What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-16 · 776 added, 684 removed, 885 unchanged (62% of the section changed)

11 unchanged sentences

Malvern, Pennsylvania

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Meridian Corporation and Subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for years then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Meridian Corporation and Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses – Qualitative Factors

The allowance for loan losses is a valuation allowance for probable incurred credit losses as described in Notes 1, 5 and 6 to the consolidated financial statements.

The Company has identified the allowance for loan losses as a critical accounting estimate.

The allowance consists of specific and general components.

The specific component relates to loans that are individually evaluated as impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.

The general component has a quantitative component and a qualitative component.

The quantitative component of the general reserve is based on historical loss experience and the qualitative component of the general reserve is based on qualitative factors applied to all loan segments.

As of December 31, 2022, the allowance for loan losses attributable to loans held for investment is $18.8 million, consisting of 1) an allowance of $16.6 million for loans collectively evaluated for impairment and 2) an allowance of $2.2 million for loans individually evaluated for impairment.

The determination of the qualitative factors is subjective and subject to measurement uncertainty.

We considered auditing the qualitative factors used in determining the allowance for loan losses to be a critical audit matter due to the high degree of auditor effort and judgment involved in evaluating management’s judgments and significant assumptions applied in the determination of qualitative factors.

The primary procedures we performed to address this critical audit matter included:

• Testing the operating effectiveness of the following controls:

• Management’s review of the completeness and accuracy of internally-produced data and the relevance and reliability of the external data used in the determination of the qualitative factors.

• Management’s review of the accuracy of the calculation of the qualitative factors and the judgments and significant assumptions used in the determination of the qualitative factors.

• Management’s review of the appropriateness and adequacy of the qualitative factors.

• Substantively testing management’s process to estimate the qualitative factors used in determining the allowance for loan losses, including testing:

• The relevance and reliability of the external data utilized in the determination of the qualitative factors.

• The completeness and accuracy of internally-produced data utilized in the determination of the qualitative factors.

• The mathematical accuracy of the calculation of the qualitative factors.

• The reasonableness of management’s judgments and significant assumptions used in the determination of the qualitative factors.

/s/ Crowe LLP

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CONSOLIDATED BALANCE SHEETS

(dollars in thousands, except per share data)

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

2022 December 31,

Cash and due from banks $ 11,299 $ 3,966

Federal funds sold

Interest-bearing deposits at other banks 27,092 19,514

Cash and cash equivalents 38,391 23,480

Securities available-for-sale (amortized cost of $ 158,387 and $ 120,215 as of December 31, 2021 and December 31, 2020)

Securities held-to-maturity (fair value of $ 6,591 and $ 6,857 as of December 31, 2021 and December 31, 2020)

Securities available-for-sale, at fair value (amortized cost of $ 148,976 and $ 158,387 , respectively)

135,346 159,302

Securities held-to-maturity, at amortized cost (fair value of $ 33,085 and $ 6,591 , respectively)

Equity investments 2,086 2,354

Mortgage loans held for sale (amortized cost of $ 80,002 and $ 225,007 as of December 31, 2021 and December 31, 2020), at fair value

Loans, net of fees and costs (includes $ 17,558 and $ 12,182 of loans at fair value, amortized cost of $ 17,106 and $ 11,514 as of December 31, 2021 and December 31, 2020)

Mortgage loans held for sale (amortized cost of $ 22,207 and $ 80,002 , respectively)

22,243 80,882

Loans and other finance receivables, net of fees and costs 1,743,682 1,386,457

Allowance for loan and lease losses ( 18,828 ) ( 18,758 )

Loans, net of the allowance for loan and lease losses

Loans and other finance receivables, net of the allowance for loan and lease losses 1,724,854 1,367,699

Restricted investment in bank stock 6,931 5,117

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Accrued interest receivable 7,363 5,009

Other real estate owned 1,703 —

Deferred income taxes 3,936 1,413

Servicing assets 12,346 12,765

Goodwill 899 899

Intangible assets 3,175 3,379

Other assets 24,072 10,463

Total assets $ 2,062,228 $ 1,713,443

Non-interest bearing $ 301,727 $ 274,528

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Total deposits 1,712,479 1,446,413

Short-term borrowings

Long-term debt

Borrowings 122,082 41,344

Subordinated debentures 40,346 40,508

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Common stock, $ 1 par value:

Authorized 25,000,000 and 10,000,000 shares as of December 31, 2021 and December 31, 2020;

issued 6,534,587 and 6,455,566 as of December 31, 2021 and December 31, 2020

Treasury stock - 426,693 and 320,000 shares at December 31, 2021 and December 31, 2020

25,000,000 shares authorized;

13,156,308 and 13,069,174 shares issued, respectively;

and 11,465,572 and 12,215,788 shares outstanding, respectively.

Surplus 79,072 83,663

Treasury stock - 1,690,736 and 853,386 shares, respectively, at cost

( 21,821 ) ( 8,860 )

Unearned common stock held by employee stock ownership plan ( 1,403 ) ( 1,602 )

Retained earnings 95,815 84,916

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income ( 11,539 ) 708

Total stockholders’ equity 153,280 165,360

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The accompanying notes are an integral part of these consolidated financial statements.

* All share amounts have been adjusted to reflect the two -for-one stock split effective February 28, 2023.

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(dollars in thousands, except per share data)

Year Ended December 31,

(dollars in thousands, except shares and per share data) 2022 2021

Interest income:

Loans, including fees

Loans and other finance receivables, including fees $ 84,627 $ 68,822

Securities - taxable 2,420 1,463

Securities - tax-exempt 1,388 1,189

Cash and cash equivalents 286 48

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Interest expense:

Deposits 15,397 5,494

Borrowings 3,196 2,917

Total interest expense 18,593 8,411

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Net change in the fair value of loans held-for-investment ( 2,408 ) ( 189 )

Net gain (loss) on hedging activity

Net gain on hedging activity 5,439 2,961

Net gain on sale of investment securities available-for-sale — 435

Service charges 125 129

Other 5,037 4,305

Total non-interest income 41,724 87,988

Non-interest expenses:

Non-interest expense:

Salaries and employee benefits 54,378 78,866

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Advertising and promotion 4,336 3,714

Data processing

Information technology

Data processing and software 5,451 4,382

Pennsylvania bank shares tax 793 609

Total non-interest expenses

Other 8,014 8,053

Total non-interest expense 81,444 103,727

Income before income taxes 27,920 46,302

Income tax expense 6,091 10,717

Net income $ 21,829 $ 35,585

Basic earnings per common share $ 1.85 $ 2.96

Diluted earnings per common share $ 1.79 $ 2.87

Basic weighted average shares outstanding 11,792 12,038

Diluted weighted average shares outstanding 12,204 12,412

The accompanying notes are an integral part of these consolidated financial statements.

* All share and per share amounts have been adjusted to reflect the two -for-one stock split effective February 28, 2023.

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Year Ended December 31,

(dollars in thousands) 2022 2021

Other comprehensive (loss) income:

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

Net unrealized (losses) gains arising during the period, net of tax expense of ($ 485 ), and $ 1,121 , respectively

reclassification adjustment for net gains on sales realized in net income, net of tax expense of ($ 101 ), and ($ 320 ), respectively

Unrealized investment (losses) gains, net of tax expense of $( 584 ), and $ 801 , respectively

Total other comprehensive (loss) income

$ 21,829 $ 35,585

Other comprehensive loss:

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

Change in fair value of investment securities available for sale, net of tax of $( 3,059 ), and $( 485 ), respectively

( 11,285 ) ( 1,514 )

Reclassification adjustment for net losses (gains) realized in net income, net of tax effect of $ 0 , and $( 101 ), respectively

Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax effect of $( 293 ), and $ 0 , respectively

Unrealized investment losses, net of tax effect of $( 3,352 ), and $( 584 ), respectively

( 12,247 ) ( 1,848 )

Total other comprehensive loss ( 12,247 ) ( 1,848 )

Total comprehensive income $ 9,582 $ 33,737

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Comprehensive

(dollars in thousands)

Balance, January 1, 2020

Comprehensive income:

Net change in unrealized gains on securities available-for-sale, net of tax

Total comprehensive income

Dividends paid or accrued, $ 0.250 per share

Shares purchased for ESOP plan ( 133,601 )

Net purchase of treasury stock through publicly announced plans ( 316,625 )

(dollars in thousands, except per share data) Common

Surplus Treasury

Stock Unearned

ESOP Retained

Earnings AOCI Total

Balance at January 1, 2021 $ 6,456 $ 81,196 $ ( 5,828 ) $ ( 1,768 ) $ 59,010 $ 2,556 $ 141,622

Net income — — — — 35,585 — 35,585

Other comprehensive loss — — — — — ( 1,848 ) ( 1,848 )

Dividends declared, $ 0.79 per share

— — — — ( 9,679 ) — ( 9,679 )

Net purchase of treasury stock through publicly announced plans ( 213,386 shares)

— — ( 3,032 ) — — — ( 3,032 )

Common stock issued through share-based awards and exercises ( 158,042 )

79 1,026 — — — — 1,105

ESOP shares committed to be released ( 26,656 )

Stock based compensation

Balance, December 31, 2020

Comprehensive income:

Net change in unrealized losses on securities available-for-sale, net of tax

Total comprehensive income

— 228 — 166 — — 394

Stock based compensation expense — 1,213 — — — — 1,213

Balance at December 31, 2021 $ 6,535 $ 83,663 $ ( 8,860 ) $ ( 1,602 ) $ 84,916 $ 708 $ 165,360

Net income — — — — 21,829 — 21,829

Other comprehensive loss — — — — — ( 12,247 ) ( 12,247 )

Dividends paid or accrued, $ 0.90 per share

Net purchase of treasury stock through publicly announced plans ( 106,693 )

Common stock issued through share-based awards and exercises, net of shares withheld ( 79,021 )

— — — — ( 10,930 ) — ( 10,930 )

Net purchase of treasury stock through publicly announced plans ( 837,350 shares)

— — ( 12,961 ) — — — ( 12,961 )

Common stock issued through share-based awards and exercises ( 86,734 )

43 711 — — — — 754

ESOP shares committed to be released ( 26,656 )

Stock based compensation

Balance, December 31, 2021

Stock based compensation expense — 1,048 — — — — 1,048

Two-for-one stock split in the form of a stock dividend 6,578 ( 6,578 ) — — — — —

Balance at December 31, 2022 $ 13,156 $ 79,072 $ ( 21,821 ) $ ( 1,403 ) $ 95,815 $ ( 11,539 ) $ 153,280

The accompanying notes are an integral part of these consolidated financial statements.

* All share and per share amounts have been adjusted to reflect the two -for-one stock split effective February 28, 2023.

MERIDIAN CORPORATION AND SUBSIDIARIES

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(dollars in thousands) 2022 2021

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

Net income $ 21,829 $ 35,585

Adjustments to reconcile net income to net cash provided by operating activities:

Gain on sale of investment securities — ( 435 )

Net amortization of investment premiums and discounts and change in fair value of equity securities 1,202 1,369

Depreciation and amortization, net

Depreciation and amortization (accretion), net ( 1,406 ) ( 5,922 )

Provision for loan losses 2,488 1,070

Amortization of issuance costs on subordinated debt 117 118

Share-based compensation

Stock based compensation 1,475 1,607

Net change in fair value of derivative instruments 703 4,338

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Net change in fair value of loans held for investment 2,408 189

Gain on sale of OREO

Amortization and net impairment of servicing rights 2,483 1,109

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Loans originated for sale ( 1,016,130 ) ( 2,270,693 )

( 2,270,693 )

( 2,356,821 )

Mortgage banking income ( 25,325 ) ( 75,932 )

Decrease (increase) in accrued interest receivable

(Increase) decrease in other assets

(Increase) decrease in accrued interest receivable ( 2,354 ) 473

Increase in other assets ( 823 ) ( 3,693 )

Earnings from investment in life insurance ( 553 ) ( 365 )

(Increase) decrease income in deferred income tax

(Decrease) increase in accrued interest payable

(Decreased) increase in other liabilities

Net cash provided by (used in) operating activities

Cash flows from investing activities:

(Decrease) increase in deferred income tax 1,112 ( 768 )

Increase (decrease) in accrued interest payable 2,358 ( 1,122 )

Decrease in other liabilities ( 1,623 ) ( 1,591 )

Net cash provided by operating activities 84,671 165,123

Cash flows used in investing activities:

Activity in available-for-sale securities:

Maturities, repayments and calls 12,124 10,447

Sales — 23,585

Purchases ( 31,496 ) ( 74,341 )

Activity in held-to-maturity securities:

Maturities, repayments and calls 905 —

Proceeds from sale of OREO

Decrease in restricted stock

Purchases ( 5,500 ) —

(Decrease) increase in restricted stock ( 1,814 ) 2,743

Net increase in loans ( 359,460 ) ( 87,575 )

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Net cash used in investing activities ( 393,148 ) ( 140,515 )

Cash flows from financing activities:

Cash flows provided by (used in) financing activities:

Net increase in deposits 266,066 205,079

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Decrease in short-term borrowings with original maturity > 90 days 71,803 ( 20,579 )

Repayment of long-term debt (subordinated debt)

(Repayment) proceeds from long-term debt, net

Repayment of acquisition note payable

Issuance costs on subordinated debt

Increase in long-term debt 8,935 —

Repayment of long-term debt, net — ( 165,546 )

Repayment of subordinated debt ( 279 ) ( 281 )

Net purchase of treasury stock ( 12,961 ) ( 3,032 )

Dividends paid ( 10,930 ) ( 9,679 )

Purchase of common shares for ESOP

Share based awards and exercises 754 1,105

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities 323,388 ( 37,872 )

Net change in cash and cash equivalents 14,911 ( 13,264 )

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Cash paid during the period for:

Supplemental disclosure of cash flow information:

Interest $ 16,235 $ 9,534

Income taxes 5,365 14,069

Transfers from loans held for sale to loans held for investment 3,147 8,410

Net loans purchased, not settled

Non-cash transfers from loans receivable to OREO 1,703 —

Transfer of securities from AFS to HTM 23,655 —

Lease liabilities arising from obtaining right-of-use assets 10,936 —

The accompanying notes are an integral part of these consolidated financial statements.

MERIDIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Summary of Significant Accounting Policies

(a) Nature of Operations

Meridian Corporation (“Meridian” or the “Corporation”) is a bank holding company engaged in banking activities through its wholly-owned subsidiary, Meridian Bank (the “Bank”), a full-service, state-chartered commercial bank with offices in the Delaware Valley tri-state market, which includes Pennsylvania, New Jersey and Delaware, as well as the Central Maryland market area.

We have a financial services business model with significant noninterest income streams from mortgage lending, small business (“SBA”) lending and wealth management services.

Nature of Operations

We have a financial services business model with significant noninterest income streams from mortgage banking, SBA lending and wealth management services.

We provide services to small and middle market businesses, professionals and retail customers throughout our market area.

We have a modern, progressive, consultative approach to creating innovative solutions for our customers.

We are technology driven, with a culture that incorporates significant use of customer preferred alternative deliver y channel s, such as mobile banking, remote deposit capture and bank-to-bank ACH.

We are technology driven, with a culture that incorporates significant use of customer preferred alternative delivery channels, such as mobile banking, remote deposit capture and bank-to-bank ACH.

Our ‘Meridian everywhere’ philosophy of community presence, along with our strategic business footprint, allows us to provide the high degree of service, convenience and products our customers need to achieve their financial objectives.

We provide this service through three principal business line distribution channels, described further below.

The Corporation operates in a highly competitive market areas that includes local, national and regional banks as competitors along with savings banks, credit unions, insurance companies, trust companies and registered investment advisors.

The Corporation and its subsidiaries are regulated by many regulatory agencies including the Securities and Exchange Commission (“SEC”), Federal Deposit Insurance Corporation (“FDIC”), the Federal Reserve and the Pennsylvania Department of Banking and Securities.

The Corporation operates in highly competitive market areas that includes local, regional, and national banks as competitors along with savings banks, credit unions, fintech companies, insurance companies, trust companies and registered investment advisors.

The Corporation and its subsidiaries are regulated by many regulatory agencies including the SEC, FDIC, the FRB and the PDBS.

The Bank was incorporated on March 16, 2004 under the laws of the Commonwealth of Pennsylvania and is a Pennsylvania state-chartered bank.

The Bank commenced operations on July 8, 2004 and is a full-service bank providing personal and business lending and deposit services through 6 full-service banking offices in Pennsylvania, 9 mortgage loan production offices throughout the Delaware Valley, and 8 mortgage loan production offices in Maryland.

The Bank commenced operations on July 8, 2004 and is a full-service bank providing personal and business lending and deposit services through 6 full-service banking offices in Pennsylvania, 7 mortgage loan production offices throughout the Delaware Valley, and 6 mortgage loan production offices in Maryland, and a lending office in Florida.

The Bank and Corporation are headquartered in Malvern, Pennsylvania, located in the western suburbs of Philadelphia.

(b) Basis of Presentation

Basis of Presentation

The accounting policies of the Corporation conform to U.S.

generally accepted accounting principles (“GAAP”).

The consolidated financial statements include accounts of the Corporation and its wholly owned subsidiary, the Bank, and the wholly owned subsidiaries of the Bank:

Meridian Land Settlement Services LLC;

APEX Realty LLC;

Meridian Wealth Partners LLC;

and Meridian Equipment Finance LLC.

Meridian Land Settlement Services LLC (“MLSS”);

APEX Realty LLC (“APEX”);

Meridian Wealth Partners LLC (“MWP”);

and Meridian Equipment Finance LLC (“MEF”).

All significant intercompany balances and transactions have been eliminated in consolidation.

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Actual results could differ from those estimates.

Although our current estimates contemplate current conditions and how we expect them to change in the future, due to the continuing impact that the COVID-19 pandemic has had on financial markets and the economy both locally and nationally, it is reasonably possible that this could continue to materially affect these significant estimates and our results of operations and financial condition.

Significant Concentrations of Credit Risk

Most of the Corporation’s activities are with customers located in the Delaware Valley tri-state market and the central Maryland market area.

Note 4 discusses the types of securities that the Corporation invests in.

discusses types of lending that the Corporation engages in.

Note 5 discusses types of lending that the Corporation engages in.

Although the Corporation has a diversified loan portfolio, its debtors’ ability to honor their contracts is influenced by the region’s economy.

The Corporation does not have any significant concentrations to any one industry or customer, however there is significant concentration of commercial real estate-backed loans, amounting to 33 % and 37 % of total loans held for investment, as of December 31, 2022 and December 31, 2021, respectively.

(d) Presentation of Cash Flows

Presentation of Cash Flows

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold.

Generally, federal funds are purchased or sold for one day periods.

The Federal Reserve Board removed cash minimum reserve requirements in March 2020.

The FRB removed cash minimum reserve requirements in March 2020.

Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and the federal funds purchased and repurchased agreements.

(e) 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.

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The Corporation did not recognize any other-than-temporary impairment charges during the years ended December 31, 2022 and 2021.

(f) Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs.

Loans and Other Finance Receivables

Loans and other finance receivables that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for loan losses and any deferred fees or costs.

Interest income is accrued on the unpaid principal balance.

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Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectability of the total contractual principal and interest is no longer in doubt.

(g) Allowance for Loan and Lease Losses

The allowance for loan and lease losses (“Allowance”) is a valuation for probable incurred credit losses established through provisions for loan losses charged against income.

Allowance for Loan and Lease Losses

The Allowance or ALLL is a valuation for probable incurred credit losses established through provisions for loan losses charged against income.

Loans deemed to be uncollectible are charged against the Allowance, and subsequent recoveries, if any, are credited to the Allowance.

All, or part, of the principal balance of loans receivable are charged off to the Allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.

Charge-offs for retail consumer loans are generally made for any balance not adequately secured after 120 cumulative days past due.

Charge-offs for retail consumer loans and equipment leases are generally made for any balance not adequately secured after 120 days cumulative days past due.

The Allowance is maintained at a level considered adequate to provide for probable incurred credit losses.

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We apply historical loss rates to pools of loans with similar risk characteristics.

Loss rates are calculated by historical charge-offs that have occurred within each pool of loans over the loss emergence period (“LEP”).

Loss rates are calculated by historical charge-offs that have occurred within each pool of loans over the LEP.

The LEP is an estimate of the average amount of time from when an event happens that causes the borrower to be unable to pay on a loan until the loss is confirmed through a loan charge-off.

Another key assumption is the look-back period (“LBP”), which represents the historical data period utilized to calculate loss rates.

Another key assumption is the LBP, which represents the historical data period utilized to calculate loss rates.

Our LBP goes back to Q1 2010 for all portfolio segments, as applicable, which encompasses our loss experience during the Financial Crisis, and our more recent improved loss experience.

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The evaluation of the various components of the Allowance requires considerable judgment in order to estimate inherent loss exposures.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement, or a troubled debt restructure (“TDR”).

Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

Loans that experience insignificant payment delays and payment shortfalls

generally are not classified as impaired.

Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record and the amount of the shortfall in relation to the principal and interest owed.

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If the estimate of construction costs proves to be inaccurate, additional funds may be required to be advanced in excess of the amount originally committed to permit completion of the building.

Commercial and Industrial – We provide a variety of variable and fixed rate commercial business loans and lines of credit.

These loans and lines of credit are made to small and medium-sized manufacturers and wholesale, retail and service-related businesses.

Commercial business loans generally include lines of credit and term loans with a maturity of five years or less.

The primary source of repayment for commercial business loans is generally operating cash flows of the business and may also include collateralization of inventory, accounts receivable, equipment and/or personal guarantees.

As a result, the availability of funds for the repayment of commercial loans may depend substantially on the success of the business itself.

Furthermore, any collateral securing such loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.

Leases – Meridian Equipment Finance (“MEF”) specializes in small ticket equipment leases for small and mid-sized businesses nationally and through a broad range of industries.

Commercial and Industrial – We provide a variety of variable and fixed rate commercial business loans, lines of credit, and other finance receivables.

These credit facilities are made to small and medium-sized manufacturers and wholesale, retail and service-related businesses.

Commercial business loans generally include lines of credit and term loans with a maturity of 5 years or less.

The primary source of repayment for commercial business loans and other finance receivables is generally operating cash flows of the business and may also include collateralization of inventory, accounts receivable, equipment and/or personal guarantees.

As a result, the availability of funds for repayment may depend substantially on the success of the business itself.

Furthermore, any collateral may depreciate over time, may be difficult to appraise, and may fluctuate in value.

Leases – Meridian Equipment Finance specializes in small ticket equipment leases for small and mid-sized businesses nationally and through a broad range of industries.

The Bank’s credit risk generally results from the potential default of borrowers which may be driven by customer specific or broader industry related conditions.

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Substantially all home equity loans and lines of credit are secured by junior lien mortgages on principal residences.

The Bank will lend amounts, which, together with all prior liens, typically may be up to 90 percent of the appraised value of the property securing the loan.

The Bank will lend amounts, which, together with all prior liens, typically may be up to 90 % of the appraised value of the property securing the loan.

Home equity term loans may have maximum terms up to 20 years, while home equity lines of credit generally have maximum terms of 15 years .

Credit risk on such loans is mitigated through prudent underwriting standards, including evaluation of the creditworthiness of the borrower through credit scores and debt-to-income ratios and, if secured, the collateral value of the assets.

h) Mortgage Banking Activities and Mortgage Loans Held for Sale

Mortgage Banking Activities and Mortgage Loans Held for Sale

The Corporation’s mortgage banking division operates 7 offices in the tri-state area of Pennsylvania, Delaware and New Jersey and another 6 offices in Maryland.

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Fair value is based on outstanding investor commitments or, in the absence of such commitments, on current investor yield requirements based on third party models.

Gains and losses on sales of these loans, as well as loan origination costs, are recorded as a component of noninterest income in the Consolidated Statements of Income.

Gains and losses on sales of these loans, as well as loan origination costs, are recorded as a component of non-interest income in the consolidated statements of income.

The Corporation’s current practice is to sell residential mortgage loans and retain the servicing rights, as discussed further below.

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Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives.

Time elapsing between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days .

Time elapsing between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 days to 120 days.

The Corporation protects itself from changes in interest rates through the use of best efforts forward sale contracts, whereby the Corporation commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan.

The Corporation also commits to loan sales through a mandatory sales channel which are economically hedged by the future sale of mortgage-backed securities to third-party counterparties to mitigate the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale.

The Corporation may also commit to loan sales through a mandatory sales channel which are economically hedged by the future sale of mortgage-backed securities to third-party counterparties to mitigate the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale.

By entering into best efforts commitments and economically hedging the mandatory commitments, the Corporation limits its exposure to loss and its realization of significant gains related to its rate lock commitments due to changes in interest rates.

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Net derivative assets and liabilities are recorded within other assets or other liabilities, respectively, on the consolidated balance sheets, with changes in fair value during the period recorded within net change in the fair value of derivative instruments on the consolidated statements of income.

(i) Loan Servicing Rights

Loan Servicing Rights

The Corporation sells substantially all of the residential mortgage loans originated for sale in the secondary market;

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A fee, usually based on a percentage of the outstanding principal balance of the loan, is received in return for these services.

Mortgage servicing rights (“MSRs") are recognized when a loan’s servicing rights are retained upon sale of a loan.

MSRs are recognized when a loan’s servicing rights are retained upon sale of a loan.

When mortgage loans are sold with servicing retained, MSRs are initially recorded at fair value with the income effect recorded in non-interest income.

The Corporation also sells the guaranteed portion of certain Small Business Administration (“SBA”) loans to third parties and retains servicing rights and receives servicing fees.

The Corporation also sells 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.

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Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the servicing assets.

(j) Other Real Estate Owned

Other real estate owned (OREO) is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure.

Other Real Estate Owned

OREO is comprised of property acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure.

The Corporation acquires OREO through the wholly owned subsidiary of the Bank, Apex Realty.

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After acquisition, valuations are periodically performed by management and subsequent changes in the valuation allowance are charged to OREO expense.

Revenues, such as rental income, and holding expenses are included in other income and other expenses, respectively.

The Corporation had no OREO at December 31, 2021 and 2020.

(k) Restricted Investment in Bank Stock

Restricted bank stock is principally comprised of stock in the Federal Home Loan Bank of Pittsburgh (FHLB).

Revenues, such as rental income, and holding expenses, as applicable, are included in other income and other expenses, respectively.

The Corporation had one $ 1.7 million single property in OREO at December 31, 2022 and $ 0 at December 31, 2021.

Restricted Investment in Bank Stock

Restricted bank stock is principally comprised of stock in the FHLB.

Federal law requires a member institution of the FHLB to hold stock according to a predetermined formula.

As of December 31, 2021, and 2020, the Corporation had an investment of $ 5.1 million and $ 7.9 million,

respectively, related to the FHLB stock.

As of December 31, 2022, and 2021, the Corporation had an investment of $ 6.9 million and $ 5.1 million, respectively, related to the FHLB stock.

Also included in restricted stock is secondary stock from a correspondent bank in the amount of $ 50 thousand as of December 31, 2022 and 2021.

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Management believes no impairment charge is necessary related to these bank restricted stocks as of December 31, 2022 or 2021.

