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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 377 added, 553 removed, 321 unchanged (74% of the section changed)

Item 2 – Management’s Discussion and Analysis (“MD&A”) of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless the context clearly suggests otherwise, references to “the Company,” “we,” “our” and “us” in the remainder of this Quarterly Report on Form 10-Q are to Shore Bancshares, Inc.

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• general economic conditions, (including the interest rate environment, government economic and monetary policies, the strength of global financial markets and inflation/deflation and supply chain issues), whether national or regional, and conditions in the lending markets in which we participate that may have an adverse effect on the demand for our loans and other products, our credit quality and related levels of nonperforming assets and loan losses, and the value and salability of the real estate that we own or that is the collateral for our loans;

• recent adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;

• the Company’s ability to remediate the material weaknesses identified in the Company’s internal control over financial reporting;

• the effectiveness of the Company’s internal control over financial reporting and disclosure controls and procedures;

• cybersecurity threats and the cost of defending against them;

• results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our reserve for loan losses or to write-down assets;

• adverse developments in the banking industry highlighted by high-profile bank failures and the potential impact of such developments on customer confidence, liquidity, and regulatory responses to these developments;

• the ability to effectively manage the information technology systems, including third-party vendors, cyber or data privacy incidents or other failures, disruptions or security breaches, and risk related to the development and use of artificial intelligence;

• the ability to develop and use technologies to provide products and services that will satisfy customer demands;

• results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses or to write-down assets;

• changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, which could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;

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• competitive factors among financial services organizations, including product and pricing pressures and our ability to attract, develop and retain qualified banking professionals;

• the expected cost savings, synergies and other financial benefits from the acquisition of The Community Financial Corporation (“TCFC”) or any other acquisition the Company has made or may make might not be realized within the expected time frames or at all;

• the effect of acquisitions we have made or may make, including, without limitation, the failure to achieve the expected revenue growth and/or expense savings from such acquisitions, and/or the failure to effectively integrate an acquisition target into our operations;

• the growth and profitability of noninterest or fee income being less than expected;

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• the effect of changes in accounting policies and practices, as may be adopted by the Financial Accounting Standards Board (the “FASB”), the Securities and Exchange Commission (the “SEC”), the Public Company Accounting Oversight Board and other regulatory agencies;

• potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election;

• changes in U.S.

trade policies, including the implementation of tariffs and other protectionist trade policies;

• the impact of governmental efforts to restructure or adjust the U.S.

financial regulatory system;

• a deterioration of the credit rating for U.S.

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federal government;

• climate change, including the enhanced regulatory, compliance, credit and reputational risks and costs;

• geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts of terrorism, and/or military conflicts, including the war between Russian and Ukraine and the conflict in the Middle East, which could impact business and economic conditions in the United States and abroad.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”) filed with SEC and available at the SEC’s Internet site (http://www.sec.gov).

• climate change and other catastrophic events or disasters;

• geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts of terrorism, and/or military conflicts, which could impact business and economic conditions in the United States and abroad.

Additional factors that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 (the “2024 Annual Report”) filed with SEC and available at the SEC’s website (www.sec.gov).

The Company specifically disclaims any obligation to update any factors or to publicly announce the result of revisions to any of the forward-looking statements included herein to reflect future events or developments.

The following management’s discussion and analysis of financial condition and results of operations is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated.

This discussion and analysis should be read in conjunction with the unaudited consolidated financial statements and related notes presented elsewhere in this report, as well as the audited consolidated financial statements and related notes included in the 2024 Annual Report.

Shore Bancshares, Inc.

is headquartered on the Eastern Shore of Maryland.

It is the parent company of Shore United Bank, N.A.

(the “Bank”).

The Bank currently operates 40 full-service branches 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 in Delaware, and in Accomack County, Stafford County, Spotsylvania County, and Fredericksburg city in Virginia.

The Company, through Wye Financial Partners, a division of the Bank, offers full-service investment, insurance and financial planning services through our broker/dealer, LPL Financial.

The Company, through Wye Trust, a division of the Bank, offers wealth management, corporate trustee services and trust administration to customers within our market areas and nationwide.

The Company offers title services through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc.

(the “Title Company”), which engages in residential and commercial real estate settlement activities and offers title insurance policies, title search and lien satisfaction services.

The Title Company ceased conducting real estate closings effective March 31, 2025.

Operations will continue for as long as necessary to ensure that work in progress is adequately addressed.

Upon successful completion of outstanding matters, the Title Company will complete any regulatory filings necessary to discontinue the business and dissolve the corporation.

The shares of common stock of Shore Bancshares, Inc.

are listed on the NASDAQ Global Select Market under the symbol “SHBI.”

Shore Bancshares, Inc.

maintains an Internet site at www.shorebancshares.com on which it makes available free of charge its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to the foregoing as soon as reasonably practicable after these reports are electronically filed with, or furnished to, the SEC.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and follow general practices within the industries in which it operates.

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

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

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

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

The most significant accounting policies that the Company follows are presented in Note 1 to the Notes to Consolidated Financial Statement included in the 2023 Annual Report.

These policies, along with the disclosures presented in the notes to the financial statements and in this MD&A, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies for the allowance for credit losses (“ACL”) on loans, goodwill and bargain purchase gain, loans acquired in a business combination and income taxes are critical accounting policies.

These policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.

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

of the 2024 Annual Report.

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

Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policy for the allowance for credit losses (“ACL”) on loans is a critical accounting policy.

This policy is considered critical because it relates to an accounting area that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.

Allowance for Credit Losses on Loans

The Company adopted ASU No.

2016-13, “Financial Instruments – Credit Losses (Topic 326)”, as amended, on January 1, 2023 and in accordance with ASC 326, has recorded an ACL on loans carried at amortized cost.

The ACL represents management’s best estimate of expected lifetime credit losses within the Company’s loan portfolio as of the balance sheet date.

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Loan losses are charged against the allowance when management’s assessments confirm that the Company will not collect the full amortized cost basis of a loan.

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

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

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

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Although the overall balance is determined based on specific portfolio segments and individually assessed assets, the entire balance is available to absorb credit losses for loans in the portfolio.

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

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

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

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Further, changes in factors and inputs may also be directionally inconsistent, such that improvement in one factor may offset deterioration in others.

Goodwill and Bargain Purchase Gain

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

Determining fair value is subjective, requiring the use of estimates, assumptions, and management judgment.

Goodwill is tested at least annually for impairment, usually during the fourth quarter, or on an interim basis if circumstances dictate.

Impairment testing requires a qualitative assessment and/or an independent valuation of the fair value of each of the Company’s reporting units compared to the carrying amount of its net assets, including goodwill.

If the fair value of a reporting unit is less than book value, an impairment loss may be required to write down the related goodwill.

A bargain purchase gain represents the excess of the fair value of net assets acquired over the cost of an acquisition.

Determining fair value is subjective, requiring the use of estimates, assumptions and management judgement.

Bargain purchase gain is recorded as noninterest income in the period it was generated.

An acquirer has a measurement period to finalize the accounting for a business combination which could adjust bargain purchase gain if material facts or circumstances arise.

Loans Acquired in a Business Combination

Acquired loans are classified as either (i) purchase credit-deteriorated (“PCD”) loans or (ii) purchased performing loans and are recorded at fair value on the date of acquisition.

PCD loans are those for which there is more than insignificant evidence of credit deterioration since origination.

When determining fair value as of the date of acquisition, PCD loans are aggregated into pools based on common risk characteristics such as loan type, date of origination, and evidence of credit quality deterioration based on internal risk grades and past due and nonaccrual status.

At the acquisition

date, the ACL is determined and added to the fair value of the loan to determine the new amortized cost basis.

The difference between the new amortized cost basis and the unpaid principal balance is either a noncredit discount or premium that will be amortized or accredited into the interest income over the remaining life of the loan.

Disposals of loans, which may include sale of loans to third parties, receipt of payments in full or in part from the borrower or foreclosure of the collateral, result in removal of the loan from the PCD loan portfolio at its carrying amount.

The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans’ contractual cash flows.

Purchased performing loans are recorded at fair value including a credit discount.

The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans.

Purchased performing loans do not have a more-than-insignificant deterioration in credit quality since origination and have an ACL established in a manner that is consistent with the Company originated loans.

The allowance for PCD loans is determined based upon the Company’s methodology for estimating the allowance under CECL, and is recorded as an adjustment to the acquired loan balance on the date of acquisition.

Additionally, upon the purchase or acquisition of non-PCD loans, the Company measures and records a reserve for credit losses based on the Company’s methodology for determining the allowance under CECL.

The allowance for non-PCD loans is recorded through a charge to provision for credit losses in the period in which the loans were purchased or acquired.

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

The Company accounts for income taxes using the liability method in accordance with required accounting guidance.

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date.

A valuation allowance, if needed, reduces deferred tax assets to the expected amount most likely to be realized.

Realization of deferred tax assets is dependent on the generation of a sufficient level of future taxable income, recoverable taxes paid in prior years and tax planning strategies.

The Company evaluates all positive and negative evidence before determining if a valuation allowance is deemed necessary regarding the realization of deferred tax assets.

The Company recognizes accrued interest and penalties as a component of tax expense.

The provision for income taxes includes the impact of reserve provisions and changes in the reserves that are considered appropriate as well as the related net interest and penalties.

In addition, the Company is subject to the continuous examination of its income tax returns by the IRS and other tax authorities which may assert assessments against the Company.

The Company regularly assesses the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of its provision for income taxes.

The Company remains subject to examination for tax years ending on or after December 31, 2020.

The following MD&A is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated.

Shore Bancshares, Inc.

is headquartered on the Eastern Shore of Maryland.

It is the parent company of Shore United Bank, N.A.

(the “Bank”).

The Bank operates 40 full-service branches in Baltimore County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County, Anne Arundel County, Charles County, St Mary's County, Calvert County and Worcester County in Maryland, Kent County and Sussex County in Delaware, Fredericksburg City, Stafford County and Spotsylvania County in Virginia.

The Company through Wye Financial Partners, a department of the Bank, provides full-service investment and insurance solutions through our broker/dealer, LPL Financial.

The Bank also offers wealth management solutions such as corporate trustee services and trust administration through Wye Trust, a division of the Bank.

The Company also engages in title work for real estate transactions through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc.

The shares of common stock of Shore Bancshares, Inc.

are listed on the NASDAQ Global Select Market under the symbol “SHBI”.

Shore Bancshares, Inc.

The Company’s net income for the third quarter of 2024 was $11.2 million or $0.34 per diluted common share, which was equal to the second quarter of 2024.

The Company had a net loss of $9.7 million or $(0.29) per diluted common share for the third quarter of 2023, as a result of the merger with TCFC.

Net income for the first nine months of 2024 was $30.6 million or $0.92 per diluted common share, compared to net income for the first nine months of 2023 of $738 thousand or $0.03 per diluted common share.

Third Quarter and Nine Months Ended September 30, 2024 Highlights

• Return on Average Assets (“ROAA”) - The Company reported ROAA of 0.77% for the third quarter of 2024, which was equal to reported ROAA for the second quarter of 2024.

Non-GAAP ROAA, which excludes fraud expense, core deposit intangible amortization, and merger-related expenses, was 0.90% for the third quarter of 2024, compared to 0.91% for the second quarter of 2024.

• Net Interest Income and Net Interest Margin - Third quarter 2024 net interest income increased $1.1 million to $43.3 million from $42.1 million in the second quarter of 2024.

Net interest income increased due to modest loan growth, slightly higher accelerated accretion income, and loans and securities repricing at a faster pace than the Bank’s cost of funds.

Net interest margin (“NIM”) increased six basis points (“bps”) to 3.17% for the third quarter of 2024, from 3.11% for the second quarter of 2024.

Excluding net accretion interest income of $4.5 million and $3.8 million for the same time periods, NIM increased one bp to 2.84% for the third quarter of 2024, from 2.83% for the second quarter of 2024.

• Asset Quality - Allowance for credit losses (“ACL”) was $58.7 million at September 30, 2024, compared to $58.5 million at June 30, 2024.

The third quarter of 2024 ACL as a percentage of loans remained stable at 1.24% from the second quarter of 2024.

Nonperforming assets to total assets were 0.27% for the third quarter of 2024 compared to 0.29% for the second quarter of 2024 and 0.23% for the fourth quarter of 2023.

Classified assets to total assets increased to 0.39% in the third quarter of 2024 compared to 0.33% for the second quarter of 2024 and 0.25% for the fourth quarter of 2023.

• Operating Leverage - The third quarter of 2024 efficiency ratio was 67.49% when compared to 66.23% in the second quarter of 2024.

The third quarter efficiency ratio was affected by one-time data processing expense related to the fraud incident in the first quarter of 2024.

The third quarter of 2024 non-GAAP efficiency ratio was 62.10% when compared to 61.05% in the second quarter of 2024.

• Deposits - Total deposits increased to $5.23 billion at September 30, 2024 from $5.15 billion at June 30, 2024 .

Average noninterest bearing deposits were $1.58 billion for the third quarter of 2024 representing 30.55% of average funding, excluding subordinated debt, compared to 28.42% during the second quarter of 2024.

The Bank’s use of wholesale funding, which includes Federal Home Loan Bank (“ FHLB”) advances and brokered deposits, has been minimal in 2024.

Wholesale funding increased from $44.5 million or 0.74% of assets at December 31, 2023 to $50.0 million or 0.84% of total assets at September 30, 2024.

Sustained efforts to enhance the Bank’s deposit franchise are expected to continue to attract additional deposits in future quarters.

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

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

of the 2024 Annual Report for additional details concerning the determination of the ACL on loans.

The Company’s net income for the first quarter of 2025 was $13.8 million, or $0.41 per diluted common share, compared to $13.3 million, or $0.40 per diluted common share, for the fourth quarter of 2024.

The Company had net income of $8.2 million, or $0.25 per diluted common share, for the first quarter of 2024.

First Quarter 2025 Highlights

• Improved Return on Average Assets (“ROAA”) – The Company reported ROAA of 0.91% for the first quarter of 2025, compared to 0.86% for the fourth quarter of 2024 and 0.57% for the first quarter of 2024.

generally accepted accounting principles (“GAAP”) ROAA (1) was 1.02% for the first quarter of 2025, compared to 0.94% for the fourth quarter of 2024 and first quarter of 2024.

• Increased Net Interest Income (“NII”) and Net Interest Margin (“NIM”) – NII for the first quarter of 2025 increased $2.0 million to $46.0 million from $44.0 million for the fourth quarter of 2024.

NIM increased 21 basis points (“bps”) to 3.24% during the first quarter of 2025 from 3.03% in the fourth quarter of 2024.

NIM, excluding net accretion income (“core NIM”) increased from 2.85% to 3.02%.

Excluding accretion interest, loan yields increased 17 bps and funding costs decreased 10 bps, for the comparable periods.

Interest expense for the first quarter of 2025 decreased $2.4 million when compared to the fourth quarter of 2024.

All products repriced at favorable rates, and were partially offset by the seasonal run off of municipal deposits.

NII and NIM were $41.1 million and 3.08%, respectively, for the first quarter of 2024.

• Net Income Growth – Net income for the first quarter of 2025 increased $482 thousand to $13.8 million, from $13.3 million in the fourth quarter of 2024.

Net income increased due primarily to higher net interest income, which was partially offset by lower non-interest income due to lower mortgage banking activity and the absence of the one-time gain on sale of other assets in the fourth quarter of 2024.

Net income for the first quarter of 2024 was $8.2 million.

• Stable Asset Quality – Nonperforming assets to total assets were 0.31% for the first quarter of 2025, a decrease from 0.40% for the fourth quarter of 2024 and an increase from 0.28% for the first quarter of 2024.

Classified assets to total assets were 0.36% in the first quarter of 2025, a decrease when compared to 0.45% for the fourth quarter of 2024 and an increase when compared to 0.26% for the first quarter of 2024.

The allowance for credit losses (“ACL”) was $58.0 million at March 31, 2025 compared to $57.9 million at December 31, 2024 and $57.3 million at March 31, 2024.

The ACL as a percentage of loans remained flat at 1.21% at March 31, 2025, compared to December 31, 2024 and decreased compared to 1.23% at March 31, 2024.

• Improved Operating Leverage – The efficiency ratio for the first quarter of 2025 was 63.64% when compared to 64.21% in the fourth quarter of 2024 and 76.93% for the first quarter of 2024.

The non-GAAP efficiency ratio (1) , which excludes amortization, was 59.25% for the first quarter of 2025, compared to 60.28% for the fourth quarter of 2024 and 62.37% for the first quarter of 2024.

(1) See the Reconciliation of GAAP and non-GAAP Measures tables.

SUMMARY OF OPERATING RESULTS

A comparison of the results of operations for the three and nine months ended September 30, 2024 and September 30, 2023 is presented below.

Unaudited (QTD) Unaudited (YTD)

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

A comparison of the results of operations for the three months ended March 31, 2025 and 2024 is presented below.

Three Months Ended March 31,

($ in thousands) 2025 2024

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Interest expense 30,034 30,004

Net interest income (“NII”)

43,263 45,622 126,538 93,782

Net interest income 46,029 41,135

Provision for credit losses 1,028 407

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Noninterest expense 33,747 36,698

Income (loss) before income taxes 14,966 (14,728) 40,563 (322)

Income tax expense (benefit) 3,777 (4,991) 9,956 (1,060)

Net income (loss) $ 11,189 $ (9,737) $ 30,607 $ 738

Unaudited (QTD) Unaudited (YTD)

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

2024 2023 2024 2023

Income before income taxes 18,257 10,597

Income tax expense 4,493 2,413

Net income $ 13,764 $ 8,184

Three Months Ended March 31,

KEY OPERATING RATIOS

Return on average assets (“ROAA”)

0.77 % (0.67) % 0.70 % 0.02 %

Return on average equity (“ROAE”)

8.41 (7.25) 7.84 0.24

Return on average tangible equity (“ROATCE”) Non-GAAP (1)

12.37 1.74 12.83 6.27

ROAA 0.91 % 0.57 %

Return on average common equity (“ROACE”) 10.20 6.38

Return on average tangible common equity (“ROATCE”) Non-GAAP (1)

Average total equity to average total assets 8.93 8.93

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Efficiency ratio (2)

67.49 77.81 70.09 75.10

Noninterest income to average assets 0.46 0.46

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Net operating expense to average assets (3)

1.84 2.21 1.89 1.99

COMMON SHARE DATA

Basic net income (loss) per common share $ 0.34 $ (0.29) $ 0.92 $ 0.03

Diluted net income (loss) per common share $ 0.34 $ (0.29) $ 0.92 $ 0.03

Basic net income per common share $ 0.41 $ 0.25

Diluted net income per common share $ 0.41 $ 0.25

Cash dividends paid per common share $ 0.12 $ 0.12

Common dividend payout ratio 35.74 % (40.83) % 39.10 % NM

Common dividend payout ratio 29.27 % 48.00 %

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(3) Net operating expense is the sum of noninterest expense offset by noninterest income.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024

Summary of Financial Results

The Company reported net income for the three months ended September 30, 2024 of $11.2 million or $0.34 diluted earnings per common share compared to a net loss of $9.7 million or diluted earnings per common share of $(0.29) for the three months ended September 30, 2023.

The Company’s ROAA, ROACE and ROATCE were 0.77%, 8.41% and 12.37%, respectively, for the three months ended September 30, 2024, compared to (0.67)%, (7.25)% and 1.74%, respectively, for the three months ended September 30, 2023.

Three Months Ended September 30,

The Company reported net income for the three months ended March 31, 2025 of $13.8 million, or $0.41 diluted earnings per common share, compared to $8.2 million, or diluted earnings per common share of $0.25, for the three months ended March 31, 2024.

The Company’s ROAA, ROACE and ROATCE were 0.91%, 10.20% and 14.05%, respectively, for the three months ended March 31, 2025, compared to 0.57%, 6.38% and 13.39%, respectively, for the three months ended March 31, 2024.

The following table presents selected consolidated statement of operations data for each of the periods indicated.

Three Months Ended March 31,

($ in thousands) 2025 2024 $ Change % Change

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Noninterest expense 33,747 36,698 (2,951) (8.0)

Income (loss) before income taxes 14,966 (14,728) 29,694 (201.61) %

Income tax expense (benefit) 3,777 (4,991) 8,768 (175.68) %

Net income (loss) $ 11,189 $ (9,737) $ 20,926 (214.91) %

Income before income taxes 18,257 10,597 7,660 72.3

Income tax expense 4,493 2,413 2,080 86.2

Net income $ 13,764 $ 8,184 $ 5,580 68.2

Net Interest Income

Tax-equivalent net interest income is net interest income adjusted for the tax-favored status of income from certain loans and investments.

As shown in the table below, tax-equivalent net interest income was $43.3 million for the third quarter of 2024 and $45.7 million for the third quarter of 2023.

The decrease in tax-equivalent net interest income was primarily due to an increase in interest on deposits, a decrease in interest on deposits with other banks and an increase in interest on long-term borrowings, partially offset by an increase in interest and fees on loans, all significantly impacted by the merger with TCFC in the third quarter of 2023.

Three Months Ended September 30,

Tax-equivalent NII is NII adjusted for the tax-favored status of income from certain loans and investments.

As shown in the table below, tax-equivalent NII was $46.1 million for the first quarter of 2025 and $41.2 million for the first quarter of 2024.

The increase was primarily due to increases in interest and fees on loans of $1.9 million, interest on deposits at other banks of $2.4 million and interest on investment securities of $582 thousand.

Three Months Ended March 31,

($ in thousands) 2025 2024 $ Change % Change

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Average Balances and Yields

The following table sets forth average balances, average yields and costs, and certain other information for the periods indicated.

Tax-equivalent adjustments were made.

All average balances are daily average balances.

Non-accrual loans were included in the computation of average balances.

The yields set forth below include the effects of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.

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

($ in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

The following table presents the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the three months ended March 31, 2025 and 2024.

Three Months Ended March 31,

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

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

Earning assets

Loans (2), (3)

Residential real estate $ 1,412,086 $ 20,723 5.84 % $ 1,141,707 $ 14,548 5.06 %

Commercial real estate $ 2,541,527 $ 35,889 5.73 % $ 2,518,884 $ 35,633 5.69 %

Residential real estate 1,347,035 18,462 5.56 1,276,191 17,241 5.43

Construction 352,323 5,526 6.36 300,117 4,404 5.90

Commercial 232,900 3,705 6.45 221,356 4,114 7.48

Consumer 304,520 4,058 5.40 331,178 4,272 5.19

State and political 1,883 32 6.76 929 10 4.27

Credit cards 6,686 86 5.22 7,457 167 9.01

Other 31,817 416 5.20 16,137 201 4.94

Total loans 4,784,991 67,726 5.74 4,655,183 65,831 5.69

2 unchanged sentences

Tax-exempt 653 8 4.90 660 8 4.85

657 8 4.87 663 34 20.51

Federal funds sold — — — 7,533 92 4.85

Interest-bearing deposits 318,434 3,409 4.34 77,276 960 5.00

4 unchanged sentences

Total assets $ 6,129,241 $ 5,774,824

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

($ in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

Interest-bearing liabilities

Demand deposits $ 581,517 $ 5,472 3.74 % $ 1,056,956 $ 6,659 2.50 %

Money market and savings deposits 1,670,210 10,420 2.48 1,572,920 6,810 1.72

Interest-bearing checking $ 859,698 $ 7,025 3.31 % $ 1,110,524 $ 6,362 2.30 %

Money market and savings 1,799,707 10,015 2.26 1,669,074 10,160 2.45

Time deposits 1,208,250 11,030 3.70 1,179,572 11,724 4.00

Brokered deposits — — — 20,465 251 4.93

Certificates of deposit $100,000 or more 797,439 8,433 4.21 706,642 6,272 3.52

Other time deposits 431,834 4,309 3.97 285,743 2,507 3.48

Interest-bearing deposits 3,867,655 28,070 2.94 3,979,635 28,497 2.88

3,506,829 28,856 3.27 3,720,910 23,473 2.50

Advances from FHLB - short-term 33,500 491 5.83 70,348 692 3.90

Advances from FHLB - long-term 50,000 625 4.97 — — —

FHLB advances 50,000 598 4.85 4,000 56 5.63

Subordinated debt and guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) 73,840 1,366 7.50 72,418 1,451 8.06

72,946 1,454 7.93 71,907 1,461 8.06

Total interest-bearing liabilities 3,991,495 30,034 3.05 4,056,053 30,004 2.98

9 unchanged sentences

Cost of debt 6.43 7.93

Tax-equivalent adjustment

Loans $ 80 $ 73

Investment securities 2 7

Total $ 82 $ 80

____________________________________

2 unchanged sentences

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

There were $5.0 million and $6.1 million of accretion interest on loans for the three months ended September 30, 2024 and 2023, respectively.

There were $3.7 million and $4.2 million of accretion interest on loans for the three months ended March 31, 2025 and 2024, respectively.

(4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment.

There were $287 thousand and $484 thousand of amortization of deposits premium, and $232 thousand and $232 thousand of amortization of borrowing fair value adjustment for the three months ended September 30, 2024 and 2023, respectively.

The following table presents changes in volume and rate related to interest income and interest expense for the periods indicated.

Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

There were $334 thousand and $367 thousand of amortization of deposits premium, and $232 thousand and $220 thousand of amortization of borrowing fair value adjustment for the three months ended March 31, 2025 and 2024, respectively.

Rate and Volume Analysis

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

For each category of interest-earning asset and interest-bearing liability, information is provided on changes attributable to (1) changes in volume (changes in volume multiplied by old rate);

and (2) changes in rate (changes in rate multiplied by old volume).

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

Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

($ in thousands) Volume Due to Rate Total

Interest income:

Loan Portfolio

Residential real estate $ 3,936 $ 2,238 $ 6,174

Interest income from earning assets:

Commercial real estate $ 8 $ 248 $ 256

Residential real estate 812 409 1,221

Construction 782 340 1,122

Commercial 153 (562) (409)

Consumer (385) 171 (214)

State and political 16 6 22

Credit cards (11) (70) (81)

Other 204 11 215

Taxable investment securities 75 507 582

Tax-exempt investment securities — (26) (26)

Fed funds sold — (92) (92)

Interest-bearing deposits 2,575 (126) 2,449

1 unchanged sentence

Interest-bearing liabilities:

Interest-bearing demand deposits $ (4,482) $ 3,294 $ (1,188)

Interest-bearing checking deposits $ (2,103) $ 2,766 $ 663

Money market and savings deposits 637 (782) (145)

Certificate of deposits 1,757 1,203 2,960

Advances from FHLB - Short-term (542) 341 (201)

Advances from FHLB - Long-term 625 — 625

Time deposits 176 (1,121) (945)

Advances from FHLB 550 (8) 542

Subordinated debt 15 (100) (85)

1 unchanged sentence

Net change in net interest income $ 4,734 $ 162 $ 4,896

Fluctuations in net interest income can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates.

Fluctuations in NII can result from the combination of changes in the average balances of asset and liability categories and changes in interest rates.

Interest rates earned and paid are affected by general economic conditions, particularly changes in market interest rates, and by competitive factors, government policies and actions of regulatory authorities.

Net interest income was $43.3 million for the third quarter of 2024, compared to $45.6 million for the third quarter of 2023.

The decrease was primarily due to an increase in interest on deposits of $5.4 million, a decrease in interest on deposits with other banks of $649 thousand and an increase in interest on long-term borrowings of $618 thousand.

These changes were partially offset by an increase in interest and fees on loans of $4.3 million.

The Company’s NIM decreased to 3.17% for the third quarter of 2024 from 3.35% for the third quarter of 2023.

Comparing the third quarter of 2024 to the third quarter of 2023, the Company’s interest-earning asset yields increased 23 basis points to 5.47% from 5.24%, while the cost of funds repriced at a faster pace resulting in an increase of 43 basis points to 2.38% from 1.95% for the same period.

Provision for Credit Losses (“PCL”) and Allowance for Credit Losses

See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this MD&A.

NII was $46.0 million for the first quarter of 2025, compared to $41.1 million for the first quarter of 2024.

The increase was primarily due to increases in interest and fees on loans of $1.9 million , interest on deposits at other banks of $2.4 million and interest on investment securities of $582 thousand.

The Company’s NIM increased to 3.24% for the first quarter of 2025 from 3.08% for the first quarter of 2024.

Comparing the first quarter of 2025 to the first quarter of 2024, the Company’s interest-earning asset yields remained flat at 5.35% while the cost of funds repriced at a faster pace resulting in a decrease of 11 basis points to 2.20% from 2.31% for the same period.

Provision for Credit Losses (“PCL”) and ACL

See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this management’s discussion and analysis of financial condition and results of operations.

