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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________________________________________
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2024
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number: 0-22345
Shore_Bancshares_Logo.jpg
SHORE BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Maryland52-1974638
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
18 E. Dover Street, Easton, Maryland
21601
(Address of Principal Executive Offices)(Zip Code)
(410) 763-7800
Registrant’s Telephone Number, Including Area Code
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockSHBINASDAQ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filerx
Non-accelerated fileroSmaller reporting company
x
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
The number of shares outstanding of the registrant’s common stock as of May 3, 2024 was 33,210,522.


INDEX
Table of ContentsPage
Consolidated Balance Sheets at March 31, 2024 (unaudited) and December 31, 2023
2

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
SHORE BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)March 31, 2024December 31, 2023
ASSETS(Unaudited) 
Cash and due from banks$43,079 $63,172 
Interest-bearing deposits with other banks 71,481 309,241 
Cash and cash equivalents114,560 372,413 
Investment securities:  
Available-for-sale, at fair value (amortized cost of $190,583 (2024) and $120,832 (2023))
179,496 110,521 
Held to maturity, net of allowance for credit losses of $116 (2024) and $94 (2023) (fair value of $444,258 (2024) and $457,830 (2023))
503,822 513,188 
Equity securities, at fair value5,681 5,703 
Restricted securities, at cost17,863 17,900 
Loans held for sale, at fair value13,767 8,782 
Loans held for investment ($9,684 (2024) and $9,944 (2023), at fair value)
4,648,725 4,641,010 
Less: allowance for credit losses(57,336)(57,351)
Loans, net4,591,389 4,583,659 
Premises and equipment, net83,084 82,386 
Goodwill63,266 63,266 
Other intangible assets, net45,515 48,090 
Other real estate owned, net179 179 
Repossessed properties1,845  
Mortgage servicing rights, at fair value5,821 5,926 
Right-of-use assets12,153 12,487 
Cash surrender value on life insurance102,321 101,704 
Accrued interest receivable19,541 19,217 
Deferred income taxes38,978 40,707 
Other assets26,423 24,790 
TOTAL ASSETS$5,825,704 $6,010,918 
LIABILITIES
Deposits:
Noninterest-bearing$1,200,680 $1,258,037 
Interest-bearing3,983,599 4,128,083 
Total deposits5,184,279 5,386,120 
Guaranteed preferred beneficial interest in junior subordinated debentures ("TRUPS"), net29,237 29,158 
Subordinated debt, net43,322 43,139 
Total borrowings72,559 72,297 
Lease liabilities12,552 12,857 
Other liabilities41,086 28,509 
TOTAL LIABILITIES5,310,476 5,499,783 
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; shares authorized - 50,000,000; shares issued and outstanding - 33,210,522 (2024) and 33,161,532 (2023)
332 332 
Additional paid in capital356,464 356,007 
Retained earnings166,490 162,290 
Accumulated other comprehensive loss(8,058)(7,494)
TOTAL STOCKHOLDERS' EQUITY515,228 511,135 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY$5,825,704 $6,010,918 
See accompanying notes to Consolidated Financial Statements.
3

SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
For Three Months Ended March 31,
(In thousands, except per share data)20242023
INTEREST INCOME
Interest and fees on loans$65,754 $30,828 
Interest and dividends on taxable investment securities4,419 4,064 
Interest and dividends on tax-exempt investment securities6 7 
Interest on deposits with other banks960 163 
Total interest income71,139 35,062 
INTEREST EXPENSE
Interest on deposits28,497 7,281 
Interest on short-term borrowings56 1,361 
Interest on long-term borrowings1,451 756 
Total interest expense30,004 9,398 
NET INTEREST INCOME41,135 25,664 
Provision for credit losses407 1,213 
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES40,728 24,451 
NONINTEREST INCOME
Service charges on deposit accounts1,507 1,213 
Trust and investment fee income734 432 
Interchange credits1,587 1,212 
Mortgage-banking revenue801 977 
Title Company revenue78 137 
Other noninterest income1,860 1,363 
Total noninterest income6,567 5,334 
NONINTEREST EXPENSE
Salaries and wages11,852 8,684 
Employee benefits4,097 2,921 
Occupancy expense2,416 1,619 
Furniture and equipment expense904 534 
Data processing2,867 1,798 
Directors' fees295 250 
Amortization of other intangible assets2,576 441 
FDIC insurance premium expense1,150 371 
Other real estate owned expenses, net (1)
Legal and professional fees1,599 750 
Fraud losses (1)
4,502 67 
Merger-related expenses 691 
Other noninterest expenses4,440 2,768 
Total noninterest expense36,698 20,893 
Income before income taxes10,597 8,892 
Income tax expense2,413 2,435 
NET INCOME$8,184 $6,457 
Basic and diluted net income per common share$0.25 $0.32 
Dividends paid per common share$0.12 $0.12 
____________________________________
(1)Fraud losses includes $4.3 million of credit card fraud losses for the quarter ended March 31, 2024.
See accompanying notes to Consolidated Financial Statements.
4

SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For Three Months Ended March 31,
(In thousands)20242023
Net income$8,184 $6,457 
Other comprehensive income (loss):
Investment securities:
Unrealized holding gains (losses) on available-for-sale-securities(776)1,183 
Tax effect212 (323)
Total other comprehensive income (loss)(564)860 
Comprehensive income$7,620 $7,317 
See accompanying notes to Consolidated Financial Statements.
5

SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
For the Three Months Ended March 31, 2024 and 2023
(In thousands)Common StockAdditional Paid in CapitalRetained Earnings
Accumulated Other Comprehensive Loss
Total Stockholders’ Equity
Balances, January 1, 2024$332 $356,007 $162,290 $(7,494)$511,135 
Net income— — 8,184 — 8,184 
Other comprehensive loss— — — (564)(564)
Common shares issued for employee stock purchase plan— 103 — — 103 
Stock-based compensation— 354 — — 354 
Cash dividends declared— — (3,984)— (3,984)
Balances, March 31, 2024$332 $356,464 $166,490 $(8,058)$515,228 
6

SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited) - Continued
(In thousands)Common StockAdditional Paid in CapitalRetained EarningsAccumulated Other Comprehensive (Loss) IncomeTotal Stockholders’ Equity
Balances, January 1, 2023$199 $201,494 $171,613 $(9,021)$364,285 
Cumulative effect adjustment due to the adoption of ASC 326, net of tax— — (7,818)— (7,818)
Net Income— — 6,457 — 6,457 
Other comprehensive income— — — 860 860 
Common shares issued for employee stock purchase plan— 87 — — 87 
Stock-based compensation— 155 — — 155 
Cash dividends declared— — (2,388)— (2,388)
Balances, March 31, 2023$199 $201,736 $167,864 $(8,161)$361,638 
See accompanying notes to Consolidated Financial Statements.
7

SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For Three Months Ended March 31,
(In thousands)20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income$8,184 $6,457 
Adjustments to reconcile net income to net cash provided by operating activities:
Net accretion of acquisition accounting estimates(3,753)(646)
Provision for credit losses407 1,213 
Depreciation and amortization4,099 1,383 
Net amortization of securities43 249 
Amortization of debt issuance costs31 31 
Gain on mortgage banking activities(820)(719)
Proceeds from sale of mortgage loans held for sale22,737 21,947 
Originations of loans held for sale(27,257)(20,710)
Stock-based compensation expense354 155 
Deferred income tax expense (benefit) 1,941 (126)
Loss on valuation adjustments on mortgage servicing rights223 82 
Valuation adjustments on premises transferred to held for sale 225 
Gain on sales and valuation adjustments on other real estate owned (3)
Fair value adjustments on loans held for investments, at fair value210 (195)
Fair value adjustment on equity securities61 (17)
Bank owned life insurance income(592)(364)
Net changes in:
Accrued interest receivable(324)1,291 
Other assets(1,508)(1,408)
Accrued interest payable(1,353)320 
Other liabilities(296)2,055 
Net cash provided by operating activities2,387 11,220 
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities and principal payments of investment securities available for sale3,849 3,175 
Proceeds from maturities and principal payments of investment securities held to maturity9,215 10,017 
Purchases of investment securities available for sale(59,431) 
Purchases of equity securities(39)(8)
Purchase of restricted securities(5,973)(11,421)
Net change in loans(5,984)(111,681)
Purchases of premises and equipment(1,773)(619)
Proceeds from sales of other real estate owned 21 
Redemption of restricted securities6,010 7,523 
Purchases of bank owned life insurance(25)(129)
Net cash (used in) investing activities$(54,151)$(103,122)
8

