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What changed in SHORE BANCSHARES INC's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of SHORE BANCSHARES INC's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+545 added−594 removedSource: 10-K (2026-03-02) vs 10-K (2025-03-10)

Top changes in SHORE BANCSHARES INC's 2025 10-K

545 paragraphs added · 594 removed · 260 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

34 edited+95 added−162 removed20 unchanged
Biggest changeBasel III subjects banks to the following risk-based capital requirements: • a minimum ratio of common equity Tier 1 (“CET1”) to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer, or 7.0%; • a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer, or 8.5%; • a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer, or 10.5%; and • a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures.
Biggest changeSpecifically, Shore Bancshares and the Bank are subject to the following minimum capital requirements: (1) a leverage ratio of 4%; (2) a Common Equity Tier 1 (“CET1”) risk-based capital ratio of 4.5%; (3) a Tier 1 risk-based capital ratio of 6%; and (4) a total risk-based capital ratio of 8%.
Credit risk factors include the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. The Company discontinued the issuance of new credit cards in April 2024 (except to select existing credit card customers) and only services the existing portfolio as of December 31, 2024.
Credit risk factors include the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness or personal bankruptcy, among other factors. The Company discontinued the issuance of new credit cards in April 2024 (except to select existing credit card customers) and only services the existing portfolio as of December 31, 2025.
Seasonality The Company recognizes that certain customers have seasonality within their operations which indirectly impacts the Bank’s liquidity. The Bank has significant banking relationships with state, county and local municipalities within Maryland, Virginia and Delaware who receive their funding from federal and state agencies, as well as, tax generating revenue, which is seasonal in nature.
Seasonality The Company recognizes that certain customers have seasonality within their operations, which indirectly impacts the Bank’s liquidity. The Bank has significant banking relationships with state, county and local municipalities within Maryland, Virginia and Delaware that receive their funding from federal and state agencies, as well as, tax generating revenue, which is seasonal in nature.
The Bank attempts to mitigate the risks associated with these loans through financial analyses, conservative underwriting procedures, including loan-to-value ratio standards, obtaining additional collateral and management’s knowledge of the local economy in which the Bank lends. • Residential Real Estate Loans.
The Bank attempts to mitigate the risks associated with these loans through financial analyses, conservative underwriting procedures, including loan-to-value ratio standards, obtaining additional collateral and management’s knowledge of the local economy in which the Bank lends. 3 • Residential Real Estate Loans.
Throughout the relationship, the Bank continues to monitor the business, including site visits, to ensure that the cannabis business continues to meet stringent requirements, including maintenance of required licenses. The Bank performs periodic financial reviews of the business and monitors the business in accordance with the Bank Secrecy Act of 1970 (“BSA”) and other state requirements.
Throughout the relationship, the Bank continues to monitor the business, including site visits, to ensure that the cannabis business continues to meet stringent requirements, including maintenance of required licenses. The Bank performs periodic financial reviews of the business and monitors the business in accordance with the Bank Secrecy Act of 1970 (“BSA”) and state requirements.
At the time of the acquisition, TCFC added $2.4 billion in assets, $454.5 million in investments, $1.8 billion in loans, $2.1 billion in deposits, $150.6 million in brokered deposits, $69.0 million in Federal Home Loan Bank (the “FHLB”) advances and $32.0 million in subordinated debt and trust preferred debentures.
At the time of the acquisition, TCFC had $2.4 billion in assets, $454.5 million in investments, $1.8 billion in loans, $2.1 billion in deposits, $150.6 million in brokered deposits, $69.0 million in Federal Home Loan Bank (the “FHLB”) advances and $32.0 million in subordinated debt and trust preferred debentures.
The excess of the fair value of net TCFC assets acquired over the merger consideration resulted in an $8.8 million bargain purchase gain. Lending Activities The Bank originates loans including commercial real estate, residential real estate, construction, commercial, consumer and credit cards. • Commercial Real Estate (“CRE”) and Other Non-Residential Real Estate Loans.
The excess of the fair value of net TCFC assets acquired over the merger consideration resulted in an $8.8 million bargain purchase gain. Lending Activities The Bank originates loans including commercial real estate, residential real estate, construction, commercial and consumer. • Commercial Real Estate (“CRE”) and Other Non-Residential Real Estate Loans.
Financial Services 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, to residents of the states of AL, AZ, CA, CO, CT, DE, DC, FL, GA, IN, KY, ME, MD, MA, MI, NJ, NY, NC, OH, PA, RI, SC, SD, TX, VA, WA and WV.
Financial Services The Company, through Wye Financial Partners, a division of the Bank, offers full-service investment, insurance and financial planning services through a third-party broker/dealer, LPL Financial, to residents of the states of AL, AZ, CA, CO, CT, DE, DC, FL, GA, IN, KY, ME, MD, MA, MI, NJ, NY, NC, OH, PA, RI, SC, SD, TX, VA, WA and WV.
Belonging and Inclusion We are committed to building an inclusive work environment which are supported by our culture and values. We believe diversity of thought and experiences inspires our team to achieve more creative and innovative solutions for our customers. With a commitment to support an inclusive workplace, we focus on understanding, accepting, and valuing the differences between people.
Belonging and Inclusion We are committed to building an inclusive work environment that is supported by our culture and values. We believe diversity of thought and experiences inspires our team to achieve more creative and innovative solutions for our customers. With a commitment to support an inclusive workplace, we focus on understanding, accepting, and valuing the differences between people.
The Company discontinued the issuance of new marine loans in June 2023 and only services the existing portfolio as of December 31, 2024. • Credit Card Loans. The Bank offered unsecured credit card loans to commercial and consumer customers.
The Company discontinued the issuance of new marine loans in June 2023 and only services the existing portfolio as of December 31, 2025. • Credit Card Loans. The Bank offered unsecured credit card loans to commercial and consumer customers.
We value our employees by investing in competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication. Attracting, retaining and developing qualified, engaged employees who embody these values are crucial to the success of the Bank and Company. We believe that relations with our employees are good.
We value our employees by investing in competitive compensation and benefit packages and fostering a team environment centered on professional service and open communication. Attracting, retaining and developing qualified, engaged employees who embody these values are crucial to our success. We believe that relations with our employees are good.
Deposit Activities The Bank offers a full array of deposit products including checking, savings and money market accounts, and regular and IRA certificates of deposit.
Deposit Activities The Bank offers a wide array of deposit products including checking, savings and money market accounts, and regular and IRA certificates of deposit.
Services provided to individuals include checking accounts, various savings programs, mortgage loans, home improvement loans, installment and other personal loans, credit cards, personal lines of credit, automobile and other consumer financing, safe deposit boxes, debit cards, 24-hour telephone banking, internet banking, mobile banking and 24-hour ATM services.
Services provided to individuals include checking accounts, various savings programs, mortgage loans, home improvement loans, installment and other personal loans, credit cards, personal lines of credit, automobile and other consumer financing, trust administration, wealth management, safe deposit boxes, debit cards, 24-hour telephone banking, internet banking, mobile banking and 24-hour ATM services.
These loans are made in conformity with standard government-sponsored 4 Table of Contents enterprise underwriting criteria required by the investors to assure maximum eligibility for resale in the secondary market and are approved either by the Bank’s underwriter or the correspondent’s underwriter.
These loans are made in conformity with standard government-sponsored enterprise underwriting criteria required by the investors to assure maximum eligibility for resale in the secondary market and are approved either by the Bank’s underwriter or the correspondent’s underwriter.
In addition, we offer our commercial customers packages that include cash management services, various checking opportunities and other cash sweep products. Title Services The Company offers title services through its wholly-owned subsidiary, the Title Company, which engages in residential and commercial real estate settlement activities and offers title insurance policies, title search and lien satisfaction services.
In addition, we offer our commercial customers packages that include cash management services, various checking opportunities and other cash sweep products. 4 Title Services The Company offered title services through its wholly-owned subsidiary, the Title Company, which engaged in residential and commercial real estate settlement activities and offered title insurance policies, title search and lien satisfaction services.
Generally, loans are sold with servicing retained which includes loans sold to the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). As of December 31, 2024, the Bank was servicing $366.5 million in loans for Fannie Mae and $116.6 million in loans for Freddie Mac. • Construction Loans.
Generally, loans are sold with mortgage servicing rights retained, which includes loans sold to the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). As of December 31, 2025, the Bank was servicing $343.8 million in loans for Fannie Mae and $105.6 million in loans for Freddie Mac. • Construction Loans.
The transaction was valued at approximately $153.6 million and expanded the Bank’s footprint into the Southern Maryland Counties of Charles, St. Mary’s and Calvert and the greater Fredericksburg area in Virginia, which includes Fredericksburg City as well as Stafford and Spotsylvania Counties.
The transaction expanded the Bank’s footprint into the Southern Maryland Counties of Charles, St. Mary’s and Calvert and the greater Fredericksburg area in Virginia, which includes Fredericksburg City as well as Stafford and Spotsylvania Counties.
Employee Demographics As of December 31, 2024, the Bank employed 597 individuals, of which 584 were employed on a full-time basis (590 full-time equivalent employees). The Bank’s employees were not represented by a collective bargaining agreement. The Company has no employees and reimburses the Bank for estimated expenses, including an allocation of salaries and employee benefits.
Employee Demographics As of December 31, 2025, the Bank employed 608 individuals, of whom 595 were employed on a full-time basis (602 full-time equivalent employees). The Bank’s employees were not represented by a collective bargaining agreement. The Company has no employees and reimburses the Bank for estimated expenses, including an allocation of salaries and employee benefits.
Employee Health, Safety and Wellness We are committed to supporting the safety, health and wellness of our employees. We provide paid time off (including parental and adoption leave), an employee assistance program and wellness benefits which include mental health support, coaching and other resources for employees and their immediate family members.
We provide paid time off (including parental and adoption leave), an employee assistance program and wellness benefits, which include mental health support, coaching and other resources for employees and their immediate family members.
The primary factors when competing in the financial services market include personalized services, the quality and range of products and services, interest rates on loans and deposits, lending services, price, customer convenience, and our ability to attract and retain experienced employees.
We compete on a local and regional basis for banking and investment products and services. The primary factors when competing in the financial services market include personalized services, the quality and range of products and services, interest rates on loans and deposits, lending services, price, customer convenience, and our ability to attract and retain experienced employees.
Under the GLB Act, a bank holding company can elect, subject to certain qualifications, to become a “financial holding company.” The GLB Act provides that a financial holding company may engage in a full range of financial activities, including insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities, with expedited notice procedures.
Shore Bancshares is also subject to regular examination by the FRB. A bank holding company can elect, subject to certain qualifications, to become a “financial holding company.” A financial holding company may engage in a full range of financial activities, including insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities, with expedited notice procedures.
The information on, or accessible through, our website or any other website cited in this Annual Report on Form 10-K is not part of, or incorporated by reference into, this Annual Report on Form 10-K and should not be relied upon in determining whether to make an investment decision.
The information on, or accessible through, our website or any other website cited in this Annual Report on Form 10-K is not part of, or incorporated by reference into, this Annual Report on Form 10-K and should not be relied upon in determining whether to make an investment decision. 11 Information About Our Executive Officers (as of December 31, 2025) Executive Officer Recent Work Experience Age James M.
Compensation and Benefits The Bank’s compensation and benefits package is designed to attract and retain a talented workforce. In addition to salaries, employee benefits include a 401(k) plan with an employer matching contribution, an employee stock purchase plan, medical insurance benefits, paid short-term and long-term disability and life insurance, flexible spending accounts, and tuition assistance.
In addition to salaries, employee benefits include a 401(k) plan with an employer matching contribution, an employee stock purchase plan, medical insurance benefits, paid short-term and long-term disability and life insurance, flexible spending accounts, and tuition assistance. 5 Employee Health, Safety and Wellness We are committed to supporting the safety, health and wellness of our employees.
Trust Services 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.
Trust Services 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. Cannabis Related Business The Bank provides banking services to customers that are licensed by various states to do business in the cannabis industry as growers, processors and dispensaries.
The Company, Bank and Title Company are Affirmative Action/Equal Opportunity Employers. Banking Products and Services The Bank is a national banking association chartered under the laws of the United States with trust powers that can trace its origin to 1876.
Banking Products and Services The Bank, which traces its origin to 1876, is a national banking association chartered under the laws of the United States.
The Bank is a national banking association, chartered by and subject to the supervision of the Office of the Comptroller of the Currency (the “OCC”). The deposits of the Bank are insured by the FDIC, so certain laws and regulations administered by the FDIC also govern its deposit-taking operations.
Bank Regulation The Bank is a national banking association subject to supervision by the Office of the Comptroller of the Currency (the “OCC”). Deposits of the Bank are insured by the FDIC to the maximum legal limit.
The Company conducts business primarily through two wholly-owned subsidiaries, Shore United Bank, N.A. (the “Bank”) and Mid-Maryland Title Company, Inc. (the “Title Company”). The Bank provides consumer and commercial banking products and services and secondary mortgage lending, trust, wealth management and financial planning services. The Title Company engages in title work related to real estate transactions.
The Company is the largest independent financial holding company headquartered on the Eastern Shore of Maryland. The Company conducts business primarily through the Bank. The Bank provides consumer and commercial banking products and services and secondary mortgage lending, trust, wealth management and financial planning services. The Company offered title services through its wholly-owned subsidiary, Mid-Maryland Title Company, Inc.
The Bank offers all forms of commercial lending, including secured and unsecured loans, working capital loans, lines of credit, term loans, accounts receivable financing, real estate acquisition and development, construction loans and letters of credit. Treasury management services are also available, such as merchant card processing services, remote deposit capture, ACH origination, digital banking and telephone banking services.
Services provided to businesses include commercial checking, savings, certificates of deposit and overnight investment sweep accounts. The Bank offers all forms of commercial lending, including secured and unsecured loans, working capital loans, lines of credit, term loans, accounts receivable financing, real estate acquisition and development loans, construction loans and letters of credit.
Our competitors include community banks, commercial banks, credit unions, thrifts, mortgage banking companies, investment advisory firms, brokerage firms, mutual and debt fund companies, private equity, fintechs, title companies and e-commerce and other internet-based companies. We compete on a local and regional basis for banking and investment products and services.
On-demand training opportunities include a variety of industry, technical, professional, business development, leadership and regulatory topics. COMPETITION We operate in a highly competitive environment. Our competitors include community banks, commercial banks, credit unions, thrifts, mortgage banking companies, investment advisory firms, brokerage firms, mutual fund companies, private equity firms, fintechs, and e-commerce and other internet-based companies.
Cannabis Related Business 5 Table of Contents The Bank provides banking services to customers that are licensed by various states to do business in the cannabis industry as growers, processors and dispensaries. The Bank maintains stringent written policies and procedures related to the on-boarding of such businesses and to the monitoring and maintenance of such business accounts.
The Bank maintains stringent written policies and procedures related to the on-boarding of such businesses and to the monitoring and maintenance of such business accounts.
The Bank currently operates 40 full-service branches, 39 automatic teller machines (an “ATM”), 3 interactive teller machines, 10 loan production and administration offices, and provides a full range of commercial and consumer banking products and services to individuals, businesses, and other organizations in Baltimore County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County, Anne Arundel County, Charles County, St.
The Bank currently operates 40 full-service branches and 10 loan production and administration offices, and provides a full range of commercial and consumer banking products and services to individuals, businesses, and other organizations in Maryland, Delaware and Virginia. The Bank’s deposits are insured up to applicable legal limits by the FDIC.
Our employees also play a significant role in maintaining existing relationships with customers while establishing new relationships to grow all areas of our businesses. 7 Table of Contents SUPERVISION AND REGULATION General The Company is a financial holding company registered with the Board of Governors of the Federal Reserve System (the “FRB”) under the BHC Act and, as such, is subject to the supervision, examination and reporting requirements of the BHC Act and the regulations of the FRB.
Our employees also play a significant role in maintaining existing relationships with customers while establishing new relationships to grow all areas of our businesses. 6 SUPERVISION AND REGULATION The following is a summary of certain statutes and regulations that significantly affect us. Other statutes and regulations may affect us but are not discussed in the following paragraphs.
Item 1. BUSINESS OVERVIEW General The Company was incorporated under the laws of Maryland on March 15, 1996 and is a financial holding company registered under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company is the largest independent financial holding company located on the Eastern Shore of Maryland.
Item 1. BUSINESS OVERVIEW General Shore Bancshares, Inc. was incorporated under the laws of Maryland on March 15, 1996 and is the bank holding company for Shore United Bank, N.A,. Throughout this report, references to the “Company,” “we,” “our,” and “us,” and similar terms refer to the consolidated entity consisting of Shore Bancshares, Inc. and its subsidiaries.
The Bank is subject to the provisions of Section 23A and Section 23B of the Federal Reserve Act. Section 23A limits the amount of loans or extensions of credit to, and investments in, the Company and its nonbank affiliates by the Bank.
The Bank is subject to restrictions imposed by federal law on extensions of credit to, and certain other transactions with, Shore Bancshares and other affiliates, and on investments in their stock or other securities.
Removed
Mary’s County, Calvert County and Worcester County in Maryland, Kent County and Sussex County in Delaware and Fredericksburg City, Stafford County and Spotsylvania County in Virginia. The Bank’s deposits are insured up to applicable legal limits by the FDIC. Services provided to businesses include commercial checking, savings, certificates of deposit and overnight investment sweep accounts.
Added
“Shore Bancshares” refers solely to the parent holding company, and the “Bank” refers solely to Shore Bancshares’ subsidiary bank, Shore United Bank, N.A. Shore Bancshares is registered as a financial holding company under the Bank Holding Company Act of 1956, as amended (the “BHC Act”).
Removed
On-demand training opportunities include a variety of industry, technical, professional, business development, leadership and regulatory topics. 6 Table of Contents COMPETITION Shore Bancshares, Inc. and its subsidiaries operate in a highly competitive environment.
Added
(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. The Company and the Bank are Affirmative Action/Equal Opportunity Employers.
Removed
In addition to the foregoing, the Bank is subject to numerous state and federal statutes and regulations that affect the business of banking generally. Nonbank affiliates of the Company are subject to examination by the FRB, and, as affiliates of the Bank, may be subject to examination by the Bank’s regulators from time to time.
Added
Treasury management services are also available, such as merchant card processing services, remote deposit capture, ACH origination, digital banking and telephone banking services.
Removed
To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by reference to the text of applicable statutory and regulatory provisions. Legislative and regulatory initiatives, which necessarily impact the regulation of the financial services industry, are introduced from time to time.
Added
The Title Company ceased conducting real estate closings effective March 31, 2025.
Removed
We cannot predict whether or when potential legislation or new regulations will be enacted, and if enacted, the effect that new legislation or any implemented regulations and supervisory policies would have on our financial condition and results of operations.
Added
Compensation and Benefits The Bank’s compensation and benefits package is designed to attract and retain a talented workforce.
Removed
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), by way of example, contains a comprehensive set of provisions designed to govern the practices and oversight of financial institutions and other participants in the financial markets. The Dodd-Frank Act made extensive changes in the regulation of financial institutions and their holding companies.
Added
Bank Holding Company Regulation As a bank holding company, Shore Bancshares is subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the “FRB”). Shore Bancshares is required to furnish to the FRB annual and quarterly reports of its operations and additional information and reports.
Removed
Some of the changes brought about by the Dodd-Frank Act have been modified by the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Regulatory Relief Act”), signed into law on May 24, 2018. The Dodd-Frank Act has increased the regulatory burden and compliance costs of the Company.
Added
Shore Bancshares has elected to be a financial holding company.
Removed
Moreover, bank regulatory agencies can be more aggressive in responding to concerns and trends identified in examinations, which could result in an increased issuance of enforcement actions to financial institutions requiring action to address credit quality, liquidity, risk management, and capital adequacy, as well as other safety and soundness concerns.
Added
Under the BHC Act, a bank holding company must obtain the prior approval of the FRB before (1) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the bank holding company would directly or indirectly own or control more than 5% of the class; (2) acquiring all or substantially all of the assets of another bank or bank holding company; or (3) merging or consolidating with another bank holding company.
Removed
Regulation of Financial Holding Companies The Gramm-Leach-Bliley Act (the “GLB Act”) amended the BHC Act and repealed the affiliation provisions of the Glass-Steagall Act of 1933, which, taken together, limited the securities, insurance and other non-banking activities of any company that controls an FDIC insured financial institution.
Added
Prior to acquiring control of Shore Bancshares or the Bank, any company must obtain approval of the FRB.
Removed
The Company is a financial holding company. Under FRB policy, the Company is expected to act as a source of strength to the Bank, and the FRB may charge the Company with engaging in unsafe and unsound practices for failure to commit resources to the Bank when required.
Added
For purposes of the BHC Act, “control” is defined as ownership of 25% or more of any class of voting securities of Shore Bancshares or the Bank, the ability to control the election of a majority of the directors, or the exercise of a controlling influence over management or policies of Shore Bancshares or the Bank.
Removed
This support may be required at times when the Company may not have the resources to provide the support. Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require the bank holding company to guarantee the bank’s capital restoration plan.
Added
The Change in Bank Control Act and the related regulations of the FRB require any person or persons acting in concert (except for companies required to make application under the BHC Act) to file a written notice with the FRB before the person or persons acquire control of Shore Bancshares or the Bank.
Removed
In addition, if the FRB believes that a company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a controlled bank, then the FRB could require the bank holding company to terminate the activities, liquidate the assets or divest its affiliates.
Added
The Change in Bank Control Act defines “control” as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank. The BHC Act also limits the investments and activities of bank holding companies.
Removed
The regulators may require these and other actions in support of controlled banks even if such actions are not in the best interests of the bank holding company or its stockholders. Because the Company is a bank holding company, it is viewed as a source of financial and managerial strength for any controlled depository institutions, like the Bank.
Added
In general, a bank holding company is prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, non-bank activities that are closely related to banking, and other financially related activities.
Removed
The Dodd-Frank Act, enacted in 2010, made sweeping changes to the financial regulatory landscape that impacts all financial institutions, including the Company and the Bank. The Dodd-Frank Act directs federal bank regulators to require that all companies that directly or indirectly control an insured depository institution serve as sources of financial strength for the institution.
Added
In general, a bank holding company that qualifies as a financial holding company may engage in an expanded list of non-bank activities. Non-bank and financially related activities of financial holding companies may be subject to regulation and oversight by regulators other than the FRB.
Removed
The term “source of financial strength” is defined under the Dodd-Frank Act as the ability of a company to provide financial assistance to its insured depository institution subsidiaries in the event of financial distress.
Added
The FRB has the power to order a holding company or its subsidiaries to terminate any activity, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any bank subsidiary of that holding company.
Removed
The appropriate federal banking agency for such a depository institution may require reports from companies that control the insured depository institution to assess their abilities to serve as sources of strength and to enforce compliance with the source-of-strength requirements. The appropriate federal banking agency may also require a holding company to provide financial assistance to a bank with impaired capital.
Added
The FRB has adopted guidelines regarding the capital adequacy of bank holding companies that require bank holding companies to maintain specified minimum ratios of capital to total average assets and capital to risk-weighted assets. See “Regulatory Capital Requirements.” The FRB has the power to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices.
Removed
Under this requirement, the Company could be required to provide financial assistance to the Bank should it experience financial distress. Federal Regulation of Banks The OCC may prohibit national banking associations, such as the Bank, from engaging in activities or investments that the OCC believes are unsafe or unsound banking practices.
Added
The FRB has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses the FRB’s view that a bank holding company should pay cash dividends only to the extent that its net income for the past year is sufficient to cover both the cash dividends and a rate of earnings retention that is consistent with its capital needs, asset quality, and overall financial condition.
Removed
The OCC has extensive enforcement authority over national banking associations to prohibit or 8 Table of Contents correct activities that violate law, regulation or a regulatory agreement or which are deemed to be unsafe or unsound practices.
Added
A holding company must serve as a source of strength for its subsidiary banks and the FRB may require a holding company to contribute additional capital to an undercapitalized subsidiary bank.
Removed
Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.
Added
In the event of a bank holding company’s bankruptcy, any commitment by the bank holding company to a federal banking regulator to maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and may be entitled to priority over other creditors.
Removed
Section 23B requires that transactions between the Bank and the Company and its nonbank affiliates be on terms and under circumstances that are substantially the same as with non-affiliates.
Added
Deposits, reserves, investments, loans, consumer law compliance, issuance of securities, payment of dividends, establishment of branches, mergers and acquisitions, corporate activities, changes in control, electronic funds transfers, responsiveness to community needs, management practices, compensation policies, and other aspects of 7 operations are subject to regulation by the appropriate federal supervisory authorities.
Removed
The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors and principal stockholders or any related interest of such persons, which generally require that such credit extensions be made on substantially the same terms as are available to third parties dealing with the Bank and not involve more than the normal risk of repayment.
Added
In addition, the Bank is subject to numerous federal, state and local laws and regulations that set forth specific restrictions and procedural requirements with respect to extensions of credit (including to insiders), credit practices, disclosure of credit terms and discrimination in credit transactions.
Removed
Other laws tie the maximum amount that may be loaned to any one customer and its related interests to capital levels. As part of the Federal Deposit Insurance Company Improvement Act of 1991, each federal banking regulator adopted non-capital safety and soundness standards for institutions under its authority.
Added
The OCC regularly examines the operations and condition of the Bank, including, but not limited to, its capital adequacy, liquidity, asset quality, regulatory compliance, and management practices. These examinations are for the protection of the Bank’s depositors and the Deposit Insurance Fund. In addition, the Bank is required to furnish quarterly and annual reports to the OCC.
Removed
These standards include internal controls, information systems and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. An institution that fails to meet those standards may be required by the agency to develop a plan acceptable to meet the standards.
Added
The OCC’s enforcement authority includes the power to remove officers and directors and the authority to issue cease-and-desist orders to prevent a bank from engaging in unsafe or unsound practices or violating laws or regulations governing its business.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

78 edited+138 added−81 removed29 unchanged
Biggest changeOur future success will depend, in part, upon our ability to use technology to provide products and services that provide convenience to customers and to create additional efficiencies in operations. We may need to make significant additional capital investments in technology in the future, and we may not be able to effectively implement new technology-driven products and services.
Biggest changeThe effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations.
Our reliance on third party vendors could expose us to additional cyber risk and liability. The operation of our business involves outsourcing of certain business functions and reliance on third-party providers, which may result in transmission and maintenance of personal, confidential and proprietary information to and by such vendors.
Our reliance on third party vendors could expose us to additional cyber risk and liability. The operation of our business involves outsourcing certain business functions and reliance on third-party providers, which may result in transmission and maintenance of personal, confidential and proprietary information to and by such vendors.
A decline in the price of the Company’s common stock or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to perform goodwill and other intangible assets impairment tests and result in an impairment charge being recorded for that period which was not reflected in such earnings release.
A decline in the price of our common stock or occurrence of a triggering event following any of our quarterly earnings releases and prior to the filing of the periodic report for that period could, under certain circumstances, cause us to perform goodwill and other intangible assets impairment tests and result in an impairment charge being recorded for that period which was not reflected in such earnings release.
In many situations, the board of directors has the authority, without any vote of our shareholders, to issue shares of authorized but unissued stock, including shares authorized and unissued under our equity incentive plans. In the future, additional securities may be issued, through public or private offerings, in order to raise additional capital.
In many situations, the board of directors has the authority, without any vote of our shareholders, to issue shares of authorized but unissued stock, including shares authorized and unissued under our equity incentive plans. In the future, additional securities may be issued, through 23 public or private offerings, in order to raise additional capital.
Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to attract and maintain customers and businesses.
Any inability to prevent security breaches or computer viruses could also cause existing customers to lose confidence in our systems and could adversely affect our reputation, results of operations and ability to attract and maintain customers.
Reductions in the federal workforce through layoffs and buyouts, furloughs of government employees or government contractors as well as cancelling government contracts and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in the Company’s market and the general economy of the greater Washington, D.C. metropolitan area.
Reductions in the federal workforce through layoffs and buyouts, furloughs of government employees or government contractors, as well as cancelling government contracts and other impacts from declining government spending, lapses in appropriations, or changes in fiscal appropriations could have adverse impacts on other businesses in our market and the general economy of the greater Washington, D.C. metropolitan area.
If our policies, procedures and systems are deemed deficient, we would be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
If our policies, procedures and systems are deemed deficient, we could be subject to liability, including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our acquisition plans.
Such events could affect the stability of its deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, cause us to incur additional expenses or disrupt the Company’s operations.
Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, cause us to incur additional expenses or disrupt the Company’s operations.
It is possible that the potential cost savings could turn out to be more difficult to achieve than anticipated and the integration process associated with an acquisition could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with clients, customers, depositors, and employees or to achieve the anticipated benefits of the acquisitions.
It is possible that the potential cost savings of future acquisitions could turn out to be more difficult to achieve than anticipated and the integration process associated with an acquisition could result in the loss of key employees, the disruption of ongoing businesses or inconsistencies in standards, controls, procedures, and policies that adversely affect our ability to maintain relationships with customers and employees or to achieve the anticipated benefits of the acquisitions.
In addition, we provide our customers the ability to bank remotely, including online over the Internet. The secure transmission of confidential information is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches.
In addition, we provide our customers the ability to bank remotely, including online over the Internet and through mobile banking applications. The secure transmission of confidential information is a critical element of remote banking. Our network could be vulnerable to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches.
If we are not able to successfully achieve these objectives, the anticipated benefits of future acquisitions may not be realized fully or at all or may take longer to realize than expected.
If we are unable to successfully achieve these objectives, the anticipated benefits of future acquisitions may not be realized fully or at all or may take longer to realize than expected.
A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisition activity, restrictions on expansion and restrictions on entering new business lines.
A successful regulatory challenge to an institution’s performance under the CRA, fair lending laws or regulations, or consumer lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines.
Climate change has the potential to increase the frequency and severity of these severe weather events in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on the business, financial condition, results of operations or profitability.
Climate change has the potential to increase the frequency and severity of these severe weather events in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such events could have a material adverse effect on our business, financial condition, and results of operations.
Replacing these third-party providers could also entail significant delay and expense. Our third-party providers may be vulnerable to unauthorized access, computer viruses, phishing schemes and other security breaches. Threats to information security also exist in the processing of customer information through various other third-party providers and their personnel.
Replacing these third-party providers could also entail significant delay and expense. Our third-party providers may be vulnerable to unauthorized access, natural disasters, computer viruses, insider threats, phishing schemes and other security breaches. Threats to information security also exist in the processing of customer information through various other third-party providers and their personnel.
Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. Intangible assets other than goodwill are also subject to impairment tests at least annually.
Under current accounting standards, goodwill is subject to impairment tests on at least an annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit below its carrying amount. Intangible assets other than goodwill are also subject to impairment tests at least annually.
For example, in deciding whether to extend credit to customers, we may assume that a customer’s audited financial statements conform with generally accepted accounting principles in the United States of America (“GAAP”) and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.
For example, in deciding whether to extend credit to customers, we may assume that a customer’s audited financial statements conform with generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer.
Our future success will depend on our ability to compete effectively in the highly competitive financial services industry. We face substantial competition in all phases of our operations from a variety of different competitors.
Strategic and Other Risks Our future success will depend on our ability to compete effectively in the highly competitive financial services industry. We face substantial competition in all phases of our operations from a variety of different competitors.
If, as a result of an examination, the FRB or the OCC were to determine that our financial condition, capital resource, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.
If, as a result of an examination, the Federal Reserve or the OCC were to determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, asset sensitivity, risk management or other aspects of any of our operations had become unsatisfactory, or that we were in violation of any law or regulation, it may take a number of different remedial actions as it deems appropriate.
When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carry forwards expiring unused) exists, more positive evidence than negative evidence will be necessary. At December 31, 2024, our gross deferred tax assets were approximately $55.8 million.
When negative evidence (e.g., cumulative losses in recent years, history of operating loss or tax credit carry forwards expiring unused) exists, more positive evidence than negative evidence will be necessary. At December 31, 2025, our gross deferred tax assets were approximately $51.7 million.
As of December 31, 2024 , we were current on all interest due on our outstanding subordinated debentures. Future sales of our common stock or other securities may dilute the value and adversely affect the market price of our common stock.
As of December 31, 2025, we were current on all interest due on our outstanding subordinated debt instruments. Future sales of our common stock or other securities may dilute the value and adversely affect the market price of our common stock.
Any regulatory action against us could have a material adverse effect on our business, financial condition and results of operations. Our FDIC deposit insurance premiums and assessments may increase. The deposits of the Bank are insured by the FDIC up to legal limits and, accordingly, subject to the payment of FDIC deposit insurance assessments.
Any regulatory action against us could have a material adverse effect on our business, financial condition, and results of operations. Our FDIC deposit insurance assessments may increase. Customer deposits are insured by the FDIC up to legal limits.
Any failure, interruption or breach in security of these systems could result in failures or 22 Table of Contents disruptions in our customer relationship management, general ledger, deposit, loan and other systems, misappropriation of funds, and theft of proprietary Company or customer data.
Any failure, interruption or breach in security of these systems could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan, human resources, and other systems, misappropriation of funds, and theft of proprietary or customer data.
Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business, revenues and competitive position.
Any such loss or disclosure of confidential information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, and regulatory penalties, disrupt our operations and the services we provide to customers, damage our reputation, and cause a loss of confidence in our products and services, which could adversely affect our business, financial condition, and results of operations.
Severe weather, earthquakes, other natural disasters, climate change, pandemics, acts of war or terrorism and other external and geopolitical events could significantly impact the business. Severe weather, earthquakes, other natural disasters, pandemics, climate change, acts of war or terrorism and other adverse external events could have a significant impact on the Company’s ability to conduct business.
General Risk Factors Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other external and geopolitical events could significantly impact the business. Severe weather, earthquakes, other natural disasters, pandemics, acts of war or terrorism and other adverse external events could have a significant impact on our ability to conduct business.
Finally, if we are required to place greater reliance on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our profitability would be adversely affected. Acquisitions may disrupt our business.
Finally, if we are required to place greater 16 reliance on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our results of operations would be adversely affected.
The holding company files a separate return with the state of Maryland and does not expect that the holding company will generate sufficient taxable income to utilize its deferred tax assets. No valuation allowance is currently recorded for state deferred income taxes of the Company’s subsidiaries or at the federal level where the Company files consolidated tax return.
Shore Bancshares files a separate return with the State of Maryland and does not expect that it will generate sufficient taxable income to utilize its deferred tax assets. No valuation allowance is currently recorded for state deferred income taxes of the Bank or at the federal level where we file a consolidated tax return.
To the extent that the activities of our third-party providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation and other possible liabilities.
To the extent that the activities of our third-party providers or the activities of our customers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, regulatory scrutiny, litigation and other possible liabilities, which could adversely affect our business, financial condition, and results of operations.
The occurrence of any failure, interruption or security breach of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability.
The occurrence of any failure, interruption or security breach of our information systems could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to 19 civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results of operations.
The continued ability to pay dividends to shareholders depends in part on dividends from the Bank. The amount of dividends that the Bank may pay to the Company is limited by federal laws and regulations. The ability of the Bank to pay dividends is also subject to its profitability, financial condition and cash flow requirements.
The ability to pay dividends to shareholders largely depends on Shore Bancshares’ receipt of dividends from the Bank. The amount of dividends that the Bank may pay to Shore Bancshares is limited by federal laws and regulations. The ability of the Bank to pay dividends is also subject to its profitability, financial condition and cash flow requirements.
There was a valuation allowance of deferred taxes of $1.9 million recorded at December 31, 2024 as management believes it is more likely than not that net operating losses for the holding company only will not be realized for state income tax purposes.
There was a valuation allowance of deferred taxes of $2.8 million recorded at December 31, 2025, as management believes it is more likely than not that net operating losses for Shore Bancshares only will not be realized for state income tax purposes.
Global economic conditions also affect our operating results because global economic conditions directly influence the U.S. economic conditions, including persistent inflation, rising interest rates, supply chain issues, labor shortages or changes in United States trade policies, including the imposition of tariffs and retaliatory tariffs. Certain changes in interest rates, inflation, or the financial markets could affect demand for our products.
Adverse economic conditions, both in the U.S. and globally, including persistent inflation, rising interest rates, supply chain issues, labor shortages or changes in United States trade policies, including the imposition of tariffs and retaliatory tariffs, could adversely affect our results of operations. Changes in interest rates, inflation, or the financial markets could affect demand for our products.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations. We are subject to evolving and extensive regulations and requirements.
Private parties may also be 22 able to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.
These conditions could result in one or more of the following: • a decrease in the demand for our loans and other products and services offered by us; • a decrease in our deposit balances due to overall reductions in the accounts of customers; • a decrease in the value of collateral securing our loans and leases; • an increase in the level of nonperforming and classified loans and leases; • an increase in provisions for credit losses and loan and lease charge-offs; • a decrease in net interest income derived from our lending and deposit gathering activities; • a decrease in the Company’s stock price; • a decrease in our ability to access the capital markets; or • an increase in our operating expenses associated with attending to the effects of certain circumstances listed above.
Unfavorable economic, market and political conditions could have direct or indirect material adverse impacts on us, our customers, and our counterparties and could result in one or more of the following: • a decrease in the demand for our loans and other products and services offered by us; • a decrease in our deposit balances due to overall reductions in the accounts of customers; • a decrease in the value of collateral securing our loans; • an increase in the level of nonperforming and classified loans; • an increase in provisions for credit losses and loan charge-offs; • a decrease in net interest income; • a decrease in our ability to access the capital markets; and • an increase in our operating expenses associated with attending to the effects of certain circumstances listed above.
Risks Related to Our Operations, Cybersecurity and Technology We depend on the accuracy and completeness of information about customers and counterparties and our financial condition could be adversely affected if we rely on misleading information.
We depend on the accuracy and completeness of information about customers and counterparties and our financial condition could be adversely affected if we rely on inaccurate information.
We have previously identified material weaknesses in our internal controls, and cannot provide assurances that additional material weaknesses will not occur in the future. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act and for evaluating and reporting on that system of internal control.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) under the Exchange Act and for evaluating and reporting on that system of internal control. In the past, material weaknesses have been identified in our internal control over financial reporting.
Any changes in these risk factors, in current accounting principles or interpretations of these principles could impact our assessment of fair value and thus the determination of credit losses of the securities in the investment securities portfolio. Write-downs of investment securities would negatively affect our earnings and regulatory capital ratios.
Any changes in these risk factors, in current accounting principles or interpretations of these principles could impact our assessment of fair value. Adjustments to the allowance for credit losses on held-to-maturity investment securities would negatively affect our earnings and regulatory capital ratios.
In January 2018, the DOJ rescinded the “Cole Memo” and related memoranda which characterized the enforcement of the Controlled Substances Act against persons and entities complying with state regulatory systems permitting the use, manufacture and sale of medical marijuana as an inefficient use of their prosecutorial resources and discretion.
Department of Justice characterized the enforcement of the Controlled Substances Act against persons and entities complying with state regulatory systems permitting the use, manufacture and sale of medical marijuana as an inefficient use of their prosecutorial resources and discretion.
We cannot predict or estimate the amount, timing or nature of its future offerings and debt financings. Future offerings could reduce the value of shares of our common stock and dilute a stockholder’s interest in us. Item 1B. UNRESOLVED STAFF COMMENTS None.
We cannot predict or estimate the amount, timing or nature of its future offerings and debt financings. Future offerings could reduce the value of shares of our common stock and dilute a stockholder’s interest in us. The market price for our stock may be volatile.
Our funding sources may prove insufficient to replace deposits and support our future growth. We rely on customer deposits, advances from the FHLB, and lines of credit at other financial institutions to fund our operations.
We rely on customer deposits, advances from the FHLB, and lines of credit at other financial institutions to fund our operations.
One component of our strategy is to sell on the secondary market the longer term, conforming fixed-rate residential mortgage loans that we originate, earning noninterest income in the form of gains on the sale of the loans.
Income from mortgage-banking operations is volatile and we may incur losses with respect to our mortgage-banking operations that could negatively affect our earnings. One component of our strategy is to sell on the secondary market the longer term, conforming fixed-rate residential mortgage loans that we originate, earning noninterest income in the form of gains on the sale of the loans.
Our information systems may experience an interruption or breach in security. We rely heavily on communications and information systems to conduct our business. We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations.
We, our customers, and other financial institutions with which we interact, are subject to ongoing, continuous attempts to penetrate key systems by individual hackers, organized criminals, and in some cases, state-sponsored organizations.
See “Cautionary note regarding forward-looking statements.” Risks Relating to Our Business Our business is adversely affected by unfavorable economic, market, and political conditions. In the event of an economic recession, our operating results could be adversely affected because we could experience higher loan and lease charge-offs and higher operating costs.
Our business may be adversely affected by unfavorable economic, market, and political conditions. Our results of operations could be adversely affected in the event of an economic recession because we could experience higher loan charge-offs and higher operating costs.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees, in our data centers and on our networks.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our customers, suppliers and business partners, and personally identifiable information of our customers and employees. The secure processing, maintenance and transmission of this information is critical to our operations and business strategy.
Further, the U.S. Court of Appeals for the Ninth Circuit held in USA v. McIntosh that this provision prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. There is no guarantee that the U.S.
Court of Appeals for the Ninth Circuit has held that this spending restriction prohibits the DOJ from spending funds from relevant appropriations acts to prosecute individuals who engage in conduct permitted by state medical marijuana laws and who fully comply with such laws.
However, as of the date of this filing we are not aware of any insured depository institution that has been prosecuted by the DOJ based on providing otherwise lawful banking products and services to the cannabis industry. As in past years, the U.S. Congress has enacted an omnibus spending bill that includes a provision prohibiting the DOJ and the U.S.
Although the DOJ rescinded this position, as of the date of this report we are not aware of any insured depository institution that has been prosecuted by the DOJ based on providing otherwise lawful banking products and services to the cannabis industry. Since 2014, the U.S.
Although we require third-party providers to maintain certain levels of information security, such providers remain vulnerable to breaches, unauthorized access, misuse, computer viruses or other malicious attacks that could ultimately compromise sensitive information possessed by our company.
Although we require third-party providers to maintain certain levels of information security, such providers may experience breaches, non-performance of or outages by their own vendors, unauthorized access, unplanned outages, misuse, computer viruses or other malicious attacks that could ultimately compromise sensitive information possessed by us. 20 We outsource certain aspects of our data processing to certain third-party providers, which may expose us to additional risk.
While we have selected these third-party providers carefully, we cannot control their actions.
We outsource certain key aspects of our data processing to certain third-party providers. While we have selected these third-party providers carefully, we cannot control their actions.
FinCEN is authorized to impose significant civil money penalties for violations of those requirements and has recently engaged in coordinated enforcement efforts with the individual federal banking regulators, as well as the DOJ, Drug Enforcement Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by the OFAC.
The Financial Crimes Enforcement Network is authorized to impose significant civil money penalties for violations of those requirements and engages in coordinated enforcement efforts with the individual federal banking regulators, as well as the Department of Justice, Drug Enforcement Administration and Internal Revenue Service.
Any of these results could have a material adverse effect on our business, financial condition and results of operations. 25 Table of Contents Risks Relating to the Company’s Securities Our common stock is not insured by any governmental entity.
Failure to maintain and implement adequate programs to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results could have a material adverse effect on our business, financial condition, and results of operations. Risks Relating to Our Securities Our common stock is not insured by any governmental entity.
Assessing the need for, or the sufficiency of, a valuation allowance requires management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Assessing the need for, or the sufficiency of, a valuation allowance requires management to evaluate all available evidence, both negative and positive, including the recent trend of quarterly earnings.
These risk factors include, but are not limited to, changes in interest rates, rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and instability in the credit markets.
These risk factors include, but are not limited to, rating agency downgrades of the securities, defaults of the issuers of the securities, lack of market pricing of the securities, and instability in the credit markets. Lack of market activity with respect to some securities has, in certain circumstances, required us to base our fair market valuation on unobservable inputs.
We provide banking services to customers who do business in the cannabis industry and the strict enforcement of federal laws regarding cannabis would likely result in our inability to continue to provide banking services to these customers and we could have legal action taken against us by the federal government.
The strict enforcement of federal laws regarding cannabis could result in our inability to continue to provide banking services to marijuana-related businesses and expose us to legal action by the federal government. We have deposit and loan customers that are licensed in several states within the United States to do business in the cannabis industry as growers, processors, and dispensaries.
The Trump administration and certain governmental agencies have announced plans to reduce government spending and the size of the federal government workforce. The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or which depend on such businesses for a significant portion of their revenues.
The Washington, D.C. metropolitan area is characterized by a significant number of businesses that are federal government contractors or subcontractors, or that depend on such businesses for a significant portion of their revenues. In addition, federal government employees make up a significant proportion of the population of the Washington, D.C. metropolitan area.
The BSA, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.
We face a risk of noncompliance and enforcement action with the BSA and other anti-money laundering statues and regulations. The federal Bank Secrecy Act, the PATRIOT Act and other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency transaction reports as appropriate.
Provisions in our governing documents and Maryland law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
Any such issuance would dilute the percentage of ownership interest of existing shareholders and may dilute the per share book value of our common stock. Provisions in our gover ning documents and Maryland law may have an anti-takeover effect, and there are substantial regulatory limitations on changes of control of bank holding companies.
In the event that we conclude that all or a portion of our goodwill or other intangible assets may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings.
If we conclude that all or a portion of our goodwill or other intangible assets may be impaired, a non-cash charge for the amount of such impairment would be recorded to earnings. At December 31, 2025, we had recorded goodwill of $63.3 million and other intangible assets, net of $29.7 million, representing approximately 10.7% and 5.0% of stockholders’ equity, respectively.
Any adverse change in this FinCEN guidance, any new regulations or legislation, any change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator’s interpretation of a law or regulation, could have a negative impact on our interest income and noninterest income, as well as the cost of our operations, increasing our cost of regulatory compliance and of doing business, and/or otherwise affect us, which may materially affect our profitability.
Any new regulations or legislation, change in existing regulations or oversight, whether a change in regulatory policy or a change in a regulator's interpretation of a law or regulation, could have a material impact on our operations, increase our costs of regulatory compliance and adversely affect our profitability.
You should consider carefully the risk factors included below together with all of the information included in or incorporated by reference into this Annual Report on Form 10-K, as the same may be updated from time-to-time by our future filings with the SEC under the Exchange Act, before making a decision to invest in our common stock.
Investors should also consider the other information in this Annual Report on Form 10-K, as well as in the documents incorporated by reference into this Form 10-K, as the same may be updated from time to time by our future filings with t he SEC un der the Exchange Act.
Further, we outsource some of the data processing functions used for remote banking, and accordingly we are dependent on the expertise and performance of our third-party providers.
We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses. Further, we outsource some of the data processing functions used for remote banking, and accordingly we are dependent on the expertise and performance of our third-party providers.
Any future special assessments, increases in assessment rates or required prepayments in FDIC insurance premiums could reduce our profitability or limit our ability to pursue certain business opportunities, which could have a material adverse effect on our business, financial condition and results of operations.
Increases in assessment rates or special assessments may occur in the future, especially if there are significant bank failures. Increases in assessment rates, special assessments, or required prepayments could have a material adverse effect on our business, financial condition and results of operations.
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions. The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.
We are subject to numerous laws designed to protect consumers, including the CRA and fair lending laws, and failure to comply with these laws could lead to a wide variety of sanctions. The CRA requires the OCC to assess our performance in meeting the credit needs of the communities we serve, including low- and moderate-income neighborhoods.
Real estate market conditions directly affect performance of our loans secured by real estate. Debt markets affect the availability of credit which impacts the rates and terms at which we offer loans and leases.
Real estate market conditions directly affect performance of our loans secured by real estate. Debt markets affect the availability of credit, which impacts the rates and terms at which we offer loans. Stock market downturns often signal broader economic deterioration and/or a downward trend in business earnings, which may adversely affect businesses’ ability to raise capital and/or service their debts.
