EAGLE BANCORP INC 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 1. Report of Independent Registered Public Accounting Firm (PCAOB ID 173 ) Shareholders and the Board of Directors of Eagle Bancorp, Inc. Bethesda, Maryland Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Eagle Bancorp, Inc. (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework: (2013) issued by COSO. Basis for Opinions The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 81 Table of Contents Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Allowance and Provision for Credit Losses on Loans The allowance for credit losses (the “ACL”) is an accounting estimate of the expected credit losses in the loans held for investment portfolio over the life of an exposure (or pool of exposures). Expected credit losses are measured on a collective (pooled) basis for financial assets with similar risk characteristics. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans as described in Notes 1 and 4 of the consolidated financial statements. The measurement of expected credit losses is based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The Company estimates expected credit losses for loans using a methodology based on a loan-level probability of default (“PD”) and Loss Given Default (“LGD”) cash flow method that is applied using an exposure at default model. Cash flow projections are at the loan level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates. The expected prepayment speeds are based on historical internal data. These historical loss rates are then modified to incorporate a reasonable and supportable forecast of future losses at the portfolio segment level. The ACL estimation process for loans applies economic forecast scenarios over a reasonable and supportable period of 18 months and reverts back to a historical loss rate over twelve months on a straight-line basis over the loan's remaining maturity. These historical loss rates are then modified to incorporate a reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments. We determined that auditing the allowance for credit losses on loans was a critical audit matter because of the extent of auditor judgment applied and significant audit effort to evaluate the significant subjective and complex judgments made by management throughout the application processes, including the need to involve our valuation services specialists. The principal considerations resulting in our determination included the following: • Significant auditor judgment in evaluating the selection and application of the reasonable and supportable forecasts of economic variables and reasonableness of other model assumptions. • Significant auditor judgment and effort in evaluating the reasonableness of the qualitative adjustments used in the model computation. • Significant audit effort related to the completeness and accuracy of the high volume of data used to develop assumptions and in the model computation. Our audit procedures to address the critical audit matter included: Testing of internal controls over: • The Company’s significant model assumptions and judgments, reasonable and supportable forecasts, and information systems. • The Company’s preparation and review of the allowance for credit losses calculation, including the relevance and reliability of data used as the basis for adjustments related to the qualitative factors, the development and reasonableness of qualitative adjustments, and the mathematical accuracy and appropriateness of the overall calculation. • The completeness and accuracy of historical inputs, loan data used in the development of the PD and LGD assumptions, and the use of third-party data in the computation. 82 Table of Contents Substantively testing management’s estimate, which included: • Assessing the reasonableness of assumptions and judgments related to the PD and LGD rates, with the assistance of our valuation specialists, by comparing the resulting historical loss experience to a group of the Company’s peers. • Evaluating the reasonableness of management’s judgments in the selection and application of reasonable and supportable forecasts of economic variables. • Evaluating management’s process for developing the qualitative factors, including evaluating management’s judgments and assumptions for reasonableness. • Assessing the relevance and reliability of data used to develop qualitative factors. • Evaluating the mathematical accuracy of the PD and LGD rates on a pooled loan level with the assistance of valuation specialists, including the completeness and accuracy of loan data used in the model. Goodwill Impairment Analysis Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. As described in Note 7 to the consolidated financial statements, the Company’s consolidated goodwill balance was $104,168,000 as of December 31, 2023, which is allocated to the Company's single reporting unit. Goodwill is tested for impairment at least annually or on an interim basis if an event triggering an impairment assessment is determined to have occurred. In the second quarter of 2023, management determined that a triggering event had occurred as a result of a sustained decrease in the Company's stock price and as a result of a revision in the earnings outlook in comparison to budget for the remainder of 2023 due primarily to the economic uncertainty and market volatility resulting from the rising interest rate environment and the recent events in the banking sector. The Company performed a qualitative assessment and quantitative impairment test on its only reporting unit as of May 31, 2023, and determined that there was no impairment. The Company performed a second qualitative assessment and quantitative impairment test on its only reporting unit as of December 31, 2023, which resulted in a determination of no impairment. The quantitative goodwill impairment tests performed on the interim and annual basis involved a high degree of management judgment and the use of subjective assumptions in the determination of the fair value of a reporting unit. The Company used a combination of a risk-weighted income valuation methodology, comprising a discounted cash flow analysis, and a market valuation methodology, to determine the fair value of the reporting unit. The discounted cash flow analysis included the use of assumptions such as multi-year cash projections that rely on internal forecasts and discount rate. The market approach considers a combination of price to tangible book value and price to earnings, adjusted based on peer data for companies similar to the reporting unit. We determined that auditing the interim and annual quantitative goodwill impairment tests was a critical audit matter because of the extent of auditor judgment applied and audit effort to evaluate the significant judgment and assumptions made by management in the determination of the fair value of the reporting unit, including the need to use the firm valuation specialists. The principal considerations resulting in our determination included the significant auditor judgment and audit effort in evaluating the following: • The reasonableness of assumptions utilized in the discounted cash flow analysis including the discount rate and multi-year cash projections. • The reasonableness of assumptions utilized in the market approach including the selected peer data, and price to tangible book value and price to earnings assumptions. Our audit procedures to address the critical audit matter included: Testing of internal controls over: • Management’s review for completeness and accuracy of internal data, and evaluation of the relevance and reliability of external data used in the quantitative goodwill impairment tests. • Management’s evaluation of the reasonableness of the valuation methodologies, and significant assumptions used in the discounted cash flow analysis including the discount rate and multi-year cash projections. • Management’s selection and review of selected peer market data, and price to tangible book value and price to earnings assumptions. Substantively testing management’s estimate, which included: • Testing the completeness and accuracy of key financial internal data, and evaluation of the relevance and reliability of external data. 83 Table of Contents • With the assistance of firm valuation specialists, evaluating the appropriateness of valuation methodologies, and testing significant assumptions used in the discounted cash flow analysis including the discount rate and multi-year cash projections. • Testing the reasonableness of the peer group selected, and assumptions related to price to tangible book value and price to earnings assumptions. /s/ Crowe LLP We have served as the Company's auditor since 2021. Washington, D.C. February 29, 2024 84 Table of Contents EAGLE BANCORP, INC. Consolidated Balance Sheets (dollars in thousands, except share and per share data) December 31, 2023 December 31, 2022 Assets Cash and due from banks $ 9,047 $ 12,655 Federal funds sold 3,740 33,927 Interest-bearing deposits with banks and other short-term investments 709,897 265,272 Investment securities available-for-sale (amortized cost of $ 1,668,316 and $ 1,803,898 , respectively, and allowance for credit losses of $ 17 and $ 17 , respectively) 1,506,388 1,598,666 Investment securities held-to-maturity, net of allowance for credit losses of $ 1,956 and $ 766 , respectively (fair value of $ 901,582 and $ 968,707 , respectively) 1,015,737 1,093,374 Federal Reserve and Federal Home Loan Bank stock 25,748 65,067 Loans held for sale — 6,734 Loans 7,968,695 7,635,632 Less allowance for credit losses ( 85,940 ) ( 74,444 ) Loans, net 7,882,755 7,561,188 Premises and equipment, net 10,189 13,475 Operating lease right-of-use assets 19,129 24,544 Deferred income taxes 86,620 96,567 Bank-owned life insurance 112,921 110,998 Goodwill and intangible assets, net 104,925 104,233 Other real estate owned 1,108 1,962 Other assets 176,334 162,192 Total Assets $ 11,664,538 $ 11,150,854 Liabilities and Shareholders’ Equity Liabilities Deposits: Noninterest-bearing demand $ 2,279,081 $ 3,150,751 Interest-bearing transaction 997,448 1,138,235 Savings and money market 3,314,043 3,640,697 Time deposits 2,217,467 783,499 Total deposits 8,808,039 8,713,182 Customer repurchase agreements 30,587 35,100 Borrowings 1,369,918 1,044,795 Operating lease liabilities 23,238 29,267 Reserve for unfunded commitments 5,590 5,857 Other liabilities 152,883 94,332 Total Liabilities 10,390,255 9,922,533 Shareholders’ Equity Common stock, par value $ 0.01 per share; shares authorized 100,000,000 , shares issued and outstanding 29,925,612 and 31,346,903 , respectively 296 310 Additional paid-in capital 374,888 412,303 Retained earnings 1,061,456 1,015,215 Accumulated other comprehensive loss ( 162,357 ) ( 199,507 ) Total Shareholders’ Equity 1,274,283 1,228,321 Total Liabilities and Shareholders’ Equity $ 11,664,538 $ 11,150,854 See Notes to Consolidated Financial Statements. 85 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Income Years Ended December 31, (dollars in thousands, except per share data) 2023 2022 2021 Interest Income Interest and fees on loans $ 518,080 $ 358,967 $ 337,749 Interest and dividends on investment securities 54,660 51,481 23,205 Interest on balances with other banks and short-term investments 52,300 13,304 3,511 Interest on federal funds sold 287 861 31 Total interest income 625,327 424,613 364,496 Interest Expense Interest on deposits 257,544 83,261 27,772 Interest on customer repurchase agreements 1,218 356 51 Interest on borrowings 76,019 8,129 12,159 Total interest expense 334,781 91,746 39,982 Net Interest Income 290,546 332,867 324,514 Provision for (Reversal of) Credit Losses 31,536 266 ( 20,821 ) (Reversal of) Provision for Unfunded Commitments ( 267 ) 1,477 ( 1,119 ) Net Interest Income After Provision for (Reversal of) Credit Losses 259,277 331,124 346,454 Noninterest Income Service charges on deposits 6,455 5,399 4,562 Gain on sale of loans 418 3,702 14,045 Net (loss) gain on sale of investment securities ( 11 ) ( 169 ) 2,964 Increase in the cash surrender value of bank-owned life insurance 2,659 2,547 2,059 Other income 12,015 12,175 16,755 Total noninterest income 21,536 23,654 40,385 Noninterest Expense Salaries and employee benefits 86,096 84,053 88,398 Premises and equipment expenses 12,606 13,218 14,876 Marketing and advertising 3,359 4,721 4,165 Data processing 13,083 12,171 11,709 Legal, accounting and professional fees 10,787 8,583 11,510 FDIC insurance 11,853 4,969 5,897 SEC/FRB penalties — 22,977 — Other expenses 15,509 14,406 12,610 Total noninterest expense 153,293 165,098 149,165 Income Before Income Tax Expense 127,520 189,680 237,674 Income Tax Expense 26,986 48,750 60,983 Net Income $ 100,534 $ 140,930 $ 176,691 Earnings Per Common Share Basic $ 3.31 $ 4.40 $ 5.53 Diluted $ 3.31 $ 4.39 $ 5.52 See Notes to Consolidated Financial Statements. 86 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Comprehensive Income (Loss) Years Ended December 31, (dollars in thousands) 2023 2022 2021 Net Income $ 100,534 $ 140,930 $ 176,691 Other comprehensive income (loss), net of tax: Unrealized gain (loss) on securities available-for-sale 32,519 ( 140,926 ) ( 27,923 ) Reclassification adjustment for net losses (gains) included in net income 8 111 ( 2,203 ) Total unrealized gain (loss) on investment securities 32,527 ( 140,815 ) ( 30,126 ) Unrealized loss on securities transferred to held-to-maturity — ( 49,095 ) — Amortization of unrealized loss on securities transferred to held-to-maturity 4,805 4,361 — Total unrealized gain (loss) on investment securities held-to-maturity 4,805 ( 44,734 ) — Unrealized (loss) gain on derivatives ( 182 ) 284 — Reclassification adjustment for loss included in net income — — 384 Total unrealized (loss) gain on derivatives ( 182 ) 284 384 Other comprehensive income (loss) 37,150 ( 185,265 ) ( 29,742 ) Comprehensive Income (Loss) $ 137,684 $ ( 44,335 ) $ 146,949 See Notes to Consolidated Financial Statements. 87 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity (dollars in thousands, except share data) Common Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shareholders’ Equity Shares Amount Balance at January 1, 2021 31,779,663 $ 315 $ 427,016 $ 798,061 $ 15,500 $ 1,240,892 Net Income — — — 176,691 — 176,691 Other comprehensive loss, net of tax — — — — ( 29,742 ) ( 29,742 ) Stock-based compensation expense — — 7,811 — — 7,811 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 24,429 ) 1 ( 1 ) — — — Vesting of performance based stock awards, net of shares withheld for payroll taxes 15,686 — — — — — Time based stock awards granted 179,624 — — — — — Issuance of common stock related to employee stock purchase plan 12,723 — 496 — — 496 Cash dividends declared ( $ 1.40 per share) — — — ( 44,691 ) — ( 44,691 ) Common stock repurchased ( 13,175 ) — ( 682 ) — — ( 682 ) Balance at December 31, 2021 31,950,092 316 434,640 930,061 ( 14,242 ) 1,350,775 Net Income — — — 140,930 — 140,930 Other comprehensive loss, net of tax — — — — ( 185,265 ) ( 185,265 ) Stock-based compensation expense — — 9,899 — — 9,899 Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 3,289 — 97 — — 97 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 70,286 ) 2 ( 2 ) — — — Vesting of performance based stock awards, net of shares withheld for payroll taxes 21,026 — — — — — Time based stock awards granted 166,471 — — — — — Issuance of common stock related to employee stock purchase plan 14,611 — 748 — — 748 Cash dividends declared ($ 1.75 per share) — — — ( 55,776 ) — ( 55,776 ) Common stock repurchased ( 738,300 ) ( 8 ) ( 33,079 ) — — ( 33,087 ) Balance at December 31, 2022 31,346,903 310 412,303 1,015,215 ( 199,507 ) 1,228,321 Net Income — — — 100,534 — 100,534 Other comprehensive income, net of tax — — — — 37,150 37,150 Stock-based compensation expense — — 10,018 — — 10,018 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 59,992 ) 1 ( 1 ) — — — Vesting of performance based stock awards, net of shares withheld for payroll taxes 27,296 — — — — — Time based stock awards granted 190,256 — — — — — Issuance of common stock related to employee stock purchase plan 21,149 — 586 — — 586 Cash dividends declared ($ 1.80 per share) — — — ( 54,293 ) — ( 54,293 ) Common stock repurchased ( 1,600,000 ) ( 15 ) ( 48,018 ) — — ( 48,033 ) Balance at December 31, 2023 29,925,612 $ 296 $ 374,888 $ 1,061,456 $ ( 162,357 ) $ 1,274,283 See Notes to Consolidated Financial Statements. 88 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Cash Flows Years Ended December 31, (dollars in thousands) 2023 2022 2021 Cash Flows From Operating Activities: Net Income $ 100,534 $ 140,930 $ 176,691 Adjustments to reconcile net income to net cash provided by operating activities: Provision for (reversal of) credit losses 31,536 266 ( 20,821 ) (Reversal of) provision for unfunded commitments ( 267 ) 1,477 ( 1,119 ) Depreciation and amortization 3,480 3,319 5,874 Gains on sale of loans ( 418 ) ( 3,702 ) ( 14,045 ) Loss (gain) on mortgage servicing rights 142 ( 837 ) ( 679 ) Securities premium amortization, net 6,189 9,011 4,031 Origination of loans held for sale ( 29,690 ) ( 299,317 ) ( 1,156,281 ) Proceeds from sale of loans held for sale 36,842 343,503 1,211,313 Deferred income tax (benefit) expense ( 3,377 ) 6,560 5,770 Net gain on sale of other real estate owned ( 134 ) ( 248 ) ( 1,266 ) Net increase in cash surrender value of bank owned life insurance ( 2,659 ) ( 2,547 ) ( 2,059 ) Net loss (gain) on sale of investment securities 11 169 ( 2,964 ) Stock-based compensation expense 10,018 9,899 7,811 (Increase) decrease in other assets ( 14,976 ) ( 26,162 ) 1,358 Increase in other liabilities 58,395 12,581 24,823 Net cash provided by operating activities 195,626 194,902 238,437 Cash Flows From Investing Activities: Purchases of available-for-sale investment securities — ( 425,263 ) ( 2,029,434 ) Proceeds from maturities of available-for-sale investment securities 123,782 261,999 313,921 Proceeds from sale/call of available-for-sale investment securities 8,303 6,225 201,034 Purchase of held-to-maturity investment securities — ( 290,740 ) — Proceeds from maturities from held-to-maturity investment securities 78,251 115,777 — Proceeds from call of held-to-maturity investment securities 2,906 8,350 — Purchases of Federal Reserve and Federal Home Loan Bank stock ( 299 ) ( 30,914 ) ( 218 ) Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock 39,618 — 6,169 Net change in loans ( 351,913 ) ( 570,977 ) 511,120 Proceeds from sale of SBA PPP loans — — 170,154 Redemption (purchase) of bank-owned life insurance 736 338 ( 30,000 ) Proceeds from sale of other real estate owned 987 241 4,618 Purchases of premises and equipment ( 70 ) ( 2,113 ) ( 5,286 ) Net cash used in investing activities ( 97,699 ) ( 927,077 ) ( 857,922 ) Cash Flows From Financing Activities: (Decrease) increase in deposits 94,857 ( 1,268,358 ) 792,337 (Decrease) Increase in customer repurchase agreements ( 4,513 ) 11,182 ( 2,808 ) Increase (decrease) in borrowings 324,999 675,001 ( 200,000 ) Proceeds from exercise of equity compensation plans — 97 — Proceeds from employee stock purchase plan 586 748 496 Common stock repurchased ( 48,033 ) ( 33,087 ) ( 682 ) Cash dividends paid ( 54,993 ) ( 55,776 ) ( 44,691 ) Net cash provided by (used in) financing activities 312,903 ( 670,193 ) 544,652 Net Increase (Decrease) in Cash and Cash Equivalents 410,830 ( 1,402,368 ) ( 74,833 ) Cash and Cash Equivalents at Beginning of Period 311,854 1,714,222 1,789,055 Cash and Cash Equivalents at End of Period $ 722,684 $ 311,854 $ 1,714,222 Supplemental Cash Flow Information: Interest paid $ 376,841 $ 90,590 $ 30,989 Income taxes paid $ 21,540 $ 23,453 $ 54,363 Non-Cash Operating Activities Initial recognition of operating lease right-of-use assets $ 418 $ — $ 9,146 Non-Cash Investing Activities Transfers of investment securities from available-for-sale to held-to-maturity $ — $ 922,975 $ — Transfers from loans to other real estate owned $ — $ 475 $ 149 See Notes to Consolidated Financial Statements. 89 Table of Contents Eagle Bancorp, Inc. Notes to Consolidated Financial Statements Note 1 – Summary of Significant Accounting Policies The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. (the "Parent") and its subsidiaries (together with the Parent, the “Company”) with all significant intercompany transactions eliminated. EagleBank (the “Bank”), a Maryland chartered commercial bank, is the Company’s principal subsidiary. The investment in subsidiaries is recorded on the Company’s books (Parent Only) on the basis of its equity in the net assets of the subsidiary (see Note 24 "Parent Company Financial Information" for further detail). The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America (“GAAP”) and to general practices in the banking industry. The following is a summary of the significant accounting policies. Nature of Operations The Company, through the Bank, conducts a full service community banking business, primarily in Northern Virginia, Suburban Maryland and Washington, D.C. 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 was previously active in the origination and sale of residential mortgage loans, the origination of small business loans and the origination, securitization and sale of multifamily Federal Housing Administration ("FHA") loans. The Company no longer originates residential mortgages for sale as the Company ceased originations of first lien residential mortgage loans for secondary sale during the three months ended March 31, 2023, and completed residual origination and sales activities as of June 30, 2023. The guaranteed portion of small business loans, guaranteed by the Small Business Administration ("SBA"), is typically sold to third party investors in a transaction apart from the loan’s origination. As of December 31, 2023, the Bank offers its products and services through thirteen banking offices, four lending centers and various electronic capabilities, including remote deposit services and mobile banking services. Eagle Insurance Services, LLC, which had been offering 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., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results may differ from those estimates and such differences could be material to the financial statements. Cash Flows For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold and interest bearing deposits with other banks that have an original maturity of three months or less. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, federal funds purchased, repurchase agreements and other borrowings. Interest Bearing Deposits in Other Financial Institutions Interest-bearing deposits in other financial institutions mature within one year and are carried at cost. Loans Held for Sale The Company regularly engaged in sale of residential mortgage loans held for sale in 2022 and engages in the sale of the guaranteed portion of SBA loans originated by the Bank. In the first quarter of 2023, the Company ceased originations of first lien residential mortgage loans for secondary sale and completed residual origination and sales activities in the second quarter of 2023. 90 Table of Contents The Company carried loans held for sale at fair value. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of these loans are recorded as a component of noninterest income in the Consolidated Statements of Income. The Company entered into commitments to originate residential mortgage loans whereby the interest rate on the loan was determined prior to funding (i.e. interest rate lock commitments). Such interest rate lock commitments on mortgage loans to be sold in the secondary market were considered to be derivatives. To protect against the price risk inherent in residential mortgage loan commitments, the Company utilized either or both “best efforts” and “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Under a “best efforts” contract, the Company committed to deliver an individual mortgage loan of a specified principal amount and quality to an investor with the intent that the buyer/investor had assumed the interest rate risk, rather than the Company. Under a “mandatory delivery” contract, the Company committed to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company failed to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it was obligated to pay the investor a “pair-off” fee, based on then-current market prices, to compensate the investor for the shortfall. The Company managed the interest rate risk on interest rate lock commitments by entering into forward sale contracts of mortgage-backed securities ("MBS"), whereby the Company obtained the right to deliver securities to investors in the future at a specified price. Such contracts were accounted for as derivatives and were recorded at fair value in derivative assets or liabilities, carried on the Consolidated Balance Sheet within other assets or other liabilities, with changes in fair value recorded in other income within the Consolidated Statements of Income. The gross gains on loan sales were recognized based on new loan commitments with adjustments for price and pair-off activity. Commission expenses on loans held for sale were recognized based on loans closed. In circumstances where the Company did not deliver the whole loan to an investor, but rather elected to retain the loan in its portfolio, the loan was transferred from held for sale to loans at fair value at the date of transfer. The sale of the guaranteed portion of SBA loans on a servicing retained basis gives rise to an excess servicing asset, which is computed on a loan by loan basis with the unamortized amount being included in intangible assets in the Consolidated Balance Sheets. This excess servicing asset is being amortized on a straight-line basis (with adjustment for prepayments) as an offset to servicing fees collected and is included in other income in the Consolidated Statements of Income. The Company originates multifamily 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. When servicing is retained on multifamily FHA loans securitized and sold, the Company computes an excess servicing asset on a loan by loan basis. Unamortized multifamily FHA mortgage servicing rights ("MSRs") totaled $ 2.3 million as of December 31, 2023 and $ 2.4 million as of December 31, 2022. Noninterest Income includes gains from the sale of the Ginnie Mae securities and net revenues earned on the servicing of multifamily FHA loans underlying the Ginnie Mae securities. Revenue from servicing commercial multifamily FHA mortgages is recognized as earned based on the specific contractual terms of the underlying servicing agreements, along with amortization of and changes in impairment of MSRs. Investment Securities The Company recognizes acquired securities on the trade date. Investment securities comprise debt securities, which are classified depending on the Company's intent and ability to hold the securities to maturity. Debt securities are classified as available-for-sale when management may have the intent to sell them prior to maturity. Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity. Securities available-for-sale are acquired as part of the Company’s asset/liability management strategy and may be sold in response to changes in interest rates, current market conditions, loan demand, changes in prepayment risk and other factors. Securities available-for-sale are carried at fair value, with unrealized gains or losses, other than impairment losses, being reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of deferred income tax. Realized gains and losses, using the specific identification method, are included as a separate component of noninterest income in the Consolidated Statements of Income. Premiums and discounts on investment securities are amortized/accreted to the earlier of call or maturity based on expected lives, which lives are adjusted based on prepayment assumptions and call optionality. Declines in the fair value of 91 Table of Contents individual available-for-sale securities below their cost that are other-than-temporary in nature result in write-downs of the individual securities to their fair value. Factors affecting the determination of whether other-than-temporary impairment has occurred include a downgrading of the security by a rating agency or a significant deterioration in the financial condition of the issuer. Management systematically evaluates investment securities for other-than-temporary declines in fair value on a quarterly basis. This analysis requires management to consider various factors, which include the: (1) magnitude of the decline in value; (2) financial condition of the issuer or issuers; and (3) structure of the security. Premiums and discounts on investment securities held-to-maturity, like available-for-sale securities, are amortized or accreted to the earlier of call or maturity based on expected lives, which include prepayment adjustments and call optionality. Interest income included amortization of $ 10.9 million, which was partially offset by accretion of $ 4.7 million for the period ended December 31, 2023. Transfers of Investment Securities from Available-for-Sale to Held-to-Maturity Transfers of debt securities into the held-to-maturity category from the available-for-sale category are made at amortized cost, net of unrealized gain or loss reported in accumulated other comprehensive income (loss) at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security. The Company does not intend to sell the held-to-maturity investments, and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity. For the impairment of investment securities please see "Allowance for Credit Losses - Available-for-Sale Debt Securities" and "Allowance for Credit Losses - Held-to-Maturity Debt Securities" below. Loans Loans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. It is the Company’s policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs are being amortized on the interest method over the term of the loan. Allowance for Credit Losses The following table presents a breakdown of the current provision for credit losses included in our Consolidated Statements of Income for the applicable periods: For the Years Ended December 31, (dollars in thousands) 2023 2022 2021 Provision for (reversal of) credit losses- loans $ 30,346 $ 103 $ ( 21,275 ) Provision for credit losses - HTM debt securities 1,190 766 — (Reversal of) provision for credit losses - AFS debt securities — ( 603 ) 454 Total $ 31,536 $ 266 $ ( 20,821 ) Allowance for Credit Losses - Loans The allowance for credit losses ("ACL") - Loans is an estimate of the expected credit losses in the loans held for investment portfolio. The Company's ACL on its loan portfolio is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. 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. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually for impairment, is segregated by call report codes and a loan-level probability of default (“PD”) / Loss Given Default (“LGD”) cash flow method is applied using an exposure at default (“EAD”) model. These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments. 92 Table of Contents The Company uses regression analysis of historical internal and peer data (as Company loss data is insufficient) to determine suitable credit loss drivers to utilize when modeling lifetime PD and LGD. This analysis also determines how expected PD will be impacted by different forecasted levels of the loss drivers. A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in reserve for unfunded commitments (“RUC”) on the Consolidated Balance Sheets. For periods beyond which we are able to develop reasonable and supportable forecasts, we revert to the historical loss rate on a straight-line basis over a twelve-month period. The Company uses a loan-level PD/LGD cash flow method with an EAD model to estimate expected credit losses. In accordance with ASC 326, expected credit losses are measured on a collective (pooled) basis for financial assets with similar risk characteristics. The bank groups collectively assessed loans using a call report code. Some unique loan types, such as Paycheck Protection Program ("PPP") loans, are grouped separately due to their specific risk characteristics. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates and LGD rates. The modeling of expected prepayment speeds is based on historical internal data. EAD is based on each instrument's underlying amortization schedule in order to estimate the bank's expected credit loss exposure at the time of the borrower's potential default. For our cash flow model, management utilizes and forecasts regional unemployment by using a national forecast and estimating a regional adjustment based on historical differences between the two as the loss driver over our reasonable and supportable period of 18 months and reverts back to a historical loss rate over twelve months on a straight-line basis over the loan's remaining maturity. In 2023, the improvement in economic conditions, which impacted the unemployment projections, which inform our current expected credit losses ("CECL") economic forecast, along with improvements in credit quality, offset by an increase in charge offs, resulted in minor fluctuations in the levels of our ACL during 2023. Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period. The ACL also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors include, but are not limited to, concentrations of credit risk, changes in underwriting standards, experience and depth of lending staff and trends in delinquencies. While our methodology in establishing the ACL attributes portions of the ACL and RUC to the separate loan pools or segments, the entire ACL and RUC is available to absorb credit losses expected in the total loan portfolio and total amount of unfunded credit commitments, respectively. Portfolio segments are used to pool loans with similar risk characteristics and align with our methodology for measuring expected credit losses. A summary of our primary portfolio segments is as follows: Commercial . The commercial loan portfolio comprises lines of credit and term loans for working capital, equipment and other business assets across a variety of industries. These loans are used for general corporate purposes including financing working capital, internal growth and acquisitions; and are generally secured by accounts receivable, inventory, equipment and other assets of our clients’ businesses. 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 a record of past success with similar properties. Collateral properties include apartment buildings, office buildings, hotels, mixed-use buildings, retail, data centers, warehouse and shopping centers. The primary source of repayment on these loans is generally expected to come from lease or operation of the real property collateral. Income producing commercial real estate loans are impacted by fluctuation in collateral values, as well as rental demand and rates. Owner occupied – commercial real estate. The owner occupied commercial real estate portfolio comprises permanent financing provided to operating companies and their related entities for the purchase or refinance of real property wherein their business operates. Collateral properties include industrial property, office buildings, religious facilities, mixed-use property, health care and educational facilities. Real Estate Mortgage – Residential. Real estate mortgage residential loans comprise consumer mortgages for the purpose of purchasing or refinancing first lien real estate loans secured by primary-residence, second-home and rental residential real property. 93 Table of Contents Construction – commercial and residential . The construction commercial and residential loan portfolio comprises loans made to builders and developers of commercial and residential property, for renovation, new construction and development projects. Collateral properties include apartment buildings, mixed use property, residential condominiums, single and 1-4 residential property and office buildings. The primary source of repayment on these loans is expected to come from the sale, permanent financing or lease of the real property collateral. Construction loans are impacted by fluctuations in collateral values and the ability of the borrower or ultimate purchaser to obtain permanent financing. Construction – commercial and industrial ("C&I") (owner occupied) . The construction C&I (owner occupied) portfolio comprises loans to operating companies and their related entities for new construction or renovation of the real or leased property in which they operate. Generally these loans contain provisions for conversion to an owner occupied commercial real estate loan or to a commercial loan after completion of construction. Collateral properties include industrial, healthcare, religious facilities, restaurants and office buildings. Home Equity . The home equity portfolio comprises consumer lines of credit and loans secured by subordinate liens on residential real property. Other Consumer . The other consumer portfolio comprises consumer loans not secured by real property, including personal lines of credit and loans, overdraft lines and vehicle loans. This category also includes other loan items such as overdrawn deposit accounts as well as loans and loan payments in process. We have several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring. Special mention loans are those that are currently protected by the sound worth and paying capacity of the borrower, but that are potentially weak and constitute an additional credit risk. These loans have the potential to deteriorate to a substandard grade due to the existence of financial or administrative deficiencies. Substandard loans have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Some substandard loans are inadequately protected by the sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired. Substandard loans can be accruing or can be on nonaccrual depending on the circumstances of the individual loans. Loans classified as doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection in full highly questionable and improbable. The possibility of loss is extremely high. All doubtful loans are on nonaccrual. Classified loans represent the sum of loans graded substandard and doubtful. The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Changes are reflected in the pool-basis allowance and in specific reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information. 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 the Risk Committee. The committees' reports to the Board of Directors (the "Board") are part of the Board's review on a quarterly basis of our consolidated financial statements. When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the estimated fair value of the collateral adjusted for selling costs, when appropriate. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. 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 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. Collateral Dependent Financial Assets 94 Table of Contents Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Loan Modifications to Borrowers in Financial Difficulty On January 1, 2023, the Company adopted the accounting guidance in ASU No. 2022-02, which eliminated the recognition and measurement of troubled debt restructurings ("TDR"). Due to the removal of the TDR designation, the Company evaluates loan restructurings 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 are principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. A loan that is considered a modified 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 provisions 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 Debt Securities Although ASC 326 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount by which the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, as a non-credit-related impairment. The entire amount of an impairment loss is recognized in earnings only when: (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; or (3) the Company does not expect to recover the entire amortized cost basis of the security. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in other comprehensive income, net of deferred taxes. Changes in the ACL are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectability of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. We have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in accrued interest and other assets in the Consolidated Balance Sheets. Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts 95 Table of Contents due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable. Allowance for Credit Losses - Held-to-Maturity Debt Securities The Company separately evaluates its HTM investment securities for any credit losses. The Company pools like securities and calculates expected credit losses through an estimate based on a security's credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and included in the balance of investment securities held-to-maturity on the Consolidated Balance Sheets. If the Company determines that a security indicates evidence of deteriorated credit quality, the security is individually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis. Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. 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 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. Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation and amortization computed using the straight-line method for financial reporting purposes. Premises and equipment are depreciated over the useful lives of the assets, which generally range from three to seven years for furniture, fixtures and equipment, three to five years for computer software and hardware and five to twenty years for leasehold improvements. Leasehold improvements are amortized over the terms of the respective leases, which may include renewal options where management has the positive intent to exercise such options or the estimated useful lives of the improvements, whichever is shorter. The costs of major renewals and betterments are capitalized, while the costs of ordinary maintenance and repairs are expensed as incurred. These costs are included as a component of premises and equipment expenses on the Consolidated Statements of Income. Other Real Estate Owned (OREO) Assets acquired through loan foreclosure are held for sale and are recorded at fair value less estimated selling costs when acquired, establishing a new cost basis. The new basis is supported by appraisals that are generally no more than twelve months old. Costs after acquisition are generally expensed. If the fair value of the asset declines, a write-down is recorded through noninterest expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in market conditions or appraised values. Goodwill and Other Intangible Assets Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired, including other intangible assets. Other intangible assets include purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit intangibles, are amortized over their estimated useful lives. All intangible assets are subject to periodic impairment testing. Intangible assets (other than goodwill) are amortized to expense using accelerated or straight-line methods over their respective estimated useful lives. Goodwill is subject to impairment testing at the reporting unit level, which must be conducted either at least annually, or when events or changes in circumstances indicate the assets might be impaired and/or upon the occurrence of a triggering event. Various factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred. Goodwill is recorded and evaluated for impairment at its reporting unit, 96 Table of Contents the Company. The Company's policy is to test goodwill for impairment annually as of December 31, or on an interim basis if an event triggering an impairment assessment is determined to have occurred. The Company has determined that it has a single reporting unit. If the fair values of the reporting unit exceed the book value, no write-down of recorded goodwill is required. If the fair value of a reporting unit is less than book value, an expense may be required to write-down the related goodwill to the proper carrying value. Any impairment would be recorded through a reduction of goodwill or other intangible asset and an offsetting charge to noninterest expense. Testing of goodwill impairment comprises a two-step process. First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the Company determines that it is more likely than not that an impairment has occurred, it proceeds to the quantitative impairment test, whereby it calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill. In its performance of impairment testing, the Company has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment. If the carrying amount of the reporting unit exceeds the fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge. If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the reporting unit that is greater than the carrying amount, then no impairment charge is recorded. In the second quarter of 2023, Management determined that a triggering event had occurred as a result of a sustained decrease in the Company's stock price and as a result of a revision in the earnings outlook in comparison to budget for the remainder of 2023 due primarily to the economic uncertainty and market volatility resulting from the rising interest rate environment and the recent events in the banking sector. The Company performed a qualitative assessment and quantitative impairment test on its only reporting unit as of May 31, 2023 and determined that there was no impairment as the fair value exceeded the carrying amount of the Company. In accordance with its regular schedule for impairment testing, the Company performed a second qualitative assessment and quantitative impairment test that rolled forward its second quarter of 2023 testing on its only reporting unit as of December 31, 2023, which resulted in a determination of no impairment. However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Management continues to evaluate economic conditions for evidence of new triggering events. Interest Rate Swap Derivatives As required by ASC Topic 815, " Derivatives and Hedging ", the Company records all derivatives on the Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting. Revenue Recognition The majority of our revenue-generating transactions are not subject to ASC 606 "Revenue from Contracts with Customers", including revenue generated from financial instruments, such as loans, letters of credit, derivatives and investment securities, as well as revenue related to our mortgage servicing activities, as these activities are subject to other GAAP discussed elsewhere within our disclosures. Substantially all of the Company’s revenue is generated from contracts with customers. Descriptions of our revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows: • Service charges on deposit accounts (i.e. automated teller machine ("ATM") fees) - These represent general service fees for monthly account maintenance and activity- or transaction-based fees and consist of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue is recognized when our performance obligation is completed which is generally monthly for account maintenance 97 Table of Contents services or when a transaction has been completed (such as a wire transfer). Payment for such performance obligations is generally received at the time the performance obligations are satisfied. • Other Fees (i.e. insurance commissions, investment advisory fees, credit card fees, interchange fees) – Generally, the Company receives compensation when a customer that it refers opens an account with certain third-parties. • Sale of OREO – The Company assesses whether it is “probable” that it will collect the consideration to which it will be entitled in exchange for transferring the asset to the customer. Customer Repurchase Agreements The Company enters into agreements under which it sells securities subject to an obligation to repurchase the same securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, securities sold under agreements to repurchase are accounted for as collateralized financing arrangements and not as a sale and subsequent repurchase of securities. The agreements are entered into primarily as accommodations for large commercial deposit customers. The obligation to repurchase the securities is reflected as a liability in the Company’s Consolidated Balance Sheets, while the securities underlying the securities sold under agreements to repurchase remain in the respective asset accounts and are delivered to and held as collateral by third party trustees. Marketing and Advertising Marketing and advertising costs are generally expensed as incurred. Income Taxes The Company employs the asset and liability method of accounting for income taxes as required by ASC 740, “ Income Taxes .” Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities (i.e. temporary differences) and are measured at the enacted rates that will be in effect when these differences reverse. The Company utilizes statutory requirements for its income tax accounting and limits risks associated with potentially problematic tax positions that may incur challenge upon audit, where an adverse outcome is more likely than not. Therefore, no provisions are necessary for either uncertain tax positions nor accompanying potential tax penalties and interest for underpayments of income taxes in the Company’s tax valuation allowance. In accordance with ASC 740, the Company may establish a reserve against deferred tax assets in those cases where realization is less than certain. The Company’s policy is to recognize interest and penalties on income taxes in other noninterest expenses. The Company remains subject to examination of income tax returns by the Internal Revenue Service, as well as all of the states where it conducts business, for the years ending after December 31, 2020. There are currently no examinations in process as of December 31, 2023. Transfer of Financial Assets Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. In certain cases, the recourse to the Bank to repurchase assets may exist but is deemed immaterial based on the specific facts and circumstances. 98 Table of Contents Stock-Based Compensation In accordance with ASC Topic 718, “Compensation,” the Company records as salaries and employee benefits expense on its Consolidated Statements of Income an amount equal to the amortization (over the remaining service period) of the fair value of option and restricted stock awards computed at the date of grant. Salary and employee benefits expense on variable stock grants (i.e., performance based grants) is recorded based on the probability of achievement of the goals underlying the performance grant. Refer to Note 16 - "Stock-Based Compensation" for a description of stock-based compensation awards, activity and expense for the years ended December 31, 2023, 2022 and 2021. The Company records the discount from the fair market value of shares issued under its Employee Share Purchase Plan as a component of Salaries and employee benefits expense in its Consolidated Statement of Income. Earnings per Common Share Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period measured. Diluted earnings per common share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding during the period including the potential dilutive effects of common stock equivalents. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on debt securities available for sale, debt securities transferred to HTM from AFS, and derivatives, net of taxes. Other comprehensive income (loss) is recognized as a separate component of equity. Loss Contingencies Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe such matters exist that will have a material effect on the financial statements. Segment Reporting While the chief operating decision-maker monitors the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Operating results are not reviewed by senior management to make resource allocation or performance decisions. Accordingly, all of the financial services operations are considered by management to be aggregated in one reportable operating segment. 99 Table of Contents New Authoritative Accounting Guidance Accounting Standards Pending Adoption ASU No. 2023-06, "Disclosure Improvements: Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative" ("ASU 2023-06") incorporates into the Accounting Standards Codification (ASC or Codification) several U.S. Securities and Exchange Commission ("SEC") disclosure requirements under Regulations S-K and S-X. The amendments in the ASU are intended to clarify or improve disclosure and presentation requirements of a variety of Codification Topics, allow users to more easily compare entities subject to the SEC’s existing disclosures with those entities that were not previously subject to the requirements, and align the requirements in the Codification with the SEC’s regulations. These requirements are similar to, but require additional information than, generally accepted accounting principles. They modify the disclosure or presentation requirements of a variety of Topics in the Codification. Entities should apply the amendments in ASU 2023-06 prospectively. For entities subject to the SEC’s existing disclosure requirements and for entities that have to file or provide financial statements with or to the SEC for the purpose of selling or issuing securities that do not have contractual limits on transfer, the effective date for each amendment will be the date on which the SEC removes that related disclosure from its rules. As a result, the effective date will be different for each individual disclosure based on the effective date of the SEC’s deletion of the related disclosure. Early adoption is prohibited. For all other entities, the effective date will be two years later. Early adoption is permitted for these entities, but not before the provisions of the ASU become effective for entities subject to SEC’s regulation. The effective dates of the amendments are predicated on the SEC removing its related disclosure requirements from its regulations. However, if by June 30, 2027, the SEC has not removed the related disclosure from its regulations, the amendments will be removed from the Codification and not become effective for any entity. We are currently in the process of evaluating this guidance. ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.” ("ASU 2023-07) requires filers to disclose significant segment expenses, an amount and description for other segment items, the title and position of the entity’s chief operating decision maker ("CODM") and an explanation of how the CODM uses the reported measures of profit or loss to assess segment performance, and, on an interim basis, certain segment related disclosures that previously were required only on an annual basis. ASU 2023-07 also clarifies that entities with a single reportable segment are subject to both new and existing segment reporting requirements and that an entity is permitted to disclose multiple measures of segment profit or loss, provided that certain criteria are met. ASU 2023-07 is effective for the Company for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently in the process of evaluating this guidance. ASU No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures" ("ASU 2023-09"). The ASU requires additional income tax disclosures around effective tax rates and cash income taxes paid. ASU 2023-09 is effective for public business entities for annual periods beginning after December 15, 2024 and interim periods within those fiscal years. The impact of ASU 2023-09 should be applied prospectively. We are currently in the process of evaluating this guidance. Accounting Standards Adopted in 2023 ASU No. 2022-02, " Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures " ("ASU 2022-02") eliminates the accounting guidance for TDRs while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty that assess whether a modification has created a new loan. Additionally, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. 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. Note 2 – Cash and Due from Banks In 2023 and 2022, the Bank maintained average daily balances at the Federal Reserve Bank of Richmond ("Federal Reserve Bank") of $ 1.1 billion and $ 1.3 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. 100 Table of Contents Note 3 – Investment Securities The following tables summarize the Company's investment securities available-for-sale and held-to-maturity by major security type: (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value December 31, 2023 Investment securities available-for-sale: U.S. treasury bonds $ 49,894 $ — $ ( 1,993 ) $ — $ 47,901 U.S. agency securities 729,090 — ( 57,693 ) — 671,397 Residential mortgage-backed securities 823,992 45 ( 96,684 ) — 727,353 Commercial mortgage-backed securities 54,557 — ( 4,993 ) — 49,564 Municipal bonds 8,783 — ( 293 ) — 8,490 Corporate bonds 2,000 — ( 300 ) ( 17 ) 1,683 Total $ 1,668,316 $ 45 $ ( 161,956 ) $ ( 17 ) $ 1,506,388 (dollars in thousands) Amortized Cost Gross Unrecognized Gains Gross Unrecognized Losses Estimated Fair Value December 31, 2023 Investment securities held-to-maturity: Residential mortgage-backed securities $ 670,043 $ — $ ( 79,980 ) $ 590,063 Commercial mortgage-backed securities 90,227 — ( 12,867 ) 77,360 Municipal bonds 125,114 5 ( 8,540 ) 116,579 Corporate bonds 132,309 — ( 14,729 ) 117,580 Total 1,017,693 $ 5 $ ( 116,116 ) $ 901,582 Less: allowance for credit losses ( 1,956 ) Total amortized cost, net of allowance for credit losses $ 1,015,737 (dollars in thousands) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value December 31, 2022 Investment securities available-for-sale: U.S. treasury bonds $ 49,793 $ — $ ( 3,466 ) $ — $ 46,327 U.S. agency securities 747,777 — ( 78,049 ) — 669,728 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 $ 1,803,898 $ 63 $ ( 205,278 ) $ ( 17 ) $ 1,598,666 101 Table of Contents (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 Less: allowance for credit losses ( 766 ) Total amortized cost, net of allowance for credit losses $ 1,093,374 In addition, at December 31, 2023 and December 31, 2022, the Company held $ 25.7 million and $ 65.1 million in non marketable equity securities, respectively, in a combination of Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB") and FHLB stocks, which are required to be held for regulatory purposes. The securities are carried at cost, classified as restricted securities, and periodically evaluated for impairment based on ultimate recovery of par value. The Company reassessed classification of certain investments in the first quarter of 2022 and, effective March 31, 2022, it transferred a total of $ 1.1 billion of MBS, municipal bonds and corporate bonds from available-for-sale to held-to-maturity securities, including $ 237.0 million of securities acquired in the first quarter of 2022 for which its intention to hold to maturity was finalized. At the time of transfer, the Company reversed the allowance for credit losses associated with the available-for-sale securities through the provision for credit losses. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized loss of $ 66.2 million was included in other comprehensive loss at the time of transfer and, as of December 31, 2023, $ 51.7 million remains in accumulated other comprehensive loss, to be amortized out through interest income as a yield adjustment over the remaining term of the securities. No gain or loss was recorded at the time of transfer. Subsequent to transfer, the allowance for credit losses on these securities was evaluated under the accounting policy for held-to-maturity securities. Accrued interest receivable on investment securities totaled $ 7.6 million and $ 7.8 million at December 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 tables summarize, by length of time, the Company's investment securities available-for-sale that have been in a continuous unrealized loss position and investment securities held-to-maturity that have been in a continuous unrecognized loss position: 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, 2023 Investment securities available-for-sale: U.S. treasury bonds 2 $ — $ — $ 47,901 $ ( 1,993 ) $ 47,901 $ ( 1,993 ) U.S. agency securities 78 3,084 ( 4 ) 668,313 ( 57,689 ) 671,397 ( 57,693 ) Residential mortgage-backed securities 149 — — 718,042 ( 96,684 ) 718,042 ( 96,684 ) Commercial mortgage-backed securities 13 — — 49,564 ( 4,993 ) 49,564 ( 4,993 ) Municipal bonds 1 — — 8,490 ( 293 ) 8,490 ( 293 ) Corporate bonds 1 — — 1,683 ( 300 ) 1,683 ( 300 ) Total 244 $ 3,084 $ ( 4 ) $ 1,493,993 $ ( 161,952 ) $ 1,497,077 $ ( 161,956 ) 102 Table of Contents 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, 2023 Investment securities held-to-maturity: Residential mortgage-backed securities 142 $ — $ — $ 590,063 $ ( 79,980 ) $ 590,063 $ ( 79,980 ) Commercial mortgage-backed securities 16 — — 77,360 ( 12,867 ) 77,360 ( 12,867 ) Municipal bonds 40 — — 113,031 ( 8,540 ) 113,031 ( 8,540 ) Corporate bonds 30 — — 105,523 ( 14,729 ) 105,523 ( 14,729 ) Total 228 $ — $ — $ 885,977 $ ( 116,116 ) $ 885,977 $ ( 116,116 ) 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: U.S. treasury bonds 2 $ — $ — $ 46,327 $ ( 3,466 ) $ 46,327 $ ( 3,466 ) U.S. agency securities 85 490,699 ( 58,437 ) 179,029 ( 19,612 ) 669,728 ( 78,049 ) Residential mortgage-backed securities 157 3,994 — 808,697 ( 117,072 ) 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 ) 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 December 31, 2023 were generally attributable to changes in market interest rates and interest spread relationships subsequent to the dates the investment securities were originally purchased, and not due to credit quality concerns on the investment securities. The Company measures its available-for-sale and held-to-maturity security portfolios for current expected credit losses as part of its allowance for credit losses analysis. There was no provision for credit losses recorded during the year ended December 31, 2023 and a reversal of credit losses of $ 603 thousand was recorded for the year ended December 31, 2022 on the available-for-sale securities portfolio. During the years ended December 31, 2023 and 2022, the Company recorded a provision for credit losses of $ 1.2 million and $ 766 thousand, respectively, on its investment securities held-to-maturity. As of December 31, 2023 and 2022, the Company had an allowance for credit losses outstanding of $ 17 thousand and $ 17 thousand, respectively, on its AFS securities and $ 2.0 million and $ 766 thousand, respectively, on its HTM securities. 103 Table of Contents The following table summarizes the Company's investment securities available-for-sale and investment securities held-to-maturity by contractual maturity. Expected maturities for MBS will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. December 31, 2023 (dollars in thousands) Amortized Cost Estimated Fair Value Investment securities available-for-sale: Within one year $ 141,266 $ 137,159 One to five years 491,268 454,697 Five to ten years 136,583 119,582 Beyond ten years 20,650 18,050 Residential mortgage-backed securities 823,992 727,353 Commercial mortgage-backed securities 54,557 49,564 Less: allowance for credit losses — ( 17 ) Total investment securities available-for-sale 1,668,316 1,506,388 Investment securities held-to-maturity: Within one year 4,307 4,258 One to five years 56,444 54,589 Five to ten years 121,107 105,719 Beyond ten years 75,565 69,593 Residential mortgage-backed securities: 670,043 590,063 Commercial mortgage-backed securities 90,227 77,360 Less: allowance for credit losses ( 1,956 ) — Total investment securities held-to-maturity 1,015,737 901,582 Total $ 2,684,053 $ 2,407,970 During the years ended December 31, 2023, 2022 and 2021, proceeds from the sale or call of investment securities were $ 11.2 million, $ 14.6 million and $ 201.0 million, respectively. During the year ended December 31, 2023, gross realized gains on sales and calls of investment securities were $ 129 thousand and gross realized losses on sales of investment securities were $ 140 thousand. During the year ended December 31, 2022, gross realized gains on sales of investment securities were $ 18 thousand and gross realized losses on sales of investment securities were $ 187 thousand. During the year ended December 31, 2021, gross realized gains on sales of investment securities were $ 3.2 million and gross realized losses on sales of investment securities were $ 187 thousand. At December 31, 2023 and 2022, 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 was $ 2.1 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 December 31, 2023 and 2022, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten percent of shareholders’ equity. 104 Table of Contents Note 4 – Loans and Allowance for Credit Losses The Bank makes loans to customers primarily in the Washington, D.C. metropolitan area and surrounding communities. 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 December 31, 2023 and 2022 are summarized by portfolio segment as follows: December 31, 2023 December 31, 2022 (dollars in thousands) Amount % Amount % Commercial $ 1,473,766 18 % $ 1,487,349 19 % PPP loans 528 — % 3,256 — % Income producing - commercial real estate 4,094,614 51 % 3,919,941 51 % Owner occupied - commercial real estate 1,172,239 15 % 1,110,325 15 % Real estate mortgage - residential 73,396 1 % 73,001 1 % Construction - commercial and residential 969,766 12 % 877,755 12 % Construction - C&I (owner occupied) 132,021 2 % 110,479 1 % Home equity 51,964 1 % 51,782 1 % Other consumer 401 — 1,744 — Total loans 7,968,695 100 % 7,635,632 100 % Less: allowance for credit losses ( 85,940 ) ( 74,444 ) Net loans (1) $ 7,882,755 $ 7,561,188 (1) Excludes accrued interest receivable of $ 45.3 million and $ 43.5 million at December 31, 2023 and 2022, respectively, which were recorded in other assets on the Consolidated Balance Sheets. Unamortized net deferred fees and costs were $ 27.0 million and $ 29.2 million at December 31, 2023 and 2022, respectively. As of December 31, 2023 and 2022, the Bank serviced $ 328.0 million and $ 361.5 million, respectively, of multifamily FHA loans, SBA loans and other loan participations, which 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. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is customarily required. Construction loans require that the financial condition and experience of the general contractor and major subcontractors be satisfactory to the Bank. Guaranteed, fixed price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects. Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures; and 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses and condominiums. Residential land acquisition, development and construction ("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. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months. 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. 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, the Bank or its 105 Table of Contents contractor inspects the project to determine that the work has been completed, to justify the draw requisition. Commercial permanent loans are generally secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan. The debt service coverage ratio ("DSCR") is ordinarily at least 1.15 to 1.0. 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 five to seven years , with amortization to a maximum of 25 years. 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. 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 58 % of the outstanding ADC loan portfolio at December 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: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company does not significantly utilize interest reserves in other loan products. 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. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves. 106 Table of Contents The following table details activity in the ACL by portfolio segment for the years ended December 31, 2023, 2022 and 2021. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. (dollars in thousands) Commercial Income Producing - Commercial Real Estate Owner Occupied - Commercial Real Estate Real Estate Mortgage - Residential Construction -Commercial and Residential Construction - C&I (Owner Occupied) Home Equity Other Consumer Total Year Ended December 31, 2023 Allowance for credit losses: Balance at beginning of year $ 15,655 $ 35,688 $ 12,702 $ 969 $ 7,195 $ 1,606 $ 555 $ 74 $ 74,444 Loans charged-off ( 2,020 ) ( 11,817 ) — — ( 5,636 ) — — ( 50 ) ( 19,523 ) Recoveries of loans previously charged-off 576 — 55 — 36 — — 6 673 Net loans (charged-off) and recovered ( 1,444 ) ( 11,817 ) 55 — ( 5,600 ) — — ( 44 ) ( 18,850 ) Provision for (reversal of) credit losses 3,613 16,179 1,576 ( 108 ) 8,603 386 102 ( 5 ) 30,346 Ending balance $ 17,824 $ 40,050 $ 14,333 $ 861 $ 10,198 $ 1,992 $ 657 $ 25 $ 85,940 Year Ended December 31, 2022 Allowance for credit losses: Balance at beginning of year $ 14,475 $ 38,287 $ 12,146 $ 449 $ 7,094 $ 2,005 $ 474 $ 35 $ 74,965 Loans charged-off ( 1,561 ) ( 1,355 ) — — — — — ( 79 ) ( 2,995 ) Recoveries of loans previously charged-off 713 25 — — 1,627 — — 6 2,371 Net loans (charged-off) and recovered ( 848 ) ( 1,330 ) — — 1,627 — — ( 73 ) ( 624 ) Provision for (reversal of) credit losses 2,028 ( 1,269 ) 556 520 ( 1,526 ) ( 399 ) 81 112 103 Ending balance $ 15,655 $ 35,688 $ 12,702 $ 969 $ 7,195 $ 1,606 $ 555 $ 74 $ 74,444 Year Ended December 31, 2021 Allowance for credit losses: Balance at beginning of year $ 26,569 $ 55,385 $ 14,000 $ 1,020 $ 9,092 $ 2,437 $ 1,039 $ 37 $ 109,579 Loans charged-off ( 8,788 ) — ( 5,444 ) — ( 206 ) — — ( 1 ) ( 14,439 ) Recoveries of loans previously charged-off 486 — 97 — 499 — — 18 1,100 Net loans (charged-off) and recovered ( 8,302 ) — ( 5,347 ) — 293 — — 17 ( 13,339 ) (Reversal of) provision for credit losses ( 3,792 ) ( 17,098 ) 3,493 ( 571 ) ( 2,291 ) ( 432 ) ( 565 ) ( 19 ) ( 21,275 ) Ending balance $ 14,475 $ 38,287 $ 12,146 $ 449 $ 7,094 $ 2,005 $ 474 $ 35 $ 74,965 The following table presents the amortized cost basis of collateral-dependent loans by portfolio segment as of December 31, 2023 and 2022: December 31, 2023 December 31, 2022 (dollars in thousands) Business/Other Assets Real Estate Business/Other Assets Real Estate Commercial $ 1,674 $ 1,240 $ 1,563 $ 1,871 Income-producing-commercial real estate 1,754 39,172 2,000 4,328 Owner occupied - commercial real estate — 19,836 — 19,187 Real estate mortgage- residential — 1,692 — 1,698 Construction - commercial and residential — 525 — — Home equity — 242 — — Other consumer — — 50 — Total $ 3,428 $ 62,707 $ 3,613 $ 27,084 107 Table of Contents Credit Quality Indicators The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s primary credit quality indicator is an internal credit risk rating system that categorizes loans into pass, special mention or classified categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment. The following are the definitions of the Company’s credit quality indicators: Pass: Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass. Special Mention: Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention. Classified: Classified (a) Substandard – Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. Classified (b) Doubtful – Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. 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 updated on an ongoing basis along with our credits rated watch or below reviews. The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of December 31, 2023 and 2022. The data is further defined by year of loan origination. 108 Table of Contents (dollars in thousands) Prior 2019 2020 2021 2022 2023 Revolving Loans Amort. Cost Basis Revolving Loans Convert. to Term Total December 31, 2023 Commercial: Pass $ 157,563 $ 48,524 $ 39,133 $ 194,555 $ 149,320 $ 191,889 $ 623,684 $ 5,207 $ 1,409,875 Special Mention 1,415 — — — — — 2,259 — 3,674 Substandard 13,797 58 10,337 1,509 222 — 33,670 624 60,217 Total 172,775 48,582 49,470 196,064 149,542 191,889 659,613 5,831 1,473,766 YTD gross charge-offs ( 885 ) — — — — — — ( 1,135 ) ( 2,020 ) PPP loans: Pass — — — 528 — — — — 528 Income producing - commercial real estate: Pass 1,257,937 326,999 328,743 517,957 732,291 327,126 263,317 1,845 3,756,215 Special Mention 84,585 44,424 6,740 — — — — — 135,749 Substandard 139,961 62,689 — — — — — — 202,650 Total 1,482,483 434,112 335,483 517,957 732,291 327,126 263,317 1,845 4,094,614 YTD gross charge-offs ( 11,817 ) — — — — — — — ( 11,817 ) Owner occupied - commercial real estate: Pass 534,525 103,034 35,385 202,776 41,907 125,934 673 55 1,044,289 Special Mention 54,288 13,348 — — — — — — 67,636 Substandard 37,167 — 1,274 — — — — 21,873 60,314 Total 625,980 116,382 36,659 202,776 41,907 125,934 673 21,928 1,172,239 Real estate mortgage - residential: Pass 22,877 7,545 2,186 15,967 14,756 5,895 — — 69,226 Substandard 4,170 — — — — — — — 4,170 Total 27,047 7,545 2,186 15,967 14,756 5,895 — — 73,396 Construction - commercial and residential: Pass 30,619 3,440 45,739 251,038 419,393 87,400 124,013 — 961,642 Substandard 8,124 — — — — — — — 8,124 Total 38,743 3,440 45,739 251,038 419,393 87,400 124,013 — 969,766 YTD gross charge-offs ( 136 ) ( 5,500 ) — — — — — — ( 5,636 ) Construction - C&I (owner occupied): Pass 18,551 4,265 56,361 618 33,237 12,619 6,370 — 132,021 Home equity Pass 1,590 — 87 151 118 — 49,035 643 51,624 Substandard — 36 — — — — 62 242 340 Total 1,590 36 87 151 118 — 49,097 885 51,964 Other consumer Pass 1 — — — 46 — 354 — 401 YTD gross charge-offs ( 50 ) — — — — — — — ( 50 ) Total Recorded Investment $ 2,367,170 $ 614,362 $ 525,985 $ 1,185,099 $ 1,391,290 $ 750,863 $ 1,103,437 $ 30,489 $ 7,968,695 Total YTD gross charge-offs $ ( 12,888 ) $ ( 5,500 ) $ — $ — $ — $ — $ — $ ( 1,135 ) $ ( 19,523 ) 109 Table of Contents (dollars in thousands) Prior 2018 2019 2020 2021 2022 Revolving Loans Amort. Cost Basis Revolving Loans Convert. to Term Total December 31, 2022 Commercial: Pass $ 183,329 $ 47,393 $ 56,261 $ 64,163 $ 237,146 $ 144,390 $ 736,090 $ 8,570 $ 1,477,342 Special Mention — — — — — 82 5,475 — 5,557 Substandard 1,332 351 276 — — — 1,344 1,147 4,450 Total 184,661 47,744 56,537 64,163 237,146 144,472 742,909 9,717 1,487,349 YTD gross charge-offs ( 569 ) ( 645 ) — — — — ( 247 ) ( 100 ) ( 1,561 ) PPP loans: Pass — — — 2,479 777 — — — 3,256 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 Special Mention 44,195 5,206 4,209 6,735 — — 47,676 — 108,021 Substandard 60,613 2,000 — — — — — — 62,613 Total 1,121,337 446,427 484,683 340,900 542,143 744,328 239,765 358 3,919,941 YTD gross charge-offs ( 1,355 ) — — — — — — — ( 1,355 ) 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 Substandard 19,753 — — — — — — — 19,753 Total 480,782 191,646 111,497 40,562 206,595 41,765 24,240 13,238 1,110,325 Real estate mortgage - residential: Pass 16,968 12,438 8,219 2,640 16,307 14,731 — — 71,303 Substandard 1,698 — — — — — — — 1,698 Total 18,666 12,438 8,219 2,640 16,307 14,731 — — 73,001 Construction - commercial and residential: Pass 84,522 71,841 90,560 189,023 191,127 159,771 90,911 — 877,755 Total 84,522 71,841 90,560 189,023 191,127 159,771 90,911 — 877,755 Construction - C&I (owner occupied): Pass 14,816 8,160 11,810 33,854 653 34,679 6,507 — 110,479 Home equity: Pass 1,747 — — 98 551 — 48,378 906 51,680 Substandard — — 41 — — — 61 — 102 Total 1,747 — 41 98 551 — 48,439 906 51,782 Other consumer: Pass 4 — — — — 126 1,561 3 1,694 Substandard — — — — — — — 50 50 Total 4 — — — — 126 1,561 53 1,744 YTD gross charge-offs ( 36 ) — — — — — — ( 43 ) ( 79 ) 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 $ ( 1,960 ) $ ( 645 ) $ — $ — $ — $ — $ ( 247 ) $ ( 143 ) $ ( 2,995 ) Nonaccrual and Past Due Loans Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether or not such loans are considered past due. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. The following table presents, by portfolio segment, information related to nonaccrual loans as of December 31, 2023 and 2022. 110 Table of Contents December 31, 2023 December 31, 2022 (dollars in thousands) Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Nonaccrual with No Allowance for Credit Loss Nonaccrual with an Allowance for Credit Losses Total Nonaccrual Loans Commercial $ 1,002 $ 1,047 $ 2,049 $ 101 $ 2,387 $ 2,488 Income producing - commercial real estate 40,926 — 40,926 — 2,000 2,000 Owner occupied - commercial real estate 19,836 — 19,836 17 — 17 Real estate mortgage - residential — 1,946 1,946 — 1,913 1,913 Construction- commercial and residential — 525 525 — — — Home equity 242 — 242 — — — Other consumer — — — — 50 50 Total (1) $ 62,006 $ 3,518 $ 65,524 $ 118 $ 6,350 $ 6,468 (1) Gross coupon interest income of $ 4.2 million, $ 558 thousand and $ 1.7 million would have been recorded for years ended December 31, 2023, 2022 and 2021, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans were $ 1.5 million, $ 17 thousand and $ 101 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status. The following table presents, by portfolio segment, an aging analysis and the recorded investments in loans past due as of December 31, 2023 and 2022: (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 December 31, 2023 Commercial $ 985 $ 7,048 $ — $ 8,033 $ 1,463,684 $ 2,049 $ 1,473,766 PPP loans — — — — 528 — 528 Income producing - commercial real estate — — — — 4,053,688 40,926 4,094,614 Owner occupied - commercial real estate 1,274 — — 1,274 1,151,129 19,836 1,172,239 Real estate mortgage – residential 2,089 — — 2,089 69,361 1,946 73,396 Construction - commercial and residential 2,056 — — 2,056 967,185 525 969,766 Construction - C&I (owner occupied) — — — — 132,021 — 132,021 Home equity 197 — — 197 51,525 242 51,964 Other consumer — — — — 401 — 401 Total $ 6,601 $ 7,048 $ — $ 13,649 $ 7,889,522 $ 65,524 $ 7,968,695 December 31, 2022 Commercial $ 697 $ 643 $ — $ 1,340 $ 1,483,521 $ 2,488 $ 1,487,349 PPP loans — — — — 3,256 — 3,256 Income producing - commercial real estate — — — — 3,917,941 2,000 3,919,941 Owner occupied - commercial real estate — 279 — 279 1,110,029 17 1,110,325 Real estate mortgage – residential — — — — 71,088 1,913 73,001 Construction - commercial and residential 531 — — 531 877,224 — 877,755 Construction - C&I (owner occupied) — — — — 110,479 — 110,479 Home equity — 52 — 52 51,730 — 51,782 Other consumer — 1 — 1 1,693 50 1,744 Total $ 1,228 $ 975 $ — $ 2,203 $ 7,626,961 $ 6,468 $ 7,635,632 111 Table of Contents 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 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. 