Noninterest Income

Total noninterest income for the third quarter of 2024 was $7.3 million, a decrease of $7.7 million from $15.0 million for the third quarter of 2023.

The decrease was primarily due to lower trust and investment fee income of $1.1 million.

and a one time third quarter 2023 bargain purchase gain of $8.8 million, partially offset by $2.2 million of losses on sale of investment securities, a direct result of the merger with TCFC in the third quarter of 2023.

Total noninterest income for the first quarter of 2025 was $7.0 million, an increase of $436 thousand from $6.6 million for the first quarter of 2024.

The increase was primarily due to an increase in mortgage banking activity, driven by increased mortgage servicing activity and lower prepayment rates.

Noninterest Expense

Total noninterest expense of $34.1 million for the third quarter of 2024 decreased $13.0 million when compared to the third quarter of 2023 total noninterest expense of $47.2 million.

The decrease in total noninterest expense from the third quarter of 2023 was primarily due to one time merger related expenses that were incurred in 2023, partially offset by an increase in expenses due to the operation of a larger branch network and employee base due to the merger with TCFC, which significantly impacted almost all expense line items.

In addition, despite the increased size, the Company has prudently reduced its staff by approximately 72 FTEs since the consummation of the merger.

The Company reported income tax expense of $3.8 million for the third quarter of 2024, and income tax benefit of $5.0 million for the third quarter of 2023.

The effective tax rate for the third quarter of 2024 and 2023 was 25.24% and (33.89%), respectively.

The third quarter 2023 tax rate was impacted by a net pre-tax loss, nondeductible merger costs, and reassessment of deferred tax assets and liabilities at an estimated effective tax rate due to an adjustment to state apportionment.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024 AND 2023

Summary of Financial Results

The Company reported net income for the nine months ended September 30, 2024 of $30.6 million or diluted earnings per share of $0.92 compared to net income of $738 thousand or diluted earnings per share of $0.03 for the nine months ended September 30, 2023.

The Company’s ROAA, Non-GAAP ROAA, ROACE and ROATCE were 0.70%, 0.91%, 7.84% and 12.83% for the nine months ended September 30, 2024, respectively, compared to 0.02%, 0.49%, 0.24% and 6.27% for the nine months ended September 30, 2023, respectively.

The increase to net income in the first nine months of 2024 compared to the same period in 2023 was primarily due to the merger with TCFC, which resulted in higher net interest income and a lower provision for credit losses, partially offset by higher noninterest expense, higher income tax expense and lower noninterest income.

The increase in net interest income was impacted by higher average balances and yields earned on average earning assets, partially offset by higher average balances and rates paid on interest-bearing liabilities.

The decrease in the provision for credit losses in 2024 was due to higher levels of reserves required by the Company’s CECL model related to the merger in 2023 and recognition of provision on acquired loans.

Almost all noninterest expense line items in 2024 increased as a result of the merger and the expanded operations of the newly combined Company.

Nine Months Ended September 30,

($ in thousands) 2024 2023 $ Change % Change

Interest and dividend income $ 218,934 $ 142,943 $ 75,991 53.16 %

Interest expenses 92,396 49,161 43,235 87.95 %

Net interest income 126,538 93,782 32,756 34.93 %

Provision for credit losses 3,958 30,056 (26,098) (86.83) %

Noninterest income 22,294 25,613 (3,319) (12.96) %

Noninterest expenses 104,311 89,661 14,650 16.34 %

Income (loss) before income taxes 40,563 (322) 40,885 NM

Income tax expense (benefit) 9,956 (1,060) 11,016 NM

Net income $ 30,607 $ 738 $ 29,869 NM

Net Interest Income

As shown in the table below, tax-equivalent net interest income increased $32.8 million to $126.8 million for the nine months ended September 30, 2024, compared to $94.0 million for the nine months ended September 30, 2023.

The increase in net interest income when compared to the prior period was primarily due to the increase in the average balance of loans of $1.40 billion, or 42.3%.

The increase in interest income was partially offset by increased total interest expense of $43.2 million, or 87.9%, primarily due to increases in the cost of funds and in the average balance of interest-bearing deposits of $1.02 billion, or 38.1%, and an increase in net accretion interest of $5.5 million.

All of the noted increases were significantly impacted by the merger.

Nine Months Ended September 30,

($ in thousands) 2024 2023 $ Change % Change

Interest and dividend income

Loans, including fees $ 202,203 $ 128,424 $ 73,779 57.45 %

Interest and dividends on investment securities

14,629 12,973 1,656 12.76 %

Interest on deposits with banks 2,102 1,546 556 35.96 %

Total Interest and Dividend Income $ 218,934 $ 142,943 $ 75,991 53.16 %

Interest Expenses

Deposits $ 84,938 $ 40,668 $ 44,270 108.86 %

Short-term borrowings 2,131 5,501 (3,370) (61.26) %

Long-term debt 5,327 2,992 2,335 78.04 %

Total Interest Expenses $ 92,396 $ 49,161 $ 43,235 87.95 %

Taxable-equivalent adjustment $ 242 $ 172 $ 70 40.70 %

Tax Equivalent Net Interest Income $ 126,780 $ 93,954 $ 32,826 34.94 %

Average Balances and Yields

The following tables present the distribution of the average consolidated balance sheets, interest income/expense, and annualized yields earned and rates paid for the nine months ended September 30, 2024 and 2023.

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

($ in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

Earning assets

Loans (1), (2), (3)

Consumer real estate $ 1,387,387 $ 58,493 5.63 % $ 990,970 $ 35,929 4.85 %

Commercial real estate 2,736,941 117,832 5.75 % 1,806,983 71,328 5.28 %

Commercial 215,788 11,755 7.28 % 171,702 9,312 7.25 %

Consumer 325,935 12,843 5.26 % 318,066 11,440 4.81 %

State and political 1,896 78 5.50 % 936 27 3.86 %

Credit Cards 7,654 539 9.41 % 2,077 149 9.59 %

Other 23,093 900 5.21 % 11,192 400 4.78 %

Total Loans 4,698,694 202,440 5.76 % 3,301,926 128,585 5.21 %

Investment securities:

Taxable 671,875 14,611 2.90 692,718 12,840 2.47

Tax-exempt (1)

658 23 4.66 664 52 10.44

Federal funds sold — — — 2,539 92 4.84

Interest-bearing deposits 56,486 2,102 4.97 27,750 1,546 7.45

Total earning assets 5,427,713 219,176 5.39 % 4,025,597 143,115 4.75 %

Cash and due from banks 47,211 36,831

Other assets 391,106 271,721

Allowance for credit losses (57,877) (35,206)

Total assets $ 5,808,153 $ 4,298,943

Nine Months Ended September 30, 2024 Nine Months Ended September 30, 2023

($ in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate

Interest-bearing liabilities

Demand deposits $ 800,258 17,384 2.90 % $ 813,834 13,808 2.27 %

Money market and savings deposits 1,676,457 30,871 2.46 1,163,595 11,709 1.35

Brokered deposits 16,642 567 4.55 33,244 1,225 4.93

Certificates of deposit $100,000 or more 774,112 23,689 4.09 421,852 9,685 3.07

Other time deposits 422,212 12,427 3.93 239,834 4,241 2.36

Interest-bearing deposits (4)

3,689,681 84,938 3.07 2,672,359 40,668 2.03

Securities sold under retail repurchase agreements and federal funds purchased — — — — — —

Advances from FHLB - short-term 50,288 2,131 5.66 148,546 5,501 4.95

Advances from FHLB - long-term 26,825 971 4.84 — — —

Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") (4)

Total noninterest expense of $33.7 million for the first quarter of 2025 decreased $3.0 million when compared to the first quarter of 2024 total noninterest expense of $36.7 million.

The decrease in total noninterest expense from the first quarter of 2024 was primarily due to the absence of the fraud losses incurred in connection with the credit card fraud incident in the first quarter of 2024 partially offset by higher salaries and benefits expense and software and data processing costs.

The Company reported income tax expense of $4.5 million and $2.4 million for the three months ended March 31, 2025 and 2024, respectively.

The effective tax rate for the first quarter of 2025 and 2024 was 24.6% and 22.8%, respectively.

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

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

Potential obligations, resulting from the issuance of standby letters of credit and commitments to fund future borrowings to our loan customers, are other factors affecting our liquidity needs.

Many of these obligations and commitments are expected to expire without being drawn upon;

therefore, the total commitment amounts do not necessarily represent future cash requirements affecting our liquidity position.

The Company’s principal sources of liquidity are cash on hand and dividends received from the Bank.

The Bank’s most liquid assets are cash, cash equivalents and federal funds sold.

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

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

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

Based on management’s going concern evaluation, we believe that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s or the Bank’s ability to continue as a going concern, within one year of the date of the issuance of the financial statements.

The Bank’s principal sources of funds for investment and operations are net income, deposits, sales of loans, borrowings, principal and interest payments on loans, principal and interest received on investment securities and proceeds from the maturity and sale of investment securities.

The Bank’s principal funding commitments are for the origination or purchase of loans, the purchase of securities and the payment of maturing deposits.

The Bank’s most liquid assets are cash, cash equivalents and federal funds sold.

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

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

Liquidity is provided by access to funding sources, which include core deposits and brokered deposits.

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

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

We derive liquidity through increased customer deposits, non-reinvestment of the cash flow from the investment portfolio, loan repayments, borrowings and income from earning assets.

As seen in the consolidated statements of cash flows, the net decrease in cash and cash equivalents was $70.8 million for the first three months of 2025, compared to a net decrease of $257.9 million for the first three months of 2024.

The decrease in cash and cash equivalents in the first three months of 2025 was mainly due to the decrease of $70.5 million in interest-bearing deposits, partially offset by an increase of $2.2 million in noninterest-bearing deposits.

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

At March 31, 2025, the Bank had approximately $1.35 billion of available liquidity, including $389.0 million in cash and cash equivalents, $319.0 million in unpledged securities, $729.5 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $39.1 million, respectively.

The Bank has arrangements with other correspondent banks whereby it has $95.0 million available in federal funds lines of credit and a reverse repurchase agreement available to meet any short-term needs which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash.

Through the FHLB, the Bank had available lendable collateral of approximately $729.5 million and $743.6 million at March 31, 2025 and December 31, 2024, respectively.

The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta.

The following table presents the Company’s liquidity in use and liquidity available as of March 31, 2025.

March 31, 2025

($ in thousands) Liquidity in Use Liquidity Available

FHLB secured borrowings (1)

$ 89,100 $ 729,543

Total interest-bearing liabilities 3,839,476 92,396 3.21 % 2,873,744 49,161 2.29 %

Noninterest-bearing deposits 1,408,270 983,325

Accrued expenses and other liabilities 38,843 22,073

Stockholders’ equity 521,564 419,801

Total liabilities and stockholders’ equity $ 5,808,153 $ 4,298,943

Net interest income $ 126,780 $ 93,954

Net interest spread 2.18 % 2.46 %

Net interest margin 3.12 % 3.12 %

Cost of Funds 2.35 % 1.70 %

Cost of Deposits 2.23 % 1.49 %

Cost of Debt 6.65 % 5.64 %

Tax-equivalent adjustment

Loans $ 237 $ 161

Investment securities 5 11

Unsecured federal fund purchase lines — 95,000

Unpledged assets

Cash and cash equivalents n/a $ 389,006

Investment securities n/a 319,008

Total $ 89,100 $ 1,532,557

____________________________________

(1) All amounts are reported on a tax-equivalent basis computed using the statutory federal income tax rate of 21.0%, exclusive of nondeductible interest expense.

(2) Average loan balances include nonaccrual loans.

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

There were $13.7 million and $7.0 million of accretion interest on loans for the nine months ended September 30, 2024 and 2023, respectively.

(4) Interest expense on deposits and borrowing includes amortization of deposit premiums and amortization of borrowing fair value adjustment.

There were $1.1 million and $308 thousand of amortization of deposits premium, and $695 thousand and $325 thousand of amortization of borrowing fair value adjustment for the nine months ended September 30, 2024 and 2023, respectively.

The following table presents changes in volume and rate related to interest income and interest expense for the periods indicated.

Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

($ in thousands) Volume Due to Rate Total

Interest income from earning assets:

Residential real estate $ 16,777 $ 5,787 $ 22,564

Commercial real estate 40,146 6,358 46,504

Commercial 2,404 39 2,443

Consumer 331 1,072 1,403

State and political 40 11 51

Credit Cards 393 (3) 390

Other 464 36 500

Taxable investment securities (463) 2,234 1,771

Tax-exempt investment securities — (29) (29)

Fed funds sold — (92) (92)

Interest-bearing deposits 1,071 (515) 556

Total interest income $ 61,163 $ 14,898 $ 76,061

Interest-bearing liabilities:

Interest-bearing demand deposits (263) 3,838 3,575

Money market and savings deposits 9,493 9,669 19,162

Certificate of deposits 15,586 5,946 21,532

Advances from FHLB - Short-term (4,159) 790 (3,369)

Advances from FHLB - Long-term 971 — 971

Subordinated debt 1,190 174 1,364

Total interest-bearing liabilities $ 22,818 $ 20,417 $ 43,235

Net change in net interest income $ 38,345 $ (5,519) $ 32,826

The Company’s net interest margin remained flat at 3.12% for the nine months ended September 30, 2024 as compared to the same period in 2023, as more rapid increases in rates on interest-bearing liabilities were offset by lower increases in interest-earning asset yields and larger balances in noninterest-bearing deposits.

The increases in the average balance and rates paid on interest-bearing deposits of $1.02 billion and 104 bps, respectively, were partially offset by increases in the average balance and yields earned on average earning assets of $1.40 billion and 64 bps, respectively.

Additionally, margins were positively impacted as average balances of noninterest-bearing deposits increased $424.9 million, or 43.2%, from 25.9% of average funding for the nine months ended September 30, 2023 to 27.2% of average funding for the nine months ended September 30, 2024.

Net accretion income impacted net interest margin by 29 bps and 21 bps for the nine months ended September 30, 2024 and 2023, respectively.

Until the balance sheet restructuring in the third quarter of 2023, the net interest margin experienced compression due to the Company’s liability sensitive position, deposit rate pressures and significantly higher FHLB borrowing rates.

Provision for Credit Losses and Allowance for Credit Losses

See discussion of the Bank’s PCL and ACL in the asset quality discussion in the analysis of financial condition in this MD&A.

Noninterest Income

Total noninterest income of $22.3 for the nine months ended September 30, 2024 decreased $3.3 million, or 13.0%, when compared to the same period in 2023.

The decrease was primarily due to lower trust and investment fee income of $1.1 million.

The decrease was affected by one-time bargain purchase income of $8.8 million and $2.2 million of losses on sale of investment securities in the third quarter 2023, both a direct result of the merger with TCFC in the third quarter of 2023.

Noninterest Expense

Total noninterest expense of $104.3 for the nine months ended September 30, 2024 increased $14.6 million, or 16.3%, when compared to the same period in 2023.

Almost all noninterest expense line items increased as a result of the merger with TCFC and the expanded operations of the newly combined Company and $4.7 million of credit card related fraud losses.

There were no merger-related expenses for the nine months ended September 30, 2024, compared to $16.8 million for the nine months ended September 30, 2023.

The Company continues to focus on streamlining processes to unlock operational efficiencies and reduce overall noninterest expenses.

The Company reported income tax expense of $10.0 million for the nine months ended September 30, 2024, and income tax benefit of $1.1 million for the nine months ended September 30, 2023.

The effective tax rate was 24.54% for the nine months ended September 30, 2024, and (329.12)% for the nine months ended September 30, 2023.

The 2023 effective tax rate was impacted by nondeductible merger costs incurred.

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

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

in the 2024 Annual Report.

CAPITAL RESOURCES

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

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

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

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1 (“CET1”), Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%.

The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at March 31, 2025.

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

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

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

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

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

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum ratios of CET1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%.

The Bank is also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio.

In July 2013, federal bank regulatory agencies issued a final rule that revised their risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with certain standards that were developed by Basel III and certain provisions of the Dodd-Frank Act.

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

As of March 31, 2025, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations.

The following tables present the applicable capital ratios for the Company and the Bank as of March 31, 2025 and December 31, 2024.

March 31, 2025 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio

The Company 8.27 % 9.75 % 10.37 % 12.52 %

The Bank 8.84 11.09 11.09 12.33

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

The Company 8.02 % 9.44 % 10.06 % 12.18 %

The Bank 8.58 10.75 10.75 11.97

On May 1, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on May 23, 2025, to holders of record of shares of common stock as of May 12, 2025.

See Note 10 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1.

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

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

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

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 March 31, 2025, the Company has not accrued an amount for the potential impact of any such actions.

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

• Deposit and loan balances at March 31, 2025 were approximately $175.9 million, or 3.2% of total deposits, and $83.0 million, or 1.7% of total gross loans, respectively.

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

• Interest and noninterest income for the three months ended March 31, 2025, were approximately $1.1 million and $241 thousand, respectively.

Interest and noninterest income for the three months ended March 31, 2024, were approximately $1.0 and $293 thousand, respectively.

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

in the 2024 Annual Report.

ANALYSIS OF FINANCIAL CONDITION

Balance Sheet Summary

Total assets were $5.92 billion at September 30, 2024, a decrease of $93.2 million, or 1.6%, when compared to $6.01 billion at December 31, 2023.

The aggregate decrease was primarily due to decreases in cash and cash equivalents of $188.8 million and investment securities held to maturity (“HTM”) of $28.6 million partially offset by an increase in investment securities available for sale (“AFS”) of $22.8 million and loans held for investment of $92.9 million.

The ratios of the ACL on loans to total loans were 1.24% and 1.24% at September 30, 2024 and December 31, 2023, respectively.

Total assets were $6.18 billion at March 31, 2025, a decrease of $54.2 million, or 0.9%, when compared to $6.23 billion at December 31, 2024.

The aggregate decrease was primarily due to decreases in cash and cash equivalents of $70.8 million and held to maturity (“HTM”) securities of $11.5 million, partially offset by increases in available for sale (“AFS”) securities of $29.9 million and loans held for investment of $5.5 million.

The ratio of the ACL as a percentage of loans was 1.21% and 1.21% at March 31, 2025 and December 31, 2024, respectively.

Cash and Cash Equivalents

Cash and cash equivalents totaled $183.6 million at September 30, 2024, compared to $372.4 million at December 31, 2023.

Cash and cash equivalents totaled $389.0 million at March 31, 2025, compared to $459.9 million at December 31, 2024.

Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands.

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The investment portfolio includes debt and equity securities.

Securities are classified as either AFS or HTM.

Debt securities are classified as either AFS or HTM.

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

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We have the intent and ability to hold such securities until maturity.

At September 30, 2024, 21.6% of the portfolio of debt securities was classified as AFS and 78.4% was classified as HTM, compared to 17.7% and 82.3% respectively, at December 31, 2023.

See Note 3 – “Investment Securities”, in the Notes to Consolidated Financial Statements for additional details on the composition of our investment portfolio.

Investment securities, including restricted stock and equity securities, totaled $644.2 million at September 30, 2024, a $3.2 million, or 0.5%, decrease compared to $647.4 million at December 31, 2023.

At September 30, 2024, AFS securities, carried at fair value, totaled $133.3 million compared to $110.5 million at December 31, 2023.

At September 30, 2024, AFS securities consisted of 79.7% mortgage-backed, 15.5% U.S.

Government agencies and 4.8% corporate bonds, compared to 76.0%, 18.5% and 5.5%, respectively, at year-end 2023.

At September 30, 2024, the accumulated other comprehensive loss was $5.5 million, compared to $7.5 million at December 31, 2023.

At September 30, 2024, HTM securities, carried at amortized cost, totaled $484.7 million compared to $513.3 million at December 31, 2023.

At September 30, 2024, HTM securities consisted of 70.1% mortgage-backed, 27.4% U.S.

Government agencies, 2.2% other debt securities, and 0.3% states and political subdivisions, compared to 69.7%, 27.9%, 2.0% and 0.3%, respectively, at year-end 2023.

At September 30, 2024 and December 31, 2023, 97.0% and 97.1%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

At March 31, 2025, 27.6% of the portfolio of debt securities was classified as AFS and 72.4% was classified as HTM, compared to 23.7% and 76.3% respectively, at December 31, 2024.

See Note 2 – “Investment Securities” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1.

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

Investment securities, including restricted stock and equity securities, totaled $675.1 million at March 31, 2025, an $18.7 million or 2.9% increase, compared to $656.4 million at December 31, 2024.

At March 31, 2025, AFS securities, carried at fair value, totaled $179.1 million, compared to $149.2 million at December 31, 2024.

At March 31, 2025, AFS securities consisted of 84.9% mortgage-backed, 11.4% U.S.

government agencies and 3.7% corporate bonds, compared to 82.0%, 13.5% and 4.4%, respectively, at December 31, 2024.

At March 31, 2025, the accumulated other comprehensive loss was $6.3 million, compared to $7.5 million at December 31, 2024.

At March 31, 2025, HTM securities, carried at amortized cost, totaled $469.6 million, compared to $481.1 million at December 31, 2024.

At March 31, 2025, HTM securities consisted of 70.0% mortgage-backed, 27.5% U.S.

government agencies and 2.5% other debt securities, compared to 70.0%, 27.6% and 2.5%, respectively, at December 31, 2024.

At March 31, 2025 and December 31, 2024, 97.2% and 97.1%, respectively, of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S.

government agencies or government-sponsored agencies.

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

There were no speculative grade HTM securities at September 30, 2024 or December 31, 2023.

There were no speculative grade HTM securities at March 31, 2025 or December 31, 2024.

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

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

The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of September 30, 2024.

September 30, 2024

The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of March 31, 2025.

March 31, 2025

Investment Grade

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

Treasury and government agencies $ 132,870 $ — $ — $ — $ — $ — $ 132,870

Mortgage-backed-residential 339,848 — — — — — 339,848

States and political subdivisions — 1,466 — — — — 1,466

Treasury and government agency securities $ 129,327 $ — $ — $ — $ — $ — $ 129,327

Mortgage-backed securities 328,459 — — — — — 328,459

Other debt securities — 1,464 4,000 4,000 500 2,000 11,964

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

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

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

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

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

Other debt securities — 1,465 4,000 4,000 500 2,000 11,965

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Loans Held for Sale

The Bank originates residential mortgage loans for sale on the secondary market, which are recorded at fair value.

At September 30, 2024 and December 31, 2023 , the fair value of loans held for sale amounted to $26.9 million and $8.8 million, respectively.

We originate residential mortgage loans for sale on the secondary market, which are recorded at fair value.

At March 31, 2025 and December 31, 2024 , the fair value of loans held for sale amounted to $15.7 million and $19.6 million, respectively.

The Bank makes certain representations to purchasers in the sale of the mortgage loans related to loan ownership, loan compliance and legality, and accurate documentation.

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

At March 31, 2025 the Bank repurchased one loan of $415 thousand.

No loans were repurchased as of December 31, 2024 .

Loans Held for Investment

The following table summarizes the Company’s loan portfolio at September 30, 2024 and December 31, 2023.

($ in thousands) September 30, 2024 % December 31, 2023 % $ Change % Change

Construction $ 337,113 7.12 % $ 299,000 6.40 % $ 38,113 12.75 %

Residential real estate 1,570,998 33.19 % 1,490,438 32.10 % 80,560 5.41 %

The following table summarizes the Company’s loan portfolio at March 31, 2025 and December 31, 2024.

($ in thousands) March 31, 2025 % December 31, 2024 % $ Change % Change

Commercial real estate $ 2,544,107 53.2 % $ 2,557,806 53.6 % $ (13,699) (0.5) %

Residential real estate 1,325,858 27.8 1,329,406 27.9 (3,548) (0.3) %

Construction 366,218 7.7 335,999 7.0 30,219 9.0 %

Commercial 234,499 4.9 237,932 5.0 (3,433) (1.4) %

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Total loans, net $ 4,719,447 $ 4,714,078 $ 5,369 0.1 %

Our loan portfolio has a CRE concentration, which is generally defined as a combination of certain construction and CRE loans.

CRE Loan Portfolio

Our loan portfolio has a CRE loan concentration, which is generally defined as a combination of certain construction and CRE loans.

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in CRE lending.

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

Institutions which are deemed to have concentrations in CRE

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

The Bank has a concentration in CRE loans, and has experienced significant growth in its CRE portfolio in recent years and was further impacted with its acquisition of CBTC in the third quarter of 2023.

Non-owner occupied CRE loans as an amount and as a percentage of the Bank’s Tier 1 Capital + ACL at September 30, 2024 and December 31, 2023 were $2.07 billion or 364.0% and $2.02 billion or 382.6%, respectively.

Construction loans as an amount and as a percentage of the Bank’s Tier 1 Capital + ACL at September 30, 2024 and December 31, 2023 were $337.1 million or 59.3% and $299.0 million or 56.7%, respectively.

The CRE portfolio (including construction) has increased significantly in the past two years.

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

higher levels of capital.

The Bank has a concentration in CRE loans, and experienced significant growth in its CRE portfolio with its acquisition of The Community Financial Corporation and its wholly-owned subsidiary, Community Bank of the Chesapeake.

Non-owner occupied CRE loans totaled $2.12 billion and $2.08 billion at March 31, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 357.37% and 359.52%, respectively.

Construction loans totaled $365.7 million and $336.0 million at March 31, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 61.69% and 57.99%, respectively.

The CRE portfolio has increased in the past two years.

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

Monitoring practices include stress testing analysis to evaluate changes in collateral values and to cash flows from interest rate increases and declines in net operating income.

We may be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital or to sell/participate portions of loans, which may adversely affect stockholder returns.

Monitoring practices are part of the Bank’s credit and risk departments’ annual test plans and are adjusted as needed on a quarterly basis if external or internal conditions merit changes.

The Bank’s CRE monitoring plans include stress testing analysis to evaluate changes in collateral values and changes in cash flow debt service coverage ratios as a result of increasing interest rates or declines in customer net operating revenues.

We may be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital or be required to sell/participate portions of loans, which may adversely affect shareholder returns.

Non-Owner Occupied CRE Loans

September 30, 2024

March 31, 2025

($ in thousands) Amount Average Loan Size % of Non-Owner Occupied CRE Loans % of Total Portfolio Loans, Gross

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Multi-Family (5+ Units) 271,812 2,303 12.8 5.7

Motel/Hotel 212,890 4,174 10.3 % 4.5 %

Industrial/Warehouse 208,714 1,502 9.9 4.4

Motel/Hotel 196,400 4,092 9.3 4.1

Commercial - Improved 184,833 1,349 8.7 3.9

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(1) Other non-owner occupied CRE loans include 1-4 family dwelling loans of $164.9 million, lot/land loans of $94.5 million, self-storage loans of $72.5 million and other loans of $100.7 million.

(2) The balances for our non-owner occupied CRE portfolio as of September 30, 2024, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.

Within the non-owner occupied balances presented in this table, the Company has included certain loans secured by multi-family residential properties and other investor owned 1-4 family residential properties that are reported in the residential real estate caption in other areas of this report.

As such, the total balance of loans presented in this table when added to the balance of the table presented below detailing owner occupied CRE may not reconcile to the CRE caption included in other tables and footnotes.

(2) The balances for our non-owner occupied CRE portfolio as of March 31, 2025, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.

(3) Excludes loans held for sale of $15.7 million.

Owner Occupied CRE Loans

September 30, 2024

March 31, 2025

($ in thousands) Amount Average Loan Size % of Owner Occupied CRE Loans % of Total Portfolio Loans, Gross

Commercial - Improved $ 161,926 $ 975 23.0 % 3.4 %

Office/Office Condo 133,591 522 18.9 2.8

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Retail 62,905 605 8.9 1.3

Commercial - Improved 165,806 958 22.2 % 3.5 %

186,540 1,124 26.4 3.9

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(2) Excludes loans held for sale of $15.7 million.

Office CRE Portfolio

The Bank's office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $509.4 million or 10.8% of total loans of $4.73 billion at September 30, 2024.

Office CRE Loan Portfolio

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $501.5 million, or 10.5% of total loans of $4.78 billion at March 31, 2025.

The Bank’s office CRE loan portfolio included $136.8 million, or 27.3% of the total with medical tenants, and $54.6 million, or 10.9% of the total with government or government contractor tenants.

There were 503 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $380 thousand, respectively.

Loan to Value (“LTV”) estimates are less than 50% for $177.8 million or 34.9% of the office CRE portfolio and greater than 80% for $18.4 million or 3.6% of the office CRE portfolio.

There were 493 loans in the office CRE loan portfolio with an average and median loan size of $1.0 million and $388 thousand, respectively.

Loan to Value (“LTV”) estimates are less than 50% for $180.1 million, or 35.9% of the office CRE loan portfolio, and greater than 80% for $10.6 million, or 2.1% of the office CRE loan portfolio.

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

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

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

LTV Range ($ in thousands)

Loan Count Loan Balance % of Total CRE

Loan Count Loan Balance % of Office CRE

Less than or equal to 50% 244 $ 180,087 35.9 %

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Grand total 493 $ 501,490 100.0 %

The Bank had 18 office CRE loans totaling $164.6 million that were greater than $5.0 million at September 30, 2024, compared to 24 office CRE loans totaling $189.8 million at December 31, 2023.

The decrease in this portfolio segment was the result of normal amortization and two large loan payoffs in the second quarter.

For the office CRE portfolio, at September 30, 2024, the average loan debt-service coverage ratio was 2.5x and average LTV was 50.0%.

The Bank had 18 office CRE loans totaling $163.6 million that were greater than $5.0 million at March 31, 2025, compared to 18 office CRE loans totaling $164.5 million at December 31, 2024.

The decrease in this portfolio segment was the result of normal amortization and two large loan payoffs in the first quarter of 2025.

For the office CRE portfolio, at March 31, 2025, the average loan debt-service coverage ratio was 1.8x and the average LTV was 49.0%.

Of the office CRE portfolio balance, 74.3% is secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97.1% are secured by properties with five stories or less.

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Of the office CRE loans, $2.2 million are special mention or substandard.

The following table summarizes asset quality information and ratios at September 30, 2024 and December 31, 2023.

($ in thousands) September 30, 2024 December 31, 2023

Maturity of Loan Portfolio

The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at March 31, 2025.

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

($ in thousands) Maturing Within One Year Maturing After One But Within Five Years Maturing After Five But Within 15 Years Maturing After 15 Years Total

Commercial real estate $ 178,494 $ 746,703 $ 794,095 $ 824,815 $ 2,544,107

Residential real estate 38,908 132,740 125,354 1,028,856 1,325,858

Construction 234,090 94,262 35,702 2,164 366,218

Commercial 75,263 83,609 59,273 16,354 234,499

Consumer 1,372 73,386 109,534 115,715 300,007

Credit cards 2,245 2,699 1,856 — 6,800

Totals $ 530,372 $ 1,133,399 $ 1,125,814 $ 1,987,904 $ 4,777,489

Fixed-interest rate loans $ 369,342 $ 991,057 $ 709,382 $ 367,143 $ 2,436,924

Adjustable-interest rate loans 161,030 142,342 416,432 1,620,761 2,340,565

Total $ 530,372 $ 1,133,399 $ 1,125,814 $ 1,987,904 $ 4,777,489

Asset Quality

The following table summarizes asset quality information and ratios at March 31, 2025 and December 31, 2024.

($ in thousands) March 31, 2025 December 31, 2024

ASSET QUALITY

Total portfolio loans $ 4,777,489 $ 4,771,988

Classified Assets (1)

Classified loans 19,434 24,679

Other real estate owned 179 179

Repossessed assets 2,429 3,315

Total classified assets (1)

22,042 28,173

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Past due loans - 31 to 89 days 9,380 8,807

Accruing past due loans >= 90 days

Past due loans >= 90 days 894 294

Total past due (delinquency) loans 10,274 9,101

Non-accrual loans 14,844 12,784

Nonaccrual loans 15,402 21,008

Past due loans >= 90 days 894 294

Other real estate owned (“OREO”) 179 179

Repossessed assets 2,429 3,315

Total nonperforming assets 18,904 24,796

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

Other real estate owned (“OREO”) and repossessed assets 485 179

Non-accrual loans, OREO, repossessed assets and BEFD modifications 15,329 13,116

Nonaccrual loans, OREO, repossessed assets and BEFD modifications $ 20,546 $ 26,158

($ in thousands) March 31, 2025 December 31, 2024

ASSET QUALITY RATIOS

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Classified assets to risk-based capital (1)

4.02 % 2.75 %

Allowance for credit losses on loans to total portfolio loans

1.24 % 1.24 %

Allowance for credit losses on loans to non-accrual loans

395.24 % 448.62 %

Past due loans - 31 to 89 days to total portfolio loans 0.20 0.18

0.19 % 0.23 %

Past due loans >=90 days and non-accrual to total loans 0.32 % 0.29 %

Total past due (delinquency) and non-accrual to total portfolio loans

0.51 % 0.53 %

Non-accrual loans to total portfolio loans 0.31 % 0.28 %

Non-accrual loans and BEFD modifications to total loans 0.31 % 0.28 %

Non-accrual loans OREO and repossessed assets to total assets 0.26 % 0.22 %

Non-accrual loans OREO and repossessed assets to total portfolio loans, OREO and repossessed assets 0.32 % 0.28 %

Non-accrual loans, OREO, repossessed assets and BEFD modifications to total assets 0.26 % 0.22 %

Past due loans >=90 days and nonaccrual to total loans 0.34 0.45

Total past due (delinquency) and nonaccrual to total portfolio loans 0.54 0.63

Nonaccrual loans to total portfolio loans 0.32 0.44

Nonperforming assets to total assets 0.31 0.40

____________________________________

(1) Classified assets are substandard loans and OREO and other repossessed assets.

(1) Classified assets are substandard loans, OREO and other repossessed assets.

Classified assets do not include special mention loans.

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

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

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

Non-accrual BEFD modification loans are included in the non-accrual balance and accruing BEFD modification loans are included in the accruing BEFD modification balance.

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

Allowance for Credit Losses on Loans

The ACL was $58.7 million at September 30, 2024, $57.4 million at December 31, 2023 and $57.1 million at September 30, 2023.

There were net charge-offs of $1.4 million for the three months ended September 30, 2024, compared to net charge-offs of $1.4 million for the three months ended September 30, 2023.

There were net charge-offs of $3.0 million for the nine months ended September 30, 2024, compared to net charge-offs of $1.5 million for the nine months ended September 30, 2023.

The ratio of annualized net charge-offs to average loans was 0.12% for the three months ended September 30, 2024, compared to annualized net charge-offs of 0.13% for the three months ended September 30, 2023.

The ratio of annualized net charge-offs to average loans was 0.09% for the nine months ended September 30, 2024, compared to annualized net charge-offs of 0.06% for the nine months ended September 30, 2023.

The ACL was $58.0 million at March 31, 2025, $57.9 million at December 31, 2024 and $57.3 million at March 31, 2024.

There were net charge-offs of $554 thousand for the three months ended March 31, 2025, compared to net charge-offs of $565 thousand for the three months ended March 31, 2024.

The ratio of annualized net charge-offs to average loans was 0.05% for the three months ended March 31, 2025 and 2024.

Management remains focused on its efforts to dispose of problem loans and to prudently charge-off nonperforming loans to enable the Company to maintain overall credit quality.

The ACL as a percentage of period-end loans was 1.24% at September 30, 2024 and 1.23% at December 31, 2023.

The following tables present a summary of the net charge-off activity in the ACL at or for the three and nine months ended September 30, 2024 and 2023.

Three Months Ended

September 30, 2024 September 30, 2023

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

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

Construction $ 1 $ 333,912 — % $ 3 $ 398,341 — %

Residential real estate 1 1,553,456 — % 3 1,425,729 — %

The ACL as a percentage of period-end loans was 1.21% at March 31, 2025 and December 31, 2024.

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

The allocation of the ACL to each category is not necessarily indicative of future losses and does not restrict the use of the ACL to absorb losses in any category.

March 31, 2025 December 31, 2024

($ in thousands) ACL Average Balance % (1)

ACL Average Balance % (1)

Commercial real estate $ 21,988 $2,541,527 0.87 % $ 22,846 $2,551,903 0.90 %

Residential real estate 22,393 1,347,035 1.66 21,776 1,358,066 1.60

Construction 3,842 352,323 1.09 2,854 336,094 0.85

Commercial 2,855 232,900 1.23 3,138 229,676 1.37

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Credit cards 390 6,686 5.83 407 6,820 5.97

$ (1,288) $ 4,705,483 0.11 % $ (1,449) $ 4,551,136 0.13 %

Allowance for credit losses — (58,669) — % — (28,730) — %

Total net charge-off and average loans $ (1,288) $ 4,646,814 0.11 % $ (1,449) $ 4,522,406 0.13 %

Total $ 58,042 $4,784,991 1.21 $ 57,910 $4,796,245 1.21

____________________________________

(1) Excludes loans held for sale.

Nine Months Ended

September 30, 2024 September 30, 2023

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

The following table presents the net charge-offs or recoveries by average loan portfolio category for the three months ended March 31, 2025 and 2024.

Three Months Ended

March 31, 2025 March 31, 2024

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

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

Construction $ (5) $ 314,191 — % $ 10 $ 292,430 — %

Residential real estate 4 1,533,716 — % 37 1,056,892 — %

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

Net (Charge-off) Recovery %

Commercial real estate $ 78 $ 2,541,527 (0.01) % $ — $ 2,279,899 — %

Residential real estate 1 1,347,035 — 1 1,512,805 —

Construction 1 352,323 — (10) 292,803 0.01

Commercial 4 232,900 (0.01) 1 230,844 —

1 unchanged sentence

Credit cards (242) 6,686 14.68 (108) 4,196 10.35

$ (2,739) $ 4,679,139 0.08 % $ (1,519) $ 3,293,890 0.06 %

Total (554) 4,784,991 0.05 (565) 4,645,805 0.05

Allowance for credit losses — (58,042) — — (57,336) —

2 unchanged sentences

(1) Excludes loans held for sale.

Nonperforming Assets

Classified assets increased $8.4 million to $23.3 million or 0.39% of total assets at September 30, 2024 from $14.9 million or 0.25% of total assets at December 31, 2023.

Classified Assets and Special Mention Assets

Classified assets decreased $6.1 million to $22.0 million, or 0.4% of total assets, at March 31, 2025, from $28.2 million, or 0.5% of total assets, at December 31, 2024.

Classified assets are substandard loans, repossessed assets and OREO.

The increase was primarily due to increases in OREO and repossessed assets of $0.3 million and $8.1 million in substandard loans.

As shown in the following table, nonperforming assets were $15.8 million or 0.27% of total assets at September 30, 2024 compared to $13.7 million or 0.23% of total assets at December 31, 2023.

The balance of nonperforming assets decreased primarily due to decreases in total loans 90 days or more past due of $0.3 million and repossessed assets and OREO of $0.3 million, partially offset by an increase in nonaccrual loans of $2.1 million.

The following table summarizes our nonperforming assets at September 30, 2024 and December 31, 2023.

($ in thousands) September 30, 2024 December 31, 2023

Nonperforming assets

Nonaccrual loans $ 14,844 $ 12,784

Total loans 90 days or more past due and still accruing 454 738

Other real estate owned and repossessed assets 485 179

Total nonperforming assets $ 15,783 $ 13,701

As a percent of total loans:

Nonaccrual loans 0.31 % 0.28 %

As a percent of total loans, other real estate owned and repossessed assets:

Nonperforming assets 0.33 % 0.30 %

As a percent of total assets:

Nonaccrual loans 0.25 % 0.21 %

The decrease was primarily due to decrease in substandard loans of $5.2 million and repossessed assets of $886 thousand.

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

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

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

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

Nonperforming Assets

The following is a breakdown of the Company’s deposit portfolio at September 30, 2024 and December 31, 2023:

($ in thousands) September 30, 2024 December 31, 2023

Nonperforming assets were $18.9 million, or 0.3% of total assets, at March 31, 2025, compared to $24.8 million, or 0.4% of total assets, at December 31, 2024.

The balance of nonperforming assets decreased primarily due to a decrease of nonaccrual loans of $5.6 million and a decrease of $886 thousand of repossessed assets, partially offset by an increase in loans 90 days or more past due of $600 thousand.

Off-Balance Sheet Credit Exposure Reserve

The Company’s reserve for off-balance sheet credit exposure was $1.5 million and $1.1 million at March 31, 2025 and December 31, 2024, respectively.

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

Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity.

The following is a breakdown of the Company’s deposit portfolio at March 31, 2025 and December 31, 2024:

($ in thousands) March 31, 2025 December 31, 2024

Balance % Balance % $ Change % Change

Noninterest-bearing demand $ 1,571,393 30.07 % $ 1,258,037 23.36 % $ 313,356 24.91 %

Noninterest-bearing $ 1,565,017 28.7 % $ 1,562,815 28.3 % $ 2,202 0.1 %

Interest-bearing:

Demand 751,533 14.38 % 1,165,546 21.64 % (414,013) (35.52) %

Money market deposits 1,297,237 24.82 % 1,430,603 26.56 % (133,366) (9.32) %

Savings 336,903 6.45 % 347,324 6.45 % (10,421) (3.00) %

Certificates of deposit 1,268,657 24.28 % 1,184,610 21.99 % 84,047 7.09 %

Interest-bearing checking 852,480 15.6 978,076 17.7 (125,596) (12.8)

Money market and savings 1,800,529 32.9 1,805,884 32.6 (5,355) (0.3)

Time deposits 1,242,319 22.8 1,181,561 21.4 60,758 5.1

Total interest-bearing 3,895,328 71.3 3,965,521 71.7 (70,193) (1.8)

Total deposits $ 5,460,345 100.0 % $ 5,528,336 100.0 % $ (67,991) (1.2)

Total deposits decreased $160.4 million, or 3.0%, to $5.23 billion at September 30, 2024 when compared to December 31, 2023.

The decrease in total deposits was primarily due to a decrease in demand deposits of $414.0 million, and money market and savings of $143.8 million.

Total deposits decreased $68.0 million, or 1.2%, to $5.46 billion at March 31, 2025 when compared to December 31, 2024.

The decrease in total deposits was primarily due to a decrease in interest bearing demand deposits of $125.6 million, partially offset by an increase in time deposits of $60.8 million.

The decrease in deposits is attributable to seasonal municipal runoff and a decrease in interest rate-sensitive cannabis-related deposits.

The increase in noninterest-bearing deposits was significantly impacted by a transfer of $399.4 million of demand deposits which carried an average rate of four bps during the second quarter of 2024.

Total estimated uninsured deposits were $895.9 million or 17.1% of total deposits at September 30, 2024 and $1.05 billion or 19.5% of total deposits at December 31, 2023.

At September 30, 2024, there were $127.4 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

The Bank's uninsured deposits, excluding the market value of pledged collateral, at September 30, 2024 were $768.6 million or 14.7% of total deposits.

Reciprocal deposits were $1.29 billion at September 30, 2024 compared to $1.29 billion at December 31, 2023.

Reciprocal deposits as a percentage of the Bank’s liabilities at September 30, 2024 and December 31, 2023 were 24.3% and 23.8%, respectively.

Total estimated uninsured deposits were $940.6 million, or 17.2% of total deposits, at March 31, 2025 and $905.3 million, or 16.4% of total deposits, at December 31, 2024.

At March 31, 2025, there were $165.0 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.

The Bank’s uninsured deposits, excluding the market value of pledged collateral, at March 31, 2025 were $775.6 million, or 14.2% of total deposits.

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

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Regulatory guidance defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits.

At September 30, 2024, the Bank had three local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $477.3 million, which represented 9.1% of total deposits of $5.23 billion.

At December 31, 2023, there were four customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million, which represented 11.1% of total deposits of $5.40 billion.

At March 31, 2025, the Bank had one local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $221.7 million, which represented 4.1% of total deposits of $5.47 billion.

At December 31, 2024, there were three customer deposit relationships that exceeded 2% of total deposits, totaling $547.4 million, which represented 9.9% of total deposits of $5.54 billion.

Wholesale Funding – Short-Term Borrowings and Brokered Deposits

The Company had no short-term borrowings at September 30, 2024 and December 31, 2023.

Short-term advances are defined as those with original maturities of one year or less.

At September 30, 2024 and December 31, 2023, the Company had no securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

The Company’s wholesale funding increased $5.5 million, which includes FHLB advances and brokered deposits, from $44.5 million in brokered deposits at December 31, 2023 to $50.0 million in FHLB advances at September 30, 2024.

The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $50.0 million at March 31, 2025 and December 31, 2024.

The $50.0 million FHLB advance was for an initial term of 18-months at a rate of 4.79%.

This advance has the option to be called by FHLB at any time and matures on November 7, 2025.

At March 31, 2025 and December 31, 2024, the Company had no brokered deposits and securities sold under agreements to repurchase or overnight borrowings from correspondent banks.

For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.0 billion .

Reciprocal deposits decreased $189.8 million to $1.46 billion at March 31, 2025, compared to $1.65 billion at December 31, 2024.

Reciprocal deposits as a percentage of the Bank’s liabilities at March 31, 2025 and December 31, 2024 were 26.2% and 29.3%, respectively.

For call reporting purposes, $344.4 million of reciprocal deposits were considered brokered at March 31, 2025, compared to $520.5 million at December 31, 2024.

Long-Term Debt

The Company occasionally borrows from the FHLB to meet longer term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient.

There were long-term borrowings from the FHLB outstanding at September 30, 2024 of $50.0 million and zero at December 31, 2023.

This increase was due to a purchase of $50 million in FHLB advances for 18-months at 4.79% which was lower than short-term FHLB advances of 5.57%.

These advances have the option to be called by FHLB at any time and mature on November 7, 2025.

Currently, the Company has no long term borrowing with FHLB as of March 31, 2025.

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

As a result of the merger with Severn Bancorp, Inc., effective October 31, 2021, the Company acquired Junior Subordinated Debt Securities due in 2035 which had an outstanding principal balance of $20.6 million.

The debt balances of $18.7 million at September 30, 2024 and $18.6 million at December 31, 2023 were presented net of fair value adjustments of $1.9 million and $2.0 million, respectively.

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

The debt balance of $11.0 million at September 30, 2024 was presented net of a fair value adjustment of $1.3 million.

In addition, the Company acquired 4.75% fixed-to-floating rate subordinated notes with a carrying value of $19.5 million at September 30, 2024.

The notes aggregate balance of $18.8 million at September 30, 2024 was presented net of fair value adjustment of $700 thousand.

The debt balances of $18.8 million at March 31, 2025 and $18.8 million at December 31, 2024 were presented net of fair value adjustments of $1.8 million and $1.8 million, respectively.

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

The debt b alance of $11.1 million at March 31, 2025 was presented net of a fair value adjustment of $1.3 million.

In addition, the Company acquired 4.75% fixed-to-floating rate subordinated notes with a carrying value of $19.5 million at March 31, 2025.

The notes’ aggregate balance of $19.1 million at March 31, 2025 was presented net of fair value adjustment of $396 thousand.

Stockholders’ Equity

($ in thousands, except per share amounts) September 30, 2024 December 31, 2023 $ Change % Change

Common Stock at par of $0.01 $ 333 $ 332 $ 1 0.30 %

($ in thousands, except per share amounts) March 31, 2025 December 31, 2024 $ Change % Change

Common stock, $0.01 par value per share $ 333 $ 333 $ — — %

Additional paid in capital 358,572 358,112 460 0.1

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Total stockholders’ equity $ 552,470 $ 541,066 $ 11,404 2.1

Total stockholders’ equity increased $22.1 million, or 4.33%, to $533.3 million at September 30, 2024 when compared to December 31, 2023, primarily due to $30.6 million of net income, partially offset by dividends paid of $12.0 million.

Liquidity and Capital Resources