What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-11-09 compared with 2020-08-10 · 524 added, 427 removed, 999 unchanged (49% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

June 30, 2020

December 31, 2019

September 30, 2020 December 31, 2019

Cash and due from banks $ 7,559 $ 7,539

1 unchanged sentence

Interest bearing deposits with banks and other short-term investments 818,719 195,447

Investment securities available for sale, at fair value (amortized cost of $ 750,653 and $ 839,192 and allowance for credit losses of $ 138 and $ 0 as of June 30, 2020 and December 31, 2019, respectively).

Investment securities available for sale, at fair value (amortized cost of $ 956,803 and $ 839,192 and allowance for credit losses of $ 156 and $ 0 as of September 30, 2020 and December 31, 2019, respectively).

977,570 843,363

Federal Reserve and Federal Home Loan Bank stock 40,061 35,194

Loans held for sale 79,084 56,707

Loans 7,880,255 7,545,748

Less allowance for credit losses ( 110,215 ) ( 73,658 )

Loans, net 7,770,040 7,472,090

Premises and equipment, net 12,204 14,622

4 unchanged sentences

Other real estate owned 4,987 1,487

Other assets 120,206 85,644

Total Assets $ 10,106,294 $ 8,988,719

Liabilities and Shareholders’ Equity

3 unchanged sentences

Time, $ 100,000 or more

553,949 663,987

Other time 460,568 619,052

Total deposits 8,178,785 7,224,391

16 unchanged sentences

EAGLE BANCORP, INC.

Consolidated Statements of Operations (Unaudited)

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except per share data)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Interest Income

19 unchanged sentences

Increase in the cash surrender value of bank owned life insurance 413 431 1,655 1,285

Other income 4,029 1,673 12,827 5,384

Total noninterest income 17,844 6,314 35,809 18,965

10 unchanged sentences

Income Tax Expense 14,092 14,149 31,847 39,531

Net Income $ 41,346 $ 36,495 $ 93,325 $ 107,487

Earnings Per Common Share

Basic $ 1.28 $ 1.07 $ 2.88 $ 3.12

Diluted $ 1.28 $ 1.07 $ 2.88 $ 3.12

See notes to consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Net Income $ 41,346 $ 36,495 $ 93,325 $ 107,487

Other comprehensive income, net of tax:

Unrealized gain on securities available for sale

Unrealized (loss) gain on securities available for sale ( 624 ) 1,174 13,354 13,140

Reclassification adjustment for net gains included in net income ( 86 ) ( 110 ) ( 1,231 ) ( 1,190 )

Total unrealized gain on investment securities

Total unrealized (loss) gain on investment securities ( 710 ) 1,064 12,123 11,950

Unrealized gain (loss) on derivatives 24 11 ( 1,324 ) ( 1,664 )

1 unchanged sentence

Total unrealized gain (loss) on derivatives 313 ( 194 ) ( 811 ) ( 3,038 )

Other comprehensive income

Other comprehensive (loss) income ( 397 ) 870 11,312 8,912

Comprehensive Income $ 40,949 $ 37,365 $ 104,637 $ 116,399

3 unchanged sentences

(dollars in thousands except share data)

Additional Paid

Comprehensive

Shareholders'

Balance April 1, 2020

Other comprehensive income, net of tax

Accumulated

Other

Common Additional Paid Retained Comprehensive Shareholders'

Shares Amount in Capital Earnings Income Equity

Balance July 1, 2020 32,224,756 $ 320 $ 440,934 $ 731,973 $ 14,668 $ 1,187,895

Net Income — — — 41,346 — 41,346

Other comprehensive loss, net of tax — — — — ( 397 ) ( 397 )

Stock-based compensation expense — — 1,452 — — 1,452

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 3,297 ) — — — — —

Time based stock awards granted

Issuance of common stock related to employee stock purchase plan 7,177 — 206 — — 206

Cash dividends declared ($ 0.22 per share)

Balance June 30, 2020

Balance April 1, 2019

— — — ( 7,100 ) — ( 7,100 )

Balance September 30, 2020 32,228,636 $ 320 $ 442,592 $ 766,219 $ 14,271 $ 1,223,402

Balance July 1, 2019 34,539,853 $ 343 $ 532,585 $ 647,887 $ 3,767 $ 1,184,582

Net Income — — — 36,495 — 36,495

Other comprehensive income, net of tax — — — — 870 870

Stock-based compensation expense — — 3,147 — — 3,147

Issuance of common stock related to options exercised, net of shares withheld for payroll taxes

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 1,251 ) — — — — —

1 unchanged sentence

Cash dividends declared ($ 0.22 per share)

Balance June 30, 2019

Comprehensive

Shareholders’

— — ( 7,327 ) — ( 7,327 )

Common stock repurchased ( 822,200 ) $ ( 7 ) $ ( 33,379 ) $ — $ — $ ( 33,386 )

Balance September 30, 2019 33,720,522 $ 336 $ 502,566 $ 677,055 $ 4,637 $ 1,184,594

Accumulated

Other

Common Additional Paid Retained Comprehensive Shareholders'

Shares Amount in Capital Earnings Income Equity

Balance January 1, 2020 33,241,496 $ 331 $ 482,286 $ 705,105 $ 2,959 $ 1,190,681

Cumulative effect adjustment due to the adoption of ASC 326, net of tax — — — ( 10,931 ) — ( 10,931 )

Net Income — — — 93,325 — 93,325

Other comprehensive income, net of tax — — — — 11,312 11,312

5 unchanged sentences

Cash dividends declared ($ 0.66 per share)

Common stock repurchased

— — — ( 21,280 ) — ( 21,280 )

Balance June 30, 2020

Common stock repurchased ( 1,182,841 ) ( 11 ) ( 44,157 ) — — ( 44,168 )

Balance September 30, 2020 32,228,636 $ 320 $ 442,592 $ 766,219 $ 14,271 $ 1,223,402

Balance January 1, 2019 34,387,919 $ 342 $ 528,380 $ 584,494 $ ( 4,275 ) $ 1,108,941

Net Income — — — 107,487 — $ 107,487

Other comprehensive income, net of tax — — — — 8,912 $ 8,912

6 unchanged sentences

Cash dividends declared ($ 0.44 per share)

Balance June 30, 2019

— — — ( 14,926 ) — $ ( 14,926 )

Common stock repurchased ( 822,200 ) $ ( 7 ) $ ( 33,378 ) $ — $ — $ ( 33,385 )

Balance September 30, 2019 33,720,522 $ 336 $ 502,566 $ 677,055 $ 4,637 $ 1,184,594

See notes to consolidated financial statements.

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows From Operating Activities:

Net Income $ 93,325 $ 107,487

Adjustments to reconcile net income to net cash provided by operating activities:

10 unchanged sentences

Deferred income tax (benefit) expense ( 6,559 ) 3,305

Net gain on sale of other real estate owned ( 1,180 ) —

Net gain on sale of investment securities ( 1,650 ) ( 1,628 )

Stock-based compensation expense 3,874 6,648

Net tax (expense) benefits from stock compensation

Net tax benefits from stock compensation 99 10

(Increase) decrease in other assets ( 45,493 ) 7,274

11 unchanged sentences

Cash Flows From Financing Activities:

Increase (decrease) in deposits

Increase in customer repurchase agreements

Increase in deposits 954,394 428,228

Decrease in customer repurchase agreements ( 6,687 ) ( 116 )

Increase in short-term borrowings 50,000 100,000

5 unchanged sentences

Net cash provided by financing activities 983,116 480,718

Net Increase (Decrease) In Cash and Cash Equivalents

Net Increase In Cash and Cash Equivalents 615,135 73,658

Cash and Cash Equivalents at Beginning of Period 241,973 321,864

19 unchanged sentences

Certain information and note disclosures normally included in financial statements prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission.

generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

In addition to the “Critical Accounting Policies” impacted by the new Current Expected Credit Loss (“CECL”) standard described below, the Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

1 unchanged sentence

Certain reclassifications have been made to amounts previously reported to conform to the current period presentation.

The following table presents a breakdown of the provision for credit losses included in our Consolidated Statements of Income for the applicable periods (in thousands):

Three Months Ended

Six Months Ended

(dollars in thousands)

June 30, 2020

Provision for credit losses- loans

Provision for credit losses- AFS debt securities

Total provision for credit losses

Nature of Operations

16 unchanged sentences

economy and has disrupted banking and other financial activity in the areas in which the Company operates.

While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Company.

While there has been no material adverse impact to the Company’s employees and operations to date, COVID-19 could still potentially create widespread business continuity or credit issues for the Company depending on how much longer the pandemic lasts.

Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout.

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The package also includes extensive emergency funding for hospitals and providers.

In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had and are expected to continue to have a material impact on the Company’s operations.

In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other follow-up stimulus legislative and regulatory relief efforts have had and are expected to continue to have a material impact on the Company’s operations.

The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions.

If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

If the global response to control and manage COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware.

Financial position and results of operations

The Company’s fee income could be reduced due to COVID-19.

The Company’s fee income has been and could be further reduced due to COVID-19.

In keeping with guidance from regulators, the Company is actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc.

These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis.

At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact is likely to impact its fee income in future periods.

At this time, the Company is unable to project the full extent of the materiality of such an impact, but recognizes the breadth of the economic impact is likely to impact its fee income in future periods.

The Company’s interest income could be reduced due to COVID-19.

2 unchanged sentences

In such a scenario, interest income in future periods could be negatively impacted.

At this time the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.

At this time the Company is unable to project the full extent of the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.

Capital and liquidity

10 unchanged sentences

As of June 30, 2020, the Company performed a qualitative assessment to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying amount.

A triggering event was deemed to have occurred as a result of COVID-19 and, accordingly, a step one assessment was performed by comparing the fair value of the reporting unit with its carrying amount (including goodwill).

As of June 30, 2020, a triggering event was deemed to have occurred as a result of COVID-19 and, accordingly, a step one assessment was performed by comparing the fair value of the reporting unit with its carrying amount (including goodwill).

Determining the fair value of a reporting unit under the goodwill impairment test is subjective and often involves the use of significant estimates and assumptions.

Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions.

These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables.

