SHORE BANCSHARES INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Unless the context clearly suggests otherwise, references to “the Company,” “we,” “our” and “us” in the remainder of this Quarterly Report on Form 10-Q are to Shore Bancshares, Inc. and its consolidated subsidiaries. FORWARD-LOOKING INFORMATION This Quarterly Report on Form 10-Q contains forward-looking statements. The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions, or future or conditional verbs such as “should,” “could,” or “may.” Although forward-looking statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: • the strength of the United States (“U.S.”) economy and general economic conditions, (including the interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation/deflation and supply chain issues), whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products, our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans; • the ability to effectively manage the information technology systems, including third-party vendors, cyber or data privacy incidents or other failures, disruptions or security breaches, and risk related to the development and use of artificial intelligence; • the ability to develop and use technologies to provide products and services that will satisfy customer demands; • results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses or to write-down assets; • changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, which could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; • changes in market rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; • our liquidity requirements could be adversely affected by changes in our assets and liabilities; • our ability to prudently manage our growth and execute our strategy; • impairment of our goodwill and intangible assets; • competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; • the effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations; • the growth and profitability of noninterest or fee income being less than expected; • the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; • the effect of any change in federal government enforcement of federal laws affecting the cannabis industry; • the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board, the U.S. Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board and other regulatory agencies; 39 Table of Contents • changes in U.S. trade policies, including the implementation of tariffs and other protectionist trade policies; • the impact of governmental efforts to restructure or adjust the U.S. financial regulatory system; • the impact of recent or future changes in Federal Deposit Insurance Corporation (the “FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments; • the effects of federal government shutdowns, debt ceiling standoff, or other uncertainty regarding fiscal and governmental policies of the U.S. federal government; • climate change and other catastrophic events or disasters; • geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad; • and other factors that may affect our future results. 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. INTRODUCTION The following management’s discussion and analysis of financial condition and results of operations is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented elsewhere in this report, as well as the audited consolidated financial statements and related notes included in the 2025 Annual Report. Shore Bancshares, Inc. is headquartered on the Eastern Shore of Maryland. It is the parent company of Shore United Bank, N.A. (the “Bank”). The Bank currently operates 40 full-service branches in Maryland, Delaware and Virginia. The Company, through Wye Financial Partners, a division of the Bank, offers full-service investment, insurance and financial planning services through our broker/dealer, LPL Financial. 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 shares of common stock of Shore Bancshares, Inc. are listed on the NASDAQ Global Select Market under the symbol “SHBI.” Shore Bancshares, Inc. maintains an Internet site at www.shorebancshares.com on which it makes available free of charge its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC. CRITICAL ACCOUNTING POLICIES The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. 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 2025 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. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policy for the allowance for credit losses (“ACL”) on loans is a critical accounting policy. This policy is considered critical because it relates to an accounting area that requires the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available. 40 Table of Contents Allowance for Credit Losses on Loans The ACL represents management’s best estimate of expected lifetime credit losses within the Company’s loan portfolio as of the balance sheet date. The ACL is established through a provision for credit losses and is increased by recoveries of loans previously charged off. Loan losses are charged against the allowance when management’s assessments confirm that the Company will not collect the full amortized cost basis of a loan. The calculation of expected credit losses is determined using a cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances. The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate. Changes in the ACL on loans and the related provision for credit losses can materially affect financial results. Although the overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is available to absorb credit losses for loans in the portfolio. The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. 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 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 2025 Annual Report for additional details concerning the determination of the ACL on loans. 41 Table of Contents 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 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. ____________________________________ (1) See the Reconciliation of GAAP and non-GAAP Measures tables. 42 Table of Contents 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 March 31, 2026 of $17.1 million, or $0.51 per diluted common share, compared to $13.8 million, or $0.41 per diluted common share, for the three months ended March 31, 2025. The following table presents selected consolidated statement of operations data for each of the periods indicated. Three Months Ended March 31, ($ in thousands) 2026 2025 $ Change % Change Interest and dividend income $ 78,392 $ 75,932 $ 2,460 3.2 % Interest expense 25,837 30,034 (4,197) (14.0) Net interest income 52,555 45,898 6,657 14.5 Provision for credit losses 85 1,028 (943) (91.7) Noninterest income 7,244 7,134 110 1.5 Noninterest expense 37,056 33,747 3,309 9.8 Income before income taxes 22,658 18,257 4,401 24.1 Income tax expense 5,570 4,493 1,077 24.0 Net income $ 17,088 $ 13,764 $ 3,324 24.1 Net Interest Income 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 Interest on loans $ 70,814 $ 67,516 $ 3,298 4.9 % Interest and dividends on investment securities 5,120 5,007 113 2.3 Interest on deposits with banks 2,458 3,409 (951) (27.9) Total interest and dividend income $ 78,392 $ 75,932 $ 2,460 3.2 Interest expense Deposits $ 24,264 $ 28,070 $ (3,806) (13.6) % Short-term borrowings — 598 (598) (100.0) Long-term borrowings 1,573 1,366 207 15.2 Total interest expense $ 25,837 $ 30,034 $ (4,197) (14.0) Taxable-equivalent adjustment $ 89 $ 81 $ 8 9.9 % Taxable-equivalent net interest income $ 52,644 $ 45,979 $ 6,665 14.5 % 43 Table of Contents 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 March 31, 2026 and 2025. Three Months Ended March 31, 2026 2025 ($ in thousands) Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate Earning assets Loans (1), (2), (3) Commercial real estate $ 2,601,316 $ 39,029 6.08 % $ 2,541,527 $ 35,822 5.72 % Residential real estate 1,450,114 19,311 5.33 1,347,035 18,433 5.47 Construction 347,973 5,631 6.56 352,323 5,526 6.36 Commercial 221,542 3,296 6.03 232,900 3,695 6.43 Consumer 262,174 3,534 5.47 304,520 4,042 5.38 Credit cards 4,369 100 9.29 6,686 77 4.67 Total loans 4,887,488 70,901 5.86 4,784,991 67,595 5.71 Investment securities Taxable 665,729 5,114 3.07 664,002 5,001 3.01 Tax-exempt (1) 647 8 4.95 653 8 4.90 Interest-bearing deposits 269,380 2,458 3.70 318,434 3,409 4.34 Total earning assets 5,823,244 $ 78,481 5.44 5,768,080 $ 76,013 5.32 Cash and due from banks 44,182 43,526 Other assets 365,971 375,929 Allowance for credit losses (58,742) (58,294) Total assets $ 6,174,655 $ 6,129,241 Interest-bearing liabilities Interest-bearing checking $ 780,713 $ 4,840 2.51 % $ 859,698 $ 7,025 3.31 % Money market and savings deposits 1,812,071 8,696 1.95 1,799,707 10,015 2.26 Time deposits 1,270,156 10,624 3.39 1,208,250 11,030 3.70 Brokered deposits 11,107 104 3.80 — — — Interest-bearing deposits (4) 3,874,047 24,264 2.54 3,867,655 28,070 2.94 FHLB advances — — — 50,000 598 4.85 Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) (4) 89,024 1,573 7.17 73,840 1,366 7.50 Total interest-bearing liabilities 3,963,071 25,837 2.64 3,991,495 30,034 3.05 Noninterest-bearing deposits 1,564,867 1,549,859 Accrued expenses and other liabilities 46,505 40,444 Stockholders’ equity 600,212 547,443 Total liabilities and stockholders’ equity $ 6,174,655 $ 6,129,241 Taxable-equivalent net interest income $ 52,644 $ 45,979 Net interest spread 2.80 % 2.27 % Net interest margin 3.64 3.21 Net interest margin excluding accretion (3) 3.35 2.99 Cost of funds 1.90 2.20 Cost of deposits 1.81 2.10 Cost of debt 7.17 6.43 ____________________________________ (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 $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 zero and $334 thousand of amortization of deposit discounts and $79 thousand and $232 thousand of amortization of borrowing fair value adjustments for the three months ended March 31, 2026 and 2025, respectively. 44 Table of Contents Rate and Volume Analysis The following table presents changes in interest income and interest expense for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume. Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025 ($ in thousands) Volume Due to Rate Total Interest income from earning assets: Loans Commercial real estate $ 951 $ 2,256 $ 3,207 Residential real estate 1,343 (465) 878 Construction (69) 174 105 Commercial (169) (230) (399) Consumer (576) 68 (508) Credit cards (53) 76 23 Taxable investment securities 15 98 113 Interest-bearing deposits (448) (503) (951) Total interest income $ 994 $ 1,474 $ 2,468 Interest-bearing liabilities: Interest-bearing checking deposits $ (489) $ (1,696) $ (2,185) Money market and savings deposits 57 (1,376) (1,319) Time deposits 518 (924) (406) Brokered deposits 104 — 104 Advances from FHLB — (598) (598) Subordinated debt 267 (60) 207 Total interest-bearing liabilities 457 (4,654) (4,197) Net change in net interest income $ 537 $ 6,128 $ 6,665 Fluctuations in NII can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. The Company’s NIM increased 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 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 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 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 45 Table of Contents $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. Income Taxes 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. 46 Table of Contents ANALYSIS OF FINANCIAL CONDITION Balance Sheet Summary 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 $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 The investment portfolio includes debt and equity securities. Debt securities are classified as either AFS or HTM. AFS investment securities are stated at estimated fair value based on market prices. 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 (“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 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 $414.8 million at December 31, 2025. At March 31, 2026, HTM securities consisted of 74.74% mortgage-backed securities, 23.49% U.S. government agency securities and 1.77% other debt securities, compared to 73.06%, 25.26% and 1.68%, respectively, at December 31, 2025. At March 31, 2026 and December 31, 2025, 96.98% and 98.18%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S. government agencies or government-sponsored agencies. Credit Quality Information The Company monitors the credit quality of HTM securities through credit ratings provided by Standard & Poor’s Rating Services and Moody’s Investor Services. Credit ratings express opinions about the credit quality of a security and are updated at each quarter end. Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade HTM securities at March 31, 2026 or December 31, 2025. HTM securities that are not rated are agency mortgage-backed securities sponsored by U.S. government agencies, as well as direct obligations of the agencies, with the remainder being subordinated debt securities of other banks. 47 Table of Contents The following tables present the amortized cost of HTM securities based on their lowest publicly available credit rating as of March 31, 2026 and December 31, 2025. March 31, 2026 Investment Grade ($ in thousands) Aaa Aa1 A3 Baa1 Baa2 NR Total U.S. Treasury and government agency securities $ 5,069 $ 87,445 $ — $ — $ — $ — $ 92,514 Mortgage-backed securities 294,223 — — — — — 294,223 Other debt securities — 1,459 2,000 1,000 500 2,000 6,959 Total held to maturity securities $ 299,292 $ 88,904 $ 2,000 $ 1,000 $ 500 $ 2,000 $ 393,696 December 31, 2025 Investment Grade ($ in thousands) Aaa Aa1 A3 Baa1 Baa2 NR Total U.S. Treasury and government agency securities $ 5,399 $ 99,437 $ — $ — $ — $ — $ 104,836 Mortgage-backed securities 303,129 — — — — — 303,129 Other debt securities — 1,461 2,000 1,000 500 2,000 6,961 Total held to maturity securities $ 308,528 $ 100,898 $ 2,000 $ 1,000 $ 500 $ 2,000 $ 414,926 Loans Held for Sale The Company originates residential mortgage loans for sale on the secondary market, which are recorded at fair value. 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 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 $415 thousand. 48 Table of Contents Loans Held for Investment The following table summarizes the Company’s loan portfolio at March 31, 2026 and December 31, 2025. ($ 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) % Residential real estate 1,425,733 29.41 1,414,964 28.88 10,769 0.8 Construction 342,835 7.07 344,903 7.04 (2,068) (0.6) Commercial 220,833 4.56 226,006 4.61 (5,173) (2.3) Consumer 254,478 5.25 265,912 5.43 (11,434) (4.3) Credit cards 4,336 0.09 4,521 0.09 (185) (4.1) Total loans 4,848,030 100.00 % 4,900,302 100.00 % (52,272) (1.1) Less: allowance for credit losses (58,481) (58,836) 355 (0.6) Total loans, net $ 4,789,549 $ 4,841,466 $ (51,917) (1.1) CRE Loan Portfolio The Company’s loan portfolio has a CRE loan concentration, which is generally defined as a combination of certain construction and CRE loans. The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in CRE lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential CRE concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total non-owner occupied CRE loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied CRE loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential CRE concentration risk. 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. Non-owner occupied CRE loans, including construction loans, totaled $2.14 billion and $2.15 billion at March 31, 2026 and December 31, 2025, respectively, and as a percentage of the Bank’s Tier 1 Capital plus ACL were 332.94% and 342.55%, respectively. Management has extensive experience in CRE lending and has implemented and continues to maintain heightened risk management procedures, as well as strong underwriting criteria with respect to the Bank’s CRE portfolio. Monitoring practices are part of the Bank’s credit and risk departments’ annual test plans and are adjusted as needed on a quarterly basis if external or internal conditions merit changes. The Bank’s CRE monitoring plans include stress testing analysis to evaluate changes in collateral values and changes in cash flow debt service coverage ratios as a result of increasing interest rates or declines in customer net operating revenues. We may be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital, or be required to sell/participate portions of loans, either of which may adversely affect shareholder returns. 49 Table of Contents Non-Owner Occupied CRE Loans March 31, 2026 ($ in thousands) Amount Average Loan Size % of Non-Owner Occupied CRE Loans % of Total Portfolio Loans, Gross Loan type: Retail $ 482,785 $ 2,554 26.0 % 10.0 % Office 361,703 1,574 19.5 7.5 Multifamily (5+ units) 261,226 2,353 14.1 5.4 Industrial/warehouse 184,927 1,412 10.0 3.8 1-4 family dwelling 7,922 193 0.4 0.2 Motel/hotel 190,614 4,056 10.3 3.9 Other (1) 366,082 616 19.7 7.5 Total non-owner occupied CRE loans (2) 1,855,259 1,584 100.0 % 38.3 % Total portfolio loans, gross (3) $ 4,848,030 ____________________________________ (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 $24.0 million . Owner Occupied CRE Loans March 31, 2026 ($ in thousands) Amount Average Loan Size % of Owner Occupied CRE Loans % of Total Portfolio Loans, Gross Loan type: Commercial – improved $ 217,492 $ 1,182 29.2 % 4.5 % Office 119,147 507 16.0 2.5 Industrial/warehouse 92,883 654 12.5 1.9 Retail 65,223 610 8.8 1.3 Restaurant 54,657 976 7.3 1.1 Other (1) 195,154 1,184 26.2 4.1 Total owner occupied CRE loans 744,556 830 100.0 % 15.4 % Total portfolio loans, gross (2) $ 4,848,030 ____________________________________ (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 $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. 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 $11.1 million, or 2.3%, of the office CRE loan portfolio at March 31, 2026. LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews. LTV estimates for the office CRE loan portfolio March 31, 2026 are summarized in the table below and LTV collateral values are based on the most recent appraisal, which may vary from the appraised value at loan origination. 50 Table of Contents LTV Range ($ in thousands) Loan Count Loan Balance % of Office CRE Less than or equal to 50% 234 $ 167,305 34.8 % 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 % 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, $28.7 million were classified as special mention or substandard at March 31, 2026. There were no charge-offs within the office CRE portfolio during the three months ended March 31, 2026 . Maturity of Loan Portfolio The following table sets forth the maturities and interest rate sensitivity of the loan portfolio at March 31, 2026. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as maturing within one year. ($ in thousands) Maturing 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 Residential real estate 58,264 126,654 118,401 1,122,414 1,425,733 Construction 214,770 100,606 25,984 1,475 342,835 Commercial 62,153 77,693 61,395 19,592 220,833 Consumer 2,103 82,014 89,090 81,271 254,478 Credit cards 1,881 2,137 318 — 4,336 Total $ 612,508 $ 1,203,278 $ 1,004,223 $ 2,028,021 $ 4,848,030 Rate Terms: Fixed-interest rate loans $ 428,451 $ 1,011,106 $ 555,629 $ 282,167 $ 2,277,353 Adjustable-interest rate loans 184,057 192,172 448,594 1,745,854 2,570,677 Total $ 612,508 $ 1,203,278 $ 1,004,223 $ 2,028,021 $ 4,848,030 Loans Related to Cannabis Business 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. 51 Table of Contents Asset Quality 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 $554 thousand, or 0.01% of average loans, for the three months ended March 31, 2025. The increase in charge-offs in 2026 was primarily due to the marine and CRE portfolio. The ratio of annualized net charge-offs to average loans was 0.07% and 0.05% for the three months ended March 31, 2026 and 2025, respectively. Management remains focused on its efforts to dispose of problem loans and to prudently charge-off nonperforming loans to enable the Company to maintain overall credit quality. The following table allocates the ACL by loan portfolio category as of the dates indicated. The allocation of the ACL to each category is not necessarily indicative of future losses and does not restrict the use of the ACL to absorb losses in any category. Three Months Ended March 31, 2026 March 31, 2025 ($ in thousands) ACL Balance Average Loan Balance (1) % (2) ACL Balance Average Loan Balance (1) % (2) Commercial real estate $ 21,672 $ 2,601,316 0.83 % $ 21,988 $ 2,541,527 0.87 % Residential real estate 22,993 1,424,583 1.61 22,393 1,333,781 1.68 Construction 4,806 347,973 1.38 3,842 352,323 1.09 Commercial 3,497 221,542 1.58 2,855 232,900 1.23 Consumer 5,415 262,174 2.07 6,574 304,520 2.16 Credit cards 98 4,369 2.24 390 6,686 5.83 Total $ 58,481 $ 4,861,957 1.20 $ 58,042 $ 4,771,737 1.22 ____________________________________ (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 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) % Commercial real estate $ — $ 2,601,316 0.00 % $ (78) $ 2,541,527 (0.01) % Residential real estate 119 1,424,583 0.03 (1) 1,333,781 0.00 Construction — 347,973 0.00 (1) 352,323 0.00 Commercial 176 221,542 0.32 (4) 232,900 (0.01) Consumer (2) 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 ____________________________________ (1) Excludes loans held for sale. (2) Includes the marine portfolio. Classified Assets 52 Table of Contents 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 Residential real estate 10,225 — — 10,225 Construction 403 69 — 472 Commercial 6,659 — — 6,659 Consumer 534 — 3,345 3,879 Credit cards 63 — — 63 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 53 Table of Contents 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 OREO 69 113 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 $1.7 million and $2.0 million at March 31, 2026 and December 31, 2025, respectively. The Company monitors line of credit usage and did not see substantive increases in usage or expected usage during the three months ended March 31, 2026. 54 Table of Contents Deposits The following is a breakdown of the Company’s deposit portfolio at March 31, 2026 and December 31, 2025: ($ 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) Money market and savings 1,795,619 32.88 1,814,928 32.80 (19,309) (1.1) Time deposits 1,274,766 23.34 1,267,487 22.90 7,279 0.6 Brokered deposits 10,963 0.20 10,911 0.20 52 0.5 Total interest-bearing 3,894,195 71.30 3,945,911 71.31 (51,716) (1.3) Total deposits $ 5,461,620 100.00 % $ 5,533,864 100.00 % $ (72,244) (1.3) 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. This includes monitoring deposit concentrations and maintaining fund management policies and strategies that take into account potentially volatile concentrations and significant deposits that mature simultaneously. 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 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. 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 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 $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. 55 Table of Contents Additionally, as a result of the merger with The Community Financial Corporation in 2023 , the Company assumed liability for Junior Subordinated Debt Securities with an outstanding principal balance of $12.4 million . The debt b alances of $11.2 million and $11.2 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 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 % Additional paid-in capital 361,013 360,554 459 0.1 Retained earnings 246,636 233,578 13,058 5.6 Accumulated other comprehensive loss (5,270) (4,593) (677) 14.7 Total stockholders’ equity $ 602,714 $ 589,873 $ 12,841 2.2 56 Table of Contents LIQUIDITY 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 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, 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 57 Table of Contents ____________________________________ (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. 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 (“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. 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 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. 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 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. 58 Table of Contents USE OF NON-GAAP FINANCIAL MEASURES Statements included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management uses these non-GAAP financial measures and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. See non-GAAP reconciliation schedules that immediately follow. Reconciliation of Non-GAAP Measures This Quarterly Report on Form 10-Q, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with GAAP. This financial information includes certain performance measures, which exclude intangible assets. 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 data) March 31, 2026 December 31, 2025 Total assets $ 6,206,063 $ 6,258,818 Less: intangible assets Goodwill (63,266) (63,266) Core deposit intangible (27,742) (29,722) Total intangible assets (91,008) (92,988) Tangible assets $ 6,115,055 $ 6,165,830 Total common equity $ 602,714 $ 589,873 Less: intangible assets (91,008) (92,988) Tangible common equity $ 511,706 $ 496,885 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 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 59 Table of Contents 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 divided by the average stockholders’ equity for a specific period of time. Three Months Ended March 31, ($ in thousands) 2026 2025 Net income $ 17,088 $ 13,764 Annualized net income $ 69,301 $ 55,821 ROACE 11.55 % 10.20 % Average stockholders’ equity $ 600,212 $ 547,443 Return on Average Tangible Common Equity (“ROATCE”) ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common equity. Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally-developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Three Months Ended March 31, ($ in thousands) 2026 2025 Net income $ 17,088 $ 13,764 Add: 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 Less: Average goodwill and core deposit intangible (92,086) (100,514) Average tangible common equity $ 508,126 $ 446,929 60 Table of Contents 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 Noninterest expense $ 37,056 $ 33,747 Less: Amortization of other intangible assets (1,980) (2,278) Adjusted noninterest expense $ 35,076 $ 31,469 Adjusted efficiency ratio – non-GAAP 58.57 % 59.25 % Net interest income $ 52,555 $ 45,898 Add: taxable-equivalent adjustment 89 81 Taxable-equivalent net interest income $ 52,644 $ 45,979 Noninterest income $ 7,244 $ 7,134 Adjusted noninterest income $ 7,244 $ 7,134 61 Table of Contents