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

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

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

These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the ~~Securities and Exchange Commission and, for periods prior to the completion of the holding company reorganization, the Bank’s filings with the FDIC, including the Bank’s most recent annual report~~SEC (including our Annual Report on Form 10-K ~~(the “2017 Annual Report”)~~ for the year ended December 31, ~~2017, and~~2022), 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.

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

Securities classified as available-for-sale are those securities that the Corporation intends to hold for an indefinite period of time but not necessarily to maturity. Securities available-for-sale are carried at fair value. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Corporation’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Unrealized gains and losses are reported as increases or decreases in other comprehensive income. Gains or losses on disposition are based on the net proceeds and cost of the securities sold, adjusted for the amortization of premiums and accretion of discounts, using the specific identification method.

Securities classified as held to maturity are those debt securities the Corporation has both the intent and ability to hold to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost adjusted for the amortization of premium and accretion of discount, computed on a level yield basis.

The Corporation’s accounting policy specifies that (a) if the Corporation does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired, unless there is a credit loss. When the Corporation does not intend to sell the security, and it is more likely than not, the Corporation will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income. The Corporation did not recognize any other-than-temporary impairment charges during the three and six months ended June 30, 2023 and 2022.

We applied the modified retrospective method for all financial assets measured at amortized cost and securities AFS. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Corporation recorded a one-time decrease to retained earnings of $2.2 million on January 1, 2023 for the cumulative effect of adopting ASC 326, net of tax. The transition adjustment includes $1.2 million and $974 thousand post-tax impacts for loans, net of fees and costs and unfunded loan commitments, respectively, due to higher expected credit losses compared to the incurred loss methodology primarily driven by longer duration commercial and consumer real estate loans.

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

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

Balance

Balance

Amortization

December 31,

Accumulated

Fair Value

September 30,

Period
(dollars in thousands)

2017

Amortization

Adjustment

2018

(in years)
Goodwill - Wealth

$
899

—

—

899

Indefinite
Total Goodwill

899

—

—

899

Intangible assets - trade name

266

—

—

266

Indefinite
Intangible assets - customer relationships

3,930

(152)

—

3,778

20
Intangible assets - non competition agreements

223

(52)

—

171

4
Contingent asset

177

(177)

—

N/A
Total Intangible Assets

4,596

(204)

(177)

4,215

Total

$
5,495

(204)

(177)

5,114

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

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

December 31, 2017

Gross

Gross

Amortized

unrealized

unrealized

Fair
(dollars in thousands)

cost

gains

losses

value
Securities available-for-sale:

U.S. government agency mortgage-backed securities

$
21,439

19

(190)

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

7,875

2

(99)

7,778
State and municipal securities

10,079

14

(134)

9,959
Investments in mutual funds and other equity securities

1,000

1

—

1,001
Total securities available-for-sale

$
40,393

36

(423)

40,006
Securities held to maturity:

U.S. Treasuries

$
1,978

—

(8)

1,970
State and municipal securities

10,883

86

(70)

10,899
Total securities held-to-maturity

$
12,861

86

(78)

12,869

We use credit ratings quarterly and the most recent financial information of securities' issuers annually to help evaluate the credit quality of our securities AFS and HTM portfolios on a quarterly basis. The securities portfolio consists primarily of U.S. government treasuries and U.S. government agency asset backed securities which have no probability of default. The remaining portfolio consists of highly rated municipal bonds, non-agency CMO, and corporate bonds that have a low probability of default.

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

the dates indicated:

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

September 30, 2018

December 31, 2017

Available-for-sale

Held-to-maturity

Available-for-sale

Held-to-maturity

Amortized

Fair

Amortized

Fair

Amortized

Fair

Amortized

Fair
(dollars in thousands)

cost

value

cost

value

cost

value

cost

value
Due in one year or less

$
1,706

1,671

994

985

$
—

—

—

—
Due after one year through five years

8,229

8,070

3,746

3,702

5,630

5,587

3,803

3,791
Due after five years through ten years

6,593

6,322

8,031

7,885

6,298

6,228

7,180

7,156
Due after ten years

32,202

31,615

—

—

28,465

28,191

1,878

1,922
Total

$
48,730

47,678

12,771

12,572

$
40,393

40,006

12,861

12,869

11

The following table presents the gross loss on sale of investment securities available for sale on the dates indicated:

As of June 30, 2023 and December 31, 2022, securities having a fair value of $53.5 million and $78.4 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 presents loans and ~~December 31, 2017 are~~other finance receivables detailed by category ~~as follows:~~

at the dates indicated:

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

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

At June 30, 2023, there were 4 consumer mortgage loans secured by residential real estate properties (included in loans, net of fees and costs on the Consolidated Balance Sheets) totaling $948 thousand for which formal foreclosure proceedings were in process.

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

The following tables provide the activity of our allowance for credit losses for the three and six months ended June 30, 2023 under the CECL model in accordance with ASC 326 (as adopted on January 1, 2023):

The following table provides a reconciliation of the provision for credit losses on the consolidated statements of income between the funded and unfunded components at the dates indicated:

The following tables detail the ~~roll‑forward~~allocation of the ~~Corporation’s Allowance,~~ACL and the carrying value for loans and leases by portfolio segment ~~for~~based on the ~~three~~methodology used to evaluate the loans and ~~nine month periods ended September 30, 2018~~leases at the dates indicated:

In addition to ~~modified terms are included~~credit quality indicators as shown in ~~performing~~the above tables, allowance allocations for residential mortgages, ~~below as of September 30, 2018~~consumer loans and ~~December 31, 2017.~~

leases are also applied based on their performance status at the dates indicated:

As result of the adoption of guidance related to ~~$93 thousand~~CECL effective as of January 1, 2023, the Corporation had no reportable balances related to TDRs as of and ~~$63~~for the three and six months ended June 30, 2023. See Note 1 “Summary of Significant Accounting Policies” for additional information.

The following table presents information about TDRs at the dates indicated:

There was 1 new modification on a commercial mortgage for $684 thousand for the ~~three~~year ended December 31, 2022. Total TDRs declined year-over-year, despite the new modification in 2022, as two TDRs from prior to 2021 totaling $563 thousand paid off in 2022. No modifications granted during the twelve months ended ~~September 30, 2018 and 2017, respectively, and $218 thousand and $213 thousand for~~December 31, 2022 subsequently defaulted during the ~~nine months ended September 30, 2018 and 2017, respectively.~~

~~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 modificationssame time period.

An assessment of whether a borrower is experiencing financial ~~difficulties takes into account~~difficulty is made on the date of a modification. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACL on loans and leases, a change to the allowance for credit losses is generally not ~~only~~recorded upon modification. However, when principal forgiveness is provided, the ~~current financial condition~~amortized cost basis of the ~~borrower, but also~~asset is written off against the ~~potential financial condition~~ACL on loans and leases. The amount of the ~~borrower were~~principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan is written off, resulting in a ~~concession not granted. The determination~~reduction of ~~whether~~the amortized cost basis and a ~~concession has been granted is subjective in nature. For example, simply extending~~corresponding adjustment to 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~~allowance for credit ~~terms from a different lender.~~

losses.

17

The following presents, by class of loans, information regarding the financial effect on accruing and ~~lease modifications granted~~nonaccrual modified loans to borrowers experiencing financial difficulty during the three ~~and nine~~ months ended ~~September~~June 30, ~~2018 subsequently defaulted during the same time period.~~

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

2023.

The following table presents short-term borrowings at 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

dates indicated:

~~Table of Contents~~

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

The FHLB has also issued ~~$88,100,000~~$120.0 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 the remainder of 2023.

The Corporation has a maximum borrowing capacity with the FHLB of ~~$432,816,917~~$620.6 million as of ~~September~~June 30, ~~2018~~2023 and ~~$380,159,142~~$505.4 million as of December 31, ~~2017.~~2022. All advances and letters of credit from the FHLB are secured by ~~qualifying assets~~a blanket lien on non-pledged, mortgage-related loans and securities as part of the ~~Corporation.~~

Corporation’s borrowing agreement with the FHLB.

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

The related MSR asset is amortized over the period of the estimated future net servicing life of the underlying assets. MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR. The Corporation serviced $1.0 billion of residential mortgage loans as of June 30, 2023 and December 31, 2022. During the three and six months ended June 30, 2023, the Corporation recognized servicing fee income of $618 thousand and $1.3 million, respectively, compared to $653 thousand and $1.3 million, during the three and six months ended June 30, 2022, respectively.

Changes in the MSR balance are summarized as follows:

Activity in the valuation allowance for MSRs was as follows:

The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At June 30, 2023, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 6.60% and a discount rate equal to 9.50%. At December 31, 2022, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 8.05% and a discount rate equal to 9.50%. Due in part to market volatility as interest rates increased, the prepayment speed assumption has decreased from December 31, 2022 to June 30, 2023. As interest rates have started to increase and the number of mortgage refinancings have started to decline, model inputs have been adjusted to align the MSRs fair value with market conditions.

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

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

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets. SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset. The Corporation serviced $195.9 million and $166.1 million of SBA loans, as of June 30, 2023 and December 31, 2022, respectively.

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

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

The Corporation uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At June 30, 2023, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.98% and a discount rate equal to 15.60%. At December 31, 2022, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.73% and a discount rate equal to 18.96%.

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

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

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

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

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

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

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

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

20

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

~~Table~~The fair value of ~~Contents~~

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

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

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

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

December 31, 2017
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Securities available for sale:

U.S. government agency mortgage-backed securities

$
21,268

—

21,268

—
U.S. government agency collateralized mortgage obligations

7,778

—

7,778

—
State and municipal securities

9,959

—

9,959

—
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

—
Interest rate lock commitments

310

—

—

310
Total

$
85,312

—

85,002

310

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

September 30, 2018
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Impaired loans (2)

$
6,476

—

—

6,476
Other real estate owned (1)

—

—

—

—
Total

$
6,476

—

—

6,476

December 31, 2017
(dollars in thousands)

Total

Level 1

Level 2

Level 3
Impaired loans (2)

$
4,685

—

—

4,685
Other real estate owned (1)

437

—

—

437
Total

$
5,122

—

—

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

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

~~(1)~~

~~Real estate properties acquired through, or~~

(dollars in ~~lieu~~thousands)

Fair Value

Valuation Technique

Significant Unobservable Input

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

June 30, 2023

$

5,448

Appraisal of collateral

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

2%-15% discount

December 31, 2022

2,281

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

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

appraisals for property type and recent activity

2%-15% discount

~~(2)~~

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

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

~~(b)Securities~~

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

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

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

~~(d)~~

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

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

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

~~(f)Impaired~~impairment.

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

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

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

~~(h)~~Allowance policy.

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

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for ~~fixed‑rate~~ fixed-rate

certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

~~(j)Short‑Term~~

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

~~(k)Long‑Term~~

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

~~(m)Off‑Balance~~

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

~~(n)~~

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

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

23

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.

The Corporation uses interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income. The Corporation’s credit exposure on interest rate swaps includes changes in fair value and any collateral that is held by a third party.

In June 2023, the Corporation entered into three interest rate swaps classified as cash flow hedges with notional amounts of $25 million each, to hedge the interest payments received on short term borrowings. Under the terms of the three swap agreements, the Corporation pays average fixed rates of 4.070%, 4.027% and 4.117%, and receives variable rates in return indexed to SOFR. The swaps mature between May, June, and December 2026. The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and performs an assessment on a recurring basis and determined that the derivative currently is and is expected to be highly effective in offsetting changes in cash flows of the hedged item. At June 30, 2023, approximately $338 thousand, net of tax, is recorded in accumulated other comprehensive loss. This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to June 30, 2023. At June 30, 2023, the combined notional amount of the interest rate swaps was $75 million and the fair value was an asset of $435 thousand.

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

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

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

instruments at the dates indicated:

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

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

Net realized losses on ~~derivatives~~derivative hedging activities were ~~($170 thousand) thousand and $278~~$1 thousand for the three and six months ended ~~September~~June 30, ~~2018~~2023, and ~~2017, respectively,~~net realized gains on derivative hedging activities were $1.7 million and ~~$534 thousand and $845 thousand~~$4.5 million for the ~~nine~~three and six months ended ~~September~~June 30, ~~2018 and 2017,~~2022, respectively, and are included in ~~other~~ non-interest income in the ~~unaudited~~ consolidated statements of income.

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

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

25

Meridian’s mortgage banking segment (“Mortgage”) consists of ~~one central loan production facility and several retail and profit sharing~~11 loan production offices ~~located~~ throughout ~~the Delaware Valley.~~suburban Philadelphia and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production ~~including servicing~~ to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale.

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

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

Three Months Ended September 30, 2018

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

Bank

Wealth

Mortgage

Total

Bank

Wealth

Mortgage

Total
Net interest income

$
8,107

71

200

8,378

$
7,190

31

120

7,341
Provision for loan losses

(291)

—

—

(291)

(665)

—

—

(665)
Net interest income after provision

7,816

71

200

8,087

6,525

31

120

6,676

Non-interest Income

Mortgage banking income

105

—

8,169

8,274

67

—

9,837

9,904
Wealth management income

59

871

—

930

18

916

—

934
Net change in fair values

—

—

(333)

(333)

—

—

(547)

(547)
Other

363

—

(67)

296

353

—

(194)

159
Total non-interest income

527

871

7,769

9,167

438

916

9,096

10,450

Non-interest Expense

Salaries and employee benefits

3,264

445

5,192

8,901

3,237

411

6,682

10,330
Occupancy and equipment

521

29

370

920

575

26

391

992
Professional fees

590

9

115

714

394

5

82

481
Advertising and promotion

301

111

178

590

254

126

217

597
Other

1,259

314

1,055

2,628

1,238

198

1,176

2,612
Total non-interest expense

5,935

908

6,910

13,753

5,698

766

8,548

15,012

Operating Margin

$
2,408

34

1,059

3,501

$
1,265

181

668

2,114

Total assets for each segment is also provided.

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”)~~2022 included in Meridian ~~Bank’s~~Corporation’s Annual Report on Form ~~10‑K~~10-K filed with the ~~Federal Deposit Insurance Corporation (the “FDIC”).~~

~~Cautionary Statement Regarding~~ SEC.

Meridian Corporation ~~(the “Corporation”)~~ may from time to time make written or oral “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Meridian Corporation’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Meridian Corporation’s control). Numerous competitive, economic, regulatory, legal and technological factors, ~~among others,~~risks and uncertainties that could cause ~~Meridian Corporation’s financial performance~~actual results to differ materially ~~from~~include, without limitation:

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

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

~~These~~ critical accounting policies ~~along with other significant~~are described in detail in the "Critical Accounting Policies" section within Item 7 of our 2022 Annual Form Form 10-K. The SEC defines "critical accounting ~~policies,~~policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are ~~presented~~inherently uncertain and may change in infuture periods. See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which changes the methodology under which management calculates its reserve for loans and leases, now referred to as the allowance for credit losses. Management considers the measurement of the ~~Corporation’s Consolidated Financial Statements as of and~~allowance for ~~the years ended December 31, 2017 and 2016 included in the 2017 10‑K.~~

~~Recent Acquisitions~~

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

credit losses to be a critical accounting policy.

The following items highlight the Corporation’s changes in its financial condition as of June 30, 2023 compared to December 31, 2022 and the results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, as~~2023 compared to the same periods in ~~2017, and the changes in its financial condition as of September 30, 2018 as compared to December 31, 2017.~~2022. More detailed information related to these highlights can be found in the sections that follow.

Total balance sheet liquidity, which is derived from cash and investments, as well as salable commercial loans and residential mortgage loans held for sale, was $276.8 million at June 30, 2023, up from $264.4 million at December 31, 2022. Meridian maintains a high-quality investment bond portfolio comprised of U.S Treasuries, government agencies, government agency mortgage-backed securities, and general obligation municipal securities with an average duration of 4 years. Meridian’s investment portfolio represented 7.5% of total assets at June 30, 2023, compared to 8.5% at December 31, 2022. Total cash at June 30, 2023 was $46.9 million compared to $38.4 million at December 31, 2022 and $37.1 million at June 30, 2022.

Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $853.3 million in liquidity from numerous sources including its borrowing capacity with the FHLB and other financial institutions, as well as funding through the CDARS program or through brokered CD arrangements. In addition, the Bank is eligible to receive funds under the new BTFP announced by the Federal Reserve. Meridian elected to secure borrowings from the Federal Reserve under the BTFP due to the favorable rate and as of June 30, 2023 had a balance of $33 million. Management believes that the above sources of liquidity provide Meridian with the necessary resources to meet its short-term and long-term funding requirements.

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

periods indicated:

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

September 30,

December 31,

(dollars in thousands, except per share amounts)

2018

2017

Book value per common share

$
16.70

$
15.86

Tangible book value per common share

$
15.91

$
15.00

Allowance as a percentage of loans and leases held for investment

0.96
%

0.96
%
Tier I capital to risk weighted assets

12.03
%

12.86
%
Tangible common equity ratio (1)

10.67
%

11.27
%
Loans held for investment

$
806,788

$
694,637

Total assets

$
959,829

$
856,035

Stockholders' equity

$
107,018

$
101,363

at the dates indicated:


(dollars in thousands, except per share amounts)	June 30, 2023			December 31, 2022
Book value per common share	$	13.77		$	13.37
Tangible book value per common share (1)	$	13.42		$	13.01
Allowance as a percentage of loans and leases held for investment	1.09		%	1.08		%
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)	1.10		%	1.09		%
Tier I capital to risk weighted assets	8.38		%	8.77		%
Tangible common equity to tangible assets ratio (1)	6.81		%	7.25		%
Loans and other finance receivables, net of fees and costs	$	1,859,839		$	1,743,682
Total assets	$	2,206,877		$	2,062,228
Total stockholders’ equity	$	153,962		$	153,280

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

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

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

September 30,

December 31,
(dollars in thousands)

2018

2017
Tangbile common equity ratio:

Total stockholders' equity

107,018

101,363
Less:

Goodwill

899

899
Intangible assets

4,215

4,596
Tangible common equity

101,904

95,868
Total assets

959,829

856,035
Less:

Goodwill

899

899
Intangible assets

4,215

4,596
Tangible assets

954,715

850,540
Tangible common equity ratio

10.67%

11.27%

reconciliation.

33

~~Table of Contents~~

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

Components of Net Income

Net income is comprised of five major elements:

·

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

·

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

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

·

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

•Provision For Credit Losses, or the amount added to the Allowance to provide for current expected credit losses on portfolio loans and leases;

·

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

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

·

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

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

•Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018~~2023 and ~~2017,~~2022, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the ~~results~~result of net free funding sources such as ~~noninterest~~non-interest bearing deposits and stockholders’ equity.

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

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

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

34

39

Table of Contents

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

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

Analyses of Interest Rates and Interest Differential

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

2018

2017

Interest

Interest

For the Three Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
5,872

28

1.89%

$
3,642

11

1.20%
Federal funds sold

477

2

1.87%

945

3

1.26%
Investment securities(1)

57,574

350

2.41%

50,774

292

2.28%
Loans held for sale

39,847

462

4.64%

33,816

333

3.91%
Loans held for investment(1)

791,914

10,758

5.36%

659,430

8,596

5.17%
Total loans

831,761

11,220

5.33%

693,246

8,929

5.11%
Total interst-earning assets

895,684

11,600

5.12%

748,607

9,235

4.89%
Noninterest earning assets

40,645

40,051

Total assets

$
936,329

$
788,658

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
104,857

351

1.33%

$
83,165

135

0.64%
Money market and savings deposits

238,086

919

1.53%

214,956

499

0.92%
Time deposits

257,250

1,215

1.87%

187,642

573

1.21%
Total deposits

600,193

2,485

1.64%

485,763

1,207

0.99%
Short-term borrowings

85,026

491

2.29%

95,669

326

1.35%
Long-term borrowings

6,650

48

2.86%

12,388

74

2.37%
Total Borrowings

91,676

539

2.33%

108,057

400

1.47%
Subordinated Debentures

9,308

171

7.30%

13,376

244

7.24%
Total interest-bearing liabilities

701,177

3,195

1.81%

607,196

1,851

1.21%
Noninterest-bearing deposits

122,454

101,611

Other noninterest-bearing liabilities

6,193

8,472

Total liabilities

$
829,824

$
717,279

Total stockholders' equity

106,505

71,379

Total stockholders' equity and liabilities

$
936,329

$
788,658

Net interest income

$
8,405

$
7,384

Net interest spread

3.31%

3.68%
Net interest margin

3.72%

3.91%


	For the Three Months Ended June 30,
(dollars in thousands)	2023						2022
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets:
Due from banks	$	21,425	$	275	5.15	%	$	26,909	$	49	0.73	%
Federal funds sold	222		3		5.42		3,230		3		0.35
Investment securities - taxable (1)	114,993		992		3.46		104,806		525		2.01
Investment securities - tax exempt (1)	59,143		426		2.89		64,047		416		2.61
Loans held for sale	27,121		407		6.02		52,859		565		4.28
Loans held for investment (1)	1,847,736		31,810		6.91		1,484,696		18,558		4.98
Total loans	1,874,857		32,217		6.89		1,537,555		19,123		4.99
Total interest-earning assets	2,070,640		33,913		6.57	%	1,736,547		20,116		4.65	%
Noninterest earning assets	95,935						74,788
Total assets	$	2,166,575					$	1,811,335
Liabilities and stockholders' equity:
Interest-bearing demand deposits	$	203,605	$	1,840	3.62	%	$	237,856	$	248	0.42	%
Money market and savings deposits	651,816		5,371		3.31		698,557		1,076		0.62
Time deposits	653,348		6,812		4.18		334,391		494		0.59
Total deposits	1,508,769		14,023		3.73		1,270,804		1,818		0.57
Borrowings	163,177		2,129		5.23		16,560		77		1.87
Subordinated debentures	40,329		586		5.83		40,548		591		5.84
Total interest-bearing liabilities	1,712,275		16,738		3.92		1,327,912		2,486		0.75
Noninterest-bearing deposits	266,675						296,521
Other noninterest-bearing liabilities	33,442						28,482
Total liabilities	2,012,392						1,652,915
Total stockholders' equity	154,183						158,420
Total stockholders' equity and liabilities	$	2,166,575					$	1,811,335
Net interest income and spread (1)			$	17,175	2.65				$	17,630	3.90
Net interest margin (1)					3.33	%					4.07	%

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

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

35

40

Table of Contents

2018

2017

Interest

Interest

For the Nine Months Ended September 30,

Average

Income/

Yields/

Average

Income/

Yields/
(dollars in thousands)

Balance

Expense

rates

Balance

Expense

rates
Assets

Interest-earning assets

Due from banks

$
5,175

64

1.66%

$
6,765

49

0.97%
Federal funds sold

784

11

1.89%

836

6

0.96%
Investment securities(1)

54,144

958

2.37%

49,526

828

2.24%
Loans held for sale

31,074

1,017

4.36%

28,419

833

3.92%
Loans held for investment(1)

755,925

30,209

5.28%

634,951

24,329

5.12%
Total loans

786,999

31,226

5.28%

663,370

25,162

5.07%
Total interst-earning assets

847,102

32,259

5.07%

720,497

26,045

4.83%
Noninterest earning assets

41,393

34,340

Total assets

$
888,495

$
754,837

Liabilities and stockholders' equity

Interest-bearing liabilities

Interest-bearing deposits

$
103,623

851

1.10%

$
76,618

304

0.53%
Money market and savings deposits

228,107

2,212

1.30%

210,593

1,356

0.86%
Time deposits

247,244

3,109

1.68%

177,215

1,418

1.07%
Total deposits

578,974

6,172

1.43%

464,426

3,078

0.89%
Short-term borrowings

70,959

1,123

2.12%

88,711

788

1.19%
Long-term borrowings

6,720

142

2.83%

12,650

215

2.27%
Total Borrowings

77,679

1,265

2.18%

101,361

1,003

1.32%
Subordinated Debentures

9,527

525

7.37%

13,376

725

7.25%
Total interest-bearing liabilities

666,180

7,962

1.60%

579,163

4,806

1.11%
Noninterest-bearing deposits

112,616

99,001

Other noninterest-bearing liabilities

5,895

6,731

Total liabilities

$
784,691

$
684,895

Total stockholders' equity

103,804

69,942

Total stockholders' equity and liabilities

$
888,495

$
754,837

Net interest income

$
24,297

$
21,239

Net interest spread

3.47%

3.72%
Net interest margin

3.83%

3.94%


	For the Six Months Ended June 30,
(dollars in thousands)	2023						2022
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets:
Due from banks	$	20,376	$	490	4.85	%	$	27,645	$	62	0.45	%
Federal funds sold	213		5		4.73		2,060		3		0.29
Investment securities - taxable (1)	114,687		1,951		3.43		104,452		951		1.84
Investment securities - tax exempt (1)	60,981		856		2.83		63,918		789		2.49
Loans held for sale	21,294		624		5.91		59,936		1,101		3.67	%
Loans held for investment (1)	1,815,707		61,012		6.78		1,450,454		35,243		4.87
Total loans	1,837,001		61,636		6.77		1,510,390		36,344		4.85
Total interest-earning assets	2,033,258		64,938		6.44	%	1,708,465		38,149		4.50	%
Noninterest earning assets	94,566						71,634
Total assets	$	2,127,824					$	1,780,099
Liabilities and stockholders' equity:
Interest-bearing demand deposits	$	217,768	$	3,695	3.42	%	$	253,771	$	385	0.31	%
Money market and savings deposits	650,371		9,848		3.05		694,539		1,928		0.56
Time deposits	618,137		11,927		3.89		298,783		794		0.54
Total deposits	1,486,276		25,470		3.46		1,247,093		3,107		0.50
Borrowings	131,790		3,365		5.15		16,136		126		1.57
Subordinated debentures	40,333		1,173		5.86		40,533		1,183		5.84
Total interest-bearing liabilities	1,658,399		30,008		3.65		1,303,762		4,416		0.68
Noninterest-bearing deposits	281,275						284,455
Other noninterest-bearing liabilities	34,451						33,530
Total liabilities	1,974,125						1,621,747
Total stockholders' equity	153,699						158,352
Total stockholders' equity and liabilities	$	2,127,824					$	1,780,099
Net interest income and spread (1)			$	34,930	2.79				$	33,733	3.82
Net interest margin (1)					3.46	%					3.98	%

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

~~Rate/~~

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

41

Table of Contents

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~~six months ended ~~September~~June 30, ~~2018~~2023 as compared to the same periods in ~~2017,~~2022, allocated by rate and

36

~~Table of Contents~~

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

2018 Compared to 2017

Three Months Ended

Nine Months Ended

September 30,

September 30,
(dollars in thousands)

Rate

Volume

Total

Rate

Volume

Total
Interest income:

Due from banks

$
8

9

17

$
35

(20)

15
Federal funds sold

5

(6)

(1)

6

(1)

5
Investment securities(1)

17

41

58

49

81

130
Loans held for sale

66

63

129

101

83

184
Loans held for investment(1)

341

1,821

2,162

819

5,061

5,880
Total loans

407

1,884

2,291

920

5,144

6,064
Total interest income

$
437

1,928

2,365

$
1,008

5,206

6,214
Interest expense:

Interest checking

$
174

42

216

$
412

135

547
Money market and savings deposits

361

59

420

735

121

856
Time deposits

383

259

642

999

692

1,691
Total interest-bearing deposits

918

360

1,278

2,146

948

3,094
Short-term borrowings

390

(225)

165

603

(268)

335
Long-term borrowings

76

(102)

(26)

67

(140)

(73)
Total borrowings

466

(327)

139

670

(408)

262
Subordinated debentures

14

(87)

(73)

19

(219)

(200)
Total interest expense

1,398

(54)

1,344

2,836

320

3,156
Interest differential

$
(961)

1,982

1,021

$
(1,828)

4,886

3,058


	2023 Compared to 2022
	Three Months Ended June 30,						Six Months Ended June 30,
(dollars in thousands)	Rate		Volume		Total		Rate		Volume		Total
Interest income:
Due from banks	$	238	$	(12)	$	226	$	450	$	(22)	$	428
Federal funds sold	5		(5)		—		9		(7)		2
Investment securities - taxable (1)	412		55		467		899		101		1,000
Investment securities - tax exempt (1)	43		(33)		10		105		(38)		67
Loans held for sale	178		(336)		(158)		453		(930)		(477)
Loans held for investment (1)	8,041		5,211		13,252		15,546		10,223		25,769
Total loans	8,219		4,875		13,094		15,999		9,293		25,292
Total interest income	$	8,917	$	4,880	$	13,797	$	17,462	$	9,327	$	26,789
Interest expense:
Interest-bearing demand deposits	$	1,633	$	(41)	$	1,592	$	3,372	$	(62)	$	3,310
Money market and savings deposits	4,372		(77)		4,295		8,050		(130)		7,920
Time deposits	5,458		860		6,318		9,510		1,623		11,133
Total deposits	11,463		742		12,205		20,932		1,431		22,363
Borrowings	348		1,704		2,052		779		2,460		3,239
Subordinated debentures	(2)		(3)		(5)		(4)		(6)		(10)
Total interest expense	$	11,809	$	2,443	$	14,252	$	21,707	$	3,885	$	25,592
Interest differential	$	(2,892)	$	2,437	$	(455)	$	(4,245)	$	5,442	$	1,197

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

Three Months Ended June 30, 2023 Compared to the Same Period in 2022

For the three months ended ~~September~~June 30, ~~2018~~2023 as compared to the same period in ~~2017,~~2022, tax-equivalent interest income increased $13.8 million as favorable rate and volume changes contributed $8.9 million, and $4.9 million, respectively. The favorable change in rates led to increased yields on loans held for sale (up 174 basis points) and loans held for investment (up 193 basis points) that favorably impact interest income by $8.2 million, overall. The loans held for investment average balances increased $363.0 million, leading to a favorable volume impact on interest income of $5.2 million, while the ~~favorable change~~decline in loans held for sale average balances of $25.7 million had an unfavorable impact to interest income of $336 thousand. Within the loans held for investment portfolio, average balances on commercial loans, SBA loans, and construction loans increased $33.6 million, $52.0 million, and $65.3 million, respectively, and residential real estate loans average balances increased $78.2 million, while the average balance of PPP loans decreased $132.4 million as such loans are nearly fully forgiven now by the SBA.

On the funding side, overall interest expense increased $14.3 million, largely driven by the impact from rate hikes issued by the Fed. The cost of deposits were up across the board, leading to a $12.2 million increase to interest expense. The cost of interest-bearing demand deposits, money market and savings accounts and time deposits increased 320 basis points, 269 basis points and 359 basis points, respectively, while the cost of borrowings increased 336 basis points. Time deposit average balances increased $319.0 million, while money market/savings accounts average balances and interest-bearing demand deposits decreased $46.7 million, and $34.3 million, respectively, while borrowings increased $146.6 million on average.

Overall, the $455 thousand decrease in net interest income ~~due to volume changes~~over this period was driven ~~largely from growth~~by rate changes as the cost of interest bearing liabilities increased 317 basis points, which outpaced the increase in the ~~loan portfolio,~~yield on interest earning assets, which increased $138.5 million on average over the three month periods. This increase contributed $1.9 million to interest income. Total investment securities, cash and cash equivalents were relatively flat, period over period. On the funding side, interest checking and money market accounts together rose $42.3 million on average, reducing net interest income by $94 thousand. Time deposits increased $72.1 million on average, causing an increase to interest expensewas up 192 basis points.

42

Table of ~~$259 thousand. Lower levels of borrowings, down $16.4 million on average affected net interest income $327 thousand favorably, and lower levels of subordinated debt contributed $87 thousand~~Contents

Six Months Ended June 30, 2023 Compared to the ~~net interest income over the three month periods compared.~~

Same Period in 2022

For the ~~three~~six months ended ~~September~~June 30, ~~2018~~2023 as compared to the same period in ~~2017, the unfavorable change in net~~2022, tax-equivalent interest income ~~due to rate changes was driven largely from the increase in cost of funds, particularly from wholesale funding such~~increased $26.8 million as borrowings and time deposits, which rose 86 and 65 basis points, respectively. Core deposits, such as interest checking and money market accounts rose 69 and 63 basis points, respectively. These unfavorable rate changes were partially offset by favorable rate ~~changes in interest earning assets. Overall, the increase in interest income from~~and volume changes contributed ~~$2.0~~$17.5 million, and ~~out-paced the unfavorable rate changes~~$9.3 million, respectively. The favorable change in rates led to ~~improve net~~increased yields on loans held for investment (up 191 basis points) and loans held for sale (up 224 basis points), that favorably impact interest income by ~~$1.0 million.~~

For the nine months ended September 30, 2018 as compared to the same period in 2017, the favorable change in net interest income due to volume changes was driven largely from growth in the loan portfolio, which increased $123.6$16.0 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~~overall. The loans held for investment ~~securities~~ average balances increased ~~$4.6~~$365.3 million, ~~period over period.~~ leading to a favorable volume impact on interest income of $10.2 million, while the decline in loans held for sale average balances of $38.6 million had an unfavorable impact to interest income of $930 thousand. Within the loans held for investment portfolio, average balances on commercial loans, SBA loans, and leases increased $30.0 million, $58.1 million, and $56.5 million, respectively, construction loans were up $50.8 million, and residential real estate loans average balances increased $47.3 million, while the average balance of PPP loans decreased $152.3 million as such loans are nearly fully forgiven now by the SBA.

On the funding side, overall interest ~~checking and money market accounts together rose $44.5~~expense increased $25.6 million, ~~on average, reducing net interest income~~largely driven by ~~$256 thousand. Time~~the impact from rate hikes issued by the Fed. The cost of deposits ~~increased $70.0~~were up across the board, leading to a $22.4 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~~expense. The cost of ~~funds, particularly from wholesale funding such as borrowings~~interest-bearing demand deposits, money market and savings accounts and time deposits ~~which rose 86 and 61~~increased 311 basis points, ~~respectively. Core deposits, such as interest checking and money market accounts rose 57 and 44~~249 basis points ~~respectively. These unfavorable rate changes were partially offset by favorable rate changes in interest earning assets.~~ and 335 basis points, respectively, while the cost of borrowings increased 358 basis points. Time deposit average balances increased $319.4 million, while money market/savings accounts average balances and interest-bearing demand deposits decreased $44.2 million, and $36.0 million, respectively, and borrowings increased $115.7 million on average.

Overall, the ~~increase in interest income from volume changes contributed $4.9~~$1.2 million ~~to interest income and out-paced the unfavorable rate changes to improve net interest income by $3.1 million.~~

~~Interest Rate Sensitivity~~

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

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

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

~~Summary of Interest Rate Simulation~~

Change in Net Interest

Change in Net Interest

Income Over the Twelve

Income Over the Twelve

Months Beginning After

Months Beginning After

September 30, 2018

December 31, 2017

(dollars in thousands)

Amount

Percentage

Amount

Percentage

+300 basis points

$
206

0.65
%
$
1,561

5.29
%
+200 basis points

$
157

0.50
%
$
1,035

3.50
%
+100 basis points

$
93

0.29
%
$
518

1.75
%
-100 basis points

$
(237)

(0.75)
%
$
(601)

(2.04)
%

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

38

~~Table of Contents~~

~~Gap Analysis~~

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

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

As of September 30, 2018
(dollars in thousands)

12 Months
or Less

1-2 Years

2-5 Years

Greater Than 5
years and Not
Rate Sensitive

Total
Cash and investments

$
40,738

5,754

12,255

27,525

86,272
Loans, net (1)

450,571

90,119

242,404

50,027

833,121
Other Assets

—

—

—

40,436

40,436
Total Assets

491,309

95,873

254,659

117,988

959,829

Liabilities and Equity:

Noninterest-bearing deposits

16,566

9,080

16,852

82,057

124,555
Interest-bearing deposits

379,611

—

—

—

379,611
Time deposits

255,720

10,330

11,411

—

277,461
FHLB advances

43,755

5,000

—

—

48,755
Other Liabilities

1,444

—

—

20,985

22,429
Total stockholders' equity

—

—

—

107,018

107,018
Total liabilities and stockholders' equity

$
697,096

24,410

28,263

210,060

959,829
Repricing gap-positive

(Negative) Positive

$
(205,787)

71,463

226,396

(92,072)

—
Cumulative repricing gap: Dollar amount

$
(205,787)

(134,324)

92,072

—

Percent of total assets

(21.44)%

(13.99)%

9.59%

—

~~(1)~~

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

39

~~Table of Contents~~

As of December 31, 2017
(dollars in thousands)

12 Months
or Less

1-2 Years

2-5 Years

Greater Than 5
years and Not
Rate Sensitive

Total
Cash and investments

$
26,648

7,475

8,523

52,542

95,188
Loans, net (1)

420,500

75,629

202,736

30,794

729,659
Other Assets

—

—

—

31,188

31,188
Total Assets

447,148

83,104

211,259

114,524

856,035

Liabilities and Equity:

Noninterest-bearing deposits

11,414

10,116

23,960

54,964

100,454
Interest-bearing deposits

253,664

27,291

27,292

—

308,247
Time deposits

159,808

52,830

5,770

—

218,408
FHLB advances

99,750

1,800

7,063

13,308

121,921
Other Liabilities

—

—

—

5,642

5,642
Total stockholders' equity

—

—

—

101,363

101,363
Total liabilities and stockholders' equity

$
524,636

92,037

64,085

175,277

856,035
Repricing gap-positive

(Negative) Positive

(77,488)

(8,933)

147,174

(60,753)

—
Cumulative repricing gap: Dollar amount

$
(77,488)

(86,421)

60,753

—

Percent of total assets

(9.05)%

(10.10)%

6.88%

—

~~(1)~~

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

~~Under~~particularly loans held for investment, overcame the repricing gap analysis for both periods, we are liability-sensitive in the short-term mainly due to recent loan growth which has out-paced our core deposit growth. In addition, customer preference has been for short-term or liquid deposits. We generally manage our interest rate risk profile close to neutral, using a strategy that is focused on increasing our concentration of relationship-based transaction accounts through efforts of our business developers and new branches. The gap results presented could vary substantially if different assumptions are used or if actual experience differsunfavorable impact 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.

funding costs.

PROVISION FOR ~~LOAN AND LEASE~~CREDIT LOSSES

~~For~~

Three and Six Months Ended June 30, 2023 Compared to the ~~three months ended September 30, 2018, the Corporation recorded a Provision of $291~~Same Periods in 2022

The provision for credit losses increased $103 thousand ~~which was a $374~~and increased $887 thousand, ~~decrease from the same period in 2017. Net charge-offs~~respectively for the three and six months ended ~~September~~June 30, ~~2018 were $29~~2023, to cover increased loan growth period over period, combined with providing for the $364 thousand and $1.3 million increase in net charge-offs period over period.

Asset Quality Summary

The ratio of non-performing assets to total assets was 1.32% as ~~compared~~of June 30, 2023, up from 1.11% reported as of December 31, 2022. There was $1.7 million in other real estate owned included in non-performing assets, the result of taking possession of a well collateralized residential real estate property in the quarter end December 31, 2022. Total non-performing loans of $27.4 million as of June 30, 2023, increased $6.1 million from $21.2 million as December 31, 2022 due to ~~$520 thousand~~downgrades of 4 SBA loans, 1 shared national credit loan, 1 commercial loan relationship, and several small balance equipment leases during this period.

Meridian realized net charge-offs of 0.13% of total average loans for the six months ending June 30, 2023, which was up from 0.08% reported for the same period in ~~2017.~~

~~For the nine months ended September 30, 2018, the Corporation recorded a Provision of $1.3 million which was a $187 thousand decrease from the same period in 2017.~~2022. Net charge-offs for the ~~nine months~~quarter ended ~~September~~June 30, ~~2018~~2023 were ~~$256~~$987 thousand, ~~as compared to $511~~comprised of $1.2 million in charge-offs, with $168 thousand in recoveries for the quarter. While nearly all of ~~net~~the charge-offs for the ~~same period in 2017.~~

~~The decreased provision over both~~quarter ended June 30, 2023 continue to be from small ticket equipment leases, the ~~three and nine month periods was the result of strong asset quality and the lower~~ level of ~~net charge-offs.~~

40

~~Table~~charge-offs in this portfolio declined by $689 thousand, while we also realized $149 thousand of ~~Contents~~

~~Asset Quality~~recoveries related to the small ticket equipment lease portfolio. The ratio of allowance for credit losses to total loans held for investment, excluding loans at fair value and ~~Analysis of Credit Risk~~

~~Asset quality remains strong~~PPP loans (a non-GAAP measure, see reconciliation in the Appendix), was 1.10% as of ~~September~~June 30, ~~2018, evidenced by total nonperforming loans~~2023 and leases having decreased by $300 thousand, to $2.9 million, representing 0.36% of loans and leases held-for-investment as of September 30, 2018, compared to $3.2 million, or 0.45% of loans and leases held-for-investment,1.09% as of December 31, ~~2017. The decrease to nonperforming loans resulted from the pay-downs in the commercial and industrial portfolio as well as in the commercial construction portfolio.~~

~~The Allowance represented 0.96%~~2022. As of ~~loans and leases held-for-investment, as~~June 30, 2023 there were specific reserves of ~~September 30, 2018 and December 31, 2017. The Allowance to~~$2.5 million against non-performing loans, ~~increased~~an increase from ~~212.51%~~$2.2 million as of December 31, ~~2017~~2022 due to ~~263.89%~~the establishment of a specific reserve on a commercial loan that was classified as ~~of September 30, 2018.~~

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

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

another commercial loan relationship.

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

41

43

Table of Contents

Nonperforming Assets and Related Ratios

As of

September 30,

December 31,
(dollars in thousands)

2018

2017
Non-performing assets:

Nonaccrual loans:

Real estate loans:

Commercial mortgage

$
494

$
414
Home equity lines and loans

85

137
Residential mortgage

2,151

1,084
Commercial construction

—

185
Total real estate loans

$
2,730

$
1,820
Commercial and industrial

192

1,326
Total nonaccrual loans

$
2,922

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

—

11
Other real estate owned

—

437
Total non-performing loans

$
2,922

3,157
Total non-performing assets

$
2,922

3,594

Troubled debt restructurings:

TDRs included in non-performing loans

554

741
TDRs in compliance with modified terms

3,463

1,900
Total TDRs

$
4,017

$
2,641

Asset quality ratios:

Non-performing assets to total assets

0.30%

0.42%
Non-performing loans to:

Total loans

0.35%

0.43%
Total loans held-for-investment

0.36%

0.45%
Allowance for loan losses to:

Total loans

0.92%

0.92%
Total loans held-for-investment

0.96%

0.96%
Non-performing loans

263.89%

212.51%

Total loans and leases

$
840,832

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

$
806,788

$
694,637
Allowance for loan and lease losses

$
7,711

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


(dollars in thousands)	June 30, 2023			December 31, 2022
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Commercial mortgage	$	—		$	140
Home equity lines and loans	931			1,097
Residential mortgage	2,272			2,085
Land development	1,206			—

Total real estate loans	4,409			3,322
Commercial and industrial	15,663			12,547
Small business loans	6,157			4,465
Leases	1,135			902
Total nonaccrual loans	27,364			21,236
Other real estate owned	1,703			1,703
Total non-performing assets	$	29,067		$	22,939






Asset quality ratios:
Non-performing assets to total assets	1.32		%	1.11		%
Non-performing loans to:
Total loans and leases	1.44		%	1.20		%
Total loans held-for-investment	1.47		%	1.22		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)	1.48		%	1.23		%
Allowance for credit losses to (2):
Total loans and leases	1.07		%	1.07		%
Total loans held-for-investment	1.09		%	1.08		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)	1.10		%	1.09		%
Non-performing loans	73.97		%	88.66		%

Total loans and leases	$	1,900,261		$	1,765,925
Total loans and leases held-for-investment	$	1,859,839		$	1,743,682
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)	$	1,845,249		$	1,724,601
Allowance for credit losses (2)	$	20,242		$	18,828

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

(2) See Note 1, "Summary of Significant Accounting Policies - Pronouncements Adopted in 2023.

44

Table of Contents

NON-INTEREST INCOME

Three Months Ended ~~September~~June 30, ~~2018~~2023 Compared to the Same Period in ~~2017~~

~~Total~~2022

The following table presents the components of non-interest income for the ~~three months ended September 30, 2018 was $9.2 million, down~~periods indicated:


	Quarter Ended
(Dollars in thousands)	June 30, 2023		June 30, 2022		$ Change		% Change
Mortgage banking income	$	5,050	$	6,942	$	(1,892)	(27.3)	%
Wealth management income	1,235		1,254		(19)		(1.5)	%
SBA loan income	1,767		437		1,330		304.3	%
Earnings on investment in life insurance	193		137		56		40.9	%
Net change in the fair value of derivative instruments	183		(674)		857		(127.2)	%
Net change in the fair value of loans held-for-sale	(199)		268		(467)		(174.3)	%
Net change in the fair value of loans held-for-investment	(219)		(835)		616		(73.8)	%
Net (loss) gain on hedging activity	(1)		1,715		(1,716)		(100.1)	%
Net loss on sale of investment securities available-for-sale	(54)		—		(54)		(100.0)	%
Service charges	37		31		6		19.4	%
Other	1,132		1,128		4		0.4	%
Total non-interest income	$	9,124	$	10,403	$	(1,279)	(12.3)	%

Total non-interest income decreased $1.3 million ~~or 12.3%, from the comparable period in 2017. The overall decrease in non-interest income came primarily from our mortgage division. Mortgage banking revenue decreased over the period~~ due primarily to lower ~~margins,~~income from our mortgage segment, which ~~decreased 50 basis points for~~continues to be impacted by lower levels of mortgage loan originations in a rising rate environment and a lack of housing inventory. Driven by the ~~three month period. The~~ decline in mortgage banking ~~revenue was offset slightly by a $214 thousand increase~~income, the net changes in the fair value ~~adjustments related~~of derivative instruments and loans held-for-sale, along with an improvement in net gains on hedging activity which decreased $1.3 million, combined.

SBA loan income increased $1.3 million as a higher volume of SBA loans were sold into the secondary market in the quarter-ending June 30, 2023 ($27.8 million of loans sold at an average gross margin of 7.0%), compared to ~~mortgage banking~~the quarter-ending June 30, 2022 ($12.8 million in loans sold at an average gross margin of 7.6%).

The net change in the fair value of loans held-for-investment improved to ~~($333) thousand from ($547)~~a loss of $219 thousand for the ~~same period in 2017. Wealth management revenue was relatively flat~~quarter ended June 30, 2023, compared to a loss of $835 thousand for the ~~three months ended September 30, 2018 compared~~comparable prior year quarter, due to ~~three months ended September 30, 2017.~~

the negative impact the rising interest rate environment had on the fair value of the loans in portfolio that are held at fair value.

42

~~Table of Contents~~

~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2023 Compared to the Same Period in ~~2017~~

~~Total~~2022

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


	Six Months Ended
(Dollars in thousands)	June 30, 2023		June 30, 2022		$ Change		% Change
Mortgage banking income	$	8,322	$	14,038	$	(5,716)	(40.7)	%
Wealth management income	2,431		2,558		(127)		(5.0)	%
SBA loan income	2,480		2,957		(477)		(16.1)	%
Earnings on investment in life insurance	385		275		110		40.0	%
Net change in the fair value of derivative instruments	114		(840)		954		(113.6)	%
Net change in the fair value of loans held-for-sale	(200)		(856)		656		(76.6)	%
Net change in the fair value of loans held-for-investment	(102)		(1,613)		1,511		(93.7)	%
Net (loss) gain on hedging activity	(1)		4,542		(4,543)		(100.0)	%
Net loss on sale of investment securities available-for-sale	(54)		—		(54)		(100.0)	%
Service charges	72		58		14		24.1	%
Other	2,315		2,386		(71)		(3.0)	%
Total non-interest income	$	15,762	$	23,505	$	(7,743)	(32.9)	%

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

housing inventory.

45

Table of Contents

NON-INTEREST EXPENSE

Three Months Ended ~~September~~June 30, ~~2018~~2023 Compared to the Same Period in ~~2017~~

2022

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


	Quarter Ended
(Dollars in thousands)	June 30, 2023		June 30, 2022		$ Change		% Change
Salaries and employee benefits	$	12,152	$	12,926	$	(774)	(6.0)	%
Occupancy and equipment	1,140		1,176		(36)		(3.1)	%
Professional fees	1,004		913		91		10.0	%
Advertising and promotion	1,091		1,189		(98)		(8.2)	%
Data processing and software	1,681		1,308		373		28.5	%
Other	2,547		2,194		353		16.1	%
Total non-interest expense	$	19,615	$	19,706	$	(91)	(0.5)	%

Total non-interest expense ~~was $13.8 million for the three months ended September 30, 2018, down $1.3 million,~~decreased $91 thousand, or ~~8.4%~~0.5%, ~~from $15.0 million for the three months ended September 30, 2017. The decrease is mainly~~largely attributable to a ~~reduction~~decrease in salaries and employee benefits expense ~~which decreased $1.4 million or 13.8%, as full-time equivalent employees, particularly~~ in the mortgage ~~division were reduced. In addition,~~segment, which had reduced fixed and variable ~~loan expenses decreased $231 thousand or 23.1%, reflecting~~based compensation due to the ~~lower level of~~overall decline in mortgage ~~originations. Occupancy and equipment, data~~banking income.

Data processing and ~~advertising~~software expense increased $373 thousand due to cybersecurity improvements, cloud-based costs, other software upgrades, and ~~promotion expenses were relatively flat for~~an increase in customer account volume, all as a result of growth. Other non-interest expense increased $353 thousand due largely to an increase in FDIC insurance expense, which reflected the ~~comparable third quarters. Professional and consulting expense for the three months ended September 30, 2018 included $230 thousand~~new 2 basis point increase in costs related to the formation of the holding company. Other expenses increased $454 thousand or 41.6%, related to a one-time fair market value adjustment of $177 thousand to contingent assets, as well as higher levels of other employee-related expenses, shares tax expense, and other expense.

~~Nine~~assessment.

Six Months Ended ~~September~~June 30, ~~2018~~2023 Compared to the Same Period in ~~2017~~

2022

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


	Six Months Ended
(Dollars in thousands)	June 30, 2023		June 30, 2022		$ Change		% Change
Salaries and employee benefits	$	23,213	$	28,224	$	(5,011)	(17.8)	%
Occupancy and equipment	2,384		2,428		(44)		(1.8)	%
Professional fees	1,827		1,761		66		3.7	%
Advertising and promotion	1,952		2,175		(223)		(10.3)	%
Data processing and software	3,113		2,497		616		24.7	%
Other	4,915		4,054		861		21.2	%
Total non-interest expense	$	37,404	$	41,139	$	(3,735)	(9.1)	%

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

Advertising and promotion expense decreased $223 thousand as the result of a reduction in mortgage ~~originations. Occupancy~~segment advertising and ~~equipment, data~~leads expense as mortgage origination volume was down significantly from the prior year. Data processing and ~~advertising~~software expense increased $616 thousand due to cybersecurity improvements, cloud-based costs and ~~promotion expenses~~other software upgrades, all as a result of growth. Other non-interest expense increased ~~$52~~$861 thousand ~~$53 thousand, and $265 thousand, respectively, for~~over the ~~year-to-date~~ period due largely to an increase in FDIC insurance expense, which reflected the new ~~business locations. Professional and consulting expense included $230 thousand~~2 basis point increase in costs related to the formation of the holding company. Other expenses were up $877 thousand or 27.4% compared to the prior year period. The increase year-over-year related to amortization of intangible assets of $68 thousand, a one-time fair market value adjustment of $177 thousand to contingent assets, a $200 thousand reserve established for the open litigation as well as higher levels of other employee-related expenses, shares tax expense, up by $45 thousand and $192 thousand, respectively.

assessment.

INCOME ~~TAXES~~

TAX EXPENSE

Income tax expense for the three months ended ~~September~~June 30, ~~2018~~2023 was ~~$774 thousand,~~$1.3 million, as compared to ~~$716 thousand~~$1.7 million for the same period in ~~2017, despite~~2022. The decrease in income tax expense was attributable to the ~~$1.3 million increase~~decrease in ~~pre-tax income~~earnings, period over ~~this~~ period. Our effective tax rate was ~~22.1%~~21.3% for the ~~third quarter of 2018~~three months ended June 30, 2023 and ~~33.9%~~22.4% for the third quarter of 2017. The effective tax rate decreased primarily due to the reduction in the Federal statutory tax rate to 21% in 2018 from 34% in 2017, due to the enactment of the Tax Cuts and Jobs Act, which was effective January 1, 2018.

three months ended June 30, 2022.

Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2018~~2023 was ~~$1.7~~$2.4 million, as compared to ~~$1.4~~$3.3 million for the same period in ~~2017, despite~~2022. The decrease in income tax expense was attributable to the ~~$3.4 million increase~~decrease in ~~pre-tax income~~earnings, period over ~~this~~ period. Our effective tax rate was ~~22.3%~~

21.43% for the six months ended June 30, 2023 and 22.14% for the six months ended June 30, 2022.

43

46

Table of Contents

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

BALANCE SHEET ANALYSIS

As of ~~September~~June 30, ~~2018,~~2023, total assets were ~~$959.8~~$2.2 billion which increased $144.6 million, ~~compared with $856.0~~or 7.0%, from December 31, 2022. This growth in assets over the prior period was due primarily to loan portfolio growth, as detailed in the following table:


(Dollars in thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Mortgage loans held for sale	$	40,422	$	22,243	$	18,179	81.7	%
Real estate loans:
Commercial mortgage	648,235		565,400		82,835		14.7
Home equity lines and loans	67,226		59,399		7,827		13.2
Residential mortgage	247,848		221,837		26,011		11.7
Construction	286,082		271,955		14,127		5.2
Total real estate loans	1,249,391		1,118,591		130,800		11.7

Commercial and industrial	310,280		341,378		(31,098)		(9.1)
Small business loans	147,937		136,155		11,782		8.7
Consumer	440		488		(48)		(9.8)
Leases, net	150,029		138,986		11,043		7.9
Total portfolio loans and leases	$	1,858,077	$	1,735,598	$	122,479	7.1
Total loans and leases	$	1,898,499	$	1,757,841	$	140,658	8.0	%

Portfolio loans increased $122.5 million, to $1.9 billion as of June 30, 2023, from $1.8 billion as of December 31, ~~2017. Total assets increased $103.8 million, or 12.1%, on a year-to-date basis primarily due to strong~~2022. Overall portfolio loan growth ~~partially offset by lower levels of cash.~~

~~Total loans, excluding mortgage loans held for sale, grew $112.2 million, or 16.1%, to $806.8 million as of September 30, 2018, from $694.6 million as of~~was 7.1% since December 31, ~~2017. The increase in loans is attributable to several commercial categories as we continue to grow our presence in the Philadelphia market area. Commercial loans increased $46.5 million,~~2022, or ~~22.2%, during the first nine months of the year.~~14.1% on an annualized basis for 2023. Commercial real estate ~~and commercial construction~~ loans ~~combined~~ increased ~~$52.9~~$82.8 million, or ~~14.4%~~14.7%, ~~during the first nine months of the year. Residential~~residential real estate loans held in portfolio increased ~~$18.0~~$26.0 million, or ~~55.2%~~11.7%, ~~during the first nine months as certain loan products or terms were targeted to hold in portfolio.Residential mortgage~~construction loans ~~held for sale decreased $980 thousand, or 2.8%, to $34.0 million as of September 30, 2018 from December 31, 2017.~~

~~Deposits were $781.9 million as of September 30, 2018, up $154.8~~increased $14.1 million, or ~~24.7%~~5.2%, ~~from December 31, 2017. Non-interest bearing~~and small business loans increased $11.8 million, or 8.7%.

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


(Dollars in thousands)	June 30, 2023		December 31, 2022		$ Change		% Change
Noninterest-bearing deposits	$	269,174	$	301,727	$	(32,553)	(10.8)	%
Interest-bearing deposits:
Interest-bearing demand deposits	155,907		219,838		(63,931)		(29.1)	%
Money market and savings deposits	710,546		697,564		12,982		1.9	%
Time deposits	646,978		493,350		153,628		31.1	%
Total interest-bearing deposits	$	1,513,431	$	1,410,752	$	102,679	7.3	%
Total deposits	$	1,782,605	$	1,712,479	$	70,126	4.1	%

Total deposits increased ~~$24.4~~$70.1 million, or ~~24.3%, from December 31, 2017. New business relationships fueled the increases. Money market accounts/savings accounts increased $49.9 million, or 22.0%~~4.1%, since December 31, ~~2017 while~~2022. Noninterest-bearing deposits and interest-bearing ~~checking~~ accounts ~~increased $21.5~~decreased $32.6 million, ~~or 26.2%,~~and $63.9 million, respectively, during the ~~year. Certificates~~period, with notable withdrawals of ~~deposit increased $59.1~~$19.9 million ~~or 27.0%, during the past nine months, paying off borrowings~~from 4 separate business customers due to their respective business sales. In addition, $20.2 million in municipal deposits were let go and replaced by brokered deposits due to more favorable wholesale rates and 2 loan relationships with $11.2 million in deposits combined, left Meridian as a result of growth. Time deposits grew $153.6 million, or 31.1%, from retail and wholesale ~~funds management~~efforts as customers prefer the higher term interest rates. Included in ~~the rising rate environment.~~

time deposits as of June 30, 2023, and December 31, 2022, are $409.6 million and $409.3 million of brokered deposits, respectively, which comprise 23.0% and 21.9% of total deposits as of these dates.

Capital

Consolidated ~~stockholder’s~~stockholders’ equity of the Corporation was ~~$107.0~~$154.0 million, or ~~11.15%~~7.0% of total assets as of ~~September~~June 30, ~~2018,~~2023, as compared to ~~$101.4~~$153.3 million, or ~~11.84%~~7.4% of total assets as of December 31, ~~2017.At September~~2022. On July 27, 2023, the Board of Directors declared a quarterly cash dividend of $0.125 per common share payable August 21, 2023 to shareholders of record as of August 14, 2023.

The June 30, ~~2018, the Tier 1 leverage ratio was 11.02%, the Tier 1 risk-based capital and~~2023 tangible common equity ~~ratios were 12.03%,~~to tangible assets ratio (a non-GAAP measure) was 6.8% for the Corporation and ~~total risk-based capital was 14.03%. At~~8.5% for the Bank, compared to 7.2% for the Corporation and 8.8% for the Bank at December 31, ~~2017, the Tier 1 leverage ratio was 12.37%, the Tier 1 risk-based capital and common equity ratios were 12.86%, and total risk-based capital was 15.53%.~~2022. Tangible book value per share (a non-GAAP measure) was ~~$15.91~~$13.42 as of ~~September~~June 30, ~~2018,~~2023, compared with ~~$15.00~~$13.01 as of December 31, ~~2017.~~

2022. A reconciliation of these non-GAAP measures is below.

47

Table of Contents

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


	Corporation				Bank				Well-capitalized minimum
	June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Tier 1 leverage ratio	7.46	%	8.13	%	9.22	%	9.95	%	5.00	%
Common tier 1 risk-based capital ratio	8.38	%	8.77	%	10.35	%	10.73	%	6.50	%
Tier 1 risk-based capital ratio	8.38	%	8.77	%	10.35	%	10.73	%	8.00	%
Total risk-based capital ratio	11.49	%	12.05	%	11.43	%	11.87	%	10.00	%

Under the Community Bank Leverage Ratio framework, a community banking organization that is less than $10 billion in total consolidated assets, and has limited amounts of ~~September~~certain assets and off-balance sheet exposures, and a CBLR greater than 9% can elect to report a single regulatory capital ratio. The Corporation has elected to be measured under this framework for Bank capital adequacy and had ratios of 9.22% and 9.95% at June 30, ~~2018~~2023 and December 31, ~~2017:~~

September 30, 2018

To be well capitalized under

For capital adequacy

prompt corrective action

Actual

purposes *

provisions
(dollars in thousands)

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)

$
119,825

14.03%

$
68,312

8.00%

$
85,389

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

102,688

12.03%

38,425

4.50%

55,503

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

102,688

12.03%

51,234

6.00%

68,312

8.00%
Tier 1 capital (to average assets)

102,688

11.02%

37,260

4.00%

46,575

5.00%

2022, respectively. The Corporation is exempt from CBLR.

44

~~Table~~In December 2018, the Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to the CECL adoption as of ~~Contents~~

December 31, 2017

To be well capitalized under

For capital adequacy

prompt corrective action

Actual

purposes *

provisions
(dollars in thousands):

Amount

Ratio

Amount

Ratio

Amount

Ratio
Total capital (to risk-weighted assets)

$
117,239

15.53%

$
60,376

8.00%

$
75,469

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

101,661

12.86%

33,961

4.50%

49,055

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

97,084

12.86%

45,282

6.00%

60,376

8.00%
Tier 1 capital (to average assets)

97,084

12.37%

31,582

4.00%

39,478

5.00%

*Excludesthe beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital ~~conservation buffer~~impact of ~~1.25%~~adopting CECL. Transitional amounts are calculated for ~~2017~~the following items: retained earnings, temporary difference deferred tax assets and ~~1.875%~~credit loss allowances eligible for ~~2018.~~

~~The~~inclusion in regulatory capital. When calculating regulatory capital ratios, for the Corporation, as of September 30, 2018, as shown in the above tables, indicate levels above the regulatory minimum to be considered “well capitalized.” The capital ratios to risk-weighted assets have all decreased from their December 31, 2017 levels largely as a result25% of the ~~increase~~transitional amounts are phased in ~~risk-weighted assets, much of which was in~~during the ~~commercial mortgage, construction, and commercial and industrial segments~~first year. An additional 25% of the ~~loan portfolio, which~~transitional amounts are ~~typically risk-weighted~~phased in over each of the next two years and at ~~100%.~~

the beginning of the fourth year, the day-one effects of CECL are completely reflected in regulatory capital.

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”),~~SNCs, which have a national market and can be sold in a timely manner. Meridian’s ~~primary~~available liquidity, which totaled ~~$133.9~~$276.8 million at ~~September~~June 30, ~~2018,~~2023, compared to ~~$125.9~~$264.4 million at December 31, ~~2017,~~2022, 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.~~needs and has access to approximately $853.3 million in liquidity from these sources. Through its relationship at the Federal Reserve, Meridian had available credit of approximately ~~$10.7~~$7.9 million at ~~September~~June 30, ~~2018.~~2023. At June 30, 2023, Meridian had $33 million in borrowings from the Federal Reserve under the BTFP. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of ~~September~~June 30, ~~2018,~~2023, Meridian’s maximum borrowing capacity with the FHLB was ~~$432.8~~$620.6 million. At ~~September~~June 30, ~~2018,~~2023, Meridian had borrowed ~~$137.1~~$161.6 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling ~~$88.1~~$120.0 million against its available credit lines. At ~~September~~June 30, ~~2018,~~2023, Meridian also had available ~~$39~~$15.0 million of unsecured federal funds lines of credit with other financial institutions as well as ~~$95.9~~$151.8 million of available short or long term funding through the ~~Certificate of Deposit Account Registry Service (“CDARS”)~~CDARS program and ~~$124.7~~$362.8 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

Discussion of Segments

As of ~~September~~June 30, ~~2018,~~2023, 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~~$6.6 million and ~~$5.7~~$13.5 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2023 as compared to ~~operating margin~~income before tax of ~~$1.3~~$6.9 million and ~~and $3.6~~$15.0 million for the same ~~respective~~ periods in 2017. Non-interest expense for both the three months and nine months ended September 30, 2018 includes $230 thousand in professional and consulting expense incurred related to the formation of the holding company.2022. The Banking Segment provided ~~68.8%~~111.5% and ~~76.6%~~122.7% of the ~~Bank’s~~Corporation’s pre-tax profit for the three and

45

~~Table of Contents~~

~~nine~~ six month periods ended ~~September~~June 30, ~~2018, respectively,~~2023, as compared to ~~59.8%~~89.7% and ~~87.0%~~101.9% for the same ~~respective~~ periods in ~~2017.~~

2022.

The Wealth Management Segment recorded ~~operating margin~~income before tax of ~~$34~~$317 thousand and ~~$640~~$557 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018, respectively,~~2023 as compared to ~~operating margin~~income before tax of ~~$181~~$749 thousand and ~~$201 thousand~~$1.3 million for the same ~~respective~~ periods in ~~2017. Non-interest expense for both~~2022. The decrease in income in this segment was the ~~three months and nine months ended September 30, 2018 includes~~result of declines in market conditions over 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.

period.

The Mortgage Banking Segment recorded ~~operating margin~~a loss before tax of ~~$1.1~~$1.0 million and $3.1 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2018,~~2023 as compared to ~~operating margins~~income before tax of ~~$668~~$41 thousand and ~~$335 thousand~~a loss before tax of $1.6 million for the same ~~respective~~ periods in ~~2017.~~2022. Mortgage Banking income and expenses related to loan originations and sales decreased due to lower ~~margins and~~ origination volume.

48

Table of Contents

Off Balance Sheet Risk

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

credit, and loan repurchase commitments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at ~~September~~June 30, ~~2018~~2023 were ~~$261.2~~$513.4 million as compared to ~~$220.2~~$506.2 million at December 31, ~~2017.~~

2022.

Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at ~~September~~June 30, ~~2018~~2023 amounted to ~~$2.5~~$10.6 million as compared to ~~$1.8~~$19.0 million at December 31, ~~2017.~~

2022.

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

~~Recent Litigation~~

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

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

~~Regulatory Update~~

The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), which was designed to ease certain restrictions imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, was enacted into law on May 24, 2018. Mostviolation of the ~~changes~~applicable federal, state, or local lending laws. The Corporation agrees to repurchase loans if the representations and warranties made with respect to such loans are breached. Based on the obligations described above, the Corporation was not required to repurchase loans for the three and six months ended June 30, 2023, while we repurchased two loans totaling $612 thousand for the three months ended June 30, 2022, and six loans totaling $1.5 million for the six months ended June 30, 2022.

Non-GAAP Financial Measures

Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate performance trends and the ~~Act can~~adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be ~~grouped into five general areas: mortgage lending; certain regulatory relief~~viewed as a substitute for ~~“community” banks; enhanced consumer protections~~performance and financial condition measures determined in ~~specific areas, including subjecting credit reporting agencies~~accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is it necessarily comparable to ~~additional requirements; certain regulatory relief for large financial institutions, including increasing~~non-GAAP performance measures that may be presented by other companies.

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

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

tangible book value per common share:

46


(dollars in thousands)	June 30, 2023			December 31, 2022
Total stockholders' equity (GAAP)	$	153,962		$	153,280
Less: Goodwill and intangible assets	3,972			4,074
Tangible common equity (non-GAAP)	149,990			149,206

Total assets (GAAP)	2,206,877			2,062,228
Less: Goodwill and intangible assets	3,972			4,074
Tangible assets (non-GAAP)	$	2,202,905		$	2,058,154

Stockholders' equity to total assets (GAAP)	6.98		%	7.43		%
Tangible common equity to tangible assets (non-GAAP)	6.81		%	7.25		%

Shares outstanding	11,178			11,466

Book value per share (GAAP)	$	13.77		$	13.37
Tangible book value per share (non-GAAP)	$	13.42		$	13.01

49

Table of Contents

~~banking agencies~~The following is a reconciliation of the allowance for credit losses to ~~establish~~total loans held for investment ratio at June 30, 2023. This is considered a ~~community bank leverage ratio~~non-GAAP measure as the calculation excludes the impact of ~~tangible equity to average consolidate assets~~loans held for investment that are fair valued and the impact of PPP loans as these loan types are not ~~less than 8% or more than 10% and provide that banks that maintain tangible equity~~included in ~~excess of such ratio will be deemed to be in compliance with risk-based capital and leverage requirements; (iv) assisting smaller banks with obtaining stable funding by providing an exception~~the allowance for reciprocal deposits from FDIC restrictions on acceptance of brokered deposits; (v) raising the eligibility for use of short-form Call Reports from $1 billion to $5 billion in assets; and (vi) clarifying definitions pertaining to high volatility commercial real estate loans (HVCRE), which require higher capital allocations, so that only loans with increased risk are subject to higher risk weightings. The Corporation continues to analyze the changes implemented by the Act and further rulemaking from federal banking regulators, but, at this time, does not believe that such changes will materially impact the Corporation’s business, operations, or financial results.

credit losses calculation.


	June 30, 2023			December 31, 2022
Allowance for credit losses	$	20,242		$	18,828

Loans, net of fees and costs (GAAP)	1,859,839			1,743,682
Less: PPP loans	(187)			(4,579)
Less: Loans fair valued	(14,403)			(14,502)
Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	$	1,845,249		$	1,724,601

Allowance for credit losses, net of fees and costs (GAAP)	1.09		%	1.08		%
Allowance for credit losses, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	1.10		%	1.09		%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~See~~

Simulations of Net Interest Income

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

•The timing of changes in interest rates;

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

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

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

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

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

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

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

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


	June 30,
Changes in Market Interest Rates	2023		2022
+300 basis points over next 12 months	(1.92)	%	1.42	%
+200 basis points over next 12 months	(1.14)	%	1.18	%
+100 basis points over next 12 months	(0.44)	%	0.69	%
No Change
-100 basis points over next 12 months	(1.14)	%	(1.67)	%
-200 basis points over next 12 months	(2.29)	%	(3.77)	%

The above interest rate simulation suggests that the Corporation’s balance sheet is liability sensitive as of ~~Results~~June 30, 2023. In its current position, the table indicates that net interest income will fluctuate between (0.44%) and (1.44%) in an up or down 100 basis point environment over the next 12 months. The simulated exposure to a change in interest rates is manageable and well within policy guidelines. The results continue to drive our funding strategy of ~~Operations –~~increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.

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Table of Contents

Simulation of economic value of equity

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


Changes in Market Interest Rates	June 30, 2023		June 30, 2022
+300 basis points	1	%	11	%
+200 basis points	3	%	9	%
+100 basis points	3	%	7	%
No Change
-100 basis points	(7)	%	(13)	%
-200 basis points	(20)	%	(35)	%

This economic value of equity profile at June 30, 2023 suggests that we would experience a positive effect from an increase in rates, and that the impact would remain stable as rates continue to rise. Conversely, we would experience a negative effect from a decrease in rates. While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact. Since economic value of equity measures the discounted present value of cash flows over the estimated lives of instruments, the change in economic value of equity does not directly correlate to the degree that earnings would be impacted over a shorter time horizon.

The results of our net interest income and economic value of equity simulation analysis are purely hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from that projected, our net interest income might vary significantly. Non-parallel yield curve shifts or changes in interest rate spreads would also cause 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 interest-earning assets and interest-bearing liabilities grow faster or slower than estimated, or otherwise change its mix of products. Actual results could also differ from those projected if actual repayment speeds in the loan portfolio are substantially different 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 loan prepayment rates were to increase, any remaining loan discounts would be recognized 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 management may undertake in response to changes in interest rates, such as changes to loan, investment, deposit, funding or other strategies.

Management has and continues to employ strategies to mitigate risk in the Net Interest ~~Rate Summary,” “– Interest Rate Sensitivity,”~~Income and ~~“Gap Analysis”~~Economic Value simulations.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

~~Item 4. Controls and Procedures~~

~~Disclosure Controls and Procedures~~

Management, with the participation of the Corporation’s President and Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures (as defined in Rule l3a-l5 (e) promulgated under the Exchange Act) as of September 30, 2018.10-Q. Based on this evaluation, the Corporation’s ~~President~~CEO and ~~Chief Executive Officer and Chief Financial Officer~~CFO have concluded that the Corporation’s disclosure controls and procedures ~~are~~were effective as of ~~September~~June 30, ~~2018~~2023 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

Effective January 1, 2023, the Corporation adopted CECL. The Corporation designed new controls and modified existing controls as part of this adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. There ~~was~~were no ~~change~~other changes in the ~~Corporation’s~~Corporation's internal control over financial reporting ~~identified~~(as defined in Rule 13a-15(f)) during the quarter ended ~~September~~June 30, ~~2018~~2023 that ~~has~~ materially affected, or isare reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

47

PART II–OTHER INFORMATION

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Table of Contents

~~PART II–OTHER INFORMATION~~

Item 1. Legal Proceedings.

~~On November 21, 2017, three former employees~~

None

Item 1A. Risk Factors.

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 as filed with the SEC. Additional risks not presently known to the Corporation, or that are currently deemed immaterial, may also adversely affect business, financial condition or results of operations of the ~~mortgage-banking division~~Corporation. Further, to the extent that any of the ~~Bank filed suit~~information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the ~~United States District Court for~~risk factor set forth below also is a cautionary statement identifying important factors that could cause the ~~Eastern District of Pennsylvania,~~ ~~Juan Jordan et al. v. Meridian Bank, Thomas Campbell and Christopher Annas, against the Bank purporting~~Corporation’s actual results 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~~differ materially from those expressed in any forward-looking statements made by or on behalf of ~~similarly situated plaintiffs.~~it.

Weakness in the secondary residential mortgage loan markets or demand for mortgage loans may adversely affect income.

Our mortgage banking segment can provide a significant portion of our non-interest income. Mortgage activity throughout the industry decreased significantly in 2022 and our mortgage activity decreased as well. Residential mortgage lending is subject to substantial volatility due to changes in interest rates, the continued lack of housing inventory, housing demand, inflation, cash buyers, new mortgage lending regulations and other market conditions, such as the number of third-party investors and their demand to purchase mortgage loans. These factors have a direct effect on loan originations across the industry. In ~~February 2018,~~particular, in the ~~Bank answered the complaint~~current higher interest rate environment compounded by a sustained lack of housing inventory, our originations of mortgage loans decreased resulting in fewer loans available to be sold to investors, which has resulted in a decrease in non-interest income that may continue into future periods, 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 uncertaintywhich may occur during other periods of ~~litigation, the preliminary stage of the case, and the legal standards that must be met for, among other things, success~~rising interest rates.

Based on the ~~merits,~~above factors we may not be able to return our mortgage business to the ~~Bank has recorded~~rates of growth achieved in recent years or even grow our mortgage business from current levels. The success of our mortgage segment is dependent upon our ability to originate a ~~$200 thousand reserve as~~high volume of loans and sell them in the secondary market to investors at a ~~reasonable estimate~~gain. In addition, our results of operations are affected by the amount of non-interest expenses (including for ~~possible losses that may result from this action. This estimate may change from time~~personnel and systems infrastructure) associated with mortgage banking activities. During periods of reduced loan demand, our results of operations are adversely affected if we are unable to ~~time, and actual losses could vary.~~

~~Item 1A. Risk Factors.~~

~~Not applicable.~~

reduce expenses commensurate with the decline in mortgage loan origination activity.

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

~~None.~~

The following table presents the shares repurchased by the Corporation during the quarter ended June 30, 2023:


	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value that May Yet Be Purchased Under the Plan or Programs (1)($000's)
	(Dollars in thousands, except shares and per share amounts)
April 1 to April 30, 2023	127,849	$	12.21	127,849


Total	127,849	$	12.21		$—

(1) On August 30, 2021, the Corporation announced a stock repurchase plan pursuant to which the Corporation may repurchase up to $20 million of the company’s outstanding common stock, par value $1.00 per share. Stock is purchased under the plan from time to time in the open market or through privately negotiated transactions, or otherwise, at the discretion of management of the company in accordance with legal requirements. On April 22, 2023, the stock repurchase plan expired. The total amount of stock repurchased under the plan was $19.6 million in total.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

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

~~Item 6. Exhibits.~~

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

48

None.

52

Table of Contents

Item 6. Exhibits.

EXHIBIT INDEX

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

49

53

Table of Contents

SIGNATURES

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

~~Date:~~	~~November 14, 2018~~	~~Meridian Bank~~
Date:			August 9, 2023	Meridian Corporation
				~~By:~~
				By:	/s/ Christopher J. Annas
					Christopher J. Annas
			President and Chief Executive Officer
			(Principal Executive Officer)

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

50

54

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


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


PART I FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)			3

Consolidated Balance Sheets – ~~September~~June 30, ~~2018~~ 2023 and December 31, ~~2017~~ 2022			3

Consolidated Statements of Income – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2023 and ~~2017~~ 2022			4

Consolidated Statements of Comprehensive Income (Loss) – Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2023 and ~~2017~~ 2022			5

Consolidated Statements of Stockholders’ Equity – ~~Nine~~Three and Six Months Ended ~~September~~June 30, ~~2018~~2023 and ~~2017~~ 2022			6

Consolidated Statements of Cash Flows – ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2023 and ~~2017~~ 2022			7 8

Notes to Consolidated Financial Statements (Unaudited)			8 9

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			30 37

Item 3 Quantitative and Qualitative Disclosures about Market Risk			47 50

Item 4 Controls and Procedures			47 51

PART II OTHER INFORMATION

Item 1 Legal Proceedings			48 52

Item 1A Risk Factors			48 52

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			48 52

Item 3 Defaults Upon Senior Securities			48 52

Item 4 Mine Safety Disclosures			48 52

Item 5 Other Information			48 52

Item 6 Exhibits			48 53

Signatures			50 54


Acronym			Description

ACH			Automated clearing house
ACL			Allowance for credit losses
AFS			Available-for-sale
ALCO			Asset/Liability Committee
ALLL			Allowance for loan and lease losses
ALM			Asset / liability management
AOCI			Accumulated other comprehensive income
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
BHC Act			Bank Holding Company Act of 1956
BOLI			Bank owned life insurance
BSA-AML			Bank Secrecy Act - Anti-Money Laundering
BTFP			Federal Reserve Bank Term Funding Program
CBCA			Change in Bank Control Act
CBLR			Community Bank Leverage Ratio
CDARS			Certificate of Deposit Account Registry Service
CECL			Current expected credit losses
CET1			Common equity tier 1
CFPB			Consumer Financial Protection Bureau
CMO			Collateralized mortgage obligation
COVID-19			Coronavirus Disease 2019
CRE			Commercial real estate
DIF			FDIC’s deposit insurance fund
ECOA			Equal Credit Opportunity Act
ESOP			Employee Stock Ownership Plan
FASB			Financial Accounting Standards Board

FDIC			Federal Deposit Insurance Corporation
FFIEC			Federal Financial Institutions Examination Council
FHA			Federal Housing Authority
FHFA			Federal Housing Finance Agency
FHLB			Federal Home Loan Bank of Pittsburgh
FHLMC			Federal Home Loan Mortgage Corporation or Freddie Mac
FICO			Financing Corporation
FNMA			Federal National Mortgage Association or Fannie Mae
FRB			Federal Reserve Bank of Philadelphia
FTE			Fully taxable equivalent
GAAP			U.S. generally accepted accounting principles
GLB Act			Gramm-Leach-Bliley Act
GNMA			Government National Mortgage Association or Ginnie Mae
GSE			Government-sponsored entities
HTM			Held-to-maturity
ICBA			Independent Community Bankers of America
JOBS Act			Jumpstart Our Business Startups Act of 2012
LBP			Look-back period
LEP			Loss emergence period


LGD			Loss given default
LIBOR			London Inter-bank Offering Rate
LIHTC			Low-income-housing tax credit
MBS			Mortgage-backed securities
MSLP			Main Street Lending Programs
MSR			Mortgage servicing rights
OFAC			Office of Foreign Assets Control
OREO			Other real estate owned
PCAOB			Public Company Accounting Oversight Board
PD			Probability of default
PDBS			Pennsylvania Department of Banking and Securities
PPP			Paycheck Protection Program
ROU			Right-of-use
SBA			Small Business Administration
SEC			Securities and Exchange Commission
SERP			Supplemental Executive Retirement Plan
SNC			Shared national credit
SOFR			Secure Overnight Financing Rate
TILA			Truth in Lending Act
TDR			Troubled debt restructuring
USDA			U.S. Department of Agriculture
VA			U.S. Department of Veteran’s Affairs


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


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


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


(dollars in thousands, except share data)	June 30, 2023		December 31, 2022
Assets:
Cash and due from banks	$	10,576	$	11,299
Interest-bearing deposits at other banks	36,290		27,092

Cash and cash equivalents	46,866		38,391
Securities available-for-sale, at fair value (amortized cost of $139,854 and $148,976, respectively)	126,668		135,346
Securities held-to-maturity, at amortized cost (fair value of $32,858 and $33,085, respectively)	36,463		37,479
Equity investments	2,097		2,086
Mortgage loans held for sale	40,422		22,243
Loans, net of fees and costs	1,859,839		1,743,682
Allowance for credit losses	(20,242)		(18,828)
Loans and other finance receivables, net of the allowance for credit losses	1,839,597		1,724,854
Restricted investment in bank stock	9,157		6,931
Bank premises and equipment, net	13,234		13,349
Bank owned life insurance	28,440		28,055
Accrued interest receivable	7,651		7,363
Other real estate owned	1,703		1,703
Deferred income taxes	4,258		3,936
Servicing assets	12,193		12,346
Goodwill	899		899
Intangible assets	3,073		3,175
Other assets	34,156		24,072
Total assets	$	2,206,877	$	2,062,228

Liabilities:
Deposits:
Non-interest bearing	$	269,174	$	301,727
Interest bearing	1,513,431		1,410,752
Total deposits	1,782,605		1,712,479
Borrowings	194,636		122,082

Subordinated debentures	40,348		40,346
Accrued interest payable	5,612		2,389
Other liabilities	29,714		31,652
Total liabilities	2,052,915		1,908,948

Stockholders’ equity:
Common stock, $1 par value per share. 25,000,000 shares authorized; 13,180,934 and 13,156,308 shares issued and 11,177,751 and 11,465,572 shares outstanding, respectively	13,181		13,156
Surplus	79,650		79,072
Treasury stock, 2,003,183 and 1,690,736 shares, respectively, at cost	(26,079)		(21,821)
Unearned common stock held by employee stock ownership plan	(1,403)		(1,403)
Retained earnings	99,434		95,815
Accumulated other comprehensive loss	(10,821)		(11,539)
Total stockholders’ equity	153,962		153,280
Total liabilities and stockholders’ equity	$	2,206,877	$	2,062,228


	Three months ended			Nine months ended
	September 30,			September 30,			Three months ended June 30,				Six months ended June 30,
(dollars in thousands, except per share data)	2018		2017	2018	2017	(dollars in thousands, except per share data)	2023		2022		2023			2022
Interest income:						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
Loans and other finance receivables, including fees						Loans and other finance receivables, including fees	$	32,215	$	19,120	$	61,632		$	36,339
Securities - taxable						Securities - taxable	992		525		1,951			951
Securities - tax-exempt						Securities - tax-exempt	351		340		705			646
Cash and cash equivalents		30	14	75	55	Cash and cash equivalents	278		52		495			65
Total interest income		11,573	9,191	32,177	25,912	Total interest income	33,836		20,037		64,783			38,001
Interest expense:						Interest expense:
Deposits		2,485	1,207	6,171	3,079	Deposits	14,023		1,818		25,470			3,107
Borrowings		710	643	1,790	1,728	Borrowings	2,715		668		4,538			1,308
Total interest expense		3,195	1,850	7,961	4,807	Total interest expense	16,738		2,486		30,008			4,415
Net interest income		8,378	7,341	24,216	21,105	Net interest income	17,098		17,551		34,775			33,586
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
Provision for credit losses						Provision for credit losses	705		602		2,104			1,217
Net interest income after provision for credit losses						Net interest income after provision for credit losses	16,393		16,949		32,671			32,369
Non-interest income:						Non-interest income:
Mortgage banking income		8,274	9,904	20,407	25,089	Mortgage banking income	5,050		6,942		8,322			14,038
Wealth management income		930	934	2,996	1,905	Wealth management income	1,235		1,254		2,431			2,558
SBA loan income						SBA loan income	1,767		437		2,480			2,957
Earnings on investment in life insurance		74	83	225	194	Earnings on investment in life insurance	193		137		385			275
Net change in the fair value of derivative instruments		70	(503)	59	(115)	Net change in the fair value of derivative instruments	183		(674)		114			(840)
Net change in the fair value of loans held-for-sale		(300)	(115)	(241)	102	Net change in the fair value of loans held-for-sale	(199)		268		(200)			(856)
Net change in the fair value of loans held-for-investment		(103)	71	(289)	113	Net change in the fair value of loans held-for-investment	(219)		(835)		(102)			(1,613)
Gain on sale of investment securities available-for-sale		—	—	—	4
Net (loss) gain on hedging activity						Net (loss) gain on hedging activity	(1)		1,715		(1)			4,542
Net loss on sale of investment securities available-for-sale						Net loss on sale of investment securities available-for-sale	(54)		—		(54)			—
Service charges		27	22	87	62	Service charges	37		31		72			58
Other		195	54	1,647	168	Other	1,132		1,128		2,315			2,386
Total non-interest income		9,167	10,450	24,891	27,522	Total non-interest income	9,124		10,403		15,762			23,505
Non-interest expenses:
Non-interest expense:						Non-interest expense:
Salaries and employee benefits		8,901	10,330	26,719	29,753	Salaries and employee benefits	12,152		12,926		23,213			28,224
Occupancy and equipment		920	992	2,870	2,818	Occupancy and equipment	1,140		1,176		2,384			2,428
Loan expenses		769	1,000	1,962	3,008
Professional fees		714	481	1,670	1,384	Professional fees	1,004		913		1,827			1,761
Advertising and promotion		590	597	1,802	1,537	Advertising and promotion	1,091		1,189		1,952			2,175
Data processing		334	337	924	871
FDIC assessment		179	183	358	479
Data processing and software						Data processing and software	1,681		1,308		3,113			2,497

Other		1,346	1,092	4,084	3,207	Other	2,547		2,194		4,915		—	4,054
Total non-interest expenses		13,753	15,012	40,389	43,057
Total non-interest expense						Total non-interest expense	19,615		19,706		37,404			41,139
Income before income taxes		3,501	2,114	7,460	4,125	Income before income taxes	5,902		7,646		11,029			14,735
Income tax expense		774	716	1,661	1,381	Income tax expense	1,257		1,708		2,363			3,262
Net income		2,727	1,398	5,799	2,744	Net income	$	4,645	$	5,938	$	8,666		$	11,473
Dividends on preferred stock		—	(289)	—	(867)
Net income for common stockholders	$	2,727	1,109	5,799	1,877

Basic earnings per common share	$	0.43	0.30	0.91	0.51	Basic earnings per common share	$	0.42	$	0.49	$	0.78		$	0.95

Diluted earnings per common share	$	0.42	0.30	0.90	0.51	Diluted earnings per common share	$	0.41	$	0.48	$	0.75		$	0.92
Basic weighted average shares outstanding						Basic weighted average shares outstanding	11,062		11,998		11,167			12,022
Diluted weighted average shares outstanding						Diluted weighted average shares outstanding	11,304		12,398		11,494			12,458


(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total
Three Months Ended June 30, 2023
Balance at April 1, 2023	$	13,180	$	79,473	$	(24,512)	$	(1,403)	$	96,180	$	(9,869)	$	153,049
Net income	—		—		—		—		4,645		—		4,645
Other comprehensive loss	—		—		—		—		—		(952)		(952)
Dividends paid or accrued, $0.125 per share	—		—		—		—		(1,391)		—		(1,391)
Net purchase of treasury stock through publicly announced plans (127,849 shares)	—		—		(1,567)		—		—		—		(1,567)
Common stock issued through share-based awards and exercises	1		20		—		—		—		—		21
Stock based compensation expense	—		157		—		—		—		—		157
Balance at June 30, 2023	$	13,181	$	79,650	$	(26,079)	$	(1,403)	$	99,434	$	(10,821)	$	153,962


	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


	June 30, 2023
(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Allowance for Credit Losses		Fair value		# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities	$	12,158	$	110	$	(235)	$	—	$	12,033	9
U.S. government agency MBS	10,985		—		(539)		—		10,446		12
U.S. government agency CMO	22,684		—		(2,387)		—		20,297		30
State and municipal securities	40,456		—		(4,877)		—		35,579		31
U.S. Treasuries	32,981		—		(3,323)		—		29,658		25
Non-U.S. government agency CMO	12,390		1		(820)		—		11,571		13
Corporate bonds	8,200		—		(1,116)		—		7,084		13
Total securities available-for-sale	$	139,854	$	111	$	(13,297)	$	—	$	126,668	133

Securities held to maturity:
State and municipal securities	$	36,463	$	—	$	(3,605)	$	—	$	32,858	24
Total securities held-to-maturity	$	36,463	$	—	$	(3,605)	$	—	$	32,858	24


	September 30, 2018
			Gross	Gross
	Amortized		unrealized	unrealized	Fair		December 31, 2022
(dollars in thousands)	cost		gains	losses	value	(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		# of Securities in unrealized loss position
Securities available-for-sale:						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
U.S. asset backed securities						U.S. asset backed securities	$	15,581	$	14	$	(314)	$	15,281	12
U.S. government agency MBS						U.S. government agency MBS	12,272		5		(538)		11,739		12
U.S. government agency CMO						U.S. government agency CMO	25,520		40		(2,242)		23,318		29
State and municipal securities		9,946	—	(341)	9,605	State and municipal securities	44,700		—		(5,862)		38,838		34
Investments in mutual funds and other equity securities		1,000	—	(30)	970
U.S. Treasuries						U.S. Treasuries	32,980		—		(3,457)		29,523		25
Non-U.S. government agency CMO						Non-U.S. government agency CMO	9,722		—		(633)		9,089		11
Corporate bonds						Corporate bonds	8,201		—		(643)		7,558		12
Total securities available-for-sale	$	48,730	21	(1,073)	47,678	Total securities available-for-sale	$	148,976	$	59	$	(13,689)	$	135,346	135
Securities held to maturity:
U.S. Treasuries	$	1,987	—	(18)	1,969

Securities held-to-maturity:						Securities held-to-maturity:
State and municipal securities		10,784	15	(196)	10,603	State and municipal securities	$	37,479	$	—	$	(4,394)	$	33,085	25
Total securities held-to-maturity	$	12,771	15	(214)	12,572


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


	September 30, 2018
	Less than 12 Months			12 Months or more		Total			June 30, 2023
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized		Less than 12 Months				12 Months or more				Total
(dollars in thousands)	value		losses	value	losses	value	losses	(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Securities
Securities available-for-sale:								Securities available-for-sale:
U.S. asset backed securities								U.S. asset backed securities	$	—	$	—	$	7,423	$	(235)	$	7,423	$	(235)
U.S. government agency mortgage-backed securities	$	11,483	(128)	9,702	(303)	21,185	(431)	U.S. government agency mortgage-backed securities	2,151		(7)		8,296		(532)		10,446		(539)
U.S. government agency collateralized mortgage obligations		8,627	(102)	4,261	(169)	12,888	(271)	U.S. government agency collateralized mortgage obligations	3,676		(104)		16,621		(2,283)		20,297		(2,387)
State and municipal securities		5,019	(112)	4,587	(229)	9,606	(341)	State and municipal securities	—		—		35,579		(4,877)		35,579		(4,877)
Investments in mutual funds and other equity securities		970	(30)	—	—	970	(30)
U.S. Treasuries								U.S. Treasuries	—		—		29,658		(3,323)		29,658		(3,323)
Non-U.S. government agency collateralized mortgage obligations								Non-U.S. government agency collateralized mortgage obligations	4,674		(84)		6,221		(736)		10,895		(820)
Corporate bonds								Corporate bonds	2,208		(292)		4,876		(824)		7,084		(1,116)
Total securities available-for-sale	$	26,099	(372)	18,550	(701)	44,649	(1,073)	Total securities available-for-sale	$	12,709	$	(487)	$	108,674	$	(12,810)	$	121,382	$	(13,297)

Securities held-to-maturity:								Securities held-to-maturity:
U.S. Treasuries	$	1,950	(18)	—	—	1,950	(18)
State and municipal securities		6,537	(98)	2,211	(98)	8,748	(196)	State and municipal securities	$	6,740	$	(95)	$	25,681	$	(3,510)	$	32,421	$	(3,605)
Total securities held-to-maturity	$	8,487	(116)	2,211	(98)	10,698	(214)	Total securities held-to-maturity	$	6,740	$	(95)	$	25,681	$	(3,510)	$	32,421	$	(3,605)


	June 30, 2023
(dollars in thousands)	30-89 days past due		90+ days past due and still accruing		Total past due		Current		Total Accruing Loans and leases		Nonaccrual loans and leases		Total loans portfolio and leases		% Delinquent
Commercial mortgage	$	—	$	—	$	—	$	648,235	$	648,235	$	—	$	648,235	—	%
Home equity lines and loans	89		—		89		66,206		66,295		931		67,226		1.52
Residential mortgage (1)	871		—		871		244,705		245,576		2,272		247,848		1.27
Construction	—		—		—		284,876		284,876		1,206		286,082		0.42
Commercial and industrial	—		—		—		294,617		294,617		15,663		310,280		5.05
Small business loans	1,742		—		1,742		140,038		141,780		6,157		147,937		5.34
Consumer	—		—		—		440		440		—		440		—
Leases, net	1,048		—		1,048		147,846		148,894		1,135		150,029		1.46	%
Total	$	3,750	$	—	$	3,750	$	1,826,963	$	1,830,713	$	27,364	$	1,858,077	1.67	%


	June 30, 2023
(dollars in thousands)	Nonaccrual Without ACL		Nonaccrual With ACL		Total Nonaccrual


Home equity lines and loans	$	931	$	—	$	931
Residential mortgage	2,272		—		2,272
Construction	1,206		—		1,206

Commercial and industrial	3,348		12,315		15,663
Small business loans	1,564		4,593		6,157

Leases, net	—		1,135		1,135
Total	$	9,321	$	18,043	$	27,364


						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	%


	June 30, 2023
(dollars in thousands)	Real Estate		Equipment and Other		Total

Home equity lines and loans	$	931	$	—	$	931
Residential mortgage	2,272		—		2,272
Construction	1,206		—		1,206
Commercial and industrial	1,895		13,768		15,663
Small business loans	4,572		1,585		6,157

Leases, net	—		1,135		1,135
Total	$	10,876	$	16,488	$	27,364


	Three Months Ended June 30, 2023
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (recovery of provision) for credit losses		Ending balance
Commercial mortgage	$	3,475	$	—	$	—	$	(226)	$	3,249
Home equity lines and loans	615		(54)		1		228		790
Residential mortgage	868		—		—		179		1,047
Construction	1,119		—		—		175		1,294
Commercial and industrial	2,733		—		17		(509)		2,241
Small business loans	6,316		(326)		—		878		6,868
Consumer	—		—		1		(1)		—
Leases	5,316		(775)		149		63		4,753
Total	$	20,442	$	(1,155)	$	168	$	787	$	20,242


	Six Months Ended June 30, 2023
(dollars in thousands)	Beginning Balance, prior to adoption of ASU No. 2016-13 for CECL		Adjustment to initially apply ASU No. 2016-13 for CECL		Charge-offs		Recoveries		Provision (recovery of provision) for credit losses		Ending balance
Commercial mortgage	$	4,095	$	(526)	$	—	$	—	$	(320)	$	3,249
Home equity lines and loans	188		439		(87)		3		247		790
Residential mortgage	948		17		—		—		82		1,047
Construction	3,075		(1,763)		—		—		(18)		1,294
Commercial and industrial	4,012		(1,023)		—		56		(804)		2,241
Small business loans	4,909		1,110		(326)		—		1,175		6,868
Consumer	3		(3)		—		2		(2)		—
Leases	1,598		3,345		(2,239)		152		1,897		4,753
Total	$	18,828	$	1,596	$	(2,652)	$	213	$	2,257	$	20,242


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


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


	June 30, 2023
	Allowance for credit losses						Carrying value of loans and leases
(dollars in thousands)	Individually evaluated		Collectively evaluated		Total		Individually evaluated		Collectively evaluated		Total
Commercial mortgage	$	—	$	3,249	$	3,249	$	—	$	648,235	$	648,235
Home equity lines and loans	—		790		790		931		66,295		67,226
Residential mortgage	—		1,047		1,047		1,722		231,723		233,445
Construction	—		1,294		1,294		1,206		284,876		286,082
Commercial and industrial	998		1,243		2,241		15,681		294,599		310,280
Small business loans	1,599		5,269		6,868		6,157		141,780		147,937
Consumer	—		—		—		—		440		440
Leases, net	—		4,753		4,753		1,135		148,894		150,029
Total (1)	$	2,597	$	17,645	$	20,242	$	26,832	$	1,816,842	$	1,843,674


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


	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)

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


	June 30, 2023												Revolving Loans Converted to Term Loans		Revolving Loans		Total
	Term Loans
	2023		2022		2021		2020		2019		Prior
Commercial mortgage
Pass/Watch	$	56,635	$	128,590	$	142,562	$	97,800	$	54,142	$	138,257	$	511	$	375	$	618,872
Special Mention	—		4,687		—		—		9,331		10,145		667		—		24,830
Substandard	200		—		—		—		1,662		2,340		—		331		4,533

Total	$	56,835	$	133,277	$	142,562	$	97,800	$	65,135	$	150,742	$	1,178	$	706	$	648,235
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction
Pass/Watch	$	32,623	$	103,126	$	55,014	$	48,430	$	4,563	$	2,147	$	123	$	23,654	$	269,680
Special Mention	—		—		1,084		—		503		11,916		—		1,693		15,196
Substandard	—		—		—		—		—		1,206		—		—		1,206

Total	$	32,623	$	103,126	$	56,098	$	48,430	$	5,066	$	15,269	$	123	$	25,347	$	286,082
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial
Pass/Watch	$	7,917	$	43,176	$	33,533	$	8,425	$	5,169	$	43,263	$	—	$	123,781	$	265,264
Special Mention	1,000		4,802		—		—		—		2,679		—		3,670		12,151
Substandard	—		—		4,659		933		300		8,762		—		18,211		32,865

Total	$	8,917	$	47,978	$	38,192	$	9,358	$	5,469	$	54,704	$	—	$	145,662	$	310,280
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Small business loans
Pass/Watch	$	36,484	$	24,949	$	44,952	$	14,512	$	7,198	$	1,115	$	—	$	12,301	$	141,511
Special Mention	—		169		—		—		—		—		—		100		269
Substandard	—		—		2,829		1,916		912		—		—		500		6,157

Total	$	36,484	$	25,118	$	47,781	$	16,428	$	8,110	$	1,115	$	—	$	12,901	$	147,937
Current period gross charge-offs	$	—	$	—	$	—	$	(161)	$	(165)	$	—	$	—	$	—	$	(326)

Total by risk rating
Pass/Watch	$	133,659	$	299,841	$	276,062	$	169,168	$	71,072	$	184,782	$	634	$	160,111	$	1,295,328
Special Mention	1,000		9,658		1,084		—		9,834		24,740		667		5,463		52,446
Substandard	200		—		7,488		2,849		2,874		12,308		—		19,042		44,761
Doubtful	—		—		—		—		—		—		—		—		—
Total	$	134,859	$	309,498	$	284,633	$	172,016	$	83,780	$	221,830	$	1,301	$	184,616	$	1,392,535
Total current period gross charge-offs	$	—	$	—	$	—	$	(161)	$	(165)	$	—	$	—	$	—	$	(326)


September 30, 2018			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	311,857	4,539	275	—	316,671
Home equity lines and loans		82,606	—	167	—	82,773
Construction		102,361	2,157	—	—	104,518
Commercial and industrial		234,055	16,016	2,859	30	252,960
Total	$	730,879	22,712	3,301	30	756,922


	At September 30, 2018					At December 31, 2017
					Average				Average
	Recorded		Principal	Related	recorded	Recorded	Principal	Related	recorded		June 30, 2023						December 31, 2022
(dollars in thousands)	investment		balance	allowance	investment	investment	balance	allowance	investment	(dollars in thousands)	Recorded investment		Principal balance		Related allowance		Recorded investment		Principal balance		Related allowance
Impaired loans with related allowance:
Individually evaluated loans with related allowance:										Individually evaluated loans with related allowance:
Commercial and industrial										Commercial and industrial	$	12,315	$	13,760	$	998	$	11,099	$	12,095	$	776
Small business loans										Small business loans	4,593		4,618		1,599		3,730		3,730		1,449

Total										Total	$	16,908	$	18,378	$	2,597	$	14,829	$	15,825	$	2,225
Individually evaluated loans without related allowance:										Individually evaluated loans without related allowance:
Commercial mortgage	$	—	—	—	—	—	—	—	—	Commercial mortgage	$	—	$	—	$	—	$	2,445	$	2,456	$	—
Commercial and industrial		479	479	7	476	124	491	1	173	Commercial and industrial	3,366		3,398		—		1,448		1,494		—
Small business loans										Small business loans	1,564		1,642		—		797		797		—
Home equity lines and loans		—	—	—	—	—	—	—	—	Home equity lines and loans	931		933		—		1,097		1,097		—
Residential mortgage		—	—	—	—	—	—	—	—	Residential mortgage	1,722		1,722		—		1,454		1,454		—
Construction		—	—	—	—	—	—	—	—	Construction	1,206		1,206		—		1,206		1,206		—
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
Leases										Leases	1,135		1,135		—		902		902		—
Total		5,997	6,525	—	6,187	4,087	5,851	—	5,135	Total	9,924		10,036		—		9,349		9,406		—
Grand Total	$	6,476	7,004	7	6,663	4,211	6,342	1	5,308	Grand Total	$	26,832	$	28,414	$	2,597	$	24,178	$	25,231	$	2,225


	Three Months Ended June 30, 2023				Three Months Ended June 30, 2022
(dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Individually evaluated loans with related allowance:
Commercial and industrial	$	10,700	$	18	$	16,412	$	—
Small business loans	4,014		—		666		—


Total	$	14,714	$	18	$	17,078	$	—
Individually evaluated loans without related allowance:
Commercial mortgage	—		—		4,241		29
Commercial and industrial	4,516		—		293		—
Small business loans	2,166		—		835		2
Home equity lines and loans	931		—		1,040		23
Residential mortgage	1,725		8		1,480		166
Construction	1,206		—		1,206		16
Leases	1,153		—		102		—
Total	$	11,697	$	8	$	9,197	$	236
Grand Total	$	26,411	$	26	$	26,275	$	236


	Six Months Ended June 30, 2023				Six Months Ended June 30, 2022
(dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Individually evaluated loans with related allowance:
Commercial and industrial	$	10,808	$	18	$	16,449	$	—
Small business loans	4,047		—		666		—


Total	$	14,855	$	18	$	17,115	$	—
Individually evaluated loans without related allowance:
Commercial mortgage	—		58		4,279		48
Commercial and industrial	3,350		—		297		—
Small business loans	1,458		2		844		5
Home equity lines and loans	937		—		1,044		23
Residential mortgage	1,585		38		1,483		168
Construction	1,120		—		1,206		31
Leases	1,157		—		103		—
Total	$	9,607	$	98	$	9,256	$	275
Grand Total	$	24,462	$	116	$	26,371	$	275


(dollars in thousands)	December 31, 2022
TDRs included in nonperforming loans and leases	$	207
TDRs in compliance with modified terms	3,573
Total TDRs	$	3,780