What changed in this filing

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Item 1. Financial Statements

2022-11-14 compared with 2022-08-15 · 173 added, 152 removed, 961 unchanged (25% of the section changed)

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

September 30,

(In thousands, except share and per share data)

40 unchanged sentences

For Three Months Ended

For Six Months Ended

For Nine Months Ended

September 30,

(In thousands, except per share data)

15 unchanged sentences

Trust and investment fee income

Gains on sales and calls of investment securities

Interchange credits

25 unchanged sentences

For Three Months Ended

For Six Months Ended

For Nine Months Ended

September 30,

(In thousands)

7 unchanged sentences

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)

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

For the Three and Nine Months Ended September 30, 2022 and 2021

Comprehensive

13 unchanged sentences

Balances, June 30, 2022

Other comprehensive (loss)

Common shares issued for employee stock purchase plan

Stock-based compensation

Cash dividends declared

Balances, September 30, 2022

SHORE BANCSHARES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)(CONTINUED)

For the Three and Nine Months Ended September 30, 2022 and 2021

Comprehensive

11 unchanged sentences

Balances, June 30, 2021

Other comprehensive (loss)

Stock-based compensation

Exercise of options, net of shares surrendered

Cash dividends declared

Balances, September 30, 2021

See accompanying notes to Consolidated Financial Statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

For Six Months Ended

For Nine Months Ended

September 30,

(In thousands)

11 unchanged sentences

Deferred income tax expense (benefit)

(Gains) on sales and calls of securities

(Gains) on valuation adjustments on mortgage servicing rights

Losses on sales and disposals of premises and equipment

Losses on sales and valuation adjustments on other real estate owned

11 unchanged sentences

Purchases of equity securities

Net (purchase) redemption of restricted securities

Net (purchase) 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

Net cash (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Net changes in:

20 unchanged sentences

Notes to Consolidated Financial Statements

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

For the Three and Nine Months Ended September 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 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.

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

All such adjustments were 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 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.

The results of operations for the three and nine months ended September 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.

20 unchanged sentences

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.

The Company has completed the external validation of the new model.

Effective November 25, 2019, the SEC adopted Staff Accounting Bulletin (SAB) 119.

4 unchanged sentences

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.

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.

78 unchanged sentences

Effect of adjustments to:

Goodwill at June 30, 2022

Goodwill at September 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.

15 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands, except per share data)

Weighted average shares outstanding - Basic

Dilutive effect of common stock equivalents-options

Weighted average shares outstanding - Diluted

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 and six months June 30, 2021.

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

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

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

Note 4 – Investment Securities

2 unchanged sentences

Available-for-sale securities:

June 30, 2022

September 30, 2022

Government agencies

5 unchanged sentences

Other Debt securities

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

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

(Dollars in thousands)

Held-to-maturity securities:

June 30, 2022

September 30, 2022

Government agencies

7 unchanged sentences

Other debt securities

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.

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 June 30, 2022 and December 31, 2021.

Equity securities with an aggregate fair value of $ 1.2 million at September 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 $( 145 ) thousand for the nine months ended September 30, 2022 and $( 24 ) thousand for the nine months ended September 30, 2021, respectively.

(Dollars in thousands)

June 30, 2022

September 30, 2022

Available-for-sale securities:

5 unchanged sentences

Mortgage-backed

States and political subdivisions

Other debt securities

11 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 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.

There were one hundred twelve available-for-sale securities and one hundred ninety held-to-maturity securities in an unrealized loss position at September 30, 2022.

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

Available for sale

7 unchanged sentences

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 June 30, 2022 and December 31, 2021.

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

(Dollars in thousands)

June 30, 2022

September 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 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.

Included in loans were deferred costs, net of fees, of $ 967 thousand and $ 1.2 million at September 30, 2022 and December 31, 2021.

At September 30, 2022 and December 31, 2021, included in total loans were $ 24.7 million and $ 39.9 million in loans, respectively, net of discounts on acquired loans of $ 332 thousand and $ 516 thousand, respectively, as part of the Northwest Bancshares, Inc.

branch acquisition in 2017.

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.

At September 30, 2022 and December 31, 2021, included in total loans were $ 407.8 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 $ 7.3 million and $ 8.4 million at September 30, 2022 and December 31, 2021, respectively.

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

18 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 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 September 30, 2022, the Company held PPP loans with a total outstanding balance of $ 291 thousand, 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 June 30, 2022.

The decrease is due to repayment and forgiveness received as of September 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.

June 30, 2022

September 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 Six Months Ended

For the Nine Months Ended

(Dollars in thousands)

June 30, 2022

September 30, 2022

Accretable yield, beginning of period

2 unchanged sentences

Accretable yield, end of period

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.

At September 30, 2022, the Bank was servicing $ 346.9 million in loans for the Federal National Mortgage Association and $ 74.5 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:

14 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 June 30, 2022 and December 31, 2021.

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

(Dollars in thousands)

June 30, 2022

September 30, 2022

Loans individually evaluated for impairment

16 unchanged sentences

Total allowance

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 allowance for loan losses was 0.68 % of total loans and 0.84 % when excluding PPP loans and acquired loans, at September 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 September 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.

3 unchanged sentences

(Dollars in thousands)

June 30, 2022

September 30, 2022

Impaired nonaccrual loans:

10 unchanged sentences

Commercial real estate

June 30, 2022

September 30, 2021

Quarter-to-date

15 unchanged sentences

Commercial real estate

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

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

Disbursements

2 unchanged sentences

Transfer In/(Out)

For the Six Months Ended

June 30, 2022

For the Nine Months Ended

September 30, 2022

Accruing TDRs

8 unchanged sentences

Transfer In/(Out)

For the Six Months Ended

June 30, 2021

For the Nine Months Ended

September 30, 2021

Accruing TDRs

4 unchanged sentences

Commercial real estate

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.

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

There were no TDRs which subsequently defaulted within 12 months of modification for the three and nine months ended September 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 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.

At September 30, 2022, there were no nonaccrual loans classified as special mention or doubtful and $ 2.0 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 June 30, 2022 and December 31, 2021.

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

(Dollars in thousands)

Pass/Performing

June 30, 2022

September 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 June 30, 2022 and December 31, 2021.

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

(Dollars in thousands)

June 30, 2022

September 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 and six months ended June 30, 2022 and June 30, 2021.

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

June 30, 2022

September 30, 2022

Allowance for credit losses:

4 unchanged sentences

For three months ended

June 30, 2021

September 30, 2021

Allowance for credit losses:

3 unchanged sentences

(Dollars in thousands)

For six months ended

June 30, 2022

For nine months ended

September 30, 2022

Allowance for credit losses:

3 unchanged sentences

(Dollars in thousands)

For six months ended

June 30, 2021

For nine months ended

September 30, 2021

Allowance for credit losses:

3 unchanged sentences

Foreclosure Proceedings

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.

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

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

Note 6 – Leases

9 unchanged sentences

(Dollars in thousands)

June 30, 2022

September 30, 2022

December 31, 2021

4 unchanged sentences

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

Lease cost (in thousands)

June 30, 2022

June 30, 2021

June 30, 2022

June 30, 2021

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

Operating lease cost

4 unchanged sentences

Lease payments due (in thousands)

June 30, 2022

Six months ending December 31, 2022

Twelve months ending December 31, 2023

Twelve months ending December 31, 2024

Twelve months ending December 31, 2025

Twelve months ending December 31, 2026

Twelve months ending December 31, 2027

September 30, 2022

Three months ending December 31, 2022

Total undiscounted cash flows

Lease liabilities

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.

Total gross rental income was $ 202 thousand for the three months ended September 30, 2022 and $ 728 thousand for the nine months ended September 30, 2022.

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

(In thousands)

June 30, 2022

Six months ending December 31, 2022

September 30, 2022

Three 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 June 30, 2022 and December 31, 2021.

June 30, 2022

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

September 30, 2022

Remaining Life

9 unchanged sentences

Total other intangible assets

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:

The aggregate amortization expense was $ 1.5 million for the nine months ended September 30, 2022 and $ 353 thousand for the nine months ended September 30, 2021.

At September 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 June 30, 2022 and December 31, 2021.

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

September 30,

(Dollars in thousands)

7 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 $ 387 thousand at June 30, 2022.

The debt balance of $ 24.6 million is presented net of unamortized issuance costs of $ 357 thousand at September 30, 2022.

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

5 unchanged sentences

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.

The recorded balance was $ 18.4 million at September 30, 2022 and $ 18.2 million December 31, 2021, which included fair value adjustments of $ 2.2 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.

As of September 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 June 30, 2022 and December 31, 2021.

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

(Dollars in thousands)

June 30, 2022

September 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 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.

The 2016 Equity Plan originally reserved 750,000 shares of common stock for grant, and 499,870 shares remained available for grant at September 30, 2022.

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

For Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(Dollars in thousands)

Stock-based compensation expense

Excess tax benefits related to stock-based compensation

Excess tax benefits (deficiencies) related to stock-based compensation

September 30,

(Dollars in thousands)

1 unchanged sentence

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 six months ended June 30, 2022.

Six Months Ended June 30, 2022

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

Nine Months Ended September 30, 2022

Weighted Average

1 unchanged sentence

Nonvested at end of period

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.

The fair value of restricted stock awards that vested during the first nine months of 2022 and 2021 was $ 505 thousand and $ 268 thousand, respectively.

There were no stock options granted during the nine months ended September 30, 2022 and September 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.

7 unchanged sentences

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 June 30, 2022 and December 31, 2021.

June 30, 2022

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

September 30, 2022

December 31, 2021

2 unchanged sentences

Asset - TBA securities

Liability - IRLCs

Liability - TBA securities

1 unchanged sentence

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 component of accumulated other comprehensive income (loss) for the six months ended June 30, 2022 and 2021.

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

gains (losses) on

3 unchanged sentences

Other comprehensive (loss)

Balance, June 30, 2022

Balance, September 30, 2022

Balance, December 31, 2020

Other comprehensive (loss)

Balance, June 30, 2021

Reclassification of (gain) recognized

Balance, September 30, 2021

Note 14 – Fair Value Measurements

38 unchanged sentences

Unobservable Input

June 30, 2022

September 30, 2022

Market Approach

Weighted average prepayment speed (PSA) (2)

IRLCs - net asset

IRLCs - net liability

Market Approach

7 unchanged sentences

Weighted average prepayment speed (PSA) (2)

IRLCs - net asset

IRLCs - asset

Market Approach

3 unchanged sentences

(2) PSA = Public Securities Association Standard Prepayment Model

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

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

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

(Dollars in thousands)

June 30, 2022

September 30, 2022

Beginning balance

2 unchanged sentences

Ending balance

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

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

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

(Dollars in thousands)

June 30, 2022

September 30, 2022

Beginning balance

13 unchanged sentences

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 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.

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

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

(Dollars in thousands)

June 30, 2022

September 30, 2022

Securities available for sale:

5 unchanged sentences

Total assets at fair value

TBA securities

Total liabilities at fair value

25 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 June 30, 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 September 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

June 30, 2022

September 30, 2022

Nonrecurring measurements:

28 unchanged sentences

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

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

September 30, 2022

December 31, 2021

20 unchanged sentences

TBA Securities

Level 3 inputs

Note 15 – Commitments and Contingencies

5 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 June 30, 2022 and December 31, 2021.

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

(Dollars in thousands)

June 30, 2022

September 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.

4 unchanged sentences

The Company may be deemed to be aiding and abetting illegal activities through the services that it provides to these customers.

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.

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 Federal 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 June 30, 2022, the Company had not accrued an amount for the potential impact of any such actions.

As of September 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

● Deposit and loan balances at September 30, 2022 were approximately $ 24.2 million, or 0.8 % of total deposits, and $ 43.6 million, or 1.8 % of total gross loans, respectively.

● Interest and noninterest income for the nine months ended September 30, 2022, were approximately $ 1.9 million and $ 1.6 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.

5 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 and six months ended June 30, 2022.

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

(Dollars in thousands)

Mortgage Banking

For the Three Months Ended June 30, 2022

For the Three Months Ended September 30, 2022

Interest Income

8 unchanged sentences

Net income (loss)

Total assets, June 30, 2022

Total assets, September 30, 2022

(Dollars in thousands)

Mortgage Banking

For the Six Months Ended June 30, 2022

For the Nine Months Ended September 30, 2022

Interest Income

7 unchanged sentences

Income tax expense

Total assets, June 30, 2022

Total assets, September 30, 2022

Note 17 – Revenue Recognition

21 unchanged sentences

All contract issuance costs are expensed as incurred.

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

We had no contract assets or liabilities at September 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, 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.

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

For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(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 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.

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

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