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 ~~September~~June 30, ~~2021~~

2022


☐			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

(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. ☒Yes☐No

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).

☒Yes☐No

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 ~~November 15, 2021~~August 5, 2022 there were ~~6,079,335~~6,017,247 outstanding shares of the issuer’s common stock, par value $1.00 per share.

Table of Contents

TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)			3

Consolidated Balance Sheets – ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021			3

Consolidated Statements of Income – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			4

Consolidated Statements of Comprehensive Income – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			5

Consolidated Statements of Stockholders’ Equity – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			6

Consolidated Statements of Cash Flows – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021			8

Notes to Consolidated Financial Statements (Unaudited)			9

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			35 37

Item 3 Quantitative and Qualitative Disclosures about Market Risk			55 54

Item 4 Controls and Procedures			55 54

PART II OTHER INFORMATION

Item 1 Legal Proceedings			56

Item 1A Risk Factors			56

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			56

Item 3 Defaults Upon Senior Securities			56

Item 4 Mine Safety Disclosures			56

Item 5 Other Information			56

Item 6 Exhibits			56

Signatures			58

Table of Contents

~~Table of Contents~~

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

~~(Unaudited)~~

September 30,

December 31,
(dollars in thousands, except per share data)

2021

2020
Cash and due from banks

$
45,875

34,190
Federal funds sold

17,246

2,554
Cash and cash equivalents

63,121

36,744
Securities available-for-sale (amortized cost of $145,129 and $120,215 as of September 30, 2021 and December 31, 2020)

146,149

123,562
Securities held-to-maturity (fair value of $6,660 and $6,857 as of September 30, 2021 and December 31, 2020)

6,406

6,510
Equity investments

1,011

1,031
Mortgage loans held for sale (amortized cost of $116,968 and $225,007 as of September 30, 2021 and December 31, 2020), at fair value

117,996

229,199
Loans, net of fees and costs (includes $17,142 and $12,182 of loans at fair value, amortized cost of $16,515 and $11,514 as of September 30, 2021 and December 31, 2020)

1,378,670

1,284,764
Allowance for loan and lease losses

(18,976)

(17,767)
Loans, net of the allowance for loan and lease losses

1,359,694

1,266,997
Restricted investment in bank stock

4,162

7,861
Bank premises and equipment, net

8,242

7,777
Bank owned life insurance

22,362

12,138
Accrued interest receivable

5,080

5,482
Deferred income taxes

1,457

62
Servicing assets

11,932

5,617
Goodwill

899

899
Intangible assets

3,430

3,601
Other assets

10,504

12,717
Total assets

$
1,762,445

1,720,197
Liabilities:

Deposits:

Non-interest bearing

$
265,842

203,843
Interest bearing

1,173,205

1,037,492
Total deposits

1,439,047

1,241,335
Short-term borrowings

22,278

106,862
Long-term debt

78,405

165,546
Subordinated debentures

40,760

40,671
Accrued interest payable

663

1,154
Other liabilities

22,876

23,007
Total liabilities

1,604,029

1,578,575
Stockholders’ equity:

Common stock, $1 par value. Authorized 25,000,000 and 10,000,000 shares as of September 30, 2021 and December 31, 2020; issued 6,506,028 and 6,455,566 as of September 30, 2021 and December 31, 2020

6,506

6,456
Surplus

82,508

81,196
Treasury stock - 398,491 and 320,000 shares at September 30, 2021 and December 31, 2020

(8,025)

(5,828)
Unearned common stock held by employee stock ownership plan

(1,768)

(1,768)
Retained earnings

78,408

59,010
Accumulated other comprehensive income

787

2,556
Total stockholders’ equity

158,416

141,622
Total liabilities and stockholders’ equity

$
1,762,445

1,720,197

~~Seeaccompanying notes to the unaudited consolidated financial statements.~~

(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 equivalents	37,093		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 investments	2,153		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 value	58,938		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 losses	1,500,088		1,367,699
Restricted investment in bank stock	4,719		5,117
Bank premises and equipment, net	12,185		11,806
Bank owned life insurance	22,778		22,503
Accrued interest receivable	5,108		5,009
Deferred income taxes	4,467		1,413
Servicing assets	12,860		12,765
Goodwill	899		899
Intangible assets	3,277		3,379
Other assets	22,055		10,463
Total assets	$	1,853,019	$	1,713,443
Liabilities:
Deposits:
Non-interest bearing	$	291,925	$	274,528
Interest bearing	1,276,089		1,171,885
Total deposits	1,568,014		1,446,413
Short-term borrowings	59,136		41,344
Subordinated debentures	40,567		40,508
Accrued interest payable	146		31
Other liabilities	29,069		19,787
Total liabilities	1,696,932		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, 2021	6,561		6,535
Surplus	84,359		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 earnings	87,815		84,916
Accumulated other comprehensive (loss) income	(9,150)		708
Total stockholders’ equity	156,087		165,360
Total liabilities and stockholders’ equity	$	1,853,019	$	1,713,443

~~Table of Contents~~

~~MERIDIAN CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF INCOME~~

~~(Unaudited)~~

Three months ended

Nine months ended

September 30,

September 30,
(dollars in thousands, except per share data)
2021

2020


2021

2020
Interest income:

Loans, including fees
$
17,626

15,321

$
51,287

43,048
Securities:

Taxable

284

251

837

920
Tax-exempt

379

305

1,125

698
Cash and cash equivalents

17

3

25

63
Total interest income

18,306

15,880

53,274

44,729
Interest expense:

Deposits

1,327

2,235

4,261

8,064
Borrowings

722

930

2,224

2,687
Total interest expense

2,049

3,165

6,485

10,751
Net interest income

16,257

12,715

46,789

33,978
Provision for loan losses

597

3,956

1,292

7,139
Net interest income after provision for loan losses

15,660

8,759

45,497

26,839
Non-interest income:

Mortgage banking income

18,726

21,812

62,293

45,395
Wealth management income

1,232

951

3,531

2,825
SBA loan income

2,688

641

5,423

1,821
Earnings on investment in life insurance

93

70

224

210
Net change in the fair value of derivative instruments

(339)

3,028

(3,431)

6,346
Net change in the fair value of loans held-for-sale

(532)

2,932

(3,164)

4,424
Net change in the fair value of loans held-for-investment

37

93

(24)

174
Net gain (loss) on hedging activity

(1,189)

(2,637)

2,397

(7,363)
Net gain on sale of investment securities available-for-sale

314

1,290

362

1,345
Service charges

35

28

99

77
Other

1,057

852

3,192

1,718
Total non-interest income

22,122

29,060

70,902

56,972
Non-interest expenses:

Salaries and employee benefits

19,472

20,447

61,824

46,529
Occupancy and equipment

1,133

1,108

3,460

3,159
Professional fees

873

681

2,629

2,118
Advertising and promotion

1,089

781

2,795

1,996
Data processing

530

460

1,666

1,260
Information technology

476

394

1,365

1,100
Pennsylvania bank shares tax

152

254

478

734
Other

1,756

1,709

5,773

4,256
Total non-interest expenses

25,481

25,834

79,990

61,152
Income before income taxes

12,301

11,985

36,409

22,659
Income tax expense

2,863

2,773

8,543

5,218
Net income
$
9,438

9,212

$
27,866

17,441
Basic earnings per common share
$
1.56

1.51

$
4.62

2.83
Diluted earnings per common share
$
1.52

1.51

$
4.49

2.82

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE~~ INCOME

(Unaudited)

Three months ended

Nine months ended

September 30,

September 30,
(dollars in thousands)


2021

2020

2021

2020
Net income:

$
9,438

9,212

27,866

17,441

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 ($312), $144, ($475), and $761, respectively

(1,021)

304

(1,490)

2,489
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of ($71), ($301), ($83), and ($313), respectively

(243)

(989)

(279)

(1,032)
Unrealized investment (losses) gains, net of tax expense of $(383), $(157), $(558), and $448, respectively

(1,264)

(685)

(1,769)

1,457
Total other comprehensive (loss) income

(1,264)

(685)

(1,769)

1,457
Total comprehensive income

$
8,174

8,527

26,097

18,898


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands, except per share data)	2022		2021		2022		2021
Interest income:
Loans, including fees	$	19,120	$	16,839	$	36,339	$	33,662
Securities:
Taxable	436		280		772		553
Tax-exempt	429		393		825		746
Cash and cash equivalents	52		5		65		8
Total interest income	20,037		17,517		38,001		34,969
Interest expense:
Deposits	1,818		1,368		3,107		2,934
Borrowings	668		737		1,308		1,502
Total interest expense	2,486		2,105		4,415		4,436
Net interest income	17,551		15,412		33,586		30,533
Provision for loan losses	602		96		1,217		695
Net interest income after provision for loan losses	16,949		15,316		32,369		29,838
Non-interest income:
Mortgage banking income	6,942		19,467		14,038		43,567
Wealth management income	1,254		1,163		2,558		2,299
SBA loan income	437		1,490		2,957		2,735
Earnings on investment in life insurance	137		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-sale	268		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 activity	1,715		(674)		4,542		3,587
Net gain on sale of investment securities available-for-sale	—		—		—		48
Service charges	31		33		58		65
Other	1,128		1,060		2,386		2,133
Total non-interest income	10,403		21,732		23,505		48,780
Non-interest expenses:
Salaries and employee benefits	12,926		20,213		28,224		42,352
Occupancy and equipment	1,176		1,175		2,428		2,326
Professional fees	913		816		1,761		1,756
Advertising and promotion	1,189		921		2,175		1,707
Data processing	580		520		1,059		1,136
Information technology	728		464		1,438		889
Pennsylvania bank shares tax	212		163		411		326
Other	1,982		1,974		3,643		4,018
Total non-interest expenses	19,706		26,246		41,139		54,510
Income before income taxes	7,646		10,802		14,735		24,108
Income tax expense	1,708		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 share	0.96		1.33		1.84		2.98

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~

~~(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
Comprehensive income:

Net income

9,212

9,212
Change in unrealized gains on securities available-for-sale, net of tax

(685)

(685)
Total comprehensive income

8,527
Dividends paid or accrued, $0.125 per share

(763)

(763)
Shares purchased for ESOP plan (133,601)

(2,000)

(2,000)
Common stock issued through share-based awards and exercises

36

337

373
Stock based compensation

177

177
Balance, September 30, 2020
$
6,450

80,981

(5,828)

(2,000)

50,775

1,454

131,832

COMPREHENSIVE INCOME

(Unaudited)


	Three months ended June 30,				Six months ended June 30,
(dollars in thousands)	2022		2021		2022		2021
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, respectively	22		—		(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

~~Table of Contents~~

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
Comprehensive income:

Net income

9,438

9,438
Change in unrealized gains on securities available-for-sale, net of tax

(1,264)

(1,264)
Total comprehensive income

8,174
Dividends paid or accrued, $0.125 per share

(769)

(769)
Net purchase of treasury stock through publicly announced plans (78,491)

(2,197)

(2,197)
Common stock issued through share-based awards and exercises

13

167

180
Stock based compensation

143

143
Balance, September 30, 2021
$
6,506

82,508

(8,025)

(1,768)

78,408

787

158,416

See accompanying notes to the unaudited consolidated financial statements.

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~

STOCKHOLDERS’ EQUITY

(Unaudited)


(dollars in thousands)	Common Stock		Surplus		Treasury 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 income									10,170				10,170
Net change in unrealized investment losses, net of tax											(1,919)		(1,919)
Total comprehensive income													8,251
Dividends declared, $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
Net change in unrealized investment gains, 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

Table of Contents

Nine months ended

September 30,
(dollars in thousands)

2021

2020
Net income

$
27,866

17,441
Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Gain on sale of investment securities

(362)

(1,345)
Depreciation and amortization, net

(4,677)

(992)
Net amortization of investment premiums and discounts and change in fair value of equity securities

991

238
Provision for loan losses

1,292

7,139
Amortization of issuance costs on subordinated debt

88

83
Share-based compensation

791

300
Net change in fair value of derivative instruments

3,431

(6,346)
Net change in fair value of loans held for sale

3,164

(4,424)
Net change in fair value of loans held for investment

24

(174)
Gain on sale of OREO

—

(6)
Amortization and net impairment of servicing rights

707

350
Capitalization of servicing rights, net

(7,021)

(2,992)
SBA loan income

(5,423)

(1,821)
Proceeds from sale of loans

2,034,464

1,356,637
Loans originated for sale

(1,864,132)

(1,498,614)
Mortgage banking income

(62,293)

(45,395)
Decrease (increase) in accrued interest receivable

402

(1,518)
(Increase) decrease in other assets

(2,648)

8,503
Earnings from investment in life insurance

(224)

(210)
(Increase) decrease income in deferred income tax

(817)

1,274
(Decrease) increase in accrued interest payable

(490)

1,170
Increase in other liabilities

1,299

9,054
Net cash provided by (used in) operating activities

126,432

(161,648)
Cash flows from investing activities:

Activity in available-for-sale securities:

Maturities, repayments and calls

6,173

6,319
Sales

20,855

44,592
Purchases

(52,468)

(92,476)
Activity in held-to-maturity securities:

Maturities, repayments and calls

—

2,140
Proceeds from sale of OREO

—

126
Decrease in restricted stock

3,699

422
Net increase in loans

(82,711)

(339,459)
Purchases of premises and equipment

(1,496)

(651)
Purchase of bank owned life insurance

(10,000)

—
Net cash used in investing activities

(115,948)

(378,987)
Cash flows from financing activities:

Net increase in deposits

197,712

357,856
(Decrease) increase in short-term borrowings

(3,187)

(31,928)
Decrease in short-term borrowings with original maturity > 90 days

(81,397)

12,902
(Repayment) proceeds from long-term debt, net

(87,141)

247,008
Repayment of acquisition note payable

—

(413)
Issuance costs on subordinated debt

—

(231)
Net purchase of treasury stock

(2,197)

(5,703)
Dividends paid

(8,468)

(763)
Purchase of common shares for ESOP

—

(2,000)
Share based awards and exercises

571

405
Net cash provided by financing activities

15,893

577,133
Net change in cash and cash equivalents

26,377

36,498
Cash and cash equivalents at beginning of period

36,744

39,371
Cash and cash equivalents at end of period

$
63,121

75,869
Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

$
6,976

9,581
Income taxes

11,354

2,490
Supplemental disclosure of cash flow information:

Transfers from loans held for sale to loans held for investment

7,116

—
Net loans sold, not settled

—

(1,657)


(dollars in thousands)	Common Stock		Surplus		Treasury 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 income									5,535				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 exercises	21		254										275
Stock based compensation			260										260
Balance, March 31, 2022	6,556		84,177		(8,860)		(1,602)		83,104		(5,691)		157,684
Comprehensive income:
Net income									5,938				5,938
Net change in unrealized investment losses, net of tax											(3,459)		(3,459)
Total comprehensive income													2,479
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 exercises	5		88										93
Stock based compensation			94										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.

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Six months ended June 30,
(dollars in thousands)	2022		2021
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 securities	239		664
Depreciation and amortization, net	749		(2,822)
Provision for loan losses	1,217		695
Amortization of issuance costs on subordinated debt	59		59
Stock based compensation	354		648
Net change in fair value of derivative instruments	840		3,092
Net change in fair value of loans held for sale	856		2,632
Net change in fair value of loans held for investment	1,613		61
Amortization and net impairment of servicing rights	1,327		364
SBA loan income	(2,957)		(2,735)
Proceeds from sale of loans	656,565		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 assets	1,571		(494)
Earnings from investment in life insurance	(275)		(131)
Decrease in deferred income tax	(153)		(810)
Increase (decrease) in accrued interest payable	115		(1,034)
Increase (decrease) in other liabilities	(3,764)		(1,994)
Net cash provided by operating activities	35,679		105,683
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls	6,327		4,421
Sales	—		13,639
Purchases	(15,707)		(37,620)
Activity in held-to-maturity securities:
Maturities, repayments and calls	362		—
Purchases	(4,500)		—
Decrease in restricted stock	398		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 deposits	121,601		171,945
Decrease in short-term borrowings	—		(5,465)
Increase (decrease) in short-term borrowings with original maturity > 90 days	17,792		(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 exercises	368		391
Net cash provided by (used in) financing activities	128,151		(25,615)
Net change in cash and cash equivalents	13,613		(9,842)
Cash and cash equivalents at beginning of period	23,480		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:
Interest	4,301		5,471
Income taxes	3,265		8,009

Supplemental disclosure of cash flow information:
Transfers from loans held for sale to loans held for investment	2,848		4,193
Net loans sold, not settled	(962)		(4,432)
Investment security purchases, not settled	—		(1,188)
Transfer of securities from AFS to HTM	23,652		—
Lease liabilities arising from obtaining right-of-use assets	10,995		—

See accompanying notes to the unaudited consolidated financial statements.

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 ~~September~~June 30, ~~2021~~2022 are not necessarily indicative of the results for the year ending December 31, ~~2021~~2022 or for any other period.

Estimates for the allowance for loan and lease losses at September 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.

~~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)	2022		2021	2022	2021
Numerator:
Net income available to common stockholders	$	5,938	8,258	11,473	18,428
Denominator for basic earnings per share
Weighted average shares outstanding	6,101		6,147	6,115	6,135
Average unearned ESOP shares	(102)		(115)	(104)	(117)
Basic weighted averages shares outstanding	5,999		6,032	6,011	6,018
Dilutive effects of assumed exercises of stock options	128		171	149	159
Dilutive effects of SERP shares	72		—	69	—
Denominator for diluted earnings per share - adjusted weighted average shares outstanding	6,199		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 share	136		140	21	140

Table of Contents

Three Months Ended

Nine Months Ended

September 30,

September 30,
(dollars in thousands, except per share data)

2021

2020

2021

2020
Numerator:

Net income available to common stockholders

$
9,438

9,212

$
27,866

17,441
Denominator for basic earnings per share

Weighted average shares outstanding

6,157

6,099

6,148

6,172
Average unearned ESOP shares

(112)

—

(115)

—
Basic weighted averages shares outstanding

6,045

6,099

6,033

6,172
Effect of dilutive common shares

186

11

168

21
Denominator for diluted earnings per share - adjusted weighted average shares outstanding

6,231

6,110

6,201

6,193
Basic earnings per share

$
1.56

1.51

$
4.62

2.83
Diluted earnings per share

$
1.52

1.51

$
4.49

2.82
Antidilutive shares excluded from computation of average dilutive earnings per share

140

265

140

192

(3) Securities

The amortized cost and fair value of securities as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

September 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

$
21,120

199

(26)

21,293

4
U.S. government agency mortgage-backed securities

5,351

137

(29)

5,459

1
U.S. government agency collateralized mortgage obligations

23,712

483

(142)

24,053

7
State and municipal securities

72,415

874

(461)

72,828

23
U.S. Treasuries

15,082

6

(78)

15,010

11
Non-U.S. government agency collateralized mortgage obligations

999

—

—

999

1
Corporate bonds

6,450

73

(16)

6,507

4
Total securities available-for-sale

$
145,129

1,772

(752)

146,149

51
Securities held-to-maturity:

State and municipal securities

6,406

254

─

6,660

—
Total securities held-to-maturity

$
6,406

254

—

6,660

—


	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 securities	10,110		—	(470)	9,640	10
U.S. government agency collateralized mortgage obligations	21,875		7	(1,276)	20,606	26
State and municipal securities	45,070		—	(5,354)	39,716	34
U.S. Treasuries	32,979		—	(2,555)	30,424	25
Non-U.S. government agency collateralized mortgage obligations	9,303		—	(332)	8,971	9
Corporate bonds	6,450		—	(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 securities	37,111		7	(3,621)	33,497	21
Total securities held-to-maturity	$	37,111	7	(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 securities	9,749		124	(60)	9,813	3
U.S. government agency collateralized mortgage obligations	22,276		358	(253)	22,381	10
State and municipal securities	72,099		1,379	(496)	72,982	12
U.S. Treasuries	29,973		1	(246)	29,728	21
Non-U.S. government agency collateralized mortgage obligations	990		—	(15)	975	1
Corporate bonds	6,450		154	(18)	6,586	5
Total securities available-for-sale	$	158,387	2,071	(1,156)	159,302	62
Securities held-to-maturity:
State and municipal securities	6,372		219	—	6,591	—
Total securities held-to-maturity	$	6,372	219	—	6,591	—

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 ~~gain~~loss position at ~~September~~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 ~~September~~June 30, ~~2021~~2022 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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

September 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

$
4,158

(26)

—

—

4,158

(26)
U.S. government agency mortgage-backed securities

1,614

(29)

—

—

1,614

(29)
U.S. government agency collateralized mortgage obligations

7,315

(142)

—

—

7,315

(142)
State and municipal securities

34,808

(451)

568

(10)

35,376

(461)
U.S. Treasuries

12,049

(78)

—

—

12,049

(78)
Corporate bonds

2,244

(6)

439

(10)

2,683

(16)
Total securities available-for-sale

$
62,188

(732)

1,007

(20)

63,195

(752)

2021:


	June 30, 2022
	Less than 12 Months			12 Months or more		Total
(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 securities	9,610		(470)	—	—	9,610	(470)
U.S. government agency collateralized mortgage obligations	15,599		(828)	3,897	(448)	19,496	(1,276)
State and municipal securities	38,130		(5,092)	1,585	(262)	39,715	(5,354)
U.S. Treasuries	30,424		(2,555)	—	—	30,424	(2,555)
Non-U.S. government agency collateralized mortgage obligations	8,007		(332)	—	—	8,007	(332)
Corporate bonds	6,191		(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 Months			12 Months or more		Total
	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)

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 Months 12 Months or more Total
(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 securities 3,852 (60) — — 3,852 (60)
U.S. government agency collateralized mortgage obligations 8,836 (187) 1,657 (66) 10,493 (253)
State and municipal securities 14,994 (427) 2,019 (69) 17,013 (496)
U.S. Treasuries 28,750 (246) — — 28,750 (246)
Non-U.S. government agency collateralized mortgage obligations 975 (15) — — 975 (15)
Corporate bonds 2,232 (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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 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.

