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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-02-29 · 525 added, 442 removed, 726 unchanged (57% of the section changed)

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 the Company.

The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of the Company as of the dates and periods indicated.

The Company’s primary subsidiary is 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.

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• Our management of risks inherent in our real estate loan portfolio, and the risk of a prolonged downturn in the real estate market, which could impair the value of, and our ability to sell, properties which stand as collateral for loans we make;

• Our decision to cease originating residential mortgages;

• The growth and profitability of noninterest or fee income being less than expected;

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• Changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;

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• The impact of changes in financial services policies, laws and regulations, including laws, regulations and policies concerning taxes, banking, securities and insurance and the application thereof by regulatory bodies;

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• Results of examinations of us by our regulators, including the possibility that our regulators may, among other things, require us to increase our allowance for credit losses, to write-down assets, to hold more capital or to incur costs to remediate supervisory findings;

• The effects or impact of any litigation, regulatory proceeding, including enforcement proceedings and any possibly resulting fines, judgments, expenses or restrictions on our business activities;

• The effects or impact of any litigation, governmental investigations and proceedings, including enforcement proceedings and any possibly resulting fines, judgments, expenses or restrictions on our business activities;

• Unanticipated regulatory or judicial proceedings;

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• The strength of the United States economy, in general, and the strength of the local economies in which we conduct operations;

• Changes in trade, immigration, fiscal and monetary policies;

• Political uncertainty in the United States and its effects on the economy of the Washington, D.C.

metropolitan area;

• Geopolitical conditions, including acts or threats of terrorism, actions taken by the United States or other governments in response to acts or threats of terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

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If one or more of the factors affecting our forward looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward looking information and statements contained in this report.

You should not place undue reliance on our forward looking information and statements.

No undue reliance should be placed on our forward looking information and statements.

We will not update the forward looking statements to reflect actual results or changes in the factors affecting the forward looking statements.

The Company is a 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.

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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 (six in Suburban Maryland, four in Washington, D.C.

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

and three in Northern Virginia), a principal corporate office, four lending centers (two are co-located with branches and one co-located in the principal corporate office) and one operations center.

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General economic, political, social and health conditions affect financial markets, and therefore, our business.

As the economy has experienced higher levels of inflation, interest rates have increased due to current monetary policies.

As the economy experienced higher levels of inflation in the recent past, interest rates increased in 2023, however as inflationary pressure during 2024 subsided, the Federal Reserve decreased interest rates three times for a total of 100 basis points.

Fiscal and monetary policies have a direct and indirect impact on the level and volatility of interest rates, liquidity of financial markets, the availability and cost of capital, and market conditions of financing.

In 2022, the Federal Reserve Open Market Committee ("FOMC"), began a series of rate increases thereby discontinuing the generally accommodative monetary policy it had pursued when the COVID-19 pandemic began in early 2020.

In late 2022, the Federal Reserve begun tapering purchases of securities and is no longer expanding its balance sheet as aggressively.

Actual real U.S.

GDP growth for 2023 was 3.3%, in contrast to 2.1% growth in 2022 as the economy grew despite continuing to experience the effects of inflationary pressures and rising interest rates that also existed in 2022.

The employment climbed throughout 2023 as the U.S.

GDP growth for 2024 was 3.1%, compared to 3.3% growth in 2023, as the economy continues to grow despite continuing to experience the effects of inflationary pressures and higher interest rates which were raised in 2022 and 2023.

Unemployment slightly increased through 2024 as the U.S.

unemployment rate ended the year at 4.0%, up from 3.7% at the end of 2023.

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Longer-term U.S.

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Treasury rate averaging 4.21% in 2024 as compared to 3.96% in 2023.

The yield curve in 2023 was inverted as rates increased sharply on the short end of the curve and remained anchored on the longer end versus a more normal shape in 2022.

The yield curve steepened in 2024 as short-term rates decreased due to Federal Reserve rate cuts while long-term rates increased compared to 2023.

We believe the Company’s primary market, the Washington, D.C.

metropolitan area, continues to exhibit a certain degree of resilience relative to other parts of the country despite the volatility in the current economic environment.

metropolitan area, continues to exhibit resilience relative to other parts of the country despite the volatility in the current economic environment.

The Washington, D.C.

metropolitan area maintains a diverse economy which includes a stable public sector, a large healthcare component, substantial business services and a highly educated work force.

metropolitan area maintains a diverse economy which includes the public sector, a large healthcare component, substantial business services and a highly educated work force.

The private sector, in particular, the Leisure and Hospitality sector has seen some recovery in recent years following the adverse effects of the pandemic.

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While commercial real estate office properties continue to experience challenges, the Company has remained focused on monitoring this sector and working with borrowers in order to mitigate credit losses within our loan portfolio.

Overall, we believe commercial real estate values have generally decreased moderately, but we continue to be cautious of the cap rates at which some assets are trading, and therefore, we are being careful with valuations.

At December 31, 2023, the Company had total assets of approximately $11.7 billion, total loans of $8.0 billion, total deposits of $8.8 billion and thirteen branches in the Washington, D.C.

Overall, we believe commercial real estate values have generally decreased and we continue to be cautious of the cap rates at which such assets are trading, resulting in conservative valuations.

At December 31, 2024, the Company had total assets of approximately $11.1 billion, total loans of $7.9 billion, total deposits of $9.1 billion and twelve branches in the Washington, D.C.

metropolitan area.

The loan portfolio continued to grow in the year ended December 31, 2023, due primarily to our income producing commercial real estate ("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.

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

We have remained cognizant of the volatility in our industry, capital markets and interest rate markets.

While we remain cautious with regard to commercial real estate ("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.

The Company has the financial resources to meet, and remains committed to meeting, the credit needs of its community.

Loan balances increased in 2022 and 2023 as rising rates led to deposit disintermediation reducing our liquidity levels and earning assets.

Loan balances increased in the CRE segments in 2024 which, combined with the higher levels of interest rates, resulted in changes in our liquidity mix as increases in interest-bearing deposits offset a decrease in non-interest bearing deposits.

The yield on earning assets continued to increase in 2024.

During the year ended December 31, 2024, the yield on earning assets increased by 20 basis points (from 5.45% to 5.65%) while cost of funds increased 42 basis points (from 3.17% to 3.59%) which resulted in a decrease of 16 basis points in the net interest margin.

The Company’s capital position remained strong in 2023 as a result of continued earnings, improved economic conditions and strong asset quality.

As a result of the Company’s strong capital position and earnings, we were able to continue our quarterly dividend in 2023.

Additionally, the Company was active in share repurchase activity as we repurchased 1,600,000 shares at an average price of $29.74 per share during 2023.

The Company’s capital position remained strong in 2024 as a result of its strong retained earnings position, despite the impact of the goodwill impairment on 2024 net loss.

As a result of the Company’s strong capital position, we were able to continue our quarterly dividend in 2024.

The quarterly cash dividend amount was recalibrated to $0.165 in the third quarter of 2024 to reflect the company’s growth plans.

The Company believes its strategy of remaining growth-oriented, retaining talented staff and maintaining focus on seeking quality lending and deposit relationships has proven successful.

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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 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.

On January 1, 2020, when the Company adopted FASB's Accounting Standard Codification ("ASC") 326, Measurement of Credit Losses on Financial Instruments , and its related amendments, our methodology for estimating these credit losses changed significantly from years prior to 2020.

The standard replaced the “incurred loss” approach with a “current expected credit loss” approach known as CECL, which requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures).

CECL removes the incurred loss approach’s threshold that delayed the recognition of a credit loss until it was “probable” a loss event was “incurred.”

The Provision for Unfunded Commitments 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 amount of the ACL on loans is based on management's assessment of current expected credit losses 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.

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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.

The ACL represents the expected credit losses arising from the Company's loan and available-for-sale ("AFS") securities portfolios.

The ACL is determined as follows:

The Company uses a loan-level probability of default ("PD")/ loss given default ("LGD") cash flow method with an exposure at default ("EAD") model to estimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage - residential, construction – commercial and residential, construction – C&I (owner occupied), home equity and other consumer loan pools.

For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default and loss given default.

The modeling of expected prepayment speeds is based on historical internal data.

The Company uses regression analysis of historical internal and peer data (as Company loss data is insufficient) to determine suitable loss drivers to utilize when modeling lifetime PD and LGD.

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 our 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.

For our cash flow model, management utilizes and forecasts regional unemployment by using a national forecast and estimating a regional adjustment based on historical differences between the two as a loss driver over our reasonable and supportable period of 18 months, and reverts back to a historical loss rate over the following twelve months on a straight-line basis.

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 described above and are individually assessed.

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.

Going forward, the impact of utilizing the CECL approach to calculate the reserve for credit losses will be significantly

influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized.

Relevant factors reflected in the qualitative component of the reserve include, but are not limited to, concentrations of credit risk, changes in underwriting standards, experience and depth of lending staff and trends in delinquencies.

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 commercial real estate segment of our loan portfolio, which informed our CECL economic forecast and continued to adversely impact our loss reserve as of December 31, 2023.

See Notes 1, 3 and 4 to the Consolidated Financial Statements, the “Provision for Credit Losses” section in Management’s Discussion and Analysis and the risk factors related to our business and economic conditions in Item 1A for more information on the provision for credit losses.

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

Goodwill is subject to impairment testing, which must be conducted at least annually or upon the occurrence of a triggering event.

factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred.

Goodwill is recorded and evaluated for impairment at its reporting unit, the Company.

The Company's policy is to test goodwill for impairment annually as of December 31, or on an interim basis if an event triggering an impairment assessment is determined to have occurred.

Testing of goodwill impairment comprises a two-step process.

First, the Company performs a qualitative assessment to evaluate relevant events or circumstances to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

If the Company determines that it is more likely than not that an impairment has occurred, it proceeds to the quantitative impairment test, whereby it calculates the fair value of the reporting unit and compares it with its carrying amount, including goodwill.

In its performance of impairment testing, the Company has the unconditional option to proceed directly to the quantitative impairment test, bypassing the qualitative assessment.

If the carrying amount of the reporting unit exceeds the fair value, the amount by which the carrying amount exceeds fair value, up to the carrying value of goodwill, is recorded through earnings as an impairment charge.

If the results of the qualitative assessment indicate that it is not more likely than not that an impairment has occurred, or if the quantitative impairment test results in a fair value of the reporting unit that is greater than the carrying amount, then no impairment charge is recorded.

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 stress in the banking sector in the first and second quarters of 2023.

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.

In accordance with its regular schedule for impairment testing, the Company performed a second qualitative assessment and quantitative impairment test on its only reporting unit as of December 31, 2023.

The resulting calculations indicated that the fair value exceeded the carrying amount of the Company's only reporting unit by approximately 17% and 21% as of May 31, 2023 and December 31, 2023, respectively, which resulted in a determination of no impairment loss on the Company's only reporting unit.

The method employed was 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.

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.

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, however, it would not impact our regulatory capital ratios, tangible common equity ratio, nor our liquidity position.

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

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 December 31, 2024.

See Notes 1, 3 and 4 to the Consolidated Financial Statements, the “Provision for Credit Losses” and "Allowance for Credit Losses" section in Management’s Discussion and Analysis of Financial Condition and Results of Operations and the risk factors related to our business and economic conditions in Item 1A for more information on the provision for credit losses and ACL for the loan portfolio.

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.

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.

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SELECTED FINANCIAL DATA

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Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Form 10-K can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company’s Form 10-K for the fiscal year ended December 31, 2023.

(dollars in thousands)

December 31, 2023 December 31, 2022

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

Consolidated Balance Sheets:

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Securities - held to maturity 938,647 1,015,737

Loans held for sale — 6,734

Loans 7,934,888 7,968,695

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Goodwill and intangible assets, net 16 104,925

104,925 104,233

Total assets 11,129,508 11,664,538

Deposits 9,131,078 8,808,039

Borrowings 1,369,918 1,044,795

Other short-term borrowings 490,000 1,369,918

Long-term borrowings 76,108 —

Total liabilities 9,903,447 10,390,255

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Years Ended December 31,

(dollars in thousands)

2023 2022 2021

Consolidated Statements of Income:

(dollars in thousands except per share data) 2024 2023 2022

Consolidated Statements of Operations:

Interest income $ 687,563 $ 625,327 $ 424,613

Interest expense 398,875 334,781 91,746

Provision for (reversal of) credit losses

Provision for credit losses

66,360 31,536 266

Noninterest income 19,939 21,536 23,654

Noninterest expense 153,293 165,098 149,165

Income before taxes 127,520 189,680 237,674

Goodwill impairment

Noninterest expense (including goodwill impairment)

274,634 153,293 165,098

Income (loss) before income tax expense

(30,240) 127,520 189,680

Income tax expense 16,795 26,986 48,750

Net income (loss)

(47,035) 100,534 140,930

Cash dividends declared 32,117 54,293 55,776

Total revenue (2)

Total net revenue (2)

308,627 312,082 356,521

Years Ended December 31,

(dollars in thousands except per share data) 2023 2022 2021

Per Common Share Data:

Net income, basic $ 3.31 $ 4.40 $ 5.53

Net income, diluted 3.31 4.39 5.52

Net income (loss), basic $ (1.56) $ 3.31 $ 4.40

Net income (loss), diluted (1.56) 3.31 4.39

Dividends declared 1.07 1.80 1.75

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Weighted average common shares outstanding, diluted 30,157,051 30,393,100 32,078,070

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Years Ended December 31,

2024 2023 2022

Net interest margin 2.37 % 2.53 % 2.93 %

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Tangible common equity is defined as total common shareholders’ equity reduced by goodwill and other intangible assets.

