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Item 2. Management’s Discussion and Analysis

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A") 
 The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of Eagle Bancorp, Inc. and its subsidiaries (collectively, the "Company") as of the dates and periods indicated. The Company’s primary subsidiary is EagleBank (the "Bank"), and the Company’s other direct and indirect active subsidiaries are Bethesda Leasing, LLC, Eagle Insurance Services, LLC and Landroval Municipal Finance, Inc. 
 This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report and MD&A in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. 
 Caution About Forward-Looking Statements . This report contains forward-looking statements. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements and are typically identified with words such as "may," "will," "can," "anticipates," "believes," "expects," "plans," "strategies," "outlook," "estimates," "potential," "assume," "probable," "possible," "continue," "should," "could," "would," "strive," "seeks," "deem," "projections," "forecast," "consider," "indicative," "uncertainty," "likely," "unlikely," "likelihood," "unknown," "attributable," "depends," "intends," "generally," "feel," "typically," "judgment," "subjective" and similar words or phrases. 
 For details on factors that could affect these expectations, see the risk factors contained in this report and the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and in other periodic and current reports filed by the Company with the Securities and Exchange Commission ("SEC"). These forward-looking statements are based largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements. The Company's past results are not necessarily indicative of future performance, and nothing contained herein is meant to or should be considered and treated as earnings guidance of future quarters' performance projections. All information is as of the date of this report. Any forward-looking statements made by or on behalf of the Company speak only as to the date they are made. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward-looking statement for any reason. 
 
 GENERAL 
 The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland. The Company provides general commercial and consumer banking services through the Bank, its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System ("Federal Reserve Board," "Federal Reserve" or "FRB"). 
 The Company was organized in October 1997 to be the holding company for the Bank. The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions that dominate the Company’s primary market area. The Company’s philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has a total of 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. 
 The Bank offers a broad range of commercial banking services to its business and professional clients, as well as full-service consumer banking services to individuals living and/or working primarily in the Bank's market area. The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, non-profit organizations and associations, and investors living and working in and near the primary service area. These services include the usual deposit functions of commercial banks, including business and personal checking accounts, "NOW" accounts and money market and savings accounts, business, construction, and commercial loans, consumer loans, and cash management services. The Bank is also active in the origination of Small Business Administration ("SBA") loans. The Bank generally sells the guaranteed portion of the SBA loans in a transaction apart from the loan origination generating noninterest income from the gains on sale, as well as servicing income on the portion participated. 
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 Up until the second half of 2024, the Company originated multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development's Multifamily Accelerated Program. The Company securitized these loans through the Government National Mortgage Association ("Ginnie Mae") MBS I program and sold the resulting securities in the open market to authorized dealers in the normal course of business and periodically bundled and sold the servicing rights. During the year ended December 31, 2024, the Company sold the remaining servicing rights to all multifamily FHA loans. However, the Company maintains its licenses to operate in this business and is evaluating options for future activity. 
 Bethesda Leasing, LLC, a subsidiary of the Bank, holds title to and manages other real estate owned ("OREO") assets. Landroval Municipal Finance, Inc., a subsidiary of the Bank, focuses on lending to municipalities by buying debt on the public market as well as direct purchase issuance. 
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES 
 The Company's Consolidated Financial Statements are prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the Consolidated Financial Statements; accordingly, as this information changes, the Consolidated Financial Statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 and Note 1 to the Consolidated Financial Statements included in this report. There have been no significant changes to the Company's accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. 
 Allowance for Credit Losses and Provision for Unfunded Commitments 
 A consequence of lending activities is that we incur credit losses, so we record an allowance for credit losses ("ACL") with respect to loan receivables and a reserve for unfunded commitments (“RUC”) as estimates of those losses. The amount of the ACL on loans is based on management's assessment of current expected credit losses ("CECL") in the portfolio. 
 The amount of such losses will vary depending upon the risk characteristics of the loan portfolio as affected by economic conditions such as changes in interest rates, the financial performance of borrowers and regional unemployment rates, which management estimates by using a national forecast and estimating a regional adjustment based on historical differences between the two. 
 Management has significant discretion in making the judgments inherent in the determination of the provisions for credit loss, ACL and the RUC. Our determination of these amounts requires significant reliance on estimates and significant judgment as to the amount and timing of expected future cash flows on loans, significant reliance on historical loss rates on homogenous portfolios, consideration of our quantitative and qualitative evaluation of economic factors and the reliance on our reasonable and supportable forecasts. 
 We estimate the ACL on loans using a quantitative model that uses a probability of default ("PD") / loss given default ("LGD") cash flow method with an exposure at default ("EAD") model to estimate expected credit losses for 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. 
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 The Company uses regression analysis of historical internal and peer data provided by a third-party service provider (as Company loss data is insufficient) to determine suitable loss drivers to utilize when modeling lifetime PD and LGD. This analysis also determines how expected PD will react to forecasted levels of the loss drivers. During the prior year, 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 RUC represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. The RUC is determined by estimating future draws and applying the expected loss rates on those draws. 
 The ACL also includes an amount for inherent risks not reflected in the historical analyses. Relevant factors reflected in the qualitative component of the reserve include, but are not limited to, concentrations of credit risk, appraisal risk from volatility in the market, 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. See Notes 1, 3 and 4 to the Consolidated Financial Statements, the “Provision for Credit Losses” and "Allowance for Credit Losses" sections below for more information on the provision for credit losses and ACL for the loan portfolio. 
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 RESULTS OF OPERATIONS 
 Three Months Ended March 31, 2025 Compared with Three Months Ended March 31, 2024 
 Overview 
 Net income for the three months ended March 31, 2025 was $1.7 million, as compared to net loss of $0.3 million, for the same period in 2024. This increase was primarily attributable to lower provision for credit losses and higher noninterest income, partially offset by lower net interest income and higher noninterest expense during the current period. See the discussion below for more information on these drivers and the components of these changes. 
 Net interest income decreased to $65.6 million for three months ended March 31, 2025 compared to $74.7 million for the three months ended March 31, 2024. The net interest margin, which measures the difference between interest income and interest expense as a percentage of earning assets, was 2.28% for three months ended March 31, 2025 and 2.43% for three months ended March 31, 2024, a decrease of 15 basis points. For further information on the components and drivers of these changes, see the "Net Interest Income and Net Interest Margin" section below. 
 Total noninterest income in three months ended March 31, 2025 was $8.2 million, as compared to $3.6 million in three months ended March 31, 2024, a 129% increase, primarily driven by higher income from bank owned life insurance (“BOLI”) during the current period. See "Other Earnings Assets" section below for further discussion on BOLI. 
 The provision for credit losses in the three months ended March 31, 2025 was $26.3 million as compared to $35.2 million in three months ended March 31, 2024. For information on the components and drivers of these changes see "Provision for Credit Losses" section below. 
 Noninterest expenses in three months ended March 31, 2025 totaled $45.5 million, as compared to $40.0 million for the same period in 2024, a 14% increase. The increase was primarily attributable to higher FDIC insurance assessments during the current period. Additional details on these expenses and other noninterest expenses are provided in "Noninterest Expense" section below. 
 The efficiency ratio, which measures the ratio of noninterest expense to total net revenue (the sum of net interest income and non-interest income), was 61.54% for three months ended March 31, 2025 as compared to 51.09% for same period in 2024. 
 In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, represented 68% and 65% of average earning assets for three months ended March 31, 2025 and 2024, respectively. For three months ended March 31, 2025, as compared to same period in 2024, average loans, excluding loans held for sale, decreased by $55.2 million, or 1%, driven by payoffs and paydowns that outpaced originations and advances. 
 Average investment securities for three months ended March 31, 2025 were 19% of average earning assets compared to 20% for same period in 2024. The combination of federal funds sold and interest bearing deposits with other banks represented 12% and 15% of average earning assets for three months ended March 31, 2025 and 2024, respectively. 
 The ratio of common equity to total assets was relatively flat at 11.00% as of March 31, 2025, compared to 11.02% as of December 31, 2024. For three months ended March 31, 2025, the return on average assets (“ROAA”) was 0.06%, as compared to (0.01)% for same period in 2024. Total shareholders’ equity was $1.24 billion as of March 31, 2025 as compared to $1.23 billion as of December 31, 2024, an increase of 2%. The return on average common equity (“ROACE”) for three months ended March 31, 2025 was 0.55% as compared to (0.11)% for same period in 2024. 
 
 Net Interest Income and Net Interest Margin 
 Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. 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 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. 
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 Net interest income for the three months ended March 31, 2025 was $65.6 million compared to $74.7 million for the same period in 2024. The 12% decrease for the three months ended March 31, 2025 as compared to the three months ended March 31, 2024 was primarily due to increases in average deposits ($8.0 billion compared to $7.4 billion, respectively) offset by decreases in average deposit rates (3.91% compared to 4.29%, respectively), and by a decrease in the level of other short term borrowings ($682.2 million compared to $1.8 billion, respectively) partially offset by an increase in the interest rate paid on other short-term borrowings (5.19% compared to 4.75%, respectively). Additionally, average loan balances ($7.9 billion compared to $8.0 billion, respectively) and yields (6.45% compared to 6.95%, respectively) were slightly lower. 
 Net interest margin decreased by 15 basis points to 2.28% in three months ended March 31, 2025 from 2.43% in three months ended March 31, 2024. The decrease reflects the increase in deposits and related cost of funds and the decrease in the yield on loans. The cost of funds on interest-bearing liabilities decreased 23 basis points from 3.58% in three months ended March 31, 2024 to 3.35% in three months ended March 31, 2025, while the yield on interest-earning assets decreased by 35 basis points from 5.71% in three months ended March 31, 2024 to 5.36% in three months ended March 31, 2025. 
 Average loans held for investment were $7.9 billion for the three months ended March 31, 2025, compared to $8.0 billion for the same period in 2024. Average investment securities were $2.3 billion for the three months ended March 31, 2025, compared to $2.5 billion for the same period in 2024. Average interest-bearing deposits with other banks and other short term investments were $1.4 billion for three months ended March 31, 2025 compared to $1.8 billion for the same period in 2024. Interest income on loans, the largest component of interest income on earning assets, had a yield of 6.45% in three months ended March 31, 2025, compared to 6.95% in same period in 2024, a decrease of 50 basis points. 
 Average interest-bearing deposits increased from $7.4 billion in the three months ended March 31, 2024 to $8.0 billion in the three months ended March 31, 2025, while average noninterest bearing demand deposits decreased to $1.9 billion for the three months ended March 31, 2025 from $2.1 billion for the three months ended March 31, 2024. 
 Average borrowings decreased from $1.8 billion in the three months ended March 31, 2024 to $0.8 billion in the three months ended March 31, 2025. 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 three months ended March 31, 2025 and 2024. Included in the table are measurements of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities. While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin, together with net interest income, provides a better measurement of performance. The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation. Net interest margin is net interest income expressed as a percentage of average earning assets. 
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 Eagle Bancorp, Inc. 
 Consolidated Average Balances, Interest Yields And Rates (Unaudited) 
 (dollars in thousands) 
 
 Three Months Ended March 31, 
 2025 
 2024 
 Average
Balance Interest Average
Yield /
Rate Average
Balance Interest Average
Yield /
Rate 
 Assets 
 Interest earning assets: 
 Interest bearing deposits with other banks and other short-term investments $ 1,445,054 $ 15,803 4.44 % $ 1,841,771 $ 24,862 5.43 % 
 Loans held for sale 169 — — % — — — % 
 Loans (1) (2) 
 7,933,695 126,136 6.45 % 7,988,941 137,994 6.95 % 
 Investment securities available-for-sale (2) 
 1,321,954 6,857 2.10 % 1,516,503 7,247 1.92 % 
 Investment securities held-to-maturity 933,880 5,055 2.20 % 1,011,231 5,433 2.16 % 
 Federal funds sold 5,410 27 2.02 % 7,051 66 3.76 % 
 Total interest earning assets $ 11,640,162 $ 153,878 5.36 % $ 12,365,497 $ 175,602 5.71 % 
 
 Noninterest earning assets 596,585 508,987 
 Less: allowance for credit losses 118,557 90,014 
 Total noninterest earning assets $ 478,028 $ 418,973 
 Total Assets $ 12,118,190 $ 12,784,470 
 
 Liabilities and Shareholders’ Equity 
 Interest bearing liabilities: 
 Interest bearing transaction $ 1,368,609 $ 9,908 2.94 % $ 1,833,493 $ 16,830 3.69 % 
 Savings and money market 3,682,217 32,389 3.57 % 3,423,388 35,930 4.22 % 
 Time deposits 2,951,111 34,914 4.80 % 2,187,320 26,623 4.90 % 
 Total interest bearing deposits 8,001,937 77,211 3.91 % 7,444,201 79,383 4.29 % 
 Customer repurchase agreements and federal funds purchased 36,572 260 2.88 % 36,084 315 3.51 % 
 Other short-term borrowings 
 682,222 8,733 5.19 % 1,796,863 21,206 4.75 % 
 Long-term borrowings 76,146 2,025 10.79 % — — — % 
 Total interest bearing liabilities $ 8,796,877 $ 88,229 4.07 % $ 9,277,148 $ 100,904 4.37 % 
 
 Noninterest bearing liabilities: 
 Noninterest bearing demand 1,881,296 2,057,460 
 Other liabilities 197,212 160,206 
 Total noninterest bearing liabilities $ 2,078,508 $ 2,217,666 
 
 Shareholders’ equity 1,242,805 1,289,656 
 Total Liabilities and Shareholders’ Equity $ 12,118,190 $ 12,784,470 
 
 Net interest income $ 65,649 $ 74,698 
 Net interest spread 1.29 % 1.34 % 
 Net interest margin 2.28 % 2.43 % 
 Cost of funds 3.35 % 3.58 % 

 
 (1) Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $3.8 million and $5.1 million, for the three months ended March 31, 2025, and 2024, respectively. 
 (2) Interest and fees on loans and investments exclude tax equivalent adjustments. 
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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 period indicated, as allocated between the change in net interest income due to changes in the volume of average earning assets and interest bearing liabilities, and the changes in net interest income due to changes in interest rates. 
 
 Three Months Ended March 31, 2025 Compared with 
 Three Months Ended March 31, 2024 
 
 (dollars in thousands) Change
Due to
Volume Change
Due to
Rate Total
Increase
(Decrease) 
 Interest earned on: 
 Loans $ (954) $ (10,904) $ (11,858) 
 
 Investment securities available-for sale (930) 541 (389) 
 Investment securities held-to-maturity (416) 38 (378) 
 Interest bearing bank deposits (5,355) (3,704) (9,059) 
 Federal funds sold (15) (24) (39) 
 Total interest income $ (7,670) $ (14,053) $ (21,723) 
 
 Interest paid on: 
 Interest bearing transaction $ (4,267) $ (2,655) $ (6,922) 
 Savings and money market 2,717 (6,258) (3,541) 
 Time deposits 9,296 (1,005) 8,291 
 Customer repurchase agreements 4 (59) (55) 
 Other short-term borrowings (12,201) 765 (11,436) 
 Long-term borrowings 92 896 988 
 Total interest expense $ (4,359) $ (8,316) $ (12,675) 
 Net interest income $ (3,311) $ (5,737) $ (9,048) 

 
 
 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 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. 
 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. Also, refer to the table in the "Allowance for Credit Losses" section which reflects activity in the ACL. 
 The provision for credit losses on loans for the three months ended March 31, 2025 was $26.3 million and there were $11.2 million of net charge offs in its ACL compared to $35.2 million and $21.4 million respectively, during the same period in 2024. 
 The change in the provision for credit losses on the loan portfolio for the three months ended March 31, 2025 was primarily attributable to the replenishment of the reserve following net charge-offs of $11.2 million, as mentioned above, and an increase in the qualitative overlay. The increase in the overlay relates to updated assumptions associated with the probability of default and probability of loss associated with commercial real estate office loans. For a discussion of the adverse effects changes in government spending and the size of the federal workforce have had on our loan portfolio and provision for credit losses, and the associated risks of future increases in our provision for credit losses from these or further such changes, see "Item 1A. Risk Factors" below. 
 The provision for credit losses for the held-to-maturity securities portfolio was recorded primarily on several corporate bonds. During the three months ended March 31, 2025, there was a reversal of provision for credit losses of $54 thousand for the held-to-maturity securities portfolios, compared to a provision expense of $1 thousand for the three months ended March 31, 2024. 
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 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 $297 thousand in three months ended March 31, 2025, compared to a provision expense of $456 thousand in three months ended March 31, 2024, primarily due to lower unfunded commitments in our construction portfolio during the current period. 
 
 Noninterest Income 
 Noninterest income includes service charges on deposits, gain on sale of investment securities, income from BOLI and other income. The following table summarizes the comparative noninterest income for the three months ended March 31, 2025 and 2024: 
 
 Three Months Ended March 31, 
 (dollars in thousands) 2025 2024 Dollar Change Percent Change 
 Service charges on deposits $ 1,743 $ 1,699 $ 44 3 % 
 
 Net loss on sale of investment securities 4 4 — — % 
 Increase in the cash surrender value of bank-owned life insurance 4,282 703 3,579 509 % 
 Other income 2,178 1,183 995 84 % 
 Total $ 8,207 $ 3,589 $ 4,618 129 % 

 Total noninterest income for the three months ended March 31, 2025 was $8.2 million as compared to $3.6 million for the three months ended March 31, 2024. This 129% increase was primarily driven by a new BOLI investment of $200 million in the quarter ended March 31, 2025. 
 
 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 assessments and other expenses. The following table summarizes the comparative noninterest expense for the three months ended March 31, 2025 and 2024: 
 
 Three Months Ended March 31, 
 
 (dollars in thousands) 2025 2024 Dollar Change Percent Change 
 Salaries and employee benefits $ 21,968 $ 21,726 $ 242 1 % 
 Premises and equipment expenses 3,203 3,059 144 5 % 
 Marketing and advertising 1,371 859 512 60 % 
 Data processing 3,978 3,293 685 21 % 
 Legal, accounting and professional fees 3,122 2,507 615 25 % 
 FDIC insurance 8,962 6,412 2,550 40 % 
 
 
 Other expenses 2,847 2,141 706 33 % 
 Total $ 45,451 $ 39,997 $ 5,454 14 % 

 Total noninterest expense was $45.5 million for the three months ended March 31, 2025, as compared to $40.0 million for the three months ended March 31, 2024. This 14% increase was primarily due to higher FDIC deposit insurance assessments during the current period. FDIC insurance expense was $9.0 million for the three months ended March 31, 2025 as compared to $6.4 million for same period in 2024, an increase of $2.5 million, or 40%. 
 The major components of other expenses include regulatory assessment fees, director compensation, real estate taxes, and insurance expenses. Other expenses were $2.8 million for three months ended March 31, 2025 as compared to $2.1 million for same period in 2024, an increase of 33%. The increase in three months ended March 31, 2025, as compared to 2024, was primarily due to an increase in real estate taxes. 
 The efficiency ratio, which measures the ratio of noninterest expense to total net revenue, was 61.54% for the three months ended March 31, 2025 as compared to 51.09% for the same period in 2024. This increase in the efficiency ratio was primarily driven by higher FDIC insurance, as discussed above, and a decrease in net interest income . 
 As a percentage of average assets, total noninterest expense (annualized) was 1.52% for the three months ended March 31, 2025 as compared to 1.26% for the same period in 2024. The increase for the three months ended March 31, 2025 as compared to the same period 2024 was primarily due to a decrease in average interest earning assets and an increase in FDIC assessment. 
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 Income Tax Expense 
 Income tax expense was $772 thousand for the three months ended March 31, 2025 as compared to $3.0 million for the three months ended March 31, 2024. The decrease in the income tax provisions was primarily driven by a decrease in the pre-tax income, and lower tax expense related to the vesting of stock-based compensation. 
 The effective tax rate for the three months ended March 31, 2025 was 31.5%. The effective tax rate for the first three months of 2025 varies from the 21% statutory rate primarily due to the tax expense related to the excess initial fair values of stock awards that were expensed compared to the fair market value at vesting, net with the tax benefit of tax-exempt interest income and tax-exempt income from the increase in the cash surrender value of BOLI. 
 
 BALANCE SHEET ANALYSIS 
 Overview 
 Total assets as of March 31, 2025 were $11.3 billion as compared to $11.1 billion as of December 31, 2024, a 2% increase. The increase in total assets from December 31, 2024 to March 31, 2025 was primarily driven by an increase in BOLI asset due to additional insurance coverage purchased in the current period. See "Other Earnings Assets" section below for further discussion on BOLI. 
 Total loans held for investment at amortized cost basis, the largest component of assets, were approximately $7.94 billion as of March 31, 2025, and remained relatively flat as compared to $7.93 billion as of December 31, 2024. There was $15.3 million in loans held for sale as of March 31, 2025 and none as of December 31, 2024. 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 $2.25 billion as of March 31, 2025 as compared to $2.35 billion as of December 31, 2024, a $93.0 million or 4% decrease. This decrease was primarily driven by maturities and paydowns of investment securities. 
 In terms of funding, total deposits as of March 31, 2025 were $9.3 billion as compared to $9.1 billion as of December 31, 2024, an increase of 2%. Total borrowed funds (excluding customer repurchase agreements) were $566.2 million and $566.1 million as of March 31, 2025 and December 31, 2024, respectively. The components and drivers of the change are discussed in the "Deposits and Other Borrowings" section below. 
 Total shareholders’ equity as of March 31, 2025 was $1.24 billion as compared to $1.23 billion as of December 31, 2024, a 2% increase. The increase in shareholders’ equity in 2025 was primarily from the net income from operations, partially offset by payment of cash dividends. The ratio of common equity to total assets was 11.00% as of March 31, 2025 as compared to 11.02% as of December 31, 2024. Book value per share was $40.99 as of March 31, 2025, a 1.0% increase over $40.60 as of December 31, 2024. 
 In addition, the tangible common equity ratio was 11.00% as of March 31, 2025, compared to 11.02% as of December 31, 2024. Tangible book value per share was $40.99 as of March 31, 2025, a 1.0% increase from $40.59 as of 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. 
 In order to be considered well-capitalized, the Bank must have a CET1 risk based capital ratio of 6.5%, a Tier 1 risk-based ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. The Company and the Bank exceed all these requirements and satisfy the capital conservation buffer of 2.5% of CET1 capital. Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses. 
 The Company's capital ratios remain substantially in excess of regulatory minimums and buffer requirements. The total risk based capital ratio was 15.86% as of March 31, 2025 and December 31, 2024. The common equity tier one capital ("CET1") risk based capital ratio was 14.61% as of March 31, 2025, as compared to 14.63% as of December 31, 2024. The tier 1 risk based capital ratio was 14.61% as of March 31, 2025, as compared to 14.63% as of December 31, 2024. The tier 1 leverage ratio was 11.11% as of March 31, 2025, as compared to 10.74% as of December 31, 2024. 
 
 Loan Portfolio 
 In its lending activities, the Company seeks to develop and expand relationships with clients whose businesses and individual banking needs will grow with the Bank. 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. 
 47 

 
 

 Loans outstanding were $7.94 billion as of March 31, 2025, as compared to $7.93 billion as of December 31, 2024, an increase of $8.4 million or 0.1%. The loan portfolio mix continues to evolve as the Bank has experienced a reduction in commercial loans and owner-occupied construction loans, offset by increases in owner-occupied commercial real estate loans and fundings of ongoing construction projects for commercial and residential properties. Market rates year to date in 2025 for our new loan originations on average have been fairly consistent with the market rates at the end of 2024, since short-term interest rates remained unchanged in the first quarter of 2025. 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 March 31, 2025. Non-owner occupied commercial real estate represented 64% of the loan portfolio while the remaining 19% is represented by the "owner occupied-commercial real estate" and "construction–C&I (owner occupied)" loans. 
 Loans, net of amortized deferred fees and costs, as of March 31, 2025 and December 31, 2024 by major category are summarized below. 
 
 March 31, 2025 
 December 31, 2024 
 
 (dollars in thousands) Amount % Amount % 
 Commercial $ 1,178,343 15 % $ 1,183,341 15 % 
 PPP loans 226 — % 287 — % 
 Income producing - commercial real estate 3,967,124 49 % 4,064,846 51 % 
 Owner occupied - commercial real estate 1,403,668 18 % 1,269,669 16 % 
 Real estate mortgage - residential 48,821 1 % 50,535 1 % 
 Construction - commercial and residential 1,210,788 15 % 1,210,763 15 % 
 Construction - C&I (owner occupied) 83,417 1 % 103,259 1 % 
 Home equity 50,121 1 % 51,130 1 % 
 Other consumer 798 — % 1,058 — % 
 Total loans $ 7,943,306 100 % $ 7,934,888 100 % 
 Less: allowance for credit losses (129,469) (114,390) 
 Loans, net (1) 
 $ 7,813,837 $ 7,820,498 

 
 (1) Excludes accrued interest receivable of $41.9 million and $42.9 million as of March 31, 2025 and December 31, 2024, 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. 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. 
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 The Company's concentration in the Washington, D.C. metro area, includes "Washington's Maryland Suburbs," which comprise Frederick, Prince George's and Montgomery counties and "Northern Virginia," which comprises Alexandria, Arlington, Falls Church, Fairfax, Loudoun and Prince William counties. As of March 31, 2025, 31.1%, 26.9%, 23.1%, 6.1%, and 12.8% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively. As of December 31, 2024, 31.3%, 27.4%, 23.9%, 5.8% and 11.6% of the loan portfolio, as a percentage of total amortized cost, was concentrated in Washington D.C., Washington's Maryland Suburbs, Northern Virginia, other counties in Maryland and other locations in the United States, respectively. While we remain cautious with regard to CRE market conditions, principally office, the strength of the Washington D.C. metro area in certain sectors, particularly multi-family commercial real estate and the housing market, continue to drive premiums for well-located properties. 
 As part of its lending strategy, the Company maintains a substantial portfolio of CRE loans, with $6.5 billion and $6.5 billion, or 81.8% and 81.5% of total loans, of amortized cost outstanding as of March 31, 2025 and December 31, 2024, respectively. Management meets regularly in order to monitor its existing CRE loan portfolio and to evaluate the pipeline for CRE loan investment. Income producing CRE loans collateralized by office properties comprised approximately $847.7 million and $862.2 million, or 10.7% and 10.9% of total loans, as of March 31, 2025 and December 31, 2024, respectively. 
 Office loans within Washington D.C., Washington's Maryland Suburbs and Northern Virginia were $792.9 million and $795.0 million, or 10.0% and 10.0% of total loans, as of March 31, 2025 and December 31, 2024, respectively. As a percentage of total principal balance of income producing - CRE office loans, 39.0%, 35.4%, 15.1%, and 10.5% 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, as of March 31, 2025. 
 The following table summarizes the Company's income producing - commercial real estate loans, at principal, by collateral location and type, as of March 31, 2025: 
 
 
 
 Maryland 
 Virginia 
 
 (dollars in thousands) 
 Washington D.C. 
 Washington Suburbs 
 Other 
 Northern Virginia 
 Other 
 Other 
 Total 
 Percent of Total 
 
 Collateral Type: 
 
 Hotel & motel 
 $136,937 $75,367 $101,822 $60,223 $— $21,348 $ 395,697 11% 
 Industrial 
 868 72,053 40,169 36,311 19,549 — 168,950 5% 
 Mixed use 
 280,673 43,185 371 54,335 25,647 4,954 409,165 10% 
 Multifamily 
 394,167 192,170 310 117,593 84,666 48,137 837,043 21% 
 Office 
 217,505 327,144 4,229 249,765 50,625 — 849,268 21% 
 Retail 
 78,207 95,840 60,324 73,820 64,883 1,282 374,356 9% 
 Single / 1-4 Family & Res. Condo 
 66,583 2,087 2,088 10,032 6,427 4,029 91,246 2% 
 Other 
 179,710 175,491 28,280 418,377 8,366 38,899 849,123 21% 
 Total 
 $1,354,650 $983,337 $237,593 $1,020,456 $260,163 $118,649 $3,974,848 100% 
 Percent of total 
 34% 25% 6% 26% 6% 3% 100% 
 Percent of Principal by Loan Size: 
 
 Less than $1 million 
 2 % 2 % 2 % 1 % 2 % 2 % 
 $1 million to $5 million 
 9 % 10 % 21 % 8 % 11 % 16 % 
 $5 million to $10 million 
 7 % 7 % 21 % 5 % 13 % 31 % 
 $10 million to $25 million 
 20 % 13 % 25 % 37 % 39 % 20 % 
 $25 million to $50 million 
 46 % 29 % 31 % 37 % 35 % 31 % 
 Greater than $50 million 
 16 % 39 % — % 12 % — % — % 
 Total 
 100 % 100 % 100 % 100 % 100 % 100 % 
 

 As of March 31, 2025 and December 31, 2024, $302.0 million and $287.0 million, respectively, of principal of CRE loans collateralized by office properties were criticized or classified. 
 The Company is exploring ways to optimize its balance sheet to reduce the Company’s commercial real estate loan concentration, including ways to reduce exposure to short- and intermediate-term valuation risks for its office loans. There is no assurance that the Company will decide to seek to implement, or ultimately implement, any balance sheet optimization strategy, and any strategy the Company decides to pursue may not be successful. In addition, future decisions the Company makes in connection with its balance sheet optimization efforts could result in higher credit costs and could also have a material impact 
 49 

 
 

 on our financial condition and results of operations in the period or periods any relevant decisions are made or strategies implemented. 
 
 Loan Maturity 
 The following table sets forth the time to contractual maturity of the loan portfolio as of March 31, 2025. 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. 
 
 March 31, 2025 
 
 (dollars in thousands) Total One Year or Less (1) 
 Over One Year to Five Years Over Five Years to Fifteen Years Over Fifteen Years 
 Commercial $ 1,178,343 $ 471,435 $ 579,950 $ 124,099 $ 2,859 
 PPP loans 226 226 — — — 
 Income producing - commercial real estate (2) 
 3,967,124 1,808,583 1,930,099 228,442 — 
 Owner occupied - commercial real estate 1,403,668 223,286 575,023 338,255 267,104 
 Real estate mortgage - residential 48,821 13,056 26,602 367 8,796 
 Construction - commercial and residential 1,210,788 628,422 549,177 3,591 29,598 
 Construction - C&I (owner occupied) 83,417 27,410 6,832 9,810 39,365 
 Home equity 50,121 1,980 731 1,604 45,806 
 Other consumer 798 649 12 — 137 
 Total loans $ 7,943,306 $ 3,175,047 $ 3,668,426 $ 706,168 $ 393,665 
 
 Loans with: 
 Predetermined fixed interest rate $ 2,953,021 $ 895,243 $ 1,602,736 $ 390,215 $ 64,827 
 Floating or adjustable interest rate 4,990,285 2,279,804 2,065,690 315,953 328,838 
 Total loans $ 7,943,306 $ 3,175,047 $ 3,668,426 $ 706,168 $ 393,665 

 
 (1) Income producing CRE office loans with total principal of $849.3 million and multifamily loans with total principal of $837.0 million as of March 31, 2025 are included within income producing - commercial real estate. The charts below represent their maturities schedules. 
 
 50 

 
 
 

 Allowance for Credit Losses 
 The ACL is an estimate based on many factors which reflect management’s assessment of the risk in the loan portfolio. Those factors include economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio and internal loan processes of the Company and Bank. A full discussion of the accounting for ACL is contained in Note 1 to the Consolidated Financial Statements and activity in the ACL is contained in Note 4 to the Consolidated Financial Statements. Also, refer to “Critical Accounting Policies and Estimates” above 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” above for a discussion of the Company's calculation of the provision for credit losses during the three months ended March 31, 2025 and 2024. 
 The ACL for loans as of March 31, 2025 was $129.5 million, which reflected a $15.1 million increase from $114.4 million as of December 31, 2024, reflecting a provision for credit losses of $26.3 million and $11.2 million in net charge-offs during the three months ended March 31, 2025. Net charge-offs of $11.2 million during three months ended March 31, 2025 represented 0.57% of average loans held for investment, a decrease from net charge-offs of $21.4 million during same period in 2024, which represented 1.07% of average loans held for investment. Net charge-offs during the three months ended March 31, 2025, included $11.0 million of charge offs on three CRE office lending relationships. The ACL represented 1.63% of total loans as of March 31, 2025 as compared to 1.44% as of December 31, 2024. As of March 31, 2025, the allowance represented 65% of nonperforming loans as compared to 55% as of December 31, 2024. 
 As part of its comprehensive loan review process, the Bank’s Risk Committee evaluates loans which are past due 30 days or more. The Committee makes an assessment of the conditions and circumstances surrounding delinquent and potential problem loans. The Bank’s loan policy requires that loans be placed on nonaccrual if they are 90 days past due or if their collection is deemed to be doubtful, unless they are well secured and in the process of collection. The Credit Administration department analyzes the status of development and construction projects, including sales activities and utilization of interest reserves in order to assess potential increased levels of risk which may require additional reserves. 
 The Company believes it has taken a prudent posture with respect to risk rating its loan portfolio. As of March 31, 2025 and December 31, 2024, loans rated special mention had an amortized cost of $272.9 million and $244.8 million, respectively, and loans rated substandard had an amortized cost of $501.6 million and $426.4 million, respectively. The increase in special mention loans was primarily attributable to additions in C&I loans and income producing - commercial real estate and commercial loans. The increases in substandard loans were primarily attributable to additions in CRE loans, particularly in income producing - commercial real estate and owner-occupied - commercial real estate loans. As of March 31, 2025, 100% and 51% of special mention and substandard loans, respectively, were current. Based upon their status as potential problem loans, loans risk rated special mention or substandard receive heightened scrutiny and ongoing intensive risk management. Additionally, the Company's loan loss allowance methodology incorporates increased reserve factors for certain loans considered potential problem loans as compared to the general portfolio. 
 Management, being aware of the loan growth experienced by the Bank and the risks facing CRE, is intent on maintaining strong portfolio management and a strong risk rating process. The Bank provides analysis of credit requests and the management of problem credits. The Bank has developed and implemented analytical procedures for evaluating credit requests, has refined the Company’s risk rating system and has adopted enhanced monitoring of the loan portfolio and the adequacy of the ACL, in particular on its CRE and construction loans (including those collateralized by office properties). These analyses include stress testing. Additionally, fair value assessments of loans acquired are included in our analytical procedures. The loan portfolio analysis process is ongoing and proactive to support the Company's objective of maintaining a portfolio of quality credits and quickly identifying weaknesses before they become more severe. 
 As of March 31, 2025 and December 31, 2024, 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 5.78% and 3.81%, respectively. 
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 The following table sets forth activity in the allowance for credit losses: 
 
 Three Months Ended March 31, 
 (dollars in thousands) 2025 
 2024 
 Balance at beginning of period 
 $ 114,390 $ 85,940 
 Charge-offs: 
 Commercial (270) (496) 
 Income producing - commercial real estate (6,170) (20,943) 
 Owner occupied - commercial real estate (4,862) — 
 
 Construction - commercial and residential — (129) 
 
 Other consumer (4) (1) 
 Total charge-offs (11,306) (21,569) 
 
 Recoveries: 
 Commercial 53 115 
 
 Owner occupied - commercial real estate 23 24 
 
 
 
 
 Total recoveries 76 139 
 Net charge-offs (11,230) (21,430) 
 Provision for credit losses - loans 26,309 35,174 
 Balance at end of period 
 $ 129,469 $ 99,684 
 
 Annualized ratio of net charge-offs to average loans outstanding during the period 
 0.57 % 1.07 % 

 
 The following table reflects the allocation of the ACL as of March 31, 2025 and December 31, 2024 by loan category and the percentage of allowance in each category. The allocation of the allowance as of March 31, 2025 includes allowance for credit losses of $16.9 million against individually assessed loans of $201.0 million, as compared to allowance for credit losses of $17.1 million against individually assessed loans of $208.7 million as of December 31, 2024. 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. 
 
 March 31, 2025 
 December 31, 2024 
 
 (dollars in thousands) Amount % of Total ACL % of Total Loans Amount % of Total ACL % of Total Loans 
 Commercial $ 20,661 15 % 15 % $ 19,390 17 % 15 % 
 Income producing - commercial real estate 61,937 48 % 49 % 55,185 48 % 51 % 
 Owner occupied - commercial real estate 26,872 21 % 18 % 22,654 19 % 16 % 
 Real estate mortgage - residential 670 1 % 1 % 610 1 % 1 % 
 Construction - commercial and residential 16,891 13 % 15 % 14,585 13 % 15 % 
 Construction - C&I (owner occupied) 1,681 1 % 1 % 1,282 1 % 1 % 
 Home equity 724 1 % 1 % 653 1 % 1 % 
 Other consumer 33 — % — % 31 — % — % 
 Total $ 129,469 100 % 100 % $ 114,390 100 % 100 % 

 
 
 Nonperforming 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 $202.9 million as of March 31, 2025, representing 1.79% of total assets, as compared to $211.4 million as of December 31, 2024, representing 1.90% of total assets. The decrease is primarily due to the changes in nonperforming loans discussed below. 
 The Company had no accruing loans that were 90 days or more past due as of March 31, 2025 and December 31, 2024. 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, based on its loan portfolio risk analysis that its ACL at 1.63% of total loans as of March 31, 2025, is adequate to absorb expected credit losses within the loan portfolio at that date. 
 52 

 
 

 Total nonperforming loans had an amortized cost of $200.4 million as of March 31, 2025, representing 2.52% of total loans, compared to $208.7 million as of December 31, 2024, representing 2.63% of total loans. The decrease was primarily from the charge offs on two 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, though it may individually evaluate other loans or groups of loans as well if it determines they no longer share similar risk with their assigned segment. Reserves on individually assessed loans are determined by one of two methods: the fair value of collateral or the discounted cash flow. Fair value of collateral is used for loans determined to be collateral dependent, and the fair value represents the net realizable value of the collateral, adjusted for sales costs, commissions, senior liens, etc. Discounted cash flow is used on loans that are not collateral dependent where structural concessions have been made and continuing payments are expected. The continuing payments are discounted over the expected life at the loan’s original contract rate and include adjustments for risk of default. 
 Nonperforming assets include loans that the Company considers to be individually assessed. Individually assessed loans are defined as those as to which we believe it is probable that we will not collect all amounts due according to the contractual terms of the loan agreement. 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. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset. Generally, all appraisals associated with individually assessed loans are updated on a not less than annual basis. 
 The Company evaluates 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 are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a loan restructuring subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan. 
 During the three months ended March 31, 2025, the Bank modified 7 loans with a total amortized cost of $83.0 million as of March 31, 2025 (1.0% of the loan portfolio). These loans received extended loan terms of between approximately seven to twenty-one months. 
 As of March 31, 2025, the payment status of four loans modified in the preceding twelve months, totaling $95.0 million of amortized cost basis, included two loans with an amortized cost basis of $10.6 million which were 30 to 89 days past due, and the other two loans with a total amortized cost basis of $84.4 million which were on nonaccrual status. As of March 31, 2025, additional loans that were modified in the preceding twelve months which were performing under their modified terms totaled $228.9 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. For example: (1) adverse weather conditions may create a short term cash flow issue for an otherwise profitable retail business which suggests a 
 53 

 
 

 temporary interest only period on an amortizing loan; (2) there may be delays in absorption on a real estate project which reasonably suggests extension of the loan maturity at market terms; or (3) there may be maturing loans to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term financing. 
 Included in nonperforming assets as of March 31, 2025 is OREO of $2.5 million, consisting of five foreclosed properties, compared to OREO of $2.7 million, consisting of five foreclosed properties as of December 31, 2024. 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, 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 three months ended March 31, 2025 and two in three months ended March 31, 2024, generating proceeds of $772 thousand and $656 thousand, respectively. 
 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) March 31, 2025 December 31, 2024 
 Nonaccrual Loans: 
 Commercial $ 4,328 $ 2,048 
 
 Income producing - commercial real estate 160,789 168,454 
 Owner occupied - commercial real estate 34,882 37,744 
 Real estate mortgage - residential 144 157 
 
 
 Home equity 298 303 
 
 
 Total nonperforming loans 200,441 208,706 
 Other real estate owned 2,459 2,743 
 Total nonperforming assets $ 202,900 $ 211,449 
 
 Coverage ratio, allowance for credit losses to total nonperforming loans 65 % 55 % 
 Ratio of nonperforming loans to total loans 2.52 % 2.63 % 
 Ratio of nonperforming assets to total assets 1.79 % 1.90 % 

 Significant variation in the amount of nonperforming loans may occur from period to period because the amount of nonperforming loans depends largely on the condition of a relatively small number of individual credits and borrowers relative to the total loan portfolio. 
 As of March 31, 2025, there were $501.6 million of substandard loans. 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 
 As part of its employee benefits and financing strategies, the Company has invested in Bank-Owned Life Insurance ("BOLI") policies. BOLI serves as a tax-efficient asset designed to offset the cost of employee benefit obligations. The Company views BOLI as a long-term investment to help fund future benefit expenses. 
 As of March 31, 2025, the cash surrender value of BOLI totaled $320.1 million, compared to $115.8 million as of December 31, 2024. The increase reflects earnings on the policies as well as additional BOLI purchased through premium payments made in the first quarter of 2025. 
 
 Deposits and Other Borrowings 
 The principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, Negotiable Order of Withdrawal ("NOW") accounts, savings accounts, and certificates of deposits. The deposit base includes transaction accounts, time and savings accounts and accounts 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. 
 54 

 
 

 
 March 31, 2025 
 December 31, 2024 
 
 Balance 
 Percentage 
 Balance Percentage 
 
 Noninterest-bearing demand 
 $ 1,607,826 17 % $ 1,544,403 17 % 
 Interest-bearing transaction 
 926,722 10 % 1,211,791 13 % 
 Savings and money market 
 3,558,919 39 % 3,599,221 39 % 
 Time deposits 
 3,183,801 34 % 2,775,663 31 % 
 Total 
 $ 9,277,268 100 % $ 9,131,078 100 % 

 For the three months ended March 31, 2025, deposits were $9.3 billion as compared to $9.1 billion as of December 31, 2024, an increase of 2%. The increase was primarily attributable to a $408.1 million increase in interest bearing time deposits, partially offset by a $285.1 million reduction in interest bearing transaction deposits. These deposit changes were the result of growth in time deposits from the company's digital acquisition channel. 
 Noninterest bearing deposits increased $63.4 million or 4% to $1.6 billion as of March 31, 2025 as compared to $1.5 billion as of December 31, 2024, while interest bearing deposits decreased by $325.4 million, or 7%. Within interest bearing deposits, money market and savings accounts collectively amounted to $3.56 billion as of March 31, 2025, or 38% of total deposits, as compared to $3.60 billion, or 39% of total deposits, as of December 31, 2024, a decrease of $40.3 million, or 1%. 
 No single depositor represented more than 10% of total deposits as of March 31, 2025. The ten largest depositors not associated with brokered pass-through relationships represented approximately 18% of total deposits in the aggregate as of March 31, 2025. 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. 
 The Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from a regional brokerage firm and other national brokerage networks, including IntraFi Network, LLC ("IntraFi"). 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. 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 March 31, 2025, the Bank sold de minimis deposits through the IntraFi One-Way Sale network. The total of reciprocal deposits as of March 31, 2025 was $1.2 billion (13% of total deposits) as compared to $1.4 billion (16% of total deposits) as of December 31, 2024. These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank, but there can be no assurance that they will continue to be adequate or appropriate to meet our liquidity needs. The Bank also is able to obtain one way CDARS deposits and participates in IntraFi’s Insured Network Deposit Program, (“IND”). The Bank had $872.1 million and $894.7 million of IND brokered deposits as of March 31, 2025 and December 31, 2024, 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 changes due to changes in the marketplace, we may experience an outflow of brokered deposits or difficulty with obtaining them in the future. In that event we would be required to obtain alternate sources for funding, which may increase our cost of funds and negatively impact our net interest margin. 
 We have used brokered deposits and intend to continue to use brokered deposits as one of our funding sources to support future growth. As of March 31, 2025, total brokered deposits were $3.8 billion, or 41.4% of total deposits, compared to $4.0 billion, or 44% as of December 31, 2024, These brokered deposits were comprised of savings, money market and other interest-bearing transaction accounts of $2.3 billion and $2.7 billion, and time deposits of $1.4 billion and $1.3 billion as of March 31, 2025 and December 31, 2024, respectively. The Company uses the Call Report definitions for regulatory reporting by the Bank to classify its deposits as brokered deposits. As of March 31, 2025 and December 31, 2024, total deposits included estimated totals of $2.4 billion and $2.2 billion of uninsured deposits, which represented 25% and 24% of total deposits, respectively. 
 As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or “customer repurchase agreement,” allowing qualifying businesses to earn interest on short-term excess funds, which are not suited for either a certificate of deposit or a money market account. The balances in these accounts were $32.4 million as of March 31, 2025 compared to $33.2 million as of December 31, 2024. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and/or U.S. agency backed MBS. 
 The Company had no outstanding balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) as of March 31, 2025 and December 31, 2024. 
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 As of March 31, 2025 and December 31, 2024, the Company had outstanding balances of $490.0 million of FHLB advances. 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. 
 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"). As of March 31, 2025, the carrying value of these 2029 Senior Notes was $76.2 million which reflected $1.5 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. 
 
 Commitments and Contractual Obligations 
 Loan commitments outstanding and lines and letters of credit as of March 31, 2025 and December 31, 2024 were as follows: 
 
 (dollars in thousands) March 31, 2025 
 December 31, 2024 
 
 Unfunded loan commitments $ 1,248,554 $ 1,318,133 
 Unfunded lines of credit 90,664 88,305 
 Letters of credit 66,797 69,051 
 
 Total $ 1,406,015 $ 1,475,489 

 Various commitments to extend credit are made in the normal course of banking business. Letters of credit are also issued for the benefit of customers. These commitments are subject to loan underwriting standards and geographic boundaries consistent with the Company’s loans outstanding. 
 Unfunded loan commitments are agreements whereby the Bank has made a commitment to lend to a customer as long as there is satisfaction of the terms or conditions established in the contract and the borrower has accepted the commitment in writing. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee before the commitment period is extended. In many instances, borrowers are required to meet performance milestones in order to draw on a commitment as is the case in construction loans, or to have a required level of collateral in order to draw on a commitment as is the case in asset based lending credit facilities. Collateral obtained varies and may include certificates of deposit, accounts receivable, inventory, property and equipment, residential and CRE. Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements. 
 Unfunded lines of credit are agreements to lend to a customer as long as there is no violation of the terms or conditions established in the contract. Lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since lines of credit may expire without being drawn, the total unfunded line of credit amount does not necessarily represent future cash requirements. 
 Letters of credit include standby and commercial letters of credit. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance by the Bank's customer to a third party. Standby letters of credit generally become payable upon the failure of the customer to perform according to the terms of the underlying contract with the third party. Standby letters of credit are generally not drawn. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn when the underlying transaction is consummated between the customer and a third party. The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by the Bank. The Bank has recourse against the customer for any amount it is required to pay to a third party under a letter of credit, and holds cash and or other collateral on those standby letters of credit for which collateral is deemed necessary 
 
 LIQUIDITY MANAGEMENT 
 Liquidity is a measure of the Company’s and Bank’s ability to meet loan demand and to satisfy depositor withdrawal requirements in an orderly manner. The Bank’s primary sources of liquidity consist of cash and cash balances due from correspondent banks, excess reserves at the Federal Reserve, loan repayments, federal funds sold and other short-term 
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 investments, maturities and sales of investment securities, income from operations and new core deposits into the Bank. Approximately 57% of the Company's investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility to generate cash from sales as needed to meet ongoing loan demand. These securities can also 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. 
 The following table summarizes the Company's secondary sources of liquidity in use and available as of March 31, 2025: 
 
 (dollars in thousands) 
 Secondary Sources of Liquidity in Use 
 Secondary Sources of Remaining Liquidity Available 
 
 Unsecured brokered deposits (1) 
 $ 1,077,776 $ 1,266,390 
 FHLB secured borrowings 
 490,000 1,070,435 
 FRB: 
 
 
 Discount window secured borrowings 
 — 1,806,205 
 Federal funds lines 
 — 145,000 
 Customer repurchase agreements 
 32,357 — 
 
 
 Unpledged assets: (2) 
 
 Interest-bearing deposits with banks 
 — 12,792 
 Investment securities 
 — 1,280,116 
 Total 
 $ 1,600,133 $ 5,580,938 

 (1) The available liquidity from the unsecured brokered deposits represents unsecured funds under one-way CDARS and ICS brokered deposits that would require then current market rates and be dependent on the availability of funds in those networks. 
 (2) Unpledged assets are comprised of unencumbered assets that could be liquidated or used as collateral to obtain additional liquidity through debt financing. 
 The funding mix has continued to change throughout the three months ended March 31, 2025. Deposits were $9.3 billion and $9.1 billion as of March 31, 2025 and December 31, 2024, respectively. The increase was primarily attributable to a $408.1 million increase in interest bearing time deposits, and a $63.4 million increase in noninterest bearing deposits, offset by a $285.1 million reduction in interest-bearing transaction accounts and a $40.3 million reduction in savings and money market accounts. The growth in interest bearing deposits was driven by the increase in time deposits through the digital acquisition channel during the three months ended March 31, 2025, as discussed in "Deposits and Other Borrowings" above. Short-term borrowings were $490.0 million as of March 31, 2025 and December 31, 2024. 
 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 as of March 31, 2025 and can borrow unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.1 billion, against which there was $82 million outstanding as of March 31, 2025. As of March 31, 2025, the Bank also has custodial agreements with various broker-dealers through IntraFi's IND program which provided $812.0 million of brokered deposits. 
 As of March 31, 2025, the Bank was also eligible to draw advances from the FHLB up to $1.6 billion based on assets pledged as collateral to the FHLB, against which the Bank borrowed $490.0 million as of March 31, 2025. 
 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 can be used to borrow up to $1.8 billion, 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. There can be no assurance, however, that these alternative sources of liquidity will continue to be available or will be sufficient to meet our ongoing liquidity needs. 
 In total, the Bank's aggregate borrowing capacity as of March 31, 2025 was $4.2 billion, which consists of $1.1 billion and $1.8 billion additional aggregate capacity to borrow from the FHLB and the Federal Reserve's Discount Window, 
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 respectively, on existing pledged assets. 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 primary 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. The Bank makes competitive deposit interest rate comparisons weekly and makes adjustments from time to time to ensure its interest rate offerings are competitive. 
 There is, however, a risk that the cost of funds will increase significantly as the Bank competes for deposits or that some deposits would be lost if rates were to increase and the Bank elected not to remain competitive with its deposit rates. Under those conditions, the Bank believes that it is well positioned to use other sources of funds such as FHLB borrowings, brokered deposits, repurchase agreements and correspondent banks’ lines of credit to offset a decline in deposits in the short run, but the use of such sources may negatively impact our net interest margin and our earnings. The continuing elevated cost of funding has negatively impacted our net interest margin. 
 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 2025. Over the long-term, an adjustment in assets and change in business emphasis could compensate for a potential loss of deposits. The Bank also maintains a marketable investment portfolio to provide flexibility in the event of significant liquidity needs. The Asset Liability Committee ("ALCO") has adopted policy guidelines, which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan. 
 The Company believes it maintains sufficient primary and secondary sources of liquidity to fund its operations. During the three months ended March 31, 2025, average short term liquidity was $2.8 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 as of March 31, 2025 were $5.6 billion, which include the FHLB, other insured brokered deposit sweep programs, unpledged securities, Fed funds lines, and the FRB Discount Window. As of March 31, 2025, the Company held total securities available to be pledged with an estimated fair value of $1.3 billion. As of March 31, 2025, under the Bank’s liquidity formula, it had $6.5 billion of primary and secondary liquidity sources. Management believes the amount is adequate to meet current and projected funding needs. 
 
 CAPITAL RESOURCES AND ADEQUACY 
 The assessment of capital adequacy depends on a number of factors such as asset quality and mix, liquidity, earnings performance, changing competitive conditions and economic forces, stress testing, regulatory measures and policy, as well as the overall level of growth and complexity of the balance sheet. The adequacy of the Company’s current and future capital needs is monitored by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses. 
 The federal banking regulators have issued guidance for those institutions, which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have total reported loans for construction, land development and other land acquisitions which represent 100% or more of an institution’s total risk-based capital; or total commercial real estate loans representing 300% or more of the institution’s total risk-based capital; or the institution’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. 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 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 19.7% 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. 
 As of March 31, 2025, the Company continued to 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 119.61% of consolidated risk based capital. Management has extensive experience in commercial real estate 
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 lending, and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. 
 Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, as our commercial real estate concentration fluctuates each quarter, we may be required to maintain higher levels of capital as a result of our commercial real estate concentrations, which could require us to obtain additional capital and may adversely affect 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 Board and in excess of well capitalized ratios. 
 The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements. 
 As of March 31, 2025, the capital position of the Company and its wholly owned subsidiary, the Bank, continue to exceed regulatory requirements and well-capitalized guidelines. The primary indicators relied on by bank regulators in measuring the capital position are four ratios as follows: Tier 1 risk-based capital ratio, Total risk-based capital ratio, the Leverage ratio and the CET1 ratio. Tier 1 capital consists of common and qualifying preferred shareholders’ equity less goodwill and other intangibles. Total risk-based capital consists of Tier 1 capital and the qualifying portion of the ACL. Risk-based capital ratios are calculated with reference to risk-weighted assets, which are prescribed by regulation. The measure of Tier 1 capital to average assets for the prior quarter is often referred to as the leverage ratio. The CET1 ratio is the Tier 1 capital ratio but excluding preferred stock. 
 The Prompt Corrective Action ("PCA") regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized; however, these terms are not used to represent overall financial condition. 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. banks. Under the Basel III Rules, the Company and Bank are required to maintain a CET1 ratio of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, effectively resulting in a minimum CET1 ratio of 7.0%; a minimum ratio of Tier 1 capital to risk-weighted assets of 6.0%, or 8.5% with the fully phased in capital conservation buffer; a minimum total capital to risk-weighted assets ratio of 10.5% with the fully phased-in capital conservation buffer; and a minimum leverage ratio of 4.0%. The Basel III Rules also increased risk weights for certain assets and off-balance-sheet exposures. As of March 31, 2025, the Company and the Bank exceeded all these thresholds. 
 The Company announced a regular quarterly cash dividend on April 23, 2025 of $0.165 per share to shareholders of record on May 5, 2025, to be paid on May 16, 2025. 
 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. The capital levels required to be maintained by the Company and Bank may be impacted as a result of the Bank’s concentrations in commercial real estate loans. 
 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 PCA provisions of the Federal Deposit Insurance Act. The actual capital amounts and ratios for the Company and Bank as of March 31, 2025 and 2024 are presented in the table below: 
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 Company Bank Minimum Required 
 For Capital 
 Adequacy Purposes (1) 
 To Be Well 
 Capitalized 
 Under Prompt 
 Corrective Action 
 Regulations (2) 
 
 (dollars in thousands) Actual
Amount Ratio Actual
Amount Ratio 
 As of March 31, 2025 
 CET1 capital (to risk weighted assets) $ 1,365,819 14.61 % $ 1,369,643 14.81 % 7.00 % 6.50 % 
 Total capital (to risk weighted assets) 1,483,524 15.86 % 1,484,420 16.06 % 10.50 % 10.00 % 
 Tier 1 capital (to risk weighted assets) 1,365,819 14.61 % 1,369,643 14.81 % 8.50 % 8.00 % 
 Tier 1 capital (to average assets) 1,365,819 11.11 % 1,335,967 11.24 % 4.00 % 5.00 % 
 
 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 % 

 (1) The risk-based ratios reflect the minimum requirement plus the capital conservation buffer of 2.50%. 
 (2) Applies to Bank only 
 Federal bank and holding company regulations, as well as Maryland law, impose certain restrictions on capital distributions, including dividend payments and share repurchases by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company. 
 
 Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk 
 A fundamental risk in banking is exposure to market risk, specifically interest rate risk, since a bank’s earnings are largely dependent on net interest income. The Bank’s ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and overseen by the Audit Committee and the full Board of Directors and through review of detailed reports discussed quarterly. In its consideration of risk limits, the ALCO considers the impact on earnings and capital, the level and direction of interest rates, liquidity, local economic conditions, outside threats and other factors. Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows to provide stable net interest income growth consistent with the Company’s profit objectives. 
 The Company, through its ALCO and ongoing financial management practices, monitors the interest rate environment in which it operates and adjusts the rates and maturities of its assets and liabilities to remain competitive and to achieve its overall financial objectives subject to established risk limits. 
 The loan portfolio remained relatively flat during the first quarter of 2025. The re-pricing duration on the loan portfolio was 10 months as of March 31, 2025 and 11 months as of December 31, 2024, with fixed-rate loans amounting to 37.2% and 38.1% of total loans as of March 31, 2025 and December 31, 2024, respectively. Variable and adjustable rate loans comprised 62.8% and 61.9% of total loans as of March 31, 2025 and December 31, 2024, respectively. Variable rate loans are generally indexed to the Secured Overnight Funding Rate ("SOFR") or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. Treasury interest rate. 
 The cash flows from the investment portfolio currently have not been reinvested in the investment portfolio. As of March 31, 2025, the amortized cost less allowance of the investment portfolio decreased by $67.3 million, or 3.1%, as compared to the balance as of December 31, 2024. 
 Based on amortized cost basis, the percentage mix of municipal securities was 5.7% and 5.5% of total investments as of March 31, 2025 and December 31, 2024, respectively. The portion of the portfolio invested in MBS was 63% and 62% as of March 31, 2025 and December 31, 2024, respectively. The portion of the portfolio invested in U.S. agency investments was 25% as of March 31, 2025 and 25% as of December 31, 2024. Corporate bonds made up 6% and 6% of total investments as of March 31, 2025 and December 31, 2024, respectively. U.S. treasury bonds were 0% and 1% of total investments as of March 31, 2025 and December 31, 2024, respectively. The duration of the investment portfolio decreased to 4.1 years as of March 31, 2025 from 4.2 years as of December 31, 2024. 
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 As of March 31, 2025, $79.3 million of corporate bonds were subordinated debt from other financial institutions. Corporate bonds generally, and subordinated debt in particular, pose credit risk such that if any of these issuers were to enter bankruptcy or insolvency proceedings, we could experience losses that may be material to operating results and our financial condition. We may also experience increases in provisions for credit losses, adversely affecting our earnings, if the creditworthiness of the issuers declines, whether due to idiosyncratic factors, economic conditions generally or other unforeseen factors or events. 
 The Company has credit Risk Participation Agreements ("RPAs") with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. These derivatives are not designated as hedges, are not speculative and have an asset position with a notional value of $49.5 million as of March 31, 2025. The changes in fair value for these contracts are recognized directly in earnings. 
 The duration of the deposit portfolio increased to 12 months as of March 31, 2025 from 11 months as of December 31, 2024. This increase is attributable to a shift in deposit mix, and modeling assumption updates. The Company experienced a total deposit increase of $146.2 million for the three months ended March 31, 2025 as compared to a total loan increase of $8.4 million for the same period. The funding mix changed throughout the three months ended March 31, 2025. Deposits were $9.3 billion and $9.1 billion as of March 31, 2025 and December 31, 2024, respectively. The increase in deposits was primarily attributable to a $408.1 million increase in time deposits, offset by a $285.1 million decrease in interest bearing transaction accounts. Refer to the "Deposits and Other Borrowings" section above for further discussion of deposits and borrowings. 
 The net unrealized loss before income tax on the AFS securities portfolio was $115.9 million and $141.5 million as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, the net unrealized loss position represented 8.71% of the investment portfolio's book value. 
 Management relies on the use of models in order to measure the expected future impact on interest income of various interest rate environments, as described above. Through its modeling, the Company makes certain estimates that may vary from actual results. There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy. 
 Our rate risk modeling showed very modest net interest margin expansion in an increased interest rate environment while showing modest net interest margin compression in a declining interest rate environment. The model's prediction in a rising rate environment is the result of increases in both interest income on variable and adjustable rate loans and interest expense on its deposit liabilities, based on our funding needs, market conditions and certain contractual obligations but with no changes in the mix of assets or liabilities or the spreads we are able to earn. The opposite is true in a falling interest rate environment as decreases in both interest income on variable and adjustable rate loans and interest expense on deposit liabilities drive modest margin compression. The model also assumes a stable interest rate environment after the programmed changes in the yields, which assumes repricing of assets and liabilities as scheduled in a stable environment, which may be quite different than real world conditions. 
 A portion of the of the Company's variable and adjustable rate loans may contain interest rate floors and may provide asset yield protection in a low-interest rate environment; however, they are also expected to delay the impact of increases to market rates on interest income until such floors have been exceeded. In the first three months ended March 31, 2025, interest rate floors have not been relevant in the current interest rate environment since most variable rate loans are well above their floor rate. The weighted average rate of the Company's variable rate loans decreased by approximately 7 basis poin ts from December 31, 2024 to March 31, 2025. 
 As of March 31, 2025, the Company had a portfolio of $3.0 billion of variable and adjustable rate loans that were subject to interest rate floors with a weighted average rate of 7.18%, which was a 6 bps decrease from December 31, 2024. As of March 31, 2025, only $134.7 million or 1.69% of loans held by the Company were earning interest at their floor rate, as compared to $123.6 million or 1.56% as of December 31, 2024. 
 The Company employs an earnings simulation model (immediate parallel shifts along the yield curve) on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related statement of operations effects in different interest rate scenarios. The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest rates, deposit decay rates, and the level of noninterest income and noninterest expense. Further discussion of the limitations of this analysis are listed below and in the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024, and in other periodic and current reports filed by the Company with the SEC. The data is then 
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 subjected to a “shock test” which assumes a simultaneous change in interest rates up 100, 200, 300 and 400 basis points or down 100, 200, 300 and 400 basis points, along the entire yield curve, but not below zero. The results are analyzed as to the impact on net interest income, net income and the market equity over the next twelve and twenty-four month periods from March 31, 2025. In addition to analysis of simultaneous changes in interest rates along the yield curve, an analysis of changes based on interest rate “ramps” is also performed. Such analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes. 
 For the analysis presented below, as of March 31, 2025, the simulation assumes a 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 10 basis points and assumes a 100 basis point change in interest rates on interest bearing deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario. The Bank does have deposits with contractual rate terms which means these deposits will change 100 basis points for every 100 basis points change in market rates. Thus, the overall measure of the correlation between deposit costs and market rate changes is modeled at 100%. The Company utilized the same assumptions for its analysis as of December 31, 2024. 
 Because competitive market behavior does not necessarily track the trend of interest rates but at times moves ahead of financial market influences, the change in the cost of liabilities may be different than anticipated by the interest rate risk model. If this were to occur, the effects of a rising or declining interest rate environment may not be in accordance with management’s expectations. 
 As quantified in the table below, the Company’s analysis as of March 31, 2025 shows a moderate effect on net interest income over the next 12 months, as well as a moderate effect on the economic value of equity when interest rates are shocked down 100, 200, 300 and 400 basis points and up 100, 200, 300 and 400 basis points. This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative durations. As of March 31, 2025, the repricing duration of (a) the investment portfolio was 4.1 years, (b) the loan portfolio 0.9 years, (c) the interest bearing deposit portfolio was 0.3 years, and (d) the borrowed funds portfolio was 0.5 years. 
 The following table reflects the result of the simulation analysis on the March 31, 2025 asset and liability balances: 
 Change in interest
rates (basis points) Percentage change in 12-month net interest income 
 Percentage change in economic value of equity 
 
 +400 3.4% (11.1)% 
 +300 2.5% (8.6)% 
 +200 1.7% (5.9)% 
 +100 0.8% (3.0)% 
 — — — 
 (100) (0.7)% 3.8% 
 (200) (1.4)% 7.1% 
 (300) (4.0)% 7.4% 
 (400) (11.8)% (1.7)% 

 
 The results of the simulation are within the relevant policy limits adopted by the Company for percentage change in net interest income. For net interest income, the Company has adopted a policy limit of -10% for a 100 basis point change, -12% for a 200 basis point change, -18% for a 300 basis point change and -24% for a 400 basis point change. For the economic value of equity, the Company has adopted a policy limit of -12% for a 100 basis point change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change. 
 The decrease in 12-month net interest income and net income of (0.7)% and (1.6)%, respectively, given a 100 basis point decrease in market interest rates as of March 31, 2025 compares to 0.1% and 0.2%, respectively, for the same period in 2024. 
 The analysis at the end of the first quarter of 2025 showed that in an environment of increasing rates, income increases. This is a change from the end of 2024, which showed a decrease in income due to an increase in rates. The primary drivers of this change are an increase in time deposits and not reinvesting cash flows from the investment portfolio which had resulted in the shortening of the overall asset duration. The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios as of March 31, 2025 are not believed to be excessive and are within policy limits. 
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 Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that limit changes in interest rates on a short-term basis and over the life of the loan. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in calculating the tables. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase. 
 While an instantaneous parallel shift in interest rates was used in this analysis to provide an estimate of exposure under these scenarios, we believe that a non-immediate parallel shifts in interest rates would have a more modest impact. Further, the earnings simulation model does not take into account factors such as future balance sheet growth, changes in product mix, changes in yield curve relationships, the various rate indexes do not move in parallel (e.g. SOFR, Fed Funds), hedging activities we might take and changing product spreads that could mitigate any potential beneficial or adverse impact of changes in interest rates. 
 Another key factor to consider is the behavior of our deposit portfolio in the baseline forecast and in alternate interest rate scenarios set out in the table above is a key assumption in our projected estimates of net interest income. The projected impact on net interest income in the table above assumes no change in deposit portfolio size or mix from the baseline forecast in alternative rate environments. In higher rate scenarios, any customer activity resulting in the replacement of low-cost or noninterest-bearing deposits with higher-yielding deposits or market-based funding would reduce the assumed benefit of those deposits. The projected impact on net interest income in the table above also assumes a "through-the-cycle" non-maturity deposit beta which may not be an accurate predictor of actual deposit rate changes realized in scenarios of smaller and/or non-parallel interest rate movements. 
 Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by current and future changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react to different degrees to changes in market interest rates. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types may lag behind changes in general market rates. In addition, certain assets, such as adjustable-rate mortgage loans, have features (generally referred to as interest rate caps and floors) that limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios as part of its responsibility to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing and capital policies. 
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 Use of Non-GAAP Financial Measures 
 Management uses non-GAAP measures because they provide information to investors about the underlying operational performance and trends of the Company. Additionally, the Company considers non-GAAP measures based on tangible equity important to shareholders because 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. 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. Management compensates for these limitations by providing detailed reconciliations between GAAP information and the non-GAAP financial measures. 
 The following tables reconcile the GAAP financial measures to the associated non-GAAP financial measures: 
 
 
 
 (dollars in thousands except per share data) March 31, 2025 December 31, 2024 
 Tangible common equity 
 Common shareholders’ equity $ 1,244,891 $ 1,226,061 
 Less: Intangible assets (11) (16) 
 Tangible common equity (Non-GAAP) $ 1,244,880 $ 1,226,045 
 
 Tangible common equity ratio 
 Total assets $ 11,317,361 $ 11,129,508 
 Less: Intangible assets (11) (16) 
 Tangible assets $ 11,317,350 $ 11,129,492 
 Tangible common equity ratio (Non-GAAP) 11.00 % 11.02 % 
 
 Tangible book value per share calculations 
 Book value per common share $ 40.99 $ 40.60 
 Less: Intangible book value per common share — (0.01) 
 Tangible book value per common share (Non-GAAP) $ 40.99 $ 40.59 

 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 Please refer to Item 2 of this report, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the caption "Asset/Liability Management and Quantitative and Qualitative Disclosure about Market Risk."
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
EAGLE BANCORP INC 10-Q

Item 2. Management’s Discussion and Analysis
