SHORE BANCSHARES INC 10-Q

Item 1. Financial Statements. SHORE BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (In thousands, except share and per share data) 2021 2020 ASSETS (Unaudited) ​ Cash and due from banks ​ $ 18,440 ​ $ 16,666 Interest-bearing deposits with other banks ​ 292,412 ​ 170,251 Cash and cash equivalents ​ 310,852 ​ 186,917 Investment securities: ​ ​ ​ Available-for-sale, at fair value ​ 105,125 ​ 139,568 Held to maturity, at amortized cost - fair value of $ 247,835 (2021) and $ 65,828 (2020) ​ ​ 250,501 ​ 65,706 Equity securities, at fair value ​ 1,384 ​ 1,395 Restricted securities ​ 3,189 ​ 3,626 ​ ​ ​ ​ ​ ​ ​ Loans ​ 1,494,897 ​ 1,454,256 Less: allowance for credit losses ​ ( 15,525 ) ​ ( 13,888 ) Loans, net ​ 1,479,372 ​ 1,440,368 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ 27,011 ​ 24,924 Goodwill ​ 17,518 ​ 17,518 Other intangible assets, net ​ 1,365 ​ 1,719 Other real estate owned, net ​ 203 ​ — Right-of-use assets ​ ​ 5,512 ​ ​ 4,795 Other assets ​ 58,742 ​ 46,779 TOTAL ASSETS ​ $ 2,260,774 ​ $ 1,933,315 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ Deposits: ​ ​ ​ Noninterest-bearing ​ $ 554,902 ​ $ 509,091 Interest-bearing ​ 1,463,163 ​ 1,191,614 Total deposits ​ 2,018,065 ​ 1,700,705 ​ ​ ​ ​ ​ ​ ​ Securities sold under retail repurchase agreements ​ 3,501 ​ 1,050 Subordinated debt ​ 24,521 ​ 24,429 Total borrowings ​ ​ 28,022 ​ ​ 25,479 ​ ​ ​ ​ ​ ​ ​ Lease liabilities ​ 5,686 ​ 4,874 Other liabilities ​ ​ 7,394 ​ ​ 7,238 TOTAL LIABILITIES ​ ​ 2,059,167 ​ ​ 1,738,296 ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ Common stock, par value $ .01 per share; shares authorized - 35,000,000 ; shares issued and outstanding - 11,752,445 (2021) and 11,783,380 (2020) ​ ​ 118 ​ ​ 118 Additional paid in capital ​ ​ 51,641 ​ ​ 52,167 Retained earnings ​ ​ 149,620 ​ ​ 141,205 Accumulated other comprehensive income ​ 228 ​ 1,529 TOTAL STOCKHOLDERS' EQUITY ​ 201,607 ​ 195,019 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ $ 2,260,774 ​ $ 1,933,315 ​ See accompanying notes to Consolidated Financial Statements. ​ 3 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (In thousands, except per share data) ​ 2021 2020 2021 2020 ​ INTEREST INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest and fees on loans ​ $ 15,484 ​ $ 14,139 ​ $ 44,231 ​ $ 41,879 ​ Interest and dividends on investment securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Taxable ​ 1,318 ​ 730 ​ 3,343 ​ 2,087 ​ Interest on deposits with other banks ​ ​ 97 ​ ​ 33 ​ ​ 199 ​ ​ 216 ​ Total interest income ​ 16,899 ​ 14,902 ​ 47,773 ​ 44,182 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ INTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest on deposits ​ 949 ​ 1,470 ​ 3,189 ​ 5,085 ​ Interest on short-term borrowings ​ 2 ​ 1 ​ 5 ​ 4 ​ Interest on long-term borrowings ​ ​ 359 ​ ​ 148 ​ ​ 1,088 ​ ​ 261 ​ Total interest expense ​ 1,310 ​ 1,619 ​ 4,282 ​ 5,350 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME ​ 15,589 ​ 13,283 ​ 43,491 ​ 38,832 ​ Provision for credit losses ​ 290 ​ 1,500 ​ 1,365 ​ 2,850 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ​ 15,299 ​ 11,783 ​ 42,126 ​ 35,982 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NONINTEREST INCOME ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposit accounts ​ 805 ​ 647 ​ 2,162 ​ 2,057 ​ Trust and investment fee income ​ 477 ​ 381 ​ 1,359 ​ 1,119 ​ Gains on sales and calls of investment securities ​ 2 ​ — ​ 2 ​ 347 ​ Other noninterest income ​ ​ 1,625 ​ ​ 1,553 ​ ​ 4,846 ​ 4,179 ​ Total noninterest income ​ 2,909 ​ 2,581 ​ 8,369 ​ 7,702 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and wages ​ 5,091 ​ 4,143 ​ 13,495 ​ 10,569 ​ Employee benefits ​ 1,654 ​ 1,489 ​ 4,991 ​ 4,746 ​ Occupancy expense ​ 843 ​ 774 ​ 2,427 ​ 2,174 ​ Furniture and equipment expense ​ 449 ​ 294 ​ 1,168 ​ 858 ​ Data processing ​ 1,170 ​ 1,114 ​ 3,514 ​ 3,195 ​ Directors' fees ​ 147 ​ 132 ​ 450 ​ 386 ​ Amortization of other intangible assets ​ 107 ​ 125 ​ 353 ​ 407 ​ FDIC insurance premium expense ​ 245 ​ 132 ​ 653 ​ 347 ​ Other real estate owned expenses, net ​ 4 ​ — ​ 6 ​ 18 ​ Legal and professional fees ​ 428 ​ 447 ​ 1,592 ​ 1,634 ​ Merger-related expenses ​ 538 ​ — ​ 915 ​ — ​ Other noninterest expenses ​ ​ 1,259 ​ 1,181 ​ 3,745 ​ 3,509 ​ Total noninterest expense ​ 11,935 ​ 9,831 ​ 33,309 ​ 27,843 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 6,273 ​ 4,533 ​ 17,186 ​ 15,841 ​ Income tax expense ​ 1,657 ​ 1,142 ​ 4,541 ​ 3,997 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCOME ​ $ 4,616 ​ $ 3,391 ​ $ 12,645 ​ $ 11,844 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share - Basic and diluted ​ $ 0.39 ​ $ 0.27 ​ $ 1.08 ​ $ 0.95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends paid per common share ​ $ 0.12 ​ $ 0.12 ​ $ 0.36 ​ $ 0.36 ​ ​ See accompanying notes to Consolidated Financial Statements. ​ 4 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (In thousands) 2021 2020 2021 2020 Net income ​ $ 4,616 ​ $ 3,391 ​ $ 12,645 ​ $ 11,844 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) income: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unrealized holding (losses) gains on available-for-sale-securities ​ ( 520 ) ​ ( 141 ) ​ ( 1,789 ) ​ 2,668 ​ Tax effect ​ 142 ​ 39 ​ 488 ​ ( 723 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ — ​ 15 ​ Tax effect ​ — ​ ( 1 ) ​ — ​ ( 4 ) ​ Total other comprehensive (loss) income ​ ( 378 ) ​ ( 100 ) ​ ( 1,301 ) ​ 1,697 ​ Comprehensive income ​ $ 4,238 ​ $ 3,291 ​ $ 11,344 ​ $ 13,541 ​ ​ 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, 2021 and 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ Total ​ ​ Common ​ Paid in ​ Retained ​ Comprehensive ​ Stockholders’ (In thousands) Stock Capital Earnings Income Equity Balances, January 1, 2021 ​ $ 118 ​ $ 52,167 ​ $ 141,205 ​ $ 1,529 ​ $ 195,019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ — ​ — ​ 3,998 ​ — ​ 3,998 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) ​ — ​ — ​ — ​ ( 782 ) ​ ( 782 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Retirement of common stock ​ ​ — ​ ( 819 ) ​ — ​ — ​ ( 819 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 97 ​ — ​ — ​ 97 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ — ​ — ​ ( 1,409 ) ​ — ​ ( 1,409 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, March 31, 2021 ​ $ 118 ​ $ 51,445 ​ $ 143,794 ​ $ 747 ​ $ 196,104 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 4,031 ​ — ​ 4,031 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) ​ — ​ — ​ — ​ ( 141 ) ​ ( 141 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 99 ​ — ​ — ​ 99 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ ​ — ​ ​ — ​ ​ ( 1,411 ) ​ ​ — ​ ​ ( 1,411 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, June 30, 2021 ​ $ 118 ​ $ 51,544 ​ $ 146,414 ​ $ 606 ​ $ 198,682 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ — ​ 4,616 ​ — ​ 4,616 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) ​ — ​ — ​ — ​ ( 378 ) ​ ( 378 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 91 ​ — ​ — ​ 91 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Exercise of options, net of shares surrendered ​ ​ — ​ ​ 6 ​ ​ — ​ ​ — ​ ​ 6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ ​ — ​ ​ — ​ ​ ( 1,410 ) ​ ​ — ​ ​ ( 1,410 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, September 30, 2021 ​ $ 118 ​ $ 51,641 ​ $ 149,620 ​ $ 228 ​ $ 201,607 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ Total ​ ​ Common ​ Paid in ​ Retained ​ Comprehensive ​ Stockholders’ (In thousands) ​ 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ See accompanying notes to Consolidated Financial Statements. 7 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ For Nine Months Ended ​ ​ September 30, (In thousands) 2021 2020 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​ ​ Net Income ​ $ 12,645 ​ $ 11,844 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Net accretion of acquisition accounting estimates ​ ( 182 ) ​ ( 307 ) Provision for credit losses ​ 1,365 ​ 2,850 Depreciation and amortization ​ 1,937 ​ 1,793 Net amortization of securities ​ 1,034 ​ 330 Amortization of debt issuance costs ​ ​ 92 ​ ​ 10 Stock-based compensation expense ​ 287 ​ 190 Deferred income tax (benefit) ​ ​ ( 865 ) ​ ​ ( 1,925 ) (Gains) on sales and calls of securities ​ ( 2 ) ​ ( 347 ) Losses on sales and disposals of premises and equipment ​ ​ 4 ​ ​ 40 Losses on sales and valuation adjustments on other real estate owned ​ ​ 2 ​ ​ 18 Fair value adjustment on equity securities ​ ​ 24 ​ ​ ( 34 ) Bank owned life insurance income ​ ( 774 ) ​ ( 908 ) Net changes in: ​ ​ ​ ​ ​ ​ Accrued interest receivable ​ ​ 1,579 ​ ​ ( 3,930 ) Other assets ​ ( 1,342 ) ​ ( 511 ) Accrued interest payable ​ ( 446 ) ​ ( 11 ) Other liabilities ​ ​ 218 ​ ​ 471 Net cash provided by operating activities ​ 15,576 ​ 9,573 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ Proceeds from maturities and principal payments of investment securities available for sale ​ 31,975 ​ 33,272 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 ​ 29,046 ​ 205 Purchases of securities held to maturity ​ ​ ( 214,199 ) ​ ( 11,589 ) Purchases of equity securities ​ ( 13 ) ​ ( 20 ) Net change in loans ​ ( 40,437 ) ​ ( 175,669 ) Purchases of premises and equipment ​ ( 3,106 ) ​ ( 1,786 ) Proceeds from sales of premises and equipment ​ — ​ 2 Proceeds from sales of other real estate owned ​ ​ — ​ 18 Net redemption of restricted securities ​ ​ 437 ​ 564 Purchases of bank owned life insurance ​ ( 10,157 ) ​ — Net cash (used in) investing activities ​ ( 206,454 ) ​ ( 202,484 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM FINANCING ACTIVITIES: ​ ​ ​ ​ ​ Net changes in: ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ 45,811 ​ 108,686 Interest-bearing deposits ​ 271,594 ​ 144,186 Short-term borrowings ​ ​ 2,451 ​ ( 207 ) Long-term borrowings ​ — ​ ( 15,000 ) Proceeds from the issuance of subordinated debt, net of issuance costs ​ ​ — ​ 24,389 Common stock dividends paid ​ ​ ( 4,230 ) ​ ( 4,504 ) Retirement of common stock ​ ​ ( 819 ) ​ ( 3,109 ) Repurchase of shares for tax withholding on exercised options and vested restricted stock ​ ​ — ​ ( 39 ) Stock options exercised, net of shares surrendered ​ ​ 6 ​ — Net cash provided by financing activities ​ 314,813 ​ ​ 254,402 Net increase in cash and cash equivalents ​ 123,935 ​ 61,491 Cash and cash equivalents at beginning of period ​ 186,917 ​ 94,971 Cash and cash equivalents at end of period ​ $ 310,852 ​ $ 156,462 ​ ​ ​ ​ ​ ​ ​ Supplemental cash flows information: ​ ​ ​ ​ ​ ​ Interest paid ​ $ 4,694 ​ $ 5,436 Income taxes paid ​ $ 5,037 ​ $ 6,378 Lease liabilities arising from right-of-use assets ​ $ 1,194 ​ $ 419 Unrealized (loss) gain on securities available for sale ​ $ ( 1,789 ) ​ $ 2,321 Transfers from loans to other real estate owned ​ $ 205 ​ $ — Amortization of unrealized loss on securities transferred from available for sale to held to maturity ​ $ — ​ $ 15 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, 2021 and 2020 (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, 2021, the consolidated results of income and comprehensive income for the three and nine months ended September 30, 2021 and 2020, changes in stockholders’ equity for the three and nine months ended September 30, 2021 and 2020 and cash flows for the nine months ended September 30, 2021 and 2020, have been included. All such adjustments are of a normal recurring nature. The amounts as of December 31, 2020 were derived from the 2020 audited financial statements. The results of operations for the three and nine months ended September 30, 2021 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, 2020. 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 ​ Since the novel coronavirus ("COVID-19") was declared a pandemic in March 2020, COVID-19 has significantly affected our communities, customers, and operations. COVID-19 continues to have a significant impact in 2021, however, the extent of its effects are dependent upon multiple factors, such as the extent of distribution and efficacy of vaccines, COVID-19 variants, pandemic-related restrictions, and government response, among others. As a result, the ultimate effects of COVID-19 over the longer term cannot be reasonably estimated at this time. Risks and uncertainties arising from the pandemic remain, primarily concerning the ability of customers to fulfill their financial obligations to the Company as well as potential operational disruptions and the ability of the Company to generate demand for its products and services. Accordingly, estimates used in the preparation of our financial statements may be subject to significant adjustments in future periods. ​ 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. The FASB has issued multiple updates to ASU 2016-13 as codified in Topic 326, including ASU’s 2019-04, 2019-05, 2019-10, 2019-11, 2020-02, and 2020-03. These ASU’s have provided for various minor technical corrections and improvements to the codification as well as other transition matters. Smaller reporting companies who file with the U.S. Securities and Exchange Commission (SEC) and all other entities who do not file with the SEC are 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 9 Table of Contents 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 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. 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. Subsequently, in January 2021, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2021-01 “Reference Rate Reform (Topic 848): Scope.” This ASU clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The ASU also amends the expedients and exceptions in Topic 848 to capture the incremental consequences of the scope clarification and to tailor the existing guidance to derivative instruments affected by the discounting transition. An entity may elect to apply ASU No. 2021-01 on contract modifications that change the interest rate used for margining, discounting, or contract price alignment retrospectively as of any date from the beginning of the interim period that includes March 12, 2020, or prospectively to new modifications from any date within the interim period that includes or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. An entity may elect to apply ASU No. 2021-01 to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020, and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. At present, the Bank has limited exposure to LIBOR based pricing. LIBOR based loans only comprise 26 loans or 7.6 % 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. ​ ASU No. 2020-06 - In August 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. For public business entities, excluding smaller reporting companies, the amendments in the ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, the standard will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Bank does not expect the adoption of ASU 2020-06 to have a material impact on its (consolidated) financial statements. ​ 10 Table of Contents ​ ASU No. 2021-04 - In May 2021, the FASB issued ASU 2021-04, “Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity – Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force).” The ASU addresses how an issuer should account for modifications or an exchange of freestanding written call options classified as equity that is not within the scope of another Topic. For both public and private companies, the ASU is effective for fiscal years beginning after December 15, 2021. Transition is prospective. Early adoption is permitted. The Company does not expect the adoption of ASU 2021-04 to have a material impact on its consolidated financial statements. ​ ASU No. 2021-06 - In August 2021, the FASB issued ASU 2021-06, “'Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants”. The ASU is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2021-06 to have a material impact on its consolidated financial statements. ​ ​ Recent Accounting Developments ​ In December 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. The Bank participated in the second round of PPP lending under the CAA, which resulted in 959 PPP loans for approximately $ 67.3 million. ​ 11 Table of Contents Note 2 – 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) ​ 2021 ​ 2020 2021 2020 Net Income ​ $ 4,616 ​ $ 3,391 ​ $ 12,645 ​ $ 11,844 Weighted average shares outstanding - Basic ​ ​ 11,752 ​ ​ 12,483 ​ 11,750 ​ 12,507 Dilutive effect of common stock equivalents-options ​ ​ — ​ ​ 1 ​ — ​ 2 Weighted average shares outstanding - Diluted ​ ​ 11,752 ​ ​ 12,484 ​ 11,750 ​ 12,509 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings per common share - Basic and Diluted ​ $ 0.39 ​ $ 0.27 ​ $ 1.08 ​ $ 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, 2021 and 2020. Note 3 – 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 18,557 ​ $ 4 ​ $ 578 ​ $ 17,983 Mortgage-backed ​ 86,254 ​ 1,634 ​ 746 ​ 87,142 Total ​ $ 104,811 ​ $ 1,638 ​ $ 1,324 ​ $ 105,125 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 23,600 ​ $ 20 ​ $ 83 ​ $ 23,537 Mortgage-backed ​ 113,865 ​ 2,234 ​ 68 ​ 116,031 Total ​ $ 137,465 ​ $ 2,254 ​ $ 151 ​ $ 139,568 ​ No available for sale securities were sold during the three and nine months ended September 30, 2021. 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. ​ 12 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross Estimated ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (Dollars in thousands) ​ Cost ​ Gains ​ Losses ​ Value Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 67,772 ​ $ 26 ​ $ 556 ​ $ 67,242 Mortgage-backed ​ ​ 169,802 ​ ​ 36 ​ ​ 2,302 ​ ​ 167,536 States and political subdivisions ​ 400 ​ 2 ​ — ​ 402 Other debt securities ​ 12,527 ​ 133 ​ 5 ​ 12,655 Total ​ $ 250,501 ​ $ 197 ​ $ 2,863 ​ $ 247,835 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 18,893 ​ $ 38 ​ $ 43 ​ $ 18,888 Mortgage-backed ​ ​ 27,347 ​ ​ 7 ​ ​ 18 ​ ​ 27,336 States and political subdivisions ​ 400 ​ 1 ​ — ​ 401 Other debt securities ​ 19,066 ​ 139 ​ 2 ​ 19,203 Total ​ $ 65,706 ​ $ 185 ​ $ 63 ​ $ 65,828 ​ Equity securities with an aggregate fair value of $ 1.4 million at September 30, 2021 and December 31, 2020 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled $( 24 ) thousand for the nine months ended September 30, 2021 and $ 34 thousand for the nine months ended September 30, 2020, 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, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 2,886 ​ $ 113 ​ $ 14,746 ​ $ 465 ​ $ 17,632 ​ $ 578 Mortgage-backed ​ 37,837 ​ 723 ​ 3,947 ​ 23 ​ 41,784 ​ 746 Total ​ $ 40,723 ​ $ 836 ​ $ 18,693 ​ $ 488 ​ $ 59,416 ​ $ 1,324 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 61,371 ​ $ 556 ​ $ — ​ $ — ​ $ 61,371 ​ $ 