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, 2025. The information contained in this section should be read together with the December 31, 2025 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 2025 and 2024 items and year-to-year comparisons between 2025 and 2024.
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 judgments 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 judgments 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 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, 2025 and 2024.
Provision and allowance for credit losses
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 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 in one factor may offset in others.
Executive Overview
The following items highlight the Corporation’s changes in its financial condition as of December 31, 2025 compared to December 31, 2024 and the results of operations for the year ended December 31, 2025 compared to the same period in 2024. More detailed information related to these highlights can be found in the sections that follow.
Changes in Financial Condition
• Total assets increased $176.1 million, or 7.4%, to $2.6 billion as of December 31, 2025.
• Portfolio loans, increased $141.4 million, or 7.0%, to $2.2 billion as of December 31, 2025.
Results of Operations
• Consolidated net income increased $5.5 million, or 33.6%, to $21.8 million.
• The return on average assets and return on average equity was 0.87% and 12.00%, respectively, for the year ended December 31, 2025, compared to 0.70% and 9.93%, respectively, for the year ended December 31, 2024.
• Net interest income was up $16.7 million, or 23.5% due to higher volume of earning assets.
• Non-interest income decreased $2.2 million or 5.2% due largely to a decline in MSR sales and a decline in other non-interest income.
Key Performance Ratios
The following table presents key financial performance ratios for the periods indicated:
Year Ended December 31,
Return on average assets
Return on average equity
Net interest margin (tax effected yield)
Basic earnings per share
Diluted earnings per share
The following table presents certain key period-end balances and ratios at the dates indicated:
(dollars in thousands, except per share amounts)
December 31,
December 31,
Book value per common share
Tangible book value per common share (1)
Allowance as a percentage of loans and leases held for investment
Allowance as a percentage of loans and leases held for investment (excl. loans at fair value) (1)
Tier I capital to risk weighted assets - Corporation
Tangible common equity to tangible assets ratio (1)
Loans and other finance receivables, net of fees and costs
Total assets
Total stockholders’ equity
(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 Credit Losses , or the amount added to the ACL 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 & software, 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, 2025 and 2024, 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)
Average Balance
Interest Income/ Expense
Yields/ Rates
Average Balance
Interest Income/ Expense
Yields/ Rates
Assets:
Cash and cash equivalents
Investment securities - taxable
Investment securities - tax exempt (1)
Loans held for sale
Loans held for investment (1)
Total loans
Total interest-earning assets
Noninterest earning assets
Total assets
Liabilities and stockholders' equity:
Interest-bearing demand deposits
Money market and savings deposits
Time deposits
Total interest - bearing deposits
Borrowings
Subordinated debentures
Total interest-bearing liabilities
Noninterest-bearing deposits
Other noninterest-bearing liabilities
Total liabilities
Total stockholders' equity
Total stockholders' equity and liabilities
Net interest income and spread (1)
Net interest margin (1)
(1) Yields and net interest income are reflected on a tax-equivalent basis.
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, 2025 as compared to the year ended December 31, 2024, 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.
2025 Compared to 2024
(dollars in thousands)
Rate
Volume
Total
Interest income:
Cash and cash equivalents
Investment securities - taxable
Investment securities - tax exempt (1)
Loans held for sale
Loans held for investment (1)
Total loans
Total interest income
Interest expense:
Interest-bearing demand deposits
Money market and savings deposits
Time deposits
Total interest - bearing deposits
Borrowings
Subordinated debentures
Total interest expense
Interest differential
(1) Yields and net interest income are reflected on a tax-equivalent basis.
Interest income increased $10.3 million on a tax equivalent basis, year over year, due to a higher level of average earning assets, which increased by $164.9 million, offset somewhat by a lower yield on earning assets, which decreased 5 basis points. Average total loans held for investment increased $139.4 million, most notably in commercial real estate and construction, commercial loans and small business loans, which increased $160.7 million on average, combined. Home equity loans and residential real estate loans held in portfolio increased $14.4 million on average, combined. Residential loans for sale decreased $5.0 million on average. The average yield on loans held for investment decreased 5 basis points while the yield on cash and investments increased 9 basis points in total, reflecting the impact on rates caused by the Federal Reserve’s monetary policy.
Interest expense decreased $6.4 million, year over year, due primarily to market interest rate declines, partially offset by an increase of $166.4 million in average interest bearing deposits. Interest expense on deposits decreased $5.9 million with the cost of interest-bearing deposits having decreased 71 basis points to 3.66%. Total cost of deposits decreased 59 basis points reflecting an increase of $9.0 million in average non-interest bearing deposits. Interest expense on borrowings decreased $1.7 million as the cost decreased 16 basis points, and total average borrowings balances decreased $29.7 million.
Net interest margin increased 48 basis points to 3.64% for the year ended December 31, 2025 from 3.16% for the year ended December 31, 2024, as the increase in the volume of interest earning assets outpaced the volume increase in interest-bearing liabilities, while the decline in yield on earnings assets was outpaced by the decline in costs of funds, impacted also by the $9.0 million increase in average non-interest bearing deposits.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $15.2 million for the year ended December 31, 2025, compared to a $11.4 million provision for the year ended December 31, 2024, an increase of $3.8 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 $3.4 million for the year ended December 31, 2025 was the result of an increase in net charge-offs on construction and small business loans and the resulting increase in specific reserves as nonperforming loans increased $9.9 million, largely small business loans. The increase in provision was also impacted by an upgrade to the third-party macroeconomic forecast model used to estimate credit losses on the loan portfolio. The model upgrade was based on re-assessing the current macroeconomic variable relationships to expected results. The overall impact to the ACL from the model upgrade, before applying qualitative adjustments, was not considered material.
NON-INTEREST INCOME
The following table presents the components of non-interest income for the periods indicated:
Year Ended December 31,
(Dollars in thousands)
$ Change
% Change
Mortgage banking income
Wealth management income
SBA loan income
Earnings on investment in life insurance
Net gain on sale of MSRs
Net (loss) gain on sale of loans
Net change in the fair value of derivative instruments
Net change in the fair value of loans held-for-sale
Net change in the fair value of loans held-for-investment
Net (loss) on hedging activity
Net gain (loss) on sale of investments AFS
Other
Total non-interest income
Total non-interest income decreased $2.2 million, or 5.2%, from the year-ended December 31, 2024 to the year-end December 31, 2025. Year over year there was a $2.0 million increase in SBA loan sale income, an increase in wealth management revenue of $581 thousand, as well as an increase of $1.1 million overall in changes in fair values. SBA loan sale income increased due to an increase of $38.3 million, or 64.4%, in the volume of loans sold in 2025 to $97.8 million compared to 2024. The gross margin on SBA sales in 2025 was 7.1% overall, compared to 8.0% for 2024 sales. The $581 thousand increase in wealth management revenue was due to increased assets under management and better market conditions in general year over year. The $1.1 million increase in the changes in fair values was due to a $343 thousand increase in the fair value of derivative instruments, a $335 thousand increase in fair value of loans held-for-sale, and a $445 thousand increase in the fair value of loans held-for-investment.
Offsetting these increases in non-interest income was a $3.6 million decrease in the net gain on sale of MSRs, a decline in net gains on sale of non-SBA related loans, and a decline on other non-interest income. For the year-ended December 31, 2024 a gain of $4.0 million was recorded on the sale of $6.6 million in residential loan servicing rights, while for the year-ended December 31, 2025 there were sales of $979 thousand in residential loan servicing rights. The sale of non-SBA loans resulted in a net loss of $434 thousand for the year-ended December 31, 2025, compared to a net gain of $15 thousand for the year-ended December 31, 2024. These sales included a $25.0 million portion of the residential mortgage portfolio that was sold at the end of 2025 and a $440 thousand sale of a commercial loan in the third quarter of 2025. Other non-interest income decreased $1.8 million due to smaller decreases in several miscellaneous income types.
NON-INTEREST EXPENSE
The following table presents the components of non-interest expense for the periods indicated:
Year Ended December 31,
(Dollars in thousands)
$ Change
% Change
Salaries and employee benefits
Occupancy and equipment
Professional fees
Data processing and software
Advertising and promotion
Pennsylvania bank shares tax
Other
Total non-interest expense
Total non-interest expense increased $4.2 million, or 5.2% to $83.3 million for the year ended December 31, 2025. The main drivers of this increase were salaries and employee benefits which increased $4.0 million, data processing and software expense increased $887 thousand, advertising and promotion expense increased $584 thousand, and other non-interest expense increased by $700 thousand.
Salaries and employee benefits increased $4.0 million due to the rising costs of benefits and headcount being up for the bank and wealth segments, leading to a nearly $2.5 million increase in salaries and related benefits and taxes. There was also a nearly $1.5 million increase in incentive related expenses due to increased profitability in the current year. Data processing and software expense increased $887 thousand due an increase in customer transaction volume and a continued investment in new and innovative technology to improve back-office and customer facing systems. Advertising and promotion expense increased $584 thousand as the result of a television and digital advertising campaign that ran during 2025, combined with a higher level of charitable donations and
business development activities during the year. Other expense increased $700 thousand due to an increase in OREO expenses related to the $2.3 million increase in the OREO balance year-over-year as 4 properties were added to this balance in 2025, combined with an increase in employee related expenses and certain loan expenses.
Partially offsetting these increases was a decrease of $1.4 million in occupancy and equipment expense and a decrease in professional fees. Occupancy expense decreased year-over-year largely due to costs incurred in 2024 for the early termination of leases. Professional fees decreased $672 thousand largely due to savings realized from a change in an internal audit outsourcing and tax accounting relationships, as well as legal costs related to the mortgage segment from 2024.
INCOME TAX EXPENSE
The following table presents income tax expense and related metrics for the periods indicated:
Year Ended December 31,
(Dollars in thousands)
$ Change
% Change
Income before income taxes
Income tax expense
Effective tax rate
While income tax expense increased primarily due to the increase in income before income taxes, the effective tax rate decreased related to the impact of solar tax credits purchased at the end of 2025. 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, 2025, total assets were $2.6 billion which increased $176.1 million, or 7.4%, from December 31, 2024. 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, 2025 and 2024, our total loans and other finance receivables amounted to $2.2 billion, and $2.1 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 loans and other finance receivables portfolio at the dates indicated:
(Dollars in thousands)
December 31,
December 31,
$ Change
% Change
Mortgage loans held for sale
Real estate loans:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Total real estate loans
Commercial, industrial & other finance receivables
Small business loans
Consumer
Leases, net
Loans and other finance receivables
Total loans and other finance receivables
Portfolio loans increased $141.4 million, or 7.0% to $2.2 billion as of December 31, 2025, from $2.0 billion as of December 31, 2024.
The following table shows the amounts of loans and other finance receivables outstanding as of December 31, 2025 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
Home equity lines and loans
Residential mortgage
Construction
Commercial, industrial & other finance receivables
Small business loans
Consumer
Leases, net
Loans and other finance receivables
The amounts have been classified according to sensitivity to changes in interest rates as of December 31, 2025. Variance rate loans are those loans with floating or adjustable interest rates.
(dollars in thousands)
Fixed Rate
Variable Rate
Total
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial, industrial & other finance receivables
Small business loans
Consumer
Leases, net
Loans and other finance receivables
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, 2025. 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 $55.5 million, or 6.7%, to $879.4 million at December 31, 2025 from $824.0 million at December 31, 2024. Our commercial real estate loan portfolio represented 39.9% and 40.0% of our total loan portfolio at December 31, 2025 and 2024, respectively. Construction loans increased $71.0 million, or 27.4%, to $330.5 million at December 31, 2025 from $259.6 million at December 31, 2024. Construction loans represented 15.0% and 12.6% of our total loan portfolio at December 31, 2025 and 2024, respectively.
Commercial and Industrial Loans (C & I) and Other Finance Receivables
We provide a variety of variable and fixed rate commercial business loans, lines of credit and other financing facilities. These credit facilities 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. Other finance receivables include advances to merchants for short-term cash flow needs. The primary source of repayment for commercial credit 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 $61.6 million, or 16.8%, to $429.0 million at December 31, 2025 from $367.4 million at December 31, 2024. C & I loans overall represented 19.5% and 17.8% of our total loan portfolio at December 31, 2025 and 2024, respectively.
Our 10 largest C & I relationships represented 11% of our C & I portfolio and 5% of the total loan portfolio at December 31, 2025. The average loan size outstanding in C & I portfolio, excluding leases, was $403 thousand at December 31, 2025 and the weighted average risk rating of the C & I portfolio is 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 decreased by $16.0 million, or 10.3%, to $139.8 million at December 31, 2025 from $155.8 million at December 31, 2024, due to an increase in sale of such loans during 2025. During 2025 we sold $97.8 million in SBA loans, an increase of $38.3 million, or 64.4%, from $59.4 million in SBA loans sold in 2024. The small business loans portfolio represented 6.3% and 7.6% of our total loan portfolio at December 31, 2025 and 2024, 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 $16.3 million, or 17.9%, to $107.0 million at December 31, 2025 from $90.7 million at December 31, 2024, while residential mortgage loans decreased by $16.4 million, or 6.5%, to $236.1 million at December 31, 2025 from $252.6 million at December 31, 2024. Overall the total consumer loan portfolio represented 15.6% and 16.7% of our total loan portfolio at December 31, 2025 and 2024, 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 $30.5 million, or 40.1% to $45.5 million at December 31, 2025 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, 2025 our available-for-sale investment portfolio had a fair value of $193.5 million, with an effective tax equivalent yield of 3.84% and an estimated duration of approximately 3.7 years. The largest category of this investment portfolio, or 45.7%, consists of U.S. agency securities, along with 20.7% in municipal securities, and 8.4% 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 $2.2 million and $2.1 million, as of December 31, 2025 and 2024, respectively. As of December 31, 2025 we also had a held-to-maturity investment portfolio with amortized cost of $32.5 million.
The following table presents the amortized cost and fair value of securities at the dates indicated:
December 31, 2025
(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
U.S. government agency MBS
U.S. government agency CMO
State and municipal securities
U.S. Treasuries
Non-U.S. government agency CMO
Corporate bonds
Total securities available-for-sale
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
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
U.S. government agency MBS
U.S. government agency CMO
State and municipal securities
U.S. Treasuries
Non-U.S. government agency CMO
Corporate bonds
Total securities available-for-sale
Amortized cost
Gross unrecognized gains
Gross unrecognized losses
Allowance for credit losses
Fair value
# of Securities in unrecognized loss position
Securities held to maturity:
State and municipal securities
Total securities held-to-maturity
Asset Quality Summary
The ratio of non-performing assets to total assets increased to 2.38% as of December 31, 2025, from 1.90% as of December 31, 2024. There was $3.6 million and $159 thousand in other real estate property, as well as $2.4 million and $117 thousand of repossessed assets, included in non-performing assets as of December 31, 2025 and 2024, respectively. The balance in OREO as of December 31, 2025 consisted of 4 well secured commercial properties, while the balance as of December 31, 2024 related to a well secured residential property. The balance in repossessed assets as of December 31, 2025 consisted of a billboard asset from a commercial loan relationship and repossessed equipment that collateralized leases, while the balance as of December 31, 2024 related solely to repossessed equipment.
The ratio of non-performing loans to total loans increased to 2.50% as of December 31, 2025, from 2.19% as of December 31, 2024. Total non-performing loans were $55.1 million and $45.1 million as of December 31, 2025 and December 31, 2024, respectively. The increase in non-performing loans over the period was due to increases in non-performing small business loans, residential mortgage loans, and commercial mortgage loans of $12.5 million, $2.5 million, and $1.7 million, respectively, partially offset by a decrease of $5.2 million in non-performing commercial loans due to the charge-off of a few commercial loans. Included in non-performing small business loans as of December 31, 2025 and December 31, 2024, are $13.2 million and $6.5 million in SBA guarantees, respectively. Non-performing loans, net of the SBA guaranteed portion, as a percent of total loans were 1.90% and 1.87% as of December 31, 2025, and 2024, respectively.
Meridian realized net charge-offs of $11.9 million, or 0.55%, of total average loans for the year ended December 31, 2025, compared to net charge-offs of $15.8 million, or 0.78%, of total average loans for the year ended December 31, 2024. A majority of net charge-offs for the year ended December 31, 2025 were from small business loans of $5.0 million, commercial loans of $2.4 million, finance receivables of $2.2 million, and equipment leases of $1.5 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 1.00% as of December 31, 2025 compared to 0.91% as of December 31, 2024. The increase in coverage ratio was driven by several factors including: reserving for the year over year increase in non-performing loans and an increase in the baseline loss rates used in the ACL calculation for portfolios that drove the increase in non-performing loans, combined with an increase in qualitative reserve factors year-over-year.
As of December 31, 2025 there were specific reserves of $3.4 million against individually evaluated loans, an increase from $2.7 million as of December 31, 2024. The drivers of the increase related to a $1.2 million increase in SBA loan specific reserves, partially offset with a $524 thousand decline in specific reserves on commercial loans.
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.
The following table presents nonperforming assets and related ratios for the periods indicated:
(dollars in thousands)
December 31,
December 31,
Non-performing assets:
Nonaccrual loans:
Real estate loans:
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Total real estate loans
Commercial, industrial & other finance receivables
Small business loans (1)
Leases
Total nonaccrual loans
Other real estate owned
Repossessed assets
Total non-performing assets
Asset quality ratios:
Non-performing assets to total assets
Non-performing loans to:
Total loans and other finance receivables
Total loans and other finance receivables (excluding loans at fair value) (2)
Allowance for credit losses to:
Total loans and other finance receivables
Total loans and other finance receivables (excluding loans at fair value) (2)
Non-performing loans
Total loans and leases
Total loans and other finance receivables
Total loans and other finance receivables (excluding loans at fair value)
Allowance for credit losses
(1) Included in non-performing small business loans as of December 31, 2025, and 2024, respectively, are $13.2 million and $6.5 million in SBA guarantees.
(2) 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,
% of Loan Type to Total Loans
December 31,
% of Loan Type to Total Loans
Commercial mortgage
Home equity lines and loans
Residential mortgage
Construction
Commercial, industrial & other finance receivables
Small business loans
Leases
Total
The following table provides information on net (charge-offs) and recoveries by loan category for the years ended:
December 31, 2025
December 31, 2024
Home equity lines and loans
Residential mortgage
Construction
Commercial, industrial & other finance receivables
Small business loans
Consumer
Leases
Total Net Charge-offs
Deposits
The following table presents the major categories of deposits at the dates indicated:
(Dollars in thousands)
December 31,
December 31,
$ Change
% Change
Noninterest-bearing deposits
Interest-bearing deposits:
Interest-bearing demand deposits
Money market and savings deposits
Time deposits
Total interest-bearing deposits
Total deposits
Total deposits were $2.2 billion as of December 31, 2025, up $152.8 million, or 7.6%, from December 31, 2024. Non-interest bearing deposits increased $4.5 million, or 1.9%, from December 31, 2024. Interest-bearing demand deposits increased $15.9 million, or 11.3%, from December 31, 2024, while money market accounts and savings deposits increased $109.8 million, or 12.0%, during the period. Business accounts comprised 52% of all deposits, consumer accounts and municipal deposits comprised 14% and 12%, respectively, and wholesale funding was approximately 22%. 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 Ended
December 31, 2025
(Dollars in thousands)
Amount
3 months or less
Over 3 months through 6 months
Over 6 months through 12 months
Over 12 months
Total
Equity
Consolidated stockholders’ equity of the Corporation was $199.7 million, or 7.8% of total assets as of December 31, 2025 as compared to $171.5 million, or 7.2% of total assets as of December 31, 2024. The increase in stockholders’ equity is the result of net income for the year ended December 31, 2025 of $21.8 million, net proceeds from the sale of common stock of $7.5 million, comprehensive income of $2.9 million, and $596 thousand in stock-based compensation and stock options exercised, partially offset by dividends paid of $5.7 million, and an increase of $425 thousand in ESOP leverage.
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.
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-provision net revenue.
Year Ended
(dollars in thousands)
December 31,
December 31,
Income before income tax expense
Provision for credit losses
Pre-provision net revenue
Year Ended
(dollars in thousands)
December 31,
December 31,
Bank
Wealth
Mortgage
Pre-provision net revenue
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,
December 31,
Total stockholders' equity (GAAP)
Less: Goodwill and intangible assets
Tangible common equity (non-GAAP)
Total assets (GAAP)
Less: Goodwill and intangible assets
Tangible assets (non-GAAP)
Stockholders' equity to total assets (GAAP)
Tangible common equity to tangible assets (non-GAAP)
Shares outstanding
Book value per share (GAAP)
Tangible book value per share (non-GAAP)
The following is a reconciliation of the allowance for credit losses to loans and other finance receivables ratio at December 31, 2025. 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,
December 31,
Allowance for credit losses (GAAP)
Loans and other finance receivables (GAAP)
Less: Loans at fair value
Loans and other finance receivables, excluding loans at fair value (non-GAAP)
ACL to loans and other finance receivables (GAAP)
ACL to loans and other finance receivables, excluding loans at fair value (non-GAAP)
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 $346.3 million at December 31, 2025, compared to $315.8 million at December 31, 2024, 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 $4.2 million at December 31, 2025. At December 31, 2025, 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, 2025, Meridian’s maximum borrowing capacity with the FHLB was $751.5 million. At December 31, 2025, Meridian had borrowed $115.8 million and the FHLB had issued letters of credit, on Meridian’s behalf, totaling $178.6 million against its available credit lines. At December 31, 2025, Meridian also had available $56.0 million of unsecured federal funds lines of credit with other financial institutions as well as $306.8 million of available short or long term funding through the CDARS program and 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, 2025, Meridian had $651.3 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, 2025 totaled $460.5 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, 2025, Meridian had a reserve for unfunded loan commitments of $976 thousand.
Capital Resources
Meridian meets the definition of “well capitalized” for regulatory purposes on December 31, 2025. 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%. T he Bank’s CBLR was 9.50% and 9.21% as of December 31, 2025 and 2024, respectively, but reports all ratios for comparative purposes.
Tables presenting the Bank’s capital amounts and ratios as of December 31, 2025 and 2024 are included in Note 18 - Regulatory Matters.
