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What changed in Meridian Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Meridian Corp's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+252 added−265 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-16)

Top changes in Meridian Corp's 2023 10-K

252 paragraphs added · 265 removed · 180 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

44 edited+20 added−23 removed130 unchanged
Biggest change(dollars in thousands / population actual) United States Pennsylvania Maryland Population (1) 308,449,281 13,002,700 6,177,224 Median household income (1) $ 63 $ 62 $ 85 Unemployment rate (2) 3.30 % 5.50 % 3.20 % Philadelphia Metropolitan Area Counties Bucks County Montgomery County Delaware County Chester County Philadelphia County Total Population (1) 646,538 856,553 576,830 534,413 1,603,797 4,218,131 Median household income (1) $ 89 $ 92 $ 74 $ 100 $ 46 $ 80 Unemployment rate (2) 2.90 % 2.60 % 3.30 % 2.40 % 4.50 % Baltimore Metropolitan Area Counties Howard County Montgomery County Anne Arundel County Prince George's County Baltimore County Total Population (1) 332,317 1,062,061 588,261 967,201 854,535 3,804,375 Median household income (1) $ 121 $ 109 $ 101 $ 85 $ 77 $ 99 Unemployment rate (2) 2.50 % 2.80 % 2.60 % 3.70 % 3.20 % (1) Source: U.S.
Biggest change(dollars in thousands / population actual) United States Pennsylvania Maryland Population (1) 308,449,281 13,002,700 6,177,224 Median household income (1) $ 63 $ 62 $ 85 Unemployment rate (2) 3.70 % 3.50 % 2.00 % Philadelphia Metropolitan Area Counties (dollars in thousands / population actual) Bucks County Montgomery County Delaware County Chester County Philadelphia County Total Population (1) 645,054 864,683 575,182 545,823 1,567,258 4,198,000 Median household income (1) $ 99 $ 99 $ 80 $ 110 $ 53 $ 88 Unemployment rate (2) 2.50 % 2.40 % 2.70 % 2.10 % 3.70 % Baltimore Metropolitan Area Counties (dollars in thousands / population actual) Howard County Montgomery County Anne Arundel County Prince George's County Baltimore County Total Population (1) 335,411 1,052,521 593,286 946,971 846,161 3,774,350 Median household income (1) $ 130 $ 117 $ 108 $ 91 $ 82 $ 106 Unemployment rate (2) 1.60 % 1.80 % 1.70 % 2.10 % 2.10 % Delaware Counties Florida County (dollars in thousands / population actual) Kent County Sussex County New Castle County Total Lee County Population (1) 188,946 255,956 575,494 1,020,396 822,453 Median household income (1) $ 64 $ 69 $ 78 $ 70 $ 63 Unemployment rate (2) 4.1 % 3.9 % 3.5 % 3.7 % 3.0 % (1) Source: U.S.
In order to adhere to regulatory expectations on an ongoing basis and to successfully prepare for the normal examination processes, Meridian maintains numerous internal controls including policies and programs appropriate to maintain the Bank’s safety and soundness, under such key areas as lending, compliance, BSA-AML, information security, human resources, deposit and cash management products, enterprise 7 risk, merchant services, finance, title services, branch security and wealth management.
In order to adhere to regulatory expectations on an ongoing basis and to successfully prepare for the normal examination processes, Meridian maintains numerous internal controls including policies and programs appropriate to maintain the Bank’s safety and soundness, under such key areas as lending, compliance, BSA-AML, information security, human resources, deposit and cash management products, enterprise risk, merchant services, finance, title services, branch security and wealth management.
These laws include the ECOA, the Fair Credit Reporting Act, the TILA, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, Fair Credit Reporting Act, the Service Members Civil Relief Act, the Right to Financial Privacy Act, Telephone Consumer Protection Act, CAN-SPAM Act, and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.
These laws include the ECOA, the Fair Credit Reporting Act, the TILA, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, Fair Credit Reporting Act, the Service Members Civil Relief Act, the Right to 11 Financial Privacy Act, Telephone Consumer Protection Act, CAN-SPAM Act, and these laws’ respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices.
Such clients include professionals, higher net worth individuals, companies seeking to provide benefits plans for their employees, and more. Acquiring and sustaining wealth is a gradual progression, one that requires a considerable amount of thought and planning. Our process takes a comprehensive approach to financial planning and encompasses all aspects of retirement, with an emphasis on 5 sustainability.
Such clients include professionals, higher net worth individuals, companies seeking to provide benefits plans for their employees, and more. Acquiring and sustaining wealth is a gradual progression, one that requires a considerable amount of thought and planning. Our process takes a comprehensive approach to financial planning and encompasses all aspects of retirement, with an emphasis on sustainability.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the banking regulator must issue an order directing action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution may be subject under the FDIA.
If, after being so notified, an institution fails to submit an acceptable compliance plan or fails in any material respect to implement an acceptable compliance plan, the banking regulator must issue an order directing 10 action to correct the deficiency and may issue an order directing other actions of the types to which an undercapitalized institution may be subject under the FDIA.
Under the Basel III Capital Rules, the minimum capital ratios are (i) 4.5% CET1 to risk-weighted assets, (ii) 6% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets, (iii) 8% total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets and (iv) 4% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
Under the Basel III Capital Rules, the minimum capital ratios are (i) 4.5% CET1 to risk-weighted assets, (ii) 6% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets, (iii) 8% total capital (that is, Tier 1 capital plus Tier 2 capital) to risk- 9 weighted assets and (iv) 4% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”).
Federal banking regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, 11 action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties.
Federal banking regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties.
These offices extend from the Philadelphia market area to Central Maryland, and Florida. Demographic information for the five county Philadelphia metropolitan area (Philadelphia County, Chester County, Delaware County, Montgomery County, Bucks County) shows our primary market to be stable, with moderate population growth. According to the U.S.
These offices extend from the Delaware Valley/Philadelphia market area to Delaware, Central Maryland, and Florida. Demographic information for the five county Philadelphia metropolitan area (Philadelphia County, Chester County, Delaware County, Montgomery County, Bucks County) shows our primary market to be stable, with moderate population growth. According to the U.S.
In particular, federal banking regulators have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level 8 would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.
In particular, federal banking regulators have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings.
The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the financial institution. Office of Foreign Assets Control Regulation The U.S.
The failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the financial institution. 13 Office of Foreign Assets Control Regulation The U.S.
These branches provide “Relationship Hubs” for our regional lending groups and allow Meridian to serve markets at or near the county seat of counties in and surrounding Philadelphia. In addition to our deposit taking branches, there are currently 17 other locations, including Corporate headquarters, that serve as loan production offices.
These branches provide “Relationship Hubs” for our regional lending groups and allow Meridian to serve markets at or near the county seat of counties in and surrounding Philadelphia. In addition to our deposit taking branches, there are currently 12 other locations, including Corporate headquarters, that serve as loan production offices.
Census Data – 2020 (2) Source: U.S. Bureau of Labor Statistics – December 2021 Competition Overall, the banking business in our market area is highly competitive. The Bank faces substantial competition both in attracting deposits and in originating loans. The Bank competes with local, regional and national commercial banks, savings banks, and savings and loan associations.
Census Data – 2020 (2) Source: U.S. Bureau of Labor Statistics – December 2023 Competition Overall, the banking business in our market area is highly competitive. The Bank faces substantial competition both in attracting deposits and in originating loans. The Bank competes with local, regional and national commercial banks, savings banks, and savings and loan associations.
During 2022 Meridian invested throughout the organization in terms of in-house and external training programs to help our employees develop leadership skills, stay current on professional development topic in their area of focus, as well as to keep up to date on cybersecurity, and risk & compliance matters that impact the organization overall.
During 2023 Meridian invested throughout the organization in terms of in-house and external training programs to help our employees develop leadership skills, stay current on professional development topic in their area of focus, as well as to keep up to date on cybersecurity, and risk & compliance matters that impact the organization overall.
The Bank is the parent to four wholly-owned subsidiaries: Meridian Land Settlement Services, LLC, which provides title insurance services; Apex Realty, LLC, a real estate holding company; Meridian Wealth Partners, LLC, a registered investment advisory firm, (“Meridian Wealth”); and Meridian Equipment Finance, LLC, an equipment leasing company.
The Bank is the parent to four wholly-owned subsidiaries: Meridian Land Settlement Services, LLC, which provides title insurance services; Apex Realty, LLC, a real estate holding company; Meridian Wealth Partners, LLC, a registered investment advisory firm, (“Meridian Wealth”); and Meridian Equipment Finance, LLC, an equipment leasing and other finance receivables company.
During the first quarter of 2020, the Bank adopted the community bank leverage ratio framework as its primary regulatory capital ratio. With respect to the Bank, the Capital Rules also revised the prompt corrective action regulations pursuant to Section 38 of the FDIA. See “—Prompt Corrective Action Framework” below.
During the first quarter of 2020, the Bank adopted the community bank leverage ratio framework as its primary regulatory capital ratio. With respect to the Bank, the Capital Rules also revised the prompt corrective action regulations pursuant to Section 38 of the FDIA. See “Prompt Corrective Action Framework” below.
Its main branch, in Paoli, serves the Main Line. The West Chester and Media branches serve Chester and Delaware counties, respectively, while the Doylestown and Blue Bell branches serve Bucks and Montgomery counties, respectively. Our sixth branch is in Philadelphia.
Its main branch, in Wayne, serves the Main Line. The West Chester and Media branches serve Chester and Delaware counties, respectively, while the Doylestown and Blue Bell branches serve Bucks and Montgomery counties, respectively. Our sixth branch is in Philadelphia.
As an integrated full-service financial institution, approximately 52% of our employees are employed through our banking segment, 45% through our mortgage segment, and 3% for our wealth segment. The safety of our employees has always been our top priority over the last few years due to the COVID-19 pandemic and this priority continues today.
As an integrated full-service financial institution, approximately 60% of our employees are employed through our banking segment, 37% through our mortgage segment, and 3% for our wealth segment. The safety of our employees has always been our top priority over the last few years due to the COVID-19 pandemic and this priority continues today.
Human Capital Resources At December 31, 2022, we employed 366 individuals, nearly all of whom are full-time and of which 48% are women. Women make up 32% of all officers throughout the Meridian organization. None of these employees are covered by collective bargaining agreements, and Meridian believes it enjoys good relations with its personnel.
Human Capital Resources At December 31, 2023, we employed 324 individuals, nearly all of whom are full-time and of which 56% are women. Women make up 32% of all officers throughout the Meridian organization. None of these employees are covered by collective bargaining agreements, and Meridian believes it enjoys good relations with its personnel.
The Bank will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to the Bank’s financial condition, results of operations, and/or liquidity, which cannot be predicted at this time. Our bank received a rating of “Satisfactory” in its most recently completed CRA examination in 2020 that was as of February 11, 2020.
The Bank will continue to evaluate the impact of any changes to the regulations implementing the CRA and their impact to the Bank’s financial condition, results of operations, and/or liquidity, which cannot be predicted at this time. Our bank received a rating of “Satisfactory” in its most recently completed CRA examination in 2023 that was as of November 19, 2022.
A compensation committee must have the authority to hire advisors and to have the public company fund reasonable compensation of such advisors. 13 In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including Nasdaq, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including Nasdaq, to implement listing standards that require listed companies to adopt policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
Census Bureau – 2020, the median household income in this area is $80,261 compared to the national average of $62,843, while the total population in this market was 4,218,131. Demographic information for the five county Baltimore metropolitan area (Baltimore County, Howard County, Montgomery County, Anne Arundel County, Prince George’s County) also shows that this secondary market is stable.
Census Bureau – 2020, the median household income in this area is $88,336 compared to the national average of $62,843, while the total population in this market was 4,198,000. Demographic information for the five county Baltimore metropolitan area (Baltimore County, Howard County, Montgomery County, Anne Arundel County, Prince George’s County) also shows that this secondary market is stable.
The Capital Rules provide for a number of deductions from and adjustments to CET1. 9 These include, for example, the requirement that mortgage servicing rights, certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.
These include, for example, the requirement that mortgage servicing rights, certain deferred tax assets and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15% of CET1.
Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.The bank regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic.
Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%.
During 2022, we hired 81 professionals, 30% of which were women, and 21% of which were ethnically diverse. For 2022, our turnover rate was approximately 3.0%, which makes our overall retention rate very high compared to peers.
During 2023, we hired 83 professionals, 41% of which were women, and 23% of which were ethnically diverse. For 2023, our turnover rate was approximately 3%, which makes our overall retention rate very high compared to peers.
The Bank was named to American Bankers 2022 Top 200 Community Banks and in December of 2020, the Bank was named by the ICBA as one of their ‘Best Community Banks to Work For’.
The Bank was named to American Bankers 2022 Top 200 Community Banks as well as being listed by the Philadelphia Inquirer in their '’Top Work Places of 2022.” In December of 2020, the Bank was named by the ICBA as one of their ‘Best Community Banks to Work For’.
In addition, to be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount and the borrower’s total debt-to-income ratio must be no higher than 43% (subject to certain limited exceptions for loans eligible for purchase, guarantee or insurance by a government sponsored enterprise or a federal agency).
In addition, to be a qualified mortgage, the points and fees paid by a consumer cannot exceed 3% of the total loan amount and the borrower’s total debt-to-income ratio must be no higher than 43% (subject to certain limited exceptions for loans eligible for purchase, guarantee or insurance by a government sponsored enterprise or a federal agency). 12 Commercial Real Estate Guidance In December 2023, the FDIC released a statement entitled “Managing Commercial Real Estate Concentrations in a Challenging Economic Environment” (the “Updated CRE Guidance”).
Dividends The Corporation is a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries. As a Pennsylvania banking institution, the Bank is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
As a Pennsylvania banking institution, the Bank is subject to certain restrictions on its ability to pay dividends under applicable banking laws and regulations.
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments thereto have been filed, along with this Annual Report on Form 10-K, with the SEC. The Corporation’s filings with the SEC can also be accessed at the SEC’s internet website: http://www.sec.gov.
Our Internet website is www.meridianbanker.com and our investor relations page can be found at investor.meridianbanker.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and all amendments thereto have been filed, along with this Annual Report on Form 10-K, with the SEC.
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. Anti-Money Laundering and the USA PATRIOT ACT The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism.
Anti-Money Laundering and the USA PATRIOT ACT The USA PATRIOT Act of 2001, which was enacted in the wake of the September 11, 2001 attacks, includes provisions designed to combat international money laundering and advance the U.S. government’s war against terrorism.
A portion of our workforce continues to work remotely and we still provide appointment-only lobby hours when requested. 6 Meridian is committed to giving back to our communities. In 2022, we donated $520 thousand to over 100 organizations throughout the various communities that we serve in Pennsylvania, New Jersey, Delaware, Maryland, and Florida.
A portion of our workforce continues to work remotely or on a hybrid work schedule. Meridian is committed to giving back to our communities. In 2023, we donated $503 thousand to over 100 organizations throughout the various communities that we serve in Pennsylvania, New Jersey, Delaware, Maryland, and Florida.
Meridian Bank currently operates four wholly-owned subsidiaries: Meridian Land Settlement Services, which provides title insurance services; Apex Realty, a real estate holding company; Meridian Wealth, a registered investment advisory firm, and Meridian Equipment Finance, an equipment leasing company. Pennsylvania law also imposes restrictions on the Bank’s activities intended to ensure the safety and soundness of the Bank.
Meridian Bank currently operates four wholly-owned subsidiaries: Meridian Land Settlement Services, which provides title insurance services; Apex Realty, a real estate holding company; Meridian Wealth, a registered investment advisory firm, and Meridian Equipment Finance, an equipment leasing and other finance receivables company.
The Bank is an FDIC-insured commercial bank chartered under the laws of Pennsylvania with regulatory oversight from the FDIC and the PDBS. The holding company, Meridian Corporation, is subject to supervision and examination by, and the regulations and reporting requirements of, the FRB, and is subject to the disclosure and regulatory requirements of the Exchange Act.
The holding company, Meridian Corporation, is subject to supervision and examination by, and the regulations and reporting requirements of, the FRB, and is subject to the disclosure and regulatory requirements of the Exchange Act.
It does not address all applicable laws, regulations and policies that affect us currently or might affect us in the future. This discussion is qualified in its entirety by reference to the full texts of the laws, regulations and policies described.
It does not address all applicable laws, regulations and policies that affect us currently or might affect us in the future.
The federal banking regulators previously issued guidance in December 2006, entitled “Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”, which stated that an institution is potentially exposed to significant commercial real estate concentration risk, and should employ enhanced risk management practices, where (1) total commercial real estate loans represent 300% or more of its total capital and (2) the outstanding balance of such institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months. 12 Leveraged Lending Guidance The federal banking regulators jointly issued guidance on leveraged lending that describes regulatory expectations for the sound risk management of leveraged lending activities, including the importance for institutions to maintain, among other things, (i) a credit limit and concentration framework consistent with the institution’s risk appetite, (ii) underwriting standards that define acceptable leverage levels, (iii) strong pipeline management policies and procedures and (iv) guidelines for conducting periodic portfolio and pipeline stress tests.
The federal banking regulators previously issued guidance in December 2006, entitled “Interagency Guidance on Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices” (the “2006 CRE Guidance”) which stated that an institution is potentially exposed to significant commercial real estate concentration risk, and should employ enhanced risk management practices, where (1) total commercial real estate loans represent 300% or more of its total capital and (2) the outstanding balance of such institution’s commercial real estate loan portfolio has increased by 50% or more during the prior 36 months.
According to the U.S. Census Bureau – 2020, the median household income in the Baltimore metropolitan area is $98,513 compared to the national average of $62,843, while the total population in this market was 3,804,375.
According to the U.S. Census Bureau – 2020, the median household income in the Baltimore metropolitan area is $105,582 compared to the national average of $62,843, while the total population in this market was 3,774,350. The Delaware and Florida markets were serve are also stable with moderate population growth.
The Bank seeks to compete for business principally on the basis of high quality, personal service to customers, customer access to our decision-makers, and customer preferred electronic delivery channels while providing an attractive banking platform and competitive interest rates and services.
Other competitors include non-bank fintech and finance companies, money market mutual funds, mortgage bankers, insurance companies, securities brokerage firms, regulated small loan companies, credit unions, and issuers of commercial paper and other securities. 6 The Bank seeks to compete for business principally on the basis of high quality, personal service to customers, customer access to our decision-makers, and customer preferred electronic delivery channels while providing an attractive banking platform and competitive interest rates and services.
Wealth Management and Advisory Services Meridian 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 mortgage division performs origination, processing, underwriting, closing and post-closing functions both from our Blue Bell mortgage headquarters with 5 other loan production offices in the Delaware Valley tri-state market, and from Maryland through our footprint of 3 other production/processing offices in the state. 5 Wealth Management and Advisory Services Meridian 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 initial base rate for deposit insurance is between three and 30 basis points. Total base assessment after possible adjustments now ranges between 1.5 and 40 basis points.
As an institution with less than $10 billion in assets, the Bank’s assessment rates are based on the level of risk it poses to the FDIC’s DIF. The initial base rate for deposit insurance is between three and 30 basis points. Total base assessment after possible adjustments now ranges between 1.5 and 40 basis points.
Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government. As an institution with less than $10 billion in assets, the Bank’s assessment rates are based on the level of risk it poses to the FDIC’s DIF.
Deposit Insurance FDIC insurance assessments As an FDIC-insured bank, the Bank must pay deposit insurance assessments to the FDIC based on its average total assets minus its average tangible equity. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the United States Government.
Federal Home Loan Bank Membership The Bank is a member of the FHLB, which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances.
The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances. All advances from the FHLB are required to be fully collateralized as determined by the FHLB.
If an institution fails to comply with such an order, the banking regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties. 10 Deposit Insurance FDIC insurance assessments As an FDIC-insured bank, the Bank must pay deposit insurance assessments to the FDIC based on its average total assets minus its average tangible equity.
See “—Prompt Corrective Action Framework”. If an institution fails to comply with such an order, the banking regulator may seek to enforce such order in judicial proceedings and to impose civil money penalties.
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.
Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence. 8 Dividends The Corporation is a legal entity separate and distinct from the Bank and the Bank’s wholly-owned subsidiaries.
The final rule requires Meridian to adopt a clawback policy within 60 days after such listing standard becomes effective. Cybersecurity The GLB Act requires financial institutions to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of client records and information.
The final rule requires Meridian to adopt a clawback policy within 60 days after such listing standard becomes effective, which Meridian did on November 21, 2023.
Information about Meridian Our executive offices are located at 9 Old Lincoln Highway, Malvern, PA 19355 and our telephone number is (484) 568-5000. Our Internet website is www.meridianbanker.com and our investor relations page can be found at investor.meridianbanker.com.
Our Current Capital Stock Structure As of December 31, 2023, Meridian had 13,186,198 shares of common stock, $1 par value, issued and 11,183,015 shares outstanding. There are 2,003,183 shares held in treasury. Information about Meridian Our executive offices are located at 9 Old Lincoln Highway, Malvern, PA 19355 and our telephone number is (484) 568-5000.
Removed
The mortgage division performs origination, processing, underwriting, closing and post-closing functions both from our Blue Bell mortgage headquarters with 6 other production/processing offices in the Delaware Valley tri-state market, and from Maryland through our expanded footprint of 6 other production/processing offices in the state.
Added
The Corporation’s filings with the SEC can also be accessed at the SEC’s internet website: http://www.sec.gov.
Removed
Other competitors include non-bank fintech and finance companies, money market mutual funds, mortgage bankers, insurance companies, securities brokerage firms, regulated small loan companies, credit unions, and issuers of commercial paper and other securities.
Added
This discussion is qualified in its entirety by reference to the full texts of the laws, regulations and policies described. 7 The Bank is an FDIC-insured commercial bank chartered under the laws of Pennsylvania with regulatory oversight from the FDIC and the PDBS.
Removed
Our Current Capital Stock Structure As of December 31, 2022, Meridian had 13,156,308 shares of common stock, $1 par value, issued and 11,465,572 shares outstanding. There is 1,690,736 shares held in treasury. All share and per share amounts have been adjusted to reflect the two-for-one stock split effective February 28, 2023.
Added
Pennsylvania law also imposes restrictions on the Bank’s activities intended to ensure the safety and soundness of the Bank.
Removed
Update on Emerging Growth Company Status We qualified as an “emerging growth company” as defined by the JOBS Act, until December 31, 2022, the end of the fiscal year following the fifth anniversary of the completion of our initial public offering.
Added
These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
Removed
An emerging growth company is able to take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies.
Added
The Capital Rules provide for a number of deductions from and adjustments to CET1.
Removed
While we are no longer considered an emerging growth company, we still qualify as a “smaller reporting company” under Item 10(f)(1) of Regulation S-K, and as such are still able to present only two years of audited financial statements, as well as including less extensive narrative disclosures around executive compensation arrangements.
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In November, 2023, the FDIC issued a final rule to implement a special assessment to recover the loss to the DIF associated with protecting uninsured depositors following the closure of Silicon Valley Bank and Signature Bank, at a quarterly rate of 3.36 basis points of an institution’s uninsured deposits in excess of $5 billion as of December 31, 2022, to be paid over eight quarterly assessment periods beginning in the first quarter of 2024.
Removed
The FDIC adopted a final rule effective June 26, 2020, and applied as of April 1, 2020, to mitigate the effect on deposit insurance assessments of a bank’s participation in the Paycheck Protection Program, the Paycheck Protection Program Liquidity Facility and the Money Market Mutual Fund Liquidity Facility in connection with the COVID-19 pandemic.
Added
Under the final rule, the estimated loss pursuant to the systemic risk determination will be periodically adjusted and the FDIC has retained the ability to cease collection early, extend the special assessment collection period and impose a final shortfall assessment on a one time basis.
Removed
All advances from the FHLB are required to be fully collateralized as determined by the FHLB.
Added
Since the Bank’s uninsured deposits were less than $5 billion as of December 31, 2022, the final rule doesn’t apply to the Bank, but the extent to which any similar future assessments will impact our future deposit insurance expense is currently uncertain.
Removed
Commercial Real Estate Guidance In December 2015, the federal banking regulators released a statement entitled “Interagency Statement on Prudent Risk Management for Commercial Real Estate Lending” (the “CRE Guidance”).
Added
In October 2023, the Federal Reserve issued a proposal under which the maximum permissible interchange fee for an electronic debit transaction would be the sum of 14.4 cents per transaction and 4 basis points multiplied by the value of the transaction. Furthermore, the fraud-prevention adjustment would increase from a maximum of 1 cent to 1.3 cents.
Removed
In the CRE Guidance, the federal banking regulators (i) expressed concerns with institutions that ease commercial real estate underwriting standards, (ii) directed financial institutions to maintain underwriting discipline and exercise risk management practices to identify, measure and monitor lending risks, and (iii) indicated that they will continue to pay special attention to commercial real estate lending activities and concentrations going forward.
Added
The proposal would adopt an approach for future adjustments to the interchange fee cap, which would occur every other year based on issuer cost data gathered by the Federal Reserve from large debit card issuers. Federal Home Loan Bank Membership The Bank is a member of the FHLB, which serves as a central credit facility for its members.
Removed
The Cybersecurity Information Sharing Act is intended to improve cybersecurity in the U.S. by enhanced sharing of information about security threats among the U.S. government and private sector entities, including financial institutions.
Added
In the Updated CRE Guidance, the FDIC conveys several key risk management practices to consider in managing CRE loan concentrations in the current challenging economic environment. The advisory also continues to emphasize the importance of effectively managing liquidity and funding risks, which can compound lending risks, particularly for CRE concentrated institutions.
Removed
The Cybersecurity Information Sharing Act also authorizes companies to monitor their own systems notwithstanding any other provision of law and allows companies to carry out defensive measures on their own systems from cyber-attacks.
Added
This advisory does not create new risk management principles; however, it does update and build upon previously issued guidance.
Removed
The law includes liability protections for companies that share cyber threat information with third parties so long as such sharing activity is conducted in accordance with Cybersecurity Information Sharing Act.
Added
In the Updated CRE Guidance, the FDIC noted that Institutions with significant CRE concentrations are reminded that strong risk management, governance, capital, and appropriate ACL levels are needed to help mitigate risks. Institutions with overall credit risk management processes that reflect consideration of the principles of the 2006 CRE Guidance are better positioned to manage through adverse economic environments.
Removed
In October 2016, the federal bank regulatory agencies issued an Advanced Notice of Proposed Rulemaking regarding enhanced cyber risk management standards, which would apply to a wide range of large financial institutions and their third-party service providers.
Added
The principles in the 2006 CRE Guidance remain relevant, particularly in challenging economic environments, and particularly for institutions engaged in significant CRE lending strategies to help them remain healthy and profitable while continuing to serve the credit needs of the community.
Removed
The proposed rules would expand existing cybersecurity regulations and guidance to focus on cyber risk management and governance, management of internal and external dependencies, and incident response, cyber resilience, and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.
Added
Leveraged Lending Guidance The federal banking regulators jointly issued guidance on leveraged lending that describes regulatory expectations for the sound risk management of leveraged lending activities, including the importance for institutions to maintain, among other things, (i) a credit limit and concentration framework consistent with the institution’s risk appetite, (ii) underwriting standards that define acceptable leverage levels, (iii) strong pipeline management policies and procedures and (iv) guidelines for conducting periodic portfolio and pipeline stress tests.
Removed
These enhanced standards would apply only to depository institutions and depository institution holding companies with total consolidated assets of $50 billion or more. The federal banking agencies have not yet taken further action on these proposed standards.
Added
These regulations affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. In October 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
Removed
Separately, in November 2021, the United States federal bank regulatory agencies adopted a rule regarding notification requirements for banking organizations related to significant computer security incidents.
Added
Any such data provider would also have to make such data available to third parties, with the consumer's express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
Removed
Under the final rule, a bank holding company and a state member bank are required to notify the FRB within 36 hours of incidents that have materially disrupted or degraded, or are reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its client base, jeopardize the viability of key operations of the banking organization, or impact the stability of the financial sector.
Added
Data that would be required to be made available under the rule would include transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

37 edited+24 added−23 removed146 unchanged
Biggest changeBecause of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairment in future periods, which could adversely affect our business, results of operations or financial condition. For those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in earnings or AOCI each quarter.
Biggest changeFor those financial instruments measured at fair value, we are required to recognize the changes in the fair value of such instruments in earnings or AOCI each quarter. Therefore, any increases or decreases in the fair value of these financial instruments have a corresponding impact on reported earnings or AOCI.
Some of these parties have in the past been the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches or cyberattacks affecting any of these third parties could affect us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them, including costs to replace compromised debit cards and address fraudulent transactions.
Some of these parties have in the past been the target of security breaches and cyberattacks, and because the transactions involve third parties and environments such as the point of sale that we do not control or secure, future security breaches 17 or cyberattacks affecting any of these third parties could affect us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them, including costs to replace compromised debit cards and address fraudulent transactions.
Since September 2008 FNMA and FHLMC have been operating in a conservatorship setup by the U.S. government as a response to the financial crisis of 2008. The FHFA continues to carry out its responsibilities as conservator. 21 Our SBA lending program is dependent upon the federal government and we face specific risks associated with originating SBA loans.
Since September 2008 FNMA and FHLMC have been operating in a conservatorship setup by the U.S. government as a response to the financial crisis of 2008. The FHFA continues to carry out its responsibilities as conservator. Our SBA lending program is dependent upon the federal government and we face specific risks associated with originating SBA loans.
In recent periods, there 17 continues to be a rise in electronic fraudulent activity, security breaches and cyberattacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity, security breaches and cybersecurity-related incidents in recent periods.
In recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyberattacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we have also experienced an increase in attempted electronic fraudulent activity, security breaches and cybersecurity-related incidents in recent periods.
Compliance with Section 404 is expensive and time consuming for management and could result in the detection of internal control deficiencies of which we are currently unaware. The loss of “emerging growth company” status and compliance with the additional requirements substantially increases our legal and financial compliance costs and make some activities more time consuming and costly.
Compliance with Section 404 is expensive and time consuming for management and could result in the detection of internal control deficiencies of which 14 we are currently unaware. The loss of “emerging growth company” status and compliance with the additional requirements substantially increases our legal and financial compliance costs and make some activities more time consuming and costly.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for loan losses, we will need additional provisions to increase the allowance.
In addition, bank regulatory agencies periodically review our allowance and may require an increase in the provision for credit losses or the recognition of additional loan charge-offs, based on judgments different from those of management. Also, if charge-offs in future periods exceed the allowance for credit losses, we will need additional provisions to increase the allowance.
We generally sell the guaranteed portion of our SBA 7(a) program loans in the secondary market. These sales have resulted in premium income for us at the time of sale and created a stream of future servicing income. We may not be able to continue originating these loans or selling them in the secondary market.
We generally sell the guaranteed portion of our SBA 7(a) program loans in the secondary market. These sales have resulted in premium income for us at the time of sale and created a stream of future servicing income. We may not be able to continue originating 21 these loans or selling them in the secondary market.
Our acquisition activities could be material to us. For example, we could issue additional shares of common stock in a merger transaction, which could dilute current shareholders' ownership interest. An acquisition could require us to use a substantial amount of cash, other liquid assets, and/or incur debt.
Our acquisition activities could be material to us. For example, we 15 could issue additional shares of common stock in a merger transaction, which could dilute current shareholders' ownership interest. An acquisition could require us to use a substantial amount of cash, other liquid assets, and/or incur debt.
Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. 16 Our shareholders are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments.
Also, our right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. Our shareholders are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments.
Risks Related to Our Business / Operations Recent and future bank failures may adversely affect the national, regional, and local business environment, results of operation, and capital. Recent and future bank failures may have a profound impact on the national, regional, and local business environment in which Meridian operates.
Risks Related to Our Business / Operations Recent and future bank failures may adversely affect the national, regional, and local business environment, results of operation, and capital. Past and future bank failures may have a profound impact on the national, regional, and local business environment in which Meridian operates.
A reduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock. Loss of deposits could increase our funding costs.
A reduction or discontinuance of dividends on our common stock could have a material adverse effect on our business, including the market price of our common stock. 16 Loss of deposits could increase our funding costs.
Such changes could subject the Corporation to additional costs, limit the types of financial services and products the Corporation may offer, limit the fees we may charge, increase the ability of non-banks to offer competing financial services and products, change regulatory capital requirements or the required size of our allowance for loan losses and change deposit insurance assessments, any of which would negatively impact our financial condition and result of operations.
Such changes could subject the Corporation to additional costs, limit the types of financial services and products the Corporation may offer, limit the fees we may charge, increase the ability of non-banks to offer competing financial services and products, change regulatory capital requirements or the required size of our allowance for credit losses and change deposit insurance assessments, any of which would negatively impact our financial condition and result of operations.
This standard replaced the approach under GAAP for establishing allowances for loan and lease losses (the “Allowance”), which generally considers only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.
This standard replaced the approach under GAAP for establishing allowances for loan and lease losses (the “Allowance”), which generally considered only past events and current conditions, with a forward-looking methodology that reflects the expected credit losses over the lives of financial assets, starting when such assets are first originated or acquired.
Therefore, this Annual Report is subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.
Our annual Report is subject to Section 404(b) of the Sarbanes-Oxley Act, which requires that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for loan losses.
Deterioration in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of our control, may require an increase in the allowance for credit losses.
Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate or mortgage loans originated for sale. Many of the loans in our portfolio are secured by real estate.
Our business is significantly dependent on the real estate markets in which we operate, as a significant percentage of our loan portfolio is secured by real estate or mortgage loans originated for sale.
Declines in real estate values, including prices for homes and commercial properties in southeast Pennsylvania, Delaware and southern New Jersey, could result in a deterioration of the credit quality of our borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, and reduced demand for our products and services, generally.
Declines in real estate values, including prices for homes and commercial properties in southeast Pennsylvania, Delaware, Maryland, southern New Jersey, and Southwest Florida, could result in a deterioration of the credit quality of our borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, and reduced demand for our products and services, generally.
Real property values in our market may be different from, and in some instances worse than, real property values in other markets or in the United States as a whole, and may be affected by a variety of factors outside of our control and the control of our borrowers, including national and local economic conditions, generally.
Real property values in our market may be different from, and in some instances worse than, real property values in other markets or in the United States as a whole, and may be affected by a variety of factors outside of our control and the control of our borrowers, including national and local economic conditions, and weather related events, generally.
Our stock price may fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in our quarterly results of operations; • the failure of securities analysts to cover, or continue to cover, us after this offering; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us, our competitors or other financial institutions; • future sales of our common stock; • departure of our management team or other key personnel; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; • litigation and governmental investigations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts.
Our stock price may fluctuate significantly in response to a variety of factors including, among other things: • actual or anticipated variations in our quarterly results of operations; • the failure of securities analysts to cover, or continue to cover, us after this offering; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us, our competitors or other financial institutions; • future sales of our common stock; • departure of our management team or other key personnel; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • changes or proposed changes in laws or regulations, or differing interpretations thereof affecting our business, or enforcement of these laws and regulations; • litigation and governmental investigations; and • geopolitical conditions such as acts or threats of terrorism or military conflicts. 23 Certain banking laws and certain provisions of our articles of incorporation may have an anti-takeover effect.
As do many banking companies, we rely on customer deposits to meet a considerable portion of our funding needs, and we continue to seek customer deposits to maintain this funding base. We accept deposits directly from consumer and commercial customers and, as of December 31, 2022 , we had $1.7 billion in deposits.
As do many banking companies, we rely on customer deposits to meet a considerable portion of our funding needs, and we continue to seek customer deposits to maintain this funding base. We accept deposits directly from consumer and commercial customers and, as of December 31, 2023 , we had $1.8 billion in deposits.
Further, to the extent that any of the information in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors below are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
Further, to the extent that any of the information in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors below are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. See “Cautionary Note Regarding Forward-Looking Statements”.
As of December 31, 2022 , we owned $172.8 million of investment securities, which consisted primarily of our positions in U.S. government and government-sponsored enterprises and federal agency obligations, mortgage and asset-backed securities, corporate bonds, and municipal securities.
As of December 31, 2023 , we owned $181.8 million of investment securities, which consisted primarily of our positions in U.S. government and government-sponsored enterprises and federal agency obligations, mortgage and asset-backed securities, corporate bonds, and municipal securities.
However, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced in January of 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FOMC since has increased the target range seven times throughout 2022.
However, due to elevated levels of inflation and corresponding pressure to raise interest rates, the Federal Reserve announced in January of 2022 that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time. The FDIC since has increased the target range eleven times throughout 2022 to July 2023.
Under the revised methodology, credit losses will be measured based on past events, current conditions and reasonable and supportable forecasts of future conditions that affect the collectability of financial assets. The change to the CECL framework requires us to greatly increase the data we must collect and review to determine the appropriate level of the allowance for credit losses.
Under CECL, credit losses are measured based on past events, current conditions and reasonable and supportable forecasts of future conditions that affect the collectability of financial assets. The change to the CECL framework required us to greatly increase the data we collect and review to determine the appropriate level of the allowance for credit losses.
Our business depends on the creditworthiness of our customers. There are risks inherent in making loans, including risks of nonpayment, risks resulting from uncertainties of the future value of collateral, and risks resulting from changes in economic and industry conditions.
There are risks inherent in making loans, including risks of nonpayment, risks resulting from uncertainties of the future value of collateral, and risks resulting from changes in economic and industry conditions.
Southeast Pennsylvania, Delaware and southern New Jersey has experienced volatility in real estate values over the past decade.
Southeast Pennsylvania, Delaware, Maryland, southern New Jersey, and southwest Florida have experienced volatility in real estate values over the past decade.
The Corporation may be required to expend additional resources to employ the latest technologies. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations. We may not be able to attract and retain key personnel and other skilled employees.
The Corporation may be required to expend additional resources to employ the latest technologies. Failure to keep pace with technological change could potentially have an adverse effect on our business operations and financial condition and results of operations.
Certain banking laws and certain provisions of our articles of incorporation may have an anti-takeover effect. Provisions of federal banking laws, including regulatory approval requirements, could make it difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
Provisions of federal banking laws, including regulatory approval requirements, could make it difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our shareholders.
A general economic slowdown may cause current clients to seek alternative investment opportunities with other providers, which would decrease the value of Meridian Wealth’s assets under management resulting in lower fee income to the Corporation. 22 Risks Related to Regulation Changes in laws and regulations and the cost of regulatory compliance with new laws and regulations may adversely affect our operations and/or increase our costs of operations.
A general economic slowdown may cause current clients to seek alternative investment opportunities with other providers, which would decrease the value of Meridian Wealth’s assets under management resulting in lower fee income to the Corporation.
Therefore, any increases or decreases in the fair value of these financial instruments have a 15 corresponding impact on reported earnings or AOCI. Fair value can be affected by a variety of factors, many of which are beyond our control, including our credit position, interest rate volatility, capital markets volatility, and other economic factors.
Fair value can be affected by a variety of factors, many of which are beyond our control, including our credit position, interest rate volatility, capital markets volatility, and other economic factors.
Our interest rate spread, net interest margin and net interest income increased during this period of rising interest rates as our interest earning assets generally reprice more quickly than our interest earning liabilities.
As of December 31, 2023, the target range for the federal funds rate had been increased to 5.25% to 5.50%. Our interest rate spread, net interest margin 19 and net interest income increased during this period of rising interest rates as our interest earning assets generally reprice more quickly than our interest earning liabilities.
Any increases in provisions will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations. In addition, in June 2016, the FASB issued ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as CECL.
Any increases in provisions will result in a decrease in net income and capital and may have a material adverse effect on our financial condition and results of operations.
These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn, could have a material adverse effect on the market price of our common stock. Risks Related to COVID-19 The COVID-19 pandemic has disrupted economic conditions, the financial and labor markets and workplace operating environments.
These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn, could have a material adverse effect on the market price of our common stock. Item 1B. Unresolved Staff Comments None.
Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, including the Bank. 23 There also are provisions in our articles of incorporation and our bylaws, such as limitations on the ability to call a special meeting of our shareholders, that may be used to delay or block a takeover attempt.
There also are provisions in our articles of incorporation and our bylaws, such as limitations on the ability to call a special meeting of our shareholders, that may be used to delay or block a takeover attempt.
As of December 31, 2022, our real estate loans, excluding mortgages held for sale, include $272.0 million of construction and development loans, $59.4 million of home equity loans, $565.4 million of CRE loans and $221.8 million of residential mortgage loans, with the majority of these real estate loans concentrated in the southeast Pennsylvania, Delaware and southern New Jersey.
As of December 31, 2023, our real estate loans, excluding mortgages held for sale, included $737.9 million of CRE loans (38.6% of total portfolio loans), $246.4 million of construction and development loans (12.9% of total portfolio loans), and for consumer loans, $260.6 million of residential mortgage loans, and $76.3 million of home equity loans (17.6% of total portfolio loans), with the majority of these real estate loans concentrated in the southeast Pennsylvania, Delaware, Maryland, southern New Jersey, and to a lesser degree in southwest Florida.
There may be periods where the Corporation elects not to use derivatives and other instruments to hedge mortgage banking interest rate risk. We may be adversely impacted by the transition from LIBOR as a reference rate.
There may be periods where the Corporation elects not to use derivatives and other instruments to hedge mortgage banking interest rate risk. Risks Related to Lending Activities We must effectively manage the credit risks of our loan portfolio. Our business depends on the creditworthiness of our customers.
These procedures cannot, however, be expected to completely eliminate our credit risks, and we can make no guarantees concerning the strength of our loan portfolio. 20 Our allowance for loan and lease losses may be insufficient, and an increase in the allowance would reduce earnings.
These procedures cannot, however, be expected to completely eliminate our credit risks, and we can make no guarantees concerning the strength of our loan portfolio. Nonperforming assets take significant time to resolve and adversely affect the Corporation's results of operations and financial condition . The Corporation's nonperforming assets adversely affect its net income in various ways.
Removed
See “Cautionary Note Regarding Forward-Looking Statements”. 14 As of December 31, 2022, we are no longer an “emerging growth company” and, as a result, are required to comply with increased disclosure and governance requirements.
Added
As a result of inflationary pressures and the resulting rapid increases in interest rates in 2023, the trading value of previously issued government and other fixed income securities has declined significantly.
Removed
As more than five fiscal years have passed since the November 17, 2017, listing of common stock listing on the NASDAQ, we ceased to be an “emerging growth company” as defined in the JOBS Act as of December 31, 2022.
Added
The Corporation conducts a periodic review of the securities portfolio to determine if any decline in the estimated fair value of any security below its cost basis is considered impaired.
Removed
As such, we are subject to certain requirements that apply to other public companies but did not previously apply to us.
Added
Factors which are considered in the analysis include, but are not limited to, the extent to which the fair value is less than the amortized cost basis, the financial condition, credit rating and future prospects of the issuer, whether the debtor is current on contractually obligated interest and principal payments and the Corporation’s intent and ability to retain the security for a period of time sufficient to allow for any anticipated recovery in fair value and the likelihood of any near-term fair value recovery.
Removed
These requirements include: • The provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting; • The requirement to provide detailed compensation discussion and analysis in proxy statements and reports filed under the Exchange Act; and • The “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Act and some of the disclosure requirements of the Dodd-Frank Act relating to compensation of our chief executive officer.
Added
If such decline is deemed to be uncollectible, the security is written down to a new cost basis and the resulting loss will be recognized as a securities provision for credit losses through an allowance for credit losses.
Removed
We evaluate our investment securities on at least a quarterly basis, and more frequently when economic and market conditions warrant such an evaluation, to determine whether any decline in fair value below amortized cost is the result of an other-than-temporary impairment.
Added
Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally.
Removed
The process for determining whether impairment is other-than-temporary usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments on the security.
Added
Any actual or perceived failure to comply with evolving regulatory frameworks around the development and use of artificial intelligence (AI) could adversely affect our business, results of operations, and financial condition. Our business increasingly relies on AI, machine learning and automated decision making to improve our services and our customer’s experience.
Removed
As of December 31, 2022, the target range for the federal funds rate had been increased to 4.25% to 4.50% and the FOMC signaled that future increases may be 19 appropriate in order to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels.
Added
The regulatory framework around the development and use of these emerging technologies is rapidly evolving, and many federal, state and foreign government bodies and agencies have introduced and/or are currently considering additional laws and regulations.
Removed
In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate LIBOR.
Added
As a result, implementation standards and enforcement practices are likely to remain uncertain for the foreseeable future, and we cannot yet determine the impact future laws, regulations, standards, or perception of their requirements may have on our business.