(l ) Transfers of Financial Assets

Transfers of Financial Assets

Transfers of financial assets, including loan and loan participation sales, are accounted for as sales, when control over the assets has been surrendered.

Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Corporation, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Corporation does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

(m) Bank Premises and Equipment

Bank Premises and Equipment

Bank premises and equipment are stated at cost less accumulated depreciation.

Land is carried at cost.

Buildings and related components are depreciated using the straight-line method with useful lives ranging from 12 to 40 years .

Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years and 3 to 5 years for computer software and hardware, respectively.

Buildings and related components are depreciated using the straight-line method with useful lives ranging from 12 to 40 years Furniture, fixtures and equipment are depreciated using the straight-line method with useful lives ranging from 3 to 7 years and 3 to 5 years for computer software and hardware, respectively.

Leasehold improvements are amortized over the terms of the respective leases or the estimated useful lives of the improvements, whichever is shorter.

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while major replacements, improvements and additions are capitalized.

(n) Bank-Owned Life Insurance

The Corporation invests in bank owned life insurance (“BOLI”) as a source of funding for employee benefit expenses.

Lease Liabilities and Right of Use Assets

The Corporation is obligated under non-cancelable operating leases for premises for various retail branch locations and loan production offices.

The Corporation determines if an arrangement is a lease at inception by assessing whether a contract contains a right to control an identified asset for a period of time in exchange for consideration.

Operating leases are included in operating lease right-of-use assets and operating lease liabilities in the consolidated balance sheets.

For purposes of calculating operating lease liabilities, lease terms include options to extend or terminate the lease when it is reasonably certain that the Corporation will exercise that option and begins when the Corporation has control and possession of the leased property, which may be before rental payments are due under the lease.

Right-of use assets and operating lease liabilities are recognized based on the present value of lease payments, discounted using the Corporation's incremental borrowing rate, over the lease term at the possession date.

The Corporation determines its incremental borrowing rate using publicly available information available for debt issuers with similar credit ratings as the Bank, as the substantial majority of the Corporation's leases are related to properties of the Bank.

The Corporation separately accounts for lease and non-lease components such as property taxes, insurance, and maintenance costs.

Operating lease expense for the Corporation's leases, which generally have escalating rental payments over the term of the lease, is recognized on a straight-line basis over the lease term.

At December 31, 2022, the Corporation's leases have remaining terms of 2 months to 12 years.

Bank-Owned Life Insurance

The Corporation invests in BOLI as a source of funding for employee benefit expenses.

BOLI involves the purchasing of life insurance by the Corporation on a chosen group of employees.

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Earnings from the increase in cash surrender value of the policies are included in non-interest income on the consolidated statements of income.

(o) Advertising Costs

Advertising Costs

The Corporation follows the policy of charging the costs of advertising to expense as incurred.

(p) Employee Benefit Plans

The Corporation has a 401(k) Plan (the Plan) and an Employee Stock Ownership Plan (ESOP).

All employees are eligible to participate in the Plan and ESOP after they have attained the age of 21 and have also completed 3 consecutive months of service.

Employee Benefit Plans

The Corporation has a 401(k) Plan (the Plan) and an ESOP.

All employees are eligible to participate in the Plan and ESOP after they have attained the age of 21 and have also completed three months consecutively of service.

Employees must participate in the Plan to be eligible for participation in the ESOP.

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Full vesting in the Corporation’s contribution to the Plan and ESOP is over a three-year period.

The Corporation recorded expense for the Plan and ESOP of $ 1.4 million and $ 1.1 million, respectively for the year ended December 31, 2021 and

$ 1.1 million and $ 1.2 million, respectively for the year ended December 31, 2020.

The Corporation recorded expense for the Plan and ESOP of $ 1.0 million and $ 1.1 million, respectively for the year ended December 31, 2022 and $ 1.4 million and $ 1.1 million, respectively for the year ended December 31, 2021.

The expense recorded by the Corporation for the ESOP for the year ended December 31, 2022 included a $ 671 thousand employer contribution, in addition to $ 426 thousand in stock compensation related expense.

The expense recorded by the Corporation for the ESOP for the year ended December 31, 2020 included a $ 550 thousand employer contribution, and a $ 600 thousand one-time contribution approved by the Board of Directors.

There was no such contribution made in 2021.

During the year ended December 31, 2021, 45,606 shares were purchased by the ESOP at an average market value of $ 24.30 , while for the year ended December 31, 2020, 161,576 shares were purchased by the ESOP at an average market value of $ 15.06 .

The expense recorded by the Corporation for the ESOP for the year ended December 31, 2021 included a $ 663 thousand employer contribution, in addition to $ 437 thousand in stock compensation related expense.

During the year ended December 31, 2022, 0 shares were purchased by the ESOP, while for the year ended December 31, 2021, 91,212 shares were purchased by the ESOP at an average market value of $ 12.15 .

Shares in the ESOP that are committed to be released to employees are treated as outstanding shares in the Corporation’s computation of earnings per share.

On August 31, 2020 the Corporation established a $ 2 million stock purchase authorization with the ESOP.

By the end of 2020 the ESOP had fully utilized the $ 2 million loan to purchase 133,280 Corporation common shares and as of December 31, 2021, 26,656 of these common shares were released to the ESOP leaving 106,624 unallocated shares.

The 133,280 common shares purchased using the loan proceeds are included in the 161,576 shares purchased by the ESOP in 2020.

As of December 31, 2021, 53,312 of these common shares were released to the ESOP leaving 213,248 unallocated shares.

There were 534,100 shares in the ESOP as of December 31, 2022.

Shares in the ESOP would be impacted by any stock dividends and stock splits in the same manner as all other outstanding common shares of the Corporation.

(q) Income Taxes

Deferred income taxes are provided on the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences and net operating losses and deferred tax liabilities are recognized for taxable temporary differences.

Temporary differences are the differences between the reported amounts of assets and liabilities and net operating loss carry-forwards and their tax basis.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of the deferred tax assets will not be realized.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that

some portion of the deferred tax assets will not be realized.

Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

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The Corporation is no longer subject to examination by federal, state and local taxing authorities for years before January 1, 2019.

(r ) Stock Compensation Plans

Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in financial statements.

On February 28, 2023, the Corporation approved and declared a two -for-one stock split in the form of a stock dividend, payable March 20, 2023, to shareholders of record as of March 14, 2023.

Under the terms of the stock split, the Corporation’s shareholders will receive a dividend of one share for every share held on the record date.

The dividend will be 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 effective February 28, 2023.

Stock Compensation Plans

Stock compensation accounting guidance requires that the compensation cost relating to share-based payment transactions be recognized in the consolidated financial statements.

That cost will be measured based on the grant date fair value of the equity or liability instruments issued.

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A Black-Scholes model is used to estimate the fair value of stock options, while the market price of the Corporation’s common stock at the date of grant is used for restricted stock awards.

(s) Comprehensive Income

All stock compensation issued has been adjusted for the two-for-one stock split effective February 28, 2023, as discussed further in footnote 13.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

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The components of other comprehensive income (loss) for the years ended December 31, 2022 and 2021 consist of unrealized holding gains and (losses) arising during the year on available-for-sale securities.

(t ) Off-Balance Sheet Financial Instruments

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Corporation has entered into off-balance sheet financial instruments consisting of commitments to extend credit and letters of credit.

Such financial instruments are recorded in the balance sheet when they are funded.

(u) Derivative Financial Instruments

Derivative Financial Instruments

The Corporation recognizes all derivative financial instruments related to its mortgage banking activities on its balance sheet at fair value.

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however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by ASC 820.

(v) Earnings per Common Share

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 stock.

Diluted earnings per common share takes into account the potential dilution that would occur if in the-money stock options were exercised and converted into shares of common stock and restricted stock awards and performance-based stock awards were vested.

Proceeds assumed to have been received on options exercises are assumed to be used to purchase shares of the Corporation’s common stock at the average market price during the period, as required by the treasury stock method of accounting.

Proceeds assumed to have been received on options exercises are assumed to be used to purchase shares of the Corporation’s common stock

at the average market price during the period, as required by the treasury stock method of accounting.

The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be antidilutive.

(w) Revenue Recognition

Revenue Recognition

The Corporation recognizes all sources of income on the accrual method, with the exception of nonaccrual loans and leases.

In addition to lending and related activities, the Corporation offers various services that generate revenue, certain of which are in the scope of FASB ASU 2014-09 (Topic 606), “Revenue for Contracts with Customers” (ASC 606) is recognized within non-interest income and include wealth management fees, and transaction based and fees.

Revenue is recognized when the transactions occur or as services as performed over primarily monthly or quarterly periods.

Payment is typically received in the period the transactions occur.

Fees may be fixed or, where applicable based on a percentage of transaction size.

Wealth management income for the years ended December 31, 2022 and 2021 is $ 4.7 million and $ 4.8 million.

Within other non-interest income is $ 1.1 million and $ 1.2 million for the years ended December 31, 2022 and 2021, respectively, which are in the scope of ASC 606.

These amounts include wire transfer fees, ATM/debit card commissions, title fee income.

The Corporation earns wealth management fee income from investment advisory services provided to individual and 401k customers.

Fees that are determined based on the market value of the assets held in their accounts are

generally billed quarterly, in advance, based on the market value of assets at the end of the previous billing period.

Fees that are determined based on the market value of the assets held in their accounts are generally billed quarterly, in advance, based on the market value of assets at the end of the previous billing period.

Other related services that are based on a fixed fee schedule are recognized when the services are rendered.

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Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.

(x) Loss Contingencies

The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

Transaction-based fees, which include services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer’s request.

Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Corporation satisfies the performance obligation.

Overdraft fees are recognized at the point in time that the overdraft occurs.

Service charges on deposits are withdrawn from the customer’s account balance.

Other sources of the Corporation’s non-interest income that are not within the scope of ASC 606 include mortgage banking income, SBA loan income, net changes in fair values, hedging gains and losses, earnings on investments in life insurance, gains or losses on sale of investment securities, and dividends on FHLB stock.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Management does not believe there now are such matters that will have a material effect on the financial statements.

(y) Operating Segments

Management does not believe such matters will have a material effect on the financial statements.

Operating Segments

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Corporation-wide basis.

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a banking segment, a wealth management segment and a mortgage banking segment, as more fully disclosed in the Segment note to the consolidated financial statements.

(z) Fair Value of Financial Instruments

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in the Fair Value Measurements and Disclosures note to the consolidated financial statements.

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Changes in assumptions or in market conditions could significantly affect the estimates.

Recent Accounting Pronouncements

As an “emerging growth company” under the JOBS Act until December 31, 2022, the Bank was permitted an extended transition period for complying with new or revised accounting standards affecting public companies up to this date.

We were classified as an emerging growth company until the end of the fiscal year following the fifth anniversary of the completion of our initial public offering, which took place on November 7, 2022.

While an emerging growth company we had elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as any financial statements that we filed in the past, are not subject to all new or revised accounting standards generally applicable to public companies for the transition period.

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

Issued in February 2016, and amended in June 2020, ASU 2016-02 revised the accounting related to lessee accounting.

Under the new guidance, lessees are required to recognize a lease ROU liability 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.

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.

Pronouncements Not Effective as of December 31, 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 CECL on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables.

The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred.

The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates.

An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach).

Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU.

A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date.

In October 2019, the FASB approved a delay for the implementation of the ASU.

Accordingly, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023.

The Corporation has largely completed its assessment of related processes, internal controls, and data sources and has developed, documented, and validated a discounted cash flows model utilizing a third-party software provider.

The Corporation anticipates that the Corporation and the Bank will continue to be well capitalized after the negative impact resulting from the adoption of CECL.

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

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively).

The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation.

The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured.

Management will consider the impact of ASU 2019-04 when considering the impact of ASU 2016-13 upon adoption as of January 1, 2023.

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.

(2) Earnings per Common Share

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.

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;

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.

All share and per share amounts have been adjusted to reflect the two-for-one stock split effective February 28, 2023.

Year Ended December 31,

(dollars in thousands, except per share data) 2022 2021

Numerator for earnings per share:

Net income available to common stockholders $ 21,829 $ 35,585

Denominator for basic earnings per share

Denominators for earnings per share:

Weighted average shares outstanding 11,992 12,266

Average unearned ESOP shares ( 200 ) ( 228 )

Basic weighted averages shares outstanding

Basic weighted average shares outstanding 11,792 12,038

Dilutive effects of assumed exercises of stock options 268 260

Dilutive effects of SERP shares 144 114

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

Diluted weighted average shares outstanding 12,204 12,412

Basic earnings per share $ 1.85 $ 2.96

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The Corporation’s goodwill and intangible assets are detailed below:

(dollars in thousands)

Goodwill - Wealth

Total Goodwill

Intangible assets - trade name

Intangible assets - customer relationships

(dollars in thousands) December 31,

2021 Amortization Expense December 31,

2022 Amortization Period (in years)

Goodwill $ 899 $ — $ 899 Indefinite

Intangible assets - customer relationships 266 — 266 Indefinite

Intangible assets - non competition agreements 3,113 ( 204 ) 2,909 20

Total Intangible Assets $ 3,379 $ ( 204 ) $ 3,175

Total $ 4,278 $ ( 204 ) $ 4,074

Accumulated amortization of intangible assets was $ 1.4 million and $ 1.2 million as of December 31, 2022 and 2021, respectively.

In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill and identifiable intangible assets as of December 31, 2021 and determined it was more likely than not that the fair value of the Corporation, including the wealth reporting unit where the goodwill and identifiable intangible assets are held, was more than its carrying amount.

In accordance with ASC Topic 350, the Corporation performed a qualitative assessment of goodwill and identifiable intangible assets as of December 31, 2022 and determined it was more likely than not that the fair value of the Corporation was more than its carrying amount.

