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Item 7. Management’s Discussion and Analysis

2025-03-10 compared with 2024-03-15 · 326 added, 338 removed, 400 unchanged (62% of the section changed)

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The following discussion compares the Company’s financial condition at December 31, 2024 to its financial condition at December 31, 2023 and the results of operations for the years ended December 31, 2024 and 2023.

This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto appearing in Item 8 of Part II of this annual report.

This discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part II, Item 8.

of this Annual Report on Form 10-K.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with 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.

Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.

These estimates, assumptions, and judgments are based on information available as of the date of the financial statements;

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

The most significant accounting policies that the Company follows are presented in Note 1 to the Consolidated Financial Statements.

These policies, along with the disclosures presented in the notes to the financial statements and in this discussion, 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 with respect to the allowance for credit losses on loans, goodwill and bargain purchase gain, accounting for loans acquired in business combinations, and income taxes are critical accounting policies.

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

of this Annual Report on Form 10-K.

These policies, along with the disclosures presented in the notes to consolidated financial statements and in this management’s discussion and analysis of financial condition and results of operations, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies for the ACL on loans, 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.

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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 calculation of expected credit losses is determined using a cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances.

The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate.

Changes in the ACL on loans, and as a result, the related provision for credit losses, can materially affect financial results.

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.

The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes.

Changes in conditions, including unforeseen events, changes in asset-specific risk characteristics, and other economic factors, both within and outside the Company’s control, may indicate the need for an increase or decrease in the ACL on loans.

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The Company’s management reviews the adequacy of the ACL on loans on at least a quarterly basis.

Refer to Note 1, “Summary of Significant Accounting Policies”, of the Notes to the Consolidated Financial Statements for additional detail concerning the determination of the ACL on loans.

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 or that 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 expense may be required to write down the related goodwill to record an impairment loss.

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.

As of December 31, 2023, the Company had one reporting unit.

Loans Acquired in a Business Combination

The most significant assessment of fair value in our accounting for business combinations relates to the valuation of an acquired loan portfolio.

Management made significant estimates and exercised significant judgement in accounting for the acquisition of loans acquired in our business combinations.

At acquisition, loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) non-PCD 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.

Fair values are determined primarily through a discounted cash flow approach which considers the acquired loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, timing of principal and interest payments, current market rates, and remaining balances.

Estimates of fair value also include estimates of default, loss severity, and estimated prepayments.

The allowance for PCD loans is determined based upon the Company’s methodology for estimating the allowance under the current expected credit loss model (“CECL”), and is recorded as an adjustment to the acquired loan balance on the date of acquisition.

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.

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 the provision for credit losses in the period in which the loans were purchased or acquired.

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.

Under this method, deferred tax assets and liabilities are determined by applying the applicable federal and state income tax rates to cumulative temporary differences.

These temporary differences represent differences between financial statement carrying amounts and the corresponding tax bases of certain assets and liabilities.

Deferred taxes result from such temporary differences.

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.

Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K for additional details concerning the determination of the ACL on loans.

RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS

The Notes to the Consolidated Financial Statements discuss the expected impact of accounting policies recently issued or proposed but not yet required to be adopted.

To the extent the adoption of new accounting standards materially affects our financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of this discussion and Notes to the Consolidated Financial Statements.

The notes to consolidated financial statements discuss the expected impact of accounting policies recently issued or proposed but not yet required to be adopted.

PERFORMANCE OVERVIEW

The Company recorded net income of $11.2 million for 2023 and net income of $31.2 million for 2022.

The basic and diluted income per share was $0.42 and $1.57 for fiscal year 2023 and 2022, respectively.

Total assets were $6.0 billion at December 31, 2023, an increase of $2.5 billion or 72.9%, when compared to $3.5 billion at December 31, 2022.

The aggregate increase was primarily due to the acquisition of TCFC (“the merger”), with significant increases year over year in loans held for investment of $2.1 billion, or 81.6%, and cash and cash equivalents of $316.9 million, partially offset by an increase in allowance for credit losses of $40.7 million.

The ratio of the ACL to total loans increased from 0.65% at December 31, 2022, to 1.24% at December 31, 2023.

The increase was due to the adoption of CECL on January 1, 2023 and the merger.

Due to a lack of uniformity of historical data between the legacy banks in their respective models, beginning in the third quarter of 2023, management implemented a new post-merger model methodology.

The Bank's provision for credit losses for the twelve months ended December 31, 2023 was $31.0 million and was due primarily to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million related to the change in ACL methodology on SUB legacy loans.

Total borrowings were $72.3 million at December 31, 2023, a decrease of $10.8 million, or 13.0%, when compared to $83.1 million at December 31, 2022.

Total borrowings at December 31, 2023 were comprised of $43.1 million of subordinated debt and $29.2 million of trust preferred debentures.

The decrease in total borrowings at December 31, 2023 when compared to December 31, 2022 was primarily due to repayment of $40.0 million in FHLB short-term advances, partially offset by an increase of $29.2 million in subordinated debt and trust preferred debentures from the merger.

The Company's wholesale funding increased $4.5 million, which includes brokered deposits and FHLB advances, from $40.0 million in FHLB advances at December 31, 2022 to $44.5 million in brokered deposits at December 31, 2023.

The Bank redeemed callable brokered certificates of $67.0 million during the fourth quarter of 2023.

Total deposits increased $2.4 billion, or 79.0% to $5.4 billion at December 31, 2023 when compared to December 31, 2022.

The increase in total deposits when compared to December 31, 2022 was primarily due to the merger.

Increases within deposits during the year consisted of increases in time deposits of $760.3 million, demand deposits of $471.4 million, money market and savings of $748.6 million and noninterest-bearing deposits of $396.0 million.

The Company recorded net income of $43.9 million and $11.2 million for the years ended December 31, 2024 and 2023, respectively.

The basic and diluted net income per share was $1.32 and $0.42 for the years ended December 31, 2024 and 2023, respectively.

Total assets were $6.23 billion at December 31, 2024, an increase of $219.8 million or 3.7%, when compared to $6.01 billion at December 31, 2023.

The aggregate increase was primarily due to increases year-over-year in loans held for investment of $131.0 million, or 2.8%, and cash and cash equivalents of $87.4 million.

Total liabilities were $5.69 billion at December 31, 2024, an increase of $189.9 million or 3.45%, when compared to $5.50 billion at December 31, 2023, primarily due to an increase in deposits and borrowings.

Total borrowings were $123.7 million at December 31, 2024, an increase of $51.0 million or 70.2%, when compared to $72.7 million at December 31, 2023.

Total borrowings at December 31, 2024 were comprised of $50.0 million long-term FHLB advances, $43.9 million of subordinated debt and $29.8 million of trust preferred debentures.

The increase in total borrowings at December 31, 2024 when compared to December 31, 2023 was primarily due to a $50.0 million long-term FHLB advance that was obtained in 2024.

Total deposits increased $142.2 million, or 2.6% to $5.53 billion at December 31, 2024 when compared to December 31, 2023.

The increase in total deposits when compared to December 31, 2023 was primarily due to increases in noninterest-bearing deposits of $304.8 million and money market and savings of $28.0 million, partially offset by decreases in interest-bearing checking of $187.5 million and and time deposits of $3.0 million.

Total stockholder’s equity amounted to $541.1 million at December 31, 2024, an increase of $29.9 million or 5.9%, when compared to $511.1 million at December 31, 2023.

This increase was due to net income of $43.9 million, partially offset by cash dividends of $16.0 million.

RESULTS OF OPERATIONS

Summary of Financial Results

The Company reported net income for the twelve months ended December 31, 2023 of $11.2 million or diluted earnings per share of $0.42 compared to net income of $31.2 million or diluted earnings per share of $1.57 for the twelve months ended December 31, 2022.

The Company’s return on average assets, return on average common equity, and return on average tangible common equity were 0.24%, 2.54%, and 7.74% for the twelve months ended December 31, 2023 compared to 0.90%, 8.76%, and 11.96% for the twelve months ended December 31, 2022.

For additional details, see “Reconciliation of Non-GAAP Measures (Unaudited).

The decrease in net income in 2023 compared to 2022 was primarily due to merger-related expenses and increased provision for credit losses.

These decreases to pretax earnings were partially offset by increased net interest income from an increased balance sheet as a result of the merger.

The increase in noninterest income was principally due to the bargain purchase gain recognized in the third quarter of 2023 of $8.8 million.

Twelve Months Ended December 31,

(Dollars in thousands) 2023 2022 $ Change % Change

Year Ended December 31,

($ in thousands) 2024 2023 $ Change % Change

Interest and dividend income $ 295,338 $ 214,079 $ 81,259 37.96 %

Interest expenses 78,772 12,543 66,229 528.02 %

Interest expense 124,789 78,772 46,017 58.42

Net interest income 170,549 135,307 35,242 26.05

Provision for credit loses 30,953 1,925 29,028 1,507.95 %

Provision for credit losses 4,738 30,953 (26,215) (84.69)

Noninterest income 31,147 33,159 (2,012) (6.07)

Noninterest expenses 123,329 80,322 43,007 53.54 %

Noninterest expense 138,254 123,329 14,925 12.10

Income before income taxes 58,704 14,184 44,520 313.87

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Net income $ 43,889 $ 11,228 $ 32,661 290.89

The Company reported net income for the year ended December 31, 2024 of $43.9 million, or diluted earnings per share of $1.32, compared to net income of $11.2 million, or diluted earnings per share of $0.42, for the year ended December 31, 2023.

The Company’s return on average assets, return on average common equity and return on average tangible common equity were 0.74%, 8.35% and 13.00%, respectively, for the year ended December 31, 2024, compared to 0.24%, 2.54% and 7.74%, respectively, for the year ended December 31, 2023.

For additional details, see “Reconciliation of Non-GAAP Measures.” The increase in net income in 2024 compared to 2023 was primarily due to higher net interest income driven by loan growth in 2024, and a lower provision for credit losses.

These were partially offset by the absence of the one-time bargain purchase gain of $8.8 million in 2023, higher noninterest expense driven by expanded operation of the newly-combined company and the $4.7 million credit card fraud event in 2024.

Net Interest Income

As shown in the table below, tax-equivalent net interest income increased $34.1 million to $135.6 million for 2023 compared to $101.5 million for 2022.

The increase in tax-equivalent net interest income was primarily due to an increase in total interest income of $100.2 million, or 88.0%, which included an increase in interest and fees on loans of $95.2 million, or 96.1%.

The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $1.3 billion, or 58.7%, and an increase in net accretion income of $7.5 million due to the merger.

Twelve Months Ended December 31,

(Dollars in thousands) 2023 2022 $ Change % Change

Year Ended December 31,

($ in thousands) 2024 2023 $ Change % Change

Interest and dividend income

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Total interest and dividend income $ 295,338 $ 214,079 $ 81,259 37.96

Interest Expenses

Interest expense

Deposits $ 115,301 $ 68,800 $ 46,501 67.59 %

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Long-term debt 7,357 4,454 2,903 65.18

Total Interest Expenses $ 78,772 $ 12,543 $ 66,229 528.02 %

Total interest expense $ 124,789 $ 78,772 $ 46,017 58.42

Taxable-equivalent adjustment 325 253 72 28.46

Tax-equivalent net interest income $ 170,874 $ 135,560 $ 35,314 26.05 %

____________________________________

Tax-equivalent net interest income increased $35.3 million to $170.9 million for 2024 compared to $135.6 million for 2023.

The increase in tax-equivalent net interest income was primarily due to an increase in total interest income of $81.3 million, or 38.0%, which included an increase in interest and fees on loans of $75.3 million, or 38.7%.

The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $1.08 billion, or 29.8%, and an increase in net accretion income of $5.1 million due to the merger with TCFC (the “merger”).

These were partially offset by an increase in interest expense of $46.0 million, primarily due to increases in the cost of funds and the average balance of interest-bearing deposits of $749.2 million, or 25.1%.

All of the increases in average balances were primarily due to the merger.

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 twelve months ended December 31, 2023 and 2022.

Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022

(Dollars in thousands) Average Balance Interest (1),(4)

The following tables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the years ended December 31, 2024 and 2023.

Year Ended December 31, 2024 Year Ended December 31, 2023

($ in thousands) Average Balance Interest (1), (4)

Yield/Rate Average Balance Interest (1), (4)

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Loans (2), (3)

Residential real estate $ 1,076,713 $ 54,583 5.07 % $ 699,192 $ 31,401 4.49 %

Commercial real estate $ 2,528,961 $ 144,155 5.70 % $ 1,860,517 $ 99,953 5.37 %

Residential real estate 1,318,500 72,636 5.51 981,473 50,244 5.12

Construction 322,978 19,917 6.17 284,238 15,123 5.32

Commercial 220,699 15,625 7.08 185,239 13,647 7.37

Consumer 324,633 16,923 5.21 324,444 15,298 4.72

State and political 1,025 41 4.00 1,613 64 3.97

Credit cards 7,444 694 9.32 3,147 315 10.00

Other 12,773 678 5.31 19,650 601 3.06

Total loans 4,723,215 269,950 5.72 3,639,058 194,580 5.35

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Money market and savings deposits 1,690,905 41,202 2.44 1,275,088 20,039 1.57

Time deposits 1,205,411 48,566 4.03 770,370 25,708 3.34

Brokered deposits 12,636 10 0.08 56,101 2,919 5.20

Certificates of deposit $100,000 or more 492,226 16,583 3.37 239,927 1,364 0.57

Other time deposits 278,144 9,125 3.28 204,536 1,141 0.56

Interest-bearing deposits 3,734,725 115,301 3.09 2,985,535 68,800 2.30

Securities sold under retail repurchase agreements and federal funds purchased — — — 683 2 0.29

Advances from FHLB - short-term 111,392 5,518 4.95 1,863 72 3.86

Advances from FHLB - long-term — — — 7,701 35 0.45

FHLB advances 70,298 3,720 5.29 111,392 5,518 4.95

Subordinated debt and guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) 72,907 5,768 7.91 57,708 4,454 7.72

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Net interest income $ 170,874 $ 135,560

Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022

(Dollars in thousands) Average Balance Interest (1),(4)

Yield/ Rate Average Balance Interest (1),(4)

Net interest spread 2.14 % 2.42 %

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(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations.

There were $11.8 million and $1.5 million of accretion interest on loans for the twelve months ended December 31, 2023 and 2022, respectively.

There were $16.9 million and $11.8 million of accretion interest on loans for the years ended December 31, 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 $(1.8) million and $0.6 million of amortization of deposits premium, and $(0.6) million and $(0.2) million of amortization of borrowing fair value adjustment for the twelve months ended December 31, 2023 and 2022, respectively.

There were $1.5 million and $1.8 million of amortization of deposits premium, and $926 thousand and $557 thousand of amortization of borrowing fair value adjustment for the years ended December 31, 2024 and 2023, respectively.

Rate and Volume Analysis

The following table presents changes in interest income and interest expense for the periods indicated.

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

Twelve Months Ended December 31, 2023 Compared to the Twelve Months Ended December 31, 2022

Volume Due to Rate Total

Year Ended December 31, 2024 Compared to 2023

($ in thousands) Volume Due to Rate Total

Interest income from earning assets:

Residential real estate $ 19,141 $ 4,041 $ 23,182

Commercial real estate $ 38,015 $ 6,140 $ 44,155

Residential real estate 18,513 3,828 22,341

Construction 2,379 2,416 4,795

Commercial 2,507 (537) 1,970

Consumer 31 1,590 1,621

State and political (23) — (23)

Credit cards 400 (21) 379

Other (365) 442 77

Taxable investment securities (138) 2,764 2,626

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Interest-bearing liabilities:

Interest-bearing demand deposits $ 5,606 $ 10,659 $ 16,265

Demand deposits $ (1,759) $ 7,160 $ 5,401

Money market and savings deposits 10,150 11,092 21,242

Certificate of deposits 13,834 12,288 26,122

Securities sold under repurchase agreements and federal funds purchased — (2) (2)

Advances from FHLB - Short-term 5,422 24 5,446

Advances from FHLB - Long-term — (35) (35)

Time deposits 17,513 2,443 19,956

FHLB advances - short-term (5) — (5)

FHLB advances - long-term (2,174) 379 (1,795)

Subordinated debt and TRUPS 1,205 109 1,314

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Net change in net interest income $ 41,037 $ (5,915) $ 35,122

Net interest income for 2023 was $135.3 million an increase of $34.0 million, or 33.6%, when compared to 2022.

The increase in net interest income was primarily due to an increase in total interest income of $100.2 million, or 88.0%, which includes an increase in interest and fees on loans of $95.2 million, or 96.1%.

The increase in interest and fees on loans was primarily due to increases in the average balance of loans of $1.3 billion, or 58.7%, largely due to the merger and the increase in loan yields.

Interest on investment securities increased $5.4 million, or 46.6%, primarily due to an increase in the average balance of $85.0 million, or 14.4%.

Increases to interest income were partially offset by increased interest expense of $66.2 million, or 528.0%, primarily due to increases in the cost of funds and in the average balance of interest-bearing deposits of $859.9 million, or 40.5%, largely due to the merger.

The Company’s NIM decreased to 3.10% for 2024, from 3.11% for 2023.

