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Item 7. Management’s Discussion and Analysis

2026-03-02 compared with 2025-03-10 · 317 added, 339 removed, 387 unchanged (63% of the section changed)

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The following discussion compares the Company’s financial condition at December 31, 2025 to its financial condition at December 31, 2024 and the results of operations for the years ended December 31, 2025 and 2024.

This discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part II, Item 8.

of this Annual Report on Form 10-K.

This discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.

The discussion comparing the Company’s financial condition at December 31, 2024 to its financial condition at December 31, 2023 and the results of operations for the years ended December 31, 2024 and 2023 that are not included in this Annual Report on Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with GAAP and follow general practices within the industries in which it operates.

The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and follow general practices within the industries in which it operates.

Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.

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

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

of this Annual Report on Form 10-K.

The Company’s most significant accounting policies are presented in Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.

These policies, along with the disclosures presented in the notes to consolidated financial statements and in this management’s discussion and analysis of financial condition and results of operations, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies for the ACL on loans, loans acquired in a business combination, and income taxes are critical accounting policies.

These policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.

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

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

Allowance for Credit Losses on Loans

The Company adopted ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326),” as amended, on January 1, 2023 and in accordance with ASC 326, has recorded an ACL on loans carried at amortized cost.

The ACL represents management’s best estimate of expected lifetime credit losses within the Company’s loan portfolio as of the balance sheet date.

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Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside the Company’s control, may indicate the need for an increase or decrease in the ACL on loans.

While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways.

While management seeks to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways.

Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

The Company’s management reviews the adequacy of the ACL on loans on at least a quarterly basis.

Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K for additional details concerning the determination of the ACL on loans.

Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for additional details concerning the determination of the ACL on loans.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

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To the extent the adoption of new accounting standards materially affects our financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of this discussion and notes to consolidated financial statements.

PERFORMANCE OVERVIEW

The Company recorded net income of $43.9 million and $11.2 million for the years ended December 31, 2024 and 2023, respectively.

The basic and diluted net income per share was $1.32 and $0.42 for the years ended December 31, 2024 and 2023, respectively.

Total assets were $6.23 billion at December 31, 2024, an increase of $219.8 million or 3.7%, when compared to $6.01 billion at December 31, 2023.

The aggregate increase was primarily due to increases year-over-year in loans held for investment of $131.0 million, or 2.8%, and cash and cash equivalents of $87.4 million.

Total liabilities were $5.69 billion at December 31, 2024, an increase of $189.9 million or 3.45%, when compared to $5.50 billion at December 31, 2023, primarily due to an increase in deposits and borrowings.

Total borrowings were $123.7 million at December 31, 2024, an increase of $51.0 million or 70.2%, when compared to $72.7 million at December 31, 2023.

Total borrowings at December 31, 2024 were comprised of $50.0 million long-term FHLB advances, $43.9 million of subordinated debt and $29.8 million of trust preferred debentures.

The increase in total borrowings at December 31, 2024 when compared to December 31, 2023 was primarily due to a $50.0 million long-term FHLB advance that was obtained in 2024.

Total deposits increased $142.2 million, or 2.6% to $5.53 billion at December 31, 2024 when compared to December 31, 2023.

The increase in total deposits when compared to December 31, 2023 was primarily due to increases in noninterest-bearing deposits of $304.8 million and money market and savings of $28.0 million, partially offset by decreases in interest-bearing checking of $187.5 million and and time deposits of $3.0 million.

Total stockholder’s equity amounted to $541.1 million at December 31, 2024, an increase of $29.9 million or 5.9%, when compared to $511.1 million at December 31, 2023.

This increase was due to net income of $43.9 million, partially offset by cash dividends of $16.0 million.

RESULTS OF OPERATIONS

Summary of Financial Results

The Company reported net income for the year ended December 31, 2025 of $59.5 million, or $1.78 diluted earnings per common share, compared to $43.9 million, or $1.32 diluted earnings per common share, for the year ended December 31, 2024.

The Company’s return on average assets, return on average common equity and return on average tangible common equity were 0.98%, 10.52% and 14.09%, respectively, for the year ended December 31, 2025, compared to 0.74%, 8.35% and 12.21%, respectively, for the year ended December 31, 2024.

For additional details, see “Reconciliation of Non-GAAP Measures.” The increase in net income in 2025 compared to 2024 was primarily due to higher net interest income (“NII”) driven by loan growth in 2025 coupled with loans and deposits repricing favorably.

These were partially offset by a higher provision for credit losses of $3.6 million.

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

Year Ended December 31,

($ in thousands) 2024 2023 $ Change % Change

Interest and dividend income $ 295,338 $ 214,079 $ 81,259 37.96 %

Interest expense 124,789 78,772 46,017 58.42

($ in thousands) 2025 2024 2023

Total interest income $ 310,028 $ 295,338 $ 214,079

Total interest expense 117,651 124,789 78,772

Net interest income 192,377 170,549 135,307

Provision for credit losses 8,375 4,738 30,953

Noninterest income 31,147 33,159 (2,012) (6.07)

Noninterest expense 138,254 123,329 14,925 12.10

NII after provision for credit losses 184,002 165,811 104,354

Total noninterest income 32,688 31,147 33,159

Total noninterest expense 138,035 138,254 123,329

Income before income taxes 78,655 58,704 14,184

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Net income $ 59,506 $ 43,889 $ 11,228

The Company reported net income for the year ended December 31, 2024 of $43.9 million, or diluted earnings per share of $1.32, compared to net income of $11.2 million, or diluted earnings per share of $0.42, for the year ended December 31, 2023.

The Company’s return on average assets, return on average common equity and return on average tangible common equity were 0.74%, 8.35% and 13.00%, respectively, for the year ended December 31, 2024, compared to 0.24%, 2.54% and 7.74%, respectively, for the year ended December 31, 2023.

For additional details, see “Reconciliation of Non-GAAP Measures.” The increase in net income in 2024 compared to 2023 was primarily due to higher net interest income driven by loan growth in 2024, and a lower provision for credit losses.

These were partially offset by the absence of the one-time bargain purchase gain of $8.8 million in 2023, higher noninterest expense driven by expanded operation of the newly-combined company and the $4.7 million credit card fraud event in 2024.

A comparison of key operating ratios and common share data for the years ended December 31, 2025, 2024 and 2023 is presented below.

Year Ended December 31,

2025 2024 2023

KEY OPERATING RATIOS

ROAA – GAAP 0.98 % 0.74 % 0.24 %

Adjusted ROAA – non-GAAP (1)

1.08 0.92 0.58

Return on average common equity (“ROACE”) – GAAP 10.52 8.35 2.54

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

14.09 12.21 4.42

Average total equity to average total assets 9.28 8.92 9.47

Net interest spread 2.40 2.14 2.42

Net interest margin 3.36 3.10 3.11

Efficiency ratio – GAAP (3)

61.33 68.55 73.21

Efficiency ratio – non-GAAP (4)

57.43 61.43 61.62

Noninterest income to average assets 0.54 0.53 0.71

Noninterest expense to average assets 2.26 2.34 2.64

COMMON SHARE DATA

Basic net income per common share $ 1.78 $ 1.32 $ 0.42

Diluted net income per common share $ 1.78 $ 1.32 $ 0.42

Cash dividends paid per common share $ 0.48 $ 0.48 $ 0.48

Common dividend payout ratio 26.97 % 36.36 % 114.29 %

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

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

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

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

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

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

Net Interest Income

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

As shown in the table below, tax-equivalent NII increased $21.8 million to $192.7 million for the year ended December 31, 2025, compared to $170.9 million for the year ended December 31, 2024.

The increase in NII was primarily due to an increase in total interest income of $14.7 million, or 5.0%, which included an increase in interest and fees on loans of $11.0 million, or 4.1%, and an increase in interest on deposits with other banks of $2.8 million, or 44.6%.

The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $130.3 million, or 2.8%, coupled with loans repricing favorably during the year.

The decrease in total interest expense was primarily due to a decrease in interest on deposits of $6.1 million and a decrease in interest expense on long-term borrowings of $1.0 million.

The decrease in expense on borrowings was related to lower FHLB advances in 2025.

The following table presents taxable-equivalent net interest income for each of the periods indicated.

Year Ended December 31,

($ in thousands) 2024 2023 $ Change % Change

($ in thousands) 2025 2024 2023 2025 vs.

2024 2024 vs.

Interest and dividend income

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Interest and dividends on investment securities

20,402 19,468 16,970 4.8 14.7

Interest on deposits with banks 9,022 6,239 2,770 44.6 125.2

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Short-term borrowings 2,089 2,131 5,518 (2.0) (61.4)

Long-term debt 7,357 4,454 2,903 65.18

Long-term borrowings 6,359 7,357 4,454 (13.6) 65.2

Total interest expense $ 117,651 $ 124,789 $ 78,772 (5.7) 58.4

Taxable-equivalent adjustment $ 335 $ 325 $ 253 3.1 % 28.5 %

Tax-equivalent net interest income $ 170,874 $ 135,560 $ 35,314 26.05 %

Tax-equivalent net interest income increased $35.3 million to $170.9 million for 2024 compared to $135.6 million for 2023.

The increase in tax-equivalent net interest income was primarily due to an increase in total interest income of $81.3 million, or 38.0%, which included an increase in interest and fees on loans of $75.3 million, or 38.7%.

The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $1.08 billion, or 29.8%, and an increase in net accretion income of $5.1 million due to the merger with TCFC (the “merger”).

These were partially offset by an increase in interest expense of $46.0 million, primarily due to increases in the cost of funds and the average balance of interest-bearing deposits of $749.2 million, or 25.1%.

All of the increases in average balances were primarily due to the merger.

Taxable-equivalent net interest income $ 192,712 $ 170,874 $ 135,560 12.8 % 26.1 %

Average Balances and Yields

The following tables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the years ended December 31, 2024 and 2023.

Year Ended December 31, 2024 Year Ended December 31, 2023

($ in thousands) Average Balance Interest (1), (4)

Yield/Rate Average Balance Interest (1), (4)

The following table presents the distribution of the average consolidated balance sheets, interest income, interest expense and annualized yields earned and rates paid for the years ended December 31, 2025, 2024 and 2023.

Year Ended December 31,

2025 2024 2023

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

Earning assets

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Tax-exempt (1)

651 30 4.61 657 30 4.57 663 58 8.75

Federal funds sold — — — — — — 1,899 92 4.84

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Interest-bearing liabilities

Demand deposits $ 825,773 $ 25,523 3.09 % $ 883,976 $ 20,134 2.28 %

Interest-bearing checking $ 759,395 $ 23,265 3.06 % $ 825,773 $ 25,523 3.09 % $ 883,976 $ 20,134 2.28 %

Money market and savings deposits 1,761,503 38,245 2.17 1,690,905 41,202 2.44 1,275,088 20,039 1.57

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Interest-bearing deposits (4)

3,784,622 109,203 2.89 3,734,725 115,301 3.09 2,985,535 68,800 2.30

FHLB advances 43,068 2,089 4.85 70,298 3,720 5.29 111,392 5,518 4.95

Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) (4)

81,828 6,359 7.77 72,907 5,768 7.91 57,708 4,454 7.72

Total interest-bearing liabilities 3,909,518 117,651 3.01 3,877,930 124,789 3.22 3,154,635 78,772 2.50

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Total liabilities and stockholders’ equity $ 6,094,659 $ 5,896,931 $ 4,663,539

Net interest income $ 170,874 $ 135,560

Net interest spread 2.40 % 2.14 % 2.42 %

Net interest margin (“NIM”) 3.10 % 3.11 %

Net interest margin 3.36 3.10 3.11

Net interest margin excluding accretion (3)

3.15 2.83 2.90

Cost of funds 2.14 2.34 1.88

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

There were $16.9 million and $11.8 million of accretion interest on loans for the years ended December 31, 2024 and 2023, respectively.

(4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment.

There were $1.5 million and $1.8 million of amortization of deposits premium, and $926 thousand and $557 thousand of amortization of borrowing fair value adjustment for the years ended December 31, 2024 and 2023, respectively.

There were $15.4 million, $16.9 million and $11.8 million of accretion interest on loans for the years ended December 31, 2025, 2024 and 2023, respectively.

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

There were $2.2 million, $1.5 million and $1.8 million of amortization of deposit discounts and $865 thousand, $926 thousand and $557 thousand of amortization of borrowing fair value adjustments for the years ended December 31, 2025, 2024 and 2023, respectively.

Rate and Volume Analysis

The following table presents changes in interest income and interest expense for the periods indicated.

For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate);

and (2) changes in rate (changes in rate multiplied by old volume).

For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to:

(1) changes in volume (changes in volume multiplied by old rate) and (2) changes in rate (changes in rate multiplied by old volume).

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

Year Ended December 31, 2024 Compared to 2023

($ in thousands) Volume Due to Rate Total

Year Ended December 31, 2025 Compared to the Year Ended December 31, 2024

($ in thousands) Due to Volume Due to Rate Total

Interest income from earning assets:

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Taxable investment securities (67) 1,001 934

Tax-exempt investment securities — (28) (28)

Fed funds sold — (92) (92)

Interest-bearing deposits 3,508 (725) 2,783

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Interest-bearing liabilities:

Demand deposits $ (1,759) $ 7,160 $ 5,401

Interest-bearing checking deposits $ (2,010) $ (248) $ (2,258)

Money market and savings deposits 1,608 (4,565) (2,957)

Time deposits 1,959 (3,134) (1,175)

FHLB advances - short-term (5) — (5)

FHLB advances - long-term (2,174) 379 (1,795)

Subordinated debt and TRUPS 1,205 109 1,314

Brokered deposits (179) 471 292

Advances from FHLB (1,322) (309) (1,631)

Subordinated debt 693 (102) 591

Total interest-bearing liabilities 749 (7,887) (7,138)

Net change in net interest income $ 10,413 $ 11,425 $ 21,838

The Company’s NIM decreased to 3.10% for 2024, from 3.11% for 2023.

The decrease in the NIM was primarily due to an increase in the average balance and rates paid on interest-bearing liabilities of $723.3 million and 72 basis points, respectively, partially offset by an increase in the average balance and rates earned on total earning assets of $1.16 billion and 44 basis points, respectively.

Margins were flat as more rapid increases in rates on interest-bearing liabilities were offset by increases in interest-earning asset yields and larger balances in noninterest-bearing deposits.

The average balances of noninterest-bearing deposits increased $410.6 million, or 39.35%, from 24.86% of average funding for the year ended December 31, 2023 to 27.27% for the year ended December 31, 2024.

Net accretion income impacted NIM by 27 bps and 21 bps for the years ended December 31, 2024 and 2023, respectively, which resulted in core NIMs of 2.83% and 2.90% for the same periods

Fluctuations in NII can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates.

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

The Company’s NIM increased from 3.10% for the year ended December 31, 2024 to 3.36% for the year ended December 31, 2025.

Margins were higher due to a $211.0 million increase in interest-earning asset balances and a 5 basis point increase in interest-earning asset yields.

These positive movements were coupled with lower cost interest-bearing deposits.

The increase in the average balances of interest-bearing deposits of $49.9 million was offset by a 20 basis point decrease in the associated rates paid, as well as a $27.2 million decrease in the average balance of FHLB advances and a 44 basis point decrease in the associated rates paid.

Net accretion income impacted net interest margin by 21 basis points and 27 basis points for the years ended December 31, 2025 and 2024, respectively, which resulted in NIMs excluding accretion of 3.15% and 2.83% for the same periods.

Provision for Credit Losses (“PCL”) and ACL

Refer to the discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this management’s discussion and analysis of financial condition and results of operations.

Noninterest Income

Total noninterest income for 2024 of $31.1 million decreased $2.0 million, or 6.1%, from $33.2 million for 2023.

The decrease was primarily due to a one-time bargain purchase gain of $8.8 million in the third quarter of 2023, partially offset by $2.2 million of losses on the sale of investment securities, which were both a direct result of the merger with TCFC in the third quarter of 2023.

These were offset by increases in gains on sale of other assets, other noninterest income and interchange fees.

Total noninterest income for the year ended December 31, 2025 was $32.7 million, an increase of $1.5 million, or 4.9%, when compared to the same period in 2024.

The increase was primarily due to a $631 thousand decrease in other noninterest income driven by one-time insurance proceeds, a $344 thousand increase in interchange credits and a $338 thousand increase in trust and investment fee income.

Noninterest Expense

Total noninterest expense of $138.3 million for 2024 increased $14.9 million, or 12.1%, when compared to $123.3 million for 2023.

Almost all noninterest expense line items increased as a result of the expanded operations of the newly-combined Company from the merger.

In addition fraud costs increase by $4.1 million driven by the credit card fraud in the first quarter 2024.

There were no merger-

related expenses for 2024, compared to $17.4 million for 2023.

Excluding merger and merger-related expenses, core deposit intangible amortization of $9.8 million for 2024 and $6.1 million for 2023, noninterest expense for the comparable periods was $128.5 million and $99.9 million, respectively.

Noninterest expense as a percentage of average assets decreased to 2.3% for 2024 from 2.6% for 2023.

Excluding merger and merger-related expenses and core deposit intangible amortization for the comparable periods, noninterest expense as a percentage of average assets increased to 2.2% for 2024 compared to 2.1% for 2023.

Management continues to focus on further streamlining processes, unlocking operational efficiencies and reducing overall noninterest expense.

Total noninterest expense was $138.0 million for the year ended December 31, 2025, a decrease of $219 thousand, or 0.2%, when compared to the same period in 2024.

Noninterest expense line items decreased primarily due to the absence of the $4.7 million credit card fraud event during the year ended December 31, 2024 and lower amortization of intangible assets of $1.2 million, which was partially offset by higher salaries and employee benefit expenses of $4.8 million and an increase of $2.4 million of software and data processing expense in the year ended December 31, 2025.

Noninterest expense as a percentage of average assets decreased to 2.26% for the year ended December 31, 2025 from 2.34% for the year ended December 31, 2024.

The Company reported income tax expense of $19.1 million and $14.8 million for the years ended December 31, 2025 and 2024, respectively.

The effective tax rate was 25.2% for 2024 and 20.8% for 2023.

The primary drivers of the increased effective tax rate for 2024 when compared to 2023 were the bargain purchase gain recorded and nondeductible merger-related costs, in connection with the acquisition of TCFC.

As of December 31, 2024 the Company recorded net deferred tax assets of $31.9 million compared to $40.7 million in 2023 .

The decrease was primarily due to the utilization of the federal NOLs and the decrease attributable to acquisition-related adjustments in 2024 compared to 2023 .

REVIEW OF FINANCIAL CONDITION

The effective tax rates were 24.35% and 25.24% for the years ended December 31, 2025 and 2024, respectively.

Deferred tax assets were $29.8 million and $31.9 million as of December 31, 2025 and 2024, respectively.

ANALYSIS OF FINANCIAL CONDITION

Balance Sheet Summary

Total assets were $6.26 billion at December 31, 2025, an increase of $28.1 million, or 0.5%, when compared to $6.23 billion at December 31, 2024.

The increase was primarily due to increases in loans held for investment of $131.0 million, or 2.8%, and cash and cash equivalents of $87.4 million or 23.50%, partially offset by an increase in the ACL of $559 thousand.

The increase was primarily due to an increase in our loan portfolio of $128.3 million and an increase in our investment securities portfolio of $5.3 million, which were partially offset by a decrease in cash and cash equivalents of $104.3 million.

The decrease in cash and cash equivalents was primarily driven by loan growth.

The ratio of the ACL as a percentage of loans was 1.20% and 1.21% at December 31, 2025 and 2024, respectively.

Cash and Cash Equivalents

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They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates.

Net unrealized holding gains and losses on these securities are reported net of related income taxes as AOCI (loss), a separate component of stockholders’ equity.

Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income (“AOCI”) (loss), a separate component of stockholders’ equity.

Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL.

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At December 31, 2025, 34.7% of the portfolio of debt securities was classified as AFS and 65.3% was classified as HTM, compared to 23.7% and 76.3%, respectively, at December 31, 2024.

See Note 3 – “Investment Securities” in the “Notes to the Consolidated Financial Statements” included in Part II, Item 8.

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

Investment securities, including restricted stock and equity securities, totaled $656.4 million at December 31, 2024, a $9.0 million, or 1.4%, increase compared to $647.3 million at December 31, 2023.

See Note 2 – “Investment Securities” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for additional details on the composition of the investment portfolio.

Investment securities, including restricted stock and equity securities, totaled $659.4 million at December 31, 2025, an increase of $3.0 million, or 0.5%, compared to $656.4 million at December 31, 2024.

At December 31, 2025, AFS securities, carried at fair value, totaled $220.4 million, compared to $149.2 million at December 31, 2024.

At December 31, 2025, AFS securities consisted of 88.5% mortgage-backed, 9.4% U.S.

government agency securities and 4.4% corporate bonds, compared to 76.0%, 18.5%, and 5.5%, respectively, at December 31, 2023 .

At December 31, 2024, AFS securities gross unrealized losses were all related to changes in interest rates and were $10.9 million, or less than 1% of total assets and 2% of stockholder’s equity.

government agencies and 2.1% corporate bonds, compared to 82.0%, 13.5% and 4.4%, respectively, at December 31, 2024.

At December 31, 2025, the gross unrealized losses on AFS securities were all related to changes in interest rates and were $7.1 million, or less than 1% of total assets and 2% of total stockholders’ equity.

At December 31, 2025, the AOCI (loss) was $4.6 million, compared to $7.5 million at December 31, 2024.

At December 31, 2025, HTM securities, carried at amortized cost, totaled $414.8 million, compared to $481.1 million at December 31, 2024.

At December 31, 2025, HTM securities consisted of 73.1% mortgage-backed, 25.3% U.S.

government agency securities, 2.1% other debt securities and 0.3% state and political entities, compared to 69.7%, 28.0%, 2.0% and 0.3%, respectively, at December 31, 2023 .

At December 31, 2024, the HTM securities had an allowance for credit losses of $203 thousand for the year ended December 31, 2024, compared to $94 thousand for the year ended December 31, 2023 .

At December 31, 2024 and 2023 , 97.1% of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

government agency securities and 1.7% other debt securities, compared to 70.0%, 27.6% and 2.5%, respectively, at December 31, 2024.

At December 31, 2025 and 2024, 98.2% and 97.1%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

government agencies or government-sponsored agencies.

7 unchanged sentences

Other debt securities — — 1,832 9.33 2,437 7.72 — — 4,269 4,715

Total $ 2,459 4.39 $ 30,978 3.10 $ 26,615 3.66 $ 99,541 4.19 $ 159,593 $ 149,212

Total available for sale $ 2,494 3.66 % $ 50,135 3.46 % $ 12,960 3.61 % $ 161,088 3.95 % $ 226,677 $ 220,358

Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities

2 unchanged sentences

Held to maturity

Treasury and government agency securities $ 7,000 3.45 % $ 114,934 2.21 % $ 412 2.15 % $ 10,214 2.15 % $ 132,560 $ 124,005

Treasury and government agencies $ 32,564 2.40 % $ 62,283 1.51 % $ 340 2.16 % $ 9,649 2.51 % $ 104,836 $ 100,325

Mortgage-backed securities — — 15,413 3.72 24,199 2.46 263,517 2.35 303,129 271,217

Obligations of states and political entities (1)

— — 312 4.52 — — 1,153 4.53 1,465 1,450

Other debt securities — — 1,313 7.24 5,148 4.47 500 4.86 6,961 6,574

Total $ 7,030 3.43 $ 125,970 2.48 $ 28,360 3.87 $ 319,920 2.34 $ 481,280 $ 424,734

_____________________________________________

(1) Yields have been adjusted to reflect a tax equivalent basis using the statutory federal tax rate of 21%.

Total held to maturity $ 32,564 2.40 % $ 79,009 2.03 % $ 29,687 2.81 % $ 273,666 2.36 % $ 414,926 $ 378,116

Credit Quality Information

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

The following table presents the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2024.

The following tables present the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2025 and 2024.

December 31, 2025

3 unchanged sentences

Mortgage-backed securities 303,129 — — — — — 303,129

Obligations of states and political entities — 1,465 — — — — 1,465

Other debt securities — 1,461 2,000 1,000 500 2,000 6,961

Total held to maturity securities $ 308,528 $ 100,898 $ 2,000 $ 1,000 $ 500 $ 2,000 $ 414,926

December 31, 2024

Investment Grade

($ in thousands) Aaa Aa1 A3 Baa1 Baa2 NR Total

Treasury and government agency securities $ 132,560 $ — $ — $ — $ — $ — $ 132,560

Mortgage-backed securities 336,755 — — — — — 336,755

Other debt securities — 1,465 4,000 4,000 500 2,000 11,965

Total held to maturity securities $ 469,315 $ 1,465 $ 4,000 $ 4,000 $ 500 $ 2,000 $ 481,280

Loans Held for Sale

We originate residential mortgage loans for sale on the secondary market, which we have elected to carry at fair value.

At December 31, 2024 , the fair value of loans held for sale amounted to $19.6 million, compared to $8.8 million at December 31, 2023.

When we sell mortgage loans, we make certain representations to the purchaser related to loan ownership, loan compliance and legality, and accurate documentation, among other things.

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

The Company was not required to repurchase any loans during the years ended December 31, 2024 or 2023.

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

At December 31, 2025 and 2024, the fair value of loans held for sale amounted to $32.5 million and $19.6 million, respectively.

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

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

During the year ended December 31, 2025, the Bank repurchased two loans with an aggregate value of $938 thousand.

No loans were repurchased during the year ended December 31, 2024.

Loans Held for Investment

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

($ in thousands) December 31, 2024 % December 31, 2023 % $ Change % Change

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

Commercial real estate $ 2,643,996 53.95 % $ 2,557,806 53.60 % $ 86,190 3.40 %

5 unchanged sentences

Total loans 4,900,302 100.00 % 4,771,988 100.00 % 128,314 2.70

Allowance for credit losses on loans (57,910) (57,351) (559) 0.97

allowance for credit losses (58,836) (57,910) (926) 1.60

Total loans, net $ 4,841,466 $ 4,714,078 $ 127,388 2.70

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

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

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

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

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The Bank has a concentration in CRE loans, and experienced significant growth in its CRE portfolio with its acquisition of TCFC and its wholly-owned subsidiary, CBTC.

Non-owner occupied CRE loans totaled $2.08 billion and $2.02 billion at December 31, 2024 and 2023, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 359.5% and 382.6%, respectively.

Construction loans totaled $336.0 million and $299.0 million at December 31, 2024 and 2023, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 58.0% and 56.7%, respectively.

The CRE portfolio has increased in the past two years.

Non-owner occupied CRE loans including construction totaled $2.15 billion and $2.08 billion at December 31, 2025 and 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital plus ACL were 342.55% and 359.52%, respectively.

Management has extensive experience in CRE lending and has implemented and continues to maintain heightened risk management procedures, as well as strong underwriting criteria with respect to its CRE portfolio.

1 unchanged sentence

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

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

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

Non-Owner Occupied CRE Loans

December 31, 2025

($ in thousands) Amount Average Loan Size % of Non-Owner

CRE Loans % of Total

Portfolio Loans,

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

Retail $ 490,093 $ 2,539 22.8 % 10.0 %

Office/office condo 370,827 1,539 17.8 7.8

Multi-family (5+ units) 265,278 2,248 12.7 5.6

Motel/hotel 212,216 4,161 10.2 4.4

Office 362,118 1,548 16.8 7.4

Multifamily (5+ units) 289,727 2,476 13.5 5.9

Industrial/warehouse 195,938 1,473 9.1 4.0

Commercial - improved 179,254 1,338 8.6 3.8

1-4 family dwelling 201,468 550 9.4 4.1

Motel/hotel 196,211 4,088 9.1 4.0

415,736 696 19.3 8.5

2 unchanged sentences

Total portfolio loans, gross (3)

(1) Other non-owner occupied CRE loans include 1-4 family dwelling loans of $138.6 million, lot/land loans of $94.3 million, self-storage loans of $72.6 million and other loans of $102.3 million.

(2) The balances for our non-owner occupied commercial real estate portfolio as of December 31, 2024, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.

____________________________________

(1) Other non-owner occupied CRE loans include commercial – improved loans of $164.4 million, lot/land loans of $82.4 million, self storage loans of $71.9 million and other loans $97.0 million.

(2) The balances for the non-owner occupied CRE portfolio as of December 31, 2025, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.

(3) Excludes loans held for sale of $32.5 million .

1 unchanged sentence

December 31, 2025

($ in thousands) Amount Average Loan Size % of Owner Occupied CRE

Loans % of Total

Portfolio Loans,

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

Commercial – improved $ 217,092 $ 1,186 28.0 % 4.4 %

Office/office condo 135,153 520 18.6 2.8

Office 123,822 501 16.0 2.5

Industrial/warehouse 94,538 657 12.2 1.9

Church 64,661 886 8.9 1.4

Retail 64,988 596 8.4 1.3

Restaurant 55,149 985 7.1 1.1

218,928 1,216 28.3 4.6

1 unchanged sentence

Total portfolio loans, gross (2)

(1) Other owner occupied CRE loans include marine/boat slips of $59.1 million, restaurant loans of $58.4 million, fire/CMS building loans of $25.9 million and other loans of $56.7 million.

____________________________________

(1) Other owner occupied CRE loans include church loans of $59.7 million, marina/boat slip loans of $38.8 million, fire/EMS building loans of $38.3 million and other loans $82.0 million.

(2) Excludes loans held for sale of $32.5 million.

1 unchanged sentence

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $485.9 million, or 9.9% of total loans of $4.90 billion at December 31, 2025.

At December 31, 2024, the Bank’s medical tenant loans were $138.7 million and government or government contractor tenant loans were $55.0 million, which equaled 27.4% and 10.9%, respectively, of the total office CRE loan portfolio.

There were 501 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $375 thousand, respectively.

The Bank’s office CRE loan portfolio included $129.1 million, or 26.6% of total office CRE loans, with medical tenants, and $51.5 million, or 10.6%, of total office CRE loans, with government or government contractor tenants.

There were 481 loans in the office CRE loan portfolio with an average and median loan size of $1.0 million and $365 thousand, respectively.

Loan-to-value (“LTV”) estimates are less than 50% for $170.5 million, or 35.0%, of the office CRE loan portfolio, and greater than 80% for $9.1 million, or 1.9%, of the office CRE loan portfolio.

LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews.

LTV estimates for the office CRE loan portfolio are

summarized below and LTV collateral values are based on the most recent appraisal, which may vary from the appraised value at loan origination.

LTV estimates for the office CRE loan portfolio are summarized in the table below and LTV collateral values are based on the most recent appraisal, which may vary from the appraised value at loan origination.

LTV Range ($ in thousands)

Loan Count Loan Balance % of Office CRE

Less than or equal to 50% 244 $ 170,536 35.0 %

Greater than 50% and less than or equal to 60% 73 114,510 23.6

Greater than 60% and less than or equal to 70% 92 149,203 30.7

Greater than 70% and less than or equal to 80% 58 42,608 8.8

Greater than 80% 14 9,083 1.9

Total 481 $ 485,940 100.0 %

The Bank had 17 office CRE loans totaling $166.1 million that were greater than $5.0 million at December 31, 2025, compared to 18 office CRE loans totaling $164.5 million at December 31, 2024.

The decrease in this portfolio segment was the result of normal amortization and one closed loan totaling $10.4 million, and adjustments totaling $13.9 million to remove non-bank-owned participation balances.

The increase in the loan balance of this portfolio segment was the result of addition of a new loan partially offset by normal amortization, the payoff of a $5.6 million loan and the change in purpose of collateral of an $11.8 million loan from office to school.

For the office CRE portfolio, at December 31, 2025, the average loan debt-service coverage ratio was 1.7x and the average LTV was 47.6%.

Of the office CRE portfolio balance, 75% was secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97% were secured by properties with five stories or less.

Of the office CRE portfolio balance, 80.5% are secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97.1% are secured by properties with five stories or less.

Of the office CRE loans, $45.0 million will mature and $26.7 million will reprice prior to December 31, 2026.

Of the office CRE loans, $30.7 million are special mention or substandard.

In the fourth quarter of 2025 there was a charge-off of $2.6 million related to the office CRE portfolio.

There were no other office CRE portfolio charge-offs during 2025.

Maturity of Loan Portfolio

The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at December 31, 2024.

Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

The following table sets forth the maturities and interest rate sensitivity of the loan portfolio at December 31, 2025.

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

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

5 unchanged sentences

Credit cards 1,945 2,249 327 — 4,521

Totals $ 572,133 $ 1,119,744 $ 1,088,160 $ 1,991,951 $ 4,771,988

Total $ 589,483 $ 1,219,358 $ 1,056,188 $ 2,035,273 $ 4,900,302

Fixed-interest rate loans $ 420,188 $ 1,028,990 $ 597,394 $ 297,736 $ 2,344,308

1 unchanged sentence

Total $ 589,483 $ 1,219,358 $ 1,056,188 $ 2,035,273 $ 4,900,302

Asset Quality

The following table summarizes asset quality information and ratios at December 31, 2024 and 2023 .

($ in thousands) December 31, 2024 December 31, 2023

Loans Related to Cannabis Business

Loan balances related to our cannabis business were $86.2 million and $82.6 million, or 1.76% and 1.73% of total gross loans, as of December 31, 2025 and 2024, respectively.

Asset Quality

Total portfolio loans $ 4,771,988 $ 4,641,010

Classified assets (1)

28,173 14,851

Allowance for credit losses on loans (57,910) (57,351)

Past due loans - 31 to 89 days $ 8,807 $ 10,853

Past due loans >= 90 days 294 738

Total past due (delinquency) loans $ 9,101 $ 11,591

Nonaccrual loans $ 21,008 $ 12,784

Past due loans >= 90 days 294 738

Other real estate owned (“OREO”) 179 179

Repossessed property 3,315 —

Total nonperforming assets 24,796 13,701

Accruing borrowers experiencing financial difficulty (“BEFD”) modifications (2)

Total nonperforming assets and BEFDs modifications $ 26,158 $ 14,068

December 31, 2024 December 31, 2023

ASSET QUALITY RATIOS

Classified assets to total assets (1)

0.45 % 0.25 %

Classified assets to risk-based capital (1)

Past due loans - 31 to 89 days to total portfolio loans 0.18 % 0.23 %

Past due loans >= 90 days and nonaccrual to total loans 0.45 0.29

Total past due and nonaccrual loans to total portfolio loans 0.63 0.53

Nonaccrual loans to total portfolio loans 0.44 % 0.28 %

Nonperforming assets to total assets 0.40 0.23

____________________________________

(1) Classified assets consist of substandard loans and OREO.

Classified assets do not include special mention loans.

(2) BEFD modification loans include both nonaccrual and accruing performing loans.

All BEFD modification loans are included in the calculation of asset quality financial ratios.

Nonaccrual BEFD modification loans are included in the nonaccrual balance and accruing BEFD modification loans are included in the accruing BEFD modification balance.

ACL and Provision for Credit Losses

On January 1, 2023, the Company adopted ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326).” The ACL is a valuation allowance that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged-off against the ACL when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries may not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Bank uses loan data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans.

Historical loss experience serves as the foundation for our estimated credit losses.

Adjustments to our historical loss experience are made for differences in current loan portfolio segment credit risk characteristics such as the impact of changing unemployment rates, changes in U.S.

Treasury yields, portfolio concentrations, the volume of classified loans, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduction in the estimated value of any underlying collateral.

This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

Upon the adoption of ASC 326, the Company recorded a $10.8 million increase to the ACL.

The following is a breakdown of the Company’s general and specific allowances as a percentage of total portfolio loans at December 31, 2024 and 2023 :

The following table presents the Company’s general and specific allowances as a percentage of total portfolio loans at December 31, 2025 and 2024 .

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

1 unchanged sentence

General allowance 57,780 56,560

$ 57,910 $ 57,351

Total allowance for credit losses $ 58,836 $ 57,910

Specific allowance to total gross loans 0.02 % 0.02 %

2 unchanged sentences

Total gross loans $ 4,900,302 $ 4,771,988

ACL as a percentage of loans decreased to 1.21% at December 31, 2024 compared to 1.24% at December 31, 2023.

The ACL as a percentage of loans decreased to 1.20% at December 31, 2025, compared to 1.21% at December 31, 2024.

At December 31, 2025, the Company’s ACL increased $926 thousand, or 1.60%, to $58.8 million from $57.9 million at December 31, 2024.

The increase in the general allowance was primarily due to loan growth, partially offset by favorable economic conditions in 2025.

The Company recorded a provision for credit losses on loans of $4.6 million for the year ended December 31, 2024 compared to $30.4 million for the year ended December 31, 2023 primarily due to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million resulting from the change in ACL methodology on TCFC legacy loans in 2023.

Net charge-offs amounted to $2.0 million, or 0.06% of average loans for the year ended December 31, 2023 compared to net charge-offs of $4.1 million or 0.09% of average loans for the year ended December 31, 2024.

The increase in charge-offs in 2024 were primarily due to the marine portfolio.

Management believes that the ACL was adequate at December 31, 2024.

The ACL as a percent of total loans may increase or decrease in future periods based on economic conditions.

Management’s determination of the adequacy of the ACL is based on a periodic evaluation of the loan portfolio.

For additional information regarding the ACL, refer to Note 1 – “Summary of Significant Accounting Policies” and Note 4 – “Loans and Allowance for Credit Losses” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8., as well as “Critical Accounting Policies” contained in Part II, Item 7.

of this Annual Report on Form 10-K.

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

The Company recorded a provision for credit losses on loans of $8.4 million for the year ended December 31, 2025 compared to $4.7 million for the year ended December 31, 2024 primarily due to loan growth and net charge-offs, which amounted to $6.6 million, or 0.14% of average loans, for the year ended December 31, 2025 compared to net charge-offs of $4.1 million, or 0.09% of average loans, for the year ended December 31, 2024.

The increase in charge-offs in 2025 was primarily due to the marine and CRE portfolio.

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

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

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

December 31, 2025 December 31, 2024

($ in thousands) Amount % (1)

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

ACL Balance Average Loan Balance (1)

Commercial real estate $ 21,387 $ 2,588,913 0.83 % $ 22,846 $ 2,528,961 0.90 %

4 unchanged sentences

Credit cards 199 5,648 3.52 407 7,444 5.47

Total allowance for credit losses $ 57,910 100.00 % $ 57,351 100.00 %

Total $ 58,836 $ 4,826,848 1.22 $ 57,910 $ 4,701,811 1.23

____________________________________

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

The following table indicates net charge-offs or recoveries by average loan portfolio category for the years ended as indicated:

December 31, 2024 December 31, 2023

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

% Net (Charge-offs) Recoveries Average Balance (1)

(1) Excludes loans held for sale.

(2) ACL balance as a percent of average loan balance of each category.

The following table presents the net charge-offs or recoveries by average loan portfolio category for the year ended December 31, 2025 and 2024.

December 31, 2025 December 31, 2024 December 31, 2023

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

Net (Charge-off) Recovery % Net (Charge-offs) Recoveries Average Loan Balance (1)

Net (Charge-off) Recovery %

Commercial real estate $ (2,671) $ 2,588,913 (0.10) % $ — $ 2,528,961 — % $ (1,326) $ 1,860,517 (0.07) %

4 unchanged sentences

Credit cards (532) 5,648 (9.42) (575) 7,444 (7.72) (111) 3,147 (3.53)

(4,072) 4,443,958 0.09 (2,019) 3,629,522 0.06

Allowance for credit losses — (58,089) — — (40,777) —

Total net charge-off and average loans $ (4,072) $ 4,385,869 0.09 $ (2,019) $ 3,588,745 0.06

Total $ (6,647) $ 4,826,848 (0.14) $ (4,072) $ 4,701,811 (0.09) $ (2,019) $ 3,629,522 (0.06)

____________________________________

1 unchanged sentence

(2) Includes the marine portfolio.

Off-Balance Sheet Credit Exposure Reserve

The Company’s reserve for off-balance sheet credit exposures was $1.1 million at December 31, 2024 and December 31, 2023.

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

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

Classified Assets and Special Mention Assets

Classified assets increased $13.3 million from $14.9 million at December 31, 2023 to $28.2 million at December 31, 2024.

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

Increases in classified and special mention loan categories were due to loans related to our marine lending portfolio and residential mortgages, all of which are diverse in origination date.

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

Risk ratings are an important input into the Company’s ACL qualitative framework.

The following is a breakdown of the Company’s classified and special mention assets at December 31, 2024 and 2023 , respectively:

($ in thousands) December 31, 2024 December 31, 2023

Classified loans

Substandard $ 24,679 $ 14,672

Total classified loans 24,679 14,672

Special mention loans 33,518 28,263

Total classified loans and special mention loans $ 58,197 $ 42,935

Classified loans $ 24,679 $ 14,672

Repossessed assets 3,315 —

Total classified assets $ 28,173 $ 14,851

Total classified assets and special mention loans $ 61,691 $ 43,114

Classified Assets

The following tables present the Company’s classified assets by loan portfolio category at December 31, 2025 and 2024.

December 31, 2025

($ in thousands) Classified Loans Other Real Estate Owned Repossessed Assets Total Classified Assets

Commercial real estate $ 40,677 $ — $ — $ 40,677

Residential real estate 11,084 — — 11,084

Construction 331 113 — 444

Commercial 4,255 — — 4,255

Consumer 971 — 2,879 3,850

Credit cards 48 — — 48

Total $ 57,366 $ 113 $ 2,879 $ 60,358

December 31, 2024

($ in thousands) Classified Loans Other Real Estate Owned Repossessed Assets Total Classified Assets

Commercial real estate $ 11,233 $ — $ — $ 11,233

Residential real estate 8,407 — — 8,407

Construction 360 179 — 539

Commercial 3,038 — — 3,038

Consumer 1,473 — 3,315 4,788

Credit cards 168 — — 168

Total $ 24,679 $ 179 $ 3,315 $ 28,173

The following table presents the Company’s total classified assets as a percentage of total assets and risk-based capital at December 31, 2025 and 2024.

December 31, 2025 December 31, 2024

Total classified assets as a percentage of total assets 0.96 % 0.45 %

Total classified assets as a percentage of risk-based capital 9.14 4.77

Classified assets increased $32.2 million to $60.4 million, or 0.96% of total assets, at December 31, 2025, from $28.2 million, or 0.45% of total assets, at December 31, 2024.

Classified assets are substandard loans, repossessed assets and OREO.

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

All of these loans are well secured by collateral and required minimal individual reserves as of December 31, 2025.

Special Mention Loans

The following table presents the Company’s special mention loans by loan portfolio category at December 31, 2025 and 2024.

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

Commercial real estate $ 52,347 $ 30,641

Residential real estate 19,065 2,047

Commercial 1,318 830

Consumer 671 —

Total special mention loans $ 73,401 $ 33,518

Special mention loans increased to $73.4 million at December 31, 2025, from $33.5 million at December 31, 2024.

Increases in special mention loan categories were due to loans in the multifamily commercial real estate and residential loan portfolios.

Management believes these assets are well collateralized and will continue to monitor their cash flows.

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

Nonperforming Assets

At December 31, 2025, nonperforming assets were $43.2 million, an increase of $18.4 million, or 74.25%, when compared to December 31, 2024.

The increase in nonperforming assets was primarily due to the increase in nonaccrual loans acquired in the merger and an increase in repossessed assets related to the marine portfolio.

The increase in nonperforming assets was primarily due to the increase in commercial real estate and consumer nonaccrual loans, offset by a decrease in repossessed assets related to the marine portfolio.

At December 31, 2025, the ratio of nonaccrual loans to total assets was 0.64%, an increase from 0.34% at December 31, 2024.

The ratio of nonperforming assets to total assets at December 31, 2025 was 0.69% compared to 0.40% at December 31, 2024.

The Company continues to focus on the resolution of its nonperforming and problem loans.

The efforts to accomplish this goal include frequently contacting borrowers until the delinquency is cured or until an acceptable payment plan has been agreed upon;

obtaining updated appraisals;

provisioning for credit losses;

charging-off loans;

transferring loans to OREO or repossessed assets;

aggressively marketing OREO and repossessed assets;

and selling loans.

The reduction of nonperforming and problem loans is and will continue to be a high priority for the Company.

The following table summarizes our nonperforming assets for the years ended December 31, 2025 and 2024.

12 unchanged sentences

Nonperforming assets 0.69 0.40

Off-Balance Sheet Credit Exposure Reserve

The Company’s reserve for off-balance sheet credit exposure was $2.0 million and $1.1 million at December 31, 2025 and 2024, respectively.

The Company monitors line of credit usage and did not see substantive increases in usage or expected usage during the year ended December 31, 2025.

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

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

December 31, 2024 December 31, 2023

($ in thousands) Balance % Balance % $ Change % Change

Noninterest-bearing demand $ 1,562,815 28.27 % $ 1,258,037 23.36 % $ 304,778 24.23 %

Interest-bearing:

Demand 978,076 17.69 1,165,546 21.64 (187,470) (16.08)

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

Balance % of Total Deposits Balance % of Total Deposits $ Change % Change

Noninterest-bearing deposits $ 1,587,953 28.69 % $ 1,562,815 28.27 % $ 25,138 1.6 %

Interest-bearing deposits:

Interest-bearing checking 852,585 15.41 978,076 17.69 (125,491) (12.8)

Money market and savings 1,814,928 32.80 1,805,884 32.67 9,044 0.5

Time deposits 1,267,487 22.90 1,181,561 21.37 85,926 7.3

Brokered deposits 10,911 0.20 — — 10,911 *

Total interest-bearing 3,945,911 71.31 3,965,521 71.73 (19,610) (0.5)

Total deposits $ 5,533,864 100.00 % $ 5,528,336 100.00 % $ 5,528 0.1

Total deposits increased $142.2 million, or 2.6%, to $5.53 billion at December 31, 2024 when compared to December 31, 2023.

The increase in total deposits was primarily due to an increase in noninterest-bearing demand deposits of $304.8 million and money market and savings deposits of $28.0 million, partially offset by decreases in interest-bearing demand deposits of $187.5 million and time deposits of $3.0 million.

Total estimated uninsured deposits were $905.3 million, or 16.4% of total deposits, at December 31, 2024.

____________________________________

* Not meaningful for comparative purposes

Total deposits increased $5.5 million, to $5.53 billion at December 31, 2025 when compared to December 31, 2024.

The slight increase in total deposits was primarily due to an increase in time deposits of $85.9 million, an increase in noninterest-bearing accounts of $25.1 million, an increase in brokered deposits of $10.9 million and an increase in money market and savings accounts of $9.0 million.

These increases were partially offset by a decrease in interest-bearing checking deposits of $125.5 million.

Core deposits, which exclude municipal deposits, increased by $154.8 million, or 3.8%, during the same period, which was partially offset by volatility driven by a large client relationship.

Total estimated uninsured deposits were $937.2 million, or 16.9% of total deposits, at December 31, 2025 and $905.3 million, or 16.4% of total deposits, at December 31, 2024.

At December 31, 2025, there were $150.8 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

The Bank’s uninsured deposits, excluding deposits secured by the market value of pledged collateral, at December 31, 2024 was $745.1 million, or 13.5% of total deposits.

The Bank’s uninsured deposits, excluding the market value of pledged collateral, at December 31, 2025 were $786.5 million, or 14.2% of total deposits.

For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5 billion.

Reciprocal deposits increased $354.2 million to $1.65 billion at December 31, 2024, compared to $1.29 billion at December 31, 2023.

Reciprocal deposits decreased $128.4 million to $1.52 billion at December 31, 2025, compared to $1.65 billion at December 31, 2024.

Reciprocal deposits as a percentage of the Bank’s liabilities at December 31, 2025 and 2024 were 27.08% and 29.25%, respectively.

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

At December 31, 2024, the Bank had three local municipal customer deposit

relationships that exceeded 2% of total deposits, totaling $547.4 million, or 9.90% of total deposits of $5.53 billion.

At December 31, 2023, there were four customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million or 11.11% of total deposits of $5.39 billion.

At December 31, 2025, the Bank had three local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $539.0 million, which represented 9.70% of total deposits of $5.56 billion.

At December 31, 2024, there were three customer deposit relationships that exceeded 2% of total deposits, totaling $547.4 million, which represented 9.89% of total deposits of $5.54 billion.

Deposit balances related to the cannabis business were $159.4 million and $151.4 million, or 2.88% and 2.74% of total deposits, as of December 31, 2025 and 2024, respectively.

The Bank uses deposits primarily to fund loans and to purchase investment securities.

Average total deposits increased from $4.03 billion at December 31, 2023 to $5.19 billion at December 31, 2024, an increase of $1.16 billion, or 28.79%.

Average total deposits increased from $5.19 billion at December 31, 2024 to $5.36 billion at December 31, 2025, an increase of $173.1 million, or 3.34%.

The following table sets forth the average balances of deposits and percentage of each major category to total average deposits for the years ended December 31, 2025 and 2024 .

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($ in thousands) Average Balance % Average Balance %

Noninterest-bearing demand $ 1,454,087 28.02 % $ 1,043,479 25.90 %

Noninterest-bearing deposits $ 1,577,271 29.42 % $ 1,454,087 28.02 %

Interest-bearing deposits

Demand 825,773 15.91 883,976 21.94

Interest-bearing checking 759,395 14.16 825,773 15.91

Money market and savings 1,761,503 32.85 1,690,905 32.60

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Total deposits $ 5,361,893 100.00 % $ 5,188,812 100.00 %

Average interest-bearing deposits increased $749.2 million, or 25.1%, in 2024, compared to 2023.

Average noninterest-bearing deposits increased $410.6 million, or 39.3%, in 2024, compared to 2023.

Deposits provided funding for approximately 94.0% and 92.5% of average earning assets for 2024 and 2023, respectively.

Average interest-bearing deposits for the year ended December 31, 2025 increased $49.9 million, or 1.3%, compared to the year ended December 31, 2024.

Average noninterest-bearing deposits increased $123.2 million, or 8.5%, for the year ended December 31, 2025, compared to the year ended December 31, 2024.

Deposits provided funding for approximately 93.54% and 93.98% of average earning assets for the years ended December 31, 2025 and 2024, respectively.

The following table sets forth the aggregate amount and maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2025, as well as the portion that is uninsured.

December 31, 2025

($ in thousands) Total Uninsured

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Total $ 403,506 $ 176,506

Note 8 – “Deposits” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K includes the scheduled contractual maturities of total certificates of deposit of $1.18 billion at December 31, 2024.

Note 7 – “Deposits” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K includes the scheduled contractual maturities of total certificates of deposit of $1.27 billion at December 31, 2025.

Securities Sold Under Retail Repurchase Agreements

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There were no securities sold under retail purchase agreements at December 31, 2025 and 2024.

Wholesale Funding - Short-Term Borrowings and Brokered Deposits

Wholesale Funding – Short-Term Borrowings

The Company borrows from the FHLB on a short-term basis to meet liquidity needs.

There were no short-term borrowings outstanding at December 31, 2024 and 2023.

The Company’s wholesale funding increased $5.5 million, which includes FHLB advances and brokered deposits, from $44.5 million in brokered deposits at December 31, 2023 to $50.0 million in FHLB advances at December 31, 2024.

Brokered deposits for the Company’s measurement of wholesale funding exclude reciprocal deposit balances that exceeded 20% of the Bank’s total liabilities.

There were no short-term borrowings outstanding as of December 31, 2025 and 2024.

The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $10.9 million and $50.0 million at December 31, 2025 and 2024, respectively.

At December 31, 2025, the Company had $10.9 million of brokered deposits and no FHLB advances or securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

At December 31, 2024, the Company had $50.0 million in FHLB advances and no brokered deposits or securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

Contractual Obligations

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Purchase obligations arise from agreements to purchase goods and services that are enforceable and legally binding.

Other contracts included in purchase obligations primarily consist of service agreements for various systems and

applications supporting bank operations.

For information regarding material contractual obligations, please see Note 6 – “Leases” and Note 22 – “Revenue Recognition” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K.

Other contracts included in purchase obligations primarily consist of service agreements for various systems and applications supporting bank operations.

For information regarding material contractual obligations, please see Note 5 – “Leases” and Note 21 – “Revenue Recognition” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.

Long-Term Debt

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

There were $50.0 million and zero long-term borrowings from the FHLB outstanding at December 31, 2024 and 2023, respectively.

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

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

The debt balance of $18.8 million at December 31, 2024 and $18.6 million at December 31, 2023 was presented net of fair value adjustments of $1.8 million and $2.0 million, respectively.

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

The debt balance of $11.1 million at December 31, 2024 was presented net of a fair value adjustment of $1.3 million.

In addition, the Company also acquired 4.75% fixed-to-floating rate subordinated notes with a principal balance of $19.5 million.

At December 31, 2024, the debt had a balance of $19.0 million, which was presented net of fair value adjustment of $548 thousand.

For additional information regarding long-term debt, refer to Note 9 – “Borrowings” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K.

The Company had no short or long-term borrowings with the FHLB as of December 31, 2025.

In November 2025, the Company issued $60 million in subordinated debt maturing in 2035, carrying a fixed interest rate of 6.25% through November 2030.

The proceeds were used to fully redeem two existing subordinated debt issuances totaling $44.5 million.

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

The debt balances of $19.0 million at December 31, 2025 and $18.8 million at December 31, 2024 were presented net of fair value adjustments of $1.7 million and $1.8 million, respectively.

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

The debt b alances of $11.2 million and $11.1 million were presented net of fair value adjustments of $1.2 million and $1.3 million at December 31, 2025 and 2024, respectively.

For additional information regarding long-term debt, refer to Note 8 – “Borrowings” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.

Stockholders’ Equity

Total stockholders’ equity was $541.1 million at December 31, 2024, compared to $511.1 million at December 31, 2023.

The increase in stockholders’ equity in 2024 was primarily due to net income of $43.9 million, partially offset by dividends paid of $16.0 million.

The ratio of period-end equity to total assets was 8.68% for 2024, as compared to 8.50% for 2023.

($ in thousands) December 31, 2024 December 31, 2023 $ Change % Change

Total stockholders’ equity increased $48.8 million, or 9.0%, to $589.9 million at December 31, 2025 when compared to December 31, 2024, primarily due to $59.5 million of net income and a decrease in accumulated other comprehensive loss of $3.0 million, partially offset by dividends declared of $16.1 million.

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

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

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Total stockholders’ equity $ 589,873 $ 541,066 $ 48,807 9.0

We record unrealized holding gains (losses), net of tax, on investment securities available for sale as AOCI (loss), a separate component of stockholders’ equity.

At December 31, 2024 and 2023, the portion of the investment portfolio designated as “available for sale” had a net unrealized holding loss, net of tax, of $7.5 million.

We record unrealized holding gains (losses), net of tax, on available for sale investment securities as AOCI (loss), a separate component of stockholders’ equity.

At December 31, 2025 and 2024, the portion of the investment portfolio designated as “available for sale” had an unrealized holding loss, net of tax, of $4.6 million and $7.5 million, respectively.

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

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therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position.

The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank.

Shore Bancshares’ principal sources of liquidity are cash on hand and dividends received from the Bank.

The Bank’s most liquid assets are cash, cash equivalents and federal funds sold.

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

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

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

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

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

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

As seen in the consolidated statements of cash flows, the net increase in cash and cash equivalents was $87.4 million for the year ended December 31, 2024, compared to an increase of $316.9 million for the year ended December 31, 2023.

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

At December 31, 2024, the Bank had approximately $1.47 billion of available liquidity, including $459.9 million in cash and cash equivalents, $317.9 million in unpledged securities, $743.6 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $6.1 million, respectively.

The Bank has arrangements with other correspondent banks whereby it has $95.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash.

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

The net decrease in cash and cash equivalents was $104.3 million for the year ended December 31, 2025, compared to a net increase of $87.4 million for the year ended December 31, 2024.

The decrease in cash and cash equivalents in the year ended December 31, 2025 was mainly due to the decrease of $21.8 million in interest-bearing deposits, paid off FHLB Advances of $50.0 million, and redemption of subordinated debt of $44.5 million, partially offset by an increase of $25.1 million in noninterest-bearing deposits and issuance of new subordinated debt of $58.9 million, net of subordinated debt issuance costs.

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

At December 31, 2025, the Bank had approximately $1.42 billion of available liquidity, including $355.6 million in cash and cash equivalents, $314.5 million in unpledged securities and $788.1 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by a letter of credit of $33.7 million.

The Bank has arrangements with other correspondent banks whereby it has $95.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs that may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash.

Through the FHLB, the Bank had available lendable collateral of approximately $788.1 million and $743.6 million at December 31, 2025 and 2024, respectively.

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Total $ 33,667 $ 1,553,107

____________________________________

(1) The Bank has pledged a portion of the commercial real estate and residential loan portfolio to the FHLB to secure the line of credit.

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1 (“CET1”), Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%.

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

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

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

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

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

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of CET 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 1250%.

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

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

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

As of December 31, 2025, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations.

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The Bank 8.58 10.75 10.75 11.97

On February 4, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on February 28, 2025, to holders of record of shares of common stock as of February 14, 2025.

See Note 16 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

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

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

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

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

While the Company is providing banking services to customers that are engaged in growing, processing, and sales of both medical and adult-use cannabis in a manner that complies

with applicable state law, such customers engaged in those activities currently violate federal law.

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

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

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

As of December 31, 2024, the Company has not accrued an amount for the potential impact of any such actions.

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

• Deposit and loan balances at December 31, 2024 were approximately $151.4 million, or 2.7% of total deposits, and $82.6 million, or 1.7% of total gross loans, respectively.

• Interest and noninterest income for the year ended December 31, 2024 were approximately $4.1 million and $1.1 million, respectively.

For information about risks relating to liquidity, see “Risk Factors” included in Part I, Item 1A.

of this this Annual Report on Form 10-K.

Comparison of Cash Flows for the Years Ended December 31, 2024 and 2023

During the year ended December 31, 2024, all financing activities provided $175.1 million in cash compared to $121.9 million in cash provided for the same period in 2023.

The Company was provided $53.2 million more cash from financing activities compared to the prior year, primarily due to increased deposits of $304.8 million from management’s efforts to expand deposit relationships.

The Company used less cash in 2024 compared to 2023 for net long-term debt activity.

Short-term borrowings activity used $109.0 million less cash in 2024 compared to 2023 as the Bank paid down wholesale funding.

The Company used $3.3 million more cash for stock-related activities in 2024 compared to 2023, primarily due to a $3.3 million increase in common stock dividend payments.

The Bank’s principal use of cash has been in investing activities including its investments in loans and investment securities.

In 2024, the level of net cash used in investing activities increased $306.9 million to $134.5 million from net cash provided by investing activities of $172.3 million in 2023.

The increase in cash used was primarily the result of cash used for loan activities and investment securities.

Cash used for loan activities decreased $194.0 million to $123.3 million for the year ended December 31, 2024 from $317.3 million for the year ended December 31, 2023 as organic loan growth slowed in 2024 as management focused on merger integration as well as safe and sound moderate loan growth in the current economic environment.

The use of funds to purchase investment securities increased $93.7 million to $162.4 million for the year ended December 31, 2024, from $68.7 million for the year ended December 31, 2023.

Cash proceeds from investment securities decreased $388.8 million as total proceeds from sales of acquired AFS securities decreased for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Operating activities provided more cash of $24.2 million as cash provided increased to $46.9 million for the year ended December 31, 2024, compared to $22.7 million of cash provided for the same period of 2023.

On February 18, 2026, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on March 18, 2026, to holders of record of shares of common stock as of March 4, 2026.

The Company has no business other than holding the stock of the Bank and does not currently have any material funding requirements, except for the payment of dividends on common stock, and the payment of interest on subordinated debentures and subordinated notes, and noninterest expense.

See Note 15 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Annual Report on Form 10-K for further information about the regulatory capital positions of the Bank and the Company.

For information about risks relating to liquidity, see “Risk Factors” included in Part I, Item 1A of this Annual Report on Form 10-K.

USE OF NON-GAAP FINANCIAL MEASURES

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Return on Average Common Equity

Return on average common equity is a financial ratio that measures the profitability of a company in relation to the average stockholders’ equity.

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

ROACE is a financial ratio that measures the profitability of a company in relation to the average stockholders’ equity.

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

Year Ended December 31,

($ in thousands) 2025 2024 2023

Net income (as reported) $ 43,889 $ 11,228

Return on average common equity 8.35 % 2.54 %

Net income $ 59,506 $ 43,889 $ 11,228

ROACE 10.52 % 8.35 % 2.54 %

Average stockholders’ equity $ 565,579 $ 525,742 $ 441,790

$ 525,742 $ 441,790

Return on Average Tangible Common Equity

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

Management believes that return on average tangible common equity is meaningful because it measures the performance of a business consistently, whether acquired or internally-developed.

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

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

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

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($ in thousands) 2025 2024 2023

Net income (as reported) $ 43,889 $ 11,228

Core deposit intangible amortization (net of tax) 7,311 4,254

Merger and acquisition costs (net of tax) — 11,637

Net earnings applicable to common shareholders $ 51,200 $ 27,119

Return of average tangible common equity 12.21 % 7.74 %

Net income $ 59,506 $ 43,889 $ 11,228

amortization of other intangible assets, net of tax 6,498 7,311 4,254

Net income excluding amortization of other intangible assets – non-GAAP $ 66,004 $ 51,200 $ 15,482

ROATCE – non-GAAP 14.09 % 12.21 % 4.42 %

Average stockholders’ equity $ 565,579 $ 525,742 $ 441,790

Average goodwill and core deposit intangible (97,201) (106,409) (91,471)

Average tangible stockholders’ common equity $ 419,333 $ 350,319

Average tangible common equity $ 468,378 $ 419,333 $ 350,319

Efficiency Ratio – Non-GAAP

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

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

Year Ended December 31,

($ in thousands) 2025 2024 2023

Noninterest expense $ 138,035 $ 138,254 $ 123,329

Amortization of other intangible assets (8,589) (9,779) (6,105)

Merger expenses — — (17,356)

Credit card fraud losses — (4,660) —

Adjusted noninterest expense $ 129,446 $ 123,815 $ 99,868

Efficiency ratio – non-GAAP 57.43 % 61.43 % 61.62 %

Net interest income $ 192,377 $ 170,549 $ 135,307

Taxable-equivalent adjustment 335 325 253

Taxable-equivalent net interest income $ 192,712 $ 170,874 $ 135,560

Noninterest income $ 32,688 $ 31,147 $ 33,159

Investment securities losses (gains) — — 2,166

Bargain purchase gain — — (8,816)

Sale and fair value of held for sale assets — (450) —

Adjusted noninterest income $ 32,688 $ 30,697 $ 26,509

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

What changed 10-K

Item 7. Management’s Discussion and Analysis