MRBK Meridian Corporation

Meridian Corporation (Nasdaq: MRBK) today reported:

• Net income of $4.0 million and diluted earnings of $0.35 per share for the third quarter ended September 30, 2023.
• Return on average assets and return on average equity for the third quarter of 2023 were 0.73% and 10.17%, respectively.
• Net interest margin was 3.29% for the third quarter of 2023, with a loan yield of 7.08%.
• Total assets at September 30, 2023 and June 30, 2023 were $2.2 billion, compared to $1.9 billion at September 30, 2022.
• Third quarter overall commercial loan growth was $21.3 million, or 6.1% annualized; residential and home equity loans increased by $15.1 million on a combined basis, or 19.2% annualized.
• Third quarter deposit growth was $26.0 million, or 6.0% annualized.
• Raised $9.7 million in subordinated debt at 8.00% during the quarter for growth and capital purposes.
• On October 26, 2023, the Board of Directors declared a quarterly cash dividend of $0.125 per common share, payable November 20, 2023 to shareholders of record as of November 13, 2023.

Total assets remained relatively flat quarter over quarter, however our portfolio loans increased $25.3 million, or 1.4% and total deposits increased $26.0 million, or 1.5%, during the period. "We were pleased with our growth in the third quarter as we prioritize our asset mix to emphasize relationship-based credits," said Christopher J. Annas, Chairman and CEO. "We continue to show growth in deposits, reduction in borrowings, and strengthening of our capital position. While our margin compressed slightly, we remain focused on high quality assets and prudent management of the balance sheet."

Mortgage banking revenue was down $231 thousand over the prior quarter reflecting lower than anticipated loan production along with lower gain on sale margins. "With the seasonal slowdown and increasing mortgage rates, mortgage origination decreased $14.5 million. The increase in the ten year Treasury and the lack of homes for sale continue to plague the division as we are simultaneously working to tailor operations to reasonable levels," Mr. Annas added.

Mr. Annas concluded, "Our growth this year in such a challenging environment is a strong indicator of our success in and our commitment to the regions we serve. We remain focused on opportunities that provide us with additional business and help foster long-term customer connections."

Select Condensed Financial Information

	As of or for the quarter ended (Unaudited)
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
	(Dollars in thousands, except per share data)
Income:
Net income	$	4,005			$	4,645			$	4,021			$	4,557			$	5,798
Basic earnings per common share		0.36				0.42				0.36				0.40				0.49
Diluted earnings per common share		0.35				0.41				0.34				0.39				0.48
Net interest income		17,224				17,098				17,677				18,518				18,026
Balance Sheet:
Total assets	$	2,230,971			$	2,206,877			$	2,229,783			$	2,062,228			$	1,921,924
Loans, net of fees and costs		1,885,629				1,859,839				1,818,189				1,743,682				1,610,349
Total deposits		1,808,645				1,782,605				1,770,413				1,712,479				1,673,553
Non-interest bearing deposits		244,668				269,174				262,636				301,727				290,169
Stockholders' equity		155,114				153,962				153,049				153,280				151,161
Balance Sheet (Average Balances):
Total assets	$	2,184,385			$	2,166,574			$	2,088,599			$	1,962,915			$	1,868,194
Total interest earning assets		2,086,331				2,070,640				1,995,460				1,877,967				1,791,255
Loans, net of fees and costs		1,876,648				1,847,736				1,783,322				1,674,215				1,565,861
Total deposits		1,782,140				1,775,444				1,759,571				1,698,597				1,597,648
Non-interest bearing deposits		253,485				266,675				296,037				312,297				295,975
Stockholders' equity		156,271				154,179				153,179				151,791				157,614
Performance Ratios (Annualized):
Return on average assets		0.73	%			0.86	%			0.78	%			0.92	%			1.23	%
Return on average equity		10.17	%			12.08	%			10.65	%			11.91	%			14.59	%

Income Statement - Third Quarter 2023 Compared to Second Quarter 2023

Net income of $4.0 million, decreased $640 thousand from $4.6 million for the second quarter driven by a lower level of non-interest income and a higher level of non-interest expense, partially offset by an increase in net interest income and lower loan loss provision. Non-interest income decreased $1.0 million or 11.4%, due to lower levels of gains on sale of mortgage and SBA loans. Non-interest expense increased $403 thousand, or 2.1% due primarily to increased salaries and benefits expense and professional fees. Net interest income increased $128 thousand, or 0.7%, on a tax equivalent basis due to an increase in earnings assets. Detailed explanations of the major categories of income and expense follow below.

Net Interest income

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

	Quarter Ended
(dollars in thousands)	September 30,2023			June 30,2023			$ Change				% Change				Change due to rate				Change due to volume
Interest income:
Due from banks	$	244		$	275		$	(31	)			(11.3	)%		$	25			$	(56	)
Federal funds sold		1			3			(2	)			(66.7	)%			1				(3	)
Investment securities - taxable (1)		901			992			(91	)			(9.2	)%			(18	)			(73	)
Investment securities - tax exempt (1)		410			426			(16	)			(3.8	)%			(9	)			(7	)
Loans held for sale		456			407			49				12.0	%			40				9
Loans held for investment (1)		33,526			31,810			1,716				5.4	%			1,213				503
Total loans		33,982			32,217			1,765				5.5	%			1,253				512
Total interest income	$	35,538		$	33,913		$	1,625				4.8	%		$	1,252			$	373
Interest expense:
Interest-bearing demand deposits	$	1,488		$	1,840		$	(352	)			(19.1	)%		$	42			$	(394	)
Money market and savings deposits		6,755			5,371			1,384				25.8	%			796				588
Time deposits		7,300			6,812			488				7.2	%			537				(49	)
Total deposits		15,543			14,023			1,520				10.8	%			1,375				145
Borrowings		2,086			2,129			(43	)			(2.0	)%			(103	)			60
Subordinated debentures		606			586			20				3.4	%			6				14
Total interest expense		18,235			16,738			1,497				8.9	%			1,278				219
Net interest income differential	$	17,303		$	17,175		$	128				0.75	%		$	(26	)		$	154
(1) Reflected on a tax-equivalent basis.

Interest income increased $1.6 million on a tax equivalent basis, quarter-over-quarter, due to a higher yield on earning assets and higher levels of average earning assets. The yield on earnings assets rose 19 basis points during the period, while average earning assets increased by $15.7 million.

The yield on total loans increased 19 basis points and the yield on cash and investments decreased 1 basis point combined, reflecting the impact on rates from the Federal Reserve’s monetary policy. Nearly $713.5 million in loans repriced during the quarter with an average increase of 25 basis points. Average total loans, excluding residential loans for sale, increased $28.9 million. Construction, commercial real estate, and small business loans increased $19.3 million on average, combined, while home equity loans and residential real estate loans held in portfolio increased $15.9 million on average, combined.

Total interest expense increased $1.5 million, quarter-over-quarter, due primarily to market interest rate rises, and increases in both deposit and borrowing average balances. Interest expense on deposits increased $1.5 million as total average deposits increased $19.9 million and the cost of interest-bearing deposits increased 30 basis points to 4.03%. Interest expense on borrowings decreased $43 thousand as the cost of borrowings decreased 30 basis points due to the positive carry on a $75 million pay fixed swap, partially offset by the increase in average borrowings for the period.

Although net interest income increased quarter over quarter, the net interest margin decreased 4 basis points to 3.29% as the cost of funds outpaced the increase in yield on earnings assets. The margin was also affected by a reduction in average non-interest bearing deposits, which were down on average by $13.2 million for the quarter.

Provision for Credit Losses

The overall provision for credit losses is comprised of provisioning for funded loans as well as unfunded commitments. The combined provision decreased to $82 thousand for the third quarter from $705 thousand for the second quarter. The reduction was due in part to a decline in the overall exposure to unfunded loan balances at the end of the third quarter, causing a reduction in the unfunded reserve of $192 thousand. The remaining decrease in provisioning was due largely to favorable changes in some baseline loss rates and certain macroeconomic factors underlying the funded loss model.

Non-interest income

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

	Quarter Ended
(Dollars in thousands)	September 30,2023				June 30,2023				$ Change				% Change
Mortgage banking income	$	4,819			$	5,050			$	(231	)			(4.6	)%
Wealth management income		1,258				1,235				23				1.9	%
SBA loan income		982				1,767				(785	)			(44.4	)%
Earnings on investment in life insurance		201				193				8				4.1	%
Net change in the fair value of derivative instruments		103				183				(80	)			(43.7	)%
Net change in the fair value of loans held-for-sale		111				(199	)			310				(155.8	)%
Net change in the fair value of loans held-for-investment		(570	)			(219	)			(351	)			160.3	%
Net (loss) gain on hedging activity		82				(1	)			83				(8300.0	)%
Net loss on sale of investment securities available-for-sale		(3	)			(54	)			51				(94.4	)%
Other		1,103				1,169				(66	)			(5.6	)%
Total non-interest income	$	8,086			$	9,124			$	(1,038	)			(11.4	)%

Total non-interest income decreased $1.0 million, or 11.4%, quarter-over-quarter as a result of lower mortgage banking income and lower SBA loan income. Mortgage banking income decreased $231 thousand, or 4.6% quarter-over-quarter, due to lower levels of mortgage loan originations, which decreased $14.5 million. In addition to lower volume, the gain on sale margin decreased 18 basis points over the prior quarter. The fair value of loans held for sale and loans held for investment, along with the fair value of derivatives instruments and net gain on hedging activity, decreased $38 thousand in total.

SBA loan income decreased $785 thousand, or 44.4%, due to a combination of a decrease in the gain on sale of SBA loans and an increase in servicing asset impairment quarter over quarter. While the value of SBA loans sold for the quarter-ended September 30, 2023 was only slightly less than the volume sold for the quarter-ended June 30, 2023 ($26.2 million vs $27.8 million), the gross margin on sale was 6.2% for the quarter-ended September 30, 2023 compared to 7.0% for the quarter-ended June 30, 2023. Also contributing to the decrease in SBA loan income was an increase in servicing asset impairment, led by an increase in the prepayment assumption that drives the servicing asset valuation.

Non-interest expense

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

	Quarter Ended
(Dollars in thousands)	September 30,2023				June 30,2023				$ Change				% Change
Salaries and employee benefits	$	12,420			$	12,152			$	268				2.2	%
Occupancy and equipment		1,226				1,140				86				7.5	%
Professional fees		1,104				1,004				100				10.0	%
Advertising and promotion		848				1,091				(243	)			(22.3	)%
Data processing and software		1,652				1,681				(29	)			(1.7	)%
Pennsylvania bank shares tax		244				245				(1	)			(0.4	)%
Other		2,524				2,302				222				9.6	%
Total non-interest expense	$	20,018			$	19,615			$	403				2.1	%

Salaries and employee benefits increased $268 thousand overall, with bank and wealth segments combined having increased $234 thousand, and the mortgage segment increased $34 thousand. Bank and wealth segment salaries and employee benefits were up due to one-time payment of severance to a former Meridian Equipment Finance officer as well as stock based compensation.

Professional fees increased $100 thousand during the current quarter due to an increase in loan and lease workout expenses which has helped lead to an increase in recoveries when compared to the prior year. Professional fees were also impacted by system conversion fees for a new loan servicing platform for our mortgage segment. Occupancy expenses were up due to branch re-locations, equipment and some repairs/maintenance. Advertising and promotion expense decreased $243 thousand from the prior quarter as a result of a decrease in business development expense and certain advertising expense due to seasonality. Other non-interest expense increased $222 thousand over the prior quarter due largely to an increase in FDIC insurance expense, an increase in certain commercial and consumer related loan expenses due to portfolio growth, and an increase in our mortgage related representations and warranties reserves, offset by a reduction in the unfunded allowance for credit losses.

Balance Sheet - September 30, 2023 Compared to June 30, 2023

As of September 30, 2023, total assets increased $24.1 million, or 1.1%, to $2.2 billion from June 30, 2023. This increase was due to an increase in cash and cash equivalents and an increase in loans. Interest-bearing cash increased $9.7 million, or 26.8%, to $46.0 million as of September 30, 2023, from June 30, 2023.

Portfolio loan growth was $25.3 million, or 1.4% quarter-over-quarter. Commercial mortgage loans increased $47.9 million, or 7.4%, residential real estate loans held in portfolio increased $8.5 million, or 3.4%, while home equity lines and loans increased $6.6 million, or 9.8% as well. Partially offsetting portfolio loan growth were commercial & industrial loans which decreased $10.4 million, or 3.4%, construction loans which decreased $9.5 million, or 3.3%, small business loans which decreased $6.7 million, or 4.5%, due to loan sales during the period, and lease financings that decreased $11.1 million, or 7.4% from June 30, 2023.

Total deposits increased $26.0 million, or 1.5% quarter-over-quarter, due largely to higher levels of money market deposits which increased $36.1 million. Much of the increase came from business accounts as well as some seasonal deposits related to school tuition and taxes. Noninterest-bearing deposits decreased $24.5 million, during the period. Servicing deposits of approximately $7.2 million also paid out seasonally, with much of the rest of the change in non-interest bearing accounts migrating to other accounts. Time deposits increased $13.9 million, or 2.1%, from retail and wholesale efforts as customers opt for higher term interest rates.

In September, Meridian Corporation raised $9.7 million in subordinated debt at 8.00% with a term of 10 years. The funds will be used for general corporate purposes, including providing capital to Meridian Bank and supporting organic growth.

Consolidated stockholders’ equity of the Corporation increased by $1.2 million from June 30, 2023, to $155.1 million as of September 30, 2023. Changes to equity for the current quarter included net income of $4.0 million, partially offset by a $1.5 million decline in other comprehensive income and prior quarter dividends paid of $1.4 million. The Community Bank Leverage Ratio for the Bank was 9.65% at September 30, 2023.

Asset Quality Summary

The ratio of non-performing loans to total loans increased to 1.53% as of September 30, 2023, from 1.44% as of June 30, 2023, while non-performing assets to total assets was up to 1.38% as of September 30, 2023, compared to 1.32% at June 30, 2023. Total non-performing loans of $29.1 million as of September 30, 2023, increased $1.7 million from $27.4 million as of June 30, 2023 due to downgrades of several SBA loans and residential real estate loans, offset somewhat by the impact of returning a residential real estate loan to accrual status, and charge-offs in commercial and SBA loans as of September 30, 2023.

Meridian realized net charge-offs of 0.05% of total average loans for the quarter ended September 30, 2023, consistent with the quarter ended June 30, 2023 level of 0.05%. Net charge-offs for the quarter ended September 30, 2023 were $913 thousand, comprised of $1.0 million in charge-offs, with $95 thousand in recoveries for the quarter. While a large percentage of charge-offs for the quarter ended September 30, 2023 continue to come from small ticket equipment leases, the level of charge-offs in this portfolio declined by $169 thousand, while we also realized $90 thousand of recoveries related to the small ticket equipment lease portfolio. There were also charge-offs of $272 thousand on SBA loans that had previously been classified as non-performing loans in a prior period.

The ratio of allowance for credit losses to total loans held for investment, excluding loans at fair value (a non-GAAP measure, see reconciliation in the Appendix), was 1.05% as of September 30, 2023 compared to 1.10% as of June 30, 2023. As of September 30, 2023 there were specific reserves of $2.6 million against non-performing loans, an increase from $2.5 million as of June 30, 2023 due to the increase of the existing specific reserve on a commercial loan relationship classified as a non-performing, combined with the impact of establishing a new specific reserve on an SBA loan relationship during the current quarter.

Bank Sector Considerations

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

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

Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $1.0 billion in liquidity from numerous sources, including its borrowing capacity with the FHLB and other financial institutions, as well as funding through the CDARS program or through brokered CD arrangements. In addition, the Bank is eligible to receive funds under the new Bank Term Funding Program ("BTFP") announced by the Federal Reserve. At September 30, 2023 Meridian elected to secure $33 million in borrowings from the Federal Reserve under the BTFP due to the favorable rate. Management believes that the above sources of liquidity provide Meridian with the necessary resources to meet its short-term and long-term funding requirements.

About Meridian Corporation

Meridian Bank, the wholly owned subsidiary of Meridian Corporation, is an innovative community bank serving Pennsylvania, New Jersey, Delaware and Maryland. Through its 20 offices, including banking branches and mortgage locations, Meridian offers a full suite of financial products and services. Meridian specializes in business and industrial lending, retail and commercial real estate lending, electronic payments, and wealth management solutions through Meridian Wealth Partners. Meridian also offers a broad menu of high-yield depository products supported by robust online and mobile access. For additional information, visit our website at www.meridianbanker.com. Member FDIC.

“Safe Harbor” Statement

In addition to historical information, this press release may contain “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, credit losses and the credit risk of our commercial and consumer loan products; changes in the level of charge-offs and changes in estimates of the adequacy of the allowance for credit losses, or ACL; cyber-security concerns; rapid technological developments and changes; increased competitive pressures; changes in spreads on interest-earning assets and interest-bearing liabilities; changes in general economic conditions and conditions within the securities markets; unanticipated changes in our liquidity position; unanticipated changes in regulatory and governmental policies impacting interest rates and financial markets; legislation affecting the financial services industry as a whole, and Meridian Corporation, in particular; changes in accounting policies, practices or guidance; developments affecting the industry and the soundness of financial institutions and further disruption to the economy and U.S. banking system; among others, could cause Meridian Corporation’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements. Meridian Corporation cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Meridian Corporation’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2022 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.

Contact:Christopher Annascannas@meridianbanker.com484-568-5000

MERIDIAN CORPORATION AND SUBSIDIARIESFINANCIAL RATIOS (Unaudited)(Dollar amounts and shares in thousands, except per share amounts)

	Quarter Ended
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Earnings and Per Share Data:
Net income	$	4,005			$	4,645			$	4,021			$	4,557			$	5,798
Basic earnings per common share	$	0.36			$	0.42			$	0.36			$	0.40			$	0.49
Diluted earnings per common share	$	0.35			$	0.41			$	0.34			$	0.39			$	0.48
Common shares outstanding		11,178				11,178				11,305				11,466				11,689
Performance Ratios:
Return on average assets		0.73	%			0.86	%			0.78	%			0.92	%			1.23	%
Return on average equity		10.17				12.08				10.65				11.91				14.59
Net interest margin (tax-equivalent)		3.29				3.33				3.61				3.93				4.01
Yield on earning assets (tax-equivalent)		6.76				6.57				6.31				5.88				5.10
Cost of funds		3.63				3.39				2.83				2.07				1.17
Efficiency ratio		79.09	%			74.80	%			73.16	%			75.61	%			71.72	%
Asset Quality Ratios:
Net charge-offs (recoveries) to average loans		0.05	%			0.05	%			0.08	%			0.05	%			0.02	%
Non-performing loans to total loans		1.53				1.44				1.25				1.20				1.40
Non-performing assets to total assets		1.38				1.32				1.11				1.11				1.20
Allowance for credit losses to:
Total loans held for investment		1.04				1.09				1.12				1.08				1.18
Total loans held for investment (excluding loans at fair value) (1)		1.05				1.10				1.13				1.09				1.20
Non-performing loans		67.61	%			73.97	%			88.41	%			88.66	%			82.20	%
Capital Ratios:
Book value per common share	$	13.88			$	13.77			$	13.54			$	13.37			$	12.93
Tangible book value per common share	$	13.53			$	13.42			$	13.18			$	13.01			$	12.58
Total equity/Total assets		6.95	%			6.98	%			6.86	%			7.43	%			7.87	%
Tangible common equity/Tangible assets - Corporation (1)		6.79				6.81				6.70				7.25				7.67
Tangible common equity/Tangible assets - Bank (1)		8.89				8.54				8.26				8.80				9.61
Tier 1 leverage ratio - Corporation		7.52				7.46				7.65				8.13				8.54
Tier 1 leverage ratio - Bank		9.65				9.22				9.32				9.95				10.52
Common tier 1 risk-based capital ratio - Corporation		8.43				8.38				8.44				8.77				9.28
Common tier 1 risk-based capital ratio - Bank		10.82				10.35				10.27				10.73				11.44
Tier 1 risk-based capital ratio - Corporation		8.43				8.38				8.44				8.77				9.28
Tier 1 risk-based capital ratio - Bank		10.82				10.35				10.27				10.73				11.44
Total risk-based capital ratio - Corporation		11.96				11.49				11.63				12.05				12.80
Total risk-based capital ratio - Bank		11.85	%			11.43	%			11.41	%			11.87	%			12.70	%
(1) See Non-GAAP reconciliation in the Appendix

MERIDIAN CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)(Dollar amounts and shares in thousands, except per share amounts)

	Three Months Ended												Nine Months Ended
	September 30,2023				June 30,2023				September 30,2022				September 30,2023				September 30,2022
Interest income:
Loans and other finance receivables, including fees	$	33,980			$	32,215			$	21,848			$	95,612			$	58,187
Securities - taxable		901				992				648				2,853				1,599
Securities - tax-exempt		333				351				369				1,038				1,015
Cash and cash equivalents		245				278				93				741				157
Total interest income		35,459				33,836				22,958				100,244				60,958
Interest expense:
Deposits		15,543				14,023				4,075				41,013				7,182
Borrowings		2,692				2,715				857				7,230				2,166
Total interest expense		18,235				16,738				4,932				48,243				9,348
Net interest income		17,224				17,098				18,026				52,001				51,610
Provision for credit losses		82				705				526				2,186				1,743
Net interest income after provision for credit losses		17,142				16,393				17,500				49,815				49,867
Non-interest income:
Mortgage banking income		4,819				5,050				7,329				13,143				21,367
Wealth management income		1,258				1,235				1,114				3,689				3,672
SBA loan income		982				1,767				989				3,463				3,946
Earnings on investment in life insurance		201				193				138				585				413
Net change in the fair value of derivative instruments		103				183				127				217				(713	)
Net change in the fair value of loans held-for-sale		111				(199	)			(237	)			(88	)			(1,094	)
Net change in the fair value of loans held-for-investment		(570	)			(219	)			(886	)			(673	)			(2,499	)
Net (loss) gain on hedging activity		82				(1	)			399				81				4,941
Net loss on sale of investment securities available-for-sale		(3	)			(54	)			—				(58	)			—
Other		1,103				1,169				1,251				3,489				3,695
Total non-interest income		8,086				9,124				10,224				23,848				33,728
Non-interest expense:
Salaries and employee benefits		12,420				12,152				13,360				35,633				41,585
Occupancy and equipment		1,226				1,140				1,191				3,610				3,619
Professional fees		1,104				1,004				899				2,930				2,659
Advertising and promotion		848				1,091				1,165				2,799				3,340
Data processing and software		1,652				1,681				1,442				4,764				3,939
Pennsylvania bank shares tax		244				245				202				735				612
Other		2,524				2,302				2,002				6,951				5,646
Total non-interest expense		20,018				19,615				20,261				57,422				61,400
Income before income taxes		5,210				5,902				7,463				16,241				22,195
Income tax expense		1,205				1,257				1,665				3,568				4,927
Net income	$	4,005			$	4,645			$	5,798			$	12,673			$	17,268
Basic earnings per common share	$	0.36			$	0.42			$	0.49			$	1.14			$	1.45
Diluted earnings per common share	$	0.35			$	0.41			$	0.48			$	1.11			$	1.40
Basic weighted average shares outstanding		11,057				11,062				11,736				11,130				11,928
Diluted weighted average shares outstanding		11,363				11,304				12,118				11,449				12,344

MERIDIAN CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF CONDITION (Unaudited)

(Dollar amounts and shares in thousands, except per share amounts)	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Assets:
Cash and due from banks	$	13,737			$	10,576			$	8,473			$	11,299			$	12,114
Interest-bearing deposits at other banks		46,022				36,290				100,030				27,092				20,774
Cash and cash equivalents		59,759				46,866				108,503				38,391				32,888
Securities available-for-sale, at fair value		122,218				126,668				142,933				135,346				127,999
Securities held-to-maturity, at amortized cost		36,232				36,463				36,525				37,479				37,922
Equity investments		2,019				2,097				2,110				2,086				2,092
Mortgage loans held for sale, at fair value		23,144				40,422				35,701				22,243				33,800
Loans and other finance receivables, net of fees and costs		1,885,629				1,859,839				1,818,189				1,743,682				1,610,349
Allowance for credit losses		(19,683	)			(20,242	)			(20,442	)			(18,828	)			(18,974	)
Loans and other finance receivables, net of the allowance for credit losses		1,865,946				1,839,597				1,797,747				1,724,854				1,591,375
Restricted investment in bank stock		8,309				9,157				10,173				6,931				5,217
Bank premises and equipment, net		13,310				13,234				13,281				13,349				12,835
Bank owned life insurance		28,641				28,440				28,247				28,055				22,916
Accrued interest receivable		8,984				7,651				7,651				7,363				6,008
Other real estate owned		1,703				1,703				1,703				1,703				—
Deferred income taxes		4,993				4,258				4,017				3,936				5,722
Servicing assets		11,835				12,193				12,125				12,346				12,807
Goodwill		899				899				899				899				899
Intangible assets		3,022				3,073				3,124				3,175				3,226
Other assets		39,957				34,156				25,044				24,072				26,218
Total assets	$	2,230,971			$	2,206,877			$	2,229,783			$	2,062,228			$	1,921,924
Liabilities:
Deposits:
Non-interest bearing	$	244,668			$	269,174			$	262,636			$	301,727			$	290,169
Interest bearing
Interest checking		156,537				155,907				232,616				219,838				236,562
Money market and savings deposits		746,599				710,546				647,904				697,564				709,127
Time deposits		660,841				646,978				627,257				493,350				437,695
Total interest-bearing deposits		1,563,977				1,513,431				1,507,777				1,410,752				1,383,384
Total deposits		1,808,645				1,782,605				1,770,413				1,712,479				1,673,553
Borrowings		177,959				194,636				233,883				122,082				23,458
Subordinated debentures		50,079				40,348				40,319				40,346				40,597
Accrued interest payable		7,814				5,612				3,836				2,389				1,154
Other liabilities		31,360				29,714				28,283				31,652				32,001
Total liabilities		2,075,857				2,052,915				2,076,734				1,908,948				1,770,763
Stockholders’ equity:
Common stock		13,181				13,181				13,180				13,156				13,101
Surplus		79,731				79,650				79,473				79,072				78,313
Treasury stock		(26,079	)			(26,079	)			(24,512	)			(21,821	)			(18,033	)
Unearned common stock held by employee stock ownership plan		(1,403	)			(1,403	)			(1,403	)			(1,403	)			(1,602	)
Retained earnings		102,043				99,434				96,180				95,815				92,405
Accumulated other comprehensive loss		(12,359	)			(10,821	)			(9,869	)			(11,539	)			(13,023	)
Total stockholders’ equity		155,114				153,962				153,049				153,280				151,161
Total liabilities and stockholders’ equity	$	2,230,971			$	2,206,877			$	2,229,783			$	2,062,228			$	1,921,924

MERIDIAN CORPORATION AND SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF INCOME AND SEGMENT INFORMATION (Unaudited)(Dollar amounts and shares in thousands, except per share amounts)

	Three Months Ended
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Interest income	$	35,459			$	33,836			$	30,947			$	27,763			$	22,958
Interest expense		18,235				16,738				13,270				9,245				4,932
Net interest income		17,224				17,098				17,677				18,518				18,026
Provision for credit losses		82				705				1,399				746				526
Non-interest income		8,086				9,124				6,638				7,996				10,224
Non-interest expense		20,018				19,615				17,789				20,047				20,261
Income before income tax expense		5,210				5,902				5,127				5,721				7,463
Income tax expense		1,205				1,257				1,106				1,164				1,665
Net Income	$	4,005			$	4,645			$	4,021			$	4,557			$	5,798
Basic weighted average shares outstanding		11,057				11,062				11,272				11,389				11,736
Basic earnings per common share	$	0.36			$	0.42			$	0.36			$	0.40			$	0.49
Diluted weighted average shares outstanding		11,363				11,304				11,656				11,795				12,118
Diluted earnings per common share	$	0.35			$	0.41			$	0.34			$	0.39			$	0.48

	Segment Information
	Three Months Ended September 30, 2023																Three Months Ended September 30, 2022
(dollars in thousands)	Bank				Wealth				Mortgage				Total				Bank				Wealth				Mortgage				Total
Net interest income	$	17,205			$	(15	)		$	34			$	17,224			$	17,664			$	218			$	144			$	18,026
Provision for credit losses		82				—				—				82				526				—				—				526
Net interest income after provision		17,123				(15	)			34				17,142				17,138				218				144				17,500
Non-interest income		1,758				1,258				5,070				8,086				1,730				1,114				7,380				10,224
Non-interest expense		12,564				826				6,628				20,018				11,354				780				8,127				20,261
Income (loss) before income taxes	$	6,317			$	417			$	(1,524	)		$	5,210			$	7,514			$	552			$	(603	)		$	7,463
Efficiency ratio		66	%			66	%			130	%			79	%			59	%			59	%			108	%			72	%
	Nine Months Ended September 30, 2023																Nine Months Ended September 30, 2022
(dollars in thousands)	Bank				Wealth				Mortgage				Total				Bank				Wealth				Mortgage				Total
Net interest income	$	51,928			$	(12	)		$	85			$	52,001			$	50,197			$	628			$	785			$	51,610
Provision for credit losses		2,186				—				—				2,186				1,743				—				—				1,743
Net interest income after provision		49,742				(12	)			85				49,815				48,454				628				785				49,867
Non-interest income		5,696				3,689				14,463				23,848				6,267				3,671				23,790				33,728
Non-interest expense		35,608				2,704				19,110				57,422				32,186				2,480				26,734				61,400
Income (loss) before income taxes	$	19,830			$	973			$	(4,562	)		$	16,241			$	22,535			$	1,819			$	(2,159	)		$	22,195
Efficiency ratio		62	%			74	%			131	%			76	%			57	%			58	%			109	%			72	%

MERIDIAN CORPORATION AND SUBSIDIARIESAPPENDIX: NON-GAAP MEASURES (Unaudited)(Dollar amounts and shares in thousands, except per share amounts)

Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts. The non-GAAP disclosure have 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.

	Allowance For Loan Losses to Loans, Net of Fees and Costs, Excluding PPP Loans and Loans at Fair Value
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Allowance for credit losses (GAAP)	$	19,683			$	20,242			$	20,442			$	18,828			$	18,974
Loans, net of fees and costs (GAAP)		1,885,629				1,859,839				1,818,189				1,743,682				1,610,349
Less: PPP loans		(289	)			(187	)			(238	)			(4,579	)			(8,610	)
Less: Loans fair valued		(13,231	)			(14,403	)			(14,434	)			(14,502	)			(14,702	)
Loans, net of fees and costs, excluding loans at fair value and PPP loans (non-GAAP)	$	1,872,109			$	1,845,249			$	1,803,517			$	1,724,601			$	1,587,037
Allowance for credit losses to loans, net of fees and costs (GAAP)		1.04	%			1.09	%			1.12	%			1.08	%			1.18	%
Allowance for credit losses to loans, net of fees and costs, excluding PPP loans and loans at fair value (non-GAAP)		1.05	%			1.10	%			1.13	%			1.09	%			1.20	%

	Tangible Common Equity Ratio Reconciliation - Corporation
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Total stockholders' equity (GAAP)	$	155,114			$	153,962			$	153,049			$	153,280			$	151,161
Less: Goodwill and intangible assets		(3,921	)			(3,972	)			(4,023	)			(4,074	)			(4,125	)
Tangible common equity (non-GAAP)		151,193				149,990				149,026				149,206				147,036
Total assets (GAAP)		2,230,971				2,206,877				2,229,783				2,062,228				1,921,924
Less: Goodwill and intangible assets		(3,921	)			(3,972	)			(4,023	)			(4,074	)			(4,125	)
Tangible assets (non-GAAP)	$	2,227,050			$	2,202,905			$	2,225,760			$	2,058,154			$	1,917,799
Tangible common equity to tangible assets ratio - Corporation (non-GAAP)		6.79	%			6.81	%			6.70	%			7.25	%			7.67	%

	Tangible Common Equity Ratio Reconciliation - Bank
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Total stockholders' equity (GAAP)	$	201,996			$	192,209			$	187,954			$	185,039			$	188,386
Less: Goodwill and intangible assets		(3,921	)			(3,972	)			(4,023	)			(4,074	)			(4,125	)
Tangible common equity (non-GAAP)		198,075				188,237				183,931				180,965				184,261
Total assets (GAAP)		2,232,297				2,208,252				2,229,721				2,059,557				1,921,714
Less: Goodwill and intangible assets		(3,921	)			(3,972	)			(4,023	)			(4,074	)			(4,125	)
Tangible assets (non-GAAP)	$	2,228,376			$	2,204,280			$	2,225,698			$	2,055,483			$	1,917,589
Tangible common equity to tangible assets ratio - Bank (non-GAAP)		8.89	%			8.54	%			8.26	%			8.80	%			9.61	%
	Tangible Book Value Reconciliation
	September 30,2023				June 30,2023				March 31,2023				December 31,2022				September 30,2022
Book value per common share	$	13.88			$	13.77			$	13.54			$	13.37			$	12.93
Less: Impact of goodwill /intangible assets		0.35				0.35				0.36				0.36				0.35
Tangible book value per common share	$	13.53			$	13.42			$	13.18			$	13.01			$	12.58