In this report, unless otherwise expressly stated or the context otherwise requires, the terms “we,” “us,” the “Company,” “Eagle” and “our” refer to Eagle Bancorp, Inc.
−Removed: and our subsidiaries on a combined basis, except in the description of any of our securities, in which case these terms refer solely to Eagle Bancorp, Inc.
+Added: and our subsidiaries on a consolidated basis, except in the description of any of our securities, in which case these terms refer solely to Eagle Bancorp, Inc.
and not to any of our subsidiaries.
5 unchanged sentences
The Company was formed by a group of local businessmen and professionals with significant prior experience in community banking in the Company’s market area, together with an experienced community bank senior management team.
−Removed: The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board" or "Federal Reserve"), is the Company’s principal operating subsidiary.
+Added: The Bank, a Maryland chartered commercial bank, which is a member of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"), is the Company’s principal operating subsidiary.
It commenced banking operations on July 20, 1998.
−Removed: The Bank currently operates sixteen branch offices:
+Added: The Bank currently operates thirteen branch offices:
six in Suburban Maryland;
−Removed: five located in the District of Columbia;
−Removed: and five in Northern Virginia.
−Removed: The Bank also has five lending centers and utilizes various digital capabilities, including remote deposit services and mobile banking services.
+Added: four located in the District of Columbia;
+Added: and three in Northern Virginia.
+Added: The Bank also has four lending centers and utilizes various digital capabilities, including remote deposit services and mobile banking services.
The Bank maintains its physical presence via branches and lending centers consistent with its strategic plan.
2 unchanged sentences
Bethesda Leasing, LLC holds title to and operates real estate owned and acquired through foreclosure.
−Removed: Eagle Insurance Services, LLC offers access to insurance products and services through a referral program with a third party insurance broker.
+Added: Eagle Insurance Services, LLC, which previously offered access to insurance products and services through a referral program with a third party insurance broker, continues to receive fee income in connection with such program.
Landroval Municipal Finance, Inc.
7 unchanged sentences
On August 31, 2008, the Company acquired Fidelity & Trust Financial Corporation ("Fidelity") and on October 31, 2014 acquired Virginia Heritage Bank ("Virginia Heritage").
−Removed: Refer to Note 7 to the Consolidated Financial Statements for additional disclosure regarding intangible assets established incident to mergers and acquisitions.
+Added: Refer to Note 7 to the Consolidated Financial Statements for additional disclosure regarding intangible assets established related to mergers and acquisitions.
Description of Services.
6 unchanged sentences
(vi) consumer installment loans such as auto and personal loans;
−Removed: (vii) personal credit cards offered through an outside vendor;
−Removed: and (viii) residential mortgage loans.
−Removed: 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 Financial Statements for further details).
+Added: and (vii) personal credit cards offered through an outside vendor.
+Added: During the year ended December 31, 2023, the Company ceased originating residential real estate mortgage loans and completed residual origination and sales activities on its residential real estate mortgage lending business.
+Added: The Company made the decision to cease originating residential real estate mortgage loans given the challenged nature of the business and the uncertainty of maintaining or increasing the volume or percentage of revenue or net income that has previously been produced by the residential mortgage business.
The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, partnerships, corporations, non-profit organizations and associations and investors living and working in and near the Bank’s primary service area.
4 unchanged sentences
The Bank’s loan portfolio consists primarily of traditional business and real estate secured loans.
−Removed: Commercial and industrial loans are made, with a substantial portion having variable and adjustable rates, and where the cash flow of the borrower(s) operating business is the principal source of debt service with a secondary emphasis on collateral.
+Added: Commercial and industrial loans are made, with a substantial portion having variable and adjustable rates, where the cash flow of the borrower's operating business is the principal source of debt service with a secondary emphasis on collateral.
Real estate loans are made generally for commercial purposes and are structured using both variable and fixed rates and renegotiable rates which adjust in three to five years, with maturities of generally five to ten years.
2 unchanged sentences
(i) home equity loans and lines of credit that are structured with an interest only draw period followed either by a balloon maturity or a fully amortized repayment schedule;
−Removed: and (ii) first lien residential mortgage loans, although the Bank’s general practice is to sell conforming first trust loans on a servicing released basis to third party investors.
−Removed: In certain limited instances, residential mortgage first deed of trust loans are packaged along with a line of credit to the same borrower for sale in the secondary market by the Bank.
−Removed: The Bank 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).
−Removed: The Company believes this decision is appropriate given the challenged nature of the business and the uncertainty of maintaining or increasing the volume or percentage of revenue or net income that has previously been produced by the residential mortgage business.
−Removed: The Bank has also developed significant expertise and commitment as a Small Business Administration (“SBA”) lender.
−Removed: The Bank is a preferred lender under the SBA’s Preferred Lender Program.
+Added: and, historically, (ii) first lien residential mortgage loans with the intent to sell conforming first trust loans on a servicing released basis to third party investors.
+Added: The Company completed the cessation and residual origination and sales activities of first lien residential mortgage origination for secondary sale during the year ended December 31, 2023.
+Added: The Bank is also a preferred lender under the Small Business Administration's ("SBA") Preferred Lender Program.
As a preferred lender, the Bank can originate certain SBA loans in-house without prior SBA approval.
3 unchanged sentences
From time to time, this dependence on legislative funding causes limitations and uncertainties with regard to the continued funding of such programs, which could potentially have an adverse financial impact on our business.
−Removed: In 2020, in response to the coronavirus ("COVID-19") pandemic, the federal government (in the CARES Act passed in March 2020) provided a lending program which was distributed through the banking system called The Paycheck Protection Program ("PPP").
−Removed: The program was intended to provide a bridge to small and mid-size businesses until business activity could return to normal.
−Removed: The Bank participated in all phases to date of the PPP.
−Removed: At December 31, 2020 the PPP loan balances totaled $454.8 million, and declined to $3.3 million at December 31, 2022 as a result of the forgiveness process, and in the second quarter of 2021, the Company's sale of a portion of the PPP loan portfolio.
−Removed: The Company originates multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development’s or HUD’s Multifamily Accelerated Program ("MAP").
+Added: The Company originates multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development’s Multifamily Accelerated Program.
The Company securitizes these loans through the Government National Mortgage Association ("Ginnie Mae") MBS I program and sells the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundles and sells the servicing rights.
The Bank's lending activities carry the risk that the borrowers will be unable to perform on their obligations.
−Removed: As such, interest rate policies of the Board of Governors of the Federal Reserve System ("FRB") and general economic conditions, nationally and in the Bank’s primary market area, could have a significant impact on the Bank’s and the Company’s results of operations.
+Added: As such, interest rate policies of the Federal Reserve and general economic conditions, nationally and in the Bank’s primary market area, could have a significant impact on the Bank’s and the Company’s results of operations.
To the extent that economic conditions deteriorate, business and individual borrowers may be less able to meet their obligations to the Bank in full, in a timely manner, resulting in decreased earnings or losses to the Bank.
2 unchanged sentences
Plans for mitigating inherent risks in managing loan assets include:
−Removed: carefully designing and enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process, identifying and monitoring primary and alternative sources for loan repayment and obtaining collateral to mitigate economic loss in the event of liquidation.
+Added: designing and enforcing loan policies and procedures to mitigate those risks, evaluating each borrower’s business plan during the underwriting process, identifying and monitoring primary and alternative sources for loan repayment and obtaining collateral to mitigate economic loss in the event of liquidation.
Specific loan reserves may be established based upon credit and/or collateral risks on an individual loan basis.
1 unchanged sentence
The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing.
−Removed: At December 31, 2022, owner occupied commercial real estate and construction – C&I (owner occupied) represented approximately 16% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 63% of the loan portfolio.
