SHORE BANCSHARES INC

Previous wording

•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;

Current wording

•the strength of the United States (“U.S.”) economy and 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;

Previous wording

•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;

Current wording

•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;

Previous wording

•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;

Current wording

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

Previous wording

•climate change and other catastrophic events or disasters; and

Current wording

•climate change and other catastrophic events or disasters;

Previous wording

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.

Current wording

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 Maryland, Delaware and 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 offered title services through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc. (the “Title Company”), which engaged in residential and commercial real estate settlement activities and offered 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.

Previous wording

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.

Current wording

The Company’s net income for the second quarter of 2025 was $15.5 million, or $0.46 per diluted common share, compared to $13.8 million, or $0.41 per diluted common share, for the first quarter of 2025. The Company had net income of $11.2 million, or $0.34 per diluted common share, for the second quarter of 2024.

Previous wording

•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.

Current wording

•Net Income Growth – Net income for the second quarter of 2025 increased $1.7 million to $15.5 million, from $13.8 million in the first quarter of 2025. Net income increased primarily due to higher net interest income (“NII”) and noninterest income driven by higher mortgage banking activity, partially offset by higher noninterest expense. Net income for the first half of 2025 was $29.3 million, compared to $19.4 million for the first half of 2024.

Previous wording

•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. Non-U.S. 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.

Current wording

•Improved Return on Average Assets (“ROAA”) – The Company reported ROAA of 1.03% for the second quarter of 2025, compared to 0.91% for the first quarter of 2025 and 0.77% for the second quarter of 2024. Non-U.S. generally accepted accounting principles (“GAAP”) ROAA(1)was 1.15% for the second quarter of 2025, compared to 1.02% for the first quarter of 2025 and 0.91% for the second quarter of 2024.

Previous wording

•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.

Current wording

•Net Interest Margin (“NIM”) Expansion– Net interest income for the second quarter of 2025 increased $1.2 million to $47.3 million from $46.0 million for the first quarter of 2025. NIM increased 11 basis points (“bps”) to 3.35% during the second quarter of 2025 from 3.24% in the first quarter of 2025. NIM excluding accretion(1) increased for the comparable periods from 3.02% to 3.10%. Excluding accretion interest, loan yields increased 2 bpsand funding costs decreased 4 bps for the comparable periods. Net interest income increased due to modest loan growth, slightly higher accelerated accretion income, and loan and securities repricing, coupled with lower cost of deposits during the period.

Previous wording

•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.

Current wording

•Stable Asset Quality– Nonperforming assets to total assets were 0.33% for the second quarter of 2025, an increase from 0.31% for the first quarter of 2025 and 0.29% for the second quarter of 2024. Classified assets to total assets were 0.37% in the second quarter of 2025, an increase when compared to 0.36% for the first quarter of 2025 and 0.33% for the second quarter of 2024. The allowance for credit losses (“ACL”) was $58.5 million at June 30, 2025, compared to $57.9 million at December 31, 2024 and $58.5 million at June 30, 2024. The ACL as a percentage of loans remained flat at 1.21% at June 30, 2025 compared to December 31, 2024, and decreased compared to 1.24% at June 30, 2024.

Previous wording

•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.

Current wording

•Improved Operating Leverage – The efficiency ratio for the second quarter of 2025 was 60.83% compared to 63.64% in the first quarter of 2025 and 66.23% for the second quarter of 2024. The non-GAAP efficiency ratio(1), which excludes amortization, was 56.73% for the second quarter of 2025, compared to 59.25% for the first quarter of 2025 and 61.05% for the second quarter of 2024. Management anticipates ongoing expense management and technology investments will result in continued improvements in operating leverage over time.

Previous wording

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

Current wording

A comparison of the results of operations for the three and six months ended June 30, 2025 and 2024 is presented below.

Previous wording

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.

Current wording

The Company reported net income for the three months ended June 30, 2025 of $15.5 million, or $0.46 diluted earnings per common share, compared to $11.2 million, or diluted earnings per common share of $0.34, for the three months ended June 30, 2024. The Company’s ROAA, non-GAAP ROAA, ROACE and ROATCE were 1.03%, 1.15%, 11.13% and 13.50%, respectively, for the three months ended June 30, 2025, compared to 0.77%, 0.91%, 8.70% and 10.97%, respectively, for the three months ended June 30, 2024.

Previous wording

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.

Current wording

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 $47.3 million for the second quarter of 2025 and $42.2 million for the second quarter of 2024. The increase was primarily due to increases in interest and fees on loans of$2.4 million and interest on deposits at other banks of$1.0 million, as well as a decrease in interest expense on short-term borrowings of $1.0 million.

