What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-15 compared with 2022-05-16 · 216 added, 161 removed, 897 unchanged (30% of the section changed)

19 unchanged sentences

Right-of-use assets

Cash surrender value on life insurance

Noninterest-bearing

22 unchanged sentences

For Three Months Ended

For Six Months Ended

(In thousands, except per share data)

42 unchanged sentences

For Three Months Ended

For Six Months Ended

(In thousands)

7 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

For the Three Months Ended March 31, 2022 and 2021

For the Three and Six Months Ended June 30, 2022 and 2021

Comprehensive

8 unchanged sentences

Balances, March 31, 2022

Other comprehensive (loss)

Common shares issued for employee stock purchase plan

Stock-based compensation

Cash dividends declared

Balances, June 30, 2022

Comprehensive

7 unchanged sentences

Balances, March 31, 2021

Other comprehensive (loss)

Stock-based compensation

Cash dividends declared

Balances, June 30, 2021

See accompanying notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For Three Months Ended

For Six Months Ended

(In thousands)

12 unchanged sentences

(Gains) on valuation adjustments on mortgage servicing rights

(Gains) on sales and valuation adjustments on other real estate owned

Losses on sales and valuation adjustments on other real estate owned

Fair value adjustment on equity securities

10 unchanged sentences

Purchases of equity securities

Purchases of restricted securities

Net (purchase) redemption of restricted securities

Net change in loans

2 unchanged sentences

Improvements to other real estate owned

Net redemption of restricted securities

Purchases of bank owned life insurance

7 unchanged sentences

Issuance of common stock

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net (decrease) increase in cash and cash equivalents

3 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (CONTINUED)

Supplemental cash flows information:

Interest paid

Income taxes paid

Recognition (remeasurement of) discount marks on PCI loans acquired

Lease liabilities arising from right-of-use assets

Recognition (remeasurement of) lease liabilities arising from right-of-use assets

Transfers from loans to other real estate owned

3 unchanged sentences

Notes to Consolidated Financial Statements

For the Three Months Ended March 31, 2022 and 2021

For the Three and Six Months Ended June 30, 2022 and 2021

Note 1 – Basis of Presentation

3 unchanged sentences

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.

however, in the opinion of management all adjustments necessary to present fairly the consolidated financial position at June 30, 2022, the consolidated results of income and comprehensive income for the three and six months ended June 30, 2022 and 2021, changes in stockholders’ equity for the three and six months ended June 30, 2022 and 2021 and cash flows for the six months ended June 30, 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.

The results of operations for the three and six months ended June 30, 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.

2 unchanged sentences

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”).

and, unless the context requires otherwise, its consolidated subsidiaries, Shore United Bank, N.A.

(the “Bank”).

Recent Accounting Standards and Other Authoritative Guidance

2016-13 – In June 2016, the FASB issued ASU No.

2016-13 – In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2016-13, “Financial Instruments – Credit Losses (Topic 326):

17 unchanged sentences

and (4) validating a systematic methodology.

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

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.

2022-02 – In March 2022, the (FASB) issued (ASU) No.

2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 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 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.

5 unchanged sentences

The Company is currently assessing the impact that ASU 2022-02 will have on its consolidated financial statements.

2020-04 – In March 2020, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-03 - In June 2022, the (FASB) issued (ASU) No.

2022-03, “Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted.

The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

2020-04 – In March 2020, the (FASB) issued (ASU) No.

2020-04 “Reference Rate Reform (Topic 848):

3 unchanged sentences

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.

Subsequently, in January 2021, the (FASB) issued (ASU) No.

2021-01 “Reference Rate Reform (Topic 848):

20 unchanged sentences

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.

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 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 were 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.

33 unchanged sentences

Effect of adjustments to:

Goodwill at March 31, 2022

Goodwill at June 30, 2022

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.

The following table outlines the contractually required payments receivable, cash flows we expected to receive, and the accretable yield for all Severn purchased credit-impaired (PCI) loans as of the acquisition date.

Contractually required payments receivable

12 unchanged sentences

For the Three Months Ended

For the Six Months Ended

(In thousands, except per share data)

3 unchanged sentences

Earnings per common share - Basic and Diluted

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.

There were no weighted average common stock equivalents excluded from the calculation of diluted earnings per share for the three and six months June 30, 2021.

There were no potentially dilutive shares outstanding during the three and six months ended June 30, 2022.

Note 4 – Investment Securities

2 unchanged sentences

Available-for-sale securities:

March 31, 2022

June 30, 2022

Government agencies

5 unchanged sentences

Other Debt securities

No available for sale securities were sold during the three months ended March 31, 2022 and 2021.

No available for sale securities were sold during the three and six months ended June 30, 2022 and 2021.

(Dollars in thousands)

Held-to-maturity securities:

March 31, 2022

June 30, 2022

Government agencies

7 unchanged sentences

Other debt securities

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.

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.

Equity securities with an aggregate fair value of $ 1.3 million at June 30, 2022 and $ 1.4 million at December 31, 2021 are presented separately on the balance sheet.

The fair value adjustment recorded through earnings totaled $( 108 ) thousand for the six months ended June 30, 2022 and $( 20 ) thousand for the six months ended June 30, 2021, respectively.

(Dollars in thousands)

March 31, 2022

June 30, 2022

Available-for-sale securities:

18 unchanged sentences

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.

The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at March 31, 2022.

There were one hundred five available-for-sale securities and one hundred sixty-four held-to-maturity securities in an unrealized loss position at June 30, 2022.

The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at June 30, 2022.

Available for sale

8 unchanged sentences

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.

The following table provides information about the principal classes of the loan portfolio at June 30, 2022 and December 31, 2021.

(Dollars in thousands)

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

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.

Included in loans were deferred costs, net of fees, of $ 846 thousand and $ 1.2 million at June 30, 2022 and December 31, 2021.

At June 30, 2022 and December 31, 2021, included in total loans were $ 31.3 million and $ 39.9 million in loans, respectively, net of discounts on acquired loans of $ 416 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.

At June 30, 2022 and December 31, 2021, included in total loans were $ 451.5 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 $ 7.6 million and $ 8.4 million at June 30, 2022 and December 31, 2021, respectively.

Interest income on loans is accrued at the contractual rate based on the principal amount outstanding.

6 unchanged sentences

An impaired loan may show deficiencies in the borrower’s overall financial condition, payment history, support available from financial guarantors and/or the fair market value of collateral.

The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest

rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

The impairment of a loan is measured at the present value of expected future cash flows using the loan’s effective interest rate, or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

Generally, the Company measures impairment on such loans by reference to the fair value of the collateral.

9 unchanged sentences

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.

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.

9 unchanged sentences

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 June 30, 2022, the Company held PPP loans with a total outstanding balance of $ 1.7 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.

The decrease is due to repayment and forgiveness received as of June 30, 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.

2 unchanged sentences

The following tables provide information about all loans acquired from Severn.

March 31, 2022

June 30, 2022

Acquired Loans -

18 unchanged sentences

The following table presents a summary of the change in the accretable yield on PCI loans acquired from Severn.

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands)

March 31, 2022

June 30, 2022

Accretable yield, beginning of period

2 unchanged sentences

Accretable yield, end of period

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.

At June 30, 2022, the Bank was servicing $ 341.8 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:

1 unchanged sentence

In addition, the Bank periodically finances the construction of commercial projects.

repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value.

Credit risk factors include the borrower’s ability to successfully complete the construction on time and within budget, changing market conditions which could affect the value and marketability of projects, changes in the borrower’s ability or willingness to repay the loan and potentially rising interest rates which can impact both the borrower’s ability to repay and the collateral value.

Residential real estate – Residential real estate loans are typically made to consumers and are secured by residential real estate.

10 unchanged sentences

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.

The following tables include impairment information relating to loans and the allowance for credit losses as of June 30, 2022 and December 31, 2021.

(Dollars in thousands)

March 31, 2022

June 30, 2022

Loans individually evaluated for impairment

16 unchanged sentences

Total allowance

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.

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 allowance for loan losses was 0.68 % of total loans and 0.89 % when excluding PPP loans and acquired loans, at June 30, 2022 compared to 0.66 % and 0.93 % at December 31, 2021.

The following tables provide information on impaired loans and any related allowance by loan class as of June 30, 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.

1 unchanged sentence

average recorded

(Dollars in thousands)

March 31, 2022

June 30, 2022

Impaired nonaccrual loans:

10 unchanged sentences

Commercial real estate

March 31, 2021

June 30, 2022

Quarter-to-date

average recorded

(Dollars in thousands)

12 unchanged sentences

Commercial real estate

The following tables provide a roll-forward for TDRs as of March 31, 2022 and March 31, 2021.

The following tables provide a roll-forward for TDRs as of June 30, 2022 and June 30, 2021.

Disbursements

2 unchanged sentences

Transfer In/(Out)

For three months ended

March 31, 2022

For the Six Months Ended

June 30, 2022

Accruing TDRs

8 unchanged sentences

Transfer In/(Out)

For three months ended

March 31, 2021

For the Six Months Ended

June 30, 2021

Accruing TDRs

4 unchanged sentences

Commercial real estate

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.

There were no loans modified and considered to be TDRs during the three and six months ended June 30, 2022 and June 30, 2021.

There were no TDRs which subsequently defaulted within 12 months of modification for the three and six months ended June 30, 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.

2 unchanged sentences

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.

At June 30, 2022, there were no nonaccrual loans classified as special mention or doubtful and $ 2.7 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.

The following tables provide information on loan risk ratings as of June 30, 2022 and December 31, 2021.

(Dollars in thousands)

Pass/Performing

March 31, 2022

June 30, 2022

Residential real estate

5 unchanged sentences

Commercial real estate

The following tables provide information on the aging of the loan portfolio as of March 31, 2022 and December 31, 2021.

The following tables provide information on the aging of the loan portfolio as of June 30, 2022 and December 31, 2021.

(Dollars in thousands)

March 31, 2022

June 30, 2022

Residential real estate

6 unchanged sentences

Percent of total loans

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.

The following tables provide a summary of the activity in the allowance for credit losses allocated by loan class for the three and six months ended June 30, 2022 and June 30, 2021.

Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.

1 unchanged sentence

For three months ended

March 31, 2022

June 30, 2022

Allowance for credit losses:

4 unchanged sentences

For three months ended

March 31, 2021

June 30, 2021

Allowance for credit losses:

2 unchanged sentences

Ending Balance

(Dollars in thousands)

For six months ended

June 30, 2022

Allowance for credit losses:

Beginning Balance

Net (charge-offs) recoveries

Ending Balance

(Dollars in thousands)

For six months ended

June 30, 2021

Allowance for credit losses:

Beginning Balance

Net (charge-offs) recoveries

Ending Balance

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.

There were $ 81 thousand of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of June 30, 2022 and $ 311 thousand as of December 31, 2021, respectively.

There was 1 residential real estate property included in the balance of other real estate owned totaling $ 18 thousand at June 30, 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.

Both performing and non-performing TDRs had no further commitments associated with them as of June 30, 2022 and December 31, 2021.

Note 6 – Leases

9 unchanged sentences

(Dollars in thousands)

March 31, 2022

June 30, 2022

December 31, 2021

4 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Lease cost (in thousands)

March 31, 2022

March 31, 2021

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

Operating lease cost

4 unchanged sentences

Lease payments due (in thousands)

March 31, 2022

Nine months ending December 31, 2022

June 30, 2022

Six months ending December 31, 2022

Twelve months ending December 31, 2023

5 unchanged sentences

Lease liabilities

Total gross rental income was $ 272 thousand for the three months ended March 31, 2022.

The following table presents our minimum future annual rental income on such leases as of March 31, 2022.

Total gross rental income was $ 254 thousand for the three months ended June 30, 2022 and $ 526 thousand for the six months ended June 30, 2022.

The following table presents our minimum future annual rental income on such leases as of June 30, 2022.

(In thousands)

March 31, 2022

Nine months ending December 31, 2022

June 30, 2022

Six months ending December 31, 2022

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

The following table provides information on the significant components of goodwill and other acquired intangible assets at June 30, 2022 and December 31, 2021.

June 30, 2022

Remaining Life

9 unchanged sentences

Total other intangible assets

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.

At March 31, 2022, estimated future remaining amortization for amortizing intangibles within the years ending December 31, is as follows:

The aggregate amortization expense was $ 1.0 million for the six months ended June 30, 2022 and $ 246 thousand for the six months ended June 30, 2021.

At June 30, 2022, estimated future remaining amortization for amortizing intangibles within the years ending December 31, is as follows:

(Dollars in thousands)

1 unchanged sentence

Note 8 – Other Assets

The Company had the following other assets at March 31, 2022 and December 31, 2021.

The Company had the following other assets at June 30, 2022 and December 31, 2021.

(Dollars in thousands)

2 unchanged sentences

Prepaid expenses

Cash surrender value on life insurance

Income taxes receivable

3 unchanged sentences

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.

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.

The debt balance of $ 24.6 million is presented net of unamortized issuance costs of $ 387 thousand at June 30, 2022.

In conjunction with the acquisition of Severn, the Company assumed $ 20.6 million in junior subordinated debt securities (“2035 Debentures”).

4 unchanged sentences

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

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.

We have entered into an agreement which, taken collectively, fully and unconditionally guarantees the Capital Securities subject to the terms of the guarantee.

The recorded balance was $ 18.3 million at June 30, 2022 and $ 18.2 million December 31, 2021, which included fair value adjustments of $ 2.3 million and $ 2.4 million, respectively.

Under the terms of the 2035 Debentures, the Company is 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 June 30, 2022, the Company was 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.

The Company had the following other liabilities at June 30, 2022 and December 31, 2021.

(Dollars in thousands)

March 31, 2022

June 30, 2022

December 31, 2021

13 unchanged sentences

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.

The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 500,449 shares remained available for grant at June 30, 2022.

The following tables provide information on stock-based compensation expense for the three and six months ended June 30, 2022 and 2021.

For Three Months Ended

For the Six Months Ended

(Dollars in thousands)

4 unchanged sentences

Weighted average period unrecognized expense is expected to be recognized

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

The following table summarizes restricted stock award activity for the Company under the 2016 Equity Plan for the six months ended June 30, 2022.

Six Months Ended June 30, 2022

Weighted Average

1 unchanged sentence

Nonvested at end of period

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.

The fair value of restricted stock awards that vested during the first six months of 2022 and 2021 was $ 505 thousand and $ 236 thousand, respectively.

There were no stock options granted during the six months ended June 30, 2022 and June 30, 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.

The Company maintains and accounts 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.

1 unchanged sentence

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.

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 , however, this period may be longer for construction to permanent loans that are originated with the intent of selling in the secondary market.

For these IRLCs and our closed inventory in loans held for sale, 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 significantly 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

The following table provides information pertaining to the carrying amounts of our derivative financial instruments at June 30, 2022 and December 31, 2021.

June 30, 2022

December 31, 2021

5 unchanged sentences

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

transferred from

The following table provides information on the changes in the component of accumulated other comprehensive income (loss) for the six months ended June 30, 2022 and 2021.

gains (losses) on

available for sale

comprehensive

(Dollars in thousands)

Held-to-maturity

income (loss)

Balance, December 31, 2021

Other comprehensive (loss)

Balance, March 31, 2022

Balance, June 30, 2022

Balance, December 31, 2020

Other comprehensive (loss)

Balances, March 31, 2021

Balance, June 30, 2021

Note 14 – Fair Value Measurements

19 unchanged sentences

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

1 unchanged sentence

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.

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 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 (Level 3).

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.

8 unchanged sentences

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.

Fair value is adjusted for the estimated probability of the loan closing with the borrower (Level 3).

(Dollars in thousands)

1 unchanged sentence

Unobservable Input

March 31, 2022

June 30, 2022

Market Approach

16 unchanged sentences

(2) PSA = Public Securities Association Standard Prepayment Model

The following table presents activity in MSRs for the three months ended March 31, 2022.

The following table presents activity in MSRs for the three and six months ended June 30, 2022.

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands)

March 31, 2022

June 30, 2022

Beginning balance

Servicing rights reulting from sales of loans

Servicing rights resulting from sales of loans

Valuation adjustment

Ending balance

The following table presents activity in the IRLCs for the three months ended March 31, 2022.

The following table presents activity in the IRLCs for the three and six months ended June 30, 2022.

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands)

March 31, 2022

June 30, 2022

Beginning balance

9 unchanged sentences

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.

We have elected to measure and report best efforts commitments at fair value, when outstanding, using a valuation methodology similar to that used for mandatory commitments.

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.

1 unchanged sentence

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.

The following tables present the recorded amount of assets measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021.

No assets were transferred from one hierarchy level to another during the first six months of 2022 or 2021.

(Dollars in thousands)

March 31, 2022

June 30, 2022

Securities available for sale:

33 unchanged sentences

Valuation techniques are consistent with those techniques applied in prior periods.

The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis at March 31, 2022 and December 31, 2021, that are valued at the lower of cost or market.

The following tables set forth the Company’s financial and nonfinancial assets subject to fair value adjustments (impairment) on a nonrecurring basis at June 30, 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.

3 unchanged sentences

Unobservable Input

March 31, 2022

June 30, 2022

Nonrecurring measurements:

27 unchanged sentences

(3) Unobservable inputs were weighted by the relative fair value of the instruments.

The carrying amounts and estimated fair values of the Company’s financial instruments not carried at fair value on the Company’s Consolidated Balance Sheets are presented in the following table.

Fair values for March 31, 2022 and December 31, 2021 were estimated using an exit price notion.

March 31, 2022

The carrying amounts and estimated fair values of the Company’s financial instruments are presented in the following table.

Fair values for June 30, 2022 and December 31, 2021 were estimated using an exit price notion.

June 30, 2022

December 31, 2021

27 unchanged sentences

Because many of the letters of credit and commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The following table provides information on commitments outstanding at March 31, 2022 and December 31, 2021.

The following table provides information on commitments outstanding at June 30, 2022 and December 31, 2021.

(Dollars in thousands)

March 31, 2022

June 30, 2022

December 31, 2021

3 unchanged sentences

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.

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 provides banking services to customers who do business in the cannabis industry.

Prior to the second quarter of 2022, the Company restricted these businesses to include only those in the medical-use cannabis industry in the state of Maryland.

During the second quarter of 2022, the Company expanded its cannabis banking program to include both medical and adult -use licensees in other states, with an initial offering of the Company’s existing Maryland customers with multi-state operations.

While the Company is providing banking services to customers that are engaged in the growing, processing, and sales of cannabis in a manner that complies with applicable state law, 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.

While we are not aware of any instance of a federally-insured financial institution being subject to such aiding and abetting liability, the strict enforcement of Feral laws regarding 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.

As of June 30, 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 cannabis industry customers:

● Deposit and loan balances at June 30, 2022 were approximately $ 27.0 million, or 0.9 % of total deposits, and $ 42.3 million, or 1.9 % of total gross loans, respectively.

● Interest and noninterest income for the six months ended June 30, 2022, were approximately $ 1.2 million and $ 1.0 million, 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.

4 unchanged sentences

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.

The following tables present certain information regarding our business segments for the three months ended March 31, 2022.

The following tables present certain information regarding our business segments for the three and six months ended June 30, 2022.

(Dollars in thousands)

Mortgage Banking

March 31, 2022

For the Three Months Ended June 30, 2022

Interest Income

5 unchanged sentences

Noninterest expense

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Total assets, June 30, 2022

(Dollars in thousands)

Mortgage Banking

For the Six Months Ended June 30, 2022

Interest Income

Interest Expense

Net interest income

Provision for credit losses

Net interest income after provision for credit losses

Noninterest income

Noninterest expense

Income before income taxes

Income tax expense

Total assets, March 31, 2022

Total assets, June 30, 2022

Note 17 – Revenue Recognition

18 unchanged sentences

The revenue is earned when the title work is performed.

Payment for such performance obligations generally occurs at the time of the

settlement of a real estate transaction.

Payment for such performance obligations generally occurs at the time of the 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.

We had no contract assets or liabilities at June 30, 2022.

Other Noninterest Income

10 unchanged sentences

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

The following presents noninterest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, for the three and six months ended June 30, 2022 and 2021.

For the Three Months Ended

For the Six Months Ended

(Dollars in thousands)

15 unchanged sentences

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.

As of June 30, 2022, and December 31, 2021, the Company did not have any significant contract balances.

Note 18 – Subsequent Event

On July 6, 2022, the Company announced a new stock repurchase program.

Under the new stock repurchase program, the Company is authorized to repurchase up to $ 5.0 million of the Company’s Common Stock, representing approximately 1.4 % of its issued and outstanding Common Stock based on the closing price of the Company’s Common Stock on July 5, 2022.

The program may be limited or terminated at any time without prior notice.

The program will expire on March 31, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements