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What changed in SHORE BANCSHARES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of SHORE BANCSHARES INC's 2023 and 2024 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 2024 report.

+362 added−388 removedSource: 10-K (2025-03-10) vs 10-K (2024-03-15)

Top changes in SHORE BANCSHARES INC's 2024 10-K

362 paragraphs added · 388 removed · 271 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

61 edited+16 added−24 removed139 unchanged
Biggest changeA second amendment creates a new class of qualified mortgages, called “seasoned qualified mortgages,”, which are essentially first-lien loans that could not be classified as qualified mortgages when originated for reason only that they had debt-to-income ratios above 43%, but which have been held by the original creditor (or the first purchaser) for at least 36 months, during which time the borrower had no more than two 30-day delinquencies and no delinquencies of 60 days or more.
Biggest changeA second amendment creates a new class of qualified mortgages, called “seasoned qualified mortgages,” which are essentially first-lien loans that could not be classified as qualified mortgages when originated for reason only that they had debt-to-income ratios above 43%, but which have been held by the original creditor (or the first purchaser) for at least 36 months, during which time the borrower had no more than two 30-day delinquencies and no delinquencies of 60 days or more. 14 Table of Contents Both of these amendments were originally slated to become effective on March 1, 2021, but the amendment eliminating the Fannie/Freddie QM Alternative was given a mandatory compliance date of July 1, 2021 (the same date that the Fannie/Freddie QM Alternative was set to expire).
The FDIC defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits. Capital Adequacy Guidelines Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal agencies.
The FDIC defines a large depositor as a customer or entity that owns or controls 2% or more of a bank’s total deposits. Capital Adequacy Guidelines Bank holding companies and banks are subject to various regulatory capital requirements administered by state and federal agencies.
Services 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, safe deposit boxes, debit cards, 24-hour telephone banking, internet banking, mobile banking and 24-hour ATM services.
Item 1. Business. BUSINESS 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 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.
The primary factors when competing in the financial service 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.
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 CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve,” or “unsatisfactory.” An institution’s record in meeting the requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into nonbanking activities.
Under the CRA, institutions are assigned a rating of “outstanding,” “satisfactory,” “needs to improve” or “unsatisfactory.” An institution’s record in meeting the requirements of the CRA is based on a performance-based evaluation system, and is made publicly available and is taken into consideration in evaluating any applications it files with federal regulators to engage in certain activities, including approval of a branch or other deposit facility, mergers and acquisitions, office relocations, or expansions into nonbanking activities.
Capital Category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio Common Equity Tier 1 (CET1) Capital Ratio Leverage Ratio Tangible Equity to Assets Supplemental Leverage Ratio Well Capitalized 10.0% or greater 8.0% or greater 6.5% or greater 5.0% or greater n/a n/a Adequately Capitalized 8.0% or greater 6.0% or greater 4.5% or greater 4.0% or greater n/a 3.0% or greater Undercapitalized Less than 8.0% Less than 6.0% Less than 4.5% Less than 4.0% n/a Less than 3.0% Significantly Undercapitalized Less than 6.0% Less than 4.0% Less than 3.0% Less than 3.0% n/a n/a Critically Undercapitalized n/a n/a n/a n/a Less than 2.0% n/a As of December 31, 2023, the Bank and the Company exceeded all regulatory capital requirements and exceeded the minimum CET 1, Tier 1 and total capital ratio inclusive of the fully phased-in capital conservation buffer of 7.0%, 8.5%, and 10.5%, respectively.
Capital Category Total Risk-Based Capital Ratio Tier 1 Risk-Based Capital Ratio Common Equity Tier 1 (CET1) Capital Ratio Leverage Ratio Tangible Equity to Assets Supplemental Leverage Ratio Well Capitalized 10.0% or greater 8.0% or greater 6.5% or greater 5.0% or greater n/a n/a Adequately Capitalized 8.0% or greater 6.0% or greater 4.5% or greater 4.0% or greater n/a 3.0% or greater Undercapitalized Less than 8.0% Less than 6.0% Less than 4.5% Less than 4.0% n/a Less than 3.0% Significantly Undercapitalized Less than 6.0% Less than 4.0% Less than 3.0% Less than 3.0% n/a n/a Critically Undercapitalized n/a n/a n/a n/a Less than 2.0% n/a As of December 31, 2024, the Bank and the Company exceeded all regulatory capital requirements and exceeded the minimum CET1, Tier 1 and total capital ratio inclusive of the fully phased-in capital conservation buffer of 7.0%, 8.5%, and 10.5%, respectively.
Additionally, loans that are sold into the secondary market are typically residential long-term loans (15 or more years), generally with fixed rates of interest. Loans retained for the Bank’s portfolio typically include construction loans and loans that periodically reprice or mature prior to the end of an amortized term.
Additionally, loans that are sold into the secondary market are typically residential long-term loans (15 or more years), generally with fixed rates of interest. Loans retained for the Bank’s portfolio typically include loans that periodically reprice or mature prior to the end of an amortized term.
Under this requirement, the Company could be required to provide financial assistance to the Bank should it experience financial distress. 8 Table of Contents 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.
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.
The Basel III provides for a number of deductions from and adjustments to CET1.
Basel III provides for a number of deductions from and adjustments to CET1.
Professional Development 6 Table of Contents The Bank invests in the growth of its employees by providing access to professional development and continuing education courses and seminars that are relevant to the banking industry and their job function within the Company. We offer our employees the opportunity to participate in various professional and leadership development programs.
Professional Development The Bank invests in the growth of its employees by providing access to professional development and continuing education courses and seminars that are relevant to the banking industry and their job function within the Company. We offer our employees the opportunity to participate in various professional and leadership development programs.
The federal banking agencies agreed to review the definition of Qualified Residential Mortgages in 2019, following the CFPB’s own review of its “qualified mortgage” regulation. For 15 Table of Contents purposes of residential mortgage securitizations, the Risk Retention Rule took effect on December 24, 2015. For all other securitizations, the rule took effect on December 24, 2016.
The federal banking agencies agreed to review the definition of Qualified Residential Mortgages in 2019, following the CFPB’s own review of its “qualified mortgage” regulation. For purposes of residential mortgage securitizations, the Risk Retention Rule took effect on December 24, 2015. For all other securitizations, the rule took effect on December 24, 2016.
The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws. 14 Table of Contents Mortgage Loan Origination The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay.
The Dodd-Frank Act also gives state attorneys general the ability to enforce federal consumer protection laws. Mortgage Loan Origination The Dodd-Frank Act authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages, including a determination of the borrower’s ability to repay.
In addition to requiring undercapitalized institutions to submit a capital restoration plan, bank regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business.
In addition to requiring undercapitalized institutions to submit a capital 11 Table of Contents restoration plan, bank regulations contain broad restrictions on certain activities of undercapitalized institutions including asset growth, acquisitions, branch establishment and expansion into new lines of business.
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, Stafford and Spotsylvania Counties.
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.
Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC. The Bank has implemented policies and procedures to comply with the foregoing requirements. 13 Table of Contents Data Privacy and Cybersecurity The federal bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non-public customer information.
Banking regulators examine banks for compliance with the economic sanctions regulations administered by OFAC. The Bank has implemented policies and procedures to comply with the foregoing requirements. Data Privacy and Cybersecurity The federal bank regulatory agencies have adopted guidelines for safeguarding confidential, personal, non-public customer information.
On-demand training opportunities include a variety of industry, technical, professional, business development, leadership and regulatory topics. COMPETITION Shore Bancshares, Inc. and its subsidiaries operate in a highly competitive environment.
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.
Furthermore, deposit insurance may be terminated by the FDIC upon a finding that an insured depository institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
Furthermore, deposit insurance may be terminated by the FDIC upon a finding that an insured depository institution has engaged in unsafe 9 Table of Contents or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
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 Maryland Cannabis Administration 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 other state requirements.
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.
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.
The OCC has extensive enforcement authority over national banking associations to prohibit or correct activities that violate law, regulation or a regulatory agreement or which are deemed to be unsafe or unsound practices.
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.
Our Bank received a “satisfactory” rating in its most recent CRA evaluation. In October 2023, the OCC, together with the FRB and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
Our Bank received a “satisfactory” rating in its most recent CRA evaluation. 12 Table of Contents In October 2023, the OCC, together with the FRB and FDIC, issued a joint final rule to modernize the CRA regulatory framework.
Our competitors include community banks, commercial banks, credit unions, thrifts, mortgage banking companies, credit card issuers, investment advisory firms, brokerage firms, mutual fund companies, 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.
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.
In addition, we must comply with privacy and data security laws and regulations at both the federal and state level. 16 Table of Contents The banking industry is heavily regulated by regulatory agencies at the federal and state levels.
In addition, we must comply with privacy and data security laws and regulations at both the federal and state level. The banking industry is heavily regulated by regulatory agencies at the federal and state levels.
Residential construction loans are usually granted based upon “as completed” appraisals and are secured by the property under construction. Additional collateral may be taken if loan to value ratios exceed 80%. Site inspections are performed to determine pre-specified stages of completion before loan proceeds are disbursed.
The Bank provides commercial and residential real estate construction loans to builders and individuals. Residential construction loans are usually granted based upon “as completed” appraisals and are secured by the property under construction. Additional collateral may be taken if loan-to-value ratios exceed 80%. Site inspections are performed to determine pre-specified stages of completion before loan proceeds are disbursed.
We believe this strategy has been implemented over the past several years through a combination of organic and strategic growth, both within and contiguous to our existing footprint. Consistent with our strategy, on July 1, 2023, the Company completed its acquisition of TCFC and its wholly-owned subsidiary Community Bank of the Chesapeake (“CBTC”).
This strategy has been implemented over the past several years through a combination of organic and strategic growth, both within and contiguous to our existing footprint. On July 1, 2023, the Company completed the acquisition of The Community Financial Corporation (“TCFC”) and its wholly-owned subsidiary Community Bank of the Chesapeake (“CBTC”).
The proposed rule was adopted as final without change. 9 Table of Contents Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions.
Also, in the final rule adopted on October 18, 2022, the FDIC incorporated Accounting Standards Update (“ASU”) 2022-02, Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures in the risk-based deposit insurance assessment system applicable to all large and highly complex insured depository institutions.
Employee Demographics As of December 31, 2023, the Bank employed 630 individuals, of which 610 were employed on a full-time basis (620 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 benefits.
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.
As fully phased-in on January 1, 2019, Basel III subjects banks to the following risk-based capital requirements: • a minimum ratio of 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.
Basel 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.
Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations. Recently, several states have adopted regulations requiring certain financial institutions to implement cybersecurity programs and providing detailed requirements with respect to these programs, including data encryption requirements. Many states have also recently implemented or modified their data breach notification and data privacy requirements.
The Bank attempts to mitigate the risks associated with these loans through thorough 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 Construction Loans. The Bank provides residential real estate construction loans to builders and individuals for single family dwellings.
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.
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.
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.
Overall, the Company believes that implementation of the Basel III rule has not had and will not have a material adverse effect on the Company’s or the Bank’s capital ratios, earnings, stockholders’ equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers.
Overall, the Company’s implementation of Basel III did not have a material adverse effect on the Company’s or the Bank’s capital ratios, earnings, stockholders’ equity, or its ability to pay dividends, effect stock repurchases or pay discretionary bonuses to executive officers.
The Bank’s CRE loans are primarily secured by land for residential and commercial development, agricultural purpose properties, service industry buildings such as restaurants and hotels, retail buildings and general purpose business space.
The Bank’s CRE loans are primarily secured by commercial buildings, multi-family buildings, agricultural purpose consumer properties, service industry buildings such as restaurants and hotels, retail buildings and general purpose business space.
Federal banking regulations define, for each capital category, the levels at which institutions are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under applicable regulations, as of December 31, 2023, the Bank was “well capitalized,” which means it had a CET1 capital ratio of 6.5% or higher; a Tier I risk-based capital ratio of 8.0% or higher; a total risk-based capital ratio of 10.0% or higher; a leverage ratio of 5.0% or higher; and was not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure. 11 Table of Contents As noted above, Basel III integrates the capital requirements into the prompt corrective action category definitions set forth below.
Federal banking regulations define, for each capital category, the levels at which institutions are “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” Under applicable regulations, as of December 31, 2024, the Bank was “well capitalized,” which means it had a CET1 capital ratio of 6.5% or higher; a Tier 1 risk-based capital ratio of 8.0% or higher; a total risk-based capital ratio of 10.0% or higher; a leverage ratio of 5.0% or higher; and was not subject to any written agreement, order or directive requiring it to maintain a specific capital level for any capital measure.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack. If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties.
A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations and address rebuilding network capabilities and restoring data if the institution or its critical service providers fall victim to this type of cyber-attack.
Employees and Human Capital Resourc es Our Mission and Culture The Bank is built around the character of our people and our communities. We are dedicated to our clients, our employees, our communities, and our shareholders – our mission is your success. The Bank’s corporate culture is defined by core values which include integrity, family, performance, dedication and empowerment.
Employees and Human Capital Resources Our Mission and Culture The Bank is built around the character of our people and our communities. We are dedicated to our clients, our employees, our communities and our shareholders. The Bank’s corporate culture is defined by core values which include integrity, accountability, teamwork, and resilience.
The Bank currently operates 42 full-service branches, 42 automatic teller machines (an “ATM”), 3 interactive teller machines, 5 loan production 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 Mary’s County, Calvert County and Worcester County in Maryland, Kent County and Sussex County in Delaware and Accomack County, Fredericksburg City, Stafford County and Spotsylvania County in Virginia.
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 has a significant banking activity 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 who receive their funding from federal and state agencies, as well as, tax generating revenue, which is seasonal in nature.
In addition to the uniform risk-based capital guidelines and regulatory capital ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy.
In addition to the uniform risk-based capital guidelines and regulatory capital ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and 10 Table of Contents ratios.
Such a change could affect our ability to grow and could restrict the amount of profits, if any, available for the payment of dividends.
Future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect our ability to grow and could restrict the amount of profits, if any, available for the payment of dividends.
In addition to salaries, 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. Employee Health, Safety and Wellness We are committed to supporting the safety, health and wellness of our employees.
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.
Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027. Anti-Terrorism, Money Laundering Legislation and OFAC The Bank is subject to the BSA and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.
Anti-Terrorism, Money Laundering Legislation and OFAC The Bank is subject to the BSA and the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001.
Among other things, loans to and other transactions with insiders are subject to restrictions and heightened disclosure, directors and certain committees of the Board must satisfy certain independence requirements, and the Company is generally required to comply with certain corporate governance requirements.
Among other things, loans to and other transactions with insiders are subject to restrictions and heightened disclosure, directors and certain committees of the Board must satisfy certain independence requirements, and the Company is generally required to comply with certain corporate governance requirements. 16 Table of Contents Governmental Monetary and Credit Policies and Economic Controls The earnings and growth of the banking industry and ultimately of the Company are affected by the monetary and credit policies of governmental authorities, including the FRB.
The risk of loss associated with real estate construction lending is controlled through conservative underwriting procedures such as loan to value ratios of 80% or less at origination, obtaining additional collateral when prudent, and closely monitoring construction projects to control disbursement of funds on loans. • Residential Mortgage Loans.
The Bank attempts to mitigate risks associated with these loans through conservative underwriting procedures such as loan-to-value ratios of 80% or less at origination, obtaining additional collateral when prudent, and closely monitoring construction projects to control disbursement of funds on loans. • Commercial Loans. The Bank originates secured and unsecured loans for business purposes.
Beginning January 1, 2016, financial institutions were required to maintain a minimum “capital conservation buffer” to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.
Effective as of January 1, 2015, the Basel III final capital framework (“Basel III”) required financial institutions to maintain a minimum “capital conservation buffer” on top of each of the minimum risk-based capital ratios to avoid restrictions on capital distributions such as dividends and equity repurchases and other payments such as discretionary bonuses to executive officers.
Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various agencies, the full extent of the impact such requirements will have on financial institutions’ operations is unclear.
Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various agencies, the full extent of the impact such requirements will have on financial institutions’ operations is unclear. 15 Table of Contents Other Laws and Regulations Our operations are subject to several additional laws, some of which are specific to banking and others of which are applicable to commercial operations generally.
Banking institutions had the option to opt out of including AOCI in CET1 capital if they elected to do so in their first regulatory report following January 1, 2015.
Banking institutions had the option to opt out of including AOCI in CET1 capital if they elected to do so in their first regulatory report following January 1, 2015. As permitted by Basel III, the Company and the Bank have elected to exclude AOCI from CET1. In addition, goodwill and most intangible assets are deducted from Tier 1 capital.
A variety of consumer loans are offered to customers, including home equity loans, credit cards, marine loans and other secured and unsecured lines of credit and term loans. Careful analysis of an applicant’s creditworthiness is performed before granting credit, and ongoing monitoring of loans outstanding is performed in an effort to minimize risk of loss by identifying problem loans early.
Certain consumer loans are originated by a third-party on behalf of the Company. Careful analysis of an applicant’s creditworthiness is performed before granting credit, and ongoing monitoring of loans outstanding is performed in an effort to minimize risk of loss by identifying problem loans early.
Governmental Monetary and Credit Policies and Economic Controls The earnings and growth of the banking industry and ultimately of the Company are affected by the monetary and credit policies of governmental authorities, including the FRB. An important function of the FRB is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures.
An important function of the FRB is to regulate the national supply of bank credit in order to control recessionary and inflationary pressures.
Commercial loans generally involve a greater degree of credit risk than one to four family residential mortgage loans. Repayment is often dependent upon the successful operation of the business and may be affected by adverse conditions in the local economy or real estate market.
Commercial loans are typically secured by real estate, accounts receivable, inventory, equipment and/or other assets of the business. Repayment is often dependent upon the successful operation of the business and may be affected by adverse conditions in the local economy or real estate market.
Diversity and Inclusion We are committed to building a diverse workforce and an inclusive work environment which are supported by our culture and values. We strive to attract and retain employees with diverse characteristics, backgrounds and perspectives, which inspires our team to achieve more creative and innovative solutions for our customers.
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.
In November 2021, the federal bank regulatory agencies issued a joint rule establishing computer-security incident notification requirements for banking organizations and their service providers. This rule requires new notifications when a banking organization experiences a computer-security incident. State regulators have been increasingly active in implementing privacy and cybersecurity standards and regulations.
If we fail to observe the regulatory guidance, we could be subject to various regulatory sanctions, including financial penalties. 13 Table of Contents In November 2021, the federal bank regulatory agencies issued a joint rule establishing computer-security incident notification requirements for banking organizations and their service providers. This rule requires new notifications when a banking organization experiences a computer-security incident.
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, construction loans and letters of credit.
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.
It is also the Bank’s general policy to obtain personal guarantees from the principals of the commercial loan borrowers. • Commercial Real Estate (“CRE”) and Other Non-Residential Real Estate Loans.
It is also the Bank’s general policy to obtain personal guarantees from the principals of the commercial loan borrowers. • Consumer Loans. A variety of consumer loans are offered to customers, including home equity loans, marine loans and other secured and unsecured lines of credit and term loans.
The Bank, through Wye Financial Partners, a department of the Bank, provides full-service investment and insurance solutions through our broker/dealer, LPL Financial. The Bank also offers wealth management solutions such as corporate trustee services and trust administration through Wye Trust, a division of the Bank.
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.
In addition, we offer our commercial customers packages which include cash management services and various checking opportunities and other cash sweep products. Trust Services The Bank has a trust department through which it offers trust, asset management and financial planning services to customers within our market areas using the trade name Wye Trust.
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.
Generally, loans are sold with servicing retained which includes loans sold to the Federal National Mortgage Association or Freddie Mac. Due to increasing interest rates, the market for residential mortgage loans slowed in the second half of 2023.
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.
Extraordinary growth in insured deposits during the first and second quarters of 2020 caused a decline in the DIF reserve ratio below the statutory minimum of 1.35% as of June 30, 2020.
The increase was instituted to account for extraordinary growth in insured deposits during the first and second quarters of 2020, which caused a substantial decrease in the DIF reserve ratio. The new assessment rate schedules are expected to remain in effect until the DIF reserve ratio meets or exceeds 2%.
