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Item 2. Management’s Discussion and Analysis

2025-11-04 compared with 2025-08-07 · 221 added, 223 removed, 636 unchanged (41% of the section changed)

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There can be no assurance that future developments affecting the Company will be the same as those anticipated by management.

These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions.

Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true.

These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements.

These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, or future or conditional verbs such as “should,” “could,” or “may.” Although forward-looking statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true.

These forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements.

While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements:

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• the impact of recent or future changes in Federal Deposit Insurance Corporation (the “FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments;

• the effect of fiscal and governmental policies of the U.S.

• the effects of federal government shutdowns, debt ceiling standoff, or other uncertainty regarding fiscal and governmental policies of the U.S.

federal government;

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The Title Company ceased conducting real estate closings effective March 31, 2025.

Operations will continue for as long as necessary to ensure that work in progress is adequately addressed.

Upon successful completion of outstanding matters, the Title Company will complete any regulatory filings necessary to discontinue the business and dissolve the corporation.

The shares of common stock of Shore Bancshares, Inc.

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Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.

The most significant accounting policies that we follow are presented in Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

The Company’s most significant accounting policies are presented in Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of the 2024 Annual Report.

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Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policy for the allowance for credit losses (“ACL”) on loans is a critical accounting policy.

This policy is considered critical because it relates to an accounting area that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.

This policy is considered critical because it relates to an accounting area that requires the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.

Allowance for Credit Losses on Loans

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of the 2024 Annual Report for additional details concerning the determination of the ACL on loans.

The Company’s net income for the second quarter of 2025 was $15.5 million, or $0.46 per diluted common share, compared to $13.8 million, or $0.41 per diluted common share, for the first quarter of 2025.

The Company had net income of $11.2 million, or $0.34 per diluted common share, for the second quarter of 2024.

Second Quarter 2025 Highlights

• Net Income Growth – Net income for the second quarter of 2025 increased $1.7 million to $15.5 million, from $13.8 million in the first quarter of 2025.

Net income increased primarily due to higher net interest income (“NII”) and noninterest income driven by higher mortgage banking activity, partially offset by higher noninterest expense.

Net income for the first half of 2025 was $29.3 million, compared to $19.4 million for the first half of 2024.

• Improved Return on Average Assets (“ROAA”) – The Company reported ROAA of 1.03% for the second quarter of 2025, compared to 0.91% for the first quarter of 2025 and 0.77% for the second quarter of 2024.

generally accepted accounting principles (“GAAP”) ROAA (1) was 1.15% for the second quarter of 2025, compared to 1.02% for the first quarter of 2025 and 0.91% for the second quarter of 2024.

• Net Interest Margin (“NIM”) Expansion – Net interest income for the second quarter of 2025 increased $1.2 million to $47.3 million from $46.0 million for the first quarter of 2025.

NIM increased 11 basis points (“bps”) to 3.35% during the second quarter of 2025 from 3.24% in the first quarter of 2025.

The Company’s net income for the third quarter of 2025 was $14.3 million, or $0.43 per diluted common share, compared to $15.5 million, or $0.46 per diluted common share, for the second quarter of 2025.

The Company had net income of $11.2 million, or $0.34 per diluted common share, for the third quarter of 2024.

Third Quarter 2025 Highlights

• Return on Average Assets (“ROAA”) – The Company reported ROAA of 0.95% for the third quarter of 2025, compared to 1.03% for the second quarter of 2025 and 0.77% for the third quarter of 2024.

generally accepted accounting principles (“GAAP”) ROAA (1) was 1.05% for the third quarter of 2025, compared to 1.15% for the second quarter of 2025 and 0.90% for the third quarter of 2024.

• Net Income – Net income for the third quarter of 2025 decreased $1.2 million to $14.3 million from $15.5 million in the second quarter of 2025.

Net income decreased primarily due to lower noninterest income of $1.6 million driven by reduced mortgage banking activity and a higher provision for loan losses of $1.5 million due to a large marine loan write-off, partially offset by an increase in net interest income of $1.4 million.

Net income for the nine months ended September 30, 2025 was $43.6 million, compared to $30.6 million for the nine months ended September 30, 2024.

The increase was primarily driven by an increase in net interest income due to loans repricing favorably coupled with a lower cost of deposits during the period.

• Net Interest Margin (“NIM”) – Net interest income for the third quarter of 2025 increased $1.4 million to $48.7 million from $47.3 million for the second quarter of 2025.

NIM increased 7 basis points (“bps”) to 3.42% during the third quarter of 2025 from 3.35% in the second quarter of 2025.

NIM excluding accretion (1) increased for the comparable periods from 3.10% to 3.22%.

Exc luding accretion interest, loan yields increased 2 bps and funding costs decreased 4 bps for the comparable periods.

Net interest income increased due to modest loan growth, slightly higher accelerated accretion income, and loan and securities repricing, coupled with lower cost of deposits during the period.

• Book Value per Share Growth – Book value per share increased to $16.94 at June 30, 2025 from $16.55 at March 31, 2025 and $15.74 at June 30, 2024 .

• Stable Asset Quality – Nonperforming assets to total assets were 0.33% for the second quarter of 2025, an increase from 0.31% for the first quarter of 2025 and 0.29% for the second quarter of 2024.

Classified assets to total assets were 0.37% in the second quarter of 2025, an increase when compared to 0.36% for the first quarter of 2025 and 0.33% for the second quarter of 2024.

The allowance for credit losses (“ACL”) was $58.5 million at June 30, 2025, compared to $57.9 million at December 31, 2024 and $58.5 million at June 30, 2024.

The ACL as a percentage of loans remained flat at 1.21% at June 30, 2025 compared to December 31, 2024, and decreased compared to 1.24% at June 30, 2024.

• Improved Operating Leverage – The efficiency ratio for the second quarter of 2025 was 60.83% compared to 63.64% in the first quarter of 2025 and 66.23% for the second quarter of 2024.

The non-GAAP efficiency ratio (1) , which excludes amortization, was 56.73% for the second quarter of 2025, compared to 59.25% for the first quarter of 2025 and 61.05% for the second quarter of 2024.

Management anticipates ongoing expense management and technology investments will result in continued improvements in operating leverage over time.

Excluding accretion interest, loan yields increased 6 bps and funding costs decreased 6 bps for the comparable periods.

Net interest income increased due to modest loan growth coupled with a lower cost of deposits.

These favorable changes were partially offset by a lower yield on investments and lower average deposits with other institutions.

• Book Value per Share – Book value per share increased to $17.27 at September 30, 2025 from $16.94 at June 30, 2025 and $16.00 at September 30, 2024.

• Asset Quality – Nonperforming assets to total assets were 0.45% at September 30, 2025, an increase from 0.33% at June 30, 2025 and 0.27% at September 30, 2024.

Classified assets to total assets were 0.83% at September 30, 2025, an increase when compared to 0.37% at June 30, 2025 and 0.39% at September 30, 2024.

The allowance for credit losses (“ACL”) was $59.6 million at September 30, 2025, compared to $57.9 million at December 31, 2024 and $58.7 million at September 30, 2024.

The ACL as a percentage of loans increased to 1.22% at September 30, 2025 compared to 1.21% at December 31, 2024, and decreased compared to 1.24% at September 30, 2024.

• Operating Leverage – The efficiency ratio for the third quarter of 2025 was 61.00% compared to 60.83% in the second quarter of 2025 and 67.49% for the third quarter of 2024.

