What changed in this filing

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Item 1. Financial Statements

2023-05-10 compared with 2022-11-09 · 411 added, 501 removed, 854 unchanged (52% of the section changed)

3 unchanged sentences

(dollars in thousands, except share and per share data)

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Cash and due from banks $ 9,940 $ 12,655

3 unchanged sentences

1,582,185 1,598,666

Investment securities held-to-maturity, net of allowance for credit losses of $ 802 and $ 0 (fair value of $ 989,001 and $ 0 , respectively)

Investment securities held-to-maturity, net of allowance for credit losses of $ 2,008 and $ 766 , respectively, (fair value of $ 965,786 and $ 968,707 , respectively)

1,075,303 1,093,374

Federal Reserve and Federal Home Loan Bank stock 79,134 65,067

36 unchanged sentences

(dollars in thousands, except per share data)

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

2022 2021 2022 2021

Three Months Ended March 31,

Interest Income

17 unchanged sentences

Gain on sale of loans 305 1,492

Net gain (loss) on sale of investment securities 4 1,519 ( 172 ) 2,058

Net loss on sale of investment securities ( 21 ) ( 25 )

Increase in the cash surrender value of bank-owned life insurance 655 626

18 unchanged sentences

EAGLE BANCORP, INC.

Consolidated Statements of Comprehensive (Loss) Income (Unaudited)

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(dollars in thousands)

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

2022 2021 2022 2021

Three Months Ended March 31,

Net Income $ 24,234 $ 45,744

Other Comprehensive (Loss) Income, Net of Tax:

Unrealized (loss) on securities available-for-sale ( 60,029 ) ( 5,703 ) ( 151,453 ) ( 16,666 )

Reclassification adjustment for (gain) loss included in net income ( 3 ) ( 1,133 ) 114 ( 1,534 )

Total unrealized (loss) on investment securities available-for-sale ( 60,032 ) ( 6,836 ) ( 151,339 ) ( 18,200 )

Other Comprehensive Income (Loss), Net of Tax:

Unrealized gain (loss) on securities available-for-sale 17,936 ( 58,406 )

Reclassification adjustment for loss included in net income 16 19

Total unrealized gain (loss) on investment securities available-for-sale 17,952 ( 58,387 )

Unrealized loss on securities transferred to held-to-maturity (1)

— — ( 49,095 ) —

Amortization of unrealized loss on securities transferred to held-to-maturity 641 —

Total unrealized loss recognized (remaining) on investment securities held-to-maturity 1,762 — ( 45,342 ) —

Unrealized gain on derivatives — — 284 769

Reclassification adjustment for gain included in net income — — — ( 385 )

Total unrealized gain on derivatives — — 284 384

Other comprehensive (loss) ( 58,270 ) ( 6,836 ) ( 196,397 ) ( 17,816 )

Comprehensive (Loss) Income $ ( 20,973 ) $ 36,773 $ ( 97,660 ) $ 117,255

Total unrealized gain (loss) on investment securities held-to-maturity 641 ( 49,095 )

Other comprehensive income (loss) 18,593 ( 107,482 )

Comprehensive Income (Loss) $ 42,827 $ ( 61,738 )

(1) Represents unamortized accumulated other comprehensive loss on securities transferred to held-to-maturity status.

3 unchanged sentences

(dollars in thousands except share and per share data)

Additional Other

Common Paid-in Retained Comprehensive Shareholders'

Shares Amount Capital Earnings Income (Loss) Equity

Balance July 1, 2022 32,081,241 $ 318 $ 440,418 $ 964,353 $ ( 152,369 ) $ 1,252,720

Net Income — — — 37,297 — 37,297

Other comprehensive loss, net of tax — — — — ( 58,270 ) ( 58,270 )

Stock-based compensation expense — — 2,274 — — 2,274

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

Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 2,893 ) — — — — —

Time-based stock awards granted — — — — — —

Issuance of common stock related to employee stock purchase plan 3,973 — 188 — — 188

Cash dividends declared ($0.45 per share) — — — ( 14,438 ) — ( 14,438 )

Balance September 30, 2022 32,082,321 $ 318 $ 442,880 $ 987,212 $ ( 210,639 ) $ 1,219,771

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

Net Income — — — 43,609 — 43,609

Other comprehensive income, net of tax — — — — ( 6,836 ) ( 6,836 )

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

Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 2,756 ) — — — — —

Time-based stock awards granted 250 — — — — —

Issuance of common stock related to employee stock purchase plan — — — — — —

Cash dividends declared ($0.40 per share) — — — ( 12,788 ) — ( 12,788 )

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

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

See Notes to Consolidated Financial Statements.

EAGLE BANCORP, INC.

Consolidated Statements of Changes in Shareholders' Equity - Continued (Unaudited)

(dollars in thousands except share and per share data)

Additional Other

Common Paid-in Retained Comprehensive Shareholders'

Shares Amount Capital Earnings Income (Loss) Equity

Accumulated Other Comprehensive Income (Loss)

Common Additional Paid-in Capital Retained Earnings Shareholders' Equity

Shares Amount

Balance January 1, 2023 31,346,903 $ 310 $ 412,303 $ 1,015,215 $ ( 199,507 ) $ 1,228,321

Net Income — — — 24,234 — 24,234

Other comprehensive loss, net of tax — — — — ( 196,397 ) ( 196,397 )

Other comprehensive income, net of tax — — — — 18,593 18,593

Stock-based compensation expense — — 2,948 — — 2,948

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 ( 37,104 ) 2 ( 2 ) — — —

4 unchanged sentences

Common stock repurchased ( 400,000 ) ( 4 ) ( 18,370 ) — — ( 18,374 )

Balance September 30, 2022 32,082,321 $ 318 $ 442,880 $ 987,212 $ ( 210,639 ) $ 1,219,771

Balance March 31, 2023 31,111,647 $ 308 $ 397,012 $ 1,025,552 $ ( 180,914 ) $ 1,241,958

Balance January 1, 2022 31,950,092 $ 316 $ 434,640 $ 930,061 $ ( 14,242 ) $ 1,350,775

2 unchanged sentences

Stock-based compensation expense — — 2,966 — — 2,966

Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 1,789 — 19 — — 19

Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 62,228 ) 2 ( 2 ) — — —

3 unchanged sentences

Cash dividends declared ($ 0.40 per share) — — — ( 12,665 ) — ( 12,665 )

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

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

Balance March 31, 2022 32,079,474 $ 318 $ 437,820 $ 963,140 $ ( 121,724 ) $ 1,279,554

See Notes to Consolidated Financial Statements.

