MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


	Three months ended
	March 31,
(dollars in thousands, except per share data)	2021		2020
Interest income:
Loans, including fees	$	16,822	13,270
Securities:
Taxable		273	364
Tax-exempt		353	102
Cash and cash equivalents		3	58
Total interest income		17,451	13,794
Interest expense:
Deposits		1,566	3,254
Borrowings		765	874
Total interest expense		2,331	4,128
Net interest income		15,120	9,666
Provision for loan losses		599	1,552
Net interest income after provision for loan losses		14,521	8,114
Non-interest income:
Mortgage banking income		24,100	6,793
Wealth management income		1,136	1,021
SBA loan income		1,245	542
Earnings on investment in life insurance		66	70
Net change in the fair value of derivative instruments		(944)	954
Net change in the fair value of loans held-for-sale		(3,867)	860
Net change in the fair value of loans held-for-investment		(102)	(62)
Net gain (loss) on hedging activity		4,261	(1,425)
Net gain on sale of investment securities available-for-sale		48	—
Service charges		32	28
Other		1,073	438
Total non-interest income		27,048	9,219
Non-interest expenses:
Salaries and employee benefits		22,139	9,884
Occupancy and equipment		1,152	924
Professional fees		940	667
Advertising and promotion		785	609
Data processing		616	344
Information technology		425	318
Pennsylvania bank shares tax		163	226
Other		2,043	1,090
Total non-interest expenses		28,263	14,062
Income before income taxes		13,306	3,271
Income tax expense		3,136	755
Net income	$	10,170	2,516
Basic earnings per common share	$	1.70	0.39
Diluted earnings per common share	$	1.65	0.39

See accompanying notes to the unaudited consolidated financial statements.

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Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)


		Three months ended
		March 31,
(dollars in thousands)		2021	2020
Net income:	$	10,170	2,516

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 $(592), and $102, respectively		(1,883)	429
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $(12), and $0, respectively		(36)	—
Unrealized investment (losses) gains, net of tax expense of $(604), and $102, respectively		(1,919)	429
Total other comprehensive (loss) income		(1,919)	429
Total comprehensive income	$	8,251	2,945

See accompanying notes to the unaudited consolidated financial statements.

35

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~INCOME~~STOCKHOLDERS’ EQUITY

(Unaudited)

Three months ended

Nine months ended

September 30,

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

2018

2017

2018

2017
Interest income:

Loans, including fees

$
11,218

8,924

31,217

25,148
Securities:

Taxable

213

143

549

366
Tax-exempt

112

110

336

343
Cash and cash equivalents

30

14

75

55
Total interest income

11,573

9,191

32,177

25,912
Interest expense:

Deposits

2,485

1,207

6,171

3,079
Borrowings

710

643

1,790

1,728
Total interest expense

3,195

1,850

7,961

4,807
Net interest income

8,378

7,341

24,216

21,105
Provision for loan losses

291

665

1,258

1,445
Net interest income after provision for loan losses

8,087

6,676

22,958

19,660
Non-interest income:

Mortgage banking income

8,274

9,904

20,407

25,089
Wealth management income

930

934

2,996

1,905
Earnings on investment in life insurance

74

83

225

194
Net change in the fair value of derivative instruments

70

(503)

59

(115)
Net change in the fair value of loans held-for-sale

(300)

(115)

(241)

102
Net change in the fair value of loans held-for-investment

(103)

71

(289)

113
Gain on sale of investment securities available-for-sale

—

—

—

4
Service charges

27

22

87

62
Other

195

54

1,647

168
Total non-interest income

9,167

10,450

24,891

27,522
Non-interest expenses:

Salaries and employee benefits

8,901

10,330

26,719

29,753
Occupancy and equipment

920

992

2,870

2,818
Loan expenses

769

1,000

1,962

3,008
Professional fees

714

481

1,670

1,384
Advertising and promotion

590

597

1,802

1,537
Data processing

334

337

924

871
FDIC assessment

179

183

358

479
Other

1,346

1,092

4,084

3,207
Total non-interest expenses

13,753

15,012

40,389

43,057
Income before income taxes

3,501

2,114

7,460

4,125
Income tax expense

774

716

1,661

1,381
Net income

2,727

1,398

5,799

2,744
Dividends on preferred stock

—

(289)

—

(867)
Net income for common stockholders

$
2,727

1,109

5,799

1,877

Basic earnings per common share

$
0.43

0.30

0.91

0.51

Diluted earnings per common share

$
0.42

0.30

0.90

0.51


					Unearned		Accumulated
					Common		Other
		Common		Treasury	Stock -	Retained	Comprehensive
		Stock	Surplus	Stock	ESOP	Earnings	Income (Loss)	Total
Balance, January 1, 2020	$	6,408	80,196	(3)	—	34,097	(3)	120,695
Comprehensive income:
Net income						2,516		2,516
Net change in unrealized gains on securities available-for-sale, net of tax							429	429
Total comprehensive income								2,945
Common stock issued through share-based awards and exercises		6	90					96
Net purchase of treasury stock through publicly announced plans				(5,703)				(5,703)
Balance, March 31, 2020	$	6,414	80,286	(5,706)	—	36,613	426	118,033

Balance, January 1, 2021	$	6,456	81,196	(5,828)	(1,768)	59,010	2,556	141,622
Comprehensive income:
Net income						10,170		10,170
Net change in unrealized losses on securities available-for-sale, net of tax							(1,919)	(1,919)
Total comprehensive income								8,251
Dividends declared, $1.125 per share						(6,931)		(6,931)
Common stock issued through share-based awards and exercises		32	302					334
Stock based compensation			229					229
Balance, March 31, 2021	$	6,488	81,727	(5,828)	(1,768)	62,249	637	143,505

See accompanying notes to the unaudited consolidated financial statements.

46

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME~~CASH FLOWS

(Unaudited)

Three months ended

Nine months ended

September 30,

September 30,
(dollars in thousands)

2018

2017

2018

2017
Net income:

$
2,727

1,398

5,799

2,744

Other comprehensive income:

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

Net unrealized (losses) gains arising during the period, net of tax (benefit) expense of ($57), ($19), ($155) and $147, respectively

(166)

(31)

(510)

277
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of $0, $0, $0, and $1, respectively

—

—

—

(3)
Unrealized investment gains (losses), net of tax expense (benefit) of ($57), ($19), ($155) and $148, respectively

(166)

(31)

(510)

274
Total other comprehensive income

(166)

(31)

(510)

274
Total comprehensive income

$
2,561

1,367

5,289

3,018


	Three months ended
	March 31,
(dollars in thousands)	2021		2020
Net income	$	10,170	2,516
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Gain on sale of investment securities		(48)	—
Depreciation and amortization		(1,709)	160
Net amortization of investment premiums and discounts and change in fair value of equity securities		331	58
Provision for loan losses		599	1,552
Amortization of issuance costs on subordinated debt		30	24
Share-based compensation		229	—
Net change in fair value of derivative instruments		944	(954)
Net change in fair value of loans held for sale		3,867	(860)
Net change in fair value of loans held for investment		102	62
Gain on sale of OREO		—	(6)
Amortization and net impairment (recovery) of servicing rights		(45)	234
Capitalization of servicing rights, net		(2,616)	(343)
SBA loan income		(1,245)	(542)
Proceeds from sale of loans		803,858	188,452
Loans originated for sale		(724,675)	(254,862)
Mortgage banking income		(24,100)	(6,793)
Increase in accrued interest receivable		(85)	(135)
(Increase) decrease in other assets		(5,246)	8,587
Earnings from investment in life insurance		(66)	(70)
(Decrease) income in deferred income tax		(1,865)	412
(Decrease) increase in accrued interest payable		(411)	490
Increase (decrease) in other liabilities		4,745	(660)
Net cash provided by (used in) operating activities		62,764	(62,678)
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls		2,343	1,559
Sales		13,639	—
Purchases		(28,151)	(30,006)
Activity in held-to-maturity securities:
Maturities, repayments and calls		—	1,000
Proceeds from sale of OREO		—	126
Decrease (increase) in restricted stock		2,747	(275)
Net increase in loans		(70,915)	(56,197)
Purchases of premises and equipment		(677)	(186)
Net cash used in investing activities		(81,014)	(83,979)
Cash flows from financing activities:
Net increase in deposits		142,255	142,585
(Decrease) in short-term borrowings		(5,465)	(18,169)
(Decrease) increase in short-term borrowings with original maturity > 90 days		(75,021)	24,200
Proceeds from long-term debt, net		(42,662)	1,900
Issuance costs on subordinated debt		—	(101)
Net purchase of treasury stock		—	(5,703)
Dividends paid		(6,931)	—
Share based awards and exercises		334	96
Net cash provided by financing activities		12,510	144,808
Net change in cash and cash equivalents		(5,740)	(1,849)
Cash and cash equivalents at beginning of period		36,744	39,371
Cash and cash equivalents at end of period	$	31,004	37,522
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	2,742	3,638
Income taxes		—	145
Supplemental disclosure of cash flow information:
Transfers from loans held for sale to loans held for investment		2,390	—
Net loans sold, not settled		(4,432)	(206)
Investment security purchases, not settled		(1,188)	(2,757)

Seeaccompanying notes to the unaudited consolidated financial statements.

57

Table of Contents

MERIDIAN CORPORATION AND SUBSIDIARIES

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(Unaudited)~~

For the Nine Months Ended September 30, 2018

Accumulated

Other

Common

Retained

Comprehensive

(dollars in thousands)

Stock

Surplus

Earnings

Income (Loss)

Total
Balance, December 31, 2017

$
6,392

79,501

15,768

(298)

101,363
Comprehensive income:

Net income

5,799

5,799
Change in unrealized gains on securities available-for-sale, net of tax

(510)

(510)
Total comprehensive income

5,289
Share-based awards and exercises

15

15
Compensation expense related to stock option grants

351

351
Balance, September 30, 2018

$
6,407

79,852

21,567

(808)

107,018

~~See accompanying notes to the unaudited consolidated financial statements.~~

6

~~Table of Contents~~

~~MERIDIAN CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited)~~

Nine months ended

September 30,
(dollars in thousands)

2018

2017
Net income

$
5,799

2,744
Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sale of investment securities

—

4
Depreciation and amortization

1,088

1,673
Provision for credit losses

1,258

1,445
Compensation expense for stock options

351

110
Net change in fair value of loans held for sale

241

(102)
Net change in fair value of derivative instruments

(59)

115
Net change in fair value of contingent assets

177

—
Gain on sale of OREO

(57)

—
Proceeds from sale of loans

513,259

556,777
Loans originated for sale

(492,113)

(524,363)
Mortgage banking income

(20,407)

(25,089)
(Increase) decrease in accrued interest receivable

(377)

79
Increase in other assets

(110)

(202)
Earnings from investment in life insurance

(225)

(194)
Deferred income tax (benefit) expense

(465)

279
Increase in accrued interest payable

137

185
Increase in other liabilities

1,184

3,020
Net cash provided by operating activities

9,681

16,481
Cash flows from investing activities:

Activity in available-for-sale securities:

Maturities, repayments and calls

4,080

2,928
Purchases

(12,768)

(7,178)
Activity in held-to-maturity securities:

Maturities, repayments and calls

—

1,045
Proceeds from sale of OREO

494

—
Settlement of forward contracts

(21)

(845)
Acquisition of wealth management company

—

(3,225)
Decrease in restricted stock

2,233

563
Net increase in loans

(107,068)

(72,613)
Purchases of premises and equipment

(1,499)

(1,628)
Proceeds from settlment of loans

2,766

—
Purchase of bank owned life insurance

—

(5,999)
Net cash used in investing activities

(111,783)

(86,952)
Cash flows from financing activities:

Net increase in deposits

154,818

90,546
Decrease in short term borrowings

(57,795)

(28,358)
Repayment of long term debt (Acquisition note)

(619)

(206)
Principal repayment of long term debt (subordinated debt)

(4,000)

—
Share based awards and exercises

15

10
Dividends paid on preferred stock

—

(866)
Net cash provided by financing activities

92,419

61,126
Net change in cash and cash equivalents

(9,683)

(9,345)
Cash and cash equivalents at beginning of period

35,506

18,872
Cash and cash equivalents at end of period

$
25,823

9,527
Supplemental disclosure of cash flow information:

Cash paid during the period for:

Interest

$
7,392

4,622
Income taxes

1,565

1,487
Supplemental non-cash disclosure:

Net loan assets purchased, not settled

4,490

—
Acquisition note payable

—

2,475

~~See accompanying notes to the unaudited consolidated financial statements.~~

7

~~Table of Contents~~

~~MERIDIAN CORPORATION AND SUBSIDIARIES~~

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1) Basis of Presentation

Meridian Corporation (the “Corporation”) was incorporated on June 8, 2009, by and at the direction of the board of directors of Meridian Bank (the “Bank”) for the sole purpose of acquiring the Bank and serving as the Bank’s parent bank holding company. On August 24, 2018, the Corporation acquired the Bank in a merger and reorganization effected under Pennsylvania law and in accordance with the terms of a Plan of Merger and Reorganization dated April 26, 2018 (the “Agreement”). Pursuant to the Agreement, on August 24, 2018 at 5:00 p.m. each of the 6,402,385 outstanding shares of the Bank’s $1.00 par value common stock formerly held by its shareholders was converted into and exchanged for one newly issued share of the Corporation’s par value common stock, and the Bank became a subsidiary of the Corporation. Because the Bank and the Corporation were entities under common control, this exchange of shares between entities under common control resulted in the retrospective combination of the Bank and the Corporation for all periods presented as if the combination had been in effect since inception of common control. As the Corporation had no assets, liabilities, revenues, expenses or operations prior to August 24, 2018, the historical financial statements of the Bank are the historical financial statements of the combined entity. The Corporation is subject to supervision and examination by, and the regulations and reporting requirements of, the Board of Governors of the Federal Reserve System.

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

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. ~~Material estimates that are particularly susceptible~~Amounts subject to significant ~~change in the near term relate to the determination of~~estimates are items such as the allowance for loan ~~losses.~~losses and lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill and intangible assets, and servicing assets.

These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the Securities and Exchange Commission ~~and, for periods prior to the completion of the holding company reorganization, the Bank’s filings with the FDIC, including the Bank’s most recent annual report~~(including our Annual Report on Form 10-K ~~(the “2017 Annual Report”)~~ for the year ended December 31, ~~2017,~~2020) and, subsequently filed quarterly reports on Form ~~10-Q.~~ 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.

Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity. Operating results for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2021 are not necessarily indicative of the results for the year ~~ended~~ending December 31, ~~2018~~2020 or for any other period.

Since COVID-19 was recognized as a pandemic by the World Health Organization (WHO) and a national emergency by the U.S. Government, it has caused a significant disruption in economic activity worldwide, including in market areas served by the Corporation. Estimates for the allowance for loan and lease losses at March 31, 2021 include probable losses related to the pandemic. While there have been signals of economic recovery and a resumption of many types of business activity, there remains significant uncertainty involved in the measurement of these losses. If economic conditions deteriorate further, then additional provision for loan losses may be required in future periods. It is unknown how long these conditions will last and what the ultimate financial impact will be to the Corporation.

8

Table of Contents

(2) Earnings per Common Share

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


	Three Months Ended
	March 31,
(dollars in thousands, except per share data)	2021		2020
Numerator:
Net income available to common stockholders	$	10,170		2,516
Denominator for basic earnings per share
Weighted average shares outstanding		6,119		6,383
Average unearned ESOP shares		(119)		—
Basic weighted averages shares outstanding		6,000		6,383
Effect of dilutive common shares		146		37
Denominator for diluted earnings per share - adjusted weighted average shares outstanding		6,146		6,420
Basic earnings per share	$	1.70		0.39
Diluted earnings per share	$	1.65		0.39
Antidilutive shares excluded from computation of average dilutive earnings per share		22		202

8

~~Table of Contents~~

Three Months Ended

Nine Months Ended

September 30,

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

2018

2017

2018


2017
Numerator:

Net income available to common stockholders

$
2,727

1,109

5,799

1,877
Denominator for basic earnings per share - weighted average shares outstanding

6,402

3,686

6,395

3,686
Effect of dilutive common shares

28

27

31

26
Denominator for diluted earnings per share - adjusted weighted average shares outstanding

6,430

3,713

6,426

3,712
Basic earnings per share

$
0.43

0.30

0.91

0.51
Diluted earnings per share

$
0.42

0.30

0.90

0.51
Antidilutive shares excluded from computation of average dilutive earnings per share

116

50

116

50

(3) ~~Goodwill and Other Intangibles~~

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

Balance

Balance

Amortization

December 31,

Accumulated

Fair Value

September 30,

Period
(dollars in thousands)

2017

Amortization

Adjustment

2018

(in years)
Goodwill - Wealth

$
899

—

—

899

Indefinite
Total Goodwill

899

—

—

899

Intangible assets - trade name

266

—

—

266

Indefinite
Intangible assets - customer relationships

3,930

(152)

—

3,778

20
Intangible assets - non competition agreements

223

(52)

—

171

4
Contingent asset

177

(177)

—

N/A
Total Intangible Assets

4,596

(204)

(177)

4,215

Total

$
5,495

(204)

(177)

5,114

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

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

9

~~Table of Contents~~

~~(4)~~ Securities

The amortized cost and fair value of securities as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~2020 are as follows:

September 30, 2018

Gross

Gross

Amortized

unrealized

unrealized

Fair
(dollars in thousands)

cost

gains

losses

value
Securities available-for-sale:

U.S. government agency mortgage-backed securities

$
24,625

21

(431)

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

13,159

—

(271)

12,888
State and municipal securities

9,946

—

(341)

9,605
Investments in mutual funds and other equity securities

1,000

—

(30)

970
Total securities available-for-sale

$
48,730

21

(1,073)

47,678
Securities held to maturity:

U.S. Treasuries

$
1,987

—

(18)

1,969
State and municipal securities

10,784

15

(196)

10,603
Total securities held-to-maturity

$
12,771

15

(214)

12,572


	December 31, 2017
			Gross	Gross
	Amortized		unrealized	unrealized	Fair

						March 31, 2021
								Gross	Gross		# of Securities
						Amortized		unrealized	unrealized	Fair	in unrealized
(dollars in thousands)	cost		gains	losses	value	cost		gains	losses	value	loss position
Securities available-for-sale:
U.S. asset backed securities						$	26,828	458	(56)	27,230	7
U.S. government agency mortgage-backed securities	$	21,439	19	(190)	21,268		3,796	126	—	3,922	—
U.S. government agency collateralized mortgage obligations		7,875	2	(99)	7,778		23,014	642	(137)	23,519	5
State and municipal securities		10,079	14	(134)	9,959		72,815	704	(871)	72,648	30
Investments in mutual funds and other equity securities		1,000	1	—	1,001
U.S. Treasuries							1,938	—	(22)	1,916	1
Corporate bonds							4,950	17	(37)	4,930	4
Total securities available-for-sale	$	40,393	36	(423)	40,006	$	133,341	1,947	(1,123)	134,165	47
Securities held to maturity:
U.S. Treasuries	$	1,978	—	(8)	1,970
Securities held-to-maturity:
State and municipal securities		10,883	86	(70)	10,899		6,476	296	—	6,772	—
Total securities held-to-maturity	$	12,861	86	(78)	12,869	$	6,476	296	—	6,772	—

~~At September 30, 2018,~~

9

Table of Contents


	December 31, 2020
			Gross	Gross		# of Securities
	Amortized		unrealized	unrealized	Fair	in unrealized
(dollars in thousands)	cost		gains	losses	value	loss position
Securities available-for-sale:
U.S. asset backed securities	$	25,303	364	(75)	25,592	8
U.S. government agency mortgage-backed securities		3,854	192	—	4,046	—
U.S. government agency collateralized mortgage obligations		23,010	916	(17)	23,909	1
State and municipal securities		63,848	2,025	(63)	65,810	3
Corporate bonds		4,200	7	(2)	4,205	2
Total securities available-for-sale	$	120,215	3,504	(157)	123,562	14
Securities held-to-maturity:
State and municipal securities		6,510	347	—	6,857	—
Total securities held-to-maturity	$	6,510	347	—	6,857	—

Although the Corporation had twenty-six U.S. government sponsored agency mortgage‑backed securities, seventeen U.S. government sponsored agency collateralized mortgage obligations, twenty-nine state and municipal securities, one mutual fund, and two U.S. treasuriesCorporation’s investment portfolio overall is in a net unrealized ~~loss positions. At December~~gain position at March 31, 2017, the Corporation had nineteen U.S. government sponsored agency mortgage‑backed securities, eight U.S. government sponsored agency collateralized mortgage obligations, twenty-two state and municipal securities and one mutual fund in unrealized loss positions. At September 30, 2018,2021, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and the Corporation does not intend to sell these securities prior to recovery and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no0 securities are deemed to be ~~other‑than‑temporarily~~other-than-temporarily impaired.

