thousands)Balance Sheet Line Item
Notional
Amount
Asset
(Liability)
Fair Value
Notional
Amount
Asset
(Liability)
Fair Value
Interest Rate Lock Commitments
Positive fair valuesOther assets$50,159 374 108,653 1,122 
Negative fair valuesOther liabilities55,319 (430)35,264 (203)
Total105,478 (56)143,917 919 
Forward Commitments
Positive fair valuesOther assets14,500 67 30,500 65 
Negative fair valuesOther liabilities12,500 (77)45,500 (106)
Total27,000 (10)76,000 (41)
Customer Derivatives - Interest Rate Swaps
Positive fair valuesOther assets41,742 2,893 35,447 961 
Negative fair valuesOther liabilities41,742 (2,847)35,447 (1,018)
Total83,484 46 70,894 (57)
Total derivative financial instruments$215,962 (20)290,811 821 
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 on derivative financial instruments:

Three Months Ended June 30, 

Six Months Ended June 30, 

(dollars in thousands)

    

2021

    

2020

    

2021

    

2020

Interest Rate Lock Commitments

$

13

724

$

(4,424)

4,065

Forward Commitments

(2,102)

1,638

1,294

(672)

Customer Derivatives - Interest Rate Swaps

(59)

2

38

(75)

Net fair value (losses) gains on derivative financial instruments

$

(2,148)

2,364

$

(3,092)

3,318

Three Months Ended June 30,Six Months Ended June 30,
(dollars in thousands)2022202120222021
Interest Rate Lock Commitments$165 13 (975)(4,424)
Forward Commitments(909)(2,102)31 1,294 
Customer Derivatives - Interest Rate Swaps70 (59)104 38 
Net fair value (losses) gains on derivative financial instruments$(674)(2,148)(840)(3,092)
Net realized gains on derivative hedging activities were $1.7 million and $4.5 million for the three and six months ended June 30, 2022, respectively, and net realized losses on derivatives were $674 thousand and net realized gains were $3.6 million for the three and six months ended June 30, 2021, and net2021. Net realized gains losses on derivatives were $3.3 million and $4.7 million forderivative hedging activities are included in non-interest income in the three and six months ended June 30, 2020, respectively.

30

consolidated statements of income.

Table of Contents

(10)    Segments

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,(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 loans, SBA income, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income, title insurance fees, and other less significant non-interest income.


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Meridian Wealth Partners (“Wealth”), is a registered investment advisor and wholly-owned subsidiary of the Bank, that provides a comprehensive array of wealth management services and products and the trusted guidance to help its clients and our banking customers prepare for the future. The unit generates non-interest income through advisory fees.

Meridian Mortgage


Meridian’s mortgage banking segment (“Mortgage”) consists of 1622 loan production offices located throughout the Delaware Valleysuburban Philadelphia and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production 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.

gains (losses).


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

Segment Information

Three Months Ended June 30, 2021

Three Months Ended June 30, 2020

(Dollars in thousands)

    

Bank

    

Wealth

    

Mortgage

    

Total

    

Bank

    

Wealth

    

Mortgage

    

Total

Net interest income

$

14,824

2

586

15,412

$

11,101

(2)

498

11,597

Provision for loan losses

96

96

1,631

1,631

Net interest income after provision

14,728

2

586

15,316

9,470

(2)

498

9,966

Non-interest Income

Mortgage banking income

408

19,059

19,467

297

16,491

16,788

Wealth management income

1,163

1,163

853

853

SBA income

1,490

1,490

638

638

Net change in fair values

(59)

(813)

(872)

2

3,138

3,140

Net loss on hedging activity

(674)

(674)

(3,301)

(3,301)

Other

563

595

1,158

442

14

117

573

Non-interest income

2,402

1,163

18,167

21,732

1,379

867

16,445

18,691

Non-interest expense

9,415

789

16,042

26,246

7,572

788

12,894

21,254

Income before income taxes

$

7,715

376

2,711

10,802

$

3,277

77

4,049

7,403

Total Assets

$

1,560,040

5,946

143,024

1,709,010

$

1,462,449

5,206

111,428

1,579,083

Total assets for each segment is also provided.

31

Segment Information
Three Months Ended June 30, 2022Three Months Ended June 30, 2021
(Dollars in thousands)BankWealthMortgageTotalBankWealthMortgageTotal
Net interest income$16,923 317 311 17,551 $14,824 586 15,412 
Provision for loan losses602 — — 602 96 — — 96 
Net interest income after provision16,321 317 311 16,949 14,728 586 15,316 
Non-interest Income
Mortgage banking income125 — 6,817 6,942 408 — 19,059 19,467 
Wealth management income— 1,254 — 1,254 — 1,163 — 1,163 
SBA income437 — — 437 1,490 — — 1,490 
Net change in fair values71 — (1,312)(1,241)(59)— (813)(872)
Net gain on hedging activity— — 1,715 1,715 — — (674)(674)
Other526 — 770 1,296 563 — 595 1,158 
Non-interest income1,159 1,254 7,990 10,403 2,402 1,163 18,167 21,732 
Non-interest expense10,624 822 8,260 19,706 9,415 789 16,042 26,246 
Income before income taxes$6,856 749 41 7,646 7,715 376 2,711 10,802 
Total Assets$1,759,129 7,432 86,458 1,853,019 $1,560,040 5,946 143,024 1,709,010 

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Six Months Ended June 30, 2021

Six Months Ended June 30, 2020

Segment Information
Six Months Ended June 30, 2022Six Months Ended June 30, 2021

(Dollars in thousands)

    

Bank

    

Wealth

    

Mortgage

    

Total

    

Bank

    

Wealth

    

Mortgage

    

Total

(Dollars in thousands)BankWealthMortgageTotalBankWealthMortgageTotal

Net interest income

$

29,324

(11)

1,220

30,533

$

20,619

(4)

648

21,263

Net interest income$32,533 411 642 33,586 29,324 (11)1,220 30,533 

Provision for loan losses

695

695

3,183

3,183

Provision for loan losses1,217 — — 1,217 695 — — 695 

Net interest income after provision

28,629

(11)

1,220

29,838

17,436

(4)

648

18,080

Net interest income after provision31,316 411 642 32,369 28,629 (11)1,220 29,838 

Non-interest Income

Non-interest Income

Mortgage banking income

676

42,891

43,567

399

23,184

23,583

Mortgage banking income322 — 13,716 14,038 676 — 42,891 43,567 

Wealth management income

2,299

2,299

1,874

1,874

Wealth management income— 2,558 — 2,558 — 2,299 — 2,299 

SBA income

2,735

2,735

1,180

1,180

SBA income2,957 — — 2,957 2,735 — — 2,735 

Net change in fair values

39

(5,824)

(5,785)

(63)

4,955

4,892

Net change in fair values103 — (3,412)(3,309)39 — (5,824)(5,785)

Net gain (loss) on hedging activity

3,587

3,587

(4,726)

(4,726)

Net gain on hedging activityNet gain on hedging activity— — 4,542 4,542 — — 3,587 3,587 

Other

1,274

1,103

2,377

886

14

209

1,109

Other1,153 — 1,566 2,719 1,274 — 1,103 2,377 

Non-interest income

4,724

2,299

41,757

48,780

2,402

1,888

23,622

27,912

Non-interest income4,535 2,558 16,412 23,505 4,724 2,299 41,757 48,780 

Non-interest expense

18,348

1,684

34,478

54,510

14,510

1,575

19,233

35,318

Non-interest expense20,833 1,700 18,606 41,139 18,348 1,684 34,478 54,510 

Income before income taxes

$

15,005

604

8,499

24,108

$

5,328

309

5,037

10,674

Income (loss) before income taxesIncome (loss) before income taxes$15,018 1,269 (1,552)14,735 15,005 604 8,499 24,108 

Total Assets

$

1,560,040

5,946

143,024

1,709,010

$

1,462,449

5,206

111,428

1,579,083

Total Assets$1,759,129 7,432 86,458 1,853,019 1,560,040 5,946 143,024 1,709,010 


(11)    Stockholders’ Equity

Leases

On January 28, 2021,1, 2022, the Corporation announcedadopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 12, Recent Accounting Pronouncements.
The Corporation’s operating leases consist of various retail branch locations and loan production offices. As of June 30, 2022, the Corporation’s leases have remaining lease terms ranging from 8 months to 13 years, including extension options that its Boardthe Corporation is reasonably certain will be exercised.

The Corporation’s leases include fixed rental payments, and certain of Directors declaredour 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 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 right of use (ROU) assets and lease liabilities for short-term leases.

As of June 30, 2022 the Corporation’s ROU assets and related lease liabilities were $10.0 million and $9.8 million, respectively. These amounts are included within other assets and other liabilities, respectively.








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The components of lease expense were as follows:
(dollars in thousands)Three Months Ended June 30, 2022Six Months Ended June 30, 2022
Operating lease expense$585 $1,171 
Short term lease expense
Variable lease expense— — 
Total lease expense$586 $1,173 
Supplemental cash dividendflow information related to leases was as follows:
(dollars in thousands)June 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 
Maturities of $0.125 per share, payable on February 22, 2021 to shareholders of recordoperating lease liabilities under FASB ASC 842 "Leases" as of February 8, 2021. On February 16, 2021,June 30, 2022 are as follows:
(dollars in thousands)June 30, 2022
2022$1,102 
20231,892 
20241,746 
20251,456 
20261,436 
Thereafter3,134 
10,766 
Less: Present value discount(948)
Total operating lease liabilities$9,818 
As of June 30, 2022, the weighted-average remaining lease term, including extension options that the Corporation announced that its Board of Directors declared a special dividend of $1.00 per share.is reasonably certain will be exercised, for all operating leases is 6.63 years.
Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The special dividend was paid on March 15, 2021 to shareholders of recordweighted average discount rate associated with operating leases as of March 1, 2021. During the first quarterJune 30, 2022 is 2.58%.

As of 2021,June 30, 2022, the Corporation paid a quarterly dividendhad not entered into any material leases that have not yet commenced.


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Table of $0.125 per share and the special dividend of $1.00 per share noted above. On April 22, 2021, the Corporation’s Board of Directors declared a cash dividend of $0.125 per common share, payable on May 17, 2021 to shareholders of record as of May 10, 2021. On July 22, 2021, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable August 16, 2021, to shareholders of record as of August 9, 2021.

Contents


On April 26, 2021, the Corporation announced that its Board of Directors has authorized a stock repurchase plan pursuant to which the Corporation may repurchase up to $6 million of the company’s outstanding common stock, par value $1.00 per share. Stock will be purchased 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. This program is subject to applicable regulatory protocol.  While 0 shares were repurchased under the plan for the three months-ended June 30, 2021, there were 13,755 shares repurchased between July 1, 2021 and August 13, 2021.


At the Annual Meeting of Shareholders held on June 17, 2021, the shareholders of the Corporation approved to amend the Corporation’s Articles of Incorporation to increase the authorized numbers of shares of common stock of the Corporation from 10,000,000 shares to 25,000,000 shares. The Articles of Amendment of the Corporation were filed with the Secretary of State of the Commonwealth of Pennsylvania on June 21, 2021.