(2) Total revenue calculated as net interest income plus noninterest income.

(2) Total net revenue calculated as net interest income plus noninterest income.

(3) Tangible book value per common share, a non-GAAP financial measure, is defined as tangible common shareholders’ equity divided by total common shares outstanding.

(4) Computed by dividing noninterest expense by the sum of net interest income and noninterest income.

(4) Computed by dividing noninterest expense by total net revenue.

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Use of Non-GAAP Financial Measures

The information set forth below contains certain financial information determined by methods other than in accordance with GAAP.

These non-GAAP financial measures are “tangible common equity,” “tangible book value per common share,” “efficiency ratio” and “return on average tangible common equity.” The Company considers these non-GAAP measurements useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.

Management uses these non-GAAP measures in its analysis of our performance because it believes these measures are used as a measure of our performance by investors.

Tangible common equity to tangible assets (the "tangible common equity ratio"), tangible book value per common share, the annualized return on average tangible common equity ("ROATCE"), and the efficiency ratio are non-GAAP financial measures derived from GAAP-based amounts.

The Company calculates the tangible common equity ratio by excluding the balance of intangible assets from common shareholders' equity and dividing by tangible assets.

The Company calculates tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which the Company calculates by dividing common shareholders' equity by common shares outstanding.

The Company calculates the ROATCE by dividing net income available to common shareholders by average tangible common equity which is calculated by excluding the average balance of intangible assets from the average common shareholders' equity.

The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios, and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.

The Company calculates the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income.

The efficiency ratio measures a bank's overhead as a percentage of its revenue.

The Company believes that reporting the non-GAAP efficiency ratio more closely measures its effectiveness of controlling operational activities.

Management uses non-GAAP measures because they provide information to investors about the underlying operational performance and trends of the Company.

Additionally, certain non-GAAP measures are monitored by regulators.

These disclosures should not be considered in isolation or as a substitute for results determined in accordance with GAAP and are not necessarily comparable to non-GAAP performance measures which may be presented by other bank holding companies.

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(dollars in thousands except per share data) December 31, 2024 December 31, 2023

Tangible common equity

Common shareholders’ equity $ 1,226,061 $ 1,274,283

Intangible assets (16) (104,925)

Tangible common equity $ 1,169,358 $ 1,124,088

Book value per common share $ 42.58 $ 39.18

Intangible book value per common share (3.50) (3.32)

Tangible book value per common share $ 39.08 $ 35.86

Tangible common equity (Non-GAAP) $ 1,226,045 $ 1,169,358

Tangible common equity ratio

Total assets $ 11,129,508 $ 11,664,538

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Tangible assets $ 11,129,492 $ 11,559,613

Tangible common equity ratio 10.12 % 10.18 %

Tangible common equity ratio (Non-GAAP) 11.02 % 10.12 %

Tangible book value per share calculations

Book value per common share $ 40.60 $ 42.58

Intangible book value per common share (0.01) (3.50)

Tangible book value per common share (Non-GAAP) $ 40.59 $ 39.08

Years Ended December 31,

(dollars in thousands) 2024 2023 2022

2023 2022 2021

Average tangible common equity

Average common shareholders’ equity $ 1,246,168 $ 1,240,118 $ 1,281,921

Average intangible assets (50,868) (104,534) (104,248)

Average tangible common equity (Non-GAAP) $ 1,195,300 $ 1,135,584 $ 1,177,673

Return on average tangible common equity

Net income (loss) available to common shareholders $ (47,035) $ 100,534 $ 140,930

Average tangible common equity $ 1,195,300 1,135,584 1,177,673

Net Income $ 100,534 $ 140,930 $ 176,691

Return on average tangible common equity (Non-GAAP) (3.93) % 8.85% 11.97%

Operating return on average tangible common equity

Net income (loss) available to common shareholders $ (47,035) $ 100,534 $ 140,930

Add back of goodwill impairment 104,168 — —

Operating net income (Non-GAAP) $ 57,133 $ 100,534 $ 140,930

Average tangible common equity $ 1,195,300 1,135,584 1,177,673

Return on average tangible common equity 8.85 % 11.97 % 14.72 %

Noninterest expense

$ 153,293 $ 165,098 $ 149,165

Operating return on average tangible common equity (Non-GAAP) 4.78 % 8.85 % 11.97 %

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Years Ended December 31,

(dollars in thousands) 2024 2023 2022

Efficiency ratio

Net interest income $ 288,688 $ 290,546 $ 332,867

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19,939 21,536 23,654

Operating revenue

Total net revenue 308,627 312,082 356,521

Noninterest expense 274,634 153,293 165,098

Exclude goodwill impairment (104,168) — —

Operating noninterest expense (Non-GAAP) 170,466 153,293 165,098

Efficiency ratio (Non-GAAP) 88.99 % 49.12 % 46.31 %

Operating efficiency ratio (Non-GAAP) 55.23 % 49.12 % 46.31 %

Operating net income

Net income (loss) $ (47,035) $ 100,534 $ 140,930

Add back of goodwill impairment 104,168 — —

Operating net income (Non-GAAP) $ 57,133 $ 57,133 $ 100,534 $ 140,930

Operating earnings per share (diluted)

Earnings (loss) per share (diluted) (1)

$(1.56) $3.31 $4.39

Efficiency ratio 49.12 % 46.31 % 40.88 %

Add back of goodwill impairment per share (diluted) 3.45 — —

Operating earnings per share (diluted) (Non-GAAP) $1.89 $3.31 $4.39

(1) For periods ended with a net loss, anti-dilutive financial instruments have been excluded from the calculation of earnings per share (diluted).

Operating earnings per share (diluted) calculations include the impact of outstanding equity-based awards for all periods.

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RESULTS OF OPERATIONS

Year Ended December 31, 2024 Compared with Year Ended December 31, 2023

Net income for the years ended December 31, 2023 and 2022 was $100.5 million and $140.9 million, respectively.

Net income per basic and diluted common share for the year ended December 31, 2023 was $3.31 and $3.31, respectively, compared to $4.40 and $4.39 per basic and diluted common share, respectively, for the year ended December 31, 2022, a 25% decrease.

Net income decreased in 2023 relative to 2022 primarily due to a decrease in net interest income of $42.3 million and an increase in provision for credit losses of $31.3 million.

These were offset by a decrease in the provision for unfunded commitments of $1.7 million, a decrease in noninterest expenses of $11.8 million, and a reduction of income tax expense of $21.8 million.

The most significant portion of revenue (i.e., net interest income plus noninterest income) is net interest income, which decreased to $290.5 million for 2023 compared to $332.9 million for 2022.

Net loss for the year ended December 31, 2024 was $47.0 million, as compared to net income of $100.5 million, for the same period in 2023.

This decrease was primarily attributable to the recognition of goodwill impairment of $104.2 million in the second quarter of 2024 and an increase in provision for credit losses of $34.8 million, partially offset by a reduction of income tax expense of $10.2 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.

Refer to the "Intangible Assets" section below for additional details on goodwill impairment..

Net interest income decreased to $288.7 million for 2024 compared to $290.5 million for 2023.

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 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 2.53% for 2023 and 2.93% for 2022, a decrease of 40 basis points.

Total noninterest income in 2024 was $19.9 million, as compared to $21.5 million in 2023, a 7% decrease.

For further information on the components and drivers of these changes, see the "Net Interest Income and Net Interest Margin" and "Noninterest Income" sections below.

Operating net revenue (non-GAAP) was $308.6 million for the year ended December 31, 2024, as compared to $312.1 million for the same period in 2023.

The net interest margin, which measures the difference between interest income and interest expense as a percentage of earning assets, was 2.37% for 2024 and 2.53% for 2023, a decrease of 16 basis points.

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

The provision for credit losses in 2023 was $31.5 million as compared to $266 thousand in 2022.

The provision for credit losses in 2024 was $66.4 million as compared to $31.5 million in 2023.

For information on the components and drivers of these changes see "Provision for Credit Losses" section below.

Total noninterest income in 2023 was $21.5 million, as compared to $23.7 million in 2022, a 9% decrease.

The primary drivers for the decrease in noninterest income was a reduction in gain on the sales of residential mortgage loans and fees associated with residential mortgage loans in connection with the cessation of that business during the year ended December 31, 2023.

Noninterest expenses in 2023 totaled $153.3 million, as compared to $165.1 million in 2022, a 7% decrease.

The decrease in noninterest expense was primarily attributable to 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 $2.0 million, legal and professional fees of $2.2 million and $6.9 million in FDIC insurance assessments.

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

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 49.12% for 2023 as compared to 46.31% for 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.

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

At December 31, 2023, total loan balances were 4% higher than they were at December 31, 2022, and average loans were 8% higher in 2023 as compared to 2022, driven by originations and advances which outpaced payoffs and paydowns.

Noninterest expenses in 2024 totaled $274.6 million, as compared to $153.3 million in 2023, a 79% increase.

The increase was primarily attributable to the recognition of goodwill impairment of $104.2 million in the second quarter of 2024 and higher FDIC insurance assessments during the year.

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

The efficiency ratio, inclusive of the goodwill impairment charge, which measures the ratio of noninterest expense to total revenue, was 88.99% for 2024 as compared to 49.12% for 2023.

Excluding the goodwill impairment charge, the operating efficiency ratio (non-GAAP) was 55.23%.

At December 31, 2024, total loan balances were $7.9 billion, and remained flat as compared to December 31, 2023, and average loans were 2% higher in 2024 as compared to 2023, driven by originations and advances which outpaced payoffs and paydowns.

Total deposits at December 31, 2024 increased by $323.0 million as compared to December 31, 2023.

The increase consists of $966.5 million in interest bearing deposits which was partially offset by a decrease of $871.7 million in noninterest bearing deposits.

This was primarily driven by a significant increase in short term interest rates and the related deposit disintermediation and migration to interest-bearing deposit accounts.

The increase consists of $1.0 billion in interest bearing deposits which was partially offset by a decrease of $0.7 billion in noninterest bearing deposits.

This was primarily driven by a significant increase in short term interest rates and related migration to interest-bearing deposit accounts.

In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, represented 66% and 68% of average earning assets for 2024 and 2023, respectively.

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Average investment securities for 2024 were 20% of average earning assets compared to 23% for 2023.

The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale represented 9% and 11% of average earning assets for 2023 and 2022, respectively, as lower levels of on-balance sheet liquidity existed throughout 2023.

The decrease was driven by the decline in deposits due to a significant increase in short term interest rates.

The ratio of common equity to total assets decreased to 10.92% at December 31, 2023 from 11.02% at December 31, 2022, due primarily to an increase in total assets, in connection with increases in loans and interest-bearing deposits with banks and other short-term investments, and partially offset by an increase in common equity due to a reduction in accumulated other comprehensive losses.

For 2023, the return on average assets (“ROAA”) was 0.84%, as compared to 1.20% for 2022.

Total shareholders’ equity was $1.27 billion at December 31, 2023 as compared to $1.23 billion at December 31, 2022, an increase of 4%.

The combination of federal funds sold and interest bearing deposits with other banks represented 14% and 9% of average earning assets for 2024 and 2023, respectively.

The ratio of common equity to total assets increased to 11.02% at December 31, 2024 from 10.92% at December 31, 2023, due primarily to a decrease in total assets, in connection with decreases in loans and interest-bearing deposits with banks and other short-term investments.

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

For 2024, the return on average assets (“ROAA”), inclusive of the goodwill impairment charge, was (0.38)%, as compared to 0.84% for 2023.

Total shareholders’ equity was $1.23 billion at December 31, 2024 as compared to $1.27 billion at December 31, 2023, a decrease of 4%.

The return on average common equity (“ROACE”) for 2024 was (3.77)% as compared to 8.11% for 2023.

The ROATCE for 2024, a non-GAAP financial measure, was (3.93)% as compared to 8.85% for 2023.

The adverse change in returns was primarily attributable to the recognition of goodwill impairment of $104.2 million in 2024.

Excluding the goodwill impairment charge, operating return on average tangible common equity (non-GAAP) was 4.78%.

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

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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 represents interest expense on deposits, customer repurchase agreements and other borrowings, which consist primarily of federal funds purchased, advances from the Federal Home Loan Bank of Atlanta ("FHLB") and Bank Term Funding Program ("BTFP") and subordinated notes.

The cost of funds represents 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 Discount Window, and senior 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 represented 93% of the Company’s revenue for both years ended December 31, 2023 and December 31, 2022.

Net interest income in 2024 was $288.7 million compared to $290.5 million in 2023.

The 13% decrease for the year ended December 31, 2023 as compared to the year ended December 31, 2022 was primarily due to increases in average deposit rates (4.02% compared to 1.33%, respectively) and other borrowings (4.78% compared to 3.35%, respectively), which were partially offset by higher average loan balances and yields (6.63% compared to 4.97%, respectively).

The 1% decrease for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to increases in average deposit rates (4.25% compared to 4.02%, respectively) and other short-term borrowings (4.90% compared to 4.82%, respectively), which were partially offset by higher average loan balances and yields (6.86% compared to 6.63%, respectively).

Net interest income represented 94% and 93% of the Company’s total net revenue for the years ended December 31, 2024 and December 31, 2023, respectively,

Net interest margin decreased by 16 basis points to 2.37% in 2024 from 2.53% in 2023.

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The cost of funds on interest-bearing liabilities increased 42 basis points from 3.17% in 2023 to 3.59% in 2024, while the yield on interest-earning assets increased by 20 basis points from 5.45% in 2023 to 5.65% in 2024.

Average borrowings increased from $242.5 million in the year ended December 31, 2022 to $1.6 billion in the year ended December 31, 2023.

Average interest-bearing deposits increased from $6.2 billion in the year ended December 31, 2022 to $6.4 billion in the year ended December 31, 2023.

Average loans (excluding loans held for sale) were $7.8 billion for the year ended December 31, 2023, compared to $7.2 billion for the same period in 2022.

Average loans held for investment were $8.0 billion for the year ended December 31, 2024, compared to $7.8 billion for the same period in 2023.

Average investment securities were $2.5 billion for the year ended December 31, 2024, compared to $2.6 billion for the same period in 2023.

Average interest-bearing deposits with other banks and other short term investments were $1.7 billion for 2024 compared to $1.0 billion for 2023.

As a result of FRB actions related to Fed Funds interest rate increases, overall yields and rates increased in 2023 as compared to 2022, as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.

During the years ended December 31, 2023 and 2022, the Company incurred interest expense on brokered deposits, excluding the Certificate of Deposit Account Registry Service ("CDARS") and Insured Cash Sweep ("ICS") two-way accounts, of $111.9 million and $44.3 million, respectively.

Loans, the largest component of interest income on earning assets, had a yield of 6.63% in 2023, compared to 4.97% in 2022, an increase of 166 basis points.

Interest income on loans, the largest component of interest income on earning assets, had a yield of 6.86% in 2024, compared to 6.63% in 2023, an increase of 23 basis points.

Average interest-bearing deposits increased from $6.4 billion in the year ended December 31, 2023 to $7.5 billion in the year ended December 31, 2024, while average noninterest bearing demand deposits decreased to $2.0 billion for the year ended December 31, 2024 from $2.5 billion for the year ended December 31, 2023.

Average borrowings decreased from $1.6 billion in the year ended December 31, 2023 to $1.5 billion in the year ended December 31, 2024.

Refer to the "Deposits and Other Borrowings" section below for further discussion of deposits and borrowings.

The table below presents the average balances and rates of the major categories of the Company's assets and liabilities for the years ended December 31, 2024, 2023 and 2022.

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Net interest margin is net interest income expressed as a percentage of average earning assets.

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Eagle Bancorp, Inc.

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Customer repurchase agreements and federal funds purchased 37,872 1,271 3.36 % 36,663 1,218 3.32 % 30,745 356 1.16 %

Other short-term borrowings

1,476,550 72,386 4.90 % 1,521,160 73,253 4.82 % 172,717 3,980 2.30 %

Long-term borrowings 66,321 4,797 7.23 % 69,861 2,766 3.96 % 69,737 4,149 5.95 %

Total interest bearing liabilities 9,125,728 398,875 4.37 % 8,037,866 334,781 4.17 % 6,520,010 91,746 1.41 %

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

(3) 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 year ended December 31, 2022 and 2021 have been recalculated using the current methodology.

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Rate/Volume Analysis of Net Interest Income

The rate/volume table below presents the composition of the change in net interest income for the periods 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.

As the table shows, the decrease in net interest income in 2023 as compared to 2022 was due to an increase in rate on interest bearing liabilities, which was partially offset by an increase in rate on interest bearing assets.

Year Ended December 31, 2023 Compared with Year Ended December 31, 2022

Year Ended December 31, 2022 Compared with Year Ended December 31, 2021

As the table shows, the decrease in net interest income in 2024 as compared to 2023 was primarily due to increase in interest bearing liabilities replacing non-interest bearing deposits.

Year Ended December 31, 2024 Compared with

Year Ended December 31, 2023

Compared with

Year Ended December 31, 2022

(dollars in thousands) Change

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Customer repurchase agreements 40 13 53 69 793 862

Other borrowings 45,216 22,674 67,890 (6,712) 2,682 (4,030)

(2,288) 3,452 1,164 45,216 22,674 67,890

Total interest expense 44,514 19,580 64,094 46,122 196,913 243,035

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Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to record the ACL on loans and the ACL on AFS investment securities and HTM investment securities.

The provision for credit losses represents the amount of expense charged to current earnings to record the ACL on loans and the ACL on HTM investment securities.

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

Please refer to the discussion under “Critical Accounting Policies and Estimates” above and in Note 1 to the Consolidated Financial Statements for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense.

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 for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense.

Also, refer to the table in the "Allowance for Credit Losses" section which reflects activity in the ACL.

The total provision for credit losses was $31.5 million during the year ended December 31, 2023, as compared to $266 thousand during the year ended December 31, 2022.

The provision included $30.3 million and $103 thousand on the loan portfolio during the years ended December 31, 2023 and 2022, respectively.

The total provision for credit losses was $66.4 million during the year ended December 31, 2024, as compared to $31.5 million during the year ended December 31, 2023.

During the year ended December 31, 2024, the Company's provision for credit losses included a provision of $67.0 million on loans and net charge-offs of $38.6 million on loans.

The provision for credit losses on loans for the same period in 2023 was $30.3 million and included $18.9 million of net charge offs.

The change in the provision for credit losses for the year ended December 31, 2024, was primarily attributable to the following factors:

1) specific reserves on individually evaluated non-performing loans;

2) changes in the qualitative component of the model relating to CRE office properties;

and, 3) enhancements to the quantitative model during Q1 to include additional economic factors.

Additionally, the change in provision for credit losses during the year ended December 31, 2024 was also impacted by the partial charge off of a CRE office loan after an updated valuation was received in the first quarter of 2025.

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The provision for loan credit losses for the year ended December 31, 2023 was driven by adjustments to the qualitative components of the CECL model combined with smaller increases in the quantitative components.

The changes in qualitative components were due to perceived weakness in the

commercial real estate market, in addition to the high inflationary environment offset by a reduction in the quantitative reserves based on a decline in individually evaluated loans.

The changes in qualitative components were due to perceived weakness in the commercial real estate market, in addition to high inflationary environment offset by a reduction in the quantitative reserves based on a decline in individually evaluated loans.

The changes in quantitative components were related to changes in the nature and volume of the portfolio, changes in delinquencies and loss experience.

In 2022, the provisions 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, offset by improvements in asset quality.

During the year ended December 31, 2023, a provision for credit losses on securities of $1.2 million was recorded, primarily on its corporate bonds classified as held-to-maturity, while a net provision for credit losses of $163 thousand was recorded during the year ended December 31, 2022.

The provision for unfunded commitments is presented separately on the Statement of Income.

This provision considers the probability that unfunded commitments will fund.

There was a reversal of $267 thousand in 2023, as compared to a provision of $1.5 million in 2022.

The provision for credit losses for the held-to-maturity securities portfolio was recorded primarily on several corporate bonds.

During the year ended December 31, 2024, there was a reversal of provision for credit losses of $645 thousand for the held-to-maturity securities portfolios, compared to a provision expense of $1.2 million for the year ended December 31, 2023.

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

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

There was a reversal of $2.1 million in 2024, compared to $0.3 million reversal in 2023.

Noninterest Income

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Years Ended December 31,

(dollars in thousands)

2023 2022 Dollar Change

Percent Change

(dollars in thousands) 2024 2023 Dollar Change Percent Change

Service charges on deposits $ 6,843 $ 6,455 $ 388 6 %

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Net loss on sale of investment securities 14 (11) 25 (227) %

(11) (169) 158 (93) %

Increase in the cash surrender value of bank-owned life insurance 2,885 2,659 226 8 %

Other income 10,140 12,015 (1,875) (16) %

$ 21,536 $ 23,654 $ (2,118) (9) %

Total $ 19,939 $ 21,536 $ (1,597) (7) %

Total noninterest income for the year ended December 31, 2024 was $19.9 million as compared to $21.5 million for the year ended December 31, 2023.

The 9% decrease was primarily due to a reduction on gains on sale of residential mortgage loans of $3.3 million.

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.

This decrease was partially offset by an increase on service charges on deposits of $1.1 million to $6.5 million for the year ended December 31, 2023 from $5.4 million for the same period in 2022.

Other income totaled $12.0 million for the year ended December 31, 2023 as compared to $12.2 million for 2022, a decrease of 1%.

The decrease in other income was primarily attributable to the reductions in Mastercard income of $1.8 million, servicing fees of $1.0 million, and other loan income of $548 thousand.

This activity was partially offset by increases of $2.5 million of income from an investment in an SBIC fund, income on swap fees of $617 thousand, and gain on the sale of Federal Housing Administration ("FHA") multifamily-backed Government National Mortgage Association ("Ginnie Mae") securities of $479 thousand.

The 7% decrease was primarily based on the prior year nonrecurring items including income from Small Business Investment Companies ("SBIC") fund and lower swap fees income during the current year.

Noninterest Expense

Total noninterest expense includes salaries and employee benefits, premises and equipment expenses, marketing and advertising, data processing, legal, accounting and professional fees, FDIC insurance premiums and other expenses.

The following table summarizes the comparative noninterest expense for the years ended December 31, 2024 and 2023:

Years Ended December 31,

(dollars in thousands)

2023 2022 Dollar Change

Percent Change

(dollars in thousands) 2024 2023 Dollar Change Percent Change

Salaries and employee benefits $ 87,768 $ 86,096 $ 1,672 2 %

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FDIC insurance 29,009 11,853 17,156 145 %

SEC/FRB penalties — 22,977 (22,977) (100) %

Other expenses 15,509 14,406 1,103 8 %

Goodwill impairment

104,168 — 104,168 100 %

Total noninterest expense totaled $153.3 million for 2023, as compared to $165.1 million for 2022, a 7% decrease.

For 2023, the efficiency ratio (ratio of noninterest expenses to total revenue) was 49.12% as compared to 46.31% for 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 decrease in 2023 as compared to 2022 was primarily associated with the $22.9 million of settlement expenses during the year ended December 31, 2022, which were partially offset by increases in FDIC insurance expenses of $6.9 million, legal, accounting and professional fees of $2.2 million and salaries and employee benefits of $2.0 million over the comparative year.

Salaries and employee benefits were $86.1 million for 2023, as compared to $84.1 million for 2022, an increase of 2%.

The primary reason for the increase in 2023 from 2022 was the reversal of a $5.0 million accrual related to stock-based compensation awards and deferred compensation for our former CEO and Chairman in the first quarter of 2022.

At December 31, 2023 and 2022, the Company’s full time equivalent staff numbered 452 and 496, respectively.

Premises and equipment expenses were $12.6 million for 2023 as compared to $13.2 million for 2022, a decrease of 5%.

The decrease was due to the reduction in rent expense from the closure of three locations in 2023, and one additional location in the fourth quarter of 2022.

The reduction was partially offset by normal lease increases and acceleration of leasehold amortization.

Legal, accounting and professional fees and expenses were $10.8 million for 2023 as compared to $8.6 million for 2022, a 26% increase.

The increase was primarily attributable to an increase in legal expenses, which, for the years ended December 31, 2023 and 2022, were $3.7 million and $1.0 million, respectively.

FDIC insurance expense was $11.9 million for 2023 as compared to $5.0 million for 2022, an increase of 139%.

Other expenses 13,479 15,509 (2,030) (13) %

Total $ 274,634 $ 153,293 $ 121,341 79 %

Total noninterest expense was $274.6 million for 2024, as compared to $153.3 million for 2023, a 79% increase.

The increase for the year ended December 31, 2024 was primarily due to the goodwill impairment charge of $104.2 million to reduce fully the carrying value of the Company's goodwill.

Refer to the "Intangible Assets" section below for additional details.

Excluding the goodwill impairment charge, total operating noninterest expense (non-GAAP) was $170.5 million for the year ended December 31, 2024.

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

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Marketing expenses were $5.4 million and $3.4 million, respectively, for the year ended December 31, 2024 and 2023, a 62% increase.

The increase in marketing expenses was primarily due to higher marketing expenses related to our digital banking channel.

FDIC insurance expense was $29.0 million for 2024 as compared to $11.9 million for 2023, an increase of $17.1 million, or 145%.

The increases in 2024 compared to 2023 were due to increases in FDIC deposit insurance assessments.

In 2022, the Company incurred a penalty of $22.9 million in connection with the settlements with the SEC and FRB.

The amount of penalty fees was reported as noninterest expense for 2022.

No such penalty fees were incurred in 2023.

The major components of other expenses include broker fees, franchise tax, insurance expenses and director compensation.

Other expenses were $15.5 million for 2023 as compared to $14.4 million for 2022, an increase of 8%.

The increase in 2023, as compared to 2022, was primarily due to increases in expenses incurred in connection with OREO properties.

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

Other expenses were $13.5 million for 2024 as compared to $15.5 million for 2023, a decrease of 13%.

The decrease in 2024, as compared to 2023, was primarily due to a reduction in director fees and real estate taxes.

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 88.99% for the year ended December 31, 2024, as compared to 49.12% for the same period in 2023.

The adverse change in the efficiency ratio for the year ended December 31, 2024 was primarily driven by the recognition of goodwill impairment of $104.2 million.

Excluding the goodwill impairment charge, the operating efficiency ratio (non-GAAP) was 55.23% for the year ended December 31, 2024.

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

As a percentage of average assets, total noninterest expense (annualized) was 2.19% for the year ended December 31, 2024 as compared to 1.29% for the same period in 2023.

The higher ratio for the current year is attributable to the goodwill impairment discussed above.

Income Tax Expense

Income tax expense was $16.8 million for 2024 as compared to $27.0 million for 2023.

The decrease in the tax provisions over the comparative years ended December 31, 2024 and 2023 was primarily driven by the decreases in pre-tax income period over period.

The impact of the change in mix of the components noted above can be seen in the reconciliation of statutory federal income tax rate table in Note 13 to the Consolidated Financial Statements.

The Inflation Reduction Act of 2022 was signed into law by President Biden on August 16, 2022 which 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.

BALANCE SHEET ANALYSIS

Total assets at December 31, 2023 were $11.7 billion as compared to $11.2 billion at December 31, 2022, a 5% increase.

The increase in total assets in 2023 was primarily due to increases in total interest-bearing deposits with banks and other short-term investments, and an increase in total loans.

The largest component of assets, total loans (excluding loans held for sale), were approximately $8.0 billion at December 31, 2023, as compared to $7.6 billion at December 31, 2022 a 4% increase.

The increase in loans in 2023, was driven by growth from CRE and construction loans.

There were no loans held for sale at December 31, 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, were $2.7 billion at December 31, 2023 as compared to $2.9 billion at December 31, 2022, a $213.2 million decrease, or 7%, primarily driven by the pay down of principal on mortgage-backed securities ("MBS") and sales and calls of securities.

Total assets at December 31, 2024 were $11.1 billion as compared to $11.7 billion at December 31, 2023, a 5% decrease.

The decrease in total assets in 2024 was primarily due to decreases in investment securities and interest-bearing deposits with other banks, and the impairment charge of goodwill related to a 2014 acquisition.

The largest component of assets, total loans with an amortized cost basis, were approximately $7.9 billion at December 31, 2024, and remained relatively flat as compared to $8.0 billion at December 31, 2023.

There were no loans held for sale at December 31, 2024 and 2023.

Refer to the "Loan Portfolio" section below for further discussion on loans.

Investment securities, at amortized cost net of the allowance for credit losses, were $2.3 billion at December 31, 2024 as compared to $2.7 billion at December 31, 2023, a $336.5 million decrease, or 13%.

The components and drivers of the change are discussed in the "Investment Securities and Short-Term Investments" section below.

In terms of funding, total deposits at December 31, 2024 were $9.1 billion as compared to $8.8 billion at December 31, 2023, an increase of 4%.

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

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

Total shareholders’ equity at December 31, 2023 was $1.3 billion as compared to $1.2 billion at December 31, 2022, a 4% increase.

The increase in shareholders’ equity in 2023 was primarily from a reduction of accumulated other comprehensive loss and net income partially offset by cash dividends.

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

Regulatory ratios based on risk-weighted assets slightly declined in 2023 due to an increase in risk-weighted assets, which was partially offset by an increase in risk-based capital.

Total borrowed funds (excluding customer repurchase agreements) were $566.1 million and $1.4 billion at December 31, 2024 and 2023, respectively.

The components and drivers of the change are discussed in the "Deposits and Other Borrowings" section below.

Total shareholders’ equity at December 31, 2024 was $1.2 billion as compared to $1.3 billion at December 31, 2023, a 4% decrease.

The decrease in shareholders’ equity in 2024 was primarily from the net loss from operations and payment of cash dividends, partially offset by an increase in other comprehensive income and share-based compensation.

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

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

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

The total risk based capital ratio was 15.86% at December 31, 2024, as compared to 14.79% at December 31, 2023.

In addition, the tangible common equity ratio was 10.12% at December 31, 2023, compared to 10.18% at December 31, 2022.

The ratio of common equity to total assets was 10.92% at December 31, 2023 as compared to 11.02% at December 31, 2022.

The common equity tier one capital ("CET1") risk based capital ratio was 14.63% at December 31, 2024, as compared to 13.90% at December 31, 2023.

The tier 1 risk based capital ratio was 14.63% at December 31, 2024, as compared to 13.90% at December 31, 2023.

The tier 1 leverage ratio was 10.74% at December 31, 2024, as compared to 10.73% at December 31, 2023.

The ratio of common equity to total assets was 11.02% at December 31, 2024 as compared to 10.92% at December 31, 2023, as common equity levels declined 4% over the year ended December 31, 2024.

Book value per share was $40.60 at December 31, 2024, a 4.7% decrease over $42.58 at December 31, 2023.

These declines were primarily due to the goodwill impairment charge of $104.2 million.

In addition, the tangible common equity ratio was 11.02% at December 31, 2024, compared to 10.12% at December 31, 2023.

Tangible book value per share was $40.59 at December 31, 2024, a 3.9% increase 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.

Investment Securities and Short-Term Investments

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The Company classifies its investment securities as either AFS or HTM.

The AFS classification requires that investment securities be recorded at fair value with any difference between the fair value and amortized cost (the purchase price adjusted by any discount accretion or premium amortization) reported as a component of shareholders’ equity (accumulated other comprehensive income), net of deferred income taxes, while securities classified as HTM are recorded and presented at their amortized cost.

The AFS classification requires that investment securities be recorded at fair value with any difference between the fair value and amortized cost (the purchase price adjusted by any discount accretion or premium amortization) reported as a component of shareholders’ equity (accumulated other comprehensive income (loss)), net of deferred income taxes, while securities classified as HTM are recorded and presented at their amortized cost.

At December 31, 2024, the Company had a net unrealized loss in AFS securities of $141.5 million with a deferred tax asset of $34.8 million, as compared to a net unrealized loss in AFS securities of $161.9 million with a deferred tax asset of $39.8 million at December 31, 2023.

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agency securities (44.1% of AFS securities) with an average duration of 2.5 years, seasoned MBS that are 100% agency issued (49.3% of AFS securities for residential mortgage-backed and 3.9% for commercial mortgage-backed), which have an average duration of 4 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (0.6% of AFS securities), which have an average duration of 6 years, and corporate bonds (0.1% of AFS securities), which have an average duration of 5.6 years.

The HTM portfolio comprises seasoned MBS that are 100% agency issued (65.8% of HTM securities for residential mortgage-backed and 8.9% for commercial mortgage-backed), which have an average duration of 4.7 years with contractual

maturities of the underlying mortgages of up to thirty years, municipal bonds (12.3% of HTM securities), which have an average duration of 6.1 years, and corporate bonds (13.0% of HTM securities), which have an average duration of 5.3 years.

The HTM portfolio comprises seasoned MBS that are 100% agency issued (64.5% of HTM securities for residential mortgage-backed and 9.4% for commercial mortgage-backed), which have an average duration of 5.4 years with contractual maturities of the underlying mortgages of up to thirty years, municipal bonds (12.1% of HTM securities), which have an average duration of 6.7 years, and corporate bonds (14.0% of HTM securities), which have an average duration of 4.3 years.

At December 31, 2024, the AFS investment portfolio was $1.3 billion as compared to $1.5 billion at December 31, 2023, a decrease of 16%.

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

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The following table provides information regarding the composition of the investment securities portfolio at the dates indicated.

AFS securities are reported at estimated fair value and HTM securities are reported at amortized cost.

At December 31, 2023, the investment portfolio balances at fair value decreased and amortized cost increased as compared to December 31, 2022, and the composition of portfolio changed, as follows:

At December 31, 2024, the investment portfolio balances for both AFS securities at fair value and HTM securities at amortized cost basis decreased as compared to December 31, 2023, and the composition of portfolio changed, as follows:

(dollars in thousands) Fair Value Percent of Total Fair Value Percent of Total

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Corporate bonds 1,818 — % 1,683 — %

$ 1,506,388 100 % $ 1,598,666 100 %

Total $ 1,267,404 100 % $ 1,506,388 100 %

(dollars in thousands) Amortized Cost Percent of Total Amortized Cost Percent of Total

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Corporate bonds 131,414 14 % 132,309 13 %

1,017,693 100 % 1,094,140 100 %

Total 939,953 100 % 1,017,693 100 %

Allowance for credit losses (1,306) (1,956)

(1,956) (766)

Total held-to-maturity securities, net of ACL $ 938,647 $ 1,015,737

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Government-sponsored enterprises, whose securities owned by the Company had a book or fair value exceeding 10% of the Company’s shareholders’ equity.

The following tables provides information, on an amortized cost basis, for AFS and HTM portfolios regarding the expected maturity and weighted-average yield of the investment portfolio at December 31, 2023.

The following tables provide information, on an amortized cost basis, for AFS and HTM portfolios regarding the expected maturity and weighted-average yield of the investment portfolio at December 31, 2024.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

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agency securities 163,511 1.18 % 359,242 1.57 % 66,580 1.92 % 10,944 1.25 % 600,277 1.50 %

569,749 1.45 % 105,230 1.34 % 42,244 2.90 % 11,867 1.25 % 729,090 1.51 %

Residential mortgage-backed securities — — % 4,917 1.83 % 143,010 1.46 % 571,888 1.92 % 719,815 1.83 %

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Corporate bonds — — % — — % 2,000 5.50 % — — 2,000 5.50 %

$ 594,706 1.43 % $ 166,818 1.48 % $ 241,901 1.79 % $ 664,891 1.93 % $ 1,668,316 1.69 %

Total $ 193,501 1.17 % $ 387,379 1.60 % $ 226,643 1.68 % $ 601,412 1.95 % $ 1,408,935 1.70 %

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One Year or Less After One Year

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Corporate bonds — — % 51,456 4.47 % 79,958 3.84 % — — % 131,414 4.09 %

$ 39,873 3.36 % $ 124,741 3.80 % $ 140,780 3.00 % $ 712,299 2.66 % 1,017,693 2.88 %

Total $ 6,946 2.86 % $ 76,354 3.95 % $ 148,180 3.30 % $ 708,473 2.71 % 939,953 2.90 %

Allowance for credit losses (1,306)

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These funds represent excess daily liquidity which is invested on an unsecured basis with well capitalized banks, in amounts generally limited both in the aggregate and to any one bank.

Interest bearing deposits with banks and other short-term investments represent liquid funds held at the Federal Reserve to meet general liquidity needs of the Company, such as future loan demand and future increases in investment securities, among others.

Interest bearing deposits with banks and other short-term investments were $709.9 million at December 31, 2023, as compared to $265.3 million at December 31, 2022, an increase of $444.6 million, or 168%.

In 2023, as rising rates led to deposit disintermediation reducing our liquidity levels, and loan balances increased, the Company reduced these short-term investments to rebalance the earning assets mix.

Interest bearing deposits with banks and other short-term investments primarily consist of liquid assets held at the Federal Reserve to meet general liquidity needs of the Company, such as future loan demand and future increases in investment securities, among others.

Interest bearing deposits with banks and other short-term investments were $619.0 million at December 31, 2024, as compared to $709.9 million at December 31, 2023, a decrease of $90.9 million or 13%, primarily due to decrease in deposits at the Federal Reserve.

Refer to the "Deposits and Other Borrowings" section below for further discussion.

The Bank did not hold any time deposits at December 31, 2024 or December 31, 2023.

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We believe 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 increased over the past year as loans outstanding were $7.97 billion at December 31, 2023, as compared to $7.64 billion at December 31, 2022, an increase of $333.1 million or 4.4% .

The loan portfolio continued to grow in 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;

our processes for evaluating these opportunities are designed to subject them 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.

"Owner occupied-commercial real estate" and "construction–C&I (owner occupied)" loans represent 17% of the loan portfolio.

The Bank has a large portion of its loan portfolio related to real estate, with 80% consisting of commercial real estate and real estate construction loans.

Other than "owner occupied commercial real estate" and "construction–C&I (owner occupied)", the percentage of remaining total loans represented by commercial real estate is 63%.

Real estate also serves as collateral for loans made for other purposes, resulting in 82% of loans being secured or partially secured by real estate.

Total loan balances remained relatively flat over the past year as loans outstanding were $7.9 billion at December 31, 2024, as compared to $8.0 billion at December 31, 2023, a decrease of $33.8 million or 0.4%.

The loan portfolio mix continues to evolve as the Bank has experienced a reduction in commercial loans, offset by an increase in fundings of ongoing construction projects for commercial and residential properties.

Market rates year to date in 2024 for our new loan originations on average have been fairly consistent with the market rates at the end of 2023, since short-term interest rates remained unchanged for most of 2024.

In September 2024 and the fourth quarter of 2024, the Federal Reserve adjusted short-term interest rates downwards three times for a total decrease of 100 basis points.

We continue to see opportunities for growth in the commercial lending 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 assess primary and alternative sources for loan repayment and, if necessary, obtain collateral to mitigate credit loss in the event of default.

The Bank has a large portion of its loan portfolio related to real estate, with 83% consisting of commercial real estate and real estate construction loans as of December 31, 2024.

Non-owner occupied commercial real estate represented 66% of the loan portfolio while the remaining 17% is represented by the "owner occupied-commercial real estate" and "construction–C&I (owner occupied)" loans.

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The following table shows the trends in the composition of the loan portfolio over the past two years.

The table reflects loan balances, net of amortized deferred fees and costs, at December 31, 2024 and 2023 by major category.

(dollars in thousands) Amount % Amount %

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allowance for credit losses (114,390) (85,940)

(85,940) (74,444)

Loans, net (1)

$ 7,820,498 $ 7,882,755

(1) Excludes accrued interest receivable of $42.9 million and $45.3 million at December 31, 2024 and 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 have an adverse impact on this portfolio of loans and the Company’s income and financial position.

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

metropolitan area, the Bank has made loans outside that market where the borrower or its key decision makers have a meaningful relationship with the Bank and generally operate in or are based in our market.

Although all of these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the real estate market could continue to have an adverse impact on this portfolio of loans and the Company’s earnings and financial position.

Management believes that the commercial real estate 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.

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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 77.0% and 76.2% of total loans, outstanding at December 31, 2023 and December 31, 2022, respectively.

As part of its lending strategy, the Company maintains a substantial portfolio of CRE loans, with $6.5 billion and $6.1 billion, or 81.5% and 77.0% of total loans, of amortized cost outstanding at December 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 been impacted by the ramifications of the COVID-19 pandemic, particularly income producing CRE loans collateralized by office properties, which comprised approximately $949.0 million and $937.2 million, or 11.9% and 12.3% of total loans, at December 31, 2023 and December 31, 2022, respectively.

Income producing CRE loans collateralized by office properties comprised approximately $862.2 million and $949.0 million, or 10.9% and 11.9% of total loans, at December 31, 2024 and December 31, 2023, respectively.

Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $795.0 million and $879.0 million, or 10.0% and 11.0% of total loans, at December 31, 2024 and December 31, 2023, respectively.

As a percentage of total income producing - CRE office loans, 35.4%, 32.7%, and 24.4% were located in Washington's Maryland Suburbs, Northern Virginia and Washington, D.C.

at December 31, 2023.

The following table summarizes the Company's income producing - commercial real estate loans, at principal, by collateral location and type:

(dollars in thousands)

Hotel & Motel

Single / 1-4 Family & Res.

As a percentage of total principal balance of income producing - CRE office loans, 39.0%, 35.7%, 15.0%, and 10.3% were located in Washington's Maryland Suburbs, Northern Virginia, the central business district of Washington D.C., and Washington, D.C.

(outside the central business district), respectively, at December 31, 2024.

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The following table summarizes the Company's income producing - commercial real estate loans, at principal, by collateral location and type, at December 31, 2024:

December 31, 2024

(dollars in thousands)

Washington D.C.

$ 138,943 $ 4,987 $ 271,689 $ 353,805 $ 231,963 $ 82,436 $ 80,264 $ 184,790 $ 1,348,877

Washington Suburbs

Other 83,566 34,013 11,534 2,410 4,376 67,806 2,563 29,030 235,298

Northern Virginia

Other — 3,268 25,828 55,555 65,557 101,018 6,585 9,403 267,214

Other 23,769 — 5,382 40,708 50 1,949 4,092 28,671 104,621

Total $ 398,964 $ 140,469 $ 373,589 $ 764,911 $ 949,009 $ 428,904 $ 111,273 $ 938,688 $ 4,105,807

At December 31, 2023 and 2022, $240.7 million and $4.3 million, respectively, of principal of loans collateralized by office properties were criticized or classified.

Percent of Total

Collateral Type:

Hotel & motel

$136,553 $80,445 $82,634 $60,223 $ — $21,545 $ 381,400 10%

874 72,209 40,370 17,731 11,258 — 142,442 4%

323,391 44,175 371 54,497 25,687 4,970 453,091 11%

372,756 192,117 313 120,330 84,975 48,173 818,664 20%

220,632 327,187 4,254 248,855 63,023 — 863,951 21%

78,818 99,962 60,770 74,167 65,162 1,509 380,388 9%

Single / 1-4 Family & Res.

68,968 2,573 2,111 10,239 6,460 4,043 94,394 2%

179,784 181,378 30,435 441,885 8,572 97,168 939,222 23%

$1,381,776 $1,000,046 $221,258 $1,027,927 $265,137 $177,408 $4,073,552 100%

Percent of total

34 % 25 % 5 % 25 % 7 % 4 % 100 %

Percent of Principal by Loan Size:

Less than $1 million

2 % 2 % 3 % 1 % 2 % 1 %

$1 million to $5 million

9 % 10 % 20 % 7 % 11 % 11 %

$5 million to $10 million

7 % 7 % 25 % 5 % 12 % 31 %

$10 million to $25 million

19 % 13 % 32 % 34 % 41 % 8 %

$25 million to $50 million

47 % 28 % 20 % 41 % 34 % 21 %

Greater than $50 million

16 % 40 % — % 12 % — % 28 %

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

At December 31, 2024 and 2023, $287.0 million and $240.7 million, respectively, of principal of CRE loans collateralized by office properties were criticized or classified.

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending.

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Nevertheless, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to raise additional capital, increasing our funding costs or diluting our shareholders, or take other action to retain capital, adversely affecting shareholder returns.

The Company seeks to manage the risks relating to commercial real estate and its capital adequacy through the development and implementation of its Capital Policy and Capital Plan, the preparation of pro-forma projections including stress testing and the development of internal minimum targets for regulatory capital ratios that are subject to approval by the the Board of Directors (the "Board") and in excess of well capitalized ratio requirements.

At December 31, 2023, the Company had no concentrations of loans with any one borrower in any one industry exceeding 10% of its total loan portfolio.

The Company seeks to manage the risks relating to commercial real estate and its capital adequacy through the development and implementation of its Capital Policy and Capital Plan, the preparation of pro-forma projections including stress testing and the development of internal minimum targets for regulatory capital ratios that are subject to approval by the Board of Directors (the "Board") and in excess of well capitalized ratio requirements.

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The Company monitors industry and collateral concentrations to avoid loan exposures to a large group of similar industries or similar collateral.

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.

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Refer to Note 4 to the Consolidated Financial Statements for further detail regarding related party loans.

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Loan Maturity

The following table sets forth the time to contractual maturity of the loan portfolio as of December 31, 2024.

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

Over Fifteen Years

Loans are shown in the period based on final contractual maturity.

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

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

Commercial $ 1,183,341 $ 427,540 $ 636,875 $ 115,432 $ 3,494

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Other consumer 1,058 719 15 — 324

$ 7,968,695 $ 2,442,118 $ 4,202,708 $ 955,052 $ 368,817

Total $ 7,934,888 $ 3,103,355 $ 3,752,454 $ 687,618 $ 391,461

Predetermined fixed interest rate

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Total $ 4,908,597 $ 2,079,190 $ 2,207,794 $ 295,468 $ 326,145

(1) Income producing CRE office loans, which had total principal of $949.0 million at December 31, 2023 and are included within income producing - commercial real estate, had principal of $325.3 million, $587.8 million, $35.7 million and $150 thousand aggregated with one year or less, over one year to five years, over five years to fifteen years, and over fifteen

years remaining until contractual maturity, respectively.

Approximately $107.0 million and $393.7 million of income producing CRE office loans as of December 31, 2023 were due to mature within three months and 18 months, respectively.

Loans are shown in the period based on final contractual maturity.

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

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(1) Income producing CRE office loans with total principal of $864.0 million and multifamily loans with total principal of $818.7 million at December 31, 2024 are included within income producing - commercial real estate.

The charts below represent their maturities schedules.

Allowance for Credit Losses

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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.

The ACL for loans at December 31, 2023, or $85.9 million, reflected a $11.5 million increase from December 31, 2022, or $74.4 million, reflecting a provision for credit losses of $30.3 million and $18.9 million in net charge-offs during the year ended December 31, 2023.

Net charge-offs of $18.9 million during 2023 represented 0.24% of average loans, excluding loans held for sale, an increase from net charge-offs of $624 thousand during 2022, which represented 0.01% of average loans, excluding loans held for sale.

Net charge-offs included $17.1 million of charge-offs on four loans, three of which were income producing - commercial real estate loans and one of which was a construction - commercial residential loan.

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 “Critical Accounting Policies and Estimates” within Management’s Discussion and Analysis of Financial Condition and Results of Operation for further discussion of the methodology which management employs to maintain an adequate ACL, as well as 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 years ended December 31, 2024 and 2023.

The ACL for loans at December 31, 2024 was $114.4 million, which reflected a $28.5 million increase from $85.9 million at December 31, 2023, reflecting a provision for credit losses of $67.0 million and $38.6 million in net charge-offs during the year ended December 31, 2024.

Net charge-offs of $38.6 million during 2024 represented 0.48% of average loans held for investment, an increase from net charge-offs of $18.9 million during 2023, which represented 0.24% of average loans held for investment.

Net charge-offs during the year ended December 31, 2024, included $29.0 million of charge offs on two CRE office lending relationships.

The ACL represented 1.44% of total loans at December 31, 2024 as compared to 1.08% at December 31, 2023.

At December 31, 2024, the allowance represented 55% of nonperforming loans as compared to 131% at December 31, 2023.

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 “Critical Accounting Policies and Estimates” within Management’s Discussion and Analysis of Financial Condition and Results of Operation for further discussion of the methodology which management employs to maintain an adequate ACL, as well as the discussion under the caption “Provision for Credit Losses” for a discussion of the Companys calculation of the provision for credit losses during the years ended December 31, 2023 and 2022.

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

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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 c assess potential increased levels of risk which may require additional reserves.

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.

As the loan portfolio and ACL review processes continue to evolve there may be changes to elements of the allowance and this may have an effect on the overall level of the allowance maintained.

Management did conduct sensitivity analysis on the CECL model by using Moody's upside and downside scenarios across the forecast period.

At December 31, 2024 and 2023, the Company had $208.7 million and $65.5 million, respectively, of loans classified as nonperforming.

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Please refer to the “Nonperforming Assets” section for a discussion of problem and potential problem assets.

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

As of December 31, 2023 and 2022, loans rated special mention were $207.1 million and $113.6 million, respectively, and loans rated substandard were $335.8 million and $88.7 million, respectively.

The increases in special mention and substandard loans were primarily attributable to a continued focus on the evaluation of the Company's income producing - commercial real estate and owner occupied - commercial real estate loans.

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

As of December 31, 2024 and 2023, loans rated special mention had an amortized cost of $244.8 million and $207.1 million, respectively, and loans rated substandard had an amortized cost of $426.4 million and $335.8 million, respectively.

The increases in special mention and substandard loans were primarily attributable to additions in CRE loans in the Washington, D.C.

metropolitan area, particularly in income producing - commercial real estate and commercial loans.

The increases in substandard loans were primarily attributable to certain CRE loans in the Washington, D.C.

metropolitan area.

At December 31, 2024, 100% and 46% 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

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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.

As the loan portfolio and ACL review processes continue to evolve there may be changes to elements of the allowance and this may have an effect on the overall level of the allowance maintained.

Management did conduct sensitivity analysis on the CECL model, which, in part, was conducted by shocking the unemployment forecast up by 2% across the forecast period.

Management, being aware of the loan growth experienced by the Bank and the risks facing commercial real estate, 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.

At December 31, 2024 and 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 3.81% and 1.91%, respectively.

Portfolio management and the risk rating process are core parts of the Company’s credit risk management, including for commercial real estate loans.

The Bank conducts 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 commercial real estate 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.

These analyses include stress testing.

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.

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Commercial 373 576 713

Income producing - commercial real estate 185 — —

Owner occupied - commercial real estate 94 55 25

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Provision for credit losses - loans 67,005 30,346 103

30,346 103 (21,274)

Balance at end of year $ 114,390 $ 85,940 $ 74,444

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Ratio of net charge-offs during the year to average loans outstanding during the year 0.48 % 0.24 % 0.01 %

The following table presents the allocation of the ACL by loan category and the percentage of allowance in each category.

The allocation of the allowance at December 31, 2023 includes allowance for credit losses of $641 thousand against individually assessed loans of $66.1 million, as compared to allowance for credit losses of $5.2 million against individually assessed loans of $30.7 million at December 31, 2022.

The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the usage of the allowance for any specific loan or category.

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The following table reflects the allocation of the ACL at December 31, 2024 and 2023 by loan category and the percentage of allowance in each category.

The allocation of the allowance at December 31, 2024 includes allowance for credit losses of $17.1 million against individually assessed loans of $208.7 million, as compared to allowance for credit losses of $0.6 million 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 usage of the allowance to absorb losses in any category.

(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 is comprised of the amortized cost of loans delinquent 90 days or more, and nonaccrual loans, which includes the nonperforming portion of loan restructurings, and the carrying value of other real estate owned ("OREO") totaled $66.6 million at December 31, 2023, representing 0.57% of total assets, as compared to $8.4 million at December 31, 2022, representing 0.08% of total assets.

The Company’s level of nonperforming assets, which is comprised of 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 other real estate owned ("OREO") totaled $211.4 million at December 31, 2024, representing 1.90% of total assets, as compared to $66.6 million at December 31, 2023, representing 0.57% of total assets.

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

The Company had no accruing loans 90 days or more past due at December 31, 2023 or December 31, 2022.

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

The Company had no accruing loans that were 90 days or more past due at December 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 1.08% of total loans at December 31, 2023, is adequate to absorb expected credit losses within the loan portfolio at that date.

Total nonperforming loans amounted to an amortized cost of $65.5 million at December 31, 2023, representing 0.82% of total loans, compared to $6.5 million at December 31, 2022, representing 0.08% of total loans.

The increase was primarily attributable to the movement to nonaccrual of two income producing CRE loans with a total amortized cost of $38.6 million that are collateralized by office properties in Northern Virginia and received charge-offs of $9.3 million during the year ended December 31, 2023;

and one owner occupied CRE loan with an amortized cost balance of $19.1 million that is collateralized by an assisted living facility in Maryland.

The Company believes, based on its loan portfolio risk analysis that its ACL at 1.44% of total loans at December 31, 2024, is adequate to absorb expected credit losses within the loan portfolio at that date.

Total nonperforming loans had an amortized cost of $208.7 million at December 31, 2024, representing 2.63% 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 four income-producing commercial real estate loans and one owner-occupied commercial real estate loan.

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 restructurings 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.

In particular, the Company individually evaluates loans on nonaccrual, 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:

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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.

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.

Loans that do not share risk characteristics consistent with similar loans are evaluated on an individual basis.

For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date.

When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV from the operation of the collateral.

When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell.

When repayment is expected to be from

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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.

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.

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

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

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

The Company evaluates all loan modifications according to the accounting guidance to determine if the modification results in a new loan or a continuation of the existing loan.

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

Modifications with terms not as favorable to the Company as the terms for comparable loans to other customers with similar collection risk who are not refinancing or restructuring a loan with the Company and which have a direct impact on cash flows are considered modified loans to borrowers experiencing financial difficulty.

A loan that is considered a modified loan may be evaluated for disclosure if the commitment is $500 thousand or greater.

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.

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

Five loans received a weighted average interest rate reduction of approximately 2.56%.

As of December 31, 2023, four loans that were modified in the preceding twelve months, including one loan with an amortized cost of $4.4 million that was 30 to 89 days past due and three loans with a total amortized cost of $57.7 million that were on nonaccrual status, experienced a subsequent payment default as of December 31, 2023.

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.

As of December 31, 2024, the payment status of six loans that were modified in the preceding twelve months, which totaled $137.1 million of amortized cost basis, including two loans with an amortized cost basis of $5.4 million were 30 to 89 days past due, and the other four loans with a total amortized cost basis of $131.7 million were on nonaccrual status.

As of December 31, 2024, additional loans that were modified in the preceding twelve months which were performing under their modified terms totaled $264.7 million of amortized cost basis.

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;

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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 at December 31, 2023 is OREO of $1.1 million, consisting of 2 foreclosed properties.

Included in nonperforming assets at December 31, 2022 was OREO of $2.0 million, consisting of 4 foreclosed properties.

Included in nonperforming assets at December 31, 2024 is OREO of $2.7 million, consisting of five foreclosed properties, compared to OREO of $1.1 million, consisting of three foreclosed properties at December 31, 2023.

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

It is the Company's policy to generally 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.

There were two OREO sales in 2023 and one in 2022, generating proceeds of $987 thousand and $241 thousand, respectively.

The following table shows the amounts and relevant ratios 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:

Generally, the Company would obtain updated appraisals or evaluations 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.

There were two OREO sales in 2024 and two in 2023, generating proceeds of $656 thousand and $987 thousand, respectively.

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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) December 31, 2024 December 31, 2023

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Home equity 303 242

Other consumer — 50

Accrual loans-past due 90 days — —

Total nonperforming loans (1)

208,706 65,524

Other real estate owned 2,743 1,108

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Ratio of nonperforming assets to total assets 1.90 % 0.57 %

(1) Gross interest income of $4.2 million, and $558 thousand would have been recorded for 2023, and 2022, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans were $1.5 million, and $17 thousand at December 31, 2023 and 2022, respectively.

(1) Gross interest income of $8.8 million, and $4.2 million would have been recorded for 2024, and 2023, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while interest actually recorded on such loans was $4.1 million, and $1.5 million at December 31, 2024 and 2023, respectively.

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

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At December 31, 2024, there were $426.4 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.

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.

Other Earning Assets

The Company ceased originations of first lien residential mortgage loans for secondary sale during the three months ended March 31, 2023, and completed residual origination and sales activities as of June 30, 2023.

There were no residential mortgage loans held for sale at December 31, 2023, as compared to $6.7 million at December 31, 2022.

The Company’s general practice was to originate and sell such loans only on a “servicing released” basis in order to enhance noninterest income.

Bank owned life insurance at December 31, 2024 amounted to $115.8 million, as compared to $112.9 million at December 31, 2023.

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Intangible Assets

The Company recognizes a servicing asset for the computed value of servicing fees on the sales of multifamily FHA loans, the guaranteed portion of Small Business Administration ("SBA") loans and other loans sold with retained servicing

which is in excess of the normal servicing fees.

Assumptions related to loan term and amortization are made to arrive at the initial recorded value, which is included in intangible assets, net, on the Consolidated Balance Sheet.

For 2023, no excess servicing fees were recorded and $28 thousand was amortized as a reduction of actual service fees collected, which is a component of other income.

At December 31, 2023, the balance of excess servicing fees was $37 thousand.

For 2022, excess servicing fees of $67 thousand were recorded and $89 thousand was amortized as a reduction of actual service fees collected, which is a component of other income.

At December 31, 2022, the balance of excess servicing fees was $65 thousand.

The Company recognized a servicing asset for the computed value of servicing fees on the sales of multifamily FHA loans prior to selling those in 2024.

The Company currently recognizes a servicing asset for the guaranteed portion of Small Business Administration ("SBA") loans and other loans sold with retained servicing which is in excess of the normal servicing fees.

Assumptions related to loan term and amortization are made to arrive at the initial recorded value, which is included in intangible assets, net, on the Consolidated Balance Sheets.

At December 31, 2024 and 2023, the balance of excess servicing fees was $16 thousand and $37 thousand, respectively, and were amortized as a reduction of actual service fees collected, which is a component of other income.

In 2008, the Company recorded an unidentified intangible asset (goodwill) incident to the acquisition of Fidelity of $2.2 million.

In 2014, the Company recorded an initial amount of unidentified intangible (goodwill) incident to the acquisition of Virginia Heritage of approximately $102 million.

Refer to Note 7 to the Consolidated Financial Statements for information on the initial and current carrying values as well as additions and amortization.

During the second quarter of 2023, Management determined that the goodwill needed to be tested for impairment.

The determination was due to a triggering event which 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.

In accordance with its regular schedule for impairment testing, the Company performed a second qualitative assessment and quantitative impairment test that rolled forward its second quarter of 2023 testing on its only reporting unit as of December 31, 2023.

The method employed for the impairment testing was 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.

During the second quarter ended June 30, 2024, Management determined that a triggering event had occurred as a result of the share price trading under book value for more than four quarters due to changes in macroeconomic conditions and market volatility in the financial markets and the banking industry due to the impact from rising interest rates.

As a result of the triggering event, 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 2024.

The resulting calculations indicated that the fair value did not exceed the carrying amount of the Company's sole reporting unit as of May 31, 2024 which resulted in a determination that goodwill had become fully impaired.

The goodwill impairment charge of $104.2 million reduced fully the carrying value of the Company's

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goodwill as of May 31, 2024.

The impaired goodwill is primarily related to the acquisition of the Virginia Heritage Bank in October 2014.

The impairment charge did not impact our cash flows, liquidity ratios, core operating performance, or regulatory capital ratios.

The method employed to determine the fair value of the reporting unit was a combination of a risk-weighted income and market valuation methodologies, comprised of the discounted cash flow method, the guideline public company method and the guideline transaction method.

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

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

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.

Management continues to monitor economic conditions, as future events could result in new determinations of triggering events which would require additional impairment tests of the Company's only reporting unit.

Future events 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.

Refer to "Critical Accounting Policies" for additional details.

Refer to Note 7 to the Consolidated Financial Statements for information on the initial and current carrying values as well as additions and amortization.

Deposits and Other Borrowings

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The deposit base includes transaction accounts, time and savings accounts and 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 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.

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

The Federal Reserve announced in January 2024 that the BTFP will stop originating new loans on March 11, 2024, as scheduled.

The Federal Reserve also modified the terms of the program so that the interest rate for new loans will be no lower than the interest rate on reserve balances in effect on the day the loan is made.

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.

In January 2024, 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.

These loans were repaid in the fourth quarter of 2024.

For the year ended December 31, 2024, deposits were $9.1 billion as compared to $8.8 billion at December 31, 2023, an increase of 4%.

The increase was primarily attributable to a $1.4 billion increase in interest bearing time deposits, offset by a $871.7 million reduction in noninterest bearing deposits and a $326.7 million reduction in savings and money market accounts as a result of an increase of disintermediation driven primarily by an increase in interest rates.

The growth in interest bearing deposits was driven by the increased utilization of brokered deposits, particularly brokered time deposits, during the year ended December 31, 2023.

During the year ended December 31, 2023, brokered time deposits increased by approximately $998.0 million, while other interest bearing brokered deposits decreased by approximately $977.6 million.

Noninterest bearing deposits decreased $871.7 million or 28% to $2.3 billion at December 31, 2023 as compared to $3.2 billion at December 31, 2022, while interest bearing deposits decreased by $140.8 million, or 12%.

Within interest bearing deposits, money market and savings accounts collectively amounted to $3.3 billion at December 31, 2023, or 38% of total deposits, as compared to $3.6 billion, or 42% of total deposits, at December 31, 2022, a decrease of $326.7 million, or 9%.

The increase was primarily attributable to a $558.2 million increase in interest bearing time deposits and a $285.2 million increase in savings and money market accounts, offset by a $734.7 million reduction in noninterest bearing deposits.

These deposit changes were the result of growth in time deposits from the company's digital acquisition channel, partially offset by a decline in deposits from a third party payment processor related to the fluctuations in deposit levels resulting from its business, as well as declines in some public and brokered fundings.

Noninterest bearing deposits decreased $734.7 million or 32% to $1.5 billion at December 31, 2024 as compared to $2.3 billion at December 31, 2023, while interest bearing deposits increased by $499.5 million, or 12%.

Within interest bearing deposits, money market and savings accounts collectively amounted to $3.6 billion at December 31, 2024, or 39% of total deposits, as compared to $3.3 billion, or 38% of total deposits, at December 31, 2023, an increase of $285.2 million, or 9%.

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

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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.

Average total deposits for the year ended December 31, 2023 were $8.9 billion, as compared to $10.1 billion for the same period in 2022, a 12% decrease.

Average total deposits for the year ended December 31, 2024 were $9.5 billion, as compared to $8.9 billion for the same period in 2023, a 7% increase.

Time deposits were $2.8 billion at December 31, 2024, which was 30% of deposits.

This was an increase from $783.5 million at December 31, 2022, which was 9% of deposits.

The increase in time deposits was driven by an increased utilization of brokered time deposits.

This was an increase from $2.2 billion at December 31, 2023, which was 25% of deposits.

The increase in time deposits was driven by growth in the Company's digital acquisition channel.

The following table summarizes time deposits in excess of $250 thousand by maturity:

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Maturities of time deposits with balances of $250 thousand or more represented 19% and 17% of total deposits as of December 31, 2024 and 2023, respectively.

See Note 10 to the Consolidated Financial Statements for additional information regarding the maturities of time deposits and the Average Balances Table in the “Net Interest Income and Net Interest Margin” section for the average rates paid on interest-bearing deposits.

See Note 10 to the Consolidated Financial Statements for additional information

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regarding the maturities of time deposits and the Average Balances Table in the “Net Interest Income and Net Interest Margin” section for the average rates paid on interest-bearing deposits.

Time deposits of $250 thousand or more can be more volatile and more expensive than time deposits of less than $250 thousand.

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Additionally, the Bank participates in the CDARS and the ICS products, 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 December 31, 2023 was $1.7 billion (19% of total

deposits) as compared to $782.2 million (9% of total deposits) at December 31, 2022.

ICS also allows for the sale of deposits into the IntraFI Network (“One-Way Sale”) which provides FDIC insurance for the depositor without reciprocal deposits returned to the Bank.

Deposits sold through the IntraFi One-Way Sale process are not included in the Bank’s deposit totals.The sale of ICS deposits allows the Bank to moderate the fluctuation of deposit balances.

As of December 31, 2024, the Bank sold $115.3 million through the IntraFi One-Way Sale network.

The total of reciprocal deposits at December 31, 2024 was $1.4 billion (16% of total deposits) as compared to $1.7 billion (19% 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, (“IND”).

The Bank had $786.5 million and $1.1 billion of IND brokered deposits as of December 31, 2023 and 2022, respectively.

The Bank also is able to obtain one way CDARS deposits and participates in IntraFi’s Insured Network Deposit Program, (“IND”).

The Bank had $894.7 million and $786.5 million of IND brokered deposits as of December 31, 2024 and 2023, respectively.

However, to the extent that the condition or reputation of the Company or Bank deteriorates, or 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 with obtaining them in the future.

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

At December 31, 2023 and 2022, total deposits included $2.5 billion and $2.5 billion of brokered deposits (excluding the CDARS and ICS two-way accounts), which represented 28.8% and 28.8% of total deposits, respectively.

Brokered deposits comprised time deposits of $1.5 billion and $465.5 million, savings and money market accounts of $961.5 million and $1.3 billion, and interest-bearing transaction accounts of $108.2 million and $590.1 million at December 31, 2023 and 2022, respectively.

At December 31, 2023 and December 31, 2022, total deposits included estimated totals of $2.8 billion and $4.4 billion of uninsured deposits, which represented 31% and 51% of total deposits, respectively.

At December 31, 2024, total brokered deposits were $4.0 billion, or 43.61% of total deposits, of which $1.4 billion were attributable to CDARS and ICS two-way accounts.

At December 31, 2023, total brokered deposits (which did not include the CDARS and ICS two-way) were $2.5 billion, or 28.8% of total deposits.

These brokered deposits were comprised of savings, money market and other interest-bearing transaction accounts of $2.7 billion and $1.1 billion, and time deposits of $1.3 billion and $1.5 billion at December 31, 2024 and 2023, respectively.

The increase in the proportion of total deposits classified as brokered deposits reflected that CDARS and ICS two-way were included in brokered deposits at December 31, 2024.

The Company uses the Call Report definitions for regulatory reporting by the Bank to classify its deposits as brokered deposits.

At December 31, 2024 and 2023, total deposits included estimated totals of $2.2 billion and $2.8 billion of uninsured deposits, which represented 24% and 31% 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 December 31, 2024, the Company had $1.5 billion in noninterest bearing demand deposits, representing 17% of total deposits compared to $2.3 billion of noninterest bearing demand deposits at December 31, 2023, or 26% of total deposits.

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

The decrease in noninterest bearing demand deposits was offset by the increase in time deposits during the year ended December 31, 2024, due to continued elevated interest rates in 2024.

Average noninterest bearing deposits over total deposits for years ended December 31, 2024 and 2023 were 21% and 28%, respectively.

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At December 31, 2024, the Company had $2.8 billion in time deposits, an increase of $0.6 billion from year end December 31, 2023.

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.

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risk management and liquidity planning.

Throughout the year, the Bank raised rates in most of its time deposit accounts in response to the continued elevated interest rate environment.

The following tables summarize the Company's borrowings at December 31, 2024 and 2023 and activities on borrowings for the years ended December 31, 2024 and 2023:

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Customer repurchase agreements $ 33,157 $ — $ 33,157 2.67 %

FRB BTFP secured borrowings 1,300,000 — 1,300,000 4.53 %

Subordinated notes, 5.75%

Short-term borrowings:

FHLB 490,000 — 490,000 4.81 %

Long-term borrowings:

77,665 (1,557) 76,108 10.00 %

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Customer repurchase agreements $ 30,587 $ — $ 30,587 3.42 %

FHLB secured borrowings 975,001 — 975,001 4.57 %

Short-term borrowings:

FRB BTFP secured borrowings 1,300,000 — 1,300,000 4.53 %

Subordinated notes 70,000 (82) 69,918 5.75 %

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Customer repurchase agreements and federal funds purchased $ 37,872 $ 44,454 $ 36,663 $ 54,851

Short-term borrowings:

FHLB secured borrowings

FRB BTFP secured borrowings $ 971,507 $ 1,300,001 $ — $ —

$ 373,544 $ 601,100 $ 549,522 $ 1,770,156

BTFP secured borrowings

$ 1,103,005 $ 1,800,000 $ 971,507 $ 1,300,000

Subordinated notes, 5.75% $ 47,049 $ 70,000 $ 70,000 $ 70,000

Long-term borrowings:

$ 19,735 $ 77,665 $ — $ —

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(2) The average daily balance and maximum month-end balance are calculated on the principal balance on the borrowings.

Outstanding short-term advances and borrowings are part of the overall asset liability strategy 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 December 31, 2024 and 2023.

At December 31, 2023 and 2022, the Company had no outstanding balances and $975.0 million, respectively, of FHLB advances borrowed as part of the overall asset liability strategy.

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

Additionally, at December 31, 2023, the Company had a $1.3 billion one year fixed rate advance from the BTFP as part of the overall asset liability strategy and to support loan growth.

In January 2024, the Company borrowed an additional $500.0 million of BTFP financing and refinanced approximately $500.0 million at 4.76%, which mature in January 2025.

The remaining approximately $800.0 million matures in March 2024.

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

The subordinated notes outstanding at December 31, 2023 and 2022 consisted of 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.

For additional information on the Company’s subordinated notes, please refer to Note 12 to the Consolidated Financial Statements, as well as the “Capital Resources and Adequacy” section below.

At December 31, 2024 and 2023, the Company had outstanding balances of $490.0 million and $0.0 million, respectively, of FHLB advances borrowed as part of the overall asset liability strategy.

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

Additionally, at December 31, 2024, the Company had no advances outstanding under the BTFP, and $1.3 billion, outstanding at December 31, 2023.

In March, 2023, the Federal Reserve announced that it would make available additional funding to eligible depository institutions through the creation of a new BTFP, which provided eligible depository institutions, including the Company's subsidiary bank, EagleBank, an additional source of liquidity.

This program has ended as scheduled.

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The subordinated notes outstanding at December 31, 2023 comprised the Company's August 5, 2014 issuance of $70.0 million of subordinated notes, which matured and were repaid in September 2024.

On September 30, 2024, the Company closed a private placement of its 10.00% senior unsecured debt totaling $77.7 million maturing on September 30, 2029 (the "2029 Senior Notes" or "Original Notes").

At December 31, 2024, the carrying value of these 2029 Senior Notes was $76.1 million which reflected $1.6 million in unamortized deferred financing costs that are being amortized over the life of the 2029 Senior Notes.

In connection with the issuance of the 2029 Senior Notes, the Company also entered into a registration rights agreement dated September 30, 2024 with the purchasers of the 2029 Senior Notes (the “Registration Rights Agreement”).

Pursuant to the Registration Rights Agreement, the Company filed an exchange offer registration statement with the SEC to exchange the Senior Notes for substantially identical notes registered under the Securities Act (the "Exchange Notes").

The terms of the Exchange Notes are identical to the terms of the Original Notes, except that the transfer restrictions and registration rights applicable to the Original Notes do not apply to the Exchange Notes.

The Company completed the exchange offer on January 16, 2025.

CONTRACTUAL OBLIGATIONS

The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments except for its loan commitments, as shown in Note 20 to the Consolidated Financial Statements.

The Company has various financial obligations, including contractual obligations and commitments that may require future cash payments.

The following table shows details on these fixed and determinable obligations as of December 31, 2024, in the time period indicated.

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(1) Excludes accrued interest payable at December 31, 2024.

(2) Borrowed funds include customer repurchase agreements and other borrowings.

(3) The Bank has outstanding obligations under its current core data processing contract that expire in June 2029 and one other vendor arrangement that relates to network infrastructure and data center services that expires in December 2024.

(4) The Bank has the option of terminating the George Mason University ("George Mason") agreement at the end of contract years 10 and 15 (that is, effective June 30, 2025 or June 30, 2030).

Should the Bank elect to exercise its right to terminate the George Mason contract, contractual obligations would decrease $ 3.5 million and $ 3.6 million for the first option period (years 11 - 15 ) and the second option period ( 16 - 20 ), respectively.

(2) Borrowed funds include customer repurchase agreements and other short-term and long-term borrowings.

(3) The Bank has outstanding obligations under its current core data processing contract that expires in June 2029.

(4) The Bank has the option of terminating the George Mason University ("George Mason") agreement at the end of contract year 15 (that is, effective June 30, 2030).

Should the Bank elect to exercise its right to terminate the George Mason contract, its contractual obligation would decrease by $3.6 million for the option period (years 16-20).

(5) Low Income Housing Tax Credits (“LIHTC”) expected payments for unfunded affordable housing commitments.

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These commitments are subject to loan underwriting standards and geographic boundaries consistent with the Company’s loans outstanding.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.

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

Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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.

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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.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

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.

At December 31, 2024, approximately 71% of the dollar amount of standby letters of credit was collateralized.

Loan commitments outstanding and lines and letters of credit at December 31, 2024 and 2023 were as follows:

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Letters of credit 69,051 87,146

Interest rate lock commitments — 6,963

Total $ 1,475,489 $ 2,167,094

Unfunded loan commitments declined in 2024 by $663.2 million, as compared to 2023, as previously committed construction projects advanced toward completion, while new construction loan commitments during the year were limited as the Bank advanced its strategic goals.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance-sheet instruments.

See Note 19 to the Consolidated Financial Statements for a summary list of loan commitments at December 31, 2024 and 2023.

Loan commitments represent agreements to lend to a customer as long as there is no violation of any condition established in the contract and which have been accepted in writing by the borrower.

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

Since some of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained is based on management’s credit evaluation of the borrower.

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

Standby letters of credit are conditional commitments issued by the Company which guarantee the performance of a customer to a third party.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

Collateral held varies as specified above and is required in instances which the Company deems necessary.

At December 31, 2023, approximately 71% of the dollar amount of standby letters of credit was collateralized.

In connection with deposit guarantees, the Bank collateralizes certain public funds using qualified investment securities.

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As of December 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.

However, these securities can be utilized as pledged assets that provide secondary liquidity through the form of additional available borrowings.

Investment securities that are classified as held-to-maturity can also be used as collateral to pledge against additional borrowings.

These sources of liquidity are considered primary and 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.

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The following table summarizes the Company's secondary sources of liquidity in use and available at December 31, 2024:

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Secondary Sources of Liquidity in Use

Secondary Sources of Liquidity Available

Secondary Sources of Remaining Liquidity Available

Unsecured brokered deposits (1)

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FHLB secured borrowings

BTFP secured borrowings

490,000 874,270

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Customer repurchase agreements

Raymond James repurchase agreement

Unpledged assets:

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Investment securities

N/A 1,280,156

$ 1,622,226 $ 5,430,076

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Deposits at year end were $9.1 billion and $8.8 billion at December 31, 2024 and 2023, respectively.

The growth in interest bearing deposits was driven by the increased utilization of brokered deposits, particularly brokered time deposits, during the year ended December 31, 2023, as discussed in "Deposits and Other Borrowings" above.

Borrowings were $1.4 billion and $1.0 billion at December 31, 2023 and December 31, 2022, respectively.

The increase in borrowings was due to the utilization of BTFP borrowings during the year ended December 31, 2023.

The increase was primarily attributable to a $558.2 million increase in interest bearing time deposits, offset by a $734.7 million reduction in noninterest bearing deposits and a $285.2 million reduction in savings and money market accounts.

The growth in interest bearing deposits was driven by the increase in time deposit through the digital acquisition channel during the year ended December 31, 2024, as discussed in "Deposits and Other Borrowings" above.

Short-term borrowings were $0.5 billion and $1.4 billion at December 31, 2024 and December 31, 2023, respectively.

The decrease in short-term borrowings was due to the early retirement of BTFP borrowings during the fourth quarter of the year ended December 31, 2024 partially offset by an increase in FHLB borrowings.

Additionally, the Bank can purchase up to $145.0 million in federal funds on an unsecured basis from its correspondents, against which there were no amounts outstanding at December 31, 2024 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.1 billion, against which there was $73 million outstanding at December 31, 2024.

At December 31, 2024, the Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $894.7 million of brokered deposits.

At December 31, 2023, the Bank was also eligible to make advances from the FHLB up to $1.3 billion based on assets pledged as collateral to the FHLB, against which there was no outstanding amount as of December 31, 2023.

The Bank had FHLB borrowings of $975.0 million outstanding at December 31, 2022, which were repaid during the year ended December 31, 2023.

The Bank posted additional collateral to the FHLB during the year ended December 31, 2023 to increase its eligibility for advances to meet its ongoing liquidity needs and expects to continue utilizing this source of funding in the future.

At December 31, 2024, the Bank was also eligible to draw advances from the FHLB up to $1.4 billion based on assets pledged as collateral to the FHLB, against which the Bank borrowed $490.0 million as of December 31, 2024.

The Bank posted additional collateral to the FHLB during the year ended December 31, 2024 to increase its availability to meet its ongoing liquidity needs and expects to continue utilizing 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 December 31, 2023, the Bank had eligible collateral and borrowing capacity with the BTFP of $1.9 billion on assets that have been pledged, of which $1.3 billion was outstanding.

This alternative source of liquidity is being utilized for balance sheet optimization.

The Federal Reserve announced in January 2024 that the BTFP will stop originating new loans on March 11, 2024, as scheduled.

The Federal Reserve also modified the terms of the program so that the interest rate for new loans will be no lower than the interest rate on reserve balances in effect on the day the loan is made .

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 at an interest rate of 4.76% and a maturity in January 2025.

The remaining $800.0 million matures in March 2024.

Once the BTFP program terminates and in light of the changes to the BTFP's terms, we may be required to rely on other, potentially more expensive, sources of liquidity.

The Bank's aggregate borrowing capacity at December 31, 2023 was $2.2 billion, which consists of $1.9 billion of additional aggregate capacity to borrow from the FHLB and BTFP on assets that have been pledged.

The Bank also has unencumbered securities totaling approximately $292.3 million available for pledging to the FHLB or the BTFP for additional borrowing capacity.

The BTFP provided eligible depository institutions, including the Bank, an additional source of liquidity.

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.

During the year ended December 31, 2024, this alternative source of liquidity was being utilized for balance sheet optimization.

The Company repaid $500.0 million in November 2024, and the remaining $500.0 million was repaid in December 2024.

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

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

This facility, which amounts to approximately $601.5 million, is collateralized with specific loan assets identified to the Federal Reserve Bank.

It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.

This facility, which can be used to borrow up to $1.8 billion, is collateralized with specific loan assets identified to the Federal Reserve Bank.

During the third quarter, additional collateral in the form of acceptable loans was pledged to the Discount Window increasing available contingent capacity.

It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding

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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.

The loss of deposits, through disintermediation, is one of the greater risks to liquidity.

In total, the Bank's aggregate borrowing capacity at December 31, 2024 was $4.0 billion, which consists of $0.9 billion and $1.8 billion additional aggregate capacity to borrow from the FHLB and the Federal Reserve's Discount Window, respectively, on assets that have been pledged.

The Bank's aggregate borrowing capacity also includes unencumbered securities totaling approximately $1.3 billion available for pledging to the FHLB or Federal Reserve for additional borrowing capacity.

The loss of deposits, including through disintermediation, is one of the greater risks to liquidity.

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.

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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.

The mix of sources used in the year ended December 31, 2023 negatively impacted our net interest margin and earnings, as expected in an economic environment with rising interest rates.

The continuing elevated cost of funding negatively impacted our net interest margin.

In September 2024 and the fourth quarter of 2024, the Federal Reserve decreased interest rates by a total of 100 basis points, which had minimal impact on net interest margin for most of the year ended December 31, 2024.

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 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 2024.

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The Company believes it maintains sufficient primary and secondary sources of liquidity to fund its operations.

During the year ended December 31, 2023, average short term liquidity was $2.6 billion, which is above the Bank's average needs.

Secondary sources of liquidity at December 31, 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 December 31, 2023, the Company held total securities available to be pledged with a par balance of $292.3 million.

During the year ended December 31, 2024, average short term liquidity was $3.2 billion comprising interest bearing deposits with other banks and other short-term investments and AFS securities, which is above the Bank's average needs.

Secondary sources of liquidity at December 31, 2024 were $5.4 billion, which include the FHLB, other insured brokered deposit sweep programs, unpledged securities, Fed funds lines, and the FRB Discount Window.

At December 31, 2024, the Company held total securities available to be pledged with an estimated fair value of $1.3 billion.

At December 31, 2024, under the Bank’s liquidity formula, it had $6.8 billion of primary and secondary liquidity sources.

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Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios and may be required to hold higher levels of capital.

The Company, like many community banks, has in commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years.

Although growth in that segment over the past 36 months at 7% did not exceed the 50% threshold laid out in the regulatory guidance, we expect the heightened supervisory expectations to continue to apply to us given the federal banking regulators’ general focus on commercial real estate exposures at banks.

The Company, like many community banks, has commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years.

Although growth in that segment over the past 36 months at 26.8% did not exceed the 50% threshold laid out in the regulatory guidance, we expect the

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heightened supervisory expectations to continue to apply to us given the federal banking regulators’ general focus on commercial real estate exposures at banks.

At December 31, 2024, we did exceed the construction, land development, and other land acquisitions regulatory concentration threshold, and we continue to monitor our concentration in commercial real estate lending and remain in compliance with the guidance issued by the federal banking regulators.

Construction, land and land development loans represent 111% of total risk based capital.

Construction, land and land development loans represent 122.60% of consolidated risk based capital.

Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio.

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Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition.

If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits.

If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

At December 31, 2024, the capital position of the Company and its wholly owned subsidiary, the Bank, continue to exceed regulatory requirements and well-capitalized guidelines.

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The CET1 ratio is the Tier 1 capital ratio but excluding preferred stock.

If a bank is adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits.

If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

If a bank is not well-capitalized, interest rate restrictions apply.

The FRB and the FDIC have adopted the Basel III Rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S.

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See the “Regulation” section for additional information regarding regulatory capital requirements.

The Company’s capital position remained strong for the year ended December 31, 2023 as a result of continued earnings, continued improvements in economic conditions and strong asset quality.

As a result of the Company’s strong capital position and earnings, we were able to continue with our quarterly dividend.

The Company announced a regular quarterly cash dividend on December 19, 2023 of $0.45 per share to shareholders of record on January 11, 2024 and it was paid on January 31, 2024.

The Company’s capital ratios were all well in excess of guidelines established by the Federal Reserve Board and the Bank’s capital ratios were in excess of those required to be classified as a “well capitalized” institution under the prompt corrective action provisions of the Federal Deposit Insurance Act.

The Company’s and Bank’s capital ratios at December 31, 2023 and December 31, 2022 are shown in Note 21 to the Consolidated Financial Statements.

At December 31, 2024, the Company and the Bank met all these requirements.

The Company announced a regular quarterly cash dividend on January 22, 2025 of $0.165 per share to shareholders of record on February 7, 2025 and it was paid on February 21, 2025.

Bank and holding company regulations, as well as Maryland law, impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company.

See further detail In "Item 5 - Market for Registrant's Common Equity" section.

The ability of the Company to continue to grow is dependent on its earnings and those of the Bank, the ability to obtain additional funds for contribution to the Bank’s capital, through additional borrowings, through the sale of additional common stock or preferred stock or through the issuance of additional qualifying capital instruments, such as subordinated debt.

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See further detail at the “Regulation” and “Risk Factors” sections.

The Company’s capital ratios were all well in excess of requirements established by the Federal Reserve Board and the Bank’s capital ratios were in excess of those required to be classified as a “well capitalized” institution under the prompt

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corrective action provisions of the Federal Deposit Insurance Act.

The actual capital amounts and ratios for the Company and Bank as of December 31, 2024 and 2023 are presented in the table below:

Company Bank Minimum Required

Adequacy Purposes (1)

Corrective Action

Regulations (2)

(dollars in thousands) Actual

Amount Ratio Actual

As of December 31, 2024

CET1 capital (to risk weighted assets) $ 1,369,643 14.63 % $ 1,373,857 14.76 % 7.00 % 6.50 %

Total capital (to risk weighted assets) 1,484,420 15.86 % 1,488,635 16.00 % 10.50 % 10.00 %

Tier 1 capital (to risk weighted assets) 1,369,643 14.63 % 1,373,857 14.76 % 8.50 % 8.00 %

Tier 1 capital (to average assets) 1,369,643 10.74 % 1,373,857 10.82 % 4.00 % 5.00 %

As of December 31, 2023

CET1 capital (to risk weighted assets) $ 1,335,967 13.90 % $ 1,330,001 13.92 % 7.00 % 6.50 %

Total capital (to risk weighted assets) 1,421,347 14.79 % 1,415,381 14.81 % 10.50 % 10.00 %

Tier 1 capital (to risk weighted assets) 1,335,967 13.90 % 1,330,001 13.92 % 8.50 % 8.00 %

Tier 1 capital (to average assets) 1,335,967 10.73 % 1,330,001 10.72 % 4.00 % 5.00 %

(1) The risk-based ratios reflect the minimum requirement plus the capital conservation buffer of 2.50 %.

(2) Applies to Bank only

In December 2018, federal banking regulators issued a final rule that provides an optional three-year phase-in period for the adverse regulatory capital effects of adopting the CECL methodology pursuant to new accounting guidance for the recognition of credit losses on certain financial instruments, effective January 1, 2020.

In March 2020, the federal banking regulators issued an interim final rule that provides banking organizations with an alternative option to temporarily delay for two years the estimated impact of the adoption of the CECL methodology on regulatory capital, followed by the three-year phase-in period.

The cumulative amount that is not recognized in regulatory capital will be phased in at 25 percent per year beginning January 1, 2022.

We have elected to adopt the option provided by the March 2020 interim final rule.

IMPACT OF INFLATION AND CHANGING PRICES

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Refer to Note 1 to the Consolidated Financial Statements for New Authoritative Accounting Guidance and their expected impact on the Company’s Financial Statements.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis