# EDGAR Filing Document

**Accession Number:** 0000832090
**File Stem:** 0001558370-23-004858
**Filing Date:** 2023-3
**Character Count:** 589086
**Document Hash:** 2692e146ea90b7a5481eb806dd90c30d
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001558370-23-004858.hdr.sgml**: 20230329

**ACCESSION NUMBER**: 0001558370-23-004858

**CONFORMED SUBMISSION TYPE**: 10-K

**PUBLIC DOCUMENT COUNT**: 132

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230329

**DATE AS OF CHANGE**: 20230329

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** PARTNERS BANCORP
- **CENTRAL INDEX KEY:** 0000832090
- **STANDARD INDUSTRIAL CLASSIFICATION:** STATE COMMERCIAL BANKS [6022]
- **IRS NUMBER:** 521559535
- **STATE OF INCORPORATION:** MD
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** 10-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-39285
- **FILM NUMBER:** 23771810

**BUSINESS ADDRESS:**
- **STREET 1:** 2245 NORTHWOOD DRIVE
- **CITY:** SALISBURY
- **STATE:** MD
- **ZIP:** 21801
- **BUSINESS PHONE:** 410-548-1100

**MAIL ADDRESS:**
- **STREET 1:** 2245 NORTHWOOD DRIVE
- **CITY:** SALISBURY
- **STATE:** MD
- **ZIP:** 21801

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** DELMAR BANCORP
- **DATE OF NAME CHANGE:** 19880422

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[**Table of Contents**](#TOC)

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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-K**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**☒** **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** 

**For the fiscal year ended December 31, 2022.**

**OR**

**☐** **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the transition period from &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; to**

**Commission file number 001-39285**

**Partners Bancorp**

(Exact name of registrant as specified in its charter)

---

| | | |
|:---|:---|:---|
| **Maryland** |  | **52-1559535** |
| (State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.) |
| **2245 Northwood Drive, Salisbury, Maryland** |  | **21801** |
| (Address of Principal Executive Offices) |  | (Zip Code) |

---

Registrant's telephone number, including area code **(410)-548-1100**

Securities registered pursuant to Section 12(b) of the Act:

---

| | | |
|:---|:---|:---|
| &nbsp;&nbsp;**Title of each class** | &nbsp;&nbsp;**Trading Symbol(s)** | &nbsp;&nbsp;**Name of each exchange on which registered** |
| &nbsp;&nbsp;Common Stock, par value $.01 per share | &nbsp;&nbsp;PTRS | &nbsp;&nbsp;Nasdaq Capital Market |

---

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer", "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☐ Accelerated Filer ☐ Non-accelerated Filer ☒ Smaller Reporting Company ☒ Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of June 30, 2022, which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $89,532,775 based on the closing price of $9.04 per share on the Nasdaq Capital Market on that date.

As of March 29, 2023, there were 17,985,577 shares outstanding of the registrant's common stock, $0.01 par value.

------

[**Table of Contents**](#TOC)

**TABLE OF CONTENTS**

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| | |
|:---|:---|
|  | **Page** |
| [**PART I**](#PARTI) | [**PART I**](#PARTI) |
| [Item 1. Business](#ITEM1BUSINESS) | 3 |
| [Item 1A. Risk Factors](#ITEM1ARISKFACTORS) | 20 |
| [Item 1B. Unresolved Staff Comments](#ITEM1BUNRESOLVEDSTAFFCOMMENTS_402614) | 39 |
| [Item 2. Properties](#ITEM2PROPERTIES_871436) | 39 |
| [Item 3. Legal Proceedings](#ITEM3LEGALPROCEEDINGS_226247) | 41 |
| [Item 4. Mine Safety Disclosures](#ITEM4MINESAFETYDISCLOSURES_862909) | 41 |
| [**PART II**](#PARTII_745556) | [**PART II**](#PARTII_745556) |
| [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](#ITEM5MARKETFORREGISTRANTSCOMMONEQUITYREL) | 41 |
| [Item 6. Reserved](#ITEM6SELECTEDFINANCIALDATA) | 42 |
| [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](#ITEM7MANAGEMENTSDISCUSSIONANDANALYSISOFF) | 43 |
| [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](#ITEM7AQUANTITATIVEANDQUALITATIVEDISCLOSU) | 72 |
| [Item 8. Financial Statements and Supplementary Data](#ITEM8FINANCIALSTATEMENTSANDSUPPLEMENTARY) | 75 |
| [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](#ITEM9CHANGESINANDDISAGREEMENTSWITHACCOUN) | 126 |
| [Item 9A. Controls and Procedures](#ITEM9ACONTROLSANDPROCEDURES_395256) | 126 |
| [Item 9B. Other Information](#ITEM9BOTHERINFORMATION_661820) | 126 |
| [Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](#ITEM9CDISCLOSUREREGARDINGFOREIGN) | 127 |
| [**PART III**](#PARTIII_81398) | [**PART III**](#PARTIII_81398) |
| [Item 10. Directors, Executive Officers and Corporate Governance](#ITEM10DIRECTORSEXECUTIVEOFFICERSANDCORPO) | 128 |
| [Item 11. Executive Compensation](#ITEM11EXECUTIVECOMPENSATION_830464) | 132 |
| [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](#ITEM12SECURITYOWNERSHIPOFCERTAINBENEFICI) | 140 |
| [Item 13. Certain Relationships and Related Transactions, and Director Independence](#ITEM13CERTAINRELATIONSHIPSANDRELATEDTRAN) | 142 |
| [Item 14. Principal Accountant Fees and Services](#ITEM14PRINCIPALACCOUNTINGFEESANDSERVICES) | 142 |
| [**PART IV**](#PARTIV_87926) | [**PART IV**](#PARTIV_87926) |
| [Item 15. Exhibits and Financial Statement Schedules](#ITEM15EXHIBITSFINANCIALSTATEMENTSCHEDULE) | 143 |
| [Item 16. Form 10-K Summary](#ITEM16FORM10KSUMMARY) | 143 |
| [EXHIBIT INDEX](#EXHIBITINDEX) | 144 |
| [SIGNATURES](#SIGNATURES) | 147 |

---

[**Table of Contents**](#TOC)

**PART I**

**Item 1.** **Business.** 

**General Information**

***Partners Bancorp.*** Partners Bancorp (the "Company") is a Maryland chartered corporation and a bank holding company registered with and supervised by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company holds all of the issued and outstanding shares of common stock of The Bank of Delmarva ("Delmarva") and Virginia Partners Bank ("Partners" and, together with Delmarva, the "Affiliate Banks"). The Company was incorporated as Delmar Bancorp on January 6, 1988 under the general corporation law of Maryland for the purpose of becoming a bank holding company, and changed its name to Partners Bancorp effective on August 19, 2020. The Company acquired Partners on November 15, 2019 through an exchange of shares in an all-stock transaction (the "Share Exchange").

The Company has no direct subsidiaries other than Delmarva and Partners. The principal executive office of the Company is located at 2245 Northwood Drive, Salisbury, Maryland 21801.

Since commencing operations, the Company's business has consisted primarily of managing and supervising Delmarva and Partners and its principal source of income has been revenues generated by Delmarva and Partners. The Company anticipates that going forward its business will continue to consist primarily of managing and supervising the Affiliate Banks and that its principal source of income will be revenues generated by the Affiliate Banks.

The Company provides various services to the Affiliate Banks which include, but are not limited to, management assistance, internal auditing services, compliance management, financial reporting and training, and vendor management support.

***The Bank of Delmarva.*** Delmarva, a community oriented financial institution, was established in Maryland in 1896, reorganized as a national bank in 1996, and reorganized as a Delaware state chartered bank in 2003. Delmarva provides a broad range of commercial and consumer banking services to individuals, small and medium-sized businesses and professionals in Southern New Jersey and the eastern shore regions of Maryland and Delaware, including Sussex County, Delaware, Wicomico County, Maryland and Worcester County, Maryland. Delmarva currently operates 14 full service banking offices, located in Delmar, Salisbury and Ocean City, Maryland and Laurel, Dagsboro, and Rehoboth, Delaware, and Cherry Hill, Evesham and Moorestown, New Jersey, along with 16 automated teller machines ("ATMs"). In March 2018, the Company completed its acquisition of Liberty Bell Bank through a merger with Delmarva, with Delmarva being the surviving entity. Through the merger, Delmarva gained the branches in Cherry Hill, Evesham and Moorestown, New Jersey, which are operated under the name Liberty Bell Bank, a Division of The Bank of Delmarva. Delmarva's main office is located at 910 Norman Eskridge Highway, Seaford, Delaware.

Delmarva has five consolidated subsidiaries, three of which are wholly owned, organized to hold foreclosed real estate.

***Virginia Partners Bank.*** Partners is a commercial bank organized under the laws of the Commonwealth of Virginia. Partners commenced regular operations on July 8, 2008. Partners is headquartered in Fredericksburg, Virginia, which is also the location of its operations center. Partners has two branches in Fredericksburg, Virginia, one branch in Spotsylvania, Virginia, and a full service branch and commercial banking office in Reston, Virginia. In Maryland, Partners conducts business under the name Maryland Partners Bank (a division of Virginia Partners Bank), and operates a full service branch and commercial banking office in La Plata, Maryland and a Loan Production Office in Annapolis, Maryland. Partners engages in the general banking business and provides financial services to the communities in and around the Greater Fredericksburg, Virginia area, the Greater Washington, DC area (the District of Columbia, Arlington County, Clarke County, Fairfax County, Fauquier County, Loudoun County, Prince William County, Warren County, and the Cities of Alexandria, Fairfax, Falls Church, Manassas, Manassas Park, and Reston, Virginia) and Anne Arundel County and the three counties of Southern Maryland (Charles County, Calvert County and St. Mary's County).

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Partners has two wholly owned subsidiaries and one majority owned subsidiary. Bear Holdings, Inc. was established in 2011 for the purpose of holding properties acquired through foreclosure that are classified as other real estate owned. In 2012, 410 William Street, LLC was formed for the purpose of acquiring and holding an interest in the property at 410 William Street, which houses one of Partners' five branches, including the executive offices. On January 1, 2018, Partners acquired a 51% ownership interest in Johnson Mortgage Company, LLC ("JMC"), which is a residential mortgage company headquartered in Newport News, Virginia, with a branch office in Fredericksburg, Virginia. JMC is engaged in the mortgage banking business in which JMC originates, closes, and immediately sells mortgage loans and related servicing rights to permanent investors in the secondary market. The financial position and operating results of these subsidiaries are included in Partners consolidated financial statements. For JMC, Partners reflects the issued and outstanding interest not held by Partners in its consolidated financial statements as noncontrolling interest.

**Merger Agreement with LINKBANCORP, Inc.** 

On February 22, 2023, the Company and LINKBANCORP, Inc. ("LINK"), parent company of LINKBANK, entered into an Agreement and Plan of Merger (the "LINK Merger Agreement") pursuant to which the Company will merge into LINK, with LINK surviving, and following which Delmarva and Partners will each successively merge with and into LINKBANK, with LINKBANK surviving. Upon completion of the transactions set forth in the LINK Merger Agreement, the Company's shareholders will own approximately 56% and LINK shareholders, inclusive of shares issued in a concurrent private placement of common stock by LINK, will own approximately 44% of the combined company. The mergers are subject to receiving the requisite approval of the Company's and LINK's stockholders, receipt of all required regulatory approvals, and fulfillment of other customary closing conditions. For more information on this pending transaction refer to Note 22 – Transaction with LINKBANCORP, Inc. to the audited consolidated financial statements in this Annual Report on Form 10-K and the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission ("SEC") on February 22, 2023.

**Termination of Merger Agreement with OceanFirst Financial Corp.**

On November 4, 2021, the Company, OceanFirst Financial Corp. ("OCFC") and Coastal Merger Sub Corp. ("Merger Sub") entered into an Agreement and Plan of Merger (the "OCFC Merger Agreement"). Pursuant to the terms and subject to the conditions set forth in the OCFC Merger Agreement, (i) Merger Sub would merge with and into the Company, with the Company as the surviving entity, and (ii) immediately thereafter, the Company would merge with and into OCFC, with OCFC as the surviving entity. On November 9, 2022, the Company and OCFC entered into a Mutual Termination Agreement (the "Termination Agreement") pursuant to which, among other things, the parties mutually agreed to terminate the OCFC Merger Agreement and transactions contemplated thereby. Each party bore its own costs and expenses in connection with the terminated transaction, and neither party paid a termination fee in connection with the termination of the OCFC Merger Agreement. The Termination Agreement also mutually released the parties from any claims of liability to one another relating to the OCFC Merger Agreement and the terminated transaction. For more information on this terminated transaction refer to Note 23—Transaction with OceanFirst Financial Corporation to the audited consolidated financial statements in this Annual Report on Form 10-K and the Company's Current Reports on Form 8-K filed with the SEC on November 4, 2021 and November 9, 2022.

**Business Strategy**

The Company is a multi-bank holding company, whose wholly owned subsidiaries are Delmarva and Partners. Combined, these banks make the Company a $1.57 billion in total assets company, serving customers from southern New Jersey and Delaware, into Maryland and Virginia.

As member banks of the "Affiliate Bank" model, the Company's Affiliate Banks employ hundreds of people and invest millions of dollars into their local economies. Ultimately, the Company's community banks put families into homes, send kids to college, and provide critical financial support to allow "Main Street businesses" to prosper.

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It has been a strategic goal of the Company to add additional affiliate banks to the Company, to create a connected marketplace in the greater mid-Atlantic region. While the pending transaction with LINK pursuant to the LINK Merger Agreement does not adhere to the Affiliate Bank model, the Company believes it will significantly accelerate the larger goal of creating a connected mid-Atlantic region community bank for our customers.

**Products and Services**

Each Affiliate Bank is a full service community bank, and offers a comprehensive array of deposit products, loan services, and other services to its customers, filling both retail and commercial needs. These products and services include:

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| | |
|:---|:---|
| &nbsp;&nbsp;***Deposit Services*** |  |
| &nbsp;&nbsp;• Time Deposit Accounts | &nbsp;&nbsp;• Free Personal Checking Accounts |
| &nbsp;&nbsp;• Business Checking Accounts | &nbsp;&nbsp;• NOW Accounts |
| &nbsp;&nbsp;• Tiered Money Market Accounts | &nbsp;&nbsp;• IRA Accounts |
| &nbsp;&nbsp;• Statement Savings Accounts  | &nbsp;&nbsp;• Remote Deposit Capture |
| &nbsp;&nbsp;• Cash Management Accounts and Services<br>| &nbsp;&nbsp;• Mobile Deposit Services |
| &nbsp;&nbsp;***Loan Services*** |  |
| &nbsp;&nbsp;• Lines of Credit | &nbsp;&nbsp;• Equipment Loans |
| &nbsp;&nbsp;• Commercial Real Estate Loans | &nbsp;&nbsp;• Letters of Credit |
| &nbsp;&nbsp;• Small Business Administration Loans | &nbsp;&nbsp;• Home Equity Loans  |
| &nbsp;&nbsp;• Term Loans | &nbsp;&nbsp;• US Department of Agriculture Loans |
| &nbsp;&nbsp;• Business Credit Cards  | &nbsp;&nbsp;• New and Used Car Loans |
| &nbsp;&nbsp;• Mobile Home, Boats, RV and Motorcycle Loans | &nbsp;&nbsp;• Unsecured Consumer Loans |
| &nbsp;&nbsp;• Purchase and Refinance Mortgage Loans | &nbsp;&nbsp;• Construction/Permanent Mortgage Loans |
| &nbsp;&nbsp;• Bridge Loans<br>| &nbsp;&nbsp;• Lot Loans |
| &nbsp;&nbsp;***Other Services*** |  |
| &nbsp;&nbsp;• Phone Banking | &nbsp;&nbsp;• Mobile Banking App  |
| &nbsp;&nbsp;• ATM/Debit Cards | &nbsp;&nbsp;• Internet Banking and Online Bill Payment |
| &nbsp;&nbsp;• Full Service ATMs | &nbsp;&nbsp;• Merchant Services |
| &nbsp;&nbsp;• External Transfers | &nbsp;&nbsp;• Cash Advance Service |
| &nbsp;&nbsp;• Cash Management/Sweep/Zero Balance/ACH Origination/Cash Concentration/Payroll Direct Deposit  | &nbsp;&nbsp;• Surcharge Free ATM Network Access |

---

**Market Area and Deposit Share**

Delmarva's primary market area consists of Sussex County, Delaware, Wicomico County, Maryland, Worcester County, Maryland, Camden County, New Jersey and Burlington County, New Jersey and contiguous counties in Maryland, Delaware and New Jersey. As of June 30, 2022, Delmarva had the fourth highest level of deposits of banks active in the Salisbury MD-DE MSA, excluding a large credit card bank which reports all of its deposits in the market. Delmarva's market share in the Philadelphia—Camden—Wilmington, Pennsylvania, New Jersey, Delaware, and Maryland MSA's is less than 0.1%.

In Greater Fredericksburg, Partners has two offices in the City of Fredericksburg, Virginia (including Partners' headquarters) and one office in Spotsylvania County, Virginia. In Greater Washington, Partners has a full service branch

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and commercial lending office in Reston, Virginia. In Maryland, Partners has a full service branch and commercial lending office in La Plata, Maryland, and a Loan Production Office in Annapolis, Maryland. All branch locations, with the exception of the Reston, Virginia location, have drive-thru facilities and ATMs. JMC has locations in Newport News and Fredericksburg, Virginia. The Fredericksburg, Virginia office is co-located within a branch of Partners.

Partners has three distinct market areas for commercial banking: Greater Fredericksburg (Stafford County, Spotsylvania County, King George County, Caroline County, and the City of Fredericksburg, Virginia); Greater Washington (the District of Columbia, Arlington County, Clarke County, Fairfax County, Fauquier County, Loudoun County, Prince William County, Warren County, and the Cities of Alexandria, Fairfax, Falls Church, Manassas, Manassas Park, and Reston, Virginia); and, Anne Arundel County and the three counties of Southern Maryland (Charles County, Calvert County and St. Mary's County). The markets for JMC include the Newport News/Williamsburg, Virginia markets, and Greater Fredericksburg.

The Washington-Arlington-Alexandria, DC-VA-MD-WV MSA, where all of Partners branches are located, had a combined deposit market of $297 billion as of June 30, 2022. Partners was ranked 31<sup>st</sup> out of 70 financial institutions, with total deposits of $580 million as of June 30, 2022. In Fredericksburg City, Virginia, Partners was ranked 4th, with an 11.33% market share, as of June 30, 2022. In Spotsylvania County, Virginia, Partners was ranked 5<sup>th</sup>, with a 7.06% market share, as of June 30, 2022. In Charles County, Maryland, Partners was ranked 8<sup>th</sup>, with a 3.01% market share, as of June 30, 2022.

**Competition**

Both Delmarva and Partners face significant competition for the attraction of deposits and the origination of loans from other community banks and larger banks with regional or national footprints. The Affiliate Banks also face competition from other financial services companies such as brokerage firms, credit unions and insurance companies, mortgage companies, insurance companies and nonbank and online depositories and lenders. Larger bank competitors may have many offices operating over a wide geographic area. Among the advantages such large banks have over Delmarva and Partners is their ability to finance wide-ranging advertising campaigns, and by virtue of their greater total capitalization, to have substantially higher lending limits than Delmarva and Partners. Factors such as interest rates offered, the number and location of branches and the types of products offered, as well as the reputation of the institution, affect competition for deposits and loans.

Both Delmarva and Partners differentiate themselves from their competitors through superior customer service and responsiveness with accountability to a local management team, board of directors and advisory board. The Company believes that its multi-bank model permits its Affiliate Banks to maintain their character as community banks and the close relationships they maintain with their customers and communities, while affiliating with a larger organization that can provide more sophisticated technology and products, access to capital and support and guidance from partnered institutions.

**Risk Management**

The Company believes that effective risk management is of primary importance. Risk management refers to the activities by which the Company identifies, measures, monitors, evaluates and manages the risks it faces in the course of its banking activities. These include liquidity, interest rate, credit, operational, compliance, regulatory, strategic, financial and reputational risk exposures. The Company's and the Affiliate Banks' boards of directors and management teams have created a risk-conscious culture that is focused on quality growth, which starts with capable and experienced risk management teams and infrastructure capable of addressing the evolving risks the Company faces, as well as the changing regulatory and compliance landscape. The Company's risk management approach employs comprehensive policies and processes to establish robust governance. The Company believes a disciplined and conservative underwriting approach has been the key to its strong asset quality.

The lending activities in which the Affiliate Banks engage carry the risk that the borrowers will be unable to perform on their obligations. As such, interest rate policies of the Federal Reserve and general economic conditions, nationally and in Delmarva's and Partners' market areas, could have a significant impact on Delmarva's and Partners'

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results of operations, respectively. To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations in full, in a timely manner, resulting in decreased earnings or losses. Economic conditions may also adversely affect the value and liquidity of property pledged as security for loans.

Through its Affiliate Banks, the Company's goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower's business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations. The Affiliate Bank's management, lending officers and credit administration teams emphasize a strong risk management culture supported by comprehensive policies and procedures for credit underwriting, funding and administration that the Affiliate Banks believe have enabled them to maintain sound asset quality. The underwriting methodology emphasizes establishing and monitoring strong overall cash flow throughout a customer's business operations, appropriate loan-to-value ratios, full or partial guarantors when deemed necessary, and/or strong tertiary sources of re-payment. The Affiliate Banks' tiered underwriting structure includes progressive levels of individual loan authority, concurrent authority and senior loan committee approval. The Affiliate Banks' loan review function performs regular internal loan reviews and identifies early warning indicators to proactively monitor the loan portfolio. Asset quality is regularly reported to, and monitored by, the Company's and Affiliate Banks' boards of directors.

Each of the Affiliate Banks' lending activities are subject to a variety of lending limits imposed by state and federal law. These limits will increase or decrease in response to increases or decreases in its level of capital. At December 31, 2022, Delmarva had a legal lending limit of $14.9 million. At December 31, 2022, Delmarva's average funded loan size outstanding for commercial real estate (including commercial construction) and commercial loans was $647 thousand and $149 thousand, respectively. At December 31, 2022, Partners had a legal lending limit of $9.5 million. At December 31, 2022, Partners average funded loan size outstanding for commercial real estate (including commercial construction) and commercial loans was $680 thousand and $143 thousand, respectively.

Comprehensive risk management practices and appropriate capital levels are essential elements of a sound commercial real estate lending program. A concentration in commercial real estate adds a dimension of risk that compounds the risk inherent in individual loans. The federal banking agencies have issued guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that institutions that have (i) total reported loans for construction, land development, and other land which represent 100% or more of an institution's total risk-based capital; or (ii) total reported commercial real estate loans, excluding loans secured by owner-occupied commercial real estate, representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months, are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.

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Delmarva has a concentration in both non-owner-occupied commercial real estate and construction and land development loans. At December 31, 2022, Delmarva's non-owner-occupied commercial real estate loan portfolio constituted 234.7% of total risk-based capital and its construction, land development and land loans constituted 83.0% of total risk-based capital.

Partners has a concentration in both non-owner-occupied commercial real estate and construction and land development loans. At December 31, 2022, Partners' non-owner-occupied commercial real estate loan portfolio constituted 219.4% of total risk-based capital and its construction, land development and land loans constituted 55.3% of total risk-based capital.

**Human Capital Resources**

The Company and the Affiliate Banks aim to foster a culture of respect, teamwork, ownership, responsibility, initiative, integrity, and service. The Company's people are critical to its performance and the achievement of its strategic goals. Accordingly, the Company provides a competitive compensation and benefits program to help meet the needs of our employees, including benefits that incentivize retention and reward longevity. The Company encourages and supports the growth and development of its 225 full-time equivalent employees (as of December 31, 2022) and, wherever possible, seek to fill positions by promotion and transfer from within the organization. The Company considers relations with its employees to be excellent. The Company's selection and promotion processes are without bias and include the active recruitment of minorities and women.

**Supervision and Regulation**

The Company's and the Affiliate Banks' business and operations are subject to extensive federal and state governmental regulation and supervision. The following is a brief summary of certain statutes and rules and regulations that affect or will affect us. This summary is not complete, and the Company refers you to the particular statutory or regulatory provisions or proposals for more information. Because regulation of financial institutions changes regularly and is the subject of constant legislative and regulatory debate, the Company cannot forecast how federal and state regulation and supervision of financial institutions may change in the future and affect the operations of the Company and the Affiliate Banks. Supervision, regulation, and examination by the regulatory agencies are intended primarily for the protection of depositors and the Deposit Insurance Fund ("DIF"), rather than shareholders.

***Regulatory Reform.*** The financial crisis of 2008, including the downturn of global economic, financial and money markets and the threat of collapse of numerous financial institutions, and other events led to the adoption of numerous laws and regulations that apply to, and focus on, financial institutions. The most significant of these laws is the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), which was enacted on July 21, 2010 and, in part, was intended to implement significant structural reforms to the financial services industry.

The Dodd-Frank Act implemented far-reaching changes across the financial regulatory landscape, including changes that have significantly affected the business of all bank holding companies and banks, including the Company and the Affiliate Banks. Some of the rules that have been proposed and, in some cases, adopted to comply with the Dodd-Frank Act's mandates are discussed further below.

In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (the "EGRRCPA") was enacted to reduce the regulatory burden on certain banking organizations, including community banks, by modifying or eliminating certain federal regulatory requirements. In particular, the EGRRCPA amended certain provisions of the Dodd-Frank Act as well as statutes administered by the Federal Reserve and the Federal Deposit Insurance Corporation ("FDIC"). Certain provisions of the Dodd-Frank Act and changes thereto resulting from the enactment of the EGRRCPA that may affect the Company and the Affiliate Banks are discussed below in more detail.

The Company continues to experience ongoing regulatory reform. These regulatory changes could have a significant effect on how the Company and the Affiliate Banks conduct their businesses, including increased compliance costs and other adverse effects on the business, financial condition and results of operations of the Company and the

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Affiliate Banks. The specific implications of potential regulatory reforms cannot yet be fully predicted and will depend to a large extent on the specific regulations that are to be adopted in the future.

***The Company.*** The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended (the "BHC Act") and subject to regulation and supervision by the Federal Reserve. The BHC Act and other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and activities, including regulatory enforcement actions for violations of laws and regulations and unsafe and unsound banking practices. As a bank holding company, the Company is required to file with the Federal Reserve an annual report and such other additional information as the Federal Reserve may require pursuant to the BHC Act. The Federal Reserve may also examine the Company and each of its subsidiaries.

The BHC Act requires approval of the Federal Reserve for, among other things, a bank holding company's direct or indirect acquisition of control of more than 5% of the voting shares, or substantially all the assets, of any bank or the merger or consolidation by a bank holding company with another bank holding company. The BHC Act generally permits the acquisition by a bank holding company of control or substantially all the assets of any bank located in a state other than the home state of the bank holding company, except where the bank has not been in existence for the minimum period of time required by state law; but if the bank is at least five years old, the Federal Reserve may approve the acquisition. The Federal Reserve has adopted a final rule codifying the presumptions used in determinations of whether a company has the ability to exercise a controlling influence over another company for purposes of the BHC Act, and providing greater transparency on the types of relationships that the Federal Reserve generally views as supporting a determination of control.

With limited exceptions, a bank holding company is prohibited from acquiring control of any voting shares of any company which is not a bank or bank holding company and from engaging directly or indirectly in any activity other than banking or managing or controlling banks or furnishing services to or performing service for its authorized subsidiaries. A bank holding company may, however, engage in, or acquire an interest in, a company that engages in activities which the Federal Reserve has determined by order or regulation to be so closely related to banking or managing or controlling banks as to be properly incident thereto. In making such a determination, the Federal Reserve is required to consider whether the performance of such activities can reasonably be expected to produce benefits to the public, such as convenience, increased competition or gains in efficiency, which outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interest or unsound banking practices. The Federal Reserve is also empowered to differentiate between activities commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concern.

The Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

Subsidiary banks of a bank holding company are subject to restrictions imposed by the Federal Reserve Act on any extensions of credit to a bank holding company or any of its subsidiaries, or investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower. Further, a bank holding company and any subsidiary bank are prohibited from engaging in tie-in arrangements in connection with the extension of credit. A subsidiary bank may not extend credit, lease or sell property, or furnish any services, or fix or vary the consideration for any of the foregoing on the condition that: (i) the customer obtain or provide some additional credit, property or services from or to such bank other than a loan, discount, deposit or trust service; (ii) the customer obtain or provide some additional credit, property or service from or to the Company or any of its subsidiaries; or (iii) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended.

The Gramm-Leach-Bliley Act (the "GLB Act") allows a bank holding company or other company to elect to become a financial holding company, which would allow that company to engage in activities that are financial in nature, that are incidental to such activities, or are complementary to such activities. The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker,

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underwriting, dealing in or making markets in securities, and engaging in merchant banking under certain restrictions. It also authorizes the Federal Reserve to determine by regulation what other activities are financial in nature, or incidental or complementary thereto. The Company has not elected financial holding company status.

The Federal Deposit Insurance Act (the "FDIA") and Federal Reserve policy require a bank holding company to serve as a source of financial and managerial strength to its bank subsidiaries. In addition, where a bank holding company has more than one FDIC-insured bank or thrift subsidiary, like the Company, each of the bank holding company's subsidiary FDIC-insured depository institutions is responsible for any losses to the FDIC as a result of an affiliated depository institution's failure. As a result of a bank holding company's source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinate capital or other instruments which qualify as capital under bank regulatory rules. Any loans from the bank holding company to such subsidiary banks likely would be unsecured and subordinated to such bank's depositors and perhaps to other creditors of Delmarva and Partners.

A bank holding company is generally required to give the Federal Reserve prior written notice of any purchase or redemption of its own then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the bank holding company's consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve order or directive, or any condition imposed by, or written agreement with, the Federal Reserve. The Federal Reserve has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain conditions.

As a Maryland corporation, the Company is subject to limitations on and requirements for its activities. For example, state laws include limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records, minutes, borrowing and the observance of corporate formalities.

***The Affiliate Banks.*** Delmarva is a Delaware chartered commercial bank and a member of the Federal Reserve System (a "state member bank") whose accounts are insured by the DIF of the FDIC up to the maximum legal limits. Delmarva is subject to regulation, supervision and regular examination by the State Bank Commissioner of the State of Delaware (the "Delaware Commissioner") and the Federal Reserve.

Partners is a Virginia chartered commercial bank and also a state member bank whose accounts are insured by the DIF of the FDIC up to the maximum legal limits. Partners is subject to regulation, supervision and regular examination by the Bureau of Financial Institutions of the State Corporation Commission of the Commonwealth of Virginia (the "Virginia Bureau") and the Federal Reserve.

The regulations of these various agencies govern most aspects of Delmarva's and Partners' businesses, including required reserves against deposits, loans, investments, mergers and acquisitions, borrowing, dividends and location and number of branch offices. The laws and regulations governing the Affiliate Banks generally have been promulgated to protect depositors and the DIF, and not for the purpose of protecting shareholders. Competition among commercial banks, savings and loan associations, and credit unions has increased following enactment of legislation, which greatly expanded the ability of banks and bank holding companies to engage in interstate banking or acquisition activities.

Banking is a business that depends on interest rate differentials. In general, the differences between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on loans extended to its customers and securities held in its investment portfolio constitute the major portion of Delmarva's and Partners' earnings. Thus, the earnings and growth of both Affiliate Banks will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal Reserve, which regulates the supply of money through various means including open market dealings in United States government securities. The nature and timing of changes in such policies and their impact on Delmarva and Partners cannot be predicted.

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***Branching and Interstate Banking.*** The federal banking agencies are authorized to approve interstate bank merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks has opted out of the interstate bank merger provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions. Such interstate bank mergers and branch acquisitions are also subject to the nationwide and statewide insured deposit concentration limitations described in the Riegle-Neal Act. The Dodd-Frank Act authorizes national and state banks to establish de novo branches in other states to the same extent as a bank chartered by that state would be permitted to branch.

***Capital Requirements.***

*Basel III Capital Framework.* The Federal Reserve and the FDIC have adopted rules to implement the Basel III capital framework as outlined by the Basel Committee on Banking Supervision and standards for calculating risk-weighted assets and risk-based capital measurements (collectively, the "Basel III Final Rules") that apply to banking institutions they supervise. For the purposes of these capital rules, (i) common equity tier 1 capital ("CET1") consists principally of common stock (including surplus) and retained earnings; (ii) Tier 1 capital consists principally of CET1 plus non-cumulative preferred stock and related surplus, and certain grandfathered cumulative preferred stocks and trust preferred securities; and (iii) Tier 2 capital consists of other capital instruments, principally qualifying subordinated debt and preferred stock, and limited amounts of an institution's allowance for loan losses. Each regulatory capital classification is subject to certain adjustments and limitations, as implemented by the Basel III Final Rules. The Basel III Final Rules also establish risk weightings that are applied to many classes of assets held by community banks, importantly including applying higher risk weightings to certain commercial real estate loans.

The Basel III Final Rules and minimum capital ratios required to be maintained by banks were effective January 1, 2015. The Basel III Final Rules also include a requirement that banks maintain additional capital (the "capital conservation buffer"), which was phased in beginning January 1, 2016 and was fully phased in effective January 1, 2019. The Basel III Final Rules and fully phased in capital conservation buffer require banks to maintain (i) a minimum ratio of CET1 to risk-weighted assets of at least 4.5%, plus a 2.5% capital conservation buffer (which is added to the minimum CET1 ratio, effectively resulting in a required ratio of CET1 to risk-weighted assets of at least 7%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (effectively resulting in a required Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of total (that is, Tier 1 plus Tier 2) capital to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (effectively resulting in a required total capital ratio of 10.5%) and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to average total assets, subject to certain adjustments and limitations.

The Basel III Final Rules provide deductions from and adjustments to regulatory capital measures, primarily to CET1, including deductions and adjustments that were not applied to reduce CET1 under historical regulatory capital rules. For example, mortgage servicing rights, deferred tax assets dependent upon future taxable income, and significant investments in non-consolidated financial entities must be deducted from CET1 to the extent that any one such category exceeds 10.0% of CET1 or all such categories in the aggregate exceed 15.0% of CET1.

The capital ratios described above are the minimum levels that the federal banking agencies expect. State and federal regulators have the discretion to require an institution to maintain higher capital levels based upon its concentrations of loans, the risk of its lending or other activities, the performance of its loan and investment portfolios and other factors. Failure to maintain such higher capital expectations could result in a lower composite regulatory rating, which would impact the institution's deposit insurance premiums and could affect its ability to borrow and costs of borrowing, and could result in additional or more severe enforcement actions. In respect of institutions with high concentrations of loans in areas deemed to be higher risk, or during periods of significant economic stress, regulators may require an institution to maintain a higher level of capital, and/or to maintain more stringent risk management measures, than those required by these regulations.

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As of December 31, 2022, the Affiliate Banks met all capital adequacy requirements under the Basel III Final Rules, including the capital conservation buffer on a fully phased-in basis.

*Community Bank Leverage Ratio.* As a result of the EGRRCPA, the federal banking agencies issued a rule in September 2019 that permits qualifying banks with less than $10 billion in consolidated assets to elect to be subject to a 9% leverage ratio applied using less complex leverage calculations (the "Community Bank Leverage Ratio Framework or the CBLRF"). Banks that opt into the CBLRF and maintain a leverage ratio of greater than 9% are not subject to other risk-based and leverage capital requirements and are deemed to meet Basel III Final Rules' well capitalized ratio requirements. As of December 31, 2022, neither the Company nor the Affiliate Banks have elected to apply the CBLRF, but the Company and the Affiliate Banks continue to assess the potential impact of opting in to CBLRF as part of their ongoing capital management and planning processes.

*Small Bank Holding Company.* The EGRRCPA also expanded the category of bank holding companies that may rely on the Federal Reserve's Small Bank Holding Company Policy Statement by raising the maximum amount of assets a qualifying bank holding company may have from $1 billion to $3 billion. In addition to meeting the asset threshold, a bank holding company must not engage in significant nonbanking activities, not conduct significant off-balance sheet activities, and not have a material amount of debt or equity securities outstanding and registered with the SEC (subject to certain exceptions). The Federal Reserve may, in its discretion, exclude any bank holding company from the application of the Small Bank Holding Company Policy Statement if such action is warranted for supervisory purposes.

In August 2018, the Federal Reserve issued an interim final rule to apply the Small Bank Holding Company Policy Statement to bank holding companies with consolidated total assets of less than $3 billion. The policy statement, among other things, exempts certain bank holding companies from minimum consolidated regulatory capital ratios that apply to other bank holding companies. As a result of the interim final rule, which was effective August 30, 2018, the Company expects that it will be treated as a small bank holding company and will not be subject to regulatory capital requirements. The comment period on the interim final rule closed on October 29, 2018 and, to date, the Federal Reserve has not issued a final rule to replace the interim final rule. The Affiliate Banks remain subject to the regulatory capital requirements described above.

***Prompt Corrective Action.*** Under Section 38 of the FDIA, each federal banking agency is required to implement a system of prompt corrective action for institutions which it regulates. The federal banking agencies have promulgated substantially similar regulations to implement the system of prompt corrective action established by Section 38 of the FDIA. The federal banking agencies have broad powers under current federal law to take prompt corrective action to resolve problems of insured depository institutions. The extent of these powers depends upon whether the institution in question is "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized." These terms are defined under uniform regulations issued by each of the federal banking agencies regulating these institutions. An insured depository institution that is less than adequately capitalized must adopt an acceptable capital restoration plan, is subject to increased regulatory oversight and is increasingly restricted in the scope of its permissible activities. As of December 31, 2022, both Affiliate Banks were considered "well capitalized."

***Limits on Dividends*.** The Company, as a Maryland corporation, is a legal entity that is separate and distinct from the Affiliate Banks. A significant portion of the revenues of the Company result from dividends paid to it by the Affiliate Banks. Both the Company and the Affiliate Banks remain subject to laws and regulations that limit the payment of dividends, including limits on the sources of dividends and requirements to maintain capital at or above regulatory minimums. In particular, Federal Reserve supervisory guidance indicates that the Federal Reserve may have safety and soundness concerns if a bank holding company pays dividends that exceed earnings for the period in which the dividend is being paid. Further, the FDIA prohibits insured depository institutions such as the Affiliate Banks from making capital distributions, including paying dividends, if, after making such distribution, the institution would become undercapitalized as defined in the statute. The Company does not expect that any of these laws, regulations or policies will materially affect the ability of the Company or the Affiliate Banks to pay dividends.

***Regulatory Enforcement Authority.*** Federal banking law grants substantial enforcement powers to federal banking agencies. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-

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affiliated parties. In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices. Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities. In addition, the FDIC could terminate the institution's deposit insurance if it determines that the institution's financial condition is unsafe or unsound or that the institution engaged in unsafe or unsound practices that violated an applicable rule, regulation, order or condition enacted or imposed by the institution's regulators.

Congress, the federal bank agencies and other government agencies have called for or proposed additional regulation and restrictions on the activities, practices and operations of banks and their holding companies. Congress and the federal banking agencies have broad authority to require all banks and holding companies to adhere to more rigorous or costly operating procedures, corporate governance procedures, or to engage in activities or practices which they would not otherwise elect. Any such requirement could adversely affect the Company's business and results of operations.

***Community Reinvestment Act.*** The Community Reinvestment Act (the "CRA") requires that, in connection with examinations of financial institutions within their respective jurisdictions, the federal banking agencies will evaluate the record of each financial institution in meeting the needs of its local community, including low- and moderate-income neighborhoods. A bank's CRA performance is also considered in evaluating applications seeking approval for mergers, acquisitions, and new offices or facilities. Failure to adequately meet these criteria could result in additional requirements and limitations being imposed. Additionally, banks must publicly disclose the terms of certain CRA-related agreements. These factors also are considered in evaluating share exchanges, mergers, acquisitions and applications to open a branch or facility. In their most recent CRA evaluations, each Affiliate Bank received a "Satisfactory" CRA rating.

On May 5, 2022, the federal banking agencies issued a joint proposal intended to strengthen and modernize their respective CRA regulations. The joint proposal outlines five objectives: (i) expand access to credit, investment, and basic banking services in low- and moderate-income communities; (ii) adapt to changes in the banking industry, including internet and mobile banking; (iii) provide greater clarity, consistency and transparency; (iv) tailor CRA evaluations and data collection by bank size and type; and (v) maintain a unified approach to CRA across the federal banking agencies. The public comment period closed on August 5, 2022 and, to date, no final rule has been issued by the federal banking agencies. The Company and the Affiliate Banks continue to monitor developments related to the joint proposal.

***Fair and Responsible Banking.*** Banks and other financial institutions are subject to numerous laws and regulations intended to promote fair and responsible banking and prohibit unlawful discrimination and unfair, deceptive or abusive practices in banking. These laws include, among others, the Dodd-Frank Act, Section 5 of the Federal Trade Commission Act, the Equal Credit Opportunity Act, and the Fair Housing Act. Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above. These federal, state and local laws regulate the manner in which financial institutions deal with customers, take deposits, make loans or conduct other types of transactions. Failure to comply with these laws and regulations could give rise to regulatory sanctions, and actions by the U.S. Department of Justice and state attorneys general.

***Federal Home Loan Bank of Atlanta****.* The Affiliate Banks are members of the Federal Home Loan Bank ("FHLB") of Atlanta, which is one of 11 regional FHLBs that provide funding to their members for making housing loans as well as for affordable housing and community development loans. Each FHLB serves as a reserve, or central bank, for the members within its assigned region. Each FHLB makes loans to members in accordance with policies and procedures established by the Board of Directors of the FHLB. As members, the Affiliate Banks must purchase and maintain stock in the FHLB. At December 31, 2022, the Affiliate Banks owned $3.4 million of FHLB stock.

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***Consumer Financial Protection Bureau.*** The Dodd-Frank Act created the Consumer Financial Protection Bureau (the "CFPB"), an independent federal agency within the Federal Reserve System having broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the consumer financial privacy provisions of the GLB Act and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with more than $10 billion in assets. Smaller institutions, including Delmarva and Partners, are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking agencies for compliance with federal consumer protection laws and regulations. The CFPB also has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products. The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

The CFPB has proposed or issued a number of important rules affecting a wide range of consumer financial products. The changes resulting from the Dodd-Frank Act and CFPB rulemakings and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability.

The CFPB has concentrated much of its rulemaking efforts on reforms related to residential mortgage transactions. The CFPB has issued rules related to a borrower's ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, requirements for high cost mortgages, appraisal and escrow standards and requirements for higher-priced mortgages. The CFPB has also issued rules establishing integrated disclosure requirements for lenders and settlement agents in connection with most closed end, real estate secured consumer loans; and rules which, among other things, expand the scope of information lenders must report in connection with mortgage and other housing-related loan applications under the Home Mortgage Disclosure Act. These rules include significant regulatory and compliance changes and are expected to have a broad impact on the financial services industry.

The rule implementing the Dodd-Frank Act requirement that lenders determine whether a consumer has the ability to repay a mortgage loan, established certain minimum requirements for creditors when making ability to pay determinations, and established certain protections from liability for mortgages meeting the definition of "qualified mortgages." Generally, the rule applies to all consumer-purpose, closed-end loans secured by a dwelling including home-purchase loans, refinances and home equity loans—whether first or subordinate lien. The rule does not cover, among other things, home equity lines of credit or other open-end credit; temporary or "bridge" loans with a term of 12 months or less, such as a loan to finance the initial construction of a dwelling; a construction phase of 12 months or less of a construction-to-permanent loan; and business-purpose loans, even if secured by a dwelling. The rule afforded greater legal protections for lenders making qualified mortgages that are not "higher priced." Qualified mortgages must generally satisfy detailed requirements related to product features, underwriting standards, and a points and fees requirement whereby the total points and fees on a mortgage loan cannot exceed specified amounts or percentages of the total loan amount. Mandatory features of a qualified mortgage include: (i) a loan term not exceeding 30 years; and (ii) regular periodic payments that do not result in negative amortization, deferral of principal repayment, or a balloon payment. Further, the rule clarified that qualified mortgages do not include "no-doc" loans and loans with negative amortization, interest-only payments, or balloon payments. The rule created special categories of qualified mortgages originated by certain smaller creditors. Under the EGRRCPA, most residential mortgage loans originated and held in portfolio by a bank with less than $10 billion in assets will be designated as "qualified mortgages." Higher-priced qualified mortgages (e.g., sub-prime loans) receive a rebuttable presumption of compliance with ability-to-repay rules, and other qualified mortgages (e.g., prime loans) are deemed to comply with the ability-to-repay rules.

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***FDIC Insurance.*** The deposits of the Affiliate Banks are insured by the DIF of the FDIC up to the standard maximum insurance amount for each deposit insurance ownership category. The basic limit on FDIC deposit insurance coverage is $250,000 per depositor. Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations as an insured institution, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC, subject to administrative and potential judicial hearing and review processes. The FDIC may also suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance if the institution has no tangible capital. If deposit insurance is terminated, the deposits at the institution at the time of termination, less subsequent withdrawals, shall continue to be insured for a period from six months to two years, as determined by the FDIC. Management is aware of no existing circumstances that could result in termination of the Affiliate Banks' deposit insurance.

The DIF is funded by assessments on banks and other depository institutions calculated based on average consolidated total assets minus average tangible equity (defined as Tier 1 capital). As required by the Dodd-Frank Act, the FDIC has adopted a large-bank pricing assessment scheme, set a target "designated reserve ratio" (described in more detail below) of 2.0% for the DIF and, in lieu of dividends, provides for a lower assessment rate schedule when the reserve ratio reaches 2.0% and 2.5%. An institution's assessment rate is based on a statistical analysis of financial ratios that estimates the likelihood of failure over a three-year period, which considers the institution's weighted average CAMELS composite rating, and is subject to further adjustments including those related to levels of unsecured debt and brokered deposits. At December 31, 2022, total base assessment rates for institutions that have been insured for at least five years range from 1.5 to 40 basis points applying to banks with less than $10 billion in assets.

The Dodd-Frank Act transferred to the FDIC increased discretion with regard to managing the required amount of reserves for the DIF, or the "designated reserve ratio." The FDIA requires that the FDIC consider the appropriate level for the designated reserve ratio on at least an annual basis. On October 18, 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 bps, beginning in the first quarterly assessment period of 2023. This increase in assessment rate schedules is intended to increase the likelihood that the reserve ratio reaches 1.35 percent by the statutory deadline of September 30, 2028. The new assessment rate schedules will remain in effect unless and until the reserve ratio meets or exceeds 2 percent. Progressively lower assessment rate schedules will take effect when the reserve ratio reaches 2 percent, and again when it reaches 2.5 percent. The Affiliate Banks are evaluating the impact of these revised assessment rate schedules on their respective FDIC insurance assessments.

***Concentration and Risk Guidance.*** The federal banking agencies promulgated joint interagency guidance regarding material direct and indirect asset and funding concentrations. The guidance defines a concentration as any of the following: (i) asset concentrations of 25% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by individual borrower, small interrelated group of individuals, single repayment source or individual project; (ii) asset concentrations of 100% or more of Total Capital (loan related) or Tier 1 Capital (non-loan related) by industry, product line, type of collateral, or short-term obligations of one financial institution or affiliated group; (iii) funding concentrations from a single source representing 10% or more of Total Assets; or (iv) potentially volatile funding sources that when combined represent 25% or more of Total Assets (these sources may include brokered, large, high-rate, uninsured, internet-listing-service deposits, Federal funds purchased or other potentially volatile deposits or borrowings). If a concentration is present, management must employ heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, third party review and increasing capital requirements. Delmarva and Partners adhere to the practices recommended in this guidance.

Additionally, the federal banking agencies have issued guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that financial institutions that have: (i) total reported loans for construction, land development, and other land which represent 100% or more of an institution's total risk-based capital; or (ii) total reported commercial real estate loans, excluding loans secured by owner-occupied commercial real estate, representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months, are identified as having potential commercial real estate concentration risk. Financial institutions that are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital.

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***Brokered Deposits.*** Section 29 of the FDIA and FDIC regulations generally limit the ability of any bank to accept, renew or roll over any brokered deposit unless it is "well capitalized" or, with the FDIC's approval, "adequately capitalized." On December 15, 2020, the FDIC issued rules to revise brokered deposit regulations in light of modern deposit-taking methods. The rules established a new framework for certain provisions of the "deposit broker" definition and amended the FDIC's interest rate methodology calculating rates and rate caps. The rules became effective on April 1, 2021 and, to date, there has been no material impact to either the Company or the Affiliate Banks from the rules.

***USA PATRIOT Act.*** Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships, as well as enhanced due diligence standards intended to detect, and prevent, the use of the United States financial system for money laundering and terrorist financing activities. The PATRIOT Act requires financial institutions, including banks, to establish anti-money laundering programs, including employee training and independent audit requirements, meet minimum standards specified by the act, follow minimum standards for customer identification and maintenance of customer identification records, and regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers. The costs or other effects of the compliance burdens imposed by the USA PATRIOT Act or future anti-terrorist, homeland security or anti-money laundering legislation or regulation cannot be predicted with certainty.

***Bank Secrecy Act.*** The Bank Secrecy Act (the "BSA"), which is intended to require financial institutions to develop policies, procedures and practices to prevent and deter money laundering, mandates that every bank have a written, board-approved program that is reasonably designed to assure and monitor compliance with the BSA. The program must, at a minimum: (i) provide for a system of internal controls to assure ongoing compliance; (ii) provide for independent testing for compliance; (iii) designate an individual responsible for coordinating and monitoring day-to-day compliance; and (iv) provide training for appropriate personnel. In addition, banks are required to adopt a customer identification program as part of its BSA compliance program. Financial institutions are generally required to report cash transactions involving more than $10,000 to the U.S. Treasury Department's Financial Crimes Enforcement Network ("FinCEN"). In addition, financial institutions are required to file suspicious activity reports for transactions that involve more than $5,000 and which the financial institution knows, suspects or has reason to suspect involves illegal funds, is designed to evade the requirements of the BSA or has no lawful purpose. The regulations implementing the BSA explicitly include risk-based procedures for conducting ongoing customer due diligence, to include understanding the nature and purpose of customer relationships for the purpose of developing a customer risk profile. In addition, banks must identify and verify the identity of the beneficial owners of all legal entity customers (other than those that are excluded) at the time a new account is opened (other than accounts that are exempted).

***Office of Foreign Assets Control.*** The United States has imposed economic sanctions that affect transactions with designated foreign countries, foreign nationals and others, which are administered by the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC"). The OFAC-administered sanctions targeting countries take many different forms. Generally, however, they contain one or more of the following elements: (i) restrictions on trade with or investment in a sanctioned country, including prohibitions against direct or indirect imports from and exports to a sanctioned country and prohibitions on a "U.S. person" engaging in financial transactions relating to making investments in, or providing investment-related advice or assistance to, a sanctioned country; and (ii) a blocking of assets in which the government or specially designated nationals of a sanctioned country have an interest by prohibiting transfers of property subject to U.S. jurisdiction (including property in the possession or control of U.S. persons). Blocked assets (e.g., property and bank deposits) cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Failure to comply with these sanctions could have serious legal and reputational consequences.

***Corporate Transparency Act***. On January 1, 2021, as part of the 2021 National Defense Authorization Act, Congress enacted the Corporate Transparency Act ("CTA"), which requires FinCEN to issue regulations implementing reporting requirements for "reporting companies" (as defined in the CTA) to disclose beneficial ownership interests of certain U.S. and foreign entities by January 1, 2022. The CTA imposes additional reporting requirements on entities not previously subject to such beneficial ownership disclosure regulations and also contains exemptions for several different types of entities, including among others, certain banks and bank holding companies. Non-compliance with FinCEN regulations promulgated under the CTA may result in civil fines as well as criminal penalties.

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In December 2021, FinCEN proposed the first of three sets of rules to implement the beneficial ownership reporting requirements of the CTA, with subsequent rulemakings expected (i) to implement the CTA's protocols for access to and disclosure of beneficial ownership information, and (ii) to revise the existing customer due diligence requirements that apply to the Company, the Affiliate Banks and many other financial institutions, to ensure consistency between these requirements and the beneficial ownership reporting rules. Thereafter, on September 29, 2022, FinCEN issued a final rule to implement the beneficial ownership reporting requirements of the CTA, which will be effective January 1, 2024. The Company will continue to monitor developments related to the FinCEN rules, including future FinCEN rulemakings, and will continue to assess the ultimate impact of the CTA on the Company and the Affiliate Banks.

***Increased Focus on Lending to Members of the Military.*** The federal banking agencies and the U.S. Department of Justice have recently increased their focus on financial institution compliance with the Servicemembers Civil Relief Act (the "SCRA"). The SCRA requires a bank to cap the interest rate at 6% for any loan to a member of the military who goes on active duty after taking out the loan. It also limits the actions Delmarva or Partners can take when a servicemember is in foreclosure. The EGRRCPA also adds certain protections for consumers, including veterans and active duty military personnel, expanded credit freezes and creation of an identity theft protection database.

***Incentive Compensation*.** The Dodd-Frank Act requires the federal banking agencies and the SEC to establish joint regulations or guidelines prohibiting incentive-based payment arrangements at specified regulated entities with at least $1 billion in total consolidated assets, that encourage inappropriate risks by providing an executive officer, employee, director, or principal stockholder with excessive compensation, fees, or benefits that could lead to material financial loss to the entity.

In 2016, the SEC and the federal banking agencies proposed rules that prohibit covered financial institutions (including bank holding companies and banks) from establishing or maintaining incentive-based compensation arrangements that encourage inappropriate risk taking by providing covered persons (consisting of senior executive officers and significant risk takers, as defined in the rules) with excessive compensation, fees or benefits that could lead to material financial loss to the financial institution. The proposed rules outline factors to be considered when analyzing whether compensation is excessive and whether an incentive-based compensation arrangement encourages inappropriate risks that could lead to material loss to the covered financial institution, and establishes minimum requirements that incentive-based compensation arrangements must meet to be considered to not encourage inappropriate risks and to appropriately balance risk and reward. The proposed rules also impose additional corporate governance requirements on the boards of directors of covered financial institutions and impose additional record-keeping requirements. The comment period for these proposed rules has closed and a final rule has not yet been published. If the rules are adopted as proposed, they will restrict the manner in which executive compensation is structured. At this time, the Company cannot predict what impact, if any, the final rule will have on its operations.

***Volcker Rule*.** The Volcker Rule under the Dodd-Frank Act prohibits bank holding companies and their subsidiary banks from engaging in proprietary trading except in limited circumstances, and places limits on ownership of equity investments in private equity and hedge funds. The EGRRCPA exempted all banks with less than $10 billion in assets (including their holding companies and affiliates) from the Volcker Rule, provided that the institution has total trading assets and liabilities of 5.0% or less of total assets, subject to certain limited exceptions. On July 9, 2019, the federal banking agencies along with the Commodity Futures Trading Commission and the SEC issued a final rule to exclude community banks, like the Affiliate Banks, from the application of the Volcker Rule.

***Call Reports and Examination Cycle*.** All institutions, regardless of size, submit a quarterly call report that includes data used by federal banking agencies to monitor the condition, performance, and risk profile of individual institutions and the industry as a whole. The EGRRCPA contained provisions expanding the number of regulated institutions eligible to use streamline call report forms. In November 2018, the federal banking agencies issued a proposal to permit insured depository institutions with total assets of less than $5 billion that do not engage in certain complex or international activities to file the most streamlined version of the quarterly call report, and to reduce data reportable on certain streamlined call report submissions.

In December 2018, consistent with the provisions of the EGRRCPA, the federal banking agencies jointly adopted final rules that permit banks with up to $3 billion in total assets, that received a composite CAMELS rating of "1" or "2,"

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and that meet certain other criteria (including not having undergone any change in control during the previous 12-month period, and not being subject to a formal enforcement proceeding or order), to qualify for an 18-month on-site examination cycle.

***Stress Testing*.** As required by the Dodd-Frank Act, the federal banking agencies implemented stress testing requirements for certain financial institutions, including bank holding companies and state-chartered banks, with more than $10 billion in total consolidated assets. The EGRRCPA subsequently raised the asset thresholds for company-run stress testing and mandatory stress testing conducted by the Federal Reserve to $50 billion and $100 billion, respectively. Although these requirements do not apply to the Company or the Affiliate Banks, the federal banking agencies emphasize that all banking organizations, regardless of size, should have the capacity to analyze the potential effect of adverse market conditions or outcomes on the organization's financial condition. Based on existing regulatory guidance, the Company will be expected to consider the institution's interest rate risk management, commercial real estate loan concentrations and other credit-related information, and funding and liquidity management during this analysis of adverse market conditions or outcomes.

***Confidentiality and Required Disclosures of Customer Information*.** Under the Federal Right to Privacy Act of 1978, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, financial institutions are required to disclose their policies for collecting and protecting confidential information. The Affiliate Banks are also subject to various laws and regulations that address the privacy of nonpublic personal financial information of consumers. The GLB Act and certain regulations issued thereunder protect against the transfer and use by financial institutions of consumer nonpublic personal information. A financial institution must provide to its customers, at the beginning of the customer relationship and annually thereafter, the institution's policies and procedures regarding the handling of customers' nonpublic personal financial information. These privacy provisions generally prohibit a financial institution from providing a customer's personal financial information to unaffiliated third parties unless the institution discloses to the customer that the information may be so provided and the customer is given the opportunity to opt out of such disclosure.

In August 2018, the CFPB published its final rule to update Regulation P pursuant to the amended GLB Act. Under this rule, certain qualifying financial institutions are not required to provide annual privacy notices to customers. To qualify, a financial institution must not share nonpublic personal information about customers except as described in certain statutory exceptions which do not trigger a customer's statutory opt-out right. In addition, the financial institution must not have changed its disclosure policies and practices from those disclosed in its most recent privacy notice. The rule sets forth timing requirements for delivery of annual privacy notices in the event that a financial institution that qualified for the annual notice exemption later changes its policies or practices in such a way that it no longer qualifies for the exemption.

In March 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the "VCDPA"), which goes into effect on January 1, 2023. The VCDPA grants Virginia residents the right to access, correct, delete, know, and opt-out of the sale and processing for targeted advertising purposes of their personal information, similar to the protections provided by similar consumer data privacy laws in California and in Europe. The VCDPA also imposes data protection assessment requirements and authorizes the Attorney General of Virginia to enforce the VCDPA, but does not provide a private right of action for consumers. The Company and the Affiliate Banks cannot yet predict how the implementation of the VCDPA will impact the Affiliate Banks' products, services or other business activities.

Although these laws and programs impose compliance costs and create privacy obligations and, in some cases, reporting obligations, and compliance with all of the laws, programs, and privacy and reporting obligations may require significant resources of the Company, these laws and programs do not materially affect the Company's products, services or other business activities.

***Cybersecurity*.** The federal banking agencies have adopted guidelines for establishing information security standards and cybersecurity programs for implementing safeguards under the supervision of a financial institution's board of directors. These guidelines, along with related regulatory materials, increasingly focus on risk management and processes related to information technology and the use of third parties in the provision of financial products and services.

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In particular, in March 2015, federal regulators issued two related statements regarding cybersecurity. One statement indicates that financial institutions should design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other statement indicates that a financial institution's management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution's operations after a cyber-attack involving destructive malware. 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.

On November 18, 2021, the federal bank regulatory agencies issued a final rule to improve the sharing of information about cyber incidents that may affect the U.S. banking system. The rule requires a banking organization to notify its primary federal regulator of any significant computer-security incident as soon as possible and no later than 36 hours after the banking organization determines that a cyber incident has occurred. Notification is required for incidents that have materially affected—or are reasonably likely to materially affect—the viability of a banking organization's operations, its ability to deliver banking products and services, or the stability of the financial sector. In addition, the rule requires a bank service provider to notify affected banking organization customers as soon as possible when the provider determines that it has experienced a computer-security incident that has materially affected or is reasonably likely to materially affect banking organization customers for four or more hours. The rule became effective on May 1, 2022.

If the Company fails to meet regulatory expectations, it could be subject to various regulatory sanctions, including financial penalties and may be required to perform remediation efforts that demand significant Company resources. To date, the Company has not experienced a significant compromise, significant data loss or any material financial losses related to cybersecurity attacks, but its systems and those of its customers and third-party service providers are under constant threat and it is possible that the Company could experience a significant event in the future. Risks and exposures related to cybersecurity attacks are expected to remain high for the foreseeable future due to the rapidly evolving nature and sophistication of these threats, as well as due to the expanding use of Internet banking, mobile banking and other technology-based products and services by the Company and its customers.

***Effect of Governmental Monetary Policies****.* As with other financial institutions, the earnings of the Company and the Affiliate Banks are affected by general economic conditions as well as by the monetary policies of the Federal Reserve. Such policies, which include regulating the national supply of bank reserves and bank credit, can have a major effect upon the source and cost of funds and the rates of return earned on loans and investments. The Federal Reserve exerts a substantial influence on interest rates and credit conditions, primarily through establishing target rates for federal funds, open market operations in U.S. Government securities, varying the discount rate on member bank borrowings and setting cash reserve requirements against deposits. Changes in monetary policy, including changes in interest rates, will influence the origination of loans, the purchase of investments, the generation of deposits, and rates received on loans and investment securities and paid on deposits. Fluctuations in the Federal Reserve's monetary policies have had a significant impact on the operating results of the Company and the Affiliate Banks and are expected to continue to do so in the future.

***Future Regulation*.** From time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company or the Affiliate Banks. A change in statutes, regulations or regulatory policies applicable to the Company or any of its subsidiaries could have a material effect on our business.

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**Filings with the SEC**

The Company files annual, quarterly, and current reports under the Exchange Act with the SEC. These reports and this Form 10-K are posted and available at no cost on the Company's investor relations website, *partnersbancorp.com/investor-relations*, as soon as reasonably practicable after the Company files such documents with the SEC. The information contained on the Company's website is not a part of this Form 10-K or of any other filing with the SEC. The Company's filings with the SEC are also available through the SEC's website at *http://www.sec.gov*.

**Item 1A.** **Risk Factors.** 

**Risk Factors Summary.** 

***Risk's Related to the Company's Pending Merger with LINK***

● Because the market price of LINK common stock will fluctuate, the value of the merger consideration to be received by our shareholders may change.

● Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.

● Failure of the merger to be completed, the termination of the LINK Merger Agreement or a significant delay in the consummation of the merger could negatively impact the Company.

● The Company will be subject to business uncertainties and contractual restrictions while the merger is pending.

● The LINK Merger Agreement contains provisions that may discourage other companies from pursuing, announcing or submitting a business combination proposal to the Company that might result in greater value to Company shareholders.

● Litigation against the Company or LINK, or the members of the Company's or LINK's board of directors, could prevent or delay the completion of the LINK merger.

***Risks Related to Our Business***

● The COVID-19 pandemic could adversely affect our business, financial condition and results of operations, the extent of which is not now known or predictable.

● Changes in interest rates could adversely impact the Company's financial condition and results of operations.

● The Company's operations and profitability may be adversely affected by general economic, social, political and health conditions.

● If the Company has higher credit losses than it has allowed for, the Company's earnings could materially decrease.

● The Company's profitability will depend significantly on economic conditions in the States of Delaware, New Jersey, and Maryland and the Commonwealth of Virginia.

● Because the Company emphasizes commercial real estate and commercial loan originations, its credit risk may increase and future downturns in the local real estate market or economy could adversely affect its earnings.

● The severity and duration of a future economic downturn and the composition of the Company's loan portfolio could impact the level of loan charge-offs and provision for credit losses and may adversely affect the Company's net income or loss.

● Changes in real estate values may adversely impact the Company's loans that are secured by real estate.

● The Company's ability to pay dividends depends primarily on receiving dividends from the Affiliate Banks, which is subject to regulatory limits on such bank's performance.

● Competition from other traditional and nontraditional financial institutions and service providers may adversely affect the Company's profitability.

● The Company is subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect the Company's profitability.

● The soundness of other financial institutions may adversely affect the Company.

● Market volatility may have materially adverse effects on the Company's liquidity and financial condition.

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● Maryland business corporation law and various anti-takeover provisions under the Company's governing documents could impede the takeover of the Company.

● If the Company concludes that the decline in value of any of its investment securities is an other-than-temporary impairment, the Company is required to write down the value of that security through a charge to earnings.

● Liquidity risk could impair the Company's ability to fund operations and meet its obligations as they become due and failure to maintain sufficient liquidity could materially adversely affect the Company's growth, business, profitability and financial condition.

● The Company is subject to environmental liability risk associated with lending activities.

● The Company depends 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.

● Consumers may decide not to use banks to complete their financial transactions, which could have a material adverse impact on the Company's business, financial condition and results of operations.

**Risks Related to Bank and Bank Holding Company Regulation**

● The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on the Company's operations.

● The Company is required to maintain capital to meet regulatory requirements, and the Company's failure to maintain sufficient capital, whether due to losses, an inability to raise capital or otherwise could adversely affect the Company's financial condition, liquidity, results or operations and ability to maintain regulatory compliance.

● The Company may need or be compelled to raise additional capital in the future which could dilute shareholders or be unavailable when needed or at unfavorable terms.

**Risks Related to the Company's Common Stock**

● The Company's ownership is concentrated in one significant shareholder.

**Risks Related to Information Technology**

● The Company's business conduct, including its transactions with customers, are increasingly done via electronic means, and this has increased its risks related to cybersecurity.

● The Company's financial performance may suffer if its information technology is unable to keep pace with growth or industry developments.

● The increasing use of social media platforms presents new risks and challenges and the inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could materially adversely impact the Company's business.

**General Risk Factors** 

● The Company's stock price may be volatile, and you could lose part or all of your investment as a result.

● New lines of business or new products and services may subject the Company to additional risks.

● The Company may not be able to attract and retain skilled people.

● Litigation and regulatory actions, including possible enforcement actions, could subject the Company to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on its business activities.

● Severe weather, natural disasters, acts of war or terrorism, other external events, including the ongoing COVID-19 pandemic or the outbreak of another highly infectious or contagious disease, could significantly impact the Company's business.

● The Company is subject to ESG risks that could adversely affect the Company's reputation, trading price of the Company's common stock and/or business, operations and earnings.

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**Risk Factors**

An investment in the Company's securities involves risks and uncertainties. Below are the material risks and uncertainties, of which the Company is currently aware, that could have a material adverse effect on the Company's business, results of operations, financial condition, liquidity and capital position, but do not necessarily include all risks that the Company may face. An investor in our securities should not interpret the disclosure of a risk in the following risk factors to state that the risk has not already materialized. These factors could cause the Company's actual results to differ materially from its historical results or the results contemplated by the forward-looking statements contained in this Annual Report on Form 10-K, in which case the trading price of the Company's common stock could decline. For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement or projection contained in this Annual Report on Form 10-K, please see "Forward-Looking Statements" in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.

**Risks Related to the Company's Pending Merger with LINK** 

***Because the market price of LINK common stock will fluctuate, the value of the merger consideration to be received by our shareholders may change.***

On February 22, 2023, the Company announced the signing of the LINK Merger Agreement, pursuant to which the Company will be acquired by LINK. Under the terms of the LINK Merger Agreement, each share of Company common stock (other than certain shares held by the Company or LINK), will be converted into the right to receive 1.150 shares of common stock of LINK. The closing price of LINK common stock on the date that the merger is completed may vary from the closing price of LINK common stock on the date LINK and the Company announced the signing of the LINK Merger Agreement and the date of the special meeting of Company shareholders regarding the merger. Because the merger consideration is determined by a fixed exchange ratio, Company shareholders will not know or be able to calculate the value of the shares of LINK common stock they will receive upon completion of the merger. Any change in the market price of LINK common stock prior to completion of the merger may affect the value of the merger consideration. Stock price changes may result from a variety of factors, including general market and economic conditions, changes in the companies' respective businesses, operations and prospects, and regulatory considerations, among other things. Many of these factors are beyond the control of LINK and the Company.

***Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.***

Before the transactions contemplated by the LINK Merger Agreement may be completed, various approvals must be obtained from bank regulatory authorities. In determining whether to grant these approvals, the applicable regulatory authorities consider a variety of factors, including the competitive impact of the proposal in the relevant geographic markets; financial, managerial and other supervisory considerations of each party; convenience and needs of the communities to be served and the record of the insured depository institution subsidiaries under the Community Reinvestment Act of 1977 and the regulations promulgated thereunder; effectiveness of the parties in combating money laundering activities; any significant outstanding supervisory matters; and the extent to which the proposal would result in greater or more concentrated risks to the stability of the United States banking or financial system. These regulatory authorities may impose conditions on the granting of such approvals. Such conditions or changes and the process of obtaining regulatory approvals could have the effect of delaying completion of the merger or of imposing additional costs or limitations on the combined company following the merger. The regulatory approvals may not be received at all, may not be received in a timely fashion, or may contain conditions on the completion of the mergers that are not anticipated or cannot be met. Furthermore, such conditions or changes may constitute a burdensome condition that may allow LINK to terminate the LINK Merger Agreement and LINK may exercise its right to terminate the LINK Merger Agreement. If the consummation of the mergers is delayed, including by a delay in receipt of necessary regulatory approvals, the business, financial condition and results of operations of the Company may also be materially and adversely affected.

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***Failure of the merger to be completed, the termination of the LINK Merger Agreement or a significant delay in the consummation of the merger could negatively impact the Company.***

The LINK Merger Agreement is subject to a number of conditions which must be fulfilled in order to complete the mergers. These conditions to the consummation of the merger may not be fulfilled and, accordingly, the merger may not be completed. In addition, if the merger is not completed by February 22, 2024, either LINK or the Company may choose to terminate the LINK Merger Agreement at any time after that date if the failure of the effective time to occur on or before that date is not caused by any breach of the LINK Merger Agreement by the party electing to terminate the merger agreement. If the merger is not consummated, the ongoing business, financial condition and results of operations of the Company may be materially adversely affected and the market price of the Company's common stock may decline significantly, particularly to the extent that the current market price reflects a market assumption that the merger will be consummated.

In addition, the Company has incurred and will incur substantial expenses in connection with the negotiation and completion of the transactions contemplated by the LINK Merger Agreement. If the merger is not completed, the Company would have to recognize these expenses without realizing the expected benefits of the merger. Any of the foregoing, or other risks arising in connection with the failure of or delay in consummating the merger, including the diversion of management attention from pursuing other opportunities and the constraints in the merger agreement on the ability to make significant changes to the Company's ongoing business during the pendency of the merger, could have a material adverse effect on the Company's business, financial condition and results of operations. If the LINK Merger Agreement is terminated and the Company's board of directors seeks another merger or business combination, Company shareholders cannot be certain that the Company will be able to find a party willing to engage in a transaction on more attractive terms than the merger with LINK.

***The Company will be subject to business uncertainties and contractual restrictions while the merger is pending.***

Uncertainty about the effect of the merger on employees, customers (including depositors and borrowers), suppliers and vendors may have an adverse effect on the business, financial condition and results of operations of the Company. These uncertainties may impair the Company's ability to attract, retain and motivate key personnel and customers (including depositors and borrowers) pending the consummation of the merger, as such personnel and customers may experience uncertainty about their future roles and relationships following the consummation of the merger. Additionally, these uncertainties could cause customers (including depositors and borrowers), suppliers, vendors and others who deal with the Company to seek to change existing business relationships with the Company or fail to extend an existing relationship with the Company. In addition, competitors may target the Company's existing customers by highlighting potential uncertainties and integration difficulties that may result from the merger.

The pursuit of the merger and the preparation for the integration may place a burden on the Company's management and internal resources. Any significant diversion of management attention away from ongoing business concerns and any difficulties encountered in the transition and integration process could have a material adverse effect on the Company's business, financial condition and results of operations. In addition, the LINK Merger Agreement restricts each party from taking certain actions without the other party's consent while the merger is pending. These restrictions could have a material adverse effect on the Company's business, financial condition and results of operations.

***The LINK Merger Agreement contains provisions that may discourage other companies from pursuing, announcing or submitting a business combination proposal to the Company that might result in greater value to Company shareholders.***

The LINK Merger Agreement contains provisions that may discourage a third party from pursuing, announcing or submitting a business combination proposal to the Company that might result in greater value to Company shareholders than the merger with LINK. These provisions include a general prohibition on the Company from soliciting, or, subject to certain exceptions, entering into discussions with any third party regarding any acquisition proposal or offers for competing transactions. Furthermore, if the merger agreement is terminated, under certain

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circumstances, the Company may be required to pay LINK a termination fee equal to $6.5 million. The Company also has an obligation to submit its merger-related proposals to a vote by its shareholders, including if the Company receives an unsolicited proposal that the Company board of directors believes is superior to the merger, unless the merger agreement is terminated by the Company under certain conditions described in the merger agreement.

***Litigation against the Company or LINK, or the members of the Company's or LINK's board of directors, could prevent or delay the completion of the LINK merger.***

Purported shareholder plaintiffs may assert legal claims related to the LINK merger. The results of any such potential legal proceeding would be difficult to predict and such legal proceedings could delay or prevent the merger from being completed in a timely manner. Moreover, any litigation could be time consuming and expensive, and could divert attention of the Company's and LINK's respective management teams away from their companies' regular business. Any lawsuit adversely resolved against the Company, LINK or members of their respective boards of directors, could have a material adverse effect on each party's business, financial condition and results of operations.

One of the conditions to the consummation of the merger is the absence of any law, order, decree or injunction (whether temporary, preliminary or permanent) or other action taken by the governmental authority of competent jurisdiction that restricts, enjoins or prohibits or makes illegal the consummation of the transactions contemplated by the merger agreement, including the merger. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a governmental authority issues an order or other directive restricting, prohibiting or making illegal the completion of the transactions contemplated by the merger agreement, including the merger, then such injunctive or other relief may prevent the merger from being completed in a timely manner or at all.

**Risks Related to Our Business**

***The COVID-19 pandemic could adversely affect our business, financial condition and results of operations, the extent of which is not now known or predictable.***

The COVID-19 pandemic has caused negative economic conditions and disruptions, which have adversely impacted the Company's financial results to varying degrees and in varying respects. The COVID-19 pandemic's impact on economic conditions and activity remains uncertain and will continue to evolve by region, country and state, and it is possible that new or evolving variants of COVID-19 could contribute to a potential economic downturn. Additionally, the COVID-19 pandemic and certain responses to the pandemic have contributed to higher inflation in the United States during 2022 and early 2023, which could contribute to a prolonged period of higher inflation. Efforts to combat this inflation could result in an economic recession.

Since the COVID-19 pandemic is ongoing, it is difficult to predict the full impact the pandemic may have on the Company's business, financial condition and results of operations. Among the factors outside the Company's control that may affect the impact the COVID-19 pandemic will ultimately have on the Company's business are, without limitation:

● the direct and indirect results of the pandemic, such as recessionary economic trends, including with respect to employment, wages and benefits, commercial activity, the residential housing market, consumer spending and real estate and investment securities market values;

● volatility in financial and capital markets, interest rates and exchange rates;

● effects on the Company's liquidity position due to changes in customers' deposit and loan activity in response to the pandemic and its economic effects;

● increase risks of loan delinquencies, defaults and foreclosures and declines in the value of collateral for loans;

● the ability of the Company's employees to work effectively during the course of the pandemic;

● the ability of the Company's third-party vendors to maintain a high-quality and effective level of service;

● the possibility of increased fraud, cybercrime and similar incidents, due to vulnerabilities posed by the significant increase in the Company employees and customers handling their banking interactions remotely from home, or otherwise;

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● required changes to the Company's internal controls over financial reporting to reflect a rapidly changing work environment;

● potential longer-term shifts toward mobile banking, telecommuting and telecommerce; and

● geographic variation in the severity and duration of the COVID-19 pandemic, including in states in which we operate physically such as Maryland, Virginia, Delaware, and New Jersey.

If the COVID-19 pandemic results in a continuation or worsening of current economic conditions and commercial environments, our business, financial condition and results of operations could be materially adversely affected. Additional ongoing and potential risks and effects related to the COVID-19 pandemic are discussed in the other risk factors contained in this report.

***Changes in interest rates could adversely impact the Company's financial condition and results of operations.***

The Company's earnings and cash flows are largely dependent upon its net interest income. Net interest income is the difference between interest income earned on interest-earning assets, such as loans and investment securities, and interest expense paid on interest-bearing liabilities, such as deposits and borrowed funds. Interest rates are highly sensitive to many factors that are beyond the Company's control, including general economic conditions and policies of various governmental and regulatory agencies, in particular, the Federal Reserve. Since the beginning of 2022, in response to elevated inflation, the Federal Open Market Committee of the Federal Reserve has increased the target range for the federal funds rate to a range of 4.25% to 4.50% as of December 31, 2022, and further increased it to a current range of 4.75% to 5.00% in March 2023. The Federal Open Market Committee has indicated that further increases are to be expected in 2023. As a result, the Company expects overall interest rates to continue to rise in 2023, which is expected to positively impact our net interest income, but may negatively impact the housing market by reducing refinancing activity, new home purchases, commercial lending activity, and the U.S. economy generally. Fluctuations in market interest rates could have a material adverse effect on the Company's business, financial condition and results of operations. Additionally, inflationary pressures could increase the Company's operating costs and could have a significant negative effect on the Company's borrowers and the values of collateral securing loans, which could negatively impact the Company's business, financial condition and results of operations.

Changes in monetary policy, including changes in interest rates, could influence not only the amount of interest the Company receives on loans and investment securities and the amount of interest it pays on deposits and borrowings, but such changes could also affect (i) the Company's ability to originate loans and obtain and retain deposits, (ii) the fair value of the Company's financial assets and liabilities, (iii) the average duration of the Company's mortgage-backed investment securities portfolio, and (iv) the availability and cost of capital and liquidity. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, the Company's net interest income, and therefore earnings, could be adversely affected.

***The Company's operations and profitability may be adversely affected by general economic, social, political and health conditions.***

The Company's operations and profitability are impacted by general economic, social, political and health conditions in the United States and abroad. These conditions include the levels and volatility of short-term and long-term interest rates, inflation, money supply, consumer spending, employment levels, labor shortages, political issues, legislative and regulatory changes, fluctuations in both debt and equity capital markets, broad trends in industry and finance, and the strength of the U.S. economy and the local economies in which the Company operates, all of which are beyond the Company's control. In addition, geopolitical developments, international trade disputes, public health crises, such as the COVID-19 pandemic, extreme weather events or natural disasters, cyberattacks or campaigns, military conflict, including the war in Ukraine, and other events beyond our control, can increase levels of political and economic unpredictability globally and increase the volatility of economic conditions on a local, national, and global scale. Deterioration in economic conditions could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values, and a decrease in demand for the Company's products and services, among other things, any of which could have a material adverse impact on the Company's business, financial condition and results of operations.

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***If the Company has higher credit losses than it has allowed for, the Company's earnings could materially decrease.***

The Company maintains an allowance for credit losses, which is a reserve established through a provision for credit losses charged to expense, that represents management's best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management's continuing evaluation of the following: industry concentrations; specific credit risks; loan loss experience; current loan portfolio quality; present economic, political and regulatory conditions; and unidentified losses inherent in the current loan portfolio. The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity, including forecasting how borrowers will perform in changing and unprecedented economic conditions, and requires the Company to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of the Company's control, may require an increase in the allowance for credit losses. In addition, bank regulatory agencies periodically review the allowance for credit losses and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. Further, if charge-offs in future periods exceed the allowance for credit losses, the Company will need additional provisions to increase the allowance for credit losses. Any increases in the allowance for credit losses will result in a decrease in net income, and possibly capital, and may have a material adverse effect on the Company's business, financial condition and results of operations.

***The Company's profitability will depend significantly on economic conditions in the States of Delaware, New Jersey, and Maryland and the Commonwealth of Virginia.***

The Company's success depends primarily on the general economic conditions of the States of Delaware, New Jersey and Maryland and the Commonwealth of Virginia, and the specific local markets in which Delmarva and Partners operate. Unlike larger financial institutions that are more geographically diversified, the Affiliate Banks have relatively compact geographic footprints. Delmarva provides banking and financial services to customers primarily in the eastern regions in Delaware and Maryland and in the Camden and Burlington counties of New Jersey. Partners serves the communities in and around the Greater Fredericksburg, Virginia area, the Greater Washington, D.C. area and Anne Arundel County and the three counties of Southern Maryland. The local economic conditions in these areas, which may be different from, and in some instances worse than, the economic conditions in the United States as a whole, have a significant impact on the demand for the Affiliate Banks' products and services, as well as the ability of the Affiliate Banks' customers to repay loans, the value of the collateral securing the loans, and the stability of the Affiliate Banks' deposit funding sources. Like most states and local economies, these areas have been significantly impacted by the COVID-19 pandemic and related governmental and societal actions. A significant decline in general economic conditions caused by rising interest rates, inflation, recession, acts of terrorism, outbreak of hostilities (including the war in Ukraine) or other international or domestic occurrences, unemployment, changes in securities markets, or other factors, including the continuation of the COVID-19 pandemic, could impact these local economic conditions and, in turn, have a material adverse effect on the Affiliate Banks', and therefore the Company's, financial condition and results of operations.

***Because the Company emphasizes commercial real estate and commercial loan originations, its credit risk may increase and future downturns in the local real estate market or economy could adversely affect its earnings.***

Commercial real estate and commercial loans are generally viewed as having more inherent risk than residential real estate loans. Because the repayment of commercial real estate and commercial loans depends on the successful management and operation of the borrower's properties or related businesses, repayment of such loans can be affected by adverse conditions in the local real estate market or economy. Commercial real estate and commercial loans also may involve relatively large loan balances to individual borrowers or groups of related borrowers, so a deterioration in one or a few of these loans could cause a significant increase in the percentage of nonperforming loans. A future downturn in the local economy could adversely affect the value of properties securing the loan or the revenues from the borrower's business, thereby increasing the risk of nonperforming loans. As the Company's commercial real estate and commercial loan portfolios increase, the corresponding risks and potential for losses from these loans may also increase. Additionally, banking regulators generally subject commercial real estate loans to greater scrutiny and may require banks with higher levels of such loans to implement enhanced risk management practices. It may also be difficult to

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assess the future performance of newly originated commercial loans, as such loans may have delinquency or charge-off levels above our historical experience, which could adversely affect the Company's future performance.

***The severity and duration of a future economic downturn and the composition of the Company's loan portfolio could impact the level of loan charge-offs and provision for credit losses and may adversely affect the Company's net income or loss.***

Lending money is a substantial part of the Company's businesses. However, every loan that the Company makes carries a certain risk of non-payment. The Company cannot assure that its allowance for credit losses will be sufficient to absorb actual loan losses. The Company also cannot assure that it will not experience significant losses in its loan portfolio that may require significant increases to the allowance for credit losses in the future.

Although the Company evaluates every loan that it makes against its underwriting criteria, the Company may experience losses by reasons of factors beyond its control, including from occurrences and circumstances unrelated to the underwriting criteria applied to a particular borrower, such as current inflationary conditions, rising interest rates, the COVID-19 pandemic, the war in Ukraine, the closure of Silicon Valley Bank ("SVB") by the California Department of Financial Protection and Innovation, which appointed the FDIC as receiver, the closure of Signature Bank by the New York State Department of Financial Services, which also appointed the FDIC as receiver and the winding down and voluntary liquidation of Silvergate Capital Corp., each of which has a high potential for negative impact on financial markets generally as well as the local markets in which we conduct business. Some of these factors include changes in market conditions affecting the value of real estate and unexpected problems affecting the creditworthiness of the Company's borrowers.

The Company determines the adequacy of its allowance for credit losses by considering various factors, including:

---

| | |
|:---|:---|
| &nbsp;&nbsp;• An analysis of the risk characteristics of various classifications of loans<br>• Geographic and industry loan concentrations | &nbsp;&nbsp;• Reports of loan reviews conducted by internal or independent organizations <br>• Previous loan loss experience |
| &nbsp;&nbsp;• Specific loans that would have loan loss potential  | &nbsp;&nbsp;• Delinquency trends  |
| &nbsp;&nbsp;• Estimated fair value of the underlying collateral | &nbsp;&nbsp;• Current economic conditions |
| &nbsp;&nbsp;• The views of the Company's and the Affiliate Banks' respective regulators | &nbsp;&nbsp;• Reports of internal auditors |
| &nbsp;&nbsp;• Reports of external auditors |  |

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Local economic conditions could impact the Company's loan portfolio. For example, an increase in unemployment, a decrease in real estate values, or increases in interest rates, as well as other factors, could weaken the economies of the communities that the Company serves. Weakness in the market areas served by the Company could depress its earnings and, consequently, its financial condition because:

● Borrowers may not be able to repay their loans;

● The value of the collateral securing the Company's loans to borrowers may decline; and/or

● The quality of the Company's loan portfolio may decline.

A downturn in local economic conditions may have a greater effect on the Company's earnings and capital than on the earnings and capital of other financial institutions whose commercial real estate portfolios are more geographically diverse.

Although, based on the aforementioned procedures implemented by the Company, management believes the current allowance for credit losses is adequate, the Company may have to increase its provision for credit losses should local economic conditions deteriorate, which could negatively impact the Company's business, financial condition and results of operations.

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***Changes in real estate values may adversely impact the Company's loans that are secured by real estate.***

A significant portion of the Company's loan portfolio consists of residential and commercial mortgages, as well as consumer loans, secured by real estate. These properties are concentrated within the local markets served by Delmarva and Partners. Real estate values and real estate markets generally are affected by, among other things, changes in national, regional or local economic conditions, fluctuations in interest rates, the availability of loans to potential purchasers, changes in the tax laws and other government statutes, regulations and policies, as well as other factors outside of our control such as extreme weather events, natural disasters, geopolitical events (such as the war in Ukraine), and public health crises (such as the COVID-19 pandemic). If real estate prices decline, particularly in the Company's market area, the value of the real estate collateral securing the Company's loans could be reduced. This reduction in the value of the collateral could increase the number of non-performing loans and could have a material adverse impact on the Company's business, financial condition and results of operations.

***The Company's ability to pay dividends depends primarily on receiving dividends from the Affiliate Banks, which is subject to regulatory limits on such bank's performance.***

The Company is a bank holding company and its operations are conducted through its subsidiaries, Delmarva and Partners. The Company's ability to pay dividends depends on its receipt of dividends from Delmarva and Partners. Dividend payments from Delmarva and Partners are subject to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory agencies. The ability of Delmarva or Partners to pay dividends is also subject to their profitability, financial condition, capital requirements, and their respective cash flow requirements. For more information on these regulatory restrictions on the ability of the Affiliate Banks to pay dividends, see "Supervision and Regulation" in Item 1, Business. There is no assurance that Delmarva or Partners will be able to pay dividends in the future or that the Company will generate adequate cash flow from Delmarva and Partners to pay dividends in the future. The Company's failure to pay dividends on its common stock could have a material adverse effect on the market price of its common stock. For additional information, please see Item 5, Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Any declaration or payment of dividends will also depend on the evaluation of a number of factors, including our earnings and financial condition, liquidity and capital requirements, general economic and regulatory conditions and other factors deemed relevant by our Board of Directors. Additionally, we have made, and may make in the future, capital management decisions that could adversely impact the amount of dividends, if any, paid to our shareholders.

***Competition from other traditional and nontraditional financial institutions and service providers may adversely affect the Company's profitability.***

The financial services business is highly competitive. The Company competes as a financial intermediary with commercial banks, savings banks, credit unions, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market mutual funds and other financial institutions operating in the Affiliate Banks' respective markets, as well as nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems. The Company's profitability depends upon its continued ability to successfully compete with traditional and new financial services providers, some of which maintain a physical presence in the Affiliate Banks' market areas and others of which maintain only a virtual presence.

Many of the Company's competitors have substantially greater resources and lending limits than the Company has, and offer certain services, such as extensive and established branch networks and trust services, that the Company does not currently provide or currently expect to provide in the near future. Moreover, larger institutions operating in their respective market areas have access to borrowed funds at lower cost than will be available to the Company. Additionally, many nonbank competitors are not subject to the same extensive federal regulations that apply to bank holding companies and federally insured banks. As a result, some of the Company's competitors may have the ability to offer products and services that the Company is unable to offer or to offer products and services at more competitive rates.

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The Company's failure to compete effectively in its markets could restrain the Company's growth or cause it to lose market share, which could have a material adverse effect on the Company's business, financial condition and results of operations.

***The Company is subject to an extensive body of accounting rules and best practices. Periodic changes to such rules may change the treatment and recognition of critical financial line items and affect the Company's profitability.***

The nature of the Company's business makes it sensitive to the large body of accounting rules in the United States. From time to time, the governing bodies that oversee changes to accounting rules and reporting requirements may release new guidance for the preparation of our financial statements. These changes can materially impact how the Company records and reports its financial condition and results of operations. In some instances, the Company could be required to apply a new or revised standard retroactively, resulting in the restatement of prior period financial statements.

Beginning in 2023, the Company is required to calculate the allowance for credit losses on the basis of the current expected credit losses over the lifetime of our loans, or the Current Expected Credit Losses ("CECL"), which may result in increases in its allowance for credit losses and future provisions for credit losses.

Under the CECL model, banks are required to present certain financial assets carried at amortized cost, such as loans held for investment and held-to-maturity debt securities, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement will take place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the "incurred loss" model required under current accounting principles generally accepted in the United States ("U.S. GAAP") through December 31, 2022, which delayed recognition until it was probable a loss had been incurred. The Company must recognize a one-time cumulative-effect adjustment to the allowance for credit losses as of the beginning of 2023, consistent with regulatory expectations set forth in interagency guidance issued at the end of 2016. Accordingly, the adoption of the CECL model will materially affect how the Company determines its allowance for credit losses, and could require it to significantly increase its allowance. Moreover, the CECL model may create more volatility in the level of the allowance for credit losses. If the Company is required to materially increase the level of its allowance for credit losses for any reason, such increase could adversely affect its capital, regulatory capital ratios, ability to make larger loans, earnings and performance metrics. Any such changes could have a material adverse effect on the Company's business, financial condition, results of operations and stock price.

***The soundness of other financial institutions may adversely affect the Company.***

Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. The Company has exposure to many different industries and counterparties, and routinely executes transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and institutional clients. Many of these transactions expose the Company to credit risk in the event of a default by a counterparty or client. In the past, defaults by, or even speculation about, one or more financial services institutions or the financial services industry generally during moments of economic crisis have led to market-wide liquidity problems which could result in defaults and, as a result, impair the confidence of our counterparties and ultimately affect our ability to effect transactions. For example, on March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, and the FDIC was appointed as receiver, on March 12, 2023, Signature Bank was closed by the New York State Department of Financial Services, which also appointed the FDIC as receiver, and on March 8, 2023, Silvergate Bank announced it will voluntarily liquidate its assets and wind down its operations, in each case due primarily to liquidity concerns. Although the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all deposits after only one business day of closure, including uninsured deposits, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder.In addition, the Company's credit risk may be exacerbated when the collateral held by the Company cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit exposure due to the Company. Any such losses could have a material adverse effect on the Company's financial condition and results of operations.

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***Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, deposit outflows, defaults or non-performance by financial institutions or transactional counterparties, could adversely affect our current and projected business operations and its financial condition and results of operations.***

Actual events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems and/or deposit outflows. For example, on March 10, 2023, SVB was closed by the California Department of Financial Protection and Innovation, which appointed the the FDIC as receiver. Similarly, on March 12, 2023, Signature Bank and Silvergate Capital Corp. were each swept into receivership. Although a statement by the Department of the Treasury, the Federal Reserve and the FDIC stated that all depositors of SVB would have access to all of their deposits after only one business day of closure, including uninsured deposits, borrowers under credit agreements, letters of credit and certain other financial instruments with SVB, Signature Bank or any other financial institution that is placed into receivership by the FDIC may be unable to access undrawn amounts thereunder. If any parties with whom we conduct business are unable to access deposits with another financial institution, funds pursuant to such instruments or lending arrangements with such a financial institution, such parties' credit quality, ability to pay their obligations to us, or to enter into new commercial arrangements requiring additional payments to us could be adversely affected. In this regard, counterparties to SVB credit agreements and arrangements, and third parties such as beneficiaries of letters of credit (among others), may experience direct impacts from the closure of SVB and uncertainty remains over liquidity concerns in the broader financial services industry. Additionally, confidence in the safety and soundness of regional or community banks specifically or the banking system generally could impact where customers choose to maintain deposits, which could materially adversely impact our liquidity, loan funding capacity, ability to raise funds, and results of operations.

Inflation and rapid increases in interest rates have led to a decline in the trading value of previously issued government securities with interest rates below current market interest rates. Although the U.S. Department of Treasury, FDIC and Federal Reserve Board have announced a program to provide up to $25 billion of loans to financial institutions secured by certain of such government securities held by financial institutions to mitigate the risk of potential losses on the sale of such instruments, widespread demands for customer withdrawals or other liquidity needs of financial institutions for immediate liquidity may exceed the capacity of such program. There is no guarantee that the U.S. Department of Treasury, FDIC and Federal Reserve Board will provide access to uninsured funds in the future in the event of the closure of other banks or financial institutions, or that they would do so in a timely fashion.

Although we assess our funding relationships as we believe necessary or appropriate, our access to funding sources and other arrangements in amounts adequate to finance or capitalize our current and projected future business operations could be significantly impaired by factors that affect us, our customers, the financial institutions with which we have arrangements directly, or the financial services industry or economy in general. These factors could include, among others, events such as liquidity constraints or failures, the ability to perform our obligations under various types of financial, credit or liquidity agreements or arrangements, disruptions or instability in the financial services industry or financial markets, or concerns or negative expectations about the prospects for companies in the financial services industry. These factors could involve financial institutions or financial services industry companies with which we or our customers have financial or business relationships, but could also include factors involving financial markets or the financial services industry generally.

Additionally, we could be impacted by current or future negative perceptions and expectations about the prospects for the financial services industry (including the impact of Moody's Investors Service's rating change of the outlook of the US banking system from "stable" to "negative"), which could worsen over time and result in downward pressure on, and continued or accelerated volatility of, bank securities.

***Market volatility may have materially adverse effects on the Company's liquidity and financial condition.***

The capital and credit markets have experienced extreme volatility and disruption. Inflationary pressures have been increasing, and since the beginning of 2022, in response to this elevated inflation, the Federal Open Market Committee of the Federal Reserve has increased the target range for the federal funds rate to its current range of 4.75%

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to 5.00% in March 2023, with further increases expected in 2023. Additionally, over the last several years, in some cases, the markets have exerted downward pressure on stock prices, security prices, and credit capacity for certain issuers without regard to those issuers' underlying financial strength. Moreover, the COVID-19 pandemic continues to disrupt supply chains, affecting production and sales across a range of industries (including businesses and industries in the geographies served by our Affiliate Banks) and has caused a significant amount of market disruption and volatility. The extent of the impact of the COVID-19 pandemic on our liquidity and financial condition will depend on certain developments, including the effects of new and evolving variants of COVID-19, the impact to our customers, employees and vendors, and the impact to the financial services and banking industry and the economy as a whole – all of which are uncertain and cannot be predicted at this time due to the ongoing and dynamic nature of the COVID-19 pandemic. If the market disruption and volatility associated with the above factors continues, there can be no assurance that the Company will not experience adverse effects, which may be material, on its liquidity, financial condition, and profitability.

***If the Company concludes that the decline in value of any of its investment securities is an other-than-temporary impairment, the Company is required to write down the value of that security through a charge to earnings.***

The Company reviews its investment securities portfolio at each quarter-end to determine whether the fair value is below the current carrying value. When the fair value of any of its investment securities has declined below its carrying value, the Company is required to assess whether the decline is an other-than-temporary impairment. If the Company determines that the decline is an other-than-temporary impairment, it is required to write down the value of that security through a charge to earnings for credit related impairment. Non-credit related reductions in the value of a security do not require a write down of the value through earnings unless the Company intends to, or is required to, sell the security. Changes in the expected cash flows related to the credit related piece of the investment of a security in the Company's investment portfolio or a prolonged price decline may result in the Company's conclusion in future periods that an impairment is other than temporary, which would require a charge to earnings to write down the security to fair value. Due to the complexity of the calculations and assumptions used in determining whether an asset has an impairment that is other than temporary, the impairment disclosed may not accurately reflect the actual impairment in the future.

***Liquidity risk could impair the Company's ability to fund operations and meet its obligations as they become due and failure to maintain sufficient liquidity could materially adversely affect the Company's growth, business, profitability and financial condition.***

Liquidity is essential to the Company's business. Liquidity risk is the potential that the Company will be unable to meet its obligations as they become due because of an inability to liquidate assets or obtain adequate funding at a reasonable cost, in a timely manner and without adverse conditions or consequences. The Company requires sufficient liquidity to fund asset growth, meet customer loan requests, customer deposit maturities and withdrawals, payments on its debt obligations as they come due and other cash commitments under both normal operating conditions and other unpredictable circumstances, including events causing industry or general financial market stress. Liquidity risk can increase due to a number of factors, including an over-reliance on a particular source of funding or market-wide phenomena such as inflation, rising interest rates, market dislocation and major disasters, including public health crises, such as the COVID-19 pandemic, and geopolitical events, such as the war in Ukraine. Factors that could detrimentally impact access to liquidity sources include, but are not limited to, a decrease in the level of the Company's business activity as a result of a downturn in the markets in which its loans are concentrated, adverse regulatory actions against the Company, or changes in the liquidity needs of depositors. Market conditions or other events could also negatively affect the level or cost of funding, affecting its ongoing ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset growth and new business transactions at a reasonable cost, in a timely manner, and without adverse consequences. The Company's inability to raise funds through deposits, borrowings, the sale of loans, and other sources could have a substantial negative effect on its business, and could result in the closure of the Company or either of the Affiliate Banks. The Company's access to funding sources in amounts adequate to finance its activities or on acceptable terms could be impaired by factors that affect its organization specifically or the financial services industry or economy in general. Any substantial, unexpected, and/or prolonged change in the level or cost of liquidity could impair the Company's ability to fund operations and meet its obligations as they become due and could have a material adverse effect on its business, financial condition and results of operations.

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The Company relies on customer deposits, advances from the FHLB and brokered deposits to fund its operations. Although the Company has historically been able to replace maturing deposits and advances if desired, including throughout the most recent recession, it may not be able to replace such funds in the future if its financial condition, the financial condition of the FHLB or market conditions were to change. FHLB borrowings and other current sources of liquidity may not be available or, if available, sufficient to provide adequate funding for operations.

***The Company is subject to environmental liability risk associated with lending activities.***

A significant portion of the Company's loan portfolio is secured by real property. During the ordinary course of business, the Company may foreclose on and take title to properties securing certain loans. In doing so, there is a risk that the Company could be subject to environmental liabilities with respect to these properties. If hazardous or toxic substances are found, the Company may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require the Company to incur substantial expense and may materially reduce the affected property's value or limit the Company's ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase the Company's exposure to environmental liability. Although the Company has policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on the Company's financial condition and results of operations and in turn, the Company's financial condition, results of operations and stock price.

***The Company depends 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.***

In deciding whether to extend credit or enter into other transactions, the Company may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports, and other financial information. The Company may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports, or other financial information could have a material adverse impact on the Company's business, financial condition and results of operations.

***Consumers may decide not to use banks to complete their financial transactions, which could have a material adverse impact on the Company's business, financial condition and results of operations.***

Technology and other changes are allowing parties to complete financial transactions, which historically have involved banks, through alternative methods, and these changes toward digital financial transactions have accelerated due to the COVID-19 pandemic. For example, consumers can now maintain funds that would have historically been held as bank deposits in brokerage accounts, mutual funds, reloadable pre-paid cards, or other types of assets, including cryptocurrencies and other digital assets. Consumers can also complete transactions such as obtaining loans, paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of loans, customer deposits and the related income generated from those transactions. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on the Company's business, financial condition and results of operations.

**Risks Related to Bank and Bank Holding Company Regulation**

***The banking industry is highly regulated, and the regulatory framework, together with any future legislative or regulatory changes, may have a materially adverse effect on the Company's operations.***

The banking industry is highly regulated and supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, customers, the public, the banking system as a whole and the FDIC DIF, not for the protection of our shareholders and creditors. The Company is subject to primary regulation and supervision by the Federal Reserve, Delmarva is subject to primary regulation and supervision by the Federal Reserve and the Delaware Commissioner, and Partners is subject to primary regulation by the Federal Reserve and the Virginia

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Bureau. Compliance with these laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance costs. The federal, state and local laws and regulations applicable to the Affiliate Banks govern a variety of matters, including permissible types, amounts and terms of loans and investments it may make, the maximum interest rate that may be charged, the amount of reserves it must hold against deposits it takes, the types of deposits it may accept and the rates it may pay on such deposits, maintenance of adequate capital and liquidity, changes in control of the Company and the Affiliate Banks, transactions between the Company and the Affiliate Banks, handling of nonpublic information, restrictions on dividends, establishment of new offices, and the monitoring and reporting of suspicious activity and customers who are perceived to present a heightened risk of money laundering or other illegal activity. The Company and the Affiliate Banks must obtain approval from their regulators before engaging in certain activities, and there is risk that such approvals may not be granted, either in a timely manner or at all. These requirements may constrain the Company's operations, and the adoption of new laws and changes to or repeal of existing laws may have a further impact on the Company's business, financial condition and results of operations. Also, the burden imposed by those federal and state regulations may place banks in general, including the Affiliate Banks in particular, at a competitive disadvantage compared to non-bank competitors. The Company's failure to comply with any applicable laws or regulations, or regulatory policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties or damage to our reputation, all of which could have a material adverse effect on the Company's business, financial condition and results of operations.

Bank holding companies and financial institutions currently face an uncertain regulatory environment. Applicable laws, regulations, interpretations, enforcement policies and accounting principles have been subject to significant changes in recent years, and may be subject to significant future changes. Future changes may have a material adverse effect on the Company's business, financial condition and results of operations.

Federal, state and local legislative bodies and regulatory agencies may adopt changes to their laws or regulations or change the manner in which existing regulations are applied. We cannot predict the substance or effect of pending or future legislation or regulation or the application of laws and regulations to us. Compliance with current and potential regulation, as well as regulatory scrutiny, may significantly increase our costs, impede the efficiency of our internal business processes, require the Company to increase its regulatory capital, and limit its ability to pursue business opportunities in an efficient manner by requiring the Company to expend significant time, effort and resources to ensure compliance and respond to any regulatory inquiries or investigations.

In addition, regulators may elect to alter standards or the interpretation of the standards used to measure regulatory compliance or to determine the adequacy of liquidity, risk management or other operational practices for financial service companies in a manner that impacts the Company's ability to implement its strategy and could affect the Company in substantial and unpredictable ways, and could have a material adverse effect on the Company's business, financial condition and results of operations. Furthermore, the regulatory agencies have extremely broad discretion in their interpretation of laws and regulations and their assessment of the quality of our loan portfolio, investment securities portfolio and other assets. If any regulatory agency's assessment of the quality of our assets, operations, lending practices, investment practices, capital structure or other aspects of the Company's business differs from the Company's assessment, the Company may be required to take additional charges or undertake, or refrain from taking, actions that could have a material adverse effect on the Company's business, financial condition and results of operations.

***The Company is required to maintain capital to meet regulatory requirements, and the Company's failure to maintain sufficient capital, whether due to losses, an inability to raise capital or otherwise could adversely affect the Company's financial condition, liquidity, results or operations and ability to maintain regulatory compliance.***

The Company and the Affiliate Banks each must meet regulatory capital requirements and maintain sufficient liquidity. The Federal Reserve may also set higher capital requirements for holding companies whose circumstances warrant it. For example, holding companies experiencing significant internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. Our regulatory capital ratios currently are in excess of the levels established for "well-capitalized" institutions. Regulators may, from time to time, implement changes to regulatory capital adequacy guidelines. Furthermore, regulators may require that the Company and/or Affiliate Banks maintain higher levels of regulatory capital based on their condition, risk profile, growth plans or conditions in the banking industry or economy. Bank

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regulatory agencies have been (and are expected to continue to be) very proactive in responding to both market and supervisory concerns with respect to capital requirements. Any new or revised standards adopted in the future may require us to maintain materially more capital, with common equity as a more predominant component, or manage the configuration of our assets and liabilities to comply with formulaic liquidity requirements and could result in regulatory actions if the Company or Affiliate Banks were unable to comply with such requirements. The Company may not be able to raise additional capital at all, or on terms acceptable to it. Failure to maintain capital to meet current or future regulatory requirements could have a significant material adverse effect on the Company's business, financial condition and results of operations. For additional information, please see "Supervision and Regulation" in Item 1, Business.

***The Company may need or be compelled to raise additional capital in the future which could dilute shareholders or be unavailable when needed or at unfavorable terms.***

The Company generally may issue additional shares of the Company's common stock up to the number of shares authorized in the Company's articles of incorporation. The Company may issue additional shares of the Company's common stock in the future for a number of reasons, including to finance the Company's operations and business strategy (including mergers and acquisitions) or to address regulatory capital concerns, among others. If the Company raises capital by selling shares of the Company's common stock for any reason, the issuance would have a dilutive effect on the current holders of the Company's common stock and could have a material adverse effect on the market price of such securities. New investors may also have rights, preferences and privileges senior to the Company's shareholders, which may adversely impact its shareholders. The Company's ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside its control, and on its financial performance. Accordingly, the Company cannot be assured of its ability to raise additional capital on terms and time frames acceptable to it or to raise additional capital at all. If the Company cannot raise additional capital in sufficient amounts when needed, its ability to comply with regulatory capital requirements could be materially impaired. Additionally, the inability to raise capital in sufficient amounts may adversely affect the Company's business, financial condition, and results of operations.

**Risks Related to the Company's Common Stock**

***The Company's ownership is concentrated in one significant shareholder.***

Kenneth R. Lehman beneficially owns approximately 41.1% of the Company's common stock. As a result, Mr. Lehman has the ability to exercise significant control over the Company's business policies and affairs, such as the composition of the Company's board of directors and any action requiring the approval of the Company's shareholders, including the adoption of amendments to its articles of incorporation and the approval of a merger, share exchange or sale of substantially all of its assets. Mr. Lehman is able to vote his shares in favor of his interests that may not always coincide with the interests of the other shareholders.

For additional information, please see Item 12, Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

***Maryland business corporation law and various anti-takeover provisions in the Company's governing documents could impede the takeover of the Company.***

Various Maryland laws affecting business corporations may have the effect of discouraging offers to acquire the Company, even if the acquisition would be advantageous to shareholders. In addition, the Company has various anti-takeover measures in place under its articles of incorporation and bylaws, including a staggered Board of Directors, and the absence of cumulative voting. Any one or more of these measures may impede the takeover of the Company without the approval of the Board of Directors and may prevent shareholders from taking part in a transaction in which they could realize a premium over the current market price of the Company common stock.

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**Risks Related to Information Technology**

***The Company's business operations, including its transactions with customers, are increasingly done via electronic means, and this has increased its risks related to cybersecurity.***

The Company relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in the Company's customer relationship management, general ledger, deposit, loan and other systems. While the Company has policies and procedures designed to prevent or limit the effect of the failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. Although the Company maintains insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. The Company is exposed to the risk of cyber-attacks in the normal course of business. In addition, the Company is exposed to cyber-attacks on vendors and merchants that affect the Company and its customers. In general, cyber incidents can result from deliberate attacks or unintentional events. The Company has observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing operational disruption. To combat against these attacks, policies and procedures are in place to prevent or limit the effect of the possible security breach of its information systems. While the Company maintains insurance coverage that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance coverage may be insufficient to cover all losses. As cyber threats continue to evolve, the Company also may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of the Company's systems and implement controls, processes, policies and other protective measures, the Company may not be able to anticipate all security breaches, nor may it be able to implement guaranteed preventive measures against such security breaches. Cyber threats are rapidly evolving, and the Company may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

The Company also faces direct and indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom it does business or upon whom the Company relies to facilitate or enable its business activities. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including the Company. Additionally, the existence of cyber-attacks or security breaches at third party service providers with access to our data may not be disclosed to us in a timely manner.

Cyber-attacks and other information or security breaches, whether directed at the Company or third parties, may result in a material loss or have material consequences. Moreover, the public perception that a cyber-attack on the Company's systems has been successful, whether or not this perception is correct, may damage the Company's reputation with customers and third parties with whom the Company does business. While the Company has not incurred any material losses related to cyber-attacks, the Company is subject to cyber-attacks from time to time, including data mining incidents. Such cyber-attacks may cause the Company to incur substantial costs and suffer other negative consequences, and there can be no assurance that the Company will not suffer such losses in the future. Such negative consequences could include remediation costs that may include liability for stolen assets or information and repairing system damage that may have been caused; deploying additional personnel and protection technologies, training employees, and engaging third-party experts and consultants; lost revenues resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; disruption or failures of physical infrastructure, operating systems or networks that support the Company's business and customers resulting in the loss of customers and business opportunities; additional regulatory scrutiny and possible regulatory penalties; litigation; and, reputational damage adversely affecting customer or investor confidence.

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***The Company's financial performance may suffer if its information technology is unable to keep pace with growth or industry developments.***

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services, and the Company expects that new technologies will continue to emerge. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Company's future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company's operations. Many of the Company's competitors have substantially greater resources to invest in technological improvements. Additionally, developing or acquiring access to new technologies and incorporating those technologies into the Company's products and services, or using them to expand the Company's products and services, may require significant investments, may take considerable time to complete, and ultimately, may not be successful. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on Delmarva's and Partners' businesses and, in turn, the Company's business, financial condition and results of operations.

***The increasing use of social media platforms presents new risks and challenges and the inability or failure to recognize, respond to, and effectively manage the accelerated impact of social media could materially adversely impact the Company's business.***

There has been a marked increase in the use of social media platforms, including weblogs (blogs), social media websites, and other forms of Internet-based communications which allow individuals access to a broad audience of consumers and other interested persons. Social media practices in the banking industry are evolving, which creates uncertainty and risk of noncompliance with regulations applicable to the Company's business. Consumers value readily available information concerning businesses and their goods and services and often act on such information without further investigation and without regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to the Company's interests and/or may be inaccurate. The dissemination of information online could harm the Company's business, prospects, financial condition, and results of operations, regardless of the information's accuracy. The harm may be immediate without affording the Company an opportunity for redress or correction.

Other risks associated with the use of social media include improper disclosure of proprietary information, negative comments about the Company's business, exposure of personally identifiable information, fraud, out-of-date information, and improper use by employees and customers. The inappropriate use of social media by the Company's customers or employees could result in negative consequences such as remediation costs including training for employees, additional regulatory scrutiny and possible regulatory penalties, litigation, or negative publicity that could damage the Company's reputation adversely affecting customer or investor confidence.

**General Risk Factors** 

***The Company's stock price may be volatile, and you could lose part or all of your investment as a result.***

Stock price volatility may negatively impact the price at which our common stock may be sold, and may also negatively impact the timing of any sale. The Company's stock price may fluctuate widely in response to a variety of factors, some of which are unrelated to the Company's financial performance, including the risk factors described herein and, including, among other things:

● actual or anticipated variations in quarterly operating results, financial conditions or credit quality;

● changes in business or economic conditions;

● recommendations or research reports about the Company, the Affiliate Banks or the financial services industry in general published by securities analysts;

● changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to the Company, the Affiliate Banks or other financial institutions;

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● news reports relating to trends, concerns and other issues in the financial services industry, such as the recent closings of SVB, Signature Bank and Silvergate Bank;

● perceptions in the marketplace regarding the Company or the Affiliate Banks and their competitors;

● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving the Company, the Affiliate Banks or their competitors;

● additions or departures of key personnel;

● future sales or issuance of additional shares of stock;

● fluctuations in the stock price and operating results of the Company's competitors;

● changes or proposed changes in laws or regulations, or differing interpretations thereof affecting the businesses of the Company or the Affiliate Banks, or enforcement of these laws or regulations;

● new technology used, or services offered, by competitors;

● additional investments from third parties; and

● geo-political conditions such as acts or threats of terrorism, public health crises and pandemics (including the COVID-19 pandemic) or military conflicts.

General market fluctuations, including real or anticipated changes in the strength of the local economy; industry factors and general economic and political conditions and events, such as economic slowdowns or recessions; interest rate changes, oil price volatility or credit loss trends could also cause a decorate in the Company's stock price regardless of operating results.

***New lines of business or new products and services may subject the Company to additional risks.***

From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, shifting market preferences, natural disasters, geopolitical events (such as the war in Ukraine), and public health crises (such as the COVID-19 pandemic) may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company's system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and new products or services could have a material adverse effect on the Company's business, financial condition, and results of operations.

***The Company may not be able to attract and retain skilled people.***

***Litigation and regulatory actions, including possible enforcement actions, could subject the Company to significant fines, penalties, judgments or other requirements resulting in increased expenses or restrictions on its business activities.***

In the normal course of business, from time to time, the Company or the Affiliate Banks may be named as a defendant in various legal actions, arising in connection with their current and/or prior business activities. Legal actions could include claims for substantial compensatory or punitive damages or claims for indeterminate amounts of damages.

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Whether such claims and legal actions are legitimate or unfounded, if such claims and legal actions are not resolved in the Company's favor, they may result in significant financial lability and/or adversely affect the Company's reputation and products and services, as well as negatively impact customer demands for those products and services. Certain claims may seek injunctive relief, which could disrupt the ordinary conduct of the Company's business and operations or increase the Company's cost of doing business.

Further, the Company or the Affiliate Banks may in the future be subject to consent orders or other formal or informal enforcement agreements with their regulators. They may also, from time to time, be the subject of subpoenas, requests for information, reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding current and/or prior business activities. Any such legal or regulatory actions may subject the Company to substantial compensatory or punitive damages, significant fines, penalties, obligations to change business practices or other requirements resulting in increased expenses, diminished income and damage to its reputation. Involvement in any such matters, whether tangential or otherwise and even if the matters are ultimately determined in their favor, could also cause significant harm to the Company's reputation and divert management attention from the operation of their business. Further, any settlement, consent order, other enforcement agreement or adverse judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation, investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities. As a result, the outcome of legal and regulatory actions could have a material adverse effect on the Company's business, financial condition and results of operations.

***Severe weather, natural disasters, acts of war or terrorism, other external events, including the COVID-19 pandemic or the outbreak of another highly infectious or contagious disease, could significantly impact the Company's business.***

The unpredictable nature of events such as severe weather, natural disasters, pandemics or other public health issues, acts of war or terrorism, other adverse external events, including the COVID-19 pandemic or the outbreak of another highly infectious or contagious disease could have a significant impact on the Company's ability to conduct business. If any of its financial, accounting, network or other information processing systems fail or have other significant shortcomings due to such external events, the Company could be materially adversely affected. Third parties with which the Company does business could also be sources of operational risk to the Company, including the risk that the third parties' own network and information processing systems could fail. Any of these occurrences could materially diminish the Company's ability to operate its business, or result in potential liability to clients, reputational damage, and regulatory intervention, any of which could materially adversely affect the Company. Such events could affect the stability of the Company's deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, impair the Company's liquidity, cause significant property damage, result in loss of revenue, and/or cause the Company to incur additional expenses.

The Company may be subject to disruptions or failures of the financial, accounting, network and other information processing systems arising from events that are wholly or partially beyond the Company's control, which may include, for example, computer viruses, electrical or telecommunications outages, natural disasters, public health crises and disease pandemics (including the current COVID-19 pandemic), damage to property or physical assets, acts of war (such as the war in Ukraine) or terrorist acts. The Company has developed a comprehensive business continuity plan which includes plans to maintain or resume operations in the event of an emergency, such as a power outage or disease pandemic, and contingency plans in the event that operations or systems cannot be resumed or restored. The business continuity plan is updated as needed, periodically reviewed, and components are regularly tested. The Company also reviews and evaluates the business continuity plans of critical third-party service providers. While the Company believes its business continuity plan and efforts to evaluate the business continuity plans of critical third-party service providers help mitigate risks, disruptions or failures affecting any of these systems may cause interruptions in service to customers, damage to the Company's reputation, and loss or liability to the Company.

***The Company is subject to ESG risks that could adversely affect the Company's reputation, trading price of the Company's common stock and/or business, operations and earnings.***

Investors, regulators, customers and the general public are increasingly focused on ESG practices and disclosures, which also extends to the practices and disclosures of the customers, counterparties and service providers

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with whom the Company chooses to do business. Certain organizations that provide corporate governance and other corporate risk information to investors and shareholders have also developed scores and ratings to evaluate companies based on ESG metrics. Currently, no universal standards for such scores or ratings exist, but the importance of ESG matters is becoming more broadly accepted by investors and regulators. Views about ESG are diverse, dynamic and rapidly changing, and if the Company fails to maintain appropriate ESG practices and disclosures or is subject to a low ESG score or rating, this could result in potential negative ESG-related publicly in traditional and social media. If the Company or its relationships with customers, service providers or suppliers were to become the subject of such negative publicity or low ESG scores or ratings, the Company's ability to attract and retain customers and employees may be negatively impacted, and the Company's stock price may also be adversely impacted. New government regulations could also result in new or more stringent forms of ESG oversight and expanded mandatory and voluntary reporting, diligence and disclosure. ESG-related costs, including with respect to compliance with any additional regulatory or disclosure requirements or expectations, could adversely impact the Company's results of operations.

Furthermore, investors have begun to consider how corporations are addressing ESG matters when making investment decisions. Any negative publicity regarding ESG, low ESG scores or ratings, or shifts in investing priorities may result in adverse effects on the Company's stock price and/or the Company's business, operations and earnings if investors, shareholders or other stakeholders determine that the Company has not adequately considered or addressed ESG matters.

#### ITEM 1B.&nbsp;&nbsp;&nbsp;&nbsp; UNRESOLVED STAFF COMMENTS.
The Company has no unresolved staff comments to report.

#### ITEM 2.&nbsp;&nbsp;&nbsp;&nbsp; PROPERTIES.
Delmarva currently maintains 14 branches and other facilities as set forth in the table below.

---

| | | |
|:---|:---|:---|
| **Name** | **Location** | **Owned/Leased** |
| Principal Office | 910 Norman Eskridge Hwy<br>Seaford, DE 19973 | Leased |
| <br>Administrative Office | <br>2245 Northwood Drive<br>Salisbury, MD 21801 | <br>Owned |
| <br>Accounting & Customer Service Office | <br>One Plaza East, Suite 200<br>Salisbury, MD 21801 | Leased |
| <br>IT & HR Office | <br>2013 Northwood Drive<br>Salisbury, MD 21801 | Owned |
| <br>Delmar Branch | <br>9550 Ocean Highway<br>Delmar, MD 21875 | <br>Owned |
| <br>North Salisbury Branch | <br>2727 N. Salisbury Boulevard<br>Salisbury, MD 21801 | <br>Owned |
| <br>East Salisbury Branch | <br>241 Beaglin Park Drive<br>Salisbury, MD 21804 | <br>Owned |
| <br>Eastern Shore Drive Branch | <br>921 Eastern Shore Drive<br>Salisbury, MD 21804 | <br>Owned |
| <br>Pecan Square Branch | <br>1206 Nanticoke Road<br>Salisbury, MD 21801 | <br>Owned |

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| | | |
|:---|:---|:---|
| **Name** | **Location** | **Owned/Leased** |
| <br>Laurel Branch | <br>200 E. Market Street<br>Laurel, DE 19956 | <br>Owned |
| <br>Dagsboro Branch | <br>28280 Clayton Street<br>Dagsboro, DE 19939 | <br>Owned |
| <br>Rehoboth Branch | <br>18572 Coastal Highway<br>Rehoboth Beach, DE 19971 | <br>Leased |
| <br>West Ocean City Branch | <br>12720 Ocean Gateway #4<br>Ocean City, MD 21842 | <br>Leased |
| <br>26<sup>th</sup> Street Ocean City Branch<br>| <br>201 B 26<sup>th</sup> Street<br>Ocean City, MD 21842 | Leased |
| <br>Loan Production Office | <br>19264 Miller Road, Unit A<br>Rehoboth Beach, DE 19971 | <br>Leased |
| <br>Evesham Branch | <br>145 North Maple Avenue<br>Marlton, NJ 08053 | Owned |
| <br>Cherry Hill Branch | <br>2099 Route 70 East<br>Cherry Hill, NJ 08003 | <br>Leased |
| <br>Moorestown Branch | <br>227 West Camden Avenue<br>Moorestown, NJ 08057 | <br>Leased |

---

Partners currently maintains five branches and other facilities as set forth in the table below.

---

| | | |
|:---|:---|:---|
| **Name** | **Location** | **Owned/Leased** |
| <br>Principal and Executive Office | 410 William Street<br>Fredericksburg, VA 22401 | <br>Leased, from LLC in which Partners has a 50% interest |
| <br>Salem Church Branch | <br>4210 Plank Road<br>Fredericksburg, VA 22407 | <br>Leased |
| <br>Spotsylvania Courthouse Branch | <br>7415 Laughlin Boulevard<br>Spotsylvania, VA 22553 | <br>Leased |
| <br>La Plata Branch | <br>115 East Charles Street<br>La Plata, MD 20646 | <br>Land Leased; Building Owned |
| <br>Reston Branch | <br>1821 Michael Faraday Drive, Suite 101<br>Reston, VA 20190 | Leased |
| <br>Annapolis Loan Production Office | 2661 Riva Road, Building 1000, Suite 1035, Annapolis, MD 21404 | <br>Leased |
| <br>Operations Center | <br>520 William Street, <br>Fredericksburg, VA 22401 | Leased |

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All of the foregoing properties are used by Delmarva and Partners in the normal course of their businesses. The Company believes all of these properties are in good operating condition and are adequate for the Company's present and anticipated future needs. The Company maintains comprehensive general liability and casualty loss insurance covering its properties and activities conducted in or about its properties. The Company believes this insurance provides adequate protection for liabilities or losses that might arise out of the ownership and use of such properties.

#### ITEM 3.&nbsp;&nbsp;&nbsp;&nbsp; LEGAL PROCEEDINGS.
From time to time the Company, Delmarva and Partners are a party to various litigation matters incidental to the conduct of their respective businesses. The Company and the Affiliate Banks are not presently party to any legal proceedings the resolution of which the Company believes would have a material adverse effect on their respective businesses, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

#### ITEM 4.&nbsp;&nbsp;&nbsp;&nbsp; MINE SAFETY DISCLOSURES.
None.

#### PART II

#### ITEM 5.&nbsp;&nbsp;&nbsp;&nbsp; MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
As of February 28, 2023, there were 17,985,577 shares of the Company's common stock outstanding which were held by approximately 540 holders of record, which does not reflect the number of individuals or institutional investors holding stock in nominee name through banks, brokerage firms, and others.

The Company's common stock is listed on the NASDAQ Capital Market ("Nasdaq") under the symbol "PTRS". On February 28, 2023, the closing price of the Company's common stock on the Nasdaq was $9.09 per share.

The Company currently pays a quarterly dividend of $0.04 per share. The most recent quarterly dividend was declared on January 24, 2023 and was payable on February 15, 2023 to holders of record as of February 8, 2023. When declaring dividends, the Board of Directors considers, among other things, the Company's long-term outlook, the Company's financial condition and results of operations during recent financial periods, and trends in the investment and financing markets.

There can be no assurance that future earnings will be sufficient to allow the Company to maintain or increase the amount of the cash dividend. Substantially all of the Company's income from which it can pay dividends is the receipt of dividends from the Affiliate Banks. The availability of dividends from the Affiliate Banks is limited by various statutes and regulations. See "Supervision and Regulation—Limits on Dividends" in Item 1, Business. In addition, regulatory restrictions on the ability of the Affiliate Banks to transfer funds to the Company at December 31, 2022 are set forth in Note 16, "Regulatory Capital Requirements" in the "Notes to the Consolidated Financial Statements" contained in Item 8, Financial Statements and Supplementary Data. It also is possible, depending on the financial condition of the Affiliate Banks, and other factors, that the applicable regulatory authorities could assert that payment of dividends or other payments is an unsafe or unsound banking practice. In the event that either of the Affiliate Banks is unable to pay dividends to the Company, the Company may not be able to pay dividends on its common stock. As of the date of filing this Annual Report on Form 10-K, the Company has no such restrictions.

Computershare is the transfer agent for the Company's common stock:

Shareholder Website: www.computershare.com/investor

Shareholder Online Inquiries: www.computershare.com/investor/contact

Telephone: 1 (800) 368-5948

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Computershare Inc. (Overnight Delivery)Computershare Inc. (Regular Mail)

150 Royal Street, Suite 101P.O. Box 43078

Canton, MA 02021Providence, RI 02940-3078

**ISSUER PURCHASES OF EQUITY SECURITIES**

In November 2020 the Company's Board of Directors approved, and the Company announced, a stock repurchase program (the "Program"). Under the Program, the Company is authorized to repurchase up to 356,000 shares of its common stock. The Company may repurchase shares in the open market or through privately negotiated transactions. The actual timing, number and value of shares repurchased under the Program will depend on a number of factors, including constraints specified in any Rule 10b5-1 trading plans, price, general business and market conditions, and alternative investment opportunities. The Program does not obligate the Company to acquire any specific number of shares in any period, and the Program may be limited or terminated at any time without prior notice. The Company did not repurchase any of its common stock during the quarter or year ended December 31, 2022.

The following table provides information with respect to 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 the Company's common stock during the fourth quarter of 2022.

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Issuer Purchases of Equity Securities** | **Issuer Purchases of Equity Securities** | **Issuer Purchases of Equity Securities** | **Issuer Purchases of Equity Securities** | **Issuer Purchases of Equity Securities** |
|  |  |  | Total Number | Maximum Number |
|  | Total Number | Average Price  | of Shares Purchased as Part | Of Shares that May Yet Be |
|  | of Shares | Paid Per | of the Publicly Announced  | Purchased Under the |
| Period | Purchased | Share | Plans or Programs | Plans or Programs |
| October 1, 2022 to October 31, 2022 |  | $- |  | 255800 |
| November 1, 2022 to November 30, 2022 |  | $- |  | 255800 |
| December 1, 2022 to December 31, 2022 |  | $- |  | 255800 |
| Total |  | $- |  | 255800 |

---

**ITEM 6. RESERVED**

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#### ITEM 7.&nbsp;&nbsp;&nbsp;&nbsp; MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion compares the Company's financial condition at December 31, 2022 to its financial condition at December 31, 2021 and the results of operations for the years ended December 31, 2022 and 2021. 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 on Form 10-K.

**Forward-Looking Statements** 

Certain statements in this Annual Report on Form 10-K may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that include, without limitation, projections, predictions, expectations, or beliefs about future events or results that are not statements of historical fact. Such forward-looking statements are based on various assumptions as of the time they are made, and are inherently subject to known and unknown risks, uncertainties, and other factors, some of which cannot be predicted or quantified, that may cause actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Forward-looking statements are often accompanied by words that convey projected future events or outcomes such as "anticipate," "contemplate," "expect," "believe," "estimate," "foresee," "plan," "project," "predict," "anticipate," "intend," "indicate," "likely," "target," "will," "may," "view," "opportunity," "potential," or words of similar meaning or other statements concerning opinions or judgment of the Company and its management about future events. Although the Company believes that its expectations with respect to forward-looking statements are based upon reasonable assumptions within the bounds of its existing knowledge of its business and operations, there can be no assurance that actual results, performance, or achievements of, or trends affecting, the Company will not differ materially from any projected future results, performance, achievements or trends expressed or implied by such forward-looking statements. Actual future results, performance, achievements or trends may differ materially from historical results or those anticipated depending on a variety of factors, including, but not limited to:

● the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the LINK Merger Agreement between the Company and LINK;

● the outcome of any legal proceedings that may be instituted against the Company or LINK;

● the possibility that the proposed transaction will not close when expected or at all because required regulatory, shareholder or other approvals are not received or other conditions to the closing are not satisfied on a timely basis or at all, or are obtained subject to conditions that are not anticipated (and the risk that required regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction);

● the ability of the Company and LINK to meet expectations regarding the timing, completion and accounting and tax treatments of the proposed transaction;

● the risk that any announcements relating to the proposed transaction could have adverse effects on the market price of the common stock of either or both parties to the proposed transaction;

● the possibility that the anticipated benefits of the proposed transaction will not be realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy and competitive factors in the areas where the Company and LINK do business;

● certain restrictions during the pendency of the proposed transaction that may impact the parties' ability to pursue certain business opportunities or strategic transactions;

● the possibility that the transaction may be more expensive to complete than anticipated, including as a result of unexpected factors or events;

● diversion of management's attention from ongoing business operations and opportunities;

● the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all and to successfully integrate the Company's operations and those of LINK, which may be more difficult, time-consuming or costly than expected;

● revenues following the proposed transaction may be lower than expected;

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● the Company's and LINK's success in executing their respective business plans and strategies and managing the risks involved in the foregoing;

● the dilution caused by LINK's issuance of additional shares of its capital stock in connection with the proposed transaction;

● effects of the announcement, pendency or completion of the proposed transaction on the ability of the Company and LINK to retain customers and retain and hire key personnel and maintain relationships with their suppliers, and on their operating results and businesses generally;

● potential adverse consequences related to the Termination Agreement with OCFC;

● changes in interest rates, such as volatility in yields on U.S. Treasury bonds and increases or volatility in mortgage rates, and the impacts on macroeconomic conditions, customer and client spending and saving behaviors, the Company's funding costs and the Company's loan and investment securities portfolios;

● monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve, and the effect of these policies on interest rates and business in our markets;

● general business conditions, as well as conditions within the financial markets, including the impact thereon of unusual and infrequently occurring events, such as weather-related disasters, terrorist acts, geopolitical conflicts (such as the military conflict between Russia and Ukraine) or public health events (such as the COVID-19 pandemic), and of governmental and societal responses thereto;

● general economic conditions, in the United States generally and particularly in the markets in which the Company operates and which its loans are concentrated, including the effects of declines in real estate values, increases in unemployment levels and inflation, recession and slowdowns in economic growth;

● changes in the value of securities held in the Company's investment portfolios;

● changes in the quality or composition of the loan portfolios and the value of the collateral securing those loans;

● changes in the level of net charge-offs on loans and the adequacy of our allowance for credit losses;

● demand for loan products;

● deposit flows;

● the strength of the Company's counterparties;

● competition from both banks and non-banks;

● demand for financial services in the Company's market areas;

● reliance on third parties for key services;

● changes in the commercial and residential real estate markets;

● cyber threats, attacks or events;

● expansion of Delmarva's and Partners' product offerings;

● changes in accounting principles, standards, rules and interpretations, and elections by the Company thereunder, and the related impact on the Company's financial statements, including the implementation of CECL;

● potential claims, damages, and fines related to litigation or government actions;

● the effects of the COVID-19 pandemic, the severity and duration of the pandemic, the uncertainty regarding new variants of COVID-19 that may emerge, the distribution and efficacy of vaccines, and the heightened impact it has on many of the risks described herein;

● any indirect exposure related to the closings of SVB, Signature Bank and Silvergate Bank and their impact on the broader market through other customers, suppliers and partners or that the conditions which resulted in the liquidity concerns with SVB, Signature Bank and Silvergate Bank may also adversely impact, directly or indirectly, other financial institutions and market participants with which Partners has commercial or deposit relationships with;

● legislative or regulatory changes and requirements;

● the discontinuation of London Interbank Offered Rate ("LIBOR") and its impact on the financial markets, and the Company's ability to manage operational, legal and compliance risks related to the discontinuation of LIBOR and implementation of one or more alternative reference rates; and

● other factors, many of which are beyond the control of the Company.

These factors should not be considered exhaustive and should be read together with other cautionary statements that are included in this Annual Report on Form 10-K including those discussed in Item 1A. "Risk Factors." All of the

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forward-looking statements made in this Annual Report are expressly qualified by the cautionary statements contained or referred to in this Annual Report. The actual results or developments anticipated may not be realized or, even if substantially realized, they may not have the expected consequences to or effects on the Company or its businesses or operations. Readers are cautioned not to place undue reliance on the forward-looking statements contained in this Annual Report. Forward-looking statements speak only as of the date they are made and the Company does not undertake any obligation to update, revise, or clarify these forward-looking statements whether as a result of new information, future events or otherwise.

#### Overview
The Company, a bank holding corporation, through its wholly owned subsidiaries, Delmarva and Partners, each of which are commercial banking corporations, engages in general commercial banking operations, with nineteen branches throughout Wicomico, Charles, Anne Arundel, and Worcester Counties in Maryland, Sussex County in Delaware, Camden and Burlington Counties in New Jersey, the cities of Fredericksburg and Reston, Virginia, and Spotsylvania County, Virginia.

The Company derives the majority of its income from interest received on our loans and investment securities. The primary source of funding for making these loans and purchasing investment securities are deposits and secondarily, borrowings. Consequently, one of the key measures of the Company's success is the amount of net interest income, or the difference between the income on interest earning assets, such as loans and investment securities, and the expense on interest bearing liabilities, such as deposits and borrowings. The resulting ratio of that difference as a percentage of average interest earning assets represents the net interest margin. Another key measure is the spread between the yield earned on interest earning assets and the rate paid on interest bearing liabilities, which is called the net interest spread. In addition to earning interest on loans and investment securities, the Company earns income through fees and other charges to customers. Also included is a discussion of the various components of this noninterest income, as well as of noninterest expense.

There are risks inherent in all loans, so the Company maintains an allowance for credit losses to absorb probable losses on existing loans that may become uncollectible. The Company maintains this allowance for credit losses by charging a provision for credit losses as needed against our operating earnings for each period. The Company has included a detailed discussion of this process, as well as several tables describing its allowance for credit losses.

On February 22, 2023, the Company and LINK, parent company of LINKBANK, announced that they have entered into the LINK Merger Agreement pursuant to which the Company will merge into LINK, with LINK surviving, and following which Delmarva and Partners will each successively merge with and into LINKBANK, with LINKBANK surviving. Upon completion of the transaction, the Company's shareholders will own approximately 56% and LINK shareholders, inclusive of shares issued in a concurrent private placement of common stock by LINK, will own approximately 44% of the combined company. The mergers are subject to receiving the requisite approval of the Company's and LINK's stockholders, receipt of all required regulatory approvals, and fulfillment of other customary closing conditions.

Also, on November 9, 2022, the Company and OCFC entered into the Termination Agreement pursuant to which, among other things, the parties mutually agreed to terminate the OCFC Merger Agreement entered into on November 4, 2021 and transactions completed thereby. Each party will bear its own costs and expenses in connection with the terminated transaction, and neither party will pay a termination fee in connection with the termination of the OCFC Merger Agreement. The Termination Agreement also mutually released the parties from any claims of liability to one another relating to the OCFC Merger Agreement and the terminated transaction.

The Company believes that it is well-positioned to be successful in its banking markets, including the highly competitive Greater Washington market. The Company's financial performance generally, and in particular the ability of its borrowers to repay their loans, the value of collateral securing those loans, as well as demand for loans and other products and services the Company offers, is highly dependent on the business environment in the Company's primary markets where the Company operates and in the United States as a whole.

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The ongoing COVID-19 pandemic has severely disrupted supply chains and adversely affected production, demand, sales and employee productivity across a range of industries, and previously resulted in orders directing the closing or limited operation of certain businesses and restrictions on public gatherings. These events affected the Company's operations during fiscal year 2021 and 2022, and, along with economic uncertainties caused by geopolitical conflicts such as the war in Ukraine, the closings of SVB, Signature Bank and Silvergate Bank by bank regulators and other events, are expected to impact the Company's financial results continuing on into 2023.

Please refer to the "Provision and Allowance for Credit Losses" section of this "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more information related to payment deferrals, concentrations in higher risk industries, and the impact on the allowance for credit losses.

The following discussion and analysis also identifies significant factors that have affected the Company's financial position and operating results during the periods included in the consolidated financial statements accompanying this report. You are encouraged to read this section in conjunction with the Company's audited consolidated financial statements and the notes thereto included in Item 8 in this Annual Report on Form 10-K, and the other statistical and financial information included in this Form 10-K.

**Critical Accounting Policies and Estimates**

Certain critical accounting policies affect significant judgments and estimates used in the preparation of the Company's consolidated financial statements. These significant accounting policies are described in the notes to the consolidated financial statements included in Item 8 in this Annual Report on Form 10-K. The accounting principles the Company follows and the methods of applying these principles conform to accounting principles generally accepted in the United States of America ("U.S. GAAP") and general banking industry practices. The Company's most critical accounting policy relates to the determination of the allowance for credit losses, which reflects the estimated losses resulting from the inability of borrowers to make loan payments. The determination of the adequacy of the allowance for credit losses involves significant judgment and complexity and is based on many factors. If the financial condition of our borrowers were to deteriorate, resulting in an impairment of their ability to make payments, the estimates would be updated and additional provisions for credit losses may be required. Note 3, "Loans, Allowance for Credit Losses and Impaired Loans", to the notes of the consolidated financial statements.

Another of the Company's critical accounting policies, with the acquisitions of Liberty Bell Bank ("Liberty") in 2018 and Partners in 2019, relates to the valuation of goodwill and intangible assets. The Company accounted for the merger between the Company and Liberty in 2018 (the "Liberty Merger ") and the Partners Share Exchange in accordance with Accounting Standards Codification ("ASC") Topic No. 805, which requires the use of the acquisition method of accounting. Under this method, assets acquired, including intangible assets, and liabilities assumed, are recorded at their fair value. Determination of fair value involves estimates based on internal valuations of discounted cash flow analyses performed, third party valuations, or other valuation techniques that involve subjective assumptions. Additionally, the term of the useful lives and appropriate amortization periods of intangible assets is subjective. Resulting goodwill from the Liberty Merger and the Partners Share Exchange, which totaled approximately $5.2 million and $4.4 million, respectively, under the acquisition method of accounting represents the excess of the purchase price over the fair value of net assets acquired. Goodwill is not amortized, but is evaluated for impairment annually or more frequently if deemed necessary. If the fair value of an asset exceeds the carrying amount of the asset, no charge to goodwill is made. If the carrying amount exceeds the fair value of the asset, goodwill will be adjusted through a charge to earnings, which is limited to the amount of goodwill allocated to that reporting unit. In evaluating the goodwill on its consolidated balance sheet for impairment after the consummation date of the Liberty Merger and the Partners Share Exchange, the Company will first assess qualitative factors to determine whether it is more likely than not that the fair value of our acquired assets is less than the carrying amount of the acquired assets, as allowed under ASU 2017-04. After making the assessment based on several factors, which will include, but is not limited to, the current economic environment, the economic outlook in our markets, our financial performance and common stock value as compared to our peers, we will determine if it is more likely than not that the fair value of our assets is greater than their carrying amount and, accordingly, will determine whether impairment of goodwill should be recorded as a charge to earnings in years subsequent to the Liberty Merger and the Partners Share Exchange. This assessment was performed during the fourth quarter of 2022, and resulted in no impairment of goodwill. Depending on the severity of the economic consequences of the COVID-19 pandemic and recent bank closures by federal regulators, and their impact on the

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Company, management may determine that goodwill is required to be evaluated for impairment due to the presence of a triggering event, which may have a negative impact on the Company's results of operations.

In addition to the Company's policies related to the valuation of goodwill, intangible assets and other acquisition accounting adjustments, ongoing accounting for acquired loans is considered a critical accounting policy. Acquired loans are classified as either purchased credit impaired ("PCI") loans or purchased performing loans and are recorded at fair value on the date of acquisition. PCI loans are those for which there is evidence of credit deterioration since origination and for which it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition is referred to as the "nonaccretable difference." Any excess of cash flows expected at acquisition over the estimated fair value is referred to as the "accretable yield" and is recognized as interest income over the remaining life of the loan when there is a reasonable expectation about the amount and timing of such cash flows. Periodically, we evaluate our estimate of cash flows expected to be collected on PCI loans. Estimates of cash flows for PCI loans require significant judgment. Subsequent decreases to the expected cash flows will generally result in a provision for credit losses resulting in an increase to the allowance for credit losses. Subsequent significant increases in cash flows may result in a reversal of post-acquisition provision for credit losses or a transfer from nonaccretable difference to accretable yield that increases interest income over the remaining life of the loan, or pool(s) of loans. The Company accounts for purchased performing loans using the contractual cash flows method of recognizing discount accretion based on the acquired loans' contractual cash flows. Purchased performing loans are recorded at fair value, including a credit discount. The fair value discount is accreted as an adjustment to yield over the estimated lives of the loans. There is no allowance for credit losses established at the acquisition date for purchased performing loans, but a provision for credit losses may be required for any deterioration in these loans in future periods. The Company evaluates purchased performing loans quarterly for deterioration and records any required additional provision for credit losses.

Another critical accounting policy relates to deferred tax assets and liabilities. The Company records deferred tax assets and deferred tax liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Future tax benefits, such as net operating loss carry forwards available from the Liberty Merger, are recognized to the extent that realization of such benefits is more likely than not. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the assets and liabilities are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date. In the event the future tax consequences of differences between the financial reporting bases and the tax bases of our assets and liabilities results in deferred tax assets, an evaluation of the probability of being able to realize the future benefits indicated by such assets is required. A valuation allowance is provided when it is more likely than not that a portion or the full amount of the deferred tax asset will not be realized. In assessing the ability to realize the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income, and tax planning strategies. Such a deferred tax liability will only be recognized when it becomes apparent that those temporary differences will reverse in the foreseeable future. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than fifty (50) percent more likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

**Results of Operations**

Net income attributable to the Company for the year ended December 31, 2022 totaled $13.6 million, or $0.76 per basic and diluted share, as compared to $7.4 million, or $0.42 per basic and diluted share, for the year ended December 31, 2021, a $6.2 million or 83.7% increase.

The Company's results of operations for the twelve months ended December 31, 2022 were directly impacted by the following:

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*Positive Impacts:*

● An increase in net interest income due primarily to lower average balances of and rates paid on interest-bearing deposits, a decrease in average borrowings balances, an increase in average loan balances, an increase in yields earned on average cash and cash equivalents balances, and an increase in average investment securities balances and yields earned, which were partially offset by lower average balances of cash and cash equivalents, lower loan yields due to lower net loan fees earned related to the forgiveness of loans originated and funded under the Paycheck Protection Program ("PPP") of the Small Business Administration, and an increase in rates paid on average borrowings balances;

● A higher net interest margin (tax equivalent basis);

● A significantly lower provision for credit losses due to the current economic environment and the milder impact of the COVID-19 pandemic compared to December 31, 2021, which was partially offset by organic loan growth;

● Lower expenses associated with the Company's terminated merger with OCFC, including recording no accelerated stock-based compensation expense during the twelve months ended December 31, 2022 as compared to recording $896 thousand in accelerated stock-based compensation expense during the same period of 2021 related to the accelerated vesting of restricted stock awards, which accelerated vesting was subject to the prior approval of the Company and was not contingent on the closing of the merger, and incurring $1.4 million in merger related expenses during the twelve months ended December 31, 2022 as compared to $979 thousand during the same period of 2021; and

● Recording gains on other real estate owned as compared to losses for the same period of 2021.

*Negative Impacts:*

● Recording losses on sales and calls of investment securities as compared to gains for the same period of 2021;

● Reduced operating results from Partners' majority owned subsidiary JMC and lower mortgage division fees at Delmarva;

● Recording losses on sales of other assets as compared to gains for the same period of 2021; and

● Expenses associated with Partners' new key hires and expansion into the Greater Washington market, including opening its new full-service branch and commercial banking office in Reston, Virginia during the third quarter of 2021, and Delmarva opening its new full-service branch at 26th Street in Ocean City, Maryland during the second quarter of 2021.

For the twelve months ended December 31, 2022, the Company's return on average assets, return on average equity and efficiency ratio were 0.82%, 10.04% and 68.16%, respectively, as compared to 0.46%, 5.44% and 76.95%, respectively, for the same period in 2021.

The increase in net income attributable to the Company for the twelve months ended December 31, 2022, as compared to the same period in 2021, was driven by an increase in net interest income, a lower provision for credit losses, and lower other expenses, and was partially offset by a decrease in other income and higher federal and state income taxes.

**Financial Condition**

Total assets as of December 31, 2022 were $1.57 billion, a decrease of $70.4 million, or 4.3%, from December 31, 2021. The key driver of this change was a decrease in cash and cash equivalents, which was partially offset by increases in investment securities available for sale, at fair value, and total loans held for investment. Changes in key balance sheet components as of December 31, 2022 compared to December 31, 2021 were as follows:

● Interest bearing deposits in other financial institutions as of December 31, 2022 were $103.9 million, a decrease of $194.0 million, or 65.1%, from December 31, 2021. Key drivers of this change were an increase in investment securities available for sale, at fair value, and total loan growth outpacing total deposit growth;

● Federal funds sold as of December 31, 2022 were $23.0 million, a decrease of $5.0 million, or 18.0%, from December 31, 2021. Key drivers of this change were the aforementioned items noted in the analysis of interest bearing deposits in other financial institutions;

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● Investment securities available for sale, at fair value as of December 31, 2022 were $133.7 million, an increase of $11.6 million, or 9.5%, from December 31, 2021. Key drivers of this change were management of the investment securities portfolio in light of the Company's liquidity needs, which was partially offset by two higher yielding investment securities being called, and an increase in unrealized losses on the investment securities available for sale portfolio as a result of increases in market interest rates ;

● Loans, net of unamortized discounts on acquired loans of $1.7 million as of December 31, 2022 were $1.23 billion, an increase of $115.7 million, or 10.4%, from December 31, 2021. The key driver of this change was an increase in organic growth, including growth of approximately $68.9 million in loans related to Partners' expansion into the Greater Washington market, which was partially offset by forgiveness payments received of approximately $8.2 million under round two of the PPP. As of December 31, 2022, there were no loans under the PPP that were still outstanding;

● Total deposits as of December 31, 2022 were $1.34 billion, a decrease of $103.3 million, or 7.2%, from December 31, 2021. Key drivers of this change were scheduled maturities of time deposits that were not replaced and significant outflows related to competitive pressures in the higher interest rate environment, which were partially offset by organic growth as a result of our continued focus on total relationship banking and Partners' expansion into the Greater Washington market;

● Total borrowings as of December 31, 2022 were $84.6 million, an increase of $35.4 million, or 71.9%, from December 31, 2021. The key driver of this change was an increase in short-term borrowings with the FHLB due to the aforementioned items noted in the analysis of total deposits, which was partially offset by a decrease in long-term borrowings with the FHLB resulting from maturities and payoffs of borrowings that were not replaced and scheduled principal curtailments, and a decrease in Partners' majority owned subsidiary JMC's warehouse line of credit with another financial institution; and

● Total stockholders' equity as of December 31, 2022 was $139.3 million, a decrease of $2.0 million, or 1.4%, from December 31, 2021. Key drivers of this change were an increase in accumulated other comprehensive (loss), net of tax, and cash dividends paid to shareholders, which were partially offset by the net income attributable to the Company for the twelve months ended December 31, 2022, the proceeds from stock option exercises, and stock-based compensation expense related to restricted stock awards.

Delmarva's Tier 1 leverage capital ratio was 9.3% at December 31, 2022 as compared to 8.1% at December 31, 2021. At December 31, 2022, Delmarva's Tier 1 risk weighted capital ratio and total risk weighted capital ratio were 12.1% and 13.4%, respectively, as compared to a Tier 1 risk weighted capital ratio and total risk weighted capital ratio of 11.6% and 12.9%, respectively, at December 31, 2021.

Partners' Tier 1 leverage capital ratio was 8.9% at December 31, 2022 as compared to 8.5% at December 31, 2021. At December 31, 2022, Partners' Tier 1 risk weighted capital ratio and total risk weighted capital ratio were 10.5% and 11.3%, respectively, as compared to a Tier 1 risk weighted capital ratio and total risk weighted capital ratio of 11.3% and 12.0%, respectively, at December 31, 2021.

As of December 31, 2022, all of the capital ratios of Delmarva and Partners continue to exceed regulatory requirements, with total risk-based capital substantially above well-capitalized regulatory requirements.

See "Capital" below for additional information about Delmarva's and Partners' capital ratios and requirements.

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At December 31, 2022, nonperforming assets totaled $2.2 million, a decrease from December 31, 2021 balances of $9.8 million. The primary drivers of this decrease were decreases in nonaccrual loans and other real estate owned, net ("OREO"), which were partially offset by an increase in loans past due 90 days or more and still accruing interest. Nonaccrual loans totaled approximately $2.2 million at December 31, 2022, as compared to $9.0 million at December 31, 2021. Loans past due 90 days or more and still accruing interest totaled $45 thousand at December 31, 2022, as compared to $0 at December 31, 2021. OREO, net as of December 31, 2022 totaled $0, as compared to $837 thousand at December 31, 2021. Nonperforming loans as a percentage of total assets was 0.14% at December 31, 2022, as compared to 0.54% at December 31, 2021. Nonperforming assets to total assets as of December 31, 2022 was 0.14%, as compared to 0.60% at December 31, 2021. Loans classified as troubled debt restructurings ("TDRs") totaled $3.4 million at December 31, 2022, as compared to $7.9 million at December 31, 2021, representing a decrease of $4.5 million during the twelve months ended December 31, 2022. Of this decrease, approximately $1.1 million was due to five loan relationships that are no longer considered to be TDRs due to the restructuring of the loans subsequent to them initially being classified as a TDR. At the time of the subsequent restructurings, the borrowers were not experiencing financial difficulties and, under the terms of the subsequent restructuring agreements, no concessions have been granted to the borrowers. In addition, during 2022, one loan relationship that was classified as a TDR was paid down and the remaining balance was charged-off, reducing the balance in total by approximately $2.9 million, which was partially offset by one loan relationship in the amount of approximately $48 thousand being classified as a TDR during the second quarter of 2022. The remaining decrease was the result of loan relationships classified as TDRs that were paid down or paid off.

Net charge-offs were $1.7 million, or 0.14% of average total loans, for the twelve months ended December 31, 2022, as compared to $870 thousand, or 0.08% of average total loans, for the same period of 2021. The allowance for credit losses to total loans ratio was 1.16% at December 31, 2022, as compared to 1.31% at December 31, 2021. In addition to the allowance for credit losses, as of December 31, 2022 and December 31, 2021, the Company had $1.7 million and $2.3 million, respectively, in unamortized discounts on acquired loans related to the acquisitions of Liberty and Partners. This discount is amortized over the life of the remaining loans.

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| | | |
|:---|:---|:---|
| **Summary of Return on Equity and Assets** |  |  |
|  | Year Ended | Year Ended |
|  | December 31,  | December 31,  |
|  | 2022 | 2021 |
| Yield on earning assets  | 3.93% | 3.64% |
| Return on average assets  | 0.82% | 0.46% |
| Return on average equity  | 10.04% | 5.44% |
| Average equity to average assets | 8.16% | 8.52% |

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#### Earnings Analysis
The Company's primary source of revenue is interest income and fees, which it earns by lending and investing the funds which are held on deposit. Because loans generally earn higher rates of interest than investment securities, the Company seeks to deploy as much of its deposit funds as possible in the form of loans to individuals, businesses, and other organizations. To ensure sufficient liquidity, the Company also maintains a portion of its deposits in cash and cash equivalents, government securities, interest bearing deposits in other financial institutions, and overnight loans of excess reserves (known as "Federal Funds Sold") to correspondent banks. The revenue which the Company earns (prior to deducting its overhead expenses) is essentially a function of the amount of the Company's loans and deposits, as well as the profit margin ("interest spread") and fee income which can be generated on these amounts.

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Net income attributable to the Company was $13.6 million and $7.4 million for the years ended December 31, 2022 and 2021, respectively, as reported in its audited consolidated financial statements. The following discussion should be read in conjunction with the Company's audited consolidated financial statements and the notes to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

The following is a summary of the results of operations and financial condition of the Company at and for the periods and at the dates indicated, respectively:

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| | | |
|:---|:---|:---|
|  | Year Ended  | Year Ended  |
|  | December 31,  | December 31,  |
| Results of operations: | 2022 | 2021 |
| *(Dollars in Thousands, except per share data)* |  |  |
| Net interest income | $55996 | $46430 |
| Provision for credit losses | 1348 | 2323 |
| Provision for income taxes | 4512 | 2247 |
| Noninterest income | 5201 | 8322 |
| Noninterest expense | 41850 | 42287 |
| Total income | 67861 | 63675 |
| Total expenses | 54374 | 55780 |
| Net income | 13487 | 7895 |
| Net income attributable to Partners Bancorp | 13615 | 7411 |
| Basic earnings per share | 0.758 | 0.417 |
| Diluted earnings per share | 0.757 | 0.416 |

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| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
| Financial condition at year end: | 2022 | 2021 |
| *(Dollars in Thousands, except per share data)* |  |  |
| Total assets | $1574612 | $1644979 |
| Loans receivable, net | 1218551 | 1102539 |
| Investment securities, available for sale | 133657 | 122021 |
| Federal funds sold | 22990 | 28040 |
| Demand and NOW deposits | 650557 | 653334 |
| Savings, money market, and time deposits | 689048 | 789542 |
| Stockholders' equity | 139329 | 141368 |
| Tangible common equity per share | 7.13 | 7.23 |

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**Interest Income and Expense – Years Ended December 31, 2022 and 2021**

*Net Interest Income and Net Interest Margin*

The largest component of net income for the Company is net interest income, which is the difference between the income earned on assets, such as loans and investment securities, and interest paid on liabilities, such as deposits and borrowings, used to support such assets. Net interest income is determined by the rates earned on the Company's interest-earning assets and the rates paid on its interest-bearing liabilities, the relative amounts of interest-earning assets and interest-bearing liabilities, and the degree of mismatch and the maturity and repricing characteristics of its interest-earning assets and interest-bearing liabilities.

Net interest income during the twelve months ended December 31, 2022 increased by $9.6 million, or 20.6%, when compared to the twelve months ended December 31, 2021. The Company's net interest margin (tax equivalent basis) increased to 3.51%, representing an increase of 46 basis points for the twelve months ended December 31, 2022 as compared to the same period in 2021. The increase in the net interest margin (tax equivalent basis) was primarily due to higher average balances of loans, higher average balances of and yields earned on investment securities, higher yields earned on average interest bearing deposits in other financial institutions and federal funds sold, and lower average balances of and rates paid on average interest-bearing liabilities, which were partially offset by a decrease in the yields earned on average loans, and lower average balances of interest bearing deposits in other financial institutions and

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federal funds sold. Total interest income increased by $7.3 million, or 13.2%, for the twelve months ended December 31, 2022, while total interest expense decreased by $2.3 million, or 25.3%, both as compared to the same period in 2021. The most significant factors impacting net interest income during the twelve months ended December 31, 2022 were as follows:

*Positive Impacts:*

● Increases in average loan balances, primarily due to organic loan growth, which was partially offset by the forgiveness of loans originated and funded under the PPP;

● Increases in average investment securities balances and higher investment securities yields, primarily due to management of the investment securities portfolio in light of the Company's liquidity needs, lower accelerated pre-payments on mortgage-backed investment securities and higher interest rates over the comparable periods, partially offset by calls on higher yielding investment securities in the previously low interest rate environment;

● Decrease in average interest bearing deposits in other financial institutions and federal funds sold, primarily due to loan growth outpacing deposit growth and higher investment securities balances, and higher yields on each due to higher interest rates over the comparable periods;

● Decrease in average interest-bearing deposit balances and lower rates paid, primarily due to scheduled maturities of time deposits that were not replaced and competitive pressures in the higher interest rate environment, partially offset by organic deposit growth in interest bearing demand, money market and savings accounts, and lower rates paid on average interest bearing demand, money market, savings and time deposits; and

● Decrease in average borrowings balances, primarily due to a decrease in the average balance of FHLB advances resulting from maturities and payoffs of borrowings that were not replaced and scheduled principal curtailments, a decrease in average borrowings at the Federal Reserve Bank Discount Window under the PPP Liquidity Facility in which the loans under the PPP originated by the Company were previously pledged as collateral, the early redemption of $2.0 million in subordinated notes payable, net, in early July 2021, and offset by higher rates paid. The increase in average rates paid was primarily due to the decreases in the average balances of FHLB advances and borrowings at the Federal Reserve Bank Discount Window under the PPP Liquidity Facility, both of which were lower cost interest-bearing liabilities, partially offset by the early redemption of subordinated notes payable, which was a higher cost interest-bearing liability.

*Negative Impacts:*

● Lower loan yields, primarily due to lower net loan fees earned related to the forgiveness of loans originated and funded under the PPP and pay-offs of higher yielding fixed rate loans, which were partially offset by repricing of variable rate loans and higher average yields on new loan originations.

*Loans*

Average loan balances increased by $82.5 million, or 7.6%, and average yields earned decreased by 0.11% to 4.74% for the twelve months ended December 31, 2022, as compared to the same period in 2021. The increase in average loan balances was primarily due to organic loan growth, including growth in average loan balances of approximately $57.0 million related to Partners' expansion into the Greater Washington market, which was partially offset by the forgiveness of loans originated and funded under the PPP. The decrease in average yields earned was primarily due to lower net loan fees earned related to the forgiveness of loans originated and funded under the PPP and pay-offs of higher yielding fixed rate loans, which were partially offset by the repricing of variable rate loans and higher average yields on new loan originations. Total average loans were 73.2% of total average interest-earning assets for the twelve months ended December 31, 2022, compared to 71.2% for the twelve months ended December 31, 2021.

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*Investment securities*

Average total investment securities balances increased by $17.7 million, or 13.6%, and average yields earned increased by 0.39% to 2.28% for the twelve months ended December 31, 2022, as compared to the same period in 2021. The increases in average total investment securities balances and average yields earned was primarily due to management of the investment securities portfolio in light of the Company's liquidity needs, lower accelerated pre-payments on mortgage-backed investment securities and higher interest rates over the comparable periods, partially offset by calls on higher yielding investment securities in the previously low interest rate environment. During the twelve months ended December 31, 2021, accelerated pre-payments on mortgage-backed investment securities caused the premiums paid on these investment securities to be amortized into expense on an accelerated basis thereby reducing income and yield earned. Total average investment securities were 9.2% of total average interest-earning assets for the twelve months ended December 31, 2022, compared to 8.5% for the twelve months ended December 31, 2021.

*Interest-bearing deposits*

Average total interest-bearing deposit balances decreased by $8.3 million, or 0.9%, and average rates paid decreased by 0.21% to 0.52% for the twelve months ended December 31, 2022, as compared to the same period in 2021, primarily due to scheduled maturities of time deposits that were not replaced and competitive pressures in the higher interest rate environment, partially offset by organic deposit growth, including average growth of approximately $18.4 million in interest-bearing deposits related to Partners' expansion into the Greater Washington market, and a decrease in the average rate paid on interest bearing demand, money market, savings and time deposits.

*Borrowings*

Average total borrowings decreased by $10.3 million, or 17.6%, and average rates paid increased by 0.31% to 4.04% for the twelve months ended December 31, 2022, as compared to the same period in 2021. The decrease in average total borrowings balances was primarily due to a decrease in the average balance of FHLB advances resulting from maturities and payoffs of borrowings that were not replaced and scheduled principal curtailments, a decrease in average borrowings at the Federal Reserve Bank Discount Window under the PPP Liquidity Facility in which the loans under the PPP originated by the Company were previously pledged as collateral, and the early redemption of $2.0 million in subordinated notes payable, net, in early July 2021. The increase in average rates paid was primarily due to the decreases in the average balances of FHLB advances and borrowings at the Federal Reserve Bank Discount Window under the PPP Liquidity Facility, which were lower cost interest-bearing liabilities, partially offset by the early redemption of subordinated notes payable, which was a higher cost interest-bearing liability.

Interest earned on assets and interest paid on liabilities is significantly influenced by market factors, specifically interest rate targets established by the Federal Reserve.

The Federal Open Markets Committee ("FOMC") raised Federal Funds target rates by 25 basis points in March 2022, which was the first increase since December 2018. Subsequent to this, the FOMC raised Federal Funds target rates by 50 basis points in May 2022, 75 basis points in June 2022, 75 basis points in July 2022, 75 basis points in September 2022, 75 basis points in November 2022, 50 basis points in December 2022, 25 basis points in January 2023, and 25 basis points in March 2023. These increases were done in an effort to address increasing inflation without negatively impacting economic growth. The FOMC currently projects a continued path of rate increases, with rate increases targeted at future FOMC meetings in 2023. The FOMC's current Federal Funds target rate range is 4.75% to 5.00%. As a result, long-term interest rates have increased. The Company anticipates that the current and projected interest rate environment will lead to an expanded net interest margin for the Company. In general, the Company believes interest rate increases lead to improved net interest margins whereas interest rate decreases result in correspondingly lower net interest margins.

The following table depicts, for the periods indicated, certain information related to the average balance sheet and average yields earned on assets and average costs paid on liabilities for the Company. Such yields and costs are derived by dividing income or expense by the average balance of the corresponding assets or liabilities. Average balances have been derived from daily averages.

[**Table of Contents**](#TOC)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | Year Ended  | Year Ended  | Year Ended  | Year Ended  | Year Ended  | Year Ended  |
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| *(Dollars in Thousands)* | Average | Interest/ |  | Average | Interest/ |  |
| *(Unaudited)* | Balance | Expense | Yield/Rate | Balance | Expense | Yield/Rate |
| Assets |  |  |  |  |  |  |
| Cash & Due From Banks | $15783 | $— | —% | $16608 | $— | —% |
| Interest Bearing Deposits From Banks | 230433 | 3131 | 1.36% | 249436 | 309 | 0.12% |
| &nbsp;&nbsp;&nbsp;&nbsp;Taxable Securities (1) | 118170 | 2438 | 2.06% | 95550 | 1365 | 1.43% |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax-exempt Securities (2) | 29308 | 921 | 3.14% | 34224 | 1092 | 3.19% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Investment Securities (1) (2) | 147478 | 3359 | 2.28% | 129774 | 2457 | 1.89% |
| Federal Funds Sold | 50109 | 793 | 1.58% | 60891 | 59 | 0.10% |
| Loans: (3) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial and Industrial (4) | 135444 | 7176 | 5.30% | 155584 | 9179 | 5.90% |
| &nbsp;&nbsp;&nbsp;&nbsp;Real Estate (4) | 1014156 | 47328 | 4.67% | 904513 | 42702 | 4.72% |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer (4) | 2295 | 128 | 5.58% | 3158 | 182 | 5.76% |
| &nbsp;&nbsp;&nbsp;&nbsp;Keyline Equity (4) | 17251 | 865 | 5.01% | 17147 | 616 | 3.59% |
| &nbsp;&nbsp;&nbsp;&nbsp;Visa Credit Card |  |  | —% | 48 | 2 | 4.17% |
| &nbsp;&nbsp;&nbsp;&nbsp;State and Political | 883 | 44 | 4.98% | 804 | 42 | 5.22% |
| &nbsp;&nbsp;&nbsp;&nbsp;Keyline Credit | 121 | 29 | 23.97% | 127 | 29 | 22.83% |
| &nbsp;&nbsp;&nbsp;&nbsp;Other Loans | 1431 | 11 | 0.77% | 7688 | 14 | 0.18% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Loans (2) | 1171581 | 55581 | 4.74% | 1089069 | 52766 | 4.85% |
| &nbsp;&nbsp;&nbsp;&nbsp;Allowance For Credit Losses | 14337 |  |  | 14797 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Unamortized Discounts on Acquired Loans | 1964 |  |  | 3241 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Loans, Net | 1155280 |  |  | 1071031 |  |  |
| Other Assets | 62233 |  |  | 72196 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Assets/Interest Income | $1661316 | $62864 |  | $1599936 | $55591 |  |
| Liabilities and Stockholders' Equity |  |  |  |  |  |  |
| Deposits In Domestic Offices |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-interest Bearing Demand | $563778 | $— | —% | $482914 | $— | —% |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest Bearing Demand | 146316 | 343 | 0.23% | 127853 | 412 | 0.32% |
| &nbsp;&nbsp;&nbsp;&nbsp;Money Market Accounts | 278431 | 605 | 0.22% | 239339 | 655 | 0.27% |
| &nbsp;&nbsp;&nbsp;&nbsp;Savings Accounts | 148665 | 226 | 0.15% | 128039 | 201 | 0.16% |
| &nbsp;&nbsp;&nbsp;&nbsp;All Time Deposits | 328514 | 3480 | 1.06% | 415014 | 5408 | 1.30% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Interest Bearing Deposits | 901926 | 4654 | 0.52% | 910245 | 6676 | 0.73% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Deposits | 1465704 |  |  | 1393159 |  |  |
| Borrowings | 25443 | 482 | 1.89% | 34786 | 625 | 1.80% |
| Notes Payable | 22815 | 1470 | 6.44% | 23771 | 1560 | 6.56% |
| Lease Liability | 2069 | 58 | 2.80% | 2188 | 62 | 2.83% |
| Other Liabilities | 9744 |  |  | 9661 |  |  |
| Stockholders' Equity | 135541 |  |  | 136371 |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Liabilities & Equity/Interest Expense | $1661316 | $6664 |  | $1599936 | $8923 |  |
| Earning Assets/Interest Income (2) | $1599601 | $62864 | 3.93% | $1529170 | $55591 | 3.64% |
| Interest Bearing Liabilities/Interest Expense | $952253 | $6664 | 0.70% | $970990 | $8923 | 0.92% |
| Net interest income  |  | $56200 |  |  | $46668 |  |
| Net Yield on Interest Earning Assets |  |  | 3.51% |  |  | 3.05% |
| Earning Assets/Interest Expense |  |  | 0.42% |  |  | 0.58% |
| Net Interest Spread (2) |  |  | 3.23% |  |  | 2.72% |
| Net Interest Margin (2) |  |  | 3.51% |  |  | 3.05% |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Yields on securities available-for-sale have been calculated on the basis of historical cost and do not give effect to changes in the fair value of those securities, which is reflected as a component of stockholders' equity.

&nbsp;&nbsp;&nbsp;&nbsp;(2) Presented on a taxable-equivalent basis using the statutory income tax rate of 21.0% for 2022 and 2021. Taxable equivalent adjustments of $193 thousand and $11 thousand are included in the calculation of tax exempt income for investment interest income and loan interest income, respectively for the year ended December 31, 2022 and $229 thousand and $9 thousand, respectively for the year ended December 31, 2021.

&nbsp;&nbsp;&nbsp;&nbsp;(3) Loans placed on nonaccrual are included in average balances.

&nbsp;&nbsp;&nbsp;&nbsp;(4) Yields do not include the average balance of the fair value adjustment for pools of non-credit impaired loans acquired or discounts on credit impaired loans acquired.

[**Table of Contents**](#TOC)

The level of net interest income is affected primarily by variations in the volume and mix of these interest-earning assets and interest-bearing liabilities, as well as changes in interest rates. The following table shows the effect that these factors had on the interest earned from the Company's interest-earning assets and interest paid on its interest-bearing liabilities for the year ended December 31, 2022 versus 2021.

**Rate and Volume Analysis**

**Year Ended December 31, 2022 Versus December 31, 2021**

**(Dollars in Thousands)**

---

| | | | |
|:---|:---|:---|:---|
|  | Increase (Decrease) Due to | Increase (Decrease) Due to | Increase (Decrease) Due to |
|  | Volume | Yield/Rate | Net |
| Earning Assets |  |  |  |
| &nbsp;&nbsp;Loans (1) | $3999 | $(1184) | $2815 |
| &nbsp;&nbsp;Investment securities |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable | 323 | 750 | 1073 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Exempt from Federal income tax | (157) | (14) | (171) |
| &nbsp;&nbsp;Federal funds sold | (10) | 744 | 734 |
| &nbsp;&nbsp;Other interest income | (24) | 2846 | 2822 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest income | 4131 | 3142 | 7273 |
| Interest Bearing Liabilities |  |  |  |
| &nbsp;&nbsp;Interest bearing deposits | (61) | (1961) | (2022) |
| &nbsp;&nbsp;Notes payable and leases | (68) | (26) | (94) |
| &nbsp;&nbsp;Funds purchased  | (167) | 24 | (143) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Interest Expense | (296) | (1963) | (2259) |
| Net Interest Income | $4427 | $5105 | $9532 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Nonaccrual loans are included in average balances and do not have a material effect on the average yield.

*Interest Sensitivity.* The Company monitors and manages the pricing and maturity of its assets and liabilities in order to diminish the potential adverse impact that changes in interest rates could have on its net interest income. The Company also performs asset/liability modeling to assess the impact varying interest rates and balance sheet mix assumptions will have on net interest income. Interest rate sensitivity can be managed by repricing assets or liabilities, selling investment securities available for sale, replacing an asset or liability at maturity, or adjusting the interest rate during the life of an asset or liability. Managing the amount of assets and liabilities repricing in the same time interval helps to hedge the risk and minimize the impact on net interest income of rising or falling interest rates. The Company evaluates interest sensitivity risk and then formulates guidelines regarding asset generation and repricing, funding sources and pricing, and off-balance sheet commitments in order to decrease interest rate sensitivity risk.

At December 31, 2022, the Company was asset sensitive within the one-year time frame when looking at a repricing gap analysis. The cumulative gap, in an unchanged interest rate environment, as a percentage of total assets up to one year is 13.7%. A positive gap indicates more assets than liabilities are repricing within the indicated time frame. Management believes there is more upside potential than downside risk and, based on the current and projected interest rate environment, management expects to see net interest income rise in the future.

**Provision and Allowance for Credit Losses**

The Company has developed policies and procedures for evaluating the overall quality of its credit portfolio and for timely identifying potential problem loans. Management's judgment as to the adequacy of the allowance for credit losses is based upon a number of assumptions about future events which it believes to be reasonable, but which may not prove to be accurate. Thus, there can be no assurance that loan charge-offs in future periods will not exceed the allowance for credit losses or that additional increases in the allowance for credit losses will not be required.

[**Table of Contents**](#TOC)

The Company's allowance for credit losses consists of two parts. The first part is determined in accordance with authoritative guidance issued by the Financial Accounting Standards Board ("FASB") regarding the allowance for credit losses. The Company's determination of this part of the allowance for credit losses is based upon quantitative and qualitative factors. A loan loss history based upon the prior three years is utilized in determining the appropriate allowance for credit losses. Historical loss factors are determined by criticized and uncriticized loans by loan type. These historical loss factors are applied to the loans by loan type to determine an indicated allowance for credit losses. The historical loss factors may also be modified based upon other qualitative factors including, but not limited to, local and national economic conditions, trends of delinquent loans, changes in lending policies and underwriting standards, concentrations, and management's knowledge of the loan portfolio.

The second part of the allowance for credit losses is determined in accordance with guidance issued by the FASB regarding impaired loans. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower's prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis. Impaired loans not deemed collateral dependent are analyzed according to the ultimate repayment source, whether that is cash flow from the borrower, guarantor or some other source of repayment. Impaired loans are deemed collateral dependent if in the Company's opinion the ultimate source of repayment will be generated from the liquidation of collateral.

The sum of the two parts constitutes management's best estimate of an appropriate allowance for credit losses. When the estimated allowance for credit losses is determined, it is presented to the Company's Board of Directors for review and approval on a quarterly basis.

At December 31, 2022, the Company's allowance for credit losses was $14.3 million, or 1.16% of total outstanding loans. At December 31, 2021, the allowance for credit losses was $14.7 million, or 1.31% of total outstanding loans. The Company's provision for credit losses was $1.3 million for the year ended December 31, 2022, as compared to $2.3 million for the year ended December 31, 2021. The decrease in the provision for credit losses during the twelve months ended December 31, 2022, as compared to the same period of 2021, was primarily due to a reduction of qualitative adjustment factors that had previously been increased in the allowance for credit losses related to the COVID-19 pandemic and the uncertainty in the economic environment, and the reversal of a specific reserve on one loan relationship due to a large principal curtailment and improved performance, which were partially offset by higher net charge-offs, loans acquired in the Partners acquisition that have converted from acquired to originated status, and organic loan growth. The provision for credit losses during the twelve months ended December 31, 2022, as well as the allowance for credit losses as of December 31, 2022, represents management's best estimate of the impact of current economic trends, including the impact of the COVID-19 pandemic, on the ability of the Company's borrowers to repay their loans. Management continues to carefully assess the exposure of the Company's loan portfolio to COVID-19 pandemic related factors, economic trends and their potential effect on asset quality. As of December 31, 2022, the Company's delinquencies and nonperforming assets had not been materially impacted by the COVID-19 pandemic. In addition, as of December 31, 2022, all of the loan balances that were approved by the Company, on a consolidated basis, for loan payment deferrals or payments of interest only have either resumed regular payments or have been paid off.

The Company discontinues accrual of interest on loans when management believes, after considering economic and business conditions and collection efforts that a borrower's financial condition is such that the collection of interest is doubtful. Generally, the Company will place a delinquent loan in nonaccrual status when the loan becomes 90 days or more past due. At the time a loan is placed in nonaccrual status, all interest which has been accrued on the loan but remains unpaid is reversed and deducted from earnings as a reduction of reported interest income. No additional interest is accrued on the loan balance until the collection of both principal and interest becomes reasonably certain.

[**Table of Contents**](#TOC)

The following tables illustrate the Company's past due and nonaccrual loans at December 31, 2022 and 2021:

**Past Due and Nonaccrual Loans**

**(Dollars in Thousands)**

**At December 31, 2022 and 2021**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | 30 - 89 Days | Greater than 90 Days | Total |  |
| December 31, 2022 | Past Due | Past Due | Past Due | NonAccrual |
| Real Estate Mortgage |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $— | $259 | $259 | $259 |
| &nbsp;&nbsp;Residential real estate | 1174 | 51 | 1225 | 1263 |
| &nbsp;&nbsp;Nonresidential | 474 | 305 | 779 | 305 |
| &nbsp;&nbsp;Home equity loans | 54 | 45 | 99 |  |
| Commercial |  |  |  | 327 |
| Consumer and other loans | 2 |  | 2 |  |
| TOTAL | $1704 | $660 | $2364 | $2154 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | 30 - 89 Days | Greater than 90 Days | Total |  |
| December 31, 2021 | Past Due | Past Due | Past Due | NonAccrual |
| Real Estate Mortgage |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $— | $598 | $598 | $598 |
| &nbsp;&nbsp;Residential real estate | 903 | 361 | 1264 | 1293 |
| &nbsp;&nbsp;Nonresidential |  | 2915 | 2915 | 6486 |
| &nbsp;&nbsp;Home equity loans | 160 |  | 160 |  |
| Commercial | 46 | 77 | 123 | 584 |
| Consumer and other loans | 15 |  | 15 |  |
| TOTAL | $1124 | $3951 | $5075 | $8961 |

---

Total nonaccrual loans at December 31, 2022 were $2.2 million, which reflects a decrease of $6.8 million from $9.0 million at December 31, 2021. Management believes the relationships on nonaccrual were adequately reserved at December 31, 2022. TDRs not past due or on nonaccrual at December 31, 2022 amounted to $2.3 million, as compared to $3.9 million at December 31, 2021. This decrease was primarily due to five loan relationships that no longer met the definition of a TDR and pay-downs of principal loan balances during 2022. There was also one loan with a balance of $172 thousand at December 31, 2022 that was classified as nonaccrual during 2022. Total TDRs decreased $4.5 million to $3.4 million at December 31, 2022, compared to $7.9 million at December 31, 2021. Of this decrease, approximately $1.1 million was due to five loan relationships that are no longer considered to be TDRs due to the restructuring of the loans subsequent to them initially being classified as a TDR. At the time of the subsequent restructurings, the borrowers were not experiencing financial difficulties and, under the terms of the subsequent restructuring agreements, no concessions have been granted to the borrowers. In addition, during 2022, one loan relationship that was classified as a TDR was paid down and the remaining balance was charged-off, reducing the balance in total by approximately $2.9 million, which was partially offset by one loan relationship in the amount of approximately $48 thousand being classified as a TDR during the second quarter of 2022. The remaining decrease was the result of loan relationships classified as TDRs that were paid down or paid off.

Nonperforming assets, defined as nonaccrual loans, loans past due 90 days or more and accruing, and OREO, net, at December 31, 2022 were $2.2 million compared to $9.8 million at December 31, 2021. The Company's ratio of nonperforming assets to total assets was 0.14% at December 31, 2022 compared to 0.60% at December 31, 2021. As noted above, there was a decrease in nonaccrual loans during the year ended December 31, 2022. OREO, net decreased during the year ended December 31, 2022 by $837 thousand. There were two properties with aggregate values of $837 thousand that were sold at a gain of $7 thousand during the first quarter of 2022.

[**Table of Contents**](#TOC)

It is likely that the COVID-19 pandemic and the economic disruption related to it as well as the uncertainty in the macroeconomic environment due to higher market interest rates, inflation and the possibility of a recession will continue to negatively impact the Company's financial position and results of operations during the year ending December 31, 2023.

The following tables provide additional information on the Company's nonperforming assets at December 31, 2022 and 2021.

**Nonperforming Assets**

**(Dollars in thousands)**

---

| | | |
|:---|:---|:---|
|  | December 31, <br>2022 | December 31, <br>2021 |
| Nonperforming assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Nonaccrual loans | $2154 | $8961 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans past due 90 days or more and accruing | 45 |  |
| Total nonperforming loans (NPLs) | $2199 | $8961 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other real estate owned (OREO) |  | 837 |
| Total nonperforming assets (NPAs) | $2199 | $9798 |
| Performing TDR's and TDR's 30-89 days past due | $2333 | $3922 |
| NPLs/Total Assets | 0.14% | 0.54% |
| NPAs/Total Assets | 0.14% | 0.60% |
| NPAs and TDRs/Total Assets | 0.29% | 0.83% |
| Allowance for credit losses/Nonaccrual Loans | 664.58% | 163.55% |
| Allowance for credit losses/NPLs | 650.98% | 163.55% |
| Nonaccrual loans to total loans outstanding | 0.18% | 0.81% |

---

**Nonperforming Loans by Type**

**(Dollars in thousands)**

---

| | | |
|:---|:---|:---|
|  | December 31, <br>2022 | December 31, <br>2021 |
| Real Estate Mortgage |  |  |
| &nbsp;&nbsp;Construction and land development | $259 | $598 |
| &nbsp;&nbsp;Residential real estate | 1263 | 1293 |
| &nbsp;&nbsp;Nonresidential | 305 | 6486 |
| &nbsp;&nbsp;Home equity loans | 45 |  |
| Commercial | 327 | 584 |
| Consumer and other loans |  |  |
| Total | $2199 | $8961 |

---

[**Table of Contents**](#TOC)

The following table provides data related to loan balances and the allowance for credit losses for the years ended December 31, 2022 and 2021.

**Allowance for Credit Losses Data**

**(Dollars in Thousands)**

**At December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | December 31, <br>2022 | December 31, <br>2021 |
| Average loans outstanding | $1171581 | $1089069 |
| Total loans outstanding | 1232866 | 1117195 |
| Total nonaccrual loans | 2154 | 8961 |
| Net loans charged off | 1689 | 870 |
| Provision for credit losses | 1348 | 2323 |
| Allowance for credit losses | 14315 | 14656 |
| Allowance as a percentage of total loans outstanding | 1.2% | 1.3% |
| Net loans charged off to average loans outstanding | 0.1% | 0.1% |
| Nonaccrual loans as a percentage of total loans outstanding | 0.2% | 0.8% |
| Allowance as a percentage of nonaccrual loans outstanding | 664.6% | 163.6% |

---

The following table represents the activity of the allowance for credit losses for the years ended December 31, 2022 and 2021 by loan type:

**Allowance for Credit Losses and Recorded Investments in Loans**

**(Dollars in Thousands)**

**At December 31, 2022 and 2021**

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | | | | |
|  | Construction<br>and Land<br>Development | <br>Residential<br>Real Estate | <br><br>Nonresidential | <br><br>Home Equity | <br><br>Commercial | <br>Consumer<br>and Other | <br>Unallocated | <br>Total |
| &nbsp;&nbsp;Beginning Balance | $1143 | $1893 | $9239 | $212 | $1885 | $36 | $248 | $14656 |
| &nbsp;&nbsp;&nbsp;&nbsp;Charge-offs | (13) |  | (1555) | (27) | (182) | (72) |  | (1849) |
| &nbsp;&nbsp;&nbsp;&nbsp;Recoveries | 1 | 59 | 23 | 9 | 20 | 48 |  | 160 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision (recovery) | (51) | 107 | 930 | 55 | 195 | 64 | 48 | 1348 |
| &nbsp;&nbsp;Ending Balance | $1080 | $2059 | $8637 | $249 | $1918 | $76 | $296 | $14315 |

---

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | | | | |
|  | Construction<br>and Land<br>Development | <br>Residential<br>Real Estate | <br><br>Nonresidential | <br><br>Home Equity | <br><br>Commercial | <br>Consumer<br>and Other | <br>Unallocated | <br>Total |
| &nbsp;&nbsp;Beginning Balance | $903 | $2351 | $7584 | $271 | $1943 | $37 | $114 | $13203 |
| &nbsp;&nbsp;&nbsp;&nbsp;Charge-offs |  | (39) | (692) | (7) | (184) | (66) |  | (988) |
| &nbsp;&nbsp;&nbsp;&nbsp;Recoveries | 1 | 23 | 53 | 3 | 16 | 22 |  | 118 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision (recovery) | 239 | (442) | 2294 | (55) | 110 | 43 | 134 | 2323 |
| &nbsp;&nbsp;Ending Balance | $1143 | $1893 | $9239 | $212 | $1885 | $36 | $248 | $14656 |

---

[**Table of Contents**](#TOC)

The following table provides information related to the allocation of the allowance for credit losses by loan category, the related loan balance for each category, and the percentage of loan balance to total loans by category:

**Allocation of the Allowance for Credit Losses**

**At December 31, 2022 and 2021**

**(Dollars in thousands)**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | December 31,  | December 31,  | December 31,  | December 31,  | December 31,  | December 31,  |
|  | 2022 | 2022 | 2022 | 2021 | 2021 | 2021 |
|  | <br>Loan<br>Balances | <br>Allocation | Percent<br>of<br>Total<br>Loans | <br>Loan<br>Balances | <br>Allocation | Percent<br>of<br>Total<br>Loans |
| Real Estate Mortgage |  |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $117296 | $1080 | 10% | $107983 | $1143 | 10% |
| &nbsp;&nbsp;Residential real estate | 229904 | 2059 | 19% | 201230 | 1893 | 18% |
| &nbsp;&nbsp;Nonresidential | 722620 | 8637 | 58% | 642217 | 9239 | 57% |
| &nbsp;&nbsp;Home equity loans | 31445 | 249 | 3% | 30395 | 212 | 3% |
| Commercial | 128553 | 1918 | 10% | 130908 | 1885 | 12% |
| Consumer and other loans | 3048 | 76 | —% | 4462 | 36 | —% |
| Unallocated |  | 296 | —% |  | 248 | —% |
|  | $1232866 | $14315 | 100% | $1117195 | $14656 | 100% |

---

Additional information related to net charge-offs (recoveries) is presented in the tables below.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | December 31,  | December 31,  | December 31,  | December 31,  | December 31,  | December 31,  |
|  | 2022 | 2022 | 2022 | 2021 | 2021 | 2021 |
|  | Net |  | Net | Net |  | Net |
|  | Charge-Offs | Average | Charge-Off | Charge-Offs | Average | Charge-Off |
| *Dollars in thousands* | (Recoveries) | Loans | Ratio | (Recoveries) | Loans | Ratio |
| Year Ended |  |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $12 | $109679 | 0.01% | $(1) | $91780 | (0.00)% |
| &nbsp;&nbsp;Residential real estate | (59) | 221458 | (0.03)% | 16 | 209776 | 0.01% |
| &nbsp;&nbsp;Nonresidential | 1532 | 674238 | 0.23% | 639 | 599647 | 0.11% |
| &nbsp;&nbsp;Home equity loans | 18 | 27501 | 0.07% | 4 | 28861 | 0.01% |
| Commercial | 162 | 135324 | 0.12% | 168 | 155148 | 0.11% |
| Consumer and other loans | 24 | 3381 | 0.71% | 44 | 3857 | 1.14% |
| Total Loans Receivable | $1689 | $1171581 | 0.14% | $870 | $1089069 | 0.08% |

---

#### Noninterest Income
*Noninterest Income.* The Company's primary source of noninterest income is service charges on deposit accounts, mortgage banking income and other income. Sources of other noninterest income include ATM and credit card fees, debit card income, safe deposit box income, earnings on bank owned life insurance policies and investment fees and commissions.

Noninterest income for the twelve months ended December 31, 2022 decreased by $3.1 million, or 37.5%, when compared to the twelve months ended December 31, 2021. Key changes in the components of noninterest income for the twelve months ended December 31, 2022, as compared to the same period in 2021, are as follows:

● *Service charges on deposit accounts* increased by $178 thousand, or 22.0%, due primarily to increases in overdraft fees as a result of the easing of restrictions and the lifting of lockdowns in the Company's markets of operation and Partners no longer automatically waiving overdraft fees which was previously done in an

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effort to provide all necessary financial support and services to its customers and communities, both as related to the ongoing COVID-19 pandemic as compared to the same period of 2021;

● *(Losses) gains on sales and calls of investment securities* decreased by $33 thousand, or 119.4%, due primarily to Partners recording losses of $5 thousand on sales or calls of investment securities during the twelve months ended December 31, 2022, as compared to recording gains of $25 thousand on sales or calls of investment securities during the same period of 2021. In addition, during the twelve months ended December 31, 2021, Delmarva recorded gains of $3 thousand on sales or calls of investment securities, as compared to recording no gains on sales or calls of investment securities during the same period of 2022;

● *Mortgage banking income, net* decreased by $2.5 million, or 67.3%, due primarily to Partners' majority owned subsidiary JMC having a lower volume of loan closings as compared to the same period in 2021;

● *(Losses) gains on disposal of other assets, net* decreased by $27 thousand, or 1,944.1%, as a result of Delmarva recording losses of $26 thousand on the disposal of certain assets in connection with the closing of its North Ocean City, Maryland branch during the fourth quarter of 2022, as compared to Delmarva recording a gain of $1 thousand on the sale of its VISA credit card portfolio during the first quarter of 2021; and

● *Impairment loss on restricted stock* increased from zero to $1 thousand, due primarily to Partners recording the final write-down of its investment in Maryland Financial Bank, which had been going through an orderly liquidation;

● *Other income* decreased by $708 thousand, or 19.0%, due primarily to lower mortgage division fees at Delmarva, Partners recording lower fees from its participation in a loan hedging program with a correspondent bank, and decreases in ATM fees and debit card income, which were partially offset by Delmarva recording higher earnings on bank owned life insurance policies due to additional purchases made in 2021.

**Noninterest Expense**

*Noninterest Expense*. Noninterest expense includes all expenses with the exception of those paid for interest on deposits and borrowings. Significant expense items included in this component are salaries and employee benefits, premises and equipment and other operating expenses.

Noninterest expense for the twelve months ended December 31, 2022 decreased by $436 thousand, or 1.0%, when compared to the twelve months ended December 31, 2021. Key changes in the components of noninterest expense for the twelve months ended December 31, 2022, as compared to the same period in 2021, are as follows:

● *Salaries and employee benefits* decreased by $889 thousand, or 3.8%, primarily due to recording no accelerated stock-based compensation expense during the twelve months ended December 31, 2022 as compared to recording $896 thousand in accelerated stock-based compensation expense during the same period of 2021 related to the accelerated vesting of restricted stock awards, which accelerated vesting was subject to the prior approval of the Company and was not contingent on the closing of the merger with OCFC, decreases related to staffing changes and a decrease in commissions expense paid due to the decrease in mortgage banking income from Partners' majority owned subsidiary JMC, which were partially offset by merit increases and higher expenses related to payroll taxes, benefit costs, and bonus accruals. In addition, salaries and employee benefits increased due to Partners' new key hires and expansion into the Greater Washington market and Delmarva opening its new full-service branch at 26 <sup>th</sup> Street in Ocean City, Maryland;

● *Premises and equipment* increased by $568 thousand, or 11.1%, primarily due to increases related to Delmarva opening its new full-service branch at 26 <sup>th</sup> Street in Ocean City, Maryland during the second quarter of 2021 and Partners opening its new full-service branch and commercial banking office in Reston, Virginia during the third quarter of 2021, and higher expenses related to repairs and maintenance, software

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amortization and maintenance contracts, which were partially offset by lower expenses related to Partners' majority owned subsidiary JMC, building security and purchased software, the cost of which did not qualify for capitalization;

● *(Gains) losses and operating expenses on other real estate owned, net* increased by $179 thousand, or 105.6%, primarily due to valuation adjustments being recorded on properties during the twelve months ended December 31, 2021 as compared to no valuation adjustments being recorded during the same period of 2022, and lower expenses related to other real estate owned;

● *Amortization of core deposit intangible* decreased by $80 thousand, or 13.3%, primarily due to lower amortization related to the $2.7 million and $1.5 million, respectively, in core deposit intangibles recognized in the Partners and Liberty acquisitions;

● *Merger related expenses* increased by $421 thousand, or 43.0%, primarily due to higher legal fees and other costs associated with the terminated merger with OCFC; and

● *Other expenses* decreased by $277 thousand, or 2.3%, primarily due to lower expenses related to professional services, stationery, printing and supplies, director fees, correspondent bank services, legal, and other, which were partially offset by higher expenses related to postage and delivery, FDIC insurance assessments, marketing, ATM, and audit and related professional fees.

The following table sets forth the primary components of other operating expenses for the periods indicated:

**Other Operating Expenses**

**(Dollars in Thousands)**

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
|  | 2022 | 2021 |
| Professional services | $727 | $769 |
| Stationary, printing and supplies | 212 | 273 |
| Postage and delivery | 257 | 197 |
| FDIC assessment | 927 | 904 |
| State bank assessment | 60 | 66 |
| Directors fees and expenses | 693 | 742 |
| Marketing | 489 | 443 |
| Correspondent bank services | 101 | 122 |
| ATM expenses | 1112 | 1030 |
| Telephones and mobile devices | 816 | 806 |
| Membership dues and fees | 123 | 128 |
| Legal fees | 337 | 562 |
| Audit and related professional fees | 470 | 358 |
| Insurance | 265 | 267 |
| Listing fees | 59 | 58 |
| Other | 5134 | 5334 |
|  | $11782 | $12059 |

---

#### Income Taxes
The provision for income taxes was $4.5 million during the year ended December 31, 2022, compared to the provision for income taxes of $2.2 million during the year ended December 31, 2021, an increase of $2.3 million or 100.8%. This increase was due primarily to higher consolidated income before taxes, higher merger related expenses, which are typically non-deductible, and lower earnings on tax-exempt income, primarily tax-exempt investment securities. For the twelve months ended December 31, 2022, the Company's effective tax rate was approximately 24.9% as compared to 23.3% for the same period in 2021.

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Partners is not subject to Virginia state income tax, but instead pays Virginia franchise tax. The Virginia franchise tax paid by Partners is recorded in the "Other operating expenses" line item on the Consolidated Statements of Income for the twelve months ended December 31, 2022 and 2021.

**Financial Condition**

#### Interest Earning Assets
*Loans.* Loans typically provide higher yields than the other types of interest earning assets, and thus one of the Company's goals is to increase loan balances. Management attempts to control and counterbalance the inherent credit and liquidity risks associated with the higher loan yields without sacrificing asset quality to achieve its asset mix goals. Total gross loans, excluding unamortized discounts on acquired loans, averaged $1.17 billion and $1.09 billion during the years ended December 31, 2022 and 2021, respectively.

The following table shows the composition of the loan portfolio by category:

**Composition of Loan Portfolio by Category**

**(Dollars in Thousands)**

**As of December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
|  | 2022 | 2021 |
| Real Estate Mortgage |  |  |
| &nbsp;&nbsp;Construction and land development | $117296 | $107983 |
| &nbsp;&nbsp;Residential real estate | 229904 | 201230 |
| &nbsp;&nbsp;Nonresidential | 722620 | 642217 |
| &nbsp;&nbsp;Home equity loans | 31445 | 30395 |
| Commercial | 128553 | 130908 |
| Consumer and other loans | 3048 | 4462 |
|  | 1232866 | 1117195 |
| &nbsp;&nbsp;&nbsp;&nbsp;Less: Allowance for credit losses | (14315) | (14656) |
|  | $1218551 | $1102539 |

---

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The following table sets forth the repricing characteristics and sensitivity to interest rate changes of the Company's loan portfolio, including unamortized discounts on acquired loans at December 31, 2022.

**Loan Maturities and Interest Rate Sensitivity**

**At December 31, 2022**

**(Dollars in thousands)**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | Between | Between |  |  |
|  | One Year | One and | Five and | After |  |
| December 31, 2022 | or Less | Five Years | Fifteen Years | Fifteen Years | Total |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $61019 | $32515 | $16984 | $6778 | $117296 |
| &nbsp;&nbsp;Residential real estate | 41739 | 126515 | 38495 | 23155 | 229904 |
| &nbsp;&nbsp;Nonresidential | 117493 | 433602 | 154822 | 16703 | 722620 |
| &nbsp;&nbsp;Home equity loans | 18867 | 4293 | 4799 | 3486 | 31445 |
| Commercial | 52413 | 53165 | 15751 | 7224 | 128553 |
| Consumer and other loans | 693 | 1050 | 673 | 632 | 3048 |
| Total loans receivable | $292224 | $651140 | $231524 | $57978 | $1232866 |
| Fixed-rate loans: |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $27788 | $23427 | $9698 | $5559 | $66472 |
| &nbsp;&nbsp;Residential real estate | 27152 | 98962 | 11010 | 970 | 138094 |
| &nbsp;&nbsp;Nonresidential | 99198 | 393455 | 100666 | 7124 | 600443 |
| &nbsp;&nbsp;Home equity loans |  |  |  |  |  |
| Commercial | 10552 | 48927 | 15654 | 564 | 75697 |
| Consumer and other loans | 614 | 1038 | 603 | 565 | 2820 |
| Total fixed-rate loans | $165304 | $565809 | $137631 | $14782 | $883526 |
| Floating-rate loans: |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $33231 | $9088 | $7286 | $1219 | $50824 |
| &nbsp;&nbsp;Residential real estate | 14587 | 27553 | 27485 | 22185 | 91810 |
| &nbsp;&nbsp;Nonresidential | 18295 | 40147 | 54156 | 9579 | 122177 |
| &nbsp;&nbsp;Home equity loans | 18867 | 4293 | 4799 | 3486 | 31445 |
| Commercial | 41861 | 4238 | 97 | 6660 | 52856 |
| Consumer and other loans | 79 | 12 | 70 | 67 | 228 |
| Total floating-rate loans | $126920 | $85331 | $93893 | $43196 | $349340 |

---

At December 31, 2022, real estate mortgage loans included $334.3 million of owner-occupied non-farm, non-residential loans, and $319.3 million of other non-farm, non-residential loans, which is 30.4% and 29.0% of real estate mortgage loans, respectively. By comparison, at December 31, 2021, real estate mortgage loans included $287.4 million of owner-occupied non-farm, non-residential loans, and $313.8 million of other non-farm, non-residential loans, which is 29.3% and 32.0% of real estate mortgage loans, respectively. This represents an increase at December 31, 2022 of $47.0 million and $5.5 million, or 16.3% and 1.8%, in owner-occupied non-farm, non-residential loans and other non-farm, non-residential loans, respectively.

At December 31, 2022, real estate mortgage loans included $117.3 million of construction and land development loans, and $52.3 million of multi-family residential loans, which is 10.7% and 4.8% of real estate mortgage loans, respectively. By comparison, at December 31, 2021, real estate mortgage loans included $107.9 million of construction and land development loans, and $24.4 million of multi-family residential loans, which is 11.0% and 2.5% of real estate mortgage loans, respectively. This represents an increase at December 31, 2022 of $9.4 million and $27.9 million, or 8.7% and 114.3%, in construction and land development loans and multi-family residential loans, respectively.

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Commercial real estate loans, excluding owner-occupied non-farm, non-residential loans, were 273.9% of total risk-based capital at December 31, 2022, as compared to 267.9% at December 31, 2021. Construction and land development loans were 65.7% of total risk-based capital at December 31, 2022, as compared to 64.8% at December 31, 2021.

At December 31, 2022, real estate mortgage loans included home equity loans of $31.4 million and residential real estate loans of $229.9 million, compared to $30.4 million and $201.2 million at December 31, 2021, respectively. Home equity loans increased $1.1 million, or 3.5%, during the year ended December 31, 2022, while residential real estate loans increased $28.7 million, or 14.2%, during the year ended December 31, 2022. At December 31, 2022, commercial loans were $128.6 million, compared to $130.9 million at December 31, 2021, a decrease of $2.4 million, or 1.8%, during the year ended December 31, 2022.

The overall increase in loans from the year ended December 31, 2021 to December 31, 2022 was due primarily to an increase in organic growth, including growth of approximately $68.9 million in loans related to Partners' expansion into the Greater Washington market, which was partially offset by forgiveness payments received of approximately $8.2 million under round two of the PPP. As of December 31, 2022, there were no loans under the PPP that were still outstanding.

*Investment Securities.* The investment securities portfolio is a significant component of the Company's total interest-earning assets. Total investment securities averaged $147.5 million during the year ended December 31, 2022 as compared to $129.8 million for the year ended December 31, 2021. This represented 9.2% and 8.5% of total average interest-earning assets for the years ended December 31, 2022 and 2021, respectively. This increase was primarily due to management of the investment securities portfolio in light of the Company's liquidity needs and lower accelerated pre-payments on mortgage-backed investment securities, partially offset by calls on higher yielding investment securities in the low interest rate environment during 2021. During the twelve months ended December 31, 2021, accelerated pre-payments on mortgage-backed investment securities caused the premiums paid on these investment securities to be amortized into expense on an accelerated basis thereby reducing income and yield earned.

During the year ended December 31, 2022, the Company's investment securities portfolio was negatively impacted by unrealized losses in the market value of investment securities available for sale as a result of increases in market interest rates. The Company believes that further increases in market interest rates will likely result in higher unrealized losses in the market value of the investment securities available for sale portfolio. The Company expects to recover its investment in debt securities through scheduled payments of principal and interest, and unrealized losses are not expected to affect the earnings or regulatory capital of the Company.

The Company classifies all of its investment securities as available for sale. This classification requires that investment securities be recorded at their fair value with any difference between the fair value and amortized cost (the purchase price adjusted by any discount accretion or premium amortization) reported as a component of stockholders' equity (accumulated other comprehensive income (loss)), net of deferred taxes. At December 31, 2022 and 2021, investment securities available for sale, at fair value totaled $133.7 million and $122.0 million, respectively. Investment securities available for sale, at fair value increased by $11.7 million, or 9.5%, during the year ended December 31, 2022. This increase was primarily due to management of the investment securities portfolio in light of the Company's liquidity needs, which was partially offset by two higher yielding investment securities being called, and an increase in unrealized losses on the investment securities available for sale portfolio. The Company attempts to maintain an investment securities portfolio of high quality, highly liquid investments with returns competitive with short-term U.S. Treasury or agency obligations. This objective is particularly important as the Company focuses on growing its loan portfolio. The Company primarily invests in securities of U.S. Government agencies, municipals, and corporate obligations. At December 31, 2022 and 2021 there were no issuers, other than the U.S. Government and its agencies, whose securities owned by the Company had a book or fair value exceeding 10% of the Company's stockholders' equity.

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The following table summarizes the amortized cost and fair value of investment securities available for sale for the dates indicated:

**Amortized Cost and Fair Value of Investment Securities**

**(Dollars in Thousands)**

**As of December 31, 2022 and 2021**

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | <br>Amortized<br>Cost | <br>Percentage<br>of Total | Gross<br>Unrealized<br>Gains | Gross<br>Unrealized<br>Losses | <br>Fair<br>Value |
| Obligations of U.S. Government agencies and corporations | $17115 | 11.4% | $— | $1649 | $15466 |
| Obligations of States and political subdivisions | 29480 | 19.6% | 7 | 2422 | 27065 |
| Mortgage-backed securities | 101626 | 67.4% |  | 12886 | 88740 |
| Subordinated debt investments | 2468 | 1.6% |  | 82 | 2386 |
|  | $150689 | 100.0% | $7 | $17039 | $133657 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | <br>Amortized<br>Cost | <br>Percentage<br>of Total | Gross<br>Unrealized<br>Gains | Gross<br>Unrealized<br>Losses | <br>Fair<br>Value |
| Obligations of U.S. Government agencies and corporations | $6547 | 5.4% | $46 | $142 | $6451 |
| Obligations of States and political subdivisions | 29792 | 24.5% | 1397 | 63 | 31126 |
| Mortgage-backed securities | 83213 | 68.5% | 279 | 1089 | 82403 |
| Subordinated debt investments | 1990 | 1.6% | 51 |  | 2041 |
|  | $121542 | 100.0% | $1773 | $1294 | $122021 |

---

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The following table sets forth the fair value and weighted average yields by maturity category of the investment securities available for sale portfolio as of December 31, 2022. Weighted-average yields have been computed on a fully taxable-equivalent basis using a tax rate of 21%. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

**Fair Value and Weighted Average Yields of Investment Securities by Maturity**

**(Dollars in Thousands)**

**As of December 31, 2022**

---

| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | Within 1 Year | Within 1 Year | 1-5 Years | 1-5 Years | 5-10 years | 5-10 years | After 10 Years | After 10 Years | Total | Total |
|  | <br>Fair<br>Value | Weighted<br>Average<br>Yield | <br>Fair<br>Value | Weighted<br>Average<br>Yield | <br>Fair<br>Value | Weighted<br>Average<br>Yield | <br>Fair<br>Value | Weighted<br>Average<br>Yield | <br>Fair<br>Value | Weighted<br>Average<br>Yield |
| Obligations of U.S. Government agencies and corporations | $— | —% | $8553 | 3.64% | $5015 | 1.85% | $1898 | 1.92% | $15466 | 2.85% |
| Obligations of States and political subdivisions |  | —% | 4277 | 2.84% | 11197 | 2.49% | 11591 | 2.45% | 27065 | 2.53% |
| Mortgage-backed securities | 1 | 4.49% | 509 | 1.43% | 23572 | 2.40% | 64658 | 1.79% | 88740 | 1.95% |
| Subordinated debt investments |  | —% |  | —% | 2386 | 5.55% |  | —% | 2386 | 5.55% |
|  | $1 | 4.49% | $13339 | 3.30% | $42170 | 2.54% | $78147 | 1.89% | $133657 | 2.24% |

---

In addition, the Company holds stock in various correspondent banks as well as the Federal Reserve. The balance of these securities was $6.5 million and $4.9 million at December 31, 2022 and 2021, respectively, an increase of $1.6 million, or 33.7%, for the year ended December 31, 2022.

Due to the increase in longer term interest rates and ongoing volatility in the securities markets during the year ended December 31, 2022, the net unrealized losses in the Company's investment securities available for sale portfolio increased from December 31, 2021 by approximately $17.5 million, or 3,655.7%, to $17.0 million at December 31, 2022.

Subsequent interest rate fluctuations could have an adverse effect on our investment securities available for sale portfolio by increasing reinvestment risk and reducing our ability to achieve our targeted investment returns.

**Interest Bearing Liabilities**

*Deposits.* Average total deposits increased from $1.39 billion to $1.47 billion, an increase of $72.5 million, or 5.2%, for the year ended December 31, 2022 over the average total deposits for the year ended December 31, 2021. This increase was primarily due to organic deposit growth, including average growth of approximately $51.7 million in deposits related to Partners' expansion into the Greater Washington market, which was partially offset by scheduled maturities of time deposits that were not replaced and competitive pressures in the higher interest rate environment. At December 31, 2022, total deposits were $1.34 billion as compared to $1.44 billion at December 31, 2021, a decrease of $103.3 million, or 7.2%. This decrease was primarily driven by scheduled maturities of time deposits that were not replaced and significant outflows related to competitive pressures in the higher interest rate environment, which were partially offset by organic growth as a result of our continued focus on total relationship banking and Partners' expansion into the Greater Washington market. Non-interest bearing demand deposits increased to $528.8 million at December 31, 2022, a $34.9 million, or 7.1%, increase from $493.9 million in non-interest bearing demand deposits at December 31, 2021, due primarily to the aforementioned items above.

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The following table sets forth the deposits of the Company by category for the period indicated:

**Deposits by Category**

**(Dollars in Thousands)**

**As of December 31, 2022 and 2021**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, <br>2022 | Percentage<br>of Deposits | December 31,<br>2021 | Percentage<br>of Deposits |
| Noninterest bearing demand deposits | $528770 | 39.47% | $493913 | 34.23% |
| Interest bearing deposits: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Money market, NOW, and savings accounts | 553325 | 41.31% | 569707 | 39.48% |
| &nbsp;&nbsp;&nbsp;&nbsp;Certificates of deposit, $250 thousand or more | 59247 | 4.42% | 82083 | 5.69% |
| &nbsp;&nbsp;&nbsp;&nbsp;Other certificates of deposit | 198263 | 14.80% | 297173 | 20.60% |
| Total interest bearing deposits | 810835 | 60.53% | 948963 | 65.77% |
| Total | $1339605 | 100.00% | $1442876 | 100.00% |

---

The Company's loan-to-deposit ratio was 92.0% at December 31, 2022 as compared to 77.4% at December 31, 2021. Core deposits, which exclude certificates of deposit of $250 thousand or more, provide a relatively stable funding source for the Company's loan portfolio and other interest earning assets. The Company's core deposits were $1.28 billion at December 31, 2022, a decrease of $80.4 million, or 5.9%, from $1.36 billion at December 31, 2021, and excluded $59.2 million and $83.3 million in certificates of deposit of $250 thousand or more as of those dates, respectively. Management anticipates that a stable base of deposits will be the Company's primary source of funding to meet both its short-term and long-term liquidity needs in the future, and, therefore, feels that presenting core deposits provides valuable information to investors.

The following table provides a summary of the Company's maturity distribution for certificates of deposit at the dates indicated:

**Maturities of Certificates of Deposit**

**(Dollars in Thousands)**

**As of December 31, 2022**

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
|  | 2022 | 2021 |
| Three months or less | $44288 | $46845 |
| Over three months through six months | 36283 | 64574 |
| Over six months through twelve months | 79260 | 129517 |
| Over twelve months | 97679 | 138320 |
| Total | $257510 | $379256 |

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The following table provides a summary of the Company's maturity distribution for certificates of deposit of greater than $250 thousand at the dates indicated:

**Maturities of Certificates of Deposit Greater than $250 Thousand**

**(Dollars in Thousands)**

**As of December 31, 2022**

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
|  | 2022 | 2021 |
| Three months or less | $5977 | $13359 |
| Over three months through six months | 8094 | 14803 |
| Over six months through twelve months | 23745 | 20124 |
| Over twelve months | 21431 | 33797 |
| Total | $59247 | $82083 |

---

*Borrowings.* Borrowings at December 31, 2022 and 2021 consist primarily of short-term and long-term borrowings with the FHLB, subordinated notes payable, net, and other borrowings.

At December 31, 2022, short-term borrowings with the FHLB were $42.0 million as compared to $0 at December 31, 2021, an increase of $42.0 million, or 100.0%. This increase was primarily due to the aforementioned items noted in the analysis of total deposits.

At December 31, 2022, long-term borrowings with the FHLB were $19.8 million as compared to $26.3 million at December 31, 2021, a decrease of $6.5 million, or 24.8%. This decrease was primarily due to maturities and payoffs of borrowings that were not replaced and scheduled principal curtailments. These borrowings are collateralized by a blanket lien on the first mortgage loans in the amount of the outstanding borrowings, FHLB capital stock, and amounts on deposit with the FHLB.

At December 31, 2022 and 2021, subordinated notes payable, net, were $22.2 million.

At December 31, 2022, other borrowings were $613 thousand as compared to $755 thousand at December 31, 2021, a decrease of $142 thousand, or 18.8%. Partners majority owned subsidiary, JMC, has a warehouse line of credit with another financial institution in the amount of $3.0 million, of which $0 and $120 thousand were outstanding as of December 31, 2022 and 2021, respectively. In addition to the decrease in JMC's warehouse line of credit, there was a decrease on Partners' note payable on 410 William Street, Fredericksburg, Virginia, primarily due to scheduled principal curtailments, partially offset by the amortization of the related discount on the note payable.

See Note 8 – Borrowings and Notes Payable of the audited consolidated financial statements for the year ended December 31, 2022 for additional information on the Company's subordinated notes payable, net, Partners' note payable, and JMC's warehouse line of credit.

Average total borrowings decreased by $10.3 million, or 17.6%, and average rates paid increased by 0.31% to 4.04% for the twelve months ended December 31, 2022, as compared to the same period in 2021. The decrease in average total borrowings balances was primarily due to a decrease in the average balance of FHLB advances resulting from maturities and payoffs of borrowings that were not replaced and scheduled principal curtailments, a decrease in average borrowings at the Federal Reserve Bank Discount Window under the PPP Liquidity Facility in which the loans under the PPP originated by the Company were previously pledged as collateral, and the early redemption of $2.0 million in subordinated notes payable, net, in early July 2021. The increase in average rates paid was primarily due to the decreases in the average balances of FHLB advances and borrowings at the Federal Reserve Bank Discount Window under the PPP Liquidity Facility, which were lower cost interest-bearing liabilities, partially offset by the early redemption of subordinated notes payable, which was a higher cost interest-bearing liability.

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#### Capital
Total stockholders' equity as of December 31, 2022 was $139.3 million, a decrease of $2.0 million, or 1.4%, from December 31, 2021. Key drivers of this change were an increase in accumulated other comprehensive (loss), net of tax, and cash dividends paid to shareholders, which were partially offset by the net income attributable to the Company for the twelve months ended December 31, 2022, the proceeds from stock option exercises, and stock-based compensation expense related to restricted stock awards.

The Federal Reserve and other bank regulatory agencies require bank holding companies and financial institutions to maintain capital at adequate levels based on a percentage of assets and off-balance sheet exposures, adjusted for risk weights ranging from 0% to 100%. The following table presents actual and required capital ratios as of December 31, 2022 and December 31, 2021 for Delmarva and Partners under Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2022 based on the phase-in provisions of the Basel III Capital Rules and the minimum required capital levels as of January 1, 2019 when the Basel III Capital Rules were fully phased-in. Capital levels required for an institution to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. A more in depth discussion of regulatory capital requirements is included in Note 16 of the audited consolidated financial statements included at Item 8 to this Annual Report on Form 10-K.

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**Capital Components**

**At December 31, 2022 and 2021**

**(Dollars in Thousands)**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | To Be Well | To Be Well |
|  |  |  |  |  | Capitalized | Capitalized |
|  |  |  | For Capital | For Capital | Under Prompt | Under Prompt |
|  |  |  | Adequacy | Adequacy | Corrective Action | Corrective Action |
|  | Actual | Actual | Purposes | Purposes | Provisions | Provisions |
|  | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| As of December 31, 2022 |  |  |  |  |  |  |
| Total Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 98910 | 13.4% | 77763 | 10.5% | 74060 | 10.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 63558 | 11.3% | 58862 | 10.5% | 56059 | 10.0% |
| Tier 1 Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 89645 | 12.1% | 62951 | 8.5% | 59248 | 8.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 58895 | 10.5% | 47650 | 8.5% | 44848 | 8.0% |
| Common Equity Tier 1 Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 89645 | 12.1% | 51842 | 7.0% | 48139 | 6.5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 58895 | 10.5% | 39242 | 7.0% | 36439 | 6.5% |
| Tier 1 Leverage Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Average Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 89645 | 9.3% | 38416 | 4.0% | 48020 | 5.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 58895 | 8.9% | 26348 | 4.0% | 32935 | 5.0% |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | To Be Well | To Be Well |
|  |  |  |  |  | Capitalized | Capitalized |
|  |  |  | For Capital | For Capital | Under Prompt | Under Prompt |
|  |  |  | Adequacy | Adequacy | Corrective Action | Corrective Action |
|  | Actual | Actual | Purposes | Purposes | Provisions | Provisions |
|  | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| As of December 31, 2021 |  |  |  |  |  |  |
| Total Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 91928 | 12.9% | 74963 | 10.5% | 71394 | 10.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 56192 | 12.0% | 49103 | 10.5% | 46765 | 10.0% |
| Tier 1 Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 82972 | 11.6% | 60684 | 8.5% | 57115 | 8.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 52844 | 11.3% | 39750 | 8.5% | 37412 | 8.0% |
| Common Equity Tier 1 Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 82972 | 11.6% | 49975 | 7.0% | 46406 | 6.5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 52844 | 11.3% | 32735 | 7.0% | 30397 | 6.5% |
| Tier 1 Leverage Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Average Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 82972 | 8.1% | 40926 | 4.0% | 51158 | 5.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 52844 | 8.5% | 25009 | 4.0% | 31261 | 5.0% |

---

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#### Liquidity Management
Liquidity management involves monitoring the Company's sources and uses of funds in order to meet its day-to-day cash flow requirements while maximizing profits. Liquidity represents the ability of a company to convert assets into cash or cash equivalents without significant loss and to raise additional funds by increasing liabilities. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of the available for sale investment securities portfolio is very predictable and subject to a high degree of control at the time investment decisions are made; however, net deposit inflows and outflows are far less predictable and are not subject to the same degree of control. Asset liquidity is provided by cash and assets which are readily marketable, which can be pledged, or which will mature in the near future. Liability liquidity is provided by access to core funding sources, principally the ability to generate customer deposits in the Company's market area. The Company's cash and cash equivalents position, which includes funds in cash and due from banks, interest bearing deposits in other financial institutions, and federal funds sold, averaged $296.3 million during the year ended December 31, 2022 and totaled $141.6 million at December 31, 2022, as compared to an average of $326.9 million during the year ended December 31, 2021 and a year-end position of $338.8 million at December 31, 2021. Also, the Company has available advances from the FHLB. Advances available are generally based upon the amount of qualified first mortgage loans which can be used for collateral. At December 31, 2022, advances available totaled approximately $412.0 million of which $61.8 million had been drawn, or used for letters of credit. Management regularly reviews the liquidity position of the Company and has implemented internal policies which establish guidelines for sources of asset-based liquidity and limit the total amount of purchased funds used to support the balance sheet and funding from non-core sources. Subject to certain aggregation rules, FDIC deposit insurance covers the funds in deposit accounts up to at least $250 thousand.

#### ITEM 7A.&nbsp;&nbsp;&nbsp;&nbsp; QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a financial institution, the Company is exposed to various business risks, including interest rate risk. Interest rate risk is the risk to earnings and value arising from volatility in market interest rates. Interest rate risk arises from timing differences in the re-pricings and maturities of interest-earning assets and interest-bearing liabilities, changes in the expected maturities of assets and liabilities arising from embedded options, such as a borrowers' ability to prepay loans and depositors' ability to redeem certificates of deposit before maturity, changes in the shape of the yield curve where interest rates increase or decrease in a nonparallel fashion, and changes in spread relationships between different yield curves, such as U.S. Treasuries and LIBOR. The Company's goal is to maximize net interest income without incurring excessive interest rate risk. Management of net interest income and interest rate risk must be consistent with the level of capital and liquidity that the Company maintains. The Company manages interest rate risk through a Risk Committee of its Board of Directors. The Risk Committee is responsible for managing the Company's interest rate risk in conjunction with liquidity and capital management.

The Company employs an independent consulting firm to model its interest rate sensitivity. The Company uses a net interest income simulation model as its primary tool to measure interest rate sensitivity. Many assumptions are developed based on expected activity in the balance sheet. For maturing assets, assumptions are created for the redeployment of the assets. For maturing liabilities, assumptions are developed for the replacement of these funding sources. Assumptions are also developed for assets and liabilities that could reprice during the modeled time period. These assumptions also cover how the Company expects rates to change on non-maturity deposits such as interest checking, money market checking, savings accounts as well as certificates of deposit. Based on inputs that include the current balance sheet, the current level of interest rates and the developed assumptions, the model then produces an expected level of net interest income assuming that market rates remain unchanged. This is considered the base case. Next, the model determines what net interest income would be based on specific changes in interest rates. The rate simulations are performed for a two year period and include ramped rate changes of down 100 basis points to 400 basis points and up 100 basis points to 400 basis points. In both the up and down scenarios, the model assumes a parallel shift in the yield curve. The results of these simulations are then compared to the base case.

Stress testing the balance sheet and net interest income using instantaneous parallel shock movements in the yield curve of 100 to 400 basis points is a regulatory and banking industry practice. However, these stress tests may not

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represent a realistic forecast of future interest rate movements in the yield curve. In addition, instantaneous parallel interest rate shock modeling is not a predictor of actual future performance of earnings. It is a financial metric used to manage interest rate risk and track the movement of the Company's interest rate risk position over a historical time frame for comparison purposes. Given that the models assume a static balance sheet, relies on historical betas and assumes immediate parallel rate changes, no assurance can be given that future performance will mirror the models.

At December 31, 2022, the Company's asset/liability position was asset sensitive based on its interest rate sensitivity model. The Company's net interest income would increase by 4.4% in an up 100 basis point scenario and would increase by 17.3% in an up 400 basis point scenario over a one-year timeframe. In the two-year horizon, the Company's net interest income would increase by 6.9% in an up 100 basis point scenario and would increase by 27.3% in an up 400 basis point scenario. At December 31, 2022, all interest rate risk stress test measures were within the Company's, Delmarva's and Partners' board policy established limits in each of the increased rate scenarios.

Additional information on the Company's interest rate risk sensitivity for a static balance sheet over a one-year time horizon as of December 31, 2022 can be found below.

---

| | |
|:---|:---|
| Interest Rate Risk in Earnings (Net Interest Income) | Interest Rate Risk in Earnings (Net Interest Income) |
| December 31, 2022 | December 31, 2022 |
| Change in interest rates (basis | Percentage change in net |
| points) | interest income |
| +400 | 17.3% |
| +300 | 13.0% |
| +200 | 8.7% |
| +100 | 4.4% |
| -100 | -4.8% |
| -200 | -11.0% |
| -300 | -17.7% |
| -400 | -25.1% |

---

Economic value of equity, or EVE, measures the period end market value of assets less the period end market value of liabilities and the change in this value as rates change. It models simultaneous parallel shifts in the market interest rates, implied by the forward yield curve. The EVE model calculates the market value of capital by taking the present value of all asset cash flows less the present value of all liability cash flows.

The interest rate risk to capital at December 31, 2022 is shown below and reflects that the Company's market value of capital is in an asset sensitive position in which an increase in short-term interest rates is expected to generate higher market values of capital. At December 31, 2022, all EVE stress test measures were within the Company's, Delmarva's and Partners' board policy established limits in each of the increased rate scenarios.

---

| | |
|:---|:---|
| Interest Rate Risk to Capital | Interest Rate Risk to Capital |
| December 31, 2022 | December 31, 2022 |
| Change in interest rates (basis | Percentage change in  |
| points) | market value |
| +400 | 14.3% |
| +300 | 11.7% |
| +200 | 8.6% |
| +100 | 4.8% |
| -100 | -6.9% |
| -200 | -16.5% |
| -300 | -29.0% |
| -400 | -37.0% |

---

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#### Accounting Standards Update
See Recent Accounting Pronouncements—Note 1 of the consolidated financial statements for the year ended December 31, 2022 for details on recently issued accounting pronouncements and their expected impact on the financial statements.

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#### ITEM 8.&nbsp;&nbsp;&nbsp;&nbsp; FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

#### Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors

Partners Bancorp

Salisbury, Maryland

#### Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Partners Bancorp and its subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

#### Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

**Critical Audit Matters**

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

**Allowance for Credit Losses – Qualitative Factors**

As described in Note 1 – Summary of Significant Accounting Policies and Note 3 – Loans, Allowance for Credit Losses and Impaired Loans to the consolidated financial statements, the Company maintains an allowance for credit losses that represents management's best estimate of probable losses inherent in the loan portfolio. For loans that are not specifically identified for impairment, management determines the allowance for credit losses based on historical loss experience adjusted for qualitative factors. Qualitative adjustments to the historical loss experience are established by applying a loss percentage to the loan segments established by management based on their assessment of shared risk characteristics within groups of similar loans.

Qualitative factors are determined based on management's continuing evaluation of inputs and assumptions underlying the quality of the loan portfolio. Management evaluates qualitative factors by loan segment, primarily considering changes in delinquency and other asset quality trends, the nature and volume of the portfolio, lending policies and procedures, the experience, depth and ability of management, current national and local economic

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conditions, the existence and effect of concentrations, the loan review system, collateral values, and other external factors. Qualitative factors contribute significantly to the allowance for credit losses. Management exercised significant judgment when assessing the qualitative factors in estimating the allowance for credit losses. We identified the assessment of the qualitative factors as a critical audit matter as auditing the qualitative factors involved especially complex and subjective auditor judgment in evaluating management's assessment of the inherently subjective estimates.

The primary audit procedures we performed to address this critical audit matter included:

● Substantively testing management's process, including evaluating their judgments and assumptions for developing the qualitative factors,which included:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o Evaluating the completeness and accuracy of data inputs used as a basis for the qualitative factors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o Evaluating the reasonableness of management's judgments related to the determination of qualitative factors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o Evaluating the qualitative factors for directional consistency and for reasonableness.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;o Testing the mathematical accuracy of the allowance calculation, including the application of the qualitative factors.

/s/ Yount, Hyde & Barbour, P.C.

We have served as the Company's auditor since 2020.

Richmond, Virginia

March 29, 2023

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#### PARTNERS BANCORP

#### CONSOLIDATED BALANCE SHEETS
**December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
| *(Dollars in thousands, except per share amounts)* | 2022 | 2021 |
| **ASSETS** |  |  |
| Cash and due from banks | $14678 | $12887 |
| Interest bearing deposits in other financial institutions | 103922 | 297902 |
| Federal funds sold | 22990 | 28040 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash and cash equivalents | 141590 | 338829 |
| Securities available for sale, at fair value | 133657 | 122021 |
| Loans held for sale | 1314 | 4064 |
| Loans, less allowance for credit losses of $14,315 at December 31, 2022 and $14,656 at December 31, 2021 | 1218551 | 1102539 |
| Accrued interest receivable | 4566 | 4313 |
| Premises and equipment, less accumulated depreciation | 14857 | 16175 |
| Restricted stock | 6512 | 4869 |
| Operating lease right-of-use assets | 5065 | 6009 |
| Financing lease right-of-use assets | 1550 | 1687 |
| Other investments | 4888 | 5065 |
| Deferred income taxes, net | 7864 | 4715 |
| Bank owned life insurance | 18706 | 18254 |
| Other real estate owned, net |  | 837 |
| Core deposit intangible, net | 1540 | 2060 |
| Goodwill | 9582 | 9582 |
| Other assets | 4370 | 3960 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total assets** | $1574612 | $1644979 |
| **LIABILITIES** |  |  |
| Deposits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Non-interest bearing demand | $528770 | $493913 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest bearing demand | 121787 | 159421 |
| &nbsp;&nbsp;&nbsp;&nbsp;Savings and money market | 431538 | 410286 |
| &nbsp;&nbsp;&nbsp;&nbsp;Time | 257510 | 379256 |
|  | 1339605 | 1442876 |
| Accrued interest payable on deposits | 267 | 280 |
| Short-term borrowings with the Federal Home Loan Bank | 42000 |  |
| Long-term borrowings with the Federal Home Loan Bank | 19800 | 26313 |
| Subordinated notes payable, net | 22215 | 22168 |
| Other borrowings | 613 | 755 |
| Operating lease liabilities | 5465 | 6372 |
| Financing lease liabilities | 2006 | 2125 |
| Other liabilities | 3312 | 2722 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities** | 1435283 | 1503611 |
| **COMMITMENTS, CONTINGENCIES & SUBSEQUENT EVENT** |  |  |
| **STOCKHOLDERS' EQUITY** |  |  |
| Common stock, par value $0.01, authorized 40,000,000 shares, issued and outstanding 17,973,724 as of December 31, 2022 and 17,941,604 as of December 31, 2021, including 18,669 nonvested shares as of December 31, 2022 and 28,000 nonvested shares as of December 31, 2021 | 180 | 179 |
| Surplus | 88669 | 88390 |
| Retained earnings | 62854 | 51305 |
| Noncontrolling interest in consolidated subsidiaries | 707 | 1179 |
| Accumulated other comprehensive (loss) income, net of tax | (13081) | 315 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total stockholders' equity** | 139329 | 141368 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities and stockholders' equity** | $1574612 | $1644979 |

---

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

[**Table of Contents**](#TOC)

#### PARTNERS BANCORP

#### CONSOLIDATED STATEMENTS OF INCOME
**Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | Year Ended December 31,  | Year Ended December 31,  |
| *(Dollars in thousands, except per share data)* | 2022 | 2021 |
| **INTEREST INCOME ON:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans, including fees | $55570 | $52757 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment securities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable | 2189 | 1101 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax-exempt | 728 | 863 |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal funds sold | 793 | 59 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other interest income | 3380 | 573 |
|  | 62660 | 55353 |
| **INTEREST EXPENSE ON:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deposits | 4654 | 6676 |
| &nbsp;&nbsp;&nbsp;&nbsp;Borrowings | 2010 | 2247 |
|  | 6664 | 8923 |
| **NET INTEREST INCOME** | 55996 | 46430 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision for credit losses | 1348 | 2323 |
| **NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES** | 54648 | 44107 |
| **OTHER INCOME:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Service charges on deposit accounts | 989 | 811 |
| &nbsp;&nbsp;&nbsp;&nbsp;(Losses) gains on sales and calls of investment securities | (5) | 27 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgage banking income, net | 1228 | 3759 |
| &nbsp;&nbsp;&nbsp;&nbsp;(Losses) gains on disposal of other assets, net | (26) | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Impairment loss on restricted stock | (1) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Other income | 3016 | 3724 |
|  | 5201 | 8322 |
| **OTHER EXPENSES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Salaries and employee benefits | 22454 | 23343 |
| &nbsp;&nbsp;&nbsp;&nbsp;Premises and equipment | 5704 | 5136 |
| &nbsp;&nbsp;&nbsp;&nbsp;(Gains) losses and operating expenses on other real estate owned, net | (10) | 170 |
| &nbsp;&nbsp;&nbsp;&nbsp;Amortization of core deposit intangible | 520 | 600 |
| &nbsp;&nbsp;&nbsp;&nbsp;Merger related expenses | 1400 | 979 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other expenses | 11782 | 12059 |
|  | 41850 | 42287 |
| **INCOME BEFORE TAXES ON INCOME** | 17999 | 10142 |
| Federal and state income taxes | 4512 | 2247 |
| **NET INCOME** | $13487 | $7895 |
| **Net loss (income) attributable to noncontrolling interest** | 128 | (484) |
| **NET INCOME ATTRIBUTABLE TO PARTNERS BANCORP** | $13615 | $7411 |
| Earnings per common share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Basic earnings per share | $0.76 | $0.42 |
| &nbsp;&nbsp;&nbsp;&nbsp;Diluted earnings per share | $0.76 | $0.42 |

---

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

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#### PARTNERS BANCORP

#### CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
**Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | Year Ended December 31,  | Year Ended December 31,  |
| *(Dollars in thousands)* | 2022 | 2021 |
| **NET INCOME** | $13487 | $7895 |
| **OTHER COMPREHENSIVE (LOSS), NET OF TAX:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Unrealized holding (losses) on securities available for sale arising during the period | (17516) | (2571) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax effect | 4116 | 609 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive (loss), net of tax | (13400) | (1962) |
| &nbsp;&nbsp;&nbsp;&nbsp;Reclassification adjustment for losses (gains) included in net income | 5 | (27) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax effect | (1) | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive loss (income), net of tax | 4 | (21) |
| **TOTAL OTHER COMPREHENSIVE (LOSS)** | (13396) | (1983) |
| **COMPREHENSIVE INCOME** | $91 | $5912 |
| **COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST** | 128 | (484) |
| **COMPREHENSIVE INCOME ATTRIBUTABLE TO PARTNERS BANCORP** | $219 | $5428 |

---

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

[**Table of Contents**](#TOC)

#### PARTNERS BANCORP

#### CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
**Years Ended December 31, 2022 and 2021**

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | Accumulated |  |
|  |  |  |  |  | Other | Total |
|  | Common |  | Retained | Noncontrolling  | Comprehensive | Stockholders' |
| *(Dollars in thousands, except per share amounts)* | Stock | Surplus | Earnings | Interest | Income (Loss) | Equity |
| Balances, December 31, 2020 | $178 | $87200 | $45673 | $1346 | $2298 | $136695 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income |  |  | 7411 | 484 |  | 7895 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive (loss), net of tax |  |  |  |  | (1983) | (1983) |
|  |  |  |  |  |  | 5912 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash dividends, $0.100 per share |  |  | (1779) |  |  | (1779) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock repurchases | (1) | (208) |  |  |  | (209) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interest equity distribution |  |  |  | (651) |  | (651) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock option exercises, net | 1 | 327 |  |  |  | 328 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense  | 1 | 1071 |  |  |  | 1072 |
| Balances, December 31, 2021 | $179 | $88390 | $51305 | $1179 | $315 | $141368 |
| Balances, December 31, 2021 | $179 | $88390 | $51305 | $1179 | $315 | $141368 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income (loss) |  |  | 13615 | (128) |  | 13487 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other comprehensive (loss), net of tax |  |  |  |  | (13396) | (13396) |
|  |  |  |  |  |  | 91 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash dividends, $0.115 per share |  |  | (2066) |  |  | (2066) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Minority interest equity distribution |  |  |  | (344) |  | (344) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock option exercises, net | 1 | 185 |  |  |  | 186 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense |  | 94 |  |  |  | 94 |
| Balances, December 31, 2022 | $180 | $88669 | $62854 | $707 | $(13081) | $139329 |

---

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

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#### PARTNERS BANCORP

#### CONSOLIDATED STATEMENTS OF CASH FLOWS
**Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
|  | Year Ended  | Year Ended  |
|  | December 31,  | December 31,  |
| *(Dollars in thousands)* | 2022 | 2021 |
| **CASH FLOWS FROM OPERATING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $13615 | $7411 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash provided by operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Provision for credit losses  | 1348 | 2323 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation | 1839 | 1657 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization and accretion | 411 | 1006 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Losses (gains) on sales and calls of investment securities | 5 | (27) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net losses (gains) on sales of assets | 26 | (1) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loss on equity securities | 222 | 56 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gain on sale of loans held for sale, originated | (1100) | (3497) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net (gains) losses on other real estate owned, including write-downs | (5) | 108 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in bank owned life insurance cash surrender value | (452) | (413) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax  | 966 | 295 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense, net of employee tax obligation | 94 | 1072 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net accretion of certain acquisition related fair value adjustments | (136) | (880) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Impairment loss on restricted stock | 1 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans held for sale | 3850 | 9291 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued interest receivable | (253) | 916 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other assets | 671 | 526 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Accrued interest payable on deposits | (13) | (122) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other liabilities | (317) | (1209) |
| Net cash provided by operating activities | 20772 | 18512 |
| **CASH FLOWS FROM INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of securities available for sale | (42938) | (60547) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of other investments | (45) | (30) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of bank owned life insurance |  | (3000) |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchase of Farmers Bank Stock | (49) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the sale of Farmers Bank Stock | 44 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from maturities and paydowns of securities available for sale | 13426 | 29360 |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of securities available for sale |  | 30580 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net increase in loans | (116694) | (81233) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sale of assets |  | 174 |
| &nbsp;&nbsp;&nbsp;&nbsp;Purchases of premises and equipment | (547) | (2393) |
| &nbsp;&nbsp;&nbsp;&nbsp;Proceeds from the sales of foreclosed assets | 842 | 1732 |
| &nbsp;&nbsp;&nbsp;&nbsp;(Purchase) redemption of restricted stocks | (1644) | 576 |
| Net cash used by investing activities | (147605) | (84781) |
| **CASH FLOWS FROM FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase in demand, money market, and savings deposits, net | 18475 | 224490 |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash received for the exercise of stock options | 186 | 327 |
| &nbsp;&nbsp;&nbsp;&nbsp;Decrease in time deposits, net | (121752) | (49769) |
| &nbsp;&nbsp;&nbsp;&nbsp;Increase (decrease) in borrowings, net | 35342 | (50290) |
| &nbsp;&nbsp;&nbsp;&nbsp;Net decrease in minority interest contributed capital | (472) | (167) |
| &nbsp;&nbsp;&nbsp;&nbsp;Decrease in finance lease liability | (119) | (117) |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash paid for stock repurchases |  | (208) |
| &nbsp;&nbsp;&nbsp;&nbsp;Dividends paid | (2066) | (1779) |
| Net cash (used in) provided by financing activities | (70406) | 122487 |
| **Net (decrease) increase in cash and cash equivalents** | (197239) | 56218 |
| **Cash and cash equivalents, beginning of period** | 338829 | 282611 |
| **Cash and cash equivalents, ending of period** | $141590 | $338829 |
| **Supplementary cash flow information:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest paid | $7193 | $8966 |
| &nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid | 3121 | 3099 |
| &nbsp;&nbsp;&nbsp;&nbsp;Right of use assets and corresponding lease liabilities |  | 3016 |
| &nbsp;&nbsp;&nbsp;&nbsp;Unrealized loss on securities available for sale | $(17516) | $(2572) |
| SUPPLEMENTARY NON-CASH INVESTING ACTIVITIES |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Leases arising from right-of-use assets | $— | $3016 |

---

The Notes to Consolidated Financial Statements are an integral part of these consolidated financial statements.

[**Table of Contents**](#TOC)

#### NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

#### Note 1. Nature of Business and Its Significant Accounting Policies
Partners Bancorp (the "Company") is a multi-bank holding company with two wholly owned subsidiaries (the "Subsidiaries"), The Bank of Delmarva ("Delmarva"), a commercial bank headquartered in Seaford, Delaware that operates primarily in Wicomico and Worcester counties in Maryland, Sussex County in Delaware, and Camden and Burlington counties in New Jersey, and Virginia Partners Bank ("Partners"), a commercial bank headquartered in Fredericksburg, Virginia that operates in and around the greater Fredericksburg, Virginia area (Stafford County, Spotsylvania County, King George County, Caroline County, and the City of Fredericksburg, Virginia), the Greater Washington area (the District of Columbia, Arlington County, Clarke County, Fairfax County, Fauquier County, Loudoun County, Prince William County, Warren County, and the Cities of Alexandria, Fairfax, Falls Church, Manassas, Manassas Park, and Reston, Virginia) and Anne Arundel County and the three counties of Southern Maryland (Charles County, Calvert County and St. Mary's County). The Subsidiaries engage in general banking business and provide a broad range of financial services to individual and corporate customers, and are subject to competition from other financial institutions. The Subsidiaries are also subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory authorities. The accounting and reporting policies of the Company and its Subsidiaries conform to accounting principals generally accepted in the United States of America ("U.S. GAAP") and practices within the banking industry.

Significant accounting policies not disclosed elsewhere in the consolidated financial statements are as follows:

#### Principles of Consolidation:
The consolidated financial statements include the accounts of the Company; the Subsidiaries, along with their consolidated subsidiaries: Delmarva Real Estate Holdings, LLC, a wholly owned subsidiary of Delmarva, which is a real estate holding company; Davie Circle, LLC, a wholly owned subsidiary of Delmarva, which is a real estate holding company; Delmarva BK Holdings, LLC, a wholly owned subsidiary of Delmarva, which is a real estate holding company; DHB Development, LLC, of which Delmarva holds a 40.55% interest, and which is a real estate holding company; and FBW, LLC, of which Delmarva holds a 50% interest, and which is a real estate holding company; Bear Holdings, Inc., a wholly owned subsidiary of Partners, which is a real estate holding company; Johnson Mortgage Company, LLC ("JMC"), of which Partners owns a 51% interest, and which is a residential mortgage company; and 410 William Street, LLC, a wholly owned subsidiary of Partners, which holds investment property. During the second quarter of 2022, Delmarva sold its 10% interest in West Nithsdale Enterprises, LLC, which was a real estate holding company. The sale of this interest resulted in a loss of approximately $2 thousand, which is included in "(Gains) losses and operating expenses on other real estate owned, net" under "Other Expenses" in the Consolidated Statements of Income. All significant intercompany accounts and transactions have been eliminated in consolidation.

#### Use of Estimates:
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. Actual results could differ from those estimates. The more significant areas in which management of the Company applies critical assumptions and estimates that are most susceptible to change in the short term include the calculation of the allowance for credit losses, the valuation of impaired loans, and the unrealized gain or loss on investment securities available for sale.

[**Table of Contents**](#TOC)

#### Securities Available for Sale:
Marketable debt securities not classified as held to maturity are classified as available for sale. Securities available for sale are acquired as part of the Subsidiaries' asset/liability management strategy and may be sold in response to changes in interest rates, loan demand, changes in prepayment risk, and other factors. Securities available for sale are carried at fair value as determined by quoted market prices. Unrealized gains or losses based on the difference between amortized cost and fair value are reported in other comprehensive income (loss), net of deferred tax. Realized gains and losses, using the specific identification method, are included as a separate component of other income (expense) and, when applicable, are reported as a reclassification adjustment, net of tax, in other comprehensive income (loss). Premiums and discounts are recognized in interest income using the interest method over the period to maturity, or for premiums, to the first call date. Additionally, declines in the fair value of individual investment securities below their amortized cost that are other than temporary are reflected as realized losses in the consolidated statements of income.

Impairment may result from credit deterioration of the issuer or collateral underlying the security. In performing an assessment of recoverability, all relevant information is considered, including the length of time and extent to which fair value has been less than the amortized cost basis, the cause of the price decline, credit performance of the issuer and underlying collateral, and recoveries or further declines in fair value subsequent to the balance sheet date.

For debt securities, the Company measures and recognizes other-than-temporary impairment ("OTTI") losses through earnings if (1) the Company has the intent to sell the security or (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. In these circumstances, the impairment loss is equal to the full difference between the amortized cost basis and the fair value of the security. For securities that are considered OTTI that the Company has the intent and ability to hold in an unrealized loss position, the OTTI write-down is separated into an amount representing the credit loss, which is recognized in earnings, and the amount related to other factors, which is recognized as a component of other comprehensive income (loss) ("OCI").

**Restricted Stock, Equity Securities and Other Investments:**

Federal Reserve Bank ("FRB") stock, at cost, Federal Home Loan Bank ("FHLB") stock, at cost, Atlantic Central Bankers Bank ("ACBB") stock, at cost, and Community Bankers Bank ("CBB") stock, at cost, are equity interests in the FRB, FHLB, ACBB, and CBB, respectively. These securities do not have a readily determinable fair value for purposes of *Accounting Standards Codification ("ASC") 320-10 Investments-Debts and Equity Securities* ("ASC 320-10") because their ownership is restricted and they lack an active market. As there is no readily determinable fair value for these securities, they are carried at cost less any OTTI.

Equity securities with readily determinable fair values are carried at fair value, with changes in fair value reported in net income. Any equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments. The entirety of any impairment on equity securities is recognized in earnings. Equity securities are included in "Other investments" on the Consolidated Balance Sheets.

Other investments includes an equity ownership of Solomon Hess SBA Loan Fund LLC, for which the value is adjusted for its prorata share of assets in the fund. Other investments also includes equity securities the Company holds with Community Capital Management in their Community Reinvestment Act ("CRA") Qualified Investment Fund.

#### Bank Owned Life Insurance:
The Company has purchased life insurance policies on certain key executives. Bank owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other changes or amounts due that are probable at settlement.

[**Table of Contents**](#TOC)

#### Loans and the Allowance for Credit Losses:
Loans are generally carried at the amount of unpaid principal, adjusted for unearned loan fees and costs, which are amortized over the term of the loan using the effective interest rate method. Interest on loans is accrued based on the principal amounts outstanding. It is the Subsidiaries' policy to discontinue the accrual of interest when a loan is specifically determined to be impaired or when principal or interest is delinquent for ninety days or more. When a loan is placed on nonaccrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest income generally is not recognized on specific impaired loans unless the likelihood of further loss is remote. Cash collections on such loans are applied as reductions of the loan principal balance and no interest income is recognized on those loans until the principal balance has been collected. As a general rule, a nonaccrual loan may be restored to accrual status when (1) none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or (2) when it otherwise becomes well secured and in the process of collection. Interest income on other nonaccrual loans is recognized only to the extent of interest payments received. The carrying value of impaired loans is based on the present value of the loan's expected future cash flows or, alternatively, the observable market price of the loan or the fair value of the collateral securing the loan.

The allowance for credit losses is maintained at a level believed to be adequate by management to absorb probable losses inherent in the loan portfolio and is based on the size and current risk characteristics of the loan portfolio, the concentration of credits within each pool, the effects of any changes in lending policies, procedures, including underwriting standards and collections, charge off and recovery practices, the effects of changes in the experience, depth and ability of management, the quality of the Company's loan review system and the degree of oversight by the Company's Board of Directors, an assessment of individual problem loans and actual loss experience, the value of the underlying collateral, the condition of various market segments, both locally and nationally, and current economic events in specific industries and geographical areas, including unemployment levels, and other pertinent factors, including regulatory guidance and general economic conditions, along with external factors such as competition and the legal environment. Determination of the allowance for credit losses is inherently subjective, as it requires significant estimates, including the amounts and timing on historical loss experience, and consideration of current economic trends, all of which may be susceptible to significant change. Loan losses are charged off against the allowance for credit losses, while recoveries of amounts previously charged off are credited to the allowance for credit losses. A provision for credit losses is charged to operations based on management's periodic evaluation of the factors previously mentioned, as well as other pertinent factors. Evaluations are conducted at least monthly and more often if deemed necessary.

The allowance for credit losses typically consists of an allocated component and an unallocated component. The allocated component of the allowance for credit losses reflects expected losses resulting from analyses developed through specific credit allocations for individual loans and historical loss experience for each loan category.

The specific credit allocations are based on regular analyses of all loans over a fixed-dollar amount where the internal credit rating is at or below a predetermined classification. The historical loan loss element is determined statistically using an informal loss migration analysis that examines loss experience and the related internal gradings of loans charged off over a current three year period. The loss migration analysis is performed quarterly and loss factors are updated regularly based on actual experience. The allocated component of the allowance for credit losses also includes consideration of concentrations and changes in portfolio mix and volume.

Any unallocated portion of the allowance for credit losses reflects management's estimate of probable inherent but undetected losses within the loan portfolio due to uncertainties in economic conditions, delays in obtaining information, including unfavorable information about a borrower's financial condition, the difficulty in identifying triggering events that correlate perfectly to subsequent loss rates, and risk factors that have not yet manifested themselves in loss allocation factors. The historical losses used in the migration analysis may not be representative of actual unrealized losses inherent in the loan portfolio. It is management's intent to continually refine the methodology for the allowance for credit losses in an attempt to directly allocate potential losses in the loan portfolio under ASC Topic 310 and minimize the unallocated portion of the allowance for credit losses.

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Loan Charge-off Policies

Loans are generally fully or partially charged down to the fair value of securing collateral when:

● management deems the asset to be uncollectible

● repayment is deemed to be made beyond the reasonable time frames

● the asset has been classified as a loss by internal or external review; and

● the borrower has filed bankruptcy and the loss becomes evident owing to a lack of assets

Acquired Loans

Loans acquired in connection with business combinations are recorded at their acquisition-date fair value with no carryover of related allowance for credit losses. Any allowance for credit losses on these pools reflect only losses incurred after the acquisition (meaning the present value of all cash flows expected at acquisition that ultimately are not expected to be received). Determining the fair value of the acquired loans involves estimating the principal and interest cash flows expected to be collected on the loans and discounting those cash flows at a market rate of interest. Management considered a number of factors in evaluating the acquisition-date fair value including the remaining life of the acquired loans, delinquency status, estimated prepayments, payment options and other loan features, internal risk grade, estimated value of the underlying collateral and interest rate environment.

Acquired loans that meet the criteria for nonaccrual of interest prior to the acquisition date may be considered performing upon acquisition, regardless of whether the customer is contractually delinquent, if we can reasonably estimate the timing and amount of the expected cash flows on such loans and if we expect to fully collect the new carrying value of the loans, including the impact of any accretable yield.

Loans acquired with deteriorated credit quality are accounted for in accordance with *ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality* ("ASC 310-30") if, at acquisition, the loans have evidence of credit quality deterioration since origination and it is probable that all contractually required payments will not be collected. At acquisition, the Company considers several factors as an indicator that an acquired loan has evidence of deterioration in credit quality. These factors include; loans 90 days or more past due, loans with an internal risk grade of substandard or below, loans classified as nonaccrual by the acquired institution, and loans that have been previously modified in a troubled debt restructuring.

Under the ASC 310-30 model, the excess of cash flows expected to be collected at acquisition over recorded fair value is referred to as the accretable yield and is the interest component of expected cash flow. The accretable yield is recognized into income over the remaining life of the loan if the timing and/or amount of cash flows expected to be collected can be reasonable estimated (the accretion method). If the timing or amount of cash flows expected to be collected cannot be reasonably estimated, the cost recovery method of income recognition is used. The difference between the loan's total scheduled principal and interest payments over all cash flows expected to be collected at acquisition, considering the impact of prepayments, is referred to as the non-accretable difference. The non-accretable difference represents contractually required principal and interest payments which the Company does not expect to collect.

Over the life of the loan, management continues to estimate cash flows expected to be collected. Decreases in expected cash flows are recognized as impairments through a charge to the provision for credit losses resulting in an increase in the allowance for credit losses. Subsequent improvements in cash flows result in first, reversal of existing valuation allowances recognized subsequent to acquisition, if any, and next, an increase in the amount of accretable yield to be subsequently recognized as interest income on a prospective basis over the loan's remaining life.

[**Table of Contents**](#TOC)

Acquired loans that were not individually determined to be purchased with deteriorated credit quality are accounted for in accordance with *ASC 310-20, Nonrefundable Fees and Other Costs* ("ASC 310-20"), whereby the premium or discount derived from the fair market value adjustment, on a loan-by-loan or pooled basis, is recognized into interest income on a level yield basis over the remaining expected life of the loan or pool.

Troubled Debt Restructurings

A loan is accounted for and reported as a troubled debt restructuring ("TDR") when, for economic or legal reasons, we grant a concession to a borrower experiencing financial difficulty that we would not otherwise consider. Management strives to identify borrowers in financial difficulty early and works with them to modify to more affordable terms before their loan reaches nonaccrual status. These modified terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. A restructuring that results in only an insignificant delay in payment is not considered a concession. A delay may be considered insignificant if the payments subject to the delay are insignificant relative to the unpaid principal or collateral value and the contractual amount due, or the delay in timing of the restructured payment period is insignificant relative to the frequency of the payments, the debt's original contractual maturity or original expected duration.

TDRs are designated as impaired loans because interest and principal payments will not be received in accordance with the original contract terms. TDRs that are performing and on accrual status as of the date of the modification remain on accrual status. TDRs that are nonperforming as of the date of modification generally remain as nonaccrual until the prospect of future payments in accordance with the modified loan agreement is reasonably assured, generally demonstrated when the borrower maintains compliance with the restructured terms for a predetermined period, normally at least six months. TDRs with temporary below-market concessions remain designated as a TDR and impaired regardless of the accrual or performance status until the loan is paid off. However, if the TDR has been modified in a subsequent restructure with market terms and the borrower is not currently experiencing financial difficulty, then the loan may be no longer designated as a TDR.

#### Loans Held for Sale:
These loans consist of loans made through Partners' majority owned subsidiary JMC.

JMC is engaged in the mortgage brokerage business in which JMC originates, closes, and immediately sells mortgage loans and related servicing rights to permanent investors in the secondary market. JMC has written commitments from several permanent investors (large financial institutions) and only closes loans that meet the lending requirements of the permanent investors. Loans are made in connection with the purchase or refinancing of existing and new one-to-four family residences primarily in southeastern and northern Virginia. Loans are initially funded primarily by JMC's lines of credit. With the concurrent sale and delivery of mortgage loans to the permanent investors, JMC records receivables for mortgage loans sold and recognizes the related gains and losses on such sales. The receivables for mortgage loans sold are usually satisfied within 30 days of sale, whereupon the related borrowings on the lines of credit are repaid. Because of the short holding period, these loans are carried at the lower of cost or market and no market adjustments were deemed necessary in 2022 or 2021. JMC's agreements with its permanent investors include provisions that could require JMC to repurchase loans under certain circumstances, and also provide for the assessment of fees if loans go into default or are refinanced within specified periods of time. JMC has never been required to repurchase a loan and no indemnification reserve has been recorded as of December 31, 2022 or 2021 for possible repurchases. Management does not believe that a provision for early default or refinancing cost is necessary at December 31, 2022 or 2021.

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JMC enters into commitments with its customers to originate loans where the interest rate on the loans is determined (locked) prior to funding. While this subjects JMC to the risk interest rates may change from the commitment date to the funding date, JMC simultaneously enters into financial agreements (best efforts forward sales commitments) with its permanent investors giving JMC the right to deliver (put) loans to the permanent investors at specified yields, thus enabling JMC to manage its exposure to changes in interest rates such that JMC is not subject to fluctuations in fair values of these agreements due to changes in interest rates. However, a default by a permanent investor required to purchase loans under such an agreement would expose JMC to potential fluctuation in selling prices of loans due to changes in interest rate. The fair value of rate lock commitments and forward sales commitments was considered immaterial at December 31, 2022 and 2021 and an adjustment was not recorded. Gains and losses on the sale of mortgages as well as origination fees, brokerage fees, interest rate lock-in fees and other fees paid by mortgagors are included in the "Mortgage banking income, net" line item on the Company's Consolidated Statements of Income.

**Other Real Estate Owned (OREO):**

OREO comprises properties acquired in partial or total satisfaction of problem loans. The properties are recorded at the lower of cost or fair value, net of estimated selling costs, at the date acquired creating a new cost basis. Losses arising at the time of acquisition of such properties are charged against the allowance for credit losses. Subsequent write-downs that may be required, expenses of operation and gains and losses realized from the sale of OREO are included in other expenses. At December 31, 2022, there were no properties included in OREO, and at December 31, 2021 there were two properties with a combined value of $837 thousand included in OREO. At December 31, 2021, there were no residential real estate properties included in OREO balances.

#### Premises and Equipment and Depreciation:
Premises and equipment are stated at cost less accumulated depreciation. Land is carried at cost. The provision for depreciation is computed using primarily the straight-line method over the estimated useful lives of the assets, ranging from two to fifty years. Leasehold improvements are depreciated over the lesser of the terms of the leases or their estimated useful lives. Expenditures for improvements that extend the life of an asset are capitalized and depreciated over the asset's remaining useful life. Gains or losses realized on the disposition of premises and equipment are reflected in the consolidated statements of income. Expenditures for repairs and maintenance are charged to premises and equipment as incurred. Computer software is recorded at cost and amortized over three to five years.

#### Intangible Assets and Amortization:
During the fourth quarter of 2019 the Company acquired Partners and during the first quarter of 2018, the Company acquired Liberty Bell Bank ("Liberty"). *ASC 350, Intangibles-Goodwill and Other* ("ASC 350"), prescribes accounting for intangible assets subsequent to initial recognition. Acquired intangible assets (such as core deposit intangibles) are separately recognized if the benefit of the assets can be sold, transferred, licensed, rented, or exchanged, and amortized over their useful lives. Intangible assets related to the acquisitions of Partners and Liberty are being amortized over their remaining useful life (see Note 19 – Goodwill and Intangible Assets for further information).

**Goodwill:**

The Company's goodwill was recognized in connection with the acquisitions of Partners and Liberty. The Company reviews the carrying value of goodwill at least annually during the fourth quarter or more frequently if certain impairment indicators exist. In testing goodwill for impairment, the Company may first consider qualitative factors to determine whether the existence of events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events and circumstances, we conclude that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then no further testing is required and the goodwill of the reporting unit is not impaired. If the Company elects to bypass the qualitative assessment or if we conclude that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, then the fair value of the reporting unit is compared with its carrying amount to determine whether an impairment exists. No impairment of goodwill was required for the years ended December 31, 2022 and 2021 based on management's assessment.

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#### Long-Lived Assets:
The carrying value of long-lived assets and certain identifiable intangibles is reviewed by management for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable as prescribed by *ASC 360-10 Property, Plant, and Equipment* ("ASC 360-10"). As of December 31, 2022 and 2021, certain loans were deemed to be impaired (see Note 3 – Loans, Allowance for Credit Losses and Impaired Loans for further information).

#### Income Taxes:
The Company and its Subsidiaries file a consolidated Federal tax return. The provision for Federal and state income taxes is based upon the consolidated results of operations, adjusted for tax-exempt income. Deferred income taxes are provided under *ASC 740-10 Income Taxes* ("ASC 740-10") by applying enacted statutory rates to temporary differences between financial and tax bases of assets and liabilities.

Temporary differences, which give rise to deferred tax assets relate principally to the allowance for credit losses, lease liabilities, fair value adjustments related to business combinations, accumulated amortization of intangibles, impairment loss on securities, net operating loss carryforward, net losses on OREO, and unrealized losses on securities available for sale. Temporary differences which give rise to deferred tax liabilities relate to accumulated depreciation, deferred gains, right of use assets, accumulated amortization on core deposit intangibles and accumulated accretion of discounts on debt securities.

The benefit of an uncertain tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination by the applicable taxing authority, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. Interest and penalties associated with unrecognized tax benefits are recognized as a component of income tax expense.

#### Credit Risk:
The Company has deposits in other financial institutions in excess of amounts insured by the Federal Deposit Insurance Corporation ("FDIC"). The Subsidiaries have not experienced any losses in such accounts and management does not believe it is exposed to any significant credit risks with respect to such deposits.

#### Cash and Cash Equivalents:
The Company has included cash and due from banks, interest bearing deposits in other financial institutions, and Federal funds sold as cash and cash equivalents for purposes of reporting cash flows. Cash and cash equivalents were $141.6 million and $338.8 million at December 31, 2022 and 2021, respectively.

#### Accounting for Stock Based Compensation:
The Company follows *ASC 718-10, Compensation—Stock Compensation* ("ASC 718-10") for accounting and reporting for stock-based compensation plans. ASC 718-10 defines a fair value at grant date to be used for measuring compensation expense for stock-based compensation plans to be recognized in the statement of income.

#### Earnings Per Share:
Basic earnings per common share are determined by dividing net income adjusted for preferred stock dividends declared and/or accumulated and accretion of warrants by the weighted average number of shares outstanding for each year, giving retroactive effect to stock splits and dividends. Weighted average shares outstanding were 17,961,208 and 17,789,987 for the years ended December 31, 2022 and 2021, respectively. Calculations of diluted earnings per

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common share include the average dilutive common stock equivalents outstanding during the year, unless they are anti-dilutive. Dilutive common equivalent shares consist of stock options calculated using the treasury stock method and restricted stock awards (See Note 15 – Earnings Per Share for further information).

**Transfers of Financial Assets:**

Transfers of loans are accounted for as sales when control over the loans has been surrendered. Control over transferred loans is deemed to be surrendered when (1) the loans have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred loans, and (3) the Company does not maintain effective control over the transferred loans through an agreement to repurchase them before their maturity.

#### Recent Accounting Pronouncements:
In June 2016, the Financial Accounting Standards Board ("FASB") issued *Accounting Standards Update ("ASU") No. 2016-13, "Financial Instruments – Credit Losses"* ("Topic 326"): Measurement of Credit Losses on Financial Instruments." The ASU, as amended, requires an entity to measure expected credit losses for financial assets carried at amortized cost based on historical experience, current conditions, and reasonable and supportable forecasts. Among other things, the ASU also amended the impairment model for available for sale securities and addressed purchased financial assets with deterioration. The Company adopted ASU 2016-13 as of January 1, 2023 in accordance with the required implementation date and recorded the impact of adoption to retained earnings, net of deferred income taxes, as required by the standard. The adjustment recorded at adoption was within an approximate range of $1.4 million to the overall allowance for credit losses or stockholders' equity as compared to December 31, 2022 and consisted of adjustments to the allowance for credit losses on loans, as well as an adjustment to the Company's reserve for unfunded loan commitments. Subsequent to adoption, the Company will record adjustments to its allowance for credit losses and reserves for unfunded commitments through the provision for credit losses in the consolidated statements of income.

The Company is utilizing a third-party model to tabulate its estimate of current expected credit losses, using the average historical loss methodology. In accordance with ASC 326, the Company has segmented its loan portfolio based on call report categories. The Company primarily utilizes historical loss rates for the CECL calculation based on Company-specific historical losses and supplemented with peer loss history where applicable. For its reasonable and supportable forecasting of current expected credit losses, the Company analyzed a simple regression using forecasted economic metrics and historical peer loss data. To further adjust the allowance for credit losses for expected losses not already included within the quantitative component of the calculation, the Company may consider the following qualitative adjustment factors: economic conditions, concentration of credit, ability of staff, loan review, trends in loan quality, policy changes, collateral, and changes in nature and/or volume of loans. The Company's Current Expected Credit Losses ("CECL") implementation process was overseen by a CECL implementation committee overseen by the Chief Credit Officer and included an assessment of data availability and gap analysis, data collection, consideration and analysis of multiple loss estimation methodologies, an assessment of relevant qualitative factors and correlation analysis of multiple potential loss drivers and their impact on the Company's historical loss experience. During 2022, the Company calculated its current expected credit losses model parallel to its incurred loss model in order to further refine the methodology and model. In addition, the Company engaged a third-party to perform a comprehensive model validation.

Effective November 25, 2019, the Securities and Exchange Commission ("SEC") adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with ASC 326. It covers topics including (1) measuring current expected credit losses; (2) development, governance, and documentation of a systematic methodology; (3) documenting the results of a systematic methodology; and (4) validating a systematic methodology.

In March 2020, the FASB issued *ASU No. 2020-04 "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting"* ("Topic 848"). These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. The guidance is effective for

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all entities as of March 12, 2020 through December 31, 2022. Subsequently, in January 2021, the FASB issued *ASU No. 2021-01 "Reference Rate Reform (Topic 848): Scope"*. This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. The Company is assessing ASU 2020-04 and its impact on the Company's transition away from LIBOR for its loan and other financial instruments, and is currently evaluating the effect that ASU 2020-04 will have on the Company's consolidated financial statements*.*

In March 2022, the FASB issued *ASU No. 2022-02, "Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures"* ("ASU 2022-02"). ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for TDRs by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements.

In December 2022, the FASB issued *ASU No. 2022-06, "Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848"* ("ASU 2022-06"). ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848. The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the LIBOR would cease being published. In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848. The ASU is effective for all entities upon issuance. The Company is assessing ASU 2022-06 and its impact on the Company's transition away from LIBOR for its loan and other financial instruments. 

#### Financial Statement Presentation:
Certain amounts in the prior years' financial statements have been reclassified to conform to the current year's presentation.

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#### Note 2. Investment Securities
Investment securities available for sale are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
|  |  | Gross | Gross |  |
|  | Amortized | Unrealized | Unrealized | Fair |
|  | Cost | Gains | Losses | Value |
| Obligations of U.S. Government agencies and corporations | $17115 | $— | $1649 | $15466 |
| Obligations of States and political subdivisions | 29480 | 7 | 2422 | 27065 |
| Mortgage-backed securities | 101626 |  | 12886 | 88740 |
| Subordinated debt investments | 2468 |  | 82 | 2386 |
|  | $150689 | $7 | $17039 | $133657 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
|  |  | Gross | Gross |  |
|  | Amortized | Unrealized | Unrealized | Fair |
|  | Cost | Gains | Losses | Value |
| Obligations of U.S. Government agencies and corporations | $6547 | $46 | $142 | $6451 |
| Obligations of States and political subdivisions | 29792 | 1397 | 63 | 31126 |
| Mortgage-backed securities | 83213 | 279 | 1089 | 82403 |
| Subordinated debt investments | 1990 | 51 |  | 2041 |
|  | $121542 | $1773 | $1294 | $122021 |

---

Gross unrealized losses and fair values, aggregated by investment security category and length of time that individual investment securities have been in a continuous unrealized loss position, at December 31, 2022 and 2021 are as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
|  | Less than 12 months | Less than 12 months | 12 months or more | 12 months or more | Total | Total |
|  | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized |
|  | Value | Loss | Value | Loss | Value | Loss |
| Obligations of U.S. Government agencies and corporations | $12447 | $829 | $3019 | $820 | $15466 | $1649 |
| Obligations of States and political subdivisions | 23975 | 1714 | 1821 | 708 | 25796 | 2422 |
| Mortgage-backed securities | 34133 | 2343 | 54605 | 10543 | 88738 | 12886 |
| Subordinated debt investments | 2136 | 82 |  |  | 2136 | 82 |
| Total investment securities with unrealized losses | $72691 | $4968 | $59445 | $12071 | $132136 | $17039 |

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
|  | Less than 12 months | Less than 12 months | 12 months or more | 12 months or more | Total | Total |
|  | Fair | Unrealized | Fair | Unrealized | Fair | Unrealized |
|  | Value | Loss | Value | Loss | Value | Loss |
| Obligations of U.S. Government agencies and corporations | $1289 | $35 | $2397 | $107 | $3686 | $142 |
| Obligations of States and political subdivisions | 2473 | 63 |  |  | 2473 | 63 |
| Mortgage-backed securities | 59236 | 744 | 11349 | 345 | 70585 | 1089 |
| Total investment securities with unrealized losses | $62998 | $842 | $13746 | $452 | $76744 | $1294 |

---

For individual investment securities classified as either available for sale or held to maturity, the Company must determine whether a decline in fair value below the amortized cost basis is other than temporary. In estimating OTTI losses, management considers, among other things, (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of the issuer, and (iii) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. If the decline in fair value is considered to be other than temporary, the cost basis of the individual investment security shall be written down to the fair value as a new cost basis and the amount of the write-down shall be included in earnings (that is, accounted for as a realized loss).

At December 31, 2022 there were four agency investment securities, five municipal investment securities and twenty-three mortgage-backed investment securities ("MBS") that have been in a continuous unrealized loss position for more than twelve months. Management found no evidence of OTTI on any of these investment securities and believes that the unrealized losses are due to fluctuations in fair values resulting from changes in market interest rates and are considered temporary. As of December 31, 2022, management also believes it has the ability and intent to hold the investment securities for a period of time sufficient for a recovery of their amortized cost basis.

During the year ended December 31, 2022, the Company sold one investment security, resulting in a loss of $5 thousand. During the year ended December 31, 2021, the Company sold fourteen investment securities, resulting in a gain of $17 thousand. Two investment securities either matured or were called during the year ended December 31, 2022, resulting in no gain or loss. Twenty investment securities either matured or were called during the year ended December 31, 2021, resulting in a net gain of $10 thousand.

The Company realized a loss of $222 thousand and $56 thousand on equity securities during the years ended December 31, 2022 and 2021, respectively. These losses are included in "Other expenses" in the Consolidated Statements of Income.

Contractual maturities of investment securities at December 31, 2022 and 2021 are shown below. Actual maturities may differ from contractual maturities because debtors may have the right to call or prepay obligations with or without call or prepayment penalties. MBS investment securities have no stated maturity and primarily reflect investments in various Pass-through and Participation Certificates issued by the Federal National Mortgage Association and the Government National Mortgage Association. Repayment of MBS investment securities is affected by the contractual repayment terms of the underlying mortgages collateralizing these obligations and the current level of interest rates.

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The following is a summary of maturities, calls, or repricing of investment securities available for sale:

---

| | | |
|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 |
|  | Securities Available for Sale | Securities Available for Sale |
|  | *Dollars in Thousands* | *Dollars in Thousands* |
|  | Amortized | Fair |
|  | Cost | Value |
| Due in one year or less | $1 | $1 |
| Due after one year through five years | 13651 | 13339 |
| Due after five years through ten years | 45333 | 42170 |
| Due after ten years or more | 91704 | 78147 |
|  | $150689 | $133657 |

---

---

| | | |
|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 |
|  | Securities Available for Sale | Securities Available for Sale |
|  | *Dollars in Thousands* | *Dollars in Thousands* |
|  | Amortized | Fair |
|  | Cost | Value |
| Due in one year or less | $1 | $1 |
| Due after one year through five years | 2739 | 2900 |
| Due after five years through ten years | 22396 | 23026 |
| Due after ten years or more | 96406 | 96094 |
|  | $121542 | $122021 |

---

The Company has pledged certain investment securities as collateral for qualified customers' deposit accounts at December 31, 2022 and 2021 as follows:

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| | | |
|:---|:---|:---|
|  | 2022 | 2021 |
| Amortized cost | $10445 | $11110 |
| Fair value | $9072 | $11199 |

---

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#### Note 3. Loans, Allowance for Credit Losses and Impaired Loans
Major categories of loans as of December 31, 2022 and 2021 are as follows:

---

| | | |
|:---|:---|:---|
| *(Dollars in thousands)* | December 31, 2022 | December 31, 2021 |
| Originated Loans |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Real Estate Mortgage |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Construction and land development | $117256 | $107478 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Residential real estate | 204211 | 159701 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonresidential | 633910 | 513873 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Home equity loans | 22866 | 19246 |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial | 115221 | 109470 |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer and other loans | 2554 | 3546 |
|  | 1096018 | 913314 |
| Acquired Loans |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Real Estate Mortgage |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Construction and land development | $40 | $505 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Residential real estate | 25693 | 41529 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonresidential | 88710 | 128344 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Home equity loans | 8579 | 11149 |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial | 13332 | 21438 |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer and other loans | 494 | 916 |
|  | 136848 | 203881 |
| Total Loans |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Real Estate Mortgage |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Construction and land development | $117296 | $107983 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Residential real estate | 229904 | 201230 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Nonresidential | 722620 | 642217 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Home equity loans | 31445 | 30395 |
| &nbsp;&nbsp;&nbsp;&nbsp;Commercial | 128553 | 130908 |
| &nbsp;&nbsp;&nbsp;&nbsp;Consumer and other loans | 3048 | 4462 |
|  | 1232866 | 1117195 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Less: Allowance for credit losses | (14315) | (14656) |
|  | $1218551 | $1102539 |

---

Allowance for Credit Losses

Management has an established methodology to determine the adequacy of the allowance for credit losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for credit losses, the Company has segmented the loan portfolio into the following classifications:

● Real Estate Mortgage (which includes Construction and Land Development, Residential Real Estate, Nonresidential Real Estate and Home Equity Loans)

● Commercial

● Consumer and other loans

Each of these segments are reviewed and analyzed quarterly using historical charge-off experience for their respective segments as well as the following qualitative factors:

● Changes in the levels and trends in delinquencies, nonaccruals, classified assets and TDRs

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● Changes in the value of underlying collateral

● Changes in the nature and volume of the portfolio

● Effects of any changes in lending policies, procedures, including underwriting standards and collections, charge off and recovery practices

● Changes in the experience, depth and ability of management

● Changes in the national and local economic conditions and developments, including the condition of various market segments

● Changes in the concentration of credits within each pool

● Changes in the quality of the Company's loan review system and the degree of oversight by the Company's Board of Directors

● Changes in external factors such as competition and the legal environment

The above factors result in a FASB ASC 450-10-20, calculated reserve for environmental factors.

All credit exposures graded at a rating of "non-pass" with outstanding balances less than or equal to $250 thousand and credit exposures graded at a rating of "pass" are reviewed and analyzed quarterly using historical charge-off experience for their respective segments as well as the qualitative factors discussed above. The historical charge-off experience is further adjusted based on delinquency risk trend assessments and concentration risk assessments.

All credit exposures graded at a rating of "non-pass" with outstanding balances greater than $250 thousand, as well as any loans considered TDRs, are to be reviewed no less than quarterly for the purpose of determining if a specific allocation is needed for that credit. The determination for a specific reserve is measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling cost when foreclosure is probable, instead of discounted cash flows. If management determines that the value of the loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for credit losses estimate or a charge-off to the allowance for credit losses.

The establishment of a specific reserve does not necessarily mean that the credit with the specific reserve will definitely incur loss at the reserve level. It is only an estimation of potential loss based upon known events that are subject to change. A specific reserve will not be established unless loss elements can be determined and quantified based on known facts. The total allowance for credit losses reflects management's estimate of loan losses inherent in the loan portfolio as of December 31, 2022 and 2021.

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The following tables include impairment information relating to loans and the allowance for credit losses as of December 31, 2022 and 2021:

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage |  |  |  |  |
|  | Construction |  |  |  |  |  |  |  |
|  | and Land | Residential |  |  |  | Consumer |  |  |
| *Dollars in Thousands* | Development | Real Estate | Nonresidential | Home Equity | Commercial | and Other | Unallocated | Total |
| Balance at December 31, 2022 |  |  |  |  |  |  |  |  |
| Purchased credit impaired loans |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance in allowance | $— | $— | $— | $— | $— | $— | $— | $— |
| &nbsp;&nbsp;&nbsp;&nbsp;Related loan balance |  | 696 | 352 |  | 8 |  |  | 1056 |
| Individually evaluated for impairment: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance in allowance | $8 | $— | $— | $— | $282 | $— | $— | $290 |
| &nbsp;&nbsp;&nbsp;&nbsp;Related loan balance | 259 | 1748 | 2442 | 54 | 326 |  |  | 4829 |
| Collectively evaluated for impairment: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance in allowance | $1072 | $2059 | $8637 | $249 | $1636 | $76 | $296 | $14025 |
| &nbsp;&nbsp;&nbsp;&nbsp;Related loan balance | 117037 | 227460 | 719826 | 31391 | 128219 | 3048 |  | 1226981 |

---

Note: The balances above include unamortized discounts on acquired loans of $1.7 million.

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage |  |  |  |  |
|  | Construction |  |  |  |  |  |  |  |
|  | and Land | Residential |  |  |  | Consumer |  |  |
| *Dollars in Thousands* | Development | Real Estate | Nonresidential | Home Equity | Commercial | and Other | Unallocated | Total |
| Balance at December 31, 2021 |  |  |  |  |  |  |  |  |
| Purchased credit impaired loans |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance in allowance | $— | $9 | $— | $— | $— | $— | $— | $9 |
| &nbsp;&nbsp;&nbsp;&nbsp;Related loan balance | 46 | 1633 | 376 |  | 126 |  |  | 2181 |
| Individually evaluated for impairment: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance in allowance | $— | $3 | $1000 | $— | $452 | $— | $— | $1455 |
| &nbsp;&nbsp;&nbsp;&nbsp;Related loan balance | 598 | 2082 | 9901 | 53 | 584 |  |  | 13218 |
| Collectively evaluated for impairment: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Balance in allowance | $1143 | $1881 | $8239 | $212 | $1433 | $36 | $248 | $13192 |
| &nbsp;&nbsp;&nbsp;&nbsp;Related loan balance | 107339 | 197515 | 631940 | 30342 | 130198 | 4462 |  | 1101796 |

---

Note: The balances above include unamortized discounts on acquired loans of $2.3 million.

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class at December 31, 2022 and 2021. Allocation of a portion of the allowance for credit losses to one loan class does not preclude its availability to absorb losses in other loan classes.

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage |  |  |  |  |
|  | Construction |  |  |  |  |  |  |  |
|  | and Land | Residential |  |  |  | Consumer |  |  |
| *Dollars in Thousands* | Development | Real Estate | Nonresidential | Home Equity | Commercial | and Other | Unallocated | Total |
| Year Ended  |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;Beginning Balance | $1143 | $1893 | $9239 | $212 | $1885 | $36 | $248 | $14656 |
| &nbsp;&nbsp;&nbsp;&nbsp;Charge-offs | (13) |  | (1555) | (27) | (182) | (72) |  | (1849) |
| &nbsp;&nbsp;&nbsp;&nbsp;Recoveries | 1 | 59 | 23 | 9 | 20 | 48 |  | 160 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision/(recovery) | (51) | 107 | 930 | 55 | 195 | 64 | 48 | 1348 |
| &nbsp;&nbsp;Ending Balance | $1080 | $2059 | $8637 | $249 | $1918 | $76 | $296 | $14315 |

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| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage |  |  |  |  |
|  | Construction |  |  |  |  |  |  |  |
|  | and Land | Residential |  |  |  | Consumer |  |  |
| *Dollars in Thousands* | Development | Real Estate | Nonresidential | Home Equity | Commercial | and Other | Unallocated | Total |
| Year Ended |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;Beginning Balance | $903 | $2351 | $7584 | $271 | $1943 | $37 | $114 | $13203 |
| &nbsp;&nbsp;&nbsp;&nbsp;Charge-offs |  | (39) | (692) | (7) | (184) | (66) |  | (988) |
| &nbsp;&nbsp;&nbsp;&nbsp;Recoveries | 1 | 23 | 53 | 3 | 16 | 22 |  | 118 |
| &nbsp;&nbsp;&nbsp;&nbsp;Provision/(recovery) | 239 | (442) | 2294 | (55) | 110 | 43 | 134 | 2323 |
| &nbsp;&nbsp;Ending Balance | $1143 | $1893 | $9239 | $212 | $1885 | $36 | $248 | $14656 |

---

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") was signed into law, which established the Paycheck Protection Program ("PPP") and allocated $349.0 billion of loans to be issued by financial institutions. Under the program, the Small Business Administration ("SBA") will forgive loans, in whole or in part, made by approved lenders to eligible borrowers for paycheck and other permitted purposes in accordance with the requirements of the program. These loans carry a fixed rate of 1.00% and a term of two years, if not forgiven, in whole or in part. The loans are 100% guaranteed by the SBA and payments are deferred for the first six months of the loan. The Company received a processing fee ranging from 1% to 5% based on the size of the loan from the SBA. The PPP and Health Care Enhancement Act ("HCEA Act") was signed into law on April 24, 2020. The PPP/HCEA Act authorized additional funding under the CARES Act of $310.0 billion for PPP loans to be issued by financial institutions through the SBA. The Company provided $95.1 million in funding to over 1,130 customers through the PPP, of which none remained outstanding as of December 31, 2022. Because these loans were 100% guaranteed by the SBA and did not undergo the Company's typical underwriting process, they were not graded and did not have an associated allocation for credit losses at that time.

Credit Quality Information

The following tables represent credit exposures by creditworthiness category for the years ending December 31, 2022 and 2021. The use of creditworthiness categories to grade loans permits management to estimate a portion of credit risk. The Company's internal creditworthiness is based on experience with similarly graded credits. The Company uses the definitions below for categorizing and managing its criticized loans. Loans categorized as "Pass" do not meet the criteria set forth below and are not considered criticized.

Marginal — Loans in this category are presently protected from loss, but weaknesses are apparent which, if not corrected, could cause future problems. Loans in this category may not meet required underwriting criteria and have no mitigating factors. More than the ordinary amount of attention is warranted for these loans.

Substandard — Loans in this category exhibit well-defined weaknesses that would typically bring normal repayment into jeopardy. These loans are no longer adequately protected due to well-defined weaknesses that affect the repayment capacity of the borrower. The possibility of loss is much more evident and above average supervision is required for these loans.

Doubtful — Loans in this category have all the weaknesses inherent in a loan categorized as Substandard, with the characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss — Loans in this category are of little value and are not warranted as a bankable asset.

Nonaccruals

In general, a loan will be placed on nonaccrual status at the end of the reporting month in which the interest or principal is past due more than 90 days. Exceptions to the policy are those loans that are in the process of collection and are well-secured. A well-secured loan is secured by collateral with sufficient market value to repay principal and all accrued interest.

[**Table of Contents**](#TOC)

A summary of loans by risk rating is as follows:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage |  |  |  |
|  | Construction & |  |  |  |  |  |  |
|  | Land | Residential |  |  |  | Consumer & |  |
| December 31, 2022 | Development | Real Estate | Nonresidential | Home Equity | Commercial | Other | Total |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Pass | $117037 | $228217 | $721225 | $31347 | $127241 | $2700 | $1227767 |
| Marginal |  |  | 872 |  | 985 | 348 | 2205 |
| Substandard | 259 | 1687 | 523 | 98 | 327 |  | 2894 |
| TOTAL | $117296 | $229904 | $722620 | $31445 | $128553 | $3048 | $1232866 |
| Nonaccrual | $259 | $1263 | $305 | $— | $327 | $— | $2154 |

---

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage |  |  |  |
|  | Construction & |  |  |  |  |  |  |
|  | Land | Residential |  |  |  | Consumer & |  |
| December 31, 2021 | Development | Real Estate | Nonresidential | Home Equity | Commercial | Other | Total |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Pass | $107339 | $199037 | $622648 | $30159 | $128949 | $3960 | $1092092 |
| Marginal | 46 | 507 | 12819 | 183 | 1364 | 502 | 15421 |
| Substandard | 598 | 1686 | 6750 | 53 | 595 |  | 9682 |
| TOTAL | $107983 | $201230 | $642217 | $30395 | $130908 | $4462 | $1117195 |
| Nonaccrual | $598 | $1293 | $6486 | $— | $584 | $— | $8961 |

---

A summary of loans that were modified under the terms of a TDR during the years ended December 31, 2022 and 2021 is shown below by class. The post-modification recorded balance reflects the period end balances, inclusive of any interest capitalized to principal, partial principal pay-downs, and principal charge-offs since the modification date. Loans modified as TDRs that were fully paid down, charged-off, or foreclosed upon by period end are not reported.

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | Real Estate Mortgage | | | |
|  | Construction &<br>Land<br>Development | <br>Residential<br>Real Estate | <br><br>Nonresidential | <br><br>Home Equity | <br><br>Commercial | <br>Consumer &<br>Other | <br>Total |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Year ended December 31, 2022 |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Number of loans modified during the period |  | 1 |  |  |  |  | 1 |
| &nbsp;&nbsp;&nbsp;&nbsp;Pre-modification recorded balance | $— | $48 | $— | $— | $— | $— | $48 |
| &nbsp;&nbsp;&nbsp;&nbsp;Post- modification recorded balance |  | 48 |  |  |  |  | 48 |
| Year ended December 31, 2021 |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Number of loans modified during the period |  |  | 2 |  |  |  | 2 |
| &nbsp;&nbsp;&nbsp;&nbsp;Pre-modification recorded balance | $— | $— | $3185 | $— | $— | $— | $3185 |
| &nbsp;&nbsp;&nbsp;&nbsp;Post- modification recorded balance |  |  | 2905 |  |  |  | 2905 |

---

During the years ended December 31, 2022 and 2021, there were no loans modified as a TDR that subsequently defaulted which had been modified as a TDR during the twelve months prior to default.

There were no loans secured by 1-4 family residential properties that were in the process of foreclosure at December 31, 2022. There were two loans secured by 1-4 family residential properties with an aggregate balance of $345 thousand that were in the process of foreclosure at December 31, 2021.

[**Table of Contents**](#TOC)

The following table includes an aging analysis of the recorded investment of past due loans as of December 31, 2022 and 2021:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  |  |  | Recorded |
|  |  |  |  |  |  |  | Investment |
|  |  |  | Greater than |  |  |  | >90 Days |
|  | 30 - 59 Days | 60 - 89 Days | 90 Days | Total | Current | Total  | Past Due |
| At December 31, 2022 | Past Due \* | Past Due  | Past Due\*\* | Past Due | Balance\*\*\* | Loans | and Accruing |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Real Estate Mortgage |  |  |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $— | $— | $259 | $259 | $117037 | $117296 | $— |
| &nbsp;&nbsp;Residential real estate | 949 | 225 | 51 | 1225 | 228679 | 229904 |  |
| &nbsp;&nbsp;Nonresidential | 474 |  | 305 | 779 | 721841 | 722620 |  |
| &nbsp;&nbsp;Home equity loans | 54 |  | 45 | 99 | 31346 | 31445 | 45 |
| Commercial |  |  |  |  | 128553 | 128553 |  |
| Consumer and other loans |  | 2 |  | 2 | 3046 | 3048 |  |
| TOTAL | $1477 | $227 | $660 | $2364 | $1230502 | $1232866 | $45 |

---

\*&nbsp;&nbsp;&nbsp;&nbsp; Includes $916 thousand of nonaccrual loans.

\*\* Includes $615 thousand of nonaccrual loans.

\*\*\* Includes $623 thousand of nonaccrual loans.

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  |  |  | Recorded |
|  |  |  |  |  |  |  | Investment |
|  |  |  | Greater than |  |  |  | >90 Days |
|  | 30 - 59 Days | 60 - 89 Days | 90 Days | Total | Current | Total  | Past Due |
| At December 31, 2021 | Past Due\* | Past Due | Past Due\*\* | Past Due | Balance\*\*\* | Loans | and Accruing |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Real Estate Mortgage |  |  |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $— | $— | $598 | $598 | $107385 | $107983 | $— |
| &nbsp;&nbsp;Residential real estate | 658 | 245 | 361 | 1264 | 199966 | 201230 |  |
| &nbsp;&nbsp;Nonresidential |  |  | 2915 | 2915 | 639302 | 642217 |  |
| &nbsp;&nbsp;Home equity loans | 160 |  |  | 160 | 30235 | 30395 |  |
| Commercial | 46 |  | 77 | 123 | 130785 | 130908 |  |
| Consumer and other loans | 15 |  |  | 15 | 4447 | 4462 |  |
| TOTAL | $879 | $245 | $3951 | $5075 | $1112120 | $1117195 | $— |

---

\*&nbsp;&nbsp;&nbsp;&nbsp; Includes $55 thousand of nonaccrual loans.

\*\* Includes $4.0 million of nonaccrual loans.

\*\*\* Includes $5.0 million of nonaccrual loans.

Impaired Loans

Impaired loans are defined as nonaccrual loans, TDRs, PCIs and loans risk rated substandard or above. When management identifies a loan as impaired, the impairment is measured for potential loss based on the present value of expected future cash flows, discounted at the loan's effective interest rate, except when the sole (remaining) source of repayment for the loan is the operation or liquidation of the collateral. In these cases management uses the current fair value of the collateral, less selling cost when foreclosure is probable, instead of discounted cash flows. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allowance for credit losses estimate or a charge-off to the allowance for credit losses.

When the ultimate collectability of the total principal of an impaired loan is in doubt and the loan is on nonaccrual status, all payments are applied to principal, under the cost recovery method. When the ultimate collectability

[**Table of Contents**](#TOC)

of the total principal of an impaired loan is not in doubt and the loan is on nonaccrual status, contractual interest is credited to interest income when received, under the cash basis method.

The following tables include the recorded investment and unpaid principal balance for impaired loans, excluding PCI loans, with the associated allowance amount, if applicable. Also presented are the average recorded investments in the impaired loans and the related amount of interest income recognized during the time within the period that the impaired loans were impaired.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | Unpaid | Interest |  | Average |
|  | Recorded | Principal | Income | Specific | Recorded |
| December 31, 2022 | Investment | Balance | Recognized | Reserve | Investment |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Impaired loans with specific reserves: |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $11 | $24 | $1 | $8 | $18 |
| &nbsp;&nbsp;Residential real estate |  |  |  |  |  |
| &nbsp;&nbsp;Nonresidential  |  |  |  |  |  |
| &nbsp;&nbsp;Home equity loans |  |  |  |  |  |
| Commercial | 326 | 337 | 45 | 282 | 368 |
| Consumer and other loans |  |  |  |  |  |
| Total impaired loans with specific reserves | $337 | $361 | $46 | $290 | $386 |
| Impaired loans with no specific reserve: |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $248 | $248 | $2 | $— | $249 |
| &nbsp;&nbsp;Residential real estate | 1748 | 1748 | 42 |  | 1797 |
| &nbsp;&nbsp;Nonresidential  | 2442 | 2442 | 301 |  | 3932 |
| &nbsp;&nbsp;Home equity loans | 54 | 54 | 2 |  | 53 |
| Commercial |  |  |  |  |  |
| Consumer and other loans |  |  |  |  |  |
| Total impaired loans with no specific reserve | $4492 | $4492 | $347 | $— | $6031 |
| TOTAL | $4829 | $4853 | $393 | $290 | $6417 |

---

Total impaired loans of $4.8 million at December 31, 2022 do not include PCI loan balances of $1.1 million, which are net of a discount of $414 thousand. At December 31, 2022, there were no specific reserves related to PCI loans included in the allowance for credit losses.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  |  | Unpaid | Interest |  | Average |
|  | Recorded | Principal | Income | Specific | Recorded |
| December 31, 2021 | Investment | Balance | Recognized | Reserve | Investment |
|  | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* | *Dollars in Thousands* |
| Impaired loans with specific reserves: |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $— | $— | $— | $— | $— |
| &nbsp;&nbsp;Residential real estate | 426 | 426 | 22 | 3 | 433 |
| &nbsp;&nbsp;Nonresidential  | 6437 | 6559 | 369 | 1000 | 6528 |
| &nbsp;&nbsp;Home equity loans |  |  |  |  |  |
| Commercial | 507 | 517 | 119 | 452 | 583 |
| Consumer and other loans |  |  |  |  |  |
| Total impaired loans with specific reserves | $7370 | $7502 | $510 | $1455 | $7544 |
| Impaired loans with no specific reserve: |  |  |  |  |  |
| Real Estate Mortgage |  |  |  |  |  |
| &nbsp;&nbsp;Construction and land development | $598 | $598 | $13 | $— | $599 |
| &nbsp;&nbsp;Residential real estate | 1656 | 1687 | 26 |  | 1698 |
| &nbsp;&nbsp;Nonresidential  | 3464 | 3462 | 344 |  | 3510 |
| &nbsp;&nbsp;Home equity loans | 53 | 53 | 1 |  | 53 |
| Commercial | 77 | 154 | 2 |  | 109 |
| Consumer and other loans |  |  |  |  |  |
| Total impaired loans with no specific reserve | $5848 | $5954 | $386 | $— | $5969 |
| TOTAL | $13218 | $13456 | $896 | $1455 | $13513 |

---

[**Table of Contents**](#TOC)

Total impaired loans of $13.2 million at December 31, 2021 do not include PCI loan balances of $2.2 million, which are net of a discount of $432 thousand. At December 31, 2021, there was $9 thousand in specific reserves related to PCI loans included in the allowance for credit losses.

All acquired loans were initially recorded at fair value at the acquisition date. The outstanding balance and the carrying amount of acquired loans included in the consolidated balance sheet are as follows:

---

| | | |
|:---|:---|:---|
| *Dollars in Thousands* | December 31, 2022 | December 31, 2021 |
| Accountable for under ASC 310-30 (PCI loans) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Outstanding balance | $1470 | $2613 |
| &nbsp;&nbsp;&nbsp;&nbsp;Carrying amount | 1056 | 2181 |
| Accountable for under ASC 310-20 (non-PCI loans) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Outstanding balance | $137106 | $203596 |
| &nbsp;&nbsp;&nbsp;&nbsp;Carrying amount | 135792 | 201700 |
| Total acquired loans |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Outstanding balance | $138576 | $206209 |
| &nbsp;&nbsp;&nbsp;&nbsp;Carrying amount | 136848 | 203881 |

---

The following table provides changes in accretable yield for all acquired loans accounted for under ASC 310-20:

---

| | | |
|:---|:---|:---|
| *Dollars in Thousands* | December 31, 2022 | December 31, 2021 |
| Balance at beginning of period | $1896 | $3361 |
| Accretion | (582) | (1464) |
| Other changes, net |  | (1) |
| Balance at end of period | $1314 | $1896 |

---

During the years ended December 31, 2022 and 2021, the Company recorded $83 thousand and $36 thousand, respectively, in accretion on acquired loans accounted for under ASC 310-30.

The Company had no commitments to loan additional funds to the borrowers of restructured, impaired, or nonaccrual loans as of December 31, 2022 and 2021.

Concentration of Risk:

The Company makes loans to customers located primarily within Anne Arundel, Charles, Calvert, St. Mary's, Wicomico and Worcester Counties, Maryland, Sussex County, Delaware, Camden and Burlington Counties, New Jersey, the Greater Fredericksburg, Virginia area (Stafford County, Spotsylvania County, King George County, Caroline County, and the City of Fredericksburg, Virginia) and the Greater Washington D.C. area (the District of Columbia, Arlington County, Clarke County, Fairfax County, Fauquier County, Loudoun County, Prince William County, Warren County, and the Cities of Alexandria, Fairfax, Falls Church, Manassas, Manassas Park, and Reston, Virginia). A substantial portion of its loan portfolio consists of residential and commercial real estate mortgages. The ability of the Company's debtors to honor their contracts is dependent upon the real estate and general economic conditions in these areas.

Included in the amounts listed above are loans receivable from directors, principal officers, and stockholders of $25.2 million and $22.0 million at December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, loan additions totaled $9.1 million and $9.8 million, respectively. During the years ended December 31, 2022 and 2021, repayments totaled $5.9 million and $7.6 million, respectively. These loans were made in the ordinary course of business on substantially the same terms and conditions as those prevailing at the same time for comparable transactions with other customers, including interest rates and collateral. They do not involve more than normal risk of collectability or present other unfavorable terms.

[**Table of Contents**](#TOC)

#### Note 4. Premises, Equipment and Depreciation
A summary of premises and equipment, at cost, and accumulated depreciation as of December 31, 2022 and 2021 is as follows:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| Land | $3022 | $3022 |
| Buildings and improvements | 13862 | 13995 |
| Furniture and equipment | 16049 | 16136 |
| Total premises and equipment | 32933 | 33153 |
| Less: accumulated depreciation | 18076 | 16978 |
| Net premises and equipment | $14857 | $16175 |

---

Depreciation expense totaled $1.8 million and $1.7 million for the years ended December 31, 2022 and 2021, respectively.

#### Note 5. Income Taxes
Components of income tax expense for the years ended December 31, 2022 and 2021 are as follows:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| Current |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal | $2653 | $1520 |
| &nbsp;&nbsp;&nbsp;&nbsp;State | 893 | 432 |
| Total current | 3546 | 1952 |
| Deferred income tax benefits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal | 702 | 77 |
| &nbsp;&nbsp;&nbsp;&nbsp;State | 264 | 218 |
| Total deferred | 966 | 295 |
| Income tax expense | $4512 | $2247 |

---

A reconciliation of tax computed at the Federal statutory income tax rate of 21% to the actual income tax expense for the years ended December 31, 2022 and 2021 are as follows:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| Tax at Federal statutory income tax rate | $3780 | $2129 |
| Tax effect of: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Tax exempt income | (248) | (323) |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | 39 | 29 |
| &nbsp;&nbsp;&nbsp;&nbsp;Noncontrolling interest | 27 | (102) |
| State income taxes, net of Federal tax benefit | 914 | 514 |
| Income tax expense | $4512 | $2247 |

---

[**Table of Contents**](#TOC)

Deferred income tax assets and liabilities included in the consolidated balance sheets as of December 31, 2022 and 2021 are as follows:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| &nbsp;&nbsp;Deferred income tax assets: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Allowance for credit losses, unfunded commitments, and nonaccrual interest | $3835 | $3970 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net operating loss carryforward | 838 | 632 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated amortization on intangibles | 5 | 13 |
| &nbsp;&nbsp;&nbsp;&nbsp;Lease liability | 1817 | 2061 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net losses on other real estate owned |  | 549 |
| &nbsp;&nbsp;&nbsp;&nbsp;Stock option expense | 11 | 23 |
| &nbsp;&nbsp;&nbsp;&nbsp;Discounts on acquired loans | 389 | 522 |
| &nbsp;&nbsp;&nbsp;&nbsp;Merger costs |  | 254 |
| &nbsp;&nbsp;&nbsp;&nbsp;Realized gain or loss on investments | 78 | 21 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net unrealized loss on securities available for sale | 3950 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Other | 64 | 77 |
|  | 10987 | 8122 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Valuation allowance | (838) | (632) |
|  | 10149 | 7490 |
| Deferred income tax liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated depreciation | 173 | 117 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated amortization on core deposit intangible | 367 | 489 |
| &nbsp;&nbsp;&nbsp;&nbsp;Deferred gain | 132 | 132 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net unrealized gain on securities available for sale |  | 165 |
| &nbsp;&nbsp;&nbsp;&nbsp;Right of use assets | 1613 | 1872 |
|  | 2285 | 2775 |
| Net deferred income tax asset | $7864 | $4715 |

---

The Company has a state net operating loss of approximately $8.1 million. Losses incurred through December 31, 2017 have a 20 year life. Losses incurred in 2018 and after do not expire. Management has determined that this deferred tax asset will not be realizable in the future, and accordingly has recorded a valuation allowance of $838 thousand as of December 31, 2022, the full value of the state net operating loss carryforward included in the deferred tax asset. Except for state net operating loss carryforwards at the Company, management has determined that no other valuation allowance is required as it is more likely than not that the other deferred tax assets will be fully realizable in the future.

At December 31, 2022 and 2021, management believes there are no uncertain tax positions under *ASC Topic 740 Income Taxes ("ASC 740")*. The Company's Federal and state income tax returns are subject to examination by the Internal Revenue Service ("IRS") and/or state tax authorities. The tax years that remain subject to examination by the Federal government, the State of Maryland, and the Commonwealth of Virginia include the tax years ended December 31, 2019 and after. The tax years that remain subject to examination by the State of New Jersey include the tax years ended December 31, 2018 and after. The Company's policy is to record interest and penalties as a component of income tax expense.

The Inflation Reduction Act of 2022 (the "IR Act") was signed into legislation on August 16, 2022. The IR Act includes provisions that extend the expanded Affordable Care Act health plan premium assistance program through 2025, impose an excise tax on stock buybacks, increase funding for IRS tax enforcement, expand energy incentives, and impose a corporate minimum tax. The Company has evaluated such provisions and determined that the impact of the IR Act on the income tax provision and deferred tax assets as of December 31, 2022 was not material.

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#### Note 6. Deposits
Time deposits and their remaining maturities at December 31, 2022 are as follows (dollars in thousands):

---

| | |
|:---|:---|
| 2023 | $159831 |
| 2024 | 62951 |
| 2025 | 17392 |
| 2026 | 11654 |
| 2027 | 5672 |
| Thereafter | 10 |
| Total time deposits | $257510 |

---

Interest expense on deposits for the years ended December 31, 2022 and 2021 is as follows:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| NOW | $343 | $441 |
| Money market | 605 | 626 |
| Savings | 226 | 201 |
| Time, $100 thousand or more | 2019 | 3565 |
| Other time | 1461 | 1843 |
|  | $4654 | $6676 |

---

The approximate amount of certificates of deposit of $250 thousand or more was $59.2 million and $83.3 million at December 31, 2022 and 2021, respectively.

Deposit balances of officers and directors and their affiliated interests totaled approximately $23.0 million and $20.4 million as of December 31, 2022 and 2021, respectively.

Deposit accounts in an overdraft position included as loans on the Consolidated Balance Sheets totaled approximately $108 thousand and $124 thousand as of December 31, 2022 and 2021, respectively.

Some of the Company's certificates of deposit are through participation in the Certificate of Deposit Account Registry Service ("CDARS"). CDARS totaled $1.6 million at December 31, 2022 and 2021.

#### Note 7. Other Income
Other income consists of the following for the years ended December 31, 2022 and 2021:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| Bank owned life insurance | $452 | $413 |
| Safe deposit box rentals | 59 | 63 |
| Mortgage division fees | 300 | 831 |
| Visa debit income | 1300 | 1319 |
| Other noninterest income | 905 | 1098 |
|  | $3016 | $3724 |

---

#### Note 8. Borrowings and Notes Payable
The Company owns capital stock of the FHLB as a condition for $412.0 million in convertible advance credit facilities from the FHLB. As of December 31, 2022, the Company had remaining credit availability of $350.2 million under these facilities.

[**Table of Contents**](#TOC)

The following table details the advances the Company had outstanding with the FHLB at December 31, 2022 and 2021:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
| &nbsp;&nbsp;*Dollars in Thousands* | Outstanding Balance | Interest Rate | Maturity Date | Interest Payment |
| Fixed rate hybrid | $9900 | 1.29% | March 2024 | Fixed, paid quarterly |
| Fixed rate hybrid | 9900 | 1.29% | March 2024 | Fixed, paid quarterly |
| Daily Rate Credit | 42000 | 4.57% | December 2023 | Variable, paid daily |
| Total advances | $61800 |  |  |  |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, 2021 | December 31, 2021 | December 31, 2021 | December 31, 2021 |
| &nbsp;&nbsp;*Dollars in Thousands* | Outstanding Balance | Interest Rate | Maturity Date | Interest Payment |
| Fixed rate hybrid | $5000 | 3.15% | October 2022 | Fixed, paid monthly |
| Principal reducing credit | 536 | 1.62% | March 2023 | Fixed, paid quarterly |
| Fixed rate hybrid | 9900 | 1.29% | March 2024 | Fixed, paid quarterly |
| Fixed rate hybrid | 9900 | 1.29% | March 2024 | Fixed, paid quarterly |
| Principal reducing credit | 977 | 1.99% | March 2026 | Fixed, paid quarterly |
| Total advances | $26313 |  |  |  |

---

The Company had short-term borrowings outstanding with the FHLB of $42.0 million at December 31, 2022. Average short-term borrowings outstanding under the FHLB approximated $263 thousand during the year ended December 31, 2022. The Company did not have any short-term borrowings outstanding with the FHLB during the year ended December 31, 2021. Borrowings with the FHLB are considered short-term if they have an original maturity of less than a year.

The Company has pledged a portion of its residential and commercial mortgage loan portfolio as collateral for these credit facilities. The Lendable Collateral Value outstanding on these pledged loans totaled approximately $296.7 million and $181.8 million at December 31, 2022 and 2021, respectively.

The Company prepaid two of its outstanding FHLB advances totaling $910 thousand during the year ended December 31, 2022, which resulted in the recognition of $2 thousand in prepayment fees included in the "Other Expenses" section of "Noninterest Expense" in the Consolidated Statements of Income.

In addition to the FHLB credit facility, in October 2015, the Company entered into a subordinated loan agreement for an aggregate principal amount of $2.0 million, net of issuance costs. Interest-only payments were due quarterly at 6.71% per annum, and the outstanding principal balance would have matured in October 2025. During July 2021, the prepayment provisions in the subordinated loan agreement were exercised, and the principal balance and any remaining accrued interest of this subordinated debt were paid in full. In January 2018, the Company entered into a subordinated loan agreement for an aggregate principal amount of $4.5 million, net of issuance costs, to fund the acquisition of Liberty. Interest-only payments are due quarterly at 6.875% per annum, and the outstanding principal balance matures in April 2028. In June 2020, the Company entered into a subordinated loan agreement for an aggregate principal amount of $18.1 million, net of issuance costs, to provide capital to support organic growth or growth through strategic acquisitions and capital expenditures. The subordinated notes will initially bear interest at 6.000% per annum, beginning June 25, 2020 to but excluding July 1, 2025, payable semi-annually in arrears. From and including July 1, 2025 to but excluding July 1, 2030, or up to an early redemption date, the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 590 basis points, payable quarterly in arrears. Beginning on July 1, 2025 through maturity, the subordinated notes may be redeemed, at the Company's option, on any scheduled interest payment date. The subordinated notes will mature on July 1, 2030. The subordinated notes are subject to customary representations, warranties and covenants made by the Company and the purchasers.

Partners owns a one-half undivided interest in 410 William Street, Fredericksburg, Virginia. Partners purchased a one-half interest in the land for cash, plus additional settlement costs, and assumption of one-half of the

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remaining deed of trust loan on December 14, 2012. Partners indemnified the indemnities, who are the personal guarantors of the deed of trust loan in the amount of $886 thousand, which was one-half of the outstanding balance of the loan as of the purchase date. Partners has a remaining obligation under the note payable of $630 thousand as of December 31, 2022, and is carried on the balance sheet net of a discount of approximately $16 thousand. Partners had a remaining obligation under the note payable of $655 thousand as of December 31, 2021, which was carried on the balance sheet net of a discount of $20 thousand. The loan was refinanced on April 30, 2015 with a twenty-five year amortization. The interest rate is fixed at 3.60% for the first 10 years, and then becomes a variable rate of 3.0% plus the 10 year Treasury rate until maturity.

The Company provides JMC with a warehouse line of credit, which is eliminated in consolidation. In addition, JMC has a warehouse line of credit with another financial institution in the amount of $3.0 million. The interest rate is the weekly average of the one month LIBOR plus 2.250%, rounded to the nearest 0.125% (7.250% at December 31, 2022). The rate is subject to change the first of every month. Amounts borrowed are collateralized by a security interest in the mortgage loans financed under the line and are payable upon demand. The warehouse line of credit is set to renew or mature on March 1, 2023. There was no balance outstanding on the warehouse line of credit as of December 31, 2022, and the balance outstanding at December 31, 2021 was $120 thousand. Interest expense on the warehouse lines of credit was $62 thousand and $104 thousand during the years ended December 31, 2022 and 2021, respectively.

During the second quarter of 2020, in connection with the loans originated as part of the PPP, the Company borrowed under the FRB's PPP Liquidity Facility ("PPPLF"). Under the terms of the PPPLF, the Company could borrow funds which were secured by the Company's PPP loans. During the first quarter of 2021, the Company used a portion of its excess cash and cash equivalents to repay all borrowings that were previously outstanding under the PPPLF. As of December 31, 2022 and 2021, the Company did not have any outstanding advances under the PPPLF. The interest rate on the advances was fixed at a rate of 0.35% through the advance maturities which ranged from April 2022 to June 2025.

The proceeds of these long-term borrowings were generally used to purchase higher yielding investment securities, fund additional loans, redeem preferred stock, or fund acquisitions. Additionally, the Company has secured credit availability of $5.0 million and unsecured credit availability of $117.0 million with various correspondent banks for short-term liquidity needs, if necessary. The secured facility must be collateralized by specific securities at the time of any usage. At December 31, 2022, there were no borrowings outstanding, and securities pledged under this secured credit facility had an amortized cost and fair value of $3 thousand. At December 31, 2021, there were no borrowings outstanding, and securities pledged under this secured credit facility had an amortized cost and fair value of $4 thousand and $5 thousand, respectively.

The Company has pledged investment securities available for sale with a combined amortized cost and fair value of $3.4 million and $2.8 million, respectively, at December 31, 2022, and a combined amortized cost and fair value of $3.7 million at December 31, 2021 with the FRB to secure Discount Window borrowings. At December 31, 2022 and 2021, there were no outstanding borrowings under these facilities.

Maturities on debt are as follows (dollars in thousands):

---

| | |
|:---|:---|
| 2023 | $41977 |
| 2024 | 19778 |
| 2025 |  |
| 2026 |  |
| 2027 |  |
| Thereafter | 22873 |
|  | $84628 |

---

#### Note 9. Profit Sharing Plan
The Company, Delmarva and Partners have a defined contribution 401(k) profit sharing plan covering substantially all full-time employees. Under the 401(k) profit sharing plan, the Company, Delmarva and Partners are

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currently matching 50% of employee contributions up to 6% of their compensation as defined under the plan. Additional employer contributions are at the discretion of the Board of Directors. The Company's contributions to this plan totaled $374 thousand and $380 thousand, for the years ended December 31, 2022 and 2021, respectively.

#### Note 10. Lease Commitment
The Company accounts for leases in accordance with *ASU 2016-02, Leases (Topic 842)* ("ASC 2016-02"). The Company leases seventeen locations for administrative and loan production offices and branch locations.Fifteen leases were classified as operating leases and two leases were classified as finance leases. Leases with an initial term of 12 months or less as well as leases with a discounted present value of future cash flows below $25 thousand are not recorded on the balance sheet and the related lease expense is recognized over the lease term. The Company elected to use the practical expedient to not recognize short-term leases on the consolidated balance sheet and instead account for them as executory contracts.

Certain leases include options to renew, with renewal terms that can extend the lease term, typically for five years. Leased assets and liabilities include related options that are reasonably certain of being exercised. The Company has determined that it will place a limit on exercises of available lease renewal options that would extend the lease term up to a maximum of fifteen years, including the initial term. The depreciable life of leased assets are limited by the expected lease term.

The following tables present information about the Company's leases for the years ended:

---

| | | |
|:---|:---|:---|
| *Dollars in Thousands* | December 31, 2022 | December 31, 2021 |
| Balance Sheet |  |  |
| &nbsp;&nbsp;Operating Lease Amounts |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Right-of-use asset  | $5065 | $6009 |
| &nbsp;&nbsp;&nbsp;&nbsp;Lease liability  | 5465 | 6372 |
| &nbsp;&nbsp;Finance Lease Amounts |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Right-of-use asset  | $1550 | $1687 |
| &nbsp;&nbsp;&nbsp;&nbsp;Lease liability  | 2006 | 2125 |
| Supplemental balance sheet information |  |  |
| &nbsp;&nbsp;Weighted average lease term - Operating Leases (Yrs.) | 7.59 | 7.99 |
| &nbsp;&nbsp;Weighted average lease term - Finance Leases (Yrs.) | 11.05 | 12.09 |
| &nbsp;&nbsp;Weighted average discount rate - Operating Leases (1) | 2.31% | 2.24% |
| &nbsp;&nbsp;Weighted average discount rate - Finance Leases (1) | 2.84% | 2.84% |
| Income Statement |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Operating lease cost classified as premises and equipment | $1145 | $976 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Finance lease cost classified as interest on borrowings | 59 | 62 |
| Operating outgoing cash flows from operating leases | $1094 | $884 |
| Operating outgoing cash flows from finance leases | $178 | $178 |

---

(1) The discount rate was developed by using the fixed rate credit advance borrowing rate at the FHLB for a term correlating to the remaining term of each lease. Management believes this rate closely mirrors its incremental borrowing rate for similar terms.

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Minimum lease payments at December 31, 2022, for the next five years and thereafter, assuming renewal options are exercised, are approximately as follows:

---

| | |
|:---|:---|
|  | *Dollars in Thousands* |
| Operating Leases: |  |
| &nbsp;&nbsp;One year or less | $925 |
| &nbsp;&nbsp;One to three years | 1394 |
| &nbsp;&nbsp;Three to five years | 1044 |
| &nbsp;&nbsp;Over 5 years | 2782 |
| Total undiscounted cash flows | 6145 |
| Less: Discount | (680) |
| Lease Liabilities | $5465 |
| Finance Leases: |  |
| &nbsp;&nbsp;One year or less | $188 |
| &nbsp;&nbsp;One to three years | 396 |
| &nbsp;&nbsp;Three to five years | 407 |
| &nbsp;&nbsp;Over 5 years | 1366 |
| Total undiscounted cash flows | 2357 |
| Less: Discount | (351) |
| Lease Liabilities | $2006 |

---

#### Note 11. Other Operating Expenses
Other operating expenses include the following for the years ended December 31, 2022 and 2021:

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| Professional services | $727 | $769 |
| Stationary, printing and supplies | 212 | 273 |
| Postage and delivery | 257 | 197 |
| FDIC assessment | 927 | 904 |
| State bank assessment | 60 | 66 |
| Directors fees and expenses | 693 | 742 |
| Marketing | 489 | 443 |
| Correspondent bank services | 101 | 122 |
| ATM expenses | 1112 | 1030 |
| Telephones and mobile devices | 816 | 806 |
| Membership dues and fees | 123 | 128 |
| Legal fees | 337 | 562 |
| Audit and related professional fees | 470 | 358 |
| Insurance | 265 | 267 |
| Listing Fees | 59 | 58 |
| Other | 5134 | 5334 |
|  | $11782 | $12059 |

---

A director of the Company and Partners also provides consulting services to Partners to support the bank's expansion efforts into the Greater Washington and Northern Virginia markets, a geography in which the director has substantial experience. The director is entitled to receive total compensation of $120 thousand per year for his service as a director of the Company and Partners and for his service as a consultant to Partners. The amount of the consulting fee paid by Partners each year will be equal to the difference between $120 thousand and the combined annual retainer and meeting fee compensation earned as a director of the Company and Partners for that year. For the years ending

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December 31, 2022 and 2021, Partners paid $90 thousand and $82 thousand, respectively, to this director for his consulting services, which is included in "Professional services" in the table above.

#### Note 12. Stock Option Plans
*Liberty Stock Option Plans*

In 2004 Liberty adopted the 2004 Incentive Stock Option Plan and the 2004 Non-Qualified Stock Option Plan, which were stock-based incentive compensation plans (the "Liberty Plans"). In February 2014 the Liberty Plans expired pursuant to their terms. Options under these plans had a 10 year life and vested over 5 years. Remaining options under these plans became fully vested with the signing of the Agreement of Merger with the Company in February 2018. In accordance with the terms of the Agreement of Merger between the Company and Liberty, the Liberty Plans were assumed by the Company, and the options were converted into and became an option to purchase an adjusted number of shares of the common stock of the Company at an adjusted exercise price per share. The number of shares was determined by multiplying the number of shares of Liberty common stock for which the option was exercisable by the number of shares of the Company common stock into which shares of Liberty common stock were convertible in the Agreement of Merger, which was 0.2857 (the "Conversion Ratio"), rounded to the next lower whole share. The exercise price was determined by dividing the exercise price per share of Liberty common stock by the Conversion Ratio, rounded up to the nearest cent. At the effective time of the merger between the Company and Liberty in 2018 (the "Liberty Merger") there were 48,225 options outstanding at an exercise price of $1.18. These options were converted to 13,771 options outstanding at an exercise price of $4.14.

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A summary of stock option transactions with respect to such options for the year ended December 31, 2022 is as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | <br>Shares | <br>Weighted<br>Average<br>Exercise<br>Price | Weighted<br>Average<br>Remaining<br>Contractual <br>Life | <br>Intrinsic <br>Value |
| Outstanding at beginning of period | 5761 | $4.14 | 1.23 |  |
| Granted |  |  |  |  |
| Exercised | (1028) | 4.14 |  |  |
| Forfeited |  |  |  |  |
| Outstanding at end of period | 4733 | $4.14 | 0.23 | $22340 |
| Options exercisable at December 31, 2022 | 4733 | $4.14 |  |  |

---

*Partners Stock Option Plan*

In 2015 Partners adopted the 2015 Stock Option Plan (the "2015 Partners Plan"), which allowed both incentive stock options and nonqualified stock options to be granted. The exercise price of each stock option equaled the market price of Partners' common stock on the date of grant and a stock option's maximum term was 10 years. Stock options granted in the years ended December 31, 2018 and 2017 vested over 3 years. Partners previous stock compensation plan (the "2008 Partners Plan") provided for the grant of share based awards in the form of incentive stock options and nonqualified stock options to Partners' directors, officers and employees. In April 2015 the 2008 Partners Plan was terminated and replaced with the 2015 Partners Plan. Stock options outstanding prior to April 2015 were granted under the 2008 Partners Plan and became subject to the provisions of the 2015 Partners Plan. The 2008 Partners Plan also provided for stock options to be granted to seed investors as a reward for the contribution to organizational funds which were at risk if Partners' organization had not been successful. Under the 2008 Partners Plan, Partners granted stock options to seed investors in 2008, which were fully vested upon the date of the grant.

As a result of the acquisition of Partners in 2019 through an exchange of shares in an all stock transaction (the "Share Exchange"), each stock option (the "Partners Options"), whether vested or unvested, issued and outstanding immediately prior to the effective time under the 2008 Partners Plan or the 2015 Partners Plan and together with the 2008 Partners Plan, (the "Partners Stock Plans"), immediately 100% vested, to the extent not already vested, and converted into and became stock options to purchase Company common stock. In addition, the Company assumed each Partners Stock Plan, and assumed each Partners Option in accordance with the terms and conditions of the Partners Stock Plan pursuant to which it was issued. As such, Partners Options to acquire 149,200 shares of Partner's common stock at a weighted average exercise price of $10.52 per share were converted into stock options to acquire 256,294 shares of the Company's common stock at a weighted average exercise price of $6.13 per share. The number of shares was determined by multiplying the number of shares of Partners common stock for which the option was exercisable by the number of shares of the Company common stock into which shares of Partners common stock were convertible in the Share Exchange, which was 1.7179 (the "Partners Conversion Ratio"), rounded to the next lower whole share. The exercise price was determined by dividing the exercise price per share of Partners common stock by the Partners Conversion Ratio, rounded up to the nearest cent.

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A summary of stock option transactions with respect to such options for the year ended December 31, 2022 is as follows:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | December 31, 2022 | December 31, 2022 | December 31, 2022 | December 31, 2022 |
|  | <br>Shares | <br>Weighted<br>Average<br>Exercise<br>Price | Weighted<br>Average<br>Remaining<br>Contractual <br>Life | <br>Intrinsic <br>Value |
| Outstanding at beginning of period | 128147 | $6.40 | 3.18 |  |
| Granted |  |  |  |  |
| Exercised | (31092) | 5.83 |  |  |
| Forfeited | (8588) | 6.48 |  |  |
| Outstanding at end of period | 88467 | $6.59 | 2.85 | $200717 |
| Options exercisable at December 31, 2022 | 88467 | $6.59 |  |  |

---

The intrinsic value represents the total pre-tax intrinsic value (the amount by which the current market value of the underlying stock options exceeds the exercise price) that would have been received by the holders had they exercised their stock options on December 31, 2022.

As stated in Note 1, Nature of Business and Its Significant Accounting Policies, the Company follows ASC Topic 718-10 which requires that stock-based compensation to employees and directors be recognized as compensation cost in the income statement based on their fair values on the measurement date, which, for the Company, is the date of the grant. All stock option expenses had been fully recognized prior to 2020. As such, there was no expense recorded related to stock options during the years ended December 31, 2022 or 2021.

#### Note 13. Restricted Stock Plan
The Company had an employee and director restricted stock plan (the "Company Plan") and reserved 405,805 shares of stock for issuance thereunder. The Company adopted the Company Plan, pursuant to which employees and directors of the Company could acquire shares of common stock. The Company Plan was adopted by the Company's Board of Directors in April 2014, and subject to the right of the Board of Directors to terminate the Company Plan at any time, terminated on June 30, 2018. The termination of the Company Plan, either at the scheduled termination date or before such date, did not affect any award issued prior to termination. During the years ended December 31, 2017 and 2018, the Company awarded 5,000 shares and 9,000 shares, respectively, to individual employees based on certain employment criteria. These shares vested over two or three years, based on the specific employment agreement. Each award from the Company Plan is evidenced by an award agreement that specifies the vesting period of the restricted stock award, the number of shares to which the award pertains, and such other provisions as the grantor determines.

As of December 31, 2022, there were no remaining non-vested restricted stock awards under the Company Plan.

As stated in Note 1, Nature of Business and Its Significant Accounting Policies, the Company follows ASC Topic 718-10 which requires that restricted stock-based compensation to employees and directors be recognized as compensation cost in the income statement based on their fair values on the measurement date. The fair value of restricted stock was equal to the underlying fair value of the stock. The Company did not have any unrecognized restricted stock-based compensation expense related to restricted stock awards under the Company Plan at December 31, 2022. No restricted stock-based compensation expense related to the Company Plan was recognized during the year ended December 31, 2022. As a result of applying the provisions of ASC Topic 718-10, during 2021 the Company recognized restricted stock-based compensation expense of $4 thousand, or $3 thousand net of tax, related to the Company Plan.

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**Note 14. Incentive Stock Plan**

At the 2021 annual meeting of shareholders held on May 19, 2021 (the "2021 Annual Meeting"), the Company's shareholders approved the Partners Bancorp 2021 Incentive Stock Plan (the "2021 Incentive Stock Plan"), which the Company's Board of Directors had adopted, subject to shareholder approval, on January 27, 2021, based on the recommendation of the Compensation Committee of the Company's Board of Directors (the "Committee"). The 2021 Incentive Stock Plan became effective upon shareholder approval at the 2021 Annual Meeting. The 2021 Incentive Stock Plan authorizes the granting of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards and performance units to key employees and non-employee directors, including members of advisory boards, of the Company and certain of its subsidiaries, as determined by the Committee. Subject to the right of the Board of Directors to terminate the 2021 Incentive Stock Plan at any time, awards may be granted under the 2021 Incentive Stock Plan until May 18, 2031. Subject to adjustment in the event of certain changes in the Company's capital structure, the maximum number of shares of the Company's common stock that may be issued under the 2021 Incentive Stock Plan is 1,250,000.

On April 28, 2021, the Company's Board of Directors granted 58,824 shares of restricted stock to two senior officers of Partners in accordance with Nasdaq Listing Rule 5635(c)(4) as inducements material to each of them accepting employment with Partners. All of these shares were subject to time vesting in three equal annual installments beginning on April 28, 2022. On December 10, 2021, in accordance with the terms and conditions set forth in the definitive agreement and plan of merger (the "OCFC Merger Agreement") with OceanFirst Financial Corp. ("OCFC"), the Company's Board of Directors approved to immediately vest these outstanding and unvested awards. Althgouth the Company and OCFC mutually agreed to terminate the OCFC Merger Agreement and transactions contemplated thereby on November 9, 2022, the accelerated vesting of these awards was not contingent upon the merger closing. Each grantee irrevocably and unconditionally covenanted and agreed to not transfer, convey or sell any share of Company common stock, along with certain other terms, in respect of such accelerated vesting of the restricted stock awards.

On October 12, 2021, the Company's Board of Directors granted 68,000 shares of restricted stock to employees of Partners under the 2021 Incentive Stock Plan. All of these shares were subject to time vesting in three equal annual installments beginning on June 1, 2022. On December 10, 2021, in accordance with the terms and conditions set forth in the OCFC Merger Agreement, the Company's Board of Directors approved to immediately vest 40,000 of these outstanding and unvested awards. Althouth the Company and OCFC mutually agreed to terminate the OCFC Merger Agreement and transactions contemplated thereby on November 9, 2022, the accelerated vesting of these awards was not contingent upon the merger closing. Each grantee of awards that were subject to the accelerated vesting provisions irrevocably and unconditionally covenanted and agreed to not transfer, convey or sell any share of Company common stock, along with certain other terms, in respect of such accelerated vesting of the restricted stock awards.

On October 27, 2021, the Company's Board of Directors granted 27,000 shares of restricted stock to a director of the Company and Partners under the 2021 Incentive Stock Plan. All of these shares were subject to time vesting in three equal annual installments beginning on June 1, 2022. On December 10, 2021, in accordance with the terms and conditions set forth in the definitive agreement and plan of merger with OCFC, the Company's Board of Directors approved to immediately vest these outstanding and unvested awards. The accelerated vesting of these awards was not contingent upon the merger closing. The grantee irrevocably and unconditionally covenanted and agreed to not transfer, convey or sell any share of Company common stock, along with certain other terms, in respect of such accelerated vesting of the restricted stock awards.

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As of December 31, 2022, there were 18,669 nonvested shares related to restricted stock awards. A schedule of nonvested shares related to restricted stock awards as of December 31, 2022 is as follows:

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| | | |
|:---|:---|:---|
|  | Employees | Employees |
|  | <br>Shares | Weighted<br>Average <br>Fair Value |
| Nonvested Awards December 31, 2021 | 28000 | $8.99 |
| Awarded in 2022 |  |  |
| Vested in 2022 | (9331) | 8.99 |
| Nonvested Awards December 31, 2022 | 18669 | $8.99 |

---

As a result of applying the provisions of ASC 718-10, during the year ended December 31, 2022, the Company recognized restricted stock-based compensation expense of $94 thousand, or $69 thousand net of tax, related to the restricted stock awards. During the year ended December 31, 2021, the Company recognized restricted stock-based compensation expense of $1.1 million, or $785 thousand net of tax, related to the restricted stock awards. Restricted stock-based compensation expense is accounted for using the fair value of the Company's common stock on the date the restricted shares were awarded, which was $7.65 for the awards granted on April 28, 2021, $8.99 for the awards granted on October 12, 2021, and $8.72 for the awards granted on October 27, 2021. Unrecognized restricted stock-based compensation expense related to the restricted stock awards totaled approximately $134 thousand at December 31, 2022. The remaining period over which this unrecognized restricted stock-based compensation expense is expected to be recognized is approximately 1.4 years.

#### Note 15. Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income or loss by the weighted average number of shares outstanding during the period. Diluted EPS is computed using the weighted average number of shares outstanding during the period, including the effect of all potentially dilutive shares outstanding attributable to stock instruments.

Applicable guidance requires that outstanding, unvested share-based payment awards that contain voting rights and rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. Accordingly, the weighted average number of shares of the Company's common stock used in the calculation of basic and diluted net income per common share includes unvested shares of the Company's outstanding restricted common stock.

The following table presents basic and diluted EPS for the years ended December 31, 2022 and 2021:

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| | | | |
|:---|:---|:---|:---|
|  | Net Income Applicable |  |  |
|  | to Basic Earnings | Weighted Average |  |
| *(Dollars in thousands, except per share data)* | Per Common Share | Shares Outstanding |  |
| For the year ended December 31, 2022 |  |  |  |
| Basic EPS | $13615 | 17961 | $0.758 |
| Effect of dilutive stock awards |  | 32 |  |
| Diluted EPS | $13615 | 17993 | $0.757 |
| For the year ended December 31, 2021 |  |  |  |
| Basic EPS | $7411 | 17790 | $0.417 |
| Effect of dilutive stock awards |  | 44 |  |
| Diluted EPS | $7411 | 17834 | $0.416 |

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#### Note 16. Regulatory Capital Requirements
The Company's Subsidiaries are subject to various regulatory capital requirements administered by Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory — and possibly additional discretionary — actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company's Subsidiaries must meet specific capital adequacy guidelines that involve quantitative measures of the Company's Subsidiaries' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's Subsidiaries' capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors. Federal banking regulations also impose regulatory capital requirements on bank holding companies. Under the small bank holding company policy statement of the Federal Reserve Board, which applies to certain bank holding companies with consolidated total assets of less than $3 billion, the Company is not subject to regulatory capital requirements.

On September 17, 2019, the Federal Deposit Insurance Corporation ("FDIC") finalized a rule that introduces an optional simplified measure of capital adequacy for qualifying community banking organizations (i.e., the community bank leverage ratio (CBLR) framework), as required by the Economic Growth, Regulatory Relief and Consumer Protection Act. The CBLR framework is designed to reduce burden by removing the requirements for calculating and reporting risk-based capital ratios for qualifying community banking organizations that opt into the framework.

In order to qualify for the CBLR framework, a community banking organization must have a Tier 1 leverage ratio of at least 9 percent, less than $10 billion in total consolidated assets, and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A qualifying community banking organization that opts into the CBLR framework and meets all requirements under the framework will be considered to have met the well-capitalized ratio requirements under the Prompt Corrective Action regulations and will not be required to report or calculate risk-based capital. The Company has elected not to opt into the CBLR framework at this time.

Quantitative measures established by regulation to ensure capital adequacy require the Company's Subsidiaries to maintain minimum amounts and ratios (as defined in the regulations) of total and Tier I capital to risk-weighted assets, Tier I capital to average assets, and common equity Tier I capital to risk-weighted assets. Management believes as of December 31, 2022 that the Company's Subsidiaries meet all capital adequacy requirements to which they are subject.

As of December 31, 2022, the most recent notification from the FDIC categorized the Company's Subsidiaries as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Company's Subsidiaries must maintain minimum total risk-based, Tier 1 risk-based, Tier 1 leverage and common equity Tier 1 risk-based ratios. There are no conditions or events since that notification that management believes have changed the Company's Subsidiaries' categories.

The Common Equity Tier 1, Tier 1 and Total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets, with certain exclusions, allocated by risk weight category, and certain off-balance-sheet items, among other things. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets, among other things.

The Basel III Capital Rules require the Company's Subsidiaries to maintain (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 4.5%, plus a 2.5% "capital conservation buffer" (which is added to the 4.5% Common Equity Tier 1 capital ratio, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 7.0%), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0%, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5%), (iii) a minimum ratio of Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets of at least 8.0%, plus the capital conservation buffer (which is added to the 8.0% Total capital ratio, effectively resulting in a minimum Total capital ratio of 10.5%) and (iv) a minimum leverage ratio of 4.0%, calculated as the ratio of Tier 1 capital to average quarterly assets.

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The implementation of the capital conservation buffer became fully phased in January 1, 2019. The capital conservation buffer is designed to absorb losses during periods of economic stress and, as detailed above, effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets below the effective minimum (4.5% plus the capital conservation buffer and, if applicable, the countercyclical capital buffer) will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The following table presents actual and required capital ratios as of December 31, 2022 and 2021 for the Company's Subsidiaries under the Basel III Capital Rules. The minimum required capital amounts presented include the minimum required capital levels as of December 31, 2022 and 2021 based on the fully phased-in provisions of the Basel III Capital Rules. Capital levels required to be considered well capitalized are based on prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules. A comparison of the Company's Subsidiaries' capital amounts and ratios as of December 31, 2022 and 2021 with the minimum requirements are presented below.

[**Table of Contents**](#TOC)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  |  |  |  |  | To Be | To Be |
|  |  |  |  |  | Well Capitalized | Well Capitalized |
|  |  |  | For Capital | For Capital | Under Prompt | Under Prompt |
|  |  |  | Adequacy | Adequacy | Corrective Action | Corrective Action |
| *In Thousands* | Actual | Actual | Purposes | Purposes | Provisions | Provisions |
|  | Amount | Ratio | Amount | Ratio | Amount | Ratio |
| As of December 31, 2022 |  |  |  |  |  |  |
| Total Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | $98910 | 13.4% | $77763 | 10.5% | $74060 | 10.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 63558 | 11.3% | 58862 | 10.5% | 56059 | 10.0% |
| Tier 1 Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 89645 | 12.1% | 62951 | 8.5% | 59248 | 8.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 58895 | 10.5% | 47650 | 8.5% | 44848 | 8.0% |
| Common Equity Tier I Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 89645 | 12.1% | 51842 | 7.0% | 48139 | 6.5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 58895 | 10.5% | 39242 | 7.0% | 36439 | 6.5% |
| Tier 1 Leverage Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Average Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 89645 | 9.3% | 38416 | 4.0% | 48020 | 5.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 58895 | 8.9% | 26348 | 4.0% | 32935 | 5.0% |
| As of December 31, 2021 |  |  |  |  |  |  |
| Total Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | $91928 | 12.9% | $74963 | 10.5% | $71394 | 10.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 56192 | 12.0% | 49103 | 10.5% | 46765 | 10.0% |
| Tier 1 Capital Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 82972 | 11.6% | 60684 | 8.5% | 57115 | 8.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 52844 | 11.3% | 39750 | 8.5% | 37412 | 8.0% |
| Common Equity Tier I Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Risk Weighted Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 82972 | 11.6% | 49975 | 7.0% | 46406 | 6.5% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 52844 | 11.3% | 32735 | 7.0% | 30397 | 6.5% |
| Tier 1 Leverage Ratio |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;(To Average Assets) |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | 82972 | 8.1% | 40926 | 4.0% | 51158 | 5.0% |
| &nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank | 52844 | 8.5% | 25009 | 4.0% | 31261 | 5.0% |

---

Banking regulations also limit the amount of dividends that may be paid without prior approval of the Company's regulatory agencies. Regulatory approval is required to pay dividends, which exceed the Company's and its Subsidiaries' net profits for the current year plus its retained net profits for the preceding two years. At December 31, 2022 and 2021, approximately $21.1 million and $14.2 million, respectively, was available for the payment of dividends to stockholders by the Company without regulatory approval. Dividends from the Subsidiaries to the Company are also limited by the amount of retained net profits of the Subsidiaries in the current year and the preceding two years. At December 31, 2022 and 2021, approximately $25.0 million and $17.9 million, respectively was available for payment of dividends to the Company from the Subsidiaries without regulatory approval.

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#### Note 17. Fair Values of Financial Instruments
FASB *ASC 825, Financial Instruments* ("ASC 825") requires disclosure about fair value of financial instruments, including those financial assets and financial liabilities that are not required to be measured and reported at fair value on a recurring or nonrecurring basis. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company. Additionally, in accordance with ASU 2016-01, the Company uses the exit price notion, rather than the entry price notion, in calculating the fair values of financial instruments not measured at fair value on a recurring basis.

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| *Dollars are in thousands* |  | Fair Value Measurements at December 31, 2022 | Fair Value Measurements at December 31, 2022 | Fair Value Measurements at December 31, 2022 | Fair Value Measurements at December 31, 2022 |
|  |  | Quoted Prices in | Significant | Significant |  |
|  |  | Active Markets for | Other | Unobservable |  |
|  | Carrying | Identical Assets | Observable Inputs | Inputs |  |
|  | Amount | (Level 1) | (Level 2) | (Level 3) | Balance |
| Financial assets: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and due from banks | $14678 | $14678 | $— | $— | $14678 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest bearing deposits | 103922 | 103922 |  |  | 103922 |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal funds sold | 22990 | 22990 |  |  | 22990 |
| &nbsp;&nbsp;&nbsp;&nbsp;Securities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Available for sale | 133657 |  | 133657 |  | 133657 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans held for sale | 1314 |  | 1314 |  | 1314 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans, net of allowance for credit losses | 1218551 |  |  | 1165190 | 1165190 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued interest receivable | 4566 |  | 4566 |  | 4566 |
| &nbsp;&nbsp;&nbsp;&nbsp;Restricted stock | 6512 |  | 6512 |  | 6512 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other investments | 4888 |  | 4888 |  | 4888 |
| &nbsp;&nbsp;&nbsp;&nbsp;Bank owned life insurance | 18706 |  | 18706 |  | 18706 |
| Financial liabilities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deposits | $1339605 | $— | $1082084 | $249183 | $1331267 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued interest payable on deposits | 267 |  | 267 |  | 267 |
| &nbsp;&nbsp;&nbsp;&nbsp;FHLB advances | 61800 |  | 60990 |  | 60990 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated notes payable | 22215 |  | 26364 |  | 26364 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other borrowings | 613 |  |  | 613 | 613 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| *Dollars are in thousands* |  | Fair Value Measurements at December 31, 2021 | Fair Value Measurements at December 31, 2021 | Fair Value Measurements at December 31, 2021 | Fair Value Measurements at December 31, 2021 |
|  |  | Quoted Prices in | Significant | Significant |  |
|  |  | Active Markets for | Other | Unobservable |  |
|  | Carrying | Identical Assets | Observable Inputs | Inputs |  |
|  | Amount | (Level 1) | (Level 2) | (Level 3) | Balance |
| Financial assets: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash and due from banks | $12887 | $12887 | $— | $— | $12887 |
| &nbsp;&nbsp;&nbsp;&nbsp;Interest bearing deposits | 297902 | 297902 |  |  | 297902 |
| &nbsp;&nbsp;&nbsp;&nbsp;Federal funds sold | 28040 | 28040 |  |  | 28040 |
| &nbsp;&nbsp;&nbsp;&nbsp;Securities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Available for sale | 122021 |  | 122021 |  | 122021 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans held for sale | 4064 |  | 4064 |  | 4064 |
| &nbsp;&nbsp;&nbsp;&nbsp;Loans, net of allowance for credit losses | 1102539 |  |  | 1089812 | 1089812 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued interest receivable | 4313 |  | 4313 |  | 4313 |
| &nbsp;&nbsp;&nbsp;&nbsp;Restricted stock | 4869 |  | 4869 |  | 4869 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other investments | 5065 |  | 5065 |  | 5065 |
| &nbsp;&nbsp;&nbsp;&nbsp;Bank owned life insurance | 18254 |  | 18254 |  | 18254 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other real estate owned | 837 |  |  | 837 | 837 |
| Financial liabilities: |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Deposits | $1442876 | $— | $1063619 | $380245 | $1443864 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accrued interest payable on deposits | 280 |  | 280 |  | 280 |
| &nbsp;&nbsp;&nbsp;&nbsp;FHLB advances | 26313 |  | 27007 |  | 27007 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Subordinated notes payable | 22168 |  | 30091 |  | 30091 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other borrowings | 755 |  |  | 755 | 755 |

---

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company's financial instruments will change when interest rate

[**Table of Contents**](#TOC)

levels change and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. However, borrowers with fixed rate obligations are less likely to repay in a rising rate environment and more likely to prepay in a falling rate environment. Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.

#### Note 18. Fair Value Measurements
The Company follows *ASC 820-10 Fair Value Measurements and Disclosures* ("ASC 820-10") which provides a framework for measuring and disclosing fair value under U.S. GAAP. ASC 820-10 requires disclosures about the fair value of assets and liabilities recognized in the balance sheet in periods subsequent to initial recognition, whether the measurements are made on a recurring basis (for example, available for sale investment securities) or on a nonrecurring basis (for example, impaired loans).

ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820-10 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value.

*Fair Value Hierarchy*

In accordance with this guidance, the Company groups its financial assets and financial liabilities generally measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

***Level 1***—Valuation is based on quoted prices in active markets for identical assets and liabilities.

***Level 2***—Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.

***Level 3***—Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

[**Table of Contents**](#TOC)

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a recurring basis in the financial statements.

**Investment Securities Available for Sale:**

Investment securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy. Currently, all of the Company's investment securities available for sale are considered to be Level 2 securities.

The following table presents fair value measurements on a recurring basis as of December 31, 2022 and 2021:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  |  |  | Fair |
| *Dollars are in thousands* | Level 1 | Level 2 | Level 3 | Value |
| December 31, 2022 |  |  |  |  |
| Securities available for sale: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Obligations of U.S. Government agencies and corporations | $— | $15466 | $— | $15466 |
| &nbsp;&nbsp;&nbsp;&nbsp;Obligations of States and political subdivisions |  | 27065 |  | 27065 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgage-backed securities |  | 88740 |  | 88740 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated debt investments |  | 2386 |  | 2386 |
| Total securities available for sale | $— | $133657 | $— | $133657 |
| December 31, 2021 |  |  |  |  |
| Securities available for sale: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Obligations of U.S. Government agencies and corporations | $— | $6451 | $— | $6451 |
| &nbsp;&nbsp;&nbsp;&nbsp;Obligations of States and political subdivisions |  | 31126 |  | 31126 |
| &nbsp;&nbsp;&nbsp;&nbsp;Mortgage-backed securities |  | 82403 |  | 82403 |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated debt investments |  | 2041 |  | 2041 |
| Total securities available for sale | $— | $122021 | $— | $122021 |

---

Certain financial assets are measured at fair value on a nonrecurring basis in accordance with U.S. GAAP. Adjustments to the fair value of these financial assets usually result from the application of lower of cost or market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain financial assets recorded at fair value on a nonrecurring basis in the financial statements.

**Loans Held for Sale:**

Loans held for sale are loans originated by JMC for sale in the secondary market. Loans originated for sale by JMC are recorded at lower of cost or market. No market adjustments were required at December 31, 2022 or 2021; therefore, loans held for sale were carried at cost. Because of the short-term nature, the book value of these loans approximates fair value at December 31, 2022 and 2021.

[**Table of Contents**](#TOC)

**Impaired Loans:**

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due. The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral. Fair value is measured based on the value of the collateral securing the loans. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. The vast majority of the collateral is real estate. The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral is a house or building in the process of construction or if an appraisal of the real estate property is over two years old, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business's financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). Impaired loans allocated to the allowance for credit losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as a provision for credit losses on the consolidated statement of income.

**Other Real Estate Owned:**

OREO is measured at fair value less cost to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level 3. OREO is measured at fair value on a nonrecurring basis. Any initial fair value adjustment is charged against the allowance for credit losses. Subsequent fair value adjustments are recorded in the period incurred and included in other noninterest expense on the consolidated statement of income.

The following table presents the balances of financial assets measured at fair value on a nonrecurring basis as of December 31, 2022 and 2021.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  |  |  |  | Fair |
| *Dollars are in thousands* | Level 1 | Level 2 | Level 3 | Value |
| December 31, 2022 |  |  |  |  |
| Impaired loans | $— | $— | $3 | $3 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $— | $— | $3 | $3 |
| December 31, 2021 |  |  |  |  |
| Impaired loans | $— | $— | $4653 | $4653 |
| OREO |  |  | 837 | 837 |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $— | $— | $5490 | $5490 |

---

The following table presents additional quantitative information about financial assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value as of December 31, 2022:

---

| | | | | |
|:---|:---|:---|:---|:---|
| December 31, 2022 |  | Valuation  | Unobservable | Range of |
| *Dollars are in thousands* | Fair Value | Technique | Inputs | Inputs |
| Impaired loans | $3 | Appraisals | Discount to reflect current market conditions and estimated selling costs | 8% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $3 |  |  |  |

---

[**Table of Contents**](#TOC)

The following table presents additional quantitative information about financial assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value as of December 31, 2021:

---

| | | | | |
|:---|:---|:---|:---|:---|
| December 31, 2021 |  | Valuation  | Unobservable | Range of |
| *Dollars are in thousands* | Fair Value | Technique | Inputs | Inputs |
| Impaired loans | $4653 | Appraisals | Discount to reflect current market conditions and estimated selling costs | 8% |
| OREO | 837 | Appraisals or Listing Price | Discount to reflect current market conditions and estimated selling costs | 8-10% |
| &nbsp;&nbsp;&nbsp;&nbsp;Total | $5490 |  |  |  |

---

#### Note 19. Goodwill and Intangible Assets
The Company accounts for goodwill and other intangible assets in accordance with *ASC Topic 350, Intangibles—Goodwill and Other* ("ASC 350"). The Company records goodwill when the purchase price of an acquired entity is greater than the fair value of the identifiable tangible and intangible assets acquired minus the liabilities assumed. The Company amortizes acquired intangible assets with definite useful economic lives over their useful economic lives. On a periodic basis, management assesses whether events or changes in circumstances indicate that the carrying amount of the intangible assets may be impaired. The Company does not amortize goodwill or any acquired intangible assets with an indefinite useful economic life, but reviews them for impairment on an annual basis, or when events or changes in circumstances indicate that the carrying amounts may be impaired. The Company has performed the required goodwill impairment test and has determined that goodwill was not impaired as of December 31, 2022 or 2021.

*Goodwill:* The Company acquired goodwill in the purchases of Liberty, which was effective in 2018, and Partners, which was effective in 2019. There were no changes to goodwill during the years ended December 31, 2022 and 2021.

*Core Deposit Intangible:* The Company acquired core deposit intangibles in the acquisitions of Liberty and Partners. For the core deposit intangible related to Liberty, the Company utilizes the double declining balance method of amortization, in which the straight line amortization rate is doubled and applied to the remaining unamortized portion of the intangible asset. The amortization method changes to the straight line method of amortization when the straight line amortization amount exceeds the amount that would be calculated under the double declining balance method. This core deposit intangible will be amortized over seven years. For the core deposit intangible related to Partners, the Company utilizes the sum of months method and an estimated average life of 120 months.

The following table provides changes in the core deposit intangible for the years ended December 31, 2022 and 2021:

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
| *Dollars in Thousands* | 2022 | 2021 |
| Balance at the beginning of the period | $2060 | $2660 |
| Amortization | (520) | (600) |
| Balance at the end of the period | $1540 | $2060 |

---

[**Table of Contents**](#TOC)

The following table provides the amortization expense for the core deposit intangible over the years indicated below:

---

| | |
|:---|:---|
|  | December 31,  |
| *Dollars in Thousands* | 2022 |
| 2023 | $467 |
| 2024 | 415 |
| 2025 | 246 |
| 2026 | 182 |
| 2027 | 129 |
| Thereafter | 101 |
|  | $1540 |

---

*Net Deposits Purchased Premium and Discount:* The Company paid a deposit premium in the acquisition of Liberty and received a deposit discount in the acquisition of Partners, which are included in the balances of time deposits on the consolidated balance sheets. The deposit premium is amortized as a reduction in interest expense over the life of the acquired time deposits and the deposit discount is accreted as an increase in interest expense over the life of the acquired time deposits. The premium and discount on acquired time deposits will both be amortized and accreted over approximately five years.

The following table provides changes in the net deposit premium and discount for the years ended December 31, 2022 and 2021:

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
| *Dollars in Thousands* | 2022 | 2021 |
| Balance at the beginning of the period | $(9) | $(23) |
| Accretion, net | 6 | 14 |
| Balance at the end of the period | $(3) | $(9) |

---

The following table provides the accretion income for the net deposit discount over the years indicated below:

---

| | |
|:---|:---|
|  | December 31,  |
| *Dollars in Thousands* | 2022 |
| 2023 | $2 |
| 2024 | 1 |
|  | $3 |

---

The net effect of the amortization of premiums and accretion of discounts associated with the Company's acquisition accounting adjustments to assets acquired and liabilities assumed had the following impact on the consolidated statement of income for the years indicated below:

---

| | | |
|:---|:---|:---|
|  | December 31,  | December 31,  |
|  | 2022 | 2021 |
| Year Ended  | *Dollars in Thousands* | *Dollars in Thousands* |
| Adjustments to net income |  |  |
| &nbsp;&nbsp;Loans (1) | $666 | $1499 |
| &nbsp;&nbsp;Time deposits (2) | (6) | (14) |
| &nbsp;&nbsp;Core deposit intangible (3)  | (520) | (600) |
| &nbsp;&nbsp;Note Payable (4) | (4) | (5) |
| Net impact to income before taxes | $136 | $880 |

---

[**Table of Contents**](#TOC)

(1) Loan discount accretion is included in the "Loans, including fees" section of "Interest Income" in the Consolidated Statements of Income.

(2) Time deposit discount accretion is included in the "Deposits" section of "Interest Expense" in the Consolidated Statements of Income.

(3) Core deposit intangible premium amortization is included in the "Other Expenses" section of "Non-interest Expense" in the Consolidated Statements of Income.

(4) Note payable discount accretion is included in the "Borrowings" section of "Interest Expense" in the Consolidated Statements of Income.

#### Note 20. Parent Company Financial Information
Presented below are comparative balance sheets of the parent company, Partners Bancorp, as of December 31, 2022 and 2021, and statements of income and cash flows for each of the years ended December 31, 2022 and 2021.

#### BALANCE SHEETS
**December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| **ASSETS** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Cash | $12549 | $14686 |
| &nbsp;&nbsp;&nbsp;&nbsp;Investment in subsidiaries, at equity | 146288 | 147378 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other assets | 2903 | 2276 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total assets** | $161740 | $164340 |
| **LIABILITIES** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Subordinated notes payable, net | $22215 | $22168 |
| &nbsp;&nbsp;&nbsp;&nbsp;Other liabilities | 196 | 804 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities** | 22411 | 22972 |
| **STOCKHOLDERS' EQUITY** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Common stock, par value $0.01, authorized 40,000,000 shares, issued and outstanding 17,973,724 as of December 31, 2022 and 17,941,604 as of December 31, 2021, including 18,669 nonvested shares as of December 31, 2022 and 28,000 nonvested shares as of December 31, 2021 | 180 | 179 |
| &nbsp;&nbsp;&nbsp;&nbsp;Surplus | 88669 | 88390 |
| &nbsp;&nbsp;&nbsp;&nbsp;Retained earnings | 62854 | 51305 |
| &nbsp;&nbsp;&nbsp;&nbsp;Noncontrolling interest in consolidated subsidiaries | 707 | 1179 |
| &nbsp;&nbsp;&nbsp;&nbsp;Accumulated other comprehensive (loss) income, net of tax  | (13081) | 315 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total stockholders' equity** | 139329 | 141368 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total liabilities and stockholders' equity** | $161740 | $164340 |

---

#### STATEMENTS OF INCOME
**Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| Dividends from subsidiaries | $3464 | $3242 |
| Interest income on deposit accounts | 25 | 29 |
| Interest expense on borrowings | (1443) | (1464) |
| Other expenses, net | (1842) | (2557) |
| Income (loss) before taxes and equity in undistributed net income of subsidiaries | 204 | (750) |
| Income tax benefits(1) | 633 | 615 |
| Equity in undistributed net income of subsidiaries | 12778 | 7546 |
| Net income | $13615 | $7411 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Benefits from filing consolidated Federal income tax return.

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#### STATEMENTS OF CASH FLOWS
**Years Ended December 31, 2022 and 2021**

---

| | | |
|:---|:---|:---|
| *Dollars in thousands* | 2022 | 2021 |
| **CASH FLOWS FROM OPERATING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net income | $13615 | $7411 |
| &nbsp;&nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash (used in) provided by operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Equity in undistributed net income of subsidiaries | (12778) | (7546) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization | 47 | 67 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense | 94 | 1072 |
| &nbsp;&nbsp;&nbsp;&nbsp;Changes in assets and liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Increase in other assets | (627) | (278) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(Decrease) increase in other liabilities | (608) | 41 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash (used in) provided by operating activities | (257) | 767 |
| **CASH FLOWS FROM INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Downstream of capital to subsidiary | (3000) |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Upstream of capital from subsidiary | 3000 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash used in investing activities |  |  |
| **CASH FLOWS FROM FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Dividends paid | (2066) | (1779) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Decrease in subordinated notes payable |  | (2000) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash paid for stock repurchases |  | (209) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Cash received for the exercise of stock options | 186 | 328 |
| &nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities | (1880) | (3660) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net decrease in cash | (2137) | (2893) |
| **Cash, beginning of year**  | 14686 | 17579 |
| **Cash, end of year** | $12549 | $14686 |

---

#### Note 21. Revenue Recognition
The Company follows ASU No. 2014-09 Revenue from Contracts with Customers ("Topic 606") and all subsequent ASUs that modified Topic 606. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and investment securities. Topic 606 is applicable to noninterest revenue streams such as deposit related fees, interchange fees and merchant income. However, the recognition of these revenue streams did not change significantly upon adoption of Topic 606. Substantially all of the Company's revenue is generated from contracts with customers. Noninterest revenue streams in the scope of Topic 606 are discussed below.

*Service Charges on Deposit Accounts*

Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company's performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided.

Check orders and other deposit account related fees are largely transactional based, and therefore, the Company's performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers' accounts.

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*Other Noninterest Income*

Other noninterest income consists of: fees, exchange, other service charges, safety deposit box rental fees, and other miscellaneous revenue streams. Fees and other service charges are primarily comprised of debit and credit card income, ATM fees, merchant services income, and other service charges. Debit and credit card income is primarily comprised of interchange fees earned whenever the Company's debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit and credit card transactions, in addition to account management fees. Other service charges include revenue from processing wire transfers, bill pay service, cashier's checks, and other services. The Company's performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month. Safe deposit box rental fees are charged to the customer on an annual basis and recognized upon receipt of payment.

*Gain or loss on sale or disposal of fixed assets*

Gain or loss on sale of fixed assets is recorded when control of the property transfers to the buyer. Gain or loss on disposal of fixed assets is recorded when the asset is determined to no longer be in service.

*Gain or loss on sale of foreclosed properties* 

Gain or loss on sale of foreclosed properties is recorded when control of the property transfers to the buyer, which generally occurs at the time of transfer of the deed. If the Company finances the sale of a foreclosed property to the buyer, we assess whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the foreclosed property is derecognized and the gain or loss on sale is recorded upon transfer of control of the property to the buyer.

**Note 22. Transaction with LINKBANCORP, Inc.**

On February 22, 2023, the Company entered into an Agreement and Plan of Merger (the "LINK Merger Agreement") with LINKBANCORP, Inc., a Pennsylvania corporation ("LINK"). The LINK Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will merge with and into LINK, with LINK as the surviving entity (the "Merger"). The LINK Merger Agreement further provides that immediately following the Merger, Delmarva, a Delaware chartered bank and a wholly-owned subsidiary of the Company, will merge with and into LINKBANK, a Pennsylvania chartered bank and a wholly-owned subsidiary of LINK, with LINKBANK as the surviving bank (the "Delmarva Bank Merger"). The LINK Merger Agreement also provides that immediately following the Delmarva Bank Merger, Partners, a Virginia chartered bank and a wholly-owned subsidiary of the Company, will merge with and into LINKBANK, with LINKBANK as the surviving bank (the "Partners Bank Merger" and, together with the Merger and the Delmarva Bank Merger, the "Transaction"). The LINK Merger Agreement was unanimously approved by the board of directors of each of LINK and the Company.

Upon the terms and subject to the conditions of the LINK Merger Agreement, at the effective time of the Merger (the "Effective Time"), each share of common stock, par value $0.01 per share, of the Company ("Company Common Stock") outstanding immediately prior to the Effective Time, other than certain shares held by the Company or LINK, will be converted into the right to receive 1.150 shares (the "Exchange Ratio") of common stock, par value $0.01 per share, of LINK ("LINK Common Stock"). Holders of Company Common Stock will receive cash in lieu of fractional shares.

**Note 23. Transaction with OceanFirst Financial Corp.**

On November 4, 2021, the Company, OCFC and Coastal Merger Sub Corp. ("Merger Sub") entered into the OCFC Merger Agreement. Pursuant to the terms and subject to the conditions set forth in the OCFC Merger Agreement, (i) Merger Sub would merge with and into the Company, with the Company as the surviving entity, and (ii) immediately thereafter, the Company would merge with and into OCFC, with OCFC as the surviving entity. On November 9, 2022,

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the Company and OCFC entered into a Mutual Termination Agreement (the "Termination Agreement") pursuant to which, among other things, the parties mutually agreed to terminate the OCFC Merger Agreement and transactions contemplated thereby. Each party bore its own costs and expenses in connection with the terminated transaction, and neither party paid a termination fee in connection with the termination of the OCFC Merger Agreement. The Termination Agreement also mutually released the parties from any claims of liability to one another relating to the OCFC Merger Agreement and the terminated transaction.

**ITEM 9.&nbsp;&nbsp;&nbsp;&nbsp; CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE**.

None.

#### ITEM 9A.&nbsp;&nbsp;&nbsp;&nbsp; CONTROLS AND PROCEDURES.
**Disclosure Controls and Procedures**

The Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that the Company's disclosure controls and procedures were effective as of December 31, 2022 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Company's disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company or its subsidiaries to disclose material information required to be set forth in the Company's periodic reports.

**Management's Report on Internal Control over Financial Reporting**

Management of the Company is also responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013). Based on our assessment, management believes that, as of December 31, 2022, the Company's internal control over financial reporting was effective based on those criteria.

**Changes in Internal Controls** 

There were no changes in the Company's internal control over financial reporting during the fourth quarter ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. This Annual Report on Form 10-K does not include an attestation report of the Company's independent registered public accounting firm, Yount, Hyde & Barbour, P.C., (U.S. PCAOB Auditor Firm I.D.: 613), regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management's report in this Annual Report on Form 10-K.

#### ITEM 9B.&nbsp;&nbsp;&nbsp;&nbsp; OTHER INFORMATION.
None.

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#### ITEM 9C.&nbsp;&nbsp;&nbsp;&nbsp; DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.

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#### PART III

#### ITEM 10.&nbsp;&nbsp;&nbsp;&nbsp; DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The business and affairs of the Company are managed under the direction of the Company's Board of Directors (the "Board") in accordance with the Company's articles of incorporation and bylaws. Members of the Company's Board are kept informed of the Company's business through discussions with the Chairman of the Board, the President and Chief Executive Officer and other officers, by reviewing materials provided to them and by participating in meetings of the Company's Board and its committees.

The following biographies of the members of the Board contain information regarding each person's business experience, public company director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes and/or skills that caused the Board to determine the person should serve as a director of the Company. Unless otherwise noted, the person has held their position as a director for at least five years.

**Directors**

***Mona D. Albertine***, 73, has served as a director of the Company since November 2019 and as a director of Partners since it was established in 2007. Ms. Albertine is co-founder, President and owner of Jabberwocky Books, a retail establishment which has been part of the Fredericksburg, Virginia business community since 1985. She is also a managing partner of Albertine Properties, which owns and manages commercial real estate in downtown Fredericksburg. She served eight years on the Board of Visitors of the University of Mary Washington, two years as Vice Rector and two years as Rector. Ms. Albertine served on the board of Virginia Heartland Bank prior to its merger with Second National Bank of Culpeper. For more than 34 years she has served on numerous charitable boards in the Fredericksburg area, most recently, the Community Foundation of the Rappahannock River Region and The Women and Girls Fund, where she served as President, and as a director of the Fredericksburg Regional Chamber of Commerce. She currently serves as a Member Emeritus on the board of the University of Mary Washington Foundation. Ms. Albertine received a B.A. in International Relations from the University of Mary Washington in 1971. Ms. Albertine's extensive experience in banking, in leadership, in small business, and in real estate provide valuable expertise to the Company's Board.

***John W. Breda***, 61, has served as a director of the Company and Delmarva since 2018. Mr. Breda has served as President and Chief Executive Officer of the Company since December 2022 and from July 2017 through November 2019. During the period from November 2019 through December 2022, he served as President and Chief Operating Officer of the Company. He has been the President and Chief Executive Officer of Delmarva since July 2017. He joined the Company and Delmarva as Executive Vice President and Chief Credit Officer in August 2012. Prior to joining the Company, he served as Vice President of the Commercial Banking Team Leader/Group Manager, at M&T Bank from May 2011, and of Wilmington Trust Company from 1995 until that company was acquired by M&T Bank. Mr. Breda has over 35 years of banking experience. Mr. Breda graduated from Widener University with a B.S. in Business Administration. He is also a graduate of the Stonier Graduate School of Banking. Over the years he has been a member of the Wicomico Rotary Club, Greater Salisbury Committee, Salisbury-Wicomico Economic Development, Ocean City Development Corporation and Habitat for Humanity of Wicomico County. Mr. Breda's service on the Board is supported by his many years of banking experience, and his knowledge of the Company's business and its market areas.

***Michael W. Clarke***, 61, has served as a director of the Company and Partners since February 2021 and January 2021, respectively. Mr. Clarke brings over 38 years of experience in all aspects of commercial banking, corporate finance and capital management formation. Mr. Clarke manages a variety of passive and active investments in small to mid-sized businesses with a particular focus on financial services. Mr. Clarke is a senior portfolio advisor at FJ Capital Management assisting in the evaluation and management of investments in the U.S. financial services industry. Mr. Clarke represents FJ Capital and his own interests in service as a director of the Georgia Banking Company based in Atlanta, Georgia since February 2021. Mr. Clarke also serves as a manager of the Graystone Investment Fund, an entity focused on the development and operation of multi-family real estate located in proximity to "Power 5 Conference" Universities in the South East. Over the last five years, Mr. Clarke has served as a director of Atlantic Union Bankshares Corporation (Risk Management Committee) and Access National Corporation, including their banking subsidiaries, each

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of which was registered under Section 12 of the Exchange Act. From February 2019 to January 2021, Mr. Clarke served on the Board of Directors of Atlantic Union Bankshares Corporation and its subsidiary, Atlantic Union Bank. Previously, Mr. Clarke served as President, Chief Executive Officer and a director of Access National Corporation from its formation in 2002 until being acquired by Atlantic Union Bankshares Corporation in February 2019. Mr. Clarke was the principal organizer of Access National Bank, the lead subsidiary of Access National Corporation, leading the $10 million friends and family capital offering and authoring the business plan and regulatory applications requisite to charter approval and deposit insurance. Prior to organizing Access National Bank, Mr. Clarke served as Chief Credit Officer of Patriot National Bank, or Patriot, in Vienna, Virginia, from its inception in 1990 until the company was sold in 1997 and remained with the successor, United Bank, in the same capacity through 1998. Prior to joining Patriot, Mr. Clarke was Vice President of commercial lending at Crestar Bank in Alexandria, Virginia. Mr. Clarke graduated from Virginia Tech with a B.S. degree in finance and marketing. Mr. Clarke's active and past community and industry board service roles include: Virginia Tech Foundation (Audit Chair); Virginia Bankers Association; Business Finance Group (an SBA Certified Development Company); Salem Halifax Capital Partners; Chairman, Greater Reston Chamber of Commerce; Founding Member & Chair of the IncSpire Business Incubator; Chair of the Finance Advisory Board at Virginia Tech; Chair & Treasurer of the Adult Community Education Foundation; and Chair of The Pamplin College of Business Advisory Council. Mr. Clarke's qualifications to serve on the Company's Board include his extensive executive and directorial experience in community banks, his administrative and leadership qualities, and his knowledge of and contacts in the communities in which the Company operates, particularly the Greater Washington and Northern Virginia markets.

***Mark L. Granger***, 59, has served as a director of the Company and Delmarva since 1999. He is a certified public accountant, and specializes in tax and financial consulting for individuals, and tax, accounting and consulting for small and medium sized businesses on the Delmarva Peninsula. He has been Managing Partner of Granger & Magee, PA, Salisbury, Maryland since 2000, and previously served as a partner and manager of Faw, Casson & Co., LLP, Salisbury, Maryland from 1993 to 1999. He has over 37 years of accounting experience. He has a B.A. from the University of Lynchburg, and an M.S. in Taxation from Pace University, New York City. His service on the Board is supported by his specialized knowledge of accounting and financial matters, and his knowledge of the communities in which Delmarva operates and business connections in Delmarva's markets.

***Lloyd B. Harrison, III***, 65, has served as a director of the Company since November 2019 and as a director of Partners since it was established in 2007. Mr. Harrison served as Chief Executive Officer of the Company from November 2019 until December 2022. Since December 2022, he has served as Senior Executive Vice President of the Company. Mr. Harrison served as President, Treasurer, Secretary and Chief Operating Officer of Partners from its inception in 2007 to July 2014, at which time he became President and Chief Executive Officer of Partners. In December 2020, Mr. Harrison ceased serving as President of Partners but continues to serve as Chief Executive Officer of Partners. Prior to his service to Partners, Mr. Harrison served as President and Chief Executive Officer of Mercantile Southern Maryland Bank and its predecessor, Calvert Bank and Trust, from 2001 to 2007. He has over 37 years of banking experience. Over the years, he has served on the boards of many civic and charitable organizations. Mr. Harrison is a former chairman of the board of directors of Asbury Communities, Inc. and a former director of Westminster American Insurance Company. Currently, Mr. Harrison serves as the Chairman of The Fredericksburg Regional Alliance and is the past chairman of the board of directors of the Virginia Association of Community Banks. He has an undergraduate degree in English from The University of Virginia and a Master in Business Administration from The College of William & Mary. Mr. Harrison's extensive banking, leadership, and governance experience provide valuable contributions to the Company's Board.

***Kenneth R. Lehman***, 63, has served as a director of the Company and Delmarva since 2014 and has served as a director of Partners since 2016. He is a private investor and former banking and securities attorney. Since 2016, Mr. Lehman has served as a director of several banks and bank holding companies, including three companies registered under Section 12 of the Exchange Act: Four Oaks Fincorp where he served as a director from 2014 through November 2017, First Capital Bancorp, Inc., where he served as a director from 2012 through January 2016, and Village Bank and Trust Financial Corp., where he served as a director from June 2016 to May 2018. In addition to his service as a director of the Company, Delmarva and Partners, Mr. Lehman currently serves as a director of Marine Bancorp of Florida and its wholly-owned subsidiary Marine Bank and Trust Company, Vero Beach, Florida, BankFLORIDA Bancorp and BankFLORIDA, Dade City, Florida, and Locality Bank, Ft. Lauderdale, Florida. Mr. Lehman's extensive

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experience as a director of financial institutions and as an advisor to financial institutions is invaluable to the Board in governance and strategic thinking.

***George P. Snead***, 53, has served as a director of the Company since November 2019 and as a director of Partners since it was established in 2007. Mr. Snead is a partner in Parrish Snead Franklin Simpson, PLC, a general practice law firm located in Fredericksburg, Virginia. Mr. Snead's practice centers on estate planning and commercial transactions, specifically including commercial real estate purchases/sales, commercial leases, business organizations, and lending transactions. Mr. Snead graduated from Davidson College with a B.A. in Economics, and he received his law degree from the College of William and Mary. He has served as a member of the Board of Directors of Germanna Community College Educational Foundation, the Central Virginia Housing Coalition, the Massad Branch of the YMCA, the Fredericksburg Regional Chamber of Commerce, the Board of Directors of the Central Rappahannock Heritage Center and the Board of Trustees of the Community Foundation of the Rappahannock River Region. Mr. Snead's experience in and knowledge of commercial real estate matters provide valuable contributions to the Company's Board.

***James A. Tamburro***, 56, has served as a director of the Company and Delmarva since 2018. He previously served as a director of Liberty, a bank that was previously acquired by the Company. He has been an attorney in private practice with Tamburro Law Office, in Marlton, New Jersey, since 1999, and since 2014 he has been co-owner and manager of Global Contact Publishing Co.; and since 2016 a commercial/residential real estate broker with Berkshire Hathaway Real Estate, Marlton, New Jersey. Since 2012 he has served as an Ambassador of Georgetown University's Alumni Admissions Program. Mr. Tamburro is a graduate of Georgetown University, where he earned a B.A., and Widener University School of Law, where he earned his J.D. Mr. Tamburro's knowledge of real estate finance and investing, along with his experience as a director of Liberty and Delmarva and his knowledge of and contacts in Delmarva's New Jersey market area support his service on the Board.

***Jeffrey F. Turner***, 74, has served as a director of the Company and Delmarva since 2009, and as Chairman of the Board since January 2012. Until his retirement in 2008, Mr. Turner served as President and Chief Executive Officer of Mercantile Peninsula Bank and its predecessor, Peninsula Bank, from 1994 to 2008. He has over 45 years of banking experience. Over the years, he has been a member of the Salisbury Area Chamber of Commerce, member of the Greater Salisbury Committee, member of the Wicomico County Economic Development Committee, and member of the Somerset County Economic Development Committee. Mr. Turner is the former Chairman of the Board of the Peninsula Regional Medical Center, former President of the Life Crisis Center, Inc., former member of the Board of Visitors of the University of Maryland, Eastern Shore and former director of Qlarant, one of the first quality review organizations for the Centers of Medicare and Medicaid. Currently, Mr. Turner serves as a Trustee of the John B. Parsons Home Foundation and a Corporate Member of the Community Foundation of the Eastern Shore. Mr. Turner is a graduate of Towson University with a degree in Economics. Mr. Turner's service on the Board is supported by his extensive executive and directorial experience in community banks, his administrative and leadership qualities, and his knowledge of and contacts in the communities in which Delmarva operates.

***Robert C. Wheatley***, 66, has served as a director of the Company and Delmarva since 1998. Mr. Wheatley has been the managing member and owner of The Whayland Group LLC, a real estate project management and consulting firm since 2009, and was President and owner of The Whayland Company, Inc., a commercial construction company from 1993 to 2013. He serves on the Sussex County Planning and Zoning Commission, the Delaware Association of Professional Engineers, the Laurel Development Corp., Delaware Economic and Environmental Development Commission and other public and private economic development initiatives. A graduate of Salisbury University, he is also an associate real estate broker with Keller Williams Realty, Inc. since 2016. Mr. Wheatley's service on the Board is supported by his extensive knowledge of commercial real estate and real estate development matters in the communities in which Delmarva operates, along with his knowledge of and contacts in the communities in which Delmarva operates.

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**Executive Officers Who Are Not Directors**

The following biographies of the executive officers of the Company, excluding Messrs. Breda and Harrison, for whom biographical information is included above under "Directors," contain information regarding each person's business experience and qualifications.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;***J. Adam Sothen***, 46, has served as Chief Financial Officer of the Company since November 2019 and Executive Vice President and Chief Financial Officer of Partners since April 2018. From June 2017 through March 2018, Mr. Sothen served as Executive Vice President and Chief Financial Officer of Sonabank and Sonabank's parent company, Southern National Bancorp of Virginia, Inc., which was registered under Section 12 of the Exchange Act. Previous to that, Mr. Sothen was employed by EVB as Vice President and Corporate Controller from June 2010 until October 2012, and from September 2011 through June 2017, as Executive Vice President and Chief Financial Officer of EVB and EVB's parent company, Eastern Virginia Bankshares, Inc., which was also registered under Section 12 of the Exchange Act. He is a graduate of Shepherd University with a B.S. in Accounting.

***Elizabeth ("Betsy") J. Eicher***, 45, has served as Chief Accounting Officer of the Company since November 2019 and Senior Vice President and Chief Financial Officer of Delmarva since 2015. Ms. Eicher also served as Senior Vice President and Chief Financial Officer of the Company from 2015 to November 2019. She is a certified public accountant and a member of the American Institute of Public Accountants and the Maryland Association of Certified Public Accountants. Prior to joining the Company and Delmarva, she was an Accounting Manager at TGM Group LLC, where she had served in progressively responsible roles as an accountant on external audits since 2005. She is a graduate of Salisbury University with a B.S. in Accounting, and she has a B.S. in Psychology from the University of Pittsburgh at Johnstown.

#### CORPORATE GOVERNANCE
***Audit and Compliance Committee***

The Board has a standing Audit & Compliance Committee. Current members of the Audit & Compliance Committee are Mr. Granger (Chair), Ms. Albertine, Mr. Snead and Mr. Wheatley. In addition, Steven R. Mote served as a member of the Audit & Compliance Committee in 2022 until his retirement as a director of the Company effective December 14, 2022. The Board has determined that Mr. Granger's past employment experience in finance or accounting, has resulted in his financial sophistication, and he qualifies as an "audit committee financial expert" within the meaning of applicable regulations of the SEC. The Board has determined that the members of the Audit & Compliance Committee are, and during 2022 were, independent under the heightened standards of independence required by Section 5605(c)(2)(A) of the Nasdaq rules and SEC Rule 10A-3.

The Board has adopted a written Audit & Compliance Committee charter that is publicly available in the "Who We Are" section of our website at *www.partnersbancorp.com*.

***Delinquent Section 16(a) Reports***

Pursuant to Section 16(a) of the Securities Exchange Act of 1934, each of the Company's directors, executive officers and persons who own more than 10% of the Company's securities is required to file reports of ownership and changes in ownership of the Company's securities with the SEC and to provide copies of such reports to the Company. To the Company's knowledge, based solely on a review of the information and reports furnished to the Company, the Company believes that all reporting persons timely filed all reports required under Section 16(a) during 2022, with the following exception: Mr. Snead reported three transactions late on a Form 4.

***Code of Business Conduct and Ethics***

The Company has adopted a Code of Business Conduct and Ethics that applies to its directors, executive officers (including its principal executive officer, principal financial officer and principal accounting officer or controller) and employees (the "Code"). The Code is publicly available in the "About Us" section of our website at

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*www.partnersbancorp.com*. If the Company chooses to no longer post the Code on its website, it will provide a free copy to any person upon written request to Partners Bancorp, c/o Office of the President and Chief Executive Officer, 2245 Northwood Drive, Salisbury, Maryland 21801. The Company intends to provide any required disclosure of any amendment to or waiver from the Code that applies to its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, under the "About Us" section of our website at *www.partnersbancorp.com* promptly following the amendment or waiver. The Company may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure.

The information contained on or connected to the Company's website is not incorporated by reference in this Annual Report on Form 10-K and should not be considered part of this or any other report that the Company files or furnishes to the SEC.

***Legal Proceedings and Family Relationships***

The Board is not aware of any directors' or executive officers' involvement in legal proceedings that would be material to an evaluation of their ability or integrity; nor is the Board aware of any family relationship between any of its directors or executive officers.

#### ITEM 11.&nbsp;&nbsp;&nbsp;&nbsp; EXECUTIVE COMPENSATION.
The Company's executive compensation program is designed to attract and retain highly skilled and motivated officers who will manage the Company in a manner to promote our growth and profitability, prudently preserve our capital, and advance the interests of our shareholders.

Delmarva and Partners currently have separate compensation programs. Compensation for executive officers of the Company, each of whom is also an executive officer of Delmarva or Partners, is initially approved by the board of directors or a committee of the board of directors of the respective bank and then reviewed and approved by the Compensation Committee of the Company. In their roles as chief executive officer of the respective banks, Mr. Breda and Mr. Harrison may make recommendations regarding the compensation of executive officers.

The following table sets forth a summary of certain information concerning the compensation awarded to or paid by the Company or its subsidiaries for services rendered in all capacities during the past two years to the following individuals (referred to herein as "named executive officers"):

● John W. Breda, President and Chief Executive Officer of the Company;

● Lloyd B. Harrison, III, Senior Executive Vice President of the Company;

● J. Adam Sothen, Chief Financial Officer of the Company;

● Betsy J. Eicher, Chief Accounting Officer, Secretary and Treasurer of the Company

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All compensation in the following table was paid by Delmarva for Mr. Breda and Mrs. Eicher, who are employees of Delmarva, and by Partners for Mr. Harrison and Mr. Sothen, who are employees of Partners. The Company shares the cost of compensation for the executive officers of the Company based on cost-sharing arrangements with each of Delmarva and Partners.

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Summary Compensation Table** | **Summary Compensation Table** | **Summary Compensation Table** | **Summary Compensation Table** | **Summary Compensation Table** | **Summary Compensation Table** | **Summary Compensation Table** |
|  |  |  |  | **Non-Equity** |  |  |
|  |  |  |  | **Incentive Plan** | **All Other** |  |
| **Name and Principal Position** | **Year** | **Salary** | **Bonus *(2)*** | **Compensation *(3)*** | **Compensation *(4)*** | **Total** |
| John W. Breda *President and Chief Executive Officer, Company; President and Chief Executive Officer, Delmarva (1)* | 2022 | $342732 | $102600 | $— | $29292 | $474624 |
|  | 2021 | $332750 | $66000 | $— | $42284 | $441034 |
| Lloyd B. Harrison, III *Senior Executive Vice President, Company; Chief Executive Officer, Partners (1)* | 2022 | $332750 | $9983 | $62223 | $40396 | $445352 |
|  | 2021 | $332750 | $9983 | $69877 | $52647 | $465257 |
| J. Adam Sothen *Chief Financial Officer, Company; Executive Vice President and Chief Financial Officer, Partners* | 2022 | $237000 | $6681 | $44318 | $7761 | $295760 |
|  | 2021 | $206000 | $6180 | $28840 | $9923 | $250943 |
| Betsy J. Eicher *Chief Accounting Officer, Secretary and Treasurer, Company; Senior Vice President and Chief Financial Officer, Delmarva* | 2022 | $187787 | $71400 | $— | $4113 | $263300 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Mr. Breda served as President and Chief Operating Officer of the Company until December 8, 2022, at which time he became President and Chief Executive Officer of the Company. Mr. Harrison served as Chief Executive Officer of the Company until December 8, 2022, at which time he became Senior Executive Vice President of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) For Mr. Breda, for 2022 and 2021, and for Mrs. Eicher, for 2022, reflects a discretionary bonus awarded for performance. For Mr. Harrison and Mr. Sothen, for 2022 and 2021, reflects a bonus under the Partners Discretionary Profit Sharing Plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Reflects bonus awarded for 2022 and 2021 performance under the Partners management incentive plan.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) All other compensation for 2022 consisted of the following:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**Name** | **Car**<br>**Allowance/**<br>**Company Car (1)** | **Company-paid**<br>**Life Insurance**<br>**Premiums (2)** | **401(k)**<br>**Matching**<br>**Contributions** | <br><br>**Other (3)** |
| John W. Breda | $16885 | $3352 | $9055 | $— |
| Lloyd B. Harrison, III | $25406 | $5162 | $7554 | $2274 |
| J. Adam Sothen | $— | $— | $7761 | $— |
| Betsy J. Eicher | $— | $— | $4113 | $— |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) For Mr. Breda, reflects cost to Delmarva to provide company-owned car, including depreciation, with all maintenance, operating and insurance expense paid by Delmarva. For Mr. Harrison, reflects cost to Partners to provide company-owned car, including depreciation, with all maintenance, operating and insurance expense paid by Partners.

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) For Mr. Breda, reflects cost to Delmarva to provide supplemental life insurance per his employment agreement. For Mr. Breda, no amounts are included with respect to BOLI because Delmarva had no incremental cost attributable to BOLI in 2022. For Mr. Harrison, reflects cost to Partners to provide supplemental life insurance per his employment agreement. For Mr. Harrison, no amounts are included with respect to BOLI because Partners had no incremental cost attributable to BOLI in 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Mr. Breda reimburses Delmarva for any club expenses related to personal use. For Mr. Harrison, reflects cost to Partners to reimburse for business-related club expenses per his employment agreement.

***Equity Compensation***

The following table sets forth, on an award by award basis, information concerning all awards of stock options held by the named executive officers at December 31, 2022. All stock options were granted with an exercise price of 100% of fair market value as determined in accordance with the Company's equity compensation plans (including acquired plans). The number of shares subject to each award and the exercise price have been adjusted to reflect any stock dividends, stock splits and merger or share exchange assumption adjustments effected after the date of such award, but have not otherwise been modified. None of the named executive officers held any unvested restricted stock or restricted stock units at December 31, 2022.

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| | | | | |
|:---|:---|:---|:---|:---|
| **Outstanding Equity Awards at 2022 Fiscal Year End** | **Outstanding Equity Awards at 2022 Fiscal Year End** | **Outstanding Equity Awards at 2022 Fiscal Year End** | **Outstanding Equity Awards at 2022 Fiscal Year End** | **Outstanding Equity Awards at 2022 Fiscal Year End** |
|  | **Option Awards** | **Option Awards** | **Option Awards** | **Option Awards** |
| **Name** | **Number of**<br>**Securities**<br>**Underlying**<br>**Unexercised**<br>**Options**<br>**Exercisable** | **Number of**<br>**Securities**<br>**Underlying**<br>**Unexercised**<br>**Options**<br>**Unexercisable** | <br>**Option**<br>**Exercise**<br>**Price** | <br>**Option**<br>**Expiration**<br>**Date** |
| John W. Breda |  |  | $— |  |
| Lloyd B. Harrison, III |  |  | $— |  |
| J. Adam Sothen | 25768 |  | $7.72 | 4/16/2028 |
| Betsy J. Eicher |  |  | $— |  |

---

All outstanding stock options were granted under equity plans that the Company assumed in connection with a merger or share exchange.

***Employment Agreements and Benefit Plans***

*John W. Breda.* In connection with the acquisition of Partners through an exchange of shares in an all-stock transaction on November 15, 2019 (the "Share Exchange"), Mr. Breda entered into an Employment Agreement, dated December 13, 2018 (the "Breda Employment Agreement"), which became effective upon effectiveness of the Share Exchange. On November 4, 2021, the Company and Mr. Breda entered into the First Amendment to the Breda Employment Agreement (together with the Breda Employment Agreement, the "Amended Breda Employment Agreement"). Under the Amended Breda Employment Agreement, Mr. Breda initially served as Chief Operating Officer of the Company and President and Chief Executive Officer of Delmarva. On the management succession date contemplated under the Amended Breda Employment Agreement, which was December 8, 2022 (the "Management Succession Date"), Mr. Breda became President and Chief Executive Officer of the Company. Mr. Breda also remained President and Chief Executive Officer of Delmarva. Subject to election requirements, Mr. Breda will also serve as a director of the Company and Delmarva. The Amended Breda Employment Agreement had an initial term of three years and will be automatically renewed for successive one year periods, unless a party decides not to renew the agreement and provides notice thereof 60 days prior to the applicable renewal period or the agreement is terminated in accordance with its terms.

Under the Amended Breda Employment Agreement, Mr. Breda initially received a base salary of $275,000 per year, increasing a minimum of ten percent on January 1, 2020 and January 1, 2021, with further increases being

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subject to the discretion of Delmarva's board of directors with the recommendation of the compensation committee. Delmarva also provides benefits to Mr. Breda, such as five weeks of vacation, a car allowance, life insurance, retirement plans, reimbursement for business-related club expenses, reimbursement of legal and tax fees up to $7,500 in connection with the negotiation of the employment agreement, and all other benefits that Delmarva or the Company provide from time to time to senior executives. Mr. Breda is entitled to bonus incentive payments as approved by the Company Board and equity awards as approved by the Company Board or compensation committee. These stock awards vest upon a change in control event, as defined in the employment agreement. Also in connection with a change in control, Mr. Breda will be paid three times his salary over 36 months and one times his average bonus. Mr. Breda will also be provided with benefits during such 36-month period.

Mr. Breda's employment agreement will automatically terminate upon the death or "Disability," as defined in the employment agreement, of Mr. Breda. The Company or Delmarva may terminate the employment agreement immediately for "Cause," as defined in the employment agreement, and may terminate the employment agreement without Cause upon providing 60 days prior notice. Additionally, the Company or Delmarva may terminate the employment agreement for regulatory purposes, which means the employment agreement needs to be revised as a result of applicable statute, rule, regulation, order, agreement or understanding promulgated by any bank regulatory agency and the parties cannot agree on the changes necessary to bring the employment agreement in compliance. Mr. Breda may terminate the employment agreement with "Good Reason," as defined in the employment agreement, and may terminate the employment agreement without Good Reason upon providing 60 days prior notice. In connection with a termination without Cause or for Good Reason, Mr. Breda will be paid his salary for the longer of 12 months or the remainder of the then-current term and continue to receive health insurance.

The employment agreement also contains non-compete, non-solicitation, non-interference, return of documents and confidentiality provisions. Additionally, Mr. Breda agrees to devote his full business time and attention to his duties, and may not perform services for or obtain a financial or ownership interest in any other entity without the consent or approval of the Company and Delmarva boards of directors.

*Lloyd B. Harrison, III.* In connection with the Share Exchange, Mr. Harrison entered into an Employment Agreement, dated December 13, 2018 (the "Harrison Employment Agreement"), which became effective upon effectiveness of the Share Exchange. On November 4, 2021, the Company and Mr. Harrison entered into the First Amendment to the Harrison Employment Agreement and on December 8, 2022, the Company and Mr. Harrison entered into the Second Amendment to the Harrison Employment Agreement (together with the Harrison Employment Agreement, the "Amended Harrison Employment Agreement").

Under the Amended Harrison Employment Agreement, Mr. Harrison initially served as Chief Executive Officer of the Company and as Chief Executive Officer of Partners. On the Management Succession Date (defined as described above with respect to the Amended Breda Employment Agreement) contemplated under the Amended Harrison Employment Agreement, Mr. Harrison departed the position of Chief Executive Officer of the Company and became Senior Executive Vice President of the Company. Mr. Harrison continues to serve as Chief Executive Officer of Partners. Subject to election requirements, Mr. Harrison will also serve as a director of the Company and Partners. The Amended Harrison Employment Agreement had an initial term of three years and will be automatically renewed for successive one year periods, unless a party decides not to renew the agreement and provides notice thereof 60 days prior to the applicable renewal period or the agreement is terminated in accordance with its terms.

Under the Amended Harrison Employment Agreement, Mr. Harrison initially received a base salary of $275,000 per year, increasing a minimum of ten percent on each of January 1, 2020 and January 1, 2021, with further increases being subject to the discretion of Partners' board of directors with the recommendation of the compensation committee. Partners also provides benefits to Mr. Harrison, such as five weeks of vacation, use of a company car, life insurance, retirement plans, reimbursement for business-related club expenses, reimbursement of legal and tax fees up to $7,500 in connection with the negotiation of the employment agreement, and all other benefits that Partners or the Company provide from time to time to senior executives. Mr. Harrison is entitled to bonus incentive payments as approved by the Company Board and equity awards as approved by the Company Board or compensation committee. These stock awards vest upon a change in control event, as defined in the employment agreement. In connection with a

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change in control, Mr. Harrison will be paid three times his salary over 36 months and one times his average bonus. Mr. Harrison will also be provided with benefits during such 36-month period.

Mr. Harrison's employment agreement will automatically terminate upon the death or "Disability," as defined in the employment agreement, of Mr. Harrison. The Company or Partners may terminate the employment agreement immediately for "Cause," as defined in the employment agreement, and may terminate the employment agreement without Cause upon providing 60 days prior notice. Additionally, the Company or Partners may terminate the employment agreement for regulatory purposes, as described above in connection with the Amended Breda Employment Agreement. Mr. Harrison may terminate the employment agreement with "Good Reason," as defined in the employment agreement, and may terminate the employment agreement without Good Reason upon providing 60 days prior notice. Additionally, Mr. Harrison may terminate the employment agreement within one year after the Management Succession Date. In connection with a termination without Cause or for Good Reason, Mr. Harrison will be paid his salary for the longer of 12 months or the remainder of the then-current term and continue to receive health insurance. Mr. Harrison will receive the same benefits for a one year period if he terminates his employment within one year after the Management Succession Date.

Mr. Harrison's employment agreement contains non-compete, non-solicitation, non-interference, return of documents and confidentiality provisions. Additionally, Mr. Harrison agrees to devote his full business time and attention to his duties, and may not perform services for or obtain a financial or ownership interest in any other entity without the consent or approval of the Company and Partners boards of directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;*J. Adam Sothen*. Upon effectiveness of the Share Exchange, Mr. Sothen became Chief Financial Officer of the Company, in addition to continuing to serve as Executive Vice President and Chief Financial Officer of Partners. Mr. Sothen continues to serve under his pre-existing employment agreement with Partners, effective as of December 1, 2018. The employment agreement had an initial term of one year and will be automatically renewed for successive one year periods, unless either party provides written notice of non-renewal 60 days prior to the end of each renewal term or the agreement is otherwise terminated in accordance with its terms. Mr. Sothen is currently entitled to a base salary of $237,000 per year, subject to increase by Partners' board of directors or its designee. Mr. Sothen is eligible to participate in the bank's management incentive plan or other annual incentive plan, to receive equity awards and to participate in employee benefit plans, and is also entitled to five weeks of vacation, two weeks of personal leave and reimbursement of business-related expenses.

Mr. Sothen's employment agreement will terminate automatically upon the death of Mr. Sothen. Partners may terminate Mr. Sothen's employment with or without "Cause," as defined in the employment agreement, or in the event of "Incapacity," as defined in the employment agreement, upon 90 days prior written notice. Mr. Sothen may terminate the employment agreement with "Good Reason," as defined in the employment agreement, and may terminate the employment agreement without Good Reason upon 90 days prior written notice. In connection with a termination without Cause or for Good Reason within one year after a "Change of Control", as defined in the employment agreement, and subject to Mr. Sothen providing a release, Mr. Sothen will receive a lump sum payment equal to two times his salary, an additional lump sum payment equal to the highest annual bonus amount, if any, earned by Mr. Sothen during the preceding three years, and continued health care benefits for himself and his family for 18 months, with the bank paying the employer portion of the premium therefor. In connection with a termination without Cause or for Good Reason at any other time, and subject to Mr. Sothen providing a release, Mr. Sothen will be paid his base salary over a period of 12 months and will receive continued health care benefits for himself and his family for 12 months, with the bank paying the employer portion of the premium therefor.

The employment agreement also contains confidentiality, non-competition, non-piracy, and non-solicitation provisions.

*Betsy J. Eicher*. Upon effectiveness of the Share Exchange, Mrs. Eicher became Chief Accounting Officer of the Company, in addition to continuing to serve as Senior Vice President and Chief Financial Officer of Delmarva. Mrs. Eicher continues to serve under her pre-existing employment agreement with Delmarva, effective as of March 24, 2019. The employment agreement had an initial term of one year and will be automatically renewed for successive one year periods, unless either party provides written notice of non-renewal 60 days prior to the end of each renewal term or the

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agreement is otherwise terminated in accordance with its terms. Mrs. Eicher is currently entitled to a base salary of $196,980 per year, subject to increase by Delmarva's board of directors or its designee. Mrs. Eicher is eligible to receive equity awards and to participate in employee benefit plans, and is also entitled to four weeks of paid time off and reimbursement of business-related expenses.

Mrs. Eicher's employment agreement will terminate automatically upon the death of Mrs. Eicher. Delmarva may terminate Mrs. Eicher's employment with or without "Cause," as defined in the employment agreement, or in the event of "Incapacity," as defined in the employment agreement, upon 90 days prior written notice. Mrs. Eicher may terminate the employment agreement with "Good Reason," as defined in the employment agreement, and may terminate the employment agreement without Good Reason upon 90 days prior written notice. In connection with a termination without Cause or for Good Reason within one year after a "Change of Control", as defined in the employment agreement, and subject to Mrs. Eicher providing a release, Mrs. Eicher will receive a lump sum payment equal to one and a half times her salary, an additional lump sum payment equal to the highest annual bonus amount, if any, earned by Mrs. Eicher during the preceding three years, and continued health care benefits for herself and her family for 18 months, with the bank paying the employer portion of the premium therefor. In connection with a termination without Cause or for Good Reason at any other time, and subject to Mrs. Eicher providing a release, Mrs. Eicher will be paid her base salary over a period of 12 months, an additional lump sum payment equal to the highest annual bonus amount, if any, earned by Mrs. Eicher during the preceding three years, and will receive continued health care benefits for herself and her family for 12 months, with the bank paying the employer portion of the premium therefor.

The employment agreement also contains confidentiality, non-piracy, and non-solicitation provisions.

*Equity Compensation.* At the 2021 annual meeting of shareholders held on May 19, 2021, the Company's shareholders approved the Partners Bancorp 2021 Incentive Stock Plan (the "2021 Incentive Stock Plan"), which became effective on that date. The 2021 Incentive Stock Plan is administered by the Company's Compensation Committee. No equity awards were granted to executive officers of the Company under the 2021 Incentive Stock Plan during 2022.

*Partners Management Incentive Plan*. Partners maintains a management incentive plan for the purpose of awarding annual cash bonuses to certain employees of the bank, including Mr. Harrison and Mr. Sothen, based on the achievement of annual performance objectives established each year under the plan. The plan is designed to reward performance against key bank-wide strategic objectives. Each year the compensation committee of the board of directors of Partners develops a template setting forth the percentage of base salary opportunity, performance measures and goals selected from the bank's approved budget numbers or other objective measure and weightings assigned to each of the performance measures. The performance measures, goals and weightings assigned to them may change from year to year. The compensation committee of the board of directors of Partners approves or ratifies the amount of the bonus payout for each participant following the end of the annual performance period. Bonus payouts for executive officers of the Company are also reviewed and approved by the Company's Compensation Committee.

*Bank-Owned Life Insurance*. Partners offers life insurance benefits to certain employees, including Mr. Harrison, in the form of a split dollar plan. Under the split dollar plan, Partners owns the policy and cash values provide an annual return to Partners while providing a term insurance benefit to Mr. Harrison, utilizing bank owned life insurance (BOLI) with a portion of the death benefit endorsed to Mr. Harrison through a split dollar agreement. The amount endorsed under the BOLI equals 100% of Mr. Harrison's base salary at the time of death.

*Health and Welfare Benefits.* Delmarva and Partners provide health and welfare benefits to their respective executive officers, including the named executive officers, generally on the same basis as for all full-time employees of Delmarva and Partners. These benefits include medical, dental and vision insurance benefits, short-term and long-term disability insurance and life insurance coverage. The Company utilizes a partially self-funded medical plan and pays a portion of the premium attributable to each employee.

*401(k) Plan.* Delmarva's 401(k) plan allows all officers and employees of Delmarva working 1,000 hours or more in a calendar year to defer a portion of their compensation and provides a match of up to 3% of their base salaries, subject to certain IRS limitations. While the decision to match employee contributions is discretionary, all employees receive the same percentage match. During 2022, Delmarva made the maximum matching contributions.

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Partners' 401(k) plan allows all officers and non-temporary employees of Partners to defer a portion of their compensation and provides a match of up to 3% of their base salaries, subject to certain IRS limitations. While the decision to match employee contributions is discretionary, all employees receive the same percentage match. During 2022, Partners made the maximum matching contributions.

The Company, Delmarva and Partners do not maintain any non-equity incentive plans, deferred compensation, defined benefit or other defined contribution retirement plans, for named executive officers, or in which such executives may participate.

***Compensation of Directors***

During 2022, the Company, Delmarva and Partners paid an aggregate of $445,250 in director fees to the non-employee members of the Company's Board, including amounts paid for service as a member of the board of directors of Delmarva and Partners.

During 2022, non-employee directors of Delmarva were entitled to the following fees:

● annual retainer fee of $10,000; and

● annual retainer fee for chairman of the board of $66,000.

Non-employee directors of Delmarva were entitled to the following fees for meeting attendance:

● per Delmarva board meeting attendance fee of $350; and

● per Delmarva committee meeting attendance fee of $300.

During 2022, non-employee directors of the Company were entitled to the following fees:

● annual retainer fee for the board of $5,000;

● annual retainer fee for chairman of the board of $50,000;

● annual retainer fee for vice chairman of the board of $15,000;

● per Company board meeting attendance fee of $400; and

● per Company committee meeting attendance fee of $300 ($400 for committee chair).

During 2022, non-employee directors of Partners were entitled to the following fees:

● annual retainer fee of $6,000 ($10,000 for chairman of the board);

● additional annual committee chair retainer fee of $3,000 for audit & compliance committee and $2,000 for all other committees;

● per Partners board meeting attendance fee of $600 ($700 for chairman of the board); and

● per Partners committee meeting attendance fee of $300.

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The following table sets forth information regarding compensation paid to non-employee directors of the Company during the year ended December 31, 2022 for service as members of the Company's, Delmarva's and Partners' boards of directors and committees. Members of the Company's Board who are employees of the Company, Delmarva or Partners do not receive additional cash compensation for service on the board of directors or committees of the Company, Delmarva or Partners.

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| | | | |
|:---|:---|:---|:---|
| **Director Compensation for 2022** | **Director Compensation for 2022** | **Director Compensation for 2022** | **Director Compensation for 2022** |
|  | **Fees Earned or** | **All Other** |  |
| **Name (1)** | **Paid in Cash** | **Compensation (2)** | **Total** |
| Mona D. Albertine | $34600 | $— | $34600 |
| Michael W. Clarke | $30200 | $89800 | $120000 |
| Mark L. Granger | $32200 | $— | $32200 |
| Kenneth R. Lehman | $39150 | $— | $39150 |
| Steven R. Mote (3) | $27500 | $— | $27500 |
| George P. Snead | $46500 | $— | $46500 |
| James A. Tamburro | $41300 | $— | $41300 |
| Jeffrey F. Turner | $150200 | $— | $150200 |
| Robert C. Wheatley | $43600 | $— | $43600 |
|  | $445250 | $89800 | $535050 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Messrs. Breda and Harrison are executive officers of the Company and do not receive additional cash compensation for service on the Board or committees of the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) Mr. Clarke is entitled to receive total compensation of $120,000 per year for his service as a director of the Company and Partners and for his service as a consultant to Partners. The amount of the consulting fee paid by Partners for 2022 is equal to the difference between $120,000 and the combined annual retainer and meeting fee compensation Mr. Clarke earned as a director of the Company and Partners for 2022.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) Mr. Mote retired as a director of the Company effective December 14, 2022. Mr. Mote served on the board of directors of Partners for all of 2022.

The Company, Delmarva and Partners do not maintain any non-equity incentive plans or compensation programs, deferred compensation, defined contribution or defined benefit retirement plans, for non-employee directors, or in which such directors may participate.

At the 2021 annual meeting of shareholders held on May 19, 2021, the Company's shareholders approved the 2021 Incentive Stock Plan, which became effective on that date. The 2021 Incentive Stock Plan is administered by the Company's Compensation Committee. No equity awards were granted to directors under the 2021 Incentive Stock Plan during 2022.

*Consulting Agreement.* As previously disclosed, Mr. Clarke was appointed to the Company's Board on February 8, 2021. In addition to his service as a director of the Company and Partners, Mr. Clarke also provides consulting services to Partners to support the bank's expansion efforts into the Greater Washington and Northern Virginia markets, a geography in which Mr. Clarke has substantial experience. Mr. Clarke is entitled to receive total compensation of $120,000 per year for his service as a director of the Company and Partners and for his service as a consultant to Partners. The amount of the consulting fee paid by Partners each year will be equal to the difference between $120,000 and the combined annual retainer and meeting fee compensation Mr. Clarke earns as a director of the Company and Partners for that year.

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#### ITEM 12.&nbsp;&nbsp;&nbsp;&nbsp; SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth as of March 22, 2023, the amount and percentage of the common stock of the Company beneficially owned by each director, each named executive officer and all directors and current executive officers of the Company as a group. Unless otherwise indicated, each person has sole voting power and sole investment power with respect to the securities shown. The business address of each director and executive officer is the Company's principal address. For purposes of this table, beneficial ownership has been determined in accordance with the provisions of Rule 13d-3 of the Exchange Act under which, in general, a person is deemed to be the beneficial owner of a security if he or she has or shares the power to vote or direct the voting of the security or the power to dispose of or direct the disposition of the security, or if he or she has the right to acquire beneficial ownership of the security within 60 days ("presently exercisable"). Unless otherwise indicated, none of the shares listed below are pledged as collateral for a loan.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| <br>**Name of Beneficial Owner** | **Number of Shares of Common Stock**<br>|  | **Shares Subject to Exercisable Options**<br>| **Total Number of Shares Beneficially Owned**<br>| **Percent of Class (1)**<br>|
| *Directors* |  |  |  |  |  |
| Mona D. Albertine | 56778 | (2)  |  | 56778 | \* |
| John W. Breda | 29946 |  |  | 29946 | \* |
| Michael W. Clarke | 203964 |  |  | 203964 | 1.13% |
| Mark L. Granger | 30797 | (3) |  | 30797 | \* |
| Lloyd B. Harrison, III | 199170 | (4) |  | 199170 | 1.11% |
| Kenneth R. Lehman | 7386431 | (5) |  | 7386431 | 41.07% |
| George P. Snead | 24161 |  |  | 24161 | \* |
| James A. Tamburro | 21644 | (6) |  | 21644 | \* |
| Jeffrey F. Turner | 59682 | (7) |  | 59682 | \* |
| Robert C. Wheatley | 15122 |  |  | 15122 | \* |
| *Named Executive Officers Who are Not Directors* |  |  |  |  |  |
| J. Adam Sothen |  |  | 25768 | 25768 | \* |
| Betsy J. Eicher |  |  |  |  | \* |
| All Directors and Current Executive Officers as a Group (12 persons) | 8027695 |  | 25768 | 8053463 | 44.78% |

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\* Percentage of ownership is less than one percent of outstanding shares.

(1)Each percentage is based on 17,985,577 shares of common stock issued and outstanding on March 22, 2023.

(2)Amount includes 46,383 shares over which Ms. Albertine shares voting and investment power with her spouse.

(3)Amount includes 18,750 shares held by his mother over which Mr. Granger shares voting and investment power.

&nbsp;&nbsp;&nbsp;&nbsp;(4) Amount includes 80,117 shares over which Mr. Harrison shares voting and investment power with his spouse and 34,358 shares held in Mr. Harrison's spouse's IRA account, for which account Mr. Harrison disclaims beneficial ownership.

(5)All of these shares are pledged as collateral for a loan.

&nbsp;&nbsp;&nbsp;&nbsp;(6) Amount includes 700 shares held by Mr. Tamburro's spouse over which Mr. Tamburro shares voting and investment power with his spouse, 2,683 shares held jointly over which Mr. Tamburro shares voting and investment power with his spouse, 566 shares held in Mr. Tamburro's spouse's IRA account over which account Mr. Tamburro

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shares voting and investment power with his spouse, 488 shares held by Mr. Tamburro's spouse as custodian for their children over which Mr. Tamburro shares voting and investment power with his spouse, 70 shares held by Mr. Tamburro's spouse in trust for their children over which Mr. Tamburro shares voting and investment power with his spouse, and 72 shares held by Mr. Tamburro as custodian for their child over which Mr. Tamburro shares voting and investment power with his spouse.

&nbsp;&nbsp;&nbsp;&nbsp;(7) Amount includes 29,002 shares over which Mr. Turner shares voting and investment power with his spouse and 6,012 shares held by JFT LLC, of which Mr. Turner is the sole member and owner.

***Equity Compensation Plan Information***

The following table sets forth information as of December 31, 2022 about the Company's existing equity compensation plans pursuant to which equity securities are authorized for issuance, which includes the 2021 Incentive Stock Plan and certain plans assumed by the Company in connection with either the merger of Liberty with and into Delmarva or the Share Exchange between the Company and Partners.

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| | | | |
|:---|:---|:---|:---|
|  | Equity Compensation Plan Information | Equity Compensation Plan Information | Equity Compensation Plan Information |
|  | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights  | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))  |
| Plan Category | (a) | (b) | (c) |
| &nbsp;&nbsp;Equity compensation plans approved by security holders  |  |  | 1155000 |
| &nbsp;&nbsp;Equity compensation plans not approved by security holders  | (1) | (1) | (1) |
| Total | (1) | (1) | 1155000 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) In connection with the merger of Liberty with and into Delmarva, the Company assumed the Liberty Plans, and each option outstanding under the Liberty Plans was converted into an option to purchase shares of Company common stock. At December 31, 2022, there were 4,733 options to purchase shares of Company common stock outstanding in connection with the assumed Liberty Plans, with a weighted-average exercise price of $4.14 per share. In connection with the Share Exchange between the Company and Partners, the Company assumed the Partners Stock Plans, and each option outstanding under the Partners Stock Plans was converted into an option to purchase shares of Company common stock. At December 31, 2022, there were 88,467 options to purchase shares of Company common stock outstanding in connection with the assumed Partners Stock Plans, with a weighted-average exercise price of $6.59 per share.

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#### ITEM 13.&nbsp;&nbsp;&nbsp;&nbsp; CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Delmarva and Partners have had, and expect to have in the future, banking transactions, including loans (which includes lines of credit), in the ordinary course of business with some of the Company's, Delmarva's and Partners' directors and executive officers and their associates. All such transactions have been on substantially the same terms, including interest rates, maturities and collateral requirements as those prevailing at the time for comparable transactions with non-affiliated persons and did not involve more than the normal risk of collectability or present other unfavorable features. Loans to insiders require approval by the respective bank's Board, with any interested director not participating. Delmarva and Partners also apply the same standards to any other transaction with an insider. Additionally, loans to directors or their related parties must be approved by the respective bank's Directors' Loan Committee and are reported to the Company's Board and Audit & Compliance Committee. Other related party transactions involving directors must be reviewed and approved by the Board or the Audit & Compliance Committee.

The maximum aggregate amount of loans (including lines of credit) to officers, directors and affiliates of the Company during the years ended December 31, 2022 and 2021 amounted to $30.5 million and $28.0 million, respectively. This represents approximately 21.9% and 19.8% of the Company's total shareholders' equity at December 31, 2022 and 2021, respectively. The aggregate amount of such loans outstanding at December 31, 2022 and 2021 to individuals who were officers, directors or affiliates of the Company during the year was $25.2 million and $22.0 million, respectively. None of such loans was classified as past due, nonaccrual or troubled debt restructurings at December 31, 2022 or 2021. In the opinion of the Company's Board, the terms of these loans are no less favorable to Delmarva or Partners than terms of the loans from Delmarva or Partners to unaffiliated parties. At the time each loan was made, management believed that these loans involved no more than the normal risk of collectability and did not present other unfavorable features.

***Director Independence***

As required under Nasdaq listing standards, a majority of the members of a listed company's board must qualify as "independent," as affirmatively determined by the board. Consistent with this consideration, after review of all relevant identified transactions or relationships between each director, or any of his or her family members, and the Company and its senior management, the Company's Board has affirmatively determined that each current director, other than Mr. Breda and Mr. Harrison, is, and all directors serving during fiscal 2022, other than Mr. Breda and Mr. Harrison, were, "independent directors" within the meaning of the applicable Nasdaq listing standards. These independent directors are: Jeffery F. Turner, George P. Snead, Mona D. Albertine, Michael W. Clarke, Mark L. Granger, Kenneth R. Lehman, James A. Tamburro, Robert C. Wheatley and former director Steven R. Mote, who retired as a director of the Company effective December 14, 2022. In determining that Mr. Clarke is an independent director, the Board considered Mr. Clarke's consulting relationship with Partners and all other relevant information.

In reaching these conclusions, the Company's Board found that none of the directors determined to be independent had a material or other disqualifying relationship with the Company. The Board was aware of and considered the loan and deposit relationships with directors and their related interests which Partners and Delmarva enter into in the ordinary course of business, which are disclosed under "Certain Relationships and Related Transactions, and Director Independence" described above as well as the employment and consulting arrangements described under "Compensation of Directors" and "Executive Compensation."

#### ITEM 14.&nbsp;&nbsp;&nbsp;&nbsp; PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The following table presents the aggregate fees for the Company and its subsidiaries, for professional audit services rendered by Yount, Hyde and Barbour P.C. ("YHB") for 2022 and 2021 for the audit of the annual financial statements of the Company for the years ended December 31, 2022 and 2021, and fees billed for other services rendered

[**Table of Contents**](#TOC)

by YHB during those periods. All services reflected in the following table for 2022 and 2021, including the fees and terms thereof, were pre-approved in accordance with the charter of the Audit & Compliance Committee of the Board.

---

| | | |
|:---|:---|:---|
| **Year Ended December 31,** | **2022** | 2021 |
| Audit Fees (1) | $**205800** | $144250 |
| Audit-Related Fees | **—** |  |
| Tax Fees  | **—** |  |
| All Other Fees | **—** |  |
|  | $**205800** | $144250 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Audit fees consist of audit and review services, consents, and review of documents filed with the SEC.

***Pre-Approval Policies and Procedures***

Pursuant to the terms of its charter, the Audit & Compliance Committee is responsible for the appointment, compensation and oversight of the work performed by the Company's independent registered public accounting firm. The Audit & Compliance Committee, or a designated member of the Audit & Compliance Committee, must pre-approve all audit (including audit-related) and non-audit services performed by the independent registered public accounting firm to ensure that the provisions of such services does not impair the independent registered public accounting firm's independence.

#### PART IV

#### ITEM 15.&nbsp;&nbsp;&nbsp;&nbsp; EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

---

| | |
|:---|:---|
| (a)1. | Financial Statements: |
|  | Report of Independent Registered Public Accounting Firm |
|  | Consolidated Balance Sheets as of December 31, 2022 and 2021 |
|  | Consolidated Statements of Income for the years ended December 31, 2022 and 2021 |
|  | Consolidated Statements of Comprehensive Income for the years ended December 31, 2022 and 2021<br>Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2022 and 2021 |
|  | Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 |
|  | Notes to Consolidated Financial Statements |
| (a)2. | Financial Statement Schedules: |
|  | There are no Financial Statement Schedules included with this filing for the reason that they are not applicable or are not required or the information is included in the financial statements or notes thereto. |
| (a)3.(b) | Exhibits: |
|  | The exhibits filed or furnished with this annual report are shown on the Exhibit Index that preceeds the signatures to this annual report, which index is incorporated herein by reference. |

---

---

| | |
|:---|:---|
| **ITEM 16.** | **Form 10-K Summary** |

---

Not applicable

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#### EXHIBIT INDEX

---

| | |
|:---|:---|
| **Exhibit No.** |  |
| 2.1<sup>+</sup> | [Agreement and Plan of Merger, dated as of February 22, 2023, by and between LINKBANCORP, Inc. and Partners Bancorp (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed on February 22, 2023).](https://www.sec.gov/Archives/edgar/data/832090/000110465923024342/tm237536d1_ex2-1.htm) |
| 3.1 | [Articles of Incorporation of Partners Bancorp, with amendments thereto (incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 filed on May 10, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919003016/a2238777zex-3_1.htm)  |
| 3.1.1 | [Amendment to the Articles of Incorporation of Partners Bancorp, dated December 20, 2019 (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on December 20, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000155837019011662/ex-3d1.htm) |
| 3.1.2 | [Amendment to the Articles of Incorporation of Partners Bancorp, effective as of August 19, 2020 (incorporated by reference to Exhibit 3.1.2 to the Company's Current Report on Form 8-K filed on August 20, 2020).](https://www.sec.gov/Archives/edgar/data/832090/000110465920097290/tm2029063d1_ex3-12.htm) |
| 3.2 | [Bylaws of Partners Bancorp (incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on August 20, 2020).](https://www.sec.gov/Archives/edgar/data/832090/000110465920097290/tm2029063d1_ex3-2.htm) |
| 4.1 | [Specimen Certificate for Common Stock (incorporated by reference to Exhibit 3.1 to the Company's Form 1-A filed on November 22, 2017).](https://www.sec.gov/Archives/edgar/data/832090/000110465917070126/a17-27433_1ex1a3hldrsrtsd1.htm)  |
| 4.2 | [Description of the Company's Registered Securities (incorporated by reference to Exhibit 4.2 to the Company's Annual Report on Form 10-K filed on March 30, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000155837021003683/ptrs-20201231ex424770749.htm) |
| 4.3 | [Form of Subordinated Note (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on June 30, 2020).](https://www.sec.gov/Archives/edgar/data/832090/000110465920079066/tm2023647d1_ex4-1.htm) |
| 10.1 | [Form of Subordinated Note Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 30, 2020).](https://www.sec.gov/Archives/edgar/data/832090/000110465920079066/tm2023647d1_ex10-1.htm) |
| 10.2\* | [Employment Agreement, dated as of December 13, 2018, among John W. Breda, Partners Bancorp and The Bank of Delmarva (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on S-4 (Registration No. 333-230599) filed on March 29, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919001767/a2238212zex-10_4.htm) |
| 10.3\* | [First Amendment, effective as of November 4, 2021, to the Employment Agreement, dated as of December 13, 2018, among John W. Breda, Partners Bancorp and The Bank of Delmarva (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on November 4, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000110465921134461/tm2131862d4_ex10-2.htm) |
| 10.4\* | [Employment Agreement, dated as of December 13, 2018, among Lloyd B. Harrison, III, Partners Bancorp and Virginia Partners Bank (incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on S-4 (Registration No. 333-230599) filed on March 29, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919001767/a2238212zex-10_6.htm) |
| 10.5\* | [First Amendment, effective as of November 4, 2021, to the Employment Agreement, dated as of December 13, 2018, by and among Lloyd B. Harrison, III, Partners Bancorp and Virginia Partners Bank (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 4, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000110465921134461/tm2131862d4_ex10-1.htm)<br>|

---

[**Table of Contents**](#TOC)

---

| | |
|:---|:---|
| 10.6\* | [Second Amendment, effective as of December 8, 2022, to the Employment Agreement, dated as of December 13, 2018 and amended on November 4, 2021, by and among Lloyd B. Harrison, III, Partners Bancorp and Virginia Partners Bank (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on December 8, 2022).](https://www.sec.gov/Archives/edgar/data/832090/000110465922125333/tm2232151d1_ex10-1.htm)<br>|
| 10.7\* | [Delmar Bancorp 2014 Stock Plan (incorporated by reference to Exhibit 6.3 to the Company's Form 1-A filed on November 22, 2017).](https://www.sec.gov/Archives/edgar/data/832090/000110465917070126/a17-27433_1ex1a6matctrctd3.htm)<br>|
| 10.8\* | [Delmar Bancorp 2004 Stock Plan (incorporated by reference to Exhibit 6.4 to the Company's Form 1-A filed on November 22, 2017).](https://www.sec.gov/Archives/edgar/data/832090/000110465917070126/a17-27433_1ex1a6matctrctd4.htm)<br>|
| 10.9\* | [Liberty Bell Bank 2004 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.9 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 filed on May 10, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919003016/a2238777zex-10_9.htm) |
| 10.10\* | [Liberty Bell Bank Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 10.10 to Pre-Effective Amendment No. 1 to the Company's Registration Statement on Form S-4 filed on May 10, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919003016/a2238777zex-10_10.htm) |
| 10.11\* | [Employment Agreement dated as of March 24, 2019 between Elizabeth Eicher and The Bank of Delmarva (incorporated by reference to Exhibit 10.11 to the Company's Registration Statement on S-4 (Registration No. 333-230599) filed on March 29, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919001767/a2238212zex-10_11.htm) |
| 10.12\* | [Employment Agreement dated as of December 1, 2018 between Adam Sothen and Virginia Partners Bank (incorporated by reference to Exhibit 10.12 to the Company's Registration Statement on S-4 (Registration No. 333-230599) filed on March 29, 2019).](https://www.sec.gov/Archives/edgar/data/832090/000104746919001767/a2238212zex-10_12.htm) |
| 10.13\* | [Virginia Partners Bank 2008 Incentive Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on S-8 (Registration No. 333-237151) filed on March 13, 2020).](https://www.sec.gov/Archives/edgar/data/832090/000110465920032938/a20-12566_2ex4d1.htm) |
| 10.14\* | [Virginia Partners Bank 2015 Incentive Stock Option Plan (incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on S-8 (Registration No. 333-237151) filed on March 13, 2020).](https://www.sec.gov/Archives/edgar/data/832090/000110465920032938/a20-12566_2ex4d2.htm) |
| 10.15\* | [Virginia Partners Bank Form of Employee Incentive Stock Option Agreement under 2008 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K filed on March 30, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000155837021003683/ptrs-20201231ex1013ae2b5.htm) |
| 10.16\* | [Virginia Partners Bank Form of Employee Incentive Stock Option Agreement under 2015 Incentive Stock Option Plan (incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K filed on March 30, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000155837021003683/ptrs-20201231ex1014299d3.htm) |
| 10.17\* | [Summary of Virginia Partners Bank Management Incentive Plan (incorporated by reference to Exhibit 10.15 to the Company's Annual Report on Form 10-K filed on March 30, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000155837021003683/ptrs-20201231ex1015c8da8.htm) |
| 10.18\* | [Partners Bancorp 2021 Incentive Stock Plan (incorporated by reference to Exhibit 10.16 to the Company's Current Report on Form 8-K filed on May 20, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000110465921069927/tm2116891d1_ex10-16.htm) |
| 10.19\* | [Partners Bancorp Form of Time-Based Restricted Stock Agreement for Employees (incorporated by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000155837021015668/tmb-20210930xex10d19.htm) |
| 10.20\* | [Partners Bancorp Form of Time-Based Restricted Stock Agreement for Non-Employee Directors (incorporated by reference to Exhibit 10.20 to the Company's Quarterly Report on Form 10-Q filed on November 12, 2021).](https://www.sec.gov/Archives/edgar/data/832090/000155837021015668/tmb-20210930xex10d20.htm) |
| 21 | [Subsidiaries of the Registrant](ptrs-20221231xex21.htm) |
| 23.1 | [Consent of Yount Hyde & Barbour P.C.](ptrs-20221231xex23d1.htm) |

---

[**Table of Contents**](#TOC)

---

| | |
|:---|:---|
| 31.1 | [Rule 13a-14(a)/15d-14(a) Certification of the Principal Executive Officer](ptrs-20221231xex31d1.htm) |
| 31.2 | [Rule 13a-14(a)/15d-14(a) Certification of the Principal Financial Officer](ptrs-20221231xex31d2.htm) |
| 32.1 | [Section 1350 Statement of Principal Executive Officer](ptrs-20221231xex32d1.htm) |
| 32.2 | [Section 1350 Statement of Principal Financial Officer](ptrs-20221231xex32d2.htm) |
| 101 | Interactive data files formatted in iXBRL (Inline Extensible Business Reporting Language) from this Annual Report: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Cash Flows, (v) Consolidated Statements of Changes in Stockholders' Equity, and (vi) Notes to Consolidated Financial Statements. |
| 104 | The cover page from Partners Bancorp's Annual Report on Form 10-K for the year ended December 31, 2022, formatted in iXBRL (Inline Extensible Business Reporting Language) (included with Exhibit 101) |

---

<sup>+</sup> The schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. Partners Bancorp agrees to furnish a copy of such schedules and exhibits, or any section thereof, to the SEC upon request.

\* Indicates management contract or compensatory arrangement.

[**Table of Contents**](#TOC)

**SIGNATURES**

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| |
|:---|
| PARTNERS BANCORP |
| By: /s/ John W. Breda |
| Name: John W. Breda |
| Title: President & Chief Executive Officer<br>Date: March 29, 2023 |

---

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Name** | **Position** | **Date** |
| /s/ Mona D. Albertine<br>Mona D. Albertine  | Director | March 29, 2023 |
| /s/ John W. Breda<br>John W. Breda | President & Chief Executive Officer, Director <br>(Principal Executive Officer) | March 29, 2023 |
| /s/ Mark L. Granger<br>Mark L. Granger | Director | March 29, 2023 |
| /s/ Lloyd B. Harrison, III<br>Lloyd B. Harrison, III | <br>Senior Executive Vice President, Director | March 29, 2023 |
| /s/ Kenneth R. Lehman<br>Kenneth R. Lehman | Director | March 29, 2023 |
| /s/ George P. Snead<br>George P. Snead | Vice Chairman of the Board of Directors | March 29, 2023 |
| /s/ James A. Tamburro<br>James A. Tamburro | Director | March 29, 2023 |
| /s/ Jeffrey F. Turner<br>Jeffrey F. Turner | Chairman of the Board of Directors | March 29, 2023 |
| /s/ Robert C. Wheatley<br>Robert C. Wheatley | Director | March 29, 2023 |
| /s/ J. Adam Sothen<br>J. Adam Sothen | Chief Financial Officer <br>(Principal Financial Officer)  | March 29, 2023 |
| /s/ Betsy J. Eicher<br>Betsy J. Eicher | Chief Accounting Officer <br>(Principal Accounting Officer)  | March 29, 2023 |

---

## Ex-21

**EXHIBIT 21**

**SUBSIDIARIES OF THE REGISTRANT**

---

| | | |
|:---|:---|:---|
| **Name of Entity** | **Jurisdiction of Organization** | **Ownership Interest** |
| Delmar Bancorp - Registrant | Maryland |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The Bank of Delmarva | Delaware | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d/b/a in New Jersey as Liberty Bell Bank, a division of The Bank of Delmarva) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Delmarva Real Estate Holdings, LLC | Maryland | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Davie Circle, LLC | Delaware | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Delmarva BK Holdings, LLC | Maryland | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;DHB Development, LLC | Maryland | 40.55% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FBW, LLC | Maryland | 50.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Virginia Partners Bank  | Virginia | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d/b/a in Maryland as Maryland Partners Bank (a division of Virginia Partners Bank)) |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Bear Holdings, Inc.  | Virginia | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;410 William Street, LLC | Virginia | 100.00% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Johnson Mortgage Company, LLC | Virginia | 51.00% |

---

41906635

------

## Exhibit 23.1

![Graphic](ptrs-20221231xex23d1001.jpg) 

**EXHIBIT 23.1**

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements on Form S-8 (333-256417, 333-237151 and 333-237150) of Partners Bancorp of our report dated March 29, 2023, relating to the consolidated financial statements of Partners Bancorp, appearing in the Annual Report on Form 10-K of Partners Bancorp for the year ended December 31, 2022.

/s/ Yount, Hyde & Barbour, P.C.

Richmond, Virginia

March 29, 2023

------

## Exhibit 31.1

**EXHIBIT 31.1**

**CERTIFICATION**

I, John W. Breda, certify that:

1.&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this annual report on Form 10-K of Partners Bancorp;

2.&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.&nbsp;&nbsp;&nbsp;&nbsp; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.&nbsp;&nbsp;&nbsp;&nbsp; The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: March 29, 2023 |  |
|  | /s/ John W. Breda |
|  | John W. Breda |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

------

## Exhibit 31.2

**EXHIBIT 31.2**

**CERTIFICATION**

I, J. Adam Sothen, certify that:

1.&nbsp;&nbsp;&nbsp;&nbsp; I have reviewed this annual report on Form 10-K of Partners Bancorp;

2.&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.&nbsp;&nbsp;&nbsp;&nbsp; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.&nbsp;&nbsp;&nbsp;&nbsp; The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.&nbsp;&nbsp;&nbsp;&nbsp; The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

---

| | |
|:---|:---|
| Date: March 29, 2023 |  |
|  | /s/ J. Adam Sothen |
|  | J. Adam Sothen |
|  | Executive Vice President and Chief Financial Officer |
|  | (Principal Financial Officer) |

---

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## Exhibit 32.1

**EXHIBIT 32.1**

**Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350**

**(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)**

In connection with the Annual Report on Form 10-K for the year ended December 31, 2022 (the "Report"), I, John W. Breda, Principal Executive Officer of Partners Bancorp (the "Company") hereby certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp; The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp; The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| Dated: March 29, 2023 | /s/ John W. Breda |
|  | John W. Breda |
|  | Chief Executive Officer |
|  | (Principal Executive Officer) |

---

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## Exhibit 32.2

**EXHIBIT 32.2**

**Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350**

**(as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)**

In connection with the Annual Report on Form 10-K for the year ended December 31, 2022 (the "Report"), I, J. Adam Sothen, Principal Financial Officer of Partners Bancorp (the "Company") hereby certify that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.&nbsp;&nbsp;&nbsp;&nbsp; The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.&nbsp;&nbsp;&nbsp;&nbsp; The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

---

| | |
|:---|:---|
| Dated: March 29, 2023 | /s/ J. Adam Sothen |
|  | J. Adam Sothen |
|  | Executive Vice President and Chief Financial Officer |
|  | (Principal Financial Officer) |

---

------