What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-03-10 compared with 2024-03-15 · 768 added, 879 removed, 1023 unchanged (62% of the section changed)

2 unchanged sentences

Management’s Report on Internal Control over Financial Reporting

Report s of Independent Registered Public Accounting Fi rm (PCAOB ID 173 )

Report of Independent Registered Public Accounting Fi rm (PCAOB ID 613 )

21 unchanged sentences

The independent auditors and the internal auditors have full and unlimited access to the Committee, with or without the presence of management, to discuss the adequacy of internal control over financial reporting, and any other matters which they believe should be brought to the attention of the Committee.

As permitted by the guidance issued by the Office of the Chief Accountant of the Securities and Exchange Commission, management excluded the operations of The Community Financial Corporation and its subsidiary (“TCFC”) from its assessment of internal control over financial reporting as of December 31, 2023.

TCFC and its subsidiary were merged with and into the Company, however, their legacy operations utilized separate accounting systems from July 1, 2023 (the date of acquisition) until the systems were converted on September 11, 2023.

TCFC’s total assets represented approximately 39.9% of the Company’s consolidated assets as of the date of acquisition.

Management assessed the Company’s system of internal control over financial reporting as of December 31, 2024.

This assessment was conducted based on the Committee of Sponsoring Organizations of the Treadway Commission "Internal Control - Integrated Framework (2013)." Based on this assessment, management identified material weaknesses related to the Company’s internal control over financial reporting, and, as such, concluded that the Company’s internal control over financial reporting was ineffective as of December 31, 2023.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Management identified a material weakness associated with ineffective input review controls relating to specific aspects of the Company’s allowance for credit loss (“ACL”) model and previously disclosed a material weakness in relation to deferred income taxes discussed in Part I, Item 4 of the Company’s Form 10-Q/A for the quarter ended September 30, 2023 (the “amended Form 10-Q”).

Concerning the identified material weakness with respect to the ACL, management has concluded that the issue resulted from an insufficient validation of key loan payment and projected historical loss variable inputs in the post-merger ACL model.

The lack of sufficient data validation did not require a restatement of previously reported ACL balances.

Concerning the material weakness identified in the Company’s amended Form 10-Q, management has concluded that the issue resulted from not performing a key control that was previously only performed in the fourth quarter on annual basis, which was the Company’s annual year-end roll-forward reconciliation and review of book to tax basis differences in the Company’s deferred tax asset and liability categories.

Management concluded that the Company should have performed this key control in the third quarter of 2023 when the merger was consummated.

Management, with the oversight of the Audit Committee, is actively engaged in remediating the material weaknesses in internal control over financial reporting that existed as of December 31, 2023.

In response to the material weaknesses identified above, the Company is in the process of implementing changes to its internal control over financial reporting.

Specifically in relation to the allowance for credit losses, management is in the process of completing a detailed inventory covering select inputs to the allowance for credit losses calculation, a re-evaluation of SOX control design and operation, and determining the appropriate frequency and precision of controls to ensure all significant inputs to the allowance for credit losses calculation are addressed.

In addition, management expects to conduct a detailed data audit to ensure the completeness and accuracy of select inputs to the allowance for credit losses calculation.

Specifically, in relation to the Company’s remediation plan for the error in deferred taxes, management has continued to follow the remediation plans outlined in the Company’s amended Form 10-Q.

This plan includes a quarterly reconciliation of book to tax basis differences to ensure deferred tax basis items are properly recorded.

Beginning in the fourth quarter of 2023, management revised the frequency of the roll-forward reconciliation and review control from an annual key control to a quarterly key control.

Management will consider the material weaknesses remediated once the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

We expect that the remediation of the allowance for credit losses material weakness will be completed prior to the end of 2024.

We expect that the remediation of the deferred tax material weakness will be completed with the filing of the Company’s 10-Q for quarter ended March 31, 2024.

Except as described above, there were no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

The 2023 financial statements have been audited by the independent registered public accounting firm of Yount, Hyde & Barbour, P.C.

Personnel from YHB were given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and committees thereof.

This assessment was conducted based on the Committee of Sponsoring Organizations of the Treadway Commission “Internal Control - Integrated Framework (2013).” Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2024.

There were no other changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15 under the Securities Act of 1934) during the quarter ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

The 2024 financial statements have been audited by the independent registered public accounting firm of Crowe LLP (“Crowe”).

Personnel from Crowe were given unrestricted access to all financial records and related data, including minutes of all meetings of the Board of Directors and committees thereof.

Management believes that all representations made to all the independent auditors were valid and appropriate.

The resulting report from YHB accompanies the financial statements.

YHB has also issued a report on the effectiveness of internal control over financial reporting.

The resulting report from Crowe accompanies the financial statements.

Crowe has also issued a report on the effectiveness of internal control over financial reporting.

This report has also been made a part of this Annual Report.

4 unchanged sentences

March 10, 2025 March 10, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Shore Bancshares, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Shore Bancshares, Inc.

and its subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Our report dated March 15, 2024, expressed an opinion that the Company had not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

Adoption of New Accounting Standard

As discussed in Notes 1 and 4 to the financial statements, the Company changed its method of accounting for credit losses in 2023 due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments , including all related amendments.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 173 )

Stockholders and the Board of Directors

Shore Bancshares, Inc.

Easton, Maryland

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Shore Bancshares, Inc.

(the “Company”) as of December 31, 2024, and the related consolidated statement of income, comprehensive income, changes in stockholders’ equity, and cash flows for the period ended December 31, 2024, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the period ended December 31, 2024 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for Credit Losses – Collectively Evaluated Loans

As further described in Notes 1 and 4 to the consolidated financial statements, the Company changed its method of accounting for credit losses on January 1, 2023, due to the adoption of Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, as amended.

The allowance for credit losses on loans (ACL) is a valuation allowance that represents management’s best estimate of expected credit losses on loans measured at amortized cost considering available information relevant to assessing collectability over the loans’ contractual terms.

Loans which share common risk characteristics are pooled and collectively evaluated by the Company using historical data, as well as assessments of current conditions and reasonable and supportable forecasts of future conditions.

The Company’s ACL related to collectively evaluated loans represented $56.43 million of the total recorded ACL of $57.35 million as of December 31, 2023.

The collectively evaluated ACL consists of quantitative and qualitative components.

The quantitative component consists of loss estimates derived from a cash flow model adjusted for estimated prepayments and forecasts of future conditions over a reasonable and supportable period.

These estimates consider large amounts of data in tabulating significant inputs to the calculations, including default, loss given default, and prepayment speeds and require complex calculations as well as management

judgment in the selection of appropriate inputs.

In addition to the quantitative component, the collectively evaluated ACL also includes a qualitative component which aggregates management’s assessment of available information relevant to assessing collectability that is not captured in the quantitative loss estimation process.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the Audit Committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses – Economic Imprecision Qualitative Factor

As described in Note 1 to the financial statements, the Company accounts for credit losses under ASC 326, Financial Instruments – Credit Losses.

ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date.

As of December 31, 2024, the balance of the allowance for credit losses (“ACL”) on loans was $57.9 million.

The Company’s methodology for estimating the amount reported in the ACL includes an allowance assessed on a collective basis for pools of loans that share similar risk characteristics, which are evaluated collectively using a cash flow approach which includes loan-level cash flow projections and pool-level assumptions and incorporates a reasonable and supportable forecast.

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

Qualitative factors considered by management include concentrations of loans to specific industry segments;

the volume and severity of delinquencies and adversely classified loan balances and the value of underlying collateral, and the probability of the near-term recession and its impacts on estimated losses that is captured through an economic imprecision factor.

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

Management exercised significant judgment when estimating the ACL on collectively evaluated loans.

We identified the estimation of the collectively evaluated ACL as a critical audit matter as auditing the collectively evaluated ACL involved especially complex and subjective auditor judgment in evaluating management’s assessment of the inherently subjective estimates.

The primary audit procedures we performed to address this critical audit matter included:

• Obtaining an understanding of the Company’s process for determining its ACL on collectively evaluated loans, including the underlying methodology and significant inputs to the calculation.

• Substantively testing management’s process for measuring the collectively evaluated ACL, including:

◦ Evaluating the conceptual soundness of the methodology for determining the collectively evaluated ACL.

◦ Testing significant inputs to the calculation, including probability of default, loss given default, and prepayment rates, and the data on which those inputs were based.

◦ Evaluating management’s selection of forecasting inputs and testing the accuracy of management’s incorporation of its forecasts in the collectively evaluated ACL estimate.

◦ Testing the completeness and accuracy of internal loan level data used in the calculation, as well as evaluating the pool of collectively evaluated loans for completeness.

◦ Evaluating management’s determination of qualitative adjustments, including evaluating data on which the qualitative adjustments were based as well as the relative magnitude of the adjustments.

◦ Testing the mathematical accuracy of the ACL for collectively evaluated loans, including the calculations underlying the quantitative component as well as application of qualitative factors to the collectively evaluated loan balances.

Fair Value of Acquired Loans

As described in Note 2 – “Business Combination”, the Company completed its acquisition of The Community Financial Corporation on July 1, 2023, for total consideration valued at approximately $153.6 million.

The transaction was accounted for as a business combination using the acquisition method of accounting.

Accordingly, the assets acquired and liabilities assumed were recorded at fair value on the acquisition date, including acquired loans with an aggregate fair value of $1.77 billion.

As disclosed by management, determining the acquired fair values, particularly in relation to the loan portfolio, is inherently subjective and involves significant judgment regarding the methods and assumptions used to estimate fair value.

In determining the fair value of acquired loans, management must determine whether or not acquired loans have evidence of more-than-insignificant credit deterioration at acquisition, the amount and timing of cash flows expected to be collected, and market discount rates, among other assumptions.

Changes in these assumptions could have a significant impact on the fair value of the acquired loans.

We identified the acquisition date fair value of acquired loans as a critical audit matter as auditing this estimate required significant auditor judgment in evaluating management’s identification of loans with evidence of credit deterioration, the need for specialized skill in development and application of subjective assumptions in estimated cash flows, and the size of the acquired loan portfolio.

The primary audit procedures we performed to address this critical audit matter included:

• Assessing the effectiveness of the Company’s controls over the fair value measurement process, including management’s engagement and review of the work performed by its third-party valuation specialist, including the completeness and accuracy of the data utilized in forming the estimates, review of key assumptions and inputs in estimating fair value, as well as identification of loans with credit deterioration.

• Substantively testing management’s process, including:

◦ Using our own valuation specialist to assess the Company’s methods and significant assumptions utilized in determining the fair value of the acquired loan portfolio and evaluating whether the assumptions used were reasonable with respect to market participant views and other factors.

◦ Testing the completeness and accuracy of loans determined to have experienced more-than-insignificant credit deterioration since origination and evaluating the reasonableness of the criteria utilized by management in making the determination.

◦ Testing the accuracy of the data utilized in the development of acquisition date fair values by confirming, on a sample basis, select data.

◦ Confirming the mathematical accuracy of the underlying calculations of fair value.

/s/ Yount, Hyde & Barbour, P.C.

We identified auditing the economic imprecision qualitative factor of the ACL as a critical audit matter because the methodology to determine the estimate of credit losses uses subjective judgments by management and is subject to material variability.

Performing audit procedures to evaluate the economic imprecision qualitative factor involved a high degree of auditor judgment, subjectivity and required significant effort, including the need to involve more experienced audit personnel.

The primary procedures we performed to address this critical audit matter included:

• Testing the effectiveness of controls over the evaluation of the qualitative factor assessments, particularly the economic imprecision factor, used in the ACL on collectively evaluated loans, including controls addressing:

◦ Methodology and accounting policies related to the qualitative factors

◦ Data inputs, calculations, and judgments used to determine the qualitative factors

◦ Management’s output review of the ACL inclusive of qualitative factors

• Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the economic imprecision qualitative factor of the ACL which is applied to loans which are collectively evaluated, which included:

◦ Evaluation of the reasonableness of the Company’s accounting policies, judgments, and elections related to the economic imprecision qualitative factor

◦ Testing the accuracy of key inputs and calculations used to determine the economic imprecision qualitative factor

◦ Evaluation of the reasonableness of management’s judgments and assumptions related to the economic imprecision qualitative factor to determine if it is calculated in conformity with management’s policies and was consistently applied period over period.

/s/ Crowe LLP

We have served as the Company’s auditor since 2024.

Winchester, Virginia

Livingston, New Jersey

March 10, 2025

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 613)

To the Stockholders and the Board of Directors of Shore Bancshares, Inc.

Opinion on the Internal Control Over Financial Reporting

We have audited Shore Bancshares, Inc.'s (the Company) internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

In our opinion, because of the effect of the material weaknesses described below on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements of the Company, and our report dated March 15, 2024, expressed an unqualified opinion.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses have been identified and included in management's assessment:

• Ineffective review controls over inputs for specific aspects of the Company’s allowance for credit losses calculation for the loan portfolio.

• Ineffective review controls concerning the verification of income tax related balances.

These material weaknesses were considered in determining the nature, timing and extent of audit tests applied in our audit of the 2023 financial statements, and this report does not affect our report dated March 15, 2024, on those financial statements.

As described in Management’s Report on Internal Control Over Financial Reporting , management has excluded The Community Financial Corporation, Inc.

from its assessment of internal control over financial reporting as of December 31, 2023, because it was acquired by the Company in a purchase business combination in the third quarter of 2023.

We have also excluded The Community Financial Corporation, Inc.

from our audit of internal control over financial reporting.

The Community Financial Corporation, Inc.

and its subsidiary operated under separate accounting systems from July 1, 2023 (the date of acquisition) until the systems were converted on September 11, 2023.

The Community Financial Corporation, Inc.’s total assets represented approximately 39.9% of the Company’s consolidated assets as of the date of acquisition.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Shore Bancshares, Inc.

and its subsidiaries (the Company) as of December 31, 2023, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows, for the year then ended, and the related notes (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting .

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audit also included performing such other procedures as we considered necessary in the circumstances.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ Yount, Hyde & Barbour, P.C.

We served as the Company’s auditor from 2017 to 2024.

Winchester, Virginia

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

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

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

Cash and due from banks $ 44,008 $ 63,172

2 unchanged sentences

Investment securities:

Available-for-sale, at fair value (amortized cost of $ 120,832 (2023) and $ 95,999 (2022))

Available for sale, at fair value (amortized cost of $ 159,593 and $ 120,832 at December 31, 2024 and 2023, respectively)

149,212 110,521

Held to maturity, net of allowance for credit losses of $ 94 (2023) (fair value of $ 457,830 (2023) and $ 494,627 (2022))

Held to maturity, net of allowance for credit losses of $ 203 and $ 94 (fair value of $ 424,734 and $ 457,830 ) at December 31, 2024 and 2023, respectively

481,077 513,188

2 unchanged sentences

Loans held for sale, at fair value 19,606 8,782

Loans held for investment ($ 9,944 (2023) and $ 8,437 (2022), at fair value)

Loans held for investment (fair value of $ 9,466 and $ 9,944 at December 31, 2024 and 2023, respectively)

4,771,988 4,641,010

4 unchanged sentences

Other intangible assets, net 38,311 48,090

OREO, net 179 197

Mortgage servicing rights, at fair value 5,874 5,926

6 unchanged sentences

Noninterest-bearing $ 1,562,815 $ 1,258,037

Interest-bearing 4,128,083 2,147,769

Interest-bearing checking 978,076 1,165,546

Money market and savings 1,805,884 1,777,927

Time deposits 1,181,561 1,184,610

Total deposits 5,528,336 5,386,120

Advances from FHLB - short-term — 40,000

FHLB advances 50,000 —

Guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) 29,847 29,530

4 unchanged sentences

TOTAL LIABILITIES 5,689,697 5,499,783

COMMITMENTS AND CONTINGENCIES (Note 19)

STOCKHOLDERS’ EQUITY

1 unchanged sentence

shares authorized 50,000,000 ;

shares issued and outstanding - 33,161,532 (2023) and 19,864,956 (2022)

shares issued and outstanding 33,332,177 and 33,161,532 at December 31, 2024 and 2023, respectively

Additional paid in capital 358,112 356,007

3 unchanged sentences

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 6,230,763 $ 6,010,918

The notes to the consolidated financial statements are an integral part of these statements.

See accompanying notes to consolidated financial statements.

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31,

Year Ended December 31,

($ in thousands, except per share data) 2024 2023

18 unchanged sentences

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

Interchange credits 5,714 4,812

Gain on sale of loans held for sale 5,021 2,978

Mortgage banking revenue 966 1,535

Interchange credits 6,741 5,714

Title Company revenue 402 551

3 unchanged sentences

NONINTEREST EXPENSE

Salaries and wages 44,645 35,931

Employee benefits 12,358 9,908

Salaries and employee benefits 66,579 57,003

Occupancy expense 9,706 7,791

4 unchanged sentences

FDIC insurance premium expense 4,413 3,479

Other real estate owned expenses, net 1 65

Legal and professional fees 5,836 4,337

Fraud losses 4,998 879

Merger-related expenses — 17,356

4 unchanged sentences

NET INCOME $ 43,889 $ 11,228

Basic and diluted net income per common share $ 0.42 $ 1.57

Basic net income per common share $ 1.32 $ 0.42

Diluted net income per common share $ 1.32 $ 0.42

Dividends paid per common share $ 0.48 $ 0.48

The notes to the consolidated financial statements are an integral part of these statements.

See accompanying notes to consolidated financial statements.

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Years Ended December 31,

Year Ended December 31,

($ in thousands) 2024 2023

6 unchanged sentences

Comprehensive income $ 43,838 $ 12,755

The notes to the consolidated financial statements are an integral part of these statements.

See accompanying notes to consolidated financial statements.

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

For the Years Ended December 31, 2023 and 2022

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

1 unchanged sentence

Net income — — 11,228 — 11,228

Other comprehensive (loss) — — — ( 9,077 ) ( 9,077 )

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

Other comprehensive income — — — 1,527 1,527

TCFC acquisition 132 152,955 — — 153,087

Common shares issued for employee stock purchase plan 1 384 — — 385

4 unchanged sentences

Net income — — 43,889 — 43,889

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

Other comprehensive income — — — 1,527 1,527

TCFC acquisition 132 152,955 — — 153,087

Other comprehensive loss — — — ( 51 ) ( 51 )

Common shares issued for employee stock purchase plan 1 375 — — 376

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Balances, December 31, 2024 $ 333 $ 358,112 $ 190,166 $ ( 7,545 ) $ 541,066

The notes to the consolidated financial statements are an integral part of these statements.

See accompanying notes to consolidated financial statements.

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31,

For Year Ended December 31,

Year Ended December 31,

($ in thousands) 2024 2023

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Bargain purchase gain — ( 8,816 )

(Gain) on mortgage banking activities ( 3,477 ) ( 3,918 )

Gain on mortgage loans held for sale ( 5,021 ) ( 2,978 )

Gain on other mortgage loan activity ( 220 ) ( 499 )

Proceeds from sale of mortgage loans held for sale 170,205 121,734

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Stock-based compensation expense 1,730 1,174

Deferred income tax expense (benefit) 2,721 ( 1,182 )

Deferred income tax expense 8,869 2,721

Losses on sales and calls of securities — 2,166

Loss (Gain) on valuation adjustments on mortgage servicing rights 251 ( 372 )

Loss on sale and valuation adjustments on premises transferred to held for sale 272 —

Losses on sales and disposals of premises and equipment — 183

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

Fair value adjustments on loans held for investments, at fair value ( 33 ) —

Gain on sales of repossessed assets ( 3 ) —

Loss on valuation adjustments on mortgage servicing rights 361 251

Loss on disposal of fixed assets 10 —

Gain on disposal of premises held for sale ( 737 ) —

Valuation adjustments on premises transferred to held for sale 289 272

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

Fair value adjustments on loans held for investment, at fair value 257 ( 33 )

Fair value adjustment on equity securities 55 ( 54 )

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Net cash provided by operating activities 46,887 22,713

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

Year Ended December 31,

($ in thousands) 2024 2023

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities and principal payments of investment securities available for sale 70,892 17,754

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

Proceeds from the sale of acquired available for sale securities — 434,215

Proceeds from maturities and principal payments of investment securities held to maturity 48,960 44,801

Proceeds from life insurance death benefits 150 —

Purchase of investment securities available for sale ( 108,554 ) ( 33,226 )

Purchases of investment securities held to maturity ( 17,512 ) —

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

Purchase of securities available for sale ( 33,226 ) —

Purchases of securities held to maturity — ( 208,133 )

Purchases of equity securities ( 166 ) ( 79 )

Purchase of restricted securities ( 35,350 ) ( 8,560 )

Purchases of restricted securities ( 36,157 ) ( 35,350 )

Net change in loans ( 123,277 ) ( 317,283 )

Purchases of premises and equipment ( 5,224 ) ( 5,954 )

Proceeds from sales of premises and equipment — 17

Proceeds from sales of other real estate owned — 21

Improvements to other real estate owned — ( 34 )

Proceeds from sales of repossessed assets 1,807 —

Redemption of restricted securities 33,804 32,959

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Proceeds from disposal of premises held for sale 946 721

Cash acquired in the acquisition of TCFC 25,372 —

Net cash provided by (used in) investing activities 172,313 ( 581,572 )

For Year Ended December 31,

(In thousands) 2023 2022

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

Net cash (used in) provided by investing activities ( 134,541 ) 172,313

CASH FLOWS FROM FINANCING ACTIVITIES:

Net changes in:

Net change in deposits $ 243,236 $ ( 15,902 )

Net (repayment) advances of short-term borrowings ( 109,000 ) 35,857

Repayment of long-term borrowings — ( 10,000 )

Noninterest-bearing deposits $ 304,778 $ ( 192,658 )

Interest-bearing deposits ( 164,049 ) 435,894

Short-term borrowings — ( 109,000 )

Long-term borrowings 50,000 —

Common stock dividends paid ( 16,013 ) ( 12,733 )

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Net cash provided by financing activities 175,092 121,888

Net increase (decrease) in cash and cash equivalents 316,914 ( 528,114 )

Net increase in cash and cash equivalents 87,438 316,914

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

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Income taxes paid — 7,293

Recognition (remeasurement of) lease liabilities arising from right-of-use assets $ 179 $ ( 456 )

Transfer from loans held for sale to loans held for investments $ — $ 7,791

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

Unrealized gain (loss) on securities available for sale $ 2,101 $ ( 12,488 )

Recognition of lease liabilities arising from right-of-use assets 566 179

Transfers from loans to repossessed assets 5,119 —

Unrealized gains (losses) on available for sale securities ( 70 ) 2,101

Transfer of premises to held for sale (included in other assets) 1,387 750

The notes to consolidated financial statements are an integral part of these statements.

See accompanying notes to consolidated financial statements.

Notes to Consolidated Financial Statements

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The consolidated financial statements include the accounts of Shore Bancshares, Inc.

and its subsidiaries (collectively referred to in these Notes as the “Company”), with all significant intercompany transactions eliminated.

The investments in subsidiaries are recorded on the Company’s books (holding company only) on the basis of its equity in the net assets of the subsidiaries.

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“GAAP”).

The accounting and reporting policies of the Company conform with generally accepted accounting principles in the United States of America (“GAAP”).

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

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Nature of Operations

The Company engages in the banking business through Shore United Bank, N.A., a Maryland commercial bank with trust powers.

The Company engages in the banking business through Shore United Bank, N.A.

(the “Bank”), a Maryland commercial bank with trust powers.

The Company’s primary source of revenue is derived from interest earned on commercial, residential mortgage and other loans, and fees charged in connection with lending and other banking services located in Maryland, Delaware and Virginia.

The Company engages in the trust services business through the trust department at Shore United Bank, N.A.

under the trade name Wye Trust and conducts secondary market lending activities through a division of the Bank.

The Company engages in financial service offerings through Wye Financial Partners and offers corporate trustee services through Wye Trust, a division of Shore United Bank, N.A.

The Bank also conducts secondary market lending activities through a division of the Bank.

Mid-Maryland Title Company, Inc.

(the “Title Company”), engages in title work related to real estate transactions.

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Estimates that could change significantly relate to the determination of the allowance for credit losses on loans, loans acquired in business combinations, valuation of deferred tax assets and the subsequent evaluation of goodwill for impairment.

Investments in Debt Securities

Investments - Debt Securities

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

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

The Company has elected to exclude accrued interest receivable from the amortized cost basis and fair value of its HTM and AFS debt securities and has included such accrued interest of $ 2.2 million at December 31, 2023 and at December 31, 2022 within the accrued interest receivable line item of the Consolidated Balance Sheets.

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

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

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

With respect to these securities, we consider the risk of credit loss to be $ 94,000 .

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

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

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

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

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

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

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

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

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

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

Equity Securities

The Company has elected to exclude accrued interest receivable from the amortized cost basis and fair value of its HTM and AFS debt securities and has included such accrued interest of $ 2.5 million and $ 2.2 million at December 31, 2024 and 2023, respectively, within accrued interest receivable on the consolidated balance sheets.

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

At December 31, 2024, the aggregate carrying value of pledged AFS and HTM pledged securities was $ 67.9 million and $ 197.5 million, respectively.

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

Investments - Equity Securities

Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in net income.

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The entirety of any impairment on equity securities is recognized in earnings.

Loans Held for Sale (“LHFS”)

The Company has elected to carry its mortgage loans originated for sale at fair value.

Fair value is determined based on outstanding investor commitments or, in the absence of such commitments, on current investor yield requirements or third-party pricing models.

Fair value adjustments are recorded at each balance sheet date with the changes in fair value recognized in mortgage banking revenue in the Consolidated Statements of Income.

Gains and losses on loan sales are determined based on the differential between a loan’s carrying value and sales price and are recognized through mortgage-banking revenue in the Consolidated Statements of Income.

LHFS are sold either with the mortgage servicing rights (“MSRs”) released or retained by the Bank.

Mortgage Servicing Rights

When mortgage loans are sold with servicing retained, the MSRs are initially recorded at fair value with the income statement effect recorded in mortgage banking revenue.

Fair value is based on a valuation model that calculates the present value of estimated future net servicing income.

The Company measures servicing rights at fair value at each reporting date and records the changes in fair value of servicing assets in earnings in the period in which the changes occur.

These gains or losses are included in mortgage banking revenue in the Consolidated Statements of Income.

Servicing fee income is also recorded in the mortgage banking revenue line item.

Allowance for Credit Losses - Securities

The Company evaluates its available-for-sale and held-to-maturity debt securities portfolios for expected credit losses as of the valuation date under ASC 326.

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or if it is more likely than not that it would be required to sell, the security before recovery of its amortized cost basis.

If either criterion is met, the security’s amortized cost basis is written down to fair value through income during the current period.

For available-for-sale debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other driving factors.

If the Company's assessment indicates that a credit loss exists, the present value of cash flows

expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, an ACL is recorded for the credit loss (which represents the difference between the expected cash flows and amortized cost basis), limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

The entire amount of an impairment loss is recognized in earnings only when:

(1) the Company intends to sell the security;

or (2) it is more likely than not that the Company will have to sell the security before recovery of the Company's amortized cost basis;

or (3) the Company does not expect to recover the entire amortized cost basis of the security.

In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders' equity as comprehensive income, net of deferred taxes.

Changes in the ACL are recorded as a provision for (or reversal of) credit losses.

Losses are charged against the ACL when the Company believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a noncredit-related impairment

As part of its estimation process, the Company have made a policy election to exclude accrued interest from the amortized cost basis of available for sale debt securities and report accrued interest separately in other assets in the consolidated balance sheet.

Available for sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.

Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status.

Accordingly, the Company does not recognize an allowance for credit loss against accrued interest receivable.

This approach is consistent with the Company’s nonaccrual policy implemented for its loan portfolio.

The Company separately evaluates its held to maturity investment securities for any credit losses.

If it determines that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis.

As of December 31, 2024, the Company had $ 424.7 million classified as held to maturity at estimated fair value with an amortized cost basis of $ 481.3 million with the remainder of the securities portfolio held as available for sale.

Loans Held for Investment

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

The Company has elected to exclude accrued interest receivable from the amortized cost basis of its loans held for investment and has included such accrued interest of $ 16.8 million and $ 7.2 million at December 31, 2023 and December 31, 2022, respectively within the accrued interest receivable line item of the Consolidated Balance Sheets.

The Company has elected to exclude accrued interest receivable from the amortized cost basis of its loans held for investment and has included such accrued interest of $ 16.7 million and $ 16.8 million at December 31, 2024 and 2023, respectively, within accrued interest receivable on the consolidated balance sheets.

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

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

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

Loans greater than 90 days past due may remain on accrual status if management determines it is well secured and in the process of collection.

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

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Such financial instruments are recorded in the consolidated balance sheets when they are funded.

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

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

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

Credit risk factors include the borrower’s ability to successfully complete the construction on time and within budget, changing market conditions which could affect the value and marketability of projects, changes in the borrower’s ability or willingness to repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value.

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

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

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

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

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

Commercial Real Estate – Commercial real estate loans consist of both loans secured by owner occupied properties and non-owner occupied properties where an established banking relationship exists and involves investment properties for multi-family(5+), warehouse, retail, and office space with a history of occupancy and cash flow.

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

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

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

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

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

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

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

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

Transfers of LHFS to Loans Held for Investment (“LHFI”)

Credit Cards - Unsecured credit card loans were offered to our commercial and consumer customers.

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

In 2024, the Company discontinued the issuance of new credit cards (except to select existing customers) and only services the existing portfolio at December 31, 2024.

Transfers of Loans Held for Sale (“LHFS”) to Loans Held for Investment (“LHFI”)

The Company may, from time to time, transfer LHFS to LHFI.

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Subsequent changes in the fair value of these loans are recorded in interest income.

During the year ended December 31, 2023, the Company had no transfers from LHFS to LHFI.

There were $ 7.8 million transfers between LHFS and LHFI during the year ended December 31, 2022.

ACL on Loans Held for Investment

During the year ended December 31, 2024 and 2023 the Company had no transfers from LHFS to LHFI.

Allowance for Credit Losses - Loans Held for Investment

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

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

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

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

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

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

Cash flow projections and estimated expected losses on loans which share common risk characteristics are based in part on forecasts economic independent variables, namely, the national unemployment rate, 10-year Treasury rate and changes in GDP that are reasonable and supportable over a 12-month period and incorporated into the estimate of expected credit losses using a statistical regression analysis.

For periods beyond those for which reasonable and supportable forecasts are available, projections are based on a 12-month straight-line reversion of the corresponding economic independent variable from the last forecast to a historical average level.

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

the nature and volume of the loan portfolio;

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

and other factors as deemed necessary and appropriate.

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

Factors considered by management include concentrations of loans to specific industry segments, the volume and severity of delinquencies and adversely classified loan balances and the value of underlying collateral, and a number of other economic indicators intended to account for the imprecision inherent in forecasting economic conditions.This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.

Reserve for Unfunded Commitments

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

During the 2023, the Company recorded a $ 436 thousand provision for credit losses associated with its unfunded commitments.

The Company recorded a provision for credit losses associated with its unfunded commitments of $ 104 thousand and $ 436 thousand during the years ended December 31, 2024 and 2023, respectively.

Loans Held For Sale

The Company has elected to carry its mortgage loans originated for sale at fair value.

Fair value is determined based on outstanding investor commitments or, in the absence of such commitments, on current investor yield requirements or third-party pricing models.

Fair value adjustments are recorded at each balance sheet date with the changes in fair value recognized in mortgage banking revenue in the consolidated statements of income.

LHFS are sold either with the mortgage servicing rights (“MSRs”) released or retained by the Bank.

Mortgage Servicing Rights

When mortgage loans are sold with servicing retained, the MSRs are initially recorded at fair value with the income statement effect recorded in gains or losses of loan held for sale.

Fair value is based on a valuation model that calculates the present value of estimated future net servicing income.

The Company measures servicing rights at fair value at each reporting date and records the changes in fair value of servicing assets in earnings in the period in which the changes occur.

Servicing fee income is recorded in the mortgage banking revenue line item.

Premises and Equipment

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Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets.

Useful lives range from three to 10 years for furniture, fixtures and equipment;

Useful lives range from three to ten for furniture, fixtures and equipment;

three to five years for computer hardware and data handling equipment;

and 10 to 40 years for buildings and building improvements.

and ten to 40 years for buildings and building improvements.

Land improvements are amortized over a period of 15 years and leasehold improvements are amortized over the term of the respective lease or useful life, whichever is shorter.

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In that event, the Company recognizes a loss for the difference between the carrying amount and the estimated fair value of the asset.

Mergers and Acquisitions

Business combinations are accounted for under ASC 805, Business Combinations, using the acquisition method of accounting.

The acquisition method of accounting requires an acquirer to recognize the assets acquired and the liabilities assumed at the acquisition date measured at their fair values as of that date.

To determine the fair values, the Company relies on internal or third-party valuations, such as appraisals, valuations based on discounted cash flow analyses, or other valuation techniques.

Under the acquisition method of accounting, the Company identifies the acquirer and the closing date and applies applicable recognition principles and conditions.

Acquisition-related costs are costs the Company incurs to effect a business combination.

Those costs include advisory, legal, accounting, valuation, and other professional or consulting fees.

Some other examples of costs to the Company include systems conversions, integration planning consultants and advertising costs.

The Company accounts for acquisition-related costs as expenses in the periods in which the costs are incurred and the services are received, with one exception.

The costs to issue debt or equity securities is recognized in accordance with other applicable GAAP.

These acquisition-related costs have been and will be included within the consolidated statements of income classified within the noninterest expenses caption.

Segment Reporting

Operating segments are components of a business about which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources and assessing performance.

The Bank is the Company’s only reportable operating segment upon which management makes decisions regarding how to allocate resources and assess performance.

While the Company’s chief operating decision maker has some limited financial information about its various financial products and services including the Title Company, that information is not complete since it does not include a full allocation of revenue, costs, and capital from key corporate functions;

therefore, the Company evaluates financial performance on a company-wide basis.

Management continues to evaluate the Company's business units for separate reporting as facts and circumstances change.

Business Combination

The Company accounts for business combinations utilizing the acquisition method of accounting, which necessitates that purchased assets and assumed liabilities be recorded at their respective fair values.

In numerous instances, the fair values of acquired assets and assumed liabilities are ascertained by estimating the anticipated cash flows from those assets and liabilities and discounting them at appropriate market rates.

The Company determines the fair values of loans, core deposit intangibles, and deposits with the assistance of a third-party vendor.

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

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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.

interest payments, current market rates, and remaining balances.

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

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Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired.

Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or

because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.

Other intangible assets represent purchased assets that also lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset or liability.

Goodwill and other intangible assets are initially required to be recorded at fair value.

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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.

As of December 31, 2023, the Company had one operating segment the Community Banking segment.

Other intangible assets consist of core deposit intangible assets arising from whole bank and branch acquisitions and are amortized using an accelerated method over their estimated useful lives, which range from 7 to 10 years.

During 2023 and 2022, goodwill and other intangible assets were subjected to assessments for impairment.

As of December 31, 2024, the Company had one operating segment, the Banking segment.

During the years ended December 31, 2024 and 2023, goodwill and other intangible assets were subjected to assessments for impairment.

No impairment charges were recognized in either year.

Our assessment of goodwill concluded it was not more likely than not that the fair value of the Company's reporting unit was less than their carrying amount.

Other Real Estate Owned (“OREO”)

Other real estate owned represents assets acquired in satisfaction of loans either by foreclosure or deeds taken in lieu of foreclosure.

Properties acquired are recorded at fair value less estimated selling costs at the time of acquisition, establishing a new cost basis.

Thereafter, costs incurred to operate or carry the properties as well as reductions in value as determined by periodic appraisals are charged to operating expense.

Gains and losses resulting from the final disposition of the properties are included in noninterest expense.

Short-term and long-term borrowings are comprised primarily of FHLB borrowings.

Our assessment of goodwill concluded it was not more likely than not that the fair value of the Company’s reporting unit was less than its carrying amount.

Short-term and long-term borrowings are comprised primarily of Federal Home Loan Bank (“FHLB”) borrowings.

The Company’s short-term borrowings may also include advances on other lines of credit with correspondent banks or repurchase agreements with customers.

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Subordinated debt is carried at its outstanding principal balance, net of any unamortized issuance costs and acquisition related fair value adjustments.

For additional information on the Company’s subordinated debt, refer to Note 9 of the Consolidated Financial Statements.

For additional information on the Company’s subordinated debt, refer to Note 9 – “Borrowings.”

Cash and Cash Equivalents

Cash and cash equivalents include cash, deposits with other financial institutions with original maturities fewer than 90 days and federal funds sold.

Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

Derivative Financial Instruments and Hedging

We account for derivatives in accordance with Financial Accounting Standards Board (“FASB”) literature on accounting for derivative instruments and hedging activities.

When we enter into a derivative contract, we designate the derivative as held for trading, an economic hedge, or a qualifying hedge as detailed in the literature.

The designation may change based upon management’s reassessment or changing circumstances.

Derivatives utilized by the Company include interest rate lock commitments (“IRLCs”) and forward settlement contracts.

IRLCs occur when we originate mortgage loans with interest rates determined prior to funding.

Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index, currency, or commodity at a predetermined future date, rate, or price.

We designate at inception whether a derivative contract is considered hedging or non-hedging.

All of our derivatives are nonexchange traded contracts, and as such, their fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require significant management judgement or estimation.

For qualifying hedges, we formally document at inception all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various accounting hedges.

We primarily utilize derivatives to manage interest rate sensitivity.

At December 31, 2024 and 2023, the Company did not have any designated hedges.

The Company measures certain financial assets and liabilities at fair value and also makes disclosures about certain financial instruments that are not measured at fair value in the consolidated balance sheets.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Fair value estimates involve uncertainties and matters of significant judgement regarding interest rates, credit risk, and other factors, particularly in the absence of broad markets for specific terms.

Changes in assumptions or in market conditions could significantly affect these estimates.

See Note 17 – “Fair Value Measurements” for a further discussion of fair value.

The Company and its subsidiary file a consolidated federal income tax return.

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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 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, 2021.

Derivative Financial Instruments and Hedging

We account for derivatives in accordance with FASB literature on accounting for derivative instruments and hedging activities.

When we enter into a derivative contract, we designate the derivative as held for trading, an economic hedge, or a qualifying hedge as detailed in the literature.

The designation may change based upon management’s reassessment or changing circumstances.

Derivatives utilized by the Company include interest rate lock commitments (“IRLC” or “IRLCs”) and forward settlement contracts.

IRLCs occur when we originate mortgage loans with interest rates determined prior to funding.

Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index, currency, or commodity at a predetermined future date, rate, or price.

We designate at inception whether a derivative contract is considered hedging or non-hedging.

We primarily utilize derivatives to manage interest rate sensitivity.

At December 31, 2023 and 2022 we did not have any designated hedges.

Basic and Diluted Earnings Per Common Share

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Control over transferred assets is deemed to be surrendered when (i) the assets have been isolated from the Company, (ii) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (iii) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Cash and Cash Equivalents

Cash and due from banks, interest-bearing deposits with other banks and federal funds sold are considered “cash and cash equivalents” for financial reporting purposes.

Certain interest-bearing deposits with banks may exceed balances that are recoverable under Federal Deposit Insurance Corporation (“FDIC”) insurance.

Balances in excess of FDIC insurance at December 31, 2023 were approximately $ 8.7 million and approximately $ 1.8 million at December 31, 2022.

Share-Based Compensation

The Company may grant share-based compensation to employees and non-employee directors in the form of restricted stock, restricted stock units and stock options.

The fair value of restricted stock is determined based on the closing price of the Parent’s common stock on the date of grant.

The Company may grant share-based compensation to employees and non-employee directors in the form of restricted stock, restricted stock units (“RSUs”) and stock options.

The fair value of restricted stock is determined based on the closing price of the Bank’s holding company common stock on the date of grant.

The Company recognizes compensation expense related to restricted stock on a straight-line basis over the vesting period for service-based awards.

The fair value of RSUs is initially valued based on the closing price of the Parent’s common stock on the date of grant and is amortized in the statement of income over the vesting period.

The fair value of RSUs is initially valued based on the closing price of the Bank’s

holding company common stock on the date of grant and is amortized in the statement of income over the vesting period.

The RSUs are subsequently remeasured in each reporting period until settlement based on the quantity of awards for which it is probable that the performance conditions will be achieved.

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The Company uses historical data to predict option exercise and employee termination behavior.

Expected volatilities are based on the historical volatility of the Parent’s common stock.

Expected volatilities are based on the historical volatility of the Bank’s holding company common stock.

The expected term of options granted is derived from actual historical exercise activity and represents the period of time that options granted are expected to be outstanding.

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Treasury yield curve in effect at the time of grant based on the expected life of the option.

The dividend yield is equal to the dividend yield of the Parent’s common stock at the time of grant.

Expense related to stock options is recorded in the statements of income as a component of salaries and benefits for employees and as a component of other noninterest expense for non-employee directors, with a corresponding increase to capital surplus in shareholders’ equity.

Changes in assumptions or in market conditions could significantly affect these estimates.

See Note 18 for a further discussion of fair value.

The dividend yield is equal to the dividend yield of the Bank’s holding company common stock at the time of grant.

Expense related to shared-based compensation is recorded in the statements of income as a component of salaries and employee benefits for employees and as a component of other noninterest expense for non-employee directors, with a corresponding increase to capital surplus in shareholders’ equity.

Advertising Costs

Advertising costs are generally expensed as incurred.

The Company incurred advertising costs of approximately $ 1.1 million for the year ended December 31, 2023 and $ 0.9 million for the year ended December 31, 2022.

The Company incurred advertising costs of approximately $ 1.3 million and $ 1.1 million for the years ended December 31, 2024 and 2023, respectively.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) consists of unrealized gains and losses on available-for-sale securities net of any gains recognized from the sale of available-for-sale securities.

There were no reclassifications from accumulated other comprehensive income in 2023 and 2022.

Adoption of Accounting Standards

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

January 1, 2023

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

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

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

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

Reserve for Unfunded Commitments $ 581 $ 316 $ 265

As discussed in Note 2, the Company completed the merger with The Community Financial Corporation (“TCFC”) on July 1, 2023.

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

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

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

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

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

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

The following table shows the impact of change in methodology.

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

Construction $ 2,386 $ 33 $ 2,419

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

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

Commercial 1,956 442 2,398

Consumer 5,254 1,791 7,045

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

Accounting policies applied to prior periods are described in the 2022 Annual Report.

Recent Accounting Standards and Other Authoritative Guidance

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

Other comprehensive income (loss) consists of unrealized holding gains and losses on available for sale securities, net of any gains recognized from the sale of available for sale securities.

There were no reclassifications from accumulated other comprehensive income during the years ended December 31, 2024 and 2023.

Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280):

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

This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”).

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

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

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

Early adoption is permitted.

The Company adopted this standard as of December 31, 2024 and the Company did not have a material impact on its consolidated financial statements.

Segment Reporting for more details.

Recent Accounting Pronouncements

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

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

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

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

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

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

Early adoption

is permitted.

The amendments should be applied retrospectively.

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

BUSINESS COMBINATION

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

Note 2 – Business Combination

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

The primary reasons for the merger included:

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attractive low-cost funding base;

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

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

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

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The acquisition of TCFC was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid are recorded at estimated fair values on the Acquisition Date.

The provisional amount of bargain purchase gain as of the Acquisition Date was approximately $ 8.8 million.

The amount of bargain purchase gain as of the Acquisition Date was approximately $ 8.8 million.

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

The exchange ratio was determined at the time of announcement of the merger between the Company and TCFC in December of 2022 when the stock price of the Company was much higher than at the legal merger date.

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The decline in stock price for the Company was comparable to other financial institutions similar to the Company leading up to the merger due to bank failures in the first quarter of 2023 and increases to overnight borrowing rates by the Fed which resulted in continued pressure on net interest margins.

The Company will continue to keep the measurement of bargain purchase gain open for any additional adjustments to the fair value of certain accounts, for example loans, that may arise during the Company’s final review procedures of any updated information.

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

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

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

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Total identifiable liabilities $ 2,250,425

Provisional fair value of net assets acquired $ 162,408

Provisional bargain purchase gain $ ( 8,816 )

Fair value of net assets acquired $ 162,408

Bargain purchase gain $ ( 8,816 )

____________________________________

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

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

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

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

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

INVESTMENT SECURITIES

On January 1, 2023, the Company adopted ASC 326, which made changes to accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity.

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

All securities information presented as of December 31, 2023 is in accordance with ASC 326.

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

For further discussion on the Company’s accounting policies and policy elections related to the accounting standard update refer to Note 1.

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

(Dollars in thousands) Three Months Ended December 31, 2023 Twelve Months Ended December 31, 2023

Balance, beginning of period $ 126 $ —

Other debt securities, provision for credit losses ( 32 ) 94

Balance, end of period $ 94 $ 94

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

Upon re-estimation in the fourth quarter of 2023, a provision of $( 32 ) thousand was recorded based on the results of our evaluation at December 31, 2023.

