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Business Combination | 9 Months Ended
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Sep. 30, 2022
Business Combination [Abstract] |
Business Combination | Note 2 – Business Combination On October 31, 2021 (“Acquisition Date”), the Company completed the acquisition of Severn Bancorp, Inc. (“Severn”), a Maryland charted commercial bank, in accordance with the definitive agreement that was entered into on March 3, 2021, by and among the Company and Severn. The Company acquired Severn to access deposits and deploy excess capital into a high growth market, while also enhancing scale to drive efficiency and profitability. Additionally, this transaction creates a competitive position in the Columbia/Baltimore/Towson MSA, while filling in our current market footprint. In connection with the completion of the merger, former Severn shareholders received 0.6207 shares of Shore common stock and $1.59 in cash for each share of Severn common stock. Based on the $18.48 per share closing price of the Company’s common stock on October 29, 2021 and including the fair value of options converted or cashed-out, the total transaction value was approximately $169.8 million. Upon completion of the acquisition, Shore shareholders owned approximately 59.6% of the combined company, and former Severn shareholders owned approximately 40.4%. ​ As of October 31, 2021, Severn, headquartered in Annapolis, MD, had more than $1.1 billion in assets and operated 7 full-service community banking offices throughout Anne Arundel County, Maryland. ​ 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. The Company will continue to keep the measurement of goodwill open for any additional adjustments to the fair value of certain accounts, for example loans, that may arise during the Company’s final review procedures of any updated information. If considered necessary, any subsequent adjustments to the fair value of assets acquired and liabilities assumed, identifiable intangible assets, or other purchase accounting adjustments will result in adjustments to goodwill within the first 12 months following the Acquisition Date. The goodwill is not expected to be deductible for tax purposes. ​ As a result of the integration of the operations of Severn, it is not practicable to determine revenue or net income included in the Company’s consolidated operating results relating to Severn since the date of acquisition, as Severn’s results cannot be separately identified. Comparative pro-forma financial statements for the prior year period were not presented, as adjustments to those statements would not be indicative of what would have occurred had the acquisition taken place on January 1, 2021. In particular, adjustments that would have been necessary to be made to record the loans at fair value, the provision of credit losses or the core deposit intangible would not be practical to estimate. ​ The consideration paid for Severn’s common equity and outstanding stock options and the provisional fair values of acquired identifiable assets and assumed identifiable liabilities were as follows: ​
​ | ​ | ​ | ​
(In thousands, except per share data) | ​ | ​ | ​
Purchase Price Consideration: | ​ | ​ | ​
Fair value of common shares issued (8,053,088 shares) based on Shore Bancshares, Inc. share price of $18.48 | ​ | $ | 148,821
Cash consideration | ​ | ​ | 20,631
Cash paid for cash-out Severn stock options | ​ | ​ | 310
Cash for fractional shares | ​ | ​ | 3
Total purchase price | ​ | $ | 169,765
​ | ​ | ​ | ​
Identifiable assets: | ​ | ​ | ​
Cash and cash equivalents | ​ | $ | 326,725
Total securities | ​ | ​ | 146,292
Loans held for sale | ​ | ​ | 9,613
Loans, net (1) | ​ | ​ | 584,776
Premises and equipment, net | ​ | ​ | 24,768
Other real estate owned | ​ | ​ | 329
Core deposit intangible asset | ​ | ​ | 6,550
Other assets (1) | ​ | ​ | 20,304
Total identifiable assets | ​ | $ | 1,119,357
​ | ​ | ​ | ​
Identifiable liabilities: | ​ | ​ | ​
Deposits | ​ | $ | 955,288
Total debt | ​ | ​ | 28,341
Other liabilities | ​ | ​ | 11,727
Total identifiable liabilities | ​ | $ | 995,356
Provisional fair value of net assets acquired including identifiable intangible assets | ​ | ​ | 124,001
Provisional resulting goodwill (1) | ​ | $ | 45,764
(1) | Includes the effect of measurement period adjustments recorded in the first quarter of 2022 and reconciled in the table below.
​ The following table details the changes in fair value of net assets acquired and liabilities assumed from the amounts reported for the year ended December 31, 2021 (dollars in thousands).
​ | ​ | ​ | ​
Goodwill at December 31, 2021 | ​ | $ | 45,904
Effect of adjustments to: | ​ | ​ | ​
Loans, net | ​ | ​ | (192)
Other assets | ​ | ​ | 52
Goodwill at September 30, 2022 | ​ | $ | 45,764
​ 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 purchased credit-impaired (PCI) loans as of the acquisition date. ​
​ | ​ | ​ | ​
Contractually required payments receivable | ​ | $ | 46,833
Nonaccretable difference | ​ | ​ | (3,364)
Cash flows expected to be collected | ​ | ​ | 43,469
Accretable yield | ​ | ​ | (5,667)
Fair value | ​ | $ | 37,802
​ The Company recorded all loans acquired at the estimated fair value on the acquisition date with no carryover of the related allowance for loan losses. The Company determined the net discounted value of cash flows on gross loans totaling $593.3 million, including 1,306 performing loans and 162 PCI loans. The valuation took into consideration the loans’ underlying characteristics, including account types, remaining terms, annual interest rates, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan-to-loan value ratios, loss exposures, and remaining balances. These performing loans were segregated into pools based on loan and payment type. The effect of the valuation process was a total net discount of $8.7 million at acquisition.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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