In addition, a security breach could also subject us to additional regulatory scrutiny, expose us to civil litigation and possible financial liability and cause reputational damage. Technological changes affect our business, and we may have fewer resources than many competitors to invest in technological improvements.
In addition, a security breach could also subject us to additional regulatory scrutiny, expose us to civil litigation and possible financial liability and cause reputational damage. We are at risk of increased losses from fraud. Fraudulent activity that may be committed against us or our customers may result in financial losses or increased costs to us.
The FRB and the OCC periodically examine our business, including our compliance with laws and regulations.
As part of the bank regulatory process, the Federal Reserve and the OCC periodically conduct comprehensive examinations of our business, including compliance with laws and regulations.
We have deposit and loan customers that are licensed in several states within the United States to do business in the cannabis industry as growers, processors, and dispensaries. While cannabis is legal in these states of operation, it remains classified as a Schedule I controlled substance under the Controlled Substances Act.
While cannabis is legal in these states of operation, it remains classified as a Schedule I controlled substance under the federal Controlled Substances Act. As such, the cultivation, use, distribution, and possession of cannabis is a violation of federal law that is punishable by imprisonment and fines.
The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also have a material adverse effect on our business, financial condition and results of operations.
Additional risks and uncertainties not presently known to us or that we currently deem immaterial may cause earnings to be lower or may adversely impact our financial condition.
There is no assurance that the Bank will be able to pay dividends to the Company in the future. The decision may be made to limit the payment of dividends even when the legal ability to pay them exists, in order to retain earnings for other uses.
We may limit the payment of dividends, even when the legal ability to pay them exists, in order to retain earnings for other uses. Our subordinated debt instruments contain restrictions on our ability to declare and pay dividends on or repurchase our common stock.
Impairment of investment securities, goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations. We are required to establish a reserve in the ACL when management determines that an investment security is impaired due to a credit loss.
Impairment goodwill, other intangible assets, or deferred tax assets could require charges to earnings, which would adversely impact on our results of operations.
Stock market downturns often signal broader economic deterioration and/or a downward trend in business earnings which may adversely 17 Table of Contents affect businesses’ ability to raise capital and/or service their debts. Political and electoral changes, developments, conflicts, and conditions have in the past introduced, and may in the future introduce, additional uncertainty which may also affect our operating results.
Political and electoral changes, developments, conflicts, and conditions have in the past introduced, and may in the future introduce, additional uncertainty that may also affect our results of operations.
Any change in the federal government’s enforcement position could cause us to immediately cease providing banking services to the medical and adult-use cannabis industry in states within the United States.
Elimination of restrictions on the DOJ from spending money on certain enforcement activities and any change in the federal government’s enforcement position with respect to state cannabis laws could cause us to cease providing banking services to the medical and adult-use cannabis industry, which could have a material adverse effect on our business, financial condition, and results of operations.
Our financial condition and results of operations could be negatively impacted to the extent we rely on financial statements that do not comply with GAAP or are materially misleading. Our exposure to operational, technological and organizational risk may adversely affect us.
Our financial condition and results of operations could be negatively impacted to the extent we rely on inaccurate information. Operational risks, including system failures, human error, and third-party dependencies could adversely affect our business.
Risks Relating to the Regulation of our Industry We operate in a highly regulated environment, which could restrain our growth and profitability. Banking is highly regulated under federal and state law. As such, we are subject to extensive regulation, supervision and legal requirements that govern almost all aspects of our operations.
Failure to successfully keep pace with technological changes affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations. Risks Relating to the Regulation of our Industry We operate in a highly regulated environment, which could restrain our growth and profitability. The banking industry is heavily regulated.
This may lead to an increase in our nonperforming assets, a decrease in loan originations, or a reduction in the value of and income from our loans, any of which could have a material and negative effect on our results of operations.
Any increase in the allowance for credit losses could have a negative effect on our financial condition and results of operations. 14 We may not be able to adequately measure and limit our credit risk, which could lead to unexpected losses.
As such, the cultivation, use, distribution, and possession of cannabis is a violation of federal law that is punishable by imprisonment and fines. Moreover, the U.S. Supreme Court ruled in USA v. Oakland Cannabis Buyers’ Coop. that the federal government has the authority to regulate and criminalize cannabis, including medical marijuana.
Notwithstanding state law that permits the sale of cannabis, the federal government has the authority to regulate and criminalize cannabis, including medical marijuana. Prior to 2018, the U.S.
If management’s assumptions and judgments prove to be incorrect and the allowance for credit losses is inadequate to absorb future losses, or if the bank regulatory authorities, as a part of their examination process, require the Bank to increase its allowance for credit losses, our earnings and capital could be significantly and adversely affected.
Finally, if the estimate for the recorded allowance for credit losses proves to be incorrect and the allowance is inadequate, the allowance will have to be increased and, as a result, our earnings would be adversely affected.
We may be subject to heightened supervisory scrutiny during future examinations and/or be required to maintain higher levels of capital as a result of our CRE concentrations, which could require us to obtain additional capital, and may adversely affect shareholder returns. Management cannot predict the extent to which this guidance will impact our operations or capital requirements.
If we are required to maintain higher levels of capital as a result of our commercial real estate loan concentrations, we may need to obtain additional capital, which may adversely affect shareholder returns. Our concentration of residential mortgage loans exposes us to increased lending risks.
Changes in market interest rates are affected by many factors beyond our control, including inflation, unemployment, money supply, international events and events in world financial markets. Throughout 2022, 2023 and 2024, the FRB raised the target range for the federal funds rate in an effort to curb inflation.
Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could reduce net interest income. Changes in market interest rates are affected by many factors beyond our control, including inflation, unemployment, money supply, fiscal policies of the U.S. government, domestic and international events, and events in U.S. and other financial markets.
Further, any new laws, rules and regulations, such as the Dodd-Frank Act, could make compliance more difficult or expensive or otherwise adversely affect our business, financial condition and results of operations.
Any violation of these laws or another incident involving personal, confidential or proprietary information of individuals could damage our reputation and otherwise adversely affect our business, financial condition, and results of operations.
Removed
Item 1A. RISK FACTORS An investment in our common stock involves significant risks.
Added
Item 1A. RISK FACTORS Investing in our common stock involves risks, including the possibility that the value of the investment could fall substantially and that dividends or other distributions could be reduced or eliminated. Investors should carefully consider the following risk factors before making an investment decision regarding our stock.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

18 edited+1 added−6 removed3 unchanged
Biggest changeTo maintain alignment and appropriate insight regarding information security activities, a bi-weekly operational committee provides general program insight. • Collaborative Approach : The Company has implemented a cross-functional approach to identifying, assessing, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management. • Security Competencies : The Company has security competencies and tools designed to evaluate security risks and to protect the confidentiality, integrity and availability of our information systems and data.
Biggest changeAs one of the elements of our overall enterprise-wide risk management approach, the Enterprise Risk Management Program is focused on the following key areas: • Security Operation and Governance : As discussed in more detail under the section titled “Cybersecurity Governance,” the Board Risk Oversight Committee oversees our information security and cybersecurity risk management. • Collaborative Approach : We have implemented a cross-functional approach to identifying, assessing, preventing and mitigating cybersecurity threats and incidents, while also implementing controls and procedures that provide for the escalation of certain cybersecurity incidents so that decisions regarding the public disclosure and reporting of such incidents can be made by management. 25 • Security Competencies : We have security competencies and tools designed to evaluate security risks and to protect the confidentiality, integrity and availability of our information systems and data.
The Board of Directors also receives information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. On an annual basis, the full board of directors discusses the Company’s approach to cybersecurity risk management.
The Board of Directors also receives information regarding any cybersecurity incident that meets established reporting thresholds, as well as ongoing updates regarding any such incident until it has been addressed. On an annual basis, the full Board of Directors discusses our approach to cybersecurity risk management.
Cybersecurity Governance The Board of Directors, through the Board Risk Oversight Committee, provides direction and oversight of the enterprise-wide risk management framework of the Company, including the management of risks arising from cybersecurity threats. The Board Risk Oversight Committee reviews and approves the Information Security Policy, which includes the Company’s cybersecurity risk management program.
Cybersecurity Governance The Board of Directors, through the Board Risk Oversight Committee, provides direction and oversight of the enterprise-wide risk management framework of the Company, including the management of risks arising from cybersecurity threats. The Board Risk Oversight Committee reviews and approves the Information Security Policy, which includes our cybersecurity risk management program.
The Company utilizes third-party tools and solutions to actively deliver threat analysis, vulnerability management, intrusion detection, intrusion hunting and red team exercises. We also receive the latest cybersecurity alerts and threat intelligence from government agencies and information sharing and analysis centers.
We utilize third-party tools and solutions to actively deliver threat analysis, vulnerability management, intrusion detection, intrusion hunting and red team exercises. We also receive the latest cybersecurity alerts and threat intelligence from government agencies and information sharing and analysis centers.
To facilitate the success of the Company’s cybersecurity risk management program, multidisciplinary teams throughout the Company are deployed to address cybersecurity threats and to respond to cybersecurity incidents.
To facilitate the success of our cybersecurity risk management program, multidisciplinary teams throughout the Company are deployed to address cybersecurity threats and to respond to cybersecurity incidents.
The Company’s Incident Response Plan helps reduce the risks related to security incidents by providing guidance on our response to incidents by focusing on the coordination of personnel, policies, and procedures to ensure incidents are detected, analyzed and managed. • Third-Party Risk Management : Management of the Company’s third parties, including vendors and service providers, is conducted through a risk-based approach and the level of due diligence is driven by risk factors established by the Third-Party Risk Management Program.
Our Incident Response Plan reduces the risks related to security incidents by providing guidance on our response to incidents by focusing on the coordination of personnel, policies and procedures to ensure incidents are detected, analyzed and managed. • Third-Party Risk Management : Management of third parties, including vendors and service providers, is conducted through a risk-based approach, with the level of due diligence driven by risk factors established by the Third-Party Risk Management Program.
The Information Security Officer, under the guidance of our Chief Risk Officer and Operational Risk Manager, works collaboratively across the Company to implement a program designed to protect the Company’s information systems and data from cybersecurity risks.
The Information Security Officer, under the guidance of our Chief Risk Officer and Director of Operational Risk, works collaboratively across the Company to implement a program designed to protect our information systems and data from cybersecurity risks.
Item 1C. CYBERSECURITY Cybersecurity Risk Management and Strategy 26 Table of Contents The Company recognizes the security of our banking operations is essential to protecting our customers, maintaining our reputation, and preserving the value of the Company.
Item 1C. CYBERSECURITY Cybersecurity Risk Management and Strategy The Company recognizes that the security of our banking operations is essential to protecting our customers, maintaining our reputation, and preserving the value of the Company.
The Information Security Officer is responsible for assessing and managing cybersecurity risks, responding to any cybersecurity incidents in accordance with the Company’s Incident Response Plan and Business Continuity Plan, and reporting incidents to appropriate personnel at the Company in accordance with the Incident Response Plan.
The Information Security Officer is responsible for assessing and managing cybersecurity risks, responding to any cybersecurity incidents in accordance with our Incident Response Plan and Business Continuity Plan, and reporting incidents to appropriate individuals in accordance with the Incident Response Plan.
In general, the Company seeks to address cybersecurity risks through a comprehensive, cross-functional approach focused on the confidentiality, security and availability of the information that the Company collects and stores by identifying, preventing, and mitigating cybersecurity threats and effectively responding to cybersecurity incidents that may occur.
In general, we seek to address cybersecurity risks through a comprehensive, cross-functional approach focused on the confidentiality, security and availability of the information that we collect and store by identifying, preventing, and mitigating cybersecurity threats and effectively responding to cybersecurity incidents that may occur.
This process is aimed at advocating for appropriate standards and controls, based on risk factors, to secure the third parties’ information systems, and to ensure the third parties have recovery plans in place. • Security Awareness and Education : The Company provides annual, mandatory training for personnel regarding security awareness to better equip Company personnel with the understanding of how to properly use and protect the computing resources entrusted to them, and to communicate the Company’s information security policies, standards, processes and practices.
This process advocates for appropriate standards and controls, based on risk factors, to secure the third parties’ information systems, and to ensure the third parties have recovery plans in place. • Security Awareness and Education : We provide annual, mandatory training for employees regarding security awareness to better equip them with the understanding of how to properly use and protect the computing resources entrusted to them, and to communicate our information security policies, standards, processes and practices.
Vulnerability assessment and penetration tests are performed on a regular basis to provide the Company with an unbiased view of its environment and controls. Vulnerabilities identified during these assessments are inventoried in a centralized tracking system and reported to management on a regular basis.
We conduct a variety of assessments throughout the year, both internally and through third parties. Vulnerability assessment and penetration tests are performed on a regular basis to provide us with an unbiased view of our environment and controls. Vulnerabilities identified during these assessments are inventoried in a centralized tracking system and reported to management on a regular basis.
These assets represent a blend of various management (e.g., policies), operational (e.g., standards and processes), and technical controls (e.g., tools and configurations). • Cyber Defense and Incident Response Plan : The Company utilizes sophisticated security monitoring and detection tools for continuous monitoring of our information systems 24 hours per day, seven days per week.
These assets represent a blend of various management (e.g., policies), operational (e.g., standards and processes), and technical controls (e.g., tools and configurations). • Cyber Defense and Incident Response Plan : We utilize sophisticated security monitoring and detection tools for continuous monitoring of our information systems at all times.
The results of key assessments are reported in summary to the Board Risk Oversight Committee. 27 Table of Contents The Company engages third parties on a regular basis to assess, test and assist with the implementation of our cybersecurity program to detect and manage cybersecurity risks, including but not limited to third parties who assist with monitoring our information security systems and auditors who assist with conducting penetration tests.
We engage third parties on a regular basis to assess, test and assist with the implementation of our cybersecurity program to detect and manage cybersecurity risks, including but not limited to third parties who assist with monitoring our information security systems and auditors who assist with conducting penetration tests.
The Information Security Department has over three decades of experience in managing Information Security and Cybersecurity programs at financial institutions. The Information Security Officer holds the Certified Information Security Manager Certification and is supported by additional team members with extensive backgrounds in cybersecurity and related fields.
The Information Security Officer holds the Certified Information Security Manager Certification and is supported by additional team members with extensive backgrounds in cybersecurity and related fields. 26
A multi-step approach is applied to identify, report and remediate these vulnerabilities, and the Company adjusts its information security policies, standards, processes and practices as necessary based on the information provided by these assessments.
A multi-step approach is applied to identify, report and remediate these vulnerabilities, and we adjust our information security policies, standards, processes and practices as necessary based on the information provided by these assessments. Summarized results of key assessments are reported to the Board Risk Oversight Committee.
The Board of Directors, through the Board Risk Oversight Committee, provides direction and oversight of the enterprise-wide risk management framework of the Company, and cybersecurity represents a component of the Company’s overall approach to enterprise-wide risk management.
The Board of Directors, through the Board Risk Oversight Committee, provides direction and oversight of our enterprise-wide risk management framework, and cybersecurity represents a component of our overall approach to enterprise-wide risk management. The Enterprise Risk Management Program establishes policies and procedures for assessing the effectiveness and efficiency of information security controls related to both design and operations.
This training is supplemented with annual required third party information security training. Additionally, the Company conducts monthly email security awareness testing, with follow-up training assigned when deemed necessary. The Company leverages continuous monitoring and regular risks assessments to identify the Company’s current and potential cybersecurity risks.
Additionally, we conduct monthly email security awareness testing, with follow-up training assigned when deemed necessary. We leverage continuous monitoring and regular risks assessments to identify current and potential cybersecurity risks. Technical vulnerabilities are identified using automated vulnerability scanning tools, penetration testing, and system management tools, whereas non-technical vulnerabilities are identified via process or procedural reviews.
Removed
The Enterprise Risk Management Program establishes policies and procedures for assessing the effectiveness and efficiency of information security controls related to both design and operations. The Company leverages the following guidelines and frameworks to develop and maintain its Information Security Program including its cybersecurity risk management program: Federal Financial Institutions Examination Council Cybersecurity Assessment Tools and GLB Act and regulations.