A provision for credit losses of $ 94 thousand was recorded for the twelve months ended December 31, 2023.

The following table provides information on the amortized cost and estimated fair values of investment securities at December 31, 2023 and December 31, 2022.

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

Note 3 – Investment Securities

The following tables provide information on the amortized cost and estimated fair values of investment securities at December 31, 2024 and 2023.

($ in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

Available for sale securities:

December 31, 2024

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

Treasury and government agency securities $ 22,984 $ 4 $ 2,786 $ 20,202

Mortgage-backed securities 130,439 84 8,139 122,384

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December 31, 2023

Treasury and government agencies $ 21,798 $ 5 $ 3,625 $ 18,178

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

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

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

No AFS securities were sold from the Company’s legacy securities’ portfolios during 2023 and 2022.

The Company sold virtually all of the AFS securities portfolio acquired from TCFC immediately after the legal merger with the proceeds of $ 434.2 million, and recognized gross losses of $ 2.2 million from the sale of securities.

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

No AFS securities were sold from the Company’s legacy securities portfolios during the years ended December 31, 2024 and 2023.

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

Held to maturity securities:

December 31, 2024

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

Treasury and government agency securities $ 132,560 $ — $ 8,555 $ 124,005 $ —

Mortgage-backed securities 336,755 — 47,234 289,521 —

Obligations of states and political subdivisions 1,470 57 19 1,508

Obligations of states and political entities 1,465 19 34 1,450 —

Other debt securities 10,500 — 742 9,758 203

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December 31, 2023

Treasury and government agencies $ 148,097 $ — $ 13,601 $ 134,496

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

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

Obligations of states and political subdivisions 1,474 35 28 1,481

Obligations of states and political entities 1,470 57 19 1,508 —

Other debt securities 10,500 — 1,249 9,251 94

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

Equity securities with an aggregate fair value of $ 5.7 million at December 31, 2023 and $ 1.2 million at December 31, 2022 are presented separately on the balance sheet.

The fair value adjustment recorded through earnings totaled $ 54 thousand for 2023 and $( 0.2 ) million for 2022, respectively.

Credit Quality Information

The Company monitors the credit quality of HTM securities through credit ratings provided by Standard & Poor’s Rating Services and Moody’s Investor Services.

Credit ratings express opinions about the credit quality of a security, and are updated at each quarter end.

Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk.

Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities.

There were no speculative grade HTM securities at December 31, 2023 or December 31, 2022.

HTM securities that are not rated are agency mortgage-backed securities sponsored by U.S.

government agencies, as well as direct obligations of the agencies, with the remainder being sub-debt of other banks.

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

December 31, 2023

Investment Grade

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

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

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

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

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

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

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

Equity securities with aggregate fair values of $ 5.8 million and $ 5.7 million at December 31, 2024 and 2023, respectively, are presented separately on the consolidated balance sheets.

The fair value adjustments recorded through earnings totaled $ 55 thousand and $ 54 thousand for the years ended December 31, 2024 and 2023, respectively.

On January 1, 2023, the Company adopted ASC 326, which made changes to accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down, when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity.

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

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

Year Ended December 31,

($ in thousands) 2024 2023

Balance, beginning of period $ 94 $ —

Provision for credit losses, other debt securities 109 94

Balance, end of period $ 203 $ 94

A provision for credit losses of $ 109 thousand and $ 94 thousand was recorded on HTM corporate and municipal bonds for the years ended December 31, 2024 and 2023, respectively.

The following tables provide information about gross unrealized losses and fair value by length of time that the individual securities have been in a continuous unrealized loss position at December 31, 2024 and 2023.

Less than 12 Months More than 12 Months Total

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

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

December 31, 2024

Available for sale securities:

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

Treasury and government agency securities $ 207 $ — $ 17,422 $ 2,786 $ 17,629 $ 2,786

Mortgage-backed securities 56,913 710 48,782 7,429 105,695 8,139

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Less than 12 Months More than 12 Months Total

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

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

December 31, 2023

Available for sale securities:

Treasury and government agencies $ 1,165 $ 4 $ 16,585 $ 3,588 $ 17,750 $ 3,592

Mortgage-backed securities 29,125 2,409 34,167 6,290 63,292 8,699

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

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

Held-to-maturity securities:

Treasury and government agencies $ 67,332 $ 2,786 $ 67,163 $ 10,815 $ 134,495 $ 13,601

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

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

Obligations of states and political subdivisions 780 28 — — 780 28

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

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There were 111 AFS debt securities with a fair value below the amortized cost basis, with unrealized losses totaling $ 10.9 million as of December 31, 2024.

The Company concluded that a credit loss does not exist in its AFS securities portfolio as of December 31, 2023, and no impairment loss has been recognized based on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest.

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

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

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

government agencies or U.S.

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Because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be at maturity for debt securities, the Company considers the unrealized losses to be temporary.

There were a 115 available-for-sale securities and a 185 held to maturity securities in an unrealized loss position at December 31, 2023.

There were 111 available for sale securities and 187 held to maturity securities in an unrealized loss position at December 31, 2024.

There were 115 available for sale securities and a 185 held to maturity securities in an unrealized loss position at December 31, 2023.

The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at December 31, 2023.

Net unrealized losses of the AFS securities totaled $ 10.4 million as of December 31, 2023.

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

Available for Sale Held to Maturity

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

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

Due in one year or less $ 2,454 $ 2,456 $ 7,000 $ 6,962

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Due after ten years 457 434 11,367 9,324

29,154 26,828 144,525 135,213

Mortgage-backed securities 130,439 122,384 336,755 289,521

Total $ 159,593 $ 149,212 $ 481,280 $ 424,734

The maturity dates for debt securities are determined using contractual maturity dates.

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

At December 31, 2024, the aggregate carrying value of pledged AFS and HTM pledged securities was $ 67.9 million and $ 197.5 million, respectively.

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The following table sets forth the amortized cost and estimated fair values of securities which have been pledged as collateral for obligations to federal, state and local government agencies, and other purposes as required or permitted by law, or sold under agreements to repurchase at December 31, 2024 and 2023.

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

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

Pledged available for sale securities $ 76,280 $ 67,926 $ 62,290 $ 54,489

Pledged held to maturity securities 197,474 173,248 185,876 167,649

There were no obligations of states or political subdivisions with carrying values, as to any issuer, exceeding 10% of stockholders’ equity at December 31, 2023 or 2022.

LOANS AND ALLOWANCE FOR CREDIT LOSSES

There were no obligations to any issuer exceeding 10% of stockholders’ equity at December 31, 2024 or 2023.

Note 4 – Loans and Allowance for Credit Losses

On January 1, 2023, the Company adopted ASC 326.

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For further discussion on the most significant accounting policies that the Company follows see Note 1 – “Summary of Significant Accounting Policies.”

All loan information presented as of December 31, 2023 is in accordance with ASC 326.

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

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

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

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

Construction $ 299,000 6.40 % $ 246,319 9.60 %

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

The Company classifies loans as commercial real estate, residential real estate, construction, commercial, consumer and credit cards, and the customers are primarily in Anne Arundel County, Baltimore County, Charles County, Calvert County, St.

Mary’s County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County and Worcester County in Maryland, Kent and Sussex County, Delaware and in Accomack County, Stafford County, Spotsylvania County, and Fredericksburg city in Virginia.

The Company makes loans to certain officers, directors and their affiliated interests.

See Note 20 – “Related Party Transactions” for more information.

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

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

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

Residential real estate 1,329,406 27.86 1,239,731 26.71

Construction 335,999 7.04 299,000 6.44

Commercial 237,932 4.99 229,939 4.95

4 unchanged sentences

Total loans, net $ 4,714,078 $ 4,583,659

In the normal course of banking business, loans are made to officers and directors and their affiliated interests.

These loans are made on substantially the same terms and conditions as those prevailing at the time for comparable transactions with persons who are not related to the Company and are not considered to involve more than the normal risk of collectability.

As of December 31, 2023 and 2022, such loans outstanding, both direct and indirect (including guarantees), to directors, their associates and policy-making officers, totaled approximately $ 53.1 million and $ 24.1 million, respectively.

During 2023 and 2022, loan additions were approximately $ 35.9 million and $ 7.7 million of which $ 27.4 million were due to the 2023 acquisition of TCFC and loan repayments and no longer reportable loans were approximately $ 1.3 million and $ 2.2 million, respectively.

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

Included in loans were deferred costs, net of fees, of $ 2.2 million and $ 1.4 million at December 31, 2023 and December 31, 2022.

At December 31, 2023 and December 31, 2022, included in total loans were $ 297.9 million and $ 372.2 million in loans, acquired as part of the acquisition of Severn Bancorp, Inc.

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

These balances were presented net of the related discount which totaled $ 4.7 million and $ 6.7 million at December 31, 2023 and December 31, 2022, respectively.

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

This balance was presented net of the related discount which totaled $ 108.4 million at December 31, 2023.

The following purchased credit deteriorated loans were acquired in connection with the TCFC merger on July 1, 2023.

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

Construction $ 177 $ ( 11 ) $ ( 3 ) $ 163

Residential real estate 8,379 ( 1,307 ) ( 215 ) 6,857

Included in loans were deferred costs, net of fees, of $ 3.2 million and $ 2.2 million at December 31, 2024 and 2023, respectively.

At December 31, 2024 and 2023, loans included $ 1.69 billion and $ 1.94 billion, respectively, of aggregate loans that were acquired as part of the acquisitions of Severn Bancorp, Inc.

(“Severn”) and TCFC.

These balances were presented net of the related aggregate discounts, which totaled $ 92.0 million and $ 113.1 million at December 31, 2024 and 2023, respectively.

At December 31, 2024, the Bank was servicing $ 366.5 million in loans for the Federal National Mortgage Association and $ 116.6 million in loans for the Federal Home Loan Mortgage Corporation.

The following tables provide information on amortized cost basis on nonaccrual loans by loan class as of December 31, 2024 and 2023.

($ in thousands) Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Loss Total Nonaccrual Loans

December 31, 2024

Nonaccrual loans:

Commercial real estate $ 8,192 $ 2,194 $ 10,386

Residential real estate 6,741 873 7,614

Construction 360 — 360

Commercial 458 549 1,007

Consumer 761 712 1,473

Credit Card 999 ( 222 ) ( 18 ) 759

Credit cards — 168 168

Total $ 16,512 $ 4,496 $ 21,008

At December 31, 2023, the Bank was servicing $ 371.5 million in loans for the Federal National Mortgage Association and $ 113.2 million in loans for Freddie Mac.

The following tables provides information on nonaccrual loans by loan class as of December 31, 2023.

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

Interest income $ 274 $ 65 $ 339

($ in thousands) Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Loss Total Nonaccrual Loans

December 31, 2023

Nonaccrual loans:

Construction $ 626 $ — $ 626

Residential real estate 5,865 480 6,345

Commercial real estate $ 4,795 $ — $ 4,795

Residential real estate 5,434 480 5,914

Construction 626 — 626

Commercial 176 368 544

2 unchanged sentences

Interest income $ 399 $ 53 $ 452

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

($ in thousands) Nonaccrual Delinquent Loans Nonaccrual Current Loans Total Nonaccrual Loans

December 31, 2024

Nonaccrual loans:

Construction $ 221 $ 405 $ 626

Commercial real estate $ 7,268 $ 3,118 $ 10,386

Residential real estate 3,979 3,635 7,614

Construction 360 — 360

Commercial 70 937 1,007

Consumer 1,431 42 1,473

Credit cards 146 22 168

Total $ 13,254 $ 7,754 $ 21,008

($ in thousands) Nonaccrual Delinquent Loans Nonaccrual Current Loans Total Nonaccrual Loans

December 31, 2023

Nonaccrual loans:

Commercial real estate $ 1,215 $ 3,580 $ 4,795

Residential real estate 4,137 1,777 5,914

Construction 221 405 626

Commercial 28 516 544

4 unchanged sentences

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

Loans are graded on a scale of one to ten.

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

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

As of December 31, 2024, there were 7 credit cards that were evaluated based on economic conditions specific to the loans or borrowers, and were downgraded to substandard and nonperforming.

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

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

10 unchanged sentences

When a loan is assigned to this category the Bank may estimate a specific reserve in the loan loss allowance analysis and/or place the loan on nonaccrual.

These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies.

These assets listed may include assets with histories of repossessions or some that are nonperforming bankruptcies.

These relationships will be reviewed at least quarterly.

8 unchanged sentences

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

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

The following table provides information on loan risk ratings as of December 31, 2024 and gross write-offs during the year ended December 31, 2024.

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

(Dollars in thousands) Prior 2019 2020 2021 2022 2023

($ in thousands) Prior 2020 2021 2022 2023 2024

December 31, 2024

Commercial real estate

Pass $ 822,391 $ 297,098 $ 435,084 $ 534,936 $ 250,482 $ 136,891 $ 24,966 $ 14,084 $ 2,515,932

Special mention 7,514 — 2,964 19,746 — — 417 — $ 30,641

Substandard 7,684 — 2,991 — — — 558 — 11,233

7 unchanged sentences

Gross charge-offs $ ( 1 ) $ — $ — $ — $ — $ — $ — $ — $ ( 1 )

Commercial real estate

Pass $ 31,884 $ 8,191 $ 8,628 $ 56,685 $ 70,232 $ 131,383 $ 26,785 $ 1,851 $ 335,639

18 unchanged sentences

Total gross charge-offs $ ( 1,342 ) $ ( 23 ) $ ( 401 ) $ ( 1,820 ) $ ( 246 ) $ — $ ( 17 ) $ — $ ( 3,849 )

The following tables present the amortized cost in credit card loans based on performing status and gross charge-off as of December 31, 2024 and gross write-offs during the year ended December 31, 2024.

Nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing.

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

(Dollars in thousands) Prior 2019 2020 2021 2022 2023

($ in thousands) Prior 2020 2021 2022 2023 2024

Performing $ — $ — $ — $ — $ — $ — $ 6,931 $ — $ 6,931

Non-Performing — — — — — — — — —

Nonperforming — — — — — — 168 — 168

Total $ — $ — $ — $ — $ — $ — $ 7,099 $ — $ 7,099

3 unchanged sentences

Total recorded investment $ 1,195,244 $ 405,932 $ 764,538 $ 1,052,957 $ 634,525 $ 461,566 $ 239,292 $ 17,934 $ 4,771,988

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

Current Accrual Loans (1)

Current Non-accrual Loans Total

(Dollars in thousands) 30‑59 days past due 60‑89 days past due 90 days past due and still accruing 90 days past due and not accruing Total past due

The following tables provide information on loan risk rating as of December 31, 2023 and gross write-offs during the year ended December 31, 2023.

Term Loans by Origination Year Revolving

Loans Revolving

Term Loans Total

($ in thousands) Prior 2019 2020 2021 2022 2023

December 31, 2023

Construction $ 1,919 $ — $ — $ 220 $ 2,139 $ 296,456 $ 405 $ 299,000

Commercial real estate

Pass $ 710,211 $ 196,706 $ 335,855 $ 455,887 $ 524,943 $ 251,922 $ 28,304 $ 2,138 $ 2,505,966

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

Substandard 2,119 2,029 — 542 — — 432 — 5,122

Total $ 727,316 $ 199,066 $ 335,855 $ 461,930 $ 529,389 $ 251,922 $ 28,836 $ 2,547 $ 2,536,861

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

Residential real estate

Pass $ 277,359 $ 48,434 $ 81,394 $ 222,132 $ 295,675 $ 198,907 $ 106,346 $ 874 $ 1,231,121

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

Substandard 6,000 — — — — — 941 — 6,941

Total $ 283,513 $ 48,690 $ 81,958 $ 222,635 $ 295,675 $ 198,907 $ 107,479 $ 874 $ 1,239,731

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

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

Substandard 199 — — 12 418 — — — 629

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

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

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

Special mention 143 — — 425 — — 251 — 819

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

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

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

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

Special mention — — — — — — 2 — 2

Substandard — 38 5 80 780 — 1 — 904

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

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

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

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

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

Total loans by

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

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

The following tables present the amortized cost in credit card loans based on performing status and gross charge-offs as of December 31, 2023, and gross write-offs during the year ended December 31, 2023.

Nonperforming loans consisted of nonaccrual loans and loans past due 90 days or more and still accruing.

Term Loans by Origination Year Revolving

Loans Revolving

Term Loans Total

($ in thousands) Prior 2019 2020 2021 2022 2023

December 31, 2023

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

Nonperforming — — — — — — — — —

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

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

Total loans evaluated

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

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

Total recorded

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

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

($ in thousands) 30‑59 Days

Past Due 60‑89 Days

Past Due 90 Days Past

Due and Still

Accruing 30-89 Days

Not Accruing 90 Days Past

Accruing Total Past

December 31, 2024

Commercial real estate $ 75 $ — $ — $ 2,328 $ 4,940 $ 7,343 $ 2,547,345 $ 3,118 $ 2,557,806

Residential real estate 3,828 246 127 655 3,324 8,180 1,317,591 3,635 1,329,406

Construction 30 — — — 360 390 335,609 — 335,999

Commercial 152 2 — — 70 224 236,771 937 237,932

5 unchanged sentences

(1) Includes loans measured at fair value of $ 9.5 million at December 31, 2024.

Accruing Nonaccrual PCI Total

(Dollars in thousands) Current (1)

30‑59 days past due 60‑89 days past due Greater than 90 days Total past due

Loan were transferred from loans held for sale.

($ in thousands) 30‑59 Days

Past Due 60‑89 Days

Past Due 90 Days Past

Due and Still

Accruing 30-89 Days

Not Accruing 90 Days Past

Accruing Total Past

December 31, 2023

Construction $ 239,990 $ 4,343 $ 1,015 $ 24 $ 5,382 $ 297 $ 650 $ 246,319

Residential real estate 787,070 6,214 891 1,107 8,212 1,259 13,956 810,497

Commercial real estate $ 82 $ — $ — $ — $ 1,215 $ 1,297 $ 2,531,984 $ 3,580 $ 2,536,861

Residential real estate 2,354 271 108 1,469 2,668 6,870 1,231,084 1,777 1,239,731

Construction 1,919 — — — 221 2,140 296,455 405 299,000

Commercial 48 — 488 — 28 564 228,859 516 229,939

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

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

Total $ 7,662 $ 1,698 $ 738 $ 1,493 $ 5,011 $ 16,602 $ 4,618,128 $ 6,280 $ 4,641,010

2 unchanged sentences

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

The following tables provide a summary of the activity in the ACL allocated by loan class for the twelve months ended December 31, 2023 and December 31, 2022.

Loan were transferred from loans held for sale.

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

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

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

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

For the year ended December 31, 2023

Construction $ 2,973 $ 1,222 $ 3 $ — $ 15 $ 15 $ ( 278 ) $ 3,935

Residential real estate 2,622 4,974 215 ( 119 ) 44 ( 75 ) 14,213 21,949

Commercial real estate 4,899 3,742 985 ( 1,326 ) — ( 1,326 ) 12,675 20,975

Commercial 1,652 401 278 ( 243 ) 11 ( 232 ) 572 2,671

4,497 452 14 ( 574 ) 284 ( 290 ) 2,928 7,601

Credit Card — — 18 ( 111 ) — ( 111 ) 313 220

Total $ 16,643 $ 10,791 $ 1,513 $ ( 2,373 ) $ 354 $ ( 2,019 ) $ 30,423 $ 57,351

____________________________________

(1) Gross charge-offs of consumer loans for the twelve months ended December 31, 2023 included $ 0.2 million of demand deposit overdrafts.

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

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

For the year ended December 31, 2022

Allowance for credit losses:

Construction $ 2,454 — 13 13 506 $ 2,973

Residential real estate 2,858 ( 5 ) 142 137 ( 373 ) 2,622

($ in thousands) Beginning Balance Charge-offs Recoveries Provision Ending Balance

Year ended December 31, 2024

Commercial real estate $ 23,015 $ — $ — $ ( 169 ) $ 22,846

Commercial 2,070 ( 546 ) 227 ( 319 ) ( 99 ) 1,652

Consumer 1,964 ( 31 ) 29 ( 2 ) 2,535 4,497

Total $ 13,944 $ ( 588 ) $ 1,362 $ 774 $ 1,925 $ 16,643

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

December 31, 2023

(Dollars in thousands) Real Estate Collateral Other Collateral Total

Construction $ 662 $ — $ 662

Residential real estate 19,909 ( 1 ) 7 1,861 21,776

Commercial real estate 6,134 — 6,134

Commercial — 1,106 1,106

Consumer — 904 904

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

The company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended December 31, 2023.

Loan Modifications to Borrowers Experiencing Financial Difficulty

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

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

Loan Classes Modification Types

Commercial Real Estate Term extension greater than three months .

Commercial Term extension greater than three months .

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during twelve months ended December 31, 2023.

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

December 31, 2023

Construction 3,935 ( 12 ) 13 ( 1,082 ) 2,854

Residential real estate — — — — — — —

Residential rentals — — — — — — —

Commercial real estate 125 — — — — 125 0.01

Commercial 2,671 ( 190 ) 15 642 3,138

Consumer — — — — — — —

7,601 ( 3,646 ) 317 2,617 6,889

Credit cards 220 ( 584 ) 9 762 407

Total $ 57,351 $ ( 4,433 ) $ 361 $ 4,631 $ 57,910

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023.

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

December 31, 2023

Construction 0

Residential real estate 0

Residential rentals 0

(1) Gross charge-offs of consumer loans for the year ended December 31, 2024 included $ 699 thousand of demand deposit overdrafts.

($ in thousands) Beginning

Balance Impact of

Adoption Merger

Adjustments (2)

offs Recoveries Provision Ending

Year ended December 31, 2023

Commercial real estate $ 5,238 $ 3,922 $ 986 $ ( 1,326 ) $ — $ 14,195 $ 23,015

Commercial 12

Credit Cards 0

During the twelve months ended December 31, 2023, there were no defaults on loan modifications made to borrowers experiencing financial difficulty.

The following table present the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of December 31, 2023.

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

December 31, 2023

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

Residential real estate 2,283 4,794 214 ( 119 ) 44 12,693 19,909

Residential rentals — — — — — — — —

Commercial real estate — — — — — — 125 125

Construction 2,973 1,222 3 — 15 ( 278 ) 3,935

Commercial 1,652 401 278 ( 243 ) 11 572 2,671

Consumer — — — — — — — —

4,497 452 14 ( 574 ) 284 2,928 7,601

Credit cards — — 18 ( 111 ) — 313 220

Total $ 16,643 $ 10,791 $ 1,513 $ ( 2,373 ) $ 354 $ 30,423 $ 57,351

Foreclosure Proceedings

There were $ 0.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of December 31, 2023 and $ 0.3 million as of December 31, 2022, respectively.

There were no residential real estate properties included in the balance of OREO at December 31, 2023 and one residential real estate property totaling $ 18,000 at December 31, 2022.

Prior to the adoption of ASC 326

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

(1) Gross charge-offs of consumer loans for the year ended December 31, 2023 included $ 239 thousand of demand deposit overdrafts.

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

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

December 31, 2024

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

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

Carrying amount

Construction $ 650 $ 18,761 $ 19,411

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

($ in thousands) Real Estate Collateral Other Collateral Total

Commercial real estate $ 12,835 $ — $ 12,835

Commercial 156 35,687 35,843

Consumer 14 697 711

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

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

(Dollars in thousands) For the Year Ended December 31, 2022

Accretable yield, beginning of period $ 5,367

Accretion ( 1,603 )

Reclassification of nonaccretable difference due to improvement in expected cash flows 469

Other changes, net 506

Accretable yield, end of period $ 4,739

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

(Dollars in thousands) Loans individually evaluated for impairment Loans collectively evaluated for impairment (1)

Acquired loans - PCI Total

December 31, 2022

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

Residential real estate 9,023 — 9,023

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

Commercial 174 147,526 156 147,856

Consumer 28 285,984 14 286,026

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

Allowance for credit losses allocated to:

Loans individually evaluated for impairment Loans collectively evaluated for impairment Total allowance

December 31, 2022

Construction 360 — 360

Residential real estate 127 2,495 2,622

Commercial real estate — 4,899 4,899

Commercial — 3,039 3,039

1 unchanged sentence

Total $ 22,218 $ 4,522 $ 26,740

____________________________________

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

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

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

(Dollars in thousands) Unpaid principal balance Recorded investment with no allowance Recorded investment with an allowance Related allowance Year-to-date average recorded investment Interest income recognized

December 31, 2023

Impaired nonaccrual loans:

Construction $ 297 $ 297 $ — $ — $ 309 $ —

Residential real estate 1,363 1,259 — — 1,661 —

Commercial real estate 159 150 — — 604 —

Commercial 359 174 — — 227 —

Consumer 29 28 — — 43 —

Total $ 2,207 $ 1,908 $ — $ — $ 2,844 $ —

Impaired accruing TDRs:

Construction $ 10 $ 10 $ — $ — $ 16 $ 1

Residential real estate 2,849 1,176 1,539 127 2,979 108

($ in thousands) Real Estate Collateral Other Collateral Total

Commercial real estate $ 6,566 $ — $ 6,566

Commercial — — — — — —

Consumer — — — — 5 —

Total $ 4,539 $ 2,866 $ 1,539 $ 127 $ 5,095 $ 165

Other impaired accruing loans:

Construction $ 24 $ 24 $ — $ — $ 215 $ 6

Residential real estate 7,615 — 7,615

Commercial real estate 710 710 — — 553 30

Commercial — — — — 51 1

Consumer — — — — 15 —

Total $ 1,841 $ 1,841 $ — $ — $ 1,308 $ 40

Total impaired loans:

Construction 662 — 662

Residential real estate 5,319 3,542 1,539 127 5,114 111

Commercial real estate 2,549 2,540 — — 3,252 86

Commercial — 1,106 1,106

1 unchanged sentence

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

Management uses risk ratings as part of its monitoring of the credit quality in the Company’s loan portfolio.

Loans that are identified as special mention, substandard or doubtful are adversely rated.

These loans and the pass/watch loans are assigned higher qualitative factors than favorably rated loans in the calculation of the formula portion of the allowance for credit losses.

At December 31, 2022, there were no nonaccrual loans classified as special mention or doubtful and $ 1.9 million of nonaccrual loans were classified as substandard.

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

(Dollars in thousands) Pass/Performing (1)

Pass/Watch Special Mention Substandard Doubtful PCI Total

Loan Modifications to Borrowers Experiencing Financial Difficulty

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

During the year ended December 31, 2024, one loan modification in the form of a monthly payment reduction was made to a borrower experiencing financial difficulty.

During the year ended December 31, 2023, three loan modifications, each of which were in the form of a one-year term extension, were made to borrowers experiencing financial difficulty.

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

As of December 31, 2024, loan modification balances with borrowers experiencing financial diff iculty that were modified during the preceding 12 months were classified as current nonaccrual, of which $ 97 thousand were for commercial real estate loans and $ 203 thousand were for commercial loans, and current accrual which had a balance of $ 1.4 million in commercial real estate;

compared to December 31, 2023, which had current nonaccrual balances of $ 125 thousand and $ 89 thousand for commercial real estate and commercial loans, respectively, and current accrual balances of $ 153 thousand in commercial loans.

Foreclosure Proceedings

There were $ 124 thousand and $ 175 thousand of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of December 31, 2024 and 2023, respectively.

Other Real Estate Owned (“OREO”) and Repossessed Assets

OREO and repossessed assets are adjusted for fair value upon transfer from loans to foreclosed assets establishing a new cost basis.

Subsequently, foreclosed assets are carried at the lower of carrying value or fair value.

The Company had OREO and repossessed asset balances of $ 179 thousand and $ 3.3 million as of December 31, 2024 and $ 179 thousand and zero as of December 31, 2023, respectively.

Mortgage Servicing Rights (“MSRs”)

Mortgage loans are sold with servicing retained and the MSRs are initially recorded at fair value with the income statement effect recorded in mortgage banking revenue.

The Company recognized net servicing income of $ 898 thousand and $ 866 thousand for the years ended December 31, 2024 and 2023, respectively.

The following table presents activity in MSRs for the year ended December 31, 2024.

($ in thousands) Year Ended

December 31, 2024

Construction $ 231,160 $ 14,212 $ — $ 297 $ — $ 650 $ 246,319

Residential real estate 761,405 32,467 1,239 1,430 — 13,956 810,497

Commercial real estate 929,501 121,711 1,814 517 — 11,866 1,065,409

Commercial 131,084 15,958 484 174 — 156 147,856

Consumer 285,786 196 2 28 — 14 286,026

Total $ 2,338,936 $ 184,544 $ 3,539 $ 2,446 $ — $ 26,642 $ 2,556,107

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

The following tables provide a roll-forward for TDRs as of and for the years ended December 31, 2022.

(Dollars in thousands) 1/1/2022

TDR Balance New TDRs Disbursements (Payments) Charge-offs Reclassifications/ Transfer In/ (Out) Payoffs 12/31/2022

TDR Balance Related Allowance

For the Year Ended December 31, 2022

Accruing TDRs

Construction $ 24 $ — $ ( 14 ) $ — $ — $ — $ 10 $ —

Residential real estate 2,836 — ( 100 ) — ( 20 ) ( 1 ) 2,715 ( 127 )

Commercial real estate 2,807 — ( 180 ) — — ( 947 ) 1,680 —

Commercial — — — — — — — —

Consumer — — — — — — — —

Total $ 5,667 $ — $ ( 294 ) $ — $ ( 20 ) $ ( 948 ) $ 4,405 $ ( 127 )

Nonaccrual TDRs

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

Residential real estate — — ( 6 ) — 20 — 14 —

Commercial real estate — — — — — — — —

Commercial 216 — ( 46 ) — — — 170 —

Consumer — — — — — — — —

Total $ 216 $ — $ ( 52 ) $ — $ 20 $ — $ 184 $ —

Total $ 5,883 $ — $ ( 346 ) $ — $ — $ ( 948 ) $ 4,589 $ ( 127 )

There were no TDRs which subsequently defaulted within 12 months of modification for the twelve months ended December 31, 2022.

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

GOODWILL AND OTHER INTANGIBLE ASSETS

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

Beginning balance $ 5,926

Servicing rights resulting from sales of loans 309

Valuation adjustment ( 361 )

Ending balance $ 5,874

The fair value of MSRs were determined using discount rates ranging from 9.0 % to 11.0 % at December 31, 2024 and 2023.

Depending on the stratification of the specific mortgage servicing right, prepayment speeds ranged from 6.0 % to 52.2 % and 6.0 % to 25.1 % for the years ended December 31, 2024 and 2023, respectively.

The associated weighted-average default rates were 1.2 % and 1.3 % for the years ended December 31, 2024 and 2023, respectively.

Note 5 – Goodwill and Other Intangible Assets

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

December 31, 2024

(Dollars in thousands) Gross

Amount Additions Measurement

Adjustments Accumulated

Charges Accumulated

Amortization Net Carrying

Amount Weighted Average

Remaining Life

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

Other intangible assets

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

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

($ in thousands) Goodwill Core deposit

Gross carrying amount $ 65,476 $ 59,151

Additions — —

Accumulated impairment charges ( 1,543 ) —

Accumulated amortization ( 667 ) ( 20,840 )

Net carrying amount $ 63,266 $ 38,311

December 31, 2023

(Dollars in thousands) Gross Carrying Amount Measurement

Adjustments Accumulated Impairment Charges Accumulated Amortization Net Carrying Amount Weighted Average Remaining Life

Goodwill $ 65,631 $ ( 155 ) $ ( 1,543 ) $ ( 667 ) $ 63,266 —

Other intangible assets

Core deposit intangible $ 10,503 $ — $ — $ ( 4,956 ) $ 5,547 2.6

Total other intangible assets $ 10,503 $ — $ — $ ( 4,956 ) $ 5,547

The aggregate amortization expense was $ 6.1 million and $ 2.0 million for the years ended December 31, 2023 and 2022, respectively.

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

(Dollars in thousands) Amortization Expense

($ in thousands) Goodwill Core deposit

Gross carrying amount $ 65,476 $ 10,503

Additions — 48,648

Accumulated impairment charges ( 1,543 ) —

Accumulated amortization ( 667 ) ( 11,061 )

Net carrying amount $ 63,266 $ 48,090

The aggregate amortization expense for the core deposit intangible was $ 9.8 million and $ 6.1 million for the years ended December 31, 2024 and 2023, respectively.

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

($ in thousands) Amortization Expense

Thereafter 7,076

Total amortizing intangible assets $ 38,311

Note 6 – Leases

Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows.

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Right-of-use assets represent the Company’s right to use the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor.

The Company’s long-term lease agreements are classified as operating leases.

The Company’s long-term lease agreements for branches and offices are classified as operating leases.

Some of these leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised.

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

The following tables present information about the Company’s leases as of and for the years ended December 31, 2023 and December 31, 2022.

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

The following tables present information about the Company’s leases as of and for the years ended December 31, 2024 and 2023.

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

Lease liabilities $ 11,844 $ 12,857

2 unchanged sentences

Weighted-average discount rate 3.29 % 3.24 %

Remaining lease term - min 0.39 years 0.16 years

Remaining lease term - max 17.68 years 18.68 years

For the Year Ended

Lease cost (in thousands) December 31, 2023 December 31, 2022

Remaining lease term - minimum 0.01 years 0.39 years

Remaining lease term - maximum 16.68 years 17.68 years

Year Ended December 31,

Lease cost ($ in thousands)

Operating lease cost $ 1,916 $ 1,645

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Cash paid for amounts included in the measurement of lease liabilities $ 1,809 $ 1,553

The following table presents a maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities at December 31, 2023.

Lease payments due (in thousands) As of

The following table presents a maturity analysis of operating lease liabilities and a reconciliation of the undiscounted cash flows to total operating lease liabilities at December 31, 2024.

Lease payments due ($ in thousands)

December 31, 2024

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Total undiscounted cash flows $ 13,789

Discount 2,285

Imputed interest 1,945

Lease liabilities $ 11,844

Total gross rental income was $ 1.2 million and $ 1.3 million for the years ended December 31, 2023 and December 31, 2022, respectively.

The following table presents our minimum future annual rental income on such leases at December 31, 2023.

(In thousands) As of

December 31, 2023

Thereafter 2,521

Total $ 6,224

PREMISES AND EQUIPMENT

The following table provides information on premises and equipment at December 31, 2023 and December 31, 2022.

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

Total gross rental income was $ 1.1 million and $ 1.2 million for the years ended December 31, 2024 and 2023, respectively.

Note 7 – Premises and Equipment

The following table provides information on premises and equipment at December 31, 2024 and 2023.

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

Land $ 18,266 $ 19,041

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Total $ 81,806 $ 82,386

Depreciation expense totaled $ 3.3 million for 2023 and $ 2.4 million for 2022.

Depreciation expense totaled $ 4.4 million and $ 3.3 million for the years ended December 31, 2024 and 2023, respectively.

Note 8 – Deposits

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

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

Balance % Balance %

Noninterest-bearing demand $ 1,258,037 23.36 % $ 862,015 28.64 %

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

Balance % of Total Deposits Balance % of Total Deposits

Noninterest-bearing $ 1,562,815 28.27 % $ 1,258,037 23.36 %

Interest-bearing:

Demand 1,165,546 21.64 694,101 23.06

Money market deposits 1,430,603 26.56 709,132 23.56

Savings 347,324 6.45 320,188 10.64

Certificates of deposit 1,184,610 21.99 424,348 14.10

Interest-bearing checking 978,076 17.69 1,165,546 21.64

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

Time deposits 1,181,561 21.37 1,184,610 21.99

Total interest-bearing 3,965,521 71.73 4,128,083 76.64

Total deposits $ 5,528,336 100.00 % $ 5,386,120 100.00 %

As of December 31, 2023 and 2022, deposits, both direct and indirect, from executive officers and directors, their associates and policy-making officers, totaled approximately $ 35.6 million and $ 11.9 million, respectively.

The following table provides information on the approximate maturities of total time deposits at December 31, 2023 and December 31, 2022.

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

The Company holds deposits of certain officers, directors and their associates.

See Note 20 – “Related Party Transactions” for more information.

The following table provides information on the approximate maturities of total time deposits at December 31, 2024.

($ in thousands) December 31, 2024

Within one year $ 1,073,795

1 unchanged sentence

Year 3 13,092

Year 4 12,081 17,327

Year 5 14,955 14,051

Thereafter 177 39

Total $ 1,181,561

The approximate amount of certificates of deposit of $250,000 or more was $ 354.6 million and $ 77.7 million at December 31, 2023 and 2022, respectively.

The approximate amount of certificates of deposits that meet or exceed the FDIC insurance limit of $250,000 or more was $ 374.1 million and $ 354.6 million at December 31, 2024 and 2023, respectively.

Note 9 – Borrowings

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

The following table summarizes certain information on short-term borrowings as of and for the years ended December 31, 2023 and December 31, 2022.

The following table summarizes certain information of the Company’s borrowings as of and for the years ended December 31, 2024 and 2023.

December 31, 2024 December 31, 2023

(Dollars in thousands) Amount Rate Amount Rate

($ in thousands) Amount Rate Amount Rate

Average for the year

Repurchase agreements $ — — % $ 683 0.25 %

FHLB Advances 111,392 4.95 1,863 3.87

Repurchase agreements $ — — % $ — — %

FHLB Advances — — 40,000 4.57

FHLB advances - variable $ 37,648 5.66 % $ 111,392 4.95 %

FHLB advances - fixed 32,650 4.87 — —

FHLB advances - fixed (1)

50,000 4.79 — —

(1) Fixed-rate advance with an option of terminating at predetermined dates, without incurring a prepayment fee.

Securities sold under agreements to repurchase are securities sold to customers, at the customers’ request, under a “roll-over” contract that matures in one business day.

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government agency securities, which are segregated in the Company’s custodial accounts from other investment securities.

The Bank had $ 45.0 million in federal funds lines of credit and a reverse repurchase agreement available on a short-term basis from correspondent banks at December 31, 2023 and 2022.

The Bank had $ 95.0 million and $ 45.0 million in federal funds lines of credit and a reverse repurchase agreement available on a short-term basis from correspondent banks at December 31, 2024 and 2023, respectively.

In addition, the Bank had secured credit availability of approximately $ 737.5 million from the FHLB at December 31, 2024.

2 unchanged sentences

These letters of credit are used to secure public deposits held with various municipal customers.

The Bank had no borrowings from the FHLB at December 31, 2023 and $ 40.0 million short term FHLB borrowings at December 31, 2022.

(dollars in thousands) December 31, 2023 December 31, 2022 Issue Date Stated Maturity Date Earliest Call Date Interest Rate

The following table summarizes certain information of the Company’s long-term debt at December 31, 2024 and 2023.

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

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

5 unchanged sentences

Total trust preferred securities 32,991 32,991

Less net discount and unamortized issuance costs ( 4,822 ) ( 2,547 )

net discount and unamortized issuance costs ( 3,774 ) ( 4,822 )

Total long-term debt $ 73,717 $ 72,669

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The recorded balance of the debt acquired from Severn at December 31, 2024 was $ 18.8 million, net of the unamortized fair value adjustment of $ 1.8 million.

At December 31, 2023, the junior subordinated debt securities of Tri-County Capital Trust I and Tri-County Capital Trust II had a recorded balance of $ 6.4 million and $ 4.2 million, which are presented as net of the unamortized fair value adjustment of $ 0.6 million and $ 0.8 million, respectively.

As both the Capital Trust I and Capital Trust II variable-rate capital securities were originally LIBOR-linked instruments that matured after June 30, 2023, the interest rate transitioned from a LIBOR-based rate to an alternative reference rate.

At December 31, 2024, the junior subordinated debt securities of Tri-County Capital Trust I and Tri-County Capital Trust II had a recorded balance of $ 6.6 million and $ 4.4 million, respectively, which are presented as net of the unamortized fair value adjustments of $ 568 thousand and $ 731 thousand, respectively.

As both the Capital Trust I and Capital Trust II variable-rate capital securities were originally London Interbank Offered Rate (“LIBOR”) linked instruments that matured after June 30, 2023, the interest rate transitioned from a LIBOR-based rate to an alternative reference rate.

Both instruments were subject to the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”) and neither instrument contains fallback provision or a clearly practicable fallback provision in the event that LIBOR was no longer published or quoted.

The interest rate on both the Capital Trust I and Capital Trust II transitioned pursuant to the LIBOR Act to a rate based on the Secured Overnight Financing Rate (“SOFR”) on July 1, 2023.

BENEFIT PLANS

Note 10 – Benefit Plans

401(k) and Profit Sharing Plan - The Company has a 401(k) and profit sharing plan covering substantially all full-time employees.

The plan calls for matching contributions by the Company, and the Company makes discretionary contributions based on profits.

Company contributions to this plan included in noninterest expense totaled $ 1.7 million and $ 1.3 million for 2023 and 2022, respectively.

Employee Stock Ownership Plan - Prior to the closing of the acquisition of TCFC, TCFC paid into the Employee Stock Ownership Plan (“ESOP”) and adopted resolutions to (i) terminate the ESOP and (ii) provide for full vesting of all account balances in the ESOP.

The Company currently matches 100 % of the first 3 % of each employee’s contributions, and 50 % of the next 2 % of each employee’s contributions, each plan year.

The Company may also make discretionary contributions based on profits.

The Company’s contributions to this plan included in noninterest expense totaled $ 1.9 million and $ 1.7 million for the years ended December 31, 2024 and 2023, respectively.

Employee Stock Ownership Plan - Prior to the closing of the acquisition of TCFC during 2023, TCFC paid into its Employee Stock Ownership Plan (“ESOP”) and adopted resolutions to (i) terminate the ESOP and (ii) provide for full vesting of all account balances in the ESOP.

A determination letter has been filed with the IRS to terminate the ESOP and the ESOP will be terminated if and when the IRS issues a favorable determination letter.

STOCK-BASED COMPENSATION

Note 11 – Stock-Based Compensation

At the 2016 annual meeting, stockholders approved the Shore Bancshares, Inc.

2 unchanged sentences

The Company may issue shares of common stock or grant other equity-based awards pursuant to the 2016 Equity Plan.

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

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

2 unchanged sentences

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

The vesting period for the outstanding restricted stock grants and restricted stock units is between three and five years and one to three years , respectively.

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

The following tables provide information on stock-based compensation expense for the years ended December 31, 2023 and December 31, 2022.

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

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

The vesting period for restricted stock units and performance stock units is between one to three years .

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

The following table presents stock-based compensation expense related to the 2016 Equity Plan, included in the consolidated statements of income, for each of the periods indicated.

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

Stock-based compensation expense $ 1,730 $ 1,174

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

The following table presents the total stock-based compensation expense related to unvested awards that has not yet been recognized at December 31, 2024 and 2023, and the weighted-average period over which the expense will be recognized.

At December 31, 2024

($ in thousands) Restricted Stock Restricted Stock Units Performance Stock Units

Unrecognized stock-based compensation expense $ 214 $ 855 $ 359

Weighted-average period unrecognized expense is expected to be recognized 0.4 years 1.1 years 2.2 years

At December 31, 2023

($ in thousands) Restricted Stock Restricted Stock Units

Unrecognized stock-based compensation expense $ 175 $ 1,684

Weighted-average period unrecognized expense is expected to be recognized 0.5 years 1.3 years

The following tables summarize the unvested restricted stock and restricted stock unit awards outstanding for the Company for the years ended December 31, 2023 and 2022, respectively.

Restricted Stock Restricted Stock Units

December 31, 2023 December 31, 2023

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

Nonvested at beginning of period 36,860 $ 20.15 — $ —

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

Granted 44,340 15.58 91,047 11.56

Vested ( 38,184 ) 19.68 ( 15,573 ) 11.56

Forfeited ( 1,671 ) 17.49 ( 1,202 ) 11.56

Nonvested at end of period 45,322 15.42 165,055 11.56

Restricted Stock Restricted Stock Units

December 31, 2022 December 31, 2022

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

Nonvested at beginning of period 29,425 $ 13.95 — $ —

The following table summarizes the Company’s restricted stock, restricted stock unit and performance stock unit activity for the year ended December 31, 2024.

Restricted Stock Restricted Stock Units Performance Stock Units

Number of Shares Weighted-Average Grant Date Fair Value per Share Number of Shares Weighted-Average Grant Date Fair Value per Share Number of Shares Weighted-Average Grant Date Fair Value per Share

Outstanding at December 31, 2023 45,322 $ 15.42 165,055 $ 11.56 — $ —

Granted 51,610 11.39 53,279 11.31 43,651 11.32

1 unchanged sentence

Forfeited — — ( 3,256 ) 11.56 — —

Nonvested at end of period 36,860 20.15 — —

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

The fair value of restricted stock units vested during 2023 was $ 0.2 million.

There were no stock options granted during 2023 and 2022.

