What changed in this filing

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Item 1. Financial Statements

2021-08-09 compared with 2021-05-10 · 347 added, 204 removed, 1161 unchanged (32% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

Cash and due from banks $ 9,290 $ 8,435

1 unchanged sentence

Interest bearing deposits with banks and other short-term investments 1,566,586 1,752,420

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).

Investment securities (amortized cost of $ 1,674,264 and $ 1,129,057 and allowance for credit losses of $ 132 and $ 167 as of June 30, 2021 and December 31, 2020, respectively).

1,681,031 1,151,083

32 unchanged sentences

Retained earnings 870,397 798,061

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

Accumulated other comprehensive income 4,520 15,500

Total Shareholders’ Equity 1,306,336 1,240,892

4 unchanged sentences

(dollars in thousands, except per share data)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Interest Income

11 unchanged sentences

Net Interest Income 84,632 81,363 167,283 161,107

Provision for Credit Losses ( 2,350 ) 14,310

(Credit) Provision for Credit Losses ( 3,856 ) 19,737 ( 6,206 ) 34,047

Provision for Unfunded Commitments ( 761 ) 940 ( 1,203 ) 3,052

Net Interest Income After Provision For Credit Losses 85,443 63,322

Net Interest Income After (Credit) Provision For Credit Losses 89,249 60,686 174,692 124,008

Noninterest Income

24 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended

2021 2020 2021 2020

Net Income $ 47,993 $ 28,856 $ 91,462 $ 51,979

14 unchanged sentences

Shares Amount in Capital Earnings Income (Loss) Equity

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

Net Income — — — 47,993 — 47,993

Other Comprehensive income, net of tax — — — — 6,518 6,518

Stock-based compensation expense — — 1,998 — — 1,998

Time based stock awards granted 921 — — — — —

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 4,336 ) — — — — —

Issuance of common stock related to employee stock purchase plan 4,609 — 188 — — 188

Cash dividends declared ($ 0.35 per share)

— — — ( 11,194 ) — ( 11,194 )

Balance June 30, 2021 31,961,573 — $ 316 $ — $ 431,103 $ — $ 870,397 $ — $ 4,520 $ — $ 1,306,336

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

Net Income — — — 28,856 — 28,856

Other Comprehensive income, net of tax — — — — 1,603 1,603

Stock-based compensation expense — — 1,427 — — 1,427

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 2,738 ) — — — — —

Time based stock awards granted 24,068 — — — — —

Issuance of common stock related to employee stock purchase plan 6,168 — 186 — — 186

Cash dividends declared ($ 0.22 per share)

— — — ( 6,955 ) — ( 6,955 )

Balance June 30, 2020 32,224,756 — $ 320 $ — $ 440,934 $ — $ 731,973 $ — $ 14,668 $ 1,187,895

Common Additional Paid Retained Comprehensive Shareholders'

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

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

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

Balance June 30, 2021 31,961,573 $ 316 $ 431,103 $ 870,397 $ 4,520 $ 1,306,336

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

3 unchanged sentences

Stock-based compensation expense — — 2,423 — — 2,423

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

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 24,921 ) — — — — —

5 unchanged sentences

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

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

Balance June 30, 2020 32,224,756 $ 320 $ 440,934 $ 731,973 $ 14,668 $ 1,187,895

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows From Operating Activities:

23 unchanged sentences

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

Proceeds from sale of SBA PPP loans 169,778 —

Net change in loans 320,029 ( 481,672 )

5 unchanged sentences

Increase in short-term borrowings — 50,000

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

Proceeds from long-term borrowings — 50,098

Repayment of long-term borrowings ( 50,000 ) —

Proceeds from issuance of common stock 327 —

2 unchanged sentences

Cash dividends paid ( 19,126 ) ( 14,180 )

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

Net cash provided by financing activities ( 246,093 ) 753,931

Net Decrease In Cash and Cash Equivalents ( 192,833 ) 394,069

31 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, six lending centers and various electronic capabilities, including remote deposit services and mobile banking services.

The Bank offers its products and services through nineteen banking offices, five 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.

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Risks and Uncertainties

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 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.

The outbreak of COVID-19 in early 2020 adversely impacted a broad range of industries in which the Company’s customers operate.

Vaccinations are readily available to those in the United States and in many other countries.

Although management feels we're generally trending in a positive direction and strides have been made in the fight against COVID-19, we remain cautious given the potential for lingering effects of the pandemic, and the uncertainty of vaccination availability and distribution, as well as vaccination efficacy against variants, could continue to impair some customers' ability to fulfill their financial obligations to the Company.

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

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

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

Much uncertainty regarding the continued spread of COVID-19 (including new variants) and the availability, distribution and use of effective treatments and vaccines remains.

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

Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package.

The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors.

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 (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 impact of the CARES Act as well as the American Rescue Package is still being felt as programs such as the Paycheck Protection Program are still in process and supporting businesses through challenging times.

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

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

The response to control and manage COVID-19 has shown significant progress in many respects.

If the response becomes unsuccessful as a result of vaccination distribution as well as vaccine efficacy against variants, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows.

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

Financial position and results of operations

The Company’s fee income 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 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.

In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees.

In keeping with guidance from regulators, the Company has worked with COVID-19 affected borrowers to defer their payments, interest, and fees.

While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed.

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Capital and liquidity

While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses.

While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios can be adversely impacted by credit losses.

While we have adjusted our credit loss reserves in 2021 to reflect improving economic conditions, our reported and regulatory capital ratios could be further impacted by additional credit losses, if the economy experiences further volatility (either due to COVID-19 or otherwise).

Additionally, the Company decided to call as of August 1, 2021 $ 150 million in Fixed-to-Floating Subordinated Notes issued on July 26, 2016;

discussed further below in Note 8—Long-Term Borrowings.

The repayment of the Subordinated Debt is expected to reduce regulatory capital.

The Company maintains access to multiple sources of liquidity.

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Asset valuation

Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet;

however, this could change in future periods.

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.

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

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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.

The Company determined that there were no triggering events and an impairment analysis was not performed as of June 30, 2021.

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

Business Continuity Plan

The Company has implemented a remote working strategy for many of its employees.

The Company does not anticipate incurring additional material cost related to its continued deployment of the remote working strategy.

No material operational or internal control challenges or risks have been identified to date.

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

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

The Company implemented a remote working strategy for many of its employees last year in response to the COVID-19 pandemic.

The Company did not incur additional material cost related to its continued deployment of the remote working strategy.

As of June 30, 2021, the Company did not identify any material operational or internal control risks, or challenges to its ability to maintain its systems and controls, in light of the measures the Company took to prevent the spread of COVID-19.

As concerns over the most severe impacts of the pandemic have abated, the Company expects that a partial return to the workplace may be appropriate starting in the Fall.

The return to the workplace will seek to have at least half of the Company's employees in the office each day.

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

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

We are monitoring jurisdictional guidelines and will respond as appropriate.

Lending operations and accommodations to borrowers

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 March 31, 2021, the Company had no accruing loans 90 days or more past due.

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

At June 30, 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 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.

As of June 30, 2021, we had ongoing temporary modifications on approximately 31 loans representing approximately $77 million (approximately 1.1% 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.

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

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

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 March 31, 2021, PPP loans totaled $ 565.0 million to just over 1,800 businesses.

As of June 30, 2021, PPP loans totaled $ 238.0 million through 537 business loans.

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

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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.

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

We sold another 16 PPP loans on June 28, 2021 for a total purchase price of $ 816 thousand, amounting to a total of $ 169.8 million of sales of PPP loans for the quarter.

Approximately $ 180.0 million in SBA principal was forgiven and an additional $ 18.0 million of loans were originated during the second quarter of 2021.

Origination of new loans through the PPP has ceased, and the focus going forward will be on forgiveness.

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 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.

As a result of the current economic environment caused by the COVID-19 pandemic, the Company continues to engage in 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.

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Loan origination fees, net of direct loan origination costs, and commitment fees are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable.

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

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

1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics.

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

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

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

As of June 30, 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.

We place a loan on non-accrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed as a reduction of current period interest income.

We place a loan on nonaccrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due.

When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed as a reduction of current period interest income.

Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible.

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

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.

The remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes (the quarterly required regulatory report otherwise known as form FFIEC 041) 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.

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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.

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.

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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.

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 18 months 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.

Unemployment projections materially inform our CECL ("current expected credit loss") economic forecast and resulted in a reduction to our ACL during the six months ended June 30, 2021.

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

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

In addition to quantitative amounts as determined by our valuation models, we apply a qualitative factors overlay that incorporates trends and conditions and factors that the models may not fully capture in our judgement.

These qualitative adjustments are evaluated quarterly to ensure these economic factor adjustments remain supportable and current.

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

Three Months Ended Six Months Ended

(dollars in thousands) June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Provision (credit) for credit losses- loans $ ( 3,911 ) $ 19,599 $ ( 6,172 ) $ 33,909

Provision (credit) for credit losses- AFS debt securities 55 138 ( 34 ) 138

Total provision (credit) for credit losses $ ( 3,856 ) $ 19,737 $ ( 6,206 ) $ 34,047

A summary of our primary portfolio segments is as follows:

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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 a 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.

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This category also includes other loan items such as overdrawn deposit accounts as well as loans and loan payments in process.

The Company uses several credit quality indicators to manage credit risk in an ongoing manner.

The Company’s primary credit quality indicators use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories.

We have several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring.

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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 specific reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information.

Changes are reflected in the allowance on collectively assessed and individually assessed loans 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 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.

The review of the appropriateness of the allowance is performed by executive management and presented to management committees, Credit Oversight Committee (which replaced Directors Loan Committee), the Audit Committee, and the Board of Directors.

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.

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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 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.

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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 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.

The majority of available-for-sale debt securities as of June 30, 2021 and December 31, 2020 were issued by U.S.

However, as of June 30, 2021and December 31, 2020, the allowance for credit losses on AFS securities was $ 132 thousand and $ 167 thousand, respectively, 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.

We have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in accrued interest and other assets in the Consolidated Balance Sheets.

Available-for-sale debt securities are placed on non-accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.

Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status.

Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due.

Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status.

Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

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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.

During the first six 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 $ 3.4 million at June 30, 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.

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Gross Gross Allowance Estimated

March 31, 2021 Amortized Unrealized Unrealized for Credit Fair

June 30, 2021 Amortized Unrealized Unrealized for Credit Fair

(dollars in thousands) Cost Gains Losses Losses Value

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

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.

In addition, at June 30, 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 $ 4.3 million and $ 3.5 million at June 30, 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:

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Estimated Estimated Estimated

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

June 30, 2021 Number of Fair Unrealized Fair Unrealized Fair Unrealized

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

13 unchanged sentences

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 March 31, 2021, consisted of debt securities issued by U.S.

The majority of the AFS debt securities in an unrealized loss position as of June 30, 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 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.

As of June 30, 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 June 30, 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 $ 132 thousand was recorded.

The weighted average duration of debt securities, which comprise 99.9 % of total investment securities, is relatively short at 4.3 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 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.

March 31, 2021 December 31, 2020

The amortized cost and estimated fair value of investments available-for-sale at June 30, 2021 and December 31, 2020 by contractual maturity are shown in the table below.

Contractual maturities f or residential mortgage backed securities (“MBS”) are not shown as they may differ significantly from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

June 30, 2021 December 31, 2020

Amortized Estimated Amortized Estimated

13 unchanged sentences

After one year through five years 48,958 49,744 22,189 23,267

Five years through ten years 20,278 20,766 — —

After ten years — — 6,976 7,511

1 unchanged sentence

$ 1,674,264 $ 1,680,832 $ 1,129,057 $ 1,150,885

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.

For the six months ended June 30, 2021, gross realized gains on sales of investments securities were $ 726 thousand and there were $ 187 thousand gross realized losses on sales of investment securities.

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

Proceeds from sales and calls of investment securities for the six months ended June 30, 2021 were $ 52.0 million compared to $ 120.0 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 June 30, 2021 and December 31, 2020 was $ 249.6 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 June 30, 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.

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.

At June 30, 2021 and December 31, 2020, the Bank had mortgage banking derivative financial instruments totaling $ 1.2 million included in other assets related to its interest rate lock commitments.

At June 30, 2021 the Bank had mortgage banking derivative financial instruments of $ 109.1 million notional value and $ 367.7 million at December 31, 2020.

The fair value of these mortgage banking derivative instruments at June 30, 2021 was $ 1.2 million and at December 31, 2020 was $ 5.2 million included in other assets.

Included in gain on sale of loans for the three and six months ended June 30, 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 and six months ended June 30, 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 March 31, 2021 (unaudited) and December 31, 2020 are summarized by type as follows:

March 31, 2021 December 31, 2020

Loans, net of unamortized net deferred fees, at June 30, 2021 and December 31, 2020 are summarized by type as follows:

June 30, 2021 December 31, 2020

(dollars in thousands) Amount % Amount %

13 unchanged sentences

________________________________________

(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.

(1) Excludes accrued interest receivable of $ 43.5 million and $ 46.0 million at June 30, 2021 and December 31, 2020, respectively, which is recorded in other assets.

Unamortized net deferred fees amounted to $ 25.0 million and $ 30.8 million at June 30, 2021 and December 31, 2020, respectively.

As of June 30, 2021 and December 31, 2020, the Bank serviced $ 125 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

3 unchanged sentences

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

At 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.

At June 30, 2021, owner occupied - commercial real estate and construction – C&I (owner occupied) represent approximately 16 % of the loan portfolio.

At June 30, 2021, non-owner occupied commercial real estate and real estate construction represented approximately 60 % of the loan portfolio.

The combined owner occupied and commercial real estate and construction loans represent approximately 76 % 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 March 31, 2021 and was generally variable or adjustable rate.

This loan category represents approximately 19 % of the loan portfolio at June 30, 2021 and was generally variable or adjustable rate.

Personal guarantees are generally required, but may be limited.

4 unchanged sentences

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

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

Approximately 3 % of the loan portfolio at June 30, 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.

2 unchanged sentences

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 March 31, 2021 consists of home equity loans and lines of credit and other consumer loans.

Approximately 1 % of the loan portfolio at June 30, 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 20.5 months at March 31, 2021.

The repricing duration of these loans was 21 months at June 30, 2021.

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

11 unchanged sentences

Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner user commercial properties.

Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee.

Borrowers are generally required to put equity into each project at levels determined by the appropriate approval authority.

Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.

9 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 $ 1.3 billion at March 31, 2021.

ADC loans amounted to $ 1.4 billion at June 30, 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 59.4 % of the outstanding ADC loan portfolio at March 31, 2021.

ADC loans that provide for the use of interest reserves represent approximately 57.9 % of the outstanding ADC loan portfolio at June 30, 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:

(1) the feasibility of the project;

(2) the experience of the sponsor;

(2) the experience of the

(3) the creditworthiness of the borrower and guarantors;

10 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.

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.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 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 March 31, 2021

Three Months Ended June 30, 2021

Allowance for credit losses:

2 unchanged sentences

Recoveries of loans previously charged-off 150 — — — 6 — 2 158

Net loans charged-off ( 1,391 ) — ( 4,216 ) — — — — — 6 — — — 2 ( 5,599 )

Provision for credit losses ( 962 ) ( 1,324 ) ( 1,320 ) ( 37 ) ( 262 ) ( 10 ) 4 ( 3,911 )

Ending balance $ 21,348 $ — $ 45,970 $ — $ 12,995 $ — $ 882 $ — $ 10,427 $ — $ 897 $ — $ 41 $ 92,560

Six Months Ended June 30, 2021

Allowance for credit losses:

Balance at beginning of period $ 26,569 $ 55,385 $ 14,000 $ 1,020 $ 11,529 $ 1,039 $ 37 $ 109,579

Loans charged-off ( 5,691 ) ( 5,216 ) — — ( 206 ) — ( 1 ) ( 11,114 )

Recoveries of loans previously charged-off 246 — — — 6 — 15 267

Net loans (charged-off) recoveries ( 5,445 ) ( 5,216 ) — — ( 200 ) — 14 ( 10,847 )

1 unchanged sentence

Ending balance $ 21,348 $ 45,970 $ 12,995 $ 882 $ 10,427 $ 897 $ 41 $ 92,560

As of March 31, 2021

As of June 30, 2021

Allowance for credit losses:

2 unchanged sentences

Ending balance $ 21,348 $ 45,970 $ 12,995 $ 882 $ 10,427 $ 897 $ 41 $ 92,560

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Allowance for credit losses:

Balance at beginning of period, prior to adoption of ASC 326 27,346 43,551 9,867 1,369 13,341 818 44 96,336

Loans charged-off ( 7,145 ) — — — — — ( 7,145 )

Recoveries of loans previously charged-off 5 — — — — 1 6

Net loans (charged-off) recoveries ( 7,140 ) — — — — — — — — — — 1 ( 7,139 )

Provision for credit losses- loans 7,872 8,312 2,474 181 467 294 ( 1 ) 19,599

Ending balance 28,078 51,863 12,341 — 1,550 — 13,808 — 1,112 — 44 108,796

Six Months Ended June 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

4 unchanged sentences

Ending balance $ 28,078 $ 51,863 $ 12,341 $ 1,550 $ 13,808 $ 1,112 $ 44 $ 108,796

As of March 31, 2020

As of June 30, 2020

Allowance for credit losses:

2 unchanged sentences

Ending balance $ 28,078 $ 51,863 $ 12,341 $ 1,550 $ 13,808 $ 1,112 $ 44 $ 108,796

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.

We recorded a reversal of $ 3.9 million and a positive $ 19.7 million provision for credit losses (inclusive of the PCL on loans and AFS debt securities) for the three months ended June 30, 2021 and 2020, respectively, under CECL.

We recorded a reversal of $ 6.2 million and a positive $ 34.0 million provision for credit losses for the six months ended June 30, 2021 and 2020, respectively, under CECL.

We recorded $ 5.6 million and $ 7.1 million in net charge-offs during the three months ended June 30, 2021 and 2020, respectively.

We also recorded $ 10.8 million and $ 9.4 million in net charge-offs during the six months ended June 30, 2021 and 2020, respectively.

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

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2021 and December 31, 2020:

June 30, 2021

(dollars in thousands) Business/Other Assets Real Estate

19 unchanged sentences

The Company uses several credit quality indicators to manage credit risk in an ongoing manner.

The Company’s primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories.

The Company’s primary credit quality indicators inform an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories.

Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation.

21 unchanged sentences

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

June 30, 2021 (dollars in thousands) Prior 2017 2018 2019 2020 2021 Total

Pass 445,359 206,252 194,852 136,249 163,994 96,633 1,243,339

90 unchanged sentences

Nonaccrual and Past Due Loans

As part of its comprehensive loan review process, the Loan Committee or Credit Review Committee carefully evaluate loans which are past-due 30 days or more.

As part of the Company's comprehensive loan review process, management committees carefully evaluate loans that are past-due 30 days or more.

The committees make a thorough assessment of the conditions and circumstances surrounding each delinquent loan.

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.

The Bank’s loan policy requires that loans be placed on nonaccrual if they are 90 days past-due, unless they are well secured and in the process of collection.

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 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:

The table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of June 30, 2021 and December 31, 2020:

Loans Loans Loans Total Recorded

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

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

March 31, 2021

(dollars in thousands) Loans Past Due Past Due More Past Due Due Loans Nonaccrual Loans

June 30, 2021

Commercial $ 1,341,971 $ 1,477 $ 835 $ — $ 2,312 $ 14,874 $ 1,359,157

19 unchanged sentences

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

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

March 31, 2021

The following presents the nonaccrual loans as of June 30, 2021 and December 31, 2020:

June 30, 2021

Nonaccrual with Nonaccrual with Total

19 unchanged sentences

$ 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.

(1) Excludes TDRs that were performing under their restructured terms totaling $ 10.2 million at June 30, 2021 and $ 10.5 million at December 31, 2020.

(2) Gross interest income of $ 1.5 million and $ 3.7 million would have been recorded for the six months ended June 30, 2021 and December 31, 2020, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while $ 44 thousand interest was actually recorded on such loans for the six months ended June 30, 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.

5 unchanged sentences

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

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

As of June 30, 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 March 31, 2021, we granted ongoing temporary modifications on approximately 58 loans representing approximately $ 143 million ( 1.9 % of total loans) in outstanding exposure.

As of June 30, 2021, we had ongoing temporary modifications on approximately 31 loans representing approximately $ 77 million (approximately 1.1 % 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.

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 March 31, 2021 and 2020.

Three Months Ended March 31, 2021

The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended June 30, 2021 and 2020.

For the Six Months Ended June 30, 2021

Number Producing - Occupied - Construction -

7 unchanged sentences

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

Three Months Ended March 31, 2020

For the Six Months Ended June 30, 2020

Number Producing - Occupied - Construction -

7 unchanged sentences

Restructured and subsequently defaulted $ 138 $ 5,542 $ 2,370 $ — $ 8,050

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 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.

The Company had seven TDRs at June 30, 2021 totaling approximately $ 16.6 million.

Five of these loans totaling approximately $ 10.2 million are performing under their modified terms as of June 30, 2021.

For the first six months of 2021 there were no performing TDR loans that defaulted on their modified terms;

in the first six months of 2020, one performing TDR loan, with a balance of $ 5.5 million, defaulted on its modified terms and was placed on nonaccrual status.

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

For the six months ended June 30, 2021, one previously nonperforming restructured loan had its collateral sold and all principal collected along with partial collection of delinquent interest;

No similar transactions occurred during the three months ended June 30, 2021.

During the six months ended June 30, 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.

1 unchanged sentence

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 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.

For the six months ended June 30, 2021 and 2020, there were no loans modified in a TDR.

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

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 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 June 30, 2021, the Company had $ 29.1 million of operating lease ROU assets and $ 31.7 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.

2 unchanged sentences

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.

As of June 30, 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 June 30, 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.

Three Months Ended

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

Six Months Ended

(dollars in thousands) June 30, 2021 June 30, 2020

Operating Lease Cost (Cost resulting from lease payments) $ 4,172 $ 4,005

6 unchanged sentences

Weighted Average Discount Rate - Operating Leases 3.33 % 4.00 %

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

Future minimum payments for operating leases with initial or remaining terms of more than one year as of June 30, 2021 were as follows:

(dollars in thousands)

Twelve Months Ended:

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

June 30, 2022 $ 5,280

June 30, 2023 6,272

June 30, 2024 5,674

June 30, 2025 4,962

June 30, 2026 3,507

Thereafter 9,082

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 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.

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.

Thus, as of June 30, 2021 and December 31, 2020, the Company had zero and one , respectively, 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 were reclassified to interest income/expense as interest payments were made/received on the Company’s variable-rate assets/liabilities.

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 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.

As of June 30, 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 $ 4.3 million.

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

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

As of June 30, 2021, the Company was required to post collateral totalin g $ 3.4 million with its derivative counterparty against its obligations under this agreement.

If the Company had breached any provisions under the agreement at June 30, 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 June 30, 2021and December 31, 2020.

June 30, 2021 December 31, 2020

(dollars in thousands) Notional

14 unchanged sentences

Net Derivative Amounts $ 1,491 $ 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 table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and six months ended June 30, 2021 and 2020:

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

2 unchanged sentences

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,

815-20 Hedging Three Months Ended June 30, Comprehensive Income into Three Months Ended June 30,

Relationships (dollars in thousands) 2021 2020 Income 2021 2020

2 unchanged sentences

Total $ — $ ( 27 ) $ ( 60 ) $ ( 394 )

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:

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

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 Six Months Ended June 30, Comprehensive Income into Six Months Ended June 30,

Relationships (dollars in thousands) 2021 2020 Income 2021 2020

Derivatives in Cash Flow Hedging Relationships

Interest Rate Products ( 844 ) ( 1,548 ) Interest Expense ( 445 ) ( 366 )

Total ( 844 ) ( 1,548 ) ( 445 ) ( 366 )

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three and six months ended June 30, 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 March 31,

Interest Expense

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 2021 2020

Interest Expense 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 $ ( 60 ) $ ( 394 ) $ ( 445 ) $ ( 366 )

9 unchanged sentences

Location of Derivative

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

Derivatives Not Designated as Hedging (Loss) Recognized in Three Months Ended June 30, Six Months Ended June 30,

Instruments under Subtopic 815-20 Income on Derivative 2021 2020 2021 2020

4 unchanged sentences

Long-Term Borrowings

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

The following table presents information related to the Company’s long-term borrowings as of June 30, 2021 and December 31, 2020.

(dollars in thousands) June 30, 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.

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

The Company paid the 2026 Notes in full on August 2, 2021 and accelerated deferred financing costs of $ 1.3 million on that date.

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.

1 unchanged sentence

Net Income per Common Share

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,

The calculation of net income per common share for the three and six months ended June 30, 2021 and 2020 was as follows:

Three Months Ended June 30, Six Months Ended June 30,

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

9 unchanged sentences

Other Comprehensive Income

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

The following table presents the components of other comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020.

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

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Net unrealized gain (loss) on securities available-for-sale $ 8,957 $ ( 2,302 ) $ 6,655

5 unchanged sentences

Other Comprehensive Income (Loss) $ 8,772 $ ( 2,254 ) $ 6,518

Three Months Ended March 31, 2020

Three Months Ended June 30, 2020

Net unrealized gain (loss) on securities available-for-sale $ 2,506 $ ( 636 ) $ 1,870

5 unchanged sentences

Other Comprehensive Income (Loss) $ 2,158 $ ( 555 ) $ 1,603

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.

Six Months Ended June 30, 2021

Net unrealized gain (loss) on securities available-for-sale $ ( 14,756 ) $ 3,794 $ ( 10,962 )

Reclassification adjustment for net gains (losses) included in net income ( 539 ) 137 ( 402 )

Total unrealized gain (loss) ( 15,295 ) 3,931 ( 11,364 )

Net unrealized loss on derivatives ( 1 ) — ( 1 )

Reclassification adjustment for gain (loss) included in net income 517 ( 132 ) 385

Total unrealized gain (loss) 516 ( 132 ) 384

Other Comprehensive Income (Loss) $ ( 14,779 ) $ 3,799 $ ( 10,980 )

Six Months Ended June 30, 2020

Net unrealized gain (loss) on securities available-for-sale $ 19,242 $ ( 5,266 ) $ 13,976

Reclassification adjustment for net gains included in net income ( 1,535 ) 391 ( 1,144 )

Total unrealized gain (loss) 17,707 ( 4,875 ) 12,832

Net unrealized gain (loss) on derivatives ( 2,017 ) 672 ( 1,345 )

Reclassification adjustment for gain included in net income 299 ( 77 ) 222

Total unrealized gain (loss) ( 1,718 ) 595 ( 1,123 )

Other Comprehensive Income (Loss) $ 15,989 $ ( 4,280 ) $ 11,709

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2021 and 2020.

Securities Accumulated Other

1 unchanged sentence

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

Balance at Beginning of Period $ ( 1,615 ) $ ( 383 ) $ ( 1,998 )

Other comprehensive income before reclassifications 6,655 — 6,655

Amounts reclassified from accumulated other comprehensive income (loss) ( 236 ) 99 ( 137 )

Net other comprehensive income during period 6,419 99 6,518

Balance at End of Period $ 4,804 $ ( 284 ) $ 4,520

Securities Accumulated Other

Available Comprehensive Income

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended June 30, 2020

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

Other comprehensive income before reclassifications 1,870 ( 25 ) 1,845

Amounts reclassified from accumulated other comprehensive loss ( 538 ) 296 ( 242 )

Net other comprehensive income during period 1,332 271 1,603

Balance at End of Period $ 15,941 $ ( 1,273 ) $ 14,668

Securities Accumulated Other

Available Comprehensive Income

(dollars in thousands) For Sale Derivatives (Loss)

Six Months Ended June 30, 2021

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

Other comprehensive income (loss) before reclassifications ( 10,962 ) ( 1 ) ( 10,963 )

5 unchanged sentences

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended March 31, 2020

Six Months Ended June 30, 2020

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

3 unchanged sentences

Balance at End of Period $ 15,941 $ ( 1,273 ) $ 14,668

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.

The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2021 and 2020.

Amount Reclassified from

1 unchanged sentence

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

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

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

(dollars in thousands) 2021 2020

3 unchanged sentences

Total Reclassifications for the Period $ 137 $ 242 Net Income

Amount Reclassified from

Accumulated Other Affected Line Item in

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

Comprehensive Income Components Six Months Ended June 30, Net Income is Presented

(dollars in thousands) 2021 2020

Realized gain on sale of investment securities $ 539 $ 1,535 Gain on sale of investment securities

Interest income derivative deposits ( 517 ) ( 299 ) Interest income on deposits

Income tax expense ( 5 ) ( 314 ) Income tax expense

Total Reclassifications for the Period $ 17 $ 922 Net Income

Fair Value Measurements

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

The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2021 and December 31, 2020.

Significant Significant

2 unchanged sentences

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

March 31, 2021

June 30, 2021

Investment securities available-for-sale:

6 unchanged sentences

Mortgage banking derivatives — — 1,179 1,179

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

Total assets measured at fair value on a recurring basis as of June 30, 2021 $ — $ 1,740,718 $ 2,679 $ 1,743,397

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

1 unchanged sentence

Interest rate caps — 5,615 — 5,615

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

Total liabilities measured at fair value on a recurring basis as of June 30, 2021 $ — $ 5,689 $ — $ 5,689

December 31, 2020

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

March 31, 2021

The following tables summarize the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of June 30, 2021 and December 31, 2020.

June 30, 2021

Aggregate Unpaid

5 unchanged sentences

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 March 31, 2021 or December 31, 2020.

There were no residential mortgage loans held for sale that were 90 or more days past due or on nonaccrual status as of June 30, 2021 or December 31, 2020.

Interest rate swap derivatives:

18 unchanged sentences

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

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

The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e.

an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

Mortgage banking derivative for loans settled best efforts basis :

9 unchanged sentences

Realized gain (loss) included in earnings — ( 4,034 ) ( 4,034 )

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

Ending balance at June 30, 2021 $ 1,500 $ 1,179 $ 2,679

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

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

Investment Mortgage Balancing

Ending balance at June 30, 2021 $ — $ — $ —

Investment Mortgage Banking

(dollars in thousands) Securities Derivatives Total

8 unchanged sentences

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.

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

For Level 3 assets measured at fair value on a recurring or nonrecurring basis as of June 30, 2021 and December 31, 2020, the significant unobservable inputs used in the fair value measurements were as follows:

June 30, 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 March 31, 2021, substantially all of the Company’s individually evaluated loans were evaluated based upon the fair value of the collateral.

At June 30, 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.

9 unchanged sentences

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

March 31, 2021

June 30, 2021

Commercial $ — $ — $ 11,030 $ 11,030

6 unchanged sentences

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

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

Total assets measured at fair value on a nonrecurring basis as of June 30, 2021 $ — $ — $ 53,669 $ 53,669

Significant Significant

3 unchanged sentences

December 31, 2020

Impaired loans:

Commercial $ — $ — $ 9,285 $ 9,285

14 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 March 31, 2021 (unaudited) and December 31, 2020 are as follows:

The estimated fair value of the Company’s financial instruments at June 30, 2021 and December 31, 2020 are as follows:

Fair Value Measurements

1 unchanged sentence

(dollars in thousands) Value Fair Value

March 31, 2021

June 30, 2021

Cash and due from banks $ 9,290 $ 9,290 $ 9,290 $ — $ —

2 unchanged sentences

Investment securities 1,681,031 1,681,031 — 1,679,531 1,500

Federal Reserve and Federal Home Loan Bank stock 33,978 33,978 — 33,978 —

Accrued interest receivable 43,488 43,488 — 43,488 —

Loans held for sale 55,949 55,949 — 55,949 —

17 unchanged sentences

Investment securities 1,150,885 1,150,885 — 1,149,385 1,500

Federal Reserve and Federal Home Loan Bank stock 40,104 40,104 — 40,104 —

Accrued interest receivable 46,040 46,040 — 40,104 —

Loans held for sale 88,205 88,205 — 88,205 —

12 unchanged sentences

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

Note 12 - Legal Contingencies

There have been no material changes in the status of the legal proceedings previously disclosed in Part I, Item 3 of the Company's Annual Report on Form 10-K for the year ended December 31, 2020, except as follows.

From time to time, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, including matters in which damages in various amounts are claimed.

Based on information currently available, the Company does not believe that the liabilities (if any) resulting from such legal proceedings will have a material effect on the financial position of the Company.

However, in light of the inherent uncertainties involved in such matters, ongoing legal expenses or an adverse outcome in one or more of these matters could materially and adversely affect the Company’s financial condition, results of operations or cash flows in any particular reporting period, as well as its reputation.

On July 24, 2019, a putative class action lawsuit was filed in the United States District Court for the Southern District of New York (the “SDNY”) against the Company, its current and former President and Chief Executive Officer and its current and former Chief Financial Officer, on behalf of persons similarly situated, who purchased or otherwise acquired Company securities between March 2, 2015 and July 17, 2019.

On November 7, 2019, the Court appointed a lead plaintiff and lead counsel in that matter, and on January 21, 2020, the lead plaintiff filed an amended complaint on behalf of the same class against the same defendants as well as the Company’s former General Counsel.

The plaintiff alleges that certain of the Company’s 10-K reports and other public statements and disclosures contained materially false or misleading statements about, among other things, the effectiveness of its internal controls and related party loans, in violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 20(a) of that act, resulting in injury to the purported class members as a result of the decline in the value of the Company’s common stock following the disclosure of increased legal expenses associated with certain government investigations involving the Company.

As previously disclosed by the Company, on December 24, 2020, by stipulation of the parties, the United States District Court for the Southern District of New York stayed the putative class action lawsuit pending a non-binding mediation that had been scheduled for April 13, 2021.

Immediately following the non-binding mediation, the parties continued a settlement dialogue and reached an agreement to settle the putative class action lawsuit, involving a total payment by the Company of $ 7.5 million in exchange for the release of all of the defendants from all alleged claims in the class action suit, without any admission or concession of wrongdoing by the Company or the other defendants.

The Company expects that the full amount of a final settlement will be paid by the Company’s insurance carriers under applicable insurance policies.

On June 28, 2021, the lead plaintiff filed the executed Stipulation and Agreement of Settlement with the Court, along with an unopposed motion for preliminary approval of the proposed settlement.

The Court has scheduled a preliminary approval hearing for August 12, 2021;

the Company anticipates that a final approval hearing will be held later this year.

There can be no assurance, however, that the agreement will receive court approval and/or meet all other conditions.

As previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, on January 25, 2021, the Company entered into a settlement agreement with respect to a previously disclosed shareholder demand letter, covering substantially the same subject matters as the disclosed civil securities class action litigation pending in the SDNY.

The letter demanded that the Board undertake an investigation into the Board’s and management’s alleged violations of law and alleged breaches of fiduciary duties, and take appropriate actions following such investigation.

As required by DC Superior Court administrative procedures, shareholder’s counsel first filed a derivative action complaint against the individual directors and officers named in the demand letter, and the Company as nominal Defendant, before filing the executed Stipulation and Agreement of Settlement accompanied by the shareholder’s brief in support of its unopposed motion to approve the settlement.

Court approval of the settlement remains pending.

Although the Company believes the Stipulation and Agreement of Settlement is in the best interests of the Company’s shareholders, there can be no assurance that it will be approved by the Court.

The Company has received various document requests and subpoenas from the Securities and Exchange Commission (the “Commission”), banking regulators and U.S.

Attorney’s offices in connection with investigations, which the Company believes relate to the Company’s identification, classification and disclosure of related party transactions;

the retirement of certain former officers and directors;

and the relationship of the Company and certain of its former officers and directors with a local public official, among other things.

The Company is cooperating with these investigations.

There have been no regulatory restrictions placed on the Company’s ability to fully engage in its banking business as presently conducted as a result of these ongoing investigations.

In connection with the Commission’s investigation, which we initially disclosed on Form 8-K on July 18, 2019, our current Chief Financial Officer recently received a Wells Notice from the Commission Staff that the Staff has made a preliminary determination to recommend to the Commission enforcement actions against him.

Neither the Company nor any other current employee or director has received a Wells Notice.

The Company and our Chief Financial Officer are continuing to cooperate with the Staff’s investigation, and we understand that our Chief Financial Officer has made a submission to the SEC in response to the Wells Notice.

The Company has, in addition, initiated discussions with the Staff about a potential resolution or settlement of the Staff’s investigation with respect to the Company.

The Company is hopeful that these discussions will lead to a resolution of the investigation in the next few months as it relates to the Company and any current employees and directors on a mutually agreeable basis, but there can be no assurance that will be the case.

There also can be no assurance that this would result in resolution of any charges against

former employees or directors, given the Staff’s ongoing review of the factual record.

Any agreements reached by the Company with the Staff would be subject to approval by the Commission, and there can be no assurance that it would be approved.

We are unable to predict the outcome of the investigation or these discussions or whether any potential resolution would have a material impact on the Company.

The Company has also recently initiated discussions with the Staff of the Federal Reserve Board about a potential resolution or settlement of its investigation with respect to the Company.

With respect to the other investigations described above, we are unable to predict their duration, scope or outcome.

The amount of legal fees and expenditures for the year is net of expected insurance coverage where we believe we have a high likelihood of recovery pursuant to our D&O insurance policies, but does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time.

Note 13 - Subsequent Events

Long-term borrowings outstanding at June 30, 2021 included the Company’s August 5, 2014 issuance of $ 70.0 million of subordinated notes, due September 1, 2024, and the Company’s July 26, 2016 issuance of $ 150.0 million of subordinated notes, due August 1, 2026 (the "2026 Notes").

The Company paid the 2026 Notes in full on August 2, 2021 and accelerated deferred financing costs of $ 1.3 million on that date.

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