UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September 30, 2022~~March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number 0-25923

Eagle Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Maryland

52-2061461

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

7830 Old Georgetown Road, Third Floor, Bethesda, Maryland

20814

(Address of principal executive offices)

(Zip Code)

(301) 986-1800

(Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

EGBN

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐

Non-accelerated filer ☐ Smaller Reporting Company ☐

Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act Yes ☐ No ☒

As of ~~November 4, 2022,~~May 5, 2023, the registrant had ~~31,918,670~~30,716,448 shares of Common Stock outstanding.

EAGLE BANCORP, INC.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Consolidated Balance Sheets at ~~September 30, 2022~~ March 31, 2023 and December 31, ~~2021~~202 2 (unaudited)	3
	Consolidated Statements of Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	4
	Consolidated Statements of Comprehensive (Loss) Income for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	5
	Consolidated Statements of Changes in Shareholders' Equity for the Three ~~and Nine~~ Months Ended ~~September 30, 2022~~March 31, 2023 and ~~2021~~ 202 2 (unaudited)	6
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	87
	Notes to Consolidated Financial Statements	109

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3834

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6756

Item 4.	Controls and Procedures	6757

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	6858

Item 1A.	Risk Factors	6858

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6858

Item 3.	Defaults Upon Senior Securities	6858

Item 4.	Mine Safety Disclosures	6858

Item 5.	Other Information	6858

Item 6.	Exhibits	6959

Signatures		7060

PART I - FINANCIAL INFORMATION

Item 1 – Financial Statements

EAGLE BANCORP, INC.

Consolidated Balance Sheets (Unaudited)

(dollars in thousands, except share and per share data)


		September 30, 2022		December 31, 2021			March 31, 2023		December 31, 2022
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	27,235	$	12,886	Cash and due from banks	$	9,940	$	12,655
Federal funds sold	Federal funds sold	69,809		20,391		Federal funds sold	3,746		33,927
Interest-bearing deposits with banks and other short-term investments	Interest-bearing deposits with banks and other short-term investments	47,131		1,680,945		Interest-bearing deposits with banks and other short-term investments	159,078		265,272
Investment securities available-for-sale (amortized cost of $1,873,872 and $2,642,667, respectively, and allowance for credit losses of $18 and $620, respectively).		1,649,753		2,623,408
Investment securities held-to-maturity, net of allowance for credit losses of $802 and $0 (fair value of $989,001 and $0, respectively)		1,114,084		—
Investment securities available-for-sale (amortized cost of $1,763,371 and $1,803,898, respectively, and allowance for credit losses of $31 and $17, respectively).						Investment securities available-for-sale (amortized cost of $1,763,371 and $1,803,898, respectively, and allowance for credit losses of $31 and $17, respectively).	1,582,185		1,598,666
Investment securities held-to-maturity, net of allowance for credit losses of $2,008 and $766, respectively, (fair value of $965,786 and $968,707, respectively)						Investment securities held-to-maturity, net of allowance for credit losses of $2,008 and $766, respectively, (fair value of $965,786 and $968,707, respectively)	1,075,303		1,093,374
Federal Reserve and Federal Home Loan Bank stock	Federal Reserve and Federal Home Loan Bank stock	42,311		34,153		Federal Reserve and Federal Home Loan Bank stock	79,134		65,067
Loans held for sale	Loans held for sale	9,387		47,218		Loans held for sale	6,488		6,734
Loans	Loans	7,304,498		7,065,598		Loans	7,737,676		7,635,632
Less: allowance for credit losses	Less: allowance for credit losses	(75,767)		(74,965)		Less: allowance for credit losses	(78,377)		(74,444)
Loans, net	Loans, net	7,228,731		6,990,633		Loans, net	7,659,299		7,561,188
Premises and equipment, net	Premises and equipment, net	13,684		14,557		Premises and equipment, net	12,929		13,475
Operating lease right-of-use assets	Operating lease right-of-use assets	26,022		30,555		Operating lease right-of-use assets	23,060		24,544
Deferred income taxes	Deferred income taxes	112,904		43,174		Deferred income taxes	89,117		96,567
Bank-owned life insurance	Bank-owned life insurance	110,678		108,789		Bank-owned life insurance	111,217		110,998
Goodwill and other intangible assets, net	Goodwill and other intangible assets, net	104,240		105,793		Goodwill and other intangible assets, net	104,226		104,233
Other real estate owned	Other real estate owned	1,962		1,635		Other real estate owned	1,962		1,962
Other assets	Other assets	155,113		133,173		Other assets	171,183		162,192
Total Assets	Total Assets	$	10,713,044	$	11,847,310	Total Assets	$	11,088,867	$	11,150,854

Liabilities and Shareholders' Equity	Liabilities and Shareholders' Equity					Liabilities and Shareholders' Equity
Liabilities	Liabilities					Liabilities
Deposits:	Deposits:					Deposits:
Noninterest-bearing demand	Noninterest-bearing demand	$	2,928,774	$	3,277,956	Noninterest-bearing demand	$	2,247,706	$	3,150,751
Interest-bearing transaction	Interest-bearing transaction	964,567		777,255		Interest-bearing transaction	907,637		1,138,235
Savings and money market	Savings and money market	4,220,768		5,197,247		Savings and money market	2,970,093		3,640,697
Time	Time	649,241		729,082		Time	1,337,805		783,499
Total deposits	Total deposits	8,763,350		9,981,540		Total deposits	7,463,241		8,713,182
Customer repurchase agreements	Customer repurchase agreements	21,465		23,918		Customer repurchase agreements	37,854		35,100
Other short-term borrowings	Other short-term borrowings	515,000		300,000		Other short-term borrowings	2,113,801		975,001
Long-term borrowings	Long-term borrowings	69,763		69,670		Long-term borrowings	69,825		69,794
Operating lease liabilities	Operating lease liabilities	30,837		35,501		Operating lease liabilities	27,634		29,267
Reserve for unfunded commitments	Reserve for unfunded commitments	5,696		4,379		Reserve for unfunded commitments	6,704		5,857
Other liabilities	Other liabilities	87,162		81,527		Other liabilities	127,850		94,332
Total Liabilities	Total Liabilities	9,493,273		10,496,535		Total Liabilities	9,846,909		9,922,533

Shareholders' Equity	Shareholders' Equity					Shareholders' Equity
Common stock, par value $0.01 per share; shares authorized 100,000,000, shares issued and outstanding 32,082,321 and 31,950,092, respectively		318		316
Common stock, par value $0.01 per share; shares authorized 100,000,000, shares issued and outstanding 31,111,647 and 31,346,903, respectively						Common stock, par value $0.01 per share; shares authorized 100,000,000, shares issued and outstanding 31,111,647 and 31,346,903, respectively	308		310
Additional paid-in capital	Additional paid-in capital	442,880		434,640		Additional paid-in capital	397,012		412,303
Retained earnings	Retained earnings	987,212		930,061		Retained earnings	1,025,552		1,015,215
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(210,639)		(14,242)		Accumulated other comprehensive loss	(180,914)		(199,507)
Total Shareholders' Equity	Total Shareholders' Equity	1,219,771		1,350,775		Total Shareholders' Equity	1,241,958		1,228,321
Total Liabilities and Shareholders' Equity	Total Liabilities and Shareholders' Equity	$	10,713,044	$	11,847,310	Total Liabilities and Shareholders' Equity	$	11,088,867	$	11,150,854

See Notes to Consolidated Financial Statements.

EAGLE BANCORP, INC.

Consolidated Statements of Income (Unaudited)

(dollars in thousands, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021		2022		2021			2023		2022
Interest Income	Interest Income									Interest Income
Interest and fees on loans	Interest and fees on loans	$	93,744	$	82,182	$	249,716	$	260,124	Interest and fees on loans	$	120,850	$	75,830
Interest and dividends on investment securities	Interest and dividends on investment securities	13,463		5,877		37,890		15,878		Interest and dividends on investment securities	13,545		11,430
Interest on balances with other banks and short-term investments	Interest on balances with other banks and short-term investments	4,100		1,083		7,608		2,239		Interest on balances with other banks and short-term investments	5,774		1,057
Interest on federal funds sold	Interest on federal funds sold	220		10		269		25		Interest on federal funds sold	78		4
Total interest income	Total interest income	111,527		89,152		295,483		278,266		Total interest income	140,247		88,321
Interest Expense	Interest Expense									Interest Expense
Interest on deposits	Interest on deposits	26,125		6,590		44,022		21,288		Interest on deposits	48,954		6,359
Interest on customer repurchase agreements	Interest on customer repurchase agreements	55		14		90		34		Interest on customer repurchase agreements	302		13
Interest on other short-term borrowings	Interest on other short-term borrowings	412		506		992		1,502		Interest on other short-term borrowings	14,930		460
Interest on long-term borrowings	Interest on long-term borrowings	1,038		2,997		3,112		9,114		Interest on long-term borrowings	1,037		1,037
Total interest expense	Total interest expense	27,630		10,107		48,216		31,938		Total interest expense	65,223		7,869
Net Interest Income	Net Interest Income	83,897		79,045		247,267		246,328		Net Interest Income	75,024		80,452
Provision for (Reversal of) Credit Losses	Provision for (Reversal of) Credit Losses	3,022		(8,203)		730		(14,409)		Provision for (Reversal of) Credit Losses	6,164		(2,787)
Provision for (Reversal of) Credit Losses for Unfunded Commitments	Provision for (Reversal of) Credit Losses for Unfunded Commitments	774		716		1,316		(487)		Provision for (Reversal of) Credit Losses for Unfunded Commitments	848		(11)
Net Interest Income After Provision for (Reversal of) Credit Losses	Net Interest Income After Provision for (Reversal of) Credit Losses	80,101		86,532		245,221		261,224		Net Interest Income After Provision for (Reversal of) Credit Losses	68,012		83,250

Noninterest Income	Noninterest Income									Noninterest Income
Service charges on deposits	Service charges on deposits	1,339		1,204		3,970		3,303		Service charges on deposits	1,510		1,286
Gain on sale of loans	Gain on sale of loans	821		3,332		3,168		11,988		Gain on sale of loans	305		1,492
Net gain (loss) on sale of investment securities		4		1,519		(172)		2,058
Net loss on sale of investment securities										Net loss on sale of investment securities	(21)		(25)
Increase in the cash surrender value of bank-owned life insurance	Increase in the cash surrender value of bank-owned life insurance	631		642		1,889		1,429		Increase in the cash surrender value of bank-owned life insurance	655		626
Other income	Other income	2,513		1,602		9,470		11,033		Other income	1,251		4,074
Total noninterest income	Total noninterest income	5,308		8,299		18,325		29,811		Total noninterest income	3,700		7,453
Noninterest Expense	Noninterest Expense									Noninterest Expense
Salaries and employee benefits	Salaries and employee benefits	21,538		22,145		60,362		63,790		Salaries and employee benefits	24,174		17,019
Premises and equipment expenses	Premises and equipment expenses	3,275		3,859		9,926		11,121		Premises and equipment expenses	3,317		3,128
Marketing and advertising	Marketing and advertising	1,181		1,013		3,431		2,879		Marketing and advertising	636		1,064
Data processing	Data processing	3,445		2,886		9,054��		8,451		Data processing	3,099		2,880
Legal, accounting and professional fees	Legal, accounting and professional fees	2,332		2,021		6,030		8,523		Legal, accounting and professional fees	3,254		1,561
FDIC insurance	FDIC insurance	1,287		1,549		3,251		5,586		FDIC insurance	1,486		1,058
Other expenses	Other expenses	3,148		2,902		34,126		9,506		Other expenses	4,618		4,302
Total noninterest expense	Total noninterest expense	36,206		36,375		126,180		109,856		Total noninterest expense	40,584		31,012
Income Before Income Tax Expense	Income Before Income Tax Expense	49,203		58,456		137,366		181,179		Income Before Income Tax Expense	31,128		59,691
Income Tax Expense	Income Tax Expense	11,906		14,847		38,629		46,108		Income Tax Expense	6,894		13,947
Net Income	Net Income	$	37,297	$	43,609	$	98,737	$	135,071	Net Income	$	24,234	$	45,744

Earnings Per Common Share	Earnings Per Common Share									Earnings Per Common Share
Basic	Basic	$	1.16	$	1.36	$	3.08	$	4.23	Basic	$	0.78	$	1.43
Diluted	Diluted	$	1.16	$	1.36	$	3.07	$	4.22	Diluted	$	0.78	$	1.42

See Notes to Consolidated Financial Statements.

EAGLE BANCORP, INC.

Consolidated Statements of Comprehensive Income (Loss) ~~Income~~ (Unaudited)

(dollars in thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Net Income $ 37,297 $ 43,609 $ 98,737 $ 135,071
Other Comprehensive (Loss) Income, Net of Tax:
Unrealized (loss) on securities available-for-sale (60,029) (5,703) (151,453) (16,666)
Reclassification adjustment for (gain) loss included in net income (3) (1,133) 114 (1,534)
Total unrealized (loss) on investment securities available-for-sale (60,032) (6,836) (151,339) (18,200)
Unrealized (loss) on securities transferred to held-to-maturity (1)
— — (49,095) —
Amortization of unrealized loss on securities transferred to held-to-maturity 1,762 — 3,753 —
Total unrealized loss recognized (remaining) on investment securities held-to-maturity 1,762 — (45,342) —
Unrealized gain on derivatives — — 284 769
Reclassification adjustment for gain included in net income — — — (385)
Total unrealized gain on derivatives — — 284 384
Other comprehensive (loss) (58,270) (6,836) (196,397) (17,816)
Comprehensive (Loss) Income $ (20,973) $ 36,773 $ (97,660) $ 117,255


	Three Months Ended March 31,
		2023		2022
Net Income		$	24,234	$	45,744

Other Comprehensive Income (Loss), Net of Tax:
Unrealized gain (loss) on securities available-for-sale		17,936		(58,406)
Reclassification adjustment for loss included in net income		16		19
Total unrealized gain (loss) on investment securities available-for-sale		17,952		(58,387)
Unrealized loss on securities transferred to held-to-maturity (1)		—		(49,095)
Amortization of unrealized loss on securities transferred to held-to-maturity		641		—
Total unrealized gain (loss) on investment securities held-to-maturity		641		(49,095)



Other comprehensive income (loss)		18,593		(107,482)
Comprehensive Income (Loss)		$	42,827	$	(61,738)

(1) Represents unamortized accumulated other comprehensive loss on securities transferred to held-to-maturity status.

~~See Notes to Consolidated Financial Statements.~~

~~EAGLE BANCORP, INC.~~

~~Consolidated Statements of Changes in Shareholders' Equity(Unaudited)~~

~~(dollars in thousands except share and per share data)~~

Accumulated
Additional Other
Common Paid-in Retained Comprehensive Shareholders'
Shares Amount Capital Earnings Income (Loss) Equity
Balance July 1, 2022 32,081,241 $ 318 $ 440,418 $ 964,353 $ (152,369) $ 1,252,720
Net Income — — — 37,297 — 37,297
Other comprehensive loss, net of tax — — — — (58,270) (58,270)
Stock-based compensation expense — — 2,274 — — 2,274
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes — — — — — —
Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes (2,893) — — — — —
Time-based stock awards granted — — — — — —
Issuance of common stock related to employee stock purchase plan 3,973 — 188 — — 188
Cash dividends declared ($0.45 per share) — — — (14,438) — (14,438)
Balance September 30, 2022 32,082,321 $ 318 $ 442,880 $ 987,212 $ (210,639) $ 1,219,771
Balance July 1, 2021 31,961,573 $ 316 $ 431,103 $ 870,397 $ 4,520 $ 1,306,336
Net Income — — — 43,609 — 43,609
Other comprehensive income, net of tax — — — — (6,836) (6,836)
Stock-based compensation expense — — 1,990 — — 1,990
Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes (2,756) — — — — —
Time-based stock awards granted 250 — — — — —
Issuance of common stock related to employee stock purchase plan — — — — — —
Cash dividends declared ($0.40 per share) — — — (12,788) — (12,788)
Common stock repurchased (11,609) — (615) — — (615)
Balance September 30, 2021 31,947,458 $ 316 $ 432,479 $ 901,218 $ (2,316) $ 1,331,697

See Notes to Consolidated Financial Statements.


EAGLE BANCORP, INC.	EAGLE BANCORP, INC.													EAGLE BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity - Continued (Unaudited)
Consolidated Statements of Changes in Shareholders' Equity (Unaudited)														Consolidated Statements of Changes in Shareholders' Equity (Unaudited)
(dollars in thousands except share and per share data)	(dollars in thousands except share and per share data)													(dollars in thousands except share and per share data)

										Accumulated															Accumulated Other Comprehensive Income (Loss)
					Additional					Other					Common			Additional Paid-in Capital				Retained Earnings					Shareholders' Equity
		Common			Paid-in			Retained		Comprehensive		Shareholders'			Shares	Amount								Accumulated Other Comprehensive Income (Loss)
Balance January 1, 2023														Balance January 1, 2023	31,346,903	$	310			$	412,303						$	1,015,215			$	(199,507)	$	1,228,321

Net Income														Net Income	—	—		—				24,234					—				24,234
Other comprehensive income, net of tax														Other comprehensive income, net of tax	—	—		—				—			18,593				18,593
Stock-based compensation expense														Stock-based compensation expense	—	—		2,948				—			—				2,948

Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes														Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes	(37,104)	2		(2)				—			—				—
Vesting of performance-based stock awards, net of shares withheld for payroll taxes														Vesting of performance-based stock awards, net of shares withheld for payroll taxes	27,296	—		—				—			—				—
Time-based stock awards granted														Time-based stock awards granted	171,534	—		—				—			—				—
Issuance of common stock related to employee stock purchase plan														Issuance of common stock related to employee stock purchase plan	3,018	—		133				—			—				133
Cash dividends declared ($0.45 per share)														Cash dividends declared ($0.45 per share)	—	—		—				(13,897)			—				(13,897)
Common stock repurchased														Common stock repurchased	(400,000)	(4)		(18,370)				—			—				(18,374)

Balance March 31, 2023														Balance March 31, 2023	31,111,647	$	308	$	397,012			$	1,025,552		$	(180,914)			$	1,241,958
		Shares	Amount		Capital			Earnings		Income (Loss)		Equity
Balance January 1, 2022	Balance January 1, 2022	31,950,092	$	316	$	434,640		$	930,061	$	(14,242)	$	1,350,775	Balance January 1, 2022	31,950,092	$	316	$	434,640			$	930,061		$	(14,242)			$	1,350,775

Net Income	Net Income	—	—		—			98,737		—		98,737		Net Income	—	—		—				45,744			—				45,744
Other comprehensive loss, net of tax	Other comprehensive loss, net of tax	—	—		—			—		(196,397)		(196,397)		Other comprehensive loss, net of tax	—	—		—				—			(107,482)				(107,482)
Stock-based compensation expense	Stock-based compensation expense	—	—		7,587			—		—		7,587		Stock-based compensation expense	—	—		2,966				—			—				2,966
Issuance of common stock related to options exercised, net of shares withheld for payroll taxes	Issuance of common stock related to options exercised, net of shares withheld for payroll taxes	3,289	—		97			—		—		97		Issuance of common stock related to options exercised, net of shares withheld for payroll taxes	1,789	—		19				—			—				19
Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes	Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes	(68,931)	2		(2)			—		—		—		Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes	(62,228)	2		(2)				—			—				—
Vesting of performance-based stock awards, net of shares withheld for payroll taxes	Vesting of performance-based stock awards, net of shares withheld for payroll taxes	21,026	—		—			—		—		—		Vesting of performance-based stock awards, net of shares withheld for payroll taxes	21,026	—		—				—			—				—
Time-based stock awards granted	Time-based stock awards granted	166,471	—		—			—		—		—		Time-based stock awards granted	165,416	—		—				—			—				—
Issuance of common stock related to employee stock purchase plan	Issuance of common stock related to employee stock purchase plan	10,374	—		558			—		—		558		Issuance of common stock related to employee stock purchase plan	3,379	—		197				—			—				197
Cash dividends declared ($1.30 per share)		—	—		—			(41,586)		—		(41,586)
Common stock repurchased		—	—		—			—		—		—
Balance September 30, 2022		32,082,321	$	318	$	442,880		$	987,212	$	(210,639)	$	1,219,771
Cash dividends declared ($0.40 per share)														Cash dividends declared ($0.40 per share)	—	—		—				(12,665)			—				(12,665)

Balance January 1, 2021		31,779,663	$	315	$	427,016		$	798,061	$	15,500	$	1,240,892

Net Income		—	—		—			135,071		—		135,071
Other comprehensive loss, net of tax		—	—		—			—		(17,816)		(17,816)
Stock-based compensation expense		—	—		5,814			—		—		5,814
Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes		(23,755)	1		(1)			—		—		—
Vesting of performance-based stock awards, net of shares withheld for payroll taxes		15,686	—		—		—	—		—		—
Time-based stock awards granted		179,172	—		—			—		—		—
Issuance of common stock related to employee stock purchase plan		9,767	—		327			—		—		327
Cash dividends declared ($0.60 per share)		—	—		—			(31,914)		—		(31,914)
Common stock repurchased		(13,075)	—		(677)			—		—		(677)
Balance September 30, 2021		31,947,458	$	316	$	432,479		$	901,218	$	(2,316)	$	1,331,697
Balance March 31, 2022														Balance March 31, 2022	32,079,474	$	318	$	437,820			$	963,140		$	(121,724)			$	1,279,554

See Notes to Consolidated Financial Statements.

EAGLE BANCORP, INC.

Consolidated Statements of Cash Flows (Unaudited)

(dollars in thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net Income	Net Income	$	98,737	$	135,071	Net Income	$	24,234	$	45,744
Adjustments to reconcile Net Income to net cash provided by operating activities:	Adjustments to reconcile Net Income to net cash provided by operating activities:					Adjustments to reconcile Net Income to net cash provided by operating activities:
Provision for (reversal of) credit losses	Provision for (reversal of) credit losses	730		(14,409)		Provision for (reversal of) credit losses	6,164		(2,787)
Provision for (reversal of) credit losses for unfunded commitments	Provision for (reversal of) credit losses for unfunded commitments	1,316		(487)		Provision for (reversal of) credit losses for unfunded commitments	848		(11)
Depreciation and amortization	Depreciation and amortization	2,483		4,795		Depreciation and amortization	890		843
Gain on sale of loans	Gain on sale of loans	(3,168)		(11,988)		Gain on sale of loans	(305)		(1,492)
Gain on mortgage servicing rights		(872)		—
Loss (gain) on mortgage servicing rights						Loss (gain) on mortgage servicing rights	35		(930)
Securities premium amortization, net	Securities premium amortization, net	7,191		3,152		Securities premium amortization, net	1,715		2,660
Origination of loans held for sale	Origination of loans held for sale	(264,765)		(929,090)		Origination of loans held for sale	(27,929)		(114,699)
Proceeds from sale of loans held for sale	Proceeds from sale of loans held for sale	305,764		975,870		Proceeds from sale of loans held for sale	28,480		137,905
Deferred income tax expense		—		—
Net gain on sale of other real estate owned		(107)		(148)
Net loss (gain) on sale of investment securities		172		(2,058)

Net loss on sale of investment securities						Net loss on sale of investment securities	21		25
Net increase in cash surrender value of BOLI	Net increase in cash surrender value of BOLI	(1,889)		(1,429)		Net increase in cash surrender value of BOLI	(655)		(626)
Stock-based compensation expense	Stock-based compensation expense	7,587		5,814		Stock-based compensation expense	2,948		2,966
Net tax expense from stock-based compensation	Net tax expense from stock-based compensation	—		—		Net tax expense from stock-based compensation	—		1,609
Increase in other assets	Increase in other assets	(19,055)		(29,667)		Increase in other assets	(9,019)		(3,960)
Decrease in other liabilities		5,503		89,348
Decrease (increase) in other liabilities						Decrease (increase) in other liabilities	33,369		(6,395)
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	139,627		224,774		Net Cash Provided by Operating Activities	60,796		60,852
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Investment securities available-for-sale:	Investment securities available-for-sale:					Investment securities available-for-sale:
Purchases	Purchases	(414,935)		(1,059,189)		Purchases	—		(311,705)
Proceeds from maturities	Proceeds from maturities	182,767		233,366		Proceeds from maturities	31,235		83,050
Proceeds from sale/call	Proceeds from sale/call	6,225		164,569		Proceeds from sale/call	8,303		6,225
Investment securities held-to-maturity:	Investment securities held-to-maturity:					Investment securities held-to-maturity:
Purchases	Purchases	(290,740)		—		Purchases	—		(237,036)
Proceeds from maturities	Proceeds from maturities	82,163		—		Proceeds from maturities	17,996		5,548
Proceeds from call	Proceeds from call	19,944		—		Proceeds from call	68		—
(Purchase of) proceeds from sale of Federal Reserve and Federal Home Loan Bank stock		(8,158)		6,011
Sale of Federal Reserve and Federal Home Loan Bank stock		—		—
Proceeds from sale of SBA PPP loans		—		170,154
Net (increase) decrease in loans		(239,089)		727,021
Proceeds from sale of OREO		241		—
Purchase of Federal Reserve stock						Purchase of Federal Reserve stock	(69)		(60)
(Purchase) sale of Federal Home Loan Bank stock						(Purchase) sale of Federal Home Loan Bank stock	(13,998)		5,186

Net increase in loans						Net increase in loans	(103,019)		(48,667)
Redemption of BOLI						Redemption of BOLI	436		—

Net change in premises and equipment	Net change in premises and equipment	(1,518)		(4,973)		Net change in premises and equipment	(313)		(269)
Net Cash (Used in) Provided by Investing Activities		(663,100)		236,959
Net Cash Used in Investing Activities						Net Cash Used in Investing Activities	(59,361)		(497,728)
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Increase (decrease) in deposits		(1,218,190)		479,285
Increase (decrease) in customer repurchase agreements		(2,453)		2,675
Decrease in deposits						Decrease in deposits	(1,249,941)		(395,281)
Increase in customer repurchase agreements						Increase in customer repurchase agreements	2,754		4,375
Proceeds from short-term borrowings	Proceeds from short-term borrowings	215,000		—		Proceeds from short-term borrowings	1,138,800		(150,000)

Repayment of long-term borrowings		—		(200,000)
Proceeds from issuance of common stock		—		327

Proceeds from employee stock purchase plan	Proceeds from employee stock purchase plan	558		—		Proceeds from employee stock purchase plan	133		197
Proceeds from exercise of equity compensation plans	Proceeds from exercise of equity compensation plans	97		—		Proceeds from exercise of equity compensation plans	—		19
Common stock repurchased	Common stock repurchased	—		(677)		Common stock repurchased	(18,374)		—

Tax equivalent shares withheld on exercise of stock-based compensation plans						Tax equivalent shares withheld on exercise of stock-based compensation plans	—		(1,609)
Cash dividends paid	Cash dividends paid	(41,586)		(31,914)		Cash dividends paid	(13,897)		(12,665)
Net Cash (Used in) Provided by Financing Activities		(1,046,574)		249,696
Net (Decrease) Increase in Cash and Cash Equivalents		(1,570,047)		711,429
Net Cash Used in Financing Activities						Net Cash Used in Financing Activities	(140,525)		(554,964)
Net Decrease in Cash and Cash Equivalents						Net Decrease in Cash and Cash Equivalents	(139,090)		(991,840)
Cash and Cash Equivalents at Beginning of Period	Cash and Cash Equivalents at Beginning of Period	1,714,222		1,789,055		Cash and Cash Equivalents at Beginning of Period	311,854		1,714,222
Cash and Cash Equivalents at End of Period	Cash and Cash Equivalents at End of Period	$	144,175	$	2,500,484	Cash and Cash Equivalents at End of Period	$	172,764	$	722,382

See Notes to Consolidated Financial Statements.


EAGLE BANCORP, INC.	EAGLE BANCORP, INC.					EAGLE BANCORP, INC.
Consolidated Statements of Cash Flows - Continued (Unaudited)	Consolidated Statements of Cash Flows - Continued (Unaudited)					Consolidated Statements of Cash Flows - Continued (Unaudited)
(dollars in thousands)	(dollars in thousands)					(dollars in thousands)

		Nine Months Ended September 30,					Three Months Ended March 31,
		2022		2021			2023		2022
Supplemental Cash Flows Information:	Supplemental Cash Flows Information:					Supplemental Cash Flows Information:
Interest paid	Interest paid	$	49,273	$	36,831	Interest paid	$	61,287	$	7,574
Income taxes paid	Income taxes paid	$	16,150	$	42,986	Income taxes paid	$	—	$	—
Non-Cash Operating Activities
Initial recognition of operating lease right-of-use assets		$	—	$	(10,168)

Non-Cash Investing Activities	Non-Cash Investing Activities					Non-Cash Investing Activities
Transfers of investment securities from available-for-sale to held-to-maturity	Transfers of investment securities from available-for-sale to held-to-maturity	$	922,795	$	—	Transfers of investment securities from available-for-sale to held-to-maturity	$	—	$	922,795
Transfers from loans to other real estate owned		$	475	$	148
Change in fair value of investment securities available-for-sale		$	973,655	$	24,495
Change in fair value of cash flow hedges		$	—	$	(516)

Change in unrealized gain (loss) of investment securities available-for-sale						Change in unrealized gain (loss) of investment securities available-for-sale	$	24,034	$	—

See Notes to Consolidated Financial Statements.

EAGLE BANCORP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Principles of Consolidation and Basis of Presentation

The Consolidated Financial Statements include the accounts of Eagle Bancorp, Inc. (the "Parent") and its subsidiaries (together with the Parent, the "Company"), with all significant intercompany transactions eliminated. EagleBank (the "Bank"), a Maryland chartered commercial bank, is the Parent's principal subsidiary.

The accounting and reporting policies of the Company conform to generally accepted accounting principles in the United States of America ("GAAP") and to general practices in the banking industry. The Consolidated Financial Statements and accompanying notes of the Company included herein are unaudited. The Consolidated Balance Sheet as of December 31, ~~2021~~2022 was derived from the audited Consolidated Balance Sheet as of that date. The Consolidated Financial Statements reflect all adjustments, consisting of normal recurring ~~accruals~~adjustments, that in the opinion of management are necessary to present fairly the results for the periods presented. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In addition to the accounting policies 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, ~~2021.~~2022. Certain reclassifications have been made to ~~2021~~2022 amounts previously reported to conform to the ~~2022~~2023 presentation. Reclassifications had no effect on net income or shareholders' equity.

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 ~~sixteen~~fifteen banking offices, five lending centers and various digital capabilities, including remote deposit services and mobile banking services. ~~Eagle Insurance Services, LLC, a subsidiary of~~In March 2023, the ~~Bank, offers access to insurance products and services through a referral program with a third-party insurance broker.~~Company closed its Alexandria, Virginia branch following the lease's expiration. 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.

The Company commenced the cessation of first lien residential mortgage origination for secondary sale during the three months ended March 31, 2023. The Company expects to complete residual origination and sales activities by the end of the third quarter of 2023.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates and such differences could be material to the consolidated financial statements.

Investment Securities

The Company recognizes acquired securities on the trade date. Investment securities comprise debt securities, which are classified depending on the Company's intent and ability to hold the securities to maturity. Debt securities are classified as available-for-sale when management may have the intent to sell them prior to maturity. Debt securities are classified as held-to-maturity and carried at amortized cost when management has the positive intent and ability to hold them to maturity.

Premiums and discounts on investment securities ~~held-to-maturity, like~~ available-for-sale ~~securities,~~and held-to-maturity are amortized or accreted to the earlier of call or maturity based on expected lives, which include prepayment adjustments and call optionality.

Transfers of Investment Securities from Available-for-Sale to Held-to-Maturity

Transfers of debt securities into the held-to-maturity category from the available-for-sale category are made at amortized cost, net of unrealized gain or loss reported in accumulated other comprehensive income (loss) at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in other comprehensive income and in the carrying value of the held-to-maturity securities. Such amounts are amortized over the remaining life of the security.

Loans

Loans held for investment are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is recognized at the contractual rate on the principal amounts outstanding. Loan origination fees, net of direct loan origination costs, and commitment fees are deferred and amortized on the interest method over the term of the loan.

Past due loans are placed on nonaccrual status when there is a clear indication that the borrower's cash flow may not be sufficient to meet payments as they become due. Generally, this conclusion is reached when a loan is 90 days past due. When a loan is placed on nonaccrual status, all previously accrued and unpaid interest is reversed through 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 - loans ("ACL") is an estimate of the expected credit losses in the loans held for investment portfolio.

Accounting Standards Codification ("ASC") 326, "Financial Instruments-Credit Losses" requires that an estimate of current expected credit losses ("CECL") be immediately recognized and reevaluated over the contractual life of the financial ~~asset.~~asset when a financial asset is originated or purchased. The ACL is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the allowance when they are deemed uncollectible. Expected recoveries are recorded to the extent they do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

Reserves on loans that do not share risk characteristics are evaluated on an individual ~~basis (e.g., nonaccrual loans, TDRs).~~basis. Nonaccrual loans are specifically reviewed for loss potential and when deemed appropriate are assigned a reserve based on an individual evaluation. The remainder of the portfolio, representing all loans not evaluated individually for impairment, is segregated by call report codes, and a loan-level probability of default ("PD") / Loss Given Default ("LGD") cash flow method is applied using an exposure at default ("EAD") model. These historical loss rates are then modified to incorporate our reasonable and supportable forecast of future losses at the portfolio segment level, as well as any necessary qualitative adjustments.

The Company uses regression analysis of historical internal and peer data provided by a third-party service provider (as Company loss data is insufficient) to determine suitable credit loss drivers to utilize when modeling lifetime PD and LGD. This analysis also determines how expected PD will be impacted by different forecasted levels of the loss drivers.

A similar process is employed to calculate a reserve assigned to off-balance sheet commitments, specifically unfunded loan commitments and letters of credit, and any needed reserve is recorded in reserve for unfunded commitments (“RUC”) on the Consolidated Balance Sheets. For periods beyond which we are able to develop reasonable and supportable forecasts, we revert to the historical loss rate on a straight-line basis over a twelve-month period.

For each of these loan segments, the Company generates cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speeds, PD rates, and LGD rates. The modeling of expected prepayment speeds is based on historical internal data. EAD is based on each instrument's underlying amortization schedule in order to estimate the bank's expected credit loss exposure at the time of the borrower's potential default.

For our cash flow model, management utilizes and forecasts regional unemployment by using a national forecast and estimating a regional adjustment based on historical differences between the two as the loss driver over our reasonable and supportable period of 18 months and reverts back to a historical loss rate over twelve months on a straight-line basis over the loan's remaining maturity. Management leverages economic projections from reputable and independent third parties to inform its loss driver forecasts over the forecast period.

1110

In addition to the quantitative model and individual evaluation conducted in connection with CECL, the Company applies qualitative and environmental factors into its methodology for the calculation of its ACL for its loan portfolio. The factors include: (i) changes in the nature and volume of the portfolio; (ii) changes in the volume and severity of past due financial assets and the volume and severity of adversely classified assets; (iii) changes in the value of underlying collateral for loans not individually evaluated; (iv) changes in lending policies and procedures; (v) changes in the quality of credit review function; (vi) changes in lending management and staff; (vii) concentrations of credit; (viii) other external factors (competition, legal, regulatory, etc.); and (ix) changes in national, regional, and local economic and business conditions. The Company's quantitative model may reflect assumptions by management that are not covered by the qualitative and environmental factors. The Company reevaluates the qualitative and environmental factors on a quarterly basis.

While our methodology in establishing the ACL attributes portions of the ACL and RUC to the separate loan pools or segments, the entire ACL and RUC is available to absorb credit losses expected in the total loan portfolio and total amount of unfunded credit commitments, respectively. Portfolio segments are used to pool loans with similar risk characteristics and align with our methodology for measuring expected credit losses.

A summary of our primary portfolio segments is as follows:

Commercial. The commercial loan portfolio comprises lines of credit and term loans for working capital, equipment, and other business assets across a variety of industries. These loans are used for general corporate purposes including financing working capital, internal growth, and acquisitions; and are generally secured by accounts receivable, inventory, equipment and other assets of our clients' businesses.

Income producing commercial real estate. Income producing commercial real estate loans comprise permanent and bridge financing provided to professional real estate owners/managers of commercial and residential real estate projects and properties who generally 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 comprises permanent financing provided to operating companies and their related entities for the purchase or refinance of real property wherein their business operates. Collateral properties include industrial property, office buildings, religious facilities, mixed-use property, health care and educational facilities.

Real estate mortgage – residential. Real estate mortgage residential loans comprise consumer mortgages for the purpose of purchasing or refinancing first lien real estate loans secured by primary-residence, second-home, and rental residential real property.

Construction – commercial and residential. The construction commercial and residential loan portfolio comprises 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 – commercial and industrial ("C&I") (owner occupied). The construction C&I (owner occupied) portfolio comprises loans to operating companies and their related entities for new construction or renovation of the real or leased property in which they operate. Generally these loans contain provisions for conversion to an owner occupied commercial real estate loan or to a commercial loan after completion of construction. Collateral properties include industrial, healthcare, religious facilities, restaurants, and office buildings.

Home equity. The home equity portfolio comprises consumer lines of credit and loans secured by subordinate liens on residential real property.

Other consumer. The other consumer portfolio comprises consumer 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.

1211

We have several pass credit grades that are assigned to loans based on varying levels of risk, ranging from credits that are secured by cash or marketable securities, to watch credits which have all the characteristics of an acceptable credit risk but warrant more than the normal level of monitoring. Special mention loans are those that are currently protected by the sound worth and paying capacity of the borrower, but that are potentially weak and constitute an additional credit risk. These loans have the potential to deteriorate to a substandard grade due to the existence of financial or administrative deficiencies. Substandard loans have a well-defined weakness or weaknesses that jeopardizes the liquidation of the debt. They are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. Some substandard loans are inadequately protected by the sound worth and paying capacity of the borrower and of the collateral pledged and may be considered impaired. Substandard loans can be accruing or can be on nonaccrual depending on the circumstances of the individual loans.

Loans classified as doubtful have all the weaknesses inherent in substandard loans with the added characteristics that the weaknesses make collection in full highly questionable and improbable. The possibility of loss is extremely high. All doubtful loans are on nonaccrual.

Classified loans represent the sum of loans graded substandard and doubtful.

The methodology used in the estimation of the allowance, which is performed at least quarterly, is designed to be dynamic and responsive to changes in portfolio credit quality and forecasted economic conditions. Changes are reflected in the allowance on collectively assessed and individually assessed loans 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, ~~Credit Oversight~~Risk Committee, the Audit Committee, and the Board of Directors. The committees' reports to the Board are part of the Board review on a quarterly basis of our consolidated financial statements.

When management determines that foreclosure is probable, and for certain collateral-dependent loans where foreclosure is not considered probable, expected credit losses are based on the estimated fair value of the collateral adjusted for selling costs, when appropriate. A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral.

Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual term excludes expected extensions, renewals and modifications unless management has a reasonable expectation that a ~~loan~~borrower will beresult in ~~a trouble debt restructuring.~~financial difficulty.

We do not measure an ACL on accrued interest receivable balances because these balances are written off in a timely manner as a reduction to interest income when loans are placed on nonaccrual status.

Collateral Dependent Financial Assets

Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent financial assets where the Company has determined that foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the sale of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the net present value ("NPV") from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized cost basis of the financial asset.

ALoan Modifications to Borrowers in Financial Difficulty

On January 1, 2023, the Company adopted the accounting guidance in ASU No. 2022-02, which eliminates the recognition and measurement of a troubled debt restructuring ("TDR"). Due to the removal of the TDR designation, the Company evaluates loan ~~that has been modified~~restructurings according to the accounting guidance to determine if we have a loan modification and whether it results in a new loan or ~~renewed is considered a TDR when two conditions are met: 1)~~ the ~~borrower is~~continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and ~~2) concessions are made for~~combinations of 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.listed modifications.

1312

A loan that is considered a restructured loan may be subject to an individually evaluated loan analysis if the commitment is $1.0 million or greater; otherwise, the restructured loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on changes in the discounted cash flows resulting from the modification of the restructured loan.

Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status, foreclosure or repossession of the collateral to minimize economic loss to the Company.

Allowance for Credit Losses - Available-for-Sale Securities

The Company utilizes ASC 326 to evaluate its available-for-sale ("AFS") and held-to-maturity ("HTM") debt security portfolio for expected credit losses. For AFS debt securities in an unrealized loss position, the Company first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either criterion is met, the security’s amortized cost basis is written down to fair value through income. For AFS debt securities that do not meet the aforementioned criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, as a non-credit-related impairment.

The entire amount of an impairment loss is recognized in earnings only when: (1) the Company intends to sell the security; or (2) it is more likely than not that the Company will have to sell the security before recovery of its amortized cost basis; or (3) the Company does not expect to recover the entire amortized cost basis of the security. In all other situations, only the portion of the impairment loss representing the credit loss must be recognized in earnings, with the remaining portion being recognized in shareholders' equity as comprehensive income, net of deferred taxes.

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.~~

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 other assets in the Consolidated Balance Sheets. Available-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is generally at 90 days past due. Accrued interest receivable is reversed against interest income when a security is placed on nonaccrual status. Accordingly, we do not recognize an allowance for credit loss against accrued interest receivable.

Allowance for Credit Losses - Held-to-Maturity Debt Securities

The Company separately evaluates its HTM investment securities for any credit losses. The Company pools like securities and calculates expected credit losses through an estimate based on a security's credit rating, which is recognized as part of the allowance for credit losses for held-to-maturity securities and included in the balance of investment securities held-to-maturity on the Consolidated Balance Sheets. If the Company determines that a security indicates evidence of deteriorated credit quality, the security is ~~individually-evaluated~~individually evaluated and enhanced analysis is performed. This may consist of evaluating the security as if it were a below investment grade rated security or a discounted cash flow analysis ismay be performed and compared to the amortized cost basis.

Loan Commitments and Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

Financial instruments include off-balance sheet credit instruments such as commitments to make loans and commercial letters of credit issued to meet customer financing needs. The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records a reserve for ~~unfunded commitments ("RUC")~~RUC on off-balance sheet credit exposures through a charge to provision for credit loss expense in the Company's Consolidated Statement of Income. The RUC on off-balance sheet credit exposures is estimated by loan segment at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans, taking into consideration the likelihood that funding will occur, and is included in the RUC on the Company's Consolidated Balance Sheet.

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 September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Provision for (reversal of) credit losses - loans $ 3,046 $ (8,326) $ 532 $ (14,498)
(Reversal of) provision for credit losses - HTM debt securities (24) — 800 —
Provision for (reversal of) credit losses - AFS debt securities — 123 (602) 89
Total $ 3,022 $ (8,203) $ 730 $ (14,409)


	Three Months Ended March 31,
(dollars in thousands)	2023		2022
Provision for (reversal of) credit losses - loans	$	4,908	$	(3,001)
Provision for credit losses - HTM debt securities	1,242		817
Provision for (reversal of) credit losses - AFS debt securities	14		(603)
Total	$	6,164	$	(2,787)

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, ~~2021.~~2022.

New Authoritative Accounting Guidance

Accounting Standards Adopted in ~~2022~~2023:

~~ASU No. 2020-06, "~~Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU 2020-06") simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for embedded conversion features. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. ASU 2020-06 also simplifies the diluted earnings per share (EPS) calculation in certain areas. In addition, the amendment updates the disclosure requirements for convertible instruments to increase the information transparency. For public business entities, excluding smaller reporting companies, the amendments in ASU 2020-06 are effective for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. ASU 2020-06 did not have a material impact on the Company's consolidated financial statements.

~~Accounting Standards Pending Adoption:~~

~~ASU No. 2020-4, "Reference Rate Reform (Topic 848)"~~ ("ASU 2020-4") 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 2020-4 also provides numerous optional expedients for derivative accounting. ASU 2020-4 is effective March 12, 2020 through December 31, 2022. An entity may elect to apply ASU 2020-4 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 do not anticipate that the LIBOR transition or the application of this ASU will have material effects on the Company's business operations and consolidated financial statements.

ASU No. 2022-02, "Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures" ("ASU 2022-02") eliminates the accounting guidance for ~~troubled debt restructurings ("TDRs")~~TDRs while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty that assess whether a modification has created a new loan. Additionally, ASU 2022-02 requires that an entity disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases. ~~For entities that have~~Effective January 1, 2023, the Company adopted ~~ASC 326,~~ the ~~amendments in~~guidance prescribed under ASU 2022-02. Refer to the ~~ASU are effective~~"Loan Modifications" subsection above and Note 4 for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The impact of ASU 2022-02 should be applied prospectively, or, for the recognition and measurement of TDRs, with a modified retrospective transition method. We are currently in the process of evaluating this guidance.additional disclosure.

Note 2. Cash and Due from Banks

~~The Company has deposits with other banks for derivative positions it holds, totaling $1.1 million at September 30, 2022~~For three months ended March 31, 2023 and ~~$6.3 million at December 31, 2021. At September 30,~~ 2022, the ~~Company was entitled to receive collateral totaling $30.6 million. At December 31, 2021,~~Bank maintained an average daily balance of balances at the ~~Company was required to post~~Federal Reserve Bank of $662.4 million and $2.4 ~~million of cash collateral with its counterparties. See Note 6 for additional information.~~billion, respectively, on which interest is paid.

Additionally, the Bank maintains interest-bearing balances with the Federal Home Loan Bank of Atlanta ("FHLB") and noninterest-bearing balances with domestic correspondent banks to cover associated costs for services they provide to the Bank.

1614

Note 3. Investment Securities

The amortized cost and estimated fair value of the Company's available-for-sale and held-to-maturity securities are summarized as follows:


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
March 31, 2023
Investment securities available-for-sale:
U.S. treasury bonds	$	49,818	$	—	$	(2,887)	$	—	$	46,931
U.S. agency securities	741,694		—		(67,227)		—		674,467
Residential mortgage-backed securities	905,524		76		(105,358)		—		800,242
Commercial mortgage-backed securities	55,421		—		(5,139)		—		50,282
Municipal bonds	8,914		—		(432)		—		8,482
Corporate bonds	2,000		—		(188)		(31)		1,781

Total available-for-sale securities	$	1,763,371	$	76	$	(181,231)	$	(31)	$	1,582,185


				Gross		Gross		Allowance		Estimated
		Amortized		Unrealized		Unrealized		for Credit		Fair
(dollars in thousands)	(dollars in thousands)	Cost		Gains		Losses		Losses		Value		(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
September 30, 2022
Investment securities available-for-sale:
U.S. treasury bonds		$	49,767	$	—	$	(3,719)	$	—	$	46,048
U.S. agency securities		750,997		15		(82,684)		—		668,328
Residential mortgage-backed securities		958,800		9		(130,442)		—		828,367
Commercial mortgage-backed securities		100,278		—		(6,106)		—		94,172
Municipal bonds		12,030		11		(1,047)		(1)		10,993
Corporate bonds		2,000		—		(138)		(17)		1,845

Total		$	1,873,872	$	35	$	(224,136)	$	(18)	$	1,649,753

				Gross		Gross		Estimated		Allowance
		Amortized		Unrecognized		Unrecognized		Fair		for Credit
(dollars in thousands)		Cost		Gains		Losses		Value		Losses
September 30, 2022
March 31, 2023												March 31, 2023
Investment securities held-to-maturity:	Investment securities held-to-maturity:											Investment securities held-to-maturity:

Residential mortgage-backed securities	Residential mortgage-backed securities	$	761,304	$	—	$	(87,023)	$	674,281	$	—	Residential mortgage-backed securities	$	724,756	$	—	$	(77,286)	$	647,470
Commercial mortgage-backed securities	Commercial mortgage-backed securities	92,948		—		(11,215)		81,733		—		Commercial mortgage-backed securities	92,141		—		(11,234)		80,907
Municipal bonds	Municipal bonds	128,386		—		(15,512)		112,874		(16)		Municipal bonds	128,160		—		(8,690)		119,470
Corporate bonds	Corporate bonds	132,248		—		(12,135)		120,113		(786)		Corporate bonds	132,254		—		(14,315)		117,939

Total	Total	$	1,114,886	$	—	$	(125,885)	$	989,001	$	(802)	Total	$	1,077,311	$	—	$	(111,525)	$	965,786

				Gross		Gross		Allowance		Estimated
		Amortized		Unrealized		Unrealized		for Credit		Fair
(dollars in thousands)		Cost		Gains		Losses		Losses		Value
December 31, 2021
Investment securities available-for-sale:
U.S. treasury bonds		$	49,693	$	22	$	(257)	$	—	$	49,458
U.S. agency securities		629,273		736		(7,622)		—		622,387
Residential mortgage-backed securities		1,692,773		5,697		(20,797)		—		1,677,673
Municipal bonds		141,916		3,865		(347)		(3)		145,431
Corporate bonds		129,012		648		(584)		(617)		128,459
Total		$	2,642,667	$	10,968	$	(29,607)	$	(620)	$	2,623,408
Allowance for credit losses												Allowance for credit losses	(2,008)
Total held-to-maturity securities, net of ACL												Total held-to-maturity securities, net of ACL	$	1,075,303


(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Losses		Estimated Fair Value
December 31, 2022
Investment securities available-for-sale:
U.S. treasury bonds	$	49,793	$	—	$	(3,466)	$	—	$	46,327
U.S. agency securities	747,777		—		(78,049)		—		669,728
Residential mortgage-backed securities	937,557		18		(117,072)		—		820,503
Commercial mortgage-backed securities	56,071		—		(5,858)		—		50,213
Municipal bonds	10,700		45		(658)		—		10,087
Corporate bonds	2,000		—		(175)		(17)		1,808
Total available-for-sale securities	$	1,803,898	$	63	$	(205,278)	$	(17)	$	1,598,666


(dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
December 31, 2022
Investment securities held-to-maturity:


Residential mortgage-backed securities	$	741,057	$	—	$	(88,390)	$	652,667
Commercial mortgage-backed securities	92,557		—		(11,993)		80,564
Municipal bonds	128,273		—		(12,092)		116,181
Corporate bonds	132,253		—		(12,958)		119,295

Total	$	1,094,140	$	—	$	(125,433)	$	968,707
Allowance for credit losses	(766)
Total held-to-maturity securities, net of ACL	$	1,093,374

In addition, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 the Company held ~~$42.3~~$79.1 million and ~~$34.2~~$65.1 million, respectively, in equity securities in a combination of ~~FRB~~Federal Reserve Bank and FHLB stocks, which were required to be held for regulatory purposes and which were not marketable, and therefore are carried at cost.

The Company reassessed classification of certain investments in the first quarter of 2022 and, effective March 31, 2022, it transferred a total of $1.1 billion of mortgage-backed securities, municipal bonds and corporate bonds from available-for-sale to held-to-maturity securities, including $237.0 million of securities acquired in the first quarter of 2022 for which its intention to hold to maturity was finalized. At the time of transfer, the Company reversed the allowance for credit losses associated with the available-for-sale securities through the provision for credit losses. The securities were transferred at their amortized cost basis, net of any remaining unrealized gain or loss reported in accumulated other comprehensive income. The related unrealized loss of $66.2 million was included in other comprehensive loss at the time of transfer and, as of ~~September 30, 2022, $61.1~~March 31, 2023, $57.1 million remains in accumulated other comprehensive loss, to be amortized ~~out~~ through interest income as a yield adjustment over the remaining term of the securities. No gain or loss was recorded at the time of transfer. Subsequent to transfer, the allowance for credit losses on these securities was evaluated under the accounting policy for held-to-maturity securities.

Accrued interest receivable on available-for-sale securities totaled ~~$4.5~~$4.2 million and ~~$6.0~~$4.3 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, and accrued interest receivable on held-to-maturity securities totaled ~~$3.8~~$3.7 million and $3.6 million at ~~September 30, 2022.~~March 31, 2023 and December 31, 2022, respectively. The accrued interest on investment securities is excluded from the amortized cost of the securities and is reported in other assets in the Consolidated Balance Sheets.

The following ~~table~~tables summarizes ~~available for sale~~available-for-sale and held-to-maturity securities in an unrealized loss position ~~for which an allowance for credit losses has not been recorded,~~ by length of time:


		Less Than 12 Months				12 Months or Greater				Total
(dollars in thousands)	Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
March 31, 2023
Investment securities available-for-sale:
U.S. treasury bonds	2	$	—	$	—	$	46,931	$	(2,887)	$	46,931	$	(2,887)
U. S. agency securities	79	499,312		(50,108)		175,155		(17,119)		674,467		(67,227)
Residential mortgage-backed securities	158	—		—		800,166		(105,358)		800,166		(105,358)
Commercial mortgage-backed securities	13	—		—		50,282		(5,139)		50,282		(5,139)
Municipal bonds	1	—		—		8,482		(432)		8,482		(432)
Corporate bonds	1	—		—		1,812		(188)		1,812		(188)
Total	254	$	499,312	$	(50,108)	$	1,082,828	$	(131,123)	$	1,582,140	$	(181,231)

Less Than 12 Months
12 Months or Greater Total
Estimated Estimated Estimated
Number of Fair Unrealized Fair Unrealized Fair Unrealized
(dollars in thousands) Securities Value Losses Value Losses Value Losses
September 30, 2022
U.S. treasury bonds 2 $ 46,048 $ (3,719) $ — $ — $ 46,048 $ (3,719)
U. S. agency securities 84 450,079 (49,232) 212,988 (33,452) 663,067 (82,684)
Residential mortgage-backed securities 159 581,381 (80,300) 245,304 (50,142) 826,685 (130,442)
Commercial mortgage-backed securities 14 94,172 (6,106) — — 94,172 (6,106)
Municipal bonds 2 8,463 (1,047) — — 8,463 (1,047)
Corporate bonds 1 1,862 (138) — — 1,862 (138)
262 $ 1,182,005 $ (140,542) $ 458,292 $ (83,594) $ 1,640,297 $ (224,136)
December 31, 2021
U.S. treasury bond 1 $ 24,593 $ (257) $ — $ — $ 24,593 $ (257)
U. S. agency securities 64 452,966 (6,256) 68,977 (1,366) 521,943 (7,622)
Residential mortgage-backed securities 153 1,327,519 (16,841) 108,061 (3,956) 1,435,580 (20,797)
Municipal bonds 8 20,181 (347) — — 20,181 (347)
Corporate bonds 13 66,051 (584) — — 66,051 (584)
239 $ 1,891,310 $ (24,285) $ 177,038 $ (5,322) $ 2,068,348 $ (29,607)


		Less Than 12 Months				12 Months or Greater				Total
(dollars in thousands)	Number of Securities	Estimated Fair Value		Unrecognized Losses		Estimated Fair Value		Unrecognized Losses		Estimated Fair Value		Unrecognized Losses
March 31, 2023
Investment securities held-to-maturity:
Residential mortgage-backed securities	143	$	—	$	—	$	647,470	$	(77,286)	$	647,470	$	(77,286)
Commercial mortgage-backed securities	16	—		—		80,907		(11,234)		80,907		(11,234)
Municipal bonds	43	3,122		(29)		116,348		(8,661)		119,470		(8,690)
Corporate bonds	32	21,367		(2,596)		96,572		(11,719)		117,939		(14,315)
Total	234	$	24,489	$	(2,625)	$	941,297	$	(108,900)	$	965,786	$	(111,525)

1816


		Less Than 12 Months				12 Months or Greater				Total
(dollars in thousands)	Number of Securities	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
December 31, 2022
Investment securities available-for-sale:
U.S. treasury bond	2	$	—	$	—	$	46,327	$	(3,466)	$	46,327	$	(3,466)
U. S. agency securities	85	490,699		(58,437)		179,029		(19,612)		669,728		(78,049)
Residential mortgage-backed securities	157	3,994		—		808,697		(117,072)		812,691		(117,072)
Commercial mortgage-backed securities	14	471		(2)		49,742		(5,856)		50,213		(5,858)
Municipal bonds	1	—		—		8,299		(658)		8,299		(658)
Corporate bonds	1	—		—		1,825		(175)		1,825		(175)
Total	260	$	495,164	$	(58,439)	$	1,093,919	$	(146,839)	$	1,589,083	$	(205,278)


		Less Than 12 Months				12 Months or Greater				Total
(dollars in thousands)	Number of Securities	Estimated Fair Value		Unrecognized Losses		Estimated Fair Value		Unrecognized Losses		Estimated Fair Value		Unrecognized Losses
December 31, 2022
Investment securities held-to-maturity:
Residential mortgage-backed securities	143	$	—	$	—	$	652,667	$	(88,390)	$	652,667	$	(88,390)
Commercial mortgage-backed securities	16	—		—		80,564		(11,993)		80,564		(11,993)
Municipal bonds	43	3,110		(45)		113,071		(12,047)		116,181		(12,092)
Corporate bonds	30	20,771		(3,183)		86,451		(9,775)		107,222		(12,958)
Total	232	$	23,881	$	(3,228)	$	932,753	$	(122,205)	$	956,634	$	(125,433)

Unrealized losses at ~~September 30, 2022~~March 31, 2023 were generally attributable to changes in market interest rates and interest spread relationships since the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities. However, as of ~~September 30, 2022,~~March 31, 2023, the Company determined that certain of the unrealized loss positions in available-for-sale and held-to-maturity corporate and municipal bonds were evidence of expected credit losses, and therefore, for three months ended March 31, 2023 an allowance for credit losses of ~~$18~~$14 thousand was recorded for AFS securities and ~~$802~~$1.2 million for HTM securities for a total allowance of $31 thousand and $2.0 million, respectively. The allowance of $31 thousand for AFS securities was all for corporate bonds. The allowance of $2.0 million for HTM ~~securities.~~securities consists of $16 thousand for municipal bonds and $2.0 million on corporate bonds, The weighted average duration of debt securities, which comprise 100% of total investment ~~securitie~~s,securities, is ~~4.84~~4.74 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 currently has no plans 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.

1917

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 by contractual maturity are shown in the table below. Contractual maturities for mortgage-backed securities ("MBS") are excluded as they may differ significantly from expected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

September 30, 2022 December 31, 2021
Amortized Estimated Amortized Estimated
(dollars in thousands)
Cost (1)
Fair Value Cost Fair Value
Investment securities available-for-sale
U.S. treasury bonds (maturing after one year through five years) $ 49,767 $ 46,048 $ 49,693 $ 49,458
U. S. agency securities maturing:
One year or less 535,826 474,498 425,597 421,347
After one year through five years 160,848 147,596 141,537 140,785
After five years through ten years 54,323 46,234 62,092 60,255
Residential mortgage-backed securities: 958,800 828,367 1,692,820 1,677,673
Commercial mortgage-backed securities 100,278 94,172 — —
Municipal bonds maturing:
One year or less 1,600 1,600 4,806 4,861
After one year through five years 1,430 1,441 25,457 26,816
After five years through ten years 9,000 7,953 97,945 99,960
After ten years — — 13,708 13,797
Corporate bonds maturing:
One year or less — — 18,924 18,991
After one year through five years 2,000 1,862 54,630 54,833
After five years through ten years — — 55,458 55,252
Allowance for credit losses — (18) — (620)
1,873,872 1,649,753 2,642,667 2,623,408
Investment securities held-to-maturity
Residential mortgage-backed securities: 761,304 674,281 — —
Commercial mortgage-backed securities 92,948 81,733 — —
Municipal bonds maturing:
One year or less 3,161 3,100 — —
After one year through five years 35,637 32,630 — —
After five years through ten years 77,278 66,457 — —
After ten years 12,310 10,687 — —
Corporate bonds maturing:
One year or less 19,553 17,364 — —
After one year through five years 89,358 82,204 — —
After five years through ten years 23,337 20,545 — —
Allowance for credit losses (802) — — —
1,114,084 989,001 — —
$ 2,987,956 $ 2,638,754 $ 2,642,667 $ 2,623,408


	March 31, 2023				December 31, 2022
	Amortized		Estimated		Amortized		Estimated
(dollars in thousands)	Cost (1)		Fair Value		Cost		Fair Value
Investment securities available-for-sale
U. S. agency securities maturing:
One year or less	549,420		499,312		$	549,137	$	490,699
After one year through five years	110,918		100,911		111,742		100,297
After five years through ten years	68,936		64,008		73,886		68,180
After ten years	12,420		10,236		13,012		10,552
Residential mortgage-backed securities:	905,524		800,242		937,557		820,503
Commercial mortgage-backed securities	55,421		50,282		56,071		50,213
Municipal bonds maturing:
One year or less	—		—		300		300
After one year through five years	—		—		1,444		1,488
After five years through ten years	8,914		8,482		8,956		8,299
After ten years	—		—		—		—
Corporate bonds maturing:
One year or less	—		—		—		—
After one year through five years	2,000		1,812		2,000		1,825
After five years through ten years	—		—		—		—
U.S. Treasury	49,818		46,931		49,793		46,327
Allowance for credit losses	—		(31)		—		(17)
	1,763,371		1,582,185		1,803,898		1,598,666
Investment securities held-to-maturity





Residential mortgage-backed securities:	724,756		647,470		741,057		652,667
Commercial mortgage-backed securities	92,141		80,907		92,557		80,564
Municipal bonds maturing:
One year or less	3,151		3,122		3,139		3,110
After one year through five years	35,520		34,398		35,579		33,743
After five years through ten years	77,246		70,370		77,262		67,945
After ten years	12,243		11,580		12,293		11,383
Corporate bonds maturing:
One year or less	23,963		21,367		23,954		20,771
After one year through five years	84,938		75,735		84,953		77,997
After five years through ten years	23,353		20,837		23,346		20,527

Allowance for credit losses	(2,008)		—		(766)		—
	1,075,303		965,786		1,093,374		968,707
	$	2,838,674	$	2,547,971	$	2,897,272	$	2,567,373

(1)Amortized cost for investment securities held-to-maturity is presented net of the allowance for credit losses on the Consolidated Balance Sheet.

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, gross realized gains on sales and calls of ~~investments~~investment securities were $4$5 thousand and ~~$16 thousand, respectively as compared to $1.5 million and $2.2 million for the same three and nine month period ended September 30, 2021.~~zero, respectively. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, gross realized losses on sales of ~~investments~~investment securities were $0$26 thousand and ~~$187~~$25 thousand, ~~respectively as compared to $0 and $187 thousand for the same three and nine month period for the prior year.~~respectively. Gross sales and call proceeds were ~~$12.6~~$8.4 million and ~~$32.7~~$6.2 million for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and $85.5 million and $164.6 million for the same periods in 2021.~~respectively.

The book value of securities pledged as collateral for certain government deposits, securities sold under agreements to repurchase, and certain lines of credit with correspondent banks at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 was ~~$146.1 million~~ $1.6 billion and ~~$261.0~~$220.1 million, respectively, which were well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no holdings of securities of any one issuer, other than the U.S. Government and U.S. agency securities, which exceeded ten percent of shareholders' equity.

Note 4. Loans and Allowance for Credit Losses

The Bank makes loans to customers primarily in the Washington, D.C. metropolitan area and surrounding communities. A substantial portion of the Bank's loan portfolio consists of loans to businesses secured by real estate and other business assets.

Loans, net of unamortized net deferred fees, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are summarized by type as follows:

September 30, 2022 December 31, 2021
(dollars in thousands, except amounts in the footnote) Amount % Amount %
Commercial $ 1,415,998 19 % $ 1,354,317 19 %
PPP loans 7,241 — % 51,105 1 %
Income-producing - commercial real estate 3,668,720 50 % 3,385,298 48 %
Owner-occupied - commercial real estate 1,091,283 15 % 1,087,776 15 %
Real estate mortgage - residential 71,731 1 % 73,966 1 %
Construction - commercial and residential 858,100 12 % 896,319 13 %
Construction - C&I (owner-occupied) 139,238 2 % 159,579 2 %
Home equity 51,396 1 % 55,811 1 %
Other consumer 791 — 1,427 —
Total loans 7,304,498 100 % 7,065,598 100 %
Less: allowance for credit losses (75,767) (74,965)
Net loans (1)
$ 7,228,731 $ 6,990,633


	March 31, 2023				December 31, 2022
(dollars in thousands, except amounts in the footnote)	Amount		%		Amount		%
Commercial	$	1,482,983	19	%	$	1,487,349	19	%
PPP loans	709		—	%	3,256		—	%
Income-producing - commercial real estate	3,970,903		51	%	3,919,941		51	%
Owner-occupied - commercial real estate	1,095,699		14	%	1,110,325		15	%
Real estate mortgage - residential	73,677		1	%	73,001		1	%
Construction - commercial and residential	948,877		13	%	877,755		12	%
Construction - C&I (owner-occupied)	109,013		1	%	110,479		1	%
Home equity	53,829		1	%	51,782		1	%
Other consumer	1,986		—	%	1,744		—	%
Total loans	7,737,676		100	%	7,635,632		100	%
Less: allowance for credit losses	(78,377)				(74,444)
Net loans (1)	$	7,659,299			$	7,561,188

(1)Excludes accrued interest receivable of ~~$37.1~~$43.9 million and ~~$38.6~~$43.5 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively, which were recorded in other assets on the Consolidated Balance Sheets.

Unamortized net deferred fees amounted to ~~$27.4~~$28.5 million and ~~$26.9~~$29.2 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Bank serviced ~~$362.7~~$344.1 million and ~~$351.1~~$361.5 million,, respectively, of multifamily FHA loans, SBA loans and other loan participations that are not reflected as loan balances on the Consolidated Balance Sheets.

Real estate loans are secured primarily by duly recorded first deeds of trust or mortgages. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is customarily required.

Construction loans require that the financial condition and experience of the general contractor and major subcontractors be satisfactory to the Bank. Guaranteed, fixed-price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects.

Loans intended for residential land acquisition, lot development and construction are made on the premise that the land: 1) is or will be developed for building sites for residential structures, and 2) will ultimately be utilized for construction or improvement of residential zoned real properties, including the creation of housing. Residential development and construction loans will finance projects such as single family subdivisions, planned unit developments, townhouses, and condominiums. Residential land acquisition, development and construction 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 approval authority. 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 that 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 ~~$1.5~~$1.6 billion at ~~September 30, 2022.~~March 31, 2023. A portion of the ADC portfolio, ~~both speculative and non-speculative,~~ includes loan-funded interest reserves at origination. ADC loans that provide for the use of interest reserves represent approximately ~~54.1%~~59.0% of the outstanding ADC loan portfolio at ~~September 30, 2022.~~March 31, 2023. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit, including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) the borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides ~~an effective~~a 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 these inherent risks, 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 that are monitored on an ongoing basis and 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 include monitoring of current and projected real estate market conditions. If a project has performed as expected, it is 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 nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. 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. Government. Allocation of a portion of the allowance to one category of loans does not restrict the use of the allowance to absorb losses in other categories.


(dollars in thousands)	Commercial		Income-Producing Commercial Real Estate		Owner-Occupied -Commercial Real Estate		Real Estate Mortgage Residential		Construction -Commercial and Residential		Home Equity		Other Consumer		Total
Three Months Ended March 31, 2023
Allowance for credit losses:
Balance at beginning of period	$	15,655	$	35,688	$	12,702	$	969	$	8,801	$	555	$	74	$	74,444
Loans charged-off	(868)		—		—		—		(136)		—		(50)		(1,054)
Recoveries of loans previously charged-off	76		—		—		—		—		—		3		79
Net loans (charged-off) recovered	(792)		—		—		—		(136)		—		(47)		(975)
Provision for (reversal of) credit losses	912		2,452		(245)		33		1,718		38		—		4,908
Ending balance	$	15,775	$	38,140	$	12,457	$	1,002	$	10,383	$	593	$	27	$	78,377










Three Months Ended March 31, 2022
Allowance for credit losses:
Balance at beginning of period	$	14,475	$	38,287	$	12,146	$	449	$	9,099	$	474	$	35	$	74,965
Loans charged-off	(514)		—		—		—		—		—		—		(514)
Recoveries of loans previously charged-off	54		—		—		—		—		—		1		55
Net loans (charged-off) recovered	(460)		—		—		—		—		—		1		(459)
Provision for (reversal of) credit losses	(1,069)		906		(1,631)		(68)		(1,126)		(7)		(6)		(3,001)
Ending balance	$	12,946	$	39,193	$	10,515	$	381	$	7,973	$	467	$	30	$	71,505

(dollars in thousands) Commercial Income-Producing Commercial Real Estate Owner-Occupied -Commercial Real Estate Real Estate Mortgage Residential Construction -Commercial and Residential Home Equity Other Consumer Total
Three Months Ended September 30, 2022
Allowance for credit losses:
Balance at beginning of period $ 15,754 $ 34,120 $ 12,796 $ 790 $ 8,494 $ 647 $ 64 $ 72,665
Loans charged-off (53) — — — — — (70) (123)
Recoveries of loans previously charged-off 152 — 25 — — — 2 179
Net loans (charged-off) recovered 99 — 25 — — — (68) 56
Provision for (reversal of) credit losses 20 2,207 (240) 20 1,020 (23) 42 3,046
Ending balance $ 15,873 $ 36,327 $ 12,581 $ 810 $ 9,514 $ 624 $ 38 $ 75,767
Nine Months Ended September 30, 2022
Allowance for credit losses:
Balance at beginning of period $ 14,475 $ 38,287 $ 12,146 $ 449 $ 9,099 $ 474 $ 35 $ 74,965
Loans charged-off (604) — (1,356) — — — (74) (2,034)
Recoveries of loans previously charged-off 648 — 25 — 1,627 — 4 2,304
Net loans (charged-off) recovered 44 — (1,331) — 1,627 — (70) 270
Provision for (reversal of) credit losses 1,354 (1,960) 1,766 361 (1,212) 150 73 532
Ending balance $ 15,873 $ 36,327 $ 12,581 $ 810 $ 9,514 $ 624 $ 38 $ 75,767
Three Months Ended September 30, 2021
Allowance for credit losses:
Balance at beginning of period $ 21,348 $ 45,970 $ 12,995 $ 882 $ 10,427 $ 897 $ 41 $ 92,560
Loans charged-off (1,999) — — — — — (1) (2,000)
Recoveries of loans previously charged-off 81 97 — — 493 — 1 672
Net loans (charged-off) recovered (1,918) 97 — — 493 — — (1,328)
Provision for (reversal of) credit losses (2,503) (4,636) (1,050) 172 (179) (129) (1) (8,326)
Ending balance $ 16,927 $ 41,431 $ 11,945 $ 1,054 $ 10,741 $ 768 $ 40 $ 82,906
Nine Months Ended September 30, 2021
Allowance for credit losses:
Balance at beginning of period $ 26,569 $ 55,385 $ 14,000 $ 1,020 $ 11,529 $ 1,039 $ 37 $ 109,579
Loans charged-off (7,691) (5,216) — — (206) — (1) (13,114)
Recoveries of loans previously charged-off 326 97 — — 499 — 17 939
Net loans (charged-off) recovered (7,365) (5,119) — — 293 — 16 (12,175)
Provision for (reversal of) credit losses (2,277) (8,835) (2,055) 34 (1,081) (271) (13) (14,498)
Ending balance $ 16,927 $ 41,431 $ 11,945 $ 1,054 $ 10,741 $ 768 $ 40 $ 82,906

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

September 30, 2022 December 31, 2021
Business/Other Business/Other
(dollars in thousands) Assets Real Estate Assets Real Estate
Commercial $ 1,978 $ 2,008 $ 3,098 $ 6,821
PPP loans — — 1,365 —
Income-producing - commercial real estate 2,645 4,333 3,193 19,378
Owner-occupied - commercial real estate — 19,191 — 42
Real estate mortgage - residential — 1,698 — 1,779
Construction - commercial and residential — — — 3,093
Home equity — — — 366
Total $ 4,623 $ 27,230 $ 7,656 $ 31,479


	March 31, 2023				December 31, 2022
	Business/Other				Business/Other
(dollars in thousands)	Assets		Real Estate		Assets		Real Estate
Commercial	$	2,223	$	995	$	1,563	$	1,871

Income-producing - commercial real estate	2,000		4,325		2,000		4,328
Owner-occupied - commercial real estate	—		19,184		—		19,187
Real estate mortgage - residential	—		1,698		—		1,698
Construction - commercial and residential	—		533		—		—

Other consumer	—		—		50		—
Total	$	4,223	$	26,735	$	3,613	$	27,084

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 inform 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 that 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 that comprise the consumer portfolio segment.

The following are the definitions of the Company's credit quality indicators:


Pass:			Loans in all classes that comprise the commercial and consumer portfolio segments that are not adversely rated, are contractually current as to principal and interest, and are otherwise in compliance with the contractual terms of the loan agreement. Management believes that there is a low likelihood of loss related to those loans that are considered pass.

~~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.

The Company's credit quality indicators are generally updated annually, however, credits rated ~~"Watch"~~"Special Mention" or below are reviewed more frequently. Based on the most recent analysis performed, the amortized cost basis of loans by risk category, class and year of origination are as follows:


September 30, 2022 (dollars in thousands)		Prior		2018		2019		2020		2021		2022		Revolving Loans Amort. Cost Basis		Revolving Loans Convert. to Term		Total
(dollars in thousands)																				(dollars in thousands)	Prior		2019		2020		2021			2022		2023		Revolving Loans Amort. Cost Basis		Revolving Loans Convert. to Term		Total
March 31, 2023																				March 31, 2023
Commercial	Commercial																			Commercial
Pass	Pass	$	190,265	$	48,254	$	59,021	$	64,569	$	229,469	$	102,904	$	665,362	$	8,384	$	1,368,228	Pass	$	207,824	$	56,608	$	61,430	$	237,660		$	160,051	$	24,643	$	719,939	$	6,499	$	1,474,654
Watch		5,854		1,859		360		3,776		2,893		996		21,980		—		37,718
Special Mention	Special Mention	—		264		—		—		—		87		4,817		—		5,168		Special Mention	—		—		—		—			77		—		4,976		—		5,053
Substandard	Substandard	1,695		366		287		—		—		—		1,269		1,267		4,884		Substandard	2,197		264		—		340			—		—		199		276		3,276
Total	Total	197,814		50,743		59,668		68,345		232,362		103,987		693,428		9,651		1,415,998		Total	210,021		56,872		61,430		238,000			160,128		24,643		725,114		6,775		1,482,983
YTD Gross Charge-offs																				YTD Gross Charge-offs	(868)		—		—		—			—		—		—		—		(868)
PPP loans	PPP loans																			PPP loans
Pass	Pass	—		—		—		2,479		4,762		—		—		—		7,241		Pass	—		—		—		709			—		—		—		—		709

Total		—		—		—		2,479		4,762		—		—		—		7,241

Income producing - commercial real estate	Income producing - commercial real estate																			Income producing - commercial real estate
Pass	Pass	788,336		428,086		455,202		298,741		550,777		496,371		195,569		363		3,213,445		Pass	1,431,756		494,678		366,302		528,962			696,291		114,213		199,847		5,275		3,837,324
Watch		249,570		5,223		—		35,707		—		—		—		—		290,500
Special Mention	Special Mention	44,374		5,229		4,224		—		—		—		47,677		—		101,504		Special Mention	12,376		4,195		6,734		—			—		—		47,674		—		70,979
Substandard	Substandard	60,626		2,645		—		—		—		—		—		—		63,271		Substandard	62,600		—		—		—			—		—		—		—		62,600
Total	Total	1,142,906		441,183		459,426		334,448		550,777		496,371		243,246		363		3,668,720		Total	1,506,732		498,873		373,036		528,962			696,291		114,213		247,521		5,275		3,970,903

Owner occupied - commercial real estate	Owner occupied - commercial real estate																			Owner occupied - commercial real estate
Pass	Pass	456,427		205,475		79,279		41,152		202,135		37,851		15,181		—		1,037,500		Pass	648,931		110,870		39,752		207,696			39,939		5,048		1,551		22,169		1,075,956
Watch		17,779		11,563		4,618		—		—		—		60		—		34,020

Substandard	Substandard	19,763		—		—		—		—		—		—		—		19,763		Substandard	19,743		—		—		—			—		—		—		—		19,743
Total	Total	493,969		217,038		83,897		41,152		202,135		37,851		15,241		—		1,091,283		Total	668,674		110,870		39,752		207,696			39,939		5,048		1,551		22,169		1,095,699

Real estate mortgage - residential	Real estate mortgage - residential																			Real estate mortgage - residential
Pass	Pass	16,329		12,457		11,703		3,295		16,348		6,857		—		—		66,989		Pass	28,363		8,162		2,626		16,402			14,362		2,064		—		—		71,979
Watch		3,044		—		—		—		—		—		—		—		3,044
Substandard	Substandard	1,698		—		—		—		—		—		—		—		1,698		Substandard	1,698		—		—		—			—		—		—		—		1,698
Total	Total	21,071		12,457		11,703		3,295		16,348		6,857		—		—		71,731		Total	30,061		8,162		2,626		16,402			14,362		2,064		—		—		73,677

Construction - commercial and residential	Construction - commercial and residential																			Construction - commercial and residential
Pass	Pass	42,069		71,408		98,357		180,664		156,539		139,531		123,726		—		812,294		Pass	110,247		92,940		155,158		250,206			239,367		910		99,516		—		948,344
Watch		44,409		—		—		—		—		—		—		1,397		45,806

Substandard																				Substandard	533		—		—		—		—	—		—		—		—		533
Total																				Total	110,780		92,940		155,158		250,206			239,367		910		99,516		—		948,877
YTD Gross Charge-offs																				YTD Gross Charge-offs	(136)		—		—		—			—		—		—		—		(136)
Construction - C&I (owner occupied)																				Construction - C&I (owner occupied)
Pass																				Pass	19,548		11,754		33,609		647			35,170		1,815		6,470		—		109,013

Total	Total	86,478		71,408		98,357		180,664		156,539		139,531		123,726		1,397		858,100		Total	19,548		11,754		33,609		647			35,170		1,815		6,470		—		109,013
Construction - C&I (owner occupied)

Home equity																				Home equity
Pass	Pass	13,935		7,289		34,322		55,777		661		6,640		6,543		—		125,167		Pass	2,300		—		248		376			686		—		49,649		470		53,729
Watch		1,036		3,254		7,480		2,301		—		—		—		—		14,071
Substandard																				Substandard	—		39		—		—			—		—		61		—		100
Total																				Total	2,300		39		248		376			686		—		49,710		470		53,829

Other consumer																				Other consumer
Pass																				Pass	7		—		—		—			118		—		1,861		—		1,986

Total	Total	14,971		10,543		41,802		58,078		661		6,640		6,543		—		139,238		Total	7		—		—		—			118		—		1,861		—		1,986
Home equity
Pass		1,713		—		—		99		548		—		47,958		724		51,042
Watch		55		—		—		—		—		—		196		—		251
Substandard		—		—		42		—		—		—		61		—		103
Total		1,768		—		42		99		548		—		48,215		724		51,396
Other consumer
Pass		4		—		—		—		—		711		13		—		728
Watch		—		—		—		—		—		—		55		3		58
Substandard		—		—		—		—		—		—		5		—		5
Total		4		—		—		—		—		711		73		3		791
YTD Gross Charge-offs																				YTD Gross Charge-offs	(50)		—		—		—			—		—		—		—		(50)
Total Recorded Investment	Total Recorded Investment	$	1,958,981	$	803,372	$	754,895	$	688,560	$	1,164,132	$	791,948	$	1,130,472	$	12,138	7,304,498		Total Recorded Investment	$	2,548,123	$	779,510	$	665,859	$	1,242,998		$	1,186,061	$	148,693	$	1,131,743	$	34,689	$	7,737,676
Total YTD Gross Charge-offs																				Total YTD Gross Charge-offs	$	(1,054)	$	—	$	—	$	—		$	—	$	—	$	—	$	—	$	(1,054)

December 31, 2021 (dollars in thousands)		Prior		2017		2018		2019		2020		2021		Revolving Loans Amort. Cost Basis		Revolving Loans Convert. to Term		Total
(dollars in thousands)																				(dollars in thousands)	Prior		2018		2019		2020			2021		2022		Revolving Loans Amort. Cost Basis		Revolving Loans Convert. to Term		Total
December 31, 2022																				December 31, 2022
Commercial	Commercial																			Commercial
Pass	Pass	$	180,877	$	58,693	$	103,058	$	90,874	$	87,515	$	211,563	$	549,055	$	6,023	$	1,287,658	Pass	$	183,329	$	47,393	$	56,261	$	64,163		$	237,146	$	144,390	$	736,090	$	8,570	$	1,477,342
Watch		5,896		6,567		1,020		996		4,268		3,137		18,336		627		40,847
Special Mention	Special Mention	—		9,515		363		—		—		—		901		—		10,779		Special Mention	—		—		—		—			—		82		5,475		—		5,557
Substandard	Substandard	4,205		778		1,850		437		—		—		7,763		—		15,033		Substandard	1,332		351		276		—			—		—		1,344		1,147		4,450
Total	Total	190,978		75,553		106,291		92,307		91,783		214,700		576,055		6,650		1,354,317		Total	184,661		47,744		56,537		64,163			237,146		144,472		742,909		9,717		1,487,349
YTD Gross Charge-offs																				YTD Gross Charge-offs	(283)		(101)		(49)		—			—		—		(483)		—		(916)
PPP loans	PPP loans																			PPP loans
Pass																				Pass	—		—		—		2,479			777		—		—		—		3,256

Income producing - commercial real estate																				Income producing - commercial real estate
Pass																				Pass	1,016,529		439,221		480,474		334,165			542,143		744,328		192,089		358		3,749,307
Special Mention																				Special Mention	44,195		5,206		4,209		6,735			—		—		47,676		—		108,021
Substandard																				Substandard	60,613		2,000		—		—			—		—		—		—		62,613
Total																				Total	1,121,337		446,427		484,683		340,900			542,143		744,328		239,765		358		3,919,941
YTD Gross Charge-offs																				YTD Gross Charge-offs	(680)		(645)		(676)		—			—		—		—		—		(2,001)
Owner occupied - commercial real estate																				Owner occupied - commercial real estate
Pass																				Pass	461,029		191,646		111,497		40,562			206,595		41,765		24,240		13,238		1,090,572

Substandard																				Substandard	19,753		—		—		—			—		—		—		—		19,753
Total																				Total	480,782		191,646		111,497		40,562			206,595		41,765		24,240		13,238		1,110,325

Real estate mortgage - residential																				Real estate mortgage - residential
Pass	Pass	—		—		—		—		16,840		32,900		—		—		49,740		Pass	16,968		12,438		8,219		2,640			16,307		14,731		—		—		71,303
Substandard	Substandard	—		—		—		—		1,365		—		—		—		1,365		Substandard	1,698		—		—		—			—		—		—		—		1,698
Total	Total	—		—		—		—		18,205		32,900		—		—		51,105		Total	18,666		12,438		8,219		2,640			16,307		14,731		—		—		73,001
Income producing - commercial real estate

Construction - commercial and residential																				Construction - commercial and residential
Pass	Pass	572,550		333,394		418,489		495,808		337,178		549,356		198,210		—		2,904,985		Pass	84,522		71,841		90,560		189,023			191,127		159,771		90,911		—		877,755
Watch		58,334		73,760		—		43,561		35,094		—		—		—		210,749
Special Mention		101,580		—		41,936		4,264		—		—		47,692		—		195,472

Total																				Total	84,522		71,841		90,560		189,023			191,127		159,771		90,911		—		877,755

Construction - C&I (owner occupied)																				Construction - C&I (owner occupied)
Pass																				Pass	14,816		8,160		11,810		33,854			653		34,679		6,507		—		110,479

Total																				Total	14,816		8,160		11,810		33,854			653		34,679		6,507		—		110,479

Home equity																				Home equity
Pass																				Pass	1,747		—		—		98			551		—		48,378		906		51,680
Substandard	Substandard	60,059		—		8,491		5,542		—		—		—		—		74,092		Substandard	—		—		41		—			—		—		61		—		102
Total	Total	792,523		407,154		468,916		549,175		372,272		549,356		245,902		—		3,385,298		Total	1,747		—		41		98			551		—		48,439		906		51,782
Owner occupied - commercial real estate
Pass		353,471		127,687		210,348		81,604		41,135		184,529		16,838		1,922		1,017,534
Watch		22,710		4,581		11,783		7,026		—		—		62		—		46,162
Special Mention		—		—		—		2,122		—		—		—		—		2,122
Substandard		21,958		—		—		—		—		—		—		—		21,958
Total		398,139		132,268		222,131		90,752		41,135		184,529		16,900		1,922		1,087,776
Real estate mortgage - residential
Pass		14,645		5,854		12,956		15,546		3,436		16,495		—		—		68,932
Watch		3,255		—		—		—		—		—		—		—		3,255
Substandard		1,698		—		—		81		—		—		—		—		1,779
Total		19,598		5,854		12,956		15,627		3,436		16,495		—		—		73,966
Construction - commercial and residential
Pass		32,815		139,756		171,152		142,599		160,952		71,799		127,956		1,773		848,802
Watch		506		43,918		—		—		—		—		—		—		44,424

Substandard		—		—		—		3,093		—		—		—		—		3,093
Total		33,321		183,674		171,152		145,692		160,952		71,799		127,956		1,773		896,319
Construction - C&I (owner occupied)
Pass		19,710		1,754		25,163		39,803		61,408		768		6,648		—		155,254
Watch		680		390		3,255		—		—		—		—		—		4,325

Total		20,390		2,144		28,418		39,803		61,408		768		6,648		—		159,579
Home equity
Pass		1,474		—		—		—		70		702		52,077		883		55,206
Watch		193		—		—		—		—		—		—		—		193
Substandard		46		—		—		45		—		—		58		263		412
Total		1,713		—		—		45		70		702		52,135		1,146		55,811
Other consumer	Other consumer																			Other consumer
Pass	Pass	370		—		—		—		—		—		1,002		—		1,372		Pass	4		—		—		—			—		126		1,561		3		1,694
Substandard	Substandard	—		—		—		—		—		—		55		—		55		Substandard	—		—		—		—			—		—		—		50		50
Total	Total	370		—		—		—		—		—		1,057		—		1,427		Total	4		—		—		—			—		126		1,561		53		1,744
YTD Gross Charge-offs																				YTD Gross Charge-offs	(3)		—		—		—			—		—		(75)		—		(78)
Total Recorded Investment	Total Recorded Investment	$	1,457,032	$	806,647	$	1,009,864	$	933,401	$	749,261	$	1,071,249	$	1,026,653	$	11,491	$	7,065,598	Total Recorded Investment	$	1,906,535	$	778,256	$	763,347	$	673,719		$	1,195,299	$	1,139,872	$	1,154,332	$	24,272	$	7,635,632
Total YTD Gross Charge-Offs																				Total YTD Gross Charge-Offs	$	(966)	$	(746)	$	(725)	$	—		$	—	$	—	$	(558)	$	—	$	(2,995)

Nonaccrual and Past Due Loans

As part of the Company's comprehensive loan review process, management evaluates loans that are past-due 30 days or more. Management makes a thorough assessment of the conditions and circumstances surrounding each delinquent loan. The Bank's loan policy requires that loans be placed on nonaccrual if they are 90 days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves.

The table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


(dollars in thousands, except amount in the footnote)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 Days or More Past Due		Total Past Due Loans		Current Loans		Nonaccrual Loans		Total Recorded Investment in Loans
March 31, 2023
Commercial	$	778	$	524	$	—	$	1,302	$	1,479,387	$	2,294	$	1,482,983
PPP loans	—		—		—		—		709		—		709
Income producing - commercial real estate (1)	14,018		—		—		14,018		3,954,885		2,000		3,970,903
Owner occupied - commercial real estate	—		279		—		279		1,095,406		14		1,095,699
Real estate mortgage - residential	—		—		—		—		71,762		1,915		73,677
Construction - commercial and residential	—		—		—		—		948,344		533		948,877
Construction - C&I (owner occupied)	—		—		—		—		109,013		—		109,013
Home equity	48		—		—		48		53,781		—		53,829
Other consumer	—		—		—		—		1,986		—		1,986
Total	$	14,844	$	803	$	—	$	15,647	$	7,715,273	$	6,756	$	7,737,676

December 31, 2022
Commercial	$	697	$	643	$	—	$	1,340	$	1,483,521	$	2,488	$	1,487,349
PPP loans	—		—		—		—		3,256		—		3,256
Income producing - commercial real estate	—		—		—		—		3,917,941		2,000		3,919,941
Owner occupied - commercial real estate	—		279		—		279		1,110,029		17		1,110,325
Real estate mortgage – residential	—		—		—		—		71,088		1,913		73,001
Construction - commercial and residential	531		—		—		531		877,224		—		877,755
Construction - C&I (owner occupied)	—		—		—		—		110,479		—		110,479
Home equity	—		52		—		52		51,730		—		51,782
Other consumer	—		1		—		1		1,693		50		1,744
Total	$	1,228	$	975	$	—	$	2,203	$	7,626,961	$	6,468	$	7,635,632

(dollars in thousands) Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans 90 Days or More Past Due Total Past Due Loans Current Loans Nonaccrual Loans Total Recorded Investment in Loans
September 30, 2022
Commercial $ 110 $ 342 $ — $ 452 $ 1,412,528 $ 3,018 $ 1,415,998
PPP loans — — — — 7,241 — 7,241
Income producing - commercial real estate 155 10,978 — 11,133 3,654,942 2,645 3,668,720
Owner occupied - commercial real estate 281 — — 281 1,090,981 21 1,091,283
Real estate mortgage - residential — — — — 69,814 1,917 71,731
Construction - commercial and residential — 1,945 — 1,945 856,155 — 858,100
Construction - C&I (owner occupied) — 2,301 — 2,301 136,937 — 139,238
Home equity — 55 — 55 51,341 — 51,396
Other consumer 55 — — 55 736 — 791
Total $ 601 $ 15,621 $ — $ 16,222 $ 7,280,675 $ 7,601 $ 7,304,498
December 31, 2021
Commercial $ 1,462 $ 672 $ — $ 2,134 $ 1,343,307 $ 8,876 $ 1,354,317
PPP loans 1,765 825 — 2,590 47,150 1,365 51,105
Income producing - commercial real estate — — — — 3,371,842 13,456 3,385,298
Owner occupied - commercial real estate 419 19,108 — 19,527 1,068,207 42 1,087,776
Real estate mortgage – residential 1,372 — — 1,372 70,584 2,010 73,966
Construction - commercial and residential — — — — 893,226 3,093 896,319
Construction - C&I (owner occupied) — — — — 159,579 — 159,579
Home equity 33 187 — 220 55,225 366 55,811
Other consumer — — — — 1,427 — 1,427
Total $ 5,051 $ 20,792 $ — $ 25,843 $ 7,010,547 $ 29,208 $ 7,065,598
(1)The increase in the 30-59 days past due category in the income producing - commercial real estate loans is one credit for $14.0 million which became past due in the first quarter of 2023, and was brought current in April 2023.

The following presents the nonaccrual loans as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

Nonaccrual with Nonaccrual with Total
No Allowance an Allowance Nonaccrual
(dollars in thousands, except amounts in footnotes) for Credit Loss for Credit Loss Loans
September 30, 2022
Commercial $ 405 $ 2,613 $ 3,018
Income producing - commercial real estate — 2,645 2,645
Owner occupied - commercial real estate 21 — 21
Real estate mortgage - residential — 1,917 1,917
Home equity — — —
Total (1)(2)
$ 426 $ 7,175 $ 7,601
December 31, 2021
Commercial $ 5,806 $ 3,070 $ 8,876
PPP loans (3)
1,365 — 1,365
Income producing - commercial real estate 3,920 9,536 13,456
Owner occupied - commercial real estate 42 — 42
Real estate mortgage - residential 1,779 231 2,010
Construction - commercial and residential 3,093 — 3,093
Home equity 366 — 366
Total (1)(2)
$ 16,371 $ 12,837 $ 29,208


(dollars in thousands, except amounts in footnotes)	Nonaccrual with No Allowance for Credit Losses		Nonaccrual with an Allowance for Credit Losses		Total Nonaccrual Loans
March 31, 2023
Commercial	$	91	$	2,203	$	2,294

Income producing - commercial real estate	—		2,000		2,000
Owner occupied - commercial real estate	14		—		14
Real estate mortgage - residential	—		1,915		1,915
Construction - commercial and residential	—		533		533

Total (1)	$	105	$	6,651	$	6,756

December 31, 2022
Commercial	$	101	$	2,387	$	2,488

Income producing - commercial real estate	—		2,000		2,000
Owner occupied - commercial real estate	17		—		17
Real estate mortgage - residential	—		1,913		1,913


Other consumer	—		50		50
Total (1)	$	118	$	6,350	$	6,468

(1)~~Excludes TDRs that were performing under their restructured~~ ~~terms totaling $24.5 million~~ ~~and $10.2 million at September 30, 2022 and December 31, 2021, respectively.~~

~~(2)~~Gross interest income of ~~$410~~$182 thousand and approximately ~~$1.4 million~~$325 thousand would have been recorded for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively, if nonaccrual loans shown above had been current and in accordance with their original terms, while ~~$5 thousand and $23 thousand~~no interest income was actually recorded on such loans for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021 respectively.~~2022. See Note 1 to the Consolidated Financial Statements for a description of the Company's policy for placing loans on nonaccrual status.

~~(3)The CARES Act created~~Modifications with Borrowers Experiencing Financial Difficulty

On January 1, 2023, the ~~PPP, a program designed to aid small-~~Company adopted the accounting guidance in ASU No. 2022-02, effective as of January 1, 2023, which eliminates the recognition and medium-sized businesses through federally guaranteed loans distributed through banks. These loans are intended to guarantee payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.

~~Modifications~~

~~A modification~~measurement of a TDR. Due to the removal of the TDR designation, the Company evaluates all loan ~~constitutes~~restructurings according to the accounting guidance for loan modifications to determine if the restructuring results in a ~~TDR when~~new loan or a continuation of the ~~borrower is~~existing loan. Loan modifications to borrowers experiencing financial ~~difficulty~~difficulties that result in a direct change in the timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the ~~modification constitutes~~listed modifications. Therefore, the disclosures related to loan restructurings are for modifications which have a ~~concession.~~ direct impact on cash flows.

The Company may offer various types of ~~concessions~~modifications when ~~modifying~~restructuring a loan. Commercial and industrial loans modified in a ~~TDR~~loan restructuring often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested.

Commercial mortgage and construction loans modified in a ~~TDR~~loan restructuring often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor. Construction loans modified in a ~~TDR~~loan restructuring may also involve extending the interest-only payment period.

Loans modified in a ~~TDR~~loan restructuring for the Company may have the financial effect of increasing the specific allowance associated with the loan. An allowance for consumer and commercial loans that have been modified in a ~~TDR~~loan restructuring is measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral dependent. Management exercises significant judgment in developing these estimates.

In response to the COVID-19 pandemic and its economic impact to our customers, we implemented a short-term modification program that complied 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 allowed for a deferral of payments for 90 days, which we extended for an additional 90 days for certain borrowers, 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. 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 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. As of September 30, 2022, substantially all of the borrowers granted deferrals under this program have returned to regular payment status.

The Company had one loan modification with a balance of $19.2 million that resulted in a TDR for the three and nine months ended September 30, 2022 and there were no loan modifications that resulted in TDRs for the nine months ended September 30, 2021.

The Company had five TDRs at September 30, 2022 totaling approximately $24.5 million. All of these loans were performing under their modified terms as of September 30, 2022. The Company had seven TDRs at December 31, 2021, totaling $16.5 million.

During the three and nine months ended September 30, 2022, four loans that had been modified as TDRs with a balance of $30.3 million, including two that previously were on nonperforming status, were sold, resulting in a charge-off of $1.4 million in connection with the sale. For the nine months ended September 30, 2021, the collateral for one previously nonperforming restructured loan was sold, and all of the loan's principal and part of its delinquent interest were collected; and one restructured loan that was purchased as part of the 2014 acquisition of Virginia Heritage Bank was collected at its full carrying value.

For the first nine months of 2022 there were no loans that were modified as a TDR that defaulted. For the first nine months of 2021, one performing TDR loan, with a balance of $101 thousand, defaulted on its modified terms and was placed on nonaccrual status and charged off.

Commercial and consumer loans modified in a ~~TDR~~loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a ~~TDR~~loan restructuring subsequently default, the Company evaluates the loan for possible further loss. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

None of the loans that were restructured in the three months ended March 31, 2023, experienced any subsequent payment defaults.

The following table presents the amortized cost basis of loan restructurings at March 31, 2023 that were both experiencing financial difficulty and modified during the three months ended March 31, 2023.


(dollars in thousands)	Principal Forgiveness		Term Extension		Combination Term Extension and Principal Payment Delay		Weighted Average Term Extension	Interest Rate Reduction		Restructured Loans/Total Loan Portfolio
Accruing Restructured Loans
Commercial	$	—	$	21,744	$	—	3 months	$	—	0.3	%
Income producing - commercial real estate	—		7,211		60,139		4 months	—		0.9	%
Owner occupied - commercial real estate	—		—		19,170		3 months	—		0.2	%
Total	$	—	$	28,955	$	79,309		$	—	1.4	%

The following presents the performance of loans restructured to borrowers experiencing financial difficulty by class of loan during the three months ended March 31, 2023:


	Payment Status (Amortized Cost Basis)	Payment Status (Amortized Cost Basis)
(dollars in thousands)		Current		30-89 Days Past Due		90+ Days Past Due
Accruing Restructured Loans
Commercial		$	21,744	$	—	$	—
Income producing - commercial real estate		67,350		—		—
Owner occupied - commercial real estate		19,170		—		—
Total		$	108,264	$	—	$	—

There were no non-accrual loans modified during the three months ended March 31, 2023.

Note 5. Leases

The Company accounts for leases in accordance with ASC Topic 842. A lease is defined as a contract that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. Substantially all of the leases in which the Company is the lessee comprise real estate property for branch offices, ATM locations, and corporate office space. Substantially all of our leases are classified as operating leases. With the adoption of ASC Topic 842, operating lease agreements were required to be recognized on the Consolidated Balance Sheets as a right-of-use ("ROU") asset and a corresponding lease liability.

As of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the Company had ~~$26.0~~$23.1 million and ~~$30.6~~$24.5 million of operating lease ROU assets, respectively, and ~~$30.8~~$27.6 million and ~~$35.5~~$29.3 million of operating lease liabilities, respectively, on the Company's Consolidated Balance Sheets. 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 Balance Sheets.

The 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 ROU assets and lease liabilities.

As of ~~September 30, 2022,~~March 31, 2023, our leases do not contain material residual value guarantees or impose restrictions or covenants related to dividends or the Company's ability to incur additional financial obligations. During the three months ended March 31, 2023, the Company did not enter into new leases or renew or extend any leases. The Company had one lease expire during that period.

2119

The following table presents lease costs and other lease information.


		Three Months Ended								Nine Months Ended					Three Months Ended
(dollars in thousands)	(dollars in thousands)	September 30, 2022				September 30, 2021				September 30, 2022		September 30, 2021		(dollars in thousands)	March 31, 2023				March 31, 2022
Lease cost	Lease cost													Lease cost
Operating lease cost (cost resulting from lease payments)	Operating lease cost (cost resulting from lease payments)	$	1,757			$	1,960			$	5,418	$	6,132	Operating lease cost (cost resulting from lease payments)	$	1,716			$	1,840
Variable lease cost (cost excluded from lease payments)	Variable lease cost (cost excluded from lease payments)	270				205				781		678		Variable lease cost (cost excluded from lease payments)	256				231
Sublease income	Sublease income	(30)				(117)				(212)		(291)		Sublease income	(30)				(87)
Net lease cost	Net lease cost	$	1,997			$	2,048			$	5,987	$	6,519	Net lease cost	$	1,942			$	1,984

Operating lease - operating cash flows (fixed payments)	Operating lease - operating cash flows (fixed payments)	$	1,809			$	1,992			$	5,551	$	6,344	Operating lease - operating cash flows (fixed payments)	$	1,859			$	1,820

(dollars in thousands)	(dollars in thousands)	September 30, 2022				December 31, 2021								(dollars in thousands)	March 31, 2023				December 31, 2022
Operating lease right-of-use assets	Operating lease right-of-use assets	$	26,022			$	30,555							Operating lease right-of-use assets	$	23,060			$	24,544
Operating lease liabilities	Operating lease liabilities	$	30,837			$	35,501							Operating lease liabilities	$	27,634			$	29,267
Weighted average lease term - operating leases	Weighted average lease term - operating leases	5.81			yrs	6.26			yrs					Weighted average lease term - operating leases	5.34			yrs	5.50			yrs
Weighted average discount rate - operating leases	Weighted average discount rate - operating leases	2.95		%		3.05		%						Weighted average discount rate - operating leases	2.87		%		2.91		%

Future minimum payments for operating leases with initial or remaining terms of more than one year as of ~~September 30, 2022~~March 31, 2023 were as follows:


(dollars in thousands)
Twelve months ended:
~~September 30, 2023~~March 31, 2024	$	~~1,799~~5,339
~~September 30, 2024~~March 31, 2025	~~7,036~~6,880
~~September 30, 2025~~March 31, 2026	~~6,292~~5,987
~~September 30, 2026~~March 31, 2027	~~5,329~~2,894
~~September 30, 2027~~March 31, 2028	~~4,184~~2,502
Thereafter	~~8,475~~5,776
Total future minimum lease payments	~~33,115~~29,378
Amounts representing interest	~~(2,278)~~(1,744)
Present value of net future minimum lease payments	$	~~30,837~~27,634

Note 6. 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 through the use of derivative financial instruments.

Interest Rate Products

Interest rate derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate caps and swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that the Company executes with a third party, such that the Company minimizes its net market 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.

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.

Mortgage Banking Derivatives

As part of its mortgage banking activities, the Bank ~~enters~~entered 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 MBS. 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.

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.

~~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 under ASC 815 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.

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. See Note 10. Fair Value Measurements.

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.

The Company's sole designated cash flow hedge matured during April 2021. Thus, as of September 30, 2022 and December 31, 2021, the Company had no designated cash flow hedge interest rate swap transactions outstanding associated with the Company's variable rate deposits. Amounts reported in accumulated other comprehensive income related to designated cash flow hedge derivatives were reclassified to interest income/expense as interest payments were made/received on the Company's variable-rate assets/liabilities.

2321

~~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.

~~Credit-Risk-Related Contingent Features~~

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.~~

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The Company has a minimum collateral posting threshold with its derivative counterparty. If the Company had breached any provisions under the agreement at ~~September 30, 2022,~~March 31, 2023, it could have been required to settle its obligations under the agreement at the termination value.


	March 31, 2023					December 31, 2022
(dollars in thousands)	Notional Amount		Fair Value		Balance Sheet Category	Notional Amount		Fair Value		Balance Sheet Category
Derivatives not designated as hedging instruments in an asset position
Interest rate product	$	401,890	$	25,844	Other assets	$	396,024	$	31,039	Other assets
Mortgage banking derivatives	2,188		29		Other assets	6,963		93		Other assets
Total	$	404,078	$	25,873		$	402,987	$	31,132



Derivatives not designated as hedging instruments in a liability position
Interest rate product	$	401,890	$	25,218	Other liabilities	$	396,024	$	30,065	Other liabilities

Credit risk participation agreements	25,770		3		Other liabilities	25,902		2		Other liabilities
Total	$	427,660	25,221			$	421,926	30,067
Cash and other collateral posted			—					—
Net derivatives in a liability position			$	25,221				$	30,067

September 30, 2022 December 31, 2021
(dollars in thousands) Notional
Amount Fair Value Balance Sheet
Category Notional
Amount Fair Value Balance Sheet
Category
Derivatives not designated as hedging instruments in an asset position
Interest rate product $ 316,161 $ 30,635 Other assets $ 272,825 $ 5,273 Other assets
Mortgage banking derivatives 8,000 259 Other assets 56,331 636 Other assets
$ 324,161 $ 30,894 $ 329,156 $ 5,909
Derivatives not designated as hedging instruments in a liability position
Interest rate product $ 316,161 $ 29,492 Other liabilities $ 272,825 $ 5,223 Other liabilities
Mortgage banking derivatives 21,428 115 Other liabilities — — Other liabilities
Credit risk participation agreements 26,032 3 Other liabilities 26,417 47 Other liabilities
$ 363,621 29,610 $ 299,242 5,270
Cash and other collateral posted (2,270) (2,930)
Net derivatives in a liability position $ 27,340 $ 2,340

~~The table below presents the pre-tax net gains (losses) of the Company's designated cash flow hedges for the three and nine months ended September 30, 2022 and 2021:~~

The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
Amount of Gain (Loss) Recognized Amount of Gain (Loss) Reclassified
Derivatives in Subtopic in OCI on Derivatives Location of from AOCI into Net Income
815-20 Hedging Relationships Three Months Ended September 30, Gain (Loss) Recognized Three Months Ended September 30,
(dollars in thousands) 2022 2021 from AOCI into Net Income 2022 2021
Derivatives in cash flow hedging relationships
Interest rate products $ — $ — Interest Expense $ — $ —
Amount of Gain (Loss) Recognized Amount of Gain (Loss) Reclassified
Derivatives in Subtopic in OCI on Derivative Location of from AOCI into Net Income
815-20 Hedging Relationships Nine Months Ended September 30, Gain (Loss) Recognized Nine Months Ended September 30,
(dollars in thousands) 2022 2021 from AOCI into Net Income 2022 2021
Derivatives in cash flow hedging relationships
Interest rate products $ — $ 1 Interest Expense $ — $ (445)

The table below presents the effect of the Company's derivative financial instruments on the consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~

The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income
Amount of Gain (Loss) Recognized in Interest Expense on
Fair Value and Cash Flow Hedging Relationships
Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded $ — $ — $ — $ (445)
Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain (loss) reclassified from AOCI into income $ — $ — $ — $ (445)
Amount of gain (loss) reclassified from AOCI into income - included component $ — $ — $ — $ (445)

The Effect of Derivatives Not Designated as Hedging Instruments in the Consolidated Statements of Income
Amount of Gain (Loss) Recognized in Income on Derivatives
Location of Gain (Loss) Recognized Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) in Income on Derivatives 2022 2021 2022 2021
Interest rate products Other income / (other expense) $ 837 $ 277 $ 2,299 $ 261
Mortgage banking derivatives Gain on sale of loans (90) 1,575 (619) 5,268
Other contracts Other income / (other expense) — — — 44
Total $ 747 $ 1,852 $ 1,680 $ 5,573
2022:


The Effect of Derivatives Not Designated as Hedging Instruments in the Consolidated Statements of Income
		Amount of Gain (Loss) Recognized in Income on Derivatives
	Location of Gain (Loss) Recognized in Income on Derivatives	Three Months Ended March 31,
(dollars in thousands)		2023		2022
Interest rate products	Other income / (other expense)	$	(350)	$	250
Mortgage banking derivatives	Gain on sale of loans	(64)		209

Total		$	(414)	$	459

Note 7. ~~Long-Term~~Deposits

The following table provides information regarding the Bank’s deposit composition at March 31, 2023 and December 31, 2022:


(dollars in thousands)	March 31, 2023		December 31, 2022
Noninterest bearing demand	$	2,247,706	$	3,150,751
Interest bearing transaction	907,637		1,138,235
Savings and money market	2,970,093		3,640,697
Time deposits	1,337,805		783,499
Total	$	7,463,241	$	8,713,182

The remaining maturity of time deposits at March 31, 2023 and December 31, 2022 were as follows:


(dollars in thousands)	March 31, 2023		December 31, 2022
2023	$	564,913	$	463,393
2024	413,794		152,898
2025	276,542		157,320
2026	73,364		2,628
2027	4,379		4,130
2028	4,813		3,130
Thereafter	—		—
Total	$	1,337,805	$	783,499


(dollars in thousands)	March 31, 2023		December 31, 2022
Three months or less	$	131,277	$	159,820
More than three months through six months	233,638		99,044
More than six months through twelve months	359,145		204,529
Over twelve months	613,745		320,106
Total	$	1,337,805	$	783,499

As of March 31, 2023 and December 31, 2022, time deposit accounts in excess of $250 thousand were as follows:


(dollars in thousands)	March 31, 2023		December 31, 2022
Three months or less	$	45,926	$	87,959
More than three months through six months	144,356		51,746
More than six months through twelve months	249,832		108,877
Over twelve months	560,763		269,200
Total	$	1,000,877	$	517,782

At March 31, 2023, total brokered deposits (excluding the CDARS and ICS two-way) were $2.1 billion, or 28.5% of total deposits. At December 31, 2022, total deposits included $2.3 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 26.5% of total deposits.

Note 8. Borrowings

The following table ~~presents information related to~~summarizes the ~~Company's~~Company’s borrowings, which include repurchase agreements with the Company’s customers, short-term borrowings and long-term borrowings, ~~as of September 30, 2022~~at March 31, 2023 and December 31, ~~2021.~~2022:


(dollars in thousands)	Borrowings - Principal		Unamortized Deferred Issuance Costs		Net Borrowings Outstanding		Available Capacity (1)(2)		Maturity Dates	Interest Rates (3)
March 31, 2023:
Customer repurchase agreements	$	37,854	$	—	$	37,854	$	—	N/A	3.27	%

Short-term borrowings:
FHLB secured borrowings	1,313,801		—		1,313,801		653,946		May 24, 2023 - December 1, 2023	5.06	%
FRB:
BTFP secured borrowings	800,000		—		800,000		37,182		March 26, 2024	4.38	%
Discount window secured borrowings	—		—		—		606,201		N/A	N/A
Raymond James repurchase agreement	—		—		—		18,050		N/A	N/A
Total	2,113,801		—		2,113,801		1,315,379

Long-term borrowings:
Subordinated notes, 5.75%	70,000		(175)		69,825		—		September 1, 2024	5.75	%
Total borrowings	$	2,221,655	$	(175)	$	2,221,480	$	1,315,379

December 31, 2022:
Customer repurchase agreements	$	35,100	$	—	$	35,100	$	—	N/A	2.94	%

Short-term borrowings:
FHLB secured borrowings	975,001		—		975,001		145,104		December 1, 2023	4.57	%
FRB discount window secured borrowings	—		—		—		607,405		N/A	N/A
Total	975,001		—		975,001		752,509

Long-term borrowings:
Subordinated notes, 5.75%	70,000		(206)		69,794		—		September 1, 2024	5.75	%
Total borrowings	$	1,080,101	$	(206)	$	1,079,895	$	752,509

(1)Available capacity on the Company's short-term borrowing arrangements with the FHLB, the FRB's BTFP program and the Raymond James repurchase line comprise pledged collateral that has not been borrowed against. At March 31, 2023, the Company had total additional undrawn borrowing capacity of approximately $1.7 billion, comprising unencumbered securities available to be pledged of approximately $1.1 billion and undrawn financing on pledged assets of $709.2 million, including $653.9 million with the FHLB, $37.2 million with the BTFP and $18.1 million with Raymond James.

(2)As part of the Company's agreement governing its participation in the BTFP program and the Raymond James repurchase agreement, the borrowing capacity is determined based on the principal balance of the pledged assets.

(3)Represent the weighted average interest rate on customer repurchase agreements and the short-term borrowings outstanding and the coupon interest rate on the subordinated notes, which approximates the effective interest rate.

The Company’s repurchase agreements operate on a rolling basis and do not contain contractual maturity dates. The contractual maturity dates on FHLB secured borrowings represent the maturity dates of current advances and are not evidence of a termination date on the line.

There are no prepayment penalties nor unused commitment fees on any of the Company’s borrowing arrangements.

(dollars in thousands) September 30, 2022 December 31, 2021
Subordinated Notes, 5.75% $ 70,000 $ 70,000
Less: unamortized debt issuance costs (237) (330)
Total $ 69,763 $ 69,670

Bank Term Funding Program (“BTFP”)

On March 12, 2023, the FRB, Department of Treasury and the FDIC issued a joint statement outlining actions they had taken to protect the U.S. economy by strengthening public confidence in the banking system as a result of and in response to recently announced bank closures. Among other actions, the Federal Reserve Board announced that it would make available additional funding to eligible depository institutions through the creation of a new BTFP. The BTFP provides eligible depository institutions, including the Company's subsidiary bank, EagleBank, an additional source of liquidity.

Borrowings are funded based on a percentage of the principal of eligible collateral posted, as defined within the terms of the program. Interest is payable at a fixed rate over the term of the borrowing and there are no prepayment penalties. The program is expected to continue until at least March 2024.

Subordinated Notes

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 included $1.2 million in deferred financing costs, which are being amortized over the life of the 2024 Notes.

Note 8.9. Net Income per Common Share

The calculation of net income per common share for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and~~ ~~2021~~ was as follows:

Three Months Ended September 30, Nine Months Ended September 30,
(dollars and shares in thousands, except per share data) 2022 2021 2022 2021
Basic:
Net income $ 37,297 $ 43,609 $ 98,737 $ 135,071
Average common shares outstanding 32,084 31,959 32,066 31,931
Basic net income per common share $ 1.16 $ 1.36 $ 3.08 $ 4.23
Diluted:
Net income $ 37,297 $ 43,609 $ 98,737 $ 135,071
Average common shares outstanding 32,084 31,959 32,066 31,931
Adjustment for common share equivalents 71 72 72 62
Average common shares outstanding-diluted 32,155 32,031 32,138 31,993
Diluted net income per common share $ 1.16 $ 1.36 $ 3.07 $ 4.22
Anti-dilutive shares 3 3 — 3


	Three Months Ended March 31,
(dollars and shares in thousands, except per share data)	2023		2022
Basic:
Net income	$	24,234	$	45,744
Average common shares outstanding	31,109		32,033
Basic net income per common share	$	0.78	$	1.43

Diluted:
Net income	$	24,234	$	45,744
Average common shares outstanding	31,109		32,033
Adjustment for common share equivalents	71		77
Average common shares outstanding-diluted	31,180		32,110
Diluted net income per common share	$	0.78	$	1.42

Anti-dilutive shares	3		—

2725

Note 9.10. Other Comprehensive (Loss) Income

The following table presents the components of other comprehensive (loss) income for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


(dollars in thousands)	Before Tax		Tax Effect		Net of Tax
Three Months Ended March 31, 2023
Net unrealized gain (loss) on securities available-for-sale	$	24,039	$	(6,103)	$	17,936
Less: Reclassification adjustment for net loss (gain) included in net income	21		(5)		16
Total unrealized gain (loss) on investment securities available-for-sale	24,060		(6,108)		17,952
Amortization of unrealized loss on securities transferred to held-to-maturity	1,983		(1,342)		641
Total unrealized loss recognized on investment securities held-to-maturity	1,983		(1,342)		641



Other comprehensive income (loss)	$	26,043	$	(7,450)	$	18,593

Three Months Ended March 31, 2022
Net unrealized (loss) gain on securities available-for-sale	$	(79,227)	$	20,821	$	(58,406)
Less: reclassification adjustment for net loss (gain) included in net income	25		(6)		19
Total unrealized (loss) gain on investment securities available-for-sale	(79,202)		20,815		(58,387)
Net unrealized (loss) gain on securities held-to-maturity	(66,193)		17,098		(49,095)
Total unrealized (loss) gain recognized on investment securities held-to-maturity	(66,193)		17,098		(49,095)



Other comprehensive (loss) income	$	(145,395)	$	37,913	$	(107,482)

(dollars in thousands) Before Tax Tax Effect Net of Tax
Three Months Ended September 30, 2022
Net unrealized (loss) on securities available-for-sale $ (81,384) $ 21,355 $ (60,029)
Less: Reclassification adjustment for net (gain) loss included in net income (4) 1 (3)
Total unrealized (loss) on investment securities available-for-sale (81,388) 21,356 (60,032)
Amortization of unrealized loss on securities transferred to held-to-maturity 2,382 (620) 1,762
Total unrealized loss recognized on investment securities held-to-maturity 2,382 (620) 1,762
Other comprehensive (loss) $ (79,006) $ 20,736 $ (58,270)
Three Months Ended September 30, 2021
Net unrealized (loss) on securities available-for-sale $ (7,682) $ 1,979 $ (5,703)
Less: reclassification adjustment for net (gain) loss included in net income (1,519) 386 (1,133)
Total unrealized (loss) gain on investment securities available-for-sale (9,201) 2,365 (6,836)
Other comprehensive (loss) $ (9,201) $ 2,365 $ (6,836)
Nine Months Ended September 30, 2022
Net unrealized (loss) on securities available-for-sale $ (205,329) $ 53,876 $ (151,453)
Less: Reclassification adjustment for net loss (gain) included in net income 172 (58) 114
Total unrealized (loss) on investment securities available-for-sale (205,157) 53,818 (151,339)
Net unrealized (loss) gain on securities transferred to held-to-maturity (66,193) 17,098 (49,095)
Amortization of unrealized loss on securities transferred to held-to-maturity 5,071 (1,318) 3,753
Total unrealized (loss) on investment securities held-to-maturity (61,122) 15,780 (45,342)
Net unrealized gain on derivatives 284 — 284
Total unrealized gain on derivatives 284 — 284
Other comprehensive (loss) $ (265,995) $ 69,598 $ (196,397)
Nine Months Ended September 30, 2021
Net unrealized (loss) on securities available-for-sale $ (22,437) $ 5,771 $ (16,666)
Less: Reclassification adjustment for net (gain) loss included in net income (2,058) 524 (1,534)
Total unrealized (loss) gain on investment securities available-for-sale (24,495) 6,295 (18,200)
Net unrealized gain on derivatives 1,033 (264) 769
Reclassification adjustment for (gain) loss included in net income (517) 132 (385)
Total unrealized gain on derivatives 516 (132) 384
Other comprehensive (loss) $ (23,979) $ 6,163 $ (17,816)

~~(1) Represents unamortized AOCI on securities transferred to held-to-maturity status.~~

The following table presents the changes in each component of accumulated other comprehensive (loss) income, net of tax, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

Securities Securities Accumulated Other
Available Held to Comprehensive
(dollars in thousands) For Sale Maturity Derivatives Income (Loss)
Three Months Ended September 30, 2022
Balance at beginning of period $ (105,265) $ (47,104) $ — $ (152,369)
Other comprehensive (loss) before reclassifications (60,029) — — (60,029)
Amounts reclassified from accumulated other comprehensive income (loss) (3) — — (3)
Amortization of unrealized loss on securities transferred to held-to-maturity — 1,762 — 1,762
Net other comprehensive (loss) during period (60,032) 1,762 — (58,270)
Balance at end of period $ (165,297) $ (45,342) $ — $ (210,639)
Three Months Ended September 30, 2021
Balance at beginning of period $ 4,804 $ — $ (284) $ 4,520
Other comprehensive (loss) before reclassifications (5,703) — — (5,703)
Amounts reclassified from accumulated other comprehensive income (loss) (1,133) — — (1,133)
Net other comprehensive (loss) during period (6,836) — — (6,836)
Balance at end of period $ (2,032) $ — $ (284) $ (2,316)
Nine Months Ended September 30, 2022
Balance at beginning of period $ (13,958) $ — $ (284) $ (14,242)
Other comprehensive (loss) income before reclassifications (151,453) — 284 (151,169)
Amounts reclassified from accumulated other comprehensive income (loss) 114 — — 114
Net unrealized (loss) on securities transferred to held-to-maturity — (49,095) — (49,095)
Amortization of unrealized loss on securities transferred to held-to-maturity — 3,753 — 3,753
Net other comprehensive (loss) income during period (151,339) (45,342) 284 (196,397)
Balance at end of period $ (165,297) $ (45,342) $ — $ (210,639)
Nine Months Ended September 30, 2021
Balance at beginning of period $ 16,168 $ — $ (668) $ 15,500
Other comprehensive (loss) income before reclassifications (16,666) — 769 (15,897)
Amounts reclassified from accumulated other comprehensive income (loss) (1,534) — (385) (1,919)
Net other comprehensive (loss) income during period (18,200) — 384 (17,816)
Balance at end of period $ (2,032) $ — $ (284) $ (2,316)


(dollars in thousands)	Securities Available-For-Sale		Securities Held-to-Maturity		Derivatives		Accumulated Other Comprehensive Income (Loss)
Three Months Ended March 31, 2023
Balance at beginning of period	$	(154,773)	$	(44,734)	$	—	$	(199,507)
Other comprehensive income before reclassifications	17,936		—		—		17,936
Amounts reclassified from accumulated other comprehensive income	16		—		—		16
Amortization of unrealized loss on securities transferred to held-to-maturity	—		641		—		641
Net other comprehensive income during period	17,952		641		—		18,593
Balance at end of period	$	(136,821)	$	(44,093)	$	—	$	(180,914)

Three Months Ended March 31, 2022
Balance at beginning of period	$	(13,958)	$	—	$	(284)	$	(14,242)
Other comprehensive (loss) before reclassifications	(58,406)		(49,095)		—		(107,501)
Amounts reclassified from accumulated other comprehensive income	19		—		—		19
Net other comprehensive (loss) during period	(58,387)		(49,095)		—		(107,482)
Balance at end of period	$	(72,345)	$	(49,095)	$	(284)	$	(121,724)

2926

The following tables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


Details about Accumulated Other Comprehensive Loss Components	Amount Reclassified from Accumulated Other Comprehensive (Loss) Income
	Three Months Ended March 31,				Affected Line Item in Consolidated Statements of Income
(dollars in thousands)	2023		2022
Realized loss on sale of investment securities	$	(21)	$	(25)	Net loss on sale of investment securities

Income tax benefit (expense)	5		6		Income tax expense
Total reclassifications for the periods	$	(16)	$	(19)

Amount Reclassified from
Accumulated Other
Details about Accumulated Other Comprehensive (Loss) Income Affected Line Item in
Comprehensive Loss Components Three Months Ended September 30, Consolidated Statements of
(dollars in thousands) 2022 2021 Income
Realized (loss) gain on sale of investment securities $ 4 $ 1,519 Net gain (loss) on sale of investment securities
Income tax benefit (expense) (1) (386) Income tax expense
Total reclassifications for the periods $ 3 $ 1,133
Amount Reclassified from
Accumulated Other
Details about Accumulated Other Comprehensive (Loss) Income Affected Line Item in
Comprehensive Loss Components Nine Months Ended September 30, Consolidated Statements of
(dollars in thousands) 2022 2021 Income
Realized (loss) gain on sale of investment securities $ (172) $ 2,058 Net gain (loss) on sale of investment securities
Interest income derivative deposits — 517 Interest on balances with other banks and short-term investments
Income tax benefit (expense) 58 (656) Income tax expense
Total reclassifications for the periods $ (114) $ 1,919

Note ~~10.~~11. 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.;~~liabilities; also includes certain U.S. ~~Treasury~~treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.

Level 2 Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or inputs that can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale.

Level 3 Unobservable inputs supported by little or no market activity for financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation; also includes observable inputs for single dealer nonbinding quotes not corroborated by observable market data. This category generally includes certain private equity investments, retained interests from securitizations, and certain collateralized debt obligations.

3027

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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


				Significant		Significant
				Other		Other
				Observable		Unobservable
		Quoted Prices		Inputs		Inputs		Total
(dollars in thousands)	(dollars in thousands)	(Level 1)		(Level 2)		(Level 3)		(Fair Value)		(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total Fair Value
September 30, 2022
March 31, 2023										March 31, 2023
Assets:	Assets:									Assets:
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:

U.S treasury bonds	U.S treasury bonds	$	—	$	46,048	$	—	$	46,048	U.S treasury bonds	$	—	$	46,931	$	—	$	46,931
U. S. agency securities	U. S. agency securities	—		668,328		—		668,328		U. S. agency securities	—		674,467		—		674,467
Residential mortgage-backed securities	Residential mortgage-backed securities	—		828,367		—		828,367		Residential mortgage-backed securities	—		800,242		—		800,242
Commercial mortgage-backed securities	Commercial mortgage-backed securities	—		94,172		—		94,172		Commercial mortgage-backed securities	—		50,282		—		50,282
Municipal bonds	Municipal bonds	—		10,993		—		10,993		Municipal bonds	—		8,482		—		8,482
Corporate bonds	Corporate bonds	—		1,845		—		1,845		Corporate bonds	—		1,781		—		1,781
Loans held for sale	Loans held for sale	—		9,387		—		9,387		Loans held for sale	—		6,488		—		6,488
Interest rate derivatives	Interest rate derivatives	—		30,635		—		30,635		Interest rate derivatives	—		25,844		—		25,844
Mortgage banking derivatives	Mortgage banking derivatives	—		—		259		259		Mortgage banking derivatives	—		—		29		29
Total assets measured at fair value on a recurring basis as of September 30, 2022		$	—	$	1,689,775	$	259	$	1,690,034
Total assets measured at fair value on a recurring basis										Total assets measured at fair value on a recurring basis	$	—	$	1,614,517	$	29	$	1,614,546
Liabilities:	Liabilities:									Liabilities:

Credit risk participation agreements	Credit risk participation agreements	$	—	$	3	$	—	$	3	Credit risk participation agreements	—		3		—		3
Interest rate derivatives	Interest rate derivatives	—		29,492		—		29,492		Interest rate derivatives	—		25,218		—		25,218
Mortgage banking derivatives		—		—		115		115
Total liabilities measured at fair value on a recurring basis as of September 30, 2022		$	—	$	29,495	$	115	$	29,610
December 31, 2021

Total liabilities measured at fair value on a recurring basis										Total liabilities measured at fair value on a recurring basis	$	—	$	25,221	$	—	$	25,221

December 31, 2022										December 31, 2022
Assets:	Assets:									Assets:
Investment securities available-for-sale:	Investment securities available-for-sale:									Investment securities available-for-sale:
U.S. treasury bonds	U.S. treasury bonds	$	—	$	49,458	$	—	$	49,458	U.S. treasury bonds	$	—	$	46,326	$	—	$	46,326
U. S. agency securities	U. S. agency securities	—		622,387		—		622,387		U. S. agency securities	—		669,728		—		669,728
Mortgage-backed securities		—		1,677,673		—		1,677,673
Residential mortgage-backed securities										Residential mortgage-backed securities	—		820,502		—		820,502
Commercial mortgage-backed securities										Commercial mortgage-backed securities	—		50,214		—		50,214
Municipal bonds	Municipal bonds	—		145,431		—		145,431		Municipal bonds	—		10,088		—		10,088
Corporate bonds	Corporate bonds	—		116,459		12,000		128,459		Corporate bonds	—		1,808		—		1,808
Loans held for sale	Loans held for sale	—		47,218		—		47,218		Loans held for sale	—		6,734		—		6,734
Interest rate caps	Interest rate caps	—		5,197		—		5,197		Interest rate caps	—		31,039		—		31,039
Mortgage banking derivatives	Mortgage banking derivatives	—		—		636		636		Mortgage banking derivatives	—		—		93		93
Total assets measured at fair value on a recurring basis as of December 31, 2021		$	—	$	2,663,823	$	12,636	$	2,676,459
Total assets measured at fair value on a recurring basis										Total assets measured at fair value on a recurring basis	$	—	$	1,636,439	$	93	$	1,636,532
Liabilities:	Liabilities:									Liabilities:

Credit risk participation agreements	Credit risk participation agreements	$	—	$	47	$	—	$	47	Credit risk participation agreements	$	—	$	2	$	—	$	2
Interest rate derivatives	Interest rate derivatives	—		5,147		—		5,147		Interest rate derivatives	—		30,065		—		30,065
Total liabilities measured at fair value on a recurring basis as of December 31, 2021		$	—	$	5,194	$	—	$	5,194
Total liabilities measured at fair value on a recurring basis										Total liabilities measured at fair value on a recurring basis	$	—	$	30,067	$	—	$	30,067

3128

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~~certain U.S. treasury, U.S. Government and agency securities that actively traded ~~on an active exchange such as the New York Stock Exchange.~~in over-the-counter markets. Level 2 securities includes certain U.S. treasury bonds, U.S. agency debt securities, mortgage-backed securities issued by Government Sponsored Entities and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, for which the carrying amounts approximate the fair value.

Loans held for sale: The Company has elected to carry loans held for sale at fair value. This election reduces certain timing differences in the Consolidated Statement of Income and better aligns with the management of the portfolio from a business perspective. Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of income. Gains and losses on sale of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Income. Fair value is derived from secondary market quotations for similar instruments. As such, the Company classifies loans subjected to fair value adjustments as Level 2 valuation.

The following 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 ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.


				Aggregate Unpaid
(dollars in thousands)	(dollars in thousands)	Fair Value		Principal Balance		Difference		(dollars in thousands)	Fair Value		Aggregate Unpaid Principal Balance		Difference
September 30, 2022
March 31, 2023								March 31, 2023
Loans held for sale	Loans held for sale	$	9,387	$	9,862	$	(475)	Loans held for sale	$	6,488	$	6,517	$	(29)
December 31, 2021
December 31, 2022								December 31, 2022
Loans held for sale	Loans held for sale	$	47,218	$	46,623	$	595	Loans held for sale	$	6,734	$	6,775	$	(41)

There were no residential mortgage loans held for sale that were 90 or more days past due or on nonaccrual status as of ~~September 30, 2022~~March 31, 2023 or December 31, ~~2021.~~2022.

Credit risk participation agreements: The Company enters into RPAs with institutional counterparties, under which the Company assumes its pro-rata share of the credit exposure associated with a borrower's performance related to interest rate derivative contracts. The fair value of RPAs is calculated by determining the total expected asset or liability exposure of the derivatives to the borrowers and applying the borrowers' credit spread to that exposure. Total expected exposure incorporates both the current and potential future exposure of the derivatives, derived from using observable inputs, such as yield curves and volatilities. Accordingly, RPAs fall within Level 2.

Interest rate derivatives: The Company entered into an interest rate derivative agreement with an institutional counterparty, under which the Company will receive cash if and when market rates exceed the derivatives strike rate. The fair value of the derivative ~~cap~~is calculated by determining the total expected asset or liability exposure of the ~~derivatives.~~derivative. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, such as yield curves and volatilities. Accordingly, the derivative falls within Level 2.

Mortgage banking derivatives for loans settled on a mandatory basis: The Company commenced the cessation of first lien residential mortgage origination for secondary sale during the three months ended March 31, 2023. The Company expects to complete residual origination and sales activities as of the end of the third quarter of 2023. While the Company had mortgage banking derivatives in 2023 and 2022, the Company does not expect to have any of these derivatives by the end of the third quarter 2023.

The Company relied 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~~requires 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.

3229

Mortgage banking derivative for loans settled best efforts basis: The significant unobservable input (Level 3) used in the fair value measurement of the Company's interest rate lock commitments is the pull through ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. An increase in the pull through ratio (i.e. higher percentage of loans are estimated to close) will increase the gain or loss. The pull through ratio is largely dependent on the loan processing stage that a loan is currently in. The pull through rate is computed by the Company's secondary marketing consultant using historical data and the ratio is periodically reviewed by the Company for reasonableness.

The following is a reconciliation of activity for assets measured at fair value based on Significant Other Unobservable Inputs (Level 3):

Investment
Securities Mortgage Banking
(dollars in thousands) Available-for-Sale Derivatives Total
Assets:
Beginning balance at January 1, 2022 $ 12,000 $ 636 $ 12,636
Unrealized loss included in earnings — (377) (377)
Reclassified to investment securities held-to-maturity (12,000) — (12,000)
Ending balance at September 30, 2022 $ — $ 259 $ 259
Liabilities:
Beginning balance at January 1, 2022 $ — $ —
Unrealized loss included in earnings 115 115
Ending balance at September 30, 2022 $ 115 $ 115


(dollars in thousands)	Investment Securities Available-for-Sale		Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2023	$	—	$	93	$	93
Realized loss included in earnings	—		(64)		(64)



Ending balance at March 31, 2023	$	—	$	29	$	29

Investment
Securities Mortgage Banking
(dollars in thousands) Available-for-Sale Derivatives Total
Assets:
Beginning balance at January 1, 2021 $ 1,500 $ 5,213 $ 6,713
Realized loss included in earnings — (4,577) (4,577)
Reclass Level 2 to Level 3 12,000 — 12,000
Principal redemption (1,500) — (1,500)
Ending balance at December 31, 2021 $ 12,000 $ 636 $ 12,636


(dollars in thousands)	Investment Securities Available-for-Sale		Mortgage Banking Derivatives		Total
Assets:
Beginning balance at January 1, 2022	$	10,000	$	636	$	10,636
Realized loss included in earnings	—		(543)		(543)
Reclassified to investment securities held-to-maturity	(10,000)		—		(10,000)


Ending balance at December 31, 2022	$	—	$	93	$	93

For Level 3 assets measured at fair value on a recurring or nonrecurring basis as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, the significant unobservable inputs used in the fair value measurements were as follows:


		March 31, 2023						December 31, 2022
(dollars in thousands)	Valuation Technique	Description	Range	Weighted Average (1)		Fair Value		Weighted Average (1)		Range	Fair Value
Mortgage banking derivatives	Pricing Model	Pull Through Rate	61.3% - 100.0%	64.90	%	$	29	83.80	%	83.8% - 100%	$	93

September 30, 2022 December 31, 2021
(dollars in thousands) Valuation Technique Description Range
Weighted Average (1)
Fair Value
Weighted Average (1)
Fair Value
Mortgage banking derivatives Pricing Model Pull Through Rate 59.9% - 100.0% 83.18 % $ 259 86.40 % $ 636

(1)Unobservable inputs for mortgage banking derivatives were weighted by loan amount.

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 ~~September 30, 2022,~~March 31, 2023, 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, i.e. those that are collateral dependent, require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the loan as nonrecurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the loan as nonrecurring Level 3.

Other real estate owned: 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)
September 30, 2022
Collateral dependent loans
Commercial $ — $ — $ 2,459 $ 2,459
Income producing - commercial real estate — — 3,081 3,081
Owner occupied - commercial real estate — — 19,191 19,191
Real estate mortgage - residential — — 1,580 1,580
Home equity — — — —
Other real estate owned — — 1,962 1,962
Total assets measured at fair value on a nonrecurring basis as of September 30, 2022 $ — $ — $ 28,273 $ 28,273
December 31, 2021
Collateral dependent loans
Commercial $ — $ — $ 8,121 $ 8,121
PPP loans — — 1,365 1,365
Income producing - commercial real estate — — 17,415 17,415
Owner occupied - commercial real estate — — 42 42
Real estate mortgage - residential — — 1,779 1,779
Construction - commercial and residential — — 3,093 3,093
Home equity — — 366 366
Other real estate owned — — 1,635 1,635
Total assets measured at fair value on a nonrecurring basis as of December 31, 2021 $ — $ — $ 33,816 $ 33,816


(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Other Unobservable Inputs (Level 3)		Total Fair Value
March 31, 2023
Individually assessed loans:
Commercial	$	—	$	—	$	1,826	$	1,826

Income producing - commercial real estate	—		—		2,773		2,773
Owner occupied - commercial real estate	—		—		19,184		19,184
Real estate mortgage - residential	—		—		1,404		1,404
Construction - commercial and residential	—		—		396		396

Other real estate owned	—		—		1,962		1,962
Total assets measured at fair value on a nonrecurring basis as of March 31, 2023	$	—	$	—	$	27,545	$	27,545

December 31, 2022
Individually assessed loans:
Commercial	$	—	$	—	$	1,790	$	1,790

Income producing - commercial real estate	—		—		3,131		3,131
Owner occupied - commercial real estate	—		—		19,187		19,187
Real estate mortgage - residential	—		—		1,404		1,404
Construction - commercial and residential	—		—		3		3

Other real estate owned	—		—		1,962		1,962
Total assets measured at fair value on a nonrecurring basis as of December 31, 2022	$	—	$	—	$	27,477	$	27,477

Fair Value of Financial Instruments

The Company discloses fair value information about financial instruments for which it is practicable to estimate the value, whether or not such financial instruments are recognized on the balance sheet. Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by quoted market price, if one exists.

Quoted market prices, if available, are shown as estimates of fair value. Because no quoted market prices exist for a portion of the Company's financial instruments, the fair value of such instruments has been derived based on management's assumptions with respect to future economic conditions, the amount and timing of future cash flows and estimated discount rates. Different assumptions could significantly affect these estimates. Accordingly, the net realizable value could be materially different from the estimates presented below. In addition, the estimates are only indicative of individual financial instrument values and should not be considered an indication of the fair value of the Company taken as a whole.

The estimated fair value of the Company's financial instruments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are as follows:


						Fair Value Measurements
						Quoted Prices (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)
		Carrying																				Fair Value Measurements
(dollars in thousands)	(dollars in thousands)	Value		Fair Value								(dollars in thousands)				Carrying Value				Fair Value			Quoted Prices (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Other Unobservable Inputs (Level 3)
September 30, 2022
March 31, 2023																March 31, 2023
Assets	Assets															Assets
Cash and due from banks	Cash and due from banks	$	27,235	$	27,235			$	27,235			$	—				$	—	Cash and due from banks		$	9,940		$	9,940		$	9,940		$	—		$	—
Federal funds sold	Federal funds sold	$	69,809	$	69,809	$	—			$	69,809			$	—	Federal funds sold			3,746			3,746			—			3,746			—
Interest bearing deposits with other banks	Interest bearing deposits with other banks	$	47,131	$	47,131	$	—			$	47,131			$	—	Interest bearing deposits with other banks			159,078			159,078			—			159,078			—
Investment securities available-for-sale	Investment securities available-for-sale	$	1,649,753	$	1,649,753	$	—			$	1,649,753			$	—	Investment securities available-for-sale			1,582,185			1,582,185			—			1,582,185			—
Investment securities held-to-maturity	Investment securities held-to-maturity	$	1,114,084	$	989,001	$	—			$	977,001			$	12,000	Investment securities held-to-maturity			1,075,303			965,786			—			965,786			—
Federal Reserve and Federal Home Loan Bank stock																Federal Reserve and Federal Home Loan Bank stock			79,134			N/A			—			—			—

Loans held for sale	Loans held for sale	$	9,387	$	9,387	$	—			$	9,387			$	—	Loans held for sale			6,488			6,488			—			6,488			—
Loans	Loans	$	7,228,731	$	7,117,321	$	—			$	—			$	7,117,321	Loans			7,737,676			7,567,583			—			—			7,567,583

Bank owned life insurance																Bank owned life insurance			111,217			111,217			—			111,217			—
Annuity investment																Annuity investment			13,675			13,675			—			13,675			—
Mortgage banking derivatives	Mortgage banking derivatives	$	259	$	259	$	—			$	—			$	259	Mortgage banking derivatives			29			29			—			—			29
Interest rate derivatives		$	30,635	$	30,635	$	—			$	30,635			$	—
Interest rate caps																Interest rate caps			25,844			25,844			—			25,844			—

Liabilities	Liabilities															Liabilities
Noninterest bearing deposits	Noninterest bearing deposits	$	2,928,774	$	2,928,774	$	—			$	2,928,774			$	—	Noninterest bearing deposits			$	2,247,706		$	2,247,706		$	—		$	2,247,706		$	—
Interest bearing deposits	Interest bearing deposits	$	5,185,335	$	5,185,335	$	—			$	5,185,335			$	—	Interest bearing deposits			3,877,730			3,877,730			—			3,877,730			—
Time deposits	Time deposits	$	649,241	$	639,069	$	—			$	639,069			$	—	Time deposits			1,337,805			1,324,234			—			1,324,234			—
Customer repurchase agreements	Customer repurchase agreements	$	21,465	$	21,465	$	—			$	21,465			$	—	Customer repurchase agreements			37,854			37,854			—			37,854			—
Borrowings	Borrowings	$	584,763	$	583,416	$	—			$	583,416			$	—	Borrowings			2,183,626			2,181,709			—			2,181,709			—
Mortgage banking derivatives		$	115	$	115	$	—			$	—			$	115

Credit risk participation agreement	Credit risk participation agreement	$	3	$	3	$	—			$	3			$	—	Credit risk participation agreement			3			3			—			3			—
Interest rate derivatives		$	29,492	$	29,492	$	—			$	29,492			$	—
Interest rate caps																Interest rate caps			25,218			25,218			—			25,218			—

December 31, 2021
December 31, 2022																December 31, 2022
Assets	Assets															Assets
Cash and due from banks	Cash and due from banks	$	12,886	$	12,886	$	12,886			$	—			$	—	Cash and due from banks			$	12,655		$	12,655		$	12,655		$	—		$	—
Federal funds sold	Federal funds sold	$	20,391	$	20,391	$	—			$	20,391			$	—	Federal funds sold			33,927			33,927			—			33,927			—
Interest bearing deposits with other banks	Interest bearing deposits with other banks	$	1,680,945	$	1,680,945	$	—			$	1,680,945			$	—	Interest bearing deposits with other banks			265,272			265,272			—			265,272			—
Investment securities		$	2,623,408	$	2,623,408	$	—			$	2,611,408			$	12,000
Investment securities available-for-sale																Investment securities available-for-sale			1,598,666			1,598,666			—			1,598,666			—
Investment securities held-to-maturity																Investment securities held-to-maturity			1,093,374			967,940			—			967,940			—
Federal Reserve and Federal Home Loan Bank stock	Federal Reserve and Federal Home Loan Bank stock	$	34,153	$	34,153	$	—			$	34,153			$	—	Federal Reserve and Federal Home Loan Bank stock			65,067			N/A			—			—			—
Loans held for sale	Loans held for sale	$	47,218	$	47,218	$	—			$	47,218			$	—	Loans held for sale			6,734			6,734			—			6,734			—
Loans	Loans	$	7,065,598	$	6,930,929	$	—			$	—			$	6,930,929	Loans			7,635,632			7,492,283			—			—			7,492,283

Bank owned life insurance																Bank owned life insurance			110,998			110,998			—			110,998			—
Annuity investment																Annuity investment			13,869			13,869			—			13,869			—
Mortgage banking derivatives	Mortgage banking derivatives	$	636	$	636	$	—			$	—			$	636	Mortgage banking derivatives			93			93			—			—			93
Interest rate derivatives		$	5,197	$	5,197	$	—			$	5,197			$	—
Interest rate caps																Interest rate caps			31,039			31,039			—			31,039			—

Liabilities	Liabilities															Liabilities
Noninterest bearing deposits	Noninterest bearing deposits	$	3,277,956	$	3,277,956	$	—			$	3,277,956			$	—	Noninterest bearing deposits			$	3,150,751		$	3,150,751		$	—		$	3,150,751		$	—
Interest bearing deposits	Interest bearing deposits	$	5,974,502	$	5,974,502	$	—			$	5,974,502			$	—	Interest bearing deposits			4,778,932			4,778,932			—			4,778,932			—
Time deposits	Time deposits	$	729,082	$	736,001	$	—			$	736,001			$	—	Time deposits			783,499			777,757			—			777,757			—
Customer repurchase agreements	Customer repurchase agreements	$	23,918	$	23,918	$	—			$	23,918			$	—	Customer repurchase agreements			35,100			35,100			—			35,100			—
Borrowings	Borrowings	$	369,670	$	374,326	$	—			$	374,326			$	—	Borrowings			1,044,795			1,043,083			—			1,043,083			—

Credit risk participation agreements	Credit risk participation agreements	$	47	$	47	$	—			$	47			$	—	Credit risk participation agreements			2			2			—			2			—
Interest rate derivatives		$	5,147	$	5,147	$	—			$	5,147			$	—
Interest rate caps																Interest rate caps			30,065			30,065			—			30,065			—

3532

Note 1112 - Legal Contingencies

There have been no material changes in the status of the legal, regulatory and governmental proceedings, investigations and inquiries previously disclosed in Part II, Item 8, "Note 21 - Commitments and Contingent Liabilities" of the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021, except as follows.~~2022. From time to time, the Company and its subsidiaries are involved in various legal proceedings and regulatory and governmental investigations and inquiries incidental to their business in the ordinary course, including matters in which damages in various amounts are claimed. ~~Based on information currently available, the Company does not believe~~Such matters may result in legal expenses that ~~the liabilities (if any) resulting from such legal proceedings will have a material effect on~~could adversely impact the financial ~~position~~condition and results of operations of the Company. However, in light of the inherent uncertainties involved in such matters, ongoing legal expenses or an adverse outcome in one or more of these matters could materially and adversely affect the Company's financial condition, results of operations or cash flows in any particular reporting period, as well as its reputation.

As previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, on February 10, 2022, the United States District Court for the Southern District of New York (the "SDNY") approved the settlement agreement of a putative class action lawsuit filed against theThe Company its current and former President and Chief Executive Officer and its current and former Chief Financial Officer. The settlement included a total payment covered by the Company's insurance of $7.5 million in exchange for the release of all of the defendants from all alleged claims in the class action suit, without any admission or concession of wrongdoing by the Company or the other defendants.

On June 1, 2022, the Company reached an agreement in principle with the SEC staff to resolve the SEC's investigation with respect to the Company's identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. On August 16, 2022, the SEC approved the settlement, pursuant to which the Company consented, without admitting or denying the SEC's allegations, to the entry of an administrative cease-and-desist order for violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934, as amended, and Rules 13a-1, 14a-9 and 12b-20 thereunder; and agreed to pay a civil money penalty of $10.0 million and $2.6 million in disgorgement, plus prejudgment interest. On October 6, 2022, the SEC staff informed our Chief Financial Officer that it had ~~concluded its related investigation as to him and does not intend to recommend an enforcement action against him. No additional~~no contingent liabilities ~~were recorded in the third quarter of 2022~~outstanding in connection with ~~the SEC's approval~~pending legal matters at March 31, 2023 and ~~public announcement of the settlement.~~

On August 2, 2022, the Bank reached an agreement in principle with the staff of the Board of Governors of the Federal Reserve System ("FRB") to resolve the FRB's investigation with respect to the Bank. As previously disclosed, the investigation relates to the Company's identification, classification and disclosure of related party transactions; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. On August 16, 2022, the FRB approved the settlement, pursuant to which the Company consented, without admitting or denying the FRB's allegations, to the entry of a consent order for violations of Regulation O, 12 C.F.R. §§ 215 et seq., and unsafe and unsound banking practices, due to internal control deficiencies relating to loans involving its former Chief Executive Officer and an inadequate third-party risk management program, in each case from 2015 to 2018, and would pay a civil money penalty of approximately $9.5 million. No additional contingent liabilities were recorded in the third quarter of 2022 in connection with the FRB's approval and public announcement of the settlement.

December 31, 2022.

As previously disclosed, the Company maintains director and officer insurance policies ("D&O Insurance Policies") that provide coverage for the legal defense ~~costs related to certain of the above-described investigations and litigations and those discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2021.~~costs. When claims are covered by D&O Insurance Policies, the Company records a corresponding receivable against the incurred legal defense cost expense subject to coverage under the D&O Insurance Policies and then eliminates the receivable and expense when the claim is paid. Since the commencement of the above-described matters in 2018 through September 30, 2022, the Company's D&O Insurance carriers have advanced a number of defense cost claims to the Company and its current and former directors and officers. Subject to any new developments to the above-described investigations and litigations that may occur over the next few months, the Company currently believes there is a possibility that the applicable D&O Insurance Policies may be exhausted as early as the fourth quarter of 2022. OnceIf the D&O Insurance Policies are exhausted, the Company will be responsible for paying the defense costs associated with ~~the above-described~~any investigations and litigations for itself and on behalf of any current and former Officers and Directors entitled to indemnification from the Company. The D&O Insurance Policies for the period from December 2016 to December 2017 have been exhausted. The Company will therefore be responsible for paying any future costs related to matters from that period, including matters that are not currently pending. The Company cannot predict with any certainty the amount of defense costs that the Company may incur in the future in connection with ~~currently ongoing and~~ any potential future investigations and legal proceedings, as they are dependent on various factors, many of which are outside of the Company's control.

~~Note 12 - Subsequent Events~~

The Company has evaluated subsequent events through the filing of this report and determined there have not been any events that have occurred that would require adjustments to, or disclosures in the Consolidated Financial Statements.

3733

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

The following discussion provides information about the results of operations, financial condition, liquidity, and capital resources of Eagle Bancorp, Inc. (the "Company") and its subsidiaries as of the dates and periods indicated. This discussion and analysis should be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto, appearing elsewhere in this report and the Management Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Caution About Forward Looking Statements. This report contains ~~forward-looking~~forward looking statements. These forward looking statements ~~within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, including~~represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of ~~goals, intentions,~~our beliefs concerning future events, business plans, objectives, expected operating results and ~~expectations as to~~the assumptions upon which those statements are based. Forward looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future ~~trends, plans, events~~results, performance or ~~results of Company operations~~achievements and ~~policies and regarding general economic conditions. In some cases, forward-looking statements can be~~are typically identified ~~by use of~~with words such as "may," "will," "can," "anticipates," "believes," "expects," "plans," "estimates," "potential," "assume," "probable," "possible," "continue," "should," "could," "would," "strive," "seeks," "deem," "projections," "forecast," "consider," "indicative," "uncertainty," "likely," "unlikely," "likelihood," "unknown," "attributable," "depends," "intends," "generally," "feel," "typically," "judgment," "subjective"“may,” “will,” “can,” “anticipates,” “believes,” “expects,” “plans,” “estimates,” “potential,” “assume,” “probable,” “possible,” “continue,” “should,” “could,” “would,” “strive,” “seeks,” “deem,” “projections,” “forecast,” “consider,” “indicative,” “uncertainty,” “likely,” “unlikely,” “likelihood,” “unknown,” “attributable,” “depends,” “intends,” “generally,” “feel,” “typically,” “judgment,” “subjective” and similar words or phrases. These statements are based upon current and anticipated economic conditions, nationally and in the Company's market (including the macroeconomic and other challenges and uncertainties resulting from the coronavirus ("COVID-19") pandemic, including on our credit quality and business operations), interest rates and interest rate policy, competitive factors and other conditions, which by their nature are not susceptible to accurate forecast, and are subject to significant uncertainty. For details on factors that could affect these expectations, see the risk factors contained in this report and the risk factors and other cautionary language included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and in other periodic and current reports filed by the Company with the Securities and Exchange Commission. ~~Because of these uncertainties and the assumptions on which this discussion and the forward-looking~~These forward looking statements are based ~~actual future operations~~largely on our expectations and are subject to a number of known and unknown risks and uncertainties that are subject to change based on factors which are, in many instances, beyond our control. Actual results, ~~in the future may~~performance or achievements could differ materially from those ~~indicated herein. Readers are cautioned against placing undue reliance on any such forward-looking~~contemplated, expressed or implied by the forward looking statements. The Company's past results are not necessarily indicative of future performance, and nothing contained herein is meant to or should be considered and treated as earnings guidance of future quarters' performance projections. All information is as of the date of this report. Any forward-looking statements made by or on behalf of the Company speak only as to the date they are made. Except to the extent required by applicable law or regulation, the Company undertakes no obligation to revise or update publicly any forward looking statement for any reason.

GENERAL

The Company is a growth-oriented, one-bank holding company headquartered in Bethesda, Maryland. The Company provides general commercial and consumer banking services through EagleBank (the "Bank"), its wholly owned banking subsidiary, a Maryland chartered bank which is a member of the Federal Reserve System. The Company was organized in October 1997, to be the holding company for the Bank. The Bank was organized in 1998 as an independent, community oriented, full service banking alternative to the super regional financial institutions, which dominate the Company's primary market area. The Company's philosophy is to provide superior, personalized service to its customers. The Company focuses on relationship banking, providing each customer with a number of services and becoming familiar with and addressing customer needs in a proactive, personalized fashion. The Bank currently has a total of ~~sixteen~~fifteen branch offices, including ~~five~~four in Northern Virginia, six in Suburban Maryland, and five in Washington, D.C. The Bank also operates five lending offices, with one in Northern Virginia, three in Suburban Maryland and one in Washington, D.C. In March 2023, we closed our Alexandria, Virginia branch as it had an expiring lease. The branch's clients will be served from other Virginia and D.C. branches, and through digital channels.

The Bank offers a broad range of commercial banking services to its business and professional clients, as well as full service consumer banking services to individuals living and/or working primarily in the Bank's market area. The Bank emphasizes providing commercial banking services to sole proprietors, small and medium-sized businesses, non-profit organizations and associations, and investors living and working in and near the primary service area. These services include the usual deposit functions of commercial banks, including business and personal checking accounts, "NOW" accounts and money market and savings accounts, business, construction, and commercial loans, ~~residential mortgages and~~ consumer loans, and cash management services. The Bank is also active in the origination ~~and sale of residential mortgage loans and the origination~~ of Small Business Administration ("SBA") loans.

The Bank made the strategic decision to cease originating first lien residential mortgage loans for secondary sale in the first quarter of 2023, due to diminishing residential mortgage production volumes in the face of a higher interest rate environment and increasing costs associated with regulatory compliance and risk management. The residential mortgage loans ~~are~~were originated for sale to third-party investors ~~generally large mortgage and banking companies, under best efforts and/or mandatory delivery commitments with the investors to purchase the loans~~ subject to compliance with pre-established criteria. The ~~decision whether to sell~~Company currently anticipates that the exit of the residential mortgage origination and secondary sale banking activities will be completed in the third quarter of 2023 following the expected sale of all of the remaining residential mortgage loans ~~on a mandatory or best efforts lock basis is a function~~held for sale by the end of ~~multiple factors, including but not limited to overall market volumes~~the third quarter of mortgage loan originations, forecasted "pull-through" rates of origination, loan closing operational considerations, pricing differentials between the two methods, and availability and pricing of various interest rate hedging strategies associated with the mortgage origination pipeline. The Company continually monitors these factors to maximize profitability and minimize operational and interest rate risks.2023.

The Bank generally sells the guaranteed portion of the SBA loans in a transaction apart from the loan origination generating noninterest income from the gains on sale, as well as servicing income on the portion participated. The Company originates multifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development's Multifamily Accelerated Program ("MAP"). The Company securitizes these loans through the Government National Mortgage Association ("Ginnie Mae") MBS I program and shortly thereafter sells the resulting securities in the open market to authorized dealers in the normal course of business, and periodically bundles and sells the servicing rights. Bethesda Leasing, LLC, a subsidiary of the Bank, holds title to and manages other real estate owned ("OREO") assets. ~~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.~~ Additionally, the Bank offers investment advisory services through referral programs with third parties. 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.

~~Settlement of Legal Matters~~

On June 1, 2022, the Company reached an agreement in principle with the SEC staff to resolve the SEC's investigation with respect to the Company's identification, classification and disclosure of related party transactions; the retirement of certain former officers and directors; and the relationship of the Company and certain of its former officers and directors with a local public official, among other things. On August 16, 2022, the SEC approved the settlement, pursuant to which the Company consented, without admitting or denying the SEC's allegations, to the entry of an administrative cease-and-desist order for violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, Sections 13(a), 13(b)(2)(A), 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934, as amended, and Rules 13a-1, 14a-9 and 12b-20 thereunder; and agreed to pay a civil money penalty of $10.0 million and $2.6 million in disgorgement, plus prejudgment interest. On October 6, 2022, the SEC staff informed our Chief Financial Officer that it had concluded its related investigation as to him and does not intend to recommend an enforcement action against him. No additional contingent liabilities were recorded in the third quarter of 2022 in connection with the SEC's approval and public announcement of the settlement.

~~Impact of COVID-19~~

The spread of COVID-19 created a global public health crisis that has resulted in unprecedented uncertainty, volatility and disruption in financial markets and in governmental, commercial and consumer activity in the U.S. and globally, including the markets that we serve. As the COVID-19 pandemic is still ongoing and dynamic in nature, there are many uncertainties, including its severity, duration, impact to our customers, employees and vendors, impact to the financial services and banking industry, impact to the economy as a whole and the level of governmental intervention (both economic and health-related). COVID-19 has negatively affected, and may continue to negatively affect the Company. Furthermore, economic conditions remain unclear and significant volatility could continue for a prolonged period as the potential exists for additional variants of COVID-19 to adversely impact the economy.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Company's Consolidated Financial Statements are prepared in accordance with GAAP and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the Consolidated Financial Statements; accordingly, as this information changes, the Consolidated Financial Statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the financial statements at fair value warrants an impairment write-down or a valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. The Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 and Note 1 to the Consolidated Financial Statements included in this report. There have been no significant changes to the Company's accounting policies as disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 except as indicated in ~~"Investment Securities," "Transfers of Investment Securities from Available-for-Sale to Held-to-Maturity" and~~ "Accounting Standards Adopted in ~~2022"~~2023" in Note 1 to the Consolidated Financial Statements in this report.

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Goodwill is subject to impairment testing, which must be conducted at least annually or upon the occurrence of a triggering event. Various factors, such as the Company’s results of operations, the trading price of the Company’s common stock relative to the book value per share, macroeconomic conditions and conditions in the banking sector, inform whether a triggering event for an interim goodwill impairment test has occurred. If our results of operations remain in line with the first quarter of 2023 or decline or the trading price for our common stock remains significantly below book value per share for a prolonged period, or we experience continued economic uncertainty and stress in the banking sector, the Company will likely be required to conduct an interim goodwill impairment test in 2023, which could result in a material non-cash goodwill impairment.

RESULTS OF OPERATIONS

~~Earnings Summary~~

Three Months Ended ~~September 30, 2022~~March 31, 2023 vs. Three Months Ended ~~September 30, 2021~~March 31, 2022

Earnings Summary

Net income for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$37.3~~$24.2 million as compared to ~~$43.6~~$45.7 million for the same period in ~~2021,~~2022, a decrease of ~~$6.3~~$21.5 million, or ~~14.5%~~47.0%.

The decrease in net income of ~~$6.3~~$21.5 million for the three months ended ~~September 30, 2022~~March 31, 2023 relative to the same period in ~~2021~~2022 was due ~~primarily~~ to a decrease net interest income of $5.4 million, an increase in provision for credit losses of ~~$11.2~~$9.0 million, ~~and~~ a decrease in noninterest income of ~~$3.0~~$3.8 million and an increase in noninterest expenses of $9.6 million, which ~~were~~was partially offset by ana reduction of income tax expense of $7.1 million. Net interest income decreased primarily due to a rapid increase in ~~net~~interest rates impacting deposits and funding costs. The provision increased as the ACL required a reversal in first quarter of 2022 and a provision in the first quarter of 2023. The provision was driven by loan growth and qualitative and economic factors. Non interest income ~~of $4.9 million and~~decreased primarily due to a decrease in ~~income taxes of $2.9 million. Noninterest income decreased due to decreases in gain on sale of~~fees associated with residential loans ~~of $2.5 million~~ and a decrease in gain on sale of ~~investment securities~~residential loans. During the three months ended March 31, 2023, the Company closed residential mortgage locked commitments of ~~$1.5~~$32.8 million, ~~which were partially offset by an increase on other income~~down from $136.7 million for the three months ended March 31, 2022. Noninterest expenses increased primarily due to increases in salaries and benefits of ~~$911 thousand.~~$7.2 million and legal and professional fees of $1.7 million. Additional detail is provided in "Noninterest Expense" section below.

Total revenue (i.e. net interest income plus noninterest income) was ~~$89.2~~$78.7 million for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$87.3~~$87.9 million for the same period in ~~2021.~~2022. The most significant portion of revenue is net interest income, which was ~~$83.9~~$75.0 million for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$79.0~~$80.5 million for the same period in ~~2021.~~2022. Net interest income ~~increased~~decreased primarily due to increased ~~income~~interest rates on ~~investments~~deposits and ~~loans, due to higher average investment and loan balances and variable rate loans adjusting upwards as rates increased,~~borrowings which was partially offset by an increase in interest income on loans. The primary driver for the reduction in noninterest income was a decrease in ~~total deposits, increased interest expense due to higher rates~~gain on ~~deposits~~sale of residential loans and ~~faster rate adjustments on money market and savings accounts.~~fees associated with residential mortgage loans.

The net interest margin, which measures the difference between interest income and interest expense (i.e. net interest income) as a percentage of earning assets, was ~~3.02%~~2.77% for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2.73%~~2.65% for the same period in ~~2021.~~2022. The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.

Total noninterest income for the three months ended ~~September 30, 2022~~March 31, 2023 decreased to ~~$5.3~~$3.7 million from ~~$8.3~~$7.5 million for the same period in ~~2021,~~2022, a ~~36.0%~~50.4% decrease. Noninterest income was lower due to decreases in gain on sale of residential ~~and securitized~~ loans and ~~gain on sale of investment securities.~~ Forfees associated with residential mortgage loans. For further information on the components and drivers of these changes see "Noninterest Income" section below.

Gain on sale of loans for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$821~~$305 thousand compared to ~~$3.3~~$1.5 million for the same period in ~~2021,~~2022, a decrease of ~~75.4%~~79.6%. The ~~continuing rise~~decline in gains on sale of loan is due to lower volumes as a result of higher interest rates ~~for residential mortgages in 2022 had a substantial negative impact on~~as well as ceasing the ~~volume of residential mortgage originations (down 79.44% compared to the third quarter of 2021) and in turn the sale~~origination of residential mortgages ~~declined.~~

as previously announced earlier this quarter.

Other income for the three months ended ~~September 30, 2022 increased~~March 31, 2023 decreased to ~~$2.5~~$1.3 million from ~~$1.6~~$4.1 million for the same period in ~~2021,~~2022, a ~~56.9% increase.~~69.3% decrease. This ~~increase~~decrease was primarily attributable to ~~an increase~~reductions in mortgage servicing fees of $887 thousand, FHA fees of $614 thousand, mark-to-market rate cap of $744 thousand, other loan income of ~~$543 thousand, gain on sale of loans securitized of $248~~$497 thousand and ~~$189~~credit card income of $304 thousand, which were partially offset by an increase in ~~miscellaneous income.~~BOLI income of $531 thousand.

Noninterest ~~expenses~~expense totaled ~~$36.2~~$40.6 million for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$36.4~~$31.0 million for same period in ~~2021,~~2022, a ~~0.5% decrease.~~30.9% increase. The increase in noninterest expense was due to an increase in salaries and benefits of $7.2 million and an increase of $1.7 million in legal and professional fees. See the "Noninterest Expense" section for further detail on the components and drivers of the change.

Income tax expenses were ~~$11.9~~$6.9 million for the three months ended ~~September 30, 2022,~~March 31, 2023, a decrease of ~~19.8%~~50.6%, compared to the same period in ~~2021. The components and drivers of the change are discussed in the "Income Tax Expense" section below.~~

The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was 40.59% for the three months ended September 30, 2022, as compared to 41.65% for the same period in 2021. The improvement in the efficiency ratio was driven primarily by an increase in net interest income of $4.9 million which was partially offset by a $3.0 million decrease in noninterest income.

For the three months ended September 30, 2022, the Company reported an annualized return on average assets ("ROAA") of 1.29%, as compared to 1.46% for the same period in 2021. Total shareholders' equity was $1.2 billion at September 30, 2022, compared to $1.3 billion a year earlier. The annualized return on average common equity ("ROACE") for the three months ended September 30, 2022 was 11.64% as compared to 13.00% for the same period in 2021. The annualized return on average tangible common equity ("ROATCE") for the three months ended September 30, 2022 was 12.67% as compared to 14.11% for the same period in 2021. The decline in returns was driven primarily by a decrease in net income.

~~Nine Months Ended September 30, 2022 vs. Nine Months Ended September 30, 2021~~

~~Net income for the nine months ended September 30, 2022 was $98.7 million as compared to $135.1 million for the same period in 2021, a decrease of $36.3 million, or 26.9%.~~

The decrease in net income of $36.3 million for the nine months ended September 30, 2022 relative to the same period in 2021 was due to an increase in provision for credit losses of $15.1 million, a decrease in noninterest income of $11.5 million and an increase in noninterest expenses of $16.3 million, which were partially offset by an increase in net interest income of $939 thousand and a reduction of income tax expense of $7.5 million. Non interest income decreased primarily due to a decrease in gain on sale of residential and securitized loans. During the nine months ended September 30, 2022, the Company closed residential mortgage locked commitments of $286.2 million, down from $831.4 million for the nine months ended September 30, 2021. Noninterest expenses increased primarily in connection with the accrual of settlement expenses in the second quarter of 2022 in connection with the agreements with the SEC and FRB totaling $22.9 million, which was partially offset by reductions in salaries and benefits of $3.4 million, legal and professional fees of $2.5 million and $2.3 million in FDIC insurance. Additional detail is provided in "Noninterest Expense" section below.

Total revenue (i.e. net interest income plus noninterest income) was $265.6 million for the nine months ended September 30, 2022 as compared to $276.1 million for the same period in 2021. The most significant portion of revenue is net interest income, which was $247.3 million for the nine months ended September 30, 2022, compared to $246.3 million for the same period in 2021. Net interest income increased due to increased average balances and income on investments and lower average balance on deposits and borrowings which was partially offset by lower average loan balances, ~~increased interest rates on deposits and faster rate adjustments on money market and savings accounts~~. ~~The primary driver for the reduction in noninterest income was a decrease in gain on sale of residential and securitized loans.~~

The net interest margin, which measures the difference between interest income and interest expense (i.e. net interest income) as a percentage of earning assets, was 2.86% for the nine months ended September 30, 2022 and 2.91% for the same period in 2021. The drivers of the change are detailed in the "Net Interest Income and Net Interest Margin" section below.

Total noninterest income for the nine months ended September 30, 2022 decreased to $18.3 million from $29.8 million for the same period in 2021, a 38.5% decrease. Noninterest income was lower due to decreases in gain on sale of investment securities and residential and securitized loans. F~~or further information on the components and drivers of these changes see "Noninterest Income" section below.~~

Gain on sale of loans for the nine months ended September 30, 2022 was $3.2 million compared to $12.0 million for the same period in 2021, a decrease of 73.6%. The rise in interest rates for residential mortgages in 2022 has had a substantial negative impact on the volume of residential mortgage originations and in turn the sale of residential mortgages declined.

Other income for the nine months ended September 30, 2022 decreased to $9.5 million from $11.0 million for the same period in 2021, a 14.2% decrease. This decrease was primarily attributable to a reduction in gains on the sale of securitized loans of $2.5 million which was partially offset by an increase in other loan income of $972 thousand.

Noninterest expense totaled $126.2 million for the nine months ended September 30, 2022, as compared to $109.9 million or same period in 2021, a 14.9% increase. The increase in non-interest expense was due to the $22.9 million accrual of settlement expenses which was partially offset by the $5.0 million accrual reduction related to share-based compensation awards and deferred compensation associated with our former CEO and Chairman which reduced noninterest expense. See the "Noninterest Expense" section for further detail on the components and drivers of the change.

~~Income tax expenses were $38.6 million for the nine months ended September 30, 2022, a decrease of 16.2%, compared to the same period in 2021.~~2022. The components and drivers of the change are discussed in the "Income Tax Expense" section below.

The efficiency ratio was ~~47.51%~~51.55% for the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~39.78%~~35.28% for the same period in ~~2021.~~2022. The adverse change in the efficiency ratio was driven by ~~the $22.9 million accrual of settlement expenses, which~~ increased interest expense, an increase in noninterest expense and a reduction in noninterest income.

For the three months ended March 31, 2023, the Company reported an annualized ROAA of 0.86%, as compared to 1.46% for the same period in 2022. The annualized ROACE for the three months ended March 31, 2023 was ~~partially offset by~~7.92% as compared to 13.83% for the ~~$5.0 million accrual~~same period in 2022. The annualized ROATCE for the three months ended March 31, 2023 was 8.65% as compared to 14.99% for the same period in 2022. The decline in returns was primarily attributable to a reduction ~~related to share-based compensation awards and deferred compensation associated with our former CEO and Chairman which reduced noninterest expense.~~in net income. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

For the nine months ended September 30, 2022, the Company reported an annualized ROAA of 1.11%, as compared to 1.56% for the same period in 2021. The annualized ROACE for the nine months ended September 30, 2022 was 10.17% as compared to 13.98% for the same period in 2021. The annualized ROATCE for the nine months ended September 30, 2022 was 11.06% as compared to 15.21% or the same period in 2021. The decline in returns was attributable primarily to the $22.9 million of settlement expenses and the reduction on the gain on sale of loans as higher interest rates reduced mortgage origination volume.~~Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.~~

Net Interest Income and Net Interest Margin

Net interest income is the difference between interest income on earning assets and the cost of funds supporting those assets. Earning assets are composed primarily of loans, investment securities, and interest bearing deposits with other banks and other short term investments. The cost of funds includes interest expense on deposits, customer repurchase agreements and other borrowings. Noninterest bearing deposits and capital are other components representing funding sources (refer to discussion above under Results of Operations). Changes in the volume and mix of assets and funding sources, along with the changes in yields earned and rates paid, determine changes in net interest income.

Net interest income was ~~$83.9~~$75.0 million for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to ~~$79.0~~$80.5 million for the same period in ~~2021.~~2022. Net interest income ~~increased~~decreased for the three months ended ~~September 30, 2022~~March 31, 2023 primarily due to ~~an increase~~increases in average ~~loans~~deposit rates (3.63% compared to 0.37% and other short-term borrowings (4.77% compared to 0.67%), which were partially offset by higher average loan balances and yields ~~(5.10%~~(6.35% compared to ~~4.59%~~4.35%) ~~and higher average investment balances and yields and on other average earning assets, which was partially offset by lower average deposit and borrowing balances with an increased interest rate~~ as compared to ~~September 30, 2021.~~March 31, 2022.

The net interest margin was ~~3.02%~~2.77% for the three months ended ~~September 30, 2022~~March 31, 2023 and ~~2.73%~~2.65% for the same period in ~~2021.~~2022. The increase reflects the impact of the change in yields on earning assets which repriced primarily due to rate increases which more than offset the reduction in average interest earning assets and the increase in rates for~~and faster rate adjustments on~~ interest bearing liabilities.

Net interest income was $247.3 million for the nine months ended September 30, 2022, as compared to $246.3 million for the same period in 2021. Net interest income increased for the nine months ended September 30, 2022 due to an increase in higher yielding earning assets, which was partially offset by lower loan volumes and increased rates on interest bearing deposits, as compared to September 30, 2021.

The net interest margin was 2.86% for the nine months ended September 30, 2022 and 2.91% for the same period in 2021. The decline reflects the impact of an increase in average earning assets and yields which was more than offset by an increase in the cost of funds.

4236

Net interest margin ~~decreased~~increased by 512 basis points from the first ~~nine~~three months of ~~2021~~2022 as compared to the first ~~nine~~three months of ~~2022~~2023 (from ~~2.91%~~2.65% to ~~2.86%~~2.77%). The yield on earning assets increased by 13226 basis points (from ~~3.29%~~2.91% to ~~3.42%~~5.17%) while cost of funds increased 18214 basis points (from ~~0.38%~~0.26% to ~~0.56%~~2.40%). Average interest bearing deposits with other banks and other short term investments were ~~$1.4 billion nine~~$526.5 million in the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$2.3~~$2.4 billion for the same period in ~~2021.~~2022. Additionally, average borrowings increased from $346.4 million in the three months ended March 31, 2022 to $1.32 billion in the three months ended March 31, 2023. Overall yields and rates moved higher in the first ~~nine~~three months of ~~2022~~2023 as compared to same period in ~~2021,~~2022, as variable rate loans adjusted upwards and an increased number of loans moved off their rate floors.

The ~~tables~~table below presents the average balances and rates of the major categories of the Company's assets and liabilities for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. Included in the ~~tables~~table are measurements of interest rate spread and margin. Interest rate spread is the difference (expressed as a percentage) between the interest rate earned on earning assets less the interest rate paid on interest bearing liabilities. While the interest rate spread provides a quick comparison of earnings rates versus cost of funds, management believes that margin, together with net interest income, provides a better measurement of performance. The net interest margin (as compared to net interest spread) includes the effect of noninterest bearing sources in its calculation. Net interest margin is net interest income expressed as a percentage of average earning assets.

4337

Eagle Bancorp, Inc.

Consolidated Average Balances, Interest Yields And Rates (Unaudited)

(dollars in thousands)


		Three Months Ended September 30,													Three Months Ended March 31,
		2022						2021							2023						2022
		Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate			Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS	ASSETS													ASSETS
Interest earning assets:	Interest earning assets:													Interest earning assets:
Interest bearing deposits with other banks and other short-term investments	Interest bearing deposits with other banks and other short-term investments	$	771,063	$	4,100	2.11	%	$	2,668,265	$	1,083	0.16	%	Interest bearing deposits with other banks and other short-term investments	$	526,506	$	5,774	4.45	%	$	2,403,017	$	1,057	0.18	%
Loans held for sale (1)	Loans held for sale (1)	11,586		150		5.18	%	56,866		642		4.52	%	Loans held for sale (1)	4,093		60		5.86	%	26,887		219		3.26	%
Loans (1) (2)	Loans (1) (2)	7,282,589		93,594		5.10	%	7,055,621		81,540		4.59	%	Loans (1) (2)	7,712,023		120,790		6.35	%	7,053,701		75,611		4.35	%
Investment securities available-for-sale (2)	Investment securities available-for-sale (2)	1,782,859		7,587		1.69	%	1,670,723		5,877		1.40	%	Investment securities available-for-sale (2)	1,660,258		7,811		1.91	%	2,794,681		11,280		1.64	%
Investment securities held-to-maturity (2)	Investment securities held-to-maturity (2)	1,128,943		5,876		2.06	%	—		—		—	%	Investment securities held-to-maturity (2)	1,087,047		5,734		2.14	%	24,011		150		2.53	%
Federal funds sold	Federal funds sold	53,630		220		1.63	%	34,805		10		0.11	%	Federal funds sold	14,890		78		2.12	%	24,176		4		0.07	%
Total interest earning assets	Total interest earning assets	11,030,670		111,527		4.01	%	11,486,280		89,152		3.08	%	Total interest earning assets	11,004,817		140,247		5.17	%	12,326,473		88,321		2.91	%

Total noninterest earning assets	Total noninterest earning assets	475,581						432,215						Total noninterest earning assets	495,889						449,784
Less: allowance for credit losses	Less: allowance for credit losses	75,141						92,169						Less: allowance for credit losses	74,650						75,105
Total noninterest earning assets	Total noninterest earning assets	400,440						340,046						Total noninterest earning assets	421,239						374,679
TOTAL ASSETS	TOTAL ASSETS	$	11,431,110					$	11,826,326					TOTAL ASSETS	$	11,426,056					$	12,701,152

LIABILITIES AND SHAREHOLDERS' EQUITY	LIABILITIES AND SHAREHOLDERS' EQUITY													LIABILITIES AND SHAREHOLDERS' EQUITY
Interest bearing liabilities:	Interest bearing liabilities:													Interest bearing liabilities:
Interest bearing transaction	Interest bearing transaction	$	960,970	$	1,891	0.78	%	$	842,086	$	402	0.19	%	Interest bearing transaction	$	1,065,421	$	6,107	2.32	%	$	754,833	$	322	0.17	%
Savings and money market	Savings and money market	4,504,216		21,711		1.91	%	4,971,866		3,645		0.29	%	Savings and money market	3,326,807		33,274		4.06	%	5,476,721		3,723		0.28	%
Time deposits	Time deposits	633,241		2,523		1.58	%	763,513		2,543		1.32	%	Time deposits	1,078,227		9,573		3.60	%	722,646		2,314		1.30	%
Total interest bearing deposits	Total interest bearing deposits	6,098,427		26,125		1.70	%	6,577,465		6,590		0.40	%	Total interest bearing deposits	5,470,455		48,954		3.63	%	6,954,200		6,359		0.37	%
Customer repurchase agreements	Customer repurchase agreements	26,546		55		0.82	%	27,348		14		0.20	%	Customer repurchase agreements	38,257		302		3.20	%	25,628		13		0.21	%
Other short-term borrowings	Other short-term borrowings	61,703		412		2.67	%	300,003		506		0.67	%	Other short-term borrowings	1,251,392		14,930		4.77	%	276,669		460		0.67	%
Long-term borrowings	Long-term borrowings	69,752		1,038		5.95	%	121,346		2,997		9.88	%	Long-term borrowings	69,814		1,037		5.94	%	69,690		1,037		5.95	%
Total interest bearing liabilities	Total interest bearing liabilities	6,256,428		27,630		1.75	%	7,026,162		10,107		0.57	%	Total interest bearing liabilities	6,829,918		65,223		3.87	%	7,326,187		7,869		0.44	%

Noninterest bearing liabilities:	Noninterest bearing liabilities:													Noninterest bearing liabilities:
Noninterest bearing demand	Noninterest bearing demand	3,809,070						3,370,649						Noninterest bearing demand	3,263,670						3,920,776
Other liabilities	Other liabilities	93,859						98,493						Other liabilities	91,490						112,404
Total noninterest bearing liabilities	Total noninterest bearing liabilities	3,902,929						3,469,142						Total noninterest bearing liabilities	3,355,160						4,033,180

Shareholders' Equity	Shareholders' Equity	1,271,753						1,331,022						Shareholders' Equity	1,240,978						1,341,785
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	11,431,110					$	11,826,326					TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	11,426,056					$	12,701,152

Net interest income	Net interest income			$	83,897					$	79,045			Net interest income			$	75,024					$	80,452
Net interest spread	Net interest spread					2.26	%					2.51	%	Net interest spread					1.30	%					2.47	%
Net interest margin	Net interest margin					3.02	%					2.73	%	Net interest margin					2.77	%					2.65	%
Cost of funds	Cost of funds					0.99	%					0.35	%	Cost of funds					2.40	%					0.26	%

(1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled ~~$3.4~~$3.71 million and ~~$6.3~~$3.68 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

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

Nine Months Ended September 30,
2022 2021
Average
Balance Interest Average
Yield/Rate Average
Balance Interest Average
Yield/Rate
ASSETS
Interest earning assets:
Interest bearing deposits with other banks and other short-term investments $ 1,449,800 $ 7,608 0.70 % $ 2,288,660 $ 2,239 0.13 %
Loans held for sale (1)
18,216 548 4.01 % 79,264 1,936 3.26 %
Loans (1) (2)
7,147,844 249,168 4.66 % 7,385,733 258,188 4.67 %
Investment securities available for sale (2)
2,119,822 25,888 1.63 % 1,506,996 15,878 1.41 %
Investment securities held-to-maturity (2)
774,135 12,002 2.07 % — — — %
Federal funds sold 37,907 269 0.95 % 32,146 25 0.10 %
Total interest earning assets 11,547,724 295,483 3.42 % 11,292,799 278,266 3.29 %
Total noninterest earning assets 466,661 408,167
Less: allowance for credit losses 74,390 100,756
Total noninterest earning assets 392,271 307,411
TOTAL ASSETS $ 11,939,995 $ 11,600,210
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest bearing liabilities:
Interest bearing transaction $ 858,152 $ 2,843 0.44 % $ 819,033 $ 1,217 0.20 %
Savings and money market 4,926,766 34,207 0.93 % 4,842,621 11,312 0.31 %
Time deposits 670,708 6,972 1.39 % 826,790 8,759 1.42 %
Total interest bearing deposits 6,455,626 44,022 0.91 % 6,488,444 21,288 0.44 %
Customer repurchase agreements 25,765 90 0.47 % 22,240 34 0.20 %
Other short-term borrowings 131,253 992 1.01 % 300,003 1,502 0.67 %
Long-term borrowings 69,722 3,112 5.95 % 197,090 9,114 6.17 %
Total interest bearing liabilities 6,682,366 48,216 0.96 % 7,007,777 31,938 0.61 %
Noninterest bearing liabilities:
Noninterest bearing demand 3,863,283 3,206,250
Other liabilities 96,176 93,960
Total noninterest bearing liabilities 3,959,459 3,300,210
Shareholders’ Equity 1,298,170 1,292,223
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 11,939,995 $ 11,600,210
Net interest income $ 247,267 $ 246,328
Net interest spread 2.46 % 2.68 %
Net interest margin 2.86 % 2.91 %
Cost of funds 0.56 % 0.38 %

~~(1)~~Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $11.5 million and $26.3 million for the six months ended September 30, 2022 and 2021, respectively.

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

4538

Rate/Volume Analysis of Net Interest Income

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


	Three Months Ended March 31, 2023 Compared With Three Months Ended March 31, 2022
(dollars in thousands)	Change Due to Volume		Change Due to Rate		Total Increase (Decrease)
Interest earned on
Loans	$	7,057	$	38,122	$	45,179
Loans held for sale	(186)		27		(159)
Investment securities available-for-sale	(4,579)		1,110		(3,469)
Investment securities held-to-maturity	6,641		(1,057)		5,584
Interest bearing bank deposits	(825)		5,542		4,717
Federal funds sold	(2)		76		74
Total interest income	8,106		43,820		51,926

Interest paid on
Interest bearing transaction	132		5,653		5,785
Savings and money market	(1,461)		31,012		29,551
Time deposits	1,139		6,120		7,259
Customer repurchase agreements	6		283		289
Other borrowings	1,623		12,847		14,470
Total interest expense	1,439		55,915		57,354

Net interest income	$	6,667	$	(12,095)	$	(5,428)

Three Months Ended September 30, 2022 Compared With Three Months Ended September 30, 2021
(dollars in thousands) Change
Due to
Volume Change
Due to
Rate Total
Increase
(Decrease)
Interest earned on
Loans $ 2,623 $ 9,431 $ 12,054
Loans held for sale (511) 19 (492)
Investment securities available-for-sale 394 1,316 1,710
Investment securities held-to-maturity 3,972 1,904 5,876
Interest bearing bank deposits (770) 3,787 3,017
Federal funds sold 5 205 210
Total interest income 5,713 16,662 22,375
Interest paid on
Interest bearing transaction 57 1,432 1,489
Savings and money market (343) 18,409 18,066
Time deposits (434) 414 (20)
Customer repurchase agreements — 41 41
Other borrowings (1,676) (377) (2,053)
Total interest expense (2,396) 19,919 17,523
Net interest income $ 8,109 $ (3,257) $ 4,852

Nine Months Ended September 30, 2022 Compared With Nine Months Ended September 30, 2021
(dollars in thousands) Change
Due to
Volume Change
Due to
Rate Total
Increase
(Decrease)
Interest earned on
Loans $ (8,316) $ (704) $ (9,020)
Loans held for sale (1,491) 103 (1,388)
Investment securities available-for-sale 6,457 3,553 10,010
Investment securities held-to-maturity 8,156 3,846 12,002
Interest bearing bank deposits (821) 6,190 5,369
Federal funds sold 4 240 244
Total interest income 3,989 13,228 17,217
Interest paid on
Interest bearing transaction 58 1,568 1,626
Savings and money market 197 22,698 22,895
Time deposits (1,654) (133) (1,787)
Customer repurchase agreements 5 51 56
Other borrowings (6,735) 223 (6,512)
Total interest expense (8,129) 24,407 16,278
Net interest income $ 12,118 $ (11,179) $ 939

Provision for Credit Losses

The provision for credit losses represents the amount of expense charged to current earnings to fund the ACL on loans and the ACL on available-for-sale and held-to-maturity investment securities. The amount of the ~~allowance for credit losses~~ACL on loans is based on management's assessment of current expected credit losses in the portfolio. Those factors include historical losses based on internal and peer data, economic conditions and trends, the value and adequacy of collateral, volume and mix of the portfolio, performance of the portfolio, and internal loan processes of the Company and Bank.

The provision for unfunded commitments is presented separately on the consolidated statements of income. This provision considers the probability that unfunded commitments will fund among other factors.

Management ~~determines~~has developed a comprehensive analytical process to monitor the ~~estimate~~adequacy of the ACL. The ACL is estimated using a CECL model. Our methodology for determining our allowance was developed utilizing, among other factors, the guidance from federal banking regulatory agencies, relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts. The process is being continually enhanced and refined based on periodic reviews. The maintenance of a high quality loan portfolio, with an adequate ACL, will continue to be a primary management objective for the Company.

We develop our estimate of the ACL from several sources: (i) a quantitative model that determines expected credit losses using a probability of default ("PD") / Loss Given Default ("LGD") cash flow methodology, using internal and third-party provided peer historical loss data and adjustments to account for loan-specific risk characteristics after pooling our loan portfolio based on similar risk characteristics, i.e., call codes; (ii) individual evaluation of any loans that exhibit evidence of credit deterioration, excluded from the quantitative model; and (iii) the application of qualitative and environmental factors as determined by management.

4739

We utilize the following qualitative and environmental factors in our CECL methodology: (i) changes in the nature and volume of the portfolio; (ii) changes in the volume and severity of past due financial assets and the volume and severity of adversely classified assets; (iii) changes in the value of underlying collateral for loans not individually evaluated; (iv) changes in lending policies and procedures; (v) changes in the quality of credit review function; (vi) changes in lending management and staff; (vii) concentrations of credit; (viii) other external factors (competition, legal, regulatory, etc.); and (ix) changes in national, regional, and local economic and business conditions. Our model may reflect assumptions by management that are not covered by the qualitative and environmental factors, and reevaluates all of its factors quarterly.

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

During the three months ended ~~September 30, 2022,~~March 31, 2023, the ACL on loans reflected a provision of ~~$3.0~~$4.9 million and ~~$56~~$975 thousand in net ~~recoveries.~~charge-offs. The provision for credit losses on loans for the same period in ~~2021~~2022 reflected a reversal of ~~$8.3~~$3.0 million and ~~$1.3 million in net charge-offs. During the nine months ended September 30, 2022, the ACL on loans reflected a provision of $532~~$459 thousand ~~and net recoveries of $270 thousand. The provision for credit losses on loans for the same nine month period in 2021 was a reversal of $14.5 million in ACL and $12.2 million~~ in net charge-offs. For the first ~~nine~~three months of ~~2022,~~2023, the provisions were primarily driven by adjustments to the qualitative components of the CECL model owing to the high inflationary environment and the related uncertainty and impacts on the broader economy, changes in the qualitative and economic ("Q&E") component of the model associated with commercial real estate office properties, as well as the increase in total loans. The increases were offset by improvements in ~~asset quality.~~the quality of the assets associated with individually assessed loans that were deemed impaired. The reversal in the same period in ~~2021~~2022 was driven by the improved macroeconomic outlook, improvement of credits in the loan ~~portfolio and~~portfolio.

Additionally, the ACL on securities reflected a ~~reduction~~provision of $1.3 million of the total first quarter 2023 provision related to several corporate bonds in ~~total loans.~~the securities portfolio.

At March 31, 2023, the ACL for loans represented 1.01% of loans outstanding, as compared to 0.97% at December 31, 2022. The ACL represented 1,160% of nonperforming loans at March 31, 2023, as compared to 1,151% at December 31, 2022.

As part of its comprehensive loan review process, internal loan and credit committees carefully evaluate loans that are past-due 30 days or more. The Committees make a thorough assessment of the conditions and circumstances surrounding each delinquent loan. The Bank's loan policy requires that loans be placed on nonaccrual if they are 90 days past-due, unless they are well secured and in the process of collection. Additionally, Credit Administration specifically analyzes the status of development and construction projects, sales activities and utilization of interest reserves in order to carefully and prudently assess potential increased levels of risk requiring additional reserves.

The maintenance of a high quality loan portfolio, with an adequate allowance for credit losses, will continue to be a primary management objective for the Company. The Company's goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include carefully enforcing loan policies and procedures, evaluating each borrower's business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation.

4840

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

Nine Months Ended September 30,
(dollars in thousands) 2022 2021
Balance at beginning of period $ 74,965 $ 109,579
Charge-offs:
Commercial (604) (7,691)
Income producing - commercial real estate — (5,216)
Owner occupied - commercial real estate (1,356) —
Construction - commercial and residential — (206)
Other consumer (74) (1)
Total charge-offs (2,034) (13,114)
Recoveries:
Commercial 648 326
Income producing - commercial real estate — 97
Owner occupied - commercial real estate 25 —
Construction - commercial and residential 1,627 499
Other consumer 4 17
Total recoveries 2,304 939
Net recoveries (charge-offs) 270 (12,175)
Provision for (reversal of) credit losses- loans 532 (14,498)
Balance at end of period $ 75,767 $ 82,906
Annualized ratio of net (recovery) charge-offs during the period to average loans outstanding during the period — % 0.22 %


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Balance at beginning of period	$	74,444		$	74,965
Charge-offs:
Commercial	(868)			(514)



Construction - commercial and residential	(136)			—


Other consumer	(50)			—
Total charge-offs	(1,054)			(514)
Recoveries:
Commercial	76			54






Other consumer	3			1
Total recoveries	79			55
Net charge-offs	(975)			(459)
Provision for (reversal of) credit losses- loans	4,908			(3,001)
Balance at end of period	$	78,377		$	71,505

Annualized ratio of net charge-offs during the period to average loans outstanding during the period	0.05		%	0.03		%

The following table reflects the allocation of the allowance for credit losses at the dates indicated. The allocation of the allowance to each category is not necessarily indicative of future losses or charge-offs and does not restrict the use of the allowance to absorb losses in any category.

September 30, 2022 December 31, 2021
(dollars in thousands) Amount % of Total ACL % of Total Loans Amount % of Total ACL % of Total Loans
Commercial $ 15,873 21 % 19 % $ 14,475 19 % 19 %
PPP loans — — % — % — — % 1 %
Income producing - commercial real estate 36,327 48 % 50 % 38,287 51 % 48 %
Owner occupied - commercial real estate 12,581 16 % 15 % 12,146 16 % 15 %
Real estate mortgage - residential 810 1 % 1 % 449 1 % 1 %
Construction - commercial and residential 9,514 13 % 12 % 9,099 12 % 13 %
Construction - C&I (owner occupied) — — % 2 % — — % 2 %
Home equity 624 1 % 1 % 474 1 % 1 %
Other consumer 38 — % — % 35 — % — %
Total allowance $ 75,767 100 % 100 % $ 74,965 100 % 100 %


	March 31, 2023						December 31, 2022
(dollars in thousands)	Amount		% of Total ACL		% of Total Loans		Amount		% of Total ACL		% of Total Loans
Commercial	$	15,775	20	%	19	%	$	15,655	21	%	19	%

Income producing - commercial real estate	38,140		49	%	51	%	35,688		48	%	51	%
Owner occupied - commercial real estate	12,457		16	%	14	%	12,702		17	%	15	%
Real estate mortgage - residential	1,002		1	%	1	%	969		1	%	1	%
Construction - commercial and residential	10,383		13	%	14	%	8,801		12	%	12	%
Home equity	593		1	%	1	%	555		1	%	1	%
Other consumer	27		—	%	—	%	74		—	%	1	%
Total allowance	$	78,377	100	%	100	%	$	74,444	100	%	100	%

Nonperforming Assets

As shown in the table below, the Company's level of nonperforming assets, which comprise loans delinquent 90 days or more and nonaccrual loans, which include the nonperforming portion of ~~TDRs~~loan restructurings and OREO, totaled ~~$9.6~~$8.7 million at ~~September 30, 2022~~March 31, 2023 representing ~~0.09%~~0.08% of total assets, as compared to ~~$30.8~~$8.4 million of nonperforming assets, or ~~0.26%~~0.08% of total assets, at December 31, ~~2021.~~2022.

At ~~September 30, 2022,~~March 31, 2023, the Company had no accruing loans 90 days or more past due. Management remains attentive to early signs of deterioration in borrowers' financial conditions and to taking the appropriate action to mitigate risk. Furthermore, the Company is diligent in placing loans on nonaccrual status and believes, based on its loan portfolio risk analysis, that its allowance for credit losses, at ~~1.04%~~1.01% of total loans at ~~September 30, 2022,~~March 31, 2023, is adequate to absorb expected credit losses within the loan portfolio at that date.

~~CECL allows~~On January 1, 2023, the Company adopted the accounting guidance in ASU No. 2022-02, which eliminates the recognition and measurement of a troubled debt restructuring ("TDR"). Due to the removal of the TDR designation, the Company evaluates loan restructurings according to the accounting guidance for ~~institutions~~loan modifications to ~~evaluate individual loans~~determine if the restructuring results in a new loan or a continuation of the existing loan. Loan modifications to borrowers experiencing financial difficulty that result in a direct change in the ~~event~~timing or amount of contractual cash flows include situations where there is principal forgiveness, interest rate reductions, other-than-insignificant payment delays, term extensions, and combinations of the listed modifications. A loan that is considered a restructured loan may be subject to an individually evaluated loan analysis if the ~~asset does not share similar risk characteristics with its original segmentation. This can occur due to credit deterioration, increased collateral dependency~~commitment is $1.0 million or ~~other factors leading to impairment. In particular,~~greater; otherwise, the ~~Company individually evaluates loans~~restructured loan remains in the appropriate segment in the ACL model and associated reserves are adjusted based on nonaccrual status and those identified as TDRs, though it may individually evaluate other loans or groups of loans as well if it determines they no longer share similar risk with their assigned segment. Reserves on individually assessed loans are determined by one of two methods: the fair value of collateral orchanges in the discounted cash ~~flow. Fair value of collateral is used for loans determined to be collateral dependent, and~~flows resulting from the ~~fair value represents the net realizable value~~modification of the ~~collateral, adjusted for sales costs, commissions, senior liens, etc. The continuing payments are discounted over~~restructured loan. Management strives to identify borrowers in financial difficulty early and work with them to modify their loan to more affordable terms before their loan reaches nonaccrual status, foreclosure or repossession of the ~~expected life at the loan's original contract rate and include adjustments for risk of default.~~

Loans are considered to have been modified in a TDR when, due to a borrower's financial difficulties, the Company makes unilateral concessions to the borrower that it would not otherwise consider. Concessions could include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intendedcollateral to minimize economic loss and to avoid foreclosure or repossession of collateral. Alternatively, management, from time-to-time and in the ordinary course of business, implements renewals, modifications, extensions, and/or changes in terms of loans to borrowers who have the ability to repay on reasonable market-based terms, as circumstances may warrant. Such modifications are not considered to be TDRs, as the accommodation of a borrower's request does not rise to the ~~level~~Company.

During the first quarter of ~~a concession if~~2023, the modified transaction is at market rates and terms and/or the borrower is not experiencing financial difficulty. For example: (1) adverse weather conditions may create a short term cash flow issue for an otherwise profitable retail business that suggests a temporary interest-only period on an amortizing loan; (2) there may be delays in absorption on a real estate project that reasonably suggests extensionBank had seven new loan restructurings totaling approximately $108.3 million (1.4% of the loan ~~maturity at market terms; or (3) there may be maturing~~portfolio). These loans received extensions of three to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term financing. The determination of whether a restructured loan is a TDR requires c~~onsideration of all of the facts~~twelve months, and ~~circumstances surrounding the change in terms, and the exercise of prudent business judgment.~~

~~The Company had five TDRs at September 30, 2022 totaling approximately $24.5 million. All of these loans~~ are performing under their modified terms.The Company had seven TDRs at December 31, 2021, totaling $16.5 million. For the first nine months of 2022 there were no TDRs that defaulted on their modified terms. During the nine months ended September 30, 2022, four loans that had been modified as TDRs with a balance of $30.3 million, including two that previously were on nonperforming status, were sold, resulting in a charge-off of $1.4 million in connection with the sale. No TDRs were sold during the three months ended September 30, 2021. For the first nine months of 2021, one performing TDR loan, with a balance of $101 thousand, defaulted on its modified terms and was placed on nonaccrual status and charged off. In addition, the collateral for one previously nonperforming restructured loan was sold, and all of the loan's principal and part of its delinquent interest were collected; and one restructured loan that was purchased as part of the 2014 acquisition of Virginia Heritage Bank was collected at its full carrying value.

Commercial and consumer loans modified in a ~~TDR~~loan restructuring are closely monitored for delinquency as an early indicator of possible future default. If loans modified in a ~~TDR~~loan restructuring subsequently default, the Company evaluates the loan for possible further impairment. The allowance may be increased, adjustments may be made in the allocation of the allowance, or partial charge-offs may be taken to further write-down the carrying value of the loan.

Total nonperforming loans amounted to ~~$7.6~~$6.8 million at ~~September 30, 2022 (0.10%~~March 31, 2023 (0.09% of total loans) compared to ~~$29.2~~$6.5 million at December 31, ~~2021 (0.41%~~2022 (0.08% of total loans).

OREO properties are carried at the lower of cost or fair value less estimated costs to sell. It is the Company's policy to obtain third party appraisals prior to foreclosure, and to obtain updated third party appraisals on OREO properties generally not less frequently than annually. Generally, the Company would obtain updated appraisals or evaluations where it has reason to believe, based upon market indications (such as comparable sales, legitimate offers below carrying value, broker indications and similar factors), that the current appraisal does not accurately reflect current value. OREO properties had a lower of cost or fair market value of $2.0 million ~~and $1.6 million~~ at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively. During the three and nine months ended September 30, 2022, an OREO property was sold, generating proceeds of $241 thousand.~~2022. There were no sales of OREO property during the three ~~or nine~~ months ended ~~September 30, 2021.~~

March 31, 2023 or March 31, 2022.

The following table shows the amounts of nonperforming assets at the dates indicated.


(dollars in thousands)	(dollars in thousands)	September 30, 2022			December 31, 2021			(dollars in thousands)	March 31, 2023			December 31, 2022
Nonaccrual Loans:	Nonaccrual Loans:							Nonaccrual Loans:
Commercial	Commercial	$	3,018		$	8,876		Commercial	$	2,294		$	2,488
PPP loans		—			1,365

Income producing - commercial real estate	Income producing - commercial real estate	2,645			13,456			Income producing - commercial real estate	2,000			2,000
Owner occupied - commercial real estate	Owner occupied - commercial real estate	21			42			Owner occupied - commercial real estate	14			17
Real estate mortgage - residential	Real estate mortgage - residential	1,917			2,010			Real estate mortgage - residential	1,915			1,913
Construction - commercial and residential	Construction - commercial and residential	—			3,093			Construction - commercial and residential	533			—

Home equity		—			366

Other consumer								Other consumer	—			50
Accruing loans-past due 90 days	Accruing loans-past due 90 days	—			—			Accruing loans-past due 90 days	—			—
Total nonperforming loans	Total nonperforming loans	7,601			29,208			Total nonperforming loans	6,756			6,468
Other real estate owned	Other real estate owned	1,962			1,635			Other real estate owned	1,962			1,962
Total nonperforming assets	Total nonperforming assets	$	9,563		$	30,843		Total nonperforming assets	$	8,718		$	8,430

Coverage ratio, allowance for credit losses to total nonperforming loans	Coverage ratio, allowance for credit losses to total nonperforming loans	997		%	257		%	Coverage ratio, allowance for credit losses to total nonperforming loans	1,160		%	1,151		%
Ratio of nonperforming loans to total loans	Ratio of nonperforming loans to total loans	0.10		%	0.41		%	Ratio of nonperforming loans to total loans	0.09		%	0.08		%
Ratio of nonperforming assets to total assets	Ratio of nonperforming assets to total assets	0.09		%	0.26		%	Ratio of nonperforming assets to total assets	0.08		%	0.08		%

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

At ~~September 30, 2022,~~March 31, 2023, there were ~~$89.7~~$88.0 million of ~~performing~~Substandard loans. Substandard loans are considered ~~to be~~ potential or actual problem loans ~~defined as loans that are not included in the 90 days past~~ due ~~nonaccrual or restructured categories, but for which~~to known information about possible or actual credit problems which causes management to be uncertain as to the ability of the borrowers to comply with the present loan repayment terms, which may in the future result in ~~disclosure in~~the reclassification to the past due, nonaccrual or restructured loan ~~categories. Potential problem loans were $88.6 million at December 31, 2021.~~categories, as appropriate. Based upon their status as potential or actual problem loans, these loans receive heightened scrutiny and ongoing intensive risk management.

Noninterest Income

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

Total noninterest income for the three months ended ~~September 30, 2022~~March 31, 2023 decreased to ~~$5.3~~$3.7 million from ~~$8.3~~$7.5 million for the three months ended ~~September 30, 2021,~~March 31, 2022, a ~~36.0%~~50.4% decrease.

Service charges on deposits for the three months ended March 31, 2023 increased to $1.5 million from $1.3 million for the three months ended March 31, 2022

Gain on sale of loans for the three months ended ~~September 30, 2022~~March 31, 2023 decreased to ~~$821~~$305 thousand from ~~$3.3~~$1.5 million for the three months ended ~~September 30, 2021,~~March 31, 2022, a ~~75.4%~~79.6% decrease. ~~Gains on~~This decrease was primarily driven by a reduction in the ~~sale~~volume of ~~investment securities decreased to $4 thousand from $1.5 million, or 99.7% for the three months ended September 30, 2022.~~residential mortgage loan commitments. Residential mortgage loan locked commitments were ~~$57.5~~$32.8 million for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$279.8~~$136.7 million for the same period in ~~2021,~~2022, a ~~79.4%~~76.0% decrease.

The ~~rise~~Company commenced the cessation of first lien residential mortgage origination for secondary sale during the three months ended March 31, 2023. The residential mortgage loans were originated for sale to third-party investors subject to compliance with pre-established criteria. The Company currently anticipates that the exit of the residential mortgage origination and secondary sale banking activities will be completed in ~~interest rates~~the third quarter of 2023 following the expected sale of all of the remaining residential mortgage loans held for ~~residential mortgages in 2022 has had a negative impact~~sale by the end of the third quarter of 2023.

For the three months ended March 31, 2023, the loss on ~~the volume of mortgage originations and in turn~~ the sale of ~~residential mortgages declined.~~

investments was $21 thousand compared to a loss of $25 thousand for the three months ended March 31, 2022. The ~~decision whether~~loss was due to ~~sell residential mortgage loans~~the sale of 12 securities for a loss of $26 thousand which was partially offset by $5 thousand in gains on a mandatory or best efforts lock basis is a function of multiple factors, including but not limited to overall market volumes of mortgage loan originations, forecasted "pull-through" rates of origination, loan underwriting and closing operational considerations, pricing differentials between the two methods, and availability and pricing of various interest rate hedging strategies associated with the mortgage origination pipeline. The Company continually monitors these factors to maximize profitability and minimize operational and interest rate risks.partial calls.

Other income for the three months ended ~~September 30, 2022 increased~~March 31, 2023 decreased to ~~$2.5~~$1.3 million from ~~$1.6~~$4.1 million for the three months ended ~~September 30, 2021,~~March 31, 2022, a 56.9% increase. This increase was primarily attributable to the $543 thousand increase in other loan income, $189 thousand increase in miscellaneous income and $248 increase in gains on the sale of securitized loans.

~~Service charges on deposits for the three months ended September 30, 2022 increased to $1.3 million from $1.2 million for the three months ended September 30, 2021.~~

Gain on sale of investment securities was $4 thousand for the three months ended September 30, 2022 compared to a $1.5 million net gain on sale of investment securities for the same period in 2021, primarily due to market volatility period over period.

Total noninterest income for the nine months ended September 30, 2022 decreased to $18.3 million from $29.8 million for the nine months ended September 30, 2021, a 38.5% decrease. Gain on sale of loans for the nine months ended September 30, 2022 decreased to $3.2 million from $12.0 million for the nine months ended September 30, 2021, a 73.6% decrease. The decreases in gains on the sale of residential mortgage loans and gains on sale of investment securities primarily drove the decline between the two periods. Residential mortgage loan locked commitments were $286.2 million for the nine months ended September 30, 2022 as compared to $831.4 million for the same period in 2021, a 65.6% decrease. The rise in interest rates for residential mortgages in the first nine months of 2022 had a substantial negative impact on the volume of mortgage originations and in turn the sale of residential mortgages declined.

~~Other income for the nine months ended September 30, 2022 decreased to $9.5 million from $11.0 million for the nine months ended September 30, 2021, a 14.2%~~69.3% decrease. This decrease was primarily attributable to ~~the $2.5 million reduction~~reductions in ~~gains on the sale~~mortgage servicing fees of ~~securitized loans.~~$887 thousand, FHA fees of $614 thousand, mark-to-market rate cap of $744 thousand, other loan income of $497 thousand and credit card income of $304 thousand, which was partially offset by an increase of BOLI income of $531 thousand.

~~Service charges on deposits for the nine months ended September 30, 2022 increased to $4.0 million from $3.3 million for the nine months ended September 30, 2021.~~

Loss on sales of investment securities was $172 thousand for the nine months ended September 30, 2022 compared to a $2.1 million net gain on sale of investment securities for the same period in 2021, primarily due to market volatility period over period.

Servicing agreements relating to the Ginnie Mae mortgage-backed securities program require the Company to advance funds to make scheduled payments of principal, interest, taxes and insurance, if such payments have not been received from the borrowers. The Company will generally recover funds advanced pursuant to these arrangements under the FHA insurance and guarantee program. However, in the interim, the Company must absorb the cost of the funds it advances during the time the advance is outstanding. The Company must also bear the costs of attempting to collect on delinquent and defaulted mortgage loans. In addition, if a defaulted loan is not cured, the mortgage loan would be canceled as part of the foreclosure proceedings and the Company would not receive any future servicing income with respect to that loan. To the extent the mortgage loans underlying the Company's servicing portfolio experience delinquencies, the Company would be ~~requir~~edrequired to dedicate cash resources to comply with its obligation to advance funds, as well as incur additional administrative costs related to increases in collection efforts.

The Company originates residential mortgage loans and, pending market conditions and other factors outlined above, may utilize either or both "mandatory delivery" and "best efforts" forward loan sale commitments to sell those loans, servicing released. Loans sold are subject to repurchase in circumstances where documentation is deficient, the underlying loan becomes delinquent, or there is fraud by the borrower. Loans sold are subject to penalty if the loan pays off within a specified period following loan funding and sale. The Bank considers these potential recourse provisions to be a minimal risk, but has established a reserve under GAAP for possible repurchases. ~~There were no repurchases due to fraud by the borrower during the nine months ended September 30, 2022.~~ ~~The reserve amounted to $37 thousand at September 30, 2022 and is included in other liabilities on the Consolidated Balance Sheets.~~

~~In addition to having participated in the PPP program, which has largely ceased since the height of the COVID-19 pandemic, the~~ Company is a long-time originator of SBA loans and its practice is to sell the guaranteed portion of those loans at a premium. There was ~~$59~~$45 thousand of income from this source for the three months ended ~~September 30, 2022~~ ~~and $249 thousand for the nine months ended September 30, 2022~~March 31, 2023 compared to ~~$9 thousand and $291~~$181 thousand for the three ~~and nine~~ months ended ~~September 30, 2021.~~March 31, 2022. Activity in SBA loan sales to secondary markets can vary widely from quarter to quarter.

Noninterest Expense

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

Total noninterest expense totaled $40.6 million for the three months ended March 31, 2023, as compared to $31.0 million for the three months ended March 31, 2022, a 30.9% increase.

~~Total noninterest expense totaled $36.2~~Salaries and employee benefits were $24.2 million for the three months ended ~~September 30, 2022,~~March 31, 2023, as compared to $36.4 million for the three months ended September 30, 2021, a 0.5% decrease. Total noninterest expense totaled $126.2 million for the nine months ended September 30, 2022, as compared to $109.9 million for the nine months ended September 30, 2021, a 14.9% increase.

~~Salaries and employee benefits were $21.5 million for the three months ended September 30, 2022, as compared to $22.1~~$17.0 million for the same period in ~~2021, a decrease~~2022, an increase of ~~$0.6~~$7.2 million or ~~2.7%. Salaries and employee benefits were $60.4 million for the nine months ended September 30, 2022, as compared to $63.8 million for the nine months ended September 30, 2021, a decrease of 5.4%~~42.0%. The primary reason for ~~decrease for~~the difference between quarters was the one-time accrual reduction in the first ~~nine~~three months of 2022 ~~was the reduction~~ of ~~the~~ $5.0 million ~~accrual~~ related to stock-based compensation awards and deferred compensation for our former CEO and ~~Chairman in the first quarter of 2022. The accrual was originally recorded in the first quarter of 2019.~~Chairman. At ~~September 30, 2022,~~March 31, 2023, the Company's full time equivalent staff numbered ~~495~~486 as compared to 509 at ~~September 30, 2021.~~March 31, 2022.

Premises and equipment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ were $3.3 million ~~and $9.9 million~~ compared to ~~$3.9 million and $11.1~~$3.1 million, respectively, of which premises expenses were ~~$2.6 million and $7.9~~$2.8 million compared to ~~$3.2 million and $9.3~~$2.6 million, respectively.

Marketing and advertising expenses totaled ~~$1.2~~$636 thousand for the three months ended March 31, 2023 and $1.1 million for the same period in 2022. The decrease for the three month period was due to a reduction in advertising and promotions.

Data processing expenses were $3.1 million for the three months ended ~~September 30, 2022 and $1.0~~March 31, 2023, compared to $2.9 million for the same period in 2021. For the nine months ended September 30, 2022, marketing and advertising expense was $3.4 million compared to $2.9 million for the nine month period ended September 30, 2021. The increase for both the three and nine month periods were due to additional advertising, promotions and sponsorships.

Data processing expenses were $3.4 million and $9.1 million for the three and nine months ended September 30, 2022, respectively, compared to $2.9 million and $8.5 million for the same periods in 2021, respectively.2022.

Legal, accounting and professional fees were ~~$2.3 million and $6.0~~$3.3 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, compared to ~~$2.0 million and $8.5~~$1.6 million for the three ~~and nine~~ months ended ~~September 30, 2021, respectively,~~March 31, 2022, an increase of ~~$311 thousand and a decrease of $2.5 million for the comparative periods, respectively.~~$1.7 million. Legal fees and expenditures were ~~$227 thousand~~$1.6 million and ~~$357~~$205 thousand for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. ~~For the nine months ended September 30, 2022 and September 30, 2021 legal fees and expenditures were $723 thousand and $3.1 million, respectively. Legal expenses were greater in 2021~~The increase was primarily due to ~~the previously disclosed governmental investigations and related subpoenas and document requests, as well as our defense of the previously disclosed class action lawsuit. The amount~~a $959 thousand reversal of legal fees receivable relating to the previously settled litigations and ~~expenditures reported~~investigations as Directors & Officers insurance for the three and nine months ended September 30, 2022 are net of expected insurance coverage where we believe we have a high likelihood of recovery pursuant to our D&O insurance policies but does not include any offset for potential claims we may have in the future as to which recovery is impossible to predict at this time. See the "General" section for more information.2016-2017 years was fully depleted.

FDIC insurance expenses were ~~$1.3~~$1.5 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$1.5~~$1.1 million for the same period in ~~2021,~~2022, a 16.9% decrease. For the nine months ended September 30, 2022, FDIC expenses were $3.3 million compared to $5.6 million for the nine months ended September 30, 2021. The decreases for the first three and nine months of 2022 compared to the same periods in 2021 were due to a change in the institution's size, which improved metrics used in the calculation of fees.40.5% increase.

The major components of other expenses include ~~settlement expenses, broker fees,~~ franchise taxes, director compensation and insurance expense. Other expenses increased to ~~$3.1 million and $34.1~~$4.6 million for the three ~~and nine~~ months ended ~~September 30, 2022, respectively,~~March 31, 2023, from ~~$2.9 million and $9.5~~$4.3 million for the same ~~periods in 2021, respectively, for increases of 8.5% and 259.0%, respectively.The increase in the nine months ended September 30, 2022 as compared to the same nine month~~ period in ~~2021 was primarily due to the~~2022, an increase ~~in noninterest expense associated with the $22.9 million settlement expense in connection with the settlements with the SEC and FRB.~~of 7.3%.

The efficiency ratio, which measures the ratio of n~~oninterest~~noninterest expense to total revenue, was ~~40.59%~~51.55% for the ~~third~~first quarter of ~~2022,~~2023, as compared to ~~41.65%~~35.28% for the ~~third~~first quarter of ~~2021. For the first nine months of 2022, the efficiency ratio was 47.51% as compared to 39.78% for the same period in 2021.~~2022. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures. The ~~increase~~adverse change in the ~~nine~~efficiency ratio for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to the same ~~nine~~three month period in ~~2021~~2022 was ~~primarily~~driven by increased interest expense due to ~~the~~higher interest rates and an increase in noninterest expense which is partially associated with ~~the $22.9 million of settlement expenses in the second quarter, which were partially offset by~~ the salary accrual reduction in the first quarter of 2022 of $5.0 million related to stock-based compensation awards and deferred compensation for our former CEO and ~~Chairman in the first quarter of 2022.~~

Chairman.

As a percentage of average assets, total noninterest expense (annualized) was ~~1.27%~~1.44% for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~1.23%~~0.99% for the same period in ~~2021. As a percentage of average assets, total noninterest expense (annualized) was 1.41% for the nine months ended September 30, 2022 as compared to 1.26% for the same period in 2021.~~2022. The increase ~~for~~from the ~~nine month period~~first quarter of 2022 was primarily due to the salary accrual reduction in the first quarter of ~~the $22.9~~2022 of $5.0 million ~~of settlement expenses.~~related to stock-based compensation awards and deferred compensation for our former CEO and Chairman.

Income Tax Expense

The Company's ratio of income tax expense to pre-tax income ("effective tax rate") for the three months ended ~~September 30,~~March 31, 2023 and 2022 was 22.1% and ~~2021 was 24.2% and 25.4%~~23.4%, respectively. The total tax provision for the three months ended ~~September 30, 2022~~March 31, 2023 was ~~$11.9~~$6.9 million, compared to ~~$14.8~~$13.9 million for the three months ended ~~September 30, 2021.~~ March 31, 2022.

The effective tax rate for the nine months ended September 30, 2022 was 28.1% as compared to 25.4% for the same period in 2021. The total tax provision for the nine months ended September 30, 2022 was $38.6 million, compared to $46.1 million for the nine months ended September 30, 2021. The increasedecreases in the effective tax ~~rates over the comparative nine months ended September 30, 2022~~rate and ~~2021 was due to the SEC and FRB penalties totaling $22.9 million that are not deductible for~~ tax ~~purposes. Tax provisions declined~~provision over the comparative three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~were due to ~~decreases~~a reduction in ~~pre-tax income period over period.~~earnings before taxes and an update to our apportionment of revenues among the states in which we operate.

The Inflation Reduction Act of 2022 was signed into law by president Biden on August 16, 2022 which makes significant changes to the U.S. tax law, including the introduction of a corporate alternative minimum tax of 15% of the “adjusted financial statement income” of certain domestic corporations as well as a 1% excise tax on the fair market value of stock repurchases by certain domestic corporations, effective for tax years beginning in 2023. The Company currently does not expect the tax-related ~~provision~~provisions of the Inflation Reduction Act to have a material impact on our financial results.

FINANCIAL CONDITION

Summary

Total assets at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were ~~$10.7~~$11.1 billion and ~~$11.8~~$11.2 billion, respectively. The decrease in total assets over the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 was primarily due to the decrease in total interest-bearing deposits with banks and other short-term investments. The largest component of assets, total loans (excluding loans held for sale), had an amortized cost basis of ~~$7.3~~$7.7 billion at ~~September 30, 2022,~~March 31, 2023, a ~~3.4%~~1.3% increase from the balance at December 31, ~~2021.~~2022. The increase in loans over the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, was driven by growth from CRE loans and ~~C&I~~commercial and residential construction loans. Additionally, the Bank reduced its PPP loans from ~~$51.1~~$3.3 million at December 31, ~~2021~~2022 to ~~$7.2 million~~$709 thousand at ~~September 30, 2022~~March 31, 2023 through the forgiveness process. Loans held for sale were ~~$9.4~~$6.5 million at ~~September 30, 2022,~~March 31, 2023, compared to ~~$47.2~~$6.7 million at December 31, ~~2021,~~2022, a ~~80.1%~~3.7% decrease due to a decline in production.

Investment securities, at amortized cost net of the allowance for credit losses, totaled ~~$3.0~~$2.8 billion at ~~September 30, 2022~~March 31, 2023 as compared to ~~$2.6~~$2.9 billion at December 31, ~~2021, an increase~~2022, a decrease of ~~13.1%~~$58.6 million, or 2%, primarily ~~due to excess liquidity being invested at greater amounts in higher earning assets in response to higher rates~~driven by the pay down of principal on ~~investments available in the market.~~mortgage-backed securities and sales and calls of securities. During the first quarter of 2022, we evaluated our securities portfolio and determined that certain securities will be maintained for the life of the instrument and made a decision to transfer $1.1 billion of securities designated as available-for-sale ("AFS") to held-to-maturity ("HTM"), including $237.0 million of securities acquired in the first quarter of 2022 for which the intention to hold to maturity was finalized. The securities transferred ~~securities had~~with unrealized losses of $66.2 million, and, as of ~~September 30, 2022, $61.1~~March 31, 2023, $57.1 million remains in accumulated other comprehensive loss, and will be accreted ratably over the remaining lives of the securities through accumulated other comprehensive loss. The securities transferred were generally municipal bonds, corporate bonds, bonds that qualify for Community Reinvestment Act credit, and mortgage-backed securities with longer final maturity dates. At quarter-end, $1.1 billion, or ~~37.3%~~40.5% of the securities portfolio, was classified as securities HTM. The fair value of HTM securities was $111.5 million less than carrying value at March 31, 2023 compared to a difference of $125.4 million at December 31, 2022.

In terms of funding, total deposits at ~~September 30, 2022~~March 31, 2023 were ~~$8.8~~$7.5 billion down from ~~$10.0~~$8.7 billion at December 31, ~~2021,~~2022, a decline of ~~12.2%~~14.3%. Total borrowed funds (excluding customer repurchase agreements) were ~~$584.8 million~~$2.2 billion and ~~$369.7 million~~$1.0 billion at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively, the~~2022, respectively. The increase ~~of which~~in borrowings was ~~driven by~~primarily to meet funding needs, including to fund loan growth, ~~and deposit outflows as a result of an increase~~given the decrease in ~~disintermediation driven primarily by an increase in interest rates.~~deposits.

Total shareholders' equity was $1.2 billion as of ~~September 30, 2022~~March 31, 2023, ~~as compared to $1.4 billion as of~~and December 31, 2021, a decrease of $131.0 million. The decrease in shareholders' equity was primarily a result of the increase in the overall interest rate environment, which created unrealized losses in investment securities available-for-sale, which are recorded in accumulated other comprehensive income (loss). For the nine months ended September 30, 2022, other comprehensive loss was increased by $196.4 million. This reduction was partially offset by retained earnings which included earnings of $98.7 million less dividends declared of $41.6 million.2022.

The Company's capital ratios remain substantially in excess of regulatory minimum and buffer requirements. Regulatory ratios based on risk-weighted assets declined from the prior quarter as ~~non-risk~~zero percent-risk weighted cash was moved into higher risk-weighted securities and loans. The total risk based capital ratio was ~~16.10%~~14.74% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~16.15%~~14.94% at December 31, ~~2021.~~2022. The common equity tier 1 ("CET1") risk based capital ratio was ~~15.11%~~13.75% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~15.02%~~14.03% at December 31, ~~2021.~~2022. The tier 1 risk based capital ratio was ~~15.11%~~13.75% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~15.02%~~14.03% at December 31, ~~2021.~~2022. The tier 1 leverage ratio was ~~11.55%~~11.42% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~10.19%~~11.63% at December 31, ~~2021.~~2022.

The ratio of common equity to total assets was ~~11.39%~~11.20% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~11.40%~~11.02% at December 31, ~~2021~~2022 as ancommon equity levels remained almost constant while total assets decreased as a result of decreases in deposits and other short-term investments over the three months ended March 31, 2023. Book value per share was $39.92 at March 31, 2023, a 1.9% increase inover $39.18 at December 31, 2022 owing to adjustments to unrealized losses on investment securities AFS offset retained earnings growth over the nine months ended September 30, 2022. Book value per share was $38.02 at September 30, 2022, a 10.1% decrease over $42.28 at December 31, 2021 also owing to the increase in ~~unrealized losses on investment securities AFS between the~~ the period. In addition, the tangible common equity ratio was ~~10.52%~~10.36% at ~~September 30, 2022,~~March 31, 2023, as compared to ~~10.60%~~10.18% at December 31, ~~2021.~~2022. Tangible book value per share was ~~$34.77~~$36.57 at ~~September 30, 2022,~~March 31, 2023, a ~~10.8%~~2.0% decrease from ~~$38.97~~$35.86 at December 31, ~~2021.~~2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, excluding the impact of the balance of accumulated other comprehensive losses, adjusted book value per share was ~~$44.59~~$45.73 and ~~$42.73,~~$45.54, respectively, and adjusted tangible book value per share was ~~$41.34~~$42.38 and ~~$39.42,~~$42.22, respectively. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.

In order to be considered well-capitalized, the Bank must have a CET1 risk based capital ratio of 6.5%, a Tier 1 risk-based ratio of 8.0%, a total risk-based capital ratio of 10.0% and a leverage ratio of 5.0%. The Company and the Bank exceed all these requirements and satisfy the capital conservation buffer of 2.5% of CET1 ~~capital required to engage in capital distribution.~~capital. Failure to maintain the required capital conservation buffer would limit the ability of the Company and the Bank to pay dividends, repurchase shares or pay discretionary bonuses.

Loan Portfolio

Loans, net of amortized deferred fees and costs, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 by major category are summarized below.


		September 30, 2022				December 31, 2021					March 31, 2023				December 31, 2022
(dollars in thousands)		Amount		%		Amount		%
(dollars in thousands, except amounts in the footnote)										(dollars in thousands, except amounts in the footnote)	Amount		%		Amount		%
Commercial	Commercial	$	1,415,998	19	%	$	1,354,317	19	%	Commercial	$	1,482,983	19	%	$	1,487,349	19	%
PPP loans	PPP loans	7,241		—	%	51,105		1	%	PPP loans	709		—	%	3,256		—	%
Income producing - commercial real estate	Income producing - commercial real estate	3,668,720		50	%	3,385,298		48	%	Income producing - commercial real estate	3,970,903		51	%	3,919,941		51	%
Owner occupied - commercial real estate	Owner occupied - commercial real estate	1,091,283		15	%	1,087,776		15	%	Owner occupied - commercial real estate	1,095,699		14	%	1,110,325		15	%
Real estate mortgage - residential	Real estate mortgage - residential	71,731		1	%	73,966		1	%	Real estate mortgage - residential	73,677		1	%	73,001		1	%
Construction - commercial and residential	Construction - commercial and residential	858,100		12	%	896,319		13	%	Construction - commercial and residential	948,877		13	%	877,755		12	%
Construction - C&I (owner occupied)	Construction - C&I (owner occupied)	139,238		2	%	159,579		2	%	Construction - C&I (owner occupied)	109,013		1	%	110,479		1	%
Home equity	Home equity	51,396		1	%	55,811		1	%	Home equity	53,829		1	%	51,782		1	%
Other consumer	Other consumer	791		—	%	1,427		—	%	Other consumer	1,986		—	%	1,744		—	%
Total loans	Total loans	7,304,498		100	%	7,065,598		100	%	Total loans	7,737,676		100	%	7,635,632		100	%
Less: allowance for credit losses	Less: allowance for credit losses	(75,767)				(74,965)				Less: allowance for credit losses	(78,377)				(74,444)
Net loans (1)	Net loans (1)	$	7,228,731			$	6,990,633			Net loans (1)	$	7,659,299			$	7,561,188

(1)Excludes accrued interest receivable of ~~$37.1~~$43.9 million and ~~$38.6~~$43.5 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~,2022, respectively, which is recorded in other assets.

In its lending activities, the Company seeks to develop and expand relationships with clients whose businesses and individual banking needs will grow with the Bank. Superior customer service, local decision making, and accelerated turnaround time from application to closing have been significant factors in growing the loan portfolio and meeting the lending needs in the markets served, while maintaining sound asset quality.

Loans outstanding were ~~$7.3~~$7.7 billion at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$238.9~~$102.0 million, or ~~3.4%~~1.3%, from the balance at December 31, ~~2021.~~2022. PPP loans outstanding were ~~$7.2 million~~$709 thousand at ~~September 30, 2022,~~March 31, 2023, a decrease of ~~$43.9~~$2.5 million, or ~~85.8%~~78.2%, from the ~~$51.1~~$3.3 million outstanding at December 31, 2021. With PPP loans excluded, loans outstanding were $7.3 billion at September 30, 2022, an increase of $282.8 million from December 31, 2021. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.2022.

The loan portfolio continued to grow in the ~~third~~first quarter of ~~2022,~~2023, due primarily to our income producing and commercial and residential construction CRE loan originations and ~~C&I loan originations.~~fundings. Market interest rates continue to increase in connection with rate increases implemented by the Federal Reserve. Multi-family commercial real estate leasing in the Bank's market area have held up ~~well, particularly for well-located projects close to the District of Columbia. Overall,~~well. Although, commercial real estate values have generally held up well, ~~but~~ we continue to be cautious of the capitalization rates at which some assets are trading and as a result we are being cautious with our valuations. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Valuations associated with the moderately priced housing market have generally been increasing ~~with well-located,~~albeit at a slower pace. Well-located and Metro-accessible properties ~~garnering~~continue to garner a premium. We continue to ~~believe that there are~~see opportunities for growth in the commercial real estate ~~market,~~market; as ~~evidenced by~~always we prudently evaluate each of these transactions.

The Company's loan portfolio is substantially concentrated with borrowers or on collateral located in the ~~increase~~Washington, D.C. metro area, including "Suburban Washington, D.C.," which comprises Prince George's and Montgomery counties in ~~CRE~~Maryland and ~~C&I loans over~~Alexandria, Arlington, Fairfax, Frederick, Loudoun and Prince William counties in Virginia. At March 31, 2023, 50.7%, 32.5%, 5.5% and 11.2% of the ~~quarter.~~loan portfolio, as a percentage of total principal, was concentrated in Suburban Washington, D.C., Washington, D.C., other Maryland counties and other locations in the United States, respectively. At December 31, 2022, 49.5%, 33.3%, 5.8% and 11.5% of the loan portfolio was concentrated in Suburban Washington, D.C., Washington, D.C., other Maryland counties and other locations in the United States, respectively.

The following table sets forth the time to contractual maturity of the loan portfolio as of ~~September 30, 2022:~~March 31, 2023:


		September 30, 2022											March 31, 2023
(dollars in thousands)	(dollars in thousands)	Total		One Year or Less		Over One Year to Five Years		Over Five Years to Fifteen Years		Over Fifteen Years		(dollars in thousands)	Total		One Year or Less		Over One Year to Five Years		Over Five Years to Fifteen Years		Over Fifteen Years
Commercial	Commercial	$	1,415,998	$	527,404	$	716,502	$	164,510	$	7,582	Commercial	$	1,482,983	$	607,311	$	711,872	$	160,119	$	3,681
PPP loans	PPP loans	7,241		2,457		4,784		—		—		PPP loans	709		—		709		—		—
Income producing - commercial real estate	Income producing - commercial real estate	3,668,720		1,444,005		1,730,828		493,887		—		Income producing - commercial real estate	3,970,903		1,384,881		2,104,085		481,937		—
Owner occupied - commercial real estate	Owner occupied - commercial real estate	1,091,283		50,621		411,787		487,002		141,873		Owner occupied - commercial real estate	1,095,699		54,169		455,676		438,808		147,046
Real estate mortgage - residential	Real estate mortgage - residential	71,731		12,357		44,429		2,961		11,984		Real estate mortgage - residential	73,677		16,213		42,918		3,286		11,260
Construction - commercial and residential	Construction - commercial and residential	858,100		368,826		446,636		27,259		15,379		Construction - commercial and residential	948,877		489,208		392,370		44,144		23,155
Construction - C&I (owner occupied)	Construction - C&I (owner occupied)	139,238		15,258		32,397		65,111		26,472		Construction - C&I (owner occupied)	109,013		9,107		10,414		36,351		53,141
Home equity	Home equity	51,396		2,978		5,895		906		41,617		Home equity	53,829		4,393		3,764		1,827		43,845
Other consumer	Other consumer	791		264		358		—		169		Other consumer	1,986		1,099		235		—		652
Total loans	Total loans	$	7,304,498	$	2,424,170	$	3,393,616	$	1,241,636	$	245,076	Total loans	$	7,737,676	$	2,566,381	$	3,722,043	$	1,166,472	$	282,780
Loans with:	Loans with:											Loans with:
Predetermined fixed interest rate	Predetermined fixed interest rate	$	2,910,601	$	670,316	$	1,434,121	$	701,519	$	104,645	Predetermined fixed interest rate	$	2,855,610	$	644,917	$	1,432,612	$	677,562	$	100,519
Floating or Adjustable interest rate	Floating or Adjustable interest rate	4,393,897		1,753,854		1,959,495		540,117		140,431		Floating or Adjustable interest rate	4,882,066		1,921,464		2,289,431		488,910		182,261
Total loans	Total loans	$	7,304,498	$	2,424,170	$	3,393,616	$	1,241,636	$	245,076	Total loans	$	7,737,676	$	2,566,381	$	3,722,043	$	1,166,472	$	282,780

Deposits and Other Borrowings

The principal sources of funds for the Bank are core deposits, consisting of demand deposits, money market accounts, NOW accounts, savings accounts, and certificates of ~~deposit.~~deposits. The deposit base includes transaction accounts, time and savings accounts, which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities, as well as an attractive source of lower cost funds. To meet funding needs, including during periods of high loan demand and seasonal variations in core deposits, the Bank regularly utilizes alternative funding sources such as ~~brokered deposits from regional and national brokerage firms and IntraFi Network, LLC ("IntraFi"),~~ secured borrowings from the ~~Federal Home Loan Bank of Atlanta (the "FHLB"), and~~FHLB, federal funds purchased lines of credit from correspondent ~~banks.~~banks and brokered deposits from regional and national brokerage firms. Additionally, the Bank has participated in borrowing from the BTFP established by Federal Reserve Bank in March 2023.

For the three months ended ~~September 30, 2022,~~March 31, 2023, total deposits decreased by $1.2 billion as compared to December 31, ~~2021.~~2022. The decline consists of ~~$349.2~~$903.0 million in noninterest bearing deposits and ~~in $869.0~~$346.9 million in interest bearing deposits as a result of an increase of disintermediation driven primarily by an increase in interest rates. Deposits have stabilized as of April 30, 2023 compared to March 31, 2023.

No single depositor represented more than 10% of total deposits as of March 31, 2023. The ten largest depositors not associated with brokered pass-through relationships represented approximately 11% of total deposits in the aggregate as of March 31, 2023. The Company maintains a significant deposit relationship with a third-party payments processor, whose business results in deposit inflows and outflows on an ongoing basis, which contributes to variations in period end compared to average deposit balances.

5647

~~The~~From time to time, when appropriate in order to fund strong loan demand or account for increased deposit outflow, the Bank accepts brokered time deposits, generally in denominations of less than $250 thousand, from a regional brokerage firm and other national brokerage networks, including IntraFi. Additionally, the Bank participates in the Certificates of Deposit Account Registry Service (the "CDARS") and the Insured Cash Sweep product ("ICS"), which provide for reciprocal ("two-way") transactions among banks facilitated by IntraFi for the purpose of maximizing FDIC insurance. The ~~Bank also is able to obtain one-way CDARS~~total of reciprocal deposits and participates in IntraFi's Insured Network Deposit ("IND"). At September 30, 2022, total deposits included $2.5 billion of brokered deposits (excluding the CDARS and ICS two-way) which represented 28.0%at March 31, 2023 was $841.8 million (11.3% of total ~~deposits. At~~deposits) as compared to $782.2 million (9.0% of total deposits) at December 31, 2021, total brokered deposits (excluding the CDARS and ICS two-way) were $2.6 billion, or 26.5% of total deposits. The CDARS and ICS two-way component represented $728.7 million, or 8.3%, of total deposits and $701.5 million, or 7.0%, of total deposits at September 30, 2022 and December 31, 2021, respectively.2022. These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the ~~Bank.~~Bank, but there can be no assurance that they will continue to be adequate or appropriate to meet our liquidity needs. The Bank also is able to obtain one-way CDARS deposits and participates in IntraFi's Insured Network Deposit ("IND"). The Bank had $702.4 million and $1.1 billion of IND brokered deposits as of March 31, 2023 and December 31, 2022, respectively. However, to the extent that the condition ~~regulatory position~~ or reputation of the Company or Bank deteriorates, or to the extent that there are significant changes in market interest rates which the Company and Bank do not elect to match, or if aggregate funding available to banks change due to changes in the marketplace, we may experience an outflow of brokered ~~deposits.~~deposits or difficulty in obtaining them in the future. In that event we would be required to obtain alternate sources for ~~funding.~~funding, which may increase our cost of funds and negatively impact our net interest margin.

At ~~September 30,~~March 31, 2023 and December 31, 2022, total deposits included $2.1 billion and $2.3 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 28.5% and 26.5% of total deposits, respectively.

At March 31, 2023 and December 31, 2022, total deposits included estimated totals of $3.2 billion and $4.4 billion of uninsured deposits, which represented 43% and 51% of total deposits, respectively. The decrease in the percentage of the Bank's deposits that are uninsured was in part due to customers' increased use of the products facilitated by IntraFi that enable customers to maximize FDIC deposit insurance coverage for their deposits.

At March 31, 2023, the Company had ~~$2.9~~$2.2 billion in noninterest bearing demand deposits, representing ~~33%~~30.1% of total deposits, compared to ~~$3.3~~$3.2 billion of noninterest bearing demand deposits at December 31, ~~2021,~~2022, or ~~33%~~36.2% of total deposits. The decrease was primarily attributable to outflows from noninterest bearing deposits and savings/money market accounts which was partially offset by the increase in time deposits. Average noninterest bearing deposits of total deposits for the three months ended ~~September 30,~~March 31, 2023 and 2022 were 37.4% and ~~2021 were 38% and 34%~~36.1%, respectively. The Bank also offers business NOW accounts and business savings accounts to accommodate those customers who may have excess short term cash to deploy in interest earning assets.

As an enhancement to the basic noninterest bearing demand deposit account, the Company offers a sweep account, or "customer repurchase agreement," allowing qualifying businesses to earn interest on short-term excess funds that are not suited for either a certificate of deposit or a money market account. The balances in these accounts were ~~$21.5~~$37.9 million at ~~September 30, 2022~~March 31, 2023 compared to ~~$23.9~~$35.1 million at December 31, ~~2021.~~2022. Customer repurchase agreements are not deposits and are not insured by the FDIC, but are collateralized by U.S. agency securities and/or U.S. agency backed mortgage-backed securities. These accounts are particularly suitable to businesses with significant fluctuation in the levels of cash flows. Attorney and title company escrow accounts are examples of accounts which can benefit from this product, as are customers who may require collateral for deposits in excess of FDIC insurance limits but do not qualify for other pledging arrangements. This program requires the Company to maintain a sufficient investment securities level to accommodate the fluctuations in balances which may occur in these accounts.

At ~~September 30, 2022~~March 31, 2023 the Company had ~~$649.2 million~~$1.3 billion in time deposits ~~a decrease~~an increase of ~~$79.8~~$554.3 million from year end December 31, ~~2021.~~2022. The Bank raises and renews time deposits through its branch network, for its public funds customers, and through brokered certificates of deposits ("CDs") to meet the needs of its community of savers and as part of its interest rate risk management and liquidity planning. Throughout the year, the Bank raised rates in most of its time deposit accounts in response to the ~~raising~~increased disintermediation of deposits, and the current rate environment ~~and the desire to maintain stability in its short term funding.~~with continued rate increases.

At ~~September 30, 2022 and~~ ~~December 31, 2021, the~~The Company had ~~time deposits that were in excess of the FDIC's $250 thousand insurance limit totaling~~ ~~$93.2 million~~ ~~and $152.5 million, respectively.~~

~~The Company had an~~no outstanding ~~balance of $15 million~~balances under its federal funds lines of credit provided by correspondent banks (which are unsecured) at ~~September 30, 2022~~ ~~and no outstanding balance at December~~March 31, ~~2021. At September 30, 2022~~2023 and December 31, ~~2021,~~2022. At March 31, 2023 and December 31, 2022, the Company had ~~$500 million~~$1.3 billion and ~~$300~~$975.0 million, respectively, of FHLB short-term advances borrowed as well as an $800.0 million one year fixed rate advance, maturing on March 26, 2024 from the BTFP as part of the overall asset liability strategy and to support loan growth. Outstanding FHLB advances are secured by collateral consisting of specifically pledged marketable investment securities and a blanket lien on qualifying loans in the Bank's commercial mortgage, residential mortgage and home equity loan portfolios. Outstanding BTFP advances are secured by collateral consisting of specifically pledged qualifying investment securities.

Long-term borrowings outstanding at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 included the Company's August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024.

5748

Liquidity Management

Liquidity is a measure of the Company's and Bank's ability to meet loan demand and to satisfy depositor withdrawal requirements in an orderly manner. The Bank's primary sources of liquidity consist of cash and cash balances due from correspondent banks, excess reserves at the Federal Reserve, loan repayments, federal funds sold and other short-term investments, maturities and sales of investment securities, income from operations and new core deposits into the Bank. Approximately ~~60%~~59% of the Company's investment portfolio of debt securities is held in an available-for-sale status which allows for flexibility, subject to holdings held as collateral for customer repurchase agreements and public funds, to generate cash from sales as needed to meet ongoing loan demand. Investment securities that are classified as held-to-maturity can also be used as collateral to pledge against additional borrowings. These sources of liquidity are considered primary and are supplemented by the ability of the Company and Bank to borrow funds or issue brokered deposits, which are termed secondary sources of liquidity and which are substantial.

~~Additionally,~~The following table summarizes the Company's secondary sources of liquidity in use and available at March 31, 2023:


(dollars in thousands, except amount in the footnotes)	Secondary Sources of Liquidity in Use		Secondary Sources of Liquidity Available
March 31, 2023:
Unsecured brokered deposits (1)	$	1,069,510	$	1,688,929
FHLB secured borrowings	1,313,801		653,946
FRB:
BTFP secured borrowings	800,000		37,182
Discount window secured borrowings	—		606,201
Federal funds lines	—		155,000
Customer repurchase agreements	37,854		—
Raymond James repurchase agreement	—		18,050

Unpledged assets: (2)
Interest-bearing deposits with banks	N/A		41,731
Investment securities	N/A		1,075,303
Total	$	3,221,165	$	4,276,342

(1)The available liquidity from the unsecured brokered deposits represents unsecured funds under one-way CDARS and ICS brokered deposits that would require then current market rates and be dependent on the availability of funds in those networks.

(2)Comprise unencumbered assets that could be liquidated or used as collateral to obtain additional liquidity through debt financing.

The Bank cancan purchase up to $155 million in federal funds on an unsecured basis from its correspondents, against which there was ~~$15 million~~no outstanding amount at ~~September 30, 2022,~~March 31, 2023, and can obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of ~~$1.6~~$1.7 billion, against which there was ~~$19.5~~$53.2 million outstanding at ~~September 30, 2022.~~March 31, 2023. The Bank also has ~~a commitment from IntraFi to place up to $1.8 billion~~custodial agreements with various broker-dealers through IntraFi's IND program which provided $702.4 million of brokered deposits ~~from its IND program in amounts requested by the Bank, as compared to an actual balance of $1.4 billion~~ at ~~September 30, 2022.~~March 31, 2023. At ~~September 30, 2022,~~March 31, 2023, the Bank was also eligible to ~~make~~draw on advances from the FHLB up to ~~$1.1~~$2.0 billion based on ~~loans~~assets pledged as collateral to the FHLB, of which there was ~~$500 million~~$1.3 billion outstanding at ~~September 30, 2022.~~ March 31, 2023. The Bank had posted additional collateral to the FHLB in the first quarter of 2023 to increase its eligibility for advances to meet its ongoing liquidity needs and expects to continue to utilize and expand this source of funding in the future.

In March 2023, the Federal Reserve Board announced that it would make available additional funding to eligible depository institutions through the creation of the BTFP. The BTFP provides eligible depository institutions, including the Bank, an additional source of liquidity. At March 31, 2023, the Bank had eligible collateral and borrowing capacity with the BTFP of $837.2 million on assets that have been pledged, of which $800.0 million was outstanding. This alternative source of liquidity will be utilized for balance sheet optimization. The program permits advances to be requested until March 2024, unless extended by the Federal Reserve Bank. There can be no assurance, however, that the opportunity to further borrow from the BTFP will continue to be available beyond March 2024. Once the BTFP program terminates, we may be required to rely on other, potentially more expensive, sources of liquidity.

The Bank's aggregate borrowing capacity at March 31, 2023 was $1.7 billion which consists of $688.9 million of additional aggregate capacity to borrow from the Federal Home Loan Bank of Atlanta ("FHLB") and Bank Term Funding Program ("BTFP") on assets that have been pledged. The Bank also has unencumbered securities totaling approximately $1.1 billion available for pledging to the FHLB or the BTFP for additional borrowing capacity.

The Bank may enter into repurchase agreements as well as obtain additional borrowing capabilities from the FHLB, provided adequate collateral exists to secure these lending relationships. The Bank also has a back-up borrowing facility through the Discount Window at the Federal Reserve ~~Bank of Richmond ("Federal Reserve Bank").~~Bank. This facility, which amounts to approximately ~~$668~~$606.2 million, is collateralized with specific loan assets identified to the Federal Reserve Bank. It is anticipated that, except for periodic testing, this facility would be utilized for contingency funding only.

The loss of deposits through disintermediation is one of the greater risks to liquidity. Disintermediation occurs most commonly when rates rise and depositors withdraw deposits seeking higher rates infrom alternative savings and investment sources than the Bank may offer. The Bank was founded under a philosophy of relationship banking and, therefore, believes that it has less of an exposure to disintermediation and resultant liquidity concerns than do many banks.sources. The Bank makes competitive deposit interest rate comparisons weekly and ~~feels~~makes adjustments from time to time to ensure its interest rate offerings are competitive.

~~As evidenced by recent increases in market rates, there~~There is, however, a risk that the cost of funds will increase significantly as the Bank competes for deposits or that some deposits would be lost if rates were to increase and the Bank elected not to remain competitive with its deposit rates. Under those conditions, the Bank believes that it is well positioned to use other sources of funds such as FHLB borrowings, brokered deposits, repurchase agreements and correspondent ~~banks'~~banks’ lines of credit to offset a decline in deposits in the short ~~run.~~run, but the use of such sources may negatively impact our net interest margin and our earnings, as the use of such sources did in the first quarter of 2023, and there can be no assurance that they will be adequate to meet our liquidity needs. However, the market for customer and brokered deposits is highly competitive and the risk of disintermediation is high, particularly in a rising or high interest rate environment. Most of our noninterest bearing deposits are operating deposits or compensating balances that are held in connection with lending relationships.. The potential outflow of such deposits is a risk unless we pay a more competitive rate of interest on them, which could significantly and negatively impact the Bank’s interest expense and net interest margin, as the transfer of some noninterest-bearing deposits to interest-bearing deposits did in the first quarter of 2023. Over the long-term, an adjustment in assets and change in business emphasis could compensate for a potential loss of deposits. The Bank also maintains a marketable investment portfolio to provide flexibility in the event of significant liquidity needs. The ~~Asset Liability Committee of the Bank (the "ALCO") and the full Board of Directors of the Bank have~~ALCO has adopted policy guidelines, which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan. ~~Additionally, as noted above, if the condition, regulatory treatment or reputation of the~~

The Company or Bank deteriorates, we may experience an outflow of brokered deposits as a result of our inability to attract them or to accept or renew them. In that event, we would be required to obtain alternate sources for funding.

~~The Company~~believes it maintains sufficient primary and secondary sources of liquidity to fund its operations. ~~Average deposits increased 6.4%~~ ~~for the first nine months of 2022 as compared to the same period in 2021.~~ We ~~also~~ maintain a liquid investment portfolio outside of our ~~Held-to-Maturity~~held-to-maturity investments, including overnight liquidity. In the first ~~nine~~three months of ~~2022,~~2023, average short term liquidity was ~~$1.4~~$2.2 billion,, which is above ~~EagleBank's~~the Bank's average ~~needs, and secondary~~needs. Secondary sources of liquidity at ~~September 30, 2022~~March 31, 2023 were ~~$2.6 billion.~~

~~At September 30, 2022, under the Bank's liquidity formula, it had~~ $4.3 billion, which include the FHLB, BTFP, other insured brokered deposit sweep programs, unpledged securities, Fed funds lines, and the FRB Discount Window. At March 31, 2023, the Company held total unpledged securities with a fair value of ~~primary~~$1.1 billion, including $488.8 million of available-for-sale securities and ~~secondary liquidity sources. The amount is deemed adequate to meet current and projected funding needs.~~$630.5 million of held-to-maturity securities.

Commitments and Contractual Obligations

Loan commitments outstanding and lines and letters of credit at ~~September 30, 2022~~March 31, 2023 are as follows:


(dollars in thousands)
Unfunded loan commitments	$	~~2,223,503~~2,332,199
Unfunded lines of credit	~~109,217~~110,355
Letters of credit	~~101,407~~93,469
Total	$	~~2,434,127~~2,536,023

Unfunded loan commitments are agreements whereby the Bank has made a ~~commitment and the borrower has accepted the~~ commitment to lend to a customer as long as there is satisfaction of the terms or conditions established in the ~~contract.~~contract and the borrower has accepted the commitment. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee before the commitment period is extended. In many instances, borrowers are required to meet performance milestones in order to draw on a commitment as is the case in construction loans, or to have a required level of collateral in order to draw on a commitment as is the case in asset based lending credit facilities. Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements. As of ~~September 30, 2022,~~March 31, 2023, unfunded loan commitments included ~~$17.9~~$2.2 million related to interest rate lock commitments on residential mortgage loans and were of a short-term nature. The pipeline of loan commitments remains strong.

Unfunded lines of credit are agreements to lend to a customer as long as there is no violation of the terms or conditions established in the contract. ~~Commitments~~Lines of credit generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since ~~commitments~~lines of credit may expire without being drawn, the total ~~commitment~~unfunded line of credit amount does not necessarily represent future cash requirements.

Letters of credit include standby and commercial letters of credit. Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance by the Bank's customer to a third party. Standby letters of credit generally become payable upon the failure of the customer to perform according to the terms of the underlying contract with the third party. Standby letters of credit are generally not drawn. Commercial letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn when the underlying transaction is consummated between the customer and a third party. The contractual amount of these letters of credit represents the maximum potential future payments guaranteed by the Bank. The Bank has recourse against the customer for any amount it is required to pay to a third party under a letter of credit, and holds cash and or other collateral on those standby letters of credit for which collateral is deemed necessary.

Asset/Liability Management and Quantitative and Qualitative Disclosures about Market Risk

A fundamental risk in banking is exposure to market risk, or interest rate risk, since a bank's net income is largely dependent on net interest income. The Bank's ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and overseen by the Audit Committee and the full Board of Directors and through review of detailed reports discussed quarterly. In its consideration of risk limits, the ALCO considers the impact on earnings and capital, the level and direction of interest rates, liquidity, local economic conditions, outside threats and other factors. Banking is generally a business of managing the maturity and repricing mismatch inherent in its asset and liability cash flows ~~and~~ to provide net interest income growth consistent with the Company's profit objectives.

During the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, the Company was able to produce a net interest margin of ~~2.86%~~2.77% as compared to ~~2.91%~~2.65% during the same period in ~~2021~~2022 and ~~continue~~continues to manage its overall interest rate risk ~~position~~.position.

The Company, through its ALCO and ongoing financial management practices, monitors the interest rate environment in which it operates and adjusts the rates and maturities of its assets and liabilities to remain competitive and to achieve its overall financial objectives subject to established risk limits. In the current and expected future interest rate environment, the Company has been maintaining its investment portfolio to manage the balance between yield and risk in its portfolio ofof mortgage-backed securities. Further, the Company has been ~~managing~~principally collecting cash flows off of the investment portfolio to provide ~~liquidity and some additional yield over cash.~~liquidity. Additionally, the Company has limited call risk in its U.S. agency investment portfolio. At ~~September 30, 2022,~~March 31, 2023, the amortized cost less allowance of the investment portfolio ~~increased~~decreased by ~~$345.9~~$58.6 million, or ~~13.1%~~2.0%, as compared to the balance at December 31, ~~2021.~~2022.

The percentage mix of municipal securities was 5% of total investments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~.2022. The portion of the portfolio invested in mortgage-backed ~~securities~~securities was ~~64%~~63% at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022. The portion of the portfolio invested in U.S. agency investments was 26% and 25% ~~and 24%~~ at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. Shorter duration floating rate corporate bonds were ~~4% and~~ 5% of total investments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021, respectively~~.2022. At March 31, 2023, these corporate bonds included $95.8 million of subordinated debt issued by 23 banking organizations. If any of these banking organizations were to enter into bankruptcy or other insolvency proceedings, we could experience losses that may be material to our results of operations and financial condition. U.S. treasury bonds were 2% of total investments at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~ 2022. The duration of the investment portfolio ~~increased~~decreased to 4.7 years at March 31, 2023 from 4.8 years at ~~September 30, 2022 from 4.3 years at~~ December 31, ~~2021~~.2022.

The re-pricing duration of the loan portfolio was 14 mo~~nths at September 30, 2022~~ ~~and 18~~was 13 months at March 31, 2023 and 13 months at December 31, ~~2021~~2022 with fixed rate loans amounting to 40%37% of total loans at ~~September 30, 2022~~March 31, 2023 and ~~43%~~38% at December 31, ~~2021~~.2022. Variable and adjustable rate loans comprised ~~60%~~63% of total loans at ~~September 30, 2022~~March 31, 2023 and ~~57%~~62% at December 31, ~~2021~~,2022, respectively. Variable rate loans are generally indexed to either the one month LIBOR interest rate, SOFR, or the Wall Street Journal prime interest rate, while adjustable rate loans are indexed primarily to the five year U.S. ~~Treasu~~ryTreasury interest rate.

The duration of the deposit portfolio ~~decreased~~increased as rates rose, measuring ~~30 months~~ 36 months at ~~September 30, 2022~~March 31, 2023 and 4129 months at December 31, ~~2021.~~2022.

The net unrealized loss before income tax on the investment securities available-for-sale portfolio was ~~$224.1~~$181.2 million and ~~$18.6~~$205.2 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively. The change is primarily due to ~~higher interest rates.~~improved market conditions and related economic factors. At ~~September 30, 2022,~~March 31, 2023, the net unrealized loss ~~position~~position represented 8%10.3% of the investment portfolio's book value.

Management relies on the use of models in order to measure the expected future impact on interest income of various interest rate environments, as described above. Through its modeling, the Company makes certain estimates that may vary from actual results. There can be no assurance that the Company will be able to successfully achieve its optimal asset liability mix, given competitive pressures, customer preferences and the inability to forecast future interest rates and movements with complete accuracy.

~~In a normal rising~~Although the Company has experienced net interest margin compression during the three months ended March 31, 2023, the Company's interest rate ~~environment,~~risk modeling shows net interest margin expansion in an increasing rate environment. The model's prediction is the ~~Company expects its~~result of increases in both interest income on variable and adjustable rate loans ~~to increase~~ and ~~the~~ interest expense on its deposit liabilities, ~~to increase~~ based on our funding needs, market conditions and certain contractual ~~obligations.~~obligations with no changes in the mix of assets or liabilities. Interest rate floors on certain of the Company's variable and adjustable rate loans may provide asset yield protection in a low-interest rate environment; however, they are also expected to delay the impact of increases to market rates on interest income until such floors have been exceeded. The weighted average rate of the Company's variable rate loans increased by approximately ~~179~~41 basis points from December 31, ~~2021~~2022 to ~~September 30, 2022~~March 31, 2023 in connection with the ~~300~~50 basis points in Fed Funds rate hikes caused by actions taken by the Federal Reserve Bank. At December 31, ~~2021,~~2022, the Company had a portfolio of ~~$2.8~~$3.1 billion of variable and adjustable rate loans that were subject to interest rate floors with a weighted average rate of ~~4.30%~~7.08%. At ~~September 30, 2022,~~March 31, 2023, only ~~$278.4~~$233.0 million of loans held by the Company were earning interest at their floor rate, and the majority of those are expected to reset at rates higher than their floor at their next rate reset date. Additionally, the Company’s cost of interest bearing deposits increased by ~~157~~91 basis points across its interest-bearing deposits, which comprise ~~67%~~70% of its total deposits, at ~~September 30, 2022.~~March 31, 2023.

~~One of the tools used by the Company to manage its interest rate risk is the static gap analysis presented below.~~ The Company ~~also~~ employs an earnings simulation model on a quarterly basis to monitor its interest rate sensitivity and risk and to model its balance sheet cash flows and the related income statement effects in different interest rate scenarios. The model utilizes current balance sheet data and attributes and is adjusted for assumptions as to investment maturities (including prepayments), loan prepayments, interest rates, deposit decay rates, and the level of noninterest income and noninterest expense. The data is then subjected to a "shock test" which assumes a simultaneous change in interest rates up 100, 200, 300, and 400 basis points or down 100, 200, and ~~200,~~300 basis points, along the entire yield curve, but not below zero. The results are analyzed as to the impact on net interest income, net income and the market equity over the next twelve period from ~~September 30, 2022.~~March 31, 2023. In addition to analysis of simultaneous changes in interest rates along the yield curve, changes based on interest rate "ramps" is also performed. This analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.

For the analysis presented below, at ~~September 30, 2022,~~March 31, 2023, the simulation assumes a 45 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in a decreasing interest rate shock scenario with a floor of 0 basis points (compared to a floor of 10 basis points in the same analysis as of ~~September 30, 2021)~~March 31, 2022), and assumes a 45 basis point change in interest rates on money market and interest bearing transaction deposits for each 100 basis point change in market interest rates in an increasing interest rate shock scenario. The Bank does have deposits with contractual terms which means these deposits will change 100 basis points for every 100 basis points change in market rates. ~~This had the effect of making~~Thus, the overall measure of the correlation between deposit costs and market rate changes ~~be measured at~~was approximately 70%.

The Company's analysis at ~~September 30, 2022~~March 31, 2023 shows a moderate effect on net interest income (over the next 12 months) as well as a moderate effect on the economic value of equity when interest rates are shocked down 100, 200, and 300 basis points and up 100, 200, 300, and 400 basis points. This moderate impact is due substantially to the significant level of variable rate and repriceable assets and liabilities and related shorter relative ~~durations.~~durations. The repricing duration of the investment portfolio at ~~September 30, 2022~~March 31, 2023 is ~~4.5~~4.7 years, the loan portfolio ~~1.2~~1.1 years, the interest bearing deposit portfolio ~~2.5~~3.0 years, and the borrowed funds portfolio 0.4 years.

The following table reflects the result of simulation analysis on the ~~September 30, 2022~~March 31, 2023 asset and liabilities balances:


Change in interest rates (basis points)	Change in interest rates (basis points)		Percentage change in net interest income	Percentage change in net income	Percentage change in market value of portfolio equity	Change in interest rates (basis points)		Percentage change in net interest income	Percentage change in net income	Percentage change in market value of portfolio equity
+	+	400	19.5%	33.1%	5.1%	+	400	26.9%	56.4%	2.6%
+	+	300	14.9%	25.3%	4.6%	+	300	20.9%	43.7%	2.5%
+	+	200	10.3%	17.5%	3.8%	+	200	15%	31.4%	2.3%
+	+	100	5.7%	9.7%	2.6%	+	100	9%	18.7%	1.5%
		—	—	—	—		—	—	—	—
-	-	100	(4.9)%	(8.3)%	(4.3)%	-	100	(1.3)%	(2.6)%	(2.5)%
-	-	200	(10.2)%	(17.3)%	(11.5)%	-	200	(4.3)%	(8.8)%	(7.2)%
-	-	300	(13.5)%	(22.9)%	(21.8)%	-	300	(6.4)%	(13.3)%	(15.2)%

The results of the simulation are within the relevant policy limits adopted by the Company for percentage change in net interest income. For net interest income, the Company has adopted a policy limit of -10% for a 100 basis point change, -12% for a 200 basis point change, -18% for a 300 basis point change and -24% for a 400 basis point change. For the market value of equity, the Company has adopted a policy limit of -12% for a 100 basis point change, -15% for a 200 basis point change, -25% for a 300 basis point change and -30% for a 400 basis point change. The changes in net interest income, net income and the economic value of equity in higher interest rate shock scenarios at ~~September 30, 2022~~March 31, 2023 are not ~~considered~~believed to be excessive. The impact of ~~-4.9%~~-1.3% in net interest income and ~~-8.3~~%-2.6% in net income given a 100 basis point decrease in market interest rates reflects in large measure the ability to quickly reprice deposits downward while ~~the new~~recently booked loans ~~we have book recently~~ would take time to re-price. In the first three quarters of ~~2022, t~~he2023, the Company continued to manage its interest rate sensitivity position to moderate levels of risk, as indicated in the simulation results above.

Although certain assets and liabilities may have similar maturities or repricing periods, they may react in different degrees to changes in market interest rates. Also, the interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types may lag behind changes in market rates. Additionally, certain assets, such as adjustable-rate mortgage loans, have features that limit changes in interest rates on a short-term basis and over the life of the loan. Further, in the event of a change in interest rates, prepayment and early withdrawal levels could deviate significantly from those assumed in modeling. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase.

During the first ~~three quarters~~quarter of ~~2022~~,2023, average market interest rates increased across the yield curve as compared to the ~~2021~~2022 year end.

~~Gap Position~~

~~Banks a~~nd other financial institutions earnings are significantly dependent upon net interest income, which is the difference between interest earned on rate sensitive assets and interest expense on rate sensitive liabilities. Net interest income represented 93% and 89% of the Company's revenue for the first three quarters of 2022 and the last three quarters 2021, respectively.

In falling interest rate environments, net interest income is maximized with longer term, higher yielding assets being funded by lower yielding short-term funds, or what is referred to as a negative mismatch or gap. Conversely, in a rising interest rate environment, net interest income is maximized with shorter term, higher yielding assets being funded by longer-term liabilities or what is referred to as a positive mismatch or gap.

The gap position, which is a measure of the difference in maturity and repricing volume between assets and liabilities, is a means of monitoring the sensitivity of a financial institution to changes in interest rates. The table below provides an indication of the sensitivity of the Company to changes in interest rates. A ~~negative gap ind~~icates the degree to which the volume of repriceable liabilities exceeds repriceable assets in given time periods. While a positive gap indicates the degree to which the volume of repriceable assets exceeds repriceable liabilities in given time periods.

At September 30, 2022, the Company had a negative gap position of approximately $1.1 billion or 10.55% of total assets, out to three months, and a negative cumulative gap position of $742 million, or 6.93% of total assets out to twelve months. At ~~December 31, 2021, the Company had a negative gap position of approximately $267 million or 2.25% of total assets out to three months and a positive cumulative gap position of $102 million or 0.86% of total assets out to 12 months. The change in the gap position at September 30, 2022 as compared to December 31, 2021 was due to~~ reduction in cash relative to securities holdings. Such a change in the gap position is not deemed material to the Company's overall interest rate risk position, which relies more heavily on simulation analysis that captures the full opportunity within the balance sheet. The current position is within guideline limits established by the ALCO. While management believes that this overall position creates a reasonable balance in managing its interest rate risk and maximizing its net interest margin within plan objectives, there can be no assurance as to the actual results.

Management has carefully considered its strategy to maximize interest income by reviewing interest rate levels, economic indicators and call features within its investment portfolio, as well as interest rate floors within its loan portfolio. These factors have been discussed with the ALCO and management believes that current strategies remain appropriate to current economic and interest rate trends.

If interest rates increase by 100 basis points, the Company's net interest income and net interest margin are expected to increase modestly due to the impact of significant volumes of variable rate assets more than offsetting the assumption of an increase in money market interest rates.

If interest rates decline by 100 basis points, the Company's net interest income and margin are expected to decline modestly as the impact of lower market rates on a large amount of liquid assets more than offsets the ability to lower interest rates on interest bearing liabilities.

Because competitive market behavior does not necessarily track the trend of interest rates but at times moves ahead of financial market influences, the change in the cost of liabilities may be different than anticipated by the gap model. If this were to occur, the effects of a declining interest rate environment may not be in accordance with management's expectations.

~~Gap Analysis~~

~~September 30, 2022~~

~~(dollars in thousands)~~

Repriceable in: 0-3
months 4-12
months 13-36
months 37-60
months Over 60
months Total
Rate
Sensitive Non Sensitive Total
RATE SENSITIVE ASSETS:
Investment securities $ 224,038 $ 307,157 $ 715,867 $ 527,796 $ 988,980 $ 2,763,838
Loans (1)(2)
3,978,093 665,154 1,245,209 778,417 571,244 7,238,117
Fed funds and other short-term investments 116,940 — — — — 116,940
Other earning assets 110,678 — — — — 110,678
Total $ 4,429,749 $ 972,311 $ 1,961,076 $ 1,306,213 $ 1,560,224 $ 10,229,573 $ 483,471 $ 10,713,044
RATE SENSITIVE LIABILITIES:
Noninterest bearing demand $ 104,409 $ 290,556 $ 631,418 $ 466,623 $ 1,435,767 $ 2,928,773
Interest bearing transaction 964,567 — — — — 964,567
Savings and money market 3,805,768 — — — 415,000 4,220,768
Time deposits 148,917 294,219 184,358 18,617 3,130 649,241
Customer repurchase agreements and fed funds purchased 21,465 — — — — 21,465
Other borrowings 515,000 — 69,763 — — 584,763
Total $ 5,560,126 $ 584,775 $ 885,539 $ 485,240 $ 1,853,897 $ 9,369,577 $ 123,696 $ 9,493,273
Gap $ (1,130,377) $ 387,536 $ 1,075,537 $ 820,973 $ (293,673) $ 859,996
Cumulative Gap $ (1,130,377) $ (742,841) $ 332,696 $ 1,153,669 $ 859,996
Cumulative gap as percent of total assets (10.55) % (6.93) % 3.11 % 10.77 % 8.03 %

~~(1)Net of allowance for credit losses; Includes loans held for sale.~~

~~(2)Nonaccrual loans are included in the over 60 months category.~~

Capital Resources and Adequacy

The assessment of capital adequacy depends on a number of factors such as asset quality and mix, liquidity, earnings performance, changing competitive conditions and economic forces, stress testing, regulatory measures and policy, as well as the overall level of growth and complexity of the balance sheet. The adequacy of the Company's current and future capital needs is monitored by management on an ongoing basis. Management seeks to maintain a capital structure that will assure an adequate level of capital to support anticipated asset growth and to absorb potential losses.

The federal banking regulators have issued guidance for those institutions which are deemed to have concentrations in commercial real estate lending. Pursuant to the supervisory criteria contained in the guidance for identifying institutions with a potential commercial real estate concentration risk, institutions which have (1) total reported loans for construction, land development, and other land acquisitions which represent 100% or more of an institution's total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution's total risk-based capital and the institution's commercial real estate loan portfolio has increased 50% or more during the prior 36 months are identified as having potential commercial real estate concentration risk. Institutions which are deemed to have concentrations in commercial real estate lending are expected to employ heightened levels of risk management with respect to their commercial real estate portfolios, and may be required to hold higher levels of capital. The Company, like many community banks, has focused on commercial real estate loans, and the Company has experienced growth in its commercial real estate portfolio in recent years. At ~~September 30, 2022,~~March 31, 2023, we did exceed the construction, land development, and other land acquisitions regulatory concentration threshold, and we continue to monitor our concentration in commercial real estate lending and remain in compliance with the guidance issued by the federal banking regulators. Construction, land and land development loans represent 109% of total risk based capital. Management has extensive experience in commercial real estate lending, and has implemented and continues to maintain heightened risk management procedures and strong underwriting ~~criteri~~acriteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, as our commercial real estate concentration fluctuates each quarter, we may be required to maintain higher levels of capital, which could require us to obtain additional capital, and may adversely affect shareholder returns. The Company has an extensive Capital Plan and Capital Policy, which includes pro-forma projections including stress testing within which the Board of Directors has established internal minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy ~~guidelines~~ and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits. If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

The FRB and the FDIC have adopted rules (the "Basel III Rules") implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. ~~banks (commonly known as Basel III).~~banks. Under the Basel III Rules, the Company and Bank are required to maintain, inclusive of the capital conservation buffer of 2.5%, a minimum CET1 ratio of 7.0%, a minimum ratio of Tier 1 capital to risk-weighted assets of 8.5%, a minimum total capital to risk-weighted assets ratio of 10.5%, and a minimum leverage ratio of 4.0%. At ~~September 30, 2022,~~March 31, 2023, the Company and the Bank meet all these ~~requirements,~~requirements.

The Company’s capital position remained strong for the three months ended March 31, 2023 as a result of good earnings, improved economic conditions and ~~satisfy~~strong asset quality. As a result of the ~~requirement~~Company’s strong capital position and earnings, we were able to ~~maintain~~continue our quarterly dividend. Additionally, the Company was active in share repurchase activity as we repurchased 400,000 shares at an average price of $45.65 per share during three months ended March 31, 2023.

On December 13, 2022, the Company's Board of Directors authorized a ~~capital conservation buffer~~new share repurchase program to take effect starting January 2, 2023, after the expiration of ~~2.5%~~the previous repurchase program on December 31, 2022. The Board of ~~CET1 capital for capital adequacy purposes.~~Directors authorized the repurchase of 1,600,000 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock, under the 2023 Repurchase Program, which will expire on December 31, 2023, unless earlier terminated by the Board of Directors.

The 2023 Repurchase Program does not limit the number of shares that can be repurchased each quarter. Though the Company repurchased 400,000 shares of its common stock in the quarter ended March 31, 2023, we expect the pace of share repurchases to increase beginningin the second quarter of 2023.

The Company announced a regular quarterly cash dividend on ~~September 20, 2022~~March 16, 2023 of $0.45 per share to shareholders of record on ~~October 10, 2022~~April 6, 2023 and was paid on ~~October 31, 2022.~~April 28, 2023.

The ~~actual~~ capital amounts and ratios for the Company and Bank as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are presented in the table below.



	Company				Bank				Minimum Required Basel III		To Be Well-Capitalized Under Prompt Corrective Action Regulations (1)
	Actual				Actual
(dollars in thousands)	Amount		Ratio		Amount		Ratio
March 31, 2023
CET1 capital (to risk weighted assets)	$	1,322,895	13.75	%	$	1,309,828	13.68	%	7.00	%	6.50	%
Total capital (to risk weighted assets)	1,417,883		14.74	%	1,389,370		14.51	%	10.50	%	10.00	%
Tier 1 capital (to risk weighted assets)	1,322,895		13.75	%	1,309,828		13.68	%	8.50	%	8.00	%
Tier 1 capital (to average assets)	1,322,895		11.42	%	1,309,828		11.36	%	4.00	%	5.00	%

December 31, 2022
CET1 capital (to risk weighted assets)	$	1,329,971	14.03	%	$	1,341,347	14.23	%	7.00	%	6.50	%
Total capital (to risk weighted assets)	1,415,854		14.94	%	1,412,904		14.99	%	10.50	%	10.00	%
Tier 1 capital (to risk weighted assets)	1,329,971		14.03	%	1,341,347		14.23	%	8.50	%	8.00	%
Tier 1 capital (to average assets)	1,329,971		11.63	%	1,341,347		11.78	%	4.00	%	5.00	%

Company Bank Minimum
Required For
Capital To Be Well
Capitalized
Under Prompt
Corrective
Actual Actual Adequacy Action
(dollars in thousands) Amount Ratio Amount Ratio Purposes Regulations*
As of September 30, 2022
CET1 capital (to risk weighted assets) $ 1,332,545 15.11 % $ 1,340,156 15.30 % 7.00 % 6.50 %
Total capital (to risk weighted assets) 1,419,639 16.10 % 1,412,912 16.13 % 10.50 % 10.00 %
Tier 1 capital (to risk weighted assets) 1,332,545 15.11 % 1,340,156 15.30 % 8.50 % 8.00 %
Tier 1 capital (to average assets) 1,332,545 11.55 % 1,340,156 11.67 % 4.00 % 5.00 %
As of December 31, 2021
CET1 capital (to risk weighted assets) $ 1,269,329 15.02 % $ 1,261,518 15.01 % 7.00 % 6.50 %
Total capital (to risk weighted assets) 1,365,117 16.15 % 1,329,306 15.82 % 10.50 % 10.00 %
Tier 1 capital (to risk weighted assets) 1,269,329 15.02 % 1,261,518 15.01 % 8.50 % 8.00 %
Tier 1 capital (to average assets) 1,269,329 10.19 % 1,261,518 10.16 % 4.00 % 5.00 %
(1)Applies to the Bank only.

* Applies to Bank only

Bank and holding company regulations, as well as Maryland law, impose certain restrictions on dividend payments by the Bank, as well as restricting extensions of credit and transfers of assets between the Bank and the Company. At ~~September 30, 2022~~March 31, 2023 the Bank could pay dividends to the Company to the extent of its earnings so long as it maintained the minimum required capital ratios listed in the table above.

In December 2018, federal banking regulators issued a final rule that provides an optional three-year phase-in period for the adverse regulatory capital effects of adopting the CECL methodology pursuant to new accounting guidance for the recognition of credit losses on certain financial instruments, effective January 1, 2020. In March 2020, the federal banking regulators issued an interim final rule that provides banking organizations with an alternative option to temporarily delay for two years the estimated impact of the adoption of the CECL methodology on regulatory capital, followed by the three-year phase-in period. The cumulative amount that is not recognized in regulatory capital will be phased in at 25 percent per year beginning January 1, 2022. We have elected to adopt the option provided by the March 2020 interim final rule.

Use of Non-GAAP Financial Measures

The Company considers the following non-GAAP measurements useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions. The tables below provide a reconciliation of these non-GAAP financial measures with financial measures defined by GAAP.

Tangible common equity to tangible assets (the "tangible common equity ratio"), tangible book value per common share, tangible book value per common share excluding accumulated other comprehensive loss ("AOCI"), the annualized return on average tangible common equity, and efficiency ratio are non-GAAP financial measures derived from GAAP-based amounts. The Company calculates the tangible common equity ratio by excluding the balance of intangible assets from common shareholders' equity and dividing by tangible assets. The Company calculates tangible book value per common share by dividing tangible common equity by common shares outstanding, as compared to book value per common share, which the Company calculates by dividing common shareholders' equity by common shares outstanding. To calculate the tangible book value per common share excluding the AOCI, tangible common equity is reduced by the loss on the AOCI before dividing by common shares outstanding. The Company calculates the ROATCE by dividing net income available to common shareholders by average tangible common equity which is calculated by excluding the average balance of intangible assets from the average common shareholders' equity. The Company calculates the efficiency ratio by dividing noninterest expense by the sum of net interest income and noninterest income. The efficiency ratio measures a bank's overhead as a percentage of its revenue. The Company considers this information important to shareholders as tangible equity is a measure that is consistent with the calculation of capital for bank regulatory purposes, which excludes intangible assets from the calculation of risk based ratios and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.

~~GAAP Reconciliation~~

(dollars in thousands except per share data) September 30, 2022 December 31, 2021
Common shareholders' equity $ 1,219,771 $ 1,350,775
Less: Intangible assets (104,240) (105,793)
Tangible common equity $ 1,115,531 $ 1,244,982
Book value per common share $ 38.02 $ 42.28
Less: Intangible book value per common share (3.25) (3.31)
Tangible book value per common share $ 34.77 $ 38.97
Book value per common share $ 38.02 $ 42.28
Add: AOCI book value per common share 6.57 0.45
Adjusted book value excluding AOCI per common share $ 44.59 $ 42.73
Tangible book value per common share $ 34.77 $ 38.97
Add: AOCI book value per common share 6.57 0.45
Adjusted tangible book value excluding AOCI per common share $ 41.34 $ 39.42
Total assets $ 10,713,044 $ 11,847,310
Less: Intangible assets (104,240) (105,793)
Tangible assets $ 10,608,804 $ 11,741,517
Tangible common equity ratio 10.52 % 10.60 %

6555

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Average common shareholders' equity $ 1,271,753 $ 1,331,022 $ 1,298,170 $ 1,292,223
Less: Average intangible assets (104,253) (105,126) (104,252) (105,151)
Average tangible common equity $ 1,167,500 $ 1,225,896 $ 1,193,918 $ 1,187,072
Net income available to common shareholders $ 37,297 $ 43,609 $ 98,737 $ 135,071
Average tangible common equity 1,167,500 1,225,896 1,193,918 1,187,072
Annualized return on average tangible common equity 12.67 % 14.11 % 11.06 % 15.21 %
GAAP Reconciliation


(dollars in thousands except per share data)	March 31, 2023			December 31, 2022
Common shareholders' equity	$	1,241,958		$	1,228,321
Less: Intangible assets	(104,226)			(104,233)
Tangible common equity	$	1,137,732		$	1,124,088

Book value per common share	$	39.92		$	39.18
Less: Intangible book value per common share	(3.35)			(3.32)
Tangible book value per common share	$	36.57		$	35.86

Book value per common share	$	39.92		$	39.18
Add: AOCI book value per common share	5.81			6.36
Adjusted book value excluding AOCI per common share	$	45.73		$	45.54

Tangible book value per common share	$	36.57		$	35.86
Add: AOCI book value per common share	5.81			6.36
Adjusted tangible book value excluding AOCI per common share	$	42.38		$	42.22

Total assets	$	11,088,867		$	11,150,854
Less: Intangible assets	(104,226)			(104,233)
Tangible assets	$	10,984,641		$	11,046,621
Tangible common equity ratio	10.36		%	10.18		%

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Net interest income $ 83,897 $ 79,045 $ 247,267 $ 246,328
Noninterest income 5,308 8,299 18,325 29,811
Revenue $ 89,205 $ 87,344 $ 265,592 $ 276,139
Noninterest expense $ 36,206 $ 36,375 $ 126,180 $ 109,856
Efficiency ratio 40.59 % 41.65 % 47.51 % 39.78 %


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Average common shareholders' equity	$	1,240,978		$	1,341,785
Less: Average intangible assets	(104,231)			(104,246)
Average tangible common equity	$	1,136,747		$	1,237,539

Net income available to common shareholders	$	24,234		$	45,744
Average tangible common equity	1,136,747			1,237,539
Annualized return on average tangible common equity	8.65		%	14.99		%

Total loans, excluding loans held for sale and PPP loans is a non-GAAP financial measures derived from GAAP-based amounts. The Company calculates total loans, excluding loans held for sale and PPP loans by excluding the balance of the PPP loans from the total loans. The Company considers this information important to shareholders as total loans, excluding loans held for sale and PPP loans is a measure that removes fluctuations associated with the activity related to the non-core business and management of the PPP portfolio.

(dollars in thousands) September 30, 2022 December 31, 2021
Total loans, excluding loans held for sale (GAAP) $ 7,304,498 $ 7,065,598
Less: PPP loans (7,241) (51,105)
Total loans, excluding loans held for sale and PPP loans (Non-GAAP) $ 7,297,257 $ 7,014,493

Adjusted Salaries and Employee Benefits is a non-GAAP financial measure derived from GAAP based amounts. The Company calculates Adjusted Salaries and Employee Benefits by subtracting from total salaries and employee benefits the one-time accrual reduction of $5.0 million related to share-based compensation awards and deferred compensation for the Company's former CEO and Chairman in the first quarter of 2022. The Company considers this information important to shareholders because the accrual reduction was a one-time event that occurred during the first quarter of 2022. The Adjusted Salaries and Employee Benefits non-GAAP measure provides investors insight into how salaries and employee benefits changed during the first quarter of 2022 exclusive of the one-time accrual reduction, and allows investors to better compare the Company's performance against historical periods.

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Salaries and employee benefits $ 21,538 $ 22,145 $ 60,362 $ 63,790
Accrual reduction for former CEO and Chairman — — 5,018 —
Adjusted salaries and employee benefits (non-GAAP) $ 21,538 $ 22,145 $ 65,380 $ 63,790

Adjusted net income and adjusted earnings per share (diluted) are non-GAAP financial measures derived from GAAP based amounts. The Company calculates adjusted net income by excluding from net income the $13.4 million accrual of non-tax deductible expenses during the quarter to cover the Company's civil money penalty and disgorgement, plus prejudgment interest, in connection with the Company's agreement in principle with the SEC and $9.5 million accrual in connection with expected penalties from the FRB to resolve the previously disclosed investigation with respect to the Company. The Company calculates adjusted earnings per share (diluted) by dividing the total $22.9 million accrual by the weighted average shares outstanding (diluted) for the nine months ended September 30, 2022. The Company considers this information important to shareholders because adjusted net income and adjusted earnings per share (diluted) provides investors insight into how Company earnings changed exclusive of the costs related to the agreement in principle with the SEC, and allow investors to better compare the Company's performance against historical periods. The table below provides a reconciliation of adjusted net income and adjusted earnings per share (diluted) to the nearest GAAP measure.

Three Months Ended September 30, Nine Months Ended September 30,
(dollars in thousands) 2022 2021 2022 2021
Net Income $ 37,297 $ 43,609 $ 98,737 $ 135,071
Reversal of penalties, disgorgement & prejudgment interest — — 22,874 —
Adjusted net income (non-GAAP) $ 37,297 $ 43,609 $ 121,611 $ 135,071
Earnings per share (diluted) $ 1.16 $ 1.36 $ 3.07 $ 4.22
Reversal of penalties, disgorgement & prejudgment interest per share (diluted) — — 0.71 —
Adjusted earnings per share (diluted) (non-GAAP) $ 1.16 $ 1.36 $ 3.78 $ 4.22

The decline in adjusted net income over the comparative three months ended September 30, 2022 and 2021 was primarily attributable to decreases in gains on sales of loan and other income in connection with the reduced activity in the residential lending business, decreases in gains on the sales of investments and an increase in the provision for expected credit losses during the three months ended September 30, 2022 as compared to a reversal of expected credit losses during the three months ended September 30, 2021.


	Three Months Ended March 31,
(dollars in thousands)	2023			2022
Net interest income	$	75,024		$	80,452
Noninterest income	3,700			7,453
Revenue	$	78,724		$	87,905

Noninterest expense	$	40,584		$	31,012
Efficiency ratio	51.55		%	35.28		%

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Please refer to Item 2 of this report, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the caption "Asset/Liability Management and Quantitative and Qualitative Disclosure about Market Risk."

Item 4. Controls and Procedures

Evaluation of disclosure controls and procedures. The Company's management, under the supervision and with the participation of the Chief Executive Officer, Executive Chairman and Chief Financial Officer, evaluated, as of the last day of the period covered by this report, the effectiveness of the design and operation of the Company's disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act. Based on that evaluation, the Chief Executive Officer, Executive Chairman and the Chief Financial Officer concluded that the Company's disclosure controls and procedures as of ~~September 30, 2022~~March 31, 2023 were effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported as and when required and that it is accumulated and communicated to our management, including the Chief Executive Officer, Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) that occurred during the ~~third~~first quarter of ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6757

PART II - OTHER INFORMATION

Item 11. - Legal Proceedings

~~For a description of our material pending legal proceedings, see~~Refer to "Note ~~11.~~12. Legal Contingencies" of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Item 1A1A. - Risk Factors

We are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, which could adversely affect our business, financial performance and results of operations. There have been no material changes to our risk factors from those risks included in our Annual Report on Form 10-K.

Item 22. - Unregistered Sales of Equity Securities and Use of Proceeds


(a) Sales of Unregistered Securities.			None

(b) Use of Proceeds.			Not Applicable

(c) Issuer ~~[Purchases~~Purchases of ~~Securities].~~Securities.			~~None~~


Period	Total Number of Shares Purchased (2)	Average Price (3) Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (1)
January 1, 2023	—	n/a		n/a	1,600,000
January 3 - 31, 2023	360,000	$	45.45	360,000	1,240,000
February 1- 28, 2023	85,216	$	47.43	40,000	1,200,000
March 1- 31, 2023	—	—		—	1,200,000
Total	445,216	$	45.65	400,000	1,200,000

(1)On December ~~28, 2021,~~13, 2022, the Company's Board of Directors authorized a new share repurchase program (the ~~"2022~~"2023 Repurchase Program") to take effect starting January ~~1, 2022,~~2, 2023, after the expiration of the previous repurchase program on December 31, ~~2021.~~2022. The Board of Directors authorized the repurchase of 1,600,000 shares of common stock, or approximately 5% of the Company's outstanding shares of common stock, under ~~2022~~2023 Repurchase Program, which will expire on December 31, ~~2022, subject to~~2023, unless earlier ~~termination of the program~~terminated by the Board of Directors. NoThe 2023 Repurchase Program does not limit the number of shares ~~were~~that can be repurchased ~~during~~each quarter. Though the ~~nine months~~Company repurchased 400,000 shares of its common stock in the quarter ended ~~September 30, 2022~~March 31, 2023, we expect the pace of share repurchases to increase beginningin the second quarter of 2023.

(2)Includes shares of the Company’s common stock acquired by the Company in connection with satisfaction of tax withholding obligations on vested restricted shares or restricted share units and certain forfeitures and terminations of employment-related awards and for potential re-issuance to certain employees under equity incentive plans.

(3)Average price paid per share includes commission costs associated with the ~~2022 Repurchase Plan.~~repurchases.

Item 33. - Defaults Upon Senior Securities

None.

Item 44. - Mine Safety Disclosures

Not ~~Applicable~~Applicable.

Item 55. - Other Information

None.

6858

~~Item 6~~Item 6. - Exhibits



31.1						Certification of Susan G. Riel
31.2						Certification of Norman R. Pozez
31.3						Certification of Charles D. Levingston
32.1						Certification of Susan G. Riel
32.2						Certification of Norman R. Pozez
32.3						Certification of Charles D. Levingston
101						Interactive data files pursuant to Rule 405 of Regulation S-T:
						(i) Consolidated Balance Sheets at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022
						(ii) Consolidated Statement of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~
						(iii) Consolidated Statement of Comprehensive (Loss) Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~
						(iv) Consolidated Statement of Changes in Shareholders’ Equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~
						(v) Consolidated Statement of Cash Flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~
						(vi) Notes to the Consolidated Financial Statements
104						The cover page of this Quarterly Report on Form 10-Q, formatted in Inline XBRL

6959

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		EAGLE BANCORP, INC.

Date: ~~November 8, 2022~~	May 10, 2023	By:	/s/ ~~Susan~~[Susan G. ~~Riel~~Riel]
			Susan G. Riel, President and Chief Executive Officer of the Company


Date: ~~November 8, 2022~~	May 10, 2023	By:	/s/ ~~Charles~~[Charles D. ~~Levingston~~Levingston]
			Charles D. Levingston, Executive Vice President and Chief Financial Officer of the Company

7060


		Less Than				12 Months
		12 Months				or Greater				Total
		Estimated				Estimated				Estimated
	Number of	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	Securities	Value		Losses		Value		Losses		Value		Losses
September 30, 2022
U.S. treasury bonds	2	$	46,048	$	(3,719)	$	—	$	—	$	46,048	$	(3,719)
U. S. agency securities	84	450,079		(49,232)		212,988		(33,452)		663,067		(82,684)
Residential mortgage-backed securities	159	581,381		(80,300)		245,304		(50,142)		826,685		(130,442)
Commercial mortgage-backed securities	14	94,172		(6,106)		—		—		94,172		(6,106)
Municipal bonds	2	8,463		(1,047)		—		—		8,463		(1,047)
Corporate bonds	1	1,862		(138)		—		—		1,862		(138)
	262	$	1,182,005	$	(140,542)	$	458,292	$	(83,594)	$	1,640,297	$	(224,136)

December 31, 2021
U.S. treasury bond	1	$	24,593	$	(257)	$	—	$	—	$	24,593	$	(257)
U. S. agency securities	64	452,966		(6,256)		68,977		(1,366)		521,943		(7,622)
Residential mortgage-backed securities	153	1,327,519		(16,841)		108,061		(3,956)		1,435,580		(20,797)
Municipal bonds	8	20,181		(347)		—		—		20,181		(347)
Corporate bonds	13	66,051		(584)		—		—		66,051		(584)
	239	$	1,891,310	$	(24,285)	$	177,038	$	(5,322)	$	2,068,348	$	(29,607)


	Nonaccrual with		Nonaccrual with		Total
	No Allowance		an Allowance		Nonaccrual
(dollars in thousands, except amounts in footnotes)	for Credit Loss		for Credit Loss		Loans
September 30, 2022
Commercial	$	405	$	2,613	$	3,018

Income producing - commercial real estate	—		2,645		2,645
Owner occupied - commercial real estate	21		—		21
Real estate mortgage - residential	—		1,917		1,917

Home equity	—		—		—
Total (1)(2)	$	426	$	7,175	$	7,601

December 31, 2021
Commercial	$	5,806	$	3,070	$	8,876
PPP loans (3)	1,365		—		1,365
Income producing - commercial real estate	3,920		9,536		13,456
Owner occupied - commercial real estate	42		—		42
Real estate mortgage - residential	1,779		231		2,010
Construction - commercial and residential	3,093		—		3,093
Home equity	366		—		366
Total (1)(2)	$	16,371	$	12,837	$	29,208


The Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income
	Amount of Gain (Loss) Recognized					Amount of Gain (Loss) Reclassified
Derivatives in Subtopic	in OCI on Derivatives				Location of	from AOCI into Net Income
815-20 Hedging Relationships	Three Months Ended September 30,				Gain (Loss) Recognized	Three Months Ended September 30,
(dollars in thousands)	2022		2021		from AOCI into Net Income	2022		2021
Derivatives in cash flow hedging relationships
Interest rate products	$	—	$	—	Interest Expense	$	—	$	—

	Amount of Gain (Loss) Recognized					Amount of Gain (Loss) Reclassified
Derivatives in Subtopic	in OCI on Derivative				Location of	from AOCI into Net Income
815-20 Hedging Relationships	Nine Months Ended September 30,				Gain (Loss) Recognized	Nine Months Ended September 30,
(dollars in thousands)	2022		2021		from AOCI into Net Income	2022		2021
Derivatives in cash flow hedging relationships
Interest rate products	$	—	$	1	Interest Expense	$	—	$	(445)


The Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income
	Amount of Gain (Loss) Recognized in Interest Expense on
	Fair Value and Cash Flow Hedging Relationships
	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	2022		2021		2022		2021
Total amounts of income and expense line items presented in the consolidated statements of income in which the effects of fair value or cash flow hedges are recorded	$	—	$	—	$	—	$	(445)

Gain or (loss) on cash flow hedging relationships in Subtopic 815-20
Interest contracts
Amount of gain (loss) reclassified from AOCI into income	$	—	$	—	$	—	$	(445)

Amount of gain (loss) reclassified from AOCI into income - included component	$	—	$	—	$	—	$	(445)


The Effect of Derivatives Not Designated as Hedging Instruments in the Consolidated Statements of Income
		Amount of Gain (Loss) Recognized in Income on Derivatives
	Location of Gain (Loss) Recognized	Three Months Ended September 30,				Nine Months Ended September 30,
(dollars in thousands)	in Income on Derivatives	2022		2021		2022		2021
Interest rate products	Other income / (other expense)	$	837	$	277	$	2,299	$	261
Mortgage banking derivatives	Gain on sale of loans	(90)		1,575		(619)		5,268
Other contracts	Other income / (other expense)	—		—		—		44
Total		$	747	$	1,852	$	1,680	$	5,573


	Securities		Securities				Accumulated Other
	Available		Held to				Comprehensive
(dollars in thousands)	For Sale		Maturity		Derivatives		Income (Loss)
Three Months Ended September 30, 2022
Balance at beginning of period	$	(105,265)	$	(47,104)	$	—	$	(152,369)
Other comprehensive (loss) before reclassifications	(60,029)		—		—		(60,029)
Amounts reclassified from accumulated other comprehensive income (loss)	(3)		—		—		(3)
Amortization of unrealized loss on securities transferred to held-to-maturity	—		1,762		—		1,762
Net other comprehensive (loss) during period	(60,032)		1,762		—		(58,270)
Balance at end of period	$	(165,297)	$	(45,342)	$	—	$	(210,639)

Three Months Ended September 30, 2021
Balance at beginning of period	$	4,804	$	—	$	(284)	$	4,520
Other comprehensive (loss) before reclassifications	(5,703)		—		—		(5,703)
Amounts reclassified from accumulated other comprehensive income (loss)	(1,133)		—		—		(1,133)
Net other comprehensive (loss) during period	(6,836)		—		—		(6,836)
Balance at end of period	$	(2,032)	$	—	$	(284)	$	(2,316)

Nine Months Ended September 30, 2022
Balance at beginning of period	$	(13,958)	$	—	$	(284)	$	(14,242)
Other comprehensive (loss) income before reclassifications	(151,453)		—		284		(151,169)
Amounts reclassified from accumulated other comprehensive income (loss)	114		—		—		114
Net unrealized (loss) on securities transferred to held-to-maturity	—		(49,095)		—		(49,095)
Amortization of unrealized loss on securities transferred to held-to-maturity	—		3,753		—		3,753
Net other comprehensive (loss) income during period	(151,339)		(45,342)		284		(196,397)
Balance at end of period	$	(165,297)	$	(45,342)	$	—	$	(210,639)

Nine Months Ended September 30, 2021
Balance at beginning of period	$	16,168	$	—	$	(668)	$	15,500
Other comprehensive (loss) income before reclassifications	(16,666)		—		769		(15,897)
Amounts reclassified from accumulated other comprehensive income (loss)	(1,534)		—		(385)		(1,919)
Net other comprehensive (loss) income during period	(18,200)		—		384		(17,816)
Balance at end of period	$	(2,032)	$	—	$	(284)	$	(2,316)


	Amount Reclassified from
	Accumulated Other
Details about Accumulated Other	Comprehensive (Loss) Income				Affected Line Item in
Comprehensive Loss Components	Three Months Ended September 30,				Consolidated Statements of
(dollars in thousands)	2022		2021		Income
Realized (loss) gain on sale of investment securities	$	4	$	1,519	Net gain (loss) on sale of investment securities

Income tax benefit (expense)	(1)		(386)		Income tax expense
Total reclassifications for the periods	$	3	$	1,133

	Amount Reclassified from
	Accumulated Other
Details about Accumulated Other	Comprehensive (Loss) Income				Affected Line Item in
Comprehensive Loss Components	Nine Months Ended September 30,				Consolidated Statements of
(dollars in thousands)	2022		2021		Income
Realized (loss) gain on sale of investment securities	$	(172)	$	2,058	Net gain (loss) on sale of investment securities
Interest income derivative deposits	—		517		Interest on balances with other banks and short-term investments
Income tax benefit (expense)	58		(656)		Income tax expense
Total reclassifications for the periods	$	(114)	$	1,919


	Investment
	Securities		Mortgage Banking
(dollars in thousands)	Available-for-Sale		Derivatives		Total
Assets:
Beginning balance at January 1, 2022	$	12,000	$	636	$	12,636
Unrealized loss included in earnings	—		(377)		(377)
Reclassified to investment securities held-to-maturity	(12,000)		—		(12,000)

Ending balance at September 30, 2022	$	—	$	259	$	259

Liabilities:
Beginning balance at January 1, 2022			$	—	$	—
Unrealized loss included in earnings			115		115
Ending balance at September 30, 2022			$	115	$	115


Repriceable in:	0-3 months			4-12 months			13-36 months			37-60 months			Over 60 months			Total Rate Sensitive		Non Sensitive		Total
RATE SENSITIVE ASSETS:
Investment securities	$	224,038		$	307,157		$	715,867		$	527,796		$	988,980		$	2,763,838
Loans (1)(2)	3,978,093			665,154			1,245,209			778,417			571,244			7,238,117
Fed funds and other short-term investments	116,940			—			—			—			—			116,940
Other earning assets	110,678			—			—			—			—			110,678
Total	$	4,429,749		$	972,311		$	1,961,076		$	1,306,213		$	1,560,224		$	10,229,573	$	483,471	$	10,713,044

RATE SENSITIVE LIABILITIES:
Noninterest bearing demand	$	104,409		$	290,556		$	631,418		$	466,623		$	1,435,767		$	2,928,773
Interest bearing transaction	964,567			—			—			—			—			964,567
Savings and money market	3,805,768			—			—			—			415,000			4,220,768
Time deposits	148,917			294,219			184,358			18,617			3,130			649,241
Customer repurchase agreements and fed funds purchased	21,465			—			—			—			—			21,465
Other borrowings	515,000			—			69,763			—			—			584,763
Total	$	5,560,126		$	584,775		$	885,539		$	485,240		$	1,853,897		$	9,369,577	$	123,696	$	9,493,273
Gap	$	(1,130,377)		$	387,536		$	1,075,537		$	820,973		$	(293,673)		$	859,996
Cumulative Gap	$	(1,130,377)		$	(742,841)		$	332,696		$	1,153,669		$	859,996

Cumulative gap as percent of total assets	(10.55)		%	(6.93)		%	3.11		%	10.77		%	8.03		%


	Company				Bank				Minimum Required For Capital		To Be Well Capitalized Under Prompt Corrective
	Actual				Actual				Adequacy		Action
(dollars in thousands)	Amount		Ratio		Amount		Ratio		Purposes		Regulations*
As of September 30, 2022
CET1 capital (to risk weighted assets)	$	1,332,545	15.11	%	$	1,340,156	15.30	%	7.00	%	6.50	%
Total capital (to risk weighted assets)	1,419,639		16.10	%	1,412,912		16.13	%	10.50	%	10.00	%
Tier 1 capital (to risk weighted assets)	1,332,545		15.11	%	1,340,156		15.30	%	8.50	%	8.00	%
Tier 1 capital (to average assets)	1,332,545		11.55	%	1,340,156		11.67	%	4.00	%	5.00	%

As of December 31, 2021
CET1 capital (to risk weighted assets)	$	1,269,329	15.02	%	$	1,261,518	15.01	%	7.00	%	6.50	%
Total capital (to risk weighted assets)	1,365,117		16.15	%	1,329,306		15.82	%	10.50	%	10.00	%
Tier 1 capital (to risk weighted assets)	1,269,329		15.02	%	1,261,518		15.01	%	8.50	%	8.00	%
Tier 1 capital (to average assets)	1,269,329		10.19	%	1,261,518		10.16	%	4.00	%	5.00	%