September 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

—

—

3,133

3,197

—

—

3,181

3,288
Due after five years through ten years

28,999

29,010

3,273

3,463

12,035

12,095

3,329

3,569
Due after ten years

86,068

86,628

—

—

81,316

83,512

—

—
Subtotal

115,067

115,638

6,406

6,660

93,351

95,607

6,510

6,857
Mortgage-related securities

30,062

30,511

—

—

26,864

27,955

—

—
Total

$
145,129

146,149

6,406

6,660

$
120,215

123,562

6,510

6,857


	June 30, 2022					December 31, 2021
	Available-for-sale			Held-to-maturity		Available-for-sale			Held-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 years	17,889		16,823	3,768	3,760	12,934		12,885	2,354	2,397
Due after five years through ten years	27,543		25,337	4,090	3,885	30,890		30,798	3,255	3,425
Due after ten years	53,113		47,911	29,253	25,852	81,548		82,450	—	—
Subtotal	98,545		90,071	37,111	33,497	125,372		126,133	6,372	6,591
Mortgage-related securities	41,288		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 ~~$7.3 million~~$0 for the three months ended ~~September~~June 30, 2021 and ~~$20.9~~$13.6 million for the ~~nine~~six months ended ~~September~~June 30, 2021, resulting in a gross gain on sale of ~~$314 thousand and 0 gross loss on sale for the three months ended September 30, 2021, and a gross gain on sale of $562~~$248 thousand and a gross loss on sale of $200 thousand for the nine months ended September 30, 2021. Proceeds from the sale of available for sale investment securities totaled $26.4 million and $44.6 million for the three and nine months ended September 30, 2020, respectively, resulting in a gross gain on sale of $1.3 million and 0 gross loss on sale for the three months ended September 30, 2020, and a gross gain on sale of $1.5 million and a gross loss on sale of $202 thousand for the nine months ended September 30, 2020.

period.

Table of Contents

(4) Loans Receivable

Loans and leases outstanding at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are detailed by category as follows:


(dollars in thousands)	June 30, 2022		December 31, 2021
Mortgage loans held for sale	$	58,938	80,882
Real estate loans:
Commercial mortgage	548,267		516,928
Home equity lines and loans	56,613		52,299
Residential mortgage (1)	112,549		68,175
Construction	201,163		160,905
Total real estate loans	918,592		798,307

Commercial and industrial	335,759		293,771
Small business loans	120,920		114,158
Paycheck Protection Program loans ("PPP")	21,867		90,194
Main Street Lending Program Loans ("MSLP")	597		597
Consumer	446		419
Leases, net	115,872		88,242
Total portfolio loans and leases	1,514,053		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 rates	1,099,354		978,350
Total loans and leases	$	1,572,991	1,466,570

Net deferred loan origination costs	$	4,840	769

September 30,

December 31,
(dollars in thousands)

2021

2020
Mortgage loans held for sale

$
117,996

229,199
Real estate loans:

Commercial mortgage

542,473

485,103
Home equity lines and loans

52,819

64,987
Residential mortgage (1)

59,295

52,454
Construction

162,192

140,246
Total real estate loans

816,779

742,790

Commercial and industrial

278,976

261,750
Small business loans

90,477

49,542
Paycheck Protection Program loans ("PPP")

118,585

203,543
Main Street Lending Program Loans ("MSLP")

592

580
Consumer

427

511
Leases, net

73,993

31,040
Total portfolio loans and leases

1,379,829

1,289,756
Total loans and leases

$
1,497,825

1,518,955

Loans with predetermined rates

$
542,289

658,458
Loans with adjustable or floating rates

955,536

860,497
Total loans and leases

$
1,497,825

1,518,955

Net deferred loan origination (fees) costs

$
(1,159)

(4,992)

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

~~(1)~~

~~Includes $17,142 and $12,182 of loans at fair value as of September 30, 2021 and December 31, 2020, respectively.~~

Components of the net investment in leases at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are detailed as follows:

September 30,

December 31,
(dollars in thousands)

2021

2020
Minimum lease payments receivable

$
89,051

37,919
Unearned lease income

(15,058)

(6,879)
Total

$
73,993

31,040


(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

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively:


June 30, 2022	30-89 days past due		90+ days past due and still accruing	Total past due	Current	Total Accruing Loans and leases	Nonaccrual loans and leases	Total loans portfolio and leases	Delinquency percentage
(dollars in thousands)
Commercial mortgage	$	—	—	—	548,267	548,267	—	548,267	—	%
Home equity lines and loans	1		—	1	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, net	948		—	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

September 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

$
—

—

—

542,473

542,473

—

542,473

—
%
Home equity lines and loans

65

—

65

51,844

51,909

910

52,819

1.85

Residential mortgage (1)

143

—

143

56,874

57,017

2,278

59,295

4.08

Construction

—

—

—

162,192

162,192

—

162,192

—

Commercial and industrial

770

—

770

273,117

273,887

5,089

278,976

2.10

Small business loans

—

—

—

89,561

89,561

916

90,477

1.01

Paycheck Protection Program loans

2,422

—

2,422

116,163

118,585

—

118,585

2.04

Main Street Lending Program loans

—

—

—

592

592

—

592

—

Consumer

—

—

—

427

427

—

427

—

Leases, net

263

—

263

73,730

73,993

—

73,993

0.36

Total

$
3,663

—

3,663

1,366,973

1,370,636

9,193

1,379,829

0.93
%

~~(1)~~ Includes ~~$17,142~~$16,212 of loans at fair value as of ~~September~~June 30, ~~2021~~2022 ($~~16,523~~15,636 are current ~~$143~~and $576 are nonaccrual).


December 31, 2021	30-89 days past due		90+ days past due and still accruing	Total past due	Current	Total Accruing Loans and leases	Nonaccrual loans and leases	Total loans portfolio and leases	Delinquency percentage
(dollars in thousands)
Commercial mortgage	$	—	—	—	516,928	516,928	—	516,928	—	%
Home equity lines and loans	103		—	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, net	390		—	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 ~~$475~~$601 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).~~

Table of Contents

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

The Allowance is ~~established through provisions~~evaluated 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 September 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 ~~nine~~six month periods ended ~~September~~June 30, 2022 and 2021, ~~and 2020,~~ respectively:

Balance,

Balance,
(dollars in thousands)

June 30, 2021

Charge-offs

Recoveries

Provision

September 30, 2021
Commercial mortgage

$
7,146

—

—

(604)

6,542
Home equity lines and loans

281

—

1

(9)

273
Residential mortgage

324

—

1

(49)

276
Construction

2,241

—

—

44

2,285
Commercial and industrial

5,360

—

15

239

5,614
Small business loans

2,235

—

—

864

3,099
Consumer

4

—

1

(2)

3
Leases

770

—

—

114

884
Total

$
18,361

—

18

597

18,976

Balance,

Balance,
(dollars in thousands)

December 31, 2020

Charge-offs

Recoveries

Provision

September 30, 2021
Commercial mortgage

$
7,451

—

—

(909)

6,542
Home equity lines and loans

434

—

5

(166)

273
Residential mortgage

385

—

5

(114)

276
Construction

2,421

—

—

(136)

2,285
Commercial and industrial

5,431

—

33

150

5,614
Small business loans

1,259

—

—

1,840

3,099
Consumer

4

—

3

(4)

3
Leases

382

(129)

—

631

884
Total

$
17,767

(129)

46

1,292

18,976

Balance,

Balance,
(dollars in thousands)

June 30, 2020

Charge-offs

Recoveries

Provision

September 30, 2020
Commercial mortgage

$
5,277

—

—

1,658

6,935
Home equity lines and loans

672

(75)

2

(82)

517
Residential mortgage

346

—

1

(13)

334
Construction

2,019

—

—

463

2,482
Commercial and industrial

3,606

(22)

4

1,450

5,038
Small business loans

747

—

—

360

1,107
Consumer

4

—

1

(1)

4
Leases

35

—

—

121

156
Total

$
12,706

(97)

8

3,956

16,573


(dollars in thousands)	Balance, March 31, 2022		Charge-offs	Recoveries	Provision (Credit)	Balance, June 30, 2022
Commercial mortgage	$	4,150	—	—	177	4,327
Home equity lines and loans	208		—	2	30	240
Residential mortgage	357		—	—	132	489
Construction	2,257		—	—	224	2,481
Commercial and industrial	7,369		—	9	(1,091)	6,287
Small business loans	3,372		—	—	309	3,681
Consumer	3		—	1	(1)	3
Leases	1,110		(696)	61	822	1,297
Total	$	18,826	(696)	73	602	18,805

(dollars in thousands)	Balance, December 31, 2021		Charge-offs	Recoveries	Provision (Credit)	Balance, June 30, 2022
Commercial mortgage	$	4,950	—	—	(623)	4,327
Home equity lines and loans	224		—	8	8	240
Residential mortgage	283		—	2	204	489
Construction	2,042		—	—	439	2,481
Commercial and industrial	6,533		—	20	(266)	6,287
Small business loans	3,737		—	—	(56)	3,681
Consumer	3		—	2	(2)	3
Leases	986		(1,263)	61	1,513	1,297
Total	$	18,758	(1,263)	93	1,217	18,805

Table of Contents


	Balance,					Balance,

(dollars in thousands)	December 31, 2019		Charge-offs	Recoveries	Provision	September 30, 2020	(dollars in thousands)	Balance, March 31, 2021		Charge-offs	Recoveries	Provision (Credit)	June 30, 2021
Commercial mortgage	$	3,426	—	—	3,509	6,935	Commercial mortgage	$	7,655	—	—	(509)	7,146
Home equity lines and loans		342	(89)	6	258	517	Home equity lines and loans	310		—	2	(31)	281
Residential mortgage		179	—	5	150	334	Residential mortgage	314		—	2	8	324
Construction		2,362	—	—	120	2,482	Construction	2,311		—	—	(70)	2,241
Commercial and industrial		2,684	(31)	37	2,348	5,038	Commercial and industrial	5,286		—	13	61	5,360
Small business loans		509	—	—	598	1,107	Small business loans	1,920		—	—	315	2,235
Consumer		6	(10)	3	5	4	Consumer	4		—	1	(1)	4
Leases		5	—	—	151	156	Leases	576		(129)	—	323	770
Total	$	9,513	(130)	51	7,139	16,573	Total	$	18,376	(129)	18	96	18,361

(dollars in thousands)							(dollars in thousands)	Balance, December 31, 2020		Charge-offs	Recoveries	Provision (Credit)	Balance, June 30, 2021
Commercial mortgage							Commercial mortgage	$	7,451	—	—	(305)	7,146
Home equity lines and loans							Home equity lines and loans	434		—	4	(157)	281
Residential mortgage							Residential mortgage	385		—	4	(65)	324
Construction							Construction	2,421		—	—	(180)	2,241
Commercial and industrial							Commercial and industrial	5,431		—	18	(89)	5,360
Small business loans							Small business loans	1,259		—	—	976	2,235
Consumer							Consumer	4		—	2	(2)	4
Leases							Leases	382		(129)	—	517	770
Total							Total	$	17,767	(129)	28	695	18,361

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

September 30, 2021

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

for impairment

for impairment

Total

for impairment

for impairment

Total

Commercial mortgage

$
—

6,542

6,542

$
2,568

539,905

542,473

Home equity lines and loans

2

271

273

910

51,909

52,819

Residential mortgage

12

264

276

1,802

40,351

42,153

Construction

—

2,285

2,285

1,206

160,986

162,192

Commercial and industrial

1,526

4,088

5,614

3,651

275,325

278,976

Small business loans

376

2,723

3,099

1,057

89,420

90,477

Paycheck Protection Program loans

—

—

—

—

118,585

118,585
(2)
Main Street Lending Program

—

—

—

—

592

592
(2)
Consumer

—

3

3

—

427

427

Leases, net

—

884

884

—

73,993

73,993

Total

$
1,916

17,060

18,976

$
11,194

1,351,493

1,362,687
(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)

~~(1)~~

~~Excludes deferred fees and loans carried at fair value.~~

~~(2)~~

~~PPP and MSLP loans are not reserved against as they are 100% guaranteed.~~

2021.


	Allowance on loans and leases				Carrying value of loans and leases
June 30, 2022	Individually evaluated for impairment		Collectively evaluated for impairment	Total	Individually 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 industrial	2,440		3,847	6,287	16,553	319,206	335,759
Small business loans	376		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	—		3	3	—	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)

Table of Contents

Allowance on loans and leases Carrying value of loans and leases
December 31, 2021 Individually
evaluated
for impairment Collectively
evaluated
for impairment Total Individually
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 industrial 2,900 3,633 6,533 17,361 276,410 293,771
Small business loans 376 3,361 3,737 792 113,366 114,158
Paycheck Protection Program loans — — — — 90,194 90,194 (2)
Main Street Lending Program — — — — 597 597 (2)
Consumer — 3 3 — 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.

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.

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

2021:


June 30, 2022	Pass		Special mention	Substandard	Doubtful	Total
(dollars in thousands)
Commercial mortgage	$	514,251	28,606	5,410	—	548,267
Home equity lines and loans	55,107		—	1,506	—	56,613
Construction	192,163		9,000	—	—	201,163
Commercial and industrial	279,864		11,488	44,407	—	335,759
Small business loans	119,519		—	1,401	—	120,920
Paycheck Protection Program loans	21,867		—	—	—	21,867
Main Street Lending Program loans	597		—	—	—	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.

September 30, 2021



Special






(dollars in thousands)

Pass

mention

Substandard

Doubtful

Total
Commercial mortgage

$
505,355

31,464

5,654

—

542,473
Home equity lines and loans

51,427

—

1,392

—

52,819
Construction

153,200

8,992

—

—

162,192
Commercial and industrial

222,041

35,756

21,179

—

278,976
Small business loans

87,161

—

3,316

—

90,477
Paycheck Protection Program loans

118,585

—

—

—

118,585
Main Street Lending Program loans

592

—

—

—

592
Total

$
1,138,361

76,212

31,541

—

1,246,114

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, 2021	Pass		Special mention	Substandard	Doubtful	Total
(dollars in thousands)
Commercial mortgage	$	481,551	29,452	5,925	—	516,928
Home equity lines and loans	50,908		—	1,391	—	52,299
Construction	151,608		9,297	—	—	160,905
Commercial and industrial	236,298		14,603	42,870	—	293,771
Small business loans	112,096		—	2,062	—	114,158
Paycheck Protection Program loans	90,194		—	—	—	90,194
Main Street Lending Program loans	597		—	—	—	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 ~~September~~June 30, ~~2021~~2022 and

~~Table of Contents~~

December 31, ~~2020. NaN~~2021.


	June 30, 2022				December 31, 2021
(dollars in thousands)	Performing		Nonperforming	Total	Performing		Nonperforming	Total
Residential mortgage (1)	$	94,285	2,052	96,337	$	48,820	1,797	50,617
Consumer	446		—	446	419		—	419
Leases, net	115,777		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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~

2021.

September 30, 2021

December 31, 2020
(dollars in thousands)

Performing

Nonperforming

Total

Performing

Nonperforming

Total
Residential mortgage

$
40,351

1,802

42,153

$
38,457

1,815

40,272
Consumer

427

—

427

511

—

511
Leases, net

73,993

—

73,993

31,040

—

31,040
Total

$
114,771

1,802

116,573

$
70,008

1,815

71,823

~~There were 3 nonperforming residential mortgage loans at September 30, 2021 and 5 nonperforming residential mortgage loans at December 31, 2020 with a combined outstanding principal balance~~

Table of ~~$476 thousand and $910 thousand, respectively, which were carried at fair value and not included in the table above.~~

Contents

Impaired Loans

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

As of September 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

$
3,201

3,321

1,526

3,860

3,902

1,563
Small business loans

916

916

376

—

—

—
Home equity lines and loans

88

102

2

95

105

9
Residential mortgage

169

169

12

689

689

73
Total

$
4,374

4,508

1,916

4,644

4,696

1,645
Impaired loans without related allowance:

Commercial mortgage

$
2,568

2,568

—

1,606

1,642

—
Commercial and industrial

450

515

—

785

862

—
Small business loans

141

141

—

185

185

—
Home equity lines and loans

822

836

—

826

839

—
Residential mortgage

1,633

1,633

—

1,128

1,128

—
Construction

1,206

1,206

—

1,206

1,206

—
Total

6,820

6,899

—

5,736

5,862

—
Grand Total

$
11,194

11,407

1,916

10,380

10,558

1,645

the periods.


	As of June 30, 2022				As 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 loans	666		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 industrial	272		334	—	214	269	—
Small business loans	829		829	—	126	126	—
Home equity lines and loans	1,038		1,074	—	905	935	—
Residential mortgage	1,476		1,476	—	1,797	1,797	—
Construction	1,206		1,206	—	1,206	1,206	—
Leases	95		95	—	212	212	—
Total	9,139		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, 2022			Three 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	5
Small business loans	666		—	917	—
Home equity lines and loans	—		—	93	—
Residential mortgage	—		—	686	—
Total	$	17,078	—	5,005	5
Impaired loans without related allowance:
Commercial mortgage	$	4,241	29	726	8
Commercial and industrial	293		—	969	—
Small business loans	835		2	161	4
Home equity lines and loans	1,040		23	824	—
Residential mortgage	1,480		166	1,125	3
Construction	1,206		16	1,206	14
Leases	102		—	39	—
Total	$	9,197	236	5,050	29
Grand Total	$	26,275	236	10,055	34

Table of Contents

Three Months Ended

Three Months Ended

September 30, 2021

September 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

$
3,242

5

3,907

26
Small business loans

916

—

—

—
Home equity lines and loans

89

—

100

—
Residential mortgage

169

—

—

—
Total

$
4,416

5

4,007

26
Impaired loans without related allowance:

Commercial mortgage

$
2,573

8

2,080

47
Commercial and industrial

473

19

874

6
Small business loans

147

3

208

5
Home equity lines and loans

823

—

564

—
Residential mortgage

1,636

6

1,649

41
Construction

1,206

17

1,206

14
Total

$
6,858

53

6,581

113
Grand Total

$
11,274

58

10,588

139

Nine Months Ended

Nine Months Ended

September 30, 2021

September 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

$
3,306

15

1,766

36
Small business loans

917

—

—

—
Home equity lines and loans

92

—

103

—
Residential mortgage

170

—

—

—
Total

$
4,485

15

1,869

36

Impaired loans without related allowance:

Commercial mortgage

$
2,584

24

1,852

89
Commercial and industrial

485

19

700

14
Small business loans

161

11

220

16
Home equity lines and loans

824

—

575

—
Residential mortgage

1,640

9

1,478

133
Construction

1,206

47

1,209

46
Leases

53

—

—

—
Total

$
6,953

110

6,034

298
Grand Total

$
11,438

125

7,903

334


	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 loans	666		—	917	—
Home equity lines and loans	—		—	94	—
Residential mortgage	—		—	687	—
Total	17,115		—	5,037	10
Impaired loans without related allowance:
Commercial mortgage	4,279		48	730	16
Commercial and industrial	297		—	1,002	—
Small business loans	844		5	169	8
Home equity lines and loans	1,044		23	824	—
Residential mortgage	1,483		168	1,126	3
Construction	1,206		31	1,206	29
Leases	103		—	80	—
Total	9,256		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, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

~~Table of Contents~~

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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

September 30,

December 31,
(dollars in thousands)

2021

2020
TDRs included in nonperforming loans and leases

$
367

244
TDRs in compliance with modified terms

2,476

3,362
Total TDRs

$
2,843

3,606


	June 30, 2022		December 31, 2021
(dollars in thousands)
TDRs included in nonperforming loans and leases	$	197	361
TDRs in compliance with modified terms	3,679		3,446
Total TDRs	$	3,876	3,807

There was 1 new loan modification for $700 thousand granted during the three and six months ended June 30, 2022 for a commercial mortgage, and there were 0no loan ~~and~~or lease modifications granted during the three and ~~nine~~six months ~~ended September~~June 30, 2021 ~~and 1 loan and lease modification granted during the three and nine months ended September 30, 2020~~ that were categorized as a ~~TDR. NaN loan~~TDR, and ~~lease modifications granted during the three and nine months ended September 30, 2021 and 2020 subsequently defaulted~~no subsequent defaults during the same time ~~period.~~

~~In accordance with Section 4013~~periods.

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 September 30, 2021. COVID-19 loan modifications provided to borrowers amounted to $24.9 million as of September 30, 2021, down from $26.9 million as of December 31, 2020. Loan modifications were $19.1 million as of September 30, 2020.

This provision of Section 4013 of the CARES Act 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 September 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 ~~Funds~~funds borrowing facilities with correspondent ~~banks totaling $39~~banks: one of $24 million ~~combined.~~and one of $15 million. Federal ~~Funds~~funds purchased generally represent one-day borrowings. The Corporation had 0$0 in Federal ~~Funds~~funds purchased at ~~September~~June 30, ~~2021~~2022 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 ~~September~~June 30, ~~2021 and $10 million~~2022 or at December 31, ~~2020.~~

2021.

~~Table of Contents~~

Short-term borrowings at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 consisted of the following notes:

Balance as of

Maturity

Interest

September 30,

December 31,
(dollars in thousands)

date

rate

2021

2020
Open Repo Plus Weekly

05/31/2022

0.33
%

—

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
Mid-term Repo-fixed

12/10/2021

0.16

10,000

10,000
Mid-term Repo-fixed

01/27/2021

0.23

—

5,465
Mid-term Repo-fixed

06/29/2022

0.32

7,392

—
Mid-term Repo-fixed

09/12/2022

0.23

4,886

—
Total

$
22,278

106,862

~~As part~~


				Balance as of
(dollars in thousands)	Maturity date	Interest rate		June 30, 2022		December 31, 2021
Open Repo Plus Weekly	6/5/2023	1.75	%	54,250		36,458
Mid-term Repo-fixed	9/12/2022	0.23		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~~June 30, 2022 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 September 30, 2021, the Corporation pledged $78.4 million of PPP loans to the FRB of Philadelphia to borrow $78.4 million of funds at a rate of 0.35%. Advances made on the PPPLF were ended by the FRB on July 30, 2021.

~~Long-term debt at September 30, 2021 and~~ December 31, ~~2020 consisted of the following notes:~~

Balance as of

Maturity

Interest

September 30,

December 31,
(dollars in thousands)

date

rate

2021

2020
PPPLF Advances

2022

0.35
%

—

153,269
PPPLF Advances

2026

0.35

$
78,405

—
Mid-term Repo-fixed

06/29/2022

0.32

—

7,392
Mid-term Repo-fixed

09/12/2022

0.23

—

4,885
Total

`

$
78,405

165,546

2021.

The FHLB of Pittsburgh has also issued ~~$128.5~~$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 ~~$533.4~~$484.1 million as of ~~September~~June 30, ~~2021~~2022 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 business~~SBA 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

~~Table of Contents~~

assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

Residential Mortgage ~~Loan Servicing Rights~~

Loans

The mortgage servicing rights (“MSRs”) are amortized over the period of the estimated future net servicing life of the underlying assets. ~~MSR’s~~MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR. The Corporation serviced ~~$968.6 million and $506.0 million~~$1.0 billion of residential mortgage loans as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, respectively.~~2021. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Corporation recognized servicing fee income of ~~$562~~$653 thousand and ~~$1.4~~$1.3 million, ~~respectively,~~ compared to ~~$140~~$481 thousand and ~~$247~~$842 thousand, during the three and ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, respectively.

Table of Contents

Changes in the MSR balance are summarized as follows:

Three Months Ended September 30,

Nine Months Ended September 30,
(dollars in thousands)

2021

2020

2021

2020
Balance at beginning of the period

$
8,942

1,294

$
4,647

446
Servicing rights capitalized

1,360

1,333

5,856

2,469
Amortization of servicing rights

(316)

(90)

(786)

(173)
Change in valuation allowance

111

102

380

(103)
Balance at end of the period

$
10,097

2,639

$
10,097

2,639


	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2022		2021	2022		2021
Balance at beginning of the period	$	10,888	7,118	$	10,756	4,647
Servicing rights capitalized	51		2,154	583		4,496
Amortization of servicing rights	(332)		(271)	(736)		(470)
Change in valuation allowance	3		(59)	7		269
Balance at end of the period	$	10,610	8,942	$	10,610	8,942

Activity in the valuation allowance for ~~MSR’s~~MSRs was as follows:

Three Months Ended September 30,

Nine Months Ended September 30,
(dollars in thousands)

2021

2020

2021

2020
Valuation allowance, beginning of period

$
(166)

(303)

$
(435)

(98)
Impairment

—

—

—

(103)
Recovery

111

102

380

—
Valuation allowance, end of period

$
(55)

(201)

$
(55)

(201)


	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2022		2021	2022		2021
Valuation allowance, beginning of period	$	(4)	(107)	$	(8)	(435)
Impairment	—		(59)	—		—
Recovery	3		—	7		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 ~~September~~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 ~~7.26%~~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 ~~declined~~decreased from December 31, ~~2020~~2021 to ~~September~~June 30, ~~2021 as~~2022. As interest rates have started to increase and the number of mortgage refinancings have started to decline, ~~while~~model 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.

~~Table of Contents~~

At ~~September~~June 30, ~~2021~~2022 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, 2022			December 31, 2021
Fair value of residential mortgage servicing rights	$	12,270		$	11,241

Weighted average life (months)	16			11

Prepayment speed	7.13		%	7.23		%
Impact on fair value:
10% adverse change	$	(445)		$	(376)
20% adverse change	(862)			(731)

Discount rate	9.00		%	9.00		%
Impact on fair value:
10% adverse change	$	(490)		$	(436)
20% adverse change	(945)			(840)

Table of Contents

(dollars in thousands)

September 30, 2021

December 31, 2020
Fair value of residential mortgage servicing rights

$
10,296

$
4,647

Weighted average life (years)

9.0

5.0

Prepayment speed

7.26%

9.39%
Impact on fair value:

10% adverse change

$
(358)

$
(183)
20% adverse change

(695)

(354)

Discount rate

9.00%

9.00%
Impact on fair value:

10% adverse change

$
(397)

$
(168)
20% adverse change

(768)

(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 ~~particular~~articular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

SBA ~~Loan Servicing Rights~~

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 ~~$102.5~~$143.2 million and ~~$55.9~~$115.1 million of SBA loans, as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

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

Three Months Ended September 30,

Nine Months Ended September 30,
(dollars in thousands)

2021

2020

2021

2020
Balance at beginning of the period

$
1,385

632

$
970

337
Servicing rights capitalized

588

183

1,166

524
Amortization of servicing rights

(112)

(42)

(266)

(88)
Change in valuation allowance

(26)

14

(35)

14
Balance at end of the period

$
1,835

787

$
1,835

787


	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2022		2021	2022		2021
Balance at beginning of the period	$	2,508	1,160	$	2,009	970
Servicing rights capitalized	247		304	840		578
Amortization of servicing rights	(225)		(87)	(350)		(154)
Change in valuation allowance	(280)		8	(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 September 30,

Nine Months Ended September 30,
(dollars in thousands)

2021

2020

2021

2020
Valuation allowance, beginning of period

$
(48)

(26)

$
(39)

(26)
Impairment

(26)

—

(35)

—
Recovery

—

14

—

14
Valuation allowance, end of period

$
(74)

(12)

$
(74)

(12)


	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2022		2021	2022		2021
Valuation allowance, beginning of period	$	(65)	(56)	$	(96)	(39)
Impairment	(280)		—	(249)		(9)
Recovery	—		8	—		—
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 ~~September~~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 ~~12.91%~~12.38%, and a discount rate equal to ~~7.47%~~9.01%. The change in valuation allowance due to impairment, noted in the tables above, was largely due to the increased prepayment speed experienced in the current year periods and the rising interest rate environment.

At December 31, 2020, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.73%, and a discount rate equal to 8.33%.

~~At September~~June 30, ~~2021~~2022 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.

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(dollars in thousands)

September 30, 2021

December 31, 2020
Fair value of SBA loan servicing rights

$
1,954

$
1,010

Weighted average life (years)

3.8

3.7

Prepayment speed

12.91%

12.73%

Impact on fair value:

10% adverse change

$
(77)

$
(37)

20% adverse change

(148)

(71)

Discount rate

7.47%

8.33%

Impact on fair value:

10% adverse change

$
(53)

$
(25)

20% adverse change

(103)

(49)


(dollars in thousands)	June 30, 2022			December 31, 2021
Fair value of SBA loan servicing rights	$	2,295		$	2,107

Weighted average life (years)	3.8			3.8

Prepayment speed	13.00		%	12.38		%
Impact on fair value:
10% adverse change	$	(74)		$	(69)
20% adverse change	(137)			(132)

Discount rate	12.38		%	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.

(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

~~Table of Contents~~

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

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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.

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

~~Table of Contents~~

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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For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

September 30, 2021
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Assets

Securities available for sale:

U.S. asset backed securities

$
21,293

—

21,293

—
U.S. government agency mortgage-backed securities

5,459

—

5,459

—
U.S. government agency collateralized mortgage obligations

24,053

—

24,053

—
State and municipal securities

72,828

—

72,828

—
U.S. Treasuries

15,010

—

15,010

—
Non-U.S. government agency collateralized mortgage obligations

999

—

999

—
Corporate bonds

6,507

—

6,507

—
Equity investments

1,011

—

1,011

—
Mortgage loans held for sale

117,996

—

117,996

—
Mortgage loans held for investment

17,142

—

17,142

—
Interest rate lock commitments

1,712

—

—

1,712
Forward commitments

447

—

447

—
Customer derivatives - interest rate swaps

1,052

—

1,052

—
Total

$
285,509

—

283,797

1,712

Liabilities

Interest rate lock commitments

360

—

—

360
Forward commitments

22

—

22

—
Customer derivatives - interest rate swaps

1,101

—

1,101

—

$
1,483

—

1,123

360

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


	June 30, 2022
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	13,740	—	13,740	—
U.S. government agency mortgage-backed securities	9,640		—	9,640	—
U.S. government agency collateralized mortgage obligations	20,606		—	20,606	—
State and municipal securities	39,716		—	39,716	—
U.S. Treasuries	30,424		30,424	—	—
Non-U.S. government agency collateralized mortgage obligations	8,971		—	8,971	0
Corporate bonds	6,191		—	6,191	—
Equity investments	2,153		—	2,153	—
Mortgage loans held for sale	58,938		—	58,938	—
Mortgage loans held for investment	16,212		—	16,212	—
Interest rate lock commitments	374		—	—	374
Forward commitments	67		—	67	—
Customer derivatives - interest rate swaps	2,893		—	2,893	—
Total	$	209,925	30,424	179,127	374

Liabilities
Interest rate lock commitments	430		—	—	430
Forward commitments	77		—	77	—
Customer derivatives - interest rate swaps	2,847		—	2,847	—
Total	$	3,354	—	2,924	430

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~~Financial assets~~
December 31, 2021
(dollars in thousands) Total Level 1 Level 2 Level 3
Assets
Securities available for sale:
U.S. asset backed securities $ 16,837 — 16,837 —
U.S. government agency mortgage-backed securities 9,813 — 9,813 —
U.S. government agency collateralized mortgage obligations 22,381 — 22,381 —
State and municipal securities 72,982 — 72,982 —
U.S. Treasuries 29,728 29,728 — —
Non-U.S. government agency collateralized mortgage obligations 975 — 975 —
Corporate bonds 6,586 — 6,586 —
Equity investments 2,354 — 2,354 —
Mortgage loans held for sale 80,882 — 80,882 —
Mortgage loans held for investment 17,558 — 17,558 —
Interest rate lock commitments 1,122 — — 1,122
Forward commitments 65 — 65 —
Customer derivatives - interest rate swaps 961 — 961 —
Total $ 262,244 29,728 231,394 1,122
Liabilities
Interest rate lock commitments 203 — — 203
Forward commitments 106 — 106 —
Customer derivatives - interest rate swaps 1,018 — 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 assets~~as follows:


	June 30, 2022		December 31, 2021
(dollars in thousands)	Fair Value		Fair Value
Mortgage servicing rights	$	10,610	10,756
SBA loan servicing rights	2,250		2,009
Impaired loans (1)
Commercial and industrial	823		1,837
Small business loans	—		290
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 September 30, 2021 and December 31, 2020 are as follows:~~

September 30, 2021

December 31, 2020
(dollars in thousands)

Fair Value


Fair Value
Mortgage servicing rights

$
10,097

4,647
SBA loan servicing rights

1,835

970
Impaired loans ⁽¹⁾

2,458

2,998
Total

$
14,390

8,615
following table details the valuation techniques for Level 3 impaired loans.

~~(1)~~

~~Impaired loans are those~~Fair Value

Valuation

Range of

(dollars in ~~which the Corporation has measured impairment generally based~~thousands)

Level 3

Technique

Significant Unobservable Input

Inputs

June 30, 2022

823

Appraisal of collateral

Management adjustments on ~~the fair value~~appraisals for property type and recent activity

2%-15% discount

December 31, 2021

2,127

Appraisal of ~~the loan’s collateral. Fair value is generally determined based upon independent third-party~~collateral

Management 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 activity

2%-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.

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

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.

~~Table of Contents~~

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

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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.

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.

Table of Contents

The estimated fair values of the Corporation’s financial instruments at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020~~2021 are as follows:

September 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

$
63,121

63,121

36,744

36,744
Securities available-for-sale

Level 2

146,149

146,149

123,562

123,562
Securities held-to-maturity

Level 2

6,406

6,660

6,510

6,857
Equity investments

Level 2

1,011

1,011

1,031

1,031
Mortgage loans held for sale

Level 2

117,996

117,996

229,199

229,199
Loans receivable, net of the allowance for loan and lease losses

Level 3

1,361,528

1,391,260

1,272,582

1,289,776
Mortgage loans held for investment

Level 2

17,142

17,142

12,182

12,182
Interest rate lock commitments

Level 3

1,712

1,712

6,932

6,932
Forward commitments

Level 2

447

447

—

—
Restricted investment in bank stock

NA

4,162

NA

7,861

NA
Accrued interest receivable

Level 3

5,080

5,080

5,482

5,482
Customer derivatives - interest rate swaps

Level 2

1,052

1,052

1,118

1,118
Financial liabilities:

Deposits

Level 2

1,439,047

1,552,500

1,241,335

1,392,500
Short-term borrowings

Level 2

22,278

22,278

106,862

106,862
Long-term debt

Level 2

78,405

79,373

165,546

168,000
Subordinated debentures

Level 2

40,760

41,859

40,671

38,375
Accrued interest payable

Level 2

663

663

1,154

1,154
Interest rate lock commitments

Level 3

360

360

100

100
Forward commitments

Level 2

22

22

1,572

1,572
Customer derivatives - interest rate swaps

Level 2

1,101

1,101

1,219

1,219

Notional

Notional

Off-balance sheet financial instruments:



amount

Fair value

amount

Fair value
Commitments to extend credit

Level 2

$
505,018

1,712

421,399

6,932
Letters of credit

Level 2

17,711

—

8,928

—


		June 30, 2022			December 31, 2021
(dollars in thousands)	Fair Value Hierarchy Level	Carrying amount		Fair value	Carrying amount	Fair value
Financial assets:
Cash and cash equivalents	Level 1	$	37,093	37,093	23,480	23,480
Securities available-for-sale (1)	Level 2	129,288		129,288	159,302	159,302
Securities held-to-maturity	Level 2	37,111		33,497	6,372	6,591
Equity investments	Level 2	2,153		2,153	2,354	2,354
Mortgage loans held for sale	Level 2	58,938		58,938	80,882	80,882
Loans receivable, net of the allowance for loan and lease losses	Level 3	1,502,681		1,456,650	1,368,899	1,370,885
Mortgage loans held for investment	Level 2	16,212		16,212	17,558	17,558
Interest rate lock commitments	Level 3	374		374	1,122	1,122
Forward commitments	Level 2	67		67	65	65
Restricted investment in bank stock	NA	4,719		NA	5,117	NA
Accrued interest receivable	Level 3	5,108		5,108	5,009	5,009
Customer derivatives - interest rate swaps	Level 2	2,893		2,893	961	961
Financial liabilities:
Deposits	Level 2	1,568,014		1,484,100	1,446,413	1,549,100
Short-term borrowings	Level 2	59,136		59,136	41,344	41,344
Subordinated debentures	Level 2	40,567		38,054	40,508	40,803
Accrued interest payable	Level 2	146		146	31	31
Interest rate lock commitments	Level 3	430		430	203	203
Forward commitments	Level 2	77		77	106	106
Customer derivatives - interest rate swaps	Level 2	2,847		2,847	1,018	1,018

		Notional			Notional
Off-balance sheet financial instruments:		amount		Fair value	amount	Fair value
Commitments to extend credit	Level 2	$	488,561	—	486,632	0
Letters of credit	Level 2	22,880		—	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 ~~nine~~six month ~~peiods~~periods ended ~~September~~June 30, ~~2021~~2022 and ~~2020.~~

2021.


	Three Months Ended June 30,			Six Months Ended June 30,
	2022		2021	2022	2021
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

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

2021

2020
Balance at beginning of the period

$
2,667

4,595

$
6,932

504
(Decrease) increase in value

(955)

3,203

(5,220)

7,294
Balance at end of the period

$
1,712

7,798

$
1,712

7,798

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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

September 30, 2021

$
1,712

Market comparable pricing

Pull through

1 - 99
%
87.26
%
December 31, 2020

6,932

Market comparable pricing

Pull through

1 - 99

83.08

Fair Value
Level 3

Valuation Technique

Significant
Unobservable
Input

Range of
Inputs

Weighted

Average

June 30, 2022

374

Market comparable pricing

Pull through

1 - 99

88.93%

December 31, 2021

1,122

Market comparable pricing

Pull through

1 - 99

87.66

~~Table of Contents~~

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’s~~Corporation's consolidated statements of income. Net realized gains of $165 thousand and net realized losses of ~~$1.1 million~~$975 thousand were recorded for the three and ~~$5.5~~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 ~~nine~~six months ended ~~September~~June 30, 2021, ~~respectively, while net realized gains of $3.2 million and $7.2 million were recorded for the three and nine months ended September 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 interest~~Interest rate lock commitments and forward commitments are recorded within other assets/liabilities on the consolidated balance sheets, with changes in fair values during the period recorded within net change in the fair value of derivative instruments on the ~~unaudited~~ consolidated statements of income.

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 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.

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

September 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

$
159,507

1,712

406,422

6,932
Negative fair values
Other liabilities

58,039

(360)

22,406

(100)
Total

217,546

1,352

428,828

6,832

Forward Commitments

Positive fair values
Other assets

86,000

447

—

—
Negative fair values
Other liabilities

11,500

(22)

218,000

(1,572)
Total

97,500

425

218,000

(1,572)

Customer Derivatives - Interest Rate Swaps

Positive fair values
Other assets

35,790

1,052

20,979

1,118
Negative fair values
Other liabilities

35,790

(1,101)

20,979

(1,219)
Total

71,580

(49)

41,958

(101)
Total derivative financial instruments

$
386,626

1,728

688,786

5,159


		June 30, 2022			December 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 values	Other assets	$	50,159	374	108,653	1,122
Negative fair values	Other liabilities	55,319		(430)	35,264	(203)
Total		105,478		(56)	143,917	919

Forward Commitments
Positive fair values	Other assets	14,500		67	30,500	65
Negative fair values	Other liabilities	12,500		(77)	45,500	(106)
Total		27,000		(10)	76,000	(41)

Customer Derivatives - Interest Rate Swaps
Positive fair values	Other assets	41,742		2,893	35,447	961
Negative fair values	Other liabilities	41,742		(2,847)	35,447	(1,018)
Total		83,484		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 September 30,

Nine Months Ended September 30,
(dollars in thousands)

2021

2020


2021

2020
Interest Rate Lock Commitments

$
(1,056)

3,161

$
(5,480)

7,226
Forward Commitments

703

(129)

1,997

(801)
Customer Derivatives - Interest Rate Swaps

14

(4)

52

(79)
Net fair value (losses) gains on derivative financial instruments

$
(339)

3,028

$
(3,431)

6,346


	Three Months Ended June 30,			Six Months Ended June 30,
(dollars in thousands)	2022		2021	2022	2021
Interest Rate Lock Commitments	$	165	13	(975)	(4,424)
Forward Commitments	(909)		(2,102)	31	1,294
Customer Derivatives - Interest Rate Swaps	70		(59)	104	38
Net fair value (losses) gains on derivative financial instruments	$	(674)	(2,148)	(840)	(3,092)

Net realized ~~losses~~gains on ~~derivatives~~derivative hedging activities were ~~$1.2~~$1.7 million and ~~net realized gains were $2.4~~$4.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and net realized losses on derivatives were ~~$2.6 million~~$674 thousand and ~~$7.4~~net realized gains were $3.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2020, respectively.~~

2021. Net realized gains losses on derivative hedging activities are included in non-interest income in the consolidated statements of income.

(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 Valley~~suburban 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 September 30, 2021

Three Months Ended September 30, 2020
(Dollars in thousands)

Bank

Wealth

Mortgage

Total

Bank

Wealth

Mortgage

Total
Net interest income

$
15,777

2

478

16,257

$
12,104

(19)

630

12,715
Provision for loan losses

597

—

—

597

3,956

—

—

3,956
Net interest income after provision

15,180

2

478

15,660

8,148

(19)

630

8,759

Non-interest Income

Mortgage banking income

215

—

18,511

18,726

574

—

21,238

21,812
Wealth management income

—

1,232

—

1,232

—

951

—

951
SBA income

2,688

—

—

2,688

641

—

—

641
Net change in fair values

13

—

(847)

(834)

(4)

—

6,057

6,053
Net loss on hedging activity

—

—

(1,189)

(1,189)

—

—

(2,637)

(2,637)
Other

836

—

663

1,499

2,045

—

195

2,240
Non-interest income

3,752

1,232

17,138

22,122

3,256

951

24,853

29,060
Non-interest expense

10,633

802

14,046

25,481

8,829

788

16,217

25,834
Income before income taxes

$
8,299

432

3,570

12,301

$
2,575

144

9,266

11,985
Total Assets

$
1,625,468

6,396

130,581

1,762,445

$
1,525,883

5,399

227,366

1,758,648

Nine Months Ended September 30, 2021

Nine Months Ended September 30, 2020
(Dollars in thousands)

Bank

Wealth

Mortgage

Total

Bank

Wealth

Mortgage

Total
Net interest income

$
45,340

(249)

1,698

46,789

$
32,725

(24)

1,277

33,978
Provision for loan losses

1,292

—

—

1,292

7,139

—

—

7,139
Net interest income after provision

44,048

(249)

1,698

45,497

25,586

(24)

1,277

26,839

Non-interest Income

Mortgage banking income

892

—

61,401

62,293

973

—

44,422

45,395
Wealth management income

—

3,531

—

3,531

—

2,825

—

2,825
SBA income

5,423

—

—

5,423

1,821

—

—

1,821
Net change in fair values

52

—

(6,671)

(6,619)

(68)

—

11,012

10,944
Net gain (loss) on hedging activity

—

—

2,397

2,397

—

—

(7,363)

(7,363)
Other

2,110

—

1,767

3,877

2,931

14

405

3,350
Non-interest income

8,477

3,531

58,894

70,902

5,657

2,839

48,476

56,972
Non-interest expense

28,981

2,486

48,523

79,990

23,341

2,363

35,448

61,152
Income before income taxes

$
23,544

796

12,069

36,409

$
7,902

452

14,305

22,659
Total Assets

$
1,625,468

6,396

130,581

1,762,445

$
1,525,883

5,399

227,366

1,758,648
Total assets for each segment is also provided.


	Segment Information
	Three Months Ended June 30, 2022					Three Months Ended June 30, 2021
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	16,923	317	311	17,551	$	14,824	2	586	15,412
Provision for loan losses	602		—	—	602	96		—	—	96
Net interest income after provision	16,321		317	311	16,949	14,728		2	586	15,316

Non-interest Income
Mortgage banking income	125		—	6,817	6,942	408		—	19,059	19,467
Wealth management income	—		1,254	—	1,254	—		1,163	—	1,163
SBA income	437		—	—	437	1,490		—	—	1,490
Net change in fair values	71		—	(1,312)	(1,241)	(59)		—	(813)	(872)
Net gain on hedging activity	—		—	1,715	1,715	—		—	(674)	(674)
Other	526		—	770	1,296	563		—	595	1,158
Non-interest income	1,159		1,254	7,990	10,403	2,402		1,163	18,167	21,732
Non-interest expense	10,624		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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Segment Information
Six Months Ended June 30, 2022 Six Months Ended June 30, 2021
(Dollars in thousands) Bank Wealth Mortgage Total Bank Wealth Mortgage Total
Net interest income $ 32,533 411 642 33,586 29,324 (11) 1,220 30,533
Provision for loan losses 1,217 — — 1,217 695 — — 695
Net interest income after provision 31,316 411 642 32,369 28,629 (11) 1,220 29,838
Non-interest Income
Mortgage banking income 322 — 13,716 14,038 676 — 42,891 43,567
Wealth management income — 2,558 — 2,558 — 2,299 — 2,299
SBA income 2,957 — — 2,957 2,735 — — 2,735
Net change in fair values 103 — (3,412) (3,309) 39 — (5,824) (5,785)
Net gain on hedging activity — — 4,542 4,542 — — 3,587 3,587
Other 1,153 — 1,566 2,719 1,274 — 1,103 2,377
Non-interest income 4,535 2,558 16,412 23,505 4,724 2,299 41,757 48,780
Non-interest expense 20,833 1,700 18,606 41,139 18,348 1,684 34,478 54,510
Income (loss) before income taxes $ 15,018 1,269 (1,552) 14,735 15,005 604 8,499 24,108
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~~

~~During~~Leases

On January 1, 2022, the ~~nine~~Corporation adopted 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 ~~ended September~~to 13 years, including extension options that the Corporation is reasonably certain will be exercised.

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the 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, ~~2021~~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, 2022		Six Months Ended June 30, 2022
Operating lease expense	$	585	$	1,171
Short term lease expense	1		2
Variable lease expense	—		—
Total lease expense	$	586	$	1,173

Supplemental cash flow 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 operating lease liabilities under FASB ASC 842 "Leases" as of June 30, 2022 are as follows:


(dollars in thousands)	June 30, 2022
2022	$	1,102
2023	1,892
2024	1,746
2025	1,456
2026	1,436
Thereafter	3,134
	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 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 weighted average discount rate associated with operating leases as of June 30, 2022 is 2.58%.

As of June 30, 2022, the Corporation had ~~the following dividend activity:~~

Date

Date of

Date

Quarterly

Special
Declared

Record

Paid

Dividend

Dividend
January 28, 2021

February 8, 2021

February 22, 2021

$
0.125

$
—
February 16, 2021

March 1, 2021

March 15, 2021

—

1.00
April 22, 2021

May 10, 2021

May 17, 2021

0.125

—
July 22, 2021

August 9, 2021

August 16, 2021

0.125

—

~~On April 26, 2021, the Corporation announced~~not entered into any material leases that ~~its Board~~have not yet commenced.

Table 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. There were 78,491 shares purchased during the three months ended September 30, 2021 at an average price of $27.41, for an aggregate purchase price of $2.2 million.

Contents

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 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

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apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023. ~~The Corporation~~Management is currently determining under which method we will adopt this ASU. ~~The Corporation~~Management 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 yet~~an estimate of the impact to the Corporation's consolidated financial ~~statements.~~

statements cannot be determined.

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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 will increase the Corporation’s assets and liabilities. The Corporation is evaluating the impacts that ASU 2016-02 will have on its consolidated financial statements when adopted as of January 1, 2022.

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.

~~Table of Contents~~

~~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 ~~Equity~~”Equity”

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, ~~2020~~2021 included in Meridian Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

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-looking~~forward-

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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, ~~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 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.

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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, ~~2020~~2021 and ~~2019~~2020 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 ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to the same periods in ~~2020, and the changes in its financial condition as of September 30, 2021 as compared to December 31, 2020.~~2021. More detailed information related to these highlights can be found in the sections that follow.

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

●

Net income was $9.4 million or $1.52 per diluted share, compared to net income of $9.2 million, or $1.51 per diluted share, for the third quarter of 2020. The increase of $226 thousand, or 2.5%, was driven largely by the bank segment’s continued improvement from interest income on portfolio loans, combined with an increase - June 30, 2022 Compared to the Same Period in ~~SBA 7(a) loan sales and wealth management revenue, partially offset by a decline in mortgage banking activity.~~

●

~~ROE and ROA were 24.07% and 2.15%, respectively, for the third quarter~~ 2021 ~~compared to 29.30% and 2.29%, respectively, for the third quarter 2020.~~

●

Pre-tax, pre-provision income (a non-GAAP measure) for the third quarter of 2021 was $12.9 million, a decrease of $3.0 million or 19.1%. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section below.

●

~~Total revenue was $40.4 million, a decrease of $4.5 million or 10.0%.~~

●

~~Net interest income increased $3.5 million, or 27.9%, with interest expense down $1.1 million or 35.3%.~~

●

~~Non-interest income decreased $6.9 million or 23.9%, driven by a decline in mortgage banking net revenue.~~

Mortgage banking net revenue decreased $3.1 million or 14.2% over the third quarter of 2020. The decrease in third quarter 2021 came from decreased levels of mortgage loan originations. Our mortgage segment originated $522.9 million in loans during the third quarter of 2021, a decrease of $185.3 million, or 26.2%, from the third quarter of 2020. The fair value of derivative instruments and loans held for sale decreased a combined $6.8 million over the period. Net hedging activity improved as the net loss decreased $1.5 million to a net loss of $1.2 million for the third quarter of 2021.

~~Wealth management revenue increased $281 thousand year-over-year due to an increase of $340.0 million in assets under management over this period.~~

Net revenue from the sales of SBA 7(a) loans increased $2.0 million as $25.0 million in loans were sold in the third quarter of 2021 compared to $9.5 million in loans sold in the third quarter of 2020, an increase of nearly 162.0%.

•Consolidated net income for the three months ended June 30, 2022 was $5.9 million, a decrease of $2.3 million, or 28.1% compared to the 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 $2.7 million, or 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 2022, compared to 22.61% and 1.92%, respectively, for the second quarter 2021.

~~Table~~•Net interest margin increased to 4.07% from 3.70%, after recognizing $286 thousand in one-time loan fees as well as deployment of ~~Contents~~PPP loan payoffs into higher yielding commercial portfolios.

~~Other fee income was up $205 thousand or 24.1% from the third quarter of 2020, to $1.1 million, due to increases in wire fees, title fee income, and servicing fee income.~~

●

~~The provision for loan losses of $597 thousand for the third quarter of 2021 decreased $3.4 million, or 84.9%, from the provision for loan losses recorded for the third quarter of 2020.~~

●

Total non-interest expense for the third quarter of 2021 was $25.5 million, down $353 thousand or 1.4%, from the comparable period in 2020. The decrease in non-interest expense is largely attributable to a decrease in salaries and employee benefits expense, which decreased $975 thousand or 4.8%, from the comparable period in 2020.

~~Nine~~•Non-interest income decreased $11.3 million or 52.1%, due to:

•Lower level of 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 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 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.

•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

●

Net income was $27.9 million, or $4.49 per diluted share, for the nine months ended September 30, 2021 compared to net income of $17.4 million, or $2.82 per diluted share, for the nine months ended September 30, 2020. The increase was due largely to the increase in net interest income of $12.8 million, combined with a $13.9 million increase in non-interest income and a $5.8 million decline in the provision for loan losses, partially offset by increases in non-interest expense and income taxes of $18.8 million and $3.3 million, respectively.

●

~~ROE and ROA were 25.43% and 2.17%, respectively, for the nine months ended September 30, 2021, compared to 18.85% and 1.65%, respectively, for the nine months ended September 30, 2020.~~

●

Pre-tax, pre-provision income (a non-GAAP measure) for the nine months ended September 30, 2021 was $37.7 million, an increase of $7.9 million or 26.5%. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section below.

●

~~Total revenue was $124.2 million, an increase of $22.5 million or 22.1%.~~

●

~~Net interest income increased $12.8 million, or 37.7%, to $46.8 million from $34.0 million, for the nine months ended September 30, 2021.~~

●

~~Non-interest income increased $13.9 million or 24.5%, driven by mortgage banking revenue, wealth management income, SBA income, and other fee income.~~

Our mortgage segment originated $1.9 billion in loans during the nine months ended September 30, 2021, an increase of $365.4 million, or 24.4%, from the prior year period. Refinance activity represented 50% of the total residential mortgage loans originated for the nine months ended September 30, 2021, compared to 59% for the nine months ended September 30, 2020. The changes in the mortgage pipeline as a result of the expansion and the refinance activity generated significant fair value changes in derivative instruments and loans held-for-sale. These fair value changes decreased non-interest income a combined $17.4 million during the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. These changes were offset by increases in net hedging gains of $9.8 million.

~~Wealth management revenue increased $706 thousand, or 25.0%, year-over-year due to an increase in assets under management of $315.7 million over this period.~~

Net revenue from the sales of SBA 7(a) loans increased $3.6 million, or 197.8%, from the prior year period, to $5.4 million, as the bank sold $22.1 million, or 74.9% more loans in the current year period. Other fee income increased $1.5 million, or 85.8%.

●

~~The provision for loan losses was $1.3 million for the nine months ended September 30, 2021, compared to a $7.1 million provision for the nine months ended September 30, 2020.~~

●

~~Total non-interest expense for the nine months ended September 30, 2021 was $80.0 million, up $18.8 million or 30.8%, from the nine months ended September 30, 2020.~~

~~Changes~~ - June 30, 2022 Compared to the Same Period in ~~Financial Condition~~

●

~~Total assets increased $42.2 million to $1.8 billion as of September 30,~~ 2021 ~~compared to December 31, 2020.~~

●

~~Cash and cash equivalents and investments increased a combined $48.8 million or 29.1%, compared to December 31, 2020, due predominantly to liquidity from PPP loan forgiveness.~~

●

~~Total loans, net of allowance, increased $92.7 million, or 7.3%, to $1.4 billion as of September 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. Small business loans increased $41.2 million, or 82.7%, commercial real

•Consolidated net income for the six months ended June 30, 2022 was $11.5 million, a decrease of $7.0 million, or 37.7% compared to the 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 $8.9 million, or 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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estate loans increased $60.7 million, or 12.1%, and lease financings increased $45.2 million, or 136.8%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong growth pattern after starting up in early 2020.

●

~~Residential real estate loans held for sale decreased $111.2 million, or 48.5%, to $118.0 million as of September 30, 2021, while PPP loans decreased $83.0 million, or 41.8%, over this period.~~

●

~~Mortgage segment originated $1.9 billion in loans for the nine months ended September 30, 2021.~~

●

~~Total deposits grew $197.7 million, or 15.9%, to $1.4 billion as of September 30, 2021.~~

●

~~Non-interest bearing deposits increased $62.0 million, or 30.4%, from December 31, 2020.~~

●

Borrowings from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) were $78.4 million as of September 30, 2021, a decrease of $87.1 million, or 52.6% from December 31, 2020. Other borrowings were down $84.6 million or 79.2%.

●

~~Returned $8.5 million of capital to Meridian shareholders for the nine months ended September 30, 2021 through dividends, including a $1.00 special dividend.~~

●

~~Meridian repurchased 78,491 shares of its common stock in the third quarter of 2021, at an average price of $27.41.~~

��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, 2022, compared to 26.19% and 2.17%, respectively, for the six months ended June 30, 2021.

•Net interest income for the six months ended June 30, 2022 increased $3.1 million, or 10%, compared to the same period in 2021. This increase helped the net interest margin increase to 3.98% from 3.71%, as excess cash and PPP loan payoffs were reinvested in higher yielding commercial portfolios.

•Provision 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 51.8%, due to:

•Lower 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 revenue of $259 thousand, or 11.3%, due to increased AUM and favorable market conditions.

•An increase in SBA loan sale revenue of $222 thousand, or 8.1%.

•An 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 a lower level of salaries and benefits, due largely to reduced 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 bank and wealth segments.