+Added: At December 31, 2023, owner occupied commercial real estate and construction – commercial and industrial ("C&I") (owner occupied) represented approximately 17% of the loan portfolio while non-owner occupied commercial real estate and real estate construction represented approximately 63% of the loan portfolio.
The combined owner and non-owner occupied and commercial real estate loans represented approximately 81% of the loan portfolio.
1 unchanged sentence
These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions.
−Removed: The Bank typically requires a maximum loan to value of 80% and minimum debt service coverage of 1.0 to 1.15.
+Added: The Bank typically requires a maximum loan-to-value ("LTV") ratios of 80% and minimum debt service coverage ratios ("DSCRs") of 1.0 to 1.15.
Personal guarantees may be required but may be limited.
1 unchanged sentence
The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and accounts receivable financing.
−Removed: Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service.
+Added: The Company's underwriting standards address collateral and debt service cash flow.
Personal guarantees are generally required, but may be limited.
1 unchanged sentence
The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated.
−Removed: SBA loans other than PPP loans are subject to the same cash flow analyses as other commercial loans.
+Added: SBA loans other than Paycheck Protection Program ("PPP") loans are subject to the same cash flow analyses as other commercial loans.
SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines.
3 unchanged sentences
At December 31, 2023, the Bank had a legal lending limit of $212.0 million.
−Removed: At December 31, 2022, the average loan size outstanding for Commercial Real Estate, or CRE, and Commercial and Industrial, or C&I, loans was $7.1 million and $895 thousand, respectively.
+Added: At December 31, 2023, the average loan size outstanding for Commercial Real Estate ("CRE") and C&I loans was $7.9 million and $976 thousand, respectively.
In accordance with internal lending policies, the Bank may sell participations in its loans to other banks, which allows the Bank to manage risk involved in these loans and to meet the lending needs of its clients.
1 unchanged sentence
The Bank’s marketing focus on small to medium-sized businesses may result in the assumption by the Bank of certain lending risks that are different from those associated with loans to larger companies.
−Removed: Management and/or committees of the Bank carefully evaluate loan applications and attempt to minimize credit risk exposure by use of extensive loan application data, due diligence and approval and monitoring procedures;
+Added: Management and/or committees of the Bank carefully evaluate loan applications and attempt to minimize credit risk exposure by use of loan application data, due diligence and approval and monitoring procedures;
however, there can be no assurance that such procedures can significantly reduce such lending risks.
−Removed: The Bank has historically originated residential mortgage loans primarily as a correspondent lender.
−Removed: Activity in the residential mortgage loan market is highly sensitive to changes in interest rates and product availability.
−Removed: While the Bank does have delegated underwriting authority from most of its investors, it also employs the services of the investor to underwrite the loans.
−Removed: Because the loans are originated within investor guidelines and designated automated underwriting and product specific requirements as part of the loan application, the loans sold have a limited recourse provision.
−Removed: Most contracts with investors contain recourse periods.
−Removed: In general, the Bank may be required to repurchase a previously sold mortgage loan or indemnify the investor if there is non-compliance with defined loan origination or documentation standards, including fraud, negligence or material misstatement in the loan documents.
−Removed: In addition, the Bank may have an obligation to repurchase a loan if the mortgagor has defaulted early in the loan term or may be required to return profits made should the loan prepay within a short period.
−Removed: The potential repurchase period varies by investor but can be up to approximately twelve months after sale of the loan to the investor.
−Removed: Mortgages subject to recourse are collateralized by single-family residential properties, have loan-to-value ratios of 80% or less or have private mortgage insurance.
−Removed: In certain instances, the Bank may provide equity loans (second position financing) in combination with residential first mortgage lending for purchase money and refinancing purposes.
−Removed: The Bank maintains a reserve for residential real estate loans recourse obligations in Other liabilities on the Consolidated Balance Sheet.
−Removed: The Bank enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e., rate lock commitments).
−Removed: Such rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives.
−Removed: The Bank manages the interest rate risk on rate lock commitments by entering into forward sale contracts of mortgage-backed securities, whereby the Bank obtains the right to deliver securities to investors in the future at a specified price.
−Removed: Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in other income.
−Removed: To protect against the price risk inherent in residential mortgage loan commitments, the Bank utilizes a combination of either or both “best efforts” and “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decrease in the values of loans that would result from the exercise of the derivative loan commitments.
−Removed: Under a “best efforts” contract, the Bank commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor and the investor commits to a price at which it will purchase the loan from the Bank if the loan to the underlying borrower closes.
−Removed: The Bank protects itself from changes in interest
−Removed: rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that the buyer/investor has assumed the interest rate risk on the loan.
−Removed: 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.
−Removed: The market values of 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.
−Removed: The Bank determines the fair value of interest rate lock commitments and the associated gain 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.
−Removed: Under a “mandatory delivery” contract, the Bank commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date.
−Removed: If the Bank 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.
−Removed: 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.
−Removed: As described above, the Bank 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).
Loans are secured primarily by duly recorded first deeds of trust or mortgages.
3 unchanged sentences
The general terms and underwriting standards for each type of commercial real estate and construction loan are incorporated into the Bank’s lending policies.
−Removed: These policies are analyzed periodically by management, and the policies are reviewed and re-approved annually by either the Board of Directors or a designated committee thereof.
+Added: These policies are analyzed periodically by management, and the policies are reviewed and re-approved periodically by either the Board of Directors (the "Board") or a designated committee thereof.
The Bank’s loan policies and practices described in this report are subject to periodic change, and each guideline or standard is subject to waiver or exception in the case of any particular loan, by the appropriate officer or committee, in accordance with the Bank’s loan policies.
7 unchanged sentences
Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses and condominiums.
−Removed: Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.
+Added: Residential land ADC loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination.
Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner-user commercial properties.
1 unchanged sentence
Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months.
−Removed: Loan-to-value, or LTV, ratios, with few exceptions, are maintained consistent with or below supervisory guidelines.
+Added: LTV ratios, with few exceptions, are maintained consistent with or below supervisory guidelines.
Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect.
−Removed: Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer.
+Added: The Company's policies also provide that each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer.
Prior to an advance, to justify the draw requisition, the Bank or its contractor inspects the project to determine that the work has been completed.
1 unchanged sentence
Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan.
−Removed: The debt service coverage ratio is ordinarily at least 1.0 to 1.15.
−Removed: 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.
+Added: The DSCR is ordinarily at least 1.0 to 1.15.
+Added: As part of the underwriting process, DSCRs are stress tested assuming a 200 basis point increase in interest rates from their current levels.
Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower.
The preferred term is between 5 to 7 years, with amortization to a maximum of 25 years.
−Removed: Personal guarantees are generally received from the principals on commercial real estate loans, and only in instances where the loan-to-value is sufficiently low and the debt service coverage is sufficiently high is consideration given to either limiting or not requiring personal recourse.
−Removed: Updated appraisals for real estate secured loans are obtained as necessary and appropriate to borrower financial condition, project status, loan terms and market conditions.
−Removed: The Company’s loan portfolio includes acquisition, development and construction real estate loans including both investment and owner occupied projects.
+Added: Personal guarantees are generally received from the principals on commercial real estate loans, and only in instances where the LTV is sufficiently low and the debt service coverage is sufficiently high is consideration given to either limiting or not requiring personal recourse.
+Added: Updated appraisals for real estate secured loans are obtained based on factors relating to borrower financial condition, project status, loan terms and market conditions.
+Added: The Company’s loan portfolio includes ADC real estate loans including both investment and owner occupied projects.
ADC loans amounted to $1.6 billion at December 31, 2023.
8 unchanged sentences
When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan.
+Added: although as with all lending activities the Company remains exposed to credit risk.