Removed
In November 2020, the administrator of LIBOR announced it will consult on its intention to extend the retirement date of certain offered rates whereby the publication of the one week and two month LIBOR offered rates will cease after December 31, 2022; reputation risks, the bank regulatory agencies have indicated that entering into new contracts that use LIBOR as a reference rate after December 31, 2022, would create safety and soundness risks and that they will examine bank practices accordingly.
Added
Any of the foregoing, together with developing guidance and/or decisions in this area, may affect our use of AI and our ability to provide and improve our services, require additional compliance measures and changes to our operations and processes, and result in increased compliance costs and potential increases in civil claims against us.
Removed
Therefore, the agencies encouraged banks to cease entering into new contracts that use LIBOR as a reference rate by December 31, 2022. At December 31, 2022, we did not have a significant number of loans, derivative contracts, borrowings and other financial instruments with attributes that are either directly or indirectly dependent on LIBOR.
Added
Any actual or perceived failure to comply with evolving regulatory frameworks around the development and use of AI, machine learning and automated decision making could adversely affect our business, results of operations, and financial condition. We may not be able to attract and retain key personnel and other skilled employees.
Removed
Since alternative rates are calculated differently, payments under contracts with new rates will differ from those referencing LIBOR. Transition from LIBOR did not have a material impact on our business, financial condition and results of operations. Risks Related to Lending Activities We must effectively manage the credit risks of our loan portfolio.
Added
Some competitors may offer higher interest rates than the Corporation, which could decrease the deposits that the Corporation attracts or require the Corporation to increase its rates to retain existing deposits or attract new deposits. Increased deposit competition could adversely affect the Corporation’s ability to generate the funds necessary for lending operations.
Removed
We maintain an allowance for loan and lease losses at a level we believe adequate to absorb probable losses inherent in our existing loan portfolio.
Added
As a result, the Corporation may need to seek other sources of funds that may be more expensive to obtain, which could increase the cost of funds and decrease profitability.
Removed
The level of the allowance reflects management’s continuing evaluation of industry concentrations; specific credit risks; credit loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio.
Added
The Corporation does not record interest income on nonaccrual loans, which adversely affects its income and increases credit administration costs. When the Corporation receives collateral through foreclosures and similar proceedings, it is required to mark the related asset to the then fair market value of the collateral less estimated selling costs, which may, and often does, result in a loss.
Removed
Any increase in the allowance for credit losses, or expenses incurred to determine the appropriate level of the allowance for credit losses, may have an adverse effect on our financial condition and results of operations.
Added
An increase in the level of nonperforming assets also increases the Corporation's risk profile and may impact the capital levels regulators believe are appropriate in light of such risks. The Corporation utilizes various techniques such as workouts, restructurings, and loan sales to manage problem assets.
Removed
The Corporation will adopt this new guidance effective January 1, 2023, retrospectively at the beginning of the period of adoption, through a cumulative-effect adjustment to retained earnings at January 1, 2023. The Corporation has largely completed its assessment of related processes, internal controls, and data sources and has developed, documented, and validated a model utilizing a third-party software provider.
Added
Increases in or negative adjustments in the value of these problem assets, the underlying collateral, or in the borrowers' performance or financial 20 condition, could adversely affect the Corporation's business, results of operations and financial condition.
Removed
We are currently evaluating the effect that the new accounting standard will have on the consolidated financial statements and related disclosures. The Corporation anticipates that the Corporation and the Bank will continue to be well capitalized after the negative impact resulting from the adoption of CECL.
Added
In addition, the resolution of nonperforming assets requires significant commitments of time from management and staff, which can be detrimental to the performance of their other responsibilities, including generation of new loans. There can be no assurance that the Corporation will avoid increases in nonperforming loans in the future.
Removed
Risks Related our Wealth Management Business An economic slowdown could impact Meridian Wealth division revenues.
Added
Our allowance for credit losses may be insufficient, and an increase in the allowance would reduce earnings. ASU 2016-13 (Topic 326 - Credit Losses), commonly referenced as CECL, became effective for us on January 1, 2023.
Removed
The COVID-19 pandemic created extensive economic and financial disruptions that adversely affected our business, financial condition, liquidity and results of operations. Federal and state governments have taken unprecedented actions to respond to such disruptions, including by enacting fiscal stimulus measures and legislation designed to deliver monetary aid and other relief.
Added
CRE loans generally involve a greater degree of credit risk than residential real estate mortgage loans because they typically have larger balances and are more affected by adverse conditions in the economy.
Removed
The widespread availability of multiple COVID-19 vaccines and boosters has helped to curtail rates of infection in many parts of the United States and, in turn, mitigate many of the adverse social and economic effects of the pandemic.
Added
Because payments on loans secured by commercial real estate often depend upon the successful operation and management of the properties and the businesses which operate from within them, repayment of such loans may be affected by factors outside the borrower’s control, such as adverse conditions in the real estate market or the economy or changes in government regulations.
Removed
However, vaccination rates in many geographies have been lower than anticipated and the emergence of novel variants of COVID-19, as well as other viruses that largely were not present in many geographies for an extended period of time due to COVID-19-related activity restrictions, have complicated the efforts of the medical community and federal, state and local governments to manage social and economic disruptions caused by the pandemic.
Added
In recent years, commercial real estate markets have been particularly impacted by the economic disruption resulting from the COVID-19 pandemic. The COVID-19 pandemic has also been a catalyst for the evolution of various remote work options which could impact the long-term performance of some types of office properties within our commercial real estate portfolio.
Removed
The effects of the COVID-19 pandemic have varied significantly by region, and the extent of the effects of the pandemic on the U.S. and global economies, labor markets and financial markets are likely to continue to change.
Added
Accordingly, the federal banking regulatory agencies have expressed concerns about weaknesses in the current commercial real estate market.
Removed
Future developments will be highly uncertain and cannot be predicted, including the effectiveness of post-pandemic remote working arrangements, third party providers’ ability to continue to support our operations, and any further actions taken by governmental authorities and other third parties.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeTamiami Trail, Suite 3, Bonita Springs, FL 34134 • Mortgage Loan Production Office – 1601 Concord Pike, Suite 45, Wilmington, DE 19803 • Mortgage Loan Production Office – 5301 Limestone Road, Suite 202, Wilmington, DE 19801 • Mortgage Loan Production Office – 22128 Sussex Highway, Seaford, DE 19973 • Mortgage Loan Production Office – 350 Highland Drive, Suite 160, Mountville, PA 17554 • Mortgage Loan Production Office – 2330 New Road, Northfield, NJ 08225 • Mortgage Loan Production Office – 1221 College Park Drive, Suite 118, Dover, DE 19904 • Mortgage Loan Production Office – 8894 Stanford Boulevard, #203, Columbia, MD 21045 • Mortgage Loan Production Office – 2448 Holly Avenue, Ste. 100, Annapolis, MD 21401 • Mortgage Loan Production Office – 110 West Road, Towson, MD 21204 • Mortgage Loan Production Office – 9515 Deereco Road, Timonium, MD 21093 • Mortgage Loan Production Office – 4940 Campbell Blvd., Baltimore, MD 21236 • Mortgage Loan Production Office – 15722 Crabbs Branch Way, Ste. 2D, Rockville, MD 20855 24 Item 3.
Biggest changeTamiami Trail, Suite 3, Bonita Springs, FL 34134 • Commercial Loan Office / Mortgage Loan Production Office – 8894 Stanford Boulevard, #203, Columbia, MD 21045 • Mortgage Loan Production Office – 5301 Limestone Road, Suite 202, Wilmington, DE 19801 • Mortgage Loan Production Office – 22128 Sussex Highway, Seaford, DE 19973 • Mortgage Loan Production Office – 350 Highland Drive, Suite 160, Mountville, PA 17554 • Mortgage Loan Production Office – 2330 New Road, Northfield, NJ 08225 • Mortgage Loan Production Office – 1221 College Park Drive, Suite 118, Dover, DE 19904 • Mortgage Loan Production Office – 110 West Road, Towson, MD 21204 • Mortgage Loan Production Office – 9515 Deereco Road, Timonium, MD 21093 • Mortgage Loan Production Office – 4940 Campbell Blvd., Baltimore, MD 21236 Item 3.
In addition to our deposit taking branches, there are currently 18 other offices, including headquarters for Corporate and Operations, the Wealth Division and the Mortgage Division. Other than our corporate and operations headquarters, all of our offices are leased. The Bank had a net book value of $10.1 million for all locations at December 31, 2022.
In addition to our deposit taking branches, there are currently 18 other offices, including headquarters for Corporate and Operations, the Wealth Division and the Mortgage Division. Other than our corporate and operations headquarters, all of our offices are leased. The Bank had a net book value of $10.8 million for all locations at December 31, 2023.
Branch locations: • Paoli Branch – 1176 Lancaster Avenue, Paoli, PA 19301 • West Chester Branch – 16 W. Market Street, West Chester, PA 19382 • Media Branch – 100 E. State Street, Media, PA 19063 • Doylestown Branch – 1719A S.
Branch locations: • Wayne Branch – 220 W Lancaster Avenue, Wayne, PA 19087 • West Chester Branch – 16 W. Market Street, West Chester, PA 19382 • Media Branch – 100 E. State Street, Media, PA 19063 • Doylestown Branch – 1719A S.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeShare Repurchases The following table presents the shares repurchased by the Corporation during the fourth quarter of 2022: Issuer Purchases of Equity Securities Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value that May Yet Be Purchased Under the Plan or Programs (1) Dollars in thousands except share data October 1, 2022 to October 31, 2022 86,602 $ 15.43 86,602 November 1, 2022 to November 30, 2022 126,794 15.66 126,794 December 1, 2022 to December 31, 2022 33,486 15.21 33,486 Total 246,882 $ 15.52 $ 4,652 (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.
Biggest changeShare Repurchases We did not repurchase any shares of the Corporation during the fourth quarter of 2023. 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.
As of March 10, 2023, there were approximately 1,655 registered shareholders of the Corporation's common stock. Certain shares are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
As of March 11, 2024, there were approximately 1,602 registered shareholders of the Corporation's common stock. Certain shares are held in “nominee” or “street” name and accordingly, the number of beneficial owners of such shares is not known or included in the foregoing number.
During 2022, and 2021, the Board of Directors declared cash dividends as follows: Date Declared Date of Record Date Paid Quarterly Dividend $ Special Dividend $ January 28, 2021 February 8, 2021 February 22, 2021 0.06 — February 16, 2021 March 1, 2021 March 15, 2021 — 0.50 April 22, 2021 May 10, 2021 May 17, 2021 0.06 — July 22, 2021 August 9, 2021 August 16, 2021 0.06 — October 28, 2021 November 15, 2021 November 22, 2021 0.10 — January 27, 2022 February 14, 2022 February 21, 2022 — 0.50 April 28, 2022 May 16, 2022 May 23, 2022 0.10 — July 28, 2022 August 15, 2022 August 22, 2022 0.10 — October 27, 2022 November 14, 2022 November 21, 2022 0.10 — Item 6.
During 2023, and 2022, the Board of Directors paid cash dividends as follows: Date Declared Date of Record Date Paid Quarterly Dividend $ Special Dividend $ January 27, 2022 February 14, 2022 February 21, 2022 $ — $ 0.50 April 28, 2022 May 16, 2022 May 23, 2022 $ 0.10 $ — July 28, 2022 August 15, 2022 August 22, 2022 $ 0.10 $ — October 27, 2022 November 14, 2022 November 21, 2022 $ 0.10 $ — January 26, 2023 February 14, 2023 February 21, 2023 $ 0.125 $ — April 27, 2023 May 15, 2023 May 22, 2023 $ 0.125 $ — July 27, 2023 August 14, 2023 August 21 2023 $ 0.125 $ — October 26, 2023 November 13, 2023 November 20, 2023 $ 0.125 $ — Item 6.
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 . Dividend Policy In 2020 the Corporation commenced quarterly cash dividends on its common stock.
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. On April 22, 2023, the stock repurchase plan expired. The total amount of stock repurchased under the plan was $19.6 million in total.
Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements. Also, the Corporation and the Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities.
Dividend Policy In 2020 the Corporation commenced quarterly cash dividends on its common stock. Future dividend payments will depend upon maintenance of a strong financial condition, future earnings and capital and regulatory requirements.
Added
Also, the Corporation and the Bank are subject to restrictions on the amount of dividends that may be paid without approval of banking regulatory authorities. 25 Dividend amounts have been adjusted to reflect the two-for-one stock split effective February 28, 2023.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest change(dollars in thousands) December 31, 2022 % of Loan Type to Total Loans December 31, 2021 % of Loan Type to Total Loans Commercial mortgage $ 4,095 33% $ 4,950 37% Home equity lines and loans 188 3% 224 4% Residential mortgage 948 13% 283 5% Construction 3,075 16% 2,042 12% Commercial and industrial 4,012 19% 6,533 28% Small business loans 4,909 8% 3,737 8% Consumer 3 —% 3 —% Leases 1,598 8% 986 6% Total $ 18,828 100% $ 18,758 100% The following table provides information on (charge-offs) and recoveries by loan category: December 31, 2022 December 31, 2021 Home equity lines and loans $ 31 $ 1 Residential mortgage 2 5 Commercial and industrial 97 41 Consumer 4 4 Leases (2,552) (130) Total Net Charge-offs $ (2,418) $ (79) Deposits The following table presents the major categories of deposits at the dates indicated: (Dollars in thousands) December 31, 2022 December 31, 2021 $ Change % Change Noninterest-bearing deposits $ 301,727 $ 274,528 $ 27,199 9.9 % Interest-bearing deposits: Interest-bearing demand deposits 219,838 268,248 (48,410) (18.0) % Money market and savings deposits 697,564 697,628 (64) — % Time deposits 493,350 206,009 287,341 139.5 % Total interest-bearing deposits 1,410,752 1,171,885 238,867 20.4 % Total deposits $ 1,712,479 $ 1,446,413 $ 266,066 18.4 % Total deposits were $1.7 billion as of December 31, 2022, up $266.1 million, or 18.4%, from December 31, 2021.
Biggest changeThe following table provides information on net (charge-offs) and recoveries by loan category for the years ended: December 31, 2023 December 31, 2022 Home equity lines and loans $ (82) $ 31 Residential mortgage — 2 Commercial and industrial (209) 97 Small business loans (1,483) — Consumer 2 4 Leases (3,779) (2,552) Total Net Charge-offs $ (5,551) $ (2,418) 35 Deposits The following table presents the major categories of deposits at the dates indicated: (Dollars in thousands) December 31, 2023 December 31, 2022 $ Change % Change Noninterest-bearing deposits $ 239,289 $ 301,727 $ (62,438) (20.7) % Interest-bearing deposits: Interest-bearing demand deposits 150,898 219,838 (68,940) (31.4) % Money market and savings deposits 747,803 697,564 50,239 7.2 % Time deposits 685,472 493,350 192,122 38.9 % Total interest-bearing deposits 1,584,173 1,410,752 173,421 12.3 % Total deposits $ 1,823,462 $ 1,712,479 $ 110,983 6.5 % Total deposits were $1.8 billion as of December 31, 2023, up $111.0 million, or 6.5%, from December 31, 2022.
