SHORE BANCSHARES INC 10-Q

Item 1. Financial Statements. SHORE BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data) June 30, 2024 December 31, 2023 ASSETS (Unaudited) Cash and due from banks $ 50,090 $ 63,172 Interest-bearing deposits with other banks 88,793 309,241 Cash and cash equivalents 138,883 372,413 Investment securities: Available-for-sale, at fair value (amortized cost of $ 142,959 (2024) and $ 120,832 (2023)) 131,594 110,521 Held to maturity, net of allowance for credit losses of $ 108 (2024) and $ 94 (2023) (fair value of $ 440,164 (2024) and $ 457,830 (2023)) 499,431 513,188 Equity securities, at fair value 5,699 5,703 Restricted securities, at cost 21,725 17,900 Loans held for sale, at fair value 27,829 8,782 Loans held for investment ($ 9,515 (2024) and $ 9,944 (2023), at fair value) 4,705,737 4,641,010 Less: allowance for credit losses ( 58,478 ) ( 57,351 ) Loans, net 4,647,259 4,583,659 Premises and equipment, net 82,176 82,386 Goodwill 63,266 63,266 Other intangible assets, net 42,945 48,090 Other real estate owned, net 179 179 Repossessed properties 1,560 — Assets held for sale 1,387 — Mortgage servicing rights, at fair value 5,995 5,926 Right-of-use assets 11,762 12,487 Cash surrender value on life insurance 102,969 101,704 Accrued interest receivable 19,641 19,217 Deferred income taxes 36,078 40,707 Other assets 23,639 24,790 TOTAL ASSETS $ 5,864,017 $ 6,010,918 LIABILITIES Deposits: Noninterest-bearing $ 1,587,252 $ 1,258,037 Interest-bearing 3,561,633 4,128,083 Total deposits 5,148,885 5,386,120 Advances from FHLB - short-term 31,000 — Advances from FHLB - long-term 50,000 — Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS"), net 29,316 29,158 Subordinated debt, net 43,504 43,139 Total borrowings 153,820 72,297 Lease liabilities 12,189 12,857 Other liabilities 26,340 28,509 TOTAL LIABILITIES 5,341,234 5,499,783 STOCKHOLDERS' EQUITY Common stock, par value $ .01 per share; shares authorized - 50,000,000 ; shares issued and outstanding - 33,214,522 (2024) and 33,161,532 (2023) 333 332 Additional paid in capital 356,994 356,007 Retained earnings 173,716 162,290 Accumulated other comprehensive loss ( 8,260 ) ( 7,494 ) TOTAL STOCKHOLDERS' EQUITY 522,783 511,135 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,864,017 $ 6,010,918 See accompanying notes to Consolidated Financial Statements. 3 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) For Three Months Ended June 30, For Six Months Ended June 30, (In thousands, except per share data) 2024 2023 2024 2023 INTEREST INCOME Interest and fees on loans $ 67,292 $ 32,729 $ 133,045 $ 63,557 Interest and dividends on taxable investment securities 5,230 3,729 9,650 7,793 Interest and dividends on tax-exempt investment securities 6 5 12 12 Interest on deposits with other banks 578 170 1,538 333 Total interest income 73,106 36,633 144,245 71,695 INTEREST EXPENSE Interest on deposits 27,585 9,914 56,081 17,195 Interest on short-term borrowings 1,584 3,449 1,641 4,810 Interest on long-term borrowings 1,797 776 3,248 1,532 Total interest expense 30,966 14,139 60,970 23,537 NET INTEREST INCOME 42,140 22,494 83,275 48,158 Provision for credit losses 2,081 667 2,488 1,880 NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 40,059 21,827 80,787 46,278 NONINTEREST INCOME Service charges on deposit accounts 1,493 1,264 3,001 2,477 Trust and investment fee income 896 399 1,630 831 Interchange credits 1,717 1,311 3,304 2,523 Mortgage-banking revenue 1,983 1,054 2,783 2,031 Title Company revenue 165 186 243 323 Other noninterest income 2,186 1,080 4,046 2,443 Total noninterest income 8,440 5,294 15,007 10,628 NONINTEREST EXPENSE Salaries and wages 13,307 8,955 25,158 17,639 Employee benefits 3,593 2,440 7,689 5,361 Occupancy expense 2,432 1,599 4,848 3,218 Furniture and equipment expense 900 477 1,804 1,011 Data processing 2,978 1,739 5,845 3,537 Directors' fees 359 185 654 435 Amortization of other intangible assets 2,569 435 5,145 876 FDIC insurance premium expense 1,089 758 2,240 1,129 Other real estate owned expenses, net — — — ( 1 ) Legal and professional fees 1,354 959 2,954 1,709 Fraud losses (1) 62 47 4,564 114 Merger-related expenses — 1,197 — 1,888 Other noninterest expenses 4,856 2,817 9,296 5,585 Total noninterest expense 33,499 21,608 70,197 42,501 Income before income taxes 15,000 5,513 25,597 14,405 Income tax expense 3,766 1,495 6,179 3,930 NET INCOME $ 11,234 $ 4,018 $ 19,418 $ 10,475 Basic and diluted net income per common share $ 0.34 $ 0.20 $ 0.58 $ 0.53 Dividends paid per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24 ____________________________________ (1) Fraud losses includes $ 4.3 million of credit card fraud losses for the six months ended June 30, 2024 . See accompanying notes to Consolidated Financial Statements. 4 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) For Three Months Ended June 30, For Six Months Ended June 30, (In thousands) 2024 2023 2024 2023 Net income $ 11,234 $ 4,018 $ 19,418 $ 10,475 Other comprehensive income (loss): Investment securities: Unrealized holding gains (losses) on available-for-sale-securities ( 278 ) ( 549 ) ( 1,054 ) 634 Tax effect 76 149 288 ( 174 ) Total other comprehensive income (loss) ( 202 ) ( 400 ) ( 766 ) 460 Comprehensive income $ 11,032 $ 3,618 $ 18,652 $ 10,935 See accompanying notes to Consolidated Financial Statements. 5 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) For the Three and Six Months Ended June 30, 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 Net income — — 8,184 — 8,184 Other comprehensive loss — — — ( 564 ) ( 564 ) Common shares issued for employee stock purchase plan — 103 — — 103 Stock-based compensation — 354 — — 354 Cash dividends declared — — ( 3,984 ) — ( 3,984 ) Balances, March 31, 2024 $ 332 $ 356,464 $ 166,490 $ ( 8,058 ) $ 515,228 Net income — — 11,234 — 11,234 Other comprehensive loss — — — ( 202 ) ( 202 ) Common shares issued for employee stock purchase plan 1 120 — — 121 Stock-based compensation — 410 — — 410 Cash dividends declared — — ( 4,008 ) — ( 4,008 ) Balances, June 30, 2024 $ 333 $ 356,994 $ 173,716 $ ( 8,260 ) $ 522,783 6 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) - Continued (In thousands) Common Stock Additional Paid in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Total Stockholders’ Equity 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 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 — — — ( 400 ) ( 400 ) Common shares issued for employee stock purchase plan — 102 — — 102 Stock-based compensation — 170 — — 170 Cash dividends declared — — ( 2,388 ) — ( 2,388 ) Balances, June 30, 2023 $ 199 $ 202,008 $ 169,494 $ ( 8,561 ) $ 363,140 See accompanying notes to Consolidated Financial Statements. 7 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) For Six Months Ended June 30, (In thousands) 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 19,418 $ 10,475 Adjustments to reconcile net income to net cash provided by operating activities: Net accretion of acquisition accounting estimates ( 7,618 ) ( 847 ) Provision for credit losses 2,488 1,880 Depreciation and amortization 8,217 2,744 Net amortization of securities ( 643 ) 660 Amortization of debt issuance costs 60 61 Gain on mortgage banking activities ( 2,446 ) ( 1,518 ) Proceeds from sale of mortgage loans held for sale 64,563 47,815 Originations of loans held for sale ( 81,712 ) ( 49,191 ) Stock-based compensation expense 764 325 Deferred income tax expense (benefit) 4,916 ( 743 ) Loss on sales of repossessed assets 45 — Loss on valuation adjustments on mortgage servicing rights 129 40 Valuation adjustments on premises transferred to held for sale 2 271 Gain on sales and valuation adjustments on other real estate owned — ( 3 ) Fair value adjustments on loans held for investments, at fair value 318 ( 48 ) Fair value adjustment on equity securities 84 3 Bank owned life insurance income ( 1,344 ) ( 758 ) Net changes in: Accrued interest receivable ( 424 ) 731 Other assets 1,241 ( 2,510 ) Accrued interest payable ( 630 ) 1,721 Other liabilities ( 2,010 ) ( 458 ) Net cash provided by operating activities 5,418 10,650 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities and principal payments of investment securities available for sale 60,673 6,019 Proceeds from maturities and principal payments of investment securities held to maturity 19,291 21,795 Proceeds from life insurance death benefits 150 — Purchases of investment securities available for sale ( 81,904 ) — Purchases of investment securities held to maturity ( 5,800 ) — Purchases of equity securities ( 80 ) ( 15 ) Purchase of restricted securities ( 22,186 ) ( 23,979 ) Net change in loans ( 59,472 ) ( 196,213 ) Purchases of premises and equipment ( 3,359 ) ( 1,768 ) Proceeds from sales of other real estate owned — 21 Proceeds from sales of repossessed assets 240 — Redemption of restricted securities 18,361 13,940 Purchases of bank owned life insurance ( 71 ) ( 174 ) Proceeds from disposal of premises held for sale — 721 Net cash (used in) investing activities $ ( 74,157 ) $ ( 179,653 ) 8 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - Continued For Six Months Ended June 30, (In thousands) 2024 2023 CASH FLOWS FROM FINANCING ACTIVITIES: Net changes in: Noninterest-bearing deposits $ 329,215 $ ( 83,052 ) Interest-bearing deposits ( 567,238 ) 10,970 Short-term borrowings 31,000 236,000 Long-term borrowings 50,000 — Common stock dividends paid ( 7,992 ) ( 4,776 ) Issuance of common stock 224 189 Net cash (used in) provided by financing activities ( 164,791 ) 159,331 Net decrease in cash and cash equivalents ( 233,530 ) ( 9,672 ) Cash and cash equivalents at beginning of period 372,413 55,499 Cash and cash equivalents at end of period $ 138,883 $ 45,827 Supplemental cash flows information: Interest paid $ 60,289 $ 21,836 Income taxes paid $ — $ 6,372 Recognition (remeasurement of) lease liabilities arising from right-of-use assets $ 76 $ ( 5 ) Transfers from loans to repossessed properties $ 1,845 $ — Unrealized (losses) gains on securities available for sale $ ( 1,054 ) $ 634 Transfer of premises to held for sale (included in other assets) $ 1,387 $ 750 See accompanying notes to Consolidated Financial Statements. 9 Table of Contents Shore Bancshares, Inc. Notes to Consolidated Financial Statements For the Three and Six Months Ended June 30, 2024 and 2023 (Unaudited) Note 1 – Basis of Presentation The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiaries with all significant intercompany transactions eliminated. The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. The accompanying interim financial statements are unaudited; however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at June 30, 2024, the consolidated results of income and comprehensive income for the three and six months ended June 30, 2024 and 2023, changes in stockholders’ equity for the three and six months ended June 30, 2024 and 2023 and cash flows for the six months ended June 30, 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 six months ended June 30, 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, 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. When used in these notes, the term “the Company” refers to Shore Bancshares, Inc. and, unless the context requires otherwise, its consolidated subsidiaries, Shore United Bank, N.A. (the “Bank”) and Mid-Maryland Title Company, Inc. (the “Title Company”). 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. 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. 10 Table of Contents Note 2 – Business Combinations 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: expansion of the branch network and commanding market share positions in attractive Maryland markets and a growing presence in Virginia and Delaware; attractive low-cost funding base; 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. In connection with the completion of the merger, former TCFC shareholders received 2.3287 shares of the Company’s common stock. The value of the total transaction consideration was approximately $ 153.6 million. The consideration included the issuance of 13,201,693 shares of the Company’s common stock, which had a value of $ 11.56 per share, which was the closing price of the Company’s common stock on June 30, 2023, the last trading day prior to the consummation of the acquisition. Also included in the total consideration were cash in lieu of any fractional shares, converted share-based payment awards, and debt of TCFC that was effectively settled upon closing. The acquisition of TCFC was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid are recorded at estimated fair values on the Acquisition Date. The provisional amount of bargain purchase gain as of the Acquisition Date was approximately $ 8.8 million. The exchange ratio was determined at the time of announcement of the merger between the Company and TCFC in December of 2022 when the stock price of the Company was much higher than at the legal merger date. The decline in the Company’s stock price was the primary driver in recording a bargain purchase gain on this transaction. The decline in stock price for the Company was comparable to other financial institutions similar to the Company leading up to the merger due to bank failures in the first quarter of 2023 and increases to overnight borrowing rates by the Fed which resulted in continued pressure on net interest margins. The Company will continue to keep the measurement of bargain purchase gain open for any additional adjustments to the fair value of certain accounts, for example loans, that may arise during the Company’s final review procedures of any updated information. 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 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. In particular, adjustments that would have been necessary to be made to record the loans at fair value, the provision of credit losses or the core deposit intangible would not be practical to estimate. 11 Table of Contents (Dollars in thousands) Purchase Price Consideration: Fair value of common shares issued ( 13,201,693 shares) based on Shore Bancshares, Inc. share price of $ 11.56 $ 152,612 Effective settlement of pre-existing debt (1) 500 Cash consideration (cash in lieu for fractional shares) 5 Fair value of converted restricted stock units (2) 475 Total purchase price $ 153,592 Identifiable assets: Cash and cash equivalents $ 25,377 Total securities 454,468 Loans, net 1,765,255 Premises and equipment, net 29,277 Core deposit intangible, net 48,648 Other assets 89,808 Total identifiable assets $ 2,412,833 Identifiable Liabilities Deposits $ 2,131,141 Total debt 97,545 Other liabilities 21,739 Total identifiable liabilities $ 2,250,425 Provisional fair value of net assets acquired $ 162,408 Provisional bargain purchase gain $ ( 8,816 ) ____________________________________ (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 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 and remaining balances. 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. 12 Table of Contents Note 3 – Investment Securities On January 1, 2023, the Company adopted ASC 326, which made changes to accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires an ACL to be recorded on HTM debt securities measured at amortized cost. All securities information presented as of June 30, 2024 and as of December 31, 2023 are in accordance with ASC 326, except ACL on HTM securities were presented as of three and six months ended June 30, 2024 and June 30, 2023. The following table summarizes the activity in the ACL on HTM securities as of three and six months ended June 30, 2024 and June 30, 2023. (Dollars in thousands) Three Months Ended June 30, 2024 Three Months Ended June 30, 2023 Six Months Ended June 30, 2024 Six Months Ended June 30, 2023 Balance, beginning of period $ 116 $ — $ 94 $ — Other debt securities, provision for credit losses ( 8 ) 163 14 163 Balance, end of period $ 108 $ 163 $ 108 $ 163 A provision for credit losses of $ 8,000 and $ 0.2 million, $ 14,000 and $ 0.2 million was recorded for the three and six months ended June 30, 2024 and June 30, 2023, respectively. The following tables provide information on the amortized cost and estimated fair values of debt securities. (Dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Available-for-sale securities: June 30, 2024 U.S. Treasury and government agencies $ 23,213 $ 4 $ 3,057 $ 20,160 Mortgage-backed-residential 113,623 18 8,168 105,473 Other debt securities 6,123 38 200 5,961 Total $ 142,959 $ 60 $ 11,425 $ 131,594 December 31, 2023 U.S. Treasury and government agencies $ 23,472 $ 5 $ 3,002 $ 20,475 Mortgage-backed-residential 91,280 5 7,258 84,027 Other debt securities 6,080 59 120 6,019 Total $ 120,832 $ 69 $ 10,380 $ 110,521 No AFS securities were sold during the three and six months ended June 30, 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: June 30, 2024 U.S. Treasury and government agencies $ 143,165 $ 2 $ 10,805 $ 132,362 $ — Mortgage-backed-residential 344,406 — 47,530 296,876 — States and political subdivisions 1,468 28 34 1,462 — Other debt securities 10,500 — 1,036 9,464 108 Total $ 499,539 $ 30 $ 59,405 $ 440,164 $ 108 December 31, 2023 U.S. Treasury and government agencies $ 143,442 $ — $ 10,377 $ 133,065 $ — Mortgage-backed-residential 357,870 — 43,864 314,006 — States and political subdivisions 1,470 57 19 1,508 — Other debt securities 10,500 — 1,249 9,251 94 Total $ 513,282 $ 57 $ 55,509 $ 457,830 $ 94 13 Table of Contents Equity securities with an aggregate fair value of $ 5.7 million at June 30, 2024 and $ 5.7 million at December 31, 2023 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled loss of $ 0.2 million for the six months ended June 30, 2024 and loss of $ 3,000 for the six months ended June 30, 2023, respectively. Credit Quality Information The Company monitors the credit quality of HTM securities through credit ratings provided by Standard & Poor’s Rating Services and Moody’s Investor Services. Credit ratings express opinions about the credit quality of a security, and are updated at each quarter end. Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade HTM securities at June 30, 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 June 30, 2024. June 30, 2024 Investment Grade (Dollars in thousands) Aaa Aa1 A3 Baa1 Baa2 NR Total U.S. Treasury and government agencies $ 139,594 $ — $ — $ — $ — $ 3,571 $ 143,165 Mortgage-backed-residential 344,406 — — — — — 344,406 States and political subdivisions — 1,468 — — — — 1,468 Other debt securities — — 4,000 4,000 500 2,000 10,500 Total held-to maturity securities $ 484,000 $ 1,468 $ 4,000 $ 4,000 $ 500 $ 5,571 $ 499,539 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 U.S. 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 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 June 30, 2024 and December 31, 2023. Less than 12 Months More than 12 Months Total (Dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses June 30, 2024 Available-for-sale securities: U.S. Treasury and government agencies $ 73 $ — $ 17,328 $ 3,057 $ 17,401 $ 3,057 Mortgage-backed-residential 45,976 741 46,788 7,427 92,764 8,168 Other debt securities 2,228 109 1,915 91 4,143 200 Total $ 48,277 $ 850 $ 66,031 $ 10,575 $ 114,308 $ 11,425 14 Table of Contents Less than 12 Months More than 12 Months Total (Dollars in thousands) Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses December 31, 2023 Available-for-sale securities: U.S. 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 Other debt securities — — 1,890 120 1,890 120 Total $ 24,479 $ 150 $ 72,504 $ 10,230 $ 96,983 $ 10,380 There were 110 AFS debt securities with a fair value below the amortized cost basis, totaling $ 11.4 million of aggregate fair value as of June 30, 2024. The Company concluded that a credit loss does not exist in its AFS securities portfolio as of June 30, 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. government agencies or U.S. government sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. 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 June 30, 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 June 30, 2024, the carrying value of pledged AFS securities was $ 53.8 million and $ 199.7 million of pledged HTM securities. The comparable amounts for December 31, 2023 were $ 54.5 million and $ 185.9 million, respectively. There were no obligations of states or political subdivisions with carrying values, as to any issuer, exceeding 10% of stockholders’ equity at June 30, 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 June 30, 2024. Available for sale Held to maturity (Dollars in thousands) Amortized Cost Fair Value Amortized Cost Fair Value Due in one year or less $ 2,477 $ 2,477 $ 7,058 $ 7,032 Due after one year through five years 15,098 14,067 129,280 121,184 Due after five years through ten years 27,511 24,591 37,670 34,457 Due after ten years 97,873 90,459 325,531 277,491 Total $ 142,959 $ 131,594 $ 499,539 $ 440,164 The maturity dates for debt securities are determined using contractual maturity dates. 15 Table of Contents Note 4 – Loans and Allowance for Credit Losses On January 1, 2023, the Company adopted ASC 326. 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 1 – Summary of Significant Accounting Policies of the Company’s 2023 Annual Report. 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, Stafford County, Spotsylvania County and Fredericksburg City in Virginia. The following table provides information about the principal classes of the loan portfolio at June 30, 2024 and December 31, 2023. (Dollars in thousands) June 30, 2024 % of Total Loans December 31, 2023 % of Total Loans Construction $ 327,875 6.97 % $ 299,000 6.40 % Residential real estate 1,539,591 32.72 % 1,490,438 32.10 % Commercial real estate 2,287,497 48.60 % 2,286,154 49.30 % Commercial 218,987 4.65 % 229,939 5.00 % Consumer 324,479 6.90 % 328,896 7.10 % Credit Cards 7,308 0.16 % 6,583 0.10 % Total loans 4,705,737 100.00 % 4,641,010 100.00 % Allowance for credit losses on loans ( 58,478 ) ( 57,351 ) Total loans, net $ 4,647,259 $ 4,583,659 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 $ 3.2 million and $ 2.2 million at June 30, 2024 and December 31, 2023. At June 30, 2024 and December 31, 2023 included in total loans were $ 1,558.9 million and $ 1,643.4 million 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 $ 96.6 million and $ 108.4 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024 and December 31, 2023, included in total loans were $ 273.5 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 $ 4.0 million and $ 4.7 million at June 30, 2024 and December 31, 2023, respectively. At June 30, 2024, the Bank was servicing $ 368.0 million in loans for the Federal National Mortgage Association and $ 120.1 million in loans for Freddie Mac. The following table provides information on nonaccrual loans by loan class as of June 30, 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-Accrual Loans June 30, 2024 Nonaccrual loans: Construction $ 207 $ — $ 207 Residential real estate 6,650 130 6,780 Commercial real estate 3,562 2,269 5,831 Commercial 313 1,145 1,458 Consumer 254 134 388 Credit Cards — 173 173 Total $ 10,986 $ 3,851 $ 14,837 Interest income $ 183 $ 60 $ 243 16 Table of Contents (Dollars in thousands) Non-Accrual with no allowance for credit loss Non-Accrual with an allowance for credit loss Total Non-Accrual Loans December 31, 2023 Nonaccrual loans: Construction $ 626 $ — $ 626 Residential real estate 5,865 480 6,345 Commercial real estate 4,364 — 4,364 Commercial 176 368 544 Consumer 216 689 905 Credit Cards — — — Total $ 11,247 $ 1,537 $ 12,784 Interest income $ 399 $ 53 $ 452 (Dollars in thousands) Non-Accrual Delinquent Loans Non-Accrual Current Loans Total Non-Accrual Loans June 30, 2024 Nonaccrual loans: Construction $ 207 $ — $ 207 Residential real estate 4,467 2,313 6,780 Residential rentals — — — Commercial real estate 572 5,259 5,831 Commercial 194 1,264 1,458 Consumer 336 52 388 Credit Cards — 173 173 Total $ 5,776 $ 9,061 $ 14,837 (Dollars in thousands) Non-Accrual Delinquent Loans Non-Accrual Current Loans Total Non-Accrual Loans December 31, 2023 Nonaccrual loans: Construction $ 221 $ 405 $ 626 Residential real estate 4,137 2,208 6,345 Residential rentals — — — Commercial real estate 1,215 3,149 4,364 Commercial 28 516 544 Consumer 903 2 905 Credit Cards — — — 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. This review process is assisted by frequent internal reporting of loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Credit quality indicators are adjusted based on management’s judgment during the quarterly review process. 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. As of June 30, 2024, there were 7 credit cards that were evaluated based on economic conditions specific to the loans or borrowers, and were downgraded to substandard and non-performing. 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. The specific rating assigned considers customer history of earnings, cash flows, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks. 17 Table of Contents Rating 7 – Special Mention - These credits have potential weaknesses due to economic conditions, less than adequate earnings performance or other factors which require the lending officer to direct more than normal attention to the credit. Financing alternatives may be limited and/or command higher risk interest rates. Special mention loan relationships are reviewed at least quarterly. Rating 8 – Substandard - Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. Substandard loans are the first adversely classified loans on the Bank's watchlist. 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. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor or operating losses. When a loan is assigned to this category the Bank may estimate a specific reserve in the credit loss allowance analysis and/or place the loan on nonaccrual. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly. Rating 9 – Doubtful - Doubtful assets have many of the same characteristics of substandard with the exception that the Bank has determined that loss is not only possible but is probable. The amount of loss is not discernible due to factors such as merger, acquisition, or liquidation; a capital injection; a pledge of additional collateral; the sale of assets; or alternative refinancing plans. Credits receiving a doubtful classification are required to be on nonaccrual. These relationships will be reviewed at least quarterly. Rating 10 – Loss – Loss assets are uncollectible or of little value. 18 Table of Contents The following tables provides information on loan risk ratings as of June 30, 2024 and gross write-offs during the six months ended June 30, 2024. Term Loans by Origination Year Revolving Loans Revolving Converted to Term Loans Total (Dollars in thousands) Prior 2020 2021 2022 2023 2024 June 30, 2024 Construction Pass $ 36,766 $ 11,583 $ 24,701 $ 81,331 $ 113,451 $ 45,465 $ 13,754 $ 617 $ 327,668 Substandard 60 — — 147 — — — — 207 Total $ 36,826 $ 11,583 $ 24,701 $ 81,478 $ 113,451 $ 45,465 $ 13,754 $ 617 $ 327,875 Gross Charge-offs $ — $ — $ ( 12 ) $ — $ — $ — $ — $ — $ ( 12 ) Residential real estate Pass $ 358,688 $ 101,940 $ 245,989 $ 405,943 $ 238,422 $ 51,212 $ 115,376 $ 13,202 $ 1,530,772 Special Mention 398 540 491 — — — 173 — 1,602 Substandard 5,016 — 875 301 — — 1,025 — 7,217 Total $ 364,102 $ 102,480 $ 247,355 $ 406,244 $ 238,422 $ 51,212 $ 116,574 $ 13,202 $ 1,539,591 Gross Charge-offs $ ( 1 ) $ — $ — $ — $ — $ — $ — $ — $ ( 1 ) Commercial real estate Pass $ 817,330 $ 302,884 $ 411,101 $ 426,121 $ 213,809 $ 54,822 $ 31,520 $ — $ 2,257,587 Special Mention 11,492 — 6,692 5,044 — — 531 — 23,759 Substandard 3,005 — 3,116 — — — 30 — 6,151 Total $ 831,827 $ 302,884 $ 420,909 $ 431,165 $ 213,809 $ 54,822 $ 32,081 $ — $ 2,287,497 Gross Charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ — Commercial Pass $ 30,525 $ 12,726 $ 47,411 $ 32,624 $ 30,185 $ 16,782 $ 44,803 $ 469 $ 215,525 Special Mention 127 — — — — — — 62 189 Substandard 359 — 10 1,501 619 — 784 — 3,273 Total $ 31,011 $ 12,726 $ 47,421 $ 34,125 $ 30,804 $ 16,782 $ 45,587 $ 531 $ 218,987 Gross Charge-offs $ ( 23 ) $ — $ — $ — $ — $ — $ — $ — $ ( 23 ) Consumer Pass $ 1,129 $ 12,218 $ 68,827 $ 129,051 $ 76,468 $ 35,723 $ 675 $ — $ 324,091 Special Mention — — — — — — — — — Substandard 13 7 62 236 68 — 2 — 388 Total $ 1,142 $ 12,225 $ 68,889 $ 129,287 $ 76,536 $ 35,723 $ 677 $ — $ 324,479 Gross Charge-offs $ ( 381 ) $ ( 9 ) $ ( 46 ) $ ( 918 ) $ ( 16 ) $ — $ ( 16 ) $ — $ ( 1,386 ) Total Pass $ 1,244,438 $ 441,351 $ 798,029 $ 1,075,070 $ 672,335 $ 204,004 $ 206,128 $ 14,288 $ 4,655,643 Special Mention 12,017 540 7,183 5,044 — — 704 62 25,550 Substandard 8,453 7 4,063 2,185 687 — 1,841 — 17,236 Total loans by risk category $ 1,264,908 $ 441,898 $ 809,275 $ 1,082,299 $ 673,022 $ 204,004 $ 208,673 $ 14,350 $ 4,698,429 Total gross charge-offs $ ( 405 ) $ ( 9 ) $ ( 58 ) $ ( 918 ) $ ( 16 ) $ — $ ( 16 ) $ — $ ( 1,422 ) 19 Table of Contents Term Loans by Origination Year Revolving Loans Revolving Converted to Term Loans Total (Dollars in thousands) Prior 2020 2021 2022 2023 2024 June 30, 2024 Credit Cards Performing $ — $ — $ — $ — $ — $ — $ 7,135 $ — $ 7,135 Non-Performing — — — — — — 173 — 173 Total $ — $ — $ — $ — $ — $ — $ 7,308 $ — $ 7,308 Gross Charge-offs $ — $ — $ — $ — $ — $ — $ ( 194 ) $ — $ ( 194 ) Total loans evaluated by performing status $ — $ — $ — $ — $ — $ — $ 7,308 $ — $ 7,308 Total gross charge-offs $ — $ — $ — $ — $ — $ — $ ( 194 ) $ — $ ( 194 ) Total Recorded Investment $ 1,264,908 $ 441,898 $ 809,275 $ 1,082,299 $ 673,022 $ 204,004 $ 215,981 $ 14,350 $ 4,705,737 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 converted to term loans Total (Dollars in thousands) Prior 2019 2020 2021 2022 2023 December 31, 2023 Construction 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 ) Commercial 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 ) Consumer 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 ) 20 Table of Contents Total 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 Total gross charge-offs $ ( 1,035 ) $ — $ ( 830 ) $ ( 17 ) $ ( 8 ) $ ( 4 ) $ ( 126 ) $ ( 242 ) $ ( 2,262 ) Credit Cards 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 June 30, 2024 and December 31, 2023. Accruing (Dollars in thousands) 30‑59 days past due 60‑89 days past due 90 days past due and still accruing 30-89 days past due and not accruing 90 days past due and not accruing Total past due Current Accrual Loans Current Non-Accrual Loans Total June 30, 2024 Construction $ 282 $ — $ — $ — $ 207 $ 489 $ 327,386 $ — $ 327,875 Residential real estate 4,157 378 155 860 3,607 9,157 1,528,121 2,313 1,539,591 Commercial real estate 568 293 — — 572 1,433 2,280,805 5,259 2,287,497 Commercial 6 10 — 143 51 210 217,513 1,264 218,987 Consumer 1,253 1,367 — 12 324 2,956 321,471 52 324,479 Credit Cards 96 17 258 — — 371 6,764 173 7,308 Total $ 6,362 $ 2,065 $ 413 $ 1,015 $ 4,761 $ 14,616 $ 4,682,060 $ 9,061 $ 4,705,737 Percent of total loans 0.14 % 0.04 % 0.01 % 0.02 % 0.10 % 0.31 % 99.50 % 0.19 % 100.0 % (1) Includes loans measured at fair value of $ 9.5 million at June 30, 2024. Accruing (Dollars in thousands) 30‑59 days past due 60‑89 days past due 90 days past due and still accruing 30-89 days past due and not accruing 90 days past due and not accruing Total past due Current Accrual Loans (1) Current Non-Accrual Loans Total December 31, 2023 Construction $ 1,919 $ — $ — $ — $ 221 $ 2,140 $ 296,455 $ 405 $ 299,000 Residential real estate 2,420 271 108 1,469 2,668 6,936 1,481,294 2,208 1,490,438 Commercial real estate 16 — — — 1,215 1,231 2,281,774 3,149 2,286,154 Commercial 48 — 488 — 28 564 228,859 516 229,939 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 $ 738 $ 1,493 $ 5,011 $ 16,602 $ 4,618,128 $ 6,280 $ 4,641,010 Percent of total loans 0.17 % 0.04 % 0.02 % 0.03 % 0.11 % 0.37 % 99.50 % 0.13 % 100.00 % (1) Includes loans measured at fair value of $ 9.9 million at December 31, 2023. 21 Table of Contents The following tables provide a summary of the activity in the ACL allocated by loan class for the three and six months ended June 30, 2024 and June 30, 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 Charge-offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance For three months ended June 30, 2024 Construction $ 3,558 $ — $ 4 $ 4 $ ( 91 ) $ 3,471 Residential real estate 20,768 — 2 2 1,290 22,060 Commercial real estate 21,250 — — — 174 21,424 Commercial 2,879 ( 23 ) 2 ( 21 ) 8 2,866 Consumer (1) 8,682 ( 861 ) 68 ( 793 ) 256 8,145 Credit Card 199 ( 78 ) — ( 78 ) 391 512 Total $ 57,336 $ ( 962 ) $ 76 $ ( 886 ) $ 2,028 $ 58,478 (1) Gross charge-offs of consumer loans for the three months ended June 30, 2024 included $ 0.4 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 June 30, 2023 Construction $ 2,689 $ — $ — $ 4 $ 4 $ ( 307 ) $ 2,386 Residential real estate 8,747 — — 3 3 401 9,151 Commercial real estate 9,858 — — — — 409 10,267 Commercial 1,921 — — 1 1 34 1,956 Consumer 5,249 — ( 177 ) 119 ( 58 ) 63 5,254 Total $ 28,464 $ — $ ( 177 ) $ 127 $ ( 50 ) $ 600 $ 29,014 (Dollars in thousands) Beginning Balance Charge- offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance For Six Months Ended June 30, 2024 Construction $ 3,935 $ ( 12 ) $ 6 $ ( 6 ) $ ( 458 ) $ 3,471 Residential real estate 21,949 ( 1 ) 4 3 108 22,060 Commercial real estate 20,975 — — — 449 21,424 Commercial 2,671 ( 23 ) 3 ( 20 ) 215 2,866 Consumer 7,601 ( 1,386 ) 144 ( 1,242 ) 1,786 8,145 Credit Card 220 ( 194 ) 8 ( 186 ) 478 512 Total $ 57,351 $ ( 1,616 ) $ 165 $ ( 1,451 ) $ 2,578 $ 58,478 (Dollars in thousands) Beginning Balance Impact of ASC326 Adoption Merger Adjustments Charge- offs Recoveries Net (charge-offs) recoveries Provisions Ending Balance For Six Months Ended June 30, 2023 Construction $ 2,973 $ 1,222 $ — $ — 7 $ 7 $ ( 1,816 ) $ 2,386 Residential real estate 2,622 4,974 — — 34 34 1,521 9,151 Residential rentals — — — — — — — — Commercial real estate 4,899 3,742 — — — — 1,626 10,267 Commercial 1,652 401 — — 8 8 ( 105 ) 1,956 Consumer 4,497 452 — ( 284 ) 165 ( 119 ) 424 5,254 Credit Card — — — — — — — — Total $ 16,643 $ 10,791 $ — $ ( 284 ) $ 214 $ ( 70 ) $ 1,650 $ 29,014 22 Table of Contents The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment. June 30, 2024 (Dollars in thousands) Real Estate Collateral Other Collateral Total Construction $ 207 $ — $ 207 Residential real estate 19,072 — 19,072 Commercial real estate 7,746 — 7,746 Commercial — 3,302 3,302 Consumer — 387 387 Total $ 27,025 $ 3,689 $ 30,714 December 31, 2023 (Dollars in thousands) Real Estate Collateral Other Collateral Total Construction $ 662 $ — $ 662 Residential real estate 8,047 — 8,047 Commercial real estate 6,134 — 6,134 Commercial — 1,106 1,106 Consumer — 904 904 Total $ 14,843 $ 2,010 $ 16,853 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 June 30, 2024. 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 June 30, 2024, and there were no modifications to loans for borrowers experiencing financial difficulty during the three months ended December 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 June 30, 2024 Construction $ — $ — $ — $ — $ — $ — — % Residential real estate — — — — — — — % Residential rentals — — — — — — — % Commercial real estate 108 — — — — 108 0.01 % Commercial 222 — — — — 222 0.10 % Consumer — — — — — — — % Credit Cards — — — — — — — % Total $ 330 $ — $ — $ — $ — $ 330 0.01 % 23 Table of Contents (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 December 31, 2023 Construction $ — $ — $ — $ — $ — $ — — % Residential real estate — — — — — — — % Residential rentals — — — — — — — % Commercial real estate 125 — — — — 125 0.01 % Commercial 242 — — — — 242 0.11 % Consumer — — — — — — — % Credit Cards — — — — — — — % Total $ 367 $ — $ — $ — $ — $ 367 0.01 % The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the three months ended June 30, 2024, and there were no modifications to loans for borrowers experiencing financial difficulty during the three months ended December 31, 2023. (dollars in thousands) Weighted-Average Months of Term Extension June 30, 2024 Commercial real estate 12 months Commercial 12 months (dollars in thousands) Weighted-Average Months of Term Extension December 31, 2023 Commercial real estate 1.0 year Commercial 1.0 year During the three months ended June 30, 2024 and December 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 June 30, 2024, and there were no loan modifications made to borrowers experiencing financial difficulty at December 31, 2023. Accruing (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 June 30, 2024 Construction $ — $ — $ — $ — $ — $ — $ — $ — Residential real estate — — — — — — — — Commercial real estate — — — — — — 108 108 Commercial — — — — — — 222 222 Consumer — — — — — — — — Credit Cards — — — — — — — — Total $ — $ — $ — $ — $ — $ — $ 330 $ 330 24 Table of Contents Accruing (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 December 31, 2023 Construction $ — $ — $ — $ — $ — $ — $ — $ — Residential real estate — — — — — — — — Residential rentals — — — — — — — — Commercial real estate — — — — — — 125 125 Commercial — — — — — 153 89 242 Consumer — — — — — — — — Credit Cards — — — — — — — — Total $ — $ — $ — $ — $ — $ 153 $ 214 $ 367 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 June 30, 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 June 30, 2024 and December 31, 2023. 25 Table of Contents Note 5 – Goodwill and Other Intangibles The following table provides information on the significant components of goodwill and other acquired intangible assets at June 30, 2024 and December 31, 2023. June 30, 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 0.0 years Other intangible assets Amortizable Core deposit intangible $ 59,151 $ — $ — $ ( 16,206 ) $ 42,945 3.6 years Total other intangible assets $ 59,151 $ — $ — $ ( 16,206 ) $ 42,945 December 31, 2023 (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 0.0 years Other intangible assets Amortizable 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 $ 5.1 million for the six months ended June 30, 2024 and $ 0.9 million for the six months ended June 30, 2023. At June 30, 2024, estimated future remaining amortization for amortizing core deposit intangibles within the years ending December 31, is as follows: (Dollars in thousands) Amortization Expense 2024 $ 4,634 2025 8,589 2026 7,398 2027 6,208 2028 5,060 Thereafter 11,056 Total amortizing intangible assets $ 42,945 26 Table of Contents Note 6 – Leases Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. The Company’s long-term lease agreements are classified as operating leases. Certain leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. 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. The following tables present information about the Company’s leases. (Dollars in thousands) June 30, 2024 December 31, 2023 Lease liabilities $ 12,189 $ 12,857 Right-of-use assets $ 11,762 $ 12,487 Weighted average remaining lease term 10.61 years 10.88 years Weighted average discount rate 3.26 % 3.24 % Remaining lease term - min 0.08 years 0.39 years Remaining lease term - max 17.18 years 17.68 years Three Months Ended June 30, Six Months Ended June 30, Lease cost (in thousands) 2024 2023 2024 2023 Operating lease cost $ 494 $ 327 $ 986 $ 667 Total lease cost $ 494 $ 327 $ 986 $ 667 Cash paid for amounts included in the measurement of lease liabilities $ 466 $ 310 $ 928 $ 631 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 June 30, 2024 Six months ending December 31, 2024 $ 899 2025 1,680 2026 1,639 2027 1,511 2028 1,460 Thereafter 7,281 Total undiscounted cash flows $ 14,470 Discount 2,281 Lease liabilities $ 12,189 Total gross rental income was $ 0.3 million and $ 0.3 million for the three months ended June 30, 2024 and 2023, respectively. Total gross rental income was $ 0.5 million and $ 0.7 million for the six months ended June 30, 2024 and 2023, respectively. The following table presents our minimum future annual rental income on such leases as of June 30, 2024. (In thousands) As of June 30, 2024 Six months ending December 31, 2024 $ 446 2025 908 2026 932 2027 619 2028 637 Thereafter 2,477 Total $ 6,019 27 Table of Contents Note 7 - Deposits Deposits consist of the following categories as of the dates indicated: (dollars in thousands) June 30, 2024 December 31, 2023 Balance % Balance % Noninterest-bearing demand $ 1,587,252 30.83 % $ 1,258,037 23.36 % Interest-bearing: Demand 658,512 12.79 % 1,165,546 21.64 % Money market deposits 1,337,274 25.97 % 1,430,603 26.56 % Savings 352,069 6.84 % 347,324 6.45 % Certificates of deposit 1,213,778 23.57 % 1,184,610 21.99 % Total interest-bearing 3,561,633 69.17 % 4,128,083 76.64 % Total Deposits $ 5,148,885 100.00 % $ 5,386,120 100.00 % At June 30, 2024, the scheduled contractual maturities of certificates of deposit are as follows: (dollars in thousands) June 30, 2024 Within one year $ 1,012,597 Year 2 169,730 Year 3 16,729 Year 4 8,512 Year 5 6,206 Thereafter 4 $ 1,213,778 The aggregate amount of certificates of deposit that met or exceeded the FDIC insurance limit of $250,000 at June 30, 2024 and December 31, 2023 was $ 372.7 million and $ 354.6 million, respectively. 28 Table of Contents Note 8 - Borrowings Long-term debt consisted of the following: (dollars in thousands) June 30, 2024 December 31, 2023 Issue Date Stated Maturity Date Earliest Call Date Interest Rate FHLB Advances $ 50,000 — 2024 2025 4.786 % Total long-term advances 50,000 — September 2030 Subordinated Debentures 25,000 $ 25,000 2020 2030 2025 5.375 % through September 2025, 3-month SOFR + 5.265 % thereafter October 2030 Subordinated Debentures 19,500 19,500 2020 2030 2025 4.75 % through October 2025, 3-month SOFR + 4.58 % thereafter Total subordinated debentures 44,500 44,500 Severn Capital Trust I 20,619 20,619 2004 2035 3-month SOFR + 2.00 % Tri-County Capital Trust I 7,000 7,000 2004 2034 90-day SOFR + 2.60 % Tri-County Capital Trust II 5,000 5,000 2005 2035 90-day SOFR + 1.70 % Total trust preferred securities 32,619 32,619 Less net discount and unamortized issuance costs ( 4,299 ) ( 4,822 ) Total long-term debt $ 122,820 $ 72,297 At June 30, 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 2020 and the assumed subordinated debt from TCFC, net of unamortized issuance costs and fair value discounts, respectively, were $ 24.9 million and $ 18.6 million, respectively. The Company also assumed TRUPS 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 June 30, 2024 was $ 18.7 million, net of the unamortized fair value adjustment of $ 1.9 million. At June 30, 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 $ 50.0 million outstanding long-term borrowings from the FHLB at June 30, 2024 and zero at December 31, 2023. The Company also had short-term borrowings from FHLB of $ 31.0 million at June 30, 2024 and zero at December 31, 2023, respectively. Further information on these obligations is provided in the Company’s 2023 Annual Report. Note 9 - Stock-Based Compensation At the 2016 annual meeting, stockholders approved the Shore Bancshares, Inc. 2016 Stock and Incentive Plan (“2016 Equity Plan”), replacing the Shore Bancshares, Inc. 2006 Stock and Incentive Plan (“2006 Equity Plan”), which expired on that date. The Company may issue shares of common stock or grant other equity-based awards pursuant to the 2016 Equity Plan. 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 190,166 shares remained available for grant at June 30, 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 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 29 Table of Contents 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. At June 30, 2024, the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. 30 Table of Contents The following table summarizes restricted stock award and restricted stock unit activity for the Company under the 2016 Equity Plan for the six months ended June 30, 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 — $ — Granted 51,610 11.39 53,279 11.31 43,651 11.32 Vested ( 27,865 ) 17.07 ( 35,146 ) 11.56 — — Forfeited — — ( 3,256 ) 11.56 — — Nonvested at end of period 69,067 $ 11.74 179,932 $ 11.49 43,651 $ 11.32 The fair value of restricted stock awards that vested during the first six 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 six months of 2024 and 2023 was $ 0.4 million and zero . Note 10 – Derivatives The Company maintains and accounts for derivatives, in the form of interest rate lock commitments (“IRLCs”) and mandatory forward contracts, in accordance with the FASB guidance on accounting for derivative instruments and hedging activities. We recognize gains and losses through mortgage-banking revenue in the Consolidated Statements of Income. IRLCs on mortgage loans that we intend to sell in the secondary market are considered derivatives. We are exposed to price risk from the time a mortgage loan is locked in until the time the loan is sold. 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, 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 June 30, 2024 and December 31, 2023. June 30, 2024 December 31, 2023 (Dollars in thousands) Notional Amount Estimated Fair Value Notional Amount Estimated Fair Value Asset - IRLCs $ 13,904 $ 208 $ 6,785 $ 110 Asset - TBA securities 19,500 85 1,000 2 Liability - TBA securities 4,000 7 18,000 176 Note 11 – Accumulated Other Comprehensive Loss 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 six months ended June 30, 2024 and 2023. Three Months Ended June 30, 2024 Three Months Ended June 30, 2023 Six Months Ended June 30, 2024 Six Months Ended June 30, 2023 (Dollars in thousands) Net Unrealized Losses Net Unrealized Losses Net Unrealized Losses Net Unrealized Gains And (Losses) Beginning of period $ ( 8,058 ) $ ( 8,161 ) $ ( 7,494 ) $ ( 9,021 ) Other comprehensive (loss) income, net of tax ( 202 ) ( 400 ) ( 766 ) 460 End of period $ ( 8,260 ) $ ( 8,561 ) $ ( 8,260 ) $ ( 8,561 ) 31 Table of Contents Note 12 – Regulatory Capital Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary - actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Banks’ assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Banks’ capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the 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 June 30, 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 June 30, 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. The minimum ratios for capital adequacy purposes are 7.00 %, 8.50 %, 10.50 % and 4.00 % for the common equity Tier 1, Tier 1 risk-based capital, total risk-based capital and leverage ratios, respectively which include a capital conservation buffer of 2.50% for common equity Tier 1, Tier 1, and total capital ratios. To be categorized as well capitalized, a bank must maintain minimum ratios of 6.50 %, 8.00 %, 10.00 % and 5.00 % for its common equity Tier 1, Tier 1 risk-based capital, total risk-based capital and leverage ratios, respectively. The table presents the actual and required capital ratios for the Company and Bank as of June 30, 2024 and December 31, 2023. (dollars in thousands) Actual Regulatory Min. Ratio + CCB (1) Required To Be Considered Well Capitalized June 30, 2024 Amount Ratio Amount Ratio Amount Ratio Common Tier 1 Capital to RWA The Company $ 435,238 9.06 % $ 336,226 7.00 % $ 312,210 6.50 % The Bank 501,003 10.45 % 335,756 7.00 % 311,773 6.50 % Tier 1 Capital to RWA The Company 464,554 9.67 % 408,275 8.50 % 384,258 8.00 % The Bank 501,003 10.45 % 407,704 8.50 % 383,721 8.00 % Total Capital to RWA The Company 567,680 11.82 % 504,339 10.50 % 480,323 10.00 % The Bank 560,625 11.69 % 503,634 10.50 % 479,651 10.00 % Tier 1 Capital to AA (Leverage) (2) The Company 464,554 8.07 % 230,250 4.00 % 287,813 5.00 % The Bank 501,003 8.71 % 230,024 4.00 % 287,530 5.00 % December 31, 2023 Common Tier 1 Capital to RWA The Company $ 408,317 8.69 % $ 328,825 7.00 % $ 305,338 6.50 % The Bank 470,200 10.02 % 328,511 7.00 % 305,046 6.50 % Tier 1 Capital to RWA The Company 437,475 9.31 % 399,288 8.50 % 375,800 8.00 % The Bank 470,200 10.02 % 398,906 8.50 % 375,441 8.00 % Total Capital to RWA The Company 539,200 11.48 % 493,238 10.50 % 469,750 10.00 % The Bank 528,786 11.27 % 492,766 10.50 % 469,301 10.00 % Tier 1 Capital to AA (Leverage) (2) The Company 437,475 7.74 % 225,965 4.00 % 282,456 5.00 % The Bank 470,200 8.33 % 225,797 4.00 % 282,247 5.00 % 32 Table of Contents The following tables present the capital amounts as of June 30, 2024 and December 31, 2023. Regulatory Capital and Ratios The Company The Bank (dollars in thousands) June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 Common equity $ 522,783 $ 511,135 $ 587,283 $ 570,100 Goodwill (4) ( 61,460 ) ( 63,266 ) ( 61,460 ) ( 63,266 ) Core deposit intangible (3) ( 32,313 ) ( 38,069 ) ( 32,313 ) ( 38,069 ) DTAs that arise from net operating loss and tax credit carry forwards ( 2,032 ) ( 8,977 ) ( 767 ) ( 6,059 ) AOCI losses 8,260 7,494 8,260 7,494 Common Equity Tier 1 Capital 435,238 408,317 501,003 470,200 TRUPs 29,316 29,158 — — Tier 1 Capital 464,554 437,475 501,003 470,200 Allowable reserve for credit losses and other Tier 2 adjustments 59,622 58,586 59,622 58,586 Subordinated debentures 43,504 43,139 — — Total Capital $ 567,680 $ 539,200 $ 560,625 $ 528,786 Risk-Weighted Assets ("RWA") $ 4,803,230 $ 4,697,504 $ 4,796,512 $ 4,693,009 Average Assets ("AA") $ 5,756,260 $ 5,649,116 $ 5,750,604 $ 5,644,930 ____________________________________ (1) The regulatory minimum capital ratio ("Min. Ratio") + the capital conservation buffer ("CCB"). (2) Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined. The PCA well capitalized is defined as 5.00 %. (3) Core deposit intangible is net of deferred tax liability. (4) Goodwill is net of deferred tax liability . 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 June 30, 2024, the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained required capital ratios. 33 Table of Contents Note 13 – Fair Value Measurements Accounting guidance under GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This accounting guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities on a recurring basis and to determine fair value disclosures. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Under fair value accounting guidance, assets and liabilities are grouped at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine their fair values. These hierarchy levels are: Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2 inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. Below is a discussion on the Company’s assets measured at fair value on a recurring basis. Investment Securities Available for Sale Fair value measurement for investment securities AFS is based on quoted prices from an independent pricing service. The fair value measurements consider observable data that may include present value of future cash flows, prepayment assumptions, credit loss assumptions and other factors. The Company classifies its investments in U.S. Treasury securities, if any, as Level 1 in the fair value hierarchy, and it classifies its investments in U.S. Government agencies securities and mortgage-backed securities issued or guaranteed by U.S. Government sponsored entities as Level 2. Equity Securities Fair value measurement for equity securities is based on quoted market prices retrieved by the Company via on-line resources. 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. 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 The fair value of mortgage servicing rights (“MSRs”) is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income (Level 3). The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income, and other ancillary income such as late fees. Management reviews all significant assumptions on a quarterly basis. Mortgage loan prepayment speed, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change. The significant unobservable inputs used in the fair value measurement of the reporting entity’s residential MSRs are prepayment speeds, probability of default, rate of return, and cost of servicing. Significant increases/decreases in any of those inputs in isolation would have resulted in a significantly lower/higher fair value measurement. Generally, a change in the assumption used for prepayment speeds would have been accompanied by a directionally similar change in the markets, i.e. the 10-Year Treasury, and in the probability of default. 34 Table of Contents IRLCs We utilize a third-party specialist model to estimate the fair value of our IRLCs, which are valued based upon mortgage securities (TBA) prices less estimated costs to process and settle the loan. Fair value is adjusted for the estimated probability of the loan closing with the borrower (Level 3). (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range June 30, 2024 MSRs (1) $ 5,995 Market Approach Weighted average prepayment speed (PSA) (2) 136 IRLCs - net asset $ 208 Market Approach Range of pull through rate 77 % - 100 % Average pull through rate 96 % (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range December 31, 2023 MSRs (1) $ 5,926 Market Approach Weighted average prepayment speed (PSA) (2) 129 IRLCs - net asset $ 110 Market Approach Range of pull through rate 78 % - 100 % Average pull through rate 98 % ____________________________________ (1) The weighted average was calculated with reference to the principal balance of the underlying mortgages. (2) PSA = Public Securities Association Standard Prepayment Model The following table presents activity in MSRs for the three and six months ended June 30, 2024. (Dollars in thousands) Three Months Ended June 30, 2024 Six Months Ended June 30, 2024 Beginning balance $ 5,821 $ 5,926 Servicing rights resulting from sales of loans 80 198 Valuation adjustment 94 ( 129 ) Ending balance $ 5,995 $ 5,995 The following table presents activity in the IRLCs - net asset for the three and six months ended June 30, 2024. (Dollars in thousands) Three Months Ended June 30, 2024 Six Months Ended June 30, 2024 Beginning balance $ 232 $ 110 Valuation adjustment ( 24 ) 98 Ending balance $ 208 $ 208 Forward Contracts 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 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. Once a loan has been closed and funded, the best efforts commitments convert to mandatory forward sales commitments. The mandatory commitments are derivatives, and we measure and report them at fair value. Fair value is based on the gain or loss that would occur if we were to pair-off the transaction with the investor at the measurement date. This is a Level 2 input. We have elected to measure and report best efforts commitments at fair value, when outstanding, using a valuation methodology similar to that used for mandatory commitments. Market assumptions utilized in the fair value measurement of the reporting entity’s residential mortgage derivatives, inclusive of IRLCs, Closed Loan Inventory, TBA derivative trades, and Mandatory Forwards may be subject to investor overlays that may result in a significantly lower fair value measurement. Generally such overlays are announced with advanced notice in order to include the risk adjuster, however there are times when announcements are mandated resulting in a lower fair value measurement. 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. 35 Table of Contents The following tables present the recorded amount of assets measured at fair value on a recurring basis at June 30, 2024 and December 31, 2023. No assets were transferred from one hierarchy level to another during the first six months of 2024 or 2023. (Dollars in thousands) Fair Value Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) June 30, 2024 Assets: Securities available for sale: U.S. Government agencies $ 20,160 $ — $ 20,160 $ — Mortgage-backed 105,473 — 105,473 — Other debt securities 5,961 — 5,961 — 131,594 — 131,594 — Equity securities 5,699 — 5,699 — TBA forward trades 85 — 85 — Loans Held for Sale 27,829 — 27,829 — Loans Held for Investment, at fair value 9,515 — 9,515 — MSRs 5,995 — — 5,995 IRLCs 208 — — 208 Total assets at fair value $ 180,925 $ — $ 174,722 $ 6,203 Liabilities: TBA securities 7 — 7 — Total liabilities at fair value $ 7 $ — $ 7 $ — (Dollars in thousands) Fair Value Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) December 31, 2023 Assets: Securities available for sale: U.S. Government agencies $ 20,475 $ — $ 20,475 $ — Mortgage-backed 84,027 — 84,027 — Other debt securities 6,019 — 6,019 — 110,521 — 110,521 — Equity securities 5,703 — 5,703 — TBA forward trades 2 — 2 — Loans Held for Sale 8,782 — 8,782 — Loans Held for Investment, at fair value 9,944 — 9,944 — MSRs 5,926 — — 5,926 IRLCs 110 — — 110 Total assets at fair value $ 140,988 $ — $ 134,952 $ 6,036 Liabilities: TBA securities $ 176 $ — $ 176 $ — Total liabilities at fair value $ 176 $ — $ 176 $ — Below is a discussion on the Company’s assets measured at fair value on a nonrecurring basis. 36 Table of Contents Individually Evaluated Collateral-Dependent Loans Loans for which repayment is substantially expected to be provided through the operation or sale of collateral are considered collateral dependent, and are valued based on the estimated fair value of the collateral, less estimated costs to sell at the reporting date, where applicable. Accordingly, collateral dependent loans are classified within Level 3 of the fair value hierarchy. Other Real Estate Owned (Foreclosed Assets) Foreclosed assets are adjusted for fair value upon transfer of loans to foreclosed assets establishing a new cost basis. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. The estimated fair value for foreclosed assets included in Level 3 are determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to the initial recognition, the Company records the foreclosed asset as a non-recurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods. 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 June 30, 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. Quantitative Information about Level 3 Fair Value Measurements (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range Weighted Average (1) June 30, 2024 Nonrecurring measurements: Individually evaluated collateral dependent loans $ 2,311 Appraisal of collateral (1) Appraisal adjustment (2) Liquidation expense (2) 40 % 10 % 40 % 10 % Other real estate owned $ 179 Appraisal of collateral (1) Appraisal adjustment (2) 0 % - 20 % 0 % Repossessed properties $ 1,560 Appraisal of collateral (1) Appraisal adjustment (2) 0 % - 13 % 13 % Quantitative Information about Level 3 Fair Value Measurements (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range Weighted Average December 31, 2023 Nonrecurring measurements: Individually evaluated collateral dependent loan $ 633 Appraisal of collateral (1) Appraisal adjustment (2) Liquidation expense (2) 51 % 10 % 51 % 10 % Other real estate owned $ 179 Appraisal of collateral (1) Appraisal adjustment (2) 0 % - 20 % 0 % _________________________________ (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. 37 Table of Contents Note 14 – Fair Value of Financial Instruments Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity or a contractual obligation which requires the exchange of cash. Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities. The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the following table. Fair values for June 30, 2024 and December 31, 2023 were estimated using an exit price notion. June 30, 2024 Carrying Amount Fair Value Fair Value Measurements Description of Asset (dollars in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 138,883 $ 138,883 $ 138,883 $ — $ — Investment securities - AFS 131,594 131,594 — 131,594 — Investment securities - HTM, net 499,431 440,164 — 440,164 — Equity securities 5,699 5,699 — 5,699 — Restricted securities 21,725 21,725 — 21,725 — Loans held for sale 27,829 27,829 — 27,829 — TBA derivatives trades 85 85 — 85 — Cash surrender value on life insurance 102,969 102,969 — 102,969 — Loans, at fair value 9,515 9,515 — 9,515 — Loans, net 4,637,744 4,454,771 — — 4,454,771 MSRs 5,995 5,995 — — 5,995 IRLCs 208 208 — — 208 Liabilities Deposits: Noninterest-bearing demand $ 1,587,252 $ 1,587,252 $ — $ 1,587,252 $ — Checking plus interest 658,512 658,512 — 658,512 — Money Market 1,337,274 1,337,274 — 1,337,274 — Savings 350,734 350,734 — 350,734 — Club 1,335 1,335 — 1,335 — Certificates of Deposit 1,213,778 1,212,174 — 1,212,174 — Advances from FHLB 81,000 80,786 — 80,786 — Subordinated debt, net 43,504 43,587 — 43,587 — TRUPS, net 29,316 27,691 — 27,691 — TBA Securities 7 7 — 7 — IRLCs — — — — — 38 Table of Contents December 31, 2023 Carrying Amount Fair Value Fair Value Measurements Description of Asset (dollars in thousands) Level 1 Level 2 Level 3 Assets Cash and cash equivalents $ 372,413 $ 372,413 $ 372,413 $ — $ — Investment securities - AFS 110,521 110,521 — 110,521 — Investment securities - HTM 513,188 457,830 — 457,830 — Equity securities 5,703 5,703 — 5,703 — Loans held for sale 8,782 8,782 — 8,782 — TBA securities 2 2 — 2 — Cash surrender value on life insurance 101,704 101,704 — 101,704 — Loans, at fair value 9,944 9,944 — 9,944 — Loans, net 4,573,715 4,477,468 — — 4,477,468 MSRs 5,926 5,926 — — 5,926 IRLCs 110 110 — — 110 Liabilities Deposits: Noninterest-bearing demand $ 1,258,037 $ 1,258,037 $ — $ 1,258,037 $ — Checking plus interest 1,165,546 1,165,546 — 1,165,546 — Money Market 1,430,603 1,430,603 — 1,430,603 — Savings 347,324 347,324 — 347,324 — Certificates of Deposit 1,184,610 1,184,447 — 1,184,447 — Subordinated debt, net 43,139 42,579 — 42,579 — TRUPS, net 29,158 28,266 — 28,266 — TBA Securities 176 176 — 176 — Note 15 – Commitments and Contingencies In the normal course of business, to meet the financial needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Letters of credit and other commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. 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 June 30, 2024 and December 31, 2023. (Dollars in thousands) June 30, 2024 December 31, 2023 Commitments to extend credit $ 676,715 $ 613,266 Letters of credit 26,490 28,519 Total $ 703,205 $ 641,785 The Company provides banking services to customers who do business in the cannabis industry. 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 June 30, 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: 39 Table of Contents • Deposit and loan balances at June 30, 2024 were approximately $ 202.3 million, or 3.9 % of total deposits, and $ 73.6 million, or 1.6 % of total gross loans, respectively. • Interest and noninterest income for the six months ended June 30, 2024, were approximately $ 2.0 million and $ 0.6 million, respectively. In the normal course of business, the Company may become involved in litigation arising from banking, financial, and other activities. Management, after consultation with legal counsel, does not anticipate that the future liability, if any, arising out of current proceedings will have a material effect on the Company’s financial condition, operating results, or liquidity. Note 16 – Earnings Per Share Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of potential common stock equivalents (stock-based awards). The following table provides information relating to the calculation of earnings per common share. Three Months Ended June 30, Six Months Ended June 30, (In thousands, except per share data) 2024 2023 2024 2023 Net Income $ 11,234 $ 4,018 $ 19,418 $ 10,475 Average number of common shares outstanding 33,234 19,903 33,212 19,895 Dilutive effect of common stock equivalents — — — — Average number of shares used to calculate diluted EPS 33,234 19,903 33,212 19,895 Anti-dilutive shares 9 — 5 — Earnings per common share Basic $ 0.34 $ 0.20 $ 0.58 $ 0.53 Diluted $ 0.34 $ 0.20 $ 0.58 $ 0.53 As of three and six months ended June 30, 2024 there were 9,000 and 5,000 , respectively, of unvested restricted stock and performance stock unit awards which were excluded from the calculation as their effect would be anti-dilutive. There were no antidilutive awards that were excluded from the calculation for the three and six months ended June 30, 2023. Note 17 – Revenue Recognition Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees and merchant income. Noninterest revenue streams in-scope of Topic 606 are discussed below. Service Charges on Deposit Accounts Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers’ accounts. Trust and Investment Fee Income Trust and investment fee income primarily comprise fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. 40 Table of Contents Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. Title Company Revenue Title Company revenue consists of revenue earned on performing title work for real estate transactions. The revenue is earned when the title work is performed. Payment for such performance obligations generally occurs at the time of the settlement of a real estate transaction. As such settlement is generally within 90 days of the performance of the title work, we recognize the revenue at the time of the settlement. All contract issuance costs are expensed as incurred. We had no contract assets or liabilities at June 30, 2024. Other Noninterest Income Other noninterest income consists of: fees, exchange, other service charges, safety deposit box rental fees, and other miscellaneous revenue streams. Fees and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard and VISA. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment. 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 six months ended June 30, 2024 and 2023. Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 Noninterest Income In-scope of Topic 606: Service charges on deposit accounts $ 1,493 $ 1,264 $ 3,001 $ 2,477 Trust and investment fee income 896 399 1,630 831 Interchange income 1,717 1,311 3,304 2,523 Title Company revenue 165 186 243 323 Other noninterest income 981 500 1,783 945 Noninterest Income (in-scope of Topic 606) 5,252 3,660 9,961 7,099 Noninterest Income (out-of-scope of Topic 606) 3,188 1,634 5,046 3,529 Total Noninterest Income $ 8,440 $ 5,294 $ 15,007 $ 10,628 41 Table of Contents