Meridian Corp (MRBK) FY 2024 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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, 2024. The information contained in this section should be read together with the December 31, 2024 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 2024 and 2023 items and year-to-year comparisons between 2024 and 2023.
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 credit losses as the accounting policy that, due to the estimates, assumptions and judgements inherent in that policy, is critical in understanding our financial statements. Management has presented the application of this policy to the audit committee of our board of directors.
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 Note 1 - Summary of Significant Accounting Policies, to the Corporation’s Consolidated Financial Statements as of and for the years ended December 31, 2024 and 2023.
Provision and allowance for credit losses
Beginning on January 1, 2023, we adopted ASC 326, which replaced the former incurred loss methodology with an expected credit loss methodology that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of an asset. The ACL is a valuation reserve established and maintained by charges against operating income. It is an estimate of expected credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions and forecasts of future economic conditions.
Management’s evaluation process used to determine the appropriateness of the ACL is complex and requires the use of estimates, assumptions and judgments which are inherently subject to high uncertainty. The evaluation process combines several factors: historical loan loss experience, managements ongoing review of lending policies and practices, experience and depth of staff, quality of the loan grading system, the fair value of underlying collateral, concentration of loans to specific borrowers or industries, existing
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economic conditions and forecasts, segment specific risks and other quantitative and qualitative factors which could affect future credit losses. Our reasonable and supportable forecast is for a period of four quarters. For periods beyond our one-year forecast, we revert to historical loss rates over one quarter. Because current economic conditions and forecasts can change and future events are inherently difficult to predict, the anticipated amount of estimated credit losses on loans and the appropriateness of the ACL could change significantly. It is challenging to estimate how potential changes in any one economic factor or input might affect the overall allowance because a wide variety of factors and inputs may be directionally inconsistent, such that improvement in one factor may offset deterioration in others.
Executive Overview
The following items highlight the Corporation’s changes in its financial condition as of December 31, 2024 compared to December 31, 2023 and the results of operations for the year ended December 31, 2024 compared to the same period in 2023. More detailed information related to these highlights can be found in the sections that follow.
Changes in Financial Condition
•Total assets increased $139.7 million, or 6.2%, to $2.4 billion as of December 31, 2024.
•Portfolio loans, increased $137.8 million, or 7.3%, to $2.0 billion as of December 31, 2024,
Results of Operations
•Consolidated net income increased $3.1 million, or 23.4%.
•The return on average assets and return on average equity was 0.70% and 9.93%, respectively, for the year ended December 31, 2024, compared to 0.61% and 8.53%, respectively, for the year ended December 31, 2023.
•Net interest income was up $2.1 million, or 3.0% due to higher levels of earning assets.
•Non-interest income increased $9.4 million or 29.3% due largely to an improved mortgage banking environment.
Key Performance Ratios
| The following table presents key financial performance ratios for the periods indicated: | Year Ended December 31, | |||||
|---|---|---|---|---|---|---|
| 2024 | 2023 | |||||
| Return on average assets | 0.70 | % | 0.61 | % | ||
| Return on average equity | 9.93 | % | 8.53 | % | ||
| Net interest margin (tax effected yield) | 3.16 | % | 3.35 | % | ||
| Basic earnings per share | $ | 1.47 | $ | 1.19 | ||
| Diluted earnings per share | $ | 1.45 | $ | 1.16 |
The following table presents certain key period-end balances and ratios at the dates indicated:
| (dollars in thousands, except per share amounts) | December 31, 2024 | December 31, 2023 | ||||
|---|---|---|---|---|---|---|
| Book value per common share | $ | 15.26 | $ | 14.13 | ||
| Tangible book value per common share (1) | $ | 14.93 | $ | 13.78 | ||
| Allowance as a percentage of loans and leases held for investment | 0.91 | % | 1.17 | % | ||
| Allowance as a percentage of loans and leases held for investment (excl. loans at fair value) (1) | 0.91 | % | 1.17 | % | ||
| Tier I capital to risk weighted assets - Corporation | 8.1 | % | 7.9 | % | ||
| Tangible common equity to tangible assets ratio (1) | 7.0 | % | 6.9 | % | ||
| Loans and other finance receivables, net of fees and costs | $ | 2,030,437 | $ | 1,895,806 | ||
| Total assets | $ | 2,385,867 | $ | 2,246,193 | ||
| Total stockholders’ equity | $ | 171,522 | $ | 158,022 |
(1) Non-GAAP financial measure. See “Non-GAAP Financial Measures” below for Non-GAAP to GAAP reconciliation.
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Components of Net Income
Net income is comprised of five major elements:
•Net Interest Income, or the difference between the interest income earned on loans, leases and investments and the interest expense paid on deposits and borrowed funds;
•Provision For Credit Losses, or the amount added to the Allowance to provide for current expected credit losses on portfolio loans and leases;
•Non-interest Income, which is made up primarily of mortgage banking income, wealth management income, SBA loan sale income, fair value adjustments, gains and losses from the sale of loans, gains and losses from the sale of investment securities available for sale and other fees from loan and deposit services;
•Non-interest Expense, which consists primarily of salaries and employee benefits, occupancy, professional fees, advertising & promotion, data processing, information technology, loan expenses, and other operating expenses; and
•Income Taxes, which include state and federal jurisdictions.
NET INTEREST INCOME
Net interest income is an integral source of the Corporation’s income. The tables below present a summary for the years ended December 31, 2024 and 2023, 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.
| For the Year Ended December 31, | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | 2024 | 2023 | |||||||||||||||||||
| Average Balance | Interest Income/ Expense | Yields/ Rates | Average Balance | Interest Income/ Expense | Yields/ Rates | ||||||||||||||||
| Assets: | |||||||||||||||||||||
| Cash and cash equivalents | $ | 35,915 | $ | 1,848 | 5.14 | % | $ | 24,354 | $ | 1,266 | 5.20 | % | |||||||||
| Investment securities - taxable | 140,602 | 5,739 | 4.08 | 112,045 | 3,873 | 3.46 | |||||||||||||||
| Investment securities - tax exempt (1) | 56,698 | 1,604 | 2.83 | 59,147 | 1,669 | 2.82 | |||||||||||||||
| Loans held for sale | 34,775 | 2,226 | 6.40 | 23,202 | 1,480 | 6.38 | |||||||||||||||
| Loans held for investment (1) | 1,986,211 | 144,940 | 7.30 | 1,850,088 | 128,609 | 6.95 | |||||||||||||||
| Total loans | 2,020,986 | 147,166 | 7.28 | 1,873,290 | 130,089 | 6.94 | |||||||||||||||
| Total interest-earning assets | 2,254,201 | 156,357 | 6.94 | % | 2,068,836 | 136,897 | 6.62 | % | |||||||||||||
| Noninterest earning assets | 95,069 | 95,979 | |||||||||||||||||||
| Total assets | $ | 2,349,270 | $ | 2,164,815 | |||||||||||||||||
| Liabilities and stockholders' equity: | |||||||||||||||||||||
| Interest-bearing demand deposits | $ | 136,387 | $ | 5,280 | 3.87 | % | $ | 187,404 | $ | 6,659 | 3.55 | % | |||||||||
| Money market and savings deposits | 810,344 | 32,778 | 4.04 | 692,933 | 23,987 | 3.46 | |||||||||||||||
| Time deposits | 748,417 | 35,979 | 4.81 | 636,843 | 27,173 | 4.27 | |||||||||||||||
| Total interest - bearing deposits | 1,695,148 | 74,037 | 4.37 | 1,517,180 | 57,819 | 3.81 | |||||||||||||||
| Borrowings | 159,483 | 7,878 | 4.94 | 145,545 | 7,266 | 4.99 | |||||||||||||||
| Subordinated debentures | 49,892 | 3,116 | 6.25 | 43,035 | 2,562 | 5.95 | |||||||||||||||
| Total interest-bearing liabilities | 1,904,523 | 85,031 | 4.46 | 1,705,760 | 67,647 | 3.97 | |||||||||||||||
| Noninterest-bearing deposits | 241,990 | 267,402 | |||||||||||||||||||
| Other noninterest-bearing liabilities | 38,121 | 36,421 | |||||||||||||||||||
| Total liabilities | 2,184,634 | 2,009,583 | |||||||||||||||||||
| Total stockholders' equity | 164,636 | 155,232 | |||||||||||||||||||
| Total stockholders' equity and liabilities | $ | 2,349,270 | $ | 2,164,815 | |||||||||||||||||
| Net interest income and spread (1) | $ | 71,326 | 2.48 | $ | 69,250 | 2.65 | |||||||||||||||
| Net interest margin (1) | 3.16 | % | 3.35 | % |
(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, 2024 as compared to the year ended December 31, 2023, 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.
| 2024 Compared to 2023 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | Rate | Volume | Total | |||||||
| Interest income: | ||||||||||
| Cash and cash equivalents | $ | (12) | $ | 594 | $ | 582 | ||||
| Investment securities - taxable | 774 | 1,092 | 1,866 | |||||||
| Investment securities - tax exempt (1) | 4 | (69) | (65) | |||||||
| Loans held for sale | 5 | 741 | 746 | |||||||
| Loans held for investment (1) | 6,588 | 9,743 | 16,331 | |||||||
| Total loans | 6,593 | 10,484 | 17,077 | |||||||
| Total interest income | $ | 7,359 | $ | 12,101 | $ | 19,460 | ||||
| Interest expense: | ||||||||||
| Interest-bearing demand deposits | $ | 556 | $ | (1,935) | $ | (1,379) | ||||
| Money market and savings deposits | 4,383 | 4,408 | 8,791 | |||||||
| Time deposits | 3,695 | 5,111 | 8,806 | |||||||
| Total interest - bearing deposits | 8,634 | 7,584 | 16,218 | |||||||
| Borrowings | (77) | 689 | 612 | |||||||
| Subordinated debentures | 130 | 424 | 554 | |||||||
| Total interest expense | 8,687 | 8,697 | 17,384 | |||||||
| Interest differential | $ | (1,328) | $ | 3,404 | $ | 2,076 |
(1)Yields and net interest income are reflected on a tax-equivalent basis.
Interest income increased $19.5 million on a tax equivalent basis, year over year, due to a higher level of average earning assets, which increased by $185.4 million, combined with a higher yield on earning assets, which increased 32 basis points. Average total loans held for investment increased $136.1 million, most notably in commercial real estate and construction, commercial loans and small business loans, which increased $158.7 million on average, combined. Home equity loans and residential real estate loans held in portfolio increased $33.6 million on average, combined. Residential loans for sale increased $11.6 million on average. The average yield on loans held for investment increased 35 basis points and the yield on cash and investments increased 46 basis points in total, reflecting the impact on rates caused by the Federal Reserve’s monetary policy.
Interest expense increased $17.4 million, year over year, due primarily to market interest rate rises, as well as an increase of $178.0 million in average interest bearing deposits. Interest expense on deposits increased $16.2 million with the cost of interest-bearing deposits increasing 56 basis points to 4.37%. Total cost of deposits increased 58 basis points reflecting a decrease of $25.4 million in average non-interest bearing deposits. Interest expense on borrowings increased $612 thousand as the cost decreased 5 basis points, and total average short-term borrowings increased $13.9 million.
Net interest margin decreased 19 basis points to 3.16% for the year ended December 31, 2024 from 3.35% for the year ended December 31, 2023, as the increase in the volume of interest earning assets outpaced the volume increase in interest-bearing liabilities, while the yield on earnings assets was outpaced by the increase in costs of funds, impacted also by the $25.4 million decrease in average non-interest bearing deposits.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $11.4 million for the year ended December 31, 2024, compared to a $6.8 million provision for the year ended December 31, 2023, an increase of $4.6 million. The overall provision for credit losses is comprised of provisioning for funded loans as well as unfunded loan commitments. The increase in provision for funded loans of $4.4 million for the year ended December 31, 2024 was primarily due to an increase in net charge-offs year over year. While net charge-offs increased $10.3 million in 2024 over 2023, nearly half of the loans charged-off were specifically reserved for in prior periods. This increase was partially offset by the impact of favorable changes in certain portfolio baseline loss rates and some macroeconomic factors underlying the funded loss model. The provision for unfunded loan commitments decreased $226 thousand during the year due to favorable changes in certain portfolio baseline loss rates and some macroeconomic factors underlying the unfunded loss model.
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NON-INTEREST INCOME
The following table presents the components of non-interest income for the periods indicated:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2024 | 2023 | $ Change | % Change | ||||||||||
| Mortgage banking income | $ | 21,044 | $ | 16,537 | $ | 4,507 | 27.3 | % | ||||||
| Wealth management income | 5,735 | 4,928 | 807 | 16.4 | % | |||||||||
| SBA loan income | 3,458 | 4,485 | (1,027) | (22.9) | % | |||||||||
| Earnings on investment in life insurance | 868 | 789 | 79 | 10.0 | % | |||||||||
| Gain on sale of MSRs | 3,992 | — | 3,992 | 100.0 | % | |||||||||
| Gain on sale of OREO | 317 | — | 317 | 100.0 | % | |||||||||
| Net change in the fair value of derivative instruments | 30 | 91 | (61) | (67.0) | % | |||||||||
| Net change in the fair value of loans held-for-sale | (25) | 32 | (57) | (178.1) | % | |||||||||
| Net change in the fair value of loans held-for-investment | 214 | 132 | 82 | 62.1 | % | |||||||||
| Net (loss) gain on hedging activity | (87) | 28 | (115) | (410.7) | % | |||||||||
| Net loss on sale of investment securities available-for-sale | (57) | (58) | 1 | (1.7) | % | |||||||||
| Other | 5,850 | 5,001 | 849 | 17.0 | % | |||||||||
| Total non-interest income | $ | 41,339 | $ | 31,965 | $ | 9,374 | 29.3 | % |
Total non-interest income increased $9.4 million as a result of higher mortgage banking revenue, the gain of $4.0 million on the sale of $6.6 million in residential loan servicing rights and an increase in wealth management revenue of $807 thousand. Mortgage banking income increased $4.5 million, due to an increase of $178.0 million, or 28.6% in mortgage loan originations, despite the higher interest rate environment and continued lack of housing inventory.
SBA loan sale income decreased $1.0 million due to a decrease of $25.6 million, or 30.1%, in the volume of loans sold in 2024 compared to 2023. Despite the decline in SBA loan sales volume, the gross margin on sales in 2024 was 8.0% overall, compared to 6.7% for 2023 sales. The increase in wealth management revenue was due to increased assets under management and better market conditions in general.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the periods indicated:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2024 | 2023 | $ Change | % Change | ||||||||||
| Salaries and employee benefits | $ | 47,268 | $ | 47,377 | $ | (109) | (0.2) | % | ||||||
| Occupancy and equipment | 5,976 | 4,842 | 1,134 | 23.4 | % | |||||||||
| Professional fees | 4,767 | 4,312 | 455 | 10.6 | % | |||||||||
| Data processing and software | 6,144 | 6,415 | (271) | (4.2) | % | |||||||||
| Advertising and promotion | 3,293 | 3,730 | (437) | (11.7) | % | |||||||||
| Pennsylvania bank shares tax | 972 | 968 | 4 | 0.4 | % | |||||||||
| Other | 10,729 | 9,481 | 1,248 | 13.2 | % | |||||||||
| Total non-interest expense | $ | 79,149 | $ | 77,125 | $ | 2,024 | 2.6 | % |
Total non-interest expense increased $2.0 million, or 2.6% to $79.1 million for the year ended December 31, 2024. Occupancy and equipment expense increased $1.1 million overall, with $1.0 million of this increase due to fees, credits and other disposal costs for the early termination of the Blue Bell lease. The lease termination is expected to improve occupancy expense by $359 thousand per year. Professional fees increased $455 thousand as we incurred OREO related legal and professional fees as well as an increase in non-performing loan and lease workout expenses.
Advertising and promotion expense decreased $437 thousand as the result of a decline in mortgage related advertising expense and other promotional expense. Data processing and software expense decreased $271 thousand due to volume based discounts obtained on certain transactional fees. Other expense increased $1.2 million due to increases in certain loan expenses and employee related expenses.
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INCOME TAX EXPENSE
The following table presents income tax expense and related metrics for the periods indicated:
| Year Ended December 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands) | 2024 | 2023 | $ Change | % Change | ||||||||||
| Income before income taxes | $ | 21,786 | $ | 16,967 | $ | 4,819 | 28.4 | % | ||||||
| Income tax expense | $ | 5,440 | $ | 3,724 | $ | 1,716 | 46.1 | % | ||||||
| Effective tax rate | 24.97 | % | 21.95 | % | 3.02 | % | 13.7 | % |
While income tax expense increased primarily due to the increase in income before income taxes, the effective tax rate also increased. The effective tax rate reflects the recognition of certain tax benefits in the financial statements including those benefits from tax-exempt interest income, federal low-income housing tax credits, and excess tax benefits from recognized stock compensation. These tax benefits are offset by the tax effect of stock-based compensation expense related to incentive stock options and a provision for state income tax expense.
We frequently analyze our projections of taxable income and make adjustments to our provision for income taxes accordingly.
Balance Sheet Summary
Assets
As of December 31, 2024, total assets were $2.4 billion which increased $139.7 million, or 6.2%, from December 31, 2023. 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, 2024 and 2023, our total loans and leases amounted to $2.1 billion, and $1.9 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:
| (Dollars in thousands) | December 31, 2024 | December 31, 2023 | $ Change | % Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Mortgage loans held for sale | $ | 32,413 | $ | 24,816 | $ | 7,597 | 30.6 | % | ||||||
| Real estate loans: | ||||||||||||||
| Commercial mortgage | 823,976 | 737,863 | 86,113 | 11.7 | % | |||||||||
| Home equity lines and loans | 90,721 | 76,287 | 14,434 | 18.9 | % | |||||||||
| Residential mortgage | 252,565 | 260,604 | (8,039) | (3.1) | % | |||||||||
| Construction | 259,553 | 246,440 | 13,113 | 5.3 | % | |||||||||
| Total real estate loans | 1,426,815 | 1,321,194 | 105,621 | 8.0 | % | |||||||||
| Commercial and industrial | 367,366 | 302,891 | 64,475 | 21.3 | % | |||||||||
| Small business loans | 155,775 | 142,342 | 13,433 | 9.4 | % | |||||||||
| Consumer | 349 | 389 | (40) | (10.3) | % | |||||||||
| Leases, net | 75,987 | 121,632 | (45,645) | (37.5) | % | |||||||||
| Total portfolio loans and leases | $ | 2,026,292 | $ | 1,888,448 | $ | 137,844 | 7.3 | % | ||||||
| Total loans and leases | $ | 2,058,705 | $ | 1,913,264 | $ | 145,441 | 7.6 | % |
Portfolio loans increased $137.8 million, or 7.3% to $2.0 billion as of December 31, 2024, from $1.9 billion as of December 31, 2023.
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The following table shows the amounts of loans outstanding as of December 31, 2024 which, based on remaining scheduled repayments of principal, are due in the periods indicated:
| (dollars in thousands) | 12 months or Less | 1 - 5 years | 5 - 15 years | After 15 years | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Commercial mortgage | $ | 45,409 | $ | 276,118 | $ | 495,729 | $ | 6,720 | $ | 823,976 | ||||
| Home equity lines and loans | 2,154 | 2,653 | 83,262 | 2,652 | 90,721 | |||||||||
| Residential mortgage | 233 | 1,548 | 1,205 | 249,579 | 252,565 | |||||||||
| Construction | 113,579 | 80,495 | 64,551 | 928 | 259,553 | |||||||||
| Commercial and industrial | 88,337 | 105,376 | 56,984 | 116,669 | 367,366 | |||||||||
| Small business loans | 506 | 10,519 | 95,103 | 49,647 | 155,775 | |||||||||
| Consumer | 18 | 95 | 236 | — | 349 | |||||||||
| Leases, net | 3,290 | 72,277 | 420 | — | 75,987 | |||||||||
| Total portfolio loans and leases | $ | 253,526 | $ | 549,081 | $ | 797,490 | $ | 426,195 | $ | 2,026,292 |
The amounts have been classified according to sensitivity to changes in interest rates for amounts due after one year, as of December 31, 2024. Variance rate loans are those loans with floating or adjustable interest rates.
| (dollars in thousands) | Fixed Rate | Variable Rate | Total | |||||
|---|---|---|---|---|---|---|---|---|
| Commercial mortgage | $ | 171,901 | $ | 652,075 | $ | 823,976 | ||
| Home equity lines and loans | 5,006 | 85,715 | 90,721 | |||||
| Residential mortgage | 57,378 | 195,187 | 252,565 | |||||
| Construction | 19,018 | 240,535 | 259,553 | |||||
| Commercial and industrial | 68,495 | 298,871 | 367,366 | |||||
| Small business loans | 2,396 | 153,379 | 155,775 | |||||
| Consumer | 309 | 40 | 349 | |||||
| Leases, net | 75,987 | — | 75,987 | |||||
| Total | $ | 400,490 | $ | 1,625,802 | $ | 2,026,292 |
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 amounted to $335 million at December 31, 2024. 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 $86.1 million, or 11.7%, to $824.0 million at December 31, 2024 from $737.9 million at December 31, 2023. Our commercial real estate loan portfolio represented 40.0% and 38.6% of our total loan portfolio at December 31, 2024 and 2023, respectively. Construction loans increased $13.1 million, or 5.3%, to $259.6 million at December 31, 2024 from $246.4 million at December 31, 2023. Construction loans represented 12.6% and 12.9% of our total loan portfolio at December 31, 2024 and 2023, respectively.
Commercial and Industrial Loans (C & I)
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 C & I loans increased $64.5 million, or 21.3%, to $367.4 million at December 31, 2024 from $302.9 million at December 31, 2023. C & I loans overall represented 17.8% and 15.8% of our total loan portfolio at December 31, 2024 and 2023, respectively.
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Our 10 largest C & I relationships represented 13% of our C & I portfolio and 5% of the total loan portfolio at December 31, 2024. The average loan size outstanding in C & I portfolio, excluding leases, was $413 thousand at December 31, 2024 and the weighted average risk rating of the C & I portfolio is 4.1 (pass), based on our credit rating scale of 1 through 9, where ratings 1 through 5 are considered pass.
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 $13.4 million, or 9.4%, to $155.8 million at December 31, 2024 from $142.3 million at December 31, 2023. During 2024 we sold $59.4 million in SBA loans, a decrease of $25.6 million, or 30.1%, from $85.0 million in SBA loans sold in 2023. The small business loans portfolio represented 7.6% and 7.4% of our total loan portfolio at December 31, 2024 and 2023, 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 $14.4 million, or 18.9%, to $90.7 million at December 31, 2024 from $76.3 million at December 31, 2023, while residential mortgage loans decreased by $8.0 million, or 3.1%, to $252.6 million at December 31, 2024 from $260.6 million at December 31, 2023. Overall the total consumer loan portfolio represented 16.7% and 17.6% of our total loan portfolio at December 31, 2024 and 2023, 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. Leases decreased $45.6 million, or 37.5% to $76.0 million at December 31, 2024 as we continue to shift focus to commercial relationship lending.
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, 2024 our available-for-sale investment portfolio had a fair value of $174.3 million, with an effective tax equivalent yield of 3.72% and an estimated duration of approximately 3.8 years. The largest category of this investment portfolio, or 38.1%, consists of U.S. agency securities, along with 21.1% in municipal securities, and 8.9% 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 as of December 31, 2024 and 2023. As of December 31, 2024 we also had a held-to-maturity investment portfolio with amortized cost of $33.8 million.
The following table presents the amortized cost and fair value of securities at the dates indicated:
| December 31, 2024 | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (dollars in thousands) | Amortized cost | Gross unrealized gains | Gross unrealized losses | Allowance for credit losses | Fair value | # of Securities in unrealized loss position | |||||||||||||||
| Securities available-for-sale: | |||||||||||||||||||||
| U.S. asset backed securities | $ | 29,931 | $ | 73 | $ | (160) | $ | — | $ | 29,844 | 12 | ||||||||||
| U.S. government agency MBS | 21,392 | 96 | (617) | — | 20,871 | 14 | |||||||||||||||
| U.S. government agency CMO | 48,051 | 23 | (2,461) | — | 45,613 | 42 | |||||||||||||||
| State and municipal securities | 40,854 | 1 | (4,159) | — | 36,696 | 31 | |||||||||||||||
| U.S. Treasuries | 17,039 | — | (1,589) | — | 15,450 | 16 | |||||||||||||||
| Non-U.S. government agency CMO | 12,082 | 59 | (412) | — | 11,729 | 9 | |||||||||||||||
| Corporate bonds | 14,415 | 448 | (762) | — | 14,101 | 15 | |||||||||||||||
| Total securities available-for-sale | $ | 183,764 | $ | 700 | $ | (10,160) | $ | — | $ | 174,304 | 139 |
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| Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Allowance for credit losses | Fair value | # of Securities in unrecognized loss position | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| State and municipal securities | |||||||||||||||||||||
| Total securities held-to-maturity | $ | 33,771 | $ | 7 | $ | (3,286) | $ | — | $ | 30,492 | 19 | ||||||||||
| $ | 33,771 | $ | 7 | $ | (3,286) | $ | — | $ | 30,492 | 19 |
| December 31, 2023 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (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 | $ | 17,012 | $ | 25 | $ | (213) | $ | 16,824 | 11 | ||||||||
| U.S. government agency MBS | 22,750 | 364 | (480) | 22,634 | 14 | ||||||||||||
| U.S. government agency CMO | 21,850 | — | (2,277) | 19,573 | 30 | ||||||||||||
| State and municipal securities | 40,093 | — | (3,877) | 36,216 | 31 | ||||||||||||
| U.S. Treasuries | 32,982 | — | (2,560) | 30,422 | 25 | ||||||||||||
| Non-U.S. government agency CMO | 13,605 | 102 | (552) | 13,155 | 9 | ||||||||||||
| Corporate bonds | 8,200 | — | (1,005) | 7,195 | 13 | ||||||||||||
| Total securities available-for-sale | $ | 156,492 | $ | 491 | $ | (10,964) | $ | 146,019 | 133 | ||||||||
| Amortized cost | Gross unrecognized gains | Gross unrecognized losses | Fair value | # of Securities in unrecognized loss position | |||||||||||||
| Securities held to maturity: | |||||||||||||||||
| State and municipal securities | $ | 35,781 | $ | 52 | $ | (3,103) | $ | 32,730 | 21 | ||||||||
| Total securities held-to-maturity | $ | 35,781 | $ | 52 | $ | (3,103) | $ | 32,730 | 21 |
Asset Quality Summary
The ratio of non-performing assets to total assets increased to 1.90% as of December 31, 2024, from 1.58% as of December 31, 2023. There was $159 thousand in other real estate property included in non-performing assets as of December 31, 2024 and 2023 related to a well secured residential property. Total non-performing loans were $45.1 million and $33.8 million as of December 31, 2024 and December 31, 2023, respectively. The increase in non-performing loans over the period was due to increases in non-performing construction loans, residential real estate loans, and small business loans of $6.0 million, $3.4 million, $2.8 million, respectively, partially offset by a decrease of $3.4 million in non-performing commercial loans due to a $3.5 million partial charge-off of a commercial loan relationship.
Meridian realized net charge-offs of $15.8 million, or 0.78%, of total average loans for the year ended December 31, 2024, compared to net charge-offs of $5.6 million, or 0.30%, of total average loans for the year ended December 31, 2023. A majority of charge-offs for the year ended December 31, 2024 were from equipment leases, $5.9 million, commercial loans, $4.8 million, and small business loans, $4.3 million. The ratio of allowance for credit losses to total loans held for investment, excluding loans at fair value (a non-GAAP measure, see reconciliation in the Appendix), was 0.91% as of December 31, 2024 compared to 1.17% as of December 31, 2023. The decline in this coverage ratio was largely impacted by net charge-offs of individually evaluated loans of $4.8 million and $4.2 million in the commercial and industrial loan, and small business loan portfolios, respectively, combined with the decline in ACL on leases as we continue to refocus away from lease originations.
As of December 31, 2024 there were specific reserves of $2.7 million against individually evaluated loans, a decrease from $6.5 million as of December 31, 2023. The drivers of the decrease related to a $2.9 million decrease in a commercial loan relationship specific reserve due to the charge-off note above, combined with a decline of $1 million in SBA loan specific reserves.
The Corporation is proactive with its loan review process that utilizes the engagement 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.
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The following table presents nonperforming assets and related ratios for the periods indicated:
| (dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||
|---|---|---|---|---|---|---|
| Non-performing assets: | ||||||
| Nonaccrual loans: | ||||||
| Real estate loans: | ||||||
| Commercial mortgage | $ | 809 | $ | — | ||
| Home equity lines and loans | 1,716 | 1,037 | ||||
| Residential mortgage | 7,900 | 4,536 | ||||
| Construction | 8,613 | 1,206 | ||||
| Total real estate loans | 19,038 | 6,779 | ||||
| Commercial and industrial | 11,966 | 15,413 | ||||
| Small business loans | 12,270 | 9,440 | ||||
| Leases | 1,851 | 2,131 | ||||
| Total nonaccrual loans | 45,125 | 33,763 | ||||
| Other real estate owned | 159 | 1,703 | ||||
| Total non-performing assets | $ | 45,284 | $ | 35,466 | ||
| Asset quality ratios: | ||||||
| Non-performing assets to total assets | 1.90 | % | 1.58 | % | ||
| Non-performing loans to: | ||||||
| Total loans and other finance receivables | 2.22 | % | 1.78 | % | ||
| Total loans and other finance receivables (excluding loans at fair value) (1) | 2.24 | % | 1.79 | % | ||
| Allowance for credit losses to: (2) | ||||||
| Total loans and other finance receivables | 0.91 | % | 1.17 | % | ||
| Total loans and other finance receivables (excluding loans at fair value) (1) | 0.91 | % | 1.17 | % | ||
| Non-performing loans | 40.86 | % | 65.48 | % | ||
| Total loans and leases | $ | 2,062,850 | $ | 1,920,622 | ||
| Total loans and other finance receivables | $ | 2,030,437 | $ | 1,895,806 | ||
| Total loans and other finance receivables (excluding loans at fair value) | $ | 2,015,936 | $ | 1,882,080 | ||
| Allowance for credit losses | $ | 18,438 | $ | 22,107 |
(1) The allowance for credit losses to total loans held-for-investment (excluding loans at fair value) ratio is a non-GAAP financial measure. See “Non-GAAP Financial Measures” for a reconciliation of this measure to its most comparable GAAP measure.
Allowance for Credit Losses
The following is a summary of the allocation of the allowance for credit losses by loan category for the periods presented.
| (dollars in thousands) | December 31, 2024 | % of Loan Type to Total Loans | December 31, 2023 | % of Loan Type to Total Loans | |||||
|---|---|---|---|---|---|---|---|---|---|
| Commercial mortgage | $ | 3,469 | 41% | $ | 4,375 | 39% | |||
| Home equity lines and loans | 1,147 | 4% | 998 | 4% | |||||
| Residential mortgage | 1,021 | 12% | 1,020 | 14% | |||||
| Construction | 923 | 13% | 485 | 13% | |||||
| Commercial and industrial | 3,098 | 18% | 4,518 | 16% | |||||
| Small business loans | 6,304 | 8% | 7,005 | 8% | |||||
| Leases | 2,476 | 4% | 3,706 | 6% | |||||
| Total | $ | 18,438 | 100% | $ | 22,107 | 100% |
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The following table provides information on net (charge-offs) and recoveries by loan category for the years ended:
| December 31, 2024 | December 31, 2023 | |||||
|---|---|---|---|---|---|---|
| Home equity lines and loans | $ | (56) | $ | (82) | ||
| Residential mortgage | 13 | — | ||||
| Commercial and industrial | (6,304) | (209) | ||||
| Small business loans | (4,164) | (1,483) | ||||
| Consumer | (1) | 2 | ||||
| Leases | (5,324) | (3,779) | ||||
| Total Net Charge-offs | $ | (15,836) | $ | (5,551) |
Deposits
The following table presents the major categories of deposits at the dates indicated:
| (Dollars in thousands) | December 31, 2024 | December 31, 2023 | $ Change | % Change | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Noninterest-bearing deposits | $ | 240,858 | $ | 239,289 | $ | 1,569 | 0.7 | % | ||||||
| Interest-bearing deposits: | ||||||||||||||
| Interest-bearing demand deposits | 141,439 | 150,898 | (9,459) | (6.3) | % | |||||||||
| Money market and savings deposits | 913,536 | 747,803 | 165,733 | 22.2 | % | |||||||||
| Time deposits | 709,535 | 685,472 | 24,063 | 3.5 | % | |||||||||
| Total interest-bearing deposits | 1,764,510 | 1,584,173 | 180,337 | 11.4 | % | |||||||||
| Total deposits | $ | 2,005,368 | $ | 1,823,462 | $ | 181,906 | 10.0 | % |
Total deposits were $2.0 billion as of December 31, 2024, up $181.9 million, or 10.0%, from December 31, 2023. Non-interest bearing deposits increased $1.6 million, or 0.7%, from December 31, 2023. Interest-bearing demand deposits decreased $9.5 million, or 6.3%, from December 31, 2023, while money market accounts/savings accounts increased $165.7 million, or 22.2%, during the period. Business accounts comprised 50% of all deposits, consumer accounts and municipal deposits comprised 13% and 12%, respectively, and wholesale funding was approximately 25%. Wholesale funding supports loan growth as business accounts from lending relationships tend to lag and wholesale funding can easily be managed through term.
Time deposits of $250 thousand or more had remaining maturities as follows:
| Year EndedDecember 31, 2024 | ||||
|---|---|---|---|---|
| (Dollars in thousands) | Amount | % | ||
| 3 months or less | $ | 133,853 | 24.5% | |
| Over 3 months through 6 months | 122,574 | 22.5% | ||
| Over 6 months through 12 months | 154,789 | 28.4% | ||
| Over 12 months | 134,443 | 24.6% | ||
| Total | $ | 545,659 | 100.0% |
Equity
Consolidated stockholders’ equity of the Corporation was $171.5 million, or 7.2% of total assets as of December 31, 2024 as compared to $158.0 million, or 7.0% of total assets as of December 31, 2023. The increase in stockholders’ equity is the result of year-to-date net income of $16.3 million, and comprehensive income of $1.3 million, partially offset by dividends paid of $5.6 million, and $456 thousand 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 received a dividend of one share for every share held on the record date. 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.
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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 tables below provides the non-GAAP reconciliation for the Corporation’s pre-tax, pre-provision income.
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||
| Income before income tax expense | $ | 21,786 | $ | 16,967 | ||
| Provision for credit losses | 11,400 | 6,815 | ||||
| Pre-tax, pre-provision income | $ | 33,186 | $ | 23,782 |
| Year Ended | ||||||
|---|---|---|---|---|---|---|
| (dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||
| Bank | $ | 26,698 | $ | 27,751 | ||
| Wealth | 2,375 | 1,240 | ||||
| Mortgage | 4,113 | (5,209) | ||||
| Pre-tax, pre-provision income | $ | 33,186 | $ | 23,782 |
The table below provides the non-GAAP reconciliation for the Corporation’s tangible common equity ratio and tangible book value per common share.
| (dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||
|---|---|---|---|---|---|---|
| Total stockholders' equity (GAAP) | $ | 171,522 | $ | 158,022 | ||
| Less: Goodwill and intangible assets | 3,666 | 3,870 | ||||
| Tangible common equity (non-GAAP) | $ | 167,856 | $ | 154,152 | ||
| Total assets (GAAP) | 2,385,867 | 2,246,193 | ||||
| Less: Goodwill and intangible assets | 3,666 | 3,870 | ||||
| Tangible assets (non-GAAP) | $ | 2,382,201 | $ | 2,242,323 | ||
| Stockholders' equity to total assets (GAAP) | 7.19 | % | 7.04 | % | ||
| Tangible common equity to tangible assets (non-GAAP) | 7.05 | % | 6.87 | % | ||
| Shares outstanding | 11,240 | 11,183 | ||||
| Book value per share (GAAP) | $ | 15.26 | $ | 14.13 | ||
| Tangible book value per share (non-GAAP) | $ | 14.93 | $ | 13.78 |
The following is a reconciliation of the allowance for credit losses to total loans held for investment ratio at December 31, 2024. This is considered a non-GAAP measure as the calculation excludes the impact of loans held for investment that are fair valued as these loan types are not included in the allowance for credit losses calculation.
| (dollars in thousands) | December 31, 2024 | December 31, 2023 | ||||
|---|---|---|---|---|---|---|
| Allowance for credit losses (GAAP) | $ | 18,438 | $ | 22,107 | ||
| Loans and other finance receivables (GAAP) | 2,030,437 | 1,895,806 | ||||
| Less: Loans at fair value | (14,501) | (13,726) | ||||
| Loans and other finance receivables, excluding loans at fair value (non-GAAP) | $ | 2,015,936 | $ | 1,882,080 | ||
| ACL to loans and other finance receivables (GAAP) | 0.91 | % | 1.17 | % | ||
| ACL to loans and other finance receivables, excluding loans at fair value (non-GAAP) | 0.91 | % | 1.17 | % |
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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 portion 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 $315.8 million at December 31, 2024, compared to $273.4 million at December 31, 2023, 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 $5.4 million at December 31, 2024. At December 31, 2024, Meridian had $0 in 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, 2024, Meridian’s maximum borrowing capacity with the FHLB was $699.3 million. At December 31, 2024, Meridian had borrowed $119.5 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $183.5 million against its available credit lines. At December 31, 2024, Meridian also had available $56.0 million of unsecured federal funds lines of credit with other financial institutions as well as $242.5 million of available short or long term funding through the CDARS program and $334.6 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.
Loan Commitments
At December 31, 2024, Meridian had $618.6 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, 2024 totaled $411.2 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, 2024, Meridian had a reserve for unfunded loan commitments of $817 thousand.
Capital Resources
Meridian meets the definition of “well capitalized” for regulatory purposes on December 31, 2024. 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%. The Bank’s CBLR was 9.21% and 9.46% as of December 31, 2024 and 2023, respectively, but reports all ratios for comparative purposes.
Tables presenting the Bank’s capital amounts and ratios as of December 31, 2024 and 2023 are included in Note 17 - Regulatory Matters.