Acquisitions On January 29, 2024, the OCC issued a notice of proposed rulemaking and Policy Statement on Bank Mergers, wherein the OCC requested comment on a proposal to update its rules for business combinations involving national banks and federal savings associations.
Among these actions, the FDIC approved a final statement of policy on bank merger transactions (the “2024 Statement”) and the OCC approved a final rule updating the agency’s regulations for business combinations involving national banks and federal savings associations.
The excess of the fair value of net TCFC assets acquired over the merger consideration resulted in an $8.8 million bargain purchase gain. On October 31, 2021, the Company completed the acquisition of Severn Bancorp, Inc. (“Severn”), and its wholly-owned subsidiary Severn Savings Bank, FSB, a federally charted savings bank, headquartered in Annapolis, Maryland.
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.
Removed
The Bank’s deposits are insured up to applicable legal limits by the FDIC. The Bank is an independent community bank that serves businesses and individuals in their respective market areas. Services offered are essentially the same as those offered by larger regional institutions that compete with the Bank.
Added
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.
Removed
Treasury management services are also available, such as, merchant card processing services, remote deposit capture, ACH origination, digital banking, and telephone banking services.
Added
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.
Removed
The transaction was valued at approximately $169.8 million and expanded the Bank’s footprint into the Columbia, Baltimore and Towson MSA, while also filling in the Bank’s existing market footprint. At the time of the acquisition, Severn added $1.1 billion in assets, $584.8 million in net loans held for investment, $955.3 million in deposits and $28.3 million in subordinated debt.
Added
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.
Removed
Lending Activities The Bank originates loans of all types, including commercial, commercial mortgage, commercial construction, residential construction, residential mortgage and consumer loans. 4 Table of Contents • Commercial Lending. The Bank originates secured and unsecured loans for business purposes. Commercial loans are typically secured by real estate, accounts receivable, inventory, equipment and/or other assets of the business.
Added
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.
Removed
Management recognizes that residential mortgage lending is cyclical, but believes that residential mortgage loans we retain in our portfolio are important to both support our local communities and balance sheet diversification. As of December 31, 2023, the Bank was servicing $371.5 million in loans for Federal National Mortgage Association and $113.2 million in loans for Freddie Mac. • Consumer Loans.
Added
As noted above, Basel III integrates the capital requirements into the prompt corrective action category definitions set forth below.
Removed
See Note 20 to the Consolidated Financial Statements for a summary of the level of business activities with the Bank’s cannabis customers. Seasonality The Company recognizes that certain customers have a seasonality within their operations which indirectly impact the Bank’s liquidity.
Added
Acquisitions On September 17, 2024, the FDIC, the OCC and the U.S. Department of Justice (“DOJ”), each announced new rules and policy statements impacting their bank merger review processes.
Removed
With a commitment to equality, inclusion and workplace diversity, we focus on understanding, accepting, and valuing the differences between people.
Added
The OCC’s final rule modifies its procedures for reviewing bank merger applications under the Bank Merger Act, including the elimination of the expedited bank merger review and the streamlined application procedures.
Removed
Our commitment to equal employment opportunities is demonstrated through an affirmative action plan which includes annual compensation analyses, ongoing reviews of our selection and hiring practices and an annual review of our plan to ensure we build and maintain a diverse workforce. Compensation and Benefits The Bank’s compensation and benefits package is designed to attract and retain a talented workforce.
Added
The OCC’s final rule also includes a new policy statement that addresses the substantive standards that it will use to evaluate bank merger applications, including indicators that point in favor of likely approval or rejection.
Removed
Due to this decline, the FDIC established a Restoration Plan in September 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years. This Restoration Plan did not include an increase in the deposit insurance assessment rate.
Added
Concurrent with the FDIC and OCC announcements, the DOJ withdrew from its 1995 Bank Merger Guidelines and announced that it would consider bank mergers under its 2023 Merger Guidelines, which are not industry specific, as well as a separate, recently adopted bank merger addendum.
Removed
On June 21, 2022, however, the FDIC adopted an Amended Restoration Plan and notice of proposed rulemaking to increase the deposit insurance assessment rates as it was otherwise at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

49 edited+19 added−33 removed120 unchanged
Biggest changeWe are required to establish a reserve in the allowance for credit loss (ACL) when management determines that an investment security is impaired due to a credit loss. The amount of the impairment related to credit losses, limited by the amount by which the specific security’s amortized cost basis exceeds its fair value, is recorded in the ACL.
Biggest changeThe amount of the impairment related to credit losses, limited by the amount by which the specific security’s amortized cost basis exceeds its fair value, is recorded in the ACL. Changes in the ACL are recorded in net income in the period of change and are included in provision for credit 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. In January 2018, the U.S.
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.
At times,a lack of market activity with respect to some securities has, in certain circumstances, required us to base our fair market valuation on unobservable inputs (“Level 3” in fair value hierarchy). At December 31, 2023, the Bank had no Level 3 securities.
At times, a lack of market activity with respect to some securities has, in certain circumstances, required us to base our fair market valuation on unobservable inputs (“Level 3” in fair value hierarchy). At December 31, 2024, the Bank had no Level 3 securities.
Any of these results could have a material adverse effect on our business, financial condition and results of operations. 26 Table of Contents Risks Relating to the Company’s Securities Our common stock is not insured by any governmental entity.
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.
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 and other systems, misappropriation of funds, and theft 23 Table of Contents of proprietary Company or customer data.
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.
If we breach those representations and warranties, the buyers will be able to require us to repurchase the loans and we may incur a loss on the repurchase. We have not been required to repurchase any loans as of December 31, 2023.
If we breach those representations and warranties, the buyers will be able to require us to repurchase the loans and we may incur a loss on the repurchase. We have not been required to repurchase any loans as of December 31, 2024.
As of December 31, 2023, 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, 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.
We cannot guarantee that any risk management practices that we implement to address our geographic and loan concentrations will be effective in preventing losses relating to our loan portfolio. 19 Table of Contents Our concentrations of CRE loans could subject us to increased regulatory scrutiny and directives, which could force us to preserve or raise capital and/or limit our future commercial lending activities.
We cannot guarantee that any risk management practices that we implement to address our geographic and loan concentrations will be effective in preventing losses relating to our loan portfolio. Our concentrations of CRE loans could subject us to increased regulatory scrutiny and directives, which could force us to preserve or raise capital and/or limit our future commercial lending activities.
To the extent that any of the information contained in this document constitutes forward-looking statements, the risk factors 17 Table of Contents below should be reviewed as cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
To the extent that any of the information contained in this document constitutes forward-looking statements, the risk factors below should be reviewed as cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf.
We could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could have a material adverse effect on our business, financial condition and results of operations. 25 Table of Contents Federal regulators periodically examine our business, and we may be required to remediate adverse examination findings.
We could face increased scrutiny or be viewed as higher risk by regulators and/or the investor community, which could have a material adverse effect on our business, financial condition and results of operations. Federal regulators periodically examine our business, and we may be required to remediate adverse examination findings.
Our future growth and success will depend on our ability to compete effectively in this highly competitive financial services environment. Failure to compete effectively to attract new or to retain existing, clients may reduce or limit our net income and our market share and may adversely affect our results of operations, financial condition and growth.
Our future growth and success will depend on our ability to compete effectively in this highly competitive financial services environment. Failure to compete effectively to attract new or to retain 20 Table of Contents existing, clients may reduce or limit our net income and our market share and may adversely affect our results of operations, financial condition and growth.
Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, CRE loan composition and concentrations, and capital as well as general oversight and control of the foregoing.
Among other things, there may be increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, brokered deposits, unrealized losses in securities portfolios, liquidity, CRE loan composition and concentrations, and 24 Table of Contents capital as well as general oversight and control of the foregoing.
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. 27 Table of Contents
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.
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. 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.
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.
This may lead to an increase in our nonperforming 18 Table of Contents 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.
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.
To the extent that our activities, the activities of our customers, or the activities of our third-party service providers involve the storage and transmission of confidential information, 24 Table of Contents security breaches and viruses could expose us to claims, litigation and other possible liabilities.
To the extent that our activities, the activities of our customers, or the activities of our third-party service providers involve the storage and transmission of confidential information, security breaches and viruses could expose us to claims, litigation and other possible liabilities.
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, 2023, our gross deferred tax assets were approximately $67.8 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, 2024, our gross deferred tax assets were approximately $55.8 million.
There was a valuation allowance of deferred taxes of $1.0 million recorded at December 31, 2023 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 $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.
In addition, the banking operating environment and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could materially and adversely impact the trading prices of our common stock and potentially our results of operations.
In addition, the banking operating environments and public trading prices of banking institutions can be highly correlated, in particular during times of stress, which could adversely impact the trading prices of our common stock and potentially, our results of operations.
As of December 31, 2023, we had classified 17.7% of our debt securities as available-for-sale pursuant to the Accounting Standards Codification Topic 320 (“ASC 320”) of the FASB relating to accounting for investments.
As of December 31, 2024, we had classified 23.7% of our debt securities as available for sale (“AFS”) pursuant to the Accounting Standards Codification Topic 320 (“ASC 320”) of the FASB relating to accounting for investments.
Department of Justice (“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.
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.
At December 31, 2023, we had recorded goodwill of $63.3 million and other intangible assets of $48.1 million, representing approximately 12.4% and 9.4% of stockholders’ equity, respectively. 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.
At December 31, 2024, we had recorded goodwill of $63.3 million and other intangible assets of $38.3 million, representing approximately 11.7% and 7.1% of stockholders’ equity, respectively. 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.
Management at the Bank bases the allowance for credit losses upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality.
Management at the Bank bases the ACL upon, among other things, historical experience, an evaluation of economic conditions and regular reviews of delinquencies and loan portfolio quality.
There can be no assurance that the market value of our investment portfolio will not continue to decline, causing a corresponding decline in stockholders’ equity. The Bank is a member of the FHLB of Atlanta and our investments include stock issued by the FHLB of Atlanta.
There can be no assurance that the market value of our investment portfolio will not continue to decline due to changes in interest rates or a deterioration in credit quality, causing a corresponding decline in stockholders’ equity. The Bank is a member of the FHLB of Atlanta and our investments include stock issued by the FHLB of Atlanta.
Due to our emphasis on CRE and construction lending, as of December 31, 2023, non-owner-occupied CRE loans (including construction, land and land development loans) represented 382.57% of the Bank’s Tier 1 Capital + the allowance for credit losses (“ACL”). Construction, land and land development loans represent 56.68% of the Bank’s Tier 1 Capital + ACL.
Due to our emphasis on CRE and construction lending, as of December 31, 2024, non-owner-occupied CRE loans (including construction, land and land development loans) represented 359.52% of the Bank’s Tier 1 Capital + the allowance for credit losses (“ACL”). Construction, land and land development loans represent 57.99% of the Bank’s Tier 1 Capital + ACL.
When interest rates rise, as they have since the first quarter of 2022, the demand for mortgage loans tends to fall and may reduce the number of loans we can originate for sale. Weak or deteriorating economic conditions also tend to reduce loan demand.
When interest rates rise, the demand for mortgage loans tends to fall and may reduce the number of loans we can originate for sale. Weak or deteriorating economic conditions also tend to reduce loan demand.
For example, in deciding whether to extend credit to customers, we may assume that a customer’s audited financial statements conform with 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 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.
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.
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.
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. The cost savings that we estimate for mergers and acquisitions may not be realized.
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.
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.
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.
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. 22 Table of Contents As in past years, the U.S.
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.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, including potential changes in federal policy and at regulatory agencies as a result of the upcoming 2024 presidential election, often impose additional operating costs.
Compliance with laws and regulations can be difficult and costly, and changes to laws and regulations, including potential changes in federal policy and at regulatory agencies as a result of changes in U.S. Presidential Administrations that have different regulatory agendas, often impose additional operating costs.
Changes in the ACL are recorded in net income in the period of change and are included in provision for credit losses. Changes in the fair value of debt securities AFS not resulting from credit losses are recorded in other comprehensive income (loss).
Changes in the fair value of debt securities AFS not resulting from credit losses are recorded in other comprehensive income (loss).
These events have led to a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of their deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.
For example, the closures of Silicon Valley Bank and Signature Bank in March 2023, and First Republic Bank in May 2023, led to market volatility, a greater focus by institutions, investors and regulators on the on-balance sheet liquidity of and funding sources for financial institutions, the composition of their deposits, including the amount of uninsured deposits, the amount of accumulated other comprehensive loss, capital levels and interest rate risk management.
A majority of our business is concentrated in Maryland, Delaware and Virginia, a significant amount of which is concentrated in real estate lending, so a decline in the local economy and real estate markets could adversely impact our financial condition and results of operations.
Separately, banking regulators have announced a more stringent supervisory posture after the bank failures. 18 Table of Contents A majority of our business is concentrated in Maryland, Delaware and Virginia, a significant amount of which is concentrated in real estate lending, so a decline in the local economy and real estate markets could adversely impact our financial condition and results of operations.
Congress has enacted an omnibus spending bill that includes a provision prohibiting the DOJ and the U.S. Drug Enforcement Administration from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis laws. This provision was recently renewed as part of the annual federal Consolidated Appropriations Act.
Drug Enforcement Administration from using funds appropriated by that bill to prevent states from implementing their medical-use cannabis 21 Table of Contents laws. This provision was recently renewed as part of the annual federal Consolidated Appropriations Act.
It is possible that the process of merger integration of acquired companies could result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies that adversely affect the ability to maintain relationships with clients and employees or to achieve the anticipated benefits of the merger or acquisition.
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.
Various market conditions also affect our operating results. Certain changes in interest rates, inflation, or the financial markets could affect demand for our products. 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 and leases.
To the extent such conditions exist or worsen, we could experience adverse effects on our business, financial condition, and results of operations. Interest rates and other economic conditions will impact our results of operations.
All of these inflationary risks for our business customer base can be financially detrimental, leading to increased likelihood that the customer may default on a loan. To the extent such conditions exist or worsen, we could experience adverse effects on our business, financial condition, and results of operations. Interest rates and other economic conditions will impact our results of operations.
ASC 320 requires that unrealized gains and losses in the estimated value of the available-for-sale portfolio be “marked to market” and reflected as a separate item in stockholders’ equity (net of tax) as AOCI (loss). The remaining debt securities are classified as held-to-maturity in accordance with ASC 320 and are stated at amortized cost.
ASC 320 requires that unrealized 19 Table of Contents gains and losses in the estimated value of the AFS portfolio be “marked to market” and reflected as a separate item in stockholders’ equity (net of tax) as AOCI (loss).
Equity securities with readily determinable fair values are recorded at fair value with changes in fair value recorded in earnings. Stockholders’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments. At December 31, 2023, the Company’s accumulated other comprehensive loss amounted to $7.5 million.
The remaining debt securities are classified as held to maturity (“HTM”) in accordance with ASC 320 and are stated at amortized cost. Equity securities with readily determinable fair values are recorded at fair value with changes in fair value recorded in earnings. Stockholders’ equity will continue to reflect the unrealized gains and losses (net of tax) of these investments.
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. In response to inflationary pressures, the FRB has increased interest rates by 525 basis points since January 1, 2022 with a current federal funds rate range of between 5.25% to 5.50%.
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.
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.
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.
Write-downs of investment securities would negatively affect our earnings and regulatory capital ratios. 20 Table of Contents 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.
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.
Further, a significant portion of our loan portfolio is secured by real estate, including construction and land development loans, all of which are in greater demand when interest rates are low and economic conditions are good.
Accordingly, such potential federal government actions could lead to increases in past due loans, nonperforming loans, credit loss reserves and charge-offs and a decline in liquidity. In addition, substantially all of our loan portfolio is secured by real estate. Real estate loans are in greater demand when interest rates are low and economic conditions are good.
Our growth and profitability will depend upon our ability to attract and retain skilled managerial, marketing and technical personnel. Competition for qualified personnel in the financial services industry is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. Our lending activities subject us to the risk of environmental liabilities.
Competition for qualified personnel in the financial services industry is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel. 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.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer .
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer . Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, including Artificial Intelligence, and the use of the internet and telecommunications technologies to conduct financial transactions.
The success of our mergers and acquisitions may depend, in part, on the ability to realize the estimated cost savings from combining the acquired businesses with our existing operations. It is possible that the potential cost savings could turn out to be more difficult to achieve than anticipated.
The success of future acquisitions we may consummate may depend, in part, on the ability to realize the estimated cost savings and combine the acquired businesses with our existing operations in a manner that does not materially disrupt the existing customer relationships of either institution, or result in decreased revenues resulting from any loss of customers, and that permits growth opportunities to occur.
If the estimates turn out to be incorrect or there is an inability to combine successfully, the anticipated cost savings may not be realized fully or at all or may take longer to realize than expected. Combining acquired businesses may be more difficult, costly, or time-consuming than expected, or could result in the loss of customers.
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.
Removed
Global economic conditions also affect our operating results because global economic conditions directly influence the U.S. economic conditions.
Added
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.
Removed
Sources of global economic and market instability include, but are not limited to, the potential economic slowdown in United Kingdom, Europe and the United States, the impact of trade negotiations, economic conditions in China, including the global economic impacts of the Chinese economy, China’s regulation of commerce, the war between Russia and Ukraine, the war in the Middle East and the effects of the recent pandemic or other health crises.
Added
In September 2024 and November 2024, the FRB lowered the target range for the federal funds rate to its current range of 4.50% to 4.75% in light of the progress on inflation. Notwithstanding, the inflationary outlook in the United States remains uncertain.
Removed
All of these inflationary risks for our business customer base can be financially detrimental, leading to increased likelihood that the customer may default on a loan. In addition, sustained inflationary pressures have resulted in the FRB increasing interest rates by 525 basis points since January 1, 2022 with current federal funds rate range of between 5.25% to 5.50%.
Added
Although the industry has since stabilized, risks remain that customers may choose to invest in higher yielding and higher-rated short-term fixed income securities or maintain deposits with larger more systematically important financial institutions, all of which could materially and adversely impact our liquidity, loan funding capacity, net interest margin, capital, and results of operations.
Removed
Although the FRB left its benchmark rates steady in September and November of 2023 and January of 2024, the FRB suggested that additional rate increases in the future may be necessary to mitigate inflationary pressures.
Added
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.
Removed
For example, on March 10, 2023, Silicon Valley Bank was closed by the California Department of Financial Protection and Innovation, on March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services and on May 1, 2023, First Republic Bank was closed by the California Department of Financial Protection and Innovation, and in each case the FDIC was appointed as receiver for the failed institution.
Added
In addition, federal government employees make up a significant proportion of the population of the Washington, D.C. metropolitan area.
Removed
These banks had elevated levels of uninsured deposits, which may be less likely to remain at the bank over time and less stable as a source of funding than insured deposits. These failures led to volatility and declines in the market for bank stocks and questions about depositor confidence in depository institutions.
Added
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.
Removed
In connection with high-profile bank failures, uncertainty and concern has been, and may in the future be further, compounded by advances in technology that increase the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
Added
This may directly or indirectly lead to a loss of revenues by the Company’s customers, including vendors and lessors to the federal government and government contractors or to their employees, as well as a wide variety of commercial and retail businesses.
Removed
While the Department of the Treasury, the FRB, and the FDIC have made statements ensuring that depositors of recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the bank system more broadly.
Added
At December 31, 2024, the Company’s AOCI (loss) amounted to $7.5 million and were due to changes in interest rates. 97.1% or $611.9 million of the Company’s AFS and HTM portfolios are invested in U.S. government guaranteed investments or government sponsored enterprises (“GSEs”).
Removed
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Added
Integration efforts could also divert management attention and resources. These integration matters could have an adverse effect on the combined Company. The loss of key personnel could disrupt our operations and result in reduced earnings. Our growth and profitability will depend upon our ability to attract and retain skilled managerial, marketing and technical personnel.
Removed
Furthermore, the failure of other financial institutions may cause deposit outflows as customers spread deposits among several different banks so as to maximize their amount of FDIC insurance, move deposits to banks deemed “too big to fail” or remove deposits from the banking system entirely.
Added
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 23 Table of Contents problems caused by security breaches or viruses.
Removed
As of December 31, 2023, approximately $1.0 billion of our deposits were uninsured and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
Added
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.
Removed
Inflation and rapid increases in interest rates have led to a decline in the fair value of securities portfolios with yields below current market interest rates.
Added
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.
Removed
The FRB announced a program to provide up to $25 billion of loans to financial institutions secured by such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments. However, widespread demands for customer withdrawals or other needs of financial institutions for immediate liquidity may exceed the capacity of such program.
Added
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.
Removed
There is no guarantee that the U.S. Department of Treasury, the FRB and the FDIC will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions in a timely fashion or at all.
Added
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.
Removed
If such levels of market disruption and volatility continue, there can be no assurance that we will not experience adverse effects, which may materially affect the market price of our common stock and/or our liquidity, financial condition and profitability.
Added
In the past, material weaknesses have been identified in our internal control over financial reporting. As described in Part II, Item 9A. – Controls and Procedures, management identified material weaknesses in the Company’s internal control over financial reporting for the 2023 fiscal year that were remediated during third and the fourth quarter of fiscal 2024.
Removed
Because most of our loans are made to customers who reside in Maryland, Delaware and Virginia, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of larger financial institutions whose loan portfolios are geographically diverse.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe 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.
Biggest changeThe 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.
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 Vendor Management Program.
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.
To 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 organization oversees a program of security competencies and tools designed to evaluate security risks and to protect the confidentiality, integrity and availability of our information systems and data.
To 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.
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 Counsel Cybersecurity Assessment Tools and GLB Act and regulations.
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.
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 “Governance,” the Board Risk Oversight Committee has delegated to senior management responsibility for managing the Enterprise Risk Management Program.
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.
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 as a means to equip the Company’s 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 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.
With regard to the possible impact of future cybersecurity threats or incidents, see Item 1A, Risk Factors – Risks Related to Our Business. 29 Table of Contents
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 1C. Cybersecurity Cybersecurity Risk Management and Strategy 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 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.
The Company leverages continuous monitoring and regular risks assessments to identify the Company’s 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. The Company conducts a variety of assessments throughout the year, both internally and through third parties.
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.
A multi-step approach is applied to identify, report and remediate these vulnerabilities, and the Company adjusts its information security policies, standards, 28 Table of Contents processes and practices as necessary based on the information provided by these assessments. The results of key assessments are reported in summary to the Board Risk Oversight Committee.
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.
Added
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.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeMichaels, 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, MD 20616 Sunburst Branch (1) Owings Mills Branch (1) Dunkirk Branch (2) 424 Dorchester Avenue 9612 Reisterstown Road 10321 Southern Maryland Blvd 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 Branch (2) Edgewater Branch (2) La Plata Branch (1) 3409 Coastal Highway 3083 Solomon’s Island Road 101 Drury Drive Ocean City, Maryland 21842 Edgewater, Maryland 21037 La Plata, Maryland 20646 Centreville Branch (1) Westgate Branch (1) Charlotte Hall Branch (1) 109 North Commerce Street 200 Westgate Circle 30165 Three Notch Road Centreville, Maryland 21617 Annapolis, Maryland 21401 Charlotte Hall, Maryland 20622 Stevensville Branch (1) Glen Burnie Branch (1) Prince Frederick Branch (2) 408 Thompson Creek Road 413 Crain Highway, S.E. 200 Market Square Drive Stevensville, Maryland 21666 Glen Burnie, Maryland 21061 Prince Frederick, Maryland 20678 Tuckahoe Branch (1) Severna Park Branch (2) Lusby Branch (2) 22151 Wes Street 598 Benfield Road 11725 Rousby Hall Road Ridgely, Maryland 21660 Severna Park, Maryland 21146 Lusby, Maryland 20657 Route 213 South Branch (1) Lothian Branch (2) La Plata Downtown Branch (1) 2609 Centreville Road 5401 Southern Maryland Blvd 202 Centennial Street Centreville, Maryland 21617 Lothian, Maryland 20711 La Plata, Maryland 20646 Denton Branch (1) 850 South 5 th Avenue Denton, Maryland 21629 30 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 Onley Branch (2) Fredericksburg Downtown Branch (1) Fredericksburg Branch (1) 25306 Lankford Highway 425 William Street 5831 Plank Road Onley, Virginia 23418 Fredericksburg, Virginia 22401 Fredericksburg, Virginia 22407 ATMs (standalone) University of Maryland Shore Medical Center at Easton 219 South Washington Street Easton, Maryland 21601 Offices Administrative Office (1) Administrative Office (1) Administrative Office (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 Division Office - Wye Financial Partners (2) 995 N.
Biggest changeMichaels, 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.
Maryland Branch Locations Main Office (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.
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.
For information about rent expense for all leased premises, see Note 7 to the Consolidated Financial Statements appearing in Item 8 of Part II of this annual report.
For 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.
Prince Frederick Blvd, Suite 105 5291 Corporate Drive, Suite 202 16 North Washington Street, Suite 1 Prince Frederick, Maryland 20678 Frederick, Maryland 21703 Easton, Maryland 21601 _______________________________ (1) Branch/Office is owned by Company. (2) Branch/Office is leased by Company.
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. Mine Safety Disclosures.
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.
This item is not applicable. 31 Table of Contents PART II
MINE SAFETY DISCLOSURES This item is not applicable. 30 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

8 edited+1 added−1 removed2 unchanged
Biggest changeCumulative total return on the stock or the index equals the total increase in value since December 31, 2018 assuming reinvestment of all dividends paid into the stock or the index.
Biggest changeCumulative 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.
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 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 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.
Quarterly dividends remained at $0.12 for the entire year of 2023. 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.
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.
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 12, 2024, the Company had approximately 1,827 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 March 6, 2025, the Company had approximately 1,770 registered holders of record.
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 2023. Item 6. Reserved 34 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 2024. Item 6. [RESERVED] 33 Table of Contents
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 2023 and 2022 are set forth in the table below. 2023 2022 Price Range Dividends Price Range Dividends High Low Paid High Low Paid 1st Quarter $ 18.15 $ 14.00 $ 0.12 $ 21.41 $ 19.34 $ 0.12 2nd Quarter 14.45 10.65 0.12 21.21 17.91 0.12 3rd Quarter 13.37 10.27 0.12 20.50 17.29 0.12 4th Quarter 14.51 9.66 0.12 20.85 17.04 0.12 $ 0.48 $ 0.48 Shareholders received quarterly cash dividends on shares of common stock totaling $12.7 million in 2023 and $9.5 million in 2022.
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.
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 — — 455,530 Equity compensation plans not approved by security holders — — — Total — — 455,530 33 Table of Contents UNREGISTERED SALES OF EQUITY SECURITIES AND ISSUER PURCHASES OF EQUITY SECURITIES There were no unregistered sales of the Company’s common stock, par value $0.01 per share (Common Stock), during the year to date period ended December 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 — — 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.
SmallCap Banks Index $ 100.00 $ 125.46 $ 113.94 $ 158.62 $ 139.85 $ 140.55 EQUITY COMPENSATION PLAN INFORMATION The following table provides information as of December 31, 2023, with respect to options outstanding and shares available for future awards under the Company’s active equity incentive plans.
SmallCap 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.
Removed
The graph and table were prepared assuming that $100 was invested on December 31, 2018, in the common stock and the securities included in the indexes. 32 Table of Contents Source: S&P Global Market Intelligence Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Shore Bancshares, Inc. $ 100.00 $ 122.62 $ 107.59 $ 158.03 $ 135.34 $ 114.94 NASDAQ Composite Index $ 100.00 $ 136.69 $ 198.10 $ 242.03 $ 163.28 $ 236.17 KBW NASDAQ Bank Index $ 100.00 $ 136.13 $ 122.09 $ 168.88 $ 132.75 $ 131.57 S&P U.S.
Added
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

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Biggest changeTwelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 (Dollars in thousands) Average Balance Interest (1),(4) Yield/ Rate Average Balance Interest (1),(4) Yield/ Rate Earning assets Loans (2), (3) Residential real estate $ 1,076,713 $ 54,583 5.07 % $ 699,192 $ 31,401 4.49 % Commercial real estate 2,039,153 110,058 5.40 1,182,845 51,821 4.38 Commercial 184,214 13,607 7.39 194,785 7,829 4.02 Consumer 322,033 15,298 4.75 195,542 7,560 3.87 State and political 1,025 41 4.00 1,613 64 3.97 Credit Cards 3,147 315 10.01 — — — Other 12,773 678 5.31 19,650 601 3.06 Total Loans 3,639,058 194,580 5.35 2,293,627 99,276 4.33 Investment securities: Taxable 674,203 16,832 2.50 589,729 11,507 1.95 Tax-exempt 663 58 8.75 113 7 6.19 Federal funds sold 1,899 92 4.84 — — — Interest-bearing deposits 41,032 2,770 6.75 337,203 3,210 0.95 Total earning assets 4,356,855 214,332 4.92 3,220,672 114,000 3.54 Cash and due from banks 43,555 18,158 Other assets 303,906 221,592 Allowance for credit losses (40,777) (15,441) Total assets $ 4,663,539 $ 3,444,981 Interest-bearing liabilities Demand deposits $ 883,976 $ 20,134 2.28 % $ 638,105 $ 3,869 0.61 % Money market and savings deposits 1,275,088 20,039 1.57 1,043,032 3,609 0.35 Brokered deposits 56,101 2,919 5.20 — — — Certificates of deposit $100,000 or more 492,226 16,583 3.37 239,927 1,364 0.57 Other time deposits 278,144 9,125 3.28 204,536 1,141 0.56 Interest-bearing deposits 2,985,535 68,800 2.30 2,125,600 9,983 0.47 Securities sold under retail repurchase agreements and federal funds purchased — — — 683 2 0.29 Advances from FHLB - short-term 111,392 5,518 4.95 1,863 72 3.86 Advances from FHLB - long-term — — — 7,701 35 0.45 Subordinated debt and guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS") 57,708 4,454 7.72 42,917 2,451 5.71 Total interest-bearing liabilities 3,154,635 78,772 2.50 2,178,764 12,543 0.58 Noninterest-bearing deposits 1,043,479 888,509 Accrued expenses and other liabilities 23,635 21,858 Stockholders’ equity 441,790 355,850 Total liabilities and stockholders’ equity $ 4,663,539 $ 3,444,981 Net interest income $ 135,560 $ 101,457 39 Table of Contents Twelve Months Ended December 31, 2023 Twelve Months Ended December 31, 2022 (Dollars in thousands) Average Balance Interest (1),(4) Yield/ Rate Average Balance Interest (1),(4) Yield/ Rate Net interest spread 2.42 % 2.96 % Net interest margin ("NIM") 3.11 % 3.15 % Cost of Funds 1.88 % 0.41 % Cost of Deposits 1.71 % 0.33 % Cost of Debt 5.90 % 4.82 % ____________________________________ (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.
Biggest changeYear 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.
Loan losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan. The calculation of expected credit losses is determined using cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances.
Loan losses are charged against the allowance when management’s assessments confirm that the Company will not collect the full amortized cost basis of a loan. The calculation of expected credit losses is determined using a cash flow methodology, and includes considerations of historical experience, current conditions, and reasonable and supportable economic forecasts that may affect collection of the recorded balances.
The determination of the appropriate level of ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes.
The determination of the appropriate level of the ACL on loans inherently involves a high degree of subjectivity and requires the Company to make significant judgments concerning credit risks and trends using quantitative and qualitative information, as well as reasonable and supportable forecasts of future economic conditions, all of which may undergo frequent and significant changes.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS The Notes to the Consolidated Financial Statements discuss the expected impact of accounting policies recently issued or proposed but not yet required to be adopted.
RECENT ACCOUNTING PRONOUNCEMENTS AND DEVELOPMENTS The notes to consolidated financial statements discuss the expected impact of accounting policies recently issued or proposed but not yet required to be adopted.
Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB of Atlanta. The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.
Other sources of funds include our ability to borrow, such as purchasing federal funds from correspondent banks, sales of securities under agreements to repurchase and advances from the FHLB. The Bank uses wholesale funding (brokered deposits and other sources of funds) to supplement funding when loan growth exceeds core deposit growth and for asset-liability management purposes.
The Bank uses data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans. Historical loss experience serves as the foundation for our estimated credit losses.
The Bank uses loan data to estimate expected credit losses under CECL, including information about past events, current conditions, and reasonable and supportable forecasts relevant to assessing the collectability of the cash flows of the loans. Historical loss experience serves as the foundation for our estimated credit losses.
Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the 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.
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.
Management has extensive experience in CRE lending, and has implemented and continues to maintain heightened risk management procedures, as well as strong underwriting criteria with respect to its CRE portfolio. Monitoring practices are part of the Bank’s credit and risk departments annual test plans and are adjusted as needed on a quarterly basis if external or internal conditions merit changes.
Management has extensive experience in CRE lending, and has implemented and continues to maintain heightened risk management procedures, as well as strong underwriting criteria with respect to its CRE portfolio. Monitoring practices are part of the Bank’s credit and risk departments’ annual test plans and are adjusted as needed on a quarterly basis if external or internal conditions merit changes.
The Bank has arrangements with other correspondent banks whereby it has $45.0 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 which may not otherwise be funded by the Bank’s portfolio of readily marketable investments that can be converted to cash.
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term funding markets.
To the extent that deposits are not adequate to fund customer loan demand, liquidity needs can be met in the short-term fund markets.
The efforts to accomplish this goal include frequently contacting borrowers until the delinquency is cured or until an acceptable payment plan has been agreed upon; obtaining updated appraisals; provisioning for credit losses; charging off loans; transferring loans to OREO; aggressively marketing OREO; and selling loans.
The efforts to accomplish this goal include frequently contacting borrowers until the delinquency is cured or until an acceptable payment plan has been agreed upon; obtaining updated appraisals; provisioning for credit losses; charging-off loans; transferring loans to OREO or repossessed assets; aggressively marketing OREO and repossessed assets; and selling loans.
Allowance for Credit Losses on Loans The Company adopted ASU No. 2026-13, “Financial Instruments – Credit Losses (Topic 326)”, as amended, on January 1, 2023 and in accordance with ASC 326, has recorded an ACL on loans carried at amortized cost.
Allowance for Credit Losses on Loans The Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326),” as amended, on January 1, 2023 and in accordance with ASC 326, has recorded an ACL on loans carried at amortized cost.
The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate. Changes in the ACL on loans, and as a result, the related provision for credit losses, can materially affect financial results.
The Company assesses an ACL to groups of loans which share similar risk characteristics or on an individual basis, as deemed appropriate. Changes in the ACL on loans and the related provision for credit losses can materially affect financial results.
The Company and the Bank annually update its strategic plan that includes a three-year capital plan. In developing its plan, the Company considers the impact to capital of asset growth, loan concentrations, income accretion, dividends, holding company liquidity, investment in markets and people and stress testing.
The Company and the Bank annually update its strategic plan, which includes a three-year capital plan. In developing its plan, the Company considers the impact to capital of asset growth, loan concentrations, income accretion, dividends, holding company liquidity, investment in markets and people and stress testing.
Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. See Non-GAAP reconciliation schedules that immediately follow: Reconciliation of Non-GAAP Measures Reconciliation of U.S.
Non-GAAP financial measures have limitations as analytical tools, and investors should not consider them in isolation or as a substitute for analysis of the results or financial condition as reported under GAAP. See non-GAAP reconciliation schedules that immediately follow.
Treasury yields, portfolio concentrations, the volume of classified loans, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduce the estimated value of any underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
Treasury yields, portfolio concentrations, the volume of classified loans, and other prevailing economic conditions and factors that may affect the borrower’s ability to repay, or reduction in the estimated value of any underlying collateral. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available.
The 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, 2023, 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 $250,000 or more as of December 31, 2024, as well as the portion that is uninsured.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion compares the Company’s financial condition at December 31, 2023 to its financial condition at December 31, 2022 and the results of operations for the years ended December 31, 2023 and 2022.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion compares the Company’s financial condition at December 31, 2024 to its financial condition at December 31, 2023 and the results of operations for the years ended December 31, 2024 and 2023.
Institutions which are deemed to have concentrations in CRE 44 Table of Contents lending are expected to employ heightened levels of risk management with respect to their CRE portfolios, and may be required to hold higher levels of capital.
Institutions which are deemed to have concentrations in CRE lending are expected to employ heightened levels of risk management with respect to their CRE portfolios, and may be required to hold higher levels of capital.
Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities (Dollars in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value December 31, 2023 Available for sale U.S.
Under 1 Year 1 - 5 Years 5 - 10 Years Over 10 Years Total Investment Securities ($ in thousands) Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Average Yield Amortized Cost Fair Value December 31, 2024 Available for sale U.S.
The reduction of nonperforming and problem loans is and will continue to be a high priority for the Company. 51 Table of Contents The following table summarizes our nonperforming assets for the years ended December 31, 2023 and December 31, 2022.
The reduction of nonperforming and problem loans is and will continue to be a high priority for the Company. 49 Table of Contents The following table summarizes our nonperforming assets for the years ended December 31, 2024 and 2023.
As of December 31, 2023, the Bank and Company were in compliance with all applicable regulatory capital requirements to which they were subject, and the Bank was classified as “well capitalized” for purposes of the prompt corrective action regulations.
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.
This discussion should be read in conjunction with the Consolidated Financial Statements and the Notes thereto appearing in Item 8 of Part II of this annual report. 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. 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.
Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year. Investment Securities The investment portfolio includes debt and equity securities.
Management believes liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and wholesale funding sources, and the portions of the investment and loan portfolios that mature within one year. Investment Securities The investment portfolio includes debt and equity securities. Debt securities are classified as either AFS or HTM.
The ratio of nonperforming assets to total assets at December 31, 2023 was 0.23% compared to 0.11% at December 31, 2022. The Company continues to focus on the resolution of its nonperforming and problem loans.
The ratio of nonperforming assets to total assets at December 31, 2024 was 0.40% compared to 0.23% at December 31, 2023. The Company continues to focus on the resolution of its nonperforming and problem loans.
On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain accredited purchasers pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% Fixed-to-Floating Rate Subordinated Notes due September 1, 2030. As a result of the acquisition of Severn Bancorp, Inc.
On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain accredited purchasers pursuant to which the Company issued and sold $25.0 million in aggregate principal amount with an initial interest rate of 5.375% Fixed-to-Floating Rate Subordinated Notes due September 1, 2030.
The Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity. 50 Table of Contents Classified Assets and Special Mention Assets Classified assets increased $12.2 million from $2.7 million at December 31, 2022 to $14.9 million at December 31, 2023.
The Company will continue to monitor activity for potential increases in the off-balance sheet reserve in future quarters as customers use available liquidity. 48 Table of Contents Classified Assets and Special Mention Assets Classified assets increased $13.3 million from $14.9 million at December 31, 2023 to $28.2 million at December 31, 2024.
To the extent the adoption of new accounting standards materially affects our financial condition, results of operations or liquidity, the impacts are discussed in the applicable section(s) of this discussion and Notes to the Consolidated Financial Statements. 36 Table of Contents 2023 PERFORMANCE OVERVIEW The Company recorded net income of $11.2 million for 2023 and net income of $31.2 million for 2022.
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.
The Company was provided $121.1 million more cash from financing activities compared to the prior year, primarily due to increased deposits of $243.2 million from management’s efforts to expand deposit relationships. The Company used less cash in 2023 compared to 2022 for net long-term debt activity.
The Company was provided $53.2 million more cash from financing activities compared to the prior year, primarily due to increased deposits of $304.8 million from management’s efforts to expand deposit relationships. The Company used less cash in 2024 compared to 2023 for net long-term debt activity.
(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 $11.8 million and $1.5 million of accretion interest on loans for the twelve months ended December 31, 2023 and 2022, 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. There were $16.9 million and $11.8 million of accretion interest on loans for the years ended December 31, 2024 and 2023, respectively.
Long-Term Debt The Company occasionally borrows from the FHLB to meet longer term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient. There were no long-term borrowings from the FHLB outstanding at December 31, 2023 and December 31, 2022.
Long-Term Debt The Company occasionally borrows from the FHLB to meet longer-term liquidity needs, specifically to fund loan growth when liquidity from deposit growth is not sufficient. There were $50.0 million and zero long-term borrowings from the FHLB outstanding at December 31, 2024 and 2023, respectively.
These policies, along with the disclosures presented in the notes to the financial statements and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
These policies, along with the disclosures presented in the notes to consolidated financial statements and in this management’s discussion and analysis of financial condition and results of operations, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined.
Comparison of Cash Flows for the Years Ending December 31, 2023 and 2022 During the year ended December 31, 2023, all financing activities provided $121.9 million in cash compared to $0.8 million in cash provided for the same period in 2022.
Comparison of Cash Flows for the Years Ended December 31, 2024 and 2023 During the year ended December 31, 2024, all financing activities provided $175.1 million in cash compared to $121.9 million in cash provided for the same period in 2023.
Cash and Cash Equivalents Cash and cash equivalents totaled $372.4 million at December 31, 2023, compared to $55.5 million at December 31, 2022. Total cash and cash equivalents fluctuate due to transactions in process and other liquidity demands.
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 Company was not required to repurchase any loans during 2023 or 2022. Loans Held for Investment The following table summarizes the Company’s loan portfolio at December 31, 2023 and December 31, 2022.
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 .
Short-term borrowings activity used $144.9 million more cash in 2023 compared to 2022 as the Bank paid down wholesale funding. The Company used $3.2 million more in cash for stock related activities in 2023 compared to 2022. The increase was primarily due to a $3.2 million increase in common stock dividend payments.
Short-term borrowings activity used $109.0 million less cash in 2024 compared to 2023 as the Bank paid down wholesale funding. The Company used $3.3 million more cash for stock-related activities in 2024 compared to 2023, primarily due to a $3.3 million increase in common stock dividend payments.
Maturity of Loan Portfolio The following table below sets forth the maturities and interest rate sensitivity of the loan portfolio at December 31, 2023. Demand loans, loans having no stated schedule of repayments and no stated maturity, and overdrafts are reported as due in one year or less.
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.
Additionally, as a result of the TCFC merger, the Company acquired Junior Subordinated Debt Securities which had an outstanding principal balance of $12.0 million. The debt balance of $10.6 million at December 31, 2023 was presented net of a fair value adjustment of $1.4 million.
The debt balance of $18.8 million at December 31, 2024 and $18.6 million at December 31, 2023 was presented net of fair value adjustments of $1.8 million and $2.0 million, respectively. Additionally, as a result of the TCFC merger in 2023, the Company acquired Junior Subordinated Debt Securities which had an outstanding principal balance of $12.4 million.
(2) The balances for our non-owner occupied commercial real estate portfolio as of December 31, 2023, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines.
(2) The balances for our non-owner occupied commercial real estate portfolio as of December 31, 2024, as presented in this table, coincide with our internal evaluation of risk for the purpose of monitoring loan concentrations in accordance with internal and regulatory guidelines. (3) Excludes loans held for sale of $19.6 million.
The decrease in the NIM was primarily due to an increase in the average balance and rates paid on interest-bearing liabilities of $975.9 million and 192 basis points, partially offset by an increase in the average balance and rates earned on total earning assets of $1.1 billion and 138 basis points.
The decrease in the NIM was primarily due to an increase in the average balance and rates paid on interest-bearing liabilities of $723.3 million and 72 basis points, respectively, partially offset by an increase in the average balance and rates earned on total earning assets of $1.16 billion and 44 basis points, respectively.
The ratio of period-end equity to total assets was 8.50% for 2023, as compared to 10.48% for 2022.
The ratio of period-end equity to total assets was 8.68% for 2024, as compared to 8.50% for 2023.
The Bank has a concentration in CRE loans, and experienced significant growth in its CRE portfolio with its acquisition of TCFC and its wholly-owned subsidiary CBTC. Non-owner occupied CRE as a percentage of the Bank’s Tier 1 Capital + ACL at December 31, 2023 and December 31, 2022 was $2.0 billion or 382.6% and $1.0 billion or 289.4%, respectively.
The Bank has a concentration in CRE loans, and experienced significant growth in its CRE portfolio with its acquisition of TCFC and its wholly-owned subsidiary CBTC. Non-owner occupied CRE loans totaled $2.08 billion and $2.02 billion at December 31, 2024 and 2023, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 359.5% and 382.6%, respectively.
At December 31, 2023, there were $156.1 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, 2023 was $893.5 million, or 16.6% of total deposits.
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.
Reciprocal deposits as a percentage of the Bank’s liabilities at December 31, 2023 and December 31, 2022 were 24.0% and 15.8%, respectively. For call reporting purposes, $204.8 million of reciprocal deposits were considered brokered at December 31, 2023 compared to none at December 31, 2022.
Reciprocal deposits as a percentage of the Bank’s liabilities at December 31, 2024 and 2023 were 29.8% and 24.0%, respectively. For call reporting purposes, $520.5 million of reciprocal deposits were considered brokered at December 31, 2024 compared to $229.9 million at December 31, 2023.
The increase in interest and fees on loans was primarily due to the increase in the average balance of loans of $1.3 billion, or 58.7%, and an increase in net accretion income of $7.5 million due to the merger.
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”).
This financial information includes certain performance measures, which exclude intangible assets. These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
These non-GAAP measures are included because the Company believes they may provide useful supplemental information for evaluating the underlying performance trends of the Company.
The Bank’s principal use of cash has been in investing activities including its investments in loans, investment securities and other assets. In 2023, the level of net cash provided from investing activities increased $753.9 million to $172.3 million from net cash used of $581.6 million in 2022.
The Bank’s principal use of cash has been in investing activities including its investments in loans and investment securities. In 2024, the level of net cash used in investing activities increased $306.9 million to $134.5 million from net cash provided by investing activities of $172.3 million in 2023.
Regulatory guidance defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits. At December 31, 2023, the Bank had four local municipal customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million or 11.11% of total deposits of $5.4 billion.
Regulatory guidance defines a large depositor as a customer or entity that owns or controls 2% or more of the Bank’s total deposits. At December 31, 2024, the Bank had three local municipal customer deposit 50 Table of Contents relationships that exceeded 2% of total deposits, totaling $547.4 million, or 9.90% of total deposits of $5.53 billion.
The levels of such assets are dependent on the Bank’s operating, financing and investment activities at any given time. The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities.
The variations in levels of cash and cash equivalents are influenced by deposit flows and anticipated future deposit flows. Customer deposits are considered the primary source of funds supporting the Bank’s lending and investment activities.
For FDIC call reporting purposes, reciprocal deposits are classified as brokered deposits when they exceed 20% of a bank’s liabilities or $5.0 billion. Reciprocal deposits increased $816.0 million to $1.3 billion at December 31, 2023 compared to $475.6 million at December 31, 2022.
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.
At December 31, 2023, AFS securities net unrealized losses were all related to changes in interest rates and were $10.3 million, or less than 1% of total assets and 2.0% of stockholder’s equity before AOCI of $518.6 million. At December 31, 2023, HTM securities, carried at amortized cost, totaled $513.2 million compared to $559.5 million at December 31, 2022.
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.
(2) Includes Loans held for sale of $8.8 million. Office CRE Portfolio The Bank’s office CRE portfolio, which included owner-occupied and non-owner occupied CRE loans, was $541.6 million or 10.6% of total loans of $4.6 billion at December 31, 2023.
(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.
Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policies with respect to the allowance for credit losses on loans, goodwill and bargain purchase gain, accounting for loans acquired in business combinations, and income taxes are critical accounting policies.
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.
As seen in the Consolidated Statements of Cash Flows in the Financial Statements, the net increase in cash and cash equivalents was $316.9 million for the year ended December 31, 2023 compared to a decrease of $528.1 million for the year ended December 31, 2022.
As seen in the consolidated statements of cash flows, the net increase in cash and cash equivalents was $87.4 million for the year ended December 31, 2024, compared to an increase of $316.9 million for the year ended December 31, 2023.
Excluding merger and acquisition costs and core deposit intangible amortization, of $23.5 million for 2023 and $4.1 million for 2022, noninterest expense for the comparable periods was $99.9 million and $76.2 million, respectively. Noninterest expense as a percentage of average assets increased to 2.6% for 2023 from 2.3% for 2022.
Excluding merger and merger-related expenses, core deposit intangible amortization of $9.8 million for 2024 and $6.1 million for 2023, noninterest expense for the comparable periods was $128.5 million and $99.9 million, respectively. Noninterest expense as a percentage of average assets decreased to 2.3% for 2024 from 2.6% for 2023.
Construction loans as a percentage of the Bank’s Tier 1 Capital + ACL at December 31, 2023 and December 31, 2022 was $299.0 million or 56.7% and $246.3 million or 69.9%, respectively. The CRE portfolio has increased significantly in the past two years.
Construction loans totaled $336.0 million and $299.0 million at December 31, 2024 and 2023, respectively, and as a percentage of the Bank’s Tier 1 Capital + ACL were 58.0% and 56.7%, respectively. The CRE portfolio has increased in the past two years.
The increase in tax-equivalent net interest income was primarily due to an increase in total interest income of $100.2 million, or 88.0%, which included an increase in interest and fees on loans of $95.2 million, or 96.1%.
The increase in 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%.
Average total deposits increased from $3.0 billion at December 31, 2022 to $4.0 billion at December 31, 2023, an increase of $1.0 billion, or 33.67%. The following table sets forth the average balances of deposits and percentage of each major category to total average deposits for the year ended December 31, 2023 and December 31, 2022.
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 .
Cash used for loan activities decreased $109.7 million to $317.3 million, for the year ended December 31, 2023 from $427.0 million for the year ended December 31, 2022 as organic loan growth slowed in 2023 as management focused on merger integration as well as safe and sound moderate loan growth in the current economic environment.The use of funds to purchase investment securities decreased $148.1 million to $68.7 million for the year ended December 31, 2023 from $216.7 million for the year ended December 31, 2022.
Cash used for loan activities decreased $194.0 million to $123.3 million for the year ended December 31, 2024 from $317.3 million for the year ended December 31, 2023 as organic loan growth slowed in 2024 as management focused on merger integration as well as safe and sound moderate loan growth in the current economic environment.
Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported. The most significant accounting policies that the Company follows are presented in Note 1 to the Consolidated Financial Statements.
Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.
The ACL is a valuation allowance that is deducted from loans' amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged-off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries may not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Loans are charged-off against the ACL when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries may not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Investment securities, including restricted stock and equity securities, totaled $647.3 million at December 31, 2023, an $8.1 million, or 1.2%, decrease compared to $655.4 million at December 31, 2022. At December 31, 2023, AFS securities, carried at fair value, totaled $110.5 million compared to $83.6 million at December 31, 2022.
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.
There were $(1.8) million and $0.6 million of amortization of deposits premium, and $(0.6) million and $(0.2) million of amortization of borrowing fair value adjustment for the twelve months ended December 31, 2023 and 2022, respectively. 40 Table of Contents The following table presents changes in interest income and interest expense for the periods indicated.
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.
Management considers classified assets to be an important measure of asset quality. Increases in classified and special mention loan categories were due to loans related to our marine lending portfolio of $7.2 million and residential mortgages of $3.2 million all of which are diverse in origination date and not indicative of recurring trends.
Management considers classified assets to be an important measure of asset quality. Increases in classified and special mention loan categories were due to loans related to our marine lending portfolio and residential mortgages, all of which are diverse in origination date. The Company’s risk rating process for classified loans is an important input into the Company’s allowance methodology.
In addition, the Company acquired 4.75% fixed-to-floating rate subordinated notes with a principal balance of $19.5 million at December 31, 2023. The debt balance of $18.3 million at December 31, 2023 was presented net of fair value adjustment of $1.2 million. For additional information regarding the long-term debt, refer to Note 9 to the Consolidated Financial Statements.
The debt balance of $11.1 million at December 31, 2024 was presented net of a fair value adjustment of $1.3 million. In addition, the Company also acquired 4.75% fixed-to-floating rate subordinated notes with a principal balance of $19.5 million.
For the Year Ended (dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022 Net income (as reported) $ 11,228 $ 31,177 Return on Average Common Equity 2.54 % 8.76 % Average stockholders’ equity $ 441,790 $ 355,850 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) 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.
At December 31, 2023, AFS securities consisted of 76.0% mortgage-backed, 18.5% U.S. Government agencies and 5.5% corporate bonds, compared to 76.0%, 21.8%, and 2.3%, respectively, at year-end 2022.
At December 31, 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 .
Average noninterest-bearing deposits increased $155 million, or 17.44% in 2023, compared to an increase of $314.0 million, or 54.6%, in 2022. Deposits provided funding for approximately 92.5% and 93.6% of average earning assets for 2023 and 2022, respectively.
Average noninterest-bearing deposits increased $410.6 million, or 39.3%, in 2024, compared to 2023. Deposits provided funding for approximately 94.0% and 92.5% of average earning assets for 2024 and 2023, respectively.
The Bank's provision for credit losses for the twelve months ended December 31, 2023 was $31.0 million and was due primarily to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million related to the change in ACL methodology on SUB legacy loans.
The Company recorded a provision for credit losses on loans of $4.6 million for the year ended December 31, 2024 compared to $30.4 million for the year ended December 31, 2023 primarily due to $20.1 million related to the acquisition of TCFC legacy loans and $7.3 million resulting from the change in ACL methodology on TCFC legacy loans in 2023.
At December 31, 2022, 52 Table of Contents there were two customer deposit relationships that exceeded 2% of total deposits, totaling $217.8 million or 7.24% of total deposits of $3.0 billion. The Bank uses deposits primarily to fund loans and to purchase investment securities.
At December 31, 2023, there were four customer deposit relationships that exceeded 2% of total deposits, totaling $598.5 million or 11.11% of total deposits of $5.39 billion. The Bank uses deposits primarily to fund loans and to purchase investment securities.
(dollars in thousands, except per share amounts) December 31, 2023 December 31, 2022 Total assets $ 6,010,918 $ 3,477,276 Less: intangible assets Goodwill 63,266 63,266 Core deposit intangibles 48,090 5,547 Total intangible assets 111,356 68,813 Tangible assets $ 5,899,562 $ 3,408,463 Total common equity $ 511,135 $ 364,285 Less: intangible assets 111,356 68,813 Tangible common equity $ 399,779 $ 295,472 Common shares outstanding at end of period 33,161,532 19,864,956 Common equity to assets 8.50 % 10.48 % Tangible common equity to tangible assets 6.78 % 8.67 % Common book value per share $ 15.41 $ 18.34 Tangible common book value per share $ 12.06 $ 14.87 57 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, 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.
The following is a breakdown of the Company’s classified and special mention assets at December 31, 2023 and December 31, 2022, respectively: (dollars in thousands) December 31, 2023 December 31, 2022 Classified loans Substandard $ 14,672 $ 2,466 Doubtful — — Loss — — Total classified loans 14,672 2,466 Special mention loans 28,263 3,539 Total classified loans and special mention loans $ 42,935 $ 6,005 Classified loans $ 14,672 $ 2,466 Classified securities — — OREO 179 197 Total classified assets $ 14,851 $ 2,663 Total classified assets and special mention loans $ 43,114 $ 6,202 Total classified assets as a percentage of total assets 0.25 % 0.08 % Total classified assets as a percentage of risk based capital 2.75 % 0.73 % Nonperforming Assets At December 31, 2023, nonperforming assets were $13.7 million, an increase of $9.8 million, or 247.21%, when compared to December 31, 2022.
The following is a breakdown of the Company’s classified and special mention assets at December 31, 2024 and 2023 , respectively: ($ in thousands) December 31, 2024 December 31, 2023 Classified loans Substandard $ 24,679 $ 14,672 Doubtful — — Loss — — Total classified loans 24,679 14,672 Special mention loans 33,518 28,263 Total classified loans and special mention loans $ 58,197 $ 42,935 Classified loans $ 24,679 $ 14,672 OREO 179 179 Repossessed assets 3,315 — Total classified assets $ 28,173 $ 14,851 Total classified assets and special mention loans $ 61,691 $ 43,114 Total classified assets as a percentage of total assets 0.45 % 0.25 % Total classified assets as a percentage of risk based capital 4.77 2.75 Nonperforming Assets At December 31, 2024, nonperforming assets were $24.8 million, an increase of $11.1 million, or 80.98%, when compared to December 31, 2023.
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. 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, we may be required to repurchase the loan or indemnify the purchaser.
Income Taxes The Company reported income tax expense of $3.0 million for 2023, and income tax expense of $11.0 million for 2022. The effective tax rate was 20.8% for 2023, and 26.0% for 2022.
Income Taxes The Company reported income tax expense of $14.8 million and $3.0 million for the years ended December 31, 2024 and 2023, respectively. The effective tax rate was 25.2% for 2024 and 20.8% for 2023.
The basic and diluted income per share was $0.42 and $1.57 for fiscal year 2023 and 2022, respectively. Total assets were $6.0 billion at December 31, 2023, an increase of $2.5 billion or 72.9%, when compared to $3.5 billion at December 31, 2022.
The basic and diluted net income per share was $1.32 and $0.42 for the years ended December 31, 2024 and 2023, respectively. Total assets were $6.23 billion at December 31, 2024, an increase of $219.8 million or 3.7%, when compared to $6.01 billion at December 31, 2023.
Operating activities provided less cash of $29.7 million as cash provided decreased $22.7 million for the year ended December 31, 2023 compared to $52.6 million of cash provided for the same period of 2022.
Operating activities provided more cash of $24.2 million as cash provided increased to $46.9 million for the year ended December 31, 2024, compared to $22.7 million of cash provided for the same period of 2023.
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, 2023.
At December 31, 2024 and 2023 , 97.1% of the Bank’s carrying value of its investment portfolio consisted of securities issued or guaranteed by U.S. government agencies or government-sponsored agencies. The following tables set forth the weighted-average yields by maturity category of the bond investment portfolio as of December 31, 2024.
GAAP total assets, common equity, common equity to assets and book value to Non-GAAP tangible assets, tangible common equity, tangible common equity to tangible assets and tangible book value. This Annual Report on Form 10-K, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with GAAP.
Reconciliation of Non-GAAP Measures This Annual Report on Form 10-K, including the accompanying financial statement tables, contains financial information determined by methods other than in accordance with GAAP. This financial information includes certain performance measures, which exclude intangible assets.
The Company’s risk rating process for classified loans is an important input into the Company’s allowance methodology. Risk ratings are an important input into the Company’s ACL qualitative framework.
Risk ratings are an important input into the Company’s ACL qualitative framework.
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. Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity.
Investment securities in the HTM category are stated at cost adjusted for amortization of premiums and accretion of discounts and the ACL. We have the intent and ability to hold such securities until maturity.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAs of December 31, 2023, and 2022, the Company did not exceed any Board approved sensitivity limits for percentage change in net interest income. As of December 31, 2023, the Company exceeded Board approved limits for the percentage change in economic value of equity in the interest rate shocks of +400 and +300 due to extension rate risk on loans.
Biggest changeAs 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.
The Company’s internal limits for parallel shock scenarios are as follows: Shock in Basis Points Net Interest Income Economic Value of Equity + - 400 +/- 40% +/- 25% + - 300 +/- 30% +/- 20% + - 200 +/- 20% +/- 15% + - 100 +/- 10% +/- 10% 59 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 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.
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. 60 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. 59 Table of Contents
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 +/- 40% +/- 30% +/- 20% +/- 10% +/-10% +/- 20% December 31, 2023 (15.6) % (11.6) % (7.6) % (3.6) % 2.1 % 2.8 % December 31, 2022 (11.7) % (8.6) % (5.5) % (2.6) % (5.1) % (11.5) % 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.
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.
The 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 EVE Change in Interest Rates: + 400 bp + 300 bp + 200 bp + 100 bp - 100 bp - 200 bp Policy Limit +/- 25% +/- 20% +/- 15% +/- 10% +/-20% +/- 35% December 31, 2023 (27.7) % (20.9) % (13.8) % (6.6) % 4.1 % 5.8 % December 31, 2022 (25.3) % (18.9) % (12.4) % (6.0) % 0.1 % (2.6) % As with any method of measuring interest rate risk, certain shortcomings are inherent in the method of analysis presented in the foregoing tables.
The 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.
As of December 31, 2022, the Company exceeded Board approved limits for the percentage change in economic value of equity in the interest rate shock scenario of +400. 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 net interest income at risk produced by simulation analysis are indicators of an institution’s short-term performance in alternative rate environments.

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