What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-10 compared with 2020-11-09 · 358 added, 516 removed, 1007 unchanged (46% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Cash and due from banks $ 9,112 $ 8,435

1 unchanged sentence

Interest bearing deposits with banks and other short-term investments 1,708,374 1,752,420

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).

Investment securities (amortized cost of $ 1,370,927 and $ 1,129,057 and allowance for credit losses of $ 78 and $ 167 as of March 31, 2021 and December 31, 2020, respectively).

1,369,107 1,151,083

8 unchanged sentences

Bank owned life insurance 77,119 76,729

Intangible assets, net 105,165 104,739

Goodwill and Intangible assets, net 105,179 105,114

Other real estate owned 4,987 4,987

21 unchanged sentences

Retained earnings 833,598 798,061

Accumulated other comprehensive income 14,271 2,959

Accumulated other comprehensive (loss) income ( 1,998 ) 15,500

Total Shareholders’ Equity 1,260,833 1,240,892

4 unchanged sentences

(dollars in thousands, except per share data)

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

2020 2019 2020 2019

Three Months Ended March 31,

Interest Income

40 unchanged sentences

(dollars in thousands)

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

2020 2019 2020 2019

Three Months Ended March 31,

Net Income $ 43,469 $ 23,123

12 unchanged sentences

(dollars in thousands except share data)

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 ) — — — — —

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

Cash dividends declared ($ 0.22 per share)

— — — ( 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

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

Issuance of common stock related to employee stock purchase plan 4,120 — 213 — — 213

Cash dividends declared ($ 0.22 per share)

— — ( 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

Shares Amount in Capital Earnings Income (Loss) Equity

Balance January 1, 2021 31,779,663 $ 315 $ 427,016 $ 798,061 $ 15,500 $ 1,240,892

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

Net Income — — — 43,469 — 43,469

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

Other comprehensive loss, net of tax — — — — ( 17,498 ) ( 17,498 )

Stock-based compensation expense — — 1,825 — — 1,825

6 unchanged sentences

Common stock repurchased ( 1,466 ) — ( 62 ) — — ( 62 )

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

Balance March 31, 2021 31,960,379 $ 316 $ 428,917 $ 833,598 $ ( 1,998 ) $ 1,260,833

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

Net Income — — — 23,123 — 23,123

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

Other comprehensive income, net of tax — — — — 10,106 10,106

8 unchanged sentences

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

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

Balance March 31, 2020 32,197,258 $ 320 $ 439,321 $ 710,072 $ 13,065 $ 1,162,778

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows From Operating Activities:

4 unchanged sentences

Depreciation and amortization 1,078 1,171

Amortization of operating lease right-of-use assets 5,276 3,022

Mortgage servicing rights gain ( 140 ) —

Gains on sale of loans ( 5,178 ) ( 944 )

Gains on sale of GNMA loans ( 2,443 ) —

Securities premium amortization (discount accretion), net 2,705 1,513

3 unchanged sentences

Deferred income tax (benefit) expense — ( 562 )

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

Net gain on sale of investment securities ( 221 ) ( 822 )

9 unchanged sentences

Purchases of Federal Reserve and Federal Home Loan Bank stock ( 43 ) ( 9,044 )

Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock 4,250 85,000

Net increase in loans ( 343,665 ) ( 574,177 )

Increase (decrease) in premises and equipment ( 445 ) ( 2,171 )

Sale of Federal Reserve and Federal Home Loan Bank stock 6,169 4,250

Net change in loans 228,275 ( 293,507 )

Net change in premises and equipment ( 2,397 ) ( 83 )

Net cash used in investing activities ( 2,162 ) ( 304,522 )

1 unchanged sentence

Increase in deposits 9,641 917,177

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

Net change in customer repurchase agreements ( 6,665 ) 397

Increase in short-term borrowings — 50,000

Increase in long-term borrowings 50,293 —

Proceeds from exercise of equity compensation plans — 332

Net change in long-term borrowings ( 50,000 ) 50,000

Proceeds from issuance of common stock 139 —

Proceeds from employee stock purchase plan — 196

1 unchanged sentence

Cash dividends paid ( 7,932 ) ( 7,225 )

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

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

Net cash used in financing activities ( 54,879 ) 966,377

Net Decrease In Cash and Cash Equivalents ( 45,784 ) 697,641

Cash and Cash Equivalents at Beginning of Period 1,789,055 241,973

6 unchanged sentences

Transfers from loans to other real estate owned $ — $ 6,750

Change in fair value of cash flow hedges $ 383 $ —

Change in fair value of investments $ (23,934) $ —

See Notes to Consolidated Financial Statements.

12 unchanged sentences

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.

In addition to the “Critical Accounting Policies” 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, 2020.

The Company believes that the disclosures are adequate to make the information presented not misleading.

5 unchanged sentences

The guaranteed portion of small business loans, guaranteed by the Small Business Administration (“SBA”), is typically sold to third party investors in a transaction apart from the loan’s origination.

The Bank offers its products and services through twenty banking offices, five lending centers and various electronic capabilities, including remote deposit services and digital banking services.

The Bank offers its products and services through twenty banking offices, six lending centers and various electronic capabilities, including remote deposit services and mobile banking services.

Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker.

6 unchanged sentences

Risks and Uncertainties

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company.

The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The spread of the outbreak has caused significant disruptions in the U.S.

The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and has impaired and could continue to impair their ability to fulfill their financial obligations to the Company.

The World Health Organization declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections.

The ongoing pandemic has caused significant disruptions in the U.S.

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

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.

While there has been no material adverse impact on 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.

2 unchanged sentences

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 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.

In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other follow-up stimulus legislative (including the $1.9 trillion "American Rescue Package") 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.

3 unchanged sentences

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 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.

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

In addition, a dollar/fee limit was implemented for Consumers.

As recognized and communicated to our customers when we initiated fee waivers, these have now been suspended.

At this time, the Company is unable to project the full extent of the materiality of our prior customer relief activities as they do continue in other forms.

However, the Company fully recognizes the breadth of the economic impact and its likelihood to impact fee income in future periods.

The Company’s interest income could be reduced due to COVID-1 9.

13 unchanged sentences

While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP.

COVID-19 could cause a further and sustained decline in the Company’s stock price.

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.

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).

The ongoing COVID-19 pandemic has caused and could continue to cause prolonged volatility and potential declines in the Company’s stock price.

Goodwill is subject to impairment testing at the reporting unit level and must be conducted at least annually.

The Company performs impairment testing during the fourth quarter of each year or when events or changes in circumstances indicate the assets might be impaired.

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 comparable factors.

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

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.

The Company determined that there were no triggering events and an impairment analysis was not performed as of March 31, 2021.