(12)    Recent Accounting Pronouncements

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), the Bank 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 public offering (December 31, 2022), (iii) the date on which we have, during

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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.

Adopted Pronouncements in 2022:

FASB ASU 2016-02 (Topic 842), “Leases”
Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees are required to recognize a lease liability and a right-of-use 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. In June 2020, the FASB approved a delay for the implementation of the ASU. Accordingly, the amendments in this update are effective for the Corporation for fiscal years beginning after December 15, 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 12 - leases, for further details.
Pronouncements Not Effective as of June 30, 2022:

FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

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 (“CECL”) 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 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 Accounting Standards Codification (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 CorporationManagement is currently determining under which method we will adopt this ASU. The CorporationManagement has assembled a cross-functional team from Finance, Credit, and IT that is leading the implementation efforts to evaluate the impact of this guidance on the Corporation's consolidated financial statements and related disclosures, internal systems, accounting policies, processes and related internal controls. At this time the Corporation cannot yetan estimate of the impact to the Corporation's consolidated financial statements.

statements cannot be determined.





36

FASB ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”

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 will consider the impact of ASU 2019-04 when considering the impact of ASU 2016-13 as discussed above.

FASB ASU 2016-02 (Topic 842), “Leases”

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use 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. In June 2020, the FASB approved a delay for the implementation of the ASU. Accordingly, the amendments in this update are effective for the Corporation for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Under ASU 2016-02, the Corporation will recognize a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition, which

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will increase the Corporation’s assets and liabilities. The Corporation is evaluating other potential impacts of ASU 2016-02 on its consolidated financial statements.

FASB ASU 2020-04 (Topic 848), “Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

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.

FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"

Issued in August 2018, ASU 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Corporation does not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2020-06, “Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own EquityEquity”

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models. For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, but no earlier than for fiscal years beginning after Dec. 15, 2020.

FASB ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures."
In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases in the existing vintage disclosures. This ASU is effective for fiscal years beginning after December 15, 2022 or January 1, 2023 for the Corporation, including interim periods within those fiscal years for entities that have adopted CECL. Early adoption is permitted if an entity has adopted CECL. The Corporation is in the process of evaluating the amendments but does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 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, 20202021 included in Meridian Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

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Cautionary Statement Regarding Forward-Looking Statements

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-lookingforward-
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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 including,that could cause actual results to differ materially include, without limitation: the impact of the current COVID-19 pandemic and government responses thereto,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 Paycheck Protection Program (PPP) loan guaranties,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; 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, including our Annual Report on Form 10-K for the year ended December 31, 20202021 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.


Critical Accounting Policies Judgments and Estimates

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. While certain valuation assumptions and judgments will change to account for COVID-19 pandemic-related circumstances such as widening credit spreads, the Corporation does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. In particular, management has identified the provision and allowance for loan and lease losses as the accounting policy that, due to the estimates, assumptions and judgements inherent in that policy, is critical in understanding our financial statements. Management has presented the application of this policy to the audit committee of our board of directors.

As an emerging growth company, the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies.We have elected to take advantage of this extended transition period, which means that the financial statements included in this Annual Report, as well as any financial statements that we file in the future, 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 (expected to end as of December 31, 2022) 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 filed with the SEC following our decision, and such decision is irrevocable.
This critical accounting policy, along with other significant accounting policies, are presented in in Footnote 1 of the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, 20202021 and 20192020 included in the Annual Report on Form 10-K.

Executive Overview

The following items highlight the Corporation’s changes in its financial condition as of June 30, 2022 compared to March 31, 2022 and December 31, 2021, and the results of operations for the three and six months ended June 30, 2021,2022, as compared to the same periods in 2020, and the changes in its financial condition as of June 30, 2021 as compared to December 31, 2020.2021. More detailed information related to these highlights can be found in the sections that follow.

35

Changes in Financial Condition
Total assets increased $21.4 million, or 1.2%, to $1.9 billion as of June 30, 2022 compared to March 31, 2022, and increased $139.6 million, or 8.1%, compared to December 31, 2021.
Portfolio loans, excluding SBA Paycheck Protection Program ("PPP") loans, grew $115.2 million, or 8.3%, to $1.5 billion as of June 30, 2022 compared to March 31, 2022, and increased $199.3 million, or 15.4% since December 31,

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2021, or 31% on an annualized basis. PPP loans decreased $66.8 million, or 75.7%, to $11.7 million as of June 30, 2022 compared to March 31, 2022, and decreased $94.2 million, or 81.4%, compared to December 31, 2021.

Portfolio loan growth since March 31, 2022 was most evident in the commercial real estate/construction portfolio which grew $30.5 million, commercial loans and leases which grew $32.0 million, and residential loans which grew $35.4 million, while compared to December 31, 2021 commercial real estate/construction portfolio which grew $71.5 million, commercial loans and leases which grew $70.7 million, and residential loans which grew $45.8 million.

Cash and cash equivalents and investments decreased a combined $31.1 million or 13.1% since March 31, 2022, and increased $14.1 million, or 7.4%, since December 31, 2021.
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.
Our combined servicing asset portfolio (which includes both mortgage servicing rights and SBA servicing assets) decreased $536 thousand, or 4%, from March 31, 2022, and increased $95 thousand, or 0.7%, to $12.9 million, from December 31, 2021.
Total deposits grew $3.2 million, or 0.2%, from March 31, 2022, and grew $121.6 million, or 8.4%, to $1.6 billion, from December 31, 2021. Non-interest bearing deposits grew $546 thousand, or 0.2%, from March 31, 2022, and grew $17.4 million, or 6.3%, to $291.9 million from December 31, 2021.
Total borrowings increased $23.0 million from March 31, 2022, and $17.8 million from December 31, 2021, as short-term borrowings helped to fund our loan growth.
The Corporation returned $8.6 million of capital to Meridian shareholders during the six months ended June 30, 2022 through dividends, including a $1.00 special dividend, and $0.20 quarterly dividends.

Three Month Results of Operations

- June 30, 2022 Compared to the Same Period in 2021
NetConsolidated net income for the three months ended June 30, 2022 was $8.3$5.9 million, a decrease of $2.3 million, or $1.33 per diluted share,28.1% compared to netthe three months ended June 30, 2021, was driven by a decline in non-interest income, offset somewhat by continued strong loan portfolio growth, and expense reduction.
Pre-tax, pre-provision income for second quarter 2022 was $8.2 million, a decrease of $5.7$2.7 million, or $0.94 per diluted share,24.3%. led by strong growth in net interest income and lower operating expenses, offset by decreases in mortgage loan originations.
The return on average equity (“ROE”) and return on average assets (“ROA”) were 15.03% and 1.31%, respectively, for the second quarter of 2020. The increase of $2.5 million, or 44.5%, was due largely2022, compared to the increase in interest income on portfolio loans, combined with an increase in SBA loan sales and wealth management revenue, as well as an increase in mortgage banking activity.
ROE and ROA were 22.61% and 1.92%, respectively, for the second quarter 2021, compared2021.
Net interest margin increased to 19.16% and 1.56%4.07% from 3.70%, respectively, for the second quarter 2020.after recognizing $286 thousand in one-time loan fees as well as deployment of PPP loan payoffs into higher yielding commercial portfolios.
Pre-tax, pre-provisionNon-interest income (a non-GAAP measure) for the second quarter of 2021 was $10.9 million, an increase of $1.9decreased $11.3 million or 20.6%. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section below.52.1%, due to:
Total revenue was $39.2 million, an increaseLower level of $5.5 million or 16.3%.
Net interest income increased $3.8 million, or 32.9%, with interest expense down $1.4 million or 39.1%.
Non-interest income increased $3.0 million or 16.3%, driven by mortgage banking revenue, which declined $12.5 million, or 64.3%, offset somewhat by an increase in hedging gains of $2.4 million.
A decrease in SBA loan income of $1.1 million, or 70.7% due to lower sales volume and margins.
An increase in other fee income of $68 thousand, or 6.4%.
An increase in wealth management income, SBA income,revenue of $91 thousand, or 7.8%.
Changes in fair value related to mortgage banking activities were up $507 thousand over the period.
Provision for loan losses increased $506 thousand, due to loan growth, partially offset by decreases in specific reserves.
Non-interest expenses decreased $6.5 million, or 24.9%, as a result of a lower level of salaries and other fee income.benefits, due largely to reduced fixed and variable compensation arrangements as well as reduction in full-time equivalent employees in the mortgage segment, combined with a decline in incentive and stock-based compensation for bank and wealth segments.
oMortgage banking net revenue increased $2.7 million, or 16.0%, due to increased levels of mortgage loan originations due to the expansion of the segment into Maryland as well as the favorable rate environment. The fair value of derivative instruments and loans held for sale decreased a combined $3.9 million over the period. Net hedging activity improved as the net loss decreased $2.6 million to a net loss of $674 thousand for the second quarter of 2021.
oWealth management income was up $310 thousand, or 36.3%.
oSBA income was up $852 thousand, or 133.5% as the number and value of SBA loans sold increased from the prior year.
oOther fee income increased $632 thousand, or 147.7%.
Provision for loan losses was $96 thousand in the second quarter of 2021 compared to $1.6 million in the second quarter of 2020.
Non-interest expenses increased $5.0 million, or 23.5%, driven by an increase in salaries and benefits.

On July 28, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per common share, payable August 22, 2022 to shareholders of record as of August 15, 2022.


Six Month Results of Operations

- June 30, 2022 Compared to the Same Period in 2021
NetConsolidated net income was $18.4 million, or $2.98 per diluted share, for the six months ended June 30, 20212022 was $11.5 million, a decrease of $7.0 million, or 37.7% compared to netthe six months ended June 30, 2021, driven by a lower level of non-interest income from mortgage banking activity.
Pre-tax, pre-provision income was $16.0 million, a decrease of $8.2$8.9 million, or $1.32 per diluted share,35.7%, led by strong growth in net interest income and lower operating expenses, offset by decreases in mortgage loan originations.
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��The return on average equity (“ROE”) and return on average assets (“ROA”) were 14.61% and 1.30%, respectively, for the six months ended June 30, 2020. The increase was due largely2022, compared to the increase in net interest income of $9.3 million, combined with increased non-interest income of $20.9 million and a $2.5 million decrease in the provision for loan losses, partially offset by increases in non-interest expense and income taxes of $19.2 million and $3.2 million, respectively.  
ROE and ROA were 26.19% and 2.17%, respectively, for the six months ended June 30, 2021, compared to 13.70% and 1.26%, respectively,2021.
Net interest income for the six months ended June 30, 2020.
Pre-tax, pre-provision income (a non-GAAP measure) for the six months ended June 30, 2021 was $24.8 million, an increase of $10.92022 increased $3.1 million, or 79.0%. A reconciliation of this non-GAAP measure is included10%, compared to the same period in 2021. This increase helped the Non-GAAP Financial Measures section below.net interest margin increase to 3.98% from 3.71%, as excess cash and PPP loan payoffs were reinvested in higher yielding commercial portfolios.
Total revenue was $83.7 million, an increase of $27.0Provision for loan losses increased $522 thousand, or 75.1%, due to loan growth, partially offset by decreases in specific reserves.
Non-interest income decreased $25.3 million or 47.5%.51.8%, due to:
Net interest income increased $9.3 million, or 43.6%, to $30.5 million from $21.3 million, for the six months ended June 30, 2021.
Non-interest income increased $20.9 million or 74.8%, driven byLower level of mortgage banking revenue, which declined $29.5 million, or 67.8%, partially offset by increased fair value changes of $4.0 million, and hedging gains of $955 thousand.
An increase in wealth management income, SBA income,revenue of $259 thousand, or 11.3%, due to increased AUM and other fee income.
oMortgage banking net revenue increased $20.0 million, or 84.7%, due to increased levels of mortgage loan originations due to the expansion of the segment into Maryland as well as the favorable rate environment. The changes in the mortgage pipeline as a result of the expansion and the refinance

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activity generated significant fair value changes in derivative instruments and loans held-for-sale. These fair value changes decreased non-interest income a combined $10.5 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020. These changes were offset by increases in net hedging gains of $8.3 million.
oWealth management income was up $425 thousand, or 22.7%.
oSBA income was up $1.6 million, or 131.8% as the number and value of SBA loans sold increased from the prior year.
oOther fee income increased $1.3 million, or 146.4%.
The provision for loan losses was $695 thousand for the six months ended June 30, 2021, compared to a $3.2 million provision for the six months ended June 30, 2020.
Total non-interest expense for the six months ended June 30, 2021 was $54.5 million, up $19.2 million or 54.3%, from the six months ended June 30, 2020, driven by an increase in salaries and benefits.

Changes in Financial Condition

Total assets decreased $11.2 million to $1.7 billion as of June 30, 2021.
Total loans, net of allowance, increased $77.4 million, or 6.1%, to $1.3 billion as of June 30, 2021. There was growth in several commercial categories from December 31, 2020, as we continue to expand our presence in the Philadelphia market region. Commercial real estate loans increased $44.2 million, or 8.8%, small business loans increased $25.8 million, or 51.7%, and lease financings increased $35.4 million, or 107.2%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong growth pattern after starting up in early 2020. Residential mortgage loans held for sale decreased $95.5 million, or 41.7%, to $133.7 million as of June 30, 2021, while PPP loans decreased $13.7 million, or 6.9%, over this period.conditions.
Mortgage loans held forAn increase in SBA loan sale decreased $96.9 million,revenue of $222 thousand, or 42.3%, to $132.3 million as of June 30, 2021.
Mortgage segment originated $1.3 billion in loans for the six months ended June 30, 2021.
Total deposits grew $171.9 million, or 13.9%, to $1.4 billion as of June 30, 2021.
Non-interest bearing deposits grew $58.0 million, or 28.4%, to $261.8 million as of June 30, 2021.
Borrowings from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) were $36.3 million as of June 30, 2021, a decrease of $117.0 million, or 76.3% from December 31, 2020. Other borrowings were down $73.4 million or 68.7%8.1%.
Returned $7.7An increase in other fee income of $253 thousand, or 11.9%.
Non-interest expenses decreased $13.4 million, or 24.5%, as a result of capitala lower level of salaries and benefits, due largely to Meridian shareholdersreduced fixed and variable compensation arrangements as well as a reduction in full-time equivalent employees in the mortgage segment, combined with a decline in incentive and stock-based compensation for the six months ended June 30, 2021 through dividends, including a $1.00 special dividend.bank and wealth segments.


Key Performance Ratios

Key financial performance ratios for the three and six months ended June 30, 20212022 and 20202021 are shown in the table below:

Three Months Ended

Six Months Ended

June 30, 

June 30, 

2021

    

2020

    

2021

    

2020

 

Annualized return on average equity

22.61

%  

19.16

%  

26.19

%  

13.70

%

Annualized return on average assets

1.92

%  

1.56

%  

2.17

%  

1.26

%

Net interest margin (tax effected yield)

3.70

%  

3.27

%  

3.71

%  

3.37

%

Basic earnings per share

$

1.37

$

0.94

$

3.06

$

1.33

Diluted earnings per share

$

1.33

$

0.94

$

2.98

$

1.32

37

Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Annualized return on average equity15.03 %%  22.61 %14.61 %%  26.19 %
Annualized return on average assets1.31 %%  1.92 %1.30 %%  2.17 %
Net interest margin (tax effected yield)4.07 %%  3.70 %3.98 %%  3.71 %
Basic earnings per share$0.99 $1.37 $1.91 $3.06 
Diluted earnings per share$0.96 $1.33 $1.84 $2.98 

The following table presents certain key period-end balances and ratios as of June 30, 20212022 and December 31, 2020:

June 30, 

December 31, 

(dollars in thousands, except per share amounts)

2021

    

2020

Book value per common share

$

24.77

$

23.08

Tangible book value per common share (1)

$

24.06

$

22.35

Allowance as a percentage of loans and leases held for investment

1.35

%  

1.38

%

Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)

1.58

%  

1.65

%

Tier I capital to risk weighted assets

10.16

%  

10.22

%

Tangible common equity ratio (1)

8.71

%  

7.99

%

Loans held for investment

$

1,362,750

$

1,284,764

Total assets

$

1,709,010

$

1,720,197

Stockholders' equity

$

152,885

$

141,622

2021:
(dollars in thousands, except per share amounts)June 30, 2022December 31, 2021
Book value per common share$25.85 $27.07 
Tangible book value per common share (1)$25.16 $26.37 
Allowance as a percentage of loans and leases held for investment1.24 %1.35 %
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)1.27 %1.46 %
Tier I capital to risk weighted assets9.79 %10.83 %
Tangible common equity ratio (1)8.22 %9.42 %
Loans held for investment$1,518,893 $1,386,457 
Total assets$1,853,019 $1,713,443 
Stockholders' equity$156,087 $165,360 

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measures” below for Non-GAAP to GAAP reconciliation.




40

Table of Contents
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 adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

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 for Meridian Corporation:

(dollars in thousands)

June 30, 2021

    

December 31, 2020

Tangible common equity ratio:

Total stockholders' equity

152,885

141,622

Less:

Goodwill and intangible assets

(4,380)

(4,500)

Tangible common equity

148,505

137,122

Total assets

1,709,010

1,720,197

Less:

Goodwill and intangible assets

(4,380)

(4,500)

Tangible assets

$

1,704,630

$

1,715,697

Tangible common equity ratio

8.71%

7.99%

38

(dollars in thousands)June 30, 2022December 31, 2021
Tangible common equity ratio:
Total stockholders' equity156,087 165,360 
Less:
Goodwill and intangible assets(4,176)(4,278)
Tangible common equity151,911 161,082 
Total assets1,853,019 1,713,443 
Less:
Goodwill and intangible assets(4,176)(4,278)
Tangible assets$1,848,843 $1,709,165 
Tangible common equity ratio8.22 %9.42 %

Table of Contents

The table below provides the non-GAAP reconciliation for our tangible book value per common share for Meridian Corporation:

2021

2020

Reconciliation of tangible book value per common share

June 30

December 31

Book value per common share

$

24.77

$

23.08

Less: Impact of goodwill and intangible assets

0.71

0.73

Tangible book value per common share

$

24.06

$

22.35

Reconciliation of tangible book value per common shareJune 30, 2022December 31, 2021
Book value per common share$25.85 $27.07 
Less: Impact of goodwill and intangible assets0.69 0.70 
Tangible book value per common share$25.16 $26.37 
The following is a reconciliation of the allowance for loan losses to total loans held for investment ratio for the three months endedat June 30, 2021.2022. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued and the impact of PPP loans as these loan types are not included in the allowance for loan losses calculation.

2021

2020

Reconciliation of Allowance for Loan Losses / Total loans held for investment

June 30

December 31

Allowance for loan losses / Total loans held for investment

1.35%

1.38%

Less: Impact of loans held for investment - fair valued

0.01%

0.00%

Less: Impact of PPP loans

0.22%

0.27%

Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)

1.58%

1.65%

20222021
Reconciliation of Allowance for Loan Losses / Total loans held for investmentJune 30December 31
Allowance for loan losses / Total loans held for investment1.24 %1.35 %
Less: Impact of loans held for investment - fair valued0.01 %0.02 %
Less: Impact of PPP loans0.02 %0.09 %
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)1.27 %1.46 %

41

Table of Contents
The table below provides the non-GAAP reconciliation for pre-tax, pre-provision income:

(Dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Reconciliation of pre-tax, pre-provision income

2021

2020

2021

2020

Income before income tax expense

$

10,802

$

7,403

$

24,108

$

10,674

Provision for loan losses

96

1,631

695

3,183

Pre-tax, pre-provision income

$

10,898

$

9,034

$

24,803

$

13,857

(Dollars in thousands)Three Months Ended June 30,Six Months Ended June 30,
Reconciliation of pre-tax, pre-provision income2022202120222021
Income before income tax expense$7,646 $10,802 14,735 24,108 
Provision for loan losses602 96 1,217 695 
Pre-tax, pre-provision income$8,248 $10,898 15,952 24,803 

The following sections discuss, in detail, the Corporation’s results of operations for the three and six months ended June 30, 2021,2022, as compared to the same periods in 2020,2021, and the changes in its financial condition as of June 30, 20212022 as compared to December 31, 2020.

2021.

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;
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;

39

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;
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;
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.




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 six months ended June 30, 20212022 and 2020,2021, 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 result of net free funding sources such as non-interest bearing deposits and stockholders’ equity.

Total interest

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

Interest income on a tax-equivalent basis increased $2.5 million, or 14.3%, to $20.1 million for the three months endingended June 30, 2022, from $17.6 million for the three months ended June 30, 2021, largely due to increases in the yield on interest earning assets. The yield on loans held for investment increased 32 basis points, while the yield on investment securities also increased 15 basis points, both helped by the Fed's interest rate raises. Overall, the yield on interest-earning assets increased 45 basis points to 4.65% over the period. There was $17.5 million (and $17.6 million on a tax equivalent basis), which represented a $2.5 million, or 16.4%, increase compared with the three months ending June 30, 2020. The increase in interest income was attributable to a $247.2$57.8 million increase in average interest earning assets, year over year, led by increases of $219.0$120.5 million $57.4 million and $51.2 million in average balances of PPP loans, leases and small business loans, respectively.  The yield on interest earning assets declined 4 basis points over the same period in 2020. While the yield on the investment portfolio declined 49 basis points over the period, the overall yield on loans held for investment, increased 10 basis points.  

Totala $22.7 million increase in investment securities, and a $8.1 million increase in interest expense declined $1.4earning cash balances, offset partially by a $80.6 million or 39.1% to $2.1 million for the three months ending June 30, 2021, compared with $3.5 million for the three months ending June 30, 2020. Total interest-bearing deposit balances increased $196.9 million in total from June 30, 2020 compared to June 30, 2021, which was offset by the declinedecrease in the costaverage balance of all deposit typesloans held for sale.

42


Interest expense on borrowings declined $145was up $381 thousand, or 50.9%18.1%, to $140 thousand$2.5 million for the three months ended June 30, 2021.2022. Deposit interest expense was up $450 thousand, or 32.9%, period over period, to $1.8 million, while interest expense on borrowings was down $69 thousand, or 9.4%, to $668 thousand. Total interest-bearing deposit balances increased $141.5 million on average when comparing the three months ended June 30, 2022 to June 30, 2021, while the cost of deposits was up 8 basis points over this same period. The average balance on money market and savings deposits were up $96.3 million, with costs up 7 basis points, while time deposit average balances were up $68.2 million, 13 basis points. Offsetting these average balance increases slightly was a $23.0 million decrease in the average balance of interest-bearing deposits. The average balance of borrowings decreased $24.6was down $109.0 million for the three months ended June 30, 2022, compared to June 30, 2021. This decline was largely due largely to athe decline in PPPLF advances used to fund PPP loans as such loans continue to pay off, while the cost of borrowings declined 31 basis points over this period.

off.


Net interest income increased $3.8$2.1 million, or 33.0%13.9%, to $15.5$17.6 million on a tax-equivalent basis for the three months ended June 30, 2021,2022, compared to $11.6$15.5 million for the three months ended June 30, 2020.2021. The net-interestnet interest margin increased 43 basis pointswas 4.07% for the three months ending June 30, 2021 atsecond quarter of 2022 compared to 3.70%, compared with 3.27% for the three month ending June 30, 2020.second quarter of 2021. The increase in net interest margin reflects decliningthe increased yield on interest ratesearnings assets, that has outpaced the increase in costs paid on deposits and borrowings in a rising rate environment, as well as the recognition of $286 thousand or 6 basis points in one-time loan portfolios overall,  out-pacing the declines in the yields on certain interest earning assets during the year-over-year period presented.  Contributingfees.


Six Months Ended June 30, 2022 Compared to the declineSame Period in interest expense on deposits over this period was2021

Interest income increased $3.0 million, or 8.7%, to $38.1 million for six the $32.7months ended June 30, 2022, from $35.1 million increase in average non-interest bearing deposits.

Total interest income for the six months endingended June 30, 2021, due to increases in average balances and the yields on interest earning assets. There was $35.1 million on a tax-equivalent basis, which represented a $6.2 million, or 21.4%, increase compared with the six months ending June 30, 2020. The increase in interest income was attributable to a $393.5$41.6 million increase in average interest earning assets, year over year, led by increases of $215.5 million, $48.7 million and $34.9$111.2 million in the averageloans held for investment, a $27.5 million increase in investment securities, and a $11.4 million increase in interest earning cash balances, of PPP loans, leases and small business loans, respectively, offset partially by a $93.5 million decrease in the average balance of 32loans held for sale. These average balance increases combined with yield increases of 41 basis points inon investment securities and 11 basis points on loans held for investment to positively impact interest income. Overall the yield on earninginterest-earning assets to 4.25% from 4.57%, for same period in 2020.  The commercial loan portfolio yield, and the home equity loan portfolio yield fell 71 and 89increased 25 basis points respectively,to 4.50% over the same period in 2020.  The impact of these yield decreasesperiod.


Interest expense was partially offset by the higher yielding lease portfolio.

Totaldown $21 thousand, or 0.5%, to $4.4 million. Deposit interest expense declined $3.2was up $173 thousand, or 5.9%, period over period, to $3.1 million, while interest expense on borrowings was down $194 thousand, or 41.5%12.9%, to $4.4 million for the six months ending June 30, 2021, compared with $7.6 million for the six months ending June 30, 2020. While all$1.3 million. Total interest-bearing deposit balances increased $240.4$145.7 million fromon average when comparing the six months ended June 30, 2020 compared2022 to June 30, 2021, while the cost of all deposit types declined sharplydeposits was down 4 basis points over this same period. The costaverage balance of interest-bearing deposits declined 61was up $11.1 million, down 14 basis points, while the cost ofaverage balance on money market and savings deposits declined

40

53were up $104.6 million, with no change in the basis points, and the costaverage balance of time deposits decreased by 125was up $30 million, down 2 basis points over the period. Interest expense onpoints. The average balance of borrowings declined $254 thousand or 44.9% to $312 thousandwas down $138.1 million for the six months ended June 30, 2022, compared to June 30, 2021. The average balance of borrowings increased $50.2 millionThis decline was largely due largely to the decline in PPPLF advances used to fund PPP loans while the cost of borrowings declined 27 basis points over this period.

as such loans continue to pay off.


Net interest income increased $9.3$3.0 million, or 43.8%10.0%, to $30.7$33.7 million on a tax-equivalent basis for the six months ended June 30, 2021,2022, compared to $21.3$30.7 million for the six months ended June 30, 2020.2021. The net-interestnet interest margin increased 34 basis pointswas 3.98% for the six months endingended June 30, 2021 at2022 compared to 3.71%, compared with 3.37% for the six month endingmonths ended June 30, 2020.2021. The increase in net interest margin reflects the increased yield on interest earnings assets, combined with the declining interest rates paid on deposits and borrowings loan portfolios overall,  out-pacing the declines in the yields on interest earning assets during the year-over-year period presented. Contributing to the decline in interest expense on deposits over this period was the $64.9 million increase in non-interest bearing deposits.

period.











43

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.

2021

2020

Interest

Interest

For the Three Months Ended June 30, 

Average

Income/

Yields/

Average

Income/

Yields/

(dollars in thousands)

    

Balance

    

Expense

    

rates

    

Balance

    

Expense

    

rates

Assets

Interest-earning assets

Due from banks

$

18,833

4

0.09%

$

6,407

1

0.06%

Federal funds sold

16,110

1

0.02%

25,437

2

0.02%

Investment securities(1)

146,150

748

2.09%

101,891

644

2.58%

Loans held for sale

133,426

967

2.90%

103,561

833

3.22%

Loans held for investment(1)

1,364,204

15,876

4.66%

1,194,197

13,627

4.56%

Total loans

1,497,630

16,843

4.51%

1,297,758

14,460

4.48%

Total interest-earning assets

1,678,723

17,596

4.20%

1,431,493

15,107

4.24%

Noninterest earning assets

44,700

45,627

Total assets

$

1,723,423

$

1,477,120

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$

260,834

240

0.37%

$

204,008

396

0.78%

Money market and savings deposits

602,272

823

0.55%

389,164

782

0.81%

Time deposits

266,181

306

0.46%

339,265

1,397

1.66%

Total deposits

1,129,287

1,369

0.49%

932,437

2,575

1.11%

Total Borrowings

125,531

140

0.45%

150,124

285

0.76%

Subordinated Debentures

40,711

597

5.87%

40,836

598

5.86%

Total interest-bearing liabilities

1,295,529

2,106

0.65%

1,123,397

3,458

1.24%

Noninterest-bearing deposits

255,964

223,253

Other noninterest-bearing liabilities

25,432

10,533

Total liabilities

$

1,576,925

$

1,357,183

Total stockholders' equity

146,497

119,937

Total stockholders' equity and liabilities

$

1,723,423

$

1,477,120

Net interest income (1)

$

15,490

$

11,649

Net interest spread (1)

3.55%

3.00%

Net interest margin (1)

3.70%

3.27%

41

For the Three Months Ended June 30, (dollars in thousands)
20222021
Average BalanceInterest Income/ ExpenseYields/ RatesAverage BalanceInterest Income/ ExpenseYields/ Rates
Assets
Interest-earning assets
Due from banks$26,909 49 0.73 %$18,833 0.09 %
Federal funds sold3,230 0.35 %16,110 0.02 %
Investment securities(1)
168,853 941 2.24 %146,150 748 2.09 %
Loans held for sale52,859 565 4.28 %133,426 967 2.90 %
Loans held for investment(1)
1,484,696 18,558 4.98 %1,364,204 15,876 4.66 %
Total loans1,537,555 19,123 4.99 %1,497,630 16,843 4.51 %
Total interest-earning assets1,736,547 20,116 4.65 %1,678,723 17,596 4.20 %
Noninterest earning assets77,194 44,700 
Total assets$1,811,335 $1,723,423 
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits$237,856 248 0.42 %$260,834 240 0.37 %
Money market and savings deposits698,557 1,076 0.62 %602,272 823 0.55 %
Time deposits334,391 494 0.59 %266,181 306 0.46 %
Total deposits1,270,804 1,818 0.57 %1,129,287 1,369 0.49 %
Borrowings16,560 77 1.87 %125,531 140 0.45 %
Subordinated debentures40,548 591 5.84 %40,711 597 5.87 %
Total interest-bearing liabilities1,327,912 2,486 0.75 %1,295,529 2,106 0.65 %
Noninterest-bearing deposits296,521 255,964 
Other noninterest-bearing liabilities31,354 25,432 
Total liabilities$1,652,915 $1,576,925 
Total stockholders' equity158,829 146,497 
Total stockholders' equity and liabilities$1,811,335 $1,723,423 
Net interest income (1)
$17,630 $15,490 
Net interest spread (1)
3.90 %3.55 %
Net interest margin (1)
4.07 %3.70 %
(1)Yieldsand net interest income are reflected on a tax-equivalent basis.





44

Table of Contents

2021

2020

Interest

Interest

For the Six Months Ended June 30, 

Average

Income/

Yields/

Average

Income/

Yields/

(dollars in thousands)

    

Balance

    

Expense

    

rates

    

Balance

    

Expense

    

rates

Assets

Interest-earning assets

Due from banks

$

16,254

6

0.07%

$

5,947

25

0.84%

Federal funds sold

16,946

2

0.02%

17,226

36

0.40%

Investment securities(1)

140,910

1,436

1.67%

88,718

1,122

2.57%

Loans held for sale

153,433

2,098

2.73%

73,706

1,202

3.26%

Loans held for investment(1)

1,339,277

31,568

4.76%

1,087,749

26,530

4.87%

Total loans

1,492,710

33,666

4.55%

1,161,455

27,732

4.80%

Total interest-earning assets

1,666,820

35,110

4.25%

1,273,346

28,915

4.57%

Noninterest earning assets

42,449

43,554

Total assets

$

1,709,269

$

1,316,900

Liabilities and stockholders' equity

Interest bearing liabilities

Interest-bearing deposits

$

242,699

538

0.45%

$

171,879

910

1.06%

Money market and savings deposits

589,941

1,652

0.56%

361,492

1,966

1.09%

Time deposits

268,784

745

0.56%

327,647

2,953

1.81%

Total deposits

1,101,424

2,935

0.54%

861,018

5,829

1.36%

Total Borrowings

154,273

312

0.82%

104,081

566

1.09%

Subordinated Debentures

40,696

1,190

5.85%

41,213

1,191

5.78%

Total interest-bearing liabilities

1,296,393

4,437

0.69%

1,006,312

7,586

1.52%

Non-interest bearing deposits

245,057

180,197

Other non-interest bearing liabilities

25,950

9,618

Total liabilities

$

1,567,400

$

1,196,127

Total stockholders' equity

141,869

120,773

Total stockholders' equity and liabilities

$

1,709,269

$

1,316,900

Net interest income (1)

$

30,673

$

21,329

Net interest spread (1)

3.56%

3.05%

Net interest margin (1)

3.71%

3.37%

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

42


For the Six Months Ended June 30, (dollars in thousands)
20222021
Average BalanceInterest Income/ ExpenseYields/ RatesAverage BalanceInterest Income/ ExpenseYields/ Rates
Assets
Interest-earning assets
Due from banks$27,645 62 0.45 %$16,254 0.07 %
Federal funds sold2,060 0.29 %16,946 0.02 %
Investment securities(1)
168,370 1,740 2.08 %140,910 1,436 1.67 %
Loans held for sale59,936 1,101 3.67 %153,433 2,098 2.73 %
Loans held for investment(1)
1,450,454 35,243 4.87 %1,339,277 31,568 4.76 %
Total loans1,510,390 36,344 4.85 %1,492,710 33,666 4.55 %
Total interest-earning assets1,708,465 38,149 4.50 %1,666,820 35,110 4.25 %
Noninterest earning assets71,634 42,449 
Total assets$1,780,099 $1,709,269 
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits253,771 385 0.31 %242,699 538 0.45 %
Money market and savings deposits694,539 1,928 0.56 %589,941 1,652 0.56 %
Time deposits298,783 794 0.54 %268,784 745 0.56 %
Total deposits1,247,093 3,107 0.50 %1,101,424 2,935 0.54 %
Borrowings16,136 126 1.57 %154,273 312 0.82 %
Subordinated debentures40,533 1,183 5.84 %40,696 1,190 5.85 %
Total interest-bearing liabilities1,303,762 4,416 0.68 %1,296,393 4,437 0.69 %
Noninterest-bearing deposits284,455 245,057 
Other noninterest-bearing liabilities33,530 25,950 
Total liabilities$1,621,747 $1,567,400 
Total stockholders' equity157,928 141,869 
Total stockholders' equity and liabilities$1,780,099 $1,709,269 
Net interest income (1)
$33,733 $30,673 
Net interest spread (1)
3.82 %3.56 %
Net interest margin (1)
3.98 %3.71 %









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Rate/Volume Analysis

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 six months ended June 30, 20212022 as compared to the same periods in 2020,2021, allocated by rate and volume. Changes in interest income and/or expense attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.

2021 Compared to 2020

Three Months Ended

Six Months Ended

June 30, 

June 30,

(dollars in thousands)

Rate

    

Volume

    

Total

Rate

    

Volume

    

Total

Interest income:

Due from banks

$

1

2

3

$

(66)

47

(19)

Federal funds sold

1

(2)

(1)

(33)

(1)

(34)

Investment securities(1)

(664)

768

104

(882)

1,196

314

Loans held for sale

(460)

594

134

(558)

1,454

896

Loans held for investment(1)

304

1,945

2,249

(1,663)

6,701

5,038

Total loans

(156)

2,539

2,383

(2,221)

8,155

5,934

Total interest income

$

(818)

3,307

2,489

$

(3,202)

9,397

6,195

Interest expense:

Interest bearing deposits

$

(682)

526

(156)

$

(1,094)

722

(372)

Money market and savings deposits

(1,266)

1,307

41

(2,291)

1,977

(314)

Time deposits

(840)

(251)

(1,091)

(1,752)

(456)

(2,208)

Total interest bearing deposits

(2,788)

1,582

(1,206)

(5,137)

2,243

(2,894)

Total borrowings

(104)

(41)

(145)

(457)

203

(254)

Subordinated debentures

3

(4)

(1)

28

(29)

(1)

Total interest expense

(2,889)

1,537

(1,352)

(5,566)

2,417

(3,149)

Interest differential

$

2,071

1,770

3,841

$

2,364

6,980

9,344

(dollars in thousands)2022 Compared to 2021
Three Months Ended June 30,Six Months Ended June 30,
RateVolumeTotalRateVolumeTotal
Interest income:
Due from banks$42 45 $49 56 
Federal funds sold(5)(6)
Investment securities(1)
60 133 193 169 135 304 
Loans held for sale1,882 (2,284)(402)1,487 (2,484)(997)
Loans held for investment(1)
1,176 1,506 2,682 800 2,875 3,675 
Total loans3,058 (778)2,280 2,287 391 2,678 
Total interest income3,167 (647)2,520 $2,512 527 3,039 
Interest expense:
Interest bearing deposits$106 (98)$(222)69 (153)
Money market and savings deposits111 142 253 (2)278 276 
Time deposits100 88 188 (79)128 49 
Total interest bearing deposits317 132 449 (303)475 172 
Total borrowings719 (782)(63)1,050 (1,236)(186)
Subordinated debentures(3)(3)(6)(3)(4)(7)
Total interest expense1,033 (653)380 744 (765)(21)
Interest differential$2,134 2,140 $1,768 1,292 3,060 

(1)

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

(1)Yields and net interest income are reflected on a tax-equivalent basis.
For the three months ended June 30, 20212022 as compared to the same period in 2020,2021, tax-equivalent interest income increased $2.5 million as favorable rate changes contributed $3.2 million, while unfavorable volume changes in average earning assets contributed $3.3 million and unfavorable rate changes reduced interest income by $818$647 thousand. The favorable change in interest income due to volume changesrates was driven mostly from growth inby increased yield on loans held for sale (up 138 basis points) and loans held for investment (up 32 basis points). While the loans held for investment portfolio, whichaverage balances increased $170.0$120.5 million, leading to a favorable volume impact on average overinterest income of $1.5 million, the three month periods, while thedecline in loans held for sale portfolio also increased $29.9average balances of $80.6 million on average over this period.had an unfavorable impact to interest income of $2.3 million as shown in the table above. Within the loans held for investment portfolio, average balances on commercial loans and leases were up $171.1 million, and commercial real estate/construction loans were up $91.3 million, while the average balance onof PPP loans increased $219.0 million.  Partially off-setting these favorable volume changes were unfavorable rate changes of 49 basis points and 32 basis points on investment securities anddown $182.5 million as such loans held for sale, reducing interest incomecontinue to be forgiven by $664 thousand and $460 thousand, respectively.

the SBA.

On the funding side, interest expense decreased $1.4 millionincreased $380 thousand due to the impact from rate hikes issued by the Fed, which were partially offset by volume declines which offset the impact from volume increases.on borrowings. The cost of deposits and borrowings were downup modestly across the board, havingcausing a $2.9 million positive effect on$317 thousand increase to interest expense. The cost of interest-bearing deposits, money market and savings accounts and time deposits declined 41increased 5 basis points, 267 basis points and 12013 basis points, respectively, while the cost of borrowings declined 31increased 142 basis points. Interest-bearing deposits, and money market and Money market/savings accounts and time deposit average balances increased $56.8$96.3 million, and $213.1$68.2 million, on average,respectively, while timeinterest-bearing deposits decreased $73.1$23.0 million on average, and borrowings overall were down $24.6$109.0 million on average.  These average balance changes led to a $1.5
Overall, the $2.1 million increase in interest expense.  

Overall, the increase innet interest income from volume changes contributed $3.3 million and out-paced the unfavorable rate changes to improvewas the main reason for the overall increase in tax-equivalent net interest income by $3.8of $2.1 million.

43


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For the six months ended June 30, 20212022 as compared to the same period in 2020,2021, tax-equivalent interest income increased $6.2$3.0 million as volumepositive rate changes inon average earning assets contributed $9.4$2.5 million and unfavorable ratefavorable volume changes reducedhelped to increase interest income by $3.2 million.$527 thousand. The favorable change in interest income due to volumerate changes was driven mostly from growth in the loans held for investment portfolio, which increased $251.5 million on average oversale (increase of 94 basis points) and the six month periods, while the loans held for sale portfolio also increased $79.7 million on average over this period.  Within theoverall loans held for investment portfolio (increase of 11 basis points). This large increase in the average balanceyield on PPP loans increased $215.5 million.  Partially off-setting these favorable volume changes were unfavorable rate changes of 90 basis points and 53 basis points on investment securities and loans held for sale reducingwas 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. While the overall 11 basis point increase in the yield on loans held for investment was largely driven by a 293 basis point increase in the yield on PPP loans as there was a higher rate of forgiveness of such loans in 2022 vs 2021, offset by declines in the yields on most other categories of loans held for investment. The $527 thousand positive impact that volume changes had to interest income was largely the result of loan average balance increases, which contributed $2.9 million to interest income, offset by $882 thousanda decline in the volume of loans held or sale which had an unfavorable impact of $2.5 million on interest income. The increase in loans held for investment average balances were led by an increase in commercial loans and $558 thousand, respectively.

leases of $170.8 million, commercial real estate loans/construction loans of $76.7 million, and residential loans held for investment of $31.5 million, offset somewhat by a $162.4 million decline in PPP loan balances as they continue to be forgiven by the SBA.

On the funding side, interest expense decreased $3.1 million due to the impact from rate declines which offset the impact from volume increases.$21 thousand. The cost of deposits and borrowings werewas down, across the board, having a $5.6 million$303 thousand positive effect on interest expense. The cost of interest-bearing deposits and time deposits declined 14 basis points, and 2 basis points, while the rate on time deposits was relatively unchanged over the period, while the cost of borrowings decreased 75 basis points. Interest-bearing deposits, money market and savings accounts, and time deposits declined 61 basis points, 53 basis points and 125 basis points, respectively, while the cost of borrowings declined 27 basis points. Interest-bearing deposits, and money market and savings accounts increased $70.8$11.1 million, $104.6 million, and $228.4$30.0 million on average while time deposits decreased $58.9 million on average,respectively, and borrowings overall were up $50.2down $138.1 million on average.  These average, balance changes ledleading to a $2.4 million increase$765 thousand decrease in interest expense.

Overall, the $1.8 million increase in interest income from rate changes, combined with the $1.3 million increase in volume changes, contributed $9.4 million and out-paced the unfavorable rate changeslet to improvean improvement in tax-equivalent net interest income by $9.3of $3.1 million.

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 yield curve;
Repricing characteristics for market rate sensitive instruments on the balance sheet;
Differing sensitivities of 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 lifetime loan caps;
Overall growth rates and product mix of interest-earning assets and interest-bearing liabilities.
The timing of changes in interest rates;

Shifts or rotations in the yield curve;
Repricing characteristics for market rate sensitive instruments on the balance sheet;
Differing sensitivities of 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 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 interest rates on our results, but rather as a means to better plan and execute appropriate Asset / Liability Management (“ALM”) strategies.


Potential changes 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 June 30, 20212022 and 20202021 are presented in the following table. The simulation assumes rate shifts occur upward and downward on the yield curve in even increments over the first twelve months (ramp), followed by rates held constant thereafter.

Rate Ramp

Estimated increase

 

(decrease) in Net Interest

 

Income

 

For the year ending

 

June 30, 

 

Changes in Market Interest Rates

    

2021

    

2020

 

+300 basis points over next 12 months

 

1.49

%  

0.98

%

+200 basis points over next 12 months

 

0.82

%  

0.52

%

+100 basis points over next 12 months

 

0.36

%  

0.21

%

No Change

 

  

 

  

-100 basis points over next 12 months

(0.70)

%

(1.37)

%

-200 basis points over next 12 months

(2.68)

%

(4.47)

%

44






47

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Rate Ramp
Estimated increase
(decrease) in Net Interest
Income
For the Three Months Ended June 30,
Changes in Market Interest Rates20222021
+300 basis points over next 12 months1.42 %1.49 %
+200 basis points over next 12 months1.18 %0.82 %
+100 basis points over next 12 months0.69 %0.36 %
No Change
-100 basis points over next 12 months(1.67)%(0.70)%
-200 basis points over next 12 months(3.77)%(2.68)%
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of June 30, 2021.2022. In its current position, 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.months and a more significant positive impact 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 increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.


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, measured as of June 30, 20212022 and 2020,2021, 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. We would note that starting in the first quarter of 2020 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%. Management has and continues to employ strategies to mitigate risk in these scenarios.  Strategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans.

Estimated increase (decrease) in Net

Economic Value at June 30, 

Changes in Market Interest Rates

    

2021

2020

+300 basis points

 

61

%  

153

%  

+200 basis points

 

47

%  

117

%  

+100 basis points

 

27

%  

69

%  

No Change

 

  

 

 

-100 basis points

 

(40)

%

(100)

%

-200 basis points

 

(103)

%

(257)

%

Estimated increase (decrease) in Net Economic
Value at June 30,
Changes in Market Interest Rates20222021
+300 basis points11 %61 %
+200 basis points%47 %
+100 basis points%27 %
No Change
-100 basis points(13)%(40)%
-200 basis points(35)%(103)%
This economic value of equity profile at June 30, 20212022 suggests that we would experience a positive effect from an increase in rates, and that the impact would become greater as rates continue to rise due to the duration of our interest-earning assets and converselyassets. 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-termshort-
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Table of Contents
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.

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Table of Contents

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 Income and 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.

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 the interest rate gap analysis of our assets and liabilities as of June 30, 2021 and December 31, 2020.

Greater 

Than 

5 years and

As of June 30, 2021

12 Months

 Not Rate 

(dollars in thousands)

    

or Less

    

1-2 Years

    

2-5 Years

    

Sensitive

    

Total

Cash and investments

$

47,909

4,314

16,674

107,371

176,268

Loans (1)

975,195

185,659

305,413

10,470

1,476,737

Other Assets

56,004

56,004

Total Assets

$

1,023,104

189,973

322,087

173,845

1,709,010

Non-interest bearing deposits

9,395

9,045

26,167

217,199

261,806

Interest bearing deposits

889,544

889,544

Time deposits

151,131

44,061

66,738

261,930

Borrowings

40,933

4,886

36,337

82,156

Other Liabilities

60,689

60,689

Total stockholders' equity

152,885

152,885

Total liabilities and stockholders' equity

$

1,091,003

57,992

129,242

430,773

1,709,010

Repricing gap:

Positive (negative)

$

(67,899)

131,981

192,845

(256,928)

Cumulative repricing gap: Dollar amount

$

(67,899)

64,082

256,927

Percent of total assets

(4.0)%

3.7%

15.0%

(1)Loans include portfolio loans and loans held for sale

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Table of Contents

Greater

Than

 5 years and

As of December 31, 2020

 Not Rate

(dollars in thousands)

    

12 Months

    

1-2 Years

    

2-5 Years

    

 Sensitive

    

Total

Cash and investments

$

59,739

5,376

20,303

82,429

167,847

Loans (1)

1,041,269

199,978

226,594

10,588

1,478,429

Other Assets

73,921

73,921

Total Assets

1,101,008

205,354

246,897

166,938

1,720,197

Noninterest-bearing deposits

6,871

6,638

19,280

171,054

203,843

Interest-bearing deposits

779,195

779,195

Time deposits

197,649

41,533

19,115

258,297

Borrowings

106,862

165,546

272,408

Other Liabilities

169

64,663

64,832

Total stockholders' equity

141,622

141,622

Total liabilities and stockholders' equity

$

1,090,577

213,717

38,564

377,339

1,720,197

Repricing gap:

Positive (negative)

10,431

(8,363)

208,333

(210,401)

Cumulative repricing gap: Dollar amount

$

10,431

2,068

210,401

Percent of total assets

0.6%

0.1%

12.2%

(1)Loans include portfolio loans and loans held for sale

Under the repricing gap analysis as of June 30, 2021, we are temporarily liability-sensitive as longer term lease loans replaced approximately $70 million in forgiven PPP loans that were scheduled to mature in twelve months or less.  The longer term leases are generally matched against non-interest bearing deposits and time deposits.  Non-interest bearing deposits have grown nicely, up $58 million or 28% from December 31, 2020.  Time deposit balances have remained relatively the same, but management has initiated a lengthening plan in this low rate environment, pushing wholesale funding out to the 2-5 year maturity bucket. Since we generally manage our interest rate risk profile close to neutral, as illustrated in the December 31, 2020 gap schedule, this strategy is expected to adjust the gap over the next few periods.

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 provision for loan losses was $602 thousand for the three months ended June 30, 2021,2022, compared to a $96 thousand provision for the Corporation recorded athree months June 30, 2021. The 2022 second quarter provision was the result of new loan growth as well as covering $695 thousand in charge-offs on small ticket equipment leases, partially offset by decreases in specific reserves on non-performing loans as the underlying credit quality improved.
The provision for loan and lease losses (“Provision”) of $96 thousand which was a $1.5$1.2 million or 94.1% decrease from the same period in 2020. For the three months ended June 30, 2021 there were net charge-offs of $111 thousand as compared to net charge-offs of $23 thousand for the same period in 2020.  The second quarter 2020 provision was calculated at the time the COVID-19 pandemic was intensifying locally and nationally and was therefore impacted by qualitative provisioning for the economic uncertainty as a result of the pandemic, while the second quarter 2021 provision had less such impact as certain financial and economic indicators have improved period over period.    

For the six months ended June 30, 2021,2022 increased $522 thousand, or 75.1%, from the Corporation recorded a$695 thousand provision for loan and lease losses (“Provision”) of $695 thousand which was a $2.5 million, 78.2% decrease from the same period in 2020. Forrecorded for the six months ended June 30, 2021 there were net charge-offs of $101 thousand as compared to net recoveries of $10 thousand for the same period in 2020.  The decline in the provision period over period is the result of an improvement in the trend of certain

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financial and economic factors used in the allowance for loan losses that had been negatively impacted in 2020 due to2021. While the COVID-19 pandemic which have since startedwas more relevant in the prior year, the current year provision was higher due to rebound asreserving for an increased level of non-performing loans over the economy continues to recover.

The provision forprior year combined with the significant level of loan and lease losses could increase in future periods based on our belief that the credit quality of our loan portfolio could decline and loan defaults could increase if the COVID-19 pandemic continues for a prolonged period of time.

growth year over year.

Asset Quality and Analysis of Credit Risk

Summary

Asset quality remains a strong despite the pressures that the COVID-19 pandemic has had on businesses and the economy locally and nationally. COVID-19 loan modifications provided to borrowers amounted to $29.0focus of management. Total non-performing loans were $23.0 million as of June 30, 2021, compared to $28.82022, unchanged from $23.0 million as of MarchDecember 31, 2021.

The ratio of non-performing assets to total assets declined to 1.24% as of June 30, 2022, from 1.34% as of December 31, 2021.


Meridian realized net charge-offs of 0.01%0.03% of total average loans for the quarter ending June 30, 2021, compared to net charge-offs of 0.00% for2022, up from the quarter ended December 31, 2020 and net charge-offs2021 level of 0.00%. Charge-offs amounted to $696 thousand for the qurarter endedquarter ending June 30, 2020.  Total non-performing assets, including loans and other real estate property,2022, while recoveries were $8.2 million as$73 thousand during this quarter. Nearly all of the charge-offs for the quarter ending June 30, 2021, compared to $7.9 million2022 were from small ticket equipment leases, as were the majority of December 31, 2020, and $7.4 million as of June 30, 2020. The ratio of non-performing assets to total assets as of June 30, 2021 was 0.48% compared to 0.46% as of December 31, 2020, and 0.47% as of June 30, 2020.recoveries in the quarter. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure)measure, see reconciliation in the Appendix), was 1.58% as of June 30, 2021, 1.65% as of December 31, 2020, and 1.27% as of June 30, 2020.  PPP loans are excluded from calculation of this ratio as they are guaranteed by the SBA2022 and therefore we have not provided for in the allowance for loan losses. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section above.

There were no properties in OREO1.46% as of June 30, 2021 and December 31, 2020.

2021. As of June 30, 2022 there were specific reserves of $2.8 million against a non-performing loans, down from $3.2 million as of December 31, 2021, due to improvement in the underlying credit quality for certain loans.


As of June 30, 2022, the Corporation had $2.7$3.9 million of troubled debt restructurings (“TDRs”), of which $2.5$3.7 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2020,2021, the Corporation had $3.6$3.8 million of TDRs, of which $3.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of June 30, 2020,2022, the Corporation had $3.7a recorded investment of $26.1 million of impaired loans and leases which included $3.9 million of TDRs, while as of which $3.5 million were in compliance with the modified terms, and were excluded from non-performing loans and leases.  As of June 30,December 31, 2021, the Corporation had a recorded investment of $9.8$25.8 million of impaired loans and leases which included $2.8$3.8 million of TDRs.


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.

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Nonperforming Assets and Related Ratios

As of

June 30, 

December 31, 

(dollars in thousands)

    

2021

    

2020

Non-performing assets:

Nonaccrual loans:

Real estate loans:

Commercial mortgage

$

3,061

Shared national commercial credits

271

Home equity lines and loans

916

859

Residential mortgage

2,702

2,725

Total real estate loans

$

3,889

6,645

Commercial and industrial

3,389

1,285

Small business loans

917

Total nonaccrual loans

$

8,195

7,930

Total non-performing loans

$

8,195

7,930

Total non-performing assets

$

8,195

7,930

Troubled debt restructurings:

TDRs included in non-performing loans

239

244

TDRs in compliance with modified terms

2,486

3,362

Total TDRs

$

2,725

3,606

Asset quality ratios:

Non-performing assets to total assets

0.48%

0.46%

Non-performing loans to:

Total loans and leases

0.55%

0.52%

Total loans held-for-investment

0.60%

0.62%

Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)

0.70%

0.74%

Allowance for loan losses to:

Total loans and leases

1.23%

1.17%

Total loans held-for-investment

1.35%

1.38%

Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)

1.58%

1.65%

Non-performing loans

224.07%

224.04%

Total loans and leases

$

1,495,098

1,513,963

Total loans and leases held-for-investment

$

1,362,750

1,284,764

Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)

$

1,162,706

1,072,727

Allowance for loan and lease losses

$

18,361

17,767

As of
June 30,December 31,
(dollars in thousands)20222021
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Home equity lines and loans1,038 911 
Residential mortgage2,052 2,398 
Total real estate loans3,090 3,309 
Commercial and industrial18,398 18,801 
Small business loans1,401 666 
Leases95 212 
Total nonaccrual loans$22,984 $22,988 
Total non-performing loans$22,984 $22,988 
Total non-performing assets$22,984 $22,988 
Troubled debt restructurings:
TDRs included in non-performing loans197 361 
TDRs in compliance with modified terms3,679 3,446 
Total TDRs$3,876 3,807 
Asset quality ratios:
Non-performing assets to total assets1.24 %1.34 %
Non-performing loans to:
Total loans and leases1.46 %1.57 %
Total loans held-for-investment1.51 %1.66 %
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)1.55 %1.80 %
Allowance for loan losses to:
Total loans and leases1.19 %1.28 %
Total loans held-for-investment1.24 %1.35 %
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)1.27 %1.46 %
Non-performing loans81.82 %81.60 %
Total loans and leases$1,577,831 1,467,339 
Total loans and leases held-for-investment$1,518,893 1,386,457 
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)$1,481,220 1,280,591 
Allowance for loan and lease losses$18,805 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” above for a reconciliation of this measure to its most comparable GAAP measure. PPP loans have only been excluded from this calculation as

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Table of June 30, 2021.

Contents

NON-INTEREST INCOME

Three Months Ended June 30, 20212022 Compared to the Same Period in 2020

2021

Total non-interest income for the second quarter of 2021three months ended June 30, 2022 was $21.7$10.4 million, up $3.0down $11.3 million or 16.3%52.1% from the comparable period in 2020.2021. This overall increasedecrease in non-interest income came largely from our mortgage segment. Mortgage banking net revenue increased $2.7decreased $12.5 million or 16.0%64.3% over the second quarter of 2020.  The significant increase in second quarterthree months ended June 30, 2021, cameresulting from increaseddecreased levels of mortgage loan originations due to the expansionas rising interest rates and lack of the segment into Maryland as well as the favorable rate environment.housing inventory has had an impact on mortgage banking activity. Our mortgage segment originated $615.2$332.4 million in loans during the second quarterthree months ended June 30, 2022, a decrease of 2021, an increase of $79.3$284.2 million, or 14.8%46.1%, from the second quarter of 2020.three months ended June 30, 2021. The changes in the fair value of derivative instruments

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and loans held for sale decreasedincreased a combined $3.9 million over the period. Net hedgingHedging activity improved as the net loss decreased $2.6 millionled to a net lossgain increase of $674 thousand$2.4 million for the second quarter of 2021.

Non-interestthree months ended June 30, 2022.

SBA loan income from the sales of SBA 7(a) loans increased $852 thousanddecreased $1.1 million as $13.5$12.8 million in loans were sold infor the second quarter of 2021three months ended June 30, 2022, compared to $9.7$13.5 million in loans sold for the three months ended June 30, 2021. In addition to the lower volume of SBA loans sold in the second quarter of 2020, an increase of nearly 40%.current period, the margin on sale was lower, and amortization and impairment was up due to early payoffs and market conditions. Wealth management revenue increased $310$91 thousand year-over-year due to the favorable market conditions. Other fee income was up $632$68 thousand or 147.7%6.4% from the second quarter of 2020,three months ended June 30, 2022, to $1.1 million, due to increases period over period in wire transfer fee income,fees, title transfer fee income, and mortgage servicing fee income.

Six Months Ended June 30, 20212022 Compared to the Same Period in 2020

2021

Total non-interest income for the six months ended June 30, 20212022 was $48.8$23.5 million, up $20.9down $25.3 million or 74.8%51.8% from the comparable period in 2021. This decrease in non-interest income came from our mortgage segment. Mortgage banking net revenue decreased $29.5 million or 67.8% over the six months ended June 30, 2021, resulting from decreased levels of mortgage loan originations as rising interest rates and lack of housing inventory has had an impact on mortgage banking activity. Our mortgage segment originated $656.1 million in loans during the six months ended June 30, 2022, a decrease of $685.4 million, or 51.1%, from the six months ended June 30, 2020. This increase2021. The changes in non-interest income came primarily from our mortgage segment as mortgage banking net revenuethe fair value of derivative instruments and loans held for sale increased $20.0a combined $4.0 million or 84.7% over the prior year period. The significant increase in the current year period came fromNet hedging activity increased levels of mortgage loan originations due to both the expansion of the segment into Maryland as well as the favorable rate environment. Our mortgage segment originated $1.3 billionnet gains were up $955 thousand for the six months ended June 30, 2022.
Net revenue from the sales of SBA 7(a) loans increased $222 thousand with $38.0 million in loans duringsold for the six months ended June 30, 2022 compared to $26.6 million sold for the six months ended June 30, 2021, an increase of $549.442.9%. While the volume of SBA loans sold period over period was up, the margin on sales was down. Wealth management revenue increased $259 thousand year-over-year due the more favorable market conditions. Other fee income was up $253 thousand or 11.9%, to $2.4 million or 69.5%, from the prior year period.  Refinance activity represented 55% of the total residential mortgage loans originated for the six months ended June 30, 2021, compared to 63% for the six months ended June 30, 2020.  Fair value changes as a result in rate movements and pipeline changes decreased non-interest income a combined $10.5 million during the six months ended June 30, 2021 compared to the six months ended June 30, 2020.  These changes were offset by increases in net hedging gains of $8.3 million.

Wealth management revenue increased $425 thousand, or 22.7%, year-over-year due to the more favorable market conditions that existed in the six months ended June 30, 2021, compared to the prior year comparable period.  

Non-interest income from the sales of SBA 7(a) loans increased $1.6 million, or 131.8%, from the prior year period, to $2.7 million, as the bank sold $6.6 million, or 33.2% more loans in the current year period. Other fee income was up $1.3 million or 146.4% for the six months ended June 30, 2021, from the six months ended June 30, 20202022, due to increases in wire transfer fee income,fees, title fee income, as well as an increase in income recorded on interest rate swaps entered into with several loan customers, and an increase in mortgage servicing fee income.

NON-INTEREST EXPENSE

Three Months Ended June 30, 20212022 Compared to the Same Period in 2020

2021

Total non-interest expense for the second quarter of 2021three months ended June 30, 2022 was $26.2$19.7 million, up $5.0down $6.5 million or 23.5%24.9%, from the comparable period in 2020.2021. The increasedecrease in non-interest expense is largely attributable to an increasea decrease in salaries and employee benefits expense, which increased $4.0decreased $7.3 million or 24.8%36.1%, from the comparable period in 2020.  Of this increase, $2.5 million2021. This decrease relates to the mortgage segment.  

segment, which had reduced fixed and variable based compensation.

Advertising and promotion expense increased $316$268 thousand, or 52.2%29.1%, fromover the comparable period in 20202021 as the result of an increase in thea renewed and focused priority placed on business development and community outreach efforts that our employees were more able to do inthroughout the Meridian organization. In the second quarter of 2021 as2022 the weather improved andeasing of COVID-19 restrictions continuedhas provided our team members with much better opportunities to lessenmeet with customers and allow for more in person gatherings.  Other non-interest expensesprospective customers as they were up $518accustomed to pre-pandemic.

Information technology expense increased $264 thousand, or 35.6%56.9%, fromto $728 thousand for the comparable periodthree months ended June 30, 2022. Meridian continued with our strategy to invest in 2020, due to an increase in certain loan related expensestechnology that focuses on improving back-office efficiencies through automation and an increase in employee related expenses.

workflow processes. In addition, with a focus on cloud-based computing, IT has improved the scalability of storage; reduced the maintenance process; and eliminated the need and cost for further servers.





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Six Months Ended June 30, 20212022 Compared to the Same Period in 2020

2021

Total non-interest expense for the six months ended June 30, 20212022 was $54.5$41.1 million, up $19.2down $13.4 million or 54.3%24.5%, from the comparable period in 2021. The decrease in non-interest expense is largely attributable to a decrease in salaries and employee benefits expense, which is down $14.1 million or 33.4%, from the comparable period in 2021. Of this decrease, $12.6 million relates to the mortgage segment, which recognized decreased and variable compensation. Offsetting this decrease somewhat was an increase of $2,907 thousand for the bank and wealth segments due to an increase in FTEs and a higher level of stock-based compensation expense.
Advertising and promotion expense increased $468 thousand, or 27.4%, over the comparable period in 2021 as the result of a renewed and focused priority placed on business development and community outreach efforts as noted above. Information technology expense increased $549 thousand, or 61.8%, to $1.4 million for the six months ended June 30, 2020.  The increase is largely attributable to the variable expenses from loan originations overall, particularly mortgage commissions.   Total salaries and employee benefits expense was $42.4 million, an increase

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of $16.3 million or 62.4%, compared to the six months ended June 30, 2020. Of this increase, $13.3 million relates to the mortgage segment2022, as the number of employees in this segment have increased period over period.

Occupancy and equipment expense increased $275 thousand, or 13.4%, over the period due largely to the expansion ofMeridian continued with our physical office footprint into Maryland with 8 mortgage loan production offices having opened since early 2020.  Professional fees were up $319 thousand, or 22.2%, over the period due to largely to a one-time consent fees related to the change in accountants early in 2021, not in 2020. This is combined with an increase in consulting fees as the bank continuesstrategy to invest in various company-wide technology focused projects.  Advertisingthat focuses on improving back-office efficiencies through automation and promotion expenses were up $493 thousand, or 40.6%, over the same period due to the improvements to the economy and a pull back on COVID-19 related restrictions that has allowed bank employees to spend more time in business development and community outreach capacity.

workflow processes.


INCOME TAXES

Income tax expense for the three months ended June 30, 20212022 was $2.5$1.7 million, as compared to $1.7$2.5 million for the same period in 2020.2021. The increasedecrease in income tax expense was attributable to the increasedecrease in earnings, period over period. Our effective tax rate was 22.4% for the three months ended June 30, 2022 and 23.6% for the second quarter of 2021 and 22.8% for the second quarter of 2020.  

three months ended June 30, 2021.

Income tax expense for the six months ended June 30, 20212022 was $5.7$3.3 million, as compared to $2.5$5.7 million for the same periodsperiod in 2020.2021. The increasedecrease in income tax expense was attributable to the increasedecrease in earnings, period over period. Our effective tax rate was 22.1% for the six months ended June 30, 2022 and 23.6% for the first six months of 2021 and 22.9% for the first six months of 2020.  

ended June 30, 2021.

BALANCE SHEET ANALYSIS

As of June 30, 2021,2022, total assets were $1.7$1.9 billion, a decreasean increase of $11.2$139.6 million, or 8.1%, from December 31, 2020.  Total2021. This growth in assets increased $129.9over the prior period was due to loan portfolio growth, as discussed below.
Portfolio loans grew $132.4 million, or 8.2%, from June 30, 2020 primarily due to growth in loans held for investment and securities available-for-sale.

Total loans, net of allowance, grew $77.4 million, or 6.1%9.6%, to $1.3$1.5 billion as of June 30, 2021,2022, from $1.3$1.4 billion as of December 31, 2020.  There2021. Overall portfolio loan growth, excluding PPP loans, was growth in several commercial categories from15.4% since December 31, 2020, as we continue to expand our presence in the Philadelphia market region.2021, or 31% on an annualized basis for 2022. Commercial loans increased $41.9 million, or 14.3%, commercial real estate loans increased $44.2$30.3 million, or 8.8%5.6%, small businessconstruction loans increased $25.8$41.1 million, or 51.7%30.4%, residential real estate loans held in portfolio increased $45.8 million, or 66.9%, and lease financings increased $35.4$28.8 million, or 107.2%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong growth pattern after starting up in early 2020.  Residential mortgage loans held for sale decreased $96.9 million, or 42.3%, to $132.3 million as of June 30, 2021, while PPP loans decreased $13.7 million, or 6.9%, over this period.

The securities available-for-sale portfolio grew to $141.9 million as of June 30, 2021, up $18.3 million, or 14.8%,30.9% from December 31, 2020. This increase2021. Partially offsetting the growth in portfolio loans was driven by an increasea decrease of $9.4 million in state and municipal securities and $8 million in U.S. treasuries.

Servicing assets were $10.3 million as of June 30, 2021, up $4.7$66.8 million, or 83.8%75.7%, from December 31, 2020.  $8.9 million of this balance is comprised of mortgage servicing rights, while $1.4 million is comprised of SBAin PPP loan servicing assets. The increase in both servicing asset types wasbalances as such loans continue to be paid off by the result of the continued strong loan sales markets since December 31, 2021.

SBA.


Deposits were $1.4$1.6 billion as of June 30, 2021,2022, up $171.9$121.6 million, or 13.9%8.4%, from December 31, 2020.2021. Non-interest bearing deposits increased $58.0$17.4 million, or 28.4%6.3%, from December 31, 2020.2021 due to strong business development efforts. Interest-bearing checking accounts increased $51.4decreased $63.0 million, or 24.9%23.5%, from December 31, 2020, while money market accounts/savings accounts combined increased $59.0$31.3 million, or 10.3%4.5%, since December 31, 2020.  Increases in core deposits were driven from loan customers as part of new

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business and municipal relationships and also as a result of the PPP loan process.2021. Certificates of deposits increased $3.6$135.9 million, or 1.4%66.0%, from December 31, 2020.

Short-term borrowings2021, as such deposits were $33.5 millionutilized as an alternative source of June 30, 2021, down $73.3 million, or 68.6%, from December 31, 2020, while long-term debt was $48.6 million as of June 30, 2021, down $116.9 million, or 70.6%, from December 31, 2020. Short-term borrowings declined from December 31, 2020 to June 30, 2021, largely due to the increase in non-interest deposits noted above. As non-interest bearing deposits increased over this period, the need for borrowings to fund loan growth, declined.  The decline in long-term debt was due to a decrease in PPPLF advances, which were funding sources for PPP loans.

cost-effective wholesale funding.


Capital

Consolidated stockholders’ equity of the Corporation was $152.9$156.1 million, or 8.9%8.4% of total assets as of June 30, 2021,2022, as compared to $141.6$165.4 million, or 8.2%9.7% of total assets as of December 31, 2020.2021. The change in stockholders’ equity is the result of year-to-date net income of $18.4$5.9 million, partially offset by dividends of $7.7$7.3 million paid duringas well as a $9.9 million decline in accumulated other comprehensive income (loss) from the first six months of 2021.  Net unrealized gains on available for sale investment securities declined by $505 thousand from December 31, 2020 to June 30, 2021security portfolio due to the changingchanges in interest rate environmentrates over this period.

As of June 30, 2021,2022, the Tier 1 leverage ratio was 8.97%8.87% for the Corporation and 11.28%10.86% for the Bank, the Tier 1 risk-based capital and common equity ratios were 10.16%9.79% for the Corporation and 12.80%11.98% for the Bank, and total risk-based capital was 14.23%13.50% for the Corporation and 14.18%13.33% for the Bank. Quarter-endBased on these capital ratio levels, we remain above the Community Bank Leverage Ratio ("CBLR") requirement of 8%. Period end numbers show a tangible common equity to
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tangible assets ratio (a non-GAAP measure) of 8.71%8.22% for the Corporation and 10.92%10.18% for the Bank. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section above. Tangible book value per share (a non-GAAP measure) was $24.06$25.16 as of June 30, 2021,2022, compared with $22.55$26.37 as of MarchDecember 31, 2021.

A reconciliation of these non-GAAP measures is included above.

The following table presents the Corporation’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators as of June 30, 20212022 and December 31, 2020:

June 30, 2021

To Be Well Capitalized

Actual

Under CBLR Framework

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

Tier 1 capital (to average assets)

Corporation

$

146,453

8.97%

$

130,546

8.00%

Bank

184,044

11.28%

130,545

8.00%

December 31, 2020

To Be Well Capitalized

Actual

Under CBLR Framework

(dollars in thousands)

    

Amount

    

Ratio

    

Amount

    

Ratio

Tier 1 capital (to average assets)

Corporation

$

134,564

8.96%

$

120,082

8.00%

Bank

173,231

11.54%

120,080

8.00%

2021:

June 30, 2022
ActualTo Be Well Capitalized Under CBLR Framework
(dollars in thousands)AmountRatioAmountRatio
Tier 1 capital (to average assets)
Corporation$161,066 8.87 %$163,434 9.00 %
Bank197,19210.86 %163,432 9.00 %
December 31, 2021
ActualTo Be Well Capitalized Under CBLR Framework
(dollars in thousands)AmountRatioAmountRatio
Tier 1 capital (to average assets)
Corporation$160,379 9.39 %$136,621 8.00 %
Bank196,506 11.51 %136,620 8.00 %
Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single "Community Bank Leverage Ratio" (“CBLR”) of between 8 and 10%. Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.The . The Corporation is exempt from CBLR. The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic.During the first quarter of 2020, the Bank adopted the CBLR framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.

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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 primaryavailable liquidity, which totaled $315.3$286.6 million at June 30, 2021,2022, compared to $408.8$263.6 million at December 31, 2020,2021, 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 FHLB and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs. Through its relationship at the Federal Reserve, Meridian had available credit of approximately $3.7$11.5 million at June 30, 2021.2022. At June 30, 2021,2022, 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 June 30, 2021,2022, Meridian’s maximum borrowing capacity with the FHLB was $549.0$484.1 million. At June 30, 2021,2022, Meridian had borrowed $45.8$59.1 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $108$56.1 million against its available credit lines. At June 30, 2021,2022, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as $255.1$188.4 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and $355.8$357.3 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.



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Discussion of Segments


As of June 30, 2021,2022, 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 income before tax of $7.7$6.9 million and $15.0$15 million for the three and six months ended June 30, 2021,2022, as compared to income before tax of $3.3$7.7 million and $5.3$15 million for the same periods in 2020.2021. The Banking Segment provided 71.4%89.7% and 62.2%101.9% of the Corporation’s pre-tax profit for the three and six month periods ended June 30, 2021,2022, as compared to 44.3%71.4% and 49.9%62.2% for the same periodsperiod in 2020.

2021.

The Wealth Management Segment recorded income before tax of $749 thousand and $1.3 million for the three and six months ended June 30, 2022, as compared to income before tax of $376 thousand and $604 thousand for the same periods in 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 six months ended June 30, 2021, as compared to2022, respectively.
The Mortgage Banking Segment recorded income before tax of $77$41 thousand and $309 thousanda loss before tax of 1.6 million for the same periods in 2020.

The Mortgage Banking Segment recordedthree and six months ended June 30, 2022, as compared to income before tax of $2.7 million and $8.5 million for the three and six months ended June 30, 2021, as compared to income before tax of $4.0 million and $5.0 million for the same periods in 2020.2021. Mortgage Banking income and expenses related to loan originations and sales increaseddecreased due to higherlower origination volume.

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, standby letters of 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 June 30, 20212022 were $461.2$488.6 million, as compared to $421.4$486.6 million at December 31, 2020.

2021.

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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 June 30, 20212022 amounted to $17.0$22.9 million, as compared to $8.9$26.0 million at December 31, 2020.

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.

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 violation of the 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 two loans totaling $612 thousand for the three months ended June 30, 2022, and six loans totaling $1.5 million for the six months ended June 30, 2022, and repurchased three loans totalingin the amount of $446 thousand for the three and six months ended June 30, 2021, and repurchased one loan in the amount of $154 thousand for the three and six months ended June 30, 2020.

2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

See the discussion of quantitative and qualitative disclosures about market risks in “Management’s Discussion and Analysis of Results of Operations – "Analyses of Interest Rate Summary,Rates and Interest Differential,“– Interest Rate Sensitivity,“Rate/Volume Analysis,” and “Gap Analysis”"Rate Ramp" in this Quarterly Report on Form 10-Q.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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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. Based on this evaluation, the Corporation’s CEO and CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of June 30, 20212022 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 June 30, 20212022 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II–OTHER INFORMATION

Item 1. Legal Proceedings.


Item 1A. Risk Factors.

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, 2020.

2021.

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

The following table presents the shares repurchased by the Corporation during the second quarter of 2022.
Issuer Purchases of Equity Securities
Total Number ofMaximum Number
Shares Purchasedof Shares that May
as Part of PubliclyYet Be Purchased
    Total Number of    Average Price Paid    Announced Plans or    Under the Plan or
PeriodShares PurchasedPer SharePrograms (1)Programs
April 1, 2022 to April 30, 202219,042 $31.71 19,042487,463
May 1, 2022 to May 31, 202225,664 31.48 25,664487,463
June 1, 2022 to June 30, 202252,679 30.33 52,679487,463
Total97,385 $31.14 97,385487,463
(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 will be purchased 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.
(2) As of June 30, 2022, the maximum number of shares remaining authorized for repurchase was approximately 487,463, based on funds remaining under the plan of approximately $14.8 million and a share price of $30.30 as of June 30, 2022.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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 56.

55

The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 57.
56

EXHIBIT INDEX

Exhibit
Number

Description

2.1

Exhibit
Number

Description

2.1

3.1

3.2

4.2

4.3

31.1

31.2

32

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

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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:

August 16, 2021

Meridian Corporation

Date:

August 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)

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