What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-01 · 436 added, 595 removed, 1651 unchanged (38% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm (PCAOB ID 173)

Shareholders and the Board of Directors of Eagle Bancorp, Inc.

Bethesda, Maryland

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheet of Eagle Bancorp, Inc.

(the "Company") as of December 31, 2021 and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flow for the year ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and the results of its operations and its cash flows for the period ended December 31, 2021 in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2020 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification No.

326, Financial Instruments – Credit Losses (ASC 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that

we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that

are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance and Provision for Credit Losses on Loans

The allowance for credit losses (the “ACL”) is an accounting estimate of the expected credit losses in the loans held for investment portfolio over the life of an exposure (or pool of exposures).

Expected credit losses are measured on a collective (pooled) basis for financial assets with similar risk characteristics.

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 as described in Notes 1 and 4 of the consolidated financial statements.

The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

The Company estimates expected credit losses for loans using a methodology based on a loan-level probability of default (“PD”) and Loss Given Default (“LGD”) cash flow method that is applied using an exposure at default (“EAD”) model.

Cash flow projections are at the loan level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates.

The expected prepayment speeds are based on historical internal data.

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

The ACL estimation process for loans applies economic forecast scenarios over a reasonable and supportable period of 18 months and reverts back to a historical loss rate over twelve months on a straightline basis over the loan's remaining maturity.

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

We determined that auditing the allowance for credit losses on loans was a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the application processes, including the need to involve our valuation services specialists.

The principal considerations resulting in our determination included the following:

• Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecasts of economic variables and reasonableness of other model assumptions.

• Significant auditor judgment and effort in evaluating the reasonableness of the qualitative adjustments used in the model computation.

• Significant audit effort related to the completeness and accuracy of the high volume of data used to develop assumptions and in the model computation.

Our audit procedures to address the critical audit matter included:

Testing the effectiveness of internal controls over:

• The Company’s significant model assumptions and judgments, reasonable and supportable forecasts, and information systems.

• The Company’s preparation and review of the allowance for credit losses calculation, including the relevance and reliability of data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative adjustments, and the mathematical accuracy and appropriateness of the overall calculation.

• The completeness and accuracy of historical inputs, loan data used in the development of the PD and LGD assumptions, and the use of third-party data in the computation.

Substantively testing management’s estimate, which included:

• Assessing the reasonableness of assumptions and judgments related to the PD and LGD rates, with the assistance of our valuation specialists, by comparing the resulting historical loss experience to a group of the Company’s peers.

• Evaluating the reasonableness of management’s judgments in the selection and application of reasonable and supportable forecasts of economic variables.

• Evaluating management’s process for developing the qualitative factors, including evaluating management’s judgments and assumptions for reasonableness.

• Assessing the relevance and reliability of data used to develop qualitative factors.

• Evaluating the mathematical accuracy of the PD and LGD rates on a pooled loan level with the assistance of valuation specialists, including the completeness and accuracy of loan data used in the model.

We have served as the Company's auditor since 2021.

Washington, D.C.

March 1, 2022

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Eagle Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Eagle Bancorp, Inc.

and Subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

Shareholders and the Board of Directors of Eagle Bancorp, Inc.

Bethesda, Maryland

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Eagle Bancorp, Inc.

and Subsidiaries (the "Company") as of December 31, 2020, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows, for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2021 expressed an unqualified opinion thereon.

Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2020, due to the adoption of Accounting Standards Codification ("ASC") Topic 326, Financial Instruments – Credit Losses .

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2020, due to the adoption of Accounting Standards Codification Topic 326, Financial Instruments – Credit Losses.

Basis for Opinion

1 unchanged sentence

Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

5 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(1) related to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s allowance for credit losses was $109.6 million at December 31, 2020.

As described by management in Note 1, the Company adopted ASC Topic 326 Financial Instruments – Credit Losses on January 1, 2020.

The allowance is estimated using information about past events, current conditions and reasonable and supportable forecasts.

Estimates that can and do change when actual events occur are made for the following components:

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• Reserves on pools of loans sharing similar risk characteristics using a lifetime loss rate model adjusted for a reasonable and supportable forecast.

• Reserves on loans that do not share similar risk characteristics are evaluated on an individual basis.

• Incremental reserves on pools of loans sharing similar risk characteristics for any necessary qualitative adjustments.

Estimating an appropriate allowance for credit losses requires management to make certain assumptions about expected losses on loans in the loan portfolio over their remaining contractual life as of the balance sheet date.

Significant judgments in estimating the allowance for credit losses include determining:

• The appropriate historical loss experience to use in calculating a lifetime loss rate.

• A reasonable and supportable forecast.

• The nature and amount of qualitative adjustments.

We identified the allowance for credit losses as a critical audit matter.

The principal considerations for that determination included management’s judgment necessary in subjectively determining appropriate historical loss experience, specifically the use of peer data, selecting a reasonable and supportable forecast and determining the nature and amount of qualitative adjustments.

In turn, auditing management’s judgments around those estimates involved a high degree of subjectivity.

The primary procedures we performed to address this critical audit matter included, among others:

• We evaluated the design and operating effectiveness of controls relating to management’s determination of the allowance for credit losses, including:

• Controls over the development of the allowance for credit losses model, including validation of the model.

• Controls over management’s selection of appropriate historical loss experience.

• Controls over management’s review and approval of the allowance for credit losses, including management’s evaluation of qualitative adjustments that might impact the calculation of the allowance and management’s determination of a reasonable and supportable forecast.

• We evaluated, with the support of specialists, management’s use of peer loss data in calculating historical loss rates by comparing the resulting historical loss experience to a group of the Company’s peers.

• We evaluated management’s application of qualitative adjustments to the allowance for credit losses, which included substantively testing management’s process for developing and applying qualitative factors and assessing relevance of data used to develop factors including evaluating their judgements and assumptions for reasonableness.

• We evaluated, with the support of specialists, management’s selection of a reasonable and supportable forecast and tested the accuracy of the application of that forecast to the lifetime historical loss rate calculation.

We also evaluated with the support of specialists, the conceptual design of the credit loss model and the independent model validation.

/s/ Dixon Hughes Goodman LLP

We have served as the Company’s auditor since 2016.

Charlotte, North Carolina

March 1, 2021

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of Eagle Bancorp Inc.

Opinion on Internal Control Over Financial Reporting

We have audited Eagle Bancorp Inc.

and Subsidiaries’ (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of December 31, 2020 and 2019, and for each of the three years in the period ended December 31, 2020, and our report dated March 1, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ Dixon Hughes Goodman LLP

We have served as the Company’s auditor from 2016 to 2021.

Charlotte, North Carolina

March 1, 2021

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EAGLE BANCORP, INC.

24 unchanged sentences

Savings and money market 5,197,247 4,645,186

Time, $ 100,000 or more

546,173 663,987

Other time 431,587 619,052

Time deposits 729,082 977,760

Total deposits 9,981,540 9,189,203

11 unchanged sentences

Retained earnings 930,061 798,061

Accumulated other comprehensive income 15,500 2,959

Accumulated other comprehensive income (loss) ( 14,242 ) 15,500

Total Shareholders’ Equity 1,350,775 1,240,892

1 unchanged sentence

See Notes to Consolidated Financial Statements.

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EAGLE BANCORP, INC.

16 unchanged sentences

Net Interest Income 324,514 321,562 324,045

Provision for Credit Losses 45,571 13,091 8,660

Provision for Unfunded Commitments 1,380 — —

Provision (reversal) for Credit Losses ( 20,821 ) 45,571 13,091

Provision (reversal) for Unfunded Commitments ( 1,119 ) 1,380 —

Net Interest Income After Provision For Credit Losses 346,454 274,611 310,954

22 unchanged sentences

See Notes to Consolidated Financial Statements.

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EAGLE BANCORP, INC.

8 unchanged sentences

Total unrealized gain (loss) on investment securities ( 30,126 ) 13,059 10,153

Unrealized (loss) gain on derivatives ( 1,378 ) ( 2,049 ) 1,806

Unrealized loss on derivatives — ( 1,378 ) ( 2,049 )

Reclassification adjustment for gain (loss) included in net income 384 860 ( 870 )

Total unrealized (loss) gain on derivatives ( 518 ) ( 2,919 ) 1,388

Total unrealized gain (loss) on derivatives 384 ( 518 ) ( 2,919 )

Other comprehensive income (loss) ( 29,742 ) 12,541 7,234

1 unchanged sentence

See Notes to Consolidated Financial Statements.

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EAGLE BANCORP, INC.

16 unchanged sentences

Issuance of common stock related to employee stock purchase plan 16,129 — 782 — — 782

Balance Reclassification of the income tax effects of the Tax Cuts and Jobs Act from AOCI (ASU 2018-02) — — — 674 ( 674 ) —

Cash dividends declared ($ 0.66 per share)

— — — ( 22,332 ) — ( 22,332 )

Balance December 31, 2019 33,241,496 $ 331 $ 482,286 705,105 2,959 1,190,681

Net Income — — — 132,217 — $ 132,217

Cumulative effect adjustment due to the adoption of

ASC 326, net of tax — — — ( 10,931 ) — ( 10,931 )

Other comprehensive loss, net of tax — — — — 12,541 12,541

10 unchanged sentences

Net Income — — — 176,691 — 176,691

Cumulative effect adjustment due to the adoption of

ASC 326, net of tax — $ — $ — $ ( 10,931 ) $ — ( 10,931 )

Other comprehensive income, net of tax — — — — ( 29,742 ) ( 29,742 )

Stock-based compensation expense — — 7,811 — — 7,811

Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 3,300 — 63 — — 63

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 24,429 ) 1 ( 1 ) — — —

5 unchanged sentences

Common stock repurchased ( 13,175 ) — ( 682 ) — — ( 682 )

Balance December 31, 2020 31,779,663 $ 315 $ 427,016 $ 798,061 $ 15,500 $ 1,240,892

December 31, 2021 $ 31,950,092 $ 316 $ 434,640 $ 930,061 $ ( 14,242 ) $ 1,350,775

See Notes to Consolidated Financial Statements.

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EAGLE BANCORP, INC.

1 unchanged sentence

(dollars in thousands)

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Years Ended December 31,

11 unchanged sentences

Proceeds from sale of loans held for sale 1,211,313 1,231,273 636,747

Net increase in cash surrender value of BOLI ( 2,071 ) ( 1,703 ) ( 1,507 )

Deferred income tax (benefit) expense 5,770 ( 8,332 ) ( 61 )

Net gain on sale of other real estate owned ( 1,266 ) ( 1,180 ) —

Net increase in cash surrender value of BOLI ( 2,059 ) ( 2,071 ) ( 1,703 )

Net gain on sale of investment securities ( 2,964 ) ( 1,815 ) ( 1,517 )

1 unchanged sentence

Net tax (expense) benefits from stock compensation 1,097 118 ( 48 )

Increase in other assets ( 28,626 ) ( 21,421 ) ( 16,643 )

Increase (decrease) in other assets 1,358 ( 28,626 ) ( 21,421 )

Increase in other liabilities 24,823 9,826 19,809

6 unchanged sentences

Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock 6,169 4,250 89,250

Net increase in loans ( 240,911 ) ( 563,771 ) ( 583,393 )

Net change in loans 511,120 ( 240,911 ) ( 563,771 )

Proceeds from sale of SBA PPP loans 170,154 — —

Purchase of BOLI ( 30,000 ) — ( 580 )

6 unchanged sentences

Increase (decrease) in customer repurchase agreements ( 2,808 ) ( 4,254 ) 567

Increase (decrease) in short-term borrowings 50,000 250,000 ( 325,000 )

Increase in short-term borrowings — 50,000 250,000

Increase in long-term borrowings — 50,000 —

Repayment of long-term borrowings ( 200,000 ) — —

Proceeds from exercise of equity compensation plans — 63 332

1 unchanged sentence

Common stock repurchased ( 682 ) ( 61,432 ) ( 54,903 )

Tax equivalent shares withheld on exercise of equity comp plans ( 1,097 ) — —

Cash dividends paid ( 44,691 ) ( 28,330 ) ( 22,332 )

10 unchanged sentences

Change in fair value of cash flow hedge $ ( 384 ) $ ( 904 ) $ —

Change in fair value of investments $ 17,822 $ — $ —

See Notes to Consolidated Financial Statements.

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Eagle Bancorp, Inc.

12 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.

As of December 31, 2020, the Bank offers its products and services through twenty banking offices, six lending centers and various electronic capabilities, including remote deposit services and mobile banking services.

As of December 31, 2021, the Bank offers its products and services through seventeen 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.

3 unchanged sentences

Actual results may differ from those estimates and such differences could be material to the financial statements.

Risks and Uncertainties

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

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

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

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

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

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

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

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

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

The CARES Act also created the Paycheck Protection Program (the “PPP”), a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks.

These loans are intended to guarantee payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.

On December 27, 2020, The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act was enacted, which includes additional funding for the PPP.

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

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

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

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

Financial position and results of operations

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

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

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

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

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

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

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

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.

Capital and liquidity

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

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.

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.

Asset valuation

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

however, this could change in future periods.

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

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

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

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

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

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

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

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

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

An impairment analysis was performed during the fourth quarter (as of December 31, 2020) as part of our regularly scheduled annual impairment testing and again found no impairment existed.

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

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

Business Continuity Plan

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

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

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

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

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

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

Lending operations and accommodations to borrowers

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

At December 31, 2020, the Company had no accruing loans 90 days or more past due.

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

As of December 31, 2020, we had ongoing temporary modifications on 36 loans representing approximately $ 72 million (approximately 0.9 % of total loans) in outstanding balances.

Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e., non-performing loans) due to the provision of the CARES Act that permits U.S.

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

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

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

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

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

As of December 31, 2020, PPP loans totaled $ 454.8 million to just over 1,400 businesses.

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

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

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

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

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

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

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

For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold, and interest bearing deposits with other banks that have an original maturity of three months or less.

Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, federal funds purchased, repurchase agreements and other short-term borrowings.

Interest Bearing Deposits in Other Financial Institutions

Interest-bearing deposits in other financial institutions mature within one year and are carried at cost.

Loans Held for Sale

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

The Company’s current practice is to sell residential mortgage loans held for sale on a servicing released basis, and, therefore, it has no intangible asset recorded in the normal course of business for the value of such servicing as of December 31, 2020 and December 31, 2019.

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The Company’s current practice is to sell residential mortgage loans held for sale on a servicing released basis, and, therefore, it has no intangible asset recorded for the value of such servicing as of December 31, 2021 and December 31, 2020.

The Company enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e.

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Under a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor.

The investor commits to a price, representing a premium on the day the borrower commits to an interest rate, that it will purchase the loan from the Company if the loan to the underlying borrower closes with the intent that the buyer/investor has assumed the interest rate risk on the loan as the Company protects itself from changes in interest rates.

The investor commits to a price, representing a premium on the day the borrower commits to an interest rate, at which it will purchase the loan from the Company if the loan to the underlying borrower closes, with the intent that the buyer/investor has assumed the interest rate risk on the loan as the Company protects itself from changes in interest rates.

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 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.

When servicing is retained on multifamily FHA loans securitized and sold, the Company computes an excess servicing asset on a loan by loan basis with the unamortized amount being included in Intangible assets in the Consolidated Balance Sheets.

Unamortized multifamily FHA MSRs totaled $ 807 thousand as of December 31, 2020 and $ 310 thousand as of December 31, 2019.

When servicing is retained on multifamily FHA loans securitized and sold, the Company computes an excess servicing asset on a loan by loan basis.

Unamortized multifamily FHA mortgage servicing rights ("MSRs") totaled $ 1.5 million as of December 31, 2021 and $ 807 thousand as of December 31, 2020.

Noninterest Income includes gains from the sale of the Ginnie Mae securities and net revenues earned on the servicing of multifamily FHA loans underlying the Ginnie Mae securities.

Revenue from servicing commercial multifamily FHA mortgages is recognized as earned based on the specific contractual terms of the underlying servicing agreements, along with amortization of and changes in impairment of mortgage servicing rights.

Investment Securities

The Company has no securities classified as trading or as held-to-maturity.

The Company has no securities classified as held-to-maturity.

Securities available-for-sale are acquired as part of the Company’s asset/liability management strategy and may be sold in response to changes in interest rates, current market conditions, loan demand, changes in prepayment risk and other factors.

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Declines in the fair value of

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individual available-for-sale securities below their cost that are other-than-temporary in nature result in write-downs of the individual securities to their fair value.

Factors affecting the determination of whether other-than-temporary impairment has occurred include a downgrading of the security by a rating agency, a significant deterioration in the financial condition of the issuer, or a change in management’s intent and ability to hold a security for a period of time sufficient to allow for any anticipated recovery in fair value.

Factors affecting the determination of whether other-than-temporary impairment has occurred include a downgrading of the security by a rating agency or a significant deterioration in the financial condition of the issuer.

Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis.

This analysis requires management to consider various factors, which include the:

(1) duration and magnitude of the decline in value;

(1) magnitude of the decline in value;

(2) financial condition of the issuer or issuers;

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Deferred fees and costs are being amortized on the interest method over the term of the loan.

Management considers individual loans impaired when, based on current information, it is probable that the Company will not collect all principal and interest payments according to contractual terms.

Loans are evaluated for impairment in accordance with the Company’s portfolio monitoring and ongoing risk assessment procedures.

Management considers the financial condition of the borrower, cash flow of the borrower, payment status of the loan, and the value of the collateral, if any, securing the loan.

Generally, individually assessed loans do not include large groups of smaller balance homogeneous loans such as residential real estate and consumer type loans which are evaluated collectively for impairment and are generally placed on nonaccrual when the loan becomes 90 days past due as to principal or interest.

Loans specifically reviewed for impairment are not considered impaired during periods of “minimal delay” in payment (90 days or less) provided eventual collection of all amounts due is expected.

The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if repayment is expected to be provided solely by the collateral.

In appropriate circumstances, interest income on individually assessed loans may be recognized on a cash basis.

Allowance for Credit Losses

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

Measurement of Credit Losses on Financial Instruments” (“ASC 326”), which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses ("ACL") with an expected loss methodology that is referred to as the current expected credit loss ("CECL") model.

On January 1, 2020, we adopted Accounting Standards Codification ("ASC") 326, “Financial Instruments - Credit Losses (Topic 326 ):

Measurement of Credit Losses on Financial Instruments” (“ASC 326”), which replaced the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the current expected credit loss ("CECL") model.

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

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In addition, ASC 326 changed the accounting for available-for-sale (“AFS”) debt securities.

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

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

We adopted ASC 326 using the modified retrospective method.

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The following table illustrates the impact of ASC 326.

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January 1, 2020

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

Provision for credit losses- loans $ 45,404 $ 13,091

(Reversal) / Provision for credit losses- loans $ ( 21,274 ) $ 45,404

Provision for credit losses- AFS debt securities 453 167

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Allowance for Credit Losses- Loans

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

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

ASC 326 replaced the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased.

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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).

Expected recoveries are recorded to the extent they 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 (e.g., nonaccrual loans, TDRs).

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

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

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

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

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

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

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

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

In 2020, COVID-19 negatively impacted unemployment projections, which inform our CECL economic forecast and resulted in increased our ACL during 2020.

For our cash flow model, management utilizes and forecasts regional unemployment by using a national forecast and estimating a regional adjustment based on historical differences between the two as the loss driver over our reasonable and supportable period of 18 months and reverts back to a historical loss rate over twelve months on a straight-line basis over the loan's remaining maturity.

In 2021, the improvement in economic conditions, which impacted the unemployment projections, which inform our CECL economic forecast, along with improvements in credit quality and charge offs, resulted in a decrease in our ACL during 2021.

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

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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;

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Income producing – commercial real estate .

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

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 a record of past success with similar properties.

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

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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 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.

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

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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.

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

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

Collateral properties include industrial, healthcare, religious facilities, restaurants, and office buildings.

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 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.

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Collateral Dependent Financial Assets

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

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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.

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

For further detail on TDRs regarding the CARES Act, please see Note 1 - "Summary of Significant Accounting Principles" - "Impact of COVID."

For further detail on TDRs regarding the CARES Act, please see "Risks and Uncertainties - Lending operations and accommodations to borrowers" above.

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

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For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors.

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

In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the

rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors.

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

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

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

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

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

Losses are charged against the allowance when management believes the uncollectability of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

The majority of available-for-sale debt securities as of December 31, 2020 and 2019 were issued by U.S.

However, as of December 31, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities could be the result of credit losses, and therefore, an ACL of $ 167 thousand was recorded.

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.

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

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Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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Premises and equipment are stated at cost less accumulated depreciation and amortization computed using the straight-line method for financial reporting purposes.

Premises and equipment are depreciated over the useful lives of the assets, which generally range from three to seven years for furniture, fixtures and equipment, three to five years for computer software and hardware, and five to twenty years for building improvements.

Leasehold improvements are amortized over the terms of the respective leases, which may include renewal options where management has the positive intent to exercise such options, or the estimated useful lives of the improvements, whichever is shorter.

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Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired, including other intangible assets.

Other intangible assets include purchased assets and mortgage servicing rights (“MSRs”) that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights.

Other intangible assets include purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights.

Intangible assets that have finite lives, such as core deposit intangibles, are amortized over their estimated useful lives.

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If the fair value of a reporting unit is less than book value, an expense may be required to write-down the related goodwill to the proper carrying value.

Any impairment would be recorded through a reduction of goodwill or the intangible and an offsetting charge to noninterest expense.

Any impairment would be recorded through a reduction of goodwill or other intangible asset and an offsetting charge to noninterest expense.

The Company performs impairment testing at any quarter-end when events or changes in circumstances indicate the assets might be impaired, or at least annually as of December 31.

The Company performs a qualitative impairment assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The Company performs a qualitative impairment assessment to determine whether it is more likely than not that the fair value of the only reporting unit is less than its carrying amount.

The Company assesses qualitative factors on a quarterly basis.

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

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Interest Rate Swap Derivatives

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Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

The Company may enter into derivative contracts that are intended to economically hedge certain of its risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

Revenue Recognition

The majority of our revenue-generating transactions are not subject to ASC 606 "Revenue from Contracts with Customers", including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures.

Substantially all of the Company’s revenue is generated from contracts with customers.

Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:

• Service charges on deposit accounts (i.e.

ATM fees) - These represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue.

Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance services or when a transaction has been completed (such as a wire transfer).

Payment for such performance obligations are generally received at the time the performance obligations are satisfied.

• Other Fees (i.e.

insurance commissions, investment advisory fees, credit card fees, interchange fees) – Generally, the Company receives compensation when a customer that it refers opens an account with certain third-parties.

• Sale of OREO – The Company assesses whether it is “probable” that it will collect the consideration to which it will be entitled in exchange for transferring the asset to the customer.

Customer Repurchase Agreements

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The agreements are entered into primarily as accommodations for large commercial deposit customers.

The obligation to repurchase the securities is reflected as a liability in the Company’s Consolidated Balance Sheets, while the securities underlying the securities sold under agreements to repurchase remain in the respective assets accounts and are delivered to and held as collateral by third party trustees.

The obligation to repurchase the securities is reflected as a liability in the Company’s Consolidated Balance Sheets, while the securities underlying the securities sold under agreements to repurchase remain in the respective asset accounts and are delivered to and held as collateral by third party trustees.

Marketing and Advertising

Marketing and advertising costs are generally expensed as incurred.

The Company employs the asset and liability method of accounting for income taxes as required by ASC 740, “ Income Taxes .” Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e.

temporary timing differences) and are measured at the enacted rates that will be in effect when these differences reverse.

temporary differences) and are measured at the enacted rates that will be in effect when these differences reverse.

The Company utilizes statutory requirements for its income tax accounting, and limits risks associated with potentially problematic tax positions that may incur challenge upon audit, where an adverse outcome is more likely than not.

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In certain cases, the recourse to the Bank to repurchase assets may exist but is deemed immaterial based on the specific facts and circumstances.

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Earnings per Common Share

Basic net income per common share is derived by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period measured.

Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period measured including the potential dilutive effects of common stock equivalents.

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period measured.

Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period including the potential dilutive effects of common stock equivalents.

Stock-Based Compensation

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The Company records the discount from the fair market value of shares issued under its Employee Share Purchase Plan as a component of Salaries and employee benefits expense in its Consolidated Statement of Income.

Segment Reporting

While the chief operating decision-maker monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis.

Operating results are not reviewed by senior management to make resource allocation or performance decisions.

Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

New Authoritative Accounting Guidance

Accounting Standards Adopted in 2021

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

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

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

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

This includes short-term (e.g.

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

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

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

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

See Note 4 - "Loans and Allowance for Credit Losses" for further detail.

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

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

Results for reporting periods beginning after January 1, 2020 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable GAAP.

Refer to the “Allowance for Credit Losses- Loans”

section above for additional detail.

ASU 2017-04, " Intangibles-Goodwill and Other (Topic 350") :

Simplifying the Test for Goodwill Impairment, in January 2017.

The objective of this guidance is to simplify an entity’s required test for impairment of goodwill by eliminating Step 2 from the goodwill impairment test.

In Step 2 an entity measured a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill.

Under this Update, an entity should perform its annual or quarterly goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount and record an impairment charge for the excess of the carrying amount over the reporting unit’s fair value.

The loss recognized should not exceed the total amount of goodwill allocated to the reporting unit and the entity must consider the income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable.

The Company adopted this standard during the current year and it did not have a material impact on the Company’s financial position, results of operations or cash flows.

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ASU 2018-13, " Fair Value Measurement" (Topic 820) :

The ASU removes, modifies, and adds certain disclosures related to Level 3 investments, including:

to disclose changes in unrealized gains and losses, the range and weighted average of significant observable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty.

The ASU became effective January 1, 2020 and had no significant impact on the Company's documentation requirements, financial statement or disclosures.

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

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

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

ASU 2020-3 was effective immediately upon its release in March 2020 and did not have a material impact on the Company's Consolidated Financial Statements.

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

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

2021-06, "Presentation of Financial Statements (Topic 205), Financial Services - Depository and Lending (Topic 942), and Financial Services - Investment Companies (Topic 946):

Amendments to SEC Paragraphs Pursuant to SEC Final Rules Release No.

33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No.

33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants," was effective August 2021, upon addition to the ASC and it did not have a material impact on the consolidated financial statements.

2021-04, "Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Issuer's Accounting for Certain Modification of Exchanges of Freestanding Equity - Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force)." The ASU addresses how an issuer should account for modifications or and exchange of freestanding written call options classified as equity that is not within the scope of another Topic.

For both public and private companies, the ASU is effective for fiscal years beginning after December 15, 2021 and was adopted effective January 1, 2022.

It did not have an impact on the consolidated financial statements.

Accounting Standards Pending Adoption

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

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

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

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Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic.

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

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

As we have evaluated our portfolio, LIBOR based loans have been modified with fallback language in accordance with ASU 2020-04 and the expectation of a change in index is not expected to have a material impact on the accounting for those loans.

2020-06, "Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("the ASU') simplifies accounting for convertible instruments by removing major separation models required under current U.S.

Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features.

The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it.

The ASU also simplifies the diluted earnings per share (EPS) calculation in certain areas.

In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency.

For public business entities, excluding smaller reporting companies, the amendments in the ASU are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years.

The Company does not expect the adoption of ASU 2020-06 to have a material impact on its consolidated financial statements.

Note 2 – Cash and Due from Banks

1 unchanged sentence

During 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 average daily balance maintained in 2020 was $ 1.1 billion a nd in 2019 was $ 307 million.

The Company also has deposits with other banks that serve as collateral for derivative positions it holds, totaling $ 5.1 million at December 31, 2020 and $ 780 thousand at December 31, 2019.

The average daily balance maintained in 2021 was $ 2.3 billion a nd in 2020 was $ 1.1 billion.

The Company also has deposits with other banks that serve as collateral for derivative positions it holds, totaling $ 6.3 million at December 31, 2021 and $ 5.1 million at December 31, 2020.

Derivative positions are reflected in Other Assets and Liabilities as discussed in Note 10 - Other Derivatives.

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

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Note 3 – Investment Securities Available-for-Sale

3 unchanged sentences

(dollars in thousands) Credit Losses

treasury bonds $ 49,693 $ 22 $ ( 257 ) $ — $ 49,458

agency securities 629,273 736 ( 7,622 ) — 622,387

4 unchanged sentences

December 31, 2020 Amortized

Losses Estimated

(dollars in thousands)

Losses Allowance for Estimated

(dollars in thousands) Credit Losses

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

2 unchanged sentences

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

Treasury 34,844 11 — 34,855

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

1 unchanged sentence

The unrealized losses that exist at December 31, 2021 are generally the result of changes in market interest rates and interest spread relationships since original purchases.

However, as of December 31, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities were due to credit-related events, and therefore, an ACL of $ 167 thousand was recorded.

The weighted average duration of debt securities, which comprise 99.9 % of total investment securities, is relatively short at 3.2 years.

However, as of December 31, 2021, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities could be due to credit-related events, and therefore, provisions for credit losses of $ 453 thousand and $ 167 thousand were recorded as of December 31, 2021 and 2020, respectively.

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.

11 unchanged sentences

(dollars in thousands)

Treasury Bond 1 $ 24,593 $ 257 $ — $ — $ 24,593 $ 257

agency securities 64 452,966 6,256 68,977 1,366 521,943 7,622

Residential mortgage backed securities 153 1,327,519 16,841 108,061 3,956 1,435,580 20,797

Municipal Bonds 8 20,181 347 — — 20,181 347

Corporate bonds 13 66,051 584 — — 66,051 584

239 $ 1,891,310 $ 24,285 $ 177,038 $ 5,322 $ 2,068,348 $ 29,607

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12 Months 12 Months

39 unchanged sentences

In 2020, gross realized gains on sales of investment securities were $ 1.9 million and gross realized losses on sales of investment securities were $ 46 thousand.

In 2018, gross realized gains on sales of investment securities were $ 391 thousand and gross realized losses on sales of investment securities were $ 294 thousand.

In 2019, gross realized gains on sales of investment securities were $ 1.7 million and gross realized losses on sales of investment securities were $ 153 thousand.

Proceeds from sales and calls of investment securities for 2021, 2020, and 2019 were $ 201.0 million, $ 124.1 million, and $ 104.8 million, respectively.

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

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 December 31, 2021 was $ 261.0 million and $ 268.4 million at December 31, 2020, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business.

As of December 31, 2021 and December 31, 2020, there were no holdings of securities of any one issuer, other than the U.S.

1 unchanged sentence

agency securities, which exceeded ten percent of shareholders’ equity.

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Note 4 – Loans and Allowance for Credit Losses

19 unchanged sentences

As of December 31, 2021 and 2020, the Bank serviced $ 120.3 million and $ 124.0 million, respectively, of multifamily FHA loans, SBA loans and other loan participations, which are not reflected as loan balances on the Consolidated Balance Sheets.

Loan Origination/Risk Management

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

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

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

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

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

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

At December 31, 2020, owner occupied commercial real estate and construction – C&I (owner occupied) represent approximately 15 % of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 58 % of the loan portfolio.

The combined owner and non-owner occupied and commercial real estate loans represented approximately 73 % 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 debt service coverage of 1.15 to 1.0.

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 .

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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 generally with variable or adjustable rate.

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 % of the commercial loan category.

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

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

SBA loans are subject to the same cash flow analyses as other commercial loans.

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

Approximately 6 % of the loan portfolio at December 31, 2020 consists of PPP loans to eligible customers.

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

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

as a result, they were approved utilizing different underwriting standards than the Bank's other commercial loans.

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 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.

The repricing duration of these loans was 22 months as December 31, 2020.

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.

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

Real estate 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.

18 unchanged sentences

As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels.

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Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower.

23 unchanged sentences

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

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(dollars in thousands) Commercial Income Producing -

7 unchanged sentences

Allowance for credit losses:

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

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

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

Loans charged-off ( 8,788 ) — ( 5,444 ) — ( 206 ) — ( 1 ) ( 14,439 )

3 unchanged sentences

Ending balance $ 14,475 $ 38,287 $ 12,146 $ 449 $ 9,099 $ 474 $ 35 $ 74,965

At December 31, 2020

Allowance for credit losses:

Individually evaluated for impairment $ 7,343 $ 6,425 $ 1,241 $ 330 $ 103 $ — $ — $ 15,442

Collectively evaluated for impairment 19,226 48,960 12,759 690 11,426 1,039 37 94,137

Ending balance $ 26,569 $ 55,385 $ 14,000 $ 1,020 $ 11,529 $ 1,039 $ 37 $ 109,579

Year Ended December 31, 2020

Allowance for credit losses:

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

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

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

Loans charged-off ( 12,082 ) ( 4,300 ) ( 20 ) ( 815 ) ( 2,947 ) ( 92 ) ( 3 ) ( 20,259 )

3 unchanged sentences

Ending balance $ 26,569 $ 55,385 $ 14,000 $ 1,020 $ 11,529 $ 1,039 $ 37 $ 109,579

At December 31, 2019

The following table presents the ending allowance balance attributable to loans individually and collectively evaluated for impairment, as well as associated loan balances, as of December 31, 2021 and 2020:

(dollars in thousands) Commercial Income Producing -

Real Estate Owner Occupied -

Real Estate Real Estate

Residential Construction -

Commercial and

Residential Home

Consumer Total

Year Ended December 31, 2021

Allowance for credit losses:

Ending Allowance Balance Attributable to loans:

Individually evaluated for impairment $ 1,799 $ 5,156 $ — $ — $ — $ — $ — $ 6,955

Collectively evaluated for impairment 12,676 33,131 12,146 449 9,099 474 35 68,010

Ending balance $ 18,832 $ 29,265 $ 5,838 $ 1,557 $ 17,485 $ 656 $ 25 $ 73,658

Acquired with deteriorated credit quality — — — — — — — —

Total Allowance Ending Balance $ 14,475 $ 38,287 $ 12,146 $ 449 $ 9,099 $ 474 $ 35 $ 74,965

Loans Individually evaluated for impairment $ 11,284 $ 22,570 $ 42 $ 1,779 $ 3,093 $ 366 $ — $ 39,134

Loans Collectively evaluated for impairment 1,394,138 3,362,728 1,087,734 72,187 1,052,805 55,445 1,427 7,026,464

Loans Acquired with deteriorated credit quality — — — — — — — —

Total Ending Loans Balance $ 1,405,422 $ 3,385,298 $ 1,087,776 $ 73,966 $ 1,055,898 $ 55,811 $ 1,427 $ 7,065,598

Year Ended December 31, 2020

Allowance for credit losses:

Ending Allowance Balance Attributable to loans:

Individually evaluated for impairment $ 7,343 $ 6,425 $ 1,241 $ 330 $ 103 $ — $ — $ 15,442

Collectively evaluated for impairment 19,226 48,960 12,759 690 11,426 1,039 37 94,137

Acquired with deteriorated credit quality — — — — — — — —

Total Allowance Ending Balance $ 26,569 $ 55,385 $ 14,000 $ 1,020 $ 11,529 $ 1,039 $ 37 $ 109,579

Loans Individually evaluated for impairment $ 16,627 $ 28,063 $ 22,398 $ 2,683 $ 206 $ 416 $ — $ 70,393

Loans Collectively evaluated for impairment 1,875,577 3,658,937 975,296 73,909 1,031,960 72,751 1,389 7,689,819

Loans Acquired with deteriorated credit quality — — — — — — — —

Total Ending Loans Balance $ 1,892,204 $ 3,687,000 $ 997,694 $ 76,592 $ 1,032,166 $ 73,167 $ 1,389 $ 7,760,212

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

(dollars in thousands) Business/Other Assets Real Estate

December 31, 2021 December 31, 2020

(dollars in thousands) Business/Other Assets Real Estate Business/Other Assets Real Estate

Commercial $ 3,098 $ 6,821 $ 11,326 $ 4,026

7 unchanged sentences

Total $ 7,656 $ 31,479 $ 14,519 $ 46,424

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Credit Quality Indicators

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

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

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

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

22 unchanged sentences

The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of December 31, 2021 and 2020.

The December 31, 2020 data is further defined by year of loan origination.

The data is further defined by year of loan origination.

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

4 unchanged sentences

Total 381,468 250,450 229,987 127,131 113,953 251,328 1,354,317

PPP loans — — — — — — —

Pass — — — — 16,840 32,900 49,740

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Substandard 1,365 1,365

Total — — — — 18,205 32,900 51,105

25 unchanged sentences

Watch 680 390 3,255 — — — 4,325

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

Total 20,390 2,144 28,418 46,451 61,408 768 159,579

9 unchanged sentences

Total Recorded Investment $ 1,788,773 $ 989,183 $ 1,198,095 $ 1,038,594 $ 859,656 $ 1,191,297 $ 7,065,598

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

December 31, 2019

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

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

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

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

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

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

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

Pass — — — — — 454,771 454,771

Total — — — — — 454,771 454,771

Income producing - commercial real estate —

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

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

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

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

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

Owner occupied - commercial real estate —

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

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

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

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

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

Real estate mortgage - residential —

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

Watch 1,996 699 — 728 — — 3,423

Substandard 1,198 1,698 — — — — 2,896

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

Construction - commercial and residential —

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

Watch 929 — 42,751 3,448 — — 47,128

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

Substandard — — 206 — — — 206

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

Construction - C&I (owner occupied) —

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

Watch 3,573 — 2,118 4,935 — — 10,626

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

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

Home Equity —

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

Watch 1,596 — — — — — 1,596

Substandard 603 — — — 47 — 650

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

Other Consumer —

Pass 929 190 64 74 94 31 1,382

Substandard 7 — — — — — 7

Total 936 190 64 74 94 31 1,389

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

Nonaccrual and Past Due Loans

5 unchanged sentences

The following table presents, by class of loan, information related to nonaccrual loans as of December 31, 2021 and 2020.

December 31, 2020 December 31, 2019

(dollars in thousands) Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Total Nonaccrual Loans

December 31, 2021

(dollars in thousands) Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans

Commercial $ 5,806 $ 3,070 $ 8,876

PPP 1,365 $ — 1,365

Income producing - commercial real estate 3,920 9,536 13,456

5 unchanged sentences

$ 16,371 $ 12,837 $ 29,208

December 31, 2020

(dollars in thousands) Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans

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

Income producing - commercial real estate 6,500 12,380 18,880

Owner occupied - commercial real estate 18,941 4,217 23,158

Real estate mortgage - residential 1,234 1,697 2,931

Construction - commercial and residential — 206 206

Home equity 416 — 416

Total nonaccrual loans (1)(2)

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

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

(2) Gross interest income of $ 3.7 million and $ 3.0 million would have been recorded for 2020 and 2019, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans were $ 679 thousand and $ 630 thousand at December 31, 2020 and 2019, respectively.

(2) Gross interest income of $ 1.7 million $ 3.7 million and $ 3.0 million would have been recorded for 2021, 2020 and 2019, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans were $ 101 thousand, $ 679 thousand and $ 630 thousand at December 31, 2021 2020 and 2019, respectively.

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

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(3) The CARES Act created the PPP, a program designed to aid small- and medium-sized businesses through federally guaranteed loans distributed through banks.

These loans are intended to guarantee payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.

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

19 unchanged sentences

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

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

Owner occupied - commercial real estate 13,008 — — 13,008 965,938 6,463 985,409

Real estate mortgage – residential 3,533 — — 3,533 95,057 5,631 104,221

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

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

Other consumer — 9 — 9 2,151 — 2,160

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

Pre Adoption of CECL

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

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

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

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

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The following table presents, by class of loan, information related to impaired loans for the year ended December 31, 2019.

Average Recorded

Investment Interest Income

(dollars in thousands) Unpaid

Balance Recorded

Allowance Recorded

Allowance Total

Investment Related

Allowance Year

December 31, 2019

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

PPP loans — — — 454,771 — 454,771

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

2 unchanged sentences

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

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

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

1 unchanged sentence

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

The Company’s recorded investments in loans as of December 31, 2019 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:

(dollars in thousands) Commercial Income Producing -

Real Estate Owner Occupied -

Real Estate Real Estate

Residential Construction -

Commercial and

Residential Home

Consumer Total

December 31, 2019

Recorded investment in loans:

Individually evaluated for impairment $ 25,288 $ 19,093 $ 6,463 $ 5,365 $ 11,510 $ 487 $ — $ 68,206

Collectively evaluated for impairment 1,520,618 3,683,654 978,946 98,856 1,113,734 79,574 2,160 7,477,542

Ending balance $ 1,545,906 $ 3,702,747 $ 985,409 $ 104,221 $ 1,125,244 $ 80,061 $ 2,160 $ 7,545,748

Loan Modifications

7 unchanged sentences

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

An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent.

