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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
Or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-55983
mrbk-20220930_g1.jpg
(Exact name of registrant as specified in its charter)
Pennsylvania83-1561918
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer Identification No.)
9 Old Lincoln Highway, Malvern, Pennsylvania 19355
(Address of principal executive offices) (Zip Code)
(484) 568-5000
(Registrant’s telephone number, including area code)
Title of classTrading SymbolName of exchange on which registered
Common Stock, $1 par valueMRBKThe NASDAQ Stock Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes ☐No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒Yes ☐No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer☐Accelerated Filer☒
Non-accelerated Filer☐Smaller Reporting Company☒
Emerging Growth Company☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 2, 2022 there were 5,800,526 outstanding shares of the issuer’s common stock, par value $1.00 per share.

TABLE OF CONTENTS
Consolidated Balance Sheets – September 30, 2022 and December 31, 2021
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2022 and 2021


Glossary of Acronyms, Abbreviations, and Terms
The acronyms, abbreviations, and terms listed below are used in various sections of this report. As used throughout this report, the terms "Meridian", “we”, “our”, or “us” refer to Meridian Corporation and its consolidated subsidiaries, unless the context otherwise requires.
AcronymDescription
ALLLAllowance for loan and lease losses
AOCIAccumulated other comprehensive (loss) income
ASCAccounting Standards Codification
ASUAccounting Standards Update
BOLIBank owned life insurance
CECLCurrent expected credit losses
CET1Common equity tier 1
CMOCollateralized mortgage obligation
ESOPEmployee Stock Ownership Plan
FASBFinancial Accounting Standards Board
FHLBFederal Home Loan Bank of Pittsburgh
FRBBoard of Governors of the Federal Reserve System
FTEFully taxable equivalent
GAAPU.S. generally accepted accounting principles
JOBS ActJumpstart Our Business Startups Act of 2012
LIBORLondon Inter-bank Offering Rate
MBSMortgage-backed securities
MSLPMain Street Lending Programs
MSRMortgage servicing rights
PPPPaycheck Protection Program
ROURight-of-use
SBASmall Business Administration
SECSecurities and Exchange Commission
SERPSupplemental Executive Retirement Plan
TDRTroubled debt restructuring

MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(dollars in thousands, except per share data)September 30,
2022		December 31,
2021
Assets:
Cash and due from banks$12,114 $3,966 
Interest-bearing deposits at other banks20,774 19,514 
Cash and cash equivalents32,888 23,480 
Securities available-for-sale, at fair value (amortized cost of $143,581 and $158,387, respectively)
127,999 159,302 
Securities held-to-maturity, at amortized cost (fair value of $32,323 and $6,591, respectively)
37,922 6,372 
Equity investments2,092 2,354 
Mortgage loans held for sale33,800 80,882 
Loans, net of fees and costs1,610,349 1,386,457 
Allowance for loan and lease losses(18,974)(18,758)
Loans, net of the allowance for loan and lease losses1,591,375 1,367,699 
Restricted investment in bank stock5,217 5,117 
Bank premises and equipment, net12,835 11,806 
Bank owned life insurance22,916 22,503 
Accrued interest receivable6,008 5,009 
Deferred income taxes5,722 1,413 
Servicing assets12,807 12,765 
Goodwill899 899 
Intangible assets3,226 3,379 
Other assets26,218 10,463 
Total assets$1,921,924 $1,713,443 
Liabilities:
Deposits:
Non-interest bearing$290,169 $274,528 
Interest bearing1,383,384 1,171,885 
Total deposits1,673,553 1,446,413 
Short-term borrowings23,458 41,344 
Subordinated debentures40,597 40,508 
Accrued interest payable1,154 31 
Other liabilities32,001 19,787 
Total liabilities1,770,763 1,548,083 
Stockholders’ equity:
Common stock, $1 par value per share. 25,000,000 shares authorized; 6,566,356 and 6,534,587 shares issued and outstanding, respectively
6,566 6,535 
Surplus84,848 83,663 
Treasury stock, 721,927 and 426,693 shares, respectively, at cost
(18,033)(8,860)
Unearned common stock held by employee stock ownership plan(1,602)(1,602)
Retained earnings92,405 84,916 
Accumulated other comprehensive (loss) income(13,023)708 
Total stockholders’ equity151,161 165,360 
Total liabilities and stockholders’ equity$1,921,924 $1,713,443 
See accompanying notes to the unaudited consolidated financial statements.
3
MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended
September 30,
Nine months ended
September 30,
(dollars in thousands, except per share data)2022202120222021
Interest income:
Loans, including fees$21,848 $17,626 $58,187 $51,287 
Securities - taxable648 357 1,599 1,076 
Securities - tax-exempt369 306 1,015 886 
Cash and cash equivalents93 17 157 25 
Total interest income22,958 18,306 60,958 53,274 
Interest expense:
Deposits4,075 1,327 7,182 4,261 
Borrowings857 722 2,166 2,224 
Total interest expense4,932 2,049 9,348 6,485 
Net interest income18,026 16,257 51,610 46,789 
Provision for loan losses526 597 1,743 1,292 
Net interest income after provision for loan losses17,500 15,660 49,867 45,497 
Non-interest income:
Mortgage banking income7,329 18,726 21,367 62,293 
Wealth management income1,114 1,232 3,672 3,531 
SBA loan income989 2,688 3,946 5,423 
Earnings on investment in life insurance138 93 413 224 
Net change in the fair value of derivative instruments127 (339)(713)(3,431)
Net change in the fair value of loans held-for-sale(237)(532)(1,094)(3,164)
Net change in the fair value of loans held-for-investment(886)37 (2,499)(24)
Net gain (loss) on hedging activity399 (1,189)4,941 2,397 
Net gain on sale of investment securities available-for-sale— 314 — 362 
Service charges32 35 90 99 
Other1,219 1,057 3,605 3,192 
Total non-interest income10,224 22,122 33,728 70,902 
Non-interest expense:
Salaries and employee benefits13,360 19,472 41,585 61,824 
Occupancy and equipment1,191 1,133 3,619 3,460 
Professional fees899 873 2,659 2,629 
Advertising and promotion1,165 1,089 3,340 2,795 
Data processing574 530 1,633 1,666 
Information technology868 476 2,306 1,365 
Pennsylvania bank shares tax202 152 612 478 
Other2,002 1,756 5,646 5,773 
Total non-interest expense20,261 25,481 61,400 79,990 
Income before income taxes7,463 12,301 22,195 36,409 
Income tax expense1,665 2,863 4,927 8,543 
Net income$5,798 $9,438 $17,268 $27,866 
Basic earnings per common share
$0.99 $1.56 $2.90 $4.62 
Diluted earnings per common share
$0.96 $1.52 $2.80 $4.49 
Basic weighted average shares outstanding
5,868 6,045 5,964 6,033 
Diluted weighted average shares outstanding
6,060 6,231 6,172 6,201 
See accompanying notes to the unaudited consolidated financial statements.
4
MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Net income:$5,798 $9,438 $17,268 $27,866 
Net change in unrealized gains on investment securities available for sale:
Change in fair value of investment securities available for sale, net of tax of $(1,129), $(312), $(3,694), and $(475), respectively
(3,910)(1,021)(12,760)(1,490)
Reclassification adjustment for net gains (losses) realized in net income, net of tax effect of $0, $(71), $(1), and $(83), respectively
— (243)(9)(279)
Reclassification adjustment for securities transferred from available-for-sale to held-to-maturity, net of tax effect of $8, $0, $(293), and $0, respectively
37 — (962)— 
Unrealized investment losses, net of tax effect of $(1,121), $(383), $(3,989), and $(558), respectively
(3,873)(1,264)(13,731)(1,769)
Other comprehensive loss(3,873)(1,264)(13,731)(1,769)
Comprehensive income$1,925 $8,174 $3,537 $26,097 
See accompanying notes to the unaudited consolidated financial statements.
5
MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(dollars in thousands, except per share data)
Common
Stock
SurplusTreasury
Stock		Unearned
ESOP		Retained
Earnings		AOCITotal
Balance at June 30, 2022$6,561 $84,359 $(11,896)$(1,602)$87,815 $(9,150)$156,087 
Net income— — — — 5,798 — 5,798 
Other comprehensive loss— — — — — (3,873)(3,873)
Dividends paid or accrued, $0.20 per share
— — — — (1,208)— (1,208)
Net purchase of treasury stock through publicly announced plans (197,849 shares)
— — (6,137)— — — (6,137)
Common stock issued through share-based awards and exercises5 112 — — — — 117 
Stock based compensation expense— 377 — — — — 377 
Balance at September 30, 2022$6,566 $84,848 $(18,033)$(1,602)$92,405 $(13,023)$151,161 
(dollars in thousands, except per share data)
Common
Stock
SurplusTreasury
Stock		Unearned
ESOP		Retained
Earnings		AOCITotal
Balance at December 31, 2021$6,535 $83,663 $(8,860)$(1,602)$84,916 $708 $165,360 
Net income— — — — 17,268 — 17,268 
Other comprehensive loss— — — — — (13,731)(13,731)
Dividends paid or accrued, $1.60 per share
— — — — (9,779)— (9,779)
Net purchase of treasury stock through publicly announced plans (295,234 shares)
— — (9,173)— — — (9,173)
Common stock issued through share-based awards and exercises31 454 — — — — 485 
Stock based compensation expense— 731 — — — — 731 
Balance at September 30, 2022$6,566 $84,848 $(18,033)$(1,602)$92,405 $(13,023)$151,161 
(dollars in thousands, except per share data)
Common
Stock
SurplusTreasury
Stock		Unearned
ESOP		Retained
Earnings		AOCITotal
Balance at June 30, 2021$6,493 $82,198 $(5,828)$(1,768)$69,739 $2,051 $152,885 
Net income— — — — 9,438 — 9,438 
Other comprehensive loss— — — — — (1,264)(1,264)
Dividends paid or accrued, $0.125 per share
— — — — (769)— (769)
Net purchase of treasury stock through publicly announced plans (78,491 shares)
— — (2,197)— — — (2,197)
Common stock issued through share-based awards and exercises13 167 — — — — 180 
Stock based compensation expense— 143 — — — — 143 
Balance at September 30, 2021$6,506 $82,508 $(8,025)$(1,768)$78,408 $787 $158,416 
(dollars in thousands, except per share data)
Common
Stock
SurplusTreasury
Stock		Unearned
ESOP		Retained
Earnings		AOCITotal
Balance at December 31, 2020$6,456 $81,196 $(5,828)$(1,768)$59,010 $2,556 $141,622 
Net income— — — — 27,866 — 27,866 
Other comprehensive loss— — — — — (1,769)(1,769)
Dividends declared, $1.375 per share
— — — — (8,468)— (8,468)
Net purchase of treasury stock through publicly announced plans (78,491 shares)
— — (2,197)— — — (2,197)
Common stock issued through share-based awards and exercises50 521 — — — — 571 
Stock based compensation expense— 791 — — — — 791 
Balance at September 30, 2021$6,506 $82,508 $(8,025)$(1,768)$78,408 $787 $158,416 
See accompanying notes to the unaudited consolidated financial statements.
6
MERIDIAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
(dollars in thousands)20222021
Net income$17,268 $27,866 
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment securities— (362)
Net amortization of investment premiums and discounts and change in fair value of equity securities668 991 
Depreciation and amortization, net(1,343)(4,677)
Provision for loan losses1,743 1,292 
Amortization of issuance costs on subordinated debt89 88 
Stock based compensation731 791 
Net change in fair value of derivative instruments713 3,431 
Net change in fair value of loans held for sale1,094 3,164 
Net change in fair value of loans held for investment2,499 24 
Amortization and net impairment of servicing rights1,753 707 
SBA loan income(3,946)(5,423)
Proceeds from sale of loans863,056 2,027,443 
Loans originated for sale(794,541)(1,864,132)
Mortgage banking income(21,367)(62,293)
(Increase) decrease in accrued interest receivable(999)402 
Increase in other assets(1,675)(2,648)
Earnings from investment in life insurance(413)(224)
Decrease in deferred income tax(219)(817)
Increase (decrease) in accrued interest payable1,123 (490)
(Decrease) increase in other liabilities(2,579)1,299 
Net cash provided by operating activities63,655 126,432 
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls8,662 6,173 
Sales— 20,855 
Purchases(22,176)(52,468)
Activity in held-to-maturity securities:
Maturities, repayments and calls540 — 
Purchases(5,500)— 
Increase (decrease) in restricted stock(100)3,699 
Net increase in loans(225,967)(82,711)
Purchases of premises and equipment(2,020)(1,496)
Purchase of bank owned life insurance— (10,000)
Net cash used in investing activities(246,561)(115,948)
Cash flows from financing activities:
Net increase in deposits227,140 197,712 
Decrease in short-term borrowings— (3,187)
Decrease in short-term borrowings with original maturity > 90 days(17,886)(81,397)
Repayment of long-term debt, net— (87,141)
Net purchase of treasury stock(9,173)(2,197)
Dividends paid(9,779)(8,468)
Share based awards and exercises485 571 
Net cash provided by financing activities190,787 15,893 
Net change in cash and cash equivalents7,881 26,377 
Cash and cash equivalents at beginning of period23,480 36,744 
Cash and cash equivalents at end of period$31,361 $63,121 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$8,225 $6,976 
Income taxes5,365 11,354 
Transfers from loans held for sale to loans held for investment2,955 7,116 
Transfer of securities from AFS to HTM23,655 — 
Lease liabilities arising from obtaining right-of-use assets10,995 — 
See accompanying notes to the unaudited consolidated financial statements.
7
MERIDIAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1)    Basis of Presentation
The Corporation’s unaudited consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Amounts subject to significant estimates are items such as the allowance for loan losses, lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill, intangible assets, and servicing assets.
These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the Securities and Exchange Commission (including our Annual Report on Form 10-K for the year ended December 31, 2021), subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.
Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the year ending December 31, 2022 or for any other period.

(2)    Earnings per Common Share
Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period reduced by unearned ESOP Plan shares and treasury shares. Diluted earnings per common share takes into account the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock and if restricted stock awards were vested, and SERP plan liabilities were satisfied with common shares. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive.
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands, except per share data)2022202120222021
Numerator for earnings per share:
Net income available to common stockholders$5,798 $9,438 $17,268 $27,866 
Denominators for earnings per share:
Weighted average shares outstanding5,968 6,157 6,038 6,148 
Average unearned ESOP shares(100)(112)(74)(115)
Basic weighted averages shares outstanding5,868 6,045 5,964 6,033 
Dilutive effects of assumed exercises of stock options116 125 137 113 
Dilutive effects of SERP shares75 61 71 55 
Diluted weighted averages shares outstanding6,060 6,231 6,172 6,201 
Basic earnings per share$0.99 $1.56 $2.90 $4.62 
Diluted earnings per share$0.96 $1.52 $2.80 $4.49 
Antidilutive shares excluded from computation of average dilutive earnings per share237 140 236 140 

8
(3)    Securities
The following table presents the amortized cost and fair value of securities at the dates indicated:
September 30, 2022
(dollars in thousands)Amortized costGross unrealized gainsGross unrealized lossesFair value# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities$15,763 $21 $(311)$15,473 14 
U.S. government agency MBS12,079 — (735)11,344 13 
U.S. government agency CMO21,248 — (2,079)19,169 28 
State and municipal securities44,885 — (7,646)37,239 34 
U.S. Treasuries32,980 — (3,699)29,281 25 
Non-U.S. government agency CMO9,426 — (599)8,827 11 
Corporate bonds7,200 — (534)6,666 12 
Total securities available-for-sale$143,581 $21 $(15,603)$127,999 137 
Securities held-to-maturity:
State and municipal securities$37,922 $— $(5,599)$32,323 27 
Total securities held-to-maturity$37,922 $— $(5,599)$32,323 — 
December 31, 2021
(dollars in thousands)Amortized costGross unrealized gainsGross unrealized lossesFair value# of Securities in unrealized loss position
Securities available-for-sale:
U.S. asset backed securities$16,850 $55 $(68)$16,837 10 
U.S. government agency MBS9,749 124 (60)9,813 3 
U.S. government agency CMO22,276 358 (253)22,381 10 
State and municipal securities72,099 1,379 (496)72,982 12 
U.S. Treasuries29,973 1 (246)29,728 21 
Non-U.S. government agency CMO990 — (15)975 1 
Corporate bonds6,450 154 (18)6,586 5 
Total securities available-for-sale$158,387 $2,071 $(1,156)$159,302 62 
Securities held-to-maturity:
State and municipal securities$6,372 $219 $— $6,591 — 
Total securities held-to-maturity$6,372 $219 $— $6,591 — 
Although the Corporation’s investment portfolio overall is in a net unrealized loss position at September 30, 2022, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.
During the quarter-ended March 31, 2022, $27.7 million of municipal securities, previously classified as available-for-sale on the balance sheet, were transferred to the held-to-maturity portfolio at fair value. After transfer, $1.3 million of unrealized losses remain in accumulated other comprehensive income. No gain or loss was recognized as a result of the transfer.
As of September 30, 2022 and December 31, 2021, securities having a fair value of $76.5 million and $92.2 million, respectively, were specifically pledged as collateral for public funds, the FRB discount window program, FHLB borrowings and other purposes. The FHLB has a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.
9
The following table shows the Corporation’s investment gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at the dates indicated:
September 30, 2022
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value		Unrealized
losses		Fair
value		Unrealized
losses		Fair
value		Unrealized
losses
Securities available-for-sale:
U.S. asset backed securities$10,122 $(129)$3,254 $(182)$13,376 $(311)
U.S. government agency MBS9,795 (638)1,549 (97)11,344 (735)
U.S. government agency CMO10,526 (850)8,617 (1,229)19,143 (2,079)
State and municipal securities34,801 (7,077)2,438 (569)37,239 (7,646)
U.S. Treasuries15,468 (1,443)13,813 (2,256)29,281 (3,699)
Non-U.S. government agency CMO8,112 (470)715 (129)8,827 (599)
Corporate bonds5,565 (384)1,101 (150)6,666 (534)
Total securities available-for-sale$94,389 $(10,991)$31,487 $(4,612)$125,876 $(15,603)
Securities held-to-maturity:
State and municipal securities$— $— $24,955 $(5,599)$24,955 $(5,599)
Total securities held-to-maturity$— $— $24,955 $(5,599)$24,955 $(5,599)
December 31, 2021
Less than 12 Months12 Months or moreTotal
(dollars in thousands)Fair
value		Unrealized
losses		Fair
value		Unrealized
losses		Fair
value		Unrealized
losses
Securities available-for-sale:
U.S. asset backed securities$12,330 $(68)$— $— $12,330 $(68)
U.S. government agency MBS3,852 (60)— — 3,852 (60)
U.S. government agency CMO8,836 (187)1,657 (66)10,493 (253)
State and municipal securities14,994 (427)2,019 (69)17,013 (496)
U.S. Treasuries28,750 (246)— — 28,750 (246)
Non-U.S. government agency CMO975 (15)— — 975 (15)
Corporate bonds2,232 (18)— — 2,232 (18)
Total securities available-for-sale$71,969 $(1,021)$3,676 $(135)$75,645 $(1,156)
The amortized cost and carrying value of securities are shown below by contractual maturities at the dates indicated. Actual maturities may differ from contractual maturities as issuers may have the right to call or repay obligations with or without call or prepayment penalties.
September 30, 2022December 31, 2021
Available-for-saleHeld-to-maturityAvailable-for-saleHeld-to-maturity
(dollars in thousands)Amortized
cost		Fair
value		Amortized
cost		Fair
value		Amortized
cost		Fair
value		Amortized
cost		Fair
value
Due in one year or less$— $— $— $— $— $— $763 $769 
Due after one year through five years17,892 16,326 4,665 4,588 12,934 12,885 2,354 2,397 
Due after five years through ten years27,386 24,111 3,003 2,643 30,890 30,798 3,255 3,425 
Due after ten years55,550 48,222 30,254 25,092 81,548 82,450 — — 
Subtotal100,828 88,659 37,922 32,323 125,372 126,133 6,372 6,591 
Mortgage-related securities42,753 39,340 — — 33,015 33,169 — — 
Total$143,581 $127,999 $37,922 $32,323 $158,387 $159,302 $6,372 $6,591 
10
The following table presents the gross gain and (loss) on sale of investment securities available for sale on the dates indicated:
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Gross gain on sale of available for sale investments$— $314 $— $562 
Gross loss on sale of available for sale investments— — — 200 

(4)    Loans
The following table presents loans detailed by category at the dates indicated:
(dollars in thousands)September 30,
2022		December 31,
2021
Real estate loans:
Commercial mortgage$545,736 $516,928 
Home equity lines and loans57,648 52,299 
Residential mortgage153,513 68,175 
Construction244,435 160,905 
Total real estate loans1,001,332 798,307 
Commercial and industrial329,451 293,771 
Small business loans133,904 114,158 
PPP loans8,837 90,194 
MSLP loans597 597 
Consumer497 419 
Leases, net129,574 88,242 
Total loans$1,604,192 $1,385,688 
Balances included in loans, net of fees and costs:
Residential mortgage real estate loans accounted under fair value option, at fair value$14,702 $17,558 
Residential mortgage real estate loans accounted under fair value option, at amortized cost17,217 17,106 
Unearned lease income included in leases, net(23,940)(17,366)
Unamortized net deferred loan origination costs6,157 769 
Fair Value Option for Residential Mortgage Real Estate Loans
Residential mortgage real estate loans that were originated by the Corporation and intended for sale in the secondary market to permanent investors, but were either repurchased or unsalable due to defect, and that the Corporation has the ability and intent to hold for the foreseeable future or until maturity or payoff are carried at fair value pursuant to the Corporation's election of the fair value option for these loans. The remaining loans, net of fees and costs are stated at their outstanding unpaid principal balances, net of deferred fees or costs, since the original intent for these loans was to hold them until payoff or maturity.
Nonaccrual and Past Due Loans, Net of Fees and Costs
The following tables present an aging of the Corporation’s loans at the dates indicated:
September 30, 2022
(dollars in thousands)30-89 days past due90+ days past due and still accruingTotal past dueCurrentTotal Accruing Loans and leasesNonaccrual loans and leasesTotal loans% Delinquent
Commercial mortgage$684 $— $684 $543,208 $543,892 $1,844 $545,736 0.46 %
Home equity lines and loans189 — 189 56,581 56,770 878 57,648 1.85 
Residential mortgage (1)819 — 819 150,679 151,498 2,015 153,513 1.85 
Construction— — — 244,435 244,435 — 244,435 — 
Commercial and industrial887 — 887 312,220 313,107 16,344 329,451 5.23 
Small business loans1,803 — 1,803 130,700 132,503 1,401 133,904 2.39 
PPP— — — 8,837 8,837 — 8,837 — 
11
September 30, 2022
(dollars in thousands)30-89 days past due90+ days past due and still accruingTotal past dueCurrentTotal Accruing Loans and leasesNonaccrual loans and leasesTotal loans% Delinquent
MSLP— — — 597 597 — 597 — 
Consumer— — — 497 497 — 497 — 
Leases, net1,378 — 1,378 127,690 129,068 506 129,574 1.45 %
Total$5,760 $— $5,760 $1,575,444 $1,581,204 $22,988 $1,604,192 1.79 %
(1) Includes $14,702 of loans at fair value of which $14,151 are current and $551 are nonaccrual.
December 31, 2021
(dollars in thousands)30-89 days past due90+ days past due and still accruingTotal past dueCurrentTotal Accruing Loans and leasesNonaccrual loans and leasesTotal loans% Delinquent
Commercial mortgage$— $— $— $516,928 $516,928 $— $516,928 — %
Home equity lines and loans103 — 103 51,285 51,388 911 52,299 1.94 
Residential mortgage (1)600 — 600 65,177 65,777 2,398 68,175 4.40 
Construction— — — 160,905 160,905 — 160,905 — 
Commercial and industrial— — — 274,970 274,970 18,801 293,771 6.40 
Small business loans— — — 113,492 113,492 666 114,158 0.58 
PPP— — — 90,194 90,194 — 90,194 — 
MSLP— — — 597 597 — 597 — 
Consumer— — — 419 419 — 419 — 
Leases, net390 — 390 87,640 88,030 212 88,242 0.68 %
Total$1,093 $— $1,093 $1,361,607 $1,362,700 $22,988 $1,385,688 1.74 %
(1) Includes $17,558 of loans at fair value of which $16,768 are current, $189 are 30-89 days past due and $601 are nonaccrual.
Foreclosed and Repossessed Assets
At September 30, 2022, there were no consumer mortgage loans secured by residential real estate properties (included in loans, net of fees and costs on the Consolidated Balance Sheets) for which formal foreclosure proceedings were in process.
Risks and Uncertainties
We have no particular credit concentration. Our commercial loans have been proactively managed in an effort to achieve a balanced portfolio with no unusual exposure to one industry. Additionally, most of our lending activity occurs within our primary market areas which are concentrated in southeastern Pennsylvania, Delaware, and Maryland as well as other contiguous markets and represents a geographic concentration. Additionally, our loan portfolio is concentrated in commercial loans. Commercial loans are generally viewed as having more inherent risk of default than residential real estate loans or other consumer loans. Also, the commercial loan balance per borrower is typically larger than that for residential real estate loans and consumer loans, implying higher potential losses on an individual loan basis.

(5)    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. 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.
12
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:
Three Months Ended September 30, 2022
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvision (Credit)Ending Balance
Commercial mortgage$4,327 $— $— $(238)$4,089 
Home equity lines and loans240 (12)34 (25)237 
Residential mortgage489 — — 217 706 
Construction2,481 — — 378 2,859 
Commercial and industrial6,287 — 39 (657)5,669 
Small business loans3,681 — — 319 4,000 
Consumer3 — 1 (1)3 
Leases1,297 (419)— 533 1,411 
Total$18,805 $(431)$74 $526 $18,974 
Nine Months Ended September 30, 2022
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvision (Credit)Ending Balance
Commercial mortgage$4,950 $— $— $(861)$4,089 
Home equity lines and loans224 (12)42 (17)237 
Residential mortgage283 — 2 421 706 
Construction2,042 — — 817 2,859 
Commercial and industrial6,533 — 58 (922)5,669 
Small business loans3,737 — — 263 4,000 
Consumer3 — 3 (3)3 
Leases986 (1,682)62 2,045 1,411 
Total$18,758 $(1,694)$167 $1,743 $18,974 
Three Months Ended September 30, 2021
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvision (Credit)Ending Balance
Commercial mortgage$7,146 $— $— $(604)$6,542 
Home equity lines and loans281 — 1 (9)273 
Residential mortgage324 — 1 (49)276 
Construction2,241 — — 44 2,285 
Commercial and industrial5,360 — 15 239 5,614 
Small business loans2,235 — — 864 3,099 
Consumer4 — 1 (2)3 
Leases770 — — 114 884 
Total$18,361 $— $18 $597 $18,976 
Nine Months Ended September 30, 2021
(dollars in thousands)Beginning BalanceCharge-offsRecoveriesProvision (Credit)Ending Balance
Commercial mortgage$7,451 $— $— $(909)$6,542 
Home equity lines and loans434 — 5 (166)273 
Residential mortgage385 — 5 (114)276 
Construction2,421 — — (136)2,285 
Commercial and industrial5,431 — 33 150 5,614 
Small business loans1,259 — — 1,840 3,099 
Consumer4 — 3 (4)3 
Leases382 (129)— 631 884 
Total$17,767 $(129)$46 $1,292 $18,976 
13
Allowance Allocated by Portfolio Segment
The following tables detail the allocation of the allowance for loan and lease losses and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment at the dates indicated:
September 30, 2022
Allowance on loans and leasesCarrying value of loans and leases
(dollars in thousands)Individually
evaluated
for impairment		Collectively
evaluated
for impairment		TotalIndividually
evaluated
for impairment		Collectively
evaluated
for impairment		Total
Commercial mortgage$— $4,089 $4,089 $4,196 $541,540 $545,736 
Home equity lines and loans— 237 237 878 56,770 57,648 
Residential mortgage— 706 706 1,464 137,347 138,811 
Construction— 2,859 2,859 1,206 243,229 244,435 
Commercial and industrial2,193 3,476 5,669 16,358 313,093 329,451 
Small business loans376 3,624 4,000 1,479 132,425 133,904 
PPP (2)— — — — 8,837 8,837 
MSLP (2)— — — — 597 597 
Consumer— 3 3 — 497 497 
Leases, net— 1,411 1,411 506 129,068 129,574 
Total (1)$2,569 $16,405 $18,974 $26,087 $1,563,403 $1,589,490 
December 31, 2021
Allowance on loans and leasesCarrying value of loans and leases
(dollars in thousands)Individually
evaluated
for impairment		Collectively
evaluated
for impairment		TotalIndividually
evaluated
for impairment		Collectively
evaluated
for impairment		Total
Commercial mortgage$— $4,950 $4,950 $3,556 $513,372 $516,928 
Home equity lines and loans— 224 224 905 51,394 52,299 
Residential mortgage— 283 283 1,797 48,820 50,617 
Construction— 2,042 2,042 1,206 159,699 160,905 
Commercial and industrial2,900 3,633 6,533 17,361 276,410 293,771 
Small business loans376 3,361 3,737 792 113,366 114,158 
PPP (2)— — — — 90,194 90,194 
MSLP (2)— — — — 597 597 
Consumer— 3 3 — 419 419 
Leases, net— 986 986 212 88,030 88,242 
Total (1)$3,276 $15,482 $18,758 $25,829 $1,342,301 $1,368,130 
(1) Excludes deferred fees and loans carried at fair value.
(2) PPP and MSLP loans are not reserved against as they are 100% guaranteed.
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. The results of these reviews are reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:
•Pass – Loans considered to be satisfactory with no indications of deterioration.
•Special mention – Loans classified as special mention have a potential weakness that deserves Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
•Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined weakness or weaknesses that jeopardize
14
the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
•Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.
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:
September 30, 2022
(dollars in thousands)PassSpecial
Mention		SubstandardDoubtfulTotal
Commercial mortgage$511,993 $28,382 $5,361 $— $545,736 
Home equity lines and loans56,290 — 1,358 — 57,648 
Construction235,464 8,971 — — 244,435 
Commercial and industrial280,929 5,414 43,108 — 329,451 
Small business loans132,503 — 1,401 — 133,904 
PPP8,837 — — — 8,837 
MSLP597 — — — 597 
Total$1,226,613 $42,767 $51,228 $— $1,320,608 
Commercial and industrial loans classified as substandard totaled $43.1 million as of September 30, 2022, an increase of $238 thousand, from $42.9 million as of December 31, 2021. The majority of this amount is comprised of 16 different loan relationships with no specific industry concentration and a $13.5 million commercial loan relationship in the advertising industry that became a non-performing loan relationship late in 2021.
December 31, 2021
(dollars in thousands)PassSpecial
mention		SubstandardDoubtfulTotal
Commercial mortgage$481,551 $29,452 $5,925 $— $516,928 
Home equity lines and loans50,908 — 1,391 — 52,299 
Construction151,608 9,297 — — 160,905 
Commercial and industrial236,298 14,603 42,870 — 293,771 
Small business loans112,096 — 2,062 — 114,158 
PPP90,194 — — — 90,194 
MSLP597 — — — 597 
Total$1,123,252 $53,352 $52,248 $— $1,228,852 
In addition to credit quality indicators as shown in the above tables, allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status at the dates indicated:
September 30, 2022December 31, 2021
(dollars in thousands)PerformingNon-
performing		TotalPerformingNon-
performing		Total
Residential mortgage (1)
$151,498 $2,015 $153,513 $48,820 $1,797 $50,617 
Consumer497 — 497 419 — 419 
Leases, net129,068 506 129,574 88,030 212 88,242 
Total$281,063 $2,521 $283,584 $137,269 $2,009 $139,278 
(1) There were four nonperforming residential mortgage loans at September 30, 2022 and four nonperforming residential mortgage loans at December 31, 2021 with a combined outstanding principal balance of $551 thousand and $601 thousand, respectively, which were carried at fair value and not included in the table above. This decrease was largely due to a residential mortgage loan that was nonperforming at December 31, 2021, which subsequently paid off before September 30, 2022.
15
Impaired Loans
The following tables detail the recorded investment and principal balance of impaired loans by portfolio segment, their related Allowance and interest income recognized at the dates indicated.
September 30, 2022
December 31, 2021
(dollars in thousands)Recorded
investment		Principal
balance		Related
allowance		Recorded
investment		Principal
balance		Related
allowance
Impaired loans with related allowance:
Commercial and industrial$16,095 $16,552 $2,193 $17,147 $17,310 $2,900 
Small business loans666 666 376 666 666 376 
Total$16,761 $17,218 $2,569 $17,813 $17,976 $3,276 
Impaired loans without related allowance:
Commercial mortgage$4,196 $4,206 $— $3,556 $3,559 $— 
Commercial and industrial263 329 — 214 269 — 
Small business loans813 813 — 126 126 — 
Home equity lines and loans878 878 — 905 935 — 
Residential mortgage1,464 1,464 — 1,797 1,797 — 
Construction1,206 1,206 — 1,206 1,206 — 
Leases506 506 — 212 212 — 
Total$9,326 $9,402 $— $8,016 $8,104 $— 
Grand Total$26,087 $26,620 $2,569 $25,829 $26,080 $3,276 
The following table details the average recorded investment and interest income recognized on impaired loans by portfolio segment.
Three Months Ended
September 30, 2022
Three Months Ended
September 30, 2021
(dollars in thousands)Average
Recorded
Investment		Interest
Income
Recognized		Average
recorded
investment		Interest
income
recognized
Impaired loans with related allowance:
Commercial and industrial$16,195 $— $3,242 $5 
Small business loans666 — 916 — 
Home equity lines and loans— — 89 — 
Residential mortgage— — 169 — 
Total$16,861 $— $4,416 $5 
Impaired loans without related allowance:
Commercial mortgage$4,212 $29 $2,573 $8 
Commercial and industrial286 — 473 19 
Small business loans819 2 147 3 
Home equity lines and loans878 15 823 — 
Residential mortgage1,468 22 1,636 6 
Construction1,206 20 1,206 17 
Leases500 — — — 
Total$9,369 $88 $6,858 $53 
Grand Total$26,230 $88 $11,274 $58 
Nine Months Ended
September 30, 2022
Nine Months Ended
September 30, 2021
(dollars in thousands)Average
recorded
investment		Interest
income
recognized		Average
recorded
investment		Interest
income
recognized
Impaired loans with related allowance:
Commercial and industrial$16,363 $— $3,306 $15 
Small business loans666 — 917 — 
16
Nine Months Ended
September 30, 2022
Nine Months Ended
September 30, 2021
(dollars in thousands)Average
recorded
investment		Interest
income
recognized		Average
recorded
investment		Interest
income
recognized
Impaired loans with related allowance:
Home equity lines and loans— — 92 — 
Residential mortgage— — 170 — 
Total$17,029 $— $4,485 $15 
Impaired loans without related allowance:
Commercial mortgage4,257 77 2,584 24 
Commercial and industrial293 — 485 19 
Small business loans835 7 161 11 
Home equity lines and loans878 39 824 — 
Residential mortgage1,478 190 1,640 9 
Construction1,206 51 1,206 47 
Leases510 — 53 — 
Total$9,457 $364 $6,953 $110 
Grand Total$26,486 $364 $11,438 $125 
Troubled Debt Restructuring
The restructuring of a loan is considered a TDR if both 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.
The following table presents information about TDRs at the dates indicated:
(dollars in thousands)September 30,
2022		December 31,
2021
TDRs included in nonperforming loans and leases$193 $361 
TDRs in compliance with modified terms 3,637 3,446 
Total TDRs $3,830 $3,807 
There were no new loan modifications granted during the three months ended September 30, 2022 and 1 new loan modification on a commercial mortgage for $684 thousand for the nine months ended September 30, 2022, while there were no loan or lease modifications granted during the three and nine months September 30, 2021 that were classified as a TDR, and there were no subsequent defaults during the same time periods.

(6)    Short-Term Borrowings and Long-Term Debt
The Corporation’s short-term borrowings generally consist of federal funds purchased and short-term borrowings extended under agreements with the FHLB or other correspondent banks. The Corporation has two unsecured Federal funds borrowing facilities with correspondent banks: one of $24 million and one of $15 million. Federal funds purchased generally represent one-day borrowings. The Corporation had $0 in Federal funds purchased at September 30, 2022 and December 31, 2021. The Corporation also has a facility with the Federal Reserve Bank discount window of $9.2 million. This facility is fully secured by investment securities. There were no borrowings under this at September 30, 2022 and December 31, 2021.
17
The following table presents short-term borrowings at the dates indicated:
(dollars in thousands)Maturity
date		Interest
rate		September 30,
2022		December 31,
2021
Open Repo Plus Weekly6/5/20233.11 %$23,458 $36,458 
Mid-term Repo-fixed9/12/20220.23 — 4,886 
Total$23,458 $41,344 
The Corporation had no long-term debt as of September 30, 2022 or December 31, 2021.
The FHLB has also issued $74.8 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers. These letters of credit expire throughout the remainder of 2022.
The Corporation has a maximum borrowing capacity with the FHLB of $529.0 million as of September 30, 2022 and $505.4 million as of December 31, 2021. All advances and letters of credit from the FHLB are secured by a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

(7)    Servicing Assets
The Corporation sells certain residential mortgage loans and the guaranteed portion of certain SBA loans to third parties and retains servicing rights and receives servicing fees. All such transfers are accounted for as sales. When the Corporation sells a residential mortgage loan, it does not retain any portion of that loan and its continuing involvement in such transfers is limited to certain servicing responsibilities. While the Corporation may retain a portion of certain sold SBA loans, its continuing involvement in the portion of the loan that was sold is limited to certain servicing responsibilities. When the contractual servicing fees on loans sold with servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized.
Residential Mortgage Loans
The related MSR asset is amortized over the period of the estimated future net servicing life of the underlying assets. MSRs are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR. The Corporation serviced $1.0 billion of residential mortgage loans as of September 30, 2022 and December 31, 2021. During the three and nine months ended September 30, 2022, the Corporation recognized servicing fee income of $643 thousand and $1.9 million compared to $562 thousand and $1.4 million, during the three and nine months ended September 30, 2021, respectively.
Changes in the MSR balance are summarized as follows:
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Balance at beginning of the period$10,610 $8,942 $10,756 $4,647 
Servicing rights capitalized65 1,360 648 5,856 
Amortization of servicing rights(356)(316)(1,092)(786)
Change in valuation allowance(4)111 3 380 
Balance at end of the period$10,315 $10,097 $10,315 $10,097 
Activity in the valuation allowance for MSRs was as follows:
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Valuation allowance, beginning of period$(1)$(166)$(8)$(435)
Impairment(4)— (4)— 
Recovery— 111 7 380 
Valuation allowance, end of period$(5)$(55)$(5)$(55)
The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2022, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.11% and a discount rate equal to 9.50%. At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 7.23% and a discount rate equal to 9.00%. Due in part to market volatility as interest rates increased, the prepayment speed assumption has decreased from December 31, 2021 to September 30, 2022. As interest rates have started to increase and the number of mortgage refinancings have started to decline, model inputs have been adjusted to align the MSRs fair value with market conditions.
18
The sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.
(dollars in thousands)September 30,
2022		December 31,
2021
Fair value of residential mortgage servicing rights$12,132 $11,241 
Weighted average life (months)1911
Prepayment speed7.11 %7.23 %
Impact on fair value:
10% adverse change$(524)$(376)
20% adverse change(1,010)(731)
Discount rate9.50 %9.00 %
Impact on fair value:
10% adverse change$(426)$(436)
20% adverse change(824)(840)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a articular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.
SBA Loans
SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets. SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset. The Corporation serviced $156.3 million and $115.1 million of SBA loans, as of September 30, 2022 and December 31, 2021, respectively.
Changes in the SBA loan servicing asset balance are summarized as follows:
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Balance at beginning of the period$2,250 $1,385 $2,009 $970 
Servicing rights capitalized306 588 1,146 1,166 
Amortization of servicing rights(173)(112)(523)(266)
Change in valuation allowance109 (26)(140)(35)
Balance at end of the period$2,492 $1,835 $2,492 $1,835 
Activity in the valuation allowance for SBA loan servicing assets was as follows:
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Valuation allowance, beginning of period$(345)$(48)$(96)$(39)
Impairment— (26)(280)(35)
Recovery109 — 140 — 
Valuation allowance, end of period$(236)$(74)$(236)$(74)
The Corporation uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2022, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.88% and a discount rate equal to 12.24%. At December 31, 2021, the key assumptions used to determine the fair value of the Corporation’s SBA
19
loan servicing rights included a lifetime constant prepayment rate equal to 12.38% and a discount rate equal to 9.01%. The change in valuation allowance due to impairment, noted in the tables above, was largely due to the increased prepayment speed experienced in the current year periods and the rising interest rate environment.
The sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.
(dollars in thousands)September 30,
2022		December 31,
2021
Fair value of SBA loan servicing rights$2,578 $2,107 
Weighted average life (years)3.83.8
Prepayment speed12.88 %12.38 %
Impact on fair value:
10% adverse change$(83)$(69)
20% adverse change(160)(132)
Discount rate12.24 %9.01 %
Impact on fair value:
10% adverse change$(61)$(54)
20% adverse change(120)(106)
The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the SBA servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

(8)    Fair Value Measurements and Disclosures
The Corporation uses fair value measurements to record fair value adjustments to certain assets and liabilities. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation techniques or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.
In accordance with this guidance, the Corporation groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.
Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.
20
Following is a description of the valuation methodologies used for instruments measured at fair value on a recurring basis.
Securities
The fair value of securities available-for-sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.
Mortgage Loans Held for Sale
The fair value of loans held for sale is based on secondary market prices.
Mortgage Loans Held for Investment
The fair value of mortgage loans held for investment is based on the price secondary markets are currently offering for similar loans using observable market data.
Derivative Financial Instruments
The fair values of forward commitments and interest rate swaps are based on market pricing and therefore are considered Level 2. Derivatives classified as Level 3 consist of interest rate lock commitments related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan, which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.
The following table presents the fair value of financial assets measured at fair value on a recurring basis by level within the fair value hierarchy at the dates indicated:
September 30, 2022
(dollars in thousands)TotalLevel 1Level 2Level 3
Assets
Securities available for sale:
U.S. asset backed securities$15,473 $— $15,473 $— 
U.S. government agency MBS11,344 — 11,344 — 
U.S. government agency CMO19,169 — 19,169 — 
State and municipal securities37,239 — 37,239 — 
U.S. Treasuries29,281 29,281 — — 
Non-U.S. government agency CMO8,827 — 8,827 
Corporate bonds6,666 — 6,666 — 
Equity investments2,092 — 2,092 — 
Mortgage loans held for sale33,800 — 33,800 — 
Mortgage loans held for investment14,702 — 14,702 — 
Interest rate lock commitments137 — — 137 
Forward commitments475 — 475 — 
Customer derivatives - interest rate swaps4,572 — 4,572 — 
Total$183,777 $29,281 $154,359 $137 
Liabilities
Interest rate lock commitments$598 $— $— $598 
Forward commitments— — — — 
Customer derivatives - interest rate swaps4,479 — 4,479 — 
Total$5,077 $— $4,479 $598 






21
December 31, 2021
(dollars in thousands)TotalLevel 1Level 2Level 3
Assets
Securities available for sale:
U.S. asset backed securities$16,837 $— $16,837 $— 
U.S. government agency MBS9,813 — 9,813 — 
U.S. government agency CMO22,381 — 22,381 — 
State and municipal securities72,982 — 72,982 — 
U.S. Treasuries29,728 29,728 — — 
Non-U.S. government agency CMO975 — 975 — 
Corporate bonds6,586 — 6,586 — 
Equity investments2,354 — 2,354 — 
Mortgage loans held for sale80,882 — 80,882 — 
Mortgage loans held for investment17,558 — 17,558 — 
Interest rate lock commitments1,122 — — 1,122 
Forward commitments65 — 65 — 
Customer derivatives - interest rate swaps961 — 961 — 
Total$262,244 $29,728 $231,394 $1,122 
Liabilities
Interest rate lock commitments$203 $— $— $203 
Forward commitments106 — 106 — 
Customer derivatives - interest rate swaps1,018 — 1,018 — 
Total$1,327 $— $1,124 $203 
The following table presents assets measured at fair value on a nonrecurring basis at the dates indicated:
(dollars in thousands)September 30,
2022		December 31,
2021
Mortgage servicing rights$10,315 $10,756 
SBA loan servicing rights2,492 2,009 
Impaired loans (1)
Commercial and industrial8201,837
Small business loans—290
Total$13,627 $14,892 
(1) Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Refer to the following page for further qualitative discussion around impaired loans.
The following table details the valuation techniques for Level 3 impaired loans.
(dollars in thousands)Fair ValueValuation TechniqueSignificant Unobservable InputRange of Inputs
September 30, 2022$820 Appraisal of collateralManagement adjustments on appraisals for property type and recent activity
2%-15% discount
December 31, 2021$2,127 Appraisal of collateralManagement adjustments on appraisals for property type and recent activity
2%-15% discount
Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Corporation’s balance sheet. The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair value of the Corporation’s financial instruments:
22
Cash and Cash Equivalents
The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.
Loans Receivable
The fair value of loans receivable is estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value below is reflective of an exit price.
Servicing Assets
The Corporation estimates the fair value of mortgage servicing rights and SBA loan servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. These servicing rights are classified within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the servicing rights portfolios on a quarterly basis for impairment.
Impaired Loans
Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third‑party appraisals of the properties, or discounted cash flows based upon the expected proceeds. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the Allowance policy.
Accrued Interest Receivable and Payable
The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.
Deposit Liabilities
The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.
Short-Term Borrowings
The carrying amounts of short-term borrowings approximate their fair values.
Subordinated Debt
Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.
Off-Balance Sheet Financial Instruments
Off-balance sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments and as a result they are not included in the table below. Fair values assigned to the notional value of interest rate lock commitments and forward sale contracts are based on market quotes.
Derivative Financial Instruments
The fair value of forward commitments and interest rate swaps is based on market pricing and therefore are considered Level 2. Derivatives classified as Level 3 consist of interest rate lock commitments related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment will ultimately result in a closed loan, which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.


23

The following table presents the estimated fair values of the Corporation’s financial instruments at the dates indicated:
September 30, 2022December 31, 2021
(dollars in thousands)Fair Value
Hierarchy Level		Carrying
amount		Fair valueCarrying
amount		Fair value
Financial assets:
Cash and cash equivalentsLevel 1$32,888 $32,888 $23,480 $23,480 
Securities available-for-saleLevel 1 / 2127,999 127,999 159,302 159,302 
Securities held-to-maturityLevel 237,922 32,323 6,372 6,591 
Equity investmentsLevel 22,092 2,092 2,354 2,354 
Mortgage loans held for saleLevel 233,800 33,800 80,882 80,882 
Loans receivable, net of the allowance for loan and lease lossesLevel 31,595,647 1,535,398 1,368,899 1,370,885 
Mortgage loans held for investmentLevel 214,702 14,702 17,558 17,558 
Interest rate lock commitmentsLevel 3137 137 1,122 1,122 
Forward commitmentsLevel 2475 475 65 65 
Restricted investment in bank stockNA5,217 NA5,117 NA
Accrued interest receivableLevel 36,008 6,008 5,009 5,009 
Customer derivatives - interest rate swapsLevel 24,572 4,572 961 961 
Financial liabilities:
DepositsLevel 21,673,553 1,526,400 1,446,413 1,549,100 
Short-term borrowingsLevel 223,458 23,458 41,344 41,344 
Subordinated debenturesLevel 240,597 40,285 40,508 40,803 
Accrued interest payableLevel 21,154 1,154 31 31 
Interest rate lock commitmentsLevel 3598 598 203 203 
Forward commitmentsLevel 2— — 106 106 
Customer derivatives - interest rate swapsLevel 24,479 4,479 1,018 1,018 
NotionalNotional
Off-balance sheet financial instruments:amountFair valueamountFair value
Commitments to extend creditLevel 2$505,860 $— $486,632 $— 
Letters of creditLevel 221,462 — 25,986 — 
The following table includes a rollforward of interest rate lock commitments for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the periods indicated.
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Balance at beginning of the period$374 $2,667 $1,122 $6,932 
Decrease in value(237)(955)(985)(5,220)
Balance at end of the period$137 $1,712 $137 $1,712 
The following table details the valuation techniques for Level 3 interest rate lock commitments.
(dollars in thousands)Fair ValueValuation TechniqueSignificant Unobservable InputRange of InputsWeighted Average
September 30, 2022$137 Market comparable pricingPull through
1 - 99%
96.93%
December 31, 20211,122 Market comparable pricingPull through
1 - 99
87.66

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(9)    Derivative Financial Instruments
Risk Management Objective of Using Derivatives
The Corporation is exposed to certain risk arising from both its business operations and economic conditions. The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally related to the Corporation’s loan portfolio.
Mortgage Banking Derivatives
In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans or interest rate locks at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. Interest rate lock commitments and forward commitments are recorded within other assets/liabilities on the consolidated balance sheets, with changes in fair values during the period recorded within net change in the fair value of derivative instruments on the consolidated statements of income.
Customer Derivatives – Interest Rate Swaps
Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers to swap a fixed rate product for a variable rate product, or vice versa. The Corporation executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies. Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Corporation executes with a third party, such that the Corporation minimizes its net interest rate risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.
The following table presents a summary of notional amounts and fair values of derivative financial instruments at the dates indicated:
September 30, 2022December 31, 2021
(dollars in thousands)Balance Sheet Line ItemNotional
Amount		Asset
(Liability)
Fair Value		Notional
Amount		Asset
(Liability)
Fair Value
Interest Rate Lock Commitments
Positive fair valuesOther assets$23,037 $137 $108,653 $1,122 
Negative fair valuesOther liabilities45,063 (598)35,264 (203)
Total68,100 (461)143,917 919 
Forward Commitments
Positive fair valuesOther assets12,000 475 30,500 65 
Negative fair valuesOther liabilities— — 45,500 (106)
Total12,000 475 76,000 (41)
Customer Derivatives - Interest Rate Swaps
Positive fair valuesOther assets41,352 4,572 35,447 961 
Negative fair valuesOther liabilities41,352 (4,479)35,447 (1,018)
Total82,704 93 70,894 (57)
Total derivative financial instruments$162,804 $107 $290,811 $821 
Interest rate lock commitments are considered Level 3 in the fair value hierarchy, while the forward commitments and interest rate swaps are considered Level 2 in the fair value hierarchy.
25
The following table presents a summary of the fair value gains and (losses) on derivative financial instruments:
Three months ended
September 30,		Nine months ended
September 30,
(dollars in thousands)2022202120222021
Interest Rate Lock Commitments$(405)$(1,056)$(1,380)$(5,480)
Forward Commitments485 703 516 1,997 
Customer Derivatives - Interest Rate Swaps47 14 151 52 
Net fair value (losses) gains on derivative financial instruments$127 $(339)$(713)$(3,431)

(10)    Segments
ASC Topic 280 – Segment Reporting identifies operating segments as components of an enterprise which are evaluated regularly by the Corporation’s Chief Operating Decision Maker, our Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.
Our Banking segment (“Bank”) consists of commercial and retail banking. The Banking segment generates interest income from its lending (including leasing) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale of available for sale investment securities, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income, title insurance fees, and other less significant non-interest income.
Meridian Wealth (“Wealth”), a registered investment advisor and wholly-owned subsidiary of the Bank, provides a comprehensive array of wealth management services and products and the trusted guidance to help its clients and our banking customers prepare for the future. The unit generates non-interest income through advisory fees.
Meridian’s mortgage banking segment (“Mortgage”) consists of 13 loan production offices throughout suburban Philadelphia and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale. The unit also recognizes income from document preparation fees, changes in portfolio pipeline fair values and related net hedging gains (losses).
The table below summarizes income and expenses, directly attributable to each business line, which have been included in the statement of operations. Total assets for each segment is also provided.
Segment Information
Three Months Ended September 30, 2022
Three Months Ended September 30, 2021
(Dollars in thousands)BankWealthMortgageTotalBankWealthMortgageTotal
Net interest income$17,664 $218 $144 $18,026 $15,777 $2 $478 $16,257 
Provision for loan losses526 — — 526 597 — — 597 
Net interest income after provision17,138 218 144 17,500 15,180 2 478 15,660 
Non-interest Income
Mortgage banking income72 — 7,257 7,329 215 — 18,511 18,726 
Wealth management income— 1,114 — 1,114 — 1,232 — 1,232 
SBA loan income989 — — 989 2,688 — — 2,688 
Net change in fair values47 — (1,043)(996)13 — (847)(834)
Net gain on hedging activity— — 399 399 — — (1,189)(1,189)
Other622 — 767 1,389 836 — 663 1,499 
Non-interest income1,730 1,114 7,380 10,224 3,752 1,232 17,138 22,122 
Non-interest expense11,354 780 8,127 20,261 10,633 802 14,046 25,481 
Income (loss) before income taxes$7,514 $552 $(603)$7,463 $8,299 $432 $3,570 $12,301 
Total Assets$1,858,770 $7,927 $55,227 $1,921,924 $1,625,468 $6,396 $130,581 $1,762,445 

26
Segment Information
Nine Months Ended September 30, 2022
Nine Months Ended September 30, 2021
(Dollars in thousands)BankWealthMortgageTotalBankWealthMortgageTotal
Net interest income$50,197 $628 $785 $51,610 $45,340 $(249)$1,698 $46,789 
Provision for loan losses1,743 — — 1,743 1,292 — — 1,292 
Net interest income after provision48,454 628 785 49,867 44,048 (249)1,698 45,497 
Non-interest Income
Mortgage banking income394 — 20,973 21,367 892 — 61,401 62,293 
Wealth management income— 3,672 — 3,672 — 3,531 — 3,531 
SBA loan income3,946 — — 3,946 5,423 — — 5,423 
Net change in fair values151 — (4,457)(4,306)52 — (6,671)(6,619)
Net gain on hedging activity— — 4,941 4,941 — — 2,397 2,397 
Other1,776 (1)2,333 4,108 2,110 — 1,767 3,877 
Non-interest income6,267 3,671 23,790 33,728 8,477 3,531 58,894 70,902 
Non-interest expense32,186 2,480 26,734 61,400 28,981 2,486 48,523 79,990 
Income (loss) before income taxes$22,535 $1,819 $(2,159)$22,195 $23,544 $796 $12,069 $36,409 
Total Assets$1,858,770 $7,927 $55,227 $1,921,924 $1,625,468 $6,396 $130,581 $1,762,445 

(11)    Leases
On January 1, 2022, the Corporation adopted ASU 2016-02 (Topic 842), “Leases”, as further explained in Note 12, Recent Accounting Pronouncements. The Corporation’s operating leases consist of various retail branch locations and loan production offices. As of September 30, 2022, the Corporation’s leases have remaining lease terms ranging from 8 months to 13 years, including extension options that the Corporation is reasonably certain will be exercised.
The Corporation’s leases include fixed rental payments, and certain of our leases also include variable rental payments where lease payments may increase at pre-determined dates based on the change in the consumer price index. The Corporation’s lease agreements include gross leases as well as leases in which we make separate payments to the lessor for items such as the property taxes assessed on the property or a portion of the common area maintenance associated with the property. We have elected the practical expedient not to separate lease and non-lease components for all of our building leases. The Corporation also elected to not recognize ROU assets and lease liabilities for short-term leases.
As of September 30, 2022 the Corporation’s ROU assets and related lease liabilities were $9.5 million and $9.4 million, respectively. These amounts are included within other assets and other liabilities, respectively.
The components of lease expense were as follows:
(dollars in thousands)
Three Months Ended
September 30, 2022
Nine Months Ended
September 30, 2022
Operating lease expense$585 $1,742 
Short term lease expense1 3 
Variable lease expense— — 
Total lease expense$586 $1,745 
Supplemental cash flow information related to leases was as follows:
(dollars in thousands)
Nine Months Ended September 30, 2022
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases$563 
ROU asset obtained in exchange for lease liabilities$10,995 
27
Maturities of operating lease liabilities were as follows for the period indicated:
(dollars in thousands)September 30, 2022
2022$559 
20231,919 
20241,746 
20251,456 
20261,436 
Thereafter3,134 
Total $10,250 
Less: Present value discount(887)
Total operating lease liabilities$9,363 
As of September 30, 2022, the weighted-average remaining lease term, including extension options that the Corporation is reasonably certain will be exercised for all operating leases is 6.33 years.
Because we generally do not have access to the rate implicit in the lease, we utilize our incremental borrowing rate as the discount rate. The weighted average discount rate associated with operating leases as of September 30, 2022 is 2.61%.
As of September 30, 2022, the Corporation had not entered into any material leases that have not yet commenced.

(12)    Recent Accounting Pronouncements
As an “emerging growth company” under the JOBS Act, the Corporation is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as financial statements that we file up to the date we lose this designation (December 31, 2022) will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities
Pronouncements Adopted in 2022:
FASB ASU 2016-02 (Topic 842), “Leases”
Issued in February 2016, ASU 2016-02 revises 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. In June 2020, the FASB approved a delay for the implementation of the ASU. Accordingly, the amendments in this update are effective for the Corporation for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. On January 1, 2022 the Corporation recognized a right-of-use asset and a lease obligation liability on the consolidated statement of financial condition. The adoption of the ASU was on a prospective basis and therefore comparative prior periods are still presented under ASC 840. Refer to footnote 11 - leases, for further details.

Pronouncements Not Yet Effective as of September 30, 2022:
FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”
Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables. The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in ASC Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU. A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023. The Corporation expects to recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the date of adoption. While the Corporation anticipates the allowance for credit losses will increase under current model assumptions, it expects the impact of adopting ASU 2016-13 will be influenced by the composition, characteristics and quality of its loan and investment securities portfolios, as well as general economic conditions and
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forecasts at the date of adoption. Management is currently running parallel tests under different methods and using various assumptions to determine the best approach for when we adopt this ASU, and has engaged a third party vendor to perform a model validation prior to adoption.
FASB ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments”
Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management is considering the impact of ASU 2019-04 while considering the impact of ASU 2016-13 as discussed above.
FASB ASU 2020-04 (Topic 848), “Reference Rate Reform (“ASC 848”): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”
Issued in March 2020, ASU 2020-04 contains optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The Corporation does not have a significant concentration of loans, derivative contracts, borrowings or other financial instruments with attributes that are either directly or indirectly dependent on LIBOR. The guidance under ASC-848 will be available for a limited time, generally through December 31, 2022. The Corporation expects to adopt the LIBOR transition relief allowed under this standard.
FASB ASU 2020-06, “Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”
This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models. For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, but no earlier than for fiscal years beginning after Dec. 15, 2020. The Company does not expect this to have a material impact on our consolidated financial statements.
FASB ASU 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures."
In March 2022, the FASB issued ASU No. 2022-02, "Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures." The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted CECL and enhance the disclosure requirements for modifications of receivables made with borrowers experiencing financial difficulty. In addition, the amendments require disclosure of current period gross write-offs by year of origination for financing receivables and net investment in leases in the existing vintage disclosures. This ASU is effective for fiscal years beginning after December 15, 2022 or January 1, 2023 for the Corporation, including interim periods within those fiscal years for entities that have adopted CECL. Early adoption is permitted if an entity has adopted CECL. The Corporation is in the process of evaluating the amendments but does not expect the adoption of this ASU will have a material impact on the Corporation's financial statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2021 included in Meridian Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).
Cautionary Statement Regarding Forward-Looking Statements
Meridian Corporation may from time to time make written or oral “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Meridian Corporation’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Meridian Corporation’s control). Numerous competitive, economic, regulatory, legal and technological factors, risks and uncertainties that could cause actual results to differ materially include, without limitation: the impact of the COVID-19 pandemic and government responses thereto; on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; and the risk that the Small Business Administration may not fund some or all PPP loan guaranties; increased competitive pressures; changes in the interest rate environment; changes in
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general economic conditions and conditions within the securities markets; legislative and regulatory changes; geopolitical tensions; and the effects of inflation, a potential recession, among others, could cause Meridian Corporation’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements. Meridian Corporation cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Meridian Corporation’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2021 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.
Critical Accounting Policies and Estimates
Our critical accounting policies are described in detail in the "Critical Accounting Policies" section within Item 7 of our 2021 Annual Form Form 10-K. The SEC defines "critical accounting policies" as those that require application of management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods. There have been no material changes in these policies during the nine months ended September 30, 2022.

Executive Overview
The following items highlight the Corporation’s changes in its financial condition as of September 30, 2022 compared to December 31, 2021 and the results of operations for the three and nine months ended September 30, 2022 compared to the same periods in 2021. More detailed information related to these highlights can be found in the sections that follow.
Changes in Financial Condition - September 30, 2022 Compared to December 31, 2021
•Total assets increased $208.5 million, or 12.2%, to $1.92 billion as of September 30, 2022.
•Portfolio loans, excluding PPP loans, increased $299.9 million, or 23.1%, to $1.60 billion as of September 30, 2022, which is 30.9% on an annualized basis.
•Mortgage loans held for sale decreased $47.1 million, or 58.2%, to $33.8 million at September 30, 2022.
•PPP loans decreased to $8.8 million as of September 30, 2022 which is a decrease of $81.4 million, or 90.2%, since December 31, 2021.
•During the quarter-ended March 31, 2022, $27.7 million of municipal securities previously classified as available-for-sale on the balance sheet, were transferred to the held-to-maturity portfolio.
•Total deposits increased $227.1 million or 15.7% to $1.67 billion at September 30, 2022.
•The Corporation returned $19.0 million of capital to Meridian shareholders during the nine months ended September 30, 2022 through dividends, including a $1.00 special dividend, $0.20 quarterly dividends, and also purchased $9.2 million or 295 thousand shares of treasury stock.

Three Month Results of Operations - September 30, 2022 Compared to the Same Period in 2021
•Consolidated net income was $5.8 million, or $0.96 per diluted share, down $3.6 million, or 38.6%, driven by a decline in non-interest income, partially offset by continued strong margin and lower operating expenses.
•The return on average assets and return on average equity was 1.23% and 14.59%, respectively, for the third quarter 2022, compared to 2.15% and 24.07%, respectively, for the third quarter 2021.
•Net interest margin increased to 4.01% from 3.83% due to higher yield on earning assets in this rising rate environment.
•Provision for loan losses decreased $71 thousand as a result of lower levels of specific reserves and improvements in certain qualitative factors, largely offset by increased provisioning for loan growth.
•Non-interest income decreased $11.9 million, or 53.8%, to $10.2 million driven by a $11.4 million decrease in mortgage banking income and a $1.7 million decrease in SBA loan income.
•Non-interest expense decreased $5.2 million, or 20.5%, to $20.3 million due to a $6.1 million decrease in salaries and employee benefits.
•On October 27, 2022, the Board of Directors declared a quarterly cash dividend of $0.20 per common share payable November 21, 2022 to shareholders of record as of November 14, 2022.

Nine Month Results of Operations - September 30, 2022 Compared to the Same Period in 2021
•Consolidated net income was $17.3 million, or $2.80 per diluted share, down $10.6 million, or 38.0%, driven by a lower level of non-interest income from mortgage banking activity, partially offset by continued strong margin and lower operating expenses.
•The return on average assets and return on average equity were 1.28% and 14.49%, respectively, for the nine months ended September 30, 2022, compared to 2.17% and 25.43%, respectively, for the nine months ended September 30, 2021.
•Net interest margin increased to 3.99% from 3.75% due to higher yield on earning assets in this rising rate environment along with $286 thousand in one-time loan fees.
•Provision for loan losses increased $451 thousand, or 34.9%, due to loan growth, partially offset by decreases in specific reserves.
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•Non-interest income decreased $37.2 million, or 52.4%, to $33.7 million driven by a $40.9 million decrease in mortgage banking income and a $2.5 million decline in the fair value on loans held-for-investment, partially offset by an increase of $4.8 million in the fair value of derivatives and loans held-for-sale and a $2.5 million increase in net gains on hedging activity related to mortgage banking activity.
•Non-interest expense decreased $18.6 million, or 23.2% to $61.4 million as the result of a $20.2 million decrease in salaries and employee benefits tied to a decrease in variable compensation in our mortgage segment.

Key Performance Ratios
The following table presents key financial performance ratios for the periods indicated:
Three months ended
September 30,		Nine months ended
September 30,
2022202120222021
Return on average assets, annualized1.23 %2.15 %1.28 %2.17 %
Return on average equity, annualized14.59 %24.07 %14.49 %25.43 %
Net interest margin (tax effected yield), annualized4.01 %3.83 %3.99 %3.75 %
Basic earnings per share$0.99 $1.56 $2.90 $4.62 
Diluted earnings per share$0.96 $1.52 $2.80 $4.49 
The following table presents certain key period-end balances and ratios at the dates indicated:
(dollars in thousands, except per share amounts)September 30,
2022		December 31,
2021
Book value per common share $25.86 $27.07 
Tangible book value per common share (1)$25.16 $26.37 
Allowance as a percentage of loans and leases held for investment 1.18 %1.35 %
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)1.20 %1.46 %
Tier I capital to risk weighted assets9.28 %10.83 %
Tangible common equity to tangible assets ratio (1) 7.67 %9.42 %
Loans, net of fees and costs$1,610,349 $1,386,457 
Total assets$1,921,924 $1,713,443 
Total stockholders’ equity$151,161 $165,360 
(1) Non-GAAP financial measure. See “Non-GAAP Financial Measures” below for Non-GAAP to GAAP reconciliation.

Components of Net Income
Net income is comprised of five major elements:
•Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;
•Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;
•Non-interest Income, which is made up primarily of mortgage banking income, wealth management income, SBA loan sale income, fair value adjustments, gains and losses from the sale of loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;
•Non-interest Expense, which consists primarily of salaries and employee benefits, occupancy, professional fees, advertising & promotion, data processing, information technology, loan expenses, and other operating expenses; and
•Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME
Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary for the three and nine months ended September 30, 2022 and 2021, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the result of net free funding sources such as non-interest bearing deposits and stockholders’ equity.
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Analyses of Interest Rates and Interest Differential
The tables below present the major asset and liability categories on an average daily balance basis for the periods presented, along with interest income, interest expense and key rates and yields on a tax equivalent basis.
For the Three Months Ended September 30,
(dollars in thousands)20222021Change
Average BalanceInterest Income/ ExpenseYields/ RatesAverage BalanceInterest Income/ ExpenseYields/ RatesAverage BalanceInterest Income/ ExpenseYields/ Rates
Assets:
Due from banks$15,678 $92 2.33 %$40,249 $16 0.16 %$(24,571)$76 2.17 %
Federal funds sold219 1 1.81 23,013 1 0.02 (22,794)— 1.79 
Investment securities - taxable (1)107,929 648 2.38 79,785 357 1.78 28,144 291 0.60 
Investment securities - tax exempt (1)63,711 451 2.81 67,250 377 2.22 (3,539)74 0.59 
Loans held for sale37,857 479 5.02 110,905 824 2.97 (73,048)(345)2.05 
Loans held for investment (1)1,565,861 21,371 5.41 1,370,439 16,804 4.84 195,422 4,567 0.57 
Total loans1,603,718 21,850 5.41 1,481,344 17,628 4.72 122,374 4,222 0.69 
Total interest-earning assets1,791,255 23,042 5.10 %1,691,641 18,379 4.31 %99,614 4,663 0.79 %
Noninterest earning assets76,939 48,207 28,732 
Total assets$1,868,194 $1,739,848 $128,346 
Liabilities and stockholders' equity:
Interest-bearing demand deposits$221,402 $798 1.43 %$270,518 $201 0.29 %$(49,116)$597 1.14 %
Money market and savings deposits718,744 2,075 1.15 647,093 853 0.52 71,651 1,222 0.63 
Time deposits361,527 1,202 1.32 237,080 273 0.46 124,447 929 0.86 
Total deposits1,301,673 4,075 1.24 1,154,691 1,327 0.46 146,982 2,748 0.78 
Borrowings41,313 266 2.55 111,075 126 0.45 (69,762)140 2.10 
Subordinated debentures40,578 591 5.78 40,740 596 5.85 (162)(5)(0.07)
Total interest-bearing liabilities1,383,564 4,932 1.41 1,306,506 2,049 0.62 77,058 2,883 0.79 
Noninterest-bearing deposits295,975 254,843 41,132 
Other noninterest-bearing liabilities31,041 22,919 8,122 
Total liabilities1,710,580 1,584,268 126,312 
Total stockholders' equity157,614 155,580 2,034 
Total stockholders' equity and liabilities$1,868,194 $1,739,848 $128,346 
Net interest income and spread (1)$18,110 3.69 $16,330 3.69 $1,780 — 
Net interest margin (1)4.01 %3.83 %0.18 %
(1)Yields and net interest income are reflected on a tax-equivalent basis.

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For the Nine Months Ended September 30,
(dollars in thousands)20222021Change
Average BalanceInterest Income/ ExpenseYields/ RatesAverage BalanceInterest Income/ ExpenseYields/ RatesAverage BalanceInterest Income/ ExpenseYields/ Rates
Assets:
Due from banks$23,612 $153 0.87 %$24,340 $22 0.12 %$(728)$131 0.75 %
Federal funds sold1,440 4 0.37 18,991 3 0.02 (17,551)1 0.35 
Investment securities - taxable (1)105,624 1,599 2.02 78,951 1,076 1.82 26,673 523 0.20 
Investment securities - tax exempt (1)63,848 1,240 2.60 64,023 1,094 2.28 (175)146 0.32 
Loans held for sale52,495 1,580 4.02 139,101 2,922 2.80 (86,606)(1,342)1.22 
Loans held for investment (1)1,489,345 56,614 5.08 1,349,780 48,375 4.79 139,565 8,239 0.29 
Total loans1,541,840 58,194 5.05 1,488,881 51,297 4.61 52,959 6,897 0.44 
Total interest-earning assets1,736,364 61,190 4.71 %1,675,186 53,492 4.27 %61,178 7,698 0.44 %
Noninterest earning assets74,313 44,388 29,925 
Total assets$1,810,677 $1,719,574 $91,103 
Liabilities and stockholders' equity:
Interest-bearing demand deposits$242,863 $1,183 0.65 %$252,074 $739 0.39 %$(9,211)$444 0.26 %
Money market and savings deposits702,696 4,003 0.76 609,201 2,505 0.55 93,495 1,498 0.21 
Time deposits319,927 1,996 0.83 258,099 1,017 0.53 61,828 979 0.30 
Total deposits1,265,486 7,182 0.76 1,119,374 4,261 0.51 146,112 2,921 0.25 
Borrowings24,621 391 2.12 139,716 437 0.42 (115,095)(46)1.70 
Subordinated debentures40,548 1,775 5.85 40,711 1,787 5.87 (163)(12)(0.02)
Total interest-bearing liabilities1,330,655 9,348 0.94 1,299,801 6,485 0.67 30,854 2,863 0.27 
Noninterest-bearing deposits291,261 248,355 42,906 
Other noninterest-bearing liabilities29,452 24,928 4,524 
Total liabilities1,651,368 1,573,084 78,284 
Total stockholders' equity159,309 146,490 12,819 
Total stockholders' equity and liabilities$1,810,677 $1,719,574 $91,103 
Net interest income and spread (1)$51,842 3.77 $47,007 3.60 $4,835 0.17 
Net interest margin (1)3.99 %3.75 %0.24 %
(1)Yields and net interest income are reflected on a tax-equivalent basis.


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Rate/Volume Analysis
The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and nine months ended September 30, 2022 as compared to the same periods in 2021, allocated by rate and volume. Changes in interest income and/or expense attributable to both rate and volume have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.
2022 Compared to 2021
Three Months Ended September 30,
Nine Months Ended September 30,
(dollars in thousands)RateVolumeTotalRateVolumeTotal
Interest income:
Due from banks$91 $(15)$76 $132 $(1)$131 
Federal funds sold2 (2)— 6 (5)1 
Investment securities - taxable (1)143 148 291 129 394 523 
Investment securities - tax exempt (1)95 (21)74 149 (3)146 
Loans held for sale382 (727)(345)942 (2,284)(1,342)
Loans held for investment (1)2,020 2,547 4,567 3,046 5,193 8,239 
Total loans2,402 1,820 4,222 3,988 2,909 6,897 
Total interest income$2,733 $1,930 $4,663 $4,404 $3,294 $7,698 
Interest expense:
Interest-bearing demand deposits$640 $(43)$597 $472 $(28)$444 
Money market and savings deposits1,118 104 1,222 1,071 427 1,498 
Time deposits727 202 929 694 285 979 
Total deposits2,485 263 2,748 2,237 684 2,921 
Borrowings263 (123)140 561 (607)(46)
Subordinated debentures(3)(2)(5)(5)(7)(12)
Total interest expense$2,745 $138 $2,883 $2,793 $70 $2,863 
Interest differential$(12)$1,792 $1,780 $1,611 $3,224 $4,835 
(1)Yields and net interest income are reflected on a tax-equivalent basis.
Three Months Ended September 30, 2022 Compared to the Same Period in 2021
For the three months ended September 30, 2022 as compared to the same period in 2021, tax-equivalent interest income increased $4.7 million as favorable rate and volume changes contributed $2.7 million, and $1.9 million, respectively. The favorable change in rates was driven by increased yield on loans held for sale (up 205 basis points) and loans held for investment (up 57 basis points) that favorably impact interest income by $2.4 million, combined. The loans held for investment average balances increased $195.4 million, leading to a favorable volume impact on interest income of $2.5 million, while the decline in loans held for sale average balances of $73.0 million had an unfavorable impact to interest income of $727 thousand as shown in the table above. Within the loans held for investment portfolio, average balances on commercial loans and leases increased $33.6 million, and $54.0 million, respectively, construction loans were up $65.3 million, and residential real estate loans average balances increased $78.2 million, while the average balance of PPP loans decreased $132.4 million as such loans continue to be forgiven by the SBA.

On the funding side, interest expense increased $2.9 million due to the impact from rate hikes issued by the Fed, which were partially offset by volume declines on borrowings. The cost of deposits were up across the board, causing a $2.5 million increase to interest expense. The cost of interest-bearing demand deposits, money market and savings accounts and time deposits increased 114 basis points, 63 basis points and 86 basis points, respectively, while the cost of borrowings increased 210 basis points. Money market/savings accounts and time deposit average balances increased $71.7 million, and $124.4 million, respectively, while interest-bearing demand deposits decreased $49.1 million on average, and borrowings decreased $69.8 million on average.

Overall, the $1.8 million increase in net interest income was derived by volume changes as the impact from increased average earning assets and the $41.1 million in free funding outpaced the increase in average interest bearing liabilities.

Nine Months Ended September 30, 2022 Compared to the Same Period in 2021
For the nine months ended September 30, 2022 as compared to the same period in 2021, tax-equivalent interest income increased $7.7 million as positive rate changes on average earning assets contributed $4.4 million and favorable volume changes helped to increase interest income by $3.3 million. The favorable change in interest income due to rate changes was driven by growth in the loans held for sale (increase of 122 basis points) and the overall loans held for investment portfolio (increase of 29 basis points). This large
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increase in the yield on loans held for sale was the result of interest rates hovering at historical lows throughout much of 2021, but then as the Fed raised interest rates in 2022, the yield benefited from this action. The $3.3 million positive impact that volume changes had to interest income was largely the result of loan average balance increases, which contributed $5.2 million to interest income, offset by a decline in the volume of loans held or sale which had an unfavorable impact of $2.3 million on interest income. The increase in loans held for investment average balances were led by an increases in commercial loans, small business loans and leases of $30 million, $58.1 million, and $56.5 million, respectively, construction loans of $50.8 million, and residential loans held for investment of $47.3 million, offset somewhat by a $152.3 million decline in PPP loan balances as they continue to be forgiven by the SBA.

On the funding side, interest expense increased $2.9 million. The cost of deposits was up, having a $2.9 million negative effect on interest expense. The cost of interest-bearing demand deposits, money market and savings deposits, and time deposits increased 26 basis points, 21 basis points, and 30 basis points, respectively, while the cost of borrowings increased 170 basis points. Money market and savings accounts, and time deposits increased $93.5 million, and $61.8 million on average respectively, while interest bearing demand deposits and borrowings were down $9.2 million and $115.1 million on average, respectively, leading to a $70 thousand increase in interest expense.

Overall, the $4.8 million increase in net interest income was derived by volume changes as the impact from increased average earning assets and the $42.9 million in free funding outpaced the increase in average interest bearing liabilities.


PROVISION FOR LOAN AND LEASE LOSSES
Three Months Ended September 30, 2022 Compared to the Same Period in 2021
The provision for loan losses decreased $71 thousand due to decreases in specific reserves on non-performing loans as the underlying credit quality improved and certain qualitative factors improved as well, partially offset by providing for continued loan growth and charge-offs on small ticket equipment leases.
Nine Months Ended September 30, 2022 Compared to the Same Period in 2021
The provision for loan losses increased $451 thousand to provide for the significant level of loan growth year over year, partially offset by the impact of decreases to specific reserves and qualitative factors noted above.

Asset Quality Summary
Meridian's credit culture is strong and asset quality remains a primary focus of management. The ratio of non-performing assets to total assets declined to 1.20% as of September 30, 2022, from 1.34% as of December 31, 2021. There was no other real estate property included in non-performing assets for either period. Total non-performing loans were $23.1 million and $23.0 million as of September 30, 2022 and December 31, 2021, respectively, however subsequent to September 30, 2022, principal payments of $3.2 million and $307 thousand on a non-performing loan relationship were received.
Meridian realized net charge-offs of 0.10% of total average loans for the year ending September 30, 2022 which is higher than the 0.01% over the same period in 2021. Charge-offs amounted to $431 thousand for the quarter ending September 30, 2022, while recoveries were $74 thousand during this quarter. Nearly all of the charge-offs for the quarter ending September 30, 2022 were from small ticket equipment leases, while recoveries were split between commercial loans and home equity loans. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure, see reconciliation in the Appendix), was 1.20% as of September 30, 2022 and 1.46% as of December 31, 2021. As of September 30, 2022 there were specific reserves of $2.8 million against a non-performing loans, down from $3.2 million as of December 31, 2021 due to improvement in the underlying credit quality for certain loans, as discussed in the above paragraph.
The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.

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Nonperforming Assets and Related Ratios
The following table presents nonperforming assets and related ratios for the periods indicated:
(dollars in thousands)September 30,
2022		December 31,
2021
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Home equity lines and loans$878 $911 
Residential mortgage2,097 2,398 
Total real estate loans2,975 3,309 
Commercial and industrial18,202 18,801 
Small business loans1,401 666 
Leases506 212 
Total nonaccrual loans23,084 22,988 
Total non-performing assets$23,084 $22,988 
Troubled debt restructurings:
TDRs included in non-performing loans and leases$193 $361 
TDRs in compliance with modified terms3,637 3,446 
Total TDRs$3,830 $3,807 
Asset quality ratios:
Non-performing assets to total assets1.20 %1.34 %
Non-performing loans to:
Total loans and leases1.40 %1.57 %
Total loans held-for-investment1.43 %1.66 %
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)1.45 %1.80 %
Allowance for loan losses to:
Total loans and leases1.15 %1.28 %
Total loans held-for-investment 1.18 %1.35 %
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)1.20 %1.46 %
Non-performing loans 82.20 %81.60 %
Total loans and leases$1,644,149 $1,467,339 
Total loans and leases held-for-investment$1,610,349 $1,386,457 
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)$1,587,037 $1,280,654 
Allowance for loan and lease losses$18,974 $18,758 
(1) The allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure.


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NON-INTEREST INCOME
Three Months Ended September 30, 2022 Compared to the Same Period in 2021
The following table presents the components of non-interest income for the periods indicated:
Quarter Ended
(Dollars in thousands)September 30,
2022		September 30, 2021$ Change% Change
Mortgage banking income$7,329 $18,726 $(11,397)(60.9)%
Wealth management income1,114 1,232 (118)(9.6)%
SBA loan income989 2,688 (1,699)(63.2)%
Earnings on investment in life insurance138 93 45 48.4 %
Net change in the fair value of derivative instruments127 (339)466 (137.5)%
Net change in the fair value of loans held-for-sale(237)(532)295 (55.5)%
Net change in the fair value of loans held-for-investment(886)37 (923)(2494.6)%
Net gain on hedging activity399 (1,189)1,588 (133.6)%
Net gain on sale of investment securities available-for-sale— 314 (314)(100.0)%
Service charges32 35 (3)(8.6)%
Other1,219 1,057 162 15.3 %
Total non-interest income$10,224 $22,122 $(11,898)(53.8)%
Total non-interest income decreased $11.9 million due primarily to lower income from our mortgage segment, which was impacted by lower levels of mortgage loan originations in a rising rate environment and a lack of housing inventory. Partially offsetting the impact of the decline in mortgage banking income were net changes in the fair value of derivative instruments and loans held-for-sale, along with an improvement in net gains on hedging activity which increased $2.3 million, combined.
SBA loan income decreased $1.7 million as a higher volume of SBA loans were sold into the secondary market in the prior year comparable quarter: $20.8 million of loans were sold in the quarter-ending September 30, 2022 compared to $25.0 million in loans sold in the quarter-ending September 30, 2021. Contributing to lower SBA loan income, margins on the SBA loan sales decreased from the prior year due to the upward movement in interest rates, which drove SBA loan prices down.
The net change in the fair value of loans held-for-investment decreased to a loss of $886 thousand for the quarter ended September 30, 2022, compared to a gain of $37 thousand for the comparable prior year quarter, due to the negative impact the rising interest rate environment had on the fair value of the loans in portfolio that are held at fair value. Other non-interest income was up $162 thousand due to increases in title fee income, FHLB stock dividend income and broker fee income.
Nine Months Ended September 30, 2022 Compared to the Same Period in 2021
The following table presents the components of non-interest income for the periods indicated:
Year Ended
(Dollars in thousands)September 30,
2022		September 30, 2021$ Change% Change
Mortgage banking income$21,367 $62,293 $(40,926)(65.7)%
Wealth management income3,672 3,531 141 4.0 %
SBA loan income3,946 5,423 (1,477)(27.2)%
Earnings on investment in life insurance413 224 189 84.4 %
Net change in the fair value of derivative instruments(713)(3,431)2,718 (79.2)%
Net change in the fair value of loans held-for-sale(1,094)(3,164)2,070 (65.4)%
Net change in the fair value of loans held-for-investment(2,499)(24)(2,475)10312.5 %
Net gain on hedging activity4,941 2,397 2,544 106.1 %
Net gain on sale of investment securities available-for-sale— 362 (362)(100.0)%
Service charges90 99 (9)(9.1)%
Other3,605 3,192 413 12.9 %
Total non-interest income$33,728 $70,902 $(37,174)(52.4)%
Total non-interest income decreased due primarily to lower income from our mortgage segment, which was impacted by lower levels of mortgage loan originations in a rising rate environment and a lack of housing inventory.

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NON-INTEREST EXPENSE
Three Months Ended September 30, 2022 Compared to the Same Period in 2021
The following table presents the components of non-interest income for the periods indicated:
Quarter Ended
(Dollars in thousands)September 30,
2022		September 30, 2021$ Change% Change
Salaries and employee benefits$13,360 $19,472 $(6,112)(31.4)%
Occupancy and equipment1,191 1,133 58 5.1 %
Professional fees899 873 26 3.0 %
Advertising and promotion1,165 1,089 76 7.0 %
Data processing574 530 44 8.3 %
Information technology868 476 392 82.4 %
Pennsylvania bank shares tax202 152 50 32.9 %
Other2,002 1,756 246 14.0 %
Total non-interest expense$20,261 $25,481 $(5,220)(20.5)%
Total non-interest expense decreased largely attributable to a decrease in salaries and employee benefits expense in the mortgage segment, which had reduced fixed and variable based compensation.
Information technology expense increased $392 thousand due to cybersecurity improvements, cloud-based costs and other software upgrades, all as a result of growth. Other non-interest expense increased $246 thousand due to the increased level of client engagement and business development our employees were able to do in the current period versus the prior year due to COVID-19 pandemic restrictions.
Nine Months Ended September 30, 2022 Compared to the Same Period in 2021
The following table presents the components of non-interest income for the periods indicated:
Year Ended
(Dollars in thousands)September 30,
2022		September 30, 2021$ Change% Change
Salaries and employee benefits$41,585 $61,824 $(20,239)(32.7)%
Occupancy and equipment3,619 3,460 159 4.6 %
Professional fees2,659 2,629 30 1.1 %
Advertising and promotion3,340 2,795 545 19.5 %
Data processing1,633 1,666 (33)(2.0)%
Information technology2,306 1,365 941 68.9 %
Pennsylvania bank shares tax612 478 134 28.0 %
Other5,646 5,773 (127)(2.2)%
Total non-interest expense$61,400 $79,990 $(18,590)(23.2)%
Total non-interest expense decreased largely attributable to a decrease in salaries and employee benefits expense at the mortgage segment, which recognized decreased and variable compensation. Partially offsetting this decrease was an increase in salaries & benefits expense for the bank and wealth segments due to an increase in FTEs and a higher level of stock-based compensation expense year-over-year.
Advertising and promotion expense increased $545 thousand as the result of a renewed and focused priority placed on business development and community outreach efforts. Information technology expense increased $941 thousand due to cybersecurity improvements, cloud-based costs and other software upgrades, all as a result of growth.

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

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

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BALANCE SHEET ANALYSIS
As of September 30, 2022, total assets were $1.92 billion which increased $208.5 million, or 12.2%, from December 31, 2021. This growth in assets over the prior period was due primarily to loan portfolio growth, as detailed in the following table:
(Dollars in thousands)September 30,
2022		December 31,
2021		$ Change% Change
Mortgage loans held for sale$33,800 $80,882 $(47,082)(58.2)%
Real estate loans:
Commercial mortgage545,736 516,928 28,808 5.6 %
Home equity lines and loans57,648 52,299 5,349 10.2 %
Residential mortgage (1)153,513 68,175 85,338 125.2 %
Construction244,435 160,905 83,530 51.9 %
Total real estate loans1,001,332 798,307 203,025 25.4 %
Commercial and industrial329,451 293,771 35,680 12.1 %
Small business loans133,904 114,158 19,746 17.3 %
Paycheck Protection Program loans 8,837 90,194 (81,357)(90.2)%
Main Street Lending Program Loans 597 597 — — %
Consumer497 419 78 18.6 %
Leases, net129,574 88,242 41,332 46.8 %
Total portfolio loans and leases$1,604,192 $1,385,688 $218,504 15.8 %
Total loans and leases$1,637,992 $1,466,570 $171,422 11.7 %
Portfolio loans increased grew $218.5 million, or 15.8%, to $1.6 billion as of September 30, 2022, from $1.4 billion as of December 31, 2021. Overall portfolio loan growth, excluding PPP loans, was 23.1% since December 31, 2021, or 30.9% on an annualized basis for 2022. Commercial loans increased $35.7 million, or 12.1%, commercial real estate loans increased $28.8 million, or 5.6%, construction loans increased $83.5 million, or 51.9%, residential real estate loans held in portfolio increased $85.3 million, or 125.2%, and lease financings increased $41.3 million, or 46.8% from December 31, 2021. Partially offsetting the growth in portfolio loans was a decrease of $81.4 million, or 90.2%, in PPP loan balances as such loans continue to be paid off by the SBA.

The following table presents the major categories of deposits at the dates indicated:
(Dollars in thousands)September 30,
2022		December 31,
2021		$ Change% Change
Noninterest-bearing deposits$290,169 $274,528 $15,641 5.7 %
Interest-bearing deposits:
Interest-bearing demand deposits236,562 268,248 (31,686)(11.8)%
Money market and savings deposits709,127 697,628 11,499 1.6 %
Time deposits437,695 206,009 231,686 112.5 %
Total interest-bearing deposits1,383,384 1,171,885 211,499 18.0 %
Total deposits$1,673,553 $1,446,413 $227,140 15.7 %
Total deposits increased $227.1 million, or 15.7%, since December 31, 2021. While noninterest-bearing deposits increased $15.6 million over this period, the largest increase was in time deposits, $211.5 million, or 18.0%, largely from retail and wholesale time deposits due to more favorable interest rates.

Capital
Consolidated stockholders’ equity of the Corporation was $151.2 million, or 7.9% of total assets as of September 30, 2022, as compared to $165.4 million, or 9.7% of total assets as of December 31, 2021.
Period end numbers show a tangible common equity to tangible assets ratio (a non-GAAP measure) of 7.7% for the Corporation and 9.6% for the Bank. Tangible book value per share (a non-GAAP measure) was $25.16 as of September 30, 2022, compared with 26.37 as of December 31, 2021. A reconciliation of these non-GAAP measures is below.
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The following table presents the Corporation’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators at the periods indicated:
CorporationBankWell-capitalized minimum
September 30,
2022		December 31,
2021		September 30,
2022		December 31,
2021
Tier 1 leverage ratio8.54 %9.39 %10.52 %11.51 %5.00 %
Common tier 1 risk-based capital ratio9.28 %10.83 %11.44 %13.27 %6.50 %
Tier 1 risk-based capital ratio9.28 %10.83 %11.44 %13.27 %8.00 %
Total risk-based capital ratio12.80 %14.81 %12.70 %14.63 %10.00 %
Under the Community Bank Leverage Ratio framework, a community banking organization that is less than $10 billion in total consolidated assets, and has limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9% can elect to report a single regulatory capital ratio. The Corporation has elected to be measured under this framework for Bank capital adequacy and had ratios of 10.52% and 11.51% at September 30, 2022 and December 31, 2021, respectively. The Corporation is exempt from CBLR. The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic.

Liquidity
Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Meridian’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization or that can be used as collateral to secure funding. In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of shared national credits (“SNCs”), which have a national market and can be sold in a timely manner. Meridian’s available liquidity, which totaled $264.7 million at September 30, 2022, compared to $263.6 million at December 31, 2021, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities. Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.
In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs. Through its relationship at the Federal Reserve, Meridian had available credit of approximately $9.2 million at September 30, 2022. At September 30, 2022, Meridian had no borrowings from the Federal Reserve. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of September 30, 2022, Meridian’s maximum borrowing capacity with the FHLB was $529.2 million. At September 30, 2022, Meridian had borrowed $23.4 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $74.8 million against its available credit lines. At September 30, 2022, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as $214.7 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and $333.1 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

Discussion of Segments
As of September 30, 2022, the Corporation has three principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking, Mortgage Banking and Wealth Management (see Note 10 in the accompanying Notes to Unaudited Consolidated Financial Statements).
The Banking Segment recorded income before tax of $7.5 million and $22.5 million for the three and nine months ended September 30, 2022 as compared to income before tax of $8.3 million and $23.5 million for the same periods in 2021. The Banking Segment provided 100.6% and 101.4% of the Corporation’s pre-tax profit for the three and nine month periods ended September 30, 2022, as compared to 69.0% and 65.9% for the same period in 2021.
The Wealth Management Segment recorded income before tax of $552 thousand and $1.8 million for the three and nine months ended September 30, 2022 as compared to income before tax of $432 thousand and $796 thousand for the same periods in 2021. The increase in income in this segment came from an increase in customer based as the number of accounts grew 2.5% and 4.5%, for the three and nine months ended September 30, 2022, respectively.
The Mortgage Banking Segment recorded a loss before tax of $603 thousand and a loss before tax of $2.2 million for the three and nine months ended September 30, 2022 as compared to income before tax of $3.6 million and $12.1 million for the same periods in 2021. Mortgage Banking income and expenses related to loan originations and sales decreased due to lower origination volume.


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Off Balance Sheet Risk
The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit, and loan repurchase commitments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, 2022 were $505.9 million as compared to $486.6 million at December 31, 2021.
Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at September 30, 2022 amounted to $21.5 million as compared to $26.0 million at December 31, 2021.
Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.
In certain circumstances the Corporation may be required to repurchase residential mortgage loans from investors under the terms of loan sale agreements. Generally, these circumstances include the breach of representations and warranties made to investors regarding borrower default or early payment, as well as a violation of the applicable federal, state, or local lending laws. The Corporation agrees to repurchase loans if the representations and warranties made with respect to such loans are breached. Based on the obligations described above, the Corporation repurchased one loan totaling $126 thousand for the three months ended September 30, 2022 and seven loans totaling $1.6 million for the nine months ended September 30, 2022, and repurchased one loan in the amount of $115 thousand for the three months ended September 30, 2021 and four loans totaling $561 thousand for the nine months ended September 30, 2021.

Non-GAAP Financial Measures
Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate performance trends and the adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Our management used the measure of the tangible common equity ratio to assess our capital strength. We believe that this non-GAAP financial measure is useful to investors because, by removing the impact of our goodwill and other intangible assets, it allows investors to more easily assess our capital adequacy. This non-GAAP financial measure should not be considered a substitute for any regulatory capital ratios and may not be comparable to other similarly titled measures used by other companies.
The table below provides the non-GAAP reconciliation for our tangible common equity ratio and tangible book value per common share:
(dollars in thousands)September 30,
2022		December 31,
2021
Total stockholders' equity (GAAP)$151,161 $165,360 
Less: Goodwill and intangible assets4,125 4,278 
Tangible common equity (non-GAAP)147,036 161,082 
Total assets (GAAP)1,921,924 1,713,443 
Less: Goodwill and intangible assets4,125 4,278 
Tangible assets (non-GAAP)$1,917,799 $1,709,165 
Stockholders' equity to total assets (GAAP)7.87 %9.65 %
Tangible common equity to tangible assets (non-GAAP)7.67 %9.42 %
Shares outstanding5,844 6,108 
Book value per share (GAAP)$25.86 $27.07 
Tangible book value per share (non-GAAP)$25.16 $26.37 
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The following is a reconciliation of the allowance for loan losses to total loans held for investment ratio at September 30, 2022. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued and the impact of PPP loans as these loan types are not included in the allowance for loan losses calculation.
September 30,
2022		December 31,
2021
Allowance for loan and lease losses$18,974 $18,758 
Loans, net of fees and costs (GAAP)1,610,349 1,386,457 
Less: PPP loans(8,610)(88,245)
Less: Loans fair valued(14,702)(17,558)
Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)$1,587,037 $1,280,654 
Allowance for loan and leases losses to loans, net of fees and costs (GAAP)1.18 %1.35 %
Allowance for loan and leases losses to loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)1.20 %1.46 %



Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Simulations of Net Interest Income
We use a simulation model on a quarterly basis to measure and evaluate potential changes in our net interest income resulting from various hypothetical interest rate scenarios. Our model incorporates various assumptions that management believes to be reasonable, but which may have a significant impact on results such as:
•The timing of changes in interest rates;
•Shifts or rotations in the yield curve;
•Repricing characteristics for market rate sensitive instruments on the balance sheet;
•Differing sensitivities of financial instruments due to differing underlying rate indices;
•Varying timing of loan prepayments for different interest rate scenarios;
•The effect of interest rate floors, periodic loan caps and lifetime loan caps;
•Overall growth rates and product mix of interest-earning assets and interest-bearing liabilities.
Because of the limitations inherent in any approach used to measure interest rate risk, simulated results are not intended to be used as a forecast of the actual effect of a change in market interest rates on our results, but rather as a means to better plan and execute appropriate Asset / Liability Management (“ALM”) strategies.
Potential increase (decrease) to our net interest income between a flat interest rate scenario and hypothetical rising and declining interest rate scenarios, measured over a one-year period as of the dates indicated, are presented in the following table which assuming rate shifts occur upward and downward on the yield curve in even increments over the first twelve months (ramp) followed by rates held constant thereafter.
Nine Months Ended
September 30,
Changes in Market Interest Rates20222021
+300 basis points over next 12 months0.13 %1.75 %
+200 basis points over next 12 months0.29 %1.01 %
+100 basis points over next 12 months0.15 %0.43 %
No Change
-100 basis points over next 12 months(1.40)%(0.68)%
-200 basis points over next 12 months(3.19)%(3.03)%
The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of September 30, 2022. In its current position, the table indicates that a 100 basis point increase in interest rates would have a positive impact from rising rates on net interest income over the next 12 months as well as in a 200 and 300 basis point increase. The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results continue to drive our funding strategy of increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.
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Simulation of economic value of equity
To quantify the amount of capital required to absorb potential losses in value of our interest-earning assets and interest-bearing liabilities resulting from adverse market movements, we calculate economic value of equity on a quarterly basis. We define economic value of equity as the net present value of our balance sheet’s cash flow, and we calculate economic value of equity by discounting anticipated principal and interest cash flows under the prevailing and hypothetical interest rate environments. Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios are presented in the following table. The projections assume shifts upward and downward in the yield curve of 100, 200 and 300 basis points occurring immediately.
Changes in Market Interest RatesSeptember 30,
2022		September 30,
2021
+300 basis points 5 %62 %
+200 basis points6 %47 %
+100 basis points4 %28 %
No Change
-100 basis points(9)%(41)%
-200 basis points(25)%(103)%
This economic value of equity profile at September 30, 2022 suggests that we would experience a positive effect from an increase in rates, and that the impact would remain stable as rates continue to rise. Conversely, we would experience a negative effect from a decrease in rates. While an instantaneous shift in interest rates is used in this analysis to provide an estimate of exposure, we believe that a gradual shift in interest rates would have a much more modest impact. Since economic value of equity measures the discounted present value of cash flows over the estimated lives of instruments, the change in economic value of equity does not directly correlate to the degree that earnings would be impacted over a shorter time horizon.
The results of our net interest income and economic value of equity simulation analysis are purely hypothetical, and a variety of factors might cause actual results to differ substantially from what is depicted. For example, if the timing and magnitude of interest rate changes differ from that projected, our net interest income might vary significantly. Non-parallel yield curve shifts or changes in interest rate spreads would also cause our net interest income to be different from that projected. An increasing interest rate environment could reduce projected net interest income if deposits and other short-term interest-bearing liabilities reprice faster than expected or faster than our interest-earning assets. Actual results could differ from those projected if we grow interest-earning assets and interest-bearing liabilities faster or slower than estimated, or otherwise change its mix of products. Actual results could also differ from those projected if we experience substantially different repayment speeds in our loan portfolio than those assumed in the simulation model. Furthermore, the results do not take into account the impact of changes in loan prepayment rates on loan discount accretion. If prepayment rates were to increase on our loans, we would recognize any remaining loan discounts into interest income. This would result in a current period offset to declining net interest income caused by higher rate loans prepaying. Finally, these simulation results do not contemplate all the actions that we may undertake in response to changes in interest rates, such as changes to our loan, investment, deposit, funding or other strategies.
Finally, these simulation results do not contemplate all the actions that we may undertake in response to changes in interest rates, such as changes to our loan, investment, deposit, funding or other strategies.
Management has and continues to employ strategies to mitigate risk in the Net Interest Income and Economic Value simulations. Strategies include actively lowering deposit and funding rates, adding and maintaining interest rate floors on assets and lengthening liabilities in the low rate environment.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Corporation’s CEO and CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2022 to ensure that the information required to be disclosed by the Corporation in the reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized, and reported completely and accurately within the time periods specified in SEC rules and forms.
Changes in Internal Control Over Financial Reporting
There was no change in the Corporation’s internal control over financial reporting identified during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.




43
PART II–OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 1A. Risk Factors.
There have been no material changes in the risk factors faced by the Corporation from those disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
The following table presents the shares repurchased by the Corporation during the quarter ended September 30, 2022:
Issuer Purchases of Equity Securities
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsApproximate Dollar Value that May Yet Be Purchased Under the Plan or Programs (1)($000's)
(Dollars in thousands, except shares and per share amounts)
July 1 to July 31, 202216,370$28.74 16,370
August 1 to August 31, 2022159,010$30.53 159,010
September 1 to September 30, 202222,469$29.90 22,469
Total197,849$29.76 $5,610
(1) On August 30, 2021, the Corporation announced a stock repurchase plan pursuant to which the Corporation may repurchase up to $20 million of the company’s outstanding common stock, par value $1.00 per share. Stock is purchased under the plan from time to time in the open market or through privately negotiated transactions, or otherwise, at the discretion of management of the company in accordance with legal requirements.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
44

Item 6. Exhibits.
EXHIBIT INDEX
Exhibit
Number		Description
2.1
3.1
3.2


4.2


4.3


31.1
31.2
32
101.INSXBRL Instance Document – The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104Cover Page Interactive Data File – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
45

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date:November 9, 2022Meridian Corporation
By:/s/ Christopher J. Annas
Christopher J. Annas
President and Chief Executive Officer
(Principal Executive Officer)
By:/s/ Denise Lindsay
Denise Lindsay
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
46
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