The decrease in the NIM was primarily due to an increase in the average balance and rates paid on interest-bearing liabilities of $975.9 million and 192 basis points, partially offset by an increase in the average balance and rates earned on total earning assets of $1.1 billion and 138 basis points.

In the second half of 2023, the Company mitigated margin compression by selling the acquired AFS securities from the merger and used the proceeds to pay down more costly brokered deposits and FHLB borrowings.

However,margin also compressed as the Bank’s mix of average time deposit balances increased from 21% in 2022 to 26% in 2023.

For the comparable periods, the cost of funds increased 147 basis points to 1.88% for December 31, 2023 compared to 0.41% for December 31, 2022.

Total net accretion income for 2023 was $9.4 million, compared to $1.9 million for 2022.

The decrease in the NIM was primarily due to an increase in the average balance and rates paid on interest-bearing liabilities of $723.3 million and 72 basis points, respectively, partially offset by an increase in the average balance and rates earned on total earning assets of $1.16 billion and 44 basis points, respectively.

Margins were flat as more rapid increases in rates on interest-bearing liabilities were offset by increases in interest-earning asset yields and larger balances in noninterest-bearing deposits.

The average balances of noninterest-bearing deposits increased $410.6 million, or 39.35%, from 24.86% of average funding for the year ended December 31, 2023 to 27.27% for the year ended December 31, 2024.

Net accretion income impacted NIM by 27 bps and 21 bps for the years ended December 31, 2024 and 2023, respectively, which resulted in core NIMs of 2.83% and 2.90% for the same periods

Noninterest Income

Total noninterest income for 2023 of $33.2 million increased $10.1 million or 43.6% from $23.1 million for 2022.

The increase in noninterest income was primarily due to the bargain purchase gain of $8.8 million and an increase of $1.8 million in trust and investment fee income of which $1.1 million related to the transition of customers to a new broker of record for the Bank's wealth management

Both the bargain purchase gain and the transition payment were the result of the merger.

Additionally, interchange income increased $0.9 million due to a larger customer base and increased transaction activity.

These increases to noninterest income were partially offset by a $2.2 million loss on sales of investment securities in the third quarter and a decrease of $0.8 million in title company revenue.

Management sold virtually all of legacy CBTC’s AFS investment securities soon after the merger closed on July 1, 2023.

The $2.2 million loss relates to the difference in the fair values of the securities at the acquisition date compared to actual sales proceeds received.

Title company revenues decreased in 2023 as real estate settlement activity declined in 2023 due to the higher interest rate environment and historically low residential loans held for sale inventory.

Total noninterest income for 2024 of $31.1 million decreased $2.0 million, or 6.1%, from $33.2 million for 2023.

The decrease was primarily due to a one-time bargain purchase gain of $8.8 million in the third quarter of 2023, partially offset by $2.2 million of losses on the sale of investment securities, which were both a direct result of the merger with TCFC in the third quarter of 2023.

These were offset by increases in gains on sale of other assets, other noninterest income and interchange fees.

Noninterest Expense

Total noninterest expense of $138.3 million for 2024 increased $14.9 million, or 12.1%, when compared to $123.3 million for 2023.

Almost all noninterest expense line items increased as a result of the merger and the expanded operations of the newly combined Company.

Merger-related expenses were $17.4 million for 2023, compared to $2.1 million for 2022.

Excluding merger and acquisition costs and core deposit intangible amortization, of $23.5 million for 2023 and $4.1 million for 2022, noninterest expense for the comparable periods was $99.9 million and $76.2 million, respectively.

Noninterest expense as a percentage of average assets increased to 2.6% for 2023 from 2.3% for 2022.

Excluding merger and acquisition costs and core deposit amortization for the comparable periods, noninterest expense as a percentage of average assets decreased to 2.1% for 2023 compared to 2.2% for 2022.

As the Company continues its merger integration, a key focus of management will be to further streamline processes, unlock operational efficiencies and reduce overall noninterest expense.

The Company reported income tax expense of $3.0 million for 2023, and income tax expense of $11.0 million for 2022.

Almost all noninterest expense line items increased as a result of the expanded operations of the newly-combined Company from the merger.

In addition fraud costs increase by $4.1 million driven by the credit card fraud in the first quarter 2024.

There were no merger-

related expenses for 2024, compared to $17.4 million for 2023.

Excluding merger and merger-related expenses, core deposit intangible amortization of $9.8 million for 2024 and $6.1 million for 2023, noninterest expense for the comparable periods was $128.5 million and $99.9 million, respectively.

Noninterest expense as a percentage of average assets decreased to 2.3% for 2024 from 2.6% for 2023.

Excluding merger and merger-related expenses and core deposit intangible amortization for the comparable periods, noninterest expense as a percentage of average assets increased to 2.2% for 2024 compared to 2.1% for 2023.

Management continues to focus on further streamlining processes, unlocking operational efficiencies and reducing overall noninterest expense.

The Company reported income tax expense of $14.8 million and $3.0 million for the years ended December 31, 2024 and 2023, respectively.

The effective tax rate was 25.2% for 2024 and 20.8% for 2023.

The primary drivers in the reduced effective tax rate for 2023 when compared to 2022, were due to the bargain purchase gain recorded in the third quarter and the reapportionment of assets and revenue for state income tax purposes, partially offset by nondeductible merger related costs, in connection with of the acquisition of TCFC.

The estimated tax rate applied to net deferred tax assets of the Bank was 26.0% and for the Parent Company 21%.

As of December 31, 2023 the Company recorded deferred tax assets relating to $31.1 million and $25.0 million of gross federal and state net operating loss carryovers.

These net operating loss carryovers will offset future taxable income to the Company.

The primary drivers of the increased effective tax rate for 2024 when compared to 2023 were the bargain purchase gain recorded and nondeductible merger-related costs, in connection with the acquisition of TCFC.

As of December 31, 2024 the Company recorded net deferred tax assets of $31.9 million compared to $40.7 million in 2023 .

The decrease was primarily due to the utilization of the federal NOLs and the decrease attributable to acquisition-related adjustments in 2024 compared to 2023 .

REVIEW OF FINANCIAL CONDITION

Balance Sheet Summary

Total assets were $6.0 billion at December 31, 2023, an increase of $2.5 billion or 72.9%, when compared to $3.5 billion at December 31, 2022.

The increase was primarily due to the merger, with significant increases in loans held for investment of $2.1 billion, or 81.6%, and cash and cash equivalents of $316.9 million, partially offset by an increase in the ACL of $40.7 million

The ratio of the ACL to total loans increased from 0.65% at December 31, 2022, to 1.24% at December 31, 2023.

The increase was due to the adoption of CECL on January 1, 2023 and the merger.

In July 2023, due to a lack of uniformity of historical data between the legacy banks in their respective models, management implemented a new post merger model methodology.

The Bank's provision for credit losses for the twelve months ended December 31, 2023 was $31.0 million and was due primarily to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million due to the change in ACL methodology on CBTC legacy loans.

Total assets were $6.23 billion at December 31, 2024, an increase of $219.8 million or 3.7%, when compared to $6.01 billion at December 31, 2023.

The increase was primarily due to increases in loans held for investment of $131.0 million, or 2.8%, and cash and cash equivalents of $87.4 million or 23.50%, partially offset by an increase in the ACL of $559 thousand.

Cash and Cash Equivalents

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The investment portfolio includes debt and equity securities.

Debt securities are classified as either available for sale (“AFS”) or held to maturity (“HTM”).

Debt securities are classified as either AFS or HTM.

AFS investment securities are stated at estimated fair value based on market prices.

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At December 31, 2024, 23.7% of the portfolio of debt securities was classified as AFS and 76.3% 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 $647.3 million at December 31, 2023, an $8.1 million, or 1.2%, decrease compared to $655.4 million at December 31, 2022.

See Note 3 – “Investment Securities” in the “Notes to the Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K for additional details on the composition of our investment portfolio.

Investment securities, including restricted stock and equity securities, totaled $656.4 million at December 31, 2024, a $9.0 million, or 1.4%, increase compared to $647.3 million at December 31, 2023.

At December 31, 2024, AFS securities, carried at fair value, totaled $149.2 million compared to $110.5 million at December 31, 2023.

At December 31, 2024, AFS securities consisted of 82.0% mortgage-backed, 13.5% U.S.

Government agencies and 5.5% corporate bonds, compared to 76.0%, 21.8%, and 2.3%, respectively, at year-end 2022.

At December 31, 2023, AFS securities net unrealized losses were all related to changes in interest rates and were $10.3 million, or less than 1% of total assets and 2.0% of stockholder’s equity before AOCI of $518.6 million.

government agency securities and 4.4% corporate bonds, compared to 76.0%, 18.5%, and 5.5%, respectively, at December 31, 2023 .

At December 31, 2024, AFS securities gross unrealized losses were all related to changes in interest rates and were $10.9 million, or less than 1% of total assets and 2% of stockholder’s equity.

At December 31, 2024, HTM securities, carried at amortized cost, totaled $481.1 million, compared to $513.2 million at December 31, 2023.

At December 31, 2024, HTM securities consisted of 70.0% mortgage-backed, 27.6% U.S.

Government agencies, 2.0% other debt securities, and 0.3% states and political subdivisions, compared to 71.3%, 26.5%, 2.0%, and 0.3%, respectively, at year-end 2022.At December 31, 2023, HTM securities unrealized losses were all related to changes in interest rates, except for a general CECL reserve of $94,000, and were $55.4 million or less than 1% of total assets and 10.7% of stockholder’s equity before AOCI of $518.6 million

At December 31, 2023 and December 31, 2022, 97.1% and 97.8% , respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

government agency securities, 2.1% other debt securities and 0.3% state and political entities, compared to 69.7%, 28.0%, 2.0% and 0.3%, respectively, at December 31, 2023 .

At December 31, 2024, the HTM securities had an allowance for credit losses of $203 thousand for the year ended December 31, 2024, compared to $94 thousand for the year ended December 31, 2023 .

At December 31, 2024 and 2023 , 97.1% 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.

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Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities

(Dollars in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value

($ in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value

December 31, 2024

Available for sale

Treasury and government agencies $ 2,447 5.36 % $ 5,532 1.50 % $ 14,877 1.27 % $ 616 5.39 % $ 23,472 $ 20,475

Treasury and government agency securities $ 2,454 4.39 % $ 13,450 1.27 % $ 6,623 1.34 % $ 457 4.76 % $ 22,984 $ 20,202

Mortgage-backed securities 5 2.00 15,728 3.87 15,622 4.12 99,084 4.19 130,439 122,384

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Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities

(Dollars in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value

($ in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value

December 31, 2024

Held to maturity

Treasury and government agencies $ 7,000 3.50 % $ 110,163 2.44 % $ 15,418 1.48 % $ 10,861 3.02 % $ 143,442 $ 133,065

Treasury and government agency securities $ 7,000 3.45 % $ 114,934 2.21 % $ 412 2.15 % $ 10,214 2.15 % $ 132,560 $ 124,005

Mortgage-backed securities 30 (0.30) 7,724 3.75 20,448 3.63 308,553 2.33 336,755 289,521

Obligations of states and political subdivisions (1) — — % 310 4.52 % — — % 1,160 4.53 % 1,470 1,508

Obligations of states and political entities (1)

— — 312 4.52 — — 1,153 4.53 1,465 1,450

Other debt securities — — 3,000 9.56 7,500 4.63 — — 10,500 9,758

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(1) Yields have been adjusted to reflect a tax equivalent basis using the statutory federal tax rate of 21%.

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 December 31, 2024 or 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 presents the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2024.

December 31, 2024

Investment Grade

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

Treasury and government agency securities $ 132,560 $ — $ — $ — $ — $ — $ 132,560

Mortgage-backed securities 336,755 — — — — — 336,755

Obligations of states and political entities — 1,465 — — — — 1,465

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

Total held to maturity securities $ 469,315 $ 1,465 $ 4,000 $ 4,000 $ 500 $ 2,000 $ 481,280

Loans Held for Sale

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If a loan is found to be out of compliance with any of the representations subsequent to the date of purchase, we may be required to repurchase the loan or indemnify the purchaser.

The Company was not required to repurchase any loans during 2023 or 2022.

The Company was not required to repurchase any loans during the years ended December 31, 2024 or 2023.

Loans Held for Investment

The following table summarizes the Company’s loan portfolio at December 31, 2023 and December 31, 2022.

(Dollars in thousands) December 31, 2023 % December 31, 2022 % $ Change % Change

Construction $ 299,000 6.40 % $ 246,319 9.60 % $ 52,681 21.40 %

Residential real estate 1,490,438 32.10 % 810,497 31.70 % 679,941 83.90 %

The following table summarizes the Company’s loan portfolio at December 31, 2024 and 2023 .

($ in thousands) December 31, 2024 % December 31, 2023 % $ Change % Change

Commercial real estate $ 2,557,806 53.59 % $ 2,536,861 54.67 % $ 20,945 0.83 %

Residential real estate 1,329,406 27.86 1,239,731 26.71 89,675 7.23

Construction 335,999 7.04 299,000 6.44 36,999 12.37

Commercial 237,932 4.99 229,939 4.95 7,993 3.48

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Total loans, net $ 4,714,078 $ 4,583,659 $ 130,419 2.85

In relation to the merger with TCFC, the Bank added a consumer credit card portfolio noted in the table above.

The Bank has prior experience with consumer credit card lending and continued to maintain the operations and adopted the internal controls of legacy CBTC to properly manage this activity during 2023.

CRE Loan Portfolio

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or (2) total non-owner occupied CRE loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied CRE loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential CRE concentration risk.

Institutions which are deemed to have concentrations in CRE

lending are expected to employ heightened levels of risk management with respect to their CRE portfolios, and may be required to hold higher levels of capital.

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

The Bank has a concentration in CRE loans, and experienced significant growth in its CRE portfolio with its acquisition of TCFC and its wholly-owned subsidiary CBTC.

Non-owner occupied CRE as a percentage of the Bank’s Tier 1 Capital + ACL at December 31, 2023 and December 31, 2022 was $2.0 billion or 382.6% and $1.0 billion or 289.4%, respectively.

Construction loans as a percentage of the Bank’s Tier 1 Capital + ACL at December 31, 2023 and December 31, 2022 was $299.0 million or 56.7% and $246.3 million or 69.9%, respectively.

The CRE portfolio has increased significantly in the past two years.

Non-owner occupied CRE loans totaled $2.08 billion and $2.02 billion at December 31, 2024 and 2023, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 359.5% and 382.6%, respectively.

Construction loans totaled $336.0 million and $299.0 million at December 31, 2024 and 2023, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 58.0% and 56.7%, respectively.

The CRE portfolio has increased in the past two years.

Management has extensive experience in CRE lending, and has implemented and continues to maintain heightened risk management procedures, as well as strong underwriting criteria with respect to its CRE portfolio.

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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 shareholder returns.

CRE Non Owner-Occupied Real Estate Loans

Non-Owner Occupied CRE Loans

December 31, 2024

Non-owner occupied real estate loans (dollars in thousands) Amount Average Loan Size % of Non-Owner

($ in thousands) Amount Average Loan Size % of Non-Owner

CRE Loans % of Total

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Motel/hotel 212,216 4,161 10.2 4.4

Industrial/warehouse 200,623 1,454 9.6 4.2

Commercial - improved 179,254 1,338 8.6 3.8

407,719 498 19.6 8.4

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Total portfolio loans, gross (3)

(1) Other non owner-occupied CRE loans include industrial loans of $209.4 million, mini-storage loans of $74.0 million, restaurant loans of $48.9 million, and other loans of $336.6 million.

(1) Other non-owner occupied CRE loans include 1-4 family dwelling loans of $138.6 million, lot/land loans of $94.3 million, self-storage loans of $72.6 million and other loans of $102.3 million.

(2) The balances for our non-owner occupied commercial real estate portfolio as of December 31, 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 multifamily 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 commercial real estate may not reconcile to the commercial real estate caption included in other tables and footnotes.

(3) Includes Loans held for sale of $8.8 million.

CRE Owner-Occupied Real Estate Loans

(3) Excludes loans held for sale of $19.6 million.

Owner Occupied CRE Loans

December 31, 2024

Owner-occupied CRE Loans (dollars in thousands) Amount Average Loan Size % of Owner-

($ in thousands) Amount Average Loan Size % of Owner Occupied CRE

Loans % of Total

Portfolio Loans,

Commercial - improved $ 163,405 $ 967 22.5 % 3.4 %

Office/office condo 135,153 520 18.6 2.8

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Church 64,661 886 8.9 1.4

Marine/Boat Slip 66,112 2,449 8.7 % 1.4 %

Retail 63,696 601 8.8 1.3

199,920 1,227 27.4 4.2

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Total portfolio loans, gross (2)

(1) Other owner-occupied CRE loan include restaurant loans of $59.7 million, retail loans of $56.5 million, fire/CMS building loans of $42.0 million and other loans of $223.4 million.

(2) Includes Loans held for sale of $8.8 million.

Office CRE Portfolio

The Bank’s office CRE portfolio, which included owner-occupied and non-owner occupied CRE loans, was $541.6 million or 10.6% of total loans of $4.6 billion at December 31, 2023.

The Bank had only 24 office CRE loans totaling $189.8 million that were greater than $5.0 million at December 31, 2023.

There were 507 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $0.4 million at December 31, 2023.

Loan to value estimates are less than 70% for $385.9 million or 74.0% of the office CRE portfolio

and the average loan debt-service coverage ratio was 2.4x and average loan to value was 47.7% at December 31, 2023.

Collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews.

The office CRE portfolio is 74% geographically located in rural or suburban areas with limited exposure to metropolitan cities.

This portfolio included $142.9 million or 26.4% with medical tenants and $75.2 million or 14.4% with government or government contractor tenants.

Only 6% of the total value of the office CRE loans consists of buildings that are 5 stories or more.

The maturity and repricing schedule in 2024 for the office CRE portfolio is $29.8 million and $5.8 million, respectively.

Only $2.8 million of office CRE loans are special mention or substandard.

(1) Other owner occupied CRE loans include marine/boat slips of $59.1 million, restaurant loans of $58.4 million, fire/CMS building loans of $25.9 million and other loans of $56.7 million.

(2) Excludes loans held for sale of $19.6 million.

Office CRE Loan Portfolio

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $506.0 million or 10.6% of total loans of $4.77 billion at December 31, 2024.

At December 31, 2024, the Bank’s medical tenant loans were $138.7 million and government or government contractor tenant loans were $55.0 million, which equaled 27.4% and 10.9%, respectively, of the total office CRE loan portfolio.

There were 501 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $375 thousand, respectively.

Loan-to-value (“LTV”) estimates are less than 50% for $182.3 million, or 36.0%, of the office CRE loan portfolio and greater than 80% for $9.7 million, or 1.9%, of the office CRE loan portfolio.

LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews.

LTV estimates for the office CRE loan portfolio are

summarized below and LTV collateral values are based on the most recent appraisal, which may vary from the appraised value at loan origination.

The Bank had 18 office CRE loans totaling $164.5 million that were greater than $5.0 million at December 31, 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 one closed loan totaling $10.4 million, and adjustments totaling $13.9 million to remove non-bank-owned participation balances.

For the office CRE portfolio at December 31, 2024, the average loan debt-service coverage ratio was 1.9x and the average LTV was 49.3%.

Of the office CRE portfolio balance, 75% was secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97% were secured by properties with five stories or less.

Of the office CRE loans, $33.6 million will mature and $17.5 million will reprice prior to December 31, 2025.

Of the office CRE loans, $2.3 million are special mention or substandard.

Maturity of Loan Portfolio

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Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.

(Dollars in thousands) Maturing within one year Maturing after one but within five years Maturing after five but within fifteen years Maturing after fifteen years Total

Construction $ 188,934 $ 70,495 $ 35,664 $ 3,907 $ 299,000

Residential real estate 44,337 263,398 187,161 995,542 1,490,438

($ in thousands) Maturing within one year Maturing after one but within five years Maturing after five but within 15 years Maturing after 15 years Total

Commercial real estate $ 210,427 $ 744,019 $ 770,135 $ 833,225 $ 2,557,806

Residential real estate 48,073 134,873 124,640 1,021,820 1,329,406

Construction 229,216 70,235 35,059 1,489 335,999

Commercial 79,461 85,363 57,825 15,283 237,932

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Asset Quality

The following table summarizes asset quality information and ratios at December 31, 2023 and December 31, 2022.

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

The following table summarizes asset quality information and ratios at December 31, 2024 and 2023 .

($ in thousands) December 31, 2024 December 31, 2023

ASSET QUALITY

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Classified assets (1)

28,173 14,851

Allowance for credit losses on loans (57,910) (57,351)

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Total past due (delinquency) loans $ 9,101 $ 11,591

Non-accrual loans $ 12,784 $ 1,908

Accruing borrowers experiencing financial difficulty ("BEFD") modifications

Nonaccrual loans $ 21,008 $ 12,784

Past due loans >= 90 days 294 738

Other real estate owned (“OREO”) 179 179

Non-accrual loans, OREO and BEFD modifications $ 13,116 $ 6,510

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

Repossessed property 3,315 —

Total nonperforming assets 24,796 13,701

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

Total nonperforming assets and BEFDs modifications $ 26,158 $ 14,068

December 31, 2024 December 31, 2023

ASSET QUALITY RATIOS

Classified assets to total assets (1)

0.45 % 0.25 %

Classified assets to risk-based capital (1)

Allowance for credit losses on loans to total portfolio loans 1.24 % 0.65 %

Allowance for credit losses on loans to non-accrual loans 448.62 % 872.27 %

Past due loans - 31 to 89 days to total portfolio loans 0.18 % 0.23 %

Past due loans >=90 days and non-accrual to total loans 0.29 % 0.15 %

Total past due and non-accrual loans to total portfolio loans 0.53 % 0.66 %

Non-accrual loans to total portfolio loans 0.28 % 0.07 %

Non-accrual loans and BEFD modifications to total loans 0.28 % 0.25 %

Non-accrual loans and OREO to total assets 0.22 % 0.06 %

Non-accrual loans and OREO to total portfolio loans and OREO 0.28 % 0.08 %

Non-accrual loans, OREO and BEFD modifications to total assets 0.22 % 0.19 %

Past due loans >= 90 days and nonaccrual to total loans 0.45 0.29

Total past due and nonaccrual loans to total portfolio loans 0.63 0.53

Nonaccrual loans to total portfolio loans 0.44 % 0.28 %

Nonperforming assets to total assets 0.40 0.23

____________________________________

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Classified assets do not include special mention loans.

(2) On January 1, 2023, the Company adopted ASU 2022-02– Financial Instruments-Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures , which eliminated the trouble debt restructuring recognition and measurement guidance.

As such, loans designated as TDRs prior to January 1, 2023 and are currently performing are no longer reported as a BEFD loan beginning in the quarter ended March 31, 2023, while prior period amounts continue to be reported in accordance with previously applicable GAAP.

(3) BEFD modification loans include both non-accrual and accruing performing loans.

(2) BEFD modification loans include both nonaccrual and accruing performing loans.

All BEFD modification loans are included in the calculation of asset quality financial ratios.

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.

Nonaccrual BEFD modification loans are included in the nonaccrual balance and accruing BEFD modification loans are included in the accruing BEFD modification balance.

ACL and Provision for Credit Losses

The following is a breakdown of the Company’s general and specific allowances as a percentage of total portfolio loans at December 31, 2023 and December 31, 2022:

Breakdown of general and specific allowance as a percentage of total portfolio loans

December 31, 2023 December 31, 2022

General allowance $ 56,428 $ 16,516

Specific allowance 923 127

$ 57,351 $ 16,643

General allowance 1.22 % 0.65 %

Specific allowance 0.02 % — %

Allowance to total gross loans 1.24 % 0.65 %

Total gross loans $ 4,641,010 $ 2,556,107

On January 1, 2023, the Company adopted ASU 2016-13 and implemented CECL.

The ACL is a valuation allowance that is deducted from loans' amortized cost basis to present the net amount expected to be collected on the loans.

On January 1, 2023, the Company adopted ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326).” The ACL is a valuation allowance that is deducted from loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Loans are charged-off against the ACL when management believes the uncollectibility of a loan balance is confirmed.

Expected recoveries may not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The Bank uses data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans.

The Bank uses loan data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans.

Historical loss experience serves as the foundation for our estimated credit losses.

Adjustments to our historical loss experience are made for differences in current loan portfolio segment credit risk characteristics such as the impact of changing unemployment rates, changes in U.S.

Treasury yields, portfolio concentrations, the volume of classified loans, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduce the estimated value of any underlying collateral.

Treasury yields, portfolio concentrations, the volume of classified loans, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduction in the estimated value of any underlying collateral.

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

The Company adopted ASU 2016-13 using the modified retrospective method.

Results for reporting periods beginning after January 1, 2023 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Upon the adoption of ASC 326, the Company recorded a $10.8 million increase to the ACL.

ACL balances increased to 1.24% of portfolio loans at December 31, 2023 compared to 0.65% at December 31, 2022.

At December 31, 2023, the Company's ACL increased $40.7 million or 244.60% to $57.4 million from $16.6 million at December 31, 2022.

The increase in the general allowance was primarily due to the merger with TCFC and the impact of the adoption of ASC 326.

The Company recorded a provision for credit losses on loans of $30.4 million for the year ended December 31, 2023 compared to $1.9 million for the year ended December 31, 2022.

Net recoveries amounted to $774 thousand, or 0.03% of average loans for the year ended December 31, 2022 compared to net charge-offs of $2.0 million or 0.06% of average loans for the year ended December 31, 2023.

Included in the net charge-offs for 2023 were $1.2 million in charge-offs related to the strategic sale of $10.7 million in loans that reduced classified assets and CRE concentrations.

The following is a breakdown of the Company’s general and specific allowances as a percentage of total portfolio loans at December 31, 2024 and 2023 :

($ in thousands) December 31, 2024 December 31, 2023

Specific Allowance $ 1,350 $ 923

General Allowance 56,560 56,428

$ 57,910 $ 57,351

Specific Allowance to total gross loans 0.02 % 0.02 %

General Allowance total gross loans 1.19 1.22

Allowance to total gross loans 1.21 % 1.24 %

Total gross loans $ 4,771,988 $ 4,641,010

ACL as a percentage of loans decreased to 1.21% at December 31, 2024 compared to 1.24% at December 31, 2023.

At December 31, 2024, the Company’s ACL increased $559 thousand, or 0.97%, to $57.9 million from $57.4 million at December 31, 2023.

The increase in the general allowance was primarily due to loan growth, partially offset by favorable economic conditions in 2024.

The Company recorded a provision for credit losses on loans of $4.6 million for the year ended December 31, 2024 compared to $30.4 million for the year ended December 31, 2023 primarily due to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million resulting from the change in ACL methodology on TCFC legacy loans in 2023.

Net charge-offs amounted to $2.0 million, or 0.06% of average loans for the year ended December 31, 2023 compared to net charge-offs of $4.1 million or 0.09% of average loans for the year ended December 31, 2024.

The increase in charge-offs in 2024 were primarily due to the marine portfolio.

Management believes that the ACL was adequate at December 31, 2024.

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Management’s determination of the adequacy of the ACL is based on a periodic evaluation of the loan portfolio.

For additional information regarding the ACL, refer to Notes 1 and 4 of the Consolidated Financial Statements and the Critical Accounting Policy section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

For additional information regarding the ACL, refer to Note 1 – “Summary of Significant Accounting Policies” and Note 4 – “Loans and Allowance for Credit Losses” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8., as well as “Critical Accounting Policies” contained in Part II, Item 7.

of this Annual Report on Form 10-K.

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

1 unchanged sentence

December 31, 2024 December 31, 2023

(dollars in thousands) Amount % (1)

Construction $ 3,935 6.40 % $ 2,973 9.60 %

Residential real estate 21,949 32.10 % 2,622 31.70 %

($ in thousands) Amount % (1)

Commercial real estate $ 22,846 53.59 % $ 23,015 54.67 %

Residential real estate 21,776 27.86 19,909 26.71

Construction 2,854 7.04 3,935 6.44

Commercial 3,138 4.99 2,671 4.95

4 unchanged sentences

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

The following table indicates net charge-offs or recoveries by average portfolio loan category for the years ended as indicated:

The following table indicates net charge-offs or recoveries by average loan portfolio category for the years ended as indicated:

December 31, 2024 December 31, 2023

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

Construction $ 15 $ 311,360 — % $ 13 $ 243,045 0.01 %

Residential real estate (75) 1,151,181 0.01 % 137 707,965 0.02 %

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

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

Commercial real estate $ — $ 2,286,363 — % $ (1,326) $ 1,875,969 0.07 %

Residential real estate 6 1,279,211 — (75) 989,037 0.01

Construction 1 318,650 — 15 311,360 —

Commercial (175) 237,326 0.07 (232) 127,441 0.18

Consumer (290) 322,904 0.09 % (2) 202,979 — %

(3,329) 319,922 1.04 (290) 322,904 0.09

Credit cards (575) 2,486 23.13 (111) 2,811 3.95

4 unchanged sentences

(1) Excludes loans held for sale.

(2) Includes the marine portfolio.

Off-Balance Sheet Credit Exposure Reserve

The Company's reserve for off balance sheet credit exposures was $1.1 million at December 31, 2023 and increased compared to December 31, 2022 due to impact of the adoption of ASC 326, the merger, and growth in unfunded commitments for residential real estate loans.

The Company’s reserve for off-balance sheet credit exposures was $1.1 million at December 31, 2024 and December 31, 2023.

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

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Management considers classified assets to be an important measure of asset quality.

Increases in classified and special mention loan categories were due to loans related to our marine lending portfolio of $7.2 million and residential mortgages of $3.2 million all of which are diverse in origination date and not indicative of recurring trends.

Increases in classified and special mention loan categories were due to loans related to our marine lending portfolio and residential mortgages, all of which are diverse in origination date.

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

Risk ratings are an important input into the Company’s ACL qualitative framework.

The following is a breakdown of the Company’s classified and special mention assets at December 31, 2023 and December 31, 2022, respectively:

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

The following is a breakdown of the Company’s classified and special mention assets at December 31, 2024 and 2023 , respectively:

($ in thousands) December 31, 2024 December 31, 2023

Classified loans

4 unchanged sentences

Classified loans $ 24,679 $ 14,672

Classified securities — —

Repossessed assets 3,315 —

Total classified assets $ 28,173 $ 14,851

4 unchanged sentences

At December 31, 2024, nonperforming assets were $24.8 million, an increase of $11.1 million, or 80.98%, when compared to December 31, 2023.

The increase in nonperforming assets was primarily due to the increase in nonaccrual loans acquired in the merger, partially offset by a decrease in loans 90 days past due and still accruing.

The increase in nonperforming assets was primarily due to the increase in nonaccrual loans acquired in the merger and an increase in repossessed assets related to the marine portfolio.

At December 31, 2024, the ratio of nonaccrual loans to total assets was 0.34%, an increase from 0.21% at December 31, 2023.

5 unchanged sentences

charging-off loans;

transferring loans to OREO;

aggressively marketing OREO;

transferring loans to OREO or repossessed assets;

aggressively marketing OREO and repossessed assets;

and selling loans.

The reduction of nonperforming and problem loans is and will continue to be a high priority for the Company.

The following table summarizes our nonperforming assets for the years ended December 31, 2023 and December 31, 2022.

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

The following table summarizes our nonperforming assets for the years ended December 31, 2024 and 2023.

($ in thousands) December 31, 2024 December 31, 2023

Nonperforming assets

1 unchanged sentence

Total loans 90 days or more past due and still accruing 294 738

Repossessed assets 3,315 —

Total nonperforming assets $ 24,796 $ 13,701

6 unchanged sentences

Nonperforming assets 0.40 0.23

The following is a breakdown of the Company’s deposit portfolio at December 31, 2023 and December 31, 2022:

The following is a breakdown of the Company’s deposit portfolio at December 31, 2024 and 2023 :

December 31, 2024 December 31, 2023

(dollars in thousands) Balance % Balance % $ Change % Change

($ in thousands) Balance % Balance % $ Change % Change

Noninterest-bearing demand $ 1,562,815 28.27 % $ 1,258,037 23.36 % $ 304,778 24.23 %

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Demand 978,076 17.69 1,165,546 21.64 (187,470) (16.08)

Money market deposits 1,430,603 26.56 % 709,132 23.56 % 721,471 101.7 %

Savings 347,324 6.45 % 320,188 10.64 % 27,136 8.5 %

Certificates of deposit 1,184,610 21.99 % 424,348 14.10 % 760,262 179.2 %

Money market and savings 1,805,884 32.67 1,777,927 33.01 27,957 1.57

Time deposits 1,181,561 21.37 1,184,610 21.99 (3,049) (0.26)

Total interest-bearing 3,965,521 71.73 4,128,083 76.64 (162,562) (3.94)

Total deposits $ 5,528,336 100.00 % $ 5,386,120 100.00 % $ 142,216 2.64

Total deposits increased $2.4 billion, or 79.0%, to $5.4 billion at December 31, 2023 when compared to December 31, 2022.

The increase in total deposits was primarily due to the merger, which resulted in an increase in time deposits of $760.3 million, demand deposits of $471.4 million, money market and savings of $748.6 million, and noninterest-bearing deposits of $396.0 million.

Total estimated uninsured deposits were $1.05 billion, or 19.5% of total deposits, at December 31, 2023.

Total deposits increased $142.2 million, or 2.6%, to $5.53 billion at December 31, 2024 when compared to December 31, 2023.

The increase in total deposits was primarily due to an increase in noninterest-bearing demand deposits of $304.8 million and money market and savings deposits of $28.0 million, partially offset by decreases in interest-bearing demand deposits of $187.5 million and time deposits of $3.0 million.

Total estimated uninsured deposits were $905.3 million, or 16.4% of total deposits, at December 31, 2024.

At December 31, 2024, there were $160.2 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

1 unchanged sentence

For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.00 billion.

Reciprocal deposits increased $816.0 million to $1.3 billion at December 31, 2023 compared to $475.6 million at December 31, 2022.

Reciprocal deposits as a percentage of the Bank’s liabilities at December 31, 2023 and December 31, 2022 were 24.0% and 15.8%, respectively.

For call reporting purposes, $204.8 million of reciprocal deposits were considered brokered at December 31, 2023 compared to none at December 31, 2022.

Reciprocal deposits increased $354.2 million to $1.65 billion at December 31, 2024, compared to $1.29 billion at December 31, 2023.

Reciprocal deposits as a percentage of the Bank’s liabilities at December 31, 2024 and 2023 were 29.8% and 24.0%, respectively.

For call reporting purposes, $520.5 million of reciprocal deposits were considered brokered at December 31, 2024 compared to $229.9 million at December 31, 2023.

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

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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 December 31, 2023, the Bank had four local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million or 11.11% of total deposits of $5.4 billion.

At December 31, 2022,

there were two customer deposit relationships that exceeded 2% of total deposits, totaling $217.8 million or 7.24% of total deposits of $3.0 billion.

At December 31, 2024, the Bank had three local municipal customer deposit

relationships that exceeded 2% of total deposits, totaling $547.4 million, or 9.90% of total deposits of $5.53 billion.

At December 31, 2023, there were four customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million or 11.11% of total deposits of $5.39 billion.

The Bank uses deposits primarily to fund loans and to purchase investment securities.

Average total deposits increased from $4.03 billion at December 31, 2023 to $5.19 billion at December 31, 2024, an increase of $1.16 billion, or 28.79%.

The following table sets forth the average balances of deposits and percentage of each major category to total average deposits for the year ended December 31, 2023 and December 31, 2022.

The following table sets forth the average balances of deposits and percentage of each major category to total average deposits for the years ended December 31, 2024 and 2023 .

December 31, 2024 December 31, 2023

(Dollars in thousands) Average Balance % Average Balance %

($ in thousands) Average Balance % Average Balance %

Noninterest-bearing demand $ 1,454,087 28.02 % $ 1,043,479 25.90 %

2 unchanged sentences

Money market and savings 1,690,905 32.59 1,275,088 31.65

Certificates of deposit of $100,000 or more 492,226 12.2 % 239,927 8.0 %

Other time deposits 334,245 8.3 % 204,536 6.8 %

Time deposits 1,205,411 23.23 770,370 19.12

Brokered deposits 12,636 0.24 56,101 1.39

Total interest-bearing 3,734,725 71.98 2,985,535 74.10

Total deposits $ 5,188,812 100.00 % $ 4,029,014 100.00 %

Average interest-bearing deposits increased $859.9 million, or 40.5%, in 2023, compared to an increase of $684.5 million, or 47.5%, in 2022.

Average noninterest-bearing deposits increased $155 million, or 17.44% in 2023, compared to an increase of $314.0 million, or 54.6%, in 2022.

Average interest-bearing deposits increased $749.2 million, or 25.1%, in 2024, compared to 2023.

Average noninterest-bearing deposits increased $410.6 million, or 39.3%, in 2024, compared to 2023.

Deposits provided funding for approximately 94.0% and 92.5% of average earning assets for 2024 and 2023, respectively.

The following table sets forth the aggregate amount and maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2024, as well as the portion that is uninsured.

(Dollars in thousands) Total Uninsured

($ in thousands) Total Uninsured

Three months or less $ 80,264 $ 41,514

3 unchanged sentences

Total $ 374,106 $ 160,087

Note 8 to the Consolidated Financial Statements includes the scheduled contractual maturities of total certificates of deposits of $1.2 billion at December 31, 2023.

Note 8 – “Deposits” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K includes the scheduled contractual maturities of total certificates of deposit of $1.18 billion at December 31, 2024.

Securities Sold Under Retail Repurchase Agreements

Securities sold under agreements to repurchase are issued in conjunction with cash management services for commercial depositors.

There were no securities sold under retail purchase agreements at the end of 2023 and 2022.

There were no securities sold under retail purchase agreements at December 31, 2024 and 2023.

Wholesale Funding - Short-Term Borrowings and Brokered Deposits

The Company borrows from the FHLB on a short-term basis to meet short term liquidity needs.

At December 31, 2023, there were no short-term borrowings outstanding, compared to short-term advances with the FHLB of $40.0 million at December 31, 2022.

The Company’s wholesale funding increased $4.5 million, which includes FHLB advances and brokered deposits, from $40.0 million in FHLB advances at December 31, 2022 to $44.5 million in brokered deposits at December 31, 2023.

Brokered deposits for the Company’s measurement of wholesale funding exclude reciprocal deposit balances that exceeded 2% of total deposits.

The Bank decreased wholesale funding by $380.0 million during the third quarter of 2023 and $62.0 million in the fourth quarter of 2023.

Cash proceeds from the sale of TCFC’s AFS securities acquired in the merger and increases in on-balance sheet cash were utilized to curtail FHLB advances and brokered deposits.

The Company borrows from the FHLB on a short-term basis to meet liquidity needs.

There were no short-term borrowings outstanding at December 31, 2024 and 2023.

The Company’s wholesale funding increased $5.5 million, which includes FHLB advances and brokered deposits, from $44.5 million in brokered deposits at December 31, 2023 to $50.0 million in FHLB advances at December 31, 2024.

Brokered deposits for the Company’s measurement of wholesale funding exclude reciprocal deposit balances that exceeded 20% of the Bank’s total liabilities.

Contractual Obligations

2 unchanged sentences

Purchase obligations arise from agreements to purchase goods and services that are enforceable and legally binding.

Other contracts included in purchase obligations primarily consist of service agreements for various systems and applications supporting bank operations.

For information regarding material contractual obligations please see Note 6 Leases in the Notes to the Consolidated Financial Statements and Note 23 Revenue Recognition.

Other contracts included in purchase obligations primarily consist of service agreements for various systems and

applications supporting bank operations.

For information regarding material contractual obligations, please see Note 6 – “Leases” and Note 22 – “Revenue Recognition” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K.

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 no long-term borrowings from the FHLB outstanding at December 31, 2023 and December 31, 2022.

There were $50.0 million and zero long-term borrowings from the FHLB outstanding at December 31, 2024 and 2023, respectively.

On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain accredited purchasers pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% Fixed-to-Floating Rate Subordinated Notes due September 1, 2030.

As a result of the acquisition of Severn Bancorp, Inc.

(“Severn”), effective October 31, 2021, the Company acquired Junior Subordinated Debt Securities due in 2035 which had an outstanding principal balance of $20.6 million.

As a result of the acquisition of Severn, 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 $18.8 million at December 31, 2024 and $18.6 million at December 31, 2023 was presented net of fair value adjustments of $1.8 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.

Additionally, as a result of the TCFC merger in 2023, the Company acquired Junior Subordinated Debt Securities which had an outstanding principal balance of $12.4 million.

The debt balance of $11.1 million at December 31, 2024 was presented net of a fair value adjustment of $1.3 million.

In addition, the Company acquired 4.75% fixed-to-floating rate subordinated notes with a principal balance of $19.5 million at December 31, 2023.

The debt balance of $18.3 million at December 31, 2023 was presented net of fair value adjustment of $1.2 million.

For additional information regarding the long-term debt, refer to Note 9 to the Consolidated Financial Statements.

In addition, the Company also acquired 4.75% fixed-to-floating rate subordinated notes with a principal balance of $19.5 million.

At December 31, 2024, the debt had a balance of $19.0 million, which was presented net of fair value adjustment of $548 thousand.

For additional information regarding long-term debt, refer to Note 9 – “Borrowings” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K.

Stockholders’ Equity

Total stockholders’ equity was $541.1 million at December 31, 2024, compared to $511.1 million at December 31, 2023.

The increase in stockholders’ equity in 2023 was primarily due to the $153.1 million increase in paid in capital due to the merger and net income of $11.2 million, partially offset by a $7.8 million CECL adjustment, net of tax in the first quarter of 2023 and dividends paid of $12.7 million.

The increase in stockholders’ equity in 2024 was primarily due to net income of $43.9 million, partially offset by dividends paid of $16.0 million.

The ratio of period-end equity to total assets was 8.68% for 2024, as compared to 8.50% for 2023.

(Dollars in thousands) December 31, 2023 December 31, 2022 $ Change % Change

Common Stock at par value of $0.01 $ 332 $ 199 $ 133 66.83 %

($ in thousands) December 31, 2024 December 31, 2023 $ Change % Change

Common stock, $0.01 par value per share $ 333 $ 332 $ 1 0.3 %

Additional paid in capital 358,112 356,007 2,105 0.6

3 unchanged sentences

We record unrealized holding gains (losses), net of tax, on investment securities available for sale as AOCI (loss), a separate component of stockholders’ equity.

At December 31, 2023, the portion of the investment portfolio designated as “available for sale” had a net unrealized holding loss, net of tax, of $7.5 million compared to a net unrealized holding loss, net of tax, of $9.1 million at December 31, 2022.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is our ability to fund operations and meet present and future financial obligations through the sale or repayment of existing assets or by obtaining additional funding through liability management.

At December 31, 2024 and 2023, the portion of the investment portfolio designated as “available for sale” had a net unrealized holding loss, net of tax, of $7.5 million.

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

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

4 unchanged sentences

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

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

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

We believe our level of liquid assets is sufficient to meet current anticipated funding needs.

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 deposits and brokered deposits.

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

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

The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.

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 in the Financial Statements, the net increase in cash and cash equivalents was $316.9 million for the year ended December 31, 2023 compared to a decrease of $528.1 million for the year ended December 31, 2022.

The increase in cash and cash equivalents in 2023 was mainly due to proceeds from the sale of acquired investment securities of $434.2 million after the merger as well as increases in the Bank’s deposits subsequent to the merger.

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

As seen in the consolidated statements of cash flows, the net increase in cash and cash equivalents was $87.4 million for the year ended December 31, 2024, compared to an increase of $316.9 million for the year ended December 31, 2023.

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 December 31, 2024, the Bank had approximately $1.47 billion of available liquidity, including $459.9 million in cash and cash equivalents, $317.9 million in unpledged securities, $743.6 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $6.1 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.

At December 31, 2023, the Bank had approximately $1.3 billion of available liquidity including:

$372.4 million in cash and cash equivalents, $344.8 million in unpledged securities, $659.0 million in secured borrowing capacity at the FHLB, and the other correspondent banks of $45.0 million.

The Bank is a member of the FHLB, which provides another source of liquidity.

The Bank has pledged, under a blanket lien, all qualifying residential and CRE loans under borrowing agreements with the FHLB.

Comparison of Cash Flows for the Years Ending December 31, 2023 and 2022

During the year ended December 31, 2023, all financing activities provided $121.9 million in cash compared to $0.8 million in cash provided for the same period in 2022.

The Company was provided $121.1 million more cash from financing activities compared to the prior year, primarily due to increased deposits of $243.2 million from management’s efforts to expand deposit relationships.

The Company used less cash in 2023 compared to 2022 for net long-term debt activity.

Short-term borrowings activity used $144.9 million more cash in 2023 compared to 2022 as the Bank paid down wholesale funding.

The Company used $3.2 million more in cash for stock related activities in 2023 compared to 2022.

The increase was primarily due to a $3.2 million increase in common stock dividend payments.

The Bank’s principal use of cash has been in investing activities including its investments in loans, investment securities and other assets.

In 2023, the level of net cash provided from investing activities increased $753.9 million to $172.3 million from net cash used of $581.6 million in 2022.

The increase in cash provided was primarily the result of proceeds from sale of investment securities of $434.2 million acquired from the merger partially offset by cash used for loan activities.

Cash used for loan activities decreased $109.7 million to $317.3 million, for the year ended December 31, 2023 from $427.0 million for the year ended December 31, 2022 as organic loan growth slowed in 2023 as management focused on merger integration as well as safe and sound moderate loan growth in the current economic environment.The use of funds to purchase investment securities decreased $148.1 million to $68.7 million for the year ended December 31, 2023 from $216.7 million for the year ended December 31, 2022.

Cash provided increased $471.5 million as total proceeds from sales of acquired investment securities, redemption of restricted securities and principal payments of securities for year ended December 31, 2023 increased compared to the year ended December 31, 2022.

Operating activities provided less cash of $29.7 million as cash provided decreased $22.7 million for the year ended December 31, 2023 compared to $52.6 million of cash provided for the same period of 2022.

The Company has no business other than holding the stock of the Bank and does not currently have any material funding requirements, except for the payment of dividends on common stock, and the payment of interest on subordinated debentures and subordinated notes, and noninterest expense.

Capital Requirements

Through the FHLB, the Bank had available lendable collateral of approximately $743.6 million and $745.1 million at December 31, 2024 and 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 following table presents the Company’s liquidity in use and liquidity available as of December 31, 2024.

December 31, 2024

($ in thousands) Liquidity in Use Liquidity Available

FHLB secured borrowings (1)

$ 56,100 $ 743,568

Unsecured federal fund purchase lines — 95,000

Unpledged assets

Cash and cash equivalents n/a 459,851

Investment securities n/a 317,851

Total $ 56,100 $ 1,616,270

(1) The Bank has pledged a portion of the commercial real estate and residential loan portfolio to the FHLB to secure the line of credit.

CAPITAL RESOURCES

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

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a material effect on the Company’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of its assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices.

The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1, 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 December 31, 2024.

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

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

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

In developing its plan, the Company considers the impact to capital of asset growth, loan concentrations, income accretion, dividends, holding company liquidity, investment in markets and people and stress testing.

7 unchanged sentences

The final rule currently applies to all depository institutions and bank holding companies and savings and loan holding companies with total consolidated assets of more than $3 billion.

As of December 31, 2023, 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 December 31, 2023 and December 31, 2022.

As of December 31, 2024, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations.

The following tables present the applicable capital ratios for the Company and the Bank as of December 31, 2024 and 2023.

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

4 unchanged sentences

The Bank 8.33 10.02 10.02 11.27

See Note 16 to the Consolidated Financial Statements for further information about the regulatory capital positions of the Bank and Company.

On February 4, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on February 28, 2025, to holders of record of shares of common stock as of February 14, 2025.

See Note 16 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8.

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

The Company provides banking services to customers who do business in the cannabis industry.

Prior to the second quarter of 2022, the Company restricted these businesses to include only those in the medical-use cannabis industry in the state of Maryland.

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

While the Company is providing banking services to customers that are engaged in growing, processing, and sales of both medical and adult-use cannabis in a manner that complies

with applicable state law, such customers engaged in those activities currently violate federal law.

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 December 31, 2024, the Company has not accrued an amount for the potential impact of any such actions.

The following is a summary of the level of business activities with our cannabis customers:

• Deposit and loan balances at December 31, 2024 were approximately $151.4 million, or 2.7% of total deposits, and $82.6 million, or 1.7% of total gross loans, respectively.

• Interest and noninterest income for the year ended December 31, 2024 were approximately $4.1 million and $1.1 million, respectively.

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

of this this Annual Report on Form 10-K.

Comparison of Cash Flows for the Years Ended December 31, 2024 and 2023

During the year ended December 31, 2024, all financing activities provided $175.1 million in cash compared to $121.9 million in cash provided for the same period in 2023.

The Company was provided $53.2 million more cash from financing activities compared to the prior year, primarily due to increased deposits of $304.8 million from management’s efforts to expand deposit relationships.

The Company used less cash in 2024 compared to 2023 for net long-term debt activity.

Short-term borrowings activity used $109.0 million less cash in 2024 compared to 2023 as the Bank paid down wholesale funding.

The Company used $3.3 million more cash for stock-related activities in 2024 compared to 2023, primarily due to a $3.3 million increase in common stock dividend payments.

The Bank’s principal use of cash has been in investing activities including its investments in loans and investment securities.

In 2024, the level of net cash used in investing activities increased $306.9 million to $134.5 million from net cash provided by investing activities of $172.3 million in 2023.

The increase in cash used was primarily the result of cash used for loan activities and investment securities.

Cash used for loan activities decreased $194.0 million to $123.3 million for the year ended December 31, 2024 from $317.3 million for the year ended December 31, 2023 as organic loan growth slowed in 2024 as management focused on merger integration as well as safe and sound moderate loan growth in the current economic environment.

The use of funds to purchase investment securities increased $93.7 million to $162.4 million for the year ended December 31, 2024, from $68.7 million for the year ended December 31, 2023.

Cash proceeds from investment securities decreased $388.8 million as total proceeds from sales of acquired AFS securities decreased for the year ended December 31, 2024, compared to the year ended December 31, 2023.

Operating activities provided more cash of $24.2 million as cash provided increased to $46.9 million for the year ended December 31, 2024, compared to $22.7 million of cash provided for the same period of 2023.

USE OF NON-GAAP FINANCIAL MEASURES

5 unchanged sentences

Reconciliation of Non-GAAP Measures

Reconciliation of U.S.

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 Annual Report on Form 10-K, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with GAAP.

1 unchanged sentence

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) December 31, 2023 December 31, 2022

($ in thousands, except per share amounts) December 31, 2024 December 31, 2023

Total assets $ 6,230,763 $ 6,010,918

15 unchanged sentences

This financial metric is expressed in the form of a percentage which is equal to net income after tax divided by the average shareholders’ equity for a specific period of time.

For the Year Ended

(dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022

Year Ended December 31,

($ in thousands) 2024 2023

Net income (as reported) $ 43,889 $ 11,228

Return on average common equity 8.35 % 2.54 %

2.54 % 8.76 %

Average stockholders’ equity

4 unchanged sentences

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

For the Year Ended

(dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022

Year Ended December 31,

($ in thousands) 2024 2023

Net income (as reported) $ 43,889 $ 11,228

7 unchanged sentences

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

What changed 10-K

Item 7. Management’s Discussion and Analysis