SHORE BANCSHARES INC 10-Q

Item 2 – Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations. Unless the context clearly suggests otherwise, references to “the Company”, “we”, “our”, and “us” in the remainder of this Quarterly Report on Form 10-Q are to Shore Bancshares, Inc. and its consolidated subsidiaries. Forward-Looking Information This Quarterly Report on Form 10-Q contains forward-looking statements. The statements contained herein that are not historical facts are forward-looking statements (as defined by the Private Securities Litigation Reform Act of 1995) based on management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such statements involve inherent risks and uncertainties, many of which are difficult to predict and are generally beyond the control of the Company. There can be no assurance that future developments affecting the Company will be the same as those anticipated by management. These statements are evidenced by terms such as “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” and similar expressions. Although these statements reflect management’s good faith beliefs and projections, they are not guarantees of future performance and they may not prove true. These projections involve risk and uncertainties that could cause actual results to differ materially from those addressed in the forward-looking statements. While there is no assurance that any list of risks and uncertainties or risk factors is complete, below are certain factors which could cause actual results to differ materially from those contained or implied in the forward-looking statements: • general economic conditions, (including the interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation/deflation and supply chain issues), whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products, our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans; • recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments; • the Company’s ability to remediate the material weaknesses identified in the Company’s internal control over financial reporting; • the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures; • cybersecurity threats and the cost of defending against them; • results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses or to write-down assets; • changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, which could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products; • changes in market rates and prices may adversely impact the value of securities, loans, deposits and other financial instruments and the interest rate sensitivity of our balance sheet; • our liquidity requirements could be adversely affected by changes in our assets and liabilities; • our ability to prudently manage our growth and execute our strategy; • impairment of our goodwill and intangible assets; • competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals; • the expected cost savings, synergies and other financial benefits from the acquisition of The Community Financial Corporation (“TCFC”) or any other acquisition the Company has made or may make might not be realized within the expected time frames or at all; • the growth and profitability of non-interest or fee income being less than expected; • the effect of legislative or regulatory developments, including changes in laws concerning taxes, banking, securities, insurance and other aspects of the financial services industry; • the effect of any change in federal government enforcement of federal laws affecting the cannabis industry; • the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board and other regulatory agencies; • potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election; • a deterioration of the credit rating for U.S. long-term sovereign debt, actions that the U.S. government may take to avoid exceeding the debt ceiling, and uncertainties surrounding the debt ceiling and the federal budget; • the impact of recent or future changes in Federal Deposit Insurance Corporation (the “FDIC”) insurance assessment rate or the rules and regulations related to the calculation of the FDIC insurance assessment amount, including any special assessments; • the effect of fiscal and governmental policies of the U.S. federal government; • climate change, including the enhanced regulatory, compliance, credit and reputational risks and costs; and • geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts of terrorism, and/or military conflicts, including the war between Russian and Ukraine and the conflict in the Middle East, which could impact business and economic conditions in the United States and abroad. 42 Table of Contents Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”) filed with SEC and available at the SEC’s Internet site (http://www.sec.gov). The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments. 43 Table of Contents Critical Accounting Policies The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and follow general practices within the industries in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. The most significant accounting policies that the Company follows are presented in Note 1 to the Notes to Consolidated Financial Statement included in the 2023 Annual Report. These policies, along with the disclosures presented in the notes to the financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies for the allowance for credit losses (“ACL”) on loans, goodwill and bargain purchase gain, loans acquired in a business combination and income taxes are critical accounting policies. These policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available. Allowance for Credit Losses on Loans The Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326)”, as amended, on January 1, 2023 and in accordance with ASC 326, has recorded an ACL on loans carried at amortized cost. The ACL represents management’s best estimate of expected lifetime credit losses within the Company's loan portfolio as of the balance sheet date. The ACL is established through a provision for credit losses and is increased by recoveries of loans previously charged off. Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. The calculation of expected credit losses is determined using cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances. The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate. Changes in the ACL on loans and the related provision for credit losses, can materially affect financial results. Although the overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is available to absorb credit losses for loans in the portfolio. The determination of the appropriate level of ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes. Changes in conditions including unforeseen events, changes in asset-specific risk characteristics, and other economic factors both within and outside the Company's control, may indicate the need for an increase or decrease in the ACL on loans. While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways. Further, changes in factors and inputs may also be directionally inconsistent such that improvement in one factor may offset deterioration in others. Goodwill and Bargain Purchase Gain Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Determining fair value is subjective, requiring the use of estimates, assumptions, and management judgment. Goodwill is tested at least annually for impairment, usually during the fourth quarter, or on an interim basis if circumstances dictate. Impairment testing requires a qualitative assessment and/or an independent valuation be obtained to determine the fair value of each of the Company’s reporting units be compared to the carrying amount of its net assets, including goodwill. If the fair value of a reporting unit is less than book value, an impairment loss may be required to write down the related goodwill. A bargain purchase gain represents the excess of the fair value of net assets acquired over the cost of an acquisition. Determining fair value is subjective, requiring the use of estimates, assumptions and management judgement. Bargain purchase gain is recorded within noninterest income in the period it was generated. An acquirer has a measurement period to finalize the accounting for a business combination which could adjust bargain purchase gain if material facts or circumstances arise. Loans Acquired in a Business Combination Acquired loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) purchased performing loans and are recorded at fair value on the date of acquisition. PCD loans are those for which there is more than insignificant evidence of credit deterioration since origination. When determining fair value as of the date of acquisition, PCD loans are aggregated into pools based on common risk characteristics such as loan type, date of origination, and evidence of credit quality deterioration based on internal risk grades and past due and nonaccrual status. At the acquisition 44 Table of Contents date, the ACL is determined and added to the fair value of the loan to determine the new amortized cost basis. The difference between the new amortized cost basis and the unpaid principal balance is either a noncredit discount or premium that will be amortized or accredited into the interest income over the remaining life of the loan. Disposals of loans, which may include sale of loans to third parties, receipt of payments in full or in part from the borrower or foreclosure of the collateral, result in removal of the loan from the PCD loan portfolio at its carrying amount. The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows. Purchased performing loans are recorded at fair value including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. Purchased performing loans do not have a more-than-insignificant deterioration in credit quality since origination and have an ACL established in a manner that is consistent with the Company originated loans. The allowance for PCD loans is determined based upon the Company’s methodology for estimating the allowance under CECL, and is recorded as an adjustment to the acquired loan balance on the date of acquisition. Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records a reserve for credit losses based on the Company’s methodology for determining the allowance under CECL. The allowance for non-PCD loans is recorded through a charge to provision for credit losses in the period in which the loans were purchased or acquired. Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. The Company accounts for income taxes using the liability method in accordance with required accounting guidance. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized. Realization of deferred tax assets is dependent on the generation of a sufficient level of future taxable income, recoverable taxes paid in prior years and tax planning strategies. The Company evaluates all positive and negative evidence before determining if a valuation allowance is deemed necessary regarding the realization of deferred tax assets. The Company recognizes accrued interest and penalties as a component of tax expense. The provision for income taxes includes the impact of reserve provisions and changes in the reserves that are considered appropriate as well as the related net interest and penalties. In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities which may assert assessments against the Company. The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of its provision for income taxes. The Company remains subject to examination for tax years ending on or after December 31, 2020. Introduction The following MD&A is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented elsewhere in this report, as well as the audited consolidated financial statements and related notes included in the 2023 Annual Report. Shore Bancshares, Inc. is headquartered on the Eastern Shore of Maryland. It is the parent company of Shore United Bank, N.A. (the “Bank”). The Bank operates 41 full-service branches in Baltimore County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County, Anne Arundel County, Charles County, St Mary's County, Calvert County and Worcester County in Maryland, Kent County and Sussex County in Delaware, Fredericksburg City, Stafford County and Spotsylvania County in Virginia. The Company through Wye Financial Partners, a department of the Bank, provides full-service investment and insurance solutions through our broker/dealer, LPL Financial. The Bank also offers wealth management solutions such as corporate trustee services and trust administration through Wye Trust, a division of the Bank. The Company also engages in title work for real estate transactions through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc. The shares of common stock of Shore Bancshares, Inc. are listed on the NASDAQ Global Select Market under the symbol “SHBI”. Shore Bancshares, Inc. maintains an Internet site at www.shorebancshares.com on which it makes available free of charge its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC. 45 Table of Contents OVERVIEW The Company’s net income for the second quarter of 2024 was $11.2 million or $0.34 per diluted common share compared to net income of $8.2 million or $0.25 per diluted common share for the first quarter of 2024, and net income of $4.0 million or $0.20 per diluted common share for the second quarter of 2023. Net income for the first-half of 2024 was $19.4 million or $0.58 per diluted common share, compared to net income for the first-half of 2023 of $10.5 million or $0.53 per diluted common share. Second Quarter and First-Half of 2024 Highlights • Return on Average Assets (“ROAA”) - The Company reported ROAA of 0.77% for the second quarter of 2024, compared to 0.57% for the first quarter of 2024 and 0.45% for the second quarter of 2023. Non-GAAP ROAA, which excludes fraud expense, core deposit intangible amortization, and merger-related expenses, was 0.91% for the second quarter of 2024, compared to 0.94% for the first quarter of 2024 and 0.59% for the second quarter of 2023. • Net Interest Margin Expansion - Net interest margin (“NIM”) increased to 3.11% for the second quarter of 2024, from 3.08% for the first quarter of 2024. Excluding net accretion interest income of $3.8 million and $3.6 million for the same time periods, NIM increased two basis points (“bps”) to 2.83% for the second quarter of 2024, from 2.81% for the first quarter of 2024. • Continued Stable and Low Cost Funding - Total deposits remained stable in the second quarter of 2024 with noninterest-bearing deposits increasing $386.6 million to 30.8% of total deposits. The increase in noninterest-bearing deposits was primarily due to the migration of low-cost demand deposits to noninterest-bearing deposits and successful initiatives designed to drive noninterest-bearing deposit growth. The total average cost of deposits for the second quarter of 2024 declined four bps to 2.19% when compared to the first quarter of 2024 . • Improving Earnings Drive Capital Accretion - Second quarter net interest income and noninterest income increased $1.0 million and $1.9 million , respectively, from the first quarter of 2024 . Net interest income increased due to modest loan growth, slightly higher accelerated accretion income, the repricing of loans and securities. Noninterest income increased primarily due to higher mortgage-banking revenue from the increased volume and sales of residential mortgages. The improved earnings for the second quarter resulted in a 14 bps increase in the Company’s Tier 1 Capital Ratio and a 14 bps increase in the Company’s Total Risk-Based Capital Ratio, which were 9.67% and 11.82% , respectively, on June 30, 2024 . The Company’s leverage ratio and tangible common equity ratio also increased to 8.07% and 7.23% , respectively, in the second quarter of 2024 . • Reduced Commercial Real Estate (“CRE”) Concentration - The CRE Concentration Ratio, which is calculated as n on-owner occupied CRE loans as a percentage of the Bank’s Tier 1 Capital + Allowance for Credit Losses (“ACL”), decreased in the second quarter of 2024 to 368.7% from 370.0% in the first quarter of 2024 and 382.6% in the fourth quarter of 2023. Capital accretion has allowed the Bank to meet the needs of its customers and fund new CRE loans. • Improving Operating Leverage - The second quarter efficiency ratio improved to 66.2% when compared to 76.9% in the first quarter 2024 and 77.8% in the second quarter 2023. The second quarter Non-GAAP efficiency ratio, which excludes core deposit intangible amortization and non-recurring activity, improved to 61.1% when compared to 62.4% in the first quarter 2024 and 71.8% in the second quarter 2023. Management anticipates ongoing expense management and technology investments will result in continued improvements in operating leverage over time. 46 Table of Contents SUMMARY OF OPERATING RESULTS A comparison of the results of operations for the three and six months ended June 30, 2024 and June 30, 2023 is presented below. Unaudited (QTD) Unaudited (YTD) Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands) 2024 2023 2024 2023 OPERATING DATA Interest income $ 73,106 $ 36,633 $ 144,245 $ 71,695 Interest expenses 30,966 14,139 60,970 23,537 Net interest income (“NII”) 42,140 22,494 83,275 48,158 Provision for credit loses 2,081 667 2,488 1,880 NII after provision for credit losses 40,059 21,827 80,787 46,278 Noninterest income 8,440 5,294 15,007 10,628 Noninterest expenses 33,499 21,608 70,197 42,501 Income before income tax 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 Unaudited (QTD) Unaudited (YTD) Three Months Ended June 30, Six Months Ended June 30, (Dollars in thousands, except per share amounts) 2024 2023 2024 2023 KEY OPERATING RATIOS Return on average assets (“ROAA”) 0.77 % 0.45 % 0.67 % 0.59 % Return on average equity (“ROAE”) 8.70 4.49 7.54 5.83 Return on average tangible equity (“ROATCE”) Non-GAAP (1) 12.85 7.16 13.08 8.57 Average total equity to average total assets 8.90 7.16 8.92 10.20 Interest rate spread 2.11 2.04 2.23 2.35 Net interest margin 3.11 2.68 3.09 2.93 Efficiency ratio (2) 66.23 77.76 71.42 72.30 Non-interest income to average assets 0.58 0.59 0.52 0.60 Non-interest expense to average assets 2.31 2.41 2.43 2.41 Net operating expense to average assets (3) 1.73 1.82 1.91 1.81 COMMON SHARE DATA Basic and diluted net income per common share $ 0.34 $ 0.20 $ 0.58 $ 0.53 Cash dividends paid per common share $ 0.12 $ 0.12 $ 0.24 $ 0.24 Common dividend payout ratio 35.48 % 60.00 % 41.20 % 45.28 % ____________________________________ (1) ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common stockholders' equity. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Refer to Use of Non-GAAP Financial Measures for additional details. (2) Efficiency ratio is noninterest expense divided by the sum of net interest income and noninterest income. (3) Net operating expense is the sum of noninterest expense offset by noninterest income. 47 Table of Contents RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023 Summary of Financial Results The Company reported net income for the three months ended June 30, 2024 of $11.2 million or $0.34 diluted earnings per share compared to net income of $4.0 million or diluted earnings per share of $0.20 for the three months ended June 30, 2023. The Company’s ROAA, ROACE and ROATCE were 0.77%, 8.70% and 12.85%, respectively, for the three months ended June 30, 2024 compared to 0.45%, 4.49% and 7.16%, respectively, for the three months ended June 30, 2023. Three Months Ended June 30, (Dollars in thousands) 2024 2023 $ Change % Change Interest and dividend income $ 73,106 $ 36,633 $ 36,473 99.56 % Interest expenses 30,966 14,139 16,827 119.01 % Net interest income 42,140 22,494 19,646 87.34 % Provision for credit losses 2,081 667 1,414 211.99 % Noninterest income 8,440 5,294 3,146 59.43 % Noninterest expenses 33,499 21,608 11,891 55.03 % Income before income taxes 15,000 5,513 9,487 172.08 % Income tax expense 3,766 1,495 2,271 151.91 % Net income $ 11,234 $ 4,018 $ 7,216 179.59 % Net Interest Income Tax-equivalent net interest income is net interest income adjusted for the tax-favored status of income from certain loans and investments. As shown in the table below, tax-equivalent net interest income was $42.2 million for the second quarter of 2024 and $22.5 million for the second quarter of 2023. The increase in net interest income when compared to the second quarter of 2023 was primarily due to the increase in interest and fees on loans, interest and dividends on investment securities and interest on deposits from other banks, coupled with a decrease in interest on short-term borrowings. These improvements to net interest income were partially offset by the increase in interest on deposits and interest on long-term borrowings all significantly impacted by the merger with TCFC in the third quarter of 2023. Three Months Ended June 30, (Dollars in thousands) 2024 2023 $ Change % Change Interest and dividend income Loans, including fees $ 67,292 $ 32,729 $ 34,563 105.60 % Interest and dividends on investment securities 5,236 3,734 1,502 40.22 % Interest on deposits with banks 578 170 408 240.00 % Total Interest and Dividend Income $ 73,106 $ 36,633 $ 36,473 99.56 % Interest Expenses Deposits $ 27,585 $ 9,914 $ 17,671 178.24 % Short-term borrowings 1,584 3,449 (1,865) (54.07) % Long-term debt 1,797 776 1,021 131.57 % Total Interest Expenses $ 30,966 $ 14,139 $ 16,827 119.01 % Taxable-equivalent adjustment $ 82 $ 51 $ 31 60.78 % Tax Equivalent Net Interest Income $ 42,222 $ 22,545 $ 19,677 87.28 % 48 Table of Contents Average Balances and Yields The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated. Tax-equivalent adjustments were made. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances. The yields set forth below include the effects of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense. Three Months Ended June 30, Three Months Ended June 30, 2024 2023 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Earning assets Loans (1), (2), (3) Residential real estate $ 1,388,168 $ 19,278 5.59 % $ 946,545 $ 10,876 4.61 % Commercial real estate 2,738,693 39,370 5.78 1,292,406 15,620 4.85 Commercial 216,809 3,926 7.28 137,554 2,177 6.35 Consumer 327,781 4,265 5.23 323,798 3,983 4.93 State and political 2,331 30 5.18 900 8 3.57 Credit Cards 8,378 201 9.65 — — — Other 24,350 302 4.99 8,741 117 5.37 Total Loans 4,706,510 67,372 5.76 2,709,944 32,781 4.85 Investment securities: Taxable 705,421 5,230 2.97 645,178 3,729 2.31 Tax-exempt (1) 658 8 4.86 664 9 5.42 Interest-bearing deposits 47,372 578 4.91 13,397 170 5.09 Total earning assets 5,459,961 73,188 5.39 % 3,369,183 36,689 4.37 % Cash and due from banks 45,141 29,923 Other assets 391,854 225,935 Allowance for credit losses (57,628) (28,730) Total assets $ 5,839,328 $ 3,596,311 49 Table of Contents Three Months Ended June 30, Three Months Ended June 30, 2024 2023 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Interest-bearing liabilities Demand deposits $ 711,138 $ 5,550 3.14 % $ 685,674 $ 3,913 2.29 % Money market and savings deposits 1,690,157 10,291 2.45 907,068 2,526 1.12 Brokered deposits 7,753 94 4.88 — — — Certificates of deposit $100,000 or more 758,211 7,581 4.02 312,367 2,337 3.00 Other time deposits 417,331 4,069 3.92 225,495 1,139 2.03 Interest-bearing deposits (4) 3,584,590 27,585 3.10 2,130,604 9,915 1.87 Advances from FHLB - short-term 113,549 1,584 5.61 261,797 3,449 5.28 Advances from FHLB - long-term 30,220 346 4.60 — — — Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") (4) 72,680 1,451 8.03 43,185 776 7.21 Total interest-bearing liabilities 3,801,039 30,966 3.28 % 2,435,586 14,140 2.33 % Noninterest-bearing deposits 1,480,384 778,058 Accrued expenses and other liabilities 38,427 19,442 Stockholders’ equity 519,478 363,225 Total liabilities and stockholders’ equity $ 5,839,328 $ 3,596,311 Net interest income $ 42,222 $ 22,549 Net interest spread 2.11 % 2.04 % Net interest margin 3.11 % 2.68 % Cost of Funds 2.36 % 1.76 % Cost of Deposits 2.19 % 1.37 % Cost of Debt 6.28 % 5.56 % Tax-equivalent adjustment Loans $ 80 $ 51 Investment securities 2 1 Total $ 82 $ 52 ____________________________________ (1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense. (2) Average loan balances include nonaccrual loans. (3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $4.5 million and $0.3 million of accretion interest on loans for the three months ended June 30, 2024 and 2023, respectively. (4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $(0.4) million and $41,000 of amortization of deposits premium, and $(0.2) million and $(47,000) of amortization of borrowing fair value adjustment for the three months ended June 30, 2024 and 2023, respectively. 50 Table of Contents The following table presents changes in interest income and interest expense for the periods indicated. For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate) (2) changes in rate (changes in rate multiplied by old volume). Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume. Three Months Ended June 30, 2024 Compared to the Three Months Ended June 30, 2023 Volume Due to Rate Total Interest income: Loan Portfolio Residential real estate $ 6,096 $ 2,306 $ 8,402 Commercial real estate 20,762 2,988 23,750 Commercial 1,431 318 1,749 Consumer 40 242 282 State and political 18 4 22 Credit Cards 201 — 201 Other 193 (8) 185 Taxable investment securities 436 1,065 1,501 Tax-exempt investment securities — (1) (1) Interest-bearing deposits 414 (6) 408 Total interest income $ 29,591 $ 6,908 $ 36,499 Interest-bearing liabilities: Interest-bearing demand deposits $ 188 $ 1,449 $ 1,637 Money market and savings deposits 4,765 3,000 7,765 Certificate of deposits 6,416 1,852 8,268 Advances from FHLB - Short-term (2,080) 215 (1,865) Subordinated debt 587 88 675 Total interest-bearing liabilities $ 10,222 $ 6,604 $ 16,826 Net change in net interest income $ 19,369 $ 304 $ 19,673 Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates. Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities. Net interest income was $42.1 million for the second quarter of 2024, compared to $41.1 million for the first quarter of 2024 and $22.5 million for the second quarter of 2023. The increased in net interest income when compared to the first quarter of 2024 was primarily due to the increase in interest and fees on loans of $1.5 million and interest and dividends on investment securities of $0.8 million, partially offset by an increase in interest expense of $1.0 million. The increase in net interest income when compared to the second quarter of 2023 was primarily due to the increase in interest and fees on loans of $34.6 million, interest and dividends on investment securities of $1.5 million and interest on deposits from other banks of $0.4 million, coupled with a decrease in interest on short-term borrowings of $1.9 million. These improvements were partially offset by the increase in interest on deposits of $17.7 million and interest on long-term borrowings of $1.0 million all significantly impacted by the merger with TCFC in the third quarter of 2023. The Company’s NIM increased slightly to 3.11% for the second quarter of 2024 from 3.08% for the first quarter of 2024 primarily due to the repricing of loans and securities at a greater rate than deposits. The Company’s cost of funds was positively impacted during the second quarter due to a shift from interest-bearing to noninterest-bearing deposits. Average interest-bearing deposits decreased $395.0 million which resulted in $0.9 million less interest expense. The Company’s NIM increased to 3.11% for the second quarter of 2024 from 2.68% for the second quarter of 2023. Comparing the second quarter of 2024 to the second quarter of 2023, the Company’s interest-earning asset yields increased 102 basis points to 5.39% from 4.37%, while the cost of funds repriced at a slower pace resulting in an increase of 60 basis points to 2.36% from 1.76% for the same period. Provision for Credit Losses (“PCL”) and Allowance for Credit Losses See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this MD&A. 51 Table of Contents Noninterest Income Total noninterest income for the second quarter of 2024 was $8.4 million, an increase of $1.9 million from $6.6 million for the first quarter of 2024 and an increase $3.1 million from $5.3 million for the second quarter of 2023. The increase from the first quarter of 2024 was primarily due to improved mortgage banking revenue. In addition, both Wye Financial Partners and the Mid-Maryland Title Company, Inc. have experienced improved revenue streams due to increased activity. The increase from the second quarter of 2023 was due to higher revenue among all revenue line items, a direct result of the merger with TCFC in the third quarter of 2023 . Noninterest Expense Total noninterest expense of $33.5 million for the second quarter of 2024 decreased $3.2 million when compared to the first quarter of 2024 total non-interest expense of $36.7 million and increased $11.9 million when compared to the second quarter of 2023 total non-interest expense of $21.6 million. The decrease in total non-interest expenses from the first quarter of 2024 was primarily due to credit card fraud loss of $4.3 million in the first quarter, partially offset by an increase in salaries and wages of $1.5 million. The increase in total non-interest expense from the second quarter of 2023 was primarily due to the operation of a larger branch network and employee base due to the merger with TCFC, which significantly impacted almost all expense line items. Income Taxes The Company reported income tax expense of $3.8 million for the second quarter of 2024, and income tax expense of $1.5 million for the second quarter of 2023. The effective tax rate for the second quarter of 2024 and 2023 was 25.1% and 27.1%, respectively. The decrease in the effective tax rate was due primarily to lower nondeductible expenses associated with merger activity. 52 Table of Contents RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2024 AND 2023 Summary of Financial Results The Company reported net income for the six months ended June 30, 2024 of $19.4 million or diluted earnings per share of $0.58 compared to net income of $10.5 million or diluted earnings per share of $0.53 for the six months ended June 30, 2023. The Company’s ROAA, Non-GAAP ROAA, ROACE and ROATCE were 0.67%, 0.92% , 7.54% and 13.08% for the six months ended June 30, 2024, respectively, compared to 0.59%, 0.71%, 5.83% and 8.57% for the six months ended June 30, 2023, respectively. The increase to net income in the first six months of 2024 compared to the same period in 2023 was primarily due to the merger with TCFC, which resulted in higher net interest income and noninterest income, partially offset by a higher provision for credit losses and noninterest expenses. The increase in net interest income was impacted by higher average balances and yields earned on average earning assets, partially offset by higher average balances and rates paid on interest-bearing liabilities. The increase in provision for credit losses for 2024 was due to higher levels of reserves required by the Company’s CECL model and higher net charge-offs . Almost all noninterest expense line items in 2024 increased as a result of the merger and the expanded operations of the newly combined Company. Six Months Ended June 30, (Dollars in thousands) 2024 2023 $ Change % Change Interest and dividend income $ 144,245 $ 71,695 $ 72,550 101.19 % Interest expenses 60,970 23,537 37,433 159.04 % Net interest income 83,275 48,158 35,117 72.92 % Provision for credit loses 2,488 1,880 608 32.34 % Noninterest income 15,007 10,628 4,379 41.20 % Noninterest expenses 70,197 42,501 27,696 65.17 % Income before income taxes 25,597 14,405 11,192 77.70 % Income tax (benefit) expense 6,179 3,930 2,249 57.23 % Net income $ 19,418 $ 10,475 $ 8,943 85.37 % Net Interest Income As shown in the table below, tax-equivalent net interest income increased $35.2 million to $83.4 million for the six months ended June 30, 2024 compared to $48.3 million for six months ended June 30, 2023. The increase in net interest income when compared to the prior period was primarily due to the increase in the average balance of loans of $2.0 billion, or 75.9%, and an increase in net accretion income of $6.7 million. Increases to net interest income were partially offset by increased total interest expense of $37.4 million, or 159.0%, primarily due to increases in the cost of funds and in the average balance of interest-bearing deposits of $1.6 billion, or 76.8%. All of the noted increases were significantly impacted by the merger. Six Months Ended June 30, (Dollars in thousands) 2024 2023 $ Change % Change Interest and dividend income Loans, including fees $ 133,045 $ 63,557 $ 69,488 109.33 % Interest and dividends on investment securities 9,662 7,805 1,857 23.79 % Interest on deposits with banks 1,538 333 1,205 361.86 % Total Interest and Dividend Income $ 144,245 $ 71,695 $ 72,550 101.19 % Interest Expenses Deposits $ 56,081 $ 17,195 $ 38,886 226.15 % Short-term borrowings 1,641 4,810 (3,169) (65.88) % Long-term debt 3,248 1,532 1,716 112.01 % Total Interest Expenses $ 60,970 $ 23,537 $ 37,433 159.04 % Taxable-equivalent adjustment $ 161 $ 92 $ 69 75.00 % Tax Equivalent Net Interest Income $ 83,436 $ 48,250 $ 35,186 72.92 % 53 Table of Contents Average Balances and Yields The following tables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the six months ended June 30, 2024 and 2023. Six Months Ended June 30, 2024 Six Months Ended June 30, 2023 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Earning assets Loans (1), (2), (3) Consumer real estate $ 1,374,902 $ 37,770 5.52 % $ 914,351 $ 21,383 4.72 % Commercial real estate 2,730,646 77,974 5.74 % 1,286,199 30,793 4.83 % Commercial 218,346 8,024 7.39 % 140,161 3,997 5.75 % Consumer 328,450 8,537 5.23 % 310,736 7,257 4.71 % State and political 1,902 46 4.86 % 939 17 3.65 % Credit Cards 7,918 368 9.35 % — — — % Other 18,682 484 5.21 % 8,680 199 4.62 % Total Loans 4,680,846 133,203 5.72 % 2,661,066 63,646 4.82 % Investment securities: Taxable 680,042 9,650 2.84 649,329 7,793 2.40 Tax-exempt (1) 659 15 4.55 665 15 4.51 Federal funds sold — — — — — — Interest-bearing deposits 62,324 1,538 4.96 13,622 333 4.93 Total earning assets 5,423,871 144,406 5.35 % 3,324,682 71,787 4.35 % Cash and due from banks 47,320 29,266 Other assets 393,439 226,989 Allowance for credit losses (57,554) (29,364) Total assets $ 5,807,076 $ 3,551,573 54 Table of Contents Six Months Ended June 30, 2024 Six Months Ended June 30, 2023 (Dollars in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Interest-bearing liabilities Demand deposits $ 910,831 11,911 2.63 % $ 690,258 7,149 2.09 % Money market and savings deposits 1,679,615 20,451 2.45 955,541 4,899 1.03 Brokered deposits 14,107 345 4.92 — — — Certificates of deposit $100,000 or more 760,211 15,256 4.04 277,096 3,413 2.48 Other time deposits 417,346 8,118 3.91 216,500 1,734 1.62 Interest-bearing deposits (4) 3,782,110 56,081 2.98 2,139,395 17,195 1.62 Securities sold under retail repurchase agreements and federal funds purchased — — — — — — Advances from FHLB - short-term 58,775 1,641 5.61 188,293 4,810 5.15 Advances from FHLB - long-term 15,110 346 4.60 — — — Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") (4) 72,549 2,902 8.04 43,147 1,532 7.16 Total interest-bearing liabilities 3,928,544 60,970 3.12 % 2,370,835 23,537 2.00 % Noninterest-bearing deposits 1,321,705 798,994 Accrued expenses and other liabilities 39,100 19,539 Stockholders’ equity 517,727 362,205 Total liabilities and stockholders’ equity $ 5,807,076 $ 3,551,573 Net interest income $ 83,436 $ 48,250 Net interest spread 2.23 % 2.35 % Net interest margin 3.09 % 2.93 % Cost of Funds 2.34 % 1.50 % Cost of Deposits 2.21 % 1.18 % Cost of Debt 6.71 % 5.53 % Tax-equivalent adjustment Loans $ 158 $ 89 Investment securities 3 3 Total $ 161 $ 92 ____________________________________ (1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense. (2) Average loan balances include nonaccrual loans. (3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $8.7 million and $0.7 million of accretion interest on loans for the six months ended June 30, 2024 and 2023, respectively. (4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment. There were $(0.8) million and $0.2 million of amortization of deposits premium, and $(0.5) million and $(0.1) million of amortization of borrowing fair value adjustment for the six months ended June 30, 2024 and 2023, respectively. 55 Table of Contents The following table presents changes in interest income and interest expense for the periods indicated. For each category of interest earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate); and (2) changes in rate (changes in rate multiplied by old volume). Changes in rate-volume (changes in rate multiplied by the change in volume) have been allocated to changes due to volume. Six Months Ended June 30, 2024 Compared to the Six Months Ended June 30, 2023 Volume Due to Rate Total Interest income from earning assets: Loans Residential real estate $ 12,750 $ 3,637 $ 16,387 Commercial real estate 41,361 5,820 47,181 Commercial 2,884 1,143 4,027 Consumer 477 803 1,280 State and political 23 6 29 Credit Cards 368 — 368 Other 260 25 285 Taxable investment securities 493 1,364 1,857 Tax-exempt investment securities — — — Fed funds sold — — — Interest-bearing deposits 1,203 2 1,205 Total interest income $ 59,819 $ 12,800 $ 72,619 Interest-bearing liabilities: Interest-bearing demand deposits 2,908 1,854 4,762 Money market and savings deposits 8,805 6,747 15,552 Certificate of deposits 13,957 4,615 18,572 Securities sold under repurchase agreements and federal funds purchased — — — Advances from FHLB - Short-term (3,600) 431 (3,169) Advances from FHLB - Long-term 346 — 346 Subordinated debt 1,181 189 1,370 Total interest-bearing liabilities $ 23,597 $ 13,836 $ 37,433 Net change in net interest income $ 36,222 $ (1,036) $ 35,186 The Company’s net interest margin increased to 3.09% for 2024 from 2.93% for 2023, primarily due to recent loan growth and repricing of earning assets, higher net accretion due to the merger, a positive shift in lower cost deposits and an overall stabilized funding base. The increase in the average balance and yields earned on average earning assets of $2.1 billion and 100 bps, respectively, were partially offset by increases in the average balance and rates paid on interest-bearing deposits of $1.6 billion and 136 bps, respectively. The average balance on noninterest-bearing deposits increased $522.7 million, or 65.4%. Net accretion income impacted the increased net interest margin by 27 bps and five bps for the six months ended June 30, 2024 and 2023, respectively. Until the balance sheet restructuring in the third quarter of 2023, the net interest margin experienced compression due to the Company’s liability sensitive position, deposit rate pressures and significantly higher FHLB borrowing rates. Provision for Credit Losses and Allowance for Credit Losses See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this MD&A. 56 Table of Contents Noninterest Income Total noninterest income for the six months ended June 30, 2024 increased $4.4 million, or 41.2%, when compared to the same period in 2023. The increase in noninterest income was experienced among almost all revenue line items. These increases were attributable to the increased size and scale of the Company following the merger with TCFC as well as strategic initiatives to improve business line operations and profitability. Noninterest Expense Total noninterest expense for the six months ended June 30, 2024 increased $27.7 million, or 65.2%, when compared to the same period in 2023. Almost all noninterest expense line items increased as a result of the merger with TCFC and the expanded operations of the newly combined Company. There were no merger-related expenses for the six months ended June 30, 2024, compared to $1.9 million for the six months ended June 30, 2023. The Company continues to focus on streamlining processes to unlock operational efficiencies and reduce overall noninterest expenses . Income Taxes The Company reported income tax expense of $6.2 million for the six months ended June 30, 2024, and income tax expense of $3.9 million for the six months ended June 30, 2023. The effective tax rate was 24.1% for the six months ended June 30, 2024, and 27.3% for the six months ended June 30, 2023. The decrease in the effective tax rate in 2024 was due to a re-assessment of year-end 2023 tax deductions during the first quarter of 2024 which presented favorable differences and lower nondeductible expenses associated with merger activity. The Company’s consolidated deferred tax assets, net of deferred tax liabilities and valuation allowances, totaled $36.1 million at June 30, 2024, representing an aggregate rate of approximately 25.5% of the Company’s temporary federal and state tax differences. For the year-to-date period in 2024, the Company’s gross federal and state net operating loss carryovers (“NOL’s”) that were recorded in 2023 have been reduced by approximately $20.8 million and $19.5 million, respectively, resulting from estimated utilization and true-ups of 2023 tax estimates. As of June 30, 2024, the Company’s estimated remaining gross NOL’s expected to be realized for federal and state income tax purposes were approximately $10.3 million and $5.5 million, respectively. These NOL’s are available to offset future taxable income of the Company. 57 Table of Contents ANALYSIS OF FINANCIAL CONDITION Balance Sheet Summary Total assets were $5.9 billion at June 30, 2024, a decrease of $144.6 million, or 2.4%, when compared to $6.0 billion at December 31, 2023. The aggregate decrease was primarily due to decreases in cash and cash equivalents of $233.5 million and investment securities held to maturity (“HTM”) of $13.8 million partially offset by an increase in investment securities available for sale (“AFS”) of $21.1 million and loans held for investment of $64.7 million. The ratio of the ACL on loans to total loans were 1.24% and 1.24% at June 30, 2024 and December 31, 2023, respectively. Cash and Cash Equivalents Cash and cash equivalents totaled $138.9 million at June 30, 2024, compared to $372.4 million at December 31, 2023. Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year. Investment Securities The investment portfolio includes debt and equity securities. Securities are classified as either AFS or HTM. AFS investment securities are stated at estimated fair value based on market prices. They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates. Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity. At June 30, 2024, 20.9% of the portfolio of debt securities was classified as AFS and 79.1% was classified as HTM, compared to 17.7% and 82.3% respectively, at December 31, 2023. See Note 3 – “Investment Securities”, in the Notes to Consolidated Financial Statements for additional details on the composition of our investment portfolio. Investment securities, including restricted stock and equity securities, totaled $658.6 million at June 30, 2024, a $11.2 million, or 1.7%, increase compared to $647.4 million at December 31, 2023. At June 30, 2024, AFS securities, carried at fair value, totaled $131.6 million compared to $110.5 million at December 31, 2023. At June 30, 2024, AFS securities consisted of 80.2% mortgage-backed, 15.3% U.S. Government agencies and 4.5% corporate bonds, compared to 76.0%, 18.5% and 5.5%, respectively, at year-end 2023. At June 30, 2024, HTM securities, carried at amortized cost, totaled $499.5 million compared to $513.3 million at December 31, 2023. At June 30, 2024, HTM securities consisted of 68.9% mortgage-backed, 28.7% U.S. Government agencies, 2.1% other debt securities, and 0.3% states and political subdivisions, compared to 69.7%, 27.9%, 2.0% and 0.3%, respectively, at year-end 2023. At June 30, 2024 and December 31, 2023, 97.2% and 97.1%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S. Government agencies or government-sponsored agencies. Loans Loans Held for Sale The Bank originates residential mortgage loans for sale on the secondary market, which are recorded at fair value. At June 30, 2024 and December 31, 2023 , the fair value of loans held for sale amounted to $27.8 million and $8.8 million, respectively. The Bank makes certain representations to purchasers in the sale of the mortgage loans related to loan ownership, loan compliance and legality, and accurate documentation. If a loan is found to be out of compliance with any of the representations subsequent to the date of purchase, the Bank may be required to repurchase the loan or indemnify the purchaser. 58 Table of Contents Loans Held for Investment The following table summarizes the Company’s loan portfolio at June 30, 2024 and December 31, 2023. (Dollars in thousands) June 30, 2024 % December 31, 2023 % $ Change % Change Construction $ 327,875 6.97 % $ 299,000 6.40 % $ 28,875 9.66 % Residential real estate 1,539,591 32.72 % 1,490,438 32.10 % 49,153 3.30 % Commercial real estate 2,287,497 48.60 % 2,286,154 49.30 % 1,343 0.06 % Commercial 218,987 4.65 % 229,939 5.00 % (10,952) (4.76) % Consumer 324,479 6.90 % 328,896 7.10 % (4,417) (1.34) % Credit Cards 7,308 0.16 % 6,583 0.10 % 725 11.01 % Total loans 4,705,737 100.00 % 4,641,010 100.00 % 64,727 1.39 % Allowance for credit losses on loans (58,478) (57,351) (1,127) 1.97 % Total loans, net $ 4,647,259 $ 4,583,659 $ 63,600 1.39 % Our loan portfolio has a CRE concentration, which is generally defined as a combination of certain construction and CRE loans. The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in CRE lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential CRE concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total non-owner occupied CRE loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied CRE loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential CRE concentration risk. Institutions which are deemed to have concentrations in CRE estate lending are expected to employ heightened levels of risk management with respect to their CRE portfolios, and may be required to hold higher levels of capital. The Bank has a concentration in CRE loans, and has experienced significant growth in its CRE portfolio in recent years and was further impacted with its acquisition of CBTC in the third quarter of 2023. Non-owner occupied CRE loans as a percentage of the Bank’s Tier 1 Capital + ACL at June 30, 2024 and December 31, 2023 were $2.1 billion or 368.7% and $2.0 billion or 382.6%, respectively. Construction loans as a percentage of the Bank’s Tier 1 Capital + ACL at June 30, 2024 and December 31, 2023 were $327.9 million or 58.6% and $299.0 million or 56.7%, respectively. The CRE portfolio (including construction) has increased significantly in the past two years. Management has extensive experience in CRE lending, and has implemented and continues to maintain heightened risk management procedures, as well as strong underwriting criteria with respect to its CRE portfolio. Monitoring practices include stress testing analysis to evaluate changes in collateral values and to cash flows from interest rate increases and declines in net operating income. We may be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital or be required to sell/participate portions of loans, which may adversely affect stockholder returns. Non-Owner Occupied CRE Loans June 30, 2024 (dollars in thousands) Amount Average Loan Size % of Non-Owner Occupied CRE Loans % of Total Portfolio Loans, Gross Loan Type: Retail $ 449,557 $ 2,417 21.8 % 9.5 % Office/Office Condo 367,377 1,537 17.8 % 7.8 % Multi-Family (5+ Units) 268,015 2,310 13.0 % 5.7 % Motel/Hotel 214,410 4,123 10.4 % 4.5 % Industrial/Warehouse 222,320 1,577 10.8 % 4.7 % Commercial - Improved 146,411 1,181 7.1 % 3.1 % Other (1) 394,913 518 19.1 % 8.3 % Total non-owner occupied CRE loans (2) $ 2,063,003 $ 1,273 100.0 % 43.6 % Total Portfolio loans, gross (3) $ 4,733,566 ____________________________________ (1) Other non-owner occupied CRE loans include mini-storage loans of $83.0 million, restaurant loans of $46.2 million, and other loans of $265.7 million. (2) The balances for our non-owner occupied CRE portfolio as of June 30, 2024, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines. Within the non-owner occupied balances presented in this table, the Company has included certain loans secured by multi-family residential properties and other investor owned 1-4 family residential properties that are reported in the residential real estate caption in other areas of this report. As such, the total balance of loans presented in this table when added to the balance of the table presented below detailing owner occupied CRE may not reconcile to the CRE caption included in other tables and footnotes. 59 Table of Contents (3) Includes loans held for sale of $27.8 million. 60 Table of Contents Owner Occupied CRE Loans June 30, 2024 (dollars in thousands) Amount Average Loan Size % of Owner Occupied CRE Loans % of Total Portfolio Loans, Gross Loan Type: Office/Office Condo $ 137,492 $ 515 18.2 % 2.9 % Industrial/Warehouse 111,227 666 14.8 % 2.3 % Church 70,803 932 9.4 % 1.5 % Retail 63,216 580 8.4 % 1.3 % Commercial - Improved 166,355 962 22.1 % 3.5 % Other (1) 204,980 1,220 27.2 % 4.3 % Total owner occupied CRE loans $ 754,073 $ 785 100.0 % 15.8 % Total Portfolio loans, gross (2) $ 4,733,566 ____________________________________ (1) Other owner occupied CRE loans include restaurant loans of $60.4 million, marine/boat slips of $59.7 million, fire/CMS building loans of $41.3 million and other loans of $43.6 million. (2) Includes loans held for sale of $27.8 million. Office CRE Portfolio The Bank's office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $504.9 million or 10.7% of total loans of $4.7 billion at June 30, 2024. The Bank’s office CRE loan portfolio included $141.1 million or 28.0% of the total with medical tenants and $72.9 million or 14.4% of the total with government or government contractor tenants. There were 507 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $0.4 million, respectively. Loan to Value ("LTV") estimates are less than 50% for $169.2 million or 33.5% of the office CRE portfolio and greater than 80% for $16.6 million or 3.3% of the office CRE portfolio. LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews . The Bank had 18 office CRE loans totaling $164.1 million that were greater than $5.0 million at June 30, 2024, compared to 24 office CRE loans totaling $189.8 million at December 31, 2023. The decrease in this portfolio segment was the result of normal amortization and two large loan payoffs in the second quarter. For the office CRE portfolio, at June 30, 2024, the average loan debt-service coverage ratio was 2.5x and average LTV was 51.0%. Of the office CRE portfolio balance, 74% is secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97% are secured by properties with five stories or less. Of the office CRE loans, $5.9 million will mature and $4.1 million will reprice prior to December 31, 2024. Of the office CRE loans, $2.1 million are special mention or substandard. 61 Table of Contents The following table summarizes asset quality information and ratios at June 30, 2024 and December 31, 2023. (dollars in thousands,) June 30, 2024 December 31, 2023 ASSET QUALITY Total portfolio loans $ 4,705,737 $ 4,641,010 Classified Assets (1) 19,148 14,851 Allowance for credit losses on loans (58,478) (57,351) Past due loans - 30 to 89 days 8,427 10,853 Accruing past due loans >= 90 days 1,015 738 Total past due (delinquency) loans 9,442 11,591 Non-accrual loans 14,837 12,784 Accruing borrowers experiencing financial difficulty ("BEFD") modifications (2) — 153 Other real estate owned (“OREO”) and Repossessed Property 1,739 179 Non-accrual loans, OREO, Repossessed Property and BEFD modifications 16,576 13,116 ASSET QUALITY RATIOS Classified assets to total assets (1) 0.33 % 0.25 % Classified assets to risk-based capital (1) 3.37 % 2.75 % Allowance for credit losses on loans to total portfolio loans 1.24 % 1.24 % Allowance for credit losses on loans to non-accrual loans 394.14 % 448.62 % Past due loans - 30 to 89 days to total portfolio loans 0.18 % 0.23 % Past due loans >=90 days and non-accrual to total loans 0.34 % 0.29 % Total past due (delinquency) and non-accrual to total portfolio loans 0.52 % 0.53 % Non-accrual loans to total portfolio loans 0.32 % 0.28 % Non-accrual loans and BEFD modifications to total loans 0.32 % 0.28 % Non-accrual loans OREO and repossessed property to total assets 0.28 % 0.22 % Non-accrual loans OREO and repossessed property to total portfolio loans, OREO and repossessed property 0.35 % 0.28 % Non-accrual loans, OREO, repossessed property and BEFD modifications to total assets 0.28 % 0.22 % ____________________________________ (1) Classified assets are substandard loans and OREO and other repossessed property. Classified assets do not include special mention loans. (2) BEFD modification loans include both non-accrual and accruing performing loans. All BEFD modification loans are included in the calculation of asset quality financial ratios. Non-accrual BEFD modification loans are included in the non-accrual balance and accruing BEFD modification loans are included in the accruing BEFD modification balance. Allowance for Credit Losses on Loans The ACL was $58.5 million at June 30, 2024, $57.4 million at December 31, 2023 and $29.0 million at June 30, 2023. There were net charge-offs of $0.9 million for the second quarter of 2024, compared to net charge-offs of $0.6 million for the first quarter of 2024 and net charge-offs of $50,000 for the second quarter of 2023. The ratio of annualized net charge-offs to average loans was 0.08% for the second quarter of 2024, compared to annualized net charge-offs of 0.05% for the first quarter of 2024 and annualized net charge-offs of 0.01% for the second quarter of 2023. Management remains focused on its efforts to dispose of problem loans and to prudently charge-off nonperforming loans to enable the Company to maintain overall credit quality. The ACL on loans as a percentage of period-end loans was 1.24% at June 30, 2024 and 1.24% at December 31, 2023. 62 Table of Contents The following tables present a summary of the net charge-off activity in the ACL at or for the three and six months ended June 30, 2024 and 2023. For the Three Months Ended June 30, 2024 June 30, 2023 (Dollars in thousands) Net (Charge-offs) Recoveries Average Balance (1) % Net (Charge-offs) Recoveries Average Balance (1) % Construction $ 4 $ 315,820 (0.01) % $ 4 $ 228,689 (0.01) % Residential real estate 2 1,534,886 - % 3 902,353 — % Commercial real estate — 2,280,743 - % — 1,109,044 — % Commercial (21) 226,292 0.04 % 1 138,067 — % Consumer (793) 325,298 0.98 % (58) 324,454 0.07 % Credit Cards (78) 3,156 9.94 % — — — % $ (886) $ 4,686,195 0.08 % $ (50) $ 2,702,607 0.01 % Allowance for credit losses — (58,478) - % — (28,730) — % Total net charge-off and average loans $ (886) $ 4,627,717 0.08 % $ (50) $ 2,673,877 0.01 % ____________________________________ (1) Excludes Loans Held for Sale For Six Months Ended June 30, 2024 June 30, 2024 June 30, 2023 (Dollars in thousands) Net (charge-offs) recoveries Average balances % Net (charge-offs) recoveries Average balances % Construction $ (6) 304,307 — % $ 7 238,540 (0.01) % Residential real estate 3 1,523,791 - % 34 869,069 (0.01) % Commercial real estate — 2,280,227 - % — 1,094,387 - % Commercial (20) 229,059 0.02 % 8 139,975 (0.01) % Consumer (1,242) 325,264 0.77 % (119) 312,877 0.08 % Credit cards (186) 3,174 11.78 % — — - % $ (1,451) $ 4,665,822 0.06 % $ (70) $ 2,654,848 0.01 % Allowance for credit losses — (58,478) - % — (29,014) — % Total net charge-off and average loans $ (1,451) $ 4,607,344 0.06 % $ (70) $ 2,625,834 0.01 % 63 Table of Contents Nonperforming Assets Classified assets increased $4.3 million to $19.1 million or 0.33% of total assets at June 30, 2024 from $14.9 million or 0.25% of total assets at December 31, 2023. Classified assets are substandard loans, repossessed properties and OREO. The increase was primarily due to increases in OREO and repossessed properties of $1.6 million and $2.7 million in substandard loans. As shown in the following table, nonperforming assets were $17.0 million or 0.29% of total assets at June 30, 2024 compared to $13.7 million or 0.23% of total assets at December 31, 2023. The balance of nonperforming assets increased primarily due to increases in nonaccrual loans of $2.1 million and OREO of $1.6 million , partially offset by a decrease in loans 90 days past due and still accruing of $0.3 million. The following table summarizes our nonperforming assets at June 30, 2024 and December 31, 2023. (Dollars in thousands) June 30, 2024 December 31, 2023 Nonperforming assets Nonaccrual loans $ 14,837 $ 12,784 Total loans 90 days or more past due and still accruing 414 738 Other real estate owned and repossessed property 1,739 179 Total nonperforming assets $ 16,990 $ 13,701 As a percent of total loans: Nonaccrual loans 0.32 % 0.28 % As a percent of total loans, other real estate owned and repossessed property: Nonperforming assets 0.36 % 0.30 % As a percent of total assets: Nonaccrual loans 0.25 % 0.21 % Nonperforming assets 0.29 % 0.23 % 64 Table of Contents Deposits The following is a breakdown of the Company’s deposit portfolio at June 30, 2024 and December 31, 2023: (dollars in thousands) June 30, 2024 December 31, 2023 Balance % Balance % $ Change % Change Noninterest-bearing demand $ 1,587,252 30.83 % $ 1,258,037 23.36 % $ 329,215 26.17 % Interest-bearing: Demand 658,512 12.79 % 1,165,546 21.64 % (507,034) (43.50) % Money market deposits 1,337,274 25.97 % 1,430,603 26.56 % (93,329) (6.52) % Savings 352,069 6.84 % 347,324 6.45 % 4,745 1.37 % Certificates of deposit 1,213,778 23.57 % 1,184,610 21.99 % 29,168 2.46 % Total interest-bearing 3,561,633 69.17 % 4,128,083 76.64 % (566,450) (13.72) % Total Deposits $ 5,148,885 100.00 % $ 5,386,120 100.00 % $ (237,235) (4.40) % Total deposits decreased $237.2 million, or 4.4%, to $5.1 billion at June 30, 2024 when compared to December 31, 2023. The decrease in total deposits was primarily due to a decrease in demand deposits of $507.0 million, and money market and savings of $88.6 million. The decrease in deposits is attributable to seasonal municipal runoff and a decrease in interest rate-sensitive cannabis-related deposits. The increase in noninterest-bearing deposits was significantly impacted by a transfer of $399.4 million of demand deposits which carried an average rate of four bps during the second quarter of 2024. Total estimated uninsured deposits were $0.9 billion or 18.4% of total deposits at June 30, 2024 and $1.0 billion or 19.5% of total deposits at December 31, 2023. At June 30, 2024, there were $129.5 million included in uninsured deposits that the Bank secured using the market value of pledged collateral. The Bank's uninsured deposits, excluding the market value of pledged collateral, at June 30, 2024 were $819.4 million or 15.9% of total deposits. The Company does not consider reciprocal deposits to be brokered as reciprocal deposits are used to maximize FDIC insurance available to our customers. During 2018, revisions to the Federal Deposit Insurance Act determined that reciprocal deposits are core deposits and are not considered brokered deposits unless they exceed 20% of the Bank’s total liabilities of $5.3 billion or $5.0 billion. Reciprocal deposits were $1.2 billion at June 30, 2024 compared to $1.3 billion at December 31, 2023. Reciprocal deposits as a percentage of the Bank’s liabilities at June 30, 2024 and December 31, 2023 were 22.9% and 24%, respectively. For call reporting purposes, there were $154.3 million and $204.8 million of reciprocal deposits that were considered brokered at June 30, 2024 and December 31, 2023, respectively. The Bank is required to monitor large deposit relationships and concentration risks in accordance with regulatory guidance. This includes monitoring deposit concentrations and maintaining fund management policies and strategies that take into account potentially volatile concentrations and significant deposits that mature simultaneously. Regulatory guidance defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits. At June 30, 2024, the Bank had three local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $347.7 million, which represented 6.7% of total deposits of $5.2 billion. At December 31, 2023, there were four customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million, which represented 11.1% of total deposits of $5.4 billion. Wholesale Funding - Short-Term Borrowings and Brokered Deposits The Company had short-term borrowings as of June 30, 2024 of $31.0 million, compared to $0 as of December 31, 2023. The increase was due to the purchase of short-term advances with FHLB to offset seasonality in our municipal and cannabis related deposits. Other short-term borrowings may consist of overnight borrowing from correspondent banks or securities sold under agreements to repurchase, primarily with commercial depositors. Short-term advances are defined as those with original maturities of one year or less. At June 30, 2024 and December 31, 2023, the Company had no securities sold under agreements to repurchase or overnight borrowings from correspondent banks. The Company’s wholesale funding increased $36.5 million, which includes FHLB advances and brokered deposits, from $44.5 million in brokered deposits at December 31, 2023 to $81.0 million in FHLB advances at June 30, 2024. For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.0 billion. Reciprocal deposit balances considered brokered were excluded from the Company’s measurement of wholesale funding. 65 Table of Contents Long-Term Debt The Company occasionally borrows from the FHLB to meet longer term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient. There were long-term borrowings from the FHLB outstanding at June 30, 2024 of $50.0 million and $0 at December 31, 2023. This increase was due to a purchase of $50 million in FHLB advances for 18-months at 4.79% which was lower than short-term FHLB advances of 5.57%. These advances have the option to be called by FHLB at any time and mature on November 7, 2025. On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain purchasers pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% of Fixed-to-Floating Rate Subordinated Notes due September 1, 2030. As a result of the merger with Severn Bancorp, Inc., effective October 31, 2021, the Company acquired Junior Subordinated Debt Securities due in 2035 which had an outstanding principal balance of $20.6 million. The debt balance of $18.7 million at June 30, 2024 and $18.6 million at December 31, 2023 were presented net of fair value adjustments of $1.9 million and $2.0 million, respectively. Additionally, as a result of the TCFC merger, the Company acquired Junior Subordinated Debt Securities which had an outstanding principal balance of $12.0 million. The debt balance of $10.6 million at June 30, 2024 was presented net of a fair value adjustment of $1.4 million. In addition, the Company acquired 4.75% fixed-to-floating rate subordinated notes with a carrying value of $19.5 million at June 30, 2024. The notes balance of $18.6 million at June 30, 2024 was presented net of fair value adjustment of $0.9 million. Stockholders’ Equity (Dollars in thousands) June 30, 2024 December 31, 2023 $ Change % Change Common Stock at par of $0.01 $ 333 $ 332 $ 1 0.30 % Additional paid in capital 356,994 356,007 987 0.28 % Retained earnings 173,716 162,290 11,426 7.04 % Accumulated other comprehensive loss (8,260) (7,494) (766) 10.22 % Total Stockholders' Equity $ 522,783 $ 511,135 $ 11,648 2.28 % Total stockholders’ equity increased $11.6 million, or 2.28%, to $522.8 million at June 30, 2024 when compared to December 31, 2023 primarily due to a $19.4 million of net income partially offset by dividends paid of $8.0 million. 66 Table of Contents Liquidity and Capital Resources Liquidity is our ability to meet cash demands as they arise. Cash needs may come from loan demand, deposit withdrawals or acquisition opportunities. Potential obligations resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers are other factors affecting our liquidity needs. Many of these obligations and commitments are expected to expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position. The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank. The Bank’s most liquid assets are cash, cash equivalents and federal funds sold. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities. Based on management’s going concern evaluation, we believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s or the Bank’s ability to continue as a going concern, within one year of the date of the issuance of the financial statements. The Bank’s principal sources of funds for investment and operations are net income, deposits, sales of loans, borrowings, principal and interest payments on loans, principal and interest received on investment securities and proceeds from the maturity and sale of investment securities. The Bank’s principal funding commitments are for the origination or purchase of loans, the purchase of securities and the payment of maturing deposits. The Bank’s most liquid assets are cash, cash equivalents and federal funds sold. The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Liquidity is provided by access to funding sources, which include core depositors and brokered deposits. Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB of Atlanta. The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes. We derive liquidity through increased customer deposits, non-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets. As seen in the Consolidated Statements of Cash Flows, the net decrease in cash and cash equivalents was $233.5 million for the first six months of 2024 compared to a decrease of $9.7 million for the first six months of 2023. The decrease in cash and cash equivalents in the second quarter of 2024 was mainly due to the decrease of $567.2 million in interest-bearing deposits. To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets. At June 30, 2024, the Bank had approximately $1.0 billion of available liquidity including: $138.9 million in cash and cash equivalents, $321.9 million in unpledged securities, $734.5 million in secured borrowing capacity at the FHLB of Atlanta offset by FHLB advances and letter of credit of $81.0 million and $81.1 million, respectively. The Bank has arrangements with other correspondent banks whereby it has $95.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash. Through the FHLB of Atlanta, the Bank had available lendable collateral of approximately $734.5 million and $745.1 million at June 30, 2024 and December 31, 2023, respectively. The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta. The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%. The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio. The Bank was deemed “well capitalized” under applicable regulatory capital requirements at June 30, 2024. 67 Table of Contents The Bank and Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations. The following tables present the applicable capital ratios for the Company and the Bank as of June 30, 2024 and December 31, 2023. June 30, 2024 Tier 1 leverage ratio Common Equity Tier 1 ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Shore Bancshares, Inc. 8.07 % 9.06 % 9.67 % 11.82 % Shore United Bank 8.71 % 10.45 % 10.45 % 11.69 % December 31, 2023 Tier 1 leverage ratio Common Equity Tier 1 ratio Tier 1 risk-based capital ratio Total risk-based capital ratio Shore Bancshares, Inc. 7.74 % 8.69 % 9.31 % 11.48 % Shore United Bank 8.33 % 10.02 % 10.02 % 11.27 % For information on risks relating to liquidity, see Item 1A. "Risk Factors - Liquidity Risk,” as presented in the Company's 2023 Annual Report. 68 Table of Contents USE OF NON-GAAP FINANCIAL MEASURES Statements in the MD&A include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management uses these non-GAAP financial measures and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. See Non-GAAP reconciliation schedules that immediately follow: RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED) Reconciliation of GAAP total assets, common equity, common equity to assets and book value to non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value. This Quarterly Report on Form 10-Q, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with GAAP. This financial information includes certain performance measures, which exclude intangible assets. These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company. (dollars in thousands, except per share amounts) June 30, 2024 December 31, 2023 June 30, 2023 Total assets $ 5,864,017 $ 6,010,918 $ 3,641,631 Less: intangible assets Goodwill 63,266 63,266 63,266 Core deposit intangibles 42,945 48,090 4,671 Total intangible assets 106,211 111,356 67,937 Tangible assets $ 5,757,806 $ 5,899,562 $ 3,573,694 Total common equity $ 522,783 $ 511,135 $ 363,140 Less: intangible assets 106,211 111,356 67,937 Tangible common equity $ 416,572 $ 399,779 $ 295,203 Common shares outstanding at end of period 33,214,522 33,161,532 19,907,290 Common equity to assets 8.92 % 8.50 % 9.97 % Tangible common equity to tangible assets 7.23 % 6.78 % 8.26 % Common book value per share $ 15.74 $ 15.41 $ 18.24 Tangible common book value per share $ 12.54 $ 12.06 $ 14.83 69 Table of Contents Return on Average Common Equity (“ROACE”) The ROACE is a financial ratio that measures the profitability of a company in relation to the average stockholders' equity. This financial metric is expressed in the form of a percentage which is equal to net income after tax divided by the average stockholders' equity for a specific period of time. Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands, except per share amounts) 2024 2023 2024 2023 Net income (as reported) $ 11,234 $ 4,018 $ 19,418 $ 10,475 ROACE 8.70 % 4.49 % 7.54 % 5.83 % Average Equity $ 519,478 $ 363,225 $ 517,727 $ 362,205 Return on Average Tangible Common Equity (“ROATCE”) ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common shareholders' equity. Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies. Three Months Ended June 30, Six Months Ended June 30, (dollars in thousands, except per share amounts) 2024 2023 2024 2023 Net income (as reported) $ 11,234 $ 4,018 $ 19,418 $ 10,475 Merger and acquisition costs (net of tax) — 872 — 1,373 Core deposit intangible amortization (net of tax) 1,924 317 3,903 637 Net earnings applicable to common stockholders $ 13,158 $ 5,207 $ 23,321 $ 12,485 ROATCE 12.85 % 7.16 % 11.47 % 8.57 % Average equity $ 519,478 $ 363,225 $ 517,727 $ 362,205 Less: Average goodwill and core deposit intangible (107,594) (68,172) (108,881) (68,388) Average Tangible Common Equity $ 411,884 $ 295,053 $ 408,846 $ 293,817 70 Table of Contents