Annual impairment testing of intangibles and goodwill as required by GAAP will be performed in the fourth quarter of 2021.

Business Continuity Plan

7 unchanged sentences

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.

At March 31, 2021, 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 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.

As of March 31, 2021, we had ongoing temporary modifications on approximately 58 loans representing approximately $ 143 million (approximately 1.9 % of total loans) in outstanding balances, as compared to 36 loans representing approximately $ 72 million (approximately 0.9 % of total loans) at December 31, 2020.

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

4 unchanged sentences

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 PPP loans originated by the Bank generally have two or five-year terms 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 September 30, 2020, PPP loans totaled $ 456.1 million to just over 1,400 businesses.

As of March 31, 2021, PPP loans totaled $ 565.0 million to just over 1,800 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 charges to earnings.

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

On May 3, 2021, we transacted to sell 849 PPP loans for a total purchase price of $ 169.0 million.

Immediately following this sale, the principal outstanding on PPP loans totaled approximately $ 378.4 million across 789 notes.

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

The Company is prepared to offer short-term assistance in accordance with regulatory guidelines.

As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise.

Should economic conditions worsen, the Company could experience further increases in its required allowance for credit losses (“ACL”) and record additional provision for credit losses.

As a result of the current economic environment caused by the COVID-19 pandemic, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise.

Should economic conditions

worsen, the Company could experience further increases in its required allowance for credit losses (“ACL”) and record additional provision for credit losses.

It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged.

Allowance for Credit Losses

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 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 2016-2 "Leases (Topic 842)" ("ASU 2016-2") .

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

One such change is to require credit-related impairments to be recognized as an allowance for credit losses rather than as a write-down of the securities amortized cost basis when management does not intend to sell or believes that it is not more than likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis.

We adopted ASU 2016-13 using the modified retrospective method.

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 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 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.

As of March 31, 2021, all performing TDRs were categorized as interest-only modifications.

Refer to the subsection above "Lending 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.

5 unchanged sentences

Allowance for Credit Losses- Loans

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 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.

The ACL is an estimate of the expected credit losses in the loans held for investment portfolio.

ASC 326 requires lifetime expected credit losses to be immediately recognized when a financial asset is originated or purchased.

The ACL 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.

Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible.

Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged- off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.

Historical credit loss experience provides the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors.

The allowance for credit losses is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist.

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

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.

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.

A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in reserve for unfunded commitments on the Consolidated Balance Sheets.

The remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes and a loan-level probability of default (“PD”) / Loss Given Default (“LGD”) cash flow method with and using an exposure at default (“EAD”) model is applied.

These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level.

The ACL also includes an amount for inherent risks not reflected in the historical analyses.

Relevant factors include, but are not limited to, concentrations of credit risk, changes in underwriting standards, experience and depth of lending staff, and trends in delinquencies.

The Company uses regression analysis of historical internal and peer data (as Company loss data is insufficient) to determine suitable credit loss drivers to utilize when modeling lifetime PD and LGD.

This analysis also determines how expected PD will be impacted by different forecasted levels of the loss drivers.

A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit.

Any needed reserve is recorded in reserve for unfunded commitments (“RUC”) on the Consolidated Balance Sheets.

For periods beyond which we are able to develop reasonable and supportable forecasts, we revert to the historical loss rate on a straight-line basis over a twelve-month period.

See further detail regarding our forecasting methodology in the “Discounted Cash Flow Method” section below.

Even though portions of the allowance may be allocated to specific loans, the entire allowance is available for any credit that, in management's judgment, should be charged off.

The Company uses a loan level PD/LGD cash flow method with an EAD model to estimate expected credit losses.

In accordance with ASC 326, expected credit losses are measured on a collective (pooled) basis for financial assets with similar risk characteristics.

The bank groups collectively assessed loans using a call report code.

Some unique loan types, such as PPP loans, are grouped separately due to their specific risk characteristics.

For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates.

The modeling of expected prepayment speeds is based on historical internal data.

EAD is based on each instrument's underlying amortization schedule in order to estimate the bank's expected credit loss exposure at the time of the borrower's potential default.

For our cash flow model, management utilizes and forecasts regional unemployment by using a national forecast and estimating a regional adjustment based on historical differences between the two as the loss driver over our reasonable and supportable period of two years and reverts back to a historical loss rate over twelve months on a straight-line basis over the loan's remaining maturity.

In 2021, unemployment projections have started to recover from elevated levels experienced in 2020 as a result of the COVID-19 pandemic.

Unemployment projections inform our CECL economic forecast and resulted in a reduction to our ACL during the three months ended March 31, 2021.

Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.

While our methodology in establishing the ACL attributes portions of the ACL and RUC to the separate loan pools or segments, the entire ACL and RUC is available to absorb credit losses expected in the total loan portfolio and total amount of unfunded credit commitments, respectively.

Portfolio segments are used to pool loans with similar risk characteristics and align with our methodology for measuring expected credit losses.

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 Three Months Ended

(dollars in thousands) March 31, 2021 March 31, 2020

Provision for credit losses- loans ( 2,261 ) 14,310

Provision for credit losses- AFS debt securities ( 89 ) —

Total provision for credit losses ( 2,350 ) 14,310

A summary of our primary portfolio segments is as follows:

2 unchanged sentences

and are generally secured by accounts receivable, inventory, equipment and other assets of our clients’ businesses.

Paycheck Protection Program .

The PPP portfolio is comprised of loans issued under the SBA’s Paycheck Protection Program to support small businesses impacted by the pandemic.

PPP loans are approved subject to limited underwriting criteria following SBA guidelines, are unsecured, and are fully guaranteed as to principal and interest by the SBA.

Income producing commercial real estate.

Income producing commercial real estate loans are comprised of permanent and bridge financing provided to professional real estate owners/managers of commercial and residential real estate projects and properties who have a demonstrated record of past success with similar properties.

Collateral properties include apartment buildings, office buildings, hotels, mixed-use buildings, retail, data centers, warehouse, and shopping centers.

11 unchanged sentences

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

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

Construction – commercial 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.

12 unchanged sentences

Some substandard loans are inadequately protected by the sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired.

Substandard loans can be accruing or can be on non-accrual depending on the circumstances of the individual loans.

Substandard loans can be accruing or can be on nonaccrual depending on the circumstances of the individual loans.

Loans classified as doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection in full highly questionable and improbable.

The possibility of loss is extremely high.

All doubtful loans are on non-accrual.

All doubtful loans are on nonaccrual.

Classified loans represent the sum of loans graded substandard and doubtful.

The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions.

Changes are reflected in the pool-basis allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information.

Changes are reflected in the pool-basis allowance and in specific reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information.

As our portfolio has matured, historical loss ratios have been closely monitored.

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' 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.

The committees' reports to the Board are part of the Board 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 estimated fair value of the collateral adjusted for selling costs, when appropriate.

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.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate.

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 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.

Discounted Cash Flow Method

The Company uses the discounted cash flow (“DCF”) method to estimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage - residential, construction – commercial and residential, construction – C&I (owner occupied), home equity, and other consumer loan pools.

For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default, and loss given default.

The modeling of expected prepayment speeds is based on historical internal data.

The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default.

This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers.

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 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.

Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.

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.

The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation that a loan will be in a trouble debt restructuring.

We do not measure an ACL 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 nonaccrual status.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis.

For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing

financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral.

8 unchanged sentences

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

Although ASU No.

2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model.

One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost.

For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis.

2 unchanged sentences

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security.

When evaluating whether credit loss exists, accounting guidance requires that the Company not consider the length of time that fair value has been less than amortized cost.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income.

The entire amount of an impairment loss is recognized in earnings only when:

(1) the Company intends to sell the security;

or (2) it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis;

or (3) the Company does not expect to recover the entire amortized cost basis of the security.

In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders’ equity as comprehensive income, net of deferred taxes.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses.

1 unchanged sentence

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 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.

The majority of available-for-sale debt securities as of March 31, 2021 and December 31, 2020 were issued by U.S.

However, as of March 31, 2021, the allowance for credit losses on AFS securities was $ 78 thousand based on the Company's determination that part of the unrealized loss positions in AFS corporate and municipal securities could be the result of credit losses.

See Note 3 Investment Securities for more information.

8 unchanged sentences

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 Statement of Income.

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.

These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

1 unchanged sentence

Accounting Standards Adopted in 2021 :

In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the Agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19.

The interagency statement was effective immediately and impacted accounting for loan modifications.

Under Accounting Standards Codification 310-40, “ Receivables – Troubled Debt Restructurings by Creditors, ” (“ASC 310-40”), a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider.

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.

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 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.

ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” Under the CECL standard and based on the January 1, 2020 effective date, the Company made an initial adjustment to the allowance for credit losses of $ 10.6 million along with $ 4.1 million to the reserve for unfunded commitments.

In accordance with adoption of CECL, the initial January 1, 2020 cumulative-effect adjustment was to retained earnings (net of taxes) under the modified retrospective approach.

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.

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

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 2020-3 "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 2019-12 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.

ASU 2019-12 became effective for us on January 1, 2021 and did not have a material impact on our consolidated financial statements.

Accounting Standards Pending Adoption

ASU 2020-4, " Reference Rate Reform (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.

4 unchanged sentences

We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs.

We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements.

We do not anticipate that the LIBOR transition or the application of this ASU will have material effects on the Company's business operations and consolidated financial statements.

Cash and Due from Banks

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 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.

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

During the first three months of 2021, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid.

The Company also has deposits with other banks that serve as collateral for derivative positions it holds, totaling $ 2.6 million at March 31, 2021 and $ 5.1 million at December 31, 2020.

Additionally, the Bank maintains interest bearing balances with the Federal Home Loan Bank ("FHLB") of Atlanta and noninterest bearing balances with domestic correspondent banks to cover associated costs for services they provide to the Bank.

Investment Securities Available-for-Sale

1 unchanged sentence

Gross Gross Allowance Estimated

September 30, 2020 Amortized Unrealized Unrealized for Credit Fair

March 31, 2021 Amortized Unrealized Unrealized for Credit Fair

(dollars in thousands) Cost Gains Losses Losses Value

3 unchanged sentences

Corporate bonds 52,935 1,250 ( 481 ) ( 71 ) 53,633

Other equity investments 198 — — — 198

$ 1,370,927 $ 16,559 $ ( 18,499 ) $ ( 78 ) $ 1,368,909

Gross Gross Estimated

December 31, 2019 Amortized Unrealized Unrealized Fair

(dollars in thousands) Cost Gains Losses Value

December 31, 2020 Amortized Unrealized Unrealized Allowance for Fair

(dollars in thousands) Cost Gains Losses Credit Losses Value

agency securities $ 181,087 $ 1,461 $ ( 627 ) $ — $ 181,921

2 unchanged sentences

Corporate bonds 34,383 1,624 ( 8 ) ( 149 ) 35,850

Treasury 34,844 11 — 34,855

Other equity investments 198 — — 198

$ 1,129,057 $ 23,463 $ ( 1,468 ) $ ( 167 ) $ 1,150,885

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.

In addition, at March 31, 2021 and December 31, 2020 the Company held $ 34.0 million and $ 40.1 million, respectively, in equity securities in a combination of FRB and 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 $ 4.0 million and $ 3.5 million at March 31, 2021 and December 31, 2020, 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:

2 unchanged sentences

Estimated Estimated Estimated

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

March 31, 2021 Number of Fair Unrealized Fair Unrealized Fair Unrealized

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

1 unchanged sentence

Residential mortgage backed securities 267 579,364 11,646 5,035 60 584,399 11,706

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

Corporate bonds 16 23,763 481 — — 23,763 481

Municipal bonds 46 26,885 453 — — 26,885 453

379 $ 827,773 $ 17,926 $ 43,889 $ 573 $ 871,662 $ 18,499

6 unchanged sentences

Residential mortgage backed securities 35 170,178 782 6,419 51 176,597 833

Municipal bonds 1 1,994 5 — — 1,994 5

Corporate bonds 3 5,764 8 — — 5,764 8

66 $ 222,354 $ 857 $ 47,739 $ 611 $ 270,093 $ 1,468

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.

The majority of the AFS debt securities in an unrealized loss position as of March 31, 2021, 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 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.

As of March 31, 2021, 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 March 31, 2021, 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 $ 78 thousand was recorded.

The weighted average duration of debt securities, which comprise 99.9 % of total investment securities, is relatively short at 4.6 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 September 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 March 31, 2021 and December 31, 2020 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.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Amortized Estimated Amortized Estimated

14 unchanged sentences

After ten years 14,612 14,812 6,976 7,511

treasury — — 34,844 34,855

Other equity investments 198 198 198 198

Allowance for Credit Losses — ( 78 ) — ( 167 )

$ 1,370,927 $ 1,368,909 $ 1,129,057 $ 1,150,885

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.

For the three months ended March 31, 2021, gross realized gains on sales of investments securities were $ 386 thousand and there were $ 165 thousand gross realized losses on sales of investment securities.

For the three months ended March 31, 2020, gross realized gains on sales of investments securities were $ 822 thousand, and there were no gross realized losses on sales of investment securities.

Proceeds from sales and calls of investment securities for the three months ended March 31, 2021 were $ 28.5 million compared to $ 78.0 million for the same period in 2020.

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 March 31, 2021 and December 31, 2020 was $ 270.0 million and $ 268.4 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business.

As of March 31, 2021 and December 31, 2020, 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.

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 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.

At March 31, 2021, the Bank had mortgage banking derivative financial instruments totaling $ 2.5 million related to its interest rate lock commitments.

At March 31, 2021 the Bank had mortgage banking derivative financial instruments of $ 191.9 million notional value and $ 367.7 million at December 31, 2020.

The fair value of these mortgage banking derivative instruments at December 31, 2020 was $ 5.2 million included in other assets.

Included in gain on sale of loans for the three months ended March 31, 2021 there was no net loss relating to mortgage banking derivative instruments as compared to a net loss of $ 1.3 million for the three months ended March 31, 2020.

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 September 30, 2020 (unaudited) and December 31, 2019 are summarized by type as follows:

September 30, 2020 December 31, 2019

Loans, net of unamortized net deferred fees, at March 31, 2021 (unaudited) and December 31, 2020 are summarized by type as follows:

March 31, 2021 December 31, 2020

(dollars in thousands) Amount % Amount %

13 unchanged sentences

________________________________________

(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.

(1) Excludes accrued interest receivable of $ 46.4 million and $ 46.0 million at March 31, 2021 and December 31, 2020, respectively, which is recorded in other assets.

Unamortized net deferred fees amounted to $ 33.8 million and $ 30.8 million at March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, the Bank serviced $ 127 million and $ 124 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

The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences.

Plans for mitigating inherent risks in managing loan assets include:

carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation.

Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis.

A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations.

The remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes and a loan-level PD/LGD cash flow method using an EAD model is applied.

The 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.

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

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.

At March 31, 2021, owner occupied - commercial real estate and construction – C&I (owner occupied) represent approximately 15 % of the loan portfolio.

At March 31, 2021, non-owner occupied commercial real estate and real estate construction represented approximately 56 % of the loan portfolio.

The combined owner occupied and commercial real estate and construction loans represent approximately 56 % 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 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.

This loan category represents approximately 19 % of the loan portfolio at March 31, 2021 and was generally variable or adjustable rate.

Personal guarantees are generally required, but may be limited.

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

Non-PPP 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 recourse to the SBA guarantees.

2 unchanged sentences

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 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.

Approximately 8 % of the loan portfolio at March 31, 2021 consists of PPP loans to eligible customers.

PPP loans are expected to primarily be repaid via forgiveness provisions (under the CARES Act and subsequent legislation) 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 September 30, 2020 consists of home equity loans and lines of credit and other consumer loans.

Approximately 1 % of the loan portfolio at March 31, 2021 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 17 months at September 30, 2020.

The repricing duration of these loans was 20.5 months at March 31, 2021.

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 $ 1.4 billion at September 30, 2020.

ADC loans amounted to $ 1.3 billion at March 31, 2021.

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 58 % of the outstanding ADC loan portfolio at September 30, 2020.

ADC loans that provide for the use of interest reserves represent approximately 59.4 % of the outstanding ADC loan portfolio at March 31, 2021.

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:

13 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 nine months ended September 30, 2020 and 2019.

T he following tables detail activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2021 and 2020.

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.

3 unchanged sentences

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

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021

Allowance for credit losses:

2 unchanged sentences

Recoveries of loans previously charged-off 96 — — — — — 13 109

Net loans charged-off ( 142 ) ( 3,750 ) ( 20 ) — ( 1,179 ) ( 92 ) 13 ( 5,170 )

Provision for credit losses ( 712 ) 7,327 769 321 ( 1,088 ) ( 13 ) ( 15 ) 6,589

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

Nine Months Ended September 30, 2020

Allowance for credit losses:

Balance at beginning of period, prior to adoption of ASC 326 $ 18,832 $ 29,265 $ 5,838 $ 1,557 $ 17,485 $ 656 $ 25 $ 73,658

Impact of adopting ASC 326 892 11,230 4,674 ( 301 ) ( 6,143 ) 245 17 10,614

Loans charged-off ( 7,332 ) ( 4,300 ) ( 20 ) — ( 2,947 ) ( 92 ) — ( 14,691 )

Recoveries of loans previously charged-off 116 — — — — — 20 136

Net loans (charged-off) recoveries ( 4,054 ) ( 1,000 ) — — ( 206 ) — 12 ( 5,248 )

Provision for credit losses 14,716 19,245 2,598 615 3,146 198 ( 20 ) 40,498

Provision for credit losses- loans 1,186 ( 2,875 ) 315 ( 101 ) ( 640 ) ( 132 ) ( 14 ) ( 2,261 )

Ending balance $ 23,701 $ 51,510 $ 14,315 $ 919 $ 10,683 $ 907 $ 35 $ 102,070

As of September 30, 2020

As of March 31, 2021

Allowance for credit losses:

2 unchanged sentences

Ending balance $ 23,701 $ 51,510 $ 14,315 $ 919 $ 10,683 $ 907 $ 35 $ 102,070

Three Months Ended September 30, 2019

Allowance for credit losses:

Balance at beginning of period $ 18,136 $ 27,010 $ 5,756 $ 1,355 $ 19,006 $ 581 $ 242 $ 72,086

Loans charged-off ( 1,794 ) — — — — — ( 1,794 )

Recoveries of loans previously charged-off 210 — — 15 — 17 242

Net loans charged-off ( 1,584 ) — — — 15 — 17 ( 1,552 )

Provision for credit losses 1,617 1,517 ( 158 ) ( 3 ) 251 ( 6 ) ( 32 ) 3,186

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

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Allowance for credit losses:

Balance at beginning of period $ 15,857 $ 28,034 $ 6,242 $ 965 $ 18,175 $ 599 $ 72 $ 69,944

Balance at beginning of period, prior to adoption of ASC 326 $ 18,832 $ 29,265 $ 5,838 $ 1,557 $ 17,485 $ 656 $ 25 $ 73,658

Impact of adopting ASC 326 892 11,230 4,674 ( 301 ) ( 6,143 ) 245 17 $ 10,614

Loans charged-off — ( 550 ) — — ( 1,768 ) — — ( 2,318 )

1 unchanged sentence

Net loans (charged-off) recoveries 69 ( 550 ) — — ( 1,768 ) — 3 ( 2,246 )

Provision for credit losses 3,734 5,534 ( 646 ) 384 1,045 ( 24 ) 119 10,146

Provision for credit losses- loans 7,553 3,606 ( 645 ) 113 3,767 ( 83 ) ( 1 ) 14,310

Ending balance $ 27,346 $ 43,551 $ 9,867 $ 1,369 $ 13,341 $ 818 $ 44 $ 96,336

As of September 30, 2019

As of March 31, 2020

Allowance for credit losses:

2 unchanged sentences

Ending balance $ 27,346 $ 43,551 $ 9,867 $ 1,369 $ 13,341 $ 818 $ 44 $ 96,336

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 Income, as the charges were recorded directly to Retained Earnings (net of taxes).