2 unchanged sentences

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash Flows From Operating Activities:

5 unchanged sentences

Gain on sale of loans ( 305 ) ( 1,492 )

Gain on mortgage servicing rights ( 872 ) —

Loss (gain) on mortgage servicing rights 35 ( 930 )

Securities premium amortization, net 1,715 2,660

1 unchanged sentence

Proceeds from sale of loans held for sale 28,480 137,905

Deferred income tax expense — —

Net gain on sale of other real estate owned ( 107 ) ( 148 )

Net loss (gain) on sale of investment securities 172 ( 2,058 )

Net loss on sale of investment securities 21 25

Net increase in cash surrender value of BOLI ( 655 ) ( 626 )

2 unchanged sentences

Increase in other assets ( 9,019 ) ( 3,960 )

Decrease in other liabilities 5,503 89,348

Decrease (increase) in other liabilities 33,369 ( 6,395 )

Net Cash Provided by Operating Activities 60,796 60,852

8 unchanged sentences

Proceeds from call 68 —

(Purchase of) proceeds from sale of Federal Reserve and Federal Home Loan Bank stock ( 8,158 ) 6,011

Sale of Federal Reserve and Federal Home Loan Bank stock — —

Proceeds from sale of SBA PPP loans — 170,154

Net (increase) decrease in loans ( 239,089 ) 727,021

Proceeds from sale of OREO 241 —

Purchase of Federal Reserve stock ( 69 ) ( 60 )

(Purchase) sale of Federal Home Loan Bank stock ( 13,998 ) 5,186

Net increase in loans ( 103,019 ) ( 48,667 )

Redemption of BOLI 436 —

Net change in premises and equipment ( 313 ) ( 269 )

Net Cash (Used in) Provided by Investing Activities ( 663,100 ) 236,959

Net Cash Used in Investing Activities ( 59,361 ) ( 497,728 )

Cash Flows From Financing Activities:

Increase (decrease) in deposits ( 1,218,190 ) 479,285

Increase (decrease) in customer repurchase agreements ( 2,453 ) 2,675

Decrease in deposits ( 1,249,941 ) ( 395,281 )

Increase in customer repurchase agreements 2,754 4,375

Proceeds from short-term borrowings 1,138,800 ( 150,000 )

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

Proceeds from issuance of common stock — 327

Proceeds from employee stock purchase plan 133 197

1 unchanged sentence

Common stock repurchased ( 18,374 ) —

Tax equivalent shares withheld on exercise of stock-based compensation plans — ( 1,609 )

Cash dividends paid ( 13,897 ) ( 12,665 )

Net Cash (Used in) Provided by Financing Activities ( 1,046,574 ) 249,696

Net (Decrease) Increase in Cash and Cash Equivalents ( 1,570,047 ) 711,429

Net Cash Used in Financing Activities ( 140,525 ) ( 554,964 )

Net Decrease in Cash and Cash Equivalents ( 139,090 ) ( 991,840 )

Cash and Cash Equivalents at Beginning of Period 311,854 1,714,222

Cash and Cash Equivalents at End of Period $ 172,764 $ 722,382

See Notes to Consolidated Financial Statements.

EAGLE BANCORP, INC.

1 unchanged sentence

(dollars in thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Supplemental Cash Flows Information:

1 unchanged sentence

Income taxes paid $ — $ —

Non-Cash Operating Activities

Initial recognition of operating lease right-of-use assets $ — $ ( 10,168 )

Non-Cash Investing Activities

Transfers of investment securities from available-for-sale to held-to-maturity $ — $ 922,795

Transfers from loans to other real estate owned $ 475 $ 148

Change in fair value of investment securities available-for-sale $ 973,655 $ 24,495

Change in fair value of cash flow hedges $ — $ ( 516 )

Change in unrealized gain (loss) of investment securities available-for-sale $ 24,034 $ —

See Notes to Consolidated Financial Statements.

9 unchanged sentences

The Consolidated Balance Sheet as of December 31, 2022 was derived from the audited Consolidated Balance Sheet as of that date.

The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals that in the opinion of management are necessary to present fairly the results for the periods presented.

The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring adjustments, that in the opinion of management are necessary to present fairly the results for the periods presented.

Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC").

5 unchanged sentences

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 is also active in the origination of small business loans, and the origination, securitization and sale of multifamily Federal Housing Administration ("FHA") loans.

The guaranteed portion of small business loans, guaranteed by the Small Business Administration ("SBA"), is typically sold to third party investors in a transaction apart from the loan's origination.

The Bank offers its products and services through sixteen banking offices, five lending centers and various digital 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.

The Bank offers its products and services through fifteen banking offices, five lending centers and various digital capabilities, including remote deposit services and mobile banking services.

In March 2023, the Company closed its Alexandria, Virginia branch following the lease's expiration.

Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance.

The Company commenced the cessation of first lien residential mortgage origination for secondary sale during the three months ended March 31, 2023.

The Company expects to complete residual origination and sales activities by the end of the third quarter of 2023.

Use of Estimates

6 unchanged sentences

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.

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.

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

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

13 unchanged sentences

The allowance for credit losses - loans ("ACL") is an estimate of the expected credit losses in the loans held for investment portfolio.

Accounting Standards Codification ("ASC") 326, "Financial Instruments-Credit Losses" requires that an estimate of current expected credit losses ("CECL") be immediately recognized and reevaluated over the contractual life of the financial asset.

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

1 unchanged sentence

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

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

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

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

30 unchanged sentences

Income producing commercial real estate.

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

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

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

34 unchanged sentences

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, Credit Oversight Committee, the Audit Committee, and the Board of Directors.

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

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

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 borrower will result in financial difficulty.

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.

5 unchanged sentences

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

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

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

The Company's ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR.

The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default.

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

Allowance for Credit Losses - Securities

Loan Modifications to Borrowers in Financial Difficulty

On January 1, 2023, the Company adopted the accounting guidance in ASU No.

2022-02, which eliminates the recognition and measurement of a troubled debt restructuring ("TDR").

Due to the removal of the TDR designation, the Company evaluates loan restructurings according to the accounting guidance to determine if we have a loan modification and whether it results in a new loan or the continuation of the existing loan.

Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications.

A loan that is considered a restructured loan may be subject to an individually evaluated loan analysis if the commitment is $1.0 million or greater;

otherwise, the restructured loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the restructured loan.

Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status, foreclosure or repossession of the collateral to minimize economic loss to the Company.

Allowance for Credit Losses - Available-for-Sale Securities

The Company utilizes ASC 326 to evaluate its available-for-sale ("AFS") and held-to-maturity ("HTM") debt security portfolio for expected credit losses.

8 unchanged sentences

(1) the Company intends to sell the security;

or (2) it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis;

(2) it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis;

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

2 unchanged sentences

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

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

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

2 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.

If the Company determines that a security indicates evidence of deteriorated credit quality, the security is individually evaluated and enhanced analysis is performed.

This may consist of evaluating the security as if it were a below investment grade rated security or a discounted cash flow analysis may be performed and compared to the amortized cost basis.

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

2 unchanged sentences

Such financial instruments are recorded when they are funded.

The Company records a reserve for unfunded commitments ("RUC") on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company's Consolidated Statement of Income.

The Company records a reserve for RUC on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company's Consolidated Statement of Income.

The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in the RUC on the Company's Consolidated Balance Sheet.

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

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

Three Months Ended March 31,

(dollars in thousands) 2023 2022

Provision for (reversal of) credit losses - loans $ 4,908 $ ( 3,001 )

(Reversal of) provision for credit losses - HTM debt securities ( 24 ) — 800 —

Provision for credit losses - HTM debt securities 1,242 817

Provision for (reversal of) credit losses - AFS debt securities 14 ( 603 )

3 unchanged sentences

Accounting Standards Adopted in 2023 :

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.

Accounting Standards Pending Adoption:

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.

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.

ASU 2020-4 also provides numerous optional expedients for derivative accounting.

ASU 2020-4 is effective March 12, 2020 through December 31, 2022.

An entity may elect to apply ASU 2020-4 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued.

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

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

We do not anticipate that the LIBOR transition or the application of this ASU will have material effects on the Company's business operations and consolidated financial statements.

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

Troubled Debt Restructurings and Vintage Disclosures " ("ASU 2022-02") eliminates the accounting guidance for troubled debt restructurings ("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.

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.

Effective January 1, 2023, the Company adopted the guidance prescribed under ASU 2022-02.

Refer to the "Loan Modifications" subsection above and Note 4 for additional disclosure.

Cash and Due from Banks

The Company has deposits with other banks for derivative positions it holds, totaling $ 1.1 million at September 30, 2022 and $ 6.3 million at December 31, 2021.

At September 30, 2022, the Company was entitled to receive collateral totaling $ 30.6 million.

At December 31, 2021, the Company was required to post $ 2.4 million of cash collateral with its counterparties.

See Note 6 for additional information.

For three months ended March 31, 2023 and 2022, the Bank maintained an average daily balance of balances at the Federal Reserve Bank of $ 662.4 million and $ 2.4 billion, respectively, on which interest is paid.

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

1 unchanged sentence

The amortized cost and estimated fair value of the Company's available-for-sale and held-to-maturity securities are summarized as follows:

Gross Gross Allowance Estimated

Amortized Unrealized Unrealized for Credit Fair

(dollars in thousands) Cost Gains Losses Losses Value

September 30, 2022

(dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value

March 31, 2023

Investment securities available-for-sale:

5 unchanged sentences

Corporate bonds 2,000 — ( 188 ) ( 31 ) 1,781

Total $ 1,873,872 $ 35 $ ( 224,136 ) $ ( 18 ) $ 1,649,753

Gross Gross Estimated Allowance

Amortized Unrecognized Unrecognized Fair for Credit

(dollars in thousands) Cost Gains Losses Value Losses

September 30, 2022

Total available-for-sale securities $ 1,763,371 $ 76 $ ( 181,231 ) $ ( 31 ) $ 1,582,185

(dollars in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value

March 31, 2023

Investment securities held-to-maturity:

4 unchanged sentences

Total $ 1,077,311 $ — $ ( 111,525 ) $ 965,786

Gross Gross Allowance Estimated

Amortized Unrealized Unrealized for Credit Fair

(dollars in thousands) Cost Gains Losses Losses Value

Allowance for credit losses ( 2,008 )

Total held-to-maturity securities, net of ACL $ 1,075,303

(dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value

December 31, 2022

3 unchanged sentences

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

(dollars in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value

December 31, 2022

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

Total $ 1,094,140 $ — $ ( 125,433 ) $ 968,707

In addition, at September 30, 2022 and December 31, 2021 the Company held $ 42.3 million and $ 34.2 million, respectively, in equity securities in a combination of FRB and FHLB stocks, which were required to be held for regulatory purposes and which were not marketable, and therefore are carried at cost.

Allowance for credit losses ( 766 )

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

In addition, at March 31, 2023 and December 31, 2022 the Company held $ 79.1 million and $ 65.1 million, respectively, in equity securities in a combination of Federal Reserve Bank and FHLB stocks, which were required to be held for regulatory purposes and which were not marketable, and therefore are carried at cost.

