# Meridian Corp (MRBK) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from Meridian Corp's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1750735/000175073523000024/mrbk-20221231.htm
Accession: 0001750735-23-000024
Filing date: 2023-03-16
Report date: 2022-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/MRBK/
All MD&A years: /company/MRBK/mda/
Previous year: /company/MRBK/mda/fy2021/ (FY 2021)
Next year: /company/MRBK/mda/fy2023/ (FY 2023)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist in understanding the financial condition and results of operations of Meridian as of and for the year ended December 31, 2022. The information contained in this section should be read together with the December 31, 2022 audited Consolidated Financial Statements and the accompanying Notes included in Item 8. Financial Statements And Supplementary Data of this Form 10-K.

This section of this Form 10-K generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2021 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found

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in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Corporation’s Form 10-K for the fiscal year ended December 31, 2021.

Recent Market Conditions

Our financial condition and performance, as well as the ability of our borrowers to repay their loans, the value of collateral securing those loans, and demand for loans and other products and services that we offer, are all highly dependent on the business environment in the primary markets in which we operate and in the United States as a whole.

Bank Sector Concerns

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

Total balance sheet liquidity, which is derived from cash and investments, as well as salable commercial loans and residential mortgage loans held for sale, was $264.4 million at December 31, 2022. Meridian maintains a high-quality investment bond portfolio comprised of U.S Treasuries, government agencies, government agency mortgage-backed securities, and general obligation municipal securities with an average duration of 4 years. Meridian’s investment portfolio represented 8.5% of total assets at December 31, 2022.

Meridian also maintains borrowing arrangements with various correspondent banks to meet short-term liquidity needs and has access to approximately $850 million in liquidity from numerous sources including its borrowing capacity with the FHLB and other financial institutions, as well as funding through the CDARS program or through brokered CD arrangements. In addition, the Bank is eligible to receive funds under the new Bank Term Funding Program announced by the Federal Reserve. Management believes that the above sources of liquidity provide Meridian with the necessary resources to meet its short-term and long-term funding requirements.

COVID-19 Concerns

As discussed further in Part I, Item 1, during the first quarter of 2020, an outbreak of COVID-19 spread around the world, including the United States. COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity and other economic activities had a destabilizing effect on financial markets and economic activity.

The U.S. economy has since strengthened despite the spread of COVID-19 variants, with higher inflation and housing values beginning in 2021. Also, the ongoing global supply chain issues and the military conflict between Russia and Ukraine contributed to higher inflation in 2022. In response, the Federal Reserve began normalizing monetary policy with its decision in late 2021 to taper its quantitative easing and raising the federal funds rate beginning in March 2022. Inflation remains elevated in 2022, reflecting supply and demand imbalances related to COVID-19 and its variants, higher food and energy prices from the military conflict between Russia and Ukraine, and broader price pressures. The Federal Reserve has raised interest rates significantly throughout 2022 and in the early part of 2023 in attempts to bring the inflation to its long run target rate of two percent. Future rate hikes are expected during the remainder of 2023, as the Federal Reserve has indicated ongoing interest rate increases in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to two percent over time.

Significant uncertainties as to future economic conditions continue to exist, including higher inflation, global supply chain issues, and higher oil and commodity prices exacerbated by the military conflict between Russia and Ukraine. We have taken deliberate actions in response, including maintaining higher reserves for credit losses on loans and leases and off-balance sheet credit exposures and strong capital ratios. As our commercial loan portfolio has a high percentage of variable rate loans, we are well positioned to take advantage of this in a rising rate environment. We are also focused on growing our non-interest bearing and lower-cost interest-bearing deposits to position the Bank for higher interest rates. We also continue to monitor closely the impact of COVID-19 and its variants, macroeconomic uncertainties, as well as any effects that may result from the federal government's responses including future rate hikes; however, the extent to which these factors will impact our operations and financial results in 2023 is highly uncertain.

Critical Accounting Policies 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. In particular, management has identified the provision and allowance for loan and lease losses as the accounting policy that, due to the estimates, assumptions and judgements inherent in that policy, is critical in understanding our financial statements. Management has presented the application of this policy to the audit committee of our board of directors.

While we were an emerging growth company (up to December 31, 2022), the JOBS Act permitted us an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to take advantage of this extended transition period, which means that the financial statements included in this Annual Report, as well as any financial statements that were filed prior to this Annual Report, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period.

The following is a discussion of the critical accounting policies and significant estimates that require us to make complex and subjective judgments. Additional information about these policies can be found in the “Summary of Significant Accounting Policies” in footnote 1 of the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, 2022 and 2021.

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Provision and allowance for loan and lease losses

The provision for loan and lease losses reflects the amount required to maintain the allowance for loan and lease losses (“Allowance”) at an appropriate level based upon management’s evaluation of the adequacy of general and specific loss reserves, using an incurred loss model.

The Allowance is maintained at a level that management believes is appropriate to provide for incurred loan and lease losses as of the date of the Consolidated Balance Sheet and we have established methodologies for the determination of its adequacy. The methodologies are set forth in a formal policy and take into consideration the need for an overall general allowance as well as specific allowances that are determined on an individual loan basis for impaired loans. The Allowance is increased by charging provisions for losses against our income and decreased by charge-offs, net of recoveries.

The evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available. While management uses available information to recognize losses on loans and leases, changes in economic or other conditions may necessitate revision of the estimate in future periods.

The Allowance is maintained at a level sufficient to provide for probable losses based upon an ongoing review of the loan and lease portfolios by portfolio category, which includes consideration of actual loss experience, peer loss experience, changes in the size and risk profile of the portfolio, identification of individual problem loan and lease situations which may affect a borrower’s ability to repay, and evaluation of prevailing economic conditions.

Beginning on January 1, 2023, the Corporation adopted an expected credit loss model retrospectively, at the beginning of the period of adoption, through a cumulative-effect adjustment to retained earnings at January 1, 2023. The Corporation has largely completed its assessment of related processes, internal controls, and data sources and has developed, documented, and validated a discounted cash flows model utilizing a third-party software provider. While the Corporation continues to analyze and evaluate the impact of the adoption of this guidance on the Corporation's financial statements, it is anticipated that the reserve for credit losses will increase by 10% to 20% and stockholders' equity will decrease by 1% to 3%. The Corporation anticipates that the Corporation and the Bank will continue to be well capitalized after the negative impact resulting from the adoption of CECL. See the section entitled “Recent Accounting Pronouncements” in footnote (1) Summary of Significant Accounting Policies.

Executive Overview

The following items highlight the Corporation’s changes in its financial condition as of December 31, 2022 compared to December 31, 2021 and the results of operations for the year ended December 31, 2022 compared to the same periods in 2021. More detailed information related to these highlights can be found in the sections that follow.

Changes in Financial Condition

•Total assets increased $348.8 million, or 20.4%, to $2.1 billion as of December 31, 2022.

•Portfolio loans, excluding PPP loans, increased $435.4 million, or 33.6%, to $1.73 billion as of December 31, 2022,

•PPP loans decreased to just $4.6 million as of December 31, 2022 which is a decrease of $83.7 million, or 94.8%, since     December 31, 2021.

Results of Operations

•Consolidated net income decreased $13.8 million, or 38.7%, driven by a lower level of non-interest revenue from mortgage banking activity.

•The return on average assets and return on average equity was 1.18% and 13.87%, respectively, for the year ended December 31, 2022, compared to 2.06% and 23.74%, respectively, for the year ended December 31, 2021.

•Provision for loan losses increased $1.4 million, or 132.5%, due to loan growth, partially offset by decreases in specific reserves on non-performing loans.

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Key Performance Ratios

[[GREPCENT_TABLE]]
[["The following table presents key financial performance ratios for the periods indicated:","Year Ended December 31,"],["","2022","","2021"],["Return on average assets","1.18","%","","2.06","%"],["Return on average equity","13.87","%","","23.74","%"],["Net interest margin (tax effected yield)","3.98","%","","3.77","%"],["Basic earnings per share","$","1.85","","","$","2.96"],["Diluted earnings per share","$","1.79","","","$","2.87"]]
[[/GREPCENT_TABLE]]

The following table presents certain key period-end balances and ratios at the dates indicated:

[[GREPCENT_TABLE]]
[["(dollars in thousands, except per share amounts)","December 31, 2022","","December 31, 2021"],["Book value per common share","$","13.37","","","$","13.54"],["Tangible book value per common share (1)","$","13.01","","","$","13.19"],["Allowance as a percentage of loans and leases held for investment","1.08","%","","1.35","%"],["Allowance as a percentage of loans and leases held for investment (excl. loans at fair value and PPP loans) (1)","1.09","%","","1.46","%"],["Tier I capital to risk weighted assets","8.8","%","","10.8","%"],["Tangible common equity to tangible assets ratio (1)","8.1","%","","9.4","%"],["Loans and other finance receivables, net of fees and costs","$","1,743,682","","","$","1,386,457"],["Total assets","$","2,062,228","","","$","1,713,443"],["Total stockholders\u2019 equity","$","153,280","","","$","165,360"]]
[[/GREPCENT_TABLE]]

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

Components of Net Income

Net income is comprised of five major elements:

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

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

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

•Non-interest Expense, which consists primarily of salaries and employee benefits, occupancy, professional fees, advertising & promotion, data processing, information technology, loan expenses, and other operating expenses; and

•Income Taxes, which include state and federal jurisdictions.

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NET INTEREST INCOME

Net interest income is an integral source of the Corporation’s income. The tables below present a summary for the year ended December 31, 2022 and 2021, of the Corporation’s average balances and yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities. The net interest margin is the net interest income as a percentage of average interest-earning assets. The net interest spread is the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities. The difference between the net interest margin and the net interest spread is the result of net free funding sources such as non-interest bearing deposits and stockholders’ equity.

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.

[[GREPCENT_TABLE]]
[["","For the Year Ended December 31,"],["(dollars in thousands)","2022","","2021"],["Average Balance","","Interest Income/ Expense","","Yields/ Rates","","Average Balance","","Interest Income/ Expense","","Yields/ Rates"],["Assets:"],["Due from banks","$","21,045","","","$","279","","","1.33","%","","$","30,844","","","$","41","","","0.13","%"],["Federal funds sold","1,160","","","7","","","0.60","","","17,823","","","7","","","0.04"],["Investment securities - taxable (1)","106,246","","","2,420","","","2.28","","","83,720","","","1,463","","","1.75"],["Investment securities - tax exempt (1)","63,425","","","1,691","","","2.67","","","64,440","","","1,464","","","2.27"],["Loans held for sale","44,238","","","1,872","","","4.23","","","125,444","","","3,540","","","3.76"],["Loans held for investment (1)","1,535,943","","","82,764","","","5.39","","","1,358,282","","","65,292","","","4.81"],["Total loans","1,580,181","","","84,636","","","5.36","","","1,483,726","","","68,832","","","4.64"],["Total interest-earning assets","1,772,057","","","89,033","","","5.02","%","","1,680,553","","","71,807","","","4.27","%"],["Noninterest earning assets","76,983","","","","","","","48,015"],["Total assets","$","1,849,040","","","","","","","$","1,728,568"],["Liabilities and stockholders' equity:"],["Interest-bearing demand deposits","$","237,554","","","$","2,570","","","1.08","%","","$","257,950","","","$","880","","","0.34","%"],["Money market and savings deposits","703,561","","","7,854","","","1.12","","","630,977","","","3,346","","","0.53"],["Time deposits","354,822","","","4,972","","","1.40","","","245,923","","","1,268","","","0.52"],["Total deposits","1,295,937","","","15,396","","","1.19","","","1,134,850","","","5,494","","","0.48"],["Borrowings","27,637","","","830","","","3.00","","","119,721","","","534","","","0.45"],["Subordinated debentures","40,560","","","2,366","","","5.83","","","40,724","","","2,383","","","5.85"],["Total interest-bearing liabilities","1,364,134","","","18,592","","","1.36","","","1,295,295","","","8,411","","","0.65"],["Noninterest-bearing deposits","296,563","","","","","","","258,298"],["Other noninterest-bearing liabilities","30,929","","","","","","","25,100"],["Total liabilities","1,691,626","","","","","","","1,578,693"],["Total stockholders' equity","157,414","","","","","","","149,875"],["Total stockholders' equity and liabilities","$","1,849,040","","","","","","","$","1,728,568"],["Net interest income and spread (1)","","$","70,441","","","3.66","","","","","$","63,396","","","3.62"],["Net interest margin (1)","","","","","3.98","%","","","","","","3.77","%"]]
[[/GREPCENT_TABLE]]

(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 year ended December 31, 2022 as compared to the same periods in 2021, 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.