Based on the results of the assessment of all reporting units, the Company concluded that no impairment existed as of June 30, 2020.

However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss.

The Company determined that there were no triggering events and an impairment analysis was not performed as of September 30, 2020.

An impairment analysis will next be performed during the fourth quarter as part of our regularly scheduled annual impairment testing.

Future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss.

Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.

4 unchanged sentences

The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19.

We have established general guidelines for returning to the workplace that include having employees maintain safe distances, staggered work schedules to limit the number of employees in a single location, more frequent cleaning of our facilities and other practices encouraging a safe working environment during this challenging time, including required COVID-19 training programs.

The Company does not currently face any material resource constraint through the implementation of its business continuity plans.

Lending operations and accommodations to borrowers

In response to the COVID-19 pandemic, we have also implemented a short-term loan modification program to provide temporary payment relief to certain borrowers who meet the program's qualifications.

Modifications under this program have predominately been for a period of 90 days .

In response to the COVID-19 pandemic and consistent with regulatory guidance, we have also implemented a short-term loan modification program to provide temporary payment relief to certain borrowers who meet the program's qualifications.

At September 30, 2020, the Company had no accruing loans 90 days or more past due.

The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan.

As of June 30, 2020, we granted temporary modifications on approximately 708 loans representing approximately $ 1.63 billion (approximately 20 % of total loans) in outstanding exposure.

Some of these deferrals may not have met the criteria for treatment under U.S.

GAAP as troubled debt restructurings ("TDRs").

As of September 30, 2020, we had ongoing temporary modifications on approximately 321 loans representing approximately $ 851 million (approximately 10.8 % of total loans) in outstanding balances, as compared to 708 loans representing approximately $ 1.6 billion (approximately 20 % of total loans) at June 30, 2020.

Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e.

1 unchanged sentence

financial institutions to temporarily suspend the U.S.

GAAP requirements to treat such short-term loan modifications as TDR.

GAAP requirements to treat such short-term loan modifications as troubled debt restructurings ("TDRs").

Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board.

With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company is actively participating in assisting its customers with applications for resources through the program.

The PPP loans originated by the Bank generally have a two-year term and earn interest at 1 %.

The Company actively participates in the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”).

The PPP loans originated by the Bank generally have a two-year term and earn interest at 1 % plus fees.

The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program.

As of June 30, 2020, principal outstanding on PPP loans totaled $ 456 million to just over 1,400 businesses.

As of September 30, 2020, PPP loans totaled $ 456.1 million to just over 1,400 businesses.

The Company understands that loans funded through the PPP program are fully guaranteed by the U.S.

Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings.

Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charges to earnings.

The Company is working with customers directly affected by COVID-19.

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On January 1, 2020, we adopted ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaces the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the current expected credit loss model.

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaced the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the current expected credit loss model.

The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity (“HTM”) debt securities.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASU 2016-02 "Leases (Topic 842)"

("ASU 2016-02").

In addition, ASU 2016-13 made changes to the accounting for available-for-sale (“AFS”) debt securities.

2 unchanged sentences

Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

The Company does not own Held to Maturity investment debt securities.

The Company does not own HTM investment debt securities.

The following table presents a breakdown of the provision for credit losses included in our Consolidated Statements of Income for the applicable periods (in thousands):

Three Months Ended Nine Months Ended

(dollars in thousands) September 30, 2020 September 30, 2020

Provision for credit losses- loans $ 6,589 $ 40,498

Provision for credit losses- AFS debt securities 18 156

Total provision for credit losses $ 6,607 $ 40,654

Loans held for investment are stated at the amount of unpaid principal reduced by deferred income (net of costs).

6 unchanged sentences

The most common change in terms provided by the Company is an extension of an interest-only term.

As of June 30, 2020, all performing TDRs were categorized as interest-only modifications.

As of September 30, 2020, all performing TDRs were categorized as interest-only modifications.

Refer to the subsection above "Lendi ng operations and accommodations to borrowers" for a discussion on the impact of the CARES Act on TDRs.

A loan is considered past due when a contractually due payment has not been received by the contractual due date.

6 unchanged sentences

The allowance for credit losses is an estimate of the expected credit losses in the loans held for investment and available-for-sale debt securities portfolios.

ASU 2016-13 replaces the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.

ASU 2016-13 replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.

The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans.

6 unchanged sentences

Reserves on loans that do not share risk characteristics are evaluated on an individual basis (nonaccrual, TDR).

In order to determine the allowance for credit losses, all loans are assigned a credit grade.

Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation.

For purposes of determining the pool-basis reserve, the remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes.

Each credit grade within each product type is assigned a historical loss rate.

These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments.

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Construction loans are impacted by fluctuations in collateral values and the ability of the borrower or ultimate purchaser to obtain permanent financing.

Construction – C&I (owner occupied) .

Construction – commerical and industrial ("C&I") (owner occupied) .

The construction C&I (owner occupied) portfolio comprises loans to operating companies and their related entities for new construction or renovation of the real or leased property in which they operate.

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The review of the appropriateness of the allowance is performed by executive management and presented to management committees, Director’s Loan Committee, the Audit Committee, and the Board of Directors.

The committees report to the Board as part of the Board's review on a quarterly basis of our consolidated financial statements.

The committees' reports to the Board are part of the Board's review on a quarterly basis of our consolidated financial statements.

When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the fair value of the collateral adjusted for selling costs, when appropriate.

2 unchanged sentences

The contractual term excludes expected extensions, renewals and modifications unless either of the following applies:

management has a reasonable expectation that a loan will be restructured, or the extension or renewal options are included in the borrower contract.

management has a reasonable expectation that a loan will be in a trouble debt restructuring or the extension or renewal options are included in the borrower contract.

We do not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status.

6 unchanged sentences

For all loan pools utilizing the DCF method, management utilizes and forecasts regional unemployment as a loss driver.

COVID-19 has negatively impacted unemployment projections, which inform our CECL economic forecast and increased our loss reserve as of June 30, 2020.

COVID-19 has negatively impacted unemployment projections, which inform our CECL economic forecast and increased our loss reserve as of September 30, 2020.

For all DCF models, management has determined that eight quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve months on a straight-line basis.

1 unchanged sentence

The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level.

Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value ("NPV ").

An ACL is established for the difference between the instrument’s NPV and amortized cost basis.

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The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets.

The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TDR.

A loan that has been modified or renewed is considered a TDR when two conditions are met:

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Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL.

Refer to page 10 for a discussion on the impact of the CARES Act on TDRs.

Refer to the subsection above "Lendi ng operations and accommodations to borrowers" for a discussion on the impact of the CARES Act on TDRs.

Allowance for Credit Losses - Available-for-Sale Debt Securities

12 unchanged sentences

Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non-credit-related impairment.

The majority of available-for-sale debt securities as of June 30, 2020 and December 31, 2019 were issued by US agencies.

However, as of June 30, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal

securities could be the result of credit losses, and therefore, an allowance for credit losses of $ 138 thousand was recorded.

The majority of available-for-sale debt securities as of September 30, 2020 and December 31, 2019 were issued by US agencies.

However, as of September 30, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities could be the result of credit losses, and therefore, an allowance for credit losses of $ 156 thousand was recorded.

See Note 3 Investment Securities for more information.

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Such financial instruments are recorded when they are funded.

The Company records a reserve for unfunded commitments (“RUC”) on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company’s consolidated statements of operations.

The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in the RUC on the Company’s Consolidated Balance Sheets.

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The Agencies confirmed with the staff of the Financial Accounting Standards Board (“FASB”) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs.

This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

This includes short-term (e.g.

six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented.

This interagency guidance is expected to have a material impact on the Company’s financial statements;

however, this impact cannot be quantified at this time.

This interagency guidance has had, and is expected to continue to have, a material impact on the Company’s financial statements;

however, the full extent of such impact cannot be quantified at this time.

See Note 5 to the Consolidated Financial Statements for further detail.

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Refer to the “Allowance for Credit Losses- Loans” section above for additional detail.

ASU 2020-02 "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)"

("ASU 2020-02") incorporates SEC SAB 119 (updated from SAB 102) into the Accounting Standards Codification (the "Codification") by aligning SEC recommended policies and procedures with ASC 326.

ASU 2020-2 "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842) " ("ASU 2020-2") incorporates SEC SAB 119 (updated from SAB 102) into the Accounting Standards Codification (the "Codification") by aligning SEC recommended policies and procedures with ASC 326.

ASU 2020-2 was effective on January 1, 2020 and had no significant impact on our documentation requirements, financial statement or disclosures.

ASU 2020-03 "Codification Improvements to Financial Instruments"

("ASU 2020-03") revised a wide variety of topics in the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications.

ASU 2020-3 "Codification Improvements to Financial Instruments" ("ASU 2020-3") revised a wide variety of topics in the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications.

ASU 2020-3 was effective immediately upon its release in March 2020 and did not have a material impact on our consolidated financial statements.

Accounting Standards Pending Adoption

ASU 2019-12 "Income Taxes (Topic 740)"

("ASU 2019-12") simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance.

ASU 2019-012 will be effective for us on January 1, 2021 and is not expected to have any material impact on our consolidated financial statements.

ASU 2020-04, "Reference Rate Reform (Topic 848)"

("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks.

so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts.

ASU 2019-12 "Income Taxes (Topic 740)" ("ASU 2019-12") simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance.

ASU 2019-12 will be effective for us on January 1, 2021 and is not expected to have a material impact on our consolidated financial statements.

ASU 2020-4, " Reference Rate Ref orm (Topic 848)" ("ASU 2020-4") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks.

For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts.

ASU 2020-4 also provides numerous optional expedients for derivative accounting.

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Regulation D of the Federal Reserve Act requires that banks maintain noninterest reserve balances with the Federal Reserve Bank based principally on the type and amount of their deposits.

During 2020, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid.

During the first nine months of 2020, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid.

Additionally, the Bank maintains interest bearing balances with the Federal Home Loan Bank of Atlanta and noninterest bearing balances with domestic correspondent banks as compensation for services they provide to the Bank.

