10-Q

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, 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
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

9 Old Lincoln Highway, Malvern, Pennsylvania 19355

(Address of principal executive offices) (Zip Code)

(484) 568-5000

(Registrant’s telephone number, including area code)

Title of class	Trading Symbol	Name of exchange on which registered
Common Stock, $1 par value	MRBK	The NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒Yes  ☐No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

☒Yes  ☐No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐	Accelerated Filer ☒
Non-accelerated Filer ☐	Smaller Reporting Company ☒
Emerging Growth Company    ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 8, 2020 there were 6,132,403 outstanding shares of the issuer’s common stock, par value $1.00 per share.

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)	3
Consolidated Balance Sheets – September 30, 2020 and December 31, 2019	3
Consolidated Statements of Income – Three and Nine Months Ended September 30, 2020 and 2019	4
Consolidated Statements of Comprehensive Income – Three and Nine Months Ended September 30, 2020 and 2019	5
Consolidated Statements of Stockholders’ Equity – Three and Nine Months Ended September 30, 2020 and 2019	6
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2020 and 2019	8
Notes to Consolidated Financial Statements (Unaudited)	9
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3 Quantitative and Qualitative Disclosures about Market Risk	57
Item 4 Controls and Procedures	58
PART II OTHER INFORMATION
Item 1 Legal Proceedings	59
Item 1A Risk Factors	59
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3 Defaults Upon Senior Securities	61
Item 4 Mine Safety Disclosures	61
Item 5 Other Information	61
Item 6 Exhibits	61
Signatures	63

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	September 30,		December 31,
(dollars in thousands, except per share data)	2020		2019
Cash and due from banks	$	74,941	19,106
Federal funds sold		928	20,265
Cash and cash equivalents		75,869	39,371
Securities available-for-sale (amortized cost of $101,471 and $58,874 as of September 30, 2020 and December 31, 2019)		103,358	58,856
Securities held-to-maturity (fair value of $6,916 and $9,003 as of September 30, 2020 and December 31, 2019)		6,544	8,780
Equity investments		1,034	1,009
Mortgage loans held for sale (amortized cost of $220,381 and $33,363 as of September 30, 2020 and December 31, 2019), at fair value		225,150	33,704
Loans, net of fees and costs (includes $11,366 and $10,546 of loans at fair value, amortized cost of $10,849 and $10,186 as of September 30, 2020 and December 31, 2019)		1,306,846	964,710
Allowance for loan and lease losses		(16,573)	(9,513)
Loans, net of the allowance for loan and lease losses		1,290,273	955,197
Restricted investment in bank stock		7,650	8,072
Bank premises and equipment, net		8,065	8,636
Bank owned life insurance		12,069	11,859
Accrued interest receivable		4,666	3,148
Other real estate owned		—	120
Deferred income taxes		398	2,115
Goodwill		899	899
Intangible assets		3,668	3,874
Other assets		19,005	14,379
Total assets	$	1,758,648	1,150,019
Liabilities:
Deposits:
Noninterest bearing	$	193,851	139,450
Interest bearing		1,015,173	711,718
Total deposits		1,209,024	851,168
Short-term borrowings		104,239	123,676
Long-term debt		250,131	3,123
Subordinated debentures		40,814	40,962
Accrued interest payable		2,258	1,088
Other liabilities		20,350	9,307
Total liabilities		1,626,816	1,029,324
Stockholders’ equity:
Common stock, $1 par value. Authorized 10,000,000 shares; issued 6,450,353 and 6,407,685 as of September 30, 2020 and December 31, 2019		6,450	6,408
Surplus		80,981	80,255
Treasury stock - 320,000 and 3,375 shares at September 30, 2020 and December 31, 2019, respectively		(5,828)	(62)
Unearned common stock held by employee stock ownership plan		(2,000)	—
Retained earnings		50,775	34,097
Accumulated other comprehensive income (loss)		1,454	(3)
Total stockholders’ equity		131,832	120,695
Total liabilities and stockholders’ equity	$	1,758,648	1,150,019

See accompanying notes to the unaudited consolidated financial statements.

3

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three months ended			Nine months ended
	September 30,			September 30,
(dollars in thousands, except per share data)	2020		2019	2020	2019
Interest income:
Loans, including fees	$	15,321	13,152	43,048	37,686
Securities:
Taxable		251	336	920	892
Tax-exempt		305	64	698	273
Cash and cash equivalents		3	38	63	136
Total interest income		15,880	13,590	44,729	38,987
Interest expense:
Deposits		2,235	3,633	8,064	10,584
Borrowings		930	683	2,687	1,731
Total interest expense		3,165	4,316	10,751	12,315
Net interest income		12,715	9,274	33,978	26,672
Provision for loan losses		3,956	705	7,139	938
Net interest income after provision for loan losses		8,759	8,569	26,839	25,734
Non-interest income:
Mortgage banking income		21,812	7,315	45,395	17,617
Wealth management income		951	922	2,825	2,698
SBA loan income		641	635	1,821	1,150
Earnings on investment in life insurance		70	74	210	218
Net change in the fair value of derivative instruments		3,028	—	6,346	(16)
Net change in the fair value of loans held-for-sale		2,932	54	4,424	(82)
Net change in the fair value of loans held-for-investment		93	(24)	174	390
Net loss on hedging activity		(2,637)	(300)	(7,363)	(792)
Net gain on sale of investment securities available-for-sale		1,290	74	1,345	212
Service charges		28	28	77	82
Other		852	431	1,718	1,179
Total non-interest income		29,060	9,209	56,972	22,656
Non-interest expenses:
Salaries and employee benefits		20,447	9,319	46,529	25,789
Occupancy and equipment		1,108	946	3,159	2,845
Loan expenses		492	192	1,100	472
Professional fees		681	820	2,118	2,000
Advertising and promotion		781	574	1,996	1,769
Data processing		460	343	1,260	990
Information technology		394	334	1,100	919
Pennsylvania bank shares tax		254	169	734	495
Other		1,217	850	3,156	3,701
Total non-interest expenses		25,834	13,547	61,152	38,980
Income before income taxes		11,985	4,231	22,659	9,410
Income tax expense		2,773	914	5,218	2,065
Net income	$	9,212	3,317	17,441	7,345
Basic earnings per common share	$	1.51	0.52	2.83	1.15
Diluted earnings per common share	$	1.51	0.52	2.82	1.14

See accompanying notes to the unaudited consolidated financial statements.

4

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

		Three months ended		Nine months ended
		September 30,		September 30,
(dollars in thousands)		2020	2019	2020	2019
Net income:	$	9,212	3,317	17,441	7,345
Other comprehensive income:
Net change in unrealized gains on investment securities available for sale:
Net unrealized gains arising during the period, net of tax expense of $144, $19, $761 and $220, respectively		304	64	2,489	767
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of ($301), ($16), ($313), and ($46), respectively		(989)	(58)	(1,032)	(166)
Unrealized investment (losses) gains, net of tax (benefit) expense of $(157), $3, $448, and $174, respectively		(685)	6	1,457	601
Total other comprehensive (loss) income		(685)	6	1,457	601
Total comprehensive income	$	8,527	3,323	18,898	7,946

See accompanying notes to the unaudited consolidated financial statements.

5

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

					Unearned		Accumulated
					Common		Other
		Common		Treasury	Stock -	Retained	Comprehensive
(dollars in thousands)		Stock	Surplus	Stock	ESOP	Earnings	Income (Loss)	Total
Balance, January 1, 2020	$	6,408	80,255	(62)	—	34,097	(3)	120,695
Comprehensive income:
Net income						2,516		2,516
Change in unrealized gains on securities available-for-sale, net of tax							429	429
Total comprehensive income								2,945
Common stock issued through share-based awards and exercises		6	26					32
Net purchase of treasury stock through publicly announced plans			63	(5,766)				(5,703)
Stock based compensation			64					64
Balance, March 31, 2020	$	6,414	80,408	(5,828)	—	36,613	426	118,033
Comprehensive income:
Net income						5,713		5,713
Change in unrealized gains on securities available-for-sale, net of tax							1,713	1,713
Total comprehensive income								7,426
Stock based compensation			59					59
Balance, June 30, 2020	$	6,414	80,467	(5,828)	—	42,326	2,139	125,518
Comprehensive income:
Net income						9,212		9,212
Change in unrealized gains on securities available-for-sale, net of tax							(685)	(685)
Total comprehensive income								8,527
Dividends paid or accrued, $0.125 per share						(763)		(763)
Shares purchased for ESOP plan (133,601)					(2,000)			(2,000)
Common stock issued through share-based awards and exercises		36	337					373
Stock based compensation			177					177
Balance, September 30, 2020	$	6,450	80,981	(5,828)	(2,000)	50,775	1,454	131,832

6

					Unearned		Accumulated
					Common		Other
		Common		Treasury	Stock -	Retained	Comprehensive
(dollars in thousands)		Stock	Surplus	Stock	ESOP	Earnings	Income (Loss)	Total
Balance, January 1, 2019	$	6,407	79,919	—	—	23,616	(390)	109,552
Comprehensive income:
Net income						2,006		2,006
Change in unrealized gains on securities available-for-sale, net of tax							373	373
Total comprehensive income								2,379
Stock based compensation			61					61
Balance, March 31, 2019	$	6,407	79,980	—	—	25,622	(17)	111,992
Comprehensive income:
Net income						2,022		2,022
Change in unrealized gains on securities available-for-sale, net of tax							222	222
Total comprehensive income								2,244
Stock based compensation			143					143
Balance, June 30, 2019	$	6,407	80,123	—	—	27,644	205	114,379
Comprehensive income:
Net income						3,317		3,317
Change in unrealized gains on securities available-for-sale, net of tax							6	6
Total comprehensive income								3,323
Common stock issued through share-based awards and exercises		1	7					8
Stock based compensation			62					62
Balance, September 30, 2019	$	6,408	80,192	—	—	30,961	211	117,772

See accompanying notes to the unaudited consolidated financial statements.

7

MERIDIAN CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended
	September 30,
(dollars in thousands)	2020		2019
Net income	$	17,441	7,345
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment securities		(1,345)	(212)
Depreciation and amortization		(992)	1,581
Loss on disposal of premises and equipment		—	14
Net amortization of investment premiums and discounts		238	(22)
Provision for loan losses		7,139	938
Amortization of issuance costs on subordinated debt		83	—
Compensation expense for stock options		300	266
Net change in fair value of loans held for investment		(174)	(390)
Net change in fair value of loans held for sale		(4,424)	82
Net change in fair value of derivative instruments		(6,346)	16
Gain on sale of OREO		(6)	—
SBA loan income		(1,821)	(1,150)
Proceeds from sale of loans		1,356,637	432,831
Loans originated for sale		(1,498,264)	(421,092)
Mortgage banking income		(45,395)	(19,139)
Increase in accrued interest receivable		(1,518)	(266)
Increase in other assets		5,511	91
Earnings from investment in life insurance		(210)	(218)
Deferred income tax		1,274	(249)
Increase in accrued interest payable		1,170	364
Increase in other liabilities		9,054	3,629
Net cash (used) provided by operating activities		(161,648)	4,419
Cash flows from investing activities:
Activity in available-for-sale securities:
Maturities, repayments and calls		6,319	11,090
Sales		44,592	19,366
Purchases		(92,476)	(29,027)
Activity in held-to-maturity securities:
Maturities, repayments and calls		2,140	—
Proceeds from sale of OREO		126	—
Settlement of forward contracts		—	(85)
Decrease in restricted stock		422	(1,235)
Net increase in loans		(339,459)	(104,640)
Purchases of premises and equipment		(651)	(634)
Net cash used in investing activities		(378,987)	(105,165)
Cash flows from financing activities:
Net increase in deposits		357,856	106,331
Increase (decrease) in short term borrowings		(31,928)	14,165
Decrease in short term borrowings with original maturity > 90 days		12,902	—
Repayment of acquisition note payable		(413)	(413)
Repayment of long term debt (Subordinated debt)		—	(63)
Proceeds from long term debt		247,008	(2,702)
Issuance costs on subordinated debt		(231)	—
Net purchase of treasury stock through publicly announced plans		(5,703)	—
Dividends paid		(763)	—
Purchase of common shares for ESOP		(2,000)	—
Share based awards and exercises		405	8
Net cash provided by financing activities		577,133	117,326
Net change in cash and cash equivalents		36,498	16,580
Cash and cash equivalents at beginning of period		39,371	23,952
Cash and cash equivalents at end of period	$	75,869	40,532
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	9,581	11,951
Income taxes		2,490	1,539
Supplemental disclosure of cash flow information:
Transfers from loans and leases to real estate owned		—	120
Transfers from loans held for sale to loans held for investment		—	3,602
Net loans sold, not settled		(1,657)	(5,580)

See accompanying notes to the unaudited consolidated financial statements.

8

MERIDIAN CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(1)      Basis of Presentation

The Corporation’s unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill and intangible assets, and servicing assets.  

These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the Securities and Exchange Commission (including our Annual Report on Form 10-K for the year ended December 31, 2019) and, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.  

Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity.  Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020 or for any other period.

Impact of COVID-19

COVID-19 has adversely impacted a broad range of industries in which the Corporation’s customers operate and could impair their ability to fulfill their financial obligations to the Corporation.  The continued spread of COVID-19 throughout the U.S. has caused significant disruption in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Corporation operates.

Although the Corporation’s current estimates contemplate current conditions and how we expect them to change in the future, due to the prolonged impact that the COVID-19 has had on financial markets and the economy both locally and nationally, it is reasonably possible that this could materially affect these significant estimates and the Corporation’s results of operations and financial condition.

The Corporation has continued to work with customers directly affected by COVID-19 since it was declared a pandemic, to provide short-term assistance in accordance with regulatory guidelines.  While the Corporation has factored the ongoing impacts of COVID-19 into the allowance for loan and lease losses calculation as of September 30, 2020, should economic conditions continue to worsen, the Corporation could experience further increases in its required allowance for loan and lease losses and record additional provision for loan loss expense. It is possible that the Corporation’s asset quality measures could worsen at future measurement periods due to the continuing effects of COVID-19 may have on borrowers.

COVID-19 could cause a further and sustained decline in the Corporation’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform goodwill and intangible asset impairment tests and result in an impairment charge being recorded for that period. In the event that the Corporation concludes that all or a portion of its goodwill or intangible assets are impaired, a

9

non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, ( the “CARES Act”) was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program (the “PPP”), a $349 billion program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. The Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions. On July 4, 2020, legislation was passed to extend the application period for the PPP program through August 8, 2020. These loans are intended to cover eight weeks of payroll and other permitted expenses to help those businesses remain viable.

(2)      Earnings per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. The difference between common shares issued and basic weighted average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated employee stock ownership plan (“ESOP”) shares.  Diluted earnings per common share takes into account the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net income available to common stockholders	$	9,212		3,317	$	17,441		7,345
Denominator for basic earnings per share - weighted average shares outstanding		6,099		6,407		6,172		6,407
Effect of dilutive common shares		11		30		21		29
Denominator for diluted earnings per share - adjusted weighted average shares outstanding		6,110		6,437		6,193		6,436
Basic earnings per share	$	1.51		0.52	$	2.83		1.15
Diluted earnings per share	$	1.51		0.52	$	2.82		1.14
Antidilutive shares excluded from computation of average dilutive earnings per share		265		199		192		199

(3)      Goodwill and Other Intangibles

The Corporation’s goodwill and intangible assets are detailed below:

	Balance			Balance	Amortization
	December 31,		Amortization	September 30,	Period
(dollars in thousands)	2019		Expense	2020	(in years)
Goodwill - Wealth	$	899	—	899	Indefinite
Total Goodwill		899	—	899
Intangible assets - trade name		266	—	266	Indefinite
Intangible assets - customer relationships		3,523	(154)	3,369	20
Intangible assets - non competition agreements		85	(52)	33	4
Total Intangible Assets		3,874	(206)	3,668
Total	$	4,773	(206)	4,567

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Accumulated amortization on intangible assets was $956 thousand and $750 thousand as of September 30, 2020 and December 31, 2019, respectively.

The Corporation performs an evaluation annually, or more frequently if a triggering event occurs, of whether any impairment of the goodwill and other intangible assets had occurred in accordance with ASC 350, “Intangibles - Goodwill and Other”. For the period from January 1, 2020 through September 30, 2020, the Corporation determined that no impairment existed.

(4)      Securities

The amortized cost and fair value of securities as of September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. asset backed securities	$	24,705	211	(172)	24,744
U.S. government agency mortgage-backed securities		3,919	192	—	4,111
U.S. government agency collateralized mortgage obligations		21,375	1,108	—	22,483
State and municipal securities		48,789	805	(255)	49,339
Corporate bonds		2,683	3	(5)	2,681
Total securities available-for-sale	$	101,471	2,319	(432)	103,358
Securities held to maturity:
State and municipal securities		6,544	372	—	6,916
Total securities held-to-maturity	$	6,544	372	—	6,916

	December 31, 2019
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. asset backed securities	$	11,967	—	(101)	11,866
U.S. government agency mortgage-backed securities		5,457	66	(26)	5,497
U.S. government agency collateralized mortgage obligations		35,096	300	(173)	35,223
State and municipal securities		6,354	—	(84)	6,270
Total securities available-for-sale	$	58,874	366	(384)	58,856
Securities held to maturity:
State and municipal securities		8,780	223	—	9,003
Total securities held-to-maturity	$	8,780	223	—	9,003

At September 30, 2020, the Corporation had one U.S. government sponsored agency collateralized mortgage obligations, fourteen U.S. asset backed securities, fifteen State and municipal securities, and two Corporate bonds in unrealized loss positions.  At December 31, 2019, the Corporation had nine U.S. asset backed securities, one U.S. Government sponsored agency mortgage-backed security, fifteen U.S. Government sponsored agency collateralized mortgage obligations, and six State and municipal securities in unrealized loss positions.  Although the Corporation’s investment portfolio overall is in a net unrealized gain position at September 30, 2020, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and the Corporation does not intend to sell these securities prior to recovery and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.

11

At September 30, 2020 and December 31, 2019, no held to maturity securities held by the Corporation were in an unrealized loss position.

Proceeds from the sale of available for sale investment securities totaled $26.4 million and $44.6 million for the three and nine months ended September 30, 2020, respectively, resulting in a gross gain on sale of $1.3 million thousand and no gross loss on sale for the three months ended September 30, 2020, and a gross gain on sale of $1.5 million and a gross loss on sale of $202 thousand for the nine months ended September 30, 2020.  Proceeds from the sale of available for sale investment securities totaled $2.7 million and $19.4 million for the three and nine months ended September 30, 2019, respectively, resulting in a gross gain on sale of $74 thousand and no gross losses for the three months ended September 30, 2019, and gross gain on sale of $254 thousand and a gross loss on sale of $42 thousand for the nine months ended September 30, 2019.

The following table shows the Corporation’s investment gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at September 30, 2020 and December 31, 2019:

	September 30, 2020
	Less than 12 Months			12 Months or more		Total
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	value		losses	value	losses	value	losses
Securities available-for-sale:
U.S. asset backed securities	$	10,704	(66)	8,085	(106)	18,789	(172)
State and municipal securities		27,950	(255)	—	—	27,950	(255)
Corporate bonds		1,245	(5)	—	—	1,245	(5)
Total securities available-for-sale	$	39,899	(326)	8,085	(106)	47,984	(432)

	December 31, 2019
	Less than 12 Months			12 Months or more		Total
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	value		losses	value	losses	value	losses
Securities available-for-sale:
U.S. asset backed securities	$	11,866	(101)	—	—	11,866	(101)
U.S. government agency mortgage-backed securities		—	—	1,636	(26)	1,636	(26)
U.S. government agency collateralized mortgage obligations		16,283	(116)	3,108	(57)	19,391	(173)
State and municipal securities		6,270	(84)	—	—	6,270	(84)
Total securities available-for-sale	$	34,419	(301)	4,744	(83)	39,163	(384)

The amortized cost and carrying value of securities at September 30, 2020 and December 31, 2019 are shown below by contractual maturities. Actual maturities may differ from contractual maturities as issuers may have the right to call or repay obligations with or without call or prepayment penalties.

	September 30, 2020					December 31, 2019
	Available-for-sale			Held-to-maturity		Available-for-sale			Held-to-maturity
	Amortized		Fair	Amortized	Fair	Amortized		Fair	Amortized	Fair
(dollars in thousands)	cost		value	cost	value	cost		value	cost	value
Investment securities:
Due in one year or less	$	—	—	—	—	$	—	—	—	—
Due after one year through five years		—	—	3,196	3,318		—	—	4,242	4,311
Due after five years through ten years		8,590	8,568	3,348	3,598		1,329	1,324	4,538	4,692
Due after ten years		67,587	68,196	—	—		16,992	16,812	—	—
Subtotal		76,177	76,764	6,544	6,916		18,321	18,136	8,780	9,003
Mortgage-related securities		25,294	26,594	—	—		40,553	40,720	—	—
Total	$	101,471	103,358	6,544	6,916	$	58,874	58,856	8,780	9,003

12

(5)      Loans Receivable

Loans and leases outstanding at September 30, 2020 and December 31, 2019 are detailed by category as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
Mortgage loans held for sale	$	225,150	33,704
Real estate loans:
Commercial mortgage		460,952	362,590
Home equity lines and loans		71,400	81,583
Residential mortgage (1)		55,500	53,665
Construction		151,226	172,044
Total real estate loans		739,078	669,882
Commercial and industrial		256,452	273,301
Small business loans		44,280	21,616
Paycheck Protection Program loans		259,723	—
Consumer		582	1,003
Leases, net		13,374	697
Total portfolio loans and leases		1,313,489	966,499
Total loans and leases	$	1,538,639	1,000,203
Loans with predetermined rates	$	720,791	293,114
Loans with adjustable or floating rates		817,848	707,089
Total loans and leases	$	1,538,639	1,000,203
Net deferred loan origination (fees) costs	$	(6,643)	(1,789)

(1) Includes $11,366 and $10,546 of loans at fair value as of September 30, 2020 and December 31, 2019, respectively.

Components of the net investment in leases at September 30, 2020 and December 31, 2019 are detailed as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
Minimum lease payments receivable	$	16,306	729
Unearned lease income		(2,932)	(32)
Total	$	13,374	697

13

Age Analysis of Past Due Loans and Leases

The following tables present an aging of the Corporation’s loan and lease portfolio as of September 30, 2020 and December 31, 2019, respectively:

						Total
			90+ days			Accruing	Nonaccrual
September 30, 2020	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	—	—	—	460,285	460,285	667	460,952	0.14	%
Home equity lines and loans		—	—	—	70,737	70,737	663	71,400	0.93
Residential mortgage (1)		389	—	389	52,578	52,967	2,533	55,500	5.26
Construction		—	—	—	151,226	151,226	—	151,226	—
Commercial and industrial		—	—	—	252,403	252,403	4,049	256,452	1.58
Small business loans		—	—	—	44,280	44,280	—	44,280	—
Paycheck Protection Program loans		—	—	—	259,723	259,723	—	259,723	—
Consumer		—	—	—	582	582	—	582	—
Leases		8	—	8	13,366	13,374	—	13,374	0.06
Total	$	397	—	397	1,305,180	1,305,577	7,912	1,313,489	0.63	%

(1) Includes $11,366 of loans at fair value as of September 30, 2020 ($10,489 of current and $877 of nonaccrual).

						Total
			90+ days			Accruing	Nonaccrual
December 31, 2019	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	—	—	—	361,857	361,857	733	362,590	0.20	%
Home equity lines and loans		—	—	—	81,046	81,046	537	81,583	0.66
Residential mortgage (1)		4,675	—	4,675	47,446	52,121	1,544	53,665	11.59
Construction		—	—	—	172,044	172,044	—	172,044	—
Commercial and industrial		206	—	206	272,674	272,880	421	273,301	0.23
Small business loans		—	—	—	21,616	21,616	—	21,616	—
Consumer		—	—	—	1,003	1,003	—	1,003	—
Leases		162	—	162	535	697	—	697	23.24
Total	$	5,043	—	5,043	958,221	963,264	3,235	966,499	0.86	%

(1) Includes $10,546 of loans at fair value as of December 31, 2019 ($9,056 of current, $786 of 30-89 days past due and $704 of nonaccrual).

(6)      Allowance for Loan Losses (the “Allowance”)

The Allowance is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the Allowance, and subsequent recoveries, if any, are credited to the Allowance. The Allowance is maintained at a level considered adequate to provide for losses that are probable and estimable. Management’s periodic evaluation of the adequacy of the Allowance is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is subjective as it requires material estimates that may be susceptible to significant revisions as more information becomes available.

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Roll-Forward of Allowance by Portfolio Segment

The following tables detail the roll-forward of the Corporation’s Allowance, by portfolio segment, for the three and nine month periods ended September 30, 2020 and 2019, respectively:

	Balance,					Balance,
(dollars in thousands)	June 30, 2020		Charge-offs	Recoveries	Provision	September 30, 2020
Commercial mortgage	$	5,277	—	—	1,658	6,935
Home equity lines and loans		672	(75)	2	(82)	517
Residential mortgage		346	—	1	(13)	334
Construction		2,019	—	—	463	2,482
Commercial and industrial		3,606	(22)	4	1,450	5,038
Small business loans		747	—	—	360	1,107
Consumer		4	—	1	(1)	4
Leases		35	—	—	121	156
Total	$	12,706	(97)	8	3,956	16,573

	Balance,					Balance,
(dollars in thousands)	December 31, 2019		Charge-offs	Recoveries	Provision	September 30, 2020
Commercial mortgage	$	3,426	—	—	3,509	6,935
Home equity lines and loans		342	(89)	6	258	517
Residential mortgage		179	—	5	150	334
Construction		2,362	—	—	120	2,482
Commercial and industrial		2,684	(31)	37	2,348	5,038
Small business loans		509	—	—	598	1,107
Consumer		6	(10)	3	5	4
Leases		5	—	—	151	156
Total	$	9,513	(130)	51	7,139	16,573

	Balance,					Balance,
(dollars in thousands)	June 30, 2019		Charge-offs	Recoveries	Provision	September 30, 2019
Commercial mortgage	$	3,197	—	1	257	3,455
Home equity lines and loans		354	—	2	(28)	328
Residential mortgage		200	—	2	(30)	172
Construction		2,033	—	—	136	2,169
Commercial and industrial		2,719	(30)	6	171	2,866
Small business loans		111	—	—	198	309
Consumer		4	—	1	1	6
Leases		7	—	—	—	7
Total	$	8,625	(30)	12	705	9,312

	Balance,					Balance,
(dollars in thousands)	December 31, 2018		Charge-offs	Recoveries	Provision	September 30, 2019
Commercial mortgage	$	3,209	—	6	240	3,455
Home equity lines and loans		323	—	10	(5)	328
Residential mortgage		191	—	4	(23)	172
Construction		1,627	—	—	542	2,169
Commercial and industrial		2,612	(30)	328	(44)	2,866
Small business loans		78	—	—	231	309
Consumer		3	—	3	—	6
Leases		10	—	—	(3)	7
Total	$	8,053	(30)	351	938	9,312

15

Allowance Allocated by Portfolio Segment

The following tables detail the allocation of the allowance for loan and lease losses and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of September 30, 2020 and December 31, 2019.

	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
September 30, 2020	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	6,935	6,935	$	2,005	458,947	460,952
Home equity lines and loans		16	501	517		663	70,737	71,400
Residential mortgage		—	334	334		1,648	42,486	44,134
Construction		—	2,482	2,482		1,206	150,020	151,226
Commercial and industrial		1,565	3,473	5,038		4,726	251,726	256,452
Small business loans		—	1,107	1,107		199	44,081	44,280
Paycheck Protection Program loans		—	—	—		—	259,723	259,723
Consumer		—	4	4		—	582	582
Leases		—	156	156		—	13,374	13,374
Total	$	1,581	14,992	16,573	$	10,447	1,291,676	1,302,123	(1)

	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
December 31, 2019	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	3,426	3,426	$	2,138	360,452	362,590
Home equity lines and loans		46	296	342		536	81,047	81,583
Residential mortgage		—	179	179		854	42,265	43,119
Construction		—	2,362	2,362		1,247	170,797	172,044
Commercial and industrial		27	2,657	2,684		1,288	272,013	273,301
Small business loans		63	446	509		1,244	20,372	21,616
Consumer		—	6	6		—	1,003	1,003
Leases		—	5	5		—	697	697
Total	$	136	9,377	9,513	$	7,307	948,646	955,953	(1)

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

Loans and Leases by Credit Ratings

As part of the process of determining the Allowance to the different segments of the loan and lease portfolio, Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by Management. The results of these reviews are reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

● Pass – Loans considered to be satisfactory with no indications of deterioration.

● Special mention – Loans classified as special mention have a potential weakness that deserves Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

● Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined

16

weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

● Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the allowance for loan and lease losses as of September 30, 2020 and December 31, 2019:

September 30, 2020			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	441,090	16,260	3,602	—	460,952
Home equity lines and loans		70,251	—	1,149	—	71,400
Construction		142,420	8,806	—	—	151,226
Commercial and industrial		220,760	22,950	9,019	3,723	256,452
Small business loans		41,548	—	2,732	—	44,280
Paycheck Protection Program loans		259,723	—	—	—	259,723
Total	$	1,175,792	48,016	16,502	3,723	1,244,033

December 31, 2019			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	353,724	5,821	3,045	—	362,590
Home equity lines and loans		81,046	—	537	—	81,583
Construction		170,823	1,221	—	—	172,044
Commercial and industrial		251,320	9,648	12,333	—	273,301
Small business loans		20,351	—	1,265	—	21,616
Total	$	877,264	16,690	17,180	—	911,134

In addition to credit quality indicators as shown in the above tables, allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status as of September 30, 2020 and December 31, 2019. No troubled debt restructurings performing according to modified terms are included in performing residential mortgages below as of September 30, 2020 and December 31, 2019.

	September 30, 2020				December 31, 2019
(dollars in thousands)	Performing		Nonperforming	Total	Performing		Nonperforming	Total
Residential mortgage	$	42,486	1,648	44,134	$	42,265	854	43,119
Consumer		582	—	582		1,003	—	1,003
Leases		13,374	—	13,374		697	—	697
Total	$	56,442	1,648	58,090	$	43,965	854	44,819

There were five nonperforming residential mortgage loans at September 30, 2020 and five nonperforming residential mortgage loans at December 31, 2019 with a combined outstanding principal balance of $877 thousand and $839 thousand, respectively, which were carried at fair value and not included in the table above.

17

Impaired Loans

The following table details the recorded investment and principal balance of impaired loans by portfolio segment, and their related allowance for loan and lease losses.

	As of September 30, 2020				As of December 31, 2019
	Recorded		Principal	Related	Recorded	Principal	Related
(dollars in thousands)	investment		balance	allowance	investment	balance	allowance
Impaired loans with related allowance:
Commercial and industrial		3,903	3,907	1,565	617	617	27
Small business loans		—	—	—	1,002	1,002	63
Home equity lines and loans		99	106	16	461	461	46
Total		4,002	4,013	1,581	2,080	2,080	136
Impaired loans without related allowance:
Commercial mortgage	$	2,005	2,035	—	2,138	2,173	—
Commercial and industrial		823	897	—	671	718	—
Small business loans		199	199	—	242	242	—
Home equity lines and loans		564	581	—	75	75	—
Residential mortgage		1,648	1,648	—	854	854	—
Construction		1,206	1,206	—	1,247	1,248	—
Total		6,445	6,566	—	5,227	5,310	—
Grand Total	$	10,447	10,579	1,581	7,307	7,390	136

The following table details the average recorded investment and interest income recognized on impaired loans by portfolio segment.

		Three Months Ended	Three Months Ended		Nine Months Ended	Nine Months Ended
		September 30,	September 30,		September 30,	September 30,
		2020	2019		2020	2019
		Average	Average		Average	Average
		recorded	recorded		recorded	recorded
(dollars in thousands)		investment	investment		investment	investment
Impaired loans with related allowance:
Commercial and industrial	$	3,907	561	$	1,766	566
Small business loans		—	—		—	—
Home equity lines and loans		100	255		103	256
Total	$	4,007	816	$	1,869	822
Impaired loans without related allowance:
Commercial mortgage	$	2,080	2,220	$	1,852	2,272
Commercial and industrial		874	597		700	602
Small business loans		208	259		220	262
Home equity lines and loans		564	-		575	-
Residential mortgage		1,649	857		1,478	857
Construction		1,206	1,270		1,209	1,286
Total	$	6,581	5,203	$	6,034	5,279
Grand Total	$	10,588	6,019	$	7,903	6,101

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Interest income recognized on performing impaired loans amounted to $139 thousand and $50 thousand for the three months ended September 30, 2020 and 2019, respectively, and $281 thousand and $152 thousand for the nine months ended September 30, 2020 and 2019, respectively.

Troubled Debt Restructuring

The restructuring of a loan is considered a “troubled debt restructuring” (“TDR”) if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower were a concession not granted. The determination of whether a concession has been granted is subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender. The balance of

TDRs at September 30, 2020 and December 31, 2019 are as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
TDRs included in nonperforming loans and leases	$	246	319
TDRs in compliance with modified terms		3,428	3,599
Total TDRs	$	3,674	3,918

There were no loan and lease modification granted during the three months ended September 30, 2020 that was categorized as a TDR as noted in the table below.

	For the Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Related
(dollar in thousands)	Contracts	Investment		Investment		Allowance
Real Estate:
Commercial mortgage	—	$	—	$	—	$	—
Land and Construction	—		—		—		—
Commercial and industrial	1		58		58		—
Total	1	$	58	$	58	$	—

There were no loan and lease modifications granted during the three and nine months ended September 30, 2019 that was categorized as TDR’s. No loan and lease modifications granted during the three and nine months ended September 30, 2020 and 2019 subsequently defaulted during the same time period.

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COVID-19 Loan Modifications

The following table details the loan modifications that the Corporation provided to loan customers as of September 30, 2020.

		September 30, 2020
		Portfolio		Total		Active
Loan Portfolio		Balance		Modifications		Modifications
Commercial mortgage	$	460,952	$	86,591	$	4,182
Commercial and industrial, including leases		269,826		24,362		200
Construction & land development		151,226		36,819		14,196
Home equity lines and loans		71,400		1,348		-
Residential mortgage		44,134		4,800		558
Small business loans		44,280		144		-
Consumer		582		-		—
Total	$	1,042,400	$	154,064	$	19,136

These loan modifications were made in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. Modifications granted to borrowers under this guidance that are related to COVID-19 are not required to be evaluated as troubled debt restructurings under ASC 310-40.  These modified loans are classified as performing and are not considered past due.  Loans are to be placed on non-accrual when it becomes apparent that payment of interest or recovery of all principal is questionable, and the COVID-19 related modification is no longer considered short-term or the modification is deemed ineffective.  In total $111.0 million of commercial loans covering 146 borrowers and $36.8 million of construction loans for 35 borrowers were assisted with loan payment holidays of 3 to 6 months or lowered interest rates for certain construction loans.  $6.2 million of residential mortgage and home equity loans covering 25 total borrowers were provided with 3 to 6 month payment holidays as well.  These modifications were not classified as troubled debt restructurings.  As of October 26, 2020, $4.4 million of commercial loans had active payment deferrals, along with $14.2 million of construction loans and $558 thousand of residential loans.

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

The Corporation’s short-term borrowings generally consist of federal funds purchased and short-term borrowings extended under agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”). The Corporation has two unsecured Federal Funds borrowing facilities with correspondent banks: one of $24 million and one of  $15 million. Federal funds purchased generally represent one-day borrowings.  The Corporation had no Federal Funds purchased at September 30, 2020 and December 31, 2019. The Corporation also has a facility with the Federal Reserve Bank (“FRB”) of Philadelphia discount window of $10.6 million. This facility is fully secured by investment securities. There were $10 million in borrowings under this facility at September 30, 2020 and none at December 31, 2019.

20

Short-term borrowings at September 30, 2020 and December 31, 2019 consisted of the following notes:

				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2020		2019
Open Repo Plus Weekly	05/28/2021	0.39	%		56,640	102,320
Federal Reserve Discount Window	09/30/2020	0.25			10,000	—
Mid-term Repo-fixed	12/09/2020	0.42			3,752	—
Mid-term Repo-fixed	01/13/2021	0.36			4,605	—
Mid-term Repo-fixed	01/27/2021	0.23			5,465	—
Mid-term Repo-fixed	03/09/2021	0.79			10,417	—
Mid-term Repo-fixed	03/22/2021	0.88			10,238	—
Mid-term Repo-fixed	06/28/2021	1.88			3,122	—
Mid-term Repo-fixed	08/10/2020	2.76			—	5,000
Mid-term Repo-fixed	08/10/2020	1.59			—	5,144
Mid Term Repo Fixed Rate	09/11/2020	1.59			—	7,676
Mid Term Repo Fixed Rate	03/27/2020	2.03			—	3,123
Acquisition Purchase Note	04/01/2020	3.00			—	413
Total				$	104,239	123,676

As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program.  At September 30, 2020, the Corporation pledged $235.9 million of PPP loans to the FRB of Philadelphia to borrow $235.9 million of funds at a rate of 0.35%.

Long-term debt at September 30, 2020 and December 31, 2019 consisted of the following notes:

				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2020		2019
PPPLF Advance	Various	0.35	%		235,953	—
Mid-term Repo-fixed	03/21/2022	0.92		$	1,900	—
Mid-term Repo-fixed	06/29/2022	0.32			7,392	3,123
Mid-term Repo-fixed	09/12/2022	0.23			4,886	—
Total	`			$	250,131	3,123

The FHLB of Pittsburgh has also issued $129 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers. These letters of credit expire throughout 2020.

The Corporation has a maximum borrowing capacity with the FHLB of $615.3 million as of September 30, 2020 and $507.3 million as of December 31, 2019. All advances and letters of credit from the FHLB are secured by a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

(8)      Servicing Assets

The Corporation sells certain residential mortgage loans and the guaranteed portion of certain small business loans (“SBA loans”) to third parties and retains servicing rights and receives servicing fees. All such transfers are accounted for as sales. When the Corporation sells a residential mortgage loan, it does not retain any portion of that loan and its continuing involvement in such transfers is limited to certain servicing responsibilities. While the Corporation may retain a portion of certain sold SBA loans, its continuing involvement in the portion of the loan that was sold is limited to certain servicing responsibilities. When the contractual servicing fees on loans sold with

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servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized. The Corporation accounts for the transfers and servicing of financial assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

Residential Mortgage Loans

The mortgage servicing rights (“MSRs”) are amortized over the period of the estimated future net servicing life of the underlying assets.  MSR’s are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.  Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR.  The Corporation serviced $298.7 million and $60.3 million of residential mortgage loans as of September 30, 2020 and December 31, 2019, respectively. During the three and nine months ended September 30, 2020, the Corporation recognized servicing fee income of $140 thousand and $247 thousand, respectively, compared to $25 thousand and $59 thousand during the three and nine months ended September 30, 2019, respectively.

Changes in the MSR balance are summarized as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Balance at beginning of the period	$	1,294	236	$	446	232
Servicing rights capitalized		1,333	107		2,469	198
Amortization of servicing rights		(90)	(17)		(173)	(39)
Change in valuation allowance		102	(12)		(103)	(77)
Balance at end of the period	$	2,639	314	$	2,639	314

Activity in the valuation allowance for MSR’s was as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Valuation allowance, beginning of period	$	(303)	(65)	$	(98)	—
Impairment		—	(12)		(103)	(77)
Recovery		102	—		—	—
Valuation allowance, end of period	$	(201)	(77)	$	(201)	(77)

The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2020, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 12.00% and a discount rate equal to 9.00%.  At December 31, 2019, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 13.08% and a discount rate equal to 9.00%.

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At September 30, 2020 and December 31, 2019, the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

(dollars in thousands)	September 30, 2020		December 31, 2019
Fair value of residential mortgage servicing rights	$	2,639	$	446
Weighted average life (years)		5.0		7.8
Prepayment speed		12.00%		13.08%
Impact on fair value:
10% adverse change	$	(99)	$	(19)
20% adverse change		(192)		(37)
Discount rate		9.00%		9.00%
Impact on fair value:
10% adverse change	$	(98)	$	(14)
20% adverse change		(189)		(27)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

SBA Loans

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets.  SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.  Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset.  The Corporation serviced $44.8 million and $18.0 million of SBA loans, as of September 30, 2020 and December 31, 2019, respectively.  During the three and nine months ended September 30, 2020, the Corporation recognized servicing fee income of $49 thousand and $101 thousand, respectively.  During the three and nine months ended September 30, 2019, the Corporation recognized servicing fee income of $8 thousand.

Changes in the SBA loan servicing asset balance are summarized as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Balance at beginning of the period	$	632	133	$	337	—
Servicing rights capitalized		183	198		524	331
Amortization of servicing rights		(42)	(6)		(88)	(6)
Change in valuation allowance		14	(4)		14	(4)
Balance at end of the period	$	787	321	$	787	321

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Activity in the valuation allowance for SBA loan servicing assets was as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Valuation allowance, beginning of period	$	(26)	—	$	(26)	—
Impairment		—	(4)		—	(4)
Recovery		14	—		14	—
Valuation allowance, end of period	$	(12)	(4)	$	(12)	(4)

The Corporation uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2020, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.79%, and a discount rate equal to 6.57%. At December 31, 2019, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 10.77%, and a discount rate equal to 11.28%.

At September 30, 2020 and December 31, 2019, the sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

(dollars in thousands)	September 30, 2020		December 31, 2019
Fair value of SBA loan servicing rights	$	889	$	337
Weighted average life (years)		3.6		4.3
Prepayment speed		12.79%		10.77%
Impact on fair value:
10% adverse change	$	(36)	$	(12)
20% adverse change		(69)		(23)
Discount rate		6.57%		11.28%
Impact on fair value:
10% adverse change	$	(23)	$	(9)
20% adverse change		(46)		(18)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the SBA servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

(9)      Fair Value Measurements and Disclosures

The Corporation uses fair value measurements to record fair value adjustments to certain assets and liabilities. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on

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estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation techniques or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with this guidance, the Corporation groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

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

Securities

The fair value of securities available-for-sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Mortgage Loans Held for Sale

The fair value of loans held for sale is based on secondary market prices.

Mortgage Loans Held for Investment

The fair value of mortgage loans held for investment is based on the price secondary markets are currently offering for similar loans using observable market data.

Derivative Financial Instruments

The fair values of forward commitments and interest rate swaps are based on market pricing and therefore are considered Level 2.  Derivatives classified as Level 3 consist of interest rate lock commitments related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment

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will ultimately result in a closed loan, which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	24,744	—	24,744	—
U.S. government agency mortgage-backed securities		4,111	—	4,111	—
U.S. government agency collateralized mortgage obligations		22,483	—	22,483	—
State and municipal securities		49,339	—	49,339	—
Corporate bonds		2,681	—	2,681	—
Equity investments		1,034	—	1,034	—
Mortgage loans held for sale		225,150	—	225,150	—
Mortgage loans held for investment		11,366	—	11,366	—
Interest rate lock commitments		7,798	—	—	7,798
Forward commitments		57	—	57	—
Customer derivatives - interest rate swaps		1,284	—	1,284	—
Total	$	350,047	—	342,249	7,798
Liabilities
Interest rate lock commitments		225	—	—	225
Forward commitments		971	—	971	—
Customer derivatives - interest rate swaps		1,413	—	1,413	—
	$	2,609	—	2,384	225

	December 31, 2019
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	11,866	—	11,866	—
U.S. government agency mortgage-backed securities		5,497	—	5,497	—
U.S. government agency collateralized mortgage obligations		35,223	—	35,223	—
State and municipal securities		6,270	—	6,270	—
Investments in mutual funds		1,009	—	1,009	—
Mortgage loans held for sale		33,704	—	33,704	—
Mortgage loans held for investment		10,546	—	10,546	—
Interest rate lock commitments		504	—	—	504
Forward commitments		6	—	6	—
Customer derivatives - interest rate swaps		382	—	382	—
Total	$	105,007	—	104,503	504
Liabilities
Interest rate lock commitments		157	—	—	157
Forward commitments		119	—	119	—
Customer derivatives - interest rate swaps		431	—	431	—
	$	707	—	550	157

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Financial assets measured at fair value on a nonrecurring basis, are considered Level 3 assets in the fair value hierarchy.  The fair value used at September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020		December 31, 2019
(dollars in thousands)	Fair Value		Fair Value
Mortgage servicing rights	$	2,639	446
SBA loan servicing rights		632	337
Impaired loans (1)		2,421	804
Other real estate owned (2)		—	120
Total	$	5,692	1,707

(1) Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input is significant to the fair value measurements.

(2) Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. Appraised values may be discounted based on management’s expertise, historical knowledge, changes in market conditions from the time of valuation and/or estimated costs to sell.

Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Corporation’s balance sheet. The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair value of the Corporation’s financial instruments:

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

       Loans Receivable

The fair value of loans receivable is estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value below is reflective of an exit price.

Loan Servicing Rights

The Corporation estimates the fair value of mortgage servicing rights and SBA loan servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. These

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servicing rights are classified within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the servicing rights portfolios on a quarterly basis for impairment.

Impaired Loans

Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Debt

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated Debt

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.

Off-Balance Sheet Financial Instruments

Off-balance sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments and as a result they are not included in the table below. Fair values assigned to the notional value of interest rate lock commitments and forward sale contracts are based on market quotes.

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The estimated fair values of the Corporation’s financial instruments at September 30, 2020 and December 31, 2019 are as follows:

		September 30, 2020			December 31, 2019
	Fair Value	Carrying			Carrying
(dollars in thousands)	Hierarchy Level	amount		Fair value	amount	Fair value
Financial assets:
Cash and cash equivalents	Level 1	$	75,869	75,869	39,371	39,371
Securities available-for-sale	Level 2		103,358	103,358	58,856	58,856
Securities held-to-maturity	Level 2		6,544	6,916	8,780	9,003
Equity investments	Level 2		1,034	1,034	1,009	1,009
Mortgage loans held for sale	Level 2		225,150	225,150	33,704	33,704
Loans receivable, net of the allowance for loan and lease losses	Level 3		1,278,907	1,313,384	944,651	973,057
Mortgage loans held for investment	Level 2		11,366	11,366	10,546	10,546
Interest rate lock commitments	Level 3		7,798	7,798	504	504
Forward commitments	Level 2		57	57	6	6
Restricted investment in bank stock	NA		7,650	NA	8,072	NA
Accrued interest receivable	Level 3		4,666	4,666	3,148	3,148
Customer derivatives - interest rate swaps	Level 2		1,284	1,284	382	382
Financial liabilities:
Deposits	Level 2		1,209,024	1,361,900	851,168	880,400
Short-term borrowings	Level 2		104,239	104,239	123,676	123,678
Long-term debt	Level 2		250,131	253,804	3,123	3,123
Subordinated debentures	Level 2		40,814	39,674	40,962	40,962
Accrued interest payable	Level 2		2,258	2,258	1,088	1,088
Interest rate lock commitments	Level 3		225	225	157	157
Forward commitments	Level 2		971	971	119	119
Customer derivatives - interest rate swaps	Level 2		1,413	1,413	431	431
		Notional			Notional
Off-balance sheet financial instruments:		amount		Fair value	amount	Fair value
Commitments to extend credit	Level 2	$	377,885	7,798	327,788	504
Letters of credit	Level 2		7,054	—	9,750	—

The following table includes a rollforward of interest rate lock commitments for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three and nine month peiods ended September 30, 2020 and 2019.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020		2019
Balance at beginning of the period	$	4,595	375	$	504	310
Increase in value		3,203	(92)		7,294	(27)
Balance at end of the period	$	7,798	283	$	7,798	283

The following table details the valuation techniques for Level 3 interest rate lock commitments.

				Significant
	Fair Value			Unobservable	Range of		Weighted
	Level 3		Valuation Technique	Input	Inputs		Average
September 30, 2020	$	7,798	Market comparable pricing	Pull through	1 - 99	%	85.38	%
December 31, 2019		504	Market comparable pricing	Pull through	1 - 99		93.41

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Net realized gains of $3.2 million and net realized losses of $101 thousand due to changes in the fair value of interest rate lock commitments which are classified as Level 3 assets and liabilities for the three months ended September 30, 2020 and 2019, respectively, and net realized gains of $7.2 million and net realized losses $67 thousand for the nine months ended September 30, 2020 and 2019, respectively, are recorded in non-interest income as net change in the fair value of derivative instruments in the Corporation’s consolidated statements of income.

(10)    Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Corporation is exposed to certain risk arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.  Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally related to the Corporation’s loan portfolio.  

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans or interest rate locks at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. The fair value of interest rate lock commitments and forward commitments are recorded within other assets/liabilities on the consolidated balance sheets, with changes in fair values during the period recorded within net change in the fair value of derivative instruments on the unaudited consolidated statements of income.

Customer Derivatives – Interest Rate Swaps

Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers to swap a fixed rate product for a variable rate product, or vice versa.  The Corporation executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Corporation executes with a third party, such that the Corporation minimizes its net interest rate risk exposure resulting from such transactions.  The fair value of interest rate derivatives are recorded within other assets/liabilities on the consolidated balance sheets.  As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.  

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The following table presents a summary of the notional amounts and fair values of derivative financial instruments:

		September 30, 2020			December 31, 2019
(dollars in thousands)	Balance Sheet Line Item	Notional Amount		Asset (Liability) Fair Value	Notional Amount	Asset (Liability) Fair Value
Interest Rate Lock Commitments
Positive fair values	Other assets	$	497,093	7,798	47,660	504
Negative fair values	Other liabilities		46,890	(225)	22,663	(157)
Total			543,983	7,573	70,323	347
Forward Commitments
Positive fair values	Other assets		75,500	57	4,500	6
Negative fair values	Other liabilities		215,500	(971)	58,250	(119)
Total			291,000	(914)	62,750	(113)
Customer Derivatives - Interest Rate Swaps
Positive fair values	Other assets		17,906	1,284	3,271	382
Negative fair values	Other liabilities		17,906	(1,413)	3,271	(431)
Total			35,812	(129)	6,542	(49)
Total derivative financial instruments		$	870,795	6,530	139,615	185

Interest rate lock commitments are considered Level 3 in the fair value hierarchy, while the forward commitments and interest rate swaps are considered Level 2 in the fair value hierarchy.

The following table presents a summary of the fair value gains and losses on derivative financial instruments:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2020		2019		2020	2019
Interest Rate Lock Commitments	$	3,161	(102)	$	7,226	(68)
Forward Commitments		(129)	124		(801)	101
Customer Derivatives - Interest Rate Swaps		(4)	(22)		(79)	(48)
Net fair value gains (losses) on derivative financial instruments	$	3,028	—	$	6,346	(15)

Net realized losses on derivatives were ($2.6) million and ($300) thousand for the three months ended September 30, 2020 and 2019, respectively, and ($7.4) million and ($792) thousand for the nine months ended September 30, 2020 and 2019, respectively.

(11)    Segments

ASC Topic 280 – Segment Reporting identifies operating segments as components of an enterprise which are evaluated regularly by the Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

Our Banking segment consists of commercial and retail banking. The Banking segment generates interest income from its lending (including leasing) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale of investment securities, gains on the sale of loans, SBA income, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income, title insurance fees, and other less significant non-interest income.

Meridian Wealth Partners (“Wealth”), is a registered investment advisor and wholly-owned subsidiary of the Bank, that provide a comprehensive array of wealth management services and products and the trusted guidance to help

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its clients and our banking customers prepare for the future. The unit generates non-interest income through advisory fees.

Meridian Mortgage’s (“Mortgage”) consists of 16 loan production offices located throughout the Delaware Valley and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale.  The unit also recognizes income from document preparation fees, changes in portfolio pipeline fair values and related net hedging gains.

The table below summarizes income and expenses, directly attributable to each business line, which has been included in the statement of operations.

	Segment Information
	Three Months Ended September 30, 2020					Three Months Ended September 30, 2019
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	12,104	(19)	630	12,715	$	9,203	4	67	9,274
Provision for loan losses		3,956	—	—	3,956		705	—	—	705
Net interest income after provision		8,148	(19)	630	8,759		8,498	4	67	8,569
Non-interest Income
Mortgage banking income		574	—	21,238	21,812		74	—	7,241	7,315
Wealth management income		—	951	—	951		31	891	—	922
SBA income		641	—	—	641		635	—	—	635
Net change in fair values		(4)	—	6,057	6,053		(23)	—	53	30
Net (loss) on hedging activity		—	—	(2,637)	(2,637)		—	—	(300)	(300)
Other		2,045	—	195	2,240		534	—	73	607
Non-interest income		3,256	951	24,853	29,060		1,251	891	7,067	9,209
Non-interest expense		8,829	788	16,217	25,834		6,915	834	5,798	13,547
Income before income taxes	$	2,575	144	9,266	11,985	$	2,834	61	1,336	4,231
Total Assets	$	1,525,883	5,399	227,366	1,758,648	$	1,071,450	5,398	50,089	1,126,937

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	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	32,725	(24)	1,277	33,978	$	26,437	68	167	26,672
Provision for loan losses		7,139	—	—	7,139		938	—	—	938
Net interest income after provision		25,586	(24)	1,277	26,839		25,499	68	167	25,734
Non-interest Income
Mortgage banking income		973	—	44,422	45,395		175	—	17,442	17,617
Wealth management income		—	2,825	—	2,825		110	2,588	—	2,698
SBA income		1,821	—	—	1,821		1,150	—	—	1,150
Net change in fair values		(68)	—	11,012	10,944		(49)	—	341	292
Net (loss) on hedging activity		—	—	(7,363)	(7,363)		—	—	(792)	(792)
Other		2,931	14	405	3,350		1,409	—	282	1,691
Non-interest income		5,657	2,839	48,476	56,972		2,795	2,588	17,273	22,656
Non-interest expense		23,341	2,363	35,448	61,152		20,312	2,268	16,400	38,980
Income before income taxes	$	7,902	452	14,305	22,659	$	7,982	388	1,040	9,410
Total Assets	$	1,525,883	5,399	227,366	1,758,648	$	1,071,450	5,398	50,089	1,126,937

(12)    Stockholders’ Equity

On August 31, 2020, the Corporation announced that the Meridian Corporation Employee Stock Ownership Plan Trust (together with the related employee stock ownership plan, the “ESOP”) had established a $2 million stock purchase authorization with no expiration date. Purchases are authorized to be made from time to time in either the open market or through privately negotiated transactions. The Corporation loaned the ESOP $2 million to facilitate the ESOP’s purchase of the shares.  During September 2020 the ESOP purchased 133,601 shares of the Corporation’s common stock at an average price of $14.97, using the full $2 million loan. The ESOP loan, which bears an interest rate of 1.17%, is to be repaid in annual installments commencing on December 31, 2020, and on the final day of each of the next nine calendar years. As of September 30, 2020 there were no shares commited to be released.

On October 22, 2020, the Corporation’s Board of Directors declared a cash dividend of $0.125 per common share, payable on November 23, 2020 to shareholders of record as of November 9, 2020. During the third quarter of 2020, the Corporation paid or accrued, as applicable, a quarterly dividend of $0.125 per share. This dividend totaled $763 thousand, based on outstanding shares as of August 10, 2020 of 6,098,573.

(13)    Recent Accounting Pronouncements

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), the Bank is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1,070,000,000 or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the fiscal year in which the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year. We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. If we do so, we will prominently disclose this decision in the first periodic report following our decision, and such decision is irrevocable. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities.

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FASB ASU 2017-01 (Topic 805), “Business Combinations”

Issued in January 2017, ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those periods, while for non-public companies the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The adoption of this standard on January 1, 2019 did not have a material impact on the Corporation’s consolidated financial statements and related disclosures.

FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”

Issued in June 2018, ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this update became effective for us January 1, 2020. The adoption did not have an impact on our consolidated financial statements and related disclosures as the Corporation did not and has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting.

FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"

Issued in August 2018, ASU 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. ASU 2018-13 was effective for the Corporation on January 1, 2020. Adoption is required on both a prospective and retrospective basis depending on the amendment. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses (“CECL”) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables.  The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU.  A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023.  The Corporation is currently determining under which method we

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will adopt this ASU.  The Corporation has assembled a cross-functional team from Finance, Credit, and IT that is leading the implementation efforts to evaluate the impact of this guidance on the Corporation's consolidated financial statements and related disclosures, internal systems, accounting policies, processes and related internal controls.  At this time the Corporation cannot yet estimate the impact to the consolidated financial statements.

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

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management will consider the impact of ASU 2019-04 when considering the impact of ASU 2016-13 as discussed above.

FASB ASU 2016-02 (Topic 842), “Leases”

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for public companies for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. For non-public companies the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within the fiscal years beginning after December 15, 2021. In July 2018, ASU 2018-11 was issued which creates a new, optional transition method for implementing ASU 2016-02 and a lessor practical expedient for separating lease and non-lease components and has the same effective date as ASU 2016-02.  Under the optional transition method of ASU 2018-11, the Corporation may initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The Corporation will adopt ASU 2016-2 and ASU 2018-11 as of January 1, 2021 and apply ASC 842 throughout 2021.  The Corporation is evaluating the effects that ASU 2016-02 and ASU 2018-11 will have on its consolidated financial statements and related disclosures.

FASB ASU 2017-08 (Subtopic 310-20), “Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”

Issued in March 2017, ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. For non-public companies the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within the fiscal years beginning after December 31, 2020. The Corporation will adopt ASU 2017-08 as of December 31, 2020 and apply existing guidance throughout 2020.  The Corporation is evaluating the effect that ASU 2017-08 will have on its consolidated financial statements and related disclosures.

FASB ASU 2017-12 (Subtopic 815), “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities”

Issued in August 2017, ASU 2017-12 better aligns hedge accounting with an organization’s risk management activities in the financial statements. In addition, the ASU simplifies the application of hedge accounting guidance in areas where practice issues exist. Specifically, the proposed ASU eases the requirements for effectiveness testing, hedge documentation and application of the shortcut and the critical terms match methods. Entities would be permitted to designate contractually

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specified components as the hedged risk in a cash flow hedge involving the purchase or sale of nonfinancial assets or variable rate financial instruments. In addition, entities would no longer separately measure and report hedge ineffectiveness. Also, entities, may choose refined measurement techniques to determine the changes in fair value of the hedged item in fair value hedges of benchmark interest rate risk. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020.  Early application is permitted in any interim period after issuance of the ASU for existing hedging relationships on the date of adoption and the effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date). The Corporation has evaluated ASU 2017-12, and has determined it has no current hedging strategies applicable under the ASU but we will consider the impact of the ASU on future hedging strategies that may arise.  The Corporation will adopt ASU 2017-12 as of December 31, 2020 and apply existing guidance throughout 2020.

FASB ASU 2018-16 (Subtopic 815), “Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”

In October 2018 ASU 2018-16 was issued.  The new guidance applies to all entities that elect to apply hedge accounting to benchmark interest rate hedges under Topic 815. It permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes in addition to the existing applicable rates. The guidance is required to be adopted concurrently with ASU 2017-12, on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after adoption. The Corporation does not anticipate the adoption of this ASU to have a material impact on its consolidated financial statements and related disclosures.

FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"

Issued in August 2018, ASU 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Corporation does not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Management has not yet determined what the impact of the adoption of this ASU will be on our consolidated financial statements and related disclosures.

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

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models. For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, but no earlier than for fiscal years beginning after Dec. 15, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and the related notes and the discussion under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for the year ended December 31, 2019 included in Meridian Corporation’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”).

Cautionary Statement Regarding Forward-Looking Statements

Meridian Corporation (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 Meridian Corporation’s strategies, goals, beliefs, expectations, estimates, intentions, capital raising efforts, financial condition and results of operations, future performance and business. Statements preceded by, followed by, or that include the words “may,” “could,” “should,” “pro forma,” “looking forward,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” or similar expressions generally indicate a forward-looking statement. These forward-looking statements involve risks and uncertainties that are subject to change based on various important factors (some of which, in whole or in part, are beyond Meridian Corporation’s control). Numerous competitive, economic, regulatory, legal and technological factors, risks and uncertainties including, without limitation: the impact of the current COVID-19 pandemic and government responses thereto, on the U.S. economy, including the markets in which we operate; actions that we and our customers take in response to these factors and the effects such actions have on our operations, products, services and customer relationships; and the risk that the Small Business Administration may not fund some or all Paycheck Protection Program (PPP) loan guaranties, among others, could cause Meridian Corporation’s financial performance to differ materially from the goals, plans, objectives, intentions and expectations expressed in such forward-looking statements.  Meridian Corporation cautions that the foregoing factors are not exclusive, and neither such factors nor any such forward-looking statement takes into account the impact of any future events. All forward-looking statements and information set forth herein are based on management’s current beliefs and assumptions as of the date hereof and speak only as of the date they are made. For a more complete discussion of the assumptions, risks and uncertainties related to our business, you are encouraged to review Meridian Corporation’s filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2019 and subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in the Form 10-K and Form 10-Q filings, if any. Meridian Corporation does not undertake to update any forward-looking statement whether written or oral, that may be made from time to time by Meridian Corporation or by or on behalf of Meridian Bank.

Recent Developments

Impacts of COVID-19

The ongoing COVID-19 pandemic has caused significant disruption in the local, national and global economies and financial markets. The pandemic has resulted in temporary closures of many businesses and the institution of social distancing and sheltering in place requirements in many states and communities. Continuation and further spread of COVID-19 could cause additional quarantines, shutdowns, reductions in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial market instability.

In response to the anticipated economic effects of COVID-19, the Board of Governors of the Federal Reserve System (the "FRB") has taken a number of actions that have significantly affected the financial markets in the United States, including actions intended to result in substantial decreases in market interest rates. On March 3, 2020, the 10-year Treasury yield fell below 1.00% for the first time, and the FRB reduced the target federal funds range by 50 basis points to 1.00% to 1.25%. On March 15, 2020, the FRB further reduced the target federal funds range by 100 basis points to 0% to 0.25% and announced a $700 billion quantitative easing program in response to the expected economic downturn caused by COVID-19. On March 22, 2020, the FRB announced that it would continue its quantitative easing program in amounts necessary to support the smooth functioning of markets for Treasury securities and agency MBS. We expect that these

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reductions in interest rates, among other actions of the FRB and the Federal government generally, especially if prolonged, could adversely affect our net interest income, margins and profitability.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, ( the “CARES Act”) was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program (the “PPP”), a $349 billion program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. The Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions. On July 4, 2020, legislation was passed to extend the application period for the PPP program through August 8, 2020. These loans are intended to cover eight weeks of payroll and other permitted expenses to help those businesses remain viable.

In response to the pandemic, the Corporation’s management took the following actions:

● The Corporation formed a pandemic taskforce and a steering group comprised of associates across the multiple lines of business and support functions and has taken several actions to offer various forms of support to our customers, employees, and communities that have experienced impacts resulting from the COVID-19 pandemic.

Starting in mid-March and continuing today, Meridian implemented limited branch hours and appointment scheduling for our customers. Our technology platform has allowed these functions to be seamless. Meridian continues to prudently manage through the pandemic and has put in place preventative measures including face masks, plexiglass shields, social distancing and enhanced cleaning. Meridian is implementing a gradual, phased-in return-to-office plan that includes a portion of the workforce continuing with flexible, remote work schedules.

● Meridian is a PPP participating lender, and as of September 30, 2020, Meridian had principal balances of PPP loans of $259.7 million, net of payoffs during the quarter. As of September 30, 2020, Meridian also had net deferred loan origination fees of $5.5 million on PPP loans that are being amortized into interest income over the contractual life of the loan, or until forgiven by the SBA. Meridian’s participation as a PPP lender helped us to assist 928 clients in need of short-term funding. These PPP loans helped our small business clients to support the paychecks of nearly 16,660 employees. Approximately 89% of PPP loans were given to clients in the markets we serve in Pennsylvania, New Jersey and Delaware.

● During the pandemic, Meridian also worked with commercial, construction and residential loan customers to provide assistance. In total $111.0 million of commercial loans covering 146 borrowers and $36.8 million of construction loans for 35 borrowers were assisted with loan payment holidays of 3 to 6 months or lowered interest rates for certain construction loans. $6.2 million of residential mortgage and home equity loans covering 25 total borrowers were provided with 3 to 6 month payment holidays as well. As of October 26, 2020, $4.4 million of commercial loans had active payment deferrals, along with $14.2 million of construction loans and $558 thousand of residential loans.

At the inception of the pandemic, the governor of Pennsylvania ordered all non-essential businesses to close, mandated stay-at-home orders, closed schools and universities and put a moratorium on construction for a period of time. The economic impact was widespread, but certain businesses have been more acutely impacted.  Aside from construction lending, Meridian continues to monitor commercial portfolios and identified various industries that have been substantially impacted by these mandates such as retail trade, hospitality, residential spec construction and advertising/marketing. At September 30, 2020, Meridian’s exposure as a percent of the total loan portfolio to these industries was 1.9%, 1.9%, 5.0%, and 1.5%, respectively.

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As of September 30, 2020, commercial loans to borrowers in the retail, hospitality and residential spec construction industries were as follows:

		% of Loan Portfolio				COVID-19 Relief
		September 30, 2020				September 30, 2020
			% of Loan			Balance with	% of Industry
Industry		Balance	Portfolio			Relief	Balance
Retail trade	$	23,027	1.9	%	$	—	—	%
Hospitality		22,916	1.9			11,782	51.4
Residential spec construction		59,819	5.0			—	—
Advertising and marketing		17,304	1.5			—	—
Total	$	123,066	12.15	%	$	11,782	9.57	%

U.S. Small Business Administration Paycheck Protection Program

The Bank has participated in the SBA’s PPP, which was initiated on April 3, 2020 in order to help small businesses maintain their workforce during the COVID-19 pandemic. The Bank began accepting applications from qualified business customers immediately upon the initiation of the PPP. The Bank is a certified SBA lender and was one of the first local banks to fund loans under the PPP.  The PPP/HCEA Act authorizes additional funding under the CARES Act of $310 billion for PPP loans to be issued by financial institutions through the SBA. As noted above, at September 30, 2020 Meridian has assisted 928 clients in need of short-term funding by providing nearly $260 million in PPP loans.  The Bank is preparing to assist PPP borrowers in the process to request forgiveness for their loans with the SBA although the SBA’s portal will not be open until mid-August to start accepting borrower applications for forgiveness.  

Loans originated under this program include principal and interest which may be forgiven provided the borrower uses the funds in a manner consistent with PPP guidelines. These loans have a contractual maturity of two years, a contractual rate of interest of 1%, and have an automatic nine month payment deferral. The SBA has outlined a fee structure based on loan size, whereby institutions will be paid 5% for loans of not more than $350,000, 3% for loans of more than $350,000 and less than $2 million, and 1% for loans of at least $2 million. These fees, net of the loan-specific costs, will be deferred and recognized as an adjustment to yield over the expected life of the loans. There is significant uncertainty about how borrowers will seek and qualify for forgiveness. As a result, the expected life of these loans and the impact on loan yields to future periods cannot currently be determined with certainty, and estimates will be periodically updated as more information becomes available.

The Federal Reserve Bank (“FRB”) initiated the Paycheck Protection Program Liquidity Facility (“PPPLF”) as a facility to provide liquidity to financial institutions participating and funding loans for the PPP.  The non-recourse loans are available to institutions eligible to make PPP loans, with the SBA-guaranteed loans pledged as collateral to the FRB.  Financial institutions can also pledge PPP loans to the discount window.  Each liquidity option is set at different rates and terms. PPP loans pledged to the PPPLF may be excluded from leverage ratio calculations.  At September 30, 2020, the Corporation pledged $235.9 million of PPP loans to the FRB of Philadelphia to borrow $235.9 million of funds at a rate of 0.35%.

The Paycheck Protection Program Flexibility Act

On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 (the “PPP Flexibility Act”) was signed into law that amends the CARES Act and eases rules on how and when small businesses can use loans and still be eligible for forgiveness. The PPP Flexibility Act changed many aspects of the PPP, including: (1) extending the covered period for loan forgiveness purposes to the earlier of 24 weeks or December 31, 2020; (2) lowering the amount required to be spent on payroll costs from 75% to 60% of the PPP loan funds; (3) extending the loan maturity period from two to five years; and (4) revising the loan deferral period.

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SBA Loan Subsidy Program 

Pursuant to the CARES Act, Section 1112, Congress has determined that all existing borrowers under the SBA Section 7(a) program are adversely affected by COVID-19, and are therefore entitled to a subsidy in the form of relief payments.  Specifically, the CARES Act provides that the SBA will pay the principal and interest on any existing and current SBA 7(a) loan for a period of nine months.  These principal and interest payments will be made by the SBA directly to the SBA 7(a) lender and will begin with the next payment due, and as such, are separate from any loan modifications made at the direction of the Bank.  The Bank is a qualified SBA Section 7(a) lender, and is participating in the Section 1112 program.  As of September 30, 2020, the Bank has 52 loans eligible for the program, with an aggregate principal amount of $42.5 million.  Payments under the program will not constitute new loans for the Bank, but simply payments of principal and interest on loans that already exist in the Bank’s SBA 7(a) loan portfolio and are current on borrower payments.  The Bank received its first tranche of payments under the program on April 29, 2020, and has been receiving subsequent payments from the SBA by the 25th of each month thereafter until the Bank has received nine payments for each loan that qualified for this support by the SBA.

Critical Accounting Policies, Judgments and Estimates

Our accounting and reporting policies conform to GAAP and conform to general practices within the industry in which we operate. To prepare financial statements in conformity with GAAP, management makes estimates, assumptions and judgments based on available information. These estimates, assumptions and judgments affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgements are based on information available as of the date of the financial statements and, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. While certain valuation assumptions and judgments will change to account for COVID-19 pandemic-related circumstances such as widening credit spreads, the Corporation does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.  In particular, management has identified the provision and allowance for loan losses as the accounting policy that, due to the estimates, assumptions and judgements inherent in that policy, is critical in understanding our financial statements.  Management has presented the application of this policy to the audit committee of our board of directors.

This critical accounting policy, along with other significant accounting policies, are presented in in Footnote 1 of the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, 2019 and 2018 included in the Annual Report on Form 10-K.

Executive Overview

The following items highlight the Corporation’s results of operations for the three and nine months ended September 30, 2020, as compared to the same period in 2019, and the changes in its financial condition as of September 30, 2020 as compared to December 31, 2019. More detailed information related to these highlights can be found in the sections that follow.

Three Month Results of Operations

● Net income for the three months ended September 30, 2020 was $9.2 million, or $1.51 per diluted share, an increase of $5.9 million as compared to net income of $3.3 million, or $0.52 per diluted share, for the same period in 2019.

● Return on average equity (“ROE”) and return on average assets (“ROA”) for the three months ended September 30, 2020 were 29.30% and 2.29%, respectively.

● Net interest income increased $3.4 million, or 37.1%, to $12.7 million for the three months ended September 30, 2020, as compared to $9.3 million for the same period in 2019.

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● Provision for loan and lease losses (the “Provision”) of $4.0 million for the three months ended September 30, 2020 was an increase of $3.3 million from the $705 thousand Provision recorded for the same period in 2019.

● Non-interest income of $29.1 million for the three months ended September 30, 2020 was a $19.9 million or 215.6% increase from the same period in 2019.

● Mortgage banking net revenue increased $14.5 million, or 198.2%, to $21.8 million for the three months ended September 30, 2020, as compared to $7.3 million for the same period in 2019.

● Non-interest expense of $25.8 million for the three months ended September 30, 2020 increased $12.3 million, or 90.7%, from $13.5 million for the same period in 2019.

Nine Month Results of Operations

● Net income for the nine months ended September 30, 2020 was $17.4 million, or $2.82 per diluted share, an increase of $10.1 million as compared to net income of $7.3 million, or $1.14 per diluted share, for the same period in 2019.

● Return on average equity (“ROE”) and return on average assets (“ROA”) for the nine months ended September 30, 2020 were 18.85% and 1.65%, respectively.

● Net interest income increased $7.3 million, or 27.4%, to $34.0 million for the nine months ended September 30, 2020, as compared to $26.7 million for the same period in 2019.

● Provision for loan and lease losses (the “Provision”) of $7.1 million for the nine months ended September 30, 2020 was an increase of $6.2 million from the $938 thousand Provision recorded for the same period in 2019.

● Non-interest income of $57.0 million for the nine months ended September 30, 2020 was a $34.3 million or 151.5% increase from the same period in 2019.

● Mortgage banking net revenue increased $27.8 million, or 157.7%, to $45.4 million for the nine months ended September 30, 2020, as compared to $17.6 million for the same period in 2019.

● Non-interest expense of $61.2 million for the nine months ended September 30, 2020 increased $22.2 million, or 56.9%, from $39.0 million for the same period in 2019.

Changes in Financial Condition

● Total assets of $1.8 billion as of September 30, 2020 increased $608.6 million, or 52.9%, from $1.2 billion as of December 31, 2019.

● Consolidated stockholders’ equity of $131.8 million as of September 30, 2020 increased $11.1 million from $120.7 million as of December 31, 2019.

● Total portfolio loans and leases, excluding mortgage loans held for sale, as of September 30, 2020 were $1.3 billion, an increase of $342.1 million, or 35.5%, from $964.7 million as of December 31, 2019.

● Total non-performing loans and leases of $7.9 million represented 0.61% of portfolio loans and leases held for investment as of September 30, 2020 as compared to $3.2 million, or 0.34% of portfolio loans and leases, as of December 31, 2019.

● The $16.6 million allowance for loan losses (“Allowance’), as of September 30, 2020, represented 1.27% of portfolio loans and leases held for investment (excluding loans at fair value), or 1.59% of portfolio loans and leases held for investment (excluding loans at fair value and PPP loans), a non-GAAP measure. This is compared to $9.5 million, or 1.00% of portfolio loans and leases held for investment (excluding loans at fair value), as of December 31, 2019.  For further information on non-GAAP financial measures, see “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q.

● Total deposits of $1.2 billion as of September 30, 2020 increased $357.9 million, or 42.0%, from $851.2 million as of December 31, 2019.

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Key Performance Ratios

Key financial performance ratios for the three and nine months ended September 30, 2020 and 2019 are shown in the table below:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Annualized return on average equity		29.30	%		11.29	%		18.85	%		8.65	%
Annualized return on average assets		2.29	%		1.24	%		1.65	%		0.97	%
Net interest margin (tax effected yield)		3.26	%		3.61	%		3.33	%		3.67	%
Basic earnings per share	$	1.51		$	0.52		$	2.83		$	1.15
Diluted earnings per share	$	1.51		$	0.52		$	2.82		$	1.14

The following table presents certain key period-end balances and ratios as of September 30, 2020 and December 31, 2019:

	September 30,			December 31,
(dollars in thousands, except per share amounts)	2020			2019
Book value per common share	$	21.51		$	18.84
Tangible book value per common share (1)	$	20.76		$	18.09
Allowance as a percentage of loans and leases held for investment		1.27	%		0.98	%
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)		1.59	%		1.00	%
Tier I capital to risk weighted assets		9.97	%		11.21	%
Tangible common equity ratio (1)		7.26	%		10.12	%
Loans held for investment	$	1,306,846		$	964,710
Total assets	$	1,758,648		$	1,150,019
Stockholders' equity	$	131,832		$	120,695

(1) Non-GAAP financial measure. See “Non-GAAP Financial Measures” below for Non-GAAP to GAAP reconciliation.

Non-GAAP Financial Measures

Meridian believes that non-GAAP measures are meaningful because they reflect adjustments commonly made by management, investors, regulators and analysts to evaluate performance trends and the adequacy of common equity. This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for performance and financial condition measures determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of Meridian’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Our management used the measure of the tangible common equity ratio to assess our capital strength. We believe that this non-GAAP financial measure is useful to investors because, by removing the impact of our goodwill and other intangible assets, it allows investors to more easily assess our capital adequacy. This non-GAAP financial measure should not be considered a substitute for any regulatory capital ratios and may not be comparable to other similarly titled measures used by other companies.

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The table below provides the non-GAAP reconciliation for our tangible common equity ratio for Meridian Corporation:

(dollars in thousands)	September 30, 2020		December 31, 2019
Tangible common equity ratio:
Total stockholders' equity		131,832		120,695
Less:
Goodwill		899		899
Intangible assets		3,668		3,874
Tangible common equity		127,265		115,922
Total assets		1,758,648		1,150,019
Less:
Goodwill		899		899
Intangible assets		3,668		3,874
Tangible assets	$	1,754,081	$	1,145,246
Tangible common equity ratio		7.26%		10.12%

The table below provides the non-GAAP reconciliation for our tangible book value per common share for Meridian Corporation:

Tangible book value per common share:
	September 30, 2020
Book value per common share	$	21.51
Less: Impact of goodwill and intangible assets		(0.75)
Tangible book value per common share:	$	20.76

The following is a reconciliation of the allowance for loan losses to total loans held for investment ratio for the three months ended September 30, 2020. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued and the impact of PPP loans as these loan types are not included in the allowance for loan losses calculation.

Reconciliation of Allowance for Loan Losses / Total loans held for investment	September 30, 2020
Allowance for loan losses / Total loans held for investment		1.27%
Less: Impact of loans held for investment - fair valued		0.00%
Less: Impact of PPP loans		0.32%
Allowance for loan losses / Total loans held for investment (excl. loans at fair value and PPP loans)		1.59%

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The following sections discuss, in detail, the Corporation’s results of operations for the three and nine months ended September 30, 2020, as compared to the same period in 2019, and the changes in its financial condition as of September 30, 2020 as compared to December 31, 2019.

Components of Net Income

Net income is comprised of five major elements:

● Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;

● Provision For Loan and Lease Losses, or the amount added to the Allowance to provide for estimated inherent losses on portfolio loans and leases;

● Non-interest Income, which is made up primarily of mortgage banking income, wealth management income, gains and losses from the sale of loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;

● Non-interest Expense, which consists primarily of salaries and employee benefits, occupancy, loan expenses, professional fees and other operating expenses; and

● Income Taxes, which include state and federal jurisdictions.

NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s revenue. The tables below present a summary, for the three and nine months ended September 30, 2020 and 2019, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the results of net free funding sources such as noninterest deposits and stockholders’ equity.

Total interest income for the three months ending September 30, 2020 was $15.9 million, which represented a $2.3 million, or 16.9%, increase compared with the three months ending September 30, 2019. The increase in income was attributable to a $538.1 million increase in average interest earning assets, year over year, led by the $254.0 million increase in average balances on PPP loans, offset by a decrease of 122 basis points in yield on earning assets, to 4.07% from 5.29%, for same period in 2019. The commercial loan portfolio yield, in particular, fell 95 basis points over the same period in 2019, the yield on shared national credits fell 207 basis points, and the yield on construction loans decreased 65 basis points over the same period. And while fees and interest on PPP loans contributed $1.5 million to total interest income, the yield on these loans was 2.41%.  Total interest expense declined $1.2 million or 26.7% to $3.2 million for the three months ending September 30, 2020, compared with $4.3 million for the three months ending September 30, 2019. The decrease was primarily due to a 107 basis point decline in the yield on money market and savings accounts from 1.74% to 0.67%, combined with a 100 basis point decline in the yield on time deposits from 2.37% to 1.37% over this period.  

Net interest income increased $3.4 million, or 37.1%, to $12.7 million for the three months ended September 30, 2020, compared to $9.3 million for the three months ended September 30, 2019. The net-interest margin decreased 35 basis points for the three months ending September 30, 2020 at 3.26%, compared with 3.61% for the three month ending September 30, 2019. The decrease in net interest margin reflects declining interest rates earned on the loan portfolios overall,  out-pacing the declines in the interest rates on deposits and borrowings during the year-over-year period presented.

Total interest income for the nine months ending September 30, 2020 was $44.7 million, which represented a $5.7 million, or 14.7%, increase compared with the nine months ending September 30, 2019. The increase in income was attributable

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to a $393.8 million increase in average interest earning assets, year over year, led by the $144.6 million increase in average balances on PPP loans, offset by a decrease of 97 basis points in yield on earning assets, to 4.38% from 5.35%, for same period in 2019. The commercial loan portfolio yield, in particular, fell 83 basis points over the same period in 2019, the yield on shared national credits fell 158 basis points, the yield on construction loans fell 85 basis points over the same period in 2019, while the yield on small business loans also decreased 68 basis points over the same period. Total interest expense declined $1.6 million or 12.7% to $10.8 million for the nine months ending September 30, 2020, compared with $12.3 million for the nine months ending September 30, 2019. The decrease was primarily due to a 86 basis point decline in the yield on money market and savings accounts from 1.79% to 0.93%, combined with a 70 basis point decline in the yield on time deposits from 2.37% to 1.67% over this period.  

Net interest income increased $7.3 million, or 27.4%, to $34.0 million for the nine months ended September 30, 2020, compared to $26.7 million for the nine months ended September 30, 2019. The net-interest margin decreased 34 basis points for the nine months ending September 30, 2020 at 3.33%, compared with 3.67% for the nine month ending September 30, 2019. The decrease in net interest margin reflects declining interest rates earned on the loan portfolios overall, out-pacing the declines in the interest rates on deposits and borrowings during the year-over-year period presented.

Analyses of Interest Rates and Interest Differential

The tables below present the major asset and liability categories on an average daily balance basis for the periods presented, along with interest income, interest expense and key rates and yields on a tax equivalent basis.

	2020					2019
			Interest					Interest
For the Three Months Ended September 30,	Average		Income/		Yields/	Average		Income/		Yields/
(dollars in thousands)	Balance		Expense		rates	Balance		Expense		rates
Assets
Interest-earning assets
Due from banks	$	10,928		2	0.08%	$	5,074		35	2.69%
Federal funds sold		12,655		2	0.02%		633		3	2.12%
Investment securities(1)		109,106		612	2.27%		63,488		414	2.59%
Loans held for sale		150,925		1,100	2.91%		38,633		381	3.95%
Loans held for investment(1)		1,275,046		14,224	4.41%		912,781		12,773	5.53%
Total loans		1,425,971		15,324	4.28%		951,414		13,154	5.49%
Total interest-earning assets		1,558,660		15,940	4.07%		1,020,609		13,606	5.29%
Noninterest earning assets		39,647					38,846
Total assets	$	1,598,307				$	1,059,455
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits	$	219,853		392	0.71%	$	86,005		352	1.63%
Money market and savings deposits		454,922		770	0.67%		313,255		1,374	1.74%
Time deposits		312,538		1,073	1.37%		319,208		1,907	2.37%
Total deposits		987,313		2,235	0.90%		718,468		3,633	2.01%
Total Borrowings		235,455		334	0.56%		81,211		514	2.51%
Subordinated Debentures		40,802		596	5.84%		9,176		169	7.33%
Total interest-bearing liabilities		1,263,570		3,165	1.00%		808,855		4,316	2.12%
Noninterest-bearing deposits		193,020					126,101
Other noninterest-bearing liabilities		16,664					7,952
Total liabilities	$	1,473,254				$	942,908
Total stockholders' equity		125,053					116,547
Total stockholders' equity and liabilities	$	1,598,307				$	1,059,455
Net interest income			$	12,775				$	9,290
Net interest spread					3.07%					3.17%
Net interest margin					3.26%					3.61%

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	2020					2019
			Interest					Interest
For the Nine Months Ended September 30,	Average		Income/		Yields/	Average		Income/		Yields/
(dollars in thousands)	Balance		Expense		rates	Balance		Expense		rates
Assets
Interest-earning assets
Due from banks	$	7,620		27	0.47%	$	6,450		121	2.51%
Federal funds sold		15,692		36	0.30%		853		15	2.27%
Investment securities(1)		95,563		1,735	2.45%		63,135		1,226	2.60%
Loans held for sale		99,633		2,301	3.08%		25,782		813	4.21%
Loans held for investment(1)		1,150,662		40,753	4.70%		879,184		36,880	5.58%
Total loans		1,250,295		43,054	4.60%		904,966		37,693	5.57%
Total interest-earning assets		1,369,170		44,852	4.38%		975,404		39,055	5.35%
Noninterest earning assets		43,940					37,753
Total assets	$	1,413,110				$	1,013,157
Liabilities and stockholders' equity
Interest-bearing liabilities
Interest-bearing deposits	$	187,987		1,302	0.92%	$	94,295		1,122	1.59%
Money market and savings deposits		392,863		2,736	0.93%		297,471		3,977	1.79%
Time deposits		322,574		4,026	1.67%		309,434		5,485	2.37%
Total deposits		903,424		8,064	1.19%		701,200		10,584	2.02%
Total Borrowings		148,192		900	0.81%		59,862		1,223	2.73%
Subordinated Debentures		41,075		1,787	5.80%		9,197		508	7.37%
Total interest-bearing liabilities		1,092,691		10,751	1.31%		770,259		12,315	2.14%
Noninterest-bearing deposits		184,503					122,101
Other noninterest-bearing liabilities		12,349					6,997
Total liabilities	$	1,289,543				$	899,357
Total stockholders' equity		123,567					113,800
Total stockholders' equity and liabilities	$	1,413,110				$	1,013,157
Net interest income			$	34,101				$	26,740
Net interest spread					3.06%					3.22%
Net interest margin					3.33%					3.67%

(1) Yields and net interest income are reflected on a tax-equivalent basis.

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Rate/Volume Analysis

The rate/volume analysis table below analyzes dollar changes in the components of interest income and interest expense as they relate to the change in balances (volume) and the change in interest rates (rate) of tax-equivalent net interest income for the three and nine months ended September 30, 2020 as compared to the same period in 2019, allocated by rate and volume. Changes in interest income and/or expense attributable to both volume and rate have been allocated proportionately based on the relationship of the absolute dollar amount of the change in each category.

	2020 Compared to 2019
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands)	Rate		Volume	Total	Rate		Volume	Total
Interest income:
Due from banks	$	(159)	126	(33)	$	(125)	31	(94)
Federal funds sold		(25)	24	(1)		(31)	52	21
Investment securities(1)		(314)	512	198		(116)	625	509
Loans held for sale		(673)	1,392	719		(404)	1,892	1,488
Loans held for investment(1)		(13,044)	14,495	1,451		(8,930)	12,803	3,873
Total loans		(13,717)	15,887	2,170		(9,334)	14,695	5,361
Total interest income	$	(14,215)	16,549	2,334	$	(9,606)	15,403	5,797
Interest expense:
Interest-bearing deposits	$	(1,152)	1,192	40	$	(829)	1,009	180
Money market and savings deposits		(3,184)	2,580	(604)		(2,788)	1,547	(1,241)
Time deposits		(795)	(39)	(834)		(1,821)	362	(1,459)
Total interest-bearing deposits		(5,131)	3,733	(1,398)		(5,438)	2,918	(2,520)
Total borrowings		(591)	411	(180)		(852)	529	(323)
Subordinated debentures		(234)	661	427		(198)	1,477	1,279
Total interest expense		(5,956)	4,805	(1,151)		(6,488)	4,924	(1,564)
Interest differential	$	(8,259)	11,744	3,485	$	(3,118)	10,479	7,361

(1) Yields and net interest income are reflected on a tax-equivalent basis.

For the three months ended September 30, 2020 as compared to the same period in 2019, tax-equivalent interest income increased $2.3 million as volume changes in average earning assets contributed $16.5 million and unfavorable rate changes reduced interest income by $14.2 million.  The favorable change in net interest income due to volume changes was driven mostly from growth in the loans held for investment portfolio, which increased $362.3 million on average over the three month periods, while the loans held for sale portfolio also increased $112.3 million on average over this period.  Within the loans held for investment portfolio the average balance on PPP loans increased $254.0 million.  Offsetting favorable volume changes were unfavorable loan rate changes of 121 basis points reducing interest income by $13.7 million.

On the funding side, interest expense decreased $1.2 million due to larger impact from rate declines than from volume increases.  The cost of deposits and borrowings were down across the board, having a $6.0 million positive effect on interest expense. The cost of interest-bearing deposits, money market and savings accounts and time deposits declined 92 basis points, 107 basis points and 100 basis points, respectively, while the cost of borrowings also declined 195 basis points. Interest-bearing deposits, and money market and savings accounts increased $133.8 million, and $141.7 million on average, while time deposits decreased $6.7 million on average, combined with an increase in the average balance on subordinated debentures also increased $31.6 million. These funding average balance changes overall led to a $4.8 million increase in interest expense.  Overall, the increase in interest income from volume changes contributed $16.5 million and out-paced the unfavorable rate changes to improve tax-equivalent net interest income by $3.5 million.

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For the nine months ended September 30, 2020 as compared to the same period in 2019, tax-equivalent interest income increased $5.8 million as volume changes in average earning assets contributed $15.4 million and unfavorable rate changes helped reduce interest income by $9.6 million.  The favorable change in net interest income due to volume changes was driven largely from growth in the loans held for investment portfolio, which increased $271.5 million on average over the nine month periods, largely due to the $144.6 million increase in the average balance of PPP loans. Offsetting favorable volume changes were unfavorable loan rate changes of 97 basis points reducing interest income by $9.3 million.

On the funding side, interest expense decreased $1.6 million due to larger impact from rate declines than from volume increases.  The cost of deposits and borrowings were down across the board, having a $6.5 million positive effect on interest expense. The cost of interest-bearing deposits, money market and savings accounts and time deposits declined 67 basis points, 86 basis points and 70 basis points, respectively, while the cost of borrowings also declined 192 basis points. Interest-bearing deposits, money market and savings accounts and time deposits increased $93.7 million, $95.4 million and $13.1 million on average, respectively, while the average balance on subordinated debentures also increase $31.9 million. These funding average balance increases led to a $4.9 million increase in interest expense.  Overall, the increase in interest income from volume changes contributed $15.4 million and out-paced the unfavorable rate changes to improve tax-equivalent net interest income by $7.4 million.

Simulations of net interest income. We use a simulation model on a quarterly basis to measure and evaluate potential changes in our net interest income resulting from various hypothetical interest rate scenarios. Our model incorporates various assumptions that management believes to be reasonable, but which may have a significant impact on results such as:

● The timing of changes in interest rates;

● Shifts or rotations in the yield curve;

● Repricing characteristics for market rate sensitive instruments on the balance sheet;

● Differing sensitivities of financial instruments due to differing underlying rate indices;

● Varying timing of loan prepayments for different interest rate scenarios;

● The effect of interest rate floors, periodic loan caps and lifetime loan caps;

● Overall growth rates and product mix of interest-earning assets and interest-bearing liabilities.

Because of the limitations inherent in any approach used to measure interest rate risk, simulated results are not intended to be used as a forecast of the actual effect of a change in market interest rates on our results, but rather as a means to better plan and execute appropriate Asset / Liability Management (“ALM”) strategies.

Potential changes to our net interest income between a flat interest rate scenario and hypothetical rising and declining interest rate scenarios, measured over a one-year period as of September 30, 2020 and 2019  are presented in the following table. The simulation assumes rate shifts occur upward and downward on the yield curve in even increments over the first twelve months (ramp), followed by rates held constant thereafter.

Rate Ramp

	Estimated increase
	(decrease) in Net Interest
	Income
	For the year ending
	September 30,
Changes in Market Interest Rates	2020		2019
+300 basis points over next 12 months	1.98	%	0.29	%
+200 basis points over next 12 months	0.95	%	0.32	%
+100 basis points over next 12 months	0.15	%	0.23	%
No Change
-100 basis points over next 12 months	(4.33)	%	0.68	%
-200 basis points over next 12 months	(14.19)	%	(1.30)	%

The above interest rate simulation suggests that the Corporation’s balance sheet is asset sensitive as of September 30, 2020. In its current position, the table indicates that a 100, 200 or 300 basis point increase in interest rates would have a

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positive impact from rising rates on net interest income over the next 12 months. The simulated exposure to a change in interest rates is contained, manageable and well within policy guidelines. The results continue to drive our funding strategy of increasing relationship-based accounts (core deposits) and utilizing term deposits to fund short to medium duration assets.

Simulation of economic value of equity. To quantify the amount of capital required to absorb potential losses in value of our interest-earning assets and interest-bearing liabilities resulting from adverse market movements, we calculate economic value of equity on a quarterly basis. We define economic value of equity as the net present value of our balance sheet’s cash flow, and we calculate economic value of equity by discounting anticipated principal and interest cash flows under the prevailing and hypothetical interest rate environments. Potential changes to our economic value of equity between a flat rate scenario and hypothetical rising and declining rate scenarios, measured as of September 30, 2020 and 2019, are presented in the following table. The projections assume shifts upward and downward in the yield curve of 100, 200 and 300 basis points occurring immediately. We would note that starting in the first quarter of 2020 that our simulations in a downward parallel shift of the yield curve, interest and discount rates at the short-end of the yield curve are not to decline below 0%. Management has and continues to employ strategies to mitigate risk in these scenarios.  Strategies include actively lowering deposit and funding rates as well as adding and maintaining the use of interest rate floors on floating rate loans.

	Estimated increase (decrease) in Net
	Economic Value at September 30,
Changes in Market Interest Rates	2020		2019
+300 basis points	129	%	27	%
+200 basis points	98	%	22	%
+100 basis points	57	%	14	%
No Change
-100 basis points	(83)	%	(22)	%
-200 basis points	(213)	%	(42)	%

Gap Analysis

Management measures and evaluates the potential effects of interest rate movements on earnings through an interest rate sensitivity “gap” analysis. Given the size and turnover rate of the originated mortgage loans held for sale, these loans are treated as having a maturity of 12 months or less. Interest rate sensitivity reflects the potential effect on net interest income when there is movement in interest rates. An institution is considered to be asset sensitive, or having a positive gap, when the amount of its interest-earning assets repricing within a given period exceeds the amount of its interest-bearing liabilities also repricing within that time period. Conversely, an institution is considered to be liability sensitive, or having a negative gap, when the amount of its interest-bearing liabilities repricing within a given period exceeds the amount of its interest-earning assets also within that time period. During a period of rising interest rates, a negative gap would tend to decrease net interest income, while a positive gap would tend to increase net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to decrease net interest income.

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The following tables present the interest rate gap analysis of our assets and liabilities as of September 30, 2020 and December 31, 2019.

					Greater
					Than
					5 years and
As of September 30, 2020	12 Months				Not Rate
(dollars in thousands)	or Less		1-2 Years	2-5 Years	Sensitive	Total
Cash and investments	$	91,261	4,174	17,776	73,594	186,805
Loans, net (1)		1,009,802	280,561	212,326	12,734	1,515,423
Other Assets		—	—	—	56,420	56,420
Total Assets	$	1,101,063	284,735	230,102	142,748	1,758,648
Noninterest-bearing deposits		6,377	6,161	17,894	163,419	193,851
Interest-bearing deposits		709,716	—	—	—	709,716
Time deposits		252,841	39,437	13,179	—	305,457
FHLB advances		94,239	14,178	—	—	108,417
Other Liabilities		10,000	235,369	225	63,781	309,375
Total stockholders' equity		—	—	—	131,832	131,832
Total liabilities and stockholders' equity	$	1,073,173	295,145	31,298	359,032	1,758,648
Repricing gap-positive
(Negative) Positive	$	27,890	(10,410)	198,804	(216,284)	—
Cumulative repricing gap: Dollar amount	$	27,890	17,480	216,284	—
Percent of total assets		1.6%	1.0%	12.3%	—

(1) Loans include portfolio loans and loans held for sale

					Greater
					Than
					5 years and
As of December 31, 2019					Not Rate
(dollars in thousands)	12 Months		1-2 Years	2-5 Years	Sensitive	Total
Cash and investments	$	66,856	3,064	13,106	24,990	108,016
Loans, net (1)		558,813	155,846	232,924	41,318	988,901
Other Assets (Footnote 1)		—	—	—	53,102	53,102
Total Assets		625,669	158,910	246,030	119,410	1,150,019
Noninterest-bearing deposits		13,271	9,952	21,833	94,394	139,450
Interest-bearing deposits		399,888	—	—	—	399,888
Time deposits		272,331	16,532	22,967	—	311,830
FHLB advances		123,676	3,123	—	—	126,799
Other Liabilities (Footnote 1)		39,878	—	225	11,254	51,357
Total stockholders' equity (Footnote 1)		—	—	—	120,695	120,695
Total liabilities and stockholders' equity	$	849,044	29,607	45,025	226,343	1,150,019
Repricing gap-positive
(Negative) Positive		(223,375)	129,303	201,005	(106,933)	—
Cumulative repricing gap: Dollar amount	$	(223,375)	(94,072)	106,933	—
Percent of total assets		(19.4)%	(8.2)%	9.3%	—

(1) Loans include portfolio loans and loans held for sale

Under the repricing gap analysis for both periods, we are liability-sensitive in the short-term mainly due to recent loan growth which has out-paced our core deposit growth. In addition, customer preference has been for short-term or liquid deposits. We generally manage our interest rate risk profile close to neutral, using a strategy that is focused on increasing

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our concentration of relationship-based transaction accounts through efforts of our business developers and new branches. The gap results presented could vary substantially if different assumptions are used or if actual experience differs from the assumptions used in the preparation of the gap analysis. Furthermore, the gap analysis provides a static view of interest rate risk exposure at a specific point in time and offers only an approximate estimate of the relative sensitivity of our interest-earning assets and interest-bearing liabilities to changes in market interest rates. In addition, the impact of certain optionality is embedded in our balance sheet such as contractual caps and floors, and trends in asset and liability growth. Accordingly, we combine the use of gap analysis with the use of an earnings simulation model that provides a dynamic assessment of interest rate sensitivity.

PROVISION FOR LOAN AND LEASE LOSSES

For the three months ended September 30, 2020, the Corporation recorded a provision for loan and lease losses (“Provision”) of $4.0 million which was a $3.3 million increase from the same period in 2019. For the three months ended September 30, 2020 there were net charge-offs of $89 thousand as compared to net charge-offs of $18 thousand for the same period in 2019.  The increase in Provision for the three months ended September 30, 2020 related mainly to qualitative provisioning for economic uncertainty as a result of the COVID-10 pandemic, combined with a $1.5 million specific reserve placed on an impaired commercial loan.  

For the nine months ended September 30, 2020, the Corporation recorded a Provision of $7.1 million which was a $6.2 million increase from the same period in 2019. For the nine months ended September 30, 2020 there were net charge-offs of $79 thousand as compared to net recoveries of $321 thousand for the same period in 2019.  The increase in Provision for the nine months ended September 30, 2020 related mainly to qualitative provisioning for economic uncertainty as a result of the COVID-10 pandemic, combined with a $1.5 million specific reserve placed on an impaired commercial loan.  

The provision for loan and lease losses could increase in future periods based on our belief that the credit quality of our loan portfolio could decline and loan defaults could increase if the COVID-19 pandemic continues for a prolonged period of time.

Asset Quality and Analysis of Credit Risk

Asset quality remains strong year-over-year despite the pressures that the COVD-19 pandemic has had on businesses and the economy locally and nationally. Meridian realized net charge-offs of 0.01% of total average loans for the quarter ending September 30, 2020, compared with net recoveries of 0.03% for the quarter ended December 31, 2019 and net charge-offs of 0.00% for the quarter ended September 30, 2019. Total non-performing assets, including loans and other real estate property, were $7.9 million as of September 30, 2020, $3.4 million as of December 31, 2019, and $4.0 million as of September 30, 2019. The ratio of non-performing assets to total assets as of September 30, 2020 was 0.45% compared to 0.30% as of December 31, 2019 and 0.36% as of September 30, 2019. The ratio of allowance for loan losses to total loans, was 1.27% as of September 30, 2020, up from the 0.98% recorded as of December 31, 2019 and 1.00% as of September 30, 2019. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure), was 1.59% as of September 30, 2020, up from the 1.00% recorded as of December 31, 2019 and 1.01% as of September 30, 2019. PPP loans are excluded from calculation of this ratio as they are guaranteed by the SBA and therefore we have not provided for in the allowance for loan losses.  For further information on non-GAAP financial measures, see “Non-GAAP Financial Measures” in this Quarterly Report on Form 10-Q.

There were no properties in OREO as of September 30, 2020 and one property in OREO as of December 31, 2019 that was sold in the first quarter of 2020.

As of September 30, 2020, the Corporation had $3.7 million of troubled debt restructurings (“TDRs”), of which $3.4 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2019, the Corporation had $3.9 million of TDRs, of which $3.6 million were in compliance with the modified terms, and were excluded from non-performing loans and leases. As of September 30, 2020, the Corporation had a recorded investment of $10.5 million of impaired loans and leases which included $3.7 million of TDRs.

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The Corporation continues to be diligent in its credit underwriting process and proactive with its loan review process, including the engagement of the services of an independent outside loan review firm, which helps identify developing credit issues. Proactive steps that are taken include the procurement of additional collateral (preferably outside the current loan structure) whenever possible and frequent contact with the borrower. The Corporation believes that timely identification of credit issues and appropriate actions early in the process serve to mitigate overall risk of loss.

Nonperforming Assets and Related Ratios

	As of
	September 30,		December 31,
(dollars in thousands)	2020		2019
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Commercial mortgage	$	667		733
Shared national commercial credits		464		—
Home equity lines and loans		663		537
Residential mortgage		2,533		1,544
Total real estate loans	$	4,327		2,814
Commercial and industrial		3,585		421
Total nonaccrual loans	$	7,912		3,235
Other real estate owned		—		120
Total non-performing loans	$	7,912		3,235
Total non-performing assets	$	7,912		3,355
Troubled debt restructurings:
TDRs included in non-performing loans		246		319
TDRs in compliance with modified terms		3,428		3,599
Total TDRs	$	3,674		3,918
Asset quality ratios:
Non-performing assets to total assets		0.45%		0.29%
Non-performing loans to:
Total loans and leases		0.52%		0.32%
Total loans held-for-investment		0.61%		0.34%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		0.76%		0.34%
Allowance for loan losses to:
Total loans and leases		1.08%		0.95%
Total loans held-for-investment		1.27%		1.00%
Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)		1.59%		1.00%
Non-performing loans		209.46%		294.12%
Total loans and leases	$	1,531,996		998,414
Total loans and leases held-for-investment	$	1,306,846		964,710
Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)	$	1,041,293		954,164
Allowance for loan and lease losses	$	16,573		9,513

(1) The allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” above for a reconciliation of this measure to its most comparable GAAP measure. PPP loans have only been excluded from this calculation as of September 30, 2020.

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NON-INTEREST INCOME

Three Months Ended September 30, 2020 Compared to the Same Period in 2019

Total non-interest income for the third quarter of 2020 was $29.1 million, up $19.9 million or 215.6% from the comparable period in 2019. This overall increase in non-interest income came primarily from our mortgage division. Mortgage banking net revenue increased $14.5 million or 198.2% over the third quarter of 2019.  The significant increase in 2020 came from increased levels of mortgage loan originations due to both the expansion of the division into Maryland as well as the favorable rate environment for refinance activity. Our mortgage division originated $707.7 million in loans during the third quarter of 2020, an increase of $517.0 million, or 271.1%, from the third quarter of 2019.  Refinance activity represented 54% of the total loans originated for the third quarter of 2020, compared to 46% for the third quarter of 2019.  The increase in the mortgage pipeline as a result of the expansion and the refinance activity generated significant positive fair value changes in derivative instruments and loans held-for-sale.  These fair value changes increased non-interest income a combined $6.0 million during the third quarter of 2020 compared to an increase of $54 thousand for the third quarter of 2019. These changes were offset by increases in net hedging losses of $2.3 million for the third quarter of 2020.

Non-interest income from the sales of SBA 7(a) loans increased $23 thousand year-over-year as the number of loans sold for the three months ended September 30, 2020 outpaced the number of SBA loans sold in the prior year comparable quarter.  Wealth management revenue increased $29 thousand year-over-year due to the favorable market conditions discussed above.  Other fee income was up $421 thousand or 97.7% from the third quarter of 2019 due to $188 thousand in swap fee income recorded in the third quarter of 2020, combined with an increase of $85 thousand in MLSS fee income as loan closing activity increased quarter over quarter, and an increase of $73 thousand in other mortgage fee income.

Nine Months Ended September 30, 2020 Compared to the Same Period in 2019

Total non-interest income for the nine months ended September 30, 2020 was $ 57.0 million, up $34.3 million or 151.5%, from the nine months ended September 30, 2019. This increase in non-interest income came primarily from our mortgage division as mortgage banking net revenue increased $27.8 million or 157.7% over the prior year period.  The significant increase in the current year period came from increased levels of mortgage loan originations due to both the expansion of the division into Maryland as well as the favorable rate environment for refinance activity. Our mortgage division originated $1.5 billion in loans during the nine months ended September 30, 2020, an increase of $1.1 billion, or 255.8%, from the prior year period.  Refinance activity represented 59% of the total residential mortgage loans originated for the nine months ended September 30, 2020, compared to 30% for the nine months ended September 30, 2019.  The increase in the mortgage pipeline as a result of the expansion and the refinance activity generated significant positive fair value changes in derivative instruments and loans held-for-sale.  These fair value changes increased non-interest income a combined $10.8 million during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.  These changes were offset by increases in net hedging losses of $6.6 million.

Wealth management revenue increased $127 thousand, or 4.7%, year-over-year due to the more favorable market conditions that existed in the nine months ended September 30, 2020, compared to the prior year comparable period.  

Non-interest income from the sales of investments amounted to $1.3 million for the nine months ended September 30, 2020, an increase of $1.1 million from the prior year period, while income from the sales of SBA 7(a) loans increased $671 thousand, or 58.3%, from the prior year period, to $1.8 million. Other fee income was up $539 thousand or 45.7% for the nine months ended September 30, 2020, from the nine months ended September 30, 2019 due to $255 thousand in swap fee income recorded in the current year period, combined with increases of $153 thousand and $201 thousand in MLSS fee income, and mortgage fee income, respectively, as loan closing activity increased period-over-period

NON-INTEREST EXPENSE

Three Months Ended September 30, 2020 Compared to the Same Period in 2019

Total non-interest expense for the third quarter of 2020 was $25.8 million, up $12.3 million or 90.7%, from the comparable period in 2019.  The increase is largely attributable to an increase in salaries and employee benefits expense, which

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increased $11.1 million or 119.4%, from the comparable period in 2019.  Of this increase, $10.0 million relates to the mortgage division.  Full-time equivalent employees, particularly in the mortgage division, increased from the prior year comparable quarter as we expanded our mortgage division into Maryland with the hiring of nearly 90 individuals since the first quarter of 2020. The number of full time employees at Meridian, particularly in SBA and lease lending, also increased over this period.

Loan expenses increased $300 thousand or 156.3%, from the comparable period in 2019, reflecting the higher levels of loan originations. Occupancy expense increased $162 thousand or 17.1%, from the third quarter of 2019 as the result of rent expense incurred at loan production locations for our mortgage division expansion into Maryland.  Advertising and promotion expense increased $207 thousand, or 36.1%, from the comparable period in 2019.  This increase was due to an increase in the number and length of advertising campaigns in addition to an increase in marketing costs for the mortgage division.  Data processing costs increased $117 thousand or 34.2%, from the third quarter of 2019 as the result of increased loan processing activity from our mortgage division, combined with processing activity relating to PPP loans.  Professional fees decreased $139 thousand or 17.0% due to a decline in legal and consulting expenses.  Other expenses were up $367 thousand or 43.2%, as information technology related costs increased $60 thousand, insurance costs increased $226 thousand, combined with an increase of $126 thousand in various other expenses.

Nine Months Ended September 30, 2020 Compared to the Same Period in 2019

Total non-interest expense for the nine months ended September 30, 2020 was $61.2 million, up $22.2 million or 56.9%, from the nine months ended September 30, 2019.  The increase is largely attributable to the variable expenses from loan originations overall, particularly mortgage commissions.   Total salaries and employee benefits expense was $46.5 million, an increase of $20.7 million or 80.4%, compared to the nine months ended September 30, 2019. Of this increase, $18.9 million relates to the mortgage division.  Full-time equivalent employees, particularly in the mortgage division, increased year-over-year. As noted above, in the first quarter of 2020, we expanded our mortgage division into Maryland with the hiring of nearly 90 individuals year to date.

Loan expenses increased by $628 thousand or 133.1% for the nine months ended September 30, 2020, reflecting the higher levels of commercial and consumer loan originations during the current year. Advertising expenses increased by $227 thousand or 12.8% during the nine months ended September 30, 2020, due mainly to an increase in marketing related costs from the mortgage division. Professional fees increased $118 thousand or 5.9%, compared to the prior year period due to an increase in consulting costs for bank-wide projects, partially offset by a decrease in certain audit related fees and external legal costs.

INCOME TAXES

Income tax expense for the three months ended September 30, 2020 was $2.8 million, as compared to $914 thousand for the same period in 2019.  The increase in income tax expense was attributable to the increase in earnings, period over period.  Our effective tax rate was 23.1% for the third quarter of 2020 and 21.6% for the third quarter of 2019.  

Income tax expense for the nine months ended September 30, 2020 was $5.2 million, as compared to $2.1 million for the same period in 2019.  The increase in income tax expense was attributable to the increase in earnings, period over period.  Our effective tax rate was 23.0% for the first nine months of 2020 and 22.0% for the first nine months of 2019.  

BALANCE SHEET ANALYSIS

As of September 30, 2020, total assets were $1.8 billion compared with $1.2 billion as of December 31, 2019 and $1.1 billion as of September 30, 2019. Total assets increased $608.6 million, or 52.9%, from December 31, 2019 and $631.7 million, or 56.1%, from September 30, 2019, primarily due to strong loan growth.

Total loans, excluding mortgage loans held-for-sale, grew $342.1 million, or 35.5%, to $1.3 billion as of September 30, 2020, from $964.7 million as of December 31, 2019 and $371.0 million or 39.6% from $935.9 million as of September 30, 2019. The increase in loans for both periods is attributable largely to the $260 million in PPP loans granted to borrowers during the nine months ended September 30, 2020. There was also growth in several commercial categories as we continue

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to grow our presence in the Philadelphia market area. Commercial real estate loans increased $103.8 million, or 27.8% from December 31, 2019, and $113.3 million, or 31.2% from September 30, 2019. Commercial loans decreased $14.4 million, or 7.2%, from December 31, 2019, and $7.6 million, or 3.9% from September 30, 2019. Small business loans increased $22.8 million, or 104.4% from December 31, 2019, and $29.9 million, or 203.3% from September 30, 2019.  Residential mortgage loans held for sale increased $191.5 million, or 568.0%, to $225.2 million as of September 30, 2020 from $33.7 million at December 31, 2019 and $176.5 million from $48.6 million as of September 30, 2019. The increase in mortgage originations is primarily the result of the expansion of our mortgage division into Maryland as well as the increase in refinance activity throughout all areas of our mortgage division.

Deposits were $1.2 billion as of September 30, 2020, up $357.9 million, or 42.0%, from December 31, 2019, and up $350.6 million, or 40.8%, from September 30, 2019. Non-interest bearing deposits increased $54.4 million, or 39.0%, from December 31, 2019 and increased $64.5 million, or 49.9%, from September 30, 2019. Interest-bearing checking accounts increased $124.2 million, or 131.6%, from December 31, 2019, and increased $138.0 million or 171.3% from September 30, 2019.  Money market accounts/savings accounts increased $185.6 million, or 60.8% since December 31, 2019 and $163.4 million, or 49.9%, since September 30, 2019. Increases in core deposits were driven from PPP loan customers as well as new business and municipal relationships.  Certificates of deposit decreased $6.4 million, or 2.0%, from December 31, 2019 and decreased $15.5 million, or 4.8%, from September 30, 2019.

Capital

Consolidated stockholders’ equity of the Corporation was $131.8 million, or 7.50% of total assets as of September 30, 2020, as compared to $120.7 million, or 10.50% of total assets as of December 31, 2019. The change in stockholders’ equity is the result of year-to-date net income of $17.4 million and an increase in unrealized gain on AFS securities of $1.5 million, partially offset by treasury stock purchases of $5.8 million, unearned compensation due to leveraged ESOP of $2 million and dividends paid of $763 thousand. As of September 30, 2020, the Tier 1 leverage ratio was 8.77% for the Corporation and 11.53% for the Bank, the Tier 1 risk-based capital and common equity ratios were 9.97% for the Corporation and 13.09% for the Bank, and total risk-based capital was 14.71% for the Corporation and 14.75% for the Bank. Quarter-end numbers show a tangible common equity to tangible assets ratio of 7.26% for the Corporation and 9.51% for the Bank. A reconciliation of this non-GAAP measure is included in the Appendix.  Tangible book value per share was $20.76 as of September 30, 2020, compared with $18.09 as of December 31, 2019.

The following table presents the Corporation’s capital ratios and the minimum capital requirements to be considered “well capitalized” by regulators as of September 30, 2020 and December 31, 2019:

	September 30, 2020
							To be well capitalized under
				For capital adequacy			prompt corrective action
	Actual			purposes *			provisions **
(dollars in thousands)	Amount		Ratio	Amount		Ratio	Amount		Ratio
Total capital (to risk-weighted assets)
Corporation	$	185,648	14.71%	$	132,532	10.50%	$	126,221	10.00%
Bank		186,210	14.75%		132,532	10.50%		126,221	10.00%
Common equity tier 1 capital (to risk-weighted assets)
Corporation		125,810	9.97%		88,355	7.00%		82,044	6.50%
Bank		165,277	13.09%		88,355	7.00%		82,044	6.50%
Tier 1 capital (to risk-weighted assets)
Corporation		125,810	9.97%		107,288	8.50%		100,977	8.00%
Bank		165,277	13.09%		107,288	8.50%		100,977	8.00%
Tier 1 capital (to average assets)
Corporation		125,810	8.77%		57,351	4.00%		71,689	5.00%
Bank		165,277	11.53%		57,351	4.00%		71,689	5.00%

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	December 31, 2019
							To be well capitalized under
				For capital adequacy			prompt corrective action
	Actual			purposes *			provisions **
(dollars in thousands):	Amount		Ratio	Amount		Ratio	Amount		Ratio
Total capital (to risk-weighted assets)
Corporation	$	166,471	16.10%	$	108,576	10.50%	$	103,405	10.00%
Bank		166,360	16.09%		108,571	10.50%		103,401	10.00%
Common equity tier 1 capital (to risk-weighted assets)
Corporation		115,934	11.21%		72,384	7.00%		67,214	6.50%
Bank		154,881	14.98%		72,381	7.00%		67,211	6.50%
Tier 1 capital (to risk-weighted assets)
Corporation		115,934	11.21%		87,895	8.50%		82,724	8.00%
Bank		154,881	14.98%		87,891	8.50%		82,721	8.00%
Tier 1 capital (to average assets)
Corporation		115,934	10.55%		43,973	4.00%		54,966	5.00%
Bank		154,881	14.08%		44,013	4.00%		55,017	5.00%

* Includes capital conservation buffer of 2.50% for 2020 and 1.250% for 2019.

** Prompt corrective action requirements do not apply to Meridian Corporation but are included as informational only.

The capital ratios for the Corporation, as of September 30, 2020, as shown in the above tables, indicate levels above the regulatory minimum to be considered “well capitalized.” The capital ratios to risk-weighted assets have all decreased from their December 31, 2019 levels largely as a result of the increase in risk-weighted assets, much of which was in the commercial mortgage, construction, and commercial and industrial segments of the loan portfolio, which are typically risk-weighted at 100%.   The capital ratios as of September 30, 2020 were impacted by the amount of PPPLF borrowings the Corporation used fund PPP loans.

Liquidity

Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. Meridian’s foundation for liquidity is a stable and loyal customer deposit base, cash and cash equivalents, and a marketable investment portfolio that provides periodic cash flow through regular maturities and amortization or that can be used as collateral to secure funding. In addition, as part of its liquidity management, Meridian maintains a segment of commercial loan assets that are comprised of shared national credits (“SNCs”), which have a national market and can be sold in a timely manner. Meridian’s primary liquidity, which totaled $425.7 million at September  30, 2020, compared to $195.2 million at December 31, 2019, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities.  Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.  In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the Federal Reserve Bank of Philadelphia to meet short-term liquidity needs. Through its relationship at the Federal Reserve, Meridian had available credit of approximately $10.6 million at September 30, 2020. At September 30, 2020, Meridian had borrowed $10 million from the Federal Reserve. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of September 30, 2020, Meridian’s maximum borrowing capacity with the FHLB was $615.3 million. At September 30, 2020, Meridian had borrowed $108.4 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $129 million against its available credit lines. At September 30, 2020, Meridian also had available $39 million of unsecured federal funds lines of credit with other financial institutions as well as $252.7 million of available short or long term funding through the Certificate of Deposit Account Registry Service (“CDARS”) program and $89.0 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

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Discussion of Segments

As of September 30, 2020, the Corporation has three principal segments as defined by FASB ASC 280, “Segment Reporting.” The segments are Banking, Mortgage Banking and Wealth Management (see Note 11 in the accompanying Notes to Unaudited Consolidated Financial Statements).

The Banking Segment recorded income before tax of $2.6 million and $7.9 million for the three and nine months ended September 30, 2020, as compared to income before tax of $2.8 million and $8.0 million for the same periods in 2019. The Banking Segment provided 21.5% and 34.9% of the Corporation’s pre-tax profit for the three and nine month periods ended September 30, 2020, as compared to 67.0% and 84.8% for the same periods in 2019.

The Wealth Management Segment recorded income before tax of $144 thousand and $453 thousand for the three and nine months ended September 30, 2020, as compared to income before tax of $61 thousand and $388 thousand for the same periods in 2019.

The Mortgage Banking Segment recorded income before tax of $9.3 million and $14.3 million for the three and nine months ended September 30, 2020, as compared to income before tax of $1.3 million and $1.0 million for the same periods in 2019.  Mortgage Banking income and expenses related to loan originations and sales increased due to higher origination volume.

Off Balance Sheet Risk

The Corporation is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the loan agreement. Total commitments to extend credit at September 30, 2020 were $377.9 million, as compared to $327.8 million at December 31, 2019.

Standby letters of credit are conditional commitments issued by the Corporation to a customer for a third party. Such standby letters of credit are issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is similar to that involved in granting loan facilities to customers. The Corporation’s obligation under standby letters of credit at September 30, 2020 amounted to $7.1 million, as compared to $9.8 million at December 31, 2019.

Estimated fair values of the Corporation’s off-balance sheet instruments are based on fees and rates currently charged to enter into similar loan agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. Since fees and rates charged for off-balance sheet items are at market levels when set, there is no material difference between the stated amount and the estimated fair value of off-balance sheet instruments.

In certain circumstances the Corporation may be required to repurchase loans from investors under the terms of loan sale agreements. Generally, these circumstances include the breach of representations and warranties made to investors regarding borrower default or early payment, as well as a violation of the applicable federal, state, or local lending laws.  The Corporation agrees to repurchase loans if the representations and warranties made with respect to such loans are breached, and such breach has a material adverse effect on the loans. Based on the obligations described above, the Corporation repurchased one loan sold in the amount of $154 thousand for the three and nine months ended September 30, 2020, and did not repurchase any loans for the three and nine months ended September 30, 2019.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

See the discussion of quantitative and qualitative disclosures about market risks in “Management’s Discussion and Analysis of Results of Operations – Interest Rate Summary,” “– Interest Rate Sensitivity,” and “Gap Analysis” in this Quarterly Report on Form 10-Q.

57

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures as defined in Rules 13a- 15(e) and 15d- 15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, the Corporation’s CEO and CFO have concluded that the Corporation’s disclosure controls and procedures were effective as of September 30, 2020 to ensure that the information required to be disclosed by the Corporation in the reports that the Corporation files or submits under the Exchange Act is recorded, processed, summarized, and reported completely and accurately within the time periods specified in SEC rules and forms.  

Changes in Internal Control Over Financial Reporting

There was no change in the Corporation’s internal control over financial reporting identified during the quarter ended September 30, 2020 that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

58

PART II–OTHER INFORMATION

Item 1. Legal Proceedings.

Item 1A. Risk Factors.

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in the Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the Securities and Exchange Commission. Additional risks not presently known to the Corporation, or that are currently deemed immaterial, may also adversely affect business, financial condition or results of operations of the Corporation. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause the Corporation’s actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of it.

The economic impact of the COVID-19 outbreak could adversely affect the Corporation’s financial condition and results of operations.

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments ordered non-essential businesses to close and residents to shelter in place at home for a period of time starting at the beginning of the pandemic declaration.  This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment and the stock market, and in particular bank stocks, have significantly declined in value. In response to the COVID-19 outbreak, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10- and 30-year treasury notes have declined to historic lows. Various state governments and federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 outbreak. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry.  Finally, the spread of COVID-19 has caused the Bank to modify its business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences.  The Corporation continues to have substantially all employees working remotely and may take further actions that may be required by government authorities or that the Corporation determines are in the best interests of its employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 outbreak on the Corporation. The extent of such impact will depend on future developments, which are highly uncertain, including when COVID-19 can be controlled and abated and when and how the economy may be fully reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Corporation could be subject to any of the following risks, any of which could have a material, adverse effect on its business, financial condition, liquidity, and results of operations:

● demand for the Corporation’s products and services may decline, making it difficult to grow assets and income;

● if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

● collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

● due to recent legislation and government action limiting foreclosure of real property and reduced governmental capacity to effect business transactions and property transfers, the Corporation may have more difficulty taking possession of collateral supporting its loans, which may negatively impact its ability to minimize losses, which could adversely impact its financial results;

● access to collateral for existing loans and new loan production may be difficult as a result of COVID-19 making it difficult to obtain, on a timely basis, appraisals on the collateral;

59

● the Corporation’s allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect its net income;

● the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to the Corporation;

● as the result of the decline in the Federal Reserve Board’s target federal funds rate, the yield on the Corporation’s assets may decline to a greater extent than the decline in its cost of interest-bearing liabilities, reducing its net interest margin and spread and reducing net income;

● if legislation is enacted or governmental or regulatory action is enacted limiting the amount of ATM fees or surcharges that the Corporation may receive or on the its ability to charge overdraft or other fees, it could adversely impact the Corporation’s financial results;

● the Corporation’s cyber security risks are increased as the result of an increased use of the Corporation’s online banking platform and an increase in the number of employees working remotely;

● the Corporation relies on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on it; and

● Federal Deposit Insurance Corporation premiums may increase if the agency experiences additional resolution costs.

Meridian’s active participation in the PPP, or in other relief programs, may expose us to credit losses as well as litigation and compliance risk.

To support our customers, businesses, and communities, Meridian is an active participant in the PPP. Meridian began accepting applications from qualified borrowers in early April 2020 and as of September 30, 2020 over 928 loan requests have been processed and approved, representing nearly $260 million in funding to new and existing clients through the PPP. Meridian’s participation in the PPP, and participation in any other relief programs now or in the future, including those under the CARES Act, exposes us to certain credit, compliance, and other risks.

​
Among other regulatory requirements, PPP loans are subject to forbearance of loan payments for a six-month period to the extent that loans are not eligible for forgiveness. If PPP borrowers fail to qualify for loan forgiveness, including by failing to use the funds appropriately in order to qualify for forgiveness under the program, Meridian has a greater risk of holding these loans at unfavorable interest rates. In addition, because of the short time period between the passing of the CARES Act and the implementation of the PPP, there is ambiguity in the laws, rules, and guidance regarding the operation of the PPP, which exposes us to risks relating to noncompliance with the PPP. There is risk that the SBA or another governmental entity could conclude there is a deficiency in the manner in which Meridian originated, funded, or serviced PPP loans, which may or may not be related to the ambiguity in the CARES Act or the rules and guidance promulgated by the SBA and the U.S. Department of the Treasury regarding the operation of the PPP. In the event of such deficiency, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already made payment under the guaranty, seek recovery of any loss related to the deficiency from us.

Since the commencement of the PPP, several other banks have been subject to litigation regarding the process and procedures that such banks followed in accepting and processing applications for the PPP. We may be exposed to the risk of similar litigation, from both customers and non-customers that contacted Meridian regarding obtaining PPP loans with respect to the processes and procedures we used in processing applications for the PPP. If any such litigation is filed against us and is not resolved in a manner favorable to us, it may result in significant financial liability to us or adversely affect our reputation. In addition, litigation can be costly, regardless of outcome. Any financial liability, litigation costs, or reputational damage caused by PPP-related litigation could have a material adverse impact on our reputation, business, financial condition, and results of operations.

In addition, we may be subject to regulatory scrutiny regarding Meridian’s processing of PPP applications or its origination or servicing of PPP loans. While the SBA has said that in many instances, banks may rely on the certifications of borrowers regarding their eligibility for PPP loans, Meridian does have several obligations under the PPP, and if the SBA found that Meridian did not meet those obligations, the remedies the SBA may seek against Meridian are unknown but may include not guarantying the PPP loans resulting in credit exposure to borrowers who may be unable to repay their loans. The PPP program may also attract significant interest from federal and state enforcement authorities, oversight agencies, regulators,

60

and Congressional committees. State Attorneys General and other federal and state agencies may assert that they are not subject to the provisions of the CARES Act and the PPP regulations entitling Meridian to rely on borrower certifications, and take more aggressive action against us for alleged violations of the provisions governing Meridian’s participation in the PPP.

Moreover, the Corporation’s future success and profitability substantially depends on the management skills of its executive officers and directors, many of whom have held officer and director positions with the Corporation for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm its ability to operate or execute its business strategy. The Corporation may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

To the extent the COVID-19 pandemic continues to adversely affect the economy, and/or adversely affects our business, results of operations or financial condition, it may also have the effect of increasing the likelihood and/or magnitude of other risks described in the section captioned "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019, including those risks related to market, credit, and business operations, or risks described in our other filings with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

The exhibits filed or incorporated by reference as part of this report are listed in the Exhibit Index, which appears at page 62.

61

EXHIBIT INDEX

Exhibit Number	Description
2.1	Plan of Merger and Reorganization dated April 26, 2018 by and between Registrant, Bank and Meridian Interim Bank, filed as Exhibit 2.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.
3.1	Articles of Incorporation of Registrant, filed as Exhibit 3.1 to Form 8-K on August 24, 2018 and incorporated herein by reference.
3.2	Bylaws of Registrant, filed as Exhibit 3.2 to Form 8-K on August 24, 2018 and incorporated herein by reference.
31.1	Rule 13a-14(a)/ 15d-14(a) Certification of the Principal Executive Officer, filed herewith.
31.2	Rule 13a-14(a)/ 15d-14(a) Certification of the Principal Financial Officer, filed herewith.
32	Section 1350 Certifications, filed herewith.
101.INS	XBRL Instance Document – The instance document does not appear in the interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 104	Cover Page Interactive Data File – The cover page interative data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

62

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	November 9, 2020	Meridian Corporation
		By:	/s/ Christopher J. Annas
			Christopher J. Annas
			President and Chief Executive Officer
			(Principal Executive Officer)
		By:	/s/ Denise Lindsay
			Denise Lindsay
			Executive Vice President and Chief Financial Officer
			(Principal Financial and Accounting Officer)

63

EX-31.1

Exhibit 31.1

RULE 13a -14(a) CERTIFICATION
OF THE PRINCIPAL EXECUTIVE OFFICER

I, Christopher J. Annas, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Meridian Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)         All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)        Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 9, 2020	/s/ Christopher J. Annas
	Christopher J. Annas
	President and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

RULE 13a-14(a) CERTIFICATION
OF THE PRINCIPAL FINANCIAL OFFICER

I, Denise Lindsay, certify that:

1.           I have reviewed this quarterly report on Form 10-Q of Meridian Corporation;

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)          Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

5.           The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 9, 2020	/s/ Denise Lindsay
	Denise Lindsay
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Meridian Corporation on Form 10-Q for the period ended September 30, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.  The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and

2.  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Meridian Corporation.

	/s/ Christopher J. Annas
	Christopher J. Annas
	President and Chief Executive Officer
	(Principal Executive Officer)
	/s/ Denise Lindsay
	Denise Lindsay
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)
Date:    November 9, 2020

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 08, 2020
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2020
Document Transition Report	false
Entity File Number	000-55983
Entity Registrant Name	Meridian Corp
Entity Incorporation, State or Country Code	PA
Entity Tax Identification Number	83-1561918
Entity Address, Address Line One	9 Old Lincoln Highway
Entity Address, City or Town	Malvern
Entity Address, State or Province	PA
Entity Address, Postal Zip Code	19355
City Area Code	484
Local Phone Number	568-5000
Title of 12(b) Security	Common Stock, $1 par value
Trading Symbol	MRBK
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		6,132,403
Entity Central Index Key	0001750735
Amendment Flag	false
Document Fiscal Year Focus	2020
Current Fiscal Year End Date	--12-31
Document Fiscal Period Focus	Q3

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
CONSOLIDATED BALANCE SHEETS
Cash and due from banks	$ 74,941	$ 19,106
Federal funds sold	928	20,265
Cash and cash equivalents	75,869	39,371
Securities available-for-sale (amortized cost of $101,471 and $58,874 as of September 30, 2020 and December 31, 2019)	103,358	58,856
Securities held-to-maturity (fair value of $6,916 and $9,003 as of September 30, 2020 and December 31, 2019)	6,544	8,780
Equity investments	1,034	1,009
Mortgage loans held for sale (amortized cost of $220,381 and $33,363 as of September 30, 2020 and December 31, 2019), at fair value	225,150	33,704
Loans, net of fees and costs (includes $11,366 and $10,546 of loans at fair value, amortized cost of $10,849 and $10,186 as of September 30, 2020 and December 31, 2019)	1,306,846	964,710
Allowance for loan and lease losses	(16,573)	(9,513)
Loans, net of the allowance for loan and lease losses	1,290,273	955,197
Restricted investment in bank stock	7,650	8,072
Bank premises and equipment, net	8,065	8,636
Bank owned life insurance	12,069	11,859
Accrued interest receivable	4,666	3,148
Other real estate owned		120
Deferred income taxes	398	2,115
Goodwill	899	899
Intangible assets	3,668	3,874
Other assets	19,005	14,379
Total assets	1,758,648	1,150,019
Deposits:
Noninterest bearing	193,851	139,450
Interest bearing	1,015,173	711,718
Total deposits	1,209,024	851,168
Short-term borrowings	104,239	123,676
Long-term debt	250,131	3,123
Subordinated debentures	40,814	40,962
Accrued interest payable	2,258	1,088
Other liabilities	20,350	9,307
Total liabilities	1,626,816	1,029,324
Stockholders' equity:
Common stock, $1 par value. Authorized 10,000,000 shares; issued 6,450,353 and 6,407,685 as of September 30, 2020 and December 31, 2019	6,450	6,408
Surplus	80,981	80,255
Treasury stock - 320,000 and 3,375 shares at September 30, 2020 and December 31, 2019, respectively	(5,828)	(62)
Unearned common stock held by employee stock ownership plan	(2,000)
Retained earnings	50,775	34,097
Accumulated other comprehensive income (loss)	1,454	(3)
Total stockholders' equity	131,832	120,695
Total liabilities and stockholders' equity	$ 1,758,648	$ 1,150,019

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
CONSOLIDATED BALANCE SHEETS
Available-for-sale, Amortized Cost	$ 101,471	$ 58,874
Securities held-to-maturity	6,916	9,003
Mortgage loans held for sale, amortized cost	220,381	33,363
Loans at fair value	11,366	10,546
Loans at amortized cost	$ 10,849	$ 10,186
Common stock, par value	$ 1	$ 1
Common stock, Authorized shares	10,000,000	10,000,000
Common Stock, Shares, Issued	6,450,353	6,407,685
Treasury stock shares held	320,000	3,375

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Interest income:
Loans, including fees	$ 15,321	$ 13,152	$ 43,048	$ 37,686
Securities:
Taxable	251	336	920	892
Tax-exempt	305	64	698	273
Cash and cash equivalents	3	38	63	136
Total interest income	15,880	13,590	44,729	38,987
Interest expense:
Deposits	2,235	3,633	8,064	10,584
Borrowings	930	683	2,687	1,731
Total interest expense	3,165	4,316	10,751	12,315
Net interest income	12,715	9,274	33,978	26,672
Provision for loan losses	3,956	705	7,139	938
Net interest income after provision for loan losses	8,759	8,569	26,839	25,734
Non-interest income:
Mortgage banking income	21,812	7,315	45,395	17,617
Wealth management income	951	922	2,825	2,698
SBA loan income	641	635	1,821	1,150
Earnings on investment in life insurance	70	74	210	218
Net change in the fair value of derivative instruments	3,028		6,346	(16)
Net change in the fair value of loans held-for-sale	2,932	54	4,424	(82)
Net change in the fair value of loans held-for-investment	93	(24)	174	390
Net loss on hedging activity	(2,637)	(300)	(7,363)	(792)
Net gain on sale of investment securities available-for-sale	1,290	74	1,345	212
Other	852	431	1,718	1,179
Total non-interest income	29,060	9,209	56,972	22,656
Non-interest expenses:
Salaries and employee benefits	20,447	9,319	46,529	25,789
Occupancy and equipment	1,108	946	3,159	2,845
Loan expenses	492	192	1,100	472
Professional fees	681	820	2,118	2,000
Advertising and promotion	781	574	1,996	1,769
Data processing	460	343	1,260	990
Information technology	394	334	1,100	919
Pennsylvania bank shares tax	254	169	734	495
Other	1,217	850	3,156	3,701
Total non-interest expenses	25,834	13,547	61,152	38,980
Income before income taxes	11,985	4,231	22,659	9,410
Income tax expense	2,773	914	5,218	2,065
Net income	$ 9,212	$ 3,317	$ 17,441	$ 7,345
Basic earnings per common share	$ 1.51	$ 0.52	$ 2.83	$ 1.15
Diluted earnings per common share	$ 1.51	$ 0.52	$ 2.82	$ 1.14
Wealth Management Income
Non-interest income:
Revenue from contracts with customers	$ 951	$ 922	$ 2,825	$ 2,698
Service Charges
Non-interest income:
Revenue from contracts with customers	$ 28	$ 28	$ 77	$ 82

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income:	$ 9,212	$ 3,317	$ 17,441	$ 7,345
Net change in unrealized gains on investment securities available for sale:
Net unrealized gains arising during the period, net of tax expense of $144, $19, $761 and $220, respectively	304	64	2,489	767
Less: reclassification adjustment for net gains on sales realized in net income, net of tax expense of ($301), ($16), ($313), and ($46), respectively	(989)	(58)	(1,032)	(166)
Unrealized investment (losses) gains, net of tax (benefit) expense of $(157), $3, $448, and $174, respectively	(685)	6	1,457	601
Total other comprehensive (loss) income	(685)	6	1,457	601
Total comprehensive income	$ 8,527	$ 3,323	$ 18,898	$ 7,946

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Tax expense (benefit) on unrealized gains arising during the period	$ 144	$ 19	$ 761	$ 220
Tax expense (benefit) on reclassification adjustment for net gains on sales realized in net income	(301)	(16)	(313)	(46)
Tax expense (benefit) on unrealized investment gains (losses)	$ (157)	$ 3	$ 448	$ 174

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common stock	Surplus	Treasury Stock	Unearned Common Stock ESOP	Retained Earnings	Accumulated Other Comprehensive Income (loss)	Total
Balance beginning of the period (Footnote 1) at Dec. 31, 2018	$ 6,407	$ 79,919			$ 23,616	$ (390)	$ 109,552
Comprehensive income:
Net income					2,006		2,006
Change in unrealized gains on securities available-for-sale, net of tax						373	373
Total comprehensive income							2,379
Stock based compensation		61					61
Balance ending of the period at Mar. 31, 2019	6,407	79,980			25,622	(17)	111,992
Balance beginning of the period (Footnote 1) at Dec. 31, 2018	6,407	79,919			23,616	(390)	109,552
Comprehensive income:
Net income							7,345
Change in unrealized gains on securities available-for-sale, net of tax							601
Total comprehensive income							7,946
Balance ending of the period at Sep. 30, 2019	6,408	80,192			30,961	211	117,772
Balance beginning of the period (Footnote 1) at Mar. 31, 2019	6,407	79,980			25,622	(17)	111,992
Comprehensive income:
Net income					2,022		2,022
Change in unrealized gains on securities available-for-sale, net of tax						222	222
Total comprehensive income							2,244
Stock based compensation		143					143
Balance ending of the period at Jun. 30, 2019	6,407	80,123			27,644	205	114,379
Comprehensive income:
Net income					3,317		3,317
Change in unrealized gains on securities available-for-sale, net of tax						6	6
Total comprehensive income							3,323
Common stock issued through share-based awards and exercises	1	7					8
Stock based compensation		62					62
Balance ending of the period at Sep. 30, 2019	6,408	80,192			30,961	211	117,772
Balance beginning of the period (Footnote 1) at Dec. 31, 2019	6,408	80,255	$ (62)		34,097	(3)	120,695
Comprehensive income:
Net income					2,516		2,516
Change in unrealized gains on securities available-for-sale, net of tax						429	429
Total comprehensive income							2,945
Common stock issued through share-based awards and exercises	6	26					32
Net purchase of treasury stock through publicly announced plans		63	(5,766)				(5,703)
Stock based compensation		64					64
Balance ending of the period at Mar. 31, 2020	6,414	80,408	(5,828)		36,613	426	118,033
Balance beginning of the period (Footnote 1) at Dec. 31, 2019	6,408	80,255	(62)		34,097	(3)	120,695
Comprehensive income:
Net income							17,441
Change in unrealized gains on securities available-for-sale, net of tax							1,457
Total comprehensive income							18,898
Balance ending of the period at Sep. 30, 2020	6,450	80,981	(5,828)	$ (2,000)	50,775	1,454	131,832
Balance beginning of the period (Footnote 1) at Mar. 31, 2020	6,414	80,408	(5,828)		36,613	426	118,033
Comprehensive income:
Net income					5,713		5,713
Change in unrealized gains on securities available-for-sale, net of tax						1,713	1,713
Total comprehensive income							7,426
Stock based compensation		59					59
Balance ending of the period at Jun. 30, 2020	6,414	80,467	(5,828)		42,326	2,139	125,518
Comprehensive income:
Net income					9,212		9,212
Change in unrealized gains on securities available-for-sale, net of tax						(685)	(685)
Total comprehensive income							8,527
Dividends paid or accrued, $0.125 per share					(763)		(763)
Shares purchased for ESOP plan (133,601)				(2,000)			(2,000)
Common stock issued through share-based awards and exercises	36	337					373
Stock based compensation		177					177
Balance ending of the period at Sep. 30, 2020	$ 6,450	$ 80,981	$ (5,828)	$ (2,000)	$ 50,775	$ 1,454	$ 131,832

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Parenthetical)	3 Months Ended
	Sep. 30, 2020 $ / shares shares
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock, Dividends, Per Share, Cash Paid | $ / shares	$ 0.125
Shares purchased for ESOP plan (in shares) | shares	(133,601)

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
CONSOLIDATED STATEMENTS OF CASH FLOWS
Net income	$ 17,441	$ 7,345
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on sale of investment securities	(1,345)	(212)
Depreciation and amortization	(992)	1,581
Loss on disposal of premises and equipment		14
Net amortization of investment premiums and discounts	238	(22)
Provision for loan losses	7,139	938
Amortization of issuance costs on subordinated debt	83
Compensation expense for stock options	300	266
Net change in fair value of loans held for investment	(174)	(390)
Net change in fair value of loans held for sale	(4,424)	82
Net change in fair value of derivative instruments	(6,346)	16
Gain on sale of OREO	(6)
SBA loan income	(1,821)	(1,150)
Proceeds from sale of loans	1,356,637	432,831
Loans originated for sale	(1,498,264)	(421,092)
Mortgage banking income	(45,395)	(19,139)
Increase in accrued interest receivable	(1,518)	(266)
Increase in other assets	5,511	91
Earnings from investment in life insurance	(210)	(218)
Deferred income tax	1,274	(249)
Increase in accrued interest payable	1,170	364
Increase in other liabilities	9,054	3,629
Net cash (used) provided by operating activities	(161,648)	4,419
Activity in available-for-sale securities:
Maturities, repayments and calls	6,319	11,090
Sales	44,592	19,366
Purchases	(92,476)	(29,027)
Proceeds from sale of OREO	126
Settlement of forward contracts		(85)
Decrease in restricted stock	422	(1,235)
Net increase in loans	(339,459)	(104,640)
Purchases of premises and equipment	(651)	(634)
Net cash used in investing activities	(378,987)	(105,165)
Cash flows from financing activities:
Net increase in deposits	357,856	106,331
Increase (decrease) in short term borrowings	(31,928)	14,165
Decrease in short term borrowings with original maturity > 90 days	12,902
Repayment of acquistion note payable	(413)	(413)
Repayment of long term debt (Subordinated debt)		(63)
Proceeds from long term debt	247,008	(2,702)
Issuance costs on subordinated debt	(231)
Net purchase of treasury stock through publicly announced plans	(5,703)
Dividends paid	(763)
Purchase of common shares for ESOP	(2,000)
Share based awards and exercises	405	8
Net cash provided by financing activities	577,133	117,326
Net change in cash and cash equivalents	36,498	16,580
Cash and cash equivalents at beginning of period	39,371	23,952
Cash and cash equivalents at end of period	75,869	40,532
Supplemental disclosure of cash flow information:
Interest	9,581	11,951
Income taxes	2,490	1,539
Supplemental disclosure of cash flow information:
Transfers from loans and leases to real estate owned		120
Transfers from loans held for sale to loans held for investment		3,602
Net loans sold, not settled	$ (1,657)	$ (5,580)

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Basis of Presentation

9 Months Ended

Sep. 30, 2020

Basis of Presentation

Basis of Presentation

The Corporation’s unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, all adjustments necessary for a fair presentation of the consolidated financial position and the results of operations for the interim periods presented have been included.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Amounts subject to significant estimates are items such as the allowance for loan losses and lending related commitments, the fair value of financial instruments, other-than-temporary impairments of investment securities, and the valuations of goodwill and intangible assets, and servicing assets.  

These unaudited consolidated financial statements should be read in conjunction with the Corporation’s filings with the Securities and Exchange Commission (including our Annual Report on Form 10-K for the year ended December 31, 2019) and, subsequently filed quarterly reports on Form 10-Q and current reports on Form 8-K that update or provide information in addition to the information included in Form 10-K and Form 10-Q filings, if any.  

Certain prior period amounts have been reclassified to conform with current period presentation. Reclassifications had no effect on net income or stockholders’ equity.  Operating results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the year ending December 31, 2020 or for any other period.

Impact of COVID-19

COVID-19 has adversely impacted a broad range of industries in which the Corporation’s customers operate and could impair their ability to fulfill their financial obligations to the Corporation.  The continued spread of COVID-19 throughout the U.S. has caused significant disruption in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Corporation operates.

Although the Corporation’s current estimates contemplate current conditions and how we expect them to change in the future, due to the prolonged impact that the COVID-19 has had on financial markets and the economy both locally and nationally, it is reasonably possible that this could materially affect these significant estimates and the Corporation’s results of operations and financial condition.

The Corporation has continued to work with customers directly affected by COVID-19 since it was declared a pandemic, to provide short-term assistance in accordance with regulatory guidelines.  While the Corporation has factored the ongoing impacts of COVID-19 into the allowance for loan and lease losses calculation as of September 30, 2020, should economic conditions continue to worsen, the Corporation could experience further increases in its required allowance for loan and lease losses and record additional provision for loan loss expense. It is possible that the Corporation’s asset quality measures could worsen at future measurement periods due to the continuing effects of COVID-19 may have on borrowers.

COVID-19 could cause a further and sustained decline in the Corporation’s stock price or the occurrence of what management would deem to be a triggering event that could, under certain circumstances, cause us to perform goodwill and intangible asset impairment tests and result in an impairment charge being recorded for that period. In the event that the Corporation concludes that all or a portion of its goodwill or intangible assets are impaired, a

non-cash charge for the amount of such impairment would be recorded to earnings. Such a charge would have no impact on tangible capital or regulatory capital.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security, ( the “CARES Act”) was signed into law. It contained substantial tax and spending provisions intended to address the impact of the COVID-19 pandemic. The CARES Act included the Paycheck Protection Program (the “PPP”), a $349 billion program designed to aid small and medium sized businesses through federally guaranteed loans distributed through banks. The Paycheck Protection Program and Health Care Enhancement Act (the “PPP/HCEA Act”) was signed into law on April 24, 2020. The PPP/HCEA Act authorized an additional $310 billion of funding under the CARES Act for PPP loans among other provisions. On July 4, 2020, legislation was passed to extend the application period for the PPP program through August 8, 2020. These loans are intended to cover eight weeks of payroll and other permitted expenses to help those businesses remain viable.

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Earnings per Common Share

9 Months Ended

Sep. 30, 2020

Earnings per Common Share

Earnings per Common Share

(2)      Earnings per Common Share

Basic earnings per common share excludes dilution and is computed by dividing income available to common shareholders by the weighted-average common shares outstanding during the period. The difference between common shares issued and basic weighted average common shares outstanding, for purposes of calculating basic earnings per share, is a result of subtracting unallocated employee stock ownership plan (“ESOP”) shares.  Diluted earnings per common share takes into account the potential dilution computed pursuant to the treasury stock method that could occur if stock options were exercised and converted into common stock. The effects of stock options are excluded from the computation of diluted earnings per share in periods in which the effect would be anti-dilutive.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net income available to common stockholders	$	9,212		3,317	$	17,441		7,345
Denominator for basic earnings per share - weighted average shares outstanding		6,099		6,407		6,172		6,407
Effect of dilutive common shares		11		30		21		29
Denominator for diluted earnings per share - adjusted weighted average shares outstanding		6,110		6,437		6,193		6,436
Basic earnings per share	$	1.51		0.52	$	2.83		1.15
Diluted earnings per share	$	1.51		0.52	$	2.82		1.14
Antidilutive shares excluded from computation of average dilutive earnings per share		265		199		192		199

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Goodwill and Other Intangibles

9 Months Ended

Sep. 30, 2020

Goodwill and Other Intangibles

Goodwill and Other Intangibles

(3)      Goodwill and Other Intangibles

The Corporation’s goodwill and intangible assets are detailed below:

	Balance			Balance	Amortization
	December 31,		Amortization	September 30,	Period
(dollars in thousands)	2019		Expense	2020	(in years)
Goodwill - Wealth	$	899	—	899	Indefinite
Total Goodwill		899	—	899
Intangible assets - trade name		266	—	266	Indefinite
Intangible assets - customer relationships		3,523	(154)	3,369	20
Intangible assets - non competition agreements		85	(52)	33	4
Total Intangible Assets		3,874	(206)	3,668
Total	$	4,773	(206)	4,567

Accumulated amortization on intangible assets was $956 thousand and $750 thousand as of September 30, 2020 and December 31, 2019, respectively.

The Corporation performs an evaluation annually, or more frequently if a triggering event occurs, of whether any impairment of the goodwill and other intangible assets had occurred in accordance with ASC 350, “Intangibles - Goodwill and Other”. For the period from January 1, 2020 through September 30, 2020, the Corporation determined that no impairment existed.

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Securities

9 Months Ended

Sep. 30, 2020

Securities

Securities

(4)      Securities

The amortized cost and fair value of securities as of September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. asset backed securities	$	24,705	211	(172)	24,744
U.S. government agency mortgage-backed securities		3,919	192	—	4,111
U.S. government agency collateralized mortgage obligations		21,375	1,108	—	22,483
State and municipal securities		48,789	805	(255)	49,339
Corporate bonds		2,683	3	(5)	2,681
Total securities available-for-sale	$	101,471	2,319	(432)	103,358
Securities held to maturity:
State and municipal securities		6,544	372	—	6,916
Total securities held-to-maturity	$	6,544	372	—	6,916

	December 31, 2019
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. asset backed securities	$	11,967	—	(101)	11,866
U.S. government agency mortgage-backed securities		5,457	66	(26)	5,497
U.S. government agency collateralized mortgage obligations		35,096	300	(173)	35,223
State and municipal securities		6,354	—	(84)	6,270
Total securities available-for-sale	$	58,874	366	(384)	58,856
Securities held to maturity:
State and municipal securities		8,780	223	—	9,003
Total securities held-to-maturity	$	8,780	223	—	9,003

At September 30, 2020, the Corporation had one U.S. government sponsored agency collateralized mortgage obligations, fourteen U.S. asset backed securities, fifteen State and municipal securities, and two Corporate bonds in unrealized loss positions.  At December 31, 2019, the Corporation had nine U.S. asset backed securities, one U.S. Government sponsored agency mortgage-backed security, fifteen U.S. Government sponsored agency collateralized mortgage obligations, and six State and municipal securities in unrealized loss positions.  Although the Corporation’s investment portfolio overall is in a net unrealized gain position at September 30, 2020, the temporary impairment in the above noted securities is primarily the result of changes in market interest rates subsequent to purchase and the Corporation does not intend to sell these securities prior to recovery and it is more likely than not that the Corporation will not be required to sell these securities prior to recovery to satisfy liquidity needs, and therefore, no securities are deemed to be other-than-temporarily impaired.

At September 30, 2020 and December 31, 2019, no held to maturity securities held by the Corporation were in an unrealized loss position.

Proceeds from the sale of available for sale investment securities totaled $26.4 million and $44.6 million for the three and nine months ended September 30, 2020, respectively, resulting in a gross gain on sale of $1.3 million thousand and no gross loss on sale for the three months ended September 30, 2020, and a gross gain on sale of $1.5 million and a gross loss on sale of $202 thousand for the nine months ended September 30, 2020.  Proceeds from the sale of available for sale investment securities totaled $2.7 million and $19.4 million for the three and nine months ended September 30, 2019, respectively, resulting in a gross gain on sale of $74 thousand and no gross losses for the three months ended September 30, 2019, and gross gain on sale of $254 thousand and a gross loss on sale of $42 thousand for the nine months ended September 30, 2019.

The following table shows the Corporation’s investment gross unrealized losses and fair value aggregated by investment category and length of time that individual securities have been in continuous unrealized loss position at September 30, 2020 and December 31, 2019:

	September 30, 2020
	Less than 12 Months			12 Months or more		Total
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	value		losses	value	losses	value	losses
Securities available-for-sale:
U.S. asset backed securities	$	10,704	(66)	8,085	(106)	18,789	(172)
State and municipal securities		27,950	(255)	—	—	27,950	(255)
Corporate bonds		1,245	(5)	—	—	1,245	(5)
Total securities available-for-sale	$	39,899	(326)	8,085	(106)	47,984	(432)

	December 31, 2019
	Less than 12 Months			12 Months or more		Total
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	value		losses	value	losses	value	losses
Securities available-for-sale:
U.S. asset backed securities	$	11,866	(101)	—	—	11,866	(101)
U.S. government agency mortgage-backed securities		—	—	1,636	(26)	1,636	(26)
U.S. government agency collateralized mortgage obligations		16,283	(116)	3,108	(57)	19,391	(173)
State and municipal securities		6,270	(84)	—	—	6,270	(84)
Total securities available-for-sale	$	34,419	(301)	4,744	(83)	39,163	(384)

The amortized cost and carrying value of securities at September 30, 2020 and December 31, 2019 are shown below by contractual maturities. Actual maturities may differ from contractual maturities as issuers may have the right to call or repay obligations with or without call or prepayment penalties.

	September 30, 2020					December 31, 2019
	Available-for-sale			Held-to-maturity		Available-for-sale			Held-to-maturity
	Amortized		Fair	Amortized	Fair	Amortized		Fair	Amortized	Fair
(dollars in thousands)	cost		value	cost	value	cost		value	cost	value
Investment securities:
Due in one year or less	$	—	—	—	—	$	—	—	—	—
Due after one year through five years		—	—	3,196	3,318		—	—	4,242	4,311
Due after five years through ten years		8,590	8,568	3,348	3,598		1,329	1,324	4,538	4,692
Due after ten years		67,587	68,196	—	—		16,992	16,812	—	—
Subtotal		76,177	76,764	6,544	6,916		18,321	18,136	8,780	9,003
Mortgage-related securities		25,294	26,594	—	—		40,553	40,720	—	—
Total	$	101,471	103,358	6,544	6,916	$	58,874	58,856	8,780	9,003

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Loans Receivable

9 Months Ended

Sep. 30, 2020

Loans Receivable

Loans Receivable

(5)      Loans Receivable

Loans and leases outstanding at September 30, 2020 and December 31, 2019 are detailed by category as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
Mortgage loans held for sale	$	225,150	33,704
Real estate loans:
Commercial mortgage		460,952	362,590
Home equity lines and loans		71,400	81,583
Residential mortgage (1)		55,500	53,665
Construction		151,226	172,044
Total real estate loans		739,078	669,882
Commercial and industrial		256,452	273,301
Small business loans		44,280	21,616
Paycheck Protection Program loans		259,723	—
Consumer		582	1,003
Leases, net		13,374	697
Total portfolio loans and leases		1,313,489	966,499
Total loans and leases	$	1,538,639	1,000,203
Loans with predetermined rates	$	720,791	293,114
Loans with adjustable or floating rates		817,848	707,089
Total loans and leases	$	1,538,639	1,000,203
Net deferred loan origination (fees) costs	$	(6,643)	(1,789)

(1) Includes $11,366 and $10,546 of loans at fair value as of September 30, 2020 and December 31, 2019, respectively.

Components of the net investment in leases at September 30, 2020 and December 31, 2019 are detailed as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
Minimum lease payments receivable	$	16,306	729
Unearned lease income		(2,932)	(32)
Total	$	13,374	697

Age Analysis of Past Due Loans and Leases

The following tables present an aging of the Corporation’s loan and lease portfolio as of September 30, 2020 and December 31, 2019, respectively:

						Total
			90+ days			Accruing	Nonaccrual
September 30, 2020	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	—	—	—	460,285	460,285	667	460,952	0.14	%
Home equity lines and loans		—	—	—	70,737	70,737	663	71,400	0.93
Residential mortgage (1)		389	—	389	52,578	52,967	2,533	55,500	5.26
Construction		—	—	—	151,226	151,226	—	151,226	—
Commercial and industrial		—	—	—	252,403	252,403	4,049	256,452	1.58
Small business loans		—	—	—	44,280	44,280	—	44,280	—
Paycheck Protection Program loans		—	—	—	259,723	259,723	—	259,723	—
Consumer		—	—	—	582	582	—	582	—
Leases		8	—	8	13,366	13,374	—	13,374	0.06
Total	$	397	—	397	1,305,180	1,305,577	7,912	1,313,489	0.63	%

(1) Includes $11,366 of loans at fair value as of September 30, 2020 ($10,489 of current and $877 of nonaccrual).

						Total
			90+ days			Accruing	Nonaccrual
December 31, 2019	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	—	—	—	361,857	361,857	733	362,590	0.20	%
Home equity lines and loans		—	—	—	81,046	81,046	537	81,583	0.66
Residential mortgage (1)		4,675	—	4,675	47,446	52,121	1,544	53,665	11.59
Construction		—	—	—	172,044	172,044	—	172,044	—
Commercial and industrial		206	—	206	272,674	272,880	421	273,301	0.23
Small business loans		—	—	—	21,616	21,616	—	21,616	—
Consumer		—	—	—	1,003	1,003	—	1,003	—
Leases		162	—	162	535	697	—	697	23.24
Total	$	5,043	—	5,043	958,221	963,264	3,235	966,499	0.86	%

(1) Includes $10,546 of loans at fair value as of December 31, 2019 ($9,056 of current, $786 of 30-89 days past due and $704 of nonaccrual).

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Allowance for Loan Losses (the Allowance)

9 Months Ended

Sep. 30, 2020

Allowance for Loan Losses (the Allowance)

Allowance for Loan Losses (the Allowance)

(6)      Allowance for Loan Losses (the “Allowance”)

The Allowance is established through provisions for loan losses charged against income. Loans deemed to be uncollectible are charged against the Allowance, and subsequent recoveries, if any, are credited to the Allowance. The Allowance is maintained at a level considered adequate to provide for losses that are probable and estimable. Management’s periodic evaluation of the adequacy of the Allowance is based on known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay, the estimated value of any underlying collateral, composition of the loan portfolio, current economic conditions and other relevant factors. This evaluation is subjective as it requires material estimates that may be susceptible to significant revisions as more information becomes available.

Roll-Forward of Allowance by Portfolio Segment

The following tables detail the roll-forward of the Corporation’s Allowance, by portfolio segment, for the three and nine month periods ended September 30, 2020 and 2019, respectively:

	Balance,					Balance,
(dollars in thousands)	June 30, 2020		Charge-offs	Recoveries	Provision	September 30, 2020
Commercial mortgage	$	5,277	—	—	1,658	6,935
Home equity lines and loans		672	(75)	2	(82)	517
Residential mortgage		346	—	1	(13)	334
Construction		2,019	—	—	463	2,482
Commercial and industrial		3,606	(22)	4	1,450	5,038
Small business loans		747	—	—	360	1,107
Consumer		4	—	1	(1)	4
Leases		35	—	—	121	156
Total	$	12,706	(97)	8	3,956	16,573

	Balance,					Balance,
(dollars in thousands)	December 31, 2019		Charge-offs	Recoveries	Provision	September 30, 2020
Commercial mortgage	$	3,426	—	—	3,509	6,935
Home equity lines and loans		342	(89)	6	258	517
Residential mortgage		179	—	5	150	334
Construction		2,362	—	—	120	2,482
Commercial and industrial		2,684	(31)	37	2,348	5,038
Small business loans		509	—	—	598	1,107
Consumer		6	(10)	3	5	4
Leases		5	—	—	151	156
Total	$	9,513	(130)	51	7,139	16,573

	Balance,					Balance,
(dollars in thousands)	June 30, 2019		Charge-offs	Recoveries	Provision	September 30, 2019
Commercial mortgage	$	3,197	—	1	257	3,455
Home equity lines and loans		354	—	2	(28)	328
Residential mortgage		200	—	2	(30)	172
Construction		2,033	—	—	136	2,169
Commercial and industrial		2,719	(30)	6	171	2,866
Small business loans		111	—	—	198	309
Consumer		4	—	1	1	6
Leases		7	—	—	—	7
Total	$	8,625	(30)	12	705	9,312

	Balance,					Balance,
(dollars in thousands)	December 31, 2018		Charge-offs	Recoveries	Provision	September 30, 2019
Commercial mortgage	$	3,209	—	6	240	3,455
Home equity lines and loans		323	—	10	(5)	328
Residential mortgage		191	—	4	(23)	172
Construction		1,627	—	—	542	2,169
Commercial and industrial		2,612	(30)	328	(44)	2,866
Small business loans		78	—	—	231	309
Consumer		3	—	3	—	6
Leases		10	—	—	(3)	7
Total	$	8,053	(30)	351	938	9,312

Allowance Allocated by Portfolio Segment

The following tables detail the allocation of the allowance for loan and lease losses and the carrying value for loans and leases by portfolio segment based on the methodology used to evaluate the loans and leases for impairment as of September 30, 2020 and December 31, 2019.

	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
September 30, 2020	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	6,935	6,935	$	2,005	458,947	460,952
Home equity lines and loans		16	501	517		663	70,737	71,400
Residential mortgage		—	334	334		1,648	42,486	44,134
Construction		—	2,482	2,482		1,206	150,020	151,226
Commercial and industrial		1,565	3,473	5,038		4,726	251,726	256,452
Small business loans		—	1,107	1,107		199	44,081	44,280
Paycheck Protection Program loans		—	—	—		—	259,723	259,723
Consumer		—	4	4		—	582	582
Leases		—	156	156		—	13,374	13,374
Total	$	1,581	14,992	16,573	$	10,447	1,291,676	1,302,123	(1)

	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
December 31, 2019	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	3,426	3,426	$	2,138	360,452	362,590
Home equity lines and loans		46	296	342		536	81,047	81,583
Residential mortgage		—	179	179		854	42,265	43,119
Construction		—	2,362	2,362		1,247	170,797	172,044
Commercial and industrial		27	2,657	2,684		1,288	272,013	273,301
Small business loans		63	446	509		1,244	20,372	21,616
Consumer		—	6	6		—	1,003	1,003
Leases		—	5	5		—	697	697
Total	$	136	9,377	9,513	$	7,307	948,646	955,953	(1)

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

Loans and Leases by Credit Ratings

As part of the process of determining the Allowance to the different segments of the loan and lease portfolio, Management considers certain credit quality indicators. For the commercial mortgage, construction and commercial and industrial loan segments, periodic reviews of the individual loans are performed by Management. The results of these reviews are reflected in the risk grade assigned to each loan. These internally assigned grades are as follows:

● Pass – Loans considered to be satisfactory with no indications of deterioration.

● Special mention – Loans classified as special mention have a potential weakness that deserves Management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

● Substandard – Loans classified as substandard are inadequately protected by the current net worth and payment capacity of the obligor or of the collateral pledged, if any. Substandard loans have a well-defined

weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

● Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loan balances classified as doubtful have been reduced by partial charge-offs and are carried at their net realizable values.

The following tables detail the carrying value of loans and leases by portfolio segment based on the credit quality indicators used to determine the allowance for loan and lease losses as of September 30, 2020 and December 31, 2019:

September 30, 2020			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	441,090	16,260	3,602	—	460,952
Home equity lines and loans		70,251	—	1,149	—	71,400
Construction		142,420	8,806	—	—	151,226
Commercial and industrial		220,760	22,950	9,019	3,723	256,452
Small business loans		41,548	—	2,732	—	44,280
Paycheck Protection Program loans		259,723	—	—	—	259,723
Total	$	1,175,792	48,016	16,502	3,723	1,244,033

December 31, 2019			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	353,724	5,821	3,045	—	362,590
Home equity lines and loans		81,046	—	537	—	81,583
Construction		170,823	1,221	—	—	172,044
Commercial and industrial		251,320	9,648	12,333	—	273,301
Small business loans		20,351	—	1,265	—	21,616
Total	$	877,264	16,690	17,180	—	911,134

In addition to credit quality indicators as shown in the above tables, allowance allocations for residential mortgages, consumer loans and leases are also applied based on their performance status as of September 30, 2020 and December 31, 2019. No troubled debt restructurings performing according to modified terms are included in performing residential mortgages below as of September 30, 2020 and December 31, 2019.

	September 30, 2020				December 31, 2019
(dollars in thousands)	Performing		Nonperforming	Total	Performing		Nonperforming	Total
Residential mortgage	$	42,486	1,648	44,134	$	42,265	854	43,119
Consumer		582	—	582		1,003	—	1,003
Leases		13,374	—	13,374		697	—	697
Total	$	56,442	1,648	58,090	$	43,965	854	44,819

There were five nonperforming residential mortgage loans at September 30, 2020 and five nonperforming residential mortgage loans at December 31, 2019 with a combined outstanding principal balance of $877 thousand and $839 thousand, respectively, which were carried at fair value and not included in the table above.

Impaired Loans

The following table details the recorded investment and principal balance of impaired loans by portfolio segment, and their related allowance for loan and lease losses.

	As of September 30, 2020				As of December 31, 2019
	Recorded		Principal	Related	Recorded	Principal	Related
(dollars in thousands)	investment		balance	allowance	investment	balance	allowance
Impaired loans with related allowance:
Commercial and industrial		3,903	3,907	1,565	617	617	27
Small business loans		—	—	—	1,002	1,002	63
Home equity lines and loans		99	106	16	461	461	46
Total		4,002	4,013	1,581	2,080	2,080	136
Impaired loans without related allowance:
Commercial mortgage	$	2,005	2,035	—	2,138	2,173	—
Commercial and industrial		823	897	—	671	718	—
Small business loans		199	199	—	242	242	—
Home equity lines and loans		564	581	—	75	75	—
Residential mortgage		1,648	1,648	—	854	854	—
Construction		1,206	1,206	—	1,247	1,248	—
Total		6,445	6,566	—	5,227	5,310	—
Grand Total	$	10,447	10,579	1,581	7,307	7,390	136

The following table details the average recorded investment and interest income recognized on impaired loans by portfolio segment.

		Three Months Ended	Three Months Ended		Nine Months Ended	Nine Months Ended
		September 30,	September 30,		September 30,	September 30,
		2020	2019		2020	2019
		Average	Average		Average	Average
		recorded	recorded		recorded	recorded
(dollars in thousands)		investment	investment		investment	investment
Impaired loans with related allowance:
Commercial and industrial	$	3,907	561	$	1,766	566
Small business loans		—	—		—	—
Home equity lines and loans		100	255		103	256
Total	$	4,007	816	$	1,869	822
Impaired loans without related allowance:
Commercial mortgage	$	2,080	2,220	$	1,852	2,272
Commercial and industrial		874	597		700	602
Small business loans		208	259		220	262
Home equity lines and loans		564	-		575	-
Residential mortgage		1,649	857		1,478	857
Construction		1,206	1,270		1,209	1,286
Total	$	6,581	5,203	$	6,034	5,279
Grand Total	$	10,588	6,019	$	7,903	6,101

Interest income recognized on performing impaired loans amounted to $139 thousand and $50 thousand for the three months ended September 30, 2020 and 2019, respectively, and $281 thousand and $152 thousand for the nine months ended September 30, 2020 and 2019, respectively.

Troubled Debt Restructuring

The restructuring of a loan is considered a “troubled debt restructuring” (“TDR”) if both of the following conditions are met: (i) the borrower is experiencing financial difficulties, and (ii) the creditor has granted a concession. The most common concessions granted include one or more modifications to the terms of the debt, such as (a) a reduction in the interest rate for the remaining life of the debt, (b) an extension of the maturity date at an interest rate lower than the current market rate for new debt with similar risk, (c) a temporary period of interest-only payments, (d) a reduction in the contractual payment amount for either a short period or remaining term of the loan, and (e) for leases, a reduced lease payment. A less common concession granted is the forgiveness of a portion of the principal.

The determination of whether a borrower is experiencing financial difficulties takes into account not only the current financial condition of the borrower, but also the potential financial condition of the borrower were a concession not granted. The determination of whether a concession has been granted is subjective in nature. For example, simply extending the term of a loan at its original interest rate or even at a higher interest rate could be interpreted as a concession unless the borrower could readily obtain similar credit terms from a different lender. The balance of

TDRs at September 30, 2020 and December 31, 2019 are as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
TDRs included in nonperforming loans and leases	$	246	319
TDRs in compliance with modified terms		3,428	3,599
Total TDRs	$	3,674	3,918

There were no loan and lease modification granted during the three months ended September 30, 2020 that was categorized as a TDR as noted in the table below.

	For the Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Related
(dollar in thousands)	Contracts	Investment		Investment		Allowance
Real Estate:
Commercial mortgage	—	$	—	$	—	$	—
Land and Construction	—		—		—		—
Commercial and industrial	1		58		58		—
Total	1	$	58	$	58	$	—

There were no loan and lease modifications granted during the three and nine months ended September 30, 2019 that was categorized as TDR’s. No loan and lease modifications granted during the three and nine months ended September 30, 2020 and 2019 subsequently defaulted during the same time period.

COVID-19 Loan Modifications

The following table details the loan modifications that the Corporation provided to loan customers as of September 30, 2020.

		September 30, 2020
		Portfolio		Total		Active
Loan Portfolio		Balance		Modifications		Modifications
Commercial mortgage	$	460,952	$	86,591	$	4,182
Commercial and industrial, including leases		269,826		24,362		200
Construction & land development		151,226		36,819		14,196
Home equity lines and loans		71,400		1,348		-
Residential mortgage		44,134		4,800		558
Small business loans		44,280		144		-
Consumer		582		-		—
Total	$	1,042,400	$	154,064	$	19,136

These loan modifications were made in accordance with Section 4013 of the CARES Act and the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus. Modifications granted to borrowers under this guidance that are related to COVID-19 are not required to be evaluated as troubled debt restructurings under ASC 310-40.  These modified loans are classified as performing and are not considered past due.  Loans are to be placed on non-accrual when it becomes apparent that payment of interest or recovery of all principal is questionable, and the COVID-19 related modification is no longer considered short-term or the modification is deemed ineffective.  In total $111.0 million of commercial loans covering 146 borrowers and $36.8 million of construction loans for 35 borrowers were assisted with loan payment holidays of 3 to 6 months or lowered interest rates for certain construction loans.  $6.2 million of residential mortgage and home equity loans covering 25 total borrowers were provided with 3 to 6 month payment holidays as well.  These modifications were not classified as troubled debt restructurings.  As of October 26, 2020, $4.4 million of commercial loans had active payment deferrals, along with $14.2 million of construction loans and $558 thousand of residential loans.

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Short-Term Borrowings and Long -Term Debt

9 Months Ended

Sep. 30, 2020

Short-Term Borrowings and Long-Term Debt

Short-Term Borrowings and Long-Term Debt

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

The Corporation’s short-term borrowings generally consist of federal funds purchased and short-term borrowings extended under agreements with the Federal Home Loan Bank of Pittsburgh (“FHLB”). The Corporation has two unsecured Federal Funds borrowing facilities with correspondent banks: one of $24 million and one of  $15 million. Federal funds purchased generally represent one-day borrowings.  The Corporation had no Federal Funds purchased at September 30, 2020 and December 31, 2019. The Corporation also has a facility with the Federal Reserve Bank (“FRB”) of Philadelphia discount window of $10.6 million. This facility is fully secured by investment securities. There were $10 million in borrowings under this facility at September 30, 2020 and none at December 31, 2019.

Short-term borrowings at September 30, 2020 and December 31, 2019 consisted of the following notes:

				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2020		2019
Open Repo Plus Weekly	05/28/2021	0.39	%		56,640	102,320
Federal Reserve Discount Window	09/30/2020	0.25			10,000	—
Mid-term Repo-fixed	12/09/2020	0.42			3,752	—
Mid-term Repo-fixed	01/13/2021	0.36			4,605	—
Mid-term Repo-fixed	01/27/2021	0.23			5,465	—
Mid-term Repo-fixed	03/09/2021	0.79			10,417	—
Mid-term Repo-fixed	03/22/2021	0.88			10,238	—
Mid-term Repo-fixed	06/28/2021	1.88			3,122	—
Mid-term Repo-fixed	08/10/2020	2.76			—	5,000
Mid-term Repo-fixed	08/10/2020	1.59			—	5,144
Mid Term Repo Fixed Rate	09/11/2020	1.59			—	7,676
Mid Term Repo Fixed Rate	03/27/2020	2.03			—	3,123
Acquisition Purchase Note	04/01/2020	3.00			—	413
Total				$	104,239	123,676

As part of the CARES Act, the FRB of Philadelphia offered secured discounted borrowings to banks who originated PPP loans through the Paycheck Protection Program Liquidity Facility or PPPLF program.  At September 30, 2020, the Corporation pledged $235.9 million of PPP loans to the FRB of Philadelphia to borrow $235.9 million of funds at a rate of 0.35%.

Long-term debt at September 30, 2020 and December 31, 2019 consisted of the following notes:

				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2020		2019
PPPLF Advance	Various	0.35	%		235,953	—
Mid-term Repo-fixed	03/21/2022	0.92		$	1,900	—
Mid-term Repo-fixed	06/29/2022	0.32			7,392	3,123
Mid-term Repo-fixed	09/12/2022	0.23			4,886	—
Total	`			$	250,131	3,123

The FHLB of Pittsburgh has also issued $129 million of letters of credit to the Corporation for the benefit of the Corporation’s public deposit funds and loan customers. These letters of credit expire throughout 2020.

The Corporation has a maximum borrowing capacity with the FHLB of $615.3 million as of September 30, 2020 and $507.3 million as of December 31, 2019. All advances and letters of credit from the FHLB are secured by a blanket lien on non-pledged, mortgage-related loans and securities as part of the Corporation’s borrowing agreement with the FHLB.

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Servicing Assets

9 Months Ended

Sep. 30, 2020

Servicing Assets

Servicing Assets

(8)      Servicing Assets

The Corporation sells certain residential mortgage loans and the guaranteed portion of certain small business loans (“SBA loans”) to third parties and retains servicing rights and receives servicing fees. All such transfers are accounted for as sales. When the Corporation sells a residential mortgage loan, it does not retain any portion of that loan and its continuing involvement in such transfers is limited to certain servicing responsibilities. While the Corporation may retain a portion of certain sold SBA loans, its continuing involvement in the portion of the loan that was sold is limited to certain servicing responsibilities. When the contractual servicing fees on loans sold with

servicing retained are expected to be more than adequate compensation to a servicer for performing the servicing, a capitalized servicing asset is recognized. The Corporation accounts for the transfers and servicing of financial assets in accordance with ASC 860, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities.

Residential Mortgage Loans

The mortgage servicing rights (“MSRs”) are amortized over the period of the estimated future net servicing life of the underlying assets.  MSR’s are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.  Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the MSR.  The Corporation serviced $298.7 million and $60.3 million of residential mortgage loans as of September 30, 2020 and December 31, 2019, respectively. During the three and nine months ended September 30, 2020, the Corporation recognized servicing fee income of $140 thousand and $247 thousand, respectively, compared to $25 thousand and $59 thousand during the three and nine months ended September 30, 2019, respectively.

Changes in the MSR balance are summarized as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Balance at beginning of the period	$	1,294	236	$	446	232
Servicing rights capitalized		1,333	107		2,469	198
Amortization of servicing rights		(90)	(17)		(173)	(39)
Change in valuation allowance		102	(12)		(103)	(77)
Balance at end of the period	$	2,639	314	$	2,639	314

Activity in the valuation allowance for MSR’s was as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Valuation allowance, beginning of period	$	(303)	(65)	$	(98)	—
Impairment		—	(12)		(103)	(77)
Recovery		102	—		—	—
Valuation allowance, end of period	$	(201)	(77)	$	(201)	(77)

The Corporation uses assumptions and estimates in determining the fair value of MSRs. These assumptions include prepayment speeds and discount rates. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2020, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 12.00% and a discount rate equal to 9.00%.  At December 31, 2019, the key assumptions used to determine the fair value of the Corporation’s MSRs included a lifetime constant prepayment rate equal to 13.08% and a discount rate equal to 9.00%.

At September 30, 2020 and December 31, 2019, the sensitivity of the current fair value of the residential mortgage servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

(dollars in thousands)	September 30, 2020		December 31, 2019
Fair value of residential mortgage servicing rights	$	2,639	$	446
Weighted average life (years)		5.0		7.8
Prepayment speed		12.00%		13.08%
Impact on fair value:
10% adverse change	$	(99)	$	(19)
20% adverse change		(192)		(37)
Discount rate		9.00%		9.00%
Impact on fair value:
10% adverse change	$	(98)	$	(14)
20% adverse change		(189)		(27)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the MSRs is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

SBA Loans

SBA loan servicing assets are amortized over the period of the estimated future net servicing life of the underlying assets.  SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost.  Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset.  The Corporation serviced $44.8 million and $18.0 million of SBA loans, as of September 30, 2020 and December 31, 2019, respectively.  During the three and nine months ended September 30, 2020, the Corporation recognized servicing fee income of $49 thousand and $101 thousand, respectively.  During the three and nine months ended September 30, 2019, the Corporation recognized servicing fee income of $8 thousand.

Changes in the SBA loan servicing asset balance are summarized as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Balance at beginning of the period	$	632	133	$	337	—
Servicing rights capitalized		183	198		524	331
Amortization of servicing rights		(42)	(6)		(88)	(6)
Change in valuation allowance		14	(4)		14	(4)
Balance at end of the period	$	787	321	$	787	321

Activity in the valuation allowance for SBA loan servicing assets was as follows:

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Valuation allowance, beginning of period	$	(26)	—	$	(26)	—
Impairment		—	(4)		—	(4)
Recovery		14	—		14	—
Valuation allowance, end of period	$	(12)	(4)	$	(12)	(4)

The Corporation uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. At September 30, 2020, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 12.79%, and a discount rate equal to 6.57%. At December 31, 2019, the key assumptions used to determine the fair value of the Corporation’s SBA loan servicing rights included a lifetime constant prepayment rate equal to 10.77%, and a discount rate equal to 11.28%.

At September 30, 2020 and December 31, 2019, the sensitivity of the current fair value of the SBA loan servicing rights to immediate 10% and 20% favorable and unfavorable changes in key economic assumptions are included in the following table.

(dollars in thousands)	September 30, 2020		December 31, 2019
Fair value of SBA loan servicing rights	$	889	$	337
Weighted average life (years)		3.6		4.3
Prepayment speed		12.79%		10.77%
Impact on fair value:
10% adverse change	$	(36)	$	(12)
20% adverse change		(69)		(23)
Discount rate		6.57%		11.28%
Impact on fair value:
10% adverse change	$	(23)	$	(9)
20% adverse change		(46)		(18)

The sensitivity calculations above are hypothetical and should not be considered to be predictive of future performance. As indicated, changes in fair value based on adverse changes in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, in this table, the effect of an adverse variation in a particular assumption on the fair value of the SBA servicing rights is calculated without changing any other assumption; while in reality, changes in one factor may result in changes in another (for example, increases in market interest rates may result in lower prepayments), which may magnify or counteract the effect of the change.

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Fair Value Measurements and Disclosures

9 Months Ended

Sep. 30, 2020

Fair Value Measurements and Disclosures

Fair Value Measurements and Disclosures

(9)      Fair Value Measurements and Disclosures

The Corporation uses fair value measurements to record fair value adjustments to certain assets and liabilities. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Corporation’s various financial instruments. In cases where quoted market prices are not available, fair values are based on

estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation techniques or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with this guidance, the Corporation groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuation is based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 – Valuation is based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The valuation may be based on quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liability.

Level 3 – Valuation is based on unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which determination of fair value requires significant management judgment or estimation.

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

Securities

The fair value of securities available-for-sale (carried at fair value) and held to maturity (carried at amortized cost) are determined by matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted prices.

Mortgage Loans Held for Sale

The fair value of loans held for sale is based on secondary market prices.

Mortgage Loans Held for Investment

The fair value of mortgage loans held for investment is based on the price secondary markets are currently offering for similar loans using observable market data.

Derivative Financial Instruments

The fair values of forward commitments and interest rate swaps are based on market pricing and therefore are considered Level 2.  Derivatives classified as Level 3 consist of interest rate lock commitments related to mortgage loan commitments. The determination of fair value includes assumptions related to the likelihood that a commitment

will ultimately result in a closed loan, which is a significant unobservable assumption. A significant increase or decrease in the external market price would result in a significantly higher or lower fair value measurement.

For financial assets measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	24,744	—	24,744	—
U.S. government agency mortgage-backed securities		4,111	—	4,111	—
U.S. government agency collateralized mortgage obligations		22,483	—	22,483	—
State and municipal securities		49,339	—	49,339	—
Corporate bonds		2,681	—	2,681	—
Equity investments		1,034	—	1,034	—
Mortgage loans held for sale		225,150	—	225,150	—
Mortgage loans held for investment		11,366	—	11,366	—
Interest rate lock commitments		7,798	—	—	7,798
Forward commitments		57	—	57	—
Customer derivatives - interest rate swaps		1,284	—	1,284	—
Total	$	350,047	—	342,249	7,798
Liabilities
Interest rate lock commitments		225	—	—	225
Forward commitments		971	—	971	—
Customer derivatives - interest rate swaps		1,413	—	1,413	—
	$	2,609	—	2,384	225

	December 31, 2019
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	11,866	—	11,866	—
U.S. government agency mortgage-backed securities		5,497	—	5,497	—
U.S. government agency collateralized mortgage obligations		35,223	—	35,223	—
State and municipal securities		6,270	—	6,270	—
Investments in mutual funds		1,009	—	1,009	—
Mortgage loans held for sale		33,704	—	33,704	—
Mortgage loans held for investment		10,546	—	10,546	—
Interest rate lock commitments		504	—	—	504
Forward commitments		6	—	6	—
Customer derivatives - interest rate swaps		382	—	382	—
Total	$	105,007	—	104,503	504
Liabilities
Interest rate lock commitments		157	—	—	157
Forward commitments		119	—	119	—
Customer derivatives - interest rate swaps		431	—	431	—
	$	707	—	550	157

Financial assets measured at fair value on a nonrecurring basis, are considered Level 3 assets in the fair value hierarchy.  The fair value used at September 30, 2020 and December 31, 2019 are as follows:

	September 30, 2020		December 31, 2019
(dollars in thousands)	Fair Value		Fair Value
Mortgage servicing rights	$	2,639	446
SBA loan servicing rights		632	337
Impaired loans (1)		2,421	804
Other real estate owned (2)		—	120
Total	$	5,692	1,707

(1) Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input is significant to the fair value measurements.

(2) Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. Appraised values may be discounted based on management’s expertise, historical knowledge, changes in market conditions from the time of valuation and/or estimated costs to sell.

Below is management’s estimate of the fair value of all financial instruments, whether carried at cost or fair value on the Corporation’s balance sheet. The following information should not be interpreted as an estimate of the fair value of the entire Corporation since a fair value calculation is only provided for a limited portion of the Corporation’s assets and liabilities. Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Corporation’s disclosures and those of other companies may not be meaningful. The following methods and assumptions were used to estimate the fair value of the Corporation’s financial instruments:

Cash and Cash Equivalents

The carrying amounts reported in the balance sheet for cash and short-term instruments approximate those assets’ fair values.

       Loans Receivable

The fair value of loans receivable is estimated using discounted cash flow analyses, using market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans. Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal. Generally, for variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair value below is reflective of an exit price.

Loan Servicing Rights

The Corporation estimates the fair value of mortgage servicing rights and SBA loan servicing rights using discounted cash flow models that calculate the present value of estimated future net servicing income. The model uses readily available prepayment speed assumptions for the interest rates of the portfolios serviced. These

servicing rights are classified within Level 3 in the fair value hierarchy based upon management’s assessment of the inputs. The Corporation reviews the servicing rights portfolios on a quarterly basis for impairment.

Impaired Loans

Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.

Accrued Interest Receivable and Payable

The carrying amount of accrued interest receivable and accrued interest payable approximates its fair value.

Deposit Liabilities

The fair values disclosed for demand deposits (e.g., interest and noninterest checking, passbook savings and money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings

The carrying amounts of short-term borrowings approximate their fair values.

Long-Term Debt

Fair values of FHLB advances are estimated using discounted cash flow analysis, based on quoted prices for new FHLB advances with similar credit risk characteristics, terms and remaining maturity. These prices obtained from this active market represent a market value that is deemed to represent the transfer price if the liability were assumed by a third party.

Subordinated Debt

Fair values of junior subordinated debt are estimated using discounted cash flow analysis, based on market rates currently offered on such debt with similar credit risk characteristics, terms and remaining maturity.

Off-Balance Sheet Financial Instruments

Off-balance sheet instruments are primarily comprised of loan commitments, which are generally priced at market at the time of funding. Fees on commitments to extend credit and stand-by letters of credit are deemed to be immaterial and these instruments are expected to be settled at face value or expire unused. It is impractical to assign any fair value to these instruments and as a result they are not included in the table below. Fair values assigned to the notional value of interest rate lock commitments and forward sale contracts are based on market quotes.

The estimated fair values of the Corporation’s financial instruments at September 30, 2020 and December 31, 2019 are as follows:

		September 30, 2020			December 31, 2019
	Fair Value	Carrying			Carrying
(dollars in thousands)	Hierarchy Level	amount		Fair value	amount	Fair value
Financial assets:
Cash and cash equivalents	Level 1	$	75,869	75,869	39,371	39,371
Securities available-for-sale	Level 2		103,358	103,358	58,856	58,856
Securities held-to-maturity	Level 2		6,544	6,916	8,780	9,003
Equity investments	Level 2		1,034	1,034	1,009	1,009
Mortgage loans held for sale	Level 2		225,150	225,150	33,704	33,704
Loans receivable, net of the allowance for loan and lease losses	Level 3		1,278,907	1,313,384	944,651	973,057
Mortgage loans held for investment	Level 2		11,366	11,366	10,546	10,546
Interest rate lock commitments	Level 3		7,798	7,798	504	504
Forward commitments	Level 2		57	57	6	6
Restricted investment in bank stock	NA		7,650	NA	8,072	NA
Accrued interest receivable	Level 3		4,666	4,666	3,148	3,148
Customer derivatives - interest rate swaps	Level 2		1,284	1,284	382	382
Financial liabilities:
Deposits	Level 2		1,209,024	1,361,900	851,168	880,400
Short-term borrowings	Level 2		104,239	104,239	123,676	123,678
Long-term debt	Level 2		250,131	253,804	3,123	3,123
Subordinated debentures	Level 2		40,814	39,674	40,962	40,962
Accrued interest payable	Level 2		2,258	2,258	1,088	1,088
Interest rate lock commitments	Level 3		225	225	157	157
Forward commitments	Level 2		971	971	119	119
Customer derivatives - interest rate swaps	Level 2		1,413	1,413	431	431
		Notional			Notional
Off-balance sheet financial instruments:		amount		Fair value	amount	Fair value
Commitments to extend credit	Level 2	$	377,885	7,798	327,788	504
Letters of credit	Level 2		7,054	—	9,750	—

The following table includes a rollforward of interest rate lock commitments for which the Corporation utilized Level 3 inputs to determine fair value on a recurring basis for the three and nine month peiods ended September 30, 2020 and 2019.

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020		2019
Balance at beginning of the period	$	4,595	375	$	504	310
Increase in value		3,203	(92)		7,294	(27)
Balance at end of the period	$	7,798	283	$	7,798	283

The following table details the valuation techniques for Level 3 interest rate lock commitments.

				Significant
	Fair Value			Unobservable	Range of		Weighted
	Level 3		Valuation Technique	Input	Inputs		Average
September 30, 2020	$	7,798	Market comparable pricing	Pull through	1 - 99	%	85.38	%
December 31, 2019		504	Market comparable pricing	Pull through	1 - 99		93.41

Net realized gains of $3.2 million and net realized losses of $101 thousand due to changes in the fair value of interest rate lock commitments which are classified as Level 3 assets and liabilities for the three months ended September 30, 2020 and 2019, respectively, and net realized gains of $7.2 million and net realized losses $67 thousand for the nine months ended September 30, 2020 and 2019, respectively, are recorded in non-interest income as net change in the fair value of derivative instruments in the Corporation’s consolidated statements of income.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2020

Derivative Financial Instruments

Derivative Financial Instruments

(10)    Derivative Financial Instruments

Risk Management Objective of Using Derivatives

The Corporation is exposed to certain risk arising from both its business operations and economic conditions.  The Corporation principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Corporation manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.  Specifically, the Corporation enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.  The Corporation’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Corporation’s known or expected cash receipts and its known or expected cash payments principally related to the Corporation’s loan portfolio.  

Mortgage Banking Derivatives

In connection with its mortgage banking activities, the Corporation enters into commitments to originate certain fixed rate residential mortgage loans for customers, also referred to as interest rate locks. In addition, the Corporation enters into forward commitments for the future sales or purchases of mortgage-backed securities to or from third-party counterparties to hedge the effect of changes in interest rates on the values of both the interest rate locks and mortgage loans held for sale. Forward sales commitments may also be in the form of commitments to sell individual mortgage loans or interest rate locks at a fixed price at a future date. The amount necessary to settle each interest rate lock is based on the price that secondary market investors would pay for loans with similar characteristics, including interest rate and term, as of the date fair value is measured. The fair value of interest rate lock commitments and forward commitments are recorded within other assets/liabilities on the consolidated balance sheets, with changes in fair values during the period recorded within net change in the fair value of derivative instruments on the unaudited consolidated statements of income.

Customer Derivatives – Interest Rate Swaps

Derivatives not designated as hedges are not speculative and result from a service the Corporation provides to certain customers to swap a fixed rate product for a variable rate product, or vice versa.  The Corporation executes interest rate derivatives with commercial banking customers to facilitate their respective risk management strategies.  Those interest rate derivatives are simultaneously hedged by offsetting derivatives that the Corporation executes with a third party, such that the Corporation minimizes its net interest rate risk exposure resulting from such transactions.  The fair value of interest rate derivatives are recorded within other assets/liabilities on the consolidated balance sheets.  As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.  

The following table presents a summary of the notional amounts and fair values of derivative financial instruments:

		September 30, 2020			December 31, 2019
(dollars in thousands)	Balance Sheet Line Item	Notional Amount		Asset (Liability) Fair Value	Notional Amount	Asset (Liability) Fair Value
Interest Rate Lock Commitments
Positive fair values	Other assets	$	497,093	7,798	47,660	504
Negative fair values	Other liabilities		46,890	(225)	22,663	(157)
Total			543,983	7,573	70,323	347
Forward Commitments
Positive fair values	Other assets		75,500	57	4,500	6
Negative fair values	Other liabilities		215,500	(971)	58,250	(119)
Total			291,000	(914)	62,750	(113)
Customer Derivatives - Interest Rate Swaps
Positive fair values	Other assets		17,906	1,284	3,271	382
Negative fair values	Other liabilities		17,906	(1,413)	3,271	(431)
Total			35,812	(129)	6,542	(49)
Total derivative financial instruments		$	870,795	6,530	139,615	185

Interest rate lock commitments are considered Level 3 in the fair value hierarchy, while the forward commitments and interest rate swaps are considered Level 2 in the fair value hierarchy.

The following table presents a summary of the fair value gains and losses on derivative financial instruments:

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2020		2019		2020	2019
Interest Rate Lock Commitments	$	3,161	(102)	$	7,226	(68)
Forward Commitments		(129)	124		(801)	101
Customer Derivatives - Interest Rate Swaps		(4)	(22)		(79)	(48)
Net fair value gains (losses) on derivative financial instruments	$	3,028	—	$	6,346	(15)

Net realized losses on derivatives were ($2.6) million and ($300) thousand for the three months ended September 30, 2020 and 2019, respectively, and ($7.4) million and ($792) thousand for the nine months ended September 30, 2020 and 2019, respectively.

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Segments

9 Months Ended

Sep. 30, 2020

Segments

Segments

(11)    Segments

ASC Topic 280 – Segment Reporting identifies operating segments as components of an enterprise which are evaluated regularly by the Chief Executive Officer, in deciding how to allocate resources and assess performance. The Corporation has applied the aggregation criterion set forth in this codification to the results of its operations.

Our Banking segment consists of commercial and retail banking. The Banking segment generates interest income from its lending (including leasing) and investing activities and is dependent on the gathering of lower cost deposits from its branch network or borrowed funds from other sources for funding its loans, resulting in the generation of net interest income. The Banking segment also derives revenues from other sources including gains on the sale of investment securities, gains on the sale of loans, SBA income, service charges on deposit accounts, cash sweep fees, overdraft fees, BOLI income, title insurance fees, and other less significant non-interest income.

Meridian Wealth Partners (“Wealth”), is a registered investment advisor and wholly-owned subsidiary of the Bank, that provide a comprehensive array of wealth management services and products and the trusted guidance to help

its clients and our banking customers prepare for the future. The unit generates non-interest income through advisory fees.

Meridian Mortgage’s (“Mortgage”) consists of 16 loan production offices located throughout the Delaware Valley and Maryland. The Mortgage segment originates 1 – 4 family residential mortgages and sells nearly all of its production to third party investors. The unit generates net interest income on the loans it originates and holds temporarily, then earns fee income (primarily gain on sales) at the time of the sale.  The unit also recognizes income from document preparation fees, changes in portfolio pipeline fair values and related net hedging gains.

The table below summarizes income and expenses, directly attributable to each business line, which has been included in the statement of operations.

	Segment Information
	Three Months Ended September 30, 2020					Three Months Ended September 30, 2019
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	12,104	(19)	630	12,715	$	9,203	4	67	9,274
Provision for loan losses		3,956	—	—	3,956		705	—	—	705
Net interest income after provision		8,148	(19)	630	8,759		8,498	4	67	8,569
Non-interest Income
Mortgage banking income		574	—	21,238	21,812		74	—	7,241	7,315
Wealth management income		—	951	—	951		31	891	—	922
SBA income		641	—	—	641		635	—	—	635
Net change in fair values		(4)	—	6,057	6,053		(23)	—	53	30
Net (loss) on hedging activity		—	—	(2,637)	(2,637)		—	—	(300)	(300)
Other		2,045	—	195	2,240		534	—	73	607
Non-interest income		3,256	951	24,853	29,060		1,251	891	7,067	9,209
Non-interest expense		8,829	788	16,217	25,834		6,915	834	5,798	13,547
Income before income taxes	$	2,575	144	9,266	11,985	$	2,834	61	1,336	4,231
Total Assets	$	1,525,883	5,399	227,366	1,758,648	$	1,071,450	5,398	50,089	1,126,937

	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	32,725	(24)	1,277	33,978	$	26,437	68	167	26,672
Provision for loan losses		7,139	—	—	7,139		938	—	—	938
Net interest income after provision		25,586	(24)	1,277	26,839		25,499	68	167	25,734
Non-interest Income
Mortgage banking income		973	—	44,422	45,395		175	—	17,442	17,617
Wealth management income		—	2,825	—	2,825		110	2,588	—	2,698
SBA income		1,821	—	—	1,821		1,150	—	—	1,150
Net change in fair values		(68)	—	11,012	10,944		(49)	—	341	292
Net (loss) on hedging activity		—	—	(7,363)	(7,363)		—	—	(792)	(792)
Other		2,931	14	405	3,350		1,409	—	282	1,691
Non-interest income		5,657	2,839	48,476	56,972		2,795	2,588	17,273	22,656
Non-interest expense		23,341	2,363	35,448	61,152		20,312	2,268	16,400	38,980
Income before income taxes	$	7,902	452	14,305	22,659	$	7,982	388	1,040	9,410
Total Assets	$	1,525,883	5,399	227,366	1,758,648	$	1,071,450	5,398	50,089	1,126,937

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Stockholders' Equity

9 Months Ended

Sep. 30, 2020

Stockholders' Equity

Stockholders' Equity

(12)    Stockholders’ Equity

On August 31, 2020, the Corporation announced that the Meridian Corporation Employee Stock Ownership Plan Trust (together with the related employee stock ownership plan, the “ESOP”) had established a $2 million stock purchase authorization with no expiration date. Purchases are authorized to be made from time to time in either the open market or through privately negotiated transactions. The Corporation loaned the ESOP $2 million to facilitate the ESOP’s purchase of the shares.  During September 2020 the ESOP purchased 133,601 shares of the Corporation’s common stock at an average price of $14.97, using the full $2 million loan. The ESOP loan, which bears an interest rate of 1.17%, is to be repaid in annual installments commencing on December 31, 2020, and on the final day of each of the next nine calendar years. As of September 30, 2020 there were no shares commited to be released.

On October 22, 2020, the Corporation’s Board of Directors declared a cash dividend of $0.125 per common share, payable on November 23, 2020 to shareholders of record as of November 9, 2020. During the third quarter of 2020, the Corporation paid or accrued, as applicable, a quarterly dividend of $0.125 per share. This dividend totaled $763 thousand, based on outstanding shares as of August 10, 2020 of 6,098,573.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2020

Recent Accounting Pronouncements

Recent Accounting Pronouncements

(13)    Recent Accounting Pronouncements

As an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 (“JOBS Act”), the Bank is permitted an extended transition period for complying with new or revised accounting standards affecting public companies. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1,070,000,000 or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the fiscal year in which the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year. We have elected to take advantage of this extended transition period, which means that the financial statements included herein, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. If we do so, we will prominently disclose this decision in the first periodic report following our decision, and such decision is irrevocable. As a filer under the JOBS Act, we will implement new accounting standards subject to the effective dates required for non-public entities.

FASB ASU 2017-01 (Topic 805), “Business Combinations”

Issued in January 2017, ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for public companies for annual periods beginning after December 15, 2017 including interim periods within those periods, while for non-public companies the ASU is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019. The adoption of this standard on January 1, 2019 did not have a material impact on the Corporation’s consolidated financial statements and related disclosures.

FASB ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting”

Issued in June 2018, ASU 2018-07: Compensation - Stock Compensation (Topic 718), “Improvements to Nonemployee Share-Based Payment Accounting” expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers.

The amendments in this update became effective for us January 1, 2020. The adoption did not have an impact on our consolidated financial statements and related disclosures as the Corporation did not and has not historically granted share based payment awards to nonemployees other than to the Corporation’s Board of Directors, who are treated as employees for share-based payment accounting.

FASB ASU 2018-13, "Fair Value Measurement Disclosure Framework"

Issued in August 2018, ASU 2018-13 modifies, adds and removes certain disclosures aimed to improve the overall usefulness of the disclosure requirements for fair value measurements. ASU 2018-13 was effective for the Corporation on January 1, 2020. Adoption is required on both a prospective and retrospective basis depending on the amendment. The adoption of this ASU did not have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2016-13 (Topic 326), “Measurement of Credit Losses on Financial Instruments”

Issued in June 2016, ASU 2016-13 significantly changes how companies measure and recognize credit impairment for many financial assets. This ASU requires businesses and other organizations to measure the current expected credit losses (“CECL”) on financial assets, such as loans, net investments in leases, certain debt securities, bond insurance and other receivables.  The amendments affect entities holding financial assets and net investments in leases that are not accounted for at fair value through net income. Current GAAP requires an incurred loss methodology for recognizing credit losses that delays recognition until it is probable a loss has been incurred. The amendments in this ASU replace the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonableness and supportable information to inform credit loss estimates. An entity should apply the amendments through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (modified retrospective approach). Acquired credit impaired loans for which the guidance in Accounting Standards Codification (ASC) Topic 310-30 has been previously applied should prospectively apply the guidance in this ASU.  A prospective transition approach is required for debt securities for which an other-than-temporary impairment has been recognized before the effective date. In October 2019, the FASB approved a delay for the implementation of the ASU. Accordingly, as an emerging growth company, the Corporation’s effective date for the implementation of the ASU will be January 1, 2023.  The Corporation is currently determining under which method we

will adopt this ASU.  The Corporation has assembled a cross-functional team from Finance, Credit, and IT that is leading the implementation efforts to evaluate the impact of this guidance on the Corporation's consolidated financial statements and related disclosures, internal systems, accounting policies, processes and related internal controls.  At this time the Corporation cannot yet estimate the impact to the consolidated financial statements.

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

Issued in April 2019, ASU 2019-04 clarifies certain aspects of accounting for credit losses, hedging activities, and financial instruments (addressed by ASUs 2016-13, 2017-12, and 2016-01, respectively). The amendments to estimating expected credit losses (ASU 2016-13), in particular, how a company considers recoveries and extension options when estimating expected credit losses, are the most relevant to the Corporation. The ASU clarifies that (1) the estimate of expected credit losses should include expected recoveries of financial assets, including recoveries of amounts expected to be written off and those previously written off, and (2) that contractual extension or renewal options that are not unconditionally cancellable by the lender are considered when determining the contractual term over which expected credit losses are measured. Management will consider the impact of ASU 2019-04 when considering the impact of ASU 2016-13 as discussed above.

FASB ASU 2016-02 (Topic 842), “Leases”

Issued in February 2016, ASU 2016-02 revises the accounting related to lessee accounting. Under the new guidance, lessees will be required to recognize a lease liability and a right-of-use asset for all leases. The new lease guidance also simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. ASU 2016-02 is effective for public companies for the first interim period within annual periods beginning after December 15, 2018, with early adoption permitted. For non-public companies the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within the fiscal years beginning after December 15, 2021. In July 2018, ASU 2018-11 was issued which creates a new, optional transition method for implementing ASU 2016-02 and a lessor practical expedient for separating lease and non-lease components and has the same effective date as ASU 2016-02.  Under the optional transition method of ASU 2018-11, the Corporation may initially apply the new lease standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption.  The Corporation will adopt ASU 2016-2 and ASU 2018-11 as of January 1, 2021 and apply ASC 842 throughout 2021.  The Corporation is evaluating the effects that ASU 2016-02 and ASU 2018-11 will have on its consolidated financial statements and related disclosures.

FASB ASU 2017-08 (Subtopic 310-20), “Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”

Issued in March 2017, ASU 2017-08 shortens the amortization period for certain callable debt securities held at a premium. Specifically, the amendment requires the premium to be amortized to the earliest call date. The amendment does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public business entities, the amendments in this update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. For non-public companies the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within the fiscal years beginning after December 31, 2020. The Corporation will adopt ASU 2017-08 as of December 31, 2020 and apply existing guidance throughout 2020.  The Corporation is evaluating the effect that ASU 2017-08 will have on its consolidated financial statements and related disclosures.

FASB ASU 2017-12 (Subtopic 815), “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities”

Issued in August 2017, ASU 2017-12 better aligns hedge accounting with an organization’s risk management activities in the financial statements. In addition, the ASU simplifies the application of hedge accounting guidance in areas where practice issues exist. Specifically, the proposed ASU eases the requirements for effectiveness testing, hedge documentation and application of the shortcut and the critical terms match methods. Entities would be permitted to designate contractually

specified components as the hedged risk in a cash flow hedge involving the purchase or sale of nonfinancial assets or variable rate financial instruments. In addition, entities would no longer separately measure and report hedge ineffectiveness. Also, entities, may choose refined measurement techniques to determine the changes in fair value of the hedged item in fair value hedges of benchmark interest rate risk. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the ASU is effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020.  Early application is permitted in any interim period after issuance of the ASU for existing hedging relationships on the date of adoption and the effect of adoption should be reflected as of the beginning of the fiscal year of adoption (that is, the initial application date). The Corporation has evaluated ASU 2017-12, and has determined it has no current hedging strategies applicable under the ASU but we will consider the impact of the ASU on future hedging strategies that may arise.  The Corporation will adopt ASU 2017-12 as of December 31, 2020 and apply existing guidance throughout 2020.

FASB ASU 2018-16 (Subtopic 815), “Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes”

In October 2018 ASU 2018-16 was issued.  The new guidance applies to all entities that elect to apply hedge accounting to benchmark interest rate hedges under Topic 815. It permits the use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes in addition to the existing applicable rates. The guidance is required to be adopted concurrently with ASU 2017-12, on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after adoption. The Corporation does not anticipate the adoption of this ASU to have a material impact on its consolidated financial statements and related disclosures.

FASB ASU 2018-15 (Topic 350), "Intangibles - Goodwill and Other - Internal-Use Software"

Issued in August 2018, ASU 2018-15 provides clarity on capitalizing and expensing implementation costs for cloud computing arrangements in a service contract. If an implementation cost is capitalized, the cost should be recognized over the noncancellable term and periodically assessed for impairment. The guidance is effective in annual and interim periods in fiscal years beginning after December 15, 2020 and interim periods within annual periods beginning after December 15, 2021. Adoption should be applied retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Corporation does not expect the adoption of this ASU to have a material impact on our consolidated financial statements and related disclosures.

FASB ASU 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”

Issued in December 2019, ASU 2019-12 adds new guidance to simplify accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the codification. The guidance is effective for annual periods beginning after December 15, 2020. Early adoption is permitted. Management has not yet determined what the impact of the adoption of this ASU will be on our consolidated financial statements and related disclosures.

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

This ASU clarifies the accounting for certain financial instruments with characteristics of liabilities and equity. The amendments in this update reduce the number of accounting models for convertible debt instruments and convertible preferred stock by removing the cash conversion model and the beneficial conversion feature models. For public business entities that meet the definition of an SEC filer (excluding smaller reporting entities), the amendments are effective for fiscal years beginning after Dec. 15, 2021, and interim periods within. For all other entities, the amendments are effective for fiscal years beginning after Dec. 15, 2023, and interim periods within. Early adoption is permitted, but no earlier than for fiscal years beginning after Dec. 15, 2020.

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Earnings per Common Share (Tables)

9 Months Ended

Sep. 30, 2020

Earnings per Common Share

Schedule of basic and diluted earnings per common share

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(dollars in thousands, except per share data)	2020		2019		2020		2019
Numerator:
Net income available to common stockholders	$	9,212		3,317	$	17,441		7,345
Denominator for basic earnings per share - weighted average shares outstanding		6,099		6,407		6,172		6,407
Effect of dilutive common shares		11		30		21		29
Denominator for diluted earnings per share - adjusted weighted average shares outstanding		6,110		6,437		6,193		6,436
Basic earnings per share	$	1.51		0.52	$	2.83		1.15
Diluted earnings per share	$	1.51		0.52	$	2.82		1.14
Antidilutive shares excluded from computation of average dilutive earnings per share		265		199		192		199

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Goodwill and Other Intangibles (Tables)

9 Months Ended

Sep. 30, 2020

Goodwill and Other Intangibles

Schedule of goodwill and intangibles assets related to acquisition

	Balance			Balance	Amortization
	December 31,		Amortization	September 30,	Period
(dollars in thousands)	2019		Expense	2020	(in years)
Goodwill - Wealth	$	899	—	899	Indefinite
Total Goodwill		899	—	899
Intangible assets - trade name		266	—	266	Indefinite
Intangible assets - customer relationships		3,523	(154)	3,369	20
Intangible assets - non competition agreements		85	(52)	33	4
Total Intangible Assets		3,874	(206)	3,668
Total	$	4,773	(206)	4,567

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Securities (Tables)

9 Months Ended

Sep. 30, 2020

Securities

Schedule of amortized cost and fair value of securities

	September 30, 2020
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. asset backed securities	$	24,705	211	(172)	24,744
U.S. government agency mortgage-backed securities		3,919	192	—	4,111
U.S. government agency collateralized mortgage obligations		21,375	1,108	—	22,483
State and municipal securities		48,789	805	(255)	49,339
Corporate bonds		2,683	3	(5)	2,681
Total securities available-for-sale	$	101,471	2,319	(432)	103,358
Securities held to maturity:
State and municipal securities		6,544	372	—	6,916
Total securities held-to-maturity	$	6,544	372	—	6,916

	December 31, 2019
			Gross	Gross
	Amortized		unrealized	unrealized	Fair
(dollars in thousands)	cost		gains	losses	value
Securities available-for-sale:
U.S. asset backed securities	$	11,967	—	(101)	11,866
U.S. government agency mortgage-backed securities		5,457	66	(26)	5,497
U.S. government agency collateralized mortgage obligations		35,096	300	(173)	35,223
State and municipal securities		6,354	—	(84)	6,270
Total securities available-for-sale	$	58,874	366	(384)	58,856
Securities held to maturity:
State and municipal securities		8,780	223	—	9,003
Total securities held-to-maturity	$	8,780	223	—	9,003

Schedule of investment gross unrealized loss in continuous unrealized loss position

	September 30, 2020
	Less than 12 Months			12 Months or more		Total
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	value		losses	value	losses	value	losses
Securities available-for-sale:
U.S. asset backed securities	$	10,704	(66)	8,085	(106)	18,789	(172)
State and municipal securities		27,950	(255)	—	—	27,950	(255)
Corporate bonds		1,245	(5)	—	—	1,245	(5)
Total securities available-for-sale	$	39,899	(326)	8,085	(106)	47,984	(432)

	December 31, 2019
	Less than 12 Months			12 Months or more		Total
	Fair		Unrealized	Fair	Unrealized	Fair	Unrealized
(dollars in thousands)	value		losses	value	losses	value	losses
Securities available-for-sale:
U.S. asset backed securities	$	11,866	(101)	—	—	11,866	(101)
U.S. government agency mortgage-backed securities		—	—	1,636	(26)	1,636	(26)
U.S. government agency collateralized mortgage obligations		16,283	(116)	3,108	(57)	19,391	(173)
State and municipal securities		6,270	(84)	—	—	6,270	(84)
Total securities available-for-sale	$	34,419	(301)	4,744	(83)	39,163	(384)

Schedule of amortized cost and carrying value of held-to-maturity securities and available-for-sale securities by contractual maturity

	September 30, 2020					December 31, 2019
	Available-for-sale			Held-to-maturity		Available-for-sale			Held-to-maturity
	Amortized		Fair	Amortized	Fair	Amortized		Fair	Amortized	Fair
(dollars in thousands)	cost		value	cost	value	cost		value	cost	value
Investment securities:
Due in one year or less	$	—	—	—	—	$	—	—	—	—
Due after one year through five years		—	—	3,196	3,318		—	—	4,242	4,311
Due after five years through ten years		8,590	8,568	3,348	3,598		1,329	1,324	4,538	4,692
Due after ten years		67,587	68,196	—	—		16,992	16,812	—	—
Subtotal		76,177	76,764	6,544	6,916		18,321	18,136	8,780	9,003
Mortgage-related securities		25,294	26,594	—	—		40,553	40,720	—	—
Total	$	101,471	103,358	6,544	6,916	$	58,874	58,856	8,780	9,003

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Loans Receivable (Tables)

9 Months Ended

Sep. 30, 2020

Loans Receivable

Summary of loans and leases outstanding

	September 30,		December 31,
(dollars in thousands)	2020		2019
Mortgage loans held for sale	$	225,150	33,704
Real estate loans:
Commercial mortgage		460,952	362,590
Home equity lines and loans		71,400	81,583
Residential mortgage (1)		55,500	53,665
Construction		151,226	172,044
Total real estate loans		739,078	669,882
Commercial and industrial		256,452	273,301
Small business loans		44,280	21,616
Paycheck Protection Program loans		259,723	—
Consumer		582	1,003
Leases, net		13,374	697
Total portfolio loans and leases		1,313,489	966,499
Total loans and leases	$	1,538,639	1,000,203
Loans with predetermined rates	$	720,791	293,114
Loans with adjustable or floating rates		817,848	707,089
Total loans and leases	$	1,538,639	1,000,203
Net deferred loan origination (fees) costs	$	(6,643)	(1,789)

(1) Includes $11,366 and $10,546 of loans at fair value as of September 30, 2020 and December 31, 2019, respectively.

Schedule of components of the net investment in leases

	September 30,		December 31,
(dollars in thousands)	2020		2019
Minimum lease payments receivable	$	16,306	729
Unearned lease income		(2,932)	(32)
Total	$	13,374	697

Schedule of age analysis of past due loans and leases

						Total
			90+ days			Accruing	Nonaccrual
September 30, 2020	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	—	—	—	460,285	460,285	667	460,952	0.14	%
Home equity lines and loans		—	—	—	70,737	70,737	663	71,400	0.93
Residential mortgage (1)		389	—	389	52,578	52,967	2,533	55,500	5.26
Construction		—	—	—	151,226	151,226	—	151,226	—
Commercial and industrial		—	—	—	252,403	252,403	4,049	256,452	1.58
Small business loans		—	—	—	44,280	44,280	—	44,280	—
Paycheck Protection Program loans		—	—	—	259,723	259,723	—	259,723	—
Consumer		—	—	—	582	582	—	582	—
Leases		8	—	8	13,366	13,374	—	13,374	0.06
Total	$	397	—	397	1,305,180	1,305,577	7,912	1,313,489	0.63	%

(1) Includes $11,366 of loans at fair value as of September 30, 2020 ($10,489 of current and $877 of nonaccrual).

						Total
			90+ days			Accruing	Nonaccrual
December 31, 2019	30-89 days		past due and	Total past		Loans and	loans and	Total loans	Delinquency
(dollars in thousands)	past due		still accruing	due	Current	leases	leases	and leases	percentage
Commercial mortgage	$	—	—	—	361,857	361,857	733	362,590	0.20	%
Home equity lines and loans		—	—	—	81,046	81,046	537	81,583	0.66
Residential mortgage (1)		4,675	—	4,675	47,446	52,121	1,544	53,665	11.59
Construction		—	—	—	172,044	172,044	—	172,044	—
Commercial and industrial		206	—	206	272,674	272,880	421	273,301	0.23
Small business loans		—	—	—	21,616	21,616	—	21,616	—
Consumer		—	—	—	1,003	1,003	—	1,003	—
Leases		162	—	162	535	697	—	697	23.24
Total	$	5,043	—	5,043	958,221	963,264	3,235	966,499	0.86	%

(1) Includes $10,546 of loans at fair value as of December 31, 2019 ($9,056 of current, $786 of 30-89 days past due and $704 of nonaccrual).

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Allowance for Loan Losses (the Allowance) (Tables)

9 Months Ended

Sep. 30, 2020

Allowance for Loan Losses (the Allowance)

Roll-forward of allowance for loan and lease losses by portfolio segment

	Balance,					Balance,
(dollars in thousands)	June 30, 2020		Charge-offs	Recoveries	Provision	September 30, 2020
Commercial mortgage	$	5,277	—	—	1,658	6,935
Home equity lines and loans		672	(75)	2	(82)	517
Residential mortgage		346	—	1	(13)	334
Construction		2,019	—	—	463	2,482
Commercial and industrial		3,606	(22)	4	1,450	5,038
Small business loans		747	—	—	360	1,107
Consumer		4	—	1	(1)	4
Leases		35	—	—	121	156
Total	$	12,706	(97)	8	3,956	16,573

	Balance,					Balance,
(dollars in thousands)	December 31, 2019		Charge-offs	Recoveries	Provision	September 30, 2020
Commercial mortgage	$	3,426	—	—	3,509	6,935
Home equity lines and loans		342	(89)	6	258	517
Residential mortgage		179	—	5	150	334
Construction		2,362	—	—	120	2,482
Commercial and industrial		2,684	(31)	37	2,348	5,038
Small business loans		509	—	—	598	1,107
Consumer		6	(10)	3	5	4
Leases		5	—	—	151	156
Total	$	9,513	(130)	51	7,139	16,573

	Balance,					Balance,
(dollars in thousands)	June 30, 2019		Charge-offs	Recoveries	Provision	September 30, 2019
Commercial mortgage	$	3,197	—	1	257	3,455
Home equity lines and loans		354	—	2	(28)	328
Residential mortgage		200	—	2	(30)	172
Construction		2,033	—	—	136	2,169
Commercial and industrial		2,719	(30)	6	171	2,866
Small business loans		111	—	—	198	309
Consumer		4	—	1	1	6
Leases		7	—	—	—	7
Total	$	8,625	(30)	12	705	9,312

	Balance,					Balance,
(dollars in thousands)	December 31, 2018		Charge-offs	Recoveries	Provision	September 30, 2019
Commercial mortgage	$	3,209	—	6	240	3,455
Home equity lines and loans		323	—	10	(5)	328
Residential mortgage		191	—	4	(23)	172
Construction		1,627	—	—	542	2,169
Commercial and industrial		2,612	(30)	328	(44)	2,866
Small business loans		78	—	—	231	309
Consumer		3	—	3	—	6
Leases		10	—	—	(3)	7
Total	$	8,053	(30)	351	938	9,312

Schedule of allocation of the allowance for loan and lease losses

	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
September 30, 2020	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	6,935	6,935	$	2,005	458,947	460,952
Home equity lines and loans		16	501	517		663	70,737	71,400
Residential mortgage		—	334	334		1,648	42,486	44,134
Construction		—	2,482	2,482		1,206	150,020	151,226
Commercial and industrial		1,565	3,473	5,038		4,726	251,726	256,452
Small business loans		—	1,107	1,107		199	44,081	44,280
Paycheck Protection Program loans		—	—	—		—	259,723	259,723
Consumer		—	4	4		—	582	582
Leases		—	156	156		—	13,374	13,374
Total	$	1,581	14,992	16,573	$	10,447	1,291,676	1,302,123	(1)

	Allowance on loans and leases				Carrying value of loans and leases
	Individually		Collectively		Individually		Collectively
December 31, 2019	evaluated		evaluated		evaluated		evaluated
(dollars in thousands)	for impairment		for impairment	Total	for impairment		for impairment	Total
Commercial mortgage	$	—	3,426	3,426	$	2,138	360,452	362,590
Home equity lines and loans		46	296	342		536	81,047	81,583
Residential mortgage		—	179	179		854	42,265	43,119
Construction		—	2,362	2,362		1,247	170,797	172,044
Commercial and industrial		27	2,657	2,684		1,288	272,013	273,301
Small business loans		63	446	509		1,244	20,372	21,616
Consumer		—	6	6		—	1,003	1,003
Leases		—	5	5		—	697	697
Total	$	136	9,377	9,513	$	7,307	948,646	955,953	(1)

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

Schedule of carrying value of loans and leases by portfolio segment based on the credit quality indicators

September 30, 2020			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	441,090	16,260	3,602	—	460,952
Home equity lines and loans		70,251	—	1,149	—	71,400
Construction		142,420	8,806	—	—	151,226
Commercial and industrial		220,760	22,950	9,019	3,723	256,452
Small business loans		41,548	—	2,732	—	44,280
Paycheck Protection Program loans		259,723	—	—	—	259,723
Total	$	1,175,792	48,016	16,502	3,723	1,244,033

December 31, 2019			Special
(dollars in thousands)	Pass		mention	Substandard	Doubtful	Total
Commercial mortgage	$	353,724	5,821	3,045	—	362,590
Home equity lines and loans		81,046	—	537	—	81,583
Construction		170,823	1,221	—	—	172,044
Commercial and industrial		251,320	9,648	12,333	—	273,301
Small business loans		20,351	—	1,265	—	21,616
Total	$	877,264	16,690	17,180	—	911,134

Schedule of allocations based on the credit quality indicators

	September 30, 2020				December 31, 2019
(dollars in thousands)	Performing		Nonperforming	Total	Performing		Nonperforming	Total
Residential mortgage	$	42,486	1,648	44,134	$	42,265	854	43,119
Consumer		582	—	582		1,003	—	1,003
Leases		13,374	—	13,374		697	—	697
Total	$	56,442	1,648	58,090	$	43,965	854	44,819

Schedule of recorded investment and principal balance of impaired loans

	As of September 30, 2020				As of December 31, 2019
	Recorded		Principal	Related	Recorded	Principal	Related
(dollars in thousands)	investment		balance	allowance	investment	balance	allowance
Impaired loans with related allowance:
Commercial and industrial		3,903	3,907	1,565	617	617	27
Small business loans		—	—	—	1,002	1,002	63
Home equity lines and loans		99	106	16	461	461	46
Total		4,002	4,013	1,581	2,080	2,080	136
Impaired loans without related allowance:
Commercial mortgage	$	2,005	2,035	—	2,138	2,173	—
Commercial and industrial		823	897	—	671	718	—
Small business loans		199	199	—	242	242	—
Home equity lines and loans		564	581	—	75	75	—
Residential mortgage		1,648	1,648	—	854	854	—
Construction		1,206	1,206	—	1,247	1,248	—
Total		6,445	6,566	—	5,227	5,310	—
Grand Total	$	10,447	10,579	1,581	7,307	7,390	136

Schedule of average recorded investment on impaired loans

		Three Months Ended	Three Months Ended		Nine Months Ended	Nine Months Ended
		September 30,	September 30,		September 30,	September 30,
		2020	2019		2020	2019
		Average	Average		Average	Average
		recorded	recorded		recorded	recorded
(dollars in thousands)		investment	investment		investment	investment
Impaired loans with related allowance:
Commercial and industrial	$	3,907	561	$	1,766	566
Small business loans		—	—		—	—
Home equity lines and loans		100	255		103	256
Total	$	4,007	816	$	1,869	822
Impaired loans without related allowance:
Commercial mortgage	$	2,080	2,220	$	1,852	2,272
Commercial and industrial		874	597		700	602
Small business loans		208	259		220	262
Home equity lines and loans		564	-		575	-
Residential mortgage		1,649	857		1,478	857
Construction		1,206	1,270		1,209	1,286
Total	$	6,581	5,203	$	6,034	5,279
Grand Total	$	10,588	6,019	$	7,903	6,101

Schedule of TDRs

TDRs at September 30, 2020 and December 31, 2019 are as follows:

	September 30,		December 31,
(dollars in thousands)	2020		2019
TDRs included in nonperforming loans and leases	$	246	319
TDRs in compliance with modified terms		3,428	3,599
Total TDRs	$	3,674	3,918

Schedule of loan and lease modifications granted

There were no loan and lease modification granted during the three months ended September 30, 2020 that was categorized as a TDR as noted in the table below.

	For the Nine Months Ended September 30, 2020
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded		Related
(dollar in thousands)	Contracts	Investment		Investment		Allowance
Real Estate:
Commercial mortgage	—	$	—	$	—	$	—
Land and Construction	—		—		—		—
Commercial and industrial	1		58		58		—
Total	1	$	58	$	58	$	—

Schedule of loan modifications provided to loan customers

		September 30, 2020
		Portfolio		Total		Active
Loan Portfolio		Balance		Modifications		Modifications
Commercial mortgage	$	460,952	$	86,591	$	4,182
Commercial and industrial, including leases		269,826		24,362		200
Construction & land development		151,226		36,819		14,196
Home equity lines and loans		71,400		1,348		-
Residential mortgage		44,134		4,800		558
Small business loans		44,280		144		-
Consumer		582		-		—
Total	$	1,042,400	$	154,064	$	19,136

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

9 Months Ended

Sep. 30, 2020

Short-Term Borrowings and Long-Term Debt

Schedule of short term borrowings

Short-term borrowings at September 30, 2020 and December 31, 2019 consisted of the following notes:

				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2020		2019
Open Repo Plus Weekly	05/28/2021	0.39	%		56,640	102,320
Federal Reserve Discount Window	09/30/2020	0.25			10,000	—
Mid-term Repo-fixed	12/09/2020	0.42			3,752	—
Mid-term Repo-fixed	01/13/2021	0.36			4,605	—
Mid-term Repo-fixed	01/27/2021	0.23			5,465	—
Mid-term Repo-fixed	03/09/2021	0.79			10,417	—
Mid-term Repo-fixed	03/22/2021	0.88			10,238	—
Mid-term Repo-fixed	06/28/2021	1.88			3,122	—
Mid-term Repo-fixed	08/10/2020	2.76			—	5,000
Mid-term Repo-fixed	08/10/2020	1.59			—	5,144
Mid Term Repo Fixed Rate	09/11/2020	1.59			—	7,676
Mid Term Repo Fixed Rate	03/27/2020	2.03			—	3,123
Acquisition Purchase Note	04/01/2020	3.00			—	413
Total				$	104,239	123,676

Schedule of long term debt

				Balance as of
	Maturity	Interest		September 30,		December 31,
(dollars in thousands)	date	rate		2020		2019
PPPLF Advance	Various	0.35	%		235,953	—
Mid-term Repo-fixed	03/21/2022	0.92		$	1,900	—
Mid-term Repo-fixed	06/29/2022	0.32			7,392	3,123
Mid-term Repo-fixed	09/12/2022	0.23			4,886	—
Total	`			$	250,131	3,123

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Servicing Assets (Tables)

9 Months Ended

Sep. 30, 2020

Mortgage Servicing Rights

Servicing Assets at Fair Value [Line Items]

Schedule of servicing assets

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Balance at beginning of the period	$	1,294	236	$	446	232
Servicing rights capitalized		1,333	107		2,469	198
Amortization of servicing rights		(90)	(17)		(173)	(39)
Change in valuation allowance		102	(12)		(103)	(77)
Balance at end of the period	$	2,639	314	$	2,639	314

Schedule of valuation allowance for servicing assets

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Valuation allowance, beginning of period	$	(303)	(65)	$	(98)	—
Impairment		—	(12)		(103)	(77)
Recovery		102	—		—	—
Valuation allowance, end of period	$	(201)	(77)	$	(201)	(77)

Schedule of sensitivity of fair value of servicing assets

(dollars in thousands)	September 30, 2020		December 31, 2019
Fair value of residential mortgage servicing rights	$	2,639	$	446
Weighted average life (years)		5.0		7.8
Prepayment speed		12.00%		13.08%
Impact on fair value:
10% adverse change	$	(99)	$	(19)
20% adverse change		(192)		(37)
Discount rate		9.00%		9.00%
Impact on fair value:
10% adverse change	$	(98)	$	(14)
20% adverse change		(189)		(27)

SBA Loan Servicing Rights

Servicing Assets at Fair Value [Line Items]

Schedule of servicing assets

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Balance at beginning of the period	$	632	133	$	337	—
Servicing rights capitalized		183	198		524	331
Amortization of servicing rights		(42)	(6)		(88)	(6)
Change in valuation allowance		14	(4)		14	(4)
Balance at end of the period	$	787	321	$	787	321

Schedule of valuation allowance for servicing assets

	Three Months Ended September 30,			Nine Months Ended September 30,
(dollars in thousands)	2020		2019	2020		2019
Valuation allowance, beginning of period	$	(26)	—	$	(26)	—
Impairment		—	(4)		—	(4)
Recovery		14	—		14	—
Valuation allowance, end of period	$	(12)	(4)	$	(12)	(4)

Schedule of sensitivity of fair value of servicing assets

(dollars in thousands)	September 30, 2020		December 31, 2019
Fair value of SBA loan servicing rights	$	889	$	337
Weighted average life (years)		3.6		4.3
Prepayment speed		12.79%		10.77%
Impact on fair value:
10% adverse change	$	(36)	$	(12)
20% adverse change		(69)		(23)
Discount rate		6.57%		11.28%
Impact on fair value:
10% adverse change	$	(23)	$	(9)
20% adverse change		(46)		(18)

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Fair Value Measurements and Disclosures (Tables)

9 Months Ended

Sep. 30, 2020

Fair Value Measurements and Disclosures

Schedule of financial assets measured at fair value on a recurring basis

	September 30, 2020
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	24,744	—	24,744	—
U.S. government agency mortgage-backed securities		4,111	—	4,111	—
U.S. government agency collateralized mortgage obligations		22,483	—	22,483	—
State and municipal securities		49,339	—	49,339	—
Corporate bonds		2,681	—	2,681	—
Equity investments		1,034	—	1,034	—
Mortgage loans held for sale		225,150	—	225,150	—
Mortgage loans held for investment		11,366	—	11,366	—
Interest rate lock commitments		7,798	—	—	7,798
Forward commitments		57	—	57	—
Customer derivatives - interest rate swaps		1,284	—	1,284	—
Total	$	350,047	—	342,249	7,798
Liabilities
Interest rate lock commitments		225	—	—	225
Forward commitments		971	—	971	—
Customer derivatives - interest rate swaps		1,413	—	1,413	—
	$	2,609	—	2,384	225

	December 31, 2019
(dollars in thousands)	Total		Level 1	Level 2	Level 3
Assets
Securities available for sale:
U.S. asset backed securities	$	11,866	—	11,866	—
U.S. government agency mortgage-backed securities		5,497	—	5,497	—
U.S. government agency collateralized mortgage obligations		35,223	—	35,223	—
State and municipal securities		6,270	—	6,270	—
Investments in mutual funds		1,009	—	1,009	—
Mortgage loans held for sale		33,704	—	33,704	—
Mortgage loans held for investment		10,546	—	10,546	—
Interest rate lock commitments		504	—	—	504
Forward commitments		6	—	6	—
Customer derivatives - interest rate swaps		382	—	382	—
Total	$	105,007	—	104,503	504
Liabilities
Interest rate lock commitments		157	—	—	157
Forward commitments		119	—	119	—
Customer derivatives - interest rate swaps		431	—	431	—
	$	707	—	550	157

Schedule of financial assets measured at fair value on non-recurring basis

	September 30, 2020		December 31, 2019
(dollars in thousands)	Fair Value		Fair Value
Mortgage servicing rights	$	2,639	446
SBA loan servicing rights		632	337
Impaired loans (1)		2,421	804
Other real estate owned (2)		—	120
Total	$	5,692	1,707

(1) Impaired loans are those in which the Corporation has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input is significant to the fair value measurements.

(2) Real estate properties acquired through, or in lieu of, foreclosure are to be sold and are carried at fair value less estimated cost to sell. Fair value is based upon independent market prices or appraised value of the property. These assets are included in Level 3 fair value based upon the lowest level of input that is significant to the fair value measurement. Appraised values may be discounted based on management’s expertise, historical knowledge, changes in market conditions from the time of valuation and/or estimated costs to sell.

Schedule of estimated fair values of financial instruments

		September 30, 2020			December 31, 2019
	Fair Value	Carrying			Carrying
(dollars in thousands)	Hierarchy Level	amount		Fair value	amount	Fair value
Financial assets:
Cash and cash equivalents	Level 1	$	75,869	75,869	39,371	39,371
Securities available-for-sale	Level 2		103,358	103,358	58,856	58,856
Securities held-to-maturity	Level 2		6,544	6,916	8,780	9,003
Equity investments	Level 2		1,034	1,034	1,009	1,009
Mortgage loans held for sale	Level 2		225,150	225,150	33,704	33,704
Loans receivable, net of the allowance for loan and lease losses	Level 3		1,278,907	1,313,384	944,651	973,057
Mortgage loans held for investment	Level 2		11,366	11,366	10,546	10,546
Interest rate lock commitments	Level 3		7,798	7,798	504	504
Forward commitments	Level 2		57	57	6	6
Restricted investment in bank stock	NA		7,650	NA	8,072	NA
Accrued interest receivable	Level 3		4,666	4,666	3,148	3,148
Customer derivatives - interest rate swaps	Level 2		1,284	1,284	382	382
Financial liabilities:
Deposits	Level 2		1,209,024	1,361,900	851,168	880,400
Short-term borrowings	Level 2		104,239	104,239	123,676	123,678
Long-term debt	Level 2		250,131	253,804	3,123	3,123
Subordinated debentures	Level 2		40,814	39,674	40,962	40,962
Accrued interest payable	Level 2		2,258	2,258	1,088	1,088
Interest rate lock commitments	Level 3		225	225	157	157
Forward commitments	Level 2		971	971	119	119
Customer derivatives - interest rate swaps	Level 2		1,413	1,413	431	431
		Notional			Notional
Off-balance sheet financial instruments:		amount		Fair value	amount	Fair value
Commitments to extend credit	Level 2	$	377,885	7,798	327,788	504
Letters of credit	Level 2		7,054	—	9,750	—

Schedule of level 3 inputs reconciliation

	Three Months Ended September 30,			Nine Months Ended September 30,
	2020		2019	2020		2019
Balance at beginning of the period	$	4,595	375	$	504	310
Increase in value		3,203	(92)		7,294	(27)
Balance at end of the period	$	7,798	283	$	7,798	283

Schedule of measurement inputs

				Significant
	Fair Value			Unobservable	Range of		Weighted
	Level 3		Valuation Technique	Input	Inputs		Average
September 30, 2020	$	7,798	Market comparable pricing	Pull through	1 - 99	%	85.38	%
December 31, 2019		504	Market comparable pricing	Pull through	1 - 99		93.41

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Financial Instruments

Summary of the notional amounts and fair values of derivative financial instruments

		September 30, 2020			December 31, 2019
(dollars in thousands)	Balance Sheet Line Item	Notional Amount		Asset (Liability) Fair Value	Notional Amount	Asset (Liability) Fair Value
Interest Rate Lock Commitments
Positive fair values	Other assets	$	497,093	7,798	47,660	504
Negative fair values	Other liabilities		46,890	(225)	22,663	(157)
Total			543,983	7,573	70,323	347
Forward Commitments
Positive fair values	Other assets		75,500	57	4,500	6
Negative fair values	Other liabilities		215,500	(971)	58,250	(119)
Total			291,000	(914)	62,750	(113)
Customer Derivatives - Interest Rate Swaps
Positive fair values	Other assets		17,906	1,284	3,271	382
Negative fair values	Other liabilities		17,906	(1,413)	3,271	(431)
Total			35,812	(129)	6,542	(49)
Total derivative financial instruments		$	870,795	6,530	139,615	185

Summary of the fair value gains and losses on derivative financial instruments

	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2020		2019		2020	2019
Interest Rate Lock Commitments	$	3,161	(102)	$	7,226	(68)
Forward Commitments		(129)	124		(801)	101
Customer Derivatives - Interest Rate Swaps		(4)	(22)		(79)	(48)
Net fair value gains (losses) on derivative financial instruments	$	3,028	—	$	6,346	(15)

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Segment (Tables)

9 Months Ended

Sep. 30, 2020

Segments

Schedule of business segment financial information

	Segment Information
	Three Months Ended September 30, 2020					Three Months Ended September 30, 2019
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	12,104	(19)	630	12,715	$	9,203	4	67	9,274
Provision for loan losses		3,956	—	—	3,956		705	—	—	705
Net interest income after provision		8,148	(19)	630	8,759		8,498	4	67	8,569
Non-interest Income
Mortgage banking income		574	—	21,238	21,812		74	—	7,241	7,315
Wealth management income		—	951	—	951		31	891	—	922
SBA income		641	—	—	641		635	—	—	635
Net change in fair values		(4)	—	6,057	6,053		(23)	—	53	30
Net (loss) on hedging activity		—	—	(2,637)	(2,637)		—	—	(300)	(300)
Other		2,045	—	195	2,240		534	—	73	607
Non-interest income		3,256	951	24,853	29,060		1,251	891	7,067	9,209
Non-interest expense		8,829	788	16,217	25,834		6,915	834	5,798	13,547
Income before income taxes	$	2,575	144	9,266	11,985	$	2,834	61	1,336	4,231
Total Assets	$	1,525,883	5,399	227,366	1,758,648	$	1,071,450	5,398	50,089	1,126,937

	Nine Months Ended September 30, 2020					Nine Months Ended September 30, 2019
(Dollars in thousands)	Bank		Wealth	Mortgage	Total	Bank		Wealth	Mortgage	Total
Net interest income	$	32,725	(24)	1,277	33,978	$	26,437	68	167	26,672
Provision for loan losses		7,139	—	—	7,139		938	—	—	938
Net interest income after provision		25,586	(24)	1,277	26,839		25,499	68	167	25,734
Non-interest Income
Mortgage banking income		973	—	44,422	45,395		175	—	17,442	17,617
Wealth management income		—	2,825	—	2,825		110	2,588	—	2,698
SBA income		1,821	—	—	1,821		1,150	—	—	1,150
Net change in fair values		(68)	—	11,012	10,944		(49)	—	341	292
Net (loss) on hedging activity		—	—	(7,363)	(7,363)		—	—	(792)	(792)
Other		2,931	14	405	3,350		1,409	—	282	1,691
Non-interest income		5,657	2,839	48,476	56,972		2,795	2,588	17,273	22,656
Non-interest expense		23,341	2,363	35,448	61,152		20,312	2,268	16,400	38,980
Income before income taxes	$	7,902	452	14,305	22,659	$	7,982	388	1,040	9,410
Total Assets	$	1,525,883	5,399	227,366	1,758,648	$	1,071,450	5,398	50,089	1,126,937

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Earnings per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Numerator:
Net income available to common stockholders	$ 9,212	$ 3,317	$ 17,441	$ 7,345
Denominator for basic earnings per share - weighted average shares outstanding	6,099	6,407	6,172	6,407
Effect of dilutive common shares	11	30	21	29
Denominator for diluted earnings per share - adjusted weighted average shares outstanding	6,110	6,437	6,193	6,436
Basic earnings per share (in dollars per share)	$ 1.51	$ 0.52	$ 2.83	$ 1.15
Diluted earnings per share (in dollars per share)	$ 1.51	$ 0.52	$ 2.82	$ 1.14
Antidilutive shares excluded from computation of average dilutive earnings per share	265	199	192	199

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Goodwill and Other Intangibles (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Goodwill and other intangibles rollforward
Goodwill, Beginning Balance	$ 899
Goodwill, Ending Balance	899
Amortization expense	(206)
Total Intangible Assets	3,668	$ 3,874
Total	4,567	4,773
Accumulated Amortization	956	$ 750
Impairment	0
Customer relationships
Goodwill and other intangibles rollforward
Finite-Lived Intangible Assets, Beginning Balance	3,523
Amortization expense	(154)
Finite-Lived Intangible Assets, Ending Balance	$ 3,369
Amortization Period	20 years
Non competition agreements
Goodwill and other intangibles rollforward
Finite-Lived Intangible Assets, Beginning Balance	$ 85
Amortization expense	(52)
Finite-Lived Intangible Assets, Ending Balance	$ 33
Amortization Period	4 years
Trade name
Goodwill and other intangibles rollforward
Indefinite-lived Intangible Assets (Excluding Goodwill), Beginning Balance	$ 266
Indefinite-lived Intangible Assets (Excluding Goodwill), Ending Balance	$ 266

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Securities - Amortized cost and fair value (Details) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020 USD ($) security	Dec. 31, 2019 USD ($) security
Securities available-for-sale:
Amortized Cost	$ 101,471	$ 58,874
Available-for-sale, Gross Unrealized Gains	2,319	366
Available-for-sale, Gross Unrealized Losses	(432)	(384)
Securities available-for-sale	103,358	58,856
Securities held to maturity:
Held-to-maturity, Amortized Cost	6,544	8,780
Held-to-maturity, Gross Unrealized Gains	372	223
Fair Value	$ 6,916	$ 9,003
Number of securities deemed other-than-temporarily impaired | security	0	0
U.S. asset backed securities
Securities available-for-sale:
Amortized Cost	$ 24,705	$ 11,967
Available-for-sale, Gross Unrealized Gains	211
Available-for-sale, Gross Unrealized Losses	(172)	(101)
Securities available-for-sale	$ 24,744	$ 11,866
Securities held to maturity:
Number of securities in unrealized loss positions | security	14	9
U.S. government agency mortgage-backed securities
Securities available-for-sale:
Amortized Cost	$ 3,919	$ 5,457
Available-for-sale, Gross Unrealized Gains	192	66
Available-for-sale, Gross Unrealized Losses		(26)
Securities available-for-sale	4,111	$ 5,497
Securities held to maturity:
Number of securities in unrealized loss positions | security		1
U.S. government agency collateralized mortgage obligations
Securities available-for-sale:
Amortized Cost	21,375	$ 35,096
Available-for-sale, Gross Unrealized Gains	1,108	300
Available-for-sale, Gross Unrealized Losses		(173)
Securities available-for-sale	$ 22,483	$ 35,223
Securities held to maturity:
Number of securities in unrealized loss positions | security	1	15
State and municipal securities
Securities available-for-sale:
Amortized Cost	$ 48,789	$ 6,354
Available-for-sale, Gross Unrealized Gains	805
Available-for-sale, Gross Unrealized Losses	(255)	(84)
Securities available-for-sale	49,339	6,270
Securities held to maturity:
Held-to-maturity, Amortized Cost	6,544	8,780
Held-to-maturity, Gross Unrealized Gains	372	223
Fair Value	$ 6,916	$ 9,003
Number of securities in unrealized loss positions | security	15	6
Corporate bonds
Securities available-for-sale:
Amortized Cost	$ 2,683
Available-for-sale, Gross Unrealized Gains	3
Available-for-sale, Gross Unrealized Losses	(5)
Securities available-for-sale	$ 2,681
Securities held to maturity:
Number of securities in unrealized loss positions | security	2

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Securities - Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Securities
Proceeds from Sale of Debt Securities, Available-for-sale	$ 26,400	$ 2,700	$ 44,592	$ 19,366
Gross gain on sale of available for sale investments	1,300	74	1,500	254
Gross loss on sale of available for sale investments	0	$ 0	202	$ 42
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Less than 12 Months	39,899		39,899		$ 34,419
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, 12 Months or Longer	8,085		8,085		4,744
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Total	47,984		47,984		39,163
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Less than 12 Months	(326)		(326)		(301)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, 12 Months or Longer	(106)		(106)		(83)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Total	(432)		(432)		(384)
Held-to-maturity securities, Continuous Unrealized Loss Position, Fair Value
Held-to-maturity securities, Continuous Unrealized Loss Position, Fair Value, Total	0		0		0
U.S. asset backed securities
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Less than 12 Months	10,704		10,704		11,866
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, 12 Months or Longer	8,085		8,085
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Total	18,789		18,789		11,866
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Less than 12 Months	(66)		(66)		(101)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, 12 Months or Longer	(106)		(106)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Total	(172)		(172)		(101)
U.S. government agency mortgage-backed securities
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, 12 Months or Longer					1,636
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Total					1,636
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, 12 Months or Longer					(26)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Total					(26)
U.S. government agency collateralized mortgage obligations
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Less than 12 Months					16,283
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, 12 Months or Longer					3,108
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Total					19,391
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Less than 12 Months					(116)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, 12 Months or Longer					(57)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Total					(173)
State and municipal securities
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Less than 12 Months	27,950		27,950		6,270
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Total	27,950		27,950		6,270
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Less than 12 Months	(255)		(255)		(84)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Total	(255)		(255)		$ (84)
Corporate bonds
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Less than 12 Months	1,245		1,245
Available-for-sale securities, Continuous Unrealized Loss Position, Fair Value, Total	1,245		1,245
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Less than 12 Months	(5)		(5)
Available-for-sale securities, Continuous Unrealized Loss Position, Gross Unrealized Losses, Total	$ (5)		$ (5)

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Securities - Contractual Maturities (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Contractual Maturities, Available-for-sale, Amortized Cost
Amortized Cost	$ 101,471	$ 58,874
Contractual Maturities, Available-for-sale, Fair Value
Fair Value	103,358	58,856
Contractual Maturities, Held-to-maturity, Amortized Cost
Amortized Cost	6,544	8,780
Contractual Maturities, Held-to-maturity, Fair Value
Fair Value	6,916	9,003
U.S. Asset Backed And State And Municipal Securities
Contractual Maturities, Available-for-sale, Amortized Cost
Due after five years through ten years	8,590	1,329
Due after ten years	67,587	16,992
Amortized Cost	76,177	18,321
Contractual Maturities, Available-for-sale, Fair Value
Due after five years through ten year	8,568	1,324
Due after ten years	68,196	16,812
Fair Value	76,764	18,136
Contractual Maturities, Held-to-maturity, Amortized Cost
Due after one year through five years	3,196	4,242
Due after five years through ten years	3,348	4,538
Amortized Cost	6,544	8,780
Contractual Maturities, Held-to-maturity, Fair Value
Due after one year through five years	3,318	4,311
Due after five years through ten years	3,598	4,692
Fair Value	6,916	9,003
Mortgage-related securities
Contractual Maturities, Available-for-sale, Amortized Cost
Amortized Cost	25,294	40,553
Contractual Maturities, Available-for-sale, Fair Value
Fair Value	$ 26,594	$ 40,720

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Loans Receivable - Loans and leases outstanding by category (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Loans Receivable
Mortgage loans held for sale (amortized cost of $XXX and $33,363 as of June 30, 2020 and December 31, 2019), at fair value	$ 225,150	$ 33,704
Total portfolio loans and leases	1,313,489	966,499
Total loans and leases	1,538,639	1,000,203
Loans at fair value	11,366	10,546
Real estate loans
Loans Receivable
Total portfolio loans and leases	739,078	669,882
Commercial mortgage
Loans Receivable
Total portfolio loans and leases	460,952	362,590
Home equity lines and loans
Loans Receivable
Total portfolio loans and leases	71,400	81,583
Residential mortgage
Loans Receivable
Total portfolio loans and leases	55,500	53,665
Loans at fair value	11,366	10,546
Construction
Loans Receivable
Total portfolio loans and leases	151,226	172,044
Commercial and industrial, including leases
Loans Receivable
Total portfolio loans and leases	256,452	273,301
Small business loans
Loans Receivable
Total portfolio loans and leases	44,280	21,616
Paycheck Protection Program loans
Loans Receivable
Total portfolio loans and leases	259,723
Consumer
Loans Receivable
Total portfolio loans and leases	582	1,003
Leases
Loans Receivable
Total portfolio loans and leases	$ 13,374	$ 697

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Loans Receivable - Loans and leases outstanding by rate type (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Loans Receivable
Loans with predetermined rates	$ 720,791	$ 293,114
Loans with adjustable or floating rates	817,848	707,089
Total loans and leases	1,538,639	1,000,203
Net deferred loan origination (fees) costs	$ (6,643)	$ (1,789)

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Loans Receivable - Components of the net investment in leases (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Loans Receivable
Minimum lease payments receivable	$ 16,306	$ 729
Unearned lease income	(2,932)	(32)
Total	$ 13,374	$ 697

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Loans Receivable - Age analysis of past due loans and leases (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Age Analysis of Past Due Loans and Leases
Total past due	$ 397	$ 5,043
Current	1,305,180	958,221
Total Accruing Loans and leases	1,305,577	963,264
Nonaccrual loans and leases	7,912	3,235
Loans and Leases Receivable, Gross, Total	$ 1,313,489	$ 966,499
Delinquency percentage	0.63%	0.86%
Loans at fair value	$ 11,366	$ 10,546
Commercial mortgage
Age Analysis of Past Due Loans and Leases
Current	460,285	361,857
Total Accruing Loans and leases	460,285	361,857
Nonaccrual loans and leases	667	733
Loans and Leases Receivable, Gross, Total	$ 460,952	$ 362,590
Delinquency percentage	0.14%	0.20%
Home equity lines and loans
Age Analysis of Past Due Loans and Leases
Current	$ 70,737	$ 81,046
Total Accruing Loans and leases	70,737	81,046
Nonaccrual loans and leases	663	537
Loans and Leases Receivable, Gross, Total	$ 71,400	$ 81,583
Delinquency percentage	0.93%	0.66%
Residential mortgage
Age Analysis of Past Due Loans and Leases
Total past due	$ 389	$ 4,675
Current	52,578	47,446
Total Accruing Loans and leases	52,967	52,121
Nonaccrual loans and leases	2,533	1,544
Loans and Leases Receivable, Gross, Total	$ 55,500	$ 53,665
Delinquency percentage	5.26%	11.59%
Loans at fair value	$ 11,366	$ 10,546
Construction
Age Analysis of Past Due Loans and Leases
Current	151,226	172,044
Total Accruing Loans and leases	151,226	172,044
Loans and Leases Receivable, Gross, Total	151,226	172,044
Commercial and industrial, including leases
Age Analysis of Past Due Loans and Leases
Total past due		206
Current	252,403	272,674
Total Accruing Loans and leases	252,403	272,880
Nonaccrual loans and leases	4,049	421
Loans and Leases Receivable, Gross, Total	$ 256,452	$ 273,301
Delinquency percentage	1.58%	0.23%
Small business loans
Age Analysis of Past Due Loans and Leases
Current	$ 44,280	$ 21,616
Total Accruing Loans and leases	44,280	21,616
Loans and Leases Receivable, Gross, Total	44,280	21,616
Paycheck Protection Program loans
Age Analysis of Past Due Loans and Leases
Current	259,723
Total Accruing Loans and leases	259,723
Loans and Leases Receivable, Gross, Total	259,723
Consumer
Age Analysis of Past Due Loans and Leases
Current	582	1,003
Total Accruing Loans and leases	582	1,003
Loans and Leases Receivable, Gross, Total	582	1,003
Leases
Age Analysis of Past Due Loans and Leases
Total past due	8	162
Current	13,366	535
Total Accruing Loans and leases	13,374	697
Loans and Leases Receivable, Gross, Total	$ 13,374	$ 697
Delinquency percentage	0.06%	23.24%
Current | Residential mortgage
Age Analysis of Past Due Loans and Leases
Loans at fair value	$ 10,489	$ 9,056
30-89 days past due
Age Analysis of Past Due Loans and Leases
Total past due	397	5,043
30-89 days past due | Residential mortgage
Age Analysis of Past Due Loans and Leases
Total past due	389	4,675
Loans at fair value		786
30-89 days past due | Commercial and industrial, including leases
Age Analysis of Past Due Loans and Leases
Total past due		206
30-89 days past due | Leases
Age Analysis of Past Due Loans and Leases
Total past due	8	162
Nonaccrual | Residential mortgage
Age Analysis of Past Due Loans and Leases
Loans at fair value	$ 877	$ 704

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Allowance for Loan Losses (the Allowance) - Roll-forward of allowance by portfolio segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	$ 12,706	$ 8,625	$ 9,513	$ 8,053
Charge-offs	(97)	(30)	(130)	(30)
Recoveries	8	12	51	351
Provision	3,956	705	7,139	938
Balance at end of period	16,573	9,312	16,573	9,312
Commercial mortgage
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	5,277	3,197	3,426	3,209
Recoveries		1		6
Provision	1,658	257	3,509	240
Balance at end of period	6,935	3,455	6,935	3,455
Home equity lines and loans
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	672	354	342	323
Charge-offs	(75)		(89)
Recoveries	2	2	6	10
Provision	(82)	(28)	258	(5)
Balance at end of period	517	328	517	328
Residential mortgage
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	346	200	179	191
Recoveries	1	2	5	4
Provision	(13)	(30)	150	(23)
Balance at end of period	334	172	334	172
Construction
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	2,019	2,033	2,362	1,627
Provision	463	136	120	542
Balance at end of period	2,482	2,169	2,482	2,169
Commercial and industrial, including leases
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	3,606	2,719	2,684	2,612
Charge-offs	(22)	(30)	(31)	(30)
Recoveries	4	6	37	328
Provision	1,450	171	2,348	(44)
Balance at end of period	5,038	2,866	5,038	2,866
Small business loans
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	747	111	509	78
Provision	360	198	598	231
Balance at end of period	1,107	309	1,107	309
Consumer
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	4	4	6	3
Charge-offs			(10)
Recoveries	1	1	3	3
Provision	(1)	1	5
Balance at end of period	4	6	4	6
Leases
Roll-Forward of Allowance for Loan and Lease Losses by Portfolio Segment
Balance at beginning of period	35	7	5	10
Provision	121		151	(3)
Balance at end of period	$ 156	$ 7	$ 156	$ 7

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Allowance for Loan Losses (the Allowance) - Allowance allocated by portfolio segment (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Jun. 30, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Dec. 31, 2018
Impaired Loans
Allowance on loans and leases individually evaluated for impairment	$ 1,581		$ 136
Allowance on loans and leases collectively evaluated for impairment	14,992		9,377
Total	16,573	$ 12,706	9,513	$ 9,312	$ 8,625	$ 8,053
Carrying value of loans and leases individually evaluated for impairment	10,447		7,307
Carrying value of loans and leases collectively evaluated for impairment	1,291,676		948,646
Total	1,302,123		955,953
Commercial mortgage
Impaired Loans
Allowance on loans and leases collectively evaluated for impairment	6,935		3,426
Total	6,935	5,277	3,426	3,455	3,197	3,209
Carrying value of loans and leases individually evaluated for impairment	2,005		2,138
Carrying value of loans and leases collectively evaluated for impairment	458,947		360,452
Total	460,952		362,590
Home equity lines and loans
Impaired Loans
Allowance on loans and leases individually evaluated for impairment	16		46
Allowance on loans and leases collectively evaluated for impairment	501		296
Total	517	672	342	328	354	323
Carrying value of loans and leases individually evaluated for impairment	663		536
Carrying value of loans and leases collectively evaluated for impairment	70,737		81,047
Total	71,400		81,583
Residential mortgage
Impaired Loans
Allowance on loans and leases collectively evaluated for impairment	334		179
Total	334	346	179	172	200	191
Carrying value of loans and leases individually evaluated for impairment	1,648		854
Carrying value of loans and leases collectively evaluated for impairment	42,486		42,265
Total	44,134		43,119
Construction
Impaired Loans
Allowance on loans and leases collectively evaluated for impairment	2,482		2,362
Total	2,482	2,019	2,362	2,169	2,033	1,627
Carrying value of loans and leases individually evaluated for impairment	1,206		1,247
Carrying value of loans and leases collectively evaluated for impairment	150,020		170,797
Total	151,226		172,044
Commercial and industrial, including leases
Impaired Loans
Allowance on loans and leases individually evaluated for impairment	1,565		27
Allowance on loans and leases collectively evaluated for impairment	3,473		2,657
Total	5,038	3,606	2,684	2,866	2,719	2,612
Carrying value of loans and leases individually evaluated for impairment	4,726		1,288
Carrying value of loans and leases collectively evaluated for impairment	251,726		272,013
Total	256,452		273,301
Small business loans
Impaired Loans
Allowance on loans and leases individually evaluated for impairment			63
Allowance on loans and leases collectively evaluated for impairment	1,107		446
Total	1,107	747	509	309	111	78
Carrying value of loans and leases individually evaluated for impairment	199		1,244
Carrying value of loans and leases collectively evaluated for impairment	44,081		20,372
Total	44,280		21,616
Paycheck Protection Program loans
Impaired Loans
Carrying value of loans and leases collectively evaluated for impairment	259,723
Total	259,723
Consumer
Impaired Loans
Allowance on loans and leases collectively evaluated for impairment	4		6
Total	4	4	6	6	4	3
Carrying value of loans and leases collectively evaluated for impairment	582		1,003
Total	582		1,003
Leases
Impaired Loans
Allowance on loans and leases collectively evaluated for impairment	156		5
Total	156	$ 35	5	$ 7	$ 7	$ 10
Carrying value of loans and leases collectively evaluated for impairment	13,374		697
Total	$ 13,374		$ 697

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Allowance for Loan Losses (the Allowance) - Carrying value based on credit quality indicators (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	$ 1,244,033	$ 911,134
Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	1,175,792	877,264
Special mention
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	48,016	16,690
Substandard
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	16,502	17,180
Doubtful
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	3,723
Commercial mortgage | Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	460,952	362,590
Commercial mortgage | Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	441,090	353,724
Commercial mortgage | Special mention
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	16,260	5,821
Commercial mortgage | Substandard
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	3,602	3,045
Home equity lines and loans | Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	71,400	81,583
Home equity lines and loans | Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	70,251	81,046
Home equity lines and loans | Substandard
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	1,149	537
Construction | Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	151,226	172,044
Construction | Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	142,420	170,823
Construction | Special mention
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	8,806	1,221
Commercial and industrial, including leases | Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	256,452	273,301
Commercial and industrial, including leases | Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	220,760	251,320
Commercial and industrial, including leases | Special mention
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	22,950	9,648
Commercial and industrial, including leases | Substandard
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	9,019	12,333
Commercial and industrial, including leases | Doubtful
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	3,723
Small business loans | Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	44,280	21,616
Small business loans | Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	41,548	20,351
Small business loans | Substandard
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	2,732	$ 1,265
Paycheck Protection Program loans | Evaluated based on credit quality indicators
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	259,723
Paycheck Protection Program loans | Pass
Loans and Leases by Credit Ratings
Carry value of loans and leases excluding residential mortgage, consumer and leases	$ 259,723

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Allowance for Loan Losses (the Allowance) - Carrying value based on performance status (Details) $ in Thousands	Sep. 30, 2020 USD ($) loan	Dec. 31, 2019 USD ($) loan
Loans and Leases by Credit Ratings
Troubled debt restructurings	$ 3,674	$ 3,918
Evaluated by performance status
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	58,090	44,819
Performing
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	56,442	43,965
Nonperforming
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	1,648	854
Residential mortgage | Evaluated by performance status
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	44,134	43,119
Residential mortgage | Performing
Loans and Leases by Credit Ratings
Troubled debt restructurings	0	0
Carrying value of residential mortgage, consumer and leases	42,486	42,265
Residential mortgage | Nonperforming
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	$ 1,648	$ 854
Number of loans | loan	5	5
Loans receivable, net of the allowance and lease losses	$ 877	$ 839
Consumer | Evaluated by performance status
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	582	1,003
Consumer | Performing
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	582	1,003
Leases | Evaluated by performance status
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	13,374	697
Leases | Performing
Loans and Leases by Credit Ratings
Carrying value of residential mortgage, consumer and leases	$ 13,374	$ 697

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Allowance for Loan Losses (the Allowance) - Impaired loans (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Impaired loans with related allowance:
Recorded investment	$ 4,002	$ 2,080
Principal balance	4,013	2,080
Related allowance	1,581	136
Impaired loans without related allowance:
Recorded investment	6,445	5,227
Principal balance	6,566	5,310
Grand Total
Recorded investment	10,447	7,307
Principal balance	10,579	7,390
Related allowance	1,581	136
Commercial mortgage
Impaired loans without related allowance:
Recorded investment	2,005	2,138
Principal balance	2,035	2,173
Commercial and industrial, including leases
Impaired loans with related allowance:
Recorded investment	3,903	617
Principal balance	3,907	617
Related allowance	1,565	27
Impaired loans without related allowance:
Recorded investment	823	671
Principal balance	897	718
Small business loans
Impaired loans with related allowance:
Recorded investment	199	1,002
Principal balance	199	1,002
Related allowance		63
Impaired loans without related allowance:
Recorded investment		242
Principal balance		242
Home equity lines and loans
Impaired loans with related allowance:
Recorded investment	99	461
Principal balance	106	461
Related allowance	16	46
Impaired loans without related allowance:
Recorded investment	564	75
Principal balance	581	75
Residential mortgage
Impaired loans without related allowance:
Recorded investment	1,648	854
Principal balance	1,648	854
Construction
Impaired loans without related allowance:
Recorded investment	1,206	1,247
Principal balance	$ 1,206	$ 1,248

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Allowance for Loan Losses (the Allowance) - Impaired Loan Average Recorded Investment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Impaired loans with related allowance:
Average recorded investment	$ 4,007	$ 816	$ 1,869	$ 822
Impaired loans without related allowance:
Average recorded investment	6,581	5,203	6,034	5,279
Grand Total
Average recorded investment	10,588	6,019	7,903	6,101
Interest income recognized on performing impaired loans	139	50	281	152
Commercial mortgage
Impaired loans without related allowance:
Average recorded investment	2,080	2,220	1,852	2,272
Commercial and industrial, including leases
Impaired loans with related allowance:
Average recorded investment	3,907	561	1,766	566
Impaired loans without related allowance:
Average recorded investment	874	597	700	602
Small business loans
Impaired loans without related allowance:
Average recorded investment	208	259	220	262
Home equity lines and loans
Impaired loans with related allowance:
Average recorded investment	100	255	103	256
Impaired loans without related allowance:
Average recorded investment	564		575
Residential mortgage
Impaired loans without related allowance:
Average recorded investment	1,649	857	1,478	857
Construction
Impaired loans without related allowance:
Average recorded investment	$ 1,206	$ 1,270	$ 1,209	$ 1,286

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Allowance for Loan Losses (the Allowance) - Troubled debt restructuring (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Allowance for Loan Losses (the Allowance)
TDRs included in nonperforming loans and leases	$ 246	$ 319
TDRs in compliance with modified terms	3,428	3,599
Total TDRs	$ 3,674	$ 3,918

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Allowance for Loan Losses (the Allowance) - Loan and lease modifications granted categorized as TDRs (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($) contract	Sep. 30, 2019 USD ($) contract	Sep. 30, 2020 USD ($) contract	Sep. 30, 2019 USD ($) contract
Loan and lease modifications
Number of Contracts | contract	0	0	1	0
Pre-Modification Outstanding Recorded Investment			$ 58
Post-Modification Outstanding Recorded Investment			58
Loan and lease modifications granted and subsequently defaulted	$ 0	$ 0	$ 0	$ 0
Commercial and industrial, including leases
Loan and lease modifications
Number of Contracts | contract			1
Pre-Modification Outstanding Recorded Investment			$ 58
Post-Modification Outstanding Recorded Investment			$ 58

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Allowance for Loan Losses (the Allowance) - COVID-19 Loan modifications Programs (Details) $ in Thousands	Sep. 30, 2020 USD ($)
COVID-19 Loan Modification Programs
Portfolio Balance	$ 1,042,400
Total Modifications	154,064
Active Modifications	19,136
Commercial mortgage
COVID-19 Loan Modification Programs
Portfolio Balance	460,952
Total Modifications	86,591
Active Modifications	4,182
Commercial and industrial, including leases
COVID-19 Loan Modification Programs
Portfolio Balance	269,826
Total Modifications	24,362
Active Modifications	200
Construction & land development
COVID-19 Loan Modification Programs
Portfolio Balance	151,226
Total Modifications	36,819
Active Modifications	14,196
Home equity lines and loans
COVID-19 Loan Modification Programs
Portfolio Balance	71,400
Total Modifications	1,348
Residential mortgage
COVID-19 Loan Modification Programs
Portfolio Balance	44,134
Total Modifications	4,800
Active Modifications	558
Small business loans
COVID-19 Loan Modification Programs
Portfolio Balance	44,280
Total Modifications	144
Consumer
COVID-19 Loan Modification Programs
Portfolio Balance	$ 582

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Allowance for Loan Losses (the Allowance) - Non-TDR Loan modifications due to COVID-19 (Details) $ in Thousands	Jul. 15, 2020 USD ($) item	Oct. 26, 2020 USD ($)	Sep. 30, 2020 USD ($)
Financing Receivable, Modifications [Line Items]
Portfolio Balance			$ 1,042,400
Commercial mortgage
Financing Receivable, Modifications [Line Items]
Active payment deferrals		$ 4,400
Commercial mortgage | Payment Deferral
Financing Receivable, Modifications [Line Items]
Amount of financing receivable modified as non-troubled debt restructuring loans	$ 111,000
Number of non-troubled debt restructurings (TDR) loans that have been modified | item	146
Number of billing cycles of payment holidays | item	3
Construction
Financing Receivable, Modifications [Line Items]
Active payment deferrals		14,200
Construction | Payment Deferral
Financing Receivable, Modifications [Line Items]
Amount of financing receivable modified as non-troubled debt restructuring loans	$ 36,800
Number of non-troubled debt restructurings (TDR) loans that have been modified | item	35
Construction | Payment Deferral | Minimum
Financing Receivable, Modifications [Line Items]
Number of billing cycles of payment holidays | item	3
Construction | Payment Deferral | Maximum
Financing Receivable, Modifications [Line Items]
Number of billing cycles of payment holidays | item	6
Consumer
Financing Receivable, Modifications [Line Items]
Portfolio Balance			582
Consumer | Payment Deferral | Minimum
Financing Receivable, Modifications [Line Items]
Number of billing cycles of payment holidays | item	3
Consumer | Payment Deferral | Maximum
Financing Receivable, Modifications [Line Items]
Number of billing cycles of payment holidays | item	6
Residential mortgage and home equity loans | Payment Deferral
Financing Receivable, Modifications [Line Items]
Amount of financing receivable modified as non-troubled debt restructuring loans	$ 6,200
Number of non-troubled debt restructurings (TDR) loans that have been modified | item	25
Residential mortgage
Financing Receivable, Modifications [Line Items]
Portfolio Balance			$ 44,134
Active payment deferrals		$ 558

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Short-Term Borrowings and Long-Term Debt - Short-term borrowings (Details)	9 Months Ended
	Sep. 30, 2020 USD ($) item	Dec. 31, 2019 USD ($)
Short-Term Borrowings
Short term borrowings	$ 104,239,000	$ 123,676,000
Federal funds purchased | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Number of borrowing facilities | item	2
Short term borrowings	$ 0	0
Federal funds purchased, facility one | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Maximum borrowing capacity	24,000,000
Federal funds purchased, facility two | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Maximum borrowing capacity	15,000,000
PPPLF Advance
Short-Term Borrowings
Short term borrowings	$ 235,900,000
Interest rate (as a percent)	0.35%
Open Repo Plus Weekly 0.39% Maturing On 05/28/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 56,640,000	102,320,000
Interest rate (as a percent)	0.39%
Mid-term Repo-fixed 2.76% Maturing On 08/10/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings		5,000,000
Interest rate (as a percent)	2.76%
Mid-term Repo-fixed 1.59% Maturing On 08/10/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings		5,144,000
Interest rate (as a percent)	1.59%
Mid-Term Repo Fixed Rate 1.59% Maturing On 09/11/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings		7,676,000
Interest rate (as a percent)	1.59%
Federal Reserve discount window | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Maximum borrowing capacity	$ 10,600,000
Short term borrowings	$ 10,000,000	0
Interest rate (as a percent)	0.25%
Mid-term Repo-fixed 0.42% Maturing On 12/09/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 3,752,000
Interest rate (as a percent)	0.42%
Mid Term Repo-fixed 0.36 Percent, Maturing On 01/13/2021 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 4,605,000
Interest rate (as a percent)	0.36%
Mid Term Repo-fixed 0.23 Percent, Maturing On 01/27/2021 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 5,465,000
Interest rate (as a percent)	0.23%
Mid-term Repo-fixed 0.79% Maturing On 03/09/2021 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 10,417,000
Interest rate (as a percent)	0.79%
Mid-term Repo-fixed 0.88% Maturing On 03/22/2021 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 10,238,000
Interest rate (as a percent)	0.88%
Mid Term Repo-fixed 1.88 Percent, Maturing On 06/28/2021 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings	$ 3,122,000
Interest rate (as a percent)	1.88%
Mid-term Repo-fixed 2.03% Maturing On 03/27/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings		3,123,000
Interest rate (as a percent)	2.03%
Acquisition Purchase Note 3.00% Maturing On 04/01/2020 | Federal Home Loan Bank of Pittsburgh
Short-Term Borrowings
Short term borrowings		$ 413,000
Interest rate (as a percent)	3.00%

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Short-Term Borrowings and Long-Term Debt - Long-term debt (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Long Term Debt
Long-term debt	$ 250,131	$ 3,123
PPPLF Advance
Long Term Debt
Fixed interest rate (as a percent)	0.35%
Long-term debt	$ 235,953
Federal Home Loan Bank of Pittsburgh | Mid-term Repo-fixed Maturing On 03/21/2022
Long Term Debt
Fixed interest rate (as a percent)	0.92%
Long-term debt	$ 1,900
Federal Home Loan Bank of Pittsburgh | Mid-term Repo-fixed Maturing On 06/29/2022
Long Term Debt
Fixed interest rate (as a percent)	0.32%
Long-term debt	$ 7,392	3,123
Federal Home Loan Bank of Pittsburgh | Mid-term Repo-fixed Maturing On 09/12/2022
Long Term Debt
Fixed interest rate (as a percent)	0.23%
Long-term debt	$ 4,886
Federal Home Loan Bank of Pittsburgh | Letters of credit
Long Term Debt
Proceeds from long term debt	129,000
Maximum borrowing capacity	$ 615,300	$ 507,300

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Servicing Assets - Residential Mortgage Loans (Details) - Mortgage Servicing Rights - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Servicing Assets at Fair Value [Line Items]
Loans serviced	$ 298,700,000		$ 298,700,000		$ 60,300,000
Servicing fee income	140,000	$ 25,000	247,000	$ 59,000
Servicing Asset at Amortized Cost, Balance [Roll Forward]
Balance at beginning of the period	1,294,000	236,000	446,000	232,000
Servicing rights capitalized	1,333,000	107,000	2,469,000	198,000
Amortization of servicing rights	(90,000)	(17,000)	(173,000)	(39,000)
Change in valuation allowance	102,000	(12,000)	(103,000)	(77,000)
Balance at end of the period	2,639,000	314,000	2,639,000	314,000
Valuation Allowance for Impairment of Recognized Servicing Assets [Roll Forward]
Valuation allowance, beginning of period	303,000	65,000	98,000
Impairment		(12,000)	(103,000)	(77,000)
Recovery	102,000
Valuation allowance, end of the period	$ 201,000	$ 77,000	$ 201,000	$ 77,000

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Servicing Assets - MSR Sensitivity Analysis (Details) - Mortgage Servicing Rights - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Fair value of residential mortgage servicing rights	$ 2,639	$ 446
Weighted average life (years)	5 years	7 years 9 months 18 days
Prepayment speed	12.00%	13.08%
Impact on fair value of a 10% adverse change in prepayment speed	$ (99)	$ (19)
Impact on fair value of a 20% adverse change in prepayment speed	$ (192)	$ (37)
Discount rate	9.00%	9.00%
Impact on fair value of a 10% adverse change in the discount rate	$ (98)	$ (14)
Impact on fair value of a 20% adverse change in the discount rate	$ (189)	$ (27)

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Servicing Assets - SBA Loans (Details) - SBA Loan Servicing Rights - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019
Servicing Assets at Fair Value [Line Items]
Loans serviced	$ 44,800,000		$ 44,800,000		$ 18,000,000.0
Servicing fee income	49,000	$ 8,000	101,000	$ 8,000
Servicing Asset at Amortized Cost, Balance [Roll Forward]
Balance at beginning of the period	632,000	133,000	337,000
Servicing rights capitalized	183,000	198,000	524,000	331,000
Amortization of servicing rights	(42,000)	(6,000)	(88,000)	(6,000)
Change in valuation allowance	14,000	(4,000)	14,000	(4,000)
Balance at end of the period	787,000	321,000	787,000	321,000
Valuation Allowance for Impairment of Recognized Servicing Assets [Roll Forward]
Valuation allowance, beginning of period	(26,000)		(26,000)
Impairment		(4,000)		(4,000)
Recovery	14,000		14,000
Valuation allowance, end of the period	$ (12,000)	$ (4,000)	$ (12,000)	$ (4,000)

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Servicing Assets - SBA Sensitivity Analysis (Details) - SBA Loan Servicing Rights - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Sensitivity Analysis of Fair Value of Interests Continued to be Held by Transferor, Servicing Assets or Liabilities, Impact of Adverse Change in Assumption [Line Items]
Fair value of SBA loan servicing rights	$ 889	$ 337
Weighted average life (years)	3 years 7 months 6 days	4 years 3 months 18 days
Prepayment speed	12.79%	10.77%
Impact on fair value of a 10% adverse change in prepayment speed	$ (36)	$ (12)
Impact on fair value of a 20% adverse change in prepayment speed	$ (69)	$ (23)
Discount rate	6.57%	11.28%
Impact on fair value of a 10% adverse change in the discount rate	$ (23)	$ (9)
Impact on fair value of a 20% adverse change in the discount rate	$ (46)	$ (18)

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Fair Value Measurements and Disclosures - Financial assets measured at fair value on a recurring basis (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Assets
Securities available-for-sale	$ 103,358	$ 58,856
Equity investments	1,034	1,009
Mortgage loans held-for-investment	11,366	10,546
U.S. asset backed securities
Assets
Securities available-for-sale	24,744	11,866
U.S. government agency mortgage-backed securities
Assets
Securities available-for-sale	4,111	5,497
U.S. government agency collateralized mortgage obligations
Assets
Securities available-for-sale	22,483	35,223
State and municipal securities
Assets
Securities available-for-sale	49,339	6,270
Corporate bonds
Assets
Securities available-for-sale	2,681
Level 3 | Interest rate lock commitments
Assets
Derivative assets, Fair value	7,798	504
Recurring
Assets
Equity investments	1,034
Mortgage loans held-for-sale	225,150	33,704
Mortgage loans held-for-investment	11,366	10,546
Total	350,047	105,007
Liabilities
Total	2,609	707
Recurring | U.S. asset backed securities
Assets
Securities available-for-sale	24,744	11,866
Recurring | U.S. government agency mortgage-backed securities
Assets
Securities available-for-sale	4,111	5,497
Recurring | U.S. government agency collateralized mortgage obligations
Assets
Securities available-for-sale	22,483	35,223
Recurring | State and municipal securities
Assets
Securities available-for-sale	49,339	6,270
Recurring | Corporate bonds
Assets
Securities available-for-sale	2,681
Recurring | Investments in mutual funds
Assets
Securities available-for-sale		1,009
Recurring | Interest rate lock commitments
Assets
Derivative assets, Fair value	7,798	504
Liabilities
Derivative Liability	225	157
Recurring | Forward Commitments
Assets
Derivative assets, Fair value	57	6
Liabilities
Derivative Liability	971	119
Recurring | Customer derivatives - interest rate swaps
Assets
Derivative assets, Fair value	1,284	382
Liabilities
Derivative Liability	1,413	431
Recurring | Level 2
Assets
Equity investments	1,034
Mortgage loans held-for-sale	225,150	33,704
Mortgage loans held-for-investment	11,366	10,546
Total	342,249	104,503
Liabilities
Total	2,384	550
Recurring | Level 2 | U.S. asset backed securities
Assets
Securities available-for-sale	24,744	11,866
Recurring | Level 2 | U.S. government agency mortgage-backed securities
Assets
Securities available-for-sale	4,111	5,497
Recurring | Level 2 | U.S. government agency collateralized mortgage obligations
Assets
Securities available-for-sale	22,483	35,223
Recurring | Level 2 | State and municipal securities
Assets
Securities available-for-sale	49,339	6,270
Recurring | Level 2 | Corporate bonds
Assets
Securities available-for-sale	2,681
Recurring | Level 2 | Investments in mutual funds
Assets
Securities available-for-sale		1,009
Recurring | Level 2 | Forward Commitments
Assets
Derivative assets, Fair value	57	6
Liabilities
Derivative Liability	971	119
Recurring | Level 2 | Customer derivatives - interest rate swaps
Assets
Derivative assets, Fair value	1,284	382
Liabilities
Derivative Liability	1,413	431
Recurring | Level 3
Assets
Total	7,798	504
Liabilities
Total	225	157
Recurring | Level 3 | Interest rate lock commitments
Assets
Derivative assets, Fair value	7,798	504
Liabilities
Derivative Liability	$ 225	$ 157

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Fair Value Measurements and Disclosures - Financial assets measured at fair value on non-recurring basis (Details) - Nonrecurring - Level 3 - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financial assets measured at fair value on a nonrecurring basis
Mortgage servicing rights	$ 2,639	$ 446
SBA loan servicing rights	632	337
Impaired loans	2,421	804
Other real estate owned		120
Total	$ 5,692	$ 1,707

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Fair Value Measurements and Disclosures - Estimated fair values of financial instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Financial assets:
Securities available-for-sale	$ 103,358	$ 58,856
Securities held-to-maturity	6,916	9,003
Equity investments	1,034	1,009
Mortgage loans held-for-investment	11,366	10,546
Carrying amount
Financial assets:
Restricted investment in bank stock	7,650	8,072
Level 1 | Carrying amount
Financial assets:
Cash and cash equivalents	75,869	39,371
Level 1 | Fair value
Financial assets:
Cash and cash equivalents	75,869	39,371
Level 2 | Carrying amount
Financial assets:
Securities available-for-sale	103,358	58,856
Securities held-to-maturity	6,544	8,780
Equity investments	1,034	1,009
Mortgage loans held-for-sale	225,150	33,704
Mortgage loans held-for-investment	11,366	10,546
Financial liabilities:
Deposits	1,209,024	851,168
Short-term borrowings	104,239	123,676
Long-term debt	250,131	3,123
Subordinated debentures	40,814	40,962
Accrued interest payable	2,258	1,088
Level 2 | Carrying amount | Forward Commitments
Financial assets:
Derivative asset	57	6
Financial liabilities:
Derivatives	971	119
Level 2 | Carrying amount | Customer derivatives - interest rate swaps
Financial assets:
Derivative asset	1,284	382
Financial liabilities:
Derivatives	1,413	431
Level 2 | Fair value
Financial assets:
Securities available-for-sale	103,358	58,856
Securities held-to-maturity	6,916	9,003
Equity investments	1,034	1,009
Mortgage loans held-for-sale	225,150	33,704
Mortgage loans held-for-investment	11,366	10,546
Financial liabilities:
Deposits	1,361,900	880,400
Short-term borrowings	104,239	123,678
Long-term debt	253,804	3,123
Subordinated debentures	39,674	40,962
Accrued interest payable	2,258	1,088
Level 2 | Fair value | Forward Commitments
Financial assets:
Derivative asset	57	6
Financial liabilities:
Derivatives	971	119
Level 2 | Fair value | Customer derivatives - interest rate swaps
Financial assets:
Derivative asset	1,284	382
Financial liabilities:
Derivatives	1,413	431
Level 3 | Interest rate lock commitments
Financial assets:
Derivative asset	7,798	504
Level 3 | Carrying amount
Financial assets:
Loans receivable, net of the allowance and lease losses	1,278,907	944,651
Accrued interest receivable	4,666	3,148
Level 3 | Carrying amount | Interest rate lock commitments
Financial assets:
Derivative asset	7,798	504
Financial liabilities:
Derivatives	225	157
Level 3 | Fair value
Financial assets:
Loans receivable, net of the allowance and lease losses	1,313,384	973,057
Accrued interest receivable	4,666	3,148
Level 3 | Fair value | Interest rate lock commitments
Financial assets:
Derivative asset	7,798	504
Financial liabilities:
Derivatives	$ 225	$ 157

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Fair Value Measurements and Disclosures - Off-balance sheet financial instruments (Details) - Level 2 - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Carrying amount | Commitments to extend credit
Off-balance sheet financial instruments:
Off-balance sheet financial instruments	$ 377,885	$ 327,788
Carrying amount | Letters of credit
Off-balance sheet financial instruments:
Off-balance sheet financial instruments	7,054	9,750
Fair value | Commitments to extend credit
Off-balance sheet financial instruments:
Off-balance sheet financial instruments	$ 7,798	$ 504

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Fair Value Measurements and Disclosures - Fair value on a recurring basis (Details) - Interest rate lock commitments - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance at beginning of the period	$ 4,595	$ 375	$ 504	$ 310
Increase (decrease) in value	3,203	(92)	7,294	(27)
Balance at end of the period	$ 7,798	$ 283	$ 7,798	$ 283

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Fair Value Measurements and Disclosures - Valuation Techniques for Level 3 interest rate lock (Details) - Interest rate lock commitments - Level 3 $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Dec. 31, 2019 USD ($)
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Derivative asset	$ 7,798		$ 7,798		$ 504
Valuation technique extensible list	us-gaap:ValuationTechniqueConsensusPricingModelMember		us-gaap:ValuationTechniqueConsensusPricingModelMember		us-gaap:ValuationTechniqueConsensusPricingModelMember
Measurement input extensible list	mrbk:LoanOriginationSucessRateMember		mrbk:LoanOriginationSucessRateMember		mrbk:LoanOriginationSucessRateMember
Net realized gains (losses)	$ 3,200	$ (101)	$ 7,200	$ (67)
Minimum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	1		1		1
Maximum
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	99		99		99
Weighted Average
Fair Value Measurement Inputs and Valuation Techniques [Line Items]
Measurement input	85.38		85.38		93.41

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Derivative Financial Instruments - Notional amounts and fair values of derivative financial instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2020	Dec. 31, 2019
Derivative Financial Instruments
Notional Amount	$ 870,795	$ 139,615
Asset (Liability) Fair Value	6,530	185
Interest rate lock commitments
Derivative Financial Instruments
Notional Amount	543,983	70,323
Asset (Liability) Fair Value	7,573	347
Interest rate lock commitments | Other Assets
Derivative Financial Instruments
Notional Amount	497,093	47,660
Asset (Liability) Fair Value	7,798	504
Interest rate lock commitments | Other Liabilities
Derivative Financial Instruments
Notional Amount	46,890	22,663
Asset (Liability) Fair Value	(225)	(157)
Forward Commitments
Derivative Financial Instruments
Notional Amount	291,000	62,750
Asset (Liability) Fair Value	(914)	(113)
Forward Commitments | Other Assets
Derivative Financial Instruments
Notional Amount	75,500	4,500
Asset (Liability) Fair Value	57	6
Forward Commitments | Other Liabilities
Derivative Financial Instruments
Notional Amount	215,500	58,250
Asset (Liability) Fair Value	(971)	(119)
Customer derivatives - interest rate swaps
Derivative Financial Instruments
Notional Amount	35,812	6,542
Asset (Liability) Fair Value	(129)	(49)
Customer derivatives - interest rate swaps | Other Assets
Derivative Financial Instruments
Notional Amount	17,906	3,271
Asset (Liability) Fair Value	1,284	382
Customer derivatives - interest rate swaps | Other Liabilities
Derivative Financial Instruments
Notional Amount	17,906	3,271
Asset (Liability) Fair Value	$ (1,413)	$ (431)

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Derivative Financial Instruments - Fair value gains and losses on derivative financial instruments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Summary of the fair value gains and losses on derivative financial instruments
Net fair value gains (losses) on derivative financial instruments	$ 3,028		$ 6,346	$ (15)
Realized losses on derivatives	(2,637)	$ (300)	(7,363)	(792)
Interest rate lock commitments
Summary of the fair value gains and losses on derivative financial instruments
Net fair value gains (losses) on derivative financial instruments	3,161	(102)	7,226	(68)
Forward Commitments
Summary of the fair value gains and losses on derivative financial instruments
Net fair value gains (losses) on derivative financial instruments	(129)	124	(801)	101
Customer derivatives - interest rate swaps
Summary of the fair value gains and losses on derivative financial instruments
Net fair value gains (losses) on derivative financial instruments	$ (4)	$ (22)	$ (79)	$ (48)

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Segments (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2020 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2020 USD ($) Office	Sep. 30, 2019 USD ($) Office	Dec. 31, 2019 USD ($)
Net-interest Income:
Net interest income	$ 12,715	$ 9,274	$ 33,978	$ 26,672
Provision for loan losses	3,956	705	7,139	938
Net interest income after provision for loan losses	8,759	8,569	26,839	25,734
Non-Interest Income:
Mortgage banking income	21,812	7,315	45,395	17,617
Wealth management income	951	922	2,825	2,698
SBA income	641	635	1,821	1,150
Net change in fair values	6,053	30	10,944	292
Net loss on hedging activity	(2,637)	(300)	(7,363)	(792)
Other	2,240	607	3,350	1,691
Total non-interest income	29,060	9,209	56,972	22,656
Non-interest expenses:
Total non-interest expenses	25,834	13,547	61,152	38,980
Income before income taxes	11,985	4,231	22,659	9,410
Total Assets	1,758,648	1,126,937	1,758,648	1,126,937	$ 1,150,019
Bank
Net-interest Income:
Net interest income	12,104	9,203	32,725	26,437
Provision for loan losses	3,956	705	7,139	938
Net interest income after provision for loan losses	8,148	8,498	25,586	25,499
Non-Interest Income:
Mortgage banking income	574	74	973	175
Wealth management income		31		110
SBA income	641	635	1,821	1,150
Net change in fair values	(4)	(23)	(68)	(49)
Other	2,045	534	2,931	1,409
Total non-interest income	3,256	1,251	5,657	2,795
Non-interest expenses:
Total non-interest expenses	8,829	6,915	23,341	20,312
Income before income taxes	2,575	2,834	7,902	7,982
Total Assets	1,525,883	1,071,450	1,525,883	1,071,450
Wealth
Net-interest Income:
Net interest income	(19)	4	(24)	68
Net interest income after provision for loan losses	(19)	4	(24)	68
Non-Interest Income:
Wealth management income	951	891	2,825	2,588
Other			14
Total non-interest income	951	891	2,839	2,588
Non-interest expenses:
Total non-interest expenses	788	834	2,363	2,268
Income before income taxes	144	61	452	388
Total Assets	5,399	5,398	$ 5,399	$ 5,398
Mortgage
Segments
Number of central loan production | Office			16	16
Net-interest Income:
Net interest income	630	67	$ 1,277	$ 167
Net interest income after provision for loan losses	630	67	1,277	167
Non-Interest Income:
Mortgage banking income	21,238	7,241	44,422	17,442
Net change in fair values	6,057	53	11,012	341
Net loss on hedging activity	(2,637)	(300)	(7,363)	(792)
Other	195	73	405	282
Total non-interest income	24,853	7,067	48,476	17,273
Non-interest expenses:
Total non-interest expenses	16,217	5,798	35,448	16,400
Income before income taxes	9,266	1,336	14,305	1,040
Total Assets	$ 227,366	$ 50,089	$ 227,366	$ 50,089

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Stockholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended
	Oct. 22, 2020	Sep. 30, 2020	Sep. 30, 2020	Aug. 31, 2020	Aug. 10, 2020
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
Shares purchased for ESOP plan (in shares)			(133,601)
Shares purchased for ESOP plan			$ 2,000
Cash dividend declared per common share	$ 0.125
Cash dividends paid			$ 0.125
Total dividends			$ 763
Common Stock, Shares, Outstanding					6,098,573
Meridian Corporation ESOP Trust
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]
ESOP stock purchase authorized amount				$ 2,000
Amount loaned to ESOP				$ 2,000
Shares purchased for ESOP plan (in shares)		133,601
Shares purchased for ESOP average purchase price		$ 14.97
Shares purchased for ESOP plan		$ 2,000
Loans receivable interest rate		1.17%
Shares commited to be released		0	0