What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-15 compared with 2023-03-16 · 518 added, 332 removed, 1329 unchanged (39% of the section changed)

18 unchanged sentences

(2013) issued by COSO.

Change in Accounting Principle

As discussed in Notes 1, 5, and 6 of the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board (FASB) Accounting Standards Codification No.

326, Financial Instruments - Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

The adoption of the new credit loss standard and its subsequent application is also related to the critical audit matter communicated below.

Basis for Opinions

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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.

Allowance for Credit Losses

In accordance with Accounting Standards Update (the “ASU”) 2016-13, Financial Instruments —Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , the Company adopted Accounting Standards Codification (“ASC”) 326 as of January 1, 2023 as described in Notes 1, 5, and 6 of the consolidated financial statements and the explanatory paragraph above.

The Company has identified the ACL as a critical accounting estimate.

The ACL includes quantitative and qualitative factors that comprise management's current estimate of expected credit losses, including portfolio mix and segmentation, modeling methodology, historical loss experience, relevant available information from internal and external sources relating to reasonable and supportable forecasts about future economic conditions, prepayment speeds, and qualitative adjustment factors.

The Company disclosed the impact of adoption of this standard on January 1, 2023 with a $2.9 million increase to the allowance for credit losses and a $2.2 million decrease to retained earnings for the cumulative effect adjustment recorded upon adoption.

As of December 31, 2023, the allowance for credit losses attributable to loans held for investment is $22.1 million.

We determined that auditing the allowance for credit losses on loans was a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the initial adoption and subsequent application processes, including segmentation, the reasonable and supportable forecasts about future economic conditions, the quantitative factors, and the qualitative adjustments factors.

In addition, we used individuals with specialized skill or knowledge to assist us in auditing the judgments made by management.

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.

Testing the effectiveness of the following controls:

• Management’s initial selection of the model, including modeling methodology, historical loss experience, reasonable and supportable forecasts about future economic conditions, qualitative adjustment factors, and the model validation performed over these selections.

• 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 quantitative factors and the qualitative adjustment factors.

• Management’s review of the accuracy of the calculation of the quantitative factors and the qualitative adjustment factors.

• Management’s review of the reasonableness of the judgments applied in the quantitative factors and the qualitative adjustment factors.

Substantively testing management’s process to determine the allowance for credit losses, including:

• Evaluating the appropriateness of the Company’s methodology applied to the adoption of ASC 326.

• Testing the relevance and reliability of the external data utilized and the completeness and accuracy of internally produced data utilized in the determination of the quantitative factors and the qualitative adjustment factors.

• Testing the mathematical accuracy of the calculation of the quantitative factors and qualitative adjustment factors.

• Evaluating the reasonableness of management’s judgments used in the determination of the quantitative factors and the qualitative adjustment factors.

• Utilizing internal specialists to evaluate the appropriateness of valuation methodologies and testing significant judgments used in the model.

/s/ Crowe LLP

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Securities held-to-maturity, at amortized cost (fair value of $ 32,730 and $ 33,085 , respectively)

Equity investments 2,086 2,354

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

35,781 37,479

Equity investments 2,121 2,086

Mortgage loans held for sale 24,816 22,243

Loans and other finance receivables, net of fees and costs 1,895,806 1,743,682

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

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

Allowance for credit losses ( 22,107 ) ( 18,828 )

Loans and other finance receivables, net of the allowance for credit losses 1,873,699 1,724,854

Restricted investment in bank stock 8,072 6,931

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and 11,183,015 and 11,465,572 shares outstanding, respectively.

13,186 13,156

Surplus 80,325 79,072

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Retained earnings 101,216 95,815

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

Accumulated other comprehensive loss ( 9,422 ) ( 11,539 )

Total stockholders’ equity 158,022 153,280

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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

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Net interest income 68,942 70,128

Provision for loan losses 2,488 1,070

Net interest income after provision for loan losses 67,640 62,041

Provision for credit losses 6,815 2,488

Net interest income after provision for credit losses 62,127 67,640

Non-interest income:

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Net gain on hedging activity 28 5,439

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

Service charges 125 129

Net loss on sale of investment securities available-for-sale ( 58 ) —

Other 5,001 5,162

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Data processing and software 6,415 5,451

Pennsylvania bank shares tax 793 609

FDIC premiums 2,929 1,247

Other 7,520 7,560

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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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$ 13,243 $ 21,829

Other comprehensive loss:

Other comprehensive income (loss):

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

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2,529 ( 12,247 )

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

Net change in unrealized gains (losses) on interest rate swaps used in cash flow hedges, net of tax effect of $ 22 and $ 0 , respectively

Total other comprehensive income (loss) 2,117 ( 12,247 )

Total comprehensive income $ 15,360 $ 9,582

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

Adjustment to initially apply ASU No.

2016-13 for CECL (1), net of tax — — — — ( 2,228 ) — ( 2,228 )

Net income — — — — 13,243 — 13,243

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

Dividends paid or accrued, $ 0.90 per share

Other Comprehensive income — — — — — 2,117 2,117

Dividends declared, $ 0.50 per share

— — — — ( 5,614 ) — ( 5,614 )

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Stock based compensation expense — 650 — — — — 650

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

Balance at December 31, 2023 $ 13,186 $ 80,325 $ ( 26,079 ) $ ( 1,204 ) $ 101,216 $ ( 9,422 ) $ 158,022

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

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

Gain on sale of investment securities — ( 435 )

Loss on sale of investment securities 58 —

Net amortization of investment premiums and discounts and change in fair value of equity securities 2,429 1,202

Depreciation and amortization (accretion), net 432 ( 1,406 )

Provision for loan losses 2,488 1,070

Provision for credit losses 6,815 2,488

Amortization of issuance costs on subordinated debt 87 117

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Mortgage banking income ( 16,537 ) ( 25,325 )

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

Increase in accrued interest receivable ( 1,962 ) ( 2,354 )

Increase in other assets ( 2,021 ) ( 823 )

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

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

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

Earnings from investment in bank owned life insurance ( 789 ) ( 553 )

(Increase) decrease in deferred income tax ( 234 ) 1,112

Increase in accrued interest payable 7,935 2,358

Decrease in other liabilities ( 1,278 ) ( 1,623 )

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Purchases — ( 5,500 )

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

Increase in restricted stock ( 1,141 ) ( 1,814 )

Net increase in loans ( 152,576 ) ( 359,460 )

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Net cash used in investing activities $ ( 164,185 ) $ ( 393,148 )

Cash flows provided by (used in) financing activities:

Cash flows provided by financing activities:

Net increase in deposits 110,983 266,066

Decrease in short-term borrowings — ( 44,939 )

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

Increase in short-term borrowings 28,077 71,803

Increase in long-term debt 24,737 8,935

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

Repayment of subordinated debt ( 328 ) ( 279 )

Proceeds from issuance of subordinated debt 9,740 —

Issuance costs on subordinated debt ( 9 ) —

Net purchase of treasury stock ( 4,258 ) ( 12,961 )

1 unchanged sentence

Share based awards and exercises 309 754

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

Net cash provided by financing activities $ 163,637 $ 323,388

Net change in cash and cash equivalents 18,306 14,911

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Transfers from loans held for sale to loans held for investment 351 3,147

Transfers from loans held for investment to loans held for sale 21,800 —

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

Transfer of securities from AFS to HTM — 23,655

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

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

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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.

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

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

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Securities available-for-sale are carried at fair value.

Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movement in interest rates, changes in maturity mix of the Corporation’s assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors.

Unrealized gains and losses are reported as increases or decreases in other comprehensive income.

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At December 31, 2023 and 2022, investments in equity securities consisted of an investment in mutual funds with a fair value of $ 2.1 million, and $ 2.1 million, respectively.

The Corporation’s accounting policy specifies that (a) if the Corporation does not have the intent to sell a debt security prior to recovery and (b) it is more likely than not that it will not have to sell the debt security prior to recovery, the security would not be considered other-than-temporarily impaired, unless there is a credit loss.

When the Corporation does not intend to sell the security, and it is more likely than not, the Corporation will not have to sell the security before recovery of its cost basis, it will recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the remaining portion in other comprehensive income.

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

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

We follow Accounting Standards Codification (ASC) 326-20, Financial Instruments - Credit Loss - Measured at Amortized Cost, to measure expected credit losses on held-to-maturity debt securities on a collective basis by security investment grade.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

The Corporation classifies the held-to-maturity debt securities into the following major security types:

state and municipal securities.

These securities are highly rated with a history of no credit losses, and are assigned ratings based on the most recent data from ratings agencies depending on the availability of data for the security.

Credit ratings of held-to-maturity debt securities, which are a significant input in calculating the expected credit loss, are reviewed on a quarterly basis.

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

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

We follow ASC 326-30, Financial Instruments - Credit Loss - Available-for-Sale Debt Securities, which provides guidance related to the recognition of and expanded disclosure requirements for expected credit losses on available-for-sale debt securities.

For available-for-sale debt securities in an unrealized loss position, the Corporation first evaluates whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

If either criteria is met, the security's amortized cost basis is reduced to fair value and recognized as a reduction to Noninterest income in the Consolidated Statements of Income.

For debt securities available-for-sale which the Corporation does not intend to sell, or it is not likely the security would be required to be sold before recovery, we evaluate whether a decline in fair value has resulted from credit losses or other adverse factors, such as a change in the security's credit rating.

In assessing whether a credit loss exists, the Corporation compares the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance is recorded, limited to the fair value of the security.

Management performs this analysis on a quarterly basis to review the conditions and risks associated with the individual securities.

Credit losses on an impaired security shall continue to be measured using the present value of expected future cash flows.

Any impairment not recorded through an allowance for credit loss is included in other comprehensive income (loss), net of the tax effect.

We are required to use our judgment in determining impairment in certain circumstances.

For additional detail regarding debt securities, see Note 4.

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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Loans that were originated by the Corporation and intended for sale in the secondary market to permanent investors, but were either repurchased or unsalable due to defect, are held for the foreseeable future or until maturity or payoff, are carried at fair value.

The accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing.

A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured.

When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and charged against current year income.

Interest received on nonaccrual loans generally is either applied against principal or reported as interest income, according to management’s judgment as to the collectability of principal.

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.

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 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.

Management’s periodic evaluation of the adequacy of the Allowance is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.

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

In addition, Federal regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s Allowance and may require the Corporation to recognize additions to the Allowance based on their judgments about information available to them at the time of their examination, which may not be currently available to management.

The Allowance consists of general and specific components.

The general component covers non-classified loans, as well as, non-impaired classified loans and is based on historical loss experience adjusted for qualitative factors.

The specific component relates to loans that are classified as doubtful, substandard, and are on non-accrual and have been deemed impaired.

Loan classifications are determined based on various assessments such as the borrower’s overall financial condition, payment history, repayment sources, guarantors and value of collateral.

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 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 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.

After consideration of the historic loss calculations, management applies qualitative adjustments so that the Allowance is reflective of the inherent losses that exist in the loan portfolio at the balance sheet date.

Qualitative adjustments are made based upon changes in lending policies and practices, economic conditions, changes in the loan portfolio, changes in lending management, results of internal loan reviews, asset quality trends, collateral values, concentrations of credit risk and other external factors.

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

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 TDR.

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

Loans that experience insignificant payment delays and payment shortfalls

generally are not classified as impaired.

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

For commercial and construction loans, impairment is measured on a loan by loan basis by either the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral adjusted for cost to sell, if the loan is collateral dependent.

Large groups of smaller balance homogeneous residential mortgage and consumer loans are collectively evaluated for impairment.

Accordingly, the Corporation does not separately identify individual loans of this nature for impairment disclosures, unless such loans become impaired or are troubled and the subject of a restructuring agreement.

Loans whose terms are modified are classified as TDRs if the Corporation grants such borrowers concessions and it is deemed that those borrowers are experiencing financial difficulty.

Concessions granted under a TDR generally involve a temporary reduction in interest rate or an extension of a loan’s stated maturity date.

TDRs are considered impaired loans.

No portion of the Allowance is restricted to any individual loan or groups of loans, and the entire Allowance is available to absorb any and all loan and lease losses.

The Corporation has identified the following portfolio segments with similar risk characteristics for measuring credit losses:

Past Due and Nonaccrual Loans

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

Nonaccruing loans and leases are those on which the accrual of interest has ceased.

Loans are placed on nonaccrual status immediately if, in the opinion of management, collection is doubtful, or when principal or interest is past due 90 days or more and the loan is not well secured and in the process of collection.

Interest accrued but not collected at the date a loan is placed on nonaccrual status is reversed and charged against interest income.

A loan that is not past due more than 90 days could be classified as nonaccrual if management comes to the conclusion that we will not be in a position to collect all principal and interest.

In addition, the amortization of net deferred loan fees is suspended when a loan is placed on nonaccrual status.

Subsequent cash receipts are applied either to the outstanding principal balance or recorded as interest income, depending on management’s assessment of the ultimate collectability of principal and interest.

Loans are returned to accrual status when it is determined that the borrower has the ability to make all principal and interest payments in accordance with the terms of the loan (i.e.

a consistent repayment record, generally six consecutive payments, has been demonstrated).

Unless loans are well-secured and collection is imminent, for loans greater than 90 days past due their respective reserves are generally charged off once the loss has been confirmed.

Expected recoveries do not exceed the aggregate of amounts previously charged off and expected to be charged off.

Allowance for Credit Losses - Loans and Leases

On January 1, 2023, the Corporation adopted ASU 2016-13, Financial Instruments-Credit Losses ("Topic 326"), which replaced the incurred loss impairment model with an expected loss methodology that is referred to as the CECL methodology.

Prior to January 1, 2023, the Corporation calculated the Allowance based on a probable incurred credit loss model.

The Corporation now establishes an ACL in accordance with Topic 326.

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

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

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

Commercial mortgage – Our commercial real estate loans are secured by real estate that is both owner-occupied and investor owned.

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Commercial real estate is also subject to adverse market conditions that cause a decrease in market value or lease rates, obsolescence in location or function and market conditions associated with oversupply of units in a specific region.

Residential mortgage – Residential loans held in portfolio are primarily secured by single-family homes located in our market areas.

Residential loans are generally made on the basis of the borrower’s ability to make repayment from employment income or other income, and are secured by real property whose value tends to be more easily ascertainable.

Repayment of single-family loans are subject to adverse employment conditions in the local economy leading to increased default rates and decreased market values, including from oversupply in a geographic area.

In general, these loans depend on the borrower’s continuing financial stability and, therefore, are likely to be adversely affected by various factors, including job loss, divorce, illness, or personal bankruptcy.

Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Construction – Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.

Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction.

During the construction phase, a number of factors could result in delays and cost overruns.

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

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

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

Construction – Construction financing is generally considered to involve a higher degree of risk of loss than long-term financing on improved, occupied real estate.

Risk of loss on a construction loan depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction.

During the construction phase, a number of factors could result in delays and cost overruns.

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

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.

Residential mortgage – Residential loans held in portfolio are primarily secured by single-family homes located in our market areas.

Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount that can be recovered on such loans.

Consumer, including home equity – Our consumer-lending department principally originates home equity based products for our clients and prospects.

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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

Expected credit losses are estimated over the contractual term, adjusted for expected prepayments and recoveries.

The contractual term excludes any extensions, renewals and modifications unless the Corporation has reasonable expectations at the reporting date

that it will result in a modification, or they are not unconditionally cancellable.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The allowance includes two primary components:

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

Loans that share similar risk characteristics are collectively reviewed for credit loss and are evaluated based on the Corporation’s historical loss experience and peer loss rate data, adjusted for current economic conditions and future economic forecasts.

Estimated losses are determined differently for commercial and consumer loans, and each portfolio segment is further segmented by internally assessed risk ratings.

Management uses a third-party economic forecast to modify the calculated historical loss rates of the portfolio segments.

The Corporation's economic forecast extends out 4 quarters (the forecast period) and reverts to the historical loss rates on a straight-line basis over 1 quarter (the reversion period) as we believe this to be reasonable and supportable in the current environment.

The economic forecast and reversion periods will be evaluated periodically by management and updated as appropriate.

The historical loss rates for commercial loans are estimated by determining the PD and expected LGD.

The PD is calculated based on the historical rate of migration to an event of credit loss during the look-back period.

The historical loss rates for retail loans is calculated based solely on average net loss rates over the same look-back period.

The Corporation's current look-back period is 36 quarters which helps to ensure that historical loss rates are adequately considering losses over a full economic cycle.

Loans that do not share similar risk characteristics with any loan segments are evaluated on an individual basis.

These loans, which may include borrowers experiencing financial difficulties, are not included in the collective basis evaluation.

When it is probable that collection of all principal and interest due according to their contractual terms is not likely, which is assessed based on the credit characteristics of the loan and/or payment status, these loans are individually reviewed and measured for potential credit loss.

The amount of the potential credit loss is measured using one of three methods:

(i) the present value of expected future cash flows discounted at the loan’s effective interest rate;

(ii) the fair value of collateral, if the loan is collateral dependent;

or (iii) the loan’s observable market price.

If the measured fair value of the loan is less than the amortized cost basis of the loan, an allowance for credit loss is recorded.

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

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

• Current underwriting policies, staff and portfolio concentrations,

• Risk rating accuracy, credit and administration,

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

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

These factors are based on their relative standing compared to the period in which historical losses are used in quantitative reserve estimates and current directional trends, and reasonable and supportable forecasts.

Qualitative factors in the model can add to or subtract from quantitative reserves.

Loan officers and risk managers meet at least quarterly to discuss and review the conditions and risks associated with individual problem loans.

In addition, various regulatory agencies periodically review our loan ratings and allowance for credit losses and the Bank’s internal loan review department performs loan reviews.

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

For additional detail regarding the allowance for credit losses and the provision for credit losses, see Note 6.

Mortgage Banking Activities and Mortgage Loans Held for Sale

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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 days to 120 days.

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.

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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.

The Corporation had one property of $ 1.7 million in OREO at December 31, 2023 and December 31, 2022.

Restricted Investment in Bank Stock

42 unchanged sentences

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 $ 1.0 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 Corporation recorded expense for the Plan and ESOP of $ 1.0 million and $ 858 thousand, respectively for the year ended December 31, 2023 and $ 1.0 million and $ 1.1 million, respectively for the year ended December 31, 2022.

The expense recorded by the Corporation for the ESOP for the year ended December 31, 2023 included a $ 536 thousand employer contribution, in addition to $ 523 thousand in stock compensation related expense.

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.

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 .

During the year ended December 31, 2023, 81,316 shares were purchased by the ESOP, while for the year ended December 31, 2022, 0 shares were purchased by the ESOP.

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.

4 unchanged sentences

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.

7 unchanged sentences

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.

The par value of the Corporation's stock was not affected by the split and remained at $ 1.00 per

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.

6 unchanged sentences

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.

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

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

Comprehensive Income

1 unchanged sentence

Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

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.

The components of other comprehensive income (loss) for the years ended December 31, 2023 and 2022 consist of unrealized holding gains and (losses) arising during the year on available-for-sale securities, unrealized gains and (losses) arising during the year on interest rate swaps used in cash flow hedges.

Off-Balance Sheet Financial Instruments

1 unchanged sentence

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

Unfunded Lending Commitments

For unfunded lending commitments, the Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation.

The estimate includes consideration of the probability of default and utilization rate at default to calculate expected credit losses on commitments expected to be funded over its estimated life of one year, based on historical losses, and qualitative adjustment factors.

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

The allowance for credit losses for off-balance sheet exposures was $ 1.0 million and $ 173 thousand as of December 31, 2023 and December 31, 2022, respectively.

Derivative Financial Instruments

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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.

Cash flow hedges are used to mitigate the variability in the cash flows of borrowings, caused by interest rate fluctuations.

The changes in the fair value of cash flow hedges are initially reported in other comprehensive income.

Amounts are subsequently reclassified from accumulated other comprehensive income to earnings when the hedged transactions occur, specifically within the same line item as the hedged item.

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.

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.

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

6 unchanged sentences

Wealth management income for the years ended December 31, 2023 and 2022 is $ 4.9 million and $ 4.7 million.

Within other non-interest income is $ 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.

Within other non-interest income is $ 750 thousand and $ 1.1 million for the years ended December 31, 2023 and 2022, respectively, which are in the scope of ASC 606.

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

17 unchanged sentences

The Corporation has identified three segments:

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.

a banking segment, a wealth management segment and a mortgage banking segment, as more fully disclosed in Note 20 - Segments.

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.

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 18 - Fair Value Measurements and Disclosures.

Fair value estimates involve uncertainties and matters of significant judgment.

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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:

Pronouncements Adopted in 2023

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.

The Corporation adopted ASU 2016-13, as amended, on January 1, 2023, which replaced the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans, net of fees and costs, securities HTM, unfunded lending commitments (including loan commitments on loans held for investment, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842.

In addition, ASC 326 made changes to the accounting for securities AFS which now requires credit losses to be presented as an allowance rather than as an other-than-temporary impairment on securities AFS management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Corporation applied the modified retrospective method for all financial assets measured at amortized cost and securities AFS.

Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Corporation recorded a one-time decrease to retained earnings of $ 2.2 million on January 1, 2023 for the cumulative effect of adopting ASC 326, net of tax.

The transition adjustment includes $ 1.2 million and $ 974 thousand post-tax impacts for loans, net of fees and costs and unfunded loan commitments, respectively, due to higher expected credit losses compared to the incurred loss methodology primarily driven by small ticket equipment leases and longer duration commercial and consumer real estate loans.

The impact of the change from the incurred loss model to the current expected credit loss model is detailed below.

January 1, 2023

(dollars in thousands) Pre-adoption Adoption Impact As Reported

ACL on loans and leases:

Commercial mortgage $ 4,095 $ ( 526 ) $ 3,569

Home equity lines and loans 188 439 627

Residential mortgage 948 17 965

Construction 3,075 ( 1,763 ) 1,312

Commercial and industrial 4,012 ( 1,023 ) 2,989

Small business loans 4,909 1,110 6,019

Consumer 3 ( 3 ) —

Leases, net 1,598 3,345 4,943

Total ACL on loans and leases $ 18,828 $ 1,596 $ 20,424

Reserve for unfunded commitments $ 173 $ 1,256 $ 1,429

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

2 unchanged sentences

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.

The Corporation adopted ASU 2019-04 at the same time ASU 2016-13 was adopted.

FASB ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326):

4 unchanged sentences

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.

The Corporation adopted ASU 2022-02 at the same time ASU 2016-13 was adopted, as of January 1, 2023.

The adoption of this ASU resulted in updated disclosures within our financial statements but otherwise did not have a material impact on the Corporation's financial statements.

Pronouncements Not Effective as of December 31, 2023:

FASB ASU 2020-04 (Topic 848), “Reference Rate Reform (“ASC 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting”

Issued in March 2020, ASU 2020-04 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued.

The Corporation does not have a significant concentration of loans, derivative contracts, borrowings or other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.

The Corporation expects to adopt the LIBOR transition relief allowed under this standard.

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

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity.

The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models.

For public business entities that meet the definition of an SEC filer

(excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec.

15, 2021, and interim periods within.

For all other entities, the amendments are effective for fiscal years beginning after Dec.

15, 2023, and interim periods within.

The Corporation does not expect this to have a material impact on our consolidated financial statements.

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

In March 2023, the FASB issued ASU 2023-02, Investments Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method to allow reporting entities to consistently account for equity investments made primarily for the purpose of receiving income tax credits and other income tax benefits.

If certain conditions are met, a reporting entity may elect to account for its tax equity investments by using the proportional amortization method regardless of the program from which it receives income tax credits, instead of only LIHTC structures.

This amendment also eliminates certain LIHTC specific guidance aligning the accounting with other equity investments in tax credit structures.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years.

The Corporation does not expect this to have a material impact on our consolidated financial statements.

FASB ASU 2023-07, “Segment Reporting (Topic 280) Improvements to Reportable Segment Disclosures”

The amendments in this update improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses.

The amendments in this update also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments.

The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

The Corporation is currently evaluating the impact on its results of operation, financial position, liquidity, and disclosures.

FAS ASU 2023-09, “Income Taxes (Topic 740) Improvements to Income Tax Disclosures”

The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information.

This update also includes certain other amendments to improve the effectiveness of income tax disclosures.

The amendments in this update are effective for fiscal years beginning after December 15, 2024 and are to be applied on a prospective basis.

Early adoption is permitted.The Corporation is currently evaluating the impact on its disclosures.

(2) Earnings per Common Share

5 unchanged sentences

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) 2023 2022

29 unchanged sentences

December 31, 2023

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

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

Securities available-for-sale:

7 unchanged sentences

Total securities available-for-sale $ 156,492 $ 491 $ ( 10,964 ) $ — $ 146,019 133

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

Amortized cost Gross unrecognized gains Gross unrecognized losses Allowance for Credit Losses Fair value # of Securities in unrecognized loss position

Securities held-to-maturity:

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Although the Corporation’s investment portfolio overall is in a net unrealized loss position at December 31, 2023, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.

During 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.

ACL on Securities AFS and HTM

We use credit ratings quarterly and the most recent financial information of securities' issuers annually to help evaluate the credit quality of our securities AFS and HTM portfolios on a quarterly basis.

The securities portfolio consists primarily of U.S.

government treasuries and U.S.

government agency asset backed securities which have no probability of default.

The remaining portfolio consists of highly rated municipal bonds, non-agency CMO, and corporate bonds that have a low probability of default.

For the year ended December 31, 2023, we had no significant ACL or provision expense and no charge-offs or recoveries on AFS or HTM securities.

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

36 unchanged sentences

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 )

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, 2022 December 31, 2021

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

December 31, 2023

Available-for-sale Held-to-maturity

(dollars in thousands) Amortized

value Amortized

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

8 unchanged sentences

Proceeds from sale of investment securities $ 13,514 $ —

Gross gain on sale of available for sale investments — 634

Gross loss on sale of available for sale investments 58 —

Pledged Securities

As of December 31, 2023 and December 31, 2022, securities having an amortized cost of $ 60.1 million and $ 89.0 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.

(5) Loans and Other Finance Receivables

19 unchanged sentences

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.

Residential mortgage real estate loans that were originated by the Corporation and intended for sale in the secondary market to permanent investors, but in prior years 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.

13 unchanged sentences

Total $ 5,936 $ — $ 5,936 $ 1,848,749 $ 1,854,685 $ 33,763 $ 1,888,448 2.10 %

(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.

(1) Includes $ 13.7 million of loans at fair value of which $ 12.9 million are current, $ 0 are 30-89 days past due, and $ 786 thousand are nonaccrual.

December 31, 2022

10 unchanged sentences

Total $ 7,827 $ — $ 7,827 $ 1,706,535 $ 1,714,362 $ 21,236 $ 1,735,598 1.67 %

(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.

(1) Includes $ 14.5 million of loans at fair value of which $ 13.8 million are current, $ 184 thousand are 30-89 days past due and $ 558 thousand are nonaccrual.

Foreclosed and Repossessed Assets

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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, most of our lending activity occurs within our primary market areas which are concentrated in southeastern Pennsylvania, Delaware, New Jersey, Maryland, and Florida, as well as other contiguous markets and represents a geographic concentration.

Additionally, our loan portfolio is concentrated in commercial loans.

1 unchanged sentence

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)

The Allowance is evaluated on at least a quarterly basis, as losses are estimated to be probable and incurred.

The provision for loan and lease losses increase or decrease the ALLL, if deemed necessary.

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

The Allowance is maintained at a level considered adequate to provide for losses that are probable and estimable.

Past Due and Nonaccrual Status

The following table presents the amortized costs basis of loans and leases on nonaccrual status, net of fees and costs as of December 31, 2023.

As of this date here were no loans 90 days or more past due and still accruing.

December 31, 2023

(dollars in thousands) Nonaccrual Without ACL Nonaccrual With ACL Total Nonaccrual

Home equity lines and loans $ 1,037 $ — $ 1,037

Residential mortgage 4,536 — 4,536

Construction 1,206 — 1,206

Commercial and industrial 3,343 12,070 15,413

Small business loans 3,607 5,833 9,440

Leases, net 2,131 — 2,131

Total $ 15,860 $ 17,903 $ 33,763

Collateral-dependent Loans

The following table presents the amortized cost basis of non-accruing collateral-dependent loans by class of loans and type of collateral identified as of December 31, 2023 under the current expected credit loss model:

December 31, 2023

(dollars in thousands) Real Estate Equipment and Other Total

Home equity lines and loans $ 1,037 $ — $ 1,037

Residential mortgage 4,536 — 4,536

Construction 1,206 — 1,206

Commercial and industrial 1,890 13,523 15,413

Small business loans 6,320 3,120 9,440

Leases, net — 2,131 2,131

Total $ 14,989 $ 18,774 $ 33,763

(6) Allowance for Credit Losses (the Allowance)

The ACL is maintained at a level considered adequate to provide for estimated expected credit losses within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions and forecasts of future economic conditions as of the balance sheet date.

Management’s periodic evaluation of the adequacy of the ACL is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors.

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

Roll-Forward of Allowance by Portfolio Segment

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

The following tables provide the activity of our allowance for credit losses for the year ended December 31, 2023 under the CECL model in accordance with ASC 326 (as adopted on January 1, 2023):

Year Ended December 31, 2023

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

(dollars in thousands) Beginning Balance, prior to adoption of ASU No.

2016-13 for CECL Adjustment to initially apply ASU No.

2016-13 for CECL Charge-offs Recoveries Provision (recovery of provision) for credit losses Ending Balance

Commercial mortgage $ 4,095 $ ( 526 ) $ — $ — $ 806 $ 4,375

18 unchanged sentences

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

Reconciliation of Provision for Credit Losses

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

(dollars in thousands) 2023 2022

Provision for credit losses - funded $ 7,234 $ 2,488

Recovery of provision for credit losses - unfunded ( 419 ) —

Total provision for credit losses $ 6,815 $ 2,488

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:

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

December 31, 2023

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

Allowance for credit losses Carrying value of loans and leases

(dollars in thousands) Individually evaluated Collectively evaluated Total Individually evaluated Collectively evaluated Total

Commercial mortgage $ — $ 4,375 $ 4,375 $ — $ 737,863 $ 737,863

3 unchanged sentences

Commercial and industrial 3,691 827 4,518 15,413 287,478 302,891

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

Small business loans 2,805 4,200 7,005 9,440 132,902 142,342

Consumer — — — — 389 389

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

Leases, net — 3,706 3,706 2,131 119,501 121,632

$ 6,496 $ 15,611 $ 22,107 $ 32,977 $ 1,841,745 $ 1,874,722

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

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

December 31, 2022

10 unchanged sentences

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

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

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

3 unchanged sentences

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

(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.

Credit Quality Indicators

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

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

The results of these reviews are reflected in the risk grade assigned to each loan.

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 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) Pass Special

mention Substandard Doubtful Total

Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.

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

December 31, 2023 Revolving Loans Converted to Term Loans Revolving Loans Total

2023 2022 2021 2020 2019 Prior

Commercial mortgage

Home equity lines and loans 57,822 — 1,577 — 59,399

Construction 260,085 11,870 — — 271,955

Pass/Watch $ 106,341 $ 160,302 $ 158,647 $ 97,535 $ 56,382 $ 133,349 $ 511 $ 423 $ 713,490

Special Mention — — — 4,425 4,341 9,975 667 — 19,408

Substandard 200 — 571 — 1,635 2,233 — 326 4,965

Doubtful — — — — — — — — —

Total $ 106,541 $ 160,302 $ 159,218 $ 101,960 $ 62,358 $ 145,557 $ 1,178 $ 749 $ 737,863

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass/Watch $ 67,776 $ 88,737 $ 21,793 $ 27,336 $ 2,307 $ 2,093 $ 123 $ 25,976 $ 236,141

Special Mention — — 1,329 — 511 4,329 — 2,924 9,093

Substandard — — — — — 1,206 — — 1,206

Doubtful — — — — — — — — —

Total $ 67,776 $ 88,737 $ 23,122 $ 27,336 $ 2,818 $ 7,628 $ 123 $ 28,900 $ 246,440

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Commercial and industrial

Pass/Watch $ 26,314 $ 38,748 $ 24,523 $ 8,449 $ 4,148 $ 33,726 $ — $ 131,304 $ 267,212

Special Mention 500 9 — — — 1,361 — 6,440 8,310

Substandard — — 2,906 — 300 9,469 — 14,694 27,369

Doubtful — — — — — — — — —

Total $ 26,814 $ 38,757 $ 27,429 $ 8,449 $ 4,448 $ 44,556 $ — $ 152,438 $ 302,891

Current period gross charge-offs $ ( 209 ) $ ( 55 ) $ — $ ( 2 ) $ — $ — $ — $ — $ ( 266 )

Small business loans

Pass/Watch $ 35,764 $ 26,621 $ 37,278 $ 11,687 $ 6,672 $ 920 $ — $ 12,507 $ 131,449

Special Mention — — — 909 — — — 314 1,223

Substandard 49 1,523 5,090 2,122 — — — 886 9,670

Doubtful — — — — — — — — —

Total $ 35,813 $ 28,144 $ 42,368 $ 14,718 $ 6,672 $ 920 $ — $ 13,707 $ 142,342

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.

Current period gross charge-offs $ — $ — $ — $ ( 11 ) $ ( 912 ) $ — $ — $ ( 565 ) $ ( 1,488 )

Total by risk rating

Pass/Watch $ 236,195 $ 314,408 $ 242,241 $ 145,007 $ 69,509 $ 170,088 $ 634 $ 170,210 1,348,292

Special Mention 500 9 1,329 5,334 4,852 15,665 667 9,678 38,034

Substandard 249 1,523 8,567 2,122 1,935 12,908 — 15,906 43,210

Doubtful — — — — — — — — —

Total $ 236,944 $ 315,940 $ 252,137 $ 152,463 $ 76,296 $ 198,661 $ 1,301 $ 195,794 $ 1,429,536

Total current period gross charge-offs $ ( 209 ) $ ( 55 ) $ — $ ( 13 ) $ ( 912 ) $ — $ — $ ( 565 ) $ ( 1,754 )

The Corporation had no loans with a risk rating of Doubtful included within recorded investment in loans and leases held for investment at December 31, 2023.

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, 2023 Revolving Loans Total

2023 2022 2021 2020 2019 Prior

Home equity lines and loans

Performing $ 343 $ 795 $ 314 $ 352 $ 2,191 $ 2,295 $ 68,600 $ 74,890

Nonperforming — — — — — — 1,397 1,397

Total $ 343 $ 795 $ 314 $ 352 0 $ 2,191 $ 2,295 $ 69,997 $ 76,287

Current period gross charge-offs $ — $ — $ — $ — $ ( 33 ) $ — $ ( 54 ) $ ( 87 )

Residential mortgage (2)

Performing $ 48,576 $ 154,219 $ 22,237 $ 6,260 $ 456 $ 11,380 $ — $ 243,128

Nonperforming — 1,350 — 1,043 — 1,357 — 3,750

Total $ 48,576 $ 155,569 $ 22,237 $ 7,303 $ 456 $ 12,737 $ — $ 246,878

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ —

Performing $ 39 $ 35 $ — $ — $ 32 $ 234 $ 49 $ 389

Nonperforming — — — — — — — —

Total $ 39 $ 35 $ — $ — $ 32 $ 234 $ 49 $ 389

Current period gross charge-offs $ — $ — $ — $ — $ — $ — $ ( 2 ) $ ( 2 )

Performing $ 23,054 $ 55,940 $ 30,876 $ 9,718 $ — $ — $ — $ 119,588

Nonperforming 263 1,194 368 219 — — — 2,044

Total $ 23,317 $ 57,134 $ 31,244 $ 9,937 $ — $ — $ — $ 121,632

Current period gross charge-offs $ ( 128 ) $ ( 2,165 ) $ ( 1,450 ) $ ( 290 ) $ — $ — $ — $ ( 4,033 )

Total by Payment Performance

Performing $ 72,012 $ 210,989 $ 53,427 16,330 $ 2,679 $ 13,909 $ 68,649 $ 437,995

Nonperforming 263 2,544 368 1,262 — 1,357 1,397 7,191

Total $ 72,275 $ 213,533 $ 53,795 $ 17,592 $ 2,679 $ 15,266 $ 70,046 $ 445,186

Total current period gross charge-offs $ ( 128 ) $ ( 2,165 ) $ ( 1,450 ) $ ( 290 ) $ ( 33 ) $ — $ ( 56 ) $ ( 4,122 )

(1) Excludes $ 13.7 million of loans at fair value.

December 31, 2022

8 unchanged sentences

December 31, 2022 December 31, 2021

December 31, 2022

(dollars in thousands) Performing Non-

performing Total Performing Non-

performing Total

4 unchanged sentences

Total $ 344,453 $ 2,356 $ 346,809

(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.

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

Impaired Loans

1 unchanged sentence

December 31, 2022

December 31, 2021

(dollars in thousands) Recorded

1 unchanged sentence

balance Related

allowance Recorded

investment Principal

balance Related

Impaired loans with related allowance:

12 unchanged sentences

Grand Total $ 24,178 $ 25,231 $ 2,225

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) Average

investment Interest

recognized Average

investment Interest

Impaired loans with related allowance:

Commercial and industrial $ 13,211 $ — $ 17,349 $ 15

Small business loans 3,731 — 887 —

Total $ 16,942 $ — $ 18,236 $ 15

Impaired loans without related allowance:

Commercial mortgage $ 2,523 $ 105 $ 3,578 $ 43

Commercial and industrial 559 297 239 24

Small business loans 802 9 154 14

Home equity lines and loans 1,097 38 914 —

Residential mortgage 1,473 205 1,807 11

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:

(i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession.

The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment.

A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower, were a concession not granted.

The determination of whether a concession has been granted is very subjective in nature.

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

As result of the adoption of guidance related to CECL effective as of January 1, 2023, the Corporation had no reportable balances related to TDRs as of and for the year ended December 31, 2023.

See Note 1 - Summary of Significant Accounting Policies for additional information.

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

1 unchanged sentence

Total TDRs $ 3,780

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.

There was 1 modification granted during the year ended December 31, 2022 on commercial mortgages for $ 684 thousand.

No modifications granted during the twelve months ended December 31, 2022 subsequently defaulted during the same time period.

Modifications to Borrowers Experiencing Financial Difficulty

An assessment of whether a borrower is experiencing financial difficulty is made on the date of a modification.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the ACL on loans and leases, a change to the allowance for credit losses is generally not recorded upon modification.

However, when principal forgiveness is provided, the amortized cost basis of the asset is written off against the ACL on loans and leases.

The amount of the principal forgiveness is deemed to be uncollectible;

therefore, that portion of the loan is written off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

The following presents, by class of loans, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the year ended December 31, 2023.

Year Ended December 31, 2023

Number of Loans Amortized Cost Basis % of Total Class of Financing Receivable Related Reserve

(dollars in thousands)

Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Small business loans 6 $ 1,880 1.3 % $ —

Commercial & industrial 2 2,401 0.8 % —

Total 8 $ 4,281 $ —

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Small business loans 3 $ 1,726 1.2 % $ 38

Commercial & industrial 1 1,324 0.4 % 689

Total 4 $ 3,050 $ 727

The following presents, by class of loans, information regarding accruing and nonaccrual modified loans to borrowers experiencing financial difficulty during the year ended December 31, 2023.

Year Ended December 31, 2023

Number of Loans

Financial Effect

Accruing Modified Loans to Borrowers Experiencing Financial Difficulty:

Small business loans 6 Extend maturity date

Commercial & industrial 2 Extend maturity date

Nonaccrual Modified Loans to Borrowers Experiencing Financial Difficulty:

Small business loans 3 Extend term and allow additional lender funding

Commercial & industrial 1 Extend term and allow additional lender funding

There were 12 modifications granted to borrowers experiencing financial difficulty for the year ended December 31, 2023.

There were no loans that had a payment default during the year ended December 31, 2023 that were modified in the 12 months before default to borrowers experiencing financial difficulty.

There were no commitments to lend additional funds to the borrowers experiencing financial difficulty that had modifications during the year ended December 31, 2023.

(7) Bank Premises and Equipment

20 unchanged sentences

Total $ 1,823,462 $ 1,712,479

Included in time deposits as of December 31, 2023, and December 31, 2022, are $ 429.9 million and $ 375.3 million of brokered deposits, respectively.

The aggregate amount of time deposits in denominations over $250 thousand were $ 458.8 million and $ 394.3 million as of December 31, 2023 and 2022, respectively.

2 unchanged sentences

Total $ 685,472

(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.

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

The Corporation’s short-term borrowings generally consist of Federal funds purchased and short-term borrowings extended under agreements with the FHLB and one unsecured Federal funds borrowing facilities with correspondent banks of $ 15 million.

Federal funds purchased generally represent one-day borrowings.

3 unchanged sentences

There were no borrowings under this at December 31, 2023 and December 31, 2022.

Additionally, the Corporation has a facility with the Federal Reserve’s BTFP of $ 33 million.

This facility was created by the Federal Reserve in March 2023 and is fully secured by United States Treasury Bonds.

There were $ 33 million in borrowings under this facility at December 31, 2023.

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

4 unchanged sentences

FHLB Open Repo Plus Weekly 6/10/2024 5.68 % $ 104,792 $ 113,147

$ 113,147 $ 36,458

FRB BTFP Advances 3/29/2024 4.76 % 33,000 —

FHLB Mid-term Repo Fixed 9/30/2024 4.60 % 3,432 —

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.

Total Short-Term Borrowings $ 141,224 $ 113,147

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

(dollars in thousands) Maturity

date Interest

rate December 31,

2023 December 31,

FHLB Mid-term Repo Fixed 12/22/2025 4.23 % $ 8,935 $ 8,935

FHLB Mid-term Repo Fixed 7/14/2026 4.57 % 15,245 —

FHLB Mid-term Repo Fixed 10/14/2025 5.16 % 9,492 —

Total Long-Term Borrowings $ 33,672 $ 8,935

The FHLB has also issued $ 104.3 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers.

3 unchanged sentences

(10) Subordinated Debentures

In December 2008, the Bank issued $ 550 thousand of mandatory convertible unsecured subordinated debentures (2008 Debentures).

The 2008 Debentures have a maturity date of December 18, 2023 and interest on the 2008 Debentures is paid quarterly at 6 %.

The 2008 Debentures are convertible into 1 share of the Corporation’s common stock for every $15 in principal amount of the 2008 Debentures automatically on such date, if any, as accumulated losses of the Bank first exceed the sum of the retained earnings and capital surplus accounts of the Bank.

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

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).

The 2011 Debentures have a maturity date of December 31, 2026 and interest on the 2011 Debentures is paid quarterly at 6 %.

The 2011 Debentures are convertible into 1 share of the Corporation’s common stock for every $17 in principal amount of the 2011 Debentures automatically on such date, if any, as accumulated losses of the Bank first exceed the sum of the retained earnings and capital surplus accounts of the Bank.

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

The 2013 Debentures have a maturity date of December 31, 2028 and interest on the 2013 Debentures is paid quarterly at 6.5 %.

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

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.

During December 2019, the Corporation issued $ 40 million of fixed-to-floating rate non-convertible unsecured subordinated debentures (2019 Debentures).

The 2019 Debentures have a maturity date of December 30, 2029 and interest on the 2019 Debentures is paid semiannually at 5.375 %.

The following table presents subordinated debentures at the dates indicated:

date Interest

rate December 31,

2023 December 31,

2023 Debentures 08/31/2033 8.00 % $ 9,740 $ —

2019 Debentures 12/30/2029 5.38 % 40,000 40,000

2013 Debentures 12/31/2028 6.50 % 497 653

2011 Debentures 12/31/2026 6.00 % 347 463

2008 Debentures 12/18/2023 6.00 % — 56

Debt Origination Costs ( 748 ) ( 826 )

Total Subordinated Debentures $ 49,836 $ 40,346

The Corporation issued the 2023 and 2019 Debentures, while the Bank issued the 2013, 2011 and 2008 Debentures.

Upon formation of the bank holding company, the Corporation assumed the 2013, 2011 and 2008 Debentures.

Interest is paid semi-annually on the 2023 and 2019 Debentures, and paid quarterly on the 2013, 2011 and 2008 debentures.

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

The 2019 and 2023 Debentures are included as Tier 2 capital for the Corporation and as Tier 1 capital for the Bank.

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 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).

The 2019 Debentures are included as Tier 2 capital for the Corporation and as Tier 1 capital for the Bank.

(11) Servicing Assets

8 unchanged sentences

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

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

The Corporation serviced $ 945.2 million of residential mortgage loans as of December 31, 2023 and $ 1.0 billion as of December 31, 2022.

During the year ended December 31, 2023 the Corporation recognized servicing fee income of $ 2.5 million compared to $ 2.6 million, during the year ended December 31, 2022.

33 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 articular 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 particular assumption on the fair value of the MSRs is calculated without changing any other assumption;

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

21 unchanged sentences

At December 31, 2022, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.73 % and a discount rate equal to 18.96 %.

The 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 change in valuation allowance due to impairment noted in the tables above, was largely due to the decrease in discount rate partially offset by the increase in prepayment speed as a result of the rising interest rate environment.

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.

24 unchanged sentences

As of December 31, 2023, the Corporation’s ROU assets and related lease liabilities were $ 9.4 million and $ 9.4 million, respectively.

As of December 31, 2022 and 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) 2023 2022

1 unchanged sentence

Short term lease expense 8 13

Variable lease expense 52 —

Total lease expense $ 2,379 $ 2,255

Supplemental cash flow information related to leases was as follows:

(dollars in thousands) December 31, 2022

(dollars in thousands) December 31, 2023 December 31, 2022

Cash paid for amounts included in the measurement of lease liabilities

9 unchanged sentences

The weighted average discount rate associated with operating leases as of December 31, 2023 is 3.23 %.

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

4 unchanged sentences

The shares granted under the 2004 Plan to officers and other employees are incentive stock options, and are subject to the limitations under Section 422 of the Internal Revenue Code.

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.

The Meridian Bank 2016 Equity Incentive Plan (2016 Plan) was amended on March 25, 2023 to authorize the Board of Directors to grant up to an aggregate of 1,673,800 stock awards that can take different forms.

A total of 1,222,000 stock options and 86,416 shares of restricted stock have been granted under the 2016 Plan through December 31, 2023, including the impact of the two -for-one stock split.

24 unchanged sentences

The fair value of each option granted in 2023 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

dividend yield of 2.6 %, risk-free interest rate of between 3.01 % and 4.26 %, expected life of 5.75 years, and expected volatility of between 33.30 % and 39.00 % based on an average of the Corporation’s share price since going public.

dividend yield of 3.6 %, risk-free interest rate of 4.73 %, expected life of 5.75 years, and volatility of 33.42 % based on an average of the Corporation’s share price since going public.

The weighted average fair value of options granted in 2023 was $ 2.37 to per share.

The fair value of each option granted in 2022 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

dividend yield of 2.6 %, risk-free interest rate of between 1.02 % and 1.54 %, expected life of 5.75 years, and expected volatility of 39.25 % and 40.97 %% based on an average of the Corporation’s share price since going public.

dividend yield of 2.6 %, risk-free interest rate of 2.93 %, expected life of 5.75 years, and volatility of 37.73 % based on an average of the Corporation’s share price since going public.

The weighted average fair value of options granted in 2022 was $ 5.38 to per share.

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.

Total stock option compensation cost for the years ended December 31, 2023 and 2022 was $ 650 thousand and $ 1.0 million, respectively.

During the year ended December 31, 2023 and 2022, the Corporation received $ 279 thousand and $ 711 thousand from the exercise of stock options, respectively.

The Corporation recognized and $ 3 thousand and $ 116 thousand in excess tax benefits related to stock compensation cost for the twelve months ended December 31, 2023 and 2022.

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.

For purposes of the determination of stock-based compensation expense for the year ended December 31, 2022, we recognized the forfeiture of 29,606 of shares of stock options that were previously granted to officers and other employees.

For purposes of the determination of stock-based compensation expense for the years ended December 31, 2023, and 2022, we recognized the forfeiture of 22,000 , and 29,606 of shares of stock options that were previously granted to officers and other employees, respectively.

As of December 31, 2023, there was $ 1.1 million of unrecognized compensation cost related to nonvested stock options.

3 unchanged sentences

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

No awards were granted in 2022.

No awards were granted in 2023 and 2022.

All awards granted in 2022 vested 100 % one year from the grant date.

2 unchanged sentences

Outstanding at December 31, 2022 53,210 $ 9.33

Granted 20,000 13.18

Vested ( 53,210 ) 9.33

Outstanding at December 31, 2021 53,210 $ 9.33

Vested ( 53,210 ) 9.33

Outstanding at December 31, 2022 — $ —

Nonvested at December 31, 2022 — —

Outstanding / nonvested at December 31, 2022 — $ —

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, 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.

For the years ended December 31, 2023 and 2022, the Corporation recognized $ 0 and $ 70 thousand of expense related to the restricted stock, respectively.

As of December 31, 2023 and 2022 there was $ 0 in unrecognized compensation costs related to restricted stock.

(14) Income Taxes

15 unchanged sentences

Bank owned life insurance ( 166 ) ( 1.0 ) ( 116 ) ( 0.4 )

(dollars in thousands) December 31, 2023 December 31, 2022

Stock based compensation 123 0.7 36 0.1

6 unchanged sentences

Deferred tax assets:

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

Allowance for credit losses $ 4,949 $ 4,212

Unrealized loss on available for sale securities 2,718 3,327

Accrued incentive compensation — 287

Accrued retirement 826 891

2 unchanged sentences

Mortgage repurchase reserve 114 192

Unfunded commitment reserve 226 —

Other 153 179

4 unchanged sentences

Intangibles ( 106 ) ( 23 )

Mortgage pipeline fair-value adjustment — ( 308 )

Hedge instrument fair-value adjustment ( 42 ) ( 12 )

Unrealized gain on available for sale securities — ( 213 )

Prepaid expenses ( 237 ) ( 341 )

Deferred loan costs ( 1,637 ) ( 1,410 )

Other — ( 1 )

Total deferred tax liability $ ( 5,404 ) $ ( 5,496 )

1 unchanged sentence

The effective tax rates for the twelve-month periods ended December 31, 2023 and 2022 were 22.0 % and 21.8 % respectively.

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.

The increase in rate between 2022 and 2023 was primarily related to the impact of additional nondeductible stock compensation expense in 2023 partially offset by an increase in tax-free bank owned life insurance income.

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.

7 unchanged sentences

The Corporation has had, and may be expected to have in the future, banking transactions in the ordinary course of business with its executive officers, directors, principal stockholders, their immediate families and affiliated companies (commonly referred to as related parties)

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 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.

(dollars in thousands) 2023 2022

Loans receivable from related parties - beginning at end of period $ 2,046 $ 5,098

Advances for related parties 447 5,196

Proceeds repayments from related party ( 415 ) ( 6,070 )

Effect of changes in composition of related parties ( 499 ) ( 2,178 )

Loans receivable from related parties - balance at end of period $ 1,579 $ 2,046

Deposits of related parties totaled $ 30.6 million and $ 32.6 million at December 31, 2023 and 2022, respectively.

Subordinated debt held by related parties totaled $ 208 thousand and $ 409 thousand at December 31, 2022 and 2021, respectively.

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.

Subordinated debt held by related parties totaled $ 1.1 million and $ 208 thousand at December 31, 2023 and 2022, respectively.

The Corporation paid legal fees of $ 14 thousand to a law firm of a director for the year ended December 31, 2022.

The director retired from the law firm in 2022.

5 unchanged sentences

The Corporation uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

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

A summary of the Corporation’s financial instrument commitments at the dates indicated:

(dollars in thousands) December 31,

14 unchanged sentences

There was 3 indemnifications signed for the year ended December 31, 2023 for $ 860 thousand, and 2 indemnification signed for the year ended December 31, 2022 for $ 734 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.

A repurchase reserve of $ 508 thousand was recorded at December 31, 2023, as compared to $ 858 thousand as of December 31, 2022.

There were 5 loans repurchased for the year ended December 31, 2023 with a total unpaid principal balance of $ 1.3 million, as compared to 8 loans repurchased for the year ended December 31, 2022 with an unpaid principal balance of $ 1.8 million.

(17) Regulatory Matters

The Bank and the Corporation are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Corporation must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

The Bank’s and the Corporation’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Corporation to maintain minimum amounts and ratios (set forth below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets.

Management believes, as of December 31, 2022, that the Bank and the Corporation meet all capital adequacy requirements to which it is subject.

The Bank is subject to various regulatory capital requirements administered by the federal banking agencies.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.

The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets.

Management believes, as of December 31, 2023, that the Bank met all capital adequacy requirements to which it is subject.

Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule.

4 unchanged sentences

The Bank’s CBLR ratio wa s 9.46 % at December 31, 2023 .

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

As of December 31, 2023, the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes have changed the Bank’s category.

1 unchanged sentence

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, 2022 and 2021 are presented below.

Corporation Bank Well-capitalized minimum

2022 December 31,

The Banks’s actual and required capital amounts and ratios under the CBLR rules at December 31, 2023 and 2022 are presented below.

Actual For Capital Adequacy Purposes (includes applicable capital conservation buffer) To Be Well Capitalized Under Prompt Corrective Action Provisions

(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio

December 31, 2023

Tier 1 leverage ratio:

Meridian Bank $ 211,355 9.46 % $ 89,399 4.00 % $ 111,749 5.00 %

Common tier 1 risk-based capital ratio:

Meridian Bank 211,355 10.10 % 146,448 7.00 % 135,987 6.50 %

Tier 1 risk-based capital ratio:

Meridian Bank 211,355 10.10 % 177,829 8.50 % 167,369 8.00 %

Total risk-based capital ratio:

Meridian Bank 233,671 11.17 % 219,672 10.50 % 209,211 10.00 %

December 31, 2022

Tier 1 leverage ratio:

Meridian Bank $ 196,584 9.95 % $ 78,995 4.00 % $ 98,743 5.00 %

Common tier 1 risk-based capital ratio:

Meridian Bank 196,584 10.73 % 128,305 7.00 % 119,140 6.50 %

Tier 1 risk-based capital ratio:

Meridian Bank 196,584 10.73 % 155,799 8.50 % 146,634 8.00 %

Total risk-based capital ratio:

Meridian Bank 217,593 11.87 % 192,457 10.50 % 183,293 10.00 %

(18) Fair Value Measurements and Disclosures

17 unchanged sentences

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

Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

Level 3 assets and liabilities include financial instruments whose value is determined using pricing

models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

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

24 unchanged sentences

Interest rate lock commitments 214 — — 214

Forward commitments — — — —

Customer derivatives - interest rate swaps 3,528 — 3,528 —

1 unchanged sentence

Interest rate lock commitments $ 17 $ — $ — $ 17

Forward commitments 41 — 41 —

Customer derivatives - interest rate swaps 3,544 — 3,544 —

December 31, 2022

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

Risk Participation Agreements 11 — 11 —

18 unchanged sentences

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

Forward commitments 106 — 106 —

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

Risk Participation Agreements 17 — 17 —

Total $ 3,895 $ — $ 3,816 $ 79

4 unchanged sentences

SBA loan servicing rights 3,127 2,404

Impaired loans (1)

Individually evaluated loans (1)

Commercial and industrial 9,818 —

1 unchanged sentence

Total $ 24,700 $ 14,627

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

Refer to the following page for further qualitative discussion around impaired loans.

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

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

4 unchanged sentences

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:

11 unchanged sentences

The Corporation reviews the servicing rights portfolios on a quarterly basis for impairment.

Impaired Loans

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

Individually Evaluated Loans

Individually evaluated loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral.

Fair value is generally determined based upon independent third‑party appraisals of the properties, or discounted cash flows based upon the expected proceeds.

1 unchanged sentence

These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

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

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

Accrued Interest Receivable and Payable

29 unchanged sentences

Mortgage loans held for sale Level 2 24,816 24,816 22,243 22,243

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

Loans receivable, net of the allowance for credit losses Level 3 1,882,080 1,832,558 1,729,180 1,679,955

Mortgage loans held for investment Level 2 13,726 13,726 14,502 14,502

1 unchanged sentence

Deposits Level 2 $ 1,823,462 $ 1,834,700 $ 1,712,479 $ 1,575,600

Short-term borrowings Level 2 122,082 122,082 41,344 41,344

Borrowings Level 2 174,896 176,400 122,082 122,082

Subordinated debentures Level 2 49,836 50,223 40,346 40,020

15 unchanged sentences

The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally related to the Corporation’s loan portfolio.

Interest Rate Swaps

The Corporation uses interest rate swap agreements to modify interest rate characteristics from variable to fixed or fixed to variable in order to reduce the impact of interest rate changes on future net interest income.

The Corporation’s credit exposure on interest rate swaps includes changes in fair value and any collateral that is held by a third party.

In June 2023, the Corporation entered into three interest rate swaps classified as cash flow hedges with notional amounts of $ 25 million each, to hedge the interest payments received on short term borrowings.

Under the terms of the three swap agreements, the Corporation pays average fixed rates of 4.070 %, 4.027 % and 4.117 %, and receives variable rates in return indexed to SOFR.

The swaps mature between May, June, and December 2026.

The Corporation performed an assessment of the hedge for effectiveness at the inception of the hedge and performs an assessment on a recurring basis and determined that the derivative currently is and is expected to be highly effective in offsetting changes in cash flows of the hedged item.

For the year ended December 31, 2023, $ 412 thousand, net of tax, is recorded in total comprehensive income as unrealized gains.

This amount could differ from amounts actually recognized due to changes in interest rates, hedge de-designations and the addition of other hedges subsequent to December 31, 2023.

As of December 31, 2023, the combined notional amount of the interest rate swaps was $ 75 million and the fair value was an liability of $ 539 thousand.

Mortgage Banking Derivatives

7 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.

19 unchanged sentences

Total $ 7,082 $ ( 11 ) $ 7,200 $ ( 17 )

Interest Rate Swaps

Positive fair values Other assets $ — $ — $ — $ —

Negative fair values Other liabilities 75,000 ( 539 ) — —

$ 75,000 $ ( 539 ) $ — $ —

Total derivative financial instruments $ 226,652 $ ( 410 ) $ 127,456 $ 38

6 unchanged sentences

Risk Participation Agreements 6 62

Net fair value (losses) gains on derivative financial instruments $ ( 703 ) $ ( 4,338 )

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.

Interest Rate Swaps ( 539 ) —

Net fair value gains (losses) on derivative financial instruments $ ( 448 ) $ ( 703 )

Net realized gains on derivative hedging activities were $ 28 thousand and $ 5.4 million for the year ended December 31, 2023 and 2022, respectively, and are included in non-interest income in the consolidated statements of income.

(20) Segments

50 unchanged sentences

and 11,183,015 and 11,465,572 shares outstanding, respectively.

13,186 13,156

Surplus 80,325 79,072

10 unchanged sentences

Interest income 2 8

Other income 122 —

Total operating income 9,779 27,821

6 unchanged sentences

Net income 13,243 21,829

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

Total other comprehensive income (loss) 2,117 ( 12,247 )

Total comprehensive income $ 15,360 $ 9,582

5 unchanged sentences

Equity in undistributed income of subsidiaries ( 6,376 ) 3,084

(dollars in thousands) 2023 2022

Share-based compensation 1,173 1,475

1 unchanged sentence

Other, net ( 2,748 ) ( 1,369 )

(dollars in thousands) 2022 2021

Net cash provided by operating activities 5,624 25,137

Cash flows from investing activities:

Investment in subsidiaries ( 8,000 ) —

Net cash (used in) investing activities ( 8,000 ) —

Cash flows from financing activities:

Net activity from subordinated debt issuance 9,699 —

Net purchase of treasury stock ( 4,258 ) ( 12,961 )

1 unchanged sentence

Share based awards and exercises 309 754

Net cash (used in) provided by financing activities ( 23,133 ) ( 11,606 )

Net cash provided by (used in) financing activities 136 ( 23,133 )

Net change in cash and cash equivalents ( 2,240 ) 2,004

3 unchanged sentences

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