In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of SNCs, which have a national market and can be sold in a timely manner.
In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are 37 comprised of SNCs, which have a national market and can be sold in a timely manner.
Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $850 million 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.
Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $987 million 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.
Executive Overview The following items highlight the Corporation’s changes in its financial condition as of December 31, 2022 compared to December 31, 2021 and the results of operations for the year ended December 31, 2022 compared to the same periods in 2021. More detailed information related to these highlights can be found in the sections that follow.
Executive Overview The following items highlight the Corporation’s changes in its financial condition as of December 31, 2023 compared to December 31, 2022 and the results of operations for the year ended December 31, 2023 compared to the same periods in 2022. More detailed information related to these highlights can be found in the sections that follow.
The information contained in this section should be read together with the December 31, 2022 audited Consolidated Financial Statements and the accompanying Notes included in Item 8. Financial Statements And Supplementary Data of this Form 10-K. This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.
The information contained in this section should be read together with the December 31, 2023 audited Consolidated Financial Statements and the accompanying Notes included in Item 8. Financial Statements And Supplementary Data of this Form 10-K. This section of this Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Meridian meets the definition of “well capitalized” for regulatory purposes on December 31, 2022. Our capital category is determined for the purposes of applying the bank regulators’ “prompt corrective action” regulations and for determining levels of deposit insurance assessments and may not constitute an accurate representation of Meridian’s overall financial condition or prospects.
Capital Resources Meridian meets the definition of “well capitalized” for regulatory purposes on December 31, 2023. Our capital category is determined for the purposes of applying the bank regulators’ “prompt corrective action” regulations and for determining levels of deposit insurance assessments and may not constitute an accurate representation of Meridian’s overall financial condition or prospects.
The remaining commercial real estate loans are managed by our commercial real estate department which offer the following commercial real estate products: • Permanent – Investor Real Estate Loans • Purchase and refinance loan opportunities for a number of product types, including single-family rentals, multi-family residential as well as tenanted income producing properties in a variety of real estate types, including office, retail, industrial, and flex space • Construction Loans • Residential construction loans to finance new construction and renovation of single and 1-4 family homes located within our market area • Commercial construction loans for investment properties, generally with semi-permanent attributes • Construction loans for new, expanded or renovated operations for our owner occupied business clients • Land Development Loans • Meridian considers a limited number of strictly land development oriented loans based upon the risk, merit of the future project and strength of the borrower/guarantor relationship Our commercial real estate loans increased by $48.5 million, or 9.4%, to $565.4 million at December 31, 2022 from $516.9 million at December 31, 2021.
The remaining commercial real estate loans are managed by our commercial real estate department which offer the following commercial real estate products: • Permanent – Investor Real Estate Loans • Purchase and refinance loan opportunities for a number of product types, including single-family rentals, multi-family residential as well as tenanted income producing properties in a variety of real estate types, including office, retail, industrial, and flex space • Construction Loans • Residential construction loans to finance new construction and renovation of single and 1-4 family homes located within our market area • Commercial construction loans for investment properties, generally with semi-permanent attributes • Construction loans for new, expanded or renovated operations for our owner occupied business clients • Land Development Loans • Meridian considers a limited number of strictly land development oriented loans based upon the risk, merit of the future project and strength of the borrower/guarantor relationship Our commercial real estate loans increased by $172.5 million, or 30.5%, to $737.9 million at December 31, 2023 from $565.4 million at December 31, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist in understanding the financial condition and results of operations of Meridian as of and for the year ended December 31, 2022.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion is intended to assist in understanding the financial condition and results of operations of Meridian as of and for the year ended December 31, 2023.
In particular, management has identified the provision and allowance for loan and lease losses as the accounting policy that, due to the estimates, assumptions and judgements inherent in that policy, is critical in understanding our financial statements. Management has presented the application of this policy to the audit committee of our board of directors.
In particular, management has identified the provision and allowance for credit losses as the accounting policy that, due to the estimates, assumptions and judgements inherent in that policy, is critical in understanding our financial statements. Management has presented the application of this policy to the audit committee of our board of directors.
On February 28, 2023, the Corporation approved and declared a two-for-one stock split in the form of a 100% stock dividend, payable March 20, 2023, to shareholders of record as of March 14, 2023. Under the terms of the stock split, the Corporation’s shareholders will receive a dividend of one share for every share held on the record date.
On February 28, 2023, the Corporation approved and declared a two-for-one stock split in the form of a 100% stock dividend, payable March 20, 2023, to shareholders of record as of March 14, 2023. Under the terms of the stock split, the Corporation’s shareholders received a dividend of one share for every share held on the record date.
Total balance sheet liquidity, which is derived from cash and investments, as well as salable commercial loans and residential mortgage loans held for sale, was $264.4 million at December 31, 2022. Meridian maintains a high-quality investment bond portfolio comprised of U.S Treasuries, government agencies, government agency mortgage-backed securities, and general obligation municipal securities with an average duration of 4 years.
Total balance sheet liquidity, which is derived from cash and investments, as well as salable commercial loans and residential mortgage loans held for sale, was $273.4 million at December 31, 2023. Meridian maintains a high-quality investment bond portfolio comprised of U.S Treasuries, government agencies, government agency mortgage-backed securities, and general obligation municipal securities with an average duration of 4.2 years.
Meridian’s available liquidity, which totaled $264.4 million at December 31, 2022, compared to $262.9 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.
Meridian’s available liquidity, which totaled $273.4 million at December 31, 2023, compared to $264.4 million at December 31, 2022, 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.
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.
This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued as these loan types are not included in the allowance for credit losses calculation.
The small business loans portfolio represented 7.7% and 7.8% of our total loan portfolio at December 31, 2022 and 2021, respectively. Consumer and Personal Loans Our consumer-lending department principally originates residential mortgage and home equity based products for our clients and prospects. These loans typically fund completely at closing.
The small business loans portfolio represented 7.4% and 7.7% of our total loan portfolio at December 31, 2023 and 2022, respectively. Consumer and Personal Loans Our consumer-lending department principally originates residential mortgage and home equity based products for our clients and prospects. These loans typically fund completely at closing.
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 December 31, 2022, Meridian’s maximum borrowing capacity with the FHLB was $561.7 million.
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 December 31, 2023, Meridian’s maximum borrowing capacity with the FHLB was $626.8 million.
In addition, the Bank is eligible to receive funds under the new Bank Term Funding Program announced by the Federal Reserve. Management believes that the above sources of liquidity provide Meridian with the necessary resources to meet its short-term and long-term funding requirements.
In addition, the Bank is eligible to receive funds under the Bank Term Funding Program. Management believes that the above sources of liquidity provide Meridian with the necessary resources to meet its short-term and long-term funding requirements.
In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the FRB to meet short-term liquidity needs. Through its relationship at the FRB, Meridian had available credit of approximately $8.8 million at December 31, 2022. At December 31, 2022, Meridian had no borrowings from the Federal Reserve.
In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the FRB to meet short-term liquidity needs. Through its relationship at the FRB, Meridian had available credit of approximately $7.8 million at December 31, 2023. At December 31, 2023, Meridian had $33.0 million in borrowings from the Federal Reserve.
Commercial and industrial loans overall represented 19.4% and 26.2% of our total loan portfolio at December 31, 2022 and 2021, respectively. Small Business Loans We provide financing to small businesses in various industries that include guarantees under the Small Business Administration’s (SBA’s) loan programs.
Commercial and industrial loans overall represented 15.8% and 19.4% of our total loan portfolio at December 31, 2023 and 2022, respectively. Small Business Loans We provide financing to small businesses in various industries that include guarantees under the Small Business Administration’s (SBA’s) loan programs.
Overall the total consumer loan portfolio represented 16.0% and 8.2% of our total loan portfolio at December 31, 2022 and 2021, respectively. Leases, net Meridian Equipment Finance specializes in small ticket equipment leases for small and mid-sized businesses nationally and through a broad range of industries.
Overall the total consumer loan portfolio represented 17.6% and 16.0% of our total loan portfolio at December 31, 2023 and 2022, respectively. Leases, net Meridian Equipment Finance specializes in small ticket equipment leases for small and mid-sized businesses nationally and through a broad range of industries.
Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements. At December 31, 2022, Meridian had $525.2 million in unfunded loan commitments. Management anticipates these commitments will be funded by means of normal cash flows.
Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements. Loan Commitments At December 31, 2023, Meridian had $528.7 million in unfunded loan commitments. Management anticipates these commitments will be funded by means of normal cash flows.
Construction loans represented 15.5% of our total loan portfolio at both December 31, 2022 and 2021. 33 Commercial and Industrial Loans We provide a variety of variable and fixed rate commercial business loans and lines of credit. These loans and lines of credit are made to small and medium-sized manufacturers and wholesale, retail and service-related businesses.
Construction loans represented 12.9% and 15.5% of our total loan portfolio at December 31, 2023 and 2022, respectively. Commercial and Industrial Loans We provide a variety of variable and fixed rate commercial business loans and lines of credit. These loans and lines of credit are made to small and medium-sized manufacturers and wholesale, retail and service-related businesses.
Management believes that the majority of such deposits will be reinvested with Meridian and that certificates that are not renewed will be funded by a reduction in cash and cash equivalents or by pay-downs and maturities of loans and investments. At December 31, 2022, Meridian had a reserve for unfunded loan commitments of $173 thousand.
Management believes that the majority of such deposits will be reinvested with Meridian and that certificates that are not renewed will be funded by a reduction in cash and cash equivalents or by pay-downs and maturities of loans and investments. At December 31, 2023, Meridian had a reserve for unfunded loan commitments of $1.0 million.
Mortgage banking income was down $50.6 million, due primarily to lower levels of mortgage loan originations as rising interest rates and lack of housing inventory has had a negative impact on mortgage banking activity.
Mortgage banking income was down $8.8 million, due primarily to lower levels of mortgage loan originations as rising interest rates and lack of housing inventory has had a negative impact on mortgage banking activity throughout the year.
The net change in the fair value of loans held-for-investment decreased to a loss of $2.4 million for the year ended December 31, 2022, compared to a loss of $189 thousand for the comparable prior year, 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.
The net change in the fair value of loans held-for-investment increased $2.5 million to a gain of $132 thousand for the year ended December 31, 2023, compared to a loss of $2.4 million for the comparable prior year, 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.
Our loans held in portfolio are originated by our commercial and consumer loan divisions. We have a strong credit culture that promotes diversity of lending products with a focus on commercial businesses. 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.
We have a strong credit culture that promotes diversity of lending products with a focus on commercial businesses. 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.
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.
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. 36 The tables below provides the non-GAAP reconciliation for the Corporation’s pre-tax, pre-provision income.
Not included in the tables below are equity investments that had fair values of $2.1 million and $2.4 million, as of December 31, 2022 and 2021, respectively. As of December 31, 2022 we also had a held-to-maturity investment portfolio with amortized cost of $37.5 million.
Not included in the tables below are equity investments that had fair values of $2.1 million as of December 31, 2023 and 2022. As of December 31, 2023 we also had a held-to-maturity investment portfolio with amortized cost of $35.8 million.
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. 28 NET INTEREST INCOME Net interest income is an integral source of the Corporation’s income.
See “Non-GAAP Financial Measures” below for Non-GAAP to GAAP reconciliation. 27 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 Credit Losses , or the amount added to the Allowance to provide for current expected credit losses on portfolio loans and leases; • Non-interest Income, which is made up primarily of mortgage banking income, wealth management income, SBA loan sale income, fair value adjustments, gains and losses from the sale of loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services; • Non-interest Expense , which consists primarily of salaries and employee benefits, occupancy, professional fees, advertising & promotion, data processing, information technology, loan expenses, and other operating expenses; and • Income Taxes , which include state and federal jurisdictions.
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 1.09% as of December 31, 2022 compared to 1.46% as of December 31, 2021.
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 1.17% as of December 31, 2023 compared to 1.09% as of December 31, 2022.
As of December 31, 2022 our available-for-sale investment portfolio had a fair value of $135.3 million, with an effective tax equivalent yield of 2.83% and an estimated duration of approximately 4 years. The largest category of this investment portfolio, or 28.7%, consists of municipal securities, along with 25.9% in U.S. agency securities, and 21.8% in U.S. Treasury securities.
As of December 31, 2023 our available-for-sale investment portfolio had a fair value of $146.0 million, with an effective tax equivalent yield of 3.15% and an estimated duration of approximately 4.2 years. The largest category of this investment portfolio, or 28.9%, consists of municipal securities, along with 24.8% in U.S. agency securities, and 20.8% in U.S. Treasury securities.
The dividend will be paid in authorized but unissued shares of common stock of the Corporation. The par value of the Corporation's stock was not affected by the split and remained at $1.00 per share. All share and per share amounts reported in the consolidated financial statements have been adjusted to reflect the two-for-one stock split effective February 28, 2023.
The par value of the Corporation's stock was not affected by the split and remained at $1.00 per share. All share and per share amounts reported in the consolidated financial statements have been adjusted to reflect the two-for-one stock split effective February 28, 2023.
Certificates of deposit greater than or equal to $250 thousand scheduled to mature in one year or less from December 31, 2022 totaled $325.4 million.
Certificates of deposit greater than or equal to $250 thousand scheduled to mature in one year or less from December 31, 2023 totaled $333.6 million.
At December 31, 2022, Meridian also had available $39.0 million of unsecured federal funds lines of credit with other financial institutions as well as $237.6 million of available short or long term funding through the CDARS program and $241.0 million of available short or long term funding through brokered CD arrangements.
At December 31, 2023, Meridian also had available $49.0 million of unsecured federal funds lines of credit with other financial institutions as well as $146.1 million of available short or long term funding through the CDARS program and $356.0 million of available short or long term funding through brokered CD arrangements.
The tables below present a summary for the year ended December 31, 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.
NET INTEREST INCOME Net interest income is an integral source of the Corporation’s income. The tables below present a summary for the years ended December 31, 2023 and 2022, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities.
Meridian realized net charge-offs of $2.4 million, or 0.15%, of total average loans for the year ended December 31, 2022, compared to net charge-offs of $79 thousand, or 0.01%, of total average loans for the year ended December 31, 2021.
Meridian realized net charge-offs of $5.6 million, or 0.30%, of total average loans for the year ended December 31, 2023, compared to net charge-offs of $2.4 million, or 0.15%, of total average loans for the year ended December 31, 2022.
Certificates of deposits increased $287.3 million, or 139.5%, from December 31, 2021, as lower levels of core deposits, combined with continued loan growth year over year, led to the need to obtain more wholesale funding.
Certificates of deposits increased $192.1 million, or 38.9%, from December 31, 2022, as lower levels of core deposits, combined with continued loan growth year over year, led to the need to obtain more wholesale funding.
Meridian’s investment portfolio represented 8.5% of total assets at December 31, 2022.
Meridian’s investment portfolio represented 8.2% of total assets at December 31, 2023.
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.
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.
Our loan portfolio is comprised of loans originated to be held in portfolio, as well as residential mortgage loans originated for sale. Meridian engages in the origination of residential mortgages, most typically for 1-4 family dwellings, with the intention of the Corporation to principally sell substantially all of these loans in the secondary market to qualified investors.
Meridian engages in the origination of residential mortgages, most typically for 1-4 family dwellings, with the intention of the Corporation to principally sell substantially all of these loans in the secondary market to qualified investors. Our loans held in portfolio are originated by our commercial and consumer loan divisions.
At December 31, 2022, Meridian had borrowed $122.1 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $49 million against its available credit lines.
At December 31, 2023, Meridian had borrowed $141.9 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $104.3 million against its available credit lines.
The Bank’s credit risk generally results from the potential default of borrowers which may be driven by customer specific or broader industry related conditions. Leases increased $50.7 million, or 57.5%, to $139.0 million at December 31, 2022 from $88.2 million at December 31, 2021.
The Bank’s credit risk generally results from the potential default of borrowers which may be driven by customer specific or broader industry related conditions. Leases decreased $17.4 million, or 12.5%, to $121.6 million at December 31, 2023 from $139.0 million at December 31, 2022.
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 increased $8.6 million, combined, year over year.
Compounding 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 a decline in net gains on hedging activity that decreased $3.7 million, combined, year over year.
Our owner-occupied commercial real estate loans are originated and managed within our commercial loan department and comprised 34.4% of our total commercial real estate loan portfolio at December 31, 2022.
Our owner-occupied commercial real estate loans are originated and managed within our commercial loan department and comprise d 33.8% of our total commercial real estate loan portfolio at December 31, 2023.
Interest income increased $17.2 million on a tax equivalent basis, year over year, due to a higher yield on earning assets, which went up 75 basis points, in addition to a higher level of average earning assets, which increased by $91.5 million.
Interest income increased $47.9 million on a tax equivalent basis, year over year, due to a higher yield on earning assets, which increased 160 basis points, in addition to a higher level of average earning assets, which increased by $296.8 million.
The change in stockholders’ equity is the result of year-to-date comprehensive loss of $12.2 million, dividends paid of $10.9 million and common stock repurchases of $13.0 million during 2022, partially offset by $1.0 million in stock-based compensation and stock options exercised.
The increase in stockholders’ equity is the result of year-to-date net income of $13.2 million, and comprehensive income of $2.1 million, partially offset by dividends paid of $5.6 million, common stock repurchases of $4.3 million, and $1.0 million in stock-based compensation and stock options exercised.
Net interest margin increased 21 basis points to 3.98% for the year ended December 31, 2022 from 3.77% for the year ended December 31, 2021, as the increase in yield on earnings assets was higher than the increase of costs of funds, helped also by the $38.3 million increase in average non-interest bearing deposits.
Net interest margin decreased 63 basis points to 3.35% for the year ended December 31, 2023 from 3.98% for the year ended December 31, 2022, as the increase in yield on earnings assets was outpaced by the increase in costs of funds, impacted also by the $29.2 million decrease in average non-interest bearing deposits.
Our small business loans increased by $22.0 million, or 19.3%, to $136.2 million at December 31, 2022 from $114.2 million at December 31, 2021. During 2022 we sold $75.9 million in SBA loans, an increase of $8.8 million, or 13.0%, from $67.2 million in SBA loans sold in 2021.
Our small business loans increased by $6.2 million, or 4.5%, to $142.3 million at December 31, 2023 from $136.2 million at December 31, 2022. During 2023 we sold $85.0 million in SBA loans, an increase of $9.1 million, or 12.0%, from $75.9 million in SBA loans sold in 2022.
While we were an emerging growth company (up to December 31, 2022), the JOBS Act permitted us an extended transition period for complying with new or revised accounting standards affecting public companies.
The JOBS Act permitted us an extended transition period for complying with new or revised accounting standards affecting public companies.
Treasuries 32,980 — (3,457) 29,523 25 Non-U.S. government agency CMO 9,722 — (633) 9,089 11 Corporate bonds 8,201 — (643) 7,558 12 Total securities available-for-sale $ 148,976 $ 59 $ (13,689) $ 135,346 135 Amortized cost Gross unrecognized gains Gross unrecognized losses Fair value # of Securities in unrecognized loss position Securities held-to-maturity: State and municipal securities $ 37,479 $ — $ (4,394) $ 33,085 25 December 31, 2021 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value # of Securities in unrealized loss position Securities available-for-sale: U.S. asset backed securities $ 16,850 $ 55 $ (68) $ 16,837 10 U.S. government agency MBS 9,749 124 (60) 9,813 3 U.S. government agency CMO 22,276 358 (253) 22,381 10 State and municipal securities 72,099 1,379 (496) 72,982 12 U.S.
Treasuries 32,980 — (3,457) 29,523 25 Non-U.S. government agency CMO 9,722 — (633) 9,089 11 Corporate bonds 8,201 — (643) 7,558 12 Total securities available-for-sale $ 148,976 $ 59 $ (13,689) $ 135,346 135 Amortized cost Gross unrecognized gains Gross unrecognized losses Fair value # of Securities in unrecognized loss position Securities held to maturity: State and municipal securities $ 37,479 $ — $ (4,394) $ 33,085 25 Total securities held-to-maturity $ 37,479 $ — $ (4,394) $ 33,085 25 Asset Quality Summary The ratio of non-performing assets to total assets increased to 1.58% as of December 31, 2023, from 1.11% as of December 31, 2022.
Our total commercial real estate loan portfolio represented 32.2% and 35.2% of our total loan portfolio at December 31, 2022 and 2021, respectively. Construction loans increased $111.1 million, or 69.0%, to $272.0 million at December 31, 2022 from $160.9 million at December 31, 2021.
Our total commercial real estate loan portfolio represented 38.6% and 32.2% of our total loan portfolio at December 31, 2023 and 2022, respectively. Construction loans decreased $25.5 million, or 9.4%, to $246.4 million at December 31, 2023 from $272.0 million at December 31, 2022.
(dollars in thousands) December 31, 2022 December 31, 2021 Total stockholders' equity (GAAP) $ 153,280 $ 165,360 Less: Goodwill and intangible assets 4,074 4,278 Tangible common equity (non-GAAP) 149,206 161,082 Total assets (GAAP) 2,062,228 1,713,443 Less: Goodwill and intangible assets 4,074 4,278 Tangible assets (non-GAAP) $ 2,058,154 $ 1,709,165 Stockholders' equity to total assets (GAAP) 7.43 % 9.65 % Tangible common equity to tangible assets (non-GAAP) 7.25 % 9.42 % Shares outstanding 11,466 12,216 Book value per share (GAAP) $ 13.37 $ 13.54 Tangible book value per share (non-GAAP) $ 13.01 $ 13.19 The following is a reconciliation of the allowance for loan losses to total loans held for investment ratio at December 31, 2022.
(dollars in thousands) December 31, 2023 December 31, 2022 Total stockholders' equity (GAAP) $ 158,022 $ 153,280 Less: Goodwill and intangible assets 3,870 4,074 Tangible common equity (non-GAAP) 154,152 149,206 Total assets (GAAP) 2,246,193 2,062,228 Less: Goodwill and intangible assets 3,870 4,074 Tangible assets (non-GAAP) $ 2,242,323 $ 2,058,154 Stockholders' equity to total assets (GAAP) 7.04 % 7.43 % Tangible common equity to tangible assets (non-GAAP) 6.87 % 7.25 % Shares outstanding 11,183 11,466 Book value per share (GAAP) $ 14.13 $ 13.37 Tangible book value per share (non-GAAP) $ 13.78 $ 13.01 The following is a reconciliation of the allowance for credit losses to total loans held for investment ratio at December 31, 2023.
Average total loans held for investment, excluding PPP loans and residential loans for sale, increased $315.7 million, most notably in commercial real estate and construction, commercial loans and leases and small business loans, which increased $190.8 million on average, combined. Home equity loans and residential real estate loans held in portfolio increased $44.6 million on average, combined.
Average total loans held for investment increased $314.1 million, most notably in commercial real estate and construction, commercial loans and small business loans, which increased $191.5 million on average, combined. Home equity loans and residential real estate loans held in portfolio increased $157.1 million on average, combined. Residential loans for sale decreased $21.0 million on average.
This growth in assets over the prior period was due primarily to loan portfolio growth, as detailed in the following section. Loans Our loan portfolio is the largest category of our interest-earning assets. As of December 31, 2022 and 2021, our total loans and leases amounted to $1.8 billion, and $1.5 billion, respectively.
Balance Sheet Summary Assets As of December 31, 2023, total assets were $2.2 billion which increased $184.0 million, or 8.9%, from December 31, 2022. This growth in assets over the prior period was due primarily to loan portfolio growth, as detailed in the following section. Loans Our loan portfolio is the largest category of our interest-earning assets.
Results of Operations • Consolidated net income decreased $13.8 million, or 38.7%, driven by a lower level of non-interest revenue from mortgage banking activity. • The return on average assets and return on average equity was 1.18% and 13.87%, respectively, for the year ended December 31, 2022, compared to 2.06% and 23.74%, respectively, for the year ended December 31, 2021. • Provision for loan losses increased $1.4 million, or 132.5%, due to loan growth, partially offset by decreases in specific reserves on non-performing loans. 27 Key Performance Ratios The following table presents key financial performance ratios for the periods indicated: Year Ended December 31, 2022 2021 Return on average assets 1.18 % 2.06 % Return on average equity 13.87 % 23.74 % Net interest margin (tax effected yield) 3.98 % 3.77 % Basic earnings per share $ 1.85 $ 2.96 Diluted earnings per share $ 1.79 $ 2.87 The following table presents certain key period-end balances and ratios at the dates indicated: (dollars in thousands, except per share amounts) December 31, 2022 December 31, 2021 Book value per common share $ 13.37 $ 13.54 Tangible book value per common share (1) $ 13.01 $ 13.19 Allowance as a percentage of loans and leases held for investment 1.08 % 1.35 % Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1) 1.09 % 1.46 % Tier I capital to risk weighted assets 8.8 % 10.8 % Tangible common equity to tangible assets ratio (1) 8.1 % 9.4 % Loans and other finance receivables, net of fees and costs $ 1,743,682 $ 1,386,457 Total assets $ 2,062,228 $ 1,713,443 Total stockholders’ equity $ 153,280 $ 165,360 (1) Non-GAAP financial measure.
Key Performance Ratios The following table presents key financial performance ratios for the periods indicated: Year Ended December 31, 2023 2022 Return on average assets 0.61 % 1.18 % Return on average equity 8.53 % 13.87 % Net interest margin (tax effected yield) 3.35 % 3.98 % Basic earnings per share $ 1.19 $ 1.85 Diluted earnings per share $ 1.16 $ 1.79 The following table presents certain key period-end balances and ratios at the dates indicated: (dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022 Book value per common share $ 14.13 $ 13.37 Tangible book value per common share (1) $ 13.78 $ 13.01 Allowance as a percentage of loans and leases held for investment 1.17 % 1.08 % Allowance as a percentage of loans and leases held for investment (excl. loans at fair value) (1) 1.17 % 1.09 % Tier I capital to risk weighted assets 7.9 % 8.8 % Tangible common equity to tangible assets ratio (1) 6.9 % 8.1 % Loans and other finance receivables, net of fees and costs $ 1,895,806 $ 1,743,682 Total assets $ 2,246,193 $ 2,062,228 Total stockholders’ equity $ 158,022 $ 153,280 (1) Non-GAAP financial measure.
The ratio of non-performing assets to total assets declined to 1.11% as of December 31, 2022, from 1.34% as of December 31, 2021. There was $1.7 million in other real estate property included in non-performing assets as of December 31, 2022 related to a well security residential property, and $0 as of December 31, 2021.
There was $1.7 million in other real estate property included in non-performing assets as of December 31, 2023 and 2022, related to a well secured residential property. Total non-performing loans were $33.8 million and $21.2 million as of December 31, 2023 and December 31, 2022, respectively.
SBA loan sale income decreased $2.4 million, or 35.2%, over the prior year, despite an increase of $8.8 million, 13.0%, in the volume of loans sold in 2022 compared to 2021.
SBA loan sale income was relatively unchanged year-over-year, despite an increase of $9.1 million, or 12.0%, in the volume of loans sold in 2023 compared to 2022.
The upward movement in interest rates during 2022 had a negative impact on gross margins on the SBA loan sales, which declined to 7.4% for all sales in 2022, compared to 11.4% in 2021. Also contributing to the decline in income was increased amortization of $340 thousand and increased impairment of $211 thousand on SBA servicing assets.
The upward movement in interest rates during 2023 had a negative impact on gross margins on the SBA loan sales, which declined to 6.7% for all sales in 2023, compared to 7.4% in 2022.
PROVISION FOR LOAN AND LEASE LOSSES The provision for loan losses was $2.5 million for the year ended December 31, 2022, compared to an $1.1 million provision for the year ended December 31, 2021.
PROVISION FOR CREDIT LOSSES The provision for credit losses was $6.8 million for the year ended December 31, 2023, compared to a $2.5 million provision for the year ended December 31, 2022.
(dollars in thousands) December 31, 2022 December 31, 2021 Allowance for loan and lease losses (GAAP) $ 18,828 $ 18,758 Loans, net of fees and costs (GAAP) 1,743,682 1,386,457 Less: PPP loans (4,579) (88,245) Less: Loans fair valued (14,502) (17,558) Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP) $ 1,724,601 $ 1,280,654 Allowance for loan and leases losses to loans, net of fees and costs (GAAP) 1.08 % 1.35 % Allowance for loan and leases losses to loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP) 1.09 % 1.46 % 38 Liquidity and Capital Resources Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes.
(dollars in thousands) December 31, 2023 December 31, 2022 Allowance for credit losses (GAAP) $ 22,107 $ 18,828 Loans, net of fees and costs (GAAP) 1,895,806 1,743,682 Less: Loans fair valued (13,726) (14,502) Loans, net of fees and costs, excluding loans at fair value (non-GAAP) $ 1,882,080 $ 1,729,180 Allowance for credit losses to loans, net of fees and costs (GAAP) 1.17 % 1.08 % Allowance for credit losses to loans, net of fees and costs, excluding loans at fair value (non-GAAP) 1.17 % 1.09 % Liquidity Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes.
Non-interest bearing deposits increased $27.2 million, or 9.9%, from December 31, 2021. Interest-bearing demand deposits decreased $48.4 million, or 18.0%, from December 31, 2021, while money market accounts/savings accounts did not change materially from December 31, 2021.
Non-interest bearing deposits decreased $62.4 million, or 20.7%, from December 31, 2022. Interest-bearing demand deposits decreased $68.9 million, or 31.4%, from December 31, 2022, while money market accounts/savings accounts increased $50.2 million, or 7.2%, from December 31, 2022.
Partially offsetting this decrease was an increase for the bank and wealth segments salaries & benefits, due to an increase in FTEs and a higher level of stock-based compensation expense. Advertising and promotion expense increased as the result of a renewed and focused priority placed on business development and community outreach efforts.
Partially offsetting this decrease was an increase for the bank and wealth segments salaries & benefits as FTEs were up and a higher level of stock-based compensation expense.
The primary source of repayment for commercial business loans is generally operating cash flows of the business and may also include collateralization of inventory, accounts receivable, equipment and/or personal guarantees.
The primary source of repayment for commercial business loans is generally operating cash flows of the business and may also include collateralization of inventory, accounts receivable, equipment and/or personal guarantees. Our commercial and industrial loans decreased $38.5 million, or 11.3%, to $302.9 million at December 31, 2023 from 32 $341.4 million at December 31, 2022.
Time deposits of $250 thousand or more had remaining maturities as follows: Year Ended December 31, 2022 Amount % 3 months or less $ 183,758 46.6% Over 3 months through 6 months 76,683 19.4% Over 6 months through 12 months 64,923 16.5% Over 12 months 68,921 17.5% Total $ 394,285 100.0% 37 Equity Consolidated stockholders’ equity of the Corporation was $153.3 million, or 7.4% of total assets as of December 31, 2022 as compared to $165.4 million, or 9.7% of total assets as of December 31, 2021.
Time deposits of $250 thousand or more had remaining maturities as follows: Year Ended December 31, 2023 (Dollars in thousands) Amount % 3 months or less $ 101,332 22.1% Over 3 months through 6 months 73,971 16.1% Over 6 months through 12 months 158,321 34.5% Over 12 months 125,164 27.3% Total $ 458,788 100.0% Equity Consolidated stockholders’ equity of the Corporation was $158.0 million, or 7.0% of total assets as of December 31, 2023 as compared to $153.3 million, or 7.4% of total assets as of December 31, 2022.
Home equity lines and loans increased $7.1 million, or 13.6%, to $59.4 million at December 31, 2022 from $57.6 million at December 31, 2021, while residential mortgage loans increased by $153.7 million, or 225.4%, to $221.8 million at December 31, 2022 from $68.2 million at December 31, 2021.
Home equity lines and loans increased $16.9 million, or 28.4%, to $76.3 million at December 31, 2023 from $59.4 million at December 31, 2022, while residential mortgage loans increased by $38.8 million, or 17.5%, to $260.6 million at December 31, 2023 from $221.8 million at December 31, 2022.
For the Year Ended December 31, (dollars in thousands) 2022 2021 Average Balance Interest Income/ Expense Yields/ Rates Average Balance Interest Income/ Expense Yields/ Rates Assets: Due from banks $ 21,045 $ 279 1.33 % $ 30,844 $ 41 0.13 % Federal funds sold 1,160 7 0.60 17,823 7 0.04 Investment securities - taxable (1) 106,246 2,420 2.28 83,720 1,463 1.75 Investment securities - tax exempt (1) 63,425 1,691 2.67 64,440 1,464 2.27 Loans held for sale 44,238 1,872 4.23 125,444 3,540 3.76 Loans held for investment (1) 1,535,943 82,764 5.39 1,358,282 65,292 4.81 Total loans 1,580,181 84,636 5.36 1,483,726 68,832 4.64 Total interest-earning assets 1,772,057 89,033 5.02 % 1,680,553 71,807 4.27 % Noninterest earning assets 76,983 48,015 Total assets $ 1,849,040 $ 1,728,568 Liabilities and stockholders' equity: Interest-bearing demand deposits $ 237,554 $ 2,570 1.08 % $ 257,950 $ 880 0.34 % Money market and savings deposits 703,561 7,854 1.12 630,977 3,346 0.53 Time deposits 354,822 4,972 1.40 245,923 1,268 0.52 Total deposits 1,295,937 15,396 1.19 1,134,850 5,494 0.48 Borrowings 27,637 830 3.00 119,721 534 0.45 Subordinated debentures 40,560 2,366 5.83 40,724 2,383 5.85 Total interest-bearing liabilities 1,364,134 18,592 1.36 1,295,295 8,411 0.65 Noninterest-bearing deposits 296,563 258,298 Other noninterest-bearing liabilities 30,929 25,100 Total liabilities 1,691,626 1,578,693 Total stockholders' equity 157,414 149,875 Total stockholders' equity and liabilities $ 1,849,040 $ 1,728,568 Net interest income and spread (1) $ 70,441 3.66 $ 63,396 3.62 Net interest margin (1) 3.98 % 3.77 % (1) Yields and net interest income are reflected on a tax-equivalent basis. 29 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 year ended December 31, 2022 as compared to the same periods in 2021, allocated by rate and volume.
For the Year Ended December 31, (dollars in thousands) 2023 2022 Average Balance Interest Income/ Expense Yields/ Rates Average Balance Interest Income/ Expense Yields/ Rates Assets: Cash and cash equivalents $ 24,218 $ 1,259 5.20 % $ 21,045 $ 279 1.33 % Federal funds sold 136 7 5.15 1,160 7 0.60 Investment securities - taxable 112,045 3,873 3.46 106,246 2,420 2.28 Investment securities - tax exempt (1) 59,147 1,669 2.82 63,425 1,691 2.67 Loans held for sale 23,202 1,480 6.38 44,238 1,872 4.23 Loans held for investment (1) 1,850,088 128,609 6.95 1,535,943 82,764 5.39 Total loans 1,873,290 130,089 6.94 1,580,181 84,636 5.36 Total interest-earning assets 2,068,836 136,897 6.62 % 1,772,057 89,033 5.02 % Noninterest earning assets 95,979 76,983 Total assets $ 2,164,815 $ 1,849,040 Liabilities and stockholders' equity: Interest-bearing demand deposits $ 187,404 $ 6,659 3.55 % $ 237,554 $ 2,570 1.08 % Money market and savings deposits 692,933 23,987 3.46 703,561 7,854 1.12 Time deposits 636,843 27,173 4.27 354,822 4,972 1.40 Total deposits 1,517,180 57,819 3.81 1,295,937 15,396 1.19 Borrowings 145,545 7,266 4.99 27,637 830 3.00 Subordinated debentures 43,035 2,562 5.95 40,560 2,366 5.83 Total interest-bearing liabilities 1,705,760 67,647 3.97 1,364,134 18,592 1.36 Noninterest-bearing deposits 267,402 296,563 Other noninterest-bearing liabilities 36,421 30,929 Total liabilities 2,009,583 1,691,626 Total stockholders' equity 155,232 157,414 Total stockholders' equity and liabilities $ 2,164,815 $ 1,849,040 Net interest income and spread (1) $ 69,250 2.65 $ 70,441 3.66 Net interest margin (1) 3.35 % 3.98 % (1) Yields and net interest income are reflected on a tax-equivalent basis. 28 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 year ended December 31, 2023 as compared to the year ended December 31, 2022, allocated by rate and volume.
The following table presents nonperforming assets and related ratios for the periods indicated: (dollars in thousands) December 31, 2022 December 31, 2021 Non-performing assets: Nonaccrual loans: Real estate loans: Commercial mortgage $ 140 $ — Home equity lines and loans 1,097 911 Residential mortgage 2,085 2,398 Total real estate loans 3,322 3,309 Commercial and industrial 12,547 18,801 Small business loans 4,465 666 Leases 902 212 Total nonaccrual loans 21,236 22,988 Other real estate owned 1,703 — Total non-performing assets $ 22,939 $ 22,988 Troubled debt restructurings: TDRs included in non-performing loans $ 207 $ 361 TDRs in compliance with modified terms 3,573 3,446 Total TDRs $ 3,780 $ 3,807 Asset quality ratios: Non-performing assets to total assets 1.11 % 1.34 % Non-performing loans to: Total loans and leases 1.20 % 1.57 % Total loans held-for-investment 1.22 % 1.66 % Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) 1.23 % 1.80 % Allowance for loan losses to: Total loans and leases 1.07 % 1.28 % Total loans held-for-investment 1.08 % 1.35 % Total loans held-for-investment (excluding loans at fair value and PPP loans) (1) 1.09 % 1.46 % Non-performing loans 88.66 % 81.60 % Total loans and leases $ 1,765,925 $ 1,467,339 Total loans and leases held-for-investment $ 1,743,682 $ 1,386,457 Total loans and leases held-for-investment (excluding loans at fair value and PPP loans) $ 1,724,601 $ 1,280,654 Allowance for loan and lease losses $ 18,828 $ 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.
The following table presents nonperforming assets and related ratios for the periods indicated: (dollars in thousands) December 31, 2023 December 31, 2022 Non-performing assets: Nonaccrual loans: Real estate loans: Commercial mortgage $ — $ 140 Home equity lines and loans 1,037 1,097 Residential mortgage 4,536 2,085 Construction 1,206 — Total real estate loans 6,779 3,322 34 Commercial and industrial 15,413 12,547 Small business loans 9,440 4,465 Leases 2,131 902 Total nonaccrual loans 33,763 21,236 Other real estate owned 1,703 1,703 Total non-performing assets $ 35,466 $ 22,939 Asset quality ratios: Non-performing assets to total assets 1.58 % 1.11 % Non-performing loans to: Total loans and leases 1.76 % 1.20 % Total loans held-for-investment 1.78 % 1.22 % Total loans held-for-investment (excluding loans at fair value) (1) 1.79 % 1.23 % Allowance for credit losses to: (2) Total loans and leases 1.15 % 1.07 % Total loans held-for-investment 1.17 % 1.08 % Total loans held-for-investment (excluding loans at fair value) (1) 1.17 % 1.09 % Non-performing loans 65.48 % 88.66 % Total loans and leases $ 1,920,622 $ 1,765,925 Total loans and leases held-for-investment $ 1,895,806 $ 1,743,682 Total loans and leases held-for-investment (excluding loans at fair value) $ 1,882,080 $ 1,729,180 Allowance for credit losses (2) $ 22,107 $ 18,828 (1) The allowance for credit losses to total loans held-for-investment (excluding loans at fair value) ratio is a non-GAAP financial measure.
Included in interest income was approximately $280 thousand of one-time fees and interest recapture from the quarter ended December 31, 2022. The average yield on loans held for investment increased 58 basis points and the yield on cash and investments increased 46 basis points in total, reflecting the impact in rates caused by the Federal Reserve’s monetary policy.
The average yield on loans held for investment increased 156 basis points and the yield on cash and investments increased 119 basis points in total, reflecting the impact on rates caused by the Federal Reserve’s monetary policy.
The following table presents the amortized cost and fair value of securities at the dates indicated: December 31, 2022 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value # of Securities in unrealized loss position Securities available-for-sale: U.S. asset backed securities $ 15,581 $ 14 $ (314) $ 15,281 12 U.S. government agency MBS 12,272 5 (538) 11,739 12 U.S. government agency CMO 25,520 40 (2,242) 23,318 29 State and municipal securities 44,700 — (5,862) 38,838 34 34 December 31, 2022 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair value # of Securities in unrealized loss position U.S.
Treasuries 32,982 — (2,560) — 30,422 25 Non-U.S. government agency CMO 13,605 102 (552) — 13,155 9 Corporate bonds 8,200 — (1,005) — 7,195 13 Total securities available-for-sale $ 156,492 $ 491 $ (10,964) $ — $ 146,019 133 Amortized cost Gross unrecognized gains Gross unrecognized losses Allowance for Credit Losses Fair value # of Securities in unrecognized loss position Securities held to maturity: State and municipal securities $ 35,781 $ 52 $ (3,103) $ — $ 32,730 21 Total securities held-to-maturity $ 35,781 $ 52 $ (3,103) $ — $ 32,730 21 33 December 31, 2022 (dollars in thousands) Amortized cost Gross unrealized gains Gross unrealized losses Fair Value # of Securities in unrealized loss position Securities available-for-sale: U.S. asset backed securities $ 15,581 $ 14 $ (314) $ 15,281 12 U.S. government agency MBS 12,272 5 (538) 11,739 12 U.S. government agency CMO 25,520 40 (2,242) 23,318 29 State and municipal securities 44,700 — (5,862) 38,838 34 U.S.
Residential loans for sale and PPP loans decreased $81.2 million, and $138.0 million on average, respectively. Interest expense increased $10.2 million, year over year, due primarily to market interest rate rises, as well as an increase of $161.1 million in average interest bearing deposits.
Interest expense increased $49.1 million, year over year, due primarily to market interest rate rises, as well as an increase of $221.2 million in average interest bearing deposits. Interest expense on deposits increased $42.4 million with the cost of interest-bearing deposits increasing 262 basis points to 3.81%.
NON-INTEREST EXPENSE The following table presents the components of non-interest income for the periods indicated: Year Ended December 31, (Dollars in thousands) 2022 2021 $ Change % Change Salaries and employee benefits $ 54,378 $ 78,866 $ (24,488) (31.1) % Occupancy and equipment 4,837 4,545 292 6.4 % Professional fees 3,635 3,558 77 2.2 % Advertising and promotion 4,336 3,714 622 16.7 % Data processing and software 5,451 4,382 1,069 24.4 % Pennsylvania bank shares tax 793 609 184 30.2 % Other 8,014 8,053 (39) (0.5) % Total non-interest expense $ 81,444 $ 103,727 $ (22,283) (21.5) % Total non-interest expense decreased $22.3 million due largely to a decrease in salaries and employee benefits expense at the mortgage segment, which recognized decreased fixed and variable compensation.
NON-INTEREST EXPENSE The following table presents the components of non-interest expense for the periods indicated: Year Ended December 31, (Dollars in thousands) 2023 2022 $ Change % Change Salaries and employee benefits $ 47,377 $ 54,378 $ (7,001) (12.9) % Occupancy and equipment 4,842 4,837 5 0.1 % Professional fees 4,312 3,635 677 18.6 % Advertising and promotion 3,730 4,336 (606) (14.0) % Data processing and software 6,415 5,451 964 17.7 % FDIC premiums 2,929 1,247 1,682 134.9 % Other 7,520 7,560 (40) (0.5) % Total non-interest expense $ 77,125 $ 81,444 $ (4,319) (5.3) % Total non-interest expense decreased $4.3 million mainly due to a decrease in salaries and employee benefits expense at the mortgage segment, which recognized decreased fixed and variable compensation as the volume of loan originations and sales were both down year-over-year.
See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure. 36 Allowance for Loan and Lease Losses The following is a summary of the allocation of the allowance for loan and lease losses by loan category for the periods presented.
Allowance for Credit Losses The following is a summary of the allocation of the allowance for credit losses by loan category for the periods presented.
Interest expense on deposits increased $9.9 million with the cost of interest-bearing deposits increasing 71 basis points to 1.19%. Total cost of deposits increased 58 basis points reflecting an increase of $38.3 million in average non-interest bearing deposits. Interest expense on borrowings increased $296 thousand as the cost increased 255 basis points, and total average short-term borrowings decreased $92.1 million.
Total cost of deposits increased 227 basis points reflecting a decrease of $29.2 million in average non-interest bearing deposits. Interest expense on borrowings increased $6.4 million as the cost increased 199 basis points, and total average short-term borrowings increased $117.9 million.
This requirement was 8% in 2021 as the bank regulatory agencies temporarily lowered the CBLR as a result of the COVID-19 pandemic. T he Bank’s CBLR was 9.95% and 11.51% as of December 31, 2022 and 2021, respectively, but reports all ratios for comparative purposes. The following table summarizes data and ratios pertaining to our capital structure.
T he Bank’s CBLR was 9.46% and 9.95% as of December 31, 2023 and 2022, respectively, but reports all ratios for comparative purposes. Tables presenting the Bank’s capital amounts and ratios as of December 31, 2023 and 2022 are included in Note 17 - Regulatory Matters.
Nearly all of the charge-offs for the year ended December 31, 2022 were from equipment leases, while recoveries were split between commercial loans, equipment leases, and home equity loans.
A majority of charge-offs for the year ended December 31, 2023 were from equipment leases, $4.0 million, and $1.5 million were from small business loans.
Changes in interest income and/or expense 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. 2022 Compared to 2021 (dollars in thousands) Rate Volume Total Interest income: Due from banks $ 255 $ (17) $ 238 Federal funds sold 12 (12) — Investment securities - taxable (1) 507 450 957 Investment securities - tax exempt (1) 250 (23) 227 Loans held for sale 1,270 (2,938) (1,668) Loans held for investment (1) 8,395 9,077 17,472 Total loans 9,665 6,139 15,804 Total interest income $ 10,689 6,537 17,226 Interest expense: Interest-bearing demand deposits $ 1,765 (75) 1,690 Money market and savings deposits 4,083 425 4,508 Time deposits 2,945 759 3,704 Total deposits 8,793 1,109 9,902 Borrowings 985 (689) 296 Subordinated debentures (7) (10) (17) Total interest expense 9,771 410 10,181 Interest differential $ 918 $ 6,127 $ 7,045 (1) Yields and net interest income are reflected on a tax-equivalent basis.
Changes in interest income and/or expense 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. 2023 Compared to 2022 (dollars in thousands) Rate Volume Total Interest income: Cash and cash equivalents $ 932 $ 45 $ 977 Federal funds sold 11 (8) 3 Investment securities - taxable 1,314 139 1,453 Investment securities - tax exempt (1) 97 (118) (22) Loans held for sale 717 (1,109) (392) Loans held for investment (1) 26,887 18,958 45,845 Total loans 27,604 17,849 45,453 Total interest income $ 29,958 $ 17,907 $ 47,864 Interest expense: Interest-bearing demand deposits $ 4,736 $ (647) $ 4,089 Money market and savings deposits 16,253 (120) 16,133 Time deposits 15,987 6,214 22,201 Total deposits 36,976 5,447 42,423 Borrowings 865 5,571 6,436 Subordinated debentures 49 147 196 Total interest expense 37,890 11,165 49,055 Interest differential $ (7,932) $ 6,742 $ (1,190) (1) Yields and net interest income are reflected on a tax-equivalent basis.
The following table presents our loan and lease portfolio at the dates indicated: (Dollars in thousands) December 31, 2022 December 31, 2021 $ Change % Change Mortgage loans held for sale $ 22,243 $ 80,882 $ (58,639) (72.5) % Real estate loans: Commercial mortgage 565,400 516,928 48,472 9.4 % Home equity lines and loans 59,399 52,299 7,100 13.6 % Residential mortgage 221,837 68,175 153,662 225.4 % Construction 271,955 160,905 111,050 69.0 % Total real estate loans 1,118,591 798,307 320,284 40.1 % Commercial and industrial 341,378 384,562 (43,184) (11.2) % Small business loans 136,155 114,158 21,997 19.3 % Consumer 488 419 69 16.5 % Leases, net 138,986 88,242 50,744 57.5 % Total portfolio loans and leases $ 1,735,598 $ 1,385,688 $ 349,910 25.3 % Total loans and leases $ 1,757,841 $ 1,466,570 $ 291,271 19.9 % Portfolio loans increased grew $349.9 million, or 25.3% to $1.7 billion as of December 31, 2022, from $1.4 billion as of December 31, 2021. 32 The following table shows the amounts of loans outstanding as of December 31, 2022 which, based on remaining scheduled repayments of principal, are due in the periods indicated: (dollars in thousands) 12 months or Less 1 - 5 years 5 - 15 years After 15 years Total Mortgage loans held for sale $ — $ — $ — $ 22,243 $ 22,243 Commercial mortgage 23,091 138,037 398,077 6,195 565,400 Home equity lines and loans 725 3,533 50,272 4,869 59,399 Residential mortgage 3,291 730 1,802 216,014 221,837 Construction 120,064 62,178 89,713 — 271,955 Commercial and industrial 26,002 135,355 62,629 117,392 341,378 Small business loans 237 4,672 79,483 51,763 136,155 Consumer 3 208 136 141 488 Leases, net 129 123,034 15,823 — 138,986 Total $ 173,542 $ 467,747 $ 697,935 $ 418,617 $ 1,757,841 The amounts have been classified according to sensitivity to changes in interest rates for amounts due after one year, as of December 31, 2022.
The following table presents our loan and lease portfolio at the dates indicated: (Dollars in thousands) December 31, 2023 December 31, 2022 $ Change % Change Mortgage loans held for sale $ 24,816 $ 22,243 $ 2,573 11.6 % Real estate loans: Commercial mortgage 737,863 565,400 172,463 30.5 % Home equity lines and loans 76,287 59,399 16,888 28.4 % Residential mortgage 260,604 221,837 38,767 17.5 % Construction 246,440 271,955 (25,515) (9.4) % Total real estate loans 1,321,194 1,118,591 202,603 18.1 % Commercial and industrial 302,891 341,378 (38,487) (11.3) % Small business loans 142,342 136,155 6,187 4.5 % Consumer 389 488 (99) (20.3) % Leases, net 121,632 138,986 (17,354) (12.5) % Total portfolio loans and leases $ 1,888,448 $ 1,735,598 $ 152,850 8.8 % Total loans and leases $ 1,913,264 $ 1,757,841 $ 155,423 8.8 % Portfolio loans increased $152.9 million, or 8.8% to $1.9 billion as of December 31, 2023, from $1.7 billion as of December 31, 2022. 31 The following table shows the amounts of loans outstanding as of December 31, 2023 which, based on remaining scheduled repayments of principal, are due in the periods indicated: (dollars in thousands) 12 months or Less 1 - 5 years 5 - 15 years After 15 years Total Commercial mortgage $ 39,903 $ 205,960 $ 484,840 $ 7,160 $ 737,863 Home equity lines and loans 1,467 3,779 66,441 4,600 76,287 Residential mortgage — 1,251 1,605 257,748 260,604 Construction 129,116 62,500 54,824 — 246,440 Commercial and industrial 31,171 138,982 25,612 107,126 302,891 Small business loans — 8,775 85,314 48,253 142,342 Consumer 26 100 240 23 389 Leases, net 1,219 116,184 4,229 — 121,632 Total $ 202,902 $ 537,531 $ 723,105 $ 424,910 $ 1,888,448 The amounts have been classified according to sensitivity to changes in interest rates for amounts due after one year, as of December 31, 2023.
The increase in the provision period over period is the result of provisioning for loan growth and charge-offs, offset partially by an improvement in specific reserves and the trend in economic qualitative factors in the allowance for loan losses calculation. 30 NON-INTEREST INCOME The following table presents the components of non-interest income for the periods indicated: Year Ended December 31, (Dollars in thousands) 2022 2021 $ Change % Change Mortgage banking income $ 25,325 $ 75,932 $ (50,607) (66.6) % Wealth management income 4,733 4,801 (68) (1.4) % SBA loan income 4,467 6,898 (2,431) (35.2) % Earnings on investment in life insurance 553 365 188 51.5 % Net change in the fair value of derivative instruments (703) (4,338) 3,635 (83.8) % Net change in the fair value of loans held-for-sale (844) (3,311) 2,467 (74.5) % Net change in the fair value of loans held-for-investment (2,408) (189) (2,219) 1174.1 % Net gain on hedging activity 5,439 2,961 2,478 83.7 % Net gain on sale of investment securities available-for-sale — 435 (435) (100.0) % Service charges 125 129 (4) (3.1) % Other 5,037 4,305 732 17.0 % Total non-interest income $ 41,724 $ 87,988 $ (46,264) (52.6) % Total non-interest income decreased $46.3 million as a result of lower mortgage banking revenue, and to a lesser degree, lower SBA loan sale income.
The provision for unfunded loan commitments decreased $419 thousand during the year due to the impact of favorable changes in certain portfolio baseline loss rates and some macroeconomic factors underlying the unfunded loss model. 29 NON-INTEREST INCOME The following table presents the components of non-interest income for the periods indicated: Year Ended December 31, (Dollars in thousands) 2023 2022 $ Change % Change Mortgage banking income $ 16,537 $ 25,325 $ (8,788) (34.7) % Wealth management income 4,928 4,733 195 4.1 % SBA loan income 4,485 4,467 18 0.4 % Earnings on investment in life insurance 789 553 236 42.7 % Net change in the fair value of derivative instruments 91 (703) 794 (112.9) % Net change in the fair value of loans held-for-sale 32 (844) 876 (103.8) % Net change in the fair value of loans held-for-investment 132 (2,408) 2,540 (105.5) % Net gain on hedging activity 28 5,439 (5,411) (99.5) % Net loss on sale of investment securities available-for-sale (58) — (58) (100.0) % Other 5,001 5,162 (161) (3.1) % Total non-interest income $ 31,965 $ 41,724 $ (9,759) (23.4) % Total non-interest income decreased $9.8 million largely as a result of lower mortgage banking revenue.
Additional information about these policies can be found in the “Summary of Significant Accounting Policies” in footnote 1 of the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, 2022 and 2021. 26 Provision and allowance for loan and lease losses The provision for loan and lease losses reflects the amount required to maintain the allowance for loan and lease losses (“Allowance”) at an appropriate level based upon management’s evaluation of the adequacy of general and specific loss reserves, using an incurred loss model.
Additional information about these policies can be found in Note 1 - Summary of Significant Accounting Policies, to the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, 2023 and 2022. 26 Provision and allowance for credit losses Beginning on January 1, 2023, we adopted ASC 326, which replaced the former incurred loss methodology with an expected credit loss methodology that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset.
Removed
Discussions of 2021 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found 25 in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Corporation’s Form 10-K for the fiscal year ended December 31, 2021.
Added
The ACL is a valuation reserve established and maintained by charges against operating income. It is an estimate of expected credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions and forecasts of future economic conditions.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

13 edited+0 added−2 removed17 unchanged
Biggest changeChanges in Market Interest Rates December 31, 2022 December 31, 2021 +300 basis points 2 % 60 % +200 basis points 3 % 45 % +100 basis points 3 % 26 % No Change -100 basis points (8) % (37) % -200 basis points (23) % (97) % This economic value of equity profile at December 31, 2022 suggests that we would experience a positive effect from an increase in rates, and that the impact would become greater as rates continue to rise due to the duration of our interest-earning assets.
Biggest changeStrategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans. 39 Changes in Market Interest Rates December 31, 2023 December 31, 2022 +300 basis points over next 12 months (7) % 2 % +200 basis points over next 12 months (3) % 3 % +100 basis points over next 12 months — % 3 % No Change -100 basis points over next 12 months (3) % (8) % -200 basis points over next 12 months (13) % (23) % -300 basis points over next 12 months (31) % NA NA - Downward 300 basis point scenario not considered necessary for period ended December 31, 2022 This economic value of equity profile at December 31, 2023 suggests that we would experience a negative effect from an increase or decrease in rates, and that the impact would become greater as rates continue to rise due to the duration of our interest-earning assets.
In its current position, the table indicates that a 100-300 basis point increase in interest rates would have a modestly negative impact from rising rates on net interest income over the next 12 months and a more negative impact in a falling rate scenario.
In its current position, the table indicates that a 100-300 basis point increase in interest rates would have a modestly positive impact from rising rates on net interest income over the next 12 months and a more negative impact in a falling rate scenario.
Our ALM policy is reviewed by ALCO and the board of directors at least annually, which includes an evaluation of the ALM policy limits and guidelines in light of our risk profile, business strategies, regulatory guidelines and overall market conditions.
Our ALM policy is reviewed by ALCO and 38 the board of directors at least annually, which includes an evaluation of the ALM policy limits and guidelines in light of our risk profile, business strategies, regulatory guidelines and overall market conditions.
Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios, measured as of December 31, 2022 and 2021, 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.
Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios, measured as of December 31, 2023 and 2022, 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.
We would note that starting in the first quarter of 2021 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%. Management has and continues to employ strategies to mitigate risk in these scenarios.
We would note that starting in the first quarter of 2022 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are allowed to decline below 0%. Management has and continues to employ strategies to mitigate risk in these scenarios.
Potential changes 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 December 31, 2022 and 2021 are presented in the following table.
Potential changes 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 December 31, 2023 and 2022 are presented in the following table.
Our board of directors has established a Board Risk Committee that, among other duties, sets broad asset and liability management policy (“ALM” policy) and directives for asset/liability management, as well as establishes review and control procedures to ensure adherence to this policy.
Our board of directors has established a Board Risk Committee that, among other duties, sets broad ALM policy and directives for asset/liability management, as well as establishes review and control procedures to ensure adherence to this policy.
The board of directors has delegated authority for the development and implementation of all asset and liability management policies, procedures, and strategies to the Asset Liability Committee (“ALCO”). ALCO is comprised of various members of senior management responsible for interpreting the longer range objectives established by the board of directors.
The board of directors has delegated authority for the development and implementation of all asset and liability management policies, procedures, and strategies to the ALCO. ALCO is comprised of various members of senior management responsible for interpreting the longer range objectives established by the board of directors.
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. 41
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. 40
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.
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 ALM strategies.
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.
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.
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.
The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. 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.
Rate Ramp: Changes in Market Interest Rates December 31, 2022 December 31, 2021 +300 basis points over next 12 months (0.56) % 0.21 % +200 basis points over next 12 months (0.27) % (0.18) % +100 basis points over next 12 months (0.06) % (0.31) % No Change -100 basis points over next 12 months (1.06) % (0.22) % -200 basis points over next 12 months (2.04) % (2.34) % The above interest rate simulation suggests that the Corporation’s balance sheet is narrowly liability sensitive as of December 31, 2022.
Rate Ramp: Changes in Market Interest Rates December 31, 2023 December 31, 2022 +300 basis points over next 12 months 0.01 % (0.56) % +200 basis points over next 12 months 0.19 % (0.27) % +100 basis points over next 12 months 0.15 % (0.06) % No Change -100 basis points over next 12 months (1.37) % (1.06) % -200 basis points over next 12 months (2.28) % (2.04) % -300 basis points over next 12 months (3.07) % NA NA - Downward 300 basis point scenario not considered necessary for period ended December 31, 2022 The above interest rate simulation suggests that the Corporation’s balance sheet is narrowly asset sensitive as of December 31, 2023.
Removed
The simulated 40 exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results reflect a higher degree of wholesale funding at December 31, 2022 and continue to drive our funding strategy of increasing relationship-based accounts (core deposits). Simulation of economic value of equity .
Removed
Strategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans.

Other MRBK 10-K year-over-year comparisons