2022 Consolidated Statements of Comprehensive (Loss) Income(Unaudited) EagleBank (the "Bank"), a Maryland chartered commercial bank, is the Parent's principal subsidiary. shareholders' equity. public market as well as direct purchase issuance. Premiums and discounts on investment securities held-to-maturity, like available-for-sale securities, are non-credit-related impairment. its counterparties. See Note 6 for additional information. 2021. Loans, net of unamortized net deferred fees, at September 30, Residential land acquisition, development and construction loans generally are underwritten with a maximum term of 36 months, including extensions approved at origination. approval authority. Commercial land acquisition and construction loans generally are underwritten with a maximum term of 24 months. The The following tables detail activity in the allowance for credit losses by portfolio segment for the three and nine months ended September 30, follows: The 2021 respectively. See Note 1 to the Consolidated Financial Statements for a description of the Company's policy for placing loans on nonaccrual status. 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 Risk yield curves, nonperformance risk and volatility. See Note 10. Fair Value Measurements. 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 default on its derivative obligations. 2021. follows: 2021. securities available-for-sale: 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 2021. derivative falls within Level 2. derivatives were weighted by loan amount. The 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. - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF 2021. The Bank also operates five lending offices, with one in Northern Virginia, three in Suburban Maryland and one in Washington, D.C. the settlement. The report. income on investments and loans, due to higher average investment and loan balances and variable rate loans adjusting upwards as rates increased, which was partially offset by the decrease in total deposits, increased interest expense due to higher rates on deposits and faster rate adjustments on money market and savings accounts. Interest Margin" section below. The efficiency ratio, which measures the ratio of noninterest expense to total revenue, was $36.3 million, or 26.9%. Interest Margin" section below. 2021. The components and drivers of the change are discussed in the "Income Tax Expense" section below. non-GAAP financial measures. the first nine months of 2022 (from 2.91% to 2.86%). The yield on earning assets increased by 13 basis points (from 3.29% to 3.42%) while cost of funds increased 18 basis points (from 0.38% to 0.56%). Average interest bearing deposits with other banks and other short term investments were $1.4 billion nine months ended September 30, 2022 compared to $2.3 billion for the same period in 2021. Overall yields and rates moved higher in the first nine months of 2022 as compared to same period in 2021, variable rate loans adjusted upwards and an increased number of loans moved off their rate floors. Consolidated Financial Statements. charge-offs. During the nine months ended September 30, total loans. default. three or nine months ended September 30, 2021. Noninterest Income over period. period. 2021, a 14.9% increase. FRB. $22.9 million of settlement expenses. 2022 was $38.6 million, compared to $46.1 million for the nine months ended September 30, 2021. The increase in the effective tax rates over the comparative nine months ended September 30, 2022 and 2021 was due to the SEC and FRB penalties totaling $22.9 million that are not deductible for tax purposes. Tax provisions declined over the comparative three and nine months ended September 30, 2022, and 2021 due to decreases in pre-tax income period over period. 2022 and September 30, 2022: , secured borrowings from the Federal Home Loan Bank of Atlanta (the "FHLB"), and federal funds purchased lines of credit from correspondent banks. earning assets. Additionally, as noted above, if the condition, regulatory treatment or reputation of 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. 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 generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since commitments may expire without being drawn, the total commitment amount does not necessarily represent future cash requirements. position December 31, 2021. The duration of the deposit portfolio decreased December 31, 2021. movements with complete accuracy. we have book recently would take time to re-price. the last three quarters 2021, respectively. The While a positive gap indicates the degree to which the volume of repriceable assets exceeds repriceable liabilities in given time periods. only ratios listed in the table above. our management, including the Chief Executive Officer, Executive Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)2017☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) Maryland 52-2061461Maryland 52-2061461 (State or other jurisdiction of (I.R.S. Employer
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) Registrant’sRegistrant's telephone number, including area code)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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes☒ No☐definitionthe definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company”company" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act. (Do not mark if a smaller reporting company)Smaller Reporting Company ☐Act).Act Yes ☐ No ☒October 31, 2017,November 4, 2022, the registrant had 34,178,01431,918,670 shares of Common Stock outstanding.PART I.FINANCIAL INFORMATIONPART I. FINANCIAL INFORMATION 78497777787878787878787881 (Unaudited)September 30, 2022 December 31, 2021 Assets Cash and due from banks $ 27,235 $ 12,886 Federal funds sold 69,809 20,391 Interest-bearing deposits with banks and other short-term investments 47,131 1,680,945 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 — Federal Reserve and Federal Home Loan Bank stock 42,311 34,153 Loans held for sale 9,387 47,218 Loans 7,304,498 7,065,598 Less: allowance for credit losses (75,767) (74,965) Loans, net 7,228,731 6,990,633 Premises and equipment, net 13,684 14,557 Operating lease right-of-use assets 26,022 30,555 Deferred income taxes 112,904 43,174 Bank-owned life insurance 110,678 108,789 Goodwill and other intangible assets, net 104,240 105,793 Other real estate owned 1,962 1,635 Other assets 155,113 133,173 Total Assets $ 10,713,044 $ 11,847,310 Liabilities and Shareholders' Equity Liabilities Deposits: Noninterest-bearing demand $ 2,928,774 $ 3,277,956 Interest-bearing transaction 964,567 777,255 Savings and money market 4,220,768 5,197,247 Time 649,241 729,082 Total deposits 8,763,350 9,981,540 Customer repurchase agreements 21,465 23,918 Other short-term borrowings 515,000 300,000 Long-term borrowings 69,763 69,670 Operating lease liabilities 30,837 35,501 Reserve for unfunded commitments 5,696 4,379 Other liabilities 87,162 81,527 Total Liabilities 9,493,273 10,496,535 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 Additional paid-in capital 442,880 434,640 Retained earnings 987,212 930,061 Accumulated other comprehensive loss (210,639) (14,242) Total Shareholders' Equity 1,219,771 1,350,775 Total Liabilities and Shareholders' Equity $ 10,713,044 $ 11,847,310 Assets September 30, 2017 December 31, 2016 September 30, 2016 Cash and due from banks $ 8,246 $ 10,285 $ 8,678 Federal funds sold 8,548 2,397 5,262 Interest bearing deposits with banks and other short-term investments 432,156 355,481 505,087 Investment securities available-for-sale, at fair value 556,026 538,108 430,668 Federal Reserve and Federal Home Loan Bank stock 30,980 21,600 19,920 Loans held for sale 25,980 51,629 78,118 Loans 6,084,204 5,677,893 5,481,975 Less allowance for credit losses (62,967 ) (59,074 ) (56,864 ) Loans, net 6,021,237 5,618,819 5,425,111 Premises and equipment, net 19,546 20,661 19,370 Deferred income taxes 45,432 48,220 41,065 Bank owned life insurance 61,238 60,130 59,747 Intangible assets, net 107,150 107,419 107,694 Other real estate owned 1,394 2,694 5,194 Other assets 75,723 52,653 56,218 Total Assets $ 7,393,656 $ 6,890,096 $ 6,762,132 Liabilities and Shareholders’ Equity Liabilities Deposits: Noninterest bearing demand $ 1,843,157 $ 1,775,684 $ 1,668,271 Interest bearing transaction 429,247 289,122 297,973 Savings and money market 2,818,871 2,902,560 2,802,519 Time, $100,000 or more 482,325 464,842 452,015 Other time 340,352 283,906 337,371 Total deposits 5,913,952 5,716,114 5,558,149 Customer repurchase agreements 73,569 68,876 71,642 Other short-term borrowings 200,000 — 50,000 Long-term borrowings 216,807 216,514 216,419 Other liabilities 55,346 45,793 50,283 Total Liabilities 6,459,674 6,047,297 5,946,493 Shareholders’ Equity Common stock, par value $.01 per share; shares authorized 100,000,000, shares issued and outstanding 34,174,009, 34,023,850, and 33,590,880, respectively 340 338 333 Warrant — — 946 Additional paid in capital 518,616 513,531 509,706 Retained earnings 415,975 331,311 305,594 Accumulated other comprehensive loss (949 ) (2,381 ) (940 ) Total Shareholders’ Equity 933,982 842,799 815,639 Total Liabilities and Shareholders’ Equity $ 7,393,656 $ 6,890,096 $ 6,762,132 Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Interest Income Interest and fees on loans $ 93,744 $ 82,182 $ 249,716 $ 260,124 Interest and dividends on investment securities 13,463 5,877 37,890 15,878 Interest on balances with other banks and short-term investments 4,100 1,083 7,608 2,239 Interest on federal funds sold 220 10 269 25 Total interest income 111,527 89,152 295,483 278,266 Interest Expense Interest on deposits 26,125 6,590 44,022 21,288 Interest on customer repurchase agreements 55 14 90 34 Interest on other short-term borrowings 412 506 992 1,502 Interest on long-term borrowings 1,038 2,997 3,112 9,114 Total interest expense 27,630 10,107 48,216 31,938 Net Interest Income 83,897 79,045 247,267 246,328 Provision for (Reversal of) Credit Losses 3,022 (8,203) 730 (14,409) Provision for (Reversal of) Credit Losses for Unfunded Commitments 774 716 1,316 (487) Net Interest Income After Provision for (Reversal of) Credit Losses 80,101 86,532 245,221 261,224 Noninterest Income Service charges on deposits 1,339 1,204 3,970 3,303 Gain on sale of loans 821 3,332 3,168 11,988 Net gain (loss) on sale of investment securities 4 1,519 (172) 2,058 Increase in the cash surrender value of bank-owned life insurance 631 642 1,889 1,429 Other income 2,513 1,602 9,470 11,033 Total noninterest income 5,308 8,299 18,325 29,811 Noninterest Expense Salaries and employee benefits 21,538 22,145 60,362 63,790 Premises and equipment expenses 3,275 3,859 9,926 11,121 Marketing and advertising 1,181 1,013 3,431 2,879 Data processing 3,445 2,886 9,054�� 8,451 Legal, accounting and professional fees 2,332 2,021 6,030 8,523 FDIC insurance 1,287 1,549 3,251 5,586 Other expenses 3,148 2,902 34,126 9,506 Total noninterest expense 36,206 36,375 126,180 109,856 Income Before Income Tax Expense 49,203 58,456 137,366 181,179 Income Tax Expense 11,906 14,847 38,629 46,108 Net Income $ 37,297 $ 43,609 $ 98,737 $ 135,071 Earnings Per Common Share Basic $ 1.16 $ 1.36 $ 3.08 $ 4.23 Diluted $ 1.16 $ 1.36 $ 3.07 $ 4.22 notesNotes to consolidated financial statements.Consolidated Financial Statements.Consolidated Statements of Operations (Unaudited)(dollars in thousands, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Interest Income Interest and fees on loans $ 78,176 $ 69,869 $ 226,543 $ 202,002 Interest and dividends on investment securities 3,194 2,177 8,854 7,121 Interest on balances with other banks and short-term investments 991 376 2,084 856 Interest on federal funds sold 9 9 27 31 Total interest income 82,370 72,431 237,508 210,010 Interest Expense Interest on deposits 7,233 4,840 19,466 13,513 Interest on customer repurchase agreements 58 39 136 115 Interest on short-term borrowings 164 383 441 727 Interest on long-term borrowings 2,979 2,441 8,937 4,515 Total interest expense 10,434 7,703 28,980 18,870 Net Interest Income 71,936 64,728 208,528 191,140 Provision for Credit Losses 1,921 2,288 4,884 9,219 Net Interest Income After Provision For Credit Losses 70,015 62,440 203,644 181,921 Noninterest Income Service charges on deposits 1,626 1,431 4,641 4,303 Gain on sale of loans 2,173 3,009 6,740 8,464 Gain on sale of investment securities 11 1 542 1,123 Increase in the cash surrender value of bank owned life insurance 369 391 1,108 1,171 Other income 2,605 1,573 6,846 5,209 Total noninterest income 6,784 6,405 19,877 20,270 Noninterest Expense Salaries and employee benefits 16,905 17,130 50,451 49,157 Premises and equipment expenses 3,846 3,786 11,613 11,419 Marketing and advertising 732 857 2,873 2,551 Data processing 2,019 1,879 6,057 5,716 Legal, accounting and professional fees 1,240 771 3,539 2,845 FDIC insurance 929 629 2,063 2,193 Other expenses 3,845 3,786 12,153 11,354 Total noninterest expense 29,516 28,838 88,749 85,235 Income Before Income Tax Expense 47,283 40,007 134,772 116,956 Income Tax Expense 17,409 15,484 50,109 44,966 Net Income $ 29,874 $ 24,523 $ 84,663 $ 71,990 Earnings Per Common Share Basic $ 0.87 $ 0.73 $ 2.48 $ 2.14 Diluted $ 0.87 $ 0.72 $ 2.47 $ 2.11 See notes to consolidated financial statements.EAGLE BANCORP, INC. Three Months Ended September 30, Nine Months Ended September 30, 2017 2016 2017 2016 Net Income $ 29,874 $ 24,523 $ 84,663 $ 71,990 Other comprehensive income, net of tax: Unrealized gain (loss) on securities available for sale 15 (907 ) 1,243 4,110 Reclassification adjustment for net gains included in net income (7 ) 1 (340 ) (674 ) Total unrealized gain (loss) on investment securities 8 (906 ) 903 3,436 Unrealized gain (loss) on derivatives 347 1,756 1,350 (5,478 ) Reclassification adjustment for amounts included in net income (183 ) (466 ) (821 ) 911 Total unrealized gain (loss) on derivatives 164 1,290 529 (4,567 ) Other comprehensive income (loss) 172 384 1,432 (1,131 ) Comprehensive Income $ 30,046 $ 24,907 $ 86,095 $ 70,859 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) — — (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 notesNotes to consolidated financial statements.Consolidated Financial Statements.Shareholders’Shareholders' Equity(Unaudited) Accumulated Other Total Common Additional Paid Retained Comprehensive Shareholders’ Shares Amount Warrant in Capital Earnings Income (Loss) Equity Balance January 1, 2017 34,023,850 $ 338 $ — $ 513,531 $ 331,311 $ (2,381 ) $ 842,799 Net Income — — — — 84,663 — 84,663 Other comprehensive gain, net of tax — — — — — 1,432 1,432 Stock-based compensation expense — — — 4,198 1 — 4,199 Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 60,925 1 — 258 — — 259 Vesting of time based stock awards issued at date of grant, net of shares withheld for payroll taxes (16,962 ) 1 — (2 ) — — (1 ) Vesting of performance based stock awards, net of shares withheld for payroll taxes 3,589 — — — — — — Time based stock awards granted 91,097 — — — — — — Issuance of common stock related to employee stock purchase plan 11,510 — — 631 — — 631 Balance September 30, 2017 34,174,009 $ 340 $ — $ 518,616 $ 415,975 $ (949 ) $ 933,982 Balance January 1, 2016 33,467,893 $ 331 $ 946 $ 503,529 $ 233,604 $ 191 $ 738,601 Net Income — — — — 71,990 — 71,990 Other comprehensive loss, net of tax — — — — — (1,131 ) (1,131 ) Stock-based compensation expense — — — 5,159 — — 5,159 Issuance of common stock related to options exercised, 23,614 — — 282 — — 282 net of shares withheld for payroll taxes — — — — — — Excess tax benefits realized from stock compensation — — — 166 — — 166 Vesting of time based stock awards issued at date of grant, (17,556 ) 2 — (2 ) — — — net of shares withheld for payroll taxes — — — — — — — Time based stock awards granted 104,775 — — — — — — Issuance of common stock related to employee stock purchase plan 12,154 — — 572 — — 572 Balance September 30, 2016 33,590,880 $ 333 $ 946 $ 509,706 $ 305,594 $ (940 ) $ 815,639 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 notesNotes to consolidated financial statements.Consolidated Financial Statements.EAGLE BANCORP, INC. Consolidated Statements of Changes in Shareholders' Equity - Continued (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 January 1, 2022 31,950,092 $ 316 $ 434,640 $ 930,061 $ (14,242) $ 1,350,775 Net Income — — — 98,737 — 98,737 Other comprehensive loss, net of tax — — — — (196,397) (196,397) Stock-based compensation expense — — 7,587 — — 7,587 Issuance of common stock related to options exercised, net of shares withheld for payroll taxes 3,289 — 97 — — 97 Vesting of time-based stock awards issued at date of grant, net of shares withheld for payroll taxes (68,931) 2 (2) — — — Vesting of performance-based stock awards, net of shares withheld for payroll taxes 21,026 — — — — — Time-based stock awards granted 166,471 — — — — — Issuance of common stock related to employee stock purchase plan 10,374 — 558 — — 558 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 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 Nine Months Ended September 30, 2017 2016 Cash Flows From Operating Activities: Net Income $ 84,663 $ 71,990 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Provision for credit losses 4,884 9,219 Depreciation and amortization 4,868 4,628 Gains on sale of loans (6,740 ) (8,464 ) Securities premium amortization (discount accretion), net 2,799 3,412 Origination of loans held for sale (481,917 ) (606,213 ) Proceeds from sale of loans held for sale 514,306 584,051 Net increase in cash surrender value of BOLI (1,108 ) (1,171 ) Decrease (increase) deferred income tax benefit 1,293 (754 ) Decrease in value of other real estate owned — 200 Net loss (gain) on sale of other real estate owned 301 (657 ) Net gain on sale of investment securities (542 ) (1,123 ) Stock-based compensation expense 4,199 5,159 Net tax benefits from stock compensation 460 — Excess tax benefits realized from stock compensation — (166 ) Increase in other assets (23,059 ) (8,590 ) Increase in other liabilities 9,553 13,035 Net cash provided by operating activities 113,960 64,556 Cash Flows From Investing Activities: Decrease in interest bearing deposits with other banks and short-term investments — 784 Purchases of available for sale investment securities (144,554 ) (106,163 ) Proceeds from maturities of available for sale securities 55,732 65,727 Proceeds from sale/call of available for sale securities 70,079 94,217 Purchases of Federal Reserve and Federal Home Loan Bank stock (27,665 ) (3,017 ) Proceeds from redemption of Federal Reserve and Federal Home Loan Bank stock 18,285 — Net increase in loans (408,447 ) (491,720 ) Proceeds from sale of other real estate owned 2,144 3,614 Bank premises and equipment acquired (2,459 ) (4,836 ) Net cash used in investing activities (436,885 ) (441,394 ) Cash Flows From Financing Activities: Increase in deposits 197,838 399,705 Increase (decrease) in customer repurchase agreements 4,693 (714 ) Increase in short-term borrowings 200,000 50,000 Increase in long-term borrowings 293 147,491 Proceeds from exercise of equity compensation plans 257 282 Excess tax benefits realized from stock compensation — 166 Proceeds from employee stock purchase plan 631 572 Net cash provided by financing activities 403,712 597,502 Net Increase In Cash and Cash Equivalents 80,787 220,664 Cash and Cash Equivalents at Beginning of Period 368,163 298,363 Cash and Cash Equivalents at End of Period $ 448,950 $ 519,027 Supplemental Cash Flows Information: Interest paid $ 31,257 $ 18,196 Income taxes paid $ 52,800 $ 47,950 Non-Cash Investing Activities Transfers from loans to other real estate owned $ 1,145 $ 2,500 Transfers from other real estate owned to loans $ — $ — Nine Months Ended September 30, 2022 2021 Cash Flows From Operating Activities: Net Income $ 98,737 $ 135,071 Adjustments to reconcile Net Income to net cash provided by operating activities: Provision for (reversal of) credit losses 730 (14,409) Provision for (reversal of) credit losses for unfunded commitments 1,316 (487) Depreciation and amortization 2,483 4,795 Gain on sale of loans (3,168) (11,988) Gain on mortgage servicing rights (872) — Securities premium amortization, net 7,191 3,152 Origination of loans held for sale (264,765) (929,090) Proceeds from sale of loans held for sale 305,764 975,870 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 increase in cash surrender value of BOLI (1,889) (1,429) Stock-based compensation expense 7,587 5,814 Net tax expense from stock-based compensation — — Increase in other assets (19,055) (29,667) Decrease in other liabilities 5,503 89,348 Net Cash Provided by Operating Activities 139,627 224,774 Cash Flows From Investing Activities: Investment securities available-for-sale: Purchases (414,935) (1,059,189) Proceeds from maturities 182,767 233,366 Proceeds from sale/call 6,225 164,569 Investment securities held-to-maturity: Purchases (290,740) — Proceeds from maturities 82,163 — Proceeds from call 19,944 — (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 — Net change in premises and equipment (1,518) (4,973) Net Cash (Used in) Provided by Investing Activities (663,100) 236,959 Cash Flows From Financing Activities: Increase (decrease) in deposits (1,218,190) 479,285 Increase (decrease) in customer repurchase agreements (2,453) 2,675 Proceeds from short-term borrowings 215,000 — Repayment of long-term borrowings — (200,000) Proceeds from issuance of common stock — 327 Proceeds from employee stock purchase plan 558 — Proceeds from exercise of equity compensation plans 97 — Common stock repurchased — (677) Cash dividends paid (41,586) (31,914) 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 Cash and Cash Equivalents at Beginning of Period 1,714,222 1,789,055 Cash and Cash Equivalents at End of Period $ 144,175 $ 2,500,484 EAGLE BANCORP, INC. Consolidated Statements of Cash Flows - Continued (Unaudited) (dollars in thousands) Nine Months Ended September 30, 2022 2021 Supplemental Cash Flows Information: Interest paid $ 49,273 $ 36,831 Income taxes paid $ 16,150 $ 42,986 Non-Cash Operating Activities Initial recognition of operating lease right-of-use assets $ — $ (10,168) Non-Cash Investing Activities 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) notesNotes to consolidated financial statements. 7(the “Company”(together with the Parent, the "Company"), EagleBank (the “Bank”), Eagle Commercial Ventures, LLC (“ECV”), Eagle Insurance Services, LLC, and Bethesda Leasing, LLC, with all significant intercompany transactions eliminated.The amounts as of and for the year ended December 31, 2016 were derived from audited Consolidated Financial Statements. Certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”)GAAP have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. There have been no significant changesCommission ("SEC"). In addition to the Company’s Accounting Policies as disclosedaccounting policies described below, the Company applies the accounting policies contained in Note 1 to Consolidated Financial Statements included in the Company’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016. The Company believes that the disclosures are adequate to make the information presented not misleading.2021. Certain reclassifications have been made to 2021 amounts previously reported to conform to the current period2022 presentation.These statements should be read in conjunction with the audited Consolidated Financial Statements and related notes included in the Company’s Annual Report Reclassifications had no effect on Form 10-K for the year ended December 31, 2016. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results of operations to be expected for the remainder of the year,net income or for any other period.the metropolitanNorthern Virginia, Suburban Maryland, and Washington, D.C area.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 FHAmultifamily Federal Housing Administration ("FHA") loans. The guaranteed portion of small business loans, guaranteed by the Small Business Administration ("SBA"), is typically sold to third party investors in a transaction apart from the loan's origination. The Bank offers its products and services through twenty-onesixteen banking offices, five lending centers and various electronicdigital capabilities, including remote deposit services and mobile banking services. Eagle Insurance Services, LLC, a subsidiary of the Bank, offers access to insurance products and services through a referral program with a third partythird-party insurance broker. Eagle Commercial Ventures, LLC,Landroval Municipal Finance, Inc., a direct subsidiary of the Company, provides subordinated financing forBank, focuses on lending to municipalities by buying debt on the acquisition, development and construction of real estate projects; these transactions involve higher levels of risk, together with commensurate higher returns. Refer to Higher Risk Lending – Revenue Recognition below.maycould differ from those estimates and such differences could be material to the consolidated financial statements.Cash FlowsFor purposes of reporting cash flows, cash and cash equivalents include cash and due from banks, federal funds sold, and interest bearing deposits with other banks which have an original maturity of three months or less.has norecognizes 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 trading, or as heldavailable-for-sale when management may have the intent to sell them prior to maturity. Securities available-for-saleDebt securities are acquiredclassified as part of the Company’s asset/liability management strategyheld-to-maturity and may be sold in response to changes in interest rates, current market conditions, loan demand, changes in prepayment risk and other factors. Securities available-for-sale are carried at fair value, with unrealized gains or losses being reported as accumulated other comprehensive income/(loss), a separate component of shareholders’ equity, net of deferred income tax. Realized gainsamortized cost when management has the positive intent and losses, using the specific identification method, are included as a separate component of noninterest income in the Consolidated Statements of Operations.ability to hold them to maturity.amortized/amortized or accreted to the earlier of call or maturity based on expected lives, which livesinclude prepayment adjustments and call optionality.prepaymenthistorical 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.call optionalityenvironmental factors. The Company reevaluates the qualitative and environmental factors on a quarterly basis.any. Declinesthe 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.individual available-for-sale securities below theirthe collateral and the amortized cost that are other-than-temporary in nature result in write-downsbasis 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.theirsell, 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. Factors affectingvalue through income. For AFS debt securities that do not meet the determination ofaforementioned criteria, the Company evaluates whether other-than-temporary impairmentthe decline in fair value has occurred include a downgradingresulted 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 significant deterioration incredit loss exists, the financial conditionpresent value of cash flows expected to be collected from the security is compared to the amortized cost basis of the issuer, orsecurity. If the present value of cash flows expected to be collected is less than the amortized cost basis, a change in management’s intentcredit loss exists and ability to hold a securityan ACL is recorded for a period of time sufficient to allow for any anticipated recovery in fair value. Management systematically evaluates investment securities for other-than-temporary declines inthe credit loss, limited by the amount that the fair value onis less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income, as a quarterly basis. This analysis requires management to consider various factors, which include the: (1) duration and magnitude of the decline in value; (2) financial condition of the issuer or issuers; and (3) structure of the security.shareholders’shareholders' equity as comprehensive income, net of deferred taxes.Loans HeldSaleThe Company regularly engages in sales of residential mortgage loans held for sale and the guaranteed portion of small business loans, guaranteed by the Small Business Administration (“SBA”), and originated by the Bank. The Company has elected to carry loans held for sale at fair value. Fair value is derived from secondary market quotations for similar instruments. Gains andcredit losses on sales of these loans are recorded as a componentprovision for (or reversal of) credit losses. Losses are charged against the allowance when management believes the uncollectibility of noninterest income inan AFS security is confirmed or when either of the Consolidated Statements of Operations.The Company’s current practice iscriteria regarding intent or requirement to sell residential mortgage loans heldis met. Any impairment not recorded through an allowance for sale oncredit loss is recognized in other comprehensive income as a servicing released basis, and, therefore, it has no intangible asset recorded in the normal course of business for the value of such servicing as of September 30, 2017, December 31, 2016 and September 30, 2016. The sale of the guaranteed portion of SBA loans onnon-credit-related impairment.servicing retained basis, in a transaction apartpolicy election to exclude accrued interest from the loan’s origination, gives rise to an excess servicing asset, which is computed on a loan by loanamortized cost basis with the unamortized amount being includedof available-for-sale debt securities and report accrued interest separately in intangibleother assets in the Consolidated Balance Sheets. This excess servicing assetAvailable-for-sale debt securities are placed on nonaccrual status when we no longer expect to receive all contractual amounts due, which is being amortizedgenerally 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.straight-line basis (with adjustment for prepayments) as an offset to servicing fees collected and is included in other income in the Consolidated Statements of Operations.The Company enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is determined prior to funding (i.e. interest rate lock commitments). Such interest rate lock commitments on mortgage loans to be sold in the secondary market are considered to be derivatives. To protect against the price risk inherent in residential mortgage loan commitments, the Company utilizes both “best efforts” and “mandatory delivery” forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. Under a “best efforts” contract, the Company commits to deliver an individual mortgage loan of a specified principal amount and quality to an investor and the investor commits to a price that it will purchase the loan from the Company if the loan to the underlying borrower closes. The Company protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the investor commits to purchase a loan at a price representing a premium on the day the borrower commits to an interest rate with the intent that the buyer/investor has assumed the interest rate risk on the loan. As a result, the Bank is not generally exposed to losses on loans sold utilizing best efforts, nor will it realize gains related to rate lock commitments due to changes in interest rates. The market values of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because rate lock commitments and best efforts contracts are not actively traded. Because of the high correlation between rate lock commitments and best efforts contracts, no gain or loss should occur on the interest rate lock commitments. Under a “mandatory delivery” contract, the Company commits to deliver a certain principal amount of mortgage loans to an investor at a specified price on or before a specified date. If the Company fails to deliver the amount of mortgages necessary to fulfill the commitment by the specified date, it is obligated to pay the investor a “pair-off” fee, based on then-current market prices, to compensate the investor for the shortfall. The Company manages the interest rate risk on interest rate lock commitments by entering into forward sale contracts of mortgage backed securities, whereby the Company obtains the right to deliver securities to investors in the future at a specified price. Such contracts are accounted for as derivatives and are recorded at fair value in derivative assets or liabilities, carried on the Consolidated Balance Sheet within other assets or other liabilities with changes in fair value recorded in other income within the Consolidated Statements of Operations. The period of time between issuance of a loan commitment to the customer and closing and sale of the loan to an investor generally ranges from 30 to 90 days under current market conditions. The gross gains on loan sales are recognized based on new loan commitments with adjustment for price and pair-off activity. Commission expenses on loans held for sale are recognized based on loans closed.In circumstances where the Company does not deliver the whole loan to an investor, but rather elects to retain the loan in its portfolio, the loan is transferred from held for sale to loans at fair value at date of transfer.The Company originates a small number of 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 sells the resulting securities in the open market to authorized dealers in the normal course of business and generally retains the servicing rights. When servicing is retained on FHA loans securitized and sold, the Company computes an excess servicing asset on a loan by loan basis with the unamortized amount being included in intangible assets in the Consolidated Balance Sheets. Revenue represents gains from the sale of the Ginnie Mae securities and net revenues earned on the servicing of FHA loans securitizing the Ginnie Mae securities. The gains on Ginnie Mae securities include the realized and unrealized gains and losses on sales of FHA mortgage loans, as well as the changes in fair value of FHA interest rate lock commitments and FHA forward loan sale commitments. Revenue from servicing commercial FHA mortgagessecurity's credit rating, which is recognized as earned based on the specific contractual terms of the underlying servicing agreements, along with amortization of and changes in impairment of mortgage servicing rights.LoansLoans are stated at the principal amount outstanding, net of unamortized deferred costs and fees. Interest income on loans is accrued at the contractual rate on the principal amount outstanding. It is the Company’s policy to discontinue the accrual of interest when circumstances indicate that collection is doubtful. Deferred fees and costs are being amortized on the interest method over the term of the loan.Management considers loans impaired when, based on current information, it is probable that the Company will not collect all principal and interest payments according to contractual terms. Loans are evaluated for impairment in accordance with the Company’s portfolio monitoring and ongoing risk assessment procedures. Management considers the financial condition of the borrower, cash flow of the borrower, payment status of the loan, and the value of the collateral, if any, securing the loan. Generally, impaired loans do not include large groups of smaller balance homogeneous loans such as residential real estate and consumer type loans which are evaluated collectively for impairment and are generally placed on nonaccrual when the loan becomes 90 days past due as to principal or interest. Loans specifically reviewed for impairment are not considered impaired during periods of “minimal delay” in payment (90 days or less) provided eventual collection of all amounts due is expected. The impairment of a loan is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if repayment is expected to be provided solely by the collateral. In appropriate circumstances, interest income on impaired loans may be recognized on a cash basis.Higher Risk Lending – Revenue RecognitionThe Company had occasionally made higher risk acquisition, development, and construction (“ADC”) loans that entailed higher risks than ADC loans made following normal underwriting practices (“higher risk loan transactions”). These higher risk loan transactions were made through the Company’s subsidiary, ECV. This activity was limited as to individual transaction amount and total exposure amounts, based on capital levels, and is carefully monitored. The loans are carried on the balance sheet at amounts outstanding. ECV had three higher risk loan transactions outstanding as of September 30, 2017 and December 31, 2016, amounting to $9.5 million and $9.3 million, respectively.Allowance for Credit LossesThe allowance for credit losses represents an amount which, in management’s judgment, is adequate to absorb probable losses on loans and other extensions of credit that may become uncollectible. The adequacypart 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 determinedindividually-evaluated and a discounted cash flow analysis is performed and compared to the amortized cost basis.careful and continuous review and evaluation of the loan portfolio and involves the balancing of a number of factorscharge to establish a prudent level of allowance. Among the factors considered in evaluating the adequacy of the allowanceprovision for credit losses are lending risks associated with growth and entry into new markets, loss allocations for specific credits, the level of the allowance to nonperforming loans, historical loss experience, economic conditions, portfolio trends and credit concentrations, changesexpense in the sizeCompany'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 character ofis included in the loan portfolio, and management’s judgment with respect to current and expected economic conditions and their impactRUC on the existing loan portfolio. Allowances for impaired loans are generally determined based on collateral values. Loans or any portion thereof deemed uncollectible are charged against the allowance, while recoveries are credited to the allowance. Management adjusts the levelCompany's Consolidated Balance Sheet. the allowance through the provision for credit losses which is recordedincluded 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) current period operating expense. The allowancesingle liability instrument and more convertible preferred stock as a single equity instrument with no separate accounting for credit losses consists of allocated and unallocated components.The components of the allowance for credit losses represent an estimation done pursuant to Accounting Standards Codification (“ASC”) Topic 450,“Contingencies,” or ASC Topic 310,“Receivables.” Specific allowances are established in cases where management has identified significant conditions or circumstances related to a specific credit that management believes indicate the probability that a loss may be incurred. For potential problem credits for which specific allowance amounts have not been determined, the Company establishes allowances according to the application of credit risk factors. These factors are set by management and approved by the appropriate Board committee to reflect its assessment of the relative level of risk inherent in each risk grade. A third component of the allowance computation, termed a nonspecific or environmental factors allowance, is based upon management’s evaluation of various environmentalembedded conversion features. ASU 2020-06 removes certain settlement conditions that are not directly measured in the determination of either the specific allowance or formula allowance. Such conditions include general economic and business conditions affecting key lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expectedrequired for equity contracts to result from existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examination results, findings of outside review consultants, and management’s judgment with respect to various other conditions including credit administration and management and the quality of risk identification systems. Executive management reviews these environmental conditions quarterly, and documents the rationalequalify for all changes.Management believes that the allowance for credit losses is adequate; however, determination of the allowance is inherently subjective and requires significant estimates. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. Evaluation of the potential effects of these factors on estimated losses involves a high degree of uncertainty, including the strength and timing of economic cycles and concerns over the effects of a prolonged economic downturn in the current cycle. In addition, various banking agencies, as an integral part of their examination process, and independent consultants engaged by the Bank, periodically review the Bank’s loan portfolio and allowance for credit losses. Such review may result in recognition of additions to the allowance based on their judgments of information available to them at the time of their examination.Premises and EquipmentPremises and equipment are stated at cost less accumulated depreciation and amortization computed using the straight-line method for financial reporting purposes. Premises and equipment are depreciated over the useful lives of the assets, which generally range from three to seven years for furniture, fixtures and equipment, three to five years for computer software and hardware, and five to twenty years for building improvements. Leasehold improvements are amortized over the terms of the respective leases, which may include renewal options where management has the positive intent to exercise such options, or the estimated useful lives of the improvements, whichever is shorter. The costs of major renewals and betterments are capitalized, while the costs of ordinary maintenance and repairs are expensed as incurred. These costs are included as a component of premises and equipment expenses on the Consolidated Statements of Operations.Other Real Estate Owned (OREO)Assets acquired through loan foreclosure are held for sale and are recorded at fair value less estimated selling costs when acquired, establishing a new cost basis. The new basis is supported by appraisals that are generally no more than twelve months old. Costs after acquisition are generally expensed. If the fair value of the asset declines, a write-down is recorded through noninterest expense. The valuation of foreclosed assets is subjective in nature and may be adjusted in the future because of changes in market conditions or appraised values.Goodwill and Other Intangible AssetsGoodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit intangibles, are amortized over their estimated useful lives and subject to periodic impairment testing. Intangible assets (other than goodwill) are amortized to expense using accelerated or straight-line methods over their respective estimated useful lives.Goodwill is subject to impairment testing at the reporting unit level, which must be conducted at least annually. The Company performs impairment testing during the fourth quarter of each year or when events or changes in circumstances indicate the assets might be impaired.The Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing updated qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it does not have to perform the two-step goodwill impairment test. Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables. Based on the results of qualitative assessments of all reporting units, the Company concluded that no impairment existed at December 31, 2016. However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.Interest Rate Swap DerivativesThe Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and through the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments designated as cash flow hedges are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to certain variable rate deposits. Refer to the “Loans Held for Sale” section for a discussion on forward commitment contracts, which are also considered derivatives.At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief asscope exception, which will permit more equity contracts to likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value hedge”), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”), or (3) an instrument with no hedging designation (“stand-alone derivative”). Regarding Interest Rate Swap Derivatives, the Company has no fair value hedges, only cash flow hedges. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same period(s) during which the hedged transaction affects earnings (i.e. the period when cash flows are exchanged between counterparties). For both fair value and cash flow hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported currently in earnings, as noninterest income.Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based onit. ASU 2020-06 also simplifies the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer highly effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income or expense. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will affect earnings.Customer Repurchase AgreementsThe Company enters into agreements under which it sells securities subject to an obligation to repurchase the same securities. Under these arrangements, the Company may transfer legal control over the assets but still retain effective control through an agreement that both entitles and obligates the Company to repurchase the assets. As a result, securities sold under agreements to repurchase are accounted for as collateralized financing arrangements and not as a sale and subsequent repurchase of securities. The agreements are entered into primarily as accommodations for large commercial deposit customers. The obligation to repurchase the securities is reflected as a liability in the Company’s Consolidated Balance Sheets, while the securities underlying the securities sold under agreements to repurchase remain in the respective assets accounts and are delivered to and held as collateral by third party trustees.Marketing and AdvertisingMarketing and advertising costs are generally expensed as incurred.Income TaxesThe Company employs the asset and liability method of accounting for income taxes as required by ASC Topic 740, “Income Taxes.” Under this method, deferred tax assets and liabilities are determined based on differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities (i.e., temporary timing differences) and are measured at the enacted rates that will be in effect when these differences reverse. In accordance with ASC Topic 740, the Company may establish a reserve against deferred tax assets in those cases where realization is less than certain, although no such reserves exist at September 30, 2017, December 31, 2016, or September 30, 2016.Transfer of Financial AssetsTransfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. In certain cases, the recourse to the Bank to repurchase assets may exist but is deemed immaterial based on the specific facts and circumstances.Earnings per Common ShareBasic net income per common share is derived by dividing net income by the weighted-average number of common shares outstanding during the period measured. Diluteddiluted earnings per common share is computed by dividing net income by the weighted-average number of common shares outstanding during the period measured including the potential dilutive effects of common stock equivalents.Stock-Based CompensationIn accordance with ASC Topic 718,“Compensation,” the Company records as compensation expense an amount equal to the amortization (over the remaining service period) of the fair value of option and restricted stock awards computed at the date of grant. Compensation expense on performance based grants is recorded based on the probability of achievement of the goals underlying the performance grant. Refer to Note 10 for a description of stock-based compensation awards, activity and expense.New Authoritative Accounting GuidanceASU 2014-09,“Revenue from Contracts with Customers (Topic 606).”In May 2014, the FASB and the International Accounting Standards Board (the “IASB”) jointly issued a comprehensive new revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP and International Financial Reporting Standards (“IFRS”). Previous revenue recognition guidance(EPS) calculation in GAAP consisted of broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. In contrast, IFRS provided limited revenue recognition guidance and, consequently, could be difficult to apply to complex transactions. Accordingly, the FASB and the IASB initiated a joint project to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS that would: (1) remove inconsistencies and weaknesses in revenue requirements; (2) provide a more robust framework for addressing revenue issues; (3) improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets; (4) provide more useful information to users of financial statements through improved disclosure requirements; and (5) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. To meet those objectives, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers.” The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies generally will be required to use more judgment and make more estimates than under current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. The standard was initially effective for public entities for interim and annual reporting periods beginning after December 15, 2016; early adoption was not permitted. However, in August 2015, the FASB issued ASU No. 2015-14, “Revenue from Contracts with Customers - Deferral of the Effective Date” which deferred the effective date by one year (i.e., interim and annual reporting periods beginning after December 15, 2017). For financial reporting purposes, the standard allows for either full retrospective adoption, meaning the standard is applied to all of the periods presented, or modified retrospective adoption, meaning the standard is applied only to the most current period presented in the financial statements with the cumulative effect of initially applying the standard recognized at the date of initial application.certain areas. In addition, the FASB has begunamendment updates the disclosure requirements for convertible instruments to issue targeted updates to clarify specific implementation issues of ASU 2014-09. These updates include ASU No. 2016-08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU No. 2016-10, “Identifying Performance Obligations and Licensing,” ASU No. 2016-12, “Narrow-Scope Improvements and Practical Expedients,” and ASU No. 2016-20 “Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.” Sinceincrease the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, the Company does not expect the new guidance to have a material impact on revenue most closely associated with financial instruments, including interest income and expense. The Company is substantially complete with its overall assessment of revenue streams and reviewing of related contracts potentially affected by the ASU including deposit related fees, sale of OREO, interchange fees, and other fee income. The Company’s assessment suggests that adoption of this ASU should not materially change the method in which we currently recognize revenue for these revenue streams. The Company is also substantially complete with its evaluation of certain costs related to these revenue streams to determine whether such costs should be presented as expenses or contra-revenue (i.e., gross vs. net). In addition, the Company is evaluating the ASU’s expanded disclosure requirements. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach with a cumulative effect adjustment to opening retained earnings, if such adjustment is deemed to be material.ASU 2016-01,“Financial Instruments—(Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments by making targeted improvements to GAAP as follows: (1) require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer; (2) simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment. When a qualitative assessment indicates that impairment exists, an entity is required to measure the investment at fair value; (3) eliminate the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (4) eliminate the requirement forinformation transparency. For public business entities, to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (5) require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (6) require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; (7) require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (8) clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU No. 2016-01 is effective for interim and annualexcluding smaller reporting periods beginning after December 15, 2017. The Company has performed a preliminary evaluation of the provisions of ASU No. 2016-01. Based on this evaluation, the Company has determined that ASU No. 2016-01 is not expected to have a material impact on the Company’s Consolidated Financial Statements; however, the Company will continue to closely monitor developments and additional guidance.ASU 2016-02,“Leases (Topic 842).” Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases): (1) a lease liability, which is the present value of a lessee’s obligation to make lease payments, and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting under the new guidance remains largely unchanged as it is substantially equivalent to existing guidance for sales-type leases, direct financing leases, and operating leases. Leveraged leases have been eliminated, although lessors can continue to account for existing leveraged leases using the current accounting guidance. Other limited changes were made to align lessor accounting with the lessee accounting model and the new revenue recognition standard. All entities will classify leases to determine how to recognize lease-related revenue and expense. Quantitative and qualitative disclosures will be required by lessees and lessors to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The intention is to require enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. ASU 2016-02 is effective for interim and annual reporting periods beginning after December 15, 2018; early adoption is permitted. All entities are required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. They have the option to use certain relief; full retrospective application is prohibited. The Company is currently evaluating the provisions of ASU 2016-02 and will be closely monitoring developments and additional guidance to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.ASU 2016-09,“Improvements to Employee Share-Based Payment Accounting (Topic 718).” ASU 2016-09 includes provisions intended to simplify various aspects related to how share-based payments are accounted for and presented in the financial statements. Some of the key provisions of this new ASU include: (1) companies, will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC pools will be eliminated. The guidance also eliminates the requirement that excess tax benefits be realized before companies can recognize them. In addition, the guidance requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity; (2) increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. The new guidance also requires an employer to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on its statement of cash flows (prior guidance did not specify how these cash flows should be classified); and (3) permit companies to make an accounting policy election for the impact of forfeitures on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when they occur. ASU 2016-09 was effective for the Company on January 1, 2017 and the adoption of this new standard (ASU 2016-09) resulted in a net $460 thousand, or $0.01 per basic common share, reduction to income tax expense for the nine months ended September 30, 2017.ASU 2016-13,“Measurement of Credit Losses on Financial Instruments (Topic 326).” This ASU significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities. As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective for interim and annual reporting periods beginning after December 15, 2019; early adoption is permitted for interim and annual reporting periods beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach). The Company is currently evaluating the provisions of ASU No. 2016-13 to determine the potential impact the new standard will have on the Company’s Consolidated Financial Statements.ASU No. 2016-15,“Classification of Certain Cash Receipts and Cash Payments.” FASB issued this update in August 2016. Current GAAP is unclear or does not include specific guidance on how to classify certain transactions in the statement of cash flows. This ASU is intended to reduce diversity in practice in how eight particular transactions are classified in the statement of cash flows. ASU No. 2016-15 is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted, provided that all of the amendments in ASU 2020-06 are adopted in the same period. Entities will be required to apply the guidance retrospectively. If it is impracticable to apply the guidance retrospectively for an issue, the amendments related to that issue would be applied prospectively. As this guidance only affects the classification within the statement of cash flows, ASU No. 2016-15 is not expected to have a material impact on the Company’s Consolidated Financial Statements.ASU No. 2017-04,“Simplifying the Test for Goodwill Impairment.” FASB issued this update in January 2017. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. Goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. All other goodwill impairment guidance will remain largely unchanged. ASU No. 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019, applied prospectively. Early adoption is permitted for any impairment tests performed after January 1, 2017. The Company expects to early adopt upon the next goodwill impairment test in 2017. ASU No. 2017-04 is not expected to have a material impact on the Company’s Consolidated Financial Statements.ASU 2017-12,“Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities(ASU 2017-12)”. The Financial Accounting Standards Board issued this update in August 2017. The purpose of this updated guidance is to better align a company’s financial reporting for hedging activities with the economic objectives of those activities. ASU 2017-12 is effective for public business entities for fiscal years beginning after December 15, 2018,2021, and interim periods within those fiscal years. ASU 2020-06 did not have a material impact on the Company's consolidated financial statements.early adoption, including adoption inno 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 permitted.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.Company plans to adoptimpact of ASU 2017-12 on January 1, 2019. ASU 2017-12 requires2022-02 should be applied prospectively, or, for the recognition and measurement of TDRs, with a modified retrospective transition method in which the Company will recognize the cumulative effect of the change on the opening balance of each affected component of equitymethod. We are currently in the statementprocess of financial position as of the date of adoption. While the Company continues to assess all potential impacts of the standard, we currently expect adoption to have an immaterial impact on our consolidated financial statements.evaluating this guidance.Regulation Dthe Federal Reserve Act requires that banks maintain noninterest reserve balancescash collateral with the Federal Reserve Bank based principally on the type and amount of their deposits. During 2017, the Bank maintained balances at the Federal Reserve sufficient to meet reserve requirements, as well as significant excess reserves, on which interest is paid.interest bearinginterest-bearing balances with the Federal Home Loan Bank of Atlanta ("FHLB") and noninterest bearingnoninterest-bearing balances with domestic correspondent banks as compensationto cover associated costs for services they provide to the Bank. Available-for-SaleAmortized available-for-sale are summarized as follows: Gross Gross Estimated September 30, 2017 Amortized Unrealized Unrealized Fair (dollars in thousands) Cost Gains Losses Value U. S. agency securities $ 179,100 $ 342 $ 1,524 $ 177,918 Residential mortgage backed securities 303,822 374 2,670 301,526 Municipal bonds 61,593 1,673 119 63,147 Corporate bonds 13,011 206 — 13,217 Other equity investments 218 — — 218 $ 557,744 $ 2,595 $ 4,313 $ 556,026 Gross Gross Estimated December 31, 2016 Amortized Unrealized Unrealized Fair (dollars in thousands) Cost Gains Losses Value U. S. agency securities $ 107,425 $ 519 $ 1,802 $ 106,142 Residential mortgage backed securities 329,606 324 3,691 326,239 Municipal bonds 94,607 1,723 400 95,930 Corporate bonds 9,508 82 11 9,579 Other equity investments 218 — — 218 $ 541,364 $ 2,648 $ 5,904 $ 538,108 Gross Gross Allowance Estimated Amortized Unrealized Unrealized for Credit Fair (dollars in thousands) Cost Gains Losses Losses 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 Investment securities held-to-maturity: Residential mortgage-backed securities $ 761,304 $ — $ (87,023) $ 674,281 $ — Commercial mortgage-backed securities 92,948 — (11,215) 81,733 — Municipal bonds 128,386 — (15,512) 112,874 (16) Corporate bonds 132,248 — (12,135) 120,113 (786) Total $ 1,114,886 $ — $ (125,885) $ 989,001 $ (802) 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 2017,2022 and December 31, 2021 the Company held $31.0$42.3 million and $34.2 million, respectively, in equity securities in a combination of Federal Reserve Bank (“FRB”)FRB and Federal Home Loan Bank (“FHLB”)FHLB stocks, which arewere required to be held for regulatory purposes and which arewere not marketable, and therefore are carried at cost.Grossfair value$6.0 million at September 30, 2022 and December 31, 2021, respectively, and accrued interest receivable on held-to-maturity securities totaled $3.8 million at September 30, 2022. 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.time that the individual available-for-sale securities have been in a continuous unrealized loss position are as follows: Less than 12 Months 12 Months or Greater Total Estimated Estimated Estimated September 30, 2017 Number of Fair Unrealized Fair Unrealized Fair Unrealized (dollars in thousands) Securities Value Losses Value Losses Value Losses U. S. agency securities 32 $ 97,832 $ 1,101 $ 28,299 $ 423 $ 126,131 $ 1,524 Residential mortgage backed securities 113 198,670 1,523 55,920 1,147 254,590 2,670 Municipal bonds 5 13,301 119 — — 13,301 119 150 $ 309,803 $ 2,743 $ 84,219 $ 1,570 $ 394,022 $ 4,313 Less than 12 Months 12 Months or Greater Total Estimated Estimated Estimated December 31, 2016 Number of Fair Unrealized Fair Unrealized Fair Unrealized (dollars in thousands) Securities Value Losses Value Losses Value Losses U. S. agency securities 27 $ 88,991 $ 1,764 $ 3,768 $ 38 $ 92,759 $ 1,802 Residential mortgage backed securities 112 232,347 3,110 19,402 581 251,749 3,691 Municipal bonds 16 34,743 400 — — 34,743 400 Corporate bonds 2 4,998 11 — — 4,998 11 157 $ 361,079 $ 5,285 $ 23,170 $ 619 $ 384,249 $ 5,904 The unrealizedtime: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) that exist areat September 30, 2022 were generally the result ofattributable to changes in market interest rates and interest spread relationships since original purchases.the investment securities were originally purchased, and not due to the credit quality concerns on the investment securities. However, as of September 30, 2022, 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, an allowance for credit losses of $18 thousand was recorded for AFS securities and $802 thousand for HTM securities. The weighted average duration of debt securities, which comprise 99.9%100% of total investment securities,securities, is relatively short at 3.54.84 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’ssecurity's credit rating, prepayment assumptions and other factors such as credit loss assumptions. The Company does not believe that the investment securities that were in an unrealized loss position as of September 30, 2017 represent an other-than-temporary impairment. The Company does not intendcurrently 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.investments available-for-sale and held-to-maturity securities at September 30, 20172022 and December 31, 20162021 by contractual maturity are shown in the table below. ExpectedContractual maturities for residential mortgage backedmortgage-backed securities will("MBS") are excluded as they may differ significantly from contractualexpected maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. September 30, 2017 December 31, 2016 Amortized Estimated Amortized Estimated (dollars in thousands) Cost Fair Value Cost Fair Value U. S. agency securities maturing: One year or less $ 90,495 $ 89,503 $ 83,885 $ 82,548 After one year through five years 74,481 74,433 20,736 20,897 Five years through ten years 14,124 13,982 2,804 2,697 Residential mortgage backed securities 303,822 301,526 329,606 326,239 Municipal bonds maturing: One year or less 2,537 2,586 1,056 1,070 After one year through five years 21,116 21,875 45,808 46,865 Five years through ten years 36,868 37,493 46,668 46,839 After ten years 1,072 1,193 1,075 1,156 Corporate bonds After one year through five years 11,511 11,717 8,008 8,079 After ten years 1,500 1,500 1,500 1,500 Other equity investments 218 218 218 218 $ 557,744 $ 556,026 $ 541,364 $ 538,108 September 30, 2022 December 31, 2021 Amortized Estimated Amortized Estimated (dollars in thousands) 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 2017,2022, gross realized gains on sales and calls of investments securities were $4 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. For the three and nine months ended September 30, 2022, gross realized losses on sales of investments securities were $795$0 and $187 thousand, respectively as compared to $0 and gross realized losses on$187 thousand for the same three and nine month period for the prior year. Gross sales of investment securitiesand call proceeds were $254 thousand. For$12.6 million and $32.7 million for the three and nine months ended September 30, 2016, gross realized gains on sales of investments securities were $1.32022 and $85.5 million and gross realized losses on sales of investment securities were $202 thousand.Proceeds from sales and calls of investment securities$164.6 million for the nine months ended September 30, 2017 were $70.1 million, andsame periods in 2016 were $94.2 million.carryingbook 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, 20172022 and December 31, 2021 was $459.9 $146.1 million and $261.0 million, respectively, which iswere well in excess of required amounts in order to operationally provide significant reserve amounts for new business. As of September 30, 20172022 and December 31, 2016,2021, 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’shareholders' equity.Note 4. Mortgage Banking DerivativeAs part of its mortgage banking activities, the Bank enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the customers have locked into that interest rate. The Bank then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs (“best efforts”) or commits to deliver the locked loan in a binding (“mandatory”) delivery program with an investor. Certain loans under interest rate lock commitments are covered under forward sales contracts of mortgage backed securities (“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.At September 30, 2017 the Bank had mortgage banking derivative financial instruments with a notional value of $59.6 million related to its forward contracts as compared to $81.7 million at September 30, 2016. The fair value of these mortgage banking derivative instruments at September 30, 2017 was $63 thousand included in other assets and $36 thousand included in other liabilities as compared to $217 thousand included in other assets and $222 thousand included in other liabilities at September 30, 2016.Included in other noninterest income for the three and nine months ended September 30, 2017 was a net gain of $71 thousand and a net gain of $335 thousand, relating to mortgage banking derivative instruments as compared to a net loss of $46 thousand and a net gain of $274 thousand for the three and nine months ended September 30, 2016. The amount included in other noninterest income for the three and nine months ended September 30, 2017 pertaining to its mortgage banking hedging activities was a net realized loss of $14 thousand and $912 thousand as compared to a net realized gain of $151 thousand and net unrealized loss of $156 thousand for the same periods in September 30, 2016.5.4. Loans and Allowance for Credit LossesBank’sBank's loan portfolio consists of loans to businesses secured by real estate and other business assets.2017,2022 and December 31, 2016, and September 30, 20162021 are summarized by type as follows: September 30, 2017 December 31, 2016 September 30, 2016 (dollars in thousands) Amount % Amount % Amount % Commercial $ 1,244,184 20 % $ 1,200,728 21 % $ 1,130,042 21 % Income producing - commercial real estate 2,898,948 48 % 2,509,517 44 % 2,551,186 46 % Owner occupied - commercial real estate 749,580 12 % 640,870 12 % 590,427 11 % Real estate mortgage - residential 109,460 2 % 152,748 3 % 154,439 3 % Construction - commercial and residential* 915,493 15 % 932,531 16 % 838,137 15 % Construction - C&I (owner occupied) 55,828 1 % 126,038 2 % 104,676 2 % Home equity 101,898 2 % 105,096 2 % 106,856 2 % Other consumer 8,813 — 10,365 — 6,212 — Total loans 6,084,204 100 % 5,677,893 100 % 5,481,975 100 % Less: allowance for credit losses (62,967 ) (59,074 ) (56,864 ) Net loans $ 6,021,237 $ 5,618,819 $ 5,425,111 *Includes land loans.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) $ 7,228,731 $ 6,990,633 $23.3 million, $22.3$27.4 million and $20.9$26.9 million at September 30, 2017,2022 and December 31, 2016, and September 30, 2016,2021, respectively.20172022 and December 31, 2016,2021, the Bank serviced $176.5$362.7 million and $128.8$351.1 million, respectively, of multifamily FHA loans, SBA loans and other loan participations whichthat are not reflected as loan balances on the Consolidated Balance Sheets.Loan Origination / Risk ManagementThe Company’s goal is to mitigate risks in the event of unforeseen threats to the loan portfolio as a result of economic downturn or other negative influences. Plans for mitigating inherent risks in managing loan assets include: carefully enforcing loan policies and procedures, evaluating each borrower’s business plan during the underwriting process and throughout the loan term, identifying and monitoring primary and alternative sources for loan repayment, and obtaining collateral to mitigate economic loss in the event of liquidation. Specific loan reserves are established based upon credit and/or collateral risks on an individual loan basis. A risk rating system is employed to proactively estimate loss exposure and provide a measuring system for setting general and specific reserve allocations.The composition of the Company’s loan portfolio is heavily weighted toward commercial realboth owner occupied and income producing real estate. At September 30, 2017, owner occupied - commercial real estate and construction - C&I (owner occupied) represent approximately 13% of the loan portfolio. At September 30, 2017, non-owner occupied commercial real estate and real estate construction represented approximately 63% of the loan portfolio. The combined owner occupied and commercial real estate loans represent approximately 76% of the loan portfolio. These loans are underwritten to mitigate lending risks typical of this type of loan such as declines in real estate values, changes in borrower cash flow and general economic conditions. The Bank typically requires a maximum loan to value of 80% and minimum cash flow debt service coverage of 1.15 to 1.0. Personal guarantees may be required, but may be limited. In making real estate commercial mortgage loans, the Bank generally requires that interest rates adjust not less frequently than five years.The Company is also an active traditional commercial lender providing loans for a variety of purposes, including working capital, equipment and account receivable financing. This loan category represents approximately 20% of the loan portfolio at September 30, 2017 and was generally variable or adjustable rate. Commercial loans meet reasonable underwriting standards, including appropriate collateral and cash flow necessary to support debt service. Personal guarantees are generally required, but may be limited. SBA loans represent approximately 2% of the commercial loan category of loans. In originating SBA loans, the Company assumes the risk of non-payment on the unguaranteed portion of the credit. The Company generally sells the guaranteed portion of the loan generating noninterest income from the gains on sale, as well as servicing income on the portion participated. SBA loans are subject to the same cash flow analyses as other commercial loans. SBA loans are subject to a maximum loan size established by the SBA.Approximately 2% of the loan portfolio at September 30, 2017 consists of home equity loans and lines of credit and other consumer loans. These credits, while making up a small portion of the loan portfolio, demand the same emphasis on underwriting and credit evaluation as other types of loans advanced by the Bank.Approximately 2% of the loan portfolio consists of residential mortgage loans. The repricing duration of these loans was 15 months. These credits represent first liens on residential property loans originated by the Bank. While the Bank’s general practice is to originate and sell (servicing released) loans made by its Residential Lending department, from time to time certain loan characteristics do not meet the requirements of third party investors and these loans are instead maintained in the Bank’s portfolio until they are resold to another investor at a later date or mature.Loans are secured primarily by duly recorded first deeds of trust or mortgages. In some cases, the Bank may accept a recorded junior trust position. In general, borrowers will have a proven ability to build, lease, manage and/or sell a commercial or residential project and demonstrate satisfactory financial condition. Additionally, an equity contribution toward the project is customarily required.fixed pricefixed-price contracts are required whenever appropriate, along with payment and performance bonds or completion bonds for larger scale projects.and;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.Loan Committee.borrower’sborrower's architect. Each draw request shall also include the borrower’sborrower'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.whichthat 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.Company’sCompany's loan portfolio includes ADCacquisition, development and construction ("ADC") real estate loans including both investment and owner occupiedowner-occupied projects. ADC loans amounted to $1.44$1.5 billion at September 30, 2017.2022. A portion of the ADC portfolio, both speculative and non-speculative, includes loan fundedloan-funded interest reserves at origination. ADC loans are serviced by loan fundedthat provide for the use of interest reserves and represent approximately 79%54.1% of the outstanding ADC loan portfolio at September 30, 2017.2022. The decision to establish a loan-funded interest reserve is made upon origination of the ADC loan and is based upon a number of factors considered during underwriting of the credit, including: (1) the feasibility of the project; (2) the experience of the sponsor; (3) the creditworthiness of the borrower and guarantors; (4) the borrower equity contribution; and (5) the level of collateral protection. When appropriate, an interest reserve provides an effective means of addressing the cash flow characteristics of a properly underwritten ADC loan. The Company does not significantly utilize interest reserves in other loan products. 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’sborrower's ability to repay the loan. In order to mitigate thisthese inherent risk,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 whichthat are monitored on an ongoing basis whichand 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 includesinclude monitoring of current and projected real estate market conditions. If a project has not performed as expected, it is not the customary practice of the Company to increase loan fundedloan-funded interest reserves.From time to time the Company may make loans for its own portfolio or through its higher risk loan affiliate, ECV. Such loans, which are made to finance projects (which may also be financed at the Bank level), may have higher risk characteristics than loans made by the Bank, such as lower priority interests and/or higher loan to value ratios. The Company seeks an overall financial return on these transactions commensurate with the risks and structure of each individual loan. Certain transactions may bear current interest at a rate with a significant premium to normal market rates. Other loan transactions may carry a standard rate of current interest, but also earn additional interest based on a percentage of the profits of the underlying project or a fixed accrued rate of interest.Allowance for Credit Losses20172022 and 2016.2021. 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 preclude its availabilityrestrict the use of the allowance to absorb losses in other categories. Income Producing - Owner Occupied - Real Estate Construction - Commercial Commercial Mortgage Commercial and Home Other (dollars in thousands) Commercial Real Estate Real Estate Residential Residential Equity Consumer Total Three months ended September 30, 2017 Allowance for credit losses: Balance at beginning of period $ 14,225 $ 23,308 $ 4,189 $ 1,081 $ 16,727 $ 1,216 $ 301 $ 61,047 Loans charged-off (522 ) — — — (39 ) — (32 ) (593 ) Recoveries of loans previously charged-off 407 30 — 2 146 1 6 592 Net loans (charged-off) recoveries (115 ) 30 — 2 107 1 (26 ) (1 ) Provision for credit losses (2,266 ) (963 ) 1,273 (126 ) 4,052 (120 ) 71 1,921 Ending balance $ 11,844 $ 22,375 $ 5,462 $ 957 $ 20,886 $ 1,097 $ 346 $ 62,967 Nine months ended September 30, 2017 Allowance for credit losses: Balance at beginning of period $ 14,700 $ 21,105 $ 4,010 $ 1,284 $ 16,487 $ 1,328 $ 160 $ 59,074 Loans charged-off (659 ) (1,470 ) — — (39 ) — (98 ) (2,266 ) Recoveries of loans previously charged-off 675 80 2 5 491 4 18 1,275 Net loans charged-off 16 (1,390 ) 2 5 452 4 (80 ) (991 ) Provision for credit losses (2,872 ) 2,660 1,450 (332 ) 3,947 (235 ) 266 4,884 Ending balance $ 11,844 $ 22,375 $ 5,462 $ 957 $ 20,886 $ 1,097 $ 346 $ 62,967 As of September 30, 2017 Allowance for credit losses: Individually evaluated for impairment $ 3,246 $ 1,378 $ 1,005 $ — $ 2,900 $ 90 $ 81 $ 8,700 Collectively evaluated for impairment 8,598 20,997 4,457 957 17,986 1,007 265 54,267 Ending balance $ 11,844 $ 22,375 $ 5,462 $ 957 $ 20,886 $ 1,097 $ 346 $ 62,967 Three months ended September 30, 2016 Allowance for credit losses: Balance at beginning of period $ 13,386 $ 19,072 $ 4,202 $ 1,061 $ 17,024 $ 1,556 $ 235 $ 56,536 Loans charged-off (109 ) (1,751 ) — — — (121 ) (12 ) (1,993 ) Recoveries of loans previously charged-off 7 10 — 2 3 3 8 33 Net loans (charged-off) recoveries (102 ) (1,741 ) — 2 3 (118 ) (4 ) (1,960 ) Provision for credit losses (523 ) 3,178 59 47 (513 ) (69 ) 109 2,288 Ending balance $ 12,761 $ 20,509 $ 4,261 $ 1,110 $ 16,514 $ 1,369 $ 340 $ 56,864 Nine months ended September 30, 2016 Allowance for credit losses: Balance at beginning of period $ 11,563 $ 14,122 $ 3,279 $ 1,268 $ 21,088 $ 1,292 $ 75 $ 52,687 Loans charged-off (2,802 ) (2,342 ) — — — (217 ) (37 ) (5,398 ) Recoveries of loans previously charged-off 93 14 2 5 207 11 24 356 Net loans charged-off (2,709 ) (2,328 ) 2 5 207 (206 ) (13 ) (5,042 ) Provision for credit losses 3,907 8,715 980 (163 ) (4,781 ) 283 278 9,219 Ending balance $ 12,761 $ 20,509 $ 4,261 $ 1,110 $ 16,514 $ 1,369 $ 340 $ 56,864 As of September 30, 2016 Allowance for credit losses: Individually evaluated for impairment $ 1,997 $ 1,714 $ 360 $ — $ 300 $ — $ 100 $ 4,471 Collectively evaluated for impairment 10,764 18,795 3,901 1,110 16,214 1,369 240 52,393 Ending balance $ 12,761 $ 20,509 $ 4,261 $ 1,110 $ 16,514 $ 1,369 $ 340 $ 56,864 (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 Company’s recorded investments infollowing table presents the amortized cost basis of collateral-dependent loans by class of loans as of September 30, 2017,2022 and December 31, 2016 and September 30, 2016 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows: Income Producing - Owner occupied - Real Estate Construction - Commercial Commercial Mortgage Commercial and Home Other (dollars in thousands) Commercial Real Estate Real Estate Residential Residential Equity Consumer Total September 30, 2017 Recorded investment in loans: Individually evaluated for impairment $ 8,309 $ 10,241 $ 6,570 $ — $ 7,728 $ 594 $ 92 $ 33,534 Collectively evaluated for impairment 1,235,875 2,888,707 743,010 109,460 963,593 101,304 8,721 6,050,670 Ending balance $ 1,244,184 $ 2,898,948 $ 749,580 $ 109,460 $ 971,321 $ 101,898 $ 8,813 $ 6,084,204 December 31, 2016 Recorded investment in loans: Individually evaluated for impairment $ 10,437 $ 15,057 $ 2,093 $ 241 $ 6,517 $ — $ 126 $ 34,471 Collectively evaluated for impairment 1,190,291 2,494,460 638,777 152,507 1,052,052 105,096 10,239 5,643,422 Ending balance $ 1,200,728 $ 2,509,517 $ 640,870 $ 152,748 $ 1,058,569 $ 105,096 $ 10,365 $ 5,677,893 September 30, 2016 Recorded investment in loans: Individually evaluated for impairment $ 12,448 $ 14,648 $ 2,517 $ 244 $ 4,878 $ 113 $ — $ 34,848 Collectively evaluated for impairment 1,117,594 2,536,538 587,910 154,195 937,935 106,743 6,212 5,447,127 Ending balance $ 1,130,042 $ 2,551,186 $ 590,427 $ 154,439 $ 942,813 $ 106,856 $ 6,212 $ 5,481,975 At September 30, 2017, nonperforming loans acquired from Fidelity & Trust Financial Corporation (“Fidelity”) and Virginia Heritage Bank (“Virginia Heritage”) have a carrying value of $476 thousand and $507 thousand, and an unpaid principal balance of $533 thousand and $1.5 million, respectively, and were evaluated separately in accordance with ASC Topic 310-30,“Loans and Debt Securities Acquired with Deteriorated Credit Quality.” The various impaired loans were recorded at estimated fair value with any excess being charged-off or treated as a non-accretable discount. Subsequent downward adjustments to the valuation of impaired loans acquired will result in additional loan loss provisions and related allowance for credit losses.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 Company’sCompany's primary credit quality indicators are to useinform 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 whichthat 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 whichthat comprise the consumer portfolio segment.Company’sCompany's credit quality indicators:Pass: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’sobligor'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’smanagement'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: - – 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. 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’sCompany's credit quality indicators are generally updated generallyannually, howevera quarterlythe most recent analysis performed, the amortized cost basis but no less frequently than annually. The following table presentsof loans by risk category, class and by credit quality indicator, the recorded investment in the Company’s loans and leasesyear of origination are as of September 30, 2017, December 31, 2016 and September 30, 2016. Watch and Total (dollars in thousands) Pass Special Mention Substandard Doubtful Loans September 30, 2017 Commercial $ 1,204,850 $ 31,025 $ 8,309 $ — $ 1,244,184 Income producing - commercial real estate 2,861,346 27,361 10,241 — 2,898,948 Owner occupied - commercial real estate 720,693 22,317 6,570 — 749,580 Real estate mortgage – residential 108,797 663 — — 109,460 Construction - commercial and residential 963,593 — 7,728 — 971,321 Home equity 100,618 686 594 — 101,898 Other consumer 8,719 2 92 — 8,813 Total $ 5,968,616 $ 82,054 $ 33,534 $ — $ 6,084,204 December 31, 2016 Commercial $ 1,160,185 $ 30,106 $ 10,437 $ — $ 1,200,728 Income producing - commercial real estate 2,489,407 5,053 15,057 — 2,509,517 Owner occupied - commercial real estate 630,827 7,950 2,093 — 640,870 Real estate mortgage – residential 151,831 676 241 — 152,748 Construction - commercial and residential 1,051,445 607 6,517 — 1,058,569 Home equity 103,484 1,612 — — 105,096 Other consumer 10,237 2 126 — 10,365 Total $ 5,597,416 $ 46,006 $ 34,471 $ — $ 5,677,893 September 30, 2016 Commercial $ 1,099,894 $ 18,599 $ 11,549 $ — $ 1,130,042 Income producing - commercial real estate 2,527,318 9,220 14,648 — 2,551,186 Owner occupied - commercial real estate 577,925 10,399 2,103 — 590,427 Real estate mortgage – residential 153,515 680 244 — 154,439 Construction - commercial and residential 937,198 737 4,878 — 942,813 Home equity 105,126 1,617 113 — 106,856 Other consumer 6,209 3 — — 6,212 Total $ 5,407,185 $ 41,255 $ 33,535 $ — $ 5,481,975 September 30, 2022 (dollars in thousands) Prior 2018 2019 2020 2021 2022 Revolving Loans Amort. Cost Basis Revolving Loans Convert. to Term Total Commercial Pass $ 190,265 $ 48,254 $ 59,021 $ 64,569 $ 229,469 $ 102,904 $ 665,362 $ 8,384 $ 1,368,228 Watch 5,854 1,859 360 3,776 2,893 996 21,980 — 37,718 Special Mention — 264 — — — 87 4,817 — 5,168 Substandard 1,695 366 287 — — — 1,269 1,267 4,884 Total 197,814 50,743 59,668 68,345 232,362 103,987 693,428 9,651 1,415,998 PPP loans Pass — — — 2,479 4,762 — — — 7,241 Total — — — 2,479 4,762 — — — 7,241 Income producing - commercial real estate Pass 788,336 428,086 455,202 298,741 550,777 496,371 195,569 363 3,213,445 Watch 249,570 5,223 — 35,707 — — — — 290,500 Special Mention 44,374 5,229 4,224 — — — 47,677 — 101,504 Substandard 60,626 2,645 — — — — — — 63,271 Total 1,142,906 441,183 459,426 334,448 550,777 496,371 243,246 363 3,668,720 Owner occupied - commercial real estate Pass 456,427 205,475 79,279 41,152 202,135 37,851 15,181 — 1,037,500 Watch 17,779 11,563 4,618 — — — 60 — 34,020 Substandard 19,763 — — — — — — — 19,763 Total 493,969 217,038 83,897 41,152 202,135 37,851 15,241 — 1,091,283 Real estate mortgage - residential Pass 16,329 12,457 11,703 3,295 16,348 6,857 — — 66,989 Watch 3,044 — — — — — — — 3,044 Substandard 1,698 — — — — — — — 1,698 Total 21,071 12,457 11,703 3,295 16,348 6,857 — — 71,731 Construction - commercial and residential Pass 42,069 71,408 98,357 180,664 156,539 139,531 123,726 — 812,294 Watch 44,409 — — — — — — 1,397 45,806 Total 86,478 71,408 98,357 180,664 156,539 139,531 123,726 1,397 858,100 Construction - C&I (owner occupied) Pass 13,935 7,289 34,322 55,777 661 6,640 6,543 — 125,167 Watch 1,036 3,254 7,480 2,301 — — — — 14,071 Total 14,971 10,543 41,802 58,078 661 6,640 6,543 — 139,238 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 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 December 31, 2021 (dollars in thousands) Prior 2017 2018 2019 2020 2021 Revolving Loans Amort. Cost Basis Revolving Loans Convert. to Term Total Commercial Pass $ 180,877 $ 58,693 $ 103,058 $ 90,874 $ 87,515 $ 211,563 $ 549,055 $ 6,023 $ 1,287,658 Watch 5,896 6,567 1,020 996 4,268 3,137 18,336 627 40,847 Special Mention — 9,515 363 — — — 901 — 10,779 Substandard 4,205 778 1,850 437 — — 7,763 — 15,033 Total 190,978 75,553 106,291 92,307 91,783 214,700 576,055 6,650 1,354,317 PPP loans Pass — — — — 16,840 32,900 — — 49,740 Substandard — — — — 1,365 — — — 1,365 Total — — — — 18,205 32,900 — — 51,105 Income producing - commercial real estate Pass 572,550 333,394 418,489 495,808 337,178 549,356 198,210 — 2,904,985 Watch 58,334 73,760 — 43,561 35,094 — — — 210,749 Special Mention 101,580 — 41,936 4,264 — — 47,692 — 195,472 Substandard 60,059 — 8,491 5,542 — — — — 74,092 Total 792,523 407,154 468,916 549,175 372,272 549,356 245,902 — 3,385,298 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 Pass 370 — — — — — 1,002 — 1,372 Substandard — — — — — — 55 — 55 Total 370 — — — — — 1,057 — 1,427 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 Loans are considered past due if the required principal and interest payments have not been received asdate such payments were due. LoansCompany's comprehensive loan review process, management evaluates loans that are placed on nonaccrual status when, in management’s opinion,past-due 30 days or more. Management makes a thorough assessment of the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans mayconditions 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 regardless of whether or not such loans are considered past due. Interest income is subsequently recognized onlydevelopment and construction projects, sales activities and utilization of interest reserves in order to the extent cash payments are received in excesscarefully and prudently assess potential increased levels of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.risk requiring additional reserves. following table presents, by class of loan, information related to nonaccrual loans as of September 30, 2017, December 31, 2016 and September 30, 2016.(dollars in thousands) September 30, 2017 December 31, 2016 September 30, 2016 Commercial $ 3,242 $ 2,490 $ 2,986 Income producing - commercial real estate 880 10,539 10,098 Owner occupied - commercial real estate 6,570 2,093 2,103 Real estate mortgage - residential 301 555 562 Construction - commercial and residential 4,930 2,072 6,412 Home equity 594 — 113 Other consumer 92 126 — Total nonaccrual loans (1)(2) $ 16,609 $ 17,875 $ 22,274 (1)Excludes troubled debt restructurings (“TDRs”) that were performing under their restructured terms totaling $12.3 million at September 30, 2017, as compared to $7.9 million at December 31, 2016 and $2.9 million at September 30, 2016.