Notes from the Ambassador Bank Vault September 20, 2016

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1 Notes from the Ambassador Bank Vault September 20, 2016 Investment Thesis Mergers & Acquisitions: A Look at Maryland, Delaware and Washington, D.C. You Can t Go Back and You Can t Stand Still Which form of proverb do you prefer, Better late than never, or Better never than late? Lewis Carroll. Thus far in 2016, deal activity has been quiet in our targeted market - only two transactions were announced with Maryland, Delaware, or Washington, D.C. sellers. In August, however, northern Virginia-based Cardinal Financial Corp. (NASDAQ: CFNL) agreed to be acquired by West Virginia-based United Bankshares, Inc. (NASDAQ: UBSI). There is a lack of larger out-of-state acquirers with the capacity to handle an acquisition at the present time, but we opine that deal pace should ultimately pick up particularly among banks with a presence inside or near the Washington Beltway. Those banks should be able to command outsized deal premiums as Washington s economy remains stronger and more resilient vs. other parts of Maryland and Delaware. As is the case for the community banking industry in general, there are many reasons for both sides to strike a bargain. Increased regulations, accounting issues, competition for talent, succession issues, earnings challenges, technology and cyber-security demands, and attractive deal premiums should encourage potential sellers. Buyers on the other hand, especially those with strong currencies, are motivated to gain potential synergies, increase economies of scale, and efficiently obtain core deposits. Buyers also pursue acquisitions strategically in order to gain or defend market share. Maryland, Delaware and Washington, D.C. should experience smaller deals as there are few banks with the scale to attract out-of-market acquirers. We expect the banking environment in more vibrant areas to become even more competitive as out-of-state super regionals seek to grow and seize market share from local institutions. Although Maryland is relatively small in size, the state is quite divided demographically, culturally, and economically. The broad markets consist of the Washington, D.C. metropolitan area, Baltimore County, Western Maryland, and the Eastern Shore. Maryland s community banks, therefore, tend to focus locally, rather than attempt to serve customers on a state-wide basis. The more dynamic economic activity is based in Montgomery County (near Washington, D.C.) and along the Washington-Baltimore corridor. Washington, D.C. has enjoyed an economic renaissance for many years and attracts large super-regional and money center banks. An exception is the absence of J.P. Morgan (NYSE: JPM) - the banking landscape changes dramatically if the company decides to compete there. Community banks based in northern Virginia have also established a meaningful presence in Washington, D.C. Delaware is divided between the Wilmington market (which benefits from its proximity to Philadelphia) and Lower Delaware. See Appendix A regarding more detailed demographics by county. At present, potential acquisitions by larger out-of-state institutions seem limited. The more logical buyers of Maryland, Delaware, and/or D.C. s community banks appear to be City Holding Company, (NASDAQ: CHCO), F.N.B. (NYSE: FNB), United Bankshares, Inc. (NASDAQ: UBSI). In the short-run, however, F.N.B. and United are likely to be observers until recent acquisitions are digested. Fulton Financial (NASDAQ; FULT) appears to be sidelined due to regulatory issues. Contacts: Rick Weiss Matt Resch Rob Pachence Dave Danielson John D. Putman rweiss@ambfg.com mresch@ambfg.com rpachence@ambfg.com ddanielson@ambfg.com jputman@ambfg.com 1

2 Highlights Maryland, Delaware, and the District of Columbia - the subjects of this Industry Report - are home to 70 regulated depository institutions, of which 34 are publicly-traded banks and thrifts. Most of these are relatively small as only Bancorp Inc. (NASDAQ: TBBK), Eagle Bancorp, Inc. (NASDAQ: EGBN), Sandy Spring Bancorp, Inc. (NASDAQ: SASR), and WSFS Financial Corporation (NASDAQ: WSFS) have assets greater than $2 billion. As we go to press, there were 172 bank and thrift deals announced nationally (2 involved Maryland, Delaware, and/or D.C. sellers) since January 1, Over the past decade or so, the banking landscape in these markets has changed dramatically. Distinctive midsized companies that sold include Mercantile Bankshares (PNC Financial Services (NYSE: PNC)), Provident Bancshares (M&T Bank Corp. (NYSE: MTB)), Riggs National (PNC), and Wilmington Trust (M&T). Over the past few years, deal activity has been relatively limited both size and number however, we continue to believe the Washington - Baltimore corridor merits further consolidation. Local banks are smaller and do not have the scale to duplicate the services provided by former mid-size banks. Banks, with assets below $1 billion or so, may sell in hopes of a double dip where the acquirer would pay a relatively higher price to increase size and reposition itself for a sale. The most significant 2016 deal announcement occurred in nearby northern Virginia: On August 18, United Bankshares agreed to acquire Cardinal Financial in an all-stock deal valued at approximately $912 million. The top seven banking institutions in Maryland combine for 76% of the state s deposit market share. Bank of America Corporation (NYSE: BAC) leads with 22% of that total. Both Sandy Spring and Eagle have approximately two percent deposit market share. Delaware banking is dominated by Bank of America, Capital One Financial Corporation (NYSE: COF), and Toronto- Dominion Bank (TSX: TD) with a combined 88% deposit market share. WSFS is in seventh place, but has a deposit market share of slightly less than two percent. The District of Columbia is also dominated by the large money center and super-regional banks. Eagle, which we consider to be locally headquartered, is the only Maryland community bank among the top ten, with a four percent deposit market share. On a pro forma basis, United Bankshares ranks as the tenth largest bank regarding deposit market share with 2.6% of total deposits. Maryland, Delaware, and Washington, D.C. are home to 7.7 million people, or 2.4% of the U.S. population. As of July 31, 2016, the unemployment rate in these states and D.C. were 4.3%, 4.3%, and 5.9%, respectively vs. the national rate of 4.9%. The smaller community banks are very competitive, but cannot offer cash management and other commercial services which the large banks provide. The larger and out-of-market banks tend to lack local decision making, and often treat smaller business loans as consumer loans without personalized service. Banks of all sizes need to upgrade and vigilantly prove to regulators that risk management systems are effective, which weigh down efficiency ratios and earnings in the short-run. Companies that invest in technology and enhanced management systems may need to seek strategic partnerships to realize economies of scale. One of the bigger cost elements related to compliance is staffing, and smaller companies in particular, are more likely to consolidate as they simply do not have enough interest-earning assets or other revenue drivers to offset increased fixed costs. Despite more widespread shareholder activism, consolidation activity could be restrained by managements desire to remain independent for social and other reasons, rather than strictly adhering to the discipline of maximizing shareholder value. Mergers of equals often make sense financially but rarely occur due to social factors. The difficulty of forming a de novo bank probably restricts deal activity, as sellers have one less career path option. 2

3 Table of Contents Investment Thesis... 1 Valuation Summary... 3 Investment Overview... 5 Recent Maryland, Delaware, and D.C. Deals... 8 Maryland Market Demographics Appendix A: Maryland, Delaware, and District of Columbia Bank Highlights Appendix B: Deposit Market Share by County Valuation Summary A rising tide lifts all boats and recent merger and acquisition activity (along with speculation) has impacted community bank valuations. Due to historically low interest rates, investor attention has also focused on dividend-paying stocks, which in turn, has helped boost the trading multiples of community bank stocks. Based on anecdotal evidence, it appears that there is disparity regarding pricing expectations between buyers and sellers. Acquirers often price deals based on tangible book value; and not necessarily earnings. It appears that potential buyers have balked at rich book value valuations and longer earn-back periods, even if deals are accretive to earnings. As of September 15, 2016 (when we went to press, the median price-to-trailing 12 month earnings and price-totangible book multiples for Maryland, Delaware, and District of Columbia banks and thrifts in the aggregate (ex. MHCs) with assets between $500 million and $15 billion were 16.8x and 105% respectively. As of the same date, all mid- Atlantic banks in the same asset range were trading at median multiples of 14.8x and 120%, respectively. Mid- Atlantic thrifts in the same asset range were trading at median multiples of x and 132%, respectively. Nationally, the median price-to-trailing 12 month earnings and price-to-tangible book multiples for banks in the same asset range were 15.2x and 131%, respectively. Nationally, the median price-to-trailing 12 month earnings and price-to-tangible book multiples for thrifts in the same asset range were 18.3x and 123%, respectively. Many of the stock prices of those banks are based on tangible book value, rather than earnings. 3

4 Figure 1 Median Bank Trading Multiples Price to LTM EPS (x) Q 2016 Price to Tangible Book Value (%) Price/LTM EPS Deal: Price/LTM EPS Price/TBV Deal: Price/TBV Includes all publicly traded U.S. banks Source: SNL Financial Figure 2 Median Thrift Trading Multiples Price to LTM EPS (x) Price to Tangible Book Value (%) Q 2016 Price/LTM EPS Price/TBV Deal: Price/LTM EPS Deal: Price/TBV Includes all publicly traded U.S. thrifts Source: SNL Financial 4

5 Investment Overview On a national basis, merger activity has been reasonably steady, but has fallen a bit short of investors eager expectations. Merger and acquisition activity is likely to remain in this state for the foreseeable future as both potential buyers and sellers have the means and motivation to enter into strategic partnerships. Smaller companies, in particular, face earnings challenges and ever-increasing regulatory demands, but there still is a pricing disparity between sellers expectations and buyers ability to pay market premiums without incurring significant earnings dilution. In the meantime, bank valuations appear pricey based strictly on fundamentals. We also believe deals will be concentrated in robust markets where buyers have a better chance of accelerating earnings growth, although franchises located in slow growing markets can be desirable because of their core deposits. Since the mid 1980s, there have been thousands of acquisitions/mergers as the number of banks decreased from approximately 15,000 to approximately 5,500 today. The banking landscape in Maryland, Delaware, and Washington, D.C. is dominated by out-of-state financial companies and back-filled with smaller community banks. Most of these out-of-state financial companies are considered systemically important financial institutions (SIFIs) by regulators, and therefore, further consolidation activities by those companies are subject to regulatory and political factors. Given its position as the third largest depository institution in the United States, J.P. Morgan is conspicuous by its near-absence in Maryland and Washington, D.C. Increased commercial real estate ( CRE ) loan concentration has attracted more regulatory scrutiny. Bank regulators, including The Office of the Comptroller of the Currency ( OCC ), the Board of Governors of the Federal Reserve System ( Fed ), and the Federal Deposit Insurance Corporation ( FDIC ) have greater concerns regarding low capitalization rates and fast-appreciating property values. These agencies also noted that CRE loan underwriting standards have eased and certain risk management practices at some institutions that cause concern include a greater number of underwriting policy exceptions and insufficient monitoring of market conditions. The agencies specified supervisory criteria that they intend to focus on to reduce portfolio risk: (1) total construction, land development and other land loans representing 100% or more of total risk-based capital; (2) total CRE loans representing 300% or more of total risk-based capital; and (3) if the outstanding balance of the institution s CRE and/or construction loan portfolio increased 50% or more during the prior 36 months. Institutions with outsized CRE loan portfolios may expect regulators to require more detailed plans to identify, measure, and monitor CRE concentrations; raise underwriting standards; slow growth; and/or to raise capital. We believe that some management teams will prefer to sell the institution instead. Anecdotal evidence suggests some New Jersey institutions are slowing growth and/or tightening underwriting standards as a result. Recent sellers that considered potential loan concentration issues include Long Island-based Suffolk Bancorp (NYSE: SCNB) and First Capital Bancorp of Virginia. Earnings pressure is likely to continue for most financial institutions. Net interest margins remain under pressure as newly-originated loans generally have yields lower than those of legacy loans and funding costs cannot be significantly reduced at this point. We also believe that well-run banks are fairly efficient and will be unable to increase profits substantially through cost-cutting measures. The local economies have improved, but we believe organic commercial loan growth will not be sufficient to offset the aforementioned earnings challenges. As shown in Figure 3 below, the slope of today s yield curve closely resembles that from September 15, 2005, even though absolute levels of interest rates are much lower. By September 15, 2006 (the same date, ten years ago) the curve inverted as short-term rates rose quicker than longer-term rates. (The Fed started to raise rates in June 2004 and continued through 2006.) 5

6 We believe the yield curve could flatten more and invert again should the Fed decide to materially raise Fed funds rates. If so, banks will face the same problems as in the previous decade. When the curve flattened in 2005 and then inverted by mid-2006, net interest margins compressed and eventually credit soured from pristine levels as banks tried to boost earnings through higher-yielding, but riskier loans and investment securities. Although credit quality generally remained steadfast through the second quarter of 2016, results from the latest Shared National Credit (SNC) Review by the FDIC, Fed, and OCC indicated that future losses and problem loans might increase significantly in the next credit cycle. The review indicated that classified assets remained high compared with previous periods of economic expansion. History may not repeat itself but merger and acquisition activity picked up considerably when the yield curve inverted in Figure Historical Treasury Yield Curve Yield (%) Mo 3Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 7 Yr 10 Yr 20 Yr 30 Yr 9/15/2005 9/15/2006 9/15/2008 9/16/2013 9/15/2016 We should see more Board and shareholder activist pressure on management of banks and thrifts to capitulate, given the difficulty of rationalized independence if the franchise has shown mediocre performance. That said, we anticipate hostile deals will remain rare given the historically low rate of success due to regulation and industry customs. Dissident shareholders typically pressure management through proxy contests. 6

7 Figure 4 Mid-Atlantic Publicly Traded Banks & Thrifts by State DC DE MD NJ NY PA Banks Thrifts Source: SNL Financial 7

8 Figure 5: Maryland, Delaware, and District of Columbia Bank Deals Since 2008 Deal Price/ Price/ LTM Core Dep. Completion Value Tang. Book Earnings Premium Buyer/Target Name Status State Date* ($MM) (%) (X) (%) Revere Bank/ Monument Bank** Pending MD 05/03/ United Bankshares, Inc./Bank of Georgetown Completed DC 06/03/ Revere Bank/ BlueRidge Bank Completed MD 03/23/ Old Line Bancshares, Inc./ Regal Bancorp, Inc.** Completed MD 12/04/ NA NA NA Hamilton Bancorp, Inc./ Fairmount Bancorp, Inc. Completed MD 09/11/ NA NM NA Howard Bancorp, Inc./ Patapsco Bancorp, Inc. Completed MD 08/28/ NA Delmarva Bancshares, Inc./ Easton Bancorp, Inc. Completed MD 07/15/ NA NA NA Private Investors/ Regal Bancorp, Inc. Completed MD 02/28/15 NA NA NA NA RKJS Inc./ First Mariner Bank Completed MD 06/17/ NM F.N.B. Corporation/ BCSB Bancorp, Inc. Completed MD 02/15/ Independence FSB/ Colombo Bancshares, Inc. Completed MD 11/27/ NM 0.39 Jefferson Bancorp, Inc./ Carrollton Bancorp Completed MD 04/19/13 NA NA NA NA F.N.B. Corporation/ Annapolis Bancorp, Inc. Completed MD 04/06/ Sandy Spring Bancorp, Inc./ CommerceFirst Bancorp Completed MD 05/31/ Old Line Bancshares, Inc./ Maryland Bankcorp** Completed MD 04/01/ NM Capital Funding Bancorp, Inc/ AmericasBank Corp. Completed MD 08/25/ NM M&T Bank Corporation/ Provident Bankshares Corp. Completed MD 05/23/ NM 3.93 WSFS Financial Corp./ First Wyoming Financial Corp. Completed DE 09/05/ M&T Bank Corporation/ Wilmington Trust Corp. Completed DE 05/16/ NM Premier Financial Bancorp/ Abigail Adams National Completed DC 10/01/ NA NM NA Deals announced through September 14, 2016 *Announcement date is listed for pending deals **Buyer advised by Ambassador Financial Group Source: SNL Financial 8

9 Figure 6: Maryland, Delaware, and District of Columbia Thrift Deals Since 2008 Deal Price/ Price/ LTM Core Dep. Completion Value Tang. Book Earnings Premium Buyer/Target Name Status State Date* ($MM) (%) (X) (%) Bay Bancorp, Inc./ Hopkins Bancorp, Inc. Completed MD 07/08/ NM 0.90 Hamilton Bancorp/ Fraternity Community Bancorp Completed MD 05/13/ NM Kopernik Bank/ Liberty Bank of Maryland Completed MD 05/01/16 NA NA NA NA Congressional Bancshares/ American Bank Holdings Completed MD 01/01/16 NA NA NA NA Kopernik Bank/ Kosciuszko Federal Savings Bank Completed MD 11/05/15 NA NA NA NA Codorus Valley Bancorp, Inc./ Madison Bancorp, Inc. Completed MD 01/16/ NM 0.98 F.N.B. Corporation/ OBA Financial Services, Inc. Completed MD 09/19/ NM Southern Nat l Bancorp of VA/ Prince George's Completed MD 07/31/ Muni. Employees C.U. of Baltimore/ Advance Bank Completed MD 12/12/13 NA NA NA NA Jacob M. Safra/ T. Rowe Price Savings Bank Completed MD 12/05/ NM BV Financial, Inc. (MHC)/ Vigilant Federal Savings Completed MD 05/31/13 NA NA NA NA Old Line Bancshares, Inc./ WSB Holdings, Inc.** Completed MD 05/10/ Kopernik Federal Bank/ Hull Federal Savings Bank Completed MD 12/01/ NM NM Capital One Financial Corp./ Chevy Chase Bank, F.S.B. Completed MD 02/27/ NM Deals announced through September 14, 2016 *Announcement date is listed for pending deals **Buyer advised by Ambassador Financial Group Source: SNL Financial 9

10 On a national scale, the stock price performance of acquirers was generally strong over the past 30 months or so. From the time that deals were announced in 2014, 2015, and 2016 through September 14, 2016, the stock prices of buyers have outperformed the SNL U.S. Bank and Thrift Index by a median of 10.2%. We generally attribute such performance to the overall market and deals that were reasonably valued and made sense strategically. We opine that low premium deals afford higher price potential on a combined basis because management does not need to extract cost savings that hurt, rather than help, long-term profitability. Examples of recent deals where the seller was based in Maryland, Delaware, or the District of Columbia are shown below. On August 18, 2016, Charlestown, West Virginia-based United Bankshares followed up its previous deal with the Bank of Georgetown, and announced a merger agreement with Cardinal Financial Corporation. Cardinal is based in northern Virginia and has total assets of approximately $4.2 billion. The combination with Cardinal produces the largest community bank in the Washington, D.C. metropolitan statistical area based on deposit market share. The transaction had an aggregate deal value of $912 million and the consideration mix is stock and cash. The price-totangible book value was approximately 224% and the price to trailing 12-months earnings was 19.5 times. Management projected the deal would be immediately accretive to tangible book value. On June 3, 2016, United completed its acquisition of Bank of Georgetown. The all-stock deal had an aggregate deal value of approximately $269 million. At completion, the deal value to price to tangible book was approximately 207%, and the price to trailing 12-month earnings was 27.6 times. Laurel-based Revere Bank (OTC Pink: REVB) agreed to acquire Rockville-based Monument Bank on May 3, 2016, in an all-stock transaction. The announced deal is on the heels of Revere s acquisition of BlueRidge Bank, which was completed in March, BlueRidge Bank had total assets of approximately $200 million and provided Revere with an entrée into Baltimore County. The aggregate deal value of the Monument acquisition was approximately $65 million, and the deal price to tangible book value was approximately 162% and the price to trailing 12-month earnings was 20.3 times. Ambassador Financial Group, Inc. provided a fairness opinion to Revere Bank. Bay Bancorp, Inc. (NASDAQ: BYBK) completed its acquisition of Hopkins Bancorp, Inc. on July 8, The aggregate deal value was $23 million and the consideration was 100% cash. The price to tangible book value was 107% and the tangible book value premium to core deposits was 0.90%. Hamilton Bancorp (NASDAQ: HBK), which is based in Towson, acquired Fraternity Community Bancorp on May 13, Fraternity was based in Baltimore, and the combined assets are approximately $523 million. The transaction had an aggregate deal value of $26.9 million and the consideration mix was entirely cash. The deal value to price to tangible book value was approximately 98%. Due to Office of the Comptroller ( OCC ) regulations that preclude a federally-chartered thrift from being acquired for a three year period following its initial mutual to stock conversion, thrifts that converted to stock form in 2013 become eligible to be taken over in These conversion regulations are generally followed by the FDIC for state-chartered institutions. According to SNL Financial, on a national basis, 35 of the 81 thrifts that completed second-step conversions between 2007 and 2012 have either been acquired or entered into merger agreements. Recently-converted Maryland institutions are shown below. There were no recent conversions in Delaware or D.C. Carroll Bancorp, Inc. (OTC Pink: CROL) Carroll, based in Sykesville, Maryland (northwest of Baltimore), is relatively small with total assets of approximately $128 million. The company converted from a mutual savings bank to a commercial bank in October Carroll has a tangible equity capital ratio of approximately 10.0%, and trades at approximately 94% of tangible book value. Hamilton Bancorp, Inc. Hamilton, which completed its standard conversion in June 2012, completed its merger with Baltimore-based Fairmount Bancorp in September 2015 and Baltimore-based Fraternity 10

11 Community in May Hamilton has a tangible equity capital ratio of nearly 10% and trades at approximately 92% of tangible book value. Maryland Market Demographics Home to approximately 6 million people, Maryland is diverse both economically and culturally. Among the nation s states, Maryland is only 42 nd in size, but ranks 19 th in population. From 2010 to 2016, the population grew 4.6%, which is aligned with that for the nation as a whole. The Maryland population is projected to grow 3.9% over the next five years. Per SNL Financial, the median household income is $74,100, which far exceeds the national median of $55,550. The majority of jobs are service related (82%), which are located primarily in the Washington, D.C. and Baltimore metropolitan areas. The federal government is one of the larger employers. The remainder of the workforce consists of manufacturing (9% - including high tech), construction (7%), and agriculture. The larger employers based in Maryland include Aberdeen Proving Ground, Black & Decker, Giant Food, Johns Hopkins University, MedStar Health, Northrop Grumman, The University System of Maryland, Verizon and Wal-Mart. The state also benefits from a welldeveloped transportation infrastructure system. The Port of Baltimore, the Baltimore-Washington International Thurgood Marshall Airport, railway systems, and several interstate road systems help boost commerce. The broad segments are the Washington, D.C. metropolitan area (Montgomery County), Baltimore County, Western Maryland, and the Eastern Shore. Montgomery County Market Area. Bordering Washington, D.C., this is Maryland s most populous and wealthiest county. The total population is 1.0 million, or 17% of Maryland s total population, and the median household income is $99,000. The unemployment rate in Montgomery County is only 3.6%, which is much lower than the state average. Approximately 57% of the county s residents have college or advanced degrees. The county s major private employers include Adventist Healthcare, Lockheed Martin, Giant Food, and Marriott International. There are also a significant number of venture capital firms engaged in biotechnology, and other high tech industries. Montgomery County is home to The National Institute of Standards and Technology, The National Institute of Health, Walter Reed National Military Hospital, and the FDA. Baltimore Market Area. The Greater Baltimore area consists of the state s largest city, and surrounding counties (Anne Arundel, Carroll, Cecil, and Howard). The economic gap between Baltimore City and much of the surrounding areas is huge. About 2.7 million people reside in the Baltimore metro area, or 44% of Maryland s total population, and about 623,000 people live in Baltimore City. Baltimore City suffers from a relatively low median household income of approximately $43,000, and a high percentage of people (20-25%) living below the poverty level per the U.S. Census Bureau. Johns Hopkins University is the biggest private employer in the city of Baltimore. The university recently announced plans to favor hiring local residents and to use local vendors. That said, the unemployment rate in Baltimore City and Baltimore County stand at 6.7% and 4.8%, respectively. Annapolis, the state s capital and home to the U.S. Naval Academy, is located in Anne Arundel County. The median home value in the Baltimore metro area is $265,000 vs. the national median of $240,000 according to Zillow. Please see Appendix B for more detailed county information regarding demographics and deposit market share by institution. Western Maryland and Eastern Shore Market Area. Western Maryland, which consists of four counties, is largely rural and has few towns larger than 10,000 people. The most populated county in Western Maryland is Frederick, which is 11

12 also the wealthiest in that marketplace with a median household income of about $85,000. The local community banks have relatively larger deposit market shares as out-of-state banks are less inclined to enter these counties. Tourism, as is the case with the Eastern Shore, is important to the local economies. Maryland s Eastern Shore is a fairly wide peninsula between the Chesapeake Bay and the Atlantic Ocean and has hundreds of miles of shoreline with resorts and small historic towns. The largest city is Salisbury, with 24,000 residents. As is the case with Western Maryland, the local community banks have a relatively large presence compared with the out-of-state banks. Delaware Market Area. Strategically located on the eastern seaboard, The First State is nestled between New Jersey, Pennsylvania, and Maryland. The state benefits from its proximity to Philadelphia and Baltimore; and has developed a unique and businessfriendly tax and political environment. Delaware is home to 950,000 people, with approximately 155,000 individuals residing in Wilmington and Brandywine. The larger private employers are based in New Castle County (northern Delaware) and include: DuPont, Bank America, Christiana Health Care, and J.P. Morgan Chase. The top employers in Kent and Sussex counties are more agricultural-related. Top job categories include government, healthcare, poultry processing, and utilities. Washington, D.C. The Washington, D.C. metro area is affluent, highly educated, and features one of the stronger job creation markets in the country. The metropolitan area has population of nearly 6.3 million, and is the fifth largest market in the United States. Total employment in the region is about 2.6 million. The Federal government remains a major factor, but there is a vigorous business community of more than 35,000 companies. Major employment categories consist of law, accounting, trade associations, information technology companies, international financial institutions, health, and education. The Federal government accounts for approximately 28% of employment. The hospitality industry is significant because Washington is a top tourist destination. The weaknesses of the Washington, D.C. economy include above-average living costs, high business and regulatory costs, and the dependence on the federal government. The real estate market has been relatively stable, however certain segments including suburban office space has had outsized vacancy and concessions in some subsectors. Important Disclosure: Ambassador Financial Group does and seeks to do business with companies included in this report. As a result, readers should be aware that the firm may have a conflict of interest that could affect the objectivity of the report. Information contained herein is provided for informational purposes only, is not a solicitation to sell or offer to buy, and is obtained from sources believed to be reliable. We do not guarantee its accuracy or completeness. Opinions expressed reflect that of the author and are subject to change without notice. Ambassador, its officers/directors/shareholders/ employees and affiliates will not be held liable for use of this information other than for informational purposes. Ambassador, its officers/directors/shareholders/employees/affiliates and family members, may make investments in a company/security mentioned herein. Ambassador may perform/seek to perform investment banking or other services for entities mentioned herein. Prices and availability are subject to change. Additional information on securities mentioned herein is available upon request. 12

13 Appendix A: Publicly Traded Maryland, Delaware, and District of Columbia Bank Highlights Tang. Common NPAs* / Price / Price / Market Total Equity/ Loans & LTM LTM LTM Tang. Book Cap Assets Tang. Assets OREO ROAA ROAE EPS Value Company Name Ticker State ($MM) ($MM) (%) (%) (%) (%) (X) (%) Bancorp, Inc. TBBK DE , NM 80 Calvin B. Taylor Bankshares, Inc. TYCB MD NA 98 Carroll Bancorp, Inc. CROL MD Cecil Bancorp, Inc. CECB MD NA NA NA NA NA NA Chesapeake Bancorp CPKB MD NA NA NA NA NA NA Community Financial Corp. TCFC MD , County First Bank CUMD MD NA NA Damascus Community Bank DMAS MD Delmar Bancorp DBCP MD Delmarva Bancshares, Inc. DLMV MD NA 305 NA NA NA NA NA NA Eagle Bancorp, Inc. EGBN MD 1, , Farmers and Merchants Bank FMFG MD First United Corporation FUNC MD , Frederick County Bancorp, Inc. FCBI MD Glen Burnie Bancorp GLBZ MD Harbor Bankshares Corporation HRBK MD NA NA NA NA NA NA Harford Bank HFBK MD Howard Bancorp, Inc. HBMD MD IBW Financial Corporation IBWC DC NA NA Nat l Capital Bank of Wash. NACB DC New Windsor Bancorp, Inc. NWID MD NA Old Line Bancshares, Inc. OLBK MD , Peoples Bancorp, Inc. PEBC MD PSB Holding Corporation PSBP MD Revere Bank REVB MD , Sandy Spring Bancorp, Inc. SASR MD , Shore Bancshares, Inc. SHBI MD , Median Average Financial data as of or for the three months ending June 30, 2016 Pricing data as of September 14, 2016 Source: SNL Financial 13

14 Publicly Traded Maryland, Delaware, and District of Columbia Thrift Highlights Tang. Common NPAs* / Price / Price / Market Total Equity/ Loans & LTM LTM LTM Tang. Book Cap Assets Tang. Assets OREO ROAA ROAE EPS Value Company Name Ticker State ($MM) ($MM) (%) (%) (%) (%) (X) (%) WSFS Financial Corporation WSFS DE 1, , Bay Bancorp, Inc. BYBK MD BV Financial, Inc. (MHC) BVFL MD NM 92 Colombo Bank IFSB MD NM 526 Hamilton Bancorp, Inc. HBK MD NM 91 MB Bancorp, Inc. MBCQ MD NM 77 Severn Bancorp, Inc. SVBI MD Median Average Financial data as of or for the three months ending June 30, 2016 Pricing data as of September 14, 2016 Source: SNL Financial 14

15 Appendix B: Deposit Market Share by County 15

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