EAGLE BANCORP INC 10-Q

Item 1 – Financial Statements (Unaudited) EAGLE BANCORP, INC. Consolidated Balance Sheets (Unaudited) (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 December 31, 2019 Assets ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 12,199 ​ $ 7,539 Federal funds sold ​ 25,466 ​ 38,987 Interest bearing deposits with banks and other short-term investments ​ 598,377 ​ 195,447 Investment securities available for sale, at fair value (amortized cost of $ 750,653 and $ 839,192 and allowance for credit losses of $ 138 and $ 0 as of June 30, 2020 and December 31, 2019, respectively). ​ 772,394 ​ 843,363 Federal Reserve and Federal Home Loan Bank stock ​ 40,018 ​ 35,194 Loans held for sale ​ 68,433 ​ 56,707 Loans ​ 8,021,761 ​ 7,545,748 Less allowance for credit losses ​ ( 108,796 ) ​ ( 73,658 ) Loans, net ​ 7,912,965 ​ 7,472,090 Premises and equipment, net ​ 12,970 ​ 14,622 Operating lease right-of-use assets ​ ​ 25,368 ​ ​ 27,372 Deferred income taxes ​ 37,364 ​ 29,804 Bank owned life insurance ​ 75,913 ​ 75,724 Intangible assets, net ​ 104,651 ​ 104,739 Other real estate owned ​ 8,237 ​ 1,487 Other assets ​ 105,315 ​ 85,644 Total Assets ​ $ 9,799,670 ​ $ 8,988,719 ​ ​ ​ ​ ​ ​ ​ Liabilities and Shareholders’ Equity ​ ​ Liabilities ​ ​ Deposits: ​ ​ Noninterest bearing demand ​ $ 2,416,058 ​ $ 2,064,367 Interest bearing transaction ​ 861,703 ​ 863,856 Savings and money market ​ 3,504,718 ​ 3,013,129 Time, $ 100,000 or more ​ 527,870 ​ 663,987 Other time ​ 625,623 ​ 619,052 Total deposits ​ 7,935,972 ​ 7,224,391 Customer repurchase agreements ​ 31,198 ​ 30,980 Other short-term borrowings ​ 300,000 ​ 250,000 Long-term borrowings ​ 267,882 ​ 217,687 Operating lease liabilities ​ ​ 27,137 ​ ​ 29,959 Reserve for unfunded commitments ​ ​ 7,170 ​ ​ — Other liabilities ​ 42,416 ​ 45,021 Total Liabilities ​ 8,611,775 ​ 7,798,038 ​ ​ ​ ​ ​ ​ ​ Shareholders’ Equity ​ ​ ​ ​ Common stock, par value $ .01 per share; shares authorized 100,000,000 , shares issued and outstanding 32,224,756 and 33,241,496 , respectively ​ 320 ​ 331 Additional paid in capital ​ 440,934 ​ 482,286 Retained earnings ​ 731,973 ​ 705,105 Accumulated other comprehensive income ​ 14,668 ​ 2,959 Total Shareholders’ Equity ​ 1,187,895 ​ 1,190,681 Total Liabilities and Shareholders’ Equity ​ $ 9,799,670 ​ $ 8,988,719 ​ See notes to consolidated financial statements. ​ 3 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Operations (Unaudited) (dollars in thousands, except per share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ Six Months Ended June 30, ​ ​ 2020 2019 2020 2019 ​ Interest Income ​ ​ ​ ​ ​ Interest and fees on loans ​ $ 92,928 ​ $ 101,889 ​ $ 189,683 ​ $ 199,710 ​ Interest and dividends on investment securities ​ 4,571 ​ 5,238 ​ 9,998 ​ 10,836 ​ Interest on balances with other banks and short-term investments ​ 161 ​ 1,105 ​ 1,720 ​ 2,771 ​ Interest on federal funds sold ​ 12 ​ 47 ​ 72 ​ 96 ​ Total interest income ​ 97,672 ​ 108,279 ​ 201,473 ​ 213,413 ​ Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest on deposits ​ 12,514 ​ 22,461 ​ 33,060 ​ 43,361 ​ Interest on customer repurchase agreements ​ 86 ​ 75 ​ 173 ​ 173 ​ Interest on short-term borrowings ​ 501 ​ 1,435 ​ 858 ​ 1,575 ​ Interest on long-term borrowings ​ 3,208 ​ 2,979 ​ 6,275 ​ 5,958 ​ Total interest expense ​ 16,309 ​ 26,950 ​ 40,366 ​ 51,067 ​ Net Interest Income ​ 81,363 ​ 81,329 ​ 161,107 ​ 162,346 ​ Provision for Credit Losses ​ 19,737 ​ 3,600 ​ 34,047 ​ 6,960 ​ Provision for Unfunded Commitments ​ ​ 940 ​ ​ — ​ ​ 3,052 ​ ​ — ​ Net Interest Income After Provision For Credit Losses ​ 60,686 ​ 77,729 ​ 124,008 ​ 155,386 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Noninterest Income ​ ​ ​ ​ ​ ​ ​ ​ ​ Service charges on deposits ​ 942 ​ 1,606 ​ 2,367 ​ 3,300 ​ Gain on sale of loans ​ 3,079 ​ 1,923 ​ 4,023 ​ 3,311 ​ Gain on sale of investment securities ​ 713 ​ 563 ​ 1,535 ​ 1,475 ​ Increase in the cash surrender value of bank owned life insurance ​ 828 ​ 429 ​ 1,242 ​ 854 ​ Other income ​ 6,933 ​ 1,839 ​ 8,798 ​ 3,711 ​ Total noninterest income ​ 12,495 ​ 6,360 ​ 17,965 ​ 12,651 ​ Noninterest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ Salaries and employee benefits ​ 17,104 ​ 17,743 ​ 34,901 ​ 41,387 ​ Premises and equipment expenses ​ 3,468 ​ 3,652 ​ 7,289 ​ 7,504 ​ Marketing and advertising ​ 1,111 ​ 1,268 ​ 2,189 ​ 2,416 ​ Data processing ​ 2,759 ​ 2,603 ​ 5,255 ​ 4,978 ​ Legal, accounting and professional fees ​ 3,979 ​ 2,740 ​ 10,967 ​ 4,449 ​ FDIC insurance ​ 1,980 ​ 1,126 ​ 3,404 ​ 2,242 ​ Other expenses ​ 4,491 ​ 4,227 ​ 8,234 ​ 8,687 ​ Total noninterest expense ​ 34,892 ​ 33,359 ​ 72,239 ​ 71,663 ​ Income Before Income Tax Expense ​ 38,289 ​ 50,730 ​ 69,734 ​ 96,374 ​ Income Tax Expense ​ 9,433 ​ 13,487 ​ 17,755 ​ 25,382 ​ Net Income ​ $ 28,856 ​ $ 37,243 ​ $ 51,979 ​ $ 70,992 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Earnings Per Common Share ​ ​ ​ ​ ​ ​ ​ ​ ​ Basic ​ $ 0.90 ​ $ 1.08 ​ $ 1.60 ​ $ 2.06 ​ Diluted ​ $ 0.90 ​ $ 1.08 ​ $ 1.60 ​ $ 2.05 ​ ​ See notes to consolidated financial statements. ​ 4 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Comprehensive Income (Unaudited) (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, Six Months Ended June 30, ​ 2020 2019 2020 2019 Net Income ​ $ 28,856 ​ $ 37,243 ​ $ 51,979 ​ $ 70,992 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other comprehensive income, net of tax: ​ ​ ​ ​ ​ ​ ​ ​ Unrealized gain on securities available for sale ​ 1,870 ​ 5,925 ​ 13,977 ​ 11,979 Reclassification adjustment for net gains included in net income ​ ( 537 ) ​ ( 417 ) ​ ( 1,144 ) ​ ( 1,092 ) Total unrealized gain on investment securities ​ 1,333 ​ 5,508 ​ 12,833 ​ 10,887 Unrealized gain (loss) on derivatives ​ 565 ​ ( 513 ) ​ ( 902 ) ​ ( 1,665 ) Reclassification adjustment for amounts included in net income ​ ( 295 ) ​ ( 236 ) ​ ( 222 ) ​ ( 1,180 ) Total unrealized gain (loss) on derivatives ​ 270 ​ ( 749 ) ​ ( 1,124 ) ​ ( 2,845 ) Other comprehensive income ​ 1,603 ​ 4,759 ​ 11,709 ​ 8,042 Comprehensive Income ​ $ 30,459 ​ $ 42,002 ​ $ 63,688 ​ $ 79,034 ​ See notes to consolidated financial statements. ​ 5 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (dollars in thousands except share data) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ ​ ​ ​ ​ Common ​ Additional Paid ​ Retained ​ Comprehensive ​ Shareholders' ​ Shares Amount in Capital Earnings Income Equity Balance April 1, 2020 ​ 32,197,258 $ 320 ​ $ 439,321 ​ $ 710,072 ​ $ 13,065 ​ $ 1,162,778 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income — ​ — ​ — ​ 28,856 ​ — ​ 28,856 Other comprehensive income, net of tax — ​ — ​ — ​ — ​ 1,603 ​ 1,603 Stock-based compensation expense — ​ — ​ 1,427 ​ — ​ — ​ 1,427 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 2,738 ) ​ — ​ — ​ — ​ — ​ — Time based stock awards granted 24,068 ​ — ​ — ​ — ​ — ​ — Issuance of common stock related to employee stock purchase plan 6,168 ​ — ​ 186 ​ — ​ — ​ 186 Cash dividends declared ($ 0.22 per share) — ​ — ​ — ​ ( 6,955 ) ​ — ​ ( 6,955 ) Balance June 30, 2020 32,224,756 ​ $ 320 ​ $ 440,934 ​ $ 731,973 ​ $ 14,668 ​ $ 1,187,895 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance April 1, 2019 34,537,193 ​ $ 343 ​ $ 530,894 ​ $ 618,243 ​ $ ( 992 ) ​ $ 1,148,488 Net Income — ​ — ​ — ​ 37,243 ​ — ​ 37,243 Other comprehensive income, net of tax — ​ — ​ — ​ — ​ 4,759 ​ 4,759 Stock-based compensation expense — ​ — ​ 1,471 ​ — ​ — ​ 1,471 Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 750 ​ — ​ 37 ​ — ​ — ​ 37 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ( 1,800 ) ​ — ​ — ​ — ​ — ​ — Issuance of common stock related to employee stock purchase plan 3,710 ​ — ​ 183 ​ — ​ — ​ 183 Cash dividends declared ($ 0.22 per share) — ​ — ​ — ​ ( 7,599 ) ​ — ​ ( 7,599 ) Balance June 30, 2019 34,539,853 ​ $ 343 ​ $ 532,585 ​ $ 647,887 ​ $ 3,767 ​ $ 1,184,582 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Accumulated ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Additional ​ ​ ​ ​ Other ​ ​ ​ ​ Common ​ Paid ​ Retained ​ Comprehensive ​ Shareholders’ ​ Shares Amount in Capital Earnings Income Equity Balance January 1, 2020 ​ 33,241,496 ​ $ 331 ​ $ 482,286 ​ $ 705,105 ​ $ 2,959 ​ $ 1,190,681 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Cumulative effect adjustment due to the adoption of ASC 326, net of tax ​ — ​ ​ — ​ ​ — ​ ​ ( 10,931 ) ​ ​ — ​ ​ ( 10,931 ) Net Income ​ — ​ ​ — ​ ​ — ​ ​ 51,979 ​ ​ — ​ ​ 51,979 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 11,709 ​ ​ 11,709 Stock-based compensation expense ​ — ​ ​ — ​ ​ 2,423 ​ ​ — ​ ​ — ​ ​ 2,423 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ​ ( 24,921 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Vesting of performance based stock awards, net of shares withheld for payroll taxes ​ 4,126 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Time based stock awards granted ​ 176,252 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Issuance of common stock related to employee stock purchase plan ​ 10,644 ​ ​ — ​ ​ 382 ​ ​ — ​ ​ — ​ ​ 382 Cash dividends declared ($ 0.44 per share) ​ — ​ ​ — ​ ​ — ​ ​ ( 14,180 ) ​ ​ — ​ ​ ( 14,180 ) Common stock repurchased ​ ( 1,182,841 ) ​ ​ ( 11 ) ​ $ ( 44,157 ) ​ ​ — ​ ​ — ​ ​ ( 44,168 ) Balance June 30, 2020 ​ 32,224,756 ​ $ 320 ​ $ 440,934 ​ $ 731,973 ​ $ 14,668 ​ $ 1,187,895 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance January 1, 2019 34,387,919 ​ $ 342 ​ $ 528,380 ​ $ 584,494 ​ $ ( 4,275 ) ​ $ 1,108,941 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net Income ​ — ​ ​ — ​ ​ — ​ ​ 70,992 ​ ​ — ​ ​ 70,992 Other comprehensive income, net of tax ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 8,042 ​ ​ 8,042 Stock-based compensation expense ​ — ​ ​ — ​ ​ 3,501 ​ ​ — ​ ​ — ​ ​ 3,501 Issuance of common stock related to options exercised, net of shares withheld for payroll taxes ​ 26,784 ​ ​ — ​ ​ 332 ​ ​ — ​ ​ — ​ ​ 332 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes ​ ( 12,744 ) ​ ​ 1 ​ ​ ( 1 ) ​ ​ — ​ ​ — ​ ​ — Vesting of performance based stock awards, net of shares withheld for payroll taxes ​ 17,655 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Time based stock awards granted ​ 112,636 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — Issuance of common stock related to employee stock purchase plan ​ 7,603 ​ ​ — ​ ​ 373 ​ ​ — ​ ​ — ​ ​ 373 Cash dividends declared ($ 0.22 per share) ​ — ​ ​ — ​ ​ — ​ ​ ( 7,599 ) ​ ​ — ​ ​ ( 7,599 ) Balance June 30, 2019 ​ 34,539,853 ​ $ 343 ​ $ 532,585 ​ $ 647,887 ​ $ 3,767 ​ $ 1,184,582 ​ See notes to consolidated financial statements. ​ 6 Table of Contents EAGLE BANCORP, INC. Consolidated Statements of Cash Flows (Unaudited) (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ 2020 2019 Cash Flows From Operating Activities: ​ ​ Net Income ​ $ 51,979 ​ $ 70,992 Adjustments to reconcile net income to net cash provided by operating activities: ​ ​ ​ ​ Provision for credit losses ​ 34,047 ​ 6,960 Provision for unfunded commitments ​ ​ 3,052 ​ ​ — Depreciation and amortization ​ 2,238 ​ 3,567 Amortization of operating lease right-of-use assets ​ ​ — ​ ​ 1,360 Gains on sale of loans ​ ( 4,023 ) ​ ( 3,311 ) Gains on sale of GNMA loans ​ — ​ ( 71 ) Securities premium amortization (discount accretion), net ​ 2,931 ​ 2,519 Origination of loans held for sale ​ ( 307,790 ) ​ ( 230,865 ) Proceeds from sale of loans held for sale ​ 300,087 ​ 215,995 Net increase in cash surrender value of BOLI ​ ( 1,242 ) ​ ( 854 ) Deferred income tax (benefit) expense ​ ( 7,560 ) ​ 2,807 Net gain on sale of investment securities ​ ( 1,535 ) ​ ( 1,475 ) Stock-based compensation expense ​ 2,423 ​ 3,501 Net tax (expense) benefits from stock compensation ​ ( 313 ) ​ 10 (Increase) decrease in other assets ​ ( 20,365 ) ​ 6,912 Increase (decrease) in other liabilities ​ ( 5,612 ) ​ ( 29,242 ) Net cash provided by operating activities ​ 48,317 ​ 48,805 Cash Flows From Investing Activities: ​ ​ Purchases of available-for-sale investment securities ​ ( 209,460 ) ​ ( 63,572 ) Proceeds from maturities of available-for-sale securities ​ 170,754 ​ 67,223 Proceeds from sale/call of available-for-sale securities ​ 119,988 ​ 42,143 Purchases of Federal Reserve and Federal Home Loan Bank stock ​ ( 9,074 ) ​ ( 76,150 ) Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock ​ 4,250 ​ 65,663 Net increase in loans ​ ( 481,672 ) ​ ( 405,986 ) Increase (decrease) in premises and equipment ​ ( 2,965 ) ​ 1,675 Net cash used in investing activities ​ ( 408,179 ) ​ ( 369,004 ) Cash Flows From Financing Activities: ​ ​ Increase (decrease) in deposits ​ 711,581 ​ ( 24,393 ) Increase in customer repurchase agreements ​ 218 ​ 1,256 Increase in short-term borrowings ​ 50,000 ​ 225,000 Increase in long-term borrowings ​ 50,098 ​ — Proceeds from exercise of equity compensation plans ​ — ​ 332 Proceeds from employee stock purchase plan ​ 382 ​ 373 Common stock repurchased ​ ( 44,168 ) ​ — Cash dividends paid ​ ​ ( 14,180 ) ​ ​ ( 7,599 ) Net cash provided by financing activities ​ 753,931 ​ 194,969 Net Increase (Decrease) In Cash and Cash Equivalents ​ 394,069 ​ ( 125,230 ) Cash and Cash Equivalents at Beginning of Period ​ 241,973 ​ 321,864 Cash and Cash Equivalents at End of Period ​ $ 636,042 ​ $ 196,634 Supplemental Cash Flows Information: ​ ​ ​ ​ Interest paid ​ $ 41,413 ​ $ 51,735 Income taxes paid ​ $ 26,900 ​ $ 31,850 Non-Cash Investing Activities ​ ​ ​ ​ Initial recognition of operating lease right-of-use assets ​ $ 945 ​ $ 29,574 Transfers from loans to other real estate owned ​ $ 6,750 ​ $ — ​ See notes to consolidated financial statements. ​ 7 Table of Contents EAGLE BANCORP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. and its subsidiaries (the “Company”). Active subsidiaries include: EagleBank (the “Bank”), Eagle Insurance Services, LLC, Bethesda Leasing, LLC, and Landroval Municipal Finance, Inc., with all significant intercompany transactions eliminated. The Consolidated Financial Statements of the Company included herein are unaudited. The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring accruals that in the opinion of management, are necessary to present fairly the results for the periods presented. The amounts as of and for the year ended December 31, 2019 were derived from audited Consolidated Financial Statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In addition to the “Critical Accounting Policies” impacted by the new Current Expected Credit Loss (“CECL”) standard described below, 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, 2019. The Company believes that the disclosures are adequate to make the information presented not misleading. Certain reclassifications have been made to amounts previously reported to conform to the current period presentation. The following table presents a breakdown of the provision for credit losses included in our Consolidated Statements of Income for the applicable periods (in thousands): ​ ​ ​ ​ ​ ​ ​ Three Months Ended Six Months Ended (dollars in thousands) ​ June 30, 2020 ​ June 30, 2020 Provision for credit losses- loans 19,599 33,909 Provision for credit losses- AFS debt securities 138 138 Total provision for credit losses 19,737 34,047 ​ Nature of Operations The Company, through the Bank, conducts a full service community banking business, primarily in Northern Virginia, Suburban Maryland, and Washington, D.C. The primary financial services offered by the Bank include real estate, commercial and consumer lending, as well as traditional deposit and repurchase agreement products. The Bank is also active in the origination and sale of residential mortgage loans, the origination of small business loans, and the origination, securitization and sale of multifamily Federal Housing Administration (“FHA”) loans. The guaranteed portion of small business loans, guaranteed by the Small Business Administration (“SBA”), is typically sold to third party investors in a transaction apart from the loan’s origination. The Bank offers its products and services through twenty banking offices, five lending centers and various electronic capabilities, including remote deposit services and digital banking services. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third party insurance broker. 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. Bethesda Leasing, a subsidiary of the Bank, holds title to repossessed real estate. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for credit losses, the fair value of financial instruments and the status of contingencies are particularly susceptible to significant change. 8 Table of Contents Risks and Uncertainties The outbreak of COVID-19 has adversely impacted a broad range of industries in which the Company’s customers operate and could impair their ability to fulfill their financial obligations to the Company. The World Health Organization has declared COVID-19 to be a global pandemic indicating that almost all public commerce and related business activities must be, to varying degrees, curtailed with the goal of decreasing the rate of new infections. The spread of the outbreak has caused significant disruptions in the U.S. economy and has disrupted banking and other financial activity in the areas in which the Company operates. While there has been no material impact to the Company’s employees to date, COVID-19 could also potentially create widespread business continuity issues for the Company. Congress, the President, and the Federal Reserve have taken several actions designed to cushion the economic fallout. Most notably, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was signed into law at the end of March 2020 as a $2 trillion legislative package. The goal of the CARES Act is to prevent a severe economic downturn through various measures, including direct financial aid to American families and economic stimulus to significantly impacted industry sectors. The package also includes extensive emergency funding for hospitals and providers. In addition to the general impact of COVID-19, certain provisions of the CARES Act as well as other recent legislative and regulatory relief efforts have had and are expected to continue to have a material impact on the Company’s operations. The Company’s business is dependent upon the willingness and ability of its employees and customers to conduct banking and other financial transactions. If the global response to contain COVID-19 escalates further or is unsuccessful, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. While it is not possible to know the full universe or extent that the impact of COVID-19, and resulting measures to curtail its spread, will have on the Company’s operations, the Company is disclosing potentially material items of which it is aware. Financial position and results of operations The Company’s fee income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected customers to waive fees from a variety of sources, such as, but not limited to, insufficient funds and overdraft fees, ATM fees, account maintenance fees, etc. These reductions in fees are thought, at this time, to be temporary in conjunction with the length of the expected COVID-19 related economic crisis. At this time, the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact is likely to impact its fee income in future periods. The Company’s interest income could be reduced due to COVID-19. In keeping with guidance from regulators, the Company is actively working with COVID-19 affected borrowers to defer their payments, interest, and fees. While interest and fees will still accrue to income, through normal GAAP accounting, should eventual credit losses on these deferred payments emerge, interest income and fees accrued would need to be reversed. In such a scenario, interest income in future periods could be negatively impacted. At this time the Company is unable to project the materiality of such an impact, but recognizes the breadth of the economic impact may affect its borrowers’ ability to repay in future periods. Capital and liquidity While the Company believes that it has sufficient capital to withstand an extended economic recession brought about by COVID-19, its reported and regulatory capital ratios could be adversely impacted by further credit losses. The Company maintains access to multiple sources of liquidity. Wholesale funding markets have remained open to us, and rates for short term funding have recently been very low. If funding costs were to become elevated for an extended period of time, it could have an adverse effect on the Company’s net interest margin. If an extended recession caused large numbers of the Company’s customers to withdraw their funds, the Company might become more reliant on volatile or more expensive sources of funding. Asset valuation Currently, the Company does not expect COVID-19 to affect its ability to account timely for the assets on its balance sheet; however, this could change in future periods. While certain valuation assumptions and judgments will change to account for pandemic-related circumstances such as widening credit spreads, the Company does not anticipate significant changes in methodology used to determine the fair value of assets measured in accordance with GAAP. 9 Table of Contents COVID-19 could cause a further and sustained decline in the Company’s stock price. As of June 30, 2020, the Company performed a qualitative assessment to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying amount. A triggering event was deemed to have occurred as a result of COVID-19 and, accordingly, a step one assessment was performed by comparing the fair value of the reporting unit with its carrying amount (including goodwill). Determining the fair value of a reporting unit under the goodwill impairment test is subjective and often involves the use of significant estimates and assumptions. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables. Based on the results of the assessment of all reporting units, the Company concluded that no impairment existed as of June 30, 2020. However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations. Business Continuity Plan The Company has implemented a remote working strategy for many of its employees. The Company does not anticipate incurring additional material cost related to its continued deployment of the remote working strategy. No material operational or internal control challenges or risks have been identified to date. The Company does not anticipate significant challenges to its ability to maintain its systems and controls in light of the measures the Company has taken to prevent the spread of COVID-19. The Company does not currently face any material resource constraint through the implementation of its business continuity plans. Lending operations and accommodations to borrowers In response to the COVID-19 pandemic, we have also implemented a short-term loan modification program to provide temporary payment relief to certain borrowers who meet the program's qualifications. Modifications under this program have predominately been for a period of 90 days . The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date of the existing loan. As of June 30, 2020, we granted temporary modifications on approximately 708 loans representing approximately $ 1.63 billion (approximately 20 % of total loans) in outstanding exposure. Some of these deferrals may not have met the criteria for treatment under U.S. GAAP as troubled debt restructurings ("TDRs"). Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e. non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the U.S. GAAP requirements to treat such short-term loan modifications as TDR. Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board. With the passage of the Paycheck Protection Program (“PPP”), administered by the Small Business Administration (“SBA”), the Company is actively participating in assisting its customers with applications for resources through the program. The PPP loans originated by the Bank generally have a two-year term and earn interest at 1 %. The Company believes that the majority of these loans will ultimately be forgiven by the SBA in accordance with the terms of the program. As of June 30, 2020, principal outstanding on PPP loans totaled $ 456 million to just over 1,400 businesses. The Company understands that loans funded through the PPP program are fully guaranteed by the U.S. government. Should those circumstances change, the Company could be required to establish additional allowance for credit loss through additional credit loss expense charged to earnings. Credit The Company is working with customers directly affected by COVID-19. The Company is prepared to offer short-term assistance in accordance with regulatory guidelines. As a result of the current economic environment caused by the COVID-19 virus, the Company is engaging in more frequent communication with borrowers to better understand their situation and the challenges faced, allowing it to respond proactively as needs and issues arise. Should economic conditions worsen, the Company could experience further increases in its required allowance for credit losses (“ACL”) and record additional provision for credit losses. It is possible that the Company’s asset quality measures could worsen at future measurement periods if the effects of COVID-19 are prolonged. 10 Table of Contents Allowance for Credit Losses On January 1, 2020, we adopted ASU 2016-13 “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which replaces the incurred loss methodology for determining our provision for credit losses and ACL with an expected loss methodology that is referred to as the current expected credit loss model. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loans receivable and held-to-maturity (“HTM”) debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with ASU 2016-02 "Leases (Topic 842)" ("ASU 2016-02"). In addition, ASU 2016-13 made changes to the accounting for available-for-sale (“AFS”) debt securities. One such change is to require credit-related impairments to be recognized as an allowance for credit losses rather than as a write-down of the securities amortized cost basis when management does not intend to sell or believes that it is not more than likely that they will be required to sell the securities prior to recovery of the securities amortized cost basis. We adopted ASU 2016-13 using the modified retrospective method. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. The Company does not own Held to Maturity investment debt securities. Loans Loans held for investment are stated at the amount of unpaid principal reduced by deferred income (net of costs). Interest on loans is recognized using the simple-interest method on the daily balances of the principal amounts outstanding. Loan origination fees, net of direct loan origination costs, and commitment fees are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable. A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. The most common change in terms provided by the Company is an extension of an interest only term. As of June 30, 2020, all performing TDRs were categorized as interest-only modifications. A loan is considered past due when a contractually due payment has not been received by the contractual due date. We place a loan on non-accrual status when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, which is generally when a loan is 90 days past due. When a loan is placed on non-accrual status, all previously accrued and unpaid interest is reversed as a reduction of current period interest income. Interest income is subsequently recognized on a cash basis as long as the remaining book balance of the asset is deemed to be collectible. If collectability is questionable, then cash payments are applied to principal. A loan is placed back on accrual status when both principal and interest are current and it is probable that we will be able to collect all amounts due (both principal and interest) according to the terms of the loan agreement. Allowance for Credit Losses- Loans The allowance for credit losses is an estimate of the expected credit losses in the loans held for investment and available-for-sale debt securities portfolios. ASU 2016-13 replaces the incurred loss impairment model that recognizes losses when it becomes probable that a credit loss will be incurred, with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged- off. Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, loan concentrations, credit quality, or term, as well as for changes in environmental conditions, such as changes in unemployment rates, property values or other relevant factors. 11 Table of Contents The allowance for credit losses is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. Reserves on loans that do not share risk characteristics are evaluated on an individual basis (nonaccrual, TDR). In order to determine the allowance for credit losses, all loans are assigned a credit grade. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. For purposes of determining the pool-basis reserve, the remainder of the portfolio, representing all loans not assigned an individual reserve, is segregated by call report codes. Each credit grade within each product type is assigned a historical loss rate. These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments. A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in reserve for unfunded commitments on the Consolidated Balance Sheets. For periods beyond which we are able to develop reasonable and supportable forecasts, we revert to the historical loss rate on a straight line basis over a twelve month period. See further detail regarding our forecasting methodology in the “Discounted Cash Flow Method” section below. Even though portions of the allowance may be allocated to specific loans, the entire allowance is available for any credit that, in management's judgment, should be charged off. Portfolio segments are used to pool loans with similar risk characteristics and align with our methodology for measuring expected credit losses. A summary of our primary portfolio segments is as follows: Commercial . The commercial loan portfolio is comprised of lines of credit and term loans for working capital, equipment, and other business assets across a variety of industries. These loans are used for general corporate purposes including financing working capital, internal growth, and acquisitions; and are generally secured by accounts receivable, inventory, equipment and other assets of our clients’ businesses. Income producing – commercial real estate . Income producing commercial real estate loans are comprised of permanent and bridge financing provided to professional real estate owners/managers of commercial and residential real estate projects and properties who have a demonstrated record of past success with similar properties. Collateral properties include apartment buildings, office buildings, hotels, mixed-use buildings, retail, data centers, warehouse, and shopping centers. The primary source of repayment on these loans is generally expected to come from lease or operation of the real property collateral. Income producing commercial real estate loans are impacted by fluctuation in collateral values, as well as rental demand and rates. Owner occupied – commercial real estate. The owner occupied commercial real estate portfolio is comprised of permanent financing provided to operating companies and their related entities for the purchase or refinance of real property wherein their business operates. Collateral properties include industrial property, office buildings, religious facilities, mixed-use property, health care and educational facilities. Real Estate Mortgage – Residential. Real estate mortgage residential loans are comprised of consumer mortgages for the purpose of purchasing or refinancing first lien real estate loans secured by primary-residence, second-home, and rental residential real property. Construction – commercial and residential . The construction commercial and residential loan portfolio is comprised of loans made to builders and developers of commercial and residential property, for both renovation, new construction, and development projects. Collateral properties include apartment buildings, mixed use property, residential condominiums, single and 1-4 residential property, and office buildings. The primary source of repayment on these loans is expected to come from the sale, permanent financing, or lease of the real property collateral. Construction loans are impacted by fluctuations in collateral values and the ability of the borrower or ultimate purchaser to obtain permanent financing. Construction – C&I (owner occupied) . The construction C&I (owner occupied) portfolio comprises loans to operating companies and their related entities for new construction or renovation of the real or leased property in which they operate. Generally these loans contain provisions for conversion to an owner occupied commercial real estate or to a commercial loan after completion of construction. Collateral properties include industrial, healthcare, religious facilities, restaurants, and office buildings. Home Equity . The home equity portfolio is comprised of consumer lines of credit and loans secured by subordinate liens on residential real property. 12 Table of Contents Other Consumer . The other consumer portfolio is comprised of consumer purpose loans not secured by real property, including personal lines of credit and loans, overdraft lines, and vehicle loans. This category also includes other loan items such as overdrawn deposit accounts as well as loans and loan payments in process. We have several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring. Special mention loans are those that are currently protected by the sound worth and paying capacity of the borrower, but that are potentially weak and constitute an additional credit risk. These loans have the potential to deteriorate to a substandard grade due to the existence of financial or administrative deficiencies. Substandard loans have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Some substandard loans are inadequately protected by the sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired. Substandard loans can be accruing or can be on non-accrual depending on the circumstances of the individual loans. Loans classified as doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection in full highly questionable and improbable. The possibility of loss is extremely high. All doubtful loans are on non-accrual. The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Changes are reflected in the pool-basis allowance and in reserves assigned on an individual basis as the collectability of classified loans is evaluated with new information. As our portfolio has matured, historical loss ratios have been closely monitored. The review of the appropriateness of the allowance is performed by executive management and presented to management committees, Director’s Loan Committee, the Audit Committee, and the Board of Directors. The committees report to the Board as part of the Board's review on a quarterly basis of our consolidated financial statements. When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the fair value of the collateral adjusted for selling costs, when appropriate. A loan is considered collateral- dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless either of the following applies: management has a reasonable expectation that a loan will be restructured, or the extension or renewal options are included in the borrower contract. We do not measure an allowance for credit losses on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on non-accrual status. Discounted Cash Flow Method The Company uses the discounted cash flow (“DCF”) method to estimate expected credit losses for the commercial, income producing – commercial real estate, owner occupied – commercial real estate, real estate mortgage - residential, construction – commercial and residential, construction – C&I (owner occupied), home equity, and other consumer loan pools. For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed, probability of default, and loss given default. The modeling of expected prepayment speeds is based on historical internal data. The Company uses regression analysis of historical internal and peer data to determine suitable loss drivers to utilize when modeling lifetime probability of default. This analysis also determines how expected probability of default and loss given default will react to forecasted levels of the loss drivers. For all loan pools utilizing the DCF method, management utilizes and forecasts regional unemployment as a loss driver. COVID-19 has negatively impacted unemployment projections, which inform our CECL economic forecast and increased our loss reserve as of June 30, 2020. 13 Table of Contents For all DCF models, management has determined that eight quarters represents a reasonable and supportable forecast period and reverts back to a historical loss rate over twelve months on a straight-line basis. Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period. The combination of adjustments for credit expectations (default and loss) and timing expectations (prepayment, curtailment, and time to recovery) produces an expected cash flow stream at the instrument level. Instrument effective yield is calculated, net of the impacts of prepayment assumptions, and the instrument expected cash flows are then discounted at that effective yield to produce an instrument-level Net Present Value ("NPV "). An ACL is established for the difference between the instrument’s NPV and amortized cost basis. Collateral Dependent Financial Assets Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation or 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 costs 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. The Company’s estimate of the ACL reflects losses expected over the remaining contractual life of the assets. The contractual term does not consider extensions, renewals or modifications unless the Company has identified an expected TDR. A loan that has been modified or renewed is considered a TDR when two conditions are met: 1) the borrower is experiencing financial difficulty and 2) concessions are made for the borrower's benefit that would not otherwise be considered for a borrower or transaction with similar credit risk characteristics. The Company’s ACL reflects all effects of a TDR when an individual asset is specifically identified as a reasonably expected TDR. The Company has determined that a TDR is reasonably expected no later than the point when the lender concludes that modification is the best course of action and it is at least reasonably possible that the troubled borrower will accept some form of concession from the lender to avoid a default. Reasonably expected TDRs and executed non-performing TDRs are evaluated individually to determine the required ACL. Refer to page 10 for a discussion on the impact of the CARES Act on TDRs. Allowance for Credit Losses - Available-for-Sale Debt Securities Although ASU No. 2016-13 replaced the legacy other-than-temporary impairment (“OTTI”) model with a credit loss model, it retained the fundamental nature of the legacy OTTI model. One notable change from the legacy OTTI model is when evaluating whether credit loss exists, an entity may no longer consider the length of time fair value has been less than amortized cost. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Any impairment not recorded through an allowance for credit loss is recognized in other comprehensive income as a non credit-related impairment. The majority of available-for-sale debt securities as of June 30, 2020 and December 31, 2019 were issued by US agencies. However, as of June 30, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal 14 Table of Contents securities could be the result of credit losses, and therefore, an allowance for credit losses of $ 138 thousand was recorded. See Note 3 Investment Securities for more information. We have made a policy election to exclude accrued interest from the amortized cost basis of available-for-sale debt securities and report accrued interest separately in accrued interest and other assets in the consolidated balance sheets. Available-for-sale debt securities are placed on non- accrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on non-accrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable. Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded. The Company records a reserve for unfunded commitments (“RUC”) on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company’s consolidated statements of operations. The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in the RUC on the Company’s consolidated balance sheets. These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Other New Authoritative Accounting Guidance Accounting Standards Adopted in 2020 In March 2020, various regulatory agencies, including the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, (“the Agencies”) issued an interagency statement on loan modifications and reporting for financial institutions working with customers affected by COVID-19. The interagency statement was effective immediately and impacted accounting for loan modifications. Under Accounting Standards Codification 310-40, “Receivables – Troubled Debt Restructurings by Creditors,” (“ASC 310-40”), a restructuring of debt constitutes a TDR if the creditor, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. The Agencies confirmed with the staff of the Financial Accounting Standards Board (“FASB”) that short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief, are not to be considered TDRs. This includes short-term (e.g., six months) modifications such as payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant. Borrowers considered current are those that are less than 30 days past due on their contractual payments at the time a modification program is implemented. This interagency guidance is expected to have a material impact on the Company’s financial statements; however, this impact cannot be quantified at this time. See Note 5 to the Consolidated Financial Statements for further detail. ASU 2016-13, “Measurement of Credit Losses on Financial Instruments (Topic 326).” Under the CECL standard and based on the January 1, 2020 effective date, the Company made an initial adjustment to the allowance for credit losses of $ 10.6 million along with $ 4.1 million to the reserve for unfunded commitments. In accordance with adoption of CECL, the initial January 1, 2020 cumulative-effect adjustment was to retained earnings,net of taxes under the modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under ASU 2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Refer to the “Allowance for Credit Losses- Loans” section above for additional detail. ASU 2020-02 "Financial Instruments - Credit Losses (Topic 326) and Leases (Topic 842)" ("ASU 2020-02") incorporates SEC SAB 119 (updated from SAB 102) into the Accounting Standards Codification (the "Codification") by aligning SEC recommended policies and procedures with ASC 326. ASU 2020-02 was effective on January 1, 2020 and had no significant impact on our documentation requirements, financial statement or disclosures. 15 Table of Contents ASU 2020-03 "Codification Improvements to Financial Instruments" ("ASU 2020-03") revised a wide variety of topics in the Codification with the intent to make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications. ASU 2020-03 was effective immediately upon its release in March 2020 and did not have a material impact on our consolidated financial statements. Accounting Standards Pending Adoption ASU 2019-12 "Income Taxes (Topic 740)" ("ASU 2019-12") simplifies the accounting for income taxes by removing certain exceptions and improves the consistent application of GAAP by clarifying and amending other existing guidance. ASU 2019-012 will be effective for us on January 1, 2021 and is not expected to have any material impact on our consolidated financial statements. ASU 2020-04, "Reference Rate Reform (Topic 848)" ("ASU 2020-04") provides optional expedients and exceptions for applying GAAP to loan and lease agreements, derivative contracts, and other transactions affected by the anticipated transition away from LIBOR toward new interest rate benchmarks. For transactions that are modified because of reference rate reform and that meet certain scope guidance (i) modifications of loan agreements should be accounted for by prospectively adjusting the effective interest rate and the modification will be considered "minor" so that any existing unamortized origination fees/costs would carry forward and continue to be amortized and (ii) modifications of lease agreements should be accounted for as a continuation of the existing agreement with no reassessments of the lease classification and the discount rate or remeasurements of lease payments that otherwise would be required for modifications not accounted for as separate contracts. ASU 2020-04 also provides numerous optional expedients for derivative accounting. ASU 2020-04 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-04 for contract modifications as of January 1, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Once elected for a Topic or an Industry Subtopic within the Codification, the amendments in this ASU must be applied prospectively for all eligible contract modifications for that Topic or Industry Subtopic. We anticipate this ASU will simplify any modifications we execute between the selected start date (yet to be determined) and December 31, 2022 that are directly related to LIBOR transition by allowing prospective recognition of the continuation of the contract, rather than extinguishment of the old contract resulting in writing off unamortized fees/costs. We are evaluating the impacts of this ASU and have not yet determined whether LIBOR transition and this ASU will have material effects on our business operations and consolidated financial statements. ​ Note 2. Cash and Due from Banks Regulation D of the Federal Reserve Act requires that banks maintain noninterest reserve balances with the Federal Reserve Bank based principally on the type and amount of their deposits. During 2020, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid. Additionally, the Bank maintains interest bearing balances with the Federal Home Loan Bank of Atlanta and noninterest bearing balances with domestic correspondent banks as compensation for services they provide to the Bank. ​ Note 3. Investment Securities Available-for-Sale Amortized cost and estimated fair value of securities available-for-sale are summarized as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ Allowance ​ Estimated June 30, 2020 ​ Amortized ​ Unrealized ​ Unrealized ​ for Credit ​ Fair (dollars in thousands) Cost Gains Losses Losses Value U. S. agency securities ​ $ 116,223 ​ $ 1,580 ​ $ 749 ​ $ — ​ $ 117,054 Residential mortgage backed securities ​ 516,297 ​ 15,346 ​ 115 ​ — ​ 531,528 Municipal bonds ​ 86,374 ​ 4,333 ​ — ​ 13 ​ 90,694 Corporate bonds ​ 31,561 ​ 1,562 ​ 78 ​ 125 ​ 32,920 Other equity investments ​ 198 ​ — ​ — ​ — ​ 198 ​ ​ $ 750,653 ​ $ 22,821 ​ $ 942 ​ $ 138 ​ $ 772,394 16 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Gross ​ Allowance ​ Estimated December 31, 2019 ​ Amortized ​ Unrealized ​ Unrealized ​ for Credit ​ Fair (dollars in thousands) Cost Gains Losses Losses Value U. S. agency securities ​ $ 180,228 ​ $ 621 ​ $ 1,055 ​ $ — ​ $ 179,794 Residential mortgage backed securities ​ 541,490 ​ 4,337 ​ 1,975 ​ — ​ 543,852 Municipal bonds ​ 71,902 ​ 2,034 ​ 5 ​ — ​ 73,931 Corporate bonds ​ 10,530 ​ 203 ​ — ​ — ​ 10,733 U.S. Treasury ​ ​ 34,844 ​ ​ 11 ​ ​ — ​ ​ — ​ ​ 34,855 Other equity investments ​ 198 ​ — ​ — ​ — ​ 198 ​ ​ $ 839,192 ​ $ 7,206 ​ $ 3,035 ​ $ — ​ $ 843,363 ​ In addition, at June 30, 2020 and December 31, 2019 the Company held $ 40.0 million and $ 35.2 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”) and Federal Home Loan Bank (“FHLB”) stocks, which are required to be held for regulatory purposes and which are not marketable, and therefore are carried at cost. Accrued interest on available-for-sale securities totaled $ 2.7 million and $ 3.2 million at June 30, 2020 and December 31, 2019, respectively, and was included in other assets in the consolidated balance sheets. Gross unrealized losses and fair value of available-for-sale securities for which an allowance for credit losses has not been recorded, by length of time that individual securities have been in a continuous unrealized loss position are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ 12 Months ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12 Months ​ or Greater ​ Total ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ ​ June 30, 2020 ​ Number of ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized (dollars in thousands) Securities Value Losses Value Losses Value Losses U. S. agency securities 25 ​ $ 24,653 ​ $ 99 ​ $ 37,287 ​ $ 650 ​ $ 61,940 ​ $ 749 Residential mortgage backed securities 20 ​ 41,864 ​ 66 ​ 7,721 ​ 49 ​ 49,585 ​ 115 Corporate bonds 2 ​ 4,447 ​ 78 ​ — ​ — ​ 4,447 ​ 78 ​ 47 ​ $ 70,964 ​ $ 243 ​ $ 45,008 ​ $ 699 ​ $ 115,972 ​ $ 942 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ 12 Months ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12 Months ​ or Greater ​ Total ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ ​ ​ Estimated ​ ​ ​ December 31, 2019 ​ Number of ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized (dollars in thousands) Securities Value Losses Value Losses Value Losses U. S. agency securities 36 ​ $ 75,159 ​ $ 439 ​ $ 51,481 ​ $ 616 ​ $ 126,640 ​ $ 1,055 Residential mortgage backed securities 111 ​ 197,794 ​ 1,148 ​ 90,742 ​ 827 ​ 288,536 ​ 1,975 Municipal bonds 1 ​ 1,994 ​ 5 ​ — ​ — ​ 1,994 ​ 5 ​ 148 ​ $ 274,947 ​ $ 1,592 ​ $ 142,223 ​ $ 1,443 ​ $ 417,170 ​ $ 3,035 ​ The majority of the AFS debt securities in an unrealized loss position as of June 30, 2020, consisted of debt securities issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. As of June 30, 2020, total gross unrealized losses were primarily attributable to changes in interest rates, relative to when the investment securities were purchased, and not due to the credit quality of the investment securities. However, as of June 30, 2020, the Company determined that part of the unrealized loss positions in AFS corporate and municipal securities could be the result of credit losses, and therefore, an allowance for credit losses of $ 138 thousand was recorded. The weighted average duration of debt securities, which comprise 99.9 % of total investment securities, is relatively short at 3.1 years. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The Company does not intend to sell the investments and it is more likely than not that the Company will not have to sell the securities before recovery of its amortized cost basis, which may be at maturity. 17 Table of Contents The amortized cost and estimated fair value of investments available-for-sale at June 30, 2020 and December 31, 2019 by contractual maturity are shown in the table below. Expected maturities for residential mortgage backed securities (“MBS”) will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ December 31, 2019 ​ ​ Amortized ​ Estimated ​ Amortized ​ Estimated (dollars in thousands) Cost Fair Value Cost Fair Value U. S. agency securities maturing: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ One year or less ​ $ 34,038 ​ $ 34,219 ​ $ 96,332 ​ $ 96,226 After one year through five years ​ 77,465 ​ 78,008 ​ 76,121 ​ 75,821 Five years through ten years ​ 4,720 ​ 4,827 ​ 7,775 ​ 7,747 Residential mortgage backed securities ​ 516,297 ​ 531,528 ​ 541,490 ​ 543,852 Municipal bonds maturing: ​ ​ ​ ​ ​ ​ ​ ​ One year or less ​ 7,382 ​ 7,437 ​ 5,897 ​ 5,969 After one year through five years ​ 19,797 ​ 20,703 ​ 21,416 ​ 21,953 Five years through ten years ​ 51,195 ​ 54,407 ​ 42,589 ​ 44,015 After ten years ​ 8,000 ​ 8,160 ​ 2,000 ​ 1,994 Corporate bonds maturing: ​ ​ ​ ​ ​ ​ ​ ​ One year or less ​ ​ 10,929 ​ ​ 11,312 ​ ​ 502 ​ ​ 508 After one year through five years ​ 15,407 ​ 15,999 ​ 8,528 ​ 8,725 After ten years ​ 5,225 ​ 5,734 ​ 1,500 ​ 1,500 U.S. treasury ​ ​ — ​ ​ — ​ ​ 34,844 ​ ​ 34,855 Other equity investments ​ 198 ​ 198 ​ 198 ​ 198 Allowance for Credit Losses ​ ​ — ​ ​ (138) ​ ​ — ​ ​ — ​ ​ $ 750,653 ​ $ 772,394 ​ $ 839,192 ​ $ 843,363 ​ For the six months ended June 30, 2020, gross realized gains on sales of investments securities were $ 1.5 million and there were no gross realized losses on sales of investment securities. For the six months ended June 30, 2019, gross realized gains on sales of investments securities were $ 1.5 million primarily due to the $ 829 thousand of noninterest income recognized during March 2019 on interest rate swap terminations, and there were no gross realized losses on sales of investment securities. Proceeds from sales and calls of investment securities for the six months ended June 30, 2020 were $ 120.0 million compared to $ 42.1 million for the same period in 2019. The carrying value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at June 30, 2020 and December 31, 2019 was $ 346 million and $ 378 million, respectively, which is well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of June 30, 2020 and December 31, 2019, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten percent of shareholders’ equity. ​ Note 4. Mortgage Banking Derivatives As part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of mortgage backed securities. Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in noninterest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Bank determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying asset, which is impacted by current interest rates, taking into consideration the probability that the interest rate lock commitments will close or will be funded. 18 Table of Contents Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Bank does not expect any counterparty to any MBS to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Bank does not close the loans subject to interest rate risk lock commitments, it will still be obligated to deliver MBS to the counterparty under the forward sales agreement. Should this be required, the Bank could incur significant costs in acquiring replacement loans or MBS and such costs could have an adverse effect on mortgage banking operations. The fair value of the mortgage banking derivatives is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change. At June 30, 2020, the Bank had no material mortgage banking derivative financial instruments. During the second quarter of 2020, the Company suspended locking loans for sale on a mandatory basis as a result of significant market dislocation that was experienced as a result of COVID-19 as well as the operational strain associated with the mandatory underwriting process given the volume of residential mortgages. At June 30, 2019 the Bank had mortgage banking derivative financial instruments with a notional value of $ 124.5 million related to its forward contracts. The fair value of these mortgage banking derivative instruments at December 31, 2019 was $ 280 thousand included in other assets and $ 66 thousand included in other liabilities. Included in other noninterest income for the three and six months ended June 30, 2020 was a net gain of $ 1.1 million and a net loss of $ 165 thousand relating to mortgage banking derivative instruments as compared to a net gain of $ 84 thousand and net gain of $ 219 thousand for the three and six months ended June 30, 2019. The amount included in other noninterest income for the three and six months ended June 30, 2020 pertaining to its mortgage banking hedging activities was a net realized gain of $ 1.3 million and a net loss of $ 7 thousand, respectively, as compared to a net loss of $ 94 thousand and net loss of $ 49 thousand, respectively, for the three and six months ended June 30, 2019. ​ Note 5. Loans and Allowance for Credit Losses The Bank makes loans to customers primarily in the Washington, D.C. metropolitan area and surrounding communities. A substantial portion of the Bank’s loan portfolio consists of loans to businesses secured by real estate and other business assets. Loans, net of unamortized net deferred fees, at June 30, 2020 (unaudited) and December 31, 2019 are summarized by type as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ December 31, 2019 (dollars in thousands) Amount % Amount % ​ Commercial ​ $ 1,607,056 20 % $ 1,545,906 20 % PPP loans ​ ​ 456,476 ​ 6 % ​ — ​ — ​ Income producing - commercial real estate ​ 3,678,946 46 % 3,702,747 50 % Owner occupied - commercial real estate ​ 964,077 12 % 985,409 13 % Real estate mortgage - residential ​ 93,601 1 % 104,221 1 % Construction - commercial and residential ​ 995,550 12 % 1,035,754 14 % Construction - C&I (owner occupied) ​ 149,845 2 % 89,490 1 % Home equity ​ 74,921 1 % 80,061 1 % Other consumer ​ 1,289 — ​ 2,160 — ​ Total loans ​ 8,021,761 100 % 7,545,748 100 % Less: allowance for credit losses ​ ( 108,796 ) ​ ​ ​ ( 73,658 ) ​ ​ Net loans ​ $ 7,912,965 (1) ​ ​ $ 7,472,090 ​ ​ ​ (1) Excludes accrued interest receivable of $ 36.2 million and $ 21.3 million at June 30, 2020 and December 31, 2019, respectively, which is recorded in other assets. Unamortized net deferred fees amounted to $ 34.8 million and $ 25.2 million at June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020 and December 31, 2019, the Bank serviced $ 96 million and $ 99 million, respectively, of multifamily FHA loans, SBA loans and other loan participations which are not reflected as loan balances on the Consolidated Balance Sheets. 19 Table of Contents Loan Origination / Risk Management The Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations. The composition of the Company’s loan portfolio is heavily weighted toward commercial real estate, both owner occupied and income producing real estate. At June 30, 2020, owner occupied - commercial real estate and construction – Commercial and Industrial (“C&I”) (owner occupied) represent approximately 14 % of the loan portfolio . At June 30, 2020, non-owner occupied commercial real estate and real estate construction represented approximately 58 % of the loan portfolio. The combined owner occupied and commercial real estate and construction loans represent approximately 72 % of the loan portfolio. Real estate also serves as collateral for loans made for other purposes, resulting in 79 % of all loans being secured by real estate. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a maximum loan to value of 80 % and minimum cash flow debt service coverage of 1.15 to 1.0 . Personal guarantees may be required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years . The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 20 % of the loan portfolio at June 30, 2020 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 1.3 % of the commercial loan category. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit as well as potential repairs to the SBA guarantees. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA as well as internal loan size guidelines. Approximately 6 % of the loan portfolio at June 30, 2020 consists of PPP loans to eligible customers. PPP loans are expected to primarily be repaid via forgiveness from the SBA. These loans are fully guaranteed as to principal and interest by the SBA and ultimately by the full faith and credit of the U.S. Government; as a result, they were approved utilizing different underwriting standards than the Bank's other commercial loans. PPP loans are included in the CECL model but do not carry an allowance for credit loss due to the aforementioned government guarantees. Approximately 1 % of the loan portfolio at June 30, 2020 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank. Approximately 1 % of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 16 months . These credits represent first liens on residential property loans originated by the Bank. While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date or mature. Loans are secured primarily by duly recorded first deeds of trust or mortgages. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is customarily required. Construction loans require that the financial condition and experience of the general contractor and major subcontractors be satisfactory to the Bank. Guaranteed, fixed price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects. 20 Table of Contents Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months , including extensions approved at origination. Commercial land acquisition and construction loans are secured by real property where loan funds will be used to acquire land and to construct or improve appropriately zoned real property for the creation of income producing or owner user commercial properties. Borrowers are generally required to put equity into each project at levels determined by the appropriate Loan Committee. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months . Substantially all construction draw requests must be presented in writing on American Institute of Architects documents and certified either by the contractor, the borrower and/or the borrower’s architect. Each draw request shall also include the borrower’s soft cost breakdown certified by the borrower or their Chief Financial Officer. Prior to an advance, the Bank or its contractor inspects the project to determine that the work has been completed, to justify the draw requisition. Commercial permanent loans are generally secured by improved real property which is generating income in the normal course of operation. Debt service coverage, assuming stabilized occupancy, must be satisfactory to support a permanent loan. The debt service coverage ratio is ordinarily at least 1.15 to 1.0 . As part of the underwriting process, debt service coverage ratios are stress tested assuming a 200 basis point increase in interest rates from their current levels. Commercial permanent loans generally are underwritten with a term not greater than 10 years or the remaining useful life of the property, whichever is lower. The preferred term is between 5 to 7 years , with amortization to a maximum of 25 years . The Company’s loan portfolio includes acquisition, development and construction (“ADC”) real estate loans including both investment and owner occupied projects. ADC loans amounted to $ 1.47 billion at June 30, 2020. A portion of the ADC portfolio, both speculative and non-speculative, includes loan funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately 59 % of the outstanding ADC loan portfolio at June 30, 2020. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) the borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company recognizes that one of the risks inherent in the use of interest reserves is the potential masking of underlying problems with the project and/or the borrower’s ability to repay the loan. In order to mitigate this inherent risk, the Company employs a series of reporting and monitoring mechanisms on all ADC loans, whether or not an interest reserve is provided, including: (1) construction and development timelines which are monitored on an ongoing basis which track the progress of a given project to the timeline projected at origination; (2) a construction loan administration department independent of the lending function; (3) third party independent construction loan inspection reports; (4) monthly interest reserve monitoring reports detailing the balance of the interest reserves approved at origination and the days of interest carry represented by the reserve balances as compared to the then current anticipated time to completion and/or sale of speculative projects; and (5) quarterly commercial real estate construction meetings among senior Company management, which includes monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan funded interest reserves. The following tables detail activity in the allowance for credit losses by portfolio segment for the three and six months ended June 30, 2020 and 2019. PPP loans are excluded from these tables since they do not carry an allowance for credit loss, as these loans are fully guaranteed as to principal and interest by the SBA, whose guarantee is backed by the full faith and credit of the U.S. 21 Table of Contents Government. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Income Producing - ​ Owner Occupied - ​ Real Estate ​ Construction - ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ Commercial ​ Mortgage - ​ Commercial and ​ Home ​ Other ​ ​ ​ (dollars in thousands) Commercial Real Estate Real Estate Residential Residential Equity Consumer Total Three Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period ​ $ 27,346 ​ $ 43,551 ​ $ 9,867 ​ $ 1,369 ​ $ 13,341 ​ $ 818 ​ $ 44 ​ ​ 96,336 Loans charged-off ​ ( 7,145 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ( 7,145 ) Recoveries of loans previously charged-off ​ 5 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1 ​ 6 Net loans charged-off ​ ( 7,140 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 1 ​ ( 7,139 ) Provision for credit losses ​ 7,872 ​ ​ 8,312 ​ ​ 2,474 ​ ​ 181 ​ ​ 467 ​ ​ 294 ​ ​ ( 1 ) ​ 19,599 Ending balance ​ $ 28,078 ​ $ 51,863 ​ $ 12,341 ​ $ 1,550 ​ $ 13,808 ​ $ 1,112 ​ $ 44 ​ $ 108,796 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period, prior to adoption of ASC 326 ​ $ 15,857 ​ $ 28,034 ​ $ 6,242 ​ $ 965 ​ $ 18,175 ​ $ 599 ​ $ 72 ​ $ 69,944 Impact of adopting ASC 326 ​ ​ 892 ​ ​ 11,230 ​ ​ 4,674 ​ ​ ( 301 ) ​ ​ ( 6,143 ) ​ ​ 245 ​ ​ 17 ​ ​ 10,614 Loans charged-off ​ ​ ( 7,145 ) ​ ​ ( 550 ) ​ ​ — ​ ​ — ​ ​ ( 1,768 ) ​ ​ — ​ ​ — ​ ​ ( 9,463 ) Recoveries of loans previously charged-off ​ ​ 74 ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 4 ​ ​ 78 Net loans (charged-off) recoveries ​ ​ ( 7,071 ) ​ ​ ( 550 ) ​ ​ — ​ ​ — ​ ​ ( 1,768 ) ​ ​ — ​ ​ 4 ​ ​ ( 9,385 ) Provision for credit losses ​ ​ 18,400 ​ ​ 13,149 ​ ​ 1,425 ​ ​ 886 ​ ​ 3,544 ​ ​ 268 ​ ​ ( 49 ) ​ ​ 37,623 Ending balance ​ $ 28,078 ​ $ 51,863 ​ $ 12,341 ​ $ 1,550 ​ $ 13,808 ​ $ 1,112 ​ $ 44 ​ $ 108,796 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 8,797 ​ $ 5,260 ​ $ 405 ​ $ 746 ​ $ 1,383 ​ $ 107 ​ $ 3 ​ $ 16,701 Collectively evaluated for impairment ​ 19,281 ​ ​ 46,603 ​ ​ 11,936 ​ ​ 804 ​ ​ 12,425 ​ ​ 1,005 ​ ​ 41 ​ 92,095 Ending balance ​ $ 28,078 ​ $ 51,863 ​ $ 12,341 ​ $ 1,550 ​ $ 13,808 ​ $ 1,112 ​ $ 44 ​ $ 108,796 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period ​ $ 17,195 ​ $ 26,765 ​ $ 5,980 ​ $ 681 ​ $ 18,469 ​ $ 605 ​ $ 248 ​ $ 69,943 Loans charged-off ​ ( 1 ) ​ ( 1,847 ) ​ — ​ — ​ — ​ — ​ ( 2 ) ​ ( 1,850 ) Recoveries of loans previously charged-off ​ 37 ​ 302 ​ 2 ​ 2 ​ 37 ​ — ​ 13 ​ 393 Net loans charged-off ​ 36 ​ ( 1,545 ) ​ 2 ​ 2 ​ 37 ​ — ​ 11 ​ ( 1,457 ) Provision for credit losses ​ 905 ​ 1,790 ​ ( 226 ) ​ 672 ​ 500 ​ ( 24 ) ​ ( 17 ) ​ 3,600 Ending balance ​ $ 18,136 ​ $ 27,010 ​ $ 5,756 ​ $ 1,355 ​ $ 19,006 ​ $ 581 ​ $ 242 ​ $ 72,086 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Balance at beginning of period ​ $ 15,857 ​ $ 28,034 ​ $ 6,242 ​ $ 965 ​ $ 18,175 ​ $ 599 ​ $ 72 ​ $ 69,944 Loans charged-off ​ ​ ( 5 ) ​ ​ ( 5,343 ) ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 2 ) ​ ​ ( 5,350 ) Recoveries of loans previously charged-off ​ ​ 167 ​ ​ 302 ​ ​ 2 ​ ​ 3 ​ ​ 37 ​ ​ — ​ ​ 21 ​ ​ 532 Net loans (charged-off) recoveries ​ ​ 162 ​ ​ ( 5,041 ) ​ ​ 2 ​ ​ 3 ​ ​ 37 ​ ​ — ​ ​ 19 ​ ​ ( 4,818 ) Provision for credit losses ​ ​ 2,117 ​ ​ 4,017 ​ ​ ( 488 ) ​ ​ 387 ​ ​ 794 ​ ​ ( 18 ) ​ ​ 151 ​ ​ 6,960 Ending balance ​ $ 18,136 ​ $ 27,010 ​ $ 5,756 ​ $ 1,355 ​ $ 19,006 ​ $ 581 ​ $ 242 ​ $ 72,086 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of June 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Allowance for credit losses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Individually evaluated for impairment ​ $ 7,905 ​ $ 1,000 ​ $ 475 ​ $ 650 ​ $ — ​ $ — ​ $ — ​ $ 10,030 Collectively evaluated for impairment ​ 10,231 ​ 26,010 ​ 5,281 ​ 705 ​ 19,006 ​ 581 ​ 242 ​ 62,056 Ending balance ​ $ 18,136 ​ $ 27,010 ​ $ 5,756 ​ $ 1,355 ​ $ 19,006 ​ $ 581 ​ $ 242 ​ $ 72,086 ​ During the first quarter of 2020, we adopted ASU 2016-13, which replaced the incurred loss methodology for determining our provision for credit losses and allowance for credit losses with an expected loss methodology that is referred to as the CECL model. Upon adoption, the allowance for credit losses was increased by $ 14.7 million, which included a $ 4.1 million increase to the allowance for unfunded commitments, with no impact to the consolidated statement of operations. We recorded a $ 19.7 million and $ 34.0 million provision for credit losses for the three and six months ended second June 30, 2020 under CECL. We recorded $ 7.1 million and $ 9.4 million in net charge-offs during the three and six months ended June 30, 2020, respectively, compared to $ 1.5 million and $ 4.8 million during the three and six months ended June 30, 2019. 22 Table of Contents A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of June 30, 2020: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Business/Other ​ ​ ​ (dollars in thousands) Assets Real Estate Commercial ​ $ 15,105 ​ $ 2,895 Income producing - commercial real estate ​ 3,193 ​ 24,102 Owner occupied - commercial real estate ​ — ​ 10,815 Real estate mortgage - residential ​ — ​ 7,960 Construction - commercial and residential ​ — ​ 5,385 Construction - C&I (owner occupied) ​ — ​ — Home equity ​ — ​ 600 Other consumer ​ 6 ​ — Total ​ $ 18,304 ​ $ 51,757 ​ Credit Quality Indicators The Company uses several credit quality indicators to manage credit risk in an ongoing manner. The Company’s primary credit quality indicators are to use an internal credit risk rating system that categorizes loans into pass, watch, special mention, or classified categories. Credit risk ratings are applied individually to those classes of loans that have significant or unique credit characteristics that benefit from a case-by-case evaluation. These are typically loans to businesses or individuals in the classes which comprise the commercial portfolio segment. Groups of loans that are underwritten and structured using standardized criteria and characteristics, such as statistical models (e.g., credit scoring or payment performance), are typically risk rated and monitored collectively. These are typically loans to individuals in the classes which comprise the consumer portfolio segment. 23 Table of Contents The following are the definitions of the Company’s credit quality indicators: ​ ​ ​ Pass: Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass. ​ ​ Watch: Loan paying as agreed with generally acceptable asset quality; however the obligor’s performance has not met expectations. Balance sheet and/or income statement has shown deterioration to the point that the obligor could not sustain any further setbacks. Credit is expected to be strengthened through improved obligor performance and/or additional collateral within a reasonable period of time. ​ ​ Special Mention: Loans in the classes that comprise the commercial portfolio segment that have potential weaknesses that deserve management’s close attention. If not addressed, these potential weaknesses may result in deterioration of the repayment prospects for the loan. The special mention credit quality indicator is not used for classes of loans that comprise the consumer portfolio segment. Management believes that there is a moderate likelihood of some loss related to those loans that are considered special mention. ​ ​ Classified: Classified (a) Substandard – Loans inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the company will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard loans, does not have to exist in individual loans classified substandard. ​ ​ ​ Classified (b) Doubtful – Loans that have all the weaknesses inherent in a loan classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain important and reasonably specific pending factors, which may work to the advantage and strengthening of the assets, its classification as an estimated loss is deferred until its more exact status may be determined. ​ 24 Table of Contents Based on the most recent analysis performed, the risk category of loans by class of loans and year of origination is as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 (dollars in thousands) 2016 2017 2018 2019 2020 Prior Total Commercial ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 128,724 ​ 316,829 ​ 275,852 ​ 227,726 ​ 140,233 ​ 439,707 ​ 1,529,071 Watch ​ ​ 362 ​ ​ 16,583 ​ — ​ 2,275 ​ — ​ 18,743 ​ ​ 37,963 Special Mention ​ — ​ — ​ 10,977 ​ — ​ — ​ 933 ​ 11,910 Substandard ​ 4,667 ​ 2,128 ​ 2,565 ​ 459 ​ — ​ 18,293 ​ 28,112 Total ​ 133,753 ​ 335,540 ​ 289,394 ​ 230,460 ​ 140,233 ​ 477,676 ​ 1,607,056 PPP loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 456,476 ​ ​ — ​ ​ 456,476 Total ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 456,476 ​ ​ — ​ ​ 456,476 Income producing - commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 412,724 ​ 520,542 ​ 726,838 ​ 807,571 ​ 208,386 ​ 970,544 ​ 3,646,605 Watch ​ — ​ — ​ — ​ 4,324 ​ — ​ 721 ​ 5,045 Special Mention ​ 800 ​ — ​ — ​ — ​ — ​ 4,843 ​ 5,643 Substandard ​ — ​ 4,656 ​ 4,883 ​ 5,542 ​ — ​ 6,572 ​ 21,653 Total ​ 413,524 ​ 525,198 ​ 731,721 ​ 817,437 ​ 208,386 ​ 982,680 ​ 3,678,946 Owner occupied - commercial real estate ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 107,303 ​ 117,523 ​ 221,811 ​ 92,496 ​ 15,673 ​ 358,051 ​ 912,857 Watch ​ — ​ — ​ — ​ — ​ — ​ 40,465 ​ 40,465 Substandard ​ 803 ​ — ​ 360 ​ — ​ — ​ 9,592 ​ 10,755 Total ​ 108,106 ​ 117,523 ​ 222,171 ​ 92,496 ​ 15,673 ​ 408,108 ​ 964,077 Real estate mortgage - residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 3,423 ​ 10,394 ​ 15,429 ​ 28,234 ​ 5,701 ​ 21,844 ​ 85,025 Watch ​ — ​ — ​ — ​ — ​ — ​ 617 ​ 617 Substandard ​ 4,154 ​ 2,619 ​ — ​ — ​ — ​ 1,186 ​ 7,959 Total ​ 7,577 ​ 13,013 ​ 15,429 ​ 28,234 ​ 5,701 ​ 23,647 ​ 93,601 Construction - commercial and residential ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 71,957 ​ 431,635 ​ 317,131 ​ 108,584 ​ 25,385 ​ 35,473 ​ 990,165 Substandard ​ 2,298 ​ 408 ​ — ​ — ​ — ​ 2,679 ​ 5,385 Total ​ 74,255 ​ 432,043 ​ 317,131 ​ 108,584 ​ 25,385 ​ 38,152 ​ 995,550 Construction - C&I (owner occupied) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 11,689 ​ 5,482 ​ 41,084 ​ 27,557 ​ 17,441 ​ 32,612 ​ 135,865 Watch ​ — ​ 2,124 ​ 11,087 ​ — ​ — ​ 769 ​ 13,980 Total ​ 11,689 ​ 7,606 ​ 52,171 ​ 27,557 ​ 17,441 ​ 33,381 ​ 149,845 Home Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 4,859 ​ 8,942 ​ 8,658 ​ 4,468 ​ 3,785 ​ 42,416 ​ 73,128 Watch ​ — ​ — ​ — ​ — ​ — ​ 944 ​ 944 Substandard ​ — ​ — ​ — ​ — ​ — ​ 849 ​ 849 Total ​ 4,859 ​ 8,942 ​ 8,658 ​ 4,468 ​ 3,785 ​ 44,209 ​ 74,921 Other Consumer ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Pass ​ 177 ​ 85 ​ 121 ​ 106 ​ 28 ​ 764 ​ 1,281 Substandard ​ — ​ — ​ — ​ — ​ — ​ 8 ​ 8 Total ​ 177 ​ 85 ​ 121 ​ 106 ​ 28 ​ 772 ​ 1,289 Total Recorded Investment ​ $ 753,940 ​ $ 1,439,950 ​ $ 1,636,796 ​ $ 1,309,342 ​ $ 873,108 ​ $ 2,008,625 ​ $ 8,021,761 ​ The Company’s credit quality indicators are generally updated annually; however, credits rated watch or below are reviewed more frequently. The following table presents by class and by credit quality indicator, the recorded investment in the Company’s loans and leases as of December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total (dollars in thousands) Pass Watch ​ Special Mention Substandard Doubtful Loans December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 1,470,636 ​ $ 38,522 ​ $ 11,460 ​ $ 25,288 ​ $ — ​ $ 1,545,906 Income producing - commercial real estate ​ 3,667,585 ​ 16,069 ​ ​ — ​ 19,093 ​ — ​ 3,702,747 Owner occupied - commercial real estate ​ 925,800 ​ 53,146 ​ ​ — ​ 6,463 ​ — ​ 985,409 Real estate mortgage - residential ​ 98,228 ​ 628 ​ ​ — ​ 5,365 ​ — ​ 104,221 Construction - commercial and residential ​ 1,113,734 ​ — ​ ​ — ​ 11,510 ​ — ​ 1,125,244 Home equity ​ 78,626 ​ 948 ​ ​ — ​ 487 ​ — ​ 80,061 Other consumer ​ 2,160 ​ — ​ ​ — ​ — ​ — ​ 2,160 Total ​ $ 7,356,769 ​ $ 109,313 ​ $ 11,460 ​ $ 68,206 ​ $ — ​ $ 7,545,748 ​ 25 Table of Contents Nonaccrual and Past Due Loans As part of its comprehensive loan review process, the Loan Committee or Credit Review Committee carefully evaluate loans which are past-due 30 days or more. The Committees make a thorough assessment of the conditions and circumstances surrounding each delinquent loan. The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves. The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of June 30, 2020 and December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Loans ​ Loans ​ Loans ​ ​ ​ ​ ​ ​ Total Recorded ​ ​ 30-59 Days ​ 60-89 Days ​ 90 Days or ​ Total Past ​ Current ​ ​ ​ ​ Investment in (dollars in thousands) ​ Past Due ​ Past Due ​ More Past Due ​ Due Loans ​ Loans ​ Non-Accrual ​ Loans June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 603 ​ $ 3,046 ​ $ — ​ $ 3,649 ​ $ 1,586,686 ​ $ 16,721 ​ $ 1,607,056 PPP loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 456,476 ​ ​ — ​ $ 456,476 Income producing - commercial real estate ​ — ​ 14,203 ​ — ​ 14,203 ​ 3,647,464 ​ 17,279 ​ 3,678,946 Owner occupied - commercial real estate ​ 542 ​ 212 ​ — ​ 754 ​ 952,568 ​ 10,755 ​ 964,077 Real estate mortgage - residential ​ — ​ — ​ — ​ — ​ 85,385 ​ 8,216 ​ 93,601 Construction - commercial and residential ​ — ​ 751 ​ — ​ 751 ​ 989,414 ​ 5,385 ​ 995,550 Construction - C&I (owner occupied) ​ — ​ — ​ ​ — ​ — ​ 149,845 ​ — ​ 149,845 Home equity ​ 263 ​ 254 ​ ​ — ​ 517 ​ 73,804 ​ 600 ​ 74,921 Other consumer ​ — ​ 3 ​ — ​ 3 ​ 1,280 ​ 6 ​ 1,289 Total ​ $ 1,408 ​ $ 18,469 ​ $ — ​ $ 19,877 ​ $ 7,942,922 ​ $ 58,962 ​ $ 8,021,761 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 3,063 ​ $ 781 ​ $ — ​ $ 3,844 ​ $ 1,527,134 ​ $ 14,928 ​ $ 1,545,906 Income producing - commercial real estate ​ — ​ 5,542 ​ — ​ 5,542 ​ 3,687,494 ​ 9,711 ​ 3,702,747 Owner occupied - commercial real estate ​ 13,008 ​ — ​ — ​ 13,008 ​ 965,938 ​ 6,463 ​ 985,409 Real estate mortgage – residential ​ 3,533 ​ — ​ — ​ 3,533 ​ 95,057 ​ 5,631 ​ 104,221 Construction - commercial and residential ​ — ​ — ​ — ​ — ​ 1,113,735 ​ 11,509 ​ 1,125,244 Home equity ​ 136 ​ 192 ​ — ​ 328 ​ 79,246 ​ 487 ​ 80,061 Other consumer ​ — ​ 9 ​ — ​ 9 ​ 2,151 ​ — ​ 2,160 Total ​ $ 19,740 ​ $ 6,524 ​ $ — ​ $ 26,264 ​ $ 7,470,755 ​ $ 48,729 ​ $ 7,545,748 ​ The following presents the nonaccrual loans as of June 30, 2020 and December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ December 31, 2019 ​ ​ Nonaccrual with ​ Nonaccrual with ​ Total ​ Total ​ ​ No Allowance ​ an Allowance ​ Nonaccrual ​ Nonaccrual (dollars in thousands) for Credit Loss for Credit Loss Loans Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ ​ 1,507 ​ ​ 15,214 ​ ​ 16,721 ​ ​ 14,928 PPP loans ​ ​ — ​ ​ — ​ ​ — ​ ​ — Income producing - commercial real estate ​ 8,544 ​ 8,735 ​ 17,279 ​ 9,711 Owner occupied - commercial real estate ​ 7,065 ​ 3,690 ​ 10,755 ​ 6,463 Real estate mortgage - residential ​ 5,503 ​ 2,713 ​ 8,216 ​ 5,631 Construction - commercial and residential ​ 2,298 ​ 3,087 ​ 5,385 ​ 11,509 Home equity ​ 50 ​ 550 ​ 600 ​ 487 Other consumer ​ — ​ 6 ​ 6 ​ — Total ​ $ 24,967 ​ $ 33,995 ​ $ 58,962 ​ $ 48,729 (1) Excludes TDRs that were performing under their restructured terms totaling $ 12.3 million at June 30, 2020 and $ 16.6 million at December 31, 2019. (2) Gross interest income of $ 1.7 million and $ 1.2 million would have been recorded for the six months ended June 30, 2020 and 2019, respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while the interest actually recorded on such loans was $ 57 thousand and $ 86 thousand for the six months ended June 30, 2020 and 2019, respectively. 26 Table of Contents See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status. Pre Adoption of CECL Loans were considered impaired when, based on current information and events, it was probable the Company would be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. If a loan was impaired, a specific valuation allowance was allocated, if necessary, so that the loan was reported at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment was expected solely from the collateral. The Bank’s loan policy requires that loans be placed on nonaccrual if they are ninety days past-due, unless they are well secured and in the process of collection. Impaired loans, or portions thereof, were charged-off when deemed uncollectible. The following table presents, by class of loan, information related to impaired loans at December 31, 2019: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Unpaid ​ Recorded ​ Recorded ​ ​ ​ ​ ​ ​ ​ Average Recorded ​ Interest Income ​ ​ Contractual ​ Investment ​ Investment ​ Total ​ ​ ​ ​ Investment ​ Recognized ​ ​ Principal ​ With No ​ With ​ Recorded ​ Related ​ Year ​ Year (dollars in thousands) Balance Allowance Allowance Investment Allowance To Date To Date December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ 15,814 ​ $ 11,858 ​ $ 3,956 ​ $ 15,814 ​ $ 5,714 ​ $ 15,682 ​ $ 270 Income producing - commercial real estate ​ 14,093 ​ 2,713 ​ 11,380 ​ 14,093 ​ 2,145 ​ 18,133 ​ 382 Owner occupied - commercial real estate ​ 7,349 ​ 6,388 ​ 961 ​ 7,349 ​ 415 ​ 6,107 ​ 197 Real estate mortgage - residential ​ 5,631 ​ 3,175 ​ 2,456 ​ 5,631 ​ 650 ​ 5,638 ​ — Construction - commercial and residential ​ 11,509 ​ 11,101 ​ 408 ​ 11,509 ​ 100 ​ 8,211 ​ 92 Home equity ​ 487 ​ — ​ 487 ​ 487 ​ 100 ​ 487 ​ — Other consumer ​ — ​ — ​ — ​ — ​ — ​ — ​ — Total ​ $ 54,883 ​ $ 35,235 ​ $ 19,648 ​ $ 54,883 ​ $ 9,124 ​ $ 54,258 ​ $ 941 ​ Modifications A modification of a loan constitutes a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offers various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. The most common change in terms provided by the Company is an extension of an interest only term. As of June 30, 2020, all performing TDRs were categorized as interest-only modifications . Loans modified in a TDR for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates. In response to the COVID-19 pandemic and its economic impact to our customers, we implemented a short-term modification program that complies with the CARES Act and ASC 310-40 to provide temporary payment relief to those borrowers directly impacted by COVID-19 who were not more than 30 days past due as of December 31, 2019. This program allows for a deferral of payments for 90 days, which we may extend for an additional 90 days, for a maximum of 180 days on a cumulative and successive basis. The deferred payments along with interest accrued during the deferral period are due and payable on the maturity date. As of June 30, 2020, we granted temporary modifications on approximately 708 loans representing approximately $ 1.63 billion ( 20 % of total loans) in outstanding exposure. Some of these deferrals may not have met the criteria for treatment under U.S. GAAP as TDR. Additionally, none of the deferrals are reflected in the Company's asset quality measures (i.e. non-performing loans) due to the provision of the CARES Act that permits U.S. financial institutions to temporarily suspend the U.S. GAAP requirements to treat such short-term loan modifications as TDR. Similar provisions have also been confirmed by interagency guidance issued by the federal banking agencies and confirmed with staff members of the Financial Accounting Standards Board. 27 Table of Contents The following table presents by class, the recorded investment of loans modified in TDRs held by the Company for the periods ended June 30, 2020 and 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Income ​ Owner ​ ​ ​ ​ ​ ​ ​ ​ Number ​ ​ ​ ​ Producing - ​ Occupied - ​ Construction - ​ ​ ​ ​ ​ of ​ ​ ​ ​ Commercial ​ Commercial ​ Commercial ​ ​ ​ (dollars in thousands) Contracts Commercial Real Estate Real Estate Real Estate Total Troubled debt restructurings ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restructured accruing ​ 10 ​ $ 1,420 ​ $ 10,016 ​ $ 836 ​ $ — ​ $ 12,272 Restructured nonaccruing ​ 3 ​ 138 ​ 5,542 ​ 2,370 ​ — ​ 8,050 Total ​ 13 ​ $ 1,558 ​ $ 15,558 ​ $ 3,206 ​ $ — ​ $ 20,322 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific allowance ​ ​ ​ ​ $ 257 ​ $ 1,295 ​ $ — ​ $ — ​ $ 1,552 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restructured and subsequently defaulted ​ ​ ​ ​ $ 138 ​ $ 5,542 ​ $ 2,370 ​ $ — ​ $ 8,050 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ For the Six Months Ended June 30, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Income ​ Owner ​ ​ ​ ​ ​ ​ ​ Number ​ ​ ​ ​ Producing - ​ Occupied - ​ Construction - ​ ​ ​ ​ ​ of ​ ​ ​ ​ Commercial ​ Commercial ​ Commercial ​ ​ ​ (dollars in thousands) Contracts Commercial Real Estate Real Estate Real Estate Total Troubled debt restructurings ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restructured accruing ​ 7 ​ $ 909 ​ $ 4,390 ​ $ 3,309 ​ $ — ​ $ 8,608 Restructured nonaccruing ​ 4 ​ 2,831 ​ — ​ — ​ — ​ 2,831 Total ​ 11 ​ $ 3,740 ​ $ 4,390 ​ $ 3,309 ​ $ — ​ $ 11,439 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Specific allowance ​ ​ ​ ​ $ — ​ $ 1,000 ​ $ — ​ $ — ​ $ 1,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Restructured and subsequently defaulted ​ ​ ​ ​ $ — ​ $ 2,300 ​ $ — ​ $ — ​ $ 2,300 ​ The Company had thirteen TDR’s at June 30, 2020 totaling approximately $ 20.3 million. Ten of these loans totaling approximately $ 12.3 million are performing under their modified terms. For both the first six months of 2020 and 2019, there was one performing TDR loan, totaling $ 5.5 million and $ 2.3 million, respectively, that defaulted on its modified terms. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on non-accrual status. For the three months ended June 30, 2020, there were two restructured loans totaling approximately $ 870 thousand where the collateral was sold and the loans paid in full, as compared to the same period in 2019, when there was one restructured loan totaling approximately $ 4.8 million that had its collateral property sold for approximately $ 3 million and the remaining $ 1.8 million charged-off during the quarter. During the three months ended June 30, 2020, no loans were re-underwritten and removed from TDR status, as compared to the three months ended June 30, 2019, there was one loan totaling $ 10.4 million that was re-underwritten into two new loans which provided better collateral for the Bank. Commercial and consumer loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a TDR 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. For both the three months ended June 30, 2020 and 2019, there were no loans modified in a TDR. ​ ​ ​ Note 6. Leases A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Company adopted ASU No. 2016-02 “Leases” (Topic 842) and has adopted all subsequent ASUs that modified Topic 842. For the Company, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Company is the lessee. Substantially all of the leases in which the Company is the lessee are comprised of real estate property for branch offices, ATM locations, and corporate office space. Substantially all of our leases are classified as operating leases, and as such, were previously not recognized on the Company’s Consolidated Statements of Condition. With the adoption of Topic 842, operating lease agreements were 28 Table of Contents required to be recognized on the Consolidated Statements of Condition as a right-of-use (“ROU”) asset and a corresponding lease liability. As of June 30, 2020, the Company had $ 25.4 million of operating lease ROU assets and $ 27.1 million of operating lease liabilities on the Company’s Consolidated Balance Sheet. As of December 31, 2019, the Company had $ 27.4 million of operating lease ROU assets and $ 30.0 million of operating lease liabilities on the Company’s Consolidated Balance Sheet. The Company elects not to recognize ROU assets and lease liabilities arising from short-term leases, leases with initial terms of twelve months or less, or equipment leases (deemed immaterial) on the Consolidated Statements of Condition. Our leases contain terms and conditions of options to extend or terminate the lease which are recognized as part of the ROU assets and lease liabilities when an economic benefit to exercise the option exists and there is a 90 % probability that the Company will exercise the option. If these criteria are not met, the options are not included in our ROU assets and lease liabilities. As of June 30, 2020, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company’s ability to incur additional financial obligations. As of June 30, 2020, there were no leases that have been signed but did not yet commence as of the reporting date that create significant rights and obligations for the Company. The following table presents lease costs and other lease information. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended ​ (dollars in thousands) June 30, 2020 ​ June 30,2019 ​ Lease Cost ​ ​ ​ ​ ​ Operating Lease Cost (Cost resulting from lease payments) ​ $ 4,005 ​ $ 3,898 ​ Variable Lease Cost (Cost excluded from lease payments) ​ 518 ​ ​ 535 ​ Sublease Income ​ ( 174 ) ​ ​ ( 188 ) ​ Net Lease Cost ​ $ 4,349 ​ $ 4,245 ​ ​ ​ ​ ​ ​ ​ ​ ​ Operating Lease - Operating Cash Flows (Fixed Payments) ​ 4,419 ​ ​ 4,246 ​ Right-of-Use Assets - Operating Leases ​ 25,368 ​ ​ 28,214 ​ Weighted Average Lease Term - Operating Leases ​ 4.62 yrs ​ 5.59 yrs Weighted Average Discount Rate - Operating Leases ​ 4.00 % ​ ​ 4.00 % ​ ​ Future minimum payments for operating leases with initial or remaining terms of more than one year as of June 30, 2020 were as follows: ​ ​ ​ ​ ​ (dollars in thousands) ​ ​ Twelve Months Ended: ​ June 30, 2021 ​ $ 8,531 June 30, 2022 ​ ​ 6,745 June 30, 2023 ​ ​ 4,707 June 30, 2024 ​ ​ 4,107 June 30, 2025 ​ ​ 2,997 Thereafter ​ ​ 2,547 Total Future Minimum Lease Payments ​ ​ 29,634 Amounts Representing Interest ​ ​ ( 2,497 ) Present Value of Net Future Minimum Lease Payments ​ $ 27,137 ​ ​ ​ ​ Note 7. Other Derivatives The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. 29 Table of Contents Cash Flow Hedges of Interest Rate Risk The Company uses interest rate swap agreements to assist in its interest rate risk management. The Company’s objective in using interest rate derivatives designated as cash flow hedges is to add stability to interest expense and to better manage its exposure to interest rate movements. To accomplish this objective, the Company utilizes interest rate swaps as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank’s cost of funds. The notional amounts of the interest rate swaps designated as cash flow hedges do not represent amounts exchanged by the counterparties, but rather, the notional amount is used to determine, along with other terms of the derivative, the amounts to be exchanged between the counterparties. The interest rate swaps are designated as cash flow hedges and involve the receipt of variable rate amounts from one counterparty in exchange for the Company making fixed payments. The Company’s intent is to hedge its exposure to the variability in potential future interest rate conditions on existing financial instruments. For derivatives designated as cash flow hedges, changes in the fair value of the derivative are initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in cash flows of the derivative hedging instrument with the changes in cash flows of the designated hedged transactions. As of June 30, 2020 and December 31, 2019, the Company had one designated cash flow hedge notional interest rate swap transaction outstanding amounting to $ 100 million associated with the Company’s variable rate deposits. The Company recognized $ 829 thousand in noninterest income during March 2019 due to the termination of two of its interest rate swap transactions as part of the Company’s asset liability strategy as well as declines in market interest rates. Amounts reported in accumulated other comprehensive income related to designated cash flow hedge derivatives will be reclassified to interest income/expense as interest payments are made/received on the Company’s variable-rate assets/liabilities. During the next twelve months, the Company estimates (based on existing interest rates) that $ 1.3 million will be reclassified as an increase in interest expense. Non-designated Hedges Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. The Company entered into credit risk participation agreements ("RPAs") with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower's performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers' credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Credit-risk-related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. The Company is exposed to credit risk in the event of nonperformance by the interest rate derivative counterparty. The Company minimizes this risk by entering into derivative contracts with only large, stable financial institutions, and the Company has not experienced, and does not expect, any losses from counterparty nonperformance on the interest rate derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815, "Derivatives and Hedging." In addition, the interest rate derivative agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits. 30 Table of Contents The interest rate derivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party’s exposure; 2) if the Company defaults on any of its indebtedness (including default where repayment of the indebtedness has not been accelerated by the lender), then the Company could also be declared in default on its derivative obligations; 3) if the Company fails to maintain its status as a well-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements. As of June 30, 2020, the aggregate fair value of the derivative contract with credit risk contingent features (i.e., containing collateral posting or termination provisions based on our capital status) that was in a net liability position totaled $ 6.1 million. The Company has a minimum collateral posting threshold with its derivative counterparty. As of June 30, 2020, the Company was required to post collateral totaling $ 1.9 million with its derivative counterparty against its obligations under this agreement. If the Company had breached any provisions under the agreement at June 30, 2020, it could have been required to settle its obligations under the agreement at the termination value. The table below identifies the balance sheet category and fair value of the Company’s designated cash flow hedge derivative instruments and non-designated hedges as of June 30, 2020 (unaudited) and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30,2020 ​ December 31,2019 ​ ​ Notional ​ ​ ​ ​ Balance Sheet ​ Notional ​ ​ ​ ​ Balance Sheet Derivatives designated as hedging instruments Amount Fair Value Category Amount Fair Value Category Interest rate product ​ $ 100,000 ​ $ 1,330 ​ Other Liabilities ​ $ 100,000 ​ $ 206 ​ Other Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Derivatives not designated as hedging instruments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate product ​ $ 154,447 ​ $ 4,523 ​ Other Assets ​ $ 56,806 ​ $ 311 ​ Other Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest rate product ​ $ 154,447 ​ $ 4,818 ​ Other Liabilities ​ $ 56,806 ​ $ 319 ​ Other Liabilities Other Contracts ​ ​ 27,150 ​ ​ 150 ​ Other Liabilities ​ ​ 27,384 ​ ​ 86 ​ Other Liabilities ​ ​ $ 181,597 ​ $ 4,968 ​ Other Liabilities ​ $ 84,190 ​ $ 405 ​ Other Liabilities ​ 31 Table of Contents The table below presents the pre-tax net gains (losses) of the Company’s designated cash flow hedges for the three and six months ended June 30, 2020 and 2019 (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income ​ ​ ​ ​ ​ ​ ​ Location of Gain or (Loss) ​ Amount of Gain or (Loss) ​ ​ Amount of (Loss) Recognized in ​ Recognized from ​ Reclassified from Accumulated OCI ​ ​ OCI on Derivative ​ Accumulated Other ​ into Income Derivatives in Subtopic 815-20 Hedging ​ Three Months Ended June 30, ​ Comprehensive Income into ​ Three Months Ended June 30, Relationships (dollars in thousands) 2020 2019 Income 2020 2019 Derivatives in Cash Flow Hedging Relationships ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest Rate Products $ ( 27 ) ​ $ ( 834 ) Interest Expense ​ $ ( 394 ) ​ $ 313 Total $ ( 27 ) ​ $ ( 834 ) ​ ​ $ ( 394 ) ​ $ 313 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Location of Gain or (Loss) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Recognized from ​ ​ ​ ​ ​ ​ Accumulated Other ​ Amount of Gain or (Loss) ​ ​ Amount of (Loss) Recognized in ​ Comprehensive Income into ​ Reclassified from Accumulated OCI ​ ​ OCI on Derivative ​ Income ​ into Income Derivatives in Subtopic 815-20 Hedging ​ Six Months Ended June 30, ​ ​ ​ Six Months Ended June 30, Relationships (dollars in thousands) ​ 2020 ​ 2019 ​ ​ ​ 2020 ​ 2019 Derivatives in Cash Flow Hedging Relationships ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Interest Rate Products ​ $ ( 1,548 ) ​ $ ( 1,867 ) ​ Interest Expense ​ $ ( 366 ) ​ $ 775 Interest Rate Products ​ ​ — ​ ​ — ​ Gain on sale of investment securities ​ ​ — ​ ​ 829 Total ​ $ ( 1,548 ) ​ $ ( 1,867 ) ​ ​ ​ $ ( 366 ) ​ $ 1,604 ​ The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ The Effect of Fair Value and Cash Flow Hedge Accounting on the Statements of Operation ​ ​ Location and Amount of Gain or (Loss) Recognized in Income on ​ ​ Fair Value and Cash Flow Hedging Relationships (in 000's) ​ ​ Three Months Ended June 30, ​ Six Months Ended June 30, ​ ​ 2020 ​ 2019 ​ 2020 ​ 2019 ​ 2019 ​ ​ Interest ​ Interest ​ Interest ​ Gain on sale of ​ Expense Expense Expense investment securities Total amounts of income and expense line items presented in the statement of financial performance in which the effects of fair value or cash flow hedges are recorded ​ $ ( 394 ) ​ $ 313 ​ $ ( 366 ) ​ $ 775 ​ $ 829 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain or (loss) on cash flow hedging relationships in Subtopic 815-20 ​ ​ ​ ​ ​ ​ ​ Interest contracts ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount of gain or (loss) reclassified from accumulated other comprehensive income into income ​ $ ( 394 ) ​ $ 313 ​ $ ( 366 ) ​ $ 775 ​ $ — Amount of gain or (loss) reclassified from accumulated other comprehensive income into income as a result that a forecasted transaction is no longer probable of occurring ​ $ — ​ $ — ​ $ — ​ $ — ​ $ 829 Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Included Component ​ $ ( 394 ) ​ $ 313 ​ $ ( 366 ) ​ $ 775 ​ $ — Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income - Excluded Component ​ $ — ​ $ — ​ $ — ​ $ — ​ $ — ​ 32 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Effect of Derivatives Not Designated as Hedging Instruments on the Statements of Operation ​ ​ ​ ​ Amount of Gain or (Loss) ​ Amount of (Loss) ​ ​ ​ ​ Recognized in Income on ​ Recognized in Income on ​ ​ Location of Gain or ​ Derivative ​ Derivative Derivatives Not Designated as Hedging (Loss) Recognized in Three Months Ended June 30, Six Months Ended June 30, Instruments under Subtopic 815-20 ​ Income on Derivative ​ 2020 2019 ​ 2020 2019 Interest Rate Products Other income / (expense) ​ ( 118 ) ​ — ​ ( 286 ) ​ — Other Contracts Other income / (expense) ​ ​ 2 ​ ( 29 ) ​ ​ ( 64 ) ​ ( 42 ) Total ​ ​ ​ ​ ( 116 ) ​ ( 29 ) ​ ​ ( 350 ) ​ ( 42 ) ​ Balance Sheet Offsetting : Our designated cash flow hedge interest rate derivatives are eligible for offset in the Consolidated Balance Sheets and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally offsets such financial instruments for financial reporting purposes. The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s cash flow hedge derivatives as of June 30, 2020 (unaudited) and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of June 30, 2020 ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amounts of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Assets ​ Gross Amounts Not Offset in the ​ ​ Gross ​ Amounts ​ presented ​ Balance Sheet ​ ​ Amounts of ​ Offset in ​ in the ​ ​ ​ ​ Cash ​ ​ ​ ​ ​ Recognized ​ the Balance ​ Balance ​ Financial ​ Collateral ​ Net Offsetting of Derivative Assets (dollars in thousands) ​ Assets ​ Sheet ​ Sheet ​ Instruments ​ Posted ​ Amount Derivatives ​ $ 4,523 ​ $ — ​ $ 4,523 $ — ​ $ — ​ $ 4,523 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amounts of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Liabilities ​ Gross Amounts Not Offset in the ​ ​ Gross ​ Amounts ​ presented ​ Balance Sheet ​ ​ Amounts of ​ Offset in ​ in the ​ ​ ​ ​ Cash ​ ​ ​ ​ ​ Recognized ​ the Balance ​ Balance ​ Financial ​ Collateral ​ Net Offsetting of Derivative Liabilities (dollars in thousands) ​ Liabilities ​ Sheet ​ Sheet ​ Instruments ​ Posted ​ Amount Derivatives ​ $ 6,297 ​ $ — ​ $ 6,297 ​ $ — ​ $ 2,170 ​ $ 4,127 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ As of December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amounts of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Assets ​ Gross Amounts Not Offset in the ​ ​ Gross ​ Amounts ​ presented ​ Balance Sheet ​ ​ Amounts of ​ Offset in ​ in the ​ ​ ​ ​ Cash ​ ​ ​ ​ ​ Recognized ​ the Balance ​ Balance ​ Financial ​ Collateral ​ Net Offsetting of Derivative Assets (dollars in thousands) ​ Assets ​ Sheet ​ Sheet ​ Instruments ​ Posted ​ Amount Derivatives ​ $ 311 ​ $ — ​ $ 311 ​ $ — ​ $ — ​ $ 311 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amounts of ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Gross ​ Liabilities ​ Gross Amounts Not Offset in the ​ ​ Gross ​ Amounts ​ presented ​ Balance Sheet ​ ​ Amounts of ​ Offset in ​ in the ​ ​ ​ ​ Cash ​ ​ ​ ​ ​ Recognized ​ the Balance ​ Balance ​ Financial ​ Collateral ​ Net Offsetting of Derivative Liabilities (dollars in thousands) ​ Liabilities ​ Sheet ​ Sheet ​ Instruments ​ Posted ​ Amount Derivatives ​ $ 611 ​ $ — ​ $ 611 ​ $ — ​ $ 500 ​ $ 111 ​ ​ ​ 33 Table of Contents Note 8. Other Real Estate Owned The activity within Other Real Estate Owned (“OREO”) for the three and six months ended June 30, 2020 and 2019 (unaudited) is presented in the table below. There were no residential real estate loans in the process of foreclosure as of June 30, 2020. For the three and six months ended June 30, 2020 and 2019, there were no sales of OREO property. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ Six Months Ended June 30, (dollars in thousands) ​ 2020 2019 2020 2019 Beginning Balance ​ $ 8,237 ​ $ 1,394 ​ $ 1,487 ​ $ 1,394 Real estate acquired from borrowers ​ — ​ — ​ 6,750 ​ — Properties sold ​ — ​ — ​ — ​ — Ending Balance ​ $ 8,237 ​ $ 1,394 ​ $ 8,237 ​ $ 1,394 ​ ​ Note 9. Long-Term Borrowings The following table presents information related to the Company’s long-term borrowings as of June 30, 2020 (unaudited) and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands) June 30, 2020 December 31, 2019 Subordinated Notes, 5.75 % ​ $ 70,000 ​ $ 70,000 Subordinated Notes, 5.0 % ​ 150,000 ​ 150,000 FHLB Advance, 1.81 % ​ ​ 50,000 ​ ​ — Less: unamortized debt issuance costs ​ ( 2,118 ) ​ ( 2,313 ) Long-term borrowings ​ $ 267,882 ​ $ 217,687 ​ On August 5, 2014, the Company completed the sale of $ 70.0 million of its 5.75 % subordinated notes, due September 1, 2024 (the “2024 Notes”). The 2024 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $ 68.8 million, which includes $ 1.2 million in deferred financing costs which are being amortized over the life of the 2024 Notes. On July 26, 2016, the Company completed the sale of $ 150.0 million of its 5.00 % Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the “2026 Notes”). The 2026 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $ 147.35 million, which includes $ 2.6 million in deferred financing costs which are being amortized over the life of the 2026 Notes. On February 26, 2020, the Bank borrowed $ 50 million dollars under its borrowing arrangement with the Federal Home Loan Bank of Atlanta at a fixed rate of 1.81 % with a maturity date of February 26, 2030 as part of the overall asset liability strategy and to support loan growth. ​ 34 Table of Contents Note 10. Net Income per Common Share The calculation of net income per common share for the three and six months ended June 30, 2020 and 2019 (unaudited) was as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ Six Months Ended June 30, (dollars and shares in thousands, except per share data) ​ 2020 ​ 2019 ​ 2020 ​ 2019 Basic: ​ ​ ​ ​ ​ ​ Net income ​ $ 28,856 ​ $ 37,243 ​ $ 51,979 ​ $ 70,992 Average common shares outstanding ​ 32,225 ​ 34,540 ​ 32,537 ​ 34,511 Basic net income per common share ​ $ 0.90 ​ $ 1.08 ​ $ 1.60 ​ $ 2.06 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Diluted: ​ ​ ​ ​ ​ ​ ​ Net income ​ $ 28,856 ​ $ 37,243 ​ $ 51,979 ​ $ 70,992 Average common shares outstanding ​ 32,225 ​ 34,540 ​ 32,537 ​ 34,511 Adjustment for common share equivalents ​ 16 ​ 25 ​ 24 ​ 38 Average common shares outstanding-diluted ​ 32,241 ​ 34,565 ​ 32,561 ​ 34,549 Diluted net income per common share ​ $ 0.90 ​ $ 1.08 ​ $ 1.60 ​ $ 2.05 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Anti-dilutive shares ​ 49 ​ 2 ​ 26 ​ 19 ​ ​ 35 Table of Contents Note 11. Other Comprehensive Income The following table presents the components of other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 (unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (dollars in thousands) Before Tax Tax Effect Net of Tax Three Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ Net unrealized gain on securities available-for-sale ​ $ 2,506 ​ $ ( 636 ) ​ $ 1,870 Less: Reclassification adjustment for net gains included in net income ​ ( 713 ) ​ ( 176 ) ​ ( 537 ) Total unrealized gain ​ 1,793 ​ ( 812 ) ​ 1,333 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on derivatives ​ ( 28 ) ​ 3 ​ ( 25 ) Less: Reclassification adjustment for loss included in net income ​ 393 ​ 98 ​ 295 Total unrealized gain ​ 365 ​ 101 ​ 270 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Comprehensive Income ​ $ 2,158 ​ $ ( 711 ) ​ $ 1,603 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, 2019 ​ ​ ​ Net unrealized gain on securities available-for-sale ​ $ 7,976 ​ $ 2,051 ​ $ 5,925 Less: Reclassification adjustment for net gains included in net income ​ ( 563 ) ​ ( 146 ) ​ ( 417 ) Total unrealized gain ​ 7,413 ​ 1,905 ​ 5,508 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on derivatives ​ ( 171 ) ​ ( 342 ) ​ ( 513 ) Less: Reclassification adjustment for gain included in net income ​ ( 319 ) ​ ( 83 ) ​ ( 236 ) Total unrealized loss ​ ( 490 ) ​ 259 ​ ( 749 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Comprehensive Income ​ $ 6,923 ​ $ 2,164 ​ $ 4,759 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ Net unrealized gain on securities available-for-sale ​ $ 16,172 ​ $ ( 4,483 ) ​ $ 11,689 Less: Reclassification adjustment for net gains included in net income ​ 1,535 ​ 391 ​ 1,144 Total unrealized gain ​ 17,707 ​ ( 4,092 ) ​ 12,833 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on derivatives ​ ( 2,017 ) ​ 671 ​ ( 1,346 ) Less: Reclassification adjustment for gain included in net income ​ 299 ​ 77 ​ 222 Total unrealized loss ​ ( 1,718 ) ​ 748 ​ ( 1,124 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Comprehensive Income ​ $ 15,989 ​ $ ( 3,344 ) ​ $ 11,709 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, 2019 ​ ​ ​ Net unrealized gain on securities available-for-sale ​ $ 16,127 ​ $ ( 4,148 ) ​ $ 11,979 Less: Reclassification adjustment for net gains included in net income ​ ( 1,475 ) ​ ( 383 ) ​ ( 1,092 ) Total unrealized gain ​ 14,652 ​ ( 4,531 ) ​ 10,887 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Net unrealized loss on derivatives ​ ( 2,234 ) ​ 569 ​ ( 1,665 ) Less: Reclassification adjustment for gain included in net income ​ ( 1,594 ) ​ ( 414 ) ​ ( 1,180 ) Total unrealized loss ​ ( 3,828 ) ​ 155 ​ ( 2,845 ) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other Comprehensive Income ​ $ 10,824 ​ $ ( 4,376 ) ​ $ 8,042 ​ 36 Table of Contents The following table presents the changes in each component of accumulated other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2020 and 2019 (unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securities ​ ​ ​ ​ Accumulated Other ​ ​ Available ​ ​ ​ ​ Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Three Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ Balance at Beginning of Period ​ $ 14,609 ​ $ ( 1,544 ) ​ $ 13,065 Other comprehensive income before reclassifications ​ 1,870 ​ 565 ​ 2,435 Amounts reclassified from accumulated other comprehensive income (loss) ​ ( 537 ) ​ ( 295 ) ​ ( 832 ) Net other comprehensive income during period ​ 1,333 ​ 270 ​ 1,603 Balance at End of Period ​ $ 15,942 ​ $ ( 1,274 ) ​ $ 14,668 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securities ​ ​ ​ ​ Accumulated Other ​ ​ Available ​ ​ ​ ​ Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Three Months Ended June 30, 2019 ​ ​ ​ Balance at Beginning of Period ​ $ ( 1,665 ) ​ $ 673 ​ $ ( 992 ) Other comprehensive income (loss) before reclassifications ​ 5,925 ​ ( 513 ) ​ 5,412 Amounts reclassified from accumulated other comprehensive income ​ ( 417 ) ​ ( 236 ) ​ ( 653 ) Net other comprehensive income (loss) during period ​ 5,508 ​ ( 749 ) ​ 4,759 Balance at End of Period ​ $ 3,843 ​ $ ( 76 ) ​ $ 3,767 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securities ​ ​ ​ ​ Accumulated Other ​ ​ Available ​ ​ ​ ​ Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Six Months Ended June 30, 2020 ​ ​ ​ ​ ​ ​ Balance at Beginning of Period ​ $ 3,109 ​ $ ( 150 ) ​ $ 2,959 Other comprehensive income (loss) before reclassifications ​ 13,977 ​ ( 902 ) ​ 13,075 Amounts reclassified from accumulated other comprehensive income ​ ( 1,144 ) ​ ( 222 ) ​ ( 1,366 ) Net other comprehensive income (loss) during period ​ 12,833 ​ ( 1,124 ) ​ 11,709 Balance at End of Period ​ $ 15,942 ​ $ ( 1,274 ) ​ $ 14,668 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Securities ​ ​ ​ ​ Accumulated Other ​ ​ Available ​ ​ ​ ​ Comprehensive Income (dollars in thousands) For Sale Derivatives (Loss) Six Months Ended June 30, 2019 ​ ​ ​ Balance at Beginning of Period ​ $ ( 7,044 ) ​ $ 2,769 ​ $ ( 4,275 ) Other comprehensive income (loss) before reclassifications ​ 11,979 ​ ( 1,665 ) ​ 10,314 Amounts reclassified from accumulated other comprehensive income ​ ( 1,092 ) ​ ( 1,180 ) ​ ( 2,272 ) Net other comprehensive income (loss) during period ​ 10,887 ​ ( 2,845 ) ​ 8,042 Balance at End of Period ​ $ 3,843 ​ $ ( 76 ) ​ $ 3,767 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 37 Table of Contents The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and six months ended June 30, 2020 and 2019 (unaudited). ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Reclassified from ​ ​ ​ ​ Accumulated Other ​ Affected Line Item in Details about Accumulated Other Comprehensive (Loss) Income ​ the Statement Where Comprehensive Income Components ​ Three Months Ended June 30, ​ Net Income is Presented (dollars in thousands) ​ 2020 2019 ​ Realized gain on sale of investment securities ​ $ 713 ​ $ 563 ​ Gain on sale of investment securities Interest income derivative deposits ​ 393 ​ 319 ​ Interest expense on deposits Income tax expense ​ ( 274 ) ​ ( 229 ) ​ Income Tax Expense Total Reclassifications for the Period ​ $ 832 ​ $ 653 ​ Net Income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Amount Reclassified from ​ ​ ​ ​ Accumulated Other ​ Affected Line Item in Details about Accumulated Other Comprehensive (Loss) Income ​ the Statement Where Comprehensive Income Components ​ Six Months Ended June 30, ​ Net Income is Presented (dollars in thousands) ​ 2020 2019 ​ Realized gain on sale of investment securities ​ $ 1,535 ​ $ 1,475 ​ Gain on sale of investment securities Realized gain on swap termination ​ ​ — ​ ​ 829 ​ Gain on sale of investment securities Interest income derivative deposits ​ 299 ​ 765 ​ Interest expense on deposits Income tax expense ​ ( 468 ) ​ ( 797 ) ​ Income Tax Expense Total Reclassifications for the Period ​ $ 1,366 ​ $ 2,272 ​ Net Income ​ ​ Note 12. Fair Value Measurements The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. In estimating fair value, the Company utilizes valuation techniques that are consistent with the market approach, the income approach and/or the cost approach. Such valuation techniques are consistently applied. Inputs to valuation techniques include the assumptions that market participants would use in pricing an asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1 Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets. Level 2 Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale. Level 3 Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investments, retained interests from securitizations, and certain collateralized debt obligations. 38 Table of Contents Assets and Liabilities Recorded at Fair Value on a Recurring Basis The tables below present the recorded amount of assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 (unaudited) and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Quoted Prices ​ Inputs ​ Inputs ​ Total (dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value) June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Assets: ​ ​ ​ ​ ​ ​ ​ ​ Investment securities available-for-sale: ​ ​ ​ ​ ​ ​ ​ ​ U. S. agency securities ​ $ — ​ $ 117,054 ​ $ — ​ $ 117,054 Residential mortgage backed securities ​ — ​ 531,528 ​ — ​ 531,528 Municipal bonds ​ — ​ 90,694 ​ — ​ 90,694 Corporate bonds ​ — ​ — ​ 32,920 ​ 32,920 Other equity investments ​ ​ — ​ ​ — ​ ​ 198 ​ ​ 198 Loans held for sale ​ — ​ 68,433 ​ — ​ 68,433 Interest Rate Caps ​ ​ — ​ ​ 4,454 ​ ​ — ​ ​ 4,454 Total assets measured at fair value on a recurring basis as of June 30, 2020 ​ $ — ​ $ 812,163 ​ $ 33,118 ​ $ 845,281 Liabilities: ​ ​ ​ ​ Interest rate swap derivatives ​ $ — ​ $ 1,330 ​ $ — ​ $ 1,330 Derivative liability ​ ​ — ​ ​ 150 ​ ​ — ​ ​ 150 Interest Rate Caps ​ ​ — ​ ​ 4,748 ​ ​ — ​ ​ 4,748 Total liabilities measured at fair value on a recurring basis as of June 30, 2020 ​ $ — ​ $ 6,228 ​ $ — ​ $ 6,228 December 31, 2019 ​ ​ ​ ​ Assets: ​ ​ ​ ​ Investment securities available-for-sale: ​ ​ ​ ​ U. S. agency securities ​ $ — ​ $ 179,794 ​ $ — ​ $ 179,794 Residential mortgage backed securities ​ — ​ 543,852 ​ — ​ 543,852 Municipal bonds ​ — ​ 73,931 ​ — ​ 73,931 Corporate bonds ​ — ​ — ​ 10,733 ​ 10,733 U.S. Treasury ​ ​ — ​ ​ 34,855 ​ ​ — ​ ​ 34,855 Other equity investments ​ — ​ — ​ 198 ​ 198 Loans held for sale ​ — ​ 56,707 ​ — ​ 56,707 Interest Rate Caps ​ ​ — ​ ​ 317 ​ ​ — ​ ​ 317 Mortgage banking derivatives ​ — ​ — ​ 280 ​ 280 Total assets measured at fair value on a recurring basis as of December 31, 2019 ​ $ — ​ $ 889,456 ​ $ 11,211 ​ $ 900,667 Liabilities: ​ ​ ​ ​ Interest rate swap derivatives ​ $ — ​ $ 203 ​ $ — ​ $ 203 Derivative liability ​ ​ — ​ ​ 86 ​ ​ — ​ ​ 86 Interest Rate Caps ​ ​ — ​ ​ 312 ​ ​ — ​ ​ 312 Mortgage banking derivatives ​ ​ — ​ ​ — ​ ​ 66 ​ ​ 66 Total liabilities measured at fair value on a recurring basis as of December 31, 2019 ​ $ — ​ $ 601 ​ $ 66 ​ $ 667 ​ 39 Table of Contents Investment Securities Available-for-Sale: Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair value is measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. agency debt securities, mortgage backed securities issued by Government Sponsored Entities (“GSE’s”) and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the carrying amounts approximate the fair value. Loans held for sale : The Company has elected to carry loans held for sale at fair value. This election reduces certain timing differences in the Consolidated Statement of Operations and better aligns with the management of the portfolio from a business perspective. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Operations. Gains and losses on sales of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Operations. As such, the Company classifies loans subjected to fair value adjustments as Level 2 valuation. The following tables summarize the difference between the aggregate fair value and the aggregate unpaid principal balance for loans held for sale measured at fair value as of June 30, 2020 (unaudited) and December 31, 2019. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2020 ​ ​ ​ ​ ​ Aggregate ​ ​ ​ ​ ​ ​ ​ ​ Unpaid ​ ​ ​ ​ ​ ​ ​ ​ Principal ​ ​ ​ (dollars in thousands) Fair Value Balance Difference Loans held for sale ​ $ 68,433 ​ $ 67,397 ​ $ 1,036 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ Aggregate ​ ​ ​ ​ ​ ​ ​ ​ Unpaid ​ ​ ​ ​ ​ ​ ​ ​ Principal ​ ​ ​ (dollars in thousands) Fair Value Balance Difference Loans held for sale ​ $ 56,707 ​ $ 55,834 ​ $ 873 ​ No residential mortgage loans held for sale were 90 or more days past due or on nonaccrual status as of June 30, 2020 or December 31, 2019. Interest rate swap derivatives: These derivative instruments consist of interest rate swap agreements, which are accounted for as cash flow hedges under ASC 815. The Company’s derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration. Credit Risk Participation Agreements : The Company enters into credit risk participation agreements (“RPAs”) with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower’s performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers’ credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Accordingly, RPAs fall within Level 2. 40 Table of Contents Interest Rate Caps: The Company entered into an interest rate cap agreement ("cap") with an institutional counterparty, under which the Company will receive cash if and when market rates exceed the cap's strike rate. The fair value of the cap is calculated by determining the total expected asset or liability exposure of the derivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities. Accordingly, the cap falls within Level 2. Mortgage banking derivatives: The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing. The following is a reconciliation of activity for assets and liabilities measured at fair value based on Significant Other Unobservable Inputs (Level 3): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment ​ Mortgage Banking ​ ​ ​ (dollars in thousands) Securities Derivatives Total Assets: ​ ​ ​ Beginning balance at January 1, 2020 ​ $ 10,931 ​ $ 280 ​ $ 11,211 Realized gain (loss) included in earnings ​ 442 ​ ( 280 ) ​ 162 Unrealized gain included in other comprehensive income ​ ​ 1,280 ​ ​ — ​ ​ 1,280 Purchases of available-for-sale securities ​ ​ 41,547 ​ ​ — ​ ​ 41,547 Principal redemption ​ ( 21,082 ) ​ — ​ ( 21,082 ) Ending balance at June 30, 2020 ​ $ 33,118 ​ $ — ​ $ 33,118 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ Beginning balance at January 1, 2020 ​ $ — ​ $ 66 ​ $ 66 Realized loss included in earnings ​ — ​ ( 66 ) ​ ( 66 ) Principal redemption ​ — ​ — ​ — Ending balance at June 30, 2020 ​ $ — ​ $ — ​ $ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Investment ​ Mortgage Banking ​ ​ ​ (dollars in thousands) Securities Derivatives Total Assets: ​ ​ ​ Beginning balance at January 1, 2019 ​ $ 9,794 ​ $ 229 ​ $ 10,023 Realized (loss) gain included in earnings ​ ( 20 ) ​ 51 ​ 31 Unrealized gain included in other comprehensive income ​ ​ 131 ​ ​ — ​ ​ 131 Purchases of available-for-sale securities ​ 4,030 ​ — ​ 4,030 Principal redemption ​ ( 3,004 ) ​ — ​ ( 3,004 ) Ending balance at December 31, 2019 ​ $ 10,931 ​ $ 280 ​ $ 11,211 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities: ​ ​ ​ Beginning balance at January 1, 2019 ​ $ — ​ $ 269 ​ $ 269 Realized gain included in earnings ​ — ​ ( 203 ) ​ ( 203 ) Principal redemption ​ — ​ — ​ — Ending balance at December 31, 2019 ​ $ — ​ $ 66 ​ $ 66 ​ The other equity securities classified as Level 3 consist of equity investments in the form of common stock of two local banking companies which are not publicly traded, and for which the carrying amount approximates fair value. ​ 41 Table of Contents Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis The Company measures certain assets at fair value on a nonrecurring basis and the following is a general description of the methods used to value such assets. At June 30, 2020, substantially all of the Company’s individually evaluated loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, individually evaluated loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3. Pre Adoption of CECL : The Company did not record loans at fair value on a recurring basis; however, from time to time, a loan was considered impaired and an allowance for loan loss was established. The Company considered a loan impaired when it was probable that the Company would be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management had determined that nonaccrual loans and loans that had their terms restructured in a TDR met this impaired loan definition. Once a loan was identified as individually impaired, management measures impairment in accordance with ASC Topic 310, “Receivables.” The fair value of impaired loans was estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represented loans for which the fair value of expected repayments or collateral exceeded the recorded investment in such loans. Other real estate owned : Other real estate owned is initially recorded at fair value less estimated selling costs. Fair value is based upon independent market prices, appraised values of the collateral or management’s estimation of the value of the collateral, which the Company classifies as a Level 3 valuation. Assets measured at fair value on a nonrecurring basis are included in the table below: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Other ​ ​ ​ ​ ​ ​ ​ Observable ​ Unobservable ​ ​ ​ ​ Quoted Prices ​ Inputs ​ Inputs ​ Total (dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value) June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ — ​ $ — ​ $ 18,047 ​ $ 18,047 Income producing - commercial real estate ​ — ​ — ​ 27,295 ​ 27,295 Owner occupied - commercial real estate ​ — ​ — ​ 10,815 ​ 10,815 Real estate mortgage - residential ​ — ​ — ​ 7,960 ​ 7,960 Construction - commercial and residential ​ — ​ — ​ 5,385 ​ 5,385 Home equity ​ — ​ — ​ 600 ​ 600 Other consumer ​ ​ — ​ ​ — ​ ​ 6 ​ ​ 6 Other real estate owned ​ — ​ — ​ 8,237 ​ 8,237 Total assets measured at fair value on a nonrecurring basis as of June 30, 2020 ​ $ — ​ $ — ​ $ 78,345 ​ $ 78,345 ​ 42 Table of Contents ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ Significant ​ ​ ​ ​ ​ ​ ​ Other ​ Other ​ ​ ​ ​ ​ ​ ​ ​ Observable ​ Unobservable ​ ​ ​ ​ ​ Quoted Prices ​ Inputs ​ Inputs ​ Total (dollars in thousands) (Level 1) (Level 2) (Level 3) (Fair Value) December 31, 2019 ​ ​ ​ ​ ​ ​ ​ ​ Impaired loans: ​ ​ ​ ​ ​ ​ ​ ​ Commercial ​ $ — ​ $ — ​ $ 10,100 ​ $ 10,100 Income producing - commercial real estate ​ — ​ — ​ 11,948 ​ 11,948 Owner occupied - commercial real estate ​ — ​ — ​ 6,934 ​ 6,934 Real estate mortgage - residential ​ — ​ — ​ 4,981 ​ 4,981 Construction - commercial and residential ​ — ​ — ​ 11,409 ​ 11,409 Home equity ​ — ​ — ​ 387 ​ 387 Other real estate owned ​ — ​ — ​ 1,487 ​ 1,487 Total assets measured at fair value on a nonrecurring basis as of December 31, 2019 ​ $ — ​ $ — ​ $ 47,246 ​ $ 47,246 ​ Fair Value of Financial Instruments The Company discloses fair value information about financial instruments for which it is practicable to estimate the value, whether or not such financial instruments are recognized on the balance sheet. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by quoted market price, if one exists. Quoted market prices, if available, are shown as estimates of fair value. Because no quoted market prices exist for a portion of the Company’s financial instruments, the fair value of such instruments has been derived based on management’s assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates are only indicative of individual financial instrument values and should not be considered an indication of the fair value of the Company taken as a whole. 43 Table of Contents The estimated fair value of the Company’s financial instruments at June 30, 2020 and December 31, 2019 are as follows: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fair Value Measurements ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Other ​ Significant ​ ​ ​ ​ ​ ​ ​ ​ Quoted ​ Observable ​ Unobservable ​ ​ Carrying ​ ​ ​ ​ Prices ​ Inputs ​ Inputs (dollars in thousands) Value Fair Value (Level 1) (Level 2) (Level 3) June 30, 2020 ​ ​ ​ ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ ​ ​ ​ Cash and due from banks ​ $ 12,199 ​ $ 12,199 ​ $ — ​ $ 12,199 ​ $ — Federal funds sold ​ 25,466 ​ 25,466 ​ — ​ 25,466 ​ — Interest bearing deposits with other banks ​ 598,377 ​ 598,377 ​ — ​ 598,377 ​ — Investment securities ​ 772,394 ​ 772,394 ​ — ​ 719,212 ​ 53,182 Federal Reserve and Federal Home Loan Bank stock ​ 40,018 ​ 40,018 ​ — ​ 40,018 ​ — Loans held for sale ​ 68,433 ​ 68,433 ​ — ​ 68,433 ​ — Loans ​ 7,912,965 ​ 7,828,639 ​ — ​ — ​ 7,828,639 Bank owned life insurance ​ 75,913 ​ 75,913 ​ — ​ 75,913 ​ — Annuity investment ​ 14,480 ​ 14,480 ​ — ​ 14,480 ​ — Interest Rate Caps ​ ​ 4,454 ​ ​ 4,454 ​ ​ — ​ ​ 4,454 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ Noninterest bearing deposits ​ 2,416,058 ​ 2,416,058 ​ — ​ 2,416,058 ​ — Interest bearing deposits ​ 4,366,421 ​ 4,366,421 ​ — ​ 4,366,421 ​ — Certificates of deposit ​ 1,153,493 ​ 1,149,418 ​ — ​ 1,149,418 ​ — Customer repurchase agreements ​ 31,198 ​ 31,198 ​ — ​ 31,198 ​ — Borrowings ​ 567,882 ​ 548,808 ​ — ​ 548,808 ​ — Interest rate swap derivatives ​ ​ 1,330 ​ ​ 1,330 ​ ​ ​ ​ ​ 1,330 ​ ​ — Derivative liability ​ ​ 150 ​ ​ 150 ​ ​ — ​ ​ 150 ​ ​ — Interest Rate Caps ​ ​ 4,748 ​ ​ 4,748 ​ ​ — ​ ​ 4,748 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ December 31, 2019 ​ ​ ​ ​ ​ Assets ​ ​ ​ ​ ​ Cash and due from banks ​ $ 7,539 ​ $ 7,539 ​ $ — ​ $ 7,539 ​ $ — Federal funds sold ​ 38,987 ​ 38,987 ​ — ​ 38,987 ​ — Interest bearing deposits with other banks ​ 195,447 ​ 195,447 ​ — ​ 195,447 ​ — Investment securities ​ 843,363 ​ 843,363 ​ — ​ 832,432 ​ 10,931 Federal Reserve and Federal Home Loan Bank stock ​ 35,194 ​ 35,194 ​ — ​ 35,194 ​ — Loans held for sale ​ 56,707 ​ 56,707 ​ — ​ 56,707 ​ — Loans ​ 7,472,090 ​ 7,550,249 ​ — ​ — ​ 7,550,249 Bank owned life insurance ​ 75,724 ​ 75,724 ​ — ​ 75,724 ​ — Annuity investment ​ 14,697 ​ 14,697 ​ — ​ 14,697 ​ — Interest Rate Caps ​ ​ 280 ​ ​ 280 ​ ​ — ​ ​ 280 ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Liabilities ​ ​ ​ ​ ​ Noninterest bearing deposits ​ 2,064,367 ​ 2,064,367 ​ — ​ 2,064,367 ​ — Interest bearing deposits ​ 3,876,985 ​ 3,876,985 ​ — ​ 3,876,985 ​ — Certificates of deposit ​ 1,283,039 ​ 1,291,688 ​ — ​ 1,291,688 ​ — Customer repurchase agreements ​ 30,980 ​ 30,980 ​ — ​ 30,980 ​ — Borrowings ​ 467,687 ​ 328,330 ​ — ​ 328,330 ​ — Interest rate swap derivatives ​ ​ 203 ​ ​ 203 ​ ​ ​ ​ ​ 203 ​ ​ — Derivative liability ​ ​ 86 ​ ​ 86 ​ ​ — ​ ​ 86 ​ ​ — Interest Rate Caps ​ ​ 312 ​ ​ 312 ​ ​ — ​ ​ 312 ​ ​ — Mortgage banking derivatives ​ 66 ​ 66 ​ — ​ — ​ 66 ​ ​ ​ ​ ​ 44 Table of Contents