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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-08 · 607 added, 634 removed, 297 unchanged (81% of the section changed)

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of Eagle Bancorp, Inc.

(the "Company") and its subsidiaries as of the dates and periods indicated.

and its subsidiaries (collectively, the "Company") as of the dates and periods indicated.

The Company’s primary subsidiary is EagleBank (the "Bank"), and the Company’s other direct and indirect active subsidiaries are Bethesda Leasing, LLC, Eagle Insurance Services, LLC and Landroval Municipal Finance, Inc.

This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report and the Management Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

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These forward looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based.

Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and are typically identified with words such as “may,” “will,” “can,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “assume,” “probable,” “possible,” “continue,” “should,” “could,” “would,” “strive,” “seeks,” “deem,” “projections,” “forecast,” “consider,” “indicative,” “uncertainty,” “likely,” “unlikely,” “likelihood,” “unknown,” “attributable,” “depends,” “intends,” “generally,” “feel,” “typically,” “judgment,” “subjective” and similar words or phrases.

For details on factors that could affect these expectations, see the risk factors contained in this report and the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022, and in other periodic and current reports filed by the Company with the Securities and Exchange Commission.

Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and are typically identified with words such as "may," "will," "can," "anticipates," "believes," "expects," "plans," "outlook," "estimates," "potential," "assume," "probable," "possible," "continue," "should," "could," "would," "strive," "seeks," "deem," "projections," "forecast," "consider," "indicative," "uncertainty," "likely," "unlikely," "likelihood," "unknown," "attributable," "depends," "intends," "generally," "feel," "typically," "judgment," "subjective" and similar words or phrases.

For details on factors that could affect these expectations, see the risk factors contained in this report and the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, and in other periodic and current reports filed by the Company with the Securities and Exchange Commission ("SEC").

These forward looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control.

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Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward looking statement for any reason.

The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland.

The Company provides general commercial and consumer banking services through EagleBank (the "Bank"), its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System.

The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland, which is currently celebrating twenty-five years of successful operations.

The Company provides general commercial and consumer banking services through the Bank, its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB").

The Company was organized in October 1997, to be the holding company for the Bank.

The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions, which dominate the Company's primary market area.

The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions that dominate the Company's primary market area.

The Company's philosophy is to provide superior, personalized service to its customers.

The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion.

The Bank currently has a total of thirteen branch offices, including three in Northern Virginia, six in Suburban Maryland, and four in Washington, D.C.

The Bank also operates four lending offices, with one in Northern Virginia, two in Suburban Maryland and one in Washington, D.C.

During the first nine months of 2023, three branches were closed as they had expiring leases.

The branches' clients will be served from our other branches, and through digital channels.

The Bank currently has a total of twelve branch offices, including six in Suburban Maryland, three in Northern Virginia, and three in Washington, D.C.

The Bank also operates four lending offices, with two in Suburban Maryland, one in Northern Virginia, and one in Washington, D.C.

In April 2024, one branch was closed as it had an expiring lease.

The branch's clients will be served from our other branches, and through digital channels.

The Bank offers a broad range of commercial banking services to its business and professional clients, as well as full service consumer banking services to individuals living and/or working primarily in the Bank's market area.

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The Bank is also active in the origination of Small Business Administration ("SBA") loans.

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

The residential mortgage loans were originated for sale to third-party investors subject to compliance with pre-established criteria.

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

The Company completed origination and sales activities as of June 30, 2023.

The Bank generally sells the guaranteed portion of the SBA loans in a transaction apart from the loan origination generating noninterest income from the gains on sale, as well as servicing income on the portion participated.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's Consolidated Financial Statements are prepared in accordance with GAAP and follow general practices within the banking industry.

The Company's Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and follow general practices within the banking industry.

Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes.

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There have been no significant changes to the Company's accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 except as indicated in "Accounting Standards Adopted in 2024" in Note 1 to the Consolidated Financial Statements in this report.

Allowance for Credit Losses on Loans and Reserve for Unfunded Commitments

A consequence of lending activities is that we may incur credit losses, so we record an allowance for credit losses ("ACL") with respect to loan receivables and a reserve for unfunded commitments ("RUC") as estimates of those losses.

The amount of the ACL on loans is based on management's assessment of current expected credit losses ("CECL") in the portfolio.

The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions such as changes in interest rates, the financial performance of borrowers and regional unemployment rates, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two.

Management has significant discretion in making the judgments inherent in the determination of the provisions for credit loss, ACL and the RUC.

Our determination of these amounts requires significant reliance on estimates and significant judgment as to the amount and timing of expected future cash flows on loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors and the reliance on our reasonable and supportable forecasts.

We estimate the ACL on loans using a quantitative model that uses a probability of default ("PD") / loss given default ("LGD") cash flow method with an exposure at default ("EAD") model to estimate expected credit losses for its loan segments.

The modeling of expected prepayment speeds is based on historical internal data and adjustments to account for loan-specific risk characteristics after pooling our loan portfolio based on similar risk characteristics.

The Company uses regression analysis of historical internal and peer data provided by a third-party service provider (as Company loss data is insufficient) to determine suitable loss drivers to utilize when modeling lifetime PD and LGD.

This analysis also determines how expected PD will react to forecasted levels of the loss drivers.

During the three months ended March 31, 2024, management enhanced the cash flow model to incorporate three additional macroeconomic variables.

The four economic variables selected, national unemployment (original variable used), Commercial Real Estate ("CRE") Price Index, House Price Index and Gross Domestic Product ("GDP"), are incorporated by utilizing a Loss Driver Analysis approach that factors in historical losses, including during the Great Recession, of regional peer banks and the Bank.

The updated model incorporates a weighting of three economic scenarios;

baseline, upside and downside.

The scenarios cover the four economic forecast variables, with each segment of the portfolio linked to two of these variables, depending on the segment.

The loss driver analysis is spread 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.

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

Loans that have evidence of credit deterioration are excluded from the loan segments subject to the quantitative model above and are individually assessed.

The RUC represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit.

The RUC is determined by estimating future draws and applying the expected loss rates on those draws.

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 reserve for credit losses attributes portions of the ACL and RUC to the commercial and consumer portfolio 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.

Our model may reflect assumptions by management that are not covered by the qualitative and environmental factors, and we reevaluate all of its factors quarterly.

Management has developed an analytical process to monitor the adequacy of the ACL.

Our methodology for determining our ACL was developed utilizing, among other factors, the guidance from federal banking regulatory agencies and relevant available information from internal and external sources and relating to past events, current conditions and reasonable and supportable forecasts.

The process is being continually enhanced and refined based on periodic reviews.

Material changes to these and other relevant factors may result in greater volatility to the reserve for credit losses, and therefore, greater volatility to our reported earnings.

For example, the effects of the COVID-19 pandemic and related hybrid or fully remote working environment has negatively impacted the performance outlook in the central business district office CRE segment of our loan portfolio, which informed our CECL economic forecast and continued to adversely impact our loss reserve as of March 31, 2024.

Refer to the "Provision for Credit Losses" and "Allowance for Credit Losses" of Management's Discussion and Analysis of Financial Condition and Results of Operations for more information on the provision for credit losses and ACL for the loan portfolio.

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired.

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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.

During 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 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.

The Company engaged a third-party service provider to assist Management with the determination of the fair value of the Company in the second quarter of 2023.

A combination of a risk-weighted income valuation methodology, comprising a discounted cash flow analysis, and a market valuation methodology, comprising the guideline public company method, was employed.

Significant judgment is necessary in the determination of the fair value of a reporting unit.

The income valuation methodology requires an estimation of future cash flows, considering the after-tax results of operations, the extent and timing of credit losses, and appropriate discount and growth rates.

Actual future cash flows may differ from forecasted results based on the assumptions used.

In performing the discounted cash flow analysis, the Company utilized multi-year cash projections that rely on internal forecasts of loan and deposit growth, bond mix, financing composition, market pricing of securities, credit performance, forward interest rates, future returns driven by net interest margin, fee generation and expense incurrence, industry and economic trends, and other relevant considerations.

The long-term growth rate used in the calculation of fair value was derived from published projections of the inflation rate and GDP, along with Management estimates.

The discount rate was calculated as the cost of equity capital using the modified capital asset pricing model, which includes variables including the risk-free interest rate, beta, equity risk premium, size premium, and company-specific risk premium.

The market approach considers a combination of price to tangible book value and price to earnings, adjusted based on companies similar to the reporting unit and adjusted for selected multiples, along with a control premium based on a review of transactions in the banking industry in order to calculate the indicated value of the Company's equity on a control, marketable basis.

The resulting calculation of fair value exceeded the carrying amount of the Company by approximately 17% as of May 31, 2023, which resulted in no impairment loss.

Future events could cause the Company to conclude that the Company’s goodwill has become impaired, which would result in recording an impairment loss.

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

As part of its annual testing for goodwill impairment, the Company concluded that no impairment existed at December 31, 2023.

Management has evaluated and will continue to evaluate economic conditions in interim periods for triggering events.

As of the time of this report's filing, the Company did not identify any triggering events for interim testing.

However, future events, including the continuation of the Company's recent common stock trading below the book value per share, could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss.

Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations, however, it would not impact our regulatory capital ratios, tangible common equity ratio, nor its liquidity position.

RESULTS OF OPERATIONS

Earnings Summary

Three Months Ended September 30, 2023 vs.

Three Months Ended September 30, 2022

Net income for the three months September 30, 2023 was $27.4 million as compared to $37.3 million for the same period in 2022, a $9.9 million decrease, or 26.6%.

The decrease in net income of $9.9 million for the three months ended September 30, 2023 relative to the same period in 2022 was due to a decrease in net interest income of $13.2 million, an increase in provision for credit losses of $2.6 million, and an increase in noninterest expenses of $1.4 million, the total of which was partially offset by a reduction of income tax expense of $4.7 million, a decrease in the provision for unfunded commitments of $1.6 million, and an increase in noninterest income of $1.0 million.

Net interest income decreased primarily due to an increase in interest rates impacting deposits and funding costs that exceeded the increase in total interest income, which in part was affected by the reversal of $1.6 million of interest income during the three months ended September 30, 2023 on a loan that entered nonperforming status.

Noninterest expenses included an increase in FDIC insurance assessments of $2.1 million.

Noninterest income increased primarily due to an increase in other income of $1.5 million.

The increase in the provision was primarily driven by the fluctuations in the qualitative and economic factors of the credit model in the third quarter of 2023 compared to the third quarter of 2022.

Additional details on other noninterest expenses are provided in the "Noninterest Expense" section below.

Total revenue (i.e.

net interest income plus noninterest income) was $77.1 million for the three months ended September 30, 2023 as compared to $89.2 million for the same period in 2022.

The most significant portion of revenue is net interest income, which was $70.7 million for the three months ended September 30, 2023, compared to $83.9 million for the same period in 2022.

Net interest income decreased primarily due to an increase in interest expense from increased interest rates on deposits and borrowings, which was partially offset by an increase in interest income on loans.

The increase in interest income on loans included the impact of the reversal of interest income on the loan that entered nonperforming status during the three months ended September 30, 2023.

The primary driver for the increase in noninterest income was an increase in swap fee income that was partially offset by a decrease from a gain to a loss on the sales of residential loans and fees associated with residential mortgage loans.

The net interest margin, which measures the difference between interest income and interest expense (i.e.

net interest income) as a percentage of earning assets, was 2.43% for the three months ended September 30, 2023 and 3.02% for the same period in 2022.

The $1.6 million reversal of interest income on a loan that entered nonperforming status during the three months ended September 30, 2023 reduced the net interest margin by 0.06%.

The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.

Total noninterest income for the three months ended September 30, 2023 increased to $6.3 million from $5.3 million for the same period in 2022, a 19.6% increase.

Noninterest income increased primarily due to an increase in other income driven by an increase in swap fee income of $1.2 million, which was partially offset by a decrease from a gain to a loss on sales of residential loans.

For further information on the components and drivers of these changes, see the "Noninterest Income" section below.

Other income for the three months ended September 30, 2023 increased to $4.0 million from $2.5 million for the same period in 2022, a 61.0% increase.

This increase was primarily attributable to an increase in swap fee income of $1.2 million.

Loss on sale of loans for the three months ended September 30, 2023 was $5 thousand compared to an $821 thousand gain for the same period in 2022, a decrease to earnings of $826 thousand.

The decline from a gain to a loss on sales of loans was due to lower volumes as a result of higher interest rates as well as ceasing the origination of residential mortgages as previously announced.

Noninterest expense totaled $37.6 million for the three months ended September 30, 2023, as compared to $36.2 million for same period in 2022, a $1.4 million increase.

The increase in noninterest expense was primarily due to an increase in FDIC insurance assessments of $2.1 million.

Additional details on other noninterest expenses are provided in "Noninterest Expense" section below.

Income tax expenses were $7.2 million for the three months ended September 30, 2023, a reduction of 39.1%, compared to the same period in 2022.

The components and drivers of the change are discussed in the "Income Tax Expense" section below.

The efficiency ratio was 48.83% for the three months ended September 30, 2023, as compared to 40.59% for the same period in 2022.

The adverse change in the efficiency ratio was primarily driven by the decrease in net interest income as a result of the increase in interest rates on deposits and borrowings.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

For the three months ended September 30, 2023, the Company reported an annualized return on average assets ("ROAA") of 0.91%, as compared to 1.29% for the same period in 2022.

The annualized return on average common equity ("ROACE") for the three months ended September 30, 2023 was 8.80% as compared to 11.64% for the same period in 2022.

The annualized return on average tangible common equity ("ROATCE") for the three months ended September 30, 2023 was 9.61% as compared to 12.67% for the same period in 2022.

The adverse change in returns was primarily attributable to the reduction in net income.

Three Months Ended March 31, 2024 vs.

Three Months Ended March 31, 2023

Net loss for the three months ended March 31, 2024 was $338 thousand, as compared to net income of $24.2 million for the same period in 2023, a decrease of $24.6 million, or 101.4%.

The decrease of $24.6 million to net loss for the three months ended March 31, 2024 from net income for the same period in 2023 was due primarily to an increase in provision for credit losses of $29.0 million, partially offset by a reduction of income tax expenses of $3.9 million.

For more information on the drivers and the components of these changes, see the "Provision for Credit Losses" and "Income Tax Expenses" sections below.

When the impact of the provision is excluded, pre-provision net revenue ("PPNR"), a non-GAAP measure, was $38.3 million for the three months ended March 31, 2024, as compared to $38.1 million for the same period in 2023.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Nine Months Ended September 30, 2023 vs.

Nine Months Ended September 30, 2022

Net income for the nine months ended September 30, 2023 was $80.3 million as compared to $98.7 million for the same period in 2022, a decrease of $18.4 million, or 18.7%.

The decrease in net income of $18.4 million for the nine months ended September 30, 2023 relative to the same period in 2022 was due to a decrease in net interest income of $29.7 million and an increase in provision for credit losses of $16.3 million.

These were offset by a decrease in the provision for unfunded commitments of $1.0 million, a decrease in noninterest expenses of $10.0 million, and a reduction of income tax expense of $16.3 million.

Net interest income decreased primarily due to a rapid increase in interest rates impacting deposits and funding costs.

These increases in interest expense exceeded the increase to interest income driven by rate growth during the comparative period.

The provision for credit losses increased to $17.0 million during the nine months ended September 30, 2023 from $730 thousand during the nine months ended September 30, 2022.

Noninterest income increased primarily due to an increase in swap fee income which was partially offset by a decrease in gain on the sales of residential loans and fees associated with residential mortgage loans.

During the nine months ended September 30, 2023, the Company closed residential mortgage locked commitments of $32.8 million, down from $286.2 million for the nine months ended September 30, 2022.

Noninterest expenses decreased $10.0 million primarily in connection with the second quarter of 2022 accrual of settlement expenses in connection with the agreements with the Securities and Exchange Commission ("SEC") and Federal Reserve Bank ("FRB") associated with previously disclosed government investigations, totaling $22.9 million.

This was offset by an increase in salaries and benefits of $7.3 million and legal and professional fees of $2.1 million and FDIC insurance assessments of $4.2 million.

Additional details on the accrual for the agreements and other noninterest expenses are provided in "Noninterest Expense" section below.

Total revenue (i.e.

net interest income plus noninterest income) was $236.2 million for the nine months ended September 30, 2023 as compared to $265.6 million for the same period in 2022.

The most significant portion of revenue is net interest income, which was $217.6 million for the nine months ended September 30, 2023, compared to $247.3 million for the same period in 2022.

Net interest income decreased primarily due to increased interest expense due to higher rates on deposits and borrowings which was partially offset by an increase in interest income on loans.

The primary driver for the increase in noninterest income was an increase in swap fees which was partially offset by a decrease in gain on the sales of residential mortgage loans and fees associated with residential mortgage loans.

net interest income plus noninterest income) was $78.3 million for the three months ended March 31, 2024, as compared to $78.7 million for the same period in 2023.

The net interest margin, which measures the difference between interest income and interest expense (i.e.

net interest income) as a percentage of earning assets, was 2.56% for the nine months ended September 30, 2023 and 2.86% for the same period in 2022.

net interest income) as a percentage of earning assets, was 2.43% for the three months ended March 31, 2024 and 2.77% for the same period in 2023.

The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.

Total noninterest income for the nine months ended September 30, 2023 increased to $18.6 million from $18.3 million for the same period in 2022, a 1.7% increase.

Noninterest income increased primarily due to an increase in swap fees that was partially offset by a decline in gain on the sales of residential loans.

For further information on the components and drivers of these changes see "Noninterest Income" section below.

Other income for the nine months ended September 30, 2023 increased to $11.5 million from $9.5 million for the same period in 2022, a 21.7% increase.

Noninterest income increased primarily due to an increase in other fees driven by income of $2.8 million from an investment in an SBIC fund, $1.5 million in swap fees, and BOLI income of $846 thousand, the total of which was partially offset by reductions in credit card income of $1.5 million, mortgage servicing fees of $887 thousand, and other loan fees of $808 thousand.

Gain on sale of loans for the nine months ended September 30, 2023 was $395 thousand compared to $3.2 million for the same period in 2022, a decrease of 87.5%.

The decline in gain on the sales of loans is due to lower volumes as a result of higher interest rates as well as ceasing the origination of residential mortgages as previously announced.

Noninterest expense totaled $116.2 million for the nine months ended September 30, 2023, as compared to $126.2 million for same period in 2022, a 7.9% decrease.

The decrease in noninterest expense was primarily in connection with the second quarter of 2022 accrual of settlement expenses in connection with the agreements with the SEC and FRB associated with previously disclosed government investigations, totaling $22.9 million.

This was partially offset by increases in salaries and benefits of $7.3 million, legal and professional fees of $2.1 million and $4.2 million in FDIC insurance assessments.

Additional details on the accrual for the agreements and other noninterest expenses are provided in "Noninterest Expense" section below.

Income tax expenses were $22.3 million for the nine months ended September 30, 2023, a reduction of 42.2%, compared to the same period in 2022.

The components and drivers of the change are discussed in the "Income Tax Expense" section below.

The efficiency ratio was 49.19% for the nine months ended September 30, 2023, as compared to 47.51% for the same period in 2022.

The adverse change in the efficiency ratio was primarily driven by the decrease in net interest income as a result of the increase in interest rates on deposits and borrowings which was partially offset by the decrease in noninterest expense in connection with the second quarter of 2022 accrual of settlement expenses in connection with the agreements with the SEC and FRB associated with previously disclosed government investigations, totaling $22.9 million.

Noninterest income was $3.6 million for the three months ended March 31, 2024, as compared to $3.7 million for the same period in 2023.

Noninterest expense was $40.0 million for the three months ended March 31, 2024, as compared to $40.6 million for the same period in 2023.

The drivers of the change are detailed in the "Noninterest Income" and "Noninterest Expense" sections below.

The efficiency ratio remained steady at 51.09% for the three months ended March 31, 2024 as compared to 51.55% for the same period in 2023.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

For the nine months ended September 30, 2023, the Company reported an annualized ROAA of 0.91%, as compared to 1.11% for the same period in 2022.

The annualized ROACE for the nine months ended September 30, 2023 was 8.66% as compared to 10.17% for the same period in 2022.

The annualized ROATCE for the nine months ended September 30, 2023 was 9.45% as compared to 11.06% for the same period in 2022.

The decline in returns was primarily attributable to a reduction in net income.

For the three months ended March 31, 2024 and 2023, the Company had average assets of $12.8 billion and $11.4 billion, respectively, the increase of which was primarily attributable to an increase in average interest-bearing deposits with other banks and other short-term investments over the comparative period.

For the three months ended March 31, 2024 and 2023, the Company had average common equity of $1.3 billion and $1.2 billion, respectively.

For the three months ended March 31, 2024 and 2023, the Company had average tangible common equity, a non-GAAP measure, of $1.2 billion and $1.1 billion, respectively.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

For the three months ended March 31, 2024, the Company reported an annualized return on average assets ("ROAA") of (0.01)%, as compared to 0.86% for the same period in 2023.

The annualized return on average common equity ("ROACE") for the three months ended March 31, 2024 was (0.11)% as compared to 7.92% for the same period in 2023.

The annualized return on average tangible common equity ("ROATCE"), a non-GAAP measure, for the three months ended March 31, 2024 was (0.11)% as compared to 8.65% for the same period in 2023.

The decline in returns was primarily attributable to a reduction in net income to a net loss.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

Net Interest Income and Net Interest Margin

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Earning assets are composed primarily of loans, investment securities, and interest bearing deposits with other banks and other short-term investments.

The cost of funds includes interest expense on deposits, customer repurchase agreements and other borrowings.

Noninterest bearing deposits and capital are other components representing funding sources (refer to discussion above under Results of Operations).

The cost of funds includes interest expense on deposits, customer repurchase agreements and other borrowings, which consist primarily of federal funds purchased, advances from secured financing arrangements, including the Federal Home Loan Bank of Atlanta ("FHLB") and the Federal Reserve's Bank Term Funding Program ("BTFP") and Discount Window, and subordinated notes.

Noninterest bearing deposits and capital are other components representing funding sources.

Changes in the volume and mix of assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income.

Net interest income was $70.7 million for the three months ended September 30, 2023, as compared to $83.9 million for the same period in 2022.

Net interest income decreased for the three months ended September 30, 2023 primarily due to increases in average deposit rates (4.20% compared to 1.70%) and other short-term borrowings (4.68% compared to 2.65%), which were partially offset by higher average loan balances and yields (6.73% compared to 5.10%) as compared to September 30, 2022.

The net interest margin decreased by 59 basis points from three months ended September 30, 2023, as compared to the three months ended September 30, 2022, (from 3.02% to 2.43%).

The $1.6 million reversal of interest income during the three months ended September 30, 2023 reduced the net interest margin by 0.06%.

The yield on earning assets increased by 153 basis points (from 4.01% to 5.54%) while cost of funds increased 230 basis points (from 1.09% to 3.39%), refer to footnote 3 in the Consolidated Average Balances, Interest Yields and Rates tables below for additional information.

Average loans (excluding loans held for sale) were $7.8 billion for the three months ended September 30, 2023 compared to $7.3 billion for the same period in 2022.

Additionally, average borrowings increased from $131.5 million in the three months ended September 30, 2022 to $1.6 billion in the three months ended September 30, 2023.

Overall yields and rates moved higher during the three months ended September 30, 2023 as compared to the same period in 2022, as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.

Net interest income was $217.6 million for the nine months ended September 30, 2023, as compared to $247.3 million for the same period in 2022.

Net interest income decreased for the nine months ended September 30, 2023 primarily due to increases in average deposit rates (4.03% compared to 0.91%) and other short-term borrowings (4.78% compared to 1.01%), which were partially offset by higher average loan balances and yields (6.58% compared to 4.66%) as compared to September 30, 2022.

The net interest margin decreased by 30 basis points from nine months ended September 30, 2022 as compared to the nine months ended September 30, 2023 (from 2.86% to 2.56%).

Net interest income was $74.7 million for the three months ended March 31, 2024, as compared to $75.0 million for the same period in 2023.

The decrease was primarily due to the $35.7 million increase in interest expense outpacing the $35.4 million increase in interest income.

The increase in interest expense was primarily attributable to increased volume of time deposits, other borrowings, and interest bearing transactions, and to a lesser extent was attributable to increases in average deposits and rates (4.29% for the three months ended March 31, 2024, compared to 3.63% for the same period in 2023).

The increase in interest income was primarily attributable to increased volume and rates on loans (6.95% for the three months ended March 31, 2024, compared to 6.35% for the same period in 2023) and interest bearing bank deposits and other short-term investments (5.43% for the three months ended March 31, 2024, compared to 4.45% for the same period in 2023)

The net interest margin decreased by 34 basis points from the three months ended March 31, 2023 as compared to the three months ended March 31, 2024 (from 2.77% to 2.43%).

The yield on earning assets increased by 54 basis points (from 5.17% to 5.71%) while cost of funds increased 96 basis points (from 2.62% to 3.58%).

Average loans (excluding loans held for sale) were $7.8 billion for the nine months ended September 30, 2023 compared to $7.1 billion for the same period in 2022.

Additionally, average borrowings increased from $201.0 million in the nine months ended September 30, 2022 to $1.7 billion in the nine months ended September 30, 2023.

Overall yields and rates moved higher during the nine months ended September 30, 2023 as compared to same period in 2022, as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.

The tables below presents the average balances and rates of the major categories of the Company's assets and liabilities for the three and nine months ended September 30, 2023 and 2022.

Average loans (excluding loans held for sale) increased to $8.0 billion for the three months ended March 31, 2024 compared to $7.7 billion for the same period in 2023.

Average interest bearing deposits increased to $7.4 billion for the three months ended March 31, 2024 from $5.5 billion for the three months ended March 31, 2023, while average noninterest bearing demand deposits decreased to $2.1 billion for the three months ended March 31, 2024 from $3.3 billion for the three months ended March 31, 2023.

Additionally, average borrowings increased from $1.3 billion in the three months ended March 31, 2023 to $1.8 billion in the three months ended March 31, 2024.

Overall yields and rates increased during the three months ended March 31, 2024 as compared to the same period in 2023 as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.

The table below presents the average balances and rates of the major categories of the Company's assets and liabilities for the three months ended March 31, 2024 and 2023.

Included in the tables are measurements of interest rate spread and margin.

6 unchanged sentences

(dollars in thousands)

Three Months Ended September 30,

Three Months Ended March 31,

Balance Interest Average

24 unchanged sentences

Customer repurchase agreements 36,084 315 3.51 % 38,257 302 3.20 %

Other short-term borrowings 1,540,221 18,152 4.68 % 61,703 412 2.65 %

Long-term borrowings 69,876 1,038 5.89 % 69,752 1,038 5.90 %

Total interest bearing liabilities 8,344,038 90,430 4.30 % 6,256,428 27,630 1.75 %

Noninterest bearing liabilities:

Noninterest bearing demand 2,248,782 3,809,070

Other liabilities 114,923 93,859

Total noninterest bearing liabilities 2,363,705 3,902,929

Shareholders' Equity 1,235,162 1,271,753

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,942,905 $ 11,431,110

Net interest income $ 70,719 $ 83,897

Net interest spread 1.24 % 2.26 %

Net interest margin 2.43 % 3.02 %

Cost of funds (3)

1,796,863 21,206 4.75 % 1,321,206 15,967 4.90 %

(1) Loans placed on nonaccrual status are included in average balances.

Net loan fees and late charges included in interest income on loans totaled $4.1 million and $3.4 million for the three months ended September 30, 2023 and 2022, respectively.

(2) Interest and fees on loans and investments exclude tax equivalent adjustments.

(3) Beginning in the second quarter of 2023, the Company revised its cost of funds methodology to use a daily average calculation where interest expense on interest bearing liabilities is divided by average interest bearing liabilities and average noninterest bearing deposits.

Previously, the Company calculated the cost of funds as the difference between yield on earning assets and net interest margin.

The cost of funds for the three months ended September 30, 2022 has been recalculated using the current methodology.

Eagle Bancorp, Inc.

Consolidated Average Balances, Interest Yields And Rates (Unaudited)

(dollars in thousands)

Nine Months Ended September 30,

Balance Interest Average

Yield/Rate Average

Balance Interest Average

Interest earning assets:

Interest bearing deposits with other banks and other short-term investments $ 905,414 $ 34,070 5.03 % $ 1,449,800 $ 7,608 0.70 %

Loans held for sale (1)

1,620 73 6.02 % 18,216 548 4.02 %

Loans (1) (2)

7,766,212 382,043 6.58 % 7,147,844 249,168 4.66 %

Investment securities available for sale (2)

1,613,257 24,463 2.03 % 2,119,822 25,888 1.63 %

Investment securities held-to-maturity ( 2)

1,067,628 17,055 2.14 % 774,135 12,002 2.07 %

Federal funds sold 9,392 202 2.88 % 37,907 269 0.95 %

Total interest earning assets 11,363,523 457,906 5.39 % 11,547,724 295,483 3.42 %

Total noninterest earning assets 492,069 466,661

allowance for credit losses 77,342 74,390

Total noninterest earning assets 414,727 392,271

TOTAL ASSETS $ 11,778,250 $ 11,939,995

LIABILITIES AND SHAREHOLDERS’ EQUITY

Interest bearing liabilities:

Interest bearing transaction $ 1,173,823 $ 29,533 3.36 % $ 858,152 $ 2,843 0.44 %

Savings and money market 3,135,300 96,990 4.14 % 4,926,766 34,207 0.93 %

Time deposits 1,642,805 52,782 4.30 % 670,708 6,972 1.39 %

Total interest bearing deposits 5,951,928 179,305 4.03 % 6,455,626 44,022 0.91 %

Customer repurchase agreements 38,473 946 3.29 % 25,765 90 0.47 %

Other short-term borrowings 1,595,448 56,989 4.78 % 131,253 992 1.01 %

Long-term borrowings 69,845 3,112 5.96 % 69,722 3,112 5.97 %

Total interest bearing liabilities 9,277,148 100,904 4.37 % 6,829,918 65,223 3.87 %

11 unchanged sentences

(1) Loans placed on nonaccrual status are included in average balances.

Net loan fees and late charges included in interest income on loans totaled $12.0 million and $11.5 million for the nine months ended September 30, 2023 and 2022, respectively.

Net loan fees and late charges included in interest income on loans totaled $5.1 million and $3.7 million for the three months ended March 31, 2024 and 2023, respectively.

(2) Interest and fees on loans and investments exclude tax equivalent adjustments.

1 unchanged sentence

Previously, the Company calculated the cost of funds as the difference between yield on earning assets and net interest margin.

The cost of funds for the nine months ended September 30, 2022 has been recalculated using the current methodology.

The cost of funds for the three months ended March 31, 2023 has been recalculated using the current methodology.

Rate/Volume Analysis of Net Interest Income

The rate/volume tables below presents the composition of the change in net interest income for the period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates.

Three Months Ended September 30, 2023

Compared With The

Three Months Ended September 30, 2022

(dollars in thousands) Change

Volume Change

Interest earned on

Loans $ 6,587 $ 32,092 $ 38,679

Loans held for sale (150) — (150)

Investment securities available-for-sale (972) 1,511 539

Investment securities held-to-maturity (424) 154 (270)

Interest bearing bank deposits 1,895 9,072 10,967

Federal funds sold (188) 45 (143)

Total interest income 6,748 42,874 49,622

Interest paid on

Interest bearing transaction 906 9,988 10,894

Savings and money market (6,702) 17,846 11,144

Time deposits 6,093 16,673 22,766

Customer repurchase agreements 20 236 256

Other borrowings 9,874 7,866 17,740

Total interest expense 10,191 52,609 62,800

Net interest income $ (3,443) $ (9,735) $ (13,178)

Nine Months Ended September 30, 2023

Compared With The

Nine Months Ended September 30, 2022

(dollars in thousands) Change

Volume Change

The rate/volume table below presents the composition of the change in net interest income for the period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates.

Three Months Ended March 31, 2024 Compared With The Three Months Ended March 31, 2023

(dollars in thousands) Change Due to Volume

Change Due to Rate

Total Increase (Decrease)

Interest earned on

15 unchanged sentences

Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL on loans and the ACL on available-for-sale and held-to-maturity investment securities.

The amount of the ACL on loans is based on management's assessment of current expected credit losses in the portfolio.

The provision for credit losses represents the amount of expense charged to current earnings to record the ACL on loans and the ACL on available-for-sale and held-to-maturity investment securities.

The amount of the ACL on loans is based on management's assessment of CECL in the portfolio.

Those factors include historical losses based on internal and peer data, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company.

The provision for credit losses for unfunded commitments is presented separately on the consolidated statements of income.

The provision for credit losses for unfunded commitments is presented separately on the Consolidated Statements of Operations.

This provision considers the probability that unfunded commitments will fund among other factors.

Management has developed a comprehensive analytical process to monitor the adequacy of the ACL.

The ACL is estimated using a CECL model.

Our methodology for determining our allowance was developed utilizing, among other factors, the guidance from federal banking regulatory agencies and relevant available information from internal and external sources and relating to past events, current conditions and reasonable and supportable forecasts.

The process is being continually enhanced and refined based on periodic reviews.

The maintenance of a high quality loan portfolio, with an adequate ACL, will continue to be a primary management objective for the Company.

We develop our estimate of the ACL from several sources:

(i) a quantitative model that determines expected credit losses using a probability of default ("PD") / Loss Given Default ("LGD") cash flow methodology, using internal and third-party provided peer historical loss data and adjustments to account for loan-specific risk characteristics after pooling our loan portfolio based on similar risk characteristics, i.e., call codes;

(ii) individual evaluation of any loans that exhibit evidence of credit deterioration, excluded from the quantitative model;

and (iii) the application of qualitative and environmental factors as determined by management.

We utilize the following qualitative and environmental factors in our CECL methodology:

(i) changes in the nature and volume of the portfolio;

(ii) changes in the volume and severity of past due financial assets and the volume and severity of adversely classified assets;

(iii) changes in the value of underlying collateral for loans not individually evaluated;

(iv) changes in lending policies and procedures;

(v) changes in the quality of credit review function;

(vi) changes in lending management and staff;

(vii) concentrations of credit;

(viii) other external factors (competition, legal, regulatory, etc.);

and (ix) changes in national, regional, and local economic and business conditions.

Our model may reflect assumptions by management that are not covered by the qualitative and environmental factors, and we reevaluate all of its factors quarterly.

Refer to additional detail regarding these forecasts in the "Allowance for Credit Losses - Loans" section of Note 1 to the Consolidated Financial Statements.

During the three months ended September 30, 2023, the Company recorded a provision for credit losses of $5.6 million on its loan portfolio and incurred $340 thousand in net charge-offs to its ACL.

The provision for credit losses on loans for the same period in 2022 was $3.0 million and there were $56 thousand of net recoveries in its ACL.

During the nine months ended September 30, 2023, the Company recorded a provision for credit losses of $15.8 million on its loan portfolio and incurred $6.9 million in net charge-offs to its ACL.

The provision for credit losses on loans for the same period in 2022 was $532 thousand and there were $270 thousand of net recoveries in its ACL.

For the three and nine months ended September 30, 2023, the provisions for credit losses were primarily driven by adjustments to the qualitative components of the CECL model combined with smaller increases in the quantitative components.

The increase in qualitative components was driven by increases in early-stage past due and perceived weakness in the commercial real estate market, in addition to the high inflationary environment and the related uncertainty and impacts on the broader economy, changes in the qualitative and economic ("Q&E") component of the model associated with commercial real estate office properties.

The increase in the quantitative components was due to continued increases in total loans during the nine months ended September 30, 2023, particularly in longer-life categories that carry corresponding higher reserves as well as slowing prepayment speeds in certain loan categories due to higher interest rates.

The increase in quantitative components was partially offset by modest improvements in the unemployment forecast.

These adjustments were also offset by improvements in the quality of the assets associated with individually assessed loans that were deemed impaired.

The provisions for credit losses during the three and nine months ended September 30, 2022 were primarily driven by adjustments to the qualitative components of the CECL model owing to the high inflationary environment and the related uncertainty and impacts on the broader economy, partially offset by improvements in asset quality.

A provision for credit losses on the securities portfolio of $1 thousand was recorded during the three months ended September 30, 2023, as compared to a reversal of credit losses of $24 thousand during the three months ended September 30, 2022.

During the nine months ended September 30, 2023, a provision for credit losses of $1.2 million was recorded, primarily on several corporate bonds in the held-to-maturity securities portfolio, while a net provision for credit losses of $198 thousand was recorded during the nine months ended September 30, 2022.

At September 30, 2023, the ACL for loans represented 1.05% of loans outstanding, as compared to 0.97% at December 31, 2022.

The ACL represented 119% of nonperforming loans at September 30, 2023, as compared to 1,151% at December 31, 2022.

As part of its comprehensive loan review process, internal loan and credit committees carefully evaluate loans that are past-due 30 days or more.

The Committees make a thorough assessment of the conditions and circumstances surrounding each delinquent loan.

The Bank's loan policy requires that loans be placed on nonaccrual if they are 90 days past-due, unless they are well secured and in the process of collection.

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

The maintenance of a high quality loan portfolio, with an adequate allowance for credit losses, will continue to be a primary management objective for the Company.

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

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

The following table sets forth activity in the allowance for credit losses for the periods indicated.

Nine Months Ended September 30,

Refer to the discussion under "Critical Accounting Policies and Estimates" in Management's Discussion and Analysis of Financial Condition and Results of Operations above and in Note 1 to the Consolidated Financial Statements in "Item 1 - Financial Information" for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the ACL and the provisions charged to expense.

Also, refer to the table in the "Allowance for Credit Losses" section in Management's Discussion and Analysis of Financial Condition and Results of Operations, which reflects activity in the ACL.

During the three months ended March 31, 2024, the Company recorded a provision for credit losses of $35.2 million on its loan portfolio.

The provision for credit losses was primarily attributable to an updated valuation for a CRE office property collateralizing a lending relationship with two loans outstanding, the total of which was partially charged off in the first quarter 2024.

Additionally, the provision was attributable to an increase in the ACL factor associated with CRE office loans.

The provision for credit losses on loans for the three months ended March 31, 2023 was $4.9 million.

The provision was primarily driven by adjustments to the qualitative components of the CECL model owing to the high inflationary environment and uncertainty in the macroeconomic outlook and the related changes in economic growth and the broader economy, changes in the qualitative and economic component of the model associated with CRE office properties, as well as the increases in total loans.

During the three months ended March 31, 2024 and 2023, the provision for credit losses for the held-to-maturity securities portfolio was $1 thousand and $1.2 million, respectively, which, in 2023, were recorded primarily on several corporate bonds.

During the three months ended March 31, 2023, the provision for credit losses for the available-for-sale securities portfolio was $14 thousand.

There was no provision for credit losses on the available-for-sale securities portfolio for the three months ended March 31, 2024.

The provision for unfunded commitments is presented separately on the Consolidated Statements of Operations.

This provision considers the probability that unfunded commitments will fund.

During the three months ended March 31, 2024 and 2023, provisions of $456 thousand and $848 thousand, respectively, were incurred for unfunded commitments.

Noninterest Income

Noninterest income includes service charges on deposits, gain on sale of loans, gains and losses on sale of investment securities, income from bank owned life insurance ("BOLI") and other income.

The following table summarizes the comparative noninterest income for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

(dollars in thousands)

Balance at beginning of period $ 74,444 $ 74,965

2024 2023 Dollar Change

Percent Change

Service charges on deposits $ 1,699 $ 1,510 $ 189 13 %

Gain on sale of loans — 305 (305) (100) %

Net gain (loss) on sale of investment securities 4 (21) 25 (119) %

Increase in the cash surrender value of bank-owned life insurance 703 655 48 7 %

Other income 1,183 1,251 (68) (5) %

$ 3,589 $ 3,700 $ (111) (3) %

Total noninterest income for the three months ended March 31, 2024 decreased to $3.6 million from $3.7 million for the three months ended March 31, 2023, a 3% decrease.

The decrease was primarily attributable to a decrease in gains on sale of residential mortgage loans, partially offset by an increase in service charges on deposits.

The Company ceased originations of first lien residential mortgages for secondary sale in the first quarter of 2023, and completed residual origination and sales activities in the second quarter of 2023.

Noninterest Expense

Total noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data processing, legal, accounting and professional, Federal Deposit Insurance Corporation ("FDIC") insurance assessments, and other expenses.

The following table summarizes the comparative noninterest expense for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

(dollars in thousands)

2024 2023 Dollar Change

Percent Change

Salaries and employee benefits $ 21,726 $ 24,174 $ (2,448) (10) %

Premises and equipment expenses 3,059 3,317 (258) (8) %

Marketing and advertising 859 636 223 35 %

Data processing 3,293 3,099 194 6 %

Legal, accounting and professional fees 2,507 3,254 (747) (23) %

FDIC insurance 6,412 1,486 4,926 331 %

Other expenses 2,141 4,618 (2,477) (54) %

$ 39,997 $ 40,584 $ (587) (1) %

Total noninterest expense totaled $40.0 million for the three months ended March 31, 2024, as compared to $40.6 million for the three months ended March 31, 2023, a 1% decrease.

The decrease was primarily attributable to a $2.5 million reduction in other expenses, a $2.4 million reduction in salaries and employee benefits, and a $747 thousand reduction in legal, accounting and professional fees.

This total of these reductions to expense was partially offset by a $4.9 million increase in FDIC insurance.

The decrease in salaries and employee benefits over the comparative three months ended March 31, 2024 and 2023 was primarily due to a reduction in payroll taxes and employee benefits.

At March 31, 2024, the Company's full time equivalent staff numbered 451, as compared to 486 at March 31, 2023.

The decrease in legal, accounting and professional fees over the comparative three months ended March 31, 2024 and 2023 was primarily due to a $959 thousand reversal of legal fees receivable in the first quarter of 2023 relating to the previously disclosed settled litigations and investigations as Directors & Officers insurance for the 2016-2017 years was fully depleted.

The major components of other expenses include franchise taxes, director compensation and insurance expense.

The decrease in other expenses over the comparative three months ended March 31, 2024 and 2023 was primarily due to a reduction in director fees of $1.3 million and a $857 thousand recovery of real estate taxes.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 51.09% for the three months ended March 31, 2024, as compared to 51.55% for the same period in 2023.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

The improvement in the efficiency ratio for the three months ended March 31, 2024 as compared to the same three month period in 2023 was primarily driven by the decrease in noninterest expenses outpacing the decreases in net interest income and noninterest income.

As a percentage of average assets, total noninterest expense (annualized) was 1.26% for the three months ended March 31, 2024, as compared to 1.44% for the same period in 2023.

The decrease for the three month period ended March 31, 2024 was primarily due to an increase in average interest earning assets.

Income Tax Expense

The Company's tax provision for the three months ended March 31, 2024 was $3.0 million, compared to $6.9 million for the three months ended March 31, 2023.

The decrease in the tax provision over the comparative three months ended March 31, 2024 and 2023 was primarily due to decreases in pre-tax income period over period.

The Inflation Reduction Act of 2022 was signed into law by President Biden on August 16, 2022 and made significant changes to the U.S.

tax law, including the introduction of a corporate alternative minimum tax of 15% of the “adjusted financial statement income” of certain domestic corporations as well as a 1% excise tax on the fair market value of stock repurchases by certain domestic corporations, effective for tax years beginning in 2023.

Effective January 1, 2023, the Company became subject to the tax laws under the Inflation Reduction Act.

The Company has not experienced and currently does not expect the tax-related provisions of the Inflation Reduction Act to have a material impact on our financial results.

FINANCIAL CONDITION

Total assets were $11.6 billion and $11.7 billion at March 31, 2024 and December 31, 2023, respectively.

Assets remained at similar levels from December 31, 2023 to March 31, 2024 with minor changes in the asset mix.

The decrease in total assets of $51.9 million (or 0.4%) from December 31, 2023 to March 31, 2024 was primarily due to decreases in investment securities and interest-bearing deposits with other banks and other short-term investments, the total of which was partially offset by an increase in loans.

The largest component of assets, total loans, had an amortized cost basis of $8.0 billion at March 31, 2024, a 0.2% increase from the balance at December 31, 2023.

The increase in loans over the three months ended March 31, 2024, was driven primarily by increased fundings of ongoing construction projects for commercial and residential properties, partially offset by decreases in income producing - CRE, owner occupied - CRE and commercial loans.

Investment securities, at amortized cost net of the ACL, totaled $2.6 billion at March 31, 2024 as compared to $2.7 billion at December 31, 2023, a decrease of $69.7 million, or 2.6%, that was primarily driven by the pay down of principal on mortgage-backed securities ("MBS") and calls of securities.

At March 31, 2024 and December 31, 2023, investment securities available-for-sale had an amortized cost of $1.6 billion and $1.7 billion, respectively, and a fair value of $1.4 billion and $1.5 billion, respectively.

Additionally, March 31, 2024 and December 31, 2023, investment securities held-to-maturity had an amortized cost, less an ACL of $2.0 million, of $1.0 billion and an estimated fair value of $878.2 million and $901.6 million, respectively.

In terms of funding, total deposits at March 31, 2024 were $8.5 billion, down from $8.8 billion at December 31, 2023, a decline of 3.5%.

Total borrowings (excluding customer repurchase agreements) were $1.7 billion and $1.4 billion at March 31, 2024 and December 31, 2023, respectively.

The decrease in deposits was primarily attributable to first quarter seasonality, while the increase in borrowings, attributable to net fundings on the Company's secured borrowings, was primarily to meet funding needs, including to fund loan growth, given the decrease in deposits.

Total shareholders' equity remained consistent at $1.3 billion as of March 31, 2024 , and December 31, 2023.

During the three months ended March 31, 2024, there was a slight decrease of 1.2%, which was primarily the result of cash dividends and the decrease in earnings.

The Company's capital ratios remain substantially in excess of regulatory minimum and buffer requirements.

Regulatory ratios based on risk-weighted assets experienced minor fluctuations of less than 1% from December 31, 2023 to March 31, 2024.

The total risk based capital ratio was 14.87% at March 31, 2024, as compared to 14.79% at December 31, 2023.

The common equity tier 1 capital ("CET1") risk based capital ratio was 13.80% at March 31, 2024, as compared to 13.90% at December 31, 2023.

The tier 1 risk based capital ratio was 13.80% at March 31, 2024, as compared to 13.90% at December 31, 2023.

The tier 1 leverage ratio was 10.26% at March 31, 2024, as compared to 10.73% at December 31, 2023.

The ratio of common equity to total assets was 10.85% at March 31, 2024, as compared to 10.92% at December 31, 2023 as common equity levels remained consistent over the three months ended March 31, 2024.

Book value per share was $41.72 at March 31, 2024, a 2.0% decrease over $42.58 at December 31, 2023.

In addition, the tangible common equity ratio was 10.03% at March 31, 2024, as compared to 10.12% at December 31, 2023.

Tangible book value per share was $38.26 at March 31, 2024, a 2.1% decrease from $39.08 at December 31, 2023.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

In order to be considered well-capitalized, the Bank must have a CET1 risk based capital ratio of 6.5%, a Tier 1 risk-based ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%.

The Company and the Bank exceed all these requirements and satisfy the capital conservation buffer of 2.5% of CET1 capital.

Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses.

Loan Portfolio

In its lending activities, the Company seeks to develop and expand relationships with clients whose businesses and individual banking needs will grow with the Bank.

Superior customer service, local decision making, and accelerated turnaround time from application to closing have been significant factors in growing the loan portfolio and meeting the lending needs in the markets served, while maintaining sound asset quality.

Loans outstanding were $8.0 billion at March 31, 2024, an increase of $14.0 million, or 0.2%, from the balance at December 31, 2023.

The loan portfolio has continued to grow in the three months ended March 31, 2024, driven by increased fundings of ongoing construction projects for commercial and residential properties, partially offset by a reduction in CRE loans.

Market rates in 2024 for our new loan originations remained consistent with the market rates at the end of 2023, reflecting that the Federal Reserve has not raised short-term interest rates in 2024.

We continue to see opportunities for growth in the commercial real estate market in our focused sectors;

our processes for evaluating these opportunities are designed to ensure they are subject to reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service.

Following origination, we continue to monitor our borrowers' business plans and identify primary and alternative sources for loan repayment and, if necessary, obtain collateral to mitigate credit loss in the event of default.

Loans, net of amortized deferred fees and costs, at March 31, 2024 and December 31, 2023 by major category are summarized below.

March 31, 2024 December 31, 2023

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

Commercial $ 1,408,767 18 % $ 1,473,766 18 %

PPP loans 467 — % 528 — %

Income producing - commercial real estate 4,040,655 50 % 4,094,614 51 %

Owner occupied - commercial real estate 1,185,582 15 % 1,172,239 15 %

Real estate mortgage - residential 72,087 1 % 73,396 1 %

Construction - commercial and residential 1,082,556 13 % 969,766 12 %

Construction - C&I (owner occupied) 138,379 2 % 132,021 2 %

Home equity 53,251 1 % 51,964 1 %

Other consumer 958 — % 401 — %

Total charge-offs (7,320) (2,034)

Total loans 7,982,702 100 % 7,968,695 100 %

allowance for credit losses (99,684) (85,940)

Loans, net (1)

$ 7,883,018 $ 7,882,755

(1) Excludes accrued interest receivable of $46.3 million and $45.3 million at March 31, 2024 and December 31, 2023, respectively, which is recorded in other assets.

As noted above, a significant portion of the loan portfolio consists of commercial, construction and commercial real estate loans, primarily made in the Washington, D.C.

metropolitan area, and is secured by real estate or other collateral in that market.

Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the Washington, D.C.

metropolitan real estate market could continue to have an adverse impact on this portfolio of loans and the Company’s income and financial position.

Management believes that the CRE concentration risk is mitigated by diversification among the types and characteristics of real estate collateral properties, sound underwriting practices and ongoing portfolio monitoring and market analysis.

While our basic market area is the Washington, D.C.

metropolitan area, the Bank has made loans outside that market area where the applicant is an existing customer and the nature and quality of such loans was consistent with the Bank’s lending policies.

The Company's concentration in the Washington, D.C.

metro area includes "Washington's Maryland Suburbs," which comprise Frederick, Prince George's and Montgomery counties and "Northern Virginia," which comprises Alexandria, Arlington, Falls Church, Fairfax, Loudoun and Prince William counties.

At March 31, 2024, 31.8%, 26.9%, 24.2%, 5.4% and 11.7% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively.

At December 31, 2023, 31.5%, 26.4%, 25.1%, 5.5% and 11.5% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively.

While we remain cautious with regard to CRE market conditions, principally office, the strength of the Washington D.C.

metro area in certain sectors, particularly multi-family CRE and the housing market, continue to drive premiums for well-located properties.

As part of its lending strategy, the Company maintains a substantial portfolio of CRE loans, with $6.2 billion and $6.1 billion, or 77.1% and 77.0% of total loans, of amortized cost outstanding at March 31, 2024 and December 31, 2023, respectively.

Management meets regularly in order to monitor its existing CRE loan portfolio and to evaluate the pipeline for CRE loan investment.

The Company has remained focused on monitoring sectors that have had a lasting impact from the ramifications of the COVID-19 pandemic, particularly income producing CRE loans collateralized by office properties, which comprised approximately $898.7 million and $949.0 million, or 11.2% and 11.9% of total loans, at March 31, 2024 and December 31, 2023, respectively.

Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $829.5 million and $879.0 million, or 10.4% and 11.0% of total loans, at March 31, 2024 and December 31, 2023, respectively.

As a percentage of total income producing - CRE office loans, 37.4%, 31.4% and 23.5% were located in Washington's Maryland Suburbs, Northern Virginia, and Washington, D.C.

at March 31, 2024.

The following table summarizes the Company's income producing - commercial real estate loans, at principal, at March 31, 2024:

(dollars in thousands)

Washington D.C.

Washington Suburbs

Northern Virginia

Percent of Total

Collateral Type:

Hotel & motel

$ 138,330 $ 85,641 $ 83,327 $ 66,982 $ — $ 22,129 $ 396,409 10 %

5,854 78,924 40,898 19,713 3,815 — 149,204 4 %

265,432 45,969 372 54,511 25,793 5,380 397,457 10 %

384,408 214,415 320 72,131 84,636 47,877 803,787 20 %

211,181 336,043 4,349 282,297 64,823 47 898,740 22 %

82,279 97,738 62,018 77,094 99,788 1,938 420,855 10 %

Single / 1-4 Family & Res.

73,737 2,775 2,543 14,496 6,554 4,080 104,185 2 %

155,520 188,186 39,918 459,291 9,355 27,255 879,525 22 %

$ 1,316,741 $ 1,049,691 $ 233,745 $ 1,046,515 $ 294,764 $ 108,706 $ 4,050,162 100 %

Percent of total

32 % 26 % 6 % 26 % 7 % 3 % 100 %

Percent of Principal by Loan Size:

Less than $1 million 29 % 23 % 45 % 26 % 30 % 34 %

$1 million to $15 million 16 % 16 % 6 % 10 % 8 % 8 %

$5 million to $10 million 8 % 7 % — % 10 % 35 % 49 %

$10 million to $25 million 25 % 37 % 43 % 26 % 24 % 9 %

$25 million to $50 million 18 % 17 % 6 % 14 % 3 % — %

Greater than $50 million 4 % — % — % 14 % — % — %

100 % 100 % 100 % 100 % 100 % 100 %

At March 31, 2024, $248.9 million of principal of loans collateralized by office properties were criticized or classified.

At March 31, 2024, the Company had no concentrations of loans with any one borrower in any one industry exceeding 10% of its total loan portfolio.

An industry for this purpose is defined as a group of businesses that are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.

The following table sets forth the time to the final contractual maturity of the loan portfolio as of March 31, 2024:

March 31, 2024

(dollars in thousands) Total One Year or Less (1)

Over One Year to Five Years Over Five Years to Fifteen Years Over Fifteen Years

Commercial $ 1,408,767 $ 356,329 $ 879,193 $ 169,699 $ 3,546

PPP loans 467 — 467 — —

Income producing - commercial real estate (2)

4,040,655 1,499,809 2,218,712 322,134 —

Owner occupied - commercial real estate 1,185,582 211,602 442,072 308,355 223,553

Real estate mortgage - residential 72,087 16,956 43,995 487 10,649

Construction - commercial and residential 1,082,556 289,929 755,137 7,689 29,801

Construction - C&I (owner occupied) 138,379 24,314 18,586 36,681 58,798

Home equity 53,251 2,331 2,192 1,092 47,636

Other consumer 958 771 — — 187

Total loans $ 7,982,702 $ 2,402,041 $ 4,360,354 $ 846,137 $ 374,170

Predetermined fixed interest rate $ 3,132,625 $ 963,405 $ 1,668,486 $ 403,587 $ 97,147

Floating or adjustable interest rate 4,850,077 1,438,636 2,691,868 442,550 277,023

Total loans $ 7,982,702 $ 2,402,041 $ 4,360,354 $ 846,137 $ 374,170

(1) Demand loans, having no contractual maturity, and overdrafts are reported as due in one year or less.

(2) Income producing CRE office loans, which had total principal of $898.7 million at March 31, 2024 and are included within income producing - commercial real estate, had principal of $323.8 million, $559.8 million, and $15.1 million aggregated with one year or less, over one year to five years, and over five years to fifteen years remaining until contractual maturity, respectively.

Approximately $107.8 million and $368.8 million of income producing CRE office loans as of March 31, 2024 were due to mature within three months and 18 months, respectively.

Allowance for Credit Losses

The ACL is an estimate based on many factors which reflect management’s assessment of the risk in the loan portfolio.

Those factors include economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio and internal loan processes of the Company and Bank.

A full discussion of the accounting for ACL is contained in Note 1 to the Consolidated Financial Statements and activity in the ACL is contained in Note 4 to the Consolidated Financial Statements.

Also, please refer to the discussion under the caption "Provision for Credit Losses" for a discussion of the Company's calculation of the provision for credit losses during the three months ended March 31, 2024 and 2023.

The ACL for loans at March 31, 2024, or $99.7 million, reflected a $13.7 million increase from December 31, 2023, or $85.9 million, reflecting a provision for credit losses of $35.2 million and $21.4 million in net charge-offs during the three months ended March 31, 2024.

Net charge-offs, on an annualized basis, represented 1.07% of average loans for the three months ended March 31, 2024, an increase from net charge-offs of $975 thousand during the three months ended March 31, 2023, which represented 0.05% of average loans, excluding loans held for sale, on an annualized basis.

Net charge-offs during the three months ended March 31, 2024 included $20.6 million of charge offs on one CRE office lending relationship.

At March 31, 2024, the ACL for loans represented 1.25% of total loans outstanding, as compared to 1.08% at December 31, 2023.

The ACL represented 109% of nonperforming loans at March 31, 2024, as compared to 131% at December 31, 2023.

Refer to the "Provision for Credit Losses" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for more information on the provision for credit losses.

As part of its comprehensive loan review process, the Bank’s Risk Committee evaluates loans which are past due 30 days or more.

The Committee makes an assessment of the conditions and circumstances surrounding delinquent and potential problem loans.

The Bank’s loan policy requires that loans be placed on nonaccrual if they are 90 days past due or if their collection is deemed to be doubtful, unless they are well secured and in the process of collection.

The Credit Administration department analyzes the status of development and construction projects, including sales activities and utilization of interest reserves in order to assess potential increased levels of risk which may require additional reserves.

The Company believes it has taken a prudent posture with respect to risk rating its loan portfolio.

As of March 31, 2024 and December 31, 2023, loans rated special mention had an amortized cost of $265.3 million and $207.1 million, respectively, and loans rated substandard had an amortized cost of $361.8 million and $335.8 million, respectively.

The increases in special mention loans were primarily attributable to additions in CRE loans, particularly in income producing - commercial real estate and commercial construction loans, and commercial loans.

At March 31, 2024, 97.5% and $73.9% of special mention and substandard loans, respectively, were current.

Based upon their status as potential problem loans, loans risk rated special mention or substandard receive heightened scrutiny and ongoing intensive risk management.

Additionally, the Company's loan loss allowance methodology incorporates increased reserve factors for certain loans considered potential problem loans as compared to the general portfolio.

Management, being aware of the loan growth experienced by the Bank and the risks facing CRE, is intent on maintaining strong portfolio management and a strong risk rating process.

The Bank provides analysis of credit requests and the management of problem credits.

The Bank has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system and has adopted enhanced monitoring of the loan portfolio and the adequacy of the ACL, in particular on its CRE and construction loans (including those collateralized by office properties).

These analyses include stress testing.

Additionally, fair value assessments of loans acquired are included in our analytical procedures.

The loan portfolio analysis process is ongoing and proactive to support the Company's objective of maintaining a portfolio of quality credits and quickly identifying weaknesses before they become more severe.

At March 31, 2024 and December 31, 2023, the Company's performing office coverage ratio, which calculates the ACL attributable to loans collateralized by performing office properties as a percentage of total loans, was 3.67% and 1.91%, respectively.

The following table sets forth activity in the ACL for the periods indicated.

Three Months Ended March 31,

(dollars in thousands) 2024

Balance at beginning of period $ 85,940 $ 74,444

Commercial (496) (868)

Income producing - commercial real estate (20,943) —

Construction - commercial and residential (129) (136)

Other consumer (1) (50)

Total charge-offs (21,569) (1,054)

Commercial 115 76

Owner occupied - commercial real estate 24 —

Other consumer — 3

Total recoveries 139 79

Net (charge-offs) recoveries (6,914) 270

Net charge-offs (21,430) (975)

Provision for credit losses - loans 35,174 4,908

Balance at end of period $ 99,684 $ 78,377

Annualized ratio of net charge-offs (recoveries) during the period to average loans outstanding during the period 0.12 % — %

The following table reflects the allocation of the allowance for credit losses at the dates indicated.

Annualized ratio of net charge-offs during the period to average loans outstanding during the period 1.07 % 0.05 %

The following table reflects the allocation of the ACL at the dates indicated.

The allocation of the allowance at March 31, 2024 includes ACL of $387 thousand against individually assessed loans of $92.1 million, as compared to ACL of $641 thousand against individually assessed loans of $66.1 million at December 31, 2023.

The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the use of the allowance to absorb losses in any category.

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(dollars in thousands) Amount % of Total ACL % of Total Loans Amount % of Total ACL % of Total Loans

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Nonperforming Assets

As shown in the table below, the Company's level of nonperforming assets, which comprise the amortized cost of loans delinquent 90 days or more and nonaccrual loans, which include the nonperforming portion of loan restructurings, and the carrying value of OREO, totaled $71.6 million at September 30, 2023 representing 0.64% of total assets, as compared to $8.4 million of nonperforming assets, or 0.08% of total assets, at December 31, 2022.

The Company's level of nonperforming assets, which comprise the amortized cost of loans delinquent 90 days or more and nonaccrual loans, which includes the nonperforming portion of loan modifications, and the carrying value of OREO, totaled $92.3 million at March 31, 2024 representing 0.79% of total assets, as compared to $66.6 million of nonperforming assets, or 0.57% of total assets, at December 31, 2023.

The increase is primarily due to the increase in nonperforming loans discussed below.

At September 30, 2023, the Company had no accruing loans 90 days or more past due.

Management remains attentive to early signs of deterioration in borrowers' financial conditions and to taking the appropriate action to mitigate risk.

Furthermore, the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its allowance for credit losses, at 1.05% of total loans at September 30, 2023, is adequate to absorb expected credit losses within the loan portfolio at that date.

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

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

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

The Company had no accruing loans 90 days or more past due at March 31, 2024 or December 31, 2023.

Management prioritizes remaining attentive to early signs of deterioration in borrowers’ financial conditions and to taking action designed to mitigate risk.

The Company places loans on nonaccrual status if it deems collection to be doubtful.

The Company believes it is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its ACL, at 1.25% of total loans at March 31, 2024, is adequate to absorb expected credit losses within the loan portfolio at that date.

Total nonperforming loans had an amortized cost of $91.5 million at March 31, 2024, representing 1.15% of total loans, compared to $65.5 million at December 31, 2023, representing 0.82% of total loans.

The increase was primarily from the addition of two income-producing commercial real estate loans to non-accruing status following a partial charge-off on the combined balances.

The CECL standard allows for institutions to evaluate individual loans in the event that the asset does not share similar risk characteristics with its original segmentation.

This can occur due to credit deterioration, increased collateral dependency or other factors leading to impairment.

In particular, the Company individually evaluates loans on nonaccrual and those identified as loan modifications to borrowers experiencing financial difficulties, though it may individually evaluate other loans or groups of loans as well if it determines they no longer share similar risk with their assigned segment.

Reserves on individually assessed loans are determined by one of two methods:

the fair value of collateral or the discounted cash flow.

Fair value of collateral is used for loans determined to be collateral dependent, and the fair value represents the net realizable value of the collateral, adjusted for sales costs, commissions, senior liens, etc.

Discounted cash flow is used on loans that are not collateral dependent where structural concessions have been made and continuing payments are expected.

The continuing payments are discounted over the expected life at the loan’s original contract rate and include adjustments for risk of default.

Nonperforming assets include loans that the Company considers to be individually assessed.

Individually assessed loans are defined as those as to which we believe it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement, as well as those loans whose terms have been modified in a loan restructuring to a borrower experiencing financial difficulties that has not shown a period of performance as required under applicable accounting standards.

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 net present value ("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.

Generally, all appraisals associated with individually assessed loans are updated on a not less than annual basis.

The Company evaluates loan modifications according to the accounting guidance for loan modifications to determine if the modification 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.

2 unchanged sentences

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.

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

Commercial and consumer loans modified 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 impairment.

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

During the three months ended September 30, 2023, the Bank modified 13 loans with a total amortized cost of $225.7 million at September 30, 2023 (2.9% of the loan portfolio).

These loans received extended loan terms of between approximately one to 36 months.

Two loans received a weighted average interest rate reduction of approximately 1.89%.

During the nine months ended September 30, 2023, the Bank modified 17 loans with a total amortized cost of $242.0 million at September 30, 2023 (3.1% of the loan portfolio).

During the three months ended March 31, 2024, the Bank modified 11 loans with a total amortized cost of $85.0 million at March 31, 2024 (1.1% of the loan portfolio).

These loans received extended loan terms of between approximately one to 12 months.

Five loans received a weighted average interest rate reduction of approximately 2.55%.

As of September 30, 2023, three loans that were modified in the preceding twelve months, including two loans with a total amortized cost of $44.9 million that were 30 to 89 days past due and one loan with an amortized cost of $20.4 million that was on nonaccrual status, experienced a subsequent payment default during the nine months ended September 30, 2023.

One loan with an amortized cost of $2.2 million at September 30, 2023, which was modified during the first quarter of 2023, moved to nonaccrual status and incurred a $2.1 million charge-off in the second quarter of 2023.

In October 2023, the loan was sold.

Loans modified in the preceding twelve months totaled $237.5 million, of which approximately $8.0 million are loans 30-89 days past due and $85.3 million are on non-accrual status.

All other loans are performing under their modified terms.

Alternatively, management, from time-to-time and in the ordinary course of business, implements renewals, modifications, extensions and/or changes in terms of loans to borrowers who have the ability to repay on reasonable market-based terms, as circumstances may warrant, and therefore, such modifications are not considered to be loan restructurings to a borrower experiencing financial difficulty, as the accommodation of a borrower's request does not rise to the level of a concession if the modified transaction is at market rates and terms and/or the borrower is not experiencing financial difficulty.

(1) adverse weather conditions may create a short term cash flow issue for an otherwise profitable retail business which suggests a temporary interest only period on an amortizing loan;

(2) there may be delays in absorption on a real estate project which reasonably suggests extension of the loan maturity at market terms;

or (3) there may be maturing loans to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term financing.

Included in nonperforming assets was OREO of $773 thousand, comprising four foreclosed properties, at March 31, 2024 and $1.1 million, comprising two foreclosed properties, at December 31, 2023.

OREO properties are carried at the lower of cost or fair value less estimated costs to sell.

It is the Company's policy to obtain third party appraisals prior to foreclosure, and to obtain updated third party appraisals on OREO properties generally not less frequently than annually.

Generally, the Company would obtain updated appraisals or evaluations where it has reason to believe, based upon market indications (such as:

comparable sales, legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately reflect current value.

OREO properties had a carrying value of $1.5 million and $2.0 million at September 30, 2023 and December 31, 2022, respectively.

One OREO property was sold during the nine months ended September 30, 2023 and one OREO property was sold during the nine months ended September 30, 2022, generating proceeds of $609 thousand and $241 thousand, respectively.

Total nonperforming loans amounted to an amortized cost of $70.2 million at September 30, 2023 (0.89% of total loans) compared to $6.5 million at December 31, 2022 (0.08% of total loans).

The increase was primarily from one income producing CRE office note in Northern Virginia, of which approximately $3.2 million was charged off during the second quarter of 2023, and one construction - commercial and residential note in Washington, D.C.

The following table shows the amounts of nonperforming assets, including loans at amortized cost and OREO at the lower of cost or fair value less estimated costs to sell, at the dates indicated.

(dollars in thousands) September 30, 2023 December 31, 2022

Generally, the Company would obtain updated appraisals or evaluations on OREO properties where it has reason to believe, based upon market indications (such as:

comparable sales, a scenario in which the Company is considering legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately reflect current value.

Two OREO properties were sold during the three months ended March 31, 2024, generating proceeds of $656 thousand.

There were no sales of OREO property during the three months ended March 31, 2023.

The following table shows the amounts of nonperforming assets, including loans at amortized cost and OREO at the lower of cost or fair value less estimated costs to sell:

(dollars in thousands) March 31, 2024 December 31, 2023

Nonaccrual Loans:

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Significant variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio.

At September 30, 2023, there were $219.0 million of Substandard loans.

At March 31, 2024, there were $361.8 million of Substandard loans.

Substandard loans are considered potential or actual problem loans due to known information about possible or actual credit problems which causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms, which may in the future result in the reclassification to the past due, nonaccrual or restructured loan categories, as appropriate.

Based upon their status as potential or actual problem loans, these loans receive heightened scrutiny and ongoing intensive risk management.

Noninterest Income

Total noninterest income includes service charges on deposits, gain on sale of loans, gains and losses on sale of investment securities, FHA multi-family income, income from bank owned life insurance ("BOLI") and other income.

Total noninterest income for the three months ended September 30, 2023 increased to $6.3 million from $5.3 million for the three months ended September 30, 2022, a 19.6% increase.

Total noninterest income for the nine months ended September 30, 2023 increased to $18.6 million from $18.3 million for the nine months ended September 30, 2022, a 1.7% increase.

Service charges on deposits for the three months ended September 30, 2023 increased to $1.6 million from $1.3 million for the three months ended September 30, 2022.

Service charges on deposits for the nine months ended September 30, 2023 increased to $4.8 million from $4.0 million for the nine months ended September 30, 2022.

Loss on the sales of loans for the three months ended September 30, 2023 was $5 thousand as compared to a gain of $821 thousand for the three months ended September 30, 2022, a 100.6% decrease.

Gain on sale of loans for the nine months ended September 30, 2023 decreased to $395 thousand from $3.2 million for the nine months ended September 30, 2022, a $2.8 million, or 87.5% decrease.

The reduction from a gain on the sales of loans to a loss for the comparative three months ended September 30, 2023 and 2022 and decline in the gain on the sales of loans for the comparative nine months ended September 30, 2023 and 2022 were due to lower volumes as a result of higher interest rates as well as ceasing the origination of residential mortgages as previously announced.

There were no residential mortgage loan locked commitments for the three months ended September 30, 2023 as compared to $57.5 million for the same period in 2022.

Residential mortgage loan locked commitments were $32.8 million for the nine months ended September 30, 2023 as compared to $286.2 million for the same period in 2022, a 88.5% decrease.

The residential mortgage loans were originated for sale to third-party investors subject to compliance with pre-established criteria.

The Company commenced the cessation of first lien residential mortgage origination for secondary sale during the first quarter of 2023.

The Company completed origination and sales activities as of the end of the second quarter of 2023.

Gain on the sale of investments for the three months ended September 30, 2023, was $5 thousand compared to a gain of $4 thousand for the three months ended September 30, 2022.

Loss on the sale of investments for the nine months ended September 30, 2023, was $14 thousand compared to a loss of $172 thousand for the nine months ended September 30, 2022.

The loss for the nine months ended September 30, 2023 was due to the sale of 12 securities for a loss of $27 thousand, which was partially offset by $13 thousand in gains on partial calls.

Other income for the three months ended September 30, 2023 increased to $4.0 million from $2.5 million for the three months ended September 30, 2022, a 61.0% increase, primarily attributable to an increase in swap fee income of $1.2 million.

Other income for the nine months ended September 30, 2023 increased to $11.5 million from $9.5 million for the nine months ended September 30, 2022, a 21.7% increase.

Other interest income during the comparative nine months ended September 30, 2023 and 2022 increased primarily due to an increase in other fees driven by income of $2.8 million from an investment in an SBIC fund, $1.5 million in swap fee income, and BOLI income of $846 thousand, which was partially offset by reductions in credit card income of $1.5 million, mortgage servicing fees of $887 thousand, and other loan income of $808 thousand.

Servicing agreements relating to the Ginnie Mae mortgage-backed securities program require the Company to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers.

The Company will generally recover funds advanced pursuant to these arrangements under the FHA insurance and guarantee program.

However, in the interim, the Company must absorb the cost of the funds it advances during the time the advance is outstanding.

The Company must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans.

In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Company would not receive any future servicing income with respect to that loan.

To the extent the mortgage loans underlying the Company's servicing portfolio experience delinquencies, the Company would be required to dedicate cash resources to comply with its obligation to advance funds, as well as incur additional administrative costs related to increases in collection efforts.

The Company is a long-time originator of SBA loans and its practice is to sell the guaranteed portion of those loans at a premium.

There was $0 and $45 thousand of income from this source for the three and nine months ended September 30, 2023, respectively, compared to $59 thousand and $249 thousand for the three and nine months ended September 30, 2022, respectively.

Activity in SBA loan sales to secondary markets can vary widely from quarter to quarter.

Noninterest Expense

Total noninterest expense totaled $37.6 million for the three months ended September 30, 2023, as compared to $36.2 million for the three months ended September 30, 2022, a 3.9% increase.

Total noninterest expense totaled $116.2 million for the nine months ended September 30, 2023, as compared to $126.2 million for the nine months ended September 30, 2022, a 7.9% decrease.

Salaries and employee benefits were $21.5 million for both three months ended September 30, 2023 and September 30, 2022.

Salaries and employee benefits were $67.7 million for the nine months ended September 30, 2023, as compared to $60.4 million for the nine months ended September 30, 2022, a 12.1% increase.

The primary reason for the difference for the first nine months expense was the one-time accrual reduction in the first three months of 2022 of $5.0 million related to stock-based compensation awards and deferred compensation for our former CEO and Chairman.

At September 30, 2023, the Company's full time equivalent staff numbered 452 as compared to 495 at September 30, 2022.

Premises and equipment for the three and nine months ended September 30, 2023 and 2022, were $3.1 million and $9.6 million compared to $3.3 million and $9.9 million, respectively, of which premises expenses were $1.8 million and $5.6 million compared to $2.0 million and $6.0 million, respectively.

Marketing and advertising expenses totaled $768 thousand for the three months ended September 30, 2023 and $1.2 million for the same period in 2022.

For the nine months ended September 30, 2023, marketing and advertising expense was $2.3 million compared to $3.4 million for the nine month period ended September 30, 2022.

The decrease for both the three and nine month periods were due to a reduction in advertising and promotions.

Data processing expenses were $3.2 million and $9.6 million for the three and nine months ended September 30, 2023, respectively, compared to $3.4 million and $9.1 million for the same periods in 2022, respectively.

Legal, accounting and professional fees were $2.2 million and $8.1 million for the three and nine months ended September 30, 2023, respectively, compared to $2.3 million and $6.0 million for the three and nine months ended September 30, 2022, respectively, a decrease of $170 thousand and an increase of $2.1 million for the comparative periods, respectively.

Legal fees and expenditures were $446 thousand and $227 thousand for the three months ended September 30, 2023 and 2022, respectively.

For the nine months ended September 30, 2023 and September 30, 2022 legal fees and expenditures were $2.9 million and $723 thousand, respectively.

The decrease was primarily due to a $959 thousand reversal of legal fees receivable relating to the previously disclosed settled litigations and investigations as Directors & Officers insurance for the 2016-2017 years was fully depleted.

FDIC insurance assessments were $3.3 million for the three months ended September 30, 2023 compared to $1.3 million for the same period in 2022, a 159.7% increase.

For the nine months ended September 30, 2023, FDIC insurance assessments were $7.4 million compared to $3.3 million for the nine months ended September 30, 2022.

The major components of other expenses include franchise taxes, director compensation and insurance expense.

Other expenses increased to $3.5 million from $3.1 million, or 11.9%, for the three months ended September 30, 2023, compared to the same three month period in 2022.

For the nine month period ended September 30, 2023 other expenses decreased to $11.5 million from $34.1 million, or 66.4%, for the same period in 2022.

The decrease in other expenses over the comparative nine months ended September 30, 2023 and 2022 was primarily due to the SEC and FRB penalties totaling $22.9 million.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 48.83% for the third quarter of 2023, as compared to 40.59% for the third quarter of 2022.

For the first nine months of 2023, the efficiency ratio was 49.19% as compared to 47.51% for the same period in 2022.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

The adverse change in the efficiency ratio for the three and nine months ended September 30, 2023 as compared to the same three and nine month period in 2022 was primarily driven by the decrease in net interest income as a result of the increase in interest rates on deposits and borrowings which was partially offset by the decrease in noninterest expense in connection with the second quarter of 2022 accrual of settlement expenses in connection with the agreements with the SEC and FRB associated with previously disclosed government investigations, totaling $22.9 million of settlement expenses associated with previously disclosed government investigations in the second quarter of 2022.

As a percentage of average assets, total noninterest expense (annualized) was 1.25% for the three months ended September 30, 2023 as compared to 1.27% for the same period in 2022.

As a percentage of average assets, total noninterest expense (annualized) was 1.32% for the nine months ended September 30, 2023 as compared to 1.41% for the same period in 2022.

The decrease for the nine month period ended September 30, 2023 was primarily due to the accrual of the $22.9 million of settlement expenses in the second quarter of 2022.

The decrease for the nine month period ended September 30, 2023 was partially offset by the salary accrual reduction in the first quarter of 2022 of $5.0 million related to stock-based compensation awards and deferred compensation for our former CEO and Chairman.

Income Tax Expense

The Company's ratio of income tax expense to pre-tax income ("effective tax rate") for the three months ended September 30, 2023 and 2022 was 20.9% and 24.2%, respectively.

The total tax provision for the three months ended September 30, 2023 was $7.2 million, compared to $11.9 million for the three months ended September 30, 2022.

The effective tax rate for the nine months ended September 30, 2023 was 21.7% as compared to 28.1% for the same period in 2022.

The total tax provision for the nine months ended September 30, 2023 was $22.3 million, compared to $38.6 million for the nine months ended September 30, 2022.

The decreases in the effective tax rate and tax provision over the comparative three months ended September 30, 2023 and 2022 were primarily due to decreases in pre-tax income period over period.

The decrease in the effective tax rate and tax provisions over the comparative nine months ended September 30, 2023 and 2022 was primarily due to the SEC and FRB penalties totaling $22.9 million and decreases in pre-tax income period over period.

The penalties associated with the previously disclosed investigations are not deductible for tax purposes.

The Inflation Reduction Act of 2022 was signed into law by President Biden on August 16, 2022 which makes significant changes to the U.S.

Effective January 1, 2023, the Company became subject to the tax laws under the Inflation Reduction Act.

The Company has not experienced and currently does not expect the tax-related provisions of the Inflation Reduction Act to have a material impact on our financial results.

FINANCIAL CONDITION

Total assets were $11.2 billion at September 30, 2023 and December 31, 2022.

Total assets remained consistent over the nine months ended September 30, 2023, as a result of an increase in loan balances which were partially offset by decreases in investment securities and other short-term investments.

The largest component of assets, total loans (excluding loans held for sale), had an amortized cost basis of $7.9 billion at September 30, 2023, a 3.7% increase from the balance at December 31, 2022.

The increase in loans over the nine months ended September 30, 2023, was driven primarily by growth from CRE and construction loans.

There were no loans held for sale at September 30, 2023, compared to $6.7 million at December 31, 2022, as a result of the cessation in origination of residential mortgages as previously announced.

Investment securities, at amortized cost net of the allowance for credit losses, totaled $2.7 billion at September 30, 2023 as compared to $2.9 billion at December 31, 2022, a decrease of $164.6 million, or 5.7%, primarily driven by the pay down of principal on mortgage-backed securities and sales and calls of securities.

During the first quarter of 2022, we evaluated our securities portfolio and determined that certain securities will be maintained for the life of the instrument and made a decision to transfer $1.1 billion of securities designated as available-for-sale ("AFS") to held-to-maturity ("HTM"), including $237.0 million of securities acquired in the first quarter of 2022 for which the intention to hold to maturity was finalized.

The securities transferred with unrealized losses of $66.2 million, and, as of September 30, 2023, $53.5 million remains in accumulated other comprehensive loss, and will be accreted ratably over the remaining lives of the securities through accumulated other comprehensive loss.

The securities transferred were generally municipal bonds, corporate bonds, bonds that qualify for Community Reinvestment Act credit, and mortgage-backed securities with longer final maturity dates.

At quarter-end, $1.0 billion, or 41.2% of the securities portfolio, was classified as securities HTM.

The fair value of HTM securities was $159.8 million less than carrying value at September 30, 2023 compared to a difference of $125.4 million at December 31, 2022.

In terms of funding, total deposits at September 30, 2023 were $8.4 billion down from $8.7 billion at December 31, 2022, a decline of 3.9%.

Total borrowed funds (excluding customer repurchase agreements) were $1.4 billion and $1.0 billion at September 30, 2023 and December 31, 2022, respectively.

The increase in borrowings was primarily to meet funding needs, including to fund loan growth, given the decrease in deposits.

Total shareholders' equity was $1.2 billion as of September 30, 2023 , and December 31, 2022.

The Company's capital ratios remain substantially in excess of regulatory minimum and buffer requirements.

Regulatory ratios based on risk-weighted assets experienced decreases of less than 2% from December 31, 2022 to September 30, 2023.

The decreases were primarily due to an increase in average assets and also due to minor declines in Tier 1 and risk based capital.

The total risk based capital ratio was 14.54% at September 30, 2023, as compared to 14.94% at December 31, 2022.

The common equity tier 1 ("CET1") risk based capital ratio was 13.68% at September 30, 2023, as compared to 14.03% at December 31, 2022.

The tier 1 risk based capital ratio was 13.68% at September 30, 2023, as compared to 14.03% at December 31, 2022.

The tier 1 leverage ratio was 10.96% at September 30, 2023, as compared to 11.63% at December 31, 2022.

The ratio of common equity to total assets was 10.89% at September 30, 2023, as compared to 11.02% at December 31, 2022 as common equity levels remained almost constant over the nine months ended September 30, 2023.

Book value per share was $40.64 at September 30, 2023, a 3.7% increase over $39.18 at December 31, 2022 primarily as a result of share repurchases of 1,600,000 of the Company's common stock during the nine months ended September 30, 2023 under the 2023 Repurchase Program.

The repurchases, at prices below book and tangible book values, reduced the number of shares outstanding as of September 30, 2023.

The Company has reached the maximum number of shares that may be purchased under the 2023 Repurchase Program.

In addition, the tangible common equity ratio was 10.04% at September 30, 2023, as compared to 10.18% at December 31, 2022.

Tangible book value per share was $37.12 at September 30, 2023, a 3.5% increase from $35.86 at December 31, 2022.

Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

The Company and the Bank exceed all these requirements and satisfy the capital conservation buffer of 2.5% of CET1 capital.

Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses.

Loan Portfolio

Loans, net of amortized deferred fees and costs, at September 30, 2023 and December 31, 2022 by major category are summarized below.

September 30, 2023 December 31, 2022

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

Commercial $ 1,418,760 18 % $ 1,487,349 19 %

PPP loans 588 — % 3,256 — %

Income producing - commercial real estate 4,147,301 52 % 3,919,941 51 %

Owner occupied - commercial real estate 1,182,959 15 % 1,110,325 15 %

Real estate mortgage - residential 76,511 1 % 73,001 1 %

Construction - commercial and residential 904,282 11 % 877,755 12 %

Construction - C&I (owner occupied) 129,616 2 % 110,479 1 %

Home equity 53,917 1 % 51,782 1 %

Other consumer 2,457 — % 1,744 — %

Total loans 7,916,391 100 % 7,635,632 100 %

allowance for credit losses (83,332) (74,444)

Net loans (1)

Deposits and Other Borrowings

The principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, Negotiable Order of Withdrawal ("NOW") accounts, savings accounts, and certificates of deposits.

The deposit base includes transaction accounts, time and savings accounts, and accounts that customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities, as well as an attractive source of lower cost funds.

To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank regularly utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms.

Additionally, the Bank has participated in the BTFP established by the Federal Reserve in March 2023.

The Federal Reserve announced in January 2024 that the BTFP would 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 would be no lower than the interest rate on reserve balances in effect on the day the loan is made.

In January 2024, prior to these announcements by the Federal Reserve, the Company borrowed an additional $500.0 million through the BTFP and refinanced $500.0 million under the program, each at an interest rate of 4.76% and a maturity date in January 2025.

The following table summarizes the Company's deposits at March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

Balance Percentage

Noninterest-bearing demand

$ 1,835,524 22 % $ 2,279,081 26 %

(1) Excludes accrued interest receivable of $45.4 million and $43.5 million at September 30, 2023 and December 31, 2022, respectively, which is recorded in other assets.

In its lending activities, the Company seeks to develop and expand relationships with clients whose businesses and individual banking needs will grow with the Bank.

Loans outstanding were $7.9 billion at September 30, 2023, an increase of $280.8 million, or 3.7%, from the balance at December 31, 2022.

The loan portfolio continued to grow in the nine months ended September 30, 2023, due primarily to our income producing CRE loan originations and fundings, along with increases in our owner occupied CRE loans, and to a lesser extent, construction - commercial and residential loans and construction C&I (owner occupied) loans.

Amidst this growth, we have remained cognizant of the volatility in our industry, capital markets and interest rate markets.

Market rates on our new loan originations have risen in connection with rate increases implemented by the Federal Reserve.

We continue to see opportunities for growth in the commercial real estate market in our focused sectors;

The Company's overall loan portfolio is substantially concentrated with borrowers located in the Washington, D.C.

metro area, including "Washington's Maryland Suburbs," which comprise Frederick, Prince George's and Montgomery counties and "Northern Virginia," which comprises Alexandria, Arlington, Falls Church, Fairfax, Loudoun and Prince William counties.

At September 30, 2023, 30.8%, 26.8%, 24.6%, 6.0% and 11.8% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively.

At December 31, 2022, 33.2%, 25.8%, 23.7%, 5.8% and 11.5% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively.

While we remain cautious with regard to CRE market conditions, principally office, the strength of the Washington D.C.

metro area in certain sectors, particularly multi-family commercial real estate and the housing market, continue to drive premiums for well-located properties.

As part of its lending strategy, the Company maintains a substantial portfolio of CRE loans, with $6.1 billion and $5.8 billion, or 77.5% and 76.2% of total loans, outstanding at September 30, 2023 and December 31, 2022, respectively.

Management meets regularly in order to monitor its existing CRE loan portfolio and to evaluate the pipeline for CRE loan investment.

The Company has remained focused on monitoring sectors that have been impacted by the ramifications of the COVID-19 pandemic, particularly income producing CRE loans collateralized by office properties, which comprised approximately $950.1 million and $937.2 million, or 12.0% and 12.3% of total loans, at September 30, 2023 and December 31, 2022, respectively.

Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $877.7 million and $851.9 million, or 11.1% and 11.2% of total loans, at September 30, 2023 and December 31, 2022, respectively.

As a percentage of total income producing - CRE office loans, 34.0%, 33.9% and 24.5% were located in Northern Virginia, Washington's Maryland Suburbs and Washington, D.C.

at September 30, 2023.

At September 30, 2023, $181.9 million of principal of loans collateralized by office properties were criticized or classified.

The following table sets forth the time to contractual maturity of the loan portfolio as of September 30, 2023:

September 30, 2023

(dollars in thousands) Total One Year or Less Over One Year to Five Years Over Five Years to Fifteen Years Over Fifteen Years

Commercial $ 1,418,760 $ 531,057 $ 711,836 $ 172,213 $ 3,654

PPP loans 588 — 588 — —

Income producing - commercial real estate (1)

Interest-bearing transaction

1,207,566 14 % 997,448 11 %

Owner occupied - commercial real estate 1,182,959 94,290 492,412 377,578 218,679

Real estate mortgage - residential 76,511 11,997 52,395 510 11,609

Construction - commercial and residential 904,282 282,350 583,040 9,786 29,106

Construction - C&I (owner occupied) 129,616 1,011 33,734 35,782 59,089

Home equity 53,917 3,869 2,351 1,607 46,090

Other consumer 2,457 2,189 68 — 200

Total loans $ 7,916,391 $ 2,366,640 $ 4,115,137 $ 1,066,187 $ 368,427

Predetermined fixed interest rate $ 2,997,636 $ 771,529 $ 1,573,630 $ 553,044 $ 99,433

Floating or adjustable interest rate 4,918,755 1,595,111 2,541,507 513,143 268,994

Total loans $ 7,916,391 $ 2,366,640 $ 4,115,137 $ 1,066,187 $ 368,427

(1) Income producing CRE office loans, which had total principal of $950.1 million at September 30, 2023 and are included within income producing - commercial real estate, had principal of $249.9 million, $652.6 million, $47.6 million aggregated with one year or less, over one year to five years, and over five years to fifteen years remaining until contractual maturity, respectively.

Approximately $94.8 million and $393.3 million of income producing CRE office loans as of September 30, 2023 were due to mature within three months and 18 months, respectively.

Deposits and Other Borrowings

The principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, NOW accounts, savings accounts, and certificates of deposits.

The deposit base includes transaction accounts, time and savings accounts, which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities, as well as an attractive source of lower cost funds.

To meet funding needs, including during periods of high loan demand and seasonal variations in core deposits, the Bank regularly utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms.

Additionally, the Bank has participated in the BTFP established by Federal Reserve Bank in March 2023.

For the nine months ended September 30, 2023, total deposits decreased by $336.9 million as compared to December 31, 2022.

The decline was primarily attributable to a $1.1 billion reduction in noninterest bearing deposits and a $510.9 million reduction in savings and money market accounts as a result of an increase of disintermediation driven primarily by an increase in interest rates, partially offset by a $1.5 billion increase in interest bearing time deposits.

The growth in interest bearing deposits was driven by the increased utilization of brokered deposits, particularly brokered time deposits, during the nine months ended September 30, 2023.

During the nine months ended September 30, 2023, brokered time deposits increased by approximately $1.2 billion, while other interest bearing brokered deposits decreased by approximately $1.1 billion.

No single depositor represented more than 10% of total deposits as of September 30, 2023.

The ten largest depositors not associated with brokered pass-through relationships represented approximately 17% of total deposits in the aggregate as of September 30, 2023.

Savings and money market

3,235,391 38 % 3,314,043 38 %

Time deposits

2,222,958 26 % 2,217,467 25 %

$ 8,501,439 100 % $ 8,808,039 100 %

For the three months ended March 31, 2024, total deposits decreased by $306.6 million as compared to December 31, 2023.

The decrease was primarily attributable to a $443.6 million decrease in noninterest bearing demand deposits and a reduction in savings and money market accounts of $78.7 million, which was partially offset by a $210.1 million increase in interest bearing transaction deposits.

No single depositor represented more than 10% of total deposits as of March 31, 2024.

The ten largest depositors not associated with brokered pass-through relationships represented approximately 19% of total deposits in the aggregate as of March 31, 2024.

The Company maintains a significant deposit relationship with a third-party payments processor, whose business results in deposit inflows and outflows on an ongoing basis, which contributes to variations in period end compared to average deposit balances.

From time to time, when appropriate in order to fund strong loan demand or account for increased deposit outflow, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from a regional brokerage firm and other national brokerage networks, including IntraFi.

Additionally, the Bank participates in the Certificates of Deposit Account Registry Service (the "CDARS") and the Insured Cash Sweep product ("ICS"), which provide for reciprocal ("two-way") transactions among banks facilitated by IntraFi for the purpose of maximizing FDIC insurance.

The total of reciprocal deposits at September 30, 2023 was $1.5 billion (18.2% of total deposits) as compared to $782.2 million (9.0% of total deposits) at December 31, 2022.

Additionally, the Bank participates in the Certificates of Deposit Account Registry Service ("CDARS") and the Insured Cash Sweep product ("ICS"), which provide for reciprocal ("two-way") transactions among banks facilitated by IntraFi for the purpose of maximizing FDIC insurance.

The total of reciprocal deposits at March 31, 2024 was $1.7 billion (19.9% of total deposits) as compared to $1.6 billion (17.7% of total deposits) at December 31, 2023.

These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank, but there can be no assurance that they will continue to be adequate or appropriate to meet our liquidity needs.

The Bank also is able to obtain one-way CDARS deposits and participates in IntraFi's Insured Network Deposit Program ("IND").

The Bank had $648.3 million and $1.1 billion of IND brokered deposits as of September 30, 2023 and December 31, 2022, respectively.

However, to the extent that the condition or reputation of the Company or Bank deteriorates, to the extent that there are significant changes in market interest rates which the Company and Bank do not elect to match, or if aggregate funding available to banks change due to changes in the marketplace, we may experience an outflow of brokered deposits or difficulty in obtaining them in the future.

The Bank had $823.6 million and $786.5 million of IND brokered deposits as of March 31, 2024 and December 31, 2023, respectively.

However, to the extent that the condition or reputation of the Company or Bank deteriorates, to the extent that there are significant changes in market interest rates which the Company and Bank do not elect to match, or if aggregate funding available to banks changes due to changes in the marketplace, we may experience an outflow of brokered deposits or difficulty in obtaining them in the future.

In that event, we would be required to obtain alternate sources for funding, which may increase our cost of funds and negatively impact our net interest margin.

At September 30, 2023 and December 31, 2022, total deposits included $2.4 billion and $2.3 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 29.1% and 26.5% of total deposits, respectively.

At September 30, 2023 and December 31, 2022, total deposits included estimated totals of $2.5 billion and $4.4 billion of uninsured deposits, which represented 29.6% and 50.5% of total deposits, respectively.

We have used brokered deposits and intend to continue to use brokered deposits as one of our funding sources to support future growth.

At March 31, 2024, total brokered deposits were $4.2 billion, or 49.1% of total deposits, of which $1.7 billion were attributable to the CDARS and ICS two-way accounts.

Total brokered deposits comprised $1.7 billion, $1.6 billion, and $853.0 million of time deposits, savings and money market accounts and interest-bearing transaction accounts, respectively, at March 31, 2024.

At December 31, 2023, total brokered deposits (excluding the CDARS and ICS two-way) were $2.5 billion, or 28.8% of total deposits, and comprised $1.5 billion, $961.5 million, and $108.2 million of time deposits, savings and money market accounts, and interest-bearing transaction accounts, respectively.

At March 31, 2024 and December 31, 2023, total deposits included estimated totals of $2.3 billion and $2.8 billion of uninsured deposits, which represented 27.6% and 31.4% of total deposits, respectively.

The decrease in the percentage of the Bank's deposits that are uninsured was in part due to customers' increased use of the products facilitated by IntraFi that enable customers to maximize FDIC deposit insurance coverage for their deposits.

At September 30, 2023, the Company had $2.1 billion in noninterest bearing demand deposits, representing 24.7% of total deposits, compared to $3.2 billion of noninterest bearing demand deposits at December 31, 2022, or 36.2% of total deposits.

The decrease was primarily attributable to outflows from noninterest bearing deposits and savings/money market accounts which was partially offset by the increase in time deposits.

Average noninterest bearing deposits of total deposits for the nine months ended September 30, 2023 and 2022 were 31.9% and 38.4%, respectively.

The Bank also offers business NOW accounts and business savings accounts to accommodate those customers who may have excess short term cash to deploy in interest earning assets.

As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or "customer repurchase agreement," allowing qualifying businesses to earn interest on short-term excess funds that are not suited for either a certificate of deposit or a money market account.

The balances in these accounts were $25.7 million at September 30, 2023 compared to $35.1 million at December 31, 2022.

As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or "customer repurchase agreement," allowing qualifying businesses to earn interest on short-term excess funds, which are not suited for either a certificate of deposit or a money market account.

The balances in these accounts were $37.1 million at March 31, 2024 compared to $30.6 million at December 31, 2023.

Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S.

agency securities and/or U.S.

agency backed mortgage-backed securities.

agency backed MBS.

These accounts are particularly suitable to businesses with significant fluctuation in the levels of cash flows.

1 unchanged sentence

This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts.

At September 30, 2023 the Company had $2.2 billion in time deposits an increase of $1.5 billion from year end December 31, 2022.

The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered certificates of deposits ("CDs") to meet the needs of its community of savers and as part of its interest rate risk management and liquidity planning.

Throughout the year, the Bank raised rates in most of its time deposit accounts in response to the increased disintermediation of deposits, and the current rate environment with continued rate increases.

The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at September 30, 2023 and December 31, 2022.

At September 30, 2023 and December 31, 2022, the Company had $0 and $975.0 million, respectively, of FHLB short-term advances borrowed.

Additionally, at September 30, 2023, the Company had a $1.3 billion one year fixed rate advance, maturing on March 26, 2024 from the BTFP as part of the overall asset liability strategy and to support loan growth.

The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at March 31, 2024 and December 31, 2023.

At March 31, 2024, the Company had $600.0 million in FHLB secured borrowings outstanding compared to none at December 31, 2023.

Outstanding FHLB advances are secured by collateral consisting of specifically pledged marketable investment securities and a blanket lien on qualifying loans in the Bank's commercial mortgage, residential mortgage and home equity loan portfolios.

Additionally, at March 31, 2024 and December 31, 2023, the Company had $1.0 billion and $1.3 billion of outstanding borrowings under the BTFP.

Outstanding BTFP advances are secured by collateral consisting of specifically pledged qualifying investment securities.

Long-term borrowings outstanding at September 30, 2023 and December 31, 2022 included the Company's August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024.

Outstanding short-term advances and borrowings are part of the overall asset liability strategy to support loan growth.

The subordinated notes outstanding at March 31, 2024 and December 31, 2023 comprised the Company's August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024.

The Company is considering various options to finance the upcoming maturity of the subordinated debt, and the Company may seek to issue new subordinated notes or other debt securities to replace those that are maturing, or fund the maturity through other means.

Given prevailing interest rates, any new debt securities to refinance the subordinated notes are expected to have a higher interest rate than the subordinated notes.

Commitments and Contractual Obligations

Loan commitments outstanding and lines and letters of credit were as follows:

(dollars in thousands) March 31, 2024

December 31, 2023

Unfunded loan commitments $ 1,850,316 $ 1,981,334

Unfunded lines of credit 99,930 98,614

Letters of credit 85,719 87,146

Total $ 2,035,965 $ 2,167,094

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.

Unfunded loan commitments are agreements whereby the Bank has made a commitment to lend to a customer as long as there is satisfaction of the terms or conditions established in the contract and the borrower has accepted the commitment in writing.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee before the commitment period is extended.

In many instances, borrowers are required to meet performance milestones in order to draw on a commitment as is the case in construction loans, or to have a required level of collateral in order to draw on a commitment as is the case in asset based lending credit facilities.

Collateral obtained varies and may include certificates of deposit, accounts receivable, inventory, property and equipment, residential and CRE.

Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements.

Unfunded lines of credit are agreements to lend to a customer as long as there is no violation of the terms or conditions established in the contract.

Lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Since lines of credit may expire without being drawn, the total unfunded line of credit amount does not necessarily represent future cash requirements.

Letters of credit include standby and commercial letters of credit.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance by the Bank's customer to a third party.

Standby letters of credit generally become payable upon the failure of the customer to perform according to the terms of the underlying contract with the third party.

Standby letters of credit are generally not drawn.

Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn when the underlying transaction is consummated between the customer and a third party.

The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by the Bank.

The Bank has recourse against the customer for any amount it is required to pay to a third party under a letter of credit, and holds cash and or other collateral on those standby letters of credit for which collateral is deemed necessary.

Liquidity Management

2 unchanged sentences

Approximately 59% of the Company's investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility, subject to holdings held as collateral for customer repurchase agreements and public funds, to generate cash from sales as needed to meet ongoing loan demand.

As of September 30, 2023, the unrealized losses recorded on the available-for-sale securities were acting as a deterrent to any sale of those securities to raise liquidity.

As of March 31, 2024, the unrealized losses recorded on the available-for-sale securities were acting as a deterrent to any sale of those securities to raise liquidity.

However, these securities are utilized as pledged assets that provide secondary liquidity through the form of additional available borrowings.

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The Company's primary sources of liquidity are supplemented by the ability of the Company and Bank to borrow funds or issue brokered deposits, which are termed secondary sources of liquidity and which are substantial.

The following table summarizes the Company's secondary sources of liquidity in use and available at September 30, 2023:

The following table summarizes the Company's secondary sources of liquidity in use and available at March 31, 2024:

(dollars in thousands, except amount in the footnotes) Secondary Sources of Liquidity in Use Secondary Sources of Liquidity Available

September 30, 2023:

March 31, 2024:

Unsecured brokered deposits (1)

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(2) Comprise unencumbered assets that could be liquidated or used as collateral to obtain additional liquidity through debt financing.

The funding mix has continued to change in the nine months ended September 30, 2023.

Deposits at quarter-end were $8.4 billion and $8.7 billion at September 30, 2023 and December 31, 2022, respectively.

The decline in deposits was primarily attributable to a decrease in noninterest bearing deposits and savings and money market accounts, offset by an increase in interest bearing deposits primarily due to the increased utilization of brokered deposits as discussed in "Deposits and Other Borrowings" above.

Short-term borrowings at quarter-end were $1.3 billion and $975.0 million at September 30, 2023 and December 31, 2022, respectively.

The increase in borrowings was due to the utilization of BTFP borrowings during the nine months ended September 30, 2023.

The Bank can purchase up to $155 million in federal funds on an unsecured basis from its correspondents, against which there was no outstanding amount at September 30, 2023, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.8 billion, against which there was $873.4 million outstanding at September 30, 2023.

The Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $648.3 million of brokered deposits at September 30, 2023.

At September 30, 2023, the Bank was also eligible to draw on advances from the FHLB up to $1.7 billion based on assets pledged as collateral to the FHLB, against which there was no outstanding amount at September 30, 2023.

The Bank had FHLB borrowings of $975.0 million outstanding at December 31, 2022, which were repaid during the nine months ended September 30, 2023.

The Bank posted additional collateral to the FHLB during the nine months ended September 30, 2023 to increase its eligibility for advances to meet its ongoing liquidity needs and expects to continue to utilize this source of funding in the future.

The funding mix has continued to change throughout the three months ended March 31, 2024.

Deposits at quarter-end were $8.5 billion and $8.8 billion at March 31, 2024 and December 31, 2023, respectively.

The decrease in deposits was primarily attributable to a $443.6 million decrease in noninterest bearing demand deposits and a reduction in savings and money market accounts of $78.7 million, partially offset by a $210.1 million increase in interest bearing transaction deposits.

Borrowings at quarter-end were $1.7 billion and $1.4 billion at March 31, 2024 and December 31, 2023, respectively.

The increase in borrowings was attributable to net fundings on the Company's secured borrowings.

The Bank can purchase up to $155.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at March 31, 2024 and December 31, 2023.

The Bank can borrow unsecured funds under one-way CDARS and ICS brokered deposits up to $2.0 billion, against which there was $998.2 million outstanding at March 31, 2024.

The Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $823.6 million of brokered deposits at March 31, 2024.

At March 31, 2024, the Bank was eligible to draw on advances from the FHLB up to $1.9 billion based on assets pledged as collateral to the FHLB, against which the Bank borrowed $600.0 million as of March 31, 2024.

The Bank had no FHLB borrowings outstanding at December 31, 2023.

The Bank posted additional collateral to the FHLB during the three months ended March 31, 2024 and during the year ended December 31, 2023 to increase its eligibility for advances to meet its ongoing liquidity needs and expects to continue to utilize this source of funding in the future.

In March 2023, the Federal Reserve Board announced that it would make available additional funding to eligible depository institutions through the creation of the BTFP.

The BTFP provides eligible depository institutions, including the Bank, an additional source of liquidity.

At September 30, 2023, the Bank had eligible collateral and borrowing capacity with the BTFP of $1.6 billion on assets that have been pledged, of which $1.3 billion was outstanding.

The BTFP provided eligible depository institutions, including the Bank, an additional source of liquidity.

Subsequent to its initiation, the Federal Reserve also modified the terms of the program so that the interest rate for new loans would be no lower than the interest rate on reserve balances in effect on the day the loan is made.

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 in January 2025.

The Federal Reserve discontinued the origination of new loans on March 11, 2024, as scheduled.

At March 31, 2024, the Bank had $1.0 billion of BTFP borrowings outstanding.

This alternative source of liquidity is being utilized for balance sheet optimization.

The program permits advances to be requested until March 2024, unless extended by the Federal Reserve Bank.

There can be no assurance, however, that the opportunity to further borrow from the BTFP will continue to be available beyond March 2024.

Once the BTFP program terminates, we may be required to rely on other, potentially more expensive, sources of liquidity.

The Bank's aggregate borrowing capacity at September 30, 2023 was $2.3 billion which consists of $2.0 billion of additional aggregate capacity to borrow from the Federal Home Loan Bank of Atlanta ("FHLB") and BTFP on assets that have been pledged.

The Bank also has unencumbered securities totaling approximately $269.9 million available for pledging to the FHLB or the BTFP for additional borrowing capacity.

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 $606.2 million, is collateralized with specific loan assets identified to the Federal Reserve Bank.

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

This facility, which can be used to borrow up to $568.6 million, is collateralized with specific assets identified to the Federal Reserve.

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

There can be no assurance, however, that these alternative sources of liquidity will continue to be available or will be sufficient to meet our ongoing liquidity needs.

In total, the Bank's aggregate borrowing capacity at March 31, 2024 was $2.2 billion, which consists of $1.3 billion and $568.6 million of additional aggregate capacity to borrow from the FHLB and the Federal Reserve's Discount Window, respectively, on assets that have been pledged;

along with $17.8 million of aggregate capacity to borrow on a pledge security through a repurchase agreement with Raymond James.

The Bank also has unencumbered securities totaling approximately $297.5 million available for pledging to the FHLB or the Federal Reserve for additional borrowing capacity.

The loss of deposits through disintermediation is one of the greater risks to liquidity.

Disintermediation occurs most commonly when rates rise and depositors withdraw deposits seeking higher rates from alternative savings and investment sources.

Disintermediation occurs most commonly when rates rise and depositors withdraw deposits seeking higher rates in alternative savings and investment sources than the Bank may offer.

The Bank makes competitive deposit interest rate comparisons weekly and makes adjustments from time to time to ensure its interest rate offerings are competitive.

There is, however, a risk that the cost of funds will increase significantly as the Bank competes for deposits or that some deposits would be lost if rates were to continue to increase and the Bank elected not to remain competitive with its deposit rates.

Under those conditions, the Bank believes that it is well positioned to use other sources of funds such as FHLB borrowings, brokered deposits, repurchase agreements and correspondent banks’ lines of credit to offset a decline in deposits in the short run, but the use of such sources may negatively impact our net interest margin and our earnings, as the use of such sources did in the first nine months of 2023, and there can be no assurance that they will be adequate to meet our liquidity needs.

The market for customer and brokered deposits is highly competitive and the risk of disintermediation is high, particularly in a rising or high interest rate environment.

The mix of sources used in the first quarter of 2024 negatively impacted our net interest margin and earnings, as is expected in an economic environment with continued elevated rates.

There can be no assurance that the mix of sources of funds available to us at any particular time in the future will be adequate to meet our future liquidity needs.

However, the market for customer and brokered deposits is highly competitive and the risk of disintermediation is high, particularly in a rising or high interest rate environment.

Most of our noninterest bearing deposits are operating deposits or compensating balances that are held in connection with lending relationships.

The potential outflow of such deposits is a risk unless we pay a more competitive rate of interest on them, which could significantly and negatively impact the Bank’s interest expense and net interest margin, as the transfer of some noninterest-bearing deposits to interest-bearing deposits did in the first nine months of 2023.

Over the long-term, an adjustment in assets and change in business emphasis could compensate for a potential loss of deposits.

The Bank also maintains a marketable investment portfolio to provide flexibility in the event of significant liquidity needs.

The ALCO has adopted policy guidelines, which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan.

The Asset Liability Committee ("ALCO") has adopted policy guidelines, which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan.

The Company believes it maintains sufficient primary and secondary sources of liquidity to fund its operations.

We maintain a liquid investment portfolio outside of our held-to-maturity investments, including overnight liquidity.

In the first nine months of 2023, average short term liquidity was $2.5 billion, which is above the Bank's average needs.

Secondary sources of liquidity at September 30, 2023 were $4.9 billion, which include the FHLB, BTFP, other insured brokered deposit sweep programs, unpledged securities, Fed funds lines, and the FRB Discount Window.

At September 30, 2023, the Company held total securities available to be pledged with a par balance of $269.9 million.

Commitments and Contractual Obligations

Loan commitments outstanding and lines and letters of credit at September 30, 2023 are as follows:

(dollars in thousands)

Unfunded loan commitments $ 2,250,259

Unfunded lines of credit 99,449

Letters of credit 93,254

Total $ 2,442,962