The Company maintains and account for derivatives, in the form of IRLCs and mandatory forward contracts, in accordance with the FASB guidance on accounting for derivative instruments and hedging activities.

We recognize gains and losses through mortgage-banking revenue in the Consolidated Statements of Income.

Outstanding at December 31, 2024 51,610 11.42 135,104 11.46 43,651 11.32

There were no stock options outstanding as of or granted during the years ended December 31, 2024 or 2023.

The fair value of restricted stock awards that vested during the years ended December 31, 2024 and 2023 was $ 588 thousand and $ 615 thousand, respectively.

The fair value of restricted stock unit awards that vested during the years ended December 31, 2024 and 2023 was $ 914 thousand and $ 178 thousand, respectively.

No performance stock unit awards vested during the years ended December 31, 2024 and 2023.

Note 12 – Derivatives

The Company maintains and accounts for derivatives, in the form of IRLCs and mandatory forward contracts, in accordance with the FASB guidance on accounting for derivative instruments and hedging activities.

The Company recognizes gains and losses through mortgage-banking revenue in the consolidated statements of income.

IRLCs on mortgage loans that we intend to sell in the secondary market are considered derivatives.

3 unchanged sentences

These assets and liabilities are included in the consolidated balance sheets in other assets and accrued expenses and other liabilities, respectively.

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

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

December 31, 2024 December 31, 2023

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

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

Asset - IRLCs $ 7,527 $ 113 $ 6,785 $ 110

Asset - TBA securities 22,100 164 1,000 2

Liability - IRLCs — — 1,150 7

Liability - TBA securities 7,550 23 18,000 176

DEFERRED COMPENSATION

Note 13 – Deferred Compensation

The Company has multiple deferred compensation agreements with current and former employees.

1 unchanged sentence

During 2019, the Executive Deferred Compensation Plan was expanded to include additional officers who had not previously participated.

The Executive Deferred Compensation Plan permits a participant to elect, each year, to defer receipt of up to 100 % of his or her salary and bonus to be earned in the following year.

The Executive Deferred Compensation Plan permits a participant to elect, each year, to defer receipt of up to 100 % of their salary and bonus to be earned in the following year.

The Executive Deferred Compensation Plan also permits the participant to defer the receipt of performance-based compensation not later than six months before the end of the period for which it is to be earned.

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The Company and the Bank may also make matching, mandatory and discretionary contributions for certain participants.

A participant is fully vested at all times in the amounts that he or she elects to defer.

Any contributions by the Company will vest over a five-year period.

The following table provides information on Shore Bancshares, Inc.’s contributions and participant deferrals to the Executive Deferred Compensation Plan for 2023 and 2022 and the related deferred compensation liability.

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

A participant is fully vested at all times in the amounts that they elect to defer.

Any contributions made by the Company are subject to vesting over a five-year period.

The following table provides information on Shore Bancshares, Inc.’s contributions and participant deferrals to the Executive Deferred Compensation Plan and the related deferred compensation liability at December 31, 2024 and 2023.

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

Elective deferrals $ 276 $ 273

Deferred compensation liability 1,506 1,576

During 2019, the Company introduced a new SERP plan for executive officers of the Company and the Bank.

During 2019, the Company introduced a new supplemental executive retirement plan (“SERP”) for executive officers of the Company and the Bank.

The related liability is unfunded;

however, BOLI was purchased to offset the benefit costs.

The following table provides information on the expense recognized during the years ended December 31, 2023 and December 31, 2022, as well as the balance of the unfunded SERP liability and the cash surrender value of policies purchased to offset the SERP benefit costs as of December 31, 2023 and December 31, 2022.

The unfunded SERP liability and cash surrender value were included in other liabilities and other assets, respectively.

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

however, bank-owned life insurance was purchased to offset the benefit costs.

The following table provides information on the expense recognized during the years ended December 31, 2024 and 2023, as well as the balance of the unfunded SERP liability and the cash surrender value of policies purchased to offset the SERP benefit costs as of December 31, 2024 and 2023.

The unfunded SERP liability and cash surrender value were included on the consolidated balance sheets in other liabilities and other assets, respectively.

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

Cash surrender value $ 100,517 $ 98,140

1 unchanged sentence

SERP expense 1,050 1,405

Lastly, in 2016, the Bank assumed agreements held by the former CNB Bank under which its former directors had elected to defer part of their fees and compensation while serving on the former Board of CNB.

The amounts deferred were invested in insurance policies on the

lives of the respective individuals.

Lastly, in 2016, the Bank assumed agreements held by the former Centreville National Bank (“CNB”) under which its former directors had elected to defer part of their fees and compensation while serving on the former board of CNB.

The amounts deferred were invested in

insurance policies on the lives of the respective individuals.

Amounts available under the policies are to be paid to the individuals as retirement benefits over future years.

The following table includes information on the deferred compensation liability and cash surrender value as of December 31, 2023 and December 31, 2022.

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

The following table includes information on the deferred compensation liability and cash surrender value as of December 31, 2024 and 2023.

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

Deferred compensation liability $ 331 $ 388

Cash surrender value 2,257 2,322

ACCUMULATED OTHER COMPREHENSIVE LOSS

Note 14 – Accumulated Other Comprehensive Loss

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

The following table provides information on the changes in the component of accumulated other comprehensive income (loss) for the years ended December 31, 2023 and December 31, 2022.

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

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

The following table provides information on the changes in the component of accumulated other comprehensive income (loss) on the consolidated balance sheets for the years ended December 31, 2024 and 2023.

Net Unrealized Gains (Losses)

Year Ended December 31,

($ in thousands) 2024 2023

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

1 unchanged sentence

End of period $ ( 7,545 ) $ ( 7,494 )

Note 15 – Income Taxes

The Company files income tax returns in the U.S.

2 unchanged sentences

federal and state income tax examinations by tax authorities for years prior to 2021.

The following table provides information on components of income tax expense for the years ended December 31, 2023 and December 31, 2022.

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

The following table provides information on components of income tax expense for the years ended December 31, 2024 and 2023.

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

Current tax expense:

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State 1,681 63

Deferred income tax (benefit) expense:

Deferred income tax expense:

Federal 6,570 1,692

State 2,300 1,029

2,721 ( 1,182 )

Total income tax expense $ 14,815 $ 2,956

The following table provides a reconciliation of tax computed at the statutory federal tax rate to the actual tax expense for the years ended December 31, 2023 and December 31, 2022.

The following table provides a reconciliation of tax computed at the statutory federal tax rate to the actual tax expense for the years ended December 31, 2024 and 2023.

December 31, 2024 December 31, 2023

8 unchanged sentences

Actual income tax expense rate 25.2 % 20.8 %

The following table provides information on significant components of the Company’s deferred tax assets and liabilities for the years ended December 31, 2023 and December 31, 2022.

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

The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of December 31, 2024 and 2023.

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

Deferred tax assets:

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State net operating loss 2,066 2,448

Deferred loan costs 1,775 1,183

Deferred loan fees 2,078 1,775

Acquisition fair value adjustments 24,988 30,452

2 unchanged sentences

Total deferred tax assets 55,788 67,823

Less valuation allowance ( 1,015 ) ( 791 )

Deferred tax assets, net of valuation allowance 66,808 16,959

Deferred tax liabilities:

3 unchanged sentences

Acquisition fair value adjustments 1,651 2,401

Deferred capital gain on branch sale 207 220

Intangibles 11,223 13,611

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Total deferred tax liabilities 21,987 26,101

valuation allowance $ ( 1,944 ) $ ( 1,015 )

Net deferred tax assets $ 31,857 $ 40,707

REGULATORY CAPITAL REQUIREMENTS

Management of the Company has determined a full valuation allowance is required for the holding company’s state deferred tax assets, largely associated with its state net operating losses.

As the holding company files in the state of Maryland on separate entity basis and has not had and does not expect to have taxable income in that jurisdiction for the foreseeable future, the Company believes, at the current and prior period end, it was more likely than not that the holding company’s state deferred tax assets will not be realized.

This valuation allowance increased from $ 1.0 million to $ 1.9 million during the year ended December 31, 2024.

Based on the Company’s analysis, no other valuation allowances have been recorded as the Company expects to realize its remaining federal and state deferred tax assets.

The Company has analyzed the tax positions taken or expected to be taken in its income tax returns for the periods ending December 31, 2024 and 2023, and has recorded no liabilities related to uncertain tax positions in accordance with the applicable guidance in ASC 740, Income Taxes .

Note 16 – Regulatory Capital Requirements

Banks and bank holding companies are subject to various regulatory capital requirements administered by the federal banking agencies.

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

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

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

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

As of December 31, 2024, the most recent notification from our primary regulator categorized Shore United Bank, N.A.

as “well-capitalized” under the regulatory framework for prompt corrective action.

There are no conditions or events since that notification that management believes would change the Bank’s classification.

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

The minimum ratios for capital adequacy purposes require a common equity Tier 1 capital to risk-weighted assets ratio of 4.5 %, a ratio of Tier 1 capital to risk-weighted assets of 6.0 %, a ratio of Total Capital to risk-weighted assets of 8.0 %, and a Tier 1 leverage ratio of 4.0 %.

A capital conservation buffer is also established above the regulatory minimum capital requirements of 2.50% for all regulatory risk-weighted ratios.

To be categorized as well capitalized, a bank must maintain minimum ratios of 6.50 %, 8.00 %, 10.00 % and 5.00 % for its common equity Tier 1, Tier 1 risk-based capital, total risk-based capital and leverage ratios, respectively.

The following tables present the capital amounts and ratios at December 31, 2023 and December 31, 2022.

Regulatory Capital and Ratios Regulatory Minimum Ratio + Capital Conversation Buffer ( 1)

The Company The Bank

(dollars in thousands) 2023 2022 2023 2022

Common equity $ 511,135 $ 364,285 $ 570,100 $ 395,594

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

Core deposit intangible (2)

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

The following tables present the actual and required capital amounts and ratios for the Company and the Bank at December 31, 2024 and 2023.

December 31, Regulatory Minimum Ratio + Capital Conservation Buffer To Be Well-Capitalized Under Prompt Corrective Action Regulation (1)

($ in thousands) 2024 2023

The Company Amounts

Common Tier 1 Capital to RWA $ 458,258 $ 408,317

Tier 1 Capital to RWA 488,105 437,847

Total Capital to RWA 591,228 539,572

Tier 1 Capital to AA (Leverage) (2)

488,105 437,847

DTAs that arise from net operating loss and tax credit carry forwards ( 8,977 ) — ( 6,059 ) —

AOCI (gains) losses 7,494 9,021 7,494 9,021

Common Equity Tier 1 Capital 408,317 304,493 470,200 335,802

TRUPs 29,158 18,398 — —

Tier 1 Capital 437,475 322,891 470,200 335,802

Allowable reserve for credit losses and other Tier 2 adjustments 58,586 16,854 58,586 16,854

Subordinated notes 43,139 24,674 — —

Total Capital 539,200 364,419 528,786 352,656

Risk-Weighted Assets ("RWA") 4,697,504 2,619,400 4,693,009 2,618,939

Average Assets ("AA") 5,649,116 3,390,516 5,644,930 3,386,771

The Company Ratios

Common Tier 1 Capital to RWA 9.44 % 8.69 % 7.00 %

2 unchanged sentences

Tier 1 Capital to AA (Leverage) (2)

n/a 7.74 % 9.52 % 8.33 % 9.92 %

8.02 7.75 4.00

(1) The regulatory minimum capital ratio + the capital conservation buffer .

(2) Core deposit intangible at December 31, 2023 is net of deferred tax liability.

The Bank Amounts

Common Tier 1 Capital to RWA $ 521,453 $ 470,200

Tier 1 Capital to RWA 521,453 470,200

Total Capital to RWA 580,706 528,786

Tier 1 Capital to AA (Leverage) (2)

521,453 470,200

The Bank Ratios

Common Tier 1 Capital to RWA 10.75 % 10.02 % 7.00 % 6.50 %

Tier 1 Capital to RWA 10.75 10.02 8.50 8.00

Total Capital to RWA 11.97 11.27 10.50 10.00

Tier 1 Capital to AA (Leverage) (2)

8.58 8.33 4.00 5.00

________________________________

(1) Applies to Bank only.

(2) Tier 1 Capital to AA (Leverage) has no capital conservation buffer defined.

The PCA well capitalized is defined as 5.00 %

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

At December 31, 2023, the Bank could pay dividends to the parent to the extent of its earnings so long as it maintained required capital ratios.

RESTRICTIONS ON CASH AND AMOUNTS DUE FROM BANKS

The Bank was required to maintain average balances on hand or with the Federal Reserve Bank.

The Federal Reserve Bank announced on March 15, 2020, the reduction of reserve requirement ratios to zero percent effective March 26, 2020, which eliminated reserve requirements for all depository institutions.

FAIR VALUE MEASUREMENTS

The PCA well-capitalized threshold is defined as 5.00 %.

The Company is a separate legal entity from the Bank and must provide for its own liquidity.

In addition to its operating expenses, the Company is responsible for paying any dividends declared to its common stockholders and interest and principal on outstanding debt.

The Company’s primary source of income is dividends received from the Bank.

The amount of dividends that the Bank may declare and pay to

Parent Company in any calendar year, without the receipt of prior approval from the Federal Reserve Bank, cannot exceed net income for that year to date plus retained net income (as defined) for the preceding two calendar years.

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

Note 17 – Fair Value Measurements

Accounting guidance under GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

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The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

Securities available for sale and equity securities with readily determinable fair values are recorded at fair value on a recurring basis.

Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, loans held for sale and OREO (foreclosed assets).

Securities available for sale and equity securities with readily determinable fair values are recorded at fair value on a recurring basis, along with other mortgage related items identified in the recurring fair value table below.

Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent loans, repossessed assets and OREO (foreclosed assets).

These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

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Treasury securities, if any, as Level 1 in the fair value hierarchy, and it classifies its investments in U.S.

Government agencies securities and mortgage-backed securities issued or guaranteed by U.S.

government agency securities and mortgage-backed securities issued or guaranteed by U.S.

government-sponsored entities as Level 2.

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Mortgage loan prepayment speed, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal.

The discount rate used to determine the present value of estimated future

net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk.

The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk.

Both assumptions can, and generally will, change as market conditions and interest rates change.

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Fair value is adjusted for the estimated probability of the loan closing with the borrower (Level 3).

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

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

December 31, 2024

2 unchanged sentences

Average pull through rate 98 %

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

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

December 31, 2023

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(2) PSA = Public Securities Association Standard Prepayment Model.

The following table presents activity in MSRs for the year ended December 31, 2023.

(Dollars in thousands) For the Year Ended

December 31, 2023

Beginning balance $ 5,275

Servicing rights resulting from sales of loans 712

Servicing rights acquired in acquisition of TCFC 190

Valuation adjustment ( 251 )

Ending balance $ 5,926

The following table presents activity in the IRLCs for the year ended December 31, 2024.

(Dollars in thousands) For the Year Ended

($ in thousands) Year Ended

December 31, 2024

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Fair value is based on the gain or loss that would occur if we were to pair-off the transaction with the investor at the measurement date.

a level 2 input.

This is a level 2 input.

We have elected to measure and report best efforts commitments at fair value using a valuation methodology similar to that used for mandatory commitments.

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

The following tables present the recorded amount of assets measured at fair value on a recurring basis for the years ended December 31, 2023.

No assets were transferred from one hierarchy level to another during 2023 or 2022.

(Dollars in thousands) Fair Value Quoted Prices

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

No assets were transferred from one hierarchy level to another during the years ended December 31, 2024 or 2023.

($ in thousands) Fair Value Quoted Prices

(Level 1) Significant Other Observable Inputs (Level 2) Significant Other Observable Inputs (Level 3)

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Securities available for sale:

Government agencies $ 20,475 $ — $ 20,475 $ —

Mortgage-backed 84,027 — 84,027 —

government agency securities $ 20,202 $ — $ 20,202 $ —

Mortgage-backed securities 122,384 — 122,384 —

Other debt securities 6,626 — 6,626 —

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Total liabilities at fair value $ 23 $ — $ 23 $ —

(Dollars in thousands) Fair Value Quoted Prices

($ in thousands) Fair Value Quoted Prices

(Level 1) Significant Other Observable Inputs (Level 2) Significant Other Observable Inputs (Level 3)

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Securities available for sale:

Government agencies $ 18,178 $ — $ 18,178 $ —

Mortgage-backed 63,519 — 63,519 —

government agency securities $ 20,475 $ — $ 20,475 $ —

Mortgage-backed securities 84,027 — 84,027 —

Other debt securities 6,019 — 6,019 —

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

IRLCs $ 7 $ — $ — $ 7

TBA securities $ 176 $ — $ 176 $ —

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

The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis for the years ended December 31, that are valued at the lower of cost or market.

Repossessed Assets

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

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

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

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

The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis as of December 31, 2024 and 2023 that are valued at the lower of cost or market.

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

Quantitative Information About Level 3 Fair Value Measurements

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

($ in thousands) Fair Value Valuation Technique Unobservable Input Range Weighted-Average

December 31, 2024

Nonrecurring measurements:

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

Individually evaluated collateral dependent loans:

Commercial real estate $ 2,220 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Residential real estate 817 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Commercial — Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Consumer 624 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Other real estate owned 179 Appraisal of collateral (1)

Appraisal adjustment (2)

Repossessed assets 3,315 Appraisal of collateral (1)

Appraisal adjustment (2)

Assets held for sale 900 Appraisal of collateral (1)

Appraisal adjustment (2)

Quantitative Information about Level 3 Fair Value Measurements

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

($ in thousands) Fair Value Valuation Technique Unobservable Input Range Weighted-Average

December 31, 2023

Nonrecurring measurements:

Individually evaluated collateral dependent loan

Commercial real estate $ — Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Residential real estate 288 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Commercial — Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Consumer 345 Appraisal of collateral (1)

Appraisal adjustment (2)

Liquidation expense (2)

Other real estate owned 179 Appraisal of collateral (1)

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

Note 18 – Fair Value of Financial Instruments

Financial instruments require disclosure of fair value information, whether or not recognized in the consolidated balance sheets, when it is practical to estimate the fair value.

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Certain items are specifically excluded from the financial instrument fair value disclosure requirements, including the Company’s common stock, OREO, premises and equipment and other assets and liabilities.

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments for the years ended December 31, 2023 and December 31, 2022.

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

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments for the years ended December 31, 2024 and 2023.

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

December 31, 2024 Carrying Amount Fair Value Fair Value Measurements

Description of Asset (dollars in thousands)

($ in thousands)

Level 1 Level 2 Level 3

Cash and cash equivalents $ 459,851 $ 459,851 $ 459,851 $ — $ —

Investment securities - AFS 110,521 110,521 — 110,521 —

Investment securities - HTM, net 513,188 457,830 — 457,830 —

Available for sale investment securities 149,212 149,212 — 149,212 —

Held to maturity investment securities 481,077 424,734 — 424,734 —

Equity securities 5,814 5,814 — 5,814 —

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Loans held for sale 19,606 19,606 — 19,606 —

TBA derivatives trades 2 2 — 2 —

Cash surrender value on life insurance 101,704 101,704 — 101,704 —

Loans, at fair value 9,944 9,944 — 9,944 —

Loans, net 4,573,715 4,477,468 — — 4,477,468

MSRs 5,926 5,926 — — 5,926

TBA securities 164 164 — 164 —

Loans held for investment, at fair value 9,466 9,466 — 9,466 —

Loans held for investment, at amortized cost, net 4,704,612 4,551,983 — — 4,551,983

Mortgage servicing rights 5,874 5,874 — — 5,874

Accrued interest receivable 19,570 19,570 — 19,570 —

IRLCs 113 113 — — 113

Noninterest-bearing demand $ 1,258,037 $ 1,258,037 $ — $ 1,258,037 $ —

Checking plus interest 1,165,546 1,165,546 — 1,165,546 —

Money Market 1,430,603 1,430,603 — 1,430,603 —

Savings 347,324 347,324 — 347,324 —

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

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

Noninterest-bearing $ 1,562,815 $ 1,562,815 $ — $ 1,562,815 $ —

Interest-bearing checking 978,076 978,076 — 978,076 —

Money market and savings 1,805,884 1,805,884 — 1,805,884 —

Time deposits 1,181,561 1,179,716 — 1,179,716 —

FHLB advances 50,000 50,201 — 50,201 —

TRUPS 29,847 27,952 — 27,952 —

Subordinated debt 43,870 43,669 — 43,669 —

TBA securities 23 23 — 23 —

Accrued interest payable 3,398 3,398 — 3,398 —

December 31, 2023 Carrying Amount Fair Value Fair Value Measurements

Description of Asset (dollars in thousands) Level 1 Level 2 Level 3

($ in thousands) Level 1 Level 2 Level 3

Cash and cash equivalents $ 372,413 $ 372,413 $ 372,413 $ — $ —

Investment securities - AFS 83,587 83,587 — 83,587 —

Investment securities - HTM 559,455 494,626 — 494,626 —

Available for sale investment securities 110,521 110,521 — 110,521 —

Held to maturity investment securities 513,188 457,830 — 457,830 —

Equity securities 5,703 5,703 — 5,703 —

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Cash surrender value on life insurance 101,704 101,704 — 101,704 —

Loans, at fair value 8,437 8,437 — 8,437 —

Loans held for investment 9,944 9,944 — 9,944 —

Loans, net 4,573,715 4,477,468 — — 4,477,468

MSRs 5,275 5,275 — — 5,275

Mortgage servicing rights 5,926 5,926 — — 5,926

Accrued interest receivable 19,217 19,217 — 19,217 —

IRLCs 110 110 — — 110

Noninterest-bearing demand $ 862,015 $ 862,015 $ — $ 862,015 $ —

Checking plus interest 694,101 694,101 — 694,101 —

Money Market 709,132 709,132 — 709,132 —

Savings 320,188 320,188 — 320,188 —

Certificates of Deposit 424,348 410,455 — 410,455 —

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

Noninterest-bearing $ 1,258,037 $ 1,258,037 $ — $ 1,258,037 $ —

Interest-bearing checking 1,165,546 1,165,546 — 1,165,546 —

Money market and savings 1,777,927 1,777,927 — 1,777,927 —

Time deposits 1,184,610 1,184,447 — 1,184,447 —

TRUPS 29,158 28,266 — 28,266 —

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

TBA securities 176 176 — 176 —

IRLCs 7 7 — — 7

COMMITMENTS AND CONTINGENCIES

Accrued interest payable 4,711 4,711 — 4,711 —

Note 19 – Commitments and Contingencies

In the normal course of business, to meet the financial needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk.

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

The following table provides information on commitments outstanding for the years ended December 31, 2023 and December 31, 2022.

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

Commitments to make loans are generally made for a periods of 90 days or less.

As of December 31, 2024, the Company’s outstanding fixed rate loan commitments have interest rates ranging from 6.50 % - 9.75 %.

The following table provides information on commitments outstanding for the years ended December 31, 2024 and 2023.

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

Commitments to extend credit $ 704,768 $ 613,266

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Total $ 732,729 $ 641,785

The Bank has established a reserve for off balance sheet credit exposures of $ 1.1 million.The reserve is established as losses are estimated to have occurred through a loss for off balance sheet credit exposures charged to earnings.

The Bank had a reserve for off-balance sheet credit exposures of $ 1.1 million as of December 31, 2024 and 2023.

The reserve was estimated based on the historic losses experienced by the Company.

Losses are charged against the allowance when management believes the required funding of these exposures is uncollectible.

While this evaluation is completed on a regular basis, it is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.

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, 2023, the Company has not accrued an amount for the potential impact of any such actions.

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

• Deposit and loan balances at December 31, 2023 were approximately $ 310.2 million, or 5.80 % of total deposits, and $ 73.7 million, or 1.60 % of total gross loans, respectively.

• Interest and noninterest income for the year ended December 31, 2023, were approximately $ 11.2 million and $ 1.1 million, respectively.

In the normal course of business, Shore Bancshares, Inc.

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Management, after consultation with legal counsel, does not anticipate that the future liability, if any, arising out of current proceedings will have a material effect on the Company’s financial condition, operating results, or liquidity.

RELATED PARTY TRANSACTIONS

Note 20 – Related Party Transactions

In the normal course of banking business, loans are made to officers, directors and their affiliated interests.

As of December 31, 2024 and 2023, such loans outstanding, both direct and indirect (including guarantees), to directors, their associates and policy-making officers, totaled approximately $ 54.3 million and $ 53.1 million, respectively.

During the years ended December 31, 2024 and 2023, loan additions were approximately $ 8.2 million and $ 35.9 million , of which $ 27.4 million were due to the 2023 acquisition of TCFC, and loan repayments and no longer reportable loans were approximately $ 7.3 million and $ 1.3 million, respectively.

As of December 31, 2024 and 2023, deposits, both direct and indirect, from executive officers and directors, their associates and policy-making officers, totaled approximately $ 35.8 million and $ 35.6 million, respectively.

The Company leases a portion of one of its facilities to a law firm, in which the Chairman of the Board of the Company and the Bank is a partner.

In January 2022, the lease entered the final five-year renewal option under the leasing agreement.

The total rent payments received were $ 0.3 million for the year ended December 31, 2023 and $ 0.3 million for the year ended December 31, 2022.

The total rent payments received were $ 318 thousand and $ 311 thousand for the years ended December 31, 2024 and 2023, respectively.

The law firm also reimburses the Company for its share of common area maintenance and utilities.

In addition, the law firm represents the Company and the Bank in certain legal matters.

Other related party transactions consisting of normal lending and depository relationships are described in Note 4.

Loans and Allowance for Credit Losses and Note 8.

Deposits, respectively.

EARNINGS PER COMMON SHARE

Note 21 – Earnings per Common Share

Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period.

Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents (stock-based awards).

The following table provides information relating to the calculation of earnings per common share for the years ended December 31, 2023 and December 31, 2022.

The following table provides information relating to the calculation of earnings per common share for the years ended December 31, 2024 and 2023.

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

2 unchanged sentences

Dilutive effect of common stock equivalents 18 2

Average number of shares used to calculate diluted EPS 26,574 19,847

Average number of shares used to calculate diluted earnings per common share 33,285 26,574

Anti-dilutive shares — —

2 unchanged sentences

Diluted $ 1.32 $ 0.42

As of December 31, 2023 and 2022, there were no unvested common stock equivalents excluded from the calculation of diluted earnings per share as their effect would be anti-dilutive.

REVENUE RECOGNITION

As of December 31, 2024 and 2023, there were no unvested common stock equivalents excluded from the calculation of diluted earnings per common share as their effect would be anti-dilutive.

Note 22 – Revenue Recognition

Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities.

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All contract issuance costs are expensed as incurred.

We had no contract assets or liabilities at December 31, 2023.

The Company had no contract assets or liabilities at December 31, 2024.

Other Noninterest Income

1 unchanged sentence

fees, exchange, other service charges, safety deposit box rental fees, and other miscellaneous revenue streams.

Fees and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges.

Fees and other service charges are primarily comprised of debit and credit card income, automated teller machine (“ATM”) fees, merchant services income, and other service charges.

Debit and credit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Mastercard and Visa.

7 unchanged sentences

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

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

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

Noninterest income

15 unchanged sentences

As of December 31, 2024 and 2023, the Company did not have any significant contract balances.

PARENT COMPANY FINANCIAL INFORMATION

Note 23 – Segment Reporting

The Company’s reportable segment is determined by the Chief Executive Officer, who is designated the chief operating decision maker (“CODM”), based upon information provided about the Company’s product and services offered.

The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if operating performance of product and customers are similar.

The CODM evaluates the financial performance of the Company’s business components such as revenue streams, significant expenses, and budget to actual results in assessing the Company’s segment and in determination of allocated resources.

While the CODM monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Accordingly, all of the financial services operations are considered by management to be aggregated in one reportable operating segment.

Refer to the “Consolidated Financial Statements” included in Part II, Item 8.

of this Annual Report on Form 10-K.

Note 24 – Parent Company Financial Information

The following tables provide condensed financial information for Shore Bancshares, Inc.

(Parent Company Only) at and for the years ending December 31, 2023 and 2022.

(Parent Company only) at and for the years ended December 31, 2024 and 2023.

Condensed Balance Sheets

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

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

Cash $ 5,257 $ 7,345

3 unchanged sentences

Accrued interest payable $ 1,027 $ 1,050

Deferred tax liability 251 —

Other liabilities 3,771 2,087

9 unchanged sentences

Condensed Statements of Income

For the Year Ended

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

Year Ended December 31,

($ in thousands) 2024 2023

Dividends from subsidiaries $ 17,000 $ 22,000

10 unchanged sentences

Income tax benefit ( 1,678 ) ( 1,557 )

Income before (deficit) equity in undistributed net income of subsidiaries 21,762 1,657

Income before equity (deficit) in undistributed net income of subsidiaries 9,850 21,762

Equity (deficit) in undistributed net income of subsidiaries 34,039 ( 10,534 )

1 unchanged sentence

Condensed Statements of Cash Flows

For the Year Ended

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

Year Ended December 31,

($ in thousands) 2024 2023

Cash flows from operating activities:

1 unchanged sentence

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

Deficit (equity) in undistributed net income of subsidiaries 10,534 ( 29,521 )

Equity in undistributed net income of subsidiaries ( 34,039 ) 10,534

Bargain purchase gain — ( 8,816 )

3 unchanged sentences

Acquisition accounting adjustments 926 557

Net (increase) decrease in other assets ( 1,267 ) 387

Net (decrease) increase in other liabilities ( 682 ) 275

Net increase in other assets ( 957 ) ( 1,267 )

Net increase (decrease) in other liabilities 2,284 ( 682 )

Net cash provided by operating activities 13,549 12,709

7 unchanged sentences

Net cash used in financing activities ( 15,637 ) ( 12,348 )

Net increase (decrease) in cash and cash equivalents 200 ( 5,947 )

Net (decrease) increase in cash and cash equivalents ( 2,088 ) 200

Cash and cash equivalents at beginning of year 7,345 7,145

2 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 8. Financial Statements and Supplementary Data