(2)Gross interest income of $176 thousand and $802 thousand would have been recorded for the three and nine months ended September 30, 2017, if nonaccrual loans shown above had been current and in accordance with their original terms while interest actually recorded on such loans was $31 thousand and $56 thousand for the three and nine months ended September 30, 2017. See Note 1 to the Consolidated Financial Statements for a description of the Company’s policy for placing loans on nonaccrual status.The following table presents, by class of loan, an aging analysis and the recorded investments in loans past due as of September 30, 20172022 and December 31, 2016. Loans Loans Loans Total Recorded 30-59 Days 60-89 Days 90 Days or Total Past Current Investment in (dollars in thousands) Past Due Past Due More Past Due Due Loans Loans Loans September 30, 2017 Commercial $ 401 $ 662 $ 3,242 $ 4,305 $ 1,239,879 $ 1,244,184 Income producing - commercial real estate 3,160 770 880 4,810 2,894,138 2,898,948 Owner occupied - commercial real estate 817 3,268 6,570 10,655 738,925 749,580 Real estate mortgage – residential 1,480 2,123 301 3,904 105,556 109,460 Construction - commercial and residential 197 — 4,930 5,127 966,194 971,321 Home equity 637 100 594 1,331 100,567 101,898 Other consumer 21 4 92 117 8,696 8,813 Total $ 6,713 $ 6,927 $ 16,609 $ 30,249 $ 6,053,955 $ 6,084,204 December 31, 2016 Commercial $ 1,634 $ 757 $ 2,490 $ 4,881 $ 1,195,847 $ 1,200,728 Income producing - commercial real estate 511 — 10,539 11,050 2,498,467 2,509,517 Owner occupied - commercial real estate 3,987 3,328 2,093 9,408 631,462 640,870 Real estate mortgage – residential 1,015 163 555 1,733 151,015 152,748 Construction - commercial and residential 360 1,342 2,072 3,774 1,054,795 1,058,569 Home equity — — — — 105,096 105,096 Other consumer 101 9 126 236 10,129 10,365 Total $ 7,608 $ 5,599 $ 17,875 $ 31,082 $ 5,646,811 $ 5,677,893 September 30, 2016 Commercial $ 1,173 $ 495 $ 2,986 $ 4,654 $ 1,125,388 $ 1,130,042 Income producing - commercial real estate — — 10,098 10,098 2,541,088 2,551,186 Owner occupied - commercial real estate — 3,338 2,103 5,441 584,986 590,427 Real estate mortgage – residential — 164 562 726 153,713 154,439 Construction - commercial and residential — — 6,412 6,412 936,401 942,813 Home equity 562 620 113 1,295 105,561 106,856 Other consumer 8 16 — 24 6,188 6,212 Total $ 1,743 $ 4,633 $ 22,274 $ 28,650 $ 5,453,325 $ 5,481,975 Impaired LoansLoans are considered impaired when, based on2021:(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 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 — — — $ 426 $ 7,175 $ 7,601 December 31, 2021 Commercial $ 5,806 $ 3,070 $ 8,876 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 $ 16,371 $ 12,837 $ 29,208 information and events, it is probable the Company will be unable to collect all amounts due in accordance with thetheir original contractual terms, of the loan agreement, including scheduled principalwhile $5 thousand and $23 thousand interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature andincome was actually recorded on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. Impaired loans, or portions thereof, are charged off when deemed uncollectible.The following table presents, by class of loan, information related to impairedsuch loans for the periodsnine months ended September 30, 2017, December 31, 20162022 and September 30, 2016. Unpaid Recorded Recorded Contractual Investment Investment Total Average Recorded Investment Interest Income Recognized Principal With No With Recorded Related Quarter Year Quarter Year (dollars in thousands) Balance Allowance Allowance Investment Allowance To Date To Date To Date To Date September 30, 2017 Commercial $ 6,047 $ 2,363 $ 3,640 $ 6,003 $ 3,246 $ 5,977 $ 5,790 $ 31 $ 97 Income producing - commercial real estate 10,092 828 9,264 10,092 1,378 10,222 11,350 121 373 Owner occupied - commercial real estate 6,890 1,612 5,278 6,890 1,005 5,623 4,182 26 46 Real estate mortgage – residential 301 301 — 301 — 304 368 — — Construction - commercial and residential 4,930 1,534 3,396 4,930 2,900 4,808 3,736 — 14 Home equity 594 494 100 594 90 446 223 — 2 Other consumer 92 — 92 92 81 93 101 — — Total $ 28,946 $ 7,132 $ 21,770 $ 28,902 $ 8,700 $ 27,473 $ 25,750 $ 178 $ 532 December 31, 2016 Commercial $ 8,296 $ 2,532 $ 3,095 $ 5,627 $ 2,671 $ 12,620 $ 12,755 $ 79 $ 191 Income producing - commercial real estate 14,936 5,048 9,888 14,936 1,943 16,742 17,533 54 198 Owner occupied - commercial real estate 2,483 1,691 792 2,483 350 2,233 2,106 — 13 Real estate mortgage – residential 555 555 — 555 — 246 249 — — Construction - commercial and residential 2,072 1,535 537 2,072 522 5,091 5,174 — — Home equity — — — — — 78 89 — — Other consumer 126 — 126 126 113 42 32 2 4 Total $ 28,468 $ 11,361 $ 14,438 $ 25,799 $ 5,599 $ 37,052 $ 37,938 $ 135 $ 406 September 30, 2016 Commercial $ 15,517 $ 2,370 $ 10,078 $ 12,448 $ 1,997 $ 12,838 $ 12,879 $ 54 $ 112 Income producing - commercial real estate 14,648 — 14,648 14,648 1,714 17,584 15,298 28 144 Owner occupied - commercial real estate 2,517 — 2,517 2,517 360 2,108 1,923 13 13 Real estate mortgage – residential 244 244 — 244 — 249 271 — — Construction - commercial and residential 4,878 4,340 538 4,878 300 5,146 6,542 — — Home equity 113 — 113 113 100 117 129 2 2 Other consumer — — — — — — 6 — — Total $ 37,917 $ 6,954 $ 27,894 $ 34,848 $ 4,471 $ 38,042 $ 37,048 $ 97 $ 271 athe borrower is experiencing financial difficulty and the modification constitutes a concession. The Company offersmay offer various types of concessions when modifying a loan. Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans. Additional collateral, a co-borrower, or a guarantor is often requested. As of September 30, 2017, all performing TDRs were categorized as interest-only modifications. impaired consumer and commercial loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’sloan's effective interest rate, the loan’sloan'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.following table presentsdeferred 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 class,interagency guidance issued by the recorded investmentfederal banking agencies and confirmed with staff members of loans modifiedthe 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.duringfor the three and nine months ended September 30, 20172022 and 2016. For the Three Months Ended September 30, 2017 Income
Producing - Owner
Occupied - Construction - (dollars in thousands) Number of
Contracts Commercial Commercial
Real Estate Commercial
Real Estate Commercial
Real Estate Total Troubled debt restructings Restructured accruing — $ (356 ) $ — $ (23 ) $ — $ (379 ) Restructured nonaccruing 2 586 (560 ) — — 26 Total 2 $ 230 $ (560 ) $ (23 ) $ — $ (353 ) Specific allowance $ (185 ) $ (559 ) $ — $ — $ (744 ) Restructured and subsequently defaulted $ — $ — $ — $ — $ — For the Three Months Ended September 30, 2016 Income
Producing - Owner
Occupied - Construction - (dollars in thousands) Number of
Contracts Commercial Commercial
Real Estate Commercial
Real Estate Commercial
Real Estate Total Troubled debt restructings Restructured accruing 1 $ 801 $ — $ — $ — $ 801 Restructured nonaccruing — — — — — — Total 1 $ 801 $ — $ — $ — $ 801 Specific allowance $ 363 $ — $ — $ — $ 363 Restructured and subsequently defaulted $ — $ — $ — $ — $ — The following table presents by class, the recorded investment of loans modifiedthere were no loan modifications that resulted in TDRs held by the Company at September 30, 2017 and September 30, 2016. September 30, 2017 Income
Producing - Owner
Occupied - Construction - (dollars in thousands) Number of
Contracts Commercial Commercial
Real Estate Commercial
Real Estate Commercial
Real Estate Total Troubled debt restructings Restructured accruing 9 $ 2,761 $ 9,212 $ 320 $ — $ 12,293 Restructured nonaccruing 4 776 136 — — 912 Total 13 $ 3,537 $ 9,348 $ 320 $ — $ 13,205 Specific allowance $ 685 $ 1,341 $ — $ — $ 2,026 Restructured and subsequently defaulted $ 237 $ — $ — $ — $ 237 September 30, 2016 Income
Producing - Owner
Occupied - Construction - (dollars in thousands) Number of
Contracts Commercial Commercial
Real Estate Commercial
Real Estate Commercial
Real Estate Total Troubled debt restructings Restructured accruing 7 $ 1,725 $ 742 $ 414 $ — $ 2,881 Restructured nonaccruing 2 199 — — 4,948 5,147 Total 9 $ 1,924 $ 742 $ 414 $ 4,948 $ 8,028 Specific allowance $ 456 $ — $ — $ — $ 456 Restructured and subsequently defaulted $ — $ — $ — $ 4,948 $ 4,948 The Company had thirteen TDR’s at September 30, 2017 totaling approximately $13.2 million. Nine of these loans, totaling approximately $12.3 million, are performing under their modified terms. During the nine months of 2017, there was one default on a $237 thousand restructured loan which was charged off, as compared to the same period in 2016, which had one default on a $5.0 million restructured loan. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. There were two nonperforming TDRs totaling $588 thousand reclassified to nonperforming loans duringfor the nine months ended September 30, 2017. There was one2021.TDR totaling $5.0status, were sold, resulting in a charge-off of $1.4 million reclassified to nonperforming loans duringin connection with the sale. For the nine months ended September 30, 2016. 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.impairment.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. Theretworequired to be recognized on the Consolidated Balance Sheets as a right-of-use ("ROU") asset and a corresponding lease liability.Three Months Ended Nine Months Ended (dollars in thousands) September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Lease cost Operating lease cost (cost resulting from lease payments) $ 1,757 $ 1,960 $ 5,418 $ 6,132 Variable lease cost (cost excluded from lease payments) 270 205 781 678 Sublease income (30) (117) (212) (291) Net lease cost $ 1,997 $ 2,048 $ 5,987 $ 6,519 Operating lease - operating cash flows (fixed payments) $ 1,809 $ 1,992 $ 5,551 $ 6,344 (dollars in thousands) September 30, 2022 December 31, 2021 Operating lease right-of-use assets $ 26,022 $ 30,555 Operating lease liabilities $ 30,837 $ 35,501 Weighted average lease term - operating leases 5.81 yrs 6.26 yrs Weighted average discount rate - operating leases 2.95 % 3.05 % (dollars in thousands) Twelve months ended: September 30, 2023 $ 1,799 September 30, 2024 7,036 September 30, 2025 6,292 September 30, 2026 5,329 September 30, 2027 4,184 Thereafter 8,475 Total future minimum lease payments 33,115 Amounts representing interest (2,278) Present value of net future minimum lease payments $ 30,837 totaling $251 thousand modifiedwhere 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 TDRbinding ("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.three months ended September 30, 2017, as compared to the three months ended September 30, 2016 which had one loan totaling $801 thousand modified in a TDR.Note 6.period of change.Swap DerivativesCompany’sCompany'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 entered into forward startingutilizes interest rate swaps in April 2015 as part of its interest rate risk management strategy intended to mitigate the potential risk of rising interest rates on the Bank’sBank'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 two counterpartiesone counterparty in exchange for the Company making fixed payments beginning in April 2016.payments. The Company’sCompany's intent is to hedge its exposure to the variability in potential future interest rate conditions on existing financial instruments.AsThe Company's derivative position is classified within Level 2 of September 30, 2017, the Company had three forward starting designatedfair 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 hedge interest rate swap transactions outstanding that had an aggregate notional amountmodels. These models' key assumptions include the contractual terms of $250 million associatedthe respective contract along with the Company’s variable rate deposits. The net unrealized gain before income tax on the swaps was $167 thousand at September 30, 2017 compared to a net unrealized loss before income tax of $692 thousand at December 31, 2016. The net unrealized gain at September 30, 2017 compared to the net unrealized loss at December 31, 2016 is due to the increase in current market expectation of short termsignificant observable inputs, including interest rates, for the remaining term of the designated cash flow hedge interest rate swap. the effective portion of changes in the fair value of the derivative isare initially reported in other comprehensive income (outside of earnings), net of tax, and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in 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.Company recognized an immaterial amount in earnings due toCompany's sole designated cash flow hedge ineffectivenessmatured during both the nine month periods endedApril 2021. Thus, as of September 30, 20172022 and September 30, 2016.will bewere reclassified to interest income/expense as interest payments arewere made/received on the Company’sCompany's variable-rate assets/liabilities. During the quarter ended September 30, 2017,reclassified $307 thousandprovides 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.designated cash flow hedgeinterest 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 accumulated other comprehensive income to interest expense. During the next twelve months,using observable inputs, such as yield curves and volatilities.estimates (baseddefaults on existing interest rates) that $657 thousand willany of its indebtedness, then the Company could also be reclassified as an increasedeclared in interest expense.swapderivative 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 swaps.derivatives. The Company monitors counterparty risk in accordance with the provisions of ASC Topic 815,“"Derivatives and Hedging.”" In addition, the interest rate swapderivative agreements contain language outlining collateral-pledging requirements for each counterparty. Collateral must be posted when the market value exceeds certain threshold limits. designated cash flow hedge interest rate swapderivative agreements detail: 1) that collateral be posted when the market value exceeds certain threshold limits associated with the secured party’sparty'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/adequately capitalizedwell-capitalized institution then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.As of September 30, 2017,aggregatebalance sheet category and fair value of allthe Company's designated cash flow hedge derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our capital status) were in a net asset position of $167 thousand (none of these contracts were in a net liability positioninstruments and non-designated hedges as of September 30, 2017). As of September 30, 2017, the2022 and December 31, 2021. The Company has a minimum collateral posting thresholdsthreshold with certain of its derivative counterparties and has posted collateral of $890 thousand against its obligations under these agreements.counterparty. If the Company had breached any provisions under the agreementsagreement at September 30, 2017,2022, it could have been required to settle its obligations under the agreementsagreement at the termination value.The table below identifies the balance sheet category and fair values of the Company’s designated cash flow hedge derivative instruments as of September 30, 2017 and December 31, 2016. Swap Notional Balance Sheet September 30, 2017 Number Amount Fair Value Category Receive Rate Pay Rate Maturity (dollars in thousands) Interest rate swap (1 ) $ 75,000 $ 116 Other Assets 1 month USD-LIBOR-BBA w/ -1 day lookback +10 basis points 1.71 % March 31, 2020 Interest rate swap (2 ) 100,000 (24 ) Other Liabilities Federal Funds Effective Rate +10 basis points 1.74 % April 15, 2021 Interest rate swap (3 ) 75,000 75 Other Assets 1 month USD-LIBOR-BBA w/ -1 day lookback +10 basis points 1.92 % March 31, 2022 Total $ 250,000 $ 167 Swap Notional Balance Sheet December 31, 2016 Number Amount Fair Value Category Receive Rate Pay Rate Maturity (dollars in thousands) Interest rate swap (1 ) $ 75,000 $ (197 ) Other Liabilities 1 month USD-LIBOR-BBA w/ -1 day lookback +10 basis points 1.71 % March 31, 2020 Interest rate swap (2 ) 100,000 (514 ) Other Liabilities Federal Funds Effective Rate +10 basis points 1.74 % April 15, 2021 Interest rate swap (3 ) 75,000 19 Other Assets 1 month USD-LIBOR-BBA w/ -1 day lookback +10 basis points 1.92 % March 31, 2022 Total $ 250,000 $ (692 ) September 30, 2022 December 31, 2021 (dollars in thousands) Notional
AmountFair Value Balance Sheet
CategoryNotional
AmountFair Value Balance Sheet
CategoryDerivatives 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 Company’sCompany's designated cash flow hedges for the nine months ended September 30, 2017 and for the year ended December 31, 2016. Nine Months Ended September 30, 2017 Effective Portion Ineffective Portion Reclassified from AOCI Recognized in Income Amount of into income on Derivatives Swap Pre-tax gain (loss) Amount of Amount of Number Recognized in OCI Category Gain (Loss) Category Gain (Loss) (dollars in thousands) Interest rate swap (1 ) $ 116 Interest Expense $ (338 ) Other Expense $ — Interest rate swap (2 ) (24 ) Interest Expense (525 ) Other Expense — Interest rate swap (3 ) 75 Interest Expense (458 ) Other Expense (1 ) Total $ 167 $ (1,321 ) $ (1 ) Year Ended December 31, 2016 Effective Portion Ineffective Portion Reclassified from AOCI Recognized in Income Amount of into income on Derivatives Swap Pre-tax gain (loss) Amount of Amount of Number Recognized in OCI Category Gain (Loss) Category Gain (Loss) (dollars in thousands) Interest rate swap (1 ) $ (197 ) Interest Expense $ (628 ) Other Expense $ — Interest rate swap (2 ) (514 ) Interest Expense (880 ) Other Expense — Interest rate swap (3 ) 19 Interest Expense (747 ) Other Expense 1 Total $ (692 ) $ (2,255 ) $ 1 Balance Sheet Offsetting: Our designated cash flow hedge interest rate swap derivatives are eligible for offset in the Consolidated Balance Sheets and are subject to master netting arrangements. Our derivative transactions with counterparties are generally executed under International Swaps and Derivative Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset recognized amounts and there may be an intention to settle such amounts on a net basis. The Company generally offsets such financial instruments for financial reporting purposes.Nine Months Ended September 30, 2017 Offsetting of Derivative Liabilities(dollars in thousands) Gross Amounts Not Offset in the Balance Sheet Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Balance Sheet Net Amounts of Liabilities presented in the Balance Sheet Financial Instruments Cash Collateral Posted Net Amount Counterparty 1 $ 24 $ (75 ) $ (51 ) $ — $ (560 ) $ (611 ) Counterparty 2 (116 ) — (116 ) — (330 ) (446 ) $ (92 ) $ (75 ) $ (167 ) $ — $ (890 ) $ (1,057 ) Year Ended December 31, 2016 Offsetting of Derivative Liabilities(dollars in thousands) Gross Amounts Not Offset in the Balance Sheet Gross Amounts of Recognized Liabilities Gross Amounts Offset in the Balance Sheet Net Amounts of Liabilities presented in the Balance Sheet Financial Instruments Cash Collateral Posted Net Amount Counterparty 1 $ 514 $ (19 ) $ 495 $ — $ (380 ) $ 115 Counterparty 2 197 — 197 — (170 ) 27 $ 711 $ (19 ) $ 692 $ — $ (550 ) $ 142 Note 7. Other Real Estate OwnedThe activity within Other Real Estate Owned (“OREO”) for the three and nine months ended September 30, 20172022 and 2016 is presented in2021: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) table below. There were no residential real estate loans ineffect of the processCompany's derivative financial instruments on the consolidated statements of foreclosure as of September 30, 2017. Forincome for the three and nine months ended September 30, 2017, proceeds on sale of OREO were $1.2 million2022 and $2.1 million. For the three months ended September 30, 2017, there were two OREO properties with a total carrying value of $1.1 million were sold for a net gain of $60 thousand. For the nine months ended September 30, 2017, there were a total of three OREO properties sold for a net loss of $301 thousand. Three Months Ended September 30, Nine Months Ended September 30, (dollars in thousands) 2017 2016 2017 2016 Balance beginning of period $ 1,394 $ 3,152 $ 2,694 $ 5,852 Real estate acquired from borrowers 1,145 2,500 1,145 2,500 Valuation allowance — — — (200 ) Properties sold (1,145 ) (458 ) (2,445 ) (2,958 ) Balance end of period $ 1,394 $ 5,194 $ 1,394 $ 5,194 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 8.7. Long-Term BorrowingsCompany’sCompany's long-term borrowings as of September 30, 2017,2022 and December 31, 2016 and September 30, 2016.(dollars in thousands) September 30, 2017 December 31, 2016 September 30, 2016 Subordinated Notes, 5.75% $ 70,000 $ 70,000 $ 70,000 Subordinated Notes, 5.0% 150,000 150,000 150,000 Less: debt issuance costs (3,193 ) (3,486 ) (3,581 ) Long-term borrowings $ 216,807 $ 216,514 $ 216,419 (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 “Notes”"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 includesincluded $1.2 million in deferred financing costs, which are being amortized over the life of the 2024 Notes.On July 2016, the Company completed the sale of $150.0 million of its 5.00% Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the “2026 Notes”). The 2026 Notes were offered to the public at par and qualify as Tier 2 capital for regulatory purposes to the fullest extent permitted under the Basel III Rule capital requirements. The net proceeds were approximately $147.35 million, which includes $2.6 million in deferred financing costs which are being amortized over the life of the 2026 Notes.9.8. Net Income per Common Share20172022 and 2016 2021 was as follows. Three Months Ended September 30, Nine Months Ended September 30, (dollars and shares in thousands, except per share data) 2017 2016 2017 2016 Basic: Net income $ 29,874 $ 24,523 $ 84,663 $ 71,990 Average common shares outstanding 34,174 33,590 34,124 33,566 Basic net income per common share $ 0.87 $ 0.73 $ 2.48 $ 2.14 Diluted: Net income $ 29,874 $ 24,523 $ 84,663 $ 71,990 Average common shares outstanding 34,174 33,590 34,124 33,566 Adjustment for common share equivalents 164 597 192 596 Average common shares outstanding-diluted 34,338 34,187 34,316 34,162 Diluted net income per common share $ 0.87 $ 0.72 $ 2.47 $ 2.11 Anti-dilutive shares — 8 — 8 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 10. Stock-Based CompensationThe Company maintains the 2016 Stock Plan (“2016 Plan”), the 2006 Stock Plan (“2006 Plan”) and the 2011 Employee Stock Purchase Plan (“2011 ESPP”).In connection with the acquisition of Virginia Heritage, the Company assumed the Virginia Heritage 2006 Stock Option Plan and the 2010 Long Term Incentive Plan (the “Virginia Heritage Plans”).No additional options may be granted under the 2006 Plan or the Virginia Heritage Plans.The Company adopted the 2016 Plan upon approval by the shareholders at the 2016 Annual Meeting held on May 12, 2016. The 2016 Plan provides directors and selected employees of the Bank, the Company and their affiliates with the opportunity to acquire shares of stock, through awards of options, time vested restricted stock, performance-based restricted stock and stock appreciation rights. Under the 2016 Plan, 1,000,000 shares of common stock were initially reserved for issuance.For awards that are service based, compensation expense is being recognized over the service (vesting) period based on fair value, which for stock option grants is computed using the Black-Scholes model. For restricted stock awards granted under the 2006 plan, fair value is based on the average of the high and low stock price of the Company’s shares on the date of grant. For restricted stock awards granted under the 2016 plan, fair value is based on the Company’s closing price on the date of grant. For awards that are performance-based, compensation expense is recorded based on the probability of achievement of the goals underlying the grant.In February 2017, the Company awarded 91,097 shares of time vested restricted stock to senior officers, directors, and certain employees. The shares vest in three substantially equal installments beginning on the first anniversary of the date of grant.In February 2017, the Company awarded senior officers a targeted number of 36,523 performance vested restricted stock units (PRSUs). The vesting of PRSUs is 100% after three years with payouts based on threshold, target or maximum average performance targets over the three year period relative to a peer index. There are three performance metrics: 1) average annual earnings per share growth; 2) average annual total shareholder return; and 3) average annual return on average assets. Each metric is measured against companies in the KBW Regional Banking Index.The Company has unvested restricted stock awards and PRSU grants of 227,324 shares at September 30, 2017. Unrecognized stock based compensation expense related to restricted stock awards totaled $9.3 million at September 30, 2017. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 2.13 years. The following tables summarize the unvested restricted stock awards at September 30, 2017 and 2016. Nine Months Ended September 30, 2017 2016 Perfomance Awards Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Unvested at beginning 33,226 $ 42.60 — $ — Issued 36,523 57.49 34,957 42.60 Forfeited (3,097 ) 42.60 (1,731 ) 42.60 Vested (4,314 ) 54.92 — — Unvested at end 62,338 $ 50.45 33,226 $ 42.60 Nine Months Ended September 30, 2017 2016 Time Vested Awards Shares Weighted-Average Grant Date Fair Value Shares Weighted-Average Grant Date Fair Value Unvested at beginning 262,966 $ 33.60 369,093 $ 24.43 Issued 91,097 62.70 104,775 46.39 Forfeited (1,477 ) 47.69 (7,815 ) 40.17 Vested (187,600 ) 30.07 (195,738 ) 22.53 Unvested at end 164,986 $ 53.56 270,315 $ 33.87 Below is a summary of stock option activity for the nine months ended September 30, 2017 and 2016. The information excludes restricted stock units and awards. Nine Months Ended September 30, 2017 2016 Shares Weighted-Average Exercise Price Shares Weighted-Average Exercise Price Beginning balance 216,859 $ 8.80 298,740 $ 9.97 Issued — — 3,000 49.49 Exercised (64,420 ) 7.46 (24,458 ) 13.10 Forfeited — — (1,100 ) 15.48 Expired — — (6,637 ) 12.87 Ending balance 152,439 $ 9.36 269,545 $ 10.03 The following summarizes information about stock options outstanding at September 30, 2017. The information excludes restricted stock units and awards. Weighted-Average Outstanding: Stock Options Weighted-Average Remaining Range of Exercise Prices Outstanding Exercise Price Contractual Life $5.76 $10.72 101,075 $ 5.76 1.26 $10.73 $11.40 41,389 10.84 0.77 $11.41 $24.86 3,225 22.79 6.02 $24.87 $49.91 6,750 47.83 8.37 152,439 $ 9.36 1.54 Exercisable: Stock Options Weighted-Average Range of Exercise Prices Exercisable Exercise Price $5.76 $10.72 66,377 $ 5.76 $10.73 $11.40 41,389 10.84 $11.41 $24.86 2,065 23.18 $24.87 $49.91 750 49.49 110,581 $ 8.28 The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model with the assumptions as shown in the table below used for grants during the years ended December 31, 2016 and 2015. There were no grants of stock options during the nine months ended September 30, 2017. Nine Months Ended Years Ended December 31, September 30, 2017 2016 2015 Expected volatility n/a 24.23 % 31.21 % Weighted-Average volatility n/a 24.23 % 31.21 % Expected dividends — — — Expected term (in years) n/a 7.0 7.0 Risk-free rate n/a 1.37 % 1.64 % Weighted-average fair value (grant date) n/a $ 14.27 $ 16.73 The total intrinsic value of outstanding stock options was $8.8 million at September 30, 2017. The total intrinsic value of stock options exercised during the nine months ended September 30, 2017 and 2016 was $3.5 million and $855 thousand, respectively. The total fair value of stock options vested was $50 thousand and $45 thousand for the nine months ended September 30, 2017 and 2016, respectively. Unrecognized stock-based compensation expense related to stock options totaled $90 thousand at September 30, 2017. At such date, the weighted-average period over which this unrecognized expense was expected to be recognized was 2.09 years.Approved by shareholders in May 2011, the 2011 ESPP reserved 550,000 shares of common stock (as adjusted for stock dividends) for issuance to employees. Whole shares are sold to participants in the plan at 85% of the lower of the stock price at the beginning or end of each quarterly offering period. The 2011 ESPP is available to all eligible employees who have completed at least one year of continuous employment, work at least 20 hours per week and at least five months a year. Participants may contribute a minimum of $10 per pay period to a maximum of $6,250 per offering period or $25,000 annually (not to exceed more than 10% of compensation per pay period). At September 30, 2017, the 2011 ESPP had 406,081 shares remaining for issuance.Included in salaries and employee benefits in the accompanying Consolidated Statements of Operations, the Company recognized $4.2 million and $5.2 million in stock-based compensation expense for the nine months ended September 30, 2017 and 2016, respectively. Stock-based compensation expense is recognized ratably over the requisite service period for all awards.Note 11.9. Other Comprehensive (Loss) Income (loss) for the three and nine months ended September 30, 20172022 and 2016.(dollars in thousands) Before Tax Tax Effect Net of Tax Three Months Ended September 30, 2017 Net unrealized gain on securities available-for-sale $ 25 $ 10 $ 15 Less: Reclassification adjustment for net gains included in net income (11 ) (4 ) (7 ) Total unrealized gain 14 6 8 Net unrealized gain on derivatives 557 210 347 Less: Reclassification adjustment for gain included in net income (289 ) (106 ) (183 ) Total unrealized gain 268 104 164 Other Comprehensive Income $ 282 $ 110 $ 172 Three Months Ended September 30, 2016 Net unrealized loss on securities available-for-sale $ (1,512 ) $ (605 ) $ (907 ) Less: Reclassification adjustment for net gains included in net income 1 — 1 Total unrealized loss (1,511 ) (605 ) (906 ) Net unrealized gain on derivatives 2,927 1,171 1,756 Less: Reclassification adjustment for losses included in net income (777 ) (311 ) (466 ) Total unrealized gain 2,150 860 1,290 Other Comprehensive Income $ 639 $ 255 $ 384 Nine Months Ended September 30, 2017 Net unrealized gain on securities available-for-sale $ 2,080 $ 837 $ 1,243 Less: Reclassification adjustment for net gains included in net income (542 ) (202 ) (340 ) Total unrealized gain 1,538 635 903 Net unrealized gain on derivatives 2,186 836 1,350 Less: Reclassification adjustment for gain included in net income (1,308 ) (487 ) (821 ) Total unrealized gain 878 349 529 Other Comprehensive Income $ 2,416 $ 984 $ 1,432 Nine Months Ended September 30, 2016 Net unrealized gain on securities available-for-sale $ 6,850 $ 2,740 $ 4,110 Less: Reclassification adjustment for net gains included in net income (1,123 ) (449 ) (674 ) Total unrealized gain 5,727 2,291 3,436 Net unrealized loss on derivatives (9,132 ) (3,654 ) (5,478 ) Less: Reclassification adjustment for losses included in net income (1,519 ) (608 ) (911 ) Total unrealized loss (7,613 ) (3,046 ) (4,567 ) Other Comprehensive Loss $ (1,886 ) $ (755 ) $ (1,131 ) (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) 20172022 and 2016. Securities Accumulated Other (dollars in thousands) Available For Sale Derivatives Comprehensive (Loss) Income Three Months Ended September 30, 2017 Balance at Beginning of Period $ (1,060 ) $ (61 ) $ (1,121 ) Other comprehensive income before reclassifications 15 347 362 Amounts reclassified from accumulated other comprehensive loss (7 ) (183 ) (190 ) Net other comprehensive income during period 8 164 172 Balance at End of Period $ (1,052 ) $ 103 $ (949 ) Three Months Ended September 30, 2016 Balance at Beginning of Period $ 5,383 $ (6,707 ) $ (1,324 ) Other comprehensive (loss) income before reclassifications (907 ) 1,756 849 Amounts reclassified from accumulated other comprehensive (loss) income 1 (466 ) (465 ) Net other comprehensive (loss) income during period (906 ) 1,290 384 Balance at End of Period $ 4,477 $ (5,417 ) $ (940 ) Nine Months Ended September 30, 2017 Balance at Beginning of Period $ (1,955 ) $ (426 ) $ (2,381 ) Other comprehensive income before reclassifications 1,243 1,350 2,593 Amounts reclassified from accumulated other comprehensive loss (340 ) (821 ) (1,161 ) Net other comprehensive income during period 903 529 1,432 Balance at End of Period $ (1,052 ) $ 103 $ (949 ) Nine Months Ended September 30, 2016 Balance at Beginning of Period $ 1,041 $ (850 ) $ 191 Other comprehensive income (loss) before reclassifications 4,110 (5,478 ) (1,368 ) Amounts reclassified from accumulated other comprehensive (loss) income (674 ) 911 237 Net other comprehensive income (loss) during period 3,436 (4,567 ) (1,131 ) Balance at End of Period $ 4,477 $ (5,417 ) $ (940 ) 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) table presentstables present the amounts reclassified out of each component of accumulated other comprehensive income (loss) income for the three and nine months ended September 30, 20172022 and 2016.Details about Accumulated Other Amount Reclassified from Affected Line Item in Comprehensive Income Components Accumulated Other the Statement Where (dollars in thousands) Comprehensive (Loss) Income Net Income is Presented Three Months Ended September 30, 2017 2016 Realized gain on sale of investment securities $ (11 ) $ (1 ) Gain on sale of investment securities Interest expense derivative deposits (289 ) (470 ) Interest expense on deposits Interest expense derivative borrowings — (306 ) Interest expense on short-term borrowings Income tax expense 110 311 Tax expense Total Reclassifications for the Period $ (190 ) $ (466 ) Net Income Details about Accumulated Other Amount Reclassified from Affected Line Item in Comprehensive Income Components Accumulated Other the Statement Where (dollars in thousands) Comprehensive (Loss) Income Net Income is Presented Nine Months Ended September 30, 2017 2016 Realized gain on sale of investment securities $ (542 ) $ (1,123 ) Gain on sale of investment securities Interest expense derivative deposits (1,308 ) (952 ) Interest expense on deposits Interest expense derivative borrowings — (567 ) Interest expense on short-term borrowings Income tax expense 689 2,405 Tax expense Total Reclassifications for the Period $ (1,161 ) $ (237 ) Net Income 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 12.10. Fair Value Measurements“"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 1Quoted prices in active exchange markets for identical assets or liabilities; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.Level 2Observable inputs other than Level 1 including quoted prices for similar assets or liabilities, quoted prices in less active markets, or other observable inputs that can be corroborated by observable market data; also includes derivative contracts whose value is determined using a pricing model with observable market inputs or can be derived principally from or corroborated by observable market data. This category generally includes certain U.S. Government and agency securities, corporate debt securities, derivative instruments, and residential mortgage loans held for sale.Level 3Unobservable 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.
Level 1 Quoted prices in active exchange markets for identical assets or liabilities.; also includes certain U.S. Treasury and other U.S. Government and agency securities actively traded in over-the-counter markets.tabletables below presentspresent the recorded amount of assets and liabilities measured at fair value on a recurring basis as of September 30, 20172022 and December 31, 2016.(dollars in thousands) Quoted Prices
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant Other
Unobservable
Inputs (Level 3) Total
(Fair Value) September 30, 2017 Assets: Investment securities available for sale: U. S. agency securities $ — $ 177,918 $ — $ 177,918 Residential mortgage backed securities — 301,526 — 301,526 Municipal bonds — 63,147 — 63,147 Corporate bonds — 11,717 1,500 13,217 Other equity investments — — 218 218 Loans held for sale — 25,980 — 25,980 Mortgage banking derivatives — — 63 63 Interest rate swap derivatives — 191 — 191 Total assets measured at fair value on a recurring basis as of September 30, 2017 $ — $ 580,479 $ 1,781 $ 582,260 Liabilities: Mortgage banking derivatives $ — $ — $ 36 $ 36 Interest rate swap derivatives — 24 — 24 Total liabilities measured at fair value on a recurring basis as of September 30, 2017 $ — $ 24 $ 36 $ 60 December 31, 2016 Assets: Investment securities available for sale: U. S. agency securities $ — $ 106,142 $ — $ 106,142 Residential mortgage backed securities — 326,239 — 326,239 Municipal bonds — 95,930 — 95,930 Corporate bonds — 8,079 1,500 9,579 Other equity investments — — 218 218 Loans held for sale — 51,629 — 51,629 Mortgage banking derivatives — — 114 114 Total assets measured at fair value on a recurring basis as of December 31, 2016 $ — $ 588,019 $ 1,832 $ 589,851 Liabilities: Mortgage banking derivatives $ — $ — $ 55 $ 55 Interest rate swap derivatives — 692 — 692 Total liabilities measured at fair value on a recurring basis as of December 31, 2016 $ — $ 692 $ 55 $ 747 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 Assets: Investment securities available-for-sale: U.S treasury bonds $ — $ 46,048 $ — $ 46,048 U. S. agency securities — 668,328 — 668,328 Residential mortgage-backed securities — 828,367 — 828,367 Commercial mortgage-backed securities — 94,172 — 94,172 Municipal bonds — 10,993 — 10,993 Corporate bonds — 1,845 — 1,845 Loans held for sale — 9,387 — 9,387 Interest rate derivatives — 30,635 — 30,635 Mortgage banking derivatives — — 259 259 Total assets measured at fair value on a recurring basis as of September 30, 2022 $ — $ 1,689,775 $ 259 $ 1,690,034 Liabilities: Credit risk participation agreements $ — $ 3 $ — $ 3 Interest rate derivatives — 29,492 — 29,492 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 Assets: Investment securities available-for-sale: U.S. treasury bonds $ — $ 49,458 $ — $ 49,458 U. S. agency securities — 622,387 — 622,387 Mortgage-backed securities — 1,677,673 — 1,677,673 Municipal bonds — 145,431 — 145,431 Corporate bonds — 116,459 12,000 128,459 Loans held for sale — 47,218 — 47,218 Interest rate caps — 5,197 — 5,197 Mortgage banking derivatives — — 636 636 Total assets measured at fair value on a recurring basis as of December 31, 2021 $ — $ 2,663,823 $ 12,636 $ 2,676,459 Liabilities: Credit risk participation agreements $ — $ 47 $ — $ 47 Interest rate derivatives — 5,147 — 5,147 Total liabilities measured at fair value on a recurring basis as of December 31, 2021 $ — $ 5,194 $ — $ 5,194 Securities Available-for-Salesecurity’ssecurity's credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange such as the New York Stock Exchange, Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds.Exchange. Level 2 securities includeincludes certain U.S. treasury bonds, U.S. agency debt securities, mortgage backedmortgage-backed securities issued by Government Sponsored Entities (“GSE’s”) and municipal bonds. Securities classified as Level 3 include securities in less liquid markets, the carrying amounts approximate the fair value.OperationsIncome and better aligns with the management of the portfolio from a business perspective. Fair value is derived from secondary market quotations for similar instruments. Gains and losses on sales of residential mortgage loans are recorded as a component of noninterest income in the Consolidated Statements of Operations.income. Gains and losses on salessale of multifamily FHA securities are recorded as a component of noninterest income in the Consolidated Statements of Operations.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.table summarizestables summarize the difference between the aggregate fair value and the aggregate unpaid principal balance for residential real estate loans held for sale measured at fair value as of September 30, 20172022 and December 31, 2016. September 30, 2017 Aggregate Unpaid (dollars in thousands) Fair Value Principal Balance Difference Residential mortgage loans held for sale $ 25,980 $ 25,473 $ 507 FHA mortgage loans held for sale $ — $ — $ — December 31, 2016 Aggregate Unpaid (dollars in thousands) Fair Value Principal Balance Difference Residential mortgage loans held for sale $ 51,629 $ 51,021 $ 608 FHA mortgage loans held for sale $ — $ — $ — No2021.Aggregate Unpaid (dollars in thousands) Fair Value Principal Balance Difference September 30, 2022 Loans held for sale $ 9,387 $ 9,862 $ (475) December 31, 2021 Loans held for sale $ 47,218 $ 46,623 $ 595 20172022 or December 31, 2016.swap derivatives:These derivative instruments consist of forward starting The Company entered into an interest rate swap agreements,derivative agreement with an institutional counterparty, under which are accounted for asthe Company will receive cash flow hedges. The Company’s derivative position is classified within Level 2 ofif and when market rates exceed 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.derivatives strike rate. The fair value of the derivativesderivative cap is determined using discounted cash flow models. These models’ key assumptions includecalculated by determining the contractual termstotal expected asset or liability exposure of the respective contract along with significantderivatives. Total expected exposure incorporates both the current and potential future exposure of the derivative, derived from using observable inputs, including interest rates,such as yield curves nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral agreement that requires collateral postings whenvolatilities. Accordingly, the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.derivatives:derivatives for loans settled on a mandatory basis:The Company reliesrelied on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a Level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing. and liabilities measured at fair value based on Significant Other Unobservable Inputs (Level 3): Investment Mortgage Banking (dollars in thousands) Securities Derivatives Total Assets: Beginning balance at January 1, 2017 $ 1,718 $ 114 $ 1,832 Realized loss included in earnings - net mortgage banking derivatives — (51 ) (51 ) Purchases of available-for-sale securities — — — Principal redemption — — — Ending balance at September 30, 2017 $ 1,718 $ 63 $ 1,781 Liabilities: Beginning balance at January 1, 2017 $ — $ 55 $ 55 Realized loss included in earnings - net mortgage banking derivatives — (19 ) (19 ) Principal redemption — — — Ending balance at September 30, 2017 $ — $ 36 $ 36 Investment Mortgage Banking (dollars in thousands) Securities Derivatives Total Assets: Beginning balance at January 1, 2016 $ 219 $ 24 $ 243 Realized gain included in earnings - net mortgage banking derivatives — 90 90 Purchases of available-for-sale securities 1,500 — 1,500 Principal redemption (1 ) — (1 ) Ending balance at December 31, 2016 $ 1,718 $ 114 $ 1,832 Liabilities: Beginning balance at January 1, 2016 $ — $ 30 $ 30 Realized loss included in earnings - net mortgage banking derivatives — 25 25 Principal redemption — — — Ending balance at December 31, 2016 $ — $ 55 $ 55 The other equity securities classified asInvestment 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 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 consistassets measured at fair value on a recurring or nonrecurring basis as of equity investmentsSeptember 30, 2022 and December 31, 2021, the significant unobservable inputs used in the form of common stock of two localfair value measurements were as follows:September 30, 2022 December 31, 2021 (dollars in thousands) Valuation Technique Description Range Fair Value Fair Value Mortgage banking derivatives Pricing Model Pull Through Rate 59.9% - 100.0% 83.18 % $ 259 86.40 % $ 636 companies which are not publicly traded, and for which the carrying amount approximates fair value.Impaired loans: The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the original contractual terms of the note agreement, including both principal and interest. Management has determined that nonaccrual loans and loans that have had their terms restructured in a troubled debt restructuring meet this impaired loan definition. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the estimated fair value of the underlying collateral for collateral-dependent loans, which the Company classifies as a Level 3 valuation.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:(dollars in thousands) Quoted Prices
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant Other
Unobservable
Inputs (Level 3) Total
(Fair Value) September 30, 2017 Impaired loans: Commercial $ — $ — $ 2,757 $ 2,757 Income producing - commercial real estate — — 8,714 8,714 Owner occupied - commercial real estate — — 5,885 5,885 Real estate mortgage - residential — — 301 301 Construction - commercial and residential — — 2,030 2,030 Home equity — — 504 504 Other consumer — — 11 11 Other real estate owned — — 1,394 1,394 Total assets measured at fair value on a nonrecurring basis as of September 30, 2017 $ — $ — $ 21,596 $ 21,596 (dollars in thousands) Quoted Prices
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant Other
Unobservable
Inputs (Level 3) Total
(Fair Value) December 31, 2016 Impaired loans: Commercial $ — $ — $ 2,956 $ 2,956 Income producing - commercial real estate — — 12,993 12,993 Owner occupied - commercial real estate — — 2,133 2,133 Real estate mortgage - residential — — 555 555 Construction - commercial and residential — — 1,550 1,550 Other consumer — — 13 13 Other real estate owned — — 2,694 2,694 Total assets measured at fair value on a nonrecurring basis as of December 31, 2016 $ — $ — $ 22,894 $ 22,894 LoansThe Company does not record loans at fair value on a recurring basis; however, from time to time, a loan is considered impaired and an allowance for loan loss is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC Topic 310,“Receivables.” The fair value of impaired loans is estimated using one of several methods, including the collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans not requiring a specific allowance represent loans for which the fair value of expected repayments or collateral exceed the recorded investment in such loans. 2017,2022, substantially all of the totally impairedCompany's individually evaluated loans were evaluated based upon the fair value of the collateral. In accordance with ASC Topic 820, impairedindividually 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.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 Company’sCompany's financial instruments, the fair value of such instruments has been derived based on management’smanagement'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.following methods and assumptions were used to estimate the fair value of each category of financial instrument for which it is practicable to estimate value:Cash due from banks and federal funds sold: For cash and due from banks and federal funds sold the carrying amount approximates fair value.Interest bearing deposits with other banks: For interest bearing deposits with other banks the carrying amount approximates fair value.Investment securities: For these instruments, fair values are 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.Federal Reserve and Federal Home Loan Bank stock: The carrying amounts approximate the fair values at the reporting date.Loans held for sale: As the Company has elected the fair value option, the fair value of residential mortgage loans held for sale is the carrying value and is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics for residential mortgage loans held for sale since such loans are typically committed to be sold (servicing released) at a profit. The fair value of FHA loans held for sale is the carrying value and is based on commitments outstanding from investors as well as what secondary markets are currently offering for portfolios with similar characteristics for FHA loans held for sale since such loans are typically committed to be securitized and sold (servicing retained) at a profit.Loans: For variable rate loans that re-price on a scheduled basis, fair values are based on carrying values. Theestimated fair value of the remaining loans are estimated by discounting the estimated future cash flows using the current interest rate at which similar loans would be made to borrowers with similar credit ratings and for the same remaining term.Bank owned life insurance: The fair value of bank owned life insurance is the current cash surrender value, which is the carrying value.Annuity investment:The fair value of the annuity investments is the carrying amount at the reporting date.Mortgage banking derivatives:The Company enters into interest rate lock commitments (IRLCs) with prospective residential mortgage borrowers. These commitments are carried at fair value based on the fair value of the underlying mortgage loans which are based on market data. These commitments are classified as Level 3 in the fair value disclosures, as the valuations are based on market unobservable inputs. The Company hedges the risk of the overall change in the fair value of loan commitments to borrowers by selling forward contracts on securities of GSEs. These forward settling contracts are classified as Level 3, as valuations are based on market unobservable inputs. See Note 4 to the Consolidated Financial Statements for additional detail.Interest rate swap derivatives:These derivative instruments consist of forward starting interest rate swap agreements, which are accounted for as cash flow hedges. The Company’s derivative position is classified within Level 2 of the fair value hierarchy and is valued using models generally accepted in the financial services industry and that use actively quoted or observable market input values from external market data providers and/or non-binding broker-dealer quotations. The fair value of the derivatives is determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract along with significant observable inputs, including interest rates, yield curves, nonperformance risk and volatility. Derivative contracts are executed with a Credit Support Annex, which is a bilateral agreement that requires collateral postings when the market value exceeds certain threshold limits. These agreