What changed in this filing

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Item 1. Business

2022-03-01 compared with 2021-03-01 · 130 added, 201 removed, 518 unchanged (39% of the section changed)

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The Company was formed by a group of local businessmen and professionals with significant prior experience in community banking in the Company’s market area, together with an experienced community bank senior management team.

The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System, is the Company’s principal operating subsidiary.

The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board" or "Federal Reserve"), is the Company’s principal operating subsidiary.

It commenced banking operations on July 20, 1998.

The Bank currently operates twenty banking offices:

The Bank currently operates seventeen branch offices:

six in Suburban Maryland;

five located in the District of Columbia;

and nine in Northern Virginia.

The Bank also has six lending centers and utilizes various electronic capabilities, including remote deposit services and mobile banking services.

The Bank may seek additional banking offices consistent with its strategic plan, although there can be no assurance that the Bank will establish any additional offices, or that any branch office will prove to be profitable.

and six in Northern Virginia.

The Bank also has five lending centers and utilizes various digital capabilities, including remote deposit services and mobile banking services.

The Bank maintains its physical presence via branches and lending centers consistent with its strategic plan.

The Bank has three active direct subsidiaries:

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These themes of convenience and proactive personal service form the basis for the Bank’s business development strategies.

The Company has grown primarily through organic growth over its twenty two year history.

Two acquisitions have been completed (one in 2008 and one in 2014).

On August 31, 2008, the Company completed the acquisition of Fidelity & Trust Financial Corporation (“Fidelity”) which increased loans and deposits by approximately $361 million and $385 million, respectively.

The acquisition of Virginia Heritage Bank (“Virginia Heritage”) completed on October 31, 2014, added approximately $800 million in loans, and $645 million in deposits.

Over its twenty-four year history, the Company has grown primarily through organic growth, but also has completed two whole bank acquisitions.

On August 31, 2008, the Company acquired Fidelity & Trust Financial Corporation (“Fidelity”) and on October 31, 2014 acquired Virginia Heritage Bank (“Virginia Heritage”).

Refer to Note 7 to the Consolidated Financial Statements for additional disclosure regarding intangible assets established incident to mergers and acquisitions.

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A suite of Treasury Management services is also offered to business clients.

The Bank’s deposits are insured by the Federal Deposit insurance Corporation, or FDIC, to the fullest extent provided by law.

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The Bank’s deposits are insured by the Federal Deposit insurance Corporation ("FDIC") to the fullest extent provided by law.

The Bank’s loan portfolio consists primarily of traditional business and real estate secured loans.

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Real estate loans are made generally for commercial purposes and are structured using both variable and fixed rates and renegotiable rates which adjust in three to five years, with maturities of generally five to ten years.

Commercial real estate loans, which comprise the largest portion of the loan portfolio, are secured by both owner occupied and non-owner occupied real property and include a component of acquisition, development and construction, or ADC lending.

The Bank’s consumer loan portfolio is a smaller portion of the loan portfolio and is comprised generally of two loan types:

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In certain limited instances, residential mortgage first deed of trust loans are packaged along with a line of credit to the same borrower for sale in the secondary market by the Bank.

The Bank has also developed significant expertise and commitment as a Small Business Administration (“SBA”) lender and has been recognized as a top originator of such loans in our market area.

The Bank has also developed significant expertise and commitment as a Small Business Administration (“SBA”) lender.

The Bank is a preferred lender under the SBA’s Preferred Lender Program.

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The Bank participated in all phases to date of the PPP, which is further described in the Notes to Financial Statements and Managements’ Discussion and Analysis which follows.

The Company originates multifamily FHA loans through the Department of Housing and Urban Development’s, or HUD’s, Multifamily Accelerated Program, or MAP.

The Company securitizes these loans through the Government National Mortgage Association, or Ginnie Mae, MBS I program and sells the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundles and sells the servicing rights.

The lending activities in which the Bank engages carry the risk that the borrowers will be unable to perform on their obligations.

As such, interest rate policies of the Board of Governors of the Federal Reserve System, which we refer to as the Federal Reserve Board or the Federal Reserve, and general economic conditions, nationally and in the Bank’s primary market area, could have a significant impact on the Bank’s and the Company’s results of operations.

The Company originates multifamily FHA loans through the Department of Housing and Urban Development’s or HUD’s Multifamily Accelerated Program ("MAP").

The Company securitizes these loans through the Government National Mortgage Association ("Ginnie Mae") MBS I program and sells the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundles and sells the servicing rights.

The Bank's lending activities carry the risk that the borrowers will be unable to perform on their obligations.

As such, interest rate policies of the Board of Governors of the Federal Reserve System and general economic conditions, nationally and in the Bank’s primary market area, could have a significant impact on the Bank’s and the Company’s results of operations.

To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations to the Bank in full, in a timely manner, resulting in decreased earnings or losses to the Bank.

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

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

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

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

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

At December 31, 2020, owner occupied commercial real estate and construction - Commercial and Industry ("C&I") (owner occupied) represent approximately 15% of the loan portfolio.

At December 31, 2020, non-owner occupied commercial real estate and real estate construction represented approximately 58% of the loan portfolio.

The combined owner occupied and commercial real estate loans represented approximately 34% of the loan portfolio.

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

At December 31, 2021, owner occupied commercial real estate and construction – C&I (owner occupied) represent approximately 18% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 61% of the loan portfolio.

The combined owner and non-owner occupied and commercial real estate loans represent approximately 79% of the loan portfolio.

Real estate also serves as collateral for loans made for other purposes, resulting in 85% of all loans being secured or partially secured by real estate.

These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions.

The Bank typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0.

The Bank typically requires a maximum loan to value of 80% and minimum debt service coverage of 1.0 to 1.15 .

Personal guarantees may be required, but may be limited.

In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years .

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 December 31, 2020 and was generally variable or adjustable rate.

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

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

Personal guarantees are generally required, but may be limited.

SBA loans represent approximately 1.2% of the commercial loan category at December 31, 2020.

In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit.

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

Approximately 1% of the loan portfolio at December 31, 2020 consists of home equity loans and lines of credit and other consumer loans.

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

Approximately 1% of the loan portfolio consists of residential mortgage loans at December 31, 2020.

At December 31, 2020, the repricing duration of these loans was 18 months.

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

While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date or mature.

Approximately 6% of the loan portfolio at December 31, 2020 consists of Payroll Protection Plan (PPP) loans, authorized under the Cares Act in 2020 in response to the COVID-19 pandemic.

These credits have a term of two or five years, and a stated interest rate of 1% plus an origination fee based on the loan amount.

The loans may in whole or part be forgivable (i.e.

repaid from U.S.

Treasury funds) based on the documented use of the loan proceeds.

The program is administered under rules established by the SBA.

Refer to Note 4 to the Consolidated Financial Statements for additional information regarding loan origination and risk management.

Our lending activities are subject to a variety of borrower lending limits imposed by state and federal law.

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however, there can be no assurance that such procedures can significantly reduce such lending risks.

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The Bank originates residential mortgage loans primarily as a correspondent lender.

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To protect against the price risk inherent in residential mortgage loan commitments, the Bank utilizes a combination of either or both “best efforts” and “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decrease in the values of loans that would result from the exercise of the derivative loan commitments.

Under a “best efforts” contract, the Bank commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor and the investor commits to a price that it will purchase the loan from the Bank if the loan to the underlying borrower closes.

The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that the buyer/investor has assumed the interest rate risk on the loan.

Under a “best efforts” contract, the Bank commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor and the investor commits to a price at which it will purchase the loan from the Bank if the loan to the underlying borrower closes.

The Bank protects itself from changes in interest

rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that the buyer/investor has assumed the interest rate risk on the loan.

As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates.

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The period of time between issuance of a loan commitment to the customer and closing and sale of the loan to an investor generally ranges from 30 to 90 days under current market conditions.

All loans are secured primarily by duly recorded first deeds of trust or mortgages.

Loans are secured primarily by duly recorded first deeds of trust or mortgages.

In some cases, the Bank may accept a recorded junior trust position.

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The general terms and underwriting standards for each type of commercial real estate and construction loan are incorporated into the Bank’s lending policies.

These policies are analyzed periodically by management, and the policies are reviewed and re-approved annually by either the Board of Directors or the Directors Loan Committee.

These policies are analyzed periodically by management, and the policies are reviewed and re-approved annually by either the Board of Directors or the Credit Oversight Committee.

The Bank’s loan policies and practices described in this report are subject to periodic change, and each guideline or standard is subject to waiver or exception in the case of any particular loan, by the appropriate officer or committee, in accordance with the Bank’s loan policies.

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Guaranteed, fixed price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects.

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

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Updated appraisals for real estate secured loans are obtained as necessary and appropriate to borrower financial condition, project status, loan terms, and market conditions.

The Company’s loan portfolio includes loans made for real estate acquisition, development, and construction ("ADC") purposes, including both income producing and owner occupied projects.

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

ADC loans amounted to $1.5 billion at December 31, 2021.

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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:

(i) the feasibility of the project;

(ii) the experience of the sponsor;

(iii) the creditworthiness of the borrower and guarantors;

(iv) borrower equity contribution;

and (v) the level of collateral protection.

(1) the feasibility of the project;

(2) the experience of the sponsor;

(3) the creditworthiness of the borrower and guarantors;

(4) borrower equity contribution;

and (5) the level of collateral protection.

When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan.

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

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

(ii) a construction loan administration department independent of the lending function;

(iii) third party independent construction loan inspection reports;

(iv) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects;

and (v) quarterly commercial real estate construction meetings among senior Company management which includes monitoring of current and projected real estate market conditions.

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

(2) a construction loan administration department independent of the lending function;

(3) third party independent construction loan inspection reports;

(4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects;

and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions.

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

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As of December 31, 2021, the Company has not experienced any significant issues with increased vacancy rates or lower rents for income producing properties financed.

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however, certain segments, including suburban offices, have exhibited higher than normal vacancy and experienced concessions in specific submarkets.

As part of its overall risk assessments, management carefully reviews the Bank’s loan portfolio and general economic and market conditions on a regular basis and will continue to adjust both the specific and environmental reserve factors as necessary.

As part of its overall risk assessments, management carefully reviews the Bank’s loan portfolio and general economic and market conditions on a regular basis and will continue to adjust both quantitative and qualitative reserve factors as necessary.

Deposit services include business and personal checking accounts, NOW accounts, tiered savings and money market account and time deposits with varying maturity structures and customer options.

A complete individual retirement account program is available.

The Bank also participates in the IntraFi Network, LLC (“IntraFi”) Certificate of Deposit Account Registry Service (“CDARS”) and its Insured Cash Sweep (“ICS”) program, both of which networks function to assure full FDIC insurance for participating Bank customers.

The Bank also participates in the IntraFi Network, LLC (“IntraFi”) Certificate of Deposit Account Registry Service (“CDARS”) and its Insured Cash Sweep (“ICS”) program, both of which function to assure full FDIC insurance for participating Bank customers.

In cooperation with Goldman Sachs Asset Management, the Bank offers a Goldman Sachs Investment Sweep Account, a check writing cash management account that sweeps funds to one of several non-FDIC insured off-balance sheet investment accounts managed by Goldman Sachs.

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The Bank offers a full range of online banking services for both personal and business accounts and has a Mobile Banking application.

Other deposit services include cash management services, business sweep accounts, lock box, remote deposit capture, account reconciliation services, merchant card services, safety deposit boxes and Automated Clearing House origination.

Other deposit services include cash management services, business sweep accounts, lockbox, remote deposit capture, account reconciliation services, merchant card services, safety deposit boxes and Automated Clearing House origination.

After-hours depositories and ATM service are also available.

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The Bank also owns equity investments related to membership in the Federal Reserve System and the Federal Home Loan Bank of Atlanta ("FHLB").

The Company’s securities portfolio includes equity investments in the form of common stock of two local banking companies.

The investment securities portfolio provides the following objectives:

The Company’s assets also include equity investments in the form of common stock of two local banking companies.

These are categorized as Other Assets and not accounted for in the Fixed Income Securities tables.

The investment

securities portfolio provides the following objectives:

capital preservation, liquidity management, additional income to the Company and Bank in the form of interest and gain on sale opportunities, collateral to facilitate borrowing arrangements and assistance with meeting interest rate risk management objectives.

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High risk investments and non-traditional investments are prohibited.

Investment maturities are generally limited to ten to fifteen years, except as specifically approved by the Asset Liability Committee, or ALCO, and mortgage backed pass through securities, which may have final stated maturities of 30 years, with average lives generally not to exceed eight years.

Investment maturities are generally limited to ten to fifteen years, except as specifically approved by the Asset Liability Committee ("ALCO") and mortgage backed pass-through securities, which may have final stated maturities of 30 years, with average lives generally not to exceed eight years.

The Company and Bank have formalized an asset and liability management process and have a standing ALCO consisting of senior management who report to the Board.

The ALCO operates under established policies and practices and a Committee Charter, which practices are updated and re-approved annually.

A typical ALCO meeting includes discussion of current economic conditions and balance sheet and other strategies, including interest rate trends and, the current balance sheet and earnings position, comparisons to budget, cash flow estimates, liquidity positions, liquidity stress tests (quarterly), and funding alternatives as necessary, interest rate risk position (monthly), including derivative positions, capital positions of the Company and Bank, reviews (including independent reviews) of the investment portfolio of the Bank and the Company, and the approval of investment transactions.

A typical ALCO meeting includes discussion of current economic conditions and balance sheet and other strategies, including interest rate trends and, the current balance sheet and earnings position, comparisons to budget, cash flow estimates, liquidity positions, liquidity stress tests (quarterly), and funding alternatives as necessary, interest rate risk position (monthly), including derivative positions, capital positions of the Company and Bank, reviews (including independent reviews) of the investment portfolio of the Bank and Company, and the approval of investment transactions.

Additionally, monthly ALCO meetings may include reports and analysis of outside firms to enhance the Committee’s knowledge and understanding of various financial matters.

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Further, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

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MARKET AREA AND COMPETITION

The primary service area of the Bank is the Washington, D.C.

The primary market area of the Bank is the Washington, D.C.

metropolitan area.

With a population of nearly 6.3 million and projected growth rate of 4%, the region is the 6th largest metropolitan area in the U.S.

With a population of 6.3 million and projected annualized growth rate of 0.80% through 2027, the region is the 6th largest metropolitan area in the U.S.

Census Bureau 2020).

Total employment in the region is approximately 3.3 million per the 2020 Bureau of Labor Statistics ("BLS") report.

The region has lost 178,000 jobs in the year 2020, going from a 2.6% unemployment rate to a 5.8% unemployment rate from the end of 2019 to the end of 2020 due substantially to the COVID-19 pandemic.

The region has added 135,000 jobs in the year 2021, going from a 6.5% unemployment rate to a 3.7% unemployment rate from the end of 2020 to the end of 2021 due substantially to the economic recovery from COVID-19 as vaccines and treatments became widely available.

The Washington D.C.

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Transportation congestion and federal government spending levels remain threats to future economic development and quality of life in the area.

Montgomery County, Maryland, with a total population estimated at 1,043,530 as of 2019 and occupying an area of about 500 square miles, borders Washington, D.C.

Montgomery County, Maryland, with a total population of 1,062,998 as of 2020 and occupying an area of about 500 square miles, borders Washington, D.C.

to the north and is roughly 30 miles southwest of Baltimore.

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Montgomery County is a thriving business center and is Maryland’s most populous jurisdiction.

Population in the county is expected to grow 6.7% between 2018 and 2025.

The State of Maryland boasts a demographic profile superior to the U.S.

economy at large, and the economy in and around Montgomery County is among the best in Maryland.

Population in the county is expected to grow at an annualized rate of 0.96% through 2027.

The State of Maryland boasts an attractive demographic profile, and the economy in and around Montgomery County is among the best in Maryland.

The number of jobs in Montgomery County has been relatively stable in the recent past.

The unemployment rate in Montgomery County is among the lowest in the state at 6.5% in November of 2020, based on Bureau of Labor Statistics’, or BLS, data.

A highly educated population has contributed to favorable median household income of $108,820 with the number of households totaling 370,950.

The unemployment rate in Montgomery County was 4.3% in November of 2021, based on BLS data.

A highly educated population has contributed to favorable median household income of $112,813 in 2020, placing it 18th in the nation based on median household income of counties with populations over 100,000.

The number of households totaled 387,609 in 2020.

According to the U.S.

census update, approximately 59% of the County’s residents in 2019 hold college or advanced degrees, placing the population of Montgomery County among the most educated in the nation.

The area boasts a diverse business climate of over 118,965 businesses.

Census, approximately 58.1% of the County’s residents in 2020 hold college or advanced degrees, placing the

population of Montgomery County among the most educated in the nation.

Major areas of employment include a substantial technology sector, biotechnology, software development, a housing construction and renovation sector, and legal, financial services, health care, and professional services sectors.

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Montgomery County is home to many major federal and private sector research and development and regulatory agencies, including the National Institute of Standards and Technology, the National Institutes of Health, National Oceanic and Atmospheric Administration, Naval Research and Development Center, Naval Surface Warfare Center, Nuclear Regulatory Commission, the Food and Drug Administration and the Walter Reed National Military Medical Center in Bethesda.

Prince George’s County, Maryland, covering just under 500 square miles, has a total estimated population of 908,670 as of 2019 and is located just east of Washington, D.C.

The county supports 313,343 households as of 2019 with median incomes of $84,920.

Prince George’s County, Maryland, covers just under 500 square miles, with a total population of 913,568 as of 2020 and is located just east of Washington, D.C.

In 2020, the county supported 318,831 households with median income of $88,717.

The unemployment rate in the county was 6.0% in November of 2021 according to the BLS.

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According to survey data from the latest U.S.

Census, the estimated 2019 population of the District of Columbia is approximately 705,749, up from 601,766 in 2010.

Median household income, at $92,266 as of 2019, is above the national median level of $65,712.

Census, the 2020 population of the District of Columbia is 717,189, up from 601,766 in 2010.

Median household income in 2020 was $90,695, above the national median of $66,010.

The growth of residents in the city is due partially to improvements in the city’s services and to the many housing options available, ranging from grand old apartment buildings to Federal era town homes to the most modern condominiums.

As of 2019, the housing market had grown to 322,814 units.

While the federal government and its employees are a major factor in the economy, over 100 million square feet of commercial office space support a dynamic business community of more than 63,000 companies.

As of 2020, the number of households had grown to 327,164 units.

The federal government and its employees are a major factor in the economy and support a dynamic business community.

These include law and accounting firms, trade and professional associations, information technology companies, international financial institutions, health and education organizations and research and management companies.

Unemployment was 5.2% at November 2021 according to BLS.

The disparity between the higher level of unemployment among District of Columbia residents and the strong employment trends reflects the high level of jobs in the District held by residents of the surrounding suburban jurisdictions.

The District of Columbia has a well-educated and highly paid work force.

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remains a popular tourist destination for both national and international travelers, absent a pandemic.

Fairfax County, Virginia, which is just across the Potomac River and west from Washington, D.C., is a large, affluent jurisdiction with an estimated population of 1,145,862 as of 2019 including Fairfax City.

This county covers about 395 square miles.

Fairfax County is one of the leading technology centers in the US.

It is a thriving residential as well as business center with 396,501 households.

The county is among the most affluent in the country with average annual household income of $124,831 as of 2019.

Fairfax County and Fairfax City, Virginia, are just across the Potomac River and west from Washington, D.C., and are a large, affluent jurisdiction with a population of 1,181,739 as of 2020.

Fairfax County covers about 395 square miles.

Fairfax County and the City are one of the leading technology centers in the US, and are a thriving residential as well as business center with 427,455 households.

The County and City are among the most affluent in the country with median annual household income of $123,964 as of 2020, placing them 4th in the nation for counties with a population over 100,000.

Unemployment was 2.3% in November of 2021 according to the BLS.

The population is highly educated, with about 60.9% of residents over 25 years of age holding at least a bachelor’s degree as of 2020.

Major companies headquartered in the county, which are also major employers, include Capital One Financial, DXC Technology, Gannett, General Dynamics, Hilton Hotels, Leidos, Sallie Mae, and Inova Health Systems.

The county is also home to several federal entities including the CIA, Fort Belvoir and a major facility of the Smithsonian Institution.

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Arlington County, Virginia, has an estimated population of 233,464.

Arlington County, Virginia, has a population of 242,987 as of 2020.

The county is made up of 26 square miles and is situated just west of Washington, D.C., directly across the Potomac River.

There are approximately 107,032 households with a median household income of $120,071 as of December 2019.

There are approximately 117,133 households with a median household income of $122,703 as of December 2020, placing it 7th in the nation for counties with a population over 100,000.

Significant private sector employers include Deloitte, Lockheed Martin, Virginia Hospital Center and Marriott International, Inc.

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There are approximately 80,071 households with a median household income of $104,830 as of 2020.

Alexandria has 17,540 employer establishments.

The unemployment rate was 2.4% at November of 2021 according to BLS.

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and boasts a population of 421,636.

Median household income, according to 2019 Census Bureau data, is $142,299 which is more than twice the national median household income of $62,843.

Median household income, according to 2020 Census Bureau data, is $144,770 which is more than twice the national median household income of $66,010 and highest of any county in the nation (regardless of population).

There are 138,819 households in the County.

The unemployment rate was 2.1% at November of 2021 according to BLS.

The Virginia Employment Commission expects to see employment growth of 1.2% annually through 2024.

The population is highly educated, with about 61.4% of residents over 25 years of age holding at least a bachelor’s degree as of

The major private employers in the county include United Airlines, Inc., Raytheon Company, Loudoun Hospital Center and Swissport U.S.A., Inc.

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Department of Homeland Security and the Postal Service.

Throughout the Washington, D.C.

metropolitan area, competition is significant from large banking institutions headquartered in and outside of the area.

Although some consolidation has occurred in the market in the past few years, the Bank continues to compete with other community banks, savings and loan associations, credit unions, mortgage companies and finance companies, as well as other kinds of financial institutions and enterprises, such as securities firms, insurance companies, savings associations, private lenders and nontraditional competitors such as fintech companies and internet-based lenders, depositories and payment systems.

Among the advantages that many of these large institutions have over the Bank are their abilities to finance extensive advertising campaigns, maintain extensive branch networks and make larger technology investments, and to directly offer certain services, such as international banking and trust services, which are not offered directly by the Bank.

Further, the greater capitalization of the larger institutions headquartered out-of-state allows for higher lending limits than the Bank, although the Bank’s current lending limit is quite favorable and able to accommodate the credit needs of most businesses in the Washington D.C.

metropolitan area, which distinguishes it from most community banks in the market area.

Some of these competitors have other advantages, such as tax exemption in the case of credit unions, and to some extent lesser regulation in the case of mortgage companies, finance companies, and many nontraditional competitors.

As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in July 2010, regulation of all financial firms was heightened, although new legislation in 2018 did amend some of the prior law and eased bank regulatory pressures, prompting some de novo activity, but mostly driving further consolidation.

Under current law, unlimited interstate de novo branching is available to all state and federally chartered banks.

As a result, institutions, which previously were ineligible to establish de novo branches in the Bank’s market area, may elect to do so.

Effective July 1, 2015, the Bank entered into a multi-faceted support agreement with George Mason University (“George Mason”), the Commonwealth of Virginia’s largest public research university.

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The stadium opened in the summer of 2018 and hosts cultural and community events and concerts as well as Major League Soccer games.

The Bank faces significant competition in originating and retaining loans and attracting deposits as the Washington, D.C.

market area has a high concentration of large and regional banks based outside the area, one large locally based bank that operates nationwide, numerous community banks and several large credit unions.

The Bank’s most direct competition for deposits comes from large and regional banks based outside the Washington D,C, market area, all of which have substantially greater financial resources than the Bank.

Among the advantages that many of these large institutions have over the Bank are their ability to finance extensive advertising campaigns, maintain extensive branch networks, make larger technology investments, and to directly offer certain services, such as international banking and trust services, which are not offered directly by the Bank.

The Bank faces direct competition for loans from each of these institutions described above as well as from mortgage companies, on-line lenders and other loan origination firms.

metropolitan area, which distinguishes it from most community banks in the market area.

Under current law, unlimited interstate de novo branching is available to all state and federally chartered banks.

As a result, institutions, which previously were ineligible to establish de novo branches in the Bank’s market area, may elect to do so.

HUMAN CAPITAL RESOURCES AND MANAGEMENT

Human Capital

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At EagleBank, our culture is defined by our Relationships F.I.R.S.T corporate values:

At EagleBank, our culture is defined by our Relationships F.I.R.S.T.

corporate values:

Flexible, Involved, Responsive, Strong, and Trusted.

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We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees who embody our company mantra of “Relationships FIRST”.

The Board of Directors oversees the strategic management of our human capital resources.

The Human Resources Department’s day-to-day responsibility is managing our human capital resources.

Talent Acquisition and Retention

As of December 31, 2020 we employed 515 full and part time employees across our 30 offices, which includes our branch offices, corporate offices and other operating facilities.

As of December 31, 2021 we employed 507 full and part time employees across our 21 locations, which includes our branch offices, corporate offices, lending and other operating facilities.

During 2021 we hired 98 employees.

Our voluntary turnover rate was 11% in 2020 and has declined for the past two years.

Our voluntary turnover rate was 16% in 2021, up from 11% in 2020, but in line with the rate in 2019.

None of our employees are represented by a union or subject to a collective bargaining agreement.

Diversity and Inclusion

We strive toward having a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect.

We strive toward a powerful and diverse team of employees, knowing we are better together with our combined wisdom and intellect.

With a commitment to equality, inclusion and workplace diversity, we focus on understanding, accepting, and valuing the differences among people.

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Employee Engagement

We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our culture.

In 2020, 66% of employees participated in our annual employee survey.

We regularly collect feedback to better understand and improve the employee experience and identify opportunities to continually strengthen our cultu re.

In our last employee survey, conducted in 2020, nearly 70% of employees participated.

We host periodic all-employee conference calls to disseminate information and to respond to employee questions.

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Our top priority during the COVID-19 pandemic is to protect the health and safety of our employees and their families, customers and the communities we serve.

We continue to maintain workplace flexibility such as working remotely and providing flexible work schedules to reduce the number of employees on-site each day.

We have implemented enhanced safety and health protocols—including extra cleanings throughout the day, social distancing, installing plexi-glass barriers in high contact areas and providing our employees with personal protective equipment.

We also provided our employees with 40 hours of emergency sick leave for COVID related absences.

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We have implemented enhanced safety and health protocols and provided our employees with 40 hours of emergency sick leave for COVID related absences.

Our business and operations are subject to extensive federal and state governmental regulation and supervision.

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The Company .

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, or the Act, and is subject to regulation and supervision by the Federal Reserve Board.

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("the Act") and is subject to regulation and supervision by the Federal Reserve Board.

The Act and other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and actions, including regulatory enforcement actions for violations of laws and regulations and unsafe and unsound banking practices.

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The Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

The Gramm Leach-Bliley Act of 1999, or GLB Act, allows a bank holding company or other company to certify its status as a financial holding company, which would allow such company to engage in activities that are financial in nature, that are incidental to such activities, or are complementary to such activities.

The Gramm Leach-Bliley Act of 1999 ("GLB Act") allows a bank holding company or other company to certify its status as a financial holding company, which would allow such company to engage in activities that are financial in nature, that are incidental to such activities, or are complementary to such activities.

The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities, and engaging in merchant banking under certain restrictions.

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The Company has not elected financial holding company status.

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The Act and the Federal Deposit Insurance Act, or FDIA, require a bank holding company to serve as a source of financial and managerial strength to its bank subsidiaries.

The Act and the Federal Deposit Insurance Act ("FDIA") require a bank holding company to serve as a source of financial and managerial strength to its bank subsidiaries.

As a result of a bank holding company's source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinated capital or other instruments which qualify as capital under bank regulatory rules.

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Share Repurchases .

A bank holding company is generally required to give the Federal Reserve prior written notice of any purchase or redemption of its own then outstanding common stock if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company's consolidated net worth.

months, is equal to 10% or more of the company's consolidated net worth.

The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, Federal Reserve order or directive, or any condition imposed by, or written agreement with, the Federal Reserve.

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For example, state law restrictions include limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records, minutes, borrowing and the observance of corporate formalities.

The Bank is a Maryland chartered commercial bank and a member of the Federal Reserve System, or a state member bank, whose accounts are insured by the Deposit Insurance Fund of the FDIC up to the maximum legal limits of the FDIC.

The Bank is a Maryland chartered commercial bank and a member of the Federal Reserve System, and a state member bank, whose accounts are insured by the Deposit Insurance Fund of the FDIC up to the maximum legal limits of the FDIC.

The Bank is subject to regulation, supervision and regular examination by the State of Maryland Office of Financial Regulation and the Federal Reserve Board.

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or (iii) the customer not obtain some other credit, property or service from competitors, except for reasonable requirements to assure the soundness of credit extended.

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Branching and Interstate Banking .

The federal banking agencies are authorized to approve interstate bank merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks has opted out of the interstate bank merger provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, or the Riegle-Neal Act, by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks.

The federal banking agencies are authorized to approve interstate bank merger transactions without regard to whether such transaction is prohibited by the law of any state, unless the home state of one of the banks has opted out of the interstate bank merger provisions of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal Act") by adopting a law after the date of enactment of the Riegle-Neal Act and prior to June 1, 1997 which applies equally to all out-of-state banks and expressly prohibits merger transactions involving out-of-state banks.

Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located permits such acquisitions.

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The unavailability of a sufficient volume of brokered deposits could have a material adverse effect on our business, financial condition and results of operations.

In December 2020, the FDIC issued a final rule (effective April 1, 2021) that revises the FDIC’s brokered deposit regulations.

The final rule, among other things, revises the definition of “deposit broker” and the accompanying exceptions.

We are evaluating the final rule and its impact on our operations and results .

Bank Secrecy Act .

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Failure to comply with these sanctions could have serious legal and reputational consequences.

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Capital Adequacy .

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(i) a minimum ratio of CET1 to risk-weighted assets of 4.5%, plus a “capital conservation buffer” of 2.5%, or 7.0%;

(ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the capital conservation buffer, or 8.5%;

(ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, plus the

capital conservation buffer, or 8.5%;

(iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of 8.0% plus the capital conservation buffer, or 10.5%;

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Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer face constraints on their ability to pay dividends, effect equity repurchases and pay discretionary bonuses to executive officers, which constraints vary based on the amount of the shortfall.

Under the Basel III Rules, mortgage-servicing assets and deferred tax assets are subject to certain restrictions on their inclusion as capital.

In July 2019, the Federal Reserve and the other federal banking regulators issued a final rule to simplify the regulatory capital treatment of mortgage-servicing assets, certain deferred tax assets arising from temporary differences and investments in the capital of unconsolidated financial institutions.

This final rule revises the individual CET1 deduction threshold for these assets from 10% to 25%, eliminates the aggregate deduction threshold of 15% for these assets, and assigns a 250% risk weight for any mortgage-servicing assets or deferred tax assets not deducted from CET1 capital .

The Basel III Rules also include, as part of the definition of CET1, a requirement that banking institutions include the amount of additional other comprehensive income, or AOCI, which primarily consists of unrealized gains and losses on available-for-sale securities, which are not required to be treated as other-than-temporary impairment, net of tax) in calculating regulatory capital, unless the institution makes a one-time opt-out election from this provision in connection with the filing of its first regulatory reports after applicability of the Basel III Rules to that institution.

The Company opted out of this requirement and, as such, does not include AOCI in its regulatory capital calculation.

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The Basel III Rules provide for the manner of calculating risk-weighted assets, including the recognition of credit risk mitigation, such as financial collateral and a range of eligible guarantors.

They also include the risk weighting of equity exposures and past due loans;

and higher (greater than 100%) risk weighting for certain commercial real estate exposures that have higher credit risk profiles, including higher loan-to-value, or LTV, and equity components.

In particular, loans categorized as “high-volatility commercial real estate,” or HVCRE, loans are required to be assigned a 150% risk weighting and require additional capital support.

HVCRE loans are defined to include any credit facility that finances or has financed the acquisition, development or construction of real property, unless it finances:

1-4 family residential properties;

certain community development investments;

agricultural land used or usable for, and whose value is based on, agricultural use;

or commercial real estate projects in which:

(i) the LTV is less than the applicable maximum supervisory LTV ratio established by the bank regulatory agencies;

(ii) the borrower has contributed cash or unencumbered readily marketable assets, or has paid development expenses out of pocket, equal to at least 15% of the appraised “as completed” value;

(iii) the borrower contributes its 15% before the bank advances any funds;

and (iv) the capital contributed by the borrower, and any funds internally generated by the project, is contractually required to remain in the project until the facility is converted to permanent financing, sold or paid in full.

The “Economic Growth, Regulatory Relief, and Consumer Protection Act,” or the 2018 Act, expanded the exclusion from HVCRE loans to include credit facilities financing the acquisition or refinance of, or improvements to, existing income producing property, secured by the property, if the cash flow being generated by the property is sufficient to support the debt service and expenses of the property in accordance with the institution’s loan criteria for permanent financing.

The 2018 Act also provides that the value of contributed property will be its appraised value, rather than its cost.

The 2018 Act permits an institution to reclassify an HVCRE loan as a non-HVCRE loan upon substantial completion of the project, where the cash flow from the property is sufficient to support debt service and expenses, in accordance with the institution’s underwriting criteria for permanent financing.

In November 2019, the federal banking agencies jointly amended the Basel III Rules to implement this provision of the 2018 Act applicable to HVCRE exposures.

The 2018 Act also directed the federal banking agencies to develop a “Community Bank Leverage Ratio,” calculated by dividing tangible equity capital by average consolidated total assets.

In October 2019, the federal banking agencies adopted a Community Bank Leverage Ratio of 9%, which was temporarily lowered to 8% as a result of the COVID-19 pandemic.

If a “qualified community bank,” generally a depository institution or depository institution holding company with consolidated assets of less than $10 billion, has a leverage ratio which exceeds the Community Bank Leverage Ratio, then such institution is considered to have met all generally applicable leverage and risk based capital requirements;

the capital ratio requirements for “well capitalized” status under Section 38 of the FDIA, and any other leverage or capital requirements to which it is subject.

An institution or holding company may be excluded from qualifying community bank status based on its risk profile, including consideration of its off-balance sheet exposures;

trading assets and liabilities;

total notional derivatives exposures;

and such other facts as the appropriate federal banking agencies determine to be appropriate.

The Company and Bank qualify for this simplified capital regime, but there can be no assurance that satisfaction of the Community Bank Leverage Ratio will provide adequate capital for their operations and growth, or an adequate cushion against increased levels of nonperforming assets or weakened economic conditions if the Company and Bank elect to apply this regime.

As discussed below, the Basel III Rules also integrate the capital requirements into the prompt corrective action provisions under Section 38 of the FDIA.

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and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor.

Leadership of the federal banking agencies who are tasked with implementing Basel IV supported the revisions.

Although it is uncertain at this time, it is anticipated that some, if not all, of the Basel IV accord may be incorporated into the capital requirements framework applicable to the Bank effective January 1, 2023.

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Although it is uncertain at this time, it is anticipated that some, if not all, of the Basel IV revisions may be incorporated into the capital requirements framework applicable to the Company and the Bank.

In 2016, FASB issued the current and expected credit losses model (“CECL”), which became applicable to us on January 1, 2020.

CECL required financial institutions to estimate and establish a provision for expected credit losses over the lifetime of the asset, at the origination or the date of acquisition of the asset, as opposed to reserving for incurred or probable losses through the balance sheet date.

Upon implementation, an institution recognized a one-time cumulative effect adjustment to the ACL.

Upon implementation, an institution recognized a one-time cumulative effect adjustment to the allowance for credit losses ("ACL").

The federal banking regulators have adopted a rule providing for an optional three-year phase-in period for the day-one adverse regulatory capital effects upon adopting CECL.

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In general, good cause requires that adequate capital has been raised and is imminently available for infusion into the institution, except for certain technical requirements, which may delay the infusion for a period of time beyond the 90 day time period.

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Immediately upon becoming undercapitalized, an institution shall become subject to the provisions of Section 38 of the FDIA, which (i) restrict payment of capital distributions and management fees;

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(vii) there is any violation of law or unsafe or unsound practice or condition that is likely to cause insolvency or substantial dissipation of assets or earnings, weaken the institution’s condition, or otherwise seriously prejudice the interests of depositors or the insurance fund;

(viii) an institution ceases to be insured;

(viii) an institution ceases to be

(ix) the institution is undercapitalized and has no reasonable prospect that it will become adequately capitalized, fails to become adequately capitalized when required to do so, or fails to submit or materially implement a capital restoration plan;

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• Provided mortgage reform provisions regarding a customer’s ability to pay and making more loans subject to provisions for higher-cost loans and new disclosures.

• Created the Consumer Financial Protection Bureau, or CFPB, which has rulemaking authority for a wide range of consumer protection laws that apply to all banks, and has broad powers to supervise and enforce consumer protection laws.

• Created the Consumer Financial Protection Bureau ("CFPB"), which has rulemaking authority for a wide range of consumer protection laws that apply to all banks, and has broad powers to supervise and enforce consumer protection laws.

• Created the Financial Stability Oversight Council with authority to identify institutions and practices that might pose a systemic risk.

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• Adopted Section 13 of the Act, commonly referred to as the Volcker Rule, which restricts the ability of institutions and their holding companies to and affiliates to make proprietary investments in securities and to invest in certain covered nonpublic investment vehicles, and to extend credit to such vehicles.

• Codified the requirement that holding companies and other companies that directly or indirectly control an insured depository institution to serve as a source of financial strength.

• Codified the requirement that holding companies, and other companies that directly or indirectly control an insured depository institution, serve as a source of financial strength.

• Made permanent the $250 thousand limit for federal deposit insurance.

• Permitted national and state banks to establish interstate branches to the same extent as the branch host state allows establishment of in-state branches.

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The 2018 Act includes provisions revising Dodd-Frank Act provisions, including provisions that, among other things:

The "Economic Growth, Regulatory Relief, and Consumer Protection Act," or the 2018 Act includes provisions revising Dodd-Frank Act provisions, that among other things:

(i) exempt banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans;

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Federal and state regulatory agencies also frequently adopt changes to their regulations or change the manner in which existing regulations are applied.

Certain aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities, require more oversight or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose the Company to additional costs, including increased compliance costs.

business practices, including the ability to offer new products, obtain financing, attract deposits, make loans and achieve satisfactory interest spreads and could expose the Company to additional costs, including increased compliance costs.

These changes also may require significant management attention and resources to make any necessary changes to operations to comply and could have an adverse effect on our business, financial condition and results of operations.

Consumer Financial Protection Bureau .

The Dodd-Frank Act created the CFPB, a new, independent federal agency with broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the consumer financial privacy provisions of the GLB Act and certain other statutes.

The Dodd-Frank Act created the CFPB, an independent federal agency with broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Practices Act, the consumer financial privacy provisions of the GLB Act and certain other statutes.

The CFPB has examination and primary enforcement authority with respect to depository institutions with over $10 billion in assets.

Smaller institutions, including the Bank, are subject to rules promulgated by the CFPB but continue to be examined and supervised by federal banking agencies for compliance with federal consumer protection laws and regulations.

The CFPB also has authority to prevent unfair, deceptive or abusive practices in connection with the offering of consumer financial products.

The Dodd-Frank Act permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

As of December 31, 2021, our total assets were $11.8 billion.

As an institution with over $10 billion in total consolidated assets, the Bank will become subject to increased regulation and supervision by the Federal Reserve and the FDIC starting in 2022.

Therefore, the Bank will be subject to ongoing (rather than periodic) supervision, targeted examinations, more frequent loan portfolio reviews and other enhanced supervision.

In particular, the FRB and the FDIC will focus on the soundness of the Bank’s risk management framework and capabilities, given the greater complexity and impact of the Bank’s risks as a larger institution.

The Bank will also be required to provide information to the CFPB on a quarterly basis, and be subject to periodic examinations by the CFPB focused on compliance with consumer laws and regulations, as a banking organization over $10 billion in total assets.

The changes resulting from the Dodd-Frank Act and CFPB rulemakings and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, including non-qualified mortgage loans, require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability.

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These rules include significant regulatory and compliance changes and are expected to have a broad impact on the financial services industry.

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The rule implementing the Dodd-Frank Act requirement that lenders determine whether a consumer has the ability to repay a mortgage loan, established certain minimum requirements for creditors when making ability to pay determinations, and established certain protections from liability for mortgages meeting the definition of “qualified mortgages.” Generally, the rule applies to all consumer-purpose, closed-end loans secured by a dwelling including home-purchase loans, refinances and home equity loans – whether a first or subordinate lien.

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In December 2020, the CFPB issued a final rule to create a new category of seasoned qualified mortgages (“Seasoned QMs”), which are presumed to meet the ability-to-pay requirements established by the Dodd-Frank Act.

To be considered a Seasoned QM, loans would have to be first-lien, fixed-rate mortgages that have met certain performance requirements over a 36-month seasoning period.

To be considered a

Seasoned QM, loans would have to be first-lien, fixed-rate mortgages that have met certain performance requirements over a 36-month seasoning period.

Covered transactions would also have to be held on the creditor’s portfolio during the seasoning period, comply with general restrictions on product features and points and fees and meet certain underwriting requirements (including verification of the consumer’s debt-to-income ratio or residual income at origination).

The rule took effect on February 27, 2021, but compliance is not mandatory until July 1, 2021.

We are continuing to evaluate the impact of the final rule on our operations.

The rule took effect on February 27, 2021, but compliance was not mandatory until July 1, 2021.

Fair and Responsible Banking.

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The comment period for the ANPR ended on February 16, 2021.

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Concentration and Risk Guidance.

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FDIC Insurance Premiums .

The FDIC maintains a risk-based assessment system for determining deposit insurance premiums.

The FDIC has established four risk categories, each subject to a different premium rate, ranging from a low of 2.5 basis points up to 45 basis points, based upon an institution’s status as well capitalized, adequately capitalized or undercapitalized, and the institution’s supervisory rating.

In general, an institution’s assessment base for calculating its deposit insurance premium is determined by subtracting its tangible equity and certain allowable deductions from its consolidated average assets.

There are three adjustments that can be made to an institution’s initial base assessment rate:

(1) a potential decrease for long-term unsecured debt, including senior and subordinated debt and, for small institutions, a portion of Tier 1 capital;

(2) a potential increase for secured liabilities above a threshold amount;

and (3) for institutions other than those with the lowest risk rating, a potential increase for brokered deposits above a threshold amount.

Institutions with less than $10.0 billion in assets that have been FDIC-insured for at least five years, instead of the four risk categories, a financial ratios method based on a statistical model estimating the bank's probability of failure over three years, utilizing seven financial ratios (leverage ratio;

net income before taxes/total assets;

nonperforming loans and leases/gross assets;

other real estate owned/gross assets;

brokered deposit ratio;

one year asset growth;

and loan mix index) and a weighted average of supervisory ratings components.

The financial ratios method also provides that community banks with brokered deposits in excess of 10% of total consolidated assets (inclusive of reciprocal deposits if a bank is not well-capitalized or has a composite supervisory rating other than a 1 or 2) may be subject to an increased assessment rate if it has experienced rapid growth;

lowers the range of authorized assessment rates to 1.5 basis points for institutions posing the least risk, increases the range up to 40 basis points for institutions posing the most risk;

and further lowers the range of assessment rates if the reserve ratio of the Deposit Insurance Fund increases to 2% or more.

Institutions with over $10.0 billion in total consolidated assets are required to pay a surcharge of 4.5 basis points on their assessment basis, subject to certain adjustments.

This surcharge is expected to apply to the Bank after December 31, 2021.

The FDIC may also impose special assessments from time to time.

Under the 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”), FDIC insured institutions with assets in excess of $10 billion are also subject to a phase out of the deductibility of deposit insurance premiums.

Deposits at the Bank are insured up to applicable limits by the Deposit Insurance Fund (“DIF”) of the FDIC and the Bank is subject to deposit insurance assessments to maintain the DIF.

Deposit insurance assessments are based on average total assets minus average tangible equity.

For larger institutions, such as the Bank, the FDIC uses a performance score and a loss-severity score to calculate an initial assessment rate.

In calculating these scores, the FDIC uses a bank’s capital level and supervisory ratings and certain financial measures to assess an institution’s ability to withstand asset-related stress and funding-related stress.

The FDIC has the ability to make discretionary adjustments to the total score based upon significant risk factors that are not adequately captured in the calculations.

Under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

In addition, the FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.

The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250 thousand per depositor.

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Increased Focus on Lending to Members of the Military .

The federal banking agencies and the Department of Justice have recently increased their focus on financial institution compliance with the Servicemembers Civil Relief Act (“SCRA”).

The federal banking agencies and the Department of Justice have recently increased their focus on financial institution compliance with the Service members Civil Relief Act (“SCRA”).

The SCRA requires a bank to cap the interest rate at 6% for any loan to a member of the military who goes on active duty after taking out the loan.

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The Bank fully complies with this rule.

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Affiliate Transactions .

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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-K

Item 1. Business