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.

We recorded a reversal of $ 2.4 million and a $ 14.3 million provision for credit losses for the three months ended March 31, 2021 and 2020, respectively, under CECL.

We recorded $ 5.2 million and $ 2.2 million in net charge-offs during the three months ended March 31, 2021 and 2020, respectively.

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

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2021 and December 31, 2020:

March 31, 2021

(dollars in thousands) Business/Other Assets Real Estate

7 unchanged sentences

Total $ 13,503 $ 49,100

December 31, 2020

(dollars in thousands) Business/Other Assets Real Estate

Commercial $ 11,326 $ 4,026

Income producing - commercial real estate 3,193 15,686

Owner occupied - commercial real estate — 23,159

Real estate mortgage - residential — 2,932

Construction - commercial and residential — 206

Home equity — 415

Other consumer — —

Total $ 14,519 $ 46,424

Credit Quality Indicators

23 unchanged sentences

The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.

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

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

Commercial

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

March 31, 2021 (dollars in thousands) Prior 2017 2018 2019 2020 2021 Total

Pass 413,814 221,839 217,567 155,489 181,351 75,196 1,265,256

14 unchanged sentences

Watch 21,916 3,266 12,030 7,175 2,041 — 46,428

Special Mention 446 — 81,561 19,077 — — 101,084

Substandard 26,528 1,908 1,993 9,936 — — 40,365

7 unchanged sentences

Pass 73,112 233,218 230,716 108,156 107,338 15,504 768,044

Substandard 853 1,866 408 — — — 3,127

Watch 270 56,309 4,662 — — — 61,241

Substandard — — — 196 — — 196

Total 73,382 — 289,527 — 235,378 — 108,352 — 107,338 — 15,504 829,481

2 unchanged sentences

Watch 4,625 412 5,394 — — — 10,431

Special Mention 137 — — 15,169 15,701 — 31,007

Total 22,460 — 7,792 — 24,752 — 38,712 — 57,831 — 693 152,240

Home Equity —

Pass 33,548 6,850 6,631 3,704 11,675 2,910 65,318

7 unchanged sentences

Total Recorded Investment $ 2,206,329 $ — $ 1,080,923 $ — $ 1,468,114 $ — $ 1,120,168 $ — $ 1,349,577 $ — $ 301,578 7,526,689

The Company’s credit quality indicators are generally updated annually;

however, credits rated watch or below are reviewed more frequently.

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:

December 31, 2020 (dollars in thousands) Prior 2016 2017 2018 2019 2020 Total

Pass 323,660 111,886 249,541 211,551 164,166 227,095 1,287,899

Watch 31,903 5,315 19,145 21,013 7,740 7,979 93,095

Special Mention 4,969 1,692 8,969 3,385 5,599 2,169 26,783

Substandard 17,679 5,803 1,820 3,525 829 — 29,656

Total 378,211 124,696 279,475 239,474 178,334 237,243 1,437,433

(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

Pass — — — — — 454,771 454,771

Total — — — — — 454,771 454,771

Income producing - commercial real estate —

Pass 560,915 347,946 397,953 622,276 643,388 512,387 3,084,865

Watch 152,367 62,912 91,636 89,852 44,555 34,195 475,517

Special Mention 213 — — — 51,969 — 52,182

Substandard 58,555 800 4,656 4,883 5,542 — 74,436

Total 772,050 411,658 494,245 717,011 745,454 546,582 3,687,000

Owner occupied - commercial real estate

Pass 343,371 100,272 111,996 136,644 59,681 49,584 801,548

Watch 16,014 5,011 2,640 10,338 15,501 — 49,504

Special Mention 418 — — 83,110 19,091 — 102,619

Substandard 28,228 784 1,908 2,048 10,151 904 44,023

Total 388,031 106,067 116,544 232,140 104,424 50,488 997,694

Real estate mortgage - residential

Pass 16,310 2,693 10,199 12,746 18,209 10,116 70,273

Watch 1,996 699 — 728 — — 3,423

Substandard 1,198 1,698 — — — — 2,896

Total 19,504 5,090 10,199 13,474 18,209 10,116 76,592

Construction - commercial and residential

Home equity 78,626 948 — 487 — 80,061

Pass 21,290 60,486 266,788 297,480 105,679 71,297 823,020

Watch 929 — 42,751 3,448 — — 47,128

Special Mention 12 — — 2,895 — — 2,907

Substandard — — 206 — — — 206

Total 22,231 60,486 309,745 303,823 105,679 71,297 873,261

Construction - C&I (owner occupied)

Pass 8,278 10,476 6,637 30,340 22,209 40,101 118,041

Watch 3,573 — 2,118 4,935 — — 10,626

Special Mention 124 — — — 14,436 15,678 30,238

Total 11,975 10,476 8,755 35,275 36,645 55,779 158,905

Pass 33,226 4,493 8,227 7,827 4,224 12,924 70,921

Watch 1,596 — — — — — 1,596

Substandard 603 — — — 47 — 650

Total 35,425 4,493 8,227 7,827 4,271 12,924 73,167

Other Consumer

Pass 929 190 64 74 94 31 1,382

Substandard 7 — — — — — 7

Total 936 190 64 74 94 31 1,389

Total Recorded Investment $ 1,628,363 $ 723,156 $ 1,227,254 $ 1,549,098 $ 1,193,110 $ 1,439,231 $ 7,760,212

The Company’s credit quality indicators are generally updated annually;

however, credits rated watch or below are reviewed more frequently.

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 September 30, 2020 (unaudited) and December 31, 2019:

The table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of March 31, 2021 (unaudited) and December 31, 2020:

Loans Loans Loans Total Recorded

1 unchanged sentence

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

September 30, 2020

March 31, 2021

Commercial $ 1,371,357 $ 6,681 $ 1,626 $ — $ 8,307 $ 18,491 $ 1,398,155

8 unchanged sentences

Total $ 7,402,018 $ 64,769 $ 7,626 $ — $ 72,395 $ 52,276 $ 7,526,689

December 31, 2020

Commercial $ 1,394,244 $ 6,411 $ 21,426 $ — $ 27,837 $ 15,352 $ 1,437,433

PPP loans 454,771 — — — — — 454,771

Income producing - commercial real estate 3,616,207 — 51,913 — 51,913 18,880 3,687,000

2 unchanged sentences

Construction - commercial and residential 869,723 2,992 340 — 3,332 206 873,261

Construction- C&I (owner occupied) 158,905 — — — — — 158,905

Home equity 67,732 467 4,552 — 5,019 416 73,167

1 unchanged sentence

Total $ 7,595,544 $ 21,951 $ 81,774 $ — $ 103,725 $ 60,943 $ 7,760,212

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

The following presents the nonaccrual loans as of March 31, 2021 (unaudited) and December 31, 2020:

March 31, 2021

Nonaccrual with Nonaccrual with Total

No Allowance an Allowance Nonaccrual

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

Commercial $ 8,493 $ 9,998 $ 18,491

PPP loans — — — —

Income producing - commercial real estate 6,092 11,065 17,157

3 unchanged sentences

Home equity 413 — 413

Other consumer 5 3 8 —

$ 25,869 $ 26,407 $ 52,276

________________________________________

(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.

Pre Adoption of CECL

Loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments.

If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral.

The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection.

Impaired loans, or portions thereof, were charged-off when deemed uncollectible.

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

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, 2020

Nonaccrual with Nonaccrual with Total

No Allowance an Allowance Nonaccrual

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

Commercial $ 3,263 $ 12,089 $ 15,352

4 unchanged sentences

Home equity 416 — 416

Other consumer — — — — — — —

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

$ 30,354 $ 30,589 $ 60,943

(1) Excludes TDRs that were performing under their restructured terms totaling $ 10.3 million at March 31, 2021 and $ 10.5 million at December 31, 2020.

(2) Gross interest income of $ 0.8 million and $ 3.7 million would have been recorded for the three months ended March 31, 2021 and December 31, 2020, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while no interest was actually recorded on such loans for the three months ended March 31, 2021 or 2020.

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

Modifications

4 unchanged sentences

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

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

As of March 31, 2021, 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.

4 unchanged sentences

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

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.

As of March 31, 2021, we granted ongoing temporary modifications on approximately 58 loans representing approximately $ 143 million ( 1.9 % of total loans) in outstanding exposure.

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

2 unchanged sentences

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 September 30, 2020 and 2019.

Nine Months Ended September 30, 2020

Income Owner

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended March 31, 2021 and 2020.

Three Months Ended March 31, 2021

Number Producing - Occupied - Construction -

7 unchanged sentences

Restructured and subsequently defaulted $ 101 $ 6,342 $ — $ — $ 6,443

Nine Months Ended September 30, 2019

Income Owner

Three Months Ended March 31, 2020

Number Producing - Occupied - Construction -

7 unchanged sentences

Restructured and subsequently defaulted $ — $ — $ — $ — $ —

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.

The Company had eight TDRs at March 31, 2021 totaling approximately $ 16.8 million.

Five of these loans totaling approximately $ 10.3 million are performing under their modified terms as of March 31, 2021.

For the first three months of 2021 and 2020, there was one and no performing TDR loans each, totaling $ 101 thousand and zero , 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 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.

For the three months ended March 31, 2021, one previously nonperforming restructured loan had

its collateral sold and all principal collected along with partial collection of delinquent interest;

in addition, one restructured loan purchased as part of the 2014 acquisition of Virginia Heritage Bank has now had its full carrying value collected, while additional payments will recover previously written off principal and interest.

No similar transactions occurred during the three months ended March 31, 2020.

During the three months ended March 31, 2021 and 2020, no loans were re-underwritten and removed from TDR status.

L oans 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 September 30, 2020 and 2019, there were no loans modified in a TDR.

For the three months ended March 31, 2021 and 2020, there were no loans modified in a TDR and four loans modified into a TDR totaling approximately $ 1.3 million, respectively.

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.

5 unchanged sentences

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 March 31, 2021, the Company had $ 30.7 million of operating lease ROU assets and $ 33.3 million of operating lease liabilities on the Company’s Consolidated Balance Sheets.

As of December 31, 2020, the Company had $ 25.2 million of operating lease ROU assets and $ 28.0 million of operating lease liabilities on the Company’s Consolidated Balance Sheets.

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 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 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 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 ROU assets and lease liabilities.

As of March 31, 2021, 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 March 31, 2021, 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.

Nine Months Ended

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

Lease Cost

Three Months Ended

(dollars in thousands) March 31, 2021 March 31, 2020

Operating Lease Cost (Cost resulting from lease payments) $ 2,159 $ 1,998

6 unchanged sentences

Weighted Average Discount Rate - Operating Leases 3.37 % 4.00 %

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

Future minimum payments for operating leases with initial or remaining terms of more than one year as of March 31, 2021 were as follows:

(dollars in thousands)

Twelve Months Ended:

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

March 31, 2022 $ 8,199

March 31, 2023 4,519

March 31, 2024 6,040

March 31, 2025 5,268

March 31, 2026 4,277

Thereafter 10,720

15 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 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.

As of March 31, 2021 and December 31, 2020, the Company had one designated cash flow hedge interest rate swap transaction outstanding associated with the Company's variable rate deposits.

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 $ 842 thousand will be reclassified as an increase in interest expense.

The Company's sole designated cash flow hedge matured during April 2021.

Accordingly, the Company estimates (based on existing interest rates) that $ 60 thousand will be reclassified as an increase in interest expense during April 2021.

Non-designated Hedges

15 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 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.

As of March 31, 2021, 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 $ 474 thousand.

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

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

As of March 31, 2021, the Company was required to post collateral totalin g $ 1.0 million with its derivative counterparty against its obligations under this agreement.

If the Company had breached any provisions under the agreement at March 31, 2021, 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 March 31, 2021 (unaudited) and December 31, 2020.

March 31, 2021 December 31, 2020

(dollars in thousands) Notional

Amount Fair Value Balance Sheet

Category Fair Value Balance Sheet

Derivatives not designated as hedging instruments

Interest rate product $ 217,398 $ 3,637 Other Assets $ 3,491 Other Assets

Mortgage banking derivatives $ 191,902 $ 2,514 Other Assets 5,213 Other Assets

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

$ 409,300 $ 6,151 Other Assets $ 8,704 Other Assets

Derivatives designated as hedging instruments

Interest rate product $ 100,000 $ 133 Other Liabilities $ 516 Other Liabilities

Derivatives not designated as hedging instruments

Interest rate product $ 217,398 $ 3,516 Other Liabilities 3,653 Other Liabilities

Other Contracts $ 26,789 $ 78 Other Liabilities 118 Other Liabilities

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

$ 244,187 $ 3,594 Other Liabilities $ 3,771 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:

Net Derivatives on the balance sheet $ 3,727 $ 4,287

Cash and other collateral $ 2,550 4,168

Net Derivative Amounts $ 1,177 $ 119

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three months ended March 31, 2021 and 2020:

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 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,

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

Derivatives in Subtopic in OCI on Derivative Accumulated Other OCI into Income

815-20 Hedging Three Months Ended March 31, Comprehensive Income into Three Months Ended March 31,

Relationships (dollars in thousands) 2021 2020 Income 2021 2020

2 unchanged sentences

Total $ ( 844 ) $ ( 1,521 ) $ ( 385 ) $ 28

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 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 ( 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:

able below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three months ended March 31, 2021 and 2020:

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

1 unchanged sentence

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

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

Three Months Ended March 31,

Interest Expense

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 $ ( 384 ) $ 28

6 unchanged sentences

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,

Amount of Income (Loss)

Recognized in Income on

Location of Derivative

Derivatives Not Designated as Hedging (Loss) Recognized in Three Months Ended March 31,

Instruments under Subtopic 815-20 Income on Derivative 2021 2020

3 unchanged sentences

Total $ 2,837 $ 429

Balance Sheet Offsetting :

Our designated cash flow hedge interest rate derivatives are eligible for offset in the Consolidated Balance Sheets and are subject to master netting arrangements.

Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions.

In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis.

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 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 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 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

Beginning Balance $ 8,237 $ 1,394 $ 1,487 $ 1,394

Real estate acquired from borrowers — 93 6,750 93

Properties sold ( 3,250 ) — ( 3,250 ) —

Ending Balance $ 4,987 $ 1,487 $ 4,987 $ 1,487

Long-Term Borrowings

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

The following table presents information related to the Company’s long-term borrowings as of March 31, 2021 (unaudited) and December 31, 2020.

(dollars in thousands) March 31, 2021 December 31, 2020

Subordinated Notes, 5.75 %

11 unchanged sentences

The net proceeds were approximately $ 147.4 million, which includes $ 2.6 million in deferred financing costs which are being amortized over the life of the 2026 Notes.

On February 26, 2020, the Bank borrowed $ 50 million dollars under its borrowing arrangement with the Federal Home Loan Bank of Atlanta at a fixed rate of 1.81 % with a maturity date of February 26, 2030 as part of the overall asset liability strategy and to support loan growth.

We are in the process of evaluating the impact of the expected discontinuation of LIBOR on the 2026 notes.

On February 26, 2020, the Bank borrowed $ 50 million dollars under its borrowing arrangement with the FHLB at a fixed rate of 1.81 % with a maturity date of February 26, 2030 as part of the overall asset liability strategy and to support loan growth.

In the first quarter of 2021, we realized a net gain of $ 911 thousand on the cancellation of this debt.

Net Income per Common Share

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,

The calculation of net income per common share for the three months ended March 31, 2021 and 2020 (unaudited) was as follows:

Three Months Ended March 31,

(dollars and shares in thousands, except per share data) 2021 2020

9 unchanged sentences

Other Comprehensive Income

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

The following table presents the components of other comprehensive income (loss) for the three months ended March 31, 2021 and 2020 (unaudited).

(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 loss ( 955 ) 245 ( 710 )

Net unrealized gain on derivatives 31 ( 7 ) 24

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

Total unrealized gain 420 ( 107 ) 313

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

Three Months Ended September 30, 2019

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

Reclassification adjustment for net gains included in net income ( 153 ) ( 43 ) ( 110 )

Total unrealized gain 1,432 368 1,064

Net unrealized gain on derivatives 24 ( 13 ) 11

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

Total unrealized loss ( 261 ) 67 ( 194 )

Other Comprehensive Income $ 1,171 $ 301 $ 870

Nine Months Ended September 30, 2020

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

Reclassification adjustment for net gains included in net income ( 1,650 ) 419 ( 1,231 )

Total unrealized gain 16,752 ( 4,629 ) 12,123

Net unrealized loss on derivatives ( 1,986 ) 662 ( 1,324 )

Reclassification adjustment for gain included in net income 688 ( 175 ) 513

Total unrealized loss ( 1,298 ) 487 ( 811 )

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

Nine Months Ended September 30, 2019

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

Reclassification adjustment for net gains included in net income ( 1,628 ) ( 438 ) ( 1,190 )

Total unrealized gain 16,084 ( 5,010 ) 11,950

Net unrealized loss on derivatives ( 2,210 ) 546 ( 1,664 )

Reclassification adjustment for gain included in net income ( 1,879 ) ( 505 ) ( 1,374 )

Total unrealized loss ( 4,089 ) 41 ( 3,038 )

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 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 (loss) before reclassifications ( 624 ) 24 ( 600 )

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

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

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

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 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

Three Months Ended March 31, 2021

Net unrealized gain (loss) on securities available-for-sale $ ( 23,713 ) $ 6,096 $ ( 17,617 )

Reclassification adjustment for net gains (losses) included in net income ( 221 ) 55 ( 166 )

Total unrealized gain (loss) ( 23,934 ) 6,151 ( 17,783 )

Net unrealized gain (loss) on derivatives 767 ( 194 ) 573

Reclassification adjustment for gain (loss) included in net income ( 384 ) 96 ( 288 )

Total unrealized gain (loss) 383 ( 98 ) 285

Other Comprehensive Income (Loss) $ ( 23,551 ) $ 6,053 $ ( 17,498 )

Three Months Ended March 31, 2020

Net unrealized gain (loss) on securities available-for-sale $ 16,736 $ ( 4,632 ) $ 12,104

Reclassification adjustment for net gains (losses) included in net income ( 822 ) ( 218 ) ( 604 )

Total unrealized gain (loss) 15,914 ( 4,850 ) 11,500

Net unrealized gain (loss) on derivatives ( 1,989 ) 664 ( 1,325 )

Reclassification adjustment for gain (loss) included in net income ( 94 ) ( 25 ) ( 69 )

Total unrealized gain (loss) ( 2,083 ) 639 ( 1,394 )

Other Comprehensive Income (Loss) $ 13,831 $ ( 4,211 ) $ 10,106

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three months ended March 31, 2021 and 2020.

Securities Accumulated Other

1 unchanged sentence

(dollars in thousands) For Sale Derivatives (Loss)

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Balance at Beginning of Period $ 16,168 $ ( 668 ) $ 15,500

6 unchanged sentences

(dollars in thousands) For Sale Derivatives (Loss)

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

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

3 unchanged sentences

Balance at End of Period $ 14,609 $ ( 1,544 ) $ 13,065

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 September 30, Net Income is Presented

(dollars in thousands) 2020 2019

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

The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2021 and 2020.

Amount Reclassified from

1 unchanged sentence

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

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

Comprehensive Income Components Three Months Ended March 31, Net Income is Presented

(dollars in thousands) 2021 2020

Realized gain on sale of investment securities $ 221 $ 822 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

Interest income derivative deposits 384 94 Interest income on deposits

Income tax expense ( 151 ) ( 243 ) Income tax expense

12 unchanged sentences

Level 2 Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data;

also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data.

also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or

corroborated by observable market data.

This category generally includes certain U.S.

4 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 September 30, 2020 (unaudited) and December 31, 2019.

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 (unaudited) and December 31, 2020.

Significant Significant

Other Other

Observable Unobservable

1 unchanged sentence

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

September 30, 2020

March 31, 2021

Investment securities available-for-sale:

3 unchanged sentences

Corporate bonds — 52,133 1,500 53,633

Other equity investments — — 198 198

Loans held for sale — 142,196 — 142,196

1 unchanged sentence

Mortgage banking derivatives — — 2,514 2,514

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

Total assets measured at fair value on a recurring basis as of March 31, 2021 $ — $ 1,513,212 $ 4,014 $ 1,517,226

Interest rate swap derivatives $ — $ 133 $ — $ 133

1 unchanged sentence

Interest rate caps — 3,486 — 3,486

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

Total liabilities measured at fair value on a recurring basis as of March 31, 2021 $ — $ 3,697 $ — $ 3,697

December 31, 2020

4 unchanged sentences

Corporate bonds — 34,350 1,500 35,850

Treasury — 34,855 — 34,855

Other equity investments — — 198 198

Loans held for sale — 88,205 — 88,205

5 unchanged sentences

Interest rate caps — 3,574 — 3,574

Mortgage banking derivatives — — 66 66

Total liabilities measured at fair value on a recurring basis as of December 31, 2020 $ — $ 4,208 $ — $ 4,208

3 unchanged sentences

If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.

Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.

Level 1 securities include those traded on an active exchange such as the New York Stock Exchange.

Level 2 securities include U.S.

8 unchanged sentences

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 September 30, 2020 (unaudited) and December 31, 2019.

September 30, 2020

Aggregate

Principal

(dollars in thousands) Fair Value Balance Difference

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 March 31, 2021 (unaudited) and December 31, 2020.

March 31, 2021

Aggregate Unpaid

(dollars in thousands) Fair Value Principal Balance Difference

Loans held for sale $ 142,196 $ 139,606 $ 2,590

December 31, 2020

Aggregate

Principal

(dollars in thousands) Fair Value Balance Difference

Aggregate Unpaid

(dollars in thousands) Fair Value Principal Balance Difference

Loans held for sale $ 88,205 $ 86,551 $ 1,654

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.

There were no residential mortgage loans held for sale that were 90 or more days past due or on nonaccrual status as of March 31, 2021 or December 31, 2020.

Interest rate swap derivatives:

16 unchanged sentences

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 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

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.

7 unchanged sentences

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

Investment Mortgage Balancing

Investment Mortgage Banking

(dollars in thousands) Securities Derivatives Total

1 unchanged sentence

Realized gain (loss) included in earnings — ( 2,699 ) ( 2,699 )

Unrealized gain included in other comprehensive income — — —

Purchases of available-for-sale securities — — —

Principal redemption — — —

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

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

Ending balance at March 31, 2021 $ 1,500 $ 2,514 $ 4,014

Beginning balance at January 1, 2021 $ — $ — $ —

Realized loss included in earnings — ( 66 ) ( 66 )

Principal redemption — — —

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

Ending balance at March 31, 2021 $ — $ — $ —

Investment Mortgage Balancing

2 unchanged sentences

Realized (loss) gain included in earnings — 4,933 4,933

Unrealized gain included in other comprehensive income 131 — 131

Purchases of available-for-sale securities 4,030 — 4,030

Principal redemption ( 3,004 ) — ( 3,004 )

Migrated to level 2 valuation ( 9,233 ) — ( 9,233 )

Reclass fair value asset to cost method ( 198 ) — ( 198 )

Ending balance at December 31, 2020 $ 1,500 $ 5,213 $ 6,713

1 unchanged sentence

Realized gain included in earnings — ( 66 ) ( 66 )

Principal redemption — — —

Ending balance at December 31, 2020 $ — $ — $ —

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

For Level 3 assets measured at fair value on a recurring or nonrecurring basis as of March 31, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

March 31, 2021 December 31, 2020

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

5 unchanged sentences

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

At March 31, 2021, 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.

1 unchanged sentence

When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Pre Adoption of CECL :

The Company did not record loans at fair value on a recurring basis;

however, from time to time, a loan was considered impaired and an allowance for loan loss was established.

The Company considered a loan impaired when it was probable that the Company would be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest.

Management had determined that nonaccrual loans and loans that had their terms restructured in a TDR met this impaired loan definition.

Once a loan was identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans was estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows.

Those impaired loans not requiring a specific allowance represented loans for which the fair value of expected repayments or collateral exceeded the recorded investment in such loans.

Other real estate owned :

3 unchanged sentences

Significant Significant

Other Other

Observable Unobservable

1 unchanged sentence

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

September 30, 2020

March 31, 2021

Commercial $ — $ — $ 14,284 $ 14,284

6 unchanged sentences

Other real estate owned — — 4,987 4,987

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

Total assets measured at fair value on a nonrecurring basis as of March 31, 2021 $ — $ — $ 54,844 $ 54,844

Significant Significant

Other Other

Observable Unobservable

19 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 September 30, 2020 (unaudited) and December 31, 2019 are as follows:

The estimated fair value of the Company’s financial instruments at March 31, 2021 (unaudited) and December 31, 2020 are as follows:

Fair Value Measurements

1 unchanged sentence

(dollars in thousands) Value Fair Value

September 30, 2020

March 31, 2021

Cash and due from banks $ 9,112 $ 9,112 $ 9,112 $ — $ —

11 unchanged sentences

Interest bearing deposits 5,738,549 5,738,549 — 5,738,549 —

Certificates of deposit 1,014,517 1,033,703 — 1,033,703 —

Time deposits 865,961 879,569 — 879,569 —

Customer repurchase agreements 20,061 20,061 — 20,061 —

1 unchanged sentence

Interest rate swap derivatives 133 133 — 133 —

Derivative liability 136 136 — 136 —

Credit risk participation agreement 78 78 — 78 —

Interest rate caps 3,486 3,486 — 3,486 —

9 unchanged sentences

Annuity investment 14,468 14,468 — 14,468 —

Mortgage banking derivative 5,213 5,213 — — 5,213

Interest rate caps 3,413 3,413 — 3,413 —

1 unchanged sentence

Interest bearing deposits 756,923 756,923 — 756,923 —

Certificates of deposit 1,283,039 1,291,688 — 1,291,688 —

Time deposits 977,760 993,500 — 993,500 —

Customer repurchase agreements 26,726 26,726 — 26,726 —

1 unchanged sentence

Interest rate swap derivatives 516 516 — 516 —

Derivative liability 86 86 — 86 —

Credit risk participation agreements 118 118 — 118 —

Interest rate caps 3,574 3,574 — 3,574 —

Mortgage banking derivatives 66 66 — — 66

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