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Item 2. Management’s Discussion and Analysis

2026-05-04 compared with 2025-11-04 · 293 added, 488 removed, 369 unchanged (68% of the section changed)

37 unchanged sentences

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025 (the “2025 Annual Report”) filed with SEC and available at the SEC’s website (www.sec.gov).

The information on, or accessible through, our website or any other website cited in this Quarterly Report on Form 10-Q is not part of, or incorporated by reference into, this Quarterly Report on Form 10-Q and should not be relied upon in determining whether to make an investment decision.

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

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The Company, through Wye Trust, a division of the Bank, offers wealth management, corporate trustee services and trust administration to customers within our market areas and nationwide.

The Company offered title services through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc.

(the “Title Company”), which engaged in residential and commercial real estate settlement activities and offered title insurance policies, title search and lien satisfaction services.

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

The shares of common stock of Shore Bancshares, Inc.

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

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

of the 2024 Annual Report.

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.

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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 Consolidated Financial Statements” included in Part II, Item 8.

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

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

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

Third Quarter 2025 Highlights

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

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

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

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

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

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

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

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

Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of the 2025 Annual Report for additional details concerning the determination of the ACL on loans.

PERFORMANCE OVERVIEW

The Company’s net income for the first quarter of 2026 was $17.1 million, or $0.51 per diluted common share, compared to $15.9 million, or $0.48 per diluted common share, for the fourth quarter of 2025.

The Company had net income of $13.8 million, or $0.41 per diluted common share, for the first quarter of 2025.

First Quarter 2026 Highlights

• Net Income – Net income for the first quarter of 2026 increased $1.2 million to a record $17.1 million from $15.9 million in the fourth quarter of 2025.

Net income increased primarily due to an increase in net interest income of $2.4 million and a decrease in the provision for credit losses of $2.7 million, partially offset by lower noninterest income of $1.7 million and an increase in noninterest expense of $1.6 million.

The lower noninterest income was due to a one-time receipt of insurance proceeds in the fourth quarter of 2025.

• Return on Average Assets (“ROAA”) – The Company reported ROAA of 1.12% for the first quarter of 2026, compared to 1.02% for the fourth quarter of 2025 and 0.91% for the first quarter of 2025.

Adjusted ROAA – non-U.S.

generally accepted accounting principles (“GAAP”) (1) , which excludes amortization of other intangible assets (net of tax), was 1.22% for the first quarter of 2026, compared to 1.11% for the fourth quarter of 2025 and 1.02% for the first quarter of 2025.

• Net Interest Margin (“NIM”) – Net interest income for the first quarter of 2026 increased $2.4 million to $52.6 million compared to the fourth quarter of 2025.

NIM increased 21 basis points (“bps”) to 3.64% during the first quarter of 2026 compared to the fourth quarter of 2025.

NIM excluding accretion (1) increased for the comparable periods from 3.24% to 3.35%.

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

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

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

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

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

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

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

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

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

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

Excluding accretion interest, loan yields decreased 1 bp and funding costs decreased 13 bps for the comparable periods.

Net interest income increased due to accelerated accretion due to loan payoffs coupled with a lower cost of deposits and lower long-term borrowing expenses.

These favorable changes were partially offset by lower yields on interest-bearing deposits with other institutions.

• Book Value per Share – Book value per share increased to $18.02 at March 31, 2026 from $17.65 at December 31, 2025 and $16.55 at March 31, 2025.

• Asset Quality – Nonperforming assets were 1.10% of total assets at March 31, 2026, an increase from 0.69% at December 31, 2025 and 0.31% at March 31, 2025.

Classified assets were 1.38% of total assets at March 31, 2026, an increase when compared to 0.96% at December 31, 2025 and 0.36% at March 31, 2025.

The allowance for credit losses (“ACL”) was $58.5 million at March 31, 2026, compared to $58.8 million at December 31, 2025 and $58.0 million at March 31, 2025.

The ACL as a percentage of loans increased to 1.21% at March 31, 2026 compared to 1.20% at December 31, 2025 and remained flat compared to March 31, 2025.

• Operating Leverage – The efficiency ratio for the first quarter of 2026 was 61.97%, compared to 60.06% in the fourth quarter of 2025 and 63.64% for the first quarter of 2025.

The adjusted efficiency ratio – non-GAAP (1) , which excludes amortization of intangibles, was 58.57% for the first quarter of 2026, compared to 56.59% for the fourth quarter of 2025 and 59.25% for the first quarter of 2025.

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

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(1) See the Reconciliation of GAAP and non-GAAP Measures tables.

SUMMARY OF OPERATING RESULTS

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

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

($ in thousands) 2025 2024 2025 2024

OPERATING DATA

Total interest income $ 77,187 $ 74,689 $ 229,871 $ 218,934

Total interest expense 28,532 31,426 87,935 92,396

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

Provision for credit losses 2,992 1,470 5,548 3,958

NII after provision for credit losses 45,663 41,793 136,388 122,580

Total noninterest income 7,701 7,287 24,021 22,294

Total noninterest expense 34,379 34,114 102,536 104,311

Income before income taxes 18,985 14,966 57,873 40,563

Income tax expense 4,637 3,777 14,254 9,956

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

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

2025 2024 2025 2024

KEY OPERATING RATIOS

ROAA – GAAP 0.95 % 0.77 % 0.96 % 0.70 %

Adjusted ROAA – non-GAAP (1)

1.05 0.90 1.07 0.91

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

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

11.98 10.50 12.65 9.88

Average total equity to average total assets 9.49 9.11 9.23 8.98

2.46 2.06 2.38 2.18

Interest rate spread 3.42 3.17 3.34 3.12

Efficiency ratio – GAAP (3)

61.00 67.49 61.78 70.09

Efficiency ratio – non-GAAP (4)

57.30 62.10 57.73 61.83

Noninterest income to average assets 0.51 0.50 0.53 0.51

Noninterest expense to average assets 2.27 2.34 2.26 2.40

Net operating expense to average assets – GAAP (5)

1.76 1.84 1.73 1.89

COMMON SHARE DATA

Basic net income per common share $ 0.43 $ 0.34 $ 1.31 $ 0.92

Diluted net income per common share $ 0.43 $ 0.34 $ 1.31 $ 0.92

Cash dividends paid per common share $ 0.12 $ 0.12 $ 0.36 $ 0.36

Common dividend payout ratio 27.91 % 35.29 % 27.48 % 39.13 %

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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 net interest income and noninterest income.

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

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

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

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2026 AND 2025

Summary of Financial Results

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

The Company reported net income for the three months ended March 31, 2026 of $17.1 million, or $0.51 per diluted common share, compared to $13.8 million, or $0.41 per diluted common share, for the three months ended March 31, 2025.

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

Three Months Ended September 30,

Three Months Ended March 31,

($ in thousands) 2026 2025 $ Change % Change

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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 was $48.7 million for the third quarter of 2025 and $43.3 million for the third quarter of 2024.

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

Three Months Ended September 30,

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

As shown in the table below, taxable-equivalent NII was $52.6 million for the first quarter of 2026 and $46.0 million for the first quarter of 2025.

The increase was primarily due to a decrease in interest expense on deposits of $3.8 million, an increase in interest and fees on loans of $3.3 million and a decrease in interest expense on borrowings of $391 thousand, partially offset by a decrease in interest on deposits with other banks of $951 thousand.

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

Three Months Ended March 31,

($ in thousands) 2026 2025 $ Change % Change

Interest and dividend income

Loans, including fees $ 70,930 $ 69,157 $ 1,773 2.6 %

Interest on loans $ 70,814 $ 67,516 $ 3,298 4.9 %

Interest and dividends on investment securities

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Taxable-equivalent adjustment $ 89 $ 81 $ 8 9.9 %

Tax-equivalent net interest income $ 48,738 $ 43,345 $ 5,393 12.4 %

Taxable-equivalent net interest income $ 52,644 $ 45,979 $ 6,665 14.5 %

Average Balances and Yields

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

Three Months Ended September 30,

Three Months Ended March 31,

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

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Total liabilities and stockholders’ equity $ 6,174,655 $ 6,129,241

Net interest income $ 48,738 $ 43,345

Taxable-equivalent net interest income $ 52,644 $ 45,979

Net interest spread 2.80 % 2.27 %

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(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.

(1) All amounts are reported on a taxable-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.

(2) Average loan balances include nonaccrual loans.

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

There were $4.3 million and $3.7 million of accretion interest on loans for the three months ended March 31, 2026 and 2025, respectively.

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

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

There were zero and $334 thousand of amortization of deposit discounts and $79 thousand and $232 thousand of amortization of borrowing fair value adjustments for the three months ended March 31, 2026 and 2025, respectively.

Rate and Volume Analysis

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

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

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

($ in thousands) Volume Due to Rate Total

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

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

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

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

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

The Company’s NIM increased to 3.64% for the three months ended March 31, 2026, from 3.21% for the three months ended March 31, 2025 .

Comparing the three months ended March 31, 2026 to the three months ended March 31, 2025 , the Company’s interest-earning asset yields increased to 5.44% from 5.32%, while the cost of funds repriced at a faster pace, which resulted in a decrease of 30 bps, to 1.90% from 2.20%, for the same periods.

Provision for Credit Losses (“PCL”) and ACL

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Noninterest Income

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

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

Noninterest Expense

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

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

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

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

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

Summary of Financial Results

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

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

Nine Months Ended September 30,

($ in thousands) 2025 2024 $ Change % Change

Interest and dividend income $ 229,871 $ 218,934 $ 10,937 5.0 %

Interest expense 87,935 92,396 (4,461) (4.8)

Net interest income 141,936 126,538 15,398 12.2

Provision for credit losses 5,548 3,958 1,590 40.2

Noninterest income 24,021 22,294 1,727 7.7

Noninterest expense 102,536 104,311 (1,775) (1.7)

