SHORE BANCSHARES INC 10-Q

Item 1. Financial Statements. SHORE BANCSHARES, INC. CONSOLIDATED BALANCE SHEETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, (In thousands, except share and per share data) 2022 2021 ASSETS (unaudited) ​ Cash and due from banks ​ $ 16,206 ​ $ 16,919 Interest-bearing deposits with other banks ​ 554,770 ​ 566,694 Cash and cash equivalents ​ 570,976 ​ 583,613 Investment securities: ​ ​ ​ Available-for-sale, at fair value ​ 106,695 ​ 116,982 Held to maturity, at amortized cost - fair value of $ 390,541 (2022) and $ 401,524 (2021) ​ ​ 407,138 ​ 404,594 Equity securities, at fair value ​ 1,305 ​ 1,372 Restricted securities, at cost ​ 9,894 ​ 4,159 ​ ​ ​ ​ ​ ​ ​ Loans held for sale, at fair value ​ ​ 12,906 ​ ​ 37,749 ​ ​ ​ ​ ​ Loans held for investment ​ 2,181,106 ​ 2,119,175 Less: allowance for credit losses ​ ​ ( 14,710 ) ​ ​ ( 13,944 ) Loans, net ​ 2,166,396 ​ 2,105,231 ​ ​ ​ ​ ​ ​ ​ Premises and equipment, net ​ 52,049 ​ 51,624 Goodwill ​ 63,281 ​ 63,421 Other intangible assets, net ​ 7,018 ​ 7,535 Other real estate owned, net ​ ​ 561 ​ ​ 532 Mortgage servicing rights, at fair value ​ 5,113 ​ 4,087 Right-of-use assets ​ ​ 10,180 ​ ​ 11,370 Other assets ​ ​ 80,985 ​ ​ 67,867 TOTAL ASSETS ​ $ 3,494,497 ​ $ 3,460,136 ​ ​ ​ ​ ​ ​ ​ LIABILITIES ​ ​ ​ ​ ​ ​ Deposits: ​ ​ ​ ​ ​ ​ Noninterest-bearing ​ $ 876,415 ​ $ 927,497 Interest-bearing ​ 2,192,080 ​ 2,098,739 Total deposits ​ 3,068,495 ​ 3,026,236 ​ ​ ​ ​ ​ ​ ​ Securities sold under retail repurchase agreements ​ — ​ 4,143 Advances from FHLB - long-term ​ ​ 10,094 ​ ​ 10,135 Subordinated debt ​ 42,840 ​ ​ 42,762 Total borrowings ​ ​ 52,934 ​ ​ 57,040 ​ ​ ​ ​ ​ ​ ​ Lease liabilities ​ ​ 10,397 ​ ​ 11,567 Other liabilities ​ 10,807 ​ 14,600 TOTAL LIABILITIES ​ ​ 3,142,633 ​ ​ 3,109,443 ​ ​ ​ ​ ​ ​ ​ COMMITMENTS AND CONTINGENCIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ STOCKHOLDERS' EQUITY ​ ​ ​ ​ ​ ​ Common stock, par value $ .01 per share; shares authorized - 35,000,000 ; shares issued and outstanding - 19,843,379 (2022) and 19,807,533 (2021) ​ ​ 198 ​ ​ 198 Additional paid in capital ​ 200,640 ​ 200,473 Retained earnings ​ ​ 153,198 ​ ​ 149,966 Accumulated other comprehensive (loss) income ​ ​ ( 2,172 ) ​ ​ 56 TOTAL STOCKHOLDERS' EQUITY ​ 351,864 ​ 350,693 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ​ $ 3,494,497 ​ $ 3,460,136 ​ See accompanying notes to Consolidated Financial Statements. ​ 3 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ ​ ​ March 31, ​ (In thousands, except per share data) 2022 2021 ​ INTEREST INCOME ​ ​ ​ ​ ​ ​ ​ Interest and fees on loans ​ $ 22,085 ​ $ 14,366 ​ Interest and dividends on taxable investment securities ​ 1,985 ​ 931 ​ Interest on deposits with other banks ​ ​ 254 ​ ​ 47 ​ Total interest income ​ 24,324 ​ 15,344 ​ ​ ​ ​ ​ ​ ​ ​ ​ INTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ Interest on deposits ​ 1,358 ​ 1,184 ​ Interest on short-term borrowings ​ 2 ​ 1 ​ Interest on long-term borrowings ​ ​ 534 ​ ​ 359 ​ Total interest expense ​ 1,894 ​ 1,544 ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME ​ 22,430 ​ 13,800 ​ Provision for credit losses ​ 600 ​ 425 ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ​ 21,830 ​ 13,375 ​ ​ ​ ​ ​ ​ ​ ​ ​ NONINTEREST INCOME ​ ​ ​ ​ ​ ​ ​ Service charges on deposit accounts ​ 1,359 ​ 674 ​ Trust and investment fee income ​ 514 ​ 407 ​ Interchange credits ​ 1,038 ​ 869 ​ Mortgage-banking revenue ​ ​ 1,867 ​ — ​ Title Company revenue ​ ​ 323 ​ — ​ Other noninterest income ​ ​ 945 ​ ​ 607 ​ Total noninterest income ​ 6,046 ​ 2,557 ​ ​ ​ ​ ​ ​ ​ ​ ​ NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​ ​ Salaries and wages ​ 9,562 ​ 4,142 ​ Employee benefits ​ 2,662 ​ 1,844 ​ Occupancy expense ​ 1,567 ​ 814 ​ Furniture and equipment expense ​ 429 ​ 307 ​ Data processing ​ 1,607 ​ 1,127 ​ Directors' fees ​ 190 ​ 149 ​ Amortization of other intangible assets ​ 517 ​ 126 ​ FDIC insurance premium expense ​ 343 ​ 185 ​ Other real estate owned expenses, net ​ ( 6 ) ​ 1 ​ Legal and professional fees ​ 637 ​ 516 ​ Merger-related expenses ​ 730 ​ — ​ Other noninterest expenses ​ ​ 2,094 ​ ​ 1,288 ​ Total noninterest expense ​ 20,332 ​ 10,499 ​ ​ ​ ​ ​ ​ ​ ​ ​ Income before income taxes ​ 7,544 ​ 5,433 ​ Income tax expense ​ 1,931 ​ 1,435 ​ ​ ​ ​ ​ ​ ​ ​ ​ NET INCOME ​ $ 5,613 ​ $ 3,998 ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic and diluted net income per common share ​ $ 0.28 ​ $ 0.34 ​ ​ ​ ​ ​ ​ ​ ​ ​ Dividends paid per common share ​ $ 0.12 ​ $ 0.12 ​ ​ See accompanying notes to Consolidated Financial Statements. ​ 4 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ ​ ​ March 31, ​ (In thousands) 2022 2021 Net income ​ $ 5,613 ​ $ 3,998 ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss): ​ ​ ​ ​ ​ ​ ​ Investment securities: ​ ​ ​ ​ ​ ​ ​ Unrealized holding (losses) on available-for-sale-securities ​ ( 3,065 ) ​ ( 1,075 ) ​ Tax effect ​ 837 ​ 293 ​ ​ ​ ​ ​ ​ ​ ​ ​ Total other comprehensive (loss) ​ ( 2,228 ) ​ ( 782 ) ​ Comprehensive income ​ $ 3,385 ​ $ 3,216 ​ ​ 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 Months Ended March 31, 2022 and 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ Total ​ ​ Common ​ Paid in ​ Retained ​ Comprehensive ​ Stockholders’ (In thousands) Stock Capital Earnings Income (loss) Equity Balances, January 1, 2022 ​ $ 198 ​ $ 200,473 ​ $ 149,966 ​ $ 56 ​ $ 350,693 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net income ​ — ​ — ​ 5,613 ​ — ​ 5,613 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive (loss) ​ — ​ — ​ — ​ ( 2,228 ) ​ ( 2,228 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common shares issued for employee stock purchase plan ​ ​ — ​ 37 ​ — ​ — ​ 37 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Stock-based compensation ​ — ​ 130 ​ — ​ — ​ 130 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cash dividends declared ​ — ​ — ​ ( 2,381 ) ​ — ​ ( 2,381 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balances, March 31, 2022 ​ $ 198 ​ $ 200,640 ​ $ 153,198 ​ $ ( 2,172 ) ​ $ 351,864 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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 ​ See accompanying notes to Consolidated Financial Statements. 6 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ ​ March 31, (In thousands) 2022 2021 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM OPERATING ACTIVITIES: ​ ​ ​ ​ ​ ​ Net Income ​ $ 5,613 ​ $ 3,998 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Net accretion of acquisition accounting estimates ​ ( 525 ) ​ ( 80 ) Provision for credit losses ​ 600 ​ 425 Depreciation and amortization ​ 1,558 ​ 628 Net amortization of securities ​ 454 ​ 307 Amortization of debt issuance costs ​ ​ 31 ​ ​ 31 Gain on mortgage banking activities ​ ( 1,679 ) ​ — Proceeds from sale of mortgage loans held for sale ​ 66,560 ​ — Originations of loans held for sale ​ ( 41,165 ) ​ — Stock-based compensation expense ​ 130 ​ 97 Deferred income tax expense (benefit) ​ ​ 29 ​ ​ ( 485 ) (Gains) on valuation adjustments on mortgage servicing rights ​ ​ ( 554 ) ​ ​ — (Gains) on sales and valuation adjustments on other real estate owned ​ ​ ( 9 ) ​ ​ — Fair value adjustment on equity securities ​ ​ 70 ​ ​ 18 Bank owned life insurance income ​ ( 193 ) ​ ( 253 ) Net changes in: ​ ​ ​ ​ ​ ​ Accrued interest receivable ​ ​ ( 545 ) ​ ​ 607 Other assets ​ ( 976 ) ​ ( 1,638 ) Accrued interest payable ​ ( 323 ) ​ ( 385 ) Other liabilities ​ ​ ( 3,877 ) ​ ​ 626 Net cash provided by operating activities ​ 25,199 ​ 3,896 ​ ​ ​ ​ ​ ​ ​ CASH FLOWS FROM INVESTING ACTIVITIES: ​ ​ ​ ​ ​ ​ Proceeds from maturities and principal payments of investment securities available for sale ​ 7,049 ​ 14,173 Proceeds from maturities and principal payments of investment securities held to maturity ​ 11,268 ​ 1,093 Purchases of securities held to maturity ​ ​ ( 14,093 ) ​ ( 61,406 ) Purchases of equity securities ​ ( 3 ) ​ ( 5 ) Purchases of restricted securities ​ ( 5,735 ) ​ — Net change in loans ​ ( 61,201 ) ​ ( 7,416 ) Purchases of premises and equipment ​ ( 974 ) ​ ( 711 ) Proceeds from sales of other real estate owned ​ ​ 83 ​ — Improvements to other real estate owned ​ ​ ( 34 ) ​ ​ — Net redemption of restricted securities ​ ​ — ​ 437 Purchases of bank owned life insurance ​ ​ ( 10,058 ) ​ ​ ( 10,071 ) Net cash (used in) investing activities ​ ( 73,698 ) ​ ( 63,906 ) ​ ​ ​ ​ ​ ​ ​ Net changes in: ​ ​ ​ ​ ​ Noninterest-bearing deposits ​ ( 51,082 ) ​ 24,732 Interest-bearing deposits ​ 93,431 ​ 75,224 Short-term borrowings ​ ​ ( 4,143 ) ​ 2,451 Common stock dividends paid ​ ​ ( 2,381 ) ​ ( 1,409 ) Retirement of common stock ​ ​ — ​ ( 819 ) Issuance of common stock ​ ​ 37 ​ — Net cash provided by financing activities ​ 35,862 ​ ​ 100,179 Net (decrease) increase in cash and cash equivalents ​ ( 12,637 ) ​ 40,169 Cash and cash equivalents at beginning of period ​ 583,613 ​ 186,917 Cash and cash equivalents at end of period ​ $ 570,976 ​ $ 227,086 ​ ​ ​ ​ ​ ​ ​ ​ ​ 7 Table of Contents SHORE BANCSHARES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED) ​ ​ ​ ​ ​ ​ ​ ​ Interest paid ​ ​ ​ ​ ​ ​ Income taxes paid ​ $ 2,270 ​ $ 7 Recognition (remeasurement of) discount marks on PCI loans acquired ​ ​ ( 140 ) ​ ​ — Lease liabilities arising from right-of-use assets ​ $ ( 728 ) ​ $ 2,577 Transfers from loans to other real estate owned ​ $ 69 ​ $ — Unrealized (loss) on securities available for sale ​ $ ( 3,065 ) ​ $ ( 1,075 ) ​ See accompanying notes to Consolidated Financial Statements. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Shore Bancshares, Inc. Notes to Consolidated Financial Statements 8 Table of Contents For the Three Months Ended March 31, 2022 and 2021 (Unaudited) ​ Note 1 – Basis of Presentation ​ The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiaries 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 March 31, 2022, the consolidated results of income and comprehensive income for the three months ended March 31, 2022 and 2021, changes in stockholders’ equity for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021, have been included. All such adjustments are of a normal recurring nature. The amounts as of December 31, 2021 were derived from the 2021 audited financial statements. The results of operations for the three months ended March 31, 2022 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, 2021. 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”). ​ 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 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. 2022-02 – In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model. The amendments eliminate the accounting guidance for 9 Table of Contents troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancing’s and restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of troubled debt restructurings (TDR), an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption. For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13. Early adoption is permitted if an entity has adopted ASU 2016-13. An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures. The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements. ​ 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 24 loans or 4.7 % 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. ​ Note 2 – Business Combination On October 31, 2021 (“Acquisition Date”), the Company completed the acquisition of Severn Bancorp, Inc. (“Severn”), a Maryland charted commercial bank, in accordance with the definitive agreement that was entered into on March 3, 2021, by and among the Company and Severn. The Company acquired Severn to access deposits and deploy excess capital into a high growth market, while also enhancing scale to drive efficiency and profitability. Additionally, this transaction creates a competitive position in the Columbia/Baltimore/Towson MSA, while filling in our current market footprint. In connection with the completion of the merger, former Severn shareholders received 0.6207 shares of Shore common stock and $ 1.59 in cash for each share of Severn common stock. Based on the $ 18.48 per share closing price of the Company’s common stock on October 29, 2021 and including the fair value of options converted or cashed-out, the total transaction value was approximately $ 169.8 million. Upon completion of the acquisition, Shore shareholders owned approximately 59.6 % of the combined company, and former Severn shareholders owned approximately 40.4 %. ​ As of October 31, 2021, Severn, headquartered in Annapolis, MD, had more than $ 1.1 billion in assets and operated 7 full-service community banking offices throughout Anne Arundel County, Maryland. 10 Table of Contents ​ The acquisition of Severn was accounted for as a business combination using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration paid are recorded at estimated fair values on the Acquisition Date. The provisional amount of goodwill recognized as of the Acquisition Date was approximately $ 45.9 million. The Company will continue to keep the measurement of goodwill open for any additional adjustments to the fair value of certain accounts, for example loans, that may arise during the Company’s final review procedures of any updated information. If considered necessary, any subsequent adjustments to the fair value of assets acquired and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill within the first 12 months following the Acquisition Date. The goodwill is not expected to be deductible for tax purposes. ​ As a result of the integration of the operations of Severn, it is not practicable to determine revenue or net income included in the Company’s consolidated operating results relating to Severn since the date of acquisition, as Severn’s results cannot be separately identified. Comparative pro-forma financial statements for the prior year period were not presented, as adjustments to those statements would not be indicative of what would have occurred had the acquisition taken place on January 1, 2021. In particular, adjustments that would have been necessary to be made to record the loans at fair value, the provision of credit losses or the core deposit intangible would not be practical to estimate. The consideration paid for Severn’s common equity and outstanding stock options and the provisional fair values of acquired identifiable assets and assumed identifiable liabilities were as follows: ​ ​ ​ ​ ​ (In thousands, except per share data) ​ ​ ​ Purchase Price Consideration: ​ ​ ​ Fair value of common shares issued ( 8,053,088 shares) based on Shore Bancshares, Inc. share price of $ 18.48 ​ $ 148,821 Cash consideration ​ ​ 20,631 Cash paid for cash-out Severn stock options ​ ​ 310 Cash for fractional shares ​ ​ 3 Total purchase price ​ $ 169,765 ​ ​ ​ ​ Identifiable assets: ​ ​ ​ Cash and cash equivalents ​ $ 326,725 Total securities ​ ​ 146,292 Loans held for sale ​ ​ 9,613 Loans, net (1) ​ ​ 584,776 Premises and equipment, net ​ ​ 24,768 Other real estate owned ​ ​ 329 Core deposit intangible asset ​ ​ 6,550 Other assets (1) ​ ​ 20,304 Total identifiable assets ​ $ 1,119,357 ​ ​ ​ ​ Identifiable liabilities: ​ ​ ​ Deposits ​ $ 955,288 Total debt ​ ​ 28,341 Other liabilities ​ ​ 11,727 Total identifiable liabilities ​ $ 995,356 Provisional fair value of net assets acquired including identifiable intangible assets ​ ​ 124,001 Provisional resulting goodwill (1) ​ $ 45,763 (1) Includes the effect of measurement period adjustments recorded in the first quarter of 2022 and reconciled in the table below. ​ The following table details the changes in fair value of net assets acquired and liabilities assumed from the amounts reported for the year ended December 31, 2021 (dollars in thousands). ​ ​ ​ ​ Goodwill at December 31, 2021 ​ $ 45,904 Effect of adjustments to: ​ ​ ​ Loans, net ​ ​ ( 192 ) Other assets ​ ​ 51 Goodwill at March 31, 2022 ​ $ 45,763 ​ 11 Table of Contents The adjustment to goodwill made during the first quarter of 2022 was related to the fair value of certain acquired loans, net of the related deferred tax impact which was determined to be higher than their acquisition date fair values. Acquired loans The following table outlines the contractually required payments receivable, cash flows we expected to receive, and the accretable yield for all Severn purchase credit-impaired (PCI) loans as of the acquisition date. ​ ​ ​ ​ ​ Contractually required payments receivable ​ $ 46,833 Nonaccretable difference ​ ​ ( 3,364 ) Cash flows expected to be collected ​ ​ 43,469 Accretable yield ​ ​ ( 5,667 ) Fair value ​ $ 37,802 ​ The Company recorded all loans acquired at the estimated fair value on the acquisition date with no carryover of the related allowance for loan losses. The Company determined the net discounted value of cash flows on gross loans totaling $ 593.3 million, including 1,306 performing loans and 162 PCI loans. The valuation took into consideration the loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-loan value ratios, loss exposures, and remaining balances. These performing loans were segregated into pools based on loan and payment type. The effect of the valuation process was a total net discount of $ 8.7 million at acquisition. Note 3 – Earnings Per Share Basic earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period, adjusted for the dilutive effect of potential common stock equivalents (stock-based awards). The following table provides information relating to the calculation of earnings per common share: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended ​ ​ March 31, (In thousands, except per share data) 2022 2021 Net Income ​ $ 5,613 ​ $ 3,998 Weighted average shares outstanding - Basic ​ 19,828 ​ 11,745 Dilutive effect of common stock equivalents-options ​ — ​ 2 Weighted average shares outstanding - Diluted ​ 19,828 ​ 11,747 ​ ​ ​ ​ ​ ​ ​ Earnings per common share - Basic and Diluted ​ $ 0.28 ​ $ 0.34 ​ There were no weighted average common stock equivalents excluded from the calculation of diluted earnings per share for the three months ended March 31, 2022 and 2021. 12 Table of Contents Note 4 – Investment Securities The following tables provide information on the amortized cost and estimated fair values of debt securities. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross Estimated ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (Dollars in thousands) ​ Cost ​ Gains ​ Losses ​ Value Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 22,495 ​ $ 5 ​ $ 1,245 ​ $ 21,255 Mortgage-backed ​ 85,165 ​ 381 ​ 2,104 ​ 83,442 Other Debt securities ​ ​ 2,024 ​ ​ — ​ ​ 26 ​ ​ 1,998 Total ​ $ 109,684 ​ $ 386 ​ $ 3,375 ​ $ 106,695 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 22,932 ​ $ 7 ​ $ 634 ​ $ 22,305 Mortgage-backed ​ 91,948 ​ 1,318 ​ 629 ​ 92,637 Other Debt securities ​ 2,026 ​ 14 ​ — ​ 2,040 Total ​ $ 116,906 ​ $ 1,339 ​ $ 1,263 ​ $ 116,982 ​ No available for sale securities were sold during the three months ended March 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross Gross Estimated ​ ​ Amortized ​ Unrealized ​ Unrealized ​ Fair (Dollars in thousands) ​ Cost ​ Gains ​ Losses ​ Value Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 86,490 ​ $ — ​ $ 3,472 ​ $ 83,018 Mortgage-backed ​ ​ 305,741 ​ ​ 1 ​ ​ 13,116 ​ ​ 292,626 States and political subdivisions ​ 400 ​ 1 ​ — ​ 401 Other debt securities ​ 14,507 ​ 45 ​ 56 ​ 14,496 Total ​ $ 407,138 ​ $ 47 ​ $ 16,644 ​ $ 390,541 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 87,072 ​ $ 20 ​ $ 1,231 ​ $ 85,861 Mortgage-backed ​ ​ 302,604 ​ ​ 301 ​ ​ 2,248 ​ ​ 300,657 States and political subdivisions ​ 400 ​ 2 ​ — ​ 402 Other debt securities ​ 14,518 ​ 95 ​ 9 ​ 14,604 Total ​ $ 404,594 ​ $ 418 ​ $ 3,488 ​ $ 401,524 ​ Equity securities with an aggregate fair value of $ 1.3 million at March 31, 2022 and $ 1.4 million at December 31, 2021 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled $( 70 ) thousand for the three months ended March 31, 2022 and $( 18 ) thousand for the three months ended March 31, 2021, respectively. ​ 13 Table of Contents 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 March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ More than ​ ​ ​ ​ ​ ​ ​ ​ 12 Months ​ 12 Months ​ Total ​ Fair Unrealized Fair Unrealized Fair Unrealized (Dollars in thousands) ​ Value ​ Losses ​ Value ​ Losses ​ Value ​ Losses March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 1,561 ​ $ 65 ​ $ 17,368 ​ $ 1,180 ​ $ 18,929 ​ $ 1,245 Mortgage-backed ​ 39,851 ​ 490 ​ 3,562 ​ 1,614 ​ 43,413 ​ 2,104 Other debt securities ​ ​ 1,998 ​ ​ 26 ​ ​ — ​ ​ — ​ ​ 1,998 ​ ​ 26 Total ​ $ 43,410 ​ $ 581 ​ $ 20,930 ​ $ 2,794 ​ $ 64,340 ​ $ 3,375 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 62,586 ​ $ 2,157 ​ $ 20,432 ​ $ 1,315 ​ $ 83,018 ​ $ 3,472 Mortgage-backed ​ ​ 253,725 ​ ​ 10,536 ​ ​ 36,962 ​ ​ 2,580 ​ ​ 290,687 ​ ​ 13,116 Other debt securities ​ ​ 4,943 ​ ​ 56 ​ ​ — ​ ​ — ​ ​ 4,943 ​ ​ 56 Total ​ $ 321,254 ​ $ 12,749 ​ $ 57,394 ​ $ 3,895 ​ $ 378,648 ​ $ 16,644 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available-for-sale securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 1,561 ​ $ 1 ​ $ 17,368 ​ $ 633 ​ $ 18,929 ​ $ 634 Mortgage-backed ​ 39,851 ​ 593 ​ 3,562 ​ 36 ​ 43,413 ​ 629 Total ​ $ 41,412 ​ $ 594 ​ $ 20,930 ​ $ 669 ​ $ 62,342 ​ $ 1,263 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Held-to-maturity securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ U.S. Government agencies ​ $ 64,268 ​ $ 1,005 ​ $ 11,719 ​ $ 226 ​ $ 75,987 ​ $ 1,231 Mortgage-backed ​ ​ 226,918 ​ ​ 1,836 ​ ​ 14,564 ​ ​ 412 ​ ​ 241,482 ​ ​ 2,248 Other debt securities ​ 491 ​ 9 ​ — ​ — ​ 491 ​ 9 Total ​ $ 291,677 ​ $ 2,850 ​ $ 26,283 ​ $ 638 ​ $ 317,960 ​ $ 3,488 ​ 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 and are not related to credit concerns. 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 fifty-four available-for-sale securities and one hundred and fifty-three held-to-maturity securities in an unrealized loss position at March 31, 2022. 14 Table of Contents The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at March 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Available for sale ​ Held to maturity ​ Amortized ​ ​ Amortized ​ ​ (Dollars in thousands) ​ Cost ​ Fair Value ​ Cost ​ Fair Value Due in one year or less ​ $ 71 ​ $ 72 ​ $ 3,924 ​ $ 3,930 Due after one year through five years ​ 2,137 ​ 2,149 ​ 22,537 ​ 22,016 Due after five years through ten years ​ 55,374 ​ 54,351 ​ 91,202 ​ 88,810 Due after ten years ​ 52,102 ​ 50,123 ​ 289,475 ​ 275,785 Total ​ $ 109,684 ​ $ 106,695 ​ $ 407,138 ​ $ 390,541 ​ The maturity dates for debt securities are determined using contractual maturity dates. Note 5 – Loans and Allowance for Credit Losses The Company makes residential mortgage, commercial and consumer loans to customers primarily in Anne Arundel County, Baltimore City, Baltimore County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County and Worcester County in Maryland, Kent County, Delaware and in Accomack County, Virginia. The following table provides information about the principal classes of the loan portfolio at March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) March 31, 2022 December 31, 2021 Construction ​ $ 258,176 ​ $ 239,353 ​ Residential real estate ​ 653,800 ​ 654,769 ​ Commercial real estate ​ 928,116 ​ 896,229 ​ Commercial ​ 177,037 ​ 203,377 ​ Consumer ​ 163,977 ​ 125,447 ​ Total loans ​ 2,181,106 ​ 2,119,175 ​ Allowance for credit losses ​ ( 14,710 ) ​ ( 13,944 ) ​ Total loans, net ​ $ 2,166,396 ​ $ 2,105,231 ​ ​ Loans are stated at their principal amount outstanding net of any purchase premiums/discounts, deferred fees and costs. Included in loans were deferred fees, net of costs, of $ 795 thousand and $ 1.2 million at March 31, 2022 and December 31, 2021. At March 31, 2022 and December 31, 2021, included in total loans were $ 36.5 million and $ 39.9 million in loans, respectively, net of discounts on acquired loans of $ 480 thousand and $ 516 thousand, respectively, as part of the Northwest Bancshares, Inc. branch acquisition in 2017. At March 31, 2022 and December 31, 2021, included in total loans were $ 506.5 million and $ 553.0 million in loans, acquired as part of the acquisition of Severn. These balances were presented net of the related discount which totaled $ 8.0 million and $ 8.4 million at March 31, 2022 and December 31, 2021, respectively. 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 15 Table of Contents rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Generally, the Company measures impairment on such loans by reference to the fair value of the collateral. Once the amount of impairment has been determined, the uncollectible portion is charged off. Loan payments received on nonaccrual impaired loans are generally applied to the outstanding principal balance. In certain circumstances, income may be recognized on a cash basis. Generally, interest income is not recognized on impaired loans unless the likelihood of further loss is remote. The allowance for credit losses may include specific reserves related to impaired loans. Specific reserves remain until charge offs are made. Impaired loans do not include groups of smaller balance homogenous loans such as residential mortgage and consumer installment loans that are evaluated collectively for impairment. Reserves for probable credit losses related to these loans are based on historical loss ratios and are included in the formula portion of the allowance for credit losses. A loan is considered a TDR if a borrower is experiencing financial difficulties and a creditor has granted a concession. Concessions may include interest rate reductions or below market interest rates, principal forgiveness, restructuring amortization schedules and other actions intended to minimize potential losses. Loans are identified to be restructured when signs of impairment arise such as borrower interest rate reduction request, slowness to pay, or when an inability to repay becomes evident. The terms being offered are evaluated to determine if they are more liberal than those that would be indicated by policy or industry standards for similar, untroubled credits. In those situations where the terms or the interest rates are considered to be more favorable than industry standards or the Bank’s current underwriting guidelines the loan is classified as a TDR. All loans designated as TDRs are considered impaired loans and may be on either accrual or nonaccrual status. In instances where the loan has been placed on nonaccrual status, six consecutive months of timely payments are required prior to returning the loan to accrual status. All loans classified as TDRs which are restructured and accrue interest under revised terms require a full and comprehensive review of the borrower’s financial condition, capacity for repayment, realistic assessment of collateral values, and the assessment of risk entered into any workout agreement. Current financial information on the borrower, guarantor, and underlying collateral is analyzed to determine if it supports the ultimate collection of principal and interest. For commercial loans, the cash flows are analyzed, both for the underlying project and globally. For consumer loans, updated salary, credit history and cash flow information is obtained. Current market conditions are also considered. Following a full analysis, the determination of the appropriate loan structure is made. During 2021 and 2020, the Company participated in the Small Business Administration’s Paycheck Protection Program (PPP). As of March 31, 2022, the Company held PPP loans with a total outstanding balance of $ 14.9 million, inclusive of loans issued pre-merger and those acquired from Severn, which are included in the commercial loan segment in the table above. As of December 31, 2021, the Company held PPP loans with a total outstanding balance of $ 27.6 million, of which $ 9.2 million was acquired from Severn, which are included in the commercial loan segment in the table above. The decrease is due to repayment and forgiveness received as of March 31, 2022. 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. ​ ​ ​ ​ ​ ​ ​ 16 Table of Contents The following tables provide information about all loans acquired from Severn. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ Acquired Loans - ​ Acquired Loans - ​ ​ ​ ​ Purchased ​ Purchased ​ Acquired Loans - (Dollars in thousands) Credit Impaired Performing Total Outstanding principal balance ​ $ 35,603 ​ $ 478,949 ​ $ 514,552 Carrying amount ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 2,356 ​ $ 76,560 ​ $ 78,916 Residential real estate ​ 16,603 ​ 152,793 ​ 169,396 Commercial real estate ​ 13,207 ​ 197,264 ​ 210,471 Commercial ​ 294 ​ 46,250 ​ 46,544 Consumer ​ 27 ​ 1,184 ​ 1,211 Total loans ​ $ 32,487 ​ $ 474,051 ​ $ 506,538 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ Acquired Loans - ​ Acquired Loans - ​ ​ ​ ​ Purchased ​ Purchased ​ Acquired Loans - (Dollars in thousands) Credit Impaired Performing Total Outstanding principal balance ​ $ 36,943 ​ $ 524,474 ​ $ 561,417 Carrying amount ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 2,379 ​ $ 91,823 ​ $ 94,202 Residential real estate ​ 17,326 ​ 167,580 ​ 184,906 Commercial real estate ​ 13,594 ​ 202,819 ​ 216,413 Commercial ​ 321 ​ 56,200 ​ 56,521 Consumer ​ 30 ​ 921 ​ 951 Total loans ​ $ 33,650 ​ $ 519,343 ​ $ 552,993 ​ ​ ​ ​ The following table presents a summary of the change in the accretable yield on PCI loans acquired from Severn. ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended (Dollars in thousands) March 31, 2022 Accretable yield, beginning of period ​ $ 5,367 Additions ​ ​ — Accretion ​ ( 394 ) Reclassification of nonaccretable difference due to improvement in expected cash flows ​ — Other changes, net ​ — Accretable yield, end of period ​ $ 4,973 ​ At March 31, 2022, the Bank was servicing $ 336.5 million in loans for the Federal National Mortgage Association and $ 75.9 million in loans for the Federal Home Loan Mortgage Corporation. 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 17 Table of Contents 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. 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 March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ 345 ​ $ 4,345 ​ $ 3,365 ​ $ 241 ​ $ 15 ​ $ 8,311 Loans collectively evaluated for impairment ​ 255,475 ​ 632,852 ​ 911,544 ​ 176,502 ​ 163,935 ​ 2,140,308 Acquired loans - PCI ​ ​ 2,356 ​ 16,603 ​ 13,207 ​ 294 ​ 27 ​ 32,487 Total loans ​ $ 258,176 ​ $ 653,800 ​ $ 928,116 ​ $ 177,037 ​ $ 163,977 ​ $ 2,181,106 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses allocated to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ — ​ $ 166 ​ $ 3 ​ $ — ​ $ — ​ $ 169 Loans collectively evaluated for impairment ​ 2,857 ​ 2,409 ​ 4,497 ​ 1,805 ​ 2,973 ​ 14,541 Acquired loans - PCI ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Total allowance ​ $ 2,857 ​ $ 2,575 ​ $ 4,500 ​ $ 1,805 ​ $ 2,973 ​ $ 14,710 ​ 18 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ 321 ​ $ 3,717 ​ $ 3,833 ​ $ 226 ​ $ — ​ $ 8,097 Loans collectively evaluated for impairment ​ 236,653 ​ 633,726 ​ 878,802 ​ 202,830 ​ 125,417 ​ 2,077,428 Acquired loans - PCI ​ ​ 2,379 ​ ​ 17,326 ​ ​ 13,594 ​ ​ 321 ​ ​ 30 ​ ​ 33,650 Total loans ​ $ 239,353 ​ $ 654,769 ​ $ 896,229 ​ $ 203,377 ​ $ 125,447 ​ $ 2,119,175 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses allocated to: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans individually evaluated for impairment ​ $ — ​ $ 172 ​ $ 1 ​ $ — ​ $ — ​ $ 173 Loans collectively evaluated for impairment ​ 2,454 ​ 2,686 ​ 4,597 ​ 2,070 ​ 1,964 ​ 13,771 Acquired loans - PCI ​ ​ — ​ — ​ — ​ — ​ — ​ — Total allowance ​ $ 2,454 ​ $ 2,858 ​ $ 4,598 ​ $ 2,070 ​ $ 1,964 ​ $ 13,944 ​ The allowance for loan losses was 0.67 % of total loans and 0.92 % when excluding PPP loans and acquired loans, at March 31, 2022 compared to 0.66 % and 0.93 % at December 31, 2021. 19 Table of Contents The following tables provide information on impaired loans and any related allowance by loan class as of March 31, 2022 and December 31, 2021. 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 ​ Interest ​ ​ principal ​ with no ​ with an ​ Related ​ average recorded ​ income (Dollars in thousands) ​ balance ​ allowance ​ allowance ​ allowance ​ investment ​ recognized March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired nonaccrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 336 ​ $ 325 ​ $ — ​ $ — ​ $ 331 ​ $ — Residential real estate ​ 1,797 ​ 1,526 ​ 20 ​ — ​ 1,476 ​ — Commercial real estate ​ 753 ​ 747 ​ — ​ — ​ 906 ​ — Commercial ​ 385 ​ 215 ​ — ​ — ​ 321 ​ — Consumer ​ 15 ​ 15 ​ — ​ — ​ 74 ​ — Total ​ $ 3,286 ​ $ 2,828 ​ $ 20 ​ $ — ​ $ 3,108 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired accruing TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 20 ​ $ 20 ​ $ — ​ $ — ​ $ 22 ​ $ — Residential real estate ​ 2,915 ​ 571 ​ 2,213 ​ 166 ​ 2,809 ​ 25 Commercial real estate ​ 2,200 ​ 1,769 ​ 431 ​ 3 ​ 2,581 ​ 23 Commercial ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 5,135 ​ $ 2,360 ​ $ 2,644 ​ $ 169 ​ $ 5,412 ​ $ 48 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other impaired accruing loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ 15 ​ 15 ​ — ​ — ​ 29 ​ 3 Commercial real estate ​ 418 ​ 418 ​ — ​ — ​ 417 ​ 1 Commercial ​ 26 ​ 26 ​ — ​ — ​ 9 ​ — Consumer ​ — ​ — ​ — ​ — ​ 38 ​ — Total ​ $ 459 ​ $ 459 ​ $ — ​ $ — ​ $ 493 ​ $ 4 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 356 ​ $ 345 ​ $ — ​ $ — ​ $ 353 ​ $ — Residential real estate ​ 4,727 ​ 2,112 ​ 2,233 ​ 166 ​ 4,314 ​ 28 Commercial real estate ​ 3,371 ​ 2,934 ​ 431 ​ 3 ​ 3,904 ​ 24 Commercial ​ 411 ​ 241 ​ — ​ — ​ 330 ​ — Consumer ​ 15 ​ 15 ​ — ​ — ​ 112 ​ — Total ​ $ 8,880 ​ $ 5,647 ​ $ 2,664 ​ $ 169 ​ $ 9,013 ​ $ 52 ​ 20 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recorded Recorded ​ ​ March 31, 2021 ​ ​ Unpaid ​ investment ​ investment ​ ​ ​ ​ Quarter-to-date ​ Interest ​ ​ principal ​ with no ​ with an ​ Related ​ average recorded ​ income (Dollars in thousands) ​ balance ​ allowance ​ allowance ​ allowance ​ investment ​ recognized December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired nonaccrual loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 297 ​ $ 297 ​ $ — ​ $ — ​ $ 297 ​ $ — Residential real estate ​ 882 ​ 803 ​ — ​ — ​ 1,411 ​ — Commercial real estate ​ 994 ​ 606 ​ — ​ — ​ 3,012 ​ — Commercial ​ 380 ​ 216 ​ — ​ — ​ 251 ​ — Consumer ​ — ​ — ​ — ​ — ​ 28 ​ — Total ​ $ 2,553 ​ $ 1,922 ​ $ — ​ $ — ​ $ 4,999 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired accruing TDRs: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 24 ​ $ 24 ​ $ — ​ $ — ​ $ 33 ​ $ — Residential real estate ​ 2,965 ​ 475 ​ 2,361 ​ 172 ​ 3,530 ​ 40 Commercial real estate ​ 2,807 ​ 2,352 ​ 455 ​ 1 ​ 3,065 ​ 23 Commercial ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 5,796 ​ $ 2,851 ​ $ 2,816 ​ $ 173 ​ $ 6,628 ​ $ 63 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other impaired accruing loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ 78 ​ 78 ​ — ​ — ​ 853 ​ 5 Commercial real estate ​ 420 ​ 420 ​ — ​ — ​ 510 ​ 1 Commercial ​ 10 ​ 10 ​ — ​ — ​ 50 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 508 ​ $ 508 ​ $ — ​ $ — ​ $ 1,413 ​ $ 6 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 321 ​ $ 321 ​ $ — ​ $ — ​ $ 330 ​ $ — Residential real estate ​ 3,925 ​ 1,356 ​ 2,361 ​ 172 ​ 5,794 ​ 45 Commercial real estate ​ 4,221 ​ 3,378 ​ 455 ​ 1 ​ 6,587 ​ 24 Commercial ​ 390 ​ 226 ​ — ​ — ​ 301 ​ — Consumer ​ — ​ — ​ — ​ — ​ 28 ​ — Total ​ $ 8,857 ​ $ 5,281 ​ $ 2,816 ​ $ 173 ​ $ 13,040 ​ $ 69 ​ 21 Table of Contents The following tables provide a roll-forward for TDRs as of March 31, 2022 and March 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1/1/2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3/31/2022 ​ ​ ​ ​ TDR ​ New ​ Disbursements ​ Charge- ​ Reclassifications/ ​ ​ ​ ​ TDR ​ Related (Dollars in thousands) ​ Balance ​ TDRs ​ (Payments) ​ offs ​ Transfer In/(Out) ​ Payoffs ​ Balance ​ Allowance For three months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 24 ​ $ — ​ $ ( 4 ) ​ $ — ​ $ — ​ $ — ​ $ 20 ​ $ — Residential real estate ​ 2,836 ​ — ​ ( 32 ) ​ — ​ ( 20 ) ​ — ​ 2,784 ​ 166 Commercial real estate ​ 2,807 ​ — ​ ( 46 ) ​ — ​ — ​ ( 561 ) ​ 2,200 ​ 3 Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 5,667 ​ $ — ​ $ ( 82 ) ​ $ — ​ $ ( 20 ) ​ $ ( 561 ) ​ $ 5,004 ​ $ 169 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ — ​ — ​ — ​ — ​ 20 ​ — ​ 20 ​ — Commercial real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial ​ 216 ​ — ​ ( 11 ) ​ — ​ — ​ — ​ 205 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 216 ​ $ — ​ $ ( 11 ) ​ $ — ​ $ 20 ​ $ — ​ $ 225 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 5,883 ​ $ — ​ $ ( 93 ) ​ $ — ​ $ — ​ $ ( 561 ) ​ $ 5,229 ​ $ 169 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1/1/2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3/31/2021 ​ ​ ​ TDR ​ New ​ Disbursements ​ Charge- ​ Reclassifications/ ​ ​ ​ ​ TDR ​ Related (Dollars in thousands) ​ Balance ​ TDRs ​ (Payments) ​ offs ​ Transfer In/(Out) ​ Payoffs ​ Balance ​ Allowance For three months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 34 ​ $ — ​ $ ( 2 ) ​ $ — ​ $ — ​ $ — ​ $ 32 ​ $ — Residential real estate ​ 3,845 ​ — ​ ( 29 ) ​ — ​ — ​ ( 435 ) ​ 3,381 ​ 95 Commercial real estate ​ 3,118 ​ — ​ ( 75 ) ​ — ​ — ​ — ​ 3,043 ​ — Commercial ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 6,997 ​ $ — ​ $ ( 106 ) ​ $ — ​ $ — ​ $ ( 435 ) ​ $ 6,456 ​ $ 95 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Nonaccrual TDRs ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — Residential real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial real estate ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Commercial ​ 258 ​ — ​ ( 10 ) ​ — ​ — ​ — ​ 248 ​ — Consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 258 ​ $ — ​ $ ( 10 ) ​ $ — ​ $ — ​ $ — ​ $ 248 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total ​ $ 7,255 ​ $ — ​ $ ( 116 ) ​ $ — ​ $ — ​ $ ( 435 ) ​ $ 6,704 ​ $ 95 ​ 22 Table of Contents There were no loans modified and considered to be TDRs during the three months ended March 31, 2022 and March 31, 2021. There were no TDRs which subsequently defaulted within 12 months of modification for the three months ended March 31, 2022 and 2021. 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 other real estate owned (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 March 31, 2022, there were no nonaccrual loans classified as special mention or doubtful and $ 2.8 million of nonaccrual loans were classified as substandard. Similarly, at December 31, 2021, there were no nonaccrual loans classified as special mention or doubtful and $ 2.0 million of nonaccrual loans were classified as substandard. The following tables provide information on loan risk ratings as of March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Pass/Performing ​ Pass/Watch ​ Mention ​ Substandard ​ Doubtful ​ PCI ​ Total March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 232,417 ​ $ 21,175 ​ $ 1,866 ​ $ 362 ​ $ — ​ $ 2,356 ​ $ 258,176 Residential real estate ​ 598,246 ​ 36,529 ​ 985 ​ 1,437 ​ — ​ 16,603 ​ 653,800 Commercial real estate ​ 763,772 ​ 147,357 ​ 1,485 ​ 2,295 ​ — ​ 13,207 ​ 928,116 Commercial ​ 160,951 ​ 15,577 ​ — ​ 215 ​ — ​ 294 ​ 177,037 Consumer ​ 163,722 ​ 211 ​ — ​ 17 ​ — ​ 27 ​ 163,977 Total ​ $ 1,919,108 ​ $ 220,849 ​ $ 4,336 ​ $ 4,326 ​ $ — ​ $ 32,487 ​ $ 2,181,106 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Special ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Pass/Performing ​ Pass/Watch ​ Mention ​ Substandard ​ Doubtful ​ PCI ​ Total December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 210,287 ​ $ 24,513 ​ $ 1,877 ​ $ 297 ​ $ — ​ $ 2,379 ​ $ 239,353 Residential real estate ​ 596,694 ​ 38,309 ​ 1,539 ​ 901 ​ — ​ 17,326 ​ 654,769 Commercial real estate ​ 724,561 ​ 151,209 ​ 4,535 ​ 2,330 ​ — ​ 13,594 ​ 896,229 Commercial ​ 186,176 ​ 16,654 ​ — ​ 226 ​ — ​ 321 ​ 203,377 Consumer ​ 125,200 ​ 215 ​ — ​ 2 ​ — ​ 30 ​ 125,447 Total ​ $ 1,842,918 ​ $ 230,900 ​ $ 7,951 ​ $ 3,756 ​ $ — ​ $ 33,650 ​ $ 2,119,175 ​ The following tables provide information on the aging of the loan portfolio as of March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30‑59 days 60‑89 days Greater than Total ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Current ​ past due ​ past due ​ 90 days ​ past due ​ Nonaccrual ​ PCI ​ Total March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 254,773 ​ $ 722 ​ $ — ​ $ — ​ $ 722 ​ $ 325 ​ $ 2,356 ​ $ 258,176 ​ Residential real estate ​ 632,387 ​ 3,201 ​ 48 ​ 15 ​ 3,264 ​ 1,546 ​ 16,603 ​ 653,800 ​ Commercial real estate ​ 913,723 ​ 21 ​ — ​ 418 ​ 439 ​ 747 ​ 13,207 ​ 928,116 ​ Commercial ​ 176,498 ​ 4 ​ — ​ 26 ​ 30 ​ 215 ​ 294 ​ 177,037 ​ Consumer ​ 163,736 ​ 199 ​ — ​ — ​ 199 ​ 15 ​ 27 ​ 163,977 ​ Total ​ $ 2,141,117 ​ $ 4,147 ​ $ 48 ​ $ 459 ​ $ 4,654 ​ $ 2,848 ​ $ 32,487 ​ $ 2,181,106 ​ Percent of total loans ​ 98.2 % 0.2 % — % — % 0.2 % 0.1 % 1.5 % 100.0 % ​ 23 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accruing ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 30‑59 days ​ 60‑89 days ​ Greater than ​ Total ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ Current ​ past due ​ past due ​ 90 days ​ past due ​ Nonaccrual ​ PCI ​ Total December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Construction ​ $ 235,757 ​ $ 920 ​ $ — ​ $ — ​ $ 920 ​ $ 297 ​ $ 2,379 ​ $ 239,353 ​ Residential real estate ​ 635,166 ​ 1,371 ​ 25 ​ 78 ​ 1,474 ​ 803 ​ 17,326 ​ 654,769 ​ Commercial real estate ​ 881,350 ​ 259 ​ — ​ 420 ​ 679 ​ 606 ​ 13,594 ​ 896,229 ​ Commercial ​ 202,503 ​ 183 ​ 62 ​ 10 ​ 255 ​ 298 ​ 321 ​ 203,377 ​ Consumer ​ 125,130 ​ 287 ​ — ​ — ​ 287 ​ — ​ 30 ​ 125,447 ​ Total ​ $ 2,079,906 ​ $ 3,020 ​ $ 87 ​ $ 508 ​ $ 3,615 ​ $ 2,004 ​ $ 33,650 ​ $ 2,119,175 ​ Percent of total loans ​ 98.2 % 0.1 % 0.0 % 0.0 % 0.1 % 0.1 % 1.6 % 100.0 % ​ The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the three months ended March 31, 2022 and March 31, 2021. 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 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 2,454 ​ $ 2,858 ​ $ 4,598 ​ $ 2,070 ​ $ 1,964 $ 13,944 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ — ​ — ​ ( 92 ) ​ ( 16 ) ​ ( 108 ) Recoveries ​ 3 ​ 46 ​ 150 ​ 68 ​ 7 ​ 274 Net (charge-offs) recoveries ​ 3 ​ 46 ​ 150 ​ ( 24 ) ​ ( 9 ) ​ 166 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ 400 ​ ( 329 ) ​ ( 248 ) ​ ( 241 ) ​ 1,018 ​ 600 Ending Balance ​ $ 2,857 ​ $ 2,575 ​ $ 4,500 ​ $ 1,805 ​ $ 2,973 $ 14,710 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Residential Commercial ​ ​ ​ ​ ​ (Dollars in thousands) ​ Construction ​ real estate ​ real estate ​ Commercial ​ Consumer ​ Total For three months ended ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ Beginning Balance ​ $ 2,022 ​ $ 3,699 ​ $ 5,426 ​ $ 2,089 ​ $ 652 ​ $ 13,888 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Charge-offs ​ — ​ — ​ — ​ ( 61 ) ​ ( 4 ) ​ ( 65 ) Recoveries ​ 5 ​ 6 ​ — ​ 52 ​ 2 ​ 65 Net (charge-offs) recoveries ​ 5 ​ 6 ​ — ​ ( 9 ) ​ ( 2 ) ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Provision ​ 769 ​ ( 6 ) ​ ( 329 ) ​ ( 80 ) ​ 71 ​ 425 Ending Balance ​ $ 2,796 ​ $ 3,699 ​ $ 5,097 ​ $ 2,000 ​ $ 721 ​ $ 14,313 ​ Foreclosure Proceedings There were $ 297 thousand of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of March 31, 2022 and $ 311 thousand as of December 31, 2021, respectively. There were 2 residential real estate properties included in the balance of other real estate owned totaling $ 198 thousand at March 31, 2022 and 1 residential real estate property totaling $ 203 thousand at December 31, 2021. 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 March 31, 2022 and December 31, 2021. 24 Table of Contents Note 6 – 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 2021, the Company acquired long-term branch leases and equipment due to the acquisition of Severn. These leases were reassessed by management as of the acquisition date of October 31, 2021, which included updating the incremental borrowing rates and remaining lease terms. ​ The following tables present information about the Company’s leases: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) ​ March 31, 2022 ​ December 31, 2021 Lease liabilities ​ $ 10,397 ​ ​ $ 11,567 ​ Right-of-use assets ​ $ 10,180 ​ ​ $ 11,370 ​ Weighted average remaining lease term ​ 13.00 years ​ 13.61 years Weighted average discount rate ​ 2.49 % ​ 2.48 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Three Months Ended Lease cost (in thousands) ​ March 31, 2022 ​ March 31, 2021 Operating lease cost ​ $ 351 ​ $ 188 Short-term lease cost ​ — ​ — Total lease cost ​ $ 351 ​ $ 188 ​ ​ ​ ​ ​ ​ ​ Cash paid for amounts included in the measurement of lease liabilities ​ $ 327 ​ $ 167 ​ 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) ​ March 31, 2022 Nine months ending December 31, 2022 ​ $ 923 Twelve months ending December 31, 2023 ​ 1,131 Twelve months ending December 31, 2024 ​ 1,054 Twelve months ending December 31, 2025 ​ ​ 872 Twelve months ending December 31, 2026 ​ ​ 916 Twelve months ending December 31, 2027 ​ ​ 849 Thereafter ​ ​ 6,584 Total undiscounted cash flows ​ $ 12,329 Discount ​ ​ 1,932 Lease liabilities ​ $ 10,397 ​ ​ ​ ​ ​ ​ ​ ​ ​ Total gross rental income was $ 272 thousand for the three months ended March 31, 2022. ​ ​ 25 Table of Contents The following table presents our minimum future annual rental income on such leases as of March 31, 2022. ​ ​ ​ ​ ​ (In thousands) ​ March 31, 2022 Nine months ending December 31, 2022 ​ $ 642 2023 ​ ​ 792 2024 ​ 685 2025 ​ 703 2026 ​ ​ 720 Thereafter ​ ​ 1,938 Total ​ $ 5,480 ​ Note 7 – Goodwill and Other Intangibles ​ The following table provides information on the significant components of goodwill and other acquired intangible assets at March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ ​ Gross ​ Measurement ​ Accumulated ​ ​ ​ ​ Net ​ Average ​ ​ Carrying ​ Period ​ Impairment ​ Accumulated ​ Carrying ​ Remaining Life (Dollars in thousands) Amount Adjustments ​ Charges Amortization Amount ​ (in years) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Goodwill ​ $ 65,631 ​ $ ( 140 ) ​ $ ( 1,543 ) ​ $ ( 667 ) ​ $ 63,281 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Core deposit intangible ​ $ 10,504 ​ $ — ​ $ — ​ $ ( 3,486 ) ​ $ 7,018 ​ ​ 3.0 Total other intangible assets ​ $ 10,504 ​ $ — ​ $ — ​ $ ( 3,486 ) ​ $ 7,018 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted ​ Gross ​ ​ ​ Accumulated ​ ​ ​ ​ Net ​ ​ Average ​ Carrying ​ ​ Impairment ​ Accumulated ​ Carrying ​ ​ Remaining Life (Dollars in thousands) Amount Additions ​ Charges ​ Amortization ​ Amount ​ ​ (in years) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Goodwill ​ $ 19,728 ​ $ 45,903 ​ $ ( 1,543 ) ​ $ ( 667 ) ​ $ 63,421 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other intangible assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amortizable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Core deposit intangible ​ $ 3,954 ​ $ 6,550 ​ $ — ​ $ ( 2,969 ) ​ $ 7,535 ​ 3.8 Total other intangible assets ​ $ 3,954 ​ $ 6,550 ​ $ — ​ $ ( 2,969 ) ​ $ 7,535 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The aggregate amortization expense was $ 517 thousand for the three months ended March 31, 2022 and $ 126 thousand for the three months ended March 31, 2021. 26 Table of Contents At March 31, 2022, estimated future remaining amortization for amortizing intangibles within the years ending December 31, is as follows: ​ ​ ​ ​ ​ (Dollars in thousands) ​ Amortization Expense 2022 ​ $ 1,471 2023 ​ 1,682 2024 ​ 1,376 2025 ​ 1,070 2026 ​ 765 2027 ​ ​ 459 Thereafter ​ ​ 195 Total amortizing intangible assets ​ $ 7,018 ​ ​ Note 8 – Other Assets The Company had the following other assets at March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, ​ (Dollars in thousands) 2022 2021 Accrued interest receivable ​ $ 7,264 ​ $ 6,719 ​ Deferred income taxes ​ 3,682 ​ 2,926 ​ Prepaid expenses ​ 2,964 ​ 2,865 ​ Cash surrender value on life insurance ​ 58,186 ​ 47,935 ​ Income taxes receivable ​ ​ — ​ ​ 616 ​ Derivatives ​ ​ 1,055 ​ ​ 435 ​ Other assets ​ 7,834 ​ 6,371 ​ Total ​ $ 80,985 ​ $ 67,867 ​ ​ ​ Note 9 - Subordinated Debt ​ On August 25, 2020, the Company entered into Subordinated Note Purchase Agreements with certain Purchasers pursuant to which the Company issued and sold $ 25.0 million in aggregate principal amount with an initial interest rate of 5.375 % Fixed-to-Floating Rate Subordinated Notes due September 1, 2030. The Company has used 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 $ 24.6 million is presented net of unamortized issuance costs of $ 418 thousand at March 31, 2022. In conjunction with the acquisition of Severn, the Company assumed $ 20.6 million in junior subordinated debt securities (“2035 Debentures”). The 2035 Debentures were issued and sold to Severn Capital Trust I (the “Trust”), of which 100% of the common equity is owned by the Company. The Trust was formed for the purpose of issuing corporation-obligated mandatorily redeemable Capital Securities (“Capital Securities”) to third-party investors and using the proceeds from the sale of such Capital Securities to purchase the 2035 Debentures. The 2035 Debentures held by the Trust are the sole assets of the Trust. Distributions on the Capital Securities issued by the Trust are payable quarterly at a rate per annum equal to the interest rate being earned by the Trust on the 2035 Debentures. The Capital Securities are subject to mandatory redemption, in whole or in part, upon repayment of the 2035 Debentures. We have entered into an agreement which, taken 27 Table of Contents collectively, fully and unconditionally guarantees the Capital Securities subject to the terms of the guarantee. The recorded balance was $ 18.2 million at March 31, 2022 and December 31, 2021, which included fair value adjustments of $ 2.4 million. Under the terms of the 2035 Debentures, we are permitted to defer the payment of interest on the 2035 Debentures for up to 20 consecutive quarterly periods, provided that no event of default has occurred and is continuing. As of March 31, 2022, we were current on all interest due on the 2035 Debentures. Note 10 – Other Liabilities The Company had the following other liabilities at March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) March 31, 2022 December 31, 2021 Accrued interest payable ​ $ 369 ​ $ 692 ​ Accrued salaries and wages ​ ​ 990 ​ ​ 3,422 ​ Accounts payable ​ ​ 95 ​ ​ 2,745 ​ Deferred compensation liability ​ 5,013 ​ 4,660 ​ Income taxes payable ​ 1,221 ​ — ​ Other liabilities ​ 3,119 ​ 3,081 ​ Total ​ $ 10,807 ​ $ 14,600 ​ ​ ​ Note 11 - Stock-Based Compensation At the 2016 annual meeting, stockholders approved the Shore Bancshares, Inc. 2016 Stock and Incentive Plan (“2016 Equity Plan”), replacing the Shore Bancshares, Inc. 2006 Stock and Incentive Plan (“2006 Equity Plan”), which expired on that date. The Company may issue shares of common stock or grant other equity-based awards pursuant to the 2016 Equity Plan. Stock-based awards granted to date generally are time-based, vest in equal installments on each anniversary of the grant date and range over a one - to five-year period of time, and, in the case of stock options, expire 10 years from the grant date. As part of the 2016 Equity Plan, a performance equity incentive award program, known as the “Long-term incentive plan” allows participating officers of the Company to earn incentive awards of performance share/restricted stock units if certain pre-determined targets are achieved at the end of a three-year performance cycle. Stock-based compensation expense based on the grant date fair value is recognized ratably over the requisite service period for all awards and reflects forfeitures as they occur. The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 546,217 shares remained available for grant at March 31, 2022. The following tables provide information on stock-based compensation expense for the three months ended March 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ ​ ​ March 31, ​ (Dollars in thousands) 2022 2021 Stock-based compensation expense ​ $ 130 ​ $ 97 ​ Excess tax benefits related to stock-based compensation ​ 43 ​ 3 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ (Dollars in thousands) 2022 2021 Unrecognized stock-based compensation expense ​ $ 633 ​ $ 329 ​ Weighted average period unrecognized expense is expected to be recognized ​ 0.9 years 0.8 years ​ 28 Table of Contents The following table summarizes restricted stock award activity for the Company under the 2016 Equity Plan for the three months ended March 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended March 31, 2022 ​ ​ ​ ​ Weighted Average ​ ​ Number of ​ Grant Date ​ Shares Fair Value Nonvested at beginning of period 29,425 ​ $ 15.57 Granted 33,605 ​ 20.49 Vested ( 24,626 ) ​ 13.51 Forfeited — ​ — Nonvested at end of period 38,404 ​ $ 19.92 ​ The fair value of restricted stock awards that vested during the first three months of 2022 and 2021 was $ 492 thousand and $ 230 thousand, respectively. There were no stock options granted during the three months ended March 31, 2022 and March 31, 2021. All of the Company’s previously issued stock options that were outstanding on January 1, 2021 were either exercised or expired prior to December 31, 2021. Note 12 – Derivatives We maintain and account for derivatives, in the form of interest rate lock commitments (IRLCs) and mandatory forward contracts, in accordance with the FASB guidance on accounting for derivative instruments and hedging activities. We recognize gains and losses through mortgage-banking revenue in the Consolidated Statements of Income. ​ IRLCs on mortgage loans that we intend to sell in the secondary market are considered derivatives. We are exposed to price risk from the time a mortgage loan is locked in until the time the loan is sold. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 14 days to 120 days . For these IRLCs, we attempt to protect the Bank from changes in interest rates through the use of to be announced (TBA) securities, which are forward contracts, as well as, to a lesser degree, loan level commitments in the form of best efforts and mandatory forward contracts. These assets and liabilities are included in the Consolidated Balance Sheets in other assets and accrued expenses and other liabilities, respectively. ​ The following table provides information pertaining to the carrying amounts of our derivative financial instruments at March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 ​ December 31, 2021 ​ ​ Notional ​ Estimated ​ Notional ​ Estimated (Dollars in thousands) ​ Amount ​ Fair Value ​ Amount ​ Fair Value Asset - IRLCs ​ $ 21,815 ​ $ 217 ​ $ 17,557 ​ $ 380 Asset - TBA securities ​ ​ 38,107 ​ ​ 838 ​ ​ 26,500 ​ ​ 55 Liability - TBA securities ​ ​ 1,500 ​ ​ 6 ​ ​ 20,500 ​ ​ 41 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 29 Table of Contents ​ Note 13 – Accumulated Other Comprehensive Income (Loss) 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 three months ended March 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 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, 2021 ​ $ 56 ​ $ — ​ $ 56 Other comprehensive loss ​ ( 2,228 ) ​ — ​ ( 2,228 ) Balance, March 31, 2022 ​ $ ( 2,172 ) ​ $ — ​ $ ( 2,172 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance, December 31, 2020 ​ $ 1,529 ​ $ — ​ $ 1,529 Other comprehensive (loss) ​ ( 782 ) ​ — ​ ( 782 ) Balances, March 31, 2021 ​ $ 747 ​ $ — ​ $ 747 ​ ​ Note 14 – 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 and equity securities with readily determinable fair values are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans, loans held for sale and other real estate owned (foreclosed assets). These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets. Under fair value accounting guidance, assets and liabilities are grouped at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine their fair values. These hierarchy levels are: Level 1 inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that the entity has the ability to access at the measurement date. Level 2 inputs – Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs – Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities. ​ 30 Table of Contents Below is a discussion on the Company’s assets measured at fair value on a recurring basis. Investment Securities Available for Sale Fair value measurement for investment securities available for sale is based on quoted prices from an independent pricing service. The fair value measurements consider observable data that may include present value of future cash flows, prepayment assumptions, credit loss assumptions and other factors. The Company classifies its investments in U.S. Treasury securities, if any, as Level 1 in the fair value hierarchy, and it classifies its investments in U.S. Government agencies securities and mortgage-backed securities issued or guaranteed by U.S. Government sponsored entities as Level 2. Subordinated Debt Fair value measurement for subordinated debt is based on recent issuance rates of subordinated debt offerings over the prior 3 months for issuers of a relative size. A liquidity premium was added to the assumed market spreads to reflect exit pricing and the marketability/liquidity costs contained with consummating an orderly transaction. 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. 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. LHFS Loans held for sale (LHFS) are carried at fair value, which is determined based on Mark to Trade (MTT) for allocated/committed loans or Mark to Market (MTM) analysis for unallocated/uncommitted loans based on third-party pricing models. ​ MSRs The fair value of mortgage servicing rights (MSRs) is determined using a valuation model administered by a third party that calculates the present value of estimated future net servicing income. The model incorporates assumptions that market participants use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service (including delinquency and foreclosure costs), escrow account earnings, contractual servicing fee income, and other ancillary income such as late fees. Management reviews all significant assumptions on a quarterly basis. Mortgage loan prepayment speed, a key assumption in the model, is the annual rate at which borrowers are forecasted to repay their mortgage loan principal. The discount rate used to determine the present value of estimated future net servicing income, another key assumption in the model, is an estimate of the required rate of return investors in the market would require for an asset with similar risk. Both assumptions can, and generally will, change as market conditions and interest rates change. The significant unobservable inputs used in the fair value measurement of the reporting entity’s residential MSRs are prepayment speeds, probability of default, rate of return, and cost of servicing. Significant increases/decreases in any of those inputs in isolation would have resulted in a significantly lower/higher fair value measurement. Generally, a change in the assumption used for prepayment speeds would have been accompanied by a directionally similar change in the markets, i.e. the 10-Year Treasury, and in the probability of default. ​ ​ 31 Table of Contents IRLCs We utilize a third-party specialist model to estimate the fair value of our IRLCs, which are valued based upon mortgage securities (TBA) prices less estimated costs to process and settle the loan. Fair value is adjusted for the estimated probability of the loan closing with the borrower. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range March 31, 2022 ​ ​ ​ MSRs (1) ​ $ 5,113 Market Approach ​ Weighted average prepayment speed (PSA) (2) ​ 121 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ IRLCs - net asset ​ $ 217 Market Approach ​ Range of pull through rate ​ 78 % - 100 % ​ ​ ​ ​ ​ ​ ​ Average pull through rate ​ 92 % ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range December 31, 2021 ​ ​ ​ MSRs (1) ​ $ 4,087 Market Approach ​ Weighted average prepayment speed (PSA) (2) ​ 156 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ IRLCs - net asset ​ $ 380 Market Approach ​ Range of pull through rate ​ 77 % - 100 % ​ ​ ​ ​ ​ ​ ​ Average pull through rate ​ 93 % (1) The weighted average was calculated with reference to the principal balance of the underlying mortgages. (2) PSA = Public Securities Association Standard Prepayment Model ​ The following table presents activity in MSRs for the three months ended March 31, 2022. ​ ​ ​ ​ ​ (Dollars in thousands) March 31, 2022 Beginning balance $ 4,087 Servicing rights reulting from sales of loans ​ ​ 472 Valuation adjustment ​ ​ 554 Ending balance ​ $ 5,113 ​ The following table presents activity in the IRLCs for the three months ended March 31, 2022. ​ ​ ​ ​ ​ (Dollars in thousands) March 31, 2022 Beginning balance $ 380 Valuation adjustment ​ ​ ( 163 ) Ending balance ​ $ 217 ​ Forward Contracts To avoid interest rate risk, we hedge the open locked/closed position with TBA forward trades. On a regular basis, we allocate disbursed loans to mandatory commitments with government-sponsored enterprises (“GSE”) and private investors delivering the loans within 120 days of origination to maximize interest earnings. For a small percentage of our business, we enter into best efforts forward sales commitments with investors at the time we make an IRLC to a borrower. Once a loan has been closed and funded, the best efforts commitments convert to mandatory forward sales commitments. The mandatory commitments are derivatives, and we measure and report them at fair value. Fair value is based on the gain or loss that would occur if we were to pair-off the transaction with the investor at the measurement date. This is a level 2 input. We have elected to measure and report best efforts commitments at fair value using a valuation methodology similar to that used for mandatory commitments. 32 Table of Contents Market assumptions utilized in the fair value measurement of the reporting entity’s residential mortgage derivatives, inclusive of IRLCs, Closed Loan Inventory, TBA derivative trades, and Mandatory Forwards may be subject to investor overlays that may result in a significantly lower fair value measurement. Generally such overlays are announced with advanced notice in order to include the risk adjuster, however there are times when announcements are mandated resulting in a lower fair value measurement. Additionally market assumptions such as spec pool payups may result in a significantly higher fair value measurement at time of loan allocation to specific trades. The following tables present the recorded amount of assets measured at fair value on a recurring basis at March 31, 2022 and December 31, 2021. No assets were transferred from one hierarchy level to another during the first three months of 2022 or 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Significant ​ ​ ​ ​ ​ Quoted ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Prices ​ Inputs ​ Inputs (Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3) March 31, 2022 ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securities available for sale: ​ ​ ​ ​ U.S. Government agencies ​ $ 21,255 ​ $ — ​ $ 21,255 ​ $ — Mortgage-backed ​ 83,442 ​ — ​ 83,442 ​ — Other Debt Securities ​ ​ 1,998 ​ ​ — ​ ​ 1,998 ​ ​ — ​ ​ 106,695 ​ — ​ 106,695 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities ​ ​ 1,305 ​ ​ — ​ ​ 1,305 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TBA securities ​ ​ 838 ​ ​ — ​ ​ 838 ​ ​ — LHFS ​ ​ 12,906 ​ ​ — ​ ​ 12,906 ​ ​ — MSRs ​ ​ 5,113 ​ ​ — ​ ​ — ​ ​ 5,113 IRLCs ​ ​ 217 ​ ​ — ​ ​ — ​ ​ 217 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets at fair value ​ $ 127,074 ​ $ — ​ $ 121,744 ​ $ 5,330 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TBA securities ​ $ 6 ​ $ — ​ $ 6 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities at fair value ​ $ 6 ​ $ — ​ $ 6 ​ $ — ​ 33 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, 2021 ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securities available for sale: ​ ​ ​ ​ U.S. Government agencies ​ $ 22,305 ​ $ — ​ $ 22,305 ​ $ — Mortgage-backed ​ 92,637 ​ — ​ 92,637 ​ — Other Debt Securities ​ ​ 2,040 ​ ​ — ​ ​ 2,040 ​ ​ — ​ ​ 116,982 ​ — ​ 116,982 ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Equity securities ​ ​ 1,372 ​ ​ — ​ ​ 1,372 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TBA securities ​ ​ 55 ​ ​ — ​ ​ 55 ​ ​ — LHFS ​ ​ 37,749 ​ ​ — ​ ​ 37,749 ​ ​ — MSRs ​ ​ 4,087 ​ ​ — ​ ​ — ​ ​ 4,087 IRLCs ​ ​ 380 ​ ​ — ​ ​ — ​ ​ 380 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total assets at fair value ​ $ 160,625 ​ $ — ​ $ 156,158 ​ $ 4,467 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ TBA securities ​ $ 41 ​ $ — ​ $ 41 ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total liabilities at fair value ​ $ 41 ​ $ — ​ $ 41 ​ $ — ​ 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. 34 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 March 31, 2022 and December 31, 2021, 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) March 31, 2022 ​ ​ ​ ​ Nonrecurring measurements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 617 Appraisal of collateral (1) Liquidation expense (2) 10 % ​ ( 10 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 1,878 Discounted cash flow analysis (1) Discount rate ​ 6 % - 7.25 % ​ ( 6 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ​ $ 561 Appraisal of collateral (1) Appraisal adjustments (2) 0 % - 20 % ​ ( 7 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Quantitative Information about Level 3 Fair Value Measurements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Weighted (Dollars in thousands) Fair Value Valuation Technique Unobservable Input Range ​ Average (3) December 31, 2021 ​ ​ ​ ​ ​ Nonrecurring measurements: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 617 Appraisal of collateral (1) Liquidation expense (2) 10 % ​ ( 10 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans ​ $ 2,026 Discounted cash flow analysis (1) Discount rate ​ 4 % - 7.25 % ​ ( 6 %) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other real estate owned ​ $ 532 Appraisal of collateral (1) Appraisal adjustments (2) 20 % - 40 % ​ ( 35 %) ​ (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. ​ 35 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 March 31, 2022 and December 31, 2021 were estimated using an exit price notion. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, 2022 December 31, 2021 ​ ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ Carrying ​ Fair ​ Carrying ​ Fair (Dollars in thousands) Amount Value Amount Value Financial assets ​ ​ ​ ​ Level 1 inputs ​ ​ ​ ​ Cash and cash equivalents ​ $ 570,976 ​ $ 570,976 ​ $ 583,613 ​ $ 583,613 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 2 inputs ​ ​ ​ ​ Investment securities available for sale ​ $ 106,695 ​ $ 106,695 ​ $ 116,982 ​ $ 116,982 Investment securities held to maturity ​ ​ 407,138 ​ ​ 390,541 ​ ​ 404,594 ​ ​ 401,524 Equity securities ​ ​ 1,305 ​ ​ 1,305 ​ ​ 1,372 ​ ​ 1,372 Restricted securities ​ 9,894 ​ 9,894 ​ 4,159 ​ 4,159 LHFS ​ ​ 12,906 ​ ​ 12,906 ​ ​ 37,749 ​ ​ 37,749 TBA securities ​ ​ 838 ​ ​ 838 ​ ​ 55 ​ ​ 55 Cash surrender value on life insurance ​ 58,186 ​ 58,186 ​ 47,935 ​ 47,935 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Level 3 inputs ​ ​ ​ ​ Loans, net ​ $ 2,166,396 ​ $ 2,140,286 ​ $ 2,105,231 ​ $ 2,106,373 MSRs ​ ​ 5,113 ​ ​ 5,113 ​ ​ 4,087 ​ ​ 4,087 IRLCs ​ ​ 217 ​ ​ 217 ​ ​ 380 ​ ​ 380 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Financial liabilities ​ ​ ​ ​ Level 2 inputs ​ ​ ​ ​ Deposits: ​ ​ ​ ​ Noninterest-bearing demand ​ $ 876,415 ​ $ 876,415 ​ $ 927,497 ​ $ 927,497 Checking plus interest ​ 695,407 ​ 695,407 ​ 524,143 ​ 524,143 Money market ​ 726,858 ​ 726,858 ​ 889,099 ​ 889,099 Savings ​ 309,926 ​ 309,926 ​ 225,546 ​ 225,546 Club ​ 745 ​ 745 ​ 388 ​ 388 Certificates of deposit ​ 459,144 ​ 459,171 ​ 459,563 ​ 461,135 Securities sold under retail repurchase agreement ​ — ​ — ​ 4,143 ​ 4,143 Advances from FHLB - long-term ​ ​ 10,094 ​ 10,052 ​ 10,135 ​ 10,187 Subordinated debt ​ ​ 42,840 ​ 45,430 ​ 42,762 ​ 44,876 TBA Securities ​ ​ 6 ​ 6 ​ 41 ​ 41 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Note 14 – Commitments and Contingencies ​ 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. 36 Table of Contents The following table provides information on commitments outstanding at March 31, 2022 and December 31, 2021. ​ ​ ​ ​ ​ ​ ​ ​ (Dollars in thousands) March 31, 2022 December 31, 2021 Commitments to extend credit ​ $ 462,508 ​ $ 421,088 Letters of credit ​ 8,723 ​ 8,399 Total ​ $ 471,231 ​ $ 429,487 ​ ​ ​ ​ The Bank has established a reserve for off balance sheet credit exposures. The reserve is established as losses are estimated to have occurred through a loss for off balance sheet credit exposures charged to earnings. Losses are charged against the allowance when management believes the required funding of these exposures is uncollectible. While this evaluation is completed on a regular basis, it is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. ​ The Company provides banking services to customers who do business in the medical-use cannabis industry. While the growing, processing, and sales of medical-use cannabis is legal in the state of Maryland, such customers engaged in those activities currently violate Federal law. The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers. The strict enforcement of Federal laws regarding medical-use cannabis would likely result in the Company’s inability to continue to provide banking services to these customers and the Company could have legal action taken against it by the Federal government, including imprisonment and fines. There is an uncertainty of the potential impact to the Company’s Consolidated Financial Statements if the Federal government takes actions against the Company. As of March 31, 2022, the Company had not accrued an amount for the potential impact of any such actions. ​ Following is a summary of the level of business activities with our medical-use cannabis customers: ​ ● Deposit and loan balances at March 31, 2022 were approximately $ 54.2 million, or 1.8 % of total deposits, and $ 35.2 million, or 1.6 % of total gross loans, respectively. ​ ● Interest and noninterest income for the three months ended March 31, 2022, were approximately $ 503 thousand and $ 506 thousand, respectively ​ In the normal course of business, the Company. and the Bank may become involved in litigation arising from banking, financial, and other activities. Management, after consultation with legal counsel, does not anticipate that the future liability, if any, arising out of current proceedings will have a material effect on the Company’s financial condition, operating results, or liquidity. ​ ​ Note 15 – Segment Reporting We are in the business of providing financial services and subsequent to the acquisition of Severn in the fourth quarter of 2021 we operate in two business segments – community banking and mortgage-banking. Community banking is conducted through the Bank and involves delivering a broad range of financial services, including lending and deposit taking, to individuals and commercial enterprises. This segment also includes our treasury and administrative functions. Mortgage-banking is conducted through the residential mortgage division of the Bank and involves originating first and second-lien residential mortgages for sale in the secondary market. ​ ​ ​ ​ ​ ​ ​ ​ ​ 37 Table of Contents The following tables present certain information regarding our business segments for the three months ended March 31, 2022. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Community ​ ​ ​ ​ Consolidated (Dollars in thousands) Banking Mortgage Banking Total March 31, 2022 ​ ​ ​ Interest Income $ 22,433 ​ $ 1,891 ​ $ 24,324 Interest Expense ​ 1,815 ​ 79 ​ 1,894 Net interest income ​ ​ 20,618 ​ ​ 1,812 ​ ​ 22,430 Provision for credit losses ​ ​ 600 ​ ​ — ​ ​ 600 Net interest income after provision for credit losses ​ ​ 20,018 ​ ​ 1,812 ​ ​ 21,830 Noninterest income ​ 4,140 ​ 1,906 ​ 6,046 Noninterest expense ​ 17,554 ​ 2,778 ​ 20,332 Income before income taxes ​ 6,604 ​ 940 ​ 7,544 Income tax expense ​ ​ 1,689 ​ ​ 242 ​ ​ 1,931 Net income ​ $ 4,915 ​ $ 698 ​ $ 5,613 Total assets, March 31, 2022 ​ $ 3,475,400 ​ $ 19,097 ​ $ 3,494,497 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Note 16 – Revenue Recognition Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities. Topic 606 is applicable to noninterest revenue streams such as trust and asset management income, deposit related fees, interchange fees and merchant income. Noninterest revenue streams in-scope of Topic 606 are discussed below. ​ Service Charges on Deposit Accounts ​ Service charges on deposit accounts consist of account analysis fees (i.e., net fees earned on analyzed business and public checking accounts), monthly service fees, check orders, and other deposit account related fees. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. ​ Check orders and other deposit account related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or at the end of the month through a direct charge to customers’ accounts. ​ Trust and Investment Fee Income ​ Trust and investment fee income are primarily comprised of fees earned from the management and administration of trusts and other customer assets. The Company’s performance obligation is generally satisfied over time and the resulting fees are recognized monthly, based upon the month-end market value of the assets under management and the applicable fee rate. Payment is generally received a few days after month end through a direct charge to customers’ accounts. The Company does not earn performance-based incentives. ​ Optional services such as real estate sales and tax return preparation services are also available to existing trust and asset management customers. The Company’s performance obligation for these transactional-based services is generally satisfied, and related revenue recognized, at a point in time (i.e., as incurred). Payment is received shortly after services are rendered. ​ Title Company Revenue Title Company revenue consists of revenue earned on performing title work for real estate transactions. The revenue is earned when the title work is performed. Payment for such performance obligations generally occurs at the time of the 38 Table of Contents settlement of a real estate transaction. As such settlement is generally within 90 days of the performance of the title work, we recognize the revenue at the time of the settlement. All contract issuance costs are expensed as incurred. We had no contract assets or liabilities at March 31, 2022. 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 months ended March 31, 2022 and 2021. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For Three Months Ended ​ ​ ​ March 31, ​ (Dollars in thousands) 2022 2021 ​ Noninterest Income ​ ​ In-scope of Topic 606: ​ ​ Service charges on deposit accounts ​ $ 1,359 ​ $ 674 ​ Trust and investment fee income ​ 514 ​ 407 ​ Interchange income ​ ​ 1,038 ​ ​ 869 ​ Title Company revenue ​ ​ 323 ​ ​ — ​ Other noninterest income ​ 460 ​ 305 ​ Noninterest Income (in-scope of Topic 606) ​ 3,694 ​ 2,255 ​ Noninterest Income (out-of-scope of Topic 606) ​ 2,352 ​ 302 ​ Total Noninterest Income ​ $ 6,046 ​ $ 2,557 ​ ​ 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 March 31, 2022, and December 31, 2021, the Company did not have any significant contract balances. ​ ​ ​ 39 Table of Contents ​