An allowance for consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent.

Management exercises significant judgment in developing these estimates.

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

1 unchanged sentence

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

Through December 31, 2020, we granted temporary modifications on approximately 750 loans representing $ 1.6 billion.

These deferrals amounted to 36 loans representing approximately $ 72.4 million ( 0.9 % of total loans) in outstanding exposure at December 31, 2020 as many deferrals have migrated back to current payments, were placed on watch list or placed on nonaccrual.

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 during the years ended December 31, 2020 and 2019.

For the Year Ended December 31, 2020

The following tables presents, by class, the recorded investment of loans modified in TDRs held by the Company during the years ended December 31, 2021 and 2020.

As of December 31, 2021

(dollars in thousands) Number

9 unchanged sentences

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

For the Year Ended December 31, 2019

As of December 31, 2020

(dollars in thousands) Number

3 unchanged sentences

Real Estate Total

Troubled debt restructings

Troubled debt restructurings

Restructured accruing 7 $ 1,276 $ 9,183 $ 13 $ — $ 10,472

3 unchanged sentences

Restructured and subsequently defaulted $ — $ 6,342 $ 2,370 $ — $ 8,712

The Company had ten TDRs at December 31, 2020, totaling approximately $ 19.2 million, as compared to nine TDRs totaling approximately $ 19.1 million at December 31, 2019.

At December 31, 2020, six of these TDR loans, totaling approximately $ 10.5 million, were performing under their modified terms, as compared to December 31, 2019, when there were seven performing TDR loans totaling approximately $ 16.6 million.

During 2020, there were two performing TDRs totaling $ 6.3 million that defaulted on their modified terms that were reclassified to nonperforming loans, as compared to 2019, during which there were three performing TDR loans totaling approximately $ 9.5 million that defaulted on their modified terms and either charged-off or reclassified to nonperforming loans.

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

During 2020, there were two restructured loans totaling approximately $ 870 thousand which had their collateral property sold and were paid in full and one restructured loan totaling $ 138 thousand that had previously defaulted that was charged-off.

The Company had seven TDRs at December 31, 2021, totaling $ 16.5 million, as compared to ten TDRs totaling $ 19.2 million at December 31, 2020.

At December 31, 2021, five of these TDR loans, totaling $ 10.2 million, were performing under their modified terms, as compared to December 31, 2020, when there were seven performing TDR loans totaling approximately $ 10.5 million.

During 2021, there was one performing TDRs totaling $ 101 thousand that defaulted on their modified terms that were reclassified to nonperforming loans, as compared to two performing TDR loans during 2020 totaling approximately $ 6.3 million that defaulted on their modified terms and either charged-off or were reclassified to nonperforming loans.

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

During 2021, one previously nonperforming restructured loan had its collateral sold and all principal collected along with partial collection of delinquent interest;

one restructured loan purchased as part of the 2014 acquisition of Virginia Heritage Bank had its full carrying value collected, while additional payments are expected to recover previously written off principal and interest;

and, the aforementioned performing TDR totaling $ 101 thousand that defaulted in 2021 was subsequently charged off later in the year.

During 2020, there were two restructured loans totaling approximately $ 870 thousand that had their collateral property sold and were paid in full, and one TDR loan totaling $ 138 thousand that had previously defaulted was charged off.

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

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

The allowance may be increased, adjustments may be made in the allocation

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of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

During 2020, there were two loans modified in a TDR totaling approximately $ 572 thousand, as compared to 2019, during which there was one loan totaling approximately $ 2.3 million modified in a TDR.

Loan Charge Off Criteria

The criteria used to determine if a loan should be considered for charge off relates to its ultimate collectability includes the following:

• All or a portion of the loan is deemed uncollectible;

• Repayment is dependent upon secondary sources, such as liquidation of collateral, other assets, or judgment liens that may require an indefinite time period to collect.

Loans may be identified for charge off in whole or in part based upon an impairment analysis consistent with ASC 326.

If all or a portion of a loan is deemed uncollectible, such amount shall be charged off in the month in which the loan or portion thereof is determined to be uncollectible.

Loans approved for nonaccrual status, or charge off, are managed by the Chief Credit Officer or as dictated by the Directors Loan Committee and/or Management Credit Review Committee.

The Chief Credit Officer is expected to position the loan in the best possible posture for recovery, including, among other actions, liquidating collateral, obtaining additional collateral, filing suit to obtain judgment or restructuring of repayment terms.

A review of charged off loans is made on a monthly basis to assess the possibility of recovery from renewed collection efforts.

All charged off loans that are deemed to have the possibility of recovery, whether partial or full, are actively pursued.

Charged off loans that are deemed uncollectible will be placed in an inactive file with documentation supporting the suspension of further collection efforts.

In the process of collecting problem loans the Bank may resort to the acquisition of collateral through foreclosure and repossession actions, or may accept the transfer of assets in partial or full satisfaction of the debt.

These actions may in turn result in the necessity of carrying real property or chattels as an asset of the Company pending sale.

Purchased Loans

For purchased loans acquired that are not deemed impaired at acquisition, credit marks representing the principal losses expected over the life of the loans are a component of the initial fair value.

Subsequent to the purchase date, the methods utilized to estimate the required ACL for these loans is similar to originated loans;

however, the Company records a provision for loan losses only when the required allowance exceeds any remaining credit mark.

The differences between the initial fair value and the unpaid principal balance at the date of acquisition are recorded in interest income over the life of the loans.

The following table presents changes in the accretable yield, which includes income recognized from contractual interest cash flows, for the dates indicated.

(dollars in thousands) 2020 2019

Balance at January 1, $ ( 975 ) $ ( 1,495 )

Net reclassifications from nonaccretable yield — —

Accretion 370 520

Balance at December 31, $ ( 605 ) $ ( 975 )

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

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.

During 2021, there were no loans modified in a TDR, as compared to two loans during 2020 totaling approximately $ 572 thousand modified in a TDR.

Related Party Loans

Certain directors and executive officers of the Company and the Bank have had loan transactions with the Company.

Such loans were made in the ordinary course of the Company’s lending business, were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with third parties;

and, in the opinion of management, did not involve more than the normal risk of collectability or present other unfavorable features.

All of such loans are performing and none of such loans are disclosed as nonaccrual, past due, restructured or potential problem loans.

Certain directors and executive officers of the Company and the Bank and certain affiliated entities of such directors and executive officers have had loan transactions with the Company.

All of such loans are either fully repaid or performing and none of such loans are nonaccrual, past due, restructured or, rated substandard or worse (not on nonaccrual).

The following table summarizes changes in amounts of loans outstanding, both direct and indirect, to those persons during 2021 and 2020.

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Amounts in the “Additions due to Changes in Related Parties” reflect existing outstanding loans that transitioned to being related party loans between January 1, 2021 and December 31, 2021 as a result of changes in related party status with respect to certain of the Company’s directors who are affiliated with the related borrowers.

(dollars in thousands) 2021 2020

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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.

On January 1, 2019, the Company adopted ASU No.

2016-2 “Leases” (Topic 842) and all subsequent ASUs that modified ASC 842.

For the Company, ASC 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee.

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

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As of December 31, 2021, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company’s ability to incur additional financial obligations.

As of December 31, 2020, the Company signed two new leases for which occupancy had not yet commenced as of December 31, 2020.

The Company oversaw construction of landlord-owned leasehold improvements to prepare the property for its intended use.

The Company expects to occupy the leased spaces starting in the first quarter of 2021.

In 2021, the Company entered into two new leases, renewed/extended three leases and had five leases expire (three branches were closed and two operations center locations were consolidated into one new location)

The following table presents lease costs and other lease information.

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

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Right-of-use assets - operating leases $ 30,555 $ 25,237

Operating lease liabilities $ 35,501 $ 28,022

Weighted average lease term - operating leases 6.26 yrs 6.20 yrs

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$ 114,061 $ 667 $ ( 9,614 ) $ — $ 105,114

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(1) The Company recognizes a servicing asset for the computed value of servicing fees on the sale of multifamily FHA loans and the sale of the guaranteed portion of SBA loans.

Assumptions related to loan terms and amortization are made to arrive at the initial recorded values, which are included in other assets.

The aggregate amortization expense was $ 292 thousand, $ 1.2 million, and $ 1.6 million for the years ended December 31, 2020, 2019, and 2018, respectively.

The aggregate amortization expense was $ 132 thousand, $ 292 thousand, and $ 1.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The future estimated annual amortization expense is presented below:

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The activity within OREO for the years ended December 31, 2021 and 2020 is presented in the table below.

There were no properties in the process of foreclosure as of December 31, 2020.

For the years ended December 31, 2020 and 2019, there was one sale and no sales of OREO, respectively.

There was one property in the process of foreclosure as of December 31, 2021 and 2020.

For the years ended December 31, 2021 and 2020, there was one sale of OREO in both periods.

Years Ended December 31,

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The fair values of the mortgage banking derivatives are recorded as freestanding assets or liabilities with the change in value being recognized in current earnings during the period of change.

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At December 31, 2021 the Bank had mortgage banking derivative financial instruments with a notional value of $ 56.3 million related to its interest rate lock commitments.

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

The fair value of these mortgage banking derivative instruments at December 31, 2021 was $ 600 thousand included in other assets.

At December 31, 2020 the Bank had mortgage banking derivative financial instruments with a notional value of $ 367.7 million related to its forward contracts.

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

Included in gain on sale of loans for the year ended December 31, 2020 and 2019 was a net loss of $ 309 thousand and a net gain of $ 186 thousand, respectively, relating to mortgage banking derivative instruments.

The amount included in gain on sale of loans for year ended December 31, 2020 and 2019 pertaining to its mortgage banking hedging activities was a net realized gain of $ 27 thousand and a net realized loss of $ 116 thousand, respectively.

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

Included in gain on sale of loans for the year ended December 31, 2021, 2020 and 2019 was a net gain of $ 209 thousand, a net loss of $ 309 thousand and a net gain of $186 thousand, respectively, relating to mortgage banking derivative

The amount included in gain on sale of loans for year ended December 31, 2021, 2020 and 2019 pertaining to its mortgage banking hedging activities was a net realized loss of $ 18 thousand, a net realized gain of $ 27 thousand, and a net realized loss of $116 thousand, respectively.

Note 10 – Other Derivatives

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

As of December 31, 2020 and 2019, the Company had one designated cash flow hedge interest rate swap transaction outstanding associated with the Company's variable rate deposits.

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

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

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

During the next twelve months , the Company estimates (based on existing interest rates) that $ 444 thousand will be reclassified as an increase in interest expense.

Non-designated Hedges

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

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

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containing collateral posting or termination provisions based on our capital status) that was in a net liability position totaled $ 2.4 million.

The aggregate fair value of all derivative contracts with credit risk contingent features that were a net asset position totaled $ 515 thousand as of December 31, 2019.

The aggregate fair value of all derivative contracts with credit risk contingent features that were a net liability position totaled $ 4.2 million as of December 31, 2020.

The Company has minimum collateral posting thresholds with certain of its derivative counterparties.

As of December 31, 2021 the Company posted $ 2.9 million with its derivative counterparties against its obligations under these agreements because these agreements were in a net liability position.

At December 31, 2019, the Company posted $ 500 thousand with its derivative counterparties against its obligations under these agreements because these agreements were in a net liability position.

At December 31, 2020, the Company posted $ 1.5 million with its derivative counterparties against its obligations under these agreements because these agreements were in a net liability position.

If the Company had breached any provisions under the agreements at December 31, 2021 or December 31, 2020, it could have been required to settle its obligations under the agreements at the termination value.

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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 December 31, 2021 and December 31, 2020.

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Amount Fair Value Balance Sheet

Category Fair Value Balance Sheet

Category Notional

Amount Fair Value Balance Sheet

Derivatives not designated as hedging instruments

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Therefore, excess other collateral, if any, is not reflected above.

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the years ended December 31, 2020 and December 31, 2019.

The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the years ended December 31, 2021, 2020 and 2019.

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

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Total $ — $ ( 1,510 ) $ ( 1,812 ) $ ( 517 ) $ ( 1,146 ) $ 1,994

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The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the years ended December 31, 2021, 2020 and 2019.

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Expense Interest

Expense Gain on sale of

investment securities

Expense Interest

Expense Gain on sale of investment securities

Total amounts of income and expense line items presented in the Consolidated Statements of Income in which the effects of fair value or cash flow hedges are recorded $ ( 517 ) $ ( 1,146 ) $ 1,165 $ 829

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Year Ended December 31,

2021 2020 2019

Interest rate products Other income / (expense) $ 2,797 $ 153 $ ( 8 )

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

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

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

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

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The following table provides information regarding the Bank’s deposit composition at December 31, 2021 and 2020 as well as the average rate being paid on interest bearing deposits for the month of December 2021 and 2020.

(dollars in thousands) Balance Average

Rate Balance Average

(dollars in thousands) 2021 2020

Noninterest bearing demand $ 3,277,956 $ 2,809,334

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Savings and money market 5,197,247 4,645,186

Time, $100,000 or more 546,173 1.08 % 663,987 2.55 %

Other time 431,587 1.92 % 619,052 2.21 %

Time deposits 729,082 977,760

Total $ 9,981,540 $ 9,189,203

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The remaining maturity of time deposits at December 31, 2021 and 2020 are as follows:

(dollars in thousands) 2021 2020

2021 $ — $ 556,221

2022 478,057 232,462

2023 168,279 114,782

2024 58,908 53,942

2025 18,454 17,223

Thereafter 3,130 3,130

Total $ 729,082 $ 977,760

(dollars in thousands) 2021 2020

Three months or less $ 97,937 $ 230,892

More than three months through twelve months 325,329 538,352

More than three months through six months 171,508 191,656

More than six months through twelve months 208,612 133,673

Over twelve months 251,025 421,539

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Savings and money market 15,000 26,272 50,042

Time, $ 100,000 or more

13,464 20,016 17,138

Other time 10,640 14,477 4,190

Time deposits 11,163 24,104 34,493

Total $ 27,772 $ 53,566 $ 91,026

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Three months or less $ 16,663 $ 32,967

More than three months through twelve months 169,830 197,141

More than three months through six months 56,619 122,192

More than six months through twelve months 48,271 47,638

Over twelve months 30,907 28,280

Total $ 152,460 $ 231,077

At December 31, 2021, total deposits included $ 2.6 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 27 % of total deposits.

At December 31, 2020, total brokered deposits (excluding the CDARS and ICS two-way) were $ 2.4 billion, or 26 % of total deposits.

Note 12 – Affordable Housing Projects Tax Credit Partnerships

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The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities.

Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC

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Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership.

The Company accounts for its affordable housing tax credit investments using the proportional amortization method.

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Total unfunded commitments $ 16,504

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Note 13 – Borrowings

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Subordinated Notes $ 69,670 5.84 % $ 220,000 5.42 %

Borrowings 50,000 1.81 % — — %

FHLB Advance — — 50,000,000 1.81 %

Average Daily Balance:

Subordinated Notes $ 156,340 6.39 % $ 220,000 5.42 %

Borrowings 50,000 1.81 % — — %

FHLB Advance 8,630 1.84 % 50,000 1.81 %

Maximum Month-end Balance:

Subordinated Notes $ 218,081 5.36 % $ 220,000 5.42 %

Borrowings 50,000 1.81 % — — %

FHLB Advance 50,000 1.81 % 50,000 1.81 %

The Company offers its business customers a repurchase agreement sweep account in which it collateralizes these funds with U.S.

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This facility, which amounts to approximately $ 549.0 million, is

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collateralized with specific loan assets pledged to the Federal Reserve Bank.

It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.

Long-term borrowings were $ 69.7 million at December 31, 2021 and $ 268.1 million at December 31, 2020.

On August 5, 2014, the Company completed the sale of $ 70 million of its 5.75 % subordinated notes, due September 1, 2024 (the “2024 Notes”).

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On July 26, 2016, the Company completed the sale of $ 150 million of its 5.00 % Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the “2026 Notes”).

The 2026 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements.

The 2026 Notes were offered to the public at par and qualified as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements.

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

This note was redeemed by the Company on August 2, 2021 to reduce ongoing interest expense and to reduce excess common equity at the Bank level.

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

The advance was repaid March of 2021, as it became clear that the excess on balance sheet liquidity was not necessary.

Note 14 – Income Taxes

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Total income tax expense $ 60,983 $ 43,928 $ 53,848

We had net deferred tax assets (deferred tax assets in excess of deferred tax liabilities) of $ 38.6 million and $ 29.8 million for the years ended at December 31, 2020 and 2019, respectively, which related primarily to our allowance for credit losses, and loan origination fees.

Management believes it is more likely than not that all of the deferred tax assets will be realized.

The Company had net deferred tax assets (deferred tax assets in excess of deferred tax liabilities) of $ 43.2 million and $ 38.6 million for the years ended at December 31, 2021 and 2020, respectively, which related primarily to our allowance for credit losses, and loan origination fees.

Management believes it is more likely than not that all of the deferred tax assets will be realized with the exception of certain state net operating losses.

Temporary timing differences between the amounts reported in the Consolidated Financial Statements and the tax bases of assets and liabilities result in deferred taxes.

The table below summarizes significant components of our deferred tax assets and liabilities as of December 31, 2021 and 2020:

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(dollars in thousands) 2021 2020

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Net operating loss 7,623 6,896

Unrealized loss on securities available-for-sale 4,900 —

Unrealized loss on interest rate swap derivatives — 132

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The net operating loss carry forward acquired in conjunction with the Fidelity acquisition is subject to annual limits under Section 382 of the Internal Revenue Code of $ 718 thousand and expires in 2027.

As of December 31, 2020, The Company has concluded, based on the weight of available positive and negative evidence, a portion of it’s state net operating loss deferred tax asset is not more likely than not to be realized and accordingly, a valuation allowance of $ 5.8 million and $ 4.9 million is carried as of December 31, 2020 and 2019, respectively.

The Company has concluded, based on the weight of available positive and negative evidence, a portion of its state net operating loss deferred tax asset is not more likely than not to be realized and accordingly, a valuation allowance of $ 6.7 million and $ 5.8 million is carried as of December 31, 2021 and 2020, respectively.

A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate for the years ended December 31 2021, 2020, and 2019 follows:

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Management has identified no uncertain tax positions at December 31, 2021.

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Note 15 – Net Income per Common Share

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The Company paid $ 134 thousand, $ 185 thousand, and $ 182 thousand to the EagleBank Foundation for the years ended December 31, 2021, 2020 and 2019, respectively.

Certain directors and executive officers of the Company and the Bank have had loan transactions with the Company.

Certain directors and executive officers of the Company and the Bank and certain affiliated entities of such directors and executive officers have had loan transactions with the Company.

Such loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with outsiders.

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Note 17 – Stock-Based Compensation

The Company maintains the 2016 Stock Plan (“2016 Plan”), the 2006 Stock Plan (“2006 Plan”) and the 2011 Employee Stock Purchase Plan (“2011 ESPP”).

The Company maintains the 2021 Stock Plan ("2021 Plan"), the 2016 Stock Plan (“2016 Plan”), the 2006 Stock Plan (“2006 Plan”), the 2021 Employee Stock Purchase Plan ("2016 ESPP") and the 2011 Employee Stock Purchase Plan (“2011 ESPP”).

In connection with the acquisition of Virginia Heritage, the Company assumed the Virginia Heritage 2006 Stock Option Plan and the 2010 Long Term Incentive Plan (the “Virginia Heritage Plans”).

No additional options may be granted under the 2006 Plan or the Virginia Heritage Plans.

No additional options may be granted under the 2016 Plan, 2006 Plan or the Virginia Heritage Plans.

The Company adopted the 2021 Plan upon approval by the shareholders at the 2021 Annual Meeting held on May 20, 2021.

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For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black-Scholes model.

For restricted stock awards granted under the 2006 plan, fair value is based on the average of the high and low stock price of the Company’s shares on the date of grant.

For restricted stock awards granted under the 2021 plan, fair value is based on the Company’s closing price on the date of grant.

For awards that are performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant.

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For awards that are performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant at target.

In February 2021, the Company awarded 178,001 shares of time vested restricted stock to senior officers, directors, and certain employees.

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and 2) return on average assets.

In April 2020, the Company awarded 24,068 shares of time vested restricted stock to the Chairman of the Board of Directors.

In February 2021, the 2018 performance award vested and 3,605 incremental shares were awarded.

In April 2021, the Company awarded 921 shares of time vested restricted stock to an employee.

The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant.

In August 2021, the Company awarded 250 shares of time vested restricted stock to an employee.

The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant.

In December 2021, the Company awarded 452 shares of time vested restricted stock to an employee.

The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant.

The Company has unvested restricted stock awards and PRSU grants of 419,360 shares at December 31, 2021.

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Years Ended December 31,

2021 2020 2019

Performance Awards Shares Weighted-

Fair Value Shares Weighted-

Unvested at beginning 90,642 $ 49.11 58,780 $ 57.74 98,958 $ 54.76

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Years Ended December 31,

2021 2020 2019

Time Vested Awards Shares Weighted-

Fair Value Shares Weighted-

Unvested at beginning 218,031 $ 45.89 110,714 $ 57.84 173,721 $ 58.93

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The information excludes restricted stock units and awards.

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Years Ended December 31,

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Ending balance 5,789 $ 36.96 5,789 $ 36.96 6,589 $ 19.99

The following summarizes information about stock options outstanding at December 31, 2020.

The information excludes restricted stock units and awards.

Stock Options

Outstanding Weighted-Average

Exercise Price Weighted-Average

Contractual Life (Years)

Range of Exercise Prices

$ 5.76 - $ 10.72 — — —

$ 10.73 - $ 11.40 1,789 $ 10.73 1.30

$ 11.41 - $ 24.86 — — —

$ 24.87 - $ 49.91 4,000 48.69 7.65

5,789 $ 36.96 5.69

Stock Options

Exercisable Weighted-Average

Exercise Price

Range of Exercise Prices

$ 5.76 - $ 10.72 — —

$ 10.73 - $ 11.40 1,789 $ 10.73

$ 11.41 - $ 24.86 — —

$ 24.87 - $ 49.91 1,500 49.91

3,289 $ 28.60

Exercisable end of year 4,122 $ 32.51 3,289 $ 28.60 6,214 $ 18.18

There were no grants of stock options during the years ended December 31, 2021 and 2019.

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The expected lives were based on the "simplified" method allowed by ASC 718 "Compensation," whereby the expected term is equal to the midpoint between the vesting date and the end of the contractual term of the award.

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The total intrinsic value of outstanding stock options was $ 123 thousand and $ 54 thousand, respectively, at December 31, 2021 and 2020.

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Intrinsic value of stock options exercised — 91 1,022

Approved by shareholders in May 2011, the 2011 ESPP reserved 550,000 shares of common stock (as adjusted for stock dividends) for issuance to employees.

Approved by shareholders in May 2021, the 2021 ESPP reserved 200,000 shares of common stock for issuance to employees.

Whole shares are sold to participants in the plan at 85 % of the lower of the stock price at the beginning or end of each quarterly offering period.

The 2021 ESPP is available to all eligible employees who have completed at least one year of continuous employment, work at least 20 hours per week and at least five months a year.

Participants may contribute a minimum of $ 10 per pay period to a maximum of $ 6,250 per offering period or $ 25,000 annually (not to exceed more than 10 % of compensation per pay period).

Participants may contribute a minimum of $ 10 per pay period to a maximum of $ 25,000 annually (not to exceed more than 10 % of compensation per pay period).

At December 31, 2021, the 2021 ESPP had 193,665 shares reserved for issuance.

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The Company makes contributions to the Plan based on a matching formula, which is reviewed annually.

For the years 2020, 2019, and 2018, the Company recognized $ 1.5 million, $ 1.3 million, and $ 894 thousand in expense associated with this benefit, respectively.

For the years 2021, 2020, and 2019, the Company recognized $ 1.8 million, $ 1.5 million, and $ 1.3 million in expense associated with this benefit, respectively.

These amounts are included in salaries and employee benefits in the accompanying Consolidated Statements of Income.

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The SERP Agreements further provide for a death benefit in the event the retired executive dies prior to receiving 180 monthly installments, paid either in a lump sum payment or continued monthly installment payments, such that the executive’s beneficiary has received payment(s) sufficient to equate to a cumulative 180 monthly installments.

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The SERP Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409A of the Internal Revenue Code.

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The primary impetus for utilizing fixed annuities is a substantial savings in compensation expenses for the Bank as opposed to a traditional SERP Agreement.

The annuity contracts accrued $ 45 thousand, $ 23 thousand, and $ 81 thousand of income for the years ended December 31, 2020, 2019, and 2018, respectively, which were included in other noninterest income on the Consolidated Statement of Income.

The cash surrender value of the annuity contracts was $ 14.5 million and $ 14.7 million at December 31, 2020 and 2019, respectively, was included in other assets on the Consolidated Balance Sheet.

The cash surrender value of the annuity contracts was $ 14.2 million and $ 14.5 million at December 31, 2021 and 2020, respectively, and was included in other assets on the Consolidated Balance Sheet.

For the years ended December 31, 2021, 2020, and 2019 the Company recorded benefit expense accruals of $ 338 thousand, $ 428 thousand, and $ 404 thousand, respectively, for this post retirement benefit.

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Total $ 2,040,296 $ 2,353,733

Because most of the Company’s business activity is with customers located in the Washington, D.C., metropolitan area, a geographic concentration of credit risk exists within the loan portfolio, the performance of which will be influenced by the economy of the region.

Because most of the Company’s business activity is with customers located in the Washington, D.C.

metropolitan area, a geographic concentration of credit risk exists within the loan portfolio, the performance of which will be influenced by the economy of the region.

As of December 31, 2021, the total reserve for unfunded commitments was $ 4.4 million as compared to $ 5.5 million at December 31, 2020, and is accounted for as a liability on the Consolidated Statements of Financial Condition.

See Note 1 for more information on the accounting policy for the allowance for unfunded commitments.

The Bank maintains a reserve for the potential repurchase of residential mortgage loans, which amounted to $ 125 thousand at December 31, 2021 and $ 205 thousand at December 31, 2020.

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The market value of interest rate lock commitments and best efforts and mandatory contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets.

The Company determines the fair value of rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest

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rates while taking into consideration the probability that the rate lock commitments will close or will be funded.

The Company determines the fair value of rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates while taking into consideration the probability that the rate lock commitments will close or will be funded.

These transactions are further detailed in Note 9 "Mortgage Banking Derivatives".

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(4) The Bank has the option of terminating the George Mason agreement at the end of contract years 10 and 15 (that is, effective June 30, 2025 or June 30, 2030).

Should the Bank elect to exercise its right to terminate the George Mason contract, contractual obligations would decrease $ 3.5 million and $ 3.6 million for the first option period (years 11 - 15 ) and the second option period ( 16 - 20 ), respectively.

(5) Marketing sponsorship agreement with D.C.

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Certain legal proceedings involving us are described below.

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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.

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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.

On December 23, 2020, the securities class action plaintiffs and defendants filed a stipulation to stay the class action litigation pending a non-binding mediation on April 13, 2021.

The SDNY so-ordered the stipulation on December 24, 2020.

There can be no assurance, however, that the Class Action litigation will be settled.

The Company intends to continue to defend vigorously against the claims asserted.

As previously disclosed in the Company's Quarterly Report for the quarter ended September 30, 2020, the Company engaged with discussions with a shareholder regarding a demand letter previously received by the Board of Directors from such shareholder, largely relating to the subject matters covered by the putative class action lawsuit described above.

On January 25, 2021, the Company announced that it had entered into a settlement agreement with respect to such shareholder demand letter.

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 a nominal Defendant, on February 4, 2021, a nd then filed the executed stipulation of settlement accompanied by the shareholder's brief in support of their unopposed motion to approve the settlement on February 10, 2020.

The settlement is subject to certain conditions and limitations, and is still pending court approval.

Pursuant to the executed stipulation of settlement of the demand litigation, the Company has agreed to implement certain corporate governance enhancements (many of which are already underway) and to invest an additional $ 2 million incremental spend above 2020 levels (over the course of three years ) to enhance its corporate governance, and risk and compliance controls and infrastructure.

As part of the resolution of the matters that were the subject of the demand letter, once court approval is granted, the Company will make a one-time payment to the shareholder’s counsel in the amount of $ 500 thousand for attorneys’ fees and expenses (which one-time amount is expected to be recovered pursuant to the Company’s D&O insurance policy).

The stipulation of settlement further provides for releases by the demanding shareholder on behalf of all Eagle Bancorp shareholders of liability with respect to the subject matters described in the demand letter and any other potential future shareholder derivative claims against all current and former Company and Bank officers and directors, and a release by the Company of certain claims against all current and former officers and directors, subject to court approval.

The stipulation of settlement does not include or constitute an admission, concession, or finding of any fault, liability, or wrongdoing by the Company, the Bank or any defendant.

Although the Company believes the stipulation of settlement is in the best interests of the Company’s shareholders, there can be no assurance that the stipulation of settlement will be approved by the court.

On December 24, 2020, by stipulation of the parties, the SDNY stayed the putative class action lawsuit, pending a non-binding mediation.

Following such mediation, the lead plaintiff, on behalf of the class, the Company and each of the other defendants 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.

On February 10, 2022, the SDNY approved the settlement agreement.

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

As previously disclosed in the Company's Annual Report 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 civil securities class action litigation described above.

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.

On October 4, 2021, the D.C.

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).

The Company has received various document requests and subpoenas from securities and banking regulators and U.S.

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We are, however, unable to predict the duration, scope or outcome of these investigations.

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 SEC, 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.

In connection with the previously disclosed investigation by the Federal Reserve Board (the “Board”), the Company is continuing discussions with the Board Staff, now including senior enforcement Staff, about a potential resolution or settlement of the Board’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 on a mutually agreeable basis, but there can be no assurance that will be the case.

Any agreements reached by the Company with the Staff would be subject to approval by senior Board officials, 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.

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

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.

Since the commencement of the above-described matters in 2018 through December 31, 2021, the Company’s D&O Insurance carriers have advanced a number of defense cost claims to the Company and its current and former directors and officers.

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 first quarter of 2022.

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.

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.

Estimating an amount or range of possible losses resulting from litigation, government actions and other legal proceedings is inherently difficult and requires an extensive degree of judgment, particularly where the matters involve indeterminate claims for monetary damages, may involve fines, penalties, or damages that are discretionary in amount, involve a large number of claimants or significant discretion by regulatory authorities, represent a change in regulatory policy or interpretation, present novel legal theories, are in the early stages of the proceedings, are subject to appeal or could result in a change in business practices.

In addition, because most legal proceedings are resolved over extended periods of time, potential losses are subject to change due to, among other things, new developments, changes in legal strategy, the outcome of intermediate procedural and substantive rulings and other parties’ settlement posture and their evaluation of the strength or weakness of their case against us.

For these reasons, we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses resulting from, the matters described above.

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For these reasons, we are currently unable to predict the ultimate timing or outcome of, or reasonably estimate the possible losses resulting from, the matters described above that remain ongoing.

Note 22 – Regulatory Matters

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As a result the Company may be restricted in paying dividends.

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Note 23 – Other Comprehensive Income

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Net unrealized gain (loss) on securities available-for-sale $ ( 37,669 ) $ 9,746 $ ( 27,923 )

Reclassification adjustment for net gain (loss) included in net income ( 1,815 ) 452 ( 1,363 )

Reclassification adjustment for net loss included in net income ( 2,964 ) 761 ( 2,203 )

Total unrealized gain (loss) ( 40,633 ) 10,507 ( 30,126 )

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Net unrealized gain (loss) on securities available-for-sale $ 19,637 $ ( 5,215 ) $ 14,422

Reclassification adjustment for net gain (loss) included in net income ( 1,517 ) 416 ( 1,101 )

Reclassification adjustment for net loss included in net income ( 1,815 ) 452 ( 1,363 )

Total unrealized gain (loss) 17,822 ( 4,763 ) 13,059

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Year Ended December 31, 2019

Net unrealized loss on securities available-for-sale $ ( 4,279 ) $ ( 438 ) $ ( 3,841 )

Net unrealized gain (loss) on securities available-for-sale $ 15,183 $ ( 3,929 ) $ 11,254

Reclassification adjustment for net loss included in net income ( 1,517 ) 416 ( 1,101 )

Total unrealized loss ( 4,376 ) ( 463 ) ( 3,913 )

Net unrealized gain on derivatives 2,033 227 1,806

Reclassification adjustment for losses included in net income ( 560 ) ( 142 ) ( 418 )

Total unrealized gain 1,473 85 1,388

Other comprehensive loss $ ( 2,903 ) $ ( 378 ) $ ( 2,525 )

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Total unrealized gain (loss) 13,666 ( 3,513 ) 10,153

Net unrealized gain (loss) on derivatives ( 2,731 ) 682 ( 2,049 )

Reclassification adjustment for gain (loss) included in net income ( 1,198 ) 328 ( 870 )

Total unrealized gain (loss) ( 3,929 ) 1,010 ( 2,919 )

Other comprehensive income (loss) $ 9,737 $ ( 2,503 ) $ 7,234

The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2021, 2020 and 2019.

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

Other comprehensive (loss) income before reclassifications 11,254 ( 2,049 ) 9,205

Other comprehensive income (loss) before reclassifications 14,422 ( 1,378 ) 13,044

Amounts reclassified from accumulated other comprehensive income ( 1,363 ) 860 ( 503 )

Net other comprehensive (loss) income during period 10,153 ( 2,919 ) 7,234

Net other comprehensive income (loss) during period 13,059 ( 518 ) 12,541

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

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

Other comprehensive (loss) income before reclassifications ( 3,841 ) 1,806 ( 2,035 )

Other comprehensive income (loss) before reclassifications 11,254 ( 2,049 ) 9,205

Amounts reclassified from accumulated other comprehensive income ( 1,101 ) ( 870 ) ( 1,971 )

Net other comprehensive (loss) income during period ( 3,913 ) 1,388 ( 2,525 )

Net other comprehensive income (loss) during period 10,153 ( 2,919 ) 7,234

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

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Accumulated Other

Comprehensive (Loss) Income Affected Line Item in

Comprehensive Income (Loss) Affected Line Item in

the Statement Where

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Realized gain on sale of investment securities $ 2,964 $ 1,815 $ 1,517 Gain on sale of investment securities

Interest income (expense) derivative deposits ( 1,145 ) 1,198 560 Interest expense on deposits

Income tax (expense) benefit ( 167 ) ( 744 ) ( 167 ) Tax expense

Gain / (loss) on derivatives ( 516 ) ( 1,145 ) 1,198 Interest on deposits

Income tax (expense) benefit ( 629 ) ( 167 ) ( 744 ) Income tax expense

Total Reclassifications for the Period $ 1,819 $ 503 $ 1,971 Net Income

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Note 24 – Fair Value Measurements

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This category generally includes certain private equity investments, retained interests from securitizations, and certain collateralized debt obligations.

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Assets and Liabilities Recorded at Fair Value on a Recurring Basis

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Investment securities available-for-sale:

Treasury Bond $ — $ 49,458 $ — $ 49,458

agency securities — 622,387 $ — 622,387

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Corporate bonds — 34,350 1,500 35,850

Treasury — 34,855 — 34,855

Loans held for sale — 88,205 — 88,205

5 unchanged sentences

Interest rate caps — 3,574 — 3,574

Mortgage banking derivatives — — 66 66

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

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Investment Securities Available-for-Sale

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

Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.

Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, and money market funds.

Level 2 securities include U.S.

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

agency debt securities, mortgage backed securities issued by Government Sponsored Entities (“GSE’s”), U.S.

Treasury securities that are traded by dealers or brokers in active over-the-counter markets, and municipal bonds.

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

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Accordingly, RPAs fall within Level 2.

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Interest rate caps:

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Beginning balance at January 1, 2021 $ 1,500 $ 5,213 $ 6,713

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

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

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

Realized loss included in earnings — ( 4,577 ) ( 4,577 )

Reclass Level 2 to 3 12,000 — $ 12,000

Principal redemption $ ( 1,500 ) $ — $ ( 1,500 )

Ending balance at December 31, 2021 $ 12,000 $ 636 $ 12,636

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Realized gain included in earnings — 4,933 $ 4,933

Unrealized gain included in other comprehensive income 131 — 131

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

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

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

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

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

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

Principal redemption — ( 203 ) ( 203 )

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.

The other debt securities classified as Level 3 consist of two corporate bonds, one of a global banking company and one of a local banking company at December 31, 2021 and one corporate bond of a local banking company at December 31, 2020.

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

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86.40 % $ 636 76.25 % $ 5,213

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

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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.

Pre Adoption of CECL :

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

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

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

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

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

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

Post adoption of CECL (Individually Assessed Loans) :

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

Management has determined that nonaccrual loans and loans that have had their terms restructured in a troubled debt restructuring meet this impaired loan definition.

For individually evaluated individually assessed loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans, which the Company classifies as a Level 3 valuation.

Other real estate owned :

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

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(dollars in thousands) Quoted Prices

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Home equity — — 366 366

PPP loans — — 1,365 1,365

Other real estate owned — — 1,635 1,635

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December 31, 2020

Impaired loans:

Individually assessed loans:

Commercial $ — $ — $ 9,285 $ 9,285

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Total assets measured at fair value on a nonrecurring basis as of December 31, 2020 $ — $ — $ 60,961 $ 60,961

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

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

Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired.

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

The fair value of individually assessed loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value, and discounted cash flows.

Those individually assessed loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans.

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Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by quoted market price, if one exists.

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Quoted market prices, if available, are shown as estimates of fair value.

4 unchanged sentences

Estimated fair values of the Company’s financial instruments at December 31, 2021 and 2020 are as follows

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Fair Value Measurements

13 unchanged sentences

Loans 7,065,598 6,930,929 — — 6,930,929

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

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

Mortgage banking derivatives 636 636 — — 636

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

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

Annuity investment 14,697 14,697 — 14,697 —

Mortgage banking derivatives 5,213 5,213 — — 5,213

8 unchanged sentences

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

Mortgage banking derivatives 66 66 — — 66

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Note 25 – Parent Company Financial Information

14 unchanged sentences

Retained earnings 930,061 798,061

Accumulated other comprehensive income 15,500 2,959

Accumulated other comprehensive income (loss) ( 14,242 ) 15,500

Total Shareholders’ Equity 1,350,775 1,240,892

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Gain on sale of investment securities 93 — —

Other income (loss) ( 46 ) — —

Total Income $ 170,788 $ 141,982 $ 85,851

4 unchanged sentences

Total Expenses $ 14,450 $ 16,563 $ 16,480

Income (Loss) Before Income Tax (Benefit) and Equity in Undistributed Income of Subsidiaries 125,419 69,371 ( 14,009 )

Income Before Income Tax Benefit and Equity in Undistributed Income of Subsidiaries 156,338 125,419 69,371

Income Tax Benefit ( 2,903 ) ( 607 ) ( 3,176 )

Income (Loss) Before Equity in Undistributed Income of Subsidiaries 126,026 72,547 ( 11,117 )

Income Before Equity in Undistributed Income of Subsidiaries 159,242 126,026 72,547

Equity in Undistributed Income of Subsidiaries 17,449 6,191 70,396

Net Income $ 176,691 $ 132,217 $ 142,943

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Years Ended December 31,

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Net tax benefits from stock compensation 7,811 118 10

Securities premium amortization (discount accretion), net 6 2 —

Securities premium amortization, net 5 6 2

Depreciation and amortization — 390 —

Increase in other assets ( 48,966 ) ( 21,447 ) ( 2,508 )

Decrease (increase) in other assets 66,598 ( 48,966 ) ( 21,447 )

Increase (decrease) in other liabilities ( 681 ) 6,823 2,460

6 unchanged sentences

Cash Flows From Financing Activities

Repayment of long term debt ( 148,407 ) — —

Proceeds from exercise of stock options — 63 332

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Cash and Cash Equivalents at End of Year $ 41,997 $ 29,275 $ 43,204

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES

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 8. Financial Statements and Supplementary Data