What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2023-03-01 compared with 2022-03-01 · 386 added, 302 removed, 1785 unchanged (28% of the section changed)

4 unchanged sentences

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

(the "Company") as of December 31, 2022 and 2021 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flow for each of the years in the two-year period ended December 31, 2022 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, 2022, 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.

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, 2022 and 2021 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022 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, 2022, 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

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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.

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.

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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.

(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.

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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.

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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.

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• 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.

/s/ Crowe LLP

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

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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.

We have audited the accompanying consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows of Eagle Bancorp, Inc.

and Subsidiaries (the "Company") for the year 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 results of the Company’s operations and its cash flows for the year ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

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 Topic 326, Financial Instruments – Credit Losses.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

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

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

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.

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 the consolidated financial statements are free of material misstatement, whether due to error or fraud.

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

Our audit included performing procedures to assess the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.

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

/s/ Dixon Hughes Goodman LLP

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

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

/s/ FORVIS LLP

(Formerly Dixon Hughes Goodman LLP)

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

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Interest bearing deposits with banks and other short-term investments 265,272 1,680,945

Investment securities available-for-sale, at fair value (amortized cost of $ 2,642,667 and $ 1,129,057 and allowance for credit losses of $ 620 and $ 167 as of December 31, 2021 and December 31, 2020, respectively).

Investment securities available-for-sale, at fair value (net of allowance for credit losses of $ 17 and $ 620 as of December 31, 2022 and December 31, 2021, respectively).

1,598,666 2,623,408

Investment securities held-to-maturity (fair value of $ 968,707 , and $ 0 , net of allowance for credit losses of $ 766 and $ 0 , as of December 31, 2022 and December 31, 2021, respectively)

Federal Reserve and Federal Home Loan Bank stock 65,067 34,153

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Retained earnings 1,015,215 930,061

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

Accumulated other comprehensive (loss) ( 199,507 ) ( 14,242 )

Total Shareholders’ Equity 1,228,321 1,350,775

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Gain on sale of loans 3,702 14,045 22,089

Gain on sale of investment securities 2,964 1,815 1,517

Gain (loss) on sale of investment securities ( 169 ) 2,964 1,815

Increase in the cash surrender value of bank owned life insurance 2,547 2,059 2,071

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FDIC insurance 4,969 5,897 7,941

SEC/FRB Penalties 22,977 — —

Other expenses 14,406 12,610 14,680

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Unrealized gain (loss) on securities available for sale ( 140,926 ) ( 27,923 ) 14,422

Reclassification adjustment for net gains included in net income ( 2,203 ) ( 1,363 ) ( 1,101 )

Reclassification adjustment for net (gains) losses included in net income 111 ( 2,203 ) ( 1,363 )

Total unrealized gain (loss) on investment securities ( 140,815 ) ( 30,126 ) 13,059

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

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

Unrealized (loss) on securities transferred to held-to-maturity ( 49,095 ) — —

Amortization of unrealized loss on securities transferred to held-to-maturity 4,361 — —

Total unrealized loss recognized (remaining) on investment securities held-to-maturity ( 44,734 ) — —

Unrealized gain (loss) on derivatives 284 — ( 1,378 )

Reclassification adjustment for gain included in net income — 384 860

Total unrealized gain (loss) on derivatives 284 384 ( 518 )

Other comprehensive income (loss) ( 185,265 ) ( 29,742 ) 12,541

Comprehensive Income $ 146,949 $ 144,758 $ 150,177

Comprehensive (Loss) Income $ ( 44,335 ) $ 146,949 $ 144,758

See Notes to Consolidated Financial Statements.

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Balance January 1, 2020

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

Net Income — — — 132,217 — 132,217

Other comprehensive income, net of tax — — — — 7,234 7,234

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

Stock-based compensation expense — — 5,324 — — 5,324

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Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 28,811 ) — ( 1 ) — — ( 1 )

Vesting of performance based stock awards, net of shares withheld for payroll taxes 4,126 — — — — —

Time based stock awards granted 176,252 — — — — —

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— — — ( 28,330 ) — ( 28,330 )

Common stock repurchased ( 1,640,910 ) ( 16 ) ( 61,416 ) — — ( 61,432 )

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

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 loss, net of tax — — — — ( 29,742 ) ( 29,742 )

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Net Income — — — 140,930 — 140,930

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

Other comprehensive loss, net of tax — — — — ( 185,265 ) ( 185,265 )

Stock-based compensation expense — — 9,899 — — 9,899

Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 3,289 — 97 — — 97

Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 70,286 ) 2 ( 2 ) — — —

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Gains on sale of loans ( 3,702 ) ( 14,045 ) ( 22,089 )

Gain on MSRs ( 679 ) ( 667 ) —

Gain on MSRs ( 837 ) ( 679 ) #REF!

Securities premium amortization (discount accretion), net 9,011 4,031 8,196

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Net increase in cash surrender value of BOLI ( 2,547 ) ( 2,059 ) ( 2,071 )

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

Net (gain)/loss on sale of investment securities 169 ( 2,964 ) ( 1,815 )

Stock-based compensation expense 9,899 7,811 5,324

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

Net tax benefits from stock compensation — — 118

Increase (decrease) in other assets ( 26,162 ) 1,358 ( 28,626 )

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Proceeds from sale/call of available-for-sale securities 6,225 201,034 124,144

Purchase of held to maturity investment securities ( 290,740 ) — —

Proceeds from maturities from held to maturity securities 115,777 — —

Proceeds from call of held-to-maturity securities 8,350 — —

Purchases of Federal Reserve and Federal Home Loan Bank stock ( 30,914 ) ( 218 ) ( 9,160 )

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

Purchase of BOLI ( 30,000 ) — ( 580 )

Purchase of annuities — — ( 2,589 )

Redemption (purchase) of BOLI 338 ( 30,000 ) —

Proceeds from sale of other real estate owned 241 4,618 4,430

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Cash Flows From Financing Activities:

Increase in deposits 792,337 1,964,812 250,106

Increase (decrease) in deposits ( 1,268,358 ) 792,337 1,964,812

Increase (decrease) in customer repurchase agreements 11,182 ( 2,808 ) ( 4,254 )

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Cash dividends paid ( 55,776 ) ( 44,691 ) ( 28,330 )

Net cash provided by financing activities 543,555 1,971,619 424,552

Net cash (used in) provided by financing activities ( 670,193 ) 544,652 1,971,619

Net (Decrease) Increase In Cash and Cash Equivalents ( 1,402,368 ) ( 74,833 ) 1,547,082

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Initial recognition of operating lease right-of-use assets $ — $ 9,146 $ 1,696

Transfers of investment securities from available-for-sale to held-to-maturity $ 922,975 $ — $ —

Transfers from loans to other real estate owned $ 475 $ 149 $ 6,750

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

See Notes to Consolidated Financial Statements.

Eagle Bancorp, Inc.

Notes to Consolidated Financial Statements for the Years Ended December 31, 2021, 2020 and 2019:

Notes to Consolidated Financial Statements

Note 1 – Summary of Significant Accounting Policies

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The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products.

The Bank is also active in the origination and sale of residential mortgage loans, the origination of small business loans, and the origination, securitization and sale of multifamily Federal Housing Administration (“FHA”) loans.

The Bank was previously active in the origination and sale of residential mortgage loans, the origination of small business loans and the origination, securitization and sale of multifamily Federal Housing Administration (“FHA”) loans.

Starting in the first quarter 2023 the Company will no longer originate residential mortgages for sale as the decision has been made to exit this line of business (See Note 26 of the Consolidated Financial Statements for further details).

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, 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.

As of December 31, 2022, the Bank offers its products and services through sixteen banking offices, five lending centers and various electronic capabilities, including remote deposit services and mobile banking services.

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

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Loans Held for Sale

The Company regularly engages in sales of residential mortgage loans held for sale and the guaranteed portion of SBA loans originated by the Bank.

The Company regularly engaged in sale of residential mortgage loans held for sale in 2022 and engages in the sale of the guaranteed portion of SBA loans originated by the Bank.

Starting in the first quarter of 2023, the Company will no longer originate residential mortgages for sale as the strategic decision has been made to exit that business (See Note 26 of the Consolidated Financial Statements for further details).

The Company has elected to carry loans held for sale at fair value.

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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, 2022 and December 31, 2021.

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

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

interest rate lock commitments).

Such interest rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives.

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

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, 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.

The market values of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded.

Because of the high correlation between rate lock commitments and best efforts contracts, very little gain or loss should occur on the interest rate lock commitments.

Under a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.

If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay the investor a “pair-off” fee, based on then-current market prices, to compensate the investor for the shortfall.

The Company manages the interest rate risk on interest rate lock commitments by entering into forward sale contracts of mortgage-backed securities, whereby the Company obtains the right to deliver securities to investors in the future at a specified price.

Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, carried on the Consolidated Balance Sheet within other assets or other liabilities, with changes in fair value recorded in other income within the Consolidated Statements of Income.

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

The gross gains on loan sales are recognized based on new loan commitments with adjustment for price and pair-off activity.

Commission expenses on loans held for sale are recognized based on loans closed.

In circumstances where the Company does not deliver the whole loan to an investor, but rather elects to retain the loan in its portfolio, the loan is transferred from held for sale to loans at fair value at the date of transfer.

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

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

The investor committed to a price, representing a premium on the day the borrower committed to an interest rate, at which it would purchase the loan from the Company if the loan to the underlying borrower closed, with the intent that the buyer/investor had assumed the interest rate risk on the loan as the Company protected itself from changes in interest rates.

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

The market values of interest rate lock commitments and best efforts contracts were not readily ascertainable with precision because rate lock commitments and best efforts contracts were not actively traded.

Because of the high correlation between rate lock commitments and best efforts contracts, very little gain or loss should have occurred on the interest rate lock commitments.

Under a “mandatory delivery” contract, the Company committed to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.

If the Company failed to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it was obligated to pay the investor a “pair-off” fee, based on then-current market prices, to compensate the investor for the shortfall.

The Company managed the interest rate risk on interest rate lock commitments by entering into forward sale contracts of mortgage-backed securities, whereby the Company obtained the right to deliver securities to investors in the future at a specified price.

Such contracts were accounted for as derivatives and were recorded at fair value in derivative assets or liabilities, carried on the Consolidated Balance Sheet within other assets or other liabilities, with changes in fair value recorded in other income within the Consolidated Statements of Income.

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

The gross gains on loan sales were recognized based on new loan commitments with adjustments for price and pair-off activity.

Commission expenses on loans held for sale were recognized based on loans closed.

In circumstances where the Company did not deliver the whole loan to an investor, but rather elected to retain the loan in its portfolio, the loan was transferred from held for sale to loans at fair value at the date of transfer.

The sale of the guaranteed portion of SBA loans on a servicing retained basis gives rise to an excess servicing asset, which is computed on a loan by loan basis with the unamortized amount being included in intangible assets in the Consolidated Balance Sheets.

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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.

Unamortized multifamily FHA mortgage servicing rights ("MSRs") totaled $ 2.4 million as of December 31, 2022 and $ 1.5 million as of December 31, 2021.

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.

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Investment Securities

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

The Company recognizes acquired securities on the trade date.

Investment securities comprise debt securities, which are classified depending on the Company's intent and ability to hold the securities to maturity.

Debt securities are classified as available-for-sale when management may have the intent to sell them prior to maturity.

Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them 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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Premiums and discounts on investment securities are amortized/accreted to the earlier of call or maturity based on expected lives, which lives are adjusted based on prepayment assumptions and call optionality.

Declines in the fair value of

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.

Declines in the fair value of 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 or a significant deterioration in the financial condition of the issuer.

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and (3) structure of the security.

For the impairment of investment securities please see "Allowance for Credit Losses - Available-for-Sale Debt Securities" below.

Premiums and discounts on investment securities held-to-maturity, like available-for-sale securities, are amortized or accreted to the earlier of call or maturity based on expected lives, which include prepayment adjustments and call optionality.

Interest income included amortization of $ 13.6 million, which was partially offset by accretion of $ 4.6 million for the period ended December 31, 2022.

Transfers of Investment Securities from Available-for-Sale to Held-to-Maturity

Transfers of debt securities into the held-to-maturity category from the available-for-sale category are made at amortized cost, net of unrealized gain or loss reported in accumulated other comprehensive income (loss) at the date of transfer.

The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the held-to-maturity securities.

Such amounts are amortized over the remaining life of the security.

For the impairment of investment securities please see "Allowance for Credit Losses - Available-for-Sale Debt Securities" and "Allowance for Credit Losses - Held-to-Maturity Debt Securities" below.

Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees.

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Allowance for Credit Losses

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.

It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASC 842, "Leases" .

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 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.

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.

The Company does not own HTM investment debt securities.

The following table illustrates the impact of ASC 326.

January 1, 2020

(dollars in thousands) As Reported Under ASC 326 Pre-ASC 326 Adoption Impact of ASC 326 Adoption

Commercial $ 1,545,906 $ 1,545,906 $ —

Income producing - commercial real estate 3,702,747 3,702,747 —

Owner occupied - commercial real estate 985,409 985,409 —

Real estate mortgage - residential 104,221 104,221 —

Construction - commercial and residential 1,035,754 1,035,754 —

Construction - C&I (owner occupied) 89,490 89,490 —

Home equity 80,061 80,061 —

Other consumer 2,160 2,160 —

Allowance for credit losses on loans $ ( 84,272 ) $ ( 73,658 ) $ ( 10,614 )

Reserve for Unfunded Commitments $ ( 4,118 ) $ — $ ( 4,118 )

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

The Company adopted the current expected credit loss model under Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”) on January 1, 2020 using the modified retrospective approach.

The Company recorded a net reduction of retained earnings of $ 14.7 million upon adoption.

The transition adjustment included an increase in the allowance for credit losses on loans of $ 10.6 million, in addition to an increase of $ 4.1 million to the reserve for unfunded commitments.

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

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

For the Year Ended

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

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

Provision for credit losses- AFS debt securities 453 167

(dollars in thousands) December 31, 2022

December 31, 2021

December 31, 2020

Provision/(Reversal) for credit losses- loans $ 103 $ ( 21,275 ) $ 45,404

Provision for credit losses - HTM debt securities 766 — —

(Reversal) Provision for credit losses - AFS debt securities ( 603 ) 454 167

Total provision for credit losses $ 266 $ ( 20,821 ) $ 45,571

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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.