1 unchanged sentence

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:

June 30, 2020

(dollars in thousands)

Gross Gross Allowance Estimated

September 30, 2020 Amortized Unrealized Unrealized for Credit Fair

(dollars in thousands) Cost Gains Losses Losses Value

agency securities $ 130,313 $ 1,638 $ ( 665 ) $ — $ 131,286

3 unchanged sentences

Other equity investments 198 — — — 198

December 31, 2019

(dollars in thousands)

$ 956,803 $ 22,363 $ ( 1,440 ) $ ( 156 ) $ 977,570

Gross Gross Estimated

December 31, 2019 Amortized Unrealized Unrealized Fair

(dollars in thousands) Cost Gains Losses Value

agency securities $ 180,228 $ 621 $ ( 1,055 ) $ 179,794

2 unchanged sentences

Corporate bonds 10,530 203 — 10,733

Treasury 34,844 11 — 34,855

Other equity investments 198 — — 198

In addition, at June 30, 2020 and December 31, 2019 the Company held $ 40.0 million and $ 35.2 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.

Accrued interest on available-for-sale securities totaled $ 2.7 million and $ 3.2 million at June 30, 2020 and December 31, 2019, respectively, and was included in other assets in the consolidated balance sheets.

$ 839,192 $ 7,206 $ ( 3,035 ) $ 843,363

In addition, at September 30, 2020 and December 31, 2019 the Company held $ 40.1 million and $ 35.2 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.

Accrued interest on available-for-sale securities totaled $ 3.1 million and $ 3.2 million at September 30, 2020 and December 31, 2019, respectively, and was included in other assets in the Consolidated Balance Sheets.

Gross unrealized losses and fair value of available-for-sale securities for which an allowance for credit losses has not been recorded, by length of time that individual securities have been in a continuous unrealized loss position are as follows:

June 30, 2020

(dollars in thousands)

Less than 12 Months

12 Months or Greater Total

Estimated Estimated Estimated

September 30, 2020 Number of Fair Unrealized Fair Unrealized Fair Unrealized

(dollars in thousands) Securities Value Losses Value Losses Value Losses

agency securities 25 $ 20,762 $ 32 $ 43,607 $ 633 $ 64,369 $ 665

Residential mortgage backed securities 33 139,848 549 7,334 41 147,182 590

Municipal bonds 4 14,086 114 — — 14,086 114

Corporate bonds 1 2,954 71 — — 2,954 71

December 31, 2019

(dollars in thousands)

63 $ 177,650 $ 766 $ 50,941 $ 674 $ 228,591 $ 1,440

Less than 12 Months

12 Months or Greater Total

Estimated Estimated Estimated

December 31, 2019 Number of Fair Unrealized Fair Unrealized Fair Unrealized

(dollars in thousands) Securities Value Losses Value Losses Value Losses

agency securities 36 $ 75,159 $ 439 $ 51,481 $ 616 $ 126,640 $ 1,055

1 unchanged sentence

Municipal bonds 1 1,994 5 — — 1,994 5

The majority of the AFS debt securities in an unrealized loss position as of June 30, 2020, consisted of debt securities issued by U.S.

148 $ 274,947 $ 1,592 $ 142,223 $ 1,443 $ 417,170 $ 3,035

The majority of the AFS debt securities in an unrealized loss position as of September 30, 2020, consisted of debt securities issued by U.S.

government agencies or U.S.

2 unchanged sentences

government, are widely recognized as “risk free,” and have a long history of zero credit loss.

As of June 30, 2020, total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

However, as of June 30, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities could be the result of credit losses, and therefore, an allowance for credit losses of $ 138 thousand was recorded.

As of September 30, 2020, total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities.

The weighted average duration of debt securities, which comprise 99.9 % of total investment securities, is relatively short at 3.1 years.

1 unchanged sentence

The Company does not intend to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

The amortized cost and estimated fair value of investments available-for-sale at June 30, 2020 and December 31, 2019 by contractual maturity are shown in the table below.

The amortized cost and estimated fair value of investments available-for-sale at September 30, 2020 and December 31, 2019 by contractual maturity are shown in the table below.

Expected maturities for residential mortgage backed securities (“MBS”) will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2020

December 31, 2019

(dollars in thousands)

September 30, 2020 December 31, 2019

Amortized Estimated Amortized Estimated

(dollars in thousands) Cost Fair Value Cost Fair Value

agency securities maturing:

12 unchanged sentences

After ten years 6,975 7,489 1,500 1,500

treasury — — 34,844 34,855

Other equity investments 198 198 198 198

Allowance for Credit Losses — ( 156 ) — —

For the six months ended June 30, 2020, gross realized gains on sales of investments securities were $ 1.5 million and there were no gross realized losses on sales of investment securities.

For the six months ended June 30, 2019, gross realized gains on sales of investments securities were $ 1.5 million primarily due to the $ 829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations, and there were no gross realized losses on sales of investment securities.

Proceeds from sales and calls of investment securities for the six months ended June 30, 2020 were $ 120.0 million compared to $ 42.1 million for the same period in 2019.

The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at June 30, 2020 and December 31, 2019 was $ 346 million and $ 378 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business.

As of June 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S.

$ 956,803 $ 977,570 $ 839,192 $ 843,363

For the nine months ended September 30, 2020, gross realized gains on sales of investments securities were $ 1.7 million and there were no gross realized losses on sales of investment securities.

For the nine months ended September 30, 2019, gross realized gains on sales of investments securities were $ 1.6 million, of which $ 829 thousand was recognized during March 2019 on interest rate swap terminations, and there were no gross realized losses on sales of investment securities.

Proceeds from sales and calls of investment securities for the nine months ended September 30, 2020 were $ 130.3 million compared to $ 83.0 million for the same period in 2019.

The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at September 30, 2020 and December 31, 2019 was $ 320 million and $ 378 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business.

As of September 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S.

Government and U.S.

13 unchanged sentences

The fair value of the mortgage banking derivatives is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.

At June 30, 2020, the Bank had no material mortgage banking derivative financial instruments.

During the second quarter of 2020, the Company suspended locking loans for sale on a mandatory basis as a result of significant market dislocation that was experienced as a result of COVID-19 as well as the operational strain associated with the mandatory underwriting process given the volume of residential mortgages.

At June 30, 2019 the Bank had mortgage banking derivative financial instruments with a notional value of $ 124.5 million related to its forward contracts.

During the second quarter of 2020, the Company suspended locking loans for sale on a mandatory basis as a result of elevated origination volumes and market dislocations associated with the current COVID-19 pandemic.

In connection with this shift in pipeline strategy from mandatory to best efforts, beginning in the third quarter of 2020, the Company adjusted its accounting treatment of loans sold on a best efforts basis which accelerated revenue recognition associated with the pipeline to when the loans are committed, in accordance with GAAP.

The change reflects the timely recognition of non-interest income associated with the gains and fees attributable to the best efforts sale and aligns the accounting treatment of best efforts with the accounting treatment of loans sold on a mandatory basis.

Under the adjustment to the accounting for best efforts implemented in the third quarter of 2020, the Company recognized an additional $ 1.6 million in noninterest income associated with the residential mortgage operations.

Had the company utilized the adjusted accounting method for best efforts in prior quarters, non-interest income would have been higher by an immaterial amount.

At September 30, 2020, the Bank had mortgage banking derivative financial instruments totaling $ 6.0 million.

At September 30, 2019 the Bank had mortgage banking derivative financial instruments of $ 134.3 million notional value.

The fair value of these mortgage banking derivative instruments at December 31, 2019 was $ 280 thousand included in other assets and $ 66 thousand included in other liabilities.

Included in other noninterest income for the three and six months ended June 30, 2020 was a net gain of $ 1.1 million and a net loss of $ 165 thousand relating to mortgage banking derivative instruments as compared to a net gain of $ 84 thousand and net gain of $ 219 thousand for the three and six months ended June 30, 2019.

The amount included in other noninterest income for the three and six months ended June 30, 2020 pertaining to its mortgage banking hedging activities was a net realized gain of $ 1.3 million and a net loss of $ 7 thousand, respectively, as compared to a net loss of $ 94 thousand and net loss of $ 49 thousand, respectively, for the three and six months ended June 30, 2019.

Included in other noninterest income for the three and nine months ended September 30, 2020 was a net loss of $ 145 thousand and a net loss of $ 309 thousand relating to mortgage banking derivative instruments as compared to a net gain of $ 30 thousand and a net gain of $ 249 thousand for the three and nine months ended September 30, 2019.

The amount included in other noninterest income for the three and nine months ended September 30, 2020 pertaining to its mortgage banking hedging activities was a net realized gain of $ 34 thousand and a net gain of $ 27 thousand, respectively, as compared to a net gain of $ 277 thousand and a net gain of $ 228 thousand, respectively, for the three and nine months ended September 30, 2019.

Loans and Allowance for Credit Losses

2 unchanged sentences

A substantial portion of the Bank’s loan portfolio consists of loans to businesses secured by real estate and other business assets.

Loans, net of unamortized net deferred fees, at June 30, 2020 (unaudited) and December 31, 2019 are summarized by type as follows:

June 30, 2020

December 31, 2019

(dollars in thousands)

Loans, net of unamortized net deferred fees, at September 30, 2020 (unaudited) and December 31, 2019 are summarized by type as follows:

September 30, 2020 December 31, 2019

(dollars in thousands) Amount % Amount %

Commercial $ 1,524,613 19 % $ 1,545,906 20 %

PPP loans 456,115 6 % — —

Income producing - commercial real estate 3,724,839 47 % 3,702,747 50 %

3 unchanged sentences

Construction - C&I (owner occupied) 140,357 2 % 89,490 1 %

Home equity 72,648 1 % 80,061 1 %

Other consumer 2,509 — 2,160 —

Total loans 7,880,255 100 % 7,545,748 100 %

allowance for credit losses ( 110,215 ) ( 73,658 )

(1) Excludes accrued interest receivable of $ 36.2 million and $ 21.3 million at June 30, 2020 and December 31, 2019, respectively, which is recorded in other assets.

Unamortized net deferred fees amounted to $ 34.8 million and $ 25.2 million at June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020 and December 31, 2019, the Bank serviced $ 96 million and $ 99 million, respectively, of multifamily FHA loans, SBA loans and other loan participations which are not reflected as loan balances on the Consolidated Balance Sheets.

Net loans (1)

$ 7,770,040 $ 7,472,090

________________________________________

(1) Excludes accrued interest receivable of $ 43.7 million and $ 21.3 million at September 30, 2020 and December 31, 2019, respectively, which is recorded in other assets.

Unamortized net deferred fees amounted to $ 33.0 million and $ 25.2 million at September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, the Bank serviced $ 94 million and $ 99 million, respectively, of multifamily FHA loans, SBA loans and other loan participations that are not reflected as loan balances on the Consolidated Balance Sheets.

Loan Origination / Risk Management

5 unchanged sentences

The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing real estate.

At June 30, 2020, owner occupied - commercial real estate and construction – Commercial and Industrial (“C&I”) (owner occupied) represent approximately 14 % of the loan portfolio .

At June 30, 2020, non-owner occupied commercial real estate and real estate construction represented approximately 58 % of the loan portfolio.

At September 30, 2020, owner occupied - commercial real estate and construction – C&I (owner occupied) represent approximately 14 % of the loan portfolio.

At September 30, 2020, non-owner occupied commercial real estate and real estate construction represented approximately 58 % of the loan portfolio.

The combined owner occupied and commercial real estate and construction loans represent approximately 73 % of the loan portfolio.

5 unchanged sentences

The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing.

This loan category represents approximately 20 % of the loan portfolio at June 30, 2020 and was generally variable or adjustable rate.

This loan category represents approximately 19 % of the loan portfolio at September 30, 2020 and was generally variable or adjustable rate.

Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service.

1 unchanged sentence

SBA loans represent approximately 1 % of the commercial loan category.

In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit as well as potential repairs to the SBA guarantees.

In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit as well as potential recourse to the SBA guarantees.

The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated.

1 unchanged sentence

SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.

Approximately 6 % of the loan portfolio at June 30, 2020 consists of PPP loans to eligible customers.

PPP loans are expected to primarily be repaid via forgiveness from the SBA.

Approximately 6 % of the loan portfolio at September 30, 2020 consists of PPP loans to eligible customers.

PPP loans are expected to primarily be repaid via forgiveness provisions (under the CARES Act) from the SBA.

These loans are fully guaranteed as to principal and interest by the SBA and ultimately by the full faith and credit of the U.S.

1 unchanged sentence

PPP loans are included in the CECL model but do not carry an allowance for credit loss due to the aforementioned government guarantees.

Approximately 1 % of the loan portfolio at June 30, 2020 consists of home equity loans and lines of credit and other consumer loans.

Approximately 1 % of the loan portfolio at September 30, 2020 consists of home equity loans and lines of credit and other consumer loans.

These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.

Approximately 1 % of the loan portfolio consists of residential mortgage loans.

The repricing duration of these loans was 16 months .

The repricing duration of these loans was 17 months at September 30, 2020.

These credits represent first liens on residential property loans originated by the Bank.

23 unchanged sentences

The Company’s loan portfolio includes acquisition, development and construction (“ADC”) real estate loans including both investment and owner occupied projects.

ADC loans amounted to $ 1.47 billion at June 30, 2020.

ADC loans amounted to $ 1.4 billion at September 30, 2020.

A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination.

ADC loans that provide for the use of interest reserves represent approximately 59 % of the outstanding ADC loan portfolio at June 30, 2020.

ADC loans that provide for the use of interest reserves represent approximately 58 % of the outstanding ADC loan portfolio at September 30, 2020.

The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including:

6 unchanged sentences

The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan.

In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including:

In order to mitigate these inherent risks, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including:

(1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination;

4 unchanged sentences

If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2020 and 2019.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2020 and 2019.

PPP loans are excluded from these tables since they do not carry an allowance for credit loss, as these loans are fully guaranteed as to principal and interest by the SBA, whose guarantee is backed by the full faith and credit of the U.S.

Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Income Producing -

Owner Occupied -

Construction -

Commercial and

(dollars in thousands)

Three Months Ended June 30, 2020

Allocation of a portion of the allowance to one category of loans does not restrict the use of the allowance to absorb losses in other categories.

Income Producing - Owner Occupied - Real Estate Construction -

Commercial Commercial Mortgage - Commercial and Home Other

(dollars in thousands) Commercial Real Estate Real Estate Residential Residential Equity Consumer Total

Three Months Ended September 30, 2020

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 27,224 $ 55,440 $ 13,090 $ 1,871 $ 11,541 $ 1,007 $ 42 $ 110,215

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Allowance for credit losses:

6 unchanged sentences

Ending balance $ 27,224 $ 55,440 $ 13,090 $ 1,871 $ 11,541 $ 1,007 $ 42 $ 110,215

As of June 30, 2020

As of September 30, 2020

Allowance for credit losses:

2 unchanged sentences

Ending balance $ 27,224 $ 55,440 $ 13,090 $ 1,871 $ 11,541 $ 1,007 $ 42 $ 110,215

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 18,169 $ 28,527 $ 5,598 $ 1,352 $ 19,272 $ 575 $ 227 $ 73,720

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 18,169 $ 28,527 $ 5,598 $ 1,352 $ 19,272 $ 575 $ 227 $ 73,720

As of June 30, 2019

As of September 30, 2019

Allowance for credit losses:

3 unchanged sentences

During the first quarter of 2020, we adopted ASU 2016-13, which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model.

Upon adoption, the allowance for credit losses was increased by $ 14.7 million, which included a $ 4.1 million increase to the allowance for unfunded commitments, with no impact to the consolidated statement of operations.

We recorded a $ 19.7 million and $ 34.0 million provision for credit losses for the three and six months ended second June 30, 2020 under CECL.

We recorded $ 7.1 million and $ 9.4 million in net charge-offs during the three and six months ended June 30, 2020, respectively, compared to $ 1.5 million and $ 4.8 million during the three and six months ended June 30, 2019.

We recorded a $ 6.6 million and $ 40.7 million provision for credit losses for the three and nine months ended September 30, 2020, respectively, under CECL.

We recorded $ 5.2 million and $ 14.6 million in net charge-offs during the three and nine months ended September 30, 2020, respectively, compared to $ 1.6 million and $ 6.4 million during the three and nine months ended September 30, 2019, respectively.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2020:

Business/Other

(dollars in thousands)

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2020:

(dollars in thousands) Business/Other Assets Real Estate

Commercial $ 14,075 $ 2,948

Income producing - commercial real estate 3,193 26,063

2 unchanged sentences

Construction - commercial and residential — 2,274

Construction - C&I (owner occupied)

Home equity — 109

Other consumer 8 —

Total $ 17,276 $ 50,944

Credit Quality Indicators

24 unchanged sentences

Based on the most recent analysis performed, the risk category of loans by class of loans and year of origination is as follows:

June 30, 2020 (dollars in thousands)

September 30, 2020 (dollars in thousands) Prior 2016 2017 2018 2019 2020 Total

Commercial

Pass 375,848 124,678 306,487 249,287 193,594 155,505 1,405,399

Watch 32,430 — — 451 — — 32,881

Special Mention 1,302 4,766 2,046 12,421 207 — 20,742

Substandard 16,915 3,125 32,399 9,478 3,674 — 65,591

Total 426,495 132,569 340,932 271,637 197,475 155,505 1,524,613

Pass — — — — — 456,115 456,115

Total — — — — — 456,115 456,115

Income producing - commercial real estate

Pass 756,002 402,690 421,428 685,804 705,972 377,721 3,349,617

Watch 150,215 — — — 47,644 — 197,859

Special Mention 203 800 4,656 4,883 5,542 — 16,084

Substandard 13,375 15,480 74,168 53,616 4,640 — 161,279

Total 919,795 418,970 500,252 744,303 763,798 377,721 3,724,839

Owner occupied - commercial real estate

Pass 344,863 105,381 115,144 139,991 74,286 29,169 808,834

Watch 50,018 764 — 355 3,475 — 54,612

Substandard 9,584 2,038 2,645 95,171 24,761 — 134,199

Total 404,465 108,183 117,789 235,517 102,522 29,169 997,645

Real estate mortgage - residential

Pass 18,121 3,410 10,377 14,593 23,100 6,837 76,438

Watch 612 4,154 — — — — 4,766

Substandard 1,181 — — — — — 1,181

Total 19,914 7,564 10,377 14,593 23,100 6,837 82,385

Construction - commercial and residential

Pass 32,535 65,703 286,922 314,061 104,335 46,832 850,388

Substandard 853 1,866 408 — — — 3,127

Watch — — 25,629 — — — 25,629

Total 33,388 67,569 312,959 314,061 104,335 46,832 879,144

Construction - C&I (owner occupied)

Pass 11,162 10,577 6,501 29,963 18,761 43,997 120,961

Watch 787 — 2,121 3,251 13,237 — 19,396

Total 11,949 10,577 8,622 33,214 31,998 43,997 140,357

Pass 38,049 4,970 8,274 8,314 4,369 6,918 70,894

Watch 1,401 — — — 49 — 1,450

Substandard 304 — — — — — 304

Total 39,754 4,970 8,274 8,314 4,418 6,918 72,648

Other Consumer

Pass 2,039 169 108 50 100 33 2,499

Substandard 10 — — — — — 10

Total 2,049 169 108 50 100 33 2,509

Total Recorded Investment $ 1,857,809 $ 750,571 $ 1,299,313 $ 1,621,689 $ 1,227,746 $ 1,123,127 $ 7,880,255

2 unchanged sentences

The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of December 31, 2019:

(dollars in thousands)

Special Mention

Total

(dollars in thousands) Pass Watch Special Mention Substandard Doubtful Loans

December 31, 2019

Commercial $ 1,470,636 $ 38,522 $ 11,460 $ 25,288 $ — $ 1,545,906

Income producing - commercial real estate 3,667,585 16,069 — 19,093 — 3,702,747

2 unchanged sentences

Construction - commercial and residential 1,113,734 — — 11,510 — 1,125,244

Home equity 78,626 948 — 487 — 80,061

Other consumer 2,160 — — — — 2,160

Total $ 7,356,769 $ 109,313 $ 11,460 $ 68,206 $ — $ 7,545,748

Nonaccrual and Past Due Loans

3 unchanged sentences

Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves.

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of June 30, 2020 and December 31, 2019:

Total Recorded

Investment in

(dollars in thousands)

More Past Due

June 30, 2020

The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2020 (unaudited) and December 31, 2019:

Loans Loans Loans Total Recorded

Current 30-59 Days 60-89 Days 90 Days or Total Past Investment in

(dollars in thousands) Loans Past Due Past Due More Past Due Due Loans Non-Accrual Loans

September 30, 2020

Commercial $ 1,494,038 $ 4,585 $ 10,154 $ — $ 14,739 $ 15,836 $ 1,524,613

PPP loans 456,115 — — — — — 456,115

Income producing - commercial real estate 3,696,949 — 7,822 — 7,822 20,068 3,724,839

3 unchanged sentences

Construction - C&I (owner occupied) 138,837 1,520 — — 1,520 — 140,357

Home equity 71,837 656 46 — 702 109 72,648

Other consumer 2,492 9 — — 9 8 2,509

Total $ 7,796,448 $ 6,770 $ 18,977 $ — $ 25,747 $ 58,060 $ 7,880,255

December 31, 2019

Commercial $ 1,527,134 $ 3,063 $ 781 $ — $ 3,844 $ 14,928 $ 1,545,906

Income producing - commercial real estate 3,687,494 — 5,542 — 5,542 9,711 3,702,747

2 unchanged sentences

Construction - commercial and residential 1,113,735 — — — — 11,509 1,125,244

Home equity 79,246 136 192 — 328 487 80,061

Other consumer 2,151 — 9 — 9 — 2,160

The following presents the nonaccrual loans as of June 30, 2020 and December 31, 2019:

June 30, 2020

December 31, 2019

Nonaccrual with

(dollars in thousands)

for Credit Loss

Total $ 7,470,755 $ 19,740 $ 6,524 $ — $ 26,264 $ 48,729 $ 7,545,748

The following presents the nonaccrual loans as of September 30, 2020 (unaudited) and December 31, 2019:

September 30, 2020 December 31, 2019

Nonaccrual with Nonaccrual with Total Total

No Allowance an Allowance Nonaccrual Nonaccrual

(dollars in thousands) for Credit Loss for Credit Loss Loans Loans

Commercial 572 15,262 15,834 14,928

PPP loans — — — —

Income producing - commercial real estate 6,690 13,379 20,069 9,711

2 unchanged sentences

Construction - commercial and residential 1,866 408 2,274 11,509

Home equity 109 — 109 487

Other consumer 5 3 8 —

(1) Excludes TDRs that were performing under their restructured terms totaling $ 12.3 million at June 30, 2020 and $ 16.6 million at December 31, 2019.

(2) Gross interest income of $ 1.7 million and $ 1.2 million would have been recorded for the six months ended June 30, 2020 and 2019, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $ 57 thousand and $ 86 thousand for the six months ended June 30, 2020 and 2019, respectively.

$ 23,303 $ 34,757 $ 58,060 $ 48,729

________________________________________

(1) Excludes TDRs that were performing under their restructured terms totaling $ 10.1 at September 30, 2020 and $ 16.6 million at December 31, 2019.

(2) Gross interest income of $ 2.6 million and $ 2.7 million would have been recorded for the nine months ended September 30, 2020 and 2019, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $ 282 thousand and $ 598 thousand for the nine months ended September 30, 2020 and 2019, respectively.

See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.

5 unchanged sentences

The following table presents, by class of loan, information related to impaired loans at December 31, 2019:

Average Recorded

Interest Income

(dollars in thousands)

Unpaid Recorded Recorded Average Recorded Interest Income

Contractual Investment Investment Total Investment Recognized

Principal With No With Recorded Related Year Year

(dollars in thousands) Balance Allowance Allowance Investment Allowance to Date To Date

December 31, 2019

Commercial $ 15,814 $ 11,858 $ 3,956 $ 15,814 $ 5,714 $ 15,682 $ 270

Income producing - commercial real estate 14,093 2,713 11,380 14,093 2,145 18,133 382

2 unchanged sentences

Construction - commercial and residential 11,509 11,101 408 11,509 100 8,211 92

Home equity 487 — 487 487 100 487 —

Other consumer — — — — — — —

Total $ 54,883 $ 35,235 $ 19,648 $ 54,883 $ 9,124 $ 54,258 $ 941

Modifications

A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession.

A modification of a loan constitutes a TDR when the borrower is experiencing financial difficulty and the modification constitutes a concession.

The Company offers various types of concessions when modifying a loan.

2 unchanged sentences

The most common change in terms provided by the Company is an extension of an interest-only term.

As of June 30, 2020, all performing TDRs were categorized as interest-only modifications .

As of September 30, 2020, all performing TDRs were categorized as interest-only modifications .

Loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan.

2 unchanged sentences

In response to the COVID-19 pandemic and its economic impact to our customers, we implemented a short-term modification program that complies with the CARES Act and ASC 310-40 to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019.

This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.

This program allows for a deferral of payments for 90 days, which we extended for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis.

The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date.

As of June 30, 2020, we granted temporary modifications on approximately 708 loans representing approximately $ 1.63 billion ( 20 % of total loans) in outstanding exposure.

Some of these deferrals may not have met the criteria for treatment under U.S.

As of September 30, 2020, we granted ongoing temporary modifications on approximately 321 loans representing approximately $ 851 million ( 10.8 % of total loans) in outstanding exposure.

Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e.

non-performing loans) due to the provision of the CARES Act that permits U.S.

financial institutions to temporarily suspend the U.S.

GAAP requirements to treat such short-term loan modifications as TDR.

financial institutions to temporarily suspend the GAAP requirements to treat such short-term loan modifications as TDR.

Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board.

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended June 30, 2020 and 2019.

For the Six Months Ended June 30, 2020

Construction -

(dollars in thousands)

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended September 30, 2020 and 2019.

Nine Months Ended September 30, 2020

Income Owner

Number Producing - Occupied - Construction -

of Commercial Commercial Commercial

(dollars in thousands) Contracts Commercial Real Estate Real Estate Real Estate Total

Troubled debt restructurings

1 unchanged sentence

Restructured nonaccruing 4 138 6,342 2,370 — 8,850

Total 11 $ 1,435 $ 15,530 $ 2,407 $ — $ 19,372

Specific allowance $ 227 $ 629 $ — $ — $ 856

Restructured and subsequently defaulted $ 138 $ 11,161 $ 2,370 $ — $ 13,669

For the Six Months Ended June 30, 2019

Construction -

(dollars in thousands)

Nine Months Ended September 30, 2019

Income Owner

Number Producing - Occupied - Construction -

of Commercial Commercial Commercial

(dollars in thousands) Contracts Commercial Real Estate Real Estate Real Estate Total

Troubled debt restructurings

1 unchanged sentence

Restructured nonaccruing 3 1,521 — — — 1,521

Total 10 $ 2,419 $ 4,387 $ 3,283 $ — $ 10,089

Specific allowance $ — $ 1,000 $ — $ — $ 1,000

Restructured and subsequently defaulted $ — $ 2,300 $ — $ — $ 2,300

The Company had thirteen TDR’s at June 30, 2020 totaling approximately $ 20.3 million.

Ten of these loans totaling approximately $ 12.3 million are performing under their modified terms.

For both the first six months of 2020 and 2019, there was one performing TDR loan, totaling $ 5.5 million and $ 2.3 million, respectively, that defaulted on its modified terms.

The Company had eleven TDRs at September 30, 2020 totaling approximately $ 19.4 million.

Seven of these loans totaling approximately $ 10.5 million are performing under their modified terms.

For the first nine months of 2020 and 2019, there were two performing TDR loans each, totaling $ 6.3 million and $ 0.9 million, respectively, that defaulted on their modified terms.

A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on non-accrual status.

For the three months ended June 30, 2020, there were two restructured loans totaling approximately $ 870 thousand where the collateral was sold and the loans paid in full, as compared to the same period in 2019, when there was one restructured loan totaling approximately $ 4.8 million that had its collateral property sold for approximately $ 3 million and the remaining $ 1.8 million charged-off during the quarter.

During the three months ended June 30, 2020, no loans were re-underwritten and removed from TDR status, as compared to the three months ended June 30, 2019, there was one loan totaling $ 10.4 million that was re-underwritten into two new loans which provided better collateral for the Bank.

Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.

For the three months ended September 30, 2020, there were no restructured loans where the collateral was sold and the loans paid in full, as compared to the same period in 2019, when there was one restructured loan totaling approximately $ 309 thousand that was paid off from the sale proceeds of the collateral property.

During the three months ended September 30, 2020 and 2019, no loans were re-underwritten and removed from TDR status.

Comme rcial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.

If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment.

The allowance may be increased, adjustments may be made in the allocation of the allowance or partial charge-offs may be taken to further write-down the carrying value of the loan.

For both the three months ended June 30, 2020 and 2019, there were no loans modified in a TDR.

For both the three months ended September 30, 2020 and 2019, there were no loans modified in a TDR.

A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration.

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Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branch offices, ATM locations, and corporate office space.

Substantially all of our leases are classified as operating leases, and as such, were previously not recognized on the Company’s Consolidated Statements of Condition.

With the adoption of Topic 842, operating lease agreements were

required to be recognized on the Consolidated Statements of Condition as a right-of-use (“ROU”) asset and a corresponding lease liability.

As of June 30, 2020, the Company had $ 25.4 million of operating lease ROU assets and $ 27.1 million of operating lease liabilities on the Company’s Consolidated Balance Sheet.

As of December 31, 2019, the Company had $ 27.4 million of operating lease ROU assets and $ 30.0 million of operating lease liabilities on the Company’s Consolidated Balance Sheet.

The Company elects not to recognize ROU assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less, or equipment leases (deemed immaterial) on the Consolidated Statements of Condition.

Substantially all of our leases are classified as operating leases, and as such, were previously not recognized on the Company’s Consolidated Balance Sheets.

With the adoption of Topic 842, operating lease agreements were required to be recognized on the Consolidated Balance Sheets as a right-of-use (“ROU”) asset and a corresponding lease liability.

As of September 30, 2020, the Company had $ 27.2 million of operating lease ROU assets and $ 30.5 million of operating lease liabilities on the Company’s Consolidated Balance Sheets.

As of December 31, 2019, the Company had $ 27.4 million of operating lease ROU assets and $ 30.0 million of operating lease liabilities on the Company’s Consolidated Balance Sheets.

In accordance with ASC 842 on Leases, a $ 1.7 million one-time adjustment to rent expense was recorded during the third quarter as our internal review process identified a lease extension that was not originally recorded in the lease balances reflected in the Consolidated Balance Sheets upon implementation of the new lease accounting standard.

Our leases contain terms and conditions of options to extend or terminate the lease which are recognized as part of the ROU assets and lease liabilities when an economic benefit to exercise the option exists and there is a 90 % probability that the Company will exercise the option.

If these criteria are not met, the options are not included in our ROU assets and lease liabilities.

As of June 30, 2020, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company’s ability to incur additional financial obligations.

As of June 30, 2020, there were no leases that have been signed but did not yet commence as of the reporting date that create significant rights and obligations for the Company.

As of September 30, 2020, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company’s ability to incur additional financial obligations.

As of September 30, 2020, there were no leases that have been signed but did not yet commence as of the reporting date that create significant rights and obligations for the Company.

The following table presents lease costs and other lease information.

Six Months Ended

(dollars in thousands)

June 30, 2020

Nine Months Ended

(dollars in thousands) September 30, 2020 September 30, 2019

Lease Cost

Operating Lease Cost (Cost resulting from lease payments) $ 6,253 $ 5,857

4 unchanged sentences

Right-of-Use Assets - Operating Leases $ 27,180 $ 26,552

Weighted Average Lease Term - Operating Leases

Weighted Average Lease Term - Operating Leases 5.27 yrs 5.11 yrs

Weighted Average Discount Rate - Operating Leases 4.00 % 4.00 %

Future minimum payments for operating leases with initial or remaining terms of more than one year as of June 30, 2020 were as follows:

Future minimum payments for operating leases with initial or remaining terms of more than one year as of September 30, 2020 were as follows:

(dollars in thousands)

Twelve Months Ended:

June 30, 2021

June 30, 2022

June 30, 2023

June 30, 2024

June 30, 2025

September 30, 2021 $ 8,384

September 30, 2022 6,592

September 30, 2023 5,296

September 30, 2024 4,595

September 30, 2025 3,847

Thereafter 5,162

Total Future Minimum Lease Payments 33,876

14 unchanged sentences

The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions.

As of June 30, 2020 and December 31, 2019, the Company had one designated cash flow hedge notional interest rate swap transaction outstanding amounting to $ 100 million associated with the Company’s variable rate deposits.

As of September 30, 2020 and December 31, 2019, the Company had one designated cash flow hedge notional interest rate swap transaction outstanding amounting to $ 100 million associated with the Company’s variable rate deposits.

The Company recognized $ 829 thousand in noninterest income during March 2019 due to the termination of two of its interest rate swap transactions as part of the Company’s asset liability strategy as well as declines in market interest rates.

Amounts reported in accumulated other comprehensive income related to designated cash flow hedge derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities.

During the next twelve months, the Company estimates (based on existing interest rates) that $ 1.3 million will be reclassified as an increase in interest expense.

During the next twelve months, the Company estimates (based on existing interest rates) that $ 842 thousand will be reclassified as an increase in interest expense.

Non-designated Hedges

3 unchanged sentences

As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings.

The Company entered into credit risk participation agreements ("RPAs") with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower's performance related to interest rate derivative contracts.

The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers' credit spread to that exposure.

4 unchanged sentences

The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives.

The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, "Derivatives and Hedging."

In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty.

Collateral must be posted when the market value exceeds certain threshold limits.

The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty.

The interest rate derivative agreements detail:

2 unchanged sentences

3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of June 30, 2020, the aggregate fair value of the derivative contract with credit risk contingent features (i.e., containing collateral posting or termination provisions based on our capital status) that was in a net liability position totaled $ 6.1 million.

As of September 30, 2020, the aggregate fair value of the derivative contract with credit risk contingent features (i.e., containing collateral posting or termination provisions based on our capital status) that was in a net liability position totaled $ 5.5 million.

The Company has a minimum collateral posting threshold with its derivative counterparty.

As of June 30, 2020, the Company was required to post collateral totaling $ 1.9 million with its derivative counterparty against its obligations under this agreement.

If the Company had breached any provisions under the agreement at June 30, 2020, it could have been required to settle its obligations under the agreement at the termination value.

The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of June 30, 2020 (unaudited) and December 31, 2019.

December 31,2019

Balance Sheet

Derivatives designated as hedging instruments

Interest rate product

Other Liabilities

Derivatives not designated as hedging instruments

(dollars in thousands)

Interest rate product

(dollars in thousands)

Interest rate product

Other Liabilities

Other Contracts

Other Liabilities

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and six months ended June 30, 2020 and 2019 (unaudited):

As of September 30, 2020, the Company was required to post collateral totalin g $ 2.2 million with its derivative counterparty against its obligations under this agreement.

If the Company had breached any provisions under the agreement at September 30, 2020, it could have been required to settle its obligations under the agreement at the termination value.

The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2020 (unaudited) and December 31, 2019.

September 30, 2020 December 31, 2019

Notional Balance Sheet Notional Balance Sheet

Derivatives designated as hedging instruments (dollars in thousands) Amount Fair Value Category Amount Fair Value Category

Interest rate product $ 100,000 $ 910 Other Liabilities $ 100,000 $ 206 Other Liabilities

Derivatives not designated as hedging instruments (dollars in thousands

Interest rate product $ 176,851 $ 4,306 Other Assets $ 56,806 $ 311 Other Assets

Mortgage banking derivatives 409,988 6,015 Other Assets 49,869 280 Other Assets

586,839 10,321 586,839 10,321 106,675 591

Interest rate product $ 176,851 $ 4,561 Other Liabilities $ 56,806 $ 319 Other Liabilities

Other Contracts 27,031 136 Other Liabilities 27,384 86 Other Liabilities

Mortgage banking derivatives $ — $ — Other Liabilities $ 49,869 $ 66 Other Liabilities

$ 203,882 $ 4,697 Other Liabilities $ 134,059 $ 471 Other Liabilities

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2020 and 2019:

The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income

Location of Gain or (Loss)

Amount of Gain or (Loss)

Amount of (Loss) Recognized in

Recognized from

Reclassified from Accumulated OCI

OCI on Derivative

Accumulated Other

Derivatives in Subtopic 815-20 Hedging

Three Months Ended June 30,

Comprehensive Income into

Three Months Ended June 30,

Relationships (dollars in thousands)

Location of Gain or (Loss) Amount of Gain or (Loss)

Amount of Gain (Loss) Recognized in Recognized from Reclassified from Accumulated OCI

OCI on Derivative Accumulated Other into Income

Derivatives in Subtopic 815-20 Hedging Three Months Ended September 30, Comprehensive Income into Three Months Ended September 30,

Relationships (dollars in thousands) 2020 2019 Income 2020 2019

Derivatives in Cash Flow Hedging Relationships

Interest Rate Products

Interest Expense

Interest Rate Products 31 ( 107 ) Interest Expense ( 389 ) 264

Total 31 ( 107 ) ( 389 ) 264

Location of Gain or (Loss)

Recognized from

Accumulated Other

Amount of Gain or (Loss)

Amount of (Loss) Recognized in

Comprehensive Income into

Reclassified from Accumulated OCI

OCI on Derivative

Derivatives in Subtopic 815-20 Hedging

Six Months Ended June 30,

Accumulated Other Amount of Gain or (Loss)

Amount of (Loss) Recognized in Comprehensive Income into Reclassified from Accumulated OCI

OCI on Derivative Income into Income

Derivatives in Subtopic 815-20 Hedging Nine Months Ended September 30, Nine Months Ended September 30,

Relationships (dollars in thousands) 2020 2019 2020 2019

Derivatives in Cash Flow Hedging Relationships

Interest Rate Products

Interest Expense

Interest Rate Products

Gain on sale of investment securities

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited):

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Operation

Interest Rate Products ( 1,517 ) ( 1,974 ) Interest Expense ( 755 ) 1,039

Interest Rate Products — — Gain on sale of investment securities — 829

Total ( 1,517 ) ( 1,974 ) ( 755 ) 1,868

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019:

The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Income

Location and Amount of Gain or (Loss) Recognized in Income on

Fair Value and Cash Flow Hedging Relationships (in 000's)

Three Months Ended June 30,

Six Months Ended June 30,

Gain on sale of

investment securities

Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019 2019

Interest Interest Interest Gain on sale of

Expense Expense Expense investment securities

Total amounts of income and expense line items presented in the consolidated statement of income in which the effects of fair value or cash flow hedges are recorded $ 389 $ 264 $ 755 $ 1,039 $ 829

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20

4 unchanged sentences

Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component $ — $ — $ — $ — $ —

Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Operation

Amount of Gain or (Loss)

Amount of (Loss)

Recognized in Income on

Location of Gain or

Derivatives Not Designated as Hedging

(Loss) Recognized in

Three Months Ended June 30,

Six Months Ended June 30,

Instruments under Subtopic 815-20

Income on Derivative

Interest Rate Products

Other income / (expense)

Other Contracts

Other income / (expense)

Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Income

Amount of Income (Loss) Amount of Income (Loss)

Recognized in Income on Recognized in Income on

Location of Derivative Derivative

Derivatives Not Designated as Hedging (Loss) Recognized in Three Months Ended September 30, Nine Months Ended September 30,

Instruments under Subtopic 815-20 Income on Derivative 2020 2019 2020 2019

Interest Rate Products Other income / (expense) ( 40 ) ( 7 ) ( 326 ) ( 7 )

Mortgage banking derivatives Other income / (expense) 6,015 ( 380 ) 6,015 316

Other Contracts Other income / (expense) ( 13 ) ( 16 ) ( 77 ) ( 58 )

Total 5,962 ( 403 ) 5,612 251

Balance Sheet Offsetting :

3 unchanged sentences

The Company generally offsets such financial instruments for financial reporting purposes.

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of June 30, 2020 (unaudited) and December 31, 2019.

As of June 30, 2020

Gross Amounts Not Offset in the

Balance Sheet

Offsetting of Derivative Assets (dollars in thousands)

Gross Amounts Not Offset in the

Balance Sheet

Offsetting of Derivative Liabilities (dollars in thousands)

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of September 30, 2020 (unaudited) and December 31, 2019.

As of September 30, 2020

Gross Gross Amounts Not Offset in the

Gross Amounts Net Amounts of Assets presented in the Balance Sheet Balance Sheet

Amounts of Offset in Cash

Offsetting of Derivative Assets (dollars in thousands) Recognized the Balance Financial Collateral Net

Assets Sheet Instruments Posted Amount

Derivatives $ 4,306 $ — $ 4,306 $ — $ — $ 4,306

Gross Gross Amounts Not Offset in the

Gross Amounts Net Amounts of Liabilities presented in the Balance Sheet Balance Sheet

Amounts of Offset in Cash

Recognized the Balance Financial Collateral Net

Offsetting of Derivative Liabilities (dollars in thousands) Liabilities Sheet Instruments Posted Amount

Derivatives $ 5,216 $ — $ 5,216 $ — $ 230 $ 4,986

As of December 31, 2019

Gross Amounts Not Offset in the

Balance Sheet

Offsetting of Derivative Assets (dollars in thousands)

Gross Amounts Not Offset in the

Balance Sheet

Offsetting of Derivative Liabilities (dollars in thousands)

Gross Gross Amounts Not Offset in the

Gross Amounts Net Amounts of Assets presented in the Balance Sheet Balance Sheet

Amounts of Offset in Cash

Offsetting of Derivative Assets (dollars in thousands) Recognized the Balance Financial Collateral Net

Assets Sheet Instruments Posted Amount

Derivatives $ 311 — $ 311 — — $ 311

Gross Gross Amounts Not Offset in the

Gross Amounts Net Amounts of Liabilities presented in the Balance Sheet Balance Sheet

Amounts of Offset in Cash

Recognized the Balance Financial Collateral Net

Offsetting of Derivative Liabilities (dollars in thousands) Liabilities Sheet Instruments Posted Amount

Derivatives $ 611 — $ 611 — $ 500 $ 111

Other Real Estate Owned

The activity within Other Real Estate Owned (“OREO”) for the three and six months ended June 30, 2020 and 2019 (unaudited) is presented in the table below.

There were no residential real estate loans in the process of foreclosure as of June 30, 2020.

For the three and six months ended June 30, 2020 and 2019, there were no sales of OREO property.

Three Months Ended June 30,

Six Months Ended June 30,

The activity within Other Real Estate Owned (“OREO”) for the three and nine months ended September 30, 2020 and 2019 (unaudited) is presented in the table below.

There were no residential real estate loans in the process of foreclosure as of September 30, 2020.

For the three and nine months ended September 30, 2020 there was one sale of an OREO property, while there were zero sales in the same periods in 2019.

Three Months Ended September 30, Nine Months Ended September 30,

(dollars in thousands) 2020 2019 2020 2019

4 unchanged sentences

Long-Term Borrowings

The following table presents information related to the Company’s long-term borrowings as of June 30, 2020 (unaudited) and December 31, 2019.

(dollars in thousands)

June 30, 2020

December 31, 2019

The following table presents information related to the Company’s long-term borrowings as of September 30, 2020 (unaudited) and December 31, 2019.

(dollars in thousands) September 30, 2020 December 31, 2019

Subordinated Notes, 5.75 %

$ 70,000 $ 70,000

Subordinated Notes, 5.0 %

150,000 150,000

FHLB Advance, 1.81 %

9 unchanged sentences

Net Income per Common Share

The calculation of net income per common share for the three and six months ended June 30, 2020 and 2019 (unaudited) was as follows:

Three Months Ended June 30,

Six Months Ended June 30,

The calculation of net income per common share for the three and nine months ended September 30, 2020 and 2019 (unaudited) was as follows:

Three Months Ended September 30, Nine Months Ended September 30,

(dollars and shares in thousands, except per share data) 2020 2019 2020 2019

Net income $ 41,346 $ 36,495 $ 93,325 $ 107,487

Average common shares outstanding 32,229 34,233 32,434 34,418

Basic net income per common share $ 1.28 $ 1.07 $ 2.88 $ 3.12

Net income $ 41,346 $ 36,495 $ 93,325 $ 107,487

Average common shares outstanding 32,229 34,233 32,434 34,418

4 unchanged sentences

Other Comprehensive Income

The following table presents the components of other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 (unaudited).

(dollars in thousands)

Three Months Ended June 30, 2020

Net unrealized gain on securities available-for-sale

The following table presents the components of other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019.

(dollars in thousands) Before Tax Tax Effect Net of Tax

Three Months Ended September 30, 2020

Net unrealized loss on securities available-for-sale $ ( 840 ) $ 216 $ ( 624 )

Reclassification adjustment for net gains included in net income ( 115 ) 29 ( 86 )

Total unrealized gain

Net unrealized loss on derivatives

Total unrealized loss ( 955 ) 245 ( 710 )

Net unrealized gain on derivatives 31 ( 7 ) 24

Reclassification adjustment for loss included in net income 389 ( 100 ) 289

1 unchanged sentence

Other Comprehensive Income $ ( 535 ) $ 138 $ ( 397 )

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Net unrealized gain on securities available-for-sale $ 1,585 $ 411 $ 1,174

1 unchanged sentence

Total unrealized gain 1,432 368 1,064

Net unrealized loss on derivatives

Net unrealized gain on derivatives 24 ( 13 ) 11

Reclassification adjustment for gain included in net income ( 285 ) ( 80 ) ( 205 )

1 unchanged sentence

Other Comprehensive Income $ 1,171 $ 301 $ 870

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Net unrealized gain on securities available-for-sale $ 18,402 $ ( 5,048 ) $ 13,354

5 unchanged sentences

Other Comprehensive Income $ 15,454 $ ( 4,142 ) $ 11,312

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Net unrealized gain on securities available-for-sale $ 17,712 $ ( 4,572 ) $ 13,140

5 unchanged sentences

Other Comprehensive Income $ 11,995 $ ( 4,969 ) $ 8,912

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2020 and 2019 (unaudited).

Accumulated Other

Comprehensive Income

(dollars in thousands)

Three Months Ended June 30, 2020

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and nine months ended September 30, 2020 and 2019.

Securities Accumulated Other

Available Comprehensive Income

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended September 30, 2020

Balance at Beginning of Period $ 15,942 $ ( 1,274 ) $ 14,668

Other comprehensive income before reclassifications

Other comprehensive income (loss) before reclassifications ( 624 ) 24 ( 600 )

Amounts reclassified from accumulated other comprehensive income (loss) ( 86 ) 289 203

Net other comprehensive income during period

Net other comprehensive income (loss) during period ( 710 ) 313 ( 397 )

Balance at End of Period $ 15,232 $ ( 961 ) $ 14,271

Accumulated Other

Comprehensive Income

(dollars in thousands)

Three Months Ended June 30, 2019

Securities Accumulated Other

Available Comprehensive Income

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended September 30, 2019

Balance at Beginning of Period $ 3,842 $ ( 75 ) $ 3,767

Other comprehensive income (loss) before reclassifications 1,174 11 1,185

Amounts reclassified from accumulated other comprehensive income

Amounts reclassified from accumulated other comprehensive loss ( 110 ) ( 205 ) ( 315 )

Net other comprehensive income (loss) during period 1,064 ( 194 ) 870

Balance at End of Period $ 4,906 $ ( 269 ) $ 4,637

Accumulated Other

Comprehensive Income

(dollars in thousands)

Six Months Ended June 30, 2020

Securities Accumulated Other

Available Comprehensive Income

(dollars in thousands) For Sale Derivatives (Loss)

Nine Months Ended September 30, 2020

Balance at Beginning of Period $ 3,109 $ ( 150 ) $ 2,959

Other comprehensive income (loss) before reclassifications 13,354 ( 1,324 ) 12,030

Amounts reclassified from accumulated other comprehensive income

Amounts reclassified from accumulated other comprehensive income (loss) ( 1,231 ) 513 ( 718 )

Net other comprehensive income (loss) during period 12,123 ( 811 ) 11,312

Balance at End of Period $ 15,232 $ ( 961 ) $ 14,271

Accumulated Other

Comprehensive Income

(dollars in thousands)

Six Months Ended June 30, 2019

Securities Accumulated Other

Available Comprehensive Income

(dollars in thousands) For Sale Derivatives (Loss)

Nine Months Ended September 30, 2019

Balance at Beginning of Period $ ( 7,044 ) $ 2,769 $ ( 4,275 )

Other comprehensive income (loss) before reclassifications 13,140 ( 1,664 ) 11,476

Amounts reclassified from accumulated other comprehensive income

Amounts reclassified from accumulated other comprehensive loss ( 1,190 ) ( 1,374 ) ( 2,564 )

Net other comprehensive income (loss) during period 11,950 ( 3,038 ) 8,912

Balance at End of Period $ 4,906 $ ( 269 ) $ 4,637

The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 (unaudited).

The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2020 and 2019.

Amount Reclassified from

Accumulated Other

Affected Line Item in

Details about Accumulated Other

Comprehensive (Loss) Income

the Statement Where

Comprehensive Income Components

Three Months Ended June 30,

Net Income is Presented

Accumulated Other Affected Line Item in

Details about Accumulated Other Comprehensive (Loss) Income the Statement Where

Comprehensive Income Components Three Months Ended September 30, Net Income is Presented

(dollars in thousands) 2020 2019

Realized gain on sale of investment securities

Gain on sale of investment securities

Interest income derivative deposits

Interest expense on deposits

Income tax expense

Income Tax Expense

Total Reclassifications for the Period

Realized gain on sale of investment securities $ 115 $ 153 Gain on sale of investment securities

Interest income derivative deposits ( 389 ) 285 Interest expense on deposits

Income tax expense 71 ( 123 ) Income Tax Expense

Total Reclassifications for the Period $ ( 203 ) $ 315 Net Income

Amount Reclassified from

Accumulated Other

Affected Line Item in

Details about Accumulated Other

Comprehensive (Loss) Income

the Statement Where

Comprehensive Income Components

Six Months Ended June 30,

Net Income is Presented

Accumulated Other Affected Line Item in

Details about Accumulated Other Comprehensive (Loss) Income the Statement Where

Comprehensive Income Components Nine Months Ended September 30, Net Income is Presented

(dollars in thousands) 2020 2019

Realized gain on sale of investment securities

Gain on sale of investment securities

Realized gain on swap termination

Gain on sale of investment securities

Interest income derivative deposits

Interest expense on deposits

Income tax expense

Income Tax Expense

Total Reclassifications for the Period

Realized gain on sale of investment securities $ 1,650 $ 1,628 Gain on sale of investment securities

Realized gain on swap termination — 829 Gain on sale of investment securities

Interest income derivative deposits ( 688 ) 1,050 Interest expense on deposits

Income tax expense ( 244 ) ( 943 ) Income Tax Expense

Total Reclassifications for the Period $ 718 $ 2,564 Net Income

Fair Value Measurements

17 unchanged sentences

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 (unaudited) and December 31, 2019.

Quoted Prices

(dollars in thousands)

June 30, 2020

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 2020 (unaudited) and December 31, 2019.

Significant Significant

Other Other

Observable Unobservable

Quoted Prices Inputs Inputs Total

(dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value)

September 30, 2020

Investment securities available-for-sale:

6 unchanged sentences

Interest Rate Caps — 4,233 — 4,233

Total assets measured at fair value on a recurring basis as of June 30, 2020

Mortgage banking derivatives — — 6,015 6,015

Total assets measured at fair value on a recurring basis as of September 30, 2020 $ — $ 1,059,189 $ 7,713 $ 1,066,902

Interest rate swap derivatives $ — $ 910 $ — $ 910

1 unchanged sentence

Interest Rate Caps — 4,487 — 4,487

Total liabilities measured at fair value on a recurring basis as of June 30, 2020

Total liabilities measured at fair value on a recurring basis as of September 30, 2020 $ — $ 5,533 $ — $ 5,533

December 31, 2019

4 unchanged sentences

Corporate bonds — — 10,733 10,733

Treasury — 34,855 — 34,855

Other equity investments — — 198 198

14 unchanged sentences

Level 2 securities include U.S.

agency debt securities, mortgage backed securities issued by Government Sponsored Entities (“GSE’s”) and municipal bonds.

agency debt securities, mortgage backed securities issued by Government Sponsored Entities and municipal bonds.

Securities classified as Level 3 include securities in less liquid markets, the carrying amounts approximate the fair value.

1 unchanged sentence

The Company has elected to carry loans held for sale at fair value.

This election reduces certain timing differences in the Consolidated Statement of Operations and better aligns with the management of the portfolio from a business perspective.

This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective.

Fair value is derived from secondary market quotations for similar instruments.

Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Operations.

Gains and losses on sales of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Operations.

Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Income.

Gains and losses on sales of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Income.

As such, the Company classifies loans subjected to fair value adjustments as Level 2 valuation.

The following tables summarize the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of June 30, 2020 (unaudited) and December 31, 2019.

June 30, 2020

(dollars in thousands)

The following tables summarize the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of September 30, 2020 (unaudited) and December 31, 2019.

September 30, 2020

Aggregate

Principal

(dollars in thousands) Fair Value Balance Difference

Loans held for sale $ 79,084 $ 77,572 $ 1,512

December 31, 2019

(dollars in thousands)

Aggregate

Principal

(dollars in thousands) Fair Value Balance Difference

Loans held for sale $ 56,707 $ 55,834 $ 873

No residential mortgage loans held for sale were 90 or more days past due or on nonaccrual status as of June 30, 2020 or December 31, 2019.

There were no residential mortgage loans held for sale that were 90 or more days past due or on nonaccrual status as of September 30, 2020 or December 31, 2019.

Interest rate swap derivatives:

11 unchanged sentences

Interest rate caps:

The Company entered into an interest rate cap agreement ("cap") with an institutional counterparty, under which the Company will receive cash if and when market rates exceed the cap's strike rate.

The fair value of the cap is calculated by determining the total expected asset or liability exposure of the derivatives.

1 unchanged sentence

Accordingly, the cap falls within Level 2.

Mortgage banking derivatives:

The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation.

Mortgage banking derivatives for loans settled on a mandatory basis:

The Company relied on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation.

The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups.

The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

Mortgage banking derivative for loans settled best efforts basis :

The significant unobservable input (Level 3) used in the fair value measurement of the Company's interest rate lock commitments is the pull through ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close.

An increase in the pull through ratio (i.e.

higher percentage of loans are estimated to close) will increase the gain or loss.

The pull through ratio is largely dependent on the loan processing stage that a loan is currently in.

The pull through rate is computed by the Company's secondary marketing consultant using historical data and the ratio is periodically reviewed by the Company for reasonableness.

The following is a reconciliation of activity for assets and liabilities measured at fair value based on Significant Other Unobservable Inputs (Level 3):

Mortgage Banking

(dollars in thousands)

Investment Mortgage Balancing

(dollars in thousands) Securities Derivatives Total

Beginning balance at January 1, 2020 $ 10,931 $ 280 $ 11,211

3 unchanged sentences

Principal redemption — — —

Ending balance at June 30, 2020

Migrated to Level 2 valuation $ ( 9,233 ) $ — $ ( 9,233 )

Ending balance at September 30, 2020 $ 1,698 $ 6,015 $ 7,713

Beginning balance at January 1, 2020 $ — $ 66 $ 66

1 unchanged sentence

Principal redemption — — —

Ending balance at June 30, 2020

Mortgage Banking

(dollars in thousands)

Ending balance at September 30, 2020 $ — $ — $ —

Investment Mortgage Balancing

(dollars in thousands) Securities Derivatives Total

Beginning balance at January 1, 2019 $ 9,794 $ 229 $ 10,023

8 unchanged sentences

Ending balance at December 31, 2019 $ — $ 66 $ 66

The other equity securities classified as Level 3 consist of equity investments in the form of common stock of two local banking companies which are not publicly traded, and for which the carrying amount approximates fair value.

The other equity and debt securities classified as Level 3 consist of one corporate bond of a local banking company and equity investments in the form of common stock of two local banking companies which are not publicly traded, and for which the carrying amounts approximate fair value.

Form Level 3 assets measured at fair value on a recurring or nonrecurring basis as of September 30, 2020 and December 31, 2019, the significant unobservable inputs used in the fair value measurements were as follows:

September 30, 2020 December 31, 2019

(dollars in thousands) Valuation Technique Description Range Weighted Average (1)

Fair Value Weighted Average (1)

Mortgage banking derivatives Pricing Model Pull Through Rate 69.9 % - 81.4 %

78.44 % $ 6,015 0 76.25 % 76.25 $ 280

(1) Unobservable inputs for mortgage banking derivatives were weighted by loan amount.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets.

At June 30, 2020, substantially all of the Company’s individually evaluated loans were evaluated based upon the fair value of the collateral.

At September 30, 2020, substantially all of the Company’s individually evaluated loans were evaluated based upon the fair value of the collateral.

In accordance with ASC Topic 820, individually evaluated loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

12 unchanged sentences

Assets measured at fair value on a nonrecurring basis are included in the table below:

Quoted Prices

(dollars in thousands)

June 30, 2020

Significant Significant

Other Other

Observable Unobservable

Quoted Prices Inputs Inputs Total

(dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value)

September 30, 2020

Commercial $ — $ 824 $ 16,307 $ 17,131

Income producing - commercial real estate — 22,220 7,036 29,256

2 unchanged sentences

Construction - commercial and residential — — 2,274 2,274

Home equity — 109 — 109

Other consumer — — 8 8

Other real estate owned — — — —

Total assets measured at fair value on a nonrecurring basis as of June 30, 2020

Quoted Prices

(dollars in thousands)

Total assets measured at fair value on a nonrecurring basis as of September 30, 2020 $ — $ 36,581 $ 31,747 $ 68,328

Significant Significant

Other Other

Observable Unobservable

Quoted Prices Inputs Inputs Total

(dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value)

December 31, 2019

Impaired loans:

Commercial $ — $ — $ 10,100 $ 10,100

Income producing - commercial real estate — — 11,948 11,948

2 unchanged sentences

Construction - commercial and residential — — 11,409 11,409

Home equity — — 387 387

Other real estate owned — — 1,487 1,487

8 unchanged sentences

In addition, the estimates are only indicative of individual financial instrument values and should not be considered an indication of the fair value of the Company taken as a whole.

The estimated fair value of the Company’s financial instruments at June 30, 2020 and December 31, 2019 are as follows:

The estimated fair value of the Company’s financial instruments at September 30, 2020 (unaudited) and December 31, 2019 are as follows:

Fair Value Measurements

(dollars in thousands)

June 30, 2020

Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3)

(dollars in thousands) Value Fair Value

September 30, 2020

Cash and due from banks $ 7,559 $ 7,559 $ — $ 7,559 $ —

4 unchanged sentences

Loans held for sale 79,084 79,084 — 79,084 —

Loans 7,770,040 7,733,020 — — 7,733,020

Bank owned life insurance 76,326 76,326 — 76,326 —

Annuity investment 14,541 14,541 — 14,541 —

Mortgage banking derivatives 6,015 6,015 — — 6,015

Interest Rate Caps 4,233 4,233 — 4,233 —

3 unchanged sentences

Customer repurchase agreements 24,293 24,293 — 24,293 —

Borrowings 567,980 573,641 — 573,641 —

Interest rate swap derivatives 910 910 — 910 —

8 unchanged sentences

Loans held for sale 56,707 56,707 — 56,707 —

Loans 7,472,090 7,550,249 — — 7,550,249

Bank owned life insurance 75,724 75,724 — 75,724 —

5 unchanged sentences

Customer repurchase agreements 30,980 30,980 — 30,980 —

Borrowings 467,687 328,330 — 328,330 —

Interest rate swap derivatives 203 203 — 203 —

3 unchanged sentences

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