Key Performance Ratios

Key financial performance ratios for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 are shown in the table below:

Three Months Ended

Nine Months Ended

September 30,

September 30,

2021


2020


2021


2020

Annualized return on average equity

24.07
%

29.30
%

25.43
%

18.85
%
Annualized return on average assets

2.15
%

2.29
%

2.17
%

1.65
%
Net interest margin (tax effected yield)

3.83
%

3.26
%

3.75
%

3.33
%
Basic earnings per share
$
1.56

$
1.51

$
4.62

$
2.83

Diluted earnings per share
$
1.52

$
1.51

$
4.49

$
2.82


	Three Months Ended June 30,							Six Months Ended June 30,
	2022				2021			2022				2021
Annualized return on average equity	15.03		%	%	22.61		%	14.61		%	%	26.19		%
Annualized return on average assets	1.31		%	%	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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

September 30,

December 31,

(dollars in thousands, except per share amounts)
2021


2020

Book value per common share
$
25.94

$
23.08

Tangible book value per common share (1)
$
25.23

$
22.35

Allowance as a percentage of loans and leases held for investment

1.38
%

1.38
%
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)

1.52
%

1.65
%
Tier I capital to risk weighted assets

10.64
%

10.22
%
Tangible common equity ratio (1)

8.76
%

7.99
%
Loans held for investment
$
1,378,670

$
1,284,764

Total assets
$
1,762,445

$
1,720,197

Stockholders' equity
$
158,416

$
141,622

2021:


(dollars in thousands, except per share amounts)	June 30, 2022			December 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 investment	1.24		%	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 assets	9.79		%	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.

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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.

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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)
September 30, 2021

December 31, 2020
Tangible common equity ratio:

Total stockholders' equity

158,416

141,622
Less:

Goodwill and intangible assets

(4,329)

(4,500)
Tangible common equity

154,087

137,122
Total assets

1,762,445

1,720,197
Less:

Goodwill and intangible assets

(4,329)

(4,500)
Tangible assets
$
1,758,116

$
1,715,697
Tangible common equity ratio

8.76%

7.99%


(dollars in thousands)	June 30, 2022			December 31, 2021
Tangible common equity ratio:
Total stockholders' equity	156,087			165,360
Less:
Goodwill and intangible assets	(4,176)			(4,278)
Tangible common equity	151,911			161,082
Total assets	1,853,019			1,713,443
Less:
Goodwill and intangible assets	(4,176)			(4,278)
Tangible assets	$	1,848,843		$	1,709,165
Tangible common equity ratio	8.22		%	9.42		%

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

Reconciliation of tangible book value per common share

2021

2020

September 30

December 31
Book value per common share

$
25.94

$
23.08
Less: Impact of goodwill and intangible assets

0.71

0.73
Tangible book value per common share

$
25.23

$
22.35


Reconciliation of tangible book value per common share	June 30, 2022		December 31, 2021
Book value per common share	$	25.85	$	27.07
Less: Impact of goodwill and intangible assets	0.69		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 ended September~~at 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.

Reconciliation of Allowance for Loan Losses / Total loans held for investment
2021

2021

2020

September 30

June 30

December 31
Allowance for loan losses / Total loans held for investment

1.38%

1.35%

1.38%
Less: Impact of loans held for investment - fair valued

0.01%

0.01%

0.00%
Less: Impact of PPP loans

0.13%

0.22%

0.27%
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)

1.52%

1.58%

1.65%


	2022		2021
Reconciliation of Allowance for Loan Losses / Total loans held for investment	June 30		December 31
Allowance for loan losses / Total loans held for investment	1.24	%	1.35	%
Less: Impact of loans held for investment - fair valued	0.01	%	0.02	%
Less: Impact of PPP loans	0.02	%	0.09	%
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)	1.27	%	1.46	%

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

(Dollars in thousands)
Three Months Ended September 30,

Nine Months Ended September 30,
Reconciliation of pre-tax, pre-provision income
2021

2020

2021

2020
Income before income tax expense
$
12,301

$
11,985

$
36,409

$
22,659
Provision for loan losses

597

3,956

1,292

7,139
Pre-tax, pre-provision income
$
12,898

$
15,941

$
37,701

$
29,798


(Dollars in thousands)	Three Months Ended June 30,				Six Months Ended June 30,
Reconciliation of pre-tax, pre-provision income	2022		2021		2022	2021
Income before income tax expense	$	7,646	$	10,802	14,735	24,108
Provision for loan losses	602		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 ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to the same periods in ~~2020,~~2021, and the changes in its financial condition as of ~~September~~June 30, ~~2021~~2022 as compared to December 31, ~~2020.~~

2021.

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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;

●

~~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, 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.

NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 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 ~~ending September~~ended June 30, ~~2021 was $18.3~~2022, from $17.6 million ~~(and $18.4 million on a tax equivalent basis), which represented a $2.4 million, or 15.3%, increase compared with~~for the three months ~~ending September~~ended June 30, ~~2020.~~2021, largely due to increases in the yield on interest earning assets. The ~~increase in~~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 ~~income~~rate raises. Overall, the yield on interest-earning assets increased 45 basis points to 4.65% over the period. There was ~~attributable to~~ a ~~$133.0~~$57.8 million increase in average interest earning assets, year over year, led by increases of ~~$48.7~~$120.5 million ~~$111.9 million and $65.6 million~~ in average balances of small business loans, commercial real estate loans and leases, respectively. The yield on interest earning assets increased 24 basis points over the same period in 2020, led by a 43 basis point increase in the yield on loans held for ~~investment. Partially offsetting~~investment, a $22.7 million increase in investment securities, and a $8.1 million increase in interest earning cash balances, offset partially by a $80.6 million decrease in the ~~loan yield expansion~~average balance of loans held for sale.

Table of Contents

Interest expense was ~~the yield on cash, cash equivalents and investments, which declined 26 basis points over the prior quarter.~~

~~Total interest expense declined $1.1 million~~up $381 thousand, or ~~35.3%~~18.1%, to ~~$2.0~~$2.5 million for the three months ~~ending September~~ended June 30, 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, ~~compared~~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 ~~$3.2~~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 was down $109.0 million for the three months ~~ending September~~ended June 30, ~~2020. Total interest-bearing deposit balances increased $50.7 million in total from September 30, 2020~~2022, compared to September 30, 2021, which was offset by the decline in the cost of all deposit types of 44 basis points. The cost of money market and savings deposits declined 15 basis points and the cost of time deposits decreased by 91 basis points over the period. Interest expense on borrowings declined $208 thousand or 62.3% to $126 thousand for the three months ended SeptemberJune 30, 2021. ~~The average balance of borrowings decreased $124.4 million~~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 11 basis points over this period.~~

off.

Net interest income increased ~~$3.5~~$2.1 million, or ~~27.8%~~13.9%, to ~~$16.3~~$17.6 million on a tax-equivalent basis for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$12.8~~$15.5 million for the three months ended ~~September~~June 30, ~~2020.~~2021. The ~~net-interest~~net interest margin was 4.07% for the second quarter of 2022 compared to 3.70% for the second quarter of 2021. The increase in net interest margin reflects the increased 57yield on interest earnings 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 fees.

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

Interest income increased $3.0 million, or 8.7%, to $38.1 million for six the months ended June 30, 2022, from $35.1 million for the ~~three~~six months ~~ending September~~ended June 30, 2021, ~~at 3.83%~~due to increases in average balances and the yields on interest earning assets. There was a $41.6 million increase in average interest earning assets, year over year, led by increases of $111.2 million in loans held for investment, a $27.5 million increase in investment securities, and a $11.4 million increase in interest earning cash balances, offset partially by a $93.5 million decrease in the average balance of loans held for sale. These average balance increases combined with yield increases of 41 basis points on investment securities and 11 basis points on loans held for investment to positively impact interest income. Overall the yield on interest-earning assets increased 25 basis points to 4.50% over the period.

Interest expense was down $21 thousand, or 0.5%, ~~compared~~to $4.4 million. Deposit interest expense was up $173 thousand, or 5.9%, period over period, to $3.1 million, while interest expense on borrowings was down $194 thousand, or 12.9%, to $1.3 million. Total interest-bearing deposit balances increased $145.7 million on average when comparing the six months ended June 30, 2022 to June 30, 2021, while the cost of deposits was down 4 basis points over this same period. The average balance of interest-bearing deposits was up $11.1 million, down 14 basis points, while the average balance on money market and savings deposits were up $104.6 million, with ~~3.26%~~no change in the basis points, and the average balance of time deposits was up $30 million, down 2 basis points. The average balance of borrowings was down $138.1 million for the ~~three month ending September~~six months ended June 30, ~~2020.~~2022, compared to June 30, 2021. This decline was largely due to the decline in PPPLF advances used to fund PPP loans as such loans continue to pay off.

Net interest income increased $3.0 million, or 10.0%, to $33.7 million on a tax-equivalent basis for the six months ended June 30, 2022, compared to $30.7 million for the six months ended June 30, 2021. The net interest margin was 3.98% for the six months ended June 30, 2022 compared to 3.71% for the six months ended June 30, 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. Contributing to~~

during the period.

Table of Contents

~~the decline in interest expense on deposits over this period was the $61.8 million increase in average non-interest bearing deposits.~~

Total interest income for the nine months ending September 30, 2021 was $53.5 million on a tax-equivalent basis, which represented a $8.6 million, or 19.3%, increase compared with the nine months ending September 30, 2020. The increase in interest income was attributable to a $306.0 million increase in average interest earning assets, year over year, led by increases of $36.0 million, $47.0 million, $119.3 million, and $54.2 million in the average balances of small business loans, PPP loans, commercial real estate loans and leases, respectively, as well as an increase of $67.4 million of average interest earning cash and cash equivalents and investments. Overall the loans held for investment yield increased 9 basis points over the same period in 2020, but this expansion was partially offset by a lower yield on cash, cash equivalents and investments.

Total interest expense declined $4.3 million or 39.7% to $6.5 million for the nine months ending September 30, 2021, compared with $10.8 million for the nine months ending September 30, 2020. While all interest-bearing deposit balances increased $216.0 million from September 30, 2020 compared to September 30, 2021, the cost of all deposit types declined sharply over this period. The cost of interest-bearing deposits declined 53 basis points, while the cost of money market and savings deposits declined 38 basis points and the cost of time deposits decreased by 114 basis points over the period. Interest expense on borrowings declined $463 thousand or 51.4% to $437 thousand for the nine months ended September 30, 2021. The average balance of borrowings decreased $8.5 million due largely to PPPLF advances used to fund PPP loans, while the cost of borrowings increased 46 basis points over this period.

Net interest income increased $12.9 million, or 37.8%, to $47.0 million on a tax-equivalent basis for the nine months ended September 30, 2021, compared to $34.1 million for the nine months ended September 30, 2020. The net-interest margin increased 42 basis points for the nine months ending September 30, 2021 at 3.75%, compared with 3.33% for the nine month ending September 30, 2020. The increase in net interest margin reflects declining interest rates paid on deposits and borrowings 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 $63.9 million increase in non-interest bearing deposits.

~~Table of Contents~~

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 September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
40,249

16

0.16%

$
10,928

2

0.08%
Federal funds sold

23,013

1

0.02%

12,655

2

0.02%
Investment securities⁽¹⁾

147,035

734

2.01%

109,106

612

2.27%
Loans held for sale

110,905

824

2.97%

150,925

1,100

2.91%
Loans held for investment⁽¹⁾

1,370,439

16,804

4.84%

1,275,046

14,224

4.41%
Total loans

1,481,344

17,628

4.72%

1,425,971

15,324

4.28%
Total interest-earning assets

1,691,641

18,379

4.31%

1,558,660

15,940

4.07%
Noninterest earning assets

48,207

39,647

Total assets

$
1,739,848

$
1,598,307

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
270,518

201

0.29%

$
219,853

392

0.71%
Money market and savings deposits

647,093

853

0.52%

454,922

770

0.67%
Time deposits

237,080

273

0.46%

312,538

1,073

1.37%
Total deposits

1,154,691

1,327

0.46%

987,313

2,235

0.90%
Total Borrowings

111,075

126

0.45%

235,455

334

0.56%
Subordinated Debentures

40,740

596

5.85%

40,802

596

5.84%
Total interest-bearing liabilities

1,306,506

2,049

0.62%

1,263,570

3,165

1.00%
Noninterest-bearing deposits

254,843

193,020

Other noninterest-bearing liabilities

22,919

16,664

Total liabilities

$
1,584,268

$
1,473,254

Total stockholders' equity

155,580

125,053

Total stockholders' equity and liabilities

$
1,739,848

$
1,598,307

Net interest income ⁽¹⁾

$
16,330

$
12,775

Net interest spread ⁽¹⁾

3.69%

3.07%
Net interest margin ⁽¹⁾

3.83%

3.26%


For the Three Months Ended June 30, (dollars in thousands)	2022						2021
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets
Interest-earning assets
Due from banks	$	26,909	49		0.73	%	$	18,833	4		0.09	%
Federal funds sold	3,230		3		0.35	%	16,110		1		0.02	%
Investment securities(1)	168,853		941		2.24	%	146,150		748		2.09	%
Loans held for sale	52,859		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 loans	1,537,555		19,123		4.99	%	1,497,630		16,843		4.51	%
Total interest-earning assets	1,736,547		20,116		4.65	%	1,678,723		17,596		4.20	%
Noninterest earning assets	77,194						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 deposits	698,557		1,076		0.62	%	602,272		823		0.55	%
Time deposits	334,391		494		0.59	%	266,181		306		0.46	%
Total deposits	1,270,804		1,818		0.57	%	1,129,287		1,369		0.49	%
Borrowings	16,560		77		1.87	%	125,531		140		0.45	%
Subordinated debentures	40,548		591		5.84	%	40,711		597		5.87	%
Total interest-bearing liabilities	1,327,912		2,486		0.75	%	1,295,529		2,106		0.65	%
Noninterest-bearing deposits	296,521						255,964
Other noninterest-bearing liabilities	31,354						25,432
Total liabilities	$	1,652,915					$	1,576,925
Total stockholders' equity	158,829						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.

Table of Contents

2021

2020

Interest

Interest

For the Nine Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
24,340

22

0.12%

$
7,620

27

0.47%
Federal funds sold

18,991

3

0.02%

15,692

36

0.30%
Investment securities⁽¹⁾

142,974

2,170

2.06%

95,563

1,735

2.45%
Loans held for sale

139,101

2,922

2.80%

99,633

2,301

3.08%
Loans held for investment⁽¹⁾

1,349,780

48,375

4.79%

1,150,662

40,753

4.70%
Total loans

1,488,881

51,297

4.61%

1,250,295

43,054

4.60%
Total interest-earning assets

1,675,186

53,492

4.27%

1,369,170

44,852

4.38%
Noninterest earning assets

44,388

43,940

Total assets

$
1,719,574

$
1,413,110

Liabilities and stockholders' equity

Interest bearing liabilities

Interest-bearing deposits

$
252,074

739

0.39%

$
187,987

1,302

0.92%
Money market and savings deposits

609,201

2,505

0.55%

392,863

2,736

0.93%
Time deposits

258,099

1,017

0.53%

322,574

4,026

1.67%
Total deposits

1,119,374

4,261

0.51%

903,424

8,064

1.19%
Total Borrowings

139,716

437

0.42%

148,192

900

0.81%
Subordinated Debentures

40,711

1,787

5.85%

41,075

1,787

5.80%
Total interest-bearing liabilities

1,299,801

6,485

0.67%

1,092,691

10,751

1.31%
Non-interest bearing deposits

248,355

184,503

Other non-interest bearing liabilities

24,928

12,349

Total liabilities

$
1,573,084

$
1,289,543

Total stockholders' equity

146,490

123,567

Total stockholders' equity and liabilities

$
1,719,574

$
1,413,110

Net interest income ⁽¹⁾

$
47,007

$
34,101

Net interest spread ⁽¹⁾

3.60%

3.06%
Net interest margin ⁽¹⁾

3.75%

3.33%

~~(1)~~

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


For the Six Months Ended June 30, (dollars in thousands)	2022						2021
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets
Interest-earning assets
Due from banks	$	27,645	62		0.45	%	$	16,254	6		0.07	%
Federal funds sold	2,060		3		0.29	%	16,946		2		0.02	%
Investment securities(1)	168,370		1,740		2.08	%	140,910		1,436		1.67	%
Loans held for sale	59,936		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 loans	1,510,390		36,344		4.85	%	1,492,710		33,666		4.55	%
Total interest-earning assets	1,708,465		38,149		4.50	%	1,666,820		35,110		4.25	%
Noninterest earning assets	71,634						42,449
Total assets	$	1,780,099					$	1,709,269
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits	253,771		385		0.31	%	242,699		538		0.45	%
Money market and savings deposits	694,539		1,928		0.56	%	589,941		1,652		0.56	%
Time deposits	298,783		794		0.54	%	268,784		745		0.56	%
Total deposits	1,247,093		3,107		0.50	%	1,101,424		2,935		0.54	%
Borrowings	16,136		126		1.57	%	154,273		312		0.82	%
Subordinated debentures	40,533		1,183		5.84	%	40,696		1,190		5.85	%
Total interest-bearing liabilities	1,303,762		4,416		0.68	%	1,296,393		4,437		0.69	%
Noninterest-bearing deposits	284,455						245,057
Other noninterest-bearing liabilities	33,530						25,950
Total liabilities	$	1,621,747					$	1,567,400
Total stockholders' equity	157,928						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	%

Table of Contents

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 ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 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

Nine Months Ended

September 30,

September 30,
(dollars in thousands)
Rate

Volume

Total

Rate

Volume

Total
Interest income:

Due from banks
$
4

10

14

$
(41)

36

(5)
Federal funds sold

(1)

(0)

(1)

(43)

10

(33)
Investment securities⁽¹⁾

(406)

528

122

(790)

1,225

435
Loans held for sale

153

(429)

(276)

(337)

958

621
Loans held for investment⁽¹⁾

1,464

1,116

2,580

797

6,825

7,622
Total loans

1,617

687

2,304

460

7,783

8,243
Total interest income
$
1,214

1,225

2,439

$
(414)

9,054

8,640
Interest expense:

Interest bearing deposits
$
(653)

462

(191)

$
(1,093)

530

(563)
Money market and savings deposits

(852)

935

83

(1,813)

1,582

(231)
Time deposits

(588)

(213)

(801)

(2,329)

(680)

(3,009)
Total interest bearing deposits

(2,093)

1,184

(909)

(5,235)

1,432

(3,803)
Total borrowings

(56)

(152)

(208)

(296)

(167)

(463)
Subordinated debentures

4

(4)

—

21

(21)

—
Total interest expense

(2,145)

1,028

(1,117)

(5,510)

1,244

(4,266)
Interest differential
$
3,359

197

3,556

$
5,096

7,810

12,906


(dollars in thousands)	2022 Compared to 2021
	Three Months Ended June 30,				Six Months Ended June 30,
	Rate		Volume	Total	Rate		Volume	Total
Interest income:
Due from banks	$	42	3	45	$	49	7	56
Federal funds sold	7		(5)	2	7		(6)	1
Investment securities(1)	60		133	193	169		135	304
Loans held for sale	1,882		(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 loans	3,058		(778)	2,280	2,287		391	2,678
Total interest income	3,167		(647)	2,520	$	2,512	527	3,039
Interest expense:
Interest bearing deposits	$	106	(98)	8	$	(222)	69	(153)
Money market and savings deposits	111		142	253	(2)		278	276
Time deposits	100		88	188	(79)		128	49
Total interest bearing deposits	317		132	449	(303)		475	172
Total borrowings	719		(782)	(63)	1,050		(1,236)	(186)
Subordinated debentures	(3)		(3)	(6)	(3)		(4)	(7)
Total interest expense	1,033		(653)	380	744		(765)	(21)
Interest differential	$	2,134	6	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 ~~September~~June 30, ~~2021~~2022 as compared to the same period in ~~2020,~~2021, tax-equivalent interest income increased ~~$2.4~~$2.5 million as favorable rate changes contributed $3.2 million, while unfavorable volume changes in average earning assets ~~contributed $1.2 million and favorable rate changes increased~~reduced interest income by ~~$1.2 million.~~$647 thousand. The favorable change in ~~interest income due to volume changes~~rates was driven ~~mostly from growth in~~by 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, which~~average balances increased ~~$95.4~~$120.5 million, leading to a favorable volume impact on ~~average over~~interest income of $1.5 million, the ~~three month periods, along with an increase~~decline in ~~investment securities of $37.9 million on average. The~~ loans held for sale ~~portfolio decreased $40.0~~average 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 ~~on small business loans, commercial real estate loans and leases increased $48.7 million, $111.9 million, and $65.6 million, respectively, while~~of PPP loans ~~decreased $109.5 million. Partially off-setting these favorable volume changes was an unfavorable rate change of 26 basis points on investment securities, reducing interest income~~were down $182.5 million as such loans continue to be forgiven by ~~$406 thousand.~~

the SBA.

On the funding side, interest expense ~~decreased $1.1 million~~increased $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 ~~down~~up modestly across the board, ~~having~~causing a ~~$2.1 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 42~~increased 5 basis points, 157 basis points and 9113 basis points, respectively, while the cost of borrowings ~~declined 11~~increased 142 basis points. ~~Interest-bearing deposits, and money market and~~ Money market/savings accounts and time deposit average balances increased ~~$50.7~~$96.3 million, and ~~$192.2~~$68.2 million, ~~on average,~~respectively, while ~~time~~interest-bearing deposits decreased ~~$75.5~~$23.0 million on average, and borrowings ~~overall~~ were down ~~$124.4~~$109.0 million on average. ~~These average balance changes led to a $1.0 million increase in interest expense.~~

Overall, the $2.1 million increase in net interest income from rate changes ~~contributed $3.4 million while volume changes contributed $197 thousand to improve~~was the main reason for the overall increase in tax-equivalent net interest income ~~by $3.6~~of $2.1 million.

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For the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 as compared to the same period in ~~2020,~~2021, tax-equivalent interest income increased ~~$8.6~~$3.0 million as ~~volume~~positive rate changes inon average earning assets contributed ~~$9.1~~$2.5 million and ~~unfavorable rate~~favorable volume changes ~~reduced~~helped to increase interest income by ~~$414~~$527 thousand. The favorable change in interest income due to ~~volume~~rate changes was driven bymostly from growth in ~~all asset portfolios, most notably~~ the loans held for sale (increase of 94 basis points) and the overall loans held for investment portfolio ~~which increased $199.1 million~~(increase of 11 basis points). This large increase in the yield on ~~average over the nine month periods. The~~ loans held for sale ~~portfolio increased $39.5 million and~~was the ~~investment securities portfolio increased $47.4 million~~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 ~~average over this period. Within the~~ loans held for investment ~~portfolio,~~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 a decline in the volume of loans held or sale which had an unfavorable impact of $2.5 million on ~~small business~~interest income. The increase in loans ~~PPP~~held for investment average balances were led by an increase in commercial loans and leases of $170.8 million, commercial real estate loans/construction loans ~~and leases increased $36.0 million, $47.0 million, $119.3~~of $76.7 million, and ~~$54.2 million, respectively. Partially off-setting these favorable volume changes were unfavorable rate changes of 87 basis points and 28 basis points on investment securities and~~residential loans held for ~~sale, reducing interest income~~investment of $31.5 million, offset somewhat by ~~$790 thousand and $337 thousand, respectively.~~

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 ~~$4.3 million due to the impact from rate declines which offset the impact from volume increases.~~$21 thousand. The cost of deposits ~~and borrowings were~~was down, ~~across the board,~~ having a ~~$5.5 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 53 basis points, 38 basis points and 114 basis points, respectively, while the cost of borrowings~~ increased ~~46 basis points. Interest-bearing deposits, and money market and savings accounts increased $64.1~~$11.1 million, $104.6 million, and ~~$216.3~~$30.0 million on average ~~while time deposits decreased $64.5 million on average,~~respectively, and borrowings overall were down ~~$8.5~~$138.1 million on ~~average. These~~ average, ~~balance changes led~~leading to a ~~$1.2~~$765 thousand decrease in interest expense.

Overall, the $1.8 million increase in interest ~~expense.~~

~~Overall,~~income from rate changes, combined with the $1.3 million increase in ~~net interest income from~~ volume changes, ~~contributed $7.8 million while rate changes contributed $5.1 million~~let to ~~improve~~an improvement in tax-equivalent net interest income ~~by $12.9~~of $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 ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 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.

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Rate Ramp

Estimated increase

(decrease) in Net Interest

Income

For the year ending

September 30,

Changes in Market Interest Rates

2021

2020

+300 basis points over next 12 months

1.75
%
1.98
%
+200 basis points over next 12 months

1.01
%
0.95
%
+100 basis points over next 12 months

0.43
%
0.15
%
No Change





-100 basis points over next 12 months

(0.68)
%
(4.33)
%
-200 basis points over next 12 months

(3.03)
%
(14.19)
%


	Estimated increase (decrease) in Net Interest Income For the Three Months Ended June 30,
Changes in Market Interest Rates	2022		2021
+300 basis points over next 12 months	1.42	%	1.49	%
+200 basis points over next 12 months	1.18	%	0.82	%
+100 basis points over next 12 months	0.69	%	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 ~~September~~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 September 30, 2021 and 2020, 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 September 30,

Changes in Market Interest Rates

2021

2020

+300 basis points

62
%
129
%
+200 basis points

47
%
98
%
+100 basis points

28
%
57
%
No Change



-100 basis points

(41)
%
(83)
%
-200 basis points

(103)
%
(213)
%

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, 2022 and 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.


	Estimated increase (decrease) in Net Economic Value at June 30,
Changes in Market Interest Rates	2022		2021
+300 basis points	11	%	61	%
+200 basis points	9	%	47	%
+100 basis points	7	%	27	%
No Change
-100 basis points	(13)	%	(40)	%
-200 basis points	(35)	%	(103)	%

This economic value of equity profile at ~~September~~June 30, ~~2021~~2022 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 conversely~~assets. Conversely, we would experience a negative effect from a decrease in rates. While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact. Since economic value of equity measures the discounted present value of cash flows over the estimated lives of instruments, the change in economic value of equity does not directly correlate to the degree that earnings would be impacted over a shorter time horizon.

The results of our net interest income and economic value of equity simulation analysis are purely hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from that projected, our net interest income might vary significantly. Non-parallel yield curve shifts or changes in interest rate spreads would also cause our net interest income to be different from that projected. An increasing interest rate environment could reduce projected net interest income if deposits and other ~~short-term~~short-

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term interest-bearing liabilities reprice faster than expected or faster than our interest-earning assets. Actual results could differ from those projected if we grow interest-earning assets and interest-bearing liabilities faster or slower than estimated, or otherwise change its mix of products. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Furthermore, the results do not take into account the impact of changes in loan prepayment rates on loan discount accretion. If prepayment rates were to increase on our loans, we would recognize any remaining loan discounts into interest income. This would result in a current period offset to declining net interest income caused by higher rate loans prepaying.

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

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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 September 30, 2021 and December 31, 2020.~~

Greater

Than

5 years and

As of September 30, 2021

12 Months

Not Rate

(dollars in thousands)

or Less

1-2 Years

2-5 Years

Sensitive

Total
Cash and investments

$
81,095

5,172

19,318

111,102

216,687
Loans (1)

953,683

185,714

330,199

8,094

1,477,690
Other Assets

—

—

—

68,068

68,068
Total Assets

$
1,034,778

190,886

349,517

187,264

1,762,445

Non-interest bearing deposits

9,324

8,994

26,075

221,449

265,842
Interest bearing deposits

949,760

—

—

—

949,760
Time deposits

142,699

18,786

61,960

—

223,445
Borrowings

65,232

22,704

12,747

—

100,683
Other Liabilities

—

—

—

64,299

64,299
Total stockholders' equity

—

—

—

158,416

158,416
Total liabilities and stockholders' equity

$
1,167,015

50,484

100,782

444,164

1,762,445

Repricing gap:

Positive (negative)

$
(132,237)

140,402

248,735

(256,900)

—
Cumulative repricing gap: Dollar amount

$
(132,237)

8,165

256,900

—

Percent of total assets

(7.5)%

0.5%

14.6%

—

~~(1)~~

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

~~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 for the period ended September 30, 2021, we are liability-sensitive in the short term due mainly to core-deposit growth which has outpacing loan growth. Deposit growth has been strong throughout the year, driven by economic conditions and customer preference for short-term or liquid deposits. Loan growth has been impacted by PPP loan forgiveness. Although PPP loans are contractually longer term loans, the majority are expected to be forgiven in the near term, which will continue to impact asset growth rates. With the strong growth in deposits, management has been able to reduce balances of borrowings and wholesale deposits, lower costs and lengthen maturities. On a cumulative basis through projecting out 2 years our profile is more neutral. We generally manage our interest rate risk profile close to neutral, using a strategy that is focused on increasing our concentration of relationship-based transaction accounts through efforts of our business developers and new branches.

The gap results presented could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis. Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time and offers only an approximate estimate of the relative sensitivity of our interest-earning assets and interest-bearing liabilities to changes in market interest rates. In addition, the impact of certain optionality is embedded in our balance sheet such as contractual caps and floors, and trends in asset and liability growth. Accordingly, we combine the use of gap analysis with the use of an earnings simulation model that provides a dynamic assessment of interest rate sensitivity.

PROVISION FOR LOAN AND LEASE LOSSES

~~For~~

The provision for loan losses was $602 thousand for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to a $96 thousand provision for the ~~Corporation recorded a~~three 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 ~~$597~~$1.2 million for the six months ended June 30, 2022 increased $522 thousand, ~~which was a $3.4 million,~~ or ~~84.9% decrease~~75.1%, from the ~~same period in 2020. For~~$695 thousand provision for loan losses recorded for the ~~three~~six months ended ~~September~~June 30, ~~2021 there was a net recovery of $18 thousand as compared to net charge-offs of $89 thousand for the same period in 2020. The third quarter 2020 provision was calculated at the time~~2021. While 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 third quarter 2021 provision had less such impact as certain financial and economic indicators have improved period over period.

For the nine months ended September 30, 2021, the Corporation recorded a provision of $1.3 million which was a $5.8 million, 81.9% decrease from the same period in 2020. For the nine months ended September 30, 2021 there were net

~~Table of Contents~~

~~charge-offs of $83 thousand as compared to net charge-offs of $79 thousand for the same period in 2020. The decline~~more relevant in the prior year, the current year provision ~~period over period is the result of an improvement in the trend of certain financial and economic factors used in the allowance for loan losses that had been negatively impacted in 2020~~was higher due to reserving for an increased level of non-performing loans over the ~~COVID-19 pandemic, which have since started to rebound as~~prior year combined with the ~~economy continues to recover.~~

~~The provision for~~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 $24.9 million as~~focus of ~~September 30, 2021, compared to $29.0~~management. Total non-performing loans were $23.0 million as of June 30, 2022, unchanged from $23.0 million as of December 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 ~~recoveries~~charge-offs of ~~0.00%~~0.03% of total average loans for the quarter ending ~~September~~June 30, ~~2021, compared to net charge-offs of 0.00% for~~2022, up from the quarter ended December 31, ~~2020 and net charge-offs~~2021 level of ~~0.01%~~0.00%. Charge-offs amounted to $696 thousand for the quarter ~~ended September~~ending June 30, ~~2020. Total non-performing assets, including loans and other real estate property,~~2022, while recoveries were ~~$9.2 million~~$73 thousand during this quarter. Nearly all of the charge-offs for the quarter ending June 30, 2022 were from small ticket equipment leases, as were the majority of September 30, 2021, compared to $7.9 million as of December 31, 2020 and September 30, 2020. The ratio of non-performing assets to total assets as of September 30, 2021 was 0.52% compared to 0.46% as of December 31, 2020, and 0.45% as of September 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 ~~1.52%~~1.27% as of ~~September~~June 30, ~~2021, 1.65%~~2022 and 1.46% as of December 31, ~~2020, and 1.59%~~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 ~~September 30, 2020. PPP loans are excluded from calculation of this ratio as they are guaranteed by the SBA and therefore we have not provided for~~December 31, 2021, due to improvement in the ~~allowance~~underlying credit quality 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 OREO as of September 30, 2021 and December 31, 2020.~~

certain loans.

As of ~~September~~June 30, ~~2021,~~2022, the Corporation had ~~$2.8~~$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 ~~September~~June 30, ~~2020,~~2022, the Corporation had ~~$3.7~~a recorded investment of $26.1 million of impaired loans and leases which included $3.9 million of TDRs, while as of ~~which $3.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of September 30,~~December 31, 2021, the Corporation had a recorded investment of ~~$11.2~~$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

September 30,

December 31,
(dollars in thousands)

2021

2020
Non-performing assets:

Nonaccrual loans:

Real estate loans:

Commercial mortgage

$
—

3,061
Shared national commercial credits

—

—
Home equity lines and loans

910

859
Residential mortgage

2,278

2,725
Total real estate loans

$
3,188

6,645
Commercial and industrial

5,089

1,285
Small business loans

916

Total nonaccrual loans

$
9,193

7,930
Total non-performing loans

$
9,193

7,930
Total non-performing assets

$
9,193

7,930

Troubled debt restructurings:

TDRs included in non-performing loans

367

244
TDRs in compliance with modified terms

2,476

3,362
Total TDRs

$
2,843

3,606

Asset quality ratios:

Non-performing assets to total assets

0.52%

0.46%
Non-performing loans to:

Total loans and leases

0.61%

0.52%
Total loans held-for-investment

0.67%

0.62%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)

0.74%

0.74%
Allowance for loan losses to:

Total loans and leases

1.27%

1.17%
Total loans held-for-investment

1.38%

1.38%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)

1.52%

1.65%
Non-performing loans

206.42%

224.04%

Total loans and leases

$
1,496,666

1,513,963
Total loans and leases held-for-investment

$
1,378,670

1,284,764
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)

$
1,245,895

1,072,727
Allowance for loan and lease losses

$
18,976

17,767


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

Home equity lines and loans	1,038			911
Residential mortgage	2,052			2,398
Total real estate loans	3,090			3,309
Commercial and industrial	18,398			18,801
Small business loans	1,401			666
Leases	95			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 loans	197			361
TDRs in compliance with modified terms	3,679			3,446
Total TDRs	$	3,876		3,807

Asset quality ratios:
Non-performing assets to total assets	1.24		%	1.34		%
Non-performing loans to:
Total loans and leases	1.46		%	1.57		%
Total loans held-for-investment	1.51		%	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 leases	1.19		%	1.28		%
Total loans held-for-investment	1.24		%	1.35		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)	1.27		%	1.46		%
Non-performing loans	81.82		%	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~~

Table of ~~September 30, 2021.~~

Contents

NON-INTEREST INCOME

Three Months Ended ~~September~~June 30, ~~2021~~2022 Compared to the Same Period in ~~2020~~

2021

Total non-interest income for the ~~third quarter of 2021~~three months ended June 30, 2022 was ~~$22.1~~$10.4 million, down ~~$6.9~~$11.3 million or ~~23.9%~~52.1% from the comparable period in ~~2020.~~2021. This ~~overall~~ decrease in non-interest income came ~~largely~~ from our mortgage segment. Mortgage banking net revenue decreased ~~$3.1~~$12.5 million or ~~14.2%~~64.3% over the ~~third quarter of 2020. The decrease in third quarter~~three months ended June 30, 2021, ~~came~~resulting from decreased levels of mortgage loan originations as ~~rate-driven refinancing activity declined.~~rising interest rates and lack of housing inventory has had an impact on mortgage banking activity. Our mortgage segment originated ~~$522.9~~$332.4 million in loans during the ~~third quarter of 2021,~~three months ended June 30, 2022, a decrease of ~~$185.3~~$284.2 million, or ~~26.2%~~46.1%, from the ~~third quarter of 2020.~~three months ended June 30, 2021. The changes in the fair value of derivative instruments and loans held for sale ~~decreased~~increased a combined ~~$6.8 million~~ over

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the period. ~~Net hedging~~Hedging activity ~~improved as the net loss decreased $1.5 million~~led to a net ~~loss~~gain increase of ~~$1.2~~$2.4 million for the ~~third quarter of 2021.~~

~~Net revenue from the sales of~~ three months ended June 30, 2022.

SBA ~~7(a) loans increased $2.0~~loan income decreased $1.1 million as ~~$25.0~~$12.8 million in loans were sold infor the ~~third quarter of 2021~~three months ended June 30, 2022, compared to ~~$9.5~~$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 ~~third quarter of 2020, an increase of nearly 162.0%.~~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 ~~$281~~$91 thousand year-over-year due to ~~an increase of $340.0 million in assets under management over this period, due to new clients and more~~ favorable market conditions. Other fee income was up ~~$205~~$68 thousand or ~~24.1%~~6.4% from the ~~third quarter of 2020,~~three months ended June 30, 2022, to $1.1 million, due to increases in wire fees, title fee income, and servicing fee income.

~~Nine~~

Six Months Ended ~~September~~June 30, ~~2021~~2022 Compared to the Same Period in ~~2020~~

2021

Total non-interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$70.9~~$23.5 million, ~~up $13.9~~down $25.3 million or ~~24.5%,~~51.8% from the ~~nine months ended September 30, 2020.~~comparable period in 2021. This ~~increase~~decrease in non-interest income came ~~primarily~~ from our mortgage ~~segment as mortgage~~segment. Mortgage banking net revenue ~~increased $16.9~~decreased $29.5 million or ~~37.2%~~67.8% over the ~~prior year period. The significant increase in the current year period came~~six months ended June 30, 2021, resulting from ~~increased~~decreased levels of mortgage loan originations ~~due to both the expansion~~as 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 ~~$1.9 billion~~$656.1 million in loans during the ~~nine~~six months ended ~~September~~June 30, ~~2021, an increase~~2022, a decrease of ~~$365.4~~$685.4 million, or ~~24.4%~~51.1%, from the ~~prior year period. Refinance activity represented 50% of the total residential mortgage loans originated for the nine~~six months ended ~~September~~June 30, ~~2021, compared to 59% for the nine months ended September 30, 2020.~~2021. The changes in the ~~mortgage pipeline as a result of the expansion and the refinance activity generated significant~~ fair value ~~changes in~~of derivative instruments and loans ~~held-for-sale. These fair value changes decreased non-interest income~~held for sale increased a combined ~~$17.4~~$4.0 million ~~during~~over the ~~nine~~period. Net hedging activity increased as the net gains were up $955 thousand for the six months ended ~~September~~June 30, ~~2021 compared to the nine months ended September 30, 2020. These changes were offset by increases in net hedging gains of $9.8 million.~~

Wealth management revenue increased $706 thousand, or 25.0%, year-over-year due to an increase in assets under management of $315.7 million over this period due to new clients and the more favorable market conditions that existed in the nine months ended September 30, 2021, compared to the prior year period.

2022.

Net revenue from the sales of SBA 7(a) loans increased ~~$3.6~~$222 thousand with $38.0 million ~~or 197.8%, from~~in loans sold for the ~~prior year~~six months ended June 30, 2022 compared to $26.6 million sold for the six months ended June 30, 2021, an increase of 42.9%. While the volume of SBA loans sold period ~~to $5.4 million, as~~over period was up, the ~~bank sold $22.1 million, or 74.9%~~margin on sales was down. Wealth management revenue increased $259 thousand year-over-year due the more ~~loans in the current year period.~~favorable market conditions. Other fee income was up ~~$1.5~~$253 thousand or 11.9%, to $2.4 million ~~or 85.8%~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2021, from the nine months ended September 30, 2020~~2022, due to increases in wire 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 and SBA~~ servicing fee income.

NON-INTEREST EXPENSE

Three Months Ended ~~September~~June 30, ~~2021~~2022 Compared to the Same Period in ~~2020~~

2021

Total non-interest expense for the ~~third quarter of 2021~~three months ended June 30, 2022 was ~~$25.5~~$19.7 million, down ~~$353 thousand~~$6.5 million or ~~1.4%~~24.9%, from the comparable period in ~~2020.~~2021. The decrease in non-interest expense is largely attributable to a decrease in salaries and employee benefits expense, which decreased ~~$975 thousand~~$7.3 million or ~~4.8%~~36.1%, from the comparable period in ~~2020.~~2021. This decrease relates to the mortgage segment, which had reduced fixed and variable based compensation.

Advertising and promotion expense increased $268 thousand, or 29.1%, over the comparable period in 2021 as the result of a renewed and focused priority placed on business development and community outreach efforts throughout the Meridian organization. In the second quarter of 2022 the easing of COVID-19 restrictions has provided our team members with much better opportunities to meet with customers and prospective customers as they were accustomed to pre-pandemic.

Information technology expense increased $264 thousand, or 56.9%, to $728 thousand for the three months ended June 30, 2022. Meridian continued with our strategy to invest in technology that focuses on improving back-office efficiencies through automation and 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, 2022 Compared to the Same Period in 2021

Total non-interest expense for the six months ended June 30, 2022 was $41.1 million, down $13.4 million or 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, ~~$2.5~~$12.6 million relates to the ~~variable portion of the~~ mortgage segment, ~~while there~~which recognized decreased and variable compensation. Offsetting this decrease somewhat was an increase of ~~$1.5 million~~$2,907 thousand for the bank and wealth segments due to an increase ~~of 31~~ in ~~FTE’s~~FTEs and a higher level of ~~incentive and stock -based~~stock-based compensation expense.

Professional fees increased $192 thousand, or 28.2%, from the comparable period in 2020 largely due to increased consulting costs incurred throughout the organization. As we continue to improve and add to our customer facing and back office IT systems, business intelligence initiatives, software and information systems for loan processing and reporting have been implemented, as well as upgrades to cloud-based file storage and retrieval, desktop operating systems, mail archiving and security.

Advertising and promotion expense increased ~~$308~~$468 thousand, or ~~39.4%~~27.4%, ~~from~~over the comparable period in ~~2020~~2021 as the result of ~~an increase in the~~a renewed and focused priority placed on business development and community outreach efforts ~~that our employees were more able~~as noted above. Information technology expense increased $549 thousand, or 61.8%, to ~~do in~~

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~~the third quarter of 2021 as the weather improved and COVID-19 restrictions continued to lessen and allow for more in person gatherings.~~

~~Nine Months Ended September 30, 2021 Compared to the Same Period in 2020~~

~~Total non-interest expense~~$1.4 million for the ~~nine~~six months ended ~~September~~June 30, 2021 was $80.0 million, up $18.8 million or 30.8%, from the nine months ended September 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 $61.8 million, an increase of $15.3 million or 32.9%, compared to the nine months ended September 30, 2020. Of this increase, $10.9 million relates to the mortgage segment as the number of employees in this segment have increased period over period. Salaries and benefits for the Bank and Wealth segments increased due to an increased level of full-time equivalent employees as well as increase in incentives and stock-based compensation expense.

Occupancy and equipment expense increased $301 thousand, or 9.5%, over the period due largely to the expansion of our physical office footprint into Maryland with 8 mortgage loan production offices having opened since early 2020. Professional fees were up $511 thousand, or 24.1%, over the period due largely to one-time consent fees incurred in 2021 related to the filing of the Corporation’s December 31, 2020 Form 10K, in conjunction with the change in Accountants we made in 2020. This is combined with an increase in consulting fees2022, as Meridian ~~continues~~continued with our strategy to invest in ~~various company-wide~~ technology ~~focused projects as discussed above. Advertising~~that focuses on improving back-office efficiencies through automation and promotion expenses were up $799 thousand, or 40.1%, 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 ~~September~~June 30, ~~2021~~2022 was ~~$2.9~~$1.7 million, as compared to ~~$2.8~~$2.5 million for the same period in ~~2020.~~2021. The ~~increase~~decrease in income tax expense was attributable to the ~~increase~~decrease in earnings, period over period. Our effective tax rate was ~~23.3%~~22.4% for the ~~third quarter of 2021~~three months ended June 30, 2022 and ~~23.1%~~23.6% for the ~~third quarter of 2020.~~

three months ended June 30, 2021.

Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 was ~~$8.5~~$3.3 million, as compared to ~~$5.2~~$5.7 million for the same ~~periods~~period in ~~2020.~~2021. The ~~increase~~decrease in income tax expense was attributable to the ~~increase~~decrease in earnings, period over period. Our effective tax rate was ~~23.5%~~22.1% for the ~~first nine~~six months ~~of 2021~~ended June 30, 2022 and ~~23.0%~~23.6% for the ~~first nine~~six months ~~of 2020.~~

ended June 30, 2021.

BALANCE SHEET ANALYSIS

As of ~~September~~June 30, ~~2021,~~2022, total assets were ~~$1.8~~$1.9 billion, an increase of ~~$42.2 million from December 31, 2020. Total assets increased $3.8~~$139.6 million, or 0.2%, from September 30, 2020 due to a higher level of cash, investments, commercial loans and PPP loans on the balance sheet as of September 30, 2020. Cash and cash equivalents increased $26.4 million due to liquidity from mortgage loans held for sale and PPP loan forgiveness. The securities available-for-sale portfolio grew to $146.1 million as of September 30, 2021, up $22.6 million, or 18.3%8.1%, from December 31, ~~2020. State and municipal securities increased $7.0 million and U.S. treasuries were up $15 million.~~

~~Total~~2021. This growth in assets over the prior period was due to loan portfolio growth, as discussed below.

Portfolio loans ~~net of allowance,~~ grew ~~$92.7~~$132.4 million, or ~~7.3%~~9.6%, to ~~$1.4~~$1.5 billion as of ~~September~~June 30, ~~2021,~~2022, from ~~$1.3~~$1.4 billion as of December 31, ~~2020. There~~2021. Overall portfolio loan growth, excluding PPP loans, was ~~growth in several commercial loan categories from~~15.4% since December 31, ~~2020, as we continue to expand our presence in the Philadelphia market region. Small business~~2021, or 31% on an annualized basis for 2022. Commercial loans increased ~~$41.2~~$41.9 million, or ~~82.7%~~14.3%, commercial real estate loans increased ~~$60.7~~$30.3 million, or ~~12.1%~~5.6%, construction loans increased $41.1 million, or 30.4%, residential real estate loans held in portfolio increased $45.8 million, or 66.9%, and lease financings increased ~~$45.2~~$28.8 million, or ~~136.8%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong~~30.9% from December 31, 2021. Partially offsetting the growth ~~pattern after starting up~~ in ~~early 2020. Residential real estate~~portfolio loans ~~held for sale decreased $111.2~~was a decrease of $66.8 million, or ~~48.5%~~75.7%, in PPP loan balances as such loans continue to ~~$118.0 million~~be paid off by the SBA.

Deposits were $1.6 billion as of ~~September~~June 30, ~~2021, while PPP loans decreased $83.0~~2022, up $121.6 million, or ~~41.8%, over this period.~~

~~Servicing assets were $11.9 million as of September 30, 2021, up $6.3 million, or 112.4%~~8.4%, from December 31, 2020. $10.1 million of this balance is comprised of mortgage servicing rights, while $1.8 million is comprised of SBA loan servicing assets. The increase in both servicing asset types was the result of the continued strong loan sales markets since December 31, 2020.

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~~Deposits were $1.4 billion as of September 30, 2021, up $197.7~~2021. Non-interest bearing deposits increased $17.4 million, or ~~15.9%~~6.3%, from December 31, ~~2020. Non-interest bearing deposits increased $62.0 million, or 30.4%, from December 31, 2020.~~2021 due to strong business development efforts. Interest-bearing checking accounts ~~increased $73.1~~decreased $63.0 million, or ~~35.4%~~23.5%, ~~from December 31, 2020,~~ while money market accounts/savings accounts combined increased ~~$97.5~~$31.3 million, or ~~17.0%~~4.5%, since December 31, ~~2020. Increases in core deposits were driven from loan customers as part of new business and municipal relationships and also as a result of the PPP loan process.~~2021. Certificates of deposits ~~decreased $34.9~~increased $135.9 million, or ~~13.5%~~66.0%, from December 31, ~~2020,~~2021, as ~~lower levels~~such deposits were utilized as an alternative source of cost-effective wholesale ~~funding have been replaced by core deposits.~~

Short-term borrowings were $22.3 million as of September 30, 2021, down $84.6 million, or 79.2%, from December 31, 2020, while long-term debt was $78.4 million as of September 30, 2021, down $87.1 million, or 52.6%, from December 31, 2020. Short-term borrowings declined from December 31, 2020 to September 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.

funding.

Capital

Consolidated stockholders’ equity of the Corporation was ~~$158.4~~$156.1 million, or ~~9.0%~~8.4% of total assets as of ~~September~~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 ~~$27.9~~$5.9 million, ~~partially~~ offset by dividends of ~~$8.5~~$7.3 million paid ~~during the first nine months of 2021~~ as well as ~~an increase~~a $9.9 million decline in ~~treasury stock~~accumulated other comprehensive income (loss) from the ~~publicly announced share repurchase program.~~

investment security portfolio due to changes in interest rates over this period.

As of ~~September~~June 30, ~~2021,~~2022, the Tier 1 leverage ratio was ~~9.28%~~8.87% for the Corporation and ~~11.55%~~10.86% for the Bank, the Tier 1 risk-based capital and common equity ratios were ~~10.64%~~9.79% for the Corporation and ~~13.25%~~11.98% for the Bank, and total risk-based capital was ~~14.72%~~13.50% for the Corporation and ~~14.62%~~13.33% for the Bank. ~~Quarter-end~~Based 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 ~~8.76%~~8.22% for the Corporation and ~~10.90%~~10.18% for the Bank. ~~A reconciliation of this non-GAAP measure is included in the Appendix.~~ Tangible book value per share (a non-GAAP measure) was ~~$25.23 as of September 30, 2021, compared with $24.06~~$25.16 as of June 30, 2022, compared with $26.37 as of December 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 ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~

September 30, 2021

To Be Well Capitalized

Actual

Under CBLR Framework
(dollars in thousands)

Amount

Ratio

Amount

Ratio
Tier 1 capital (to average assets)

Corporation

$
153,300

9.28%

$
132,220

8.00%
Bank

190,892

11.55%

132,219

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
	Actual				To Be Well Capitalized Under CBLR Framework
(dollars in thousands)	Amount		Ratio		Amount		Ratio
Tier 1 capital (to average assets)
Corporation	$	161,066	8.87	%	$	163,434	9.00	%
Bank	197,192		10.86	%	163,432		9.00	%


	December 31, 2021
	Actual				To Be Well Capitalized Under CBLR Framework
(dollars in thousands)	Amount		Ratio		Amount		Ratio
Tier 1 capital (to average assets)
Corporation	$	160,379	9.39	%	$	136,621	8.00	%
Bank	196,506		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~~

Liquidity

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~~quarter of 2020, the Bank adopted the CBLR framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.~~

~~Liquidity~~

Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Meridian’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization or that can be used as collateral to secure funding. In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of shared national credits (“SNCs”), which have a national market and can be sold in a timely manner. Meridian’s ~~primary~~available liquidity, which totaled ~~$323.0~~$286.6 million at ~~September~~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 ~~September~~June 30, ~~2021.~~2022. At ~~September~~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 ~~September~~June 30, ~~2021,~~2022, Meridian’s maximum borrowing capacity with the FHLB was ~~$533.4~~$484.1 million. At ~~September~~June 30, ~~2021,~~2022, Meridian had borrowed ~~$22.3~~$59.1 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling ~~$128.5~~$56.1 million against its available credit lines. At ~~September~~June 30, ~~2021,~~2022, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as ~~$263.2~~$188.4 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and ~~$397.0~~$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 ~~September~~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 ~~$8.3~~$6.9 million and ~~$23.5~~$15 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to income before tax of ~~$2.6~~$7.7 million and ~~$7.9~~$15 million for the same periods in ~~2020.~~2021. The Banking Segment provided ~~67.5%~~89.7% and ~~64.7%~~101.9% of the Corporation’s pre-tax profit for the three and ~~nine~~six month periods ended ~~September~~June 30, ~~2021,~~2022, as compared to ~~21.5%~~71.4% and ~~34.9%~~62.2% for the same ~~periods~~period in ~~2020.~~

2021.

The Wealth Management Segment recorded income before tax of ~~$432~~$749 thousand and ~~$796 thousand~~$1.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to income before tax of ~~$144~~$376 thousand and ~~$452~~$604 thousand for the same periods in ~~2020.~~

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, 2022, respectively.

The Mortgage Banking Segment recorded income before tax of ~~$3.6 million~~$41 thousand and ~~$12.1~~a loss before tax of 1.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, as compared to income before tax of ~~$9.3~~$2.7 million and ~~$14.3~~$8.5 million for the same periods in ~~2020.~~2021. Mortgage Banking income and expenses related to loan originations and sales ~~increased~~decreased due to ~~higher~~lower 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.

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Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at ~~September~~June 30, ~~2021~~2022 were ~~$505.0~~$488.6 million, as compared to ~~$421.4~~$486.6 million at December 31, ~~2020.~~

2021.

Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at ~~September~~June 30, ~~2021~~2022 amounted to ~~$17.7~~$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 ~~one loan in the amount of $115~~two loans totaling $612 thousand for the three months ended ~~September~~June 30, ~~2021~~2022, and ~~a total of four~~six loans totaling ~~$561 thousand~~$1.5 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021. The Corporation~~2022, and repurchased ~~one loan~~three loans in the amount of ~~$154~~$446 thousand for the three and ~~nine~~six months ended ~~September~~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 ~~September~~June 30, ~~2021~~2022 to ensure that the information required to be disclosed by the Corporation in the reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized, and reported completely and accurately within the time periods specified in SEC rules and forms.

Changes inInternal Control Over Financial Reporting

There was no change in the Corporation’s internal control over financial reporting identified during the quarter ended ~~September~~June 30, ~~2021~~2022 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 ~~third~~second quarter of ~~2021.~~

Issuer Purchases of Equity Securities

Total Number of

Maximum Number

Shares Purchased

of Shares that May

as Part of Publicly

Yet Be Purchased


Total Number of

Average Price Paid

Announced Plans or

Under the Plan or
Period

Shares Purchased

Per Share

Programs (1)

Programs
July 1, 2021 - July 31, 2021

4,427

$
27.11

4,427

132,486
August 1, 2021 - August 31, 2021

19,316

27.15

19,316

132,486
September 1, 2021 - September 30, 2021

54,748

28.02

54,748

132,486
Total

78,491

$
27.41

78,491

132,486

2022.


	Issuer Purchases of Equity Securities
				Total Number of	Maximum Number
				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price Paid		Announced Plans or	Under the Plan or
Period	Shares Purchased	Per Share		Programs (1)	Programs
April 1, 2022 to April 30, 2022	19,042	$	31.71	19,042	487,463
May 1, 2022 to May 31, 2022	25,664		31.48	25,664	487,463
June 1, 2022 to June 30, 2022	52,679		30.33	52,679	487,463
Total	97,385	$	31.14	97,385	487,463

(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.

~~(1)~~

On April 26, 2021, the Corporation announced 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.

~~(2)~~

As of September 30, 2021, the maximum number of shares remaining authorized for repurchase was approximately 132,486, based on funds remaining under the plan of approximately $3.8 million and a share price of $28.73 as of September 30, 2021.

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 57.~~

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

Table of Contents

EXHIBIT INDEX

Exhibit Number	~~Description~~
~~2.1~~ Exhibit Number		Description
2.1		Plan of Merger and Reorganization dated April 26, 2018 by and between Registrant, Bank and Meridian Interim Bank, filed as Exhibit 2.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.
3.1		Amended Articles of Incorporation of Registrant, filed ~~as Exhibit 3.1 to Form 10-Q on August 16, 2021 and incorporated herein by reference.~~herewith.
3.2		Bylaws of Registrant, filed as Exhibit 3.2 to Form 8-K on August 24, 2018 and incorporated herein by reference.
4.2		Indenture, dated as of December 18, 2019, between Meridian Corporation, as Issuer, and U.S. Bank National Association, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed with the SEC on December 18, 2019.
4.3		Form of 5.375% Subordinated Note due 2029 (included as Exhibit A-1 and Exhibit A-2 to the Indenture incorporated by reference as Exhibit 4.2 hereto), filed with the SEC on December 18, 2019.
31.1		Rule 13a-14(a)/ 15d-14(a) Certification of the Principal Executive Officer, filed herewith.
31.2		Rule 13a-14(a)/ 15d-14(a) Certification of the Principal Financial Officer, filed herewith.
32		Section 1350 Certifications, filed herewith.
101.INS		XBRL Instance Document – The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104		Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

Table of Contents

SIGNATURES

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

~~Date:~~	~~November 15, 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)


	September 30,		December 31,
(dollars in thousands, except per share data)	2021		2020
Cash and due from banks	$	45,875	34,190
Federal funds sold		17,246	2,554
Cash and cash equivalents		63,121	36,744
Securities available-for-sale (amortized cost of $145,129 and $120,215 as of September 30, 2021 and December 31, 2020)		146,149	123,562
Securities held-to-maturity (fair value of $6,660 and $6,857 as of September 30, 2021 and December 31, 2020)		6,406	6,510
Equity investments		1,011	1,031
Mortgage loans held for sale (amortized cost of $116,968 and $225,007 as of September 30, 2021 and December 31, 2020), at fair value		117,996	229,199
Loans, net of fees and costs (includes $17,142 and $12,182 of loans at fair value, amortized cost of $16,515 and $11,514 as of September 30, 2021 and December 31, 2020)		1,378,670	1,284,764
Allowance for loan and lease losses		(18,976)	(17,767)
Loans, net of the allowance for loan and lease losses		1,359,694	1,266,997
Restricted investment in bank stock		4,162	7,861
Bank premises and equipment, net		8,242	7,777
Bank owned life insurance		22,362	12,138
Accrued interest receivable		5,080	5,482
Deferred income taxes		1,457	62
Servicing assets		11,932	5,617
Goodwill		899	899
Intangible assets		3,430	3,601
Other assets		10,504	12,717
Total assets	$	1,762,445	1,720,197
Liabilities:
Deposits:
Non-interest bearing	$	265,842	203,843
Interest bearing		1,173,205	1,037,492
Total deposits		1,439,047	1,241,335
Short-term borrowings		22,278	106,862
Long-term debt		78,405	165,546
Subordinated debentures		40,760	40,671
Accrued interest payable		663	1,154
Other liabilities		22,876	23,007
Total liabilities		1,604,029	1,578,575
Stockholders’ equity:
Common stock, $1 par value. Authorized 25,000,000 and 10,000,000 shares as of September 30, 2021 and December 31, 2020; issued 6,506,028 and 6,455,566 as of September 30, 2021 and December 31, 2020		6,506	6,456
Surplus		82,508	81,196
Treasury stock - 398,491 and 320,000 shares at September 30, 2021 and December 31, 2020		(8,025)	(5,828)
Unearned common stock held by employee stock ownership plan		(1,768)	(1,768)
Retained earnings		78,408	59,010
Accumulated other comprehensive income		787	2,556
Total stockholders’ equity		158,416	141,622
Total liabilities and stockholders’ equity	$	1,762,445	1,720,197


	Three months ended				Nine months ended
	September 30,				September 30,
(dollars in thousands, except per share data)	2021		2020		2021	2020
Interest income:
Loans, including fees	$	17,626	15,321	$	51,287	43,048
Securities:
Taxable		284	251		837	920
Tax-exempt		379	305		1,125	698
Cash and cash equivalents		17	3		25	63
Total interest income		18,306	15,880		53,274	44,729
Interest expense:
Deposits		1,327	2,235		4,261	8,064
Borrowings		722	930		2,224	2,687
Total interest expense		2,049	3,165		6,485	10,751
Net interest income		16,257	12,715		46,789	33,978
Provision for loan losses		597	3,956		1,292	7,139
Net interest income after provision for loan losses		15,660	8,759		45,497	26,839
Non-interest income:
Mortgage banking income		18,726	21,812		62,293	45,395
Wealth management income		1,232	951		3,531	2,825
SBA loan income		2,688	641		5,423	1,821
Earnings on investment in life insurance		93	70		224	210
Net change in the fair value of derivative instruments		(339)	3,028		(3,431)	6,346
Net change in the fair value of loans held-for-sale		(532)	2,932		(3,164)	4,424
Net change in the fair value of loans held-for-investment		37	93		(24)	174
Net gain (loss) on hedging activity		(1,189)	(2,637)		2,397	(7,363)
Net gain on sale of investment securities available-for-sale		314	1,290		362	1,345
Service charges		35	28		99	77
Other		1,057	852		3,192	1,718
Total non-interest income		22,122	29,060		70,902	56,972
Non-interest expenses:
Salaries and employee benefits		19,472	20,447		61,824	46,529
Occupancy and equipment		1,133	1,108		3,460	3,159
Professional fees		873	681		2,629	2,118
Advertising and promotion		1,089	781		2,795	1,996
Data processing		530	460		1,666	1,260
Information technology		476	394		1,365	1,100
Pennsylvania bank shares tax		152	254		478	734
Other		1,756	1,709		5,773	4,256
Total non-interest expenses		25,481	25,834		79,990	61,152
Income before income taxes		12,301	11,985		36,409	22,659
Income tax expense		2,863	2,773		8,543	5,218
Net income	$	9,438	9,212	$	27,866	17,441
Basic earnings per common share	$	1.56	1.51	$	4.62	2.83
Diluted earnings per common share	$	1.52	1.51	$	4.49	2.82


					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
Comprehensive income:
Net income						9,212		9,212
Change in unrealized gains on securities available-for-sale, net of tax							(685)	(685)
Total comprehensive income								8,527
Dividends paid or accrued, $0.125 per share						(763)		(763)
Shares purchased for ESOP plan (133,601)					(2,000)			(2,000)
Common stock issued through share-based awards and exercises		36	337					373
Stock based compensation			177					177
Balance, September 30, 2020	$	6,450	80,981	(5,828)	(2,000)	50,775	1,454	131,832


	September 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	$	21,120	199	(26)	21,293	4
U.S. government agency mortgage-backed securities		5,351	137	(29)	5,459	1
U.S. government agency collateralized mortgage obligations		23,712	483	(142)	24,053	7
State and municipal securities		72,415	874	(461)	72,828	23
U.S. Treasuries		15,082	6	(78)	15,010	11
Non-U.S. government agency collateralized mortgage obligations		999	—	—	999	1
Corporate bonds		6,450	73	(16)	6,507	4
Total securities available-for-sale	$	145,129	1,772	(752)	146,149	51
Securities held-to-maturity:
State and municipal securities		6,406	254	─	6,660	—
Total securities held-to-maturity	$	6,406	254	—	6,660	—


	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	—


	September 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	$	4,158	(26)	—	—	4,158	(26)
U.S. government agency mortgage-backed securities		1,614	(29)	—	—	1,614	(29)
U.S. government agency collateralized mortgage obligations		7,315	(142)	—	—	7,315	(142)
State and municipal securities		34,808	(451)	568	(10)	35,376	(461)
U.S. Treasuries		12,049	(78)	—	—	12,049	(78)
Corporate bonds		2,244	(6)	439	(10)	2,683	(16)
Total securities available-for-sale	$	62,188	(732)	1,007	(20)	63,195	(752)


	September 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		—	—	3,133	3,197		—	—	3,181	3,288
Due after five years through ten years		28,999	29,010	3,273	3,463		12,035	12,095	3,329	3,569
Due after ten years		86,068	86,628	—	—		81,316	83,512	—	—
Subtotal		115,067	115,638	6,406	6,660		93,351	95,607	6,510	6,857
Mortgage-related securities		30,062	30,511	—	—		26,864	27,955	—	—
Total	$	145,129	146,149	6,406	6,660	$	120,215	123,562	6,510	6,857


						Total
			90+ days			Accruing	Nonaccrual	Total loans
September 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	$	—	—	—	542,473	542,473	—	542,473	—	%
Home equity lines and loans		65	—	65	51,844	51,909	910	52,819	1.85
Residential mortgage (1)		143	—	143	56,874	57,017	2,278	59,295	4.08
Construction		—	—	—	162,192	162,192	—	162,192	—
Commercial and industrial		770	—	770	273,117	273,887	5,089	278,976	2.10
Small business loans		—	—	—	89,561	89,561	916	90,477	1.01
Paycheck Protection Program loans		2,422	—	2,422	116,163	118,585	—	118,585	2.04
Main Street Lending Program loans		—	—	—	592	592	—	592	—
Consumer		—	—	—	427	427	—	427	—
Leases, net		263	—	263	73,730	73,993	—	73,993	0.36
Total	$	3,663	—	3,663	1,366,973	1,370,636	9,193	1,379,829	0.93	%


	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
September 30, 2021	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	6,542	6,542	$	2,568	539,905	542,473
Home equity lines and loans		2	271	273		910	51,909	52,819
Residential mortgage		12	264	276		1,802	40,351	42,153
Construction		—	2,285	2,285		1,206	160,986	162,192
Commercial and industrial		1,526	4,088	5,614		3,651	275,325	278,976
Small business loans		376	2,723	3,099		1,057	89,420	90,477
Paycheck Protection Program loans		—	—	—		—	118,585	118,585	(2)
Main Street Lending Program		—	—	—		—	592	592	(2)
Consumer		—	3	3		—	427	427
Leases, net		—	884	884		—	73,993	73,993
Total	$	1,916	17,060	18,976	$	11,194	1,351,493	1,362,687	(1)


September 30, 2021			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	505,355	31,464	5,654	—	542,473
Home equity lines and loans		51,427	—	1,392	—	52,819
Construction		153,200	8,992	—	—	162,192
Commercial and industrial		222,041	35,756	21,179	—	278,976
Small business loans		87,161	—	3,316	—	90,477
Paycheck Protection Program loans		118,585	—	—	—	118,585
Main Street Lending Program loans		592	—	—	—	592
Total	$	1,138,361	76,212	31,541	—	1,246,114




	As of September 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	$	3,201	3,321	1,526	3,860	3,902	1,563
Small business loans		916	916	376	—	—	—
Home equity lines and loans		88	102	2	95	105	9
Residential mortgage		169	169	12	689	689	73
Total	$	4,374	4,508	1,916	4,644	4,696	1,645
Impaired loans without related allowance:
Commercial mortgage	$	2,568	2,568	—	1,606	1,642	—
Commercial and industrial		450	515	—	785	862	—
Small business loans		141	141	—	185	185	—
Home equity lines and loans		822	836	—	826	839	—
Residential mortgage		1,633	1,633	—	1,128	1,128	—
Construction		1,206	1,206	—	1,206	1,206	—
Total		6,820	6,899	—	5,736	5,862	—
Grand Total	$	11,194	11,407	1,916	10,380	10,558	1,645


				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2021		2020
Open Repo Plus Weekly	05/31/2022	0.33	%		—	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
Mid-term Repo-fixed	12/10/2021	0.16			10,000	10,000
Mid-term Repo-fixed	01/27/2021	0.23			—	5,465
Mid-term Repo-fixed	06/29/2022	0.32			7,392	—
Mid-term Repo-fixed	09/12/2022	0.23			4,886	—
Total				$	22,278	106,862


	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2021		2020	2021		2020
Balance at beginning of the period	$	8,942	1,294	$	4,647	446
Servicing rights capitalized		1,360	1,333		5,856	2,469
Amortization of servicing rights		(316)	(90)		(786)	(173)
Change in valuation allowance		111	102		380	(103)
Balance at end of the period	$	10,097	2,639	$	10,097	2,639


		September 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	$	63,121	63,121	36,744	36,744
Securities available-for-sale	Level 2		146,149	146,149	123,562	123,562
Securities held-to-maturity	Level 2		6,406	6,660	6,510	6,857
Equity investments	Level 2		1,011	1,011	1,031	1,031
Mortgage loans held for sale	Level 2		117,996	117,996	229,199	229,199
Loans receivable, net of the allowance for loan and lease losses	Level 3		1,361,528	1,391,260	1,272,582	1,289,776
Mortgage loans held for investment	Level 2		17,142	17,142	12,182	12,182
Interest rate lock commitments	Level 3		1,712	1,712	6,932	6,932
Forward commitments	Level 2		447	447	—	—
Restricted investment in bank stock	NA		4,162	NA	7,861	NA
Accrued interest receivable	Level 3		5,080	5,080	5,482	5,482
Customer derivatives - interest rate swaps	Level 2		1,052	1,052	1,118	1,118
Financial liabilities:
Deposits	Level 2		1,439,047	1,552,500	1,241,335	1,392,500
Short-term borrowings	Level 2		22,278	22,278	106,862	106,862
Long-term debt	Level 2		78,405	79,373	165,546	168,000
Subordinated debentures	Level 2		40,760	41,859	40,671	38,375
Accrued interest payable	Level 2		663	663	1,154	1,154
Interest rate lock commitments	Level 3		360	360	100	100
Forward commitments	Level 2		22	22	1,572	1,572
Customer derivatives - interest rate swaps	Level 2		1,101	1,101	1,219	1,219

		Notional			Notional
Off-balance sheet financial instruments:		amount		Fair value	amount	Fair value
Commitments to extend credit	Level 2	$	505,018	1,712	421,399	6,932
Letters of credit	Level 2		17,711	—	8,928	—


	Segment Information
	Three Months Ended September 30, 2021					Three Months Ended September 30, 2020
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	15,777	2	478	16,257	$	12,104	(19)	630	12,715
Provision for loan losses		597	—	—	597		3,956	—	—	3,956
Net interest income after provision		15,180	2	478	15,660		8,148	(19)	630	8,759

Non-interest Income
Mortgage banking income		215	—	18,511	18,726		574	—	21,238	21,812
Wealth management income		—	1,232	—	1,232		—	951	—	951
SBA income		2,688	—	—	2,688		641	—	—	641
Net change in fair values		13	—	(847)	(834)		(4)	—	6,057	6,053
Net loss on hedging activity		—	—	(1,189)	(1,189)		—	—	(2,637)	(2,637)
Other		836	—	663	1,499		2,045	—	195	2,240
Non-interest income		3,752	1,232	17,138	22,122		3,256	951	24,853	29,060
Non-interest expense		10,633	802	14,046	25,481		8,829	788	16,217	25,834
Income before income taxes	$	8,299	432	3,570	12,301	$	2,575	144	9,266	11,985
Total Assets	$	1,625,468	6,396	130,581	1,762,445	$	1,525,883	5,399	227,366	1,758,648


	Nine Months Ended September 30, 2021					Nine Months Ended September 30, 2020
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	45,340	(249)	1,698	46,789	$	32,725	(24)	1,277	33,978
Provision for loan losses		1,292	—	—	1,292		7,139	—	—	7,139
Net interest income after provision		44,048	(249)	1,698	45,497		25,586	(24)	1,277	26,839

Non-interest Income
Mortgage banking income		892	—	61,401	62,293		973	—	44,422	45,395
Wealth management income		—	3,531	—	3,531		—	2,825	—	2,825
SBA income		5,423	—	—	5,423		1,821	—	—	1,821
Net change in fair values		52	—	(6,671)	(6,619)		(68)	—	11,012	10,944
Net gain (loss) on hedging activity		—	—	2,397	2,397		—	—	(7,363)	(7,363)
Other		2,110	—	1,767	3,877		2,931	14	405	3,350
Non-interest income		8,477	3,531	58,894	70,902		5,657	2,839	48,476	56,972
Non-interest expense		28,981	2,486	48,523	79,990		23,341	2,363	35,448	61,152
Income before income taxes	$	23,544	796	12,069	36,409	$	7,902	452	14,305	22,659
Total Assets	$	1,625,468	6,396	130,581	1,762,445	$	1,525,883	5,399	227,366	1,758,648


	Segment Information
	Six Months Ended June 30, 2022					Six Months Ended June 30, 2021
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank	Wealth	Mortgage	Total
Net interest income	$	32,533	411	642	33,586	29,324	(11)	1,220	30,533
Provision for loan losses	1,217		—	—	1,217	695	—	—	695
Net interest income after provision	31,316		411	642	32,369	28,629	(11)	1,220	29,838

Non-interest Income
Mortgage banking income	322		—	13,716	14,038	676	—	42,891	43,567
Wealth management income	—		2,558	—	2,558	—	2,299	—	2,299
SBA income	2,957		—	—	2,957	2,735	—	—	2,735
Net change in fair values	103		—	(3,412)	(3,309)	39	—	(5,824)	(5,785)
Net gain on hedging activity	—		—	4,542	4,542	—	—	3,587	3,587
Other	1,153		—	1,566	2,719	1,274	—	1,103	2,377
Non-interest income	4,535		2,558	16,412	23,505	4,724	2,299	41,757	48,780
Non-interest expense	20,833		1,700	18,606	41,139	18,348	1,684	34,478	54,510
Income (loss) before income taxes	$	15,018	1,269	(1,552)	14,735	15,005	604	8,499	24,108

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


Date	Date of	Date		Quarterly		Special
Declared	Record	Paid		Dividend		Dividend
January 28, 2021	February 8, 2021	February 22, 2021	$	0.125	$	—
February 16, 2021	March 1, 2021	March 15, 2021		—		1.00
April 22, 2021	May 10, 2021	May 17, 2021		0.125		—
July 22, 2021	August 9, 2021	August 16, 2021		0.125		—


	2021 Compared to 2020
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	Rate		Volume	Total	Rate		Volume	Total
Interest income:
Due from banks	$	4	10	14	$	(41)	36	(5)
Federal funds sold		(1)	(0)	(1)		(43)	10	(33)
Investment securities⁽¹⁾		(406)	528	122		(790)	1,225	435
Loans held for sale		153	(429)	(276)		(337)	958	621
Loans held for investment⁽¹⁾		1,464	1,116	2,580		797	6,825	7,622
Total loans		1,617	687	2,304		460	7,783	8,243
Total interest income	$	1,214	1,225	2,439	$	(414)	9,054	8,640
Interest expense:
Interest bearing deposits	$	(653)	462	(191)	$	(1,093)	530	(563)
Money market and savings deposits		(852)	935	83		(1,813)	1,582	(231)
Time deposits		(588)	(213)	(801)		(2,329)	(680)	(3,009)
Total interest bearing deposits		(2,093)	1,184	(909)		(5,235)	1,432	(3,803)
Total borrowings		(56)	(152)	(208)		(296)	(167)	(463)
Subordinated debentures		4	(4)	—		21	(21)	—
Total interest expense		(2,145)	1,028	(1,117)		(5,510)	1,244	(4,266)
Interest differential	$	3,359	197	3,556	$	5,096	7,810	12,906


	Estimated increase
	(decrease) in Net Interest
	Income
	For the year ending
	September 30,
Changes in Market Interest Rates	2021		2020
+300 basis points over next 12 months	1.75	%	1.98	%
+200 basis points over next 12 months	1.01	%	0.95	%
+100 basis points over next 12 months	0.43	%	0.15	%
No Change
-100 basis points over next 12 months	(0.68)	%	(4.33)	%
-200 basis points over next 12 months	(3.03)	%	(14.19)	%

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 September 30, 2021 and 2020, 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 September 30,
Changes in Market Interest Rates	2021		2020
+300 basis points	62	%	129	%
+200 basis points	47	%	98	%
+100 basis points	28	%	57	%
No Change
-100 basis points	(41)	%	(83)	%
-200 basis points	(103)	%	(213)	%


					Greater
					Than
					5 years and
As of September 30, 2021	12 Months				Not Rate
(dollars in thousands)	or Less		1-2 Years	2-5 Years	Sensitive	Total
Cash and investments	$	81,095	5,172	19,318	111,102	216,687
Loans (1)		953,683	185,714	330,199	8,094	1,477,690
Other Assets		—	—	—	68,068	68,068
Total Assets	$	1,034,778	190,886	349,517	187,264	1,762,445

Non-interest bearing deposits		9,324	8,994	26,075	221,449	265,842
Interest bearing deposits		949,760	—	—	—	949,760
Time deposits		142,699	18,786	61,960	—	223,445
Borrowings		65,232	22,704	12,747	—	100,683
Other Liabilities		—	—	—	64,299	64,299
Total stockholders' equity		—	—	—	158,416	158,416
Total liabilities and stockholders' equity	$	1,167,015	50,484	100,782	444,164	1,762,445

Repricing gap:
Positive (negative)	$	(132,237)	140,402	248,735	(256,900)	—
Cumulative repricing gap: Dollar amount	$	(132,237)	8,165	256,900	—
Percent of total assets		(7.5)%	0.5%	14.6%	—


	As of
	September 30,		December 31,
(dollars in thousands)	2021		2020
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Commercial mortgage	$	—		3,061
Shared national commercial credits		—		—
Home equity lines and loans		910		859
Residential mortgage		2,278		2,725
Total real estate loans	$	3,188		6,645
Commercial and industrial		5,089		1,285
Small business loans		916
Total nonaccrual loans	$	9,193		7,930
Total non-performing loans	$	9,193		7,930
Total non-performing assets	$	9,193		7,930

Troubled debt restructurings:
TDRs included in non-performing loans		367		244
TDRs in compliance with modified terms		2,476		3,362
Total TDRs	$	2,843		3,606

Asset quality ratios:
Non-performing assets to total assets		0.52%		0.46%
Non-performing loans to:
Total loans and leases		0.61%		0.52%
Total loans held-for-investment		0.67%		0.62%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		0.74%		0.74%
Allowance for loan losses to:
Total loans and leases		1.27%		1.17%
Total loans held-for-investment		1.38%		1.38%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		1.52%		1.65%
Non-performing loans		206.42%		224.04%

Total loans and leases	$	1,496,666		1,513,963
Total loans and leases held-for-investment	$	1,378,670		1,284,764
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)	$	1,245,895		1,072,727
Allowance for loan and lease losses	$	18,976		17,767


	September 30, 2021
				To Be Well Capitalized
	Actual			Under CBLR Framework
(dollars in thousands)	Amount		Ratio	Amount		Ratio
Tier 1 capital (to average assets)
Corporation	$	153,300	9.28%	$	132,220	8.00%
Bank		190,892	11.55%		132,219	8.00%


	Issuer Purchases of Equity Securities
				Total Number of	Maximum Number
				Shares Purchased	of Shares that May
				as Part of Publicly	Yet Be Purchased
	Total Number of	Average Price Paid		Announced Plans or	Under the Plan or
Period	Shares Purchased	Per Share		Programs (1)	Programs
July 1, 2021 - July 31, 2021	4,427	$	27.11	4,427	132,486
August 1, 2021 - August 31, 2021	19,316		27.15	19,316	132,486
September 1, 2021 - September 30, 2021	54,748		28.02	54,748	132,486
Total	78,491	$	27.41	78,491	132,486