In 2022, 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 proportional decrease in our ACL during 2022.

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

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Construction – commercial and residential .

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.

The construction commercial and residential loan portfolio comprises loans made to builders and developers of commercial and residential property, for 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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As our portfolio has matured, historical loss ratios have been closely monitored.

The review of the appropriateness of the allowance is performed by executive management and presented to management committees, Director’s Loan Committee, the Audit Committee, and the Board of Directors.

The committees' reports to the Board are part of the Board's review on a quarterly basis of our consolidated financial statements.

2 unchanged sentences

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

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

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

We do not measure an ACL on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on nonaccrual status.

10 unchanged sentences

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 "Risks and Uncertainties - Lending operations and accommodations to borrowers" above.

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

4 unchanged sentences

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.

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

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

Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, as a non-credit-related impairment.

10 unchanged sentences

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

Allowance for Credit Losses - Held-to-Maturity Debt Securities

The Company separately evaluates its HTM investment securities for any credit losses.

The Company pools like securities and calculates expected credit losses through an estimate based on a security's credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and included in the balance of investment securities held-to-maturity on the Consolidated Balance Sheets.

If the Company determines that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis.

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

29 unchanged sentences

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.

The Company assesses qualitative factors at least on an annual basis.

Based on the assessment of these qualitative factors, if it is determined that it is more likely than not that the fair value of a reporting unit is not less than the carrying value, then performing the impairment process is not necessary.

11 unchanged sentences

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.

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 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.

3 unchanged sentences

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.

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

• Other Fees (i.e.

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The Company’s policy is to recognize interest and penalties on income taxes in other noninterest expenses.

The Company remains subject to examination for income tax returns by the Internal Revenue Service, as well as all of the states where it conducts business, for the years ending after December 31, 2018.

The Company remains subject to examination of income tax returns by the Internal Revenue Service, as well as all of the states where it conducts business, for the years ending after December 31, 2019.

There are currently no examinations in process as of December 31, 2022.

3 unchanged sentences

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

Earnings per Common Share

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.

Earnings per Common Share

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.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income and other comprehensive income (loss).

Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, debt securities held to maturity, and derivatives, net of taxes.

Other comprehensive income (loss) is recognized as a separate component of equity.

Loss Contingencies

Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

Management does not believe such matters exist that will have a material effect on the financial statements.

Segment Reporting

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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.

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

New Authoritative Accounting Guidance

Accounting Standards Adopted in 2022

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 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.

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" ("ASU 2020-06") 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.

ASU 2020-06 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.

ASU 2020-06 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 ASU 2020-06 are effective for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years.

ASU 2020-06 did not have a material impact on the Company's consolidated financial statements for fiscal year 2022.

2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks.

For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts.

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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.

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.

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.

ASU 2020-04 did not have a material impact on the Company's consolidated financial statements for fiscal year 2022

Accounting Standards Pending Adoption

2022-02, "Financial Instruments—Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") eliminates the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty that assess whether a modification has created a new loan.

Additionally, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases.

For entities that have adopted ASC 326, the amendments in the ASU are effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years.

The impact of ASU 2022-02 should be applied prospectively, or, for the recognition and measurement of TDRs, with a modified retrospective transition method.

We are currently in the process of evaluating this guidance.

Note 2 – Cash and Due from Banks

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

During 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 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.

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

During 2022, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as excess reserves, on which interest is paid.

The average daily balance maintained in 2022 was $ 1.3 billion and in 2021 was $ 2.3 billion.

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.

Note 3 – Investment Securities Available-for-Sale

Amortized cost and estimated fair value of securities available-for-sale are summarized as follows:

Note 3 – Investment Securities

Amortized cost and estimated fair value of securities available-for-sale and held-to-maturity are summarized as follows:

December 31, 2022 Amortized

1 unchanged sentence

(dollars in thousands) Credit Losses

Investment securities available-for-sale:

treasury bonds $ 49,793 $ — $ ( 3,466 ) $ — $ 46,327

1 unchanged sentence

Residential mortgage-backed securities 937,557 18 ( 117,072 ) — 820,503

Commercial mortgage-backed securities 56,071 — ( 5,858 ) — 50,213

Municipal bonds 10,700 45 ( 658 ) — 10,087

Corporate bonds 2,000 — ( 175 ) ( 17 ) 1,808

Total available-for-sale securities $ 1,803,898 $ 63 $ ( 205,278 ) $ ( 17 ) $ 1,598,666

December 31, 2022 Amortized

Losses Estimated

(dollars in thousands) Fair Value

Investment securities held-to-maturity:

Residential mortgage-backed securities $ 741,057 $ — $ ( 88,390 ) $ 652,667

Commercial mortgage-backed securities 92,557 — ( 11,993 ) 80,564

Municipal bonds 128,273 — ( 12,092 ) 116,181

Corporate bonds 132,253 — ( 12,958 ) 119,295

1,094,140 $ — $ ( 125,433 ) $ 968,707

Allowance for credit losses ( 766 )

Total held-to-maturity securities, net of ACL $ 1,093,374

December 31, 2021 Amortized

1 unchanged sentence

(dollars in thousands) Credit Losses

Investment securities available-for-sale:

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

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

Residential mortgage-backed securities 1,634,421 4,053 ( 20,447 ) — 1,618,027

Commercial mortgage-backed securities 58,352 1,644 ( 350 ) — 59,646

Municipal bonds 141,916 3,865 ( 347 ) ( 3 ) 145,431

1 unchanged sentence

$ 2,642,667 $ 10,968 $ ( 29,607 ) $ ( 620 ) $ 2,623,408

In addition, at December 31, 2021 and December 31, 2020, the Company held $ 34.2 million and $ 40.1 million in equity securities, respectively, in a combination of FRB and FHLB stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost.

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, 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.

In addition, at December 31, 2022 and December 31, 2021, the Company held $ 65.1 million and $ 34.2 million in non marketable equity securities, respectively, in a combination of FRB and FHLB stocks, which are required to be held for regulatory purposes.

The stocks are both carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value.

The Company reassessed classification of certain investments in the first quarter of 2022 and, effective March 31, 2022, it transferred a total of $ 1.1 billion of mortgage-backed securities, municipal bonds and corporate bonds from available-for-sale to held-to-maturity securities, including $ 237.0 million of securities acquired in the first quarter of 2022 for which its intention to hold to maturity was finalized.

At the time of transfer, the Company reversed the allowance for credit losses associated with the available-for-sale securities through the provision for credit losses.

The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income.

The related unrealized loss of $ 66.2 million was included in other comprehensive loss at the time of transfer and, as of December 31, 2022, $ 59.1 million remains in accumulated other comprehensive loss, to be amortized out through interest income as a yield adjustment over the remaining term of the securities.

No gain or loss was recorded at the time of transfer.

Subsequent to transfer, the allowance for credit losses on these securities was evaluated under the accounting policy for held-to-maturity securities.

Accrued interest receivable on investment securities totaled $ 7.8 million and $ 6.0 million at December 31, 2022 and December 31, 2021, respectively.

The accrued interest on investment securities is excluded from the amortized cost of the securities and is reported in other assets in the Consolidated Balance Sheets.

The unrealized losses that exist at December 31, 2022 are generally the result of changes in market interest rates and interest spread relationships since the investment securities were originally purchased, rather than credit quality concerns.

However, as of December 31, 2022 and 2021, the Company determined that certain of the unrealized loss positions in available-for-sale and held-to-maturity corporate and municipal bonds were evidence of expected credit losses.

An allowance for credit losses of $ 17 thousand was recorded for AFS securities and $ 766 thousand for HTM securities in 2022.

The weighted average duration of debt securities, which comprise 100 % of total investment securities, is 4.8 years.

Provision recorded for credit losses for securities was $ 163 thousand as of December 31, 2022.

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

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

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

Gross unrealized losses and fair value by length of time that the individual available-for-sale securities have been in a continuous unrealized loss position as of December 31, 2022 and 2021 are as follows:

Investment securities available-for-sale:

12 Months 12 Months

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(dollars in thousands)

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

treasury bonds 2 $ — $ — $ 46,327 $ ( 3,466 ) $ 46,327 $ ( 3,466 )

agency securities 85 490,699 ( 58,437 ) 179,029 ( 19,612 ) 669,728 ( 78,049 )

Residential mortgage-backed securities 157 3,994 — 808,697 ( 117,073 ) 812,691 ( 117,073 )

Commercial mortgage-backed securities 14 471 ( 2 ) 49,742 ( 5,855 ) 50,213 ( 5,857 )

Municipal bonds 1 — — 8,299 ( 658 ) 8,299 ( 658 )

1 unchanged sentence

260 $ 495,164 $ ( 58,439 ) $ 1,093,919 $ ( 146,839 ) $ 1,589,083 $ ( 205,278 )

Investment securities held-to-maturity:

12 Months 12 Months

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(dollars in thousands)

Residential mortgage-backed securities 143 $ — $ — $ 652,667 $ ( 88,390 ) $ 652,667 $ ( 88,390 )

Commercial mortgage-backed securities 16 — — 80,564 ( 11,993 ) $ 80,564 ( 11,993 )

Municipal bonds 43 3,110 ( 45 ) 113,071 ( 12,047 ) $ 116,181 ( 12,092 )

Corporate bonds 30 20,771 ( 3,183 ) 86,451 ( 9,775 ) $ 107,222 ( 12,958 )

232 $ 23,881 $ ( 3,228 ) $ 932,753 $ ( 122,205 ) $ 956,634 $ ( 125,433 )

Investment securities available-for-sale Less than

12 Months 12 Months

or Greater Total

December 31, 2021 Number of

Securities Estimated

Value Unrealized

Losses Estimated

Value Unrealized

Losses Estimated

Value Unrealized

(dollars in thousands)

treasury bonds 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 149 1,327,519 $ ( 16,841 ) 84,500 ( 3,606 ) 1,412,019 ( 20,447 )

Commercial mortgage-backed securities 4 — — 23,561 ( 350 ) 23,561 ( 350 )

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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Expected maturities for residential mortgage-backed securities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Investment securities available-for-sale:

December 31, 2022 December 31, 2021

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Five years through ten years 73,886 68,180 62,092 60,255

After ten years 13,012 10,552

Residential mortgage-backed securities 937,557 820,503 1,634,468 1,618,027

Commercial mortgage-backed securities 56,071 50,213 58,352 59,646

Municipal bonds maturing:

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treasury 49,793 46,327 49,693 49,458

1,803,898 1,598,683 2,642,667 2,624,028

Allowance for credit losses — ( 17 ) — ( 620 )

$ 1,803,898 $ 1,598,666 $ 2,642,667 $ 2,623,408

In 2021, gross realized gains on sales of investment securities were $ 3.2 million and gross realized losses on sales of investment securities were $ 187 thousand.

Investment securities held-to-maturity:

December 31, 2022 December 31, 2021

(dollars in thousands) Amortized

Cost Estimated

Fair Value Amortized

Cost Estimated

Residential mortgage-backed securities $ 741,057 $ 652,667 $ — $ —

Commercial mortgage-backed securities 92,557 80,564

Municipal bonds maturing:

One year or less 3,139 3,110 — —

After one year through five years 35,579 33,743 — —

Five years through ten years 77,262 67,945 — —

After ten years 12,293 11,383 — —

Corporate bonds maturing:

One year or less 23,954 20,771 — —

After one year through five years 84,953 77,997 — —

Five years through ten years 23,346 20,527 — —

1,094,140 968,707 — —

Allowance for credit losses ( 766 ) — — —

$ 1,093,374 $ 968,707 $ — $ —

In 2022, gross realized gains on sales of investment securities were $ 18 thousand and gross realized losses on sales of investment securities were $ 187 thousand.

In 2021, gross realized gains on sales of investment securities were $ 3.2 million and gross realized losses on sales of investment securities were $ 187 thousand.

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Net loans $ 7,561,188 $ 6,990,633

Unamortized net deferred fees amounted to $ 26.9 million and $ 30.8 million at December 31, 2021 and 2020, of which $ 15 thousand and $ 30 thousand at December 31, 2021 and 2020, respectively, represented net deferred costs on home equity loans.

Unamortized net deferred fees amounted to $ 29.2 million and $ 26.9 million at December 31, 2022 and 2021.

As of December 31, 2022 and 2021, the Bank serviced $ 361.5 million and $ 351.1 million, respectively, of multifamily FHA loans, SBA loans and other loan participations, which are not reflected as loan balances on the Consolidated Balance Sheets.

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Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan.

The debt service coverage ratio is ordinarily at least 1.15 to 1.0.

debt service coverage ratio is ordinarily at least 1.15 to 1.0.

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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The following tables detail activity in the ACL by portfolio segment for the years ended December 31, 2022, 2021 and 2020.

PPP loans are excluded from these tables since they do not carry an allowance for credit loss, as these loans are fully guaranteed as to principal and interest by the SBA, whose guarantee is backed by the full faith and credit of the U.S.

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

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:

Year Ended December 31, 2020

Allowance for credit losses:

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

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

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

Recoveries of loans previously charged-off 130 — — — 4 — 28 162

Net loans (charged-off) recoveries ( 11,952 ) ( 4,300 ) ( 20 ) ( 815 ) ( 2,943 ) ( 92 ) 25 ( 20,097 )

Provision for credit losses 18,797 19,190 3,508 579 3,130 230 ( 30 ) 45,404

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

The following table presents the ending allowance balance attributable to loans individually and collectively evaluated, as well as associated loan balances, as of December 31, 2022 and 2021:

(dollars in thousands) Commercial Income Producing -

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Collectively evaluated for impairment 14,011 32,490 12,702 675 8,801 555 27 69,261

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

Total Allowance Ending Balance $ 15,655 $ 35,688 $ 12,702 $ 969 $ 8,801 $ 555 $ 74 $ 74,444

1 unchanged sentence

Loans Collectively evaluated for impairment 1,487,171 3,913,613 1,091,138 71,303 988,234 51,782 1,694 7,604,935

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

Total Ending Loans Balance $ 1,490,605 $ 3,919,941 $ 1,110,325 $ 73,001 $ 988,234 $ 51,782 $ 1,744 $ 7,635,632

4 unchanged sentences

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

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

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

1 unchanged sentence

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

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

December 31, 2021 December 31, 2020

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31, 2022 and 2021:

December 31, 2022

December 31, 2021

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

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The data is further defined by year of loan origination.

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

December 31, 2022 (dollars in thousands) Prior 2018 2019 2020 2021 2022

Revolving Loans Amort.

Cost Basis Revolving Loans Convert.

to Term Total

Pass $ 177,307 $ 45,510 $ 56,011 $ 60,010 $ 234,258 $ 143,636 $ 708,201 $ 8,570 $ 1,433,503

3 unchanged sentences

Total 184,661 47,744 56,537 64,163 237,146 144,472 742,909 9,717 1,487,349

PPP loans — — — — — — —

Pass — — — 2,479 777 — 3,256

Substandard 1,365 1,365

Total — — — 2,479 777 — — — 3,256

8 unchanged sentences

Watch 16,876 11,504 4,595 — — — 59 — 33,034

Special Mention — — — 2,122 — — 2,122

Substandard 19,753 — — — — — — — 19,753

8 unchanged sentences

Watch 44,409 53,172 — — — — — — 97,581

Special Mention — — — — — — —

Substandard — — — 3,093 — — 3,093

Total 84,522 71,841 90,560 189,023 191,127 159,771 90,911 — 877,755

3 unchanged sentences

Total 14,816 8,160 11,810 33,854 653 34,679 6,507 — 110,479

Home Equity — — — — — — —

Pass 1,695 — — 98 551 — 48,182 906 51,432

4 unchanged sentences

Pass 4 — — — — 126 1,561 3 1,694

Watch — — — — — — — — —

Substandard — — — — — — — 50 50

1 unchanged sentence

Total Recorded Investment $ 1,906,535 $ 778,256 $ 763,347 $ 673,719 $ 1,195,299 $ 1,139,872 $ 1,154,332 $ 24,272 $ 7,635,632

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

December 31, 2021 (dollars in thousands) Prior 2017 2018 2019 2020 2021 Revolving Loans Amort.

Cost Basis Revolving Loans Convert.

to Term Total

Pass $ 180,877 $ 58,693 $ 103,058 $ 90,874 $ 87,515 $ 211,563 $ 549,055 $ 6,023 $ 1,287,658

4 unchanged sentences

Pass — — — — 16,840 32,900 — — 49,740

— — — — 1,365 — — — 1,365

Total — — — — 18,205 32,900 — — 51,105

19 unchanged sentences

Watch 506 43,918 — — — — — — 44,424

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

Substandard — — — 3,093 — — — — 3,093

3 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 39,803 61,408 768 6,648 — 159,579

Home Equity —

Pass 1,474 — — — 70 702 52,077 883 55,206

17 unchanged sentences

Commercial $ 101 $ 2,387 $ 2,488

PPP 1,365 $ — 1,365

Income producing - commercial real estate — 2,000 2,000

1 unchanged sentence

Real estate mortgage - residential — 1,913 1,913

Construction - commercial and residential 3,093 — 3,093

Home equity 366 — 366

Other Consumer — 50 50

Total nonaccrual loans (1)(2) (3)

3 unchanged sentences

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

PPP 1,365 — 1,365

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

41 unchanged sentences

Loan Modifications

A modification of a loan constitutes a troubled debt restructuring ("TDR") when a borrower is experiencing financial difficulty and the modification constitutes a concession.

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

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

14 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 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.

The outstanding balance of loans with active COVID-related modifications, that were not considered TDRs under the Coronavirus Aid, Relief, and Economic Security Act, as amended by Section 541 of the Consolidated Appropriations Act, totaled $ 0 and $ 13.3 million at December 31, 2022 and 2021, respectively.

The following tables present, by class, the recorded investment of loans modified in TDRs held by the Company during the years ended December 31, 2022, 2021, and 2020.

As of December 31, 2022

22 unchanged sentences

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

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.

As of December 31, 2020

(dollars in thousands) Number

Contracts Commercial Income

Real Estate Owner

Real Estate Construction -

Real Estate Total

Troubled debt restructurings

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

Restructured nonaccruing 3 — 6,342 2,370 — 8,712

Total 10 $ 1,276 $ 15,525 $ 2,383 $ — $ 19,184

Specific allowance $ 733 $ 2,989 $ — $ — $ 3,722

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

During 2022, no TDRs defaulted on their modified terms that were reclassified to nonperforming loans, as compared to one performing TDR loans during 2021 totaling approximately $ 101 thousand that defaulted on their modified terms and either charged-off or were reclassified to nonperforming loans.

During 2020, two performing TDR loans 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.

At December 31, 2022, all five TDR loans, totaling $24.4 million, were performing under their modified terms, as compared to December 31, 2021, when there were five of TDR loans, totaling $ 10.2 million, performing under their modified terms, and December 31, 2020, when there were seven performing TDR loans totaling approximately $ 10.5 million.

During 2022, three restructured loans, two of which totaling approximately $ 11.1 million that had their collateral property sold to a third party and a charge off of $ 1.4 million was recognized on the sale.

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

5 unchanged sentences

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.

During 2022, there was one loan totaling $ 19.2 million that was modified in a TDR, during 2021, there were no loans modified in a TDR, and during 2020, there were two loans totaling $ 572 thousand.

Related Party Loans

8 unchanged sentences

Additions due to Changes in Related Parties 1,423 82,315

Deletions due to Changes in Related Parties — —

Balance at December 31, $ 119,198 $ 150,822

10 unchanged sentences

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.

Substantially all of our leases are classified as operating leases, and as such, were previously not recognized on the Company’s consolidated balance sheets.

With the adoption of ASC 842, operating lease agreements were required to be recognized on the consolidated balance sheets as a right-of-use (“ROU”) asset and a corresponding lease liability.

As of December 31, 2021, the Company had $ 30.6 million of operating lease ROU assets and $ 35.5 million of operating lease liabilities on the Company’s Consolidated Balance Sheet.

All of our leases are classified as operating leases and are included in operating lease right-of-use ("ROU") assets and operating lease liabilities in the consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

In determining the present value of the lease payments, we use the implicit lease rate if available.

If the implicit lease rate is not available, we use the incremental borrowing rate at commencement date.

The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.

As of December 31, 2022, the Company had $ 24.5 million of operating lease ROU assets and $ 29.3 million of operating lease liabilities compared to $ 30.6 million of operating lease ROU assets and $ 35.5 million of operating lease liabilities at December 31, 2021 on the Company’s Consolidated Balance Sheet.

The Company has elected not to recognize ROU assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less or equipment leases (deemed immaterial) on the Consolidated Balance Sheets.

2 unchanged sentences

As of December 31, 2022, 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.

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)

In 2022, the Company did not enter into new leases or renew/extend any leases and had two leases expire (two branches were closed).

The following table presents lease costs and other lease information.

43 unchanged sentences

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 $ 132 thousand, $ 292 thousand, and $ 1.2 million for the years ended December 31, 2021, 2020, and 2019, respectively.

The aggregate amortization expense was $ 89 thousand, $ 132 thousand and $ 292 thousand for the years ended December 31, 2022, 2021 and 2020, respectively.

The future estimated annual amortization expense is presented below:

5 unchanged sentences

The activity within OREO for the years ended December 31, 2022 and 2021 is presented in the table below.

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.

There were no properties in the process of foreclosure as of December 31, 2022 and 2021.

For the years ended December 31, 2022 and 2021, there were one and one sales of OREO, respectively.

Years Ended December 31,

20 unchanged sentences

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

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.

The fair value of these mortgage banking derivative instruments at December 31, 2021 was $ 636 thousand included in other assets .

Included in gain on sale of loans for the year ended December 31, 2022, 2021 and 2020 was a net loss of $ 209 thousand, a net gain of $ 209 thousand and a net loss of $ 309 thousand, respectively, relating to mortgage banking derivative instruments.

The amount included in gain on sale of loans for year ended December 31, 2022, 2021 and 2020 pertaining to its mortgage banking hedging activities was a net realized gain of $ 18 thousand, a net realized loss of $ 18 thousand and a net realized gain of $ 27 thousand, respectively.

Note 10 – Other Derivatives

9 unchanged sentences

The Company’s intent is to hedge its exposure to the variability in potential future interest rate conditions on existing financial instruments.

For derivatives designated as cash flow hedges, changes in the fair value of the derivative are initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings.

affects earnings.

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, 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.

The Company did no t have any designated cash flow hedge interest rate swap transaction outstanding, which were associated with the Company's variable rate deposits at December 31, 2022, 2021 or 2020.

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.

17 unchanged sentences

As of December 31 2022, the aggregate fair value of derivative contracts with credit risk contingent features (i.e.

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

containing collateral posting or termination provisions based on our capital status) that was in a net asset position totaled $ 1.9 million.

The aggregate fair value of all derivative contracts with credit risk contingent features that were a net liability position totaled $ 2.4 million as of December 31, 2021.

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.

As of December 31, 2022 the Company did no t post any funds with its derivative counterparties against its obligations under these agreements because these agreements were in a net asset position.

At 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.

29 unchanged sentences

Interest rate products $ — $ — $ ( 1,510 ) Interest expense $ — $ ( 516 ) $ ( 1,145 )

Interest rate products — — — Gain on sale of investment securities — — 829

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

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, 2022, 2021 and 2020.

4 unchanged sentences

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 $ — $ ( 516 ) $ ( 1,145 )

16 unchanged sentences

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

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.

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

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

29 unchanged sentences

Related Party deposits totaled $ 31.8 million and $ 71.1 million at December 31, 2022 and 2021, respectively.

Deposits in excess if the FDIC's $250 thousand relationship insurance limits were $ 6.1 billion and $ 7.5 billion at December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, time deposit accounts in excess of $ 250 thousand are as follows:

23 unchanged sentences

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

The Company’s net affordable housing tax credit investment s were $ 36.4 million and related unfunded commitments were $ 16.5 million as of December 31, 2021, and are included in Other Assets and Other Liabilities in the C onsolidated Balance Sheets.

The Company’s net affordable housing tax credit investments were $ 36.1 million and related unfunded commitments were $ 13.7 million as of December 31, 2022 and are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets.

For tax purposes, the Company recognized low income housing tax credits of $ 5.0 million, $ 4.2 million and $ 3.6 million for the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively, and low income housing investment expense of $ 3.7 million, $ 3.1 million and $ 2.7 million, respectively.

The Company recognizes low income housing investment expenses as a component of income tax expense.

As of December 31, 2022, the expected payments for unfunded affordable housing commitments were as follows:

18 unchanged sentences

Subordinated Notes $ 69,794 5.75 % $ 69,670 5.84 %

FHLB Advance — — 50,000,000 1.81 %

Average Daily Balance:

6 unchanged sentences

agency and mortgage-backed securities segregated in its investment portfolio for this purpose.

By entering into the agreement, the customer agrees to have the Bank repurchase the designated securities on the business day following the initial transaction in consideration of the payment of interest at the rate prevailing on the day of the transaction.

By entering into the agreement, the customer agrees to have the Bank repurchase the designated securities on the business day following the

initial transaction in consideration of the payment of interest at the rate prevailing on the day of the transaction.

The Bank can purchase up to $ 155 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2022 and can place brokered funds under one-way CDARS and ICS deposits in the amount of $ 1.8 billion, against which there was $ 67,000 thousand outstanding at December 31, 2022.

2 unchanged sentences

The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships.

The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank of Richmond (“Federal Reserve Bank”).

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

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

The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank.

This facility, which amounts to approximately $ 607.0 million, is 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.

18 unchanged sentences

Deferred state income tax benefit 3,028 585 ( 3,120 )

Total deferred tax benefit 5,770 ( 8,332 ) ( 61 )

Total deferred tax expense (benefit) 6,560 5,770 ( 8,332 )

Total income tax expense $ 48,750 $ 60,983 $ 43,928

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.

The Company had net deferred tax assets (deferred tax assets in excess of deferred tax liabilities) of $ 96.6 million and $ 43.2 million for the years ended at December 31, 2022 and 2021, respectively, which related primarily to our unrealized loss on securities, 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.

9 unchanged sentences

Unrealized loss on securities available-for-sale 50,442 4,987

Unrealized loss on interest rate swap derivatives — 132

Unrealized loss on securities held-to-maturity 14,366 —

SERP 2,495 5,631

4 unchanged sentences

Deferred tax liabilities

Unrealized net gain on securities available-for-sale — ( 5,519 )

Excess servicing ( 589 ) ( 402 )

Intangible assets — —

Leases ( 6,034 ) ( 7,990 )

2 unchanged sentences

Net deferred income tax assets $ 96,567 $ 43,174

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, 2022.

the Company has $ 3.6 million of federal net operating loss carryforward in conjunction with the Fidelity acquisition, that is subject to annual limits under Section 382 of the Internal Revenue Code and expires in 2027.

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 $ 7.0 million and $ 6.7 million is carried as of December 31, 2022 and 2021, respectively.

4 unchanged sentences

State income taxes 3.28 % 5.45 % 5.04 %

Non-deductible fines and penalties 2.54 % — % — %

Tax-exempt interest and dividend income ( 1.57 ) % ( 0.91 ) % ( 0.75 ) %

31 unchanged sentences

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 at target.

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

In February 2022, the Company awarded 165,248 shares of time vested restricted stock to senior officers, directors and certain employees.

6 unchanged sentences

In February 2022, the 2019 performance award vested and 620 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.

In March 2022, the Company awarded 168 shares of time vested restricted stock to an employee.

The shares vest in three substantially equal installments beginning on February 14, 2023.

In June 2022, the Company awarded 1,055 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.

47 unchanged sentences

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.

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

The total intrinsic value of outstanding stock options was $ 0 and $ 123 thousand, respectively, at December 31, 2022 and 2021.

The total fair value of stock options vested was $ 18 thousand, $ 18 thousand and $ 6 thousand, for 2022, 2021 and 2020, respectively.

Unrecognized stock-based compensation expense related to stock options totaled $ 18 thousand at December 31, 2021.

At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 1.02 years.

At December 31, 2022, there is no unrecognized stock-based compensation expense related to stock options.

Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows:

10 unchanged sentences

Included in salaries and employee benefits in the accompanying Consolidated Statements of Income, the Company recognized $ 6.0 million, $ 7.8 million and $ 5.3 million in stock-based compensation expense for 2022, 2021 and 2020, respectively.

In addition, during 2019 the Company accrued $ 4.5 million in stock-based compensation costs associated with the retirement of our former Chairman and Chief Executive Officer.

Stock-based compensation expense is recognized ratably over the requisite service period for all awards.

Note 18 – Employee Benefit Plans

The Company has a qualified 401(k) Plan which covers all employees who have reached the age of 21 and have completed at least one month of service as defined by the Plan.

The Company has a qualified 401(k) Plan which covers all employees who have reached the age of 18 years and have completed at least 1 month of service as defined by the Plan.

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

26 unchanged sentences

Letters of credit 100,196 112,509

Interest rate lock commitments 6,963 56,331

Total $ 2,550,813 $ 2,040,296

2 unchanged sentences

As of December 31, 2022, the total reserve for unfunded commitments was $ 5.9 million as compared to $ 4.4 million at December 31, 2021 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.

See Note 1 of the Consolidated Financial Statements 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 $ 25 thousand at December 31, 2022 and $ 125 thousand at December 31, 2021.

These amounts are included in other liabilities in the accompanying Consolidated Balance Sheets.

The Bank recently announced that it plans to cease originating residential mortgages for sale in the first quarter of 2023 (See Note 26 of the Consolidated Financial Statements for further details).

Additions to the reserve are a component of other expenses in the accompanying Consolidated Statements of Income.

26 unchanged sentences

675 1,363 1,400 5,375 8,813

844 — — — 844

LIHTC investments (5)

7 unchanged sentences

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 (years 16 - 20 ), respectively.

(5) Marketing sponsorship agreement with D.C.

(5) LIHTC expected payments for unfunded affordable housing commitments.

6 unchanged sentences

Certain legal proceedings involving us are described below.

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

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

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

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.

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

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, on February 10, 2022, the United States District Court for the Southern District of New York (the "SDNY") approved the settlement agreement of a putative class action lawsuit filed against the Company, its current and former President and Chief Executive Officer and its current and former Chief Financial Officer.

The settlement included a total payment covered by the Company's insurance carrier 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 June 1, 2022, the Company reached an agreement in principle with the SEC staff to resolve the SEC's investigation with respect to the Company's identification, classification and disclosure of related party transactions;

the retirement of certain former officers and directors;

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

The Company is cooperating with these investigations.

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

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 that remain ongoing.

On August 16, 2022, the SEC approved the settlement, pursuant to which the Company consented, without admitting or denying the SEC's allegations, to the entry of an administrative cease-and-desist order for violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934, as amended, and Rules 13a-1, 14a-9 and 12b-20 thereunder;

and agreed to pay a civil money penalty of $ 10.0 million and $ 2.6 million in disgorgement, plus prejudgment interest.

On October 6, 2022, the SEC staff informed our Chief Financial Officer that it had concluded its related investigation as to him and does not intend to recommend an enforcement action against him.

No additional liabilities were recorded in the fourth quarter of 2022 in connection with the SEC's approval and public announcement of the settlement.

On August 2, 2022, the Bank reached an agreement in principle with the staff of the Board of Governors of the Federal Reserve System ("FRB") to resolve the FRB's investigation with respect to the Bank.

As previously disclosed, the investigation relates to the Company's identification, classification and disclosure of related party transactions;

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

On August 16, 2022, the FRB approved the settlement, pursuant to which the Company consented, without admitting or denying the FRB's allegations, to the entry of a consent order for violations of Regulation O, 12 C.F.R.

§§ 215 et seq.

and unsafe and unsound banking practices, due to internal control deficiencies relating to loans involving its former Chief Executive Officer and an inadequate third-party risk management program, in each case from 2015 to 2018, and would pay a civil money penalty of approximately $ 9.5 million.

No additional liabilities were recorded in the third quarter of 2022 in connection with the FRB's approval and public announcement of the settlement.

As previously disclosed, the Company maintains director and officer insurance policies ("D&O Insurance Policies") that provide coverage for certain legal defense costs.

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

If the D&O Insurance Policies are exhausted, the Company will be responsible for paying the defense cost associated with any 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 f defense costs that the Company may incur in the future in connection with currently ongoing and any future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company's control.

Note 22 – Regulatory Matters

33 unchanged sentences

Total unrealized gain (loss) ( 186,270 ) 45,455 ( 140,815 )

Net unrealized gain (loss) on derivatives — — —

Reclassification adjustment for gain (loss) included in net income 516 ( 132 ) 384

Net unrealized gain on securities held-to-maturity ( 66,193 ) 17,098 $ ( 49,095 )

Amortization of unrealized loss on securities transferred to held-to-maturity 7,093 ( 2,732 ) $ 4,361

Total unrealized gain (loss) ( 59,100 ) 14,366 ( 44,734 )

Net unrealized gain on derivatives 284 — 284

Reclassification adjustment for gain (loss) included in net income — — —

Total unrealized gain 284 — 284

Other comprehensive income (loss) $ ( 245,086 ) $ 59,821 $ ( 185,265 )

1 unchanged sentence

Net unrealized gain (loss) on securities available-for-sale $ ( 37,669 ) $ 9,746 $ ( 27,923 )

Reclassification adjustment for net loss included in net income ( 1,815 ) 452 ( 1,363 )

Reclassification adjustment for net gain (loss) included in net income ( 2,964 ) 761 ( 2,203 )

Total unrealized gain (loss) ( 40,633 ) 10,507 ( 30,126 )

13 unchanged sentences

(dollars in thousands) Securities Available

For Sale Derivatives Accumulated Other

For Sale Held-to-Maturity Securities Derivatives Accumulated Other

Comprehensive Income

2 unchanged sentences

Other comprehensive income (loss) before reclassifications ( 140,926 ) — 284 ( 140,642 )

Transfer of securities from AFS to HTM ( 49,095 ) ( 49,095 )

Amounts reclassified from accumulated other comprehensive income 111 4,361 — 4,472

21 unchanged sentences

(dollars in thousands) 2022 2021 2020

Realized gain on sale of investment securities $ 2,964 $ 1,815 $ 1,517 Gain on sale of investment securities

Realized gain (loss) on sale of investment securities $ ( 169 ) $ 2,964 $ 1,815 Gain (loss) on sale of investment securities

Gain / (loss) on derivatives — ( 516 ) ( 1,145 ) Interest on deposits

9 unchanged sentences

Level 1 Quoted prices in active exchange markets for identical assets or liabilities.

also includes certain U.S.

Treasury and other U.S.

Government and agency securities actively traded in over-the-counter markets.

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

15 unchanged sentences

Investment securities available-for-sale:

Treasury Bond $ — $ 49,458 $ — $ 49,458

treasury bonds $ — $ 46,326 $ — $ 46,326

agency securities — 669,728 — 669,728

Residential mortgage-backed securities — 820,502 — 820,502

Corporate mortgage-backed securities — 50,214 — 50,214

Municipal bonds — 10,088 — 10,088

10 unchanged sentences

Investment securities available-for-sale:

treasury bonds $ — $ 49,458 $ — $ 49,458

agency securities — 622,387 — 622,387

10 unchanged sentences

Total liabilities measured at fair value on a recurring basis as of December 31, 2021 $ — $ 5,194 $ — $ 5,194

Investment Securities Available-for-Sale

Investment Securities

Investment securities available-for-sale are recorded at fair value on a recurring basis.

31 unchanged sentences

Credit risk participation agreements :

The Company enters 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.

The Company enters into 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.

The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure.

12 unchanged sentences

Realized loss included in earnings — ( 543 ) ( 543 )

Reclass Level 2 to 3 12,000 — $ 12,000

Reclassified to investment securities held-to-maturity ( 10,000 ) — ( 10,000 )

Principal redemption — — —

Ending balance at December 31, 2022 $ — $ 93 $ 93

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

Realized gain included in earnings — — —

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

(dollars in thousands) Investment

2 unchanged sentences

Beginning balance at January 1, 2021 $ 1,500 $ 5,213 $ 6,713

Realized 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 10,000 — 10,000

Principal redemption ( 1,500 ) — ( 1,500 )

Ending balance at December 31, 2021 $ 10,000 $ 636 $ 10,636

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

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

Realized gain included in earnings — — —

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

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:

December 31, 2021 December 31, 2020

Level 3 assets measured at fair value on a recurring or nonrecurring basis as of December 31, 2022 and 2021, the significant unobservable inputs used in the fair value measurements were as follows:

December 31, 2022

December 31, 2021

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

6 unchanged sentences

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

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

forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

Mortgage banking derivative for loans settled best efforts basis:

6 unchanged sentences

The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets.

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.

At December 31, 2022, substantially all of the Company’s individually assessed loans were evaluated based upon the fair value of the collateral.

In accordance with ASC 820, individually assessed loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2.

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

Other real estate owned :

Other real estate owned is initially recorded at fair value less estimated selling costs.

OREO is initially recorded at fair value less estimated selling costs.

Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation.

Assets measured at fair value on a nonrecurring basis are included in the table below:

There were no liabilities measured at fair value on a non-recurring basis at December 31, 2022 and 2021.

(dollars in thousands) Quoted Prices

10 unchanged sentences

Real estate mortgage - residential — — 1,404 1,404

Construction - commercial and residential — — 3,093 3,093

Home equity — — 366 366

PPP loans — — 1,365 1,365

Consumer — — 3 3

Other real estate owned — — 1,962 1,962

14 unchanged sentences

Home equity — — 366 366

PPP loans 1,365 1,365

Other real estate owned — — 1,635 1,635

Total assets measured at fair value on a nonrecurring basis as of December 31, 2021 $ — $ — $ 33,816 $ 33,816

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.

At December 31, 2021, substantially all of the Company’s individually assessed loans were evaluated based upon the fair value of the collateral.

In accordance with ASC 820, individually assessed loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy.

When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2.

Fair Value of Financial Instruments

18 unchanged sentences

Interest bearing deposits with other banks 265,272 265,272 — 265,272 —

Investment securities 2,623,408 2,623,408 — 2,611,408 12,000

Federal Reserve and Federal Home Loan Bank stock 34,153 34,153 — 34,153 —

Investment securities available-for-sale 1,598,666 1,598,666 — 1,598,666 —

Investment securities held-to-maturity 1,093,374 967,940 — 967,940 —

Federal Reserve and Federal Home Loan Bank stock 65,067 N/A — — —

Loans held for sale 6,734 6,734 — 6,734 —

Loans 7,635,632 7,501,484 — 7,501,484

Bank owned life insurance 110,998 110,998 — 110,998 —

Annuity investment 13,869 13,869 — 13,869 —

Mortgage banking derivatives 93 93 — 93

5 unchanged sentences

Borrowings 1,044,795 1,049,459 — 1,049,459 —

Interest rate swap derivatives — — — — —

Credit risk participation agreements 2 2 — 2 —

4 unchanged sentences

Interest bearing deposits with other banks 1,680,945 1,680,945 — 1,680,945 —

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

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

Investment securities available-for-sale 2,623,408 2,623,408 — 2,611,408 10,000

Federal Reserve and Federal Home Loan Bank stock 34,153 N/A — — —

Loans held for sale 47,218 47,218 — 47,218 —

7 unchanged sentences

Borrowings 369,670 374,326 — 374,326 —

Interest rate swap derivatives 516 516 — 516 —

Credit risk participation agreements, 47 47 — 47 —

5 unchanged sentences

Cash $ 21,540 $ 41,997

Investment securities available-for-sale, at fair value 43,680 16,716

Investment securities available-for-sale, at fair value, net of allowance for credit loss of $0 in 2021 — 43,680

Investment securities held-to-maturity, net allowance for credit loss of $326 thousand in 2022 44,673 —

Investment in subsidiaries 1,240,473 1,342,784

8 unchanged sentences

Retained earnings 1,015,215 930,061

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

Accumulated other comprehensive loss ( 199,507 ) ( 14,242 )

Total Shareholders’ Equity 1,228,321 1,350,775

9 unchanged sentences

Directors compensation 643 589 500

Provision for credit losses 326 — —

Other 14,746 1,250 1,306

13 unchanged sentences

Securities premium amortization, net ( 54 ) 5 6

Provision for credit losses for investment securities held-to-maturity 326 — —

Depreciation and amortization — — 390

1 unchanged sentence

Increase (decrease) in other liabilities 4,593 ( 681 ) 6,823

Net cash provided by (used in) operating activities 232,975 84,397 53,572

Net cash provided by operating activities 70,037 232,975 84,397

Cash Flows From Investing Activities

1 unchanged sentence

Proceeds from maturities of available-for-sale securities — 13,031 613

Investment in subsidiary (net) — — —

Net cash (used in) provided by investing activities ( 26,969 ) ( 9,387 ) ( 7,030 )

Purchases of held-to-maturities investment securities ( 3,976 ) — —

Proceeds from maturities of held-to-maturities securities 1,500 — —

Net cash used in by investing activities ( 2,476 ) ( 26,969 ) ( 9,387 )

Cash Flows From Financing Activities

4 unchanged sentences

Cash dividends paid ( 55,776 ) ( 44,691 ) ( 28,330 )

Net cash (used in) provided by financing activities ( 193,284 ) ( 88,939 ) ( 76,121 )

Net (Decrease) in Cash 12,722 ( 13,929 ) ( 29,579 )

Net cash used in financing activities ( 88,018 ) ( 193,284 ) ( 88,939 )

Net (Decrease) Increase in Cash ( 20,457 ) 12,722 ( 13,929 )

Cash and Cash Equivalents at Beginning of Year 41,997 29,275 43,204

Cash and Cash Equivalents at End of Year $ 21,540 $ 41,997 $ 29,275

Non-Cash Investing Activities

Transfers of investment securities from available-for-sale to held-to-maturity $ 42,467 $ — $ —

Note 26 - Subsequent Event

In early 2023, the Company made the strategic decision to cease originating first lien residential mortgage loans for secondary sale, due to diminishing residential mortgage production volumes in the face of a higher interest rate environment and increasing costs associated with regulatory compliance and risk management.

The Company currently anticipates that the exit of the residential mortgage origination and secondary sale banking activities will be completed in the third quarter of 2023, following the expected closure of the residential first lien mortgage loans currently in the origination pipeline by the end of the first quarter of 2023, and the expected sale of all of the remaining residential mortgage loans held for sale by the end of the third quarter of 2023.

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