186 12 47 239 15 75 0 0 0 111 111 113 186 12 0 234 234 234 112 173 71 2 nd QTR 2022 Investor Presentation NASDAQ: MRBK 186 12 47 239 15 75 0 0 0 111 111 113 186 12 0 234 234 234 112 173 71 FORWARD-LOOKING STATEMENTS Meridian Corporation (the "Corporation") may from time to time make written or oral "forward-looking statements" within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements with respect to Meridia ...

PART I FINANCIAL INFORMATION [Item 1 Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) Unaudited Q1 2022 financial statements show net income decreased to $5.5 million, total assets grew to $1.83 billion, and stockholders' equity declined to $157.7 million [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets show total assets increased to $1.83 billion and total stockholders' equity decreased to $157.7 million | (dollars in thousands) | March 31, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $68,888 | $23,480 | | Loans, net | $1,413,080 | $1,367,699 | | Total assets | $1,831,589 | $1,713,443 | | **Liabilities & Equity** | | | | Total deposits | $1,564,851 | $1,446,413 | | Total liabilities | $1,673,905 | $1,548,083 | | Total stockholders' equity | $157,684 | $165,360 | | Total liabilities and stockholders' equity | $1,831,589 | $1,713,443 | - Total assets increased by **$118.2 million**, or **6.9%**, from December 31, 2021, to March 31, 2022, primarily driven by growth in net loans and cash[9](index=9&type=chunk) - Total stockholders' equity decreased by **$7.7 million**, or **4.6%**, from year-end 2021, mainly due to a shift in accumulated other comprehensive income from a gain of $708 thousand to a loss of $5.7 million[9](index=9&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Consolidated Statements of Income show a significant decrease in net income to $5.5 million, primarily due to a sharp drop in mortgage banking income | (dollars in thousands, except per share data) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net interest income | $16,035 | $15,120 | | Provision for loan losses | $615 | $599 | | Non-interest income | $13,102 | $27,048 | | Non-interest expenses | $21,433 | $28,263 | | Net income | $5,535 | $10,170 | | Diluted earnings per common share | $0.88 | $1.65 | - Net income for Q1 2022 was **$5.5 million**, a **45.6% decrease** from $10.2 million in Q1 2021, primarily driven by a sharp drop in mortgage banking income from $24.1 million to $7.1 million year-over-year[12](index=12&type=chunk) - Net interest income grew by **6.0% YoY** to **$16.0 million**, while non-interest expenses decreased by **24.2% YoY**, mainly due to lower salaries and employee benefits tied to mortgage activity[12](index=12&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows indicate a significant decrease in cash from operating activities, offset by a substantial increase from financing activities | (dollars in thousands) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $6,454 | $62,764 | | Net cash used in investing activities | ($67,204) | ($81,014) | | Net cash provided by financing activities | $106,158 | $12,510 | | **Net change in cash and cash equivalents** | **$45,408** | **($5,740)** | - Cash from operating activities significantly decreased, primarily due to lower proceeds from the sale of loans and reduced mortgage banking income compared to the prior year period[20](index=20&type=chunk) - Financing activities provided a significant source of cash, driven by a **$118.4 million** net increase in deposits[20](index=20&type=chunk) [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes to Consolidated Financial Statements detail portfolio changes, asset quality metrics, and the impact of new accounting standards - During Q1 2022, the Corporation transferred **$27.7 million** of municipal securities from the available-for-sale portfolio to the held-to-maturity portfolio at fair value[30](index=30&type=chunk) - The total loan and lease portfolio grew to **$1.43 billion** as of March 31, 2022, from $1.39 billion at year-end 2021, with notable growth in commercial mortgage, construction, and lease categories, while Paycheck Protection Program (PPP) loans decreased from $90.2 million to $50.9 million[36](index=36&type=chunk) - The allowance for loan and lease losses was **$18.8 million**, or **1.31%** of total portfolio loans and leases, as of March 31, 2022, a slight increase from $18.76 million at year-end 2021[9](index=9&type=chunk)[42](index=42&type=chunk) - The Corporation adopted the new lease accounting standard (ASU 2016-02, Topic 842) on January 1, 2022, recognizing right-of-use (ROU) assets of **$10.5 million** and lease liabilities of **$10.3 million**[124](index=124&type=chunk)[126](index=126&type=chunk)[131](index=131&type=chunk) - The Mortgage banking segment reported a pre-tax loss of **$1.6 million** in Q1 2022, a significant reversal from a $5.8 million pre-tax income in Q1 2021, reflecting the slowdown in the mortgage market[123](index=123&type=chunk) [Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2022 net income decrease to lower mortgage banking, offset by strong core banking loan growth and an expanded net interest margin of 3.89% [Financial Condition and Results of Operations Overview](index=38&type=section&id=Financial%20Condition%20and%20Results%20of%20Operations%20Overview) The company experienced asset and deposit growth in Q1 2022, with strong portfolio loan growth, while key performance ratios declined due to lower net income - Total assets increased by **$118.1 million (6.9%)** to **$1.8 billion** in Q1 2022, while portfolio loans, excluding PPP loans, grew **$84.1 million (6.5%)**, representing a **26% annualized growth rate**[146](index=146&type=chunk) - Total deposits grew **$118.4 million (8.2%)** to **$1.6 billion**, with non-interest bearing deposits increasing by **$16.9 million (6.1%)**[146](index=146&type=chunk) | Key Performance Ratios | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :--- | :--- | :--- | | Annualized return on average equity | 13.86% | 30.06% | | Annualized return on average assets | 1.28% | 2.43% | | Net interest margin (tax effected yield) | 3.89% | 3.72% | | Diluted earnings per share | $0.88 | $1.65 | - The company returned **$7.7 million** to shareholders in Q1 2022 through a $1.00 special dividend and a $0.20 quarterly dividend[146](index=146&type=chunk) [Net Interest Income and Market Risk](index=42&type=section&id=Net%20Interest%20Income%20and%20Market%20Risk) Net interest income increased due to higher volumes, and the balance sheet is liability sensitive in the near term but asset sensitive with larger rate increases - Net interest income increased **6.1% YoY** to **$16.1 million** (tax-equivalent basis), with the net interest margin expanding by **17 basis points** to **3.89%** for Q1 2022, up from 3.72% in Q1 2021[161](index=161&type=chunk) - The increase in net interest income was driven by a **$1.2 million** positive impact from higher loan and investment volumes, which offset a $681 thousand negative impact from rate changes[167](index=167&type=chunk)[168](index=168&type=chunk) | Interest Rate Sensitivity (Rate Ramp) | Estimated % change in Net Interest Income over 12 months | | :--- | :--- | | +300 basis points | 0.93% | | +200 basis points | 0.44% | | +100 basis points | (0.10)% | | -100 basis points | (0.15)% | - As of March 31, 2022, the balance sheet is liability sensitive in the near term, with a 100 bps rate increase projected to have a slightly negative impact on NII, but becomes asset sensitive with larger rate increases (+200 bps and +300 bps)[173](index=173&type=chunk) [Asset Quality](index=46&type=section&id=Asset%20Quality) Asset quality remains stable with a slight increase in loan loss provision and consistent non-performing loan levels - The provision for loan losses was **$615 thousand** for Q1 2022, a slight increase from $599 thousand in Q1 2021, reflecting loan growth and a specific reserve on a non-performing commercial loan[178](index=178&type=chunk) - Total non-performing loans were stable at **$22.8 million** as of March 31, 2022, compared to $23.0 million at year-end 2021, with the ratio of non-performing assets to total assets at **1.25%**[180](index=180&type=chunk)[186](index=186&type=chunk) - The allowance for loan losses to total loans (excluding PPP and fair value loans) was **1.38%** as of March 31, 2022, down from 1.46% at December 31, 2021[181](index=181&type=chunk)[186](index=186&type=chunk) [Non-Interest Income and Expense](index=49&type=section&id=Non-Interest%20Income%20and%20Expense) Non-interest income significantly decreased due to lower mortgage banking revenue, partially offset by increased SBA loan sales, while non-interest expenses also declined - Non-interest income fell **51.6% YoY** to **$13.1 million**, driven by a **$17.0 million (70.6%) decrease** in mortgage banking net revenue due to lower origination volumes[187](index=187&type=chunk) - Net revenue from the sale of SBA 7(a) loans increased by **$1.3 million (93.0%) YoY**, providing a partial offset to the mortgage decline[188](index=188&type=chunk) - Non-interest expense decreased **24.2% YoY** to **$21.4 million**, primarily due to a **$6.8 million (30.9%) reduction** in salaries and employee benefits, mostly related to lower variable compensation in the mortgage segment[189](index=189&type=chunk) [Capital and Liquidity](index=50&type=section&id=Capital%20and%20Liquidity) Stockholders' equity decreased due to dividends and AOCI decline, yet all capital ratios remain above 'well capitalized' thresholds, with substantial available liquidity - Stockholders' equity decreased to **$157.7 million** from $165.4 million at year-end 2021, impacted by **$7.3 million** in dividends and a **$6.4 million** decline in accumulated other comprehensive income[197](index=197&type=chunk) - All capital ratios remain above the 'well capitalized' thresholds, with the Corporation's Tier 1 leverage ratio at **9.10%** as of March 31, 2022, exceeding the 8.00% requirement under the CBLR framework[198](index=198&type=chunk)[199](index=199&type=chunk) - Total available liquidity was **$331.9 million** at March 31, 2022, and the company has a maximum borrowing capacity with the FHLB of **$524.3 million**[201](index=201&type=chunk)[202](index=202&type=chunk) [Item 3 Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section directs readers to Item 2 for detailed disclosures on market risk, specifically interest rate risk analysis - The company's disclosures about market risk, particularly interest rate risk, are detailed within the Management's Discussion and Analysis (MD&A) section of this report[211](index=211&type=chunk) [Item 4 Controls and Procedures](index=52&type=section&id=Item%204%20Controls%20and%20Procedures) Management confirmed effective disclosure controls and procedures as of March 31, 2022, with no material changes to internal control over financial reporting - Based on an evaluation as of the end of the period, the CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective[212](index=212&type=chunk) - There were no changes in internal control over financial reporting during the quarter ended March 31, 2022, that materially affected or are likely to materially affect internal controls[213](index=213&type=chunk) PART II OTHER INFORMATION [Item 1 Legal Proceedings and Item 1A Risk Factors](index=53&type=section&id=Item%201%20Legal%20Proceedings%20and%20Item%201A%20Risk%20Factors) No material changes to legal proceedings or risk factors from the 2021 Form 10-K are reported, with other items being not applicable - There have been no material changes in the risk factors from those disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2021[216](index=216&type=chunk) - The company reports no information for Legal Proceedings, Unregistered Sales of Equity Securities and Use of Proceeds, or Defaults Upon Senior Securities[216](index=216&type=chunk)[217](index=217&type=chunk)

