TCFC - The Community Financial Corporation Announces Record Fourth Quarter and Full Year Earnings for 2022

WALDORF, Md., Jan. 31, 2023 (GLOBE NEWSWIRE) -- The Community Financial Corporation (NASDAQ: TCFC) (the “Company”), the holding company for Community Bank of the Chesapeake (the “Bank”), today reported its results of operations for the fourth quarter and year ended December 31, 2022. Net income for the three months ended December 31, 2022 of $7.6 million, or $1.35 per diluted common share compared with net income of $7.6 million, or $1.34 per diluted common share for the third quarter of 2022, and net income of $6.8 million, or $1.18 per diluted common share for the quarter ended December 31, 2021. The Company reported net income for the year ended December 31, 2022 of $28.3 million, or $5.00 per diluted common share compared to a net income of $25.9 million, or $4.47 per diluted common share for the year ended December 31, 2021.

Fourth Quarter 2022 Highlights

• Announced Merger of Equals with Shore Bancshares, Inc.: On December 14, 2022, the Company entered into a definitive agreement to undertake a merger of equals pursuant to which the Company and Bank will merge into Shore Bancshares, Inc. (NASDAQ: SHBI) ("Shore") in an all-stock transaction. The combined company will have total assets of approximately $6.0 billion on a pro forma basis. Under the terms of the agreement, which was unanimously approved by the boards of directors of both companies and which remains subject to shareholder and regulatory approval, as well as the satisfaction of customary closing conditions, holders of TCFC common stock will have the right to receive 2.3287 shares of Shore Bancshares, Inc. common stock. The merger is expected to close in the late second quarter or early third quarter of 2023. James M. Burke, The Community Financial Corporation's current President and Chief Executive Officer, will serve as President and Chief Executive Officer of the combined company.
  
  The Company incurred $1.0 million of merger and acquisition costs during the year ended December 31, 2022 related to the transaction and anticipates additional expenses in 2023 related to the transaction.

• Record Earnings Per Share: Net income totaled $7.6 million for the quarter ended December 31, 2022, or $1.35 per diluted common share compared to net income of $6.8 million or $1.18 per diluted common share for the quarter ended December 31, 2021 and $7.6 million or $1.34 per diluted common share for the quarter ended September 30, 2022.
  
  Return on average assets ("ROAA") and return on average common equity ("ROACE") were 1.28% and 16.61% for the three months ended December 31, 2022 compared to 1.18% and 13.00% for the three months ended December 31, 2021 and 1.31% and 15.97% for the three months ended September 30, 2022.

• Impact of Merger & Acquisition Costs and Sale of Equity Investment: During the fourth quarter of 2022, the Company incurred $1.0 million in merger related costs and recognized a gain of $0.7 million on the sale of its equity investment in Infinex Financial Holdings, Inc. (“Infinex”). The net impact of these events for the three months ended December 31, 2022 was a decrease to EPS of $0.05 per diluted share and a decrease to ROAA of five basis points. The resulting non-GAAP diluted EPS and non-GAAP ROAA were $1.40 and 1.33%, respectively.
  
  Subsequent to the purchase of Infinex by Advisor Group, the Bank continues to use Infinex as its broker of record for its wealth division.

• Expanding Net Interest Margin: Net interest margin increased to 3.64% for the quarter ended December 31, 2022 from 3.47% for the third quarter of 2022. Loan and overall interest-earning asset yields increased 46 and 61 basis points to 4.92% and 4.50% in the fourth quarter of 2022 from 4.46% and 3.89% for the three months ended September 30, 2022. The Company's cost of funds increased 46 basis points for the comparable three month period from 0.43% to 0.89%.
  
  The loan portfolio is positioned for rising rates with $442.8 million or 24% of net portfolio loans scheduled to reprice monthly or in the next three months and an additional $108.5 million or 6% repricing in the following nine months. The Bank's effective duration on the loan portfolio was 2.0 years at December 31, 2022. If the Federal Open Market Committee ("FOMC") slows or pauses interest rate increases, the Company expects modest margin compression to occur as deposit rates begin to normalize in a more stable environment.

• Solid Loan Growth: Gross portfolio loans increased to $1,821.1 million, an increase of $77.8 million or 17.9% annualized, compared to the prior quarter. Portfolio loans increased $242.3 million or 15.3% during the year ended December 31, 2022. The loan pipeline at December 31, 2022 was $100.0 million compared to $192.0 million at September 30, 2022.
  
  Management anticipates moderate 2023 loan growth of between six and eight percent. Goals for lenders and business development teams have been further aligned to build on 2022 progress in acquiring customer operating deposit accounts. More modest loan goals in the current interest rate environment should contribute to building franchise-enhancing relationships with customers while mitigating potential margin compression from the use of more costly non-core funding sources.

• Deposits and Funding: During 2022, the Bank increased noninterest-bearing accounts by $184.3 million to $630.1 million or 30.17% of deposits at December 31, 2022 from 21.68% of deposits at December 31, 2021. Total deposits increased $32.3 million in 2022 from $2,056.2 million at December 31, 2021 to $2,088.5 million at December 31, 2022. The stability in deposit balances coupled with significant loan growth required the Bank to use wholesale funding in the fourth quarter. The Bank's deposit cycle generally sees deposit balances decrease in the first and fourth quarters as business customers and municipalities use funds for operating needs and build in the second and third quarters.
  
  At December 31, 2022, the Company had wholesale funding, which includes brokered deposits and Federal Home Loan Bank advances, of $133.5 million compared to $20.2 million at December 31, 2021.

• Stable Asset Quality: Non-accrual loans, OREO and TDRs were $6.5 million or 0.27% of total assets at December 31, 2022 compared to $6.7 million or 0.28% of total assets and $8.1 million or 0.35% of total assets at September 30, 2022 and December 31, 2021, respectively. Classified assets increased $0.9 million to $6.1 million at December 31, 2022 from $5.2 million at December 31, 2021. The Company had no COVID-19 deferred loans at December 31, 2022.

Management Commentary

"The fourth quarter capped a transformational year at Community Financial,” stated James M. Burke, President and Chief Executive Officer of The Community Financial Corporation. “Record earnings in each quarter combined for record annual performance. Investments in our business and continued expansion into Virginia fueled both growth and increased profitability. Our high-quality deposit franchise, while not immune from the recent increases in rates, continues to be a key differentiator that drives shareholder value.”

Burke continued, “In the fourth quarter, we took a major step forward in our strategic vision agreeing to a merger of equals with Shore Bancshares. This strategic combination is expected to enhance long-term shareholder value and help us better serve the communities in which we live and work. Community Financial and Shore Bancshares, Inc. share similar cultures and visions for the future. By achieving greater scale, we will be positioned to help existing and new customers with higher loan limits and enhanced services, increase investment in technology, and offer expanded career opportunities to our employees.”

Results of Operations

Net Interest Income

Net interest income for the comparable quarters increased primarily from increases in interest-earning asset yields and growth in loans partially offset by increased interest expense from higher funding costs. Net interest margin of 3.64% for the three months ended December 31, 2022 increased 42 basis points from 3.22% for the three months ended December 31, 2021 and increased 17 basis points from 3.47% for the three months ended September 30, 2022. Net interest margin expanded during the fourth quarter of 2022, primarily due to average yields on loans and investment securities (not including interest-bearing deposits) increasing to 4.92% and 2.95% for the three months ended December 31, 2022 from 4.46% and 2.02% for the three months ended September 30, 2022. Interest income from the Company's participation in the U.S. Small Business Administration Paycheck Protection Program ("PPP") was $34,000 and $0.8 million for the three months ended December 31, 2022 and December 31, 2021, respectively and $0.2 million for the three months ended September 30, 2022.

Net interest income increased for the year ended December 31, 2022 compared to the year ended December 31, 2021 due primarily to growth in loans and increases in investment and loan yields. Loan yields increased due to the re-pricing of the Bank's adjustable rate portfolios as well as a change in the mix of loans from lower yielding PPP loans to higher yielding commercial real estate loans. Increases to net interest income were partially offset by increased interest expense from higher funding costs. Loan interest income increased $7.3 million to $72.7 million for the year ended December 31, 2022 from $65.5 million for the year ended December 31, 2021. Excluding PPP interest income, for the comparable periods loan interest income increased $11.5 million. Net interest margin of 3.38% for the year ended December 31, 2022 was four basis points higher than the 3.34% for the year ended December 31, 2021. PPP loan interest positively impacted margins by four basis points for the year ended December 31, 2022 and 13 basis points for the year ended December 31, 2021.

The Company’s cost of funds was 0.89% during the fourth quarter of 2022 compared to 0.43% for the prior quarter and increased from 0.17% for the three months ended December 31, 2021. The Bank's interest rate asset sensitivity has improved in 2022, as average non-interest bearing ("NIB") deposit accounts have increased. For the fourth quarter of 2022 total average NIB deposits increased to 30.2% compared to 22.2% for the comparable period in 2021. The Company’s cost of funds was 0.43% during the year ended December 31, 2022 compared to 0.21% for the year ended December 31, 2021.

Management anticipates that net interest margins will contract slightly in the first quarter of 2023 as deposit betas are likely to increase due to more aggressive competition for funding. The average cost of deposits increased 52 basis points from 0.44% for the month of September 30, 2022 to 0.96% for the month of December 31, 2022. Higher beta municipal relationships were the main driver of increased deposit rates through the fourth quarter of 2022. As expected, deposit rates increased for commercial and retail customers during the fourth quarter of 2022. For the same comparative periods, average interest-earning asset yields increased 65 basis points from 4.01% to 4.66%.

Noninterest Income

Noninterest income was flat at $2.3 million for the three months ended December 31, 2022 compared to the three months ended December 31, 2021. The similar performance for the comparable periods was due to decreases in loan appraisal charges and interest rate protection referral fee income offset by a gain on the sale of the Bank's equity investment in Infinex during the fourth quarter of 2022. Noninterest income as a percentage of average assets was 0.39% and 0.40%, respectively, for the three months ended December 31, 2022 and 2021.

Noninterest income decreased $1.5 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The decrease was primarily due to gains of $0.6 million on the sale of investment securities in 2021 and a $1.4 million decrease in interest rate protection referral fee income. In addition, unrealized losses on equity securities increased $0.4 million. These reductions for the comparable periods were partially offset by $0.1 million in increased service charge income, a $0.7 million gain on the sale of the Bank's equity investment in Infinex, and a $0.4 million increase in noninterest income related to the sale of impaired loans. In the first quarter of 2021, the Bank sold non-accrual and classified commercial real estate and residential mortgage loans and recognized a loss on the sale of $0.2 million, and in the second quarter of 2022, impaired loan sales resulted in a gain of $0.2 million. Noninterest income as a percentage of assets was 0.27% and 0.36%, respectively, for the year ended December 31, 2022 and 2021.

Noninterest Expense

Noninterest expense of $11.4 million for the three months ended December 31, 2022, increased $1.2 million or 11.90% compared to the three months ended December 31, 2021 primarily due to $1.0 million in merger and acquisition costs and increased compensation and benefits of $0.3 million. Compensation and benefits increased in the second half of 2022 due to increased incentive compensation resulting from improvements in profitability as well as the Company's decision in the second quarter of 2022 to increase base compensation by 4% and its minimum starting wage to $20.00 per hour for non-executive employees to address local wage pressure caused by inflation and to attract and retain our employees.

In addition, for the comparable periods, occupancy expense increased $0.2 million and fraud expense increased $0.2 million. During 2022, data processing, professional fees, and occupancy costs increased substantially compared to the prior year due in large part to the increased cost of labor and materials due to inflation. Additionally, the occupancy costs increased during the second half of 2022 with the opening of a new branch in Fredericksburg - Harrison Crossing, Virginia. These increases were partially offset by a decrease of $0.8 million in OREO expense recognized in the fourth quarter of 2021. The Company had no OREO balances for the year ended December 31, 2022.

Noninterest expense increased $0.3 million or 0.7% to $39.4 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. The increase in noninterest expense for the comparable periods was primarily due to increased expenses for occupancy, merger and acquisition costs, data processing and professional fees. These increases to noninterest expense were partially offset by decreased compensation, fraud losses and OREO expenses.

Compensation and benefits were lower for the comparative periods due to lower health insurance claims, a lower average FTE count than the prior year and lower deferred compensation accruals. In addition, compensation and benefits expense has benefited from the Company's increased use of technology.

Noninterest expense in 2021 included a $1.3 million initial expense and subsequent recovery of $0.2 million related to an isolated wire transfer fraud incident. Our investigation determined that no information systems of the Bank were compromised, and no employee fraud was involved. Excluding the impact of the $1.1 million isolated fraud losses and the $0.3 million in PPP deferred costs, the Company's noninterest expense was $38.3 million for year ended December 31, 2021. OREO expense for the year ended December 31, 2021 decreased $1.5 million. The Company had no OREO balances for the year ended December 31, 2022.

The Company’s efficiency ratio was 50.13% and 49.34% for the three months and year ended December 31, 2022 compared to 53.10% and 52.67% for the three months and year ended December 31, 2021. The efficiency ratios have improved (decreased) as the Company has been able to generate more net interest income and noninterest income while controlling expense growth. Excluding merger and acquisition costs and core deposit intangible amortization, the Company's efficiency ratio was 46.80% and 48.02% for the three months and year ended December 31, 2022 compared to 52.50% and 52.00% for the three months and year ended December 31, 2021.

Income Tax Expense

The effective tax rate for the three months and year ended December 31, 2022 was 26.2% and 25.3%. The effective tax rate was 24.9% and 25.2% for the three months and year ended December 31, 2021.

Balance Sheet

Assets

Total assets increased $82.7 million, or 3.6%, to $2.41 billion at December 31, 2022 compared to total assets of $2.33 billion at December 31, 2021, primarily due to net loan growth. Cash decreased a net of $114.2 million and was used to fund net loan growth of $211.7 million. Available for sale ("AFS") debt securities, which are reported at fair value, decreased $35.1 million to $462.7 million, primarily due to unrealized losses from rising interest rates during 2022. In addition, deferred tax assets increased $15.6 million to $24.7 million primarily due to increases in unrealized losses of the Bank's AFS investment portfolio related to changes in interest rates. Deferred tax assets also increased due to the adoption of the current expected credit losses ("CECL") accounting standard on January 1, 2022.

During the fourth quarter of 2022, total net loans increased 17.7% annualized or $76.1 million from $1,722.5 million at September 30, 2022 to $1,798.5 million at December 31, 2022. The Company's loan pipeline was $100.0 million at December 31, 2022. Non-owner occupied commercial real estate as a percentage of risk-based capital at December 31, 2022 and December 31, 2021 were $1,032.6 million or 381% and $813.0 million or 331%, respectively. Construction loans as a percentage of risk-based capital at December 31, 2022 and December 31, 2021 were $135.0 million or 50% and $140.4 million or 57%, respectively.

Funding

Total deposits increased $32.3 million or 1.6% to $2,088.5 million at December 31, 2022 compared to $2,056.2 million at December 31, 2021. The increase included increases of $12.7 million to transaction deposits and $19.6 million to time deposits. Non-interest-bearing demand deposits increased $184.3 million or 41.35% at December 31, 2022, representing 30.17% of deposits, compared to 21.68% of deposits at December 31, 2021. The Company's business development efforts continue to focus on increasing non-interest bearing and lower cost transaction accounts.

At December 31, 2022, the Company had wholesale funding, which includes brokered deposits and FHLB advances, of $133.5 million compared to $20.2 million at December 31, 2021.

Stockholders' Equity and Regulatory Capital

During the year ended December 31, 2022, total stockholders’ equity decreased $21.1 million. The decrease in equity was primarily due to an increase of $41.1 million in accumulated other comprehensive loss ("AOCL") related to the Bank's AFS securities portfolio due to changes in market interest rates. In addition, equity decreased due to common dividends paid of $3.8 million, stock repurchases of $3.6 million, and $2.0 million for the adoption of the CECL accounting standard on January 1, 2022. Decreases in equity were partially offset by net income of $28.3 million and stock-based compensation and ESOP activity of $1.0 million.

The Company's common equity to assets ratio decreased to 7.76% at December 31, 2022 from 8.94% at December 31, 2021. The Company’s ratio of tangible common equity ("TCE") to tangible assets decreased to 7.32% at December 31, 2022 from 8.48% at December 31, 2021 (see Non-GAAP reconciliation schedules) due primarily to increases in AOCL. Regulatory capital was not impacted by the increase in AOCL and Tier 1 capital to average asset ratios at the Company remained strong at 9.60% at December 31, 2022 compared to 9.23% at December 31, 2021.

On December 9, 2021, the Company announced its Board of Directors approved the resumption of repurchases allowed under the stock repurchase plan originally adopted in October 2020 (the "2020 Repurchase Plan"). The Company was permitted to repurchase up to the 99,450 shares remaining under the 2020 Repurchase Plan using up to $4.0 million in the aggregate and up to $1.5 million in the aggregate on a quarterly basis. During the third quarter of 2022, the Company repurchased 13,647 shares at an average price of $37.11 per share and completed its authorization under the 2020 Repurchase Plan.

Asset Quality

Allowance for credit losses (" ACL ") and provision for credit losses (" PCL ") ¹ ; Allowance for Loan Losses (" ALLL ") and provision for loan losses (" PLL "); Classified and Non-Performing Assets

On January 1, 2022, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, which replaced the incurred loss methodology for determining our ACL with an expected loss methodology that is referred to as the CECL. The measurement of expected credit losses under the CECL methodology applies to financial assets subject to credit losses and measured at amortized cost, and certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. In addition, ASU 2016-13 made changes to the accounting for available-for-sale ("AFS") debt securities. Credit-related impairments on AFS debt securities are now recognized as an allowance for credit loss rather than a write-down of the securities' amortized cost basis when management does not intend to sell or believes that it is not likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis. We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2022, are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. At adoption, the Company did not hold Held to Maturity ("HTM") investment debt securities.

The impact at adoption was an increase to the ACL of $2.5 million, the recording of a reserve for unfunded commitments of $0.2 million, an increase in deferred taxes of $0.7 million, and a decrease in retained earnings of $2.0 million.

ACL balances increased to 1.26% of portfolio loans at December 31, 2022 compared to an ALLL of 1.17% of portfolio loans at December 31, 2021. At and for the twelve months ended December 31, 2022, the Company's ACL increased $4.5 million or 24.3% to $22.9 million from $18.4 million at December 31, 2021. The Company recorded a $0.9 million and $2.4 million PCL for the three months and year ended December 31, 2022 compared to no PLL and $0.6 million PLL for the three months and year ended December 31, 2021. There were $0.5 million in net charge-offs during the year ended December 31, 2022 compared to $1.6 million in net charge-offs for the year ended December 31, 2021.

Management believes that the allowance is adequate at December 31, 2022.

Classified assets increased $0.9 million from $5.2 million at December 31, 2021 to $6.1 million at December 31, 2022. Management considers classified assets to be an important measure of asset quality. The Company's risk rating process for classified loans is an important input into the Company's ACL qualitative framework. Management remains committed to expeditiously resolving non-performing or substandard credits that are not likely to become performing or passing credits in a reasonable timeframe.

During 2021, classified assets decreased $17.1 million. Asset quality improved with the resolution of $16.9 million in non-accrual and impaired loans through loan sales and negotiated payoffs as well as the resolution of $3.1 million in OREO. The Company's sale of impaired loans decreased the specific reserve, improved asset quality, and improved several ALLL qualitative factors.

The ratio of non-accrual loans and OREO to total gross portfolio loans and OREO decreased 14 basis points from 0.48% at December 31, 2021 to 0.34% at December 31, 2022. The ratio of non-accrual loans, OREO and TDRs to total assets decreased eight basis points from 0.35% at December 31, 2021 to 0.27% at December 31, 2022.

Non-accrual loans decreased $1.5 million from $7.6 million at December 31, 2021 to $6.1 million at December 31, 2022. There were no OREO balances at December 31, 2022 and December 31, 2021.

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_{¹ The Company implemented the CECL accounting standard effective January 1, 2022. The Company used an incurred loss methodology for all periods compared before March 31, 2022.}

About The Community Financial Corporation - Headquartered in Waldorf, MD, The Community Financial Corporation is the bank holding company for Community Bank of the Chesapeake, a full-service commercial bank with assets of approximately $2.4 billion. Through its branch offices and commercial lending centers, Community Bank of the Chesapeake offers a broad range of financial products and services to individuals and businesses. The Company’s branches are located at its main office in Waldorf, Maryland, and branch offices in Bryans Road, Dunkirk, Leonardtown, La Plata, Charlotte Hall, Prince Frederick, Lusby and California, Maryland; and Fredericksburg - Downtown and Fredericksburg - Harrison Crossing, Virginia. More information about Community Bank of the Chesapeake can be found at www.cbtc.com.

Use of non-GAAP Financial Measures - Statements included in this press release include non-GAAP financial measures and should be read along with the accompanying tables, which provide a reconciliation of non-GAAP financial measures to GAAP financial measures. The Company’s management uses these non-GAAP financial measures, and believes that non-GAAP financial measures provide additional useful information that allows readers to evaluate the ongoing performance of the Company. Non-GAAP financial measures should not be considered as an alternative to any measure of performance or financial condition as promulgated under GAAP, and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. 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.

Forward-looking Statements - Certain statements contained in this news release may not be based on historical facts and are “forward-looking statements” within the meaning Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements can generally be identified by the fact that they do not relate strictly to historical or current facts. They often include words or phrases such as “is optimistic,” “project,” “believe,” “expect,” “anticipate,” “estimate”, “assume” and “intend” or future or conditional verbs such as “will,” “would,” “should,” “could” or “may.” Statements in this release that are not strictly historical are forward-looking and are based upon current expectations that may differ materially from actual results. These forward-looking statements include, without limitation: (i) those relating to the Company’s and the Bank’s future growth and management’s outlook or expectations for revenue, assets, asset quality, profitability, business prospects, net interest margin, non-interest revenue, allowance for loan losses, the level of credit losses from lending, liquidity levels, capital levels, or future financial or business performance strategies or expectations; (ii) any statements of the plans, objectives, or expected benefits associated with the proposed merger of the Company with and into Shore Bancshares, Inc.; (iii) any statements of the plans and objectives of management for future operations products or services, including the expected benefits from, and/or the execution of integration plans relating to any acquisition we have undertaken or that we undertake in the future; (iv) plans and cost savings regarding branch closings or consolidation; (v) projections related to certain financial metrics, including with respect to the quarterly expense run rate; (vi) expected benefits of programs we introduce, including residential mortgage programs and retail and commercial credit card programs; and (vii) any statement of expectation or belief, and any assumptions underlying the foregoing. These forward-looking statements express management’s current expectations or forecasts of future events, results and conditions, and by their nature are subject to and involve risks and uncertainties that could cause actual results to differ materially from those anticipated by the statements made herein. Factors that might cause actual results to differ materially from those made in such statements include, but are not limited to: (i) risks, uncertainties and other factors relating to the COVID-19 pandemic (including the length of time that the pandemic continues; the ability of states and local governments to successfully implement the lifting of restrictions on movement and the potential imposition of further restrictions on movement and travel in the future, the effect of the pandemic on the general economy and on the businesses of our borrowers and their ability to make payments on their obligations; (ii) the remedial actions and stimulus measures adopted by federal, state and local governments, and the inability of employees to work due to illness, quarantine, or government mandates); (iii) the impacts related to or resulting from Russia’s military action in Ukraine, including the broader impacts to financial markets and the global macroeconomic and geopolitical environments; (iv) assumptions that interest-earning assets will reprice faster than interest-bearing liabilities and the Bank’s ability to maintain its current favorable funding mix; (v) our proposed merger with Shore Bancshares, Inc. may not close when expected or at all because required regulatory or other approvals are not received or other conditions to the closings are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated; (vi) the synergies and other expected financial benefits from any acquisition that we have undertaken or may undertake in the future (including our proposed merger with Shore Bancshares, Inc.) may or may not be realized within the expected time frames or at all; (vii) the impact of our adoption of the CECL standard; (viii) limitations on our ability to declare and pay dividends or engage in share repurchases; (ix) changes in the Company's or the Bank's strategy, costs or difficulties related to integration matters might be greater than expected; (x) availability of and costs associated with obtaining adequate and timely sources of liquidity; (xi) the ability to maintain credit quality; (xii) general economic trends and conditions, including inflation and its impacts; (xiii) changes in interest rates; (xiv) loss of deposits and loan demand to other financial institutions; (xv) substantial changes in financial markets; (xvi) changes in real estate value and the real estate market; (xvii) regulatory changes; (xviii) the impact of government shutdowns or sequestration; (xix) the possibility of unforeseen events affecting the industry generally; (xx) the uncertainties associated with newly developed or acquired operations; (xxi) the outcome of pending or threatened litigation, including litigation pertaining to the proposed merger with Shore Bancshares, Inc., or of matters before regulatory agencies, whether currently existing or commencing in the future; (xxii) market disruptions and other effects of terrorist activities; and (xxiii) the matters described in “Item 1A Risk Factors” in the Company’s Annual Report on Form 10-K for the Year Ended December 31, 2021, and in its other Reports filed with the Securities and Exchange Commission (the “SEC”). The Company’s forward-looking statements may also be subject to other risks and uncertainties, including those that it may discuss elsewhere in this news release or in its filings with the SEC, accessible on the SEC’s Web site at www.sec.gov . The Company undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unforeseen events, except as required under the rules and regulations of the SEC.

Data is unaudited as of December 31, 2022. This selected information should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.

CONTACTS:
James M. Burke, Chief Executive Officer
Todd L. Capitani, Chief Financial Officer
888.745.2265

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENT

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
CONDENSED CONSOLIDATED BALANCE SHEETS

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

** Non-GAAP financial measure. See reconciliation of GAAP and NON-GAAP measures.
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(1)   Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio. Asset quality ratios for loans exclude U.S. SBA PPP loans. December 31, 2021 reported balance are shown net of deferred costs and fees to conform with the current period's presentation.
(2)   Delinquency excludes Purchase Credit Impaired ("PCI") loans for December 31, 2021.
(3)   Non-accrual loans include all loans that are 90 days or more delinquent and loans that are non-accrual due to the operating results or cash flows of a customer. Non-accrual loans can include loans that are current with all loan payments. At December 31, 2022 and December 31, 2021, the Company had current non-accrual loans of $5.6 million and $6.7 million, respectively.

SUPPLEMENTAL QUARTERLY FINANCIAL DATA (UNAUDITED) - Continued
SELECTED FINANCIAL INFORMATION AND RATIOS

** Non-GAAP financial measure. See reconciliation of GAAP and Non-GAAP measures.
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(1)   Asset quality ratios are calculated using total portfolio loans. Portfolio loans include all loan portfolios except the U.S. SBA PPP loan portfolio.

SUPPLEMENTAL YEAR TO DATE FINANCIAL DATA (UNAUDITED)
CONDENSED CONSOLIDATED INCOME STATEMENT