Shore Bancshares(SHBI) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited consolidated financial statements for Q2 2025 and FY2024, including balance sheets, income statements, cash flows, and detailed accounting notes Consolidated Balance Sheets | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total Assets | $6,037,874 | $6,230,763 | | Total Liabilities | $5,472,680 | $5,689,697 | | Total Stockholders' Equity | $565,194 | $541,066 | - Total assets decreased by $192.9 million (3.1%) from December 31, 2024, to June 30, 2025, primarily due to decreases in cash and cash equivalents and held-to-maturity securities, partially offset by increases in loans held for investment and available-for-sale securities[9][243] Consolidated Statements of Income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Interest Income | $76,620 | $73,106 | $152,684 | $144,245 | | Total Interest Expense | $29,368 | $30,966 | $59,403 | $60,970 | | Net Interest Income | $47,252 | $42,140 | $93,281 | $83,275 | | Provision for Credit Losses | $1,528 | $2,081 | $2,556 | $2,488 | | Total Noninterest Income | $9,318 | $8,440 | $16,320 | $15,007 | | Total Noninterest Expense | $34,410 | $33,499 | $68,157 | $70,197 | | Net Income | $15,507 | $11,234 | $29,271 | $19,418 | | Basic Net Income per Common Share | $0.46 | $0.34 | $0.88 | $0.58 | | Diluted Net Income per Common Share | $0.46 | $0.34 | $0.88 | $0.58 | - Net income for Q2 2025 increased by $4.273 million (38.0%) YoY, driven by higher net interest income and noninterest income, partially offset by increased noninterest expense[11][184] - Net income for the six months ended June 30, 2025, increased by $9.853 million (50.7%) YoY, primarily due to higher net interest income and a decrease in noninterest expense[11][203] Consolidated Statements of Comprehensive Income | Metric (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $15,507 | $11,234 | $29,271 | $19,418 | | Other Comprehensive Income (Loss) | $730 | $(202) | $1,942 | $(766) | | Comprehensive Income | $16,237 | $11,032 | $31,213 | $18,652 | - Other comprehensive income (loss) significantly improved, moving from a loss of $(202) thousand in Q2 2024 to a gain of $730 thousand in Q2 2025, primarily due to unrealized holding gains on available-for-sale securities[12] Consolidated Statements of Changes in Stockholders' Equity | Metric (in thousands) | December 31, 2024 | June 30, 2025 | | :-------------------- | :---------------- | :------------ | | Common Stock | $333 | $334 | | Additional Paid in Capital | $358,112 | $359,063 | | Retained Earnings | $190,166 | $211,400 | | Accumulated Other Comprehensive Loss | $(7,545) | $(5,603) | | Total Stockholders' Equity | $541,066 | $565,194 | - Total stockholders' equity increased by $24.1 million (4.5%) from December 31, 2024, to June 30, 2025, driven by net income and a decrease in accumulated other comprehensive loss, partially offset by dividends declared[298] Consolidated Statements of Cash Flows | Metric (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net Cash Provided by Operating Activities | $11,446 | $5,418 | | Net Cash Used in Investing Activities | $(63,129) | $(74,157) | | Net Cash Used in Financing Activities | $(223,184) | $(164,791) | | Net Decrease in Cash and Cash Equivalents | $(274,867) | $(233,530) | | Cash and Cash Equivalents at End of Period | $184,984 | $138,883 | - Net cash provided by operating activities increased significantly to $11.4 million for the six months ended June 30, 2025, from $5.4 million in the prior year[17] - The net decrease in cash and cash equivalents was $274.9 million for the first six months of 2025, primarily due to a decrease in interest-bearing deposits, partially offset by an increase in noninterest-bearing deposits[20][224] Notes to Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies - The Company's primary revenue source is interest from commercial, residential mortgage, and other loans, along with fees from lending and banking services in Maryland, Delaware, and Virginia[25] - Mid-Maryland Title Company, Inc. ceased conducting real estate closings effective March 31, 2025, and will continue operations only as necessary to address work in progress[25] - The FASB issued ASU No. 2023-09, 'Improvements to Income Tax Disclosures,' effective for annual periods beginning after December 15, 2024, which the Company does not expect to have a material impact on its financial statements[27] Note 2 – Investment Securities | Security Type (in thousands) | Amortized Cost (June 30, 2025) | Fair Value (June 30, 2025) | Amortized Cost (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :--------------------------- | :----------------------------- | :------------------------- | :---------------------------- | :------------------------ | | Available for Sale | $195,389 | $187,679 | $159,593 | $149,212 | | Held to Maturity | $459,445 | $414,699 | $481,280 | $424,734 | | Equity Securities | N/A | $6,010 | N/A | $5,814 | - Net unrealized losses on Available for Sale (AFS) securities totaled $7.7 million at June 30, 2025, an improvement from $10.4 million at December 31, 2024, primarily due to market interest rate fluctuations rather than credit concerns[41] - The Company concluded no credit loss exists in its AFS securities portfolio as of June 30, 2025, due to high credit quality, intent to hold to maturity, and timely payments from issuers[39] Note 3 – Loans and Allowance for Credit Losses | Loan Class (in thousands) | June 30, 2025 | % of Total Loans (June 30, 2025) | December 31, 2024 | % of Total Loans (Dec 31, 2024) | | :------------------------ | :------------ | :------------------------------- | :---------------- | :------------------------------ | | Commercial real estate | $2,603,974 | 53.95% | $2,557,806 | 53.60% | | Residential real estate | $1,349,010 | 27.94% | $1,329,406 | 27.85% | | Construction | $350,053 | 7.25% | $335,999 | 7.04% | | Commercial | $224,092 | 4.64% | $237,932 | 4.99% | | Consumer | $294,239 | 6.09% | $303,746 | 6.37% | | Credit cards | $6,260 | 0.13% | $7,099 | 0.15% | | Total Loans | $4,827,628 | 100.00% | $4,771,988 | 100.00% | | Less: Allowance for Credit Losses | $(58,483) | | $(57,910) | | | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total Nonaccrual Loans | $16,782 | $21,008 | | Total Collateral-Dependent Loans | $16,760 | $20,840 | | Allowance for Credit Losses (ACL) | $58,483 | $57,910 | | ACL as % of Total Loans | 1.21% | 1.21% | - Nonaccrual loans decreased to $16.8 million at June 30, 2025, from $21.0 million at December 31, 2024, indicating an improvement in asset quality[52][53] - Nine loan modifications were made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025, totaling $6.6 million in commercial real estate loans, with no defaults on prior modifications[72][73] Note 4 – Goodwill and Other Intangible Assets | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Goodwill | $63,266 | $63,266 | | Core Deposit Intangible, Net | $33,761 | $38,311 | | Total Intangible Assets, Net | $97,027 | $101,577 | - Amortization expense for the core deposit intangible was $2.3 million for Q2 2025 (down from $2.6 million in Q2 2024) and $4.5 million for the six months ended June 30, 2025 (down from $5.1 million in H1 2024)[81] Note 5 – Leases | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Lease Liabilities | $11,541 | $11,844 | | Right-of-Use Assets | $11,052 | $11,385 | | Weighted-Average Remaining Lease Term | 9.33 years | 10.20 years | | Weighted-Average Discount Rate | 3.45% | 3.29% | - Operating lease cost remained stable at $494 thousand for Q2 2025 and $986 thousand for H1 2025, consistent with the prior year periods[86] Note 6 - Deposits | Deposit Type (in thousands) | June 30, 2025 | % of Total Deposits (June 30, 2025) | December 31, 2024 | % of Total Deposits (Dec 31, 2024) | | :-------------------------- | :------------ | :---------------------------------- | :---------------- | :--------------------------------- | | Noninterest-bearing | $1,575,120 | 29.64% | $1,562,815 | 28.27% | | Interest-bearing checking | $763,309 | 14.36% | $978,076 | 17.69% | | Money market and savings | $1,691,438 | 31.84% | $1,805,884 | 32.67% | | Time deposits | $1,273,285 | 23.96% | $1,181,561 | 21.37% | | Brokered deposits | $10,806 | 0.20% | — | — | | Total Deposits | $5,313,958 | 100.00% | $5,528,336 | 100.00% | - Total deposits decreased by $214.4 million (3.9%) to $5.3 billion at June 30, 2025, primarily due to decreases in interest-bearing demand deposits and money market/savings, partially offset by an increase in time deposits and the introduction of brokered deposits[88][287][288] - Approximately $1.11 billion of time deposits mature within one year as of June 30, 2025[89] Note 7 - Borrowings | Borrowing Type (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------------- | :------------ | :---------------- | | Subordinated Debentures | $44,500 | $44,500 | | Trust Preferred Securities | $32,991 | $32,991 | | Less: Net Discount and Unamortized Issuance Costs | $(3,250) | $(3,774) | | Total Long-Term Debt | $74,241 | $73,717 | | FHLB Advances | $50,000 | $50,000 | - The Company has $50.0 million in FHLB advances outstanding at a rate of 4.79%, maturing on November 7, 2025[95] Note 8 – Derivatives | Derivative Type (in thousands) | Notional Amount (June 30, 2025) | Fair Value (June 30, 2025) | Notional Amount (Dec 31, 2024) | Fair Value (Dec 31, 2024) | | :----------------------------- | :------------------------------ | :------------------------- | :----------------------------- | :------------------------ | | Asset – IRLCs | $21,743 | $426 | $7,527 | $113 | | Asset – TBA securities | $4,750 | $3 | $22,100 | $164 | | Liability – TBA securities | $43,300 | $311 | $7,550 | $23 | - The Company uses interest rate lock commitments (IRLCs) and mandatory forward contracts (TBA securities) to manage price risk on mortgage loans intended for secondary market sale[97] Note 9 – Accumulated Other Comprehensive Loss | Metric (in thousands) | June 30, 2025 | June 30, 2024 | | :-------------------- | :------------ | :------------ | | Beginning of Period | $(7,545) | $(7,494) | | Other Comprehensive Income (Loss), Net of Tax | $1,942 | $(766) | | End of Period | $(5,603) | $(8,260) | - Accumulated other comprehensive loss improved significantly, decreasing from $(7.5) million at the beginning of the six-month period to $(5.6) million at June 30, 2025, primarily due to positive other comprehensive income[101] Note 10 – Regulatory Capital Requirements | Capital Ratio | Company (June 30, 2025) | Bank (June 30, 2025) | Regulatory Minimum | Well Capitalized Minimum | | :------------ | :---------------------- | :------------------- | :----------------- | :----------------------- | | CET1 to RWA | 9.90% | 11.18% | 7.00% | 6.50% | | Tier 1 to RWA | 10.51% | 11.18% | 8.50% | 8.00% | | Total Capital to RWA | 12.65% | 12.42% | 10.50% | 10.00% | | Tier 1 Leverage | 8.65% | 9.20% | 4.00% | 5.00% | - Both the Company and the Bank met all capital adequacy requirements and conservation buffer requirements as of June 30, 2025, with the Bank categorized as 'well-capitalized'[103][104][108] Note 11 – Fair Value Measurements | Asset Type (in thousands) | Fair Value (June 30, 2025) | Level 1 | Level 2 | Level 3 | | :------------------------ | :------------------------- | :------ | :------ | :------ | | AFS Securities | $187,679 | — | $187,679 | — | | Equity Securities | $6,010 | — | $6,010 | — | | Loans Held for Sale | $34,319 | — | $34,319 | — | | IRLCs | $426 | — | — | $426 | | Total Assets at Fair Value | $228,437 | — | $228,011 | $426 | - IRLCs are classified as Level 3 due to the use of unobservable inputs, specifically the estimated probability of loan closing (pull-through rate), which averaged 87% at June 30, 2025[116][117] - Nonrecurring fair value adjustments for collateral-dependent loans, OREO, and repossessed assets are classified as Level 3, based on appraisals and estimated selling costs[125][126][127] Note 12 – Fair Value of Financial Instruments | Financial Instrument (in thousands) | Carrying Amount (June 30, 2025) | Fair Value (June 30, 2025) | Fair Value Level | | :---------------------------------- | :------------------------------ | :------------------------- | :--------------- | | Cash and Cash Equivalents | $184,984 | $184,984 | Level 1 | | AFS Securities | $187,679 | $187,679 | Level 2 | | HTM Securities | $459,246 | $414,699 | Level 2 | | Loans Held for Investment, Net | $4,769,145 | $4,662,358 | Level 3 | | Total Deposits | $5,313,958 | $5,311,451 | Level 2 | - Loans held for investment, net, had a carrying amount of $4.77 billion and an estimated fair value of $4.66 billion at June 30, 2025, with fair value measurements classified as Level 3[137] Note 13 – Commitments and Contingencies | Commitment Type (in thousands) | June 30, 2025 | December 31, 2024 | | :----------------------------- | :------------ | :---------------- | | Commitments to Extend Credit | $772,480 | $759,480 | | Letters of Credit | $30,508 | $27,961 | | Total Commitments Outstanding | $802,988 | $787,441 | - The Bank's reserve for off-balance sheet credit exposures increased to $1.9 million at June 30, 2025, from $1.1 million at December 31, 2024[143] - Management does not anticipate that future liability from current legal proceedings will have a material effect on the Company's financial condition, operating results, or liquidity[144] Note 14 – Earnings per Common Share | Metric (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net Income | $15,507 | $11,234 | $29,271 | $19,418 | | Basic Net Income per Common Share | $0.46 | $0.34 | $0.88 | $0.58 | | Diluted Net Income per Common Share | $0.46 | $0.34 | $0.88 | $0.58 | | Average Number of Common Shares Outstanding | 33,374,265 | 33,233,870 | 33,362,632 | 33,211,558 | Note 15 – Revenue Recognition | Noninterest Income (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | In-scope of Topic 606 | $5,707 | $5,252 | $10,347 | $9,961 | | Out-of-scope of Topic 606 | $3,611 | $3,188 | $5,973 | $5,046 | | Total Noninterest Income | $9,318 | $8,440 | $16,320 | $15,007 | - Noninterest income in-scope of Topic 606 increased by $455 thousand (8.7%) for Q2 2025 YoY, and by $386 thousand (3.9%) for H1 2025 YoY[157] - Service charges on deposit accounts, trust and investment fee income, and interchange income are recognized over time or at a point in time depending on the nature of the service[148][150][155] Note 16 – Segment Reporting - The Company operates as a single reportable operating segment, as the Chief Operating Decision Maker evaluates financial performance on a Company-wide basis, aggregating similar operating performance of products and customers[158] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition, operating results, liquidity, and capital resources, with analysis of key performance indicators and balance sheet trends FORWARD-LOOKING INFORMATION - The report contains forward-looking statements based on management's current expectations, which involve inherent risks and uncertainties that could cause actual results to differ materially[160] - Key risk factors include the strength of the U.S. economy, interest rate environment, government policies, ability to manage IT systems and cyber risks, regulatory changes, and competitive factors[160][167] INTRODUCTION - Shore Bancshares, Inc. is headquartered in Maryland, operating Shore United Bank, N.A. with 40 full-service branches across Maryland, Delaware, and Virginia[165] - The Company offers investment, insurance, financial planning, and wealth management services through Wye Financial Partners and Wye Trust[165] - Mid-Maryland Title Company, Inc. ceased real estate closings on March 31, 2025, and will dissolve after addressing outstanding matters[165] CRITICAL ACCOUNTING POLICIES - The Allowance for Credit Losses (ACL) on loans is identified as a critical accounting policy due to its high degree of subjectivity and reliance on significant judgments, estimates, and assumptions regarding credit risks and economic forecasts[169][170][171] - The ACL represents management's best estimate of expected lifetime credit losses within the loan portfolio, determined using a cash flow methodology and considering historical experience, current conditions, and reasonable economic forecasts[170] OVERVIEW | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :----- | :------ | :------ | :------ | | Net Income (in millions) | $15.5 | $13.8 | $11.2 | | Diluted EPS | $0.46 | $0.41 | $0.34 | | ROAA | 1.03% | 0.91% | 0.77% | | NIM | 3.35% | 3.24% | 3.11% | | Book Value per Share | $16.94 | $16.55 | $15.74 | | Nonperforming Assets to Total Assets | 0.33% | 0.31% | 0.29% | | Efficiency Ratio (GAAP) | 60.83% | 63.64% | 66.23% | - Net income for Q2 2025 increased by $1.7 million to $15.5 million from Q1 2025, driven by higher net interest income and mortgage banking activity[175] - Net Interest Margin (NIM) expanded by 11 basis points to 3.35% in Q2 2025 from 3.24% in Q1 2025, due to modest loan growth, higher accretion income, and lower cost of deposits[175] - The efficiency ratio improved to 60.83% in Q2 2025 from 63.64% in Q1 2025, reflecting ongoing expense management and technology investments[175] SUMMARY OF OPERATING RESULTS | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----- | :------ | :------ | :------ | :------ | | ROAA | 1.03% | 0.77% | 0.97% | 0.67% | | ROACE | 11.13 | 8.70 | 10.67 | 7.54 | | NIM | 3.35 | 3.11 | 3.30 | 3.09 | | Efficiency Ratio (GAAP) | 60.83 | 66.23 | 62.19 | 71.42 | - The Company achieved significant improvements in profitability ratios, with ROAA increasing from 0.77% in Q2 2024 to 1.03% in Q2 2025, and ROACE rising from 8.70% to 11.13% over the same period[179] RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2025 AND 2024 | Metric (in thousands) | Q2 2025 | Q2 2024 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Net Interest Income | $47,252 | $42,140 | $5,112 | 12.1% | | Provision for Credit Losses | $1,528 | $2,081 | $(553) | (26.6)% | | Noninterest Income | $9,318 | $8,440 | $878 | 10.4% | | Noninterest Expense | $34,410 | $33,499 | $911 | 2.7% | | Net Income | $15,507 | $11,234 | $4,273 | 38.0% | - Net interest income increased by $5.1 million (12.1%) YoY, primarily due to higher interest and fees on loans and interest on deposits with other banks, coupled with a decrease in interest expense on short-term borrowings[185][186][193] - The Net Interest Margin (NIM) increased to 3.35% in Q2 2025 from 3.11% in Q2 2024, as interest-earning asset yields increased and the cost of funds repriced at a faster pace[194] - Noninterest income rose by $878 thousand (10.4%) YoY, mainly driven by increased mortgage banking activity, including higher mortgage servicing activity and lower prepayment rates[196] - Noninterest expense increased by $911 thousand (2.7%) YoY, primarily due to higher salaries and benefits and software/data processing costs, partially offset by lower operating expenses[198] RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND 2024 | Metric (in thousands) | H1 2025 | H1 2024 | $ Change | % Change | | :-------------------- | :------ | :------ | :------- | :------- | | Net Interest Income | $93,281 | $83,275 | $10,006 | 12.0% | | Provision for Credit Losses | $2,556 | $2,488 | $68 | 2.7% | | Noninterest Income | $16,320 | $15,007 | $1,313 | 8.7% | | Noninterest Expense | $68,157 | $70,197 | $(2,040) | (2.9)% | | Net Income | $29,271 | $19,418 | $9,853 | 50.7% | - Net interest income increased by $10.0 million (12.0%) for the six months ended June 30, 2025, driven by an $8.4 million increase in total interest income and a $1.6 million decrease in total interest expense[204][205] - The Net Interest Margin (NIM) increased from 3.09% in H1 2024 to 3.30% in H1 2025, supported by increased interest-earning asset balances and yields, and lower cost interest-bearing deposits[211] - Noninterest expense decreased by $2.0 million (2.9%) for the six months ended June 30, 2025, primarily due to the absence of a $4.3 million credit card fraud event from the prior year, partially offset by higher salaries and software expenses[215] LIQUIDITY - The Company's principal sources of liquidity are cash on hand and dividends from the Bank, while the Bank relies on net income, deposits, loan sales, borrowings, and payments on loans and securities[219][221] | Metric (in thousands) | June 30, 2025 | | :-------------------- | :------------ | | Liquidity in Use (FHLB secured borrowings) | $83,100 | | Liquidity Available (FHLB capacity) | $740,728 | | Liquidity Available (Unsecured federal fund lines) | $95,000 | | Liquidity Available (Cash and cash equivalents) | $184,984 | | Liquidity Available (Unpledged investment securities) | $316,500 | | Total Liquidity Available | $1,337,212 | - The net decrease in cash and cash equivalents was $274.9 million for the first six months of 2025, mainly due to a decrease in interest-bearing deposits, partially offset by an increase in noninterest-bearing deposits[224] CAPITAL RESOURCES | Capital Ratio | Company (June 30, 2025) | Bank (June 30, 2025) | | :------------ | :---------------------- | :------------------- | | CET1 Ratio | 9.90% | 11.18% | | Tier 1 Risk-Based Capital Ratio | 10.51% | 11.18% | | Total Risk-Based Capital Ratio | 12.65% | 12.42% | | Tier 1 Leverage Ratio | 8.65% | 9.20% | - Both the Company and the Bank were in compliance with all applicable regulatory capital requirements as of June 30, 2025, with the Bank classified as 'well-capitalized'[236] - The Company provides banking services to the cannabis industry, with deposit balances of $141.5 million (2.66% of total deposits) and loan balances of $84.6 million (1.75% of total gross loans) at June 30, 2025, despite federal illegality[239][240][242] ANALYSIS OF FINANCIAL CONDITION Balance Sheet Summary - Total assets decreased by $192.9 million (3.1%) to $6.04 billion at June 30, 2025, compared to $6.23 billion at December 31, 2024[243] - The decrease was primarily driven by reductions in cash and cash equivalents and held-to-maturity securities, partially offset by increases in loans held for investment and available-for-sale securities[243] Cash and Cash Equivalents | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and Cash Equivalents | $185,000 | $459,900 | - Cash and cash equivalents decreased by $274.9 million from December 31, 2024, to June 30, 2025, reflecting fluctuations from operating, financing, and investment activities[244] Investment Securities | Security Type (in thousands) | June 30, 2025 | December 31, 2024 | | :--------------------------- | :------------ | :---------------- | | Total Investment Securities | $673,300 | $656,400 | | AFS Securities (Fair Value) | $187,700 | $149,200 | | HTM Securities (Amortized Cost) | $459,200 | $481,100 | - At June 30, 2025, 29.0% of the debt securities portfolio was AFS and 71.0% was HTM, compared to 23.7% and 76.3% respectively, at December 31, 2024[245] - 97.9% of the investment portfolio's carrying value at June 30, 2025, consisted of securities issued or guaranteed by U.S. government agencies or government-sponsored agencies, with no speculative grade HTM securities[249][250] Loans Held for Sale | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Fair Value of Loans Held for Sale | $34,300 | $19,600 | - The fair value of loans held for sale increased to $34.3 million at June 30, 2025, from $19.6 million at December 31, 2024[255] - The Bank repurchased one loan of $415 thousand during the six months ended June 30, 2025, with no repurchases in prior periods[255] Loans Held for Investment | Loan Class (in thousands) | June 30, 2025 | % of Total Loans | December 31, 2024 | % of Total Loans | $ Change | % Change | | :------------------------ | :------------ | :--------------- | :---------------- | :--------------- | :------- | :------- | | Commercial real estate | $2,603,974 | 54.0% | $2,557,806 | 53.6% | $46,168 | 1.8% | | Residential real estate | $1,349,010 | 27.9% | $1,329,406 | 27.9% | $19,604 | 1.5% | | Construction | $350,053 | 7.3% | $335,999 | 7.0% | $14,054 | 4.2% | | Commercial | $224,092 | 4.6% | $237,932 | 5.0% | $(13,840) | (5.8)% | | Consumer | $294,239 | 6.1% | $303,746 | 6.4% | $(9,507) | (3.1)% | | Credit cards | $6,260 | 0.1% | $7,099 | 0.2% | $(839) | (11.8)% | | Total Loans | $4,827,628 | 100.0% | $4,771,988 | 100.0% | $55,640 | 1.2% | - Total loans held for investment increased by $55.6 million (1.2%) to $4.83 billion at June 30, 2025, primarily driven by growth in commercial real estate, residential real estate, and construction loans[257] - Non-owner occupied CRE loans totaled $2.14 billion (44.4% of total loans) and construction loans totaled $349.6 million (7.25% of total loans) at June 30, 2025, indicating a concentration in CRE lending that requires heightened risk management[50][258][262] - The office CRE loan portfolio was $484.3 million (10.0% of total loans) at June 30, 2025, with 80.5% secured by properties in rural or suburban areas and an average LTV of 48.4%[265][267] Asset Quality | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Total Classified Assets | $22,566 | $28,173 | | Total Nonperforming Assets | $19,633 | $24,796 | | Allowance for Credit Losses (ACL) | $58,483 | $57,910 | | ACL as % of Total Portfolio Loans | 1.21% | 1.21% | | Nonperforming Assets to Total Assets | 0.33% | 0.40% | - Classified assets decreased by $5.6 million to $22.6 million (0.4% of total assets) at June 30, 2025, primarily due to a decrease in substandard loans and repossessed assets[283] - Nonperforming assets decreased by $5.2 million to $19.6 million (0.3% of total assets) at June 30, 2025, mainly due to a reduction in nonaccrual loans and repossessed assets[284] - Special mention loans increased to $65.6 million at June 30, 2025, from $33.5 million at December 31, 2024, primarily due to loans in the multifamily commercial real estate portfolio[283] Deposits | Deposit Type (in thousands) | June 30, 2025 | % of Total Deposits | December 31, 2024 | % of Total Deposits | $ Change | % Change | | :-------------------------- | :------------ | :------------------ | :---------------- | :------------------ | :------- | :------- | | Noninterest-bearing | $1,575,120 | 29.6% | $1,562,815 | 28.3% | $12,305 | 0.8% | | Interest-bearing checking | $763,309 | 14.4% | $978,076 | 17.7% | $(214,767) | (22.0)% | | Money market and savings | $1,691,438 | 31.8% | $1,805,884 | 32.7% | $(114,446) | (6.3)% | | Time deposits | $1,273,285 | 24.0% | $1,181,561 | 21.4% | $91,724 | 7.8% | | Brokered deposits | $10,806 | 0.2% | — | — | $10,806 | — | | Total Deposits | $5,313,958 | 100.0% | $5,528,336 | 100.0% | $(214,378) | (3.9)% | - Total deposits decreased by $214.4 million (3.9%) to $5.3 billion at June 30, 2025, primarily due to decreases in interest-bearing checking and money market/savings deposits, partially offset by an increase in time deposits and the introduction of brokered deposits[286][287][288] - Estimated uninsured deposits were $886.8 million (16.7% of total deposits) at June 30, 2025, with $118.0 million secured by pledged collateral[289] Wholesale Funding – Short-Term Borrowings and Brokered Deposits - The Company's wholesale funding increased to $60.8 million at June 30, 2025, from $50.0 million at December 31, 2024, primarily due to $10.8 million in brokered deposits[291] - Reciprocal deposits decreased by $331.3 million to $1.31 billion at June 30, 2025, with $232.9 million classified as brokered deposits for call reporting purposes[292] Long-Term Debt - The Company has $25.0 million in Fixed-to-Floating Rate Subordinated Notes due September 1, 2030, and acquired $18.9 million in Junior Subordinated Debt Securities due 2035 from the Severn merger[93][94][295][296] - Additional Junior Subordinated Debt Securities ($11.1 million) and 4.75% fixed-to-floating rate subordinated notes ($19.3 million) were acquired from The Community Financial Corporation merger in 2023[94][297] Stockholders' Equity | Metric (in thousands) | June 30, 2025 | December 31, 2024 | $ Change | % Change | | :-------------------- | :------------ | :---------------- | :------- | :------- | | Total Stockholders' Equity | $565,194 | $541,066 | $24,128 | 4.5% | - Total stockholders' equity increased by $24.1 million (4.5%) to $565.2 million at June 30, 2025, primarily due to $29.3 million of net income and a $1.9 million decrease in accumulated other comprehensive loss, partially offset by $8.0 million in dividends declared[298] USE OF NON-GAAP FINANCIAL MEASURES - The Company uses non-GAAP financial measures, such as Return on Average Tangible Common Equity (ROATCE), to provide supplemental information for evaluating underlying performance trends, excluding intangible assets[299][300][304] | Metric (in thousands, except per share amounts) | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :---------------------------------------------- | :------------ | :---------------- | :------------ | | Total Assets | $6,037,874 | $6,230,763 | $5,864,017 | | Less: Total Intangible Assets | $97,027 | $101,577 | $106,211 | | Tangible Assets | $5,940,847 | $6,129,186 | $5,757,806 | | Total Common Equity | $565,194 | $541,066 | $522,783 | | Less: Total Intangible Assets | $97,027 | $101,577 | $106,211 | | Tangible Common Equity | $468,167 | $439,489 | $416,572 | | Tangible Common Equity to Tangible Assets | 7.88% | 7.17% | 7.23% | | Tangible Common Book Value per Share | $14.03 | $13.19 | $12.54 | | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :----- | :------ | :------ | :------ | :------ | | ROACE | 11.13% | 8.70% | 10.67% | 7.54% | | ROATCE | 14.99% | 12.85% | 14.53% | 11.47% | Item 3. Quantitative and Qualitative Disclosures about Market Risk Details the Company's primary market risk, interest rate fluctuation, and mitigation strategies, including NII and EVE sensitivity analysis and policy limit adherence - The Company's primary market risk is interest rate fluctuation, managed through quarterly simulations of interest rate shocks (+/- 100, 200, 300, and 400 basis points) to assess Net Interest Income (NII) and Economic Value of Equity (EVE) at risk[307][308] | Change in Interest Rates | NII Policy Limit | NII Change (June 30, 2025) | NII Change (Dec 31, 2024) | | :----------------------- | :--------------- | :------------------------- | :------------------------ | | +400 basis points | +/- 25% | (7.6)% | (3.8)% | | +300 basis points | +/- 20% | (5.2)% | (2.4)% | | +200 basis points | +/- 15% | (3.2)% | (1.3)% | | +100 basis points | +/- 10% | (1.4)% | (0.5)% | | -100 basis points | +/- 10% | 0.7% | (0.1)% | | -200 basis points | +/- 15% | (0.6)% | (2.1)% | | Change in Interest Rates | EVE Policy Limit | EVE Change (June 30, 2025) | EVE Change (Dec 31, 2024) | | :----------------------- | :--------------- | :------------------------- | :------------------------ | | +400 basis points | +/- 40% | 13.5% | 15.2% | | +300 basis points | +/- 30% | 12.8% | 14.2% | | +200 basis points | +/- 20% | 10.7% | 11.7% | | +100 basis points | +/- 10% | 6.7% | 7.2% | | -100 basis points | +/- 10% | (9.4)% | (10.0)% | | -200 basis points | +/- 20% | (22.6)% | (24.2)% | - As of June 30, 2025, the Company exceeded Board approved limits for percentage change in economic value of equity in the interest rate shock of -200 basis points, similar to December 31, 2024, primarily due to average lives and low market rates on non-maturing deposit instruments[308] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures, with no material changes in internal control over financial reporting during the period - Management, including the PEO and PFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for timely and accurate information disclosure[314] - There were no changes in the Company's internal control over financial reporting during the six months ended June 30, 2025, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[315] PART II. OTHER INFORMATION Item 1. Legal Proceedings States the Company is involved in legal proceedings, with no anticipated material adverse impact on financial condition or earnings - The Company does not anticipate that any future liability arising from current legal proceedings will have a material adverse impact on its financial condition or earnings[317] Item 1A. Risk Factors Indicates no material changes to risk factors previously disclosed in the 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors as previously disclosed in the Company's 2024 Annual Report on Form 10-K[318] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Confirms no repurchases or unregistered sales of common stock during the three months ended June 30, 2025 - There were no repurchases or unregistered sales of the Company's common stock during the three months ended June 30, 2025[319] Item 3. Defaults Upon Senior Securities States no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[320] Item 4. Mine Safety Disclosures Indicates mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[321] Item 5. Other Information Reports no officer or director adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements - No officer or director adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[322] Item 6. Exhibits Lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including merger agreements, articles, by-laws, and certifications - The exhibits include the Agreement and Plan of Merger, Amended and Restated Articles of Incorporation, Second Amended and Restated By-Laws, Description of Registrant's Securities, Certifications of Principal Executive and Accounting Officers, and Inline Interactive Data Files[323] SIGNATURES SIGNATURES Contains duly authorized signatures of the President & CEO and Executive VP & CFO, certifying the report filing - The report is signed by James M. Burke, President & Chief Executive Officer, and Charles S. Cullum, Executive Vice President & Chief Financial Officer, on August 7, 2025[327]