[[GREPCENT_TABLE]]
[["","2022 Compared to 2021"],["(dollars in thousands)","Rate","","Volume","","Total"],["Interest income:"],["Due from banks","$","255","","","$","(17)","","","$","238"],["Federal funds sold","12","","","(12)","","","\u2014"],["Investment securities - taxable (1)","507","","","450","","","957"],["Investment securities - tax exempt (1)","250","","","(23)","","","227"],["Loans held for sale","1,270","","","(2,938)","","","(1,668)"],["Loans held for investment (1)","8,395","","","9,077","","","17,472"],["Total loans","9,665","","","6,139","","","15,804"],["Total interest income","$","10,689","","","6,537","","","17,226"],["Interest expense:"],["Interest-bearing demand deposits","$","1,765","","","(75)","","","1,690"],["Money market and savings deposits","4,083","","","425","","","4,508"],["Time deposits","2,945","","","759","","","3,704"],["Total deposits","8,793","","","1,109","","","9,902"],["Borrowings","985","","","(689)","","","296"],["Subordinated debentures","(7)","","","(10)","","","(17)"],["Total interest expense","9,771","","","410","","","10,181"],["Interest differential","$","918","","","$","6,127","","","$","7,045"]]
[[/GREPCENT_TABLE]]

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

Interest income increased $17.2 million on a tax equivalent basis, year over year, due to a higher yield on earning assets, which went up 75 basis points, in addition to a higher level of average earning assets, which increased by $91.5 million. Included in interest income was approximately $280 thousand of one-time fees and interest recapture from the quarter ended December 31, 2022. The average yield on loans held for investment increased 58 basis points and the yield on cash and investments increased 46 basis points in total, reflecting the impact in rates caused by the Federal Reserve’s monetary policy. Average total loans held for investment, excluding PPP loans and residential loans for sale, increased $315.7 million, most notably in commercial real estate and construction, commercial loans and leases and small business loans, which increased $190.8 million on average, combined. Home equity loans and residential real estate loans held in portfolio increased $44.6 million on average, combined. Residential loans for sale and PPP loans decreased $81.2 million, and $138.0 million on average, respectively.

Interest expense increased $10.2 million, year over year, due primarily to market interest rate rises, as well as an increase of $161.1 million in average interest bearing deposits. Interest expense on deposits increased $9.9 million with the cost of interest-bearing deposits increasing 71 basis points to 1.19%. Total cost of deposits increased 58 basis points reflecting an increase of $38.3 million in average non-interest bearing deposits. Interest expense on borrowings increased $296 thousand as the cost increased 255 basis points, and total average short-term borrowings decreased $92.1 million.

Net interest margin increased 21 basis points to 3.98% for the year ended December 31, 2022 from 3.77% for the year ended December 31, 2021, as the increase in yield on earnings assets was higher than the increase of costs of funds, helped also by the $38.3 million increase in average non-interest bearing deposits. Excluding the impact from PPP, net interest margin increased 20 basis points to 3.92% from 3.72%. A reconciliation of this non-GAAP measure is included in the Appendix.

PROVISION FOR LOAN AND LEASE LOSSES

The provision for loan losses was $2.5 million for the year ended December 31, 2022, compared to an $1.1 million provision for the year ended December 31, 2021. The increase in the provision period over period is the result of provisioning for loan growth and charge-offs, offset partially by an improvement in specific reserves and the trend in economic qualitative factors in the allowance for loan losses calculation.

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NON-INTEREST INCOME

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(Dollars in thousands)","2022","","2021","","$ Change","","% Change"],["Mortgage banking income","$","25,325","","","$","75,932","","","$","(50,607)","","","(66.6)","%"],["Wealth management income","4,733","","","4,801","","","(68)","","","(1.4)","%"],["SBA loan income","4,467","","","6,898","","","(2,431)","","","(35.2)","%"],["Earnings on investment in life insurance","553","","","365","","","188","","","51.5","%"],["Net change in the fair value of derivative instruments","(703)","","","(4,338)","","","3,635","","","(83.8)","%"],["Net change in the fair value of loans held-for-sale","(844)","","","(3,311)","","","2,467","","","(74.5)","%"],["Net change in the fair value of loans held-for-investment","(2,408)","","","(189)","","","(2,219)","","","1174.1","%"],["Net gain on hedging activity","5,439","","","2,961","","","2,478","","","83.7","%"],["Net gain on sale of investment securities available-for-sale","\u2014","","","435","","","(435)","","","(100.0)","%"],["Service charges","125","","","129","","","(4)","","","(3.1)","%"],["Other","5,037","","","4,305","","","732","","","17.0","%"],["Total non-interest income","$","41,724","","","$","87,988","","","$","(46,264)","","","(52.6)","%"]]
[[/GREPCENT_TABLE]]

Total non-interest income decreased $46.3 million as a result of lower mortgage banking revenue, and to a lesser degree, lower SBA loan sale income. Mortgage banking income was down $50.6 million, due primarily to lower levels of mortgage loan originations as rising interest rates and lack of housing inventory has had a negative impact on mortgage banking activity. Partially offsetting the impact of the decline in mortgage banking income were net changes in the fair value of derivative instruments and loans held-for-sale, along with an improvement in net gains on hedging activity increased $8.6 million, combined, year over year.

SBA loan sale income decreased $2.4 million, or 35.2%, over the prior year, despite an increase of $8.8 million, 13.0%, in the volume of loans sold in 2022 compared to 2021. The upward movement in interest rates during 2022 had a negative impact on gross margins on the SBA loan sales, which declined to 7.4% for all sales in 2022, compared to 11.4% in 2021. Also contributing to the decline in income was increased amortization of $340 thousand and increased impairment of $211 thousand on SBA servicing assets.

The net change in the fair value of loans held-for-investment decreased to a loss of $2.4 million for the year ended December 31, 2022, compared to a loss of $189 thousand for the comparable prior year, due to the negative impact the rising interest rate environment had on the fair value of the loans in portfolio that are held at fair value. Other non-interest income was up $732 thousand due to increases in title fee income, swap fee income, FHLB stock dividend income and broker fee income.

NON-INTEREST EXPENSE

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(Dollars in thousands)","2022","","2021","","$ Change","","% Change"],["Salaries and employee benefits","$","54,378","","","$","78,866","","","$","(24,488)","","","(31.1)","%"],["Occupancy and equipment","4,837","","","4,545","","","292","","","6.4","%"],["Professional fees","3,635","","","3,558","","","77","","","2.2","%"],["Advertising and promotion","4,336","","","3,714","","","622","","","16.7","%"],["Data processing and software","5,451","","","4,382","","","1,069","","","24.4","%"],["Pennsylvania bank shares tax","793","","","609","","","184","","","30.2","%"],["Other","8,014","","","8,053","","","(39)","","","(0.5)","%"],["Total non-interest expense","$","81,444","","","$","103,727","","","$","(22,283)","","","(21.5)","%"]]
[[/GREPCENT_TABLE]]

Total non-interest expense decreased $22.3 million due largely to a decrease in salaries and employee benefits expense at the mortgage segment, which recognized decreased fixed and variable compensation. Partially offsetting this decrease was an increase for the bank and wealth segments salaries & benefits, due to an increase in FTEs and a higher level of stock-based compensation expense. Advertising and promotion expense increased as the result of a renewed and focused priority placed on business development and community outreach efforts. Data processing and software expense increased as Meridian continued with our strategy to invest in technology that focuses on improving back-office efficiencies through automation and workflow processes.

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INCOME TAX EXPENSE

The following table presents income tax expense and related metrics for the periods indicated:

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["(Dollars in thousands)","2022","","2021","","Change","","% Change"],["Income before income taxes","$","27,920","","","$","46,302","","","$","(18,382)","","","(39.7)","%"],["Income tax expense","$","6,091","","","$","10,717","","","$","(4,626)","","","(43.2)","%"],["Effective tax rate","21.81","%","","23.14","%","","(1.33)","%","","(5.7)","%"]]
[[/GREPCENT_TABLE]]

The effective tax rate decreased as a result of higher levels of non-taxable revenue (BOLI and tax free interest), as well as lower level of state tax expense. Both income tax expense and the effective tax rate (as it related to state tax expense) decreased due primarily to the decrease in income before income taxes.

Balance Sheet Summary

Assets

As of December 31, 2022, total assets were $2.1 billion which increased $348.8 million, or 20.4%, from December 31, 2021. This growth in assets over the prior period was due primarily to loan portfolio growth, as detailed in the following section.

Loans

Our loan portfolio is the largest category of our interest-earning assets. As of December 31, 2022 and 2021, our total loans and leases amounted to $1.8 billion, and $1.5 billion, respectively. Our loan portfolio is comprised of loans originated to be held in portfolio, as well as residential mortgage loans originated for sale. Meridian engages in the origination of residential mortgages, most typically for 1-4 family dwellings, with the intention of the Corporation to principally sell substantially all of these loans in the secondary market to qualified investors. Our loans held in portfolio are originated by our commercial and consumer loan divisions. We have a strong credit culture that promotes diversity of lending products with a focus on commercial businesses. We have no particular credit concentration. Our commercial loans have been proactively managed in an effort to achieve a balanced portfolio with no unusual exposure to one industry.

The following table presents our loan and lease portfolio at the dates indicated:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","December 31, 2022","","December 31, 2021","","$ Change","","% Change"],["Mortgage loans held for sale","$","22,243","","","$","80,882","","","$","(58,639)","","","(72.5)","%"],["Real estate loans:"],["Commercial mortgage","565,400","","","516,928","","","48,472","","","9.4","%"],["Home equity lines and loans","59,399","","","52,299","","","7,100","","","13.6","%"],["Residential mortgage","221,837","","","68,175","","","153,662","","","225.4","%"],["Construction","271,955","","","160,905","","","111,050","","","69.0","%"],["Total real estate loans","1,118,591","","","798,307","","","320,284","","","40.1","%"],["Commercial and industrial","341,378","","","384,562","","","(43,184)","","","(11.2)","%"],["Small business loans","136,155","","","114,158","","","21,997","","","19.3","%"],["Consumer","488","","","419","","","69","","","16.5","%"],["Leases, net","138,986","","","88,242","","","50,744","","","57.5","%"],["Total portfolio loans and leases","$","1,735,598","","","$","1,385,688","","","$","349,910","","","25.3","%"],["Total loans and leases","$","1,757,841","","","$","1,466,570","","","$","291,271","","","19.9","%"]]
[[/GREPCENT_TABLE]]

Portfolio loans increased grew $349.9 million, or 25.3% to $1.7 billion as of December 31, 2022, from $1.4 billion as of December 31, 2021.

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The following table shows the amounts of loans outstanding as of December 31, 2022 which, based on remaining scheduled repayments of principal, are due in the periods indicated:

[[GREPCENT_TABLE]]
[["(dollars in thousands)","12 months or Less","","1 - 5 years","","5 - 15 years","","After 15 years","","Total"],["Mortgage loans held for sale","$","\u2014","","$","\u2014","","$","\u2014","","$","22,243","","","$","22,243"],["Commercial mortgage","23,091","","138,037","","398,077","","6,195","","565,400"],["Home equity lines and loans","725","","3,533","","50,272","","4,869","","59,399"],["Residential mortgage","3,291","","730","","1,802","","216,014","","221,837"],["Construction","120,064","","62,178","","89,713","","\u2014","","271,955"],["Commercial and industrial","26,002","","135,355","","62,629","","117,392","","341,378"],["Small business loans","237","","4,672","","79,483","","51,763","","136,155"],["Consumer","3","","208","","136","","141","","488"],["Leases, net","129","","123,034","","15,823","","\u2014","","138,986"],["Total","$","173,542","","$","467,747","","$","697,935","","$","418,617","","$","1,757,841"]]
[[/GREPCENT_TABLE]]

The amounts have been classified according to sensitivity to changes in interest rates for amounts due after one year, as of December 31, 2022. Variance rate loans are those loans with floating or adjustable interest rates.

[[GREPCENT_TABLE]]
[["(dollars in thousands)","Fixed Rate","","Variable Rate","","Total"],["Mortgage loans held for sale","$","22,243","","","$","\u2014","","$","22,243"],["Commercial mortgage","94,119","","471,281","","565,400"],["Home equity lines and loans","5,928","","53,471","","59,399"],["Residential mortgage","199,472","","22,365","","221,837"],["Construction","46,854","","225,101","","271,955"],["Commercial and industrial","68,722","","272,656","","341,378"],["Small business loans","202","","135,953","","136,155"],["Consumer","353","","135","","488"],["Leases, net","138,986","","\u2014","","138,986"],["Total","$","576,879","","$","1,180,962","","$","1,757,841"]]
[[/GREPCENT_TABLE]]

Commercial real estate loans. Our commercial real estate loans are secured by real estate that is both owner-occupied and investor owned. Owner-occupied commercial real estate loans generally involve less risk than an investment property and are distinctly reported from non-owner occupied commercial real estate loans for measuring loan concentrations for regulatory purposes. Our owner-occupied commercial real estate loans are originated and managed within our commercial loan department and comprised 34.4% of our total commercial real estate loan portfolio at December 31, 2022. The remaining commercial real estate loans are managed by our commercial real estate department which offer the following commercial real estate products:

•Permanent – Investor Real Estate Loans

•Purchase and refinance loan opportunities for a number of product types, including single-family rentals, multi-family residential as well as tenanted income producing properties in a variety of real estate types, including office, retail, industrial, and flex space

•Construction Loans

•Residential construction loans to finance new construction and renovation of single and 1-4 family homes located within our market area

•Commercial construction loans for investment properties, generally with semi-permanent attributes

•Construction loans for new, expanded or renovated operations for our owner occupied business clients

•Land Development Loans

•Meridian considers a limited number of strictly land development oriented loans based upon the risk, merit of the future project and strength of the borrower/guarantor relationship

Our commercial real estate loans increased by $48.5 million, or 9.4%, to $565.4 million at December 31, 2022 from $516.9 million at December 31, 2021. Our total commercial real estate loan portfolio represented 32.2% and 35.2% of our total loan portfolio at December 31, 2022 and 2021, respectively. Construction loans increased $111.1 million, or 69.0%, to $272.0 million at December 31, 2022 from $160.9 million at December 31, 2021. Construction loans represented 15.5% of our total loan portfolio at both December 31, 2022 and 2021.

33

Commercial and Industrial Loans

We provide a variety of variable and fixed rate commercial business loans and lines of credit. These loans and lines of credit are made to small and medium-sized manufacturers and wholesale, retail and service-related businesses. Additionally, we lend to companies in the technology, healthcare, real estate and financial service industries. Commercial business loans generally include lines of credit and term loans with a maturity of five years or less. The primary source of repayment for commercial business loans is generally operating cash flows of the business and may also include collateralization of inventory, accounts receivable, equipment and/or personal guarantees. Our commercial and industrial loans decreased $43.2 million, or 11.2%, to $341.4 million at December 31, 2022 from $384.6 million at December 31, 2021, as PPP loans declined $85.5 million, or 94.8% during the year as nearly all such loans were forgiven by December 31, 2022. Commercial and industrial loans overall represented 19.4% and 26.2% of our total loan portfolio at December 31, 2022 and 2021, respectively.

Small Business Loans

We provide financing to small businesses in various industries that include guarantees under the Small Business Administration’s (SBA’s) loan programs. Our small business loans increased by $22.0 million, or 19.3%, to $136.2 million at December 31, 2022 from $114.2 million at December 31, 2021. During 2022 we sold $75.9 million in SBA loans, an increase of $8.8 million, or 13.0%, from $67.2 million in SBA loans sold in 2021. The small business loans portfolio represented 7.7% and 7.8% of our total loan portfolio at December 31, 2022 and 2021, respectively.

Consumer and Personal Loans

Our consumer-lending department principally originates residential mortgage and home equity based products for our clients and prospects. These loans typically fund completely at closing. Additional products include smaller dollar personal loans and our student loan refinance product, designed to provide additional flexibility in repayment terms desired in the marketplace. Home equity lines and loans increased $7.1 million, or 13.6%, to $59.4 million at December 31, 2022 from $57.6 million at December 31, 2021, while residential mortgage loans increased by $153.7 million, or 225.4%, to $221.8 million at December 31, 2022 from $68.2 million at December 31, 2021. Overall the total consumer loan portfolio represented 16.0% and 8.2% of our total loan portfolio at December 31, 2022 and 2021, respectively.

Leases, net

Meridian Equipment Finance specializes in small ticket equipment leases for small and mid-sized businesses nationally and through a broad range of industries. The Bank’s credit risk generally results from the potential default of borrowers which may be driven by customer specific or broader industry related conditions. Leases increased $50.7 million, or 57.5%, to $139.0 million at December 31, 2022 from $88.2 million at December 31, 2021.

Investments

Our securities portfolio is used to make various term investments, maintain a source of liquidity and serve as collateral for certain types of deposits and borrowings. We manage our investment portfolio according to written investment policies approved by our board of directors. Investments in our securities portfolio may change over time based on our funding needs and interest rate risk management objectives. Our liquidity levels take into account anticipated future cash flows and other available sources of funds and are maintained at levels that we believe are appropriate to provide the necessary flexibility to meet our anticipated funding requirements.

As of December 31, 2022 our available-for-sale investment portfolio had a fair value of $135.3 million, with an effective tax equivalent yield of 2.83% and an estimated duration of approximately 4 years. The largest category of this investment portfolio, or 28.7%, consists of municipal securities, along with 25.9% in U.S. agency securities, and 21.8% in U.S. Treasury securities. The remainder of our available-for-sale securities portfolio is invested in other securities. We regularly evaluate the composition of our investment portfolio as the interest rate yield curve changes and may sell investment securities from time to time to adjust our exposure to interest rates or to provide liquidity to meet loan demand. Not included in the tables below are equity investments that had fair values of $2.1 million and $2.4 million, as of December 31, 2022 and 2021, respectively. As of December 31, 2022 we also had a held-to-maturity investment portfolio with amortized cost of $37.5 million.

During the year ended December 31, 2022, $27.7 million of municipal securities, previously classified as available-for-sale on the balance sheet, were transferred to the held-to-maturity portfolio at fair value. After transfer, $1.3 million of unrealized losses remain in accumulated other comprehensive income. No gain or loss was recognized as a result of the transfer.

The following table presents the amortized cost and fair value of securities at the dates indicated:

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["(dollars in thousands)","Amortized cost","","Gross unrealized gains","","Gross unrealized losses","","Fair value","","# of Securities in unrealized loss position"],["Securities available-for-sale:"],["U.S. asset backed securities","$","15,581","","","$","14","","","$","(314)","","","$","15,281","","","12"],["U.S. government agency MBS","12,272","","","5","","","(538)","","","11,739","","","12"],["U.S. government agency CMO","25,520","","","40","","","(2,242)","","","23,318","","","29"],["State and municipal securities","44,700","","","\u2014","","","(5,862)","","","38,838","","","34"]]
[[/GREPCENT_TABLE]]

34

[[GREPCENT_TABLE]]
[["","December 31, 2022"],["(dollars in thousands)","Amortized cost","","Gross unrealized gains","","Gross unrealized losses","","Fair value","","# of Securities in unrealized loss position"],["U.S. Treasuries","32,980","","","\u2014","","","(3,457)","","","29,523","","","25"],["Non-U.S. government agency CMO","9,722","","","\u2014","","","(633)","","","9,089","","","11"],["Corporate bonds","8,201","","","\u2014","","","(643)","","","7,558","","","12"],["Total securities available-for-sale","$","148,976","","","$","59","","","$","(13,689)","","","$","135,346","","","135"],["","Amortized cost","","Gross unrecognized gains","","Gross unrecognized losses","","Fair value","","# of Securities in unrecognized loss position"],["Securities held-to-maturity:"],["State and municipal securities","$","37,479","","","$","\u2014","","","$","(4,394)","","","$","33,085","","","25"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","December 31, 2021"],["(dollars in thousands)","Amortized cost","","Gross unrealized gains","","Gross unrealized losses","","Fair value","","# of Securities in unrealized loss position"],["Securities available-for-sale:"],["U.S. asset backed securities","$","16,850","","","$","55","","","$","(68)","","","$","16,837","","","10"],["U.S. government agency MBS","9,749","","","124","","","(60)","","","9,813","","","3"],["U.S. government agency CMO","22,276","","","358","","","(253)","","","22,381","","","10"],["State and municipal securities","72,099","","","1,379","","","(496)","","","72,982","","","12"],["U.S. Treasuries","29,973","","","1","","","(246)","","","29,728","","","21"],["Non-U.S. government agency CMO","990","","","\u2014","","","(15)","","","975","","","1"],["Corporate bonds","6,450","","","154","","","(18)","","","6,586","","","5"],["Total securities available-for-sale","$","158,387","","","$","2,071","","","$","(1,156)","","","$","159,302","","","62"],["","Amortized cost","","Gross unrecognized gains","","Gross unrecognized losses","","Fair value","","# of Securities in unrecognized loss position"],["Securities held-to-maturity:"],["State and municipal securities","$","6,372","","","$","219","","","$","\u2014","","","$","6,591","","","\u2014"]]
[[/GREPCENT_TABLE]]

Asset Quality Summary

Meridian's credit culture is strong and asset quality remains a primary focus of management. The ratio of non-performing assets to total assets declined to 1.11% as of December 31, 2022, from 1.34% as of December 31, 2021. There was $1.7 million in other real estate property included in non-performing assets as of December 31, 2022 related to a well security residential property, and $0 as of December 31, 2021. Total non-performing loans were $21.2 million and $23.0 million as of December 31, 2022 and December 31, 2021, respectively. The decline in non-performing loans over the period was due to a $2.7 million payoff of a non-performing loan and principal payments on another non-performing loan relationship of over $3 million, both partially offset by an increase in SBA loans considered non-performing.

Meridian realized net charge-offs of $2.4 million, or 0.15%, of total average loans for the year ended December 31, 2022, compared to net charge-offs of $79 thousand, or 0.01%, of total average loans for the year ended December 31, 2021. Nearly all of the charge-offs for the year ended December 31, 2022 were from equipment leases, while recoveries were split between commercial loans, equipment leases, and home equity loans. The ratio of allowance for loan losses to total loans held for investment, excluding loans at fair value and PPP loans (a non-GAAP measure, see reconciliation in the Appendix), was 1.09% as of December 31, 2022 compared to 1.46% as of December 31, 2021. 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. A reconciliation of this non-GAAP measure is included in the Non-GAAP Financial Measures section on page 36.

As of December 31, 2022, the Corporation had $3.8 million of TDRs, of which $3.6 million were in compliance with the modified terms and excluded from non-performing loans and leases. As of December 31, 2021, the Corporation had $3.8 million of TDRs, of which $3.4 million were in compliance with the modified terms, and were excluded from non-performing loans and leases.

35

As of December 31, 2022, the Corporation had a recorded investment of $24.2 million of impaired loans and leases which included $3.8 million of TDRs, while as of December 31, 2021 impaired loans totaled $25.8 million, which included $3.8 million of TDRs. The decrease in impaired loans was largely due to payments received in the fourth quarter of 2022 on one commercial loan relationship that became a non-performing loan relationship late in 2021. This loan had a specific reserve of $1.4 million of as December 31, 2021, which decreased to $776 thousand as of December 31, 2022. Impaired loans and leases are those for which it is probable that the Corporation will not be able to collect all scheduled principal and interest in accordance with the original terms of the loans and leases. Refer to footnote 6 for more information regarding the Corporation’s impaired loans and leases.

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.

The following table presents nonperforming assets and related ratios for the periods indicated:

[[GREPCENT_TABLE]]
[["(dollars in thousands)","December 31, 2022","","December 31, 2021"],["Non-performing assets:"],["Nonaccrual loans:"],["Real estate loans:"],["Commercial mortgage","$","140","","","$","\u2014"],["Home equity lines and loans","1,097","","","911"],["Residential mortgage","2,085","","","2,398"],["Total real estate loans","3,322","","","3,309"],["Commercial and industrial","12,547","","","18,801"],["Small business loans","4,465","","","666"],["Leases","902","","","212"],["Total nonaccrual loans","21,236","","","22,988"],["Other real estate owned","1,703","","","\u2014"],["Total non-performing assets","$","22,939","","","$","22,988"],["Troubled debt restructurings:"],["TDRs included in non-performing loans","$","207","","","$","361"],["TDRs in compliance with modified terms","3,573","","","3,446"],["Total TDRs","$","3,780","","","$","3,807"],["Asset quality ratios:"],["Non-performing assets to total assets","1.11","%","","1.34","%"],["Non-performing loans to:"],["Total loans and leases","1.20","%","","1.57","%"],["Total loans held-for-investment","1.22","%","","1.66","%"],["Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)","1.23","%","","1.80","%"],["Allowance for loan losses to:"],["Total loans and leases","1.07","%","","1.28","%"],["Total loans held-for-investment","1.08","%","","1.35","%"],["Total loans held-for-investment (excluding loans at fair value and PPP loans) (1)","1.09","%","","1.46","%"],["Non-performing loans","88.66","%","","81.60","%"],["Total loans and leases","$","1,765,925","","","$","1,467,339"],["Total loans and leases held-for-investment","$","1,743,682","","","$","1,386,457"],["Total loans and leases held-for-investment (excluding loans at fair value and PPP loans)","$","1,724,601","","","$","1,280,654"],["Allowance for loan and lease losses","$","18,828","","","$","18,758"]]
[[/GREPCENT_TABLE]]

(1) The allowance for loan losses to total loans held-for-investment (excluding loans at fair value and PPP loans) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure.

36

Allowance for Loan and Lease Losses

The following is a summary of the allocation of the allowance for loan and lease losses by loan category for the periods presented.

[[GREPCENT_TABLE]]
[["(dollars in thousands)","December 31, 2022","","% of Loan Type to Total Loans","","December 31, 2021","","% of Loan Type to Total Loans"],["Commercial mortgage","$","4,095","","33%","","$","4,950","","37%"],["Home equity lines and loans","188","","3%","","224","","4%"],["Residential mortgage","948","","13%","","283","","5%"],["Construction","3,075","","16%","","2,042","","12%"],["Commercial and industrial","4,012","","19%","","6,533","","28%"],["Small business loans","4,909","","8%","","3,737","","8%"],["Consumer","3","","\u2014%","","3","","\u2014%"],["Leases","1,598","","8%","","986","","6%"],["Total","$","18,828","","100%","","$","18,758","","100%"]]
[[/GREPCENT_TABLE]]

The following table provides information on (charge-offs) and recoveries by loan category:

[[GREPCENT_TABLE]]
[["","December 31, 2022","","December 31, 2021"],["Home equity lines and loans","$","31","","","","$","1"],["Residential mortgage","2","","","","5"],["Commercial and industrial","97","","","","41"],["Consumer","4","","","","4"],["Leases","(2,552)","","","","(130)"],["Total Net Charge-offs","$","(2,418)","","","$","(79)"]]
[[/GREPCENT_TABLE]]

Deposits

The following table presents the major categories of deposits at the dates indicated:

[[GREPCENT_TABLE]]
[["(Dollars in thousands)","December 31, 2022","","December 31, 2021","","$ Change","","% Change"],["Noninterest-bearing deposits","$","301,727","","","$","274,528","","","$","27,199","","","9.9","%"],["Interest-bearing deposits:"],["Interest-bearing demand deposits","219,838","","","268,248","","","(48,410)","","","(18.0)","%"],["Money market and savings deposits","697,564","","","697,628","","","(64)","","","\u2014","%"],["Time deposits","493,350","","","206,009","","","287,341","","","139.5","%"],["Total interest-bearing deposits","1,410,752","","","1,171,885","","","238,867","","","20.4","%"],["Total deposits","$","1,712,479","","","$","1,446,413","","","$","266,066","","","18.4","%"]]
[[/GREPCENT_TABLE]]

Total deposits were $1.7 billion as of December 31, 2022, up $266.1 million, or 18.4%, from December 31, 2021. Non-interest bearing deposits increased $27.2 million, or 9.9%, from December 31, 2021. Interest-bearing demand deposits decreased $48.4 million, or 18.0%, from December 31, 2021, while money market accounts/savings accounts did not change materially from December 31, 2021. Certificates of deposits increased $287.3 million, or 139.5%, from December 31, 2021, as lower levels of core deposits, combined with continued loan growth year over year, led to the need to obtain more wholesale funding.

Time deposits of $250 thousand or more had remaining maturities as follows:

[[GREPCENT_TABLE]]
[["","Year Ended December 31, 2022"],["","Amount","","%"],["3 months or less","$","183,758","","46.6%"],["Over 3 months through 6 months","76,683","","19.4%"],["Over 6 months through 12 months","64,923","","16.5%"],["Over 12 months","68,921","","17.5%"],["Total","$","394,285","","100.0%"]]
[[/GREPCENT_TABLE]]

37

Equity

Consolidated stockholders’ equity of the Corporation was $153.3 million, or 7.4% of total assets as of December 31, 2022 as compared to $165.4 million, or 9.7% of total assets as of December 31, 2021. The change in stockholders’ equity is the result of year-to-date comprehensive loss of $12.2 million, dividends paid of $10.9 million and common stock repurchases of $13.0 million during 2022, partially offset by $1.0 million in stock-based compensation and stock options exercised. On February 28, 2023, the Corporation approved and declared a two-for-one stock split in the form of a 100% stock dividend, payable March 20, 2023, to shareholders of record as of March 14, 2023. Under the terms of the stock split, the Corporation’s shareholders will receive a dividend of one share for every share held on the record date. The dividend will be paid in authorized but unissued shares of common stock of the Corporation. The par value of the Corporation's stock was not affected by the split and remained at $1.00 per share. All share and per share amounts reported in the consolidated financial statements have been adjusted to reflect the two-for-one stock split effective February 28, 2023.

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.

The table below provides the non-GAAP reconciliation for our tangible common equity ratio and tangible book value per common share. All per share amounts have been adjusted to reflect the two-for-one stock split effective February 28, 2023.

[[GREPCENT_TABLE]]
[["(dollars in thousands)","December 31, 2022","","December 31, 2021"],["Total stockholders' equity (GAAP)","$","153,280","","","$","165,360"],["Less: Goodwill and intangible assets","4,074","","","4,278"],["Tangible common equity (non-GAAP)","149,206","","","161,082"],["Total assets (GAAP)","2,062,228","","","1,713,443"],["Less: Goodwill and intangible assets","4,074","","","4,278"],["Tangible assets (non-GAAP)","$","2,058,154","","","$","1,709,165"],["Stockholders' equity to total assets (GAAP)","7.43","%","","9.65","%"],["Tangible common equity to tangible assets (non-GAAP)","7.25","%","","9.42","%"],["Shares outstanding","11,466","","","12,216"],["Book value per share (GAAP)","$","13.37","","","$","13.54"],["Tangible book value per share (non-GAAP)","$","13.01","","","$","13.19"]]
[[/GREPCENT_TABLE]]

The following is a reconciliation of the allowance for loan losses to total loans held for investment ratio at December 31, 2022. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued and the impact of PPP loans as these loan types are not included in the allowance for loan losses calculation.

[[GREPCENT_TABLE]]
[["(dollars in thousands)","December 31, 2022","","December 31, 2021"],["Allowance for loan and lease losses (GAAP)","$","18,828","","","$","18,758"],["Loans, net of fees and costs (GAAP)","1,743,682","","","1,386,457"],["Less: PPP loans","(4,579)","","","(88,245)"],["Less: Loans fair valued","(14,502)","","","(17,558)"],["Loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)","$","1,724,601","","","$","1,280,654"],["Allowance for loan and leases losses to loans, net of fees and costs (GAAP)","1.08","%","","1.35","%"],["Allowance for loan and leases losses to loans, net of fees and costs, excluding PPP and fair valued loans (non-GAAP)","1.09","%","","1.46","%"]]
[[/GREPCENT_TABLE]]

38

Liquidity and Capital Resources

Management maintains liquidity to meet depositors’ needs for funds, to satisfy or fund loan commitments, and for other operating purposes. 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 SNCs, which have a national market and can be sold in a timely manner. Meridian’s available liquidity, which totaled $264.4 million at December 31, 2022, compared to $262.9 million at December 31, 2021, includes investments, SNCs, Federal funds sold, mortgages held-for-sale and cash and cash equivalents, less the amount of securities required to be pledged for certain liabilities. Meridian also anticipates scheduled payments and prepayments on its loan and mortgage-backed securities portfolios.

In addition, Meridian maintains borrowing arrangements with various correspondent banks, the FHLB and the FRB to meet short-term liquidity needs. Through its relationship at the FRB, Meridian had available credit of approximately $8.8 million at December 31, 2022. At December 31, 2022, Meridian had no borrowings from the Federal Reserve. As a member of the FHLB, we are eligible to borrow up to a specific credit limit, which is determined by the amount of our residential mortgages, commercial mortgages and other loans that have been pledged as collateral. As of December 31, 2022, Meridian’s maximum borrowing capacity with the FHLB was $561.7 million. At December 31, 2022, Meridian had borrowed $122.1 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $49 million against its available credit lines. At December 31, 2022, Meridian also had available $39.0 million of unsecured federal funds lines of credit with other financial institutions as well as $237.6 million of available short or long term funding through the CDARS program and $241.0 million of available short or long term funding through brokered CD arrangements. Management believes that Meridian has adequate resources to meet its short-term and long-term funding requirements.

At December 31, 2022, Meridian had $525.2 million in unfunded loan commitments. Management anticipates these commitments will be funded by means of normal cash flows. Certificates of deposit greater than or equal to $250 thousand scheduled to mature in one year or less from December 31, 2022 totaled $325.4 million. Management believes that the majority of such deposits will be reinvested with Meridian and that certificates that are not renewed will be funded by a reduction in cash and cash equivalents or by pay-downs and maturities of loans and investments. At December 31, 2022, Meridian had a reserve for unfunded loan commitments of $173 thousand.

Meridian meets the definition of “well capitalized” for regulatory purposes on December 31, 2022. Our capital category is determined for the purposes of applying the bank regulators’ “prompt corrective action” regulations and for determining levels of deposit insurance assessments and may not constitute an accurate representation of Meridian’s overall financial condition or prospects.

Under federal banking laws and regulations, Meridian is required to maintain minimum capital as determined by certain regulatory ratios. Capital adequacy for regulatory purposes, and the capital category assigned to an institution by its regulators, may be determinative of an institution’s overall financial condition. Under the final capital rules that became effective as of January 1, 2019, a capital conservation buffer is fully phased in at 2.5%.

Community banks have long raised concerns with bank regulators about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, Congress provided an “off-ramp” for institutions, like us, with total consolidated assets of less than $10 billion. Section 201 of the Regulatory Relief Act instructed the federal banking regulators to establish a single CBLR of between 8 and 10%. The Bank adopted this framework in 2020. Under the final rule, a community banking organization is eligible to elect the new framework if it has: less than $10 billion in total consolidated assets, limited amounts of certain assets and off-balance sheet exposures, and a CBLR greater than 9%. This requirement was 8% in 2021 as the bank regulatory agencies temporarily lowered the CBLR as a result of the COVID-19 pandemic. The Bank’s CBLR was 9.95% and 11.51% as of December 31, 2022 and 2021, respectively, but reports all ratios for comparative purposes.

The following table summarizes data and ratios pertaining to our capital structure.

[[GREPCENT_TABLE]]
[["","Corporation","","Bank","","Well-capitalized minimum"],["","December 31, 2022","","December 31, 2021","","December 31, 2022","","December 31, 2021"],["Tier 1 leverage ratio","8.13","%","","9.39","%","","9.95","%","","11.51","%","","5.00","%"],["Common tier 1 risk-based capital ratio","8.77","%","","10.83","%","","10.73","%","","13.27","%","","6.50","%"],["Tier 1 risk-based capital ratio","8.77","%","","10.83","%","","10.73","%","","13.27","%","","8.00","%"],["Total risk-based capital ratio","12.05","%","","14.81","%","","11.87","%","","14.63","%","","10.00","%"]]
[[/GREPCENT_TABLE]]

39