The Company does not significantly utilize interest reserves in other loan products.
7 unchanged sentences
If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves.
−Removed: As of December 31, 2022, notwithstanding increased supply of units, multi-family commercial real estate leasing in the Bank’s market area has held up relatively well, particularly for well-located close-in projects.
−Removed: Overall, commercial real estate values have generally held up well, but we continue to be cautious of the cap rates at which some assets are trading.
−Removed: As part of its overall risk assessments, management carefully reviews the Bank’s loan portfolio and general economic and market conditions on a regular basis and will continue to adjust both quantitative and qualitative reserve factors as necessary.
+Added: As part of its overall risk assessments, management reviews the Bank’s loan portfolio and general economic and market conditions on a regular basis and will continue to adjust both quantitative and qualitative reserve factors as necessary.
Deposit services include business and personal checking accounts, Negotiable Order of Withdrawal ("NOW") accounts, tiered savings and money market accounts and time deposits with varying maturity structures and customer options.
A complete individual retirement account program is available.
−Removed: The Bank also participates in the IntraFi Network, LLC (“IntraFi”) Certificate of Deposit Account Registry Service (“CDARS”) and its Insured Cash Sweep (“ICS”) program, both of which function to assure full FDIC insurance for participating Bank customers.
+Added: The Bank also participates in the IntraFi Network, LLC ("IntraFi") Certificate of Deposit Account Registry Service ("CDARS") and its Insured Cash Sweep ("ICS") program, both of which function to provide greater FDIC insurance coverage for participating Bank customers.
The Bank also utilizes brokered deposit funds in its overall asset/liability management program.
−Removed: The Bank offers a full range of online banking services for both personal and business accounts and has a Mobile Banking application.
+Added: The Bank historically has offered a full range of online banking services for both personal and business accounts and has a Mobile Banking application.
+Added: In early 2024, the Bank launched a new online and mobile banking platform as the Bank seeks to further modernize its deposit offerings to its customers.
Other deposit services include cash management services, business sweep accounts, lockbox, remote deposit capture, account reconciliation services, merchant card services, safe deposit boxes and Automated Clearing House origination.
−Removed: After-hours depositories and ATM service are also available.
+Added: After-hours depositories and automated teller machine ("ATM") service are also available.
The Company and Bank maintain portfolios of short term investments and investment securities consisting primarily of U.S.
1 unchanged sentence
The Bank also owns equity investments related to membership in the Federal Reserve and the Federal Home Loan Bank of Atlanta ("FHLB").
−Removed: The Company’s assets also include equity investments in the form of common stock of two local banking companies.
−Removed: These are categorized as Other Assets and not accounted for in the Fixed Income Securities tables.
+Added: The Company’s securities also include equity investments in the form of common stock of two local banking companies.
+Added: These equity investments are categorized as Other Assets and not accounted for in the Fixed Income Securities tables.
The investment securities portfolio provides the following objectives:
−Removed: capital preservation, liquidity management, additional income to the Company and Bank in the form of interest and gain on sale opportunities, collateral to facilitate borrowing arrangements and assistance with meeting interest rate risk management objectives.
−Removed: The current Investment Policy limits the Bank to investments of high quality U.S.
+Added: capital preservation, liquidity management, additional income to the Company and Bank in the form of interest, collateral to facilitate borrowing arrangements and assistance with meeting interest rate risk management objectives.
+Added: The current Investment Policy primarily limits the Bank to investments of high quality U.S.
Treasury securities, U.S.
−Removed: agency securities and high grade municipal and corporate securities, including
−Removed: highly rated subordinated debentures of U.S.
−Removed: regulated banks.
−Removed: High risk investments and non-traditional investments are prohibited.
+Added: agency securities, government sponsored enterprise MBS and high grade municipal and corporate securities, with certain exceptions for the purchase of BBB- or non-rated subordinated debentures of U.S.
+Added: regulated banks following an analysis of credit worthiness.
+Added: High risk investments, including private label collateralized mortgage obligations rated AA and below or municipal or corporate bonds rated BBB and below, and non-traditional investments are prohibited.
Investment maturities are generally limited to ten to fifteen years, except as specifically approved by the Asset Liability Committee ("ALCO") and mortgage-backed pass-through securities, which may have final stated maturities of 30 years, with average lives generally not to exceed eight years.
−Removed: The Company and Bank have formalized an asset and liability management process and have a standing ALCO consisting of senior management overseen by the Board of Directors.
+Added: The Company and Bank have formalized an asset and liability management process and have a standing ALCO consisting of senior management overseen by the Board.
The ALCO operates under established policies and practices and a Committee Charter, which practices are updated and re-approved annually.
A typical ALCO meeting includes discussion of current economic conditions and balance sheet and other strategies, including interest rate trends and, the current balance sheet and earnings position, comparisons to budget, cash flow estimates, liquidity positions, liquidity stress tests (monthly), and funding alternatives as necessary, interest rate risk position (monthly), including derivative positions, capital positions of the Company and Bank, reviews (including independent reviews) of the investment portfolio of the Bank and Company and the approval of investment transactions.
−Removed: Additionally, monthly ALCO meetings may include reports and analysis of outside firms to enhance the Committee’s knowledge and understanding of various financial matters.
+Added: Additionally, ALCO meetings may include reports and analysis of outside firms to enhance the Committee’s knowledge and understanding of various financial matters.
Various other bank employees attend monthly committee meetings to build their understanding of all financial matters.
6 unchanged sentences
Further, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.
−Removed: Listed below are statistics on the primary geographic areas in which the Company operates published by the U.S.
−Removed: Census Bureau.
−Removed: Census Bureau publishes the Economic Census annually to reflect the ever-changing geographic areas.
−Removed: The Census Bureau uses the economic census data to benchmark annual, quarterly, and monthly estimates.
+Added: Listed below are statistics on the primary geographic areas in which the Company operates as published by the U.S.
+Added: Census Bureau and the Federal Reserve Economic Data.
+Added: Census Bureau publishes the Economic Census every five years and uses the Economic Census data to benchmark annual, quarterly, and monthly estimates.
The 2022 Economic Census ("Economic Census") for all geographic areas was published in January 2024.
4 unchanged sentences
Total employment in the region is approximately 3.4 million per the 2024 Bureau of Labor Statistics ("BLS") report.
−Removed: The unemployment rate has improved since 2021, going from a 3.7% unemployment rate to a 3.4% unemployment rate from the end of 2021 to the end of 2022 due substantially to the continued economic recovery from COVID-19.
+Added: The unemployment rate has decreased since 2022.
+Added: As of December 31, 2023 and 2022, the region had a 2.5% and 3.10% unemployment rate, respectively.
The Washington D.C.
metropolitan area contains a substantial federal workforce, as well as a variety of support industries that employ professionals such as attorneys, lobbyists, government contractors, real estate developers and investors, non-profit organizations and consultants.
−Removed: The Gross Regional Product (“GRP”) for the metropolitan area in 2021 was reported at $607 billion.
+Added: The Gross Regional Product ("GRP") for the metropolitan area in 2022 was reported at $660.6 billion, per the Federal Reserve Economic Data.
This figure can be heavily attributed to the federal government, but other significant sectors include professional and business services, education, healthcare, leisure and hospitality.
1 unchanged sentence
Transportation congestion and federal government spending levels remain threats to future economic development and quality of life in the area.
−Removed: Montgomery County, Maryland, with a total population of 1,064,843 as of 2023 and occupying an area of about 500 square miles, borders Washington, D.C.
+Added: Montgomery County, Maryland, with an estimated total population of 1,059,329 as of 2024 and occupying an area of about 500 square miles, borders Washington, D.C.
to the north and is roughly 30 miles southwest of Baltimore.
5 unchanged sentences
The unemployment rate in Montgomery County was 1.5% in November of 2023, based on BLS data.
−Removed: A highly educated population has contributed to favorable median household income of $121,042 in 2023, placing it 18th in the nation based on median household income of counties with populations over 100,000.
−Removed: The number of households totaled 387,312 in 2023.
−Removed: According to the U.S.
−Removed: Economic Census, approximately 57.9% of the County’s residents in 2023 hold college or advanced degrees, placing
−Removed: the population of Montgomery County among the most educated in the nation.
+Added: A highly educated population has contributed to a favorable estimated median household income of $120,728 in 2024, placing it 25th in the nation based on median household income of counties with populations over 100,000.
+Added: The estimated number of households totaled 385,170 in 2024.
+Added: Economic Census anticipates 60.0% of the County’s residents in 2024 hold college or advanced degrees, placing the population of Montgomery County among the most educated in the nation.
Major areas of employment include a substantial technology sector, biotechnology, software development, a housing construction and renovation sector and legal, financial services, health care and professional services sectors.
2 unchanged sentences
Montgomery County is home to many major federal and private sector research and development and regulatory agencies, including the National Institute of Standards and Technology, the National Institutes of Health, National Oceanic and Atmospheric Administration, Naval Research and Development Center, Naval Surface Warfare Center, Nuclear Regulatory Commission, the Food and Drug Administration and the Walter Reed National Military Medical Center in Bethesda.
−Removed: Prince George’s County, Maryland, covers just under 500 square miles, with a total population of 966,689 as of 2023 and is located just east of Washington, D.C.
−Removed: In 2023, the county supported 342,253 households with median income of $94,507.
+Added: Prince George’s County, Maryland, covers just under 500 square miles, with an estimated total population of 951,786 as of 2024 and is located just east of Washington, D.C.
+Added: In 2024, the county has approximately 337,030 households with an estimated median income of $96,672.
The unemployment rate in the county was 1.9% in November of 2023 according to BLS.
3 unchanged sentences
According to survey data from the latest U.S.
−Removed: Economic Census, the 2023 population of the District of Columbia is 679,031, down from 717,189 in 2020.
−Removed: Median household income in 2023 was $104,110, above the national median of $73,503.
+Added: Economic Census, the 2024 estimated population of the District of Columbia is 679,947, down from 717,189 in 2020.
+Added: The estimated median household income in 2024 is $98,916, above the national median of $75,874.
The growth of residents in the city is due partially to improvements in the city’s services and to the many housing options available, ranging from grand old apartment buildings to Federal era town homes to the most modern condominiums.
−Removed: As of 2023, the number of households had grown to 313,594 units.
+Added: The number of households is expected to grow to an estimated 310,328 units in 2024.
The federal government and its employees are a major factor in the economy and support a dynamic business community.
6 unchanged sentences
Fairfax County and Fairfax City, Virginia, are just across the Potomac River and west from Washington, D.C.
−Removed: and are a large, affluent jurisdiction with a population of 1,170,569 as of 2023.
+Added: and are a large, affluent jurisdiction with an estimated population of 1,166,795 as of 2024.
Fairfax County covers about 395 square miles.
−Removed: Fairfax County and Fairfax City are one of the leading technology centers in the US, and are a thriving residential as well as business center with 417,425 households.
−Removed: The county and city are among the most affluent in the country with median annual household income of $269,257 as of 2023, placing them 4th in the nation for counties with a population over 100,000.
+Added: Fairfax County and Fairfax City are one of the leading technology centers in the US, and are a thriving residential as well as business center with approximately 415,918 households.
+Added: The county and city are among the most affluent in the country with an estimated median annual household income of $282,714 in 2024, placing them 4th in the nation for counties with a population over 100,000.
Unemployment was 2.5% in November of 2023 according to BLS.
−Removed: The population is highly educated, with about 62.1% of residents over 25 years of age holding at least a bachelor’s degree as of 2023.
+Added: The population is highly educated, with an expected 63.9% of residents over 25 years of age holding at least a bachelor’s degree as of 2024.
Major companies headquartered in the county, which are also major employers, include Capital One Financial, DXC Technology, Gannett, General Dynamics, Hilton Hotels, Leidos, Sallie Mae and Inova Health Systems.
The county is also home to several federal entities including the Central Intelligence Agency, Fort Belvoir and a major facility of the Smithsonian Institution.
−Removed: Arlington County, Virginia, has a population of 236,413 as of 2023.
+Added: Arlington County, Virginia, has an estimated population of 239,054 as of 2024.
The county is made up of 26 square miles and is situated just west of Washington, D.C., directly across the Potomac River.
−Removed: There are approximately 110,094 households with a median household income of $131,529 as of November 2022, placing it 8th in the nation for counties with a population over 100,000.
+Added: There are approximately 109,463 households with an estimated median household income of $134,727 for 2024, placing it 7th in the nation for counties with a population over 100,000.
Significant private sector employers include Amazon, Deloitte, Lockheed Martin, Virginia Hospital Center and Marriott International, Inc.
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rate of 3.5%.
−Removed: The population is highly educated, with about 75.3% of residents over 25 years of age holding at least a bachelor’s degree as of 2023.
+Added: The population is highly educated, with an expected 76.3% of residents over 25 years of age holding at least a bachelor’s degree in 2024.
Alexandria, Virginia is a city with an estimated population of 157,427 as of 2024.
The city is made up of just over 15 square miles and sits on the west bank of the Potomac River just south of Arlington, Virginia.
−Removed: There are approximately 74,161 households with a median household income of $118,406 as of 2023.
+Added: There are approximately 74,047 households with an estimated median household income of $109,357 as of 2024.
The unemployment rate was 2.4% at November of 2023 according to BLS.
−Removed: The population is highly educated, with over 64.8% of residents over 25 years of age holding at least a bachelor’s degree as of 2023.
+Added: The population is highly educated, with an expected 65.2% of residents over 25 years of age holding at least a bachelor’s degree as of 2024.
Loudoun County, Virginia covers about 520 square miles of land 25 miles northwest of Washington, D.C.
−Removed: and boasts a population of 439,045.
−Removed: Median household income, according to 2023 Economic Census Bureau data, is $166,963, which is more than twice the national median household income of $73,503 and highest of any county in the nation (regardless of population).
−Removed: There are 142,692 households in Loudoun County.
+Added: and boasts an estimated population of 442,613 as of 2024.
+Added: The estimated median household income in 2024, according to Economic Census data, is $165,244, which is more than twice the national median household income of $75,874 and highest of any county in the nation (regardless of population).
+Added: There are approximately 143,652 households in Loudoun County.
The unemployment rate was 2.6% at November of 2023 according to BLS.
−Removed: The population is highly educated, with about 62.2% of residents over 25 years of age holding at least a
−Removed: bachelor’s degree as of 2023.
+Added: The population is highly educated, with an expected 64.3% of residents over 25 years of age holding at least a bachelor’s degree as of 2024.
The major private employers in the county include United Airlines, Inc., Raytheon Company, Loudoun Hospital Center and Swissport U.S.A., Inc.
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Among the advantages that many of these large institutions have over the Bank are their ability to finance extensive advertising campaigns, maintain extensive branch networks, make larger technology investments and to directly offer certain services, such as international banking and trust services, which are not offered directly by the Bank.
+Added: In addition, following the banking sector stress of March 2023, some large banks had advantages in sourcing deposits due to the perceived stability of larger banks.
The Bank faces direct competition for loans from each of these institutions described above as well as from on-line lenders and other loan origination firms.
−Removed: Further, the greater capitalization of the larger institutions headquartered out-of-state allows for higher lending limits than the Bank, although the Bank’s current lending limit is quite favorable and able to accommodate the credit needs of most businesses in the Washington D.C.
+Added: Further, the greater capitalization of the larger institutions headquartered out-of-state allows for higher lending limits than the Bank, although we believe the Bank’s current lending limit is sufficient for our business and able to accommodate the credit needs of most businesses in the Washington D.C.
metropolitan area, which distinguishes it from most community banks in the market area.
Some of these competitors have other advantages, such as tax exemption in the case of credit unions and, to some extent, lesser regulation in the case of finance companies and many nontraditional competitors.
−Removed: As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), enacted in July 2010, regulation of all financial firms was heightened, although new legislation in 2018 did amend some of the prior law and eased bank regulatory pressures, prompting some de novo activity but mostly driving further consolidation.
+Added: As a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), enacted in July 2010, regulation of all financial firms was heightened, although new legislation in 2018 did amend some of the prior law, prompting some de novo activity but mostly driving further consolidation.
Under current law, unlimited interstate de novo branching is available to all state and federally chartered banks.
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We strive to build and maintain a high-performing culture and be an “employer of choice” by creating a work environment that attracts and retains outstanding, engaged employees who embody our company mantra of “Relationships FIRST.”
−Removed: The Board of Directors oversees the strategic management of our human capital resources.
+Added: The Board oversees the strategic management of our human capital resources.
The Human Resources Department’s day-to-day responsibility is managing our human capital resources.
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As of December 31, 2023, we employed 452 full and part time employees across our 17 locations, which includes our branch offices, corporate offices and lending and other operating facilities.
−Removed: During 2022, we hired 105 employees.
−Removed: voluntary turnover rate was 17%, 16% and 11%, respectively in 2022, 2021 and 2020.
+Added: During 2023, we hired 89 employees and also implemented a reduction-in-force early in the third quarter of 2023 as part of its expense-saving initiatives.
+Added: Our voluntary turnover rate was 12%, 17% and 16%, respectively in 2023, 2022 and 2021.
None of our employees are represented by a union or subject to a collective bargaining agreement.
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In addition to salaries, these programs include annual bonuses, stock awards, a 401(k) Plan with an employer matching contribution, healthcare and insurance benefits, health savings accounts, flexible spending accounts, vacation and sick leave, family leave and an employee assistance program.
−Removed: We provide pay levels and pay opportunities that are internally fair, externally competitive and cost-effective.
+Added: We provide pay levels and pay opportunities that are designed to be internally fair, externally competitive and cost-effective.
To determine competitive market compensation levels, we use market surveys that report salary data of companies with similar positions, asset size and geographical location.
To further align base pay with experience and individual performance, we annually review our salary structure and ranges to keep pace with changes in the marketplace.
−Removed: With the support of independent third-party experts in this field, we review the compensation of employees to ensure consistent pay practices by conducting a pay equity analysis.
−Removed: Our employees are not represented by any collective bargaining group.
+Added: With the support of independent third-party experts in this field, we review the compensation of employees and conduct a pay equity analysis as part of our efforts to ensure consistent pay practices.
Employee Engagement:
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Learning and Development:
−Removed: We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that empowers, intellectually grows and professionally develops our colleagues.
+Added: We invest in the growth and development of our employees by providing a multi-dimensional approach to learning that is designed to empower, intellectually grow and professionally develop our colleagues.
Our employees receive continuing education courses that are relevant to the banking industry and their job function.
We also offer leadership and customer service training.
−Removed: These resources provide employees with the skills they need to achieve their career goals, build management skills and become leaders within our Company.
+Added: These resources help to provide employees with the skills they need to achieve their career goals, build management skills and become leaders within our Company.
Employees have access to more than 5,000 on-demand learning solutions to help them learn new skills and advance in their career as well as certificate programs built around specific job roles.
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This summary is not intended to be an exhaustive description of the statutes or regulations applicable to our business.
−Removed: Supervision, regulation, and examination of the Company by the regulatory agencies are intended primarily for the protection of depositors and the Deposit Insurance Fund ("DIF"), rather than our shareholders.
+Added: Supervision, regulation, and examination of the Company by the regulatory agencies are intended primarily for the protection of depositors and the Deposit Insurance Fund ("DIF"), rather than our shareholders or other investors.
The Company .
The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended ("BHC Act") and is subject to regulation and supervision by the FRB.
−Removed: The BHC Act and other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and actions, including regulatory enforcement actions for violations of laws and regulations and unsafe and
−Removed: unsound banking practices.
+Added: The BHC Act and other federal laws subject bank holding companies to restrictions on the types of activities in which they may engage, and to a range of supervisory requirements and actions, including regulatory enforcement actions for violations of laws and regulations and unsafe and unsound banking practices.
As a bank holding company, the Company is required to file with the FRB an annual report and such other additional information as the FRB may require pursuant to the BHC Act.
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The FRB may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.
−Removed: The Gramm Leach-Bliley Act of 1999 ("GLB Act") allows a bank holding company or other company to certify its status as a financial holding company, which would allow such company to engage in activities that are financial in nature, that are incidental to such activities or are complementary to such activities.
−Removed: The GLB Act enumerates certain activities that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities and engaging in merchant banking under certain restrictions.
+Added: The Gramm Leach-Bliley Act of 1999 ("GLB Act") allows a bank holding company satisfying criteria related to its and its bank subsidiaries' status as well capitalized and well managed and the bank's under the Community Reinvestment Act to certify its status as a financial holding company, which would allow such company to engage in activities that are financial in nature, that are incidental to such activities or are complementary to such activities.
+Added: The GLB Act enumerates certain activities
+Added: that are deemed financial in nature, such as underwriting insurance or acting as an insurance principal, agent or broker, underwriting, dealing in or making markets in securities and engaging in merchant banking under certain restrictions.
It also authorizes the FRB to determine by regulation what other activities are financial in nature or incidental or complementary thereto.
The Company has not elected financial holding company status.
−Removed: The BHC Act and the Federal Deposit Insurance Act ("FDIA") require a bank holding company to serve as a source of financial and managerial strength to its bank subsidiaries.
−Removed: As a result of a bank holding company's source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinated capital or other instruments which qualify as capital under bank regulatory rules.
+Added: Federal Reserve policy and regulation and the Federal Deposit Insurance Act ("FDIA") require a bank holding company to serve as a source of financial and managerial strength to its bank subsidiaries.
+Added: As a result of a bank holding company's source of strength obligation, a bank holding company may be required to provide funds to a bank subsidiary in the form of subordinated capital or other instruments which qualify as capital under bank regulatory rules, including at times that the bank holding company might otherwise determine not to provide support.
Any loans from the holding company to such subsidiary banks likely would be unsecured and subordinated to such bank’s depositors and perhaps to other creditors of the Bank.
+Added: If a bank holding company commits to a U.S.
+Added: federal banking agency that it will maintain the capital of its bank subsidiary, whether in response to the source-of-strength authority or other regulatory measures, that commitment will be assumed by the bankruptcy trustee for the bank holding company if it commences bankruptcy proceedings, and the bank will be entitled to priority payment in respect of that commitment, ahead of other creditors of the bank holding company.
In addition, where a bank holding company has more than one FDIC-insured bank or thrift subsidiary, each of the bank holding company's subsidiary FDIC-insured depository institutions is responsible for losses to the FDIC as a result of an affiliated depository institution's failure.
3 unchanged sentences
The FRB has adopted an exception to this approval requirement for well-capitalized bank holding companies that meet certain conditions.
+Added: In addition, in certain circumstances a bank holding company’s repurchases of its common stock are subject to prior notice or supervisory non-objection under policies or supervisory expectations of the FRB.
Redemptions of equity in the form of preferred stock are generally subject to a prior approval requirement, and the capital conservation buffer requirement can also restrict the Company’s ability to engage in repurchases of its regulatory capital instruments as described below under “Capital Adequacy.”
−Removed: As a Maryland corporation, the Company is subject to additional limitations and restrictions.
+Added: As a Maryland corporation, the Company is subject to additional requirements, limitations and restrictions.
For example, state law restrictions include limitations and restrictions relating to indemnification of directors, distributions to shareholders, transactions involving directors, officers or interested shareholders, maintenance of books, records, minutes, borrowing and the observance of corporate formalities.
−Removed: The Bank is a Maryland chartered commercial bank and a member of the Federal Reserve and a state member bank, whose accounts are insured by the DIF of the FDIC up to the maximum legal limits of the FDIC.
+Added: The Bank is a Maryland chartered commercial bank and a member of the Federal Reserve and a state member bank, whose accounts are insured by the Deposit Insurance Fund ("DIF") of the FDIC up to the maximum legal limits of the FDIC.
The Bank is subject to regulation, supervision and regular examination by the State of Maryland Office of Financial Regulation and the FRB.
The regulations of these various agencies govern most aspects of the Bank’s business, including required reserves against deposits, loans, investments, mergers and acquisitions, borrowing, dividends and location and number of branch offices.
−Removed: The laws and regulations governing the Bank generally have been promulgated to protect depositors and the DIF and not for the purpose of protecting shareholders.
+Added: The laws and regulations governing the Bank generally have been promulgated to protect depositors and the DIF and not for the purpose of protecting shareholders or other investors.
Commercial banks, savings and loan associations and credit unions are generally able to engage in interstate banking or acquisition activities.
1 unchanged sentence
Metropolitan area can, subject to limited restrictions, acquire or merge with a bank in another jurisdiction and can branch de novo in any jurisdiction.
−Removed: Banking is a business, which depends on interest rate differentials.
−Removed: In general, the difference between the interest paid by a bank on its deposits and its other borrowings and the interest received by a bank on loans extended to its customers and on securities held in its investment portfolio constitutes the major portion of the Bank’s earnings.
−Removed: Thus, the earnings and growth of the Bank are subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the FRB, which regulates the supply of money through various means including open market dealings in United States government securities.
−Removed: The nature and timing of changes in such policies and their impact on the Bank cannot be predicted.
Subsidiary banks of a bank holding company are subject to certain restrictions imposed by the Federal Reserve Act on any extensions of credit to the bank holding company or any of its subsidiaries or investments in the stock or other securities thereof, and on the taking of such stock or securities as collateral for loans to any borrower.
16 unchanged sentences
Certain reciprocal deposits of up to the lesser of $5 billion or 20% of an institution’s deposits are excluded from the definition of brokered deposits, where the institution is "well-capitalized" and has a composite rating of 1 or 2.
−Removed: We have used brokered deposits in the past, and we intend to continue to use brokered deposits as one of our funding sources to support future growth.
As of December 31, 2023, brokered deposits represented approximately 29% of our total deposits.
−Removed: There are risks associated with using brokered deposits.
−Removed: In order to continue to maintain our level of brokered deposits, we may be forced to pay higher interest rates than those contemplated by
−Removed: our asset-liability pricing strategy.
−Removed: In addition, banks that become less than "well-capitalized" under applicable regulatory capital requirements may be restricted in their ability to accept or renew, or prohibited from accepting or renewing, brokered deposits.
−Removed: If this funding source becomes more difficult to access, we will have to seek alternative funding sources in order to continue to fund our growth.
−Removed: This may include increasing our reliance on FHLB borrowing, attempting to attract additional non-brokered deposits and selling loans or investment securities.
−Removed: There can be no assurance that brokered deposits will be available, or if available, sufficient to support our continued growth.
−Removed: The unavailability of a sufficient volume of brokered deposits could have a material adverse effect on our business, financial condition and results of operations.
+Added: In addition, banks that become less than "well-capitalized" under applicable regulatory capital requirements may be restricted in their ability to accept or renew, or prohibited from accepting or renewing, brokered deposits, and less than "well capitalized" banks also are subject to the interest rate restrictions on deposits.
Bank Secrecy Act .
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The FRB and the other federal banking agencies have adopted risk-based and leverage capital adequacy requirements, pursuant to which they assess the adequacy of capital in examining and supervising banks and bank holding companies and in analyzing bank regulatory applications.
−Removed: Risk-based capital requirements determine the adequacy of capital based on the risk inherent in various classes of assets and off-balance sheet items.
+Added: Risk-based capital requirements assign different capital requirements to various classes of assets and off-balance sheet items based on standardized supervisory measures of risk.
The Dodd-Frank Act additionally requires capital requirements to be countercyclical so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, consistent with safety and soundness.
2 unchanged sentences
(ii) required that most adjustments to regulatory capital measures be made to CET1 and not to the other components of capital;
−Removed: (iii) expanded the scope of the adjustments to capital that may be made as compared to existing regulations;
+Added: expanded the scope of the adjustments to capital that may be made as compared to prior regulations;
and (iv) specified that Tier 1 capital consists of CET1 and “Additional Tier 1 capital” instruments meeting specified requirements.
2 unchanged sentences
The Basel III Rules require institutions to maintain:
−Removed: (i) a minimum ratio of CET1 to risk-weighted assets of 4.5% plus a “capital conservation buffer” of 2.5% or 7.0%;
−Removed: (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0% plus the capital conservation buffer or 8.5%;
−Removed: (iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of 8.0% plus the capital conservation buffer or 10.5%;
+Added: (i) a minimum ratio of CET1 to risk-weighted assets of 4.5% plus a “capital conservation buffer” of 2.5% for an overall effective requirement of 7.0%;
+Added: (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0% plus the capital conservation buffer for an overall effective requirement of 8.5%;
+Added: (iii) a minimum ratio of Total (Tier 1 plus Tier 2) capital to risk-weighted assets of 8.0% plus the capital conservation buffer for an overall effective requirement of 10.5%;
and (iv) a minimum leverage ratio of 4%, calculated as the ratio of Tier 1 capital to balance sheet exposures plus certain off-balance sheet exposures (computed as the average of the month-end ratios each month during a calendar quarter).
−Removed: Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer face constraints on their ability to pay dividends, effect equity repurchases and pay discretionary bonuses to executive officers, which constraints vary based on the amount of the shortfall.
+Added: Banking institutions with a risk-based ratio above the minimum but below the capital conservation buffer face constraints on their ability to pay dividends, effect equity repurchases and pay discretionary bonuses to executive officers, which constraints vary based on the amount of the shortfall, and the institution's "eligible retained income" (that is, the greater of (i) net income for the preceding four quarters, net of distributions and associated tax effects not reflected in net income, and (ii) average net income over the preceding four quarters).
The Basel III Rules provide for the manner of calculating risk-weighted assets, including the recognition of credit risk mitigation, such as financial collateral and a range of eligible guarantors.
2 unchanged sentences
Our state and federal regulators have the discretion to require us to maintain higher capital levels based upon our concentrations of loans, the risk of our lending or other activities, the performance of our loan and investment portfolios and other factors.
−Removed: Failure to maintain such higher capital expectations could result in a lower composite regulatory rating, which would impact our deposit insurance premiums and could affect our ability to borrow and costs of borrowing and could result in additional or more severe enforcement actions.
+Added: Failure to maintain such higher capital in accordance with supervisory expectations could result in a lower composite regulatory rating, which would impact our deposit insurance premiums and could affect our ability to borrow and costs of borrowing and could result in additional or more severe enforcement actions.
In respect of institutions with high concentrations of loans in areas deemed to be higher risk, or during periods of significant economic stress, regulators may require an institution to maintain a higher level of capital and/or to maintain more stringent risk management measures than those required by these regulations.
−Removed: In December 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord, generally referred to as “Basel IV.” The Basel Committee on Banking Supervision stated that a key objective of the revisions incorporated into the framework is to reduce excessive variability of risk-weighted assets ("RWA"), which will be accomplished by enhancing the robustness and risk sensitivity of the standardized approaches for credit risk and operational risk, which will facilitate the comparability of banks’ capital ratios, constraining the use of internally modeled approaches and complementing the risk-weighted capital ratio with a finalized leverage ratio and a revised and robust capital floor.
−Removed: Although it is uncertain at this time, it is anticipated that some, if not all, of the Basel IV revisions may be incorporated into the capital requirements framework applicable to the Company and the Bank.
−Removed: In 2016, the Financial Accounting Standards Board ("FASB") issued the current and expected credit losses model (“CECL”), which became applicable to us on January 1, 2020.
+Added: In December 2017, the Basel Committee on Banking Supervision published the last version of the Basel III accord, generally referred to as "Basel III Endgame." On July 27, 2023, the federal banking regulators proposed revisions to the Basel III Rules to implement the Basel Committee’s 2017 standards and make other changes to the Basel III Rules.
+Added: The proposal introduces revised credit risk, equity risk, operational risk, credit valuation adjustment risk and market risk requirements, among other changes.
+Added: However, the revised capital requirements of the proposed rule would not apply to the Company or the Bank because they have less than $100 billion in total consolidated assets and trading assets and liabilities below the threshold for market risk requirements.
+Added: In 2016, the Financial Accounting Standards Board ("FASB") issued the current expected credit losses model ("CECL"), which became applicable to us on January 1, 2020.
CECL required financial institutions to estimate and establish a provision for expected credit losses over the lifetime of the asset, at the origination or the date of acquisition of the asset, as opposed to reserving for incurred or probable losses through the balance sheet date.
3 unchanged sentences
The cumulative amount that is not recognized in regulatory capital will be phased in at 25% per year beginning January 1, 2022.
−Removed: We have elected to adopt the March 2020 interim final rule.
+Added: We have elected to adopt the option provided in the March 2020 interim final rule.
Prompt Corrective Action .
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(iii) the institution is in an unsafe or unsound condition;
−Removed: (iv) there is a willful violation of a cease-and-desist order;
+Added: there is a willful violation of a cease-and-desist order;
(v) the institution is unable to pay its obligations in the ordinary course of business;
31 unchanged sentences
(v) require the CFPB to clarify how TILA-RESPA Integrated Disclosure applies to mortgage assumption transactions and construction-to-permanent home loans as well as outline certain liabilities related to model disclosure use;
−Removed: (vi) revise treatment of HVCRE exposures;
+Added: (vi) revise treatment of high volatility CRE ("HVCRE") exposures;
and (vii) create the simplified Community Bank Leverage Capital Ratio.
12 unchanged sentences
As of December 31, 2023, our total assets were $11.7 billion.
−Removed: Therefore, the Bank is subject to ongoing (rather than periodic) supervision, targeted examinations, more frequent loan portfolio reviews and
−Removed: other enhanced supervision.
+Added: Therefore, the Bank is subject to ongoing (rather than periodic) supervision, targeted examinations, more frequent loan portfolio reviews and other enhanced supervision.
In particular, the FRB and the FDIC focus on the soundness of the Bank’s risk management framework and capabilities, given the greater complexity and impact of the Bank’s risks as a larger institution.
The Bank is also required to provide information to the CFPB on a quarterly basis, and is subject to periodic examinations by the CFPB focused on compliance with consumer laws and regulations, as a banking organization over $10 billion in total assets.
−Removed: The changes resulting from the Dodd-Frank Act and CFPB rulemakings and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, including non-qualified mortgage loans, require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability.
+Added: The changes resulting from the Dodd-Frank Act and CFPB rule making and enforcement policies may impact the profitability of our business activities, limit our ability to make, or the desirability of making, certain types of loans, including non-qualified mortgage loans, require us to change our business practices, impose upon us more stringent capital, liquidity and leverage ratio requirements or otherwise adversely affect our business or profitability.
The changes may also require us to dedicate significant management attention and resources to evaluate and make necessary changes to comply with the new statutory and regulatory requirements.
−Removed: The CFPB has concentrated much of its rulemaking efforts on reforms related to residential mortgage transactions.
+Added: The CFPB has engaged in a number of rulemakings related to residential mortgage transactions.
The CFPB has issued rules related to a borrower’s ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, requirements for high-cost mortgages, appraisal and escrow standards and requirements for higher-priced mortgages.
1 unchanged sentence
These rules include significant regulatory and compliance changes and are expected to have a broad impact on the financial services industry.
−Removed: We recently announced that we will cease originating residential mortgages for sale in the first quarter of 2023 (see Note 26 of the Consolidated Financial Statements for further details).
−Removed: While we believe that this decision is appropriate given the challenged nature of the business, we cannot be certain that we will be able to maintain or increase the volume or percentage of revenue or net income previously produced by the residential mortgage business.
−Removed: The rule implementing the Dodd-Frank Act requirement that lenders determine whether a consumer has the ability to repay a mortgage loan, established certain minimum requirements for creditors when making ability to pay determinations and established certain protections from liability for mortgages meeting the definition of “qualified mortgages.” Generally, the rule applies to all consumer-purpose, closed-end loans secured by a dwelling including home-purchase loans, refinances and home equity loans – whether a first or subordinate lien.
−Removed: The rule does not cover, among other things:
−Removed: home equity lines of credit or other open-end credit;
−Removed: temporary or “bridge” loans with a term of 12 months or less, such as a loan to finance the initial construction of a dwelling;
−Removed: a construction phase of 12 months or less of a construction-to-permanent loan;
−Removed: and business-purpose loans, even if secured by a dwelling.
−Removed: The rule afforded greater legal protections for lenders making qualified mortgages that are not “higher priced.” Qualified mortgages must generally satisfy detailed requirements related to product features, underwriting standards, and a points and fees requirement whereby the total points and fees on a mortgage loan cannot exceed specified amounts or percentages of the total loan amount.
−Removed: Mandatory features of a qualified mortgage include:
−Removed: (1) a loan term not exceeding 30 years;
−Removed: and (2) regular periodic payments that do not result in negative amortization, deferral of principal repayment or a balloon payment.
−Removed: Further, the rule clarified that qualified mortgages do not include “no-doc” loans and loans with negative amortization, interest-only payments or balloon payments.
−Removed: The rule created special categories of qualified mortgages originated by certain smaller creditors.
−Removed: To the extent that we seek to make qualified mortgages, we are required to comply with these rules, subject to available exclusions.
−Removed: Our business strategy, product offerings and profitability may change as the rule is interpreted by the regulators and courts.
−Removed: In December 2020, the CFPB issued a final rule to create a new category of seasoned qualified mortgages (“Seasoned QMs”), which are presumed to meet the ability-to-pay requirements established by the Dodd-Frank Act.
−Removed: To be considered a Seasoned QM, loans would have to be first-lien, fixed-rate mortgages that have met certain performance requirements over a 36-month seasoning period.
−Removed: Covered transactions would also have to be held on the creditor’s portfolio during the seasoning period, comply with general restrictions on product features and points and fees and meet certain underwriting requirements (including verification of the consumer’s debt-to-income ratio or residual income at origination).
−Removed: The rule took effect on February 27, 2021, but compliance was not mandatory until July 1, 2021.
+Added: Because the Company ceased originating residential real estate mortgage loans and completed residual origination and sales activities during the year ended December 31, 2023, these rules generally do not have a significant effect on the Company’s operations.
+Added: On October 19, 2023, the CFPB proposed a new rule that would require a provider of payment accounts or products, such as a bank, to make data available to consumers upon request regarding the products or services they obtain from the provider.
+Added: Any such data provider would also have to make such data available to third parties, with the consumer’s express authorization and through an interface that satisfies formatting, performance and security standards, for the purpose of such third parties providing the consumer with financial products or services requested by the consumer.
+Added: Data that would be required to be made available under the rule would include transaction information, account balance, account and routing numbers, terms and conditions, upcoming bill information, and certain account verification data.
+Added: The proposed rule is intended to give consumers control over their financial data, including with whom it is shared, and encourage competition in the provision of consumer financial products or services.
+Added: For banks with at least $850 million and less than $50 billion in total assets, compliance with the proposed rule’s requirements would be required approximately two and a half years after adoption of the final rule.
+Added: On January 17, 2024, the CFPB proposed significant reforms to the regulatory framework governing overdraft practices applicable to banks such as the Bank that have more than $10 billion in assets.
+Added: The proposed rule would modify or eliminate several long-standing exclusions from requirements generally applicable to consumer credit that previously exempted certain overdraft practices.
+Added: The proposal would also generally require banks to restructure many overdraft fees, overdraft lines of credit, and other overdraft practices as separate consumer credit accounts that would be subject to those requirements.
+Added: These changes to the regulatory framework could result in the Bank, among other things, facing higher compliance costs in charging overdraft fees, experiencing a decreased ability to recover amounts extended as overdraft protection, reducing the availability of overdraft protection, and/or charging lower overdraft fees.
Fair and Responsible Banking.
5 unchanged sentences
Department of Justice and state attorneys general.
−Removed: Financial Privacy .
+Added: Financial Privacy and Cybersecurity .
Under the Federal Right to Privacy Act of 1978, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, financial institutions are required to disclose their policies for collecting and protecting confidential information.
1 unchanged sentence
Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing through electronic mail to consumers.
+Added: The federal banking regulators regularly issue guidance regarding cybersecurity intended to enhance cyber risk management standards among financial institutions.
+Added: A financial institution is expected to establish multiple lines of defense and to ensure their risk management processes address the risk posed by potential threats to the institution.
+Added: A financial institution’s management is expected to maintain sufficient processes to effectively respond and recover the institution’s operations after a cyberattack.
+Added: A financial institution is also expected to develop appropriate processes to enable recovery of data and business operations if a critical service provider of the institution falls victim to this type of cyberattack.
+Added: The Bank has adopted an information security program that has been approved by the Board and reviewed by its regulators.
+Added: In November 2021, the federal bank regulatory agencies issued a final rule regarding notification requirements for banking organizations related to significant computer security incidents.
+Added: Under the final rule, a bank holding company, such as the Company, and a state member bank, such as the Bank, would be required to notify the Federal Reserve within 36 hours of any incident that has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to deliver services to a material portion of its customer base, jeopardize the viability of key operations of the banking organization, or pose a threat to the financial stability of the United States.
+Added: In July 2023, the SEC issued a final rule that requires registrants, such as the Company, to (i) report material cybersecurity incidents on Form 8-K within four business days of their being deemed material, (ii) disclose cybersecurity policies and procedures and governance practices, including at the board and management levels, in Form 10-K and (iii) present the disclosures in inline XBRL.
Community Reinvestment Act.
4 unchanged sentences
Additionally, we must publicly disclose the terms of certain CRA-related agreements.
−Removed: In September 2020, the FRB issued an advance notice of proposed rulemaking (“ANPR”) that invites public comment on an approach to modernize the FRB’s regulations that implement the CRA.
−Removed: The ANPR seeks feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access.
−Removed: The comment period for the ANPR ended on February 16, 2021.
+Added: In October 2023, the OCC, the Federal Reserve and the FDIC jointly issued a final rule to modernize the federal bank regulators’ regulations implementing the CRA.
+Added: The final rule introduces new tests under which the performance of banks with over $2 billion in assets will be assessed.
+Added: The new rule also includes data collection and reporting requirements, some of which are applicable only to banks with over $10 billion in assets, such as the Bank.
+Added: Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
Concentration and Risk Guidance.
22 unchanged sentences
The Dodd-Frank Act permanently increased the maximum deposit insurance amount for banks, savings institutions and credit unions to $250 thousand per depositor.
−Removed: The Dodd-Frank Act also broadened the base for calculating FDIC insurance
+Added: The Dodd-Frank Act also broadened the base for calculating FDIC insurance assessments.
Assessments are now based on a financial institution’s average consolidated total assets less tangible equity capital.
The Dodd-Frank Act required the FDIC to increase the reserve ratio of the DIF to 1.35% of insured deposits and eliminated the requirement that the FDIC pay dividends to insured depository institutions when the reserve ratio exceeds certain thresholds.
+Added: On November 16, 2023, the FDIC finalized a rule that imposes special assessments to recover the losses to the deposit insurance fund (“DIF”) resulting from the FDIC’s use, in March 2023, of the systemic risk exception to the least-cost resolution test under the Federal Deposit Insurance Act in connection with the receiverships of Silicon Valley Bank and Signature Bank.
+Added: The FDIC estimated in approving the rule that those assessed losses total approximately $16.3 billion.
+Added: The rule provides that this loss estimate will be periodically adjusted, which will affect the amount of the special assessment.
+Added: Under the rule, the assessment base is the estimated uninsured deposits that an insured depository institution reported in its December 31, 2022 Call Report, excluding the first $5 billion in estimated uninsured deposits.
+Added: Because the Bank had $4.4 billion in estimated uninsured deposits at December 31, 2022, the special assessment will not affect the Bank.
Increased Focus on Lending to Members of the Military .
9 unchanged sentences
Federal law also requires that covered transactions and certain other transactions listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to the bank as transactions with non-affiliates.
+Added: Incentive Compensation.
+Added: The Federal Reserve reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.
+Added: The findings of the supervisory initiatives are included in reports of examination.
+Added: Deficiencies are incorporated into the organization’s supervisory ratings, which can affect the organization’s ability to make acquisitions and take other actions.
+Added: Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk management control or governance processes, pose a risk to the organization’s safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
+Added: Under Federal Reserve guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, a banking organization’s incentive compensation arrangements should (i) provide incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose their organizations to imprudent risk, (ii) be compatible with effective internal controls and risk management and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.
+Added: In 2016, the U.S.
+Added: financial regulators, including the FRB and the SEC, proposed revised rules on incentive-based payment arrangements at specified regulated entities having at least $1 billion in total assets (including the Company and the Bank), but these proposed rules have not been finalized.
+Added: In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including NASDAQ, to require policies mandating the recovery or “clawback” of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding a required accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
+Added: The excess compensation would be based on the amount the executive officer would have received had the incentive-based compensation been determined using the restated financials.
+Added: NASDAQ’s listing standards pursuant to the SEC’s rule became effective October 2, 2023.
+Added: The Company’s clawback policy adopted in accordance with these listing standards is included as Exhibit 97.1.
+Added: Climate-Related and ESG Developments.
+Added: In recent years, federal, state and international lawmakers and regulators have increased their focus on financial institutions’ and other companies’ risk oversight, disclosures and practices in connection with climate change and other environmental, social and governance (“ESG”) matters.
+Added: For example, on March 21, 2022, the SEC issued a proposed rule on the enhancement and standardization of climate-related disclosures for investors.
+Added: The proposed rule would require public issuers, including the Company, to significantly expand the scope of climate-related disclosures in their SEC filings.
+Added: The SEC has also announced plans to propose rules to require enhanced disclosure regarding human capital management and board diversity for public issuers.
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.