Previous wording

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.

Current wording

The following table presents the distribution of the average consolidated balance sheets, interest income, interest expense and annualized yields earned and rates paid for the three months ended June 30, 2025 and 2024.

Previous wording

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

Current wording

(3) Interest income on loans includes accreted loan fees, net of costs and accretion of discounts on acquired loans, which are included in the yield calculations. There were $4.2 million and $4.5 million of accretion interest on loans for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

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

Current wording

(4) Interest expense on deposits and borrowings includes amortization of deposit discounts and amortization of borrowing fair value adjustments. There were $435 thousand and $421 thousand of amortization of deposit discounts, and $232 thousand and $243 thousand of amortization of borrowing fair value adjustments for the three months ended June 30, 2025 and 2024, respectively.

Previous wording

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.

Current wording

NII was $47.3 million for the second quarter of 2025, compared to $42.1 million for the second quarter of 2024. The increase was primarily due to increases in interest and fees on loans of$2.4 million and interest on deposits at other banks of$1.0 million, as well as a decrease in interest expense on short-term borrowings of $1.0 million.

Previous wording

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.

Current wording

The Company’s NIM increased to 3.35% for the second quarter of 2025 from 3.11% for the second quarter of 2024. Comparing the second quarter of 2025 to the second quarter of 2024, the Company’s interest-earning asset yields increased to 5.44% from 5.39%, while the cost of funds repriced at a faster pace, which resulted in a decrease of 19 bps basis points, from 2.36% to 2.17% for the same period.

Previous wording

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.

Current wording

Refer to the 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.

Previous wording

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.

Current wording

Total noninterest income for the second quarter of 2025 was $9.3 million, an increase of $878 thousand from $8.4 million for the second 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.

Previous wording

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.

Current wording

Total noninterest expense of $34.4 million for the second quarter of 2025 increased $911 thousand when compared to the second quarter of 2024 total noninterest expense of $33.5 million. The increase in total noninterest expense from the second quarter of 2024 was primarily due to higher salaries and benefits expense and software and data processing costs, partially offset by lower operating expenses in the second quarter of 2025.

Previous wording

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.

Current wording

The Company reported income tax expense of $5.1 million and $3.8 million for the three months ended June 30, 2025 and 2024, respectively. The effective tax rate for the second quarter of 2025 and 2024 was 24.8% and 25.1%, respectively.

Previous wording

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.

Current wording

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 $274.9 million for the first six months of 2025, compared to a net decrease of $233.5 million for the first six months of 2024. The decrease in cash and cash equivalents in the first six months of 2025 was mainly due to the decrease of $227.5 million in interest-bearing deposits, partially offset by an increase of $12.3 million in noninterest-bearing deposits.

Previous wording

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.

Current wording

To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets. At June 30, 2025, the Bank had approximately $1.16 billion of available liquidity, including $185.0 million in cash and cash equivalents, $316.5 million in unpledged securities and $740.7 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 $33.1 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 $740.7 million and $743.6 million at June 30, 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 June 30, 2025.

Previous wording

•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.

Current wording

•At June 30, 2025, deposit balances were $141.5 million, or 2.66% of total deposits, and loan balances were $84.6 million, or 1.75% of total gross loans. At December 31, 2024, deposit balances were $151.4 million, or 2.74% of total deposits, and loan balances were $82.6 million, or 1.73% of total gross loans.

Previous wording

•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.

Current wording

•Interest and noninterest income for the six months ended June 30, 2025, were approximately $2.2 million and $467 thousand, respectively. Interest and noninterest income for the six months ended June 30, 2024, were approximately $2.0 million and $558 thousand, respectively.

Previous wording

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.

Current wording

For information about risks related with our banking services provided to the cannabis industry, see “Risk Factors – Risks Relating to Our Business” included in Part I, Item 1A. in the 2024 Annual Report.

Previous wording

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.

Current wording

Total assets were $6.04 billion at June 30, 2025, a decrease of $192.9 million, or 3.1%, when compared to $6.23 billion at December 31, 2024. The decrease was primarily due to decreases in cash and cash equivalents of $274.9 million and held to maturity (“HTM”) securities of $21.8 million, partially offset by increases in loans held for investment of $55.6 million and available for sale (“AFS”) securities of $38.5 million. The ratio of the ACL as a percentage of loans was 1.21% and 1.21% at June 30, 2025 and December 31, 2024, respectively.

Previous wording

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. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year.

Current wording

Cash and cash equivalents totaled $185.0 million at June 30, 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. Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year.

Previous wording

The investment portfolio includes debt and equity securities. Debt securities are classified as either AFS or HTM. AFS investment securities are stated at estimated fair value based on market prices. They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates. Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity. At 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.

Current wording

The investment portfolio includes debt and equity securities. Debt securities are classified as either AFS or HTM. AFS investment securities are stated at estimated fair value based on market prices. They represent securities which may be sold as part of the asset/liability management strategy or in response to changing interest rates. Net unrealized holding gains and losses on these securities are reported net of related income taxes as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity. At June 30, 2025, 29.0% of the portfolio of debt securities was classified as AFS and 71.0% 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.

Previous wording

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.

Current wording

Investment securities, including restricted stock and equity securities, totaled $673.3 million at June 30, 2025, a $17.0 million, or 2.6% increase, compared to $656.4 million at December 31, 2024.

Previous wording

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.

Current wording

At June 30, 2025, AFS securities, carried at fair value, totaled $187.7 million, compared to $149.2 million at December 31, 2024. At June 30, 2025, AFS securities consisted of 86.6% mortgage-backed, 10.9% U.S. government agencies and 2.5% corporate bonds, compared to 82.0%, 13.5% and 4.4%, respectively, at December 31, 2024. At June 30, 2025, the accumulated other comprehensive loss was $5.6 million, compared to $7.5 million at December 31, 2024.

Previous wording

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.

Current wording

At June 30, 2025, HTM securities, carried at amortized cost, totaled $459.2 million, compared to $481.1 million at December 31, 2024. At June 30, 2025, HTM securities consisted of 69.9% mortgage-backed, 28.1% U.S. government agencies and 2.0% other debt securities, compared to 70.0%, 27.5% and 2.5%, respectively, at December 31, 2024.

Previous wording

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.

Current wording

At June 30, 2025 and December 31, 2024, 97.9% 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.

Previous wording

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.

Current wording

We originate residential mortgage loans for sale on the secondary market, which are recorded at fair value. At June 30, 2025 and December 31, 2024, the fair value of loans held for sale amounted to $34.3 million and $19.6 million, respectively. The Bank makes certain representations to purchasers in the sale of 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. No loans were repurchased during the three months ended June 30, 2025 or 2024, or during the six months ended June 30, 2024. During the six months ended June 30, 2025, the Bank repurchased one loan of $415 thousand.

Previous wording

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. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential CRE concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total non-owner occupied CRE loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied CRE loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential CRE concentration risk. Institutions which are deemed to have concentrations in CRE 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.

Current wording

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. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential CRE concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or (2) total non-owner occupied CRE loans representing 300% or more of the institution’s total risk-based capital and the institution’s non-owner occupied CRE loan portfolio (including construction) has increased 50% or more during the prior 36 months are identified as having potential CRE concentration risk. Institutions which are deemed to have concentrations in CRE 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 $2.14 billion and $2.08 billion at June 30, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 354.15% and 359.52%, respectively. Construction loans totaled $349.6 million and $336.0 million at June 30, 2025 and December 31, 2024, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 57.77% and 57.99%, respectively.

Previous wording

(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.

Current wording

(1)Other non-owner occupied CRE loans include commercial - improved loans of $160.5 million, lot/land loans of $93.7 million, self-storage loans of $72.5 million and other loans of $113.7 million.

Previous wording

(1)Other owner occupied CRE loans include marine/boat slips of $44.1 million, restaurant loans of $60.0 million, fire/CMS building loans of $25.7 million and other loans of $56.7 million.

Current wording

(1)Other owner occupied CRE loans include church loans of $57.1 million, marina/boat loans of $39.4 million, auto service center loans of $30.1 million and other loans of $54.5 million.

Previous wording

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 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 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.

Current wording

The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $484.3 million, or 10.0% of total loans of $4.83 billion at June 30, 2025. The Bank’s office CRE loan portfolio included $135.5 million, or 28.0% of total office CRE loans, with medical tenants, and $54.4 million, or 11.2% of total office CRE loans, with government or government contractor tenants. There were 492 loans in the office CRE loan portfolio with an average and median loan size of $1.0 million and $369 thousand, respectively. Loan to Value (“LTV”) estimates are less than 50% for $168.9 million, or 34.9% of the office CRE loan portfolio, and greater than 80% for $11.0 million, or 2.3% of the office CRE loan portfolio. LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews. LTV estimates for the office CRE loan portfolio are summarized in the table below and LTV collateral values are based on the most recent appraisal, which may vary from the appraised value at loan origination.