What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-11-09 compared with 2021-08-09 · 236 added, 250 removed, 1258 unchanged (28% of the section changed)

3 unchanged sentences

(dollars in thousands, except per share data)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

Cash and due from banks $ 8,806 $ 8,435

1 unchanged sentence

Interest bearing deposits with banks and other short-term investments 2,452,744 1,752,420

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).

Investment securities (amortized cost of $ 1,789,416 and $ 1,129,255 and allowance for credit losses of $ 256 and $ 167 as of September 30, 2021 and December 31, 2020, respectively).

1,786,659 1,151,083

16 unchanged sentences

Savings and money market 5,268,157 4,645,186

Time, $ 100,000 or more

Time, $ 100 thousand or more

347,937 546,173

13 unchanged sentences

Retained earnings 901,218 798,061

Accumulated other comprehensive income 4,520 15,500

Accumulated other comprehensive (loss) income ( 2,316 ) 15,500

Total Shareholders’ Equity 1,331,697 1,240,892

4 unchanged sentences

(dollars in thousands, except per share data)

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

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

2021 2020 2021 2020

41 unchanged sentences

(dollars in thousands)

Three Months Ended June 30, Six Months Ended

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

1 unchanged sentence

Other comprehensive income, net of tax:

Unrealized (loss) gain on securities available for sale 6,655 1,870 ( 10,962 ) 13,976

Reclassification adjustment for net gains included in net income ( 236 ) ( 538 ) ( 402 ) ( 1,144 )

Total unrealized (loss) gain on investment securities 6,419 1,332 ( 11,364 ) 12,832

Unrealized gain (loss) on securities available for sale ( 5,703 ) ( 624 ) ( 16,666 ) 13,354

Reclassification adjustment for net gain included in net income ( 1,133 ) ( 86 ) ( 1,534 ) ( 1,231 )

Total unrealized gain (loss) on investment securities ( 6,836 ) ( 710 ) ( 18,200 ) 12,123

Unrealized gain (loss) on derivatives — 24 769 ( 1,324 )

1 unchanged sentence

Total unrealized gain (loss) on derivatives — 313 384 ( 811 )

Other comprehensive (loss) income 6,518 1,603 ( 10,980 ) 11,709

Other comprehensive income (loss) ( 6,836 ) ( 397 ) ( 17,816 ) 11,312

Comprehensive Income $ 36,773 $ 40,949 $ 117,255 $ 104,637

5 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

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

Net Income — — — 43,609 — 43,609

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

Other Comprehensive loss, net of tax — — — — ( 6,836 ) ( 6,836 )

Stock-based compensation expense — — 1,990 — — 1,990

4 unchanged sentences

— — — ( 12,788 ) — ( 12,788 )

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

Common stock repurchased ( 11,609 ) ( 615 ) ( 615 )

Balance September 30, 2021 31,947,458 — $ 316 $ — $ 432,479 $ — $ 901,218 $ — $ ( 2,316 ) $ — $ 1,331,697

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

Net Income — — — 41,346 — 41,346

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

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

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

4 unchanged sentences

— — — ( 7,100 ) — ( 7,100 )

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

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

Common Additional Paid Retained Comprehensive Shareholders'

11 unchanged sentences

Common stock repurchased ( 13,075 ) — ( 677 ) — — ( 677 )

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

Balance September 30, 2021 31,947,458 $ 316 $ 432,479 $ 901,218 $ ( 2,316 ) $ 1,331,697

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

10 unchanged sentences

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

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

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

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows From Operating Activities:

4 unchanged sentences

Depreciation and amortization 4,795 3,515

Mortgage servicing rights gain ( 139 ) —

Gains on sale of loans ( 11,988 ) ( 16,249 )

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

Securities premium amortization (discount accretion), net 3,152 5,345

3 unchanged sentences

Deferred income tax (benefit) expense — ( 6,559 )

Net gain on sale of other real estate owned ( 148 ) ( 1,180 )

Net gain on sale of investment securities ( 2,058 ) ( 1,650 )

53 unchanged sentences

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

Reclassifications had no effect on prior year net income or shareholders' equity.

Nature of Operations

3 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 nineteen banking offices, five lending centers and various electronic capabilities, including remote deposit services and mobile banking services.

The Bank offers its products and services through eighteen 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.

8 unchanged sentences

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.

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, including vaccination efficacy against variants and the speed of vaccination adoption around the country, which 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.

1 unchanged sentence

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.

Some lingering uncertainty regarding the continued spread of COVID-19 (including new variants) 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.

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

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.

If the response becomes unsuccessful as a result of vaccine efficacy against variants or delays in critical mass adoption of available vaccines, 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.

1 unchanged sentence

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

In keeping with guidance from regulators, the Company has worked 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 throughout the pandemic 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.

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

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

Although accommodations of this type have slowed significantly, at this time the Company is unable to project the full extent of the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods.

Capital and liquidity

1 unchanged sentence

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;

Additionally, on August 2, 2021, the Company redeemed $ 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 repayment of the Subordinated Debt reduced regulatory capital ratios at the Bank, but did not reduce regulatory capital ratios at the Company, with the exception of Total Capital to Risk Weighted Assets.

The Company maintains access to multiple sources of liquidity.

Wholesale funding markets have remained open to us, and rates for short term funding have recently been very low.

Wholesale funding markets have remained open to us, and rates for short term funding have recently been low.

If funding costs were to become elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin.

If an extended recession caused large numbers of the Company’s customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding.

If an extended recession caused large numbers of the Company’s customers to withdraw their funds faster than expected, the Company might become more reliant on volatile or more expensive sources of funding.

Asset valuation

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

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

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

5 unchanged sentences

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 June 30, 2021.

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

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

1 unchanged sentence

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

As of September 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's non-branch personnel returned to work on a "hybrid" basis starting November 1, 2021.

The hybrid workplace allows certain employees to work remotely a portion of the week, but provides that each department has at least 50% of its staff in the office each day.

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

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

We are monitoring jurisdictional guidelines and will respond as appropriate.

We are monitoring jurisdictional guidelines and will continue to respond as appropriate.

Lending operations and accommodations to borrowers

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 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.

As of September 30, 2021, we had ongoing temporary modifications on approximately 6 loans representing approximately $ 70 million (approximately 1.0 % of total loans) in outstanding balances, as compared to 36 loans representing approximately $ 72 million (approximately 0.9 % of total loans) at December 31, 2020.

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

4 unchanged sentences

The Company actively 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 June 30, 2021, PPP loans totaled $ 238.0 million through 537 business loans.

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

The majority of these loans have been forgiven by the SBA in accordance with the terms of the program.

As of September 30, 2021, PPP loans totaled $ 67.3 million through 109 business loans.

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

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

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

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

We sold a total of approximately $ 170 million of PPP loans in the second quarter of 2021.

Approximately $ 171 million in SBA principal was forgiven in the third 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.

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.

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 increases in its required allowance for credit losses (“ACL”) and record provisions 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, or related variants, are prolonged.

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

5 unchanged sentences

Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans.

Additional collateral, a co-borrower, or a guarantor is often requested.

Additional collateral, a co-borrower, or a guarantor is often

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

As of June 30, 2021, all performing TDRs were categorized as interest-only modifications.

As of September 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.

7 unchanged sentences

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

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

Accounting Standards Codification ("ASC") 326, "Financial Instruments--Credit Losses" requires lifetime expected credit losses to be immediately recognized when a financial asset is originated or purchased.

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

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

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

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

7 unchanged sentences

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.

8 unchanged sentences

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

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.

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

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

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

3 unchanged sentences

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

Three Months Ended Six Months Ended

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

Three Months Ended Nine months ended

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

Provision (credit) for credit losses- loans $ ( 8,326 ) $ 6,589 $ ( 14,498 ) $ 40,498

2 unchanged sentences

A summary of our primary portfolio segments is as follows:

The commercial loan portfolio is comprised of lines of credit and term loans for working capital, equipment, and other business assets across a variety of industries.

The commercial loan portfolio comprises lines of credit and term loans for working capital, equipment, and other business assets across a variety of industries.

These loans are used for general corporate purposes including financing working capital, internal growth, and acquisitions;

1 unchanged sentence

Paycheck Protection Program .

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

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

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

Income producing commercial real estate.

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

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

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

2 unchanged sentences

Owner occupied – commercial real estate.

The owner occupied commercial real estate portfolio is comprised of permanent financing provided to operating companies and their related entities for the purchase or refinance of real property wherein their business operates.

The owner occupied commercial real estate portfolio comprises permanent financing provided to operating companies and their related entities for the purchase or refinance of real property wherein their business operates.

Collateral properties include industrial property, office buildings, religious facilities, mixed-use property, health care and educational facilities.

Real Estate Mortgage – Residential .

Real estate mortgage residential loans are comprised of consumer mortgages for the purpose of purchasing or refinancing first lien real estate loans secured by primary-residence, second-home, and rental residential real property.

Real estate mortgage residential loans comprise consumer mortgages for the purpose of purchasing or refinancing first lien real estate loans secured by primary-residence, second-home, and rental residential real property.

Construction – commercial and residential.

The construction commercial and residential loan portfolio is comprised of loans made to builders and developers of commercial and residential property, for both renovation, new construction, and development projects.

The construction commercial and residential loan portfolio comprises of loans made to builders and developers of commercial and residential property, for both renovation, new construction, and development projects.

Collateral properties include apartment buildings, mixed use property, residential condominiums, single and 1-4 residential property, and office buildings.

2 unchanged sentences

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

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

The construction C&I (owner occupied) portfolio comprises loans to operating companies and their related entities for new construction or renovation of the real or

leased property in which they operate.

Generally these loans contain provisions for conversion to an owner occupied commercial real estate or to a commercial loan after completion of construction.

1 unchanged sentence

Home Equity .

The home equity portfolio is comprised of consumer lines of credit and loans secured by subordinate liens on residential real property.

The home equity portfolio comprises consumer lines of credit and loans secured by subordinate liens on residential real property.

Other Consumer.

The other consumer portfolio is comprised of consumer purpose loans not secured by real property, including personal lines of credit and loans, overdraft lines, and vehicle loans.

The other consumer portfolio comprises consumer purpose loans not secured by real property, including personal lines of credit and loans, overdraft lines, and vehicle loans.

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

25 unchanged sentences

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.

When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell.

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

underlying collateral less estimated cost to sell.

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

6 unchanged sentences

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

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

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

If either criterion is met, the security’s amortized cost basis is written down to fair value through income.

13 unchanged sentences

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

The majority of available-for-sale debt securities as of June 30, 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.

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

However, as of September 30, 2021 and December 31, 2020, the allowance for credit losses on AFS securities was $ 256 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.

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 other assets in the Consolidated Balance Sheets.

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.

22 unchanged sentences

Cash and Due from Banks

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 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.

The Company has deposits with other banks for derivative positions it holds, totaling $ 7.6 million at September 30, 2021 and $ 5.1 million at December 31, 2020, of which $ 3.2 million and $ 4.2 million, respectively, serve as collateral for those derivative positions.

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.

2 unchanged sentences

Gross Gross Allowance Estimated

June 30, 2021 Amortized Unrealized Unrealized for Credit Fair

September 30, 2021 Amortized Unrealized Unrealized for Credit Fair

(dollars in thousands) Cost Gains Losses Losses Value

treasuries $ 24,838 $ 16 $ — $ — $ 24,854

agency securities 356,626 806 ( 3,726 ) — 353,706

2 unchanged sentences

Corporate bonds 81,376 783 ( 304 ) ( 254 ) 81,601

Other $ 198 — — — 198

$ 1,789,416 $ 14,040 $ ( 16,541 ) $ ( 256 ) $ 1,786,659

6 unchanged sentences

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

Other $ 198 — — — 198

$ 1,129,255 $ 23,463 $ ( 1,468 ) $ ( 167 ) $ 1,151,083

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.

In addition, at September 30, 2021 and December 31, 2020 the Company held $ 34.1 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 $ 4.5 million and $ 3.5 million at September 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:

2 unchanged sentences

Estimated Estimated Estimated

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

September 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 June 30, 2021, consisted of debt securities issued by U.S.

The majority of the AFS debt securities in an unrealized loss position as of September 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 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.

As of September 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 September 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 $ 256 thousand was recorded.

The weighted average duration of debt securities, which comprise 99.9 % of total investment securitie s, is 4.8 years.

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

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

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

The amortized cost and estimated fair value of investments available-for-sale at September 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

September 30, 2021 December 31, 2020

Amortized Estimated Amortized Estimated

(dollars in thousands) Cost Fair Value Cost Fair Value

After one year through five years $ 24,838 $ 24,854 $ — $ —

agency securities maturing:

13 unchanged sentences

After ten years — — — —

Other 198 198 198 198

Allowance for Credit Losses — ( 256 ) — ( 167 )

$ 1,789,416 $ 1,786,659 $ 1,129,255 $ 1,151,083

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.

For the nine months ended September 30, 2021, gross realized gains on sales of investments securities were $ 2.1 million and there were $ 47 thousand gross realized losses on sales of investment securities.

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

Proceeds from sales and calls of investment securities for the nine months ended September 30, 2021 were $ 164.6 million compared to $ 130.3 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 September 30, 2021 and December 31, 2020 was $ 240.2 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 September 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 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.

The Bank has mortgage banking derivative financial instruments that are included in other assets, and are related to its interest rate lock commitments.

The notional value of the mortgage banking derivative financial instruments was $ 137.0 million a t September 30, 2021 and $ 367.7 million at December 31, 2020.

The fair value of these mortgage banking derivative instruments was $ 1.6 million at September 30, 2021 and at $ 5.2 million at December 31, 2020.

Included in gain on sale of loans for the three and nine months ended September 30, 2021 there was a $ 21 thousand net loss relating to mortgage banking derivative instruments as compared to a net loss of $ 145 thousand and $ 309 thousand for the three and nine months ended September 30, 2020, respectively.

Loans and Allowance for Credit Losses

2 unchanged sentences

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

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

June 30, 2021 December 31, 2020

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

September 30, 2021 December 31, 2020

(dollars in thousands) Amount % Amount %

13 unchanged sentences

________________________________________

(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.

(1) Excludes accrued interest receivable of $ 40.0 million and $ 46.0 million at September 30, 2021 and December 31, 2020, respectively, which is recorded in other assets.

Unamortized net deferred fees amounted to $ 22.7 million and $ 30.8 million at September 30, 2021 and December 31, 2020, respectively.

As of September 30, 2021 and December 31, 2020, the Bank serviced $ 115 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 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.

At September 30, 2021, owner occupied - commercial real estate and construction – C&I (owner occupied) represent approximately 17 % of the loan portfolio.

At September 30, 2021, non-owner occupied commercial real estate and real estate construction represented approximately 61 % of the loan portfolio.

The combined owner occupied and commercial real estate and construction loans represent approximately 78 % 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 June 30, 2021 and was generally variable or adjustable rate.

This loan category represents approximately 19 % of the loan portfolio at September 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 3 % of the loan portfolio at June 30, 2021 consists of PPP loans to eligible customers.

Approximately 1 % of the loan portfolio at September 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 June 30, 2021 consists of home equity loans and lines of credit and other consumer loans.

Approximately 1 % of the loan portfolio at September 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 21 months at June 30, 2021.

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

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

7 unchanged sentences

Loans intended for residential land acquisition, lot development and construction are made on the premise that the land:

1) is or will be developed for building sites for residential structures, and 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing.

1) is or will be developed for building sites for residential structures, and 2) will ultimately be utilized for construction or

improvement of residential zoned real properties, including the creation of housing.

Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums.

13 unchanged sentences

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

ADC loans amounted to $ 1.4 billion at June 30, 2021.

ADC loans amounted to $ 1.4 billion at September 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 57.9 % of the outstanding ADC loan portfolio at June 30, 2021.

ADC loans that provide for the use of interest reserves represent approximately 57.5 % of the outstanding ADC loan portfolio at September 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

(2) the experience of the sponsor;

(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.

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.

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

Three Months Ended September 30, 2021

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 16,927 $ — $ 41,431 $ — $ 11,945 $ — $ 1,054 $ — $ 10,741 $ — $ 768 $ — $ 40 $ 82,906

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 16,927 $ 41,431 $ 11,945 $ 1,054 $ 10,741 $ 768 $ 40 $ 82,906

As of June 30, 2021

As of September 30, 2021

Allowance for credit losses:

2 unchanged sentences

Ending balance $ 16,927 $ 41,431 $ 11,945 $ 1,054 $ 10,741 $ 768 $ 40 $ 82,906

Three Months Ended June 30, 2020

Three Months Ended September 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

Balance at beginning of period 28,078 51,863 12,341 1,550 13,808 1,112 44 108,796

Loans charged-off ( 187 ) ( 3,750 ) ( 20 ) — ( 1,179 ) ( 92 ) — ( 5,228 )

3 unchanged sentences

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

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Allowance for credit losses:

6 unchanged sentences

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

As of June 30, 2020

As of September 30, 2020

Allowance for credit losses:

2 unchanged sentences

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

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.

We recorded a reversal of $ 8.2 million and a positive $ 6.6 million provision for credit losses (inclusive of the PCL on loans and AFS debt securities) for the three months ended September 30, 2021 and 2020, respectively, under CECL.

We recorded a reversal of $ 14.4 million and a positive $ 40.7 million provision for credit losses for the nine months ended September 30, 2021 and 2020, respectively, under CECL.

We recorded $ 1.3 million and $ 5.2 million in net charge-offs during

the three months ended September 30, 2021 and 2020, respectively.

We also recorded $ 12.2 million and $ 14.6 million in net charge-offs during the nine months ended September 30, 2021 and 2020, respectively.

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

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

June 30, 2021

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

(dollars in thousands) Business/Other Assets Real Estate

September 30, 2021

Commercial $ 3,281 $ 9,936

6 unchanged sentences

Total $ 6,664 $ 34,543

December 31, 2020

(dollars in thousands) Business/Other Assets Real Estate

December 31, 2020

Commercial $ 11,326 $ 4,026

32 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:

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

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

Pass 407,791 190,479 211,058 129,448 103,135 164,058 1,205,969

30 unchanged sentences

Watch 685 396 3,254 15,112 15,718 — 35,165

Special Mention 110 — — 15,182 15,715 — 31,007

Substandard — — — — — — —

Total 22,207 — 53,127 — 26,835 45,921 73,629 647 222,366

61 unchanged sentences

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

The 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:

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

Loans Loans Loans Total Recorded

1 unchanged sentence

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

June 30, 2021

September 30, 2021

Commercial $ 1,276,100 $ 96 $ 872 $ — $ 968 $ 12,147 $ 1,289,215

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 June 30, 2021 and December 31, 2020:

June 30, 2021

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

September 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 $ 10.2 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.

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

(2) Gross interest income of $ 1.4 million and $ 2.6 million would have been recorded for the nine months ended September 30, 2021 and September 30, 2020, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while $ 23 thousand and $ 282 thousand interest income was actually recorded on such loans for the nine months ended September 30, 2021 and 2020 respectively.

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

5 unchanged sentences

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

As of June 30, 2021, all performing TDRs were categorized as interest-only modifications .

As of September 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 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 June 30, 2021 and 2020.

For the Six Months Ended June 30, 2021

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

September 30, 2021

Number Producing - Occupied - Construction -

7 unchanged sentences

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

For the Six Months Ended June 30, 2020

September 30, 2020

Number Producing - Occupied - Construction -

7 unchanged sentences

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

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.

The Company had seven TDRs at September 30, 2021 totaling approximately $ 16.5 million.

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

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

in the first nine months of 2020, two performing TDR loans, with a balance of $ 6.3 million, defaulted on their modified terms and were 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;

For the nine months ended September 30, 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, and one nonperforming restructured loan was charged off.

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.

transactions occurred during the three months ended September 30, 2021.

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

For the nine months ended September 30, 2021 there were no loans modified in a TDR.

For the nine months ended September 30, 2020 there were two loans modified in a TDR with a balance of $ 572 thousand.

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 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 September 30, 2021, the Company had $ 30.1 million of operating lease ROU assets and $ 34.3 million of operating lease liabilities on the Company’s Consolidated Balance Sheets.

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

2 unchanged sentences

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

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.

As of September 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 September 30, 2021, there was one lease that has been signed but did not yet commence as of the reporting date that created significant rights and obligations for the Company.

The following table presents lease costs and other lease information.

Six Months Ended

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

Three Months Ended Nine Months Ended

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

Operating Lease Cost (Cost resulting from lease payments) $ 1,960 $ 2,248 $ 6,132 $ 6,253

3 unchanged sentences

Operating Lease - Operating Cash Flows (Fixed Payments) $ 1,992 $ 2,229 $ 6,344 $ 6,648

September 30, 2021 December 31, 2020

Right-of-Use Assets - Operating Leases $ 30,080 $ 25,237

1 unchanged sentence

Weighted Average Discount Rate - Operating Leases 3.14 % 4.00 %

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

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

(dollars in thousands)

Twelve Months Ended:

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

September 30, 2022 $ 1,910

September 30, 2023 4,517

September 30, 2024 6,550

September 30, 2025 5,792

September 30, 2026 4,815

Thereafter 12,097

16 unchanged sentences

The Company's sole designated cash flow hedge matured 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.

Thus, as of September 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.

16 unchanged sentences

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

As of June 30, 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 table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2021 and December 31, 2020.

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

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

If the Company had breached any provisions under the agreement at September 30, 2021, it could have been required to settle its obligations under the agreement at the termination value.

September 30, 2021 December 31, 2020

(dollars in thousands) Notional

11 unchanged sentences

$ 265,790 $ 5,173 Other Liabilities $ 3,771 Other Liabilities

Net Derivatives on the balance sheet $ 5,786 $ 4,287

Liability position on balance sheet $ 5,173 $ 4,287

Cash and other collateral $ 3,244 4,168

Net Derivative Amounts $ 1,929 $ 119

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 table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and nine months ended September 30, 2021 and 2020:

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

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

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

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

Recognized from Reclassified from Accumulated

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

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

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

Relationships (dollars in thousands) 2021 2020 Income 2021 2020

5 unchanged sentences

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,

815-20 Hedging Nine Months Ended September 30, Comprehensive Income into Nine Months Ended September 30,

Relationships (dollars in thousands) 2021 2020 Income 2021 2020

2 unchanged sentences

Total $ 1 $ ( 1,517 ) $ ( 445 ) $ ( 755 )

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 table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the three and nine months ended September 30, 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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

11 unchanged sentences

Location of Derivative

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

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

Instruments under Subtopic 815-20 Income on Derivative 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 June 30, 2021 and December 31, 2020.

(dollars in thousands) June 30, 2021 December 31, 2020

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

(dollars in thousands) September 30, 2021 December 31, 2020

Subordinated Notes, 5.75 %

1 unchanged sentence

Subordinated Notes, 5.0 %

150,000 150,000

FHLB Advance, 1.81 %

11 unchanged sentences

Net Income per Common Share

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,

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

Three Months Ended September 30, Nine Months Ended September 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 and six months ended June 30, 2021 and 2020.

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

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

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Net unrealized gain (loss) on securities available-for-sale $ ( 7,682 ) $ 1,979 $ ( 5,703 )

5 unchanged sentences

Other Comprehensive Income (Loss) $ ( 9,201 ) $ 2,365 $ ( 6,836 )

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

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

5 unchanged sentences

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

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Net unrealized gain (loss) on securities available-for-sale $ ( 22,437 ) $ 5,771 $ ( 16,666 )

5 unchanged sentences

Other Comprehensive Income (Loss) $ ( 23,979 ) $ 6,163 $ ( 17,816 )

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

5 unchanged sentences

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

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.

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

Securities Accumulated Other

1 unchanged sentence

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

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

6 unchanged sentences

(dollars in thousands) For Sale Derivatives (Loss)

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

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

6 unchanged sentences

(dollars in thousands) For Sale Derivatives (Loss)

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

6 unchanged sentences

(dollars in thousands) For Sale Derivatives (Loss)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

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

3 unchanged sentences

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

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.

The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 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 June 30, Net Income is Presented

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

(dollars in thousands) 2021 2020

6 unchanged sentences

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

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

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

(dollars in thousands) 2021 2020

22 unchanged sentences

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

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

Significant Significant

2 unchanged sentences

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

June 30, 2021

September 30, 2021

Investment securities available-for-sale:

treasuries $ — $ 24,854 $ — $ 24,854

agency securities — 353,706 — 353,706

5 unchanged sentences

Mortgage banking derivatives — — 1,565 1,565

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

Total assets measured at fair value on a recurring basis as of September 30, 2021 $ — $ 1,843,256 $ 3,065 $ 1,846,321

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

1 unchanged sentence

Interest rate caps — 5,037 — 5,037

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

Total liabilities measured at fair value on a recurring basis as of September 30, 2021 $ — $ 5,110 $ — $ 5,110

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 June 30, 2021 and December 31, 2020.

June 30, 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 September 30, 2021 and December 31, 2020.

September 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 June 30, 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 September 30, 2021 or December 31, 2020.

Interest rate swap derivatives:

31 unchanged sentences

Realized gain (loss) included in earnings — ( 3,648 ) ( 3,648 )

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

Migrated to level 2 valuation — — —

Ending balance at September 30, 2021 $ 1,500 $ 1,565 $ 3,065

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

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

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

Investment Mortgage Banking

3 unchanged sentences

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

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

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

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

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

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

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

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

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

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

The investment securities classified as Level 3 consist of one corporate bond of a local banking company which is not publicly traded, and for which the carrying amount approximates fair value.

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

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

At September 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)

June 30, 2021

September 30, 2021

Commercial $ — $ — $ 10,019 $ 10,019

6 unchanged sentences

Other real estate owned — — 5,135 5,135

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

Total assets measured at fair value on a nonrecurring basis as of September 30, 2021 $ — $ — $ 37,040 $ 37,040

Significant Significant

19 unchanged sentences

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

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

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

Fair Value Measurements

1 unchanged sentence

(dollars in thousands) Value Fair Value

June 30, 2021

September 30, 2021

Cash and due from banks $ 8,806 $ 8,806 $ 8,806 $ — $ —

5 unchanged sentences

Loans 6,767,957 6,624,261 — — 6,624,261

Bank owned life insurance 107,516 107,516 — 107,516 —

Annuity investment 14,206 14,206 — 14,206 —

17 unchanged sentences

Loans 7,650,633 7,608,687 — — 7,608,687

Bank owned life insurance 76,729 76,729 — 76,729 —

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

14 unchanged sentences

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.

On October 4, 2021, the DC Superior Court approved the settlement and dismissed the derivative action complaint.

The Company has already begun executing on the terms of the settlement, including the payment of agreed-upon fees and expenses (which were fully covered by the Company’s D&O insurance policy).

In connection with the previously disclosed investigation by the SEC, the Company’s discussions with the Staff have progressed, and the Company continues to engage with the Staff, including senior Staff members, 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 timely resolution of the investigation 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.

The Company is also continuing 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.

As previously disclosed, the Company maintains director and officer insurance policies (“D&O Insurance Policies”) that provide coverage for the legal defense costs related to certain of the above-described investigations and litigations.

When claims are covered by D&O Insurance Policies, the Company records a corresponding receivable against the incurred legal defense cost expense subject to coverage under the D&O Insurance Policies and then eliminates the receivable and expense when the claim is paid.

Subject to any new developments to the above-described investigations and litigations that may occur over the next few months, the Company currently believes there is a possibility that the applicable D&O Insurance Policies may be exhausted as early as the fourth quarter of this year.

Once the D&O Insurance Policies are exhausted, the Company will be responsible for paying the defense costs associated with the above-described investigations and litigations for itself and on behalf of any current and former Officers and Directors entitled to indemnification from the Company.

Since the commencement of the above-described matters in 2018 through September 30, 2021, the Company’s D&O Insurance carriers have advanced defense cost claims to the Company and its current and former directors and officers in an aggregate of approximately $ 10 million, excluding the cost of settlements.

Because this aggregate amount does not reflect total expenses incurred and includes costs related to certain proceedings that have since settled, this number is not intended to be and should not be used as an estimate of defense costs going forward.

The Company cannot predict with any certainty the amount of defense costs that the Company may incur in the future in connection with currently ongoing and any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company’s control.

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