SHORE BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - Continued
For Three Months Ended March 31,
(In thousands)20242023
CASH FLOWS FROM FINANCING ACTIVITIES: 
Net changes in: 
Noninterest-bearing deposits$(57,357)$(53,336)
Interest-bearing deposits(144,851)38,249 
Short-term borrowings 91,500 
Common stock dividends paid(3,984)(2,388)
Issuance of common stock103 87 
Net cash (used in) provided by financing activities(206,089)74,112 
Net decrease in cash and cash equivalents(257,853)(17,790)
Cash and cash equivalents at beginning of period372,413 55,499 
Cash and cash equivalents at end of period$114,560 $37,709 
Supplemental cash flows information:
Interest paid$30,728 $12,711 
Income taxes paid$87 $215 
Recognition (remeasurement of) lease liabilities arising from right-of-use assets$71 $(5)
Transfers from loans to repossessed properties$1,845 $ 
Unrealized (losses) gains on securities available for sale$(776)$1,183 
Unsettled securities transaction$14,083 $ 
Transfer of premises to held for sale (included in other assets)$ $750 
See accompanying notes to Consolidated Financial Statements.
9

Shore Bancshares, Inc.
Notes to Consolidated Financial Statements
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
Note 1 – Basis of Presentation
The consolidated financial statements include the accounts of Shore Bancshares, Inc. and its subsidiaries with all significant intercompany transactions eliminated. The consolidated financial statements conform to accounting principles generally accepted in the United States of America (“GAAP”) and to prevailing practices within the banking industry. 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, 2024, the consolidated results of income and comprehensive income for the three months ended March 31, 2024 and 2023, changes in stockholders’ equity for the three months ended March 31, 2024 and 2023 and cash flows for the three months ended March 31, 2024 and 2023, have been included. All such adjustments were of a normal recurring nature. The amounts as of December 31, 2023 were derived from the 2023 audited financial statements. The results of operations for the three months ended March 31, 2024 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. on Form 10-K for the year ended December 31, 2023 ( the “2023 Annual Report”).. For purposes of comparability, certain immaterial reclassifications have been made to amounts previously reported to conform with the current period presentation.
When used in these notes, the term “the Company” refers to Shore Bancshares, Inc. and, unless the context requires otherwise, its consolidated subsidiaries, Shore United Bank, N.A. (the “Bank”) and Mid-Maryland Title Company, Inc. (the “Title Company”).
Recent Accounting Pronouncements
ASU Update 2023-09 – In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” The amendments in this ASU require an entity to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold, which is greater than five percent of the amount computed by multiplying pretax income by the entity’s applicable statutory rate, on an annual basis. Additionally, the amendments in this ASU require an entity to disclose the amount of income taxes paid (net of refunds received) disaggregated by federal, state, and foreign taxes and the amount of income taxes paid (net of refunds received) disaggregated by individual jurisdictions that are equal to or greater than five percent of total income taxes paid (net of refunds received). Lastly, the amendments in this ASU require an entity to disclose income (or loss) from continuing operations before income tax expense (or benefit) disaggregated between domestic and foreign and income tax expense (or benefit) from continuing operations disaggregated by federal, state, and foreign. This ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. The amendments should be applied on a prospective basis; however, retrospective application is permitted. The Company does not expect the adoption of ASU 2023-09 to have a material impact on its consolidated financial statements.
ASU Update 2023-07 – In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. This ASU requires disclosure of significant segment expenses that are regularly provided to the chief operating decision mark (CODM), an amount for other segment items by reportable segment and a description of its composition, all annual disclosures required by FASB ASU Topic 280 in interim periods as well, and the title and position of the CODM and how the CODM uses the reported measures. Additionally, this ASU requires that at least one of the reported segment profit and loss measures should be the measure that is most consistent with the measurement principles used in an entity’s consolidated financial statements. Lastly, this ASU requires public business entities with a single reportable segment to provide all disclosures required by these amendments in this ASU and all existing segment disclosures in Topic 280. This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoptions permitted. The amendments should be applied retrospectively. The Company does not expect the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.
ASU Update 2023-06 – In October 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-06, “Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” This ASU incorporates certain U.S. Securities and Exchange Commission (SEC) disclosure requirements into the FASB Accounting Standards Codification. The amendments in the ASU are expected to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. For entities subject to the SEC’s existing disclosure requirements and for entities required to file or furnish financial statements with or to the SEC in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. For all other entities, the amendments will be effective two years later. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the
10

amendments will be removed from the Codification and not become effective for any entity. The Company does not expect the adoption of ASU 2023-06 to have a material impact on its consolidated financial statements.
ASU Update 2023-05 – In August 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-05, “Business Combinations – Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement.” This ASU applies to the formation of entities that meet the definition of a joint venture (or a corporate joint venture) as defined in the FASB Accounting Standards Codification Master Glossary. While joint ventures are defined in the Master Glossary, there has been no specific guidance in the Codification that applies to the formation accounting by a joint venture in its separate financial statements. The amendments in the ASU require that a joint venture apply a new basis of accounting upon formation. As a result, a newly formed joint venture, upon formation, would initially measure its assets and liabilities at fair value (with exceptions to fair value measurement that are consistent with the business combinations guidance). This ASU is effective on a prospective basis for all joint ventures with a formation date on or after January 1, 2025. Early adoption of ASU No. 2023-05 is permitted in any interim or annual period in which financial statements have not yet been issued (or made available for issuance). A joint venture that elects to early adopt may apply ASU No. 2023-05 either prospectively or retrospectively. The Company does not expect the adoption of ASU 2023-05 to have a material impact on its consolidated financial statements.
ASU Update 2023-03 – In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718).” This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No. 120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X: Income or Loss Applicable to Common Stock. ASU 2023-03 is effective upon addition to the FASB Codification. The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.
11

Note 2 – Business Combinations
On July 1, 2023 (the “Acquisition Date”), the Company completed the acquisition of TCFC, a Maryland corporation, in accordance with the definitive agreement that was entered into on December 14, 2022, by and among the Company and TCFC. The primary reasons for the merger included: expansion of the branch network and commanding market share positions in attractive Maryland markets and a growing presence in Virginia and Delaware; attractive low-cost funding base; strong cultural alignment and a deep commitment to stockholders, customers, employees, and communities served by the Company and TCFC, meaningful value creation to shareholders; and increased trading liquidity for both companies and increased dividends for TCFC shareholders. In connection with the completion of the merger, former TCFC shareholders received 2.3287 shares of the Company’s common stock. The value of the total transaction consideration was approximately $153.6 million. The consideration included the issuance of 13,201,693 shares of the Company’s common stock, which had a value of $11.56 per share, which was the closing price of the Company’s common stock on June 30, 2023, the last trading day prior to the consummation of the acquisition. Also included in the total consideration were cash in lieu of any fractional shares, converted share-based payment awards, and debt of TCFC that was effectively settled upon closing.
The acquisition of TCFC 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 provisional amount of bargain purchase gain as of the Acquisition Date was approximately $8.8 million. The exchange ratio was determined at the time of announcement of the merger between the Company and TCFC in December of 2022 when the stock price of the Company was much higher than at the legal merger date. The decline in the Company’s stock price was the primary driver in recording a bargain purchase gain on this transaction. The decline in stock price for the Company was comparable to other financial institutions similar to the Company leading up to the merger due to bank failures in the first quarter of 2023 and increases to overnight borrowing rates by the Fed which resulted in continued pressure on net interest margins. The Company will continue to keep the measurement of bargain purchase gain 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 bargain purchase gain within the first 12 months following the Acquisition Date. The bargain purchase gain is not included as taxable income for tax purposes.
As a result of the integration of operations of TCFC, it is not practicable to determine revenue or net income included in the Company’s consolidated operating results relating to TCFC since the Acquisition Date, as TCFC’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, 2022. 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.
12

(Dollars in thousands)
Purchase Price Consideration:
Fair value of common shares issued (13,201,693 shares) based on Shore Bancshares, Inc. share price of $11.56
$152,612 
Effective settlement of pre-existing debt (1)
500 
Cash consideration (cash in lieu for fractional shares)5 
Fair value of converted restricted stock units (2)
475 
Total purchase price$153,592 
Identifiable assets:
Cash and cash equivalents$25,377 
Total securities454,468 
Loans, net 1,765,255 
Premises and equipment, net29,277 
Core deposit intangible, net48,648 
Other assets89,808 
Total identifiable assets$2,412,833 
Identifiable Liabilities
Deposits$2,131,141 
Total debt97,545 
Other liabilities21,739 
Total identifiable liabilities$2,250,425 
Provisional fair value of net assets acquired$162,408 
Provisional bargain purchase gain$(8,816)
____________________________________
(1)The Company held $500,000 in subordinated debt of TCFC. The debt was effectively settled.
(2)Represents the number of TCFC restricted stock units outstanding and the equity exchange ratio, further multiplied by the price per share of the Company’s common stock of $11.56 and the estimated ratio of the completed service period relative to the total service period of the underlying awards.
The acquired assets and assumed liabilities of TCFC were measured at fair value as of the Acquisition Date. Management made significant estimates and exercised significant judgement in accounting for the acquisition of TCFC. The following is a brief description of the valuation methodologies used to estimate the fair values of major categories of assets acquired and liabilities assumed. The Company utilized a valuation specialist to assist with the determination of fair values for certain acquired assets and assumed liabilities.
The Company recorded all loans acquired at the estimated fair value on the Acquisition Date with no carryover of the related allowance for credit losses. The Company determined the net discounted value of cash flows on gross loans totaling $1.9 billion, including 3,858 of Non-PCD loans and 323 PCD 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 and remaining balances. Valuations also considered default rates, loss severity estimates, and estimates related to expected prepayments over the contractual lives of the loans. The effect of the valuation process was a total net discount $120.9 million at the Acquisition Date.
The core deposit intangible was valued using an income approach focused on cost savings, which recognizes the cost savings represented by the expense of maintaining the core deposit base versus the cost of an alternative funding source. The valuation incorporates assumptions related to account retention, discount rates, deposit interest rates, deposit maintenance costs and alternative funding rates.
The fair value of premises acquired was based on recent third-party appraised values of the properties, with fair value adjustments made to both the buildings and any associated parcels of land. Acquired equipment was based on the remaining net book value of TCFC, which approximated fair value.
The fair value of noninterest bearing demand deposits, interest checking, money market and savings deposit accounts from TCFC were assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued at the present value of the certificates’ expected contractual payments discounted at market rates for certificates with similar terms.
The estimated fair value of the acquired portfolio of debt securities was based on quoted market prices and dealer quotes. Substantially all the acquired portfolio was sold following the acquisition.
The estimated fair value of short-term borrowings was determined to approximate their stated value. Subordinated debt and trust preferred debt were valued using a discounted cash flow approach incorporating a discount rate that considered market terms, maturities, and credit ratings.
13

Note 3 – Investment Securities
On January 1, 2023, the Company adopted ASC 326, which made changes to accounting for AFS debt securities whereby credit losses should be presented as an allowance, rather than as a write-down when management does not intend to sell and does not believe that it is more likely than not they will be required to sell prior to maturity. In addition, ASC 326 requires an ACL to be recorded on HTM debt securities measured at amortized cost. All securities information presented as of March 31, 2024 and as of December 31, 2023 are in accordance with ASC 326.
The following table summarizes the activity in the ACL on HTM securities.
(Dollars in thousands)Three Months Ended March 31, 2024Three Months Ended March 31, 2023
Balance, beginning of period$94 $ 
Other debt securities, provision for credit losses22 163 
Balance, end of period$116 $163 
A provision for credit losses of $22,000 and $0.2 million was recorded for the three months ended March 31, 2024 and March 31, 2023, respectively.
The following tables provide information on the amortized cost and estimated fair values of debt securities.
(Dollars in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Available-for-sale securities:
March 31, 2024
U.S. Treasury and government agencies$72,701 $8 $3,168 $69,541 
Mortgage-backed-residential111,780 20 8,174 103,626 
Other debt securities6,102 322 95 6,329 
Total$190,583 $350 $11,437 $179,496 
December 31, 2023
U.S. Treasury and government agencies$23,472 $5 $3,002 $20,475 
Mortgage-backed-residential91,280 5 7,258 84,027 
Other debt securities6,080 59 120 6,019 
Total$120,832 $69 $10,380 $110,521 
No AFS securities were sold during the three months ended March 31, 2024 and 2023.
(Dollars in thousands)Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair ValueAllowance for Credit Losses
Held-to-maturity securities:
March 31, 2024
U.S. Treasury and government agencies$143,215 $ $11,172 $132,043 $ 
Mortgage-backed-residential348,754  47,343 301,411  
States and political subdivisions1,469 44 24 1,489  
Other debt securities10,500  1,185 9,315 116 
Total$503,938 $44 $59,724 $444,258 $116 
December 31, 2023
U.S. Treasury and government agencies$143,442 $ $10,377 $133,065 $ 
Mortgage-backed-residential357,870  43,864 314,006  
States and political subdivisions1,470 57 19 1,508  
Other debt securities 10,500  1,249 9,251 94 
Total$513,282 $57 $55,509 $457,830 $94 
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Equity securities with an aggregate fair value of $5.7 million at March 31, 2024 and $5.7 million at December 31, 2023 are presented separately on the balance sheet. The fair value adjustment recorded through earnings totaled gain of $61,000 for the three months ended March 31, 2024 and loss of $17,000 for the three months ended March 31, 2023, respectively.
Credit Quality Information
The Company monitors the credit quality of HTM securities through credit ratings provided by Standard & Poor’s Rating Services and Moody’s Investor Services. Credit ratings express opinions about the credit quality of a security, and are updated at each quarter end. Investment grade securities are rated BBB- or higher by S&P and Baa3 or higher by Moody’s and are generally considered by the rating agencies and market participants to be of low credit risk. Conversely, securities rated below investment grade, which are labeled as speculative grade by the rating agencies, are considered to have distinctively higher credit risk than investment grade securities. There were no speculative grade HTM securities at March 31, 2024 or December 31, 2023. HTM securities that are not rated are agency mortgage-backed securities sponsored by U.S. government agencies, as well as direct obligations of the agencies, with the remainder being sub-debt of other banks.
The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of March 31, 2024.
March 31, 2024
Investment Grade
(Dollars in thousands)AaaAa1A3Baa1Baa2NRTotal
U.S. Treasury and government agencies$139,543 $ $ $ $ $3,672 $143,215 
Mortgage-backed-residential348,754      348,754 
States and political subdivisions 1,469     1,469 
Other debt securities  4,000 4,000 500 2,000 10,500 
Total held-to maturity securities$488,297 $1,469 $4,000 $4,000 $500 $5,672 $503,938 
The following table shows the amortized cost of HTM securities based on their lowest publicly available credit rating as of December 31, 2023.
December 31, 2023
Investment Grade
(Dollars in thousands)AaaAa1A3Baa1Baa2NRTotal
U.S. Treasury and government agencies$140,761 $ $ $ $ $2,681 $143,442 
Mortgage-backed securities357,870      357,870 
Obligations of states and political subdivisions 1,470     1,470 
Other debt securities  4,000 4,000 500 2,000 10,500 
Total held-to-maturity securities$498,631 $1,470 $4,000 $4,000 $500 $4,681 $513,282 
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, 2024 and December 31, 2023.
Less than 12 MonthsMore than 12 MonthsTotal
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
March 31, 2024
Available-for-sale securities:
U.S. Treasury and government agencies$196 $1 $17,278 $3,167 $17,474 $3,168 
Mortgage-backed-residential33,688 526 63,243 7,648 96,931 8,174 
Other debt securities  1,913 95 1,913 95 
Total$33,884 $527 $82,434 $10,910 $116,318 $11,437 
15

Less than 12 MonthsMore than 12 MonthsTotal
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
December 31, 2023
Available-for-sale securities:
U.S. Treasury and government agencies$74 $ $17,750 $3,002 $17,824 $3,002 
Mortgage-backed-residential24,405 150 52,864 7,108 77,269 7,258 
Other debt securities  1,890 120 1,890 120 
Total$24,479 $150 $72,504 $10,230 $96,983 $10,380 
There were 115 AFS debt securities with a fair value below the amortized cost basis, totaling $11.4 million of aggregate fair value as of March 31, 2024. The Company concluded that a credit loss does not exist in its AFS securities portfolio as of March 31, 2024, and no impairment loss has been recognized based on the fact that (1) changes in fair value were caused primarily by fluctuations in interest rates, (2) securities with unrealized losses had generally high credit quality, (3) the Company intends to hold these investments in debt securities to maturity and it is more-likely-than-not the Company will not be required to sell these investments before a recovery of its investment, and (4) issuers have continued to make timely payments of principal and interest. Additionally, the Company’s mortgage-back securities are issued by either U.S. government agencies or U.S. government sponsored enterprises. Collectively, these entities provide a guarantee, which is either explicitly or implicitly supported by the full faith and credit of the U.S. government, that investors in such mortgage-backed securities will receive timely principal and interest payments.
All HTM and AFS securities were current with no securities past due or on nonaccrual as of March 31, 2024.
The Company has securities which have been pledged as collateral for obligations to federal, state, and local government agencies, and other purpose as required or permitted by law, or sold under agreements to repurchase. At March 31, 2024, the carrying value of pledged AFS securities was $53.1 million and $195.8 million of pledged HTM securities. The comparable amounts for December 31, 2023 were $54.5 million and $185.9 million, respectively.
There were no obligations of states or political subdivisions with carrying values, as to any issuer, exceeding 10% of stockholders’ equity at March 31, 2024 or December 31, 2023.
The following table provides information on the amortized cost and estimated fair values of investment securities by maturity date at March 31, 2024.
Available for saleHeld to maturity
(Dollars in thousands)Amortized CostFair ValueAmortized CostFair Value
Due in one year or less$51,911 $51,915 $7,000 $6,947 
Due after one year through five years16,189 15,075 129,497 121,031 
Due after five years through ten years42,049 39,399 39,125 35,652 
Due after ten years80,434 73,107 328,316 280,628 
Total$190,583 $179,496 $503,938 $444,258 
The maturity dates for debt securities are determined using contractual maturity dates.
16

Note 4 – 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 of the Company’s 2023 Annual Report.
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 March 31, 2024 and December 31, 2023.
(Dollars in thousands)March 31, 2024% of Total LoansDecember 31, 2023% of Total Loans
Construction$299,133 6.43 %$299,000 6.44 %
Residential real estate1,515,134 32.59 %1,490,438 32.11 %
Commercial real estate2,272,867 48.90 %2,286,154 49.27 %
Commercial229,594 4.94 %229,939 4.95 %
Consumer325,076 6.99 %328,896 7.09 %
Credit Cards6,921 0.15 %6,583 0.14 %
Total loans 4,648,725 100.00 %4,641,010 100.00 %
Allowance for credit losses on loans(57,336)(57,351)
Total loans, net$4,591,389 $4,583,659 
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 $2.4 million and $2.2 million at March 31, 2024 and December 31, 2023. At March 31, 2024 and December 31, 2023 included in total loans were $1.6 billion and $1.6 billion in loans acquired as part of the acquisition of TCFC, effective July 1, 2023. These balances were presented net of the related discount which totaled $104.2 million and $108.4 million at March 31, 2024 and December 31, 2023, respectively. At March 31, 2024 and December 31, 2023, included in total loans were $289.0 million and $297.9 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 $4.4 million and $4.7 million at March 31, 2024 and December 31, 2023, respectively.
At March 31, 2024, the Bank was servicing $371.1 million in loans for the Federal National Mortgage Association and $117.8 million in loans for Freddie Mac.
The following table provides information on nonaccrual loans by loan class as of March 31, 2024 and December 31, 2023.
(Dollars in thousands)Non-accrual with no allowance for credit lossNon-accrual with an allowance for credit lossTotal Non-accruals
March 31, 2024
Nonaccrual loans:
Construction$ $476 $476 
Residential real estate4 6,379 6,383 
Commercial real estate 3,643 3,643 
Commercial 1,209 147 1,356 
Consumer694 224