At December 31, 2022, the schedule of future intangible asset amortization is as follows (in thousands):

The amortized cost and approximate fair value of securities as of December 31, 2021 and 2020 are as follows:

Thereafter 1,889

Total $ 2,909

(4) Securities

The following table presents the amortized cost and fair value of securities at the dates indicated:

December 31, 2022

# of Securities

in unrealized

(dollars in thousands)

loss position

(dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value # of Securities in unrealized loss position

Securities available-for-sale:

asset backed securities $ 15,581 $ 14 $ ( 314 ) $ 15,281 12

government agency mortgage-backed securities

government agency collateralized mortgage obligations

government agency MBS 12,272 5 ( 538 ) 11,739 12

government agency CMO 25,520 40 ( 2,242 ) 23,318 29

State and municipal securities 44,700 — ( 5,862 ) 38,838 34

government agency collateralized mortgage obligations

Treasuries 32,980 — ( 3,457 ) 29,523 25

government agency CMO 9,722 — ( 633 ) 9,089 11

Corporate bonds 8,201 — ( 643 ) 7,558 12

Total securities available-for-sale $ 148,976 $ 59 $ ( 13,689 ) $ 135,346 135

Amortized cost Gross unrecognized gains Gross unrecognized losses Fair value # of Securities in unrecognized loss position

Securities held-to-maturity:

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December 31, 2021

# of Securities

in unrealized

(dollars in thousands)

loss position

(dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value # of Securities in unrealized loss position

Securities available-for-sale:

asset backed securities $ 16,850 $ 55 $ ( 68 ) $ 16,837 10

government agency mortgage-backed securities

government agency collateralized mortgage obligations

government agency MBS 9,749 124 ( 60 ) 9,813 3

government agency CMO 22,276 358 ( 253 ) 22,381 10

State and municipal securities 72,099 1,379 ( 496 ) 72,982 12

Treasuries 29,973 1 ( 246 ) 29,728 21

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

Amortized cost Gross unrecognized gains Gross unrecognized losses Fair value # of Securities in unrecognized loss position

Securities held-to-maturity:

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Total securities held-to-maturity $ 6,372 $ 219 $ — $ 6,591 —

Although the Corporation’s investment portfolio overall is in a net unrealized gain position at December 31, 2021, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and the Corporation does not intend to sell these securities prior to recovery and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.

As of December 31, 2021 and 2020, securities having a fair value of $ 92.2 million and $ 55.9 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes.

The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

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

Although the Corporation’s investment portfolio overall is in a net unrealized loss position at December 31, 2022, 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 the quarter-ended March 31, 2022, $ 27.7 million of municipal securities, previously classified as available-for-sale on the balance sheet, were transferred to the held-to-maturity portfolio at fair value.

At the time of transfer, $ 1.3 million of unrealized losses remained in accumulated other comprehensive income, to be amortized over the remaining life of the securities as an adjustment to yield.

No gain or loss was recognized as a result of the transfer.

As of December 31, 2022, $ 1.2 million of unrealized losses remained in accumulated other comprehensive income.

As of December 31, 2022 and December 31, 2021, securities having a fair value of $ 78.4 million and $ 92.2 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes.

has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

December 31, 2022

Less than 12 Months

12 Months or more

(dollars in thousands)

Less than 12 Months 12 Months or more Total

(dollars in thousands) Fair

value Unrealized

Securities available-for-sale:

asset backed securities $ 6,531 $ ( 80 ) $ 4,863 $ ( 234 ) $ 11,394 $ ( 314 )

government agency mortgage-backed securities

government agency collateralized mortgage obligations

government agency MBS 6,022 ( 230 ) 4,637 ( 308 ) 10,659 ( 538 )

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 )

government agency collateralized mortgage obligations

Treasuries 1,902 ( 97 ) 27,622 ( 3,360 ) 29,524 ( 3,457 )

government agency CMO 8,423 ( 464 ) 666 ( 169 ) 9,089 ( 633 )

Corporate bonds 5,019 ( 431 ) 1,538 ( 212 ) 6,557 ( 643 )

Total securities available-for-sale $ 45,243 $ ( 2,849 ) $ 80,226 $ ( 10,840 ) $ 125,469 $ ( 13,689 )

Less than 12 Months 12 Months or more Total

value Unrecognized

Securities held-to-maturity:

State and municipal securities $ 10,130 $ ( 364 ) $ 22,543 $ ( 4,030 ) $ 32,673 $ ( 4,394 )

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

December 31, 2021

Less than 12 Months

12 Months or more

(dollars in thousands)

Less than 12 Months 12 Months or more Total

(dollars in thousands) Fair

value Unrealized

Securities available-for-sale:

asset backed securities $ 12,330 $ ( 68 ) $ — $ — $ 12,330 $ ( 68 )

government agency collateralized mortgage obligations

government agency MBS 3,852 ( 60 ) — — 3,852 ( 60 )

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 )

Treasuries 28,750 ( 246 ) — — 28,750 ( 246 )

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 )

The amortized cost and carrying value of securities at December 31, 2021 and 2020 are shown below by contractual maturities.

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.

December 31, 2021

December 31, 2020

Available-for-sale

Held-to-maturity

Available-for-sale

Held-to-maturity

(dollars in thousands)

Investment securities:

December 31, 2022 December 31, 2021

Available-for-sale Held-to-maturity Available-for-sale Held-to-maturity

(dollars in thousands) Amortized

value Amortized

Due in one year or less $ — $ — $ — $ — $ — $ — $ 763 $ 769

2 unchanged sentences

Due after ten years 53,950 48,453 30,206 26,164 81,548 82,450 — —

Subtotal 101,462 91,201 37,479 33,085 125,372 126,133 6,372 6,591

Mortgage-related securities 47,514 44,145 — — 33,015 33,169 — —

Mutual funds with no stated maturity

Proceeds from the sale of available for sale investment securities totaled $ 23.6 million for the year ended December 31, 2021, resulting in a gross gain on sale of $ 634 thousand and a gross loss on sale of $ 199 thousand for the year ended December 31, 2021.

Proceeds from the sale of available for sale investment securities totaled $ 45.9 million for the year

ended December 31, 2020, resulting in a gross gain on sale of $ 1.5 million and a gross loss on sale of $ 196 thousand for the year ended December 31, 2020.

Loans Receivable

Loans and leases outstanding at December 31, 2021 and 2020 are detailed by category as follows:

Total $ 148,976 $ 135,346 $ 37,479 $ 33,085 $ 158,387 $ 159,302 $ 6,372 $ 6,591

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

(dollars in thousands) 2022 2021

Mortgage loans held for sale

Proceeds from sale of investment securities $ — $ 23,585

Gross gain on sale of available for sale investments — 634

Gross loss on sale of available for sale investments — 199

(5) Loans and Other Finance Receivables

The following table presents loans and other finance receivables, net of fees and costs detailed by category at the dates indicated:

(dollars in thousands) December 31,

2022 December 31,

Real estate loans:

2 unchanged sentences

Residential mortgage 221,837 68,175

Construction 271,955 160,905

Total real estate loans 1,118,591 798,307

1 unchanged sentence

Small business loans 136,155 114,158

Paycheck Protection Program ("PPP") loans

Main Street Lending Program ("MSLP") loans

Total portfolio loans and leases

Total loans and leases

Loans with predetermined rates

Loans with adjustable or floating rates

Total loans and leases

Net deferred loan origination costs (fees)

(1) Includes $ 17,558 and $ 12,182 of loans at fair value as of December 31, 2021 and 2020, respectively.

Components of the net investment in leases at December 31, 2021 and 2020 are detailed as follows:

(dollars in thousands)

Minimum lease payments receivable

Unearned lease income

Age Analysis of Past Due Loans and Leases

The following table presents an aging of the Corporation’s loan and lease portfolio as of December 31, 2021 and 2020, respectively:

Consumer 488 419

Leases, net 138,986 88,242

Loans and other finance receivables, net of fees and costs $ 1,735,598 $ 1,385,688

Balances included in loans, net of fees and costs:

Residential mortgage real estate loans accounted under fair value option, at fair value $ 14,502 $ 17,558

Residential mortgage real estate loans accounted under fair value option, at amortized cost 16,930 17,106

Unearned lease income included in leases, net ( 25,715 ) ( 17,366 )

Unamortized net deferred loan origination costs 8,084 769

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, net of fees and costs at the dates indicated:

December 31, 2022

(dollars in thousands)

still accruing

(dollars in thousands) 30-89 days past due 90+ days past due and still accruing Total past due Current Total Accruing Loans and leases Nonaccrual loans and leases Total loans, net of fees and costs % Delinquent

Commercial mortgage $ — $ — $ — $ 565,260 $ 565,260 $ 140 $ 565,400 0.02 %

1 unchanged sentence

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

Paycheck Protection Program loans

Main Street Lending Program loans

(1) Includes $ 17,558 of loans at fair value as of December 31, 2021 ($ 16,768 of current, $ 189 of 30-89 days past due and $ 601 of nonaccrual).

The increase in nonaccrual loans and leases was largely due to one commercial loan relationship for $ 13.8 million that had been on COVID-19 deferral but became a non-performing loan relationship late in 2021.

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 $ 14,502 of loans at fair value of which $ 13,760 are current, $ 184 are 30-89 days past due, and $ 558 are nonaccrual.

December 31, 2021

(dollars in thousands)

still accruing

Commercial mortgage $ — $ — $ — $ 516,928 $ 516,928 $ — $ 516,928 — %

1 unchanged sentence

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 — — — 365,761 365,761 18,801 384,562 4.89

Small business loans — — — 113,492 113,492 666 114,158 0.58

Paycheck Protection Program loans

Main Street Lending Program loans

(1) Includes $ 12,182 of loans at fair value as of December 31, 2020 ($ 10,314 of current, $ 958 of 30-89 days past due and $ 910 of nonaccrual).

Consumer — — — 419 419 — 419 —

Leases, net 390 — 390 87,640 88,030 212 88,242 0.68 %

Total $ 1,093 $ — $ 1,093 $ 1,361,607 $ 1,362,700 $ 22,988 $ 1,385,688 1.74 %

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

Foreclosed and Repossessed Assets

At December 31, 2022, there were 5 consumer mortgage loans totaling $ 942 thousand, secured by residential real estate properties (included in loans, net of fees and costs on the Consolidated Balance Sheets) 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.

(6) Allowance for Loan and Lease Losses (the Allowance)

5 unchanged sentences

This evaluation is subjective as it requires material estimates that may be susceptible to significant revisions as more information becomes available.

Roll-Forward of the Allowance by Portfolio Segment

The following tables detail the roll-forward of the Corporation’s Allowance, by portfolio segment, as of December 31, 2021 and 2020, respectively:

(dollars in thousands)

December 31, 2020

December 31, 2021

Roll-Forward of Allowance by Portfolio Segment

The following tables detail the roll-forward of the Corporation’s Allowance, by portfolio segment, for the periods indicated:

Year Ended December 31, 2022

(dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Credit) Ending Balance

Commercial mortgage $ 4,950 $ — $ — $ ( 855 ) $ 4,095

1 unchanged sentence

Residential mortgage 283 — 2 663 948

Construction 2,042 — — 1,033 3,075

Commercial and industrial 6,533 — 97 ( 2,618 ) 4,012

Small business loans 3,737 — — 1,172 4,909

(dollars in thousands)

December 31, 2019

December 31, 2020

Consumer 3 — 4 ( 4 ) 3

Leases 986 ( 2,616 ) 64 3,164 1,598

Total $ 18,758 $ ( 2,628 ) $ 210 $ 2,488 $ 18,828

Year Ended December 31, 2021

(dollars in thousands) Beginning Balance Charge-offs Recoveries Provision (Credit) Ending Balance

Commercial mortgage $ 7,451 $ — $ — $ ( 2,501 ) $ 4,950

1 unchanged sentence

Residential mortgage 385 — 5 ( 107 ) 283

Construction 2,421 — — ( 379 ) 2,042

Commercial and industrial 5,431 — 41 1,061 6,533

Small business loans 1,259 — — 2,478 3,737

The Allowance Allocated by Portfolio Segment

The following table details the allocation of the Allowance and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of December 31, 2021 respectively:

Allowance on loans and leases

Carrying value of loans and leases

Consumer 4 — 4 ( 5 ) 3

Leases 382 ( 130 ) — 734 986

Total $ 17,767 $ ( 211 ) $ 132 $ 1,070 $ 18,758

Allowance Allocated by Portfolio Segment

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

December 31, 2022

(dollars in thousands)

for impairment

Allowance on loans and leases Carrying value of loans and leases

(dollars in thousands) Individually

for impairment Collectively

for impairment Total Individually

for impairment Collectively

for impairment Total

Commercial mortgage $ — $ 4,095 $ 4,095 $ 2,445 $ 562,955 $ 565,400

1 unchanged sentence

Residential mortgage — 948 948 1,454 205,881 207,335

Construction — 3,075 3,075 1,206 270,749 271,955

Commercial and industrial (2)

776 3,236 4,012 12,547 328,831 341,378

Small business loans 1,449 3,460 4,909 4,527 131,628 136,155

Paycheck Protection Program loans

Main Street Lending Program

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

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

Allowance on loans and leases

Carrying value of loans and leases

Consumer — 3 3 — 488 488

Leases — 1,598 1,598 902 138,084 138,986

$ 2,225 $ 16,603 $ 18,828 $ 24,178 $ 1,696,918 $ 1,721,096

December 31, 2021

(dollars in thousands)

for impairment

Allowance on loans and leases Carrying value of loans and leases

(dollars in thousands) Individually

for impairment Collectively

for impairment Total Individually

for impairment Collectively

for impairment Total

Commercial mortgage $ — $ 4,950 $ 4,950 $ 3,556 $ 513,372 $ 516,928

1 unchanged sentence

Residential mortgage — 283 283 1,797 48,820 50,617

Construction — 2,042 2,042 1,206 159,699 160,905

Commercial and industrial (2)

2,900 3,633 6,533 17,361 367,201 384,562

Small business loans 376 3,361 3,737 792 113,366 114,158

Paycheck Protection Program loans

Main Street Lending Program

Consumer — 3 3 — 419 419

Leases — 986 986 212 88,030 88,242

$ 3,276 $ 15,482 $ 18,758 $ 25,829 $ 1,342,301 $ 1,368,130

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

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

(2) Includes $ 4.7 million and $ 90.2 million of PPP loans as of December 31, 2022 and 2021, respectively, which are not reserved against as they are 100 % guaranteed by the SBA.

Loans and Leases by Credit Ratings

As part of the process of determining the Allowance to the different segments of the loan and lease portfolio, Management considers certain credit quality indicators.

For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by Management.

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.

7 unchanged sentences

• 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.

The following table details the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the Allowance as of December 31, 2021 and 2020, respectively:

Loan balances classified as doubtful are carried at their net realizable values.

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the allowance for loan and lease losses at the dates indicated:

December 31, 2022

(dollars in thousands)

(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

Paycheck Protection Program loans

Main Street Lending Program loans

Commercial and industrial loans classified as substandard totaled $ 42.9 million as of December 31, 2021, an increase of $ 33.9 million, from $ 9.0 million as of December 31, 2020.

The increase was driven by the $ 13.8 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021, discussed above.

The remaining $ 20.1 million of increase year-over-year was comprised of 18 different loan relationships with no specific industry concentration.

Total $ 1,281,804 $ 43,766 $ 48,717 $ — $ 1,374,287

Commercial and industrial loans classified as substandard totaled $ 39.3 million as of December 31, 2022, a decrease of $ 3.6 million from $ 42.9 million as of December 31, 2021, due to payoffs and/or principal payments.

December 31, 2021

(dollars in thousands)

(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 327,089 14,603 42,870 — 384,562

Small business loans 112,096 — 2,062 — 114,158

Paycheck Protection Program loans

Main Street Lending Program loans

In addition to credit quality indicators as shown in the above tables, Allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status as December 31, 2021 and 2020, respectively.

December 31, 2021

December 31, 2020

(dollars in thousands)

Nonperforming

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:

December 31, 2022 December 31, 2021

(dollars in thousands) Performing Non-

performing Total Performing Non-

performing Total

Residential mortgage (1)

There were four nonperforming residential mortgage loans at December 31, 2021 and five at December 31, 2020 with a combined outstanding principal balance of $ 601 thousand and $ 910 thousand, respectively, which were carried at fair value and not included in the table above.

No TDR’s performing according to modified terms are included in performing residential mortgages above for the twelve months ended December 31, 2021 and 2020, respectively.

$ 205,881 $ 1,454 $ 207,335 $ 48,820 $ 1,797 $ 50,617

Consumer 488 — 488 419 — 419

Leases, net 138,084 902 138,986 88,030 212 88,242

Total $ 344,453 $ 2,356 $ 346,809 $ 137,269 $ 2,009 $ 139,278

(1) There were four nonperforming residential mortgage loans at December 31, 2022 and four nonperforming residential mortgage loans at December 31, 2021 with a combined outstanding principal balance of $ 558 thousand and $ 601 thousand, respectively, which were carried at fair value and not included in the table above.

Impaired Loans

The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related Allowance and interest income recognized for the periods.

As of December 31, 2021

As of December 31, 2020

(dollars in thousands)

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

December 31, 2022

December 31, 2021

(dollars in thousands) Recorded

investment Principal

balance Related

allowance Recorded

investment Principal

balance Related

Impaired loans with related allowance:

1 unchanged sentence

Small business loans 3,730 3,730 1,449 666 666 376

Home equity lines and loans

Residential mortgage

Total $ 14,829 $ 15,825 $ 2,225 $ 17,813 $ 17,976 $ 3,276

Impaired loans without related allowance:

4 unchanged sentences

Residential mortgage 1,454 1,454 — 1,797 1,797 —

Construction 1,206 1,206 — 1,206 1,206 —

Leases 902 902 — 212 212 —

Total $ 9,349 $ 9,406 $ — $ 8,016 $ 8,104 $ —

Grand Total $ 24,178 $ 25,231 $ 2,225 $ 25,829 $ 26,080 $ 3,276

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

December 31, 2022

December 31, 2021

(dollars in thousands)

(dollars in thousands) Average

investment Interest

recognized Average

investment Interest

Impaired loans with related allowance:

1 unchanged sentence

Small business loans 3,731 — 887 —

Home equity lines and loans

Residential mortgage

Total $ 16,942 $ — $ 18,236 $ 15

Impaired loans without related allowance:

4 unchanged sentences

Residential mortgage 1,473 205 1,807 11

Troubled Debt Restructuring (“TDR’s”)

Construction 1,206 78 1,206 62

Leases 825 — 240 —

Total $ 8,485 $ 732 $ 8,138 $ 154

Grand Total $ 25,427 $ 732 $ 26,374 $ 169

Troubled Debt Restructuring

The restructuring of a loan is considered a TDR if both of the following conditions are met:

5 unchanged sentences

For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender.

The balance of TDRs at December 31, 2021 and 2020 are as follows:

(dollars in thousands)

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

(dollars in thousands) December 31,

2022 December 31,

TDRs included in nonperforming loans and leases $ 207 $ 361

TDRs in compliance with modified terms 3,573 3,446

There were 2 loan and lease modifications granted during the year ended December 31, 2021 on commercial mortgages and no loan and lease modifications granted during the year ended December 31, 2020 that were categorized as TDRs.

No loan and lease modifications granted during the twelve months ended December 31, 2021 and 2020 subsequently defaulted during the same time period.

COVID-19 Assistance to Customers

During 2021 and 2020 we assisted customers that were impacted by the COVID-19 pandemic through 2 distinct and impactful ways:

the issuance of PPP loans and short-term loan deferrals on a limited basis, in accordance with Section 4103 of the CARES Act.

Throughout the life of the PPP loan program we helped borrowers with the issuance of 1,451 such loans totaling over $ 370 million.

As of March 10, 2022, approximately $ 314 million, or 1,224 loans, had been paid back.

Out of the remaining $ 56.3 million that have yet to be forgiven by the SBA, $ 31.7 million have submitted for forgiveness and are awaiting a response from the SBA, while the remaining $ 24.6 million has not yet submitted a request for forgiveness.

We also provided COVID-19 loan deferrals, typically in 3 month increments, to loan customers that amounted to $ 2.4 million as of December 31, 2021, down $ 21.8 million, or 90 %, from the $ 24.2 million as of December 31, 2020 as detailed by industry concentration of the borrower in the table below:

(dollars in thousands)

C&I building construction

As these modifications related to the COVID-19 pandemic and qualify under the provisions of either Section 4013 of the CARES Act or Interagency Guidance, they are not considered TDR’s.

Management continues to monitor these deferrals and has adequately considered these credits in the December 31, 2021 allowance for loan losses balance.

These modified

loans are classified as performing and are not considered past due.

Loans are to be placed on non-accrual when it becomes apparent that payment of interest or recovery of all principal is questionable, and the COVID-19 related modification is no longer considered short-term or the modification is deemed ineffective.

As of January 31, 2022 the $ 2.4 million of deferrals that had existed as of December 31, 2021 expired without further deferral or modification given to these borrowers.

Total TDRs $ 3,780 $ 3,807

There was 1 new modification on a commercial mortgage for $ 684 thousand for the year ended December 31, 2022, and 2 modifications granted during the year ended December 31, 2021 on commercial mortgages for $ 1.2 million.

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 December 31, 2022 and 2021 subsequently defaulted during the same time period.

(7) Bank Premises and Equipment

The components of premises and equipment at December 31, 2022 and 2021 are as follows:

(dollars in thousands)

(dollars in thousands) December 31,

2022 December 31,

Buildings $ 9,150 $ 4,141

Leasehold improvements 3,347 3,347

4 unchanged sentences

accumulated depreciation ( 12,825 ) ( 11,463 )

Total $ 13,349 $ 11,806

Total depreciation expense for the years ended December 31, 2022 and 2021 totaled $ 1.4 million and $ 1.3 million, respectively.

In November 2021 Meridian purchased a building for $ 3.8 million that will serve as the future headquarters of our bank operations department, as well as other departments.

As of December 31, 2021 this building was classified as construction in process as it has not yet been put into service, and therefore has not started to be depreciated.

The components of deposits at December 31, 2022 and 2021 are as follows:

(dollars in thousands)

(dollars in thousands) December 31,

2022 December 31,

Demand, non-interest bearing $ 301,727 $ 274,528

3 unchanged sentences

Time deposits 493,350 206,009

The aggregate amount of time deposits in denominations over $250 thousand were $ 179.8 million and $ 233.1 milllion as of December 31, 2021 and 2020, respectively.

Total $ 1,712,479 $ 1,446,413

The aggregate amount of time deposits in denominations over $250 thousand were $ 394.3 million and $ 179.8 million as of December 31, 2022 and 2021, respectively.

At December 31, 2022, the scheduled maturities of time deposits are as follows (in thousands):

Short-Term Borrowings and Long-Term Debt

The Corporation’s short-term borrowings generally consist of federal funds purchased and short-term borrowings extended under agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”).

The Corporation has two unsecured Federal Funds borrowing facilities with correspondent banks:

2023 $ 414,853

Total $ 493,350

(9) Borrowings

The Corporation’s short-term borrowings generally consist of Federal funds purchased and short-term borrowings extended under agreements with the FHLB and two unsecured Federal funds borrowing facilities with correspondent banks:

one of $ 24 million and one of $ 15 million.

Federal funds purchased generally represent one-day borrowings.

The Corporation had no Federal Funds purchased at December 31, 2021 and December 31, 2020.

The Corporation also has a facility with the Federal Reserve discount window of $ 3.5 million.

The Corporation had $ 0 in Federal funds purchased at December 31, 2022 and December 31, 2021.

The Corporation also has a facility with the Federal Reserve Bank discount window of $ 8.8 million.

This facility is fully secured by investment securities.

There were no borrowings under this at December 31, 2021 and $ 10 million at December 31, 2020.

Short-term borrowings at December 31, 2021 and December 31, 2020 consisted of the following notes:

Balance as of

(dollars in thousands)

Open Repo Plus Weekly

Mid-term Repo-fixed

Federal Reserve Discount Window

Mid-term Repo-fixed

As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program.

Advances from this facility are secured 100 % by the aggregate face value of pools comprised of loans with common maturity dates.

PPPLF advances mature concurrently with the loans in a given pool.

At December, 2021, the Corporation had no of PPPLF advances with the FRB of Philadelphia.

Advances made on the PPPLF were ended by the FRB on July 30, 2021.

Long-term debt at December 31, 2021 and December 31, 2020 consisted of the following fixed rate notes with the FHLB of Pittsburgh:

Balance as of

(dollars in thousands)

PPPLF Advances

Mid-term Repo-fixed

The FHLB of Pittsburgh has also issued $ 131.5 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers.

There were no borrowings under this at December 31, 2022 and December 31, 2021.

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

(dollars in thousands) Maturity

date Interest

rate December 31,

2022 December 31,

FHLB Open Repo Plus Weekly 6/5/2023 4.45 % - 3.11 %

$ 113,147 $ 36,458

FHLB Mid-term Repo-fixed 9/12/2022 0.23 % — 4,886

Total $ 113,147 $ 41,344

The Corporation had long-term debt of $ 8.9 million as of December 31, 2022, with an interest rate of 4.23 % and a maturity date of December 22, 2025.

The Corporation had no long-term debt as of December 31, 2021.

The FHLB has also issued $ 49.1 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers.

These letters of credit expire throughout 2023.

6 unchanged sentences

The 2008 Debentures began to repay principal in eight equal installments which commenced in December of 2016.

As of December 31, 2021, $ 113 thousand of the 2008 Debentures remained outstanding, after pay downs of $ 56 thousand for 2021 and 2020 combined.

As of December 31, 2022, $ 56 thousand of the 2008 Debentures remained outstanding, after pay downs of $ 56 thousand each year during 2022 and 2021.

In December 2011, the Bank issued $ 1.4 million of mandatory convertible unsecured subordinated debentures (2011 Debentures).

2 unchanged sentences

The 2011 Debentures began to repay principal in eight equal installments which commenced in December of 2020.

As of December 31, 2021, $ 578 thousand of the 2011 Debentures remained outstanding, after pay downs of $ 116 thousand each during 2021 and 2020.

As of December 31, 2022, $ 462 thousand of the 2011 Debentures remained outstanding, after pay downs of $ 116 thousand each year during 2022 and 2021.

In April 2013, the Bank issued $ 1.4 million of mandatory convertible unsecured subordinated debentures (2013 Debentures).

1 unchanged sentence

The 2013 Debentures are convertible into 1 share of the Corporation’s common stock for every $22 in principal amount of the 2013 Debentures automatically on such date, if any, as accumulated losses of the Bank first exceed the sum of the retained earnings and capital surplus accounts of the Bank.

As of December 31, 2021, $ 761 thousand of the 2013 Debentures remained outstanding, after pay downs of $ 109 thousand during 2021 and no payments during 2020.

In June, August and September 2014, the Bank issued $ 3 million, $ 100 thousand, and $ 7 million of non-convertible unsecured subordinated debentures (2014 Debentures).

The 2014 Debentures have maturity dates of June 30, 2024, June 30, 2024 and September 30, 2024, respectively.

Interest on all three tranches of the 2014 Debentures is paid quarterly at 7.25 %.

During 2020, the Corporation redeemed the remaining $ 7.1 million of 2014 Debentures and therefore there was $ 0 outstanding as of December 31, 2021 and 2020.

As of December 31, 2022, $ 652 thousand of the 2013 Debentures remained outstanding, after pay downs of $ 109 thousand each year during 2022 and 2021.

Subsequent to December 31, 2022 $ 56 thousand 2013 Debentures was redeemed by the holder.

Upon formation of the bank holding company, the Corporation assumed the 2008, 2011, and 2013 Debentures that were originally issued by the Bank.

2 unchanged sentences

The debt issuance costs are included as a direct deduction from the debt liability and these costs are amortized to interest expense using the effective yield method.

During 2021 and 2020 the Corporation made interest payments of $ 2.2 million and $ 2.2 million on the 2019 Debentures, respectively.

During 2022 and 2021 the Corporation made interest payments of $ 2.2 million each year on the 2019 Debentures.

The 2008, 2011, and 2013 Debentures are includable as Tier 2 capital for determining the Bank’s compliance with regulatory capital requirements (see footnote 17).

6 unchanged sentences

When the contractual servicing fees on loans sold with servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized.

The Corporation accounts for the transfers and servicing of financial assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

Residential Mortgage Loans

MSRs are amortized to non-interest expense in proportion to, and over the period of, the estimated future net servicing life of the underlying assets.

MSR’s are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.

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 and $ 506.0 million of residential mortgage loans as of December 31, 2021 and 2020, respectively.

During the twelve months ended December 31, 2021, the Corporation recognized servicing fee income of $ 2.0 million, compared to $ 498 thousand during the twelve months ended December 31, 2020, respectively.

The Corporation serviced $ 1.0 billion of residential mortgage loans as of December 31, 2022 and 2021.

During the year ended December 31, 2022 the Corporation recognized servicing fee income of $ 2.6 million compared to $ 2.0 million, during the year ended December 31, 2021.

Changes in the MSR balance are summarized as follows:

Year Ended December 31,

(dollars in thousands) 2022 2021

4 unchanged sentences

Balance at end of the period $ 9,942 $ 10,756

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

Year Ended December 31,

Activity in the valuation allowance for MSRs was as follows:

(dollars in thousands) 2022 2021

Valuation allowance, beginning of period $ ( 8 ) $ ( 435 )

Impairment ( 4 ) —

Recovery 10 427

Valuation allowance, end of period $ ( 2 ) $ ( 8 )

4 unchanged sentences

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 %.

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

(dollars in thousands)

December 31, 2021

As interest rates increased and the number of mortgage refinancings have declined, model inputs have been adjusted to align the MSRs fair value with market conditions.

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

(dollars in thousands) December 31,

2022 December 31,

11 unchanged sentences

As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear.

Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption;

Also, in this table, the effect of an adverse variation in a articular assumption on the fair value of the MSRs is calculated without changing any other assumption;

while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

SBA loan servicing assets are amortized to non-interest expense in proportion to, and over the period of, the estimated future net servicing life of the underlying assets.

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets.

SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.

Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset.

The Corporation serviced $ 115.1 million of SBA loans, as of December 31, 2021 and $ 55.9 million as of December 31, 2020.

The Corporation serviced $ 166.1 million and $ 115.1 million of SBA loans, as of December 31, 2022 and December 31, 2021, respectively.

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

Year Ended December 31,

(dollars in thousands) 2022 2021

5 unchanged sentences

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

Year Ended December 31,

(dollars in thousands) 2022 2021

Valuation allowance, beginning of period $ ( 96 ) $ ( 39 )

Impairment ( 408 ) ( 57 )

Recovery 140 —

Valuation allowance, end of period $ ( 364 ) $ ( 96 )

4 unchanged sentences

At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.38 % and a discount rate equal to 9.01 %.

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

(dollars in thousands)

December 31, 2021

The change in

valuation allowance due to impairment noted in the tables above, was largely due to the increases in discount rate and prepayment speed as a result of the rising interest rate environment and depressed market pricing on sales of such loans.

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) December 31,

2022 December 31,

14 unchanged sentences

(12) Lease Commitments

The Corporation leases twenty-two offices from third parties under operating lease agreements expiring at different periods through March 2031.

Under all current agreements, the Corporation is responsible for its portion of real estate taxes, utilities, insurance, and repairs and maintenance.

Total rental expense for the years ended December 31, 2021 and 2020 was $ 2.2 million and $ 1.9 million, respectively.

Future minimum lease payments by year and in the aggregate, under these lease agreements, are as follows:

Future minimum lease payments

On January 1, 2022, the Corporation adopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 1, Summary of Significant Accounting Policies.

The Corporation’s operating leases consist of various retail branch locations and loan production offices.

As of December 31, 2022, the Corporation’s leases have remaining lease terms ranging from 2 months to 12 years, including extension options.

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 December 31, 2022 the Corporation’s ROU assets and related lease liabilities were $ 9.0 million and $ 8.9 million, respectively.

These amounts are included within other assets and other liabilities , respectively.

The components of lease expense were as follows:

Year Ended December 31,

(dollars in thousands) 2022

Refer to footnote 23 for discussion of ASU 2016-02 Leases, which the Corporation adopted as of January 1, 2022.

Operating lease expense $ 2,242

Short term lease expense 13

Total lease expense $ 2,255

Supplemental cash flow information related to leases was as follows:

(dollars in thousands) December 31, 2022

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases $ 2,150

ROU asset obtained in exchange for lease liabilities 10,936

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

(dollars in thousands) December 31, 2022

Thereafter 1,856

Present value discount ( 827 )

Total operating lease liabilities $ 8,864

As of December 31, 2022, the weighted-average remaining lease term for all operating leases, including extension options that the Corporation is reasonably certain will be exercised for retail branch locations, is 6.2 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 December 31, 2022 is 2.63 %.

As of December 31, 2022, the Corporation entered into one additional lease for a branch re-location.

This lease will commence upon discontinuance of the previous location.

Total rental expense for the year ended December 31, 2022 was $ 2.2 million.

(13) Stock-Based Compensation

The Corporation has issued stock options under the Meridian Bank 2004 Stock Option Plan (2004 Plan).

The 2004 Plan authorized the Board of Directors to grant options up to an aggregate of 446,091 shares, as adjusted for the 5 % stock dividends in 2012, 2014 and 2016 to officers, other employees and directors of the Corporation.

The 2004 Plan authorized the Board of Directors to grant options up to an aggregate of 892,182 shares, as adjusted for the 5 % stock dividends in 2012, 2014 and 2016, and the two -for-one stock split effective February 28, 2023, to officers, other employees and directors of the Corporation.

No additional shares are available for future grants.

2 unchanged sentences

The Meridian Bank 2016 Equity Incentive Plan (2016 Plan) was amended on May 24, 2019 to authorize the Board of Directors to grant up to an aggregate of 1,373,800 stock awards that can take different forms.

A total of 438,750 stock options and 43,208 shares of restricted stock have been granted under the 2016 Plan through December 31, 2021.

A total of 1,124,000 stock options and 86,416 shares of restricted stock have been granted under the 2016 Plan through December 31, 2022, including the impact of the two -for-one stock split.

As of December 31, 2022 there were 239,540 stock awards remaining to be issued.

1 unchanged sentence

Stock Options

Stock-based compensation cost is measured at the grant date, based on the fair value of the award and is recognized as an expense over the vesting period.

Stock-based compensation cost is measured at the grant date, based on the fair value of the award and the cost is recognized as an expense over the vesting period.

The fair value of stock option grants is determined using the Black-Scholes pricing model.

The assumptions necessary for the calculation of the fair value are expected life of options, annual volatility of stock price, risk-free interest rate and annual dividend yield.

Stock option awards granted under the 2016 Plan have a term that does not exceed ten years and vest according to each award’s specific vesting schedule.

Currently, all option awards granted to date vest 25 % upon grant and become fully exercisable after three years of service from the grant date.

Stock option awards granted under the 2016 Plan have a term that does not exceed 10 years and vest according to each award’s specific vesting schedule.

Currently, all option awards granted to date vest 25 % upon grant and become fully exercisable after 3 years of service from the grant date.

The following table provides information about stock options outstanding as of December 31, 2022 and 2021:

Shares Weighted average exercise price Weighted average grant date fair value

Outstanding at December 31, 2020 801,454 $ 8.27 $ 2.35

Exercised ( 154,530 ) 6.84 2.18

Granted 285,300 13.75 4.74

Forfeited ( 8,296 ) 9.32 3.29

Outstanding at December 31, 2021 923,928 $ 10.19 $ 3.10

Exercised ( 87,134 ) 8.67 2.43

Granted 246,500 16.22 5.38

Forfeited ( 29,606 ) 12.14 3.92

Outstanding at December 31, 2022 1,053,688 $ 11.67 $ 3.67

10 unchanged sentences

The weighted average fair value of options granted in 2021 was $ 4.07 to $ 4.79 per share.

Total stock option compensation cost for the twelve months ended December 31, 2021 and December 31, 2020 was $ 803 thousand and $ 451 thousand, respectively.

During the twelve months ended December 31, 2021 and December 31, 2020, the Corporation received $ 1.0 million and $ 200 thousand from the exercise of stock options, respectively.

There were no tax benefits recognized related to stock compensation cost for the twelve months ended December 31, 2021 and 2020.

Total stock option compensation cost for the years ended December 31, 2022 and 2021 was $ 1.0 million and $ 803 thousand, respectively.

During the year ended December 31, 2022 and 2021, the Corporation received $ 711 thousand and $ 1.0 million from the exercise of stock options, respectively.

The Corporation recognized $ 116 thousand in excess tax benefits related to stock compensation cost for the twelve months ended December 31, 2022.

No such excess tax benefits were recognized 2021.

In accordance with ASU 2016-09 – Compensation – Stock Compensation (ASU 2016-09), forfeitures are recognized as they occur instead of applying an estimated forfeiture rate to each grant.

2 unchanged sentences

This cost will be recognized over a weighted average period of 7.4 years.

During 2021, the intrinsic value of options exercised was $ 1.2 million.

During 2022, the intrinsic value of options exercised was $ 754 thousand.

Restricted Stock

The restricted stock granted under the 2016 Plan vest according to each award’s specific vesting schedule.

All awards granted in 2021 vest 100 % one year from the grant date, while all awards granted in 2020 vest 50 % one year from the grant date and the remaining 50 % on the second anniversary of the grant date.

The restricted stock awards granted under the 2016 Plan vest according to each award’s specific vesting schedule.

No awards were granted in 2022.

All awards granted in 2021 vested 100 % one year from the grant date.

The grant date fair value of the restricted stock is based on the closing price on the date prior to the grant.

Shares Weighted Average Grant Date Fair Value

Outstanding at December 31, 2020 66,416 $ 7.00

Granted 20,000 13.18

Vested ( 33,206 ) 7.00

Outstanding at December 31, 2021 53,210 $ 9.33

Vested ( 53,210 ) 9.33

Outstanding at December 31, 2022 — $ —

1 unchanged sentence

Compensation expense for restricted stock is measured based on the market price of the stock on the day prior to the grant date and is recognized on a straight-line basis over the vesting period.

For the years ended December 31, 2021 and 2020, the Corporation recognized $ 460 thousand and $ 80 thousand of expense related to the restricted stock, respectively.

As of December 31, 2021, there was $ 189 thousand in unrecognized compensation costs related to restricted stock.

This cost will be recognized over a weighted average period of 0.23 years.

The components of the federal and state income tax expense for the years ended December 31, 2021 and 2020 were:

(dollars in thousands)

For the years ended December 31, 2022 and 2021, the Corporation

recognized $ 70 thousand and $ 460 thousand of expense related to the restricted stock, respectively.

As of December 31, 2022, there was $ 0 in unrecognized compensation costs related to restricted stock.

(14) Income Taxes

The following table presents the components of federal and state income tax expense for the periods indicated:

(dollars in thousands) December 31,

2022 December 31,

Current $ 4,580 $ 10,022

Deferred 903 ( 717 )

Total federal income tax expense $ 5,483 $ 9,305

Current $ 494 $ 1,463

Deferred 114 ( 51 )

Total state income tax expense $ 608 $ 1,412

1 unchanged sentence

A reconciliation of the statutory income tax at 21% to the income tax expense included in the statement of operations is as follows for 2022 and 2021, respectively:

(dollars in thousands)

(dollars in thousands) December 31, 2022 December 31, 2021

Federal income tax at statutory rate $ 5,863 21.0 % $ 9,733 21.0 %

2 unchanged sentences

Bank owned life insurance ( 116 ) ( 0.4 ) ( 77 ) ( 0.2 )

Incentive stock options

Stock based compensation 36 0.1 81 0.2

ESOP 48 0.2 41 0.1

Other 56 0.2 71 0.1

Effective income tax rate $ 6,091 21.8 % $ 10,717 23.1 %

The components of the net deferred tax asset at December 31, 2022 and 2021 are as follows:

(dollars in thousands)

(dollars in thousands) December 31,

2022 December 31,

Deferred tax assets:

Allowance for loan and lease losses $ 4,212 $ 4,345

Unrealized loss on available for sale securities 3,327 —

Accrued incentive compensation — 287

Accrued retirement 891 874

Mortgage pipeline fair-value adjustment 535 —

Deferred rent 96 141

Mortgage repurchase reserve 192 738

Other 179 183

Total deferred tax asset $ 9,432 $ 6,568

2 unchanged sentences

Loan servicing rights ( 2,762 ) ( 2,957 )

Intangibles ( 23 ) ( 15 )

Mortgage pipeline fair-value adjustment — ( 308 )

3 unchanged sentences

Deferred loan costs ( 1,410 ) ( 471 )

Other — ( 1 )

Total deferred tax liability $ ( 5,496 ) $ ( 5,155 )

1 unchanged sentence

The effective tax rates for the twelve-month periods ended December 31, 2022 and 2021 were 21.8 % and 23.1 % respectively.

