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Loans and Allowance for Credit Losses
 12 Months Ended
Dec. 31, 2023
Loans and Leases Receivable Disclosure [Abstract]  
LOANS AND ALLOWANCE FOR CREDIT LOSSES LOANS AND ALLOWANCE FOR CREDIT LOSSES
On January 1, 2023, the Company adopted ASC 326. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables. For further discussion on the most significant accounting policies that the Company follows see Note 1 – Summary of Significant Accounting Policies. All loan information presented as of December 31, 2023 is in accordance with ASC 326. All loan information presented as of December 31, 2022, or a prior date is presented in accordance with previously applicable GAAP.
The Company makes residential mortgage, commercial, and consumer loans to customers primarily in Anne Arundel County, Baltimore County, Charles County, Calvert County, St Mary’s County, Howard County, Kent County, Queen Anne’s County, Caroline County, Talbot County, Dorchester County and Worcester County in Maryland, Kent and Sussex County, Delaware and in Accomack County, Stafford County, Spotsylvania County, and Fredericksburg city in Virginia. The following table provides information about the principal classes of the loan portfolio at December 31, 2023 and December 31, 2022
(Dollars in thousands)December 31, 2023% of Total LoansDecember 31, 2022% of Total Loans
Construction$299,000 6.40 %$246,319 9.60 %
Residential real estate1,490,438 32.10 %810,497 31.70 %
Commercial real estate2,286,154 49.30 %1,065,409 41.70 %
Commercial229,939 5.00 %147,856 5.80 %
Consumer328,896 7.10 %286,026 11.20 %
Credit Cards6,583 0.10 %— — %
Total loans$4,641,010 100.00 %$2,556,107 100.00 %
Allowance for credit losses(57,351)(16,643)
Total loans, net$4,583,659 $2,539,464 
In the normal course of banking business, loans are made to officers and directors and their affiliated interests. These loans are made on substantially the same terms and conditions as those prevailing at the time for comparable transactions with persons who are not related to the Company and are not considered to involve more than the normal risk of collectability. As of December 31, 2023 and 2022, such loans outstanding, both direct and indirect (including guarantees), to directors, their associates and policy-making officers, totaled approximately $53.1 million and $24.1 million, respectively. During 2023 and 2022, loan additions were approximately $35.9 million and $7.7 million of which $27.4 million were due to the 2023 acquisition of TCFC and loan repayments and no longer reportable loans were approximately $1.3 million and $2.2 million, respectively.
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 $2.2 million and $1.4 million at December 31, 2023 and December 31, 2022. At December 31, 2023 and December 31, 2022, included in total loans were $297.9 million and $372.2 million in loans, acquired as part of the acquisition of Severn Bancorp, Inc. (“Severn”), effective October 31, 2021. These balances were presented net of the related discount which totaled $4.7 million and $6.7 million at December 31, 2023 and December 31, 2022, respectively. At December 31, 2023 included in total loans were $1.6 billion acquired as part of the acquisition of TCFC, effective July 1, 2023. This balance was presented net of the related discount which totaled $108.4 million at December 31, 2023.
The following purchased credit deteriorated loans were acquired in connection with the TCFC merger on July 1, 2023.
(Dollars in thousands)Par ValuePurchase DiscountAllowancePurchase Price
Construction$177 $(11)$(3)$163 
Residential real estate8,379 (1,307)(215)6,857 
Commercial real estate55,779 (6,950)(985)47,844 
Commercial2,317 (243)(278)1,796 
Consumer519 (38)(14)467 
Credit Card999 (222)(18)759 
Total$68,170 $(8,771)$(1,513)$57,886 
At December 31, 2023, the Bank was servicing $371.5 million in loans for the Federal National Mortgage Association and $113.2 million in loans for Freddie Mac.
The following tables provides information on nonaccrual loans by loan class as of December 31, 2023.
(Dollars in thousands)Non-accrual with no allowance for credit lossNon-accrual with an allowance for credit lossTotal Non-accruals
December 31, 2023
Nonaccrual loans:
Construction$626 $— $626 
Residential real estate5,865 480 6,345 
Commercial real estate4,364 — 4,364 
Commercial176 368 544 
Consumer216 689 905 
Total$11,247 $1,537 $12,784 
Interest income$399 $53 $452 
(Dollars in thousands)Non-accrual Delinquent LoansNon-accrual Current LoansTotal Non-accruals
December 31, 2023
Nonaccrual loans:
Construction$221 $405 $626 
Residential real estate4,137 2,208 6,345 
Commercial real estate1,215 3,149 4,364 
Commercial28 516 544 
Consumer903 2 905 
Total$6,504 $6,280 $12,784 
The overall quality of the Bank’s loan portfolio is primarily assessed using the Bank’s risk-grading scale. This review process is assisted by frequent internal reporting of loan production, loan quality, concentrations of credit, loan delinquencies and nonperforming and potential problem loans. Credit quality indicators are adjusted based on management’s judgment during the quarterly review process. Loans are graded on a scale of one to ten.
Ratings 1 thru 6 – Pass - Ratings 1 thru 6 have asset risks ranging from excellent-low to adequate. The specific rating assigned considers customer history of earnings, cash flows, liquidity, leverage, capitalization, consistency of debt service coverage, the nature and extent of customer relationship and other relevant specific business factors such as the stability of the industry or market area, changes to management, litigation or unexpected events that could have an impact on risks.
Rating 7 – Special Mention - These credits have potential weaknesses due to economic conditions, less than adequate earnings performance or other factors which require the lending officer to direct more than normal attention to the credit. Financing alternatives may be limited and/or command higher risk interest rates. Special mention loan relationships are reviewed at least quarterly.
Rating 8 – Substandard - Substandard assets are assets that are inadequately protected by the sound worth or paying capacity of the borrower or of the collateral pledged. Substandard loans are the first adversely classified loans on the Bank's watchlist. These assets have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard assets, does not have to exist in individual assets classified substandard. The loans may have a delinquent history or combination of weak collateral, weak guarantor or operating losses. When a loan is assigned to this category the Bank may estimate a specific reserve in the loan loss allowance analysis and/or place the loan on nonaccrual. These assets listed may include assets with histories of repossessions or some that are non-performing bankruptcies. These relationships will be reviewed at least quarterly.
Rating 9 – Doubtful - Doubtful assets have many of the same characteristics of substandard with the exception that the Bank has determined that loss is not only possible but is probable. The amount of loss is not discernible due to factors such as merger, acquisition, or liquidation; a capital injection; a pledge of additional collateral; the sale of assets; or alternative refinancing plans. Credits receiving a doubtful classification are required to be on nonaccrual. These relationships will be reviewed at least quarterly.
Rating 10 – Loss – Loss assets are uncollectible or of little value.
The following table provides information on loan risk ratings as of December 31, 2023 and gross write-offs during the twelve months ended December 31, 2023.
Term Loans by Origination YearRevolving loansRevolving converted to term loansTotal
(Dollars in thousands)Prior20192020202120222023
December 31, 2023
Construction
Pass$23,450 $15,721 $14,773 $34,325 $101,426 $100,620 $8,056 $— $298,371 
Substandard199 — — 12 418 — — — 629 
Total$23,649 $15,721 $14,773 $34,337 $101,844 $100,620 $8,056 $— $299,000 
Gross Charge-offs$— $— $— $— $— $— $— $— $— 
Residential real estate
Pass$317,528 $54,387 $105,269 $251,269 $392,378 $239,914 $119,777 $874 $1,481,396 
Special Mention154 256 564 503 — — 192 — 1,669 
Substandard6,000 — — — — — 1,373 — 7,373 
Total$323,682 $54,643 $105,833 $251,772 $392,378 $239,914 $121,342 $874 $1,490,438 
Gross Charge-offs$— $— $— $— $— $— $(119)$— $(119)
Commercial real estate
Pass$670,042 $190,753 $311,980 $426,750 $428,240 $210,915 $14,873 $2,138 $2,255,691 
Special Mention14,986 331 — 5,501 4,446 — 100 409 25,773 
Substandard2,119 2,029 — 542 — — — — 4,690 
Total$687,147 $193,113 $311,980 $432,793 $432,686 $210,915 $14,973 $2,547 $2,286,154 
Gross Charge-offs$(512)$— $(814)$— $— $— $— $— $(1,326)
Commercial
Pass$23,771 $12,946 $14,464 $41,621 $35,897 $27,901 $49,160 $22,284 $228,044 
Special Mention143 — — 425 — — 251 — 819 
Substandard160 69 — — 487 — 314 46 1,076 
Total$24,074 $13,015 $14,464 $42,046 $36,384 $27,901 $49,725 $22,330 $229,939 
Gross Charge-offs$(1)$— $— $— $— $— $(242)$(243)
Consumer
Pass$621 $961 $14,158 $76,629 $143,507 $91,415 $699 $— $327,990 
Special Mention— — — — — — 2 — 2 
Substandard— 38 5 80 780 — 1 — 904 
Total$621 $999 $14,163 $76,709 $144,287 $91,415 $702 $— $328,896 
Gross Charge-offs$(522)$— $(16)$(17)$(8)$(4)$(7)$— $(574)
Total
Pass$1,035,412 $274,768 $460,644 $830,594 $1,101,448 $670,765 $192,565 $25,296 $4,591,492 
Special Mention15,283 587 564 6,429 4,446 — 545 409 28,263 
Substandard8,478 2,136 5 634 1,685 — 1,688 46 14,672 
Total loans by risk category$1,059,173 $277,491 $461,213 $837,657 $1,107,579 $670,765 $194,798 $25,751 $4,634,427 
Total gross charge-offs$(1,035)$— $(830)$(17)$(8)$(4)$(126)$(242)$(2,262)
Term Loans by Origination YearRevolving loansRevolving converted to term loansTotal
(Dollars in thousands)Prior20192020202120222023
Credit Cards
Performing$— $— $— $— $— $— $6,583 $— $6,583 
Non-Performing— — — — — — — — — 
Total$— $— $— $— $— $— $6,583 $— $6,583 
Gross Charge-offs$— $— $— $— $— $— $(111)$— $(111)
Total loans evaluated by performing status$— $— $— $— $— $— $6,583 $— $6,583 
Total gross charge-offs$— $— $— $— $— $— $(111)$— $(111)
Total Recorded Investment$1,059,173 $277,491 $461,213 $837,657 $1,107,579 $670,765 $201,381 $25,751 $4,641,010 
The following tables provide information on the aging of loan portfolio as of December 31, 2023 and December 31, 2022.
Current Accrual Loans (1)
Current Non-accrual LoansTotal
(Dollars in thousands)30‑59 days past due60‑89 days past due90 days past due and still accruing90 days past due and not accruingTotal past due
December 31, 2023
Construction$1,919 $— $— $220 $2,139 $296,456 $405 $299,000 
Residential real estate2,962 1,198 108 2,668 6,936 1,481,294 2,208 1,490,438 
Commercial real estate16 — — 1,222 1,238 2,281,767 3,149 2,286,154 
Commercial48 — 488 28 564 228,859 516 229,939 
Consumer3,224 1,415 — 879 5,518 323,376 2 328,896 
Credit Cards35 36 142 — 213 6,370 — 6,583 
Total$8,204 $2,649 $738 $5,017 $16,608 $4,618,122 $6,280 $4,641,010 
Percent of total loans0.2 %0.1 %— %0.1 %0.4 %99.5 %0.1 %100.0 %
____________________________________
(1)Includes loans measured at fair value of $9.9 million at December 31, 2023.
AccruingNonaccrualPCITotal
(Dollars in thousands)
Current (1)
30‑59 days past due60‑89 days past dueGreater than 90 daysTotal past due
December 31, 2022
Construction$239,990 $4,343 $1,015 $24 $5,382 $297 $650 $246,319 
Residential real estate787,070 6,214 891 1,107 8,212 1,259 13,956 810,497 
Commercial real estate1,052,314 369 — 710 1,079 150 11,866 1,065,409 
Commercial147,511 15 — — 15 174 156 147,856 
Consumer285,750 223 11 — 234 28 14 286,026 
Total$2,512,635 $11,164 $1,917 $1,841 $14,922 $1,908 $26,642 $2,556,107 
Percent of total loans98.3 %0.4 %0.1 %0.1 %0.6 %0.1 %1.0 %100.0 %
____________________________________
(1)Includes loans measured at fair value of $8.4 million at December 31, 2022.
The following tables provide a summary of the activity in the ACL allocated by loan class for the twelve months ended December 31, 2023 and December 31, 2022. Allocation of a portion of the allowance to one loan class does not include its availability to absorb losses in other loan classes.
(Dollars in thousands)Beginning BalanceImpact of ASC326 Adoption
Merger Adjustments (2)
Charge-offsRecoveriesNet (charge-offs) recoveriesProvisionEnding Balance
For the year ended December 31, 2023
Construction$2,973 $1,222 $3 $— $15 $15 $(278)$3,935 
Residential real estate2,622 4,974 215 (119)44 (75)14,213 21,949 
Commercial real estate4,899 3,742 985 (1,326)— (1,326)12,675 20,975 
Commercial1,652 401 278 (243)11 (232)572 2,671 
Consumer (1)
4,497 452 14 (574)284 (290)2,928 7,601 
Credit Card— — 18 (111)— (111)313 220 
Total$16,643 $10,791 $1,513 $(2,373)$354 $(2,019)$30,423 $57,351 
____________________________________
(1)Gross charge-offs of consumer loans for the twelve months ended December 31, 2023 included $0.2 million of demand deposit overdrafts.
(2)Merger adjustments consist of gross-up for acquired PCD loans in the TCFC merger.
(Dollars in thousands)Beginning BalanceCharge-offsRecoveriesNet (charge-offs) recoveriesProvisionEnding Balance
For the year ended December 31, 2022
Allowance for credit losses:
Construction$2,454 — 13 13 506 $2,973 
Residential real estate2,858 (5)142 137 (373)2,622 
Commercial real estate4,598 (6)951 945 (644)4,899 
Commercial2,070 (546)227 (319)(99)1,652 
Consumer1,964 (31)29 (2)2,535 4,497 
Total$13,944 $(588)$1,362 $774 $1,925 $16,643 
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment.
December 31, 2023
(Dollars in thousands)Real Estate CollateralOther CollateralTotal
Construction$662 $— $662 
Residential real estate8,047 — 8,047 
Commercial real estate6,134 — 6,134 
Commercial— 1,106 1,106 
Consumer— 904 904 
Total$14,843 $2,010 $16,853 
The company did not identify any significant changes in the extent to which collateral secures its collateral dependent loans, whether in the form of general deterioration or from other factors during the period ended December 31, 2023.
Loan Modifications to Borrowers Experiencing Financial Difficulty
Modifications to borrowers experiencing financial difficulty may include interest rate reduction, principal or interest forgiveness, forbearance, term extensions, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. The following illustrates the most common loan modifications by loan classes offered by the Company that are required to be disclosed pursuant to the requirements of ASU 2022-02:
Loan ClassesModification Types
Commercial Real Estate
Term extension greater than three months.
Commercial
Term extension greater than three months.
The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty during twelve months ended December 31, 2023.
(dollars in thousands)Term ExtensionInterest Rate ReductionPayment Delay and Term ExtensionTerm Extension and Interest Rate ReductionPayment DelayTotal% of Total Portfolio Segment
December 31, 2023
Construction$— $— $— $— $— $— — %
Residential real estate— — — — — — — 
Residential rentals— — — — — — — 
Commercial real estate125 — — — — 125 0.01 
Commercial242 — — — — 242 0.11 
Consumer— — — — — — — 
Credit Cards— — — — — — — 
Total$367 $— $— $— $— $367 0.01 
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the twelve months ended December 31, 2023.
(dollars in thousands)Weighted-Average Months of Term Extension
December 31, 2023
Construction0
Residential real estate0
Residential rentals0
Commercial real estate12
Commercial12
Consumer0
Credit Cards0
During the twelve months ended December 31, 2023, there were no defaults on loan modifications made to borrowers experiencing financial difficulty.
The following table present the aging analysis of loan modifications made to borrowers experiencing financial difficulty as of December 31, 2023.
Accruing
(Dollars in thousands)30‑59 days past due60‑89 days past due90 days past due and still accruing90 days past due and not accruingTotal past dueCurrent AccrualCurrent Non-AccrualTotal Recorded Investment
December 31, 2023
Construction$— $— $— $— $— $— $— $— 
Residential real estate— — — — — — — — 
Residential rentals— — — — — — — — 
Commercial real estate— — — — — — 125 125 
Commercial— — — — — 153 89 242 
Consumer— — — — — — — — 
Credit Cards— — — — — — — — 
Total$—$—$—$—$—$153$214$367
Foreclosure Proceedings
There were $0.2 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of December 31, 2023 and $0.3 million as of December 31, 2022, respectively. There were no residential real estate properties included in the balance of OREO at December 31, 2023 and one residential real estate property totaling $18,000 at December 31, 2022.
Prior to the adoption of ASC 326
The following table provides information about all loans acquired from Severn as of December 31, 2022.
December 31, 2022
(Dollars in thousands)Acquired Loans - Purchased Credit ImpairedAcquired Loans - Purchased PerformingAcquired Loans - Total
Outstanding principal balance$29,620$349,262$378,882
Carrying amount
Construction$650$18,761$19,411
Residential real estate13,956116,118130,074
Commercial real estate11,866174,278186,144
Commercial15635,68735,843
Consumer14697711
Total loans$26,642$345,541$372,183
The following table presents a summary of the change in the accretable yield on PCI loans acquired from Severn.
(Dollars in thousands)For the Year Ended December 31, 2022
Accretable yield, beginning of period$5,367 
Accretion(1,603)
Reclassification of nonaccretable difference due to improvement in expected cash flows469 
Other changes, net506 
Accretable yield, end of period$4,739 
The following tables include impairment information relating to loans and the ACL on loans as of December 31, 2022.
(Dollars in thousands)Loans individually evaluated for impairment
Loans collectively evaluated for impairment (1)
Acquired loans - PCITotal
December 31, 2022
Construction$331 $236,901 $650 $237,882 
Residential real estate5,081 791,460 13,956 810,497 
Commercial real estate2,540 1,051,003 11,866 1,065,409 
Commercial174 147,526 156 147,856 
Consumer28 285,984 14 286,026 
Total$8,154 2,512,874 26,642 $2,547,670 
Allowance for credit losses allocated to:Loans individually evaluated for impairmentLoans collectively evaluated for impairmentTotal allowance
December 31, 2022
Construction$— $2,973 $2,973 
Residential real estate127 2,495 2,622 
Commercial real estate— 4,899 4,899 
Commercial— 1,652 1,652 
Consumer— 4,497 4,497 
Total$127 16,516 16,643 
____________________________________
(1)Excludes loans measured at fair value of $8.4 million at December 31, 2022.
The following tables provide information on impaired loans and any related allowance by loan class as of December 31, 2022. 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.
(Dollars in thousands)Unpaid principal balanceRecorded investment with no allowanceRecorded investment with an allowanceRelated allowanceYear-to-date average recorded investmentInterest income recognized
December 31, 2022
Impaired nonaccrual loans:
Construction$297 $297 $— $— $309 $— 
Residential real estate1,363 1,259 — — 1,661 — 
Commercial real estate159 150 — — 604 — 
Commercial 359 174 — — 227 — 
Consumer29 28 — — 43 — 
Total$2,207 $1,908 $— $— $2,844 $— 
Impaired accruing TDRs:
Construction$10 $10 $— $— $16 $1 
Residential real estate2,849 1,176 1,539 127 2,979 108 
Commercial real estate1,680 1,680 — — 2,095 56 
Commercial — — — — — — 
Consumer— — — — 5 — 
Total$4,539 $2,866 $1,539 $127 $5,095 $165 
Other impaired accruing loans:
Construction$24 $24 $— $— $215 $6 
Residential real estate1,107 1,107 — — 474 3 
Commercial real estate710 710 — — 553 30 
Commercial — — — — 51 1 
Consumer— — — — 15 — 
Total$1,841 $1,841 $— $— $1,308 $40 
Total impaired loans:
Construction$331 $331 $— $— $540 $7 
Residential real estate5,319 3,542 1,539 127 5,114 111 
Commercial real estate2,549 2,540 — — 3,252 86 
Commercial 359 174 — — 278 1 
Consumer29 28 — — 63 — 
Total$8,587 $6,615 $1,539 $127 $9,247 $205 
Management uses risk ratings as part of its monitoring of the credit quality in the Company’s loan portfolio. Loans that are identified as special mention, substandard or doubtful are adversely rated. These loans and the pass/watch loans are assigned higher qualitative factors than favorably rated loans in the calculation of the formula portion of the allowance for credit losses. At December 31, 2022, there were no nonaccrual loans classified as special mention or doubtful and $1.9 million of nonaccrual loans were classified as substandard.
The following tables provide information on loan risk ratings at December 31, 2022.
(Dollars in thousands)
Pass/Performing (1)
Pass/WatchSpecial MentionSubstandardDoubtfulPCITotal
December 31, 2022
Construction$231,160 $14,212 $— $297 $— $650 $246,319 
Residential real estate761,405 32,467 1,239 1,430 — 13,956 810,497 
Commercial real estate929,501 121,711 1,814 517 — 11,866 1,065,409 
Commercial131,084 15,958 484 174 — 156 147,856 
Consumer285,786 196 2 28 — 14 286,026 
Total$2,338,936 $184,544 $3,539 $2,446 $— $26,642 $2,556,107 
(1) Includes loans measured at fair value of $8.4 million on December 31, 2022.
The following tables provide a roll-forward for TDRs as of and for the years ended December 31, 2022.
(Dollars in thousands)1/1/2022
TDR Balance		New TDRsDisbursements (Payments)Charge-offsReclassifications/ Transfer In/ (Out)Payoffs12/31/2022
TDR Balance		Related Allowance
For the Year Ended December 31, 2022
Accruing TDRs
Construction$24 $— $(14)$— $— $— $10 $— 
Residential real estate2,836 — (100)— (20)(1)2,715 (127)
Commercial real estate2,807 — (180)— — (947)1,680 — 
Commercial — — — — — — — — 
Consumer— — — — — — — — 
Total$5,667 $— $(294)$— $(20)$(948)$4,405 $(127)
Nonaccrual TDRs
Construction$— $— $— $— $— $— $— $— 
Residential real estate— — (6)— 20 — 14 — 
Commercial real estate— — — — — — — — 
Commercial 216 — (46)— — — 170 — 
Consumer— — — — — — — — 
Total$216 $— $(52)$— $20 $— $184 $— 
Total$5,883 $— $(346)$— $— $(948)$4,589 $(127)
There were no TDRs which subsequently defaulted within 12 months of modification for the twelve months ended December 31, 2022. Generally, a loan is considered in default when principal or interest is past due 90 days or more, the loan is placed on nonaccrual, the loan is charged off, or there is a transfer to OREO or repossessed assets.