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Loans and Allowance for Credit Losses
 9 Months Ended
Sep. 30, 2023
Receivables [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 2 – Adoption of Accounting Standards and Note 1 of the Company’s 2022 Annual Report on Form 10-K. All loan information presented as of September 30, 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 and Spotsylvania County in Virginia. The following table provides information about the principal classes of the loan portfolio at September 30, 2023 and December 31, 2022.
(Dollars in thousands)September 30, 2023% of Total LoansDecember 31, 2022% of Total Loans
Construction$328,750 7.12 %$246,319 9.64 %
Residential real estate1,439,464 31.17 %810,497 31.71 %
Commercial real estate2,283,521 49.45 %1,065,409 41.68 %
Commercial229,474 4.97 %147,856 5.78 %
Consumer330,411 7.16 %286,026 11.19 %
Credit Cards6,099 0.13 %— — %
Total loans 4,617,719 100.00 %2,556,107 100.00 %
Allowance for credit losses on loans(57,051)(16,643)
Total loans, net$4,560,668 $2,539,464 
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 $2.0 million and $1.4 million at September 30, 2023 and December 31, 2022. At September 30, 2023 and December 31, 2022, included in total loans were $307.8 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 $4.9 million and $6.7 million at September 30, 2023 and December 31, 2022, respectively. At September 30, 2023 included in total loans were $1.7 billion acquired as part of the acquisition of TCFC, effective July 1, 2023. These balances were presented net of the related discount which totaled $109.8 million at September 30, 2023.
The following purchased credit deteriorated loans were acquired in connection with the TCFC merger on the Acquisition Date.
(Dollars in Thousands)Par ValuePurchase DiscountAllowancePurchase Price
Construction$177 $(11)$(3)$163 
Residential real estate8,379 (1,157)(215)7,007 
Commercial real estate55,779 (6,864)(985)47,930 
Commercial2,137 (59)(278)1,800 
Consumer519 (35)(14)470 
Credit Card999 (144)(18)837 
Total$67,990 $(8,270)$(1,513)$58,207 
At September 30, 2023, the Bank was servicing $361.8 million in loans for the Federal National Mortgage Association and $100.8 million in loans for Freddie Mac.
The following table provides information on nonaccrual loans by loan class as of September 30, 2023.
(Dollars in thousands)Non-accrual with no allowance for credit lossNon-accrual with an allowance for credit lossTotal Non-accruals
September 30, 2023
Nonaccrual loans:
Construction$147 $— $147 
Residential real estate3,603 299 3,902 
Commercial real estate3,866 — 3,866 
Commercial 174 671 845 
Consumer203 19 222 
Total$7,993 $989 $8,982 
Interest income $— $— $— 
(Dollars in thousands)Non-accrual Delinquent LoansNon-accrual Current LoansTotal Non-accruals
September 30, 2023
Nonaccrual loans:
Construction$147 $— $147 
Residential real estate2,258 1,644 3,902 
Commercial real estate749 3,117 3,866 
Commercial1 844 845 
Consumer221 1 222 
Total$3,376 $5,606 $8,982 
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 September 30, 2023 and gross write-offs during the nine months ended September 30, 2023.
Term Loans by Origination YearRevolving LoansRevolving Converted to Term LoansTotal
(Dollars in thousands)Prior20192020202120222023
September 30, 2023
Construction
Pass$27,243 $14,732 $29,531 $40,493 $135,418 $72,852 $8,331 $— $328,600 
Substandard138 — — 12 — — — — 150 
Total$27,381 $14,732 $29,531 $40,505 $135,418 $72,852 $8,331 $— $328,750 
Gross Charge-offs$— $— $— $— $— $— $— $— $— 
Residential real estate
Pass$330,183 $55,088 $107,259 $248,445 $355,912 $218,563 $116,868 $876 $1,433,194 
Special Mention41 259 — — — — 192 — 492 
Substandard5,320 — — — — — 458 — 5,778 
Total$335,544 $55,347 $107,259 $248,445 $355,912 $218,563 $117,518 $876 $1,439,464 
Gross Charge-offs$— $— $— $— $— $— $— $— $— 
Commercial real estate
Pass$683,984 $192,789 $302,597 $430,908 $430,214 $195,260 $16,420 $2,202 $2,254,374 
Special Mention13,931 141 — 6,184 4,475 — — 426 25,157 
Substandard1,498 1,937 — 555 — — — — 3,990 
Total$699,413 $194,867 $302,597 $437,647 $434,689 $195,260 $16,420 $2,628 $2,283,521 
Gross Charge-offs$(513)$— $(814)$— $— $— $— $— $(1,327)
Commercial
Pass$25,796 $14,254 $15,332 $43,209 $40,337 $24,582 $62,679 $1,641 $227,830 
Special Mention137 — — 440 — — 75 243 895 
Substandard1 186 — — 23 — 493 46 749 
Total$25,934 $14,440 $15,332 $43,649 $40,360 $24,582 $63,247 $1,930 $229,474 
Gross Charge-offs$— $— $— $— $— $— $— $— $— 
Consumer
Pass$682 $1,258 $15,574 $83,768 $150,126 $78,067 $713 $— $330,188 
Special Mention— — — — — — 1 — 1 
Substandard— 26 — 117 78 — 1 — 222 
Total$682 $1,284 $15,574 $83,885 $150,204 $78,067 $715 $— $330,411 
Gross Charge-offs$(45)$— $(16)$(3)$(1)$(328)$(1)$(5)$(399)
Total
Pass$1,067,888 $278,121 $470,293 $846,823 $1,112,007 $589,324 $205,011 $4,719 $4,574,186 
Special Mention14,109 400 — 6,624 4,475 — 268 669 26,545 
Substandard6,957 2,149 — 684 101 — 952 46 10,889 
Total loans by risk category$1,088,954 $280,670 $470,293 $854,131 $1,116,583 $589,324 $206,231 $5,434 $4,611,620 
Total gross charge-offs$(558)$— $(830)$(3)$(1)$(328)$(1)$(5)$(1,726)
Term Loans by Origination YearRevolving LoansRevolving Converted to Term LoansTotal
(Dollars in thousands)Prior20192020202120222023
September 30, 2023
Credit Cards
Performing$— $— $— $— $— $— $6,099 $— $6,099 
Non-Performing— — — — — — — — — 
Total$— $— $— $— $— $— $6,099 $— $6,099 
Gross Charge-offs$— $— $— $— $— $— $(60)$— $(60)
Total loans evaluated by performing status$— $— $— $— $— $— $6,099 $— $6,099 
Total gross charge-offs$— $— $— $— $— $— $(60)$— $(60)
Total Recorded Investment$1,088,954 $280,670 $470,293 $854,131 $1,116,583 $589,324 $212,330 $5,434 $4,617,719 
The following tables provide information on the aging of the loan portfolio as of September 30, 2023 and December 31, 2022.
(Dollars in thousands)
30‑59 days past due
60‑89 days past due
90 days past due and still accruing90 days past due and not accruingTotal
past due		Current Non-accrual
Current Accrual Loans (1)
Total
September 30, 2023
Construction$1,035 $— $65 $147 $1,247 $— $327,503 $328,750 
Residential real estate3,036 250 871 1,669 5,826 1,644 1,431,994 1,439,464 
Commercial real estate785 445 — 749 1,979 3,117 2,278,425 2,283,521 
Commercial103 — — — 103 844 228,527 229,474 
Consumer593 2,744 1,160 214 4,711 1 325,699 330,411 
Credit Cards61 41 53 — 155 — 5,944 6,099 
Total$5,613 $3,480 $2,149 $2,779 $14,021 $5,606 $4,598,092 $4,617,719 
Percent of total loans0.1 %0.1 %— %— %0.3 %0.1 %99.6 %100.0 %
(1)Includes loans measured at fair value of $9.3 million at September 30, 2023.
Accruing 
(Dollars in thousands)
Current (1)
30‑59 days past due
60‑89 days past due
90 days or more past due
Total
past due		Non-accrualPCITotal
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 three and nine months ended September 30, 2023 and September 30, 2022. Allocation of a portion of the allowance to one loan class does not preclude its availability to absorb losses in other loan classes.
(Dollars in thousands)Beginning Balance
Merger Adjustments (2)
Charge-offsRecoveriesNet (charge-offs) recoveriesProvisionsEnding Balance
For three months ended September 30, 2023
Construction$2,386 $3 $— $3 $3 $1,439 $3,831 
Residential real estate9,151 215 — 3 3 9,806 19,175 
Commercial real estate10,267 985 (1,327)— (1,327)12,875 22,800 
Commercial1,956 278 — 2 2 2,101 4,337 
Consumer (1)
5,254 14 (115)45 (70)1,658 6,856 
Credit Card— 18 (60)— (60)94 52 
Total$29,014 $1,513 $(1,502)$53 $(1,449)$27,973 $57,051 
(1)Gross charge-offs of consumer loans for the three months ended September 30, 2023 included $95,000 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) recoveriesProvisionsEnding Balance
For three months ended September 30, 2022
Construction$3,345 $— $2 $2 $(315)$3,032 
Residential real estate2,778 — 12 12 218 3,008 
Commercial real estate4,441 — 243 243 325 5,009 
Commercial1,681 (202)60 (142)368 1,907 
Consumer3,238 — 4 4 79 3,321 
Total$15,483 $(202)$321 $119 $675 $16,277 
(Dollars in thousands)Beginning BalanceImpact of ASC326 Adoption
Merger Adjustments (2)
Charge-offsRecoveriesNet (charge-offs) recoveriesProvisionsEnding Balance
For nine months ended September 30, 2023
Construction$2,973 $1,222 $3 $— $10 $10 $(377)$3,831 
Residential real estate2,622 4,974 215 — 37 37 11,327 19,175 
Commercial real estate4,899 3,742 985 (1,327)— (1,327)14,501 22,800 
Commercial1,652 401 278 — 10 10 1,996 4,337 
Consumer (1)
4,497 452 14 (399)210 (189)2,082 6,856 
Credit Card— — 18 (60)— (60)94 52 
Total$16,643 $10,791 $1,513 $(1,786)$267 $(1,519)$29,623 $57,051 
(1)Gross charge-offs of consumer loans for the nine months ended September 30, 2023 included $0.4 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) recoveriesProvisionsEnding Balance
For nine months ended September 30, 2022
Construction$2,454 $— $9 $9 $569 $3,032 
Residential real estate2,858 (4)131 127 23 3,008 
Commercial real estate4,598 (6)948 942 (531)5,009 
Commercial2,070 (416)200 (216)53 1,907 
Consumer1,964 (31)27 (4)1,361 3,321 
Total$13,944 $(457)$1,315 $858 $1,475 $16,277 
There were no modifications to loans for borrowers experiencing financial difficulty (“BEFD”) during the three and nine months ended September 30, 2023.
The following table presents the amortized cost basis of collateral-dependent loans by loan portfolio segment.
September 30, 2023
(Dollars in thousands)Real Estate CollateralOther CollateralTotal
Construction$250 $— $250 
Residential real estate7,620 — 7,620 
Commercial real estate5,411 — 5,411 
Commercial— 1,100 1,100 
Consumer— 1,381 1,381 
Total$13,281 $2,481 $15,762 
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 September 30, 2023
Foreclosure Proceedings
There were $0.7 million of consumer mortgage loans collateralized by residential real estate property that were in the process of foreclosure as of September 30, 2023 and $0.3 million as of December 31, 2022, respectively. There were no residential real estate properties included in the balance of other real estate owned (“OREO”) at September 30, 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 estate13,956 116,118 130,074 
Commercial real estate11,866 174,278 186,144 
Commercial156 35,687 35,843 
Consumer14 697 711 
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)Nine Months Ended September 30, 2022
Accretable yield, beginning of period$5,367 
Accretion(1,195)
Reclassification of nonaccretable difference due to improvement in expected cash flows399 
Other changes, net287 
Accretable yield, end of period$4,858 
The following tables include impairment information relating to loans and the ACL on loans as of December 31, 2022.
(Dollars in thousands)Ending balance:
Individually evaluated for impairment		Ending balance:
Collectively evaluated for impairment		Acquired Loans- PCI
Total (1)
December 31, 2022
Loan Receivables:
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 
Consumer28285,984 14286,026 
Total$8,154 $2,512,874 $26,642 $2,547,670 
Allowance for credit losses on loans:Allocated to loans individually evaluated for impairmentAllocated to loans collectively evaluated for impairmentTotal
Construction$— $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.
Unpaid principal balanceRecorded investment with no allowanceRecorded investment with an allowanceRelated allowanceSeptember 30, 2022
(Dollars in thousands)Quarter-to-date average recorded investmentYear-to-date average recorded investmentInterest income recognized
December 31, 2022
Impaired nonaccrual loans:
Construction$297 $297 $— $— $297 $314 $— 
Residential real estate1,363 1,259 — — 1,639 1,534 — 
Commercial real estate159 150 — — 466 704 — 
Commercial 359 174 — — 197 242 — 
Consumer29 28 — — 40 48 — 
Total$2,207 $1,908 $— $— $2,639 $2,842 $— 
Impaired accruing TDRs:
Construction$10 $10 $— $— $14 $18 $1 
Residential real estate2,849 1,176 1,539 127 2,750 3,064 83 
Commercial real estate1,680 1,680 — — 1,830 2,231 48 
Commercial — — — — — — — 
Consumer— — — — — 6 — 
Total$4,539 $2,866 $1,539 $127 $4,594 $5,319 $132 
Other impaired accruing loans:
Construction$24 $24 $— $— $304 $190 $6 
Residential real estate1,107 1,107 — — 745 259 3 
Commercial real estate710 710 — — 537 493 7 
Commercial — — — — 13 7 1 
Consumer— — — — — 13 — 
Total$1,841 $1,841 $— $— $1,599 $962 $17 
Total impaired loans:
Construction$331 $331 $— $— $615 $522 $7 
Residential real estate5,319 3,542 1,539 127 5,134 4,857 86 
Commercial real estate2,549 2,540 — — 2,833 3,428 55 
Commercial 359 174 — — 210 249 1 
Consumer29 28 — — 40 67 — 
Total$8,587 $6,615 $1,539 $127 $8,832 $9,123 $149 
There were no loans modified and considered to be TDRs during the three and nine months ended September 30, 2022. 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 December 31, 2022.
There were no TDRs which subsequently defaulted within 12 months of modification for the three and nine months ended September 30, 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 other real estate owned (OREO) or repossessed assets.
The following tables provide information on loan risk ratings as of December 31, 2022.
(Dollars in thousands)
Pass/Performing (1)
PassSpecial 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 at December 31, 2022.