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 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. 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. The following table presents the amortized cost basis as of December 31, 2023 and the financial effect of loans modified to borrowers experiencing financial difficulty during the year ended December 31, 2023: (dollars in thousands) Term Extension Combination - Term Extension and Principal Payment Delay Combination - Term Extension, Principal Payment Delay and Interest Rate Reduction Total Percentage of Total Loan Type Weighted Average Term and Principal Payment Extension (1) Weighted Average Interest Rate Reduction (2) Commercial $ 14,182 $ 21,003 $ — $ 35,185 2.4 % 11 months — % Income producing - commercial real estate (3) 7,191 62,356 106,256 175,803 4.3 % 16 months 2.56 % Owner occupied - commercial real estate — 19,127 — 19,127 1.6 % 9 months — % Construction - commercial and residential 7,095 — — 7,095 0.7 % 12 months — % Total $ 28,468 $ 102,486 $ 106,256 $ 237,210 (1) For loans that received multiple modifications during the year ended December 31, 2023, weighted average term and principal payment extensions were calculated based on the aggregated impact of the extensions received during the period. (2) The weighted average is calculated based on the total amortized cost at December 31, 2023 of loans that received interest rate reduction modifications during the year ended December 31, 2023. (3) Includes one loan modified as a combination - principal payment delay, term extension and interest rate reduction most recently in the fourth quarter of 2023 that was moved to nonaccrual status and incurred a $ 6.1 million charge off during the year ended December 31, 2023 in connection with the receipt of an updated appraisal in January 2024. 112 Table of Contents The following table presents the performance of loans modified to borrowers experiencing financial difficulty during the year ended December 31, 2023: December 31, 2023 Payment Status (Amortized Cost Basis) (dollars in thousands) Current 30-89 Days Past Due 90 Days or More Past Due Nonaccrual Commercial $ 30,790 $ 4,395 $ — $ — Income producing - commercial real estate 137,252 — — 38,551 Owner occupied - commercial real estate — — — 19,127 Construction - commercial and residential 7,095 — — — Total $ 175,137 $ 4,395 $ — $ 57,678 The Company monitors loan payments on performing and nonperforming loans on an on-going basis to determine if a loan is considered to have a payment default. To determine the existence of a payment default, the Company analyzes the economic conditions that exist for each borrower and their ability to generate positive cash flow during a given loan's term. The following table presents the amortized cost basis of loans that were experiencing payment default at December 31, 2023 and were modified in the twelve months prior to that default to borrowers experiencing financial difficulty: December 31, 2023 Amortized Cost Basis (dollars in thousands) Term Extension Combination - Term Extension and Principal Payment Delay Combination - Term Extension, Principal Payment Delay and Interest Rate Reduction Commercial $ 4,395 $ — $ — Income producing - commercial real estate — — 38,551 Owner occupied - commercial real estate — 19,127 — Total $ 4,395 $ 19,127 $ 38,551 The Company individually evaluates nonaccrual loans when performing its CECL estimate to calculate the ACL. Additionally, the Company utilizes historical internal and third-party service provider sourced loss data in the determination of its PD/LGD rates applied in the calculation of its CECL estimate. Upon determination that a modified loan (or a portion of a loan) has subsequently been deemed uncollectible, the loan (or a portion of the loan) is charged off. Therefore, the amortized cost basis of the loan is reduced by the uncollectible amount and the ACL is adjusted by the same amount. Troubled Debt Restructurings ("TDRs") Historically, a modification of a loan constituted a TDR when a borrower was experiencing financial difficulty and the modification constituted a concession. The Company offered various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involved temporary interest-only payments, term extensions and converting revolving credit lines to term loans. Additional collateral, a co-borrower or a guarantor were often requested. Commercial mortgage and construction loans modified in a TDR often involved 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 have involved extending the interest-only payment period. As of December 31, 2022, all performing TDRs were categorized as interest-only modifications. Loans modified in a TDR for the Company may have had the financial effect of increasing the specific allowance associated with the loan. An allowance for consumer and commercial loans that had been modified in a TDR was 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 was collateral dependent. Management exercised significant judgment in developing these estimates. The following table presents the recorded investment of loans modified in TDRs held by the Company as of December 31, 2022: 113 Table of Contents (dollars in thousands) Number of Contracts Commercial Income Producing - Commercial Real Estate Owner Occupied - Commercial Real Estate Total Troubled debt restructurings: Restructured accruing 5 $ 946 $ 4,328 $ 19,170 $ 24,444 Specific allowance $ 87 $ 2,140 $ — $ 2,227 Restructured and subsequently defaulted $ — $ — $ — $ — During the year ended December 31, 2022, there was one loan totaling $ 19.2 million that was modified in a TDR and no TDRs defaulted on their modified terms that were reclassified to nonperforming loans. As of December 31, 2022, all five TDR loans, totaling $ 24.4 million, were performing under their modified terms. During the year ended December 31, 2022, three restructured loans, two of which were nonperforming, totaling approximately $ 11.1 million had their collateral property sold to a third party and a charge off of $ 1.4 million was recognized on the sale. Related Party Loans Certain directors and executive officers of the Company and the Bank and certain affiliated entities of such directors and executive officers have had loan transactions with the Company. All of such loans are either fully repaid or performing and none of such loans are nonaccrual, past due, restructured, or rated substandard or worse (not on nonaccrual). Amounts in “additions due to changes in related party status” or "removals due to changes in related party status" reflect loans that transitioned to being related party loans or out of being related party loans during the years presented as a result of changes in related party status with respect to certain of the Company’s directors who are affiliated with the related borrowers. The following table summarizes the activity of loans outstanding to borrowers with relationships to related parties in 2023 and 2022: (dollars in thousands) 2023 2022 Balance at January 1, $ 119,198 $ 150,822 Additions 283 173 Repayments ( 44,645 ) ( 33,220 ) Additions due to changes in related party status — 1,423 Removals due to changes in related party status ( 74,000 ) — Balance at December 31, $ 836 $ 119,198 Note 5 – Premises and Equipment Premises and equipment include the following at December 31: (dollars in thousands) 2023 2022 Leasehold improvements $ 29,042 $ 32,126 Furniture, fixtures and equipment 19,600 34,424 Less: accumulated depreciation and amortization ( 38,453 ) ( 53,075 ) Total premises and equipment, net $ 10,189 $ 13,475 Total depreciation and amortization expense for the years ended December 31, 2023, 2022 and 2021 was $ 3.4 million, $ 3.2 million and $ 4.3 million, respectively. Note 6 – Leases A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branch offices, ATM locations and corporate office space. All of our leases are classified as operating 114 Table of Contents leases and are included in operating lease right-of-use ("ROU") assets and operating lease liabilities in the consolidated balance sheet. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. In determining the present value of the lease payments, we use the implicit lease rate if available. If the implicit lease rate is not available, we use the incremental borrowing rate at commencement date. The incremental borrowing rate is the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment. As of December 31, 2023, the Company had $ 19.1 million of operating lease ROU assets and $ 23.2 million of operating lease liabilities compared to $ 24.5 million of operating lease ROU assets and $ 29.3 million of operating lease liabilities at December 31, 2022 on the Company’s Consolidated Balance Sheet. The Company has elected not to recognize ROU assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less or equipment leases (deemed immaterial) on the Consolidated Balance Sheets. Our leases contain terms and conditions of options to extend or terminate the lease which are recognized as part of the ROU assets and lease liabilities when an economic benefit to exercise the option exists and there is a 90 % probability that the Company will exercise the option. If these criteria are not met, the options are not included in our ROU assets and lease liabilities. As of December 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. In 2023, the Company did not enter into any new leases, or extend any leases; it renewed one lease, and it had three leases expire ( three branches were closed). The following table presents lease costs and other lease information. Years Ended December 31, (dollars in thousands) 2023 2022 Lease cost Operating lease cost (cost resulting from lease payments) $ 6,590 $ 7,145 Variable lease cost (cost excluded from lease payments) 1,000 1,008 Sublease income ( 119 ) ( 241 ) Net lease cost $ 7,471 $ 7,912 Operating lease - operating cash flows (fixed payments) $ 7,198 $ 7,368 (dollars in thousands) December 31, 2023 December 31, 2022 Right-of-use assets - operating leases $ 19,129 $ 24,544 Operating lease liabilities $ 23,238 $ 29,267 Weighted average lease term - operating leases 4.93 yrs 5.50 yrs Weighted average discount rate - operating leases 2.78 % 2.91 % Future minimum payments for operating leases with initial or remaining terms of one year or more as of December 31, 2023 were as follows: 115 Table of Contents (dollars in thousands) Twelve months ended: December 31, 2024 $ 6,925 December 31, 2025 6,078 December 31, 2026 2,988 December 31, 2027 2,599 December 31, 2028 2,176 Thereafter 3,751 Total future minimum lease payments 24,517 Amounts representing interest ( 1,279 ) Present value of net future minimum lease payments $ 23,238 Note 7 – Intangible Assets Intangible assets are included in the Consolidated Balance Sheets as a separate line item, net of accumulated amortization and consist of the following items: (dollars in thousands) Gross Intangible Assets Additions Accumulated Amortization FHA MSR Sales Net Intangible Assets December 31, 2023: Goodwill $ 104,168 $ — $ — $ — $ 104,168 Excess servicing (1) 65 — ( 28 ) — 37 Non-compete agreements — 1,234 ( 514 ) — 720 Total $ 104,233 $ 1,234 $ ( 542 ) $ — $ 104,925 December 31, 2022: Goodwill $ 104,168 $ — $ — $ — $ 104,168 Excess servicing (1) 87 67 ( 89 ) — 65 Non-compete agreements — — — — — Total $ 104,255 $ 67 $ ( 89 ) $ — $ 104,233 (1) The Company recognizes a servicing asset for the computed value of servicing fees on the sale of multifamily FHA loans and the sale of the guaranteed portion of SBA loans. Assumptions related to loan terms and amortization are made to arrive at the initial recorded values, which are included in other assets. The aggregate amortization expense was $ 542 thousand, $ 89 thousand and $ 132 thousand for the years ended December 31, 2023, 2022 and 2021, respectively. The future estimated annual amortization expense is presented below: Years Ending December 31: (dollars in thousands) Amount 2024 $ 725 2025 5 2026 5 2027 5 2028 5 Thereafter 12 Total annual amortization $ 757 116 Table of Contents Note 8 – Other Real Estate Owned The activity within OREO for the years ended December 31, 2023 and 2022 is presented in the table below. There were no properties in the process of foreclosure as of December 31, 2023 and 2022. For the years ended December 31, 2023 and 2022, there were two and one sales of OREO, respectively. Years Ended December 31, (dollars in thousands) 2023 2022 Beginning Balance $ 1,962 $ 1,635 Real estate acquired from borrowers — 475 Properties sold ( 854 ) ( 148 ) Ending Balance $ 1,108 $ 1,962 Note 9 – Derivatives and Hedging Activities The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. 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 and the use of derivative financial instruments. Cash Flow Hedges of Interest Rate Risk The Company uses interest rate swaptions to assist in its interest rate risk management. The Company’s objective in using interest rate derivatives designated as cash flow hedges is to protect itself against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows related to interest payments on a forecasted issuance of debt. To accomplish this objective, the Company has entered into swaptions to hedge the risk of changes in its cash flows, i.e. interest payments, attributable to changes in the designated benchmark interest rate being hedged, above the purchased swaption fixed rate, for the period from hedge inception to the Borrowings issuance window. For derivatives designated and that qualify as cash flow hedges of interest rate risk, changes in the fair value of the derivative are initially reported in accumulated other comprehensive loss (outside of earnings), net of tax, and subsequently reclassified to earnings in the same period during which 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. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis, as documented at hedge inception in accordance with the Company’s accounting policy election. Amounts reported in accumulated other comprehensive loss related to designated cash flow hedge derivatives will be reclassified to interest expense. During the next 12 months, the Company estimates that an additional $ 616 thousand will be reclassified as an increase to interest expense. The Company did no t have any designated cash flow hedge interest rate swap transaction outstanding at December 31, 2022 or 2021. Interest Rate Products not Designated as Hedges 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. 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. 117 Table of Contents The Company entered into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts in exchange for a fee. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Credit Risk Related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company is exposed to credit risk in the event of nonperformance by the interest rate swap counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. The designated interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party's exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; and 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. Mortgage Banking Derivatives The Company completed the cessation of first lien residential mortgage origination and sales activities during the year ended December 31, 2023. As of December 31, 2023, the Company had no outstanding mortgage banking derivatives. Historically, as part of its mortgage banking activities, the Bank entered into interest rate lock commitments, which were 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 locked in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs ("best efforts") or committed to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Certain loans that were under interest rate lock commitments were covered under forward sales contracts of MBS. Forward sales contracts of MBS were recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors were considered derivatives. The market value of interest rate lock commitments and best efforts contracts were not readily ascertainable with precision because they were not actively traded in stand-alone markets. The Bank determined the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which was 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 arose from these forward delivery contracts in that the counterparties to the contracts may not have been able to meet the terms of the contracts. The Bank did not expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs included the risk that, if the Bank did not close the loans subject to interest rate risk lock commitments, it would still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this have been required, the Bank could have incurred 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 was recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change. 118 Table of Contents The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of December 31, 2023 and 2022. December 31, 2023 December 31, 2022 (dollars in thousands) Notional Amount Fair Value Balance Sheet Category Notional Amount Fair Value Balance Sheet Category Derivatives in an asset position: Derivatives designated as hedging instruments: Interest rate product $ 300,000 $ 374 Other Assets $ — $ — Other Assets Derivatives not designated as hedging instruments: Interest rate product 651,429 30,288 Other Assets 396,024 31,039 Other Assets Credit risk participation agreements 49,480 3 Other Liabilities — — Other Assets Mortgage banking derivatives — — Other Assets 6,963 93 Other Assets 700,909 30,291 402,987 31,132 Total derivatives in an asset position $ 1,000,909 $ 30,665 $ 402,987 $ 31,132 Derivatives in a liability position: Derivatives not designated as hedging instruments: Interest rate product $ 654,757 $ 30,555 Other Liabilities $ 396,024 $ 30,065 Other Liabilities Credit risk participation agreements — — Other Liabilities 25,902 2 Other Liabilities $ 654,757 30,555 $ 421,926 30,067 Gross amounts not offset in the consolidated balance sheets: Cash and other collateral (1) — — Net derivatives in a liability position $ 30,555 $ 30,067 (1) Collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consist of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above. The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the years ended December 31, 2023, 2022 and 2021. 119 Table of Contents The Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income Amount of Gain (Loss) Recognized in OCI Location of Gain (Loss) Recognized from Accumulated Other Comprehensive Income into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (dollars in thousands) Total Included Component Excluded Component Total Included Component Excluded Component Year ended December 31, 2023: Derivatives in cash flow hedging relationships: Interest rate products $ ( 256 ) $ — $ ( 256 ) Interest expense $ ( 14 ) $ — $ ( 14 ) Year ended December 31, 2022: Derivatives in cash flow hedging relationships: Interest rate products $ — $ — $ — Interest expense $ — $ — $ — Year ended December 31, 2021: Derivatives in cash flow hedging relationships: Interest rate products $ — $ — $ — Interest expense $ ( 516 ) $ ( 516 ) $ — The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income for the years ended December 31, 2023, 2022 and 2021. The Effect of Cash Flow Hedge Accounting on the Consolidated Statements of Income Year Ended December 31, 2023 2022 2021 (dollars in thousands) Interest Expense Interest Expense Interest Expense Total amounts of expense line items presented in the Consolidated Statements of Income in which the effects of cash flow hedges are recorded $ ( 14 ) $ — $ ( 516 ) The effect of cash flow hedging: Gain (loss) on cash flow hedging relationships: Interest rate products: Amount of gain (loss) reclassified from accumulated other comprehensive income into income $ ( 14 ) $ — $ ( 516 ) Amount of gain (loss) reclassified from accumulated other comprehensive income into income - included component $ — $ — $ ( 516 ) Amount of gain (loss) reclassified from accumulated other comprehensive income into income - excluded component $ ( 14 ) $ — $ — Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Income (dollars in thousands) Location of Gain or (Loss) Recognized in Income on Derivative Amount of Gain or (Loss) Recognized in Income on Derivatives Year Ended December 31, 2023 2022 2021 Derivatives Not Designated as Hedging Instruments under ASC 815-20: Interest rate products Other income / (expense) $ 2,712 $ 3,057 $ 2,797 Mortgage banking derivatives Other income — 671 636 Total $ 2,712 $ 3,728 $ 3,433 Balance Sheet Offsetting : Our interest rate swap derivatives are eligible for offset in the Consolidated Balance Sheet and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under 120 Table of Contents International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally presents such financial instruments gross for financial reporting purposes. Note 10 – Deposits The following table provides information regarding the Bank’s deposit composition at December 31, 2023 and 2022 as well as the average rate being paid on interest bearing deposits for the month of December 2023 and 2022. December 31, (dollars in thousands) 2023 2022 Noninterest-bearing demand $ 2,279,081 $ 3,150,751 Interest-bearing transaction 997,448 1,138,235 Savings and money market 3,314,043 3,640,697 Time deposits 2,217,467 783,499 Total $ 8,808,039 $ 8,713,182 The remaining maturity of time deposits at December 31, 2023 and 2022 were as follows: (dollars in thousands) 2023 2022 2023 $ — $ 463,393 2024 1,445,395 152,898 2025 576,379 157,320 2026 180,384 2,628 2027 5,482 4,130 2028 9,827 3,130 Thereafter — — Total $ 2,217,467 $ 783,499 (dollars in thousands) 2023 2022 Three months or less $ 342,552 $ 159,820 More than three months through six months 544,230 99,044 More than six months through twelve months 558,613 204,529 Over twelve months 772,072 320,106 Total $ 2,217,467 $ 783,499 Interest expense on deposits for the years ended December 31, 2023, 2022 and 2021 was as follows: (dollars in thousands) 2023 2022 2021 Interest-bearing transaction $ 46,140 $ 6,721 $ 1,609 Savings and money market 132,374 65,777 15,000 Time deposits 79,030 10,763 11,163 Total $ 257,544 $ 83,261 $ 27,772 Related Party deposits totaled $ 33.1 million and $ 31.8 million at December 31, 2023 and 2022, respectively. 121 Table of Contents As of December 31, 2023 and 2022, time deposit accounts in excess of $250 thousand were as follows: (dollars in thousands) 2023 2022 Three months or less $ 119,880 $ 87,959 More than three months through six months 318,353 51,746 More than six months through twelve months 368,103 108,877 Over twelve months 726,758 269,200 Total $ 1,533,094 $ 517,782 At December 31, 2023, total deposits included $ 2.5 billion of brokered deposits (excluding the CDARS and ICS two-way accounts), which represented 29 % of total deposits. At December 31, 2022, total brokered deposits (excluding the CDARS and ICS two-way accounts) were $ 2.5 billion, or 29 % of total deposits. Note 11 – Affordable Housing Projects Tax Credit Partnerships Included in Other Assets, the Company makes equity investments in various limited partnerships that sponsor affordable housing projects utilizing the Low Income Housing Tax Credit (“LIHTC”) pursuant to Section 42 of the Internal Revenue Code. The purpose of these investments is to achieve a satisfactory return on capital, to facilitate the sale of affordable housing products offerings and to assist in achieving goals associated with the Community Reinvestment Act. The primary activities of the limited partnerships include the identification, development and operation of multi-family housing that is leased to qualifying residential tenants. Generally, these types of investments are funded through a combination of debt and equity. The Company is a limited partner in each LIHTC limited partnership. Each limited partnership is managed by an unrelated third party general partner who exercises significant control over the affairs of the limited partnership. The general partner has all the rights, powers and authority granted or permitted to be granted to a general partner of a limited partnership. Duties entrusted to the general partner of each limited partnership include, but are not limited to: investment in operating companies, company expenditures, investment of excess funds, borrowing funds, employment of agents, disposition of fund property, prepayment and refinancing of liabilities, votes and consents, contract authority, disbursement of funds, accounting methods, tax elections, bank accounts, insurance, litigation, cash reserve and use of working capital reserve funds. Except for limited rights granted to the limited partner(s) relating to the approval of certain transactions, the limited partner(s) may not participate in the operation, management or control of the limited partnership’s business, transact any business in the limited partnership’s name or have any power to sign documents for or otherwise bind the limited partnership. In addition, the general partner may only be removed by the limited partner(s) in the event the general partner fails to comply with the terms of the agreement or is negligent in performing its duties. The general partner of each limited partnership has both the power to direct the activities which most significantly affect the performance of each partnership and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Therefore, the Company has determined that it is not the primary beneficiary of any LIHTC partnership. The Company accounts for its affordable housing tax credit investments using the proportional amortization method. The Company’s net affordable housing tax credit investments were $ 48.2 million and related unfunded commitments were $ 23.9 million as of December 31, 2023 and are included in Other Assets and Other Liabilities, respectively, in the Consolidated Balance Sheets. For tax purposes, the Company recognized low income housing tax credits of $ 5.6 million, $ 5.0 million and $ 4.2 million for the years ended December 31, 2023 and 2022, and December 31, 2021, respectively, and low income housing investment expense of $ 4.3 million, $ 3.7 million and $ 3.1 million, respectively. The Company recognizes low income housing investment expenses as a component of income tax expense. 122 Table of Contents As of December 31, 2023, the expected payments for unfunded affordable housing commitments were as follows: (dollars in thousands) Amount Years Ended December 31: 2024 $ 16,292 2025 5,900 2026 440 2027 159 2028 359 Thereafter 735 Total unfunded commitments $ 23,885 Note 12 – Borrowings The following table summarizes the Company’s borrowings, which include repurchase agreements with the Company’s customers and borrowings at December 31, 2023 and 2022: (dollars in thousands) Borrowings - Principal Unamortized Deferred Issuance Costs Net Borrowings Outstanding Available Capacity (1)(2) Maturity Dates Interest Rates (3) December 31, 2023: Customer repurchase agreements $ 30,587 $ — $ 30,587 $ — N/A 3.42 % FHLB secured borrowings — — — 1,271,846 N/A N/A FRB: BTFP secured borrowings (4) 1,300,000 — 1,300,000 598,870 March 22, 2024 4.53 % Discount window secured borrowings — — — 601,504 N/A N/A Raymond James repurchase agreement — — — 17,993 N/A N/A Subordinated notes, 5.75 % 70,000 ( 82 ) 69,918 — September 1, 2024 5.75 % Total borrowings $ 1,400,587 $ ( 82 ) $ 1,400,505 $ 2,490,213 December 31, 2022: Customer repurchase agreements $ 35,100 $ — $ 35,100 $ — N/A 2.94 % FHLB secured borrowings 975,001 — 975,001 145,104 December 1, 2023 4.57 % FRB discount window secured borrowings — — — 607,405 N/A N/A Subordinated notes, 5.75 % 70,000 ( 206 ) 69,794 — September 1, 2024 5.75 % Total borrowings $ 1,080,101 $ ( 206 ) $ 1,079,895 $ 752,509 (1) Available capacity on the Company's borrowings arrangements with the FHLB, the FRB's BTFP program and the Raymond James repurchase line comprise pledged collateral that has not been borrowed against. At December 31, 2023, the Company had total additional undrawn borrowing capacity of approximately $ 2.2 billion, comprising unencumbered securities available to be pledged of approximately $ 292.3 million and undrawn financing on pledged assets of $ 1.9 billion, including $ 1.3 billion with the FHLB, $ 598.9 million with the BTFP and $ 18.0 million with Raymond James. (2) As part of the Company's agreement governing its participation in the BTFP program and the Raymond James repurchase agreement, the borrowing capacity is determined based on the principal balance of the pledged assets. (3) Represent the weighted average interest rate on customer repurchase agreements, borrowings outstanding and the coupon interest rate on the subordinated notes, which approximates the effective interest rate. (4) In January 2024, the Company borrowed an additional $ 500.0 million through the BTFP and refinanced $ 500.0 million under the program at an interest rate of 4.76 % and a maturity date in January 2025. The remaining $ 800.0 million matures in March 2024. 123 Table of Contents The Company offers its business customers a repurchase agreement sweep account in which it collateralizes these funds with U.S. agency and MBS segregated in its investment portfolio for this purpose. The Company’s repurchase agreements operate on a rolling basis and do not contain contractual maturity dates. By entering into the agreement, the customer agrees to have the Bank repurchase the designated securities on the business day following the initial transaction in consideration of the payment of interest at the rate prevailing on the day of the transaction. The Bank can purchase up to $ 155 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2023 and can place brokered funds under one-way CDARS and ICS deposits in the amount of $ 1.7 billion, against which there was $ 94.0 million outstanding at December 31, 2023. The Bank also has a commitment at December 31, 2023 from IntraFi Network, LLC ("IntraFi") to place up to $ 786.5 million of brokered deposits from its Insured Network Deposits (“IND”) program in amounts requested by the Bank, as compared to an actual balance of $ 786.5 million at December 31, 2023. At December 31, 2023, the Bank was also eligible to take advances from the FHLB up to $ 1.3 billion based on collateral at the FHLB, of which there was none outstanding at December 31, 2023. The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve Bank. This facility, which amounts to approximately $ 601.5 million, is collateralized with specific loan assets pledged to the Federal Reserve Bank. It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only. The contractual maturity dates on FHLB secured borrowings represent the maturity dates of current advances and are not evidence of a termination date on the line. There are no prepayment penalties nor unused commitment fees on any of the Company’s borrowing arrangements. Bank Term Funding Program (“BTFP”) On March 12, 2023, the FRB, Department of Treasury and the Federal Deposit Insurance Corporation ("FDIC") issued a joint statement outlining actions they had taken to protect the U.S. economy by strengthening public confidence in the banking system as a result of and in response to recently announced bank closures. Among other actions, the Federal Reserve announced that it would make available additional funding to eligible depository institutions through the creation of a new BTFP. The BTFP provides eligible depository institutions, including the Company's subsidiary bank, EagleBank, an additional source of liquidity. Borrowings are funded based on a percentage of the principal of eligible collateral posted, as defined within the terms of the program. Interest is payable at a fixed rate over the term of the borrowing and there are no prepayment penalties. The Federal Reserve announced in January 2024 that the BTFP will stop originating new loans on March 11, 2024, as scheduled. The Federal Reserve also modified the terms of the program so that the interest rate for new loans will be no lower than the interest rate on reserve balances in effect on the day the loan is made. Subordinated Notes Subordinated notes outstanding were $ 69.9 million at December 31, 2023 and $ 69.8 million at December 31, 2022. On August 5, 2014, the Company completed the sale of $ 70 million of its 5.75 % subordinated notes, due September 1, 2024 (the “2024 Notes”). The Notes were offered to the public at par. The 2024 Notes qualified as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements, and were fully phased out of regulatory capital as of December 31, 2023 as they approached maturity. The net proceeds were approximately $ 68.8 million, which included $ 1.2 million in deferred financing costs which are being amortized over the life of the 2024 Notes. 124 Table of Contents Note 13 – Income Taxes Federal and state income tax expense consists of the following for the years ended December 31: (dollars in thousands) 2023 2022 2021 Current federal income tax expense $ 25,291 $ 37,182 $ 39,865 Current state income tax expense 5,072 5,008 15,348 Total current tax expense 30,363 42,190 55,213 Deferred federal income tax (benefit) expense ( 2,966 ) 3,532 5,185 Deferred state income tax (benefit) expense ( 411 ) 3,028 585 Total deferred tax (benefit) expense ( 3,377 ) 6,560 5,770 Total income tax expense $ 26,986 $ 48,750 $ 60,983 The Company had net deferred tax assets (deferred tax assets in excess of deferred tax liabilities) of $ 86.6 million and $ 96.6 million for the years ended at December 31, 2023 and 2022, respectively, which related primarily to our unrealized loss on securities, allowance for credit losses and loan origination fees. Management believes it is more likely than not that all of the deferred tax assets will be realized with the exception of certain state net operating losses. Temporary timing differences between the amounts reported in the Consolidated Financial Statements and the tax bases of assets and liabilities result in deferred taxes. The table below summarizes significant components of our deferred tax assets and liabilities as of December 31, 2023 and 2022: (dollars in thousands) 2023 2022 Deferred tax assets Allowance for credit losses $ 21,281 $ 18,490 Deferred loan fees and costs 6,372 6,736 Leases 5,713 7,195 Stock-based compensation 2,003 1,796 Net operating loss 7,964 7,736 Unrealized loss on securities available-for-sale 39,671 50,442 Unrealized loss on securities held-to-maturity 11,725 14,366 Unrealized loss on interest rate swap derivatives 59 — Supplemental executive retirement and death benefit agreements 2,066 2,495 Other assets 2,669 1,344 Valuation allowances ( 7,428 ) ( 7,008 ) Total deferred tax assets 92,095 103,592 Deferred tax liabilities Excess servicing ( 561 ) ( 589 ) Premises and equipment ( 211 ) ( 205 ) Leases ( 4,703 ) ( 6,034 ) Other liabilities — ( 197 ) Total deferred tax liabilities ( 5,475 ) ( 7,025 ) Net deferred income tax assets $ 86,620 $ 96,567 As of December 31, 2023. the Company has $ 2.9 million of federal net operating loss carryforward in conjunction with the Fidelity & Trust Financial Corporation acquisition, that is subject to annual limits under Section 382 of the Internal Revenue Code and expires in 2027. The Company has concluded, based on the weight of available positive and negative 125 Table of Contents evidence, a portion of its state net operating loss deferred tax asset is not more likely than not to be realized and accordingly, a valuation allowance of $ 7.4 million and $ 7.0 million is carried as of December 31, 2023 and 2022, respectively. A reconciliation of the statutory federal income tax rate to the Company’s effective income tax rate for the years ended December 31, 2023, 2022 and 2021 follows: 2023 2022 2021 Statutory federal income tax rate 21.00 % 21.00 % 21.00 % Increase (decrease) due to: State income taxes 2.75 % 3.28 % 5.45 % Non-deductible fines and penalties — % 2.54 % — % Tax-exempt interest and dividend income ( 3.11 ) % ( 1.57 ) % ( 0.91 ) % Stock-based compensation expense 0.40 % 0.19 % 0.44 % Other 0.12 % 0.26 % ( 0.32 ) % Effective tax rate 21.16 % 25.70 % 25.66 % The Company remains subject to examination by taxing authorities for the years ending after December 31, 2019. Management has identified no uncertain tax positions at December 31, 2023. Note 14 – Net Income per Common Share The calculation of net income per common share for the years ended December 31 was as follows: (dollars and shares in thousands, except per share data) 2023 2022 2021 Basic: Net income $ 100,534 $ 140,930 $ 176,691 Average common shares outstanding 30,346 32,004 31,936 Basic net income per common share $ 3.31 $ 4.40 $ 5.53 Diluted: Net income $ 100,534 $ 140,930 $ 176,691 Average common shares outstanding 30,346 32,004 31,936 Adjustment for common share equivalents 47 74 67 Average common shares outstanding-diluted 30,393 32,078 32,003 Diluted net income per common share $ 3.31 $ 4.39 $ 5.52 Anti-dilutive shares 3 3 3 Note 15 – Related Party Transactions The EagleBank Foundation, a 501(c)(3) non-profit, seeks to improve the well-being of our community by providing financial support to local charitable organizations that help foster and strengthen vibrant, healthy, cultural and sustainable communities. The Company paid $ 143 thousand, $ 113 thousand and $ 134 thousand to the EagleBank Foundation for the years ended December 31, 2023, 2022 and 2021, respectively, which were recorded in other expenses on the Consolidated Statements of Income. Certain directors and executive officers of the Company and the Bank and certain affiliated entities of such directors and executive officers have had loan transactions with the Company. Such loans were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with outsiders. Please see further detail regarding Related Party Loans in Note 4 "Loans and Allowance for Credit Losses" and Related Party Deposits in Note 10 "Deposits." 126 Table of Contents Note 16 – Stock-Based Compensation The Company maintains the 2021 Stock Plan ("2021 Plan"), the 2016 Stock Plan (“2016 Plan”), the 2006 Stock Plan (“2006 Plan”), the 2021 Employee Stock Purchase Plan ("2021 ESPP") and the 2011 Employee Stock Purchase Plan (“2011 ESPP”). In connection with the acquisition of Virginia Heritage Bank ("Virginia Heritage"), the Company assumed the Virginia Heritage 2006 Stock Option Plan and the 2010 Long Term Incentive Plan (the “Virginia Heritage Plans”). No additional options may be granted under the 2016 Plan, 2006 Plan or the Virginia Heritage Plans. The Company adopted the 2021 Plan upon approval by the shareholders at the 2021 Annual Meeting held on May 20, 2021. The 2021 Plan provides directors and selected employees of the Bank, the Company and their affiliates with the opportunity to acquire shares of stock, through awards of options, time vested restricted stock, performance-based restricted stock and stock appreciation rights. Under the 2021 Plan, 1,300,000 shares of common stock were initially reserved for issuance. For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black-Scholes model. For restricted stock awards granted under the 2021 Plan, fair value is based on the Company’s closing price on the date of grant. For awards that are performance-based, compensation expense is initially recorded based on the probability of achievement of the goals underlying the grant at target. In February 2023, the Company awarded 168,994 shares of time vested restricted stock to senior officers, directors and certain employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. In February 2023, the Company awarded senior officers a targeted number of 59,816 performance vested restricted stock units (“PRSUs”). The vesting of PRSUs is 100 % after three years with payouts based on threshold, target or maximum average performance targets over a three year period. There are two performance metrics: 1) total shareholder's return; and 2) return on average assets. In February 2023, the 2020 performance award vested and 11,187 incremental shares were awarded. In March 2023, the Company awarded 2,540 shares of time vested restricted stock to two employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. In May 2023, the Company awarded 984 shares of time vested restricted stock to two employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. In June 2023, the Company awarded 1,024 shares of time vested restricted stock to two employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. In July 2023, the Company awarded 462 shares of time vested restricted stock to an employee. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. In September 2023, the Company awarded 13,818 shares of time vested restricted stock to an employee. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. In October 2023, the Company awarded 2,434 shares of time vested restricted stock to an employee. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant. The Company has unvested restricted stock awards and PRSU grants of 437,207 shares at December 31, 2023. Unrecognized stock based compensation expense related to restricted stock awards and PRSU grants totaled $ 10.1 million at December 31, 2023. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 1.87 years. The following table summarizes the unvested restricted stock awards for performance for the years ended December 31, 2023, 2022 and 2021: 127 Table of Contents Years Ended December 31, 2023 2022 2021 Performance Awards Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Unvested at beginning 129,855 $ 45.15 118,568 $ 44.71 90,642 $ 49.11 Issued 71,003 40.50 37,775 53.97 51,564 42.97 Forfeited ( 44,084 ) 40.29 ( 1,966 ) 55.76 ( 580 ) 60.45 Vested ( 33,559 ) 44.60 ( 24,522 ) 55.76 ( 23,058 ) 60.45 Unvested at end 123,215 $ 44.74 129,855 $ 45.15 118,568 $ 44.71 The following table summarizes the unvested time vesting restricted stock awards for the years ended December 31, 2023, 2022 and 2021: Years Ended December 31, 2023 2022 2021 Time Vested Awards Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Shares Weighted- Average Grant Date Fair Value Unvested at beginning 302,148 $ 53.75 300,792 $ 46.24 218,031 $ 45.89 Issued 190,256 44.16 166,471 59.72 179,624 47.63 Forfeited ( 27,558 ) 51.57 ( 12,064 ) 53.10 ( 8,489 ) 47.38 Vested ( 150,854 ) 51.76 ( 153,051 ) 45.54 ( 88,374 ) 48.10 Unvested at end 313,992 $ 49.08 302,148 $ 53.75 300,792 $ 46.24 Below is a summary of stock option activity for the years ended December 31, 2023 , 2022 and 2021. The information excludes restricted stock units and awards. Years Ended December 31, 2023 2022 2021 Shares Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Shares Weighted- Average Exercise Price Beginning balance 2,500 $ 47.95 5,789 $ 36.96 5,789 $ 36.96 Issued — — — — — — Exercised — — ( 3,289 ) 28.60 — — Forfeited — — — — — — Ending balance 2,500 $ 47.95 2,500 $ 47.95 5,789 $ 36.96 Exercisable end of year 2,500 $ 47.95 1,666 $ 47.95 4,122 $ 32.51 There were no grants of stock options during the years ended December 31, 2023, 2022 and 2021. Grants of stock options have expected lives based on the "simplified" method allowed by ASC 718 "Compensation," whereby the expected term is equal to the midpoint between the vesting date and the end of the contractual term of the award. There was no intrinsic value of outstanding stock options for both December 31, 2023 and 2022. The total fair value of stock options vested was $ 18 thousand for all three years ended December 31, 2023, 2022 and 2021. At December 31, 2023, there is no unrecognized stock-based compensation expense related to stock options. Cash proceeds, tax benefits and intrinsic value related to total stock options exercised is as follows: 128 Table of Contents Years Ended December 31, (dollars in thousands) 2023 2022 2021 Proceeds from stock options exercised $ — $ 97 $ — Tax benefits realized from stock compensation — 3 — Intrinsic value of stock options exercised — 98 — Approved by shareholders in May 2021, the 2021 ESPP reserved 200,000 shares of common stock for issuance to employees. Whole shares are sold to participants in the plan at 85 % of the lower of the stock price at the beginning or end of each quarterly offering period. The 2021 ESPP is available to all eligible employees who have completed at least one year of continuous employment, work at least 20 hours per week and at least five months a year. Participants may contribute a minimum of $ 10 per pay period to a maximum of $ 25,000 annually (not to exceed more than 10 % of compensation per pay period). At December 31, 2023, the 2021 ESPP had 157,524 shares reserved for issuance. Included in salaries and employee benefits in the accompanying Consolidated Statements of Income, the Company recognized $ 10.0 million, $ 6.0 million and $ 7.8 million in stock-based compensation expense for 2023, 2022 and 2021, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards. Note 17 – Employee Benefit Plans The Company has a qualified 401(k) Plan which covers all employees who have reached the age of 18 years and have completed at least 1 month of service as defined by the Plan. The Company makes contributions to the Plan based on a matching formula, which is reviewed annually. For the years 2023, 2022 and 2021, the Company recognized $ 1.7 million, $ 1.8 million and $ 1.8 million in expense associated with this benefit, respectively. These amounts are included in salaries and employee benefits in the accompanying Consolidated Statements of Income. Note 18 – Supplemental Executive Retirement Plan The Bank has entered into Supplemental Executive Retirement and Death Benefit Agreements (the “SERP Agreements”) with certain of the Bank’s executive officers, which upon the executive’s retirement, will provide for a stated monthly payment for such executive’s lifetime subject to certain death benefits described below. The retirement benefit is computed as a percentage of each executive’s projected average base salary over the five years preceding retirement, assuming retirement at age 67 . The SERP Agreements provide that (a) the benefits vest ratably over six years of service to the Bank, with the executive receiving credit for years of service prior to entering into the SERP Agreement, (b) death, disability and change-in-control shall result in immediate vesting and (c) the monthly amount will be reduced if retirement occurs earlier than age 67 for any reason other than death, disability or change-in-control. The SERP Agreements further provide for a death benefit in the event the retired executive dies prior to receiving 180 monthly installments, paid either in a lump sum payment or continued monthly installment payments, such that the executive’s beneficiary has received payment(s) sufficient to equate to a cumulative 180 monthly installments. The SERP Agreements are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409A of the Internal Revenue Code. The Bank financed the retirement benefits by purchasing fixed annuity contracts with four insurance carriers in 2013 totaling $ 11.4 million and two insurance carriers in 2019 totaling $ 2.6 million. These annuity contracts have been designed to provide a future source of funds for the lifetime retirement benefits of the SERP Agreements. The primary impetus for utilizing fixed annuities is a substantial savings in compensation expenses for the Bank as opposed to a traditional SERP Agreement. The cash surrender value of the annuity contracts was $ 13.1 million and $ 13.9 million at December 31, 2023 and 2022, respectively, and was included in other assets on the Consolidated Balance Sheet. For the years ended December 31, 2023, 2022 and 2021 the Company recorded benefit expense accruals of $ 584 thousand, $ 513 thousand and $ 338 thousand, respectively, for this post retirement benefit. Upon death of a named executive, the annuity contract related to such executive terminates. The Bank has purchased additional bank owned life insurance contracts, which would effectively finance payments (up to a 15 year certain amount) to the executives’ named beneficiaries. 129 Table of Contents Note 19 – Financial Instruments with Off-Balance Sheet Risk Various commitments to extend credit are made in the normal course of banking business. Letters of credit are also issued for the benefit of customers. These commitments are subject to loan underwriting standards and geographic boundaries consistent with the Company’s loans outstanding. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Loan commitments outstanding and lines and letters of credit at December 31, 2023 and 2022 are as follows: (dollars in thousands) 2023 2022 Unfunded loan commitments $ 1,981,334 $ 2,335,735 Unfunded lines of credit 98,614 107,919 Letters of credit 87,146 100,196 Interest rate lock commitments — 6,963 Total $ 2,167,094 $ 2,550,813 As of December 31, 2023, the total reserve for unfunded commitments was $ 5.6 million as compared to $ 5.9 million at December 31, 2022 and is accounted for as a liability on the Consolidated Statements of Financial Condition. See Note 1 of the Consolidated Financial Statements for more information on the accounting policy for the allowance for unfunded commitments. The Bank maintains a reserve for the potential repurchase of residential mortgage loans, which was $ 0 at December 31, 2023 and $ 25 thousand at December 31, 2022. These amounts are included in other liabilities in the accompanying Consolidated Balance Sheets. The Company commenced the cessation of first lien residential mortgage origination for secondary sale during the three months ended March 31, 2023, and subsequently, completed residual origination and sales activities as of June 30, 2023. Additions to the reserve are a component of other expenses in the accompanying Consolidated Statements of Income. The reserve is available to absorb losses on the repurchase of loans sold related to document and other fraud, early payment default and early payoff. Through December 31, 2023, no reserve charges have occurred related to fraud. Note 20 – Commitments and Contingent Liabilities The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments. Except for its loan commitments, as shown in Note 20 "Financial Instruments With Off Balance Sheet Risk" the following table shows details on these fixed and determinable obligations as of December 31, 2023 in the time period indicated. (dollars in thousands) Within One Year One to Three Years Three to Five Years Over Five Years Total Deposits without a stated maturity (1) $ 6,590,572 $ — $ — $ — $ 6,590,572 Time deposits (1) 1,445,395 756,763 15,309 — 2,217,467 Borrowed funds (2) 1,400,505 — — — 1,400,505 Operating lease obligations 6,564 8,593 4,525 3,556 23,238 Outside data processing (3) 5,450 11,568 13,382 — 30,400 George Mason sponsorship (4) 675 1,388 1,400 4,675 8,138 LIHTC investments (5) 16,292 6,340 518 735 23,885 Total $ 9,465,453 $ 784,652 $ 35,134 $ 8,966 $ 10,294,205 (1) Excludes accrued interest payable at December 31, 2023. (2) Borrowed funds include customer repurchase agreements and other borrowings. (3) The Bank has outstanding obligations under its current core data processing contract that expire in June 2029 and one other vendor arrangement that relates to network infrastructure and data center services that expires in December 2024. 130 Table of Contents (4) The Bank has the option of terminating the George Mason University ("George Mason") agreement at the end of contract years 10 and 15 (that is, effective June 30, 2025 or June 30, 2030). Should the Bank elect to exercise its right to terminate the George Mason contract, contractual obligations would decrease $ 3.5 million and $ 3.6 million for the first option period (years 11 - 15 ) and the second option period (years 16 - 20 ), respectively. (5) LIHTC expected payments for unfunded affordable housing commitments. An accrual is recorded when it is both (a) probable that a loss has occurred and (b) the amount of loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings with respect to accruals, as well as the estimated range of possible losses. From time to time, the Company and its subsidiaries are involved in various legal proceedings incidental to their business in the ordinary course, including matters in which damages in various amounts are claimed. Based on information currently available, the Company does not believe that the liabilities (if any) resulting from such legal proceedings will have a material effect on the financial position or liquidity of the Company. However, in light of the inherent uncertainties involved in such matters, ongoing legal expenses or an adverse outcome in one or more of these matters could materially and adversely affect the Company's financial condition, results of operations or cash flows in any particular reporting period, as well as its reputation. Certain legal proceedings involving us are described below. As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, on February 10, 2022, the United States District Court for the Southern District of New York (the "SDNY") approved the settlement agreement of a putative class action lawsuit filed against the Company, its current and former President and Chief Executive Officer and its current and former Chief Financial Officer. The settlement included a total payment covered by the Company's insurance carrier of $ 7.5 million in exchange for the release of all of the defendants from all alleged claims in the class action suit, without any admission or concession of wrongdoing by the Company or the other defendants. On June 1, 2022, the Company reached an agreement in principle with the SEC staff to resolve the SEC's investigation with respect to the Company's identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. On August 16, 2022, the SEC approved the settlement, pursuant to which the Company consented, without admitting or denying the SEC's allegations, to the entry of an administrative cease-and-desist order for violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934, as amended, and Rules 13a-1, 14a-9 and 12b-20 thereunder; and therefore, recorded and paid a civil money penalty of $ 10.0 million and $ 2.6 million in disgorgement, plus prejudgment interest. On October 6, 2022, the SEC staff informed our Chief Financial Officer that it had concluded its related investigation as to him and does not intend to recommend an enforcement action against him. No additional liabilities were recorded for the year ended December 31, 2023 in connection with the SEC's approval and public announcement of the settlement. On August 2, 2022, the Bank reached an agreement in principle with the staff of the Federal Reserve to resolve the FRB's investigation with respect to the Bank. As previously disclosed, the investigation relates to the Company's identification, classification and disclosure of related party transactions; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. On August 16, 2022, the FRB approved the settlement, pursuant to which the Company consented, without admitting or denying the FRB's allegations, to the entry of a consent order for violations of Regulation O, 12 C.F.R. §§ 215 et seq. and unsafe and unsound banking practices, due to internal control deficiencies relating to loans involving its former Chief Executive Officer and an inadequate third-party risk management program, in each case from 2015 to 2018, and therefore, recorded and paid a civil money penalty of approximately $ 9.5 million. No additional liabilities were recorded for the year ended December 31, 2023 in connection with the FRB's approval and public announcement of the settlement. As previously disclosed, the Company maintains director and officer insurance policies ("D&O Insurance Policies") that provide coverage for certain legal defense costs. When claims are covered by D&O Insurance Policies, the Company records a corresponding receivable against the incurred legal defense cost expense when the claim is paid. When D&O Insurance Policies are exhausted, the Company is responsible for paying the defense cost associated with any investigations and litigations for itself and on behalf of any current and former Officers and Directors entitled to indemnification from the Company. The Company cannot predict with any certainty the amount of defense costs that the Company may incur in the future in connection with currently ongoing and any future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company's control. 131 Table of Contents Note 21 – Regulatory Matters The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weighting, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain amounts and ratios (set forth in the table below) of Total capital, Tier 1 capital and common equity tier one capital ("CET1") (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined), referred to as the Leverage Ratio. Management believes, as of December 31, 2023 and 2022, that the Company and Bank met all capital adequacy requirements to which they are subject. The actual capital amounts and ratios for the Company and Bank as of December 31, 2023 and 2022 are presented in the table below: Company Bank Minimum Required For Capital Adequacy Purposes (1) To Be Well Capitalized Under Prompt Corrective Action Regulations (2) (dollars in thousands) Actual Amount Ratio Actual Amount Ratio As of December 31, 2023 CET1 capital (to risk weighted assets) $ 1,335,967 13.90 % $ 1,330,001 13.92 % 7.00 % 6.50 % Total capital (to risk weighted assets) 1,421,347 14.79 % 1,415,381 14.81 % 10.50 % 10.00 % Tier 1 capital (to risk weighted assets) 1,335,967 13.90 % 1,330,001 13.92 % 8.50 % 8.00 % Tier 1 capital (to average assets) 1,335,967 10.73 % 1,330,001 10.72 % 4.00 % 5.00 % As of December 31, 2022 CET1 capital (to risk weighted assets) $ 1,329,971 14.03 % $ 1,341,347 14.23 % 7.00 % 6.50 % Total capital (to risk weighted assets) 1,415,854 14.94 % 1,412,904 14.99 % 10.50 % 10.00 % Tier 1 capital (to risk weighted assets) 1,329,971 14.03 % 1,341,347 14.23 % 8.50 % 8.00 % Tier 1 capital (to average assets) 1,329,971 11.63 % 1,341,347 11.78 % 4.00 % 5.00 % (1) The risk-based ratios reflect the minimum requirement plus the capital conservation buffer of 2.500 %. (2) Applies to Bank only Federal bank and holding company regulations, as well as Maryland law, impose certain restrictions on capital distributions, including dividend payments and share repurchases by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company. At December 31, 2023, the Bank could pay dividends to the parent to the extent of its earnings so long as it maintained capital ratios above the required minimums and the capital conservation buffer. As a result the Company may be restricted in paying dividends. 132 Table of Contents Note 22 – Other Comprehensive Income (Loss) The following table presents the components of other comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021. (dollars in thousands) Before Tax Tax Effect Net of Tax Year Ended December 31, 2023 Net unrealized gain (loss) on securities available-for-sale $ 43,293 $ ( 10,774 ) $ 32,519 Reclassification adjustment for net loss included in net income 11 ( 3 ) 8 Total unrealized gain (loss) 43,304 ( 10,777 ) 32,527 Amortization of unrealized loss on securities transferred to held-to-maturity 7,412 ( 2,607 ) 4,805 Net unrealized loss on derivatives ( 182 ) — ( 182 ) Other comprehensive income (loss) $ 50,534 $ ( 13,384 ) $ 37,150 Year Ended December 31, 2022 Net unrealized (loss) gain on securities available-for-sale $ ( 186,439 ) $ 45,513 $ ( 140,926 ) Reclassification adjustment for net loss included in net income 169 ( 58 ) 111 Total unrealized (loss) gain ( 186,270 ) 45,455 ( 140,815 ) Net unrealized (loss) gain on securities transferred to held-to-maturity ( 66,193 ) 17,098 ( 49,095 ) Amortization of unrealized loss on securities transferred to held-to-maturity 7,093 ( 2,732 ) 4,361 Total unrealized (loss) gain ( 59,100 ) 14,366 ( 44,734 ) Net unrealized gain on derivatives 284 — 284 Other comprehensive (loss) income $ ( 245,086 ) $ 59,821 $ ( 185,265 ) Year Ended December 31, 2021 Net unrealized gain (loss) on securities available-for-sale $ ( 37,669 ) $ 9,746 $ ( 27,923 ) Reclassification adjustment for net (gain) loss included in net income ( 2,964 ) 761 ( 2,203 ) Total unrealized (loss) gain ( 40,633 ) 10,507 ( 30,126 ) Reclassification adjustment for loss on derivatives included in net income 516 ( 132 ) 384 Other comprehensive (loss) income $ ( 40,117 ) $ 10,375 $ ( 29,742 ) 133 Table of Contents The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the years ended December 31, 2023, 2022 and 2021. (dollars in thousands) Securities Available For Sale Held-to-Maturity Securities Derivatives Accumulated Other Comprehensive Income (Loss) Year Ended December 31, 2023 Balance at beginning of year $ ( 154,773 ) $ ( 44,734 ) $ — $ ( 199,507 ) Other comprehensive income (loss) before reclassifications 32,519 — ( 182 ) 32,337 Amortization of unrealized loss on securities transferred to held-to-maturity — 4,805 — 4,805 Amounts reclassified from accumulated other comprehensive loss 8 — — 8 Net other comprehensive income (loss) during period 32,527 4,805 ( 182 ) 37,150 Balance at end of year $ ( 122,246 ) $ ( 39,929 ) $ ( 182 ) $ ( 162,357 ) Year Ended December 31, 2022 Balance at beginning of year $ ( 13,958 ) $ — $ ( 284 ) $ ( 14,242 ) Other comprehensive (loss) income before reclassifications ( 140,926 ) — 284 ( 140,642 ) Transfer of securities from AFS to HTM — ( 49,095 ) — ( 49,095 ) Amortization of unrealized loss on securities transferred to held-to-maturity — 4,361 — 4,361 Amounts reclassified from accumulated other comprehensive loss 111 — — 111 Net other comprehensive income (loss) during period ( 140,815 ) ( 44,734 ) 284 ( 185,265 ) Balance at end of year $ ( 154,773 ) $ ( 44,734 ) $ — $ ( 199,507 ) Year Ended December 31, 2021 Balance at beginning of year $ 16,168 $ — $ ( 668 ) $ 15,500 Other comprehensive (loss) income before reclassifications ( 27,923 ) — — ( 27,923 ) Amounts reclassified from accumulated other comprehensive income (loss) ( 2,203 ) — 384 ( 1,819 ) Net other comprehensive income (loss) during period ( 30,126 ) — 384 ( 29,742 ) Balance at end of year $ ( 13,958 ) $ — $ ( 284 ) $ ( 14,242 ) The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the years ended December 31, 2023, 2022 and 2021. Amount Reclassified from Accumulated Other Comprehensive Income (Loss) Affected Line Item in the Statement Where Net Income is Presented Year Ended December 31, (dollars in thousands) 2023 2022 2021 Realized (loss) gain on sale of investment securities $ ( 11 ) $ ( 169 ) $ 2,964 Net (loss) gain on sale of investment securities Loss on derivatives — — ( 516 ) Interest on deposits Income tax benefit (expense) 3 58 ( 629 ) Income tax expense Total $ ( 8 ) $ ( 111 ) $ 1,819 Net Income 134 Table of Contents Note 23 – Fair Value Measurements The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. treasury and other U.S. Government and agency securities actively traded in over-the-counter markets. Level 2 Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or inputs that can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities, corporate debt securities, derivative instruments and residential mortgage loans held for sale. Level 3 Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investments, retained interests from securitizations and certain collateralized debt obligations. 135 Table of Contents Assets and Liabilities Recorded at Fair Value on a Recurring Basis The table below presents the recorded amount of assets and liabilities measured at fair value on a recurring basis as of December 31, 2023 and 2022: (dollars in thousands) Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Total (Fair Value) December 31, 2023 Assets: Investment securities available-for-sale: U.S. treasury bonds $ — $ 47,901 $ — $ 47,901 U.S. agency securities — 671,397 — 671,397 Residential mortgage-backed securities — 727,353 — 727,353 Corporate mortgage-backed securities — 49,564 — 49,564 Municipal bonds — 8,490 — 8,490 Corporate bonds — 1,683 — 1,683 Interest rate product — 30,662 — 30,662 Credit risk participation agreements — 3 — 3 Total assets measured at fair value on a recurring basis as of December 31, 2023 $ — $ 1,537,053 $ — $ 1,537,053 Liabilities: Interest rate product $ — $ 30,555 $ — $ 30,555 Total liabilities measured at fair value on a recurring basis as of December 31, 2023 $ — $ 30,555 $ — $ 30,555 December 31, 2022 Assets: Investment securities available-for-sale: U.S. treasury bonds $ — $ 46,327 $ — $ 46,327 U.S. agency securities — 669,728 — 669,728 Residential mortgage-backed securities — 820,503 — 820,503 Corporate mortgage-backed securities — 50,213 — 50,213 Municipal bonds — 10,087 — 10,087 Corporate bonds — 1,808 — 1,808 Loans held for sale — 6,734 — 6,734 Interest rate product — 31,039 — 31,039 Mortgage banking derivatives — — 93 93 Total assets measured at fair value on a recurring basis as of December 31, 2022 $ — $ 1,636,439 $ 93 $ 1,636,532 Liabilities: Credit risk participation agreements $ — $ 2 $ — $ 2 Interest rate product — 30,065 — 30,065 Total liabilities measured at fair value on a recurring basis as of December 31, 2022 $ — $ 30,067 $ — $ 30,067 136 Table of Contents Investment securities available-for-sale: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. 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. Level 1 securities include certain U.S. treasury bonds, U.S. Government and agency securities that actively traded in over-the-counter markets. Level 2 securities includes certain U.S. treasury bonds, U.S. agency debt securities, MBS issued by Government Sponsored Entities and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, for which the carrying amounts approximate the fair value. Loans held for sale : The Company has elected to carry loans held for sale at fair value. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Income. Gains and losses on sales of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Income. Fair value is derived from secondary market quotations for similar instruments. As such, the Company classifies loans subjected to fair value adjustments as Level 2 valuation. The following table summarizes the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of 2022. December 31, 2022 (dollars in thousands) Fair Value Aggregate Unpaid Principal Balance Difference Loans held for sale $ 6,734 $ 6,775 $ ( 41 ) There were no residential mortgage loans held for sale that were 90 or more days past due or on nonaccrual status as of December 31, 2022. While the Company had loans held for sale outstanding in 2023, the Company does not have any loans held for sale as of December 31, 2023. Credit risk participation agreements : The Company enters into RPAs with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Accordingly, RPAs fall within Level 2. Interest rate derivatives: The Company entered into an interest rate derivative with an institutional counterparty, under which the Company will receive cash if and when market rates exceed the derivatives' strike rate. The fair value of the derivative is calculated by determining the total expected asset or liability exposure of the derivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities. Accordingly, the derivative falls within Level 2. The following is a reconciliation of activity for assets and liabilities measured at fair value based on Significant Other Unobservable Inputs (Level 3): (dollars in thousands) Investment Securities Mortgage Banking Derivatives Total Assets: Beginning balance at January 1, 2022 $ 10,000 $ 636 $ 10,636 Realized loss included in earnings — ( 543 ) ( 543 ) Reclassified to investment securities held-to-maturity ( 10,000 ) — ( 10,000 ) Principal redemption — — — Ending balance at December 31, 2022 $ — $ 93 $ 93 Mortgage banking derivatives for loans settled on a mandatory basis: The Company commenced the cessation of first lien residential mortgage origination for secondary sale in the first quarter of 2023. The Company completed origination and 137 Table of Contents sales activities as of the end of the second quarter of 2023. While the Company had mortgage banking derivatives in 2023, the Company does not have any of these derivatives as of December 31, 2023. Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets. Loans: The fair value of individually assessed loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those individually assessed loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. At December 31, 2023, substantially all of the Company’s individually assessed loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, individually evaluated loans where an allowance is established based on the fair value of collateral, i.e. those that are collateral dependent, require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3. Other real estate owned ("OREO") : OREO is initially recorded at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation. Assets measured at fair value on a nonrecurring basis are included in the table below: There were no liabilities measured at fair value on a non-recurring basis at December 31, 2023 and 2022. (dollars in thousands) Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Total (Fair Value) December 31, 2023 Individually assessed loans: Commercial $ — $ — $ 2,475 $ 2,475 Income producing - commercial real estate — — 41,038 41,038 Owner occupied - commercial real estate — — 19,880 19,880 Real estate mortgage - residential — — 1,638 1,638 Construction - commercial and residential — — 396 396 Home equity — — 242 242 Other real estate owned — — 1,108 1,108 Total assets measured at fair value on a nonrecurring basis as of December 31, 2023 $ — $ — $ 66,777 $ 66,777 138 Table of Contents (dollars in thousands) Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) Total (Fair Value) December 31, 2022 Individually assessed loans: Commercial $ — $ — $ 1,790 $ 1,790 Income producing - commercial real estate — — 3,131 3,131 Owner occupied - commercial real estate — — 19,187 19,187 Real estate mortgage - residential — — 1,404 1,404 Other consumer 3 3 Other real estate owned — — 1,962 1,962 Total assets measured at fair value on a nonrecurring basis as of December 31, 2022 $ — $ — $ 27,477 $ 27,477 Fair Value of Financial Instruments The Company discloses fair value information about financial instruments for which it is practicable to estimate the value, whether or not such financial instruments are recognized on the balance sheet. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by quoted market price, if one exists. Quoted market prices, if available, are shown as estimates of fair value. Because no quoted market prices exist for a portion of the Company’s financial instruments, the fair value of such instruments has been derived based on management’s assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates are only indicative of individual financial instrument values, including in certain cases, the Company's estimation of exit pricing, and should not be considered an indication of the fair value of the Company taken as a whole. 139 Table of Contents Estimated fair values of the Company’s financial instruments at December 31, 2023 and 2022 are as follows: Fair Value Measurements (dollars in thousands) Carrying Value Fair Value Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) December 31, 2023 Assets Cash and due from banks $ 9,047 $ 9,047 $ 9,047 $ — $ — Federal funds sold 3,740 3,740 — 3,740 — Interest bearing deposits with other banks 709,897 709,897 — 709,897 — Investment securities available-for-sale 1,506,388 1,506,388 — 1,506,388 — Investment securities held-to-maturity 1,015,737 901,582 — 901,582 — Federal Reserve and Federal Home Loan Bank stock 25,748 N/A — — — Loans 7,968,695 7,720,241 — — 7,720,241 Bank owned life insurance 112,921 112,921 — 112,921 — Annuity investment 13,112 13,112 — 13,112 — Credit risk participation agreements 3 3 — 3 — Interest rate product 30,662 30,662 — 30,662 — Accrued interest receivable 53,337 53,337 53,337 — — Liabilities Noninterest bearing deposits 2,279,081 2,279,081 — 2,279,081 — Interest bearing deposits 4,311,491 4,311,491 — 4,311,491 — Time deposits 2,217,467 2,217,795 — 2,217,795 — Customer repurchase agreements 30,587 30,587 — 30,587 — Borrowings 1,369,918 1,368,621 — 1,368,621 — Interest rate product 30,555 30,555 — 30,555 — Accrued interest payable 57,395 57,395 57,395 — — 140 Table of Contents Fair Value Measurements (dollars in thousands) Carrying Value Fair Value Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Other Unobservable Inputs (Level 3) December 31, 2022 Assets Cash and due from banks $ 12,655 $ 12,655 $ 12,655 $ — $ — Federal funds sold 33,927 33,927 — 33,927 — Interest bearing deposits with other banks 265,272 265,272 — 265,272 — Investment securities available-for-sale 1,598,666 1,598,666 — 1,598,666 — Investment securities held-to-maturity 1,093,374 968,707 — 968,707 — Federal Reserve and Federal Home Loan Bank stock 65,067 N/A — — — Loans held for sale 6,734 6,734 — 6,734 — Loans 7,635,632 7,501,484 — 7,501,484 Bank owned life insurance 110,998 110,998 — 110,998 — Annuity investment 13,869 13,869 — 13,869 — Mortgage banking derivatives 93 93 — 93 Interest rate product 31,039 31,039 — 31,039 — Accrued interest receivable 51,390 51,390 51,390 — — Liabilities Noninterest bearing deposits 3,150,751 3,150,751 — 3,150,751 — Interest bearing deposits 4,778,932 4,778,932 — 4,778,932 — Time deposits 783,499 790,418 — 790,418 — Customer repurchase agreements 35,100 35,100 — 35,100 — Borrowings 1,044,795 1,049,459 — 1,049,459 — Credit risk participation agreements, 2 2 — 2 — Interest rate product 30,065 30,065 — 30,065 — Accrued interest payable 4,881 4,881 4,881 — — 141 Table of Contents Note 24 – Parent Company Financial Information Condensed financial information for Eagle Bancorp, Inc. (the "Parent Company") is as follows: Parent Company Condensed Balance Sheets as of (dollars in thousands) December 31, 2023 December 31, 2022 Assets Cash and due from banks $ 38,396 $ 21,540 Investment securities held-to-maturity, net allowance for credit losses of $ 1,449 and $ 326 at December 31, 2023 and 2022, respectively 43,633 44,673 Investment in subsidiary 1,269,022 1,240,473 Other assets 10,366 9,065 Total Assets $ 1,361,417 $ 1,315,751 Liabilities Other liabilities $ 17,216 $ 17,636 Borrowings 69,918 69,794 Total liabilities 87,134 87,430 Shareholders’ Equity Common stock 296 310 Additional paid in capital 374,888 412,303 Retained earnings 1,061,456 1,015,215 Accumulated other comprehensive loss ( 162,357 ) ( 199,507 ) Total Shareholders’ Equity 1,274,283 1,228,321 Total Liabilities and Shareholders’ Equity $ 1,361,417 $ 1,315,751 142 Table of Contents Parent Company Condensed Statements of Income Years Ended December 31, (dollars in thousands) 2023 2022 2021 Income Other interest and dividends $ 126,264 $ 87,781 $ 170,741 Gain on sale of investment securities — — 93 Other income (loss) 43 ( 24 ) ( 46 ) Total Income 126,307 87,757 170,788 Expenses Interest expense 4,149 4,149 9,993 Legal and professional 1,695 894 2,617 Directors compensation 597 643 589 Provision for credit losses 1,124 326 — Other 879 14,746 1,250 Total Expenses 8,444 20,758 14,449 Income Before Income Tax Benefit and Equity in Undistributed Income of Subsidiaries 117,863 66,999 156,339 Income Tax Benefit ( 1,220 ) ( 1,183 ) ( 2,903 ) Income Before Equity in Undistributed Income of Subsidiaries 119,083 68,182 159,242 Equity in Undistributed Income of Subsidiaries ( 18,549 ) 72,748 17,449 Net Income $ 100,534 $ 140,930 $ 176,691 143 Table of Contents Parent Company Condensed Statements of Cash Flows Years Ended December 31, (dollars in thousands) 2023 2022 2021 Cash Flows From Operating Activities Net Income $ 100,534 $ 140,930 $ 176,691 Adjustments to reconcile net income to net cash used in operating activities: Equity in undistributed income of subsidiary 18,549 ( 72,748 ) ( 17,449 ) Net tax benefits from stock based compensation expense 10,018 9,899 7,811 Securities premium amortization, net 6 ( 54 ) 5 Provision for credit losses for investment securities held-to-maturity 1,124 326 — Depreciation and amortization 124 — — (Increase) decrease in other assets ( 10,397 ) ( 12,909 ) 66,598 (Decrease) increase in other liabilities ( 1,064 ) 4,593 ( 681 ) Net cash provided by operating activities 118,894 70,037 232,975 Cash Flows From Investing Activities Purchases of available-for-sale investment securities — — ( 40,000 ) Proceeds from maturities of available-for-sale securities — — 13,031 Purchases of held-to-maturities investment securities — ( 3,976 ) — Proceeds from maturities of held-to-maturities securities — 1,500 — Net cash used in by investing activities — ( 2,476 ) ( 26,969 ) Cash Flows From Financing Activities Repayment of long term debt — — ( 148,407 ) Proceeds from exercise of stock options — 97 — Proceeds from employee stock purchase plan 586 748 496 Common stock repurchased ( 47,631 ) ( 33,087 ) ( 682 ) Cash dividends paid ( 54,993 ) ( 55,776 ) ( 44,691 ) Net cash used in financing activities ( 102,038 ) ( 88,018 ) ( 193,284 ) Net Increase (Decrease) in Cash 16,856 ( 20,457 ) 12,722 Cash and Cash Equivalents at Beginning of Year 21,540 41,997 29,275 Cash and Cash Equivalents at End of Year $ 38,396 $ 21,540 $ 41,997 Non-Cash Investing Activities Transfers of investment securities from available-for-sale to held-to-maturity $ — $ 42,467 $ — 144 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None.