PART I [Business](index=6&type=section&id=Item%201.%20Business) Meridian Corporation, a bank holding company, offers commercial, mortgage, and wealth management services in the Delaware Valley and Central Maryland - The Corporation operates through three principal business lines: **Commercial Banking**, **Mortgage Banking**, and **Wealth Management and Advisory Services**[18](index=18&type=chunk)[19](index=19&type=chunk)[26](index=26&type=chunk) - The primary market area is the five-county Philadelphia metropolitan area, with a secondary market in the five-county Baltimore metropolitan area. The company operates **six** full-service branches and **19** other loan production and corporate offices[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) Human Capital Overview (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Total Employees | 413 | | Women in Workforce | 48% | | Women Officers | 32% | | **Employee Distribution by Segment** | | | Banking | 36% | | Mortgage | 62% | | Wealth | 2% | - The company qualifies as an "**emerging growth company**" under the JOBS Act, which allows it to take advantage of reduced reporting requirements and an extended transition period for complying with new accounting standards[45](index=45&type=chunk)[46](index=46&type=chunk) - Meridian and its subsidiaries are subject to extensive regulation and supervision by the **FDIC**, the **Pennsylvania Department of Banking and Securities (PDBS)**, the **Federal Reserve**, and the **SEC**[52](index=52&type=chunk)[53](index=53&type=chunk) [Risk Factors](index=34&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from economic conditions, cybersecurity, real estate market fluctuations, interest rate changes, and an evolving regulatory environment - Business and operations are sensitive to economic conditions in its primary markets of **Pennsylvania**, **New Jersey**, **Delaware**, and **Maryland**, which can affect credit quality, loan demand, and collateral values[129](index=129&type=chunk)[132](index=132&type=chunk) - The company faces significant risks from **fraudulent activity** and **cybersecurity incidents**, which could result in financial losses, disclosure of confidential information, and reputational damage. It is also dependent on the information technology systems of third-party providers[157](index=157&type=chunk)[163](index=163&type=chunk) - A significant portion of the loan portfolio is secured by **real estate**, making the business highly dependent on the real estate markets in which it operates. Declines in property values could lead to deterioration in credit quality[196](index=196&type=chunk) - The mortgage lending business is highly competitive and susceptible to changes in **market interest rates**, the availability of an active **secondary market**, and programs offered by **government-sponsored entities (GSEs)**[184](index=184&type=chunk)[186](index=186&type=chunk)[188](index=188&type=chunk) - Fluctuations in **market interest rates** can negatively impact **net interest margin** and **net interest income**, as well as the volume of mortgage originations and the value of assets under management in the wealth division[199](index=199&type=chunk)[202](index=202&type=chunk)[203](index=203&type=chunk) - The company is subject to **extensive regulation and supervision**, and changes in laws, regulations, or capital adequacy requirements could adversely affect operations and increase costs[205](index=205&type=chunk)[208](index=208&type=chunk) [Unresolved Staff Comments](index=60&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that there are no unresolved staff comments - None[215](index=215&type=chunk) [Properties](index=60&type=section&id=Item%202.%20Properties) The Corporation's properties include its Malvern, PA headquarters, six branches, and 19 other offices, with a net book value of **$5.8 million** as of December 31, 2021 - The company's main office is in Malvern, PA, with **six** full-service branches serving the surrounding counties of Philadelphia[216](index=216&type=chunk)[218](index=218&type=chunk) - There are **19** other offices, including headquarters for Corporate, Operations, Wealth, and Mortgage divisions. All offices except the corporate and operations headquarters are leased[216](index=216&type=chunk)[218](index=218&type=chunk)[227](index=227&type=chunk) - The net book value of all locations was **$5.8 million** at December 31, 2021[216](index=216&type=chunk) [Legal Proceedings](index=62&type=section&id=Item%203.%20Legal%20Proceedings) The company reports no legal proceedings - None[221](index=221&type=chunk) [Mine Safety Disclosures](index=62&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company - Not applicable[222](index=222&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=62&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under **MRBK**, with **28,202 shares** repurchased in Q4 2021 and increased quarterly dividends - The Corporation's common stock trades on the NASDAQ Global Select Market under the symbol "**MRBK**"[224](index=224&type=chunk) Share Repurchases in Q4 2021 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | Oct 2021 | 25,935 | $29.56 | | Nov 2021 | 2,267 | $31.71 | | **Total** | **28,202** | **$29.91** | - On August 30, 2021, the stock repurchase plan was increased to **$20 million** over a two-year period[228](index=228&type=chunk) 2021 Dividend Declarations | Type | Per Share Amount | Declaration Date | | :--- | :--- | :--- | | Quarterly | $0.125 | Jan 28, 2021 | | Special | $1.00 | Feb 16, 2021 | | Quarterly | $0.125 | Apr 22, 2021 | | Quarterly | $0.125 | Jul 22, 2021 | | Quarterly | $0.200 | Oct 28, 2021 | [Selected Financial Data](index=65&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes key historical financial data, reporting **$1.71 billion** in total assets, **$35.6 million** net income, and **$5.73** diluted EPS for 2021 Selected Financial Data (2020 vs 2021) | (In thousands, except per share data) | 2021 | 2020 | | :--- | :--- | :--- | | **Balance Sheet Data:** | | | | Total assets | $1,713,443 | $1,720,197 | | Loans receivable, gross | $1,386,457 | $1,284,764 | | Total deposits | $1,446,413 | $1,241,335 | | Total stockholders' equity | $165,360 | $141,622 | | **Income Statement Data:** | | | | Net interest income | $63,111 | $48,996 | | Non-interest income | $87,988 | $86,918 | | Net income | $35,585 | $26,438 | | **Per Share Data:** | | | | Earnings per common share, diluted | $5.73 | $4.27 | | Book value per common share | $27.07 | $23.08 | | **Performance Metrics:** | | | | Return on average assets (ROAA) | 2.06% | 1.78% | | Return on average equity (ROAE) | 23.74% | 21.33% | | Net interest margin (NIM) | 3.77% | 3.40% | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reports **$35.6 million** net income in 2021, driven by increased net interest income and lower loan loss provisions, despite higher non-interest expenses and a rise in non-performing assets Results of Operations (2021 vs. 2020) | (In millions) | 2021 | 2020 | | :--- | :--- | :--- | | Net Interest Income | $63.1 | $49.0 | | Provision for Loan Losses | $1.1 | $8.3 | | Non-interest Income | $88.0 | $86.9 | | Non-interest Expense | $103.7 | $93.1 | | **Net Income** | **$35.6** | **$26.4** | | Diluted EPS | $5.73 | $4.27 | - The net interest margin expanded by **37 basis points** to **3.77%** in 2021, benefiting from PPP loan forgiveness, growth in non-interest bearing deposits, and a **59 basis point** decrease in the cost of deposits[247](index=247&type=chunk) - Total loans, net of allowance, grew by **$101 million (7.9%)** to **$1.4 billion**, driven by increases in small business loans (**+$64.6 million**), commercial real estate (**+$31.8 million**), and lease financings (**+$57.2 million**). This growth was offset by decreases in residential loans held for sale (**-$148.3 million**) and PPP loans (**-$113.3 million**)[271](index=271&type=chunk) - Non-performing assets to total assets increased to **1.34%** from **0.46%** in 2020, primarily due to one commercial loan relationship of **$13.8 million** becoming non-performing[293](index=293&type=chunk) - Deposits grew by **$205.1 million (16.5%)** to **$1.4 billion**, with strong growth in core deposits, including a **34.7%** increase in non-interest bearing deposits[302](index=302&type=chunk) - The Corporation and Bank remain "**well capitalized**" for regulatory purposes, adopting the Community Bank Leverage Ratio (CBLR) framework in Q1 2020[313](index=313&type=chunk)[316](index=316&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=90&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages primary market risk, mainly interest rate volatility, through ALCO's gap analysis and simulation models, showing varied impacts on net interest income and economic value of equity from rate changes - The primary market risk is **interest rate volatility**, managed by the Asset/Liability Committee (**ALCO**) using repricing gap analysis, net interest income simulation, and economic value of equity simulation[318](index=318&type=chunk)[320](index=320&type=chunk)[321](index=321&type=chunk) Net Interest Income Sensitivity (as of Dec 31, 2021) | Rate Change Scenario (Ramp over 12 months) | Estimated % Change in Net Interest Income | | :--- | :--- | | +300 basis points | 0.21% | | +200 basis points | (0.18)% | | +100 basis points | (0.31)% | | -100 basis points | (0.22)% | | -200 basis points | (2.34)% | Economic Value of Equity Sensitivity (as of Dec 31, 2021) | Rate Change Scenario (Instantaneous Shift) | Estimated % Change in Net Economic Value | | :--- | :--- | | +300 basis points | 60% | | +200 basis points | 45% | | +100 basis points | 26% | | -100 basis points | (37)% | | -200 basis points | (97)% | [Financial Statements and Supplementary Data](index=95&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2021 and 2020, including balance sheets, income statements, and cash flows, with an **unqualified opinion** from Crowe LLP - The independent registered public accounting firm, **Crowe LLP**, issued an **unqualified opinion** on the financial statements, stating they are presented fairly in all material respects in conformity with U.S. GAAP[336](index=336&type=chunk) Consolidated Balance Sheet Highlights (Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Total Assets | $1,713,443 | | Loans, net | $1,367,699 | | Total Deposits | $1,446,413 | | Total Liabilities | $1,548,083 | | Total Stockholders' Equity | $165,360 | Consolidated Income Statement Highlights (Year Ended Dec 31, 2021) | Account | Amount (in thousands) | | :--- | :--- | | Net Interest Income | $63,111 | | Provision for Loan Losses | $1,070 | | Non-interest Income | $87,988 | | Non-interest Expense | $103,727 | | **Net Income** | **$35,585** | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=181&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None[601](index=601&type=chunk) [Controls and Procedures](index=181&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were **effective** as of December 31, 2021, with no material changes identified - Management concluded that the Corporation's disclosure controls and procedures were **effective** as of December 31, 2021[601](index=601&type=chunk) - Based on an assessment against the **COSO framework (2013)**, management concluded that the Corporation's system of internal control over financial reporting was **effective** as of December 31, 2021[606](index=606&type=chunk) - There were no changes in internal control over financial reporting during the fourth quarter of 2021 that materially affected, or are reasonably likely to materially affect, these controls[608](index=608&type=chunk) [Other Information](index=183&type=section&id=Item%209B.%20Other%20Information) The company reports no other information - None[609](index=609&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=183&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance is incorporated by reference from the **2022 Annual Meeting of Shareholders proxy statement** - Information is incorporated by reference from the definitive proxy statement for the **2022 Annual Meeting of Shareholders**[611](index=611&type=chunk) [Executive Compensation](index=183&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the **2022 Annual Meeting of Shareholders proxy statement** - Information is incorporated by reference from the definitive proxy statement for the **2022 Annual Meeting of Shareholders**[612](index=612&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=183&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the **2022 Annual Meeting of Shareholders proxy statement** - Information is incorporated by reference from the definitive proxy statement for the **2022 Annual Meeting of Shareholders**[613](index=613&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=183&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the **2022 Annual Meeting of Shareholders proxy statement** - Information is incorporated by reference from the definitive proxy statement for the **2022 Annual Meeting of Shareholders**[613](index=613&type=chunk) [Principal Accounting Fees and Services](index=183&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information detailing fees paid to the principal accountant is incorporated by reference from the **2022 Annual Meeting of Shareholders proxy statement** - Information is incorporated by reference from the definitive proxy statement for the **2022 Annual Meeting of Shareholders**[614](index=614&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=184&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements from Item 8 and exhibits filed with the Form 10-K, noting the omission of inapplicable financial statement schedules - Lists the consolidated financial statements set forth in **Item 8**[617](index=617&type=chunk) - Provides a list of exhibits filed with the **Form 10-K**, including articles of incorporation, bylaws, material contracts, and certifications[618](index=618&type=chunk) [Form 10-K Summary](index=185&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports that there is no Form 10-K summary - None[619](index=619&type=chunk)[620](index=620&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-55983 (Exact name of registrant as specified in its charter) Pennsylvania 83-1561918 (State or other juri ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-55983 (Exact name of registrant as specified in its charter) Pennsylvania 83-1561918 (State or other jurisdict ...