The non-GAAP efficiency ratio (1) , which excludes amortization, was 57.30% for the third quarter of 2025, compared to 56.73% for the second quarter of 2025 and 62.10% for the third quarter of 2024.

Management anticipates ongoing expense management of professional services and technology investments will result in continued improvements in operating leverage over time.

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SUMMARY OF OPERATING RESULTS

A comparison of the results of operations for the three and six months ended June 30, 2025 and 2024 is presented below.

Three Months Ended June 30, Six Months Ended June 30,

A comparison of the results of operations for the three and nine months ended September 30, 2025 and 2024 is presented below.

Three Months Ended September 30, Nine Months Ended September 30,

($ in thousands) 2025 2024 2025 2024

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Net income $ 14,348 $ 11,189 $ 43,619 $ 30,607

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2025 2024 2025 2024

KEY OPERATING RATIOS

ROAA 1.03 % 0.77 % 0.97 % 0.67 %

Return on average common equity (“ROACE”) 11.13 8.70 10.67 7.54

ROAA – GAAP 0.95 % 0.77 % 0.96 % 0.70 %

Adjusted ROAA – non-GAAP (1)

1.05 0.90 1.07 0.91

Return on average common equity (“ROACE”) – GAAP 9.96 8.41 10.43 7.84

Return on average tangible common equity (“ROATCE”) – non-GAAP (2)

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Average total equity to average total assets 9.49 9.11 9.23 8.98

2.46 2.06 2.38 2.18

Interest rate spread 3.42 3.17 3.34 3.12

Net interest margin 3.35 3.11 3.30 3.09

Efficiency ratio – GAAP (3)

61.00 67.49 61.78 70.09

Efficiency ratio – non-GAAP (4)

57.30 62.10 57.73 61.83

Noninterest income to average assets 0.51 0.50 0.53 0.51

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____________________________________

(1) ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common stockholders’ equity.

(1) ROAA – non-GAAP is computed by dividing i) net income excluding net of tax adjustments for the amortization of other intangible assets, credit card fraud losses and the sale and fair value of held for sale assets by ii) average assets.

(2) ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common equity.

ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

Refer to Use of Non-GAAP Financial Measures for additional details.

(2) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income.

(3) Efficiency ratio – GAAP is computed by dividing i) noninterest expense by ii) the sum of net interest income and noninterest income.

(4) Efficiency ratio – non-GAAP is computed by dividing i) noninterest expense less amortization of other intangible assets and credit card fraud losses by ii) the sum of taxable-equivalent net interest income and noninterest income less the sale and the fair value of held for sale assets.

(5) Net operating expense is the sum of noninterest expense offset by noninterest income.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2025 AND 2024

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Summary of Financial Results

The Company reported net income for the three months ended June 30, 2025 of $15.5 million, or $0.46 diluted earnings per common share, compared to $11.2 million, or diluted earnings per common share of $0.34, for the three months ended June 30, 2024.

The Company’s ROAA, non-GAAP ROAA, ROACE and ROATCE were 1.03%, 1.15%, 11.13% and 13.50%, respectively, for the three months ended June 30, 2025, compared to 0.77%, 0.91%, 8.70% and 10.97%, respectively, for the three months ended June 30, 2024.

The Company reported net income for the three months ended September 30, 2025 of $14.3 million, or $0.43 diluted earnings per common share, compared to $11.2 million, or diluted earnings per common share of $0.34, for the three months ended September 30, 2024.

The following table presents selected consolidated statement of operations data for each of the periods indicated.

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) 2025 2024 $ Change % Change

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Tax-equivalent NII is NII adjusted for the tax-favored status of income from certain loans and investments.

As shown in the table below, tax-equivalent NII was $47.3 million for the second quarter of 2025 and $42.2 million for the second quarter of 2024.

The increase was primarily due to increases in interest and fees on loans of $2.4 million and interest on deposits at other banks of $1.0 million, as well as a decrease in interest expense on short-term borrowings of $1.0 million.

Three Months Ended June 30,

As shown in the table below, tax-equivalent NII was $48.7 million for the third quarter of 2025 and $43.3 million for the third quarter of 2024.

The increase was primarily due to increases in interest and fees on loans of $1.8 million and interest on deposits at other banks of $651 thousand, coupled with a decrease in interest expense on deposits of $2.4 million and borrowings of $512 thousand.

Three Months Ended September 30,

($ in thousands) 2025 2024 $ Change % Change

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Short-term borrowings 640 491 149 30.3

Long-term debt 1,394 1,797 (403) (22.4)

Long-term borrowings 1,418 2,079 (661) (31.8)

Total interest expense $ 28,532 $ 31,426 $ (2,894) (9.2)

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Average Balances and Yields

The following table presents the distribution of the average consolidated balance sheets, interest income, interest expense and annualized yields earned and rates paid for the three months ended June 30, 2025 and 2024.

Three Months Ended June 30,

Three Months Ended September 30,

($ in thousands) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate

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Consumer 289,729 3,877 5.31 322,988 4,306 5.30

Credit card 6,122 121 7.93 8,378 201 9.65

Credit cards 5,213 118 8.98 7,132 170 9.48

Total loans 4,884,003 71,011 5.77 4,734,001 69,237 5.82

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(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

There were $4.2 million and $4.5 million of accretion interest on loans for the three months ended June 30, 2025 and 2024, respectively.

There were $3.3 million and $5.0 million of accretion interest on loans for the three months ended September 30, 2025 and 2024, respectively.

(4) Interest expense on deposits and borrowings includes amortization of deposit discounts and amortization of borrowing fair value adjustments.

There were $435 thousand and $421 thousand of amortization of deposit discounts, and $232 thousand and $243 thousand of amortization of borrowing fair value adjustments for the three months ended June 30, 2025 and 2024, respectively.

There were $280 thousand and $287 thousand of amortization of deposit discounts and $232 thousand and $232 thousand of amortization of borrowing fair value adjustments for the three months ended September 30, 2025 and 2024, respectively.

Rate and Volume Analysis

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Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume.

Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

Three Months Ended September 30, 2025 Compared to the Three Months Ended September 30, 2024

($ in thousands) Volume Due to Rate Total

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Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities.

NII was $47.3 million for the second quarter of 2025, compared to $42.1 million for the second quarter of 2024.

The Company’s NIM increased to 3.35% for the second quarter of 2025 from 3.11% for the second quarter of 2024.

Comparing the second quarter of 2025 to the second quarter of 2024, the Company’s interest-earning asset yields increased to 5.44% from 5.39%, while the cost of funds repriced at a faster pace, which resulted in a decrease of 19 bps basis points, from 2.36% to 2.17% for the same period.

NII was $48.7 million for the third quarter of 2025, compared to $43.3 million for the third quarter of 2024.

The increase was primarily due to increases in interest and fees on loans of $1.8 million and interest on deposits at other banks of $651 thousand, as well as an increase in interest expense on short-term borrowings of $149 thousand.

The Company’s NIM increased to 3.42% for the three months ended September 30, 2025, from 3.17% for the three months ended September 30, 2024 .

Comparing the three months ended September 30, 2025 to the three months ended September 30, 2024 , the Company’s interest-earning asset yields decreased to 5.42% from 5.47%, while the cost of funds repriced at a faster pace, which resulted in a decrease of 29 bps basis points, from 2.38% to 2.09% for the same period.

Provision for Credit Losses (“PCL”) and ACL

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Noninterest Income

Total noninterest income for the second quarter of 2025 was $9.3 million, an increase of $878 thousand from $8.4 million for the second quarter of 2024.

The increase was primarily due to an increase in mortgage banking activity, driven by increased mortgage servicing activity and lower prepayment rates.

Total noninterest income for the three months ended September 30, 2025 was $7.7 million, an increase of $414 thousand from $7.3 million for the three months ended September 30, 2024.

The increase was primarily due to a $101 thousand increase in mortgage banking revenue, driven by increased mortgage servicing activity, and a $147 thousand increase in interchange credits.

Noninterest Expense

Total noninterest expense of $34.4 million for the second quarter of 2025 increased $911 thousand when compared to the second quarter of 2024 total noninterest expense of $33.5 million.

The increase in total noninterest expense from the second quarter of 2024 was primarily due to higher salaries and benefits expense and software and data processing costs, partially offset by lower operating expenses in the second quarter of 2025.

The Company reported income tax expense of $5.1 million and $3.8 million for the three months ended June 30, 2025 and 2024, respectively.

The effective tax rate for the second quarter of 2025 and 2024 was 24.8% and 25.1%, respectively.

RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND 2024

Total noninterest expense of $34.4 million for the three months ended September 30, 2025 increased $265 thousand when compared to the three months ended September 30, 2024 total noninterest expense of $34.1 million.

The increase was primarily due to higher salaries and benefits expense of $2.1 million and higher software and data processing costs of $736 thousand, partially offset by the absence of the credit fraud loss-related expenses incurred in the third quarter 2024, lower legal and professional services of $373 thousand and lower amortization of other intangible assets of $297 thousand.

The Company reported income tax expense of $4.6 million and $3.8 million for the three months ended September 30, 2025 and 2024, respectively.

The effective tax rate was 24.4% and 25.2% for the three months ended September 30, 2025 and 2024, respectively.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

Summary of Financial Results

The Company reported net income for the six months ended June 30, 2025 of $29.3 million, or $0.88 diluted earnings per common share, compared to $19.4 million, or diluted earnings per share of $0.58, for the six months ended June 30, 2024.

The Company’s ROAA, non-GAAP ROAA, ROACE and ROATCE were 0.97%, 1.09%, 10.67% and 13.01%, respectively, for the six months ended June 30, 2025, compared to 0.67%, 0.92%, 7.54% and 9.55%, respectively, for the six months ended June 30, 2024.

The Company reported net income for the nine months ended September 30, 2025 of $43.6 million, or $1.31 diluted earnings per common share, compared to $30.6 million, or diluted earnings per share of $0.92, for the nine months ended September 30, 2024.

The following table presents selected consolidated statement of operations data for each of the periods indicated.

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands) 2025 2024 $ Change % Change

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Net Interest Income

As shown in the table below, tax-equivalent net interest income increased $10.0 million to $93.4 million for the six months ended June 30, 2025, compared to $83.4 million for the six months ended June 30, 2024.

As shown in the table below, tax-equivalent net interest income increased $15.4 million to $142.2 million for the nine months ended September 30, 2025, compared to $126.8 million for the nine months ended September 30, 2024.

The increase in net interest income was primarily due to an increase in total interest income of $10.9 million, or 5.0%, which included an increase in interest and fees on loans of $6.1 million, or 3.0%, and an increase in interest on deposits with other banks of $4.1 million, or 195.5%.

The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $135.9 million, or 2.9%.

The decrease in total interest expense was primarily due to a decrease in interest on deposits of $641 thousand, a decrease in interest expense on long-term borrowings of $488 thousand and a decrease in interest expense on short-term borrowings of $438 thousand.

The decrease in total interest expense was primarily due to a decrease in interest on deposits of $3.0 million, a decrease in interest expense on long-term borrowings of $1.1 million and a decrease in interest expense on short-term borrowings of $288 thousand.

The decreases in borrowings were related to lower FHLB advances in 2025.

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands) 2025 2024 $ Change % Change

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Short-term borrowings 1,843 2,131 (288) (13.5)

Long-term debt 2,760 3,248 (488) (15.0)

Long-term borrowings 4,178 5,327 (1,149) (21.6)

Total interest expense $ 87,935 $ 92,396 $ (4,461) (4.8)

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Average Balances and Yields

Six Months Ended June 30,

Nine Months Ended September 30,

($ in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

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Consumer 297,543 11,971 5.38 328,309 12,843 5.23

Credit card 6,403 207 6.52 7,918 368 9.35

Credit cards 6,002 325 7.24 7,654 539 9.41

Total loans 4,834,547 208,512 5.77 4,698,694 202,440 5.76

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(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

There were $8.0 million and $8.7 million of accretion interest on loans for the six months ended June 30, 2025 and 2024, respectively.

There were $11.3 million and $13.7 million of accretion interest on loans for the nine months ended September 30, 2025 and 2024, respectively.

(4) Interest expense on deposits and borrowings includes amortization of deposit discounts and amortization of borrowing fair value adjustments.

There were $769 thousand and $788 thousand of amortization of deposit discounts, and $463 thousand and $463 thousand of amortization of borrowing fair value adjustments for the six months ended June 30, 2025 and 2024, respectively.

There were $1.0 million and $1.1 million of amortization of deposit discounts and $695 thousand and $695 thousand of amortization of borrowing fair value adjustments for the nine months ended September 30, 2025 and 2024, respectively.

Rate and Volume Analysis

The following table presents changes in volume and rate related to interest income and interest expense for the periods indicated.

Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024

Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024

($ in thousands) Volume Due to Rate Total

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Net change in net interest income $ 9,160 $ 6,240 $ 15,400

The Company’s NIM increased from 3.09% for the six months ended June 30, 2024 to 3.30% for the six months ended June 30, 2025.

The Company’s NIM increased from 3.12% for the nine months ended September 30, 2024 to 3.34% for the nine months ended September 30, 2025.

Margins were higher due to a $266.5 million increase in interest-earning asset balances and a 1 basis point increase in interest-earning asset yields.

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The increase in the average balances of interest-bearing deposits of $75.5 million was offset by a 16 basis point decrease in the associated rates paid, as well as a $26.3 million decrease in the average balance of FHLB advances and a 52 basis point decrease in the associated rates paid.

Net accretion income impacted net interest margin by 24 basis points and 27 basis points for the six months ended June 30, 2025 and 2024, respectively, which resulted in NIMs excluding accretion of 3.06% and 2.82% for the same periods.

Net accretion income impacted net interest margin by 23 basis points and 29 basis points for the nine months ended September 30, 2025 and 2024, respectively, which resulted in NIMs excluding accretion of 3.11% and 2.83% for the same periods.

Provision for Credit Losses and ACL

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Noninterest Income

Total noninterest income for the six months ended June 30, 2025 was $16.3 million, an increase of $1.3 million, or 8.8%, when compared to the same period in 2024.

The increase was primarily due to higher gains on sales of loans held for sale of $453 thousand, mortgage banking revenue of $383 thousand and other noninterest income of $249 thousand.

Total noninterest income for the nine months ended September 30, 2025 was $24.0 million, an increase of $1.7 million, or 7.7%, when compared to the same period in 2024.

The increase was primarily due to a $936 thousand increase in mortgage banking revenue, a $341 thousand increase in other noninterest income and a $208 thousand increase in interchange credits.

Noninterest Expense

Total noninterest expense was $68.2 million for the six months ended June 30, 2025, a decrease of $2.0 million, or 2.9%, when compared to the same period in 2024.

Noninterest expense decreased primarily due to the absence of the $4.3 million credit card fraud event during the six months ended June 30, 2024, which was partially offset by higher salaries and employee benefit expenses of $1.3 million and an increase of $1.3 million in software and data processing expense in the six months ended June 30, 2025.

The Company reported income tax expense of $9.6 million and $6.2 million for the six months ended June 30, 2025 and 2024, respectively.

The effective tax rate was 24.73% for the six months ended June 30, 2025 and 24.14% for the six months ended June 30, 2024.

The 2024 effective tax rate was impacted by nondeductible merger costs incurred.

Total noninterest expense was $102.5 million for the nine months ended September 30, 2025, a decrease of $1.8 million, or 1.7%, when compared to the same period in 2024.

Noninterest expense line items decreased primarily due to the absence of the $4.7 million credit card fraud event during the nine months ended September 30, 2024 and lower amortization of intangible assets of $893 thousand, which was partially offset by higher salaries and employee benefit expenses of $3.5 million and an increase of $2.0 million of software and data processing expense in the nine months ended September 30, 2025.

The Company reported income tax expense of $14.3 million and $10.0 million for the nine months ended September 30, 2025 and 2024, respectively.

The effective tax rate was 24.63% and 24.54% for the nine months ended September 30, 2025 and 2024, respectively.

Liquidity is our ability to meet cash demands as they arise.

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Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities.

Based on management’s going concern evaluation, we believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s or the Bank’s ability to continue as a going concern, within one year of the date of the issuance of the financial statements.

Based on management’s going concern evaluation, management believes that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s or the Bank’s ability to continue as a going concern within one year of the date of the issuance of the financial statements.

The Bank’s principal sources of funds for investment and operations are net income, deposits, sales of loans, borrowings, principal and interest payments on loans, principal and interest received on investment securities and proceeds from the maturity and sale of investment securities.

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The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.

We derive liquidity through increased customer deposits, non-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets.

As seen in the consolidated statements of cash flows, the net decrease in cash and cash equivalents was $274.9 million for the first six months of 2025, compared to a net decrease of $233.5 million for the first six months of 2024.

The decrease in cash and cash equivalents in the first six months of 2025 was mainly due to the decrease of $227.5 million in interest-bearing deposits, partially offset by an increase of $12.3 million in noninterest-bearing deposits.

The Company derives liquidity through increased customer deposits, non-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets.

As seen in the consolidated statements of cash flows, the net decrease in cash and cash equivalents was $43.3 million for the first nine months of 2025, compared to a net decrease of $188.8 million for the first nine months of 2024.

The decrease in cash and cash equivalents in the first nine months of 2025 was mainly due to the decrease of $32.6 million in interest-bearing deposits and loan growth, partially offset by an increase of $31.4 million in noninterest-bearing deposits.

To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets.

At June 30, 2025, the Bank had approximately $1.16 billion of available liquidity, including $185.0 million in cash and cash equivalents, $316.5 million in unpledged securities and $740.7 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $33.1 million, respectively.

At September 30, 2025, the Bank had approximately $1.37 billion of available liquidity, including $416.5 million in cash and cash equivalents, $294.4 million in unpledged securities and $739.6 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $33.1 million, respectively.

The Bank has arrangements with other correspondent banks whereby it has $65.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash.

Through the FHLB, the Bank had available lendable collateral of approximately $740.7 million and $743.6 million at June 30, 2025 and December 31, 2024, respectively.

Through the FHLB, the Bank had available lendable collateral of approximately $739.6 million and $743.6 million at September 30, 2025 and December 31, 2024, respectively.

The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta.

The following table presents the Company’s liquidity in use and liquidity available as of June 30, 2025.

June 30, 2025

The following table presents the Company’s liquidity in use and liquidity available as of September 30, 2025.

September 30, 2025

($ in thousands) Liquidity in Use Liquidity Available

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The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at June 30, 2025.

The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at September 30, 2025.

The Company evaluates capital resources by the ability to maintain adequate regulatory capital ratios.

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In developing its plan, the Company considers the impact to capital of asset growth, loan concentrations, income accretion, dividends, holding company liquidity, investment in markets and people and stress testing.

The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classifications 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 to maintain minimum ratios of CET1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%.

The Bank is also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

In July 2013, federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with certain standards that were developed by Basel III and certain provisions of the Dodd-Frank Act.

The final rule currently applies to all depository institutions and bank holding companies and savings and loan holding companies with total consolidated assets of more than $3 billion.

As of June 30, 2025, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations.

The following tables present the applicable capital ratios for the Company and the Bank as of June 30, 2025 and December 31, 2024.

June 30, 2025 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio

As of September 30, 2025, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations.

The following tables present the applicable capital ratios for the Company and the Bank as of September 30, 2025 and December 31, 2024.

September 30, 2025 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio

The Company 8.86 % 10.21 % 10.82 % 12.88 %

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The Bank 8.58 10.75 10.75 11.97

On August 1, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on August 25, 2025, to holders of record of shares of common stock as of August 11, 2025.

On November 3, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on November 26, 2025, to holders of record of shares of common stock as of November 13, 2025.

See Note 10 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1.

of this Quarterly Report on Form 10-Q for further information about the regulatory capital positions of the Bank and the Company.

The Company provides banking services to customers who do business in the cannabis industry.

Prior to the second quarter of 2022, the Company restricted these businesses to include only those in the medical-use cannabis industry in the State of Maryland.

second quarter of 2022, the Company expanded its cannabis banking program to include both medical and adult-use licensees in other states, with an initial offering of the Company’s existing Maryland customers with multi-state operations.

While the Company is providing banking services to customers that are engaged in growing, processing, and sales of both medical and adult-use cannabis in a manner that complies with applicable state law, such customers engaged in those activities currently violate federal law.

The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers.

While we are not aware of any instance of a federally-insured financial institution being subject to such aiding and abetting liability, the strict enforcement of federal laws regarding cannabis would likely result in the Company’s inability to continue to provide banking services to these customers and the Company could have legal action taken against it by the federal government, including imprisonment and fines.

There is an uncertainty of the potential impact to the Company’s consolidated financial statements if the federal government takes actions against the Company.

As of June 30, 2025, the Company has not accrued an amount for the potential impact of any such actions.

The following is a summary of the level of business activities with our cannabis customers:

• At June 30, 2025, deposit balances were $141.5 million, or 2.66% of total deposits, and loan balances were $84.6 million, or 1.75% of total gross loans.

At December 31, 2024, deposit balances were $151.4 million, or 2.74% of total deposits, and loan balances were $82.6 million, or 1.73% of total gross loans.

• Interest and noninterest income for the six months ended June 30, 2025, were approximately $2.2 million and $467 thousand, respectively.

Interest and noninterest income for the six months ended June 30, 2024, were approximately $2.0 million and $558 thousand, respectively.

For information about risks related with our banking services provided to the cannabis industry, see “Risk Factors – Risks Relating to Our Business” included in Part I, Item 1A.

in the 2024 Annual Report.

ANALYSIS OF FINANCIAL CONDITION

Balance Sheet Summary

Total assets were $6.04 billion at June 30, 2025, a decrease of $192.9 million, or 3.1%, when compared to $6.23 billion at December 31, 2024.

The decrease was primarily due to decreases in cash and cash equivalents of $274.9 million and held to maturity (“HTM”) securities of $21.8 million, partially offset by increases in loans held for investment of $55.6 million and available for sale (“AFS”) securities of $38.5 million.

The ratio of the ACL as a percentage of loans was 1.21% and 1.21% at June 30, 2025 and December 31, 2024, respectively.

Total assets were $6.28 billion at September 30, 2025, an increase of $47.7 million, or 0.8%, when compared to $6.23 billion at December 31, 2024.

The aggregate increase was primarily due to an increase in the loan portfolio of $111.0 million, partially offset by a decrease in interest-bearing deposits at other banks of $61.6 million and a decrease in the investment securities portfolio of $14.8 million.

The decrease in interest-bearing deposits with other institutions was primarily driven by loan growth.

Total assets increased $360.8 million, or 6.1%, from $5.92 billion when compared to September 30, 2024.

The ratio of the ACL as a percentage of loans was 1.22% and 1.21% at September 30, 2025 and December 31, 2024, respectively.

Cash and Cash Equivalents

Cash and cash equivalents totaled $185.0 million at June 30, 2025, compared to $459.9 million at December 31, 2024.

Cash and cash equivalents totaled $416.5 million at September 30, 2025, compared to $459.9 million at December 31, 2024.

Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands.

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We have the intent and ability to hold such securities until maturity.

At June 30, 2025, 29.0% of the portfolio of debt securities was classified as AFS and 71.0% was classified as HTM, compared to 23.7% and 76.3% respectively, at December 31, 2024.

At September 30, 2025, 29.5% of the portfolio of debt securities was classified as AFS and 70.5% was classified as HTM, compared to 23.7% and 76.3%, respectively, at December 31, 2024.

See Note 2 – “Investment Securities” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1.

of this Quarterly Report on Form 10-Q for additional details on the composition of our investment portfolio.

Investment securities, including restricted stock and equity securities, totaled $673.3 million at June 30, 2025, a $17.0 million, or 2.6% increase, compared to $656.4 million at December 31, 2024.

At June 30, 2025, AFS securities, carried at fair value, totaled $187.7 million, compared to $149.2 million at December 31, 2024.

At June 30, 2025, AFS securities consisted of 86.6% mortgage-backed, 10.9% U.S.

of this Quarterly Report on Form 10-Q for additional details on the composition of the investment portfolio.

Investment securities, including restricted stock and equity securities, totaled $641.6 million at September 30, 2025, a $14.7 million, or 2.2% decrease, compared to $656.4 million at December 31, 2024.

At September 30, 2025, AFS securities, carried at fair value, totaled $181.7 million, compared to $149.2 million at December 31, 2024.

At September 30, 2025, AFS securities consisted of 86.1% mortgage-backed, 11.3% U.S.

government agencies and 2.6% corporate bonds, compared to 82.0%, 13.5% and 4.4%, respectively, at December 31, 2024.

At June 30, 2025, the accumulated other comprehensive loss was $5.6 million, compared to $7.5 million at December 31, 2024.

At June 30, 2025, HTM securities, carried at amortized cost, totaled $459.2 million, compared to $481.1 million at December 31, 2024.

At June 30, 2025, HTM securities consisted of 69.9% mortgage-backed, 28.1% U.S.

At September 30, 2025, the accumulated other comprehensive loss was $4.8 million, compared to $7.5 million at December 31, 2024.

At September 30, 2025, HTM securities, carried at amortized cost, totaled $433.4 million, compared to $481.1 million at December 31, 2024.

At September 30, 2025, HTM securities consisted of 71.9% mortgage-backed, 26.5% U.S.

government agencies and 1.6% other debt securities, compared to 70.0%, 27.5% and 2.5%, respectively, at December 31, 2024.

At June 30, 2025 and December 31, 2024, 97.9% and 97.1%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

At September 30, 2025 and December 31, 2024, 98.1% and 97.1%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

government agencies or government-sponsored agencies.

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Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities.

There were no speculative grade HTM securities at June 30, 2025 or December 31, 2024.

There were no speculative grade HTM securities at September 30, 2025 or December 31, 2024.

HTM securities that are not rated are agency mortgage-backed securities sponsored by U.S.

government agencies, as well as direct obligations of the agencies, with the remainder being sub-debt of other banks.

The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of June 30, 2025.

June 30, 2025

The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of September 30, 2025.

September 30, 2025

Investment Grade

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Loans Held for Sale

We originate residential mortgage loans for sale on the secondary market, which are recorded at fair value.

At June 30, 2025 and December 31, 2024 , the fair value of loans held for sale amounted to $34.3 million and $19.6 million, respectively.

The Company originates residential mortgage loans for sale on the secondary market, which are recorded at fair value.

At September 30, 2025 and December 31, 2024 , the fair value of loans held for sale amounted to $21.5 million and $19.6 million , respectively.

The Bank makes certain representations to purchasers in the sale of mortgage loans related to loan ownership, loan compliance and legality, and accurate documentation.

If a loan is found to be out of compliance with any of the representations subsequent to the date of purchase, the Bank may be required to repurchase the loan or indemnify the purchaser.

No loans were repurchased during the three months ended June 30, 2025 or 2024, or during the six months ended June 30, 2024.

During the six months ended June 30, 2025, the Bank repurchased one loan of $415 thousand.

If a loan is found to be out of co mpliance with any of the representations subsequent to the date of purchase, the Bank may be required to repurchase the loan or indemnify the purchaser.

During the three and nine months ended September 30, 2025, the Bank repurchased one loan valued at $523 thousand and two loans with an aggregate value of $938 thousand, respectively.

No loans were repurchased during the three or nine months ended September 2024.

Loans Held for Investment

The following table summarizes the Company’s loan portfolio at June 30, 2025 and December 31, 2024.

($ in thousands) June 30, 2025 % of Total Loans December 31, 2024 % of Total Loans $ Change % Change

The following table summarizes the Company’s loan portfolio at September 30, 2025 and December 31, 2024.

($ in thousands) September 30, 2025 % of Total Loans December 31, 2024 % of Total Loans $ Change % Change

Commercial real estate $ 2,642,601 54.1 % $ 2,557,806 53.6 % $ 84,795 3.3 %

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CRE Loan Portfolio

Our loan portfolio has a CRE loan concentration, which is generally defined as a combination of certain construction and CRE loans.

The Company’s loan portfolio has a CRE loan concentration, which is generally defined as a combination of certain construction and CRE loans.

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in CRE lending.

Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential CRE concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital;

or (2) total non-owner occupied CRE loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied CRE loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential CRE concentration risk.

during the prior 36 months are identified as having potential CRE concentration risk.

Institutions which are deemed to have concentrations in CRE lending are expected to employ heightened levels of risk management with respect to their CRE portfolios and may be required to hold higher levels of capital.

The Bank has a concentration in CRE loans, and experienced significant growth in its CRE portfolio with its acquisition of The Community Financial Corporation and its wholly-owned subsidiary, Community Bank of the Chesapeake.

Non-owner occupied CRE loans totaled $2.14 billion and $2.08 billion at June 30, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 354.15% and 359.52%, respectively.

Construction loans totaled $349.6 million and $336.0 million at June 30, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 57.77% and 57.99%, respectively.

Non-owner occupied CRE loans totaled $2.16 billion and $2.08 billion at September 30, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital plus ACL were 348.42% and 359.52%, respectively.

Construction loans totaled $350.9 million and $336.0 million at September 30, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital plus ACL were 56.71% and 57.99%, respectively.

The CRE portfolio has increased in the past two years.

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Monitoring practices are part of the Bank’s credit and risk departments’ annual test plans and are adjusted as needed on a quarterly basis if external or internal conditions merit changes.

The Bank’s CRE monitoring plans include stress testing analysis to evaluate changes in

collateral values and changes in cash flow debt service coverage ratios as a result of increasing interest rates or declines in customer net operating revenues.

We may be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital or be required to sell/participate portions of loans, which may adversely affect shareholder returns.

The Bank’s CRE monitoring plans include stress testing analysis to evaluate changes in collateral values and changes in cash flow debt service coverage ratios as a result of increasing interest rates or declines in customer net operating revenues.

We may be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital, or be required to sell/participate portions of loans, either of which may adversely affect shareholder returns.

Non-Owner Occupied CRE Loans

June 30, 2025

September 30, 2025

($ in thousands) Amount Average Loan Size % of Non-Owner Occupied CRE Loans % of Total Portfolio Loans, Gross

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(1) Other non-owner occupied CRE loans include commercial - improved loans of $160.7 million, lot/land loans of $86.9 million, self-storage loans of $72.2 million and other loans of $94.0 million.

(2) The balances for our non-owner occupied CRE portfolio as of June 30, 2025, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.

(2) The balances for the non-owner occupied CRE portfolio as of September 30, 2025, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.

(3) Excludes loans held for sale of $21.5 million.

Owner Occupied CRE Loans

June 30, 2025

September 30, 2025

($ in thousands) Amount Average Loan Size % of Owner Occupied CRE Loans % of Total Portfolio Loans, Gross

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____________________________________

(1) Other owner occupied CRE loans include church loans of $57.1 million, marina/boat loans of $39.4 million, auto service center loans of $30.1 million and other loans of $54.5 million.

(1) Other owner occupied CRE loans include church loans of $60.4 million, marina/boat loans of $39.3 million, fire/EMS building loans of $38.7 million and other loans of $76.8 million.

(2) Excludes loans held for sale of $21.5 million.

Office CRE Loan Portfolio

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $484.3 million, or 10.0% of total loans of $4.83 billion at June 30, 2025.

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $473.7 million, or 9.7% of total loans of $4.88 billion at September 30, 2025.

The Bank’s office CRE loan portfolio included $129.7 million, or 27.4% of total office CRE loans, with medical tenants, and $54.0 million, or 11.4% of total office CRE loans, with government or government contractor tenants.

There were 492 loans in the office CRE loan portfolio with an average and median loan size of $1.0 million and $369 thousand, respectively.

There were 491 loans in the office CRE loan portfolio with an average and median loan size of $965 thousand and $366 thousand, respectively.

Loan to Value (“LTV”) estimates are less than 50% for $156.7 million, or 33.1% of the office CRE loan portfolio, and greater than 80% for $10.2 million, or 2.2% of the office CRE loan portfolio.

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Total 491 $ 473,692 100.0 %

The Bank had 17 office CRE loans totaling $150.9 million that were greater than $5.0 million at June 30, 2025, compared to 18 office CRE loans totaling $164.5 million at December 31, 2024.

The decrease in this portfolio segment was the result of normal amortization and the change in purpose of collateral of an $11.0 million loan from office to school .

For the office CRE portfolio, at June 30, 2025, the average loan debt-service coverage ratio was 1.8x and the average LTV was 48.4%.

The Bank had 16 office CRE loans totaling $144.7 million that were greater than $5.0 million at September 30, 2025, compared to 18 office CRE loans totaling $164.5 million at December 31, 2024.

The decrease in this portfolio segment was the result of normal amortization, the payoff of a $5.6 million loan, and the change in purpose of collateral of an $11.8 million loan from office to school .

For the office CRE portfolio, at September 30, 2025, the average loan debt-service coverage ratio was 1.8x and the average LTV was 48.4%.

Of the office CRE portfolio balance, 80.1% is secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 96.9% are secured by properties with five stories or less.

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Maturity of Loan Portfolio

The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at June 30, 2025.

The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at September 30, 2025.

Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as maturing within one year.

($ in thousands) Maturing Within One Year Maturing After One But Within Five Years Maturing After Five But Within 15 Years Maturing After 15 Years Total

($ in thousands) Maturing <1 Year Maturing 1-5 Years Maturing 5-15 Years Maturing >15 Years Total

Commercial real estate $ 242,648 $ 802,339 $ 782,314 $ 815,300 $ 2,642,601

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Total $ 581,855 $ 1,181,332 $ 1,082,365 $ 2,037,417 $ 4,882,969

Loans related to Cannabis business

At September 30, 2025, loan balances were $86.2 million, or 1.77% of total gross loans.

At December 31, 2024, loan balances were $82.6 million, or 1.73% of total gross loans.

Asset Quality

The following table summarizes asset quality information and ratios at June 30, 2025 and December 31, 2024.

($ in thousands) June 30, 2025 December 31, 2024

The following table summarizes asset quality information and ratios at September 30, 2025 and December 31, 2024.

($ in thousands) September 30, 2025 December 31, 2024

ASSET QUALITY

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Nonaccrual loans, OREO, repossessed assets and BEFD modifications $ 34,787 $ 26,158

($ in thousands) June 30, 2025 December 31, 2024

($ in thousands) September 30, 2025 December 31, 2024

ASSET QUALITY RATIOS

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Allowance for Credit Losses on Loans

The ACL was $58.5 million at June 30, 2025, $57.9 million at December 31, 2024 and $58.5 million at June 30, 2024.

There were net charge-offs of $649 thousand for the three months ended June 30, 2025, compared to net charge-offs of $886 thousand for the three months

ended June 30, 2024.

There were net charge-offs of $1.2 million for the six months ended June 30, 2025, compared to net charge-offs of $1.5 million for the six months ended June 30, 2024.

The ratio of annualized net charge-offs to average loans was 0.05% and 0.08% for the three months ended June 30, 2025 and 2024, respectively.

The ratio of annualized net charge-offs to average loans was 0.05% and 0.06% for the six months ended June 30, 2025 and 2024, respectively.

The ACL was $59.6 million at September 30, 2025, $57.9 million at December 31, 2024 and $58.7 million at September 30, 2024.

There were net charge-offs of $1.8 million for the three months ended September 30, 2025, compared to net charge-offs of $1.3 million for the

three months ended September 30, 2024.

There were net charge-offs of $3.0 million for the nine months ended September 30, 2025, compared to net charge-offs of $2.7 million for the nine months ended September 30, 2024.

The ratio of annualized net charge-offs to average loans was 0.15% and 0.11% for the three months ended September 30, 2025 and 2024, respectively.

The ratio of annualized net charge-offs to average loans was 0.08% and 0.08% for the nine months ended September 30, 2025 and 2024, respectively.

Management remains focused on its efforts to dispose of problem loans and to prudently charge-off nonperforming loans to enable the Company to maintain overall credit quality.

The ACL as a percentage of period-end loans was 1.21% at June 30, 2025 and December 31, 2024.

The ACL as a percentage of period-end loans was 1.22% at September 30, 2025 and December 31, 2024.

The following table allocates the ACL by portfolio loan category as of the dates indicated.

The allocation of the ACL to each category is not necessarily indicative of future losses and does not restrict the use of the ACL to absorb losses in any category.

June 30, 2025 December 31, 2024

September 30, 2025 December 31, 2024

($ in thousands) ACL Average Balance % (1)

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(1) Percent of loans in each category to total portfolio loans.

The following table presents the net charge-offs or recoveries by average loan portfolio category for the three and six months ended June 30, 2025 and 2024.

The following table presents the net charge-offs or recoveries by average loan portfolio category for the three and nine months ended September 30, 2025 and 2024.

Three Months Ended

June 30, 2025 June 30, 2024

September 30, 2025 September 30, 2024

($ in thousands) Net (Charge-offs) Recoveries Average Balance (1)

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(1) Excludes loans held for sale.

Six Months Ended

June 30, 2025 June 30, 2024

Nine Months Ended

September 30, 2025 September 30, 2024

($ in thousands) Net (Charge-offs)

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Classified Assets and Special Mention Assets

Classified assets decreased $5.6 million to $22.6 million, or 0.4% of total assets, at June 30, 2025, from $28.2 million, or 0.5% of total assets, at December 31, 2024.

Classified assets increased $23.8 million to $52.0 million, or 0.8% of total assets, at September 30, 2025, from $28.2 million, or 0.5% of total assets, at December 31, 2024.

Classified assets are substandard loans, repossessed assets and OREO.

The decrease was primarily due to a decrease in substandard loans of $4.7 million and a decrease of $858 thousand in repossessed assets.

Special mention loans increased to $65.6 million at June 30, 2025 from $33.5 million at December 31, 2024.

Management considers classified assets to be an important measure of asset quality.

Increases in special mention loan categories were due to loans related to our multifamily commercial real estate portfolio.

The increase was primarily due to several commercial non-owner occupied real estate loans, which were downgraded during the current period.

All of these loans are well secured by collateral and required minimal individual reserves as of September 30, 2025.

Special mention loans increased to $71.0 million at September 30, 2025 from $33.5 million at December 31, 2024.

Increases in special mention loan categories were due to loans related to the multifamily commercial real estate portfolio.

Management believes these assets are well collateralized and will continue to monitor the cash flow.

The Company’s risk rating process for classified loans is an important input into the Company’s allowance methodology and ACL qualitative framework.

Nonperforming Assets

Nonperforming assets were $19.6 million, or 0.3% of total assets, at June 30, 2025, compared to $24.8 million, or 0.4% of total assets, at December 31, 2024.

The balance of nonperforming assets decreased primarily due to a decrease of nonaccrual loans of $4.2 million and a decrease of $858 thousand of repossessed assets.

Nonperforming assets were $28.1 million, or 0.5% of total assets, at September 30, 2025, compared to $24.8 million, or 0.4% of total assets, at December 31, 2024.

The balance of nonperforming assets increased primarily due to an increase of nonaccrual loans of $3.4 million.

Off-Balance Sheet Credit Exposure Reserve

The Company’s reserve for off-balance sheet credit exposure was $1.9 million and $1.1 million at June 30, 2025 and December 31, 2024, respectively.

The Company’s reserve for off-balance sheet credit exposure was $2.1 million and $1.1 million at September 30, 2025 and December 31, 2024, respectively.

The Company is monitoring line of credit usage and has not seen substantive increases in usage or expected usage.

The Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity.

The following is a breakdown of the Company’s deposit portfolio at June 30, 2025 and December 31, 2024:

($ in thousands) June 30, 2025 December 31, 2024

The following is a breakdown of the Company’s deposit portfolio at September 30, 2025 and December 31, 2024:

($ in thousands) September 30, 2025 December 31, 2024

Balance % Balance % $ Change % Change

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Total deposits $ 5,528,165 100.0 % $ 5,528,336 100.0 % $ (171) 0.0

Total deposits decreased $214.4 million, or 3.9%, to $5.3 billion at June 30, 2025 when compared to December 31, 2024.

The decrease in total deposits was primarily due to a decrease in interest-bearing demand deposits of $214.8 million and money market and savings

deposits of $114.4 million, partially offset by an increase in time deposits of $91.7 million.

The decrease in deposits is primarily attributable to seasonal municipal runoff.

Total estimated uninsured deposits were $886.8 million, or 16.7% of total deposits, at June 30, 2025 and $905.3 million, or 16.4% of total deposits, at December 31, 2024.

At June 30, 2025, there were $118.0 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

The Bank’s uninsured deposits, excluding the market value of pledged collateral, at June 30, 2025 were $768.7 million, or 14.5% of total deposits.

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* Not meaningful for comparative purposes

Total deposits decreased $171 thousand, to $5.5 billion at September 30, 2025 when compared to December 31, 2024.

The slight decrease in total deposits was primarily due to a decrease in interest-bearing demand deposits of $126.1 million and money market and savings deposits of $15.9 million, partially offset by an increase in time deposits of $99.6 million and noninterest-bearing deposits of $31.4 million.

The decrease in interest-bearing checking deposits is primarily attributable to seasonal municipal runoff.

Total estimated uninsured deposits were $936.3 million, or 16.9% of total deposits, at September 30, 2025 and $905.3 million, or 16.4% of total deposits, at December 31, 2024.

At September 30, 2025, there were $144.1 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

The Bank’s uninsured deposits, excluding the market value of pledged collateral, at September 30, 2025 were $792.2 million, or 14.3% of total deposits.

The Bank is required to monitor large deposit relationships and concentration risks in accordance with regulatory guidance.

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Regulatory guidance defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits.

At June 30, 2025, the Bank had three local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $403.3 million, which represented 7.6% of total deposits of $5.32 billion.

At September 30, 2025, the Bank had three local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $538.3 million, which represented 9.7% of total deposits of $5.53 billion.

At December 31, 2024, there were three customer deposit relationships that exceeded 2% of total deposits, totaling $547.4 million, which represented 9.9% of total deposits of $5.54 billion.

At September 30, 2025, deposit balances related to the cannabis business were $134.3 million, or 2.43% of total deposits.

At December 31, 2024, deposit balances were $151.4 million, or 2.74% of total deposits,

Wholesale Funding – Short-Term Borrowings and Brokered Deposits

The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $60.8 million and $50.0 million at June 30, 2025 and December 31, 2024, respectively.

The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $60.9 million and $50.0 million at September 30, 2025 and December 31, 2024, respectively.

The $50.0 million FHLB advance was for an initial term of 18-months at a rate of 4.79%.

This advance has the option to be called by FHLB at any time and matures on November 7, 2025.

At June 30, 2025, the Company had $10.8 million of brokered deposits and no securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

At September 30, 2025, the Company had $10.9 million of brokered deposits and no securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

At December 31, 2024, the Company had no brokered deposits or securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.0 billion .

Reciprocal deposits decreased $331.3 million to $1.31 billion at June 30, 2025, compared to $1.65 billion at December 31, 2024.

Reciprocal deposits as a percentage of the Bank’s liabilities at June 30, 2025 and December 31, 2024 were 24.3% and 29.3%, respectively.

For call reporting purposes, $232.9 million of reciprocal deposits were considered brokered at June 30, 2025, compared to $520.5 million at December 31, 2024.

Reciprocal deposits decreased $162.0 million to $1.48 billion at September 30, 2025, compared to $1.65 billion at December 31, 2024.

Reciprocal deposits as a percentage of the Bank’s liabilities at September 30, 2025 and December 31, 2024 were 26.3% and 29.3%, respectively.

For call reporting purposes, $367.5 million of reciprocal deposits were considered brokered at September 30, 2025, compared to $520.5 million at December 31, 2024.

Long-Term Debt

The Company occasionally borrows from the FHLB to meet longer term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient.

Currently, the Company has no long term borrowing with FHLB as of June 30, 2025.

On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% of Fixed-to-Floating Rate Subordinated Notes due September 1, 2030.

As a result of the merger with Severn Bancorp, Inc., effective October 31, 2021, the Company acquired Junior Subordinated Debt Securities due in 2035 which had an outstanding principal balance of $20.6 million.

The debt balances of $18.9 million at June 30, 2025 and $18.8 million at December 31, 2024 were presented net of fair value adjustments of $1.8 million and $1.8 million, respectively.

Additionally, as a result of the merger with The Community Financial Corporation in 2023 , the Company acquired Junior Subordinated Debt Securities, which had an outstanding principal balance of $12.4 million.

The debt b alance of $11.1 million at June 30, 2025 was presented net of a fair value adjustment of $1.2 million.

In addition, the Company acquired 4.75% fixed-to-floating rate subordinated notes with a carrying value of $19.5 million at June 30, 2025.

The notes’ aggregate balance of $19.3 million at June 30, 2025 was presented net of fair value adjustment of $244 thousand.

The Company had no long term borrowing with the FHLB as of September 30, 2025.

In August 2020, the Company issued and sold $25.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes due September 01, 2030.

The subordinated notes bore an initial interest rate of 5.375% through September 30, 2025, after which the interest rate adjusts quarterly to an amount equal to 3-month SOFR plus 5.265%.

As a result of the merger with Severn Bancorp, Inc., effective October 31, 2021, the Company assumed liability for Junior Subordinated Debt Securities due in 2035, which had an outstanding principal balance of $20.6 million.

The debt balances of $18.9 million at September 30, 2025 and $18.8 million at December 31, 2024 were presented net of fair value adjustments of $1.7 million and $1.8 million, respectively.

Additionally, as a result of the merger with The Community Financial Corporation in 2023 , the Company assumed liability for Junior Subordinated Debt Securities with an outstanding principal balance of $12.4 million.

The debt b alance of $11.2 million at September 30, 2025 was presented net of a fair value adjustment of $1.2 million.

In addition, the Company assumed liability for 4.75% fixed-to-floating rate subordinated notes with a carrying value of $19.5 million at September 30, 2025.

The notes’ aggregate balance of $19.4 million at September 30, 2025 was presented net of fair value adjustment of $91 thousand.

Stockholders’ Equity

($ in thousands, except per share amounts) June 30, 2025 December 31, 2024 $ Change % Change

($ in thousands, except per share amounts) September 30, 2025 December 31, 2024 $ Change % Change

Common stock, $0.01 par value per share $ 334 $ 333 $ 1 0.3 %

3 unchanged sentences

Total stockholders’ equity $ 577,207 $ 541,066 $ 36,141 6.7

Total stockholders’ equity increased $24.1 million, or 4.5%, to $565.2 million at June 30, 2025 when compared to December 31, 2024, primarily due to $29.3 million of net income and a decrease in accumulated other comprehensive loss of $1.9 million, partially offset by dividends declared of $8.0 million.

Total stockholders’ equity increased $36.1 million, or 6.7%, to $577.2 million at September 30, 2025 when compared to December 31, 2024, primarily due to $43.6 million of net income and a decrease in accumulated other comprehensive loss of $2.8 million, partially offset by dividends declared of $12.1 million.

USE OF NON-GAAP FINANCIAL MEASURES

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These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.

($ in thousands, except per share amounts) June 30, 2025 December 31, 2024 June 30, 2024

($ in thousands, except per share amounts) September 30, 2025 December 31, 2024 September 30, 2024

Total assets $ 6,278,479 $ 6,230,763 $ 5,917,704

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This financial metric is expressed in the form of a percentage which is equal to net income after tax divided by the average stockholders’ equity for a specific period of time.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

($ in thousands) 2025 2024 2025 2024

Net income (as reported) $ 15,507 $ 11,234 $ 29,271 $ 19,418

Net income $ 14,348 $ 11,189 $ 43,619 $ 30,607

Annualized net income $ 56,924 $ 44,513 $ 58,318 $ 40,884

ROACE 9.96 % 8.41 % 10.43 % 7.84 %

Average Equity $ 558,952 $ 519,478 $ 553,229 $ 517,727

Average stockholders’ equity $ 571,247 $ 529,155 $ 559,301 $ 521,564

Return on Average Tangible Common Equity

ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common shareholders’ equity.

ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common equity.

Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally-developed.

ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

($ in thousands) 2025 2024 2025 2024

Net income (as reported) $ 15,507 $ 11,234 $ 29,271 $ 19,418

Core deposit intangible amortization (net of tax) (1)

1,708 1,924 3,425 3,903

Net earnings applicable to common stockholders

$ 17,215 $ 13,158 $ 32,696 $ 23,321

Net income $ 14,348 $ 11,189 $ 43,619 $ 30,607

Annualized net income $ 56,924 $ 44,513 $ 58,318 $ 40,884

ROATCE 11.98 % 10.50 % 12.65 % 9.88 %

Average equity $ 558,952 $ 519,478 $ 553,229 $ 517,727

Average stockholders’ equity $ 571,247 $ 529,155 $ 559,301 $ 521,564

Average goodwill and core deposit intangible (96,074) (105,136) (98,260) (107,623)

Average tangible common equity $ 475,173 $ 424,019 $ 461,041 $ 413,941

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(1) The Company utilized an effective tax rate of 24.8% and 25.1% for the three months ended June 30, 2025 and 2024, respectively, and 24.7% and 24.1% for the six months ended June 30, 2025 and 2024, respectively.

Efficiency Ratio – Non-GAAP

Efficiency ratio – non-GAAP is computed by dividing i) noninterest expense less amortization of other intangible assets and credit card fraud losses by ii) the sum of taxable-equivalent net interest income and noninterest income less the sale and the fair value of held for sale assets, as applicable.

Efficiency ratio – non-GAAP may not be comparable to similar non-GAAP measures used by other companies.

Three Months Ended September 30, Nine Months Ended September 30,

($ in thousands) 2025 2024 2025 2024

Noninterest expense $ 34,379 $ 34,114 $ 102,536 $ 104,311

Amortization of other intangible assets (2,039) (2,336) (6,589) (7,482)

Credit card fraud losses — (337) — (4,660)

Adjusted noninterest expense $ 32,340 $ 31,441 $ 95,947 $ 92,169

Efficiency ratio – non-GAAP 57.30 % 62.10 % 57.73 % 61.83 %

Net interest income $ 48,655 $ 43,263 $ 141,936 $ 126,538

Taxable-equivalent adjustment 83 82 244 242

Taxable-equivalent net interest income $ 48,738 $ 43,345 $ 142,180 $ 126,780

Noninterest income $ 7,701 $ 7,287 $ 24,021 $ 22,294

Adjusted noninterest income $ 7,701 $ 7,287 $ 24,021 $ 22,294

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis