SHORE BANCSHARES INC 10-Q

Item 1. Financial Statements. SHORE BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ ​ 2020 ​ 2019 ASSETS ​ (Unaudited) ​ Cash and due from banks ​ $ 17,577 ​ $ 18,465 Interest-bearing deposits with other banks ​ 138,885 ​ 76,506 Cash and cash equivalents ​ 156,462 ​ 94,971 Investment securities: ​ ​ ​ Available-for-sale, at fair value ​ 139,349 ​ 122,791 Held to maturity, at amortized cost - fair value of $ 20,254 (2020) and $ 8,654 (2019) ​ ​ 20,174 ​ 8,786 Equity securities, at fair value ​ 1,396 ​ 1,342 Restricted securities ​ 3,626 ​ 4,190 ​ ​ ​ ​ ​ ​ ​ Loans ​ 1,423,965 ​ 1,248,654 Less: allowance for credit losses ​ ( 12,777 ) ​ ( 10,507 ) Loans, net ​ 1,411,188 ​ 1,238,147 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ 24,679 ​ 23,821 Goodwill ​ 17,518 ​ 17,518 Other intangible assets, net ​ 1,844 ​ 2,252 Other real estate owned, net ​ 38 ​ 74 Right-of-use assets ​ ​ 4,769 ​ ​ 4,771 Other assets ​ 47,129 ​ 40,572 TOTAL ASSETS ​ $ 1,828,172 ​ $ 1,559,235 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ Deposits: ​ ​ ​ Noninterest-bearing ​ $ 465,304 ​ $ 356,618 Interest-bearing ​ 1,128,817 ​ 984,716 Total deposits ​ 1,594,121 ​ 1,341,334 ​ ​ ​ ​ ​ ​ ​ Securities sold under retail repurchase agreements ​ 1,019 ​ 1,226 Advances from FHLB - long-term ​ — ​ 15,000 Subordinated debt ​ 24,399 ​ — Total borrowings ​ ​ 25,418 ​ ​ 16,226 ​ ​ ​ ​ ​ ​ ​ Lease liabilities ​ 4,840 ​ 4,792 Other liabilities ​ ​ 4,912 ​ ​ 4,081 TOTAL LIABILITIES ​ ​ 1,629,291 ​ ​ 1,366,433 ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ Common stock, par value $ .01 per share; shares authorized - 35,000,000 ; shares issued and outstanding - 12,217,501 (2020) and 12,500,372 (2019) ​ ​ 122 ​ ​ 125 Additional paid in capital ​ ​ 58,090 ​ ​ 61,045 Retained earnings ​ ​ 138,765 ​ ​ 131,425 Accumulated other comprehensive income ​ 1,904 ​ 207 TOTAL STOCKHOLDERS' EQUITY ​ 198,881 ​ 192,802 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ $ 1,828,172 ​ $ 1,559,235 ​ See accompanying notes to Consolidated Financial Statements. ​ 3 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ ​ ​ 2020 2019 2020 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INTEREST INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and fees on loans ​ $ 14,139 ​ $ 14,100 ​ $ 41,879 ​ $ 41,348 ​ Interest and dividends on investment securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 730 ​ 870 ​ 2,087 ​ 2,755 ​ Interest on deposits with other banks ​ ​ 33 ​ ​ 223 ​ ​ 216 ​ ​ 499 ​ Total interest income ​ 14,902 ​ 15,193 ​ 44,182 ​ 44,602 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest on deposits ​ 1,470 ​ 2,288 ​ 5,085 ​ 6,439 ​ Interest on short-term borrowings ​ 1 ​ 117 ​ 4 ​ 475 ​ Interest on long-term borrowings ​ ​ 148 ​ ​ 108 ​ ​ 261 ​ ​ 321 ​ Total interest expense ​ 1,619 ​ 2,513 ​ 5,350 ​ 7,235 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME ​ 13,283 ​ 12,680 ​ 38,832 ​ 37,367 ​ Provision for credit losses ​ 1,500 ​ 200 ​ 2,850 ​ 500 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ​ 11,783 ​ 12,480 ​ 35,982 ​ 36,867 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NONINTEREST INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposit accounts ​ 647 ​ 990 ​ 2,057 ​ 2,952 ​ Trust and investment fee income ​ 381 ​ 383 ​ 1,119 ​ 1,140 ​ Gains on sales and calls of investment securities ​ — ​ — ​ 347 ​ — ​ Other noninterest income ​ 1,553 ​ 1,156 ​ 4,179 ​ 3,234 ​ Total noninterest income ​ 2,581 ​ 2,529 ​ 7,702 ​ 7,326 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and wages ​ 4,143 ​ 3,853 ​ 10,569 ​ 11,411 ​ Employee benefits ​ 1,489 ​ 1,299 ​ 4,746 ​ 3,621 ​ Occupancy expense ​ 774 ​ 697 ​ 2,174 ​ 2,056 ​ Furniture and equipment expense ​ 294 ​ 263 ​ 858 ​ 821 ​ Data processing ​ 1,114 ​ 972 ​ 3,195 ​ 2,801 ​ Directors' fees ​ 132 ​ 140 ​ 386 ​ 342 ​ Amortization of other intangible assets ​ 125 ​ 144 ​ 407 ​ 461 ​ FDIC insurance premium expense ​ 132 ​ — ​ 347 ​ 386 ​ Other real estate owned expenses, net ​ — ​ 133 ​ 18 ​ 426 ​ Legal and professional fees ​ 447 ​ 495 ​ 1,634 ​ 1,655 ​ Other noninterest expenses ​ 1,181 ​ 1,388 ​ 3,509 ​ 3,732 ​ Total noninterest expense ​ 9,831 ​ 9,384 ​ 27,843 ​ 27,712 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from continuing operations before income taxes ​ 4,533 ​ 5,625 ​ 15,841 ​ 16,481 ​ Income tax expense ​ 1,142 ​ 1,411 ​ 3,997 ​ 4,211 ​ Income from continuing operations ​ 3,391 ​ 4,214 ​ 11,844 ​ 12,270 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loss from discontinued operations before income taxes ​ — ​ ( 10 ) ​ — ​ ( 113 ) ​ Income tax benefit ​ — ​ ( 2 ) ​ — ​ ( 27 ) ​ Loss from discontinued operations ​ — ​ ( 8 ) ​ — ​ ( 86 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCOME ​ $ 3,391 ​ $ 4,206 ​ $ 11,844 ​ $ 12,184 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share - Basic and diluted ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from continuing operations ​ $ 0.27 ​ $ 0.33 ​ $ 0.95 ​ $ 0.96 ​ Loss from discontinued operations ​ — ​ — ​ — ​ ( 0.01 ) ​ Net income ​ $ 0.27 ​ $ 0.33 ​ $ 0.95 ​ $ 0.95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends paid per common share ​ $ 0.12 ​ $ 0.10 ​ $ 0.36 ​ $ 0.30 ​ See accompanying notes to Consolidated Financial Statements. ​ 4 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ ​ 2020 2019 2020 2019 Net income ​ $ 3,391 ​ $ 4,206 ​ $ 11,844 ​ $ 12,184 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding (losses) gains on available-for-sale-securities ​ ( 141 ) ​ 303 ​ 2,668 ​ 4,083 ​ Tax effect ​ 39 ​ ( 83 ) ​ ( 723 ) ​ ( 1,116 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Reclassification of (gains) recognized in net income ​ — ​ — ​ ( 347 ) ​ — ​ Tax effect ​ — ​ — ​ 88 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortization of unrealized loss on securities transferred from available-for-sale to held-to-maturity ​ 3 ​ 8 ​ 15 ​ 22 ​ Tax effect ​ ( 1 ) ​ ( 2 ) ​ ( 4 ) ​ ( 6 ) ​ Total other comprehensive (loss) income ​ ( 100 ) ​ 226 ​ 1,697 ​ 2,983 ​ Comprehensive income ​ $ 3,291 ​ $ 4,432 ​ $ 13,541 ​ $ 15,167 ​ ​ See accompanying notes to Consolidated Financial Statements. ​ 5 Table of Contents ​ SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) For the Three and Nine months Ended September 30, 2020 and 2019 (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ Total ​ ​ Common ​ Paid in ​ Retained ​ Comprehensive ​ Stockholders’ ​ Stock Capital Earnings Income Equity Balances, January 1, 2020 ​ $ 125 ​ $ 61,045 ​ $ 131,425 ​ $ 207 ​ $ 192,802 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ — ​ — ​ 3,118 ​ — ​ 3,118 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ — ​ — ​ — ​ 1,251 ​ 1,251 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 61 ​ — ​ — ​ 61 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Vesting of restricted stock, net of shares surrendered ​ ​ — ​ ( 39 ) ​ — ​ — ​ ​ ( 39 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ — ​ — ​ ( 1,499 ) ​ — ​ ( 1,499 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, March 31, 2020 ​ $ 125 ​ $ 61,067 ​ $ 133,044 ​ $ 1,458 ​ $ 195,694 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 5,335 ​ — ​ 5,335 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ — ​ — ​ — ​ 546 ​ 546 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 62 ​ — ​ — ​ 62 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ ​ — ​ ​ — ​ ​ ( 1,503 ) ​ ​ — ​ ​ ( 1,503 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2020 ​ $ 125 ​ $ 61,129 ​ $ 136,876 ​ $ 2,004 ​ $ 200,134 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 3,391 ​ — ​ 3,391 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) ​ — ​ — ​ — ​ ( 100 ) ​ ( 100 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Retirement of common stock ​ ​ ( 3 ) ​ ​ ( 3,106 ) ​ ​ — ​ ​ — ​ ​ ( 3,109 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 67 ​ — ​ — ​ 67 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ ​ — ​ ​ — ​ ​ ( 1,502 ) ​ ​ — ​ ​ ( 1,502 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, September 30, 2020 ​ $ 122 ​ $ 58,090 ​ $ 138,765 ​ $ 1,904 ​ $ 198,881 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ Total ​ ​ Common ​ Paid in ​ Retained ​ Comprehensive ​ Stockholders’ ​ ​ Stock Capital Earnings Income (Loss) Equity Balances, January 1, 2019 ​ $ 127 ​ $ 65,434 ​ $ 120,574 ​ $ ( 2,950 ) ​ $ 183,185 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 3,754 ​ — ​ 3,754 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ — ​ — ​ — ​ 1,446 ​ 1,446 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 63 ​ — ​ — ​ 63 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercise of options and vesting of restricted stock, net of shares surrendered ​ ​ 1 ​ ​ ( 89 ) ​ ​ — ​ ​ — ​ ​ ( 88 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ — ​ — ​ ( 1,278 ) ​ — ​ ( 1,278 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, March 31, 2019 ​ $ 128 ​ $ 65,408 ​ $ 123,050 ​ $ ( 1,504 ) ​ $ 187,082 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 4,224 ​ — ​ 4,224 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ — ​ — ​ — ​ 1,311 ​ 1,311 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ ( 32 ) ​ — ​ — ​ ( 32 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ — ​ — ​ ( 1,278 ) ​ — ​ ( 1,278 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2019 ​ $ 128 ​ $ 65,376 ​ $ 125,996 ​ $ ( 193 ) ​ $ 191,307 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 4,206 ​ — ​ 4,206 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income ​ — ​ — ​ — ​ 226 ​ 226 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Retirement of Common Stock ​ ​ ( 1 ) ​ ​ ( 558 ) ​ ​ - ​ ​ - ​ ​ ( 559 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 61 ​ — ​ — ​ 61 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ — ​ — ​ ( 1,278 ) ​ — ​ ( 1,278 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, September 30, 2019 ​ $ 127 ​ $ 64,879 ​ $ 128,924 ​ $ 33 ​ $ 193,963 ​ See accompanying notes to Consolidated Financial Statements. 7 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ For Nine Months Ended ​ ​ September 30, ​ 2020 2019 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM OPERATING ACTIVITIES: ​ $ 11,844 ​ $ 12,184 Net Income ​ ​ ​ ​ ​ ​ Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Net accretion of acquisition accounting estimates ​ ( 307 ) ​ ( 414 ) Provision for credit losses ​ 2,850 ​ 500 Depreciation and amortization ​ 1,793 ​ 1,779 Net amortization of securities ​ 330 ​ 396 Amortization of debt issuance costs ​ ​ 10 ​ ​ — Stock-based compensation expense ​ 190 ​ 92 Deferred income (benefit) tax expense ​ ( 1,925 ) ​ 266 (Gains) on sales and calls of securities ​ ( 347 ) ​ — Losses on sales and disposals of premises and equipment ​ 40 ​ — Losses on sales and valuation adjustments on other real estate owned ​ ​ 18 ​ ​ 417 Fair value adjustment on equity securities ​ ​ ( 34 ) ​ ​ ( 47 ) Bank owned life insurance income ​ ​ ( 908 ) ​ ​ — Net changes in: ​ ​ ​ ​ ​ ​ Accrued interest receivable ​ ( 3,930 ) ​ ( 162 ) Other assets ​ ( 511 ) ​ 1,267 Accrued interest payable ​ ( 11 ) ​ ( 154 ) Other liabilities ​ ​ 471 ​ ​ ( 6,865 ) Net cash provided by operating activities ​ 9,573 ​ 9,259 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ Proceeds from maturities and principal payments of investment securities available for sale ​ 33,272 ​ 19,211 Proceeds from sales and calls of investment securities available for sale ​ 13,019 ​ — Purchases of investment securities available for sale ​ ( 60,500 ) ​ — Proceeds from maturities and principal payments of investment securities held to maturity ​ 205 ​ 281 Purchases of securities held to maturity ​ ​ ( 11,589 ) ​ ​ ( 4,000 ) Purchases of equity securities ​ ( 20 ) ​ ( 23 ) Net change in loans ​ ( 175,669 ) ​ ( 39,817 ) Purchases of premises and equipment ​ ( 1,786 ) ​ ( 1,995 ) Proceeds from sales of premises and equipment ​ 2 ​ — Proceeds from sales of other real estate owned ​ ​ 18 ​ 731 Net redemption of restricted securities ​ ​ 564 ​ ​ 1,821 Purchases of bank owned life insurance ​ — ​ ( 14,586 ) Net cash (used in) investing activities ​ ( 202,484 ) ​ ( 38,377 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ Net changes in: ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ 108,686 ​ 32,091 Interest-bearing deposits ​ 144,186 ​ 81,205 Short-term borrowings ​ ​ ( 207 ) ​ ​ ( 43,549 ) Long-term borrowings ​ ( 15,000 ) ​ — Proceeds from the issuance of subordinated debt, net of issuance costs ​ ​ 24,389 ​ — Common stock dividends paid ​ ​ ( 4,504 ) ​ ​ ( 3,834 ) Retirement of common stock ​ ​ ( 3,109 ) ​ ​ ( 559 ) Repurchase of shares for tax withholding on exercised options and vested restricted stock ​ ​ ( 39 ) ​ ​ ( 88 ) Net cash provided by financing activities ​ 254,402 ​ ​ 65,266 Net increase in cash and cash equivalents ​ 61,491 ​ 36,148 Cash and cash equivalents at beginning of period ​ 94,971 ​ 67,225 Cash and cash equivalents at end of period ​ $ 156,462 ​ $ 103,373 ​ ​ ​ ​ ​ ​ ​ Supplemental cash flows information: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 5,436 ​ $ 7,521 Income taxes paid ​ $ 6,378 ​ $ 10,812 Lease liabilities arising from right-of-use assets ​ $ 419 ​ $ 5,243 Unrealized gain on securities available for sale ​ $ 2,321 ​ $ ( 4,083 ) Amortization of unrealized loss on securities transferred from available for sale to held to maturity ​ $ 15 ​ $ 22 See accompanying notes to Consolidated Financial Statements. ​ 8 Table of Contents Shore Bancshares, Inc. Notes to Consolidated Financial Statements For the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited) ​ Note 1 – Basis of Presentation ​ The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiary with all significant intercompany transactions eliminated. The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. The accompanying interim financial statements are unaudited; however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at September 30, 2020, the consolidated results of income and comprehensive income for the three and nine months ended September 30, 2020 and 2019, changes in stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and cash flows for the nine months ended September 30, 2020 and 2019, have been included. All such adjustments are of a normal recurring nature. The amounts as of December 31, 2019 were derived from the 2019 audited financial statements. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for any other interim period or for the full year. This Quarterly Report on Form 10-Q should be read in conjunction with the Annual Report of Shore Bancshares, Inc. on Form 10-K for the year ended December 31, 2019. For purposes of comparability, certain immaterial reclassifications have been made to amounts previously reported to conform with the current period presentation. When used in these notes, the term “the Company” refers to Shore Bancshares, Inc. and, unless the context requires otherwise, its consolidated subsidiary, Shore United Bank (the “Bank”). ​ Risks and Uncertainties ​ The novel coronavirus (“COVID-19”) spread rapidly across the world in the first quarter of 2020 and was declared a pandemic by the World Health Organization. The government and private sector responses to contain its spread began to significantly affect our operations in March and continues to do so. The pandemic will likely adversely affect our operations in subsequent quarters, although such effects may vary significantly. The duration and extent of the effects over longer terms cannot be reasonably estimated at this time. The risks and uncertainties resulting from the pandemic most likely to affect our future earnings, cash flows and financial condition in future quarters primarily include the nature and duration of the financial effects felt by our customers and the related impact on the customers' ability to fulfill their financial obligations to the Company as well as the potential decline of real estate values resulting from market disruption which may impair the recorded values of collateral-dependent loans. Further, these factors, in addition to those pervasive to the industry and overall U.S. economy, may negatively impact the overall value of our Company in such a way that an impairment charge to the carrying value of goodwill is required. Accordingly, significant estimates used in the preparation of our financial statements related to the allowance for credit losses and valuation of goodwill may be subject to significant adjustments in future periods. The greater the duration and severity of the pandemic the more likely that estimates will be materially impacted by its effects. ​ Recent Accounting Standards and Other Authoritative Guidance ASU No. 2016-13 – In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. At the FASB’s October 16, 2019 meeting, the Board affirmed its decision to amend the effective date of this ASU for many companies. Public business entities that are SEC filers, excluding those meeting the smaller reporting company definition, will retain the initial required implementation date of 9 Table of Contents fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. All other entities will be required to apply the guidance for fiscal years, and interim periods within those years, beginning after December 15, 2022 . At this time, the Company has established a project management team which meets periodically to discuss and assign roles and responsibilities, key tasks to complete, and a general timeline to be followed for implementation. The team has been working with an advisory consultant and has purchased a vendor model for implementation. Historical data has been collected and uploaded to the new model and the team is in the process of finalizing the methodologies that will be utilized. The team is currently running a parallel simulation to its current incurred loss impairment model. The Company is continuing to evaluate the extent of the potential impact of this standard and continues to keep current on evolving interpretations and industry practices via webcasts, publications, conferences, and peer bank meetings. ​ Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119. SAB 119 updated portions of SEC interpretative guidance to align with FASB ASC 326, “Financial Instruments – Credit Losses.” 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. ​ ASU No. 2019-12 – In December 2019, the FASB issued ASU 2019-12, “Income Taxes (Topic 740) – Simplifying the Accounting for Income Taxes.” The ASU is expected to reduce cost and complexity related to the accounting for income taxes by removing specific exceptions to general principles in Topic 740 (eliminating the need for an organization to analyze whether certain exceptions apply in a given period) and improving financial statement preparers’ application of certain income tax-related guidance. This ASU is part of the FASB’s simplification initiative to make narrow-scope simplifications and improvements to accounting standards through a series of short-term projects. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact that ASU 2019-12 will have on its consolidated financial statements. ​ ASU No. 2020-01 – In January 2020, the FASB issued ASU 2020-01, “Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions between Topic 321, Topic 323, and Topic 815.” The ASU is based on a consensus of the Emerging Issues Task Force and is expected to increase comparability in accounting for these transactions. ASU 2016-01 made targeted improvements to accounting for financial instruments, including providing an entity the ability to measure certain equity securities without a readily determinable fair value at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. Among other topics, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting. For public business entities, the amendments in the ASU are effective for fiscal years beginning after December 31, 2020, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-01 to have a material impact on its consolidated financial statements . ​ ASU No. 2020-04 – In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” 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 the London Inter-bank Offered Rate (“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 all entities as of March 12, 2020 through December 31, 2022. At present, the Bank has limited exposure to LIBOR based pricing. LIBOR based loans only comprise 14 loans or 2.6 % of the loan portfolio. The Bank is confident it can successfully negotiate a migration to the Secured Overnight Financing Rate (“SOFR”) between now and the implementation date. The Bank will notify customers within 120 days prior to migration to SOFR. The Bank acknowledges the replacement rate will be more volatile based on different countries migrating to different indexes and limited liquidity to support the rate. The Bank further acknowledges the volatility will be greatly influenced by the support provided by the Federal Reserve. ​ 10 Table of Contents On March 12, 2020, the SEC finalized amendments to its “accelerated filer” and “large accelerated filer” definitions. The amendments increase the threshold criteria for meeting these filer classifications and were effective on April 27, 2020. Any changes in filer status are to be applied beginning with the filer’s first annual report filed with the SEC subsequent to the effective date. Prior to these changes, the Company was required to comply with section 404(b) of the Sarbanes Oxley Act concerning auditor attestation over internal control over financial reporting as an “accelerated filer” as it had more than $75 million in public float but less than $700 million at the end of the Company’s most recent second quarter. The rule change expands the category of “smaller reporting companies” to include entities with public float of less than $700 million and less than $100 million in annual revenues. The Company expects to meet this expanded category of small reporting company and will no longer be considered an accelerated filer after the 2020 Annual Report . If the Company’s annual revenues exceed $100 million, its category will change back to “accelerated filer”. The classifications of “accelerated filer” and “large accelerated filer” require a public company to obtain an auditor attestation concerning the effectiveness of internal control over financial reporting (“ICFR”) and include the opinion on ICFR in its annual report on Form 10-K. Smaller reporting companies also have additional time to file quarterly and annual financial statements. All public companies are required to obtain and file annual financial statement audits, as well as provide management’s assertion on effectiveness of internal control over financial reporting, but the external auditor attestation of internal control over financial reporting is not required for smaller reporting companies. As the Bank has total assets exceeding $ 1.0 billion, it remains subject to FDICIA, which requires an auditor attestation concerning internal controls over financial reporting. As such, other than the additional time provided to file quarterly and annual financial statements, this change does not significantly change the Company’s annual reporting and audit requirements. ​ In October 2020, the FASB issued ASU 2020-08, “Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable fees and Other Costs.” This ASU clarifies that an entity should reevaluate whether a callable debt security is within the scope of ASC paragraph 310-20-35-33 for each reporting period. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. Early adoption is not permitted. All entities should apply ASU No. 2020-08 on a prospective basis as of the beginning of the period of adoption for existing or newly purchased callable debt securities. The Company does not expect the adoption of ASU 2020-08 to have a material impact on its consolidated financial statements. ​ Recently Adopted Accounting Developments ​ In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other (Topic 350) - Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment for all entities by requiring impairment charges to be based on the first step in the previous two-step impairment test. Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. The standard eliminates the prior requirement to calculate a goodwill impairment charge using Step 2, which requires an entity to calculate any impairment charge by comparing the implied fair value of goodwill with its carrying amount. ASU 2017-04 was effective for the Company on January 1, 2020. There was no material impact on the Company’s consolidated financial statements. ​ In March 2020, (Revised in April 2020) various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a troubled debt restructuring (“TDR”) if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The agencies confirmed with the staff of the FASB that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. During the nine months ended September 30, 2020, the Company has offered payment deferrals for commercial and consumer customers for up to six months. The loan modifications offered to specific loan types are as follows: 11 Table of Contents ​ ● Full payment-balloon or full amortization loans – Once the deferral period has ended, the Company will go back to billing principal and interest. As payments are made, all funds will go towards interest until all accrued interest has been caught up. Once the accrued interest is satisfied, future payments will be broken out for both principal and interest. The amount of principal that had been deferred will be re-amortized when the balloon maturity/payoff date occurs. ● Full payment ARM loans – Once the deferral period has ended, the Company will go back to billing principal and interest. As payments are made, all funds will go towards interest until all accrued interest has been caught up. Once the accrued interest is satisfied, future payments will be broken out for both principal and interest. The amount of principal that had been deferred will be re-amortized when the ARM repricing occurs. ● Full Payment Rate Reset Loans - Once the deferral period has ended, the Company will go back to billing principal and interest. As payments are made, all funds will go towards interest until all accrued interest has been caught up. Once the accrued interest is satisfied, future payments will be broken out for both principal and interest. The amount of principal that had been deferred will be re-amortized when the rate reset occurs. ● Principal deferral only loans (any type) - Once the deferral period has ended, the Company will go back to billing principal and interest. The principal amount that has been deferred will be re-amortized when either the maturity, ARM repricing or rate reset occurs. ● Consumer loans – Borrowers are required to sign an amendment to the initial loan agreement at the time of deferral, which re-amortizes the loan and extends the maturity date based on the number of months deferred. ​ This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time. ​ Note 2 – Discontinued Operations On December 31, 2018, the Company completed the sale of the specific assets and activities related to its insurance agency, Avon-Dixon Agency, LLC (“Avon-Dixon”) to Avon-Dixon, an Alera Group Agency, LLC (“Alera”). Also, on this date the Company discontinued the operations of its premium finance company, Mubell Finance, LLC (“Mubell”). Together, Avon-Dixon and Mubell are referred to as the “Insurance Subsidiaries”. The Insurance Subsidiaries represented the Company’s insurance products and services segment, the activities of which related to originating, servicing and underwriting retail insurance policies. Certain other assets and liabilities to be sold or settled separately within one year, were classified as discontinued operations in the Company’s consolidated financial statements. All of the remaining assets and liabilities of discontinued operations were settled prior to December 31, 2019. There were no assets or liabilities of discontinued operations at September 30, 2020 or December 31, 2019. The following table presents the financial information of discontinued operations for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Nine Months Ended ​ ​ September 30, ($ in thousands) 2020 2019 Noninterest income ​ ​ ​ ​ ​ ​ ​ All other income ​ ​ $ — ​ $ 15 Total noninterest income ​ ​ — ​ 15 Noninterest expense ​ ​ ​ ​ ​ ​ ​ Salaries and wages ​ ​ — ​ 28 Employee benefits ​ ​ — ​ 7 Occupancy expense ​ ​ — ​ 14 Furniture and equipment ​ ​ ​ — ​ ​ 1 Legal and professional fees ​ ​ — ​ 73 Other noninterest expenses ​ ​ — ​ 5 Total noninterest expense ​ ​ — ​ 128 Loss from discontinued operations before income taxes ​ ​ — ​ ( 113 ) Income tax benefit ​ ​ — ​ ( 27 ) Loss from discontinued operations ​ ​ $ — ​ $ ( 86 ) ​ 12 Table of Contents ​ Note 3 – Earnings Per Share Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of potential common stock equivalents (stock-based awards). The following table provides information relating to the calculation of earnings per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Nine Months Ended ​ ​ September 30, ​ September 30, (In thousands, except per share data) ​ 2020 ​ 2019 2020 2019 Net income from continuing operations ​ $ 3,391 ​ $ 4,214 ​ $ 11,844 ​ $ 12,270 Net loss from discontinued operations ​ ​ - ​ ​ ( 8 ) ​ - ​ ( 86 ) Net Income ​ $ 3,391 ​ $ 4,206 ​ $ 11,844 ​ $ 12,184 Weighted average shares outstanding - Basic ​ ​ 12,483 ​ ​ 12,764 ​ 12,507 ​ 12,771 Dilutive effect of common stock equivalents-options ​ ​ 1 ​ ​ 5 ​ 2 ​ 5 Weighted average shares outstanding - Diluted ​ ​ 12,484 ​ ​ 12,769 ​ 12,509 ​ 12,776 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic earnings per common share ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income from continuing operations ​ $ 0.27 ​ $ 0.33 ​ $ 0.95 ​ $ 0.96 Loss from discontinued operations ​ — ​ — ​ — ​ ( 0.01 ) Net income ​ $ 0.27 ​ $ 0.33 ​ $ 0.95 ​ $ 0.95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted earnings per common share ​ ​ ​ ​ Income from continuing operations ​ $ 0.27 ​ $ 0.33 ​ $ 0.95 ​ $ 0.96 Loss from discontinued operations ​ — ​ — ​ — ​ ( 0.01 ) Net income ​ $ 0.27 ​ $ 0.33 ​ $ 0.95 ​ $ 0.95 ​ There were no weighted average common stock equivalents excluded from the calculation of diluted earnings per share for the three and nine months ended September 30, 2020 and 2019. Note 4 – Investment Securities The following tables provide information on the amortized cost and estimated fair values of debt securities. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross Estimated ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (Dollars in thousands) ​ Cost ​ Gains ​ Losses ​ Value Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 24,661 ​ $ 54 ​ $ 83 ​ $ 24,632 Mortgage-backed ​ 112,068 ​ 2,730 ​ 81 ​ 114,717 Total ​ $ 136,729 ​ $ 2,784 ​ $ 164 ​ $ 139,349 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 23,854 ​ $ 3 ​ $ 31 ​ $ 23,826 Mortgage-backed ​ 98,638 ​ 574 ​ 247 ​ 98,965 Total ​ $ 122,492 ​ $ 577 ​ $ 278 ​ $ 122,791 ​ During the three months ended September 30, 2020, no available for sale securities were sold. During the nine months ended September 30, 2020, the Company sold available for sale securities for proceeds of $ 13.0 million and recognized gross gains of $ 347 thousand in the second quarter of 2020. No available for sale securities were sold during the three and nine months ended September 30, 2019. 13 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross Estimated ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (Dollars in thousands) ​ Cost ​ Gains ​ Losses ​ Value Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 1,195 ​ $ 40 ​ $ — ​ $ 1,235 States and political subdivisions ​ 400 ​ 1 ​ — ​ 401 Other debt securities ​ 18,579 ​ 79 ​ 40 ​ 18,618 Total ​ $ 20,174 ​ $ 120 ​ $ 40 ​ $ 20,254 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 1,386 ​ $ — ​ $ 5 ​ $ 1,381 States and political subdivisions ​ 400 ​ 1 ​ — ​ 401 Other debt securities ​ 7,000 ​ — ​ 128 ​ 6,872 Total ​ $ 8,786 ​ $ 1 ​ $ 133 ​ $ 8,654 ​ Equity securities with an aggregate fair value of $ 1.4 million at September 30, 2020 and $ 1.3 million at December 31, 2019 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled $ 34 thousand for the nine months ended September 30, 2020 and $ 47 thousand for the nine months ended September 30, 2019, respectively. ​ The following tables provide information about gross unrealized losses and fair value by length of time that the individual securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ More than ​ ​ ​ ​ ​ ​ ​ ​ 12 Months ​ 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized (Dollars in thousands) ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 14,919 ​ $ 81 ​ $ 397 ​ $ 2 ​ $ 15,316 ​ $ 83 Mortgage-backed ​ 24,734 ​ 81 ​ — ​ — ​ 24,734 ​ 81 Total ​ $ 39,653 ​ $ 162 ​ $ 397 ​ $ 2 ​ $ 40,050 ​ $ 164 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other debt securities ​ $ 6,511 ​ $ 40 ​ $ — ​ $ — ​ $ 6,511 ​ $ 40 Total ​ $ 6,511 ​ $ 40 ​ $ — ​ $ — ​ $ 6,511 ​ $ 40 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ More than ​ ​ ​ ​ ​ ​ ​ ​ 12 Months ​ 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized (Dollars in thousands) ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 4,995 ​ $ 5 ​ $ 18,516 ​ $ 26 ​ $ 23,511 ​ $ 31 Mortgage-backed ​ 12,180 ​ 27 ​ 22,282 ​ 220 ​ 34,462 ​ 247 Total ​ $ 17,175 ​ $ 32 ​ $ 40,798 ​ $ 246 ​ $ 57,973 ​ $ 278 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 1,381 ​ $ 5 ​ $ — ​ $ — ​ $ 1,381 ​ $ 5 Other debt securities ​ 3,905 ​ 95 ​ 2,967 ​ 33 ​ 6,872 ​ 128 Total ​ $ 5,286 ​ $ 100 ​ $ 2,967 ​ $ 33 ​ $ 8,253 ​ $ 133 ​ All of the securities with unrealized losses in the portfolio have modest duration risk, low credit risk, and minimal losses when compared to total amortized cost. The unrealized losses on debt securities that exist are the result of market changes 14 Table of Contents in interest rates since original purchase. Because the Company does not intend to sell these securities and it is not more likely than not that the Company will be required to sell these securities before recovery of their amortized cost bases, which may be at maturity for debt securities, the Company considers the unrealized losses to be temporary. There were twelve available-for-sale securities and two held-to-maturity securities in an unrealized loss position at September 30, 2020. The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at September 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale ​ Held to maturity ​ Amortized ​ ​ Amortized ​ ​ (Dollars in thousands) ​ Cost ​ Fair Value ​ Cost ​ Fair Value Due in one year or less ​ $ 9,000 ​ $ 9,051 ​ $ — ​ $ — Due after one year through five years ​ 1,610 ​ 1,664 ​ 2,951 ​ 2,927 Due after five years through ten years ​ 57,727 ​ 59,491 ​ 16,028 ​ 16,092 Due after ten years ​ 68,392 ​ 69,143 ​ 1,195 ​ 1,235 Total ​ $ 136,729 ​ $ 139,349 ​ $ 20,174 ​ $ 20,254 ​ The maturity dates for debt securities are determined using contractual maturity dates. Note 5 – Loans and Allowance for Credit Losses The Company makes residential mortgage, commercial and consumer loans to customers primarily in Talbot County, Queen Anne’s County, Kent County, Caroline County, Dorchester County, Wicomico County, Baltimore County and Howard County in Maryland, Kent County, Delaware and Accomack County, Virginia. The following table provides information about the principal classes of the loan portfolio at September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) September 30, 2020 December 31, 2019 Construction ​ $ 106,040 ​ $ 99,829 ​ Residential real estate ​ 442,140 ​ 442,506 ​ Commercial real estate ​ 629,641 ​ 586,562 ​ Commercial ​ 218,596 ​ 102,020 ​ Consumer ​ 27,548 ​ 17,737 ​ Total loans ​ 1,423,965 ​ 1,248,654 ​ Allowance for credit losses ​ ( 12,777 ) ​ ( 10,507 ) ​ Total loans, net ​ $ 1,411,188 ​ $ 1,238,147 ​ ​ Loans are stated at their principal amount outstanding net of any purchase premiums/discounts, deferred fees and costs. Loans included deferred fees, net of costs, of $ 12 thousand and discounts on acquired loans of $ 825 thousand at September 30, 2020. Loans included deferred costs, net of deferred fees, of $ 1.8 million and discounts on acquired loans of $ 1.1 million at December 31, 2019. At September 30, 2020 and December 31, 2019, included in total loans were $ 60.2 million and $ 79.2 million in loans, respectively, acquired as part of the NWBI branch acquisition in 2017. Interest income on loans is accrued at the contractual rate based on the principal amount outstanding. Fees charged and costs capitalized for originating loans are being amortized substantially on the interest method over the term of the loan. A loan is placed on nonaccrual (i.e., interest income is no longer accrued) when it is specifically determined to be impaired or when principal or interest is delinquent for 90 days or more, unless the loan is well secured and in the process of collection. Any unpaid interest previously accrued on those loans is reversed from income. Interest payments received on nonaccrual loans are applied as a reduction of the loan principal balance unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Loans are returned to accrual status when all principal and interest amounts contractually due are brought current and future payments are reasonably assured. 15 Table of Contents A loan is considered impaired if it is probable that the Company will not collect all principal and interest payments according to the loan’s contractual terms when due. An impaired loan may show deficiencies in the borrower’s overall financial condition, payment history, support available from financial guarantors and/or the fair market value of collateral. The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, the Company measures impairment on such loans by reference to the fair value of the collateral. Once the amount of impairment has been determined, the uncollectible portion is charged off. Loan payments received on nonaccrual impaired loans are generally applied to the outstanding principal balance. In certain circumstances, income may be recognized on a cash basis. Generally, interest income is not recognized on impaired loans unless the likelihood of further loss is remote. The allowance for credit losses may include specific reserves related to impaired loans. Specific reserves remain until charge offs are made. Impaired loans do not include groups of smaller balance homogenous loans such as residential mortgage and consumer installment loans that are evaluated collectively for impairment. Reserves for probable credit losses related to these loans are based on historical loss ratios and are included in the formula portion of the allowance for credit losses. A loan is considered a TDR if a borrower is experiencing financial difficulties and a creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Loans are identified to be restructured when signs of impairment arise such as borrower interest rate reduction request, slowness to pay, or when an inability to repay becomes evident. The terms being offered are evaluated to determine if they are more liberal than those that would be indicated by policy or industry standards for similar, untroubled credits. In those situations where the terms or the interest rates are considered to be more favorable than industry standards or the Bank’s current underwriting guidelines the loan is classified as a TDR. All loans designated as TDRs are considered impaired loans and may be on either accrual or nonaccrual status. In instances where the loan has been placed on nonaccrual status, six consecutive months of timely payments are required prior to returning the loan to accrual status. All loans classified as TDRs which are restructured and accrue interest under revised terms require a full and comprehensive review of the borrower’s financial condition, capacity for repayment, realistic assessment of collateral values, and the assessment of risk entered into any workout agreement. Current financial information on the borrower, guarantor, and underlying collateral is analyzed to determine if it supports the ultimate collection of principal and interest. For commercial loans, the cash flows are analyzed, both for the underlying project and globally. For consumer loans, updated salary, credit history and cash flow information is obtained. Current market conditions are also considered. Following a full analysis, the determination of the appropriate loan structure is made. In the normal course of banking business, risks related to specific loan categories are as follows: Construction loans – Construction loans are offered primarily to builders and individuals to finance the construction of single-family dwellings. In addition, the Bank periodically finances the construction of commercial projects. Credit risk factors include the borrower’s ability to successfully complete the construction on time and within budget, changing market conditions which could affect the value and marketability of projects, changes in the borrower’s ability or willingness to repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value. ​ Residential real estate – Residential real estate loans are typically made to consumers and are secured by residential real estate. Credit risk arises from the borrower’s continuing financial stability, which can be adversely impacted by job loss, divorce, illness, or personal bankruptcy, among other factors. Also impacting credit risk would be a shortfall in the value of the residential real estate in relation to the outstanding loan balance in the event of a default or subsequent liquidation of the real estate collateral. Commercial real estate – Commercial real estate loans consist of both loans secured by owner occupied properties and non-owner occupied properties where an established banking relationship exists and involves investment properties for warehouse, retail, and office space with a history of occupancy and cash flow. These loans are subject to adverse changes in the local economy and commercial real estate markets. Credit risk associated with owner occupied properties arises from the borrower’s financial stability and the ability of the borrower and the business to repay the loan. Non-owner 16 Table of Contents occupied properties carry the risk of a tenant’s deteriorating credit strength, lease expirations in soft markets and sustained vacancies which can adversely impact cash flow. Commercial – Commercial loans are secured or unsecured loans for business purposes. Loans are typically secured by accounts receivable, inventory, equipment and/or other assets of the business. Credit risk arises from the successful operation of the business which may be affected by competition, rising interest rates, regulatory changes and adverse conditions in the local and regional economy. Consumer – Consumer loans include home equity loans and lines, installment loans and personal lines of credit. Credit risk is similar to residential real estate loans above as it is subject to the borrower’s continuing financial stability and the value of the collateral securing the loan. The following tables include impairment information relating to loans and the allowance for credit losses as of September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ 333 ​ $ 6,216 ​ $ 8,746 ​ $ 283 ​ $ 28 ​ $ 15,606 Loans collectively evaluated for impairment ​ 105,707 ​ 435,924 ​ 620,895 ​ 218,313 ​ 27,520 ​ 1,408,359 Total loans ​ $ 106,040 ​ $ 442,140 ​ $ 629,641 ​ $ 218,596 ​ $ 27,548 ​ $ 1,423,965 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses allocated to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ — ​ $ 142 ​ $ 81 ​ $ 14 ​ $ — ​ $ 237 Loans collectively evaluated for impairment ​ 1,558 ​ 3,142 ​ 5,018 ​ 2,207 ​ 615 ​ 12,540 Total allowance ​ $ 1,558 ​ $ 3,284 ​ $ 5,099 ​ $ 2,221 ​ $ 615 ​ $ 12,777 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ 41 ​ $ 7,072 ​ $ 12,006 ​ $ 298 ​ $ — ​ $ 19,417 Loans collectively evaluated for impairment ​ 99,788 ​ 435,434 ​ 574,556 ​ 101,722 ​ 17,737 ​ 1,229,237 Total loans ​ $ 99,829 ​ $ 442,506 ​ $ 586,562 ​ $ 102,020 ​ $ 17,737 ​ $ 1,248,654 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses allocated to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ — ​ $ 395 ​ $ 580 ​ $ — ​ $ — ​ $ 975 Loans collectively evaluated for impairment ​ 1,576 ​ 2,106 ​ 3,452 ​ 1,929 ​ 469 ​ 9,532 Total allowance ​ $ 1,576 ​ $ 2,501 ​ $ 4,032 ​ $ 1,929 ​ $ 469 ​ $ 10,507 ​ In the first quarter of 2020, the Company transitioned from its in-house allowance model to an external vendor's allowance model software for the calculation of the allowance for loan losses. Prior to the adoption of the new model, the Company ran both models parallel for multiple periods to confirm the reasonableness of the new model's output as compared to the old. The primary motivation for the change was to increase efficiencies in the calculation of the allowance estimate under the current incurred loss standard and also allow for a more seamless transition for the 17 Table of Contents Company's eventual adoption of the Current Expected Credit Loss standard in 2023. The Company's processes for loan segmentation, assessing qualitative factors, and determining specific reserves for impaired loans remained substantially unchanged when comparing the models. As part of the new model, more precise averages are utilized in the calculation of the net charge-off ratios used in the historical loss analysis and the historical loss rates are applied to all pools of loans accounted for under ASC 450. Additionally, the historical look-back periods for retail loan pools were adjusted to four years in the new model as compared to two years under the prior in-house model. While there were some variances between loan pools when comparing the two models, the Company's ending recorded allowance and provision for loan losses during the first three quarters of 2020 were not materially impacted as a result of the transition. ​ The following tables provide information on impaired loans and any related allowance by loan class as of September 30, 2020 and December 31, 2019. The difference between the unpaid principal balance and the recorded investment is the amount of partial charge-offs that have been taken and interest paid on nonaccrual loans that has been applied to principal. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded Recorded ​ ​ September 30, 2020 ​ ​ Unpaid ​ investment ​ investment ​ ​ ​ ​ Quarter-to-date ​ Year-to-date ​ Interest ​ ​ principal ​ with no ​ with an ​ Related ​ average recorded ​ average recorded ​ recorded (Dollars in thousands) ​ balance ​ allowance ​ allowance ​ allowance ​ investment ​ investment ​ investment September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired nonaccrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 297 ​ $ 297 ​ $ — ​ $ — ​ $ 297 ​ $ 231 ​ $ — Residential real estate ​ 2,103 ​ 2,031 ​ — ​ — ​ 2,306 ​ 2,910 ​ — Commercial real estate ​ 5,357 ​ 4,260 ​ 67 ​ 67 ​ 4,498 ​ 6,235 ​ — Commercial ​ 420 ​ 269 ​ 14 ​ 14 ​ 355 ​ 429 ​ — Consumer ​ 28 ​ ​ 28 ​ ​ — ​ ​ — ​ ​ 9 ​ ​ 3 ​ ​ — Total ​ $ 8,205 ​ $ 6,885 ​ $ 81 ​ $ 81 ​ $ 7,465 ​ $ 9,808 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired accruing TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 36 ​ $ 36 ​ $ — ​ $ — ​ $ 37 ​ $ 38 ​ $ 2 Residential real estate ​ 3,878 ​ 2,530 ​ 1,348 ​ 142 ​ 3,886 ​ 3,940 ​ 120 Commercial real estate ​ 3,353 ​ 2,704 ​ 649 ​ 14 ​ 3,357 ​ 3,379 ​ 70 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 7,267 ​ $ 5,270 ​ $ 1,997 ​ $ 156 ​ $ 7,280 ​ $ 7,357 ​ $ 192 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other impaired accruing loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 33 ​ $ — Residential real estate ​ 307 ​ 307 ​ — ​ — ​ 389 ​ 393 ​ 1 Commercial real estate ​ 1,066 ​ 1,066 ​ — ​ — ​ 830 ​ 854 ​ 3 Commercial ​ — ​ — ​ — ​ — ​ 42 ​ 18 ​ — Consumer ​ — ​ — ​ — ​ — ​ 19 ​ 12 ​ — Total ​ $ 1,373 ​ $ 1,373 ​ $ — ​ $ — ​ $ 1,280 ​ $ 1,310 ​ $ 4 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 333 ​ $ 333 ​ $ — ​ $ — ​ $ 334 ​ $ 302 ​ $ 2 Residential real estate ​ 6,288 ​ 4,868 ​ 1,348 ​ 142 ​ 6,581 ​ 7,243 ​ 121 Commercial real estate ​ 9,776 ​ 8,030 ​ 716 ​ 81 ​ 8,685 ​ 10,468 ​ 73 Commercial ​ 420 ​ 269 ​ 14 ​ 14 ​ 397 ​ 447 ​ — Consumer ​ 28 ​ 28 ​ — ​ — ​ 28 ​ 15 ​ — Total ​ $ 16,845 ​ $ 13,528 ​ $ 2,078 ​ $ 237 ​ $ 16,025 ​ $ 18,475 ​ $ 196 ​ 18 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded Recorded ​ ​ September 30, 2019 ​ ​ Unpaid ​ investment ​ investment ​ ​ ​ ​ Quarter-to-date ​ Year-to-date ​ Interest ​ ​ principal ​ with no ​ with an ​ Related ​ average recorded ​ average recorded ​ income (Dollars in thousands) ​ balance ​ allowance ​ allowance ​ allowance ​ investment ​ investment ​ recognized December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired nonaccrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 1,435 ​ $ — Residential real estate ​ 2,660 ​ 678 ​ 1,797 ​ 215 ​ 2,642 ​ 2,904 ​ — Commercial real estate ​ 8,242 ​ 5,680 ​ 2,137 ​ 561 ​ 10,221 ​ 9,717 ​ — Commercial ​ 421 ​ 298 ​ — ​ — ​ 310 ​ 316 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 11,323 ​ $ 6,656 ​ $ 3,934 ​ $ 776 ​ $ 13,173 ​ $ 14,372 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired accruing TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 41 ​ $ 41 ​ $ — ​ $ — ​ $ 44 ​ $ 47 ​ $ 9 Residential real estate ​ 4,041 ​ 2,583 ​ 1,458 ​ 180 ​ 4,052 ​ 4,193 ​ 130 Commercial real estate ​ 3,419 ​ 2,748 ​ 671 ​ 19 ​ 3,479 ​ 3,515 ​ 93 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 7,501 ​ $ 5,372 ​ $ 2,129 ​ $ 199 ​ $ 7,575 ​ $ 7,755 ​ $ 232 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other impaired accruing loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 72 ​ $ 24 ​ $ — Residential real estate ​ 556 ​ 556 ​ — ​ — ​ 373 ​ 188 ​ 2 Commercial real estate ​ 770 ​ 770 ​ — ​ — ​ 515 ​ 349 ​ 2 Commercial ​ — ​ — ​ — ​ — ​ 43 ​ 21 ​ 1 Consumer ​ — ​ — ​ — ​ — ​ 2 ​ 4 ​ — Total ​ $ 1,326 ​ $ 1,326 ​ $ — ​ $ — ​ $ 1,005 ​ $ 586 ​ $ 5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 41 ​ $ 41 ​ $ — ​ $ — ​ $ 116 ​ $ 1,506 ​ $ 9 Residential real estate ​ 7,257 ​ 3,817 ​ 3,255 ​ 395 ​ 7,067 ​ 7,285 ​ 132 Commercial real estate ​ 12,431 ​ 9,198 ​ 2,808 ​ 580 ​ 14,215 ​ 13,581 ​ 95 Commercial ​ 421 ​ 298 ​ — ​ — ​ 353 ​ 337 ​ 1 Consumer ​ — ​ — ​ — ​ — ​ 2 ​ 4 ​ — Total ​ $ 20,150 ​ $ 13,354 ​ $ 6,063 ​ $ 975 ​ $ 21,753 ​ $ 22,713 ​ $ 237 ​ 19 Table of Contents The following tables provide a roll-forward for TDRs as of September 30, 2020 and September 30, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1/1/2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9/30/2020 ​ ​ ​ ​ TDR ​ New ​ Disbursements ​ Charge- ​ Reclassifications/ ​ ​ ​ ​ TDR ​ Related (Dollars in thousands) ​ Balance ​ TDRs ​ (Payments) ​ offs ​ Transfer In/(Out) ​ Payoffs ​ Balance ​ Allowance For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 41 ​ $ — ​ $ ( 5 ) ​ $ — ​ $ — ​ $ — ​ $ 36 ​ $ — Residential real estate ​ 4,041 ​ — ​ ( 80 ) ​ — ​ — ​ ( 83 ) ​ 3,878 ​ 142 Commercial real estate ​ 3,419 ​ — ​ ( 66 ) ​ — ​ — ​ — ​ 3,353 ​ 14 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 7,501 ​ $ — ​ $ ( 151 ) ​ $ — ​ $ — ​ $ ( 83 ) ​ $ 7,267 ​ $ 156 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ 1,393 ​ — ​ ( 51 ) ​ — ​ — ​ ( 1,342 ) ​ — ​ — Commercial real estate ​ — ​ 1,506 ​ ( 401 ) ​ — ​ — ​ — ​ 1,105 ​ — Commercial ​ 299 ​ — ​ ( 30 ) ​ — ​ — ​ — ​ 269 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 1,692 ​ $ 1,506 ​ $ ( 482 ) ​ $ — ​ $ — ​ $ ( 1,342 ) ​ $ 1,374 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 9,193 ​ $ 1,506 ​ $ ( 633 ) ​ $ — ​ $ — ​ $ ( 1,425 ) ​ $ 8,641 ​ $ 156 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1/1/2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9/30/2019 ​ ​ ​ TDR ​ New ​ Disbursements ​ Charge- ​ Reclassifications/ ​ ​ ​ ​ TDR ​ Related (Dollars in thousands) ​ Balance ​ TDRs ​ (Payments) ​ offs ​ Transfer In/(Out) ​ Payoffs ​ Balance ​ Allowance For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 51 ​ $ — ​ $ ( 8 ) ​ $ — ​ $ — ​ $ — ​ $ 43 ​ $ — Residential real estate ​ 4,454 ​ 41 ​ ( 73 ) ​ — ​ — ​ ( 353 ) ​ 4,069 ​ 185 Commercial real estate ​ 4,158 ​ — ​ ( 682 ) ​ — ​ — ​ — ​ 3,476 ​ 22 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 8,663 ​ $ 41 ​ $ ( 763 ) ​ $ — ​ $ — ​ $ ( 353 ) ​ $ 7,588 ​ $ 207 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 2,798 ​ $ — ​ $ ( 1,379 ) ​ $ ( 3 ) ​ $ — ​ $ — ​ $ 1,416 ​ $ 133 Residential real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial ​ 320 ​ — ​ ( 12 ) ​ — ​ — ​ — ​ 308 ​ 4 Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 3,118 ​ $ — ​ $ ( 1,391 ) ​ $ ( 3 ) ​ $ — ​ $ — ​ $ 1,724 ​ $ 137 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 11,781 ​ $ 41 ​ $ ( 2,154 ) ​ $ ( 3 ) ​ $ — ​ $ ( 353 ) ​ $ 9,312 ​ $ 344 ​ 20 Table of Contents There were no loans modified and considered TDRs during the three months ended September 30, 2020 and 2019. The following tables provide information on loans that were modified and considered TDRs during the nine months ended September 30, 2020 and September 30, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Premodification Postmodification ​ ​ ​ ​ ​ outstanding ​ outstanding ​ ​ ​ ​ Number of ​ recorded ​ recorded ​ Related (Dollars in thousands) ​ contracts ​ investment ​ investment ​ allowance TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction — ​ $ — ​ $ — $ — Residential real estate — ​ — ​ — — Commercial real estate 1 ​ 1,535 ​ 1,162 — Commercial — ​ — ​ — — Consumer — ​ — ​ — — Total 1 ​ $ 1,535 ​ $ 1,162 $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction — ​ $ — ​ $ — $ — Residential real estate 1 ​ 75 ​ 41 — Commercial real estate — ​ — ​ — — Commercial — ​ — ​ — — Consumer — ​ — ​ — — Total 1 ​ $ 75 ​ $ 41 $ — ​ For the nine months ended September 30, 2020, the Company had executed principal and/or interest deferrals on outstanding loan balances of $ 221.1 million, of which only $ 12.9 million remained on deferral as of September 30, 2020. These deferrals were no more than six months in duration and were for loans not more than 30 days past due as of December 31, 2019. As such, they were not considered TDRs based on the relief provisions of the CARES Act and recent interagency regulatory guidance. There were no TDRs which subsequently defaulted within 12 months of modification for the three and nine months ended September 30, 2020 and 2019. Generally, a loan is considered in default when principal or interest is past due 90 days or more, the loan is placed on nonaccrual, the loan is charged off, or there is a transfer to OREO or repossessed assets. Management uses risk ratings as part of its monitoring of the credit quality in the Company’s loan portfolio. Loans that are identified as special mention, substandard or doubtful are adversely rated. These loans and the pass/watch loans are assigned higher qualitative factors than favorably rated loans in the calculation of the formula portion of the allowance for credit losses. At September 30, 2020, there were no nonaccrual loans classified as special mention or doubtful and $ 7.0 million of nonaccrual loans were classified as substandard. Similarly, at December 31, 2019, there were no nonaccrual loans classified as special mention or doubtful and $ 10.6 million of nonaccrual loans were classified as substandard. 21 Table of Contents The following tables provide information on loan risk ratings as of September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ (Dollars in thousands) ​ Pass/Performing ​ Pass/Watch ​ Mention ​ Substandard ​ Doubtful ​ Total September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 84,506 ​ $ 19,196 ​ $ 2,041 ​ $ 297 ​ $ — ​ $ 106,040 Residential real estate ​ 398,950 ​ 36,426 ​ 4,095 ​ 2,669 ​ — ​ 442,140 Commercial real estate ​ 492,816 ​ 122,104 ​ 5,598 ​ 9,123 ​ — ​ 629,641 Commercial ​ 187,876 ​ 27,247 ​ 3,174 ​ 299 ​ — ​ 218,596 Consumer ​ 27,250 ​ 265 ​ — ​ 33 ​ — ​ 27,548 Total ​ $ 1,191,398 ​ $ 205,238 ​ $ 14,908 ​ $ 12,421 ​ $ — ​ $ 1,423,965 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ (Dollars in thousands) ​ Pass/Performing ​ Pass/Watch ​ Mention ​ Substandard ​ Doubtful ​ Total December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 84,357 ​ $ 13,068 ​ $ 2,404 ​ $ — ​ $ — ​ $ 99,829 Residential real estate ​ 404,500 ​ 29,223 ​ 5,549 ​ 3,234 ​ — ​ 442,506 Commercial real estate ​ 455,388 ​ 115,190 ​ 4,822 ​ 11,162 ​ — ​ 586,562 Commercial ​ 80,816 ​ 20,130 ​ 746 ​ 328 ​ — ​ 102,020 Consumer ​ 17,347 ​ 383 ​ 2 ​ 5 ​ — ​ 17,737 Total ​ $ 1,042,408 ​ $ 177,994 ​ $ 13,523 ​ $ 14,729 ​ $ — ​ $ 1,248,654 ​ The following tables provide information on the aging of the loan portfolio as of September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing ​ ​ ​ ​ ​ ​ ​ ​ ​ 30‑59 days 60‑89 days Greater than Total ​ ​ ​ ​ (Dollars in thousands) ​ Current ​ past due ​ past due ​ 90 days ​ past due ​ Nonaccrual ​ Total September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 105,743 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 297 ​ $ 106,040 ​ Residential real estate ​ 438,917 ​ 240 ​ 645 ​ 307 ​ 1,192 ​ 2,031 ​ 442,140 ​ Commercial real estate ​ 623,256 ​ 992 ​ — ​ 1,066 ​ 2,058 ​ 4,327 ​ 629,641 ​ Commercial ​ 218,297 ​ 16 ​ — ​ — ​ 16 ​ 283 ​ 218,596 ​ Consumer ​ 27,519 ​ — ​ 1 ​ — ​ 1 ​ 28 ​ 27,548 ​ Total ​ $ 1,413,732 ​ $ 1,248 ​ $ 646 ​ $ 1,373 ​ $ 3,267 ​ $ 6,966 ​ $ 1,423,965 ​ Percent of total loans ​ 99.3 % 0.1 % — % 0.1 % 0.2 % 0.5 % 100.0 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing ​ ​ ​ ​ ​ ​ ​ ​ ​ 30‑59 days ​ 60‑89 days ​ Greater than ​ Total ​ ​ ​ ​ ​ (Dollars in thousands) ​ Current ​ past due ​ past due ​ 90 days ​ past due ​ Nonaccrual ​ Total December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 99,234 ​ $ 595 ​ $ — ​ $ — ​ $ 595 ​ $ — ​ $ 99,829 ​ Residential real estate ​ 435,671 ​ 3,021 ​ 783 ​ 556 ​ 4,360 ​ 2,475 ​ 442,506 ​ Commercial real estate ​ 577,015 ​ 743 ​ 217 ​ 770 ​ 1,730 ​ 7,817 ​ 586,562 ​ Commercial ​ 101,476 ​ 246 ​ — ​ — ​ 246 ​ 298 ​ 102,020 ​ Consumer ​ 17,680 ​ 57 ​ — ​ — ​ 57 ​ — ​ 17,737 ​ Total ​ $ 1,231,076 ​ $ 4,662 ​ $ 1,000 ​ $ 1,326 ​ $ 6,988 ​ $ 10,590 ​ $ 1,248,654 ​ Percent of total loans ​ 98.6 % 0.4 % 0.1 % 0.1 % 0.6 % 0.8 % 100.0 % ​ 22 Table of Contents The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the three and nine months ended September 30, 2020 and September 30, 2019. Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total For three months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 1,497 ​ $ 2,639 ​ $ 4,097 ​ $ 2,355 ​ $ 502 $ 11,090 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ ( 10 ) ​ ( 1 ) ​ ( 89 ) ​ ( 1 ) ​ ( 101 ) Recoveries ​ 5 ​ 199 ​ 1 ​ 81 ​ 2 ​ 288 Net (charge-offs) recoveries ​ 5 ​ 189 ​ — ​ ( 8 ) ​ 1 ​ 187 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ 56 ​ 456 ​ 1,002 ​ ( 126 ) ​ 112 ​ 1,500 Ending Balance ​ $ 1,558 ​ $ 3,284 ​ $ 5,099 ​ $ 2,221 ​ $ 615 $ 12,777 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total For three months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 2,443 ​ $ 2,155 ​ $ 3,367 ​ $ 2,057 ​ $ 283 ​ $ 10,305 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ ( 86 ) ​ — ​ ( 98 ) ​ — ​ ( 184 ) Recoveries ​ 1 ​ 12 ​ 7 ​ 96 ​ 1 ​ 117 Net (charge-offs) recoveries ​ 1 ​ ( 74 ) ​ 7 ​ ( 2 ) ​ 1 ​ ( 67 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ ( 903 ) ​ 600 ​ 474 ​ ( 39 ) ​ 68 ​ 200 Ending Balance ​ $ 1,541 ​ $ 2,681 ​ $ 3,848 ​ $ 2,016 ​ $ 352 ​ $ 10,438 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 23 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 1,576 ​ $ 2,501 ​ $ 4,032 ​ $ 1,929 ​ $ 469 $ 10,507 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ ( 201 ) ​ ( 601 ) ​ ( 208 ) ​ ( 8 ) ​ ( 1,018 ) Recoveries ​ 13 ​ 206 ​ — ​ 205 ​ 14 ​ 438 Net (charge-offs) recoveries ​ 13 ​ 5 ​ ( 601 ) ​ ( 3 ) ​ 6 ​ ( 580 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ ( 31 ) ​ 778 ​ 1,668 ​ 295 ​ 140 ​ 2,850 Ending Balance ​ $ 1,558 ​ $ 3,284 ​ $ 5,099 ​ $ 2,221 ​ $ 615 $ 12,777 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 2,662 ​ $ 2,353 ​ $ 3,077 ​ $ 1,949 ​ $ 302 ​ $ 10,343 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ ( 3 ) ​ ( 509 ) ​ — ​ ( 260 ) ​ ( 29 ) ​ ( 801 ) Recoveries ​ 8 ​ 23 ​ 114 ​ 248 ​ 3 ​ 396 Net (charge-offs) recoveries ​ 5 ​ ( 486 ) ​ 114 ​ ( 12 ) ​ ( 26 ) ​ ( 405 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ ( 1,126 ) ​ 814 ​ 657 ​ 79 ​ 76 ​ 500 Ending Balance ​ $ 1,541 ​ $ 2,681 ​ $ 3,848 ​ $ 2,016 ​ $ 352 ​ $ 10,438 ​ Foreclosure Proceedings Consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure totaled $ 23 thousand as of September 30, 2020 and December 31, 2019, respectively. There were no residential real estate properties included in the balance of other real estate owned at September 30, 2020 and December 31, 2019. All accruing TDRs were in compliance with their modified terms. Both performing and non-performing TDRs had no further commitments associated with them as of September 30, 2020 and December 31, 2019. Note 6 – Leases On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases (Topic 842)” and all subsequent ASUs that modified Topic 842. The Company elected the prospective application approach provided by ASU 2018-11 and did not adjust prior periods for ASC 842. The Company also elected certain practical expedients within the standard and consistent with such elections did not reassess whether any expired or existing contracts are or contain leases, did not reassess the lease classification for any expired or existing leases, and did not reassess any initial direct costs for existing leases. As stated in the Company’s 2019 Form 10-K, the implementation of the new standard resulted in recognition of right-of-use assets and lease liabilities totaling $ 3.8 million at the date of adoption, which are primarily related to the Company’s lease of premises used in operations. During the course of 2019, the Company recognized additional right-of-use assets and lease liabilities of $ 1.4 million, primarily related to the lease of additional premises used in operations. During the first quarter of 2020, the Company renewed its copier lease for all locations which added approximately $ 419 thousand to right-of-use assets and lease liabilities . ​ Lease liabilities represent the Company’s obligation to make lease payments and are presented at each reporting date as the net present value of the remaining contractual cash flows. Cash flows are discounted at the Company’s incremental borrowing rate in effect at the commencement date of the lease. Right-of-use assets represent the Company’s right to use 24 Table of Contents the underlying asset for the lease term and are calculated as the sum of the lease liability and if applicable, prepaid rent, initial direct costs and any incentives received from the lessor. ​ The Company’s long-term lease agreements are classified as operating leases. Certain leases offer the option to extend the lease term and the Company has included such extensions in its calculation of the lease liabilities to the extent the options are reasonably certain of being exercised. The lease agreements do not provide for residual value guarantees and have no restrictions or covenants that would impact dividends or require incurring additional financial obligations. ​ The following tables present information about the Company’s leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ September 30, 2020 ​ December 31, 2019 Lease liabilities ​ $ 4,840 ​ ​ $ 4,792 ​ Right-of-use assets ​ $ 4,769 ​ ​ $ 4,771 ​ Weighted average remaining lease term ​ 10.73 years ​ 11.76 years Weighted average discount rate ​ 2.94 % ​ 3.13 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the three months ended ​ ​ For the nine months ended Lease cost (in thousands) ​ September 30, 2020 ​ ​ September 30, 2020 Operating lease cost ​ $ 177 ​ ​ $ 534 Short-term lease cost ​ — ​ ​ — Total lease cost ​ $ 177 ​ ​ $ 534 ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ $ 168 ​ ​ $ 498 ​ A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total of operating lease liabilities is as follows: ​ ​ ​ ​ ​ ​ ​ As of Lease payments due (in thousands) ​ September 30, 2020 Three months ending December 31, 2020 ​ ​ 164 Twelve months ending December 31, 2021 ​ $ 637 Twelve months ending December 31, 2022 ​ 633 Twelve months ending December 31, 2023 ​ 606 Twelve months ending December 31, 2024 ​ ​ 558 Twelve months ending December 31, 2025 ​ ​ 427 Thereafter ​ ​ 2,853 Total undiscounted cash flows ​ $ 5,878 Discount ​ ​ 1,038 Lease liabilities ​ $ 4,840 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 25 Table of Contents Note 7 – Goodwill and Other Intangibles Due to the COVID-19 pandemic and its impact on market conditions, the Company performed a qualitative assessment of goodwill as of September 30, 2020. As a result of management’s qualitative evaluation of relevant events and circumstances as of September 30, 2020, the Company concluded that it was not more likely than not that fair value was less than carrying value. In addition, the Company will complete a full annual assessment of goodwill in the fourth quarter of 2020. Changes in the economic environment, operations, or other adverse events could result in future impairment charges which could have a material adverse impact on the Company's operating results. The following table provides information on the significant components of goodwill and other acquired intangible assets at September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Gross ​ Accumulated ​ ​ ​ ​ Net ​ Average ​ ​ Carrying ​ Impairment ​ Accumulated ​ Carrying ​ Remaining Life (Dollars in thousands) Amount Charges Amortization Amount ​ (in years) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Goodwill ​ $ 19,728 ​ $ ( 1,543 ) ​ $ ( 667 ) ​ $ 17,518 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Core deposit intangible ​ $ 3,954 ​ $ — ​ $ ( 2,110 ) ​ $ 1,844 ​ ​ 4.7 Total other intangible assets ​ $ 3,954 ​ $ — ​ $ ( 2,110 ) ​ $ 1,844 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Gross ​ Accumulated ​ ​ ​ Net ​ Average ​ Carrying Impairment ​ Accumulated Carrying ​ Remaining Life (Dollars in thousands) Amount Charges ​ Amortization Amount ​ (in years) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Goodwill ​ $ 19,728 ​ $ ( 1,543 ) ​ $ ( 667 ) ​ $ 17,518 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Core deposit intangible ​ $ 3,954 ​ $ — ​ $ ( 1,702 ) ​ $ 2,252 ​ 5.7 Total other intangible assets ​ $ 3,954 ​ $ — ​ $ ( 1,702 ) ​ $ 2,252 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The aggregate amortization expense included in continuing operations was $ 407 thousand for the nine months ended September 30, 2020 and $ 461 thousand for the nine months ended September 30, 2019. At September 30, 2020, estimated future remaining amortization for amortizing intangibles within the years ending December 31, is as follows: ​ ​ ​ ​ ​ (Dollars in thousands) ​ Amortization Expense 2020 ​ $ 126 2021 ​ 461 2022 ​ 389 2023 ​ 317 2024 ​ 246 2025 ​ ​ 174 Thereafter ​ ​ 131 Total amortizing intangible assets ​ $ 1,844 ​ ​ 26 Table of Contents Note 8 – Other Assets The Company had the following other assets at September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ (Dollars in thousands) 2020 2019 Accrued interest receivable ​ $ 7,385 ​ $ 3,455 ​ Deferred income taxes ​ 4,041 ​ 2,754 ​ Prepaid expenses ​ 1,692 ​ 1,157 ​ Cash surrender value on life insurance ​ 30,690 ​ 29,782 ​ Income taxes receivable ​ ​ 398 ​ ​ 175 ​ Other assets ​ 2,923 ​ 3,249 ​ Total ​ $ 47,129 ​ $ 40,572 ​ ​ The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (Dollars in thousands) 2020 2019 Deferred tax assets: ​ ​ Allowance for credit losses ​ $ 3,453 ​ $ 2,850 Write-downs of other real estate owned ​ 2 ​ 9 Nonaccrual loan interest ​ 411 ​ 353 Unrealized losses on available-for-sale securities transferred to held to maturity ​ ​ — ​ 4 Other ​ 2,162 ​ 735 Total deferred tax assets ​ 6,028 ​ 3,951 Less valuation allowance ​ ​ ( 120 ) ​ ​ ( 63 ) Deferred tax assets net of valuation allowance ​ ​ 5,908 ​ ​ 3,888 Deferred tax liabilities: ​ ​ Depreciation ​ 163 ​ 198 Acquisition accounting adjustments ​ 669 ​ 508 Deferred capital gain on branch sale ​ 188 ​ 194 Unrealized gains on available-for-sale securities ​ 708 ​ 74 Other ​ ​ 139 ​ ​ 160 Total deferred tax liabilities ​ 1,867 ​ 1,134 Net deferred tax assets ​ $ 4,041 ​ $ 2,754 ​ ​ Note 9 - Subordinated Debt ​ On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain Purchasers pursuant to which the Company issued and sold $ 25.0 million in aggregate principal amount with an initial interest rate of 5.375 % Fixed-to-Floating Rate Subordinated Notes due September 1, 2030. The Company plans to use the net proceeds of this offering for general corporate purposes, organic growth and to support the Bank’s regulatory capital ratios. The Notes were structured to qualify as Tier 2 capital for regulatory capital purposes and bear an initial interest rate of 5.375 % until September 1, 2025, with interest during this period payable semi-annually in arrears. From and including September 1, 2025, to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an annual floating rate equal to three-month SOFR, plus 526.5 basis points, with interest during this period payable quarterly in arrears. The Notes are redeemable by the Company at its option, in whole or in part, on or after September 1, 2025. Initial debt issuance costs were $ 611 thousand. The debt balance of $ 24.4 million is presented net of unamortized issuance costs of $ 601 thousand at September 30, 2020. ​ 27 Table of Contents Note 10 – Other Liabilities The Company had the following other liabilities at September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) September 30, 2020 December 31, 2019 Accrued interest payable ​ $ 319 ​ $ 330 ​ Deferred compensation liability ​ 2,478 ​ 1,401 ​ Income taxes payable ​ — ​ — ​ Other liabilities ​ 2,115 ​ 2,350 ​ Total ​ $ 4,912 ​ $ 4,081 ​ ​ ​ Note 11 - Stock-Based Compensation At the 2016 annual meeting, stockholders approved the Shore Bancshares, Inc. 2016 Stock and Incentive Plan (“2016 Equity Plan”), replacing the Shore Bancshares, Inc. 2006 Stock and Incentive Plan (“2006 Equity Plan”), which expired on that date. The Company may issue shares of common stock or grant other equity-based awards pursuant to the 2016 Equity Plan. Stock-based awards granted to date generally are time-based, vest in equal installments on each anniversary of the grant date and range over a one - to five-year period of time, and, in the case of stock options, expire 10 years from the grant date. As part of the 2016 Equity Plan, a performance equity incentive award program, known as the “Long-term incentive plan” allows participating officers of the Company to earn incentive awards of performance share/restricted stock units if certain pre-determined targets are achieved at the end of a three-year performance cycle. Stock-based compensation expense based on the grant date fair value is recognized ratably over the requisite service period for all awards and reflects forfeitures as they occur. The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 611,664 shares remained available for grant at September 30, 2020. The following tables provide information on stock-based compensation expense for the three and nine months ended September 30, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (Dollars in thousands) 2020 2019 2020 2019 Stock-based compensation expense ​ $ 67 ​ $ 61 ​ $ 190 ​ $ 92 ​ Excess tax benefits related to stock-based compensation ​ — ​ 2 ​ 11 ​ 5 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ (Dollars in thousands) 2020 2019 Unrecognized stock-based compensation expense ​ $ 143 ​ $ 90 ​ Weighted average period unrecognized expense is expected to be recognized ​ 0.5 years 0.5 years ​ The following table summarizes restricted stock award activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Grant Date ​ Shares Fair Value Nonvested at beginning of period 15,702 ​ $ 15.36 Granted 24,800 ​ 13.76 Vested ( 15,702 ) ​ 15.36 Forfeited ( 902 ) ​ 16.25 Nonvested at end of period 23,898 ​ $ 13.76 ​ The fair value of restricted stock awards that vested during the first nine months of 2020 and 2019 was $ 254 thousand and $ 0 , respectively. 28 Table of Contents Restricted stock units (“RSUs”) are similar to restricted stock, except the recipient does not receive the stock immediately, but instead receives it upon the terms and conditions of the Company’s long-term incentive plans which are subject to performance milestones achieved at the end of a three-year period. Each RSU cliff vests at the end of the three-year period and entitles the recipient to receive one share of common stock on a specified issuance date. The recipient does not have any stockholder rights, including voting rights, with respect to the shares underlying awarded RSUs until the recipient becomes the holder of those shares. During 2017, the Company entered into a long-term incentive plan agreement with officers of the Company and its subsidiaries to award RSUs based on a performance metric to be achieved as of December 31, 2019. Based on the results for the year ended December 31, 2019, 6,451 shares were vested. The following table summarizes restricted stock units activity at the end of the performance cycle for the Company under the 2016 Equity Plan for the nine months ended September 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Grant Date ​ Shares Fair Value Outstanding at beginning of period 6,451 ​ $ 16.57 Granted — ​ — Vested ( 6,451 ) ​ 16.57 Forfeited — ​ — Outstanding at end of period — ​ $ — ​ The fair value of restricted stock units that vested during the first nine months of 2020 and 2019 was $ 107 thousand and $ 241 thousand, respectively. The following table summarizes stock option activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2020 ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Grant Date ​ Shares Exercise Price Outstanding at beginning of period 11,671 ​ $ 9.25 Granted — ​ — Exercised — ​ — Expired/Cancelled — ​ — Outstanding at end of period 11,671 ​ $ 9.25 ​ ​ ​ ​ ​ ​ Exercisable at end of period 11,671 ​ $ 9.25 ​ There were no stock options granted during the three and nine months ended September 30, 2020 and September 30, 2019. At the end of the third quarter of 2020, the aggregate intrinsic value of the options outstanding under the 2016 Equity Plan was $ 20 thousand based on the $ 10.98 market value per share of the Company’s common stock at September 30, 2020. Similarly, the aggregate intrinsic value of the options exercisable was $ 20 thousand at September 30, 2020. At September 30, 2020, the weighted average remaining contract life of options outstanding and exercisable was 4.1 years. ​ ​ ​ 29 Table of Contents Note 12 – Accumulated Other Comprehensive Income The Company records unrealized holding gains (losses), net of tax, on investment securities available for sale as accumulated other comprehensive income (loss), a separate component of stockholders’ equity. The following table provides information on the changes in the components of accumulated other comprehensive income (loss) for the nine months ended September 30, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gains ​ ​ ​ ​ ​ (losses) on securities ​ ​ ​ ​ Unrealized ​ transferred from ​ Accumulated ​ ​ gains (losses) on ​ Available-for-sale ​ other ​ ​ available for sale ​ to ​ comprehensive (Dollars in thousands) ​ securities ​ Held-to-maturity ​ income (loss) Balance, December 31, 2019 ​ $ 218 ​ $ ( 11 ) ​ $ 207 Other comprehensive income before reclassifications ​ 1,945 ​ 11 ​ 1,956 Reclassification of gains recognized ​ ​ ( 259 ) ​ — ​ ( 259 ) Balance, September 30, 2020 ​ $ 1,904 ​ $ — ​ $ 1,904 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2018 ​ $ ( 2,918 ) ​ $ ( 32 ) ​ $ ( 2,950 ) Other comprehensive income ​ 2,967 ​ 16 ​ 2,983 Balances, September 30, 2019 ​ $ 49 ​ $ ( 16 ) ​ $ 33 ​ ​ Note 13 – Fair Value Measurements Accounting guidance under GAAP 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. This accounting guidance 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 Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Securities available for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, loans held for sale and other real estate owned (foreclosed assets). These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Under fair value accounting guidance, assets and liabilities are grouped 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 their fair values. These hierarchy levels are: Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2 inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. ​ ​ 30 Table of Contents Below is a discussion on the Company’s assets measured at fair value on a recurring basis. Investment Securities Available for Sale Fair value measurement for investment securities available for sale is based on quoted prices from an independent pricing service. The fair value measurements consider observable data that may include present value of future cash flows, prepayment assumptions, credit loss assumptions and other factors. The Company classifies its investments in U.S. Treasury securities, if any, as Level 1 in the fair value hierarchy, and it classifies its investments in U.S. Government agencies securities and mortgage-backed securities issued or guaranteed by U.S. Government sponsored entities as Level 2. Equity Securities Fair value measurement for equity securities is based on quoted market prices retrieved by the Company via on-line resources. Although these securities have readily available fair market values, the Company determined that they should be classified as level 2 investments in the fair value hierarchy due to not being considered traded in a highly active market. The tables below present the recorded amount of assets measured at fair value on a recurring basis at September 30, 2020 and December 31, 2019. No assets were transferred from one hierarchy level to another during the first nine months of 2020 or 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Significant ​ ​ ​ ​ ​ Quoted ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Prices ​ Inputs ​ Inputs (Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3) September 30, 2020 ​ ​ ​ ​ Securities available for sale: ​ ​ ​ ​ U.S. Government agencies ​ $ 24,632 ​ $ — ​ $ 24,632 ​ $ — Mortgage-backed ​ 114,717 ​ — ​ 114,717 ​ — ​ ​ 139,349 ​ — ​ 139,349 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity ​ 1,396 ​ — ​ 1,396 ​ — Total ​ $ 140,745 ​ $ — ​ $ 140,745 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Significant ​ ​ ​ ​ ​ Quoted ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Prices ​ Inputs ​ Inputs (Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3) December 31, 2019 ​ ​ ​ ​ Securities available for sale: ​ ​ ​ ​ U.S. Government agencies ​ $ 23,826 ​ $ — ​ $ 23,826 ​ $ — Mortgage-backed ​ 98,965 ​ — ​ 98,965 ​ — ​ ​ 122,791 ​ — ​ 122,791 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity ​ 1,342 ​ — ​ 1,342 ​ — Total ​ $ 124,133 ​ $ — ​ $ 124,133 ​ $ — ​ Below is a discussion on the Company’s assets measured at fair value on a nonrecurring basis. Impaired Loans Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts according to the contractual terms of the loan agreement when due. Loan impairment is 31 Table of Contents measured using the present value of expected cash flows, the loan’s observable market price or the fair value of the collateral (less selling costs) if the loans are collateral dependent and these are considered Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable. The value of business equipment, inventory and accounts receivable, discounted on management’s review and analysis. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the factors identified above. Valuation techniques are consistent with those techniques applied in prior periods. Other Real Estate Owned (Foreclosed Assets) Foreclosed assets are adjusted for fair value upon transfer of loans to foreclosed assets establishing a new cost basis. Subsequently, foreclosed assets are carried at the lower of carrying value or fair value. The estimated fair value for foreclosed assets included in Level 3 are determined by independent market based appraisals and other available market information, less costs to sell, that may be reduced further based on market expectations or an executed sales agreement. If the fair value of the collateral deteriorates subsequent to the initial recognition, the Company records the foreclosed asset as a non-recurring Level 3 adjustment. Valuation techniques are consistent with those techniques applied in prior periods. The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis at September 30, 2020 and December 31, 2019, that are valued at the lower of cost or market. Assets are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quantitative Information about Level 3 Fair Value Measurements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range Average (3) September 30, 2020 ​ ​ ​ ​ Nonrecurring measurements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 610 Appraisal of collateral (1) Liquidation expense (2) 10 % ​ ( 10 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 1,231 Discounted cash flow analysis (1) Discount rate ​ 4 % - 7.25 % ​ ( 6 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ​ $ 38 Appraisal of collateral (1) Appraisal adjustments (2) 0 % - 19 % ​ ( 19 %) ​ ​ ​ ​ ​ ​ ​ ​ 32 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quantitative Information about Level 3 Fair Value Measurements (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range December 31, 2019 ​ ​ ​ ​ Nonrecurring measurements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 2,489 Appraisal of collateral (1) Liquidation expense (2) 10 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 2,599 Discounted cash flow analysis (1) Discount rate ​ 4 % - 7.25 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ​ $ 74 Appraisal of collateral (1) Appraisal adjustments (2) 0 % - 31 % ​ ​ Liquidation expense (2) 10 % ​ (1) Fair value is generally determined through independent appraisals of the underlying collateral (impaired loans and OREO) or discounted cash flow analyses (impaired loans), which generally include various level III inputs which are not identifiable. (2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal. (3) Unobservable inputs were weighted by the relative fair value of the instruments. ​ The carrying amounts and estimated fair values of the Company’s financial instruments not carried at fair value on the Company’s Consolidated Balance Sheets are presented in the following table. Fair values for September 30, 2020 and December 31, 2019 were estimated using an exit price notion. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 December 31, 2019 ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ Carrying ​ Fair ​ Carrying ​ Fair (Dollars in thousands) Amount Value Amount Value Financial assets ​ ​ ​ ​ Level 1 inputs ​ ​ ​ ​ Cash and cash equivalents ​ $ 156,462 ​ $ 156,462 ​ $ 94,971 ​ $ 94,971 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 2 inputs ​ ​ ​ ​ Investment securities held to maturity ​ $ 20,174 ​ $ 20,254 ​ $ 8,786 ​ $ 8,654 Restricted securities ​ 3,626 ​ 3,626 ​ 4,190 ​ 4,190 Cash surrender value on life insurance ​ 30,690 ​ 30,690 ​ 29,782 ​ 29,782 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 3 inputs ​ ​ ​ ​ Loans, net ​ $ 1,411,188 ​ $ 1,415,862 ​ $ 1,238,147 ​ $ 1,242,867 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities ​ ​ ​ ​ Level 2 inputs ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing demand ​ $ 465,304 ​ $ 465,304 ​ $ 356,618 ​ $ 356,618 Checking plus interest ​ 411,742 ​ 411,742 ​ 302,227 ​ 302,227 Money market ​ 273,775 ​ 273,775 ​ 262,050 ​ 262,050 Savings ​ 168,910 ​ 168,910 ​ 143,322 ​ 143,322 Club ​ 1,505 ​ 1,505 ​ 387 ​ 387 Certificates of deposit, $100,000 or more ​ 126,704 ​ 128,810 ​ 127,600 ​ 128,167 Other time ​ 146,181 ​ 147,738 ​ 149,130 ​ 149,209 Securities sold under retail repurchase agreement ​ 1,019 ​ 1,019 ​ 1,226 ​ 1,226 Advances from FHLB - long-term ​ ​ — ​ ​ — ​ ​ 15,000 ​ 15,040 Subordinated debt ​ ​ 24,399 ​ ​ 25,677 ​ ​ — ​ — ​ 33 Table of Contents Note 14 – Financial Instruments with Off-Balance Sheet Risk In the normal course of business, to meet the financial needs of its customers, the Bank is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Letters of credit and other commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Because many of the letters of credit and commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The following table provides information on commitments outstanding at September 30, 2020 and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) September 30, 2020 December 31, 2019 Commitments to extend credit ​ $ 257,009 ​ $ 211,652 Letters of credit ​ 9,177 ​ 7,691 Total ​ $ 266,186 ​ $ 219,343 ​ ​ Note 15 – Revenue Recognition Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees and merchant income. Noninterest revenue streams in-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. ​ Trust and Investment Fee Income Trust and investment fee income are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. ​ Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. ​ 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 34 Table of Contents 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. The Company determined that rentals and renewals of safe deposit boxes will be recognized on a monthly basis consistent with the duration of the performance obligation. The following presents noninterest income from continuing operations, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and nine months ended September 30, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (Dollars in thousands) 2020 2019 2020 2019 ​ Noninterest Income ​ ​ ​ ​ In-scope of Topic 606: ​ ​ ​ ​ Service charges on deposit accounts ​ $ 647 ​ $ 990 ​ $ 2,057 ​ $ 2,952 ​ Trust and investment fee income ​ 381 ​ 383 ​ 1,119 ​ 1,140 ​ Interchange income ​ ​ 808 ​ ​ 702 ​ ​ 2,169 ​ ​ 1,979 ​ Other noninterest income ​ 455 ​ 316 ​ 1,141 ​ 1,026 ​ Noninterest Income (in-scope of Topic 606) ​ 2,291 ​ 2,391 ​ 6,486 ​ 7,097 ​ Noninterest Income (out-of-scope of Topic 606) ​ 290 ​ 138 ​ 1,216 ​ 229 ​ Total Noninterest Income ​ $ 2,581 ​ $ 2,529 ​ $ 7,702 ​ $ 7,326 ​ ​ Contract Balances A contract asset balance occurs when an entity performs a service for a customer before the customer pays consideration (resulting in a contract receivable) or before payment is due (resulting in a contract asset). A contract liability balance is an entity’s obligation to transfer a service to a customer for which the entity has already received payment (or payment is due) from the customer. The Company’s noninterest revenue streams are largely based on transactional activity, or standard month-end revenue accruals such as asset management fees based on month-end market values. Consideration is often received immediately or shortly after the Company satisfies its performance obligation and revenue is recognized. The Company does not typically enter into long-term revenue contracts with customers, and therefore, does not experience significant contract balances. As of September 30, 2020, and December 31, 2019, the Company did not have any significant contract balances. ​ ​ ​ ​ 35 Table of Contents ​