FORM 10-K
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(State or other jurisdiction of | (I.R.S. Employer Identification No.) | ||||
(484)
Title of Each Class | Trading Symbol(s) | Name of Exchange on Which Registered | ||||||
Common Stock, par value $1 per share | MRBK | The Nasdaq Stock Market LLC | ||||||
Large accelerated filer | ☐ | Accelerated filer | ☒ | Non-accelerated filer | ☐ | ||||||||||||
Smaller reporting company | ☒ | Emerging growth company |
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The acronyms, abbreviations, and terms listed below are used in various sections of this report. As used throughout this report, the terms "Meridian", “we”, “our”, or “us” refer to Meridian Corporation and its consolidated subsidiaries, unless the context otherwise requires.
| Acronym | Description | ||||
| ACH | Automated clearing house | ||||
| ACL | Allowance for credit losses | ||||
| AFS | Available-for-sale | ||||
| AI | Artificial intelligence | ||||
| ALCO | Asset/Liability Committee | ||||
| ALM | Asset / liability management | ||||
| AOCI | Accumulated other comprehensive income | ||||
| ASC | Accounting Standards Codification | ||||
| ASU | Accounting Standards Update | ||||
| BHC Act | Bank Holding Company Act of 1956 | ||||
| BOLI | Bank owned life insurance | ||||
| BSA-AML | Bank Secrecy Act - Anti-Money Laundering | ||||
| CBCA | Change in Bank Control Act | ||||
| CBLR | Community Bank Leverage Ratio | ||||
| CDARS | Certificate of Deposit Account Registry Service | ||||
| CECL | Current expected credit losses | ||||
| CET1 | Common equity tier 1 | ||||
| CFPB | Consumer Financial Protection Bureau | ||||
| CMO | Collateralized mortgage obligation | ||||
| COVID-19 | Coronavirus Disease 2019 | ||||
| CRE | Commercial real estate | ||||
| DIF | FDIC’s deposit insurance fund | ||||
| ECOA | Equal Credit Opportunity Act | ||||
| ESOP | Employee Stock Ownership Plan | ||||
| FASB | Financial Accounting Standards Board | ||||
| FDIA | Federal Deposit Insurance Act | ||||
| FDIC | Federal Deposit Insurance Corporation | ||||
| FFIEC | Federal Financial Institutions Examination Council | ||||
| FHA | Federal Housing Authority | ||||
| FHFA | Federal Housing Finance Agency | ||||
| FHLB | Federal Home Loan Bank of Pittsburgh | ||||
| FHLMC | Federal Home Loan Mortgage Corporation or Freddie Mac | ||||
| FICO | Financing Corporation | ||||
| FNMA | Federal National Mortgage Association or Fannie Mae | ||||
| FRB | Federal Reserve Bank of Philadelphia | ||||
| FTE | Fully taxable equivalent | ||||
| GAAP | U.S. generally accepted accounting principles | ||||
| GLB Act | Gramm-Leach-Bliley Act | ||||
| GNMA | Government National Mortgage Association or Ginnie Mae | ||||
| GSE | Government-sponsored entities | ||||
| HTM | Held-to-maturity | ||||
| ICBA | Independent Community Bankers of America | ||||
| JOBS Act | Jumpstart Our Business Startups Act of 2012 | ||||
| LBP | Look-back period | ||||
| LEP | Loss emergence period | ||||
| LIBOR | London Inter-bank Offering Rate | ||||
| MBS | Mortgage-backed securities | ||||
| MSLP | Main Street Lending Programs | ||||
| MSR | Mortgage servicing rights | ||||
| NSFR | Net stable funding ratio | ||||
| OFAC | Office of Foreign Assets Control | ||||
| OREO | Other real estate owned | ||||
| PCAOB | Public Company Accounting Oversight Board | ||||
| PDBS | Pennsylvania Department of Banking and Securities | ||||
| ROU | Right-of-use | ||||
| SBA | Small Business Administration | ||||
| SEC | Securities and Exchange Commission | ||||
| SERP | Supplemental Executive Retirement Plan | ||||
| SNC | Shared national credit | ||||
| TILA | Truth in Lending Act | ||||
| TDR | Troubled debt restructuring | ||||
| USDA | U.S. Department of Agriculture | ||||
| VA | U.S. Department of Veteran’s Affairs | ||||
| Local, regional, national and international economic conditions and the impact they may have on us and our customers and our assessment of that impact. •Volatility and disruption in national and international financial markets. •Adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments. • |
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- Government intervention in the U.S. financial system.
•Changes in the mix of loan geographies, sectors and types or the level of non-performing assets and charge-offs. •Our ability to manage our commercial real estate exposure. •Changes in estimates of future reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements. •The effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board. •Inflation, interest rate, securities market and monetary fluctuations. •The effect of changes in laws and regulations (including laws and regulations concerning taxes, banking, securities and insurance) with which we and our subsidiaries must comply. • |
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- Impairment of our goodwill or other intangible assets.
•Acts of God or of war or terrorism. •Changes in consumer spending, borrowings and savings habits. •Changes in the financial performance and/or condition of our borrowers. •Technological changes, including the rise of AI as a commonly used resource. •The cost and effects of cyber incidents or other failures, interruption or security breaches of our systems or those of third-party providers. •Acquisitions and integration of acquired businesses. •Our ability to increase market share and control expenses. •Our ability to attract and retain qualified employees. •Changes in the competitive environment in our markets and among banking organizations and other financial service providers. •The effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the PCAOB, the FASB and other accounting standard setters. • |
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- Changes in the reliability of our vendors, internal control systems or information systems.
the ability to obtain required regulatory approvals. • |
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- Greater than expected costs or difficulties related to the integration of new products and lines of business.
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information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridianthe Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridianthe Corporation or by or on behalf of Meridian Bank, except as may be required under applicable laws.
Meridian
We have a strong credit culture that promotes diversity of lending products with a focus on commercial businesses. We have no particular credit concentration. Our commercial loans have been proactively managed in an effort to achieve a balanced portfolio with no unusual exposure to one industry.
Our commercial and industrial lending department supports our small business and middle market borrowers with a comprehensive selection of loan products including financing solutions for wholesalers, manufacturers, distributors, service providers, importers and exporters, among others. Our portfolio includes business lines of credit, term loans, small businessSBA lending, (“SBA”), lease financing, other financings, and shared national credits (“SNCs”).
SNCs. We have no particular credit concentration. Our commercial loans have been proactively managed in an effort to achieve a balanced portfolio with no unusual exposure to one industry.
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estate lending team, not only in banking, but also directly in the builder/developer fields, bring a unique perspective and ability to communicate and consider all elements of a project and related risk from the clients’ viewpoint as well as ours.
Maryland, and Florida.
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| United States | Pennsylvania | Maryland |
Population (1) | 308,449,281 | 13,002,700 | 6,177,224 |
Median household income (1) | $ 62,843 | $ 61,744 | $ 84,805 |
Unemployment rate (2) | 3.9% | 4.0% | 4.0% |
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| (dollars in thousands / population actual) | United States | Pennsylvania | Maryland | ||||||||
Population (1) | 308,449,281 | 13,002,700 | 6,177,224 | ||||||||
Median household income (1) | $ | 63 | $ | 62 | $ | 85 | |||||
Unemployment rate (2) | 3.70 | % | 3.50 | % | 2.00 | % | |||||
| Philadelphia Metropolitan Area Counties | ||||||||||||||||||||
| (dollars in thousands / population actual) | Bucks County | Montgomery County | Delaware County | Chester County | Philadelphia County | Total | ||||||||||||||
Population (1) | 645,054 | 864,683 | 575,182 | 545,823 | 1,567,258 | 4,198,000 | ||||||||||||||
Median household income (1) | $ | 99 | $ | 99 | $ | 80 | $ | 110 | $ | 53 | $ | 88 | ||||||||
Unemployment rate (2) | 2.50 | % | 2.40 | % | 2.70 | % | 2.10 | % | 3.70 | % | ||||||||||
| Baltimore Metropolitan Area Counties | ||||||||||||||||||||
| (dollars in thousands / population actual) | Howard County | Montgomery County | Anne Arundel County | Prince George's County | Baltimore County | Total | ||||||||||||||
Population (1) | 335,411 | 1,052,521 | 593,286 | 946,971 | 846,161 | 3,774,350 | ||||||||||||||
Median household income (1) | $ | 130 | $ | 117 | $ | 108 | $ | 91 | $ | 82 | $ | 106 | ||||||||
Unemployment rate (2) | 1.60 | % | 1.80 | % | 1.70 | % | 2.10 | % | 2.10 | % | ||||||||||
| Delaware Counties | Florida County | |||||||||||||||||||
| (dollars in thousands / population actual) | Kent County | Sussex County | New Castle County | Total | Lee County | |||||||||||||||
Population (1) | 188,946 | 255,956 | 575,494 | 1,020,396 | 822,453 | |||||||||||||||
Median household income (1) | $ | 64 | $ | 69 | $ | 78 | $ | 70 | $ | 63 | ||||||||||
Unemployment rate (2) | 4.1 | % | 3.9 | % | 3.5 | % | 3.7 | % | 3.0 | % | ||||||||||
(1) Source: U.S. Census Data – 2020 | ||||||||||||||||||||
(2) Source: U.S. Bureau of Labor Statistics – December 2023 | ||||||||||||||||||||
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| Philadelphia Metropolitan Area Counties | |||||
| Bucks County | Montgomery County | Delaware County | Chester County | Philadelphia County | Total |
Population (1) | 646,538 | 856,553 | 576,830 | 534,413 | 1,603,797 | 4,218,131 |
Median household income (1) | $ 89,139 | $ 91,546 | $ 74,477 | $ 100,214 | $ 45,927 | $ 80,261 |
Unemployment rate (2) | 3.3% | 3.0% | 3.9% | 2.5% | 5.8% | |
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| Baltimore Metropolitan Area Counties | |||||
| Howard County | Montgomery County | Anne Arundel County | Prince George's County | Baltimore County | Total |
Population (1) | 332,317 | 1,062,061 | 588,261 | 967,201 | 854,535 | 3,804,375 |
Median household income (1) | $ 121,160 | $ 108,820 | $ 100,798 | $ 84,920 | $ 76,866 | $ 98,513 |
Unemployment rate (2) | 3.0% | 3.6% | 3.3% | 5.0% | 3.9% | |
Competition
Overall, the banking business in our market area is highly competitive. MeridianThe Bank faces substantial competition both in attracting deposits and in originating loans. MeridianThe Bank competes with local, regional and national commercial banks, savings banks, and savings and loan associations. Other competitors include non-bank fintech and finance companies, money market mutual funds, mortgage bankers, insurance companies, securities brokerage firms, regulated small loan companies, credit unions, and issuers of commercial paper and other securities.
Meridian
services.
or on a hybrid work schedule.
participate in charitable activities in the communities we serve.
In order to compete effectively and continue to provide excellent service to our clients, we must attract, retain, and motivate qualified professionals. During the hiring process Meridian looks to bring onboard well-qualified individuals, without bias to race or gender. As we are currently in a very competitive hiring market, we utilize various methods to find well-qualified talent including third party search firms, social media, internal candidates already in our organization and on campus recruiting at local universities.
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During 20212023, we hired 8483 professionals, 46%41% of which were women, and 21%23% of which were ethnically diverse. For 20212023, our turnover rate was approximately 1.5%3%, which makes our overall retention rate very high compared to peers. We believe our culture, our effort to maintain a meritocracy in terms of opportunity and our continued evolution and growth contribute to our success in attracting and retaining strong talent.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”). An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company,
We have elected to take advantage of the scaled disclosure requirements and other relief described above and may take advantage of these exemptions for so long as we remain an emerging growth company. We will remain an emerging growth company until December 31, 2022, the end of the fiscal year following the fifth anniversary of the completion of our initial public offering.
In addition to scaled disclosure and the other relief described above, 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 herein, as well as any financial statements that we file2,003,183 shares held 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 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.
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Investors can obtain copies of Meridian’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, on Meridian’s website (accessible under “Investor Relations” – “SEC Filings”) as soon as reasonably practicable after Meridian has filed such materials with, or furnished them to, the SEC. Meridian will also furnish a paper copy of such filings free of charge upon request.
Also on our website are our Audit Committee and Compensation Committee Charters. The information contained in our website or in any websites linked by our website, is not part of this Annual Report on Form 10-K.
SUPERVISION AND REGULATION
Bank holding companies that qualify and elect to be treated as “financial holding companies” may engage in a broader range of additional activities than bank holding companies that are not financial holding companies. In particular, financial holding companies may engage in activities that are (i) financial in nature or incidental to such financial activities or (ii) complementary to a financial activity and do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include securities underwriting and dealing, insurance underwriting and making merchant banking investments. As of this filing, we have not elected to be treated as a financial holding company.
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Permissible Activities for Banks
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Dividends
MeridianThe Corporation is a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries of the Bank.subsidiaries. As a Pennsylvania banking institution, the Bank is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
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involve more than the normal risk of non-repayment or present other unfavorable features and may not exceed certain limitations on the amount of credit extended to such persons individually and in the aggregate.
Basel III and the Capital Rules. In July 2013, the federal banking regulators approved final rules, or the Capital Rules, implementing the Basel Committee’s December 2010 final capital framework for strengthening international capital standards, known as Basel III, and various provisions of the Dodd-Frank Act. The Capital Rules substantially revise the risk-based capital requirements applicable to bank holding companies and banks, including us, compared to the previous risk-based capital rules. The Capital Rules revise the components of capital and address other issues affecting the numerator in regulatory capital ratio calculations. The Capital Rules, among other things, (i) include a new capital measure called “Common Equity Tier 1” (“CET1”), (ii) specify that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting certain revised requirements, (iii) define CET1 narrowly by requiring that most deductions/adjustments to regulatory capital measures be made to CET1 and not to the other components of capital, and (iv) expand the scope of the deductions/adjustments to capital as compared to prior regulations.
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buffer, when the latter is applied) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.
In addition, under the general risk-based Capital Rules, the effects of accumulated other comprehensive income items included in capital were excluded for the purposes of determining regulatory capital ratios. Under the Capital Rules, the effects of certain accumulated other comprehensive income items are not excluded; however, non-advanced approaches banking organizations, including the Bank, were able to make a one-time permanent election to continue to exclude these items. The Bank made this election.
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Interagency Guidelines for Establishing Standards for Safety and Soundness. The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, asset quality, earnings and compensation, fees and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. These guidelines also prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. In addition, the agencies adopted regulations that authorize, but do not require, an agency to order an institution that has been given notice by an agency that it is not satisfying all safety and soundness standards to submit a compliance plan. If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the banking regulator must issue an order directing
The FDIC adopted a final rule effective June 26, 2020,to increase the initial base deposit insurance assessment rate schedules uniformly by 2 basis points beginning with the first quarterly assessment period of 2023. The increased assessment rate schedules would remain in effect unless and applieduntil the reserve ratio of the Deposit Insurance Fund meets or exceeds 2 percent. As a result of the new rule, the FDIC insurance costs of insured depository institutions, including Meridian Bank, would generally increase.
expense is currently uncertain.
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Depositor Preference
We are
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CFPB also has the authority to require reports from institutions with less than $10 billion in assets, such as the Bank, to support the CFPB in implementing federal consumer protection laws, supporting examination activities, and assessing and detecting risks to consumers and financial markets.
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activities and concentrations going forward.build upon previously issued guidance. The federal banking regulators previously issued guidance in December 2006, entitled “Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”, (the “2006 CRE Guidance”) which stated that an institution is potentially exposed to significant commercial real estate concentration risk, and should employ enhanced risk management practices, where (1) total commercial real estate loans represent 300% or more of its total capital and (2) the outstanding balance of such institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.
In March 2013, the
November 19, 2022.
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approve merger or acquisition transactions when regulatory approval is required or to prohibit such transactions even if approval is not required.
The Federal Reserve will review,
During the second quarter of 2016, certain U.S. regulators, including the Federal Reserve, the FDIC and the SEC, proposed revised rules on incentive-based payment arrangements at specified
Public companies will be required, once stock
Cybersecurity
In March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations60 days after a cyberattack involving destructive malware. A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyberattack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
In June 2016, federal regulators also issued a joint statementsuch listing standard becomes effective, which Meridian did on cybersecurity of interbank messaging and wholesale payment networks. This statement highlights that cyberattacks have targeted interbank messaging and wholesale payment networks, resulting in large-dollar fraud at several foreign institutions. The statement notes that financial institutions
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should review their risk management practices and controls over information technology and wholesale payment systems networks, including authentication, authorization, fraud detection, and response management systems and processes.
An increasing number of state laws and regulations have been enacted in recent years to implement privacy and cybersecurity standards and regulations, including data breach notification and data privacy requirements. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs that meet specified requirements. This trend of activity is expected to continue to expand, requiring continual monitoring of developments in the states and nations in which our customers are located and ongoing investments in our information systems and compliance capabilities.
In the ordinary course of business, we rely on electronic communications and information systems to conduct our operations and to store sensitive data. We employ an in-depth, layered, defensive approach that leverages people, processes and technology to manage and maintain cybersecurity controls. We employ a variety of preventative and detective tools to monitor, block, and provide alerts regarding suspicious activity, as well as to report on any suspected advanced persistent threats. Notwithstanding the strength of our defensive measures, the threat from cyberattacks is severe, attacks are sophisticated and increasing in volume, and attackers respond rapidly to changes in defensive measures. While to date, we have not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, our systems and those of our customers and third party service providers are under constant threat and it is possible that we could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by us and our customers.
Future Legislation and Regulation
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conditions in the United States or any of our local markets weaken, our growth and profitability from our operations could be constrained. The current economic environment is characterized by interest rates near historically lowhigh levels, which impacts our ability to attract deposits and to generate attractive earnings through our loan and investment portfolios. All of these factors can individually or in the aggregate be detrimental to our business, and the interplay between these factors can be complex and unpredictable. Unfavorable market conditions can result in a deterioration in the credit quality of our borrowers and the demand for our products and services, an increase in the number of delinquencies, defaults and charge-offs, additional provisions for loan losses, a decline in the value of our collateral, and an overall material adverse effect on the quality of our loan portfolio.
We May Be Adversely Impacted By The Transition From LIBOR As A Reference Rate
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (“LIBOR”). In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2021; but, the publication of the remaining LIBOR offered rates will continue until June 30, 2023. Given consumer protection, litigation, and reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2021, would create safety and soundness risks and that they will examine bank practices accordingly. Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate by December 31, 2021.
It is not possible to predict what rate or rates may become accepted alternatives to LIBOR, or what the effect of any such changes in views or alternatives may be on the markets for LIBOR-indexed financial instruments. In particular, regulators, industry groups and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended fall-back language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g., AMERIBOR or the Secured Overnight Financing Rate as the recommended alternative to U.S. Dollar LIBOR), and proposed implementations of the recommended alternatives in floating rate instruments.
At December 31, 2021, we do not have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR however, the transition from LIBOR could result in added costs and employee efforts and could present additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. Transition from LIBOR did not have a material impact on our business, financial condition and results of operations.
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In addition, an increase in market interest rates may affect the marketfair value of such instruments in earnings or AOCI each quarter. Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported earnings or AOCI. Fair value can be affected by a variety of factors, many of which are beyond our securities portfolio, potentially reducing accumulatedcontrol, including our credit position, interest rate volatility, capital markets volatility, and other comprehensive income and/or earnings.
economic factors. Accordingly, we are subject to mark-to-market risk and the application of fair value accounting may cause our earnings and AOCI to be more volatile than would be suggested by our underlying performance.
OurUsing inaccurate estimates and judgments to evaluate credit, operations, management, and market risks with respect to the target institution or its assets;
We may not be successful in overcoming these risks or any other problems encountered in connection with potential acquisitions. Our inability to overcome these risks could have an adverse effect on our ability to achieve our business strategy and could have an adverse effect on our financial condition and results of operations.
operations
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industry. Economic conditions and a loss of confidence in financial institutions may increase our cost of funding or access to certain customary sources of funds, including inter-bank borrowings, repurchase agreements and borrowings from the discount window of the Federal Reserve System.
As do many banking companies, we rely on customer deposits to meet a considerable portion of our funding needs, and we continue to seek customer deposits to maintain this funding base. We accept deposits directly from consumer and commercial customers and, as of December 31, 2021,2023, we had $1.4$1.8 billion in deposits. These deposits are subject to potentially dramatic fluctuations in availability or the price we must pay (in the form of interest) to obtain them due to certain factors outside our control, such as a loss of confidence by customers in us or the banking sector generally, customer perceptions of our financial health and general reputation, increasing competitive pressures from other financial services firms for consumer or corporate customer deposits, changes in interest rates and returns on other investment classes, which could result in significant outflows of deposits within short periods of time or significant changes in pricing necessary to maintain current customer deposits or attract additional deposits. The loss of customer deposits for any reason could increase our funding costs.
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decline in the confidence of debt purchasers, depositors of the Bank or counterparties participating in the capital markets or other disruption in capital markets, may adversely affect our capital costs and our ability to raise capital and, in turn, our liquidity. Further, if we need to raise capital in the future, we may have to do so when many other financial institutions are also seeking to raise capital and would then have to compete with those institutions for investors. An inability to raise additional capital on acceptable terms when needed could have a material adverse effect on our business, financial condition or results of operations and could be dilutive to both tangible book value and our share price.
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retailers and payment processors. Some of these parties have in the past been the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches
securing their information systems, over which we have limited control, and a breach of their information systems could adversely affect our ability to process transactions, service our clients or manage our exposure to risk and could result in the disclosure of sensitive, personal customer information, which could have a material adverse impact on our business through damage to our reputation, loss of business, remedial costs, additional regulatory scrutiny or exposure to civil litigation and possible financial liability. Assurance cannot be provided that we could negotiate terms with alternative service sources that are as favorable or could obtain services with similar functionality as found in existing systems without the need to expend substantial resources, if at all, thereby resulting in a material adverse impact on our business and results of operations.
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the preparation of our consolidated financial statements. The effect of such revised or new standards on our financial statements can be difficult to predict and can materially impact how we record and report our financial condition and results of operations.
Interest Rates
The COVID-19 pandemic created economic and financial disruptions that adversely affectedaffect our business, financial condition, liquidityasset quality, deposit levels, loan demand and results of operations. WhileAlso, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the pandemic-related restrictions imposedimpact of actual interest rate changes on our balance sheet.
instruments to hedge mortgage banking interest rate risk.
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We maintain an allowance
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concentrations; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherentCECL may result in greater volatility in the currentlevel of the allowance for credit losses, depending on various factors and assumptions applied in the model, such as the reasonable and supportable forecasted economic conditions and loan portfolio.
payment behaviors. Determination of the allowance is inherently subjective as it requires significant estimates and management’s judgment of credit risks and future trends, all of which may undergo material changes. Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loancredit losses. In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for loancredit losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for loancredit losses, we will need additional provisions to increase the allowance. Any increases in provisions will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.
In addition, in June 2016, the Financial Accounting Standards Board (the “FASB”) issued ASU 2016-13 (Topic 326 -Credit Losses), commonly referenced as the Current Expected Credit Loss (“CECL”). This standard will replace the current approach under GAAP for establishing allowances for loan and lease losses (the “Allowance”), which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired. Under the revised methodology, credit losses will be measured based on past events, current conditions and reasonable and supportable forecasts of future conditions that affect the collectability of financial assets. We are currently evaluating the effect that the new accounting standard will have on the consolidated financial statements and related disclosures. The standard will be effective for us as of January 1, 2023.
24
continuing their mortgage purchasing programs. Additionally, because the largest participants in the secondary market are Ginnie Mae, Fannie MaeGNMA, FNMA and Freddie Mac,FHLMC, GSEs whose activities are governed by federal law, any future changes in laws that significantly affect the activity of these GSEs could, in turn, adversely affect our operations. Since September 2008 Fannie MaeFNMA and Freddie MacFHLMC have been operating in a conservatorship setup by the U.S. government as a response to the financial crisis of 2008. The Federal Housing Finance Agency (“FHFA”)FHFA continues to carry out its responsibilities as conservator.
25
We are subject to environmental liability risk associated with our lending activities and with the propertyproperties we own.
Many of the loans in our portfolio are secured by real estate.
A significant decrease in Meridian Wealth’s assets under management could also lead to impairment of the goodwill recorded upon the acquisition of HJ Wealth in 2017. Goodwill is initially recorded at fair value and is not amortized, but is reviewed at least annually or more frequently if events or changes in circumstances indicate that the carrying value may not be fully recoverable. If our estimates of goodwill fair value change, we may determine that impairment charges are necessary. Estimates of fair value are determined based on a complex model using cash flows and company comparisons. If management’s estimates of future cash flows are inaccurate, the fair value determined could be inaccurate and impairment may not be recognized in a timely manner.
Risks Related to Interest Rates
Fluctuations in market interest rates, particularly in a continuing period of low market interest rates, and relative balances of rate-sensitive assets to rate-sensitive liabilities, can negatively impact net interest margin and net interest income.
Our results of operations are largely dependent on net interest income, which is the difference between the interest and fees earned on interest-earning assets and the interest paid on interest-bearing liabilities. Therefore, any change in general market interest rates, including changes resulting from the Federal Reserve Board’s policies, can have a significant effect on our net interest income and total income. There may be mismatches between the maturity and repricing of our assets and liabilities that could cause the net interest rate spread to compress, depending on the level and type of changes in the interest rate environment. Interest rates are highly sensitive to many factors that are beyond our control, including general
26
economic conditions and the policies of various governmental agencies. In addition, some of our customers often have the ability to prepay loans or redeem deposits with either no penalties or penalties that are insufficient to compensate us for the lost income. A significant reduction in our net interest income will adversely affect our business and results of operations. If we are unable to manage interest rate risk effectively, our business, financial condition and results of operations could be materially harmed.
Increases in interest rate may negatively impact the volume of mortgage originations and re-financings, adversely affecting the profitability of our mortgage segment. Increases in interest rates generally decrease the market values of loans held, the value of mortgage and other loans produced, including long term fixed-rate loans and the value of loans sold, mortgage loan activities and the collateral securing our loans, and therefore may adversely affect our liquidity and earnings, to the extent not offset by potential increases in our net interest margin.
Changes in interest rates might also impact the values of equity and debt securities under management and administration by the Meridian Wealth which may have a negative impact on fee income.
Like all financial institutions, the Corporation's consolidated statement of financial condition is affected by fluctuations in interest rates. See the section entitled “Interest Rate Risk” in Management’s Discussion and Analysis of Financial Condition, for the Corporation’s position on interest earning assets and interest bearing liabilities.
Risks Related to Regulation
27
We are subject to capital adequacy requirements and may be subject to more stringent capital requirements.
•actual or anticipated variations in our quarterly results of operations; •the failure of securities analysts to cover, or continue to cover, us after this offering; •operating and stock price performance of other companies that investors deem comparable to us; •news reports relating to trends, concerns and other issues in the financial services industry; •perceptions in the marketplace regarding us, our competitors or other financial institutions; • |
| future sales |
Because we have elected to use the extended transition period for complying with new or revised accounting standards for an “emerging growth company” our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 7(a)(2)(B) of the Securities Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with these accounting standards as of the public company effective dates. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates. Because our financial statements may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or comparing our business, performance or prospects in comparison to other public companies, which may have a negative impact on the value and liquidity of our common stock. We cannot predict if investors will findstock;
28
Certain banking laws and certain provisions of our articles of incorporation may have an anti-takeover effect.
2023.
Wayne Branch – 220 W Lancaster Avenue, Wayne, PA 19087
29
Item 3. Legal Proceedings
The following table presents
| | | | | | | | | |
| | 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 | |
October 1, 2021 - October 31, 2021 | | 25,935 | | $ | 29.56 | | 25,935 | | 80,837 |
November 1, 2021 - November 30, 2021 | | 2,267 | | | 31.71 | | 2,267 | | 80,837 |
Total | | 28,202 | | $ | 29.91 | | 28,202 | | 80,837 |
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Dividend Policy
| | | | | | | | | | |
Date | | Date of | | Date | | | Quarterly | | | Special |
Declared |
| Record | | Paid | | | Dividend | | | Dividend |
July 23, 2020 | | August 10, 2020 | | August 24, 2020 | | $ | 0.125 | | $ | — |
October 22, 2020 | | November 9, 2020 | | November 23, 2020 | | | 0.125 | | | — |
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 | | | — |
October 28, 2021 | | November 15, 2021 | | November 22, 2021 | | | 0.200 | | | — |
Special Dividends
On February 16, 2021, the Corporation’s Board of Directors declared a special dividend of $1.00 per share on its Common Stock, payable on March 15, 2021 to shareholders of record as of March 1, 2021.
On October, 28, 2021, the Corporation’s Board of Directors increased its quarterly dividend to $0.20 per share from $0.125 per share.
On January 27, 2022, the Corporation’s Board of Directors declared a special dividend of $1.00 per share on its Common Stock, payable on February 21, 2022 to shareholders of record as of February 14, 2022.
Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. Also, the Corporation and the Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities.
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| Date Declared | Date of Record | Date Paid | Quarterly Dividend $ | Special Dividend $ | ||||||||||||||||||||||
| January 27, 2022 | February 14, 2022 | February 21, 2022 | $ | — | $ | 0.50 | ||||||||||||||||||||
| April 28, 2022 | May 16, 2022 | May 23, 2022 | $ | 0.10 | $ | — | ||||||||||||||||||||
| July 28, 2022 | August 15, 2022 | August 22, 2022 | $ | 0.10 | $ | — | ||||||||||||||||||||
| October 27, 2022 | November 14, 2022 | November 21, 2022 | $ | 0.10 | $ | — | ||||||||||||||||||||
| January 26, 2023 | February 14, 2023 | February 21, 2023 | $ | 0.125 | $ | — | ||||||||||||||||||||
| April 27, 2023 | May 15, 2023 | May 22, 2023 | $ | 0.125 | $ | — | ||||||||||||||||||||
| July 27, 2023 | August 14, 2023 | August 21 2023 | $ | 0.125 | $ | — | ||||||||||||||||||||
| October 26, 2023 | November 13, 2023 | November 20, 2023 | $ | 0.125 | $ | — | ||||||||||||||||||||
Item 6. Selected Financial Data
Selected historical consolidated financial information
The following table should be read in conjunction with our Consolidated Financial Statements and related notes and "Management’s Discussion and Analysis of Financial Condition and Results of Operations", each of which is included elsewhere in this Annual Report on Form 10-K.
| | | | | | | | | | |
| As of and for the Years Ended December 31, | |||||||||
(Dollars in thousands, except per share data) | 2021 |
| 2020 |
| 2019 |
| 2018 |
| 2017 | |
Selected Period End Balance Sheet Data: | | | | | | | | | | |
Cash and cash equivalents | $ | 23,480 | | 36,744 | | 39,371 | | 23,952 | | 35,506 |
Investment securities | | 165,674 | | 130,072 | | 67,636 | | 63,169 | | 52,867 |
Loans receivable, gross | | 1,386,457 | | 1,284,764 | | 964,710 | | 838,106 | | 694,637 |
Loans held for sale | | 80,882 | | 229,199 | | 33,704 | | 37,695 | | 35,024 |
Allowance for loans losses | | (18,758) | | (17,767) | | (9,513) | | (8,053) | | (6,709) |
Goodwill and intangible assets, net | | 4,278 | | 4,500 | | 4,773 | | 5,046 | | 5,495 |
Total assets | | 1,713,443 | | 1,720,197 | | 1,150,019 | | 997,480 | | 856,035 |
Interest-bearing deposits | | 1,171,885 | | 1,037,492 | | 711,718 | | 625,980 | | 526,655 |
Total deposits | | 1,446,413 | | 1,241,335 | | 851,168 | | 752,130 | | 627,109 |
Total liabilities | | 1,548,083 | | 1,578,575 | | 1,029,324 | | 887,928 | | 754,672 |
Total stockholders' equity | | 165,360 | | 141,622 | | 120,695 | | 109,552 | | 101,363 |
| | | | | | | | | | |
Selected Income Statement Data: | | | | | | | | | | |
Interest income | $ | 71,522 | | 62,656 | | 52,863 | | 44,064 | | 35,720 |
Interest expense | | 8,411 | | 13,660 | | 16,527 | | 11,407 | | 6,782 |
Net interest income | | 63,111 | | 48,996 | | 36,336 | | 32,657 | | 28,938 |
Provisions for loan losses | | 1,070 | | 8,302 | | 901 | | 1,577 | | 2,161 |
Net interest income after provisions for loan losses | | 62,041 | | 40,694 | | 35,435 | | 31,080 | | 26,777 |
Non-interest income | | 87,988 | | 86,918 | | 32,893 | | 32,355 | | 36,700 |
Non-interest expense | | 103,727 | | 93,076 | | 54,814 | | 52,945 | | 57,691 |
Net income before income taxes | | 46,302 | | 34,536 | | 13,514 | | 10,490 | | 5,786 |
Income tax expense | | 10,717 | | 8,098 | | 3,033 | | 2,327 | | 2,754 |
Net income | | 35,585 | | 26,438 | | 10,481 | | 8,163 | | 3,032 |
Preferred stock dividends and net accretion | | — | | — | | — | | — | | (1,167) |
Net income available to common stockholders | | 35,585 | | 26,438 | | 10,481 | | 8,163 | | 1,865 |
| | | | | | | | | | |
Selected Per Share Data: | | | | | | | | | | |
Earnings per common share, basic | $ | 5.91 | | 4.32 | | 1.64 | | 1.28 | | 0.50 |
Earnings per common share, diluted | $ | 5.73 | | 4.27 | | 1.63 | | 1.27 | | 0.49 |
Book value per common share | $ | 27.07 | | 23.08 | | 18.84 | | 17.10 | | 15.86 |
Tangible book value per share(1) | $ | 26.37 | | 22.35 | | 18.09 | | 16.31 | | 15.00 |
Weighted average common shares outstanding, basic | | 6,019 | | 6,122 | | 6,407 | | 6,397 | | 3,743 |
Weighted average common shares outstanding, diluted | | 6,206 | | 6,187 | | 6,438 | | 6,427 | | 3,770 |
Shares outstanding at the end of period | | 6,108 | | 6,136 | | 6,405 | | 6,407 | | 6,392 |
| | | | | | | | | | |
Selected Performance Metrics: | | | | | | | | | | |
Return on average assets (ROAA) | | 2.06% | | 1.78% | | 1.01% | | 0.90% | | 0.39% |
Return on average equity (ROAE) | | 23.74% | | 21.33% | | 9.09% | | 7.77% | | 3.97% |
Net interest spread | | 3.62% | | 3.17% | | 3.21% | | 3.44% | | 3.69% |
Net interest margin (NIM) | | 3.77% | | 3.40% | | 3.65% | | 3.80% | | 3.93% |
Efficiency ratio | | 68.65% | | 68.48% | | 79.18% | | 81.44% | | 87.78% |
Non-interest income to average assets | | 5.09% | | 5.85% | | 3.17% | | 3.62% | | 4.69% |
Non-interest expense to average assets | | 6.00% | | 6.26% | | 5.29% | | 5.87% | | 7.41% |
Yield on interest-earning assets | | 4.27% | | 4.35% | | 5.30% | | 5.14% | | 4.83% |
Cost of interest-bearing liabilities | | 0.65% | | 1.18% | | 2.10% | | 1.69% | | 1.16% |
Yield on loans | | 4.64% | | 4.59% | | 5.51% | | 5.35% | | 5.10% |
Cost of deposits | | 0.48% | | 1.07% | | 1.97% | | 1.54% | | 0.95% |
| | | | | | | | | | |
Selected Credit Quality Ratios: | | | | | | | | | | |
Non-performing assets to total assets | | 1.34% | | 0.46% | | 0.29% | | 0.39% | | 0.42% |
Non-performing loans to total loans | | 1.57% | | 0.52% | | 0.34% | | 0.45% | | 0.43% |
Allowance for loan losses to non-performing loans | | 81.60% | | 224.04% | | 294.12% | | 204.85% | | 212.51% |
Allowance for loan losses to total loans | | 1.35% | | 1.38% | | 0.99% | | 0.96% | | 0.92% |
Allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | | 1.46% | | 1.65% | | 1.00% | | 1.01% | | 0.96% |
Net charge-offs to average loans | | 0.01% | | 0.00% | | (0.06)% | | 0.03% | | 0.13% |
| | | | | | | | | | |
Corporation Capital Ratios: | | | | | | | | | | |
Tier 1 leverage capital ratio | | 9.39% | | 8.96% | | 10.55% | | 11.16% | | 12.37% |
Tier 1 risk-based capital ratio | | 10.83% | | 10.22% | | 11.21% | | 11.72% | | 12.86% |
Total risk-based capital ratio | | 14.81% | | 14.55% | | 16.10% | | 13.66% | | 15.53% |
Common equity tier 1 capital ratio | | 10.83% | | 10.22% | | 11.21% | | 11.72% | | 12.86% |
(1) A non-GAAP measure. Refer to Non-GAAP Financial Measures section for reconciliation to GAAP. | | | | | | | | | | |
| | | | | | | | | | |
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long-term funding requirements.
As an emerging growth company, the
period.
2022.
The provision for loan and lease losses reflectsforecasts of future economic conditions.
The Allowance is maintained at a level that management believes is appropriate to provide for incurred loanexperience, managements ongoing review of lending policies and lease losses aspractices, experience and depth of staff, quality of the dateloan grading system, the fair value of underlying collateral, concentration of loans to specific borrowers or industries, existing economic conditions and forecasts, segment specific risks and other quantitative and qualitative factors which could affect future credit losses. Our reasonable and supportable forecast is for a period of four quarters. For periods beyond our one-year forecast, we revert to historical loss rates over one quarter. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the Consolidated Balance Sheet and we have established methodologies for the determinationanticipated amount of its adequacy. The methodologies are set forth in a formal policy and take into consideration the need for an overall general allowance as well as specific allowances that are determined on an individual loan basis for impaired loans. The Allowance is increased by charging provisions for losses against our income and decreased by charge-offs, net of recoveries.
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The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses available information to recognizeestimated credit losses on loans and leases,the appropriateness of the ACL could change significantly. It is challenging to estimate how potential changes in any one economic factor or other conditionsinput might affect the overall allowance because a wide variety of factors and inputs may necessitate revision ofbe directionally inconsistent, such that improvement in one factor may offset deterioration in others.
The Allowance is maintained at a level sufficient to provide for probable losses based upon an ongoing review of the loan and lease portfolios by portfolio category, which includes consideration of actual loss experience, peer loss experience,Corporation’s changes in its financial condition as of December 31, 2023 compared to December 31, 2022 and the size and risk profile of the portfolio, identification of individual problem loan and lease situations which may affect a borrower’s ability to repay, and evaluation of prevailing economic conditions.
Resultsresults of operations – Yearsfor the year ended December 31, 2021 and 2020
Overview
Net income was $35.62023 compared to the same periods in 2022. More detailed information related to these highlights can be found in the sections that follow.
Net interest income
Net interest income increased $14.1 million, or 28.8%8.53%, to $63.1 million from $49.0 million,respectively, for the twelve monthsyear ended December 31, 2021,2023, compared to 1.18% and 13.87%, respectively, for the twelve monthsyear ended December 31, 2020. Growth in net interest income period over period reflects an increase in interest income of $8.92022.
The net interest margin increased 37 basis points to 3.77%small business loans, combined with provisioning for the twelve months ended December 31, 2021 from 3.40% for the twelve months ended December 31, 2020. The margin in 2020 was negatively impacted by the rapid decline in Fed fund rates as well as the effects of the PPP loan program, while the margin in 2021 felt a positive impact from the PPP loan program as approximately 78% of these loans were forgiven during 2021, leading to a yield on PPP loans of 4.41% for the twelve months ended December 31, 2021, compared to 3.09% for the same period in 2020. Other contributors to the margin expansion for 2021 related to the increase in non-interest bearing deposits, which rose $68.1 million on average,growth and the cost of deposits decreased (59 basis points).
charge-offs.
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| The following table presents key financial performance ratios for the periods indicated: | Year Ended December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Return on average assets | 0.61 | % | 1.18 | % | |||||||
| Return on average equity | 8.53 | % | 13.87 | % | |||||||
| Net interest margin (tax effected yield) | 3.35 | % | 3.98 | % | |||||||
| Basic earnings per share | $ | 1.19 | $ | 1.85 | |||||||
| Diluted earnings per share | $ | 1.16 | $ | 1.79 | |||||||
Average balance sheet, interest and yield/rate analysis.
The following table presents average balance sheet information,certain key period-end balances and ratios at the dates indicated:
| (dollars in thousands, except per share amounts) | December 31, 2023 | December 31, 2022 | |||||||||
| Book value per common share | $ | 14.13 | $ | 13.37 | |||||||
Tangible book value per common share (1) | $ | 13.78 | $ | 13.01 | |||||||
| Allowance as a percentage of loans and leases held for investment | 1.17 | % | 1.08 | % | |||||||
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value) (1) | 1.17 | % | 1.09 | % | |||||||
| Tier I capital to risk weighted assets | 7.9 | % | 8.8 | % | |||||||
Tangible common equity to tangible assets ratio (1) | 6.9 | % | 8.1 | % | |||||||
| Loans and other finance receivables, net of fees and costs | $ | 1,895,806 | $ | 1,743,682 | |||||||
| Total assets | $ | 2,246,193 | $ | 2,062,228 | |||||||
| Total stockholders’ equity | $ | 158,022 | $ | 153,280 | |||||||
| | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | ||||||||||||
| | | | Interest | | | | | | Interest | | | ||||
For the Year Ended December 31, | | Average | | Income/ | | Yields/ | | Average | | Income/ | | Yields/ | ||||
(dollars in thousands) |
| Balance |
| Expense |
| rates |
| Balance |
| Expense |
| rates | ||||
Assets | | | | | | | | | | | | | | | | |
Interest-earning assets | | | | | | | | | | | | | | | | |
Due from banks | | $ | 30,844 | | | 41 | | 0.13% | | $ | 9,351 | | | 31 | | 0.33% |
Federal funds sold | | | 17,823 | | | 7 | | 0.04% | | | 17,795 | | | 38 | | 0.21% |
Investment securities(1) | | | 148,160 | | | 2,927 | | 2.01% | | | 102,285 | | | 2,408 | | 2.35% |
Loans held for sale | | | 125,444 | | | 3,540 | | 2.82% | | | 127,829 | | | 3,693 | | 2.89% |
Loans held for investment(1)(2) | | | 1,358,282 | | | 65,292 | | 4.81% | | | 1,187,819 | | | 56,675 | | 4.77% |
Total loans | | | 1,483,726 | | | 68,832 | | 4.64% | | | 1,315,648 | | | 60,368 | | 4.59% |
Total interest-earning assets | | | 1,680,553 | | | 71,807 | | 4.27% | | | 1,445,079 | | | 62,845 | | 4.35% |
Noninterest earning assets | | | 48,015 | | | | | | | | 41,400 | | | | | |
Total assets | | $ | 1,728,568 | | | | | | | $ | 1,486,479 | | | | | |
Liabilities and stockholders' equity | | | | | | | | | | | | | | | | |
Interest bearing liabilities | | | | | | | | | | | | | | | | |
Interest-bearing deposits | | $ | 257,950 | | | 880 | | 0.34% | | $ | 195,141 | | | 1,644 | | 0.84% |
Money market and savings deposits | | | 630,977 | | | 3,346 | | 0.53% | | | 428,227 | | | 3,606 | | 0.84% |
Time deposits | | | 245,923 | | | 1,268 | | 0.52% | | | 312,528 | | | 4,720 | | 1.51% |
Total deposits | | | 1,134,850 | | | 5,494 | | 0.48% | | | 935,896 | | | 9,970 | | 1.07% |
Total Borrowings | | | 119,721 | | | 534 | | 0.45% | | | 179,201 | | | 1,303 | | 0.73% |
Subordinated Debentures | | | 40,724 | | | 2,383 | | 5.85% | | | 41,010 | | | 2,387 | | 5.73% |
Total interest-bearing liabilities | | | 1,295,295 | | | 8,411 | | 0.65% | | | 1,156,107 | | | 13,660 | | 1.18% |
Non-interest bearing deposits | | | 258,298 | | | | | | | | 190,209 | | | | | |
Other non-interest bearing liabilities | | | 25,100 | | | | | | | | 16,240 | | | | | |
Total liabilities | | $ | 1,578,693 | | | | | | | $ | 1,362,556 | | | | | |
Total stockholders' equity | | | 149,875 | | | | | | | | 123,923 | | | | | |
Total stockholders' equity and liabilities | | $ | 1,728,568 | | | | | | | $ | 1,486,479 | | | | | |
Tax-equivalent net interest income / net interest spread | | | | | $ | 63,396 | | 3.62% | | | | | $ | 49,185 | | 3.17% |
Tax-equivalent net interest margin | | | | | | | | 3.77% | | | | | | | | 3.40% |
Tax-equivalent adjustment | | | | | | (285) | | | | | | | | (189) | | |
Net interest income | | | | | $ | 63,111 | | | | | | | $ | 48,996 | | |
Rate/Volume Analysis
During 2021,the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income increased $14.2 million or 28.9%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.
The favorable change in
| For the Year Ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Balance | Interest Income/ Expense | Yields/ Rates | Average Balance | Interest Income/ Expense | Yields/ Rates | ||||||||||||||||||||||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | $ | 24,218 | $ | 1,259 | 5.20 | % | $ | 21,045 | $ | 279 | 1.33 | % | |||||||||||||||||||||||||||||||||||||||||
| Federal funds sold | 136 | 7 | 5.15 | 1,160 | 7 | 0.60 | |||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities - taxable | 112,045 | 3,873 | 3.46 | 106,246 | 2,420 | 2.28 | |||||||||||||||||||||||||||||||||||||||||||||||
| Investment securities - tax exempt (1) | 59,147 | 1,669 | 2.82 | 63,425 | 1,691 | 2.67 | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for sale | 23,202 | 1,480 | 6.38 | 44,238 | 1,872 | 4.23 | |||||||||||||||||||||||||||||||||||||||||||||||
| Loans held for investment (1) | 1,850,088 | 128,609 | 6.95 | 1,535,943 | 82,764 | 5.39 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total loans | 1,873,290 | 130,089 | 6.94 | 1,580,181 | 84,636 | 5.36 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-earning assets | 2,068,836 | 136,897 | 6.62 | % | 1,772,057 | 89,033 | 5.02 | % | |||||||||||||||||||||||||||||||||||||||||||||
| Noninterest earning assets | 95,979 | 76,983 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | 2,164,815 | $ | 1,849,040 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Liabilities and stockholders' equity: | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest-bearing demand deposits | $ | 187,404 | $ | 6,659 | 3.55 | % | $ | 237,554 | $ | 2,570 | 1.08 | % | |||||||||||||||||||||||||||||||||||||||||
| Money market and savings deposits | 692,933 | 23,987 | 3.46 | 703,561 | 7,854 | 1.12 | |||||||||||||||||||||||||||||||||||||||||||||||
| Time deposits | 636,843 | 27,173 | 4.27 | 354,822 | 4,972 | 1.40 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total deposits | 1,517,180 | 57,819 | 3.81 | 1,295,937 | 15,396 | 1.19 | |||||||||||||||||||||||||||||||||||||||||||||||
| Borrowings | 145,545 | 7,266 | 4.99 | 27,637 | 830 | 3.00 | |||||||||||||||||||||||||||||||||||||||||||||||
| Subordinated debentures | 43,035 | 2,562 | 5.95 | 40,560 | 2,366 | 5.83 | |||||||||||||||||||||||||||||||||||||||||||||||
| Total interest-bearing liabilities | 1,705,760 | 67,647 | 3.97 | 1,364,134 | 18,592 | 1.36 | |||||||||||||||||||||||||||||||||||||||||||||||
| Noninterest-bearing deposits | 267,402 | 296,563 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Other noninterest-bearing liabilities | 36,421 | 30,929 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total liabilities | 2,009,583 | 1,691,626 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total stockholders' equity | 155,232 | 157,414 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Total stockholders' equity and liabilities | $ | 2,164,815 | $ | 1,849,040 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net interest income and spread (1) | $ | 69,250 | 2.65 | $ | 70,441 | 3.66 | |||||||||||||||||||||||||||||||||||||||||||||||
| Net interest margin (1) | 3.35 | % | 3.98 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
35
cash and cash equivalents increased $67.4 million on average combined, contributed $955 thousand to interest income. On the funding side, interest checking and money market accounts together rose $265.6 million on average during the year, reducingtax-equivalent net interest income for the year ended December 31, 2023 as compared to the year ended December 31, 2022, allocated by $1.8 million, time deposits decreased $66.6 millionrate and volume. Changes in interest income and/or expense attributable to both volume and rate have been allocated proportionately based on average year over year, causing a favorable changethe relationship of $844 thousand to net interest income. Average borrowings decreased $59.5 million and had a favorable impactthe absolute dollar amount of $496 thousand on net interest income.
The favorablethe change in each category.
| 2023 Compared to 2022 | |||||||||||||||||
| (dollars in thousands) | Rate | Volume | Total | ||||||||||||||
| Interest income: | |||||||||||||||||
| Cash and cash equivalents | $ | 932 | $ | 45 | $ | 977 | |||||||||||
| Federal funds sold | 11 | (8) | 3 | ||||||||||||||
| Investment securities - taxable | 1,314 | 139 | 1,453 | ||||||||||||||
Investment securities - tax exempt (1) | 97 | (118) | (22) | ||||||||||||||
| Loans held for sale | 717 | (1,109) | (392) | ||||||||||||||
Loans held for investment (1) | 26,887 | 18,958 | 45,845 | ||||||||||||||
| Total loans | 27,604 | 17,849 | 45,453 | ||||||||||||||
| Total interest income | $ | 29,958 | $ | 17,907 | $ | 47,864 | |||||||||||
| Interest expense: | |||||||||||||||||
| Interest-bearing demand deposits | $ | 4,736 | $ | (647) | $ | 4,089 | |||||||||||
| Money market and savings deposits | 16,253 | (120) | 16,133 | ||||||||||||||
| Time deposits | 15,987 | 6,214 | 22,201 | ||||||||||||||
| Total deposits | 36,976 | 5,447 | 42,423 | ||||||||||||||
| Borrowings | 865 | 5,571 | 6,436 | ||||||||||||||
| Subordinated debentures | 49 | 147 | 196 | ||||||||||||||
| Total interest expense | 37,890 | 11,165 | 49,055 | ||||||||||||||
| Interest differential | $ | (7,932) | $ | 6,742 | $ | (1,190) | |||||||||||
The following table sets forth, among other things, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense for the periods noted (tax-exempt yields have been adjusted to a tax equivalent basis, using a 23.2% tax rate). For each category of interest-earning assets and interest-bearing liabilities, information is provided with respect to changes attributable to (i) changes in rate (change in rate multiplied by old volume) and (ii) changes in volume (change in volume multiplied by new rate). The net change attributable to the combined impact of rate and volume has been allocated proportionately to the changeyear over year, due to ratea higher yield on earning assets, which increased 160 basis points, in addition to a higher level of average earning assets, which increased by $296.8 million. The average yield on loans held for investment increased 156 basis points and the changeyield on cash and investments increased 119 basis points in total, reflecting the impact on rates caused by the Federal Reserve’s monetary policy. Average total loans held for investment increased $314.1 million, most notably in commercial real estate and construction, commercial loans and small business loans, which increased $191.5 million on average, combined. Home equity loans and residential real estate loans held in portfolio increased $157.1 million on average, combined. Residential loans for sale decreased $21.0 million on average.
| | | | | | |
| December 31, 2021 Compared to 2020 | |||||
| Change in Interest Due to: | |||||
(dollars in thousands) | Rate |
| Volume |
| Total | |
Interest income: | | | | | | |
Due from banks | $ | (27) | | 37 | | 10 |
Federal funds sold | | (31) | | 0 | | (31) |
Investment securities(1) | | (399) | | 918 | | 519 |
Loans held for sale | | (85) | | (68) | | (153) |
Loans held for investment(1) | | 492 | | 8,125 | | 8,617 |
Total loans | | 407 | | 8,057 | | 8,464 |
Total interest income | $ | (50) | | 9,012 | | 8,962 |
Interest expense: | | | | | | |
Interest bearing deposits | $ | (1,179) | | 415 | | (764) |
Money market and savings deposits | | (1,605) | | 1,345 | | (260) |
Time deposits | | (2,608) | | (844) | | (3,452) |
Total interest bearing deposits | | (5,392) | | 916 | | (4,476) |
Total borrowings | | (415) | | (354) | | (769) |
Subordinated debentures | | 22 | | (26) | | (4) |
Total interest expense | | (5,784) | | 535 | | (5,249) |
Interest differential | $ | 5,734 | | 8,476 | | 14,211 |
Provision for loan losses
The provision for loan losses was $1.1 million for the twelve months ended December 31, 2021, compared to an $8.3 million provision for the twelve months ended December 31, 2020. The decline in the provision period over period is the result of an improvement in the trend of economic and loan deferral factors used in the allowance for loan losses calculation that had been negatively impacted in 2020 due to the COVID-19 pandemic, which have subsequently rebounded as the economy continues to recover. This improvement outpaced provisioning for loan growth as well as a $1.4 million specific reserve placed against a non-performing loan relationship described further in the “Asset Quality Summary” on page 43.
36
Non-interest income
Total non-interest income for the twelve months ended December 31, 2021 was $88.0 million, up $1.1 million, or 1.2%, from the twelve months ended December 31, 2020. This increase in non-interest income was largely the result of an increase of $4.3 million in SBA loan sales income as fiscal year 2021 sales of SBA 7(a) loans amounted to $67.2 million, an increase of $26.1 million, or 63.5%, compared to fiscal year 2020.
Wealth management revenue increased $947 thousand, or 24.6%, year-over-year due to an increase in average assets under management of $295 million over this period. In addition, these assets benefited from the more favorable market conditions that existed in the twelve months ended December 31, 2021, compared to the prior year period.
Other fee income was up $1.8 million, or 68.5%, for the twelve months ended December 31, 2021, from the twelve months ended December 31, 2020 due to increases in mortgage fees, wire fees, title fee income,interest rate rises, as well as an increase of $221.2 million in average interest bearing deposits. Interest expense on deposits increased $42.4 million with the cost of interest-bearing deposits increasing 262 basis points to 3.81%. Total cost of deposits increased 227 basis points reflecting a decrease of $29.2 million in average non-interest bearing deposits. Interest expense on borrowings increased $6.4 million as the cost increased 199 basis points, and total average short-term borrowings increased $117.9 million.
| Year Ended December 31, | |||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||
| Mortgage banking income | $ | 16,537 | $ | 25,325 | $ | (8,788) | (34.7) | % | |||||||||||||||
| Wealth management income | 4,928 | 4,733 | 195 | 4.1 | % | ||||||||||||||||||
| SBA loan income | 4,485 | 4,467 | 18 | 0.4 | % | ||||||||||||||||||
| Earnings on investment in life insurance | 789 | 553 | 236 | 42.7 | % | ||||||||||||||||||
| Net change in the fair value of derivative instruments | 91 | (703) | 794 | (112.9) | % | ||||||||||||||||||
| Net change in the fair value of loans held-for-sale | 32 | (844) | 876 | (103.8) | % | ||||||||||||||||||
| Net change in the fair value of loans held-for-investment | 132 | (2,408) | 2,540 | (105.5) | % | ||||||||||||||||||
| Net gain on hedging activity | 28 | 5,439 | (5,411) | (99.5) | % | ||||||||||||||||||
| Net loss on sale of investment securities available-for-sale | (58) | — | (58) | (100.0) | % | ||||||||||||||||||
| Other | 5,001 | 5,162 | (161) | (3.1) | % | ||||||||||||||||||
| Total non-interest income | $ | 31,965 | $ | 41,724 | $ | (9,759) | (23.4) | % | |||||||||||||||
Mortgage bankingloan sale income was relatively unchanged year-over-year, despite an increase of $9.1 million, or 12.0%, in the volume of loans sold in 2023 compared to 2022. The upward movement in interest rates during 2023 had a negative impact on gross margins on the SBA loan sales, which declined to 6.7% for all sales in 2023, compared to 7.4% in 2022.
| Year Ended December 31, | |||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||
| Salaries and employee benefits | $ | 47,377 | $ | 54,378 | $ | (7,001) | (12.9) | % | |||||||||||||||
| Occupancy and equipment | 4,842 | 4,837 | 5 | 0.1 | % | ||||||||||||||||||
| Professional fees | 4,312 | 3,635 | 677 | 18.6 | % | ||||||||||||||||||
| Advertising and promotion | 3,730 | 4,336 | (606) | (14.0) | % | ||||||||||||||||||
| Data processing and software | 6,415 | 5,451 | 964 | 17.7 | % | ||||||||||||||||||
| FDIC premiums | 2,929 | 1,247 | 1,682 | 134.9 | % | ||||||||||||||||||
| Other | 7,520 | 7,560 | (40) | (0.5) | % | ||||||||||||||||||
| Total non-interest expense | $ | 77,125 | $ | 81,444 | $ | (4,319) | (5.3) | % | |||||||||||||||
| | | | | | |
| | Year Ended December 31, | ||||
(dollars in thousands) |
| 2021 |
| 2020 | ||
Non-interest income: | | | | | | |
Mortgage banking income | | $ | 75,932 | | | 76,461 |
Wealth management income | | | 4,801 | | | 3,854 |
SBA loan income | | | 6,898 | | | 2,572 |
Earnings on investment in life insurance | | | 365 | | | 279 |
Net change in the fair value of derivative instruments | | | (4,338) | | | 4,975 |
Net change in the fair value of loans held-for-sale | | | (3,311) | | | 3,847 |
Net change in the fair value of loans held-for-investment | | | (189) | | | 323 |
Net loss on hedging activity | | | 2,961 | | | (9,400) |
Net gain on sale of investment securities available-for-sale | | | 435 | | | 1,345 |
Service charges | | | 129 | | | 107 |
Other | | | 4,305 | | | 2,555 |
Total non-interest income | | $ | 87,988 | | | 86,918 |
37
Non-interest expense
Total non-interest expense for the twelve months ended December 31, 2021 was $103.7 million, up $10.7 million or 11.4%, from the twelve months ended December 31, 2020.
| | | | | | |
| | Year Ended December 31, | ||||
(dollars in thousands) |
| 2021 |
| 2020 | ||
Non-interest expenses: | | | | | | |
Salaries and employee benefits | | $ | 78,866 | | | 72,147 |
Occupancy and equipment | | | 4,545 | | | 4,292 |
Professional fees | | | 3,558 | | | 3,113 |
Advertising and promotion | | | 3,714 | | | 2,852 |
Data processing | | | 2,150 | | | 1,913 |
Information technology | | | 2,232 | | | 1,542 |
Pennsylvania bank shares tax | | | 609 | | | 1,049 |
Other | | | 8,053 | | | 6,168 |
Total non-interest expenses | | $ | 103,727 | | | 93,076 |
Total salaries and employee benefits expense was $78.9 million, an increase of $6.7 million or 9.3%, compared to the twelve months ended December 31, 2020. Salaries and benefits for the Bank and Wealth segments increased $5.4 million due to an increased level of full-time equivalent employees as well as increase in the value of stock-based compensation expense. $1.3 million of the overall increase relates to the Mortgage segment as the number of employees in this segment have increased period over period.
Professional fees were up $445 thousand, or 14.3% year over year, while information technology expenses were up $690 thousand, or 44.7% year over year. Increases in these two categories of expense were largely the result of Meridian’s ongoing strategy to invest in technology that focuses on improving back-office efficiencies through automation and workflow processes, as well improving the scalability of our IT systems overall with a focus on cloud based computing. The increase in professional fees was also impacted by 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 made in 2020.
Advertising and promotion expenses were up $862 thousand, or 30.2%, 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 a business development and community outreach capacity, combined with increased spend year over year in different advertising campaigns, including mortgage segment lead generation expenses. Other non-interestprocesses. Data processing expense was up $1.9 million, or 30.6%, fromover the prior year due to an increase in employee travelcustomer account transaction volume.
| Year Ended December 31, | |||||||||||||||||||||||
| (Dollars in thousands) | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||
| Income before income taxes | $ | 16,967 | $ | 27,920 | $ | (10,953) | (39.2) | % | |||||||||||||||
| Income tax expense | $ | 3,724 | $ | 6,091 | $ | (2,367) | (38.9) | % | |||||||||||||||
| Effective tax rate | 21.95 | % | 21.81 | % | 0.14 | % | 0.6 | % | |||||||||||||||
Income tax expense
Income tax expense for the year ended December 31, 2021 was $10.7 million as compared to $8.1 million for the same period in 2020. income.
38
Balance Sheet Summary
Total loans, net of allowance, grew $101 million, or 7.9%, to $1.4 billion as of December 31, 2021, from $1.3 billion as of December 31, 2020. There was2022. This growth in several commercialassets over the prior period was due primarily to loan categories from December 31, 2020,portfolio growth, as we continue to expand our presencedetailed in the Philadelphia market region and beyond. Small business loans increased $64.6 million, or 130.4%, commercial real estate loans increased $31.8 million, or 6.6%, and lease financings increased $57.2 million, or 184.3%, as our Meridian Equipment Finance (“MEF”) leasing team continued their strong growth trajectory after starting up in early 2020. Additionally, commercial & industrial loans, shared national credits and commercial construction loans combined increased $46.6 million in total over the period. Residential real estate loans held for sale decreased $148.3 million, or 64.7%, to $80.9 million as of December 31, 2021, while PPP loans decreased $113.3 million, or 55.7%, over this period, as our SBA and commercial lending teams are making a strong effort to assist our PPP loan customers in obtaining forgiveness on their loans with the SBA. As of December 31, 2021 there was approximately $88.3 million in PPP loans remaining to be forgiven, net of deferred fees.
following section.
Loans
| (Dollars in thousands) | December 31, 2023 | December 31, 2022 | $ Change | % Change | |||||||||||||||||||
| Mortgage loans held for sale | $ | 24,816 | $ | 22,243 | $ | 2,573 | 11.6 | % | |||||||||||||||
| Real estate loans: | |||||||||||||||||||||||
| Commercial mortgage | 737,863 | 565,400 | 172,463 | 30.5 | % | ||||||||||||||||||
| Home equity lines and loans | 76,287 | 59,399 | 16,888 | 28.4 | % | ||||||||||||||||||
| Residential mortgage | 260,604 | 221,837 | 38,767 | 17.5 | % | ||||||||||||||||||
| Construction | 246,440 | 271,955 | (25,515) | (9.4) | % | ||||||||||||||||||
| Total real estate loans | 1,321,194 | 1,118,591 | 202,603 | 18.1 | % | ||||||||||||||||||
| Commercial and industrial | 302,891 | 341,378 | (38,487) | (11.3) | % | ||||||||||||||||||
| Small business loans | 142,342 | 136,155 | 6,187 | 4.5 | % | ||||||||||||||||||
| Consumer | 389 | 488 | (99) | (20.3) | % | ||||||||||||||||||
| Leases, net | 121,632 | 138,986 | (17,354) | (12.5) | % | ||||||||||||||||||
| Total portfolio loans and leases | $ | 1,888,448 | $ | 1,735,598 | $ | 152,850 | 8.8 | % | |||||||||||||||
| Total loans and leases | $ | 1,913,264 | $ | 1,757,841 | $ | 155,423 | 8.8 | % | |||||||||||||||
| | | | | | | | | |
|
| | |
| % of |
| |
| % of |
(dollars in thousands) | | 2021 | | Portfolio | | 2020 | | Portfolio | |
Mortgage loans held for sale | | $ | 80,882 | | 5.5% | | 229,199 | | 15.1% |
Real estate loans: | | | | | | | | | |
Commercial mortgage | | | 516,928 | | 35.2% | | 485,103 | | 31.9% |
Home equity lines and loans | | | 52,299 | | 3.6% | | 64,987 | | 4.3% |
Residential mortgage | | | 68,175 | | 4.6% | | 52,454 | | 3.5% |
Construction | | | 160,905 | | 11.0% | | 140,246 | | 9.2% |
Total real estate loans | | | 798,307 | | 54.4% | | 742,790 | | 48.9% |
| | | | | | | | | |
Commercial and industrial | | | 293,771 | | 20.0% | | 261,750 | | 17.2% |
Small business loans | | | 114,158 | | 7.8% | | 49,542 | | 3.3% |
Paycheck Protection Program loans ("PPP") | | | 90,194 | | 6.1% | | 203,543 | | 13.4% |
Main Street Lending Program loans ("MSLP") | | | 597 | | 0.0% | | 580 | | 0.0% |
Consumer | | | 419 | | 0.0% | | 511 | | 0.0% |
Leases, net | | | 88,242 | | 6.0% | | 31,040 | | 2.0% |
Total portfolio loans and leases | | | 1,385,688 | | 94.5% | | 1,289,756 | | 84.9% |
Total loans and leases | | $ | 1,466,570 | | 100.0% | | 1,518,955 | | 100.0% |
39
The following table shows the amounts of loans outstanding as of December 31, 20212023 which, based on remaining scheduled repayments of principal, are due in the periods indicated.
| | | | | | | | | | | |
| | 12 Months | | | | | | | | | |
(dollars in thousands) | | or Less | | 1 - 5 years | | 5 - 15 years | | After 15 years | | Total | |
Mortgage loans held for sale | | $ | — | | — | | 235 | | 80,647 | | 80,882 |
Commercial mortgage | | | 36,884 | | 115,865 | | 353,396 | | 10,783 | | 516,928 |
Home equity lines and loans | | | 1,080 | | 4,401 | | 40,820 | | 5,998 | | 52,299 |
Residential mortgage | | | 1,744 | | — | | 1,830 | | 64,601 | | 68,175 |
Construction | | | 69,664 | | 47,683 | | 43,175 | | 383 | | 160,905 |
Commercial and industrial | | | 26,453 | | 107,032 | | 58,102 | | 102,184 | | 293,771 |
Small business loans | | | 8 | | 3,577 | | 66,043 | | 44,530 | | 114,158 |
PPP loans | | | 25,100 | | 65,094 | | — | | — | | 90,194 |
MSLP loans | | | — | | 597 | | — | | — | | 597 |
Consumer | | | 5 | | 118 | | 146 | | 150 | | 419 |
Leases, net | | | 1,140 | | 72,605 | | 14,497 | | — | | 88,242 |
Total | | $ | 162,078 | | 416,972 | | 578,244 | | 309,276 | | 1,466,570 |
indicated:
| (dollars in thousands) | 12 months or Less | 1 - 5 years | 5 - 15 years | After 15 years | Total | ||||||||||||||||||||||||
| Commercial mortgage | $ | 39,903 | $ | 205,960 | $ | 484,840 | $ | 7,160 | $ | 737,863 | |||||||||||||||||||
| Home equity lines and loans | 1,467 | 3,779 | 66,441 | 4,600 | 76,287 | ||||||||||||||||||||||||
| Residential mortgage | — | 1,251 | 1,605 | 257,748 | 260,604 | ||||||||||||||||||||||||
| Construction | 129,116 | 62,500 | 54,824 | — | 246,440 | ||||||||||||||||||||||||
| Commercial and industrial | 31,171 | 138,982 | 25,612 | 107,126 | 302,891 | ||||||||||||||||||||||||
| Small business loans | — | 8,775 | 85,314 | 48,253 | 142,342 | ||||||||||||||||||||||||
| Consumer | 26 | 100 | 240 | 23 | 389 | ||||||||||||||||||||||||
| Leases, net | 1,219 | 116,184 | 4,229 | — | 121,632 | ||||||||||||||||||||||||
| Total | $ | 202,902 | $ | 537,531 | $ | 723,105 | $ | 424,910 | $ | 1,888,448 | |||||||||||||||||||
| | | | | | | |
| | Fixed | | Variable | | | |
(dollars in thousands) | | Rate | | Rate | | Total | |
Mortgage loans held for sale | | $ | 80,882 | | — | | 80,882 |
Commercial mortgage | | | 64,491 | | 415,553 | | 480,044 |
Home equity lines and loans | | | 7,129 | | 44,090 | | 51,219 |
Residential mortgage | | | 50,144 | | 16,287 | | 66,431 |
Construction | | | 26,102 | | 65,139 | | 91,241 |
Commercial and industrial | | | 44,438 | | 222,880 | | 267,318 |
Small business loans | | | 218 | | 113,932 | | 114,150 |
PPP loans | | | 65,094 | | — | | 65,094 |
MSLP loans | | | — | | 597 | | 597 |
Consumer | | | 346 | | 68 | | 414 |
Leases, net | | | 87,102 | | — | | 87,102 |
Total | | $ | 425,946 | | 878,546 | | 1,304,492 |
| (dollars in thousands) | Fixed Rate | Variable Rate | Total | ||||||||||||||
| Commercial mortgage | $ | 143,798 | $ | 594,065 | $ | 737,863 | |||||||||||
| Home equity lines and loans | 5,656 | 70,631 | 76,287 | ||||||||||||||
| Residential mortgage | 53,271 | 207,333 | 260,604 | ||||||||||||||
| Construction | 23,394 | 223,046 | 246,440 | ||||||||||||||
| Commercial and industrial | 54,429 | 248,462 | 302,891 | ||||||||||||||
| Small business loans | 2,977 | 139,365 | 142,342 | ||||||||||||||
| Consumer | 340 | 49 | 389 | ||||||||||||||
| Leases, net | 121,632 | — | 121,632 | ||||||||||||||
| Total | $ | 405,497 | $ | 1,482,951 | $ | 1,888,448 | |||||||||||
Commercial and industrial loans, commercial construction loans and commercial real estate loans increased a combined $84.5 million, or 9.5%, for the year ended December 31, 2021. The growth in the commercial portfolios continues to reflect the work of our strategically expanded lending team as well as strong local market conditions.
Commercial real estate loans. Our commercial real estate loans are secured by real estate that is both owner-occupied and investor owned. Owner-occupied commercial real estate loans generally involve less risk than an investment property and are distinctly reported from non-owner occupied commercial real estate loans for measuring loan concentrations for regulatory purposes. Our owner-occupied commercial real estate loans are originated and managed within our commercial loan department and comprised 34.4%comprised 33.8% of our total commercial real estate loan portfolio at December 31, 2021.2023. The remaining commercial real estate loans are managed by our commercial real estate department which offer the following commercial real estate products:
40
Construction loans decreased $25.5 million, or 9.4%, to $246.4 million at December 31, 2023 from $272.0 million at December 31, 2022. Construction loans represented 12.9% and 15.5% of our total loan portfolio at December 31, 2023 and 2022, respectively.
Paycheck Protection Program Loans / Main Street Lending Program Loans
Meridian participated in the SBA’s Paycheck Protection Program (PPP) loan program and the Federal Reserve’s Main Street Lending Program (MSLP) to support lending to small and medium sized businesses that were impacted by the COVID-19 pandemic. At December 31, 2021 the balance of PPP loans was $90.2 million, compared to $203.5 million at December 31, 2020. MSLP loans amounted to less than $600 thousand and are included within Commercial and Industrial loans. PPP loans represented 6.1% of our total loan portfolio at December 31, 2021.
Residential loans
Our residential loans held in portfolio are primarily secured by single-family homes located in our market areas. Our loan pipeline is fed via our mortgage loan production offices (“LPOs”) and through relationships with sales brokers and agents who actively refer clients to Meridian as well as referrals from our commercial and private banking lenders. The balance of residential loans in portfolio increased $15.7 million, or 30.0%, to $68.2 million at December 31, 2021 from $52.5 million at December 31, 2020. The total residential loan portfolio represented 4.6% and 3.5% of our total loan portfolio at December 31, 2021 and 2020, respectively.
41
refinance product, designed to provide additional flexibility in repayment terms desired in the marketplace. TheHome equity lines and loans increased $16.9 million, or 28.4%, to $76.3 million at December 31, 2023 from $59.4 million at December 31, 2022, while residential mortgage loans increased by $38.8 million, or 17.5%, to $260.6 million at December 31, 2023 from $221.8 million at December 31, 2022. Overall the total consumer loan portfolio represented 3.6%17.6% and 4.3%16.0% of our total loan portfolio at December 31, 20212023 and 2020,2022, respectively.
| | | | | | | | | | | |
| | December 31, 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 | | $ | 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 | | — |
| | | | | | | | | | | |
| | 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 | | — |
42
Asset Quality Summary
Asset quality remains a strong focus of management, which is committed to working with customers significantly impacted by the COVID-19 pandemic. While COVID-19 loan deferrals provided to borrowers amounted to only $2.4 million as2022. As of December 31, 2021, down from $24.2 million as2023 we also had a held-to-maturity investment portfolio with amortized cost of December 31, 2020, one commercial loan relationship for $13.8 million became a non-performing loan relationship with a specific reserve$35.8 million.
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Allowance for Credit Losses | Fair value | # of Securities in unrealized loss position | |||||||||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||||||||||||||
| U.S. asset backed securities | $ | 17,012 | $ | 25 | $ | (213) | $ | — | $ | 16,824 | 11 | ||||||||||||||||||||||||
| U.S. government agency MBS | 22,750 | 364 | (480) | — | 22,634 | 14 | |||||||||||||||||||||||||||||
| U.S. government agency CMO | 21,850 | — | (2,277) | — | 19,573 | 30 | |||||||||||||||||||||||||||||
| State and municipal securities | 40,093 | — | (3,877) | — | 36,216 | 31 | |||||||||||||||||||||||||||||
| U.S. Treasuries | 32,982 | — | (2,560) | — | 30,422 | 25 | |||||||||||||||||||||||||||||
| Non-U.S. government agency CMO | 13,605 | 102 | (552) | — | 13,155 | 9 | |||||||||||||||||||||||||||||
| Corporate bonds | 8,200 | — | (1,005) | — | 7,195 | 13 | |||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 156,492 | $ | 491 | $ | (10,964) | $ | — | $ | 146,019 | 133 | ||||||||||||||||||||||||
| Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Allowance for Credit Losses | Fair value | # of Securities in unrecognized loss position | ||||||||||||||||||||||||||||||
| Securities held to maturity: | |||||||||||||||||||||||||||||||||||
| State and municipal securities | $ | 35,781 | $ | 52 | $ | (3,103) | $ | — | $ | 32,730 | 21 | ||||||||||||||||||||||||
| Total securities held-to-maturity | $ | 35,781 | $ | 52 | $ | (3,103) | $ | — | $ | 32,730 | 21 | ||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair Value | # of Securities in unrealized loss position | ||||||||||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||||||||||||||
| U.S. asset backed securities | $ | 15,581 | $ | 14 | $ | (314) | $ | 15,281 | 12 | ||||||||||||||||||||||||||
| U.S. government agency MBS | 12,272 | 5 | (538) | 11,739 | 12 | ||||||||||||||||||||||||||||||
| U.S. government agency CMO | 25,520 | 40 | (2,242) | 23,318 | 29 | ||||||||||||||||||||||||||||||
| State and municipal securities | 44,700 | — | (5,862) | 38,838 | 34 | ||||||||||||||||||||||||||||||
| U.S. Treasuries | 32,980 | — | (3,457) | 29,523 | 25 | ||||||||||||||||||||||||||||||
| Non-U.S. government agency CMO | 9,722 | — | (633) | 9,089 | 11 | ||||||||||||||||||||||||||||||
| Corporate bonds | 8,201 | — | (643) | 7,558 | 12 | ||||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 148,976 | $ | 59 | $ | (13,689) | $ | 135,346 | 135 | ||||||||||||||||||||||||||
| Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Fair value | # of Securities in unrecognized loss position | |||||||||||||||||||||||||||||||
| Securities held to maturity: | |||||||||||||||||||||||||||||||||||
| State and municipal securities | $ | 37,479 | $ | — | $ | (4,394) | $ | 33,085 | 25 | ||||||||||||||||||||||||||
| Total securities held-to-maturity | $ | 37,479 | $ | — | $ | (4,394) | $ | 33,085 | 25 | ||||||||||||||||||||||||||
as of December 31, 2023 and 2022, related to a well secured residential property. Total non-performing loans were $33.8 million and $21.2 million as of December 31, 2023 and December 31, 2022, respectively. The increase in non-performing loans over the period was due to increases in non-performing small business loans, commercial loans, residential real estate loans and construction loans of $5.0 million, $2.9 million, $2.5 million, and $1.2 million, respectively.
2022.
As of December 31, 2021, the Corporation had a recorded investment of $25.8 million of impaired loans and leases which included $3.8 million of TDRs, while as of December 31, 2020 impaired loans totaled $10.42022. The drivers of the increase related to a $2.3 million which included $3.6 million of TDRs. The increase in impaired loans was largely due to the onea commercial loan relationship for $13.8 million, discussed above, that became a non-performing loan relationship late in 2021 with a specific reserve of $1.4 million. Impaired loans and leases are those for which it is probable thatnew information became available related to the Corporation will not be able to collect all scheduled principal and interest in accordancevalue of the underlying collateral, combined with the original termsnet impact of establishing $2.3 million in specific reserves on SBA loan relationships classified as non-performing, netted with the loans and leases. Refer to footnote 6 in the notes to the Consolidated Financial Statements for more information regarding the Corporation’s impaired loans and leases.
charge-off an SBA loan.
43
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.
| | | | | | |
| | As of | ||||
| | December 31, | | December 31, | ||
(dollars in thousands) |
| 2021 |
| 2020 | ||
Non-performing assets: | | | | | | |
Nonaccrual loans: | | | | | | |
Real estate loans: | | | | | | |
Commercial mortgage | | $ | — | | | 3,061 |
Home equity lines and loans | | | 911 | | | 859 |
Residential mortgage | | | 2,398 | | | 2,725 |
Total real estate loans | | $ | 3,309 | | | 6,645 |
Commercial and industrial | | | 18,801 | | | 1,285 |
Small business loans | | | 666 | | | — |
Leases | | | 212 | | | — |
Total nonaccrual loans | | $ | 22,988 | | | 7,930 |
Total non-performing loans | | $ | 22,988 | | | 7,930 |
Total non-performing assets | | $ | 22,988 | | | 7,930 |
| | | | | | |
Troubled debt restructurings: | | | | | | |
TDRs included in non-performing loans | | | 361 | | | 244 |
TDRs in compliance with modified terms | | | 3,446 | | | 3,362 |
Total TDRs | | $ | 3,807 | | | 3,606 |
| | | | | | |
Asset quality ratios: | | | | | | |
Non-performing assets to total assets | | | 1.34% | | | 0.46% |
Non-performing loans to: | | | | | | |
Total loans and leases | | | 1.57% | | | 0.52% |
Total loans held-for-investment | | | 1.66% | | | 0.62% |
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | | | 1.80% | | | 0.74% |
Allowance for loan and lease losses to: | | | | | | |
Total loans and leases | | | 1.28% | | | 1.17% |
Total loans held-for-investment | | | 1.35% | | | 1.38% |
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) | | | 1.46% | | | 1.65% |
Non-performing loans | | | 81.60% | | | 224.04% |
| | | | | | |
Total loans and leases | | $ | 1,467,339 | | | 1,513,963 |
Total loans and leases held-for-investment | | $ | 1,386,457 | | | 1,284,764 |
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans) | | $ | 1,280,591 | | | 1,072,727 |
Allowance for loan and lease losses | | $ | 18,758 | | | 17,767 |
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Non-performing assets: | |||||||||||
| Nonaccrual loans: | |||||||||||
| Real estate loans: | |||||||||||
| Commercial mortgage | $ | — | $ | 140 | |||||||
| Home equity lines and loans | 1,037 | 1,097 | |||||||||
| Residential mortgage | 4,536 | 2,085 | |||||||||
| Construction | 1,206 | — | |||||||||
| Total real estate loans | 6,779 | 3,322 | |||||||||
| Commercial and industrial | 15,413 | 12,547 | |||||||||
| Small business loans | 9,440 | 4,465 | |||||||||
| Leases | 2,131 | 902 | |||||||||
| Total nonaccrual loans | 33,763 | 21,236 | |||||||||
| Other real estate owned | 1,703 | 1,703 | |||||||||
| Total non-performing assets | $ | 35,466 | $ | 22,939 | |||||||
| Asset quality ratios: | |||||||||||
| Non-performing assets to total assets | 1.58 | % | 1.11 | % | |||||||
| Non-performing loans to: | |||||||||||
| Total loans and leases | 1.76 | % | 1.20 | % | |||||||
| Total loans held-for-investment | 1.78 | % | 1.22 | % | |||||||
Total loans held-for-investment (excluding loans at fair value) (1) | 1.79 | % | 1.23 | % | |||||||
Allowance for credit losses to: (2) | |||||||||||
| Total loans and leases | 1.15 | % | 1.07 | % | |||||||
| Total loans held-for-investment | 1.17 | % | 1.08 | % | |||||||
Total loans held-for-investment (excluding loans at fair value) (1) | 1.17 | % | 1.09 | % | |||||||
| Non-performing loans | 65.48 | % | 88.66 | % | |||||||
| Total loans and leases | $ | 1,920,622 | $ | 1,765,925 | |||||||
| Total loans and leases held-for-investment | $ | 1,895,806 | $ | 1,743,682 | |||||||
| Total loans and leases held-for-investment (excluding loans at fair value) | $ | 1,882,080 | $ | 1,729,180 | |||||||
Allowance for credit losses (2) | $ | 22,107 | $ | 18,828 | |||||||
44
Allowance for Loan and LeaseCredit Losses
| | | | | | | | | | |
| | | Balance, | | | | | Balance, | | |
(dollars in thousands) | | | December 31, 2021 | | % | | | December 31, 2020 | | % |
Commercial mortgage | | $ | 4,950 | | 26% | | $ | 7,451 | | 42% |
Home equity lines and loans | | | 224 | | 1% | | | 434 | | 2% |
Residential mortgage | | | 283 | | 2% | | | 385 | | 2% |
Construction | | | 2,042 | | 11% | | | 2,421 | | 14% |
Commercial and industrial | | | 6,533 | | 35% | | | 5,431 | | 31% |
Small business loans | | | 3,737 | | 20% | | | 1,259 | | 7% |
Consumer | | | 3 | | 0% | | | 4 | | 0% |
Leases | | | 986 | | 5% | | | 382 | | 2% |
Total | | $ | 18,758 | | 100% | | $ | 17,767 | | 100% |
| (dollars in thousands) | December 31, 2023 | % of Loan Type to Total Loans | December 31, 2022 | % of Loan Type to Total Loans | |||||||||||||||||||
| Commercial mortgage | $ | 4,375 | 39% | $ | 4,095 | 33% | |||||||||||||||||
| Home equity lines and loans | 998 | 4% | 188 | 3% | |||||||||||||||||||
| Residential mortgage | 1,020 | 14% | 948 | 13% | |||||||||||||||||||
| Construction | 485 | 13% | 3,075 | 16% | |||||||||||||||||||
| Commercial and industrial | 4,518 | 16% | 4,012 | 19% | |||||||||||||||||||
| Small business loans | 7,005 | 8% | 4,909 | 8% | |||||||||||||||||||
| Consumer | — | —% | 3 | —% | |||||||||||||||||||
| Leases | 3,706 | 6% | 1,598 | 8% | |||||||||||||||||||
| Total | $ | 22,107 | 100% | $ | 18,828 | 100% | |||||||||||||||||
| (1) The allowance for credit losses for the year ended December 31, 2023 was calculated under the current expected credit loss model, while the allowance for the year ended December 21, 2022 was calculated under the incurred loss model. | |||||||||||||||||||||||
| | | | | | | | | | | | | | |
| | | December 31, 2021 | | | December 31, 2020 | ||||||||
| | | | | % of | | Net Charge- | | | | | % of | | Net Charge- |
| | | Net | | Total Net | | offs as a % of | | | Net | | Total Net | | offs as a % of |
(dollars in thousands) | | | Charge-offs | | Charge-offs | | Average Loans | | | Charge-offs | | Charge-offs | | Average Loans |
Commercial mortgage | | $ | — | | 0.00% | | 0.00% | | $ | — | | 0.00% | | 0.00% |
Home equity lines and loans | | | 1 | | (1.27)% | | 0.00% | | | (76) | | 158.33% | | 0.01% |
Residential mortgage | | | 5 | | (6.33)% | | 0.00% | | | 7 | | (14.58)% | | 0.00% |
Construction | | | — | | 0.00% | | 0.00% | | | — | | 0.00% | | 0.00% |
Commercial and industrial | | | 41 | | (51.90)% | | 0.00% | | | 27 | | (56.25)% | | 0.00% |
Small business loans | | | — | | 0.00% | | 0.00% | | | — | | 0.00% | | 0.00% |
Consumer | | | 4 | | (5.06)% | | 0.00% | | | (6) | | 12.50% | | 0.00% |
Leases | | | (130) | | 164.56% | | 0.01% | | | — | | 0.00% | | 0.00% |
Total | | $ | (79) | | 100.00% | | 0.01% | | $ | (48) | | 100.00% | | 0.00% |
category for the years ended:
| December 31, 2023 | December 31, 2022 | |||||||||||||
| Home equity lines and loans | $ | (82) | $ | 31 | ||||||||||
| Residential mortgage | — | 2 | ||||||||||||
| Commercial and industrial | (209) | 97 | ||||||||||||
| Small business loans | (1,483) | — | ||||||||||||
| Consumer | 2 | 4 | ||||||||||||
| Leases | (3,779) | (2,552) | ||||||||||||
| Total Net Charge-offs | $ | (5,551) | $ | (2,418) | ||||||||||
Deposits
| (Dollars in thousands) | December 31, 2023 | December 31, 2022 | $ Change | % Change | |||||||||||||||||||
| Noninterest-bearing deposits | $ | 239,289 | $ | 301,727 | $ | (62,438) | (20.7) | % | |||||||||||||||
| Interest-bearing deposits: | |||||||||||||||||||||||
| Interest-bearing demand deposits | 150,898 | 219,838 | (68,940) | (31.4) | % | ||||||||||||||||||
| Money market and savings deposits | 747,803 | 697,564 | 50,239 | 7.2 | % | ||||||||||||||||||
| Time deposits | 685,472 | 493,350 | 192,122 | 38.9 | % | ||||||||||||||||||
| Total interest-bearing deposits | 1,584,173 | 1,410,752 | 173,421 | 12.3 | % | ||||||||||||||||||
| Total deposits | $ | 1,823,462 | $ | 1,712,479 | $ | 110,983 | 6.5 | % | |||||||||||||||
45
The following table summarizes our deposit balances and weighted average rate paid for the periods presented.
| | | | | | | | | | | | | | |
| | Year ended December 31, 2021 | | Year ended December 31, 2020 | ||||||||||
| | | | | Weighted | | | | | | | Weighted | | |
| | Average | | average | | Percent of | | Average | | average | | Percent of | ||
(dollars in thousands) |
| amount |
| rate paid |
| total deposits |
| amount |
| rate paid |
| total deposits | ||
Non-interest bearing deposits | | $ | 258,298 | | — | | 18.54% | | $ | 190,209 | | — | | 16.89% |
Interest bearing deposits | | | 888,927 | | 0.48% | | 63.81% | | | 623,368 | | 0.84% | | 55.36% |
Time deposits | | | 245,923 | | 0.52% | | 17.65% | | | 312,528 | | 1.51% | | 27.75% |
Total | | $ | 1,393,148 | | 0.48% | | 100.00% | | $ | 1,126,105 | | 1.07% | | 100.00% |
Time deposits of $250 thousand or more had remaining maturities as follows:
| | | | | | |
| | | | Year ended December 31, 2021 | ||
| | | | Amount | | % |
3 months or less | | | $ | 65,310 | | 36% |
Over 3 months through 6 months | | | | 1,807 | | 1% |
Over 6 months through 12 months | | | | 40,140 | | 22% |
Over 12 months | | | | 72,528 | | 40% |
| Total | | $ | 179,785 | | 100% |
| Year Ended December 31, 2023 | |||||||||||
| (Dollars in thousands) | Amount | % | |||||||||
| 3 months or less | $ | 101,332 | 22.1% | ||||||||
| Over 3 months through 6 months | 73,971 | 16.1% | |||||||||
| Over 6 months through 12 months | 158,321 | 34.5% | |||||||||
| Over 12 months | 125,164 | 27.3% | |||||||||
| Total | $ | 458,788 | 100.0% | ||||||||
split effective February 28, 2023.
| Year Ended | |||||||||||
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Income before income tax expense | $ | 16,967 | $ | 27,920 | |||||||
| Provision for credit losses | 6,815 | 2,488 | |||||||||
| Pre-tax, pre-provision income | $ | 23,782 | $ | 30,408 | |||||||
| Year Ended | |||||||||||
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Bank | $ | 27,751 | $ | 31,004 | |||||||
| Wealth | 1,240 | 2,030 | |||||||||
| Mortgage | (5,209) | (2,626) | |||||||||
| Pre-tax, pre-provision income | $ | 23,782 | $ | 30,408 | |||||||
| | | | | | | | | | | | | | |
Reconciliation of tangible book value per common share at December 31: | | | | | | | | | | 2021 | | 2020 | ||
Book value per common share | | | | | | | | | | $ | 27.07 | | $ | 23.08 |
Less: Impact of goodwill and intangible assets | | | | | | | | | | | 0.70 | | | 0.73 |
Tangible book value per common share | | | | | | | | | | $ | 26.37 | | $ | 22.35 |
share.
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Total stockholders' equity (GAAP) | $ | 158,022 | $ | 153,280 | |||||||
| Less: Goodwill and intangible assets | 3,870 | 4,074 | |||||||||
| Tangible common equity (non-GAAP) | 154,152 | 149,206 | |||||||||
| Total assets (GAAP) | 2,246,193 | 2,062,228 | |||||||||
| Less: Goodwill and intangible assets | 3,870 | 4,074 | |||||||||
| Tangible assets (non-GAAP) | $ | 2,242,323 | $ | 2,058,154 | |||||||
| Stockholders' equity to total assets (GAAP) | 7.04 | % | 7.43 | % | |||||||
| Tangible common equity to tangible assets (non-GAAP) | 6.87 | % | 7.25 | % | |||||||
| Shares outstanding | 11,183 | 11,466 | |||||||||
| Book value per share (GAAP) | $ | 14.13 | $ | 13.37 | |||||||
| Tangible book value per share (non-GAAP) | $ | 13.78 | $ | 13.01 | |||||||
| | | | | |
Reconciliation of Allowance for Loan Losses / Total loans held for investment at December 31: | 2021 | | 2020 | ||
Allowance for loan losses / Total loans held for investment | | 1.35% | | | 1.38% |
Less: Impact of loans held for investment - fair valued | | 0.02% | | | 0.00% |
Less: Impact of PPP loans | | 0.09% | | | 0.27% |
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans) | | 1.46% | | | 1.65% |
46
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Allowance for credit losses (GAAP) | $ | 22,107 | $ | 18,828 | |||||||
| Loans, net of fees and costs (GAAP) | 1,895,806 | 1,743,682 | |||||||||
| Less: Loans fair valued | (13,726) | (14,502) | |||||||||
| Loans, net of fees and costs, excluding loans at fair value (non-GAAP) | $ | 1,882,080 | $ | 1,729,180 | |||||||
| Allowance for credit losses to loans, net of fees and costs (GAAP) | 1.17 | % | 1.08 | % | |||||||
| Allowance for credit losses to loans, net of fees and costs, excluding loans at fair value (non-GAAP) | 1.17 | % | 1.09 | % | |||||||
Liquidity and Capital Resources
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
$1.0 million.
47
The following table summarizes data and ratios pertaining to our capital structure.
| | | | | | | | | | |
| | December 31, 2021 | ||||||||
| | | | | | | To Be Well Capitalized | |||
| | Actual | | 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% |
| | | | | | | | | | |
| | 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% |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
48
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, loans held for sale 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 reprices 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 reprices 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 table presents the interest rate gap analysis of our assets and liabilities as of December 31, 2021.
| | | | | | | | | | | |
| | | | | | | | | Greater | | |
| | | | | | | | | Than | | |
| | | | | | | | 5 years and | | | |
As of December 31, 2021 | | 12 Months | | | | | | Not Rate | | | |
(dollars in thousands) |
| or Less |
| 1-2 Years |
| 2-5 Years |
| Sensitive |
| Total | |
Cash and investments | | $ | 48,861 | | 4,246 | | 31,144 | | 107,257 | | 191,508 |
Loans (1) | | | 920,570 | | 155,542 | | 332,792 | | 39,677 | | 1,448,581 |
Other Assets | | | — | | — | | — | | 73,354 | | 73,354 |
Total Assets | | $ | 969,431 | | 159,788 | | 363,936 | | 220,288 | | 1,713,443 |
| | | | | | | | | | | |
Non-interest bearing deposits | | | 9,232 | | 8,946 | | 25,977 | | 230,373 | | 274,528 |
Interest bearing deposits | | | 965,876 | | — | | — | | — | | 965,876 |
Time deposits | | | 126,719 | | 18,106 | | 61,184 | | — | | 206,009 |
Borrowings | | | 41,344 | | — | | — | | — | | 41,344 |
Other Liabilities | | | — | | — | | — | | 60,326 | | 60,326 |
Total stockholders' equity | | | — | | — | | — | | 165,360 | | 165,360 |
Total liabilities and stockholders' equity | | $ | 1,143,171 | | 27,052 | | 87,161 | | 456,059 | | 1,713,443 |
| | | | | | | | | | | |
Repricing gap: | | | | | | | | | | | |
Positive (negative) | | $ | (173,740) | | 132,736 | | 276,775 | | (235,771) | | — |
Cumulative repricing gap: Dollar amount | | $ | (173,740) | | (41,004) | | 235,771 | | — | | — |
Percent of total assets | | | (10.1)% | | (2.4)% | | 13.8% | | — | | |
Under the static repricing gap analysis for the fiscal year ended December 31, 2021, we model as slightly liability-sensitive through two years. This result is mainly due to core-deposit growth from our strategy of increasing the concentration of relationship-based transaction accounts through the efforts of our business developers. Core customer preference, in the current economic environment, is for short term or liquid deposits. In addition, excess cash from PPP loan forgiveness and sale of loans held for sale were used to pay down borrowings at the end of the year to manage the margin.
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:
49
| | | | | |
| | Estimated increase |
| ||
| | (decrease) in Net Interest |
| ||
| | Income |
| ||
| | For the year ending |
| ||
| | December 31, |
| ||
Changes in Market Interest Rates |
| 2021 |
| 2020 |
|
+300 basis points over next 12 months |
| 0.21 | % | 1.87 | % |
+200 basis points over next 12 months |
| (0.18) | % | 1.02 | % |
+100 basis points over next 12 months |
| (0.31) | % | 0.50 | % |
No Change |
|
|
|
| |
-100 basis points over next 12 months | | (0.22) | % | (1.73) | % |
-200 basis points over next 12 months | | (2.34) | % | (5.21) | % |
| Changes in Market Interest Rates | December 31, 2023 | December 31, 2022 | |||||||||
| +300 basis points over next 12 months | 0.01 | % | (0.56) | % | |||||||
| +200 basis points over next 12 months | 0.19 | % | (0.27) | % | |||||||
| +100 basis points over next 12 months | 0.15 | % | (0.06) | % | |||||||
| No Change | |||||||||||
| -100 basis points over next 12 months | (1.37) | % | (1.06) | % | |||||||
| -200 basis points over next 12 months | (2.28) | % | (2.04) | % | |||||||
| -300 basis points over next 12 months | (3.07) | % | NA | ||||||||
| NA - Downward 300 basis point scenario not considered necessary for period ended December 31, 2022 | |||||||||||
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 December 31, 20212023 and 2020,2022, 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 20202022 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.
50
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 December 31, | | ||
Changes in Market Interest Rates |
| 2021 | | 2020 | |
+300 basis points |
| 60 | % | 103 | % |
+200 basis points |
| 45 | % | 78 | % |
+100 basis points |
| 26 | % | 45 | % |
No Change |
|
|
| |
|
-100 basis points |
| (37) | % | (67) | % |
-200 basis points |
| (97) | % | (175) | % |
| Changes in Market Interest Rates | December 31, 2023 | December 31, 2022 | |||||||||
| +300 basis points over next 12 months | (7) | % | 2 | % | |||||||
| +200 basis points over next 12 months | (3) | % | 3 | % | |||||||
| +100 basis points over next 12 months | — | % | 3 | % | |||||||
| No Change | |||||||||||
| -100 basis points over next 12 months | (3) | % | (8) | % | |||||||
| -200 basis points over next 12 months | (13) | % | (23) | % | |||||||
| -300 basis points over next 12 months | (31) | % | NA | ||||||||
| NA - Downward 300 basis point scenario not considered necessary for period ended December 31, 2022 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
Opinion
and Internal Control over Financial Reporting
Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO.
TheseOpinions
opinions.
52
Meridian Corporation and Subsidiaries
Consolidated Balance Sheets
| | | | | |
| | December 31, | | December 31, | |
(dollars in thousands, except per share data) |
| 2021 |
| 2020 | |
Cash and due from banks | | $ | 23,480 | | 34,190 |
Federal funds sold | | | — | | 2,554 |
Cash and cash equivalents | | | 23,480 | | 36,744 |
Securities available-for-sale (amortized cost of $158,387 and $120,215 as of December 31, 2021 and December 31, 2020) | | | 159,302 | | 123,562 |
Securities held-to-maturity (fair value of $6,591 and $6,857 as of December 31, 2021 and December 31, 2020) | | | 6,372 | | 6,510 |
Equity investments | | | 2,354 | | 1,031 |
Mortgage loans held for sale (amortized cost of $80,002 and $225,007 as of December 31, 2021 and December 31, 2020), at fair value | | | 80,882 | | 229,199 |
Loans, net of fees and costs (includes $17,558 and $12,182 of loans at fair value, amortized cost of $17,106 and $11,514 as of December 31, 2021 and December 31, 2020) | | | 1,386,457 | | 1,284,764 |
Allowance for loan and lease losses | | | (18,758) | | (17,767) |
Loans, net of the allowance for loan and lease losses | | | 1,367,699 | | 1,266,997 |
Restricted investment in bank stock | | | 5,117 | | 7,861 |
Bank premises and equipment, net | | | 11,806 | | 7,777 |
Bank owned life insurance | | | 22,503 | | 12,138 |
Accrued interest receivable | | | 5,009 | | 5,482 |
Deferred income taxes | | | 1,413 | | 62 |
Servicing assets | | | 12,765 | | 5,617 |
Goodwill | | | 899 | | 899 |
Intangible assets | | | 3,379 | | 3,601 |
Other assets | | | 10,463 | | 12,717 |
Total assets | | $ | 1,713,443 | | 1,720,197 |
Liabilities: | | | | | |
Deposits: | | | | | |
Non-interest bearing | | $ | 274,528 | | 203,843 |
Interest bearing | | | 1,171,885 | | 1,037,492 |
Total deposits | | | 1,446,413 | | 1,241,335 |
Short-term borrowings | | | 41,344 | | 106,862 |
Long-term debt | | | — | | 165,546 |
Subordinated debentures | | | 40,508 | | 40,671 |
Accrued interest payable | | | 31 | | 1,154 |
Other liabilities | | | 19,787 | | 23,007 |
Total liabilities | | | 1,548,083 | | 1,578,575 |
Stockholders’ equity: | | | | | |
Common stock, $1 par value. Authorized 25,000,000 and 10,000,000 shares as of December 31, 2021 and December 31, 2020; issued 6,534,587 and 6,455,566 as of December 31, 2021 and December 31, 2020 | | | 6,535 | | 6,456 |
Surplus | | | 83,663 | | 81,196 |
Treasury stock - 426,693 and 320,000 shares at December 31, 2021 and December 31, 2020 | | | (8,860) | | (5,828) |
Unearned common stock held by employee stock ownership plan | | | (1,602) | | (1,768) |
Retained earnings | | | 84,916 | | 59,010 |
Accumulated other comprehensive income | | | 708 | | 2,556 |
Total stockholders’ equity | | | 165,360 | | 141,622 |
Total liabilities and stockholders’ equity | | $ | 1,713,443 | | 1,720,197 |
The accompanying notes are an integral part of these consolidated financial statements.
53
Meridian Corporation and Subsidiaries
Consolidated Statements of Income
(dollars in thousands, except shares and per share data) December 31,
2023December 31,
2022Assets: Cash and due from banks $ 10,067 $ 11,299 Interest-bearing deposits at other banks 46,630 27,092 Cash and cash equivalents 56,697 38,391 Securities available-for-sale, at fair value (amortized cost of $156,492 and $148,976, respectively) 146,019 135,346 Securities held-to-maturity, at amortized cost (fair value of $32,730 and $33,085, respectively) 35,781 37,479 Equity investments 2,121 2,086 Mortgage loans held for sale 24,816 22,243 Loans and other finance receivables, net of fees and costs 1,895,806 1,743,682 Allowance for credit losses (22,107) (18,828) Loans and other finance receivables, net of the allowance for credit losses 1,873,699 1,724,854 Restricted investment in bank stock 8,072 6,931 Bank premises and equipment, net 13,557 13,349 Bank owned life insurance 28,844 28,055 Accrued interest receivable 9,325 7,363 Other real estate owned 1,703 1,703 Deferred income taxes 4,201 3,936 Servicing assets 11,748 12,346 Goodwill 899 899 Intangible assets 2,971 3,175 Other assets 25,740 24,072 Total assets $ 2,246,193 $ 2,062,228 Liabilities: Deposits: Non-interest bearing $ 239,289 $ 301,727 Interest bearing 1,584,173 1,410,752 Total deposits 1,823,462 1,712,479 Borrowings 174,896 122,082 Subordinated debentures 49,836 40,346 Accrued interest payable 10,324 2,389 Other liabilities 29,653 31,652 Total liabilities 2,088,171 1,908,948 Stockholders’ equity: Common stock, $1 par value: 25,000,000 shares authorized; 13,186,198 and 13,156,308 shares issued, respectively; and 11,183,015 and 11,465,572 shares outstanding, respectively. 13,186 13,156 Surplus 80,325 79,072 Treasury stock - 2,003,183 and 1,690,736 shares, respectively, at cost (26,079) (21,821) Unearned common stock held by employee stock ownership plan (1,204) (1,403) Retained earnings 101,216 95,815 Accumulated other comprehensive loss (9,422) (11,539) Total stockholders’ equity 158,022 153,280 Total liabilities and stockholders’ equity $ 2,246,193 $ 2,062,228
| | | | |
| | Year ended | ||
| | December 31, | ||
(dollars in thousands, except per share data) |
| 2021 |
| 2020 |
Interest income: | | | | |
Loans, including fees | $ | 68,822 | | 60,357 |
Securities: | | | | |
Taxable | | 1,460 | | 1,186 |
Tax-exempt | | 1,192 | | 1,044 |
Cash and cash equivalents | | 48 | | 69 |
Total interest income | | 71,522 | | 62,656 |
Interest expense: | | | | |
Deposits | | 5,494 | | 9,970 |
Borrowings | | 2,917 | | 3,690 |
Total interest expense | | 8,411 | | 13,660 |
Net interest income | | 63,111 | | 48,996 |
Provision for loan losses | | 1,070 | | 8,302 |
Net interest income after provision for loan losses | | 62,041 | | 40,694 |
Non-interest income: | | | | |
Mortgage banking income | | 75,932 | | 76,461 |
Wealth management income | | 4,801 | | 3,854 |
SBA loan income | | 6,898 | | 2,572 |
Earnings on investment in life insurance | | 365 | | 279 |
Net change in the fair value of derivative instruments | | (4,338) | | 4,975 |
Net change in the fair value of loans held-for-sale | | (3,311) | | 3,847 |
Net change in the fair value of loans held-for-investment | | (189) | | 323 |
Net gain (loss) on hedging activity | | 2,961 | | (9,400) |
Net gain on sale of investment securities available-for-sale | | 435 | | 1,345 |
Service charges | | 129 | | 107 |
Other | | 4,305 | | 2,555 |
Total non-interest income | | 87,988 | | 86,918 |
Non-interest expenses: | | | | |
Salaries and employee benefits | | 78,866 | | 72,147 |
Occupancy and equipment | | 4,545 | | 4,292 |
Professional fees | | 3,558 | | 3,113 |
Advertising and promotion | | 3,714 | | 2,852 |
Data processing | | 2,150 | | 1,913 |
Information technology | | 2,232 | | 1,542 |
Pennsylvania bank shares tax | | 609 | | 1,049 |
Other | | 8,053 | | 6,168 |
Total non-interest expenses | | 103,727 | | 93,076 |
Income before income taxes | | 46,302 | | 34,536 |
Income tax expense | | 10,717 | | 8,098 |
Net income | $ | 35,585 | | 26,438 |
Basic earnings per common share | $ | 5.91 | | 4.32 |
Diluted earnings per common share | $ | 5.73 | | 4.27 |
54
Meridian Corporation and Subsidiaries
Consolidated Statements of Comprehensive Income
| | | | | |
| | | Year ended | ||
| | | December 31, | ||
(dollars in thousands) |
| | 2021 |
| 2020 |
Net income: | | $ | 35,585 | | 26,438 |
| | | | | |
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 ($485), and $1,121, respectively | | | (1,514) | | 3,584 |
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of ($101), and ($320), respectively | | | (334) | | (1,025) |
Unrealized investment (losses) gains, net of tax expense of $(584), and $801, respectively | | | (1,848) | | 2,559 |
Total other comprehensive (loss) income | | | (1,848) | | 2,559 |
Total comprehensive income | | $ | 33,737 | | 28,997 |
MERIDIAN CORPORATION AND SUBSIDIARIES
| Year Ended December 31, | |||||||||||
| (dollars in thousands, except shares and per share data) | 2023 | 2022 | |||||||||
| Interest income: | |||||||||||
| Loans and other finance receivables, including fees | $ | 130,081 | $ | 84,627 | |||||||
| Securities - taxable | 3,873 | 2,420 | |||||||||
| Securities - tax-exempt | 1,369 | 1,388 | |||||||||
| Cash and cash equivalents | 1,266 | 286 | |||||||||
| Total interest income | 136,589 | 88,721 | |||||||||
| Interest expense: | |||||||||||
| Deposits | 57,819 | 15,397 | |||||||||
| Borrowings | 9,828 | 3,196 | |||||||||
| Total interest expense | 67,647 | 18,593 | |||||||||
| Net interest income | 68,942 | 70,128 | |||||||||
| Provision for credit losses | 6,815 | 2,488 | |||||||||
| Net interest income after provision for credit losses | 62,127 | 67,640 | |||||||||
| Non-interest income: | |||||||||||
| Mortgage banking income | 16,537 | 25,325 | |||||||||
| Wealth management income | 4,928 | 4,733 | |||||||||
| SBA loan income | 4,485 | 4,467 | |||||||||
| Earnings on investment in life insurance | 789 | 553 | |||||||||
| Net change in the fair value of derivative instruments | 91 | (703) | |||||||||
| Net change in the fair value of loans held-for-sale | 32 | (844) | |||||||||
| Net change in the fair value of loans held-for-investment | 132 | (2,408) | |||||||||
| Net gain on hedging activity | 28 | 5,439 | |||||||||
| Net loss on sale of investment securities available-for-sale | (58) | — | |||||||||
| Other | 5,001 | 5,162 | |||||||||
| Total non-interest income | 31,965 | 41,724 | |||||||||
| Non-interest expense: | |||||||||||
| Salaries and employee benefits | 47,377 | 54,378 | |||||||||
| Occupancy and equipment | 4,842 | 4,837 | |||||||||
| Professional fees | 4,312 | 3,635 | |||||||||
| Advertising and promotion | 3,730 | 4,336 | |||||||||
| Data processing and software | 6,415 | 5,451 | |||||||||
| FDIC premiums | 2,929 | 1,247 | |||||||||
| Other | 7,520 | 7,560 | |||||||||
| Total non-interest expense | 77,125 | 81,444 | |||||||||
| Income before income taxes | 16,967 | 27,920 | |||||||||
| Income tax expense | 3,724 | 6,091 | |||||||||
| Net income | $ | 13,243 | $ | 21,829 | |||||||
| Basic earnings per common share | $ | 1.19 | $ | 1.85 | |||||||
| Diluted earnings per common share | $ | 1.16 | $ | 1.79 | |||||||
| Basic weighted average shares outstanding | 11,115 | 11,792 | |||||||||
| Diluted weighted average shares outstanding | 11,387 | 12,204 | |||||||||
55
Meridian Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
| | | | | | | | | | | | | | |
| | | | | | | | 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 | | 80,196 | | (3) | | — | | 34,097 | | (3) | | 120,695 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 26,438 | | | | 26,438 |
Net change in unrealized gains on securities available-for-sale, net of tax | | | | | | | | | | | | 2,559 | | 2,559 |
Total comprehensive income | | | | | | | | | | | | | | 28,997 |
Dividends paid or accrued, $0.250 per share | | | | | | | | | | (1,525) | | | | (1,525) |
Shares purchased for ESOP plan (133,601) | | | | | | | | (2,000) | | | | | | (2,000) |
Net purchase of treasury stock through publicly announced plans (316,625) | | | | 122 | | (5,825) | | | | | | | | (5,703) |
Common stock issued through share-based awards and exercises (47,881) | | 48 | | 347 | | | | | | | | | | 395 |
ESOP shares committed to be released (13,328) | | | | | | | | 232 | | | | | | 232 |
Stock based compensation | | | | 531 | | | | | | | | | | 531 |
Balance, December 31, 2020 | $ | 6,456 | | 81,196 | | (5,828) | | (1,768) | | 59,010 | | 2,556 | | 141,622 |
Comprehensive income: | | | | | | | | | | | | | | |
Net income | | | | | | | | | | 35,585 | | | | 35,585 |
Net change in unrealized losses on securities available-for-sale, net of tax | | | | | | | | | | | | (1,848) | | (1,848) |
Total comprehensive income | | | | | | | | | | | | | | 33,737 |
Dividends paid or accrued, $1.575 per share | | | | | | | | | | (9,679) | | | | (9,679) |
Net purchase of treasury stock through publicly announced plans (106,693) | | | | | | (3,032) | | | | | | | | (3,032) |
Common stock issued through share-based awards and exercises, net of shares withheld (79,021) | | 79 | | 1,026 | | | | | | | | | | 1,105 |
ESOP shares committed to be released (13,328) | | | | 228 | | | | 166 | | | | | | 394 |
Stock based compensation | | | | 1,213 | | | | | | | | | | 1,213 |
Balance, December 31, 2021 | $ | 6,535 | | 83,663 | | (8,860) | | (1,602) | | 84,916 | | 708 | | 165,360 |
MERIDIAN CORPORATION AND SUBSIDIARIES
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Net income: | $ | 13,243 | $ | 21,829 | |||||||
| Other comprehensive income (loss): | |||||||||||
| Net change in unrealized losses on investment securities available for sale: | |||||||||||
| Change in fair value of investment securities available for sale, net of tax of $682, and $(3,059), respectively | 2,417 | (11,285) | |||||||||
| Reclassification adjustment for net losses (gains) realized in net income, net of tax effect of $13, and $0, respectively | 45 | — | |||||||||
| Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax effect of $19, and $(293), respectively | 67 | (962) | |||||||||
| Unrealized investment losses, net of tax effect of $714, and $(3,352), respectively | 2,529 | (12,247) | |||||||||
| Net change in unrealized gains (losses) on interest rate swaps used in cash flow hedges, net of tax effect of $22 and $0, respectively | (412) | — | |||||||||
| Total other comprehensive income (loss) | 2,117 | (12,247) | |||||||||
| Total comprehensive income | $ | 15,360 | $ | 9,582 | |||||||
56
| (dollars in thousands, except per share data) | Common Stock | Surplus | Treasury Stock | Unearned ESOP | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | 13,070 | $ | 77,128 | $ | (8,860) | $ | (1,602) | $ | 84,916 | $ | 708 | $ | 165,360 | |||||||||||||||||||||||||||
| Net income | — | — | — | — | 21,829 | — | 21,829 | ||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | (12,247) | (12,247) | ||||||||||||||||||||||||||||||||||
| Dividends declared, $0.90 per share | — | — | — | — | (10,930) | — | (10,930) | ||||||||||||||||||||||||||||||||||
| Net purchase of treasury stock through publicly announced plans (836,490 shares) | — | — | (12,961) | — | — | — | (12,961) | ||||||||||||||||||||||||||||||||||
| Common stock issued through share-based awards and exercises (158,042) | 43 | 711 | — | — | — | — | 754 | ||||||||||||||||||||||||||||||||||
| ESOP shares committed to be released (26,656) | — | 228 | — | 199 | — | — | 427 | ||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | 1,048 | — | — | — | — | 1,048 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 13,156 | $ | 79,072 | $ | (21,821) | $ | (1,403) | $ | 95,815 | $ | (11,539) | $ | 153,280 | |||||||||||||||||||||||||||
| Adjustment to initially apply ASU No. 2016-13 for CECL (1), net of tax | — | — | — | — | (2,228) | — | (2,228) | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | 13,243 | — | 13,243 | ||||||||||||||||||||||||||||||||||
| Other Comprehensive income | — | — | — | — | — | 2,117 | 2,117 | ||||||||||||||||||||||||||||||||||
| Dividends declared, $0.50 per share | — | — | — | — | (5,614) | — | (5,614) | ||||||||||||||||||||||||||||||||||
| Net purchase of treasury stock through publicly announced plans (312,447 shares) | — | — | (4,258) | — | — | — | (4,258) | ||||||||||||||||||||||||||||||||||
| Common stock issued through share-based awards and exercises (29,500) | 30 | 279 | — | — | — | — | 309 | ||||||||||||||||||||||||||||||||||
| ESOP shares committed to be released (26,656) | 324 | 199 | 523 | ||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | 650 | — | — | — | — | 650 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 13,186 | $ | 80,325 | $ | (26,079) | $ | (1,204) | $ | 101,216 | $ | (9,422) | $ | 158,022 | |||||||||||||||||||||||||||
Meridian Corporation and Subsidiaries
Consolidated Statements of Cash Flows
| | | | | |
| | Year ended | |||
| | December 31, | |||
(dollars in thousands) |
| 2021 |
| 2020 | |
Net income | | $ | 35,585 | | 26,438 |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | |
Gain on sale of investment securities | | | (435) | | (1,345) |
Net amortization of investment premiums and discounts and change in fair value of equity securities | | | 1,369 | | 425 |
Depreciation and amortization, net | | | (5,922) | | (2,890) |
Provision for loan losses | | | 1,070 | | 8,302 |
Amortization of issuance costs on subordinated debt | | | 118 | | 112 |
Share-based compensation | | | 1,607 | | 763 |
Net change in fair value of derivative instruments | | | 4,338 | | (4,975) |
Net change in fair value of loans held for sale | | | 3,311 | | (3,847) |
Net change in fair value of loans held for investment | | | 189 | | (323) |
Gain on sale of OREO | | | — | | (6) |
Amortization and net impairment of servicing rights | | | 1,109 | | 816 |
SBA loan income | | | (6,898) | | (2,733) |
Proceeds from sale of loans | | | 2,483,373 | | 2,235,986 |
Loans originated for sale | | | (2,270,693) | | (2,356,821) |
Mortgage banking income | | | (75,932) | | (77,116) |
Decrease (increase) in accrued interest receivable | | | 473 | | (2,334) |
(Increase) decrease in other assets | | | (3,693) | | 8,995 |
Earnings from investment in life insurance | | | (365) | | (279) |
(Increase) decrease income in deferred income tax | | | (768) | | 1,254 |
(Decrease) increase in accrued interest payable | | | (1,122) | | 66 |
(Decreased) increase in other liabilities | | | (1,591) | | 11,047 |
Net cash provided by (used in) operating activities | | | 165,123 | | (158,465) |
Cash flows from investing activities: | | | | | |
Activity in available-for-sale securities: | | | | | |
Maturities, repayments and calls | | | 10,447 | | 8,247 |
Sales | | | 23,585 | | 45,927 |
Purchases | | | (74,341) | | (114,494) |
Activity in held-to-maturity securities: | | | | | |
Maturities, repayments and calls | | | — | | 2,140 |
Proceeds from sale of OREO | | | — | | 126 |
Decrease in restricted stock | | | 2,743 | | 211 |
Net increase in loans | | | (87,575) | | (312,112) |
Purchases of premises and equipment | | | (5,374) | | (747) |
Purchase of bank owned life insurance | | | (10,000) | | — |
Net cash used in investing activities | | | (140,515) | | (370,702) |
Cash flows from financing activities: | | | | | |
Net increase in deposits | | | 205,079 | | 390,167 |
Decrease in short-term borrowings | | | (44,939) | | (922) |
Decrease in short-term borrowings with original maturity > 90 days | | | (20,579) | | (15,479) |
Repayment of long-term debt (subordinated debt) | | | (281) | | (172) |
(Repayment) proceeds from long-term debt, net | | | (165,546) | | 162,423 |
Repayment of acquisition note payable | | | — | | (413) |
Issuance costs on subordinated debt | | | — | | (231) |
Net purchase of treasury stock | | | (3,032) | | (5,703) |
Dividends paid | | | (9,679) | | (1,525) |
Purchase of common shares for ESOP | | | — | | (2,000) |
Share based awards and exercises | | | 1,105 | | 395 |
Net cash (used in) provided by financing activities | | | (37,872) | | 526,540 |
Net change in cash and cash equivalents | | | (13,264) | | (2,627) |
Cash and cash equivalents at beginning of period | | | 36,744 | | 39,371 |
Cash and cash equivalents at end of period | | $ | 23,480 | | 36,744 |
Supplemental disclosure of cash flow information: | | | | | |
Cash paid during the period for: | | | | | |
Interest | | $ | 9,534 | | 13,594 |
Income taxes | | | 14,069 | | 5,295 |
Supplemental disclosure of cash flow information: | | | | | |
Transfers from loans held for sale to loans held for investment | | | 8,410 | | 3,313 |
Net loans purchased, not settled | | | — | | 325 |
The accompanying notes are an integral part of these consolidated financial statements.
57
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Net income | $ | 13,243 | $ | 21,829 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Loss on sale of investment securities | 58 | — | |||||||||
| Net amortization of investment premiums and discounts and change in fair value of equity securities | 2,429 | 1,202 | |||||||||
| Depreciation and amortization (accretion), net | 432 | (1,406) | |||||||||
| Provision for credit losses | 6,815 | 2,488 | |||||||||
| Amortization of issuance costs on subordinated debt | 87 | 117 | |||||||||
| Stock based compensation | 1,173 | 1,475 | |||||||||
| Net change in fair value of derivative instruments | (91) | 703 | |||||||||
| Net change in fair value of loans held for sale | (32) | 844 | |||||||||
| Net change in fair value of loans held for investment | (132) | 2,408 | |||||||||
| Amortization and net impairment of servicing rights | 2,045 | 2,483 | |||||||||
| SBA loan income | (4,485) | (4,467) | |||||||||
| Proceeds from sale of loans | 657,563 | 1,100,333 | |||||||||
| Loans originated for sale | (645,365) | (1,016,130) | |||||||||
| Mortgage banking income | (16,537) | (25,325) | |||||||||
| Increase in accrued interest receivable | (1,962) | (2,354) | |||||||||
| Increase in other assets | (2,021) | (823) | |||||||||
| Earnings from investment in bank owned life insurance | (789) | (553) | |||||||||
| (Increase) decrease in deferred income tax | (234) | 1,112 | |||||||||
| Increase in accrued interest payable | 7,935 | 2,358 | |||||||||
| Decrease in other liabilities | (1,278) | (1,623) | |||||||||
| Net cash provided by operating activities | $ | 18,854 | $ | 84,671 | |||||||
| Cash flows used in investing activities: | |||||||||||
| Activity in available-for-sale securities: | |||||||||||
| Maturities, repayments and calls | 9,652 | 12,124 | |||||||||
| Sales | 13,514 | — | |||||||||
| Purchases | (33,211) | (31,496) | |||||||||
| Activity in held-to-maturity securities: | |||||||||||
| Maturities, repayments and calls | 1,400 | 905 | |||||||||
| Purchases | — | (5,500) | |||||||||
| Increase in restricted stock | (1,141) | (1,814) | |||||||||
| Net increase in loans | (152,576) | (359,460) | |||||||||
| Purchases of premises and equipment | (1,823) | (2,907) | |||||||||
| Purchase of bank owned life insurance | — | (5,000) | |||||||||
| Net cash used in investing activities | $ | (164,185) | $ | (393,148) | |||||||
| Cash flows provided by financing activities: | |||||||||||
| Net increase in deposits | 110,983 | 266,066 | |||||||||
| Increase in short-term borrowings | 28,077 | 71,803 | |||||||||
| Increase in long-term debt | 24,737 | 8,935 | |||||||||
| Repayment of subordinated debt | (328) | (279) | |||||||||
| Proceeds from issuance of subordinated debt | 9,740 | — | |||||||||
| Issuance costs on subordinated debt | (9) | — | |||||||||
| Net purchase of treasury stock | (4,258) | (12,961) | |||||||||
| Dividends paid | (5,614) | (10,930) | |||||||||
| Share based awards and exercises | 309 | 754 | |||||||||
| Net cash provided by financing activities | $ | 163,637 | $ | 323,388 | |||||||
| Net change in cash and cash equivalents | 18,306 | 14,911 | |||||||||
| Cash and cash equivalents at beginning of period | 38,391 | 23,480 | |||||||||
| Cash and cash equivalents at end of period | $ | 56,697 | $ | 38,391 | |||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid during the period for: | |||||||||||
| Interest | $ | 59,712 | $ | 16,235 | |||||||
| Income taxes | 3,104 | 5,365 | |||||||||
| Transfers from loans held for sale to loans held for investment | 351 | 3,147 | |||||||||
| Transfers from loans held for investment to loans held for sale | 21,800 | — | |||||||||
| Non-cash transfers from loans receivable to OREO | — | 1,703 | |||||||||
| Transfer of securities from AFS to HTM | — | 23,655 | |||||||||
(a)
PDBS.
(b)
GAAP.
(c)
58
discusses types of lending that the Corporation engages in. Although the Corporation has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy. The Corporation does not have any significant concentrations to any one industry or customer, however there is significant concentration of commercial real estate-backed loans, amounting to 37%39% and 38%34% of total loans held for investment, as of December 31, 20212023 and December 31, 2020,2022, respectively.
(d)
(e)
(f) Other Finance Receivables
Loans receivableand other finance receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loancredit losses and any deferred fees or costs. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Corporation generally amortizes these amounts over the contractual life of the loan.
59
Loans that were originated by the Corporation and intended for sale in the secondary market to permanent investors, but were either repurchased or unsalable due to defect, are held for the foreseeable future or until maturity or payoff, are carried at fair value.
The accrual of interest is discontinued when the contractual payment of
(g) Allowance for Loan and Lease Losses
The allowance for loan and lease losses (“Allowance”) is a valuation for probable incurred credit losses established through provisions for loan losses charged against income.interest. Loans deemedare returned to be uncollectible are charged against the Allowance, and subsequent recoveries, if any, are credited to the Allowance. All, or part, of the principal balance of loans receivable are charged off to the Allowance as soon asaccrual status when it is determined that the repayment of all, or part, ofborrower has the principal balance is highly unlikely. Charge-offs for retail consumer loans are generally made for any balance not adequately secured after 120 cumulative days past due.
The Allowance is maintained at a level considered adequate to provide for probable incurred credit losses. 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,make all principal and interest payments in accordance with the estimated value of any underlying collateral, compositionterms of the loan portfolio, current economic conditions(i.e. a consistent repayment record, generally six consecutive payments, has been demonstrated).
The Allowance consists of generalexpected credit losses, including portfolio mix and specific components. The general component covers non-classified loans, as well as, non-impaired classified loans and is based onsegmentation, modeling methodology, historical loss experience, adjusted forrelevant available information from internal and external sources relating to reasonable and supportable forecasts about future economic conditions, prepayment speeds, and qualitative adjustment factors.
We apply historical loss rates to pools of loans with similar risk characteristics. Loss rates are calculated by historical charge-offs that have occurred within each pool of loans over the loss emergence period (“LEP”). The LEP is an estimate of the average amount of time from when an event happens that causes the borrower to be unable to pay on a loan until the loss is confirmed through a loan charge-off.
Another key assumption is the look-back period (“LBP”), which represents the historical data period utilized to calculate loss rates. Our LBP goes back to Q1 2010 for allCorporation's portfolio segments, as applicable, which encompasses our loss experience during the Financial Crisis, and our more recent improved loss experience.
After consideration of the historic loss calculations, management applies qualitative adjustments so that the Allowance is reflective of the inherent losses that exist in the loan portfolio at the balance sheet date. Qualitative adjustments are madeestablished based upon changes in lending policies and practices, economic conditions, changes in the loan portfolio, changes in lending management, results of internal loan reviews, asset quality trends, collateral values, concentrations of credit risk and other external factors. The evaluation of the various components of the Allowance requires considerable judgment in order to estimate inherent loss exposures.
60
A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement, or a troubled debt restructure (“TDR”). Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.
For commercial and construction loans, impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral adjusted for cost to sell, if the loan is collateral dependent.
Large groups of smaller balance homogeneous residential mortgage and consumer loans are collectively evaluated for impairment. Accordingly, the Corporation does not separately identify individual loans of this nature for impairment disclosures, unless such loans become impaired or are troubled and the subject of a restructuring agreement.
Loans whose terms are modified are classified as TDRs if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty. Concessions granted under a TDR generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date. TDRs are considered impaired loans
No portion of the Allowance is restricted to any individual loan or groups of loans, and the entire Allowance is available to absorb any and all loan and lease losses.
The Corporation has identified the following portfolio segments with similar risk characteristics for measuring credit losses:
and loss behaviors, are:
61
Construction – Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate. Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. During the construction phase, a number of factors could result in delays and cost overruns. If the estimate of construction costs proves to be inaccurate, additional funds may be required to be advanced in excess of the amount originally committed to permit completion of the building.
Commercial and Industrial – We provide a variety of variable and fixed rate commercial business loans and lines of credit. These loans and lines of credit are made to small and medium-sized manufacturers and wholesale, retail and service-related businesses. Commercial business loans generally include lines of credit and term loans with a maturity of five years or less. The primary source of repayment for commercial business loans is generally operating cash flows of the business and may also include collateralization of inventory, accounts receivable, equipment and/or personal guarantees. As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself. Furthermore, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.
Leases – Meridian Equipment Finance (“MEF”) specializes in small ticket equipment leases for small and mid-sized businesses nationally and through a broad range of industries. The Bank’s credit risk generally results from the potential default of borrowers which may be driven by customer specific or broader industry related conditions.
Consumer, including home equity – Our consumer-lending department principally originates home equity based products for our clients and prospects. These loans typically fund completely at closing. Additional products include smaller dollar personal loans and our student loan refinance product, designed to provide additional flexibility in repayment terms desired in the marketplace. Most consumer loans are originated in Meridian’s primary market and surrounding areas.
years .
assets
62
The Corporation enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (interest rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Time
(i)
(j)
Other real estate owned (OREO)
(k) December 31, 2022.
63
respectively, related to the FHLB stock. Also included in restricted stock is secondary stock from a correspondent bank in the amount of $50 thousand as of December 31, 20212023 and 2020.2022. All restricted stock is carried at cost.
(l) 2022.
(m)
(o)
(p)
64
$1.1 million and $1.2 million, respectively for the year ended December 31, 2020.2022. The expense recorded by the Corporation for the ESOP for the year ended December 31, 20212023 included a $663$536 thousand employer contribution, in addition to $437$523 thousand in stock compensation related expense. The expense recorded by the Corporation for the ESOP for the year ended December 31, 20202022 included a $550$671 thousand employer contribution, and a $600in addition to $426 thousand one-time contribution approved by the Board of Directors. There was 0 such contribution made in 2021.
stock compensation related expense.
On August 31, 2020 the Corporation established a $2 million stock purchase authorization with the ESOP. By the end of 2020 the ESOP had fully utilized the $2 million loan to purchase 133,280 Corporation common shares and as As of December 31, 2021, 26,6562023, 93,296 of these common shares were released to the ESOP leaving 106,624173,264 unallocated shares. The 133,280 common shares purchased using the loan proceeds are included in the 161,576 shares purchased by the ESOP in 2020.
There were 269,904610,735 shares in the ESOP as of December 31, 2021.2023. Shares in the ESOP would be impacted by any stock dividends and stock splits in the same manner as all other outstanding common shares of the Corporation.
(q)
2020.
65
(s) Comprehensive Income
(t) securities, unrealized gains and (losses) arising during the year on interest rate swaps used in cash flow hedges.
(u)
(v)
(w)
In addition to lending and related activities, the Corporation offers various services that generate revenue, certain of which are in the scope of FASB ASU 2014-09 (Topic 606), “Revenue for Contracts with Customers” (ASC 606) is recognized within non-interest income and include wealth management fees, and transaction based and fees. Revenue is recognized when the transactions occur or as services as performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur. Fees may be fixed or, where applicable based on a percentage of transaction size. Wealth management income for the years ended December 31, 2023 and 2022 is $4.9 million and $4.7 million. Within other non-interest income is $750 thousand and $1.1 million for the years ended December 31, 2023 and 2022, respectively, which are in the scope of ASC 606. These amounts include wire transfer fees, ATM/debit card commissions, title fee income.
66
generally billed quarterly, in advance, based on the market value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date. Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.
(x)
(y)
(z)Note 20 - Segments.
| January 1, 2023 | ||||||||||||||||||||
| (dollars in thousands) | Pre-adoption | Adoption Impact | As Reported | |||||||||||||||||
| Assets: | ||||||||||||||||||||
| ACL on loans and leases: | ||||||||||||||||||||
| Commercial mortgage | $ | 4,095 | $ | (526) | $ | 3,569 | ||||||||||||||
| Home equity lines and loans | 188 | 439 | 627 | |||||||||||||||||
| Residential mortgage | 948 | 17 | 965 | |||||||||||||||||
| Construction | 3,075 | (1,763) | 1,312 | |||||||||||||||||
| Commercial and industrial | 4,012 | (1,023) | 2,989 | |||||||||||||||||
| Small business loans | 4,909 | 1,110 | 6,019 | |||||||||||||||||
| Consumer | 3 | (3) | — | |||||||||||||||||
| Leases, net | 1,598 | 3,345 | 4,943 | |||||||||||||||||
| Total ACL on loans and leases | $ | 18,828 | $ | 1,596 | $ | 20,424 | ||||||||||||||
| Liabilities: | ||||||||||||||||||||
| Reserve for unfunded commitments | $ | 173 | $ | 1,256 | $ | 1,429 | ||||||||||||||
| | | | | | |
| | Year Ended | ||||
| | December 31, | ||||
(dollars in thousands, except per share data) |
| 2021 |
| 2020 | ||
Numerator: | | | | | | |
Net income available to common stockholders | | $ | 35,585 | | | 26,438 |
Denominator for basic earnings per share | | | | | | |
Weighted average shares outstanding | | | 6,133 | | | 6,159 |
Average unearned ESOP shares | | | (114) | | | (37) |
Basic weighted averages shares outstanding | | | 6,019 | | | 6,122 |
Dilutive effects of assumed exercises of stock options | | | 130 | | | 23 |
Dilutive effects of SERP shares | | | 57 | | | 42 |
Denominator for diluted earnings per share - adjusted weighted average shares outstanding | | | 6,206 | | | 6,187 |
Basic earnings per share | | $ | 5.91 | | | 4.32 |
Diluted earnings per share | | $ | 5.73 | | | 4.27 |
Antidilutive shares excluded from computation of average dilutive earnings per share | | | 139 | | | 275 |
67
| Year Ended December 31, | |||||||||||
| (dollars in thousands, except per share data) | 2023 | 2022 | |||||||||
| Numerator for earnings per share: | |||||||||||
| Net income available to common stockholders | $ | 13,243 | $ | 21,829 | |||||||
| Denominators for earnings per share: | |||||||||||
| Weighted average shares outstanding | 11,289 | 11,992 | |||||||||
| Average unearned ESOP shares | (174) | (200) | |||||||||
| Basic weighted average shares outstanding | 11,115 | 11,792 | |||||||||
| Dilutive effects of assumed exercises of stock options | 144 | 268 | |||||||||
| Dilutive effects of SERP shares | 128 | 144 | |||||||||
| Diluted weighted average shares outstanding | 11,387 | 12,204 | |||||||||
| Basic earnings per share | $ | 1.19 | $ | 1.85 | |||||||
| Diluted earnings per share | $ | 1.16 | $ | 1.79 | |||||||
| Antidilutive shares excluded from computation of average dilutive earnings per share | 489 | 464 | |||||||||
| | | | | | | | | |
| | Balance | | | | Balance | | Amortization | |
| | December 31, | | Amortization | | December 31, | | Period | |
(dollars in thousands) |
| 2020 |
| Expense |
| 2021 |
| (in years) | |
Goodwill - Wealth | | $ | 899 | | — | | 899 | | Indefinite |
Total Goodwill | | | 899 | | — | | 899 | | |
| | | | | | | | | |
Intangible assets - trade name | | | 266 | | — | | 266 | | Indefinite |
Intangible assets - customer relationships | | | 3,319 | | (206) | | 3,113 | | 20 |
Intangible assets - non competition agreements | | | 16 | | (16) | | — | | 4 |
Total Intangible Assets | | | 3,601 | | (222) | | 3,379 | | |
Total | | $ | 4,500 | | (222) | | 4,278 | | |
| (dollars in thousands) | December 31, 2022 | Amortization Expense | December 31, 2023 | Amortization Period (in years) | |||||||||||||||||||
| Goodwill | $ | 899 | $ | — | $ | 899 | Indefinite | ||||||||||||||||
| Intangible assets - customer relationships | 266 | — | 266 | Indefinite | |||||||||||||||||||
| Intangible assets - non competition agreements | 2,909 | (204) | 2,705 | 20 | |||||||||||||||||||
| Total Intangible Assets | $ | 3,175 | $ | (204) | $ | 2,971 | |||||||||||||||||
| Total | $ | 4,074 | $ | (204) | $ | 3,870 | |||||||||||||||||
| | | | | | | |
2022 | | | | | | | 204 |
2023 | | | | | | | 204 |
2024 | | | | | | | 204 |
2025 | | | | | | | 204 |
2026 | | | | | | | 204 |
Thereafter | | | | | | | 2,093 |
| | | | | | $ | 3,113 |
68
| 2024 | $ | 204 | |||
| 2025 | 204 | ||||
| 2026 | 204 | ||||
| 2027 | 204 | ||||
| 2028 | 204 | ||||
| Thereafter | 1,685 | ||||
| Total | $ | 2,705 | |||
|
|
The following table presents the amortized cost and approximate fair value of securities as of December 31, 2021 and 2020 are as follows:
at the dates indicated:
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Allowance for Credit Losses | Fair value | # of Securities in unrealized loss position | |||||||||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||||||||||||||
| U.S. asset backed securities | $ | 17,012 | $ | 25 | $ | (213) | $ | — | $ | 16,824 | 11 | ||||||||||||||||||||||||
| U.S. government agency MBS | 22,750 | 364 | (480) | — | 22,634 | 14 | |||||||||||||||||||||||||||||
| U.S. government agency CMO | 21,850 | — | (2,277) | — | 19,573 | 30 | |||||||||||||||||||||||||||||
| State and municipal securities | 40,093 | — | (3,877) | — | 36,216 | 31 | |||||||||||||||||||||||||||||
| U.S. Treasuries | 32,982 | — | (2,560) | — | 30,422 | 25 | |||||||||||||||||||||||||||||
| Non-U.S. government agency CMO | 13,605 | 102 | (552) | — | 13,155 | 9 | |||||||||||||||||||||||||||||
| Corporate bonds | 8,200 | — | (1,005) | — | 7,195 | 13 | |||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 156,492 | $ | 491 | $ | (10,964) | $ | — | $ | 146,019 | 133 | ||||||||||||||||||||||||
| Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Allowance for Credit Losses | Fair value | # of Securities in unrecognized loss position | ||||||||||||||||||||||||||||||
| Securities held-to-maturity: | |||||||||||||||||||||||||||||||||||
| State and municipal securities | $ | 35,781 | $ | 52 | $ | (3,103) | $ | — | $ | 32,730 | 21 | ||||||||||||||||||||||||
| Total securities held-to-maturity | $ | 35,781 | $ | 52 | $ | (3,103) | $ | 32,730 | 21 | ||||||||||||||||||||||||||
| | | | | | | | | | | |
| | December 31, 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 | | $ | 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 | | — |
| | | | | | | | | | | |
| | 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 | | — |
| December 31, 2022 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | # of Securities in unrealized loss position | ||||||||||||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||||||||||
| U.S. asset backed securities | $ | 15,581 | $ | 14 | $ | (314) | $ | 15,281 | 12 | ||||||||||||||||||||
| U.S. government agency MBS | 12,272 | 5 | (538) | 11,739 | 12 | ||||||||||||||||||||||||
| U.S. government agency CMO | 25,520 | 40 | (2,242) | 23,318 | 29 | ||||||||||||||||||||||||
| State and municipal securities | 44,700 | — | (5,862) | 38,838 | 34 | ||||||||||||||||||||||||
| U.S. Treasuries | 32,980 | — | (3,457) | 29,523 | 25 | ||||||||||||||||||||||||
| Non-U.S. government agency CMO | 9,722 | — | (633) | 9,089 | 11 | ||||||||||||||||||||||||
| Corporate bonds | 8,201 | — | (643) | 7,558 | 12 | ||||||||||||||||||||||||
| Total securities available-for-sale | $ | 148,976 | $ | 59 | $ | (13,689) | $ | 135,346 | 135 | ||||||||||||||||||||
| Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Fair value | # of Securities in unrecognized loss position | |||||||||||||||||||||||||
| Securities held-to-maturity: | |||||||||||||||||||||||||||||
| State and municipal securities | $ | 37,479 | $ | — | $ | (4,394) | $ | 33,085 | 25 | ||||||||||||||||||||
| Total securities held-to-maturity | $ | 37,479 | $ | — | $ | (4,394) | $ | 33,085 | 25 | ||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| 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 | $ | 4,981 | $ | (25) | $ | 6,195 | $ | (188) | $ | 11,176 | $ | (213) | |||||||||||||||||||||||
| U.S. government agency MBS | 4,864 | (35) | 8,170 | (445) | 13,034 | (480) | |||||||||||||||||||||||||||||
| U.S. government agency CMO | 2,687 | (36) | 16,886 | (2,241) | 19,573 | (2,277) | |||||||||||||||||||||||||||||
| State and municipal securities | — | — | 36,216 | (3,877) | 36,216 | (3,877) | |||||||||||||||||||||||||||||
| U.S. Treasuries | — | — | 30,422 | (2,560) | 30,422 | (2,560) | |||||||||||||||||||||||||||||
| Non-U.S. government agency CMO | 1,127 | (4) | 6,065 | (548) | 7,192 | (552) | |||||||||||||||||||||||||||||
| Corporate bonds | 907 | (93) | 6,288 | (912) | 7,195 | (1,005) | |||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 14,566 | $ | (193) | $ | 110,242 | $ | (10,771) | $ | 124,808 | $ | (10,964) | |||||||||||||||||||||||
| 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 | $ | 1,021 | $ | (6) | $ | 29,404 | $ | (3,097) | $ | 30,425 | $ | (3,103) | |||||||||||||||||||||||
| Total securities held-to-maturity | $ | 1,021 | $ | (6) | $ | 29,404 | $ | (3,097) | $ | 30,425 | $ | (3,103) | |||||||||||||||||||||||
| December 31, 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 | $ | 6,531 | $ | (80) | $ | 4,863 | $ | (234) | $ | 11,394 | $ | (314) | |||||||||||||||||||||||
| U.S. government agency MBS | 6,022 | (230) | 4,637 | (308) | 10,659 | (538) | |||||||||||||||||||||||||||||
| U.S. government agency CMO | 9,859 | (821) | 9,549 | (1,421) | 19,408 | (2,242) | |||||||||||||||||||||||||||||
| State and municipal securities | 7,487 | (726) | 31,351 | (5,136) | 38,838 | (5,862) | |||||||||||||||||||||||||||||
| U.S. Treasuries | 1,902 | (97) | 27,622 | (3,360) | 29,524 | (3,457) | |||||||||||||||||||||||||||||
| Non-U.S. government agency CMO | 8,423 | (464) | 666 | (169) | 9,089 | (633) | |||||||||||||||||||||||||||||
| Corporate bonds | 5,019 | (431) | 1,538 | (212) | 6,557 | (643) | |||||||||||||||||||||||||||||
| Total securities available-for-sale | $ | 45,243 | $ | (2,849) | $ | 80,226 | $ | (10,840) | $ | 125,469 | $ | (13,689) | |||||||||||||||||||||||
| 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 | $ | 10,130 | $ | (364) | $ | 22,543 | $ | (4,030) | $ | 32,673 | $ | (4,394) | |||||||||||||||||||||||
| Total securities held-to-maturity | $ | 10,130 | $ | (364) | $ | 22,543 | $ | (4,030) | $ | 32,673 | $ | (4,394) | |||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Available-for-sale | Held-to-maturity | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amortized cost | Fair value | Amortized cost | Fair value | |||||||||||||||||||||||||||||||||||||||||||
| Due in one year or less | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||||
| Due after one year through five years | 32,982 | 30,423 | 3,911 | 3,797 | |||||||||||||||||||||||||||||||||||||||||||
| Due after five years through ten years | 16,746 | 15,208 | 4,332 | 3,676 | |||||||||||||||||||||||||||||||||||||||||||
| Due after ten years | 48,559 | 45,026 | 27,538 | 25,257 | |||||||||||||||||||||||||||||||||||||||||||
| Subtotal | 98,287 | 90,657 | 35,781 | 32,730 | |||||||||||||||||||||||||||||||||||||||||||
| Mortgage-related securities | 58,205 | 55,362 | — | — | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 156,492 | $ | 146,019 | $ | 35,781 | $ | 32,730 | |||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||||||||||||||
| Proceeds from sale of investment securities | $ | 13,514 | $ | — | |||||||||||||||||||
| Gross loss on sale of available for sale investments | 58 | — | |||||||||||||||||||||
69
The following table shows the Corporation’s investment gross unrealized lossespresents loans and fair value aggregated by investment categoryother finance receivables, net of fees and length of time that individual securities have been in continuous unrealized loss position at December 31, 2021 and 2020:
| | | | | | | | | | | | | |
| | December 31, 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 | | $ | 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) |
| | | | | | | | | | | | | |
| | 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) |
The amortized cost and carrying value of securities at December 31, 2021 and 2020 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.
| | | | | | | | | | | | | | | | | | |
| | December 31, 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 | | $ | — | | — | | 763 | | 769 | | $ | — | | — | | — | | — |
Due after one year through five years | | | 12,934 | | 12,885 | | 2,354 | | 2,397 | | | — | | — | | 3,181 | | 3,288 |
Due after five years through ten years | | | 30,890 | | 30,798 | | 3,255 | | 3,425 | | | 12,035 | | 12,095 | | 3,329 | | 3,569 |
Due after ten years | | | 81,548 | | 82,450 | | — | | — | | | 81,316 | | 83,512 | | — | | — |
Subtotal | | | 125,372 | | 126,133 | | 6,372 | | 6,591 | | | 93,351 | | 95,607 | | 6,510 | | 6,857 |
Mortgage-related securities | | | 33,015 | | 33,169 | | — | | — | | | 26,864 | | 27,955 | | — | | — |
Mutual funds with no stated maturity | | | — | | — | | — | | — | | | — | | — | | — | | — |
Total | | $ | 158,387 | | 159,302 | | 6,372 | | 6,591 | | $ | 120,215 | | 123,562 | | 6,510 | | 6,857 |
Proceeds from the sale of available for sale investment securities totaled $23.6 million for the year ended December 31, 2021, resulting in a gross gain on sale of $634 thousand and a gross loss on sale of $199 thousand for the year ended December 31, 2021. Proceeds from the sale of available for sale investment securities totaled $45.9 million for the year
70
ended December 31, 2020, resulting in a gross gain on sale of $1.5 million and a gross loss on sale of $196 thousand for the year ended December 31, 2020.
|
|
Loans and leases outstanding at December 31, 2021 and 2020 arecosts detailed by category as follows:
at the dates indicated:
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Real estate loans: | |||||||||||
| Commercial mortgage | $ | 737,863 | $ | 565,400 | |||||||
| Home equity lines and loans | 76,287 | 59,399 | |||||||||
| Residential mortgage | 260,604 | 221,837 | |||||||||
| Construction | 246,440 | 271,955 | |||||||||
| | | | | |
| | December 31, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Mortgage loans held for sale | | $ | 80,882 | | 229,199 |
Real estate loans: | | | | | |
Commercial mortgage | | | 516,928 | | 485,103 |
Home equity lines and loans | | | 52,299 | | 64,987 |
Residential mortgage (1) | | | 68,175 | | 52,454 |
Construction | | | 160,905 | | 140,246 |
Total real estate loans | | | 798,307 | | 742,790 |
| | | | | |
Commercial and industrial | | | 293,771 | | 261,750 |
Small business loans | | | 114,158 | | 49,542 |
Paycheck Protection Program ("PPP") loans | | | 90,194 | | 203,543 |
Main Street Lending Program ("MSLP") loans | | | 597 | | 580 |
Consumer | | | 419 | | 511 |
Leases, net | | | 88,242 | | 31,040 |
Total portfolio loans and leases | | | 1,385,688 | | 1,289,756 |
Total loans and leases | | $ | 1,466,570 | | 1,518,955 |
| | | | | |
Loans with predetermined rates | | $ | 488,220 | | 658,458 |
Loans with adjustable or floating rates | | | 978,350 | | 860,497 |
Total loans and leases | | $ | 1,466,570 | | 1,518,955 |
| | | | | |
Net deferred loan origination costs (fees) | | $ | 769 | | (4,992) |
| Total real estate loans | 1,321,194 | 1,118,591 | |||||||||
| Commercial and industrial | 302,891 | 341,378 | |||||||||
| Small business loans | 142,342 | 136,155 | |||||||||
| Consumer | 389 | 488 | |||||||||
| Leases, net | 121,632 | 138,986 | |||||||||
| Loans and other finance receivables, net of fees and costs | $ | 1,888,448 | $ | 1,735,598 | |||||||
| Balances included in loans, net of fees and costs: | |||||||||||
| Residential mortgage real estate loans accounted under fair value option, at fair value | $ | 13,726 | $ | 14,502 | |||||||
| Residential mortgage real estate loans accounted under fair value option, at amortized cost | 16,198 | 16,930 | |||||||||
| Unearned lease income included in leases, net | (19,210) | (25,715) | |||||||||
| Unamortized net deferred loan origination costs | 7,358 | 8,084 | |||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 30-89 days past due | 90+ days past due and still accruing | Total past due | Current | Total Accruing Loans and leases | Nonaccrual loans and leases | Total loans, net of fees and costs | % Delinquent | |||||||||||||||||||||||||||||||||||||||
| Commercial mortgage | $ | 571 | $ | — | $ | 571 | $ | 737,292 | $ | 737,863 | $ | — | $ | 737,863 | 0.08 | % | |||||||||||||||||||||||||||||||
| Home equity lines and loans | 566 | — | 566 | 74,684 | 75,250 | 1,037 | 76,287 | 2.10 | |||||||||||||||||||||||||||||||||||||||
Residential mortgage (1) | 1,103 | — | 1,103 | 254,965 | 256,068 | 4,536 | 260,604 | 2.16 | |||||||||||||||||||||||||||||||||||||||
| Construction | — | — | — | 245,234 | 245,234 | 1,206 | 246,440 | 0.49 | |||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | — | — | — | 287,478 | 287,478 | 15,413 | 302,891 | 5.09 | |||||||||||||||||||||||||||||||||||||||
| Small business loans | 1,499 | — | 1,499 | 131,403 | 132,902 | 9,440 | 142,342 | 7.69 | |||||||||||||||||||||||||||||||||||||||
| Consumer | — | — | — | 389 | 389 | — | 389 | — | |||||||||||||||||||||||||||||||||||||||
| Leases, net | 2,197 | — | 2,197 | 117,304 | 119,501 | 2,131 | 121,632 | 3.56 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 5,936 | $ | — | $ | 5,936 | $ | 1,848,749 | $ | 1,854,685 | $ | 33,763 | $ | 1,888,448 | 2.10 | % | |||||||||||||||||||||||||||||||
Components of the net investment in leases at December 31, 2021 and 2020$786 thousand are detailed as follows:
| | | | | |
| | December 31, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Minimum lease payments receivable | | $ | 105,608 | | 37,919 |
Unearned lease income | | | (17,366) | | (6,879) |
Total | | $ | 88,242 | | 31,040 |
71
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | 30-89 days past due | 90+ days past due and still accruing | Total past due | Current | Total Accruing Loans and leases | Nonaccrual loans and leases | Total loans, net of fees and costs | % Delinquent | |||||||||||||||||||||||||||||||||||||||
| Commercial mortgage | $ | — | $ | — | $ | — | $ | 565,260 | $ | 565,260 | $ | 140 | $ | 565,400 | 0.02 | % | |||||||||||||||||||||||||||||||
| Home equity lines and loans | 146 | — | 146 | 58,156 | 58,302 | 1,097 | 59,399 | 2.09 | |||||||||||||||||||||||||||||||||||||||
Residential mortgage (1) | 4,262 | — | 4,262 | 215,490 | 219,752 | 2,085 | 221,837 | 2.86 | |||||||||||||||||||||||||||||||||||||||
| Construction | 1,206 | — | 1,206 | 270,749 | 271,955 | — | 271,955 | 0.44 | |||||||||||||||||||||||||||||||||||||||
| Commercial and industrial | 101 | — | 101 | 328,730 | 328,831 | 12,547 | 341,378 | 3.70 | |||||||||||||||||||||||||||||||||||||||
| Small business loans | 939 | — | 939 | 130,751 | 131,690 | 4,465 | 136,155 | 3.97 | |||||||||||||||||||||||||||||||||||||||
| Consumer | — | — | — | 488 | 488 | — | 488 | — | |||||||||||||||||||||||||||||||||||||||
| Leases, net | 1,173 | — | 1,173 | 136,911 | 138,084 | 902 | 138,986 | 1.49 | % | ||||||||||||||||||||||||||||||||||||||
| Total | $ | 7,827 | $ | — | $ | 7,827 | $ | 1,706,535 | $ | 1,714,362 | $ | 21,236 | $ | 1,735,598 | 1.67 | % | |||||||||||||||||||||||||||||||
Age Analysis of Past Due Loans and Leases
The following table presents an aging of the Corporation’s loan and lease portfolio as of December 31, 2021 and 2020, respectively:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Total | | | | | | | |
| | | | 90+ days | | | | | | accruing | | Nonaccrual | | Total loans | | | | |
December 31, 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 | | $ | — | | — | | — | | 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 | % |
fees and costs on the Consolidated Balance Sheets) for which formal foreclosure proceedings were in process.
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | 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 $12,182nonaccrual status, net of loans at fair valuefees and costs as of December 31, 2020 ($10,3142023. As of current, $958 of 30-89this date here were no loans 90 days or more past due and $910still accruing.
| December 31, 2023 | |||||||||||||||||
| (dollars in thousands) | Nonaccrual Without ACL | Nonaccrual With ACL | Total Nonaccrual | ||||||||||||||
| Home equity lines and loans | $ | 1,037 | $ | — | $ | 1,037 | |||||||||||
| Residential mortgage | 4,536 | — | 4,536 | ||||||||||||||
| Construction | 1,206 | — | 1,206 | ||||||||||||||
| Commercial and industrial | 3,343 | 12,070 | 15,413 | ||||||||||||||
| Small business loans | 3,607 | 5,833 | 9,440 | ||||||||||||||
| Leases, net | 2,131 | — | 2,131 | ||||||||||||||
| Total | $ | 15,860 | $ | 17,903 | $ | 33,763 | |||||||||||
72
| December 31, 2023 | |||||||||||||||||
| (dollars in thousands) | Real Estate | Equipment and Other | Total | ||||||||||||||
| Home equity lines and loans | $ | 1,037 | $ | — | $ | 1,037 | |||||||||||
| Residential mortgage | 4,536 | — | 4,536 | ||||||||||||||
| Construction | 1,206 | — | 1,206 | ||||||||||||||
| Commercial and industrial | 1,890 | 13,523 | 15,413 | ||||||||||||||
| Small business loans | 6,320 | 3,120 | 9,440 | ||||||||||||||
| Leases, net | — | 2,131 | 2,131 | ||||||||||||||
| Total | $ | 14,989 | $ | 18,774 | $ | 33,763 | |||||||||||
The AllowanceACL is maintained at a level considered adequate to provide for estimated expected credit losses within the loan portfolio over the contractual life of an instrument that are probableconsiders our historical loss experience, current conditions and estimable.forecasts of future economic conditions as of the balance sheet date. Management’s periodic evaluation of the adequacy of the AllowanceACL 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.
| Year Ended December 31, 2023 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Beginning Balance, prior to adoption of ASU No. 2016-13 for CECL | Adjustment to initially apply ASU No. 2016-13 for CECL | Charge-offs | Recoveries | Provision (recovery of provision) for credit losses | Ending Balance | |||||||||||||||||||||||||||||
| Commercial mortgage | $ | 4,095 | $ | (526) | $ | — | $ | — | $ | 806 | $ | 4,375 | |||||||||||||||||||||||
| Home equity lines and loans | 188 | 439 | (87) | 5 | 453 | 998 | |||||||||||||||||||||||||||||
| Residential mortgage | 948 | 17 | — | — | 55 | 1,020 | |||||||||||||||||||||||||||||
| Construction | 3,075 | (1,763) | — | — | (827) | 485 | |||||||||||||||||||||||||||||
| Commercial and industrial | 4,012 | (1,023) | (266) | 57 | 1,738 | 4,518 | |||||||||||||||||||||||||||||
| Small business loans | 4,909 | 1,110 | (1,488) | 5 | 2,469 | 7,005 | |||||||||||||||||||||||||||||
| Consumer | 3 | (3) | (2) | 4 | (2) | — | |||||||||||||||||||||||||||||
| Leases | 1,598 | 3,345 | (4,033) | 254 | 2,542 | 3,706 | |||||||||||||||||||||||||||||
| Total | $ | 18,828 | $ | 1,596 | $ | (5,876) | $ | 325 | $ | 7,234 | $ | 22,107 | |||||||||||||||||||||||
| Year Ended December 31, 2022 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Beginning Balance | Charge-offs | Recoveries | Provision (Credit) | Ending Balance | ||||||||||||||||||||||||
| Commercial mortgage | $ | 4,950 | $ | — | $ | — | $ | (855) | $ | 4,095 | |||||||||||||||||||
| Home equity lines and loans | 224 | (12) | 43 | (67) | 188 | ||||||||||||||||||||||||
| Residential mortgage | 283 | — | 2 | 663 | 948 | ||||||||||||||||||||||||
| Construction | 2,042 | — | — | 1,033 | 3,075 | ||||||||||||||||||||||||
| Commercial and industrial | 6,533 | — | 97 | (2,618) | 4,012 | ||||||||||||||||||||||||
| Small business loans | 3,737 | — | — | 1,172 | 4,909 | ||||||||||||||||||||||||
| Consumer | 3 | — | 4 | (4) | 3 | ||||||||||||||||||||||||
| Leases | 986 | (2,616) | 64 | 3,164 | 1,598 | ||||||||||||||||||||||||
| Total | $ | 18,758 | $ | (2,628) | $ | 210 | $ | 2,488 | $ | 18,828 | |||||||||||||||||||
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Provision for credit losses - funded | $ | 7,234 | $ | 2,488 | |||||||
| Recovery of provision for credit losses - unfunded | (419) | — | |||||||||
| Total provision for credit losses | $ | 6,815 | $ | 2,488 | |||||||
| | | | | | | | | | | |
| | Balance, | | | | | | | | Balance, | |
(dollars in thousands) |
| December 31, 2020 |
| Charge-offs |
| Recoveries |
| Provision |
| December 31, 2021 | |
Commercial mortgage | | $ | 7,451 | | — | | — | | (2,501) | | 4,950 |
Home equity lines and loans | | | 434 | | (81) | | 82 | | (211) | | 224 |
Residential mortgage | | | 385 | | — | | 5 | | (107) | | 283 |
Construction | | | 2,421 | | — | | — | | (379) | | 2,042 |
Commercial and industrial | | | 5,431 | | — | | 41 | | 1,061 | | 6,533 |
Small business loans | | | 1,259 | | — | | — | | 2,478 | | 3,737 |
Consumer | | | 4 | | — | | 4 | | (5) | | 3 |
Leases | | | 382 | | (130) | | — | | 734 | | 986 |
Total | | $ | 17,767 | | (211) | | 132 | | 1,070 | | 18,758 |
| | | | | | | | | | | |
| | Balance, | | | | | | | | Balance, | |
(dollars in thousands) |
| December 31, 2019 |
| Charge-offs |
| Recoveries |
| Provision |
| December 31, 2020 | |
Commercial mortgage | | $ | 3,426 | | — | | — | | 4,025 | | 7,451 |
Home equity lines and loans | | | 342 | | (90) | | 14 | | 168 | | 434 |
Residential mortgage | | | 179 | | — | | 7 | | 199 | | 385 |
Construction | | | 2,362 | | — | | — | | 59 | | 2,421 |
Commercial and industrial | | | 2,684 | | (31) | | 58 | | 2,720 | | 5,431 |
Small business loans | | | 509 | | — | | — | | 750 | | 1,259 |
Consumer | | | 6 | | (10) | | 4 | | 4 | | 4 |
Leases | | | 5 | | — | | — | | 377 | | 382 |
Total | | $ | 9,513 | | (131) | | 83 | | 8,302 | | 17,767 |
73
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Allowance for credit losses | Carrying value of loans and leases | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Individually evaluated | Collectively evaluated | Total | Individually evaluated | Collectively evaluated | Total | |||||||||||||||||||||||||||||
| Commercial mortgage | $ | — | $ | 4,375 | $ | 4,375 | $ | — | $ | 737,863 | $ | 737,863 | |||||||||||||||||||||||
| Home equity lines and loans | — | 998 | 998 | 1,037 | 75,250 | 76,287 | |||||||||||||||||||||||||||||
| Residential mortgage | — | 1,020 | 1,020 | 3,750 | 243,128 | 246,878 | |||||||||||||||||||||||||||||
| Construction | — | 485 | 485 | 1,206 | 245,234 | 246,440 | |||||||||||||||||||||||||||||
| Commercial and industrial | 3,691 | 827 | 4,518 | 15,413 | 287,478 | 302,891 | |||||||||||||||||||||||||||||
| Small business loans | 2,805 | 4,200 | 7,005 | 9,440 | 132,902 | 142,342 | |||||||||||||||||||||||||||||
| Consumer | — | — | — | — | 389 | 389 | |||||||||||||||||||||||||||||
| Leases, net | — | 3,706 | 3,706 | 2,131 | 119,501 | 121,632 | |||||||||||||||||||||||||||||
Total (1) | $ | 6,496 | $ | 15,611 | $ | 22,107 | $ | 32,977 | $ | 1,841,745 | $ | 1,874,722 | |||||||||||||||||||||||
| 1) Excludes deferred fees and loans carried at fair value. | |||||||||||||||||||||||||||||||||||
The Allowance Allocated by Portfolio Segment
The following table details the pre-CECL allocation of the Allowanceallowance 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 December 31, 2021 respectively:
| | | | | | | | | | | | | | | |
| | Allowance on loans and leases | | Carrying value of loans and leases | | ||||||||||
| | Individually | | Collectively | | | | Individually | | Collectively | | | | ||
December 31, 2021 | | evaluated | | evaluated | | | | evaluated | | evaluated | | | | ||
(dollars in thousands) |
| for impairment |
| for impairment |
| Total |
| for impairment |
| for impairment |
| Total | | ||
Commercial mortgage | | $ | — | | 4,950 | | 4,950 | | $ | 3,556 | | 513,372 | | 516,928 | |
Home equity lines and loans | | | — | | 224 | | 224 | | | 905 | | 51,394 | | 52,299 | |
Residential mortgage | | | — | | 283 | | 283 | | | 1,797 | | 48,820 | | 50,617 | |
Construction | | | — | | 2,042 | | 2,042 | | | 1,206 | | 159,699 | | 160,905 | |
Commercial and industrial | | | 2,900 | | 3,633 | | 6,533 | | | 17,361 | | 276,410 | | 293,771 | |
Small business loans | | | 376 | | 3,361 | | 3,737 | | | 792 | | 113,366 | | 114,158 | |
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) |
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Allowance on loans and leases | Carrying value of loans and leases | ||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Individually evaluated for impairment | Collectively evaluated for impairment | Total | Individually evaluated for impairment | Collectively evaluated for impairment | Total | |||||||||||||||||||||||||||||
| Commercial mortgage | $ | — | $ | 4,095 | $ | 4,095 | $ | 2,445 | $ | 562,955 | $ | 565,400 | |||||||||||||||||||||||
| Home equity lines and loans | — | 188 | 188 | 1,097 | 58,302 | 59,399 | |||||||||||||||||||||||||||||
| Residential mortgage | — | 948 | 948 | 1,454 | 205,881 | 207,335 | |||||||||||||||||||||||||||||
| Construction | — | 3,075 | 3,075 | 1,206 | 270,749 | 271,955 | |||||||||||||||||||||||||||||
| Commercial and industrial | 776 | 3,236 | 4,012 | 12,547 | 328,831 | 341,378 | |||||||||||||||||||||||||||||
| Small business loans | 1,449 | 3,460 | 4,909 | 4,527 | 131,628 | 136,155 | |||||||||||||||||||||||||||||
| Consumer | — | 3 | 3 | — | 488 | 488 | |||||||||||||||||||||||||||||
| Leases | — | 1,598 | 1,598 | 902 | 138,084 | 138,986 | |||||||||||||||||||||||||||||
Total (1) | $ | 2,225 | $ | 16,603 | $ | 18,828 | $ | 24,178 | $ | 1,696,918 | $ | 1,721,096 | |||||||||||||||||||||||
| 1) Excludes deferred fees and loans carried at fair value. | |||||||||||||||||||||||||||||||||||
The following table details the allocation of the Allowance 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 December 31, 2020 respectively:
| | | | | | | | | | | | | | | |
| | 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) |
Loans and Leases by Credit Ratings
Quality Indicators
74
The following table detailstables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance asallowance for credit losses at the dates indicated:
| December 31, 2023 | Revolving Loans Converted to Term Loans | Revolving Loans | Total | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | ||||||||||||||||||||||||||||||||||||||||||||||||
| Commercial mortgage | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass/Watch | $ | 106,341 | $ | 160,302 | $ | 158,647 | $ | 97,535 | $ | 56,382 | $ | 133,349 | $ | 511 | $ | 423 | $ | 713,490 | |||||||||||||||||||||||||||||||||||
| Special Mention | — | — | — | 4,425 | 4,341 | 9,975 | 667 | — | 19,408 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | 200 | — | 571 | — | 1,635 | 2,233 | — | 326 | 4,965 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 106,541 | $ | 160,302 | $ | 159,218 | $ | 101,960 | $ | 62,358 | $ | 145,557 | $ | 1,178 | $ | 749 | $ | 737,863 | |||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Construction | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass/Watch | $ | 67,776 | $ | 88,737 | $ | 21,793 | $ | 27,336 | $ | 2,307 | $ | 2,093 | $ | 123 | $ | 25,976 | $ | 236,141 | |||||||||||||||||||||||||||||||||||
| Special Mention | — | — | 1,329 | — | 511 | 4,329 | — | 2,924 | 9,093 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | — | — | — | — | 1,206 | — | — | 1,206 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 67,776 | $ | 88,737 | $ | 23,122 | $ | 27,336 | $ | 2,818 | $ | 7,628 | $ | 123 | $ | 28,900 | $ | 246,440 | |||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass/Watch | $ | 26,314 | $ | 38,748 | $ | 24,523 | $ | 8,449 | $ | 4,148 | $ | 33,726 | $ | — | $ | 131,304 | $ | 267,212 | |||||||||||||||||||||||||||||||||||
| Special Mention | 500 | 9 | — | — | — | 1,361 | — | 6,440 | 8,310 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | — | — | 2,906 | — | 300 | 9,469 | — | 14,694 | 27,369 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 26,814 | $ | 38,757 | $ | 27,429 | $ | 8,449 | $ | 4,448 | $ | 44,556 | $ | — | $ | 152,438 | $ | 302,891 | |||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | (209) | $ | (55) | $ | — | $ | (2) | $ | — | $ | — | $ | — | $ | — | $ | (266) | |||||||||||||||||||||||||||||||||||
| Small business loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass/Watch | $ | 35,764 | $ | 26,621 | $ | 37,278 | $ | 11,687 | $ | 6,672 | $ | 920 | $ | — | $ | 12,507 | $ | 131,449 | |||||||||||||||||||||||||||||||||||
| Special Mention | — | — | — | 909 | — | — | — | 314 | 1,223 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | 49 | 1,523 | 5,090 | 2,122 | — | — | — | 886 | 9,670 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 35,813 | $ | 28,144 | $ | 42,368 | $ | 14,718 | $ | 6,672 | $ | 920 | $ | — | $ | 13,707 | $ | 142,342 | |||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | (11) | $ | (912) | $ | — | $ | — | $ | (565) | $ | (1,488) | |||||||||||||||||||||||||||||||||||
| Total by risk rating | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pass/Watch | $ | 236,195 | $ | 314,408 | $ | 242,241 | $ | 145,007 | $ | 69,509 | $ | 170,088 | $ | 634 | $ | 170,210 | 1,348,292 | ||||||||||||||||||||||||||||||||||||
| Special Mention | 500 | 9 | 1,329 | 5,334 | 4,852 | 15,665 | 667 | 9,678 | 38,034 | ||||||||||||||||||||||||||||||||||||||||||||
| Substandard | 249 | 1,523 | 8,567 | 2,122 | 1,935 | 12,908 | — | 15,906 | 43,210 | ||||||||||||||||||||||||||||||||||||||||||||
| Doubtful | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 236,944 | $ | 315,940 | $ | 252,137 | $ | 152,463 | $ | 76,296 | $ | 198,661 | $ | 1,301 | $ | 195,794 | $ | 1,429,536 | |||||||||||||||||||||||||||||||||||
| Total current period gross charge-offs | $ | (209) | $ | (55) | $ | — | $ | (13) | $ | (912) | $ | — | $ | — | $ | (565) | $ | (1,754) | |||||||||||||||||||||||||||||||||||
2023.
| | | | | | | | | | | |
December 31, 2021 |
| | |
| Special |
| |
| |
| |
(dollars in thousands) | | Pass | | mention | | Substandard | | Doubtful | | Total | |
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 |
Commercial and industrial loans classified as substandard totaled $42.9 million as of December 31, 2021, an increase of $33.9 million, from $9.0 million as of December 31, 2020. The increase was driven by the $13.8 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021, discussed above. The remaining $20.1 million of increase year-over-year was comprised of 18 different loan relationships with no specific industry concentration.
| | | | | | | | | | | |
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, 2023 | Revolving Loans | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Term Loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | ||||||||||||||||||||||||||||||||||||||||||||||||
| Home equity lines and loans | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | 343 | $ | 795 | $ | 314 | $ | 352 | $ | 2,191 | $ | 2,295 | $ | 68,600 | $ | 74,890 | |||||||||||||||||||||||||||||||||||||
| Nonperforming | — | — | — | — | — | — | 1,397 | 1,397 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 343 | $ | 795 | $ | 314 | $ | 352 | 0 | $ | 2,191 | $ | 2,295 | $ | 69,997 | $ | 76,287 | ||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | (33) | $ | — | $ | (54) | $ | (87) | |||||||||||||||||||||||||||||||||||||
| Residential mortgage (2) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | 48,576 | $ | 154,219 | $ | 22,237 | $ | 6,260 | $ | 456 | $ | 11,380 | $ | — | $ | 243,128 | |||||||||||||||||||||||||||||||||||||
| Nonperforming | — | 1,350 | — | 1,043 | — | 1,357 | — | 3,750 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 48,576 | $ | 155,569 | $ | 22,237 | $ | 7,303 | $ | 456 | $ | 12,737 | $ | — | $ | 246,878 | |||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Consumer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | 39 | $ | 35 | $ | — | $ | — | $ | 32 | $ | 234 | $ | 49 | $ | 389 | |||||||||||||||||||||||||||||||||||||
| Nonperforming | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 39 | $ | 35 | $ | — | $ | — | $ | 32 | $ | 234 | $ | 49 | $ | 389 | |||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | (2) | $ | (2) | |||||||||||||||||||||||||||||||||||||
| Leases, net | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | 23,054 | $ | 55,940 | $ | 30,876 | $ | 9,718 | $ | — | $ | — | $ | — | $ | 119,588 | |||||||||||||||||||||||||||||||||||||
| Nonperforming | 263 | 1,194 | 368 | 219 | — | — | — | 2,044 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 23,317 | $ | 57,134 | $ | 31,244 | $ | 9,937 | $ | — | $ | — | $ | — | $ | 121,632 | |||||||||||||||||||||||||||||||||||||
| Current period gross charge-offs | $ | (128) | $ | (2,165) | $ | (1,450) | $ | (290) | $ | — | $ | — | $ | — | $ | (4,033) | |||||||||||||||||||||||||||||||||||||
| Total by Payment Performance | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Performing | $ | 72,012 | $ | 210,989 | $ | 53,427 | 16,330 | $ | 2,679 | $ | 13,909 | $ | 68,649 | $ | 437,995 | ||||||||||||||||||||||||||||||||||||||
| Nonperforming | 263 | 2,544 | 368 | 1,262 | — | 1,357 | 1,397 | 7,191 | |||||||||||||||||||||||||||||||||||||||||||||
| Total | $ | 72,275 | $ | 213,533 | $ | 53,795 | $ | 17,592 | $ | 2,679 | $ | 15,266 | $ | 70,046 | $ | 445,186 | |||||||||||||||||||||||||||||||||||||
| Total current period gross charge-offs | $ | (128) | $ | (2,165) | $ | (1,450) | $ | (290) | $ | (33) | $ | — | $ | (56) | $ | (4,122) | |||||||||||||||||||||||||||||||||||||
| (1) Excludes $13.7 million of loans at fair value. | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||
| (dollars in thousands) | Pass | Special mention | Substandard | Doubtful | Total | ||||||||||||||||||||||||
| Commercial mortgage | $ | 536,705 | $ | 25,309 | $ | 3,386 | $ | — | $ | 565,400 | |||||||||||||||||||
| Home equity lines and loans | 57,822 | — | 1,577 | — | 59,399 | ||||||||||||||||||||||||
| Construction | 260,085 | 11,870 | — | — | 271,955 | ||||||||||||||||||||||||
| Commercial and industrial | 295,502 | 6,587 | 39,289 | — | 341,378 | ||||||||||||||||||||||||
| Small business loans | 131,690 | — | 4,465 | — | 136,155 | ||||||||||||||||||||||||
| Total | $ | 1,281,804 | $ | 43,766 | $ | 48,717 | $ | — | $ | 1,374,287 | |||||||||||||||||||
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 | ||||||||||
(dollars in thousands) |
| Performing |
| Nonperforming |
| Total |
| Performing |
| Nonperforming |
| Total | ||
Residential mortgage | | $ | 48,820 | | 1,797 | | 50,617 | | $ | 38,457 | | 1,815 | | 40,272 |
Consumer | | | 419 | | — | | 419 | | | 511 | | — | | 511 |
Leases, net | | | 88,030 | | 212 | | 88,242 | | | 31,040 | | — | | 31,040 |
Total | | $ | 137,269 | | 2,009 | | 139,278 | | $ | 70,008 | | 1,815 | | 71,823 |
75
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Performing | Non- performing | Total | ||||||||||||||||||||||||||||||||
Residential mortgage (1) | $ | 205,881 | $ | 1,454 | $ | 207,335 | |||||||||||||||||||||||||||||
| Consumer | 488 | — | 488 | ||||||||||||||||||||||||||||||||
| Leases, net | 138,084 | 902 | 138,986 | ||||||||||||||||||||||||||||||||
| Total | $ | 344,453 | $ | 2,356 | $ | 346,809 | |||||||||||||||||||||||||||||
(1) There were 4four nonperforming residential mortgage loans at December 31, 2021 and 5 at December 31, 20202022 with a combined outstanding principal balance of $601$558 thousand, and $910 thousand, respectively, which were carried at fair value and not included in the table above. NaN TDR’s performing according to modified terms are included in performing residential mortgages above for the twelve months ended December 31, 2021 and 2020, respectively.
| | | | | | | | | | | | | |
| | As of December 31, 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 | | $ | 17,147 | | 17,310 | | 2,900 | | 3,860 | | 3,902 | | 1,563 |
Small business loans | | | 666 | | 666 | | 376 | | — | | — | | — |
Home equity lines and loans | | | — | | — | | — | | 95 | | 105 | | 9 |
Residential mortgage | | | — | | — | | — | | 689 | | 689 | | 73 |
Total | | $ | 17,813 | | 17,976 | | 3,276 | | 4,644 | | 4,696 | | 1,645 |
Impaired loans without related allowance: | | | | | | | | | | | | | |
Commercial mortgage | | $ | 3,556 | | 3,559 | | — | | 1,606 | | 1,642 | | — |
Commercial and industrial | | | 214 | | 269 | | — | | 785 | | 862 | | — |
Small business loans | | | 126 | | 126 | | — | | 185 | | 185 | | — |
Home equity lines and loans | | | 905 | | 935 | | — | | 826 | | 839 | | — |
Residential mortgage | | | 1,797 | | 1,797 | | — | | 1,128 | | 1,128 | | — |
Construction | | | 1,206 | | 1,206 | | — | | 1,206 | | 1,206 | | — |
Leases | | | 212 | | 212 | | — | | — | | — | | — |
Total | | | 8,016 | | 8,104 | | — | | 5,736 | | 5,862 | | — |
Grand Total | | $ | 25,829 | | 26,080 | | 3,276 | | 10,380 | | 10,558 | | 1,645 |
| | | | | | | | | |
| | | Year Ended | | Year Ended | ||||
| | | December 31, 2021 | | December 31, 2020 | ||||
| | | Average | | Interest | | Average | | Interest |
| | | recorded | | income | | recorded | | income |
(dollars in thousands) | | | investment | | recognized | | investment | | recognized |
Impaired loans with related allowance: | | | | | | | | | |
Commercial and industrial | | | 17,349 | | 15 | | 3,907 | | 31 |
Small business loans | | | 887 | | — | | — | | — |
Home equity lines and loans | | | — | | — | | 102 | | — |
Residential mortgage | | | — | | — | | 689 | | — |
Total | | $ | 18,236 | | 15 | | 4,698 | | 31 |
Impaired loans without related allowance: | | | | | | | | | |
Commercial mortgage | | $ | 3,578 | | 43 | | 1,697 | | 86 |
Commercial and industrial | | | 239 | | 24 | | 832 | | 19 |
Small business loans | | | 154 | | 14 | | 213 | | 14 |
Home equity lines and loans | | | 914 | | — | | 831 | | — |
Residential mortgage | | | 1,807 | | 11 | | 1,131 | | 133 |
Construction | | | 1,206 | | 62 | | 1,208 | | 45 |
Leases | | | 240 | | — | | — | | — |
Total | | $ | 8,138 | | 154 | | 5,912 | | 297 |
Grand Total | | $ | 26,374 | | 169 | | 10,610 | | 328 |
76
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Recorded investment | Principal balance | Related allowance | ||||||||||||||||||||||||||||||||
| Impaired loans with related allowance: | |||||||||||||||||||||||||||||||||||
| Commercial and industrial | $ | 11,099 | $ | 12,095 | $ | 776 | |||||||||||||||||||||||||||||
| Small business loans | 3,730 | 3,730 | 1,449 | ||||||||||||||||||||||||||||||||
| Total | $ | 14,829 | $ | 15,825 | $ | 2,225 | |||||||||||||||||||||||||||||
| Impaired loans without related allowance: | |||||||||||||||||||||||||||||||||||
| Commercial mortgage | $ | 2,445 | $ | 2,456 | $ | — | |||||||||||||||||||||||||||||
| Commercial and industrial | 1,448 | 1,494 | — | ||||||||||||||||||||||||||||||||
| Small business loans | 797 | 797 | — | ||||||||||||||||||||||||||||||||
| Home equity lines and loans | 1,097 | 1,097 | — | ||||||||||||||||||||||||||||||||
| Residential mortgage | 1,454 | 1,454 | — | ||||||||||||||||||||||||||||||||
| Construction | 1,206 | 1,206 | — | ||||||||||||||||||||||||||||||||
| Leases | 902 | 902 | — | ||||||||||||||||||||||||||||||||
| Total | $ | 9,349 | $ | 9,406 | $ | — | |||||||||||||||||||||||||||||
| Grand Total | $ | 24,178 | $ | 25,231 | $ | 2,225 | |||||||||||||||||||||||||||||
additional information.
The balance offollowing table presents information about TDRs at December 31, 2021 and 2020 are as follows:
| | | | | |
| | December 31, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
TDRs included in nonperforming loans and leases | | $ | 361 |
| 244 |
TDRs in compliance with modified terms | |
| 3,446 |
| 3,362 |
Total TDRs | | $ | 3,807 |
| 3,606 |
the dates indicated:
| (dollars in thousands) | December 31, 2022 | |||||||
| TDRs included in nonperforming loans and leases | $ | 207 | ||||||
| TDRs in compliance with modified terms | 3,573 | |||||||
| Total TDRs | $ | 3,780 | ||||||
COVID-19 Assistance
During 2021Borrowers Experiencing Financial Difficulty
| Year Ended December 31, 2023 | |||||||||||||||||||||||
| Number of Loans | Amortized Cost Basis | % of Total Class of Financing Receivable | Related Reserve | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Accruing Modified Loans to Borrowers Experiencing Financial Difficulty: | |||||||||||||||||||||||
| Small business loans | 6 | $ | 1,880 | 1.3% | $ | — | |||||||||||||||||
| Commercial & industrial | 2 | 2,401 | 0.8% | — | |||||||||||||||||||
| Total | 8 | $ | 4,281 | $ | — | ||||||||||||||||||
| Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty: | |||||||||||||||||||||||
| Small business loans | 3 | $ | 1,726 | 1.2% | $ | 38 | |||||||||||||||||
| Commercial & industrial | 1 | 1,324 | 0.4% | 689 | |||||||||||||||||||
| Total | 4 | $ | 3,050 | $ | 727 | ||||||||||||||||||
| Year Ended December 31, 2023 | ||||||||||||||||||||
| Number of Loans | ||||||||||||||||||||
| Financial Effect | ||||||||||||||||||||
| Accruing Modified Loans to Borrowers Experiencing Financial Difficulty: | ||||||||||||||||||||
| Small business loans | 6 | Extend maturity date | ||||||||||||||||||
| Commercial & industrial | 2 | Extend maturity date | ||||||||||||||||||
| Total | 8 | |||||||||||||||||||
| Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty: | ||||||||||||||||||||
| Small business loans | 3 | Extend term and allow additional lender funding | ||||||||||||||||||
| Commercial & industrial | 1 | Extend term and allow additional lender funding | ||||||||||||||||||
| Total | 4 | |||||||||||||||||||
Throughout the life of the PPP loan program we helped borrowers with the issuance of 1,451 such loans totaling over $370 million. As of March 10, 2022, approximately $314 million, or 1,224 loans, had been paid back. Out of the remaining $56.3 million that have yet to be forgiven by the SBA, $31.7 million have submitted for forgiveness and are awaiting a response from the SBA, while the remaining $24.6 million has not yet submitted a request for forgiveness.
We also provided COVID-19 loan deferrals, typically in 3 month increments, to loan customers that amounted to $2.4 million as ofyear ended December 31, 2021, down $21.8 million, or 90%, from the $24.2 million as of December 31, 2020 as detailed by industry concentration of the borrower in the table below:
| | | | | |
| | December 31, | | December 31, | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Hotels | | $ | — |
| 11,832 |
C&I building construction | | | — | | 10,103 |
Other | |
| 2,424 |
| 2,243 |
Total | | $ | 2,424 |
| 24,178 |
As these modifications related to the COVID-19 pandemic and qualify under the provisions of either Section 4013 of the CARES Act or Interagency Guidance, they are not considered TDR’s. Management continues to monitor these deferrals and has adequately considered these credits in the December 31, 2021 allowance for loan losses balance. These modified
77
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. As of January 31, 2022 the $2.4 million of deferrals that had existed as of December 31, 2021 expired without further deferral or modification given to these borrowers.
|
|
The components of premises and equipment at December 31, 20212023 and 20202022 are as follows:
| | | | | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Building | | $ | 4,141 | | 4,141 |
Leasehold improvements | | | 3,347 | | 3,202 |
Land | | | 600 | | 600 |
Land Improvements | | | 218 | | 218 |
Furniture, fixtures and equipment | | | 3,229 | | 2,700 |
Computer equipment and data processing software | | | 7,971 | | 7,034 |
Construction in process | | | 3,763 | | — |
Less: accumulated depreciation | | | (11,463) | | (10,118) |
Total | | $ | 11,806 | | 7,777 |
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Buildings | $ | 9,287 | $ | 9,150 | |||||||
| Leasehold improvements | 4,234 | 3,347 | |||||||||
| Land | 600 | 600 | |||||||||
| Land Improvements | 218 | 218 | |||||||||
| Furniture, fixtures and equipment | 3,587 | 3,577 | |||||||||
| Computer equipment and data processing software | 9,397 | 9,242 | |||||||||
| Construction in process | — | 40 | |||||||||
| Less: accumulated depreciation | (13,766) | (12,825) | |||||||||
| Total | $ | 13,557 | $ | 13,349 | |||||||
In November 2021 Meridian purchased a building for $3.8 million that will serve as the future headquarters of our bank operations department, as well as other departments. As of December 31, 2021 this building was classified as construction in process as it has not yet been put into service, and therefore has not started to be depreciated.
|
|
| | | | | |
(dollars in thousands) |
| 2021 | 2020 | ||
Demand, non-interest bearing | | $ | 274,528 | | 203,843 |
Demand, interest bearing | | | 268,248 | | 206,573 |
Savings accounts | | | 45,038 | | 8,056 |
Money market accounts | | | 652,590 | | 564,566 |
Time deposits | | | 206,009 | | 258,297 |
Total | | $ | 1,446,413 | | 1,241,335 |
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Demand, non-interest bearing | $ | 239,289 | $ | 301,727 | |||||||
| Demand, interest bearing | 150,898 | 219,838 | |||||||||
| Savings accounts | 14,469 | 36,125 | |||||||||
| Money market accounts | 733,334 | 661,439 | |||||||||
| Time deposits | 685,472 | 493,350 | |||||||||
| Total | $ | 1,823,462 | $ | 1,712,479 | |||||||
| | | | | |
2022 |
| | | $ | 126,719 |
2023 | | | | | 18,106 |
2024 | | | | | 4,071 |
2025 | | | | | 24,271 |
2026 | | | | | 32,842 |
Total | | | | $ | 206,009 |
78
| 2024 | $ | 533,161 | |||
| 2025 | 101,912 | ||||
| 2026 | 50,084 | ||||
| 2027 | 15 | ||||
| 2028 | 300 | ||||
| Total | $ | 685,472 | |||
|
|
The Corporation’s short-term borrowings generally consist of federalFederal funds purchased and short-term borrowings extended under agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”). The Corporation has 2FHLB and one unsecured Federal Fundsfunds borrowing facilities with correspondent banks: one of $24 million and onebanks of $15 million. Federal funds purchased generally represent one-day borrowings. The Corporation had 0$0 in Federal Fundsfunds purchased at December 31, 20212023 and December 31, 2020.2022. The Corporation also has a facility with the Federal Reserve Bank discount window of $3.5$7.8 million. This facility is fully secured by investment securities. There were 0no borrowings under this at December 31, 20212023 and $10December 31, 2022. Additionally, the Corporation has a facility with the Federal Reserve’s BTFP of $33 million. This facility was created by the Federal Reserve in March 2023 and is fully secured by United States Treasury Bonds. There were $33 million in borrowings under this facility at December 31, 2020.
Short-term2023.
| (dollars in thousands) | Maturity date | Interest rate | December 31, 2023 | December 31, 2022 | |||||||||||||||||||
| FHLB Open Repo Plus Weekly | 6/10/2024 | 5.68% | $ | 104,792 | $ | 113,147 | |||||||||||||||||
| FRB BTFP Advances | 3/29/2024 | 4.76% | 33,000 | — | |||||||||||||||||||
| FHLB Mid-term Repo Fixed | 9/30/2024 | 4.60% | 3,432 | — | |||||||||||||||||||
| Total Short-Term Borrowings | $ | 141,224 | $ | 113,147 | |||||||||||||||||||
| | | | | | | | | |
| | | | | | Balance as of | |||
| | Maturity | | Interest | | December 31, | | December 31, | |
(dollars in thousands) | | date |
| rate |
| 2021 |
| 2020 | |
Open Repo Plus Weekly | | 05/31/2022 | | 0.33 | % | $ | 36,458 | | 60,416 |
Mid-term Repo-fixed | | 09/12/2022 | | 0.23 | | | 4,886 | | — |
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 |
Mid-term Repo-fixed | | 01/27/2021 | | 0.23 | | | — | | 5,465 |
Total | | | | | | $ | 41,344 | | 106,862 |
As part oftable presents long-term borrowings at the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program. Advances from this facility are secured 100% by the aggregate face value of pools comprised of loans with common maturity dates. PPPLF advances mature concurrently with the loans in a given pool. At December, 2021, the Corporation had 0 of PPPLF advances with the FRB of Philadelphia. Advances made on the PPPLF were ended by the FRB on July 30, 2021.
Long-term debt at December 31, 2021 and December 31, 2020 consisted of the following fixed rate notes with the FHLB of Pittsburgh:
| | | | | | | | | |
| | | | | | Balance as of | |||
| | Maturity | | Interest | | December 31, | | December 31, | |
(dollars in thousands) |
| date |
| rate |
| 2021 |
| 2020 | |
PPPLF Advances | | 2022 | | 0.35 | % | $ | — | | 153,269 |
Mid-term Repo-fixed | | 06/29/2022 | | 0.32 | | | — | | 7,392 |
Mid-term Repo-fixed | | 09/12/2022 | | 0.23 | | | — | | 4,885 |
Total | | ` | | | | $ | — | | 165,546 |
dates indicated:
| (dollars in thousands) | Maturity date | Interest rate | December 31, 2023 | December 31, 2022 | |||||||||||||||||||
| FHLB Mid-term Repo Fixed | 12/22/2025 | 4.23% | $ | 8,935 | $ | 8,935 | |||||||||||||||||
| FHLB Mid-term Repo Fixed | 7/14/2026 | 4.57% | 15,245 | — | |||||||||||||||||||
| FHLB Mid-term Repo Fixed | 10/14/2025 | 5.16% | 9,492 | — | |||||||||||||||||||
| Total Long-Term Borrowings | $ | 33,672 | $ | 8,935 | |||||||||||||||||||
2024.
79
|
|
In December 2008,The following table presents subordinated debentures at the dates indicated:
| Maturity date | Interest rate | December 31, 2023 | December 31, 2022 | ||||||||||||||||||||
| 2023 Debentures | 08/31/2033 | 8.00% | $ | 9,740 | $ | — | |||||||||||||||||
| 2019 Debentures | 12/30/2029 | 5.38% | 40,000 | 40,000 | |||||||||||||||||||
| 2013 Debentures | 12/31/2028 | 6.50% | 497 | 653 | |||||||||||||||||||
| 2011 Debentures | 12/31/2026 | 6.00% | 347 | 463 | |||||||||||||||||||
| 2008 Debentures | 12/18/2023 | 6.00% | — | 56 | |||||||||||||||||||
| Debt Origination Costs | (748) | (826) | |||||||||||||||||||||
| Total Subordinated Debentures | $ | 49,836 | $ | 40,346 | |||||||||||||||||||
In December 2011, the Bank issued $1.4 million of mandatory convertible unsecured subordinated debentures (2011 Debentures). The 2011 Debentures have a maturity date of December 31, 2026 and interest on the 2011 Debentures is paid quarterly at 6%. The 2011 Debentures are convertible into 1 share of the Corporation’s common stock for every $17 in principal amount of the 2011 Debentures automatically on such date, if any, as accumulated losses of the Bank first exceed the sum of the retained earnings and capital surplus accounts of the Bank. The 2011 Debentures began to repay principal in 8 equal installments which commenced in December of 2020. As of December 31, 2021, $578 thousand of the 2011 Debentures remained outstanding, after pay downs of $116 thousand each during 2021 and 2020.
In April 2013, the Bank issued $1.4 million of mandatory convertible unsecured subordinated debentures (2013 Debentures). The 2013 Debentures have a maturity date of December 31, 2028 and interest on the 2013, Debentures is paid quarterly at 6.5%. The 2013 Debentures are convertible into 1 share of the Corporation’s common stock for every $22 in principal amount of the 2013 Debentures automatically on such date, if any, as accumulated losses of the Bank first exceed the sum of the retained earnings2011 and capital surplus accounts of the Bank. As of December 31, 2021, $761 thousand of the 2013 Debentures remained outstanding, after pay downs of $109 thousand during 2021 and 0 payments during 2020.
In June, August and September 2014, the Bank issued $3 million, $100 thousand, and $7 million of non-convertible unsecured subordinated debentures (2014 Debentures). The 2014 Debentures have maturity dates of June 30, 2024, June 30, 2024 and September 30, 2024, respectively. Interest on all 3 tranches of the 2014 Debentures is paid quarterly at 7.25%. During 2020, the Corporation redeemed the remaining $7.1 million of 2014 Debentures and therefore there was $0 outstanding as of December 31, 2021 and 2020.
2008 Debentures. Upon formation of the bank holding company, the Corporation assumed the 2013, 2011 and 2008 Debentures.
During December 2019, the Corporation issued $40 million of fixed-to-floating rate non-convertible unsecured subordinated debentures (2019 Debentures). The 2019 Debentures have a maturity date of December 30, 2029 and interest on the 2019 Debentures is paid semiannually at 5.375%. The debt issuance costs are included as a direct deduction from the debt liability and these costs are amortized to interest expense using the effective yield method. During 2021 and 2020 the Corporation made interest payments of $2.2 million and $2.2 million on the 2019 Debentures, respectively.
The 2008, 2011, and 2013 Debentures are includable as Tier 2 capital for determining the Bank’s compliance with regulatory capital requirements (see footnote 19). The 2019 Debentures are included as Tier 2 capital for the Corporation and as Tier 1 capital for the Bank.
80
MSRs are
2022.
| | | | | |
| | Year Ended December 31, | |||
(dollars in thousands) | | 2021 |
| 2020 | |
Balance at beginning of the period | | $ | 4,647 | | 446 |
Servicing rights capitalized | | | 6,769 | | 4,856 |
Amortization of servicing rights | | | (1,087) | | (318) |
Change in valuation allowance | | | 427 | | (337) |
Balance at end of the period | | $ | 10,756 | | 4,647 |
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Balance at beginning of the period | $ | 9,942 | $ | 10,756 | |||||||
| Servicing rights capitalized | 20 | 668 | |||||||||
| Amortization of servicing rights | (1,343) | (1,488) | |||||||||
| Change in valuation allowance | 2 | 6 | |||||||||
| Balance at end of the period | $ | 8,621 | $ | 9,942 | |||||||
| | | | | |
| | Year Ended December 31, | |||
(dollars in thousands) | | 2021 |
| 2020 | |
Valuation allowance, beginning of period | | $ | (435) | | (98) |
Impairment | | | — | | (337) |
Recovery | | | 427 | | — |
Valuation allowance, end of period | | $ | (8) | | (435) |
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Valuation allowance, beginning of period | $ | (2) | $ | (8) | |||||||
| Impairment | — | (4) | |||||||||
| Recovery | 2 | 10 | |||||||||
| Valuation allowance, end of period | $ | — | $ | (2) | |||||||
81
At December 31, 2021 and 2020, theThe 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) | | December 31, 2021 |
| December 31, 2020 | ||
Fair value of residential mortgage servicing rights | | $ | 11,241 | | $ | 4,647 |
| | | | | | |
Weighted average life (months) | | | 11.0 | | | 5.0 |
| | | | | | |
Prepayment speed | | | 7.23% | | | 9.39% |
Impact on fair value: | | | | | | |
10% adverse change | | $ | (376) | | $ | (183) |
20% adverse change | | | (731) | | | (354) |
| | | | | | |
Discount rate | | | 9.00% | | | 9.00% |
Impact on fair value: | | | | | | |
10% adverse change | | $ | (436) | | $ | (168) |
20% adverse change | | | (840) | | | (329) |
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Fair value of residential mortgage servicing rights | $ | 11,221 | $ | 11,567 | |||||||
| Weighted average life (months) | 28 | 22 | |||||||||
| Prepayment speed | 8.57 | % | 8.05 | % | |||||||
| Impact on fair value: | |||||||||||
| 10% adverse change | $ | (506) | $ | (268) | |||||||
| 20% adverse change | (973) | (525) | |||||||||
| Discount rate | 9.50 | % | 9.50 | % | |||||||
| Impact on fair value: | |||||||||||
| 10% adverse change | $ | (415) | $ | (404) | |||||||
| 20% adverse change | (799) | (777) | |||||||||
2022, respectively.
| | | | | |
| | Year Ended December 31, | |||
(dollars in thousands) | | 2021 |
| 2020 | |
Balance at beginning of the period | | $ | 970 | | 337 |
Servicing rights capitalized | | | 1,488 | | 794 |
Amortization of servicing rights | | | (392) | | (148) |
Change in valuation allowance | | | (57) | | (13) |
Balance at end of the period | | $ | 2,009 | | 970 |
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Balance at beginning of the period | $ | 2,404 | $ | 2,009 | |||||||
| Servicing rights capitalized | 1,525 | 1,395 | |||||||||
| Amortization of servicing rights | (898) | (732) | |||||||||
| Change in valuation allowance | 96 | (268) | |||||||||
| Balance at end of the period | $ | 3,127 | $ | 2,404 | |||||||
| | | | | |
| | Year Ended December 31, | |||
(dollars in thousands) | | 2021 |
| 2020 | |
Valuation allowance, beginning of period | | $ | (39) | | (26) |
Impairment | | | (57) | | (13) |
Recovery | | | — | | — |
Valuation allowance, end of period | | $ | (96) | | (39) |
82
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Valuation allowance, beginning of period | $ | (364) | $ | (96) | |||||||
| Impairment | (178) | (408) | |||||||||
| Recovery | 274 | 140 | |||||||||
| Valuation allowance, end of period | $ | (268) | $ | (364) | |||||||
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 December 31, 2021,2023, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.38%,14.70% and a discount rate equal to 9.01%14.66%. At December 31, 2020,2022, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.73%, and a discount rate equal to 8.33%18.96%.
At December 31, 2021 and 2020, The change in valuation allowance due to impairment noted in the tables above, was largely due to the decrease in discount rate partially offset by the increase in prepayment speed as a result of the rising interest rate environment.
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Fair value of SBA loan servicing rights | $ | 3,376 | $ | 2,422 | |||||||
| Weighted average life (years) | 3.5 | 3.8 | |||||||||
| Prepayment speed | 14.70 | % | 12.73 | % | |||||||
| Impact on fair value: | |||||||||||
| 10% adverse change | $ | (125) | $ | (73) | |||||||
| 20% adverse change | (241) | (141) | |||||||||
| Discount rate | 14.66 | % | 18.96 | % | |||||||
| Impact on fair value: | |||||||||||
| 10% adverse change | $ | (74) | $ | (53) | |||||||
| 20% adverse change | (145) | (104) | |||||||||
| | | | | | | |
| | | | | | | |
(dollars in thousands) | | December 31, 2021 |
| December 31, 2020 | |||
Fair value of SBA loan servicing rights | | $ | 2,107 | | $ | 1,010 | |
| | | | | | | |
Weighted average life (years) | | | 3.8 | | | 3.7 | |
| | | | | | | |
Prepayment speed | | | 12.38% | | | 12.73% | |
Impact on fair value: | | | | | | | |
10% adverse change | | $ | (69) | | $ | (37) | |
20% adverse change | | | (132) | | | (71) | |
| | | | | | | |
Discount rate | | | 9.01% | | | 8.33% | |
Impact on fair value: | | | | | | | |
10% adverse change | | $ | (54) | | $ | (25) | |
20% adverse change | | | (106) | | | (49) | |
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Operating lease expense | $ | 2,319 | $ | 2,242 | |||||||
| Short term lease expense | 8 | 13 | |||||||||
| Variable lease expense | 52 | — | |||||||||
| Total lease expense | $ | 2,379 | $ | 2,255 | |||||||
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Cash paid for amounts included in the measurement of lease liabilities | |||||||||||
| Operating cash flows from operating leases | $ | 2,131 | $ | 2,150 | |||||||
| ROU asset obtained in exchange for lease liabilities | 2,476 | 10,936 | |||||||||
| (dollars in thousands) | December 31, 2023 | ||||
| 2024 | $ | 2,167 | |||
| 2025 | 1,736 | ||||
| 2026 | 1,649 | ||||
| 2027 | 1,493 | ||||
| 2028 | 741 | ||||
| Thereafter | 3,029 | ||||
| $ | 10,815 | ||||
| Less: Present value discount | (1,373) | ||||
| Total operating lease liabilities | $ | 9,442 | |||
Total rental expense for the years ended December 31, 2021 and 2020 was $2.2 million and $1.9 million, respectively. Future minimum lease payments by year and in the aggregate, under these lease agreements, are as follows:
| | | |
Future minimum lease payments | | | |
| | | |
(dollars in thousands) |
| | |
2022 | | $ | 2,179 |
2023 | | | 1,874 |
2024 | | | 1,737 |
2025 | | | 1,456 |
2026 | | | 1,436 |
Thereafter | | | 3,134 |
| | $ | 11,816 |
83
Refer to footnote 23 for discussion of ASU 2016-02 Leases, which the Corporation adopted as of January 1, 2022.
|
|
The Corporation has issued stock options under the Meridian Bank 2004 Stock Option Plan (2004 Plan). The 2004 Plan authorized the Board of Directors to grant options up to an aggregate of 446,091892,182 shares, as adjusted for the 5% stock dividends in 2012, 2014 and 2016, and the two-for-one stock split effective February 28, 2023, to officers, other employees and directors of the Corporation. NaNNo additional shares are available for future grants. The shares granted under the 2004 Plan to directors are nonqualified options. The shares granted under the 2004 Plan to officers and other employees are incentive stock options, and are subject to the limitations under Section 422 of the Internal Revenue Code.
| | | | | | | | |
| | | | Weighted | | Weighted | ||
| | | | average | | average | ||
| | | | exercise | | grant date | ||
|
| Shares |
| price |
| fair value | ||
Outstanding at December 31, 2019 | | 346,381 | | $ | 16.13 | | $ | 4.55 |
Exercised | | (14,673) | | | 13.64 | | | 3.74 |
Granted | | 94,650 | | | 17.70 | | | 5.07 |
Forfeited | | (25,631) | | | 17.03 | | | 4.73 |
Outstanding at December 31, 2020 | | 400,727 | | | 16.53 | | | 4.69 |
Exercised | | (77,265) | | | 13.68 | | | 4.35 |
Granted | | 142,650 | | | 27.50 | | | 9.47 |
Forfeited | | (4,148) | | | 18.63 | | | 6.57 |
Outstanding at December 31, 2021 | | 461,964 | | | 20.38 | | | 6.21 |
Exercisable at December 31, 2021 | | 291,832 | | | 18.40 | | | 5.27 |
Nonvested at December 31, 2021 | | 170,132 | | $ | 23.77 | | $ | 7.81 |
2022:
| Shares | Weighted average exercise price | Weighted average grant date fair value | |||||||||||||||
| Outstanding at December 31, 2021 | 923,928 | $ | 10.19 | $ | 3.10 | ||||||||||||
| Exercised | (87,134) | 8.67 | 2.43 | ||||||||||||||
| Granted | 246,500 | 16.22 | 5.38 | ||||||||||||||
| Forfeited | (29,606) | 12.14 | 3.92 | ||||||||||||||
| Outstanding at December 31, 2022 | 1,053,688 | $ | 11.67 | $ | 3.67 | ||||||||||||
| Exercised | (29,890) | 8.86 | 2.56 | ||||||||||||||
| Granted | 98,000 | 10.08 | 2.37 | ||||||||||||||
| Forfeited | (22,000) | 14.38 | 4.84 | ||||||||||||||
| Outstanding at December 31, 2023 | 1,099,798 | $ | 11.55 | $ | 3.56 | ||||||||||||
| Exercisable at December 31, 2023 | 846,294 | 10.87 | 3.32 | ||||||||||||||
| Nonvested at December 31, 2023 | 253,504 | 13.83 | 4.35 | ||||||||||||||
84
The fair value of each option granted in 20212023 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions: dividend yield of 0.0%3.6%, risk-free interest rate of between 1.02% and 1.54%4.73%, expected life of 5.75 years, and expected volatility of between 39.25% and 40.97%33.42% based on an average of the Corporation’s share price since going public. The weighted average fair value of options granted in 20212023 was $8.14$2.37 to $9.57 per share.
2022.
employees, respectively.
$179 thousand.
| | | | | | | | |
| | | | Weighted | | Weighted | ||
| | | | average | | average | ||
| | | | exercise | | grant date | ||
|
| Shares |
| price |
| fair value | ||
Outstanding at December 31, 2019 | | — | | $ | — | | $ | — |
Granted | | 33,208 | | | 14.00 | | | 14.00 |
Outstanding at December 31, 2020 | | 33,208 | | | 14.00 | | | 14.00 |
Granted | | 10,000 | | | 26.36 | | | 26.36 |
Vested | | (16,603) | | | 14.00 | | | 14.00 |
Outstanding at December 31, 2021 | | 26,605 | | | 18.65 | | | 18.65 |
Nonvested at December 31, 2021 | | 26,605 | | $ | 18.65 | | $ | 18.65 |
| Shares | Weighted Average Grant Date Fair Value | ||||||||||||||||
| Outstanding at December 31, 2022 | 53,210 | $ | 9.33 | ||||||||||||||
| Granted | — | — | |||||||||||||||
| Vested | (53,210) | 9.33 | |||||||||||||||
| Outstanding / nonvested at December 31, 2022 | — | $ | — | ||||||||||||||
85
|
|
The following table presents the components of the federal and state income tax expense for the years ended December 31, 2021 and 2020 were:
| | | | |
(dollars in thousands) | 2021 |
| 2020 | |
Federal: | | | | |
Current | $ | 10,022 | | 5,703 |
Deferred | | (717) | | 1,242 |
Total federal income tax expense | | 9,305 | | 6,945 |
State: | | | | |
Current | | 1,463 | | 1,141 |
Deferred | | (51) | | 12 |
Total state income tax expense | | 1,412 | | 1,153 |
Total income tax expense | $ | 10,717 | | 8,098 |
periods indicated:
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Federal: | |||||||||||
| Current | $ | 3,594 | $ | 4,580 | |||||||
| Deferred | (217) | 903 | |||||||||
| Total federal income tax expense | $ | 3,377 | $ | 5,483 | |||||||
| State: | |||||||||||
| Current | $ | 364 | $ | 494 | |||||||
| Deferred | (17) | 114 | |||||||||
| Total state income tax expense | $ | 347 | $ | 608 | |||||||
| Total income tax expense | $ | 3,724 | $ | 6,091 | |||||||
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||||||||||||||
| Federal income tax at statutory rate | $ | 3,563 | 21.0 | % | $ | 5,863 | 21.0 | % | |||||||||||||||
| State tax expense, net of federal benefit | 274 | 1.6 | 480 | 1.7 | |||||||||||||||||||
| Tax exempt interest | (219) | (1.3) | (276) | (1.0) | |||||||||||||||||||
| Bank owned life insurance | (166) | (1.0) | (116) | (0.4) | |||||||||||||||||||
| | | | | | | | | |
(dollars in thousands) | | 2021 |
| 2020 | | ||||
Federal income tax at statutory rate | $ | 9,733 |
| 21.0 | % | 7,252 |
| 21.0 | % |
State tax expense, net of federal benefit | | 1,116 | | 2.4 | | 911 | | 2.6 | |
Tax exempt interest | | (248) | | (0.5) | | (153) | | (0.4) | |
Bank owned life insurance | | (77) | | (0.2) | | (59) | | (0.2) | |
Incentive stock options | | 81 | | 0.2 | | 74 | | 0.2 | |
ESOP | | 41 | | 0.1 | | — | | — | |
Other | | 71 | | 0.1 | | 73 | | 0.2 | |
Effective income tax rate | $ | 10,717 | | 23.1 | % | 8,098 | | 23.4 | % |
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||||||||||||||
| Stock based compensation | 123 | 0.7 | 36 | 0.1 | |||||||||||||||||||
| ESOP | 26 | 0.2 | 48 | 0.2 | |||||||||||||||||||
| Other | 123 | 0.8 | 56 | 0.2 | |||||||||||||||||||
| Effective income tax rate | $ | 3,724 | 22.0 | % | $ | 6,091 | 21.8 | % | |||||||||||||||
| | | | | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Deferred tax assets: | | | | | |
Allowance for loan and lease losses | | $ | 4,345 | | 4,230 |
Intangibles | | | — | | 30 |
Accrued incentive compensation | | | 287 | | — |
Accrued retirement | | | 874 | | 528 |
Deferred rent | | | 141 | | 180 |
Mortgage repurchase reserve | | | 738 | | 641 |
Other | | | 183 | | 122 |
Total deferred tax asset | | | 6,568 | | 5,731 |
Deferred tax liabilities: | | | | | |
Property and equipment | | | (535) | | (377) |
Loan servicing rights | | | (2,957) | | (1,337) |
Intangibles | | | (15) | | — |
Mortgage pipeline fair-value adjustment | | | (308) | | (1,156) |
Hedge instrument fair-value adjustment | | | (190) | | (1,252) |
Unrealized gain on available for sale securities | | | (213) | | (797) |
Prepaid expenses | | | (465) | | (340) |
Deferred loan costs | | | (471) | | (406) |
Other | | | (1) | | (4) |
Total deferred tax liability | | | (5,155) | | (5,669) |
Net deferred tax asset | | $ | 1,413 | | 62 |
86
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Deferred tax assets: | |||||||||||
| Allowance for credit losses | $ | 4,949 | $ | 4,212 | |||||||
| Unrealized loss on available for sale securities | 2,718 | 3,327 | |||||||||
| Accrued retirement | 826 | 891 | |||||||||
| Mortgage pipeline fair-value adjustment | 538 | 535 | |||||||||
| Deferred rent | 81 | 96 | |||||||||
| Mortgage repurchase reserve | 114 | 192 | |||||||||
| Unfunded commitment reserve | 226 | — | |||||||||
| Other | 153 | 179 | |||||||||
| Total deferred tax asset | $ | 9,605 | $ | 9,432 | |||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | $ | (752) | $ | (948) | |||||||
| Loan servicing rights | (2,630) | (2,762) | |||||||||
| Intangibles | (106) | (23) | |||||||||
| Hedge instrument fair-value adjustment | (42) | (12) | |||||||||
| Prepaid expenses | (237) | (341) | |||||||||
| Deferred loan costs | (1,637) | (1,410) | |||||||||
| Total deferred tax liability | $ | (5,404) | $ | (5,496) | |||||||
| Net deferred tax asset | $ | 4,201 | $ | 3,936 | |||||||
The effective tax rates for the twelve-month periods ended December 31, 20212023 and 20202022 were 23.1%22.0% and 23.4%21.8% respectively. The decreaseincrease in rate from 23.4% to 23.1% between 20202022 and 20212023 was primarily related to the decreaseimpact of additional nondeductible stock compensation expense in state income tax expense from Meridian’s mortgage division, specifically2023 partially offset by an increase in Maryland.
Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted. This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensivetax-free bank owned life insurance income. The CARES Act, enacted in March 2020 grants potential tax relief to businesses, including corporate tax provisions that: temporarily allow for the carryback of certain net operating losses, increase interest expense deduction limitations, and allow accelerated depreciation deductions on certain fixed asset improvements. The tax relief under the CARES Act had no material impact to the Corporation’s Consolidated Financial Statements.
(15)Revenue from Contracts with Customers
All of the Corporation’s revenue from contracts with customers2022. The tax benefits are included within other in the scope of FASB ASU 2014-09 (Topic 606), “Revenue for Contracts with Customers” (ASC 606) is recognized within non-interest income. The following table presents the Corporation’s non-interest income by revenue stream and reportable segment for the years ended December 31, 2021 and 2020.
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | ||||||||||||||
(Dollars in thousands) |
| Bank |
| Wealth |
| Mortgage |
| Total |
| Bank |
| Wealth |
| Mortgage |
| Total | ||
Non-interest Income | | | | | | | | | | | | | | | | | | |
Mortgage banking income (1) | | $ | 1,097 | | — | | 74,835 | | 75,932 | | $ | 1,632 | | — | | 74,829 | | 76,461 |
Wealth management income | | | — | | 4,801 | | — | | 4,801 | | | — | | 3,854 | | — | | 3,854 |
SBA loan income (1) | | | 6,898 | | — | | — | | 6,898 | | | 2,572 | | — | | — | | 2,572 |
Net change in fair values (1) | | | 43 | | — | | (7,881) | | (7,838) | | | (40) | | — | | 9,185 | | 9,145 |
Net gain (loss) on hedging activity (1) | | | — | | — | | 2,961 | | 2,961 | | | — | | — | | (9,400) | | (9,400) |
Earnings on investment in life insurance (1) | | | 365 | | — | | — | | 365 | | | 279 | | — | | — | | 279 |
Net gain on sale of investment securities available-for-sale (1) | | | 435 | | — | | — | | 435 | | | 1,345 | | — | | — | | 1,345 |
Dividends on FHLB stock (1) | | | 191 | | — | | — | | 191 | | | 325 | | — | | — | | 325 |
Service charges | | | 128 | | — | | — | | 128 | | | 107 | | — | | — | | 107 |
Other (2) | | | 1,622 | | 1 | | 2,492 | | 4,115 | | | 1,468 | | 14 | | 748 | | 2,230 |
Non-interest income | | $ | 10,779 | | 4,802 | | 72,407 | | 87,988 | | $ | 7,688 | | 3,868 | | 75,362 | | 86,918 |
87
A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:
Wealth Management Income: The Corporation earns wealth management fee income from investment advisory services provided to individual and 401k customers. Fees that are determined based on the market value of the assets held in their accounts are generally billed quarterly, in advance, based on the market value of assets at the end of the previous billing period. Other related services that are based on a fixed fee schedule are recognized when the services are rendered. Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e. the trade date. Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.
Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance.
(16)(15) Transactions with Executive Officers, Directors and Principal Stockholders
| Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Loans receivable from related parties - beginning at end of period | $ | 2,046 | $ | 5,098 | |||||||
| Advances for related parties | 447 | 5,196 | |||||||||
| Proceeds repayments from related party | (415) | (6,070) | |||||||||
| Effect of changes in composition of related parties | (499) | (2,178) | |||||||||
| Loans receivable from related parties - balance at end of period | $ | 1,579 | $ | 2,046 | |||||||
2022. The director retired from the law firm in 2022.
| | | | | |
(dollars in thousands) |
| 2021 |
| 2020 | |
Commitments to fund loans and commitments under lines of credit | | $ | 486,632 | | 421,399 |
Letters of credit | | | 25,986 | | 8,928 |
the dates indicated:
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Commitments to fund loans and commitments under lines of credit | $ | 517,743 | $ | 506,203 | |||||||
| Letters of credit | 10,924 | 19,042 | |||||||||
88
require payment of a fee. The Corporation evaluates each customer’s credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Corporation upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include personal or commercial real estate, accounts receivable, inventory and equipment.
Not included in commitments outstanding, in the table above are mortgage loan commitments of $143.9 million and $428.8 million in 2021 and 2020, respectively, which included interest rate lock commitments. These rate lock commitments represent an agreement to extend credit to a mortgage loan applicant whereby the interest rate on the loan is set prior to funding. The loan commitment binds the Corporation to lend funds to a potential borrower at the specified rate, regardless of whether interest rates change between the commitment date and the loan funding date. The Corporation’s loan commitments generally range between 30 and 120 days; however, the borrower is not obligated to obtain the loans. As such, these commitments are subject to interest rate risk and related price risk during the period from interest rate lock commitment through the loan funding date or expiration date. To manage this risk, the Corporation either locks the rate with the investor purchasing the loan on a “best efforts” basis or economically hedges this risk for loans sold to investors on its mandatory sales channel using the forward sale of mortgage-backed securities, in addition to best-efforts forward sale commitments to substantially eliminate these risks. At December 31, 2021 and 2020, the Corporation had a notional amount of $68.6 million and $230.1 million, respectively, related to commitments on the mandatory channel. At December 31, 2021 and 2020, the Corporation had best efforts forward sale commitments to sell loans amounting to $75.8 million and $198.7 million, respectively. The Corporation is only obligated to settle the forward sale commitment if the loan closes in accordance with the terms of the interest rate lock commitment. The Corporation’s forward sale commitments generally expire within 90 days.
(18)Recent Litigation
In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants. These actions and proceedings are generally based on alleged violations of banking, employment, contract and other laws. In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Corporation and its subsidiaries. In the ordinary course of business, the Corporation and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings. In connection with formal and informal inquiries by federal, state, and local agencies, the Corporation and its subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their activities.
89
was 9.46% at December 31, 2023.
| | | | | | | | | | |
| | December 31, 2021 | ||||||||
| | | | | | | To Be Well Capitalized | |||
| | Actual | | 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% |
| | | | | | | | | | |
| | 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% |
90
| Actual | For Capital Adequacy Purposes (includes applicable capital conservation buffer) | To Be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||||||||||||||||||||||
| (dollars in thousands) | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||||||||||||||
| Tier 1 leverage ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | $ | 211,355 | 9.46 | % | $ | 89,399 | 4.00 | % | $ | 111,749 | 5.00 | % | |||||||||||||||||||||||
| Common tier 1 risk-based capital ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | 211,355 | 10.10 | % | 146,448 | 7.00 | % | 135,987 | 6.50 | % | ||||||||||||||||||||||||||
| Tier 1 risk-based capital ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | 211,355 | 10.10 | % | 177,829 | 8.50 | % | 167,369 | 8.00 | % | ||||||||||||||||||||||||||
| Total risk-based capital ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | 233,671 | 11.17 | % | 219,672 | 10.50 | % | 209,211 | 10.00 | % | ||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Tier 1 leverage ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | $ | 196,584 | 9.95 | % | $ | 78,995 | 4.00 | % | $ | 98,743 | 5.00 | % | |||||||||||||||||||||||
| Common tier 1 risk-based capital ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | 196,584 | 10.73 | % | 128,305 | 7.00 | % | 119,140 | 6.50 | % | ||||||||||||||||||||||||||
| Tier 1 risk-based capital ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | 196,584 | 10.73 | % | 155,799 | 8.50 | % | 146,634 | 8.00 | % | ||||||||||||||||||||||||||
| Total risk-based capital ratio: | |||||||||||||||||||||||||||||||||||
| Meridian Bank | 217,593 | 11.87 | % | 192,457 | 10.50 | % | 183,293 | 10.00 | % | ||||||||||||||||||||||||||
(20)(18) Fair Value Measurements and Disclosures
91
the dates indicated
| | | | | | | | | |
| | 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 | | — |
| | $ | 1,327 | | — | | 1,124 | | 203 |
| | | | | | | | | |
| | 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 |
92
| December 31, 2023 | |||||||||||||||||||||||
| (dollars in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Securities available for sale: | |||||||||||||||||||||||
| U.S. asset backed securities | $ | 16,824 | $ | — | $ | 16,824 | $ | — | |||||||||||||||
| U.S. government agency MBS | 22,634 | — | 22,634 | — | |||||||||||||||||||
| U.S. government agency CMO | 19,573 | — | 19,573 | — | |||||||||||||||||||
| State and municipal securities | 36,216 | — | 36,216 | — | |||||||||||||||||||
| U.S. Treasuries | 30,422 | 30,422 | — | — | |||||||||||||||||||
| Non-U.S. government agency CMO | 13,155 | — | 13,155 | — | |||||||||||||||||||
| Corporate bonds | 7,195 | — | 7,195 | — | |||||||||||||||||||
| Equity investments | 2,121 | — | 2,121 | — | |||||||||||||||||||
| Mortgage loans held for sale | 24,816 | — | 24,816 | — | |||||||||||||||||||
| Mortgage loans held for investment | 13,726 | — | 13,726 | — | |||||||||||||||||||
| Interest rate lock commitments | 214 | — | — | 214 | |||||||||||||||||||
| Customer derivatives - interest rate swaps | 3,528 | — | 3,528 | — | |||||||||||||||||||
| Total | $ | 190,424 | $ | 30,422 | $ | 159,788 | $ | 214 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate lock commitments | $ | 17 | $ | — | $ | — | $ | 17 | |||||||||||||||
| Forward commitments | 41 | — | 41 | — | |||||||||||||||||||
| Customer derivatives - interest rate swaps | 3,544 | — | 3,544 | — | |||||||||||||||||||
| Risk Participation Agreements | 11 | — | 11 | — | |||||||||||||||||||
| Total | $ | 3,613 | $ | — | $ | 3,596 | $ | 17 | |||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| (dollars in thousands) | Total | Level 1 | Level 2 | Level 3 | |||||||||||||||||||
| Assets | |||||||||||||||||||||||
| Securities available for sale: | |||||||||||||||||||||||
| U.S. asset backed securities | $ | 15,281 | $ | — | $ | 15,281 | $ | — | |||||||||||||||
| U.S. government agency MBS | 11,739 | — | 11,739 | — | |||||||||||||||||||
| U.S. government agency CMO | 23,318 | — | 23,318 | — | |||||||||||||||||||
| State and municipal securities | 38,838 | — | 38,838 | — | |||||||||||||||||||
| U.S. Treasuries | 29,523 | 29,523 | — | — | |||||||||||||||||||
| Non-U.S. government agency CMO | 9,089 | — | 9,089 | — | |||||||||||||||||||
| Corporate bonds | 7,558 | — | 7,558 | — | |||||||||||||||||||
| Equity investments | 2,086 | — | 2,086 | — | |||||||||||||||||||
| Mortgage loans held for sale | 22,243 | — | 22,243 | — | |||||||||||||||||||
| Mortgage loans held for investment | 14,502 | — | 14,502 | — | |||||||||||||||||||
| Interest rate lock commitments | 87 | — | — | 87 | |||||||||||||||||||
| Forward commitments | — | — | — | — | |||||||||||||||||||
| Customer derivatives - interest rate swaps | 3,846 | — | 3,846 | — | |||||||||||||||||||
| Total | $ | 178,110 | $ | 29,523 | $ | 148,500 | $ | 87 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||
| Interest rate lock commitments | $ | 79 | $ | — | $ | — | $ | 79 | |||||||||||||||
| Customer derivatives - interest rate swaps | 3,799 | — | 3,799 | — | |||||||||||||||||||
| Risk Participation Agreements | 17 | — | 17 | — | |||||||||||||||||||
| Total | $ | 3,895 | $ | — | $ | 3,816 | $ | 79 | |||||||||||||||
AssetsThe following table presents assets measured at fair value on a nonrecurring basis at the dates indicated:
| (dollars in thousands) | December 31, 2023 | December 31, 2022 | |||||||||
| Mortgage servicing rights | $ | 8,621 | $ | 9,942 | |||||||
| SBA loan servicing rights | 3,127 | 2,404 | |||||||||
Individually evaluated loans (1) | |||||||||||
| Commercial and industrial | 9,818 | — | |||||||||
| Small business loans | 3,134 | 2,281 | |||||||||
| Total | $ | 24,700 | $ | 14,627 | |||||||
| | | | | | |
| | December 31, 2021 | | December 31, 2020 | ||
(dollars in thousands) |
| Fair Value |
| Fair Value | ||
Mortgage servicing rights | | $ | 10,756 | | | 4,647 |
SBA loan servicing rights | | | 2,009 | | | 970 |
Impaired loans (1) | | | | | | |
Commercial and industrial | | | 1,837 | | | 2,297 |
Small business loans | | | 290 | | | — |
Home equity lines and loans | | | — | | | 86 |
Residential mortgage | | | — | | | 615 |
Total | | $ | 14,892 | | | 8,615 |
The following table details the valuation techniques for Level 3 impaired loans.
| (dollars in thousands) | Fair Value | Valuation Technique | Significant Unobservable Input | Range of Inputs | |||||||||||||||||||||||||
| December 31, 2023 | $ | 12,952 | Appraisal of collateral | Management adjustments on appraisals for property type and recent activity | 2%-33% discount | ||||||||||||||||||||||||
| December 31, 2022 | 2,281 | Appraisal of collateral | Management adjustments on appraisals for property type and recent activity | 2%-15% discount | |||||||||||||||||||||||||
| | | | | | | | | |
| | Fair Value | | | | Unobservable | | | |
(dollars in thousands) |
| Level 3 |
| Valuation Technique |
| Input |
| Range of Inputs | |
December 31, 2021 | | $ | 2,127 | | Appraisal of collateral | | Management adjustments on appraisals for property type and recent activity | | 2-15% discount |
December 31, 2020 | | | 2,998 | | Appraisal of collateral | | Management adjustments on appraisals for property type and recent activity | | 2-15% discount |
(a)
(b) Securities
The fair value of securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing, 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. U.S. Treasuries includes in the available for sale portfolio are the only securities considered Level 1, while all other securities are considered Level 2.
(c) Mortgage Loans Held-for-Sale
The fair value of loans held for sale is based on secondary market prices.
93
(d) Loans Receivable
(e) 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.
(f) Loan
Assets
Impaired
(h) Restricted Investment in Bank Stock
The carrying amount of restricted investment in bank stock approximates fair value, and considers the limited marketability of such securities.
(i)
(j)
(k)
94
(l) Long-Term Debt
(n)
(o)
95
The following table presents the estimated fair values of the Corporation’s financial instruments at December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | |
| | | | December 31, 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 | | $ | 23,480 | | 23,480 | | 36,744 | | 36,744 |
Securities available-for-sale (1) | | Level 2 | | | 159,302 | | 159,302 | | 123,562 | | 123,562 |
Securities held-to-maturity | | Level 2 | | | 6,372 | | 6,591 | | 6,510 | | 6,857 |
Equity investments | | Level 2 | | | 2,354 | | 2,354 | | 1,031 | | 1,031 |
Mortgage loans held for sale | | Level 2 | | | 80,882 | | 80,882 | | 229,199 | | 229,199 |
Loans receivable, net of the allowance for loan and lease losses | | Level 3 | | | 1,368,899 | | 1,370,885 | | 1,272,582 | | 1,289,776 |
Mortgage loans held for investment | | Level 2 | | | 17,558 | | 17,558 | | 12,182 | | 12,182 |
Interest rate lock commitments | | Level 3 | | | 1,122 | | 1,122 | | 6,932 | | 6,932 |
Forward commitments | | Level 2 | | | 65 | | 65 | | — | | — |
Restricted investment in bank stock | | NA | | | 5,117 | | NA | | 7,861 | | NA |
Accrued interest receivable | | Level 3 | | | 5,009 | | 5,009 | | 5,482 | | 5,482 |
Customer derivatives - interest rate swaps | | Level 2 | | | 961 | | 961 | | 1,118 | | 1,118 |
Financial liabilities: | | | | | | | | | | | |
Deposits | | Level 2 | | | 1,446,413 | | 1,549,100 | | 1,241,335 | | 1,392,500 |
Short-term borrowings | | Level 2 | | | 41,344 | | 41,344 | | 106,862 | | 106,862 |
Long-term debt | | Level 2 | | | — | | — | | 165,546 | | 168,000 |
Subordinated debentures | | Level 2 | | | 40,508 | | 40,803 | | 40,671 | | 38,375 |
Accrued interest payable | | Level 2 | | | 31 | | 31 | | 1,154 | | 1,154 |
Interest rate lock commitments | | Level 3 | | | 203 | | 203 | | 100 | | 100 |
Forward commitments | | Level 2 | | | 106 | | 106 | | 1,572 | | 1,572 |
Customer derivatives - interest rate swaps | | Level 2 | | | 1,018 | | 1,018 | | 1,219 | | 1,219 |
| | | | | | | | | | | |
| | | | Notional | | | | Notional | | | |
Off-balance sheet financial instruments: |
| |
| amount |
| Fair value |
| amount |
| Fair value | |
Commitments to extend credit | | Level 2 | | $ | 486,632 | | — | | 421,399 | | — |
Letters of credit | | Level 2 | | | 25,986 | | — | | 8,928 | | — |
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| (dollars in thousands) | Fair Value Hierarchy Level | Carrying amount | Fair value | Carrying amount | Fair value | ||||||||||||||||||||||||
| Financial assets: | |||||||||||||||||||||||||||||
| Cash and cash equivalents | Level 1 | $ | 56,697 | $ | 56,697 | $ | 38,391 | $ | 38,391 | ||||||||||||||||||||
| Mortgage loans held for sale | Level 2 | 24,816 | 24,816 | 22,243 | 22,243 | ||||||||||||||||||||||||
| Loans receivable, net of the allowance for credit losses | Level 3 | 1,882,080 | 1,832,558 | 1,729,180 | 1,679,955 | ||||||||||||||||||||||||
| Mortgage loans held for investment | Level 2 | 13,726 | 13,726 | 14,502 | 14,502 | ||||||||||||||||||||||||
| Financial liabilities: | |||||||||||||||||||||||||||||
| Deposits | Level 2 | $ | 1,823,462 | $ | 1,834,700 | $ | 1,712,479 | $ | 1,575,600 | ||||||||||||||||||||
| Borrowings | Level 2 | 174,896 | 176,400 | 122,082 | 122,082 | ||||||||||||||||||||||||
| Subordinated debentures | Level 2 | 49,836 | 50,223 | 40,346 | 40,020 | ||||||||||||||||||||||||
| | | | |
| Year Ended December 31, | |||
| 2021 |
| 2020 | |
Balance at beginning of the period | $ | 6,932 | | 504 |
(Decrease) increase in value | | (5,810) | | 6,428 |
Balance at end of the period | $ | 1,122 | | 6,932 |
periods indicated.
| Year Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||||||||||||||
| Balance at beginning of the period | $ | 87 | $ | 1,122 | |||||||||||||||||||
| Decrease in value | 127 | (1,035) | |||||||||||||||||||||
| Balance at end of the period | $ | 214 | $ | 87 | |||||||||||||||||||
| | | | | | | | | | | | |
| | | | | | | Significant | | | | | |
| | Fair Value | | | | Unobservable | | Range of | | Weighted | | |
(dollars in thousands) |
| Level 3 |
| Valuation Technique |
| Input |
| Inputs |
| Average |
| |
December 31, 2021 | | $ | 1,122 | | Market comparable pricing | | Pull through | | 1 - 99 | % | 87.66 | % |
December 31, 2020 | | | 6,932 | | Market comparable pricing | | Pull through | | 1 - 99 | | 83.08 | |
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| (dollars in thousands) | Fair Value | Valuation Technique | Significant Unobservable Input | Range of Inputs | Weighted Average | ||||||||||||||||||||||||
| December 31, 2023 | $ | 214 | Market comparable pricing | Pull through | 1% - 99% | 79.48% | |||||||||||||||||||||||
| December 31, 2022 | 87 | Market comparable pricing | Pull through | 1% - 99% | 84.05% | ||||||||||||||||||||||||
Net realized losses of $5.9 million and gains of $6.5 million due to changes in the fair value of interest rate lock commitments which are classified as Level 3 assets and liabilities for the twelve months ended December 31, 2021 and 2020, respectively, are recorded in non-interest income as net change in the fair value of derivative instruments in the Corporation’s consolidated statements of income.
(21)(19) Derivative Financial Instruments
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The following table presents a summary of the notional amounts and fair values of derivative financial instruments:
| | | | | | | | | | |
| | | December 31, 2021 | | December 31, 2020 | |||||
(dollars in thousands) | Balance Sheet Line Item | | Notional |
| Asset |
| Notional |
| Asset | |
Interest Rate Lock Commitments | | | | | | | | | | |
Positive fair values | Other assets | | $ | 108,653 | | 1,122 | | 406,422 | | 6,932 |
Negative fair values | Other liabilities | | | 35,264 | | (203) | | 22,406 | | (100) |
Total | | | | 143,917 | | 919 | | 428,828 | | 6,832 |
| | | | | | | | | | |
Forward Commitments | | | | | | | | | | |
Positive fair values | Other assets | | | 30,500 | | 65 | | — | | — |
Negative fair values | Other liabilities | | | 45,500 | | (106) | | 218,000 | | (1,572) |
Total | | | | 76,000 | | (41) | | 218,000 | | (1,572) |
| | | | | | | | | | |
Customer Derivatives - Interest Rate Swaps | | | | | | | | | | |
Positive fair values | Other assets | | | 35,447 | | 961 | | 20,979 | | 1,118 |
Negative fair values | Other liabilities | | | 35,447 | | (1,018) | | 20,979 | | (1,219) |
Total | | | | 70,894 | | (57) | | 41,958 | | (101) |
Total derivative financial instruments | | | $ | 290,811 | | 821 | | 688,786 | | 5,159 |
instruments at the dates indicated:
| December 31, 2023 | December 31, 2022 | ||||||||||||||||||||||||||||
| (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 | $ | 33,735 | $ | 214 | $ | 16,590 | $ | 87 | ||||||||||||||||||||
| Negative fair values | Other liabilities | 5,399 | (17) | 16,108 | (79) | ||||||||||||||||||||||||
| Total | $ | 39,134 | $ | 197 | $ | 32,698 | $ | 8 | |||||||||||||||||||||
| Forward Commitments | |||||||||||||||||||||||||||||
| Positive fair values | Other assets | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Negative fair values | Other liabilities | 4,250 | (41) | — | — | ||||||||||||||||||||||||
| Total | $ | 4,250 | $ | (41) | $ | — | $ | — | |||||||||||||||||||||
| Customer Derivatives - Interest Rate Swaps | |||||||||||||||||||||||||||||
| Positive fair values | Other assets | $ | 50,593 | $ | 3,528 | $ | 43,779 | $ | 3,846 | ||||||||||||||||||||
| Negative fair values | Other liabilities | 50,593 | (3,544) | 43,779 | (3,799) | ||||||||||||||||||||||||
| Total | $ | 101,186 | $ | (16) | $ | 87,558 | $ | 47 | |||||||||||||||||||||
| Risk Participation Agreements | |||||||||||||||||||||||||||||
| Positive fair values | Other assets | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Negative fair values | Other liabilities | 7,082 | (11) | 7,200 | (17) | ||||||||||||||||||||||||
| Total | $ | 7,082 | $ | (11) | $ | 7,200 | $ | (17) | |||||||||||||||||||||
| Interest Rate Swaps | |||||||||||||||||||||||||||||
| Positive fair values | Other assets | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Negative fair values | Other liabilities | 75,000 | (539) | — | — | ||||||||||||||||||||||||
| $ | 75,000 | $ | (539) | $ | — | $ | — | ||||||||||||||||||||||
| Total derivative financial instruments | $ | 226,652 | $ | (410) | $ | 127,456 | $ | 38 | |||||||||||||||||||||
| | | | |
| | Year Ended December 31, | ||
(dollars in thousands) |
| 2021 |
| 2020 |
Interest Rate Lock Commitments | $ | (5,913) | | 6,486 |
Forward Commitments | | 1,531 | | (1,459) |
Customer Derivatives - Interest Rate Swaps | | 44 | | (52) |
Net fair value (losses) gains on derivative financial instruments | $ | (4,338) | | 4,975 |
| Year Ended December 31, | |||||||||||||||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||||||||||||||
| Interest Rate Lock Commitments | $ | 189 | $ | (911) | |||||||||||||||||||
| Forward Commitments | (41) | 41 | |||||||||||||||||||||
| Customer Derivatives - Interest Rate Swaps | (63) | 105 | |||||||||||||||||||||
| Risk Participation Agreements | 6 | 62 | |||||||||||||||||||||
| Interest Rate Swaps | (539) | — | |||||||||||||||||||||
| Net fair value gains (losses) on derivative financial instruments | $ | (448) | $ | (703) | |||||||||||||||||||
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Meridian Wealth (“Wealth”), a registered investment advisor and wholly-owned subsidiary of the Bank, 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.
| | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | ||||||||||||||
(Dollars in thousands) |
| Bank |
| Wealth |
| Mortgage |
| Total |
| Bank |
| Wealth |
| Mortgage |
| Total | ||
Net interest income | | $ | 61,032 | | 15 | | 2,064 | | 63,111 | | $ | 46,997 | | (48) | | 2,047 | | 48,996 |
Provision for loan losses | | | 1,070 | | — | | — | | 1,070 | | | 8,302 | | — | | — | | 8,302 |
Net interest income after provision | | | 59,962 | | 15 | | 2,064 | | 62,041 | | | 38,695 | | (48) | | 2,047 | | 40,694 |
| | | | | | | | | | | | | | | | | | |
Non-interest Income | | | | | | | | | | | | | | | | | | |
Mortgage banking income | | | 1,097 | | — | | 74,835 | | 75,932 | | | 1,632 | | — | | 74,829 | | 76,461 |
Wealth management income | | | — | | 4,801 | | — | | 4,801 | | | — | | 3,854 | | — | | 3,854 |
SBA loan income | | | 6,898 | | — | | — | | 6,898 | | | 2,572 | | — | | — | | 2,572 |
Net change in fair values | | | 43 | | — | | (7,881) | | (7,838) | | | (40) | | — | | 9,185 | | 9,145 |
Net gain (loss) on hedging activity | | | — | | — | | 2,961 | | 2,961 | | | — | | — | | (9,400) | | (9,400) |
Other | | | 2,741 | | 1 | | 2,492 | | 5,234 | | | 3,524 | | 14 | | 748 | | 4,286 |
Non-interest income | | | 10,779 | | 4,802 | | 72,407 | | 87,988 | | | 7,688 | | 3,868 | | 75,362 | | 86,918 |
Non-interest expense | | | 40,392 | | 3,496 | | 59,839 | | 103,727 | | | 33,351 | | 3,213 | | 56,512 | | 93,076 |
Income before income taxes | | $ | 30,349 | | 1,321 | | 14,632 | | 46,302 | | $ | 13,032 | | 607 | | 20,897 | | 34,536 |
| | | | | | | | | | | | | | | | | | |
Total Assets | | $ | 1,608,305 | | 6,355 | | 98,783 | | 1,713,443 | | $ | 1,488,312 | | 5,479 | | 226,406 | | 1,720,197 |
(23)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 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 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. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities.
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| Segment Information | |||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2023 | Year Ended December 31, 2022 | ||||||||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | Bank | Wealth | Mortgage | Total | Bank | Wealth | Mortgage | Total | |||||||||||||||||||||||||||||||||||||||
| Net interest income | $ | 68,835 | $ | (27) | $ | 134 | $ | 68,942 | $ | 68,570 | $ | 697 | $ | 861 | $ | 70,128 | |||||||||||||||||||||||||||||||
| Provision for loan losses | 6,815 | — | — | 6,815 | 2,488 | — | — | 2,488 | |||||||||||||||||||||||||||||||||||||||
| Net interest income after provision | 62,020 | (27) | 134 | 62,127 | 66,082 | 697 | 861 | 67,640 | |||||||||||||||||||||||||||||||||||||||
| Non-interest Income | |||||||||||||||||||||||||||||||||||||||||||||||
| Mortgage banking income | 306 | — | 16,231 | 16,537 | 436 | — | 24,889 | 25,325 | |||||||||||||||||||||||||||||||||||||||
| Wealth management income | — | 4,928 | — | 4,928 | — | 4,733 | — | 4,733 | |||||||||||||||||||||||||||||||||||||||
| SBA income | 4,485 | — | — | 4,485 | 4,467 | — | — | 4,467 | |||||||||||||||||||||||||||||||||||||||
| Net change in fair values | (59) | — | 314 | 255 | 167 | — | (4,122) | (3,955) | |||||||||||||||||||||||||||||||||||||||
| Net gain on hedging activity | — | — | 28 | 28 | — | — | 5,439 | 5,439 | |||||||||||||||||||||||||||||||||||||||
| Other | 3,011 | — | 2,721 | 5,732 | 2,486 | (1) | 3,230 | 5,715 | |||||||||||||||||||||||||||||||||||||||
| Non-interest income | 7,743 | 4,928 | 19,294 | 31,965 | 7,556 | 4,732 | 29,436 | 41,724 | |||||||||||||||||||||||||||||||||||||||
| Non-interest expense | 48,827 | 3,661 | 24,637 | 77,125 | 45,122 | 3,399 | 32,923 | 81,444 | |||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | $ | 20,936 | $ | 1,240 | $ | (5,209) | $ | 16,967 | $ | 28,516 | $ | 2,030 | $ | (2,626) | $ | 27,920 | |||||||||||||||||||||||||||||||
| Total Assets | $ | 2,186,017 | $ | 7,251 | $ | 52,925 | $ | 2,246,193 | $ | 2,011,835 | $ | 8,142 | $ | 42,251 | $ | 2,062,228 | |||||||||||||||||||||||||||||||
Adopted Pronouncements in 2021:
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 adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.
FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”
Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.
Pronouncements Not Effective as of December 31, 2021:
FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses (“CECL”) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023. The Corporation is currently determining under which method we will adopt this ASU. The Corporation 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 estimate the impact to the consolidated financial statements.
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
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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 (ROU) asset for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.
The new standard became effective for us on January 1, 2022. A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. Management has elected to use the effective date as its date of initial application. Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2022.
The Corporation has implemented a third party lease accounting system to assist with the measurement of lease liabilities and related right-of-use assets, the post-implementation administration aspect of lease accounting, and the preparation of applicable disclosures related to the new guidance.
The new standard provided a number of optional practical expedients in transition. We have elected the ‘package of practical expedients’, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.
This standard will have a material effect on our Consolidated Balance Sheet and related disclosures but is not expected to have a material impact on our Consolidated Statement of Income. Any additional assets recorded as a result of adoption is expected to have a negative impact on the Corporation and Bank capital ratios under current regulatory guidance. On adoption, we recorded approximately $10.6 million of operating lease liabilities and $10.8 million of related right-of-use assets at January 1, 2022.
The new standard also provides practical expedients for an entity’s ongoing accounting. We have elected the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We also have elected the practical expedient to not separate lease and non-lease components for all of our leases.
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 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”
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
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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.
(24)(21) Parent Company Financial Statements
All share amounts have been adjusted to reflect the two-for-one stock split effective February 28, 2023.
| | | | | |
| | December 31, | | December 31, | |
(dollars in thousands, except per share data) |
| 2021 |
| 2020 | |
Cash and due from banks | | $ | 2,836 | | 213 |
Investments in subsidiaries | | | 200,410 | | 180,288 |
Other assets | | | 1,382 | | 360 |
Total assets | | $ | 204,628 | | 180,861 |
| | | | | |
Liabilities: | | | | | |
Subordinated debentures | | | 39,057 | | 38,904 |
Accrued interest payable | | | 6 | | 6 |
Other liabilities | | | 205 | | 329 |
Total liabilities | | | 39,268 | | 39,239 |
Stockholders’ equity: | | | | | |
Common stock, $1 par value. Authorized 25,000,000 shares; issued 6,534,587 and 6,455,566 as of December 31, 2021 and December 31, 2020 | | | 6,535 | | 6,456 |
Surplus | | | 83,663 | | 81,196 |
Treasury Stock- 426,693 and 320,000 shares at December 31, 2021 and December 31, 2020, respectively | | | (8,860) | | (5,828) |
Unearned common stock held by employee stock ownership plan | | | (1,602) | | (1,768) |
Retained earnings | | | 84,916 | | 59,010 |
Accumulated other comprehensive income | | | 708 | | 2,556 |
Total stockholders’ equity | | | 165,360 | | 141,622 |
Total liabilities and stockholders’ equity | | $ | 204,628 | | 180,861 |
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| (dollars in thousands, except share data) | December 31, 2023 | December 31, 2022 | |||||||||
| Assets: | |||||||||||
| Cash and due from banks | $ | 2,600 | $ | 4,839 | |||||||
| Investments in subsidiaries | 204,132 | 186,686 | |||||||||
| Other assets | 2,239 | 1,382 | |||||||||
| Total assets | $ | 208,971 | $ | 192,907 | |||||||
| Liabilities: | |||||||||||
| Subordinated debentures | $ | 48,992 | $ | 39,175 | |||||||
| Accrued interest payable | 220 | 6 | |||||||||
| Other liabilities | 1,737 | 446 | |||||||||
| Total liabilities | $ | 50,949 | $ | 39,627 | |||||||
| Stockholders’ equity: | |||||||||||
| Common stock, $1 par value: 25,000,000 shares authorized; 13,186,198 and 13,156,308 shares issued, respectively; and 11,183,015 and 11,465,572 shares outstanding, respectively. | 13,186 | 13,156 | |||||||||
| Surplus | 80,325 | 79,072 | |||||||||
| Treasury Stock - 2,003,183 and 1,690,736 shares, respectively, at cost | (26,079) | (21,821) | |||||||||
| Unearned common stock held by employee stock ownership plan | (1,204) | (1,403) | |||||||||
| Retained earnings | 101,216 | 95,815 | |||||||||
| Accumulated other comprehensive income | (9,422) | (11,539) | |||||||||
| Total stockholders’ equity | $ | 158,022 | $ | 153,280 | |||||||
| Total liabilities and stockholders’ equity | $ | 208,971 | $ | 192,907 | |||||||
B. Condensed Statements of Income
| | | | | |
| | Year ended | |||
| | December 31, | |||
(dollars in thousands, except per share data) |
| 2021 |
| 2020 | |
Dividends from Bank | | $ | 17,187 | | 11,512 |
Non-interest and other income | | | — | | 10 |
Total operating income | | | 17,187 | | 11,522 |
Interest expense | | | 2,303 | | 2,202 |
Other expenses | | | 1,675 | | — |
Income before equity in undistributed income of subsidiaries | | | 13,209 | | 9,320 |
Equity in undistributed income of subsidiaries | | | 22,376 | | 17,118 |
Income before income taxes | | | 35,585 | | 26,438 |
Income tax expense | | | — | | — |
Net income | | | 35,585 | | 26,438 |
Total other comprehensive (loss) income | | | (1,848) | | 2,559 |
Total comprehensive income | | $ | 33,737 | | 28,997 |
Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Dividends from Bank | $ | 9,655 | $ | 27,813 | |||||||
| Interest income | 2 | 8 | |||||||||
| Other income | 122 | — | |||||||||
| Total operating income | 9,779 | 27,821 | |||||||||
| Interest expense | 2,484 | 2,268 | |||||||||
| Other expenses | 1,168 | 1,412 | |||||||||
| Income before equity in undistributed income of subsidiaries | 6,127 | 24,141 | |||||||||
| Equity in undistributed income of subsidiaries | 6,376 | (3,084) | |||||||||
| Income before income taxes | 12,503 | 21,057 | |||||||||
| Income tax benefit | (740) | (772) | |||||||||
| Net income | 13,243 | 21,829 | |||||||||
| Total other comprehensive income (loss) | 2,117 | (12,247) | |||||||||
| Total comprehensive income | $ | 15,360 | $ | 9,582 | |||||||
| | | | | |
| | Year ended | |||
| | December 31, | |||
(dollars in thousands) |
| 2021 |
| 2020 | |
Net income | | $ | 35,585 | | 26,438 |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Equity in undistributed income of subsidiaries | | | (22,376) | | (17,818) |
Share-based compensation | | | 1,607 | | 763 |
Amortization of issuance costs on subordinated debt | | | 153 | | 112 |
(Decrease) in accrued interest payable | | | — | | (72) |
Other, net | | | (740) | | (294) |
Net cash provided by operating activities | | | 14,229 | | 9,129 |
Cash flows from financing activities: | | | | | |
Issuance cost on subordinated debt | | | — | | (231) |
Net purchase of treasury stock | | | (3,032) | | (5,703) |
Dividends paid | | | (9,679) | | (1,525) |
Purchase of common shares for ESOP | | | — | | (2,000) |
Share based awards and exercises | | | 1,105 | | 395 |
Net cash (used in) provided by financing activities | | | (11,606) | | (9,064) |
Net change in cash and cash equivalents | | | 2,623 | | 65 |
Cash and cash equivalents at beginning of period | | | 213 | | 148 |
Cash and cash equivalents at end of period | | $ | 2,836 | | 213 |
(25)Subsequent Events
Special Dividend
On January 27, 2022, the Corporation’s Board of Directors declared a special dividend of $1.00 per share on its Common Stock, payable on February 21, 2022 to shareholders of record as of February 14, 2022.
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Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Cash flows from operating activities: | |||||||||||
| Net Income | $ | 13,243 | $ | 21,829 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Equity in undistributed income of subsidiaries | (6,376) | 3,084 | |||||||||
Year Ended December 31, | |||||||||||
| (dollars in thousands) | 2023 | 2022 | |||||||||
| Share-based compensation | 1,173 | 1,475 | |||||||||
| Amortization of issuance costs on subordinated debt | 118 | 118 | |||||||||
| Other, net | (2,748) | (1,369) | |||||||||
| Net cash provided by operating activities | 5,624 | 25,137 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Investment in subsidiaries | (8,000) | — | |||||||||
| Net cash (used in) investing activities | (8,000) | — | |||||||||
| Cash flows from financing activities: | |||||||||||
| Net activity from subordinated debt issuance | 9,699 | — | |||||||||
| Net purchase of treasury stock | (4,258) | (12,961) | |||||||||
| Dividends paid | (5,614) | (10,926) | |||||||||
| Share based awards and exercises | 309 | 754 | |||||||||
| Net cash provided by (used in) financing activities | 136 | (23,133) | |||||||||
| Net change in cash and cash equivalents | (2,240) | 2,004 | |||||||||
| Cash and cash equivalents at beginning of period | 4,840 | 2,836 | |||||||||
| Cash and cash equivalents at end of period | $ | 2,600 | $ | 4,840 | |||||||
2023.
104
Changes in Internal Control Over Financial Reporting
105
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(a)(3) The following exhibits are incorporated by reference herein or filed with this Form 10-K:
| Exhibit | Description | ||||||||
2.1 | |||||||||
3.1 | |||||||||
3.2 | |||||||||
4.1 | |||||||||
4.2 | |||||||||
4.3 | |||||||||
10.1 | |||||||||
10.2 | |||||||||
10.3 | |||||||||
10.4 | |||||||||
10.5 | |||||||||
10.6 | Meridian Bank 2004 Stock Option Plan, as amended June 15, 2006 and incorporated herein by reference. | ||||||||
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23.1 | Consent of Crowe LLP, Independent Registered Public Accounting Firm | ||||||||
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 | |||||||||
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| 101.INS | Inline 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 Calculation Linkbase Document.* | ||||||||
101.LAB | Inline XBRL Taxonomy Label Linkbase Document.* | ||||||||
101.PRE | Inline XBRL Taxonomy Presentation Linkbase Document.* | ||||||||
101.DEF | Inline XBRL Taxonomy Definition Document.* | ||||||||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* | ||||||||
None.
107
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
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| /s/ Christopher J. Annas | |||||||||
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| March 15, 2024 | |||||||
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| /s/ Denise Lindsay | ||||||||||
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| /s/ Robert M. Casciato | Director | March 15, 2024 | ||||||||
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| Robert M. Casciato | ||||||||
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| /s/ George C. Collier | Director | March 15, 2024 | ||||||
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| George C. Collier | ||||||||
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| /s/ Robert T. Holland | Director | March 15, 2024 | ||||||
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| Robert T. Holland | ||||||||
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| /s/ Edward J. Hollin | Director | March 15, 2024 | ||||||
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| Edward J. Hollin | ||||||||
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| /s/ Anthony M. Imbesi | Director | March 15, 2024 | ||||||
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| Anthony M. Imbesi | ||||||||
| /s/ Christine M. Helmig | Director | March 15, 2024 | |||||||||
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108