Added
We use a variety of tools, including the Federal Financial Institutions Examination Council Cybersecurity Assessment Tools, to help us identify our cybersecurity risks and determine our cybersecurity preparedness. This assessment tool incorporates regulatory guidance.
Removed
As one of the elements of the Company’s overall enterprise-wide risk management approach, the Enterprise Risk Management Program is focused on the following key areas: • Security Operation and Governance : As discussed in more detail under the section titled “Cybersecurity Governance,” the Board Risk Oversight Committee has delegated to senior management responsibility for managing the Enterprise Risk Management Program.
Removed
Senior management carries out this mandate through the Strategic Initiatives and Board Risk Oversight Committees.
Removed
Technical vulnerabilities are identified using automated vulnerability scanning tools, penetration testing, and system management tools, whereas non-technical vulnerabilities are identified via process or procedural reviews. The Company conducts a variety of assessments throughout the year, both internally and through third parties.
Removed
Notwithstanding our efforts at cybersecurity, the Company cannot guarantee that it will be successful in preventing or mitigating a cybersecurity incident that could have a material adverse effect on it. To our knowledge, cybersecurity threats, including as a result of any previous cybersecurity incidents, have not materially affected the Company, including its business strategy, results of operations or financial condition.
Removed
With regard to the possible impact of future cybersecurity threats or incidents, see Item 1A., Risk Factors – Risks Related to Our Business. 28 Table of Contents

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeFor information about rent expense for all leased premises, see Note 7 – “Premises and Equipment” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K.
Biggest changeAs of December 31, 2025, 27 of the 40 full-service branches the Bank operates were owned by the Company. For information about our leased premises and properties, see Note 5 – “Leases” and Note 6 – “Premises and Equipment” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.
Item 2. PROPERTIES Our o ffices are listed in the tables below. The address of the Company and Bank’s main office is 18 East Dover Street in Easton, Maryland.
Item 2. PROPERTIES We own or lease buildings across Maryland, Delaware and Virginia that are used in the normal course of our business. The corporate headquarters for the Company and Bank is located at 18 East Dover Street in Easton, Maryland, and is owned by the Company.
Removed
Maryland Branch Locations Main Office/Branch (1) Chester Branch (1) Crofton Branch (2) 18 East Dover Street 300 Castle Marina Road 2151 Defense Highway Easton, Maryland 21601 Chester, Maryland 21619 Crofton, Maryland 21114 Tred Avon Square Branch (1) Washington Square Branch (1) Waldorf Branch (1) 212 Marlboro Road 899 Washington Avenue 3035 Leonardtown Road Easton, Maryland 21601 Chestertown, Maryland 21620 Waldorf, Maryland 20601 St.
Removed
Michaels Branch (2) Arbutus Branch (1) Leonardtown Branch (1) 1013 South Talbot Street 1101 Maiden Choice Lane 25395 Point Lookout Road St.
Removed
Michaels, Maryland 21663 Baltimore, Maryland 21229 Leonardtown, Maryland 20650 Elliott Road Branch (1) Elkridge Branch (1) Bryan’s Road Branch (1) 8275 Elliott Road 6050 Marshalee Drive 8010 Matthews Road Easton, Maryland 21601 Elkridge, Maryland 21075 Bryans Road, Maryland 20616 Sunburst Branch (1) Owings Mills Branch (1) Dunkirk Branch (2) 424 Dorchester Avenue 9612 Reisterstown Road 10321 Southern Maryland Boulevard Cambridge, Maryland 21613 Owings Mills, Maryland 21117 Dunkirk, Maryland 20754 West Ocean City Branch (2) Annapolis Branch (1) Lexington Park Branch (1) 12905-B Ocean Gateway 1917 West Street 22730 Three Notch Road Ocean City, Maryland 21842 Annapolis, Maryland 21401 California, Maryland 20619 Ocean City/ South Ocean City Branch (2) Edgewater Branch (2) La Plata Branch (1) 3409 Coastal Highway 3083 Solomons Island Road 101 Drury Drive Ocean City, Maryland 21842 Edgewater, Maryland 21037 La Plata, Maryland 20646 Centreville/Commerce Branch (1) Glen Burnie Branch (1) Charlotte Hall Branch (1) 109 North Commerce Street 413 Crain Highway, S.E. 30165 Three Notch Road Centreville, Maryland 21617 Glen Burnie, Maryland 21061 Charlotte Hall, Maryland 20622 Stevensville Branch (1) Severna Park Branch (2) Prince Frederick Branch (2) 408 Thompson Creek Road 598 Benfield Road 200 Market Square Drive Stevensville, Maryland 21666 Severna Park, Maryland 21146 Prince Frederick, Maryland 20678 Tuckahoe Branch (1) Lothian Branch (2) Lusby Branch (2) 22151 Wes Street 5401 Southern Maryland Boulevard 11725 Rousby Hall Road Ridgely, Maryland 21660 Lothian, Maryland 20711 Lusby, Maryland 20657 Route 213 South Branch (1) Denton Branch (1) La Plata Downtown Branch (1) 2609 Centreville Road 850 South 5 th Avenue 202 Centennial Street Centreville, Maryland 21617 Denton, Maryland 21629 La Plata, Maryland 20646 29 Table of Contents Delaware Branch Locations Felton Branch (2) Camden Branch (1) Rehoboth Beach Branch (2) 120 West Main Street 4580 South DuPont Highway 19358 Miller Road Felton, Delaware 19943 Camden, Delaware 19934 Rehoboth Beach, Delaware 19971 Milford Branch (2) Governors Ave Branch (1) 698-A North Dupont Boulevard 800 South Governors Avenue Milford, Delaware 19963 Dover, Delaware 19904 Virginia Branch Locations Fredericksburg Downtown Branch (1) Fredericksburg Harrison Crossing Branch (1) 425 William Street 5831 Plank Road Fredericksburg, Virginia 22401 Fredericksburg, Virginia 22407 ATMs (standalone) University of Maryland Shore Medical Center at Easton 219 South Washington Street Easton, Maryland 21601 Administrative and Lending Offices SHBI Building (1) Harrison Street Office (1) Ridgely Training Center (2) 28969 Information Lane 23 South Harrison Street 405 West Bell Road, Unit 4 and 5 Easton, Maryland 21601 Easton, Maryland 21601 Ridgely, Maryland 21660 Commercial Lending Office (2) Charlottesville Commercial Lending Office (2) Fredericksburg Commercial Lending Office (2) Middletown 1434 Rolkin Court, Suite 301 10 Chatham Heights Road, Suite 104 102 Sleepy Hollow, Unit 204 Charlottesville, Virginia 22911 Fredericksburg, Virginia 22405 Middletown, Delaware 19709 Commercial Lending Office (2) Prince Frederick Mortgage Loan Office (2) Frederick Hills Building (Clark) (1) 995 North Prince Frederick Boulevard, Suite 105 5291 Corporate Drive, Suite 202 30 Dover Street Prince Frederick, Maryland 20678 Frederick, Maryland 21703 Easton, Maryland 21601 St.
Removed
Michaels Mortgage Office (2) 112 North Talbot Street St. Michaels, Maryland 21663 _______________________________ (1) Branch/Office is owned by the Company. (2) Branch/Office is leased by the Company.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. LEGAL PROCEEDINGS We are at times, in the ordinary course of business, subject to legal actions. Management, upon the advice of counsel, believes that losses, if any, resulting from current legal actions will not have a material adverse effect on our financial condition or results of operations. Item 4.
Biggest changeItem 3. LEGAL PROCEEDINGS In the normal course of business, the Company may become involved in litigation arising from its business activities. Management, after consultation with legal counsel, does not anticipate that the ultimate liability, if any, arising from pending legal proceedings will have a material adverse effect on our financial condition or results of operations. Item 4.
MINE SAFETY DISCLOSURES This item is not applicable. 30 Table of Contents PART II
MINE SAFETY DISCLOSURES This item is not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−5 removed0 unchanged
Biggest changeSmallCap Banks Index 100.00 90.82 126.43 111.47 112.03 132.44 EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2024, with respect to options outstanding and shares available for future awards under the Company’s active equity incentive plans.
Biggest changeSource: S&P Global Market Intelligence Period Ending Index 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 Shore Bancshares, Inc. $ 100.00 $ 146.88 $ 125.79 $ 106.83 $ 123.49 $ 142.05 NASDAQ Composite Index 100.00 122.18 82.43 119.22 154.48 187.14 KBW NASDAQ Regional Banking Index 100.00 136.64 127.17 126.67 143.39 152.71 EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2025, with respect to options outstanding and shares available for future awards under the Company’s active equity incentive plans.
Cumulative total return on the stock or the index equals the total increase in value since December 31, 2019 assuming reinvestment of all dividends paid into the stock or the index. The graph and table were prepared assuming that $100 was invested on December 31, 2019, in the common stock and the securities included in the indexes.
Cumulative total return on the stock or the index equals the total increase in value since December 31, 2020 assuming reinvestment of all dividends paid into the stock or the index. The graph and table were prepared assuming that $100 was invested on December 31, 2020, in the common stock and the securities included in the indexes.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants, and rights (b) Number of securities remaining available for future issuance under equity compensation plans [excluding securities reflected in column (a)] ( c) Equity compensation plans approved by security holders — — 190,166 Equity compensation plans not approved by security holders — — — Total — — 190,166 32 Table of Contents UNREGISTERED SALES OF EQUITY SECURITIES AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s prior stock repurchase program expired on March 31, 2023.
Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) Weighted-average exercise price of outstanding options, warrants and rights (b) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) Equity compensation plans approved by security holders — — 992,641 Equity compensation plans not approved by security holders — — — Total — — 992,641 28 UNREGISTERED SALES OF EQUITY SECURITIES AND ISSUER PURCHASES OF EQUITY SECURITIES The Company’s prior stock repurchase program expired on March 31, 2023.
There were no purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the fourth quarter of 2024. Item 6. [RESERVED] 33 Table of Contents
There were no purchases made by or on behalf of us or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the fourth quarter of 2025. Item 6. [RESERVED] 29
The transfer agent for the Company’s common stock is: Broadridge Corporate Issuer Solutions, Inc. 51 Mercedes Way Edgewood, NY 11717 Investor Relations: +1 (800) 353-0103 E-mail for investor inquiries: shareholder@broadridge.com www.broadridge.com 31 Table of Contents Stock Performance Graph The following graph and table show the cumulative total return on the common stock of the Company over the last five years, compared with the cumulative total return of a broad stock market index (the NASDAQ Composite Index), and a narrower index of the NASDAQ Bank Index and S&P SmallCap Banks Index.
The transfer agent for the Company’s common stock is: Broadridge Corporate Issuer Solutions, Inc. 51 Mercedes Way Edgewood, NY 11717 Investor Relations: +1 (800) 353-0103 E-mail for investor inquiries: shareholder@broadridge.com www.broadridge.com 27 Stock Performance Graph The following graph and table show the cumulative total return on the common stock of the Company over the last five years, compared with the cumulative total return of a broad stock market index (the NASDAQ Composite Index), and a narrower index of the KBW NASDAQ Regional Banking Index.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION, HOLDERS AND CASH DIVIDENDS The shares of the Company’s common stock are listed on the NASDAQ Global Select Market under the symbol “SHBI.” As of March 6, 2025, the Company had approximately 1,770 registered holders of record.
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES MARKET INFORMATION, HOLDERS AND CASH DIVIDENDS The shares of the Company’s common stock are listed on the NASDAQ Global Select Market under the symbol “SHBI.” As of February 26, 2026, the Company had approximately 1,729 registered holders of record.
Removed
The high and low sales prices for the shares of common stock of the Company, as reported on the NASDAQ Global Select Market, and the cash dividends declared on those shares for each quarterly period of 2024 and 2023 are set forth in the table below. 2024 2023 Price Range Dividends Price Range Dividends High Low Paid High Low Paid 1st Quarter $ 14.38 $ 10.56 $ 0.12 $ 18.15 $ 14.00 $ 0.12 2nd Quarter 11.90 10.06 0.12 14.45 10.65 0.12 3rd Quarter 14.99 11.03 0.12 13.37 10.27 0.12 4th Quarter 17.61 13.21 0.12 14.51 9.66 0.12 $ 0.48 $ 0.48 Shareholders received quarterly cash dividends on shares of common stock totaling $16.0 million in 2024 and $12.7 million in 2023.
Removed
Quarterly dividends remained at $0.12 for the entire year of 2024. As a general matter, the payment of dividends is at the discretion of the Company’s Board of Directors, based on such factors as operating results, financial condition, capital adequacy, regulatory requirements, and stockholder return.
Removed
The Company anticipates continuing a regular quarterly cash dividend, although future dividend increases must be approved by Shore Bancshares Board of Directors. However, we have no obligation to pay dividends and we may change our dividend policy at any time without notice to shareholders.
Removed
Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant.
Removed
Source: S&P Global Market Intelligence Period Ending Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Shore Bancshares, Inc. $ 100.00 $ 87.74 $ 128.88 $ 110.37 $ 93.74 $ 108.35 NASDAQ Composite Index 100.00 144.92 177.06 119.45 172.77 223.87 KBW NASDAQ Bank Index 100.00 89.69 124.06 97.52 96.65 132.60 S&P U.S.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

104 edited+49 added−76 removed30 unchanged
Biggest change($ in thousands) December 31, 2024 December 31, 2023 Nonperforming assets Nonaccrual loans $ 21,008 $ 12,784 Total loans 90 days or more past due and still accruing 294 738 OREO 179 179 Repossessed assets 3,315 — Total nonperforming assets $ 24,796 $ 13,701 As a percent of total loans: Nonaccrual loans 0.44 % 0.28 % As a percent of total loans and OREO: Nonperforming assets 0.52 % 0.30 % As a percent of total assets: Nonaccrual loans 0.34 % 0.21 % Nonperforming assets 0.40 0.23 Deposits The following is a breakdown of the Company’s deposit portfolio at December 31, 2024 and 2023 : December 31, 2024 December 31, 2023 ($ in thousands) Balance % Balance % $ Change % Change Noninterest-bearing demand $ 1,562,815 28.27 % $ 1,258,037 23.36 % $ 304,778 24.23 % Interest-bearing: Demand 978,076 17.69 1,165,546 21.64 (187,470) (16.08) Money market and savings 1,805,884 32.67 1,777,927 33.01 27,957 1.57 Time deposits 1,181,561 21.37 1,184,610 21.99 (3,049) (0.26) Total interest-bearing 3,965,521 71.73 4,128,083 76.64 (162,562) (3.94) Total deposits $ 5,528,336 100.00 % $ 5,386,120 100.00 % $ 142,216 2.64 Total deposits increased $142.2 million, or 2.6%, to $5.53 billion at December 31, 2024 when compared to December 31, 2023.
Biggest changeThe Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity. 43 Deposits The following is a breakdown of the Company’s deposit portfolio at December 31, 2025 and 2024: ($ in thousands) December 31, 2025 December 31, 2024 Balance % of Total Deposits Balance % of Total Deposits $ Change % Change Noninterest-bearing deposits $ 1,587,953 28.69 % $ 1,562,815 28.27 % $ 25,138 1.6 % Interest-bearing deposits: Interest-bearing checking 852,585 15.41 978,076 17.69 (125,491) (12.8) Money market and savings 1,814,928 32.80 1,805,884 32.67 9,044 0.5 Time deposits 1,267,487 22.90 1,181,561 21.37 85,926 7.3 Brokered deposits 10,911 0.20 — — 10,911 * Total interest-bearing 3,945,911 71.31 3,965,521 71.73 (19,610) (0.5) Total deposits $ 5,533,864 100.00 % $ 5,528,336 100.00 % $ 5,528 0.1 ____________________________________ * Not meaningful for comparative purposes Total deposits increased $5.5 million, to $5.53 billion at December 31, 2025 when compared to December 31, 2024.
Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to the Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K for additional details concerning the determination of the ACL on loans.
Refer to Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for additional details concerning the determination of the ACL on loans.
Pursuant to the supervisory criteria contained in the guidance for identifying instructions 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.
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.
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.
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 that may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash.
Quantitative measures established by regulation to ensure capital adequacy require the Bank and the Company to maintain minimum ratios of common equity Tier 1, Tier 1, and total capital as a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 12.50%.
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%.
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets.
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term funds markets.
The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio. The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at December 31, 2024. The Company evaluates capital resources by the ability to maintain adequate regulatory capital ratios.
The Bank and Company are also required to maintain capital at a minimum level based on quarterly average assets, which is known as the leverage ratio. The Bank was deemed “well-capitalized” under applicable regulatory capital requirements at December 31, 2025. The Company evaluates capital resources by the ability to maintain adequate regulatory capital ratios.
As of December 31, 2024, the Bank and the Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well-capitalized” for purposes of the prompt corrective action regulations. The following tables present the applicable capital ratios for the Company and the Bank as of December 31, 2024 and 2023.
As of December 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 December 31, 2025 and 2024.
The ACL represents management’s best estimate of expected lifetime credit losses within the Company’s loan portfolio as of the balance sheet date. The ACL is established through a provision for credit losses and is increased by recoveries of loans previously charged off.
Allowance for Credit Losses on Loans The ACL represents management’s best estimate of expected lifetime credit losses within the Company’s loan portfolio as of the balance sheet date. The ACL is established through a provision for credit losses and is increased by recoveries of loans previously charged off.
Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade HTM securities at December 31, 2024 or 2023.
Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade HTM securities at December 31, 2025 or 2024.
The following table sets forth the aggregate amount and maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2024, as well as the portion that is uninsured.
The following table sets forth the aggregate amount and maturity ranges of certificates of deposit with balances of $250,000 or more as of December 31, 2025, as well as the portion that is uninsured.
Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities ($ in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value December 31, 2024 Available for sale U.S.
Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities ($ in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value December 31, 2025 Available for sale U.S.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion compares the Company’s financial condition at December 31, 2024 to its financial condition at December 31, 2023 and the results of operations for the years ended December 31, 2024 and 2023.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion compares the Company’s financial condition at December 31, 2025 to its financial condition at December 31, 2024 and the results of operations for the years ended December 31, 2025 and 2024.
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.
Shore Bancshares’ 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.
Securities Sold Under Retail Repurchase Agreements Securities sold under agreements to repurchase are issued in conjunction with cash management services for commercial depositors. There were no securities sold under retail purchase agreements at December 31, 2024 and 2023. Wholesale Funding - Short-Term Borrowings and Brokered Deposits The Company borrows from the FHLB on a short-term basis to meet liquidity needs.
Securities Sold Under Retail Repurchase Agreements Securities sold under agreements to repurchase are issued in conjunction with cash management services for commercial depositors. There were no securities sold under retail purchase agreements at December 31, 2025 and 2024. Wholesale Funding – Short-Term Borrowings The Company borrows from the FHLB on a short-term basis to meet liquidity needs.
See Note 3 – “Investment Securities” in the “Notes to the Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K for additional details on the composition of our investment portfolio.
See Note 2 – “Investment Securities” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K for additional details on the composition of the investment portfolio.
While management makes every effort to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways.
While management seeks to utilize the best information available in making its assessment of the ACL estimate, the estimation process is inherently challenging as potential changes in any one factor or input may occur at different rates and/or impact pools of loans in different ways.
Through the FHLB, the Bank had available lendable collateral of approximately $743.6 million and $745.1 million at December 31, 2024 and 2023, respectively. The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta.
Through the FHLB, the Bank had available lendable collateral of approximately $788.1 million and $743.6 million at December 31, 2025 and 2024, respectively. The Bank has pledged, under a blanket lien, all qualifying residential and commercial real estate loans under borrowing agreements with the FHLB of Atlanta.
The most significant accounting policies that we follow are presented in Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K.
The Company’s most significant accounting policies are presented in Note 1 – “Summary of Significant Accounting Policies” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.
December 31, 2024 Investment Grade ($ in thousands) Aaa Aa1 A3 Baa1 Baa2 NR Total U.S.
December 31, 2025 Investment Grade ($ in thousands) Aaa Aa1 A3 Baa1 Baa2 NR Total U.S.
At December 31, 2024 and 2023 , 97.1% of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S. government agencies or government-sponsored agencies. The following tables set forth the weighted-average yields by maturity category of the bond investment portfolio as of December 31, 2024.
At December 31, 2025 and 2024, 98.2% 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. The following tables set forth the weighted-average yields by maturity category of the bond investment portfolio as of December 31, 2025.
HTM securities that are not rated are agency mortgage-backed securities sponsored by U.S. government agencies, as well as direct obligations of the agencies, with the remainder being sub-debt of other banks. The following table presents the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2024.
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 tables present the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2025 and 2024.
LTV estimates for the office CRE loan portfolio are 44 Table of Contents 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 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.
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.
Based on management’s going concern evaluation, management believes that there are no conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of the issuance of the financial statements.
The following table presents the Company’s liquidity in use and liquidity available as of December 31, 2024.
The following table presents the Company’s liquidity in use and liquidity available as of December 31, 2025.
This financial metric is expressed in the form of a percentage which is equal to net income after tax divided by the average shareholders’ equity for a specific period of time.
This financial metric is expressed in the form of a percentage which is equal to net income divided by the average stockholders’ equity for a specific period of time.
Management believes that return on average tangible common equity is meaningful because it measures the performance of a business consistently, whether acquired or internally-developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.
Management believes that ROATCE is meaningful because it measures the performance of a business consistently, whether acquired or internally-developed. ROATCE is a non-GAAP measure and may not be comparable to similar non-GAAP measures used by other companies.
Loan-to-value (“LTV”) estimates are less than 50% for $182.3 million, or 36.0%, of the office CRE loan portfolio and greater than 80% for $9.7 million, or 1.9%, of the office CRE loan portfolio. LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews.
Loan-to-value (“LTV”) estimates are less than 50% for $170.5 million, or 35.0%, of the office CRE loan portfolio, and greater than 80% for $9.1 million, or 1.9%, of the office CRE loan portfolio. LTV collateral values are based on the most recent appraisal, which varies from the initial loan boarding to interim credit reviews.
At December 31, 2024 and 2023, the portion of the investment portfolio designated as “available for sale” had a net unrealized holding loss, net of tax, of $7.5 million. 52 Table of Contents LIQUIDITY Liquidity is our ability to meet cash demands as they arise. Cash needs may come from loan demand, deposit withdrawals or acquisition opportunities.
At December 31, 2025 and 2024, the portion of the investment portfolio designated as “available for sale” had an unrealized holding loss, net of tax, of $4.6 million and $7.5 million, respectively. 46 LIQUIDITY Liquidity is our ability to meet cash demands as they arise. Cash needs may come from loan demand, deposit withdrawals or acquisition opportunities.
There were $1.5 million and $1.8 million of amortization of deposits premium, and $926 thousand and $557 thousand of amortization of borrowing fair value adjustment for the years ended December 31, 2024 and 2023, respectively. 38 Table of Contents Rate and Volume Analysis The following table presents changes in interest income and interest expense for the periods indicated.
There were $2.2 million, $1.5 million and $1.8 million of amortization of deposit discounts and $865 thousand, $926 thousand and $557 thousand of amortization of borrowing fair value adjustments for the years ended December 31, 2025, 2024 and 2023, respectively. Rate and Volume Analysis The following table presents changes in interest income and interest expense for the periods indicated.
Year Ended December 31, 2024 Year Ended December 31, 2023 ($ in thousands) Average Balance Interest (1), (4) Yield/Rate Average Balance Interest (1), (4) Yield/Rate Earning assets Loans (2), (3) Commercial real estate $ 2,528,961 $ 144,155 5.70 % $ 1,860,517 $ 99,953 5.37 % Residential real estate 1,318,500 72,636 5.51 981,473 50,244 5.12 Construction 322,978 19,917 6.17 284,238 15,123 5.32 Commercial 220,699 15,625 7.08 185,239 13,647 7.37 Consumer 324,633 16,923 5.21 324,444 15,298 4.72 Credit cards 7,444 694 9.32 3,147 315 10.00 Total loans 4,723,215 269,950 5.72 3,639,058 194,580 5.35 Investment securities Taxable 667,622 19,444 2.91 674,203 16,832 2.50 Tax-exempt 657 30 4.57 663 58 8.75 Federal funds sold — — — 1,899 92 4.84 Interest-bearing deposits 129,410 6,239 4.82 41,032 2,770 6.75 Total earning assets 5,520,904 295,663 5.36 4,356,855 214,332 4.92 Cash and due from banks 46,264 43,555 Other assets 387,852 303,906 Allowance for credit losses (58,089) (40,777) Total assets $ 5,896,931 $ 4,663,539 Interest-bearing liabilities Demand deposits $ 825,773 $ 25,523 3.09 % $ 883,976 $ 20,134 2.28 % Money market and savings deposits 1,690,905 41,202 2.44 1,275,088 20,039 1.57 Time deposits 1,205,411 48,566 4.03 770,370 25,708 3.34 Brokered deposits 12,636 10 0.08 56,101 2,919 5.20 Interest-bearing deposits 3,734,725 115,301 3.09 2,985,535 68,800 2.30 FHLB advances 70,298 3,720 5.29 111,392 5,518 4.95 Subordinated debt and guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) 72,907 5,768 7.91 57,708 4,454 7.72 Total interest-bearing liabilities 3,877,930 124,789 3.22 3,154,635 78,772 2.50 Noninterest-bearing deposits 1,454,087 1,043,479 Accrued expenses and other liabilities 39,172 23,635 Stockholders’ equity 525,742 441,790 Total liabilities and stockholders’ equity $ 5,896,931 $ 4,663,539 Net interest income $ 170,874 $ 135,560 Net interest spread 2.14 % 2.42 % Net interest margin (“NIM”) 3.10 % 3.11 % Cost of funds 2.34 % 1.88 % Cost of deposits 2.22 % 1.71 % Cost of debt 6.63 % 5.90 % ____________________________________ 37 Table of Contents (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.
Year Ended December 31, 2025 2024 2023 ($ in thousands) Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate Earning assets Loans (1), (2), (3) Commercial real estate $ 2,588,913 $ 150,171 5.80 % $ 2,528,961 $ 144,155 5.70 % $ 1,860,517 $ 99,953 5.37 % Residential real estate 1,394,073 76,708 5.50 1,318,500 72,636 5.51 981,473 50,244 5.12 Construction 349,097 22,809 6.53 322,978 19,917 6.17 284,238 15,123 5.32 Commercial 223,949 15,081 6.73 220,699 15,625 7.08 185,239 13,647 7.37 Consumer 291,789 15,697 5.38 324,633 16,923 5.21 324,444 15,298 4.72 Credit cards 5,648 467 8.27 7,444 694 9.32 3,147 315 10.00 Total loans 4,853,469 280,933 5.79 4,723,215 269,950 5.72 3,639,058 194,580 5.35 Investment securities Taxable 665,940 20,378 3.06 667,622 19,444 2.91 674,203 16,832 2.50 Tax-exempt (1) 651 30 4.61 657 30 4.57 663 58 8.75 Federal funds sold — — — — — — 1,899 92 4.84 Interest-bearing deposits 211,859 9,022 4.26 129,410 6,239 4.82 41,032 2,770 6.75 Total earning assets 5,731,919 $ 310,363 5.41 5,520,904 $ 295,663 5.36 4,356,855 $ 214,332 4.92 Cash and due from banks 48,725 46,264 43,555 Other assets 372,846 387,852 303,906 Allowance for credit losses (58,831) (58,089) (40,777) Total assets $ 6,094,659 $ 5,896,931 $ 4,663,539 Interest-bearing liabilities Interest-bearing checking $ 759,395 $ 23,265 3.06 % $ 825,773 $ 25,523 3.09 % $ 883,976 $ 20,134 2.28 % Money market and savings deposits 1,761,503 38,245 2.17 1,690,905 41,202 2.44 1,275,088 20,039 1.57 Time deposits 1,255,797 47,391 3.77 1,205,411 48,566 4.03 770,370 25,708 3.34 Brokered deposits 7,927 302 3.81 12,636 10 0.08 56,101 2,919 5.20 Interest-bearing deposits (4) 3,784,622 109,203 2.89 3,734,725 115,301 3.09 2,985,535 68,800 2.30 FHLB advances 43,068 2,089 4.85 70,298 3,720 5.29 111,392 5,518 4.95 Subordinated debt and Guaranteed preferred beneficial interest in junior subordinated debentures (“TRUPS”) (4) 81,828 6,359 7.77 72,907 5,768 7.91 57,708 4,454 7.72 Total interest-bearing liabilities 3,909,518 117,651 3.01 3,877,930 124,789 3.22 3,154,635 78,772 2.50 Noninterest-bearing deposits 1,577,271 1,454,087 1,043,479 Accrued expenses and other liabilities 42,291 39,172 23,635 Stockholders’ equity 565,579 525,742 441,790 Total liabilities and stockholders’ equity $ 6,094,659 $ 5,896,931 $ 4,663,539 Net interest spread 2.40 % 2.14 % 2.42 % Net interest margin 3.36 3.10 3.11 Net interest margin excluding accretion (3) 3.15 2.83 2.90 Cost of funds 2.14 2.34 1.88 Cost of deposits 2.04 2.22 1.71 Cost of debt 6.76 6.63 5.90 ____________________________________ (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.
As a result of the acquisition of Severn, effective October 31, 2021, the Company acquired Junior Subordinated Debt Securities due in 2035, which had an outstanding principal balance of $20.6 million.
As a result of the merger with Severn Bancorp, Inc., effective October 31, 2021, the Company assumed liability for Junior Subordinated Debt Securities due in 2035, which had an outstanding principal balance of $20.6 million.
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 December 31, 2023 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio The Company 7.75 % 8.69 % 9.32 % 11.49 % The Bank 8.33 10.02 10.02 11.27 On February 4, 2025, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on February 28, 2025, to holders of record of shares of common stock as of February 14, 2025.
December 31, 2025 Tier 1 Leverage Ratio Common Equity Tier 1 Ratio Tier 1 Risk-Based Capital Ratio Total Risk-Based Capital Ratio The Company 8.82 % 10.52 % 11.15 % 13.61 % The Bank 9.30 11.75 11.75 13.00 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 February 18, 2026, the Company announced that its Board of Directors declared a cash dividend of $0.12 per share, payable on March 18, 2026, to holders of record of shares of common stock as of March 4, 2026.
Year Ended December 31, ($ in thousands) 2024 2023 Net income (as reported) $ 43,889 $ 11,228 Return on average common equity 8.35 % 2.54 % Average stockholders’ equity $ 525,742 $ 441,790 Return on Average Tangible Common Equity Return on average tangible common equity is computed by dividing net earnings applicable to common shareholders by average tangible common stockholders’ equity.
Year Ended December 31, ($ in thousands) 2025 2024 2023 Net income $ 59,506 $ 43,889 $ 11,228 ROACE 10.52 % 8.35 % 2.54 % Average stockholders’ equity $ 565,579 $ 525,742 $ 441,790 Return on Average Tangible Common Equity ROATCE is computed by dividing net earnings applicable to common stockholders by average tangible common equity.
At December 31, 2024, the Company’s ACL increased $559 thousand, or 0.97%, to $57.9 million from $57.4 million at December 31, 2023. The increase in the general allowance was primarily due to loan growth, partially offset by favorable economic conditions in 2024.
At December 31, 2025, the Company’s ACL increased $926 thousand, or 1.60%, to $58.8 million from $57.9 million at December 31, 2024. The increase in the general allowance was primarily due to loan growth, partially offset by favorable economic conditions in 2025.
Investment securities, including restricted stock and equity securities, totaled $656.4 million at December 31, 2024, a $9.0 million, or 1.4%, increase compared to $647.3 million at December 31, 2023. At December 31, 2024, AFS securities, carried at fair value, totaled $149.2 million compared to $110.5 million at December 31, 2023.
Investment securities, including restricted stock and equity securities, totaled $659.4 million at December 31, 2025, an increase of $3.0 million, or 0.5%, compared to $656.4 million at December 31, 2024. At December 31, 2025, AFS securities, carried at fair value, totaled $220.4 million, compared to $149.2 million at December 31, 2024.
Average total deposits increased from $4.03 billion at December 31, 2023 to $5.19 billion at December 31, 2024, an increase of $1.16 billion, or 28.79%. The following table sets forth the average balances of deposits and percentage of each major category to total average deposits for the years ended December 31, 2024 and 2023 .
Average total deposits increased from $5.19 billion at December 31, 2024 to $5.36 billion at December 31, 2025, an increase of $173.1 million, or 3.34%. 44 The following table sets forth the average balances of deposits and percentage of each major category to total average deposits for the years ended December 31, 2025 and 2024 .
At December 31, 2024, AFS securities consisted of 82.0% mortgage-backed, 13.5% U.S. government agency securities and 4.4% corporate bonds, compared to 76.0%, 18.5%, and 5.5%, respectively, at December 31, 2023 .
At December 31, 2025, AFS securities consisted of 88.5% mortgage-backed, 9.4% U.S. government agencies and 2.1% corporate bonds, compared to 82.0%, 13.5% and 4.4%, respectively, at December 31, 2024.
Treasury and government agency securities $ 132,560 $ — $ — $ — $ — $ — $ 132,560 Mortgage-backed securities 336,755 — — — — — 336,755 Obligations of states and political entities — 1,465 — — — — 1,465 Other debt securities — — 4,000 4,000 500 2,000 10,500 Total held to maturity securities $ 469,315 $ 1,465 $ 4,000 $ 4,000 $ 500 $ 2,000 $ 481,280 Loans Held for Sale We originate residential mortgage loans for sale on the secondary market, which we have elected to carry at fair value.
Treasury and government agency securities $ 132,560 $ — $ — $ — $ — $ — $ 132,560 Mortgage-backed securities 336,755 — — — — — 336,755 Other debt securities — 1,465 4,000 4,000 500 2,000 11,965 Total held to maturity securities $ 469,315 $ 1,465 $ 4,000 $ 4,000 $ 500 $ 2,000 $ 481,280 Loans Held for Sale The Company originates residential mortgage loans for sale on the secondary market, which are recorded at fair value.
Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk.
Credit ratings express opinions about the credit quality of a security and are updated at each quarter end. Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk.
December 31, 2024 ($ in thousands) Liquidity in Use Liquidity Available FHLB secured borrowings (1) $ 56,100 $ 743,568 Unsecured federal fund purchase lines — 95,000 Unpledged assets Cash and cash equivalents n/a 459,851 Investment securities n/a 317,851 Total $ 56,100 $ 1,616,270 (1) The Bank has pledged a portion of the commercial real estate and residential loan portfolio to the FHLB to secure the line of credit. 53 Table of Contents CAPITAL RESOURCES The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies.
December 31, 2025 ($ in thousands) Liquidity in Use Liquidity Available FHLB secured borrowings (1) $ 33,667 $ 788,080 Unsecured federal fund purchase lines — 95,000 Unpledged assets Cash and cash equivalents N/A $ 355,566 Investment securities N/A 314,461 Total $ 33,667 $ 1,553,107 ____________________________________ (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. 47 CAPITAL RESOURCES The Bank and the Company are subject to various regulatory capital requirements administered by the federal banking agencies.
(2) Excludes loans held for sale of $19.6 million. Office CRE Loan Portfolio The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $506.0 million or 10.6% of total loans of $4.77 billion at December 31, 2024.
(2) Excludes loans held for sale of $32.5 million. Office CRE Loan Portfolio The Bank’s office CRE loan portfolio, which includes owner occupied and non-owner occupied CRE loans, was $485.9 million, or 9.9% of total loans of $4.90 billion at December 31, 2025.
See Note 16 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K for further information about the regulatory capital positions of the Bank and Company. The Company provides banking services to customers who do business in the cannabis industry.
See Note 15 – “Regulatory Capital Requirements” in the “Notes to Consolidated Financial Statements” included in Part I, Item 1 of this Annual Report on Form 10-K for further information about the regulatory capital positions of the Bank and the Company.
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 AOCI (loss), a separate component of stockholders’ equity.
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.
For additional details, see “Reconciliation of Non-GAAP Measures.” The increase in net income in 2024 compared to 2023 was primarily due to higher net interest income driven by loan growth in 2024, and a lower provision for credit losses.
For additional details, see “Reconciliation of Non-GAAP Measures.” The increase in net income in 2025 compared to 2024 was primarily due to higher net interest income (“NII”) driven by loan growth in 2025 coupled with loans and deposits repricing favorably. These were partially offset by a higher provision for credit losses of $3.6 million.
(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 $16.9 million and $11.8 million of accretion interest on loans for the years ended December 31, 2024 and 2023, respectively.
(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.
Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies for the ACL on loans, loans acquired in a business combination, and income taxes are critical accounting policies.
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.
There were no short-term borrowings outstanding at December 31, 2024 and 2023. The Company’s wholesale funding increased $5.5 million, which includes FHLB advances and brokered deposits, from $44.5 million in brokered deposits at December 31, 2023 to $50.0 million in FHLB advances at December 31, 2024.
There were no short-term borrowings outstanding as of December 31, 2025 and 2024. The Company’s wholesale funding, which includes FHLB advances and brokered deposits, was $10.9 million and $50.0 million at December 31, 2025 and 2024, respectively.
At December 31, 2024, the Bank had approximately $1.47 billion of available liquidity, including $459.9 million in cash and cash equivalents, $317.9 million in unpledged securities, $743.6 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by FHLB advances and a letter of credit of $50.0 million and $6.1 million, respectively.
At December 31, 2025, the Bank had approximately $1.42 billion of available liquidity, including $355.6 million in cash and cash equivalents, $314.5 million in unpledged securities and $788.1 million in secured borrowing capacity at the FHLB of Atlanta, partially offset by a letter of credit of $33.7 million.
This discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part II, Item 8. of this Annual Report on Form 10-K. CRITICAL ACCOUNTING POLICIES The Company’s consolidated financial statements are prepared in accordance with GAAP and follow general practices within the industries in which it operates.
This discussion should be read in conjunction with the consolidated financial statements and the notes thereto included in Part II, Item 8 of this Annual Report on Form 10-K.
The Company’s return on average assets, return on average common equity and return on average tangible common equity were 0.74%, 8.35% and 13.00%, respectively, for the year ended December 31, 2024, compared to 0.24%, 2.54% and 7.74%, respectively, for the year ended December 31, 2023.
The Company’s return on average assets, return on average common equity and return on average tangible common equity were 0.98%, 10.52% and 14.09%, respectively, for the year ended December 31, 2025, compared to 0.74%, 8.35% and 12.21%, respectively, for the year ended December 31, 2024.
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; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.
These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments.
At December 31, 2024, 23.7% of the portfolio of debt securities was classified as AFS and 76.3% was classified as HTM, compared to 17.7% and 82.3% respectively, at December 31, 2023.
We have the intent and ability to hold such securities until maturity. At December 31, 2025, 34.7% of the portfolio of debt securities was classified as AFS and 65.3% was classified as HTM, compared to 23.7% and 76.3%, respectively, at December 31, 2024.
At December 31, 2024, HTM securities consisted of 70.0% mortgage-backed, 27.6% U.S. government agency securities, 2.1% other debt securities and 0.3% state and political entities, compared to 69.7%, 28.0%, 2.0% and 0.3%, respectively, at December 31, 2023 .
At December 31, 2025, HTM securities, carried at amortized cost, totaled $414.8 million, compared to $481.1 million at December 31, 2024. At December 31, 2025, HTM securities consisted of 73.1% mortgage-backed, 25.3% U.S. government agency securities and 1.7% other debt securities, compared to 70.0%, 27.6% and 2.5%, respectively, at December 31, 2024.
These policies are considered critical because they relate to accounting areas that require the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.
This policy is considered critical because it relates to an accounting area that requires the most subjective or complex judgments, and, as such, could be most subject to revision as new information becomes available.
($ in thousands, except per share amounts) December 31, 2024 December 31, 2023 Total assets $ 6,230,763 $ 6,010,918 Less: intangible assets Goodwill 63,266 63,266 Core deposit intangibles 38,311 48,090 Total intangible assets 101,577 111,356 Tangible assets $ 6,129,186 $ 5,899,562 Total common equity $ 541,066 $ 511,135 Less: intangible assets 101,577 111,356 Tangible common equity $ 439,489 $ 399,779 Common shares outstanding at end of period 33,332,177 33,161,532 Common equity to assets 8.68 % 8.50 % Tangible common equity to tangible assets 7.17 6.78 Common book value per share $ 16.23 $ 15.41 Tangible common book value per share 13.19 12.06 56 Table of Contents Return on Average Common Equity Return on average common equity is a financial ratio that measures the profitability of a company in relation to the average stockholders’ equity.
($ in thousands, except per share amounts) December 31, 2025 December 31, 2024 Total assets $ 6,258,818 $ 6,230,763 Less: intangible assets Goodwill 63,266 63,266 Core deposit intangibles 29,722 38,311 Total intangible assets 92,988 101,577 Tangible assets $ 6,165,830 $ 6,129,186 Total common equity $ 589,873 $ 541,066 Less: intangible assets 92,988 101,577 Tangible common equity $ 496,885 $ 439,489 Common shares outstanding at end of period 33,413,503 33,332,177 Common equity to assets 9.42 % 8.68 % Tangible common equity to tangible assets 8.06 7.17 Common book value per share $ 17.65 $ 16.23 Tangible common book value per share 14.87 13.19 49 Return on Average Common Equity ROACE is a financial ratio that measures the profitability of a company in relation to the average stockholders’ equity.
To the extent the adoption of new accounting standards materially affects our financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of this discussion and notes to consolidated financial statements. 34 Table of Contents PERFORMANCE OVERVIEW The Company recorded net income of $43.9 million and $11.2 million for the years ended December 31, 2024 and 2023, respectively.
To the extent the adoption of new accounting standards materially affects our financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of this discussion and notes to consolidated financial statements. 30 RESULTS OF OPERATIONS Summary of Financial Results The Company reported net income for the year ended December 31, 2025 of $59.5 million, or $1.78 diluted earnings per common share, compared to $43.9 million, or $1.32 diluted earnings per common share, for the year ended December 31, 2024.
($ in thousands) December 31, 2024 December 31, 2023 $ Change % Change Common stock, $0.01 par value per share $ 333 $ 332 $ 1 0.3 % Additional paid in capital 358,112 356,007 2,105 0.6 Retained earnings 190,166 162,290 27,876 17.2 Accumulated other comprehensive loss (7,545) (7,494) (51) 0.7 Total stockholders’ equity $ 541,066 $ 511,135 $ 29,931 5.9 We record unrealized holding gains (losses), net of tax, on investment securities available for sale as AOCI (loss), a separate component of stockholders’ equity.
($ in thousands, except per share amounts) December 31, 2025 December 31, 2024 $ Change % Change Common stock, $0.01 par value per share $ 334 $ 333 $ 1 0.3 % Additional paid-in capital 360,554 358,112 2,442 0.7 Retained earnings 233,578 190,166 43,412 22.8 Accumulated other comprehensive loss (4,593) (7,545) 2,952 (39.1) Total stockholders’ equity $ 589,873 $ 541,066 $ 48,807 9.0 We record unrealized holding gains (losses), net of tax, on available for sale investment securities as AOCI (loss), a separate component of stockholders’ equity.
At December 31, 2024, the debt had a balance of $19.0 million, which was presented net of fair value adjustment of $548 thousand. For additional information regarding long-term debt, refer to Note 9 – “Borrowings” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K.
For additional information regarding long-term debt, refer to Note 8 – “Borrowings” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K.
At December 31, 2024 , the fair value of loans held for sale amounted to $19.6 million, compared to $8.8 million at December 31, 2023. When we sell mortgage loans, we make certain representations to the purchaser related to loan ownership, loan compliance and legality, and accurate documentation, among other things.
At December 31, 2025 and 2024, the fair value of loans held for sale amounted to $32.5 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.
Purchase obligations arise from agreements to purchase goods and services that are enforceable and legally binding. Other contracts included in purchase obligations primarily consist of service agreements for various systems and 51 Table of Contents applications supporting bank operations.
Other contracts included in purchase obligations primarily consist of service agreements for various systems and applications supporting bank operations.
Of the office CRE loans, $2.3 million are special mention or substandard. Maturity of Loan Portfolio The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at December 31, 2024. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
There were no other office CRE portfolio charge-offs during 2025. 39 Maturity of Loan Portfolio The following table sets forth the maturities and interest rate sensitivity of the loan portfolio at December 31, 2025. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as maturing within one year.
If a loan is found to be out of compliance with any of the representations subsequent to the date of purchase, we may be required to repurchase the loan or indemnify the purchaser.
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. During the year ended December 31, 2025, the Bank repurchased two loans with an aggregate value of $938 thousand.
At December 31, 2024, AFS securities gross unrealized losses were all related to changes in interest rates and were $10.9 million, or less than 1% of total assets and 2% of stockholder’s equity. At December 31, 2024, HTM securities, carried at amortized cost, totaled $481.1 million, compared to $513.2 million at December 31, 2023.
At December 31, 2025, the gross unrealized losses on AFS securities were all related to changes in interest rates and were $7.1 million, or less than 1% of total assets and 2% of total stockholders’ equity. At December 31, 2025, the AOCI (loss) was $4.6 million, compared to $7.5 million at December 31, 2024.
Of the office CRE portfolio balance, 75% was secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97% were secured by properties with five stories or less. Of the office CRE loans, $33.6 million will mature and $17.5 million will reprice prior to December 31, 2025.
For the office CRE portfolio, at December 31, 2025, the average loan debt-service coverage ratio was 1.7x and the average LTV was 47.6%. Of the office CRE portfolio balance, 80.5% are secured by properties in rural or suburban areas with limited exposure to metropolitan cities and 97.1% are secured by properties with five stories or less.
For information regarding material contractual obligations, please see Note 6 – “Leases” and Note 22 – “Revenue Recognition” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K.
For information regarding material contractual obligations, please see Note 5 – “Leases” and Note 21 – “Revenue Recognition” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K. 45 Long-Term Debt The Company occasionally borrows from the FHLB to meet longer-term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient.
The following is a breakdown of the Company’s general and specific allowances as a percentage of total portfolio loans at December 31, 2024 and 2023 : ($ in thousands) December 31, 2024 December 31, 2023 Specific Allowance $ 1,350 $ 923 General Allowance 56,560 56,428 $ 57,910 $ 57,351 Specific Allowance to total gross loans 0.02 % 0.02 % General Allowance total gross loans 1.19 1.22 Allowance to total gross loans 1.21 % 1.24 % Total gross loans $ 4,771,988 $ 4,641,010 ACL as a percentage of loans decreased to 1.21% at December 31, 2024 compared to 1.24% at December 31, 2023.
($ in thousands) December 31, 2025 December 31, 2024 Specific allowance $ 1,056 $ 1,350 General allowance 57,780 56,560 Total allowance for credit losses $ 58,836 $ 57,910 Specific allowance to total gross loans 0.02 % 0.02 % General allowance total gross loans 1.18 1.19 Allowance to total gross loans 1.20 % 1.21 % Total gross loans $ 4,900,302 $ 4,771,988 The ACL as a percentage of loans decreased to 1.20% at December 31, 2025, compared to 1.21% at December 31, 2024.
For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.00 billion. Reciprocal deposits increased $354.2 million to $1.65 billion at December 31, 2024, compared to $1.29 billion at December 31, 2023.
The Bank’s uninsured deposits, excluding the market value of pledged collateral, at December 31, 2025 were $786.5 million, or 14.2% of total deposits. For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5 billion.
At December 31, 2024, there were $160.2 million included in uninsured deposits that the Bank secured using the market value of pledged collateral. The Bank’s uninsured deposits, excluding deposits secured by the market value of pledged collateral, at December 31, 2024 was $745.1 million, or 13.5% of total deposits.
Total estimated uninsured deposits were $937.2 million, or 16.9% of total deposits, at December 31, 2025 and $905.3 million, or 16.4% of total deposits, at December 31, 2024. At December 31, 2025, there were $150.8 million included in uninsured deposits that the Bank secured using the market value of pledged collateral.
At December 31, 2024, the Bank’s medical tenant loans were $138.7 million and government or government contractor tenant loans were $55.0 million, which equaled 27.4% and 10.9%, respectively, of the total office CRE loan portfolio. There were 501 loans in the office CRE portfolio with an average and median loan size of $1.0 million and $375 thousand, respectively.
The Bank’s office CRE loan portfolio included $129.1 million, or 26.6% of total office CRE loans, with medical tenants, and $51.5 million, or 10.6%, of total office CRE loans, with government or government contractor tenants. There were 481 loans in the office CRE loan portfolio with an average and median loan size of $1.0 million and $365 thousand, respectively.
Cash and Cash Equivalents Cash and cash equivalents totaled $459.9 million at December 31, 2024, compared to $372.4 million at December 31, 2023. Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands.
The ratio of the ACL as a percentage of loans was 1.20% and 1.21% at December 31, 2025 and 2024, respectively. Cash and Cash Equivalents Cash and cash equivalents totaled $355.6 million at December 31, 2025, compared to $459.9 million at December 31, 2024. Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands.
Net Interest Income Year Ended December 31, ($ in thousands) 2024 2023 $ Change % Change Interest and dividend income Loans, including fees $ 269,631 $ 194,339 $ 75,292 38.74 % Interest and dividends on investment securities 19,468 16,970 2,498 14.72 Interest on deposits with banks 6,239 2,770 3,469 125.23 Total interest and dividend income $ 295,338 $ 214,079 $ 81,259 37.96 Interest expense Deposits $ 115,301 $ 68,800 $ 46,501 67.59 % Short-term borrowings 2,131 5,518 (3,387) (61.38) Long-term debt 7,357 4,454 2,903 65.18 Total interest expense $ 124,789 $ 78,772 $ 46,017 58.42 Taxable-equivalent adjustment 325 253 72 28.46 Tax-equivalent net interest income $ 170,874 $ 135,560 $ 35,314 26.05 % Tax-equivalent net interest income increased $35.3 million to $170.9 million for 2024 compared to $135.6 million for 2023.
Year Ended December 31, ($ in thousands) 2025 2024 2023 2025 vs. 2024 2024 vs. 2023 Interest and dividend income Loans, including fees $ 280,604 $ 269,631 $ 194,339 4.1 % 38.7 % Interest and dividends on investment securities 20,402 19,468 16,970 4.8 14.7 Interest on deposits with banks 9,022 6,239 2,770 44.6 125.2 Total interest and dividend income $ 310,028 $ 295,338 $ 214,079 5.0 38.0 Interest expense Deposits $ 109,203 $ 115,301 $ 68,800 (5.3) % 67.6 % Short-term borrowings 2,089 2,131 5,518 (2.0) (61.4) Long-term borrowings 6,359 7,357 4,454 (13.6) 65.2 Total interest expense $ 117,651 $ 124,789 $ 78,772 (5.7) 58.4 Taxable-equivalent adjustment $ 335 $ 325 $ 253 3.1 % 28.5 % Taxable-equivalent net interest income $ 192,712 $ 170,874 $ 135,560 12.8 % 26.1 % 32 Average Balances and Yields 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 years ended December 31, 2025, 2024 and 2023.
Net accretion income impacted NIM by 27 bps and 21 bps for the years ended December 31, 2024 and 2023, respectively, which resulted in core NIMs of 2.83% and 2.90% for the same periods Noninterest Income Total noninterest income for 2024 of $31.1 million decreased $2.0 million, or 6.1%, from $33.2 million for 2023.
Net accretion income impacted net interest margin by 21 basis points and 27 basis points for the years ended December 31, 2025 and 2024, respectively, which resulted in NIMs excluding accretion of 3.15% and 2.83% for the same periods.
($ in thousands) Total Uninsured Three months or less $ 80,264 $ 41,514 Over three through 6 months 82,654 37,404 Over 6 through 12 months 195,105 74,836 Over 12 months 16,083 6,333 Total $ 374,106 $ 160,087 Note 8 – “Deposits” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8. of this Annual Report on Form 10-K includes the scheduled contractual maturities of total certificates of deposit of $1.18 billion at December 31, 2024.
December 31, 2025 ($ in thousands) Total Uninsured Three months or less $ 67,271 $ 34,521 Over three through 6 months 136,892 62,642 Over 6 through 12 months 176,053 70,553 Over 12 months 23,290 8,790 Total $ 403,506 $ 176,506 Note 7 – “Deposits” in the “Notes to Consolidated Financial Statements” included in Part II, Item 8 of this Annual Report on Form 10-K includes the scheduled contractual maturities of total certificates of deposit of $1.27 billion at December 31, 2025.
The Company has no business other than holding the stock of the Bank and does not currently have any material funding requirements, except for the payment of dividends on common stock, and the payment of interest on subordinated debentures and subordinated notes, and noninterest expense. 55 Table of Contents USE OF NON-GAAP FINANCIAL MEASURES Statements included in the Management’s Discussion and Analysis of Financial Condition and Results of Operations include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures.
The Company has no business other than holding the stock of the Bank and does not currently have any material funding requirements, except for the payment of dividends on common stock, and the payment of interest on subordinated debentures and subordinated notes, and noninterest expense.
The increase in tax-equivalent net interest income was primarily due to an increase in total interest income of $81.3 million, or 38.0%, which included an increase in interest and fees on loans of $75.3 million, or 38.7%.
The increase in NII was primarily due to an increase in total interest income of $14.7 million, or 5.0%, which included an increase in interest and fees on loans of $11.0 million, or 4.1%, and an increase in interest on deposits with other banks of $2.8 million, or 44.6%.
Net charge-offs amounted to $2.0 million, or 0.06% of average loans for the year ended December 31, 2023 compared to net charge-offs of $4.1 million or 0.09% of average loans for the year ended December 31, 2024. The increase in charge-offs in 2024 were primarily due to the marine portfolio.
The Company recorded a provision for credit losses on loans of $8.4 million for the year ended December 31, 2025 compared to $4.7 million for the year ended December 31, 2024 primarily due to loan growth and net charge-offs, which amounted to $6.6 million, or 0.14% of average loans, for the year ended December 31, 2025 compared to net charge-offs of $4.1 million, or 0.09% of average loans, for the year ended December 31, 2024.
The Bank is required to monitor large deposit relationships and concentration risks in accordance with regulatory guidance. This includes monitoring deposit concentrations and maintaining fund management policies and strategies that take into account potentially volatile concentrations and significant deposits that mature simultaneously.
This includes monitoring deposit concentrations and maintaining fund management policies and strategies that take into account potentially volatile concentrations and significant deposits that mature simultaneously. Regulatory guidance defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits.
The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $1.08 billion, or 29.8%, and an increase in net accretion income of $5.1 million due to the merger with TCFC (the “merger”).
The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $130.3 million, or 2.8%, coupled with loans repricing favorably during the year.
The Company was not required to repurchase any loans during the years ended December 31, 2024 or 2023. 42 Table of Contents Loans Held for Investment The following table summarizes the Company’s loan portfolio at December 31, 2024 and 2023 .
No loans were repurchased during the year ended December 31, 2024. 37 Loans Held for Investment The following table summarizes the Company’s loan portfolio at December 31, 2025 and 2024.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

16 edited+2 added−0 removed6 unchanged
Biggest changeThe below schedule estimates the changes in the economic value of equity at parallel shocks for up 400, 300, 200, 100 and down 100 and 200 scenarios: Estimated Changes in Economic Value of Equity Change in Interest Rates: + 400 bp + 300 bp + 200 bp + 100 bp - 100 bp - 200 bp Policy limit +/-40% +/- 30% +/- 20% +/- 10% +/-10% +/- 20% December 31, 2024 15.2 % 14.2 % 11.7 % 7.2 % (10.0) % (24.2) % December 31, 2023 (27.7) % (20.9) % (13.8) % (6.6) % 4.1 % 5.8 % As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables.
Biggest changeEstimated Changes in Economic Value of Equity Change in Interest Rates: + 400 basis points + 300 basis points + 200 basis points + 100 basis points - 100 basis points - 200 basis points - 300 basis points Policy limit - 40% - 30% - 20% - 10% - 10% - 20% - 30% December 31, 2025 4.4 % 5.1 % 4.8 % 3.3 % (5.4) % (13.6) % (25.5) % December 31, 2024 15.2 % 14.2 % 11.7 % 7.2 % (10.0) % (24.2) % (43.6) % As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables.
When interest rates change, actual movements of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. The Company prepares a current base case and several alternative simulations at least quarterly. Current interest rates are shocked by +/- 100, 200, 300, and 400 basis points.
When interest rates change, actual movements of interest-earning assets and interest-bearing liabilities, loan prepayments, and withdrawals of time and other deposits, may deviate significantly from assumptions used in the model. The Company prepares a current base case and several alternative simulations at least quarterly. Current interest rates are shocked by +/- 100, 200, 300, basis points and 400 basis points.
Economic value of equity simulations reflect the interest rate sensitivity of assets and liabilities over a longer time period, considering the maturities, average life and duration of all balance sheet accounts. The Company’s net income is largely dependent on its net interest income.
Economic value of equity simulations reflect the interest rate sensitivity of assets and liabilities over a longer time period, considering the maturities, average life and duration of all balance sheet accounts. The Company’s net income is largely dependent on its NII.
The Company’s interest rate risk model uses assumptions which include factors such as call features, prepayment options and interest rate caps and floors included in investment and loan portfolio contracts. The interest rate risk model estimates the lives and interest rate sensitivity of the Company’s non-maturity deposits. These assumptions have a significant effect on model results.
The Company’s interest rate risk model uses assumptions that include factors such as call features, prepayment options and interest rate caps and floors included in investment and loan portfolio contracts. The interest rate risk model estimates the lives and interest rate sensitivity of the Company’s non-maturity deposits. These assumptions have a significant effect on model results.
The Company’s interest rate risk management goals are (1) to increase net interest income at a growth rate consistent with the growth rate of total assets, and (2) to minimize fluctuations in net interest margin as a percentage of interest-earning assets.
The Company’s interest rate risk management goals are to (1) increase NII at a growth rate consistent with the growth rate of total assets, and (2) minimize fluctuations in net interest margin as a percentage of interest-earning assets.
Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in net interest income. Net interest income is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and stockholders’ equity.
Similarly, when interest-earning assets mature or re-price more quickly than interest-bearing liabilities, falling interest rates could result in a decrease in NII. NII is also affected by changes in the portion of interest-earning assets that are funded by interest-bearing liabilities rather than by other sources of funds, such as noninterest-bearing deposits and stockholders’ equity.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk is defined as the exposure to changes in net interest income and capital that arises from movements in interest rates. Depending on the composition of the balance sheet, increasing or decreasing interest rates can negatively affect the Company’s results of operations and financial condition.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest rate risk is defined as the exposure to changes in NII and capital that arises from movements in interest rates. Depending on the composition of the balance sheet, increasing or decreasing interest rates can negatively affect the Company’s results of operations and financial condition.
Net interest income is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect net interest income.
NII is susceptible to interest rate risk to the extent that interest-bearing liabilities mature or re-price on a different basis than interest-earning assets. When interest-bearing liabilities mature or re-price more quickly than interest-earning assets in a given period, a significant increase in market rates of interest could adversely affect NII.
Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the tables. 59 Table of Contents
Additionally, certain assets, such as adjustable rate mortgage loans, have features which restrict changes in interest rates on a short-term basis and over the life of the asset. Further, if interest rates change, expected rates of prepayments on loans and early withdrawals from certificates of deposit could deviate significantly from those assumed in calculating the tables. 53
The board of directors has approved the Company’s interest rate risk policy and assigned oversight to the Board Risk Oversight Committee. The policy establishes limits on risk, which are quantitative measures of the percentage change in net interest income and economic value of equity resulting from changes in interest rates.
The board of directors has approved the Company’s interest rate risk policy and assigned oversight to the Board Risk Oversight Committee. The policy establishes limits on risk, which are quantitative measures of the percentage change in NII and economic value of equity resulting from changes in interest rates.
Both net interest income and economic value of equity simulations assist in identifying, measuring, monitoring and controlling interest rate risk and along with mitigating strategies are used by management to maintain interest rate risk exposure within Board policy guidelines.
Both NII and economic value of equity simulations assist in identifying, measuring, monitoring and controlling interest rate risk and along with mitigating strategies are used by management to maintain interest rate risk exposure within Board policy guidelines.
The Company measures interest rate risk over the short and long term. The Company measures interest rate risk as the change in net interest income caused by a change in interest rates over twelve and twenty-four months. The Company’s net interest income simulations provide information about short-term interest rate risk exposure.
The Company measures interest rate risk over the short and long term. The Company measures interest rate risk as the change in NII caused by a change in interest rates over twelve and twenty-four months. The Company’s NII simulations provide information about short-term interest rate risk exposure.
The Company’s internal limits for parallel shock scenarios are as follows: Shock in Basis Points Net Interest Income Economic Value of Equity + - 400 +/-25% +/-40% + - 300 +/- 20% +/- 30% + - 200 +/- 15% +/- 20% + - 100 +/- 10% +/- 10% 58 Table of Contents It is management’s goal to manage the Bank’s portfolios so that net interest income at risk over twelve and twenty-four-month periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.
The Company’s internal limits for parallel shock scenarios are as follows: Shock in Basis Points Net Interest Income Economic Balance of Equity +/- 400 - 25% - 40% +/- 300 - 20% - 30% +/- 200 - 15% - 20% +/- 100 - 10% - 10% 52 It is management’s goal to manage the Bank’s portfolios so that NII at risk over 12 and 24-month periods and the economic value of equity at risk do not exceed policy guidelines at the various interest rate shock levels.
As of December 31, 2024, the Company exceeded Board approved limits for the percentage change in economic value of equity in the interest rate shock of -200 due to average lives and low level of market rates on non-maturing deposit instruments. As of December 31, 2023, the Company did not exceed any Board approved limits.
As of December 31, 2024, the Company exceeded Board approved limits for the percentage change in economic value of equity in the interest rate shocks of -200 and -300 due to average lives and the low level of market rates on non-maturing deposit instruments.
The below schedule estimates the changes in net interest income over a twelve-month period for parallel rate shocks for up 400, 300, 200, 100 and down 100, and 200 scenarios: Estimated Changes in Net Interest Income Change in Interest Rates: + 400 basis points + 300 basis points + 200 basis points + 100 basis points - 100 basis points - 200 basis points Policy limit +/-25% +/- 20% +/- 15% +/- 10% +/-10% +/- 15% December 31, 2024 (3.8) % (2.4) % (1.3) % (0.5) % (0.1) % (2.1) % December 31, 2023 (15.6) % (11.6) % (7.6) % (3.6) % 2.1 % 2.8 % Measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities.
Estimated Changes in Net Interest Income Change in Interest Rates: + 400 basis points + 300 basis points + 200 basis points + 100 basis points - 100 basis points - 200 basis points - 300 basis points Policy limit - 25% - 20% - 15% -10% - 10% - 15% - 20% December 31, 2025 (10.1) % (7.5) % (5.0) % (2.5) % 1.8 % 1.8 % 0.9 % December 31, 2024 (3.8) % (2.4) % (1.3) % (0.5) % (0.1) % (2.1) % (5.0) % Measures of equity value at risk indicate the ongoing economic value of the Company by considering the effects of changes in interest rates on all of the Company’s cash flows, and by discounting the cash flows to estimate the present value of assets and liabilities.
Measures of net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments.
Measures of NII at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments. The following schedule estimates the changes in NII over a 12-month period for parallel rate shocks for up 400, 300, 200 and 100, and down 100, 200 and 300 scenarios.
Added
As of December 31, 2025, the Company did not exceed any Board-approved limits for the percentage changes in NII or economic value of equity.
Added
The following schedule estimates the changes in the economic value of equity over a 12-month period for parallel shocks for up 400, 300, 200 and 100, and down 100, 200 and 300 scenarios.

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