10

~~Table~~As of ~~Contents~~

March 31, 2021 and December 31, 2020, securities having a fair value of $63.6 million and $55.9 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

The following table shows the Corporation’s investment gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017:~~2020:


	March 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	$	948	(24)	8,373	(32)	9,321	(56)
U.S. government agency collateralized mortgage obligations		6,781	(137)	—	—	6,781	(137)
State and municipal securities		47,927	(871)	—	—	47,927	(871)
U.S. Treasuries		1,916	(22)			1,916	(22)
Corporate bonds		2,913	(37)	—	—	2,913	(37)
Total securities available-for-sale	$	60,485	(1,091)	8,373	(32)	68,858	(1,123)

September 30, 2018

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

U.S. government agency mortgage-backed securities

$
11,483

(128)

9,702

(303)

21,185

(431)
U.S. government agency collateralized mortgage obligations

8,627

(102)

4,261

(169)

12,888

(271)
State and municipal securities

5,019

(112)

4,587

(229)

9,606

(341)
Investments in mutual funds and other equity securities

970

(30)

—

—

970

(30)
Total securities available-for-sale

$
26,099

(372)

18,550

(701)

44,649

(1,073)
Securities held-to-maturity:

U.S. Treasuries

$
1,950

(18)

—

—

1,950

(18)
State and municipal securities

6,537

(98)

2,211

(98)

8,748

(196)
Total securities held-to-maturity

$
8,487

(116)

2,211

(98)

10,698

(214)

10

Table of Contents

December 31, 2017

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. government agency mortgage-backed securities

$
9,788

(28)

7,854

(162)

17,642

(190)
U.S. government agency collateralized mortgage obligations

6,732

(81)

860

(18)

7,592

(99)
State and municipal securities

6,147

(57)

2,818

(77)

8,965

(134)
Total securities available-for-sale

$
22,667

(166)

11,532

(257)

34,199

(423)
Securities held-to-maturity:

U.S. Treasuries

$
1,962

(8)

—

—

1,962

(8)
State and municipal securities

4,851

(70)

—

—

4,851

(70)
Total securities held-to-maturity

$
6,813

(78)

—

—

6,813

(78)


	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 ~~September 30, 2018~~March 31, 2021 and December 31, 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.

September 30, 2018

December 31, 2017

Available-for-sale

Held-to-maturity

Available-for-sale

Held-to-maturity

Amortized

Fair

Amortized

Fair

Amortized

Fair

Amortized

Fair
(dollars in thousands)

cost

value

cost

value

cost

value

cost

value
Due in one year or less

$
1,706

1,671

994

985

$
—

—

—

—
Due after one year through five years

8,229

8,070

3,746

3,702

5,630

5,587

3,803

3,791
Due after five years through ten years

6,593

6,322

8,031

7,885

6,298

6,228

7,180

7,156
Due after ten years

32,202

31,615

—

—

28,465

28,191

1,878

1,922
Total

$
48,730

47,678

12,771

12,572

$
40,393

40,006

12,861

12,869


	March 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	$	—	—	—	—	$	—	—	—	—
Due after one year through five years		—	—	3,165	3,255		—	—	3,181	3,288
Due after five years through ten years		14,077	13,963	3,311	3,517		12,035	12,095	3,329	3,569
Due after ten years		92,454	92,761	—	—		81,316	83,512	—	—
Subtotal		106,531	106,724	6,476	6,772		93,351	95,607	6,510	6,857
Mortgage-related securities		26,810	27,441	—	—		26,864	27,955	—	—
Total	$	133,341	134,165	6,476	6,772	$	120,215	123,562	6,510	6,857

Proceeds from the sale of available for sale investment securities totaled $13.6 million for the period ended March 31, 2021, resulting in a gross gain on sale of $248 thousand and a gross loss on sale of $200 thousand for the year ended March 31, 2021.

There were 0 sales of available for sale investment securities for the period ended March 31, 2020.

Table of Contents

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

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

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

13

~~Table of Contents~~

Roll-Forward of Allowance ~~for Loan and Lease Losses~~ by Portfolio Segment

The following tables detail the ~~roll‑forward~~roll-forward of the Corporation’s Allowance, by portfolio segment, for the three ~~and nine~~ month periods ended ~~September 30, 2018~~March 31, 2021 and ~~2017,~~2020, respectively:


	Balance,					Balance,

							Balance,					Balance,
(dollars in thousands)	June 30, 2018		Charge-offs	Recoveries	Provision	September 30, 2018	December 31, 2020		Charge-offs	Recoveries	Provision	March 31, 2021
Commercial mortgage	$	3,011	—	2	140	3,153	$	7,451	—	—	204	7,655
Home Equity lines and loans		269	—	10	37	316
Home equity lines and loans								434	—	2	(126)	310
Residential mortgage		166	—	—	14	180		385	—	2	(73)	314
Construction		1,438	—	—	59	1,497		2,421	—	—	(110)	2,311
Commercial and industrial		2,559	(50)	8	41	2,558		5,431	—	5	(150)	5,286
Small business loans								1,259	—	—	661	1,920
Consumer		3	—	1	—	4		4	—	1	(1)	4
Leases		3	—	—	—	3		382	—	—	194	576
Unallocated		—	—	—	—	—
Total	$	7,449	(50)	21	291	7,711	$	17,767	—	10	599	18,376

Balance,

Balance,
(dollars in thousands)

December 31, 2017

Charge-offs

Recoveries

Provision

September 30, 2018
Commercial mortgage

$
2,434

—

6

713

3,153
Home Equity lines and loans

280

(137)

14

159

316
Residential mortgage

82

—

61

37

180
Construction

1,689

—

—

(192)

1,497
Commercial and industrial

2,214

(244)

41

547

2,558
Consumer

5

—

3

(4)

4
Leases

5

—

—

(2)

3
Unallocated

—

—

—

—

—
Total

$
6,709

(381)

125

1,258

7,711

Balance,

Balance,
(dollars in thousands)

June 30, 2017

Charge-offs

Recoveries

Provision

September 30, 2017
Commercial mortgage

$
2,423

(52)

—

9

2,380
Home Equity lines and loans

228

—

52

(58)

222
Residential mortgage

79

—

—

(2)

77
Construction

1,388

—

—

93

1,481
Commercial and industrial

2,086

(528)

7

626

2,191
Consumer

2

—

1

(2)

1
Leases

8

—

—

(1)

7
Unallocated

—

—

—

—

—
Total

$
6,214

(580)

60

665

6,359

Balance,

Balance,
(dollars in thousands)

December 31, 2016

Charge-offs

Recoveries

Provision

September 30, 2017
Commercial mortgage

$
2,038

(83)

16

409

2,380
Home Equity lines and loans

460

(42)

46

(242)

222
Residential mortgage

85

—

2

(10)

77
Construction

690

—

—

791

1,481
Commercial and industrial

1,973

(647)

193

672

2,191
Consumer

2

—

4

(5)

1
Leases

5

—

—

2

7
Unallocated

172

—

—

(172)

—
Total

$
5,425

(772)

261

1,445

6,359


	Balance,					Balance,
(dollars in thousands)	December 31, 2019		Charge-offs	Recoveries	Provision	March 31, 2020
Commercial mortgage	$	3,426	—	—	686	4,112
Home equity lines and loans		342	—	1	141	484
Residential mortgage		179	—	2	38	219
Construction		2,362	—	—	19	2,381
Commercial and industrial		2,684	—	29	456	3,169
Small business loans		509	—	—	216	725
Consumer		6	—	1	(3)	4
Leases		5	—	—	(1)	4
Total	$	9,513	—	33	1,552	11,098

14

Table of Contents

Allowance ~~for Loan and Lease Losses~~ Allocated by Portfolio Segment

The following tables detail the allocation of the allowance for loan and lease losses and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~2020.


	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
March 31, 2021	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	7,655	7,655	$	730	516,691	517,421
Home equity lines and loans		8	302	310		919	54,659	55,578
Residential mortgage		72	242	314		1,814	33,681	35,495
Construction		—	2,311	2,311		1,206	133,395	134,601
Commercial and industrial		1,562	3,724	5,286		4,339	257,082	261,421
Small business loans		376	1,544	1,920		1,087	61,286	62,373
Paycheck Protection Program loans		—	—	—		—	230,847	230,847
Main Street Lending Program		—	—	��		—	583	583
Consumer		—	4	4		—	469	469
Leases		—	576	576		131	46,539	46,670
Total	$	2,018	16,358	18,376	$	10,226	1,335,232	1,345,458	(1)




	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
December 31, 2020	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	7,451	7,451	$	1,606	483,497	485,103
Home equity lines and loans		9	425	434		921	64,066	64,987
Residential mortgage		73	312	385		1,817	38,455	40,272
Construction		—	2,421	2,421		1,206	139,040	140,246
Commercial and industrial		1,563	3,868	5,431		4,645	257,105	261,750
Small business loans		—	1,259	1,259		185	49,357	49,542
Paycheck Protection Program loans		—	—	—		—	203,543	203,543
Main Street Lending Program		—	—	—		—	580	580
Consumer		—	4	4		—	511	511
Leases		—	382	382		—	31,040	31,040
Total	$	1,645	16,122	17,767	$	10,380	1,267,194	1,277,574	(1)

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

September 30, 2018

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

for impairment

for impairment

Total

for impairment

for impairment

Total

Commercial mortgage

$
—

3,153

3,153

$
1,703

314,968

316,671

Home Equity lines and loans

—

316

316

85

82,688

82,773

Residential mortgage

—

180

180

249

38,926

39,175

Construction

—

1,497

1,497

1,296

103,222

104,518

Commercial and industrial

7

2,551

2,558

3,143

249,817

252,960

Consumer

—

4

4

—

783

783

Leases

—

3

3

—

364

364

Unallocated

—

—

—

—

—

—

Total

$
7

7,704

7,711

$
6,476

790,768

797,244
(1)

Allowance on loans and leases

Carrying value of loans and leases

Individually

Collectively

Individually

Collectively

December 31, 2017

evaluated

evaluated

evaluated

evaluated

(dollars in thousands)

for impairment

for impairment

Total

for impairment

for impairment

Total

Commercial mortgage

$
—

2,434

2,434

$
1,533

261,607

263,140

Home Equity lines and loans

—

280

280

137

83,902

84,039

Residential mortgage

—

82

82

249

22,155

22,404

Construction

—

1,689

1,689

260

104,710

104,970

Commercial and industrial

1

2,213

2,214

2,506

207,490

209,996

Consumer

—

5

5

—

1,022

1,022

Leases

—

5

5

—

762

762

Unallocated

—

—

—

—

—

—

Total

$
1

6,708

6,709

$
4,685

681,648

686,333
(1)

(1)

~~(1)~~

Excludes deferred fees and loans carried at fair value.

Loans and Leases by Credit Ratings

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

·

●

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

·

●

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

15

Table of Contents

·

●

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

15

~~Table of Contents~~

·

●

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

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to ~~allocate~~determine the allowance for loan and lease losses as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017:~~2020:


September 30, 2018			Special

March 31, 2021									Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	311,857	4,539	275	—	316,671	$	482,177	32,076	3,168	—	517,421
Home equity lines and loans		82,606	—	167	—	82,773		54,174	—	1,404	—	55,578
Construction		102,361	2,157	—	—	104,518		125,974	8,627	—	—	134,601
Commercial and industrial		234,055	16,016	2,859	30	252,960		232,768	16,828	8,215	3,610	261,421
Small business loans								58,753	—	3,620	—	62,373
Paycheck Protection Program loans								230,847	—	—	—	230,847
Main Street Lending Program loans								583	—	—	—	583
Total	$	730,879	22,712	3,301	30	756,922	$	1,185,276	57,531	16,407	3,610	1,262,824


December 31, 2017			Special

December 31, 2020									Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	258,337	3,917	887	—	263,141	$	449,545	32,059	3,499	—	485,103
Home equity lines and loans		83,902	—	137	—	84,039		63,923	—	1,064	—	64,987
Construction		103,118	1,852	—	—	104,970		132,286	7,960	—	—	140,246
Commercial and industrial		194,784	13,997	448	767	209,996		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	$	640,141	19,766	1,472	767	662,146	$	1,124,015	61,740	16,316	3,680	1,205,751

In addition to credit quality indicators as shown in the above tables, allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017. No~~2020. NaN troubled debt restructurings performing according to modified terms are included in performing residential mortgages below as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~2020.


	September 30, 2018				December 31, 2017

									March 31, 2021				December 31, 2020
(dollars in thousands)	Performing		Nonperforming	Total	Performing		Nonperforming	Total	Performing		Nonperforming	Total	Performing		Nonperforming	Total
Residential mortgage	$	38,926	249	39,175	$	22,154	249	22,403	$	33,681	1,814	35,495	$	38,457	1,815	40,272
Consumer		783	—	783		1,022	—	1,022		469	—	469		511	—	511
Leases		364	—	364		762	—	762		46,539	131	46,670		31,040	—	31,040
Total	$	40,073	249	40,322	$	23,938	249	24,187	$	80,689	1,945	82,634	$	70,008	1,815	71,823

There were ~~seven~~5 nonperforming residential mortgage loans at ~~September 30, 2018~~March 31, 2021 and ~~four~~5 nonperforming residential mortgage loans at December 31, ~~2017~~2020 with a combined outstanding principal balance of ~~$1.9 million~~$902 thousand and ~~$826~~$910 thousand, respectively, which were carried at fair value and not included in the table above.

16

Table of Contents

Impaired Loans

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




	As of March 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		3,790	3,866	1,562	3,860	3,902	1,563
Small business loans		917	917	376	—	—	—
Home equity lines and loans		94	104	8	95	105	9
Residential mortgage		688	688	72	689	689	73
Total		5,489	5,575	2,018	4,644	4,696	1,645
Impaired loans without related allowance:
Commercial mortgage	$	730	730	—	1,606	1,642	—
Commercial and industrial		549	630	—	785	862	—
Small business loans		170	170	—	185	185	—
Home equity lines and loans		825	839	—	826	839	—
Residential mortgage		1,126	1,126	—	1,128	1,128	—
Construction		1,206	1,206	—	1,206	1,206	—
Leases		131	131	—	—	—	—
Total		4,737	4,832	—	5,736	5,862	—
Grand Total	$	10,226	10,407	2,018	10,380	10,558	1,645

The following table details the average recorded investment and interest income recognized ~~for the periods.~~

At September 30, 2018

At December 31, 2017

Average

Average

Recorded

Principal

Related

recorded

Recorded

Principal

Related

recorded
(dollars in thousands)

investment

balance

allowance

investment

investment

balance

allowance

investment
Impaired loans with related allowance:

Commercial mortgage

$
—

—

—

—

—

—

—

—
Commercial and industrial

479

479

7

476

124

491

1

173
Home equity lines and loans

—

—

—

—

—

—

—

—
Residential mortgage

—

—

—

—

—

—

—

—
Construction

—

—

—

—

—

—

—

—
Total

479

479

7

476

124

491

1

173
Impaired loans without related allowance:

Commercial mortgage

$
1,703

2,136

—

1,698

1,534

2,025

—

1,537
Commercial and industrial

2,664

2,746

—

2,748

1,907

3,180

—

2,945
Home equity lines and loans

85

89

—

86

137

137

—

137
Residential mortgage

249

258

—

254

249

249

—

249
Construction

1,296

1,296

—

1,401

260

260

—

267
Total

5,997

6,525

—

6,187

4,087

5,851

—

5,135
Grand Total

$
6,476

7,004

7

6,663

4,211

6,342

1

5,308

~~Interest income recognized~~ on ~~performing~~ impaired loans amounted to $93 thousand and $63 thousand for the three months ended September 30, 2018 and 2017, respectively, and $218 thousand and $213 thousand for the nine months ended September 30, 2018 and 2017, respectively.by portfolio segment.



		Three Months Ended		Three Months Ended
		March 31, 2021		March 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	$	3,826	5	451	5
Small business loans		918	—	—	—
Home equity lines and loans		95	—	458	—
Residential mortgage		688	—	—	—
Total	$	5,527	5	909	5
Impaired loans without related allowance:
Commercial mortgage	$	735	8	2,129	21
Commercial and industrial		579	—	587	4
Small business loans		176	4	934	6
Home equity lines and loans		825	—	305	-
Residential mortgage		1,127	—	3,806	-
Construction		1,206	15	1,239	17
Leases		122	—	—	—
Total	$	4,770	27	9,000	48
Grand Total	$	10,297	32	9,909	53

17

Table of Contents

Troubled Debt Restructuring

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

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

17

~~Table of Contents~~

The balance of

TDRs at ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~2020 are as follows:


	September 30,		December 31,

				March 31,		December 31,
(dollars in thousands)	2018		2017	2021		2020
TDRs included in nonperforming loans and leases	$	554	741	$	239	244
TDRs in compliance with modified terms		3,463	1,900		2,534	3,362
Total TDRs	$	4,017	2,641	$	2,773	3,606

~~The following tables present information regarding~~There were 0 loan and lease modifications granted during the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2021 or March 31, 2020 that were categorized as ~~TDRs:~~

For the Three Months Ended September 30, 2018




Pre-Modification

Post-Modification


Outstanding

Outstanding

Number of

Recorded

Recorded

Related
(dollar in thousands)

Contracts

Investment

Investment

Allowance
Real Estate:

Land and Construction

1

$
796

$
796

$
—
Total

1

$
796

$
796

$
—

For the Nine Months Ended September 30, 2018




Pre-Modification

Post-Modification


Outstanding

Outstanding

Number of

Recorded

Recorded

Related
(dollar in thousands)

Contracts

Investment

Investment

Allowance
Real Estate:

Land and Construction

2

$
2,410

$
2,410

$
—
Commercial and industrial

1

120

120

—
Total

3

$
2,530

$
2,530

$
—

Noa TDR. NaN loan and lease modifications granted during the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2021 and 2020 subsequently defaulted during the same time period.

COVID-19 Loan Modifications

The following table ~~presents information regarding~~details the loan modifications that the Corporation provided to loan customers as of March 31, 2021.


		March 31, 2021					December 31, 2020
		Portfolio		Active	% of		Portfolio		Active	% of
Loan Portfolio		Balance		Modifications	Portfolio Balance		Balance		Modifications	Portfolio Balance
Commercial mortgage	$	517,421	$	24,341	4.7%	$	485,103	$	19,836	4.1%
Commercial and industrial, including leases		308,091		70	0.0%		292,790		—	—
Construction & land development		134,601		4,343	3.2%		140,246		4,343	3.1%
Home equity lines and loans		55,578		—	—		64,987		—	—
Residential mortgage		35,495		—	—		40,272		—	—
Small business loans		62,373		—	—		49,542		2,726	—
Consumer		469		—	—		511		—	—
Total	$	1,114,028	$	28,754	2.6%	$	1,073,451	$	26,905	2.5%

In accordance with Section 4013 of the CARES Act, loan deferrals granted to customers that resulted from the impact of COVID-19 and ~~lease modifications granted during~~who were not past due at the ~~nine months ended September 30, 2017 that~~time of deferral were ~~categorized~~not considered trouble debt restructurings under ASC 310-40 as ~~TDRs:~~

For the Nine Months Ended September 30, 2017




Pre-Modification

Post-Modification


Outstanding

Outstanding

Number of

Recorded

Recorded

Related
(dollar in thousands)

Contracts

Investment

Investment

Allowance
Real Estate:

Commercial and industrial

1

$
165

$
165

$
—
Total

1

$
165

$
165

$
—

Noof March 31, 2021. This provision was extended to January 1, 2022 under the Consolidated Appropriations Act, 2021. Management continues to monitor these deferrals and has adequately considered these credits in the March 31, 2021 allowance for loan losses balance. These modified loans are classified as performing and lease modifications granted during the nine months ended September 30, 2017 subsequently defaulted during the same time period. There were no loan and lease modifications made for the three months ended September 30, 2017.

are not considered past due. Loans are to be placed on non-accrual when it becomes

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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.

~~The following tables present information regarding the types of loan and lease modifications made for the three and nine months ended September 30, 2018 and 2017:~~


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

For the Nine Months Ended

For the Nine Months Ended

September 30, 2018

September 30, 2017

Interest Rate

Interest Rate

Loan Term

Change and Loan

Loan Term

Change and Loan


Extension

Term Extension

Extension

Term Extension
Land and Construction

2

—

—

—
Commercial and industrial

—

1

—

1
Total

2

1

—

1

~~(7)~~(6) Short-Term Borrowings and ~~Long‑Term~~Long-Term Debt

The Corporation’s ~~short‑term~~short-term borrowings generally consist of federal funds purchased and ~~short‑term~~short-term borrowings extended under agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”). The Corporation has ~~two~~2 unsecured Federal Funds borrowing facilities with correspondent banks: one of ~~$24,000,000~~$24 million and one of ~~$15,000,000.~~$15 million. Federal Funds purchased generally represent one-day borrowings. The Corporation had 0 Federal ~~funds~~Funds purchased ~~of $0 and $0~~ at ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017, respectively.~~2020. The Corporation also has a facility with the Federal Reserve Bank (“FRB”) of Philadelphia discount window of ~~$10,667,121.~~$10.1 million. This facility is fully secured by investment ~~securities and loans.~~securities. There were no0 borrowings under this ~~facility~~ at ~~September 30, 2018 or~~March 31, 2021 and $10 million at December 31, ~~2017~~2020.

~~Short‑term~~Short-term borrowings ~~as of September 30, 2018 consisted of short‑term advances from the FHLB in the amount of $40,755,700 with interest~~ at ~~2.10%, $1,800,000 with an original term of 4 years with interest at 1.70% and $1,200,000 with an original term of 2 years and interest at 0.97%.~~

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

~~Long‑term debt at September 30, 2018~~2021 and December 31, ~~2017~~2020 consisted of the following ~~fixed rate notes~~notes:


				Balance as of
	Maturity	Interest		March 31,		December 31,
(dollars in thousands)	date	rate		2021		2020
Open Repo Plus Weekly	05/28/2021	0.41	%		—	60,416
Federal Reserve Discount Window	03/31/2021	0.25			—	10,000
Mid-term Repo-fixed	01/13/2021	0.36			—	4,605
Mid-term Repo-fixed	06/10/2021	0.10			6,376	6,376
Mid-term Repo-fixed	09/10/2021	0.11			10,000	10,000
Mid-term Repo-fixed	12/10/2021	0.16			10,000	10,000
Mid-term Repo-fixed	01/27/2021	0.23			—	5,465
Total				$	26,376	106,862

As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program. Advances from this facility are secured 100% by the aggregate face value of pools comprised of loans with common maturity dates. PPPLF advances mature concurrently with the ~~FHLB~~loans in a given pool. At March 31, 2021, the Corporation pledged $110.6 million of PPP loans to the FRB of Philadelphia to borrow $110.6 million of funds at a rate of 0.35%.

Long-term debt at March 31, 2021 and December 31, 2020 consisted of the ~~acquisition purchase note issued in connection with HJ Wealth:~~

Balance as of

Maturity

Interest

September 30,

December 31,
(dollars in thousands)

date

rate

2018

2017
Mid-term Repo-fixed

06/26/19

1.70
%

—

1,800
Mid-term Repo-fixed

08/10/20

2.76
%

5,000

5,000
Acquisition Purchase Note

04/01/20

3.00
%

1,444

2,063

$
6,444

8,863

following notes:


				Balance as of
	Maturity	Interest		March 31,		December 31,
(dollars in thousands)	date	rate		2021		2020
PPPLF Advances	2022	0.35	%		45,189	153,269
PPPLF Advances	2026	0.35		$	65,417	—
Mid-term Repo-fixed	06/29/2022	0.32			7,392	7,392
Mid-term Repo-fixed	09/12/2022	0.23			4,886	4,885
Total	`			$	122,884	165,546

19

~~Table of Contents~~

The FHLB of Pittsburgh has also issued ~~$88,100,000~~$154 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers. These letters of credit expire ~~by December 31, 2018.~~ throughout 2021.

The Corporation has a maximum borrowing capacity with the FHLB of ~~$432,816,917~~$546.7 million as of ~~September 30, 2018~~March 31, 2021 and ~~$380,159,142~~$638.9 million as of December 31, ~~2017.~~2020. All advances and letters of credit from the FHLB are secured by ~~qualifying assets~~a blanket lien on non-pledged, mortgage-related loans and securities as part of the ~~Corporation.~~Corporation’s borrowing agreement with the FHLB.

19

Table of Contents

(7) Servicing Assets

The Corporation sells certain residential mortgage loans and the guaranteed portion of certain small business loans (“SBA loans”) to third parties and retains servicing rights and receives servicing fees. All such transfers are accounted for as sales. When the Corporation sells a residential mortgage loan, it does not retain any portion of that loan and its continuing involvement in such transfers is limited to certain servicing responsibilities. While the Corporation may retain a portion of certain sold SBA loans, its continuing involvement in the portion of the loan that was sold is limited to certain servicing responsibilities. When the contractual servicing fees on loans sold with servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized. The Corporation accounts for the transfers and servicing of financial assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

Residential Mortgage Loans

The mortgage servicing rights (“MSRs”) are amortized over the period of the estimated future net servicing life of the underlying assets. MSR’s are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR. The Corporation serviced $690.9 million and $506.0 million of residential mortgage loans as of March 31, 2021 and December 31, 2020, respectively. During the three months ended March 31, 2021, the Corporation recognized servicing fee income of $358 thousand, compared to $183 thousand during the three months ended March 31, 2020.

Changes in the MSR balance are summarized as follows:


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Balance at beginning of the period	$	4,647	446
Servicing rights capitalized		2,342	184
Amortization of servicing rights		(199)	(33)
Change in valuation allowance		328	(174)
Balance at end of the period	$	7,118	423

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Valuation allowance, beginning of period	$	(435)	(98)
Impairment		—	(174)
Recovery		328	—
Valuation allowance, end of period	$	(107)	(272)

The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At March 31, 2021, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.21% and a discount rate equal to 9.00%. At December 31, 2020, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 9.39% and a discount rate equal to 9.00%. The prepayment speed assumption has declined from December 31, 2020 to March 31, 2021 as interest

20

Table of Contents

rates have started to increase and the number of mortgage refinancings have started to decline, while the discount rate assumption is unchanged over this period as the underlying credit quality of the loans sold in each period is relatively unchanged.

At March 31, 2021 and December 31, 2020, the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.



(dollars in thousands)	March 31, 2021		December 31, 2020
Fair value of residential mortgage servicing rights	$	7,258	$	4,647

Weighted average life (years)		6.0		5.0

Prepayment speed		7.21%		9.39%
Impact on fair value:
10% adverse change	$	(250)	$	(183)
20% adverse change		(485)		(354)

Discount rate		9.00%		9.00%
Impact on fair value:
10% adverse change	$	(284)	$	(168)
20% adverse change		(547)		(329)

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

SBA Loans

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets. SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset. The Corporation serviced $44.8 million and $55.9 million of SBA loans, as of March 31, 2021 and December 31, 2020, respectively.

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Balance at beginning of the period	$	970	337
Servicing rights capitalized		274	159
Amortization of servicing rights		(67)	(19)
Change in valuation allowance		(17)	(8)
Balance at end of the period	$	1,160	469

21

Table of Contents

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


	Three Months Ended March 31,
(dollars in thousands)	2021		2020
Valuation allowance, beginning of period	$	(39)	(26)
Impairment		(17)	(8)
Recovery		—	—
Valuation allowance, end of period	$	(56)	(34)

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 March 31, 2021, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 14.09%, and a discount rate equal to 6.90%. At December 31, 2020, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.73%, and a discount rate equal to 8.33%.

At March 31, 2021 and December 31, 2020, the sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.



(dollars in thousands)	March 31, 2021		December 31, 2020
Fair value of SBA loan servicing rights	$	1,234	$	1,010

Weighted average life (years)		3.6		3.7

Prepayment speed		14.09%		12.73%
Impact on fair value:
10% adverse change	$	(49)	$	(37)
20% adverse change		(94)		(71)

Discount rate		6.90%		8.33%
Impact on fair value:
10% adverse change	$	(32)	$	(25)
20% adverse change		(62)		(49)

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

22

Table of Contents

(8) Fair Value Measurements and Disclosures

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

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

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

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

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

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

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

Securities

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

Mortgage Loans Held for Sale

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

2023

Table of Contents

Mortgage Loans Held for Investment

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

Derivative Financial Instruments

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

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~2020 are as follows:

September 30, 2018
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Securities available for sale:

U.S. government agency mortgage-backed securities

$
24,215

—

24,215

—
U.S. government agency collateralized mortgage obligations

12,888

—

12,888

—
State and municipal securities

9,605

—

9,605

—
Investments in mutual funds and other equity securities

970

—

970

—
Mortgage loans held-for-sale

34,044

—

34,044

—
Mortgage loans held-for-investment

11,188

—

11,188

—
Interest rate lock commitments

200

—

—

200
Total

$
93,110

—

92,910

200


	December 31, 2017

						March 31, 2021
(dollars in thousands)	Total		Level 1	Level 2	Level 3	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities						$	27,230	—	27,230	—
U.S. government agency mortgage-backed securities	$	21,268	—	21,268	—		3,922	—	3,922	—
U.S. government agency collateralized mortgage obligations		7,778	—	7,778	—		23,519	—	23,519	—
State and municipal securities		9,959	—	9,959	—		72,648	—	72,648	—
Investments in mutual funds and other equity securities		1,001	—	1,001	—
Mortgage loans held-for-sale		35,024	—	35,024	—
Mortgage loans held-for-investment		9,972	—	9,972	—
U.S. Treasuries							1,916		1,916
Corporate bonds							4,930	—	4,930	—
Equity investments							1,013	—	1,013	—
Mortgage loans held for sale							170,248	—	170,248	—
Mortgage loans held for investment							13,590	—	13,590	—
Interest rate lock commitments		310	—	—	310		3,285	—	—	3,285
Forward commitments							1,832	—	1,832	—
Customer derivatives - interest rate swaps							151	—	151	—
Total	$	85,312	—	85,002	310	$	324,284	—	320,999	3,285

Liabilities
Interest rate lock commitments							890	—	—	890
Forward commitments							8	—	8	—
Customer derivatives - interest rate swaps							155	—	155	—
						$	1,053	—	163	890

~~For financial~~

24

Table of Contents


	December 31, 2020
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	25,592	—	25,592	—
U.S. government agency mortgage-backed securities		4,046	—	4,046	—
U.S. government agency collateralized mortgage obligations		23,909	—	23,909	—
State and municipal securities		65,810	—	65,810	—
Corporate bonds		4,205	—	4,205	—
Equity investments		1,031	—	1,031	—
Mortgage loans held for sale		229,199	—	229,199	—
Mortgage loans held for investment		12,182	—	12,182	—
Interest rate lock commitments		6,932	—	—	6,932
Forward commitments		—	—	—	—
Customer derivatives - interest rate swaps		1,118	—	1,118	—
Total	$	374,024	—	367,092	6,932

Liabilities
Interest rate lock commitments		100	—	—	100
Forward commitments		1,572	—	1,572	—
Customer derivatives - interest rate swaps		1,219	—	1,219	—
	$	2,891	—	2,791	100

Financial assets measured at fair value on a nonrecurring basis, are considered Level 3 assets in the fair value ~~measurements by level within the~~hierarchy. The fair value ~~hierarchy~~ used at ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~2020 are as follows:

September 30, 2018
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Impaired loans (2)

$
6,476

—

—

6,476
Other real estate owned (1)

—

—

—

—
Total

$
6,476

—

—

6,476


	March 31, 2021		December 31, 2020
(dollars in thousands)	Fair Value		Fair Value
Mortgage servicing rights	$	7,118	4,647
SBA loan servicing rights		1,160	970
Impaired loans ⁽¹⁾		3,550	2,998
Total	$	11,828	8,615

December 31, 2017
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Impaired loans (2)

$
4,685

—

—

4,685
Other real estate owned (1)

437

—

—

437
Total

$
5,122

—

—

5,122

(1)

~~(1)~~

Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. Appraised values may be discounted based on management’s expertise, historical knowledge, changes in market conditions from the time of valuation and/or estimated costs to sell.

~~(2)~~

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

values.

21

~~Table of Contents~~

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

~~(a)~~Cash and Cash Equivalents

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

~~(b)Securities~~25

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

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

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

~~(d)Loans~~ Receivable

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

~~(e)Mortgage Loans Held for Investment~~Loan Servicing Rights

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

~~(f)~~Impaired Loans

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

~~(g)Restricted Investment in Bank Stock~~

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

~~(h)~~Accrued Interest Receivable and Payable

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

22

~~Table of Contents~~

~~(i)~~Deposit Liabilities

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

~~(j)Short‑Term~~Short-Term Borrowings

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

~~(k)Long‑Term~~Long-Term Debt

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

~~(l)~~Subordinated Debt

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

~~(m)Off‑Balance~~26

Table of Contents

Off-Balance Sheet Financial Instruments

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

~~(n)Derivative Financial Instruments~~

~~The fair value~~ ~~of interest rate lock commitments is based on investor quotes which consider pull-through rates, while the fair value of forward commitments is based on market pricing.~~

23

~~Table of Contents~~

The estimated fair values of the Corporation’s financial instruments at ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~2020 are as follows:

September 30, 2018

December 31, 2017

Fair Value

Carrying

Carrying

(dollars in thousands)

Hierarchy Level

amount

Fair value

amount

Fair value
Financial assets:

Cash and cash equivalents

Level 1

$
25,823

25,823

35,506

35,506
Securities available-for-sale

Level 2

47,678

47,678

40,006

40,006
Securities held-to-maturity

Level 2

12,771

12,572

12,861

12,869
Mortgage loans held-for-sale

Level 2

34,044

34,044

35,024

35,024
Loans receivable, net

Level 3

787,889

780,958

677,956

669,852
Mortgage loans held-for-investment

Level 2

11,188

11,188

9,972

9,972
Interest rate lock commitments

Level 3

200

200

310

310
Forward commitments

Level 2

93

93

—

—
Restricted investment in bank stock

Level 3

4,581

4,581

6,814

6,814
Accrued interest receivable

Level 3

2,913

2,913

2,536

2,536
Financial liabilities:

Deposits

Level 2

781,927

775,300

627,109

626,635
Short-term borrowings

Level 2

43,755

43,755

99,750

99,750
Long-term debt

Level 2

6,444

6,458

8,863

8,865
Subordinated debentures

Level 2

9,308

9,241

13,308

12,883
Accrued interest payable

Level 2

353

353

216

216
Forward commitments

Level 2

—

—

75

75

Notional

Notional

Off-balance sheet financial instruments:



amount

Fair value

amount

Fair value
  Commitments to extend credit

Level 2

$
258,719

200

220,180

310
  Letters of credit

Level 2

2,529

—

1,809

—


		March 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	$	31,004	31,004	36,744	36,744
Securities available-for-sale	Level 2		134,165	134,165	123,562	123,562
Securities held-to-maturity	Level 2		6,476	6,772	6,510	6,857
Equity investments	Level 2		1,013	1,013	1,031	1,031
Mortgage loans held for sale	Level 2		170,248	170,248	229,199	229,199
Loans receivable, net of the allowance for loan and lease losses	Level 3		1,340,961	1,352,643	1,272,582	1,289,776
Mortgage loans held for investment	Level 2		13,590	13,590	12,182	12,182
Interest rate lock commitments	Level 3		3,285	3,285	6,932	6,932
Forward commitments	Level 2		1,832	1,832	—	—
Restricted investment in bank stock	NA		5,114	NA	7,861	NA
Accrued interest receivable	Level 3		5,567	5,567	5,482	5,482
Customer derivatives - interest rate swaps	Level 2		151	151	1,118	1,118
Financial liabilities:
Deposits	Level 2		1,383,590	1,470,200	1,241,335	1,392,500
Short-term borrowings	Level 2		26,376	26,376	106,862	106,862
Long-term debt	Level 2		122,884	124,450	165,546	168,000
Subordinated debentures	Level 2		40,701	41,479	40,671	38,375
Accrued interest payable	Level 2		743	743	1,154	1,154
Interest rate lock commitments	Level 3		890	890	100	100
Forward commitments	Level 2		8	8	1,572	1,572
Customer derivatives - interest rate swaps	Level 2		155	155	1,219	1,219

		Notional			Notional
Off-balance sheet financial instruments:		amount		Fair value	amount	Fair value
Commitments to extend credit	Level 2	$	445,536	3,285	421,399	6,932
Letters of credit	Level 2		8,730	—	8,928	—

The following table includes a rollforward of interest rate lock commitments for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three month peiods ended March 31, 2021 and 2020.


	Three Months Ended March 31,
	2021		2020
Balance at beginning of the period	$	6,932	504
(Decrease) increase in value		(3,647)	3,517
Balance at end of the period	$	3,285	4,021

27

Table of Contents

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

Significant

Fair Value

Unobservable

Range of

Weighted

Level 3

Valuation Technique

Input

Inputs

Average

March 31, 2021

$

3,285

Market comparable pricing

Pull through

1 - 99

%

89.79

%

December 31, 2020

6,932

Market comparable pricing

Pull through

1 - 99

83.08

Net realized losses of $4.4 million and net realized gains of $3.3 million due to changes in the fair value of interest rate lock commitments which are classified as Level 3 assets and liabilities for the three months ended March 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.

(9) Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

Mortgage Banking Derivatives

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

Customer Derivatives – Interest Rate Swaps

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

2428

Table of Contents

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

September 30, 2018

December 31, 2017

(dollars in thousands)
Notional
Amount

Asset
(Liability)
Fair Value

Notional
Amount

Asset
(Liability)
Fair Value

Interest Rate Lock Commitments

Positive fair values
$
32,445

284

38,574

344

Negative fair values

9,603

(84)

7,201

(34)

Net interest rate lock commitments

42,048

200

45,775

310

Forward Commitments

Positive fair values

25,000

107

6,500

5

Negative fair values

8,500

(14)

32,250

(80)

Net forward commitments

33,500

93

38,750

(75)

Net derivative fair value asset
$
75,548

293

84,525

235


		March 31, 2021			December 31, 2020
(dollars in thousands)	Balance Sheet Line Item	Notional Amount		Asset (Liability) Fair Value	Notional Amount	Asset (Liability) Fair Value
Interest Rate Lock Commitments
Positive fair values	Other assets	$	258,001	3,285	406,422	6,932
Negative fair values	Other liabilities		92,007	(890)	22,406	(100)
Total			350,008	2,395	428,828	6,832

Forward Commitments
Positive fair values	Other assets		161,000	1,832	—	—
Negative fair values	Other liabilities		32,500	(8)	218,000	(1,572)
Total			193,500	1,824	218,000	(1,572)

Customer Derivatives - Interest Rate Swaps
Positive fair values	Other assets		36,408	151	20,979	1,118
Negative fair values	Other liabilities		36,408	(155)	20,979	(1,219)
Total			72,816	(4)	41,958	(101)
Total derivative financial instruments		$	616,324	4,215	688,786	5,159

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

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

Three Months Ended September 30,

Nine Months Ended September 30,
(dollars in thousands)

2018

2017

2018

2017
Interest Rate Lock Commitments

$
(224)

(423)

(110)

(162)
Forward Commitments

294

(80)

169

47
Net fair value gains (losses) on derivative financial instrument

$
70

(503)

59

(115)


		Three Months Ended March 31,
(dollars in thousands)		2021	2020
Interest Rate Lock Commitments	$	(4,437)	3,342
Forward Commitments		3,396	(2,311)
Customer Derivatives - Interest Rate Swaps		97	(77)
Net fair value (losses) gains on derivative financial instruments	$	(944)	954

~~Realized gains/(losses)~~Net realized gains on derivatives were ~~($170 thousand) thousand and $278 thousand~~$4.3 million for the three months ended ~~September 30, 2018~~March 31, 2021 and ~~2017, respectively, and $534 thousand and $845 thousand~~net realized losses on derivatives were $1.4 million for the ~~nine~~three months ended ~~September 30, 2018 and 2017, respectively, and are included in other non-interest income in the unaudited consolidated statements of income.~~

March 31, 2020.

(10) Segments

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

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

25

~~Table of Contents~~

Meridian Wealth Partners (“Wealth”), is a registered investment advisor and wholly-owned subsidiary of the ~~Corporation,~~Bank, that provides a comprehensive array of wealth management services and products and the trusted guidance to help

29

Table of Contents

its clients and our banking customers prepare for the future. The unit generates non-interest income through advisory fees.

~~Meridian’s mortgage banking segment~~Meridian Mortgage (“Mortgage”) consists of ~~one central loan production facility and several retail and profit sharing~~16 loan production offices located throughout the Delaware ~~Valley.~~Valley and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production ~~including servicing~~ to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale. The unit also recognizes income from document preparation fees, changes in portfolio pipeline fair values and related net hedging gains.

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

Three Months Ended September 30, 2018

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

Bank

Wealth

Mortgage

Total

Bank

Wealth

Mortgage

Total
Net interest income

$
8,107

71

200

8,378

$
7,190

31

120

7,341
Provision for loan losses

(291)

—

—

(291)

(665)

—

—

(665)
Net interest income after provision

7,816

71

200

8,087

6,525

31

120

6,676

Non-interest Income

Mortgage banking income

105

—

8,169

8,274

67

—

9,837

9,904
Wealth management income

59

871

—

930

18

916

—

934
Net change in fair values

—

—

(333)

(333)

—

—

(547)

(547)
Other

363

—

(67)

296

353

—

(194)

159
Total non-interest income

527

871

7,769

9,167

438

916

9,096

10,450

Non-interest Expense

Salaries and employee benefits

3,264

445

5,192

8,901

3,237

411

6,682

10,330
Occupancy and equipment

521

29

370

920

575

26

391

992
Professional fees

590

9

115

714

394

5

82

481
Advertising and promotion

301

111

178

590

254

126

217

597
Other

1,259

314

1,055

2,628

1,238

198

1,176

2,612
Total non-interest expense

5,935

908

6,910

13,753

5,698

766

8,548

15,012

Operating Margin

$
2,408

34

1,059

3,501

$
1,265

181

668

2,114


	Segment Information
	Three Months Ended March 31, 2021					Three Months Ended March 31, 2020
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	14,500	(14)	634	15,120	$	9,518	(2)	150	9,666
Provision for loan losses		599	—	—	599		1,552	—	—	1,552
Net interest income after provision		13,901	(14)	634	14,521		7,966	(2)	150	8,114

Non-interest Income
Mortgage banking income		268	—	23,832	24,100		102	—	6,691	6,793
Wealth management income		—	1,136	—	1,136		—	1,021	—	1,021
SBA income		1,245	—	—	1,245		542	—	—	542
Net change in fair values		98	—	(5,011)	(4,913)		(65)	—	1,817	1,752
Net gain (loss) on hedging activity		—	—	4,261	4,261		—	—	(1,425)	(1,425)
Other		712	—	507	1,219		445	—	91	536
Non-interest income		2,323	1,136	23,589	27,048		1,024	1,021	7,174	9,219
Non-interest expense		8,932	895	18,436	28,263		6,937	788	6,337	14,062
Income before income taxes	$	7,292	227	5,787	13,306	$	2,053	231	987	3,271
Total Assets	$	1,578,721	6,092	159,164	1,743,977	$	1,192,882	5,337	105,223	1,303,442

2630

Table of Contents

Nine Months Ended September 30, 2018

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

Bank

Wealth

Mortgage

Total

Bank

Wealth

Mortgage

Total
Net interest income

$
23,597

217

402

24,216

$
20,733

70

302

21,105
Provision for loan losses

(1,258)

—

—

(1,258)

(1,445)

—

—

(1,445)
Net interest income after provision

22,339

217

402

22,958

19,288

70

302

19,660

Non-interest Income

Mortgage banking income

148

—

20,259

20,407

67

—

25,022

25,089
Wealth management income

149

2,847

—

2,996

233

1,672

—

1,905
Net change in fair values

—

—

(471)

(471)

—

—

100

100
Other

1,136

—

823

1,959

995

—

(567)

428
Total non-interest income

1,433

2,847

20,611

24,891

1,295

1,672

24,555

27,522

Non-interest Expense

Salaries and employee benefits

10,390

1,373

14,956

26,719

9,874

856

19,023

29,753
Occupancy and equipment

1,599

99

1,172

2,870

1,666

52

1,100

2,818
Professional feees

1,325

20

325

1,670

943

125

316

1,384
Advertising and promotion

917

319

566

1,802

746

205

586

1,537
Other

3,827

613

2,888

7,328

3,766

303

3,496

7,565
Total non-interest expense

18,058

2,424

19,907

40,389

16,995

1,541

24,521

43,057

Operating Margin

$
5,714

640

1,106

7,460

$
3,588

201

336

4,125

(11) ~~Recent Litigation~~Stockholders’ Equity

On ~~November 21, 2017, three former employees~~January 28, 2021, the Corporation announced that its Board of Directors declared a cash dividend of $0.125 per share, payable on February 22, 2021 to shareholders of record as of February 8, 2021. On February 16, 2021, the Corporation announced that its Board of Directors declared a special dividend of $1.00 per share. The special dividend was paid on March 15, 2021 to shareholders of record as of March 1, 2021. During the first quarter of 2021, the Corporation paid a quarterly dividend of $0.125 per share and the special dividend of $1.00 per share noted above.

On April 22, 2021, the Corporation’s Board of Directors declared a cash dividend of $0.125 per common share, payable on May 17, 2021 to shareholders of record as of May 10, 2021.

On April 26, 2021, the Corporation announced that its Board of Directors has authorized a stock repurchase plan pursuant to which the Corporation may repurchase up to $6 million of the ~~mortgage-banking division of the Bank filed suit in the United States District Court for the Eastern District of Pennsylvania,~~ ~~Juan Jordan et al. v. Meridian Bank, Thomas Campbell and Christopher Annas, against the Bank purporting to~~company’s outstanding common stock, par value $1.00 per share. Stock will be a class and collective action seeking unpaid and overtime wages under the Fair Labor Standards Act of 1938, the New Jersey Wage and Hour Law, and the Pennsylvania Minimum Wage Act of 1968 on behalf of similarly situated plaintiffs. In February 2018, the Bank answered the complaint and presented affirmative defenses. In March 2018, plaintiffs’ counsel and the Bank agreed to move forward with non-binding mediation. Although the Bank believes it has strong and meritorious defenses, given the uncertainty of litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success on the merits, the Bank has recorded a $200 thousand reserve as a reasonable estimate for possible losses that may result from this action. This estimate may changepurchased from time to time ~~and actual losses could vary.~~in the open market or through privately negotiated transactions, or otherwise, at the discretion of management of the company in accordance with legal requirements. This program is subject to applicable regulatory protocol.

(12) Recent Accounting Pronouncements

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), ~~Meridian Corporation~~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, (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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~~FASB Accounting Standards Update (“ASU”) No. 2014‑09 (Topic 606), “Revenue from Contracts with Customers”~~

Issued in May 2014, ASU 2014‑09 will require an entity to recognize revenue when it transfers promised goods or services to customers using a five-step model that requires entities to exercise judgment when considering the terms of the contracts. In August 2015, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2015‑14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. This amendment defers the effective date of ASU 2014‑09 by one year. In March 2016, the FASB issued ASU 2016‑ 08”, “Principal versus Agent Considerations (Reporting Gross versus Net),” which amends the principal versus agent guidance and clarifies that the analysis must focus on whether the entity has control of the goods or services before they are transferred to the customer. In addition, the FASB issued ASU Nos. 2016‑20, “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers” and 2016‑12, “Narrow-Scope Improvements and Practical Expedients”, both of which provide additional clarification of certain provisions in Topic 606. These Accounting Standards Codification (“ASC”) updates are effective for public companies for annual reporting periods beginning after December 15, 2017, but early adoption is permitted. Early adoption is permitted only as of annual reporting periods after December 15, 2016. The standard permits the use of either the ‘retrospective’ or ‘retrospectively with the cumulative effect’ transition method. For non-public companies, the ASC updates are effective for annual reporting periods beginning after December 15, 2018, and interim periods beginning after December 15, 2019. The Corporation expects to adopt ASU 2014-09 for the fiscal year ending December 31, 2019 and is evaluating all revenue streams, accounting policies, practices and reporting to identify and understand any impact on the Corporation’s Consolidated Financial Statements and related disclosures.

FASB ASU ~~2017‑04 (Topic 350), “Intangibles – Goodwill and Others”~~

Issued in January 2017, ASU 2017‑04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. ASU 2017‑04 is effective for public companies for annual periods beginning after December 15, 2019 including interim periods within those periods. ASU 2017‑04 is effective for non-public companies for annual periods beginning after December 15, 2021 including interim periods within those periods. The Corporation is evaluating the effect that ASU 2017‑04 will have on its consolidated financial statements and related disclosures.

~~FASB ASU 2017‑01 (Topic 805), “Business Combinations”~~

Issued in January 2017, ASU 2017‑01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017‑01 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those periods, while for non-public companies the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The Corporation is evaluating the effect that ASU 2017‑01 will have on its consolidated financial statements and related disclosures.

~~FASB ASU 2016‑15 (Topic 320), “Classification of Certain Cash Receipts and Cash Payments”~~

Issued in August 2016, ASU 2016‑15 provides guidance on eight specific cash flow issues and their disclosure in the consolidated statements of cash flows. The issues addressed include debt prepayment, settlement of zero-coupon debt, contingent consideration in business combinations, proceeds from settlement of insurance claims, proceeds from settlement of BOLI, distributions received from equity method investees, beneficial interests in securitization transactions, and separately identifiable cash flows and application of the Predominance principle. ASU 2016‑15 is effective for public companies for the annual and interim periods in fiscal years beginning after December 15, 2017, with early adoption permitted. For non-public companies ASU 2016‑15 is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Corporation

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~~is evaluating the impact of this guidance and does not anticipate a material impact on its consolidated financial statements.~~

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

Issued in June 2016, ASU ~~2016‑13~~2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. ~~The new~~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 ~~model will require companies to immediately recognize an estimate of~~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 ~~occur over~~inform credit loss estimates. An entity should apply the ~~remaining life~~amendments through a cumulative-effect adjustment to retained earnings as of the ~~financial assets that are in the scope~~beginning of the ~~standard. The ASU also makes targeted amendments to~~first reporting period in which the ~~current impairment model for available-for-sale debt securities. ASU 2016‑13~~guidance is effective (modified retrospective approach). Acquired credit impaired loans for ~~public companies~~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 ~~annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted. For non-public companies~~implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU ~~is effective for fiscal years beginning after December 15, 2020, and interim periods within the fiscal years beginning after December 31, 2021.~~will be January 1, 2023. The Corporation is ~~evaluating~~currently determining under which method we

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will adopt this ASU. The Corporation has assembled a cross-functional team from Finance, Credit, and IT that is leading the ~~effect that ASU 2016‑13 will have~~implementation efforts to evaluate the impact of this guidance on ~~its~~the Corporation's consolidated financial statements and related ~~disclosures.~~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 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~~2016-02 (Topic 842), ~~“Leases��~~“Leases”

Issued in February 2016, ASU ~~2016‑02~~2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ~~ASU 2016‑02 is effective for public companies~~In June 2020, the FASB approved a delay for the ~~first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. For non-public companies~~implementation of the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within the fiscal years beginning after December 31, 2020. In July 2018 ASU 2018-11 was issued which creates a new, optional transition method for implementing ASU 2016-02 and a lessor practical expedient for separating lease and non-lease components and has the same effective date as ASU 2016-02. Under the optional transition method of ASU 2018-11, the Corporation may initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Corporation is evaluating the effects that ASU 2016‑02 and ASU 2018-11 will have on its consolidated financial statements and related disclosures.

~~FASB ASU 2016‑01 (Subtopic 825‑10), “Financial Instruments – Overall, Recognition and Measurement of Financial Assets and Financial Liabilities”~~

Issued in January 2016, ASU 2016‑01 provides that equity investments will be measured at fair value with changes in fair value recognized in net income. When fair value is not readily determinable, an entity may elect to measure the equity investment at cost, minus impairment, plus or minus any change in the investment’s observable price. For financial liabilities that are measured at fair value, the amendment requires an entity to present separately, in other comprehensive income, any change in fair value resulting from a change in instrument-specific credit risk. For public companies, ASU 2016‑01 will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For non-public companies the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within the fiscal years beginning after December 31, 2019. Early adoption is permitted. Entities may apply this guidance on a prospective or retrospective basis. ASU 2018‑03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825‑10) clarifies certain aspects of ASU 2016‑01 and has the same effective dates for non-public companies. The Corporation is evaluating the effects that ASU 2016‑01 and ASU 2018‑03 will have on its consolidated financial statements and related disclosures.

~~FASB ASU 2017‑08 (Subtopic 310‑20), “Nonrefundable Fees and Other Costs (Subtopic 310‑20): Premium Amortization on Purchased Callable Debt Securities”~~

Issued in March 2017, ASU 2017‑08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities,ASU. Accordingly, the amendments in this update are effective for ~~fiscal years, and~~

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~~interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. For non-public companies~~ the ~~ASU is effective~~Corporation for fiscal years beginning after December 15, ~~2019,~~2021, and interim periods within ~~the~~ fiscal years beginning after December ~~31, 2020.~~15, 2022. Under ASU 2016-02, the Corporation will recognize a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition, which will increase the Corporation’s assets and liabilities. The Corporation is evaluating ~~the effect that~~other potential impacts of ASU ~~2017‑08 will have~~2016-02 on its consolidated financial statements.

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

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

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

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

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FASB ASU ~~2017‑12 (Subtopic 815), “Derivatives and Hedging: Targeted Improvements to~~2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for ~~Hedging Activities”~~Income Taxes”

Issued in ~~August 2017,~~December 2019, ASU ~~2017‑12 better aligns hedge~~2019-12 adds new guidance to simplify accounting ~~with an organization’s risk management activities in~~for income taxes, changes the ~~financial statements. In addition,~~accounting for certain income tax transactions and makes minor improvements to the ~~ASU simplifies the application of hedge accounting~~codification. The guidance in areas where practice issues exist. Specifically, the proposed ASU eases the requirements for effectiveness testing, hedge documentation and application of the shortcut and the critical terms match methods. Entities would be permitted to designate contractually specified components as the hedged risk in a cash flow hedge involving the purchase or sale of nonfinancial assets or variable rate financial instruments. In addition, entities would no longer separately measure and report hedge ineffectiveness. Also, entities, may choose refined measurement techniques to determine the changes in fair value of the hedged item in fair value hedges of benchmark interest rate risk. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interimannual periods beginning after December 15, 2020. Early ~~application~~adoption is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

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

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models.For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, ~~in any interim period~~but no earlier than for fiscal years beginning after issuance of the ASU for existing hedging relationships on the date of adoption and the effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date). The Corporation has evaluated ASU 2017‑12, and has determined it has no hedging strategies for which it plans to implement the ASU but we will consider the impact of the ASU on future hedging strategies that may arise.Dec. 15, 2020.

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

You should read the following discussion and analysis in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this Quarterly Report on Form ~~10‑Q~~10-Q and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, ~~2017 (the “2017 10‑K”)~~2020 included in Meridian ~~Bank’s~~Corporation’s Annual Report on Form ~~10‑K~~10-K filed with the ~~Federal Deposit Insurance Corporation~~Securities and Exchange Commission (the ~~“FDIC”~~“SEC”).

Cautionary Statement Regarding Forward-Looking Statements

Meridian Corporation (the “Corporation”) may from time to time make written or oral “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Meridian Corporation’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Meridian Corporation’s control). Numerous competitive, economic, regulatory, legal and technological factors, risks and uncertainties including, without limitation: the impact of the current COVID-19 pandemic and government responses thereto, on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; and the risk that the Small Business Administration may not fund some or all Paycheck Protection Program (PPP) loan guaranties, among others, could cause Meridian Corporation’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements. Meridian Corporation cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Meridian Corporation’s filings with the Securities and Exchange Commission, ~~and, for periods prior to the completion of the holding company reorganization, Meridian Bank’s filings with the FDIC,~~ including ~~Meridian Bank’s most recent annual report~~our Annual Report on Form 10-K for the year ended December 31, ~~2017,~~2020 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian

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Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.

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Recent Developments

Impacts of COVID-19

The COVID-19 pandemic continues to cause significant, unprecedented disruption that affects daily living and negatively impacts the economy. The current interest rate environment, borrower and counterparty credit quality and market volatility, among other factors, continue to impact our performance. Though we are unable to estimate the magnitude, we expect the pandemic and the resulting economic environment will continue to affect our future operating results.

Meridian was able to react quickly to the changes required by the pandemic because of the commitment and flexibility of its workforce coupled with well-prepared business continuity plans. While state and local governments have eased temporary business closures and we have opened our branches, we expect our colleagues who have been operating remotely to continue for a period of time. While the approved vaccines are being administered throughout our footprint, it remains unknown when, or if, there will be a return to historical norms of economic and social activity.

We continue to work with our customers to originate and renew business loans as well as originate loans made available through the Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”), a lending program established as part of the relief to American consumers and businesses in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). Several subsequent congressional acts have reopened and extended the PPP loan program. During the 2021 first quarter, we have processed over 797 applications totaling approximately $117 million under the reopened PPP.

Critical Accounting Policies, Judgments and Estimates

Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgements are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. While certain valuation assumptions and judgments will change to account for COVID-19 pandemic-related circumstances such as widening credit spreads, the Corporation does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.In particular, management has identified ~~several~~the provision and allowance for loan losses as the accounting ~~policies~~policy that, due to the estimates, assumptions and judgements inherent in ~~those policies, are~~that policy, is critical in understanding our financial statements.

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

~~These~~This critical accounting ~~policies,~~policy, along with other significant accounting policies, are presented in in ~~Note~~Footnote 1 of the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, ~~2017~~2020 and ~~2016~~2019 included in the ~~2017 10‑K.~~Annual Report on Form 10-K.

~~Recent Acquisitions~~

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

Executive Overview

The following items highlight the Corporation’s results of operations for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2021, as compared to the same ~~periods~~period in ~~2017,~~2020, and the changes in its financial condition as of ~~September 30, 2018~~March 31, 2021 as compared to December 31, ~~2017.~~2020. More detailed information related to these highlights can be found in the sections that follow.

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Three Month Results of Operations

●Net income was $10.2 million or $1.65 per diluted share, an increase of $7.7 million, or 304.2%. The increase was driven by growth in the balance sheet, as well as growth in our fee producing divisions of mortgage, wealth and SBA.

●ROE and ROA were 30.06% and 2.43%, respectively, for the first quarter 2021, compared to 8.40% and 0.87%, respectively, for the first quarter 2020.

●Pre-tax, pre-provision income (a non-GAAP measure) for the first quarter of 2021 was $13.9 million, an increase of $9.1 million or 188.3%. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section below.

●Total revenue was $44.5 million, an increase of $21.5 million or 93.4%.

●Net interest income increased $5.5 million, or 56.4%, with interest expense down $1.8 million or 43.5%.

●Non-interest income increased $17.8 million or 193.4%, driven by mortgage banking revenue, wealth management income, SBA income, gains on security sales and other fee income.

·

o

~~Net income for common stockholders for the three months ended September 30, 2018 was $2.7~~Mortgage banking net revenue increased $17.3 million, or ~~$0.42 per diluted share, an increase~~254.8%, due to higher levels of ~~$1.6~~originations and refinancings, largely derived from the expansion of our mortgage division into Maryland. Net gains on hedging activity increased $5.7 million, ~~as compared to net income of $1.1 million for the same period~~while negative fair value changes in ~~2017.~~

loans and derivative instruments were $6.6 million.

·

o

~~Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended September 30, 2018 were 10.16% and 1.16%, respectively.~~

Wealth management income was up $115 thousand, or 11.3%.

·

o

SBA income was up $703 thousand, or 129.7% as the number and value of SBA loans sold increased from the prior year.

~~Net interest~~o

Gains on sales of securities were up $48 thousand, or 100.0%.

o

Other fee income increased ~~$1.1 million,~~$634 thousand, or ~~14.1%, to $8.4 million for the three months ended September 30, 2018, as compared to $7.3 million for the same period in 2017.~~

144.4%.

·

●

Provision for loan ~~and lease~~ losses ~~(the “Provision”)~~was $599 thousand in the first quarter of ~~$291 thousand for~~2021 compared to $1.6 million in the ~~three months ended September 30, 2018 was a decrease~~first quarter of ~~$374 thousand from the $665 thousand Provision recorded for the same period in 2017.~~

2020.

·

●

Non-interest ~~income of $9.2 million for the three months ended September 30, 2018 was a $1.3~~expenses increased $14.2 million, or ~~12.3% decrease from the same period in 2017.~~

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·

~~Mortgage banking income decreased $1.6 million, or 16.5%~~101.0%, ~~to $8.3 million for the three months ended September 30, 2018, as compared to $9.9 million for the same period in 2017.~~

·

~~Non-interest expense of $13.8 million for the three months ended September 30, 2018 decreased $1.3 million, or 8.4%, from $15.0 million for the same period in 2017.~~

~~Nine Month Results of Operations~~

·

~~Net income for common stockholders for the nine months ended September 30, 2018 was $5.8 million, or $0.90 per diluted share,~~driven by an increase ~~of $3.9 million as compared to net income of $1.9 million for the same period~~ in ~~2017.~~

salaries and benefits.

·

~~ROE and ROA for the nine months ended September 30, 2018 were 7.47% and 0.87%, respectively.~~

·

~~Net interest income increased $3.1 million, or 14.7%, to $24.2 million for the nine months ended September 30, 2018, as compared to $21.1 million for the same period in 2017.~~

·

~~The Provision of $1.3 million for the nine months ended September 30, 2018 was a decrease of $200 thousand from the $1.5 million Provision recorded for the same period in 2017.~~

·

~~Non-interest income of $24.9 million for the nine months ended September 30, 2018 was a $2.6 million or 9.6% decrease from the same period in 2017.~~

·

~~Mortgage banking income decreased $4.7 million, or 18.7%, to $20.4 million for the nine months ended September 30, 2018, as compared to $25.1 million for the same period in 2017.~~

·

~~Non-interest expense of $40.4 million for the nine months ended September 30, 2018 decreased $2.7 million, or 6.3%, from $43.1 million for the same period in 2017.~~

Changes in Financial Condition

·

~~Total assets of $959.8 million as of September 30, 2018 increased $103.8 million, or 12.1%, from $856.0 million as of December 31, 2017.~~

●Total assets increased $23.8 million, or 1.4%, to $1.7 billion as of March 31, 2021.

·

~~Consolidated stockholders’ equity of $107.0 million as of September 30, 2018 increased $5.6 million from $101.4 million as of December 31, 2017.~~

●Total loans, net of allowance, increased $ 69.2 million, or 5.5%, to $1.3 billion as of March 31, 2021. SBA PPP loans contributed $27.0 million net to this increase, while portfolio loans increased $42.2 million, or 3.9%.

·

Total portfolio loans and leases, excluding mortgage loans held for sale, as of September 30, 2018 were $806.8 million, an increase of $112.2 million, or 16.1%, from $694.6 million as of December 31, 2017.

●Since the beginning of the COVID-19 pandemic, Meridian provided nearly 200 borrowers with assistance through loan payment holidays of 3-6 months on loans totaling approximately $166.6 million. As of March 31, 2021, $137.8 million of loans had returned to their original payment terms with $28.8 million in active loan modifications, compared to loan modifications of $26.9 million as of December 31, 2020. The increase in loan modifications in the first quarter of 2021 was due to a first loan modification provided to a borrower in the hospitality industry.

·

Total non-performing loans and leases of $2.9 million represented 0.36% of portfolio loans and leases as of September 30, 2018 as compared to $3.2 million, or 0.45% of portfolio loans and leases, as of December 31, 2017.

●As of March 31, 2021, we have assisted borrowers with the forgiveness of approximately 453 PPP “round 1” loans totaling approximately $88.9 million, while also helping borrowers to secure approximately 435 PPP “round 2” loans totaling approximately $92.6 million.

·

The $7.7 million allowance for loan losses (“Allowance’), as of September 30, 2018, represented 0.96% of portfolio loans and leases, as compared to $6.7 million, or 0.96% of portfolio loans and leases, as of December 31, 2017.

●Mortgage loans held for sale decreased $59.0 million, or 25.7%, to $170.2 million as of March 31, 2021.

·

~~Total deposits of $781.9 million as of September 30, 2018 increased $154.8 million, or 24.7%, from $627.1 million as of December 31, 2017.~~

●Mortgage segment originated $725.0 in loans for the quarter-ended March 31, 2021.

●Total deposits grew $142.3 million, or 11.5%, to $1.4 billion as of March 31, 2021.

●Non-interest bearing deposits grew $53.9 million, or 26.4%, to $257.7 million as of March 31, 2021.

●Borrowings from the Federal Reserve’s Paycheck Protection Program Liquidity Facility (“PPPLF”) were $110.6 million as of March 31, 2021, a decrease of $42.7 million from December 31, 2020. Other borrowings were down $80.5 million or 67.6%.

●Returned $6.9 million of capital to Meridian shareholders through a quarterly dividend of $0.125 and $1.00 special dividend, both paid during first quarter 2021.

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Key Performance Ratios

Key financial performance ratios for the three ~~and nine~~ months ended ~~September~~ ~~30, 2018~~March 31, 2021 and ~~2017~~2020 are shown in the table below:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017

													Three Months Ended
													March 31,
													2021			2020
Annualized return on average equity		10.16	%		7.77	%		7.47	%		5.24	%		30.06	%		8.40	%
Annualized return on average assets		1.16	%		0.70	%		0.87	%		0.49	%		2.43	%		0.87	%
Net interest margin (tax effected yield)		3.72	%		3.91	%		3.83	%		3.94	%		3.72	%		3.49	%
Basic earnings per share	$	0.43		$	0.30		$	0.91		$	0.51		$	1.70		$	0.39
Diluted earnings per share	$	0.42		$	0.30		$	0.90		$	0.51		$	1.65		$	0.39

The following table presents certain key period-end balances and ratios as of ~~September~~ ~~30, 2018~~March 31, 2021 and December 31, ~~2017:~~2020:


	March 31,			December 31,
(dollars in thousands, except per share amounts)	2021			2020
Book value per common share	$	23.27		$	23.08
Tangible book value per common share (1)	$	22.55		$	22.35
Allowance as a percentage of loans and leases held for investment		1.36	%		1.38	%
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)		1.65	%		1.65	%
Tier I capital to risk weighted assets		9.90	%		10.22	%
Tangible common equity ratio (1)		7.99	%		7.99	%
Loans held for investment	$	1,354,551		$	1,284,764
Total assets	$	1,743,977		$	1,720,197
Stockholders' equity	$	143,505		$	141,622

September 30,

December 31,

(dollars in thousands, except per share amounts)

2018

2017

Book value per common share

$
16.70

$
15.86

Tangible book value per common share

$
15.91

$
15.00

Allowance as a percentage of loans and leases held for investment

0.96
%

0.96
%
Tier I capital to risk weighted assets

12.03
%

12.86
%
Tangible common equity ratio (1)

10.67
%

11.27
%
Loans held for investment

$
806,788

$
694,637

Total assets

$
959,829

$
856,035

Stockholders' equity

$
107,018

$
101,363

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

~~(1)~~

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

Non-GAAP Financial Measures

~~Included~~Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate performance trends and the adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in ~~this Quarterly Report on Form 10‑Q~~accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is ~~a financial~~it necessarily comparable to non-GAAP performance ~~measure not recognized~~measures that may be presented by ~~GAAP, “tangible common equity”.~~ other companies.

Our management used the measure of the tangible common equity ratio to assess our capital strength. We believe that this non-GAAP financial measure is useful to investors because, by removing the impact of our goodwill and other intangible assets, it allows investors to more easily assess our capital adequacy. This non-GAAP financial measure should not be considered a substitute for any regulatory capital ratios and may not be comparable to other similarly titled measures used by other companies.

36

Table of Contents

The table below provides the non-GAAP reconciliation for our tangible common equity ~~ratio:~~ratio for Meridian Corporation:


	September 30,	December 31,


(dollars in thousands)	2018	2017	March 31, 2021		December 31, 2020
Tangbile common equity ratio:
Tangible common equity ratio:
Total stockholders' equity	107,018	101,363		143,505		141,622
Less:
Goodwill	899	899
Intangible assets	4,215	4,596
Goodwill and intangible assets				(4,432)		(4,500)
Tangible common equity	101,904	95,868		139,073		137,122
Total assets	959,829	856,035		1,743,977		1,720,197
Less:
Goodwill	899	899
Intangible assets	4,215	4,596
Goodwill and intangible assets				(4,432)		(4,500)
Tangible assets	954,715	850,540	$	1,739,545	$	1,715,697
Tangible common equity ratio	10.67%	11.27%		7.99%		7.99%

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


	2021		2020
Reconciliation of tangible book value per common share	March 31		December 31
Book value per common shares	$	23.27	$	23.08
Less: Impact of goodwill and intangible assets		0.72		0.73
Tangible book value per common share	$	22.55	$	22.35

The following is a reconciliation of the allowance for loan losses to total loans held for investment ratio for the three months ended March 31, 2021. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued and the impact of PPP loans as these loan types are not included in the allowance for loan losses calculation.


	2021		2020
Reconciliation of Allowance for Loan Losses / Total loans held for investment	March 31		December 31
Allowance for loan losses / Total loans held for investment		1.36%		1.38%
Less: Impact of loans held for investment - fair valued		0.00%		0.00%
Less: Impact of PPP loans		0.29%		0.27%
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)		1.65%		1.65%

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


(Dollars in thousands)	2021		2020
Reconciliation of pre-tax, pre-provision income	1st QTR		1st QTR
Income before income tax expense	$	13,306	$	3,271
Provision for loan losses		599		1,552
Pre-tax, pre-provision income	$	13,905	$	4,823

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The following sections discuss, in detail, the Corporation’s results of operations for the three ~~and nine~~ months ended ~~September~~ ~~30, 2018,~~March 31, 2021, as compared to the same ~~periods~~period in ~~2017,~~2020, and the changes in its financial condition as of ~~September~~ ~~30, 2018~~March 31, 2021 as compared to December 31, ~~2017.~~2020.

Components of Net Income

Net income is comprised of five major elements:

·

●

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

·

●

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

·

●

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

·

●

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

·

●

Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary, for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2021 and ~~2017,~~2020, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the results of net free funding sources such as ~~noninterest~~non-interest deposits and stockholders’ equity.

Total interest income for the three months ending ~~September 30, 2018~~March 31, 2021 was ~~$11.6~~$17.5 million, which represented a ~~$2.4~~$3.7 million, or ~~25.9%~~26.5%, increase compared with the three months ending ~~September 30, 2017.~~March 31, 2020. The increase in interest income was attributable to a ~~$147.1~~$539.6 million increase in average interest earning assets, year over year, ~~helped~~led by anthe $212.0 million increase in average balances on PPP loans, offset by a decrease of 2369 basis points in yield on earning assets, to ~~5.12%~~4.29% from ~~4.89%~~4.98%, for same period in ~~2017.~~2020. The commercial loan portfolio yield, ~~in particular, rose 31~~shared national credit portfolio yield and the home equity loan portfolio yield fell 73, 144 and 85 basis points, respectively, over the same period in ~~2017.~~ 2020. Helping to lessen the impact of these yield decreases was an increased yield of 183 basis points in leases as our Meridian Equipment Finance (“MEF”) group has significantly increased lease originations year-over-year.

Total interest expense ~~rose $1.3~~declined $1.8 million or ~~72.7%~~43.5% to ~~$3.2~~$2.3 million for the ~~third quarter of 2018,~~three months ending March 31, 2021, compared with ~~$1.9~~$4.1 million for the ~~third quarter of 2017. The increase was primarily due~~three months ending March 31, 2020. While interest-bearing deposit balances increased $283.7 million from March 31, 2020 compared to ~~an increase in average interest bearing deposits of $114.4 million, year over year, as well as an overall increase of 60 basis points in~~March 31, 2021, the cost of all deposit types declined sharply over this period. The cost of interest-bearing ~~funds reflective~~deposits declined 94 basis points. The cost of money market and savings deposits declined 85 basis points and the ~~overall~~cost of time deposits decreased by 132 basis points over the period. Contributing to the decline in interest expense on deposits over this period was the $96.9 million increase in ~~market rates.~~non-interest bearing deposits. Interest expense on borrowings declined $109 thousand or 12.5% to $765 thousand for the three months ended March 31, 2021. The average balance of borrowings increased $125.3 million due largely to PPPLF advances used to fund PPP loans, while the cost of borrowings declined 157 basis points over this period.

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Table of Contents

Net interest income increased ~~$1.1~~$5.5 million, or ~~14.1%~~56.4%, to ~~$8.4~~$15.1 million for the three months ended ~~September 30, 2018,~~March 31, 2021, compared to ~~$7.3~~$9.7 million for the three months ended ~~September 30, 2017.~~March 31, 2020. The net-interest margin ~~although strong, decreased 19~~increased 23 basis points for the ~~third quarter of 2018~~three months ending March 31, 2021 at 3.72%, compared with ~~3.91%~~3.49% for the ~~third quarter of 2017.~~three month ending March 31, 2020. The ~~decrease~~increase in net interest margin reflects declining interest rates paid on deposits and borrowings loan portfolios overall, out-pacing the ~~pressure from~~declines in the ~~rising cost of funds, which has outpaced the favorable trend in yield~~yields on interest earning assets during the quarter. The strength in the Corporation’s net-interest margin in the face of rising cost of funds reflects the size and asset quality of the loan portfolio, as well as the $20.8 million or 20.5% increase in average non-interest bearing depositsyear-over-year period ~~over period.~~

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

34

~~Table of Contents~~

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

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

Analyses of Interest Rates and Interest Differential

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


	2021					2020
			Interest					Interest
For the Three Months Ended March 31,	Average		Income/		Yields/	Average		Income/		Yields/
(dollars in thousands)	Balance		Expense		rates	Balance		Expense		rates
Assets
Interest-earning assets
Due from banks	$	13,647		2	0.09%	$	5,488		24	1.75%
Federal funds sold		17,791		1	0.02%		9,015		34	1.48%
Investment securities⁽¹⁾		135,612		688	2.06%		75,545		479	2.55%
Loans held for sale		173,664		1,131	2.61%		43,850		369	3.37%
Loans held for investment⁽¹⁾		1,314,077		15,695	4.84%		981,303		12,904	5.26%
Total loans		1,487,741		16,826	4.59%		1,025,153		13,273	5.51%
Total interest-earning assets		1,654,791		17,517	4.29%		1,115,201		13,810	4.98%
Noninterest earning assets		40,170					41,481
Total assets	$	1,694,961				$	1,156,682
Liabilities and stockholders' equity
Interest bearing liabilities
Interest-bearing deposits	$	224,362		298	0.54%	$	139,750		514	1.48%
Money market and savings deposits		577,472		829	0.58%		333,820		1,184	1.43%
Time deposits		271,416		439	0.66%		316,030		1,556	1.98%
Total deposits		1,073,250		1,566	0.59%		789,600		3,254	1.66%
Short-term borrowings		54,806		61	0.45%		53,015		258	1.96%
Long-term borrowings		128,530		111	0.35%		5,023		24	1.92%
Total Borrowings		183,336		172	0.38%		58,038		282	1.95%
Subordinated Debentures		40,682		593	5.83%		41,590		593	5.70%
Total interest-bearing liabilities		1,297,268		2,331	0.73%		889,228		4,129	1.87%
Non-interest bearing deposits		234,030					137,141
Other non-interest bearing liabilities		26,474					9,844
Total liabilities	$	1,557,772				$	1,036,213
Total stockholders' equity		137,189					120,469
Total stockholders' equity and liabilities	$	1,694,961				$	1,156,682
Net interest income ⁽¹⁾			$	15,186				$	9,681
Net interest spread ⁽¹⁾					3.56%					3.11%
Net interest margin ⁽¹⁾					3.72%					3.49%

2018

2017

Interest

Interest

For the Three Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
5,872

28

1.89%

$
3,642

11

1.20%
Federal funds sold

477

2

1.87%

945

3

1.26%
Investment securities(1)

57,574

350

2.41%

50,774

292

2.28%
Loans held for sale

39,847

462

4.64%

33,816

333

3.91%
Loans held for investment(1)

791,914

10,758

5.36%

659,430

8,596

5.17%
Total loans

831,761

11,220

5.33%

693,246

8,929

5.11%
Total interst-earning assets

895,684

11,600

5.12%

748,607

9,235

4.89%
Noninterest earning assets

40,645

40,051

Total assets

$
936,329

$
788,658

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
104,857

351

1.33%

$
83,165

135

0.64%
Money market and savings deposits

238,086

919

1.53%

214,956

499

0.92%
Time deposits

257,250

1,215

1.87%

187,642

573

1.21%
Total deposits

600,193

2,485

1.64%

485,763

1,207

0.99%
Short-term borrowings

85,026

491

2.29%

95,669

326

1.35%
Long-term borrowings

6,650

48

2.86%

12,388

74

2.37%
Total Borrowings

91,676

539

2.33%

108,057

400

1.47%
Subordinated Debentures

9,308

171

7.30%

13,376

244

7.24%
Total interest-bearing liabilities

701,177

3,195

1.81%

607,196

1,851

1.21%
Noninterest-bearing deposits

122,454

101,611

Other noninterest-bearing liabilities

6,193

8,472

Total liabilities

$
829,824

$
717,279

Total stockholders' equity

106,505

71,379

Total stockholders' equity and liabilities

$
936,329

$
788,658

Net interest income

$
8,405

$
7,384

Net interest spread

3.31%

3.68%
Net interest margin

3.72%

3.91%

(1)

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

3539

Table of Contents

2018

2017

Interest

Interest

For the Nine Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
5,175

64

1.66%

$
6,765

49

0.97%
Federal funds sold

784

11

1.89%

836

6

0.96%
Investment securities(1)

54,144

958

2.37%

49,526

828

2.24%
Loans held for sale

31,074

1,017

4.36%

28,419

833

3.92%
Loans held for investment(1)

755,925

30,209

5.28%

634,951

24,329

5.12%
Total loans

786,999

31,226

5.28%

663,370

25,162

5.07%
Total interst-earning assets

847,102

32,259

5.07%

720,497

26,045

4.83%
Noninterest earning assets

41,393

34,340

Total assets

$
888,495

$
754,837

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
103,623

851

1.10%

$
76,618

304

0.53%
Money market and savings deposits

228,107

2,212

1.30%

210,593

1,356

0.86%
Time deposits

247,244

3,109

1.68%

177,215

1,418

1.07%
Total deposits

578,974

6,172

1.43%

464,426

3,078

0.89%
Short-term borrowings

70,959

1,123

2.12%

88,711

788

1.19%
Long-term borrowings

6,720

142

2.83%

12,650

215

2.27%
Total Borrowings

77,679

1,265

2.18%

101,361

1,003

1.32%
Subordinated Debentures

9,527

525

7.37%

13,376

725

7.25%
Total interest-bearing liabilities

666,180

7,962

1.60%

579,163

4,806

1.11%
Noninterest-bearing deposits

112,616

99,001

Other noninterest-bearing liabilities

5,895

6,731

Total liabilities

$
784,691

$
684,895

Total stockholders' equity

103,804

69,942

Total stockholders' equity and liabilities

$
888,495

$
754,837

Net interest income

$
24,297

$
21,239

Net interest spread

3.47%

3.72%
Net interest margin

3.83%

3.94%

~~(1)~~

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

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

The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2021 as compared to the same ~~periods~~period in ~~2017,~~2020, allocated by rate and

36

~~Table of Contents~~

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



	March 31, 2021 Compared to 2020
	Change in interest due to:
(dollars in thousands)	Rate		Volume	Total
Interest income:
Due from banks	$	(120)	98	(22)
Federal funds sold		(147)	114	(33)
Investment securities⁽¹⁾		(559)	768	209
Loans held for sale		(569)	1,331	762
Loans held for investment⁽¹⁾		(6,101)	8,892	2,791
Total loans		(6,670)	10,223	3,553
Total interest income	$	(7,496)	11,203	3,707
Interest expense:
Interest bearing deposits	$	(1,394)	1,178	(216)
Money market and savings deposits		(3,282)	2,927	(355)
Time deposits		(922)	(195)	(1,117)
Total interest bearing deposits		(5,598)	3,910	(1,688)
Short-term borrowings		(256)	59	(197)
Long-term borrowings		(150)	237	87
Total borrowings		(406)	296	(110)
Subordinated debentures		53	(53)	—
Total interest expense		(5,951)	4,153	(1,798)
Interest differential	$	(1,545)	7,050	5,505

2018 Compared to 2017

Three Months Ended

Nine Months Ended

September 30,

September 30,
(dollars in thousands)

Rate

Volume

Total

Rate

Volume

Total
Interest income:

Due from banks

$
8

9

17

$
35

(20)

15
Federal funds sold

5

(6)

(1)

6

(1)

5
Investment securities(1)

17

41

58

49

81

130
Loans held for sale

66

63

129

101

83

184
Loans held for investment(1)

341

1,821

2,162

819

5,061

5,880
Total loans

407

1,884

2,291

920

5,144

6,064
Total interest income

$
437

1,928

2,365

$
1,008

5,206

6,214
Interest expense:

Interest checking

$
174

42

216

$
412

135

547
Money market and savings deposits

361

59

420

735

121

856
Time deposits

383

259

642

999

692

1,691
Total interest-bearing deposits

918

360

1,278

2,146

948

3,094
Short-term borrowings

390

(225)

165

603

(268)

335
Long-term borrowings

76

(102)

(26)

67

(140)

(73)
Total borrowings

466

(327)

139

670

(408)

262
Subordinated debentures

14

(87)

(73)

19

(219)

(200)
Total interest expense

1,398

(54)

1,344

2,836

320

3,156
Interest differential

$
(961)

1,982

1,021

$
(1,828)

4,886

3,058

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

For the three months ended ~~September 30, 2018~~March 31, 2021 as compared to the same period in ~~2017, the~~2020, tax-equivalent interest income increased $3.7 million as volume changes in average earning assets contributed $11.5 million and unfavorable rate changes reduced interest income by $7.8 million. The favorable change in ~~net~~ interest income due to volume changes was driven ~~largely~~mostly from growth in the ~~loan~~loans held for investment portfolio, which increased ~~$138.5~~$332.8 million on average over the three month ~~periods. This increase contributed $1.9~~periods, while the loans held for sale portfolio also increased $129.8 million toon average over this period. Within the loans held for investment portfolio, the average balance on PPP loans increased $212.0 million. Partially off-setting these favorable volume changes were unfavorable loan rate changes of 92 basis points reducing interest ~~income. Total investment securities, cash and cash equivalents were relatively flat, period over period.~~ income by $7.8 million.

On the funding side, interest ~~checking~~expense decreased $1.8 million due to the impact from rate declines which offset the impact from volume increases. The cost of deposits and borrowings were down across the board, having a $6.0 million positive effect on interest expense. The cost of interest-bearing deposits, money market and savings accounts and time deposits declined 94 basis points, 85 basis points and 132 basis points, respectively, while the cost of borrowings declined 157 basis points. Interest-bearing deposits, and money market and savings accounts ~~together rose $42.3~~increased $84.6 million, and $243.7 million on average, ~~reducing net interest income by $94 thousand. Time~~while time deposits ~~increased $72.1~~decreased $44.6 million on average, ~~causing an increase to interest expense of $259 thousand. Lower levels of~~and borrowings ~~down $16.4~~overall were up $125.3 million on average. These average ~~affected net interest income $327 thousand favorably, and lower levels of subordinated debt contributed $87 thousand~~balance changes led to ~~the net interest income over the three month periods compared.~~

~~For the three months ended September 30, 2018 as compared to the same period in 2017, the unfavorable change in net interest income due to rate changes was driven largely from the~~a $4.2 million increase in ~~cost of funds, particularly from wholesale funding such as borrowings and time deposits, which rose 86 and 65 basis points, respectively. Core deposits, such as~~ interest ~~checking and money market accounts rose 69 and 63 basis points, respectively. These unfavorable rate changes were partially offset by favorable rate changes in interest earning assets.~~ expense.

Overall, the increase in interest income from volume changes contributed ~~$2.0~~$11.5 million and out-paced the unfavorable rate changes to improve tax-equivalent net interest income by ~~$1.0~~$5.5 million.

~~For the nine months ended September 30, 2018 as compared~~40

Table of Contents

Simulations of net interest income. We use a simulation model on a quarterly basis to ~~the same period~~measure and evaluate potential changes in ~~2017, the favorable change in~~our net interest income ~~due~~resulting from various hypothetical interest rate scenarios. Our model incorporates various assumptions that management believes to ~~volume~~be reasonable, but which may have a significant impact on results such as:

●

The timing of changes in interest rates;

●

Shifts or rotations in the yield curve;

●

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

●

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

●

Varying timing of loan prepayments for different interest rate scenarios;

●

The effect of interest rate floors, periodic loan caps and lifetime loan caps;

●

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

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

Potential changes ~~was driven largely from growth in the loan portfolio, which increased $123.6 million on average over the nine month periods. This increase contributed $5.1 million~~ to interest income. Cash and cash equivalents were relatively flat, period over period, while investment securities average balances increased $4.6 million period over period. On the funding side, interest checking and money market accounts together rose $44.5 million on average, reducingour net interest income by $256 thousand. Time deposits increased $70.0 million on average, causing an increase to interest expense of $692 thousand. Lower levels of borrowings, down $23.7 million on average affected net interest income $408

37

~~Table of Contents~~

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

For the nine months ended September 30, 2018 as compared to the same period in 2017, the unfavorable change in net interest income due to rate changes was driven largely from the increase in cost of funds, particularly from wholesale funding such as borrowings and time deposits, which rose 86 and 61 basis points, respectively. Core deposits, such as interest checking and money market accounts rose 57 and 44 basis points, respectively. These unfavorable rate changes were partially offset by favorable rate changes in interest earning assets. Overall, the increase in interest income from volume changes contributed $4.9 million to interest income and out-paced the unfavorable rate changes to improve net interest income by $3.1 million.

~~Interest Rate Sensitivity~~

~~The Corporation actively manages its~~between a flat interest rate ~~sensitivity position. The objectives of~~scenario and hypothetical rising and declining interest rate ~~risk management~~scenarios, measured over a one-year period as of March 31, 2021 and 2020 are ~~to control exposure of net interest income to risks associated with interest rate movements and to achieve sustainable growth~~presented in ~~net interest income. The Corporation’s Asset Liability Committee (“ALCO”), using policies and procedures approved by~~ the Corporation’s Board of Directors, is responsible for the management of the Corporation’s interest rate sensitivity position. The Corporation manages interest rate sensitivity by changing the mix, pricing and re-pricing characteristics of its assets and liabilities, through the management of its investment portfolio, its offerings of loan and selected deposit terms and through wholesale funding. Wholesale funding consists of multiple sources including borrowings from the FHLB, the Federal Reserve Bank of Philadelphia’s discount window and certificates of deposit from institutional brokers, including the Certificate of Deposit Account Registry Service (“CDARS”), and listing services.

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

~~The~~ following ~~table demonstrates the annualized result of an interest rate simulation.~~table. The simulation assumes rate shifts occur upward and downward on the yield curve in even increments over the first twelve months (ramp), followed by rates held constant thereafter. We would note that starting in the first quarter of 2020 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%. ~~This simulation assumes that there is no growth in interest-earning assets or interest-bearing liabilities over~~Negative rates do impact the ~~next twelve months. The changes to~~ net interest income ~~shown below~~calculations, however there are floors in ~~compliance with~~place and they override the ~~Corporation’s policy guidelines.~~negative rates on applicable instruments.

~~Summary of Interest~~ Rate ~~Simulation~~Ramp

Change in Net Interest

Change in Net Interest

Income Over the Twelve

Income Over the Twelve

Months Beginning After

Months Beginning After

September 30, 2018

December 31, 2017

(dollars in thousands)

Amount

Percentage

Amount

Percentage

+300 basis points

$
206

0.65
%
$
1,561

5.29
%
+200 basis points

$
157

0.50
%
$
1,035

3.50
%
+100 basis points

$
93

0.29
%
$
518

1.75
%
-100 basis points

$
(237)

(0.75)
%
$
(601)

(2.04)
%


	Estimated increase
	(decrease) in Net Interest
	Income
	For the year ending
	March 31,
Changes in Market Interest Rates	2021		2020
+300 basis points over next 12 months	3.83	%	0.81	%
+200 basis points over next 12 months	2.28	%	0.21	%
+100 basis points over next 12 months	1.06	%	(0.08)	%
No Change
-100 basis points over next 12 months	(1.56)	%	(0.70)	%
-200 basis points over next 12 months	(5.01)	%	(3.35)	%

The above interest rate simulation suggests that the Corporation’s balance sheet is ~~slightly~~ asset sensitive as of ~~September 30, 2018 and December~~March 31, ~~2017. The~~2021. In its current position, the table indicates that a 100, 200 or 300 basis point increase in interest rates would have a ~~modestly~~ positive impact from rising rates on net interest income over the next 12 months. The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results continue to drive our funding strategy of increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.

Simulation of economic value of equity. To quantify the amount of capital required to absorb potential losses in value of our interest-earning assets and interest-bearing liabilities resulting from adverse market movements, we calculate economic value of equity on a quarterly basis. We define economic value of equity as the net present value of our balance sheet’s cash flow, and we calculate economic value of equity by discounting anticipated principal and interest cash flows under the prevailing and hypothetical interest rate environments. Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios, measured as of March 31, 2021 and 2020, are presented in the following table. The projections assume shifts upward and downward in the yield curve of 100, 200 and 300 basis points occurring immediately. We would note that starting in the first quarter of 2020 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%. Negative rates for this simulation mainly impacts the discount rate for the economic value calculation.

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Management has and continues to employ strategies to mitigate risk in these scenarios. Strategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans.



	Estimated increase (decrease) in Net
	Economic Value at March 31,
Changes in Market Interest Rates	2021		2020
+300 basis points	7	%	58	%
+200 basis points	4	%	47	%
+100 basis points	2	%	29	%
No Change
-100 basis points	(4)	%	(46)	%
-200 basis points	(13)	%	(117)	%

This economic value of equity profile at March 31, 2021 suggests that we would experience a positive effect from an increase in rates, and that the impact would become greater as rates continue to rise due to the duration of our interest-earning assets and conversely we would experience a negative effect from a decrease in rates. While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact. Since economic value of equity measures the discounted present value of cash flows over the estimated lives of instruments, the change in economic value of equity does not directly correlate to the degree that earnings would be impacted over a shorter time horizon.

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

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

Management has and continues to employ strategies to mitigate risk in the Net Interest Income and Economic Value simulations. Strategies include actively lowering deposit and funding rates, adding and maintaining interest rate floors on assets. Recent changes in interest rates and the yield curve, in addition to the strategies employed, have helped mitigate the impact in all rate scenarios and moved us to a more neutral positon over time.

Gap Analysis

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

42

Table of Contents

rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to decrease net interest income.

The following tables present the interest rate gap analysis of our assets and liabilities as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017.~~2020.


					Greater
					Than
					5 years and
As of March 31, 2021	12 Months				Not Rate
(dollars in thousands)	or Less		1-2 Years	2-5 Years	Sensitive	Total
Cash and investments	$	54,578	5,380	17,436	95,264	172,658
Loans (1)		1,060,791	173,452	257,746	14,434	1,506,423
Other Assets		—	—	—	64,896	64,896
Total Assets	$	1,115,369	178,832	275,182	174,594	1,743,977

Non-interest bearing deposits		8,489	8,197	23,796	217,248	257,730
Interest bearing deposits		836,092	—	—	—	836,092
Time deposits		193,967	43,173	52,628	—	289,768
Borrowings		26,376	57,467	65,417	—	149,260
Other Liabilities		—	—	169	67,453	67,622
Total stockholders' equity		—	—	—	143,505	143,505
Total liabilities and stockholders' equity	$	1,064,924	108,837	142,010	428,206	1,743,977

Repricing gap:
Positive (negative)	$	50,445	69,995	133,172	(253,612)	—
Cumulative repricing gap: Dollar amount	$	50,445	120,440	253,612	—
Percent of total assets		2.9%	6.9%	14.5%	—

As of September 30, 2018
(dollars in thousands)

12 Months
or Less

1-2 Years

2-5 Years

Greater Than 5
years and Not
Rate Sensitive

Total
Cash and investments

$
40,738

5,754

12,255

27,525

86,272
Loans, net (1)

450,571

90,119

242,404

50,027

833,121
Other Assets

—

—

—

40,436

40,436
Total Assets

491,309

95,873

254,659

117,988

959,829

Liabilities and Equity:

Noninterest-bearing deposits

16,566

9,080

16,852

82,057

124,555
Interest-bearing deposits

379,611

—

—

—

379,611
Time deposits

255,720

10,330

11,411

—

277,461
FHLB advances

43,755

5,000

—

—

48,755
Other Liabilities

1,444

—

—

20,985

22,429
Total stockholders' equity

—

—

—

107,018

107,018
Total liabilities and stockholders' equity

$
697,096

24,410

28,263

210,060

959,829
Repricing gap-positive

(Negative) Positive

$
(205,787)

71,463

226,396

(92,072)

—
Cumulative repricing gap: Dollar amount

$
(205,787)

(134,324)

92,072

—

Percent of total assets

(21.44)%

(13.99)%

9.59%

—

(1)

~~(1)~~

Loans include portfolio loans and loans held for sale


					Greater
					Than
					5 years and
As of December 31, 2020					Not Rate
(dollars in thousands)	12 Months		1-2 Years	2-5 Years	Sensitive	Total
Cash and investments	$	59,739	5,376	20,303	82,429	167,847
Loans (1)		1,041,269	199,978	226,594	10,588	1,478,429
Other Assets		—	—	—	73,921	73,921
Total Assets		1,101,008	205,354	246,897	166,938	1,720,197

Noninterest-bearing deposits		6,871	6,638	19,280	171,054	203,843
Interest-bearing deposits		779,195	—	—	—	779,195
Time deposits		197,649	41,533	19,115	—	258,297
Borrowings		106,862	165,546	—	—	272,408
Other Liabilities		—	—	169	64,663	64,832
Total stockholders' equity		—	—	—	141,622	141,622
Total liabilities and stockholders' equity	$	1,090,577	213,717	38,564	377,339	1,720,197

Repricing gap:
Positive (negative)		10,431	(8,363)	208,333	(210,401)	—
Cumulative repricing gap: Dollar amount	$	10,431	2,068	210,401	—
Percent of total assets		0.6%	0.1%	12.2%	—

39

~~Table of Contents~~

As of December 31, 2017
(dollars in thousands)

12 Months
or Less

1-2 Years

2-5 Years

Greater Than 5
years and Not
Rate Sensitive

Total
Cash and investments

$
26,648

7,475

8,523

52,542

95,188
Loans, net (1)

420,500

75,629

202,736

30,794

729,659
Other Assets

—

—

—

31,188

31,188
Total Assets

447,148

83,104

211,259

114,524

856,035

Liabilities and Equity:

Noninterest-bearing deposits

11,414

10,116

23,960

54,964

100,454
Interest-bearing deposits

253,664

27,291

27,292

—

308,247
Time deposits

159,808

52,830

5,770

—

218,408
FHLB advances

99,750

1,800

7,063

13,308

121,921
Other Liabilities

—

—

—

5,642

5,642
Total stockholders' equity

—

—

—

101,363

101,363
Total liabilities and stockholders' equity

$
524,636

92,037

64,085

175,277

856,035
Repricing gap-positive

(Negative) Positive

(77,488)

(8,933)

147,174

(60,753)

—
Cumulative repricing gap: Dollar amount

$
(77,488)

(86,421)

60,753

—

Percent of total assets

(9.05)%

(10.10)%

6.88%

—

(1)

~~(1)~~

Loans include portfolio loans and loans held for sale

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Table of Contents

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

PROVISION FOR LOAN AND LEASE LOSSES

For the three months ended ~~September 30, 2018,~~March 31, 2021, the Corporation recorded a ~~Provision~~provision for loan and lease losses (“Provision”) of ~~$291~~$599 thousand which was a ~~$374~~$953 thousand decrease from the same period in ~~2017. Net charge-offs for~~2020. For the three months ended ~~September 30, 2018~~March 31, 2021 there were ~~$29~~net recoveries of $10 thousand as compared to ~~$520~~net recoveries of $33 thousand for the same period in ~~2017.~~

~~For~~2020. While the ~~nine months ended September 30, 2018,~~Provisions recorded for both periods were impacted by qualitative provisioning for the ~~Corporation recorded~~economic uncertainty as a result of the COVID-19 pandemic, the first quarter 2021 Provision ~~of $1.3 million~~had less such impact as the first quarter 2020 Provision, which was ~~a $187 thousand decrease from~~developed right at the ~~same period in 2017. Net charge-offs for~~start of the ~~nine months ended September 30, 2018~~pandemic when economic factors were ~~$256 thousand as compared~~severely impacted, but to ~~$511 thousand of net charge-offs for the same period in 2017.~~date have recovered to some degree.

The ~~decreased~~ provision ~~over both~~for loan and lease losses could increase in future periods based on our belief that the ~~three~~credit quality of our loan portfolio could decline and ~~nine month periods was~~loan defaults could increase if the ~~result~~COVID-19 pandemic continues for a prolonged period of ~~strong asset quality and the lower level of net charge-offs.~~

40

~~Table of Contents~~

time.

Asset Quality and Analysis of Credit Risk

Asset quality remains strong despite the pressures that the COVID-19 pandemic has had on businesses and the economy locally and nationally. Meridian realized net charge-offs of 0.00% of total average loans for the quarter ending March 31, 2021, unchanged from the quarter ended December 31, 2020. Total non-performing assets, including loans and other real estate property, were $8.6 million as of September 30, 2018, evidenced by total nonperforming loans and leases having decreased by $300 thousand, to $2.9 million, representing 0.36% of loans and leases held-for-investment as of September 30, 2018,March 31, 2021, compared to ~~$3.2~~$7.9 million ~~or 0.45% of loans and leases held-for-investment,~~ as of December 31, ~~2017.~~2020. The ~~decrease~~ratio of non-performing assets to ~~nonperforming loans resulted from the pay-downs in the commercial and industrial portfolio as well as in the commercial construction portfolio.~~

~~The Allowance represented 0.96% of loans and leases held-for-investment,~~total assets as of ~~September 30, 2018 and December~~March 31, ~~2017. The Allowance~~2021 was 0.49% compared to ~~non-performing loans increased from 212.51%~~0.46% as of December 31, ~~2017~~2020. The ratio of allowance for loan losses to ~~263.89%~~total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure), was 1.65% as of ~~September 30, 2018.~~both March 31, 2021 and December 31, 2020. PPP loans are excluded from calculation of this ratio as they are guaranteed by the SBA and therefore we have not provided for in the allowance for loan losses. A reconciliation of this non-GAAP measure is included in the Appendix.

There were no properties in OREO as of March 31, 2021 and December 31, 2020.

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

~~As of September 30, 2018,~~2021, the Corporation had ~~$4.0~~$2.8 million of troubled debt restructurings (“TDRs”), of which ~~$3.5~~$2.5 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, ~~2017,~~2020, the Corporation had ~~$2.6~~$3.6 million of TDRs, of which ~~$1.9~~$3.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of ~~September 30, 2018,~~March 31, 2021, the Corporation had a recorded investment of ~~$6.5~~$10.2 million of impaired loans and leases which included ~~$4.0~~$2.8 million of TDRs.

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

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Table of Contents

Nonperforming Assets and Related Ratios


	As of
	March 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		919		859
Residential mortgage		2,715		2,725
Total real estate loans	$	3,634		6,645
Commercial and industrial		3,911		1,285
Small business loans		917
Leases		131		—
Total nonaccrual loans	$	8,593		7,930
Total non-performing loans	$	8,593		7,930
Total non-performing assets	$	8,593		7,930

Troubled debt restructurings:
TDRs included in non-performing loans		239		244
TDRs in compliance with modified terms		2,534		3,362
Total TDRs	$	2,773		3,606

Asset quality ratios:
Non-performing assets to total assets		0.49%		0.46%
Non-performing loans to:
Total loans and leases		0.56%		0.52%
Total loans held-for-investment		0.63%		0.62%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		0.77%		0.74%
Allowance for loan losses to:
Total loans and leases		1.21%		1.17%
Total loans held-for-investment		1.36%		1.38%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		1.65%		1.65%
Non-performing loans		213.83%		224.04%

Total loans and leases	$	1,524,799		1,513,963
Total loans and leases held-for-investment	$	1,354,551		1,284,764
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)	$	1,115,384		1,072,727
Allowance for loan and lease losses	$	18,376		17,767

As of

September 30,

December 31,
(dollars in thousands)

2018

2017
Non-performing assets:

Nonaccrual loans:

Real estate loans:

Commercial mortgage

$
494

$
414
Home equity lines and loans

85

137
Residential mortgage

2,151

1,084
Commercial construction

—

185
Total real estate loans

$
2,730

$
1,820
Commercial and industrial

192

1,326
Total nonaccrual loans

$
2,922

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

—

11
Other real estate owned

—

437
Total non-performing loans

$
2,922

3,157
Total non-performing assets

$
2,922

3,594

Troubled debt restructurings:

TDRs included in non-performing loans

554

741
TDRs in compliance with modified terms

3,463

1,900
Total TDRs

$
4,017

$
2,641

Asset quality ratios:

Non-performing assets to total assets

0.30%

0.42%
Non-performing loans to:

Total loans

0.35%

0.43%
Total loans held-for-investment

0.36%

0.45%
Allowance for loan losses to:

Total loans

0.92%

0.92%
Total loans held-for-investment

0.96%

0.96%
Non-performing loans

263.89%

212.51%

Total loans and leases

$
840,832

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

$
806,788

$
694,637
Allowance for loan and lease losses

$
7,711

$
6,709

(1) The allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” above for a reconciliation of this measure to its most comparable GAAP measure. PPP loans have only been excluded from this calculation as of March 31, 2021.

NON-INTEREST INCOME

Three Months Ended ~~September 30, 2018~~March 31, 2021 Compared to the Same Period in ~~2017~~2020

Total non-interest income for the ~~three months ended September 30, 2018~~first quarter of 2021 was ~~$9.2~~$27.1 million, ~~down $1.3~~up $17.8 million or ~~12.3%,~~193.4% from the comparable period in ~~2017. The~~2020. This overall ~~decrease~~increase in non-interest income came ~~primarily~~largely from our mortgage division. Mortgage banking net revenue ~~decreased~~increased $17.3 million or 254.8% over the ~~period~~first quarter of 2020. The significant increase in first quarter 2021 came from increased levels of mortgage loan originations due ~~primarily~~ to ~~lower margins, which decreased 50 basis points~~both the expansion of the division into Maryland as well as the favorable rate environment for refinance activity. Our mortgage division originated $724.7 million in loans during

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the first quarter of 2021, an increase of $469.9 million, or 184.6%, from the first quarter of 2020. Refinance activity represented 64% of the total loans originated for the ~~three month period.~~first quarter of 2021, compared to 61% for the first quarter of 2020. The ~~decline in mortgage banking revenue was offset slightly by a $214 thousand increase in~~ fair value ~~adjustments related~~of derivative instruments and loans held for sale decreased a combined $6.6 million over the period. Net hedging activity increased $5.7 million to ~~mortgage banking to ($333) thousand from ($547) thousand~~a net gain of $4.3 million for the ~~same period~~first quarter of 2021.

Non-interest income from the sales of SBA 7(a) loans increased $703 thousand as $13.0 million in ~~2017.~~loans were sold in the first quarter of 2021 compared to $10.3 million in loans sold in the first quarter of 2020. Wealth management revenue ~~was relatively flat for the three months ended September 30, 2018 compared to three months ended September 30, 2017.~~

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~~Nine Months Ended September 30, 2018 Compared~~increased $115 thousand year-over-year due to the ~~Same Period in 2017~~

~~Total non-interest~~favorable market conditions discussed above. Other fee income ~~for the nine months ended September 30, 2018~~ was ~~$24.9 million, down $2.6 million,~~up $634 thousand or ~~9.6%,~~144.4% from the ~~same~~first quarter of 2020 due to increases period ~~in 2017. The overall decrease in non-interest~~over period of $131 thousand on interest rate swap fee income, ~~came primarily from our mortgage division. Mortgage banking revenue decreased over the period due primarily to lower margins, which decreased 26 basis points for the nine month period. The decline~~$307 thousand in mortgage ~~banking revenue was offset slightly by hedging gains~~fee income, $111 thousand in wire transfer fee income, $38 thousand in title transfer fee income, and ~~fair value adjustments period over period. Realized gains on derivatives related to mortgage banking, included~~$95 thousand in other non-interest income, increased $1.3 million for the nine months ended September 30, 2018 to $534 thousand, compared to a loss of ($798) thousand for the same period in 2017. The increase in realized gains was offset somewhat by a $572 thousand decline in fair value adjustments related to mortgage banking to ($472) thousand from $100 thousand for the same period in 2017. Wealth management revenue was up $1.1 million for the nine months ended September 30, 2018 compared to the same period in 2017.fee income.

NON-INTEREST EXPENSE

Three Months Ended ~~September 30, 2018~~March 31, 2021 Compared to the Same Period in ~~2017~~2020

Total non-interest expense ~~was $13.8 million~~ for the ~~three months ended September 30, 2018, down $1.3~~first quarter of 2021 was $28.3 million, up $14.2 million or ~~8.4%~~101.0%, from ~~$15.0 million for~~ the ~~three months ended September 30, 2017.~~comparable period in 2020. The ~~decrease~~increase in non-interest expense is ~~mainly~~largely attributable to ~~a reduction~~an increase in salaries and employee benefits expense, which ~~decreased $1.4~~increased $12.3 million or ~~13.8%~~124.0%, ~~as full-time~~from the comparable period in 2020. Of this increase, $12.5 million relates to the mortgage division. Full-time equivalent employees, particularly in the mortgage division, ~~were reduced. In addition, variable loan expenses decreased $231 thousand or 23.1%, reflecting~~increased from the ~~lower level of~~prior year comparable quarter as we expanded our mortgage ~~originations.~~ division into Maryland.

Occupancy and equipment ~~data processing and advertising and promotion expenses were relatively flat for the comparable third quarters. Professional and consulting~~ expense ~~for the three months ended September 30, 2018 included $230 thousand in costs related to the formation of the holding company. Other expenses~~ increased ~~$454~~$228 thousand or ~~41.6%, related to a one-time fair market value adjustment of $177 thousand to contingent assets, as well as higher levels of other employee-related expenses, shares tax expense, and other expense.~~

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

~~Total non-interest expense was $40.4 million for the nine months ended September 30, 2018, down $2.7 million, or 6.2%~~24.7%, from the ~~same period in~~first quarter of 2020 as the ~~2017. The decrease is mainly attributable to a reduction in salaries and employee benefits~~result of rent expense ~~which decreased $3.0 million or 10.2%, as full-time equivalent employees, particularly in~~incurred at the seven loan production locations for our mortgage division ~~were reduced. In addition, variable loan expenses decreased $1.0 million~~expansion into Maryland. Professional fees increased $273 thousand or 34.8%, reflecting the lower level of mortgage originations. Occupancy and equipment, data processing and advertising and promotion expenses increased $52 thousand, $53 thousand, and $265 thousand, respectively, for the year-to-date period40.9% due largely to ~~new business locations. Professional~~an increase in consulting costs incurred on several IT related projects that Meridian has undertaken to improve efficiency and ~~consulting~~automation in processes, combined with an increase in audit and legal fees year over year as Meridian continues to grow.

Advertising and promotion expense ~~included $230~~increased $176 thousand, or 28.9%, from the comparable period in 2020. This increase was due to an increase in Meridian’s overall general marketing and advertising costs, in addition to an increase in marketing costs from our mortgage division. Data processing costs increased $272 thousand or 79.1%, from the first quarter of 2020 as the result of increased loan processing activity from our mortgage division, combined with processing activity relating to PPP loans. IT related costs increased $107 thousand due to increased software related costs as Meridian continues to grow and expand the ~~formation~~number of ~~the holding company.~~ technology platforms used to accommodate this growth.

Other non-interest expenses were up ~~$877~~$953 thousand, or ~~27.4% compared~~87.4%, from the comparable period in 2020, due largely to ~~the prior~~employee expenses for travel and client meetings, which have begun to open up. Additionally, as Meridian continues to grow as an organization in headcount, geographic footprint and services offered, certain non-interest expenses have increased year ~~period.~~over year, including insurance expense, postage and shipping costs, and communications costs. The overall increase ~~year-over-year related to amortization~~ of ~~intangible assets of $68~~$953 thousand ~~a one-time fair market value adjustment of $177 thousand to contingent assets, a $200 thousand reserve established for the open litigation as well as higher levels of~~in other ~~employee-related~~non-interest expenses ~~shares tax expense, up~~was also driven by ~~$45 thousand~~an increase in loan servicing and ~~$192 thousand, respectively.~~other volume based fees in our mortgage and commercial loan portfolios.

INCOME TAXES

Income tax expense for the three months ended ~~September 30, 2018~~March 31, 2021 was ~~$774 thousand,~~$3.1 million, as compared to ~~$716~~$755 thousand for the same period in ~~2017, despite the $1.3 million~~2020. The increase in ~~pre-tax~~ income tax expense was attributable to the increase in earnings, period over ~~this~~ period. Our effective tax rate was 22.1% for the third quarter of 2018 and 33.9% for the third quarter of 2017. The effective tax rate decreased primarily due to the reduction in the Federal statutory tax rate to 21% in 2018 from 34% in 2017, due to the enactment of the Tax Cuts and Jobs Act, which was effective January 1, 2018.

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

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23.6% for the first ~~nine months~~quarter of ~~2018 compared to 35.1%~~2021 and 23.1% for the first ~~nine months~~quarter of ~~2017. As noted above, the effective tax rate decreased primarily due to the reduction in the Federal statutory tax rate to 21% in 2018 from 34% in 2017, due to the enactment~~2020.

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Table of ~~the Tax Cuts and Jobs Act, which was effective January 1, 2018.~~Contents

BALANCE SHEET ANALYSIS

As of ~~September 30, 2018,~~March 31, 2021, total assets were ~~$959.8~~$1.7 billion, an increase of $23.8 million ~~compared with $856.0 million as of~~from December 31, ~~2017.~~2020. Total assets increased ~~$103.8~~$440.5 million, or ~~12.1%~~33.8%, ~~on a year-to-date basis~~from March 31, 2020 primarily due to strong loan ~~growth, partially offset by lower levels of cash.~~growth.

Total loans, ~~excluding mortgage loans held for sale,~~net of allowance, grew ~~$112.2~~$69.2 million, or ~~16.1%~~5.5%, to ~~$806.8 million~~$1.3 billion as of ~~September 30, 2018,~~March 31, 2021, from ~~$694.6 million~~$1.3 billion as of December 31, ~~2017.~~2020. The increase ~~in loans~~ is attributable partially to the $37.9 million net increase in PPP loans as of March 31, 2021. There was also growth in several commercial categories as we continue to grow our presence in the Philadelphia market area. Commercial real estate loans increased ~~$46.5~~$32.3 million, or ~~22.2%, during the first nine months of the year. Commercial real estate and commercial construction~~6.7% from December 31, 2020. Small business loans ~~combined~~ increased ~~$52.9~~$12.8 million, or ~~14.4%, during the first nine months of the year. Residential loans held~~26.0% from December 31, 2020, and leases increased $15.6 million as our MEF leasing team continues to grow at a rapid pace after starting up in ~~portfolio increased $18.0 million, or 55.2%, during the first nine months as certain loan products or terms were targeted to hold in portfolio.~~early 2020. Residential mortgage loans held for sale decreased ~~$980 thousand,~~$59.0 million, or ~~2.8%~~25.7%, to ~~$34.0~~$170.2 million as of ~~September 30, 2018~~March 31, 2021 from $229.2 million at December 31, ~~2017.~~2020.

~~Deposits~~Servicing assets were ~~$781.9~~$8.3 million as of ~~September 30, 2018,~~March 31, 2021, up ~~$154.8~~$2.7 million, or ~~24.7%~~47.4%, from December 31, ~~2017.~~2020. $7.2 million of this balance is comprised of mortgage servicing rights, while $1.1 million is comprised of SBA loan servicing assets. The increase in both servicing asset types was the result of the continued strong loan sales markets since December 31, 2021.

Deposits were $1.4 billion as of March 31, 2021, up $142.3 million, or 11.5%, from December 31, 2020. Non-interest bearing deposits increased ~~$24.4~~$53.9 million, or ~~24.3%~~26.4%, from December 31, ~~2017. New business relationships fueled the increases.~~2020. Interest-bearing checking accounts increased $37.3 million, or 18.0%, from December 31, 2020. Money market accounts/savings accounts increased ~~$49.9~~$19.6 million, or ~~22.0%,~~3.4% since December 31, ~~2017 while interest-bearing checking~~2020, driven by business money market accounts ~~increased $21.5 million, or 26.2%, during the year. Certificates~~and sweep accounts. Increases in core deposits were driven from loan customers as part of ~~deposit increased $59.1 million, or 27.0%, during the past nine months, paying off borrowings~~new business and municipal relationships and also as a result of ~~wholesale funds management~~the PPP loan process. Certificates of deposits increased $31.5 million, or 12.2%, from December 31, 2020.

Short-term borrowings were $26.4 million as of March 31, 2021, down $80.5 million, or 75.3%, from December, 31, 2020, while long-term debt was $122.9 million as of March 31, 2021, down $42.7 million, or 25.8%, from December 31, 2020. Short-term borrowings declined from December 31, 2020 to March 31, 2021, largely due to the increase in non-interest deposits noted above. As non-interest bearing deposits increased over this period, the ~~rising rate environment.~~ need for borrowings to fund loan growth, declined. The decline in long-term debt was due to a decrease in PPPLF advances, which were funding sources for PPP loans, as $64.7 of PPP loans from “round 1” were forgiven for the period ended March 31, 2021.

Capital

Consolidated ~~stockholder’s~~stockholders’ equity of the Corporation was ~~$107.0~~$143.5 million, or ~~11.15%~~8.2% of total assets as of ~~September 30, 2018,~~March 31, 2021, as compared to ~~$101.4~~$141.6 million, ~~or 11.84%~~also 8.2% of total assets as of December 31, ~~2017.At September 30, 2018,~~2020. The change in stockholders’ equity is the result of year-to-date net income of $10.2 million, partially offset by dividends of $6.9 million paid during the first quarter of 2021, which included a special dividend of $1 per share, in addition to the quarterly dividend of $0.125 per share. Net unrealized gains on available for sale investment securities declined by $1.9 million from December 31, 2020 to March 31, 2021 due to the changing interest rate environment over this period.

As of March 31, 2021, the Tier 1 leverage ratio was ~~11.02%,~~8.86% for the Corporation and 11.34% for the Bank, the Tier 1 risk-based capital and common equity ratios were ~~12.03%,~~9.90% for the Corporation and 12.66% for the Bank, and total risk-based capital was ~~14.03%. At December 31, 2017,~~14.05% for the ~~Tier 1 leverage ratio was 12.37%,~~Corporation and 14.03% for the ~~Tier 1 risk-based capital and~~Bank. Quarter-end numbers show a tangible common equity ~~ratios were 12.86%,~~to tangible assets ratio (a non-GAAP measure) of 7.99% for the Corporation and ~~total risk-based capital was 15.53%.~~10.22% for the Bank. A reconciliation of this non-GAAP measure is included in the Appendix. Tangible book value per share was ~~$15.91~~$22.55 as of ~~September 30, 2018,~~March 31, 2021, compared with ~~$15.00~~$22.35 as of December 31, ~~2017.~~2020.

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The following table presents the Corporation’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators as of ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017:~~2020:

September 30, 2018

To be well capitalized under

For capital adequacy

prompt corrective action

Actual

purposes *

provisions
(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)

$
119,825

14.03%

$
68,312

8.00%

$
85,389

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

102,688

12.03%

38,425

4.50%

55,503

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

102,688

12.03%

51,234

6.00%

68,312

8.00%
Tier 1 capital (to average assets)

102,688

11.02%

37,260

4.00%

46,575

5.00%


	March 31, 2021
				To Be Well Capitalized
	Actual			Under CBLR Framework
(dollars in thousands)	Amount		Ratio	Amount		Ratio
Tier 1 capital (to average assets)
Corporation	$	138,435	8.86%	$	124,958	8.00%
Bank		177,102	11.34%		124,959	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%

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December 31, 2017

To be well capitalized under

For capital adequacy

prompt corrective action

Actual

purposes *

provisions
(dollars in thousands):

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)

$
117,239

15.53%

$
60,376

8.00%

$
75,469

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

101,661

12.86%

33,961

4.50%

49,055

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

97,084

12.86%

45,282

6.00%

60,376

8.00%
Tier 1 capital (to average assets)

97,084

12.37%

31,582

4.00%

39,478

5.00%

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

~~The capital ratios for the Corporation, as of September 30, 2018, as shown in the above tables, indicate levels above~~Community banks have long raised concerns with bank regulators about the regulatory ~~minimum~~burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to ~~be considered “well capitalized.” The capital ratios~~establish a single "Community Bank Leverage Ratio" (“CBLR”) of between 8 and 10%. Under the final rule, a community banking organization is eligible to ~~risk-weighted~~elect the new framework if it has: less than $10 billion in total consolidated assets, ~~have all decreased from their December 31, 2017 levels largely~~limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the ~~increase in risk-weighted assets, much~~COVID-19 pandemic. During the first quarter of ~~which was in~~2020, the ~~commercial mortgage, construction, and commercial and industrial segments of~~Bank adopted the ~~loan portfolio, which are typically risk-weighted at 100%.~~CBLR framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.

Liquidity

Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Meridian’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization or that can be used as collateral to secure funding. In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of shared national credits (“SNCs”), which have a national market and can be sold in a timely manner. Meridian’s primary liquidity, which totaled ~~$133.9~~$341.6 million at ~~September 30, 2018,~~March 31, 2021, compared to ~~$125.9~~$408.8 million at December 31, ~~2017,~~2020, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities. Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.

In addition, Meridian maintains borrowing arrangements with various correspondent banks, the ~~Federal Home Loan Bank of Pittsburgh (“FHLB”)~~FHLB and the Federal Reserve Bank of Philadelphia ~~(Federal Reserve)~~ to meet short-term liquidity needs. Through its relationship at the Federal Reserve, Meridian had available credit of approximately ~~$10.7~~$10.1 million at ~~September 30, 2018.~~March 31, 2021. At March 31, 2021, Meridian had no borrowings from the Federal Reserve. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of ~~September 30, 2018,~~March 31, 2021, Meridian’s maximum borrowing capacity with the FHLB was ~~$432.8~~$546.7 million. At ~~September 30, 2018,~~March 31, 2021, Meridian had borrowed ~~$137.1~~$38.6 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling ~~$88.1~~$154 million against its available credit lines. At ~~September 30, 2018,~~March 31, 2021, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as ~~$95.9~~$259.8 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and ~~$124.7~~$182.4 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

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Discussion of Segments

As of ~~September 30, 2018,~~March 31, 2021, the Corporation has three principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking, Mortgage Banking and Wealth Management (see Note 10 in the accompanying Notes to Unaudited Consolidated Financial Statements).

The Banking Segment recorded ~~net~~ income before tax ~~(“operating margin”)~~ of ~~$2.4 million and $5.7~~$7.3 million for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2021, as compared to ~~operating margin~~income before tax of ~~$1.3 million and and $3.6~~$2.1 million for the same ~~respective periods~~period in 2017. Non-interest expense for both the three months and nine months ended September 30, 2018 includes $230 thousand in professional and consulting expense incurred related to the formation of the holding company.2020. The Banking Segment provided ~~68.8% and 76.6%~~54.8% of the ~~Bank’s~~Corporation’s pre-tax profit for the three ~~and~~

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~~Table of Contents~~

~~nine~~ month ~~periods~~period ended ~~September 30, 2018, respectively,~~March 31, 2021, as compared to ~~59.8% and 87.0%~~62.7% for the same ~~respective periods~~period in ~~2017.~~2020.

The Wealth Management Segment recorded ~~operating margin~~income before tax of ~~$34 thousand and $640~~$227 thousand for the three ~~and nine~~ months ended ~~September 30, 2018, respectively,~~March 31, 2021, as compared to ~~operating margin~~income before tax of ~~$181 thousand and $201~~$231 thousand for the same ~~respective periods~~period in 2017. Non-interest expense for both the three months and nine months ended September 30, 2018 includes the impact of the one-time fair market value adjustment of $177 thousand to contingent assets. Prior to our wealth management expansion due to the acquisition in April of 2017, revenue and expenses for wealth management services were immaterial and were included in the Banking Segment.2020.

The Mortgage Banking Segment recorded ~~operating margin~~income before tax of ~~$1.1~~$5.8 million for the three ~~and nine~~ months ended ~~September 30, 2018,~~March 31, 2021, as compared to ~~operating margins~~income before tax of ~~$668 thousand~~$1.0 million and ~~$335 thousand~~$1.0 million for the same ~~respective periods~~period in ~~2017.~~2020. Mortgage Banking income and expenses ~~decreased~~related to loan originations and sales increased due to ~~lower margins and~~higher origination volume.

Off Balance Sheet Risk

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at ~~September 30, 2018~~March 31, 2021 were ~~$261.2~~$445.5 million, as compared to ~~$220.2~~$421.4 million at December 31, ~~2017.~~2020.

Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at ~~September 30, 2018~~March 31, 2021 amounted to ~~$2.5~~$8.7 million, as compared to ~~$1.8~~$8.9 million at December 31, ~~2017.~~2020.

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

~~Recent Litigation~~

~~See “Part II, Item 1. Legal Proceedings” below for information~~In certain circumstances the Corporation may be required to repurchase loans from investors under the terms of loan sale agreements. Generally, these circumstances include the breach of representations and warranties made to investors regarding borrower default or early payment, as well as a ~~lawsuit filed in November 2017 against the Corporation.~~

~~Regulatory Update~~

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Mostviolation of the changes made by the Act can be grouped into five general areas: mortgage lending; certain regulatory relief for “community” banks; enhanced consumer protections in specific areas, including subjecting credit reporting agencies to additional requirements; certain regulatory relief for large financial institutions, including increasing the threshold at which institutions are classified a systemically important financial institutions (from $50 billion to $250 billion) and therefore subject to stricter oversight, and revising the rules for larger institution stress testing; and certain changes toapplicable federal, securities regulations designed to promote capital formation. Some of the key provisions of the Act as it relates to community banks and bank holding companies include, but are not limited to: (i) designating mortgages held in portfolio as “qualified mortgages” for banks with less than $10 billion in assets, subject to certain documentation and product limitations; (ii) exempting banks with less than $10 billion in assets from Volcker Rule requirements relating to proprietary trading; (iii) simplifying capital calculations for banks with less than $10 billion in assets by requiring federal

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~~Table of Contents~~

~~banking agencies to establish a community bank leverage ratio of tangible equity to average consolidate assets not less than 8%~~state, or more than 10% and provide that banks that maintain tangible equity in excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings.local lending laws. The Corporation ~~continues~~agrees to ~~analyze~~repurchase loans if the ~~changes implemented by~~representations and warranties made with respect to such loans are breached, and such breach has a material adverse effect on the ~~Act~~loans. Based on the obligations described above, the Corporation did not repurchase loans for the three months ended March 31, 2021, and ~~further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact~~repurchased 1 loan in the ~~Corporation’s business, operations, or financial results.~~amount of $154 thousand for the three months ended March 31, 2020.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

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

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Table of Contents

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~Management,~~Our management, with the participation of ~~the Corporation’s President~~our CEO and ~~Chief Executive Officer and its Chief Financial Officer,~~CFO, has evaluated the effectiveness of ~~the design and operation of the Corporation’s~~our disclosure controls and procedures ~~(as~~as defined in ~~Rule l3a-l5 (e) promulgated~~Rules 13a- 15(e) and 15d- 15(e) under the Exchange ~~Act)~~Act, as of ~~September 30, 2018.~~the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Corporation’s ~~President~~CEO and ~~Chief Executive Officer and Chief Financial Officer~~CFO have concluded that the Corporation’s disclosure controls and procedures ~~are~~were effective as of ~~September 30, 2018~~March 31, 2021 to ensure that the information required to be disclosed by the Corporation in the reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized, and reported completely and accurately within the time periods specified in SEC rules and forms.

Changes inInternal Control Over Financial Reporting

There was no change in the Corporation’s internal control over financial reporting identified during the quarter ended ~~September 30, 2018~~March 31, 2021 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II–OTHER INFORMATION

Item 1. Legal Proceedings.

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

Item 1A. Risk Factors.

There have been no material changes in the risk factors faced by the Corporation from those disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2020.

~~Not applicable.~~

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

~~None.~~

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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

Item 6. Exhibits.

The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page ~~49.~~52.

4851

Table of Contents

EXHIBIT INDEX

Exhibit Number		Description
2.1		Plan of Merger and Reorganization dated April 26, 2018 by and between Registrant, Bank and Meridian Interim Bank, filed as Exhibit 2.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.
3.1		Articles of Incorporation of Registrant, filed as Exhibit 3.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.
3.2		Bylaws of Registrant, filed as Exhibit 3.2 to Form 8-K on August 24, 2018 and incorporated herein by reference.
4.2		Indenture, dated as of December 18, 2019, between Meridian Corporation, as Issuer, and U.S. Bank National Association, as Trustee, incorporated by reference to Exhibit 4.1 of the Registrant's Form 8-K filed with the SEC on December 18, 2019.
4.3		Form of 5.375% Subordinated Note due 2029 (included as Exhibit A-1 and Exhibit A-2 to the Indenture incorporated by reference as Exhibit 4.2 hereto), filed with the SEC on December 18, 2019.
10.1		Meridian Bank 2016 Equity Incentive Plan, filed as Exhibit 10.1 of the Registration Statement on Form 10, filed with the FDIC on September 29, 2017 and incorporated herein by reference.
10.2		Employment Agreement between Meridian Bank and Christopher Annas, effective April 11, 2019, filed as Exhibit 10.1 to Form 8-K on April 11, 2019 and incorporated herein by reference.
10.3		Amendment to Meridian Corporation Supplemental Executive Retirement and Deferred Compensation Plan, filed as Exhibit 10.1 to Form 8-K on March 12, 2020 and incorporated herein by reference.
10.4		Meridian Bank Employee Stock Ownership Plan, filed as Exhibit 10.4 of the Registration Statement on Form 10, filed with the FDIC on September 29, 2017 and incorporated herein by reference.
10.5		Employment Agreement between Meridian Bank and Denise Lindsay, effective July 23, 2018, filed as Exhibit 10.2, to Form 8-K with the FDIC on July 23, 2018, and incorporated herein by reference.
10.6		Meridian Bank 2004 Stock Option Plan, as amended June 15, 2006, filed as Exhibit 10.6 to Form 10-K on March 29, 2021, and incorporated herein by reference.
10.7		Change in Control Agreement between Meridian Bank and Joseph Cafarchio, effective July 23, 2018, filed as Exhibit 10.1, to Form 8-K with the FDIC on July 23, 2018, and incorporated herein by reference.
10.8		Change in Control Agreement between Meridian Bank and Charlie Kochka, effective July 23, 2018, filed as Exhibit 10.1, to Form 8-K with the FDIC on July 23, 2018, and incorporated herein by reference.
10.9		Change in Control Agreement between Meridian Bank and Randy McGarry, effective November 2, 2018, and filed herewith.
31.1		Rule ~~13a‑14(a)~~13a-14(a)/ ~~15d‑14(a)~~15d-14(a) Certification of the Principal Executive Officer,, filed herewith.
31.2		Rule ~~13a‑14(a)~~13a-14(a)/ ~~15d‑14(a)~~15d-14(a) Certification of the Principal Financial Officer,, filed herewith.
32		Section 1350 Certifications,, filed herewith.
101.INS		XBRL Instance Document – The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104		Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

4952

Table of Contents

~~SIGNATURES~~

SIGNATURES

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

Date:	~~November~~May 14, ~~2018~~2021	Meridian ~~Bank~~Corporation

		By:	/s/ Christopher J. Annas
			Christopher J. Annas
			President and Chief Executive Officer
			(Principal Executive Officer)

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

5053

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


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

Large ~~accelerated filer~~ Accelerated Filer ☐	Accelerated ~~filer~~ Filer ☐

Non-accelerated ~~filer ☐~~ Filer ☒	Smaller ~~reporting company~~ Reporting Company ☒

Emerging ~~growth company~~ Growth Company ☒

PART I FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)	3

Consolidated Balance Sheets – ~~September 30, 2018~~March 31, 2021 and December 31, ~~2017~~2020	3

Consolidated Statements of Income – Three ~~and Nine~~ Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~2020	4

Consolidated Statements of Comprehensive Income – Three ~~and Nine~~ Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~2020	5

Consolidated Statements of Stockholders’ Equity – ~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~2020	6

Consolidated Statements of Cash Flows – ~~Nine~~Three Months Ended ~~September 30, 2018~~March 31, 2021 and ~~2017~~2020	7

Notes to Consolidated Financial Statements (Unaudited)	8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	3033

Item 3 Quantitative and Qualitative Disclosures about Market Risk	4749

Item 4 Controls and Procedures	4750

PART II OTHER INFORMATION

Item 1 Legal Proceedings	4851

Item 1A Risk Factors	4851

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	4851

Item 3 Defaults Upon Senior Securities	4851

Item 4 Mine Safety Disclosures	4851

Item 5 Other Information	4851

Item 6 Exhibits	4851

Signatures	5053


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


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

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


	September 30, 2018
	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
U.S. government agency mortgage-backed securities	$	11,483	(128)	9,702	(303)	21,185	(431)
U.S. government agency collateralized mortgage obligations		8,627	(102)	4,261	(169)	12,888	(271)
State and municipal securities		5,019	(112)	4,587	(229)	9,606	(341)
Investments in mutual funds and other equity securities		970	(30)	—	—	970	(30)
Total securities available-for-sale	$	26,099	(372)	18,550	(701)	44,649	(1,073)
Securities held-to-maturity:
U.S. Treasuries	$	1,950	(18)	—	—	1,950	(18)
State and municipal securities		6,537	(98)	2,211	(98)	8,748	(196)
Total securities held-to-maturity	$	8,487	(116)	2,211	(98)	10,698	(214)


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


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


						Total
			90+ days			Accruing	Nonaccrual	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		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	%


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


	At September 30, 2018					At December 31, 2017
					Average				Average
	Recorded		Principal	Related	recorded	Recorded	Principal	Related	recorded
(dollars in thousands)	investment		balance	allowance	investment	investment	balance	allowance	investment
Impaired loans with related allowance:
Commercial mortgage	$	—	—	—	—	—	—	—	—
Commercial and industrial		479	479	7	476	124	491	1	173
Home equity lines and loans		—	—	—	—	—	—	—	—
Residential mortgage		—	—	—	—	—	—	—	—
Construction		—	—	—	—	—	—	—	—
Total		479	479	7	476	124	491	1	173
Impaired loans without related allowance:
Commercial mortgage	$	1,703	2,136	—	1,698	1,534	2,025	—	1,537
Commercial and industrial		2,664	2,746	—	2,748	1,907	3,180	—	2,945
Home equity lines and loans		85	89	—	86	137	137	—	137
Residential mortgage		249	258	—	254	249	249	—	249
Construction		1,296	1,296	—	1,401	260	260	—	267
Total		5,997	6,525	—	6,187	4,087	5,851	—	5,135
Grand Total	$	6,476	7,004	7	6,663	4,211	6,342	1	5,308


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


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


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


	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2018		2017	2018	2017
Interest Rate Lock Commitments	$	(224)	(423)	(110)	(162)
Forward Commitments		294	(80)	169	47
Net fair value gains (losses) on derivative financial instrument	$	70	(503)	59	(115)


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

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

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

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


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

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

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

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


	September 30,			December 31,
(dollars in thousands, except per share amounts)	2018			2017
Book value per common share	$	16.70		$	15.86
Tangible book value per common share	$	15.91		$	15.00
Allowance as a percentage of loans and leases held for investment		0.96	%		0.96	%
Tier I capital to risk weighted assets		12.03	%		12.86	%
Tangible common equity ratio (1)		10.67	%		11.27	%
Loans held for investment	$	806,788		$	694,637
Total assets	$	959,829		$	856,035
Stockholders' equity	$	107,018		$	101,363


	2018 Compared to 2017
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	Rate		Volume	Total	Rate		Volume	Total
Interest income:
Due from banks	$	8	9	17	$	35	(20)	15
Federal funds sold		5	(6)	(1)		6	(1)	5
Investment securities(1)		17	41	58		49	81	130
Loans held for sale		66	63	129		101	83	184
Loans held for investment(1)		341	1,821	2,162		819	5,061	5,880
Total loans		407	1,884	2,291		920	5,144	6,064
Total interest income	$	437	1,928	2,365	$	1,008	5,206	6,214
Interest expense:
Interest checking	$	174	42	216	$	412	135	547
Money market and savings deposits		361	59	420		735	121	856
Time deposits		383	259	642		999	692	1,691
Total interest-bearing deposits		918	360	1,278		2,146	948	3,094
Short-term borrowings		390	(225)	165		603	(268)	335
Long-term borrowings		76	(102)	(26)		67	(140)	(73)
Total borrowings		466	(327)	139		670	(408)	262
Subordinated debentures		14	(87)	(73)		19	(219)	(200)
Total interest expense		1,398	(54)	1,344		2,836	320	3,156
Interest differential	$	(961)	1,982	1,021	$	(1,828)	4,886	3,058


	Change in Net Interest				Change in Net Interest
	Income Over the Twelve				Income Over the Twelve
	Months Beginning After				Months Beginning After
	September 30, 2018				December 31, 2017
(dollars in thousands)	Amount		Percentage		Amount		Percentage
+300 basis points	$	206	0.65	%	$	1,561	5.29	%
+200 basis points	$	157	0.50	%	$	1,035	3.50	%
+100 basis points	$	93	0.29	%	$	518	1.75	%
-100 basis points	$	(237)	(0.75)	%	$	(601)	(2.04)	%


As of September 30, 2018
(dollars in thousands)	12 Months or Less		1-2 Years	2-5 Years	Greater Than 5 years and Not Rate Sensitive	Total
Cash and investments	$	40,738	5,754	12,255	27,525	86,272
Loans, net (1)		450,571	90,119	242,404	50,027	833,121
Other Assets		—	—	—	40,436	40,436
Total Assets		491,309	95,873	254,659	117,988	959,829

Liabilities and Equity:
Noninterest-bearing deposits		16,566	9,080	16,852	82,057	124,555
Interest-bearing deposits		379,611	—	—	—	379,611
Time deposits		255,720	10,330	11,411	—	277,461
FHLB advances		43,755	5,000	—	—	48,755
Other Liabilities		1,444	—	—	20,985	22,429
Total stockholders' equity		—	—	—	107,018	107,018
Total liabilities and stockholders' equity	$	697,096	24,410	28,263	210,060	959,829
Repricing gap-positive
(Negative) Positive	$	(205,787)	71,463	226,396	(92,072)	—
Cumulative repricing gap: Dollar amount	$	(205,787)	(134,324)	92,072	—
Percent of total assets		(21.44)%	(13.99)%	9.59%	—


As of December 31, 2017
(dollars in thousands)	12 Months or Less		1-2 Years	2-5 Years	Greater Than 5 years and Not Rate Sensitive	Total
Cash and investments	$	26,648	7,475	8,523	52,542	95,188
Loans, net (1)		420,500	75,629	202,736	30,794	729,659
Other Assets		—	—	—	31,188	31,188
Total Assets		447,148	83,104	211,259	114,524	856,035

Liabilities and Equity:
Noninterest-bearing deposits		11,414	10,116	23,960	54,964	100,454
Interest-bearing deposits		253,664	27,291	27,292	—	308,247
Time deposits		159,808	52,830	5,770	—	218,408
FHLB advances		99,750	1,800	7,063	13,308	121,921
Other Liabilities		—	—	—	5,642	5,642
Total stockholders' equity		—	—	—	101,363	101,363
Total liabilities and stockholders' equity	$	524,636	92,037	64,085	175,277	856,035
Repricing gap-positive
(Negative) Positive		(77,488)	(8,933)	147,174	(60,753)	—
Cumulative repricing gap: Dollar amount	$	(77,488)	(86,421)	60,753	—
Percent of total assets		(9.05)%	(10.10)%	6.88%	—


	As of
	September 30,		December 31,
(dollars in thousands)	2018		2017
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Commercial mortgage	$	494	$	414
Home equity lines and loans		85		137
Residential mortgage		2,151		1,084
Commercial construction		—		185
Total real estate loans	$	2,730	$	1,820
Commercial and industrial		192		1,326
Total nonaccrual loans	$	2,922	$	3,146
Loans 90 days or more past due and accruing		—		11
Other real estate owned		—		437
Total non-performing loans	$	2,922		3,157
Total non-performing assets	$	2,922		3,594

Troubled debt restructurings:
TDRs included in non-performing loans		554		741
TDRs in compliance with modified terms		3,463		1,900
Total TDRs	$	4,017	$	2,641

Asset quality ratios:
Non-performing assets to total assets		0.30%		0.42%
Non-performing loans to:
Total loans		0.35%		0.43%
Total loans held-for-investment		0.36%		0.45%
Allowance for loan losses to:
Total loans		0.92%		0.92%
Total loans held-for-investment		0.96%		0.96%
Non-performing loans		263.89%		212.51%

Total loans and leases	$	840,832	$	729,661
Total loans and leases held-for-investment	$	806,788	$	694,637
Allowance for loan and lease losses	$	7,711	$	6,709


	September 30, 2018
							To be well capitalized under
				For capital adequacy			prompt corrective action
	Actual			purposes *			provisions
(dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
Total capital (to risk-weighted assets)	$	119,825	14.03%	$	68,312	8.00%	$	85,389	10.00%
Common equity tier 1 capital (to risk-weighted assets)		102,688	12.03%		38,425	4.50%		55,503	6.50%
Tier 1 capital (to risk-weighted assets)		102,688	12.03%		51,234	6.00%		68,312	8.00%
Tier 1 capital (to average assets)		102,688	11.02%		37,260	4.00%		46,575	5.00%