PART I [Item 1 Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Meridian Corporation for the quarterly period ended March 31, 2021, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies and financial line items [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2021, total assets increased to $1.74 billion from $1.72 billion at December 31, 2020, driven by growth in net loans and total deposits, while stockholders' equity saw a slight increase Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $31,004 | $36,744 | | Loans, net of allowance | $1,336,175 | $1,266,997 | | Total assets | $1,743,977 | $1,720,197 | | **Liabilities & Equity** | | | | Non-interest bearing deposits | $257,730 | $203,843 | | Total deposits | $1,383,590 | $1,241,335 | | Total liabilities | $1,600,472 | $1,578,575 | | Total stockholders' equity | $143,505 | $141,622 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) For the three months ended March 31, 2021, net income surged to $10.2 million, driven by a 56.4% rise in net interest income and a substantial increase in non-interest income from mortgage banking activities, leading to diluted earnings per share of $1.65 Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Net interest income | $15,120 | $9,666 | | Provision for loan losses | $599 | $1,552 | | Non-interest income | $27,048 | $9,219 | | Non-interest expenses | $28,263 | $14,062 | | Net income | $10,170 | $2,516 | | Diluted earnings per common share | $1.65 | $0.39 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2021, net cash provided by operating activities was $62.8 million, while net cash used in investing activities was $81.0 million, and net cash provided by financing activities was $12.5 million, resulting in a net decrease in cash and cash equivalents of $5.7 million Consolidated Cash Flow Summary (in thousands) | Activity | Three months ended March 31, 2021 | Three months ended March 31, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $62,764 | $(62,678) | | Net cash used in investing activities | $(81,014) | $(83,979) | | Net cash provided by financing activities | $12,510 | $144,808 | | **Net change in cash and cash equivalents** | **$(5,740)** | **$(1,849)** | [Notes to Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) The notes detail the basis of financial statement preparation under U.S. GAAP, including disclosures on earnings per share, securities, loans, fair value measurements, derivatives, and segment reporting, while highlighting the impact of COVID-19 on estimates and the election for an extended transition period for new accounting standards - The financial statements are prepared under U.S. GAAP for interim periods and include management's estimates, which are subject to uncertainty, especially concerning the allowance for loan losses due to the COVID-19 pandemic[19](index=19&type=chunk)[20](index=20&type=chunk)[23](index=23&type=chunk) - As an 'emerging growth company,' the Corporation has elected to use an extended transition period for complying with new or revised accounting standards, such as CECL (ASU 2016-13), which will be effective January 1, 2023[124](index=124&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=33&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2021 financial results, highlighting a significant increase in net income to $10.2 million, driven by strong growth in net interest income and a 193.4% surge in non-interest income from mortgage banking, with total assets growing to $1.7 billion and continued strong asset quality Q1 2021 Performance Highlights vs. Q1 2020 | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Income | $10.2 million | $2.5 million | | Diluted EPS | $1.65 | $0.39 | | ROE | 30.06% | 8.40% | | ROA | 2.43% | 0.87% | | Net Interest Income | $15.1 million | $9.7 million | | Non-interest Income | $27.1 million | $9.2 million | - The company processed over **797 PPP loan applications** totaling approximately **$117 million** in Q1 2021 under the reopened program[139](index=139&type=chunk) - As of March 31, 2021, active loan modifications related to COVID-19 stood at **$28.8 million**, up slightly from **$26.9 million** at year-end 2020[147](index=147&type=chunk) - The company returned **$6.9 million** to shareholders in Q1 2021 through a regular quarterly dividend of **$0.125** and a special dividend of **$1.00** per share[150](index=150&type=chunk) [Components of Net Income](index=38&type=section&id=Components%20of%20Net%20Income) Net income for Q1 2021 was driven by a $5.5 million (56.4%) year-over-year increase in net interest income to $15.1 million, a decrease in provision for loan losses, and a $17.8 million (193.4%) surge in non-interest income, primarily from mortgage banking, despite a $14.2 million (101.0%) rise in non-interest expense - Net interest margin increased to **3.72%** in Q1 2021 from **3.49%** in Q1 2020, as the decline in funding costs outpaced the decline in asset yields[165](index=165&type=chunk) - Mortgage banking net revenue increased by **$17.3 million (254.8%)** YoY, driven by a **184.6%** increase in loan originations to **$724.7 million**[198](index=198&type=chunk)[200](index=200&type=chunk) - Salaries and employee benefits expense increased by **$12.3 million (124.0%)**, with **$12.5 million** of the increase related to the mortgage division's expansion[203](index=203&type=chunk) [Asset Quality and Analysis of Credit Risk](index=44&type=section&id=Asset%20Quality%20and%20Analysis%20of%20Credit%20Risk) As of March 31, 2021, asset quality remained strong, with non-performing assets at $8.6 million (0.49% of total assets), a stable allowance for loan losses at 1.65% of total loans held for investment (excluding PPP and fair value loans), and net charge-offs of 0.00% for the quarter Asset Quality Ratios | Metric | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Non-performing assets to total assets | 0.49% | 0.46% | | Total non-performing assets | $8,593 thousand | $7,930 thousand | | Allowance for loan losses to non-performing loans | 213.83% | 224.04% | [Balance Sheet Analysis](index=47&type=section&id=BALANCE%20SHEET%20ANALYSIS) As of March 31, 2021, total assets grew by $23.8 million to $1.7 billion, driven by a $69.2 million increase in net loans and a $142.3 million rise in deposits, while borrowings decreased and stockholders' equity increased to $143.5 million - Total loans, net of allowance, grew **5.5%** to **$1.3 billion**, with a **$37.9 million** net increase in PPP loans[209](index=209&type=chunk) - Total deposits increased **11.5%** to **$1.4 billion**, with non-interest bearing deposits growing **26.4%**[211](index=211&type=chunk) - The tangible common equity to tangible assets ratio remained stable at **7.99%**[214](index=214&type=chunk) [Liquidity](index=48&type=section&id=Liquidity) The Corporation maintains a strong liquidity position with a stable deposit base, cash, and a marketable investment portfolio, totaling $341.6 million in primary liquidity as of March 31, 2021, supplemented by significant available credit lines to meet funding needs - Primary liquidity stood at **$341.6 million** as of March 31, 2021[216](index=216&type=chunk) - Maximum borrowing capacity with the FHLB was **$546.7 million**, with **$38.6 million** borrowed and **$154 million** in letters of credit issued against it[217](index=217&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The Corporation manages market risk, primarily interest rate risk, through simulation modeling and gap analysis, indicating an asset-sensitive balance sheet where net interest income is expected to increase in a rising rate environment, with strategies employed to mitigate risk Net Interest Income Sensitivity (Rate Ramp over 12 months) | Change in Market Interest Rates | Estimated % Change in NII (as of Mar 31, 2021) | | :--- | :--- | | +300 basis points | 3.83% | | +200 basis points | 2.28% | | +100 basis points | 1.06% | | -100 basis points | (1.56)% | | -200 basis points | (5.01)% | - The Corporation's balance sheet is asset-sensitive, with a cumulative one-year repricing gap of **$50.4 million**, or **2.9%** of total assets, as of March 31, 2021[188](index=188&type=chunk)[190](index=190&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting identified during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of March 31, 2021[229](index=229&type=chunk) - No material changes to internal control over financial reporting were identified during the quarter[230](index=230&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=51&type=section&id=Item%201.%20Legal%20Proceedings) The report does not disclose any material legal proceedings - No material legal proceedings were reported[233](index=233&type=chunk) [Item 1A. Risk Factors](index=51&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes in risk factors were reported since the last Annual Report on Form 10-K[233](index=233&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=51&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The report does not contain information regarding unregistered sales of equity securities or use of proceeds - None reported[234](index=234&type=chunk)

Part I [Item 1. Business](index=4&type=section&id=Item%201.%20Business) Meridian Corporation, a bank holding company, operates through Meridian Bank across three segments: Commercial Banking, Mortgage Banking, and Wealth Management - Meridian Corporation operates as a bank holding company through Meridian Bank in the Delaware Valley tri-state market and Maryland[12](index=12&type=chunk) - The company's diversified model includes Commercial Banking, Mortgage Banking, and Wealth Management, generating significant non-interest income[12](index=12&type=chunk)[14](index=14&type=chunk) - In 2020, Meridian originated **$259.7 million** in PPP loans, with **$203.5 million** outstanding as of December 31, 2020[47](index=47&type=chunk) - Loan payment holidays totaling **$156.3 million** were provided to approximately 200 borrowers, with **$129.4 million** returning to original terms by year-end 2020[47](index=47&type=chunk) - As of December 31, 2020, the company employed **381 individuals**, with **41%** in banking, **56%** in mortgage, and **3%** in wealth segments[26](index=26&type=chunk) - The company qualifies as an 'emerging growth company' under the JOBS Act, allowing reduced reporting and extended accounting standard transition[28](index=28&type=chunk)[31](index=31&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from economic conditions, interest rate fluctuations, regulatory oversight, and its concentration in real estate lending - Business performance is sensitive to economic conditions, with low interest rates impacting deposit attraction and portfolio earnings[127](index=127&type=chunk) - The COVID-19 pandemic poses a significant risk, disrupting the economy, financial markets, and customer behavior[170](index=170&type=chunk) - A significant portion of the loan portfolio is secured by real estate in Pennsylvania, Delaware, and New Jersey, creating market dependency[188](index=188&type=chunk)[190](index=190&type=chunk) - Mortgage lending is highly competitive and susceptible to interest rate changes and secondary market conditions[182](index=182&type=chunk)[184](index=184&type=chunk) - Extensive regulation and potential changes in laws or accounting standards could increase costs and limit business opportunities[197](index=197&type=chunk)[198](index=198&type=chunk) - Liquidity risk exists if the company cannot raise funds, as primary funding from customer deposits can fluctuate[138](index=138&type=chunk) - Dependence on third-party IT systems exposes the company to risks of system failures, interruptions, or data breaches[158](index=158&type=chunk) [Item 1B. Unresolved Staff Comments](index=62&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments as of the report date - There are no unresolved staff comments as of the report date[206](index=206&type=chunk) [Item 2. Properties](index=62&type=section&id=Item%202.%20Properties) The company operates six branches and 17 offices, primarily leased, with a net book value of **$5.8 million** as of December 31, 2020 - The Corporation is headquartered in Malvern, PA, operating six full-service branches and 17 other offices[207](index=207&type=chunk) - All properties are leased, except the corporate headquarters, with a net book value of **$5.8 million** at December 31, 2020[207](index=207&type=chunk) [Item 3. Legal Proceedings](index=62&type=section&id=Item%203.%20Legal%20Proceedings) A 2017 lawsuit by former mortgage-banking employees for unpaid wages was settled for **$990 thousand**, with a final payment of **$1.0 million** in February 2020 - A 2017 class action lawsuit by former mortgage-banking employees was settled for **$990 thousand**[209](index=209&type=chunk) - A final payment of **$1.0 million** was made on February 29, 2020, fully settling the matter[212](index=212&type=chunk) [Item 4. Mine Safety Disclosures](index=64&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[213](index=213&type=chunk) Part II [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=64&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on NASDAQ under 'MRBK', initiated quarterly dividends in 2020, and declared a special dividend in 2021 - The company's common stock trades on the NASDAQ Global Select Market under the symbol **'MRBK'**[215](index=215&type=chunk) - In 2020, the Corporation began paying a quarterly cash dividend of **$0.125 per common share**[217](index=217&type=chunk) - A special dividend of **$1.00 per share** was declared on February 16, 2021[218](index=218&type=chunk) - No share repurchase activity occurred during the fourth quarter of 2020[216](index=216&type=chunk) [Item 6. Selected Financial Data](index=65&type=section&id=Item%206.%20Selected%20Financial%20Data) This section summarizes five years of consolidated financial data, highlighting significant growth in assets, loans, deposits, and net income in 2020 Selected Historical Consolidated Financial Data (2019 vs 2020) | (Dollars in thousands, except per share data) | 2020 | 2019 | | :--- | :--- | :--- | | **Balance Sheet Data (End of Period):** | | | | Total assets | $1,720,197 | $1,150,019 | | Loans receivable, gross | $1,284,764 | $964,710 | | Total deposits | $1,241,335 | $851,168 | | Total Stockholders' equity | $141,622 | $120,695 | | **Income Statement Data:** | | | | Net interest income | $48,996 | $36,336 | | Non-interest income | $86,918 | $32,893 | | Net income available to common stockholders | $26,438 | $10,481 | | **Per Share Data:** | | | | Earnings per common share, diluted | $4.27 | $1.63 | | Book value per common share | $23.08 | $18.84 | | **Performance Metrics:** | | | | Return on average assets (ROAA) | 1.78% | 1.01% | | Return on average equity (ROAE) | 21.33% | 9.09% | | Net interest margin (NIM) | 3.40% | 3.65% | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=66&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses strong 2020 financial performance, driven by increased net income, asset growth, and significant non-interest income from mortgage operations - Net income for 2020 was **$26.4 million** (**$4.27 per diluted share**), significantly up from **$10.5 million** (**$1.63 per diluted share**) in 2019[233](index=233&type=chunk) - Total assets grew **49.6%** to **$1.7 billion** at year-end 2020, driven by **33.2%** loan growth and **45.8%** deposit growth[252](index=252&type=chunk)[253](index=253&type=chunk) - Non-interest income surged **164.1%** to **$86.9 million**, primarily from a **$50.5 million** increase in mortgage banking revenue, with **$2.4 billion** in loan originations[244](index=244&type=chunk) - The provision for loan losses increased to **$8.3 million** in 2020 from **$901 thousand** in 2019, mainly due to COVID-19 related uncertainty[243](index=243&type=chunk) - Net interest margin (NIM) decreased to **3.40%** in 2020 from **3.65%** in 2019, reflecting declining asset yields offset by lower funding costs[234](index=234&type=chunk) - The company adopted the Community Bank Leverage Ratio (CBLR) framework in Q1 2020 and is considered 'well capitalized' for regulatory purposes[291](index=291&type=chunk)[294](index=294&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, managed by ALCO using NII and EVE simulations, indicating an asset-sensitive balance sheet - The company's primary market risk is interest rate volatility, managed by its Asset/Liability Committee (ALCO) using gap analysis, NII, and EVE simulations[299](index=299&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk) - Gap analysis as of December 31, 2020, indicates the company is modestly asset-sensitive, with a positive gap of **1.0% of total assets** for maturities of 12 months or less[305](index=305&type=chunk)[306](index=306&type=chunk) Net Interest Income (NII) Sensitivity Analysis (Rate Ramp) | Changes in Market Interest Rates | Estimated % Change in NII (2020) | Estimated % Change in NII (2019) | | :--- | :--- | :--- | | +300 basis points | 1.87% | 0.40% | | +200 basis points | 1.02% | 0.60% | | +100 basis points | 0.50% | 0.40% | | -100 basis points | (1.73)% | (0.60)% | | -200 basis points | (5.21)% | (2.30)% | Economic Value of Equity (EVE) Sensitivity Analysis | Changes in Market Interest Rates | Estimated % Change in EVE (2020) | Estimated % Change in EVE (2019) | | :--- | :--- | :--- | | +300 basis points | 103% | 13% | | +200 basis points | 78% | 11% | | +100 basis points | 45% | 7% | | -100 basis points | (67)% | (12)% | | -200 basis points | (175)% | (32)% | [Item 8. Financial Statements and Supplementary Data](index=95&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2020 and 2019, including auditor reports, core statements, and detailed notes [Report of Independent Registered Public Accounting Firm](index=96&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) Independent auditors Crowe LLP and KPMG LLP issued unqualified opinions on the 2020 and 2019 financial statements, respectively - Crowe LLP issued an unqualified opinion on the 2020 financial statements[320](index=320&type=chunk)[323](index=323&type=chunk) - KPMG LLP issued an unqualified opinion on the 2019 financial statements[325](index=325&type=chunk)[329](index=329&type=chunk) [Consolidated Financial Statements](index=99&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements show total assets of **$1.72 billion** and net income of **$26.4 million** in 2020, reflecting strong growth Consolidated Balance Sheet Highlights (in thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Total assets | $1,720,197 | $1,150,019 | | Loans, net | $1,266,997 | $955,197 | | **Liabilities & Equity** | | | | Total deposits | $1,241,335 | $851,168 | | Total liabilities | $1,578,575 | $1,029,324 | | Total stockholders' equity | $141,622 | $120,695 | Consolidated Income Statement Highlights (in thousands) | | Year ended Dec 31, 2020 | Year ended Dec 31, 2019 | | :--- | :--- | :--- | | Net interest income | $48,996 | $36,336 | | Provision for loan losses | $8,302 | $901 | | Non-interest income | $86,918 | $32,893 | | Non-interest expenses | $93,076 | $54,814 | | Net income | $26,438 | $10,481 | [Notes to Consolidated Financial Statements](index=105&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, loan portfolio concentration in commercial real estate, increased loan loss allowance, servicing assets, and capital adequacy - The loan portfolio has a significant concentration in commercial real estate-backed loans, totaling **38%** of loans held for investment as of December 31, 2020[345](index=345&type=chunk) Allowance for Loan and Lease Losses Roll-Forward (in thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Balance, Beginning of Year | $9,513 | $8,053 | | Charge-offs | (131) | (30) | | Recoveries | 83 | 589 | | Provision | 8,302 | 901 | | **Balance, End of Year** | **$17,767** | **$9,513** | - The company serviced **$506.0 million** in residential mortgage loans and **$55.9 million** in SBA loans as of December 31, 2020[459](index=459&type=chunk)[464](index=464&type=chunk) - As of December 31, 2020, unfunded loan commitments totaled **$421.4 million**, and mortgage loan commitments were **$428.8 million**[503](index=503&type=chunk)[505](index=505&type=chunk) - The company adopted the Community Bank Leverage Ratio (CBLR) framework in Q1 2020 and was categorized as well capitalized by the FDIC[515](index=515&type=chunk)[516](index=516&type=chunk) [Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=180&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosures - None reported[585](index=585&type=chunk) [Item 9A. Controls and Procedures](index=180&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2020 - Management concluded the Corporation's disclosure controls and procedures were effective as of December 31, 2020[585](index=585&type=chunk) - Management assessed and concluded internal control over financial reporting was effective as of December 31, 2020, based on COSO 2013[590](index=590&type=chunk) - No material changes in internal control over financial reporting occurred during Q4 2020[592](index=592&type=chunk) [Item 9B. Other Information](index=182&type=section&id=Item%209B.%20Other%20Information) The company reports no other information under this item - None[593](index=593&type=chunk) Part III [Item 10. Directors, Executive Officers and Corporate Governance](index=182&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 proxy statement - Information regarding directors, executive officers, corporate governance, and the audit committee is incorporated by reference from the 2021 proxy statement[595](index=595&type=chunk) [Item 11. Executive Compensation](index=182&type=section&id=Item%2011.%20Executive%20Compensation) Information on executive and director compensation is incorporated by reference from the 2021 proxy statement - Information regarding executive compensation is incorporated by reference from the 2021 proxy statement[596](index=596&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=182&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership and equity compensation plans is incorporated by reference from the 2021 proxy statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the 2021 proxy statement[597](index=597&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=182&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information on related party transactions and director independence is incorporated by reference from the 2021 proxy statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2021 proxy statement[597](index=597&type=chunk) [Item 14. Principal Accounting Fees and Services](index=182&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information on principal accounting fees and services is incorporated by reference from the 2021 proxy statement - Information regarding principal accounting fees and services is incorporated by reference from the 2021 proxy statement[598](index=598&type=chunk) Part IV [Item 15. Exhibits, Financial Statement Schedules](index=183&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements from Item 8 and exhibits filed with the Form 10-K, omitting inapplicable financial schedules - This item lists the consolidated financial statements filed under Item 8 and all exhibits filed with the Form 10-K[601](index=601&type=chunk)[602](index=602&type=chunk) [Item 16. Form 10-K Summary](index=184&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no summary for this item - None[603](index=603&type=chunk)

PART I FINANCIAL INFORMATION [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) Unaudited consolidated financial statements for Q3 2020 and 2019 are presented, detailing financial position, performance, and cash flows, including COVID-19 and PPP impacts [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew significantly to $1.76 billion by September 30, 2020, driven by loans and mortgage loans held for sale, with corresponding increases in deposits and long-term debt Consolidated Balance Sheet Highlights | Account | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | **Total Assets** | **$1,758,648** | **$1,150,019** | **+52.9%** | | Cash and cash equivalents | $75,869 | $39,371 | +92.7% | | Mortgage loans held for sale | $225,150 | $33,704 | +568.0% | | Loans, net | $1,290,273 | $955,197 | +35.1% | | **Total Liabilities** | **$1,626,816** | **$1,029,324** | **+58.1%** | | Total deposits | $1,209,024 | $851,168 | +42.0% | | Long-term debt | $250,131 | $3,123 | +7910.0% | | **Total Stockholders' Equity** | **$131,832** | **$120,695** | **+9.2%** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income significantly increased to $9.2 million in Q3 2020 and $17.4 million for the nine months, primarily driven by a surge in non-interest income from mortgage banking activities Income Statement Summary | Metric | Q3 2020 (in thousands) | Q3 2019 (in thousands) | 9 Months 2020 (in thousands) | 9 Months 2019 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $12,715 | $9,274 | $33,978 | $26,672 | | Provision for loan losses | $3,956 | $705 | $7,139 | $938 | | Non-interest income | $29,060 | $9,209 | $56,972 | $22,656 | | Non-interest expenses | $25,834 | $13,547 | $61,152 | $38,980 | | **Net income** | **$9,212** | **$3,317** | **$17,441** | **$7,345** | | Diluted EPS | $1.51 | $0.52 | $2.82 | $1.14 | - Mortgage banking income was the primary driver of non-interest income growth, increasing to **$21.8 million** in Q3 2020 from **$7.3 million** in Q3 2019[10](index=10&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Significant cash outflows from operating and investing activities for the nine months ended September 30, 2020, were offset by substantial financing inflows from deposits and long-term debt Cash Flow Summary - Nine Months Ended Sep 30 | Activity | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash (used) provided by operating activities | $(161,648) | $4,419 | | Net cash used in investing activities | $(378,987) | $(105,165) | | Net cash provided by financing activities | $577,133 | $117,326 | | **Net change in cash and cash equivalents** | **$36,498** | **$16,580** | [Notes to Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) Notes detail COVID-19 and PPP impacts, loan portfolio composition including PPP loans, increased allowance for loan losses, derivative instruments, and segment performance for Banking, Wealth Management, and Mortgage - The company actively participated in the Paycheck Protection Program (PPP) under the CARES Act, providing federally guaranteed loans to small and medium-sized businesses[30](index=30&type=chunk) Loan Portfolio Composition | Loan Category | September 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Commercial mortgage | $460,952 | $362,590 | | Commercial and industrial | $256,452 | $273,301 | | Paycheck Protection Program loans | $259,723 | $— | | Construction | $151,226 | $172,044 | | **Total portfolio loans and leases** | **$1,313,489** | **$966,499** | - The allowance for loan losses increased to **$16.6 million** at September 30, 2020, from **$9.5 million** at year-end 2019, with the provision for the nine-month period rising to **$7.1 million** from **$0.9 million** in the prior year, reflecting increased economic uncertainty[48](index=48&type=chunk) - The Mortgage segment was the primary driver of profitability, with income before taxes of **$9.3 million** in Q3 2020, compared to **$1.3 million** in Q3 2019[127](index=127&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q3 2020 performance to record mortgage banking revenue, despite net interest margin compression and increased loan loss provisions, while detailing COVID-19 and PPP impacts, asset growth, and capital adequacy - As of September 30, 2020, the company originated **$259.7 million** in PPP loans for **928 clients**, supporting nearly **16,660 employees**[160](index=160&type=chunk) - The company provided loan modifications on **$154.1 million** of loans to pandemic-affected customers, with **$19.1 million** remaining active as of October 26, 2020[63](index=63&type=chunk)[160](index=160&type=chunk) Key Performance Ratios | Ratio | Q3 2020 | Q3 2019 | 9 Months 2020 | 9 Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Annualized ROA | 2.29% | 1.24% | 1.65% | 0.97% | | Annualized ROE | 29.30% | 11.29% | 18.85% | 8.65% | | Net Interest Margin | 3.26% | 3.61% | 3.33% | 3.67% | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=57&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to market risk analysis in Item 2, highlighting interest rate risk management and the company's asset-sensitive balance sheet as of September 30, 2020 - The company's interest rate simulation as of September 30, 2020, indicates an asset-sensitive position, with a **100 basis point** gradual rate increase estimated to boost Net Interest Income by **0.15%**[209](index=209&type=chunk) [Item 4. Controls and Procedures](index=58&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting - The CEO and CFO concluded the Corporation's disclosure controls and procedures were effective as of September 30, 2020[269](index=269&type=chunk) - No material changes to internal control over financial reporting were identified during the quarter[270](index=270&type=chunk) PART II OTHER INFORMATION [Item 1. Legal Proceedings](index=59&type=section&id=Item%201.%20Legal%20Proceedings) No material legal proceedings against the company are disclosed in this report [Item 1A. Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors) Updated risk factors focus on the COVID-19 pandemic's economic impact, including potential loan delinquencies and declining collateral values, and the credit, compliance, and litigation risks associated with PPP participation - The economic impact of the COVID-19 outbreak poses a primary risk, potentially leading to decreased demand, increased loan delinquencies, and reduced net interest margin[274](index=274&type=chunk)[275](index=275&type=chunk)[282](index=282&type=chunk) - Participation in the PPP exposes the company to risks, including potential credit losses if borrowers fail to qualify for forgiveness, and litigation or compliance actions due to program rule ambiguity[278](index=278&type=chunk)[279](index=279&type=chunk)[280](index=280&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=61&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered sales of equity securities occurred during the reporting period [Item 6. Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the quarterly report, including certifications by the Principal Executive Officer and Principal Financial Officer - The report includes CEO and CFO certifications as required by Rule 13a-14(a)/15d-14(a) and Section 1350[294](index=294&type=chunk)

PART I FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis of Meridian Corporation's financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) This section presents Meridian Corporation's unaudited consolidated financial statements, notes, and the impact of COVID-19 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20%E2%80%93%20June%2030%2C%202020%20and%20December%2031%2C%202019) This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Consolidated Balance Sheet (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Cash and cash equivalents | $46,741 | $39,371 | | Securities available-for-sale | $97,100 | $58,856 | | Loans, net of fees and costs | $1,262,968 | $964,710 | | Allowance for loan and lease losses | $(12,706) | $(9,513) | | Total assets | $1,579,083 | $1,150,019 | | Total deposits | $1,166,697 | $851,168 | | Short-term borrowings | $87,044 | $123,676 | | Long-term debt | $145,447 | $3,123 | | Total liabilities | $1,453,565 | $1,029,324 | | Total stockholders' equity | $125,518 | $120,695 | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income%20%E2%80%93%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) This section outlines the company's financial performance, including revenues, expenses, and net income over specific periods Consolidated Statements of Income (Three Months Ended June 30) | (dollars in thousands) | June 30, 2020 | June 30, 2019 | | :--------------------- | :------------ | :------------ | | Interest income | $15,055 | $13,073 | | Interest expense | $3,458 | $4,151 |\ | Net interest income | $11,597 | $8,922 | | Provision for loan losses | $1,631 | $14 | | Non-interest income | $20,686 | $7,928 | | Non-interest expenses | $23,249 | $14,244 | | Net income | $5,713 | $2,022 | | Basic earnings per common share | $0.94 | $0.32 | | Diluted earnings per common share | $0.94 | $0.31 | Consolidated Statements of Income (Six Months Ended June 30) | (dollars in thousands) | June 30, 2020 | June 30, 2019 | | :--------------------- | :------------ | :------------ |\ | Interest income | $28,849 | $25,397 | | Interest expense | $7,586 | $7,999 | | Net interest income | $21,263 | $17,398 | | Provision for loan losses | $3,183 | $233 | | Non-interest income | $31,041 | $14,375 | | Non-interest expenses | $38,447 | $26,360 | | Net income | $8,229 | $4,028 | | Basic earnings per common share | $1.33 | $0.63 | | Diluted earnings per common share | $1.32 | $0.63 | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%20%E2%80%93%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) This section reports net income and other comprehensive income components, reflecting all changes in equity from non-owner sources Consolidated Statements of Comprehensive Income (Three & Six Months Ended June 30) | (dollars in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $5,713 | $2,022 | $8,229 | $4,028 | | Unrealized investment gains, net of tax | $1,713 | $222 | $2,142 | $595 | | Total comprehensive income | $7,426 | $2,244 | $10,371 | $4,623 | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity%20%E2%80%93%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) This section details changes in the company's equity accounts, including common stock, retained earnings, and other comprehensive income Consolidated Statements of Stockholders' Equity (June 30, 2020 vs. January 1, 2020) | (dollars in thousands) | Common Stock | Surplus | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total | | :--------------------- | :----------- | :------ | :------------- | :---------------- | :-------------------------------------------- | :---- | | Balance, January 1, 2020 | $6,408 | $80,255 | $(62) | $34,097 | $(3) | $120,695 | | Net income | | | | $8,229 | | $8,229 | | Change in unrealized gains on securities available-for-sale, net of tax | | | | | $2,142 | $2,142 | | Share-based award exercises | $6 | $26 | | | | $32 | | Net purchase of treasury stock | | $63 | $(5,766) | | | $(5,703) | | Compensation expense related to stock option grants | | $123 | | | | $123 | | Balance, June 30, 2020 | $6,414 | $80,467 | $(5,828) | $42,326 | $2,139 | $125,518 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20%E2%80%93%20Six%20Months%20Ended%20June%2030%2C%202020%20and%202019) This section summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows (Six Months Ended June 30) | (dollars in thousands) | June 30, 2020 | June 30, 2019 | | :--------------------- | :------------ | :------------ | | Net income | $8,229 | $4,028 | | Net cash (used) provided by operating activities | $(79,352) | $6,460 | | Net cash used in investing activities | $(328,622) | $(51,692) | | Net cash provided by financing activities | $415,344 | $51,910 | | Net change in cash and cash equivalents | $7,370 | $6,678 | | Cash and cash equivalents at end of period | $46,741 | $30,630 | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(Unaudited)) This section provides additional information and explanations to supplement the consolidated financial statements [(1) Basis of Presentation & Impact of COVID-19](index=10&type=section&id=(1)%20Basis%20of%20Presentation) This section details the financial statement preparation basis and the significant impact of the COVID-19 pandemic on operations - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information, relying on management's estimates and assumptions for items like allowance for loan losses and fair value of financial instruments[17](index=17&type=chunk)[18](index=18&type=chunk) - The COVID-19 pandemic has significantly impacted the U.S. economy and the Corporation's operating areas, potentially affecting customer's ability to repay, increasing loan loss provisions, and possibly leading to goodwill/intangible asset impairment[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk) - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and include management's estimates and assumptions, which could differ from actual results[17](index=17&type=chunk)[18](index=18&type=chunk) - The COVID-19 pandemic has adversely impacted industries where the Corporation's customers operate, potentially affecting their ability to fulfill financial obligations and leading to increased allowance for loan losses[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) Consolidated Balance Sheet Highlights (June 30, 2020 vs. December 31, 2019) | Metric (dollars in thousands) | June 30, 2020 | December 31, 2019 | Change | % Change | | :---------------------------- | :------------ | :---------------- | :----- | :------- | | Total assets | $1,579,083 | $1,150,019 | $429,064 | 37.31% | | Total liabilities | $1,453,565 | $1,029,324 | $424,241 | 41.22% | | Total stockholders' equity | $125,518 | $120,695 | $4,823 | 4.00% | | Loans, net of ALLL | $1,250,262 | $955,197 | $295,065 | 30.89% | | Total deposits | $1,166,697 | $851,168 | $315,529 | 37.07% | Consolidated Statements of Income Highlights (Three & Six Months Ended June 30, 2020 vs. 2019) | Metric (dollars in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | % Change (3M) | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | % Change (6M) | | :---------------------------- | :--------------------------- | :--------------------------- | :------------ | :--------------------------- | :--------------------------- | :------------ | | Total interest income | $15,055 | $13,073 | 15.16% | $28,849 | $25,397 | 13.59% | | Total interest expense | $3,458 | $4,151 | -16.70% | $7,586 | $7,999 | -5.16% | | Net interest income | $11,597 | $8,922 | 30.00% | $21,263 | $17,398 | 22.21% | | Provision for loan losses | $1,631 | $14 | 11550.00% | $3,183 | $233 | 1265.24% | | Total non-interest income | $20,686 | $7,928 | 160.94% | $31,041 | $14,375 | 115.94% | | Total non-interest expenses | $23,249 | $14,244 | 63.22% | $38,447 | $26,360 | 45.85% | | Net income | $5,713 | $2,022 | 182.54% | $8,229 | $4,028 | 104.30% | | Basic EPS | $0.94 | $0.32 | 193.75% | $1.33 | $0.63 | 111.11% | | Diluted EPS | $0.94 | $0.31 | 203.23% | $1.32 | $0.63 | 109.52% | [(2) Earnings per Common Share](index=12&type=section&id=(2)%20Earnings%20per%20Common%20Share) This section details basic and diluted earnings per common share, which increased for the three and six months ended June 30, 2020 Earnings Per Common Share (Three & Six Months Ended June 30) | Metric (dollars in thousands, except per share data) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income available to common stockholders | $5,713 | $2,022 | $8,229 | $4,028 | | Basic earnings per share | $0.94 | $0.32 | $1.33 | $0.63 | | Diluted earnings per share | $0.94 | $0.31 | $1.32 | $0.63 | [(3) Goodwill and Other Intangibles](index=12&type=section&id=(3)%20Goodwill%20and%20Other%20Intangibles) Goodwill and intangible assets remained stable with no impairment, with amortization recorded for customer relationships and non-competition agreements Goodwill and Intangible Assets (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | Balance December 31, 2019 | Amortization Expense | Balance June 30, 2020 | Amortization Period (in years) | | :--------------------- | :------------------------ | :------------------- | :-------------------- | :----------------------------- | | Goodwill - Wealth | $899 | — | $899 | Indefinite | | Intangible assets - trade name | $266 | — | $266 | Indefinite | | Intangible assets - customer relationships | $3,523 | $(103) | $3,420 | 20 | | Intangible assets - non competition agreements | $85 | $(34) | $51 | 4 | | Total Intangible Assets | $3,874 | $(137) | $3,737 | | - No impairment of goodwill and other intangible assets was determined for the period from January 1, 2020, through June 30, 2020[28](index=28&type=chunk) [(4) Securities](index=13&type=section&id=(4)%20Securities) The securities portfolio increased in fair value and amortized cost, with temporary unrealized losses and no other-than-temporary impairment Securities Portfolio (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 Amortized Cost | June 30, 2020 Fair Value | December 31, 2019 Amortized Cost | December 31, 2019 Fair Value | | :--------------------- | :--------------------------- | :----------------------- | :------------------------------- | :--------------------------- | | Securities available-for-sale | $94,371 | $97,100 | $58,874 | $58,856 | | Securities held-to-maturity | $6,578 | $6,926 | $8,780 | $9,003 | | Total Securities | $100,949 | $104,026 | $67,654 | $67,859 | - At June 30, 2020, the Corporation's investment portfolio was in a net unrealized gain position, and unrealized losses on specific securities were considered temporary, primarily due to changes in market interest rates[29](index=29&type=chunk) Proceeds and Gains/Losses from Sale of Available-for-Sale Securities | Period | Proceeds (in millions) | Gross Gain (in thousands) | Gross Loss (in thousands) | | :--------------------- | :--------------------- | :------------------------ | :------------------------ | | 3 & 6 Months Ended June 30, 2020 | $18.2 | $257 | $202 | | 3 & 6 Months Ended June 30, 2019 | $16.7 | $181 | $42 | [(5) Loans Receivable](index=16&type=section&id=(5)%20Loans%20Receivable) The loan portfolio grew significantly, driven by mortgage loans and PPP loans, with varying delinquency rates across categories Loans and Leases Outstanding (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Mortgage loans held for sale | $117,691 | $33,704 | | Real estate loans | $698,557 | $669,882 | | Commercial and industrial | $277,608 | $273,301 | | Paycheck Protection Program loans | $259,947 | — | | Total portfolio loans and leases | $1,270,831 | $966,499 | | Total loans and leases | $1,388,522 | $1,000,203 | Age Analysis of Past Due Loans and Leases (June 30, 2020) | (dollars in thousands) | 30-89 days past due | Nonaccrual loans and leases | Total loans and leases | Delinquency percentage | | :--------------------- | :------------------ | :-------------------------- | :--------------------- | :--------------------- | | Commercial mortgage | — | $695 | $421,629 | 0.16% | | Home equity lines and loans | $488 | $744 | $73,410 | 1.68% | | Residential mortgage | $774 | $5,178 | $54,934 | 10.83% | | Commercial and industrial | — | $821 | $277,608 | 0.30% | | Leases | $14 | — | $3,352 | 0.42% | | Total | $1,276 | $7,438 | $1,270,831 | 0.69% | [(6) Allowance for Loan Losses](index=19&type=section&id=(6)%20Allowance%20for%20Loan%20Losses%20(the%20%22Allowance%22)) The ALLL significantly increased due to COVID-19 economic uncertainty and loan growth, with details on non-performing loans, TDRs, and COVID-19 modifications [Roll-Forward of Allowance by Portfolio Segment](index=19&type=section&id=Roll-Forward%20of%20Allowance%20by%20Portfolio%20Segment) This section tracks changes in the allowance for loan losses across different loan portfolio segments [Allowance Allocated by Portfolio Segment](index=21&type=section&id=Allowance%20Allocated%20by%20Portfolio%20Segment) This section details the allocation of the allowance for loan losses across various loan portfolio segments [Loans and Leases by Credit Ratings](index=22&type=section&id=Loans%20and%20Leases%20by%20Credit%20Ratings) This section categorizes loans and leases based on their internal credit quality ratings Carrying Value of Loans and Leases by Credit Quality (June 30, 2020) | (dollars in thousands) | Pass | Special mention | Substandard | Doubtful | Total | | :--------------------- | :---------- | :-------------- | :---------- | :------- | :---------- | | Commercial mortgage | $407,157 | $11,481 | $2,991 | — | $421,629 | | Home equity lines and loans | $72,178 | — | $1,232 | — | $73,410 | | Construction | $147,378 | $1,206 | — | — | $148,584 | | Commercial and industrial | $248,003 | $17,260 | $12,345 | — | $277,608 | | Small business loans | $29,279 | — | $1,540 | — | $30,819 | | Paycheck Protection Program loans | $259,947 | — | — | — | $259,947 | | Total | $1,163,942 | $29,947 | $18,108 | — | $1,211,997 | [Impaired Loans](index=23&type=section&id=Impaired%20Loans) This section provides details on loans identified as impaired and their associated allowance for losses [Troubled Debt Restructuring](index=25&type=section&id=Troubled%20Debt%20Restructuring) This section outlines the status and volume of loans that have undergone troubled debt restructurings [COVID-19 Loan Modification Programs](index=27&type=section&id=COVID-19%20Loan%20Modification%20Programs) This section describes the loan modification programs implemented in response to the COVID-19 pandemic - The Allowance for Loan Losses is established through provisions for loan losses charged against income, maintained at a level considered adequate for probable and estimable losses, and is subject to management's subjective estimates[38](index=38&type=chunk) Allowance for Loan Losses Roll-Forward (Six Months Ended June 30, 2020) | (dollars in thousands) | Balance, December 31, 2019 | Charge-offs | Recoveries | Provision | Balance, June 30, 2020 | | :--------------------- | :------------------------- | :---------- | :--------- | :-------- | :--------------------- | | Commercial mortgage | $3,426 | — | — | $1,851 | $5,277 | | Home Equity lines and loans | $342 | $(13) | $4 | $339 | $672 | | Residential mortgage | $179 | — | $4 | $163 | $346 | | Construction | $2,362 | — | — | $(343) | $2,019 | | Commercial and industrial | $2,684 | $(9) | $32 | $899 | $3,606 | | Small business loans | $509 | — | — | $238 | $747 | | Consumer | $6 | $(10) | $2 | $6 | $4 | | Leases | $5 | — | — | $30 | $35 | | Total | $9,513 | $(32) | $42 | $3,183 | $12,706 | Impaired Loans (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 Recorded Investment | June 30, 2020 Principal Balance | June 30, 2020 Related Allowance | December 31, 2019 Recorded Investment | December 31, 2019 Principal Balance | December 31, 2019 Related Allowance | | :--------------------- | :-------------------------------- | :------------------------------ | :------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Impaired loans with related allowance | $800 | $806 | $39 | $2,080 | $2,080 | $136 | | Impaired loans without related allowance | $9,295 | $9,407 | — | $5,227 | $5,310 | — | | Grand Total | $10,095 | $10,213 | $39 | $7,307 | $7,390 | $136 | Troubled Debt Restructurings (TDRs) (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | TDRs included in nonperforming loans and leases | $250 | $319 | | TDRs in compliance with modified terms | $3,477 | $3,599 | | Total TDRs | $3,727 | $3,918 | - The Corporation provided **$144.1 million** in COVID-19 related loan modifications to 193 customers as of June 30, 2020, which were not classified as troubled debt restructurings due to CARES Act guidelines[57](index=57&type=chunk)[58](index=58&type=chunk) [(7) Short-Term Borrowings and Long-Term Debt](index=27&type=section&id=(7)%20Short-Term%20Borrowings%20and%20Long-Term%20Debt) Short-term borrowings decreased, long-term debt increased due to PPPLF advances, and the company maintains substantial FHLB and Federal Reserve borrowing capacity Short-Term Borrowings (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Open Repo Plus Weekly | $21,625 | $102,320 | | Federal Reserve Discount Window | $10,000 | — | | Total | $87,044 | $123,676 | Long-Term Debt (June 30, 2020 vs. December 31, 2019) | (dollars in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | PPPLF Advance | $136,155 | — | | Mid-term Repo-fixed | $9,292 | $3,123 | | Total | $145,447 | $3,123 | - The Corporation pledged **$136.2 million** of PPP loans to the FRB of Philadelphia to borrow **$136.2 million** of funds at a rate of **0.35%** under the PPPLF program[62](index=62&type=chunk) - Maximum borrowing capacity with the FHLB was **$513.4 million** as of June 30, 2020, with **$86.3 million** borrowed and **$135 million** in letters of credit issued[64](index=64&type=chunk)[244](index=244&type=chunk) [(8) Servicing Assets](index=29&type=section&id=(8)%20Servicing%20Assets) Servicing assets, including MSRs and SBA loan servicing rights, increased significantly due to mortgage originations and refinance activity, evaluated quarterly for impairment [Residential Mortgage Loans Servicing](index=31&type=section&id=Residential%20Mortgage%20Loans) This section details the Corporation's residential mortgage loan servicing activities and related income - The Corporation serviced **$172.4 million** of residential mortgage loans as of June 30, 2020, a significant increase from **$60.3 million** at December 31, 2019[67](index=67&type=chunk) Residential Mortgage Servicing Fee Income (Three & Six Months Ended June 30) | (dollars in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Servicing fee income | $67.0 | $18.2 | $107.0 | $32.3 | [SBA Loans Servicing](index=33&type=section&id=SBA%20Loans) This section outlines the Corporation's SBA loan servicing activities and associated fee income - The Corporation serviced **$35.2 million** of SBA loans as of June 30, 2020, up from **$18.0 million** at December 31, 2019[72](index=72&type=chunk) SBA Loan Servicing Fee Income (Three & Six Months Ended June 30) | (dollars in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Servicing fee income | $30.4 | — | $52.1 | — | - The Corporation sells residential mortgage loans and the guaranteed portion of SBA loans, retaining servicing rights and recognizing capitalized servicing assets when contractual servicing fees are expected to be more than adequate compensation[65](index=65&type=chunk)[66](index=66&type=chunk) Residential Mortgage Servicing Rights (MSRs) Balance (Six Months Ended June 30) | (dollars in thousands) | June 30, 2020 | June 30, 2019 | | :--------------------- | :------------ | :------------ | | Balance at beginning of the period | $446 | $232 | | Servicing rights capitalized | $1,136 | $91 | | Amortization of servicing rights | $(83) | $(22) | | Change in valuation allowance | $(205) | $(65) | | Balance at end of the period | $1,294 | $236 | SBA Loan Servicing Asset Balance (Six Months Ended June 30) | (dollars in thousands) | June 30, 2020 | June 30, 2019 | | :--------------------- | :------------ | :------------ | | Balance at beginning of the period | $337 | — | | Servicing rights capitalized | $342 | $133 | | Amortization of servicing rights | $(47) | — | | Balance at end of the period | $632 | $133 | [(9) Fair Value Measurements and Disclosures)](index=35&type=section&id=(9)%20Fair%20Value%20Measurements%20and%20Disclosures) This section outlines fair value measurement practices, categorizing financial instruments by input observability, detailing valuation methodologies and providing fair value tables [Valuation Methodologies](index=37&type=section&id=Valuation%20Methodologies) This section describes the methods and assumptions used to determine the fair value of financial instruments [Fair Value Hierarchy](index=39&type=section&id=Fair%20Value%20Hierarchy) This section categorizes financial instruments based on the observability of inputs used in their fair value measurements [Fair Value of Financial Instruments](index=40&type=section&id=Fair%20Value%20of%20Financial%20Instruments) This section presents the fair value of various financial assets and liabilities across different hierarchy levels - Fair value measurements are categorized into three levels based on the observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs requiring significant judgment)[83](index=83&type=chunk)[84](index=84&type=chunk)[85](index=85&type=chunk) - Mortgage loans held-for-sale and mortgage loans held-for-investment are valued using secondary market prices and observable market data (Level 2)[88](index=88&type=chunk)[89](index=89&type=chunk) - Interest rate lock commitments are classified as Level 3 due to significant unobservable assumptions related to the likelihood of loan closure[90](index=90&type=chunk)[91](index=91&type=chunk) Fair Value of Financial Assets and Liabilities (June 30, 2020) | (dollars in thousands) | Total | Level 1 | Level 2 | Level 3 | | :--------------------- | :--------- | :------ | :--------- | :--------- | | **Assets** | | | | | | Securities available for sale | $97,100 | — | $97,100 | — | | Mortgage loans held-for-sale | $117,691 | — | $117,691 | — | | Interest rate lock commitments | $4,595 | — | — | $4,595 | | Total Assets | $231,124 | — | $226,529 | $4,595 | | **Liabilities** | | | | | | Interest rate lock commitments | $183 | — | — | $183 | | Forward commitments | $786 | — | $786 | — | | Total Liabilities | $2,199 | — | $2,016 | $183 | [(10) Derivative Financial Instruments](index=46&type=section&id=(10)%20Derivative%20Financial%20Instruments) The Corporation uses derivatives like interest rate locks, forward commitments, and swaps to manage interest rate risk, with fair value changes recognized in earnings - The Corporation uses derivatives to manage interest rate exposures from its loan portfolio, including interest rate locks for residential mortgage loans and forward commitments for hedging, as well as customer interest rate swaps[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk) Notional Amounts and Fair Values of Derivative Financial Instruments (June 30, 2020) | (dollars in thousands) | Notional Amount | Fair Value | | :--------------------- | :-------------- | :--------- | | Interest Rate Lock Commitments | $358,727 | $4,412 | | Forward Commitments | $147,000 | $(786) | | Customer Derivatives - Interest Rate Swaps | $12,574 | $(125) | | Total derivative financial instruments | $518,301 | $3,501 | Net Fair Value Gains (Losses) on Derivative Financial Instruments (Three & Six Months Ended June 30) | (dollars in thousands) | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest Rate Lock Commitments | $724 | $16 | $4,065 | $34 | | Forward Commitments | $1,638 | $(31) | $(672) | $(23) | | Customer Derivatives - Interest Rate Swaps | $2 | $(17) | $(75) | $(27) | | Net fair value gains (losses) | $2,364 | $(32) | $3,318 | $(16) | [(11) Segments](index=48&type=section&id=(11)%20Segments) The Corporation operates through Banking, Wealth Management, and Mortgage Banking segments, with Mortgage Banking showing significant income growth and Banking as the largest pre-tax profit contributor - The Corporation's operating segments are Banking (commercial and retail banking), Meridian Wealth (wealth management services), and Meridian's mortgage banking segment (residential mortgage originations and sales)[121](index=121&type=chunk)[122](index=122&type=chunk)[123](index=123&type=chunk) Segment Income Before Income Taxes (Three Months Ended June 30) | (Dollars in thousands) | Bank | Wealth | Mortgage | Total | | :--------------------- | :-------- | :----- | :------- | :-------- | | June 30, 2020 | $3,277 | $77 | $4,049 | $7,403 | | June 30, 2019 | $2,701 | $88 | $(197) | $2,592 | Segment Income Before Income Taxes (Six Months Ended June 30) | (Dollars in thousands) | Bank | Wealth | Mortgage | Total | | :--------------------- | :-------- | :----- | :------- | :-------- | | June 30, 2020 | $5,328 | $309 | $5,037 | $10,674 | | June 30, 2019 | $5,147 | $124 | $(91) | $5,180 | - The Mortgage Banking Segment recorded significant income before tax of **$4.0 million** and **$5.0 million** for the three and six months ended June 30, 2020, respectively, compared to operating losses in the prior year, driven by higher origination volume[248](index=248&type=chunk) [(12) Stockholders' Equity (Dividends)](index=52&type=section&id=(12)%20Stockholders'%20Equity) The Board of Directors declared a cash dividend of **$0.125** per common share, payable on August 24, 2020 - A cash dividend of **$0.125** per common share was declared on July 23, 2020, payable on August 24, 2020, to shareholders of record as of August 10, 2020[127](index=127&type=chunk) [(13) Recent Accounting Pronouncements](index=52&type=section&id=(13)%20Recent%20Accounting%20Pronouncements) As an 'emerging growth company,' Meridian Corporation elected an extended transition period for new accounting standards, detailing adoption status and impact of various ASUs - As an 'emerging growth company,' Meridian Corporation has elected the extended transition period for complying with new or revised accounting standards[128](index=128&type=chunk) - The adoption of ASU 2017-01 (Business Combinations), ASU 2018-07 (Nonemployee Share-Based Payment Accounting), and ASU 2018-13 (Fair Value Measurement Disclosure Framework) did not have a material impact on the consolidated financial statements[129](index=129&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - The effective date for ASU 2016-13 (Measurement of Credit Losses on Financial Instruments, CECL) for the Corporation is January 1, 2023, and the impact is currently being evaluated[133](index=133&type=chunk) - The Corporation will adopt ASU 2016-02 (Leases) and ASU 2018-11 (Leases transition method) as of January 1, 2021, and is evaluating their effects[135](index=135&type=chunk)[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=58&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes Meridian Corporation's financial performance and condition, highlighting COVID-19 and PPP impact on operations, loan growth, net interest income, asset quality, ratios, capital, liquidity, and segment performance [Cautionary Statement Regarding Forward-Looking Statements](index=58&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) This section warns readers about forward-looking statements, highlighting inherent risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19, government responses, and the risk that the SBA may not fund some or all PPP loan guaranties[146](index=146&type=chunk) [Recent Developments](index=60&type=section&id=Recent%20Developments) This section provides an overview of significant recent events and their potential impact on the Corporation - The Federal Reserve significantly reduced interest rates in response to COVID-19, which is expected to adversely affect net interest income and profitability[149](index=149&type=chunk) - The Corporation provided nearly **$260 million** in PPP loans to 928 clients, supporting approximately 16,660 employees, and offered loan payment holidays and rate adjustments to commercial, construction, and residential loan customers[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - The PPP Flexibility Act extended the loan forgiveness covered period to 24 weeks or December 31, 2020, and lowered the payroll cost requirement to **60%**[160](index=160&type=chunk) - Under the CARES Act Section 1112, the SBA will pay principal and interest for six months on existing SBA 7(a) loans, with the Bank having 96 eligible loans totaling **$67.6 million**[161](index=161&type=chunk) [Critical Accounting Policies, Judgments and Estimates](index=64&type=section&id=Critical%20Accounting%20Policies%2C%20Judgments%20and%20Estimates) This section identifies key accounting policies requiring significant management judgment and estimation - Management identifies the provision and allowance for loan losses as a critical accounting policy due to inherent estimates, assumptions, and judgments, which may be susceptible to significant revisions[162](index=162&type=chunk) [Executive Overview](index=64&type=section&id=Executive%20Overview) This section provides a high-level summary of the Corporation's financial performance and condition highlights Executive Overview - Key Financial Highlights (Three Months Ended June 30, 2020 vs. 2019) | Metric | 2020 | 2019 | Change | % Change | | :---------------------- | :------------ | :------------ | :------------ | :------------ | | Net income | $5.7 million | $2.0 million | $3.7 million | 185.0% | | Diluted EPS | $0.94 | $0.31 | $0.63 | 203.2% | | Net interest income | $11.6 million | $8.9 million | $2.7 million | 30.3% | | Provision for loan losses | $1.6 million | $14 thousand | $1.6 million | 11328.6% | | Non-interest income | $20.7 million | $7.9 million | $12.8 million | 162.0% | | Mortgage banking income | $18.8 million | $6.3 million | $12.4 million | 196.8% | | Non-interest expense | $23.2 million | $14.2 million | $9.0 million | 63.4% | Executive Overview - Key Financial Highlights (Six Months Ended June 30, 2020 vs. 2019) | Metric | 2020 | 2019 | Change | % Change | | :---------------------- | :------------ | :------------ | :------------ | :------------ | | Net income | $8.2 million | $4.0 million | $4.2 million | 105.0% | | Diluted EPS | $1.32 | $0.63 | $0.69 | 109.5% | | Net interest income | $21.3 million | $17.4 million | $3.9 million | 22.4% | | Provision for loan losses | $3.2 million | $233 thousand | $3.0 million | 1288.8% | | Non-interest income | $31.0 million | $14.4 million | $16.7 million | 116.0% | | Mortgage banking income | $26.7 million | $11.2 million | $15.4 million | 137.5% | | Non-interest expense | $38.5 million | $26.4 million | $12.1 million | 45.8% | Executive Overview - Changes in Financial Condition (June 30, 2020 vs. December 31, 2019) | Metric | June 30, 2020 | Dec 31, 2019 | Change | % Change | | :---------------------- | :------------ | :------------ | :------------ | :------------ | | Total assets | $1.6 billion | $1.2 billion | $429.1 million | 37.3% | | Stockholders' equity | $125.5 million | $120.7 million | $4.8 million | 4.0% | | Total portfolio loans and leases | $1.3 billion | $964.7 million | $298.3 million | 30.9% | | Total non-performing loans and leases | $7.4 million | $3.2 million | $4.2 million | 131.3% | | Allowance for loan losses | $12.7 million | $9.5 million | $3.2 million | 33.7% | | Total deposits | $1.2 billion | $851.2 million | $315.5 million | 37.1% | [Key Performance Ratios](index=68&type=section&id=Key%20Performance%20Ratios) This section presents essential financial ratios used to evaluate the Corporation's operational and financial health Key Performance Ratios (Three & Six Months Ended June 30) | Ratio | 3 Months Ended June 30, 2020 | 3 Months Ended June 30, 2019 | 6 Months Ended June 30, 2020 | 6 Months Ended June 30, 2019 | | :------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Annualized return on average equity | 19.16% | 7.14% | 13.70% | 7.22% | | Annualized return on average assets | 1.56% | 0.81% | 1.26% | 0.82% | | Net interest margin (tax effected yield) | 3.27% | 3.72% | 3.37% | 3.69% | | Basic earnings per share | $0.94 | $0.32 | $1.33 | $0.63 | | Diluted earnings per share | $0.94 | $0.31 | $1.32 | $0.63 | Key Period-End Balances and Ratios (June 30, 2020 vs. December 31, 2019) | Metric | June 30, 2020 | December 31, 2019 | | :------------------------ | :------------ | :---------------- | | Book value per common share | $20.60 | $18.84 | | Tangible book value per common share | $19.84 | $18.09 | | Allowance as a percentage of loans and leases held for investment (excl. loans at fair value) | 1.01% | 1.00% | | Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) | 1.27% | 1.00% | | Tier I capital to risk weighted assets | 10.24% | 11.21% | | Tangible common equity ratio | 7.68% | 10.12% | | Loans held for investment | $1,262,968 | $964,710 | | Total assets | $1,579,083 | $1,150,019 | | Stockholders' equity | $125,518 | $120,695 | [Non-GAAP Financial Measures](index=68&type=section&id=Non-GAAP%20Financial%20Measures) This section explains the use and reconciliation of non-GAAP financial measures for additional insights - Non-GAAP measures like tangible common equity ratio and allowance for loan losses to total loans (excluding fair valued and PPP loans) are used to assess capital strength and loan quality, providing additional insights beyond GAAP measures[172](index=172&type=chunk)[173](index=173&type=chunk)[175](index=175&type=chunk) [Components of Net Income](index=70&type=section&id=Components%20of%20Net%20Income) This section breaks down the various components contributing to the Corporation's net income - Net income is comprised of net interest income, provision for loan and lease losses, non-interest income, non-interest expense, and income taxes[180](index=180&type=chunk) [Net Interest Income](index=70&type=section&id=NET%20INTEREST%20INCOME) Net interest income increased due to significant growth in average interest-earning assets, especially PPP loans, despite declining yields, while interest expense decreased from lower rates - Net interest income increased by **$2.7 million** (**30.2%**) for the three months and **$3.9 million** (**22.2%**) for the six months ended June 30, 2020, compared to the same periods in 2019[183](index=183&type=chunk)[184](index=184&type=chunk) - The increase in net interest income was primarily due to a **$465.8 million** increase in average interest-earning assets for the three months and **$320.9 million** for the six months, led by PPP loan growth[178](index=178&type=chunk)[179](index=179&type=chunk) - Net interest margin decreased by **45 basis points** to **3.27%** for the three months and **32 basis points** to **3.37%** for the six months, reflecting declining interest rates on loan portfolios offset by lower rates on deposits and borrowings[183](index=183&type=chunk)[184](index=184&type=chunk) Net Interest Income Rate/Volume Analysis (Three Months Ended June 30, 2020 vs. 2019) | (dollars in thousands) | Rate Change | Volume Change | Total Change | | :--------------------- | :---------- | :------------ | :----------- | | Total interest income | $(12,678) | $14,689 | $2,011 | | Total interest expense | $(6,489) | $5,796 | $(693) | | Interest differential | $(6,189) | $8,893 | $2,704 | - Interest rate simulations suggest the Corporation's balance sheet is asset sensitive, with a modest positive impact from rising rates on net interest income over the next 12 months[199](index=199&type=chunk)[201](index=201&type=chunk) [Provision for Loan and Lease Losses](index=83&type=section&id=PROVISION%20FOR%20LOAN%20AND%20LEASE%20LOSSES) The provision for loan and lease losses significantly increased due to qualitative provisioning for COVID-19 economic uncertainty and overall loan growth - Provision for loan and lease losses increased by **$1.6 million** for the three months and **$3.0 million** for the six months ended June 30, 2020, compared to the same periods in 2019[212](index=212&type=chunk)[213](index=213&type=chunk) - The increase was mainly attributed to qualitative provisioning for economic uncertainty resulting from the COVID-19 pandemic and to cover loan growth during the period[212](index=212&type=chunk)[214](index=214&type=chunk) [Asset Quality and Analysis of Credit Risk](index=83&type=section&id=Asset%20Quality%20and%20Analysis%20of%20Credit%20Risk) Asset quality remained strong, though non-performing assets and the allowance for loan losses increased; credit risk is managed through diligent underwriting and proactive loan review - Total non-performing assets increased to **$7.4 million** (**0.47%** of total assets) as of June 30, 2020, from **$3.4 million** (**0.29%**) at December 31, 2019[215](index=215&type=chunk)[220](index=220&type=chunk) - The allowance for loan losses was **$12.7 million**, representing **1.01%** of portfolio loans held for investment (**1.27%** excluding PPP loans) as of June 30, 2020, up from **1.00%** at December 31, 2019[215](index=215&type=chunk)[220](index=220&type=chunk) - The Corporation had **$3.7 million** in troubled debt restructurings (TDRs) as of June 30, 2020, with **$3.5 million** in compliance with modified terms[217](index=217&type=chunk) [Non-Interest Income](index=85&type=section&id=NON-INTEREST%20INCOME) Non-interest income grew substantially, driven by increased mortgage banking income from expansion and refinance activity, with SBA loan income rising and wealth management income slightly decreasing - Total non-interest income increased by **$12.8 million** (**160.9%**) to **$20.7 million** for the three months and **$16.7 million** (**116.0%**) to **$31.0 million** for the six months ended June 30, 2020[221](index=221&type=chunk)[225](index=225&type=chunk) - Mortgage banking income surged by **$12.4 million** (**196.8%**) for the three months and **$15.4 million** (**137.5%**) for the six months, driven by increased loan originations (**$535.9 million** for Q2, **$790.5 million** for H1) due to Maryland expansion and refinance activity (**64%** of Q2 originations)[221](index=221&type=chunk)[225](index=225&type=chunk) - SBA loan income increased by **$143 thousand** (**27.8%**) for the three months and **$712 thousand** for the six months, while wealth management revenue decreased by **$59 thousand** (**6.5%**) for the three months due to unfavorable market conditions[224](index=224&type=chunk)[226](index=226&type=chunk) [Non-Interest Expense](index=87&type=section&id=NON-INTEREST%20EXPENSE) Non-interest expense significantly increased due to higher salaries, employee benefits, and loan expenses from mortgage division expansion and increased originations, while other expenses decreased due to litigation settlement - Total non-interest expense increased by **$9.0 million** (**63.2%**) to **$23.2 million** for the three months and **$12.1 million** (**45.9%**) to **$38.4 million** for the six months ended June 30, 2020[227](index=227&type=chunk)[230](index=230&type=chunk) - Salaries and employee benefits increased by **$7.5 million** (**85.3%**) for the three months and **$9.6 million** (**58.4%**) for the six months, largely attributable to the mortgage division's expansion into Maryland and increased full-time equivalent employees[227](index=227&type=chunk)[230](index=230&type=chunk) - Loan expenses rose by **$1.7 million** (**248.4%**) for the three months and **$2.3 million** (**199.4%**) for the six months, reflecting higher mortgage loan originations[228](index=228&type=chunk)[231](index=231&type=chunk) - Other expenses decreased by **$463 thousand** (**28.0%**) for the three months and **$455 thousand** (**15.7%**) for the six months due to the settlement of a litigation reserve from the prior year[228](index=228&type=chunk)[231](index=231&type=chunk) [Income Taxes](index=89&type=section&id=INCOME%20TAXES) Income tax expense increased for both periods ended June 30, 2020, aligning with higher earnings, while effective tax rates remained stable - Income tax expense increased to **$1.7 million** for the three months and **$2.5 million** for the six months ended June 30, 2020, due to higher earnings[232](index=232&type=chunk)[233](index=233&type=chunk) - The effective tax rate was **22.8%** for the second quarter of 2020 and **22.9%** for the first six months of 2020[232](index=232&type=chunk)[233](index=233&type=chunk) [Balance Sheet Analysis](index=89&type=section&id=BALANCE%20SHEET%20ANALYSIS) Total assets grew significantly, driven by strong loan expansion including PPP and commercial real estate, with deposits also increasing substantially across all categories - Total assets increased by **$429.1 million** (**37.3%**) to **$1.6 billion** as of June 30, 2020, from December 31, 2019, primarily due to strong loan growth[234](index=234&type=chunk) - Total loans, excluding mortgage loans held-for-sale, grew by **$298.3 million** (**30.9%**) to **$1.3 billion**, largely attributable to **$260 million** in PPP loans and growth in commercial real estate, commercial, and small business loan categories[235](index=235&type=chunk) - Deposits increased by **$315.5 million** (**37.1%**) to **$1.2 billion**, with significant growth in non-interest bearing, interest-bearing checking, and money market/savings accounts, driven by PPP loan customers and new business relationships[236](index=236&type=chunk)[237](index=237&type=chunk) [Capital](index=91&type=section&id=Capital) Capital ratios remained above 'well capitalized' minimums, despite a decrease in risk-weighted asset ratios due to significant loan growth in higher risk-weighted commercial segments - Consolidated stockholders' equity was **$125.5 million**, or **7.95%** of total assets, as of June 30, 2020[239](index=239&type=chunk) Capital Ratios (June 30, 2020) | Capital Ratio (Corporation) | Actual Ratio | | :-------------------------- | :----------- | | Total capital (to risk-weighted assets) | 14.91% | | Common equity tier 1 capital (to risk-weighted assets) | 10.24% | | Tier 1 capital (to risk-weighted assets) | 10.24% | | Tier 1 capital (to average assets) | 8.70% | - Capital ratios to risk-weighted assets decreased from December 31, 2019, primarily due to an increase in risk-weighted assets from growth in commercial mortgage, construction, and commercial and industrial loan segments[242](index=242&type=chunk) [Liquidity](index=93&type=section&id=Liquidity) Meridian maintains strong liquidity from a stable deposit base, cash, investments, and substantial borrowing arrangements with banks, FHLB, and Federal Reserve, with primary liquidity increasing significantly - Primary liquidity totaled **$291.9 million** at June 30, 2020, an increase from **$195.2 million** at December 31, 2019[243](index=243&type=chunk) - The Corporation has a maximum borrowing capacity of **$513.4 million** with the FHLB and **$39 million** in unsecured federal funds lines of credit, in addition to CDARS and brokered CD funding options[244](index=244&type=chunk) [Discussion of Segments](index=93&type=section&id=Discussion%20of%20Segments) The Banking Segment remained the largest pre-tax profit contributor, while Mortgage Banking significantly improved to substantial income from increased originations, and Wealth Management also saw income growth - The Banking Segment contributed **44.3%** and **49.9%** of the Corporation's pre-tax profit for the three and six months ended June 30, 2020, respectively[246](index=246&type=chunk) - The Mortgage Banking Segment recorded income before tax of **$4.0 million** and **$5.0 million** for the three and six months ended June 30, 2020, respectively, a significant improvement from operating losses in the prior year[248](index=248&type=chunk) - The Wealth Management Segment recorded income before tax of **$77 thousand** and **$309 thousand** for the three and six months ended June 30, 2020, respectively[247](index=247&type=chunk) [Off Balance Sheet Risk](index=95&type=section&id=Off%20Balance%20Sheet%20Risk) Off-balance sheet risk from commitments to extend credit and standby letters of credit increased, with credit risk similar to loans and fair values generally at market levels - Total commitments to extend credit were **$360.1 million** at June 30, 2020, up from **$327.8 million** at December 31, 2019[250](index=250&type=chunk) - Standby letters of credit amounted to **$8.7 million** at June 30, 2020, compared to **$9.8 million** at December 31, 2019[251](index=251&type=chunk) - The Corporation repurchased one loan for **$154 thousand** during the three and six months ended June 30, 2020, due to breaches of representations and warranties in loan sale agreements[253](index=253&type=chunk) - Net income for the three months ended June 30, 2020, increased by **$3.7 million** (**182.5%**) to **$5.7 million**, and for the six months, it increased by **$4.2 million** (**104.3%**) to **$8.2 million**, compared to the same periods in 2019[169](index=169&type=chunk) - Total assets grew by **$429.1 million** (**37.3%**) to **$1.6 billion** as of June 30, 2020, primarily driven by strong loan growth, including **$260 million** in PPP loans[169](index=169&type=chunk)[234](index=234&type=chunk)[235](index=235&type=chunk) - Non-interest income surged by **$12.8 million** (**160.9%**) for the three months and **$16.7 million** (**116.0%**) for the six months ended June 30, 2020, largely due to a significant increase in mortgage banking income[169](index=169&type=chunk) - The provision for loan losses increased substantially to **$1.6 million** for the three months and **$3.2 million** for the six months ended June 30, 2020, mainly due to qualitative provisioning for economic uncertainty from the COVID-19 pandemic and loan growth[169](index=169&type=chunk)[212](index=212&type=chunk)[214](index=214&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=55&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section refers to detailed market risk disclosures, including interest rate summary, sensitivity, and gap analysis, found in Management's Discussion and Analysis - Quantitative and qualitative disclosures about market risks are discussed in the 'Management's Discussion and Analysis of Results of Operations' section, specifically under 'Interest Rate Summary,' 'Interest Rate Sensitivity,' and 'Gap Analysis'[254](index=254&type=chunk) [Item 4. Controls and Procedures](index=55&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2020, with no material changes in internal control over financial reporting identified - The Corporation's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2020, ensuring complete and accurate reporting within SEC timeframes[255](index=255&type=chunk) - No material changes in internal control over financial reporting were identified during the quarter ended June 30, 2020[256](index=256&type=chunk) PART II OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=56&type=section&id=Item%201%20Legal%20Proceedings) This section reports no material updates or additions to legal proceedings from the previously disclosed information in the Annual Report on Form 10-K [Item 1A. Risk Factors](index=56&type=section&id=Item%201A%20Risk%20Factors) This section updates risk factors, emphasizing COVID-19's adverse economic impact and new risks from PPP participation, including credit losses, litigation, and compliance [Economic Impact of COVID-19](index=56&type=section&id=Economic%20Impact%20of%20COVID-19) This section details the broad economic consequences of the COVID-19 pandemic on the Corporation [PPP Participation Risks](index=58&type=section&id=PPP%20Participation%20Risks) This section outlines the specific risks associated with the Corporation's participation in the Paycheck Protection Program - The COVID-19 pandemic has caused significant economic dislocation, leading to reduced interest rates, potential increases in loan delinquencies, declines in collateral value, and increased cybersecurity risks due to remote work and online banking[259](index=259&type=chunk)[260](index=260&type=chunk)[267](index=267&type=chunk) - Meridian's participation in the PPP exposes it to credit losses if borrowers fail to qualify for loan forgiveness, as well as litigation and compliance risks due to ambiguities in program rules and potential regulatory scrutiny[263](index=263&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk) - The unanticipated loss or unavailability of key employees due to the COVID-19 outbreak could harm the Corporation's ability to operate or execute its business strategy[270](index=270&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds [Item 3. Defaults Upon Senior Securities](index=60&type=section&id=Item%203%20Defaults%20Upon%20Senior%20Securities) This section reports no defaults upon senior securities [Item 4. Mine Safety Disclosures](index=60&type=section&id=Item%204%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the Corporation [Item 5. Other Information](index=60&type=section&id=Item%205%20Other%20Information) This section reports no other information [Item 6. Exhibits](index=60&type=section&id=Item%206%20Exhibits) This section lists exhibits filed or incorporated by reference, including organizational documents, certifications, and XBRL data - The exhibit index includes the Plan of Merger and Reorganization, Articles of Incorporation, Bylaws, Rule 13a-14(a)/15d-14(a) Certifications, Section 1350 Certifications, and various XBRL documents[279](index=279&type=chunk) [Signatures](index=60&type=section&id=Signatures) The report is signed by Christopher J. Annas, President and CEO, and Denise Lindsay, EVP and CFO, on behalf of Meridian Corporation - The report is signed by Christopher J. Annas, President and Chief Executive Officer, and Denise Lindsay, Executive Vice President and Chief Financial Officer, on August 10, 2020[282](index=282&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark one) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 000-55983 (Exact name of registrant as specified in its charter) Pennsylvania 83-1561918 incorporation or organiz ...