556 Mortgage-backed ​ ​ 155,548 ​ ​ 2,302 ​ ​ — ​ ​ — ​ ​ 155,548 ​ ​ 2,302 Other debt securities ​ ​ 495 ​ ​ 5 ​ ​ — ​ ​ — ​ ​ 495 ​ ​ 5 Total ​ $ 217,414 ​ $ 2,863 ​ $ — ​ $ — ​ $ 217,414 ​ $ 2,863 ​ 13 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 14,919 ​ $ 82 ​ $ 236 ​ $ 1 ​ $ 15,155 ​ $ 83 Mortgage-backed ​ 11,869 ​ 68 ​ — ​ — ​ 11,869 ​ 68 Total ​ $ 26,788 ​ $ 150 ​ $ 236 ​ $ 1 ​ $ 27,024 ​ $ 151 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 6,646 ​ $ 43 ​ $ — ​ $ — ​ $ 6,646 ​ $ 43 Mortgage-backed ​ ​ 5,093 ​ ​ 18 ​ ​ — ​ ​ — ​ ​ 5,093 ​ ​ 18 Other debt securities ​ 498 ​ 2 ​ — ​ — ​ 498 ​ 2 Total ​ $ 12,237 ​ $ 63 ​ $ — ​ $ — ​ $ 12,237 ​ $ 63 ​ 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 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 basis, which may be at maturity for debt securities, the Company considers the unrealized losses to be temporary. There were nineteen available-for-sale securities and forty-six held-to-maturity securities in an unrealized loss position at September 30, 2021. The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at September 30, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale ​ Held to maturity ​ Amortized ​ ​ Amortized ​ ​ (Dollars in thousands) ​ Cost ​ Fair Value ​ Cost ​ Fair Value Due in one year or less ​ $ — ​ $ — ​ $ 2,921 ​ $ 2,954 Due after one year through five years ​ 799 ​ 825 ​ 9,982 ​ 9,959 Due after five years through ten years ​ 51,665 ​ 52,410 ​ 55,874 ​ 55,560 Due after ten years ​ 52,347 ​ 51,890 ​ 181,724 ​ 179,362 Total ​ $ 104,811 ​ $ 105,125 ​ $ 250,501 ​ $ 247,835 ​ The maturity dates for debt securities are determined using contractual maturity dates. Note 4 – 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, Worcester County, Baltimore County and 14 Table of Contents 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, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) September 30, 2021 December 31, 2020 Construction ​ $ 130,590 ​ $ 106,760 ​ Residential real estate ​ 460,890 ​ 443,542 ​ Commercial real estate ​ 663,894 ​ 661,232 ​ Commercial ​ 145,217 ​ 211,256 ​ Consumer ​ 94,306 ​ 31,466 ​ Total loans ​ 1,494,897 ​ 1,454,256 ​ Allowance for credit losses ​ ( 15,525 ) ​ ( 13,888 ) ​ Total loans, net ​ $ 1,479,372 ​ $ 1,440,368 ​ ​ 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 $ 376 thousand and discounts on acquired loans of $ 577 thousand at September 30, 2021. Loans included deferred costs, net of deferred fees, of $ 622 thousand and discounts on acquired loans of $ 754 thousand at December 31, 2020. At September 30, 2021 and December 31, 2020, included in total loans were $ 40.5 million and $ 52.3 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. 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. 15 Table of Contents 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 April 2020, the Company began its participation in the Paycheck Protection Program (“PPP”). The PPP commenced subsequent to the passage of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act in March 2020, and was later expanded by the Paycheck Protection Program and Health Care Enhancement Act of April 2020. The PPP was designed to provide U.S. small businesses with cash-flow assistance during the COVID-19 pandemic through loans that are fully guaranteed by the Small Business Administration (“SBA”) which may be forgiven upon satisfaction of certain criteria. In December 2020, the Consolidated Appropriations Act of 2021 (“CAA”) was passed. Under Section 541 of the CAA, Congress extended or modified many of the relief programs first created by the CARES Act, including the PPP loan program and treatment of certain loan modifications related to the COVID-19 pandemic. This extension of PPP lending expired on May 31, 2021. Under both the CARES and CAA, the Company funded 2,454 loans for a cumulative balance of $ 196.3 million. As of September 30, 2021, the Company held PPP loans with a total outstanding balance of $ 41.5 million, which is included in the commercial loan segment in the table above. The decrease is due to repayment and forgiveness received as of September 30, 2021. As compensation for originating the loans, the Company received lender processing fees from the SBA, which were deferred, along with the related loan origination costs. These net fees are being accreted to interest income over the remaining contractual lives of the loans. Upon forgiveness of a PPP loan and repayment by the SBA, which may be prior to the loan’s maturity, the remainder of any unrecognized net fees are recognized as interest income. 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 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. 16 Table of Contents 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, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ 324 ​ $ 4,007 ​ $ 5,397 ​ $ 227 ​ $ — ​ $ 9,955 Loans collectively evaluated for impairment ​ 130,266 ​ 456,883 ​ 658,497 ​ 144,990 ​ 94,306 ​ 1,484,942 Total loans ​ $ 130,590 ​ $ 460,890 ​ $ 663,894 ​ $ 145,217 ​ $ 94,306 ​ $ 1,494,897 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses allocated to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ — ​ $ 84 ​ $ — ​ $ — ​ $ — ​ $ 84 Loans collectively evaluated for impairment ​ 2,621 ​ 3,814 ​ 5,527 ​ 1,852 ​ 1,627 ​ 15,441 Total allowance ​ $ 2,621 ​ $ 3,898 ​ $ 5,527 ​ $ 1,852 ​ $ 1,627 ​ $ 15,525 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ 331 ​ $ 5,722 ​ $ 6,917 ​ $ 258 ​ $ 28 ​ $ 13,256 Loans collectively evaluated for impairment ​ 106,429 ​ 437,820 ​ 654,315 ​ 210,998 ​ 31,438 ​ 1,441,000 Total loans ​ $ 106,760 ​ $ 443,542 ​ $ 661,232 ​ $ 211,256 ​ $ 31,466 ​ $ 1,454,256 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses allocated to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ — ​ $ 135 ​ $ 78 ​ $ — ​ $ — ​ $ 213 Loans collectively evaluated for impairment ​ 2,022 ​ 3,564 ​ 5,348 ​ 2,089 ​ 652 ​ 13,675 Total allowance ​ $ 2,022 ​ $ 3,699 ​ $ 5,426 ​ $ 2,089 ​ $ 652 ​ $ 13,888 ​ 17 Table of Contents ​ The following tables provide information on impaired loans and any related allowance by loan class as of September 30, 2021 and December 31, 2020. 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired nonaccrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 297 ​ $ 297 ​ $ — ​ $ — ​ $ 297 ​ $ 297 ​ $ — Residential real estate ​ 899 ​ 817 ​ — ​ — ​ 959 ​ 1,191 ​ — Commercial real estate ​ 2,504 ​ 2,116 ​ — ​ — ​ 2,150 ​ 2,459 ​ — Commercial ​ 385 ​ 227 ​ — ​ — ​ 230 ​ 241 ​ — Consumer ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 12 ​ ​ — Total ​ $ 4,085 ​ $ 3,457 ​ $ — ​ $ — ​ $ 3,636 ​ $ 4,200 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired accruing TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 27 ​ $ 27 ​ $ — ​ $ — ​ $ 28 ​ $ 31 ​ $ 2 Residential real estate ​ 2,863 ​ 1,754 ​ 1,109 ​ 84 ​ 2,871 ​ 3,252 ​ 118 Commercial real estate ​ 2,860 ​ 2,860 ​ — ​ — ​ 2,913 ​ 2,994 ​ 67 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 5,750 ​ $ 4,641 ​ $ 1,109 ​ $ 84 ​ $ 5,812 ​ $ 6,277 ​ $ 187 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other impaired accruing loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ 327 ​ 327 ​ — ​ — ​ 328 ​ 513 ​ 7 Commercial real estate ​ 421 ​ 421 ​ — ​ — ​ 421 ​ 470 ​ 10 Commercial ​ — ​ — ​ — ​ — ​ — ​ 17 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 748 ​ $ 748 ​ $ — ​ $ — ​ $ 749 ​ $ 1,000 ​ $ 17 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 324 ​ $ 324 ​ $ — ​ $ — ​ $ 325 ​ $ 328 ​ $ 2 Residential real estate ​ 4,089 ​ 2,898 ​ 1,109 ​ 84 ​ 4,158 ​ 4,956 ​ 125 Commercial real estate ​ 5,785 ​ 5,397 ​ — ​ — ​ 5,484 ​ 5,923 ​ 77 Commercial ​ 385 ​ 227 ​ — ​ — ​ 230 ​ 258 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ 12 ​ — Total ​ $ 10,583 ​ $ 8,846 ​ $ 1,109 ​ $ 84 ​ $ 10,197 ​ $ 11,477 ​ $ 204 ​ 18 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ income (Dollars in thousands) ​ balance ​ allowance ​ allowance ​ allowance ​ investment ​ investment ​ recognized December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired nonaccrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 297 ​ $ 297 ​ $ — ​ $ — ​ $ 297 ​ $ 231 ​ $ — Residential real estate ​ 1,665 ​ 1,585 ​ — ​ — ​ 2,306 ​ 2,910 ​ — Commercial real estate ​ 4,288 ​ 3,220 ​ 67 ​ 67 ​ 4,498 ​ 6,235 ​ — Commercial ​ 401 ​ 258 ​ — ​ — ​ 355 ​ 429 ​ — Consumer ​ 28 ​ 28 ​ — ​ — ​ 9 ​ 3 ​ — Total ​ $ 6,679 ​ $ 5,388 ​ $ 67 ​ $ 67 ​ $ 7,465 ​ $ 9,808 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired accruing TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 34 ​ $ 34 ​ $ — ​ $ — ​ $ 37 ​ $ 38 ​ $ 2 Residential real estate ​ 3,845 ​ 2,617 ​ 1,228 ​ 135 ​ 3,886 ​ 3,940 ​ 120 Commercial real estate ​ 3,118 ​ 2,479 ​ 639 ​ 11 ​ 3,357 ​ 3,379 ​ 70 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 6,997 ​ $ 5,130 ​ $ 1,867 ​ $ 146 ​ $ 7,280 ​ $ 7,357 ​ $ 192 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other impaired accruing loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 33 ​ $ — Residential real estate ​ 292 ​ 292 ​ — ​ — ​ 389 ​ 393 ​ 1 Commercial real estate ​ 512 ​ 512 ​ — ​ — ​ 830 ​ 854 ​ 3 Commercial ​ — ​ — ​ — ​ — ​ 42 ​ 18 ​ — Consumer ​ — ​ — ​ — ​ — ​ 19 ​ 12 ​ — Total ​ $ 804 ​ $ 804 ​ $ — ​ $ — ​ $ 1,280 ​ $ 1,310 ​ $ 4 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 331 ​ $ 331 ​ $ — ​ $ — ​ $ 334 ​ $ 302 ​ $ 2 Residential real estate ​ 5,802 ​ 4,494 ​ 1,228 ​ 135 ​ 6,581 ​ 7,243 ​ 121 Commercial real estate ​ 7,918 ​ 6,211 ​ 706 ​ 78 ​ 8,685 ​ 10,468 ​ 73 Commercial ​ 401 ​ 258 ​ — ​ — ​ 397 ​ 447 ​ — Consumer ​ 28 ​ 28 ​ — ​ — ​ 28 ​ 15 ​ — Total ​ $ 14,480 ​ $ 11,322 ​ $ 1,934 ​ $ 213 ​ $ 16,025 ​ $ 18,475 ​ $ 196 ​ 19 Table of Contents The following tables provide a roll-forward for TDRs as of September 30, 2021 and September 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1/1/2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9/30/2021 ​ ​ ​ ​ 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 34 ​ $ — ​ $ ( 7 ) ​ $ — ​ $ — ​ $ — ​ $ 27 ​ $ — Residential real estate ​ 3,845 ​ — ​ ( 82 ) ​ — ​ — ​ ( 900 ) ​ 2,863 ​ 84 Commercial real estate ​ 3,118 ​ — ​ ( 258 ) ​ — ​ — ​ — ​ 2,860 ​ — Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 6,997 ​ $ — ​ $ ( 347 ) ​ $ — ​ $ — ​ $ ( 900 ) ​ $ 5,750 ​ $ 84 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial ​ 258 ​ — ​ ( 31 ) ​ — ​ — ​ — ​ 227 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 258 ​ $ — ​ $ ( 31 ) ​ $ — ​ $ — ​ $ — ​ $ 227 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 7,255 ​ $ — ​ $ ( 378 ) ​ $ — ​ $ — ​ $ ( 900 ) ​ $ 5,977 ​ $ 84 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ 20 Table of Contents There were no loans modified and considered to be TDRs during the three months ended September 30, 2021 and September 30, 2020. The following tables provide information on loans that were modified and considered to be TDRs during the nine months ended September 30, 2021 and September 30, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Premodification Postmodification ​ ​ ​ ​ ​ outstanding ​ outstanding ​ ​ ​ ​ Number of ​ recorded ​ recorded ​ Related (Dollars in thousands) ​ contracts ​ investment ​ investment ​ allowance TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction — ​ $ — ​ $ — $ — Residential real estate — ​ — ​ — — Commercial real estate — ​ — ​ — — Commercial — ​ — ​ — — Consumer — ​ — ​ — — Total — ​ $ — ​ $ — $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction — ​ $ — ​ $ — $ — Residential real estate — ​ — ​ — — Commercial real estate 1 ​ 1,535 ​ 1,506 — Commercial — ​ — ​ — — Consumer — ​ — ​ — — Total 1 ​ $ 1,535 ​ $ 1,506 $ — ​ Since the beginning of the pandemic and through September 30, 2021, the Company had executed principal and/or interest deferrals on outstanding loan balances of $ 221.1 million. As of September 30, 2021, the Company had no COVID related deferrals remaining. These deferrals were not considered TDRs based on the relief provisions of the CARES Act and CAA or 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, 2021 and 2020. 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, 2021, there were no nonaccrual loans classified as special mention or doubtful and $ 3.5 million of nonaccrual loans were classified as substandard. Similarly, at December 31, 2020, there were no nonaccrual loans classified as special mention or doubtful and $ 5.5 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, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ (Dollars in thousands) ​ Pass/Performing ​ Pass/Watch ​ Mention ​ Substandard ​ Doubtful ​ Total September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 101,708 ​ $ 26,670 ​ $ 1,915 ​ $ 297 ​ $ — ​ $ 130,590 Residential real estate ​ 423,355 ​ 34,664 ​ 1,767 ​ 1,104 ​ — ​ 460,890 Commercial real estate ​ 514,583 ​ 137,759 ​ 4,985 ​ 6,567 ​ — ​ 663,894 Commercial ​ 127,807 ​ 16,885 ​ 286 ​ 239 ​ — ​ 145,217 Consumer ​ 94,143 ​ 161 ​ — ​ 2 ​ — ​ 94,306 Total ​ $ 1,261,596 ​ $ 216,139 ​ $ 8,953 ​ $ 8,209 ​ $ — ​ $ 1,494,897 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ (Dollars in thousands) ​ Pass/Performing ​ Pass/Watch ​ Mention ​ Substandard ​ Doubtful ​ Total December 31, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 81,926 ​ $ 22,547 ​ $ 1,990 ​ $ 297 ​ $ — ​ $ 106,760 Residential real estate ​ 401,494 ​ 36,759 ​ 2,946 ​ 2,343 ​ — ​ 443,542 Commercial real estate ​ 514,524 ​ 133,892 ​ 3,504 ​ 9,312 ​ — ​ 661,232 Commercial ​ 182,166 ​ 25,870 ​ 2,948 ​ 272 ​ — ​ 211,256 Consumer ​ 31,221 ​ 215 ​ — ​ 30 ​ — ​ 31,466 Total ​ $ 1,211,331 ​ $ 219,283 ​ $ 11,388 ​ $ 12,254 ​ $ — ​ $ 1,454,256 ​ The following tables provide information on the aging of the loan portfolio as of September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 130,266 ​ $ — ​ $ 27 ​ $ — ​ $ 27 ​ $ 297 ​ $ 130,590 ​ Residential real estate ​ 458,790 ​ 530 ​ 425 ​ 327 ​ 1,282 ​ 818 ​ 460,890 ​ Commercial real estate ​ 661,208 ​ 149 ​ — ​ 421 ​ 570 ​ 2,116 ​ 663,894 ​ Commercial ​ 144,979 ​ — ​ 12 ​ — ​ 12 ​ 226 ​ 145,217 ​ Consumer ​ 94,170 ​ 105 ​ 31 ​ — ​ 136 ​ — ​ 94,306 ​ Total ​ $ 1,489,413 ​ $ 784 ​ $ 495 ​ $ 748 ​ $ 2,027 ​ $ 3,457 ​ $ 1,494,897 ​ Percent of total loans ​ 99.6 % 0.1 % — % 0.1 % 0.2 % 0.2 % 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, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 106,463 ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 297 ​ $ 106,760 ​ Residential real estate ​ 440,210 ​ 517 ​ 938 ​ 292 ​ 1,747 ​ 1,585 ​ 443,542 ​ Commercial real estate ​ 657,066 ​ 367 ​ — ​ 512 ​ 879 ​ 3,287 ​ 661,232 ​ Commercial ​ 210,704 ​ 226 ​ 68 ​ — ​ 294 ​ 258 ​ 211,256 ​ Consumer ​ 31,318 ​ 119 ​ 1 ​ — ​ 120 ​ 28 ​ 31,466 ​ Total ​ $ 1,445,761 ​ $ 1,229 ​ $ 1,007 ​ $ 804 ​ $ 3,040 ​ $ 5,455 ​ $ 1,454,256 ​ Percent of total loans ​ 99.3 % 0.1 % 0.1 % 0.1 % 0.3 % 0.4 % 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, 2021 and September 30, 2020. 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 2,574 ​ $ 3,812 ​ $ 5,600 ​ $ 1,879 ​ $ 1,223 $ 15,088 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ — ​ — ​ ( 55 ) ​ ( 1 ) ​ ( 56 ) Recoveries ​ 161 ​ 9 ​ — ​ 26 ​ 7 ​ 203 Net (charge-offs) recoveries ​ 161 ​ 9 ​ — ​ ( 29 ) ​ 6 ​ 147 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ ( 114 ) ​ 77 ​ ( 73 ) ​ 2 ​ 398 ​ 290 Ending Balance ​ $ 2,621 ​ $ 3,898 ​ $ 5,527 ​ $ 1,852 ​ $ 1,627 $ 15,525 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 23 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total For nine months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 2,022 ​ $ 3,699 ​ $ 5,426 ​ $ 2,089 ​ $ 652 $ 13,888 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ — ​ — ​ ( 162 ) ​ ( 5 ) ​ ( 167 ) Recoveries ​ 171 ​ 72 ​ 64 ​ 122 ​ 10 ​ 439 Net (charge-offs) recoveries ​ 171 ​ 72 ​ 64 ​ ( 40 ) ​ 5 ​ 272 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ 428 ​ 127 ​ 37 ​ ( 197 ) ​ 970 ​ 1,365 Ending Balance ​ $ 2,621 ​ $ 3,898 ​ $ 5,527 ​ $ 1,852 ​ $ 1,627 $ 15,525 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ Foreclosure Proceedings There were no consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of September 30, 2021 and December 31, 2020, respectively. There was 1 residential real estate property included in the balance of other real estate owned totaling $ 203 thousand at September 30, 2021 and $ 0 at December 31, 2020. 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, 2021 and December 31, 2020. Note 5 – Leases 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 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. ​ During the second quarter of 2021, one of the Company’s long-term branch leases was reassessed by management and it was determined that it was not reasonably certain that the options to renew would be exercised after the initial lease term of 10 years . This resulted in a shorter lease term and a reduction of the lease liability and right-to-use assets as compared to the first quarter of 2021 when the lease was initially placed into service. 24 Table of Contents ​ The following tables present information about the Company’s leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ September 30, 2021 ​ December 31, 2020 Lease liabilities ​ $ 5,686 ​ ​ $ 4,874 ​ Right-of-use assets ​ $ 5,512 ​ ​ $ 4,795 ​ Weighted average remaining lease term ​ 9.85 years ​ 10.49 years Weighted average discount rate ​ 2.83 % ​ 2.89 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ For the Nine Months Ended Lease cost (in thousands) ​ September 30, 2021 ​ September 30, 2020 ​ September 30, 2021 ​ September 30, 2020 Operating lease cost ​ $ 207 ​ $ 177 ​ $ 601 ​ $ 534 Short-term lease cost ​ — ​ — ​ — ​ — Total lease cost ​ $ 207 ​ $ 177 ​ $ 601 ​ $ 534 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ $ 174 ​ $ 168 ​ $ 505 ​ $ 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, 2021 Three months ending December 31, 2021 ​ $ 192 Twelve months ending December 31, 2022 ​ ​ 772 Twelve months ending December 31, 2023 ​ 740 Twelve months ending December 31, 2024 ​ 709 Twelve months ending December 31, 2025 ​ ​ 573 Twelve months ending December 31, 2026 ​ ​ 568 Thereafter ​ ​ 3,033 Total undiscounted cash flows ​ $ 6,587 Discount ​ ​ 901 Lease liabilities ​ $ 5,686 ​ ​ Note 6 – Goodwill and Other Intangibles The Company concluded there was no impairment of goodwill during its annual fourth quarter assessment in 2020. Following the fourth quarter evaluation, management evaluated the events and circumstances that could indicate that goodwill may be impaired and concluded that an interim test was not necessary. The Company will continue to monitor the impact of COVID-19 on the Company as well as the financial markets in evaluating the necessity of interim testing during 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ 25 Table of Contents ​ The following table provides information on the significant components of goodwill and other acquired intangible assets at September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ $ — ​ $ ( 2,589 ) ​ $ 1,365 ​ ​ 3.5 Total other intangible assets ​ $ 3,954 ​ $ — ​ $ ( 2,589 ) ​ $ 1,365 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 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 ​ $ — ​ $ ( 2,235 ) ​ $ 1,719 ​ 4.7 Total other intangible assets ​ $ 3,954 ​ $ — ​ $ ( 2,235 ) ​ $ 1,719 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The aggregate amortization expense was $ 353 thousand for the nine months ended September 30, 2021 and $ 407 thousand for the nine months ended September 30, 2020. At September 30, 2021, estimated future remaining amortization for amortizing intangibles within the years ending December 31, is as follows: ​ ​ ​ ​ ​ (Dollars in thousands) ​ Amortization Expense 2021 ​ $ 108 2022 ​ 389 2023 ​ 317 2024 ​ 246 2025 ​ 174 2026 ​ ​ 102 Thereafter ​ ​ 29 Total amortizing intangible assets ​ $ 1,365 ​ ​ 26 Table of Contents Note 7 – Other Assets The Company had the following other assets at September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, ​ (Dollars in thousands) 2021 2020 Accrued interest receivable ​ $ 5,037 ​ $ 6,616 ​ Deferred income taxes ​ 5,307 ​ 4,442 ​ Prepaid expenses ​ 1,649 ​ 1,472 ​ Cash surrender value on life insurance ​ 41,949 ​ 31,018 ​ Income taxes receivable ​ ​ 68 ​ ​ 156 ​ Other assets ​ 4,732 ​ 3,075 ​ Total ​ $ 58,742 ​ $ 46,779 ​ ​ The following table provides information on significant components of the Company’s deferred tax assets and liabilities as of September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ December 31, (Dollars in thousands) 2021 2020 Deferred tax assets: ​ ​ Allowance for credit losses ​ $ 4,156 ​ $ 3,721 Write-downs of other real estate owned ​ 12 ​ 12 Nonaccrual loan interest ​ 281 ​ 367 Other ​ 2,461 ​ 2,152 Total deferred tax assets ​ 6,910 ​ 6,252 Less valuation allowance ​ ​ ( 327 ) ​ ​ ( 169 ) Deferred tax assets, net of valuation allowance ​ ​ 6,583 ​ ​ 6,083 Deferred tax liabilities: ​ ​ Depreciation ​ 176 ​ 177 Acquisition accounting adjustments ​ 735 ​ 580 Deferred capital gain on branch sale ​ 182 ​ 187 Unrealized gains on available-for-sale securities ​ 78 ​ 567 Other ​ ​ 105 ​ ​ 130 Total deferred tax liabilities ​ 1,276 ​ 1,641 Net deferred tax assets ​ $ 5,307 ​ $ 4,442 ​ ​ Note 8 - 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 has and continues 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 $ 24.5 million is presented net of unamortized issuance costs of $ 479 thousand at September 30, 2021. ​ 27 Table of Contents Note 9 – Other Liabilities The Company had the following other liabilities at September 30, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) September 30, 2021 December 31, 2020 Accrued interest payable ​ $ 201 ​ $ 647 ​ Deferred compensation liability ​ 4,180 ​ 2,905 ​ Other liabilities ​ 3,013 ​ 3,686 ​ Total ​ $ 7,394 ​ $ 7,238 ​ ​ ​ Note 10 - 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 581,822 shares remained available for grant at September 30, 2021. The following tables provide information on stock-based compensation expense for the three and nine months ended September 30, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (Dollars in thousands) 2021 2020 2021 2020 Stock-based compensation expense ​ $ 91 ​ $ 67 ​ $ 287 ​ $ 190 ​ Excess tax benefits related to stock-based compensation ​ 2 ​ — ​ 3 ​ 11 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, ​ (Dollars in thousands) 2021 2020 Unrecognized stock-based compensation expense ​ $ 120 ​ $ 143 ​ Weighted average period unrecognized expense is expected to be recognized ​ 0.3 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, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Grant Date ​ Shares Fair Value Nonvested at beginning of period 24,505 ​ $ 13.78 Granted 24,583 ​ 13.34 Vested ( 18,040 ) ​ 13.74 Forfeited ( 1,423 ) ​ 13.34 Nonvested at end of period 29,625 ​ $ 13.38 ​ The fair value of restricted stock awards that vested during the first nine months of 2021 and 2020 was $ 268 thousand and $ 254 thousand, respectively. 28 Table of Contents The following table summarizes stock option activity for the Company under the 2016 Equity Plan for the nine months ended September 30, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ Nine Months Ended September 30, 2021 ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Grant Date ​ Shares Exercise Price Outstanding at beginning of period 2,709 ​ $ 6.64 Granted — ​ — Exercised ( 2,009 ) ​ 6.64 Expired/Cancelled ( 700 ) ​ 6.64 Outstanding at end of period — ​ $ — ​ ​ ​ ​ ​ ​ Exercisable at end of period — ​ $ — ​ There were no stock options granted during the three and nine months ended September 30, 2021 and September 30, 2020. Note 11 – 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, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2020 ​ $ 1,529 ​ $ — ​ $ 1,529 Other comprehensive loss ​ ( 1,300 ) ​ — ​ ( 1,300 ) Reclassification of gains recognized ​ ​ ( 1 ) ​ — ​ ( 1 ) Balance, September 30, 2021 ​ $ 228 ​ $ — ​ $ 228 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2019 ​ $ 218 ​ $ ( 11 ) ​ $ 207 Other comprehensive income ​ 1,945 ​ 11 ​ 1,956 Reclassification of (gain) recognized ​ ( 259 ) ​ — ​ ( 259 ) Balances, September 30, 2020 ​ $ 1,904 ​ $ — ​ $ 1,904 ​ ​ Note 12 – 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. 29 Table of Contents 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. 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, 2021 and December 31, 2020. No assets were transferred from one hierarchy level to another during the first nine months of 2021 or 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Significant ​ ​ ​ ​ ​ Quoted ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Prices ​ Inputs ​ Inputs (Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3) September 30, 2021 ​ ​ ​ ​ Securities available for sale: ​ ​ ​ ​ U.S. Government agencies ​ $ 17,983 ​ $ — ​ $ 17,983 ​ $ — Mortgage-backed ​ 87,142 ​ — ​ 87,142 ​ — ​ ​ 105,125 ​ — ​ 105,125 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity ​ 1,384 ​ — ​ 1,384 ​ — Total ​ $ 106,509 ​ $ — ​ $ 106,509 ​ $ — ​ 30 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Significant ​ ​ ​ ​ ​ Quoted ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Prices ​ Inputs ​ Inputs (Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3) December 31, 2020 ​ ​ ​ ​ Securities available for sale: ​ ​ ​ ​ U.S. Government agencies ​ $ 23,537 ​ $ — ​ $ 23,537 ​ $ — Mortgage-backed ​ 116,031 ​ — ​ 116,031 ​ — ​ ​ 139,568 ​ — ​ 139,568 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity ​ 1,395 ​ — ​ 1,395 ​ — Total ​ $ 140,963 ​ $ — ​ $ 140,963 ​ $ — ​ 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 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. ​ ​ ​ ​ ​ ​ ​ 31 Table of Contents 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, 2021 and December 31, 2020, 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, 2021 ​ ​ ​ ​ Nonrecurring measurements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 617 Appraisal of collateral (1) Liquidation expense (2) 10 % ​ ( 10 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 408 Discounted cash flow analysis (1) Discount rate ​ 4 % - 7.25 % ​ ( 6 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ​ $ 203 Appraisal of collateral (1) Appraisal adjustments (2) 0 % - 19 % ​ ( 1 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quantitative Information about Level 3 Fair Value Measurements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range ​ Average (3) December 31, 2020 ​ ​ ​ ​ ​ Nonrecurring measurements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 610 Appraisal of collateral (1) Liquidation expense (2) 10 % ​ ( 10 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 1,110 Discounted cash flow analysis (1) Discount rate ​ 6 % - 7.25 % ​ ( 6 %) ​ (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. ​ 32 Table of Contents 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, 2021 and December 31, 2020 were estimated using an exit price notion. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ September 30, 2021 December 31, 2020 ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ Carrying ​ Fair ​ Carrying ​ Fair (Dollars in thousands) Amount Value Amount Value Financial assets ​ ​ ​ ​ Level 1 inputs ​ ​ ​ ​ Cash and cash equivalents ​ $ 310,852 ​ $ 310,852 ​ $ 186,917 ​ $ 186,917 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 2 inputs ​ ​ ​ ​ Investment securities held to maturity ​ $ 250,501 ​ $ 247,835 ​ $ 65,706 ​ $ 65,828 Restricted securities ​ 3,189 ​ 3,189 ​ 3,626 ​ 3,626 Cash surrender value on life insurance ​ 41,949 ​ 41,949 ​ 31,018 ​ 31,018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 3 inputs ​ ​ ​ ​ Loans, net ​ $ 1,479,372 ​ $ 1,475,793 ​ $ 1,440,368 ​ $ 1,436,292 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities ​ ​ ​ ​ Level 2 inputs ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing demand ​ $ 554,902 ​ $ 554,902 ​ $ 509,091 ​ $ 509,091 Checking plus interest ​ 515,796 ​ 515,796 ​ 446,243 ​ 446,243 Money market ​ 443,270 ​ 443,270 ​ 292,974 ​ 292,974 Savings ​ 220,346 ​ 220,346 ​ 177,524 ​ 177,524 Club ​ 1,490 ​ 1,490 ​ 392 ​ 392 Certificates of deposit, $100,000 or more ​ 140,390 ​ 141,610 ​ 129,623 ​ 131,271 Other time ​ 141,871 ​ 142,450 ​ 144,858 ​ 146,137 Securities sold under retail repurchase agreement ​ 3,501 ​ 3,501 ​ 1,050 ​ 1,050 Subordinated debt ​ ​ 24,521 ​ ​ 26,903 ​ ​ 24,429 ​ 25,745 ​ ​ Note 13 – 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, 2021 and December 31, 2020. ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) September 30, 2021 December 31, 2020 Commitments to extend credit ​ $ 298,389 ​ $ 248,607 Letters of credit ​ 7,557 ​ 7,944 Total ​ $ 305,946 ​ $ 256,551 ​ ​ Note 14 – 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. ​ 33 Table of Contents 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 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, 2021 and 2020. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ For Nine Months Ended ​ ​ ​ September 30, ​ September 30, ​ (Dollars in thousands) 2021 2020 2021 2020 ​ Noninterest Income ​ ​ ​ ​ In-scope of Topic 606: ​ ​ ​ ​ Service charges on deposit accounts ​ $ 805 ​ $ 647 ​ $ 2,162 ​ $ 2,057 ​ Trust and investment fee income ​ 477 ​ 381 ​ 1,359 ​ 1,119 ​ Interchange income ​ ​ 1,016 ​ ​ 808 ​ ​ 2,922 ​ ​ 2,169 ​ Other noninterest income ​ 358 ​ 455 ​ 1,119 ​ 1,141 ​ Noninterest Income (in-scope of Topic 606) ​ 2,656 ​ 2,291 ​ 7,562 ​ 6,486 ​ Noninterest Income (out-of-scope of Topic 606) ​ 253 ​ 290 ​ 807 ​ 1,216 ​ Total Noninterest Income ​ $ 2,909 ​ $ 2,581 ​ $ 8,369 ​ $ 7,702 ​ ​ 34 Table of Contents 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, 2021, and December 31, 2020, the Company did not have any significant contract balances. Note 15 – Subsequent Event On March 3, 2021, the Company and Severn Bancorp, Inc. (“Severn”) entered into a definitive agreement for the Company to acquire the Maryland-based Severn. On September 27, 2021, the Company and Severn received regulatory approval from the Office of the Comptroller of the Currency to convert Shore United Bank to a national bank and, for Severn to be merged with and into Shore United Bank, National Association. The Company also received regulatory approval from the Federal Reserve Bank of Richmond for Severn to be merged with and into the Company. On October 22, 2021, the shareholders of the Company and Severn approved the merger of Severn with and into the Company, with the Company as the surviving corporation. The transaction closed on October 31, 2021, and as of that date, Severn had approximately, $ 1.3 billion in total assets, $ 950.0 million in total deposits and $ 589.6 million in total loans. ​ Under the terms of the agreement, Severn shareholders received 0.6207 shares of Shore common stock and $ 1.59 in cash for each share of Severn common stock. The following table represents the consideration paid by the Company to acquire Severn: ​ ​ ​ ​ ​ (Dollars in thousands) ​ Purchase Price: ​ ​ ​ Shore Bancshares, Inc common stock paid at closing price of $ 18.48 ​ $ 148,827 Cash consideration ​ ​ 20,630 Cash consideration for Severn options ​ 310 Total purchase price ​ $ 169,767 ​ ​ ​ 35 Table of Contents ​