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.

1 unchanged sentence

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 September 30, 2022, $ 61.1 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.

The related unrealized loss of $ 66.2 million was included in other comprehensive loss at the time of transfer and, as of March 31, 2023, $ 57.1 million remains in accumulated other comprehensive loss, to be amortized 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 available-for-sale securities totaled $ 4.5 million and $ 6.0 million at September 30, 2022 and December 31, 2021, respectively, and accrued interest receivable on held-to-maturity securities totaled $ 3.8 million at September 30, 2022.

Accrued interest receivable on available-for-sale securities totaled $ 4.2 million and $ 4.3 million at March 31, 2023 and December 31, 2022, respectively, and accrued interest receivable on held-to-maturity securities totaled $ 3.7 million and $ 3.6 million at March 31, 2023 and December 31, 2022, 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 following table summarizes available for sale securities in an unrealized loss position for which an allowance for credit losses has not been recorded, by length of time:

Less Than 12 Months

12 Months or Greater Total

Estimated Estimated Estimated

Number of Fair Unrealized Fair Unrealized Fair Unrealized

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

September 30, 2022

The following tables summarizes available-for-sale and held-to-maturity securities in an unrealized loss position by length of time:

Less Than 12 Months 12 Months or Greater Total

(dollars in thousands) Number of Securities Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses

March 31, 2023

Investment securities available-for-sale:

treasury bonds 2 $ — $ — $ 46,931 $ ( 2,887 ) $ 46,931 $ ( 2,887 )

4 unchanged sentences

Corporate bonds 1 — — 1,812 ( 188 ) 1,812 ( 188 )

262 $ 1,182,005 $ ( 140,542 ) $ 458,292 $ ( 83,594 ) $ 1,640,297 $ ( 224,136 )

Total 254 $ 499,312 $ ( 50,108 ) $ 1,082,828 $ ( 131,123 ) $ 1,582,140 $ ( 181,231 )

Less Than 12 Months 12 Months or Greater Total

(dollars in thousands) Number of Securities Estimated Fair Value Unrecognized Losses Estimated Fair Value Unrecognized Losses Estimated Fair Value Unrecognized Losses

March 31, 2023

Investment securities held-to-maturity:

Residential mortgage-backed securities 143 $ — $ — $ 647,470 $ ( 77,286 ) $ 647,470 $ ( 77,286 )

Commercial mortgage-backed securities 16 — — 80,907 ( 11,234 ) 80,907 ( 11,234 )

Municipal bonds 43 3,122 ( 29 ) 116,348 ( 8,661 ) 119,470 ( 8,690 )

Corporate bonds 32 21,367 ( 2,596 ) 96,572 ( 11,719 ) 117,939 ( 14,315 )

Total 234 $ 24,489 $ ( 2,625 ) $ 941,297 $ ( 108,900 ) $ 965,786 $ ( 111,525 )

Less Than 12 Months 12 Months or Greater Total

(dollars in thousands) Number of Securities Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses

December 31, 2022

Investment securities available-for-sale:

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

1 unchanged sentence

Residential mortgage-backed securities 157 3,994 — 808,697 ( 117,072 ) 812,691 ( 117,072 )

Commercial mortgage-backed securities 14 471 ( 2 ) 49,742 ( 5,856 ) 50,213 ( 5,858 )

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

Corporate bonds 1 — — 1,825 ( 175 ) 1,825 ( 175 )

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

Unrealized losses at September 30, 2022 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities.

However, as of September 30, 2022, 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, and therefore, an allowance for credit losses of $ 18 thousand was recorded for AFS securities and $ 802 thousand for HTM securities.

The weighted average duration of debt securities, which comprise 100 % of total investment securitie s, is 4.84 years.

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

Less Than 12 Months 12 Months or Greater Total

(dollars in thousands) Number of Securities Estimated Fair Value Unrecognized Losses Estimated Fair Value Unrecognized Losses Estimated Fair Value Unrecognized Losses

December 31, 2022

Investment securities held-to-maturity:

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 )

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

Unrealized losses at March 31, 2023 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities.

However, as of March 31, 2023, 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, and therefore, for three months ended March 31, 2023 an allowance for credit losses of $ 14 thousand was recorded for AFS securities and $ 1.2 million for HTM securities for a total allowance of $ 31 thousand and $ 2.0 million, respectively.

The allowance of $ 31 thousand for AFS securities was all for corporate bonds.

The allowance of $ 2.0 million for HTM securities consists of $ 16 thousand for municipal bonds and $ 2.0 million on corporate bonds, The weighted average duration of debt securities, which comprise 100 % of total investment securities, is 4.74 years.

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

The Company currently has no plans to sell the investments, and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity.

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities at September 30, 2022 and December 31, 2021 by contractual maturity are shown in the table below.

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities at March 31, 2023 and December 31, 2022 by contractual maturity are shown in the table below.

Contractual maturities for mortgage-backed securities ("MBS") are excluded as they may differ significantly from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

Amortized Estimated Amortized Estimated

2 unchanged sentences

Investment securities available-for-sale

treasury bonds (maturing after one year through five years) $ 49,767 $ 46,048 $ 49,693 $ 49,458

agency securities maturing:

2 unchanged sentences

After five years through ten years 68,936 64,008 73,886 68,180

After ten years 12,420 10,236 13,012 10,552

Residential mortgage-backed securities:

10 unchanged sentences

After five years through ten years — — — —

Treasury 49,818 46,931 49,793 46,327

Allowance for credit losses — ( 31 ) — ( 17 )

17 unchanged sentences

(1) Amortized cost for investment securities held-to-maturity is presented net of the allowance for credit losses on the Consolidated Balance Sheet.

For the three and nine months ended September 30, 2022, gross realized gains on sales and calls of investments securities were $ 4 thousand and $ 16 thousand, respectively as compared to $ 1.5 million and $ 2.2 million for the same three and nine month period ended September 30, 2021.

For the three and nine months ended September 30, 2022, gross realized losses on sales of investments securities were $ 0 and $ 187 thousand, respectively as compared to $ 0 and $ 187 thousand for the same three and nine month period for the prior year.

Gross sales and call proceeds were $ 12.6 million and $ 32.7 million for the three and nine months ended September 30, 2022 and $ 85.5 million and $ 164.6 million for the same periods in 2021.

The book value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at September 30, 2022 and December 31, 2021 was $ 146.1 million and $ 261.0 million, respectively, which were well in excess of required amounts in order to operationally provide significant reserve amounts for new business.

As of September 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the U.S.

For the three months ended March 31, 2023 and 2022, gross realized gains on sales and calls of investment securities were $ 5 thousand and zero , respectively.

For the three months ended March 31, 2023 and 2022, gross realized losses on sales of investment securities were $ 26 thousand and $ 25 thousand, respectively.

Gross sales and call proceeds were $ 8.4 million and $ 6.2 million for the three months ended March 31, 2023 and 2022, respectively.

The book value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at March 31, 2023 and December 31, 2022 was $ 1.6 billion and $ 220.1 million, respectively, which were well in excess of required amounts in order to operationally provide significant reserve amounts for new business.

As of March 31, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the U.S.

Government and U.S.

4 unchanged sentences

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

Loans, net of unamortized net deferred fees, at September 30, 2022 and December 31, 2021 are summarized by type as follows:

September 30, 2022 December 31, 2021

Loans, net of unamortized net deferred fees, at March 31, 2023 and December 31, 2022 are summarized by type as follows:

March 31, 2023 December 31, 2022

(dollars in thousands, except amounts in the footnote) Amount % Amount %

12 unchanged sentences

$ 7,659,299 $ 7,561,188

(1) Excludes accrued interest receivable of $ 37.1 million and $ 38.6 million at September 30, 2022 and December 31, 2021, respectively, which were recorded in other assets on the Consolidated Balance Sheets.

Unamortized net deferred fees amounted to $ 27.4 million and $ 26.9 million at September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, the Bank serviced $ 362.7 million and $ 351.1 million , respectively, of multifamily FHA loans, SBA loans and other loan participations that are not reflected as loan balances on the Consolidated Balance Sheets.

(1) Excludes accrued interest receivable of $ 43.9 million and $ 43.5 million at March 31, 2023 and December 31, 2022, respectively, which were recorded in other assets on the Consolidated Balance Sheets.

Unamortized net deferred fees amounted to $ 28.5 million and $ 29.2 million at March 31, 2023 and December 31, 2022, respectively.

As of March 31, 2023 and December 31, 2022, the Bank serviced $ 344.1 million and $ 361.5 million, respectively, of multifamily FHA loans, SBA loans and other loan participations that are not reflected as loan balances on the Consolidated Balance Sheets.

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

21 unchanged sentences

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

ADC loans amounted to $ 1.5 billion at September 30, 2022.

A portion of the ADC portfolio, both speculative and non-speculative, includes loan-funded interest reserves at origination.

ADC loans that provide for the use of interest reserves represent approximately 54.1 % of the outstanding ADC loan portfolio at September 30, 2022.

ADC loans amounted to $ 1.6 billion at March 31, 2023.

A portion of the ADC portfolio, includes loan-funded interest reserves at origination.

ADC loans that provide for the use of interest reserves represent approximately 59.0 % of the outstanding ADC loan portfolio at March 31, 2023.

The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit, including:

4 unchanged sentences

and (5) the level of collateral protection.

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

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

The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower's ability to repay the loan.

6 unchanged sentences

If a project has performed as expected, it is the customary practice of the Company to increase loan-funded interest reserves.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, 2022 and 2021.

The following tables detail activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 and 2022.

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.

1 unchanged sentence

(dollars in thousands) Commercial Income-Producing Commercial Real Estate Owner-Occupied -Commercial Real Estate Real Estate Mortgage Residential Construction -Commercial and Residential Home Equity Other Consumer Total

Three Months Ended September 30, 2022

Allowance for credit losses:

Balance at beginning of period $ 15,754 $ 34,120 $ 12,796 $ 790 $ 8,494 $ 647 $ 64 $ 72,665

Loans charged-off ( 53 ) — — — — — ( 70 ) ( 123 )

Recoveries of loans previously charged-off 152 — 25 — — — 2 179

Net loans (charged-off) recovered 99 — 25 — — — ( 68 ) 56

Provision for (reversal of) credit losses 20 2,207 ( 240 ) 20 1,020 ( 23 ) 42 3,046

Ending balance $ 15,873 $ 36,327 $ 12,581 $ 810 $ 9,514 $ 624 $ 38 $ 75,767

Nine Months Ended September 30, 2022

Allowance for credit losses:

Balance at beginning of period $ 14,475 $ 38,287 $ 12,146 $ 449 $ 9,099 $ 474 $ 35 $ 74,965

Loans charged-off ( 604 ) — ( 1,356 ) — — — ( 74 ) ( 2,034 )

Recoveries of loans previously charged-off 648 — 25 — 1,627 — 4 2,304

Net loans (charged-off) recovered 44 — ( 1,331 ) — 1,627 — ( 70 ) 270

Provision for (reversal of) credit losses 1,354 ( 1,960 ) 1,766 361 ( 1,212 ) 150 73 532

Ending balance $ 15,873 $ 36,327 $ 12,581 $ 810 $ 9,514 $ 624 $ 38 $ 75,767

Three Months Ended September 30, 2021

Three Months Ended March 31, 2023

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 15,775 $ 38,140 $ 12,457 $ 1,002 $ 10,383 $ 593 $ 27 $ 78,377

Nine Months Ended September 30, 2021

Three Months Ended March 31, 2022

Allowance for credit losses:

5 unchanged sentences

Ending balance $ 12,946 $ 39,193 $ 10,515 $ 381 $ 7,973 $ 467 $ 30 $ 71,505

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

Business/Other Business/Other

1 unchanged sentence

Commercial $ 2,223 $ 995 $ 1,563 $ 1,871

PPP loans — — 1,365 —

Income-producing - commercial real estate 2,000 4,325 2,000 4,328

2 unchanged sentences

Construction - commercial and residential — 533 — —

Home equity — — — 366

Other consumer — — 50 —

Total $ 4,223 $ 26,735 $ 3,613 $ 27,084

9 unchanged sentences

Management believes that there is a low likelihood of loss related to those loans that are considered pass.

Loan paying as agreed with generally acceptable asset quality;

however the obligor's performance has not met expectations.

Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks.

Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time.

Special Mention:

9 unchanged sentences

The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined.

The Company's credit quality indicators are generally updated annually, however , credits rated "Watch" or below are reviewed more frequently.

The Company's credit quality indicators are generally updated annually, however , credits rated "Special Mention" or below are reviewed more frequently.

Based on the most recent analysis performed, the amortized cost basis of loans by risk category, class and year of origination are as follows:

September 30, 2022 (dollars in thousands) Prior 2018 2019 2020 2021 2022 Revolving Loans Amort.

(dollars in thousands) Prior 2019 2020 2021 2022 2023 Revolving Loans Amort.

Cost Basis Revolving Loans Convert.

to Term Total

March 31, 2023

Pass $ 207,824 $ 56,608 $ 61,430 $ 237,660 $ 160,051 $ 24,643 $ 719,939 $ 6,499 $ 1,474,654

Watch 5,854 1,859 360 3,776 2,893 996 21,980 — 37,718

Special Mention — — — — 77 — 4,976 — 5,053

1 unchanged sentence

Total 210,021 56,872 61,430 238,000 160,128 24,643 725,114 6,775 1,482,983

YTD Gross Charge-offs ( 868 ) — — — — — — — ( 868 )

Pass — — — 709 — — — — 709

Total — — — 2,479 4,762 — — — 7,241

Income producing - commercial real estate

Pass 1,431,756 494,678 366,302 528,962 696,291 114,213 199,847 5,275 3,837,324

Watch 249,570 5,223 — 35,707 — — — — 290,500

Special Mention 12,376 4,195 6,734 — — — 47,674 — 70,979

3 unchanged sentences

Pass 648,931 110,870 39,752 207,696 39,939 5,048 1,551 22,169 1,075,956

Watch 17,779 11,563 4,618 — — — 60 — 34,020

Substandard 19,743 — — — — — — — 19,743

2 unchanged sentences

Pass 28,363 8,162 2,626 16,402 14,362 2,064 — — 71,979

Watch 3,044 — — — — — — — 3,044

Substandard 1,698 — — — — — — — 1,698

2 unchanged sentences

Pass 110,247 92,940 155,158 250,206 239,367 910 99,516 — 948,344

Watch 44,409 — — — — — — 1,397 45,806

Substandard 533 — — — — — — — — 533

Total 110,780 92,940 155,158 250,206 239,367 910 99,516 — 948,877

YTD Gross Charge-offs ( 136 ) — — — — — — — ( 136 )

Construction - C&I (owner occupied)

Pass 19,548 11,754 33,609 647 35,170 1,815 6,470 — 109,013

Watch 1,036 3,254 7,480 2,301 — — — — 14,071

Total 19,548 11,754 33,609 647 35,170 1,815 6,470 — 109,013

Pass 2,300 — 248 376 686 — 49,649 470 53,729

Watch 55 — — — — — 196 — 251

Substandard — 39 — — — — 61 — 100

2 unchanged sentences

Pass 7 — — — 118 — 1,861 — 1,986

Watch — — — — — — 55 3 58

Substandard — — — — — — 5 — 5

Total 7 — — — 118 — 1,861 — 1,986

YTD Gross Charge-offs ( 50 ) — — — — — — — ( 50 )

Total Recorded Investment $ 2,548,123 $ 779,510 $ 665,859 $ 1,242,998 $ 1,186,061 $ 148,693 $ 1,131,743 $ 34,689 $ 7,737,676

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

Total YTD Gross Charge-offs $ ( 1,054 ) $ — $ — $ — $ — $ — $ — $ — $ ( 1,054 )

(dollars in thousands) Prior 2018 2019 2020 2021 2022 Revolving Loans Amort.

Cost Basis Revolving Loans Convert.

to Term Total

December 31, 2022

Pass $ 183,329 $ 47,393 $ 56,261 $ 64,163 $ 237,146 $ 144,390 $ 736,090 $ 8,570 $ 1,477,342

Watch 5,896 6,567 1,020 996 4,268 3,137 18,336 627 40,847

Special Mention — — — — — 82 5,475 — 5,557

1 unchanged sentence

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

YTD Gross Charge-offs ( 283 ) ( 101 ) ( 49 ) — — — ( 483 ) — ( 916 )

Pass — — — 2,479 777 — — — 3,256

Substandard — — — — 1,365 — — — 1,365

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

Income producing - commercial real estate

Pass 1,016,529 439,221 480,474 334,165 542,143 744,328 192,089 358 3,749,307

Watch 58,334 73,760 — 43,561 35,094 — — — 210,749

Special Mention 44,195 5,206 4,209 6,735 — — 47,676 — 108,021

1 unchanged sentence

Total 1,121,337 446,427 484,683 340,900 542,143 744,328 239,765 358 3,919,941

YTD Gross Charge-offs ( 680 ) ( 645 ) ( 676 ) — — — — — ( 2,001 )

Owner occupied - commercial real estate

Pass 461,029 191,646 111,497 40,562 206,595 41,765 24,240 13,238 1,090,572

Watch 22,710 4,581 11,783 7,026 — — 62 — 46,162

Special Mention — — — 2,122 — — — — 2,122

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

2 unchanged sentences

Pass 16,968 12,438 8,219 2,640 16,307 14,731 — — 71,303

Watch 3,255 — — — — — — — 3,255

Substandard 1,698 — — — — — — — 1,698

2 unchanged sentences

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

Watch 506 43,918 — — — — — — 44,424

Substandard — — — 3,093 — — — — 3,093

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

1 unchanged sentence

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

Watch 680 390 3,255 — — — — — 4,325

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

Pass 1,747 — — 98 551 — 48,378 906 51,680

Watch 193 — — — — — — — 193

Substandard — — 41 — — — 61 — 102

4 unchanged sentences

Total 4 — — — — 126 1,561 53 1,744

YTD Gross Charge-offs ( 3 ) — — — — — ( 75 ) — ( 78 )

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

Total YTD Gross Charge-Offs $ ( 966 ) $ ( 746 ) $ ( 725 ) $ — $ — $ — $ ( 558 ) $ — $ ( 2,995 )

Nonaccrual and Past Due Loans

3 unchanged sentences

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

The table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 2022 and December 31, 2021:

(dollars in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Total Past Due Loans Current Loans Nonaccrual Loans Total Recorded Investment in Loans

September 30, 2022

The table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of March 31, 2023 and December 31, 2022:

(dollars in thousands, except amount in the footnote) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Total Past Due Loans Current Loans Nonaccrual Loans Total Recorded Investment in Loans

March 31, 2023

Commercial $ 778 $ 524 $ — $ 1,302 $ 1,479,387 $ 2,294 $ 1,482,983

1 unchanged sentence

Income producing - commercial real estate (1)

14,018 — — 14,018 3,954,885 2,000 3,970,903

Owner occupied - commercial real estate — 279 — 279 1,095,406 14 1,095,699

16 unchanged sentences

Total $ 1,228 $ 975 $ — $ 2,203 $ 7,626,961 $ 6,468 $ 7,635,632

The following presents the nonaccrual loans as of September 30, 2022 and December 31, 2021:

Nonaccrual with Nonaccrual with Total

No Allowance an Allowance Nonaccrual

(dollars in thousands, except amounts in footnotes) for Credit Loss for Credit Loss Loans

September 30, 2022

(1) The increase in the 30-59 days past due category in the income producing - commercial real estate loans is one credit for $ 14.0 million which became past due in the first quarter of 2023, and was brought current in April 2023.

The following presents the nonaccrual loans as of March 31, 2023 and December 31, 2022:

(dollars in thousands, except amounts in footnotes) Nonaccrual with No Allowance for Credit Losses Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans

March 31, 2023

Commercial $ 91 $ 2,203 $ 2,294

2 unchanged sentences

Real estate mortgage - residential — 1,915 1,915

Home equity — — —

Construction - commercial and residential — 533 533

$ 105 $ 6,651 $ 6,756

1 unchanged sentence

Commercial $ 101 $ 2,387 $ 2,488

PPP loans (3)

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

$ 118 $ 6,350 $ 6,468

(1) Excludes TDRs that were performing under their restructured terms totaling $ 24.5 million and $ 10.2 million at September 30, 2022 and December 31, 2021, respectively.

(2) Gross interest income of $ 410 thousand and approximately $ 1.4 million would have been recorded for the nine months ended September 30, 2022 and 2021, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while $ 5 thousand and $ 23 thousand interest income was actually recorded on such loans for the nine months ended September 30, 2022 and 2021 respectively.

(1) Gross interest income of $ 182 thousand and approximately $ 325 thousand would have been recorded for the three months ended March 31, 2023 and 2022, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while no interest income was actually recorded on such loans for the three months ended March 31, 2023 and 2022.

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

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

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

Modifications

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

The Company may offer various types of concessions when modifying a loan.

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

Modifications with Borrowers Experiencing Financial Difficulty

On January 1, 2023, the Company adopted the accounting guidance in ASU No.

2022-02, effective as of January 1, 2023, which eliminates the recognition and measurement of a TDR.

Due to the removal of the TDR designation, the Company evaluates all loan restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a new loan or a continuation of the existing loan.

Loan modifications to borrowers experiencing financial difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications.

Therefore, the disclosures related to loan restructurings are for modifications which have a direct impact on cash flows.

The Company may offer various types of modifications when restructuring a loan.

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

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

Commercial mortgage and construction loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor.

Construction loans modified in a TDR may also involve extending the interest-only payment period.

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

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

Commercial mortgage and construction loans modified in a loan restructuring often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor.

Construction loans modified in a loan restructuring may also involve extending the interest-only payment period.

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

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

Management exercises significant judgment in developing these estimates.

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

This program allowed for a deferral of payments for 90 days, which we extended for an additional 90 days for certain borrowers, for a maximum of 180 days on a cumulative and successive basis.

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

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

non-performing loans) due to the provision of the CARES Act that permits U.S.

financial institutions to temporarily suspend the GAAP requirements to treat such short-term loan modifications as TDR.

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.

As of September 30, 2022, substantially all of the borrowers granted deferrals under this program have returned to regular payment status.

The Company had one loan modification with a balance of $ 19.2 million that resulted in a TDR for the three and nine months ended September 30, 2022 and there were no loan modifications that resulted in TDRs for the nine months ended September 30, 2021.

The Company had five TDRs at September 30, 2022 totaling approximately $ 24.5 million.

All of these loans were performing under their modified terms as of September 30, 2022.

The Company had seven TDRs at December 31, 2021, totaling $ 16.5 million.

During the three and nine months ended September 30, 2022, four loans that had been modified as TDRs with a balance of $ 30.3 million, including two that previously were on nonperforming status, were sold, resulting in a charge-off of $ 1.4 million in connection with the sale.

For the nine months ended September 30, 2021, the collateral for one previously nonperforming restructured loan was sold, and all of the loan's principal and part of its delinquent interest were collected;

and one restructured loan that was purchased as part of the 2014 acquisition of Virginia Heritage Bank was collected at its full carrying value.

For the first nine months of 2022 there were no loans that were modified as a TDR that defaulted.

For the first nine months of 2021, one performing TDR loan, with a balance of $ 101 thousand, defaulted on its modified terms and was placed on nonaccrual status and charged off.

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

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

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

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

The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

None of the loans that were restructured in the three months ended March 31, 2023, experienced any subsequent payment defaults.

The following table presents the amortized cost basis of loan restructurings at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023.

(dollars in thousands) Principal Forgiveness Term Extension Combination Term Extension and Principal Payment Delay Weighted Average Term Extension Interest Rate Reduction Restructured Loans/Total Loan Portfolio

Accruing Restructured Loans

Commercial $ — $ 21,744 $ — 3 months $ — 0.3 %

Income producing - commercial real estate — 7,211 60,139 4 months — 0.9 %

Owner occupied - commercial real estate — — 19,170 3 months — 0.2 %

Total $ — $ 28,955 $ 79,309 $ — 1.4 %

The following presents the performance of loans restructured to borrowers experiencing financial difficulty by class of loan during the three months ended March 31, 2023:

Payment Status (Amortized Cost Basis) Payment Status (Amortized Cost Basis)

(dollars in thousands) Current 30-89 Days Past Due 90+ Days Past Due

Accruing Restructured Loans

Commercial $ 21,744 $ — $ —

Income producing - commercial real estate 67,350 — —

Owner occupied - commercial real estate 19,170 — —

Total $ 108,264 $ — $ —

There were no non-accrual loans modified during the three months ended March 31, 2023.

The Company accounts for leases in accordance with ASC Topic 842.

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With the adoption of ASC Topic 842, operating lease agreements were required to be recognized on the Consolidated Balance Sheets as a right-of-use ("ROU") asset and a corresponding lease liability.

As of September 30, 2022 and December 31, 2021, the Company had $ 26.0 million and $ 30.6 million of operating lease ROU assets, respectively, and $ 30.8 million and $ 35.5 million of operating lease liabilities, respectively, on the Company's Consolidated Balance Sheets.

As of March 31, 2023 and December 31, 2022, the Company had $ 23.1 million and $ 24.5 million of operating lease ROU assets, respectively, and $ 27.6 million and $ 29.3 million of operating lease liabilities, respectively, on the Company's Consolidated Balance Sheets.

The Company elects 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.

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

As of September 30, 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.

As of March 31, 2023, 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.

During the three months ended March 31, 2023, the Company did not enter into new leases or renew or extend any leases.

The Company had one lease expire during that period.

The following table presents lease costs and other lease information.

Three Months Ended Nine Months Ended

(dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

Three Months Ended

(dollars in thousands) March 31, 2023 March 31, 2022

Operating lease cost (cost resulting from lease payments) $ 1,716 $ 1,840

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Operating lease - operating cash flows (fixed payments) $ 1,859 $ 1,820

(dollars in thousands) September 30, 2022 December 31, 2021

(dollars in thousands) March 31, 2023 December 31, 2022

Operating lease right-of-use assets $ 23,060 $ 24,544

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Weighted average discount rate - operating leases 2.87 % 2.91 %

Future minimum payments for operating leases with initial or remaining terms of more than one year as of September 30, 2022 were as follows:

Future minimum payments for operating leases with initial or remaining terms of more than one year as of March 31, 2023 were as follows:

(dollars in thousands)

Twelve months ended:

September 30, 2023 $ 1,799

September 30, 2024 7,036

September 30, 2025 6,292

September 30, 2026 5,329

September 30, 2027 4,184

March 31, 2024 $ 5,339

March 31, 2025 6,880

March 31, 2026 5,987

March 31, 2027 2,894

March 31, 2028 2,502

Thereafter 5,776

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The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities through the use of derivative financial instruments.

Mortgage Banking Derivatives

As part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate.

The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs ("best efforts") or commits to deliver the locked loan in a binding ("mandatory") delivery program with an investor.

Certain loans under interest rate lock commitments are covered under forward sales contracts of MBS.

Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income.

Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives.

The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets.

The Bank determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments will close or will be funded.

Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts.

The Bank does not expect any counterparty to any MBS to fail to meet its obligation.

Additional risks inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement.

Should this be required, the Bank could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations.

The fair value of the mortgage banking derivatives is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.

Cash Flow Hedges of Interest Rate Risk

The Company uses interest rate swap agreements to assist in its interest rate risk management.

The Company's objective in using interest rate derivatives designated as cash flow hedges under ASC 815 is to add stability to interest expense and to better manage its exposure to interest rate movements.

To accomplish this objective, the Company utilizes interest rate swaps as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank's cost of funds.

The notional amounts of the interest rate swaps designated as cash flow hedges do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties.

The interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from one counterparty in exchange for the Company making fixed payments.

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

The Company's derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations.

The fair value of the derivatives is determined using discounted cash flow models.

These models' key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility.

Fair Value Measurements.

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.

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.

The Company's sole designated cash flow hedge matured during April 2021.

Thus, as of September 30, 2022 and December 31, 2021, the Company had no designated cash flow hedge interest rate swap transactions outstanding associated with the Company's variable rate deposits.

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

Non-Designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers.

Interest Rate Products

Interest rate derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers.

The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies.

Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net market risk exposure resulting from such transactions.

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

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

The table below identifies the balance sheet category and fair value of the Company's designated cash flow hedge derivative instruments and non-designated hedges as of September 30, 2022 and December 31, 2021.

Mortgage Banking Derivatives

The Company commenced the cessation of first lien residential mortgage origination for secondary sale during the three months ended March 31, 2023.

The Company expects to complete residual origination and sales activities as of the end of the third quarter of 2023.

As part of its mortgage banking activities, the Bank entered into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate.