What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2023-11-14 · 385 added, 489 removed, 818 unchanged (52% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data) September 30, 2023 December 31, 2022

(In thousands, except share and per share data) March 31, 2024 December 31, 2023

ASSETS (Unaudited)

5 unchanged sentences

179,496 110,521

Held to maturity, net of allowance for credit losses of $ 126 (2023) (fair value of $ 445,652 (2023) and $ 494,627 (2022))

Held to maturity, net of allowance for credit losses of $ 116 (2024) and $ 94 (2023) (fair value of $ 444,258 (2024) and $ 457,830 (2023))

503,822 513,188

8 unchanged sentences

Goodwill 63,266 63,266

Core deposit intangible, net 50,685 5,547

Other intangible assets, net 45,515 48,090

Other real estate owned, net 179 179

Repossessed properties 1,845 —

Mortgage servicing rights, at fair value 5,821 5,926

8 unchanged sentences

Total deposits 5,184,279 5,386,120

Advances from FHLB - short-term — 40,000

Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") 29,079 18,398

Subordinated debt 42,956 24,674

Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS"), net 29,237 29,158

Subordinated debt, net 43,322 43,139

Total borrowings 72,559 72,297

13 unchanged sentences

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF (LOSS)/INCOME (Unaudited)

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

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

For Three Months Ended March 31,

(In thousands, except per share data) 2024 2023

3 unchanged sentences

Interest and dividends on tax-exempt investment securities 6 7

Interest on federal funds sold 92 — 92 —

Interest on deposits with other banks 960 163

11 unchanged sentences

Trust and investment fee income 734 432

Loss on sales and calls of investment securities ( 2,166 ) — ( 2,166 ) —

Interchange credits 1,587 1,212

1 unchanged sentence

Title Company revenue 78 137

Bargain purchase gain 12,169 — 12,169 —

Other noninterest income 1,860 1,363

7 unchanged sentences

Directors' fees 295 250

Amortization of core deposit intangible 2,634 499 3,510 1,528

Amortization of other intangible assets 2,576 441

FDIC insurance premium expense 1,150 371

1 unchanged sentence

Legal and professional fees 1,599 750

Fraud losses (1)

Merger-related expenses — 691

1 unchanged sentence

Total noninterest expense 36,698 20,893

(Loss)/income before income taxes ( 11,375 ) 13,085 3,031 30,785

Income tax (benefit) expense ( 4,991 ) 3,427 ( 1,060 ) 8,016

NET (LOSS) INCOME $ ( 6,384 ) $ 9,658 $ 4,091 $ 22,769

Basic and diluted net (loss) income per common share $ ( 0.19 ) $ 0.49 $ 0.17 $ 1.15

Income before income taxes 10,597 8,892

Income tax expense 2,413 2,435

NET INCOME $ 8,184 $ 6,457

Basic and diluted net income per common share $ 0.25 $ 0.32

Dividends paid per common share $ 0.12 $ 0.12

____________________________________

(1) Fraud losses includes $ 4.3 million of credit card fraud losses for the quarter ended March 31, 2024 .

See accompanying notes to Consolidated Financial Statements.

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME (Unaudited)

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

For Three Months Ended March 31,

(In thousands) 2024 2023

Net (loss) income $ ( 6,384 ) $ 9,658 $ 4,091 $ 22,769

Other comprehensive loss:

Net income $ 8,184 $ 6,457

Other comprehensive income (loss):

Investment securities:

Unrealized holding losses on available-for-sale-securities ( 2,132 ) ( 4,307 ) ( 1,498 ) ( 13,533 )

Unrealized holding gains (losses) on available-for-sale-securities ( 776 ) 1,183

Tax effect 212 ( 323 )

Total other comprehensive loss ( 1,548 ) ( 3,130 ) ( 1,088 ) ( 9,837 )

Comprehensive (loss) income $ ( 7,932 ) $ 6,528 $ 3,003 $ 12,932

Total other comprehensive income (loss) ( 564 ) 860

Comprehensive income $ 7,620 $ 7,317

See accompanying notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the Three and Nine Months Ended September 30, 2023 and 2022

(In thousands) Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity

For the Three Months Ended March 31, 2024 and 2023

(In thousands) Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive Loss

Total Stockholders’ Equity

Balances, January 1, 2024 $ 332 $ 356,007 $ 162,290 $ ( 7,494 ) $ 511,135

Cumulative effect adjustment due to the adoption of ASC 326, net of tax — — ( 7,818 ) — ( 7,818 )

Net income — — 8,184 — 8,184

Other comprehensive income — — — 860 860

Common shares issued for employee stock purchase plan — 87 — — 87

Stock-based compensation — 155 — — 155

Cash dividends declared — — ( 2,388 ) — ( 2,388 )

Balances, March 31, 2023 $ 199 $ 201,736 $ 167,864 $ ( 8,161 ) $ 361,638

Net income $ — $ — $ 4,018 $ — $ 4,018

Other comprehensive loss — — — ( 564 ) ( 564 )

2 unchanged sentences

Cash dividends declared — — ( 3,984 ) — ( 3,984 )

Balances, June 30, 2023 $ 199 $ 202,008 $ 169,494 $ ( 8,561 ) $ 363,140

Net loss $ — $ — $ ( 6,384 ) $ — $ ( 6,384 )

Other comprehensive loss — — — ( 1,548 ) ( 1,548 )

TCFC acquisition 132 152,954 — — 153,086

Common shares issued for employee stock purchase plan — 84 — — 84

Stock-based compensation — 529 — — 529

Cash dividends declared — — ( 3,976 ) — ( 3,976 )

Balances, September 30, 2023 $ 331 $ 355,575 $ 159,134 $ ( 10,109 ) $ 504,931

Balances, March 31, 2024 $ 332 $ 356,464 $ 166,490 $ ( 8,058 ) $ 515,228

SHORE BANCSHARES, INC.

2 unchanged sentences

Balances, January 1, 2023 $ 199 $ 201,494 $ 171,613 $ ( 9,021 ) $ 364,285

Cumulative effect adjustment due to the adoption of ASC 326, net of tax — — ( 7,818 ) — ( 7,818 )

Net Income — — 6,457 — 6,457

Other comprehensive loss — — — ( 2,228 ) ( 2,228 )

Other comprehensive income — — — 860 860

Common shares issued for employee stock purchase plan — 87 — — 87

2 unchanged sentences

Balances, March 31, 2023 $ 199 $ 201,736 $ 167,864 $ ( 8,161 ) $ 361,638

Net Income $ — $ — $ 7,499 $ — $ 7,499

Other comprehensive loss — — — ( 4,479 ) ( 4,479 )

Common shares issued for employee stock purchase plan — 102 — — 102

Stock-based compensation — 172 — — 172

Cash dividends declared — — ( 2,381 ) — ( 2,381 )

Balances, June 30, 2022 $ 198 $ 200,914 $ 158,316 $ ( 6,651 ) $ 352,777

Net Income $ — $ — $ 9,658 $ — $ 9,658

Other comprehensive loss — — — ( 3,130 ) ( 3,130 )

Common shares issued for employee stock purchase plan 1 124 — — 125

Stock-based compensation — 175 — — 175

Cash dividends declared — — ( 2,384 ) — ( 2,384 )

Balances, September 30, 2022 $ 199 $ 201,213 $ 165,590 $ ( 9,781 ) $ 357,221

See accompanying notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For Nine Months Ended September 30,

For Three Months Ended March 31,

(In thousands) 2024 2023

1 unchanged sentence

Net Income $ 8,184 $ 6,457

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Net accretion of acquisition accounting estimates ( 3,753 ) ( 646 )

3 unchanged sentences

Amortization of debt issuance costs 31 31

Bargain purchase gain ( 12,169 ) —

Gain on mortgage banking activities ( 820 ) ( 719 )

2 unchanged sentences

Stock-based compensation expense 354 155

Deferred income tax (benefit) ( 934 ) ( 723 )

Losses on sales and calls of securities 2,166 —

Loss (Gain) on valuation adjustments on mortgage servicing rights 5 ( 459 )

Deferred income tax expense (benefit) 1,941 ( 126 )

Loss on valuation adjustments on mortgage servicing rights 223 82

Valuation adjustments on premises transferred to held for sale — 225

(Gain) Loss on sales and valuation adjustments on other real estate owned ( 3 ) 44

Gain on sales and valuation adjustments on other real estate owned — ( 3 )

Fair value adjustments on loans held for investments, at fair value 210 ( 195 )

6 unchanged sentences

Other liabilities ( 296 ) 2,055

Net cash (used in) provided by operating activities ( 13,356 ) 50,061

Net cash provided by operating activities 2,387 11,220

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities and principal payments of investment securities available for sale 3,849 3,175

Proceeds from the sale of acquired AFS securities 434,215 —

Proceeds from maturities and principal payments of investment securities held to maturity 9,215 10,017

Proceeds from sale of loans held for investment 8,611 —

Purchases of securities held to maturity — ( 207,466 )

Purchases of investment securities available for sale ( 59,431 ) —

Purchases of equity securities ( 39 ) ( 8 )

3 unchanged sentences

Proceeds from sales of other real estate owned — 21

Improvements to other real estate owned — ( 34 )

Redemption of restricted securities 6,010 7,523

Purchases of bank owned life insurance ( 25 ) ( 129 )

Proceeds from disposal of premises held for sale 721 —

Cash acquired in the acquisition of TCFC, net of cash paid 25,372 —

Net cash provided by (used in) investing activities 216,534 ( 448,810 )

Net cash (used in) investing activities $ ( 54,151 ) $ ( 103,122 )

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - Continued

For Nine Months Ended September 30,

For Three Months Ended March 31,

(In thousands) 2024 2023

6 unchanged sentences

Issuance of common stock 103 87

Net cash provided by (used in) financing activities ( 149,968 ) ( 21,558 )

Net increase (decrease) in cash and cash equivalents 53,210 ( 420,307 )

Net cash (used in) provided by financing activities ( 206,089 ) 74,112

Net decrease in cash and cash equivalents ( 257,853 ) ( 17,790 )

Cash and cash equivalents at beginning of period 372,413 55,499

4 unchanged sentences

Recognition (remeasurement of) lease liabilities arising from right-of-use assets $ 71 $ ( 5 )

Transfers from loans to other real estate owned $ — $ 69

Unrealized losses on securities available for sale $ ( 1,498 ) $ ( 13,533 )

Transfers from loans to repossessed properties $ 1,845 $ —

Unrealized (losses) gains on securities available for sale $ ( 776 ) $ 1,183

Unsettled securities transaction $ 14,083 $ —

Transfer of premises to held for sale (included in other assets) $ — $ 750

2 unchanged sentences

Notes to Consolidated Financial Statements

For the Three and Nine Months Ended September 30, 2023 and 2022

For the Three Months Ended March 31, 2024 and 2023

Note 1 – Basis of Presentation

3 unchanged sentences

The accompanying interim financial statements are unaudited;

however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at September 30, 2023, the consolidated results of income and comprehensive income for the three and nine months ended September 30, 2023 and 2022, changes in stockholders’ equity for the three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022, have been included.

however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at March 31, 2024, the consolidated results of income and comprehensive income for the three months ended March 31, 2024 and 2023, changes in stockholders’ equity for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023, have been included.

All such adjustments were of a normal recurring nature.

The amounts as of December 31, 2023 were derived from the 2023 audited financial statements.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for any other interim period or for the full year.

This Quarterly Report on Form 10-Q should be read in conjunction with the Annual Report of Shore Bancshares, Inc.

on Form 10-K for the year ended December 31, 2022.

on Form 10-K for the year ended December 31, 2023 ( the “2023 Annual Report”)..

For purposes of comparability, certain immaterial reclassifications have been made to amounts previously reported to conform with the current period presentation.

3 unchanged sentences

(the “Title Company”).

Pending Recent Accounting Standards

2022-03 - In June 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2022-03, “Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Recent Accounting Pronouncements

ASU Update 2023-09 – In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis.

Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received).

Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign.

This ASU is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The amendments should be applied on a prospective basis;

however, retrospective application is permitted.

The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.

Note 2 – Adoption of Accounting Standards

On January 1, 2023, the Company adopted ASU 2016-13 “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments,” ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” ASU 2019-04, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments,” ASU 2019-05, “Financial Instruments – Credit Losses (Topic 326):

Targeted Transition Relief,” ASU 2019-10, “Financial instruments – Credit losses (Topic 326), Derivatives and hedging (Topic 815), and Leases (Topic 842) – Effective dates,” ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses,” ASU 2020-02, “Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842),” ASU 2020-03, “Codification Improvements to Financial Instruments” and ASU 2022-02, “Financial Instruments – Credit Losses (Topic 326) – Troubled Debt Restructurings and Vintage Disclosures” (collectively, ASC 326).

The significant impacts of adopting these standards and related updates to the Company’s accounting policies are discussed below.

ASC 326 requires entities to estimate an allowance for credit losses (“ACL”) on certain types of financial instruments measured at amortized cost using a current expected credit losses (“CECL”) methodology, replacing the incurred loss methodology from prior GAAP.

It also applies to unfunded commitments to extend credit, including loan commitments, standby letters of credit, and other similar instruments.

The impairment model for available-for-sale (“AFS”) debt securities was modified and ASC 326 also provided for a simplified accounting model for purchased financial assets with credit deterioration since their origination.

Additionally, the measurement principles for modifications of loans to borrowers experiencing financial difficulty were modified, including how the ACL is measured for such loans.

The amendments of ASC 326, upon adoption, were applied on a modified retrospective basis, by recording an increase in the reported balance of loans and the allowance for credit losses on loans, an increase in the liability for credit losses on commitments to extend credit and reducing total equity of both the Company and the Bank.

As a result of adopting ASC 326, the Company recorded a decrease to opening retained earnings, net of taxes, of approximately $ 7.8 million.

ASC 326 also replaced the Company’s previous accounting policies for purchased credit-impaired (“PCI”) loans and troubled-debt restructurings (“TDRs”).

With the adoption of ASC 326, loans previously designated as PCI loans were designated as purchased loans with credit deterioration (“PCD loans”).

The Company adopted ASC 326 using the prospective transition approach for PCD loans that were previously identified as PCI and accounted for under ASC 310-30.

On January 1, 2023, the Company’s PCD loans were adjusted to reflect the addition of expected credit losses to the amortized cost basis of the loans and a corresponding increase to the ACL.

The remaining

noncredit discount, which represents the difference between the adjusted amortized cost basis and the outstanding principal balance on PCD loans, will be accreted into interest income over the estimated remaining lives of the loans using the effective interest rate method.

The evaluation of the ACL will include PCD loans together with other loans that share similar risk characteristics, rather than using the separate pools that were used under PCI accounting, unless the loans are specifically identified for individual evaluation under our CECL methodology.

The adoption of ASC 326 also replaced previous TDR accounting guidance, and the evaluation of the ACL will include loans previously designated as TDRs together with other loans that share similar risk characteristics, unless the loans are specifically identified for individual evaluation under our CECL methodology.

The following table shows the impact of the Company's adoption of ASC 326 on loans, the ACL, and the Company’s reserve for unfunded commitments.

January 1, 2023

(Dollars in thousands) As Reported Under ASC 326 Pre-ASC 326 Adoption Change

Total Loans, gross $ 2,556,267 $ 2,556,107 $ 160

Allowance for credit losses ( 27,434 ) ( 16,643 ) ( 10,791 )

Total loans, net $ 2,528,833 $ 2,539,464 $ ( 10,631 )

Reserve for Unfunded Commitments $ 581 $ 316 $ 265

As discussed in Note 3, the Company completed the merger with The Community Financial Corporation (“TCFC”) on July 1, 2023.

Due to inconsistencies with historical loan loss data between the Bank and TCFC, management updated the methodology used to estimate the probability of default and the independent economic variables used to forecast default rates.

Due to the lack of uniformity of historical data used for probability default data between the legacy banks, management concluded that the exclusive use of either legacy model was inappropriate in a post-merger environment.

As a result, management engaged the model vendor to perform a Loss Driver Analysis ("LDA"), which utilized the legacy Shore United and legacy CBTC’s Call Report data to derive gross loan balances and charge-off data on a quarterly basis dating back to 2004.

Using this data, the vendor performed regression analyses of a number of independent economic variables to determine the "best fit" of the economic variable to be used as a predictor of expected losses or the periodic default rate ("PDR").

Loss Given Default (“LGD”) values were calculated utilizing Frye-Jacobs model using the same historical gross-charge-off data derived from the Call Reports.

In conjunction with our change in methodology used to derive the PDR/LGD, management also reassessed our qualitative factor overlay design.

The following table shows the impact of change in methodology.

(Dollars in thousands) Balance as of June 30, 2023 Impact of methodology change Balance as of adoption of methodology change

Construction $ 2,386 $ 33 $ 2,419

Residential real estate 9,151 4,016 13,167

Commercial real estate 10,267 1,065 11,332

Commercial 1,956 442 2,398

Consumer 5,254 1,791 7,045

Total allowance $ 29,014 $ 7,347 $ 36,361

The following accounting policies have been updated in connection with the adoption of ASC 326 and apply to periods beginning after December 31, 2022.

Accounting policies applying to prior periods are described in the 2022 Annual Report, as discussed above.

Investments in Debt Securities

Investments in debt securities are classified as either held to maturity (“HTM”), AFS, or trading, based on management’s intent.

Currently, the Company has classified its debt securities within the AFS and HTM classifications.

Debt securities purchased with the positive intent and ability to hold to maturity are classified as HTM and are recorded at amortized cost, net of any ACL.

Debt securities not classified as HTM are classified as AFS and are carried at estimated fair value with the corresponding unrealized gains and losses recognized in other comprehensive income (loss).

Gains or losses are recognized in net income on the trade date using the amortized cost of the specific security sold.

Purchase premiums are recognized in interest income using the effective interest rate method over the period from purchase to maturity or, for callable securities, the earliest call date, and purchase discounts are recognized in the same manner from purchase to maturity.

The Company has elected to exclude accrued interest receivable from the amortized cost basis and fair value of its HTM and AFS debt securities and has included such accrued interest of $ 2.0 million at September 30, 2023 within the accrued interest receivable line item of the Consolidated Balance Sheets.

The Company estimates an ACL for held to maturity debt securities on a collective basis by major security type and standard credit rating.

Certain securities in our HTM securities portfolio are either explicitly or implicitly guaranteed by the U.S.

government, are highly rated by major rating agencies and have a long history of no credit losses.

With respect to these securities, we consider the risk of credit loss to be zero and, therefore, we do not record an ACL.

The estimate of an ACL on our HTM securities that are not guaranteed by the U.S.

government considers historical credit loss information and severity of loss in the event of default and leverages external data.

No ACL is recorded on accrued interest receivable and amounts written-off are reversed by an adjustment to interest income.

An ACL on held to maturity debt securities that do not share common risk characteristics with our collective portfolio are individually measured based on net realizable value, or the difference between the discounted value of the expected future cash flows and the recorded amortized cost basis of the security.

For debt securities AFS, impairment is recognized in its entirety in net income if either (i) we intend to sell the security or (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis.

If, however, the Company does not intend to sell the security and it is not more-likely-than-not that the Company will be required to sell the security before recovery, the Company evaluates unrealized losses to determine whether a decline in fair value below amortized cost basis is a result of a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security, or other factors such as changes in market interest rates.

If a credit loss exists, an ACL is recorded that reflects the amount of the impairment related to credit losses, limited by the amount by which the specific security’s amortized cost basis exceeds its fair value.

Changes in the ACL are recorded in net income in the period of change and are included in provision for credit losses.

Changes in the fair value of debt securities AFS not resulting from credit losses are recorded in other comprehensive income (loss).

The Company regularly reviews unrealized losses in its investments in securities and cash flows expected to be collected from impaired securities based on criteria including the extent to which market value is below amortized cost, the financial health of and specific prospects for the issuer, the Company’s intention with regard to holding the security to maturity and the likelihood that the Company would be required to sell the security before recovery.

Loans Held for Investment

The Company’s recorded investment in loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally is reported at the unpaid principal balances adjusted for charges-offs, unearned discounts, any deferred fees or costs on originated loans, and the ACL.

The Company has elected to exclude accrued interest receivable from the amortized cost basis of its loans held for investment and has included such accrued interest of $ 13.6 million at September 30, 2023 within the accrued interest receivable line item of the Consolidated Balance Sheets.

Interest on loans is recorded to interest income based on the contractual rates and the amount of outstanding principal of the loans.

Loan fees and origination costs are deferred and the net amount is amortized as an adjustment of the related loan’s yield using the level-yield method.

Loans acquired in a business combination are recorded at estimated fair value on the date of acquisition.

In the case of loans that have experienced more than insignificant deterioration in credit quality since origination as of the acquisition date, the loan’s amortized cost basis is increased above estimated fair value by the amount of expected credit losses as of the acquisition date, and a corresponding ACL is also recorded.

A loan’s past due status is based on the contractual due date of the most delinquent payment due.

Loans are generally placed on nonaccrual status when the collection of principal or interest is 90 days or more past due, or earlier, if collection is uncertain.

Any accrued interest receivable on loans placed on nonaccrual status is reversed by an adjustment to interest income.

Loans greater than 90 days past due may remain on accrual status if management determines it has adequate collateral to cover the principal and interest.

Interest payments received on nonaccrual loans are applied as a reduction of the loan principal balance unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis.

A loan may be returned to accrual status if the borrower has demonstrated a sustained period of repayment performance in accordance with the contractual terms of the loan and there is reasonable assurance the borrower will continue to make payments as agreed.

In the ordinary course of business, the Company has entered into commitments to extend credit and standby letters of credit.

Such financial instruments are recorded in the Consolidated Balance Sheets when they are funded.

In the normal course of banking business, risks related to specific loan categories are as follows:

Construction loans – Construction loans are offered primarily to builders and individuals to finance the construction of single-family dwellings.

In addition, the Bank periodically finances the construction of commercial projects.

Credit risk factors include the borrower’s ability to successfully complete the construction on time and within budget, changing market conditions which could affect the value and

marketability of projects, changes in the borrower’s ability or willingness to repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value.

Residential real estate – Residential real estate loans are typically made to consumers and are secured by residential real estate.

Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors.

Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral.

Commercial real estate – Commercial real estate loans consist of both loans secured by owner occupied properties and non-owner occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow.

These loans are subject to adverse changes in the local economy and commercial real estate markets.

Credit risk associated with owner occupied properties arises from the borrower’s financial stability and the ability of the borrower and the business to repay the loan.

Non-owner occupied properties carry the risk of a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow.

Commercial – Commercial loans are secured or unsecured loans for business purposes.

Loans are typically secured by accounts receivable, inventory, equipment and/or other assets of the business.

Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy.

Consumer – Consumer loans include installment loans and personal lines of credit.

Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan.

ACL on Loans Held for Investment

An ACL is estimated on loans held for investment, excluding loans carried at fair value.

The ACL on loans is established through charges to earnings in the form of a provision for credit losses.

Loan losses are charged against the ACL for the difference between the carrying value of the loan and the estimated net realizable value or fair value of the collateral, if collateral dependent, when management believes that the collectability of the principal is unlikely.

Subsequent recoveries, if any, are credited to the allowance.

The allowance represents management’s current estimate of expected credit losses over the contractual term of loans held for investment, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected.

No ACL is recorded on accrued interest receivable and amounts written-off are reversed by an adjustment to interest income.

Management’s judgment in determining the level of the allowance is based on evaluations of historical loan losses, current conditions and reasonable and supportable forecasts relevant to the collectability of loans.

The methodology for estimating the amount reported in the ACL is the sum of two main components, an allowance assessed on a collective basis for pools of loans that share similar risk characteristics and an allowance assessed on individual loans that do not share similar risk characteristics with other loans .

Loans that share common risk characteristics are evaluated collectively using a cash flow approach.

The discounted cash flow approach used by the Company utilizes loan-level cash flow projections and pool-level assumptions.

For loans that do not share risk characteristics with other loans, the ACL is measured based on the net realizable value, that is, the difference between the discounted value of the expected future cash flows and the amortized cost basis of the loan.

When a loan is collateral-dependent and the repayment is expected to be provided substantially through the operation or sale of the collateral, the ACL is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral.

Cash flow projections and estimated expected losses on loans which share common risk characteristics are based in part on forecasts economic independent variables, namely the national unemployment rate, 10 year Treasury rate and changes in GDP that are reasonable and supportable over a twelve month period and incorporated into the estimate of expected credit losses using a statistical regression analysis.

For periods beyond those for which reasonable and supportable forecasts are available, projections are based on a reversion of the corresponding economic independent variable from the last forecast to a historical average level over the following twelve months.

Management’s estimate of the ACL on loans that are collectively evaluated also includes a qualitative assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process.

Factors considered by management include changes in general market, economic and business conditions;

the nature and volume of the loan portfolio;

the volume and severity of delinquencies and adversely classified loan balances and the value of underlying collateral;

and other factors as deemed necessary and appropriate.

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

Reserve for Unfunded Commitments

The Company records a reserve, reported in other liabilities, for expected credit losses on commitments to extend credit that are not unconditionally cancellable by the Company.

The reserve for unfunded commitments is measured based on the principles utilized in estimating the ACL on loans and an estimate of the amount of unfunded commitments expected to be advanced.

Changes in the reserve for unfunded commitments are recorded through the provision for credit losses.

During the three and nine months ended September 30, 2023, the Company recorded a $ 241,000 and $ 308,000 , respectively, provision for credit losses associated with its unfunded commitments.

ASU Update 2023-07 – In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses.

This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision mark (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures.

Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements.

Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280.

This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoptions permitted.

The amendments should be applied retrospectively.

The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.

ASU Update 2023-06 – In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S.

Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification.

The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations.

For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules.

For all other entities, the amendments will be effective two years later.

However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the

amendments will be removed from the Codification and not become effective for any entity.

The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.

ASU Update 2023-05 – In August 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60):

Recognition and Initial Measurement.” This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification Master Glossary.

While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements.

The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation.

As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance).

This ASU is effective on a prospective basis for all joint ventures with a formation date on or after January 1, 2025.

Early adoption of ASU No.

2023-05 is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance).

A joint venture that elects to early adopt may apply ASU No.

2023-05 either prospectively or retrospectively.

The Company does not expect the adoption of ASU 2023-05 to have a material impact on its consolidated financial statements.

ASU Update 2023-03 – In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718).” This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.

ASU 2023-03 is effective upon addition to the FASB Codification.

The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.

Note 2 – Business Combinations

On July 1, 2023 (the “Acquisition Date”), the Company completed the acquisition of TCFC, a Maryland charted commercial bank, in accordance with the definitive agreement that was entered into on December 14, 2022, by and among the Company and TCFC.

On July 1, 2023 (the “Acquisition Date”), the Company completed the acquisition of TCFC, a Maryland corporation, in accordance with the definitive agreement that was entered into on December 14, 2022, by and among the Company and TCFC.

The primary reasons for the merger included:

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attractive low-cost funding base;

strong cultural alignment and a deep commitment to shareholders, customers, employees, and communities served by Shore and TCFC, meaningful value creation to shareholders;

strong cultural alignment and a deep commitment to stockholders, customers, employees, and communities served by the Company and TCFC, meaningful value creation to shareholders;

and increased trading liquidity for both companies and increased dividends for TCFC shareholders.

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If considered necessary, any subsequent adjustments to the fair value of assets acquired and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to bargain purchase gain within the first 12 months following the Acquisition Date.

The bargain purchase gain is not expected to be included as taxable income for tax purposes.

As a a result of the integration of operations of TCFC, it is not practicable to determine revenue or net income included in the Company’s consolidated operating results relating to TCFC since the Acquisition Date, as TCFC’s results cannot be separately identified.

The bargain purchase gain is not included as taxable income for tax purposes.

As a result of the integration of operations of TCFC, it is not practicable to determine revenue or net income included in the Company’s consolidated operating results relating to TCFC since the Acquisition Date, as TCFC’s results cannot be separately identified.

Comparative pro-forma financial statements for the prior year period were not presented, as adjustments to those statements would not be indicative of what would have occurred had the acquisition taken place on January 1, 2022.

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Purchase Price Consideration:

Shore Bancshares, Inc.

common stock paid at closing price of $ 11.56 as of June 30, 2023

Fair value of common shares issued ( 13,201,693 shares) based on Shore Bancshares, Inc.

share price of $ 11.56

Effective settlement of pre-existing debt (1)

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____________________________________

(1) SHBI held $ 500,000 in subordinated debt of TCFC.

(1) The Company held $ 500,000 in subordinated debt of TCFC.

The debt was effectively settled.

(2) Represents the number of TCFC restricted stock units outstanding and the equity exchange ratio, further multiplied by the price per share of SHBI common stock of $ 11.56 and the estimated ratio of the completed service period relative to the total service period of the underlying awards.

The Company recorded all loans acquired at the estimated fair value on the acquisition date with no carryover of the related allowance for loan losses.

(2) Represents the number of TCFC restricted stock units outstanding and the equity exchange ratio, further multiplied by the price per share of the Company’s common stock of $ 11.56 and the estimated ratio of the completed service period relative to the total service period of the underlying awards.

The acquired assets and assumed liabilities of TCFC were measured at fair value as of the Acquisition Date.

Management made significant estimates and exercised significant judgement in accounting for the acquisition of TCFC.

The following is a brief description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed.

The Company utilized a valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.

The Company recorded all loans acquired at the estimated fair value on the Acquisition Date with no carryover of the related allowance for credit losses.

The Company determined the net discounted value of cash flows on gross loans totaling $ 1.9 billion, including 3,858 of Non-PCD loans and 323 PCD loans.

The valuation took into consideration the loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-loan value ratios, loss exposures, and remaining balances.

These Non-PCD loans were segregated into pools based on loan and payment type.

Valuations also considered default rates, loss severity estimates, and estimates related to expected prepayments over the contractual lives of the loans.

The effect of the valuation process was a total net discount $ 120.9 million at the Acquisition Date.

The core deposit intangible was valued using an income approach focused on cost savings, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source.

The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.

The fair value of premises acquired was based on recent third-party appraised values of the properties, with fair value adjustments made to both the buildings and any associated parcels of land.

Acquired equipment was based on the remaining net book value of TCFC, which approximated fair value.

The fair value of noninterest bearing demand deposits, interest checking, money market and savings deposit accounts from TCFC were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand.

Certificates of deposit were valued at the present value of the certificates’ expected contractual payments discounted at market rates for certificates with similar terms.

The estimated fair value of the acquired portfolio of debt securities was based on quoted market prices and dealer quotes.

Substantially all the acquired portfolio was sold following the acquisition.

The estimated fair value of short-term borrowings was determined to approximate their stated value.

Subordinated debt and trust preferred debt were valued using a discounted cash flow approach incorporating a discount rate that considered market terms, maturities, and credit ratings.

Note 3 – Investment Securities

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In addition, ASC 326 requires an ACL to be recorded on HTM debt securities measured at amortized cost.

All securities information presented as of September 30, 2023 is in accordance with ASC 326.

All securities information presented as of December 31, 2022 or a prior date is presented in accordance with previously applicable GAAP.

For further discussion on the Corporation’s accounting policies and policy elections related to the accounting standard update refer to Note 2.

All securities information presented as of March 31, 2024 and as of December 31, 2023 are in accordance with ASC 326.

The following table summarizes the activity in the ACL on HTM securities.

(Dollars in thousands) Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

(Dollars in thousands) Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

Balance, beginning of period $ 94 $ —

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Balance, end of period $ 116 $ 163

The ACL for HTM securities was initially determined to be immaterial as of the date of adoption of ASC 326.

Upon re-estimation in the third quarter of 2023, an ACL recovery of $ 37,000 was recorded based on the results of our evaluation at September 30, 2023.

The provision for credit losses of $ 126,000 was recorded for the nine months ended September 30, 2023.

A provision for credit losses of $ 22,000 and $ 0.2 million was recorded for the three months ended March 31, 2024 and March 31, 2023, respectively.

The following tables provide information on the amortized cost and estimated fair values of debt securities.

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Available-for-sale securities:

September 30, 2023

Government agencies $ 23,622 $ 4 $ 3,995 $ 19,631

March 31, 2024

Treasury and government agencies $ 72,701 $ 8 $ 3,168 $ 69,541

Mortgage-backed-residential 111,780 20 8,174 103,626

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December 31, 2023

Government agencies $ 21,798 $ 5 $ 3,625 $ 18,178

Treasury and government agencies $ 23,472 $ 5 $ 3,002 $ 20,475

Mortgage-backed-residential 91,280 5 7,258 84,027

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Total $ 120,832 $ 69 $ 10,380 $ 110,521

No AFS securities were sold from the Company’s legacy securities’ portfolios during the three and nine months ended September 30, 2023 and 2022.

The Company sold virtually all of the AFS securities portfolio acquired from TCFC immediately after the legal merger with the proceeds of $ 430.0 million, and recognized gross losses of $ 2.2 million from the sale of securities.

No AFS securities were sold during the three months ended March 31, 2024 and 2023.

(Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Allowance for Credit Losses

Held-to-maturity securities:

September 30, 2023

Government agencies $ 143,494 $ — $ 14,873 $ 128,621 $ —

March 31, 2024

Treasury and government agencies $ 143,215 $ — $ 11,172 $ 132,043 $ —

Mortgage-backed-residential 348,754 — 47,343 301,411 —

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December 31, 2023

Government agencies $ 148,097 $ — $ 13,601 $ 134,496 $ —

Treasury and government agencies $ 143,442 $ — $ 10,377 $ 133,065 $ —

Mortgage-backed-residential 357,870 — 43,864 314,006 —

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Total $ 513,282 $ 57 $ 55,509 $ 457,830 $ 94

Equity securities with an aggregate fair value of $ 5.4 million at September 30, 2023 and $ 1.2 million at December 31, 2022 are presented separately on the balance sheet.

The fair value adjustment recorded through earnings totaled $ 0.3 million for the nine months ended September 30, 2023 and $ 0.1 million for the nine months ended September 30, 2022, respectively.

Equity securities with an aggregate fair value of $ 5.7 million at March 31, 2024 and $ 5.7 million at December 31, 2023 are presented separately on the balance sheet.

The fair value adjustment recorded through earnings totaled gain of $ 61,000 for the three months ended March 31, 2024 and loss of $ 17,000 for the three months ended March 31, 2023, respectively.

Credit Quality Information

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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, 2023 or December 31, 2022.

There were no speculative grade HTM securities at March 31, 2024 or December 31, 2023.

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, 2023.

September 30, 2023

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

March 31, 2024

Investment Grade

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

Government agencies $ 143,494 $ — $ — $ — $ — $ — $ 143,494

Treasury and government agencies $ 139,543 $ — $ — $ — $ — $ 3,672 $ 143,215

Mortgage-backed-residential 348,754 — — — — — 348,754

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Total held-to maturity securities $ 488,297 $ 1,469 $ 4,000 $ 4,000 $ 500 $ 5,672 $ 503,938

The following tables provide information about gross unrealized losses and fair value by length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2023 and December 31, 2022.

The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2023.

December 31, 2023

Investment Grade

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

Treasury and government agencies $ 140,761 $ — $ — $ — $ — $ 2,681 $ 143,442

Mortgage-backed securities 357,870 — — — — — 357,870

Obligations of states and political subdivisions — 1,470 — — — — 1,470

Other debt securities — — 4,000 4,000 500 2,000 10,500

Total held-to-maturity securities $ 498,631 $ 1,470 $ 4,000 $ 4,000 $ 500 $ 4,681 $ 513,282

Less than 12 Months More than 12 Months Total

(Dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses

September 30, 2023

March 31, 2024

Available-for-sale securities:

Government agencies $ 596 $ 1 $ 16,352 $ 3,994 $ 16,948 $ 3,995

Treasury and government agencies $ 196 $ 1 $ 17,278 $ 3,167 $ 17,474 $ 3,168

Mortgage-backed-residential 33,688 526 63,243 7,648 96,931 8,174

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Available-for-sale securities:

Government agencies $ 1,165 $ 4 $ 16,585 $ 3,621 $ 17,750 $ 3,625

Mortgage-backed-residential 29,125 2,409 34,167 6,257 63,292 8,666

Other debt securities 1,890 128 — — 1,890 128

Total $ 32,180 $ 2,541 $ 50,752 $ 9,878 $ 82,932 $ 12,419

Held-to-maturity securities:

Government agencies $ 67,332 $ 2,786 $ 67,163 $ 10,815 $ 134,495 $ 13,601

Treasury and government agencies $ 74 $ — $ 17,750 $ 3,002 $ 17,824 $ 3,002

Mortgage-backed-residential 24,405 150 52,864 7,108 77,269 7,258

States and political subdivisions 780 28 — — 780 28

Other debt securities — — 1,890 120 1,890 120

Total $ 24,479 $ 150 $ 72,504 $ 10,230 $ 96,983 $ 10,380

There were 116 AFS debt securities with a fair value below the amortized cost basis, totaling $ 13.9 million of aggregate fair value as of September 30, 2023.

The Company concluded that a credit loss does not exist in its AFS securities portfolio as of September 30, 2023, and no impairment loss has been recognized based on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest.

There were 115 AFS debt securities with a fair value below the amortized cost basis, totaling $ 11.4 million of aggregate fair value as of March 31, 2024.

The Company concluded that a credit loss does not exist in its AFS securities portfolio as of March 31, 2024, and no impairment loss has been recognized based on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest.

Additionally, the Company’s mortgage-back securities are issued by either U.S.

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government, that investors in such mortgage-backed securities will receive timely principal and interest payments.

All HTM and AFS securities were current with no securities past due or on nonaccrual as of September 30, 2023.

All HTM and AFS securities were current with no securities past due or on nonaccrual as of March 31, 2024.

The Company has securities which have been pledged as collateral for obligations to federal, state, and local government agencies, and other purpose as required or permitted by law, or sold under agreements to repurchase.

At September 30, 2023, the carrying value of pledged AFS securities was $ 53.3 million and $ 180.7 million of pledged HTM securities.

At March 31, 2024, the carrying value of pledged AFS securities was $ 53.1 million and $ 195.8 million of pledged HTM securities.

The comparable amounts for December 31, 2023 were $ 54.5 million and $ 185.9 million, respectively.

The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at September 30, 2023.

There were no obligations of states or political subdivisions with carrying values, as to any issuer, exceeding 10% of stockholders’ equity at March 31, 2024 or December 31, 2023.

The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at March 31, 2024.

Available for sale Held to maturity

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The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables.

For further discussion on the most significant accounting policies that the Company follows see Note 2 – Adoption of Accounting Standards and Note 1 of the Company’s 2022 Annual Report on Form 10-K.

All loan information presented as of September 30, 2023 is in accordance with ASC 326.

All loan information presented as of December 31, 2022, or a prior date is presented in accordance with previously applicable GAAP.

The Company makes residential mortgage, commercial, and consumer loans to customers primarily in Anne Arundel County, Baltimore County, Charles County, Calvert County, St Mary’s County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County and Worcester County in Maryland, Kent and Sussex County, Delaware and in Accomack County and Spotsylvania County in Virginia.

The following table provides information about the principal classes of the loan portfolio at September 30, 2023 and December 31, 2022.

(Dollars in thousands) September 30, 2023 % of Total Loans December 31, 2022 % of Total Loans

For further discussion on the most significant accounting policies that the Company follows see Note 1 – Summary of Significant Accounting Policies of the Company’s 2023 Annual Report.

The following table provides information about the principal classes of the loan portfolio at March 31, 2024 and December 31, 2023.

(Dollars in thousands) March 31, 2024 % of Total Loans December 31, 2023 % of Total Loans

Construction $ 299,133 6.43 % $ 299,000 6.44 %

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Loans are stated at their principal amount outstanding net of any purchase premiums/discounts, deferred fees and costs.

Included in loans were deferred costs, net of fees, of $ 2.0 million and $ 1.4 million at September 30, 2023 and December 31, 2022.

At September 30, 2023 and December 31, 2022, included in total loans were $ 307.8 million and $ 372.2 million in loans, acquired as part of the acquisition of Severn Bancorp, Inc.

Included in loans were deferred costs, net of fees, of $ 2.4 million and $ 2.2 million at March 31, 2024 and December 31, 2023.

At March 31, 2024 and December 31, 2023 included in total loans were $ 1.6 billion and $ 1.6 billion in loans acquired as part of the acquisition of TCFC, effective July 1, 2023.

These balances were presented net of the related discount which totaled $ 104.2 million and $ 108.4 million at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024 and December 31, 2023, included in total loans were $ 289.0 million and $ 297.9 million in loans, acquired as part of the acquisition of Severn Bancorp, Inc.

(“Severn”), effective October 31, 2021.

These balances were presented net of the related discount which totaled $ 4.9 million and $ 6.7 million at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 included in total loans were $ 1.7 billion acquired as part of the acquisition of TCFC, effective July 1, 2023.

These balances were presented net of the related discount which totaled $ 109.8 million at September 30, 2023.

The following purchased credit deteriorated loans were acquired in connection with the merger on the Acquisition Date.

(Dollars in Thousands) Par Value Purchase Discount Allowance Purchase Price

These balances were presented net of the related discount which totaled $ 4.4 million and $ 4.7 million at March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024, the Bank was servicing $ 371.1 million in loans for the Federal National Mortgage Association and $ 117.8 million in loans for Freddie Mac.

The following table provides information on nonaccrual loans by loan class as of March 31, 2024 and December 31, 2023.

(Dollars in thousands) Non-accrual with no allowance for credit loss Non-accrual with an allowance for credit loss Total Non-accruals

March 31, 2024

Nonaccrual loans:

Construction $ — $ 476 $ 476

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Consumer 694 224 918

Credit Card 999 ( 144 ) ( 18 ) 837

Total $ 1,907 $ 10,869 $ 12,776

At September 30, 2023, the Bank was servicing $ 361.8 million in loans for the Federal National Mortgage Association and $ 100.8 million in loans for Freddie Mac.

The following table provides information on nonaccrual loans by loan class as of September 30, 2023.

Interest income $ 187 $ 33 $ 220

(Dollars in thousands) Non-accrual with no allowance for credit loss Non-accrual with an allowance for credit loss Total Non-accruals

September 30, 2023

December 31, 2023

Nonaccrual loans:

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(Dollars in thousands) Non-accrual Delinquent Loans Non-accrual Current Loans Total Non-accruals

September 30, 2023

March 31, 2024

Nonaccrual loans:

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Total $ 5,837 $ 6,939 $ 12,776

(Dollars in thousands) Non-accrual Delinquent Loans Non-accrual Current Loans Total Non-accruals

December 31, 2023

Nonaccrual loans:

Construction $ 221 $ 405 $ 626

Residential real estate 4,137 2,208 6,345

Commercial real estate 1,215 3,149 4,364

Commercial 28 516 544

Consumer 903 2 905

Total $ 6,504 $ 6,280 $ 12,784

The overall quality of the Bank’s loan portfolio is primarily assessed using the Bank’s risk-grading scale.

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Credit quality indicators are adjusted based on management’s judgment during the quarterly review process.

Loans are graded on a scale of one to ten.

Consumer credit cards are monitored based on a borrower payment history.

Credit card loans are classified as performing and are typically charged off no later than 180 days past due when, in the opinion of management, the collection of principal or interest is considered doubtful.

Loans subject to risk ratings are graded on a scale of one to ten.

Ratings 1 thru 6 – Pass - Ratings 1 thru 6 have asset risks ranging from excellent-low to adequate.

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These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.

They are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected.

They are characterized by the possibility that the Bank

will sustain some loss if the deficiencies are not corrected.

Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard.

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Rating 10 – Loss – Loss assets are uncollectible or of little value.

The following table provides information on loan risk ratings as of September 30, 2023 and gross write-offs during the nine months ended September 30, 2023.

The following tables provides information on loan risk ratings as of March 31, 2024 and gross write-offs during the three months ended March 31, 2024.

Term Loans by Origination Year Revolving Loans Revolving Converted to Term Loans Total

(Dollars in thousands) Prior 2020 2021 2022 2023 2024

September 30, 2023

March 31, 2024

Pass $ 38,125 $ 14,343 $ 25,261 $ 87,793 $ 112,241 $ 12,386 $ 7,890 $ 617 $ 298,656

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(Dollars in thousands) Prior 2020 2021 2022 2023 2024

September 30, 2023

March 31, 2024

Performing $ — $ — $ — $ — $ — $ — $ 6,921 $ — $ 6,921

Non-Performing — — — — — — — — —

Total $ — $ — $ — $ — $ — $ — $ 6,921 $ — $ 6,921

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Total Recorded Investment $ 1,309,202 $ 451,553 $ 827,943 $ 1,095,619 $ 676,061 $ 87,006 $ 187,380 $ 13,961 $ 4,648,725

The following tables provide information on the aging of the loan portfolio as of September 30, 2023 and December 31, 2022.

The following tables provides information on loan risk ratings as of December 31, 2023 and gross write-offs during twelve months ended December 31, 2023.

Term Loans by Origination Year Revolving

loans Revolving

term loans Total

(Dollars in thousands) Prior 2019 2020 2021 2022 2023

December 31, 2023

Pass $ 23,450 $ 15,721 $ 14,773 $ 34,325 $ 101,426 $ 100,620 $ 8,056 $ — $ 298,371

Substandard 199 — — 12 418 — — — 629

Total $ 23,649 $ 15,721 $ 14,773 $ 34,337 $ 101,844 $ 100,620 $ 8,056 $ — $ 299,000

Gross Charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Residential real estate

Pass $ 317,528 $ 54,387 $ 105,269 $ 251,269 $ 392,378 $ 239,914 $ 119,777 $ 874 $ 1,481,396

Special Mention 154 256 564 503 — — 192 — 1,669

Substandard 6,000 — — — — — 1,373 — 7,373

Total $ 323,682 $ 54,643 $ 105,833 $ 251,772 $ 392,378 $ 239,914 $ 121,342 $ 874 $ 1,490,438

Gross Charge-offs $ — $ — $ — $ — $ — $ — $ ( 119 ) $ — $ ( 119 )

Commercial real estate

Pass $ 670,042 $ 190,753 $ 311,980 $ 426,750 $ 428,240 $ 210,915 $ 14,873 $ 2,138 $ 2,255,691

Special Mention 14,986 331 — 5,501 4,446 — 100 409 25,773

Substandard 2,119 2,029 — 542 — — — — 4,690

Total $ 687,147 $ 193,113 $ 311,980 $ 432,793 $ 432,686 $ 210,915 $ 14,973 $ 2,547 $ 2,286,154

Gross Charge-offs $ ( 512 ) $ — $ ( 814 ) $ — $ — $ — $ — $ — $ ( 1,326 )

Pass $ 23,771 $ 12,946 $ 14,464 $ 41,621 $ 35,897 $ 27,901 $ 49,160 $ 22,284 $ 228,044

Special Mention 143 — — 425 — — 251 — 819

Substandard 160 69 — — 487 — 314 46 1,076

Total $ 24,074 $ 13,015 $ 14,464 $ 42,046 $ 36,384 $ 27,901 $ 49,725 $ 22,330 $ 229,939

Gross Charge-offs $ ( 1 ) $ — $ — $ — $ — $ — $ ( 242 ) $ ( 243 )

Pass $ 621 $ 961 $ 14,158 $ 76,629 $ 143,507 $ 91,415 $ 699 $ — $ 327,990

Special Mention — — — — — — 2 — 2

Substandard — 38 5 80 780 — 1 — 904

Total $ 621 $ 999 $ 14,163 $ 76,709 $ 144,287 $ 91,415 $ 702 $ — $ 328,896

Gross Charge-offs $ ( 522 ) $ — $ ( 16 ) $ ( 17 ) $ ( 8 ) $ ( 4 ) $ ( 7 ) $ — $ ( 574 )

Pass $ 1,035,412 $ 274,768 $ 460,644 $ 830,594 $ 1,101,448 $ 670,765 $ 192,565 $ 25,296 $ 4,591,492

Special Mention 15,283 $ 587 $ 564 $ 6,429 $ 4,446 $ — $ 545 $ 409 28,263

Substandard 8,478 2,136 5 634 1,685 — 1,688 46 14,672

Total loans by risk

category $ 1,059,173 $ 277,491 $ 461,213 $ 837,657 $ 1,107,579 $ 670,765 $ 194,798 $ 25,751 $ 4,634,427

charge-offs $ ( 1,035 ) $ — $ ( 830 ) $ ( 17 ) $ ( 8 ) $ ( 4 ) $ ( 126 ) $ ( 242 ) $ ( 2,262 )

Performing $ — $ — $ — $ — $ — $ — $ 6,583 $ — $ 6,583

Total $ — $ — $ — $ — $ — $ — $ 6,583 $ — $ 6,583

Gross Charge-offs $ — $ — $ — $ — $ — $ — $ ( 111 ) $ — $ ( 111 )

Total loans evaluated

by performing status $ — $ — $ — $ — $ — $ — $ 6,583 $ — $ 6,583

Total gross charge-offs $ — $ — $ — $ — $ — $ — $ ( 111 ) $ — $ ( 111 )

Total Recorded

Investment $ 1,059,173 $ 277,491 $ 461,213 $ 837,657 $ 1,107,579 $ 670,765 $ 201,381 $ 25,751 $ 4,641,010

The following tables provide information on the aging of the loan portfolio as of March 31, 2024 and December 31, 2023.

(Dollars in thousands) 30‑59 days past due

60‑89 days past due

90 days past due and still accruing 90 days past due and not accruing Total

past due Current Non-accrual Current Accrual Loans (1)

September 30, 2023

30-89 days past due and not accruing 90 days past due and still accruing 90 days past

accruing Total

past due Current Accrual Loans (1)

March 31, 2024

Construction $ — $ — $ — $ — $ 210 $ 210 $ 298,657 $ 266 $ 299,133

6 unchanged sentences

Percent of total loans 0.17 % 0.01 % 0.02 % 0.03 % 0.11 % 0.34 % 99.51 % 0.15 % 100.0 %

(1) Includes loans measured at fair value of $ 9.3 million at September 30, 2023.

(Dollars in thousands) Current (1)

30‑59 days past due

60‑89 days past due

90 days or more past due

past due Non-accrual PCI Total

(1) Includes loans measured at fair value of $ 9.7 million at March 31, 2024.

(Dollars in thousands) 30‑59 days past due 60‑89 days past due 30-89 days past due and not accruing 90 days past due and still accruing 90 days past due and not accruing Total past due Current Accrual Loans (1) Current Non accrual Loans Total

December 31, 2023

4 unchanged sentences

Consumer 3,224 1,391 24 — 879 5,518 323,376 2 328,896

Credit cards $ 35 $ 36 $ — $ 142 $ — $ 213 $ 6,370 $ — $ 6,583

Total $ 7,662 $ 1,698 $ 1,493 $ 738 $ 5,017 $ 16,608 $ 4,618,122 $ 6,280 $ 4,641,010

1 unchanged sentence

(1) Includes loans measured at fair value of $ 9.9 million at December 31, 2023.

The following tables provide a summary of the activity in the ACL allocated by loan class for the three and nine months ended September 30, 2023 and September 30, 2022.

The following tables provide a summary of the activity in the ACL allocated by loan class for the three months ended March 31, 2024 and March 31, 2023.

Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.

(Dollars in thousands) Beginning Balance Merger Adjustments (2)

Charge-offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance

For three months ended September 30, 2023

Construction $ 2,386 $ 3 $ — $ 3 $ 3 $ 1,439 $ 3,831

Residential real estate 9,151 215 — 3 3 9,806 19,175

Commercial real estate 10,267 985 ( 1,327 ) — ( 1,327 ) 12,875 22,800

Commercial 1,956 278 — 2 2 2,101 4,337

5,254 14 ( 115 ) 45 ( 70 ) 1,658 6,856

Credit Card — 18 ( 60 ) — ( 60 ) 94 52

Total $ 29,014 $ 1,513 $ ( 1,502 ) $ 53 $ ( 1,449 ) $ 27,973 $ 57,051

(1) Gross charge-offs of consumer loans for the three months ended September 30, 2023 included $ 95,000 of demand deposit overdrafts.

(2) Merger adjustments consist of gross-up for acquired PCD loans in the TCFC merger.

(Dollars in thousands) Beginning Balance Charge-offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance

For three months ended September 30, 2022

Construction $ 3,345 $ — $ 2 $ 2 $ ( 315 ) $ 3,032

Residential real estate 2,778 — 12 12 218 3,008

Commercial real estate 4,441 — 243 243 325 5,009

Commercial 1,681 ( 202 ) 60 ( 142 ) 368 1,907

Consumer 3,238 — 4 4 79 3,321

Total $ 15,483 $ ( 202 ) $ 321 $ 119 $ 675 $ 16,277

(Dollars in thousands) Beginning Balance Impact of ASC326 Adoption Merger Adjustments (2)

Charge-offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance

For nine months ended September 30, 2023

For three months ended March 31, 2024

Construction $ 3,935 $ ( 12 ) $ 2 $ ( 10 ) $ ( 367 ) $ 3,558

5 unchanged sentences

Total $ 57,351 $ ( 654 ) $ 89 $ ( 565 ) $ 550 $ 57,336

(1) Gross charge-offs of consumer loans for the nine months ended September 30, 2023 included $ 0.4 million of demand deposit overdrafts.

(2) Merger adjustments consist of gross-up for acquired PCD loans in the TCFC merger.

(Dollars in thousands) Beginning Balance Charge-offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance

For nine months ended September 30, 2022

(1) Gross charge-offs of consumer loans for the three months ended March 31, 2024 included $ 0.2 million of demand deposit overdrafts.

(Dollars in thousands) Beginning Balance Impact of ASC326 Adoption Charge-offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance

For Three Months Ended March 31, 2023

Construction $ 2,973 $ 1,222 $ — $ 3 $ 3 $ ( 1,509 ) $ 2,689

4 unchanged sentences

Total $ 16,643 $ 10,791 $ ( 107 ) $ 87 $ ( 20 ) $ 1,050 $ 28,464

There were no modifications to loans for borrowers experiencing financial difficulty (“BEFD”) during the three and nine months ended September 30, 2023.

The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment.

September 30, 2023

March 31, 2024

(Dollars in thousands) Real Estate Collateral Other Collateral Total

5 unchanged sentences

Total $ 24,946 $ 1,651 $ 26,597

The Company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended September 30, 2023

Foreclosure Proceedings

There were $ 0.7 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of September 30, 2023 and $ 0.3 million as of December 31, 2022, respectively.

There were no residential real estate properties included in the balance of other real estate owned (“OREO”) at September 30, 2023 and one residential real estate property totaling $ 18,000 at December 31, 2022.

Prior to the adoption of ASC 326

The following table provides information about all loans acquired from Severn as of December 31, 2022.

December 31, 2023

(Dollars in thousands) Acquired Loans - Purchased Credit Impaired Acquired Loans - Purchased Performing Acquired Loans - Total

Outstanding principal balance $ 29,620 $ 349,262 $ 378,882

Carrying amount

Construction $ 650 $ 18,761 $ 19,411

Residential real estate 13,956 116,118 130,074

Commercial real estate 11,866 174,278 186,144

Commercial 156 35,687 35,843

Consumer 14 697 711

Total loans $ 26,642 $ 345,541 $ 372,183

The following table presents a summary of the change in the accretable yield on PCI loans acquired from Severn.

(Dollars in thousands) Nine Months Ended September 30, 2022

Accretable yield, beginning of period $ 5,367

Accretion ( 1,195 )

Reclassification of nonaccretable difference due to improvement in expected cash flows 399

Other changes, net 287

Accretable yield, end of period $ 4,858

The following tables include impairment information relating to loans and the ACL on loans as of December 31, 2022.

(Dollars in thousands) Ending balance:

Individually evaluated for impairment Ending balance:

Collectively evaluated for impairment Acquired Loans- PCI Total (1)

December 31, 2022

Loan Receivables:

Construction $ 331 $ 236,901 $ 650 $ 237,882

Residential real estate 5,081 791,460 13,956 810,497

Commercial real estate 2,540 1,051,003 11,866 1,065,409

Commercial 174 147,526 156 147,856

Consumer 28 285,984 14 286,026

Total $ 8,154 $ 2,512,874 $ 26,642 $ 2,547,670

Allowance for credit losses on loans:

Allocated to loans individually evaluated for impairment Allocated to loans collectively evaluated for impairment Total

Construction $ — $ 2,973 $ 2,973

Residential real estate 127 2,495 2,622

Commercial real estate — 4,899 4,899

Commercial — 1,652 1,652

Consumer — 4,497 4,497

Total $ 127 $ 16,516 $ 16,643

(1) Excludes loans measured at fair value of $ 8.4 million at December 31, 2022.

The following tables provide information on impaired loans and any related allowance by loan class as of December 31, 2022.

The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken and interest paid on nonaccrual loans that has been applied to principal.

Unpaid principal balance Recorded investment with no allowance Recorded investment with an allowance Related allowance September 30, 2022

(Dollars in thousands) Quarter-to-date average recorded investment Year-to-date average recorded investment Interest income recognized

December 31, 2022

Impaired nonaccrual loans:

Construction $ 297 $ 297 $ — $ — $ 297 $ 314 $ —

Residential real estate 1,363 1,259 — — 1,639 1,534 —

Commercial real estate 159 150 — — 466 704 —

Commercial 359 174 — — 197 242 —

Consumer 29 28 — — 40 48 —

Total $ 2,207 $ 1,908 $ — $ — $ 2,639 $ 2,842 $ —

Impaired accruing TDRs:

Construction $ 10 $ 10 $ — $ — $ 14 $ 18 $ 1

Residential real estate 2,849 1,176 1,539 127 2,750 3,064 83

Commercial real estate 1,680 1,680 — — 1,830 2,231 48

Commercial — — — — — — —

Consumer — — — — — 6 —

Total $ 4,539 $ 2,866 $ 1,539 $ 127 $ 4,594 $ 5,319 $ 132

Other impaired accruing loans:

(Dollars in thousands) Real Estate Collateral Other Collateral Total

Construction $ 662 $ — $ 662

4 unchanged sentences

Total $ 14,843 $ 2,010 $ 16,853

Total impaired loans:

Loan Modifications to Borrowers Experiencing Financial Difficulty

Modifications to borrowers experiencing financial difficulty may include interest rate reduction, principal or interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral.

The following illustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02:

Loan Classes Modification Types

Commercial Real Estate Term extension greater than three months .

Commercial Term extension greater than three months .

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during three months ended March 31, 2024, and there were no modifications to loans for borrowers experiencing financial difficulty during the three months ended March 31, 2023.

(dollars in thousands) Term Extension Interest Rate Reduction Payment Delay and Term Extension Term Extension and Interest Rate Reduction Payment Delay Total % of Total Portfolio Segment

March 31, 2024

Construction $ — $ — $ — $ — $ — $ — — %

Residential real estate — — — — — — — %

Residential rentals — — — — — — — %

Commercial real estate 117 — — — — 117 0.01 %

1 unchanged sentence

Consumer — — — — — — — %

Credit Cards — — — — — — — %

Total $ 349 $ — $ — $ — $ — $ 349 0.01 %

There were no loans modified and considered to be TDRs during the three and nine months ended September 30, 2022.

All accruing TDRs were in compliance with their modified terms.

Both performing and non-performing TDRs had no further commitments associated with them as of December 31, 2022.

There were no TDRs which subsequently defaulted within 12 months of modification for the three and nine months ended September 30, 2022.

Generally, a loan is considered in default when principal or interest is past due 90 days or more, the loan is placed on nonaccrual, the loan is charged off, or there is a transfer to other real estate owned (OREO) or repossessed assets.

The following tables provide information on loan risk ratings as of December 31, 2022.

(Dollars in thousands) Pass/Performing (1)

Pass Special Mention Substandard Doubtful PCI Total

December 31, 2022

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three months ended March 31, 2024, and there were no modifications to loans for borrowers experiencing financial difficulty during the three months ended March 31, 2023.

(dollars in thousands) Weighted-Average Months of Term Extension

March 31, 2024

Commercial real estate 12 months

Commercial 12 months

During the three months ended March 31, 2024 and March 31, 2023, there were no defaults on loan modifications made to borrowers experiencing financial difficulty.

The following table present the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of March 31, 2024, and there were no loan modifications made to borrowers experiencing financial difficulty at March 31, 2023.

(Dollars in thousands) 30‑59 days past due 60‑89 days past due 90 days past due and still accruing 90 days past due and not accruing Total past due Current Accrual Current Non-Accrual Total Recorded Investment

March 31, 2024

Construction $ — $ — $ — $ — $ — $ — $ — $ —

3 unchanged sentences

Consumer — — — — — — — —

Credit Cards — — — — — — — —

Total $ — $ — $ — $ — $ — $ — $ 349 $ 349

(1) Includes loans measured at fair value of $ 8.4 million at December 31, 2022.

Foreclosure Proceedings

There were $ 0.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of March 31, 2024 and $ 0.2 million as of December 31, 2023, respectively.

There were no residential real estate properties included in the balance of other real estate owned (“OREO”) at March 31, 2024 and December 31, 2023.

Note 5 – Goodwill and Other Intangibles

The following table provides information on the significant components of goodwill and other acquired intangible assets at September 30, 2023 and December 31, 2022.

September 30, 2023

The following table provides information on the significant components of goodwill and other acquired intangible assets at March 31, 2024 and December 31, 2023.

March 31, 2024

(Dollars in thousands) Gross Carrying Amount Additions Accumulated Impairment Charges Accumulated Amortization Net Carrying Amount Weighted Average Remaining Life (in years)

Goodwill $ 65,476 $ — $ ( 1,543 ) $ ( 667 ) $ 63,266 n/a

Core deposit intangible $ 10,503 $ 48,648 $ — $ ( 8,466 ) $ 50,685 4.9

Total core deposit intangible $ 10,503 $ 48,648 $ — $ ( 8,466 ) $ 50,685

Goodwill $ 65,476 $ — $ ( 1,543 ) $ ( 667 ) $ 63,266 0.0 years

Other intangible assets

Core deposit intangible $ 59,151 $ — $ — $ ( 13,636 ) $ 45,515 3.7 years

Total other intangible assets $ 59,151 $ — $ — $ ( 13,636 ) $ 45,515

December 31, 2023

(Dollars in thousands) Gross Carrying Amount Measurement Period Adjustments Accumulated Impairment Charges Accumulated Amortization Net Carrying Amount Weighted Average Remaining Life

Goodwill $ 65,631 $ ( 155 ) $ ( 1,543 ) $ ( 667 ) $ 63,266 n/a

Core deposit intangible $ 10,504 $ — $ — $ ( 4,957 ) $ 5,547 2.6

Total core deposit intangible $ 10,504 $ — $ — $ ( 4,957 ) $ 5,547

The aggregate amortization expense was $ 3.5 million for the nine months ended September 30, 2023 and $ 1.5 million for the nine months ended September 30, 2022.

At September 30, 2023, estimated future remaining amortization for amortizing core deposit intangible within the years ending December 31, is as follows:

(Dollars in thousands) Gross Carrying Amount Additions Accumulated Impairment Charges Accumulated Amortization Net Carrying Amount Weighted Average Remaining Life

Goodwill $ 65,476 $ — $ ( 1,543 ) $ ( 667 ) $ 63,266 0.0 years

Other intangible assets

Core deposit intangible $ 10,503 48,648 $ — $ ( 11,061 ) $ 48,090 3.7 years

Total other intangible assets $ 10,503 $ 48,648 $ — $ ( 11,061 ) $ 48,090

The aggregate amortization expense was $ 2.6 million for the three months ended March 31, 2024 and $ 0.4 million for the three months ended March 31, 2023.

At March 31, 2024, estimated future remaining amortization for amortizing core deposit intangibles within the years ending December 31, is as follows:

(Dollars in thousands) Amortization Expense

Thereafter 11,056

Total amortizing core deposit intangible $ 50,685

Total amortizing intangible assets $ 45,515

Note 6 – Leases

5 unchanged sentences

The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations.

During the third quarter of 2023, the Company acquired long-term branch leases and equipment leases due to the acquisition of TCFC.

These leases were reassessed by management as of the Acquisition Date, which included updating the incremental borrowing rates and remaining lease terms.

The following tables present information about the Company’s leases.

(Dollars in thousands) September 30, 2023 December 31, 2022

(Dollars in thousands) March 31, 2024 December 31, 2023

Lease liabilities $ 12,552 $ 12,857

4 unchanged sentences

Remaining lease term - max 17.43 years 17.68 years

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

Three Months Ended March 31,

Lease cost (in thousands) 2024 2023

3 unchanged sentences

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows:

Lease payments due (in thousands) As of September 30, 2023

Three months ending December 31, 2023 $ 460

Lease payments due (in thousands) As of March 31, 2024

Nine months ending December 31, 2024 $ 1,347

Thereafter 7,261

2 unchanged sentences

Lease liabilities $ 12,552

Total gross rental income was $ 0.3 million and $ 0.2 million for the three months ended September 30, 2023 and 2022, respectively.

Total gross rental income was $ 0.9 million and $ 0.7 million for the nine months ended September 30, 2023, and 2022, respectively.

The following table presents our minimum future annual rental income on such leases as of September 30, 2023.

(In thousands) As of September 30, 2023

Three months ending December 31, 2023 $ 206

Total gross rental income was $ 0.3 million and $ 0.4 million for the three months ended March 31, 2024 and 2023, respectively.

The following table presents our minimum future annual rental income on such leases as of March 31, 2024.

(In thousands) As of March 31, 2024

Nine months ending December 31, 2024 $ 635

Thereafter 2,438

2 unchanged sentences

Deposits consist of the following categories as of the dates indicated:

(dollars in thousands) September 30, 2023 December 31, 2022

(dollars in thousands) March 31, 2024 December 31, 2023

Balance % Balance %

7 unchanged sentences

Total Deposits $ 5,184,279 100.00 % $ 5,386,120 100.00 %

At September 30, 2023, the scheduled contractual maturities of certificates of deposit are as follows:

(dollars in thousands) September 30, 2023

At March 31, 2024, the scheduled contractual maturities of certificates of deposit are as follows:

(dollars in thousands) March 31, 2024

Within one year $ 1,023,551

2 unchanged sentences

Year 4 11,048

Year 5 15,816

Thereafter 452

The aggregate amount of certificates of deposit that met or exceeded the FDIC insurance limit of $250,000 at September 30, 2023 and December 31, 2022 was $ 311.3 million and $ 77.7 million, respectively.

The aggregate amount of certificates of deposit that met or exceeded the FDIC insurance limit of $250,000 at March 31, 2024 and December 31, 2023 was $ 371.0 million and $ 354.6 million, respectively.

Note 8 - Borrowings

Long-term debt consisted of the following:

September 30,

(dollars in thousands) 2023 2022 Issue Date Stated Maturity Date Earliest Call Date Interest Rate

(dollars in thousands) March 31, 2024 December 31, 2023 Issue Date Stated Maturity Date Earliest Call Date Interest Rate

September 2030 Subordinated Debentures $ 25,000 $ 25,000 2020 2030 2025 5.375 % through September 2025, 3-month SOFR + 5.265 % thereafter

7 unchanged sentences

Total long-term debt $ 72,559 $ 72,297

At September 30, 2023, subordinated notes consisted of $ 25.0 million of long-term debt issued by the Company in August 2020, and $ 19.5 million of long-term debt assumed as a result of the merger with TCFC.

At March 31, 2024, subordinated notes consisted of $ 25.0 million of long-term debt issued by the Company in August 2020, and $ 19.5 million of long-term debt assumed as a result of the merger with TCFC.

The recorded balance of subordinated debt issued in 2021 and the assumed subordinated debt from TCFC, net of unamortized issuance costs and fair value discounts, respectively, were $ 24.8 million and $ 18.5 million, respectively.

The Company also assumed trust preferred securities in the aggregate of $ 32.6 million as a result of the merger with TCFC in 2023 and the acquisition of Severn in 2021.

The Company also assumed trust preferred securities in the aggregate of $ 32.6 million as a result of the merger with TCFC in the third quarter of 2023 and the acquisition of Severn in the fourth quarter of 2022.

Trust preferred securities consisted of $ 20.6 million issued to Severn Capital Trust I, $ 7.0 million issued by Tri-County Capital Trust I and $ 5.0 million issued by Tri-County Capital Trust II.

The recorded balance of the debt acquired from Severn at September 30, 2023 was $ 18.5 million, net of the unamortized fair value adjustment of $ 2.1 million.

At September 30, 2023, the junior subordinated debt securities of Tri-County Capital Trust I and Tri-County Capital Trust II had a recorded balance of $ 6.4 million and $ 4.2 million, which are presented as net of the unamortized fair value adjustment of $ 0.6 million and $ 0.8 million, respectively.

The Company may periodically borrow from a correspondent federal funds line of credit arrangement, under a secured reverse repurchase agreement, or from the FHLB to meet short-term liquidity needs.

Short-term borrowings from the Federal Home Loan Bank (“FHLB”) at September 30, 2023 and December 31, 2022 were zero and $ 40.0 million, respectively.

Further information on these obligations is provided in the Company’s 2022 Annual Report on Form 10-K.

The recorded balance of the debt acquired from Severn at March 31, 2024 was $ 18.6 million, net of the unamortized fair value adjustment of $ 2.0 million.

At March 31, 2024, the junior subordinated debt securities of Tri-County Capital Trust I and Tri-County Capital Trust II had a recorded balance of $ 6.4 million and $ 4.2 million, which are presented as net of the unamortized fair value adjustment of $ 0.6 million and $ 0.8 million, respectively.

The Company may periodically borrow from a correspondent federal funds line of credit arrangement, under a secured reverse repurchase agreement, or from the Federal Home Loan Bank (“FHLB”) to meet short-term liquidity needs.

There were no outstanding borrowings from the Federal Home Loan Bank (“FHLB”) at March 31, 2024 and December 31, 2023.

Further information on these obligations is provided in the Company’s 2023 Annual Report.

Note 9 - Stock-Based Compensation

4 unchanged sentences

Stock-based awards granted to date generally are time-based, vest in equal installments on each anniversary of the grant date and range over a one - to five-year period of time, and, in the case of stock options, expire 10 years from the grant date.

As part of the 2016 Equity Plan, a performance equity incentive award program, known as the “Long-term incentive plan” allows participating officers of the Company to earn incentive awards of performance share/restricted stock units if certain pre-determined targets are achieved at the end of a three-year performance cycle.

Stock-based compensation expense based on the grant date fair value is recognized ratably over the requisite service period for all awards and reflects forfeitures as they occur.

The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 472,320 shares remained available for grant at September 30, 2023.

The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 401,868 shares remained available for grant at March 31, 2024.

The Company assumed 3,977 shares of restricted stock and 90,783 of restricted stock units at a fair market value of $ 11.56 per share as a result of the merger with TCFC.

The recipients of the restricted stock unites do not have any stockholder rights, including voting, dividend, or liquidation rights, with respect to the shares underlying awarded restricted stock units until the recipient becomes the record holder of those shares.

The following table summarizes restricted stock award and restricted stock unit activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2023.

Restricted Stock Restricted Stock Units

Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value

The vesting period for the outstanding restricted stock grants is between three and five years .

Restricted stock units and performance stock units vesting period is between one to three years .

The recipients of the restricted stock units and performance stock units do not have any stockholder rights, including voting, dividend, or liquidation rights, with respect to the shares underlying awarded restricted stock units until the recipient becomes the record holder of those shares.

The following table summarizes restricted stock award and restricted stock unit activity for the Company under the 2016 Equity Plan for the three months ended March 31, 2024.

Restricted Stock Restricted Stock Units Performance Stock Units

Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value Number of Shares Weighted Average Grant Date Fair Value

Nonvested at beginning of period 45,322 $ 15.42 165,055 $ 11.56 — $ —

Replacement awards issued in acquisition of TCFC 3,977 11.56 90,783 11.56

Granted 5,326 13.14 53,279 11.31 43,651 11.32

2 unchanged sentences

Nonvested at end of period 23,931 $ 12.81 184,589 $ 11.49 43,651 $ 11.32

The fair value of restricted stock awards that vested during the first nine months of 2023 and 2022 was $ 0.6 million and $ 0.5 million, respectively.

The fair value of restricted stock units vested during the first nine months of 2023 was $ 0.1 million.

The fair value of restricted stock awards that vested during the first three months of 2024 and 2023 was $ 0.3 million and $ 0.5 million, respectively.

The fair value of restricted stock units vested during the first three months of 2024 and 2023 was $ 0.4 million and zero .

Note 10 – Derivatives

4 unchanged sentences

The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 14 days to 120 days, however, this period may be longer for construction to permanent loans that are originated with the intent of selling in the secondary market upon permanent financing.

For these IRLCs and our closed inventory in loans held for sale (“LHFS”), we attempt to protect the Bank from changes in interest rates through the use of to be announced (“TBA”) securities, which are forward contracts, as well as, to a significantly lesser degree, loan level commitments in the form of best efforts and mandatory forward contracts.

For these IRLCs and our closed inventory in loans held for sale, we attempt to protect the Bank from changes in interest rates through the use of to be announced (“TBA”) securities, which are forward contracts, as well as, to a significantly lesser degree, loan level commitments in the form of best efforts and mandatory forward contracts.

These assets and liabilities are included in the Consolidated Balance Sheets in other assets and accrued expenses and other liabilities, respectively.

The following table provides information pertaining to the carrying amounts of our derivative financial instruments at September 30, 2023 and December 31, 2022.

September 30, 2023 December 31, 2022

The following table provides information pertaining to the carrying amounts of our derivative financial instruments at March 31, 2024 and December 31, 2023.

March 31, 2024 December 31, 2023

(Dollars in thousands) Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value

5 unchanged sentences

The Company records unrealized holding gains (losses), net of tax, on investment securities AFS as accumulated other comprehensive income (loss), a separate component of stockholders’ equity.

The following table provides information on the changes in the component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022.

Three Months Ended September 30, 2023 Three Months Ended September 30, 2022 Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022

(Dollars in thousands) Net Unrealized Gains And (Losses) Net Unrealized Gains And (Losses) Net Unrealized Gains And (Losses) Net Unrealized Gains And (Losses)

The following table provides information on the changes in the component of accumulated other comprehensive income (loss) for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31, 2024 Three Months Ended March 31, 2023

(Dollars in thousands) Net Unrealized (Losses) Net Unrealized Gains And (Losses)

Beginning of period $ ( 7,494 ) $ ( 9,021 )

Other comprehensive losses, net of tax before reclassifications ( 1,548 ) ( 3,130 ) ( 1,088 ) ( 9,837 )

Other comprehensive (loss) income, net of tax ( 564 ) 860

End of period $ ( 8,058 ) $ ( 8,161 )

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Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain amounts and ratios (set forth in the table below) of Common Equity Tier 1, Tier 1 and total capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (leverage ratio).

As of September 30, 2023 and December 31, 2022, management believes that the Company and the Bank met all capital adequacy requirements to which they were subject.

As of March 31, 2024 and December 31, 2023, management believes that the Company and the Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2023, the most recent notification from our primary regulator categorized the Bank, as well capitalized under the regulatory framework for prompt corrective action.

At September 30, 2023, there were no conditions or events since that notification that management believes would change the Bank’s classification.

At March 31, 2024, there were no conditions or events since that notification that management believes would change the Bank’s classification.

To be categorized as well capitalized, the Bank must maintain minimum common equity Tier 1, Tier 1 risk-based and total risk-based capital ratios, and Tier 1 leverage ratios, which are described below.

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The Company The Bank

(dollars in thousands) September 30, 2023 December 31, 2022 September 30, 2023 December 31, 2022

(dollars in thousands) March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023

Common equity $ 515,228 $ 511,135 $ 579,520 $ 570,100

Goodwill ( 63,266 ) ( 63,266 ) ( 63,266 ) ( 63,266 )

( 61,523 ) ( 63,266 ) ( 61,523 ) ( 63,266 )

Core deposit intangible (3)

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DTAs that arise from net operating loss and tax credit carry forwards ( 5,858 ) ( 8,977 ) ( 4,326 ) ( 6,059 )

AOCI (gains) losses 10,109 9,021 10,109 9,021

8,058 7,494 8,058 7,494

Common Equity Tier 1 Capital 421,670 408,317 487,494 470,200

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The PCA well capitalized is defined as 5.00 %.

(3) Core deposit intangible at September 30, 2023 is net of deferred tax liability.

(3) Core deposit intangible is net of deferred tax liability.

(4) Goodwill is net of deferred tax liability as of March 31, 2024.

Bank and holding company regulations impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company.

At September 30, 2023, the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios.

At March 31, 2024, the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios.

Note 13 – Fair Value Measurements

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Although these securities have readily available fair market values, the Company determined that they should be classified as level 2 investments in the fair value hierarchy due to not being considered traded in a highly active market.

LHFS are carried at fair value, which is determined based on Mark to Trade for allocated/committed loans or Mark to Market analysis for unallocated/uncommitted loans based on third-party pricing models (Level 2).

Loans Held for Sale

Loans held for sale are carried at fair value, which is determined based on Mark to Trade for allocated/committed loans or Mark to Market analysis for unallocated/uncommitted loans based on third-party pricing models (Level 2).

Mortgage Servicing Rights

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(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range

September 30, 2023

March 31, 2024

$ 5,821 Market Approach Weighted average prepayment speed (PSA) (2)

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(2) PSA = Public Securities Association Standard Prepayment Model

The following table presents activity in MSRs for the three and nine months ended September 30, 2023.

(Dollars in thousands) Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

The following table presents activity in MSRs for the three months ended March 31, 2024.

(Dollars in thousands) Three Months Ended March 31, 2024

Beginning balance $ 5,926

2 unchanged sentences

Ending balance $ 5,821

The following table presents activity in the IRLCs for the three and nine months ended September 30, 2023.

(Dollars in thousands) Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

The following table presents activity in the IRLCs - net asset for the three months ended March 31, 2024.

(Dollars in thousands) Three Months Ended March 31, 2024

Beginning balance $ 110

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To avoid interest rate risk, we hedge the open locked/closed position with TBA forward trades.

On a regular basis, we allocate disbursed loans to mandatory commitments with government-sponsored enterprises (“GSE”) and private investors delivering the loans within 120 days of origination to maximize interest earnings.

On a regular basis, we allocate disbursed loans to mandatory commitments with government-sponsored enterprises and private investors delivering the loans within 120 days of origination to maximize interest earnings.

For a small percentage of our business, we enter into best efforts forward sales commitments with investors at the time we make an IRLC to a borrower.

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Additionally market assumptions such as spec pool payups may result in a significantly higher fair value measurement at time of loan allocation to specific trades.

The following tables present the recorded amount of assets measured at fair value on a recurring basis at September 30, 2023 and December 31, 2022.

No assets were transferred from one hierarchy level to another during the first nine months of 2023 or 2022.

The following tables present the recorded amount of assets measured at fair value on a recurring basis at March 31, 2024 and December 31, 2023.

No assets were transferred from one hierarchy level to another during the first three months of 2024 or 2023.

(Dollars in thousands) Fair Value Quoted Prices

1 unchanged sentence

(Level 2) Significant Unobservable Inputs

September 30, 2023

March 31, 2024

Securities available for sale:

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Total assets at fair value $ 140,988 $ — $ 134,952 $ 6,036

IRLCs $ 7 $ — $ — $ 7

TBA securities $ 176 $ — $ 176 $ —

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Valuation techniques are consistent with those techniques applied in prior periods.

The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis at September 30, 2023 and December 31, 2022.

Repossessed Properties

The Company records repossessed assets at fair value on a nonrecurring basis.

All repossessed properties are recorded at lower of the estimated fair value of the properties, less expected selling costs, or the carrying amount of the defaulted loans.

From time to time, nonrecurring fair value adjustments are recorded to reflect partial write-downs based on current appraised value of property.

The Company considers any valuation inputs related to repossessed properties to be Level 3 inputs.

The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis at March 31, 2024 and December 31, 2023.

Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

1 unchanged sentence

(Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range Weighted Average (1)

September 30, 2023

March 31, 2024

Nonrecurring measurements:

Individually evaluated collateral dependent loans $ 619 Appraisal of collateral Liquidation expense 10 % 10 %

Other real estate owned $ 179 Appraisal of collateral Appraisal adjustments ( 0 %) - ( 20 %)

Individually evaluated collateral dependent loans $ 17 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Other real estate owned $ 179 Appraisal of collateral (1)

Appraisal adjustment (2)

( 0 %) - ( 20 %)

Repossessed properties $ 1,845 Appraisal of collateral (1)

Appraisal adjustment (2)

Quantitative Information about Level 3 Fair Value Measurements

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Nonrecurring measurements:

Other real estate owned $ 197 Appraisal of collateral Appraisal adjustments ( 0 %) - 20 %

Individually evaluated collateral dependent loan $ 633 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Other real estate owned $ 179 Appraisal of collateral (1)

Appraisal adjustment (2)

_________________________________

(1) Unobservable inputs were weighted by the relative fair value of the instruments.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

Note 14 – Fair Value of Financial Instruments

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The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the following table.

Fair values for September 30, 2023 and December 31, 2022 were estimated using an exit price notion.

September 30, 2023 Carrying Amount Fair Value Fair Value Measurements

Fair values for March 31, 2024 and December 31, 2023 were estimated using an exit price notion.

March 31, 2024 Carrying Amount Fair Value Fair Value Measurements

Description of Asset (dollars in thousands)

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Certificates of Deposit 1,169,342 1,168,144 — 1,168,144 —

Subordinated debt 42,956 41,503 — 41,503 —

TRUPS 29,079 27,364 — 27,364 —

Subordinated debt, net 43,322 42,498 — 42,498 —

TRUPS, net 29,237 28,049 — 28,049 —

TBA Securities 108 108 — 108 —

IRLCs 1 1 — — 1

See the Company’s methodologies disclosed in Note 21 of the Company’s 2022 Annual Report for the fair value methodologies used as of December 31, 2022:

December 31, 2023 Carrying Amount Fair Value Fair Value Measurements

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Savings 347,324 347,324 — 347,324 —

Club 374 374 — 374 —

Certificates of Deposit 1,184,610 1,184,447 — 1,184,447 —

Advances from FHLB - short term 40,000 40,002 — 40,002 —

Subordinated debt 43,072 41,193 — 41,193 —

Subordinated debt, net 43,139 42,579 — 42,579 —

TRUPS, net 29,158 28,266 — 28,266 —

TBA Securities 176 176 — 176 —

IRLCs 7 7 — — 7

Note 15 – Commitments and Contingencies

5 unchanged sentences

Because many of the letters of credit and commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The following table provides information on commitments outstanding at September 30, 2023 and December 31, 2022.

(Dollars in thousands) September 30, 2023 December 31, 2022

The following table provides information on commitments outstanding at March 31, 2024 and December 31, 2023.

(Dollars in thousands) March 31, 2024 December 31, 2023

Commitments to extend credit $ 694,646 $ 613,266

4 unchanged sentences

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

While the Company is providing banking services to customers that are engaged in the growing, processing, and sales of cannabis in a manner that complies with applicable state

law, such customers engaged in those activities currently violate Federal laws.

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

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

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

There is an uncertainty of the potential impact to the Company’s Consolidated Financial Statements if the Federal government takes actions against the Company.

As of September 30, 2023, the Company had not accrued an amount for the potential impact of any such actions.

There is an uncertainty of the potential impact to the

Company’s Consolidated Financial Statements if the Federal government takes actions against the Company.

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

Following is a summary of the level of business activities with our cannabis industry customers:

• Deposit and loan balances at September 30, 2023 were approximately $ 175.5 million, or 3.4 % of total deposits, and $ 76.2 million, or 1.7 % of total gross loans, respectively.

• Interest and noninterest income for the nine months ended September 30, 2023, were approximately $ 7.2 million and $ 0.8 million, respectively.

• Deposit and loan balances at March 31, 2024 were approximately $ 227.6 million, or 4.4 % of total deposits, and $ 73.7 million, or 1.6 % of total gross loans, respectively.

• Interest and noninterest income for the three months ended March 31, 2024, were approximately $ 1.0 million and $ 0.3 million, respectively.

In the normal course of business, the Company may become involved in litigation arising from banking, financial, and other activities.

4 unchanged sentences

The following table provides information relating to the calculation of earnings per common share.

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

Three Months Ended March 31,

(In thousands, except per share data) 2024 2023

Net (Loss)/Income $ ( 6,384 ) $ 9,658 $ 4,091 $ 22,769

Net Income $ 8,184 $ 6,457

Average number of common shares outstanding 33,189 19,886

5 unchanged sentences

Diluted $ 0.25 $ 0.32

There were no potentially dilutive shares outstanding during the three and nine months ended September 30, 2022.

As of March 31, 2024 there were 1,000 and as of March 31, 2023 there were zero unvested common stock equivalents excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.

Note 17 – Revenue Recognition

21 unchanged sentences

All contract issuance costs are expensed as incurred.

We had no contract assets or liabilities at September 30, 2023.

We had no contract assets or liabilities at March 31, 2024.

Other Noninterest Income

10 unchanged sentences

The Company determined that rentals and renewals of safe deposit boxes will be recognized on a monthly basis consistent with the duration of the performance obligation.

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2023 and 2022.

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

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three months ended March 31, 2024 and 2023.

Three Months Ended March 31,

(Dollars in thousands) 2024 2023

9 unchanged sentences

Total Noninterest Income $ 6,567 $ 5,334

Note 18 – Subsequent Events

On April 12, 2024 the Board of Directors determined that it is in the best interest of the Company to close two branches.

Management is directed to close the Onley branch located in Onley, VA on or about July 17, 2024 and to close the Westgate branch located in Annapolis, MD on or about September 30, 2024.

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 1. Financial Statements