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Regulatory Matters

12 Months Ended

Dec. 31, 2020

(19)Regulatory Matters

The Bank and the Corporation are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Corporation’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Corporation must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank’s and the Corporation’s

capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Corporation to maintain minimum amounts and ratios (set forth below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2020, that the Bank and the Corporation meets all capital adequacy requirements to which it is subject.

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 "Community Bank Leverage Ratio" (“CBLR”) of between 8 and 10%. 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 regulatory agencies temporarily lowered the CBLR to 8% as a result of the COVID-19 pandemic. During the first quarter of 2020, the Bank adopted the community bank leverage ratio framework as its primary regulatory capital ratio, but reports all ratios for comparative purposes.

As of December 31, 2020, the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank is subject to certain restrictions on the amount of dividends that it may declare and pay to the Corporation due to regulatory considerations. The Pennsylvania Banking Code provides that cash dividends may be declared and paid only out of accumulated net earnings.

The Corporation’s and the Banks’s actual and required capital amounts and ratios under the CBLR rules at December 31, 2020 and the Basel III rules at December 31, 2019 are presented below.


	December 31, 2020
				To Be Well Capitalized
	Actual			Under CBLR Framework
(dollars in thousands)	Amount		Ratio	Amount		Ratio
Tier 1 capital (to average assets)
Corporation	$	134,564	8.96%	$	120,082	8.00%
Bank		173,231	11.54%		120,080	8.00%


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

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

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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