The decrease in rate from 23.4 % to 23.1 % between 2020 and 2021 was primarily related to the decrease in state income tax expense from Meridian’s mortgage division, specifically in Maryland.

Under ASC 740, Income Taxes, the effect of income tax law changes on deferred taxes should be recognized as a component of income tax expense related to continuing operations in the period in which the law is enacted.

This requirement applies not only to items initially recognized in continuing operations, but also to items initially recognized in other comprehensive income.

The CARES Act, enacted in March 2020 grants potential tax relief to businesses, including corporate tax provisions that:

temporarily allow for the carryback of certain net operating losses, increase interest expense deduction limitations, and allow accelerated depreciation deductions on certain fixed asset improvements.

The tax relief under the CARES Act had no material impact to the Corporation’s Consolidated Financial Statements.

The decrease in rate between 2021 and 2022 was primarily related to the decrease in pre-tax income as well as a reduction in state income tax expense.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

1 unchanged sentence

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deferred tax assets.

Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that the Corporation will realize the benefits of these deferred tax assets.

As of December 31, 2022, the Corporation had an investment in low-income housing tax credits of $ 5.3 million on which it recognized tax credits of $ 294 thousand, amortization of $ 381 thousand and tax benefits from losses of $ 131 thousand during the year ended December 31, 2022.

As of December 31, 2021, the Corporation had an investment in low-income housing tax credits of $ 3.3 million on which it recognized tax credits of $ 161 thousand, amortization of $ 183 thousand and tax benefits from losses of $ 144 thousand during the year ended December 31, 2021.

(15) Revenue from Contracts with Customers

All of the Corporation’s revenue from contracts with customers in the scope of FASB ASU 2014-09 (Topic 606), “Revenue for Contracts with Customers” (ASC 606) is recognized within non-interest income.

The following table presents the Corporation’s non-interest income by revenue stream and reportable segment for the years ended December 31, 2021 and 2020.

Year Ended December 31, 2021

Year Ended December 31, 2020

(Dollars in thousands)

Non-interest Income

Mortgage banking income (1)

Wealth management income

SBA loan income (1)

Net change in fair values (1)

Net gain (loss) on hedging activity (1)

Earnings on investment in life insurance (1)

Net gain on sale of investment securities available-for-sale (1)

Dividends on FHLB stock (1)

Service charges

Non-interest income

(1) Not within the scope of ASC 606.

(2) Within other non-interest income is $ 1.2 million and $ 925 thousand for the years ended December 31, 2021 and 2020, respectively, which are in the scope of ASC 606.

These amounts include wire transfer fees, ATM/debit card commissions, and title fee income.

A description of the Corporation’s primary revenue streams accounted for under ASC 606 follows:

Wealth Management Income:

The Corporation earns wealth management fee income from investment advisory services provided to individual and 401k customers.

Other related services that are based on a fixed fee schedule are recognized when the services are rendered.

Fees that are transaction based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e.

the trade date.

Included in other assets on the balance sheet is a receivable for wealth management fees that have been earned but not yet collected.

Service Charges on Deposit Accounts:

The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services.

Overdraft fees are recognized at the point in time that the overdraft occurs.

Service charges on deposits are withdrawn from the customer’s account balance.

The tax benefits are included within other in the statutory rate reconciliation above.

(15) Transactions with Executive Officers, Directors and Principal Stockholders

1 unchanged sentence

Loans receivable from related parties totaled $ 2.0 million and $ 5.1 million at December 31, 2022 and 2021, respectively.

Advances, repayments, and the effect of changes in composition of related parties during 2021 totaled $ 2.8 million, $ 1.3 million, and $ 284 thousand, respectively.

Advances, repayments, and the effect of changes in composition of related parties during 2022 totaled $ 5.2 million, $ 6.1 million, and $ 2.2 million, respectively.

Advances, repayments, and the effect of changes in composition of related parties during 2021 totaled $ 2.8 million, $ 1.3 million, and $ 284 thousand, respectively.

Deposits of related parties totaled $ 32.6 million and $ 34.7 million at December 31, 2022 and 2021, respectively.

1 unchanged sentence

The Corporation paid legal fees of $ 14 thousand and $ 22 thousand to a law firm of a director for the years ended December 31, 2022 and 2021, respectively.

The director retired from the law firm in 2022.

(16) Financial Instruments with Off-Balance Sheet Risk, Commitments and Contingencies

5 unchanged sentences

A summary of the Corporation’s financial instrument commitments at December 31, 2022 and 2021 is as follows:

(dollars in thousands)

(dollars in thousands) December 31,

2022 December 31,

Commitments to fund loans and commitments under lines of credit $ 506,203 $ 486,632

1 unchanged sentence

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

Commitments generally have fixed expiration dates or other termination clauses and may

require payment of a fee.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The Corporation evaluates each customer’s credit worthiness on a case-by-case basis.

6 unchanged sentences

Management believes that the proceeds obtained through a liquidation of such collateral would be sufficient to cover the maximum potential amount of future payments required under the corresponding guarantees.

Not included in commitments outstanding, in the table above are mortgage loan commitments of $ 143.9 million and $ 428.8 million in 2021 and 2020, respectively, which included interest rate lock commitments.

These rate lock commitments represent an agreement to extend credit to a mortgage loan applicant whereby the interest rate on the loan is set prior to funding.

The loan commitment binds the Corporation to lend funds to a potential borrower at the specified rate, regardless of whether interest rates change between the commitment date and the loan funding date.

The Corporation’s loan commitments generally range between 30 and 120 days ;

however, the borrower is not obligated to obtain the loans.

As such, these commitments are subject to interest rate risk and related price risk during the period from interest rate lock commitment through the loan funding date or expiration date.

To manage this risk, the Corporation either locks the rate with the investor purchasing the loan on a “best efforts” basis or economically hedges this risk for loans sold to investors on its mandatory sales channel using the forward sale of mortgage-backed securities, in addition to best-efforts forward sale commitments to substantially eliminate these risks.

At December 31, 2021 and 2020, the Corporation had a notional amount of $ 68.6 million and $ 230.1 million, respectively, related to commitments on the mandatory channel.

At December 31, 2021 and 2020, the Corporation had best efforts forward sale commitments to sell loans amounting to $ 75.8 million and $ 198.7 million, respectively.

The Corporation is only obligated to settle the forward sale commitment if the loan closes in accordance with the terms of the interest rate lock commitment.

The Corporation’s forward sale commitments generally expire within 90 days .

Loans sold under FHA or investor programs are subject to indemnification or repurchase if they fail to meet the origination criteria of those programs or if the loan is two or three months delinquent during a set period that usually varies from the first six months to a year after the loan is sold.

There was one indemnification signed for the year ended December 31, 2021 for $ 109 thousand, and no indemnifications signed for the year ended December 31, 2020.

A repurchase reserve of $ 3.2 million was recorded at December 31, 2021, as compared to $ 2.7 million as of December 31, 2020.

There were six loans repurchased for the year ended December 31, 2021 with a total unpaid principal balance of $ 1.3 million, as compared to one loan repurchased for the year ended December 31, 2020 with an unpaid principal balance of $ 153 thousand.

(18) Recent Litigation

In the ordinary course of business, the Corporation and its subsidiaries are routinely defendants in or parties to pending and threatened legal actions and proceedings, including actions brought on behalf of various classes of claimants.

These actions and proceedings are generally based on alleged violations of banking, employment, contract and other laws.

In some of these actions and proceedings, claims for substantial monetary damages are asserted against the Corporation and its subsidiaries.

In the ordinary course of business, the Corporation and its subsidiaries are also subject to regulatory and governmental examinations, information gathering requests, inquiries, investigations, and threatened legal actions and proceedings.

In connection with formal and informal inquiries by federal, state, and local agencies, the Corporation and its subsidiaries receive numerous requests, subpoenas and orders for documents, testimony and information in connection with various aspects of their activities.

There was 2 indemnifications signed for the year ended December 31, 2022 for $ 734 thousand, and 1 indemnification signed for the year ended December 31, 2021 for $ 109 thousand.

A repurchase reserve of $ 858 thousand was recorded at December 31, 2022, as compared to $ 3.2 million as of December 31, 2021.

There were 8 loans repurchased for the year

ended December 31, 2022 with a total unpaid principal balance of $ 1.8 million, as compared to six loans repurchased for the year ended December 31, 2021 with an unpaid principal balance of $ 1.3 million.

(17) Regulatory Matters

7 unchanged sentences

In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion.

Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single "Community Bank Leverage Ratio"

(“CBLR”) of between 8 and 10%.

Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single CBLR of between 8 and 10%.

Under the final rule, a community banking organization is eligible to elect the new framework if it has:

less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic.

During the first quarter of 2020, the Bank adopted the community bank leverage ratio framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.

less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.

The Bank’s CBLR ratio wa s 9.95% at December 31, 2022 .

As of December 31, 2022, the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

2 unchanged sentences

The Pennsylvania Banking Code provides that cash dividends may be declared and paid only out of accumulated net earnings.

The Corporation’s and the Banks’s actual and required capital amounts and ratios under the CBLR rules at December 31, 2021 and the Basel III rules at December 31, 2020 are presented below.

The Corporation’s and the Banks’s actual and required capital amounts and ratios under the CBLR rules at December 31, 2022 and 2021 are presented below.

Corporation Bank Well-capitalized minimum

2022 December 31,

To Be Well Capitalized

Under CBLR Framework

(dollars in thousands)

Tier 1 capital (to average assets)

2021 December 31,

To Be Well Capitalized

Under CBLR Framework

(dollars in thousands)

Tier 1 capital (to average assets)

2022 December 31,

Tier 1 leverage ratio 8.13 % 9.39 % 9.95 % 11.51 % 5.00 %

Common tier 1 risk-based capital ratio 8.77 % 10.83 % 10.73 % 13.27 % 6.50 %

Tier 1 risk-based capital ratio 8.77 % 10.83 % 10.73 % 13.27 % 8.00 %

Total risk-based capital ratio 12.05 % 14.81 % 11.87 % 14.63 % 10.00 %

(18) Fair Value Measurements and Disclosures

18 unchanged sentences

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.

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

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

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 :

December 31, 2022

(dollars in thousands)

(dollars in thousands) Total Level 1 Level 2 Level 3

Securities available for sale:

asset backed securities $ 15,281 $ — $ 15,281 $ —

government agency mortgage-backed securities

government agency collateralized mortgage obligations

government agency MBS 11,739 — 11,739 —

government agency CMO 23,318 — 23,318 —

State and municipal securities 38,838 — 38,838 —

government agency collateralized mortgage obligations

Treasuries 29,523 29,523 — —

government agency CMO 9,089 — 9,089 —

Corporate bonds 7,558 — 7,558 —

5 unchanged sentences

Customer derivatives - interest rate swaps 3,846 — 3,846 —

Total $ 178,110 $ 29,523 $ 148,500 $ 87

Interest rate lock commitments $ 79 $ — $ — $ 79

Forward commitments

Customer derivatives - interest rate swaps 3,799 — 3,799 —

December 31, 2022

(dollars in thousands)

(dollars in thousands) Total Level 1 Level 2 Level 3

Risk Participation Agreements 17 — 17 —

Total $ 3,895 $ — $ 3,816 $ 79

December 31, 2021

(dollars in thousands) Total Level 1 Level 2 Level 3

Securities available for sale:

asset backed securities $ 16,837 $ — $ 16,837 $ —

government agency mortgage-backed securities

government agency collateralized mortgage obligations

government agency MBS 9,813 — 9,813 —

government agency CMO 22,381 — 22,381 —

State and municipal securities 72,982 — 72,982 —

Treasuries 29,728 29,728 — —

government agency CMO 975 — 975 —

Corporate bonds 6,586 — 6,586 —

5 unchanged sentences

Customer derivatives - interest rate swaps 961 — 961 —

Total $ 262,244 $ 29,728 $ 231,394 $ 1,122

Interest rate lock commitments $ 203 $ — $ — $ 203

1 unchanged sentence

Customer derivatives - interest rate swaps 1,018 — 1,018 —

Assets measured at fair value on a nonrecurring basis, the fair value measurements by level within the fair value hierarchy used at December 31, 2021 and 2020 are as follows:

December 31, 2021

Total $ 1,327 $ — $ 1,124 $ 203

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

(dollars in thousands) December 31,

2022 December 31,

(dollars in thousands)

Mortgage servicing rights $ 9,942 $ 10,756

3 unchanged sentences

Small business loans 2,281 290

Home equity lines and loans

Residential mortgage

Total $ 14,627 $ 14,892

(1) Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral.

1 unchanged sentence

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

(dollars in thousands)

Valuation Technique

Range of Inputs

December 31, 2021

Appraisal of collateral

Management adjustments on appraisals for property type and recent activity

2 - 15 % discount

December 31, 2020

Appraisal of collateral

Management adjustments on appraisals for property type and recent activity

2 - 15 % discount

(dollars in thousands) Fair Value Valuation Technique Significant Unobservable Input Range of Inputs

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 collateral Management adjustments on appraisals for property type and recent activity 2 %- 15 % discount

Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Corporation’s balance sheet.

The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities.

Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful.

Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those

of other companies may not be meaningful.

The following methods and assumptions were used to estimate the fair value of the Corporation’s financial instruments:

(a) Cash and Cash Equivalents

Cash and Cash Equivalents

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

(b) Securities

The fair value of securities are determined by quoted market prices, if available (Level 1).

For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Treasuries includes in the available for sale portfolio are the only securities considered Level 1, while all other securities are considered Level 2.

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

(d) Loans Receivable

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.

2 unchanged sentences

The fair value below is reflective of an exit price.

(e) Mortgage Loans Held-for-Investment

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

(f) Loan Servicing Rights

The Corporation estimates the fair value of mortgage servicing rights and SBA servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income.

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.

1 unchanged sentence

The Corporation reviews the servicing rights portfolios on a quarterly basis for impairment.

(g) Impaired Loans

Impaired Loans

Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral.

3 unchanged sentences

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

(h) Restricted Investment in Bank Stock

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

(i) Accrued Interest Receivable and Payable

Accrued Interest Receivable and Payable

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

(j) Deposit Liabilities

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.

(k) Short-Term Borrowings

Short-Term Borrowings

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

(l) Long-Term Debt

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.

(m) Subordinated Debt

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.

(n) Off-Balance Sheet Financial Instruments

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.

2 unchanged sentences

Fair values assigned to the notional value of interest rate lock commitments and forward sale contracts are based on market quotes.

(o) Derivative Financial Instruments

Derivative Financial Instruments

The fair value of forward commitments and interest rate swaps is based on market pricing and therefore are considered Level 2.

2 unchanged sentences

A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.

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

December 31, 2021

December 31, 2020

(dollars in thousands)

Hierarchy Level

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

December 31, 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

Securities available-for-sale (1)

Securities held-to-maturity

Equity investments

Mortgage loans held for sale

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

Mortgage loans held for investment

Interest rate lock commitments

Forward commitments

Restricted investment in bank stock

Accrued interest receivable

Customer derivatives - interest rate swaps

Cash and cash equivalents Level 1 $ 38,391 $ 38,391 $ 23,480 $ 23,480

Mortgage loans held for sale Level 2 22,243 22,243 80,882 80,882

Loans receivable, net of the allowance for loan and lease losses Level 3 1,729,180 1,679,955 1,368,899 1,370,885

Mortgage loans held for investment Level 2 14,502 14,502 17,558 17,558

Financial liabilities:

Short-term borrowings

Long-term debt

Subordinated debentures

Accrued interest payable

Interest rate lock commitments

Forward commitments

Customer derivatives - interest rate swaps

Off-balance sheet financial instruments:

Commitments to extend credit

Letters of credit

Treasuries within securities available-for-sale are classified as Level 1.

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

Year Ended December 31,

Deposits Level 2 1,712,479 1,575,600 1,446,413 1,549,100

Short-term borrowings Level 2 122,082 122,082 41,344 41,344

Subordinated debentures Level 2 40,346 40,020 40,508 40,803

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.

(dollars in thousands) 2022 2021

Balance at beginning of the period $ 1,122 $ 6,932

(Decrease) increase in value

Decrease in value ( 1,035 ) ( 5,810 )

Balance at end of the period $ 87 $ 1,122

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

(dollars in thousands)

Valuation Technique

December 31, 2021

Market comparable pricing

December 31, 2020

Market comparable pricing

Net realized losses of $ 5.9 million and gains of $ 6.5 million due to changes in the fair value of interest rate lock commitments which are classified as Level 3 assets and liabilities for the twelve months ended December 31, 2021 and 2020, respectively, are recorded in non-interest income as net change in the fair value of derivative instruments in the Corporation’s consolidated statements of income.

(dollars in thousands) Fair Value Valuation Technique Significant Unobservable Input Range of Inputs Weighted Average

December 31, 2022 $ 87 Market comparable pricing Pull through 1 % - 99 %

December 31, 2021 1,122 Market comparable pricing Pull through 1 % - 99 %

(19) Derivative Financial Instruments

14 unchanged sentences

The Corporation executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies.

Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Corporation executes with a third party, such that the Corporation minimizes its net interest rate risk exposure resulting from such transactions.

Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Corporation executes with a third party, such that the Corporation minimizes its net interest rate risk

exposure resulting from such transactions.

As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

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

December 31, 2021

December 31, 2020

(dollars in thousands)

Balance Sheet Line Item

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

December 31, 2022 December 31, 2021

(dollars in thousands) Balance Sheet Line Item Notional

Fair Value Notional

Interest Rate Lock Commitments

Positive fair values

Negative fair values

Other liabilities

Positive fair values Other assets $ 16,590 $ 87 $ 108,653 $ 1,122

Negative fair values Other liabilities 16,108 ( 79 ) 35,264 ( 203 )

Total $ 32,698 $ 8 $ 143,917 $ 919

Forward Commitments

Positive fair values

Negative fair values

Other liabilities

Positive fair values Other assets $ — $ — $ 30,500 $ 65

Negative fair values Other liabilities — — 45,500 ( 106 )

Total $ — $ — $ 76,000 $ ( 41 )

Customer Derivatives - Interest Rate Swaps

Positive fair values

Negative fair values

Other liabilities

Positive fair values Other assets $ 43,779 $ 3,846 $ 35,447 $ 961

Negative fair values Other liabilities 43,779 ( 3,799 ) 35,447 ( 1,018 )

Total $ 87,558 $ 47 $ 70,894 $ ( 57 )

Risk Participation Agreements

Positive fair values Other assets $ — $ — $ — $ —

Negative fair values Other liabilities 7,200 ( 17 ) — —

Total $ 7,200 $ ( 17 ) $ — $ —

Total derivative financial instruments $ 127,456 $ 38 $ 290,811 $ 821

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

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

Year Ended December 31,

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

(dollars in thousands) 2022 2021

2 unchanged sentences

Customer Derivatives - Interest Rate Swaps 105 44

Risk Participation Agreements 62 —

Net fair value (losses) gains on derivative financial instruments $ ( 703 ) $ ( 4,338 )

Net realized gains on derivative hedging activities were $ 3.0 million and net realized losses were $ 9.4 million for the year ended December 31, 2021 and 2020, respectively, and are included in non-interest income in the consolidated statements of income.

Net realized gains on derivative hedging activities were $ 5.4 million and net realized gains were $ 3.0 million for the year ended December 31, 2022 and 2021, respectively, and are included in non-interest income in the consolidated statements of income.

(20) Segments

3 unchanged sentences

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.

The Banking segment also derives revenues from other sources including gains on the sale of SBA loans, sales 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 one central loan production facility and several retail and profit sharing loan production offices located throughout suburban Philadelphia and Maryland.

Meridian’s mortgage banking segment (“Mortgage”) consists of 12 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.

3 unchanged sentences

Total assets for each segment is also provided.

Segment Information

Year Ended December 31, 2022

Year Ended December 31, 2021

(Dollars in thousands)

(dollars in thousands) Bank Wealth Mortgage Total Bank Wealth Mortgage Total

Net interest income $ 68,570 $ 697 $ 861 $ 70,128 $ 61,032 $ 15 $ 2,064 $ 63,111

4 unchanged sentences

Wealth management income — 4,733 — 4,733 — 4,801 — 4,801

SBA loan income

SBA income 4,467 — — 4,467 6,898 — — 6,898

Net change in fair values 167 — ( 4,122 ) ( 3,955 ) 43 — ( 7,881 ) ( 7,838 )

Net gain (loss) on hedging activity

Net gain on hedging activity — — 5,439 5,439 — — 2,961 2,961

Other 2,486 ( 1 ) 3,230 5,715 2,741 1 2,492 5,234

Non-interest income 7,556 4,732 29,436 41,724 10,779 — 4,802 72,407 87,988

Non-interest expense 45,122 3,399 32,923 81,444 40,392 3,496 59,839 103,727

Income before income taxes

(23) Recent Accounting Pronouncements

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), the Bank is permitted an extended transition period for complying with new or revised accounting standards affecting public companies.

We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1,070,000,000 or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of our initial public offering (December 31, 2022), (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the fiscal year in which the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year.

We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act.

If we do so, we will prominently disclose this decision in the first periodic report following our decision, and such decision is irrevocable.

As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities.

Adopted Pronouncements in 2021:

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

Issued in August 2018, ASU 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract.

If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment.

The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021.

Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption.

The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2019-12, “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification.

The guidance is effective for annual periods beginning after December 15, 2020.

Early adoption is permitted.

The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

Pronouncements Not Effective as of December 31, 2021:

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

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets.

This ASU requires businesses and other organizations to measure the current expected credit losses (“CECL”) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables.

The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income.

Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred.

Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU.

A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date.

In October 2019, the FASB approved a delay for the implementation of the ASU.

Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023.

The Corporation is currently determining under which method we will adopt this ASU.

The Corporation has assembled a cross-functional team from Finance, Credit, and IT that is leading the implementation efforts to evaluate the impact of this guidance on the Corporation's consolidated financial statements and related disclosures, internal systems, accounting policies, processes and related internal controls.

At this time the Corporation cannot yet estimate the impact to the consolidated financial statements.

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

cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured.

Management will consider the impact of ASU 2019-04 when considering the impact of ASU 2016-13 as discussed above.

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

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting.

Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use (ROU) asset for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The new standard became effective for us on January 1, 2022.

A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application.

Management has elected to use the effective date as its date of initial application.

Consequently, financial information will not be updated, and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2022.

The Corporation has implemented a third party lease accounting system to assist with the measurement of lease liabilities and related right-of-use assets, the post-implementation administration aspect of lease accounting, and the preparation of applicable disclosures related to the new guidance.

The new standard provided a number of optional practical expedients in transition.

We have elected the ‘package of practical expedients’, which permitted us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs.

This standard will have a material effect on our Consolidated Balance Sheet and related disclosures but is not expected to have a material impact on our Consolidated Statement of Income.

Any additional assets recorded as a result of adoption is expected to have a negative impact on the Corporation and Bank capital ratios under current regulatory guidance.

On adoption, we recorded approximately $ 10.6 million of operating lease liabilities and $ 10.8 million of related right-of-use assets at January 1, 2022.

The new standard also provides practical expedients for an entity’s ongoing accounting.

We have elected the short-term lease recognition exemption for all leases that qualify.

This means, for those leases that qualify, we will not recognize ROU assets or lease liabilities, and this includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition.

We also have elected the practical expedient to not separate lease and non-lease components for all of our leases.

FASB ASU 2020-04 (Topic 848), “Reference Rate Reform (“ASC 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

Issued in March 2020, ASU 2020-04 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The Corporation does not have a significant concentration of loans, derivative contracts, borrowings or other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.

The guidance under ASC-848 will be available for a limited time, generally through December 31, 2022.

The Corporation expects to adopt the LIBOR transition relief allowed under this standard.

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

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ”

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity.

The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible

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.

Income (loss) before income taxes $ 28,516 $ 2,030 $ ( 2,626 ) $ 27,920 $ 30,349 — $ 1,321 $ 14,632 $ 46,302

Total Assets $ 2,011,835 $ 8,142 $ 42,251 $ 2,062,228 $ 1,608,305 $ 6,355 $ 98,783 $ 1,713,443

(21) Parent Company Financial Statements

1 unchanged sentence

These statements should be read in conjunction with the notes to the consolidated financial statements.

All share amounts have been adjusted to reflect the two-for-one stock split effective February 28, 2023.

Condensed Balance Sheets

(dollars in thousands, except per share data)

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

2022 December 31,

Cash and due from banks $ 4,839 $ 2,836

Investments in subsidiaries 186,686 200,410

Other assets 1,382 1,382

Total assets $ 192,907 $ 204,628

Subordinated debentures $ 39,175 $ 39,057

4 unchanged sentences

Common stock, $ 1 par value:

Authorized 25,000,000 shares;

issued 6,534,587 and 6,455,566 as of December 31, 2021 and December 31, 2020

Treasury Stock- 426,693 and 320,000 shares at December 31, 2021 and December 31, 2020, respectively

25,000,000 shares authorized;

13,156,308 and 13,069,174 shares issued, respectively;

and 11,465,572 and 12,215,788 shares outstanding, respectively.

Surplus 79,072 83,663

Treasury Stock - 1,690,736 and 853,386 shares, respectively, at cost

( 21,821 ) ( 8,860 )

Unearned common stock held by employee stock ownership plan ( 1,403 ) ( 1,602 )

4 unchanged sentences

Condensed Statements of Income

(dollars in thousands, except per share data)

(dollars in thousands) 2022 2021

Dividends from Bank $ 27,813 $ 17,187

Non-interest and other income

Interest income 8 —

Total operating income 27,821 17,187

4 unchanged sentences

Income before income taxes 21,057 35,585

Income tax expense

Income tax benefit ( 772 ) —

Net income 21,829 35,585

Total other comprehensive (loss) income ( 12,247 ) ( 1,848 )

2 unchanged sentences

(dollars in thousands) 2022 2021

Cash flows from operating activities:

Net Income $ 21,829 $ 35,585

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

2 unchanged sentences

Amortization of issuance costs on subordinated debt 118 153

(Decrease) in accrued interest payable

Other, net ( 1,369 ) ( 740 )

(dollars in thousands) 2022 2021

Net cash provided by operating activities 25,137 14,229

Cash flows from financing activities:

Issuance cost on subordinated debt

Net purchase of treasury stock ( 12,961 ) ( 3,032 )

Dividends paid ( 10,926 ) ( 9,679 )

Purchase of common shares for ESOP

Share based awards and exercises 754 1,105

3 unchanged sentences

Cash and cash equivalents at end of period $ 4,840 $ 2,836

(25) Subsequent Events

Special Dividend

On January 27, 2022, the Corporation’s Board of Directors declared a special dividend of $ 1.00 per share on its Common Stock, payable on February 21, 2022 to shareholders of record as of February 14, 2022.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data