−Removed: The Company was incorporated under the laws of Maryland on March 15, 1996 and is a financial holding company registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
−Removed: The Company is the largest independent financial holding company located on the Eastern Shore of Maryland.
−Removed: The Company conducts business primarily through two wholly-owned subsidiaries, Shore United Bank, N.A.
−Removed: (the “Bank”) and Mid-Maryland Title Company, Inc.
−Removed: (the “Title Company”).
+Added: Shore Bancshares, Inc.
+Added: was incorporated under the laws of Maryland on March 15, 1996 and is the bank holding company for Shore United Bank, N.A,.
+Added: Throughout this report, references to the “Company,” “we,” “our,” and “us,” and similar terms refer to the consolidated entity consisting of Shore Bancshares, Inc.
+Added: and its subsidiaries.
+Added: “Shore Bancshares” refers solely to the parent holding company, and the “Bank” refers solely to Shore Bancshares’ subsidiary bank, Shore United Bank, N.A.
+Added: Shore Bancshares is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
+Added: The Company is the largest independent financial holding company headquartered on the Eastern Shore of Maryland.
+Added: The Company conducts business primarily through the Bank.
The Bank provides consumer and commercial banking products and services and secondary mortgage lending, trust, wealth management and financial planning services.
−Removed: The Title Company engages in title work related to real estate transactions.
−Removed: The Company, Bank and Title Company are Affirmative Action/Equal Opportunity Employers.
+Added: The Company offered title services through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc.
+Added: (the “Title Company”), which engaged in residential and commercial real estate settlement activities and offered title insurance policies, title search and lien satisfaction services.
+Added: The Title Company ceased conducting real estate closings effective March 31, 2025.
+Added: The Company and the Bank are Affirmative Action/Equal Opportunity Employers.
Banking Products and Services
−Removed: The Bank is a national banking association chartered under the laws of the United States with trust powers that can trace its origin to 1876.
−Removed: The Bank currently operates 40 full-service branches, 39 automatic teller machines (an “ATM”), 3 interactive teller machines, 10 loan production and administration offices, and provides a full range of commercial and consumer banking products and services to individuals, businesses, and other organizations in Baltimore County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County, Anne Arundel County, Charles County, St.
−Removed: Mary’s County, Calvert County and Worcester County in Maryland, Kent County and Sussex County in Delaware and Fredericksburg City, Stafford County and Spotsylvania County in Virginia.
+Added: The Bank, which traces its origin to 1876, is a national banking association chartered under the laws of the United States.
+Added: The Bank currently operates 40 full-service branches and 10 loan production and administration offices, and provides a full range of commercial and consumer banking products and services to individuals, businesses, and other organizations in Maryland, Delaware and Virginia.
The Bank’s deposits are insured up to applicable legal limits by the FDIC.
Services provided to businesses include commercial checking, savings, certificates of deposit and overnight investment sweep accounts.
−Removed: The Bank offers all forms of commercial lending, including secured and unsecured loans, working capital loans, lines of credit, term loans, accounts receivable financing, real estate acquisition and development, construction loans and letters of credit.
+Added: The Bank offers all forms of commercial lending, including secured and unsecured loans, working capital loans, lines of credit, term loans, accounts receivable financing, real estate acquisition and development loans, construction loans and letters of credit.
Treasury management services are also available, such as merchant card processing services, remote deposit capture, ACH origination, digital banking and telephone banking services.
−Removed: Services provided to individuals include checking accounts, various savings programs, mortgage loans, home improvement loans, installment and other personal loans, credit cards, personal lines of credit, automobile and other consumer financing, safe deposit boxes, debit cards, 24-hour telephone banking, internet banking, mobile banking and 24-hour ATM services.
+Added: Services provided to individuals include checking accounts, various savings programs, mortgage loans, home improvement loans, installment and other personal loans, credit cards, personal lines of credit, automobile and other consumer financing, trust administration, wealth management, safe deposit boxes, debit cards, 24-hour telephone banking, internet banking, mobile banking and 24-hour ATM services.
Additionally, the Bank has Saturday hours and extended hours on certain evenings during the week for added customer convenience.
3 unchanged sentences
On July 1, 2023, the Company completed the acquisition of The Community Financial Corporation (“TCFC”) and its wholly-owned subsidiary Community Bank of the Chesapeake (“CBTC”).
−Removed: The transaction was valued at approximately $153.6 million and expanded the Bank’s footprint into the Southern Maryland Counties of Charles, St.
+Added: The transaction expanded the Bank’s footprint into the Southern Maryland Counties of Charles, St.
Mary’s and Calvert and the greater Fredericksburg area in Virginia, which includes Fredericksburg City as well as Stafford and Spotsylvania Counties.
−Removed: At the time of the acquisition, TCFC added $2.4 billion in assets, $454.5 million in investments, $1.8 billion in loans, $2.1 billion in deposits, $150.6 million in brokered deposits, $69.0 million in Federal Home Loan Bank (the “FHLB”) advances and $32.0 million in subordinated debt and trust preferred debentures.
+Added: At the time of the acquisition, TCFC had $2.4 billion in assets, $454.5 million in investments, $1.8 billion in loans, $2.1 billion in deposits, $150.6 million in brokered deposits, $69.0 million in Federal Home Loan Bank (the “FHLB”) advances and $32.0 million in subordinated debt and trust preferred debentures.
The excess of the fair value of net TCFC assets acquired over the merger consideration resulted in an $8.8 million bargain purchase gain.
Lending Activities
−Removed: The Bank originates loans including commercial real estate, residential real estate, construction, commercial, consumer and credit cards.
+Added: The Bank originates loans including commercial real estate, residential real estate, construction, commercial and consumer.
• Commercial Real Estate (“CRE”) and Other Non-Residential Real Estate Loans.
4 unchanged sentences
Loans sold in the secondary market are primarily sold to investors with which the Bank maintains a correspondent relationship.
−Removed: These loans are made in conformity with standard government-sponsored
−Removed: enterprise underwriting criteria required by the investors to assure maximum eligibility for resale in the secondary market and are approved either by the Bank’s underwriter or the correspondent’s underwriter.
+Added: These loans are made in conformity with standard government-sponsored enterprise underwriting criteria required by the investors to assure maximum eligibility for resale in the secondary market and are approved either by the Bank’s underwriter or the correspondent’s underwriter.
Additionally, loans that are sold into the secondary market are typically residential long-term loans (15 or more years), generally with fixed rates of interest.
Loans retained for the Bank’s portfolio typically include loans that periodically reprice or mature prior to the end of an amortized term.
−Removed: Generally, loans are sold with servicing retained which includes loans sold to the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”).
+Added: Generally, loans are sold with mortgage servicing rights retained, which includes loans sold to the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”).
As of December 31, 2025, the Bank was servicing $ 343.8 million in loans for Fannie Mae and $ 105.6 million in loans for Freddie Mac.
24 unchanged sentences
Deposit Activities
−Removed: The Bank offers a full array of deposit products including checking, savings and money market accounts, and regular and IRA certificates of deposit.
+Added: The Bank offers a wide array of deposit products including checking, savings and money market accounts, and regular and IRA certificates of deposit.
The Bank also offers its certificate of deposit account registry service (“CDARS”) program and the insured cash sweep (“ICS”) program allowing customers the ability to insure deposits over $250,000 among other banks that participate in the CDARS and ICS networks while providing competitive rates and easy access to funds.
1 unchanged sentence
Title Services
−Removed: The Company offers title services through its wholly-owned subsidiary, the Title Company, which engages in residential and commercial real estate settlement activities and offers title insurance policies, title search and lien satisfaction services.
+Added: The Company offered title services through its wholly-owned subsidiary, the Title Company, which engaged in residential and commercial real estate settlement activities and offered title insurance policies, title search and lien satisfaction services.
+Added: The Title Company ceased conducting real estate closings effective March 31, 2025.
Financial Services
−Removed: The Company, through Wye Financial Partners, a division of the Bank, offers full-service investment, insurance and financial planning services through our broker/dealer, LPL Financial, to residents of the states of AL, AZ, CA, CO, CT, DE, DC, FL, GA, IN, KY, ME, MD, MA, MI, NJ, NY, NC, OH, PA, RI, SC, SD, TX, VA, WA and WV.
+Added: The Company, through Wye Financial Partners, a division of the Bank, offers full-service investment, insurance and financial planning services through a third-party broker/dealer, LPL Financial, to residents of the states of AL, AZ, CA, CO, CT, DE, DC, FL, GA, IN, KY, ME, MD, MA, MI, NJ, NY, NC, OH, PA, RI, SC, SD, TX, VA, WA and WV.
Trust Services
5 unchanged sentences
Throughout the relationship, the Bank continues to monitor the business, including site visits, to ensure that the cannabis business continues to meet stringent requirements, including maintenance of required licenses.
−Removed: The Bank performs periodic financial reviews of the business and monitors the business in accordance with the Bank Secrecy Act of 1970 (“BSA”) and other state requirements.
+Added: The Bank performs periodic financial reviews of the business and monitors the business in accordance with the Bank Secrecy Act of 1970 (“BSA”) and state requirements.
The Company recognizes that certain customers have seasonality within their operations, which indirectly impacts the Bank’s liquidity.
−Removed: The Bank has significant banking relationships with state, county and local municipalities within Maryland, Virginia and Delaware who receive their funding from federal and state agencies, as well as, tax generating revenue, which is seasonal in nature.
+Added: The Bank has significant banking relationships with state, county and local municipalities within Maryland, Virginia and Delaware that receive their funding from federal and state agencies, as well as, tax generating revenue, which is seasonal in nature.
Employees and Human Capital Resources
4 unchanged sentences
We value our employees by investing in competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication.
−Removed: Attracting, retaining and developing qualified, engaged employees who embody these values are crucial to the success of the Bank and Company.
+Added: Attracting, retaining and developing qualified, engaged employees who embody these values are crucial to our success.
We believe that relations with our employees are good.
Employee Demographics
−Removed: As of December 31, 2024, the Bank employed 597 individuals, of which 584 were employed on a full-time basis (590 full-time equivalent employees).
+Added: As of December 31, 2025, the Bank employed 608 individuals, of whom 595 were employed on a full-time basis (602 full-time equivalent employees).
The Bank’s employees were not represented by a collective bargaining agreement.
1 unchanged sentence
Belonging and Inclusion
−Removed: We are committed to building an inclusive work environment which are supported by our culture and values.
+Added: We are committed to building an inclusive work environment that is supported by our culture and values.
We believe diversity of thought and experiences inspires our team to achieve more creative and innovative solutions for our customers.
11 unchanged sentences
On-demand training opportunities include a variety of industry, technical, professional, business development, leadership and regulatory topics.
−Removed: Shore Bancshares, Inc.
−Removed: and its subsidiaries operate in a highly competitive environment.
−Removed: Our competitors include community banks, commercial banks, credit unions, thrifts, mortgage banking companies, investment advisory firms, brokerage firms, mutual and debt fund companies, private equity, fintechs, title companies and e-commerce and other internet-based companies.
+Added: We operate in a highly competitive environment.
+Added: Our competitors include community banks, commercial banks, credit unions, thrifts, mortgage banking companies, investment advisory firms, brokerage firms, mutual fund companies, private equity firms, fintechs, and e-commerce and other internet-based companies.
We compete on a local and regional basis for banking and investment products and services.
3 unchanged sentences
SUPERVISION AND REGULATION
−Removed: The Company is a financial holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the BHC Act and, as such, is subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the FRB.
−Removed: The Bank is a national banking association, chartered by and subject to the supervision of the Office of the Comptroller of the Currency (the “OCC”).
−Removed: The deposits of the Bank are insured by the FDIC, so certain laws and regulations administered by the FDIC also govern its deposit-taking operations.
−Removed: In addition to the foregoing, the Bank is subject to numerous state and federal statutes and regulations that affect the business of banking generally.
−Removed: Nonbank affiliates of the Company are subject to examination by the FRB, and, as affiliates of the Bank, may be subject to examination by the Bank’s regulators from time to time.
−Removed: To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the text of applicable statutory and regulatory provisions.
−Removed: Legislative and regulatory initiatives, which necessarily impact the regulation of the financial services industry, are introduced from time to time.
−Removed: We cannot predict whether or when potential legislation or new regulations will be enacted, and if enacted, the effect that new legislation or any implemented regulations and supervisory policies would have on our financial condition and results of operations.
−Removed: The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), by way of example, contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets.
−Removed: The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies.
−Removed: Some of the changes brought about by the Dodd-Frank Act have been modified by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Regulatory Relief Act”), signed into law on May 24, 2018.
−Removed: The Dodd-Frank Act has increased the regulatory burden and compliance costs of the Company.
−Removed: Moreover, bank regulatory agencies can be more aggressive in responding to concerns and trends identified in examinations, which could result in an increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity, risk management, and capital adequacy, as well as other safety and soundness concerns.
−Removed: Regulation of Financial Holding Companies
−Removed: The Gramm-Leach-Bliley Act (the “GLB Act”) amended the BHC Act and repealed the affiliation provisions of the Glass-Steagall Act of 1933, which, taken together, limited the securities, insurance and other non-banking activities of any company that controls an FDIC insured financial institution.
−Removed: Under the GLB Act, a bank holding company can elect, subject to certain qualifications, to become a “financial holding company.” The GLB Act provides that a financial holding company may engage in a full range of financial activities, including insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities, with expedited notice procedures.
−Removed: The Company is a financial holding company.
−Removed: Under FRB policy, the Company is expected to act as a source of strength to the Bank, and the FRB may charge the Company with engaging in unsafe and unsound practices for failure to commit resources to the Bank when required.
−Removed: This support may be required at times when the Company may not have the resources to provide the support.
−Removed: Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require the bank holding company to guarantee the bank’s capital restoration plan.
−Removed: In addition, if the FRB believes that a company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the FRB could require the bank holding company to terminate the activities, liquidate the assets or divest its affiliates.
−Removed: The regulators may require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank holding company or its stockholders.
−Removed: Because the Company is a bank holding company, it is viewed as a source of financial and managerial strength for any controlled depository institutions, like the Bank.
−Removed: The Dodd-Frank Act, enacted in 2010, made sweeping changes to the financial regulatory landscape that impacts all financial institutions, including the Company and the Bank.
−Removed: The Dodd-Frank Act directs federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as sources of financial strength for the institution.
−Removed: The term “source of financial strength” is defined under the Dodd-Frank Act as the ability of a company to provide financial assistance to its insured depository institution subsidiaries in the event of financial distress.
−Removed: The appropriate federal banking agency for such a depository institution may require reports from companies that control the insured depository institution to assess their abilities to serve as sources of strength and to enforce compliance with the source-of-strength requirements.
−Removed: The appropriate federal banking agency may also require a holding company to provide financial assistance to a bank with impaired capital.
−Removed: Under this requirement, the Company could be required to provide financial assistance to the Bank should it experience financial distress.
−Removed: Federal Regulation of Banks
−Removed: The OCC may prohibit national banking associations, such as the Bank, from engaging in activities or investments that the OCC believes are unsafe or unsound banking practices.
−Removed: The OCC has extensive enforcement authority over national banking associations to prohibit or
−Removed: correct activities that violate law, regulation or a regulatory agreement or which are deemed to be unsafe or unsound practices.
−Removed: Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.
−Removed: The Bank is subject to the provisions of Section 23A and Section 23B of the Federal Reserve Act.
−Removed: Section 23A limits the amount of loans or extensions of credit to, and investments in, the Company and its nonbank affiliates by the Bank.
−Removed: Section 23B requires that transactions between the Bank and the Company and its nonbank affiliates be on terms and under circumstances that are substantially the same as with non-affiliates.
−Removed: The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors and principal stockholders or any related interest of such persons, which generally require that such credit extensions be made on substantially the same terms as are available to third parties dealing with the Bank and not involve more than the normal risk of repayment.
−Removed: Other laws tie the maximum amount that may be loaned to any one customer and its related interests to capital levels.
−Removed: As part of the Federal Deposit Insurance Company Improvement Act of 1991, each federal banking regulator adopted non-capital safety and soundness standards for institutions under its authority.
−Removed: These standards include internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits.
−Removed: An institution that fails to meet those standards may be required by the agency to develop a plan acceptable to meet the standards.
−Removed: Failure to submit or implement such a plan may subject the institution to regulatory sanctions.
−Removed: The Federal Deposit Insurance Company Improvement Act of 1991 also imposes capital standards on insured depository institutions.
−Removed: The Company, on behalf of the Bank, believes that the Bank meets substantially all standards that have been adopted.
−Removed: Deposit Insurance
−Removed: Our deposits are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC.
−Removed: Deposit insurance is mandatory.
−Removed: We are required to pay assessments to the FDIC on a quarterly basis.
−Removed: The assessment amount is the product of multiplying the assessment base by the assessment amount.
−Removed: The assessment base against which the assessment rate is applied to determine the total assessment due for a given period is the depository institution’s average total consolidated assets during the assessment period less average tangible equity during that assessment period.
−Removed: Tangible equity is defined in the assessment rule as Tier 1 Capital and is calculated monthly, unless the insured depository institution has less than $1 billion in assets, in which case the insured depository institution calculates Tier 1 Capital on an end-of-quarter basis.
−Removed: Parents or holding companies of other insured depository institutions are required to report separately from their subsidiary depository institutions.
−Removed: The FDIC’s methodology for setting assessments for individual banks has changed over time, although the broad policy is that lower-risk institutions should pay lower assessments than higher-risk institutions.
−Removed: The FDIC now uses a methodology, known as the “financial ratios method,” that began to apply on July 1, 2016, in order to meet requirements of the Dodd-Frank Act.
−Removed: The statute established a minimum designated reserve ratio, for the DIF of 1.35% of the estimated insured deposits and required the FDIC to adopt a restoration plan should the reserve ratio fall below 1.35%.
−Removed: The financial ratios took effect when the designated reserve ratio exceeded 1.15%.
−Removed: The FDIC declared that the DIF reserve ratio exceeded 1.15% by the end of the second quarter of 2016.
−Removed: Accordingly, beginning July 1, 2016, the FDIC began to use the financial ratios method.
−Removed: This methodology assigns a specific assessment rate to each institution based on the institution’s leverage capital, supervisory ratings, and information from the institution’s call report.
−Removed: Under this methodology, the assessment rate schedules used to determine assessments due from insured depository institutions become progressively lower when the reserve ratio in the DIF exceeds 2.0% and 2.5%.
−Removed: On October 18, 2022, the FDIC adopted a final rule that increased initial base deposit insurance assessment rates by 2 basis points, which began with the first quarterly assessment period of 2023.
−Removed: The increase was instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020, which caused a substantial decrease in the DIF reserve ratio.
−Removed: The new assessment rate schedules are expected to remain in effect until the DIF reserve ratio meets or exceeds 2%.
−Removed: Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions.
−Removed: The Dodd-Frank Act also raised the limit for federal deposit insurance to $250,000 for most deposit accounts and increased the cash limit of Securities Investor Protection Corporation protection from $100,000 to $250,000.
+Added: The following is a summary of certain statutes and regulations that significantly affect us.
+Added: Other statutes and regulations may affect us but are not discussed in the following paragraphs.
+Added: Bank Holding Company Regulation
+Added: As a bank holding company, Shore Bancshares is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “FRB”).
+Added: Shore Bancshares is required to furnish to the FRB annual and quarterly reports of its operations and additional information and reports.
+Added: Shore Bancshares is also subject to regular examination by the FRB.
+Added: A bank holding company can elect, subject to certain qualifications, to become a “financial holding company.” A financial holding company may engage in a full range of financial activities, including insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities, with expedited notice procedures.
+Added: Shore Bancshares has elected to be a financial holding company.
+Added: Under the BHC Act, a bank holding company must obtain the prior approval of the FRB before (1) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the bank holding company would directly or indirectly own or control more than 5% of the class;
+Added: (2) acquiring all or substantially all of the assets of another bank or bank holding company;
+Added: or (3) merging or consolidating with another bank holding company.
+Added: Prior to acquiring control of Shore Bancshares or the Bank, any company must obtain approval of the FRB.
+Added: For purposes of the BHC Act, “control” is defined as ownership of 25% or more of any class of voting securities of Shore Bancshares or the Bank, the ability to control the election of a majority of the directors, or the exercise of a controlling influence over management or policies of Shore Bancshares or the Bank.
+Added: The Change in Bank Control Act and the related regulations of the FRB require any person or persons acting in concert (except for companies required to make application under the BHC Act) to file a written notice with the FRB before the person or persons acquire control of Shore Bancshares or the Bank.
+Added: The Change in Bank Control Act defines “control” as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank.
+Added: The BHC Act also limits the investments and activities of bank holding companies.
+Added: In general, a bank holding company is prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, non-bank activities that are closely related to banking, and other financially related activities.
+Added: In general, a bank holding company that qualifies as a financial holding company may engage in an expanded list of non-bank activities.
+Added: Non-bank and financially related activities of financial holding companies may be subject to regulation and oversight by regulators other than the FRB.
+Added: The FRB has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that holding company.
+Added: The FRB has adopted guidelines regarding the capital adequacy of bank holding companies that require bank holding companies to maintain specified minimum ratios of capital to total average assets and capital to risk-weighted assets.
+Added: See “Regulatory Capital Requirements.”
+Added: The FRB has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices.
+Added: The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with its capital needs, asset quality, and overall financial condition.
+Added: A holding company must serve as a source of strength for its subsidiary banks and the FRB may require a holding company to contribute additional capital to an undercapitalized subsidiary bank.
+Added: In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal banking regulator to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors.
+Added: Bank Regulation
+Added: The Bank is a national banking association subject to supervision by the Office of the Comptroller of the Currency (the “OCC”).
+Added: Deposits of the Bank are insured by the FDIC to the maximum legal limit.
+Added: Deposits, reserves, investments, loans, consumer law compliance, issuance of securities, payment of dividends, establishment of branches, mergers and acquisitions, corporate activities, changes in control, electronic funds transfers, responsiveness to community needs, management practices, compensation policies, and other aspects of
+Added: operations are subject to regulation by the appropriate federal supervisory authorities.
+Added: In addition, the Bank is subject to numerous federal, state and local laws and regulations that set forth specific restrictions and procedural requirements with respect to extensions of credit (including to insiders), credit practices, disclosure of credit terms and discrimination in credit transactions.
+Added: The OCC regularly examines the operations and condition of the Bank, including, but not limited to, its capital adequacy, liquidity, asset quality, regulatory compliance, and management practices.
+Added: These examinations are for the protection of the Bank’s depositors and the Deposit Insurance Fund.
+Added: In addition, the Bank is required to furnish quarterly and annual reports to the OCC.
+Added: The OCC’s enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business.
+Added: The OCC has adopted regulations regarding capital adequacy that require national banks to maintain specified minimum ratios of capital to total average assets and capital to risk-weighted assets.
+Added: See “Regulatory Capital Requirements.” OCC regulations limit the amount of dividends that the Bank may pay to Shore Bancshares.
+Added: The Bank is subject to restrictions imposed by federal law on extensions of credit to, and certain other transactions with, Shore Bancshares and other affiliates, and on investments in their stock or other securities.
+Added: These restrictions prevent Shore Bancshares and the Bank’s other affiliates from borrowing from the Bank unless the loans are secured by specified collateral and require those transactions to have terms comparable to terms of arms-length transactions with third parties.
+Added: In addition, secured loans and other transactions and investments by the Bank are generally limited in amount as to Shore Bancshares and as to any other affiliate to 10% of the Bank’s capital and surplus and as to Shore Bancshares and all other affiliates together to an aggregate of 20% of the Bank’s capital and surplus.
+Added: Certain exemptions to these limitations apply to extensions of credit and other transactions between the Bank and its subsidiaries.
+Added: These regulations and restrictions may limit Shore Bancshares’s ability to obtain funds from the Bank for its cash needs, including funds for acquisitions and for payment of dividends, interest, and operating expenses.
+Added: Under OCC regulations, banks must adopt and maintain written policies that establish appropriate limits and standards for extensions of credit secured by liens or interests in real estate or made for the purpose of financing permanent improvements to real estate.
+Added: These policies must establish loan portfolio diversification standards;
+Added: prudent underwriting standards, including loan-to-value limits, that are clear and measurable;
+Added: loan administration procedures;
+Added: and documentation, approval, and reporting requirements.
+Added: A bank’s real estate lending policy must reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (the “Interagency Guidelines”) adopted by the federal bank regulators.
+Added: The Interagency Guidelines, among other things, call for internal loan-to-value limits for real estate loans that are not in excess of the limits specified in the guidelines.
+Added: The Interagency Guidelines state, however, that it may be appropriate in individual cases to originate or purchase loans with loan-to-value ratios in excess of the supervisory loan-to-value limits.
+Added: The Bank’s deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC.
+Added: The FDIC uses a risk-based pricing system to determine assessment rates, which currently range from 2.5 to 42 basis points.
+Added: No institution may pay a dividend if in default of the federal deposit insurance assessment.
+Added: Deposit insurance assessments are based on total average assets, excluding Paycheck Protection Program loans, less average tangible common equity.
The FDIC has authority to increase insurance assessments.
−Removed: A significant increase in insurance assessments would likely have an adverse effect on our operating expenses and results of operations.
−Removed: We cannot predict what insurance assessment rates will be in the future.
−Removed: Furthermore, deposit insurance may be terminated by the FDIC upon a finding that an insured depository institution has engaged in unsafe
−Removed: or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
−Removed: The Bank is required to monitor large deposit relationships and concentration risks in accordance with FDIC policy.
−Removed: This includes monitoring deposit concentrations and maintaining fund management policies and strategies that take into account potentially volatile concentrations and significant deposits that mature simultaneously.
−Removed: The FDIC defines a large depositor as a customer or entity that owns or controls 2% or more of a bank’s total deposits.
−Removed: Capital Adequacy Guidelines
−Removed: Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal agencies.
−Removed: These agencies may establish higher minimum requirements if, for example, a banking organization previously has received special attention or has a high susceptibility to interest rate risk.
−Removed: Risk-based capital requirements determine the adequacy of capital based on the risk inherent in various classes of assets and off-balance sheet items.
−Removed: Under the Dodd-Frank Act, the FRB must apply consolidated capital requirements to depository institution holding companies that are no less stringent than those currently applied to depository institutions.
−Removed: The Dodd-Frank Act additionally requires capital requirements to be counter cyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.
−Removed: Under federal regulations, bank holding companies and banks must meet certain risk-based capital requirements.
−Removed: Effective as of January 1, 2015, the Basel III final capital framework (“Basel III”) required financial institutions to maintain a minimum “capital conservation buffer” on top of each of the minimum risk-based capital ratios to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.
−Removed: Basel III subjects banks to the following risk-based capital requirements:
−Removed: • a minimum ratio of common equity Tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer, or 7.0%;
−Removed: • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer, or 8.5%;
−Removed: • a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, or 10.5%;
−Removed: • a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures.
−Removed: Basel III provides for a number of deductions from and adjustments to CET1.
−Removed: These include, for example, the requirement that mortgage servicing rights, deferred tax assets dependent upon future taxable income and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10.0% of CET1 or all such categories in the aggregate exceed 15.0% of CET1.
−Removed: Basel III also includes, as part of the definition of CET1 capital, a requirement that banking institutions include the amount of accumulated other comprehensive income (“AOCI”) (which primarily consists of unrealized gains and non-credit related unrealized losses on available for sale securities, which are not required to be treated as other-than-temporary impairment, net of tax) in calculating regulatory capital.
−Removed: Banking institutions had the option to opt out of including AOCI in CET1 capital if they elected to do so in their first regulatory report following January 1, 2015.
−Removed: As permitted by Basel III, the Company and the Bank have elected to exclude AOCI from CET1.
−Removed: In addition, goodwill and most intangible assets are deducted from Tier 1 capital.
−Removed: For purposes of applicable total risk-based capital regulatory guidelines, Tier 2 capital (sometimes referred to as “supplementary capital”) is defined to include, subject to limitations:
−Removed: perpetual preferred stock not included in Tier 1 capital, intermediate-term preferred stock and any related surplus, certain hybrid capital instruments, perpetual debt and mandatory convertible debt securities, allowances for loan and lease losses and intermediate-term subordinated debt instruments.
−Removed: The maximum amount of qualifying Tier 2 capital is 100% of qualifying Tier 1 capital.
−Removed: For purposes of determining total capital under federal guidelines, total capital equals Tier 1 capital, plus qualifying Tier 2 capital, minus investments in unconsolidated subsidiaries, reciprocal holdings of bank holding company capital securities and deferred tax assets and other deductions.
−Removed: Basel III changed the manner of calculating risk-weighted assets.
−Removed: New methodologies for determining risk-weighted assets in the general capital rules are included, including revisions to recognition of credit risk mitigation, including a greater recognition of financial collateral and a wider range of eligible guarantors.
−Removed: They also include risk weighting of equity exposures and past due loans, and higher (greater than 100%) risk weighting for certain CRE exposures that have higher credit risk profiles, including higher loan-to-value and equity components.
−Removed: In particular, loans categorized as “high-volatility CRE” loans, as defined pursuant to applicable federal regulations, are required to be assigned a 150% risk weighting, and require additional capital support.
−Removed: In addition to the uniform risk-based capital guidelines and regulatory capital ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and
−Removed: Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy.
−Removed: Such a change could affect our ability to grow and could restrict the amount of profits, if any, available for the payment of dividends.
−Removed: In addition, the Dodd-Frank Act requires the federal banking agencies to adopt capital requirements that address the risks that the activities of an institution poses to the institution and the public and private stakeholders, including risks arising from certain enumerated activities.
−Removed: Basel III is currently applicable to the Bank and the Company.
−Removed: Overall, the Company’s implementation of Basel III did not have a material adverse effect on the Company’s or the Bank’s capital ratios, earnings, stockholders’ equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers.
−Removed: In December 2017, the Basel Committee published standards that it described as the finalization of the Basel III post-crisis regulatory reforms (the standards are commonly referred to as “Basel IV”).
−Removed: Among other things, these standards revise the Basel Committee’s standardized approach for credit risk (including recalibrating risk weights and introducing new capital requirements for certain “unconditionally cancellable commitments,” such as unused credit card lines of credit) and provides a new standardized approach for operational risk capital.
−Removed: Under the Basel framework, these standards were generally effective on January 1, 2022, with an aggregate output floor phasing in through January 1, 2027.
−Removed: Under the current U.S.
−Removed: capital rules, operational risk capital requirements and a capital floor apply only to advanced approaches institutions, and not to the Company or the Bank.
−Removed: The impact of Basel IV on us will depend on the manner in which it is implemented by the federal bank regulators.
−Removed: In 2018, the federal bank regulatory agencies issued a variety of proposals and made statements concerning regulatory capital standards.
−Removed: These proposals touched on such areas as CRE exposure, credit loss allowances under generally accepted accounting principles and capital requirements for covered swap entities, among others.
−Removed: Public statements by key agency officials have also suggested a revisiting of capital policy and supervisory approaches on a going-forward basis.
−Removed: In July 2019, the federal bank regulators adopted a final rule that simplifies the capital treatment for certain deferred tax assets, mortgage servicing assets, investments in non-consolidated financial entities and minority interests for banking organizations, such as the Company and the Bank, which are not subject to the advanced approaches requirements.
−Removed: Prompt Corrective Action
−Removed: The federal banking regulators are required to take “prompt corrective action” with respect to capital-deficient institutions.
−Removed: Federal banking regulations define, for each capital category, the levels at which institutions are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under applicable regulations, as of December 31, 2024, the Bank was “well capitalized,” which means it had a CET1 capital ratio of 6.5% or higher;
−Removed: a Tier 1 risk-based capital ratio of 8.0% or higher;
−Removed: a total risk-based capital ratio of 10.0% or higher;
−Removed: a leverage ratio of 5.0% or higher;
−Removed: and was not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure.
−Removed: As noted above, Basel III integrates the capital requirements into the prompt corrective action category definitions set forth below.
−Removed: Capital Category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio Common Equity Tier 1 (CET1) Capital Ratio Leverage Ratio Tangible Equity to Assets Supplemental Leverage Ratio
−Removed: Well Capitalized 10.0% or greater 8.0% or greater 6.5% or greater 5.0% or greater n/a n/a
−Removed: Adequately Capitalized 8.0% or greater 6.0% or greater 4.5% or greater 4.0% or greater n/a 3.0% or greater
−Removed: Undercapitalized Less than 8.0% Less than 6.0% Less than 4.5% Less than 4.0% n/a Less than 3.0%
−Removed: Significantly Undercapitalized Less than 6.0% Less than 4.0% Less than 3.0% Less than 3.0% n/a n/a
−Removed: Critically Undercapitalized n/a n/a n/a n/a Less than 2.0% n/a
−Removed: As of December 31, 2024, the Bank and the Company exceeded all regulatory capital requirements and exceeded the minimum CET1, Tier 1 and total capital ratio inclusive of the fully phased-in capital conservation buffer of 7.0%, 8.5%, and 10.5%, respectively.
−Removed: An institution may be downgraded to, or deemed to be in, a capital category that is lower than indicated by its capital ratios if it is determined to be in an unsafe or unsound condition or if it receives an unsatisfactory examination rating with respect to certain matters.
−Removed: An institution’s capital category is determined solely for the purpose of applying prompt corrective action regulations, and the capital category may not constitute an accurate representation of the institution’s overall financial condition or prospects for other purposes.
−Removed: In the event an institution becomes “undercapitalized,” it must submit a capital restoration plan.
−Removed: The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized institution guarantees the subsidiary’s compliance with the capital restoration plan up to a certain specified amount.
−Removed: Any such guarantee from a depository institution’s holding company is entitled to a priority of payment in bankruptcy.
−Removed: The aggregate liability of the holding company of an undercapitalized bank is limited to the lesser of 5% of the institution’s assets at the time it became undercapitalized or the amount necessary to cause the institution to be “adequately capitalized.” The bank regulators have greater power in situations where an institution becomes “significantly” or “critically” undercapitalized or fails to submit a capital restoration plan.
−Removed: In addition to requiring undercapitalized institutions to submit a capital
−Removed: restoration plan, bank regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business.
−Removed: With certain exceptions, an insured depository institution is prohibited from making capital distributions, including dividends, and is prohibited from paying management fees to control persons if the institution would be undercapitalized after any such distribution or payment.
−Removed: As an institution’s capital decreases, the regulators’ enforcement powers become more severe.
−Removed: A significantly undercapitalized institution is subject to mandated capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of management, and other restrictions.
−Removed: A regulator has limited discretion in dealing with a critically undercapitalized institution and is virtually required to appoint a receiver or conservator.
−Removed: Banks with risk-based capital and leverage ratios below the required minimums may also be subject to certain administrative actions, including the termination of deposit insurance upon notice and hearing, or a temporary suspension of insurance without a hearing in the event the institution has no tangible capital.
−Removed: Safety and Soundness Standards
−Removed: The federal banking agencies have adopted guidelines designed to assist such agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired.
−Removed: The guidelines set forth operational and managerial standards relating to:
−Removed: (i) internal controls, information systems and internal audit systems;
−Removed: (ii) loan documentation;
−Removed: (iii) credit underwriting;
−Removed: (iv) asset growth;
−Removed: (v) earnings;
−Removed: and (vi) compensation, fees and benefits.
−Removed: In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and for evaluating and monitoring earnings to ensure that earnings are sufficient for the maintenance of adequate capital and reserves.
−Removed: These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating.
−Removed: Under these standards, an insured depository institution should:
−Removed: (i) conduct periodic asset quality reviews to identify problem assets;
−Removed: (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses;
−Removed: (iii) compare problem asset totals to capital;
−Removed: (iv) take appropriate corrective action to resolve problem assets;
−Removed: (v) consider the size and potential risks of material asset concentrations;
−Removed: and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk.
−Removed: On September 17, 2024, the FDIC, the OCC and the U.S.
−Removed: Department of Justice (“DOJ”), each announced new rules and policy statements impacting their bank merger review processes.
−Removed: Among these actions, the FDIC approved a final statement of policy on bank merger transactions (the “2024 Statement”) and the OCC approved a final rule updating the agency’s regulations for business combinations involving national banks and federal savings associations.
−Removed: The OCC’s final rule modifies its procedures for reviewing bank merger applications under the Bank Merger Act, including the elimination of the expedited bank merger review and the streamlined application procedures.
−Removed: The OCC’s final rule also includes a new policy statement that addresses the substantive standards that it will use to evaluate bank merger applications, including indicators that point in favor of likely approval or rejection.
−Removed: Concurrent with the FDIC and OCC announcements, the DOJ withdrew from its 1995 Bank Merger Guidelines and announced that it would consider bank mergers under its 2023 Merger Guidelines, which are not industry specific, as well as a separate, recently adopted bank merger addendum.
−Removed: On March 3, 2025, the FDIC approved a proposal to rescind the 2024 Statement and reinstate, on an interim basis, the statement of policy on bank merger transactions that was in effect prior to the 2024 Statement.
−Removed: It remains unclear whether the OCC under anticipated new leadership will also reconsider its new regulation and policy statement.
−Removed: Community Reinvestment Act
−Removed: The Community Reinvestment Act (the “CRA”) requires the federal banking regulatory agencies to assess all financial institutions that they regulate to determine whether these institutions are meeting the credit needs of the communities they serve, including their assessment area(s) (as established for these purposes in accordance with applicable regulations based principally on the location of branch offices).
−Removed: In addition to substantial penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and the CRA into account when regulating and supervising other activities.
−Removed: Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory.” An institution’s record in meeting the requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into nonbanking activities.
−Removed: Our Bank received a “satisfactory” rating in its most recent CRA evaluation.
−Removed: In October 2023, the OCC, together with the FRB and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
−Removed: On March 29, 2024, the federal court paused the enforcement of the new rules in response to a lawsuit filed by several trade groups.
−Removed: We will continue to monitor the litigation until resolved.
−Removed: We have also begun efforts to evaluate the impact of the new rule and to develop a strategy to ensure compliance.
−Removed: Anti-Terrorism, Money Laundering Legislation and OFAC
−Removed: The Bank is subject to the BSA and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.
−Removed: These statutes and related rules and regulations impose requirements and limitations on specified financial transactions and accounts and other relationships intended to guard against money laundering and terrorism financing.
−Removed: The principal requirements for an insured depository institution include (i) establishment of an anti-money laundering program that includes training and audit components, (ii) establishment of a “know your customer” program involving due diligence to confirm the identities of persons seeking to open accounts and to deny accounts to those persons unable to demonstrate their identities, (iii) the filing of currency transaction reports for deposits and withdrawals of large amounts of cash and suspicious activities reports for activity that might signify money laundering, tax evasion, or other criminal activities, (iv) additional precautions for accounts sought and managed for non-U.S.
−Removed: persons and (v) verification and certification of money laundering risk with respect to private banking and foreign correspondent banking relationships.
−Removed: For many of these tasks a bank must keep records to be made available to its primary federal regulator.
−Removed: Anti-money laundering rules and policies are developed by a bureau within the U.S.
−Removed: Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), but compliance by individual institutions is overseen by its primary federal regulator.
−Removed: The Bank has established appropriate anti-money laundering and customer identification programs.
−Removed: The Bank also maintains records of cash purchases of negotiable instruments, files reports of certain cash transactions exceeding $10,000 (daily aggregate amount) and reports suspicious activity that might signify money laundering, tax evasion, or other criminal activities pursuant to the BSA.
−Removed: The Bank otherwise has implemented policies and procedures to comply with the foregoing requirements.
−Removed: Department of Treasury’s Office of Foreign Assets Control (“OFAC”), administers and enforces economic and trade sanctions against targeted foreign countries and persons, as defined by various Executive Orders and Acts of Congress.
−Removed: OFAC publishes lists of persons that are the target of sanctions, including the List of Specially Designated Nationals and Blocked Persons.
−Removed: Financial institutions are responsible for, among other things, blocking accounts of and transactions with sanctioned persons and countries, prohibiting unlicensed trade and financial transactions with them and reporting blocked and rejected transactions after their occurrence.
−Removed: If the Company or the Bank finds a name or other information on any transaction, account or wire transfer that is on an OFAC list or that otherwise indicates that the transaction involves a target of sanctions, the Company or the Bank generally must freeze or block such account or transaction, file a suspicious activity report, and notify the appropriate authorities.
−Removed: Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC.
−Removed: The Bank has implemented policies and procedures to comply with the foregoing requirements.
−Removed: Data Privacy and Cybersecurity
−Removed: The federal bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non-public customer information.
−Removed: These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazard to the security or integrity of such information, and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer.
−Removed: We have adopted a customer information security program to comply with these requirements.
−Removed: The GLB Act requires financial institutions to implement policies and procedures regarding the disclosure of non-public personal information about consumers to non-affiliated third parties.
−Removed: The GLB Act requires disclosures to consumers on policies and procedures regarding the disclosure of such non-public personal information and, except as otherwise required by law, prohibit disclosing such information except as provided in the Bank’s policies and procedures.
−Removed: We have implemented privacy policies addressing these restrictions that are distributed regularly to all existing and new customers of the Bank.
−Removed: In March 2015, federal regulators issued two related statements regarding cybersecurity.
−Removed: One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing Internet-based services of the financial institution.
−Removed: The other statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving destructive malware.
−Removed: A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.
−Removed: If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
−Removed: In November 2021, the federal bank regulatory agencies issued a joint rule establishing computer-security incident notification requirements for banking organizations and their service providers.
−Removed: This rule requires new notifications when a banking organization experiences a computer-security incident.
−Removed: State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations.
−Removed: Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements.
−Removed: Many states have also recently implemented or modified their data breach notification and data privacy requirements.
−Removed: In June 2018, the California legislature passed the California Consumer Privacy Act of 2018, which took effect on January 1, 2020.
−Removed: The California Consumer Privacy Act of 2018, which covers businesses that obtain or access personal information on California resident consumers, grants consumers enhanced privacy rights and control over their personal information and imposes significant requirements on covered companies with respect to consumer data privacy rights.
−Removed: We expect this trend of state-level activity to continue, and are continually monitoring developments in the states in which we operate.
−Removed: In July 2023, the SEC adopted rules requiring registrants to disclose material cybersecurity incidents experienced and describe the material aspects of their nature, scope and timing.
−Removed: The rules, which supersede their previously interpreted guidance published in February 2018, also require annual disclosures describing a company’s cybersecurity risk management, strategy and governance.
−Removed: These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
−Removed: Risk Factors for a further discussion of risks related to cybersecurity and Item 1C.
−Removed: Cybersecurity for a further discussion of the Company’s risk management strategies and governance processes related to cybersecurity.
−Removed: The Consumer Financial Protection Bureau
−Removed: The Dodd-Frank Act created the Consumer Financial Protection Bureau (“CFPB”), which is an independent bureau with broad authority to regulate the consumer finance industry, including regulated financial institutions, nonbanks and others involved in extending credit to consumers.
−Removed: The CFPB has authority through rulemaking, orders, policy statements, guidance, and enforcement actions to administer and enforce federal consumer financial laws, to oversee several entities and market segments not previously under the supervision of a federal regulator, and to impose its own regulations and pursue enforcement actions when it determines that a practice is unfair, deceptive, or abusive.
−Removed: The federal consumer financial laws and all the functions and responsibilities associated with them, many of which were previously enforced by other federal regulatory agencies, were transferred to the CFPB on July 21, 2011.
−Removed: While the CFPB has the power to interpret, administer, and enforce federal consumer financial laws, the Dodd-Frank Act provides that the federal banking regulatory agencies continue to have examination and enforcement powers over the financial institutions that they supervise relating to the matters within the jurisdiction of the CFPB if such institutions have less than $10 billion in assets.
−Removed: The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws.
−Removed: Mortgage Loan Origination
−Removed: The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay.
−Removed: Under the Dodd-Frank Act and the implementing final rule adopted by the CFPB (the “ATR/QM Rule”), a financial institution may not make a residential mortgage loan to a consumer unless it first makes a “reasonable and good faith determination” that the consumer has a “reasonable ability” to repay the loan.
−Removed: In addition, the ATR/QM Rule limits prepayment penalties and permits borrowers to raise certain defenses to foreclosure if the financial institution has not complied with these requirements.
−Removed: The ATR/QM Rule defines a “qualified mortgage” to include a loan with a borrower debt-to-income ratio of less than or equal to 43% or, alternatively, a loan eligible for purchase by Fannie Mae or Freddie Mac while they operate under federal conservatorship or receivership (the “Fannie/Freddie QM Alternative”), and loans that comply with similar ATR/QM rules established by the Federal Housing Administration, Veterans Administration, or U.S.
−Removed: Department of Agriculture.
−Removed: Additionally, a qualified mortgage may not:
−Removed: (i) contain excess upfront points and fees;
−Removed: (ii) have a term greater than 30 years;
−Removed: or (iii) include interest only or negative amortization payments.
−Removed: The ATR/QM Rule specifies the types of income and assets that may be considered in the ability-to-repay determination, the permissible sources for verification, and the required methods of calculating the loan’s monthly payments.
−Removed: The ATR/QM Rule became effective in January 2014.
−Removed: The CFPB amended the ATR/QM rule in December of 2020.
−Removed: One of the amendments modifies the requirements for a loan to qualify as a qualified mortgage as well as certain other provisions in the ATR/QM Rule, and eliminates the Fannie/Freddie QM Alternative.
−Removed: This amendment essentially replaces the 43% debt-to-income limit with an annual percentage rate-based limitation, which for most loans requires that the loan’s annual percentage rate not exceed the average prime offer rate for a comparable transaction by 2.25 percentage points or more as of the date the interest rate is set.
−Removed: A second amendment creates a new class of qualified mortgages, called “seasoned qualified mortgages,” which are essentially first-lien loans that could not be classified as qualified mortgages when originated for reason only that they had debt-to-income ratios above 43%, but which have been held by the original creditor (or the first purchaser) for at least 36 months, during which time the borrower had no more than two 30-day delinquencies and no delinquencies of 60 days or more.
−Removed: Both of these amendments were originally slated to become effective on March 1, 2021, but the amendment eliminating the Fannie/Freddie QM Alternative was given a mandatory compliance date of July 1, 2021 (the same date that the Fannie/Freddie QM Alternative was set to expire).
−Removed: However, the mandatory compliance date for the elimination of the Fannie/Freddie QM Alternative was subsequently extended until October 2022.
−Removed: Despite this extension, Fannie and Freddie stopped buying loans, with application dates on or after July 1, 2021, that only qualified as qualified mortgages based on the Fannie/Freddie QM Alternative.
−Removed: The Regulatory Relief Act provides that for certain insured depository institutions and insured credit unions with less than $10 billion in total consolidated assets, mortgage loans that are originated and retained in portfolio will automatically be deemed to satisfy the “ability to repay” requirement.
−Removed: To qualify for this, the insured depository institutions and credit unions must meet conditions relating to prepayment penalties, points and fees, negative amortization, interest-only features and documentation.
−Removed: The Regulatory Relief Act also directs federal banking agencies to issue regulations exempting certain insured depository institutions and insured credit unions with assets of $10 billion or less from the requirement to establish escrow accounts for certain residential mortgage loans.
−Removed: It also exempts insured depository institutions and insured credit unions that originated fewer than 500 closed-end mortgage loans or 500 open-end lines of credit in each of the two preceding years from a subset of disclosure requirements (recently imposed by the CFPB) under the Home Mortgage Disclosure Act, provided they have received certain minimum CRA ratings in their most recent examinations.
−Removed: The Regulatory Relief Act also directs the OCC to conduct a study assessing the effect of the exemption described above on the amount of Home Mortgage Disclosure Act data available at the national and local level.
−Removed: In addition, Section 941 of the Dodd-Frank Act amended the Securities Exchange Act of 1934, as amended (the “Exchange Act”) to require sponsors of asset-backed securities to retain at least 5% of the credit risk of the assets underlying the securities and generally prohibits sponsors from transferring or hedging that credit risk.
−Removed: In October 2014, the federal banking regulatory agencies adopted a final rule to implement this requirement (the “Risk Retention Rule”).
−Removed: Among other things, the Risk Retention Rule requires a securitizer to retain not less than 5% of the credit risk of any asset that the securitizer, through the issuance of an asset-backed security, transfers, sells, or conveys to a third party;
−Removed: and prohibits a securitizer from directly or indirectly hedging or otherwise transferring the credit risk that the securitizer is required to retain.
−Removed: In certain situations, the final rule allows securitizers to allocate a portion of the risk retention requirement to the originator(s) of the securitized assets, if an originator contributes at least 20% of the assets in the securitization.
−Removed: The Risk Retention Rule also provides an exemption to the risk retention requirements for an asset-backed security collateralized exclusively by Qualified Residential Mortgages, and ties the definition of a Qualified Residential Mortgage to the definition of a “qualified mortgage” established by the CFPB for purposes of evaluating a consumer’s ability to repay a mortgage loan.
−Removed: The federal banking agencies agreed to review the definition of Qualified Residential Mortgages in 2019, following the CFPB’s own review of its “qualified mortgage” regulation.
−Removed: For purposes of residential mortgage securitizations, the Risk Retention Rule took effect on December 24, 2015.
−Removed: For all other securitizations, the rule took effect on December 24, 2016.
−Removed: Other Provisions of the Dodd-Frank Act
−Removed: The Dodd-Frank Act implements far-reaching changes across the financial regulatory landscape.
−Removed: In addition to the reforms previously mentioned, the Dodd-Frank Act also:
−Removed: • requires bank holding companies and banks to be both well capitalized and well managed in order to acquire banks located outside their home state and requires any bank holding company electing to be treated as a financial holding company to be both well managed and well capitalized;
−Removed: • eliminates all remaining restrictions on interstate banking by authorizing national and state banks to establish de novo branches in any state that would permit a bank chartered in that state to open a branch at that location;
−Removed: • repeals Regulation Q, the federal prohibition on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts.
−Removed: Although a significant number of the rules and regulations mandated by the Dodd-Frank Act have been finalized, many of the requirements called for have yet to be implemented and will likely be subject to implementing regulations over the course of several years.
−Removed: Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various agencies, the full extent of the impact such requirements will have on financial institutions’ operations is unclear.
+Added: Management cannot predict what insurance assessment rates will be in the future.
+Added: Insured depository institutions with assets of $10 billion or more are subject to limits on interchange fees.
+Added: Interchange fees, or “swipe” fees, are fees that merchants pay to credit card companies and debit card-issuing banks such as the Bank for processing electronic payment transactions on their behalf.
+Added: The maximum permissible interchange fee that a non-exempt issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, subject to an upward adjustment of 1 cent if an issuer certifies that it has implemented policies and procedures reasonably designed to achieve the fraud-prevention standards set forth by the FRB.
+Added: As the Bank’s assets are less than $10 billion, it is not subject to a cap on interchange fees.
+Added: Consumer Financial Protection Laws and Enforcement
+Added: We must comply with various federal and state consumer protection laws and regulations with respect to the consumer financial products and services that we provide.
+Added: The Consumer Financial Protection Bureau (“CFPB”) is responsible for promoting fairness and transparency for mortgages, credit cards, deposit accounts and other consumer financial products and services and for interpreting and enforcing the federal consumer financial laws that govern the provision of such products and services.
+Added: The CFPB is also authorized to prevent any institution under its authority from engaging in an unfair, deceptive, or abusive act or practice in connection with consumer financial products and services.
+Added: The CFPB has exclusive examination and primary enforcement authority with respect to compliance with federal consumer financial protection laws and regulations by institutions under its supervision and is authorized, individually or jointly with the federal banking agencies, to conduct investigations to determine whether any person is, or has, engaged in conduct that violates such laws or regulations.
+Added: As an insured depository institution with total assets less than $10 billion, the Bank is not subject to the CFPB’s supervisory and enforcement authorities.
+Added: The Bank is subject to federal and state fair lending laws such as the Equal Credit Opportunity Act and the Fair Housing Act, which prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes.
+Added: In addition, the Bank is subject to other federal and state laws designed to protect consumers and prohibit unfair, deceptive or abusive business practices, including the Home Ownership Protection Act, Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act of
+Added: 2003, the Gramm-Leach Bliley Act, the Truth in Lending Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the National Flood Insurance Act and various state law counterparts.
+Added: These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must interact with clients when taking deposits, making loans, collecting and servicing loans, and providing other services.
+Added: Regulatory Capital Requirements
+Added: Shore Bancshares and the Bank are subject to capital and leverage requirements.
+Added: Specifically, Shore Bancshares and the Bank are subject to the following minimum capital requirements:
+Added: (1) a leverage ratio of 4%;
+Added: (2) a Common Equity Tier 1 (“CET1”) risk-based capital ratio of 4.5%;
+Added: (3) a Tier 1 risk-based capital ratio of 6%;
+Added: and (4) a total risk-based capital ratio of 8%.
+Added: CET1 capital consists solely of common stock plus related surplus and retained earnings, adjusted for goodwill, intangible assets and the related deferred taxes.
+Added: Additional Tier 1 capital may include other perpetual instruments historically included in Tier 1 capital, such as non-cumulative perpetual preferred stock, if applicable.
+Added: Tier 2 capital consists of unsecured instruments that are subordinated to deposits and general creditors and have a minimum original maturity of at least five years, among other requirements, plus instruments that the rule has disqualified from Tier 1 capital treatment.
+Added: Instruments that are included in Tier 2 capital, but have a maturity of less than five years, must be ratably discounted over their remaining life until they reach maturity.
+Added: In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain a “capital conservation buffer” of 2.5% on top of its minimum risk-based capital requirements.
+Added: This buffer must consist solely of CET1 capital and the buffer applies to all three measurements:
+Added: CET1 capital, Tier 1 capital and total capital.
+Added: Prompt Corrective Regulatory Action
+Added: Federal law establishes a system of prompt corrective action to resolve the problems of undercapitalized institutions.
+Added: The law requires that certain supervisory actions be taken against undercapitalized institutions, the severity of which depends on the degree of undercapitalization.
+Added: The OCC has adopted regulations to implement the prompt corrective action legislation as to national banks.
+Added: An institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater.
+Added: An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater.
+Added: An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%.
+Added: An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of less than 3.0%.
+Added: An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.
+Added: Subject to a narrow exception, a receiver or conservator is required to be appointed for an institution that is “critically undercapitalized” within specified time frames.
+Added: The regulations also provide that a capital restoration plan must be filed with the OCC within 45 days of the date an institution is deemed to have received notice that it is “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.” Compliance with the plan must be guaranteed by any parent holding company up to the lesser of 5% of the institution's total assets when it was deemed to be undercapitalized or the amount necessary to achieve compliance with applicable capital requirements.
+Added: In addition, numerous mandatory supervisory actions become immediately applicable to an undercapitalized institution including, but not limited to, increased monitoring by regulators and restrictions on growth, capital distributions and expansion.
+Added: The OCC could also take any one of a number of discretionary supervisory actions, including the issuance of a capital directive and the replacement of senior executive officers and directors.
+Added: Significantly and critically undercapitalized institutions are subject to additional mandatory and discretionary measures.
+Added: As of December 31, 2025, the most recent notification from the Bank’s primary regulator categorized the Bank as a “well-capitalized” institution under the prompt corrective action rules of the Federal Deposit Insurance Act.
+Added: Supervision and Regulation of Mortgage Banking Operations
+Added: Our mortgage banking business is subject to the rules and regulations of the U.S.
+Added: Department of Housing and Urban Development (“HUD”), the Federal Housing Administration (“FHA”), the Veterans’ Administration (“VA”) and Fannie Mae with respect to originating, processing, selling and servicing mortgage loans.
+Added: Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines, which include provisions for inspections and appraisals, require credit reports on prospective borrowers, and fix maximum loan amounts.
+Added: Lenders are required annually to submit audited financial statements to Fannie Mae, FHA and VA.
+Added: Each of these regulatory entities has its own financial requirements.
+Added: We are also subject to examination by Fannie Mae, FHA and VA to assure compliance with the applicable regulations, policies and procedures.
+Added: Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, the Federal Truth-in-Lending Act, the Fair Housing Act, the Fair Credit Reporting Act, the National Flood Insurance Act and the Real Estate Settlement Procedures Act and related regulations that prohibit discrimination and require the disclosure
+Added: of certain basic information to mortgagors concerning credit terms and settlement costs.
+Added: Our mortgage banking operations are also affected by various state and local laws and regulations and the requirements of various private mortgage investors.
+Added: Community Reinvestment
+Added: Under the Community Reinvestment Act (“CRA”), a financial institution has a continuing and affirmative obligation to help meet the credit needs of the entire community, including low- and moderate-income neighborhoods.
+Added: The CRA does not establish specific lending requirements or programs for financial institutions or limit an institution’s discretion to develop the types of products and services that it believes are best suited to its particular community.
+Added: However, institutions are rated on their performance in meeting the needs of their communities.
+Added: Performance is tested in three areas:
+Added: (1) lending, to evaluate the institution’s record of making loans in its assessment areas;
+Added: (2) investment, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and businesses;
+Added: and (3) service, to evaluate the institution’s delivery of services through its branches, ATMs and other offices.
+Added: The CRA requires each federal banking agency, in connection with its examination of a financial institution, to assess and assign one of four ratings to the institution’s record of meeting the credit needs of the community and to take such record into account in its evaluation of certain applications by the institution, including applications for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions.
+Added: The CRA also requires that all institutions make public disclosure of their CRA ratings.
+Added: The Bank was assigned a “satisfactory” rating as a result of its most recent CRA examination.
+Added: In 2023, the federal bank regulators jointly issued a final rule to strengthen and modernize the CRA regulations to better achieve the purpose of the CRA.
+Added: The final rule updates the CRA regulations to evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems.
+Added: The final rule adopts a new metrics-based approach to evaluating bank retail lending and community development financing, using benchmarks based on peer and demographic data.
+Added: Most of the rule’s requirements will be applicable beginning January 1, 2026.
+Added: The remaining requirements, including the data reporting requirements, will be applicable on January 1, 2027.
+Added: On July 16, 2025, the federal bank regulators jointly issued a proposal to rescind the 2023 rule and replace it with the 1995 CRA regulations, with certain technical amendments.
+Added: Bank Secrecy Act
+Added: Under the Bank Secrecy Act (“BSA”), a financial institution is required to have systems in place to detect certain transactions, based on the size and nature of the transaction.
+Added: Financial institutions are generally required to report cash transactions involving more than $10,000 to the United States Treasury.
+Added: In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects, or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA, or has no lawful purpose.
+Added: The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act, commonly referred to as the “USA Patriot Act” or the “Patriot Act”, contains prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to prevent the use of the United States financial system for money laundering and terrorist financing activities.
+Added: The Patriot Act requires banks and other depository institutions, brokers, dealers and certain other businesses involved in the transfer of money to establish anti-money laundering programs, including employee training and independent audit requirements meeting minimum standards specified by the Patriot Act, to follow standards for customer identification and maintenance of customer identification records, and to compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers.
+Added: The Patriot Act also requires federal bank regulators to evaluate the effectiveness of an applicant in combating money laundering in determining whether to approve a proposed bank acquisition.
+Added: In July 2024, the federal banking agencies proposed amendments to update the requirements for supervised institutions to establish, implement and maintain effective, risk-based and reasonably designed AML and countering the financing of terrorism (“CFT”) programs.
+Added: The proposed amendments would require supervised institutions to identify, evaluate and document the regulated institution's money laundering, terrorist financing and other illicit finance activity risks, as well as consider, as appropriate, the U.S.
+Added: Department of the Treasury's Financial Crimes Enforcement Network's (“FinCEN”) published national AML/CFT priorities.
+Added: Cybersecurity
+Added: Federal regulations require a banking organization to notify its primary federal regulator as soon as possible, and no later than 36 hours, after the banking organization determines that a “computer-security incident” rising to the level of a “notification incident” has occurred.
+Added: Notification is required for incidents that have materially affected or are reasonably likely to materially affect the viability of a banking organization’s operations, its ability to deliver banking products and services, or the stability of the financial sector.
+Added: Service providers are required under the rule to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect the banking organization’s customers for four or more hours.
+Added: Guidance for Third-Party Relationships
+Added: The federal bank regulators have jointly issued guidance on risk management of third-party relationships, including third-party lending relationships.
+Added: The interagency guidance seeks to, among other things, promote consistency in third-party risk management and provide
+Added: sound risk management guidance for third-party relationships commensurate with a bank's risk profile and complexity as well as the criticality of the activity.
+Added: Brokered Deposits
+Added: The FDIC limits the ability to accept brokered deposits to those insured depository institutions that are well capitalized.
+Added: Institutions that are less than well capitalized cannot accept, renew or roll over any brokered deposit unless they have applied for and been granted a waiver by the FDIC.
+Added: Institutions that are less than well capitalized that are permitted to accept, renew or rollover brokered deposits via FDIC waiver generally may not pay an interest rate in excess of the national rate plus 75 basis points on such brokered deposits.
+Added: The FDIC has defined the “national rate” for all interest-bearing deposits held by less-than-well-capitalized institutions as “a simple average of rates paid by all insured depository institutions and branches for which data are available” and has stated that its presumption is that this national rate is the prevailing rate in any market.
+Added: Brokered deposits are deposits placed into a bank by a third-party deposit broker.
+Added: Generally, a person is a “deposit broker” if it is “engaged in the business of placing deposits, or facilitating the placement of deposits, of third parties with insured depository institutions or the business of placing deposits with insured depository institutions for the purpose of selling interests in those deposits to third parties.” FDIC regulations define what it means to be in the business of placing deposits and facilitating the placement of deposits for purpose of the deposit broker definition.
Other Laws and Regulations
−Removed: Our operations are subject to several additional laws, some of which are specific to banking and others of which are applicable to commercial operations generally.
−Removed: For example, with respect to our lending practices, we are subject to the following laws and regulations, among several others:
−Removed: • Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
−Removed: • Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
−Removed: • Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;
−Removed: • Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections, and certain credit and other disclosures;
−Removed: • Fair Debt Collection Practices Act, governing how consumer debts may be collected by collection agencies;
−Removed: • Real Estate Settlement Procedures Act, requiring certain disclosures concerning loan closing costs and escrows, and governing transfers of loan servicing and the amounts of escrows for loans secured by one-to-four family residential properties;
−Removed: • Rules and regulations established by the National Flood Insurance Program;
−Removed: • Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws;
−Removed: • Our deposit operations are subject to federal laws applicable to depository accounts, including:
−Removed: ◦ Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;
−Removed: ◦ Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts;
−Removed: ◦ Electronic Funds Transfer Act and Regulation E of the FRB, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;
−Removed: ◦ Rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.
−Removed: We are also subject to a variety of laws and regulations that are not limited to banking organizations.
−Removed: For example, in lending to commercial and consumer borrowers, and in owning and operating our own property, we are subject to regulations and potential liabilities under state and federal environmental laws.
−Removed: In addition, we must comply with privacy and data security laws and regulations at both the federal and state level.
−Removed: The banking industry is heavily regulated by regulatory agencies at the federal and state levels.
−Removed: Like most of our competitors, we have faced and expect to continue to face increased regulation and regulatory and political scrutiny, which creates significant uncertainty for us, as well as for the financial services industry in general.
−Removed: Enforcement Powers
−Removed: The federal regulatory agencies have substantial penalties available to enforce relative to depository institutions and certain “institution-affiliated parties.” Institution-affiliated parties primarily include management, employees, and agents of a financial institution, as well as independent contractors and consultants, such as attorneys, accountants and others who participate in the conduct of the financial institution’s affairs.
−Removed: An institution can be subject to an enforcement action due to the failure to timely file required reports, the filing of false or misleading information, the submission of inaccurate reports or engaging in other unsafe or unsound banking practices.
−Removed: The Financial Institution Reform Recovery and Enforcement Act provided regulators with greater flexibility to commence enforcement actions against institutions and institution-affiliated parties and to terminate an institution’s deposit insurance.
−Removed: It also expanded the power of banking regulatory agencies to issue regulatory orders.
−Removed: Such orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnification or guarantees against loss.
−Removed: A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the ordering agency to be appropriate.
−Removed: The Dodd-Frank Act increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency.
−Removed: Federal Securities Laws
−Removed: The shares of the Company’s common stock are registered with the SEC under Section 12(b) of the Act and listed on the NASDAQ Global Select Market.
−Removed: The Company is subject to information reporting requirements, proxy solicitation requirements, insider trading restrictions and other requirements of the Exchange Act, including the requirements imposed under the Sarbanes-Oxley Act of 2002 and the rules of The NASDAQ Stock Market, LLC.
−Removed: Among other things, loans to and other transactions with insiders are subject to restrictions and heightened disclosure, directors and certain committees of the Board must satisfy certain independence requirements, and the Company is generally required to comply with certain corporate governance requirements.
−Removed: Governmental Monetary and Credit Policies and Economic Controls
−Removed: The earnings and growth of the banking industry and ultimately of the Company are affected by the monetary and credit policies of governmental authorities, including the FRB.
−Removed: An important function of the FRB is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures.
−Removed: Among the instruments of monetary policy used by the FRB to implement these objectives are open market operations in U.S.
−Removed: government securities, changes in the federal funds rate, changes in the discount rate of member bank borrowings and changes in reserve requirements against member bank deposits.
−Removed: These means are used in varying combinations to influence overall growth of bank loans, investments and deposits and may also affect interest rates charged on loans or paid for deposits.
−Removed: The FRB’s monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to continue to have such an effect in the future.
−Removed: In view of changing conditions in the national economy and in the money markets, as well as the effect of actions by monetary and fiscal authorities, including the FRB, no prediction can be made as to possible future changes in interest rates, deposit levels, loan demand or their effect on the business and earnings of the Company and its subsidiaries.
−Removed: Future Legislative Developments
−Removed: Various legislative acts are from time to time introduced in Congress and the Maryland legislature.
−Removed: This legislation may change banking statutes and the environment in which we operate in substantial and unpredictable ways.
−Removed: We cannot determine the ultimate effect that potential legislation, if enacted, or implementing regulations and interpretations with respect thereto, would have on our financial condition or results of operations.
−Removed: The new presidential administration and many members of Congress have advocated for changes in financial services regulation, potentially including amendments to the Dodd-Frank Act and other federal banking laws, and structural changes to the CFPB.
−Removed: It is possible, though uncertain, that Congress and/or the relevant federal agencies may seek to roll back or modify some or much of the rulemaking and regulatory guidance issued under the previous presidential administration.
−Removed: Additionally, the full impact of the leadership changes at banking regulatory agencies on the enforcement and supervisory priorities of each agency is not fully known at this time.
−Removed: It is therefore unclear at the present time what effect the aforementioned changes will have on the banking industry as a whole or the Company specifically.
+Added: Some of the aspects of our lending and deposit business that are subject to regulation by the OCC and the FDIC include reserve requirements and disclosure requirements in connection with personal and mortgage loans and deposit accounts.
+Added: In addition, we are subject to numerous federal and state laws and regulations that include specific restrictions and procedural requirements with respect to the establishment of branches, investments, interest rates on loans, credit practices, the disclosure of credit terms, and discrimination in credit transactions.
+Added: We are also subject to the Gramm-Leach-Bliley Act (the “GLBA”) and its implementing regulations and guidance.
+Added: Among other things, the GLBA (i) imposes certain limitations on the ability to share consumers’ nonpublic personal information with non-affiliated third-parties and (ii) requires certain disclosures to consumers about information collection, sharing, and security practices and their right to “opt out” of the institution’s disclosure of their personal financial information to non-affiliated third-parties (with certain exceptions).
+Added: Enforcement Actions
+Added: Federal and state statutes and regulations provide financial institution regulatory agencies with great flexibility to undertake an enforcement action against an institution that fails to comply with regulatory requirements.
+Added: Possible enforcement actions range from the imposition of a capital plan and capital directive to civil money penalties, cease-and-desist orders, receivership, conservatorship, or the termination of the deposit insurance.
AVAILABLE INFORMATION
2 unchanged sentences
The information on, or accessible through, our website or any other website cited in this Annual Report on Form 10-K is not part of, or incorporated by reference into, this Annual Report on Form 10-K and should not be relied upon in determining whether to make an investment decision.
+Added: Information About Our Executive Officers (as of December 31, 2025)
+Added: Executive Officer
+Added: Recent Work Experience
+Added: President and Chief Executive Officer
+Added: President and Chief Executive Officer since July 1, 2023.
+Added: Prior to that time, he served as President and Chief Executive Officer of The Community Financial Corporation.
+Added: Executive Vice President and Chief Financial Officer
+Added: Chief Financial Officer since April 21, 2025.
+Added: Prior to that time, he served as Chief Financial Officer of Sandy Spring Bancorp, Inc.
+Added: from May 2024 to April 2025, Treasurer from July 2022 to May 2024 and Corporate Strategist and Director of Financial Analysis prior to July 2022.
+Added: Executive Vice President and Chief Internal Audit Officer
+Added: Chief Internal Audit Officer since January 1, 2025.
+Added: From January 1, 2024, to December 31, 2024, she served as Director of Internal Audit.
+Added: From July 1, 2023, to December 31, 2023, she served as Director of Special Projects.
+Added: Prior to that time, she served as Vice President of Special Projects of Community Bank of the Chesapeake.
+Added: Executive Vice President and Chief Banking Officer
+Added: Chief Banking Officer since July 1, 2023.
+Added: Prior to that time, he served as Chief Banking Officer of The Community Financial Corporation.
+Added: Christy Lombardi
+Added: Executive Vice President and Chief Human Resources Officer
+Added: Chief Human Resources Officer since July 1, 2023.
+Added: Prior to that time, she served as Chief Operating Officer of The Community Financial Corporation.
+Added: Executive Vice President and Chief Legal Officer
+Added: Chief Legal Officer since October 20, 2025.
+Added: Prior to that time, he served as General Counsel and Chief Administrative Officer of Sandy Spring Bancorp, Inc.
+Added: Executive Vice President and Chief Strategy & Project Officer
+Added: Chief Strategy & Project Officer since January 1, 2025.
+Added: Previously Chief Administrative Officer since July 1, 2023.
+Added: Prior to that time, she served as Chief Administrative Officer of The Community Financial Corporation.
+Added: Executive Vice President and Chief Credit Officer
+Added: Chief Credit Officer since 2016.
+Added: Executive Vice President and Chief Information Officer
+Added: Chief Information Officer since August 4, 2025.
+Added: Previously head of the North America Risk Practice at Visa Consulting and Analytics.
+Added: Executive Vice President and Chief Operating Officer
+Added: Chief Operating Officer since 2015.
+Added: Executive Vice President and Chief Risk Officer
+Added: Chief Risk Officer since July 1, 2023.
+Added: Prior to that time, he served as Chief Risk Officer of The Community Financial Corporation.
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.