Income before income taxes 57,873 40,563 17,310 42.7

Income tax expense 14,254 9,956 4,298 43.2

Net income $ 43,619 $ 30,607 $ 13,012 42.5

Net Interest Income

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

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

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

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

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

Nine Months Ended September 30,

($ in thousands) 2025 2024 $ Change % Change

Interest and dividend income

Loans, including fees $ 208,273 $ 202,203 $ 6,070 3.0 %

Interest and dividends on investment securities

15,386 14,629 757 5.2

Interest on deposits with banks 6,212 2,102 4,110 195.5

Total interest and dividend income $ 229,871 $ 218,934 $ 10,937 5.0

Interest expense

Deposits $ 81,914 $ 84,938 $ (3,024) (3.6) %

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

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

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

Taxable-equivalent adjustment $ 244 $ 242 $ 2 0.8 %

Tax-equivalent net interest income $ 142,180 $ 126,780 $ 15,400 12.1 %

Average Balances and Yields

Nine Months Ended September 30,

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

Earning assets

Loans (1), (2), (3)

Commercial real estate $ 2,576,893 $ 111,244 5.77 % $ 2,521,258 $ 108,118 5.73 %

Residential real estate 1,377,904 57,160 5.55 1,305,215 54,494 5.58

Construction 350,883 17,069 6.50 318,574 14,613 6.13

Commercial 225,322 10,743 6.37 217,684 11,833 7.26

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

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

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

Investment securities

Taxable 670,304 15,368 3.06 671,875 14,611 2.90

Tax-exempt (1)

652 23 4.70 658 23 4.66

Interest-bearing deposits 188,707 6,212 4.40 56,486 2,102 4.97

Total earning assets 5,694,210 $ 230,115 5.40 5,427,713 $ 219,176 5.39

Cash and due from banks 47,752 47,211

Other assets 373,398 391,106

Allowance for credit losses (58,477) (57,877)

Total assets $ 6,056,883 $ 5,808,153

Interest-bearing liabilities

Interest-bearing checking $ 756,235 $ 17,879 3.16 % $ 800,258 $ 17,384 2.90 %

Money market and savings deposits 1,753,594 28,872 2.20 1,676,457 30,871 2.46

Time deposits 1,248,405 34,966 3.74 1,196,324 36,116 4.03

Brokered deposits 6,911 197 3.81 16,642 567 4.55

Interest-bearing deposits (4)

3,765,145 81,914 2.91 3,689,681 84,938 3.07

FHLB advances 50,806 1,843 4.85 77,113 3,102 5.37

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

74,103 4,178 7.54 72,682 4,356 8.01

Total interest-bearing liabilities 3,890,054 87,935 3.02 3,839,476 92,396 3.21

Noninterest-bearing deposits 1,566,353 1,408,270

Accrued expenses and other liabilities 41,175 38,843

Stockholders’ equity 559,301 521,564

Total liabilities and stockholders’ equity $ 6,056,883 $ 5,808,153

Net interest income $ 142,180 $ 126,780

Net interest spread 2.38 % 2.18 %

Net interest margin 3.34 3.12

Net interest margin excluding accretion (3)

Cost of funds 2.15 2.35

Cost of deposits 2.05 2.23

Cost of debt 6.44 6.65

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(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.

(2) Average loan balances include nonaccrual loans.

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

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

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

Rate and Volume Analysis

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

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

($ in thousands) Volume Due to Rate Total

Interest income from earning assets:

Commercial real estate $ 2,372 $ 754 $ 3,126

Residential real estate 2,959 (293) 2,666

Construction 1,574 882 2,456

Commercial 359 (1,449) (1,090)

Consumer (1,240) 368 (872)

Credit cards (90) (124) (214)

Taxable investment securities 406 351 757

Interest-bearing deposits 3,306 804 4,110

Total interest income $ 9,646 $ 1,293 $ 10,939

Interest-bearing liabilities:

Interest-bearing checking deposits $ (1,061) $ 1,556 $ 495

Money market and savings deposits 1,261 (3,260) (1,999)

Time deposits 1,445 (2,595) (1,150)

Brokered deposits (278) (92) (370)

Advances from FHLB (959) (300) (1,259)

Subordinated debt 78 (256) (178)

Total interest-bearing liabilities 486 (4,947) (4,461)

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

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

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

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

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

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

Provision for Credit Losses and ACL

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

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

Total noninterest income for the three months ended March 31, 2026 was $7.2 million, an increase of $110 thousand from $7.1 million for the three months ended March 31, 2025.

The increase was primarily due to an increase in trust and investment fee income of $314 thousand, an increase in mortgage banking revenue of $210 thousand driven by increased mortgage servicing activity, and a $121 thousand increase in interchange credits.

These favorable changes were partially offset by a decrease in other noninterest income of $617 thousand due to the absence of one-time bank-owned life insurance income recorded in the first quarter of 2025.

Noninterest Expense

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

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

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

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

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

Cash needs may come from loan demand, deposit withdrawals or acquisition opportunities.

Potential obligations, resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers, are other factors affecting our liquidity needs.

Many of these obligations and commitments are expected to expire without being drawn upon;

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.

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

The levels of such assets are dependent upon the Bank’s operating, financing and investment activities at any given time.

The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

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

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

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

The Bank’s principal funding commitments are for the origination or purchase of loans, the purchase of securities and the payment of maturing deposits.

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

The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time.

The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

Liquidity is provided by access to funding sources, which include core deposits and brokered deposits.

Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB.

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.

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

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

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

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

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

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

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

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

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

September 30, 2025

($ in thousands) Liquidity in Use Liquidity Available

FHLB secured borrowings (1)

$ 83,100 $ 739,582

Unsecured federal fund purchase lines — 65,000

Unpledged assets

Cash and cash equivalents N/A $ 416,513

Investment securities N/A 294,410

Total $ 83,100 $ 1,515,505

____________________________________

(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.

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

in the 2024 Annual Report.

CAPITAL RESOURCES

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 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.

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

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

The Company and the Bank annually update its strategic plan, which includes a three-year capital plan.

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.

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

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

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

The Company 8.86 % 10.21 % 10.82 % 12.88 %

The Bank 9.41 11.49 11.49 12.75

December 31, 2024 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio

The Company 8.02 % 9.44 % 10.06 % 12.18 %

The Bank 8.58 10.75 10.75 11.97

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

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

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

Noninterest expense of $37.1 million for the three months ended March 31, 2026 increased $3.3 million when compared to the $33.7 million for the three months ended March 31, 2025.

The increase was primarily due to higher salaries and employee benefits expense of

$3.2 million and higher software and data processing costs of $449 thousand, partially offset by the decrease in the amortization of other intangible assets of $298 thousand.

The Company reported income tax expense of $5.6 million and $4.5 million for the three months ended March 31, 2026 and 2025, respectively.

The effective tax rate was 24.58% and 24.61% for the three months ended March 31, 2026 and 2025, respectively.

ANALYSIS OF FINANCIAL CONDITION

Balance Sheet Summary

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

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

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

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

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

Total assets were $6.21 billion at March 31, 2026, a decrease of $52.8 million, or 0.8%, when compared to $6.26 billion at December 31, 2025.

The decrease was primarily due to a decrease in our loan portfol io of $52.3 million and a decrease in cash and cash equivalents of $14.7 million, which were partially offset by an increase in our investment securities portfolio of $22.5 million .

The ratio of the ACL as a percentage of loans was 1.21% and 1.20% at March 31, 2026 and December 31, 2025, respectively.

Cash and Cash Equivalents

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

Cash and cash equivalents totaled $340.8 million at March 31, 2026 compared to $355.6 million at December 31, 2025.

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

Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year.

The decrease in cash and cash equivalents was primarily driven by seasonal run-off of the municipal deposits.

Investment Securities

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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 accumulated other comprehensive income (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.

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

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

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

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

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

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

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

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

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

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

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

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

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

At March 31, 2026, 40.15% of the portfolio of debt securities was classified as AFS and 59.85% was classified as HTM, compared to 34.69% and 65.31%, respectively, at December 31, 2025.

See Note 2 – “Investment Securities” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the composition of the investment portfolio.

Investment securities, including restricted stock and equity securities, totaled $681.8 million at March 31, 2026, an increase of $22.5 million, or 3.4%, compared to $659.4 million at December 31, 2025.

At March 31, 2026, AFS securities, carried at fair value, totaled $264.0 million compared to $220.4 million at December 31, 2025.

At March 31, 2026, AFS securities consisted of 87.37% mortgage-backed securities, 7.71% U.S.

government agency securities and 4.92% corporate bonds, compared to 88.50%, 9.36% and 2.14%, respectively, at December 31, 2025.

At March 31, 2026, the gross unrealized losses on AFS securities were all related to changes in interest rates and were $7.9 million, or less than 1% of total assets and 2% of total stockholders’ equity.

At March 31, 2026, the AOCI loss was $5.3 million, compared to $4.6 million at December 31, 2025.

At March 31, 2026, HTM securities, carried at amortized cost, totaled $393.6 million, compared to $414.8 million at December 31, 2025.

At March 31, 2026, HTM securities consisted of 74.74% mortgage-backed securities, 23.49% U.S.

government agency securities and 1.77% other debt securities, compared to 73.06%, 25.26% and 1.68%, respectively, at December 31, 2025.

At March 31, 2026 and December 31, 2025, 96.98% and 98.18%, 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.

Credit Quality Information

The Company monitors the credit quality of HTM securities through credit ratings provided by Standard & Poor’s Rating Services and Moody’s Investor Services.

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

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

There were no speculative grade HTM securities at March 31, 2026 or December 31, 2025.

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

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

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

September 30, 2025

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

The following tables present the amortized cost of HTM securities based on their lowest publicly available credit rating as of March 31, 2026 and December 31, 2025.

March 31, 2026

Investment Grade

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Total held to maturity securities $ 299,292 $ 88,904 $ 2,000 $ 1,000 $ 500 $ 2,000 $ 393,696

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

December 31, 2025

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

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

At March 31, 2026 and December 31, 2025, the fair value of loans held for sale amounted to $24.0 million and $32.5 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 co mpliance with any of the representations subsequent to the date of purchase, the Bank may be required to repurchase the loan or indemnify the purchaser.

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

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

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 three months ended March 31, 2026, the Bank repurchased no loans.

During the three months ended March 31, 2025, the Bank repurchased one loan with an aggregate value of $415 thousand.

Loans Held for Investment

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

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

The following table summarizes the Company’s loan portfolio at March 31, 2026 and December 31, 2025.

($ in thousands) March 31, 2026 % of Total Loans December 31, 2025 % of Total Loans $ Change % Change

Commercial real estate $ 2,599,815 53.62 % $ 2,643,996 53.95 % $ (44,181) (1.7) %

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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.

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

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

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

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

The CRE portfolio has increased in the past two years.

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.

Non-owner occupied CRE loans, including construction loans, totaled $2.14 billion and $2.15 billion at March 31, 2026 and December 31, 2025, respectively, and as a percentage of the Bank’s Tier 1 Capital plus ACL were 332.94% and 342.55%, respectively.

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

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Non-Owner Occupied CRE Loans

September 30, 2025

March 31, 2026

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

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____________________________________

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

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

(1) Other non-owner occupied CRE loans include commercial – improved loans of $160.1 million, self storage loans of $67.0 million, farm real estate loans of $46.4 million, lot/land loans of $3.3 million and other loans $89.3 million.

(2) The balances for the non-owner occupied CRE portfolio as of March 31, 2026, 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 $24.0 million .

Owner Occupied CRE Loans

September 30, 2025

March 31, 2026

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

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____________________________________

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

(1) Other owner occupied CRE loans include church loans of $56.8 million, marina/boat slip loans of $17.7 million, fire/EMS building loans of $38.0 million and other loans $82.7 million.

(2) Excludes loans held for sale of $24.0 million.

Office CRE Loan Portfolio

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

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $480.9 million, or 9.9% of total loans of $4.85 billion at March 31, 2026.

The Bank’s office CRE loan portfolio included $113.6 million, or 23.6% of total office CRE loans, with medical tenants, and $69.3 million, or 14.4%, of total office CRE loans, with government or government contractor tenants.

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

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

At March 31, 2026, there were 467 loans in the office CRE loan portfolio with an average and median loan size of $1.0 million and $378 thousand, respectively.

Loan-to-value (“LTV”) estimates are less than or equal to 50% for $167.3 million, or 34.8%, of the office CRE loan portfolio, and greater than 80% for $11.1 million, or 2.3%, of the office CRE loan portfolio at March 31, 2026.

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 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 estimates for the office CRE loan portfolio March 31, 2026 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)

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Less than or equal to 50% 234 $ 167,305 34.8 %

50%-60% 78 111,682 23.6

60%-70% 92 132,631 28.0

70%-80% 63 62,485 13.2

Greater than 50% and less than or equal to 60% 75 122,649 25.5

Greater than 60% and less than or equal to 70% 92 142,127 29.6

Greater than 70% and less than or equal to 80% 52 37,694 7.8

Greater than 80% 14 11,075 2.3

Total 467 $ 480,850 100.0 %

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

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

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

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

Of the office CRE loans, $5.5 million will mature and $5.4 million will reprice prior to December 31, 2025.

Of the office CRE loans, $13.7 million are special mention or substandard.

There were 17 office CRE loans with balances greater than $5.0 million, totaling $164.8 million at March 31, 2026, compared to 17 loans totaling $166.1 million at December 31, 2025.

The decrease in this portfolio segment was the result of normal amortization.

Of the office CRE portfolio balance, 81.1% of the loans were secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97.5% were secured by properties with five stories or less at March 31, 2026.

Of the office CRE loans, $28.7 million were classified as special mention or substandard at March 31, 2026.

There were no charge-offs within the office CRE portfolio during the three months ended March 31, 2026 .

Maturity of Loan Portfolio

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

The following table sets forth the maturities and interest rate sensitivity of the loan portfolio at March 31, 2026.

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 <1 Year Maturing 1-5 Years Maturing 5-15 Years Maturing >15 Years Total

($ 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

Commercial real estate $ 273,337 $ 814,174 $ 709,035 $ 803,269 $ 2,599,815

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Loans Related to Cannabis Business

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

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

Asset Quality

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

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

Loan balances related to our cannabis business were $91.9 million and $86.2 million, or 1.90% and 1.76% of total gross loans, as of March 31, 2026 and December 31, 2025, respectively.

Asset Quality

Total portfolio loans $ 4,882,969 $ 4,771,988

Special mention loans 70,997 33,519

Classified loans 48,470 24,679

Other real estate owned 120 179

Repossessed assets 3,432 3,315

Total classified assets (1)

52,022 28,173

Total classified loans and special mention loans 119,467 58,198

Allowance for credit losses on loans

(59,554) (57,910)

Past due loans – 31 to 89 days 5,559 8,807

Past due loans >= 90 days 153 294

Total past due (delinquency) loans 5,712 9,101

Nonaccrual loans 24,378 21,008

Past due loans >= 90 days 153 294

Other real estate owned (“OREO”) 120 179

Repossessed assets 3,432 3,315

Total nonperforming assets 28,083 24,796

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

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

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

ASSET QUALITY RATIOS

Classified assets to total assets (1)

0.83 % 0.45 %

Classified assets to risk-based capital (1)

Allowance for credit losses on loans to total portfolio loans

Allowance for credit losses on loans to nonaccrual loans 244.29 275.66

Past due loans – 31 to 89 days to total portfolio loans 0.11 % 0.18 %

Past due loans >=90 days and nonaccrual to total loans 0.50 0.45

Total past due (delinquency) and nonaccrual to total portfolio loans 0.62 0.63

Nonaccrual loans to total portfolio loans 0.50 % 0.44 %

Nonperforming assets to total assets 0.45 0.40

____________________________________

(1) Classified assets are substandard loans, OREO and other repossessed assets.

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.

Allowance for Credit Losses on Loans

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

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

three months ended September 30, 2024.

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

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

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

ACL and Provision for Credit Losses

The ACL as a percentage of loans increased to 1.21% at March 31, 2026, compared to 1.20% at December 31, 2025.

At March 31, 2026, the Company’s ACL decreased $355 thousand, to $58.5 million from $58.8 million at December 31, 2025.

The decrease in the general allowance was primarily due to loan payoffs, partially offset by unfavorable economic conditions in 2026.

The Company recorded a provision for credit losses on loans of $85 thousand for the three months ended March 31, 2026, compared to $1.0 million for the three months ended March 31, 2025, primarily due to loan growth and net charge-offs, which amounted to $847 thousand, or 0.02% of average loans, for the three months ended March 31, 2026, compared to net charge-offs of $554 thousand, or 0.01% of average loans, for the three months ended March 31, 2025.

The increase in charge-offs in 2026 was primarily due to the marine and CRE portfolio.

The ratio of annualized net charge-offs to average loans was 0.07% and 0.05% for the three months ended March 31, 2026 and 2025, respectively.

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

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

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

The 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.

September 30, 2025 December 31, 2024

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

ACL Average Balance % (1)

Three Months Ended

March 31, 2026 March 31, 2025

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

ACL Balance Average Loan Balance (1)

Commercial real estate $ 21,672 $ 2,601,316 0.83 % $ 21,988 $ 2,541,527 0.87 %

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____________________________________

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

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

(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 three months ended March 31, 2026 and 2025.

Three Months Ended

September 30, 2025 September 30, 2024

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

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

March 31, 2026 March 31, 2025

($ 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) %

3 unchanged sentences

Commercial 176 221,542 0.32 (4) 232,900 (0.01)

Consumer (1,328) 289,729 1.82 (927) 322,988 1.14

475 262,174 0.73 396 304,520 0.53

Credit cards 77 4,369 7.15 242 6,686 14.68

Total $ 847 $ 4,861,957 0.07 $ 554 $ 4,771,737 0.05

Allowance for credit losses — (58,764) — — (58,515) —

Total net charge-off and average loans $ (1,825) $ 4,825,239 0.15 $ (1,288) $ 4,675,486 0.11

____________________________________

(1) Excludes loans held for sale.

Nine Months Ended

September 30, 2025 September 30, 2024

($ in thousands) Net (Charge-offs)

Recoveries Average Balance (1)

% Net (Charge-offs)

Recoveries Average Balance (1)

(2) Includes the marine portfolio.

Classified Assets

Classified assets are substandard loans, repossessed assets and OREO.

The following tables present the Company’s classified assets by loan portfolio category at March 31, 2026 and December 31, 2025.

March 31, 2026

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

Commercial real estate $ 64,453 $ — $ — $ 64,453

4 unchanged sentences

Credit cards 63 — — 63

(3,028) 4,834,547 0.08 (2,739) 4,698,694 0.08

Allowance for credit losses — (58,477) — — (57,877) —

Total net charge-off and average loans $ (3,028) $ 4,776,070 0.08 $ (2,739) $ 4,640,817 0.08

Classified Assets and Special Mention Assets

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

Classified assets are substandard loans, repossessed assets and OREO.

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

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

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

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

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

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

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

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

Total $ 82,337 $ 69 $ 3,345 $ 85,751

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

The following table presents the Company’s total classified assets as a percentage of total assets and risk-based capital at March 31, 2026 and December 31, 2025.

March 31, 2026 December 31, 2025

Total classified assets as a percentage of total assets 1.38 % 0.96 %

Total classified assets as a percentage of risk-based capital 12.71 9.14

Classified assets increased $25.4 million to $85.8 million, or 1.38% of total assets, at March 31, 2026, from $60.4 million, or 0.96% of total assets, at December 31, 2025.

Special Mention Loans

The following table presents the Company’s special mention loans by loan portfolio category at March 31, 2026 and December 31, 2025.

($ in thousands) March 31, 2026 December 31, 2025

Commercial real estate $ 79,759 $ 52,347

Residential real estate 17,601 19,065

Construction — —

Commercial 411 1,318

Consumer — 671

Credit cards — —

Total special mention loans $ 97,771 $ 73,401

Special mention loans increased to $97.8 million at March 31, 2026 compared to $73.4 million at December 31, 2025 and $33.5 million at March 31, 2025.

As of March 31, 2026, there were six special mention loans with individual balances greater than $5.0 million, totaling $79.1 million.

These loans consist primarily of multifamily commercial real estate and other commercial real estate exposures that are well-collateralized.

Management does not currently expect material losses on these credits and is actively engaged in credit oversight and timely execution of workout strategies.

Nonperforming Assets

Nonperforming assets were $68.4 million and $43.2 million, or 1.10% and 0.69% of total assets, as of March 31, 2026 and December 31, 2025, respectively.

Nonperforming assets primarily consist of two large relationships with an aggregate loan balance of $45.6 million.

These non performing loans primarily consists of multifamily and office commercial real estate based in North Carolina and Virginia.

As of March 31, 2026, these loans are well-secured by collateral and required minimal individual reserves.

When comparing March 31, 2026 to March 31, 2025, nonperforming assets increased $49.5 million, primarily due to an increase in nonaccrual loans of $49.6 million and an increase in repossessed marine and auto loans of $806 thousand, partially offset by a decrease in loans 90 days past due and accruing of $894 thousand.

Substandard loans, which include nonaccrual loans and accruing loans 90 days or more past due were $82.3 million at March 31, 2026 compared to $57.4 million at December 31, 2025 and $19.4 million at March 31, 2025.

The following table summarizes our nonperforming assets as of March 31, 2026 and December 31, 2025.

($ in thousands) March 31, 2026 December 31, 2025

Nonperforming assets

Nonaccrual loans $ 64,958 $ 39,960

Total loans 90 days or more past due and still accruing — 255

Repossessed assets 3,345 2,879

Total nonperforming assets $ 68,372 $ 43,207

As a percent of total loans:

Nonaccrual loans 1.34 % 0.82 %

As a percent of total loans and OREO:

Nonperforming assets 1.41 % 0.88 %

As a percent of total assets:

Nonaccrual loans 1.05 % 0.64 %

Nonperforming assets 1.10 0.69

Off-Balance Sheet Credit Exposure Reserve

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

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

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

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

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

Balance % Balance % $ Change % Change

Noninterest-bearing $ 1,594,212 28.8 % $ 1,562,815 28.3 % $ 31,397 2.0 %

Interest-bearing:

The Company’s reserve for off-balance sheet credit exposure was $1.7 million and $2.0 million at March 31, 2026 and December 31, 2025, respectively.

The Company monitors line of credit usage and did not see substantive increases in usage or expected usage during the three months ended March 31, 2026.

The following is a breakdown of the Company’s deposit portfolio at March 31, 2026 and December 31, 2025:

($ in thousands) March 31, 2026 December 31, 2025

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

Noninterest-bearing deposits $ 1,567,425 28.70 % $ 1,587,953 28.69 % $ (20,528) (1.3) %

Interest-bearing deposits:

Interest-bearing checking 812,847 14.88 852,585 15.41 (39,738) (4.7)

4 unchanged sentences

Total deposits $ 5,461,620 100.00 % $ 5,533,864 100.00 % $ (72,244) (1.3)

____________________________________

* Not meaningful for comparative purposes

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

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

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

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

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

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

Total deposits decreased $72.2 million, to $5.46 billion at March 31, 2026 when compared to December 31, 2025.

The decrease in total deposits was primarily due to a decrease in interest-bearing checking deposits of $39.7 million, a decrease in noninterest-bearing accounts of $20.5 million and a decrease in money market and savings accounts of $19.3 million.

These decreases were partially offset by an increase in time deposits of $7.3 million.

The decrease was due to seasonal municipal deposit run offs.

Total estimated uninsured deposits were $933.0 million, or 17.1% of total deposits, at March 31, 2026 and $937.2 million, or 16.9% of total deposits, at December 31, 2025.

At March 31, 2026 there were $147.0 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

The Bank’s uninsured deposits at March 31, 2026, excluding the market value of pledged collateral, were $786.0 million, or 14.4%, of total deposits.

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

1 unchanged sentence

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

At March 31, 2026, the Bank had two local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $334.9 million, which represented 6.10% of total deposits of $5.49 billion.

At December 31, 2025, there were three 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 September 30, 2025, deposit balances related to the cannabis business were $134.3 million, or 2.43% of total deposits.

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

Wholesale Funding – Short-Term Borrowings and Brokered Deposits

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

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

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

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

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

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

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

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

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

Deposit balances related to the cannabis business were $154.4 million and $159.4 million, or 2.83% and 2.88% of total deposits, as of March 31, 2026 and December 31, 2025, respectively.

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 as of March 31, 2026 and December 31, 2025.

The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $11.0 million and $10.9 million at March 31, 2026 and December 31, 2025, respectively.

At March 31, 2026, the Company had $11.0 million of brokered deposits and no FHLB advances or securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

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.

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.

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

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

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

The Company had no long-term borrowings with the FHLB as of March 31, 2026.

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

The debt balances of $19.0 million at March 31, 2026 and $19.0 million at December 31, 2025 were presented net of fair value adjustments of $1.6 million and $1.7 million, respectively.

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

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

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

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

The debt b alances of $11.2 million and $11.2 million were presented net of fair value adjustments of $1.1 million and $1.2 million at March 31, 2026 and December 31, 2025, respectively.

Stockholders’ Equity

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

Total stockholders’ equity increased $12.8 million, or 2.2%, to $602.7 million at March 31, 2026 when compared to December 31, 2025, primarily due to $17.1 million of net income, partially offset by dividends declared of $4.0 million and an increase in accumulated other comprehensive loss of $677 thousand.

($ in thousands, except per share data) March 31, 2026 December 31, 2025 $ Change % Change

Common stock, $0.01 par value per share $ 335 $ 334 $ 1 0.3 %

3 unchanged sentences

Total stockholders’ equity $ 602,714 $ 589,873 $ 12,841 2.2

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

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

Cash needs may come from loan demand, deposit withdrawals or acquisition opportunities.

Potential obligations, resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers, are other factors affecting our liquidity needs.

Many of these obligations and commitments are expected to expire without being drawn upon;

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

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.

The levels of such assets are dependent upon the Bank’s operating, financing and investment activities at any given time.

The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

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

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 funding commitments are for the origination or purchase of loans, the purchase of securities and the payment of maturing deposits.

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

The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time.

The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows.

Liquidity is provided by access to funding sources, which include core deposits and brokered deposits.

Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB.

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.

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 $14.7 million for the three months ended March 31, 2026, compared to a net decrease of $70.8 million for the three months ended March 31, 2025.

The decrease in cash and cash equivalents in the three months ended March 31, 2026 was primarily due to a $51.7 million decrease in interest-bearing deposits and a $20.5 million decrease in noninterest-bearing deposits.

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

At March 31, 2026, the Bank had approximately $1.43 billion of available liquidity, including $340.8 million in cash and cash equivalents, $328.0 million in unpledged securities, $14.7 million in secured borrowing capacity with the FRB and $777.6 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by a letter of credit of $33.7 million.

In addition, the Bank has arrangements with other correspondent banks whereby it has $376.3 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 $777.6 million and $788.1 million at March 31, 2026 and December 31, 2025, respectively.

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

The Bank has pledged investment securities with the FRB under the FRB Discount Window program.

The following table presents the Company’s liquidity in use and liquidity available as of March 31, 2026.

March 31, 2026

($ in thousands) Liquidity in Use Liquidity Available

FHLB secured borrowings (1)

$ 33,667 $ 777,552

Unsecured federal fund purchase lines — 376,295

FRB discount window — 14,691

Unpledged assets

Cash and cash equivalents N/A $ 340,822

Investment securities N/A 327,958

Total $ 33,667 $ 1,837,318

____________________________________

(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.

For information about risks relating to liquidity, see “Risk Factors – Risks Relating to Our Business” included in Part I, Item 1A in the 2025 Annual Report.

CAPITAL RESOURCES

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

Under capital adequacy guidelines and the regulatory framework for prompt corrective action (“PCA”), 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.

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

The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at March 31, 2026.

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

The Company and the Bank annually update its strategic plan, which includes a three-year capital plan.

As of March 31, 2026, 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 PCA regulations.

The following tables present the applicable capital ratios for the Company and the Bank as of March 31, 2026 and December 31, 2025.

March 31, 2026 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio

The Company 9.12 % 10.97 % 11.60 % 14.08 %

The Bank 9.58 12.18 12.18 13.43

December 31, 2025 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio

The Company 8.82 % 10.52 % 11.15 % 13.61 %

The Bank 9.30 11.75 11.75 13.00

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

For information about risks relating to liquidity, see “Risk Factors” included in Part I, Item 1A of the 2025 Annual Report.

USE OF NON-GAAP FINANCIAL MEASURES

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

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

($ in thousands, except per share data) March 31, 2026 December 31, 2025

Total assets $ 6,206,063 $ 6,258,818

1 unchanged sentence

Goodwill (63,266) (63,266)

Core deposit intangibles 31,722 38,311 40,609

Core deposit intangible (27,742) (29,722)

Total intangible assets (91,008) (92,988)

3 unchanged sentences

Tangible common equity $ 511,706 $ 496,885

Common shares outstanding at end of period 33,421,672 33,332,177 33,326,772

Common shares outstanding at period end 33,451,063 33,413,503

Common equity to assets 9.71 % 9.42 %

Tangible common equity to tangible assets 8.37 8.06

Common book value per share $ 17.27 $ 16.23 $ 16.00

Tangible common book value per share 14.43 13.19 12.88

Return on Average Common Equity

Book value per common share at period end $ 18.02 $ 17.65

Tangible book value per common share at period end 15.30 14.87

Return on Average Common Equity (“ROACE”)

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 after tax divided by the average stockholders’ equity for a specific period of time.

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

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.

Three Months Ended March 31,

($ in thousands) 2026 2025

3 unchanged sentences

Average stockholders’ equity $ 600,212 $ 547,443

Return on Average Tangible Common Equity

Return on Average Tangible Common Equity (“ROATCE”)

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

1 unchanged sentence

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

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

Three Months Ended March 31,

($ in thousands) 2026 2025

Net income $ 17,088 $ 13,764

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

ROATCE 11.98 % 10.50 % 12.65 % 9.88 %

amortization of other intangible assets, net of tax 1,493 1,717

Net income excluding amortization of other intangible assets – non-GAAP $ 18,581 $ 15,481

Annualized net income excluding amortization of other intangible assets – non-GAAP $ 75,356 $ 62,784

ROATCE – non-GAAP 14.83 % 14.05 %

Average stockholders’ equity $ 600,212 $ 547,443

1 unchanged sentence

Average tangible common equity $ 508,126 $ 446,929

Efficiency Ratio – Non-GAAP

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

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

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

Adjusted Efficiency Ratio – Non-GAAP

Adjusted 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.

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

Three Months Ended March 31,

($ in thousands) 2026 2025

1 unchanged sentence

Amortization of other intangible assets (1,980) (2,278)

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

Adjusted noninterest expense $ 35,076 $ 31,469

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

Adjusted efficiency ratio – non-GAAP 58.57 % 59.25 %

Net interest income $ 52,555 $ 45,898

4 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis