UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


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

For the quarterly period ended September 30, ~~2022~~2023


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

For the transition period from __________ to __________

Commission File Number: 000-55983

(Exact name of registrant as specified in its charter)


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

9 Old Lincoln Highway, Malvern, Pennsylvania 19355

(Address of principal executive offices) (Zip Code)

(484) 568-5000

(Registrant’s telephone number, including area code)


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐No

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

Large Accelerated Filer

☐

Accelerated Filer

☒

Non-accelerated Filer

☐

Smaller Reporting Company

☒

Emerging Growth Company

☒☐

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November ~~2, 2022~~3, 2023 there were ~~5,800,526~~11,177,751 outstanding shares of the issuer’s common stock, par value $1.00 per share.

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TABLE OF CONTENTS


PART I FINANCIAL INFORMATION

Item 1 Financial Statements (Unaudited)			3

Consolidated Balance Sheets – September 30, ~~2022~~2023 and December 31, ~~2021~~2022			3

Consolidated Statements of Income – Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022			4

Consolidated Statements of Comprehensive Income (Loss) – Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022			5

Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022			6

Consolidated Statements of Cash Flows – Nine Months Ended September 30, ~~2022~~2023 and ~~2021~~2022			7

Notes to Consolidated Financial Statements (Unaudited)			8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			2936

Item 3 Quantitative and Qualitative Disclosures about Market Risk			4249

Item 4 Controls and Procedures			4350

PART II OTHER INFORMATION

Item 1 Legal Proceedings			4451

Item 1A Risk Factors			4451

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds			4451

Item 3 Defaults Upon Senior Securities			4451

Item 4 Mine Safety Disclosures			4452

Item 5 Other Information			4452

Item 6 Exhibits			4553

Signatures			4654

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Glossary of Acronyms, Abbreviations, and Terms

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


Acronym			Description

ACH			Automated clearing house
ACL			Allowance for credit losses
AFS			Available-for-sale
ALCO			Asset/Liability Committee
ALLL			Allowance for loan and lease losses
ALM			Asset / liability management
AOCI			Accumulated other comprehensive ~~(loss)~~ 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			~~Board of Governors of the~~ Federal Reserve ~~System~~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

Table of Contents


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

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)


(dollars in thousands, except per share data)		September 30, 2022		December 31, 2021
(dollars in thousands, except share data)						(dollars in thousands, except share data)	September 30, 2023		December 31, 2022
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	12,114	$	3,966	Cash and due from banks	$	13,737	$	11,299
Interest-bearing deposits at other banks	Interest-bearing deposits at other banks	20,774		19,514		Interest-bearing deposits at other banks	46,022		27,092

Cash and cash equivalents	Cash and cash equivalents	32,888		23,480		Cash and cash equivalents	59,759		38,391
Securities available-for-sale, at fair value (amortized cost of $143,581 and $158,387, respectively)		127,999		159,302
Securities held-to-maturity, at amortized cost (fair value of $32,323 and $6,591, respectively)		37,922		6,372
Securities available-for-sale, at fair value (amortized cost of $138,014 and $148,976, respectively)						Securities available-for-sale, at fair value (amortized cost of $138,014 and $148,976, respectively)	122,218		135,346
Securities held-to-maturity, at amortized cost (fair value of $30,665 and $33,085, respectively)						Securities held-to-maturity, at amortized cost (fair value of $30,665 and $33,085, respectively)	36,232		37,479
Equity investments	Equity investments	2,092		2,354		Equity investments	2,019		2,086
Mortgage loans held for sale	Mortgage loans held for sale	33,800		80,882		Mortgage loans held for sale	23,144		22,243
Loans, net of fees and costs	Loans, net of fees and costs	1,610,349		1,386,457		Loans, net of fees and costs	1,885,629		1,743,682
Allowance for loan and lease losses		(18,974)		(18,758)
Loans, net of the allowance for loan and lease losses		1,591,375		1,367,699
Allowance for credit losses						Allowance for credit losses	(19,683)		(18,828)
Loans and other finance receivables, net of the allowance for credit losses						Loans and other finance receivables, net of the allowance for credit losses	1,865,946		1,724,854
Restricted investment in bank stock	Restricted investment in bank stock	5,217		5,117		Restricted investment in bank stock	8,309		6,931
Bank premises and equipment, net	Bank premises and equipment, net	12,835		11,806		Bank premises and equipment, net	13,310		13,349
Bank owned life insurance	Bank owned life insurance	22,916		22,503		Bank owned life insurance	28,641		28,055
Accrued interest receivable	Accrued interest receivable	6,008		5,009		Accrued interest receivable	8,984		7,363
Other real estate owned						Other real estate owned	1,703		1,703
Deferred income taxes	Deferred income taxes	5,722		1,413		Deferred income taxes	4,993		3,936
Servicing assets	Servicing assets	12,807		12,765		Servicing assets	11,835		12,346
Goodwill	Goodwill	899		899		Goodwill	899		899
Intangible assets	Intangible assets	3,226		3,379		Intangible assets	3,022		3,175
Other assets	Other assets	26,218		10,463		Other assets	39,957		24,072
Total assets	Total assets	$	1,921,924	$	1,713,443	Total assets	$	2,230,971	$	2,062,228

Liabilities:	Liabilities:					Liabilities:
Deposits:	Deposits:					Deposits:
Non-interest bearing	Non-interest bearing	$	290,169	$	274,528	Non-interest bearing	$	244,668	$	301,727
Interest bearing	Interest bearing	1,383,384		1,171,885		Interest bearing	1,563,977		1,410,752
Total deposits	Total deposits	1,673,553		1,446,413		Total deposits	1,808,645		1,712,479
Short-term borrowings		23,458		41,344
Borrowings						Borrowings	177,959		122,082

Subordinated debentures	Subordinated debentures	40,597		40,508		Subordinated debentures	50,079		40,346
Accrued interest payable	Accrued interest payable	1,154		31		Accrued interest payable	7,814		2,389
Other liabilities	Other liabilities	32,001		19,787		Other liabilities	31,360		31,652
Total liabilities	Total liabilities	1,770,763		1,548,083		Total liabilities	2,075,857		1,908,948

Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Common stock, $1 par value per share. 25,000,000 shares authorized; 6,566,356 and 6,534,587 shares issued and outstanding, respectively		6,566		6,535
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						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	Surplus	84,848		83,663		Surplus	79,731		79,072
Treasury stock, 721,927 and 426,693 shares, respectively, at cost		(18,033)		(8,860)
Treasury stock, 2,003,183 and 1,690,736 shares, respectively, at cost						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	Unearned common stock held by employee stock ownership plan	(1,602)		(1,602)		Unearned common stock held by employee stock ownership plan	(1,403)		(1,403)
Retained earnings	Retained earnings	92,405		84,916		Retained earnings	102,043		95,815
Accumulated other comprehensive (loss) income		(13,023)		708
Accumulated other comprehensive loss						Accumulated other comprehensive loss	(12,359)		(11,539)
Total stockholders’ equity	Total stockholders’ equity	151,161		165,360		Total stockholders’ equity	155,114		153,280
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,921,924	$	1,713,443	Total liabilities and stockholders’ equity	$	2,230,971	$	2,062,228

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2022		2021		2022		2021		(dollars in thousands, except per share data)	2023		2022		2023			2022
Interest income:	Interest income:									Interest income:
Loans, including fees		$	21,848	$	17,626	$	58,187	$	51,287
Loans and other finance receivables, including fees										Loans and other finance receivables, including fees	$	33,980	$	21,848	$	95,612		$	58,187
Securities - taxable	Securities - taxable	648		357		1,599		1,076		Securities - taxable	901		648		2,853			1,599
Securities - tax-exempt	Securities - tax-exempt	369		306		1,015		886		Securities - tax-exempt	333		369		1,038			1,015
Cash and cash equivalents	Cash and cash equivalents	93		17		157		25		Cash and cash equivalents	245		93		741			157
Total interest income	Total interest income	22,958		18,306		60,958		53,274		Total interest income	35,459		22,958		100,244			60,958
Interest expense:	Interest expense:									Interest expense:
Deposits	Deposits	4,075		1,327		7,182		4,261		Deposits	15,543		4,075		41,013			7,182
Borrowings	Borrowings	857		722		2,166		2,224		Borrowings	2,692		857		7,230			2,166
Total interest expense	Total interest expense	4,932		2,049		9,348		6,485		Total interest expense	18,235		4,932		48,243			9,348
Net interest income	Net interest income	18,026		16,257		51,610		46,789		Net interest income	17,224		18,026		52,001			51,610
Provision for loan losses		526		597		1,743		1,292
Net interest income after provision for loan losses		17,500		15,660		49,867		45,497
Provision for credit losses										Provision for credit losses	82		526		2,186			1,743
Net interest income after provision for credit losses										Net interest income after provision for credit losses	17,142		17,500		49,815			49,867
Non-interest income:	Non-interest income:									Non-interest income:
Mortgage banking income	Mortgage banking income	7,329		18,726		21,367		62,293		Mortgage banking income	4,819		7,329		13,143			21,367
Wealth management income	Wealth management income	1,114		1,232		3,672		3,531		Wealth management income	1,258		1,114		3,689			3,672
SBA loan income	SBA loan income	989		2,688		3,946		5,423		SBA loan income	982		989		3,463			3,946
Earnings on investment in life insurance	Earnings on investment in life insurance	138		93		413		224		Earnings on investment in life insurance	201		138		585			413
Net change in the fair value of derivative instruments	Net change in the fair value of derivative instruments	127		(339)		(713)		(3,431)		Net change in the fair value of derivative instruments	103		127		217			(713)
Net change in the fair value of loans held-for-sale	Net change in the fair value of loans held-for-sale	(237)		(532)		(1,094)		(3,164)		Net change in the fair value of loans held-for-sale	111		(237)		(88)			(1,094)
Net change in the fair value of loans held-for-investment	Net change in the fair value of loans held-for-investment	(886)		37		(2,499)		(24)		Net change in the fair value of loans held-for-investment	(570)		(886)		(673)			(2,499)
Net gain (loss) on hedging activity		399		(1,189)		4,941		2,397
Net gain on sale of investment securities available-for-sale		—		314		—		362
Service charges		32		35		90		99
Net gain on hedging activity										Net gain on hedging activity	82		399		81			4,941
Net loss on sale of investment securities available-for-sale										Net loss on sale of investment securities available-for-sale	(3)		—		(58)			—

Other	Other	1,219		1,057		3,605		3,192		Other	1,103		1,251		3,489			3,695
Total non-interest income	Total non-interest income	10,224		22,122		33,728		70,902		Total non-interest income	8,086		10,224		23,848			33,728
Non-interest expense:	Non-interest expense:									Non-interest expense:
Salaries and employee benefits	Salaries and employee benefits	13,360		19,472		41,585		61,824		Salaries and employee benefits	12,420		13,360		35,633			41,585
Occupancy and equipment	Occupancy and equipment	1,191		1,133		3,619		3,460		Occupancy and equipment	1,226		1,191		3,610			3,619
Professional fees	Professional fees	899		873		2,659		2,629		Professional fees	1,104		899		2,930			2,659
Advertising and promotion	Advertising and promotion	1,165		1,089		3,340		2,795		Advertising and promotion	848		1,165		2,799			3,340
Data processing		574		530		1,633		1,666
Information technology		868		476		2,306		1,365
Pennsylvania bank shares tax		202		152		612		478
Data processing and software										Data processing and software	1,652		1,442		4,764			3,939

Other	Other	2,002		1,756		5,646		5,773		Other	2,768		2,204		7,686		—	6,258
Total non-interest expense	Total non-interest expense	20,261		25,481		61,400		79,990		Total non-interest expense	20,018		20,261		57,422			61,400
Income before income taxes	Income before income taxes	7,463		12,301		22,195		36,409		Income before income taxes	5,210		7,463		16,241			22,195
Income tax expense	Income tax expense	1,665		2,863		4,927		8,543		Income tax expense	1,205		1,665		3,568			4,927
Net income	Net income	$	5,798	$	9,438	$	17,268	$	27,866	Net income	$	4,005	$	5,798	$	12,673		$	17,268
Basic earnings per common share	Basic earnings per common share	$	0.99	$	1.56	$	2.90	$	4.62	Basic earnings per common share	$	0.36	$	0.49	$	1.14		$	1.45
Diluted earnings per common share	Diluted earnings per common share	$	0.96	$	1.52	$	2.80	$	4.49	Diluted earnings per common share	$	0.35	$	0.48	$	1.11		$	1.40
Basic weighted average shares outstanding	Basic weighted average shares outstanding	5,868		6,045		5,964		6,033		Basic weighted average shares outstanding	11,058		11,736		11,129			11,928
Diluted weighted average shares outstanding	Diluted weighted average shares outstanding	6,060		6,231		6,172		6,201		Diluted weighted average shares outstanding	11,363		12,118		11,449			12,344

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

Three months ended
September 30, Nine months ended
September 30,
(dollars in thousands) 2022 2021 2022 2021
Net income: $ 5,798 $ 9,438 $ 17,268 $ 27,866
Net change in unrealized gains on investment securities available for sale:
Change in fair value of investment securities available for sale, net of tax of $(1,129), $(312), $(3,694), and $(475), respectively (3,910) (1,021) (12,760) (1,490)
Reclassification adjustment for net gains (losses) realized in net income, net of tax effect of $0, $(71), $(1), and $(83), respectively — (243) (9) (279)
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax effect of $8, $0, $(293), and $0, respectively 37 — (962) —
Unrealized investment losses, net of tax effect of $(1,121), $(383), $(3,989), and $(558), respectively (3,873) (1,264) (13,731) (1,769)
Other comprehensive loss (3,873) (1,264) (13,731) (1,769)
Comprehensive income $ 1,925 $ 8,174 $ 3,537 $ 26,097


	Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	2023		2022		2023		2022
Net income:	$	4,005	$	5,798	$	12,673	$	17,268

Net change in unrealized gains (losses) on investment securities available for sale:
Change in fair value of investment securities, net of tax of $(575), $(1,129), $(489), and $(3,694), respectively	(2,059)		(3,910)		(1,757)		(12,760)
Reclassification adjustment for net losses (gains) realized in net income, net of tax effect of $1, $0, $13, and $(1), respectively	2		—		45		(9)
Reclassification adjustment for investment securities transferred to held-to-maturity, net of tax effect of $7, $8, $19, and $(293), respectively	22		37		67		(962)
Unrealized investment losses, net of tax effect of $(566), $(1,121), $(457), and $(3,989), respectively	$	(2,035)	$	(3,873)	$	(1,645)	$	(13,731)
Net change in unrealized gains (losses) on interest rate swaps used in cash flow hedges, net of tax effect of $(140), $0, $(233), and $0, respectively	497		—		825		—



Total other comprehensive loss	$	(1,538)	$	(3,873)	$	(820)	$	(13,731)
Total comprehensive income	$	2,467	$	1,925	$	11,853	$	3,537

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(dollars in thousands, except per share data)
Common
Stock
Surplus Treasury
Stock Unearned
ESOP Retained
Earnings AOCI Total
Balance at June 30, 2022 $ 6,561 $ 84,359 $ (11,896) $ (1,602) $ 87,815 $ (9,150) $ 156,087
Net income — — — — 5,798 — 5,798
Other comprehensive loss — — — — — (3,873) (3,873)
Dividends paid or accrued, $0.20 per share — — — — (1,208) — (1,208)
Net purchase of treasury stock through publicly announced plans (197,849 shares) — — (6,137) — — — (6,137)
Common stock issued through share-based awards and exercises 5 112 — — — — 117
Stock based compensation expense — 377 — — — — 377
Balance at September 30, 2022 $ 6,566 $ 84,848 $ (18,033) $ (1,602) $ 92,405 $ (13,023) $ 151,161


(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total
Three Months Ended September 30, 2023
Balance at July 1, 2023	$	13,181	$	79,650	$	(26,079)	$	(1,403)	$	99,434	$	(10,821)	$	153,962
Net income	—		—		—		—		4,005		—		4,005
Other comprehensive loss	—		—		—		—		—		(1,538)		(1,538)
Dividends declared ($0.125 per share)	—		—		—		—		(1,396)		—		(1,396)


Stock based compensation expense	—		81		—		—		—		—		81
Balance at September 30, 2023	$	13,181	$	79,731	$	(26,079)	$	(1,403)	$	102,043	$	(12,359)	$	155,114


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total		(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total
Balance at December 31, 2021		$	6,535	$	83,663	$	(8,860)	$	(1,602)	$	84,916	$	708	$	165,360
Nine Months Ended September 30, 2023																Nine Months Ended September 30, 2023
Balance at January 1, 2023																Balance at January 1, 2023	$	13,156	$	79,072	$	(21,821)	$	(1,403)	$	95,815	$	(11,539)	$	153,280
Adjustment to initially apply ASU No. 2016-13 for CECL (1), net of tax																Adjustment to initially apply ASU No. 2016-13 for CECL (1), net of tax									(2,228)				(2,228)
Net income	Net income	—		—		—		—		17,268		—		17,268		Net income	—		—		—		—		12,673		—		12,673
Other comprehensive loss	Other comprehensive loss	—		—		—		—		—		(13,731)		(13,731)		Other comprehensive loss	—		—		—		—		—		(820)		(820)
Dividends paid or accrued, $1.60 per share		—		—		—		—		(9,779)		—		(9,779)
Net purchase of treasury stock through publicly announced plans (295,234 shares)		—		—		(9,173)		—		—		—		(9,173)
Dividends declared ($0.375 per share)																Dividends declared ($0.375 per share)	—		—		—		—		(4,217)		—		(4,217)
Net purchase of treasury stock through publicly announced plans (127,849 shares)																Net purchase of treasury stock through publicly announced plans (127,849 shares)	—		—		(4,258)		—		—		—		(4,258)
Common stock issued through share-based awards and exercises	Common stock issued through share-based awards and exercises	31		454		—		—		—		—		485		Common stock issued through share-based awards and exercises	25		144		—		—		—		—		169

Stock based compensation expense	Stock based compensation expense	—		731		—		—		—		—		731		Stock based compensation expense	—		515		—		—		—		—		515
Balance at September 30, 2022		$	6,566	$	84,848	$	(18,033)	$	(1,602)	$	92,405	$	(13,023)	$	151,161
Balance at September 30, 2023																Balance at September 30, 2023	$	13,181	$	79,731	$	(26,079)	$	(1,403)	$	102,043	$	(12,359)	$	155,114


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total		(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total
Balance at June 30, 2021		$	6,493	$	82,198	$	(5,828)	$	(1,768)	$	69,739	$	2,051	$	152,885
Three Months Ended September 30, 2022																Three Months Ended September 30, 2022
Balance at July 1, 2022																Balance at July 1, 2022	$	13,096	$	77,824	$	(11,896)	$	(1,602)	$	87,815	$	(9,150)	$	156,087
Net income	Net income	—		—		—		—		9,438		—		9,438		Net income	—		—		—		—		5,798		—		5,798
Other comprehensive loss	Other comprehensive loss	—		—		—		—		—		(1,264)		(1,264)		Other comprehensive loss	—		—		—		—		—		(3,873)		(3,873)
Dividends paid or accrued, $0.125 per share		—		—		—		—		(769)		—		(769)
Net purchase of treasury stock through publicly announced plans (78,491 shares)		—		—		(2,197)		—		—		—		(2,197)
Dividends declared ($0.10 per share)																Dividends declared ($0.10 per share)	—		—		—		—		(1,208)		—		(1,208)
Net purchase of treasury stock through publicly announced plans (394,838 shares)																Net purchase of treasury stock through publicly announced plans (394,838 shares)	—		—		(6,137)		—		—		—		(6,137)
Common stock issued through share-based awards and exercises	Common stock issued through share-based awards and exercises	13		167		—		—		—		—		180		Common stock issued through share-based awards and exercises	5		112		—		—		—		—		117
Stock based compensation expense	Stock based compensation expense	—		143		—		—		—		—		143		Stock based compensation expense	—		377		—		—		—		—		377
Balance at September 30, 2021		$	6,506	$	82,508	$	(8,025)	$	(1,768)	$	78,408	$	787	$	158,416
Balance at September 30, 2022																Balance at September 30, 2022	$	13,101	$	78,313	$	(18,033)	$	(1,602)	$	92,405	$	(13,023)	$	151,161


(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total		(dollars in thousands, except per share data)	Common Stock		Surplus		Treasury Stock		Unearned ESOP		Retained Earnings		AOCI		Total
Balance at December 31, 2020		$	6,456	$	81,196	$	(5,828)	$	(1,768)	$	59,010	$	2,556	$	141,622
Nine Months Ended September 30, 2022																Nine Months Ended September 30, 2022
Balance at January 1, 2022																Balance at January 1, 2022	$	13,070	$	77,128	$	(8,860)	$	(1,602)	$	84,916	$	708	$	165,360
Net income	Net income	—		—		—		—		27,866		—		27,866		Net income	—		—		—		—		17,268		—		17,268
Other comprehensive loss	Other comprehensive loss	—		—		—		—		—		(1,769)		(1,769)		Other comprehensive loss	—		—		—		—		—		(13,731)		(13,731)
Dividends declared, $1.375 per share		—		—		—		—		(8,468)		—		(8,468)
Net purchase of treasury stock through publicly announced plans (78,491 shares)		—		—		(2,197)		—		—		—		(2,197)
Dividends declared ($0.80 per share)																Dividends declared ($0.80 per share)	—		—		—		—		(9,779)		—		(9,779)
Net purchase of treasury stock through publicly announced plans (589,608 shares)																Net purchase of treasury stock through publicly announced plans (589,608 shares)	—		—		(9,173)		—		—		—		(9,173)
Common stock issued through share-based awards and exercises	Common stock issued through share-based awards and exercises	50		521		—		—		—		—		571		Common stock issued through share-based awards and exercises	31		454		—		—		—		—		485
Stock based compensation expense	Stock based compensation expense	—		791		—		—		—		—		791		Stock based compensation expense	—		731		—		—		—		—		731
Balance at September 30, 2021		$	6,506	$	82,508	$	(8,025)	$	(1,768)	$	78,408	$	787	$	158,416
Balance at September 30, 2022																Balance at September 30, 2022	$	13,101	$	78,313	$	(18,033)	$	(1,602)	$	92,405	$	(13,023)	$	151,161

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

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Nine months ended September 30,					Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		(dollars in thousands)	2023		2022
Net income	Net income	$	17,268	$	27,866	Net income	$	12,673	$	17,268
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment securities		—		(362)
Adjustments to reconcile net income to net cash (used in) provided by operating activities:						Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Loss on sale of investment securities						Loss on sale of investment securities	58		—
Net amortization of investment premiums and discounts and change in fair value of equity securities	Net amortization of investment premiums and discounts and change in fair value of equity securities	668		991		Net amortization of investment premiums and discounts and change in fair value of equity securities	1,225		668
Depreciation and amortization, net		(1,343)		(4,677)
Provision for loan losses		1,743		1,292
Depreciation and amortization (accretion), net						Depreciation and amortization (accretion), net	289		(1,343)
Provision for credit losses						Provision for credit losses	2,186		1,743
Amortization of issuance costs on subordinated debt	Amortization of issuance costs on subordinated debt	89		88		Amortization of issuance costs on subordinated debt	56		89
Stock based compensation	Stock based compensation	731		791		Stock based compensation	515		731
Net change in fair value of derivative instruments	Net change in fair value of derivative instruments	713		3,431		Net change in fair value of derivative instruments	(217)		713
Net change in fair value of loans held for sale	Net change in fair value of loans held for sale	1,094		3,164		Net change in fair value of loans held for sale	88		1,094
Net change in fair value of loans held for investment	Net change in fair value of loans held for investment	2,499		24		Net change in fair value of loans held for investment	673		2,499
Amortization and net impairment of servicing rights	Amortization and net impairment of servicing rights	1,753		707		Amortization and net impairment of servicing rights	1,618		1,753
SBA loan income	SBA loan income	(3,946)		(5,423)		SBA loan income	(3,463)		(3,946)
Proceeds from sale of loans	Proceeds from sale of loans	863,056		2,027,443		Proceeds from sale of loans	515,573		863,056
Loans originated for sale	Loans originated for sale	(794,541)		(1,864,132)		Loans originated for sale	(504,880)		(794,541)
Mortgage banking income	Mortgage banking income	(21,367)		(62,293)		Mortgage banking income	(13,143)		(21,367)
(Increase) decrease in accrued interest receivable		(999)		402
Increase in accrued interest receivable						Increase in accrued interest receivable	(1,621)		(999)
Increase in other assets	Increase in other assets	(1,675)		(2,648)		Increase in other assets	(4,874)		(1,675)
Earnings from investment in life insurance		(413)		(224)
Decrease in deferred income tax		(219)		(817)
Increase (decrease) in accrued interest payable		1,123		(490)
(Decrease) increase in other liabilities		(2,579)		1,299
Earnings from investment in bank owned life insurance						Earnings from investment in bank owned life insurance	(585)		(413)
(Increase) decrease in deferred income tax						(Increase) decrease in deferred income tax	170		(219)
Increase in accrued interest payable						Increase in accrued interest payable	5,425		1,123
Decrease in other liabilities						Decrease in other liabilities	(778)		(2,579)
Net cash provided by operating activities	Net cash provided by operating activities	63,655		126,432		Net cash provided by operating activities	$	10,988	$	63,655

Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Activity in available-for-sale securities:	Activity in available-for-sale securities:					Activity in available-for-sale securities:
Maturities, repayments and calls	Maturities, repayments and calls	8,662		6,173		Maturities, repayments and calls	7,301		8,662
Sales	Sales	—		20,855		Sales	13,514		—
Purchases	Purchases	(22,176)		(52,468)		Purchases	(12,949)		(22,176)
Activity in held-to-maturity securities:	Activity in held-to-maturity securities:					Activity in held-to-maturity securities:
Maturities, repayments and calls	Maturities, repayments and calls	540		—		Maturities, repayments and calls	1,020		540
Purchases	Purchases	(5,500)		—		Purchases	—		(5,500)
Increase (decrease) in restricted stock		(100)		3,699
Increase in restricted stock						Increase in restricted stock	(1,378)		(100)
Net increase in loans	Net increase in loans	(225,967)		(82,711)		Net increase in loans	(149,462)		(225,967)
Purchases of premises and equipment	Purchases of premises and equipment	(2,020)		(1,496)		Purchases of premises and equipment	(1,080)		(2,020)
Purchase of bank owned life insurance		—		(10,000)

Net cash used in investing activities	Net cash used in investing activities	(246,561)		(115,948)		Net cash used in investing activities	$	(143,034)	$	(246,561)

Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Net increase in deposits	Net increase in deposits	227,140		197,712		Net increase in deposits	96,166		227,140
Decrease in short-term borrowings		—		(3,187)
Decrease in short-term borrowings with original maturity > 90 days		(17,886)		(81,397)
Repayment of long-term debt, net		—		(87,141)

Increase (decrease) in short-term borrowings						Increase (decrease) in short-term borrowings	37,201		(17,886)
Increase in long-term debt						Increase in long-term debt	18,676		—

Repayment of subordinated debt						Repayment of subordinated debt	(54)		—
Proceeds from issuance of subordinated debt						Proceeds from issuance of subordinated debt	9,740		—
Issuance costs on subordinated debt						Issuance costs on subordinated debt	(9)		—
Net purchase of treasury stock	Net purchase of treasury stock	(9,173)		(2,197)		Net purchase of treasury stock	(4,258)		(9,173)
Dividends paid	Dividends paid	(9,779)		(8,468)		Dividends paid	(4,217)		(9,779)
Share based awards and exercises	Share based awards and exercises	485		571		Share based awards and exercises	169		485
Net cash provided by financing activities	Net cash provided by financing activities	190,787		15,893		Net cash provided by financing activities	$	153,414	$	190,787

Net change in cash and cash equivalents	Net change in cash and cash equivalents	7,881		26,377		Net change in cash and cash equivalents	21,368		7,881
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	23,480		36,744		Cash and cash equivalents at beginning of period	38,391		23,480
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	31,361	$	63,121	Cash and cash equivalents at end of period	$	59,759	$	31,361

Supplemental disclosure of cash flow information:	Supplemental disclosure of cash flow information:					Supplemental disclosure of cash flow information:
Cash paid during the period for:	Cash paid during the period for:					Cash paid during the period for:
Interest	Interest	$	8,225	$	6,976	Interest	$	42,818	$	8,225
Income taxes	Income taxes	5,365		11,354		Income taxes	1,839		5,365

Transfers from loans held for sale to loans held for investment	Transfers from loans held for sale to loans held for investment	2,955		7,116		Transfers from loans held for sale to loans held for investment	351		2,955

Net loans sold, not settled						Net loans sold, not settled	12,820		—

Transfer of securities from AFS to HTM	Transfer of securities from AFS to HTM	23,655		—		Transfer of securities from AFS to HTM	—		23,655
Lease liabilities arising from obtaining right-of-use assets		10,995		—

See accompanying notes to the unaudited consolidated financial statements.

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MERIDIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) Summary of Significant Accounting Policies

Basis of Presentation

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

The preparation of financial statements in conformity with U.S. 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. Amounts subject to significant estimates are items such as the allowance for ~~loan~~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~~SEC (including our Annual Report on Form 10-K for the year ended December 31, ~~2021)~~2022), subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.

Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity. Operating results for the three and nine months ended September 30, ~~2022~~2023 are not necessarily indicative of the results for the year ending December 31, ~~2022~~2023 or for any other period.

Stock Split

On February 28, 2023, the Corporation approved and declared a two-for-one stock split in the form of a stock dividend, paid March 20, 2023, to shareholders of record as of March 14, 2023. Under the terms of the stock split, the Corporation’s shareholders received a dividend of one share for every share held on the record date. The dividend was paid in authorized but unissued shares of common stock of the Corporation. The par value of the Corporation's stock was not affected by the split and remained at $1.00 per share. All share and per share amounts reported in the consolidated financial statements have been adjusted to reflect the two-for-one stock split.

Loans

Loans held for investment are recorded at amortized cost, net of ACL. Amortized cost is the amount at which a financial asset is originated or acquired, adjusted for the amortization of premium and discount, net deferred fees or costs, collection of cash, and write-offs. Interest income on loans is recognized using the level yield method. Loan origination fees, commitment fees and direct loan origination costs are deferred and recognized over the life of the related loans using a level yield method over the period to maturity.

Allowance for Credit Losses - Loans and Leases

On January 1, 2023, the Corporation adopted ASU 2016-13, Financial Instruments-Credit Losses ("Topic 326"), which replaced the incurred loss impairment model with an expected loss methodology that is referred to as the CECL methodology. The Corporation now establishes an ACL in accordance with Topic 326. The ACL includes quantitative and qualitative factors that comprise management's current estimate of expected credit losses, including portfolio mix and segmentation, modeling methodology, historical loss experience, relevant available information from internal and external sources relating to reasonable and supportable forecasts about future economic conditions, prepayment speeds, and qualitative adjustment factors.

The Corporation's portfolio segments, established based on similar risk characteristics and loss behaviors, are:

• Commercial mortgage, commercial and industrial, construction, SBA loans, and commercial small business leases (commercial loans), and

• Residential, equity secured lines and loans, and installment loans (retail loans).

Expected credit losses are estimated over the contractual term, adjusted for expected prepayments and recoveries. The contractual term excludes any extensions, renewals and modifications unless the Corporation has reasonable expectations at the reporting date that it will result in a modification, or they are not unconditionally cancellable. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance includes two primary components: (i) an allowance established on loans which share similar risk characteristics collectively evaluated for credit losses (collective basis) and (ii) an allowance established on loans which do not share similar risk characteristics with any loan segment and are individually evaluated for credit losses (individual basis).

Loans that share similar risk characteristics are collectively reviewed for credit loss and are evaluated based on historical loss experience, adjusted for current economic conditions and future economic forecasts. Estimated losses are determined differently for commercial and consumer loans, and each portfolio segment is further segmented by internally assessed risk ratings.

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Management uses a third-party economic forecast to modify the calculated historical loss rates of the portfolio segments. The Corporation's economic forecast extends out 4 quarters (the forecast period) and reverts to the historical loss rates on a straight-line basis over 1 quarter (the reversion period) as we believe this to be reasonable and supportable in the current environment. The economic forecast and reversion periods will be evaluated periodically by management and updated as appropriate.

The historical loss rates for commercial loans are estimated by determining the PD and expected LGD. The PD is calculated based on the historical rate of migration to an event of credit loss during the look-back period. The historical loss rates for retail loans is calculated based solely on average net loss rates over the same look-back period. The Corporation's current look-back period is 32 quarters which helps to ensure that historical loss rates are adequately considering losses over a full economic cycle.

Loans that do not share similar risk characteristics with any loan segments are evaluated on an individual basis. These loans, which may include borrowers experiencing financial difficulties, are not included in the collective basis evaluation. When it is probable that collection of all principal and interest due according to their contractual terms is not likely, which is assessed based on the credit characteristics of the loan and/or payment status, these loans are individually reviewed and measured for potential credit loss.

The amount of the potential credit loss is measured using one of three methods: (i) the present value of expected future cash flows discounted at the loan’s effective interest rate; (ii) the fair value of collateral, if the loan is collateral dependent; or (iii) the loan’s observable market price. If the measured fair value of the loan is less than the amortized cost basis of the loan, an allowance for credit loss is recorded.

For collateral dependent loans, the expected credit losses at the individual asset level is the difference between the collateral's fair value (less cost to sell) and the amortized cost.

Qualitative adjustment factors consider various internal and external conditions which are allocated among loan segments and take into consideration:

• Current underwriting policies, staff and portfolio concentrations,

• Risk rating accuracy, credit and administration,

• Internal risk emergence (including internal trends of delinquency, portfolio growth, and collateral value), and

• , Competitive environment, as it could impact loan structure and underwriting.

These factors are based on their relative standing compared to the period in which historical losses are used in quantitative reserve estimates and current directional trends, and reasonable and supportable forecasts. Qualitative factors in the model can add to or subtract from quantitative reserves.

Loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with individual problem loans. In addition, various regulatory agencies periodically review our loan ratings and allowance for credit losses and the Bank’s internal loan review department performs loan reviews.

Accrued interest receivable on loans is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Balance Sheets.

For additional detail regarding the allowance for credit losses and the provision for credit losses, see Note 5.

Past Due and Nonaccrual Loans

Past due loans and leases are defined as loans contractually past due 30 - 89 days as to principal or interest payments but which remain in accrual status, or loans delinquent 90 days or more but are considered well secured and in the process of collection.

Nonaccruing loans and leases are those on which the accrual of interest has ceased. Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the loan is not well secured and in the process of collection. Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income. In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status. Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal and interest. Loans are returned to accrual status when it is determined that the borrower has the ability to make all principal and interest payments in accordance with the terms of the loan (i.e. a consistent repayment record, generally six consecutive payments, has been demonstrated).

Unless loans are well-secured and collection is imminent, for loans greater than 90 days past due their respective reserves are generally charged off once the loss has been confirmed. Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

Securities

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.

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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.

Investments in equity securities are recorded in accordance with ASC 321-10, Investments - Equity Securities. Equity securities are carried at fair value, with changes in fair value reported in net income. At September 30, 2023 and December 31, 2022, investments in equity securities consisted of an investment in mutual funds with a fair value of $2.0 million, and $2.1 million, respectively.

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 nine months ended September 30, 2023 and 2022.

Allowance for Credit Losses - Held-to-Maturity Debt Securities

We follow Accounting Standards Codification (ASC) 326-20, Financial Instruments - Credit Loss - Measured at Amortized Cost, to measure expected credit losses on held-to-maturity debt securities on a collective basis by security investment grade. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Corporation classifies the held-to-maturity debt securities into the following major security types: state and municipal securities. These securities are highly rated with a history of no credit losses, and are assigned ratings based on the most recent data from ratings agencies depending on the availability of data for the security. Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis.

Accrued interest receivable on held-to-maturity debt securities is excluded from the estimate of credit losses and is included in Accrued interest receivable on the Consolidated Balance Sheets.

Allowance for Credit Losses - Available-for-Sale Debt Securities

We follow ASC 326-30, Financial Instruments - Credit Loss - Available-for-Sale Debt Securities, which provides guidance related to the recognition of and expanded disclosure requirements for expected credit losses on available-for-sale debt securities. For available-for-sale debt securities in an unrealized loss position, the Corporation first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criteria is met, the security's amortized cost basis is reduced to fair value and recognized as a reduction to Noninterest income in the Consolidated Statements of Income.

For debt securities available-for-sale which the Corporation does not intend to sell, or it is not likely the security would be required to be sold before recovery, we evaluate whether a decline in fair value has resulted from credit losses or other adverse factors, such as a change in the security's credit rating. In assessing whether a credit loss exists, the Corporation compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded, limited to the fair value of the security.

Management performs this analysis on a quarterly basis to review the conditions and risks associated with the individual securities. Credit losses on an impaired security shall continue to be measured using the present value of expected future cash flows. Any impairment not recorded through an allowance for credit loss is included in other comprehensive income (loss), net of the tax effect. We are required to use our judgment in determining impairment in certain circumstances. For additional detail regarding debt securities, see Note 3.

Unfunded Lending Commitments

For unfunded lending commitments, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The estimate includes consideration of the probability of default and utilization rate at default to calculate expected credit losses on commitments expected to be funded over its estimated life of one year, based on historical losses, and qualitative adjustment factors.

The allowance for credit losses for off-balance sheet exposures is included in Other liabilities on the Consolidated Balance Sheets and the provision for credit losses for off-balance sheet exposure is included in the provision for credit losses on the Consolidated Statements of Income for the periods ended September 30, 2023, and in other non-interest expense for periods prior to the adoption of ASU-2016-13 on January 1, 2023. The allowance for credit losses for off-balance sheet exposures was $1.0 million and $173 thousand as of September 30, 2023 and December 31, 2022, respectively.

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Pronouncements Adopted in 2023

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

The Corporation adopted ASU 2016-13, as amended, on January 1, 2023, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans, net of fees and costs, securities HTM, unfunded lending commitments (including loan commitments on loans held for investment, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842. In addition, ASC 326 made changes to the accounting for securities AFS which now requires credit losses to be presented as an allowance rather than as an other-than-temporary impairment on securities AFS management does not intend to sell or believes that it is more likely than not they will be required to sell.

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.

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

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. The Corporation adopted ASU 2019-04 at the same time ASU 2016-13 was adopted.

FASB ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures."

In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases in the existing vintage disclosures. The Corporation adopted ASU 2022-02 at the same time ASU 2016-13 was adopted, as of January 1, 2023. The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation's financial statements. See Note 5.

Pronouncements Not Yet Effective as of September 30, 2023:

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

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

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

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models.For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, but no earlier than for fiscal years beginning after Dec. 15, 2020. The Corporation does not expect this to have a material impact on our consolidated financial statements.

FASB ASU 2023-02, "Investments Equity Method and Joint Ventures (Topic 323) Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method"

In March 2023, the FASB issued ASU 2023-02, Investments Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits. If certain conditions are met,

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a reporting entity may elect to account for its tax equity investments by using the proportional amortization method regardless of the program from which it receives income tax credits, instead of only LIHTC structures. This amendment also eliminates certain LIHTC specific guidance aligning the accounting with other equity investments in tax credit structures. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. We are evaluating the accounting and disclosure requirements of ASU 2023-02 and do not expect them to have a material effect on our consolidated financial statements.

(2) Earnings per Common Share

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands, except per share data)	(dollars in thousands, except per share data)	2022		2021		2022		2021		(dollars in thousands, except per share data)	2023		2022		2023		2022
Numerator for earnings per share:	Numerator for earnings per share:									Numerator for earnings per share:
Net income available to common stockholders	Net income available to common stockholders	$	5,798	$	9,438	$	17,268	$	27,866	Net income available to common stockholders	$	4,005	$	5,798	$	12,673	$	17,268

Denominators for earnings per share:	Denominators for earnings per share:									Denominators for earnings per share:
Weighted average shares outstanding	Weighted average shares outstanding	5,968		6,157		6,038		6,148		Weighted average shares outstanding	11,228		11,936		11,307		12,076
Average unearned ESOP shares	Average unearned ESOP shares	(100)		(112)		(74)		(115)		Average unearned ESOP shares	(170)		(200)		(178)		(148)
Basic weighted averages shares outstanding	Basic weighted averages shares outstanding	5,868		6,045		5,964		6,033		Basic weighted averages shares outstanding	11,058		11,736		11,129		11,928
Dilutive effects of assumed exercises of stock options	Dilutive effects of assumed exercises of stock options	116		125		137		113		Dilutive effects of assumed exercises of stock options	119		232		149		274
Dilutive effects of SERP shares	Dilutive effects of SERP shares	75		61		71		55		Dilutive effects of SERP shares	186		150		171		142
Diluted weighted averages shares outstanding	Diluted weighted averages shares outstanding	6,060		6,231		6,172		6,201		Diluted weighted averages shares outstanding	11,363		12,118		11,449		12,344

Basic earnings per share	Basic earnings per share	$	0.99	$	1.56	$	2.90	$	4.62	Basic earnings per share	$	0.36	$	0.49	$	1.14	$	1.45
Diluted earnings per share	Diluted earnings per share	$	0.96	$	1.52	$	2.80	$	4.49	Diluted earnings per share	$	0.35	$	0.48	$	1.11	$	1.40
Antidilutive shares excluded from computation of average dilutive earnings per share	Antidilutive shares excluded from computation of average dilutive earnings per share	237		140		236		140		Antidilutive shares excluded from computation of average dilutive earnings per share	490		474		490		472

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(3) Securities

The following ~~table~~tables presents the amortized cost, allowance for credit losses, and fair value of securities at the dates indicated:


		September 30, 2022										September 30, 2023
(dollars in thousands)	(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		# of Securities in unrealized loss position	(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:	Securities available-for-sale:										Securities available-for-sale:
U.S. asset backed securities	U.S. asset backed securities	$	15,763	$	21	$	(311)	$	15,473	14	U.S. asset backed securities	$	11,580	$	98	$	(202)	$	—	$	11,476	9
U.S. government agency MBS	U.S. government agency MBS	12,079		—		(735)		11,344		13	U.S. government agency MBS	11,744		—		(610)		—		11,134		13
U.S. government agency CMO	U.S. government agency CMO	21,248		—		(2,079)		19,169		28	U.S. government agency CMO	22,226		—		(2,854)		—		19,372		30
State and municipal securities	State and municipal securities	44,885		—		(7,646)		37,239		34	State and municipal securities	40,275		—		(6,890)		—		33,385		31
U.S. Treasuries	U.S. Treasuries	32,980		—		(3,699)		29,281		25	U.S. Treasuries	32,982		—		(3,453)		—		29,529		25
Non-U.S. government agency CMO	Non-U.S. government agency CMO	9,426		—		(599)		8,827		11	Non-U.S. government agency CMO	11,007		1		(788)		—		10,220		13
Corporate bonds	Corporate bonds	7,200		—		(534)		6,666		12	Corporate bonds	8,200		—		(1,098)		—		7,102		13
Total securities available-for-sale	Total securities available-for-sale	$	143,581	$	21	$	(15,603)	$	127,999	137	Total securities available-for-sale	$	138,014	$	99	$	(15,895)	$	—	$	122,218	134

Securities held-to-maturity:
Securities held to maturity:											Securities held to maturity:
State and municipal securities	State and municipal securities	$	37,922	$	—	$	(5,599)	$	32,323	27	State and municipal securities	$	36,232	$	—	$	(5,567)	$	—	$	30,665	24
Total securities held-to-maturity	Total securities held-to-maturity	$	37,922	$	—	$	(5,599)	$	32,323	—	Total securities held-to-maturity	$	36,232	$	—	$	(5,567)	$	—	$	30,665	24

December 31, 2021
(dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value # of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities $ 16,850 $ 55 $ (68) $ 16,837 10
U.S. government agency MBS 9,749 124 (60) 9,813 3
U.S. government agency CMO 22,276 358 (253) 22,381 10
State and municipal securities 72,099 1,379 (496) 72,982 12
U.S. Treasuries 29,973 1 (246) 29,728 21
Non-U.S. government agency CMO 990 — (15) 975 1
Corporate bonds 6,450 154 (18) 6,586 5
Total securities available-for-sale $ 158,387 $ 2,071 $ (1,156) $ 159,302 62
Securities held-to-maturity:
State and municipal securities $ 6,372 $ 219 $ — $ 6,591 —
Total securities held-to-maturity $ 6,372 $ 219 $ — $ 6,591 —

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	December 31, 2022
(dollars in thousands)	Amortized cost		Gross unrealized gains		Gross unrealized losses		Fair value		# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities	$	15,581	$	14	$	(314)	$	15,281	12
U.S. government agency MBS	12,272		5		(538)		11,739		12
U.S. government agency CMO	25,520		40		(2,242)		23,318		29
State and municipal securities	44,700		—		(5,862)		38,838		34
U.S. Treasuries	32,980		—		(3,457)		29,523		25
Non-U.S. government agency CMO	9,722		—		(633)		9,089		11
Corporate bonds	8,201		—		(643)		7,558		12
Total securities available-for-sale	$	148,976	$	59	$	(13,689)	$	135,346	135

Securities held-to-maturity:
State and municipal securities	$	37,479	$	—	$	(4,394)	$	33,085	25

Although the Corporation’s investment portfolio overall is in a net unrealized loss position at September 30, ~~2022,~~2023, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.

~~During~~ACL on Securities AFS and HTM

We use credit ratings quarterly and the ~~quarter-ended March 31, 2022, $27.7 million~~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 ~~securities, previously classified as available-for-sale on~~bonds, non-agency CMO, and corporate bonds that have a low probability of default.

For the balance sheet, were transferred to the held-to-maturity portfolio at fair value. After transfer, $1.3 million of unrealized losses remain in accumulated other comprehensive income. No gain or loss was recognized as a result of the transfer.

~~As of~~three and nine months ended September 30, ~~2022~~2023, we had no significant ACL or provision expense and December 31, 2021, securities having a fair value of $76.5 million and $92.2 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket lienno charge-offs or recoveries on ~~non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.~~

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AFS or HTM securities.

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 the dates indicated:


		September 30, 2022													September 30, 2023
		Less than 12 Months				12 Months or more				Total					Less than 12 Months				12 Months or more				Total
(dollars in thousands)	(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses		(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Securities available-for-sale:	Securities available-for-sale:													Securities available-for-sale:
U.S. asset backed securities	U.S. asset backed securities	$	10,122	$	(129)	$	3,254	$	(182)	$	13,376	$	(311)	U.S. asset backed securities	$	1,345	$	—	$	6,489	$	(202)	$	7,834	$	(202)
U.S. government agency MBS		9,795		(638)		1,549		(97)		11,344		(735)
U.S. government agency CMO		10,526		(850)		8,617		(1,229)		19,143		(2,079)
U.S. government agency mortgage-backed securities														U.S. government agency mortgage-backed securities	3,092		(32)		8,042		(578)		11,134		(610)
U.S. government agency collateralized mortgage obligations														U.S. government agency collateralized mortgage obligations	2,728		(76)		16,644		(2,778)		19,372		(2,854)
State and municipal securities	State and municipal securities	34,801		(7,077)		2,438		(569)		37,239		(7,646)		State and municipal securities	—		—		33,385		(6,890)		33,385		(6,890)
U.S. Treasuries	U.S. Treasuries	15,468		(1,443)		13,813		(2,256)		29,281		(3,699)		U.S. Treasuries	—		—		29,529		(3,453)		29,529		(3,453)
Non-U.S. government agency CMO		8,112		(470)		715		(129)		8,827		(599)
Non-U.S. government agency collateralized mortgage obligations														Non-U.S. government agency collateralized mortgage obligations	3,229		(22)		6,400		(766)		9,629		(788)
Corporate bonds	Corporate bonds	5,565		(384)		1,101		(150)		6,666		(534)		Corporate bonds	907		(93)		6,195		(1,005)		7,102		(1,098)
Total securities available-for-sale	Total securities available-for-sale	$	94,389	$	(10,991)	$	31,487	$	(4,612)	$	125,876	$	(15,603)	Total securities available-for-sale	$	11,301	$	(223)	$	106,684	$	(15,672)	$	117,985	$	(15,895)

Securities held-to-maturity:	Securities held-to-maturity:													Securities held-to-maturity:
State and municipal securities	State and municipal securities	$	—	$	—	$	24,955	$	(5,599)	$	24,955	$	(5,599)	State and municipal securities	$	2,966	$	(155)	$	27,245	$	(5,412)	$	30,211	$	(5,567)
Total securities held-to-maturity	Total securities held-to-maturity	$	—	$	—	$	24,955	$	(5,599)	$	24,955	$	(5,599)	Total securities held-to-maturity	$	2,966	$	(155)	$	27,245	$	(5,412)	$	30,211	$	(5,567)

December 31, 2021
Less than 12 Months 12 Months or more Total
(dollars in thousands) Fair
value Unrealized
losses Fair
value Unrealized
losses Fair
value Unrealized
losses
Securities available-for-sale:
U.S. asset backed securities $ 12,330 $ (68) $ — $ — $ 12,330 $ (68)
U.S. government agency MBS 3,852 (60) — — 3,852 (60)
U.S. government agency CMO 8,836 (187) 1,657 (66) 10,493 (253)
State and municipal securities 14,994 (427) 2,019 (69) 17,013 (496)
U.S. Treasuries 28,750 (246) — — 28,750 (246)
Non-U.S. government agency CMO 975 (15) — — 975 (15)
Corporate bonds 2,232 (18) — — 2,232 (18)
Total securities available-for-sale $ 71,969 $ (1,021) $ 3,676 $ (135) $ 75,645 $ (1,156)

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	December 31, 2022
	Less than 12 Months				12 Months or more				Total
(dollars in thousands)	Fair value		Unrealized losses		Fair value		Unrealized losses		Fair value		Unrealized losses
Securities available-for-sale:
U.S. asset backed securities	$	6,531	$	(80)	$	4,863	$	(234)	$	11,394	$	(314)
U.S. government agency MBS	6,022		(230)		4,637		(308)		10,659		(538)
U.S. government agency CMO	9,859		(821)		9,549		(1,421)		19,408		(2,242)
State and municipal securities	7,487		(726)		31,351		(5,136)		38,838		(5,862)
U.S. Treasuries	1,902		(97)		27,622		(3,360)		29,524		(3,457)
Non-U.S. government agency CMO	8,423		(464)		666		(169)		9,089		(633)
Corporate bonds	5,019		(431)		1,538		(212)		6,557		(643)
Total securities available-for-sale	$	45,243	$	(2,849)	$	80,226	$	(10,840)	$	125,469	$	(13,689)

Securities held-to-maturity:
State and municipal securities	$	10,130	$	(364)	$	22,543	$	(4,030)	$	32,673	$	(4,394)
Total securities held-to-maturity	$	10,130	$	(364)	$	22,543	$	(4,030)	$	32,673	$	(4,394)

The amortized cost and carrying value of securities are shown below by contractual 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, 2022 December 31, 2021
Available-for-sale Held-to-maturity Available-for-sale Held-to-maturity
(dollars in thousands) Amortized
cost Fair
value Amortized
cost Fair
value Amortized
cost Fair
value Amortized
cost Fair
value
Due in one year or less $ — $ — $ — $ — $ — $ — $ 763 $ 769
Due after one year through five years 17,892 16,326 4,665 4,588 12,934 12,885 2,354 2,397
Due after five years through ten years 27,386 24,111 3,003 2,643 30,890 30,798 3,255 3,425
Due after ten years 55,550 48,222 30,254 25,092 81,548 82,450 — —
Subtotal 100,828 88,659 37,922 32,323 125,372 126,133 6,372 6,591
Mortgage-related securities 42,753 39,340 — — 33,015 33,169 — —
Total $ 143,581 $ 127,999 $ 37,922 $ 32,323 $ 158,387 $ 159,302 $ 6,372 $ 6,591

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	September 30, 2023								December 31, 2022
	Available-for-sale				Held-to-maturity				Available-for-sale				Held-to-maturity
(dollars in thousands)	Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value		Amortized cost		Fair value
Due in one year or less	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Due after one year through five years	30,793		27,666		4,226		4,147		18,865		17,289		4,275		4,238
Due after five years through ten years	19,161		17,047		2,901		2,326		28,647		25,459		2,998		2,683
Due after ten years	43,083		36,780		29,105		24,192		53,950		48,453		30,206		26,164
Subtotal	93,037		81,493		36,232		30,665		101,462		91,201		37,479		33,085
Mortgage-related securities	44,977		40,725		—		—		47,514		44,145		—		—
Total	$	138,014	$	122,218	$	36,232	$	30,665	$	148,976	$	135,346	$	37,479	$	33,085

The following table presents the gross ~~gain and (loss)~~loss on sale of investment securities available for sale on the dates indicated:


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Proceeds from sale of investment securities										Proceeds from sale of investment securities	$	155	$	—	$	13,514	$	—
Gross gain on sale of available for sale investments	Gross gain on sale of available for sale investments	$	—	$	314	$	—	$	562	Gross gain on sale of available for sale investments	—		—		—		—
Gross loss on sale of available for sale investments	Gross loss on sale of available for sale investments	—		—		—		200		Gross loss on sale of available for sale investments	3		—		58		—

Pledged Securities

As of September 30, 2023 and December 31, 2022, securities having a fair value of $51.8 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.

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(4) Loans and Other Finance Receivables

The following table presents loans and other finance receivables detailed by category at the dates indicated:


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022
Real estate loans:	Real estate loans:					Real estate loans:
Commercial mortgage	Commercial mortgage	$	545,736	$	516,928	Commercial mortgage	$	696,124	$	565,400
Home equity lines and loans	Home equity lines and loans	57,648		52,299		Home equity lines and loans	73,844		59,399
Residential mortgage	Residential mortgage	153,513		68,175		Residential mortgage	256,343		221,837
Construction	Construction	244,435		160,905		Construction	276,590		271,955
Total real estate loans	Total real estate loans	1,001,332		798,307		Total real estate loans	1,302,901		1,118,591
Commercial and industrial	Commercial and industrial	329,451		293,771		Commercial and industrial	299,861		341,378
Small business loans	Small business loans	133,904		114,158		Small business loans	141,265		136,155
PPP loans		8,837		90,194
MSLP loans		597		597
Consumer	Consumer	497		419		Consumer	434		488
Leases, net	Leases, net	129,574		88,242		Leases, net	138,963		138,986
Total loans	Total loans	$	1,604,192	$	1,385,688	Total loans	$	1,883,424	$	1,735,598

Balances included in loans, net of fees and costs:	Balances included in loans, net of fees and costs:					Balances included in loans, net of fees and costs:
Residential mortgage real estate loans accounted under fair value option, at fair value	Residential mortgage real estate loans accounted under fair value option, at fair value	$	14,702	$	17,558	Residential mortgage real estate loans accounted under fair value option, at fair value	$	13,231	$	14,502
Residential mortgage real estate loans accounted under fair value option, at amortized cost	Residential mortgage real estate loans accounted under fair value option, at amortized cost	17,217		17,106		Residential mortgage real estate loans accounted under fair value option, at amortized cost	16,508		16,930
Unearned lease income included in leases, net	Unearned lease income included in leases, net	(23,940)		(17,366)		Unearned lease income included in leases, net	(22,385)		(25,715)
Unamortized net deferred loan origination costs	Unamortized net deferred loan origination costs	6,157		769		Unamortized net deferred loan origination costs	$	2,205	$	8,084

Fair Value Option for Residential Mortgage Real Estate Loans

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 of fees and costs are stated at 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.

Nonaccrual and Past Due Loans ~~Net of Fees and Costs~~

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

September 30, 2022
(dollars in thousands) 30-89 days past due 90+ days past due and still accruing Total past due Current Total Accruing Loans and leases Nonaccrual loans and leases Total loans % Delinquent
Commercial mortgage $ 684 $ — $ 684 $ 543,208 $ 543,892 $ 1,844 $ 545,736 0.46 %
Home equity lines and loans 189 — 189 56,581 56,770 878 57,648 1.85
Residential mortgage (1) 819 — 819 150,679 151,498 2,015 153,513 1.85
Construction — — — 244,435 244,435 — 244,435 —
Commercial and industrial 887 — 887 312,220 313,107 16,344 329,451 5.23
Small business loans 1,803 — 1,803 130,700 132,503 1,401 133,904 2.39
PPP — — — 8,837 8,837 — 8,837 —

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		September 30, 2022																	September 30, 2023
(dollars in thousands)	(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		% Delinquent		(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
MSLP		—		—		—		597		597		—		597		—
Commercial mortgage																		Commercial mortgage	$	574	$	—	$	574	$	695,550	$	696,124	$	—	$	696,124	0.08	%
Home equity lines and loans																		Home equity lines and loans	216		—		216		72,699		72,915		929		73,844		1.55
Residential mortgage (1)																		Residential mortgage (1)	5,525		—		5,525		247,721		253,246		3,097		256,343		3.36
Construction																		Construction	—		—		—		275,384		275,384		1,206		276,590		0.44
Commercial and industrial																		Commercial and industrial	—		—		—		284,286		284,286		15,575		299,861		5.19
Small business loans																		Small business loans	1,842		—		1,842		132,186		134,028		7,237		141,265		6.43
Consumer	Consumer	—		—		—		497		497		—		497		—		Consumer	—		—		—		434		434		—		434		—
Leases, net	Leases, net	1,378		—		1,378		127,690		129,068		506		129,574		1.45	%	Leases, net	2,346		—		2,346		135,550		137,896		1,067		138,963		2.46	%
Total	Total	$	5,760	$	—	$	5,760	$	1,575,444	$	1,581,204	$	22,988	$	1,604,192	1.79	%	Total	$	10,503	$	—	$	10,503	$	1,843,810	$	1,854,313	$	29,111	$	1,883,424	2.10	%

(1) Includes ~~$14,702~~$13,231 of loans at fair value of which ~~$14,151~~$12,108 are current, $376 are 30-89 days past due and ~~$551~~$747 are nonaccrual.

December 31, 2021
(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 % Delinquent
Commercial mortgage $ — $ — $ — $ 516,928 $ 516,928 $ — $ 516,928 — %
Home equity lines and loans 103 — 103 51,285 51,388 911 52,299 1.94
Residential mortgage (1) 600 — 600 65,177 65,777 2,398 68,175 4.40
Construction — — — 160,905 160,905 — 160,905 —
Commercial and industrial — — — 274,970 274,970 18,801 293,771 6.40
Small business loans — — — 113,492 113,492 666 114,158 0.58
PPP — — — 90,194 90,194 — 90,194 —
MSLP — — — 597 597 — 597 —
Consumer — — — 419 419 — 419 —
Leases, net 390 — 390 87,640 88,030 212 88,242 0.68 %
Total $ 1,093 $ — $ 1,093 $ 1,361,607 $ 1,362,700 $ 22,988 $ 1,385,688 1.74 %

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	December 31, 2022
(dollars in thousands)	30-89 days past due		90+ days past due and still accruing		Total past due		Current		Total Accruing Loans and leases		Nonaccrual loans and leases		Total loans portfolio and leases		% Delinquent
Commercial mortgage	$	—	$	—	$	—	$	565,260	$	565,260	$	140	$	565,400	0.02	%
Home equity lines and loans	146		—		146		58,156		58,302		1,097		59,399		2.09
Residential mortgage (1)	4,262		—		4,262		215,490		219,752		2,085		221,837		2.86
Construction	1,206		—		1,206		270,749		271,955		—		271,955		0.44
Commercial and industrial	101		—		101		328,730		328,831		12,547		341,378		3.70
Small business loans	939		—		939		130,751		131,690		4,465		136,155		3.97
Consumer	—		—		—		488		488		—		488		—
Leases, net	1,173		—		1,173		136,911		138,084		902		138,986		1.49	%
Total	$	7,827	$	—	$	7,827	$	1,706,535	$	1,714,362	$	21,236	$	1,735,598	1.67	%

(1) Includes ~~$17,558~~$14,502 of loans at fair value of which ~~$16,768~~$13,760 are current, ~~$189~~$184 are 30-89 days past due and ~~$601~~$558 are nonaccrual.

Foreclosed and Repossessed Assets

At September 30, ~~2022,~~2023, there were no4 consumer mortgage loans secured by residential real estate properties (included in loans, net of fees and costs on the Consolidated Balance Sheets) totaling $937 thousand for which formal foreclosure proceedings were in process.

Risks and Uncertainties

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 consumer loans, implying higher potential losses on an individual loan basis.

Past Due and Nonaccrual Status

The following table presents the amortized costs basis of loans and leases on nonaccrual status and loans 90 days or more past due and still accruing, net of fees and costs as of September 30, 2023. As of this date here were no loans 90 days or more past due and still accruing.


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


Home equity lines and loans	$	929	$	—	$	929
Residential mortgage	3,097		—		3,097
Construction	1,206		—		1,206

Commercial and industrial	3,346		12,229		15,575
Small business loans	3,457		3,780		7,237

Leases, net	1,067		—		1,067
Total	$	13,102	$	16,009	$	29,111

Collateral-dependent Loans

The following table presents the amortized cost basis of non-accruing collateral-dependent loans by class or loans as of September 30, 2023 under the current expected credit loss model:


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

Home equity lines and loans	$	929	$	—	$	929
Residential mortgage	3,097		—		3,097
Construction	1,206		—		1,206
Commercial and industrial	1,893		13,682		15,575
Small business loans	5,347		1,890		7,237

Leases, net	—		1,067		1,067
Total	$	12,472	$	16,639	$	29,111

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(5) Allowance for ~~Loan and Lease~~Credit Losses ~~(the “Allowance”)~~

The Allowance is evaluated on at least a quarterly basis, as losses are estimated to be probable and incurred. The provision for loan and lease losses increase or decrease the ALLL, if deemed necessary. Loans deemed to be uncollectible are charged against the Allowance, and subsequent recoveries, if any, are credited to the Allowance.

~~The Allowance~~ACL is maintained at a level considered adequate to provide for estimated expected credit losses within the loan portfolio over the

contractual life of an instrument that ~~are probable~~considers our historical loss experience, current conditions and ~~estimable.~~forecasts of future economic conditions as of the balance sheet date. Management’s periodic evaluation of the adequacy of the ~~Allowance~~ACL is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is subjective as it requires material estimates that may be susceptible to significant revisions as more information becomes available.

Roll-Forward of ACL by Portfolio Segment

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


	Three Months Ended September 30, 2023
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (recovery of provision) for credit losses		Ending balance
Commercial mortgage	$	3,249	$	—	$	—	$	916	$	4,165
Home equity lines and loans	790				2		153		945
Residential mortgage	1,047		—		—		157		1,204
Construction	1,294		—		—		(453)		841
Commercial and industrial	2,241		(130)		1		267		2,379
Small business loans	6,868		(272)		1		(511)		6,086
Consumer	—		(1)		1		—		—
Leases	4,753		(606)		90		(174)		4,063
Total	$	20,242	$	(1,009)	$	95	$	355	$	19,683


	Nine Months Ended September 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)	$	—	$	—	$	596	$	4,165
Home equity lines and loans	188		439		(87)		5		400		945
Residential mortgage	948		17		—		—		239		1,204
Construction	3,075		(1,763)		—		—		(471)		841
Commercial and industrial	4,012		(1,023)		(130)		57		(537)		2,379
Small business loans	4,909		1,110		(598)		1		664		6,086
Consumer	3		(3)		(1)		3		(2)		—
Leases	1,598		3,345		(2,845)		242		1,723		4,063
Total	$	18,828	$	1,596	$	(3,661)	$	308	$	2,612	$	19,683

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~~Roll-Forward of Allowance by Portfolio Segment~~

The following tables ~~detail~~provide the ~~roll-forward~~activity of the ~~Corporation’s Allowance, by portfolio segment,~~allowance for loan and lease losses for the ~~periods~~three and nine months ended September 30, 2022 under the incurred loss model:


	Three Months Ended September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Reversal)		Ending balance
Commercial mortgage	$	4,327	$	—	$	—	$	(238)	$	4,089
Home equity lines and loans	240		(12)		34		(25)		237
Residential mortgage	489		—		—		217		706
Construction	2,481		—		—		378		2,859
Commercial and industrial	6,287		—		39		(657)		5,669
Small business loans	3,681		—		—		319		4,000
Consumer	3		—		1		(1)		3
Leases	1,297		(419)		—		533		1,411
Total	$	18,805	$	(431)	$	74	$	526	$	18,974


	Nine Months Ended September 30, 2022
(dollars in thousands)	Beginning Balance		Charge-offs		Recoveries		Provision (Reversal)		Ending balance
Commercial mortgage	$	4,950	$	—	$	—	$	(861)	$	4,089
Home equity lines and loans	224		(12)		42		(17)		237
Residential mortgage	283		—		2		421		706
Construction	2,042		—		—		817		2,859
Commercial and industrial	6,533		—		58		(922)		5,669
Small business loans	3,737		—		—		263		4,000
Consumer	3		—		3		(3)		3
Leases	986		(1,682)		62		2,045		1,411
Total	$	18,758	$	(1,694)	$	167	$	1,743	$	18,974

Reconciliation of Provision for Credit Losses

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:

Three Months Ended September 30, 2022
(dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Credit) Ending Balance
Commercial mortgage $ 4,327 $ — $ — $ (238) $ 4,089
Home equity lines and loans 240 (12) 34 (25) 237
Residential mortgage 489 — — 217 706
Construction 2,481 — — 378 2,859
Commercial and industrial 6,287 — 39 (657) 5,669
Small business loans 3,681 — — 319 4,000
Consumer 3 — 1 (1) 3
Leases 1,297 (419) — 533 1,411
Total $ 18,805 $ (431) $ 74 $ 526 $ 18,974
Nine Months Ended September 30, 2022
(dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Credit) Ending Balance
Commercial mortgage $ 4,950 $ — $ — $ (861) $ 4,089
Home equity lines and loans 224 (12) 42 (17) 237
Residential mortgage 283 — 2 421 706
Construction 2,042 — — 817 2,859
Commercial and industrial 6,533 — 58 (922) 5,669
Small business loans 3,737 — — 263 4,000
Consumer 3 — 3 (3) 3
Leases 986 (1,682) 62 2,045 1,411
Total $ 18,758 $ (1,694) $ 167 $ 1,743 $ 18,974


	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2023		2022		2023		2022
Provision for credit losses - funded	$	355	$	526	$	2,612	$	1,743
Recovery of provision for credit losses - unfunded	(273)		—		(426)		—
Total provision for credit losses	$	82	$	526	$	2,186	$	1,743

Three Months Ended September 30, 2021
(dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Credit) Ending Balance
Commercial mortgage $ 7,146 $ — $ — $ (604) $ 6,542
Home equity lines and loans 281 — 1 (9) 273
Residential mortgage 324 — 1 (49) 276
Construction 2,241 — — 44 2,285
Commercial and industrial 5,360 — 15 239 5,614
Small business loans 2,235 — — 864 3,099
Consumer 4 — 1 (2) 3
Leases 770 — — 114 884
Total $ 18,361 $ — $ 18 $ 597 $ 18,976
Nine Months Ended September 30, 2021
(dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Credit) Ending Balance
Commercial mortgage $ 7,451 $ — $ — $ (909) $ 6,542
Home equity lines and loans 434 — 5 (166) 273
Residential mortgage 385 — 5 (114) 276
Construction 2,421 — — (136) 2,285
Commercial and industrial 5,431 — 33 150 5,614
Small business loans 1,259 — — 1,840 3,099
Consumer 4 — 3 (4) 3
Leases 382 (129) — 631 884
Total $ 17,767 $ (129) $ 46 $ 1,292 $ 18,976

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Allowance Allocated by Portfolio Segment

The following tables detail the allocation of the ACL and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases at the dates indicated:


	September 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	$	—	$	4,165	$	4,165	$	—	$	696,124	$	696,124
Home equity lines and loans	—		945		945		929		72,915		73,844
Residential mortgage	—		1,204		1,204		2,164		240,948		243,112
Construction	—		841		841		1,206		275,384		276,590
Commercial and industrial	1,145		1,234		2,379		15,575		284,286		299,861
Small business loans	1,393		4,693		6,086		7,237		134,028		141,265
Consumer	—		—		—		—		434		434
Leases, net	—		4,063		4,063		1,067		137,896		138,963
Total (1)	$	2,538	$	17,145	$	19,683	$	28,178	$	1,842,015	$	1,870,193

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

The following table details the pre-CECL allocation of the allowance for loan and lease losses and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment at the dates indicated:

September 30, 2022
Allowance on loans and leases Carrying value of loans and leases
(dollars in thousands) Individually
evaluated
for impairment Collectively
evaluated
for impairment Total Individually
evaluated
for impairment Collectively
evaluated
for impairment Total
Commercial mortgage $ — $ 4,089 $ 4,089 $ 4,196 $ 541,540 $ 545,736
Home equity lines and loans — 237 237 878 56,770 57,648
Residential mortgage — 706 706 1,464 137,347 138,811
Construction — 2,859 2,859 1,206 243,229 244,435
Commercial and industrial 2,193 3,476 5,669 16,358 313,093 329,451
Small business loans 376 3,624 4,000 1,479 132,425 133,904
PPP (2) — — — — 8,837 8,837
MSLP (2) — — — — 597 597
Consumer — 3 3 — 497 497
Leases, net — 1,411 1,411 506 129,068 129,574
Total (1) $ 2,569 $ 16,405 $ 18,974 $ 26,087 $ 1,563,403 $ 1,589,490


		December 31, 2021													December 31, 2022
		Allowance on loans and leases						Carrying value of loans and leases							Allowance on loans and leases						Carrying value of loans and leases
(dollars in thousands)	(dollars in thousands)	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total		(dollars in thousands)	Individually evaluated		Collectively evaluated		Total		Individually evaluated		Collectively evaluated		Total
Commercial mortgage	Commercial mortgage	$	—	$	4,950	$	4,950	$	3,556	$	513,372	$	516,928	Commercial mortgage	$	—	$	4,095	$	4,095	$	2,445	$	562,955	$	565,400
Home equity lines and loans	Home equity lines and loans	—		224		224		905		51,394		52,299		Home equity lines and loans	—		188		188		1,097		58,302		59,399
Residential mortgage	Residential mortgage	—		283		283		1,797		48,820		50,617		Residential mortgage	—		948		948		1,454		205,881		207,335
Construction	Construction	—		2,042		2,042		1,206		159,699		160,905		Construction	—		3,075		3,075		1,206		270,749		271,955
Commercial and industrial	Commercial and industrial	2,900		3,633		6,533		17,361		276,410		293,771		Commercial and industrial	776		3,236		4,012		12,547		328,831		341,378
Small business loans	Small business loans	376		3,361		3,737		792		113,366		114,158		Small business loans	1,449		3,460		4,909		4,527		131,628		136,155
PPP (2)		—		—		—		—		90,194		90,194
MSLP (2)		—		—		—		—		597		597
Consumer	Consumer	—		3		3		—		419		419		Consumer	—		3		3		—		488		488
Leases, net	Leases, net	—		986		986		212		88,030		88,242		Leases, net	—		1,598		1,598		902		138,084		138,986
Total (1)	Total (1)	$	3,276	$	15,482	$	18,758	$	25,829	$	1,342,301	$	1,368,130	Total (1)	$	2,225	$	16,603	$	18,828	$	24,178	$	1,696,918	$	1,721,096

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

~~(2) PPP and MSLP loans are not reserved against as they are 100% guaranteed.~~

~~Loans and Leases by~~ Credit ~~Ratings~~Quality Indicators

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

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

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

•Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize

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the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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

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The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to

determine the allowance for ~~loan and lease~~credit losses at the dates indicated:

September 30, 2022
(dollars in thousands) Pass Special
Mention Substandard Doubtful Total
Commercial mortgage $ 511,993 $ 28,382 $ 5,361 $ — $ 545,736
Home equity lines and loans 56,290 — 1,358 — 57,648
Construction 235,464 8,971 — — 244,435
Commercial and industrial 280,929 5,414 43,108 — 329,451
Small business loans 132,503 — 1,401 — 133,904
PPP 8,837 — — — 8,837
MSLP 597 — — — 597
Total $ 1,226,613 $ 42,767 $ 51,228 $ — $ 1,320,608

~~Commercial~~


	September 30, 2023												Revolving Loans Converted to Term Loans		Revolving Loans		Total
	Term Loans
	2023		2022		2021		2020		2019		Prior
Commercial mortgage
Pass/Watch	$	82,314	$	137,909	$	161,963	$	96,103	$	51,149	$	136,069	$	511	$	426	$	666,444
Special Mention	—		4,625		—		—		9,291		10,060		667		—		24,643
Substandard	200		—		574		—		1,648		2,287		—		328		5,037

Total	$	82,514	$	142,534	$	162,537	$	96,103	$	62,088	$	148,416	$	1,178	$	754	$	696,124
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Construction
Pass/Watch	$	53,495	$	101,776	$	29,115	$	47,458	$	4,548	$	2,120	$	123	$	24,083	$	262,718
Special Mention	—		—		1,084		—		511		8,934		—		2,137		12,666
Substandard	—		—		—		—		—		1,206		—		—		1,206

Total	$	53,495	$	101,776	$	30,199	$	47,458	$	5,059	$	12,260	$	123	$	26,220	$	276,590
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Commercial and industrial
Pass/Watch	$	18,566	$	35,631	$	26,734	$	8,891	$	4,579	$	37,658	$	—	$	126,466	$	258,525
Special Mention	1,000		4,766		—		—		—		1,665		—		2,816		10,247
Substandard	—		—		2,906		—		300		9,730		—		18,153		31,089

Total	$	19,566	$	40,397	$	29,640	$	8,891	$	4,879	$	49,053	$	—	$	147,435	$	299,861
Current period gross charge-offs	$	(73)	$	(55)	$	—	$	(2)	$	—	$	—	$	—	$	—	$	(130)

Small business loans
Pass/Watch	$	39,356	$	19,977	$	39,053	$	13,148	$	6,996	$	1,018	$	—	$	13,102	$	132,650
Special Mention	—		—		—		—		—		—		—		100		100
Substandard	—		673		5,038		1,914		890		—		—		—		8,515

Total	$	39,356	$	20,650	$	44,091	$	15,062	$	7,886	$	1,018	$	—	$	13,202	$	141,265
Current period gross charge-offs	$	—	$	—	$	—	$	(411)	$	(187)	$	—	$	—	$	—	$	(598)

Total by risk rating
Pass/Watch	$	193,731	$	295,293	$	256,865	$	165,600	$	67,272	$	176,865	$	634	$	164,077	$	1,320,337
Special Mention	1,000		9,391		1,084		—		9,802		20,659		667		5,053		47,656
Substandard	200		673		8,518		1,914		2,838		13,223		—		18,481		45,847

Total	$	194,931	$	305,357	$	266,467	$	167,514	$	79,912	$	210,747	$	1,301	$	187,611	$	1,413,840
Total current period gross charge-offs	$	(73)	$	(55)	$	—	$	(413)	$	(187)	$	—	$	—	$	—	$	(728)

The Corporation had no loans with a risk rating of Doubtful included within recorded investment in loans and ~~industrial loans classified as substandard totaled $43.1 million as of~~leases held for investment at September 30, ~~2022, an increase~~2023.

Table of $238 thousand, from $42.9 million as of December 31, 2021. The majority of this amount is comprised of 16 different loan relationships with no specific industry concentration and a $13.5 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021.Contents

December 31, 2021
(dollars in thousands) Pass Special
mention Substandard Doubtful Total
Commercial mortgage $ 481,551 $ 29,452 $ 5,925 $ — $ 516,928
Home equity lines and loans 50,908 — 1,391 — 52,299
Construction 151,608 9,297 — — 160,905
Commercial and industrial 236,298 14,603 42,870 — 293,771
Small business loans 112,096 — 2,062 — 114,158
PPP 90,194 — — — 90,194
MSLP 597 — — — 597
Total $ 1,123,252 $ 53,352 $ 52,248 $ — $ 1,228,852

In addition to credit quality indicators as shown in the above tables, allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status at the dates indicated:

September 30, 2022 December 31, 2021
(dollars in thousands) Performing Non-
performing Total Performing Non-
performing Total
Residential mortgage (1)
$ 151,498 $ 2,015 $ 153,513 $ 48,820 $ 1,797 $ 50,617
Consumer 497 — 497 419 — 419
Leases, net 129,068 506 129,574 88,030 212 88,242
Total $ 281,063 $ 2,521 $ 283,584 $ 137,269 $ 2,009 $ 139,278


	September 30, 2023												Revolving Loans		Total
	Term Loans
	2023		2022		2021		2020		2019		Prior
Home equity lines and loans
Performing	$	52	$	801	$	318	$	359	$	2,289	$	2,375	$	66,721	$	72,915
Nonperforming	—		—		—		—		—		—		929		929
Total	$	52	$	801	$	318	$	359	$	2,289	$	2,375	$	67,650	$	73,844
Current period gross charge-offs	$	—	$	—	$	—	$	(54)	$	—	$	(33)	$	—	$	(87)

Residential mortgage (1)
Performing	$	42,601	$	157,600	$	21,967	$	7,353	$	461	$	11,408	$	—	$	241,390
Nonperforming	—		—		—				—		1,722		—		1,722
Total	$	42,601	$	157,600	$	21,967	$	7,353	$	461	$	13,130	$	—	$	243,112
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer
Performing	$	41	$	35	$	—	$	—	$	34	$	248	$	76	$	434
Nonperforming	—		—		—		—		—		—		—		—
Total	$	41	$	35	$	—	$	—	$	34	$	248	$	76	$	434
Current period gross charge-offs	$	—	$	(1)	$	—	$	—	$	—	$	—	$	—	$	(1)

Leases, net
Performing	$	25,583	$	64,581	$	35,930	$	11,802	$	—	$	—	$	—	$	137,896
Nonperforming	—		499		385		183		—		—		—		1,067
Total	$	25,583	$	65,080	$	36,315	$	11,985	$	—	$	—	$	—	$	138,963
Current period gross charge-offs	$	(3)	$	(1,438)	$	(1,268)	$	(136)	$	—	$	—	$	—	$	(2,845)

Total by Payment Performance
Performing	$	68,277	$	223,017	$	58,215	$	19,514	$	2,784	$	14,031	$	66,797	$	452,635
Nonperforming	—		499		385		183		—		1,722		929		3,718
Total	$	68,277	$	223,516	$	58,600	$	19,697	$	2,784	$	15,753	$	67,726	$	456,353
Total current period gross charge-offs	$	(3)	$	(1,439)	$	(1,268)	$	(190)	$	—	$	(33)	$	—	$	(2,933)
(1) Excludes $14,403 of loans at fair value.

Commercial and industrial loans classified as substandard totaled $31.1 million as of September 30, 2023, a decrease of $8.2 million, from $39.3 million as of December 31, 2022. This decrease was the result of the payoff of one credit in the amount of $3 million, combined with the upgrade of several loan relationships that make up the remainder of the decrease. The majority of commercial and industrial substandard loans is comprised of 15 different loan relationships with no specific industry concentration and an $11.0 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021.


	December 31, 2022
(dollars in thousands)	Pass		Special mention		Substandard		Doubtful		Total
Commercial mortgage	$	536,705	$	25,309	$	3,386	$	—	$	565,400
Home equity lines and loans	57,822		—		1,577		—		59,399
Construction	260,085		11,870		—		—		271,955
Commercial and industrial	295,502		6,587		39,289		—		341,378
Small business loans	131,690		—		4,465		—		136,155
Total	$	1,281,804	$	43,766	$	48,717	$	—	$	1,374,287

Table of Contents


	December 31, 2022
(dollars in thousands)	Performing		Non- performing		Total
Residential mortgage (1)	$	205,881	$	1,454	$	207,335
Consumer	488		—		488
Leases, net	138,084		902		138,986
Total	$	344,453	$	2,356	$	346,809

(1) There were four nonperforming residential mortgage loans at September 30, ~~2022~~2023 and four nonperforming residential mortgage loans at December 31, ~~2021~~2022 with a combined outstanding principal balance of ~~$551~~$550 thousand and ~~$601~~$558 thousand, respectively, which were carried at fair value and not included in the table above. ~~This decrease was largely due to a residential mortgage loan that was nonperforming at December 31, 2021, which subsequently paid off before September 30, 2022.~~

~~Table of Contents~~

Impaired Loans

The following ~~tables detail~~table details the recorded investment and principal balance of impaired loans by portfolio segment, their related Allowance and interest income recognized at the dates indicated.


		September 30, 2022						December 31, 2021							December 31, 2022
(dollars in thousands)	(dollars in thousands)	Recorded investment		Principal balance		Related allowance		Recorded investment		Principal balance		Related allowance		(dollars in thousands)	Recorded investment		Principal balance		Related allowance
Impaired loans with related allowance:	Impaired loans with related allowance:													Impaired loans with related allowance:
Commercial and industrial	Commercial and industrial	$	16,095	$	16,552	$	2,193	$	17,147	$	17,310	$	2,900	Commercial and industrial	$	11,099	$	12,095	$	776
Small business loans	Small business loans	666		666		376		666		666		376		Small business loans	3,730		3,730		1,449

Total	Total	$	16,761	$	17,218	$	2,569	$	17,813	$	17,976	$	3,276	Total	$	14,829	$	15,825	$	2,225
Impaired loans without related allowance:	Impaired loans without related allowance:													Impaired loans without related allowance:
Commercial mortgage	Commercial mortgage	$	4,196	$	4,206	$	—	$	3,556	$	3,559	$	—	Commercial mortgage	$	2,445	$	2,456	$	—
Commercial and industrial	Commercial and industrial	263		329		—		214		269		—		Commercial and industrial	1,448		1,494		—
Small business loans	Small business loans	813		813		—		126		126		—		Small business loans	797		797		—
Home equity lines and loans	Home equity lines and loans	878		878		—		905		935		—		Home equity lines and loans	1,097		1,097		—
Residential mortgage	Residential mortgage	1,464		1,464		—		1,797		1,797		—		Residential mortgage	1,454		1,454		—
Construction	Construction	1,206		1,206		—		1,206		1,206		—		Construction	1,206		1,206		—
Leases	Leases	506		506		—		212		212		—		Leases	902		902		—
Total	Total	$	9,326	$	9,402	$	—	$	8,016	$	8,104	$	—	Total	9,349		9,406		—
Grand Total	Grand Total	$	26,087	$	26,620	$	2,569	$	25,829	$	26,080	$	3,276	Grand Total	$	24,178	$	25,231	$	2,225

Table of Contents

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


		Three Months Ended September 30, 2022				Three Months Ended September 30, 2021					Three Months Ended September 30, 2022			Nine Months Ended September 30, 2022
(dollars in thousands)	(dollars in thousands)	Average Recorded Investment		Interest Income Recognized		Average recorded investment		Interest income recognized		(dollars in thousands)		Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Impaired loans with related allowance:
Individually evaluated loans with related allowance:										Individually evaluated loans with related allowance:
Commercial and industrial	Commercial and industrial	$	16,195	$	—	$	3,242	$	5	Commercial and industrial		$	16,195	$	—	$	16,363	$	—
Small business loans	Small business loans	666		—		916		—		Small business loans		666		—		666		—
Home equity lines and loans		—		—		89		—
Residential mortgage		—		—		169		—

Total	Total	$	16,861	$	—	$	4,416	$	5	Total		$	16,861	$	—	$	17,029	$	—
Impaired loans without related allowance:
Individually evaluated loans without related allowance:										Individually evaluated loans without related allowance:
Commercial mortgage	Commercial mortgage	$	4,212	$	29	$	2,573	$	8	Commercial mortgage		4,212		29		4,257		77
Commercial and industrial	Commercial and industrial	286		—		473		19		Commercial and industrial		286		—		293		—
Small business loans	Small business loans	819		2		147		3		Small business loans		819		2		835		7
Home equity lines and loans	Home equity lines and loans	878		15		823		—		Home equity lines and loans		878		15		878		39
Residential mortgage	Residential mortgage	1,468		22		1,636		6		Residential mortgage		1,468		22		1,478		190
Construction	Construction	1,206		20		1,206		17		Construction		1,206		20		1,206		51
Leases	Leases	500		—		—		—		Leases		500		—		510		—
Total	Total	$	9,369	$	88	$	6,858	$	53	Total		$	9,369	$	88	$	9,457	$	364
Grand Total	Grand Total	$	26,230	$	88	$	11,274	$	58	Grand Total		$	26,230	$	88	$	26,486	$	364

~~Table of Contents~~

Nine Months Ended
September 30, 2022
Nine Months Ended
September 30, 2021
(dollars in thousands) Average
recorded
investment Interest
income
recognized Average
recorded
investment Interest
income
recognized
Impaired loans with related allowance:
Home equity lines and loans — — 92 —
Residential mortgage — — 170 —
Total $ 17,029 $ — $ 4,485 $ 15
Impaired loans without related allowance:
Commercial mortgage 4,257 77 2,584 24
Commercial and industrial 293 — 485 19
Small business loans 835 7 161 11
Home equity lines and loans 878 39 824 —
Residential mortgage 1,478 190 1,640 9
Construction 1,206 51 1,206 47
Leases 510 — 53 —
Total $ 9,457 $ 364 $ 6,953 $ 110
Grand Total $ 26,486 $ 364 $ 11,438 $ 125

Troubled Debt Restructuring

~~The restructuring of a loan is considered a TDR if both~~As result of the ~~following conditions are met: (i)~~adoption of guidance related to CECL effective as of January 1, 2023, the ~~borrower is experiencing financial difficulties,~~Corporation had no reportable balances related to TDRs as of and ~~(ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate~~ for the ~~remaining life~~three and nine months ended September 30, 2023. See Note 1 “Summary of ~~the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate~~Significant Accounting Policies” for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

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

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

(dollars in thousands) September 30,
2022 December 31,
2021
TDRs included in nonperforming loans and leases $ 193 $ 361
TDRs in compliance with modified terms 3,637 3,446
Total TDRs $ 3,830 $ 3,807


(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

There ~~were no new loan modifications granted during the three months ended September 30, 2022 and~~was 1 new ~~loan~~ modification on a commercial mortgage for $684 thousand for the ~~nine~~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,~~December 31, 2022 ~~while there were no~~subsequently defaulted during the same time period.

Modifications to Borrowers Experiencing Financial Difficulty

An assessment of whether a borrower is experiencing financial 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 recorded upon modification. However, when principal forgiveness is provided, the amortized cost basis of the asset is written off against the ACL on loans and leases. The amount of the principal forgiveness is deemed to be uncollectible; therefore, that portion of the loan ~~or lease modifications granted~~is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

Table of Contents

The following presents, by class of loans, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the three and nine months ended September 30, ~~2021~~2023.


	Three Months Ended September 30, 2023
	Number of Loans	Amortized Cost Basis		% of Total Class of Financing Receivable	Related Reserve
(dollars in thousands)
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Small business loans	3	$	1,517	1.1%	$	—
Total	3	$	1,517		$	—
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Small business loans	2	$	306	0.2%	$	77
Total	2	$	306		$	77


	Nine Months Ended September 30, 2023
	Number of Loans	Amortized Cost Basis		% of Total Class of Financing Receivable	Related Reserve
(dollars in thousands)
Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:
Small business loans	3	$	1,517	1.1%	$	—
Commercial & industrial	1	2,407		0.8%	—
Total	4	$	3,924		$	—
Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:
Small business loans	2	$	306	0.2%	$	77
Commercial & industrial	1	1,406		0.5%	422
Total	3	$	1,712		$	499

Number of Loans

Financial Effect

Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Small business loans

Extend maturity date

Commercial & industrial

Extend maturity date

Total

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Small business loans

Extend term and allow additional lender funding

Commercial & industrial

Extend term and allow additional lender funding

Total

There were 5 modifications granted to borrowers experiencing financial difficulty for the three months ended September 30, 2023. There were no loans that had a payment default during the three and nine months ended September 30, 2023 that were ~~classified as a TDR, and there~~modified in the 12 months before default to borrowers experiencing financial difficulty. There were no ~~subsequent defaults~~commitments to lend additional funds to the borrowers experiencing financial difficulty that had modifications during the ~~same time periods.~~three and nine months ended September 30, 2023.

Table of Contents

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

The Corporation’s short-term borrowings generally consist of federal funds purchased and short-term borrowings extended under agreements with the FHLB or other correspondent banks. The Corporation has ~~two~~one unsecured Federal funds borrowing ~~facilities~~facility with a correspondent ~~banks: one of $24 million and one of~~bank for up to $15 million. Federal funds purchased generally represent one-day borrowings. The Corporation had $0 in Federal funds purchased at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. The Corporation also has a facility with the Federal Reserve Bank discount window of ~~$9.2~~$7.7 million. This facility is fully secured by investment securities. There were no borrowings under this at September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. Additionally, the Corporation has a facility with the Federal Reserve’s BTFP of $33 million. This facility was created by the Federal Reserve in March 2023 and is fully secured by United States Treasury Bonds. There were $33 million in borrowings under this facility at September 30, 2023.

~~Table of Contents~~

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

(dollars in thousands) Maturity
date Interest
rate September 30,
2022 December 31,
2021
Open Repo Plus Weekly 6/5/2023 3.11 % $ 23,458 $ 36,458
Mid-term Repo-fixed 9/12/2022 0.23 — 4,886
Total $ 23,458 $ 41,344


(dollars in thousands)	Maturity date	Interest rate	September 30, 2023		December 31, 2022
FHLB Open Repo Plus Weekly	06/10/2024	5.68%	$	117,348	$	113,147
FRB BTFP Advances	03/29/2024	4.76%	33,000		—
Total Short-Term Borrowings			$	150,348	$	113,147

The ~~Corporation had no~~following table presents long-term ~~debt as of September 30, 2022 or December 31, 2021.~~borrowings at the dates indicated:


(dollars in thousands)	Maturity date	Interest rate	September 30, 2023		December 31, 2022
FHLB Mid-term Repo Fixed	12/22/2025	4.23%	$	8,935	$	8,935
FHLB Mid-term Repo Fixed	9/30/2024	4.60%	3,432		—
FHLB Mid-term Repo Fixed	7/14/2026	4.57%	15,244		—
Total Long-Term Borrowings			$	27,611	$	8,935

The FHLB has also issued ~~$74.8~~$112.7 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers. These letters of credit expire throughout the remainder of ~~2022.~~2023 and through 2024.

The Corporation has a maximum borrowing capacity with the FHLB of ~~$529.0~~$637.6 million as of September 30, ~~2022~~2023 and $505.4 million as of December 31, ~~2021.~~2022. All advances and letters of credit from the FHLB are secured by a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

(7) Servicing Assets

The Corporation sells certain residential mortgage loans and the guaranteed portion of certain 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.

Residential Mortgage Loans

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 September 30, ~~2022~~2023 and December 31, ~~2021.~~2022. During the three and nine months ended September 30, ~~2022,~~2023, the Corporation recognized servicing fee income of ~~$643~~$612 thousand and $1.9 million, respectively, compared to ~~$562~~$643 thousand and ~~$1.4~~$1.9 million, during the three and nine months ended September 30, ~~2021,~~2022, respectively.

Table of Contents

Changes in the MSR balance are summarized as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Balance at beginning of the period	Balance at beginning of the period	$	10,610	$	8,942	$	10,756	$	4,647	Balance at beginning of the period	$	9,238	$	10,610	$	9,942	$	10,756
Servicing rights capitalized	Servicing rights capitalized	65		1,360		648		5,856		Servicing rights capitalized	9		65		9		648
Amortization of servicing rights	Amortization of servicing rights	(356)		(316)		(1,092)		(786)		Amortization of servicing rights	(319)		(356)		(1,025)		(1,092)
Change in valuation allowance	Change in valuation allowance	(4)		111		3		380		Change in valuation allowance	—		(4)		2		3
Balance at end of the period	Balance at end of the period	$	10,315	$	10,097	$	10,315	$	10,097	Balance at end of the period	$	8,928	$	10,315	$	8,928	$	10,315

Activity in the valuation allowance for MSRs was as follows:


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Valuation allowance, beginning of period	Valuation allowance, beginning of period	$	(1)	$	(166)	$	(8)	$	(435)	Valuation allowance, beginning of period	$	—	$	(1)	$	(2)	$	(8)
Impairment	Impairment	(4)		—		(4)		—		Impairment	—		(4)		—		(4)
Recovery	Recovery	—		111		7		380		Recovery	—		—		2		7
Valuation allowance, end of period	Valuation allowance, end of period	$	(5)	$	(55)	$	(5)	$	(55)	Valuation allowance, end of period	$	—	$	(5)	$	—	$	(5)

The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2023, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 8.73% 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 ~~7.11%~~8.05% and a discount rate equal to 9.50%~~. At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.23% and a discount rate equal to 9.00%~~. Due in part to market volatility as interest rates increased, the prepayment speed assumption has decreased from December 31, ~~2021~~2022 to September 30, ~~2022.~~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.

~~Table of Contents~~

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


(dollars in thousands)	(dollars in thousands)	September 30, 2022			December 31, 2021			(dollars in thousands)	September 30, 2023			December 31, 2022
Fair value of residential mortgage servicing rights	Fair value of residential mortgage servicing rights	$	12,132		$	11,241		Fair value of residential mortgage servicing rights	$	11,977		$	11,567

Weighted average life (months)	Weighted average life (months)	19			11			Weighted average life (months)	28			22

Prepayment speed	Prepayment speed	7.11		%	7.23		%	Prepayment speed	8.73		%	8.05		%
Impact on fair value:	Impact on fair value:							Impact on fair value:
10% adverse change	10% adverse change	$	(524)		$	(376)		10% adverse change	$	(512)		$	(268)
20% adverse change	20% adverse change	(1,010)			(731)			20% adverse change	(986)			(525)

Discount rate	Discount rate	9.50		%	9.00		%	Discount rate	9.50		%	9.50		%
Impact on fair value:	Impact on fair value:							Impact on fair value:
10% adverse change	10% adverse change	$	(426)		$	(436)		10% adverse change	$	(460)		$	(404)
20% adverse change	20% adverse change	(824)			(840)			20% adverse change	(889)			(777)

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 Loans

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets. SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan

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servicing asset. The Corporation serviced ~~$156.3~~$211.1 million and ~~$115.1~~$166.1 million of SBA loans, as of September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively.

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Balance at beginning of the period	Balance at beginning of the period	$	2,250	$	1,385	$	2,009	$	970	Balance at beginning of the period	$	2,955	$	2,250	$	2,404	$	2,009
Servicing rights capitalized	Servicing rights capitalized	306		588		1,146		1,166		Servicing rights capitalized	373		306		1,099		1,146
Amortization of servicing rights	Amortization of servicing rights	(173)		(112)		(523)		(266)		Amortization of servicing rights	(243)		(173)		(690)		(523)
Change in valuation allowance	Change in valuation allowance	109		(26)		(140)		(35)		Change in valuation allowance	(178)		109		94		(140)
Balance at end of the period	Balance at end of the period	$	2,492	$	1,835	$	2,492	$	1,835	Balance at end of the period	$	2,907	$	2,492	$	2,907	$	2,492

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Valuation allowance, beginning of period	Valuation allowance, beginning of period	$	(345)	$	(48)	$	(96)	$	(39)	Valuation allowance, beginning of period	$	(92)	$	(345)	$	(364)	$	(96)
Impairment	Impairment	—		(26)		(280)		(35)		Impairment	(178)		—		(178)		(280)
Recovery	Recovery	109		—		140		—		Recovery	—		109		272		140
Valuation allowance, end of period	Valuation allowance, end of period	$	(236)	$	(74)	$	(236)	$	(74)	Valuation allowance, end of period	$	(270)	$	(236)	$	(270)	$	(236)

The Corporation uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 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 13.79% and a discount rate equal to 17.06%. 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 ~~12.88%~~12.73% and a discount rate equal to ~~12.24%~~18.96%. ~~At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s SBA~~

~~Table of Contents~~

loan servicing rights included a lifetime constant prepayment rate equal to 12.38% and a discount rate equal to 9.01%. The change in valuation allowance due to impairment, noted in the tables above, was largely due to the increased prepayment speed experienced in the current year periods and the rising interest rate environment.

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


(dollars in thousands)	(dollars in thousands)	September 30, 2022			December 31, 2021			(dollars in thousands)	September 30, 2023			December 31, 2022
Fair value of SBA loan servicing rights	Fair value of SBA loan servicing rights	$	2,578		$	2,107		Fair value of SBA loan servicing rights	$	3,009		$	2,422

Weighted average life (years)	Weighted average life (years)	3.8			3.8			Weighted average life (years)	3.5			3.8

Prepayment speed	Prepayment speed	12.88		%	12.38		%	Prepayment speed	13.79		%	12.73		%
Impact on fair value:	Impact on fair value:							Impact on fair value:
10% adverse change	10% adverse change	$	(83)		$	(69)		10% adverse change	$	(102)		$	(73)
20% adverse change	20% adverse change	(160)			(132)			20% adverse change	(196)			(141)

Discount rate	Discount rate	12.24		%	9.01		%	Discount rate	17.06		%	18.96		%
Impact on fair value:	Impact on fair value:							Impact on fair value:
10% adverse change	10% adverse change	$	(61)		$	(54)		10% adverse change	$	(64)		$	(53)
20% adverse change	20% adverse change	(120)			(106)			20% adverse change	(125)			(104)

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

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(8) Fair Value Measurements and Disclosures

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

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

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

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

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

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments 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.

~~Table of Contents~~

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

Securities

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

Mortgage Loans Held for Sale

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

Mortgage Loans Held for Investment

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

Derivative Financial Instruments

The fair values of forward commitments and interest rate swaps are based on market pricing and therefore are considered Level 2. Derivatives classified as Level 3 consist of interest rate lock commitments related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment 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.

The following table presents the fair value of financial assets measured at fair value on a recurring basis by level within the fair value hierarchy at the dates indicated:

September 30, 2022
(dollars in thousands) Total Level 1 Level 2 Level 3
Assets
Securities available for sale:
U.S. asset backed securities $ 15,473 $ — $ 15,473 $ —
U.S. government agency MBS 11,344 — 11,344 —
U.S. government agency CMO 19,169 — 19,169 —
State and municipal securities 37,239 — 37,239 —
U.S. Treasuries 29,281 29,281 — —
Non-U.S. government agency CMO 8,827 — 8,827
Corporate bonds 6,666 — 6,666 —
Equity investments 2,092 — 2,092 —
Mortgage loans held for sale 33,800 — 33,800 —
Mortgage loans held for investment 14,702 — 14,702 —
Interest rate lock commitments 137 — — 137
Forward commitments 475 — 475 —
Customer derivatives - interest rate swaps 4,572 — 4,572 —
Total $ 183,777 $ 29,281 $ 154,359 $ 137
Liabilities
Interest rate lock commitments $ 598 $ — $ — $ 598
Forward commitments — — — —
Customer derivatives - interest rate swaps 4,479 — 4,479 —
Total $ 5,077 $ — $ 4,479 $ 598


	September 30, 2023
(dollars in thousands)	Total		Level 1		Level 2		Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	11,476	$	—	$	11,476	$	—
U.S. government agency MBS	11,134		—		11,134		—
U.S. government agency CMO	19,372		—		19,372		—

2128

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		December 31, 2021									September 30, 2023
(dollars in thousands)	(dollars in thousands)	Total		Level 1		Level 2		Level 3		(dollars in thousands)	Total		Level 1		Level 2		Level 3
Assets
Securities available for sale:
U.S. asset backed securities		$	16,837	$	—	$	16,837	$	—
U.S. government agency MBS		9,813		—		9,813		—
U.S. government agency CMO		22,381		—		22,381		—
State and municipal securities	State and municipal securities	72,982		—		72,982		—		State and municipal securities	33,385		—		33,385		—
U.S. Treasuries	U.S. Treasuries	29,728		29,728		—		—		U.S. Treasuries	29,529		29,529		—		—
Non-U.S. government agency CMO	Non-U.S. government agency CMO	975		—		975		—		Non-U.S. government agency CMO	10,220		—		10,220
Corporate bonds	Corporate bonds	6,586		—		6,586		—		Corporate bonds	7,102		—		7,102		—
Equity investments	Equity investments	2,354		—		2,354		—		Equity investments	2,019		—		2,019		—
Mortgage loans held for sale	Mortgage loans held for sale	80,882		—		80,882		—		Mortgage loans held for sale	23,144		—		23,144		—
Mortgage loans held for investment	Mortgage loans held for investment	17,558		—		17,558		—		Mortgage loans held for investment	13,231		—		13,231		—
Interest rate lock commitments	Interest rate lock commitments	1,122		—		—		1,122		Interest rate lock commitments	229		—		—		229
Forward commitments	Forward commitments	65		—		65		—		Forward commitments	50		—		50		—
Customer derivatives - interest rate swaps	Customer derivatives - interest rate swaps	961		—		961		—		Customer derivatives - interest rate swaps	4,387		—		4,387		—
Interest rate swaps										Interest rate swaps	1,023		—		1,023		—
Total	Total	$	262,244	$	29,728	$	231,394	$	1,122	Total	$	166,303	$	29,529	$	136,545	$	229

Liabilities	Liabilities									Liabilities
Interest rate lock commitments	Interest rate lock commitments	$	203	$	—	$	—	$	203	Interest rate lock commitments	$	83	$	—	$	—	$	83
Forward commitments	Forward commitments	106		—		106		—		Forward commitments	—		—		—		—
Customer derivatives - interest rate swaps	Customer derivatives - interest rate swaps	1,018		—		1,018		—		Customer derivatives - interest rate swaps	4,321		—		4,321		—
Risk Participation Agreements										Risk Participation Agreements	6		—		6		—
Total	Total	$	1,327	$	—	$	1,124	$	203	Total	$	4,410	$	—	$	4,327	$	83


	December 31, 2022
(dollars in thousands)	Total		Level 1		Level 2		Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	15,281	$	—	$	15,281	$	—
U.S. government agency MBS	11,739		—		11,739		—
U.S. government agency CMO	23,318		—		23,318		—
State and municipal securities	38,838		—		38,838		—
U.S. Treasuries	29,523		29,523		—		—
Non-U.S. government agency CMO	9,089		—		9,089		—
Corporate bonds	7,558		—		7,558		—
Equity investments	2,086		—		2,086		—
Mortgage loans held for sale	22,243		—		22,243		—
Mortgage loans held for investment	14,502		—		14,502		—
Interest rate lock commitments	87		—		—		87
Customer derivatives - interest rate swaps	3,846		—		3,846		—
Total	$	178,110	$	29,523	$	148,500	$	87

Liabilities
Interest rate lock commitments	$	79	$	—	$	—	$	79
Customer derivatives - interest rate swaps	3,799		—		3,799		—
Risk Participation Agreements	17		—		17		—
Total	$	3,895	$	—	$	3,816	$	79

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The following table presents assets measured at fair value on a nonrecurring basis at the dates indicated:


(dollars in thousands)	(dollars in thousands)	September 30, 2022		December 31, 2021		(dollars in thousands)	September 30, 2023		December 31, 2022
Mortgage servicing rights	Mortgage servicing rights	$	10,315	$	10,756	Mortgage servicing rights	$	8,928	$	9,942
SBA loan servicing rights	SBA loan servicing rights	2,492		2,009		SBA loan servicing rights	2,907		2,404
Impaired loans (1)
Individually evaluated loans (1)						Individually evaluated loans (1)
Commercial and industrial	Commercial and industrial	820		1,837		Commercial and industrial	12,371		—
Small business loans	Small business loans	—		290		Small business loans	2,456		2,281
Total	Total	$	13,627	$	14,892	Total	$	26,662	$	14,627

(1) ~~Impaired~~Individually evaluated loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. ~~Refer~~The increase in individually evaluated commercial and industrial loans noted above was due to reassessing how we evaluate the ~~following page for further qualitative discussion around impaired loans.~~impairment on a loan relationship to now be based on the fair value of collateral.

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

(dollars in thousands)

Fair Value

Valuation Technique

Significant Unobservable Input

Range of Inputs

September 30, ~~2022~~2023

~~820~~14,827

Appraisal of collateral

Management adjustments on appraisals for property type and recent activity

2%-33% discount

December 31, 2022

2,281

Appraisal of collateral

Management adjustments on appraisals for property type and recent activity

2%-15% discount

~~December 31, 2021~~

$~~2,127~~ ~~Appraisal of collateralManagement adjustments on appraisals for property type and recent activity2%-15% discount~~

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

~~Table of Contents~~

Cash and Cash Equivalents

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

Loans Receivable

The fair value of loans receivable is estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value below is reflective of an exit price.

Servicing Assets

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

~~Impaired~~Individually Evaluated Loans

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

Accrued Interest Receivable and Payable

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

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Deposit Liabilities

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

Short-Term Borrowings

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

Long-Term Debt

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

Subordinated Debt

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

Off-Balance Sheet Financial Instruments

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

Derivative Financial Instruments

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

~~Table of Contents~~

The following table presents the estimated fair values of the Corporation’s financial instruments at the dates indicated:

September 30, 2022 December 31, 2021
(dollars in thousands) Fair Value
Hierarchy Level Carrying
amount Fair value Carrying
amount Fair value
Financial assets:
Cash and cash equivalents Level 1 $ 32,888 $ 32,888 $ 23,480 $ 23,480
Securities available-for-sale Level 1 / 2 127,999 127,999 159,302 159,302
Securities held-to-maturity Level 2 37,922 32,323 6,372 6,591
Equity investments Level 2 2,092 2,092 2,354 2,354
Mortgage loans held for sale Level 2 33,800 33,800 80,882 80,882
Loans receivable, net of the allowance for loan and lease losses Level 3 1,595,647 1,535,398 1,368,899 1,370,885
Mortgage loans held for investment Level 2 14,702 14,702 17,558 17,558
Interest rate lock commitments Level 3 137 137 1,122 1,122
Forward commitments Level 2 475 475 65 65
Restricted investment in bank stock NA 5,217 NA 5,117 NA
Accrued interest receivable Level 3 6,008 6,008 5,009 5,009
Customer derivatives - interest rate swaps Level 2 4,572 4,572 961 961
Financial liabilities:
Deposits Level 2 1,673,553 1,526,400 1,446,413 1,549,100
Short-term borrowings Level 2 23,458 23,458 41,344 41,344
Subordinated debentures Level 2 40,597 40,285 40,508 40,803
Accrued interest payable Level 2 1,154 1,154 31 31
Interest rate lock commitments Level 3 598 598 203 203
Forward commitments Level 2 — — 106 106
Customer derivatives - interest rate swaps Level 2 4,479 4,479 1,018 1,018
Notional Notional
Off-balance sheet financial instruments: amount Fair value amount Fair value
Commitments to extend credit Level 2 $ 505,860 $ — $ 486,632 $ —
Letters of credit Level 2 21,462 — 25,986 —


		September 30, 2023				December 31, 2022
(dollars in thousands)	Fair Value Hierarchy Level	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets:
Cash and cash equivalents	Level 1	$	59,759	$	59,759	$	38,391	$	38,391
Mortgage loans held for sale	Level 2	23,144		23,144		22,243		22,243
Loans receivable, net of the allowance for credit losses	Level 3	1,872,398		1,827,125		1,729,180		1,679,955
Mortgage loans held for investment	Level 2	13,231		13,231		14,502		14,502





Financial liabilities:
Deposits	Level 2	1,808,645		1,780,200		1,712,479		1,575,600

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Borrowings	Level 2	177,959	179,000	122,082	122,082
Subordinated debentures	Level 2	50,079	50,218	40,346	40,020

The following table includes a rollforward of interest rate lock commitments for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the periods indicated.


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Balance at beginning of the period	Balance at beginning of the period	$	374	$	2,667	$	1,122	$	6,932	Balance at beginning of the period	$	261	$	374	$	87	$	1,122
Decrease in value		(237)		(955)		(985)		(5,220)
(Decrease) increase in value										(Decrease) increase in value	(32)		(237)		142		(985)
Balance at end of the period	Balance at end of the period	$	137	$	1,712	$	137	$	1,712	Balance at end of the period	$	229	$	137	$	229	$	137

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

(dollars in thousands) Fair Value Valuation Technique Significant Unobservable Input Range of Inputs Weighted Average
September 30, 2022 $ 137 Market comparable pricing Pull through 1 - 99% 96.93%
December 31, 2021 1,122 Market comparable pricing Pull through 1 - 99 87.66

(dollars in thousands)

Fair Value

Valuation Technique

Significant Unobservable Input

Range of Inputs

Weighted Average

September 30, 2023

229

Market comparable pricing

Pull through

1 - 99%

84.12%

December 31, 2022

Market comparable pricing

Pull through

1 - 99%

84.05

~~Table of Contents~~

(9) Derivative Financial Instruments

Risk Management Objective of Using Derivatives

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

Interest Rate Swaps

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. For the three and nine months ended September 30, 2023, approximately $497 thousand and $825 thousand respectively, net of tax, is recorded in total comprehensive income as unrealized gains. 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 September 30, 2023. At September 30, 2023, the combined notional amount of the interest rate swaps was $75 million and the fair value was an asset of $1.0 million.

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation ~~enters~~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 consolidated statements of income.

Customer Derivatives – Interest Rate Swaps

Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers to swap a fixed rate product for a variable rate product, or vice versa. The Corporation executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies. Those interest rate derivatives are simultaneously hedged

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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 notional amounts and fair values of derivative financial instruments at the dates indicated:


			September 30, 2022				December 31, 2021						September 30, 2023				December 31, 2022
(dollars in thousands)	(dollars in thousands)	Balance Sheet Line Item	Notional Amount		Asset (Liability) Fair Value		Notional Amount		Asset (Liability) Fair Value		(dollars in thousands)	Balance Sheet Line Item	Notional Amount		Asset (Liability) Fair Value		Notional Amount		Asset (Liability) Fair Value
Interest Rate Lock Commitments	Interest Rate Lock Commitments										Interest Rate Lock Commitments
Positive fair values	Positive fair values	Other assets	$	23,037	$	137	$	108,653	$	1,122	Positive fair values	Other assets	$	40,015	$	229	$	16,590	$	87
Negative fair values	Negative fair values	Other liabilities	45,063		(598)		35,264		(203)		Negative fair values	Other liabilities	21,260		(83)		16,108		(79)
Total	Total		68,100		(461)		143,917		919		Total		$	61,275	$	146	$	32,698	$	8

Forward Commitments	Forward Commitments										Forward Commitments
Positive fair values	Positive fair values	Other assets	12,000		475		30,500		65		Positive fair values	Other assets	$	6,750	$	50	$	—	$	—
Negative fair values	Negative fair values	Other liabilities	—		—		45,500		(106)		Negative fair values	Other liabilities	—		—		—		—
Total	Total		12,000		475		76,000		(41)		Total		$	6,750	$	50	$	—	$	—

Customer Derivatives - Interest Rate Swaps	Customer Derivatives - Interest Rate Swaps										Customer Derivatives - Interest Rate Swaps
Positive fair values	Positive fair values	Other assets	41,352		4,572		35,447		961		Positive fair values	Other assets	$	46,337	$	4,387	$	43,779	$	3,846
Negative fair values	Negative fair values	Other liabilities	41,352		(4,479)		35,447		(1,018)		Negative fair values	Other liabilities	46,337		(4,321)		43,779		(3,799)
Total	Total		82,704		93		70,894		(57)		Total		$	92,674	$	66	$	87,558	$	47

Risk Participation Agreements											Risk Participation Agreements
Positive fair values											Positive fair values	Other assets	$	—	$	—	$	—	$	—
Negative fair values											Negative fair values	Other liabilities	7,111		(6)		7,200		(17)
Total											Total		$	7,111	$	(6)	$	7,200	$	(17)

Interest Rate Swaps											Interest Rate Swaps
Positive fair values											Positive fair values	Other assets	$	75,000	$	1,023	$	—	$	—
Negative fair values											Negative fair values	Other liabilities	—		—		—		—
Total											Total		$	75,000	$	1,023	$	—	$	—

Total derivative financial instruments	Total derivative financial instruments		$	162,804	$	107	$	290,811	$	821	Total derivative financial instruments		$	242,810	$	1,279	$	127,456	$	38

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.

~~Table of Contents~~

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


		Three months ended September 30,				Nine months ended September 30,					Three months ended September 30,				Nine months ended September 30,
(dollars in thousands)	(dollars in thousands)	2022		2021		2022		2021		(dollars in thousands)	2023		2022		2023		2022
Interest Rate Lock Commitments	Interest Rate Lock Commitments	$	(405)	$	(1,056)	$	(1,380)	$	(5,480)	Interest Rate Lock Commitments	$	29	$	(405)	$	138	$	(1,380)
Forward Commitments	Forward Commitments	485		703		516		1,997		Forward Commitments	37		485		50		516
Customer Derivatives - Interest Rate Swaps	Customer Derivatives - Interest Rate Swaps	47		14		151		52		Customer Derivatives - Interest Rate Swaps	33		47		19		151
Net fair value (losses) gains on derivative financial instruments		$	127	$	(339)	$	(713)	$	(3,431)
Risk Participation Agreements										Risk Participation Agreements	6		—		11		—
Interest Rate Swaps										Interest Rate Swaps	588		—		1,023		—
Net fair value gains (losses) on derivative financial instruments										Net fair value gains (losses) on derivative financial instruments	$	693	$	127	$	1,241	$	(713)

Net realized gains on derivative hedging activities were $82 thousand and $81 thousand for the three and nine months ended September 30, 2023, respectively, and net realized gains on derivative hedging activities were $399 thousand and $4.9 million for the three and nine months ended September 30, 2022, respectively, and are included in non-interest income in the consolidated statements of income.

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(10) Segments

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

Our Banking segment (“Bank”) consists of commercial and retail banking. The Banking segment generates interest income from its lending ~~(including leasing)~~ 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, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income, title insurance fees, and other less significant non-interest income.

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

Meridian’s mortgage banking segment (“Mortgage”) consists of 1312 loan production offices throughout suburban Philadelphia and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale. The unit also recognizes income from document preparation fees, changes in portfolio pipeline fair values and ~~related~~ net hedging gains (losses)., if any.

The table below summarizes income and expenses, directly attributable to each business line, which have been included in the statement of operations. Total assets for each segment is also provided.


		Segment Information																	Segment Information
		Three Months Ended September 30, 2022								Three Months Ended September 30, 2021									Three Months Ended September 30, 2023								Three Months Ended September 30, 2022
(Dollars in thousands)	(Dollars in thousands)	Bank		Wealth		Mortgage		Total		Bank		Wealth		Mortgage		Total		(Dollars in thousands)	Bank		Wealth		Mortgage		Total		Bank		Wealth		Mortgage		Total
Net interest income	Net interest income	$	17,664	$	218	$	144	$	18,026	$	15,777	$	2	$	478	$	16,257	Net interest income	$	17,205	$	(15)	$	34	$	17,224	$	17,664	$	218	$	144	$	18,026
Provision for loan losses		526		—		—		526		597		—		—		597
Provision for credit losses																		Provision for credit losses	82		—		—		82		526		—		—		526
Net interest income after provision	Net interest income after provision	17,138		218		144		17,500		15,180		2		478		15,660		Net interest income after provision	17,123		(15)		34		17,142		17,138		218		144		17,500

Non-interest Income	Non-interest Income																	Non-interest Income
Mortgage banking income	Mortgage banking income	72		—		7,257		7,329		215		—		18,511		18,726		Mortgage banking income	80		—		4,739		4,819		72		—		7,257		7,329
Wealth management income	Wealth management income	—		1,114		—		1,114		—		1,232		—		1,232		Wealth management income	—		1,258		—		1,258		—		1,114		—		1,114
SBA loan income	SBA loan income	989		—		—		989		2,688		—		—		2,688		SBA loan income	982		—		—		982		989		—		—		989
Net change in fair values	Net change in fair values	47		—		(1,043)		(996)		13		—		(847)		(834)		Net change in fair values	38		—		(394)		(356)		47		—		(1,043)		(996)
Net gain on hedging activity	Net gain on hedging activity	—		—		399		399		—		—		(1,189)		(1,189)		Net gain on hedging activity	—		—		82		82		—		—		399		399
Other	Other	622		—		767		1,389		836		—		663		1,499		Other	658		—		643		1,301		622		—		767		1,389
Non-interest income	Non-interest income	1,730		1,114		7,380		10,224		3,752		1,232		17,138		22,122		Non-interest income	1,758		1,258		5,070		8,086		1,730		1,114		7,380		10,224
Non-interest expense	Non-interest expense	11,354		780		8,127		20,261		10,633		802		14,046		25,481		Non-interest expense	12,564		826		6,628		20,018		11,354		780		8,127		20,261
Income (loss) before income taxes	Income (loss) before income taxes	$	7,514	$	552	$	(603)	$	7,463	$	8,299	$	432	$	3,570	$	12,301	Income (loss) before income taxes	$	6,317	$	417	$	(1,524)	$	5,210	$	7,514	$	552	$	(603)	$	7,463

Total Assets	Total Assets	$	1,858,770	$	7,927	$	55,227	$	1,921,924	$	1,625,468	$	6,396	$	130,581	$	1,762,445	Total Assets	$	2,177,145	$	8,833	$	44,993	$	2,230,971	$	1,858,770	$	7,927	$	55,227	$	1,921,924

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Segment Information
Nine Months Ended September 30, 2022 Nine Months Ended September 30, 2021
(Dollars in thousands) Bank Wealth Mortgage Total Bank Wealth Mortgage Total
Net interest income $ 50,197 $ 628 $ 785 $ 51,610 $ 45,340 $ (249) $ 1,698 $ 46,789
Provision for loan losses 1,743 — — 1,743 1,292 — — 1,292
Net interest income after provision 48,454 628 785 49,867 44,048 (249) 1,698 45,497
Non-interest Income
Mortgage banking income 394 — 20,973 21,367 892 — 61,401 62,293
Wealth management income — 3,672 — 3,672 — 3,531 — 3,531
SBA loan income 3,946 — — 3,946 5,423 — — 5,423
Net change in fair values 151 — (4,457) (4,306) 52 — (6,671) (6,619)
Net gain on hedging activity — — 4,941 4,941 — — 2,397 2,397
Other 1,776 (1) 2,333 4,108 2,110 — 1,767 3,877
Non-interest income 6,267 3,671 23,790 33,728 8,477 3,531 58,894 70,902
Non-interest expense 32,186 2,480 26,734 61,400 28,981 2,486 48,523 79,990
Income (loss) before income taxes $ 22,535 $ 1,819 $ (2,159) $ 22,195 $ 23,544 $ 796 $ 12,069 $ 36,409
Total Assets $ 1,858,770 $ 7,927 $ 55,227 $ 1,921,924 $ 1,625,468 $ 6,396 $ 130,581 $ 1,762,445

~~(11) Leases~~

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

The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize ROU assets and lease liabilities for short-term leases.

As of September 30, 2022 the Corporation’s ROU assets and related lease liabilities were $9.5 million and $9.4 million, respectively. These amounts are included within other assets and other liabilities, respectively.

~~The components of lease expense were as follows:~~

(dollars in thousands)
Three Months Ended
September 30, 2022
Nine Months Ended
September 30, 2022
Operating lease expense $ 585 $ 1,742
Short term lease expense 1 3
Variable lease expense — —
Total lease expense $ 586 $ 1,745

~~Supplemental cash flow information related to leases was as follows:~~


~~(dollars in thousands)~~	~~Nine Months Ended September 30, 2022~~
~~Cash paid for amounts included in the measurement of lease liabilities~~
~~Operating cash flows from operating leases~~	$	~~563~~
~~ROU asset obtained in exchange for lease liabilities~~	$	~~10,995~~


	Segment Information
	Nine Months Ended September 30, 2023								Nine Months Ended September 30, 2022
(Dollars in thousands)	Bank		Wealth		Mortgage		Total		Bank		Wealth		Mortgage		Total
Net interest income	$	51,928	$	(12)	$	85	$	52,001	$	50,197	$	628	$	785	$	51,610
Provision for credit losses	2,186		—		—		2,186		1,743		—		—		1,743
Net interest income after provision	49,742		(12)		85		49,815		48,454		628		785		49,867

Non-interest Income
Mortgage banking income	221		—		12,922		13,143		394		—		20,973		21,367
Wealth management income	—		3,689		—		3,689		—		3,672		—		3,672
SBA loan income	3,463		—		—		3,463		3,946		—		—		3,946
Net change in fair values	30		—		(574)		(544)		151		—		(4,457)		(4,306)
Net gain on hedging activity	—		—		81		81		—		—		4,941		4,941
Other	1,982		—		2,034		4,016		1,776		(1)		2,333		4,108
Non-interest income	5,696		3,689		14,463		23,848		6,267		3,671		23,790		33,728
Non-interest expense	35,608		2,704		19,110		57,422		32,186		2,480		26,734		61,400
Income (loss) before income taxes	$	19,830	$	973	$	(4,562)	$	16,241	$	22,535	$	1,819	$	(2,159)	$	22,195

Total Assets	$	2,177,145	$	8,833	$	44,993	$	2,230,971	$	1,858,770	$	7,927	$	55,227	$	1,921,924

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~~Maturities of operating lease liabilities were as follows for the period indicated:~~

(dollars in thousands) September 30, 2022
2022 $ 559
2023 1,919
2024 1,746
2025 1,456
2026 1,436
Thereafter 3,134
Total $ 10,250
Less: Present value discount (887)
Total operating lease liabilities $ 9,363

~~As of September 30, 2022, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised for all operating leases is 6.33 years.~~

Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of September 30, 2022 is 2.61%.

~~As of September 30, 2022, the Corporation had not entered into any material leases that have not yet commenced.~~

~~(12) Recent Accounting Pronouncements~~(11) Subordinated Debentures

~~As an “emerging growth company” under~~In September, Meridian Corporation raised $9.7 million in subordinated debt at 8.00% with a term of 10 years, the ~~JOBS Act, the Corporation is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage~~2023 Debentures. The issuance of this ~~extended transition period, which means that the financial statements included herein,~~subordinated debt improved tier 2 capital, as well as ~~financial statements that we file up~~tangible book value of the Corporation. The funds will be used for general corporate purposes, including providing capital to the ~~date we lose this designation (December 31, 2022) will not be subject~~Corporation's bank subsidiary, Meridian Bank, and supporting organic growth. The subordinated debt also helped to ~~all new or revised accounting standards generally applicable to public companies for~~improve Meridian Bank's tier 1 capital.

The following table presents subordinated debentures at the ~~transition period. As a filer under~~dates indicated:


(dollars in thousands)	Maturity date	Interest rate	September 30, 2023		December 31, 2022
2023 Debentures	8/31/2033	8.00%	$	9,740	$	—
2019 Debentures	12/30/2029	5.38%	40,000		40,000
2013 Debentures	12/31/2028	6.50%	596		653
2011 Debentures	12/31/2026	6.00%	463		463
2008 Debentures	12/18/2023	6.00%	56		56
Debt Origination Costs			(776)		(826)
Total Subordinated Debentures			$	50,079	$	40,346

The Corporation issued the ~~JOBS Act, we will implement new accounting standards subject to~~2023 and 2019 Debentures, while the ~~effective dates required for non-public entities~~

~~Pronouncements Adopted in 2022:~~

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

~~Issued in February 2016, ASU 2016-02 revises~~Bank issued the ~~accounting related to lessee accounting. Under the new guidance, lessees are required to recognize a lease ROU liability~~2013, 2011 and a ROU asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. In June 2020, the FASB approved a delay for the implementation2008 Debentures. Upon formation of the ~~ASU. Accordingly,~~bank holding company, the ~~amendments in this update~~Corporation assumed the 2013, 2011 and 2008 Debentures.

Interest is paid semi-annually on the 2023 and 2019 Debentures, and paid quarterly on the 2013, 2011 and 2008 debentures. The 2013, 2011 and 2008 Debentures are ~~effective~~includable as Tier 2 capital for determining the Bank’s compliance with regulatory capital requirements. The 2019 and 2023 Debentures are included as Tier 2 capital for the Corporation and as Tier 1 capital for ~~fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. On January 1, 2022~~ the Corporation recognized a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition. The adoption of the ASU was on a prospective basis and therefore comparative prior periods are still presented under ASC 840. Refer to footnote 11 - leases, for further details.Bank.

~~Pronouncements Not Yet Effective as of September 30, 2022:~~

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

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in ASC Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023. The Corporation expects to recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the date of adoption. While the Corporation anticipates the allowance for credit losses will increase under current model assumptions, it expects the impact of adopting ASU 2016-13 will be influenced by the composition, characteristics and quality of its loan and investment securities portfolios, as well as general economic conditions and

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forecasts at the date of adoption. Management is currently running parallel tests under different methods and using various assumptions to determine the best approach for when we adopt this ASU, and has engaged a third party vendor to perform a model validation prior to adoption.

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

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management is considering the impact of ASU 2019-04 while considering the impact of ASU 2016-13 as discussed above.

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

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

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

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models.For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, but no earlier than for fiscal years beginning after Dec. 15, 2020. The Company does not expect this to have a material impact on our consolidated financial statements.

~~FASB ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures."~~

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

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

You should read the following discussion and analysis in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, ~~2021~~2022 included in Meridian Corporation’s Annual Report on Form 10-K filed with the ~~Securities and Exchange Commission (the “SEC”).~~SEC.

~~Cautionary Statement Regarding~~ Forward-Looking Statements

Meridian 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~~��looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Meridian Corporation’s control). Numerous competitive, economic, regulatory, legal and technological factors, risks and uncertainties that could cause actual results to differ materially include, without limitation: credit losses and the ~~impact~~credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the ~~COVID-19 pandemic~~adequacy of the allowance for credit losses, or ACL; cyber-security concerns; rapid technological developments and government responses thereto; on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; and the risk that the Small Business Administration may not fund some or all PPP loan guaranties;changes; increased competitive pressures; changes in ~~the interest rate environment;~~spreads on interest-earning assets and interest-bearing liabilities; changes in

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general economic conditions and conditions within the securities markets; ~~legislative~~unanticipated changes in our liquidity position; unanticipated changes in regulatory and ~~regulatory changes; geopolitical tensions;~~governmental policies impacting interest rates and financial markets; legislation affecting the financial services industry as a whole, and Meridian Corporation, in particular; changes in accounting policies, practices or guidance; developments affecting the industry and the ~~effects~~soundness of ~~inflation, a potential recession,~~financial institutions and further disruption to the economy and U.S. banking system; among others, could cause Meridian Corporation’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements.

Meridian Corporation cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Meridian Corporation’s filings with the ~~Securities and Exchange Commission,~~SEC, including our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.

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Critical Accounting Policies and Estimates

Our critical accounting policies are described in detail in the "Critical Accounting Policies" section within Item 7 of our ~~2021~~2022 Annual Form Form 10-K. The SEC defines "critical accounting 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 inherently uncertain and may change in future periods. ~~There have been no material~~See Note 1, "Summary of Significant Accounting Policies" for additional information on the adoption of ASC 326, which changes ~~in these policies during~~ the ~~nine months ended September 30, 2022.~~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 allowance for credit losses to be a critical accounting policy.

Executive Overview

The following items highlight the Corporation’s changes in its financial condition as of September 30, ~~2022~~2023 compared to December 31, ~~2021~~2022 and the results of operations for the three and nine months ended September 30, ~~2022~~2023 compared to the same periods in ~~2021.~~2022. More detailed information related to these highlights can be found in the sections that follow.

Bank Sector Considerations

Meridian is a regional community bank with loans and deposits that are well diversified in size, type, location and industry. We manage this diversification carefully, while avoiding concentrations in business lines. Meridian’s model continues to build on our strong and stable financial position, which serves our regional customers and communities with the banking products and services needed to help build their prosperity.

As a commercial bank, the majority of Meridian's deposit base is comprised of business deposits (58%), with consumer deposits amounting to 12% at September 30, 2023. Municipal deposits (8%) and brokered deposits (22%) provide growth funding. Historically, business deposits lag loan fundings. A typical business relationship maintains operating accounts, investment accounts or sweep accounts and business owners may also have personal savings or wealth accounts. Deposit balances in business accounts have a tendency to be higher on average than consumer accounts. At September 30, 2023, 63% of business accounts and 88% of consumer accounts were fully insured by the FDIC. The municipal deposits are 100% collateralized and brokered deposits are 100% FDIC insured. The level of uninsured deposits for the entire deposit base was 23% at September 30, 2023.

Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $1.0 billion 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 September 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.

Changes in Financial Condition - September 30, ~~2022~~2023 Compared to December 31, ~~2021~~2022

•Total assets increased ~~$208.5~~$168.7 million, or ~~12.2%~~8.2%, to ~~$1.92~~$2.2 billion as of September 30, ~~2022.~~2023.

•Portfolio loans ~~excluding PPP loans,~~ increased ~~$299.9~~$147.8 million, or ~~23.1%~~8.5%, to ~~$1.60~~$1.9 billion as of September 30, ~~2022, which is 30.9% on an annualized basis.~~2023.

•Mortgage loans held for sale ~~decreased $47.1 million,~~increased $901 thousand, or ~~58.2%~~4.1%, to ~~$33.8~~$23.1 million at September 30, ~~2022.~~2023.

•~~PPP loans decreased~~Upon adoption ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326) (“CECL”) effective January 1, 2023, we recorded an increase to ~~$8.8~~our allowance for credit losses of $1.6 million ~~as of September 30, 2022 which is a decrease of $81.4 million, or 90.2%, since December 31, 2021.~~

•~~During the quarter-ended March 31, 2022, $27.7 million of municipal securities previously classified as available-for-sale on the balance sheet, were transferred~~and an adjustment to the ~~held-to-maturity portfolio.~~reserve for unfunded commitments of $1.3 million. The after-tax retained earnings impact of this adoption was $2.2 million.

•Total deposits increased ~~$227.1~~$96.2 million or ~~15.7%~~5.6% to ~~$1.67~~$1.8 billion at September 30, ~~2022.~~2023.

•Non-interest bearing deposits decreased $57.1 million, or 18.9%, to $244.7 million as of September 30, 2023.

•The Corporation returned ~~$19.0~~$4.2 million of capital to Meridian shareholders during the nine months ended September 30, ~~2022~~2023 through ~~dividends, including~~ a ~~$1.00 special~~$0.125 quarterly dividend ~~$0.20 quarterly dividends,~~in each of the first three quarters of 2023, and also purchased ~~$9.2~~$4.3 million or ~~295 thousand~~312,447 shares of treasury stock.

Three Month Results of Operations - September 30, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

•~~Consolidated net~~Net income was ~~$5.8~~$4.0 million, or ~~$0.96~~$0.35 per diluted share, down ~~$3.6~~$1.8 million, or ~~38.6%~~30.9%, driven by a decline in non-interest income, and to a lesser degree a decline in net interest income, partially offset by lower operating expenses.

•The return on average assets and return on average equity were 0.73% and 10.17%, respectively, for the third quarter 2023, compared to 1.23% and 14.59%, respectively, for the third quarter 2022.

•Net interest margin decreased to 3.29% from 4.01% due to the impact of deposit and borrowing repricing outpacing the repricing of interest earnings assets, mainly loans.

•On January 1, 2023, the Corporation adopted the new accounting standard, referred to as CECL, which transitioned from the incurred loss model based on historical loss experience and economic and market conditions to the expected loss model. Expected credit losses are estimated over the contractual term, adjusted for expected prepayments and recoveries, and take into account macroeconomic forecasts. The provision for credit losses decreased $444 thousand when comparing the third quarter 2023 to the third quarter 2022. The reduction was due in part to a decline in the overall exposure to unfunded loan

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balances at the end of the third quarter, causing a reduction in the unfunded reserve of $273 thousand. The decrease in provision was also due to favorable changes in some baseline loss rates and certain macroeconomic factors underlying the funded loss model. In addition, the provision for credit losses is impacted by the change in expected loss rates under CECL.

•Non-interest income decreased $2.1 million, or 20.9%, to $8.1 million driven by a $2.5 million decrease in mortgage banking income and a $317 thousand decrease in net gains on hedging activities.

•Non-interest expense decreased $243 thousand, or 1.2%, to $20.0 million due to a $940 thousand decrease in salaries and employee benefits, largely offset by increases in professional fees ($205 thousand), data processing ($210 thousand), and other expenses ($564 thousand).

Nine Month Results of Operations - September 30, 2023 Compared to the Same Period in 2022

•Net income was $12.7 million, or $1.11 per diluted share, down $4.6 million, or 26.6%, driven by a decline in non-interest income, partially offset by ~~continued strong margin~~an increase in net interest income and lower operating expenses.

•The return on average assets and return on average equity was ~~1.23%~~0.79% and ~~14.59%~~10.96%, respectively, for the ~~third quarter 2022,~~nine months ended September 30, 2023, compared to ~~2.15% and 24.07%, respectively, for the third quarter 2021.~~

•~~Net interest margin increased to 4.01% from 3.83% due to higher yield on earning assets in this rising rate environment.~~

•Provision for loan losses decreased $71 thousand as a result of lower levels of specific reserves and improvements in certain qualitative factors, largely offset by increased provisioning for loan growth.

•~~Non-interest income decreased $11.9 million, or 53.8%, to $10.2 million driven by a $11.4 million decrease in mortgage banking income and a $1.7 million decrease in SBA loan income.~~

•~~Non-interest expense decreased $5.2 million, or 20.5%, to $20.3 million due to a $6.1 million decrease in salaries and employee benefits.~~

•~~On October 27, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per common share payable November 21, 2022 to shareholders of record as of November 14, 2022.~~

~~Nine Month Results of Operations - September 30, 2022 Compared to the Same Period in 2021~~

•Consolidated net income was $17.3 million, or $2.80 per diluted share, down $10.6 million, or 38.0%, driven by a lower level of non-interest income from mortgage banking activity, partially offset by continued strong margin and lower operating expenses.

•~~The return on average assets and return on average equity were~~ 1.28% and 14.49%, respectively, for the nine months ended September 30, ~~2022, compared to 2.17% and 25.43%, respectively, for the nine months ended September 30, 2021.~~2022.

•Net interest margin ~~increased~~decreased to ~~3.99%~~3.40% from ~~3.75%~~3.99% due to ~~higher yield on earning~~the impact of deposit and borrowing repricing outpacing the repricing of interest earnings assets, ~~in this rising rate environment along with $286 thousand in one-time loan fees.~~mainly loans.

•Provision for ~~loan~~credit losses increased ~~$451~~$443 thousand ~~or 34.9%, due~~ to cover for increased loan growth ~~partially offset~~period over period, combined with providing for the $1.8 million increase in net charge-offs period over period. As noted above, the provision for credit losses is impacted by ~~decreases~~the change in ~~specific reserves.~~expected loss rates under CECL.

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•Non-interest income decreased ~~$37.2~~$9.9 million, or ~~52.4%~~29.3%, to ~~$33.7~~$23.8 million driven by a ~~$40.9~~$8.2 million decrease in mortgage banking income, and a $2.5 million decline in the fair value on loans held-for-investment, partially offset by an increase of $4.8 million in the fair value of derivatives and loans held-for-sale and a $2.5 million increase incombined with decreased net gains on hedging activity ~~related to mortgage banking activity.~~of $4.9 million.

•Non-interest expense decreased ~~$18.6~~$4.0 million, or ~~23.2%~~6.5%, to ~~$61.4~~$57.4 million as ~~the result of a $20.2 million decrease in~~ salaries and employee benefits ~~tied to a decrease in variable compensation in our mortgage segment.~~decreased $6.0 million.

Key Performance Ratios

The following table presents key financial performance ratios for the periods indicated:


		Three months ended September 30,						Nine months ended September 30,							Three months ended September 30,						Nine months ended September 30,
		2022			2021			2022			2021				2023			2022			2023			2022
Return on average assets, annualized	Return on average assets, annualized	1.23		%	2.15		%	1.28		%	2.17		%	Return on average assets, annualized	0.73		%	1.23		%	0.79		%	1.28		%
Return on average equity, annualized	Return on average equity, annualized	14.59		%	24.07		%	14.49		%	25.43		%	Return on average equity, annualized	10.17		%	14.59		%	10.96		%	14.49		%
Net interest margin (tax effected yield), annualized		4.01		%	3.83		%	3.99		%	3.75		%
Net interest margin (tax effected yield)														Net interest margin (tax effected yield)	3.29		%	4.01		%	3.40		%	3.99		%
Basic earnings per share	Basic earnings per share	$	0.99		$	1.56		$	2.90		$	4.62		Basic earnings per share	$	0.36		$	0.49		$	1.14		$	1.45
Diluted earnings per share	Diluted earnings per share	$	0.96		$	1.52		$	2.80		$	4.49		Diluted earnings per share	$	0.35		$	0.48		$	1.11		$	1.40

The following table presents certain key period-end balances and ratios at the dates indicated:


(dollars in thousands, except per share amounts)	(dollars in thousands, except per share amounts)	September 30, 2022			December 31, 2021			(dollars in thousands, except per share amounts)	September 30, 2023			December 31, 2022
Book value per common share	Book value per common share	$	25.86		$	27.07		Book value per common share	$	13.88		$	13.37
Tangible book value per common share (1)	Tangible book value per common share (1)	$	25.16		$	26.37		Tangible book value per common share (1)	$	13.53		$	13.01
Allowance as a percentage of loans and leases held for investment	Allowance as a percentage of loans and leases held for investment	1.18		%	1.35		%	Allowance as a percentage of loans and leases held for investment	1.04		%	1.08		%
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)	Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)	1.20		%	1.46		%	Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)	1.05		%	1.09		%
Tier I capital to risk weighted assets	Tier I capital to risk weighted assets	9.28		%	10.83		%	Tier I capital to risk weighted assets	8.43		%	8.77		%
Tangible common equity to tangible assets ratio (1)	Tangible common equity to tangible assets ratio (1)	7.67		%	9.42		%	Tangible common equity to tangible assets ratio (1)	6.79		%	7.25		%
Loans, net of fees and costs		$	1,610,349		$	1,386,457
Loans and other finance receivables, net of fees and costs								Loans and other finance receivables, net of fees and costs	$	1,885,629		$	1,743,682
Total assets	Total assets	$	1,921,924		$	1,713,443		Total assets	$	2,230,971		$	2,062,228
Total stockholders’ equity	Total stockholders’ equity	$	151,161		$	165,360		Total stockholders’ equity	$	155,114		$	153,280

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

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;

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

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

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

•Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary for the three and nine months ended September 30, ~~2022~~2023 and ~~2021,~~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 result of net free funding sources such as non-interest bearing deposits and stockholders’ equity.

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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.

For the Three Months Ended September 30,
(dollars in thousands) 2022 2021 Change
Average Balance Interest Income/ Expense Yields/ Rates Average Balance Interest Income/ Expense Yields/ Rates Average Balance Interest Income/ Expense Yields/ Rates
Assets:
Due from banks $ 15,678 $ 92 2.33 % $ 40,249 $ 16 0.16 % $ (24,571) $ 76 2.17 %
Federal funds sold 219 1 1.81 23,013 1 0.02 (22,794) — 1.79
Investment securities - taxable (1) 107,929 648 2.38 79,785 357 1.78 28,144 291 0.60
Investment securities - tax exempt (1) 63,711 451 2.81 67,250 377 2.22 (3,539) 74 0.59
Loans held for sale 37,857 479 5.02 110,905 824 2.97 (73,048) (345) 2.05
Loans held for investment (1) 1,565,861 21,371 5.41 1,370,439 16,804 4.84 195,422 4,567 0.57
Total loans 1,603,718 21,850 5.41 1,481,344 17,628 4.72 122,374 4,222 0.69
Total interest-earning assets 1,791,255 23,042 5.10 % 1,691,641 18,379 4.31 % 99,614 4,663 0.79 %
Noninterest earning assets 76,939 48,207 28,732
Total assets $ 1,868,194 $ 1,739,848 $ 128,346
Liabilities and stockholders' equity:
Interest-bearing demand deposits $ 221,402 $ 798 1.43 % $ 270,518 $ 201 0.29 % $ (49,116) $ 597 1.14 %
Money market and savings deposits 718,744 2,075 1.15 647,093 853 0.52 71,651 1,222 0.63
Time deposits 361,527 1,202 1.32 237,080 273 0.46 124,447 929 0.86
Total deposits 1,301,673 4,075 1.24 1,154,691 1,327 0.46 146,982 2,748 0.78
Borrowings 41,313 266 2.55 111,075 126 0.45 (69,762) 140 2.10
Subordinated debentures 40,578 591 5.78 40,740 596 5.85 (162) (5) (0.07)
Total interest-bearing liabilities 1,383,564 4,932 1.41 1,306,506 2,049 0.62 77,058 2,883 0.79
Noninterest-bearing deposits 295,975 254,843 41,132
Other noninterest-bearing liabilities 31,041 22,919 8,122
Total liabilities 1,710,580 1,584,268 126,312
Total stockholders' equity 157,614 155,580 2,034
Total stockholders' equity and liabilities $ 1,868,194 $ 1,739,848 $ 128,346
Net interest income and spread (1) $ 18,110 3.69 $ 16,330 3.69 $ 1,780 —
Net interest margin (1) 4.01 % 3.83 % 0.18 %

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

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		For the Nine Months Ended September 30,																			For the Three Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	2022						2021						Change						(dollars in thousands)	2023						2022
		Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates			Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets:	Assets:																			Assets:
Due from banks	Due from banks	$	23,612	$	153	0.87	%	$	24,340	$	22	0.12	%	$	(728)	$	131	0.75	%	Due from banks	$	17,356	$	244	5.58	%	$	15,678	$	92	2.33	%
Federal funds sold	Federal funds sold	1,440		4		0.37		18,991		3		0.02		(17,551)		1		0.35		Federal funds sold	44		1		9.02		219		1		1.81
Investment securities - taxable ~~(1)~~	Investment securities - taxable ~~(1)~~	105,624		1,599		2.02		78,951		1,076		1.82		26,673		523		0.20		Investment securities - taxable ~~(1)~~	106,369		901		3.36		107,929		648		2.38
Investment securities - tax exempt (1)	Investment securities - tax exempt (1)	63,848		1,240		2.60		64,023		1,094		2.28		(175)		146		0.32		Investment securities - tax exempt (1)	58,196		410		2.80		63,711		450		2.80
Loans held for sale	Loans held for sale	52,495		1,580		4.02		139,101		2,922		2.80		(86,606)		(1,342)		1.22		Loans held for sale	27,718		456		6.53		37,857		479		5.02
Loans held for investment (1)	Loans held for investment (1)	1,489,345		56,614		5.08		1,349,780		48,375		4.79		139,565		8,239		0.29		Loans held for investment (1)	1,876,648		33,526		7.09		1,565,861		21,371		5.41
Total loans	Total loans	1,541,840		58,194		5.05		1,488,881		51,297		4.61		52,959		6,897		0.44		Total loans	1,904,366		33,982		7.08		1,603,718		21,850		5.41
Total interest-earning assets	Total interest-earning assets	1,736,364		61,190		4.71	%	1,675,186		53,492		4.27	%	61,178		7,698		0.44	%	Total interest-earning assets	2,086,331		35,538		6.76	%	1,791,255		23,041		5.10	%
Noninterest earning assets	Noninterest earning assets	74,313						44,388						29,925						Noninterest earning assets	98,054						76,939
Total assets	Total assets	$	1,810,677					$	1,719,574					$	91,103					Total assets	$	2,184,385					$	1,868,194
Liabilities and stockholders' equity:	Liabilities and stockholders' equity:																			Liabilities and stockholders' equity:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	242,863	$	1,183	0.65	%	$	252,074	$	739	0.39	%	$	(9,211)	$	444	0.26	%	Interest-bearing demand deposits	$	160,886	$	1,488	3.67	%	$	221,402	$	798	1.43	%
Money market and savings deposits	Money market and savings deposits	702,696		4,003		0.76		609,201		2,505		0.55		93,495		1,498		0.21		Money market and savings deposits	719,123		6,755		3.73		718,744		2,075		1.15
Time deposits	Time deposits	319,927		1,996		0.83		258,099		1,017		0.53		61,828		979		0.30		Time deposits	648,646		7,300		4.46		361,527		1,202		1.32
Total deposits	Total deposits	1,265,486		7,182		0.76		1,119,374		4,261		0.51		146,112		2,921		0.25		Total deposits	1,528,655		15,543		4.03		1,301,673		4,075		1.24
Borrowings	Borrowings	24,621		391		2.12		139,716		437		0.42		(115,095)		(46)		1.70		Borrowings	167,889		2,086		4.93		41,313		266		2.55
Subordinated debentures	Subordinated debentures	40,548		1,775		5.85		40,711		1,787		5.87		(163)		(12)		(0.02)		Subordinated debentures	41,311		606		5.82		40,578		591		5.78
Total interest-bearing liabilities	Total interest-bearing liabilities	1,330,655		9,348		0.94		1,299,801		6,485		0.67		30,854		2,863		0.27		Total interest-bearing liabilities	1,737,855		18,235		4.16		1,383,564		4,932		1.41
Noninterest-bearing deposits	Noninterest-bearing deposits	291,261						248,355						42,906						Noninterest-bearing deposits	253,485						295,975
Other noninterest-bearing liabilities	Other noninterest-bearing liabilities	29,452						24,928						4,524						Other noninterest-bearing liabilities	36,774						31,041
Total liabilities	Total liabilities	1,651,368						1,573,084						78,284						Total liabilities	2,028,114						1,710,580
Total stockholders' equity	Total stockholders' equity	159,309						146,490						12,819						Total stockholders' equity	156,271						157,614
Total stockholders' equity and liabilities	Total stockholders' equity and liabilities	$	1,810,677					$	1,719,574					$	91,103					Total stockholders' equity and liabilities	$	2,184,385					$	1,868,194
Net interest income and spread (1)	Net interest income and spread (1)			$	51,842	3.77				$	47,007	3.60				$	4,835	0.17		Net interest income and spread (1)			$	17,303	2.60				$	18,109	3.69
Net interest margin (1)	Net interest margin (1)					3.99	%					3.75	%					0.24	%	Net interest margin (1)					3.29	%					4.01	%

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

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	For the Nine Months Ended September 30,
(dollars in thousands)	2023						2022
	Average Balance		Interest Income/ Expense		Yields/ Rates		Average Balance		Interest Income/ Expense		Yields/ Rates
Assets:
Due from banks	$	19,358	$	735	5.08	%	$	23,612	$	153	0.87	%
Federal funds sold	156		6		5.14		1,440		4		0.37
Investment securities - taxable	111,884		2,853		3.41		105,624		1,599		2.02
Investment securities - tax exempt (1)	60,042		1,266		2.82		63,848		1,240		2.60
Loans held for sale	23,459		1,080		6.16		52,495		1,580		4.02	%
Loans held for investment (1)	1,836,244		94,538		6.88		1,489,345		56,614		5.08
Total loans	1,859,703		95,618		6.87		1,541,840		58,194		5.05
Total interest-earning assets	2,051,143		100,478		6.55	%	1,736,364		61,190		4.71	%
Noninterest earning assets	95,740						74,313
Total assets	$	2,146,883					$	1,810,677
Liabilities and stockholders' equity:
Interest-bearing demand deposits	$	198,599	$	5,184	3.49	%	$	242,863	$	1,183	0.65	%
Money market and savings deposits	673,540		16,603		3.30		702,696		4,003		0.76
Time deposits	628,419		19,226		4.09		319,927		1,996		0.83
Total deposits	1,500,558		41,013		3.65		1,265,486		7,182		0.76
Borrowings	143,955		5,450		5.06		24,621		391		2.12
Subordinated debentures	40,662		1,779		5.85		40,548		1,775		5.85
Total interest-bearing liabilities	1,685,175		48,242		3.83		1,330,655		9,348		0.94
Noninterest-bearing deposits	271,909						291,261
Other noninterest-bearing liabilities	35,234						29,452
Total liabilities	1,992,318						1,651,368
Total stockholders' equity	154,565						159,309
Total stockholders' equity and liabilities	$	2,146,883					$	1,810,677
Net interest income and spread (1)			$	52,236	2.72				$	51,842	3.77
Net interest margin (1)					3.40	%					3.99	%

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

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~~Rate/~~

Rate / Volume Analysis

The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and nine months ended September 30, ~~2022~~2023 as compared to the same periods in ~~2021,~~2022, allocated by rate and volume. Changes in interest income and/or expense attributable to both rate and volume have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.


		2022 Compared to 2021													2023 Compared to 2022
		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended September 30,						Nine Months Ended September 30,
(dollars in thousands)	(dollars in thousands)	Rate		Volume		Total		Rate		Volume		Total		(dollars in thousands)	Rate		Volume		Total		Rate		Volume		Total
Interest income:	Interest income:													Interest income:
Due from banks	Due from banks	$	91	$	(15)	$	76	$	132	$	(1)	$	131	Due from banks	$	141	$	11	$	152	$	617	$	(35)	$	582
Federal funds sold	Federal funds sold	2		(2)		—		6		(5)		1		Federal funds sold	1		(1)		—		10		(8)		2
Investment securities - taxable ~~(1)~~	Investment securities - taxable ~~(1)~~	143		148		291		129		394		523		Investment securities - taxable ~~(1)~~	262		(9)		253		1,154		100		1,254
Investment securities - tax exempt (1)	Investment securities - tax exempt (1)	95		(21)		74		149		(3)		146		Investment securities - tax exempt (1)	(1)		(39)		(40)		103		(77)		26
Loans held for sale	Loans held for sale	382		(727)		(345)		942		(2,284)		(1,342)		Loans held for sale	123		(146)		(23)		610		(1,110)		(500)
Loans held for investment (1)	Loans held for investment (1)	2,020		2,547		4,567		3,046		5,193		8,239		Loans held for investment (1)	7,401		4,754		12,155		22,884		15,040		37,924
Total loans	Total loans	2,402		1,820		4,222		3,988		2,909		6,897		Total loans	7,524		4,608		12,132		23,494		13,930		37,424
Total interest income	Total interest income	$	2,733	$	1,930	$	4,663	$	4,404	$	3,294	$	7,698	Total interest income	$	7,927	$	4,570	$	12,497	$	25,378	$	13,910	$	39,288
Interest expense:	Interest expense:													Interest expense:
Interest-bearing demand deposits	Interest-bearing demand deposits	$	640	$	(43)	$	597	$	472	$	(28)	$	444	Interest-bearing demand deposits	$	959	$	(269)	$	690	$	4,254	$	(253)	$	4,001
Money market and savings deposits	Money market and savings deposits	1,118		104		1,222		1,071		427		1,498		Money market and savings deposits	4,679		1		4,680		12,773		(173)		12,600
Time deposits	Time deposits	727		202		929		694		285		979		Time deposits	4,575		1,523		6,098		13,817		3,413		17,230
Total deposits	Total deposits	2,485		263		2,748		2,237		684		2,921		Total deposits	10,213		1,255		11,468		30,844		2,987		33,831
Borrowings	Borrowings	263		(123)		140		561		(607)		(46)		Borrowings	424		1,396		1,820		1,124		3,935		5,059
Subordinated debentures	Subordinated debentures	(3)		(2)		(5)		(5)		(7)		(12)		Subordinated debentures	4		11		15		(1)		5		4
Total interest expense	Total interest expense	$	2,745	$	138	$	2,883	$	2,793	$	70	$	2,863	Total interest expense	$	10,641	$	2,662	$	13,303	$	31,967	$	6,927	$	38,894
Interest differential	Interest differential	$	(12)	$	1,792	$	1,780	$	1,611	$	3,224	$	4,835	Interest differential	$	(2,714)	$	1,908	$	(806)	$	(6,589)	$	6,983	$	394

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

Three Months Ended September 30, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

For the three months ended September 30, ~~2022~~2023 as compared to the same period in ~~2021,~~2022, tax-equivalent interest income increased ~~$4.7~~$12.5 million as favorable rate and volume changes contributed ~~$2.7~~$7.9 million, and ~~$1.9~~$4.6 million, respectively. The favorable change in rates ~~was driven by~~led to increased ~~yield~~yields on loans held for sale (up ~~205~~151 basis points) and loans held for investment (up 57168 basis points) that favorably impact interest income by ~~$2.4~~$7.5 million, ~~combined.~~overall. The loans held for investment average balances increased ~~$195.4~~$310.8 million, leading to a favorable volume impact on interest income of ~~$2.5~~$4.8 million, while the decline in loans held for sale average balances of ~~$73.0~~$10.1 million had an unfavorable impact to interest income of ~~$727 thousand as shown~~$146 thousand. Growth in ~~the table above. Within~~ the loans held for investment portfolio was led by average ~~balances on~~balance increases in commercial ~~loans and leases increased $33.6 million, and $54.0 million, respectively, construction loans were up $65.3 million, and~~real estate ($125.2 million), residential real estate ($121.9 million), construction ($59.2 million), and SBA loans ~~average balances increased $78.2 million, while the average balance of PPP loans decreased $132.4 million as such loans continue to be forgiven by the SBA.~~($17.6 million).

On the funding side, overall interest expense increased ~~$2.9~~$13.3 million, ~~due to~~largely driven by the impact from rate hikes issued by the ~~Fed, which were partially offset by volume declines on borrowings.~~Fed. The cost of deposits were up across the board, ~~causing~~leading to a ~~$2.5~~$11.5 million increase to interest expense. The cost of interest-bearing demand deposits, money market and savings accounts and time deposits increased ~~114~~224 basis points, 63258 basis points and 86314 basis points, respectively, while the cost of borrowings increased ~~210~~238 basis points. ~~Money~~Time deposits were the largest drivers of the interest expense increase due to volume as average balances on such accounts increased $287.1 million, while money market/savings accounts ~~and time deposit~~ average balances increased ~~$71.7 million,~~only $379 thousand, and ~~$124.4 million, respectively, while~~the average balances on interest-bearing demand deposits decreased ~~$49.1~~$60.5 million, ~~on average, and~~while borrowings ~~decreased $69.8~~increased $126.6 million on average.

Overall, the ~~$1.8 million increase~~$806 thousand decrease in net interest income over this period was ~~derived~~driven by ~~volume~~rate changes as the ~~impact from increased average earning assets and the $41.1 million in free funding~~cost of interest bearing liabilities outpaced the increase in ~~average~~the yield on interest ~~bearing liabilities.~~earning assets.

~~Nine Months Ended September 30, 2022 Compared to the Same Period in 2021~~

For the nine months ended September 30, 2022 as compared to the same period in 2021, tax-equivalent interest income increased $7.7 million as positive rate changes on average earning assets contributed $4.4 million and favorable volume changes helped to increase interest income by $3.3 million. The favorable change in interest income due to rate changes was driven by growth in the loans held for sale (increase of 122 basis points) and the overall loans held for investment portfolio (increase of 29 basis points). This large

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~~increase~~Nine Months Ended September 30, 2023 Compared to the Same Period in 2022

For the ~~yield~~nine months ended September 30, 2023 as compared to the same period in 2022, tax-equivalent interest income increased $39.3 million as favorable rate and volume changes contributed $25.4 million, and $13.9 million, respectively. The favorable change in rates led to increased yields on loans held for investment (up 180 basis points) and loans held for sale ~~was the result of interest rates hovering at historical lows throughout much of 2021, but then as the Fed raised interest rates in 2022, the yield benefited from this action. The $3.3 million positive~~(up 214 basis points), that favorably impact ~~that volume changes had to~~ interest income ~~was largely the result of loan average balance increases, which contributed $5.2~~by $23.5 million, ~~to interest income, offset by a decline in the volume of loans held or sale which had an unfavorable impact of $2.3 million on interest income.~~overall. The ~~increase in~~ loans held for investment average balances ~~were led by~~increased $346.9 million, leading to a favorable volume impact on interest income of $15.0 million, while the decline in loans held for sale average balances of $29.0 million had an ~~increases in~~unfavorable impact to interest income of $1.1 million. Within the loans held for investment portfolio, average balances on commercial loans, ~~small business~~SBA loans, and leases ~~of $30~~increased $1.3 million, ~~$58.1~~$24.4 million, and ~~$56.5~~$34.2 million, respectively, construction loans ~~of $50.8~~were up $71.9 million, and residential real estate loans ~~held for investment~~average balances increased $145.8 million, while the average balance of ~~$47.3~~PPP loans decreased $38.9 million ~~offset somewhat by a $152.3 million decline in PPP loan balances~~ as ~~they continue to be~~such loans are nearly fully forgiven now by the SBA.

On the funding side, overall interest expense increased ~~$2.9 million.~~$38.9 million, largely driven by the impact from rate hikes issued by the Fed. The cost of deposits ~~was~~were up ~~having~~across the board, leading to a ~~$2.9~~$33.8 million ~~negative effect on~~increase to interest expense. The cost of interest-bearing demand deposits, money market and savings ~~deposits,~~accounts and time deposits increased 26284 basis points, 21254 basis points and 30326 basis points, respectively, while the cost of borrowings increased ~~170~~294 basis points. ~~Money market and~~ Time deposit average balances increased $308.5 million, while money market/savings accounts average balances and ~~time~~interest-bearing demand deposits ~~increased $93.5~~decreased $29.2 million, and ~~$61.8~~$44.3 million, respectively, and borrowings increased $119.3 million on ~~average respectively, while interest bearing demand deposits and borrowings were down $9.2 million and $115.1 million on average, respectively, leading to a $70 thousand increase in interest expense.~~average.

Overall, the ~~$4.8~~$0.4 million increase in net interest income was derived by the volume changes as the impact from increased average earning assets, ~~and~~particularly loans held for investment, overcame the ~~$42.9 million in free~~unfavorable impact from the funding ~~outpaced the increase in average interest bearing liabilities.~~

costs.

PROVISION FOR ~~LOAN AND LEASE~~CREDIT LOSSES

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

~~The provision for loan losses decreased $71 thousand due to decreases in specific reserves on non-performing loans as the underlying credit quality improved~~ and ~~certain qualitative factors improved as well, partially offset by providing for continued loan growth and charge-offs on small ticket equipment leases.~~

Nine Months Ended September 30, ~~2022~~2023 Compared to the Same ~~Period~~Periods in ~~2021~~2022

The provision for credit losses decreased $444 thousand for the three months ended September 30, 2023, and increased $443 thousand for the nine months ended September 30, 2023. The provision decrease over the three month comparable period was due in part to a decline in the overall exposure to unfunded loan ~~losses increased $451 thousand~~balances at the end of the third quarter, causing a reduction in the unfunded reserve. The remaining decrease in provisioning was due largely to favorable changes in the some baseline loss rates and certain economic factors. The provision increase over the nine month comparable periods was to help provide for loan growth over the ~~significant~~period, in addition to helping to cover for the increased level of ~~loan growth year~~charge-offs, largely over ~~year, partially offset by the impact of decreases to specific reserves and qualitative factors noted above.~~small equipment leases.

Asset Quality Summary

~~Meridian's credit culture is strong and asset quality remains a primary focus of management.~~ The ratio of non-performing assets to total assets ~~declined to 1.20%~~was 1.38% as of September 30, ~~2022,~~2023, up from ~~1.34%~~1.11% reported as of December 31, ~~2021.~~2022. There was no$1.7 million in other real estate ~~property~~owned included in non-performing assets, ~~for either period.~~the result of taking possession of a well collateralized residential real estate property in the quarter end December 31, 2022. Total non-performing loans ~~were $23.1 million and $23.0~~of $29.1 million as of September 30, ~~2022 and~~2023, increased $7.9 million from $21.2 million as December 31, ~~2021, respectively, however subsequent~~2022 due to ~~September 30, 2022, principal payments~~downgrades of ~~$3.2 million~~6 SBA loans, 1 shared national credit loan, 3 commercial loan relationships, and ~~$307 thousand on a non-performing loan relationship were received.~~several small balance equipment leases during this period.

Meridian realized net charge-offs of ~~0.10%~~0.18% of total average loans for the ~~year~~nine months ending September 30, ~~2022~~2023, which ~~is higher than the 0.01% over~~was up from 0.10% reported for the same period in ~~2021. Charge-offs amounted to $431 thousand for the quarter ending September 30, 2022, while recoveries were $74 thousand during this quarter. Nearly all of the~~2022. Net charge-offs for the quarter ~~ending~~ended September 30, ~~2022~~2023 were $914 thousand, comprised of $1.0 million in charge-offs, with $95 thousand in recoveries for the quarter. While a large percentage of charge-offs for the quarter ended September 30, 2023 continue to be from small ticket equipment leases, the level of charge-offs in this portfolio declined by $169 thousand, while we also realized $90 thousand of recoveries related to the small ticket equipment lease portfolio. There were ~~split between commercial~~also charge-offs of $272 thousand on SBA loans ~~and home equity loans.~~ that had previously been classified as non-performing loans in a prior period.

The ratio of allowance for ~~loan~~credit losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure, see reconciliation in the Appendix), was ~~1.20%~~1.05% as of September 30, ~~2022~~2023 and ~~1.46%~~1.09% as of December 31, ~~2021.~~2022. As of September 30, ~~2022~~2023 there were specific reserves of ~~$2.8~~$2.5 million against a non-performing loans, ~~down~~an increase from ~~$3.2~~$2.2 million as of December 31, ~~2021~~2022 due to ~~improvement~~the establishment of a specific reserve on a commercial loan that was classified as a non-performing loan, partially offset by a decline in the ~~underlying credit quality for certain loans, as discussed in the above paragraph.~~specific reserve on 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.

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Nonperforming Assets and Related Ratios

The following table presents nonperforming assets and related ratios for the periods indicated:


(dollars in thousands)	(dollars in thousands)	September 30, 2022			December 31, 2021			(dollars in thousands)	September 30, 2023			December 31, 2022
Non-performing assets:	Non-performing assets:							Non-performing assets:
Nonaccrual loans:	Nonaccrual loans:							Nonaccrual loans:
Real estate loans:	Real estate loans:							Real estate loans:

Commercial mortgage								Commercial mortgage	$	—		$	140
Home equity lines and loans	Home equity lines and loans	$	878		$	911		Home equity lines and loans	929			1,097
Residential mortgage	Residential mortgage	2,097			2,398			Residential mortgage	3,097			2,085
Construction								Construction	1,206			—

Total real estate loans	Total real estate loans	2,975			3,309			Total real estate loans	5,232			3,322
Commercial and industrial	Commercial and industrial	18,202			18,801			Commercial and industrial	15,575			12,547
Small business loans	Small business loans	1,401			666			Small business loans	7,237			4,465
Leases	Leases	506			212			Leases	1,067			902
Total nonaccrual loans	Total nonaccrual loans	23,084			22,988			Total nonaccrual loans	29,111			21,236

Other real estate owned								Other real estate owned	1,703			1,703
Total non-performing assets	Total non-performing assets	$	23,084		$	22,988		Total non-performing assets	$	30,814		$	22,939

Troubled debt restructurings:
TDRs included in non-performing loans and leases		$	193		$	361
TDRs in compliance with modified terms		3,637			3,446
Total TDRs		$	3,830		$	3,807

Asset quality ratios:	Asset quality ratios:							Asset quality ratios:
Non-performing assets to total assets	Non-performing assets to total assets	1.20		%	1.34		%	Non-performing assets to total assets	1.38		%	1.11		%
Non-performing loans to:	Non-performing loans to:							Non-performing loans to:
Total loans and leases	Total loans and leases	1.40		%	1.57		%	Total loans and leases	1.53		%	1.20		%
Total loans held-for-investment	Total loans held-for-investment	1.43		%	1.66		%	Total loans held-for-investment	1.54		%	1.22		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		1.45		%	1.80		%
Allowance for loan losses to:
Total loans held-for-investment (excluding loans at fair value) (1)								Total loans held-for-investment (excluding loans at fair value) (1)	1.55		%	1.23		%
Allowance for credit losses to (2):								Allowance for credit losses to (2):
Total loans and leases	Total loans and leases	1.15		%	1.28		%	Total loans and leases	1.03		%	1.07		%
Total loans held-for-investment	Total loans held-for-investment	1.18		%	1.35		%	Total loans held-for-investment	1.04		%	1.08		%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		1.20		%	1.46		%
Total loans held-for-investment (excluding loans at fair value) (1)								Total loans held-for-investment (excluding loans at fair value) (1)	1.05		%	1.09		%
Non-performing loans	Non-performing loans	82.20		%	81.60		%	Non-performing loans	67.61		%	88.66		%

Total loans and leases	Total loans and leases	$	1,644,149		$	1,467,339		Total loans and leases	$	1,908,773		$	1,765,925
Total loans and leases held-for-investment	Total loans and leases held-for-investment	$	1,610,349		$	1,386,457		Total loans and leases held-for-investment	$	1,885,629		$	1,743,682
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)		$	1,587,037		$	1,280,654
Allowance for loan and lease losses		$	18,974		$	18,758
Total loans and leases held-for-investment (excluding loans at fair value)								Total loans and leases held-for-investment (excluding loans at fair value)	$	1,872,109		$	1,724,601
Allowance for credit losses (2)								Allowance for credit losses (2)	$	19,683		$	18,828

(1) The allowance for ~~loan~~credit losses to total loans held-for-investment (excluding loans at fair ~~value and PPP loans)~~value) 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.

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NON-INTEREST INCOME

Three Months Ended September 30, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

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


		Quarter Ended									Quarter Ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2023		September 30, 2022		$ Change		% Change
Mortgage banking income	Mortgage banking income	$	7,329	$	18,726	$	(11,397)	(60.9)	%	Mortgage banking income	$	4,819	$	7,329	$	(2,510)	(34.2)	%
Wealth management income	Wealth management income	1,114		1,232		(118)		(9.6)	%	Wealth management income	1,258		1,114		144		12.9	%
SBA loan income	SBA loan income	989		2,688		(1,699)		(63.2)	%	SBA loan income	982		989		(7)		(0.7)	%
Earnings on investment in life insurance	Earnings on investment in life insurance	138		93		45		48.4	%	Earnings on investment in life insurance	201		138		63		45.7	%
Net change in the fair value of derivative instruments	Net change in the fair value of derivative instruments	127		(339)		466		(137.5)	%	Net change in the fair value of derivative instruments	103		127		(24)		(18.9)	%
Net change in the fair value of loans held-for-sale	Net change in the fair value of loans held-for-sale	(237)		(532)		295		(55.5)	%	Net change in the fair value of loans held-for-sale	111		(237)		348		(146.8)	%
Net change in the fair value of loans held-for-investment	Net change in the fair value of loans held-for-investment	(886)		37		(923)		(2494.6)	%	Net change in the fair value of loans held-for-investment	(570)		(886)		316		(35.7)	%
Net gain on hedging activity	Net gain on hedging activity	399		(1,189)		1,588		(133.6)	%	Net gain on hedging activity	82		399		(317)		(79.4)	%
Net gain on sale of investment securities available-for-sale		—		314		(314)		(100.0)	%
Service charges		32		35		(3)		(8.6)	%
Net loss on sale of investment securities available-for-sale										Net loss on sale of investment securities available-for-sale	(3)		—		(3)		(100.0)	%
Other	Other	1,219		1,057		162		15.3	%	Other	1,103		1,251		(148)		(11.8)	%
Total non-interest income	Total non-interest income	$	10,224	$	22,122	$	(11,898)	(53.8)	%	Total non-interest income	$	8,086	$	10,224	$	(2,138)	(20.9)	%

Total non-interest income decreased ~~$11.9~~$2.1 million due primarily to lower income from our mortgage segment, which ~~was~~continues to be impacted by lower levels of mortgage loan originations in a rising rate environment and a lack of housing inventory. ~~Partially offsetting~~Mortgage loan originations decreased $104.0 million to $187.1 million when comparing the impact of the decline in mortgage banking income were net changes in the fair value of derivative instruments and loans held-for-sale, along with an improvement in net gains on hedging activity which increased $2.3 million, combined.

~~SBA loan income decreased $1.7 million as a higher volume of SBA loans were sold into the secondary market in the prior year comparable quarter: $20.8 million of loans were sold in the quarter-ending~~quarter ended September 30, ~~2022 compared~~2023 to ~~$25.0 million in loans sold in~~ the ~~quarter-ending~~quarter ended September 30, ~~2021. Contributing to lower SBA loan income, margins on the SBA loan sales decreased from the prior year due to the upward movement in interest rates, which drove SBA loan prices down.~~2022.

The net change in the fair value of loans held-for-investment ~~decreased~~improved to a loss of ~~$886~~$570 thousand for the quarter ended September 30, ~~2022,~~2023, compared to a ~~gain~~loss of ~~$37~~$886 thousand for the comparable prior year quarter, due to the negative impact the rising interest rate environment had on the fair value of the loans in portfolio that are held at fair value. ~~Other non-interest income was up $162 thousand due to increases in title fee income, FHLB stock dividend income and broker fee income.~~

Nine Months Ended September 30, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

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


		Year Ended									Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2023		September 30, 2022		$ Change		% Change
Mortgage banking income	Mortgage banking income	$	21,367	$	62,293	$	(40,926)	(65.7)	%	Mortgage banking income	$	13,143	$	21,367	$	(8,224)	(38.5)	%
Wealth management income	Wealth management income	3,672		3,531		141		4.0	%	Wealth management income	3,689		3,672		17		0.5	%
SBA loan income	SBA loan income	3,946		5,423		(1,477)		(27.2)	%	SBA loan income	3,463		3,946		(483)		(12.2)	%
Earnings on investment in life insurance	Earnings on investment in life insurance	413		224		189		84.4	%	Earnings on investment in life insurance	585		413		172		41.6	%
Net change in the fair value of derivative instruments	Net change in the fair value of derivative instruments	(713)		(3,431)		2,718		(79.2)	%	Net change in the fair value of derivative instruments	217		(713)		930		(130.4)	%
Net change in the fair value of loans held-for-sale	Net change in the fair value of loans held-for-sale	(1,094)		(3,164)		2,070		(65.4)	%	Net change in the fair value of loans held-for-sale	(88)		(1,094)		1,006		(92.0)	%
Net change in the fair value of loans held-for-investment	Net change in the fair value of loans held-for-investment	(2,499)		(24)		(2,475)		10312.5	%	Net change in the fair value of loans held-for-investment	(673)		(2,499)		1,826		(73.1)	%
Net gain on hedging activity		4,941		2,397		2,544		106.1	%
Net gain on sale of investment securities available-for-sale		—		362		(362)		(100.0)	%
Service charges		90		99		(9)		(9.1)	%
Net (loss) gain on hedging activity										Net (loss) gain on hedging activity	81		4,941		(4,860)		(98.4)	%
Net loss on sale of investment securities available-for-sale										Net loss on sale of investment securities available-for-sale	(58)		—		(58)		(100.0)	%
Other	Other	3,605		3,192		413		12.9	%	Other	3,489		3,695		(206)		(5.6)	%
Total non-interest income	Total non-interest income	$	33,728	$	70,902	$	(37,174)	(52.4)	%	Total non-interest income	$	23,848	$	33,728	$	(9,880)	(29.3)	%

Total non-interest income decreased $9.9 million due primarily to lower income from our mortgage segment, which was impacted by lower levels of mortgage loan originations in a rising rate environment and a lack of housing inventory. Mortgage loan originations decreased $392.0 million to $531.4 million when comparing the nine months ended September 30, 2023 to the nine months ended September 30, 2022. Driven by the decline in mortgage banking income over the nine month comparable periods, the net changes in the fair value of derivative instruments and loans held-for-sale, along with changes in net gains on hedging activity decreased $2.9 million, combined.

SBA loan income decreased $483 thousand as a lower volume of SBA loans were sold into the secondary market for the nine months ending September 30, 2023 ($64.9 million of loans sold at an average gross margin of 6.8%), compared to the nine months ending September 30, 2022 ($75.9 million in loans sold at an average gross margin of 7.4%).

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NON-INTEREST EXPENSE

Three Months Ended September 30, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

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


		Quarter Ended									Quarter Ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2023		September 30, 2022		$ Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	13,360	$	19,472	$	(6,112)	(31.4)	%	Salaries and employee benefits	$	12,420	$	13,360	$	(940)	(7.0)	%
Occupancy and equipment	Occupancy and equipment	1,191		1,133		58		5.1	%	Occupancy and equipment	1,226		1,191		35		2.9	%
Professional fees	Professional fees	899		873		26		3.0	%	Professional fees	1,104		899		205		22.8	%
Advertising and promotion	Advertising and promotion	1,165		1,089		76		7.0	%	Advertising and promotion	848		1,165		(317)		(27.2)	%
Data processing		574		530		44		8.3	%
Information technology		868		476		392		82.4	%
Pennsylvania bank shares tax		202		152		50		32.9	%
Data processing and software										Data processing and software	1,652		1,442		210		14.6	%
Other	Other	2,002		1,756		246		14.0	%	Other	2,768		2,204		564		25.6	%
Total non-interest expense	Total non-interest expense	$	20,261	$	25,481	$	(5,220)	(20.5)	%	Total non-interest expense	$	20,018	$	20,261	$	(243)	(1.2)	%

Total non-interest expense decreased $243 thousand, or 1.2%, largely attributable to a decrease in salaries and employee benefits expense in the mortgage segment, which had reduced fixed and variable based ~~compensation.~~compensation due to the overall decline in mortgage banking income.

~~Information technology~~Professional fees increased $205 thousand over this period largely due to an increase in loan and lease workout expenses which has helped lead to an increase in recoveries when compared to recoveries in the prior year. Professional fees were also impacted by system conversion fees for a new loan servicing platform for our mortgage segment. Advertising and promotion expense decreased $317 thousand over this period as a result of a decrease in business development expense and certain advertising expenses' seasonality.

Data processing and software expense increased ~~$392~~$210 thousand due to cybersecurity improvements, cloud-based costs, ~~and~~ other software upgrades, and an increase in customer account volume, all as a result of growth. Other non-interest expense increased ~~$246~~$564 thousand due largely to an increase in FDIC insurance expense, which reflected the ~~increased level of client engagement~~new 2 basis point increase in assessment, and ~~business development our employees were able to do~~an increase in ~~the current period versus the prior year~~certain commercial and consumer related loan expenses due to ~~COVID-19 pandemic restrictions.~~portfolio growth.

Nine Months Ended September 30, ~~2022~~2023 Compared to the Same Period in ~~2021~~2022

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


		Year Ended									Nine Months Ended
(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		September 30, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2023		September 30, 2022		$ Change		% Change
Salaries and employee benefits	Salaries and employee benefits	$	41,585	$	61,824	$	(20,239)	(32.7)	%	Salaries and employee benefits	$	35,633	$	41,585	$	(5,952)	(14.3)	%
Occupancy and equipment	Occupancy and equipment	3,619		3,460		159		4.6	%	Occupancy and equipment	3,610		3,619		(9)		(0.2)	%
Professional fees	Professional fees	2,659		2,629		30		1.1	%	Professional fees	2,930		2,659		271		10.2	%
Advertising and promotion	Advertising and promotion	3,340		2,795		545		19.5	%	Advertising and promotion	2,799		3,340		(541)		(16.2)	%
Data processing		1,633		1,666		(33)		(2.0)	%
Information technology		2,306		1,365		941		68.9	%
Pennsylvania bank shares tax		612		478		134		28.0	%
Data processing and software										Data processing and software	4,764		3,939		825		20.9	%
Other	Other	5,646		5,773		(127)		(2.2)	%	Other	7,686		6,258		1,428		22.8	%
Total non-interest expense	Total non-interest expense	$	61,400	$	79,990	$	(18,590)	(23.2)	%	Total non-interest expense	$	57,422	$	61,400	$	(3,978)	(6.5)	%

Total non-interest expense decreased $4.0 million largely attributable to a decrease in salaries and employee benefits expense at the mortgage segment, which recognized decreased fixed and variable compensation. Partially offsetting this decrease was an increase in salaries & benefits expense for the 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 ~~increased $545~~decreased $541 thousand as the result of a ~~renewed~~reduction in mortgage segment advertising and ~~focused priority placed on business development~~leads expense as mortgage origination volume was down significantly from the prior year. Data processing and ~~community outreach efforts. Information technology~~software expense increased ~~$941~~$825 thousand due to cybersecurity improvements, cloud-based costs and other software upgrades, all as a result of growth. Other non-interest expense increased $1.4 million over the period due largely to an increase in FDIC insurance expense, which reflected the new 2 basis point increase in assessment, and the adjustment of the unfunded allowance for credit losses which increased nearly $1 million due to the adoption of ASC 326 as of January 1, 2023.

Table of Contents

INCOME TAX EXPENSE

Income tax expense for the three months ended September 30, ~~2022~~2023 was ~~$1.7~~$1.2 million, as compared to ~~$2.9~~$1.7 million for the same period in ~~2021.~~2022. The decrease in income tax expense was attributable to the decrease in earnings, period over period. Our effective tax rate was 23.1% for the three months ended September 30, 2023 and 22.3% for the three months ended September 30, ~~2022 and 23.3% for the three months ended September 30, 2021.~~2022.

Income tax expense for the nine months ended September 30, ~~2022~~2023 was ~~$4.9~~$3.6 million, as compared to ~~$8.5~~$4.9 million for the same period in ~~2021.~~2022. The decrease in income tax expense was attributable to the decrease in earnings, period over period. Our effective tax rate was 22.0% for the nine months ended September 30, 2023 and 22.2% for the nine months ended September 30, ~~2022 and 23.5% for the nine months ended June 30, 2021.~~2022.

~~Table of Contents~~

BALANCE SHEET ANALYSIS

As of September 30, ~~2022,~~2023, total assets were ~~$1.92~~$2.2 billion which increased ~~$208.5~~$168.7 million, or ~~12.2%~~8.2%, from December 31, ~~2021.~~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)	(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2023		December 31, 2022		$ Change		% Change
Mortgage loans held for sale	Mortgage loans held for sale	$	33,800	$	80,882	$	(47,082)	(58.2)	%	Mortgage loans held for sale	$	23,144	$	22,243	$	901	4.1	%
Real estate loans:	Real estate loans:									Real estate loans:
Commercial mortgage	Commercial mortgage	545,736		516,928		28,808		5.6	%	Commercial mortgage	696,124		565,400		130,724		23.1
Home equity lines and loans	Home equity lines and loans	57,648		52,299		5,349		10.2	%	Home equity lines and loans	73,844		59,399		14,445		24.3
Residential mortgage ~~(1)~~	Residential mortgage ~~(1)~~	153,513		68,175		85,338		125.2	%	Residential mortgage ~~(1)~~	256,343		221,837		34,506		15.6
Construction	Construction	244,435		160,905		83,530		51.9	%	Construction	276,590		271,955		4,635		1.7
Total real estate loans	Total real estate loans	1,001,332		798,307		203,025		25.4	%	Total real estate loans	1,302,901		1,118,591		184,310		16.5

Commercial and industrial	Commercial and industrial	329,451		293,771		35,680		12.1	%	Commercial and industrial	299,861		341,378		(41,517)		(12.2)
Small business loans	Small business loans	133,904		114,158		19,746		17.3	%	Small business loans	141,265		136,155		5,110		3.8
Paycheck Protection Program loans		8,837		90,194		(81,357)		(90.2)	%
Main Street Lending Program Loans		597		597		—		—	%
Consumer	Consumer	497		419		78		18.6	%	Consumer	434		488		(54)		(11.1)
Leases, net	Leases, net	129,574		88,242		41,332		46.8	%	Leases, net	138,963		138,986		(23)		—
Total portfolio loans and leases	Total portfolio loans and leases	$	1,604,192	$	1,385,688	$	218,504	15.8	%	Total portfolio loans and leases	$	1,883,424	$	1,735,598	$	147,826	8.5
Total loans and leases	Total loans and leases	$	1,637,992	$	1,466,570	$	171,422	11.7	%	Total loans and leases	$	1,906,568	$	1,757,841	$	148,727	8.5	%

Portfolio loans increased ~~grew $218.5~~$147.8 million, ~~or 15.8%,~~ to ~~$1.6~~$1.9 billion as of September 30, ~~2022,~~2023, from ~~$1.4~~$1.8 billion as of December 31, ~~2021.~~2022. Overall portfolio loan growth ~~excluding PPP loans,~~ was ~~23.1%~~8.5% since December 31, ~~2021,~~2022, or ~~30.9%~~11.4% on an annualized basis for ~~2022.~~2023. Commercial ~~loans increased $35.7 million, or 12.1%, commercial~~ real estate loans increased ~~$28.8~~$130.7 million, or ~~5.6%, construction loans increased $83.5 million, or 51.9%~~23.1%, residential real estate loans held in portfolio increased ~~$85.3~~$34.5 million, or ~~125.2%~~15.6%, construction loans increased $4.6 million, or 1.7%, and ~~lease financings~~small business loans increased ~~$41.3~~$5.1 million, or ~~46.8% from December 31, 2021. Partially offsetting the growth in portfolio loans was a decrease of $81.4 million, or 90.2%, in PPP loan balances as such loans continue to be paid off by the SBA.~~3.8%.

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


(Dollars in thousands)	(Dollars in thousands)	September 30, 2022		December 31, 2021		$ Change		% Change		(Dollars in thousands)	September 30, 2023		December 31, 2022		$ Change		% Change
Noninterest-bearing deposits	Noninterest-bearing deposits	$	290,169	$	274,528	$	15,641	5.7	%	Noninterest-bearing deposits	$	244,668	$	301,727	$	(57,059)	(18.9)	%
Interest-bearing deposits:	Interest-bearing deposits:									Interest-bearing deposits:
Interest-bearing demand deposits	Interest-bearing demand deposits	236,562		268,248		(31,686)		(11.8)	%	Interest-bearing demand deposits	156,537		219,838		(63,301)		(28.8)	%
Money market and savings deposits	Money market and savings deposits	709,127		697,628		11,499		1.6	%	Money market and savings deposits	746,599		697,564		49,035		7.0	%
Time deposits	Time deposits	437,695		206,009		231,686		112.5	%	Time deposits	660,841		493,350		167,491		33.9	%
Total interest-bearing deposits	Total interest-bearing deposits	1,383,384		1,171,885		211,499		18.0	%	Total interest-bearing deposits	$	1,563,977	$	1,410,752	$	153,225	10.9	%
Total deposits	Total deposits	$	1,673,553	$	1,446,413	$	227,140	15.7	%	Total deposits	$	1,808,645	$	1,712,479	$	96,166	5.6	%

Total deposits increased ~~$227.1~~$96.2 million, or ~~15.7%~~5.6%, since December 31, ~~2021. While noninterest-bearing~~2022. Noninterest-bearing deposits ~~increased $15.6~~and interest-bearing accounts decreased $57.1 million, ~~over this period,~~and $63.3 million, respectively, during the ~~largest increase~~period. This decline was ~~in time~~largely due to customer preference for money market deposits ~~$211.5~~which carry higher interest rates than interest-bearing demand deposits. Time deposits grew $167.5 million, or ~~18.0%~~33.9%, ~~largely~~ from retail and wholesale efforts as customers prefer the higher term interest rates. Included in time deposits ~~due to more favorable interest rates.~~as of September 30, 2023, and December 31, 2022, are $401.3 million and $409.3 million of brokered deposits, respectively, which comprise 22.2% and 21.9% of total deposits as of these dates.

Table of Contents

Capital

Consolidated stockholders’ equity of the Corporation was ~~$151.2~~$155.1 million, or ~~7.9%~~7.0% of total assets as of September 30, ~~2022,~~2023, as compared to ~~$165.4~~$153.3 million, or ~~9.7%~~7.4% of total assets as of December 31, ~~2021.~~2022. On October 26, 2023, the Board of Directors declared a quarterly cash dividend of $0.125 per common share payable November 20, 2023 to shareholders of record as of November 13, 2023.

~~Period end numbers show~~In September, Meridian Corporation raised $9.7 million in subordinated debt at 8.00% with a term of 10 years. The issuance of this subordinated debt improved tier 2 capital, as well as tangible book value of the Corporation. The funds will be used for general corporate purposes, including providing capital to the Corporation's bank subsidiary, Meridian Bank, and supporting organic growth. The subordinated debt also helped to improve Meridian Bank's tier 1 capital.

The September 30, 2023 tangible common equity to tangible assets ratio (a non-GAAP measure) ~~of 7.7%~~was 6.8% for the Corporation and ~~9.6%~~8.9% for the ~~Bank.~~Bank, compared to 7.2% for the Corporation and 8.8% for the Bank at December 31, 2022. Tangible book value per share (a non-GAAP measure) was ~~$25.16~~$13.53 as of September 30, ~~2022,~~2023, compared with ~~26.37~~$13.01 as of December 31, ~~2021.~~2022. A reconciliation of these non-GAAP measures is below.

~~Table of Contents~~

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


		Corporation				Bank				Well-capitalized minimum			Corporation				Bank				Well-capitalized minimum
		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021					September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Tier 1 leverage ratio	Tier 1 leverage ratio	8.54	%	9.39	%	10.52	%	11.51	%	5.00	%	Tier 1 leverage ratio	7.52	%	8.13	%	9.65	%	9.95	%	5.00	%
Common tier 1 risk-based capital ratio	Common tier 1 risk-based capital ratio	9.28	%	10.83	%	11.44	%	13.27	%	6.50	%	Common tier 1 risk-based capital ratio	8.43	%	8.77	%	10.82	%	10.73	%	6.50	%
Tier 1 risk-based capital ratio	Tier 1 risk-based capital ratio	9.28	%	10.83	%	11.44	%	13.27	%	8.00	%	Tier 1 risk-based capital ratio	8.43	%	8.77	%	10.82	%	10.73	%	8.00	%
Total risk-based capital ratio	Total risk-based capital ratio	12.80	%	14.81	%	12.70	%	14.63	%	10.00	%	Total risk-based capital ratio	11.96	%	12.05	%	11.85	%	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 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 ~~10.52%~~9.65% and ~~11.51%~~9.95% at September 30, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively. The Corporation is exempt from CBLR. ~~The~~ ~~bank regulatory agencies temporarily lowered~~

In December 2018, the ~~CBLR~~Federal Reserve announced that a banking organization that experiences a reduction in retained earnings due to 8%the CECL adoption as ~~a result~~ of the ~~COVID-19 pandemic.~~beginning of the fiscal year in which CECL is adopted may elect to phase in the regulatory capital impact of adopting CECL. Transitional amounts are calculated for the following items: retained earnings, temporary difference deferred tax assets and credit loss allowances eligible for inclusion in regulatory capital. When calculating regulatory capital ratios, 25% of the transitional amounts are phased in during the first year. An additional 25% of the transitional amounts are phased in over each of the next two years and at 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”), which have a national market and can be sold in a timely manner. Meridian’s available liquidity, which totaled $264.7 million at September 30, 2022, compared to $263.6 million at December 31, 2021, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities. Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.

In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the Federal Reserve Bank of Philadelphia to meet short-term liquidity ~~needs.~~needs and has access to approximately $1.0 billion in liquidity from these sources. Through its relationship at the Federal Reserve, Meridian had available credit of approximately ~~$9.2~~$7.7 million at September 30, ~~2022.~~2023. At September 30, ~~2022,~~2023, Meridian had no$33 million in borrowings from the Federal ~~Reserve.~~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 30, ~~2022,~~2023, Meridian’s maximum borrowing capacity with the FHLB was ~~$529.2~~$637.6 million. At September 30, ~~2022,~~2023, Meridian had borrowed ~~$23.4~~$145.0 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling ~~$74.8~~$112.7 million against its available credit lines. At September 30, ~~2022,~~2023, Meridian also had available ~~$39~~$15.0 million of unsecured federal funds lines of credit with other financial institutions as well as ~~$214.7~~$137.5 million of available short or long term funding through the ~~Certificate of Deposit Account Registry Service (“CDARS”)~~CDARS program and ~~$333.1~~$379.4 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

Discussion of Segments

As of September 30, ~~2022,~~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 income before tax of ~~$7.5~~$6.3 million and ~~$22.5~~$19.8 million for the three and nine months ended September 30, ~~2022~~2023 as compared to income before tax of ~~$8.3~~$7.5 million and ~~$23.5~~$22.5 million for the same periods in ~~2021.~~2022. The Banking Segment provided ~~100.6%~~

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121.2% and ~~101.4%~~122.1% of the Corporation’s pre-tax profit for the three and nine month periods ended September 30, ~~2022,~~2023, as compared to ~~69.0%~~100.7% and ~~65.9%~~101.5% for the same ~~period~~periods in ~~2021.~~2022.

The Wealth Management Segment recorded income before tax of $417 thousand and $973 thousand for the three and nine months ended September 30, 2023 as compared to income before tax of $552 thousand and $1.8 million for the ~~three and nine months ended September 30, 2022 as compared to income before tax of $432 thousand and $796 thousand for the~~ same periods in ~~2021.~~2022. The ~~increase~~decrease in income in this segment ~~came from an increase~~was the result of declines in ~~customer based as~~market conditions over the ~~number of accounts grew 2.5% and 4.5%, for the three and nine months ended September 30, 2022, respectively.~~period.

The Mortgage Banking Segment recorded a loss before tax of ~~$603 thousand~~$1.5 million and ~~a loss before tax of $2.2~~$4.6 million for the three and nine months ended September 30, ~~2022~~2023 as compared to ~~income~~a loss before tax of ~~$3.6 million~~$603 thousand and ~~$12.1~~$2.2 million for the same periods in ~~2021.~~2022. Mortgage Banking income and expenses related to loan originations and sales decreased due to lower origination ~~volume.~~volume in the higher rate environment. Originations have been significantly impacted by a lack of homes for sale.

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Off Balance Sheet Risk

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

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, ~~2022~~2023 were ~~$505.9~~$517.7 million as compared to ~~$486.6~~$506.2 million at December 31, ~~2021.~~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 30, ~~2022~~2023 amounted to ~~$21.5~~$10.7 million as compared to ~~$26.0~~$19.0 million at December 31, ~~2021.~~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.

In certain circumstances the Corporation may be required to repurchase residential mortgage loans from investors under the terms of loan sale agreements. Generally, these circumstances include the breach of representations and warranties made to investors regarding borrower default or early payment, as well as a violation of the applicable federal, state, or local lending laws. The Corporation agrees to repurchase loans if the representations and warranties made with respect to such loans are breached. Based on the obligations described above, the Corporation repurchased two loans totaling $730 thousand for the three and nine months ended September 30, 2023, while we repurchased one loan totaling $126 thousand for the three months ended September 30, 2022, and seven loans totaling $1.6 million for the nine months ended September 30, ~~2022, and repurchased one loan in the amount of $115 thousand for the three months ended September 30, 2021 and four loans totaling $561 thousand for the nine months ended September 30, 2021.~~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 adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

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

The table below provides the non-GAAP reconciliation for our tangible common equity ratio and tangible book value per common share:


(dollars in thousands)		September 30, 2022			December 31, 2021
(dollars in thousands, except share data)								(dollars in thousands, except share data)	September 30, 2023		December 31, 2022
Total stockholders' equity (GAAP)	Total stockholders' equity (GAAP)	$	151,161		$	165,360		Total stockholders' equity (GAAP)	$	155,114	$	153,280
Less: Goodwill and intangible assets	Less: Goodwill and intangible assets	4,125			4,278			Less: Goodwill and intangible assets	3,921		4,074
Tangible common equity (non-GAAP)	Tangible common equity (non-GAAP)	147,036			161,082			Tangible common equity (non-GAAP)	151,193		149,206

Total assets (GAAP)	Total assets (GAAP)	1,921,924			1,713,443			Total assets (GAAP)	2,230,971		2,062,228
Less: Goodwill and intangible assets	Less: Goodwill and intangible assets	4,125			4,278			Less: Goodwill and intangible assets	3,921		4,074
Tangible assets (non-GAAP)	Tangible assets (non-GAAP)	$	1,917,799		$	1,709,165		Tangible assets (non-GAAP)	$	2,227,050	$	2,058,154

Stockholders' equity to total assets (GAAP)		7.87		%	9.65		%
Tangible common equity to tangible assets (non-GAAP)		7.67		%	9.42		%

Shares outstanding		5,844			6,108

Book value per share (GAAP)		$	25.86		$	27.07
Tangible book value per share (non-GAAP)		$	25.16		$	26.37

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(dollars in thousands, except share data)	September 30, 2023			December 31, 2022
Stockholders' equity to total assets (GAAP)	6.95		%	7.43		%
Tangible common equity to tangible assets (non-GAAP)	6.79		%	7.25		%

Shares outstanding	11,178			11,466

Book value per share (GAAP)	$	13.88		$	13.37
Tangible book value per share (non-GAAP)	$	13.53		$	13.01

The following is a reconciliation of the allowance for ~~loan~~credit losses to total loans held for investment ratio at September 30, ~~2022.~~2023. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued and the impact of PPP loans as these loan types are not included in the allowance for ~~loan~~credit losses calculation.


		September 30, 2022			December 31, 2021
Allowance for loan and lease losses		$	18,974		$	18,758
(dollars in thousands)								(dollars in thousands)	September 30, 2023			December 31, 2022
Allowance for credit losses								Allowance for credit losses	$	19,683		$	18,828

Loans, net of fees and costs (GAAP)	Loans, net of fees and costs (GAAP)	1,610,349			1,386,457			Loans, net of fees and costs (GAAP)	1,885,629			1,743,682
Less: PPP loans	Less: PPP loans	(8,610)			(88,245)			Less: PPP loans	(289)			(4,579)
Less: Loans fair valued	Less: Loans fair valued	(14,702)			(17,558)			Less: Loans fair valued	(13,231)			(14,502)
Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	$	1,587,037		$	1,280,654		Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	$	1,872,109		$	1,724,601

Allowance for loan and leases losses to loans, net of fees and costs (GAAP)		1.18		%	1.35		%
Allowance for loan and leases losses to loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)		1.20		%	1.46		%
Allowance for credit losses, net of fees and costs (GAAP)								Allowance for credit losses, net of fees and costs (GAAP)	1.04		%	1.08		%
Allowance for credit losses, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)								Allowance for credit losses, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)	1.05		%	1.09		%

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Simulations of Net Interest Income

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

•The timing of changes in interest rates;

•Shifts or rotations in the yield curve;

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

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

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

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

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

Because of the limitations inherent in any approach used to measure interest rate risk, simulated results are not intended to be used as a forecast of the actual effect of a change in market interest rates on our results, but rather as a means to better plan and execute appropriate ~~Asset / Liability Management (“ALM”)~~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 the following table which assuming rate shifts occur upward and downward on the yield curve in even increments over the first twelve months (ramp) followed by rates held constant thereafter.

Nine Months Ended
September 30,
Changes in Market Interest Rates 2022 2021
+300 basis points over next 12 months 0.13 % 1.75 %
+200 basis points over next 12 months 0.29 % 1.01 %
+100 basis points over next 12 months 0.15 % 0.43 %
No Change
-100 basis points over next 12 months (1.40) % (0.68) %
-200 basis points over next 12 months (3.19) % (3.03) %

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	September 30,
Changes in Market Interest Rates	2023		2022
+300 basis points over next 12 months	(1.25)	%	0.13	%
+200 basis points over next 12 months	(0.74)	%	0.29	%
+100 basis points over next 12 months	(0.29)	%	0.15	%
No Change
-100 basis points over next 12 months	(1.33)	%	(1.40)	%
-200 basis points over next 12 months	(2.63)	%	(3.19)	%

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of September 30, ~~2022.~~2023. In its current position, the table indicates that anet interest income will fluctuate between (1.33%) and (0.29%) in an up or down 100 basis point ~~increase in interest rates would have a positive impact from rising rates on net interest income~~environment over the next 12 ~~months as well as in a 200 and 300 basis point increase.~~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.

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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.


							September 30,
Changes in Market Interest Rates	Changes in Market Interest Rates	September 30, 2022		September 30, 2021		Changes in Market Interest Rates	2023		2022
+300 basis points	+300 basis points	5	%	62	%	+300 basis points	(10)	%	5	%
+200 basis points	+200 basis points	6	%	47	%	+200 basis points	(6)	%	6	%
+100 basis points	+100 basis points	4	%	28	%	+100 basis points	(2)	%	4	%
No Change	No Change					No Change
-100 basis points	-100 basis points	(9)	%	(41)	%	-100 basis points	—	%	(9)	%
-200 basis points	-200 basis points	(25)	%	(103)	%	-200 basis points	(5)	%	(25)	%

This economic value of equity profile at September 30, ~~2022~~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 aan increase or decrease in ~~rates.~~rates, and the impact would worsen as rates continued to move in either direction. While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact. Since economic value of equity measures the discounted present value of cash flows over the estimated lives of instruments, the change in economic value of equity does not directly correlate to the degree that earnings would be impacted over a shorter time horizon.

The results of our net interest income and economic value of equity simulation analysis are purely hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from that projected, our net interest income might vary significantly. Non-parallel yield curve shifts or changes in interest rate spreads would also cause ~~our~~ net interest income to be different from that projected. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term interest-bearing liabilities reprice faster than expected or faster than our interest-earning assets. Actual results could differ from those projected if ~~we grow~~ interest-earning assets and interest-bearing liabilities grow faster or slower than estimated, or otherwise change its mix of products. Actual results could also differ from those projected if ~~we experience substantially different~~actual repayment speeds in ~~our~~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, ~~on our loans, we would recognize~~ 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 wemanagement may undertake in response to changes in interest rates, such as changes to ~~our loan, investment, deposit, funding or other strategies.~~

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

Management has and continues to employ strategies to mitigate risk in the Net Interest Income and Economic Value simulations. ~~Strategies include actively lowering deposit and funding rates, adding and maintaining interest rate floors on assets and lengthening liabilities in the low rate environment.~~

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. Based on this evaluation, the Corporation’s CEO and CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, ~~2022~~2023 to ensure that the information required to be disclosed by the

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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 in Internal 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 30, ~~2022~~2023 that ~~has~~ materially affected, or isare reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II–OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

~~There have been no~~

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent material ~~changes in~~updates and additions to the risk factors ~~faced by the Corporation from those~~previously disclosed in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021.~~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 Corporation. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause the Corporation’s actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of it.

Adverse developments affecting the financial services industry, such as recent bank failures or concerns involving liquidity, may have a material effect on our operations.

The rapid rise in interest rates starting in 2022; the resulting industry-wide reduction in the fair value of securities portfolios and capital; and several bank runs resulting in high profile bank failures, have caused a current state of volatility in the financial services industry with respect to liquidity and the health of the U.S. banking system. A financial institution's liquidity reflects its ability to meet customer demand for loans, accommodating possible outflows in deposits and accessing alternative sources of funds when needed, while at the same time taking advantage of interest rate market opportunities. The ability to manage liquidity is fundamental to a financial institution's business and success. These recent events have, and could continue to adversely impact earnings as well as the market price and volatility of the Corporation's common stock. Additionally, the cost of resolving recent bank failures prompted the FDIC to announce plans to collect additional special assessments. These recent events may also result in potentially adverse changes to laws or regulations applicable to the Corporation, which could have a material impact on the Corporation's business and result in increased costs necessary to comply with any such changes.

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 particular, in the 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 which may occur during other periods of rising interest rates.

Based on the above factors we may not be able to return our mortgage business to the 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 high volume of loans and sell them in the secondary market to investors at a gain. In addition, our results of operations are affected by the amount of non-interest expenses (including for 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 reduce expenses commensurate with the decline in mortgage loan origination activity.

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

~~The following table presents the shares repurchased by the Corporation during the quarter ended September 30, 2022:~~

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)
July 1 to July 31, 2022 16,370 $ 28.74 16,370
August 1 to August 31, 2022 159,010 $ 30.53 159,010
September 1 to September 30, 2022 22,469 $ 29.90 22,469
Total 197,849 $ 29.76 $5,610

(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.None.

Item 3. Defaults upon Senior Securities.

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None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

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Item 6. Exhibits.

EXHIBIT INDEX


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

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SIGNATURES

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


Date:	November 9, ~~2022~~2023	Meridian Corporation

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

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

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	Nine Months Ended September 30, 2022				Nine Months Ended September 30, 2021
(dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Impaired loans with related allowance:
Commercial and industrial	$	16,363	$	—	$	3,306	$	15
Small business loans	666		—		917		—


	Segment Information
	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
(Dollars in thousands)	Bank		Wealth		Mortgage		Total		Bank		Wealth		Mortgage		Total
Net interest income	$	50,197	$	628	$	785	$	51,610	$	45,340	$	(249)	$	1,698	$	46,789
Provision for loan losses	1,743		—		—		1,743		1,292		—		—		1,292
Net interest income after provision	48,454		628		785		49,867		44,048		(249)		1,698		45,497

Non-interest Income
Mortgage banking income	394		—		20,973		21,367		892		—		61,401		62,293
Wealth management income	—		3,672		—		3,672		—		3,531		—		3,531
SBA loan income	3,946		—		—		3,946		5,423		—		—		5,423
Net change in fair values	151		—		(4,457)		(4,306)		52		—		(6,671)		(6,619)
Net gain on hedging activity	—		—		4,941		4,941		—		—		2,397		2,397
Other	1,776		(1)		2,333		4,108		2,110		—		1,767		3,877
Non-interest income	6,267		3,671		23,790		33,728		8,477		3,531		58,894		70,902
Non-interest expense	32,186		2,480		26,734		61,400		28,981		2,486		48,523		79,990
Income (loss) before income taxes	$	22,535	$	1,819	$	(2,159)	$	22,195	$	23,544	$	796	$	12,069	$	36,409

Total Assets	$	1,858,770	$	7,927	$	55,227	$	1,921,924	$	1,625,468	$	6,396	$	130,581	$	1,762,445


	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)
July 1 to July 31, 2022	16,370	$	28.74	16,370
August 1 to August 31, 2022	159,010	$	30.53	159,010
September 1 to September 30, 2022	22,469	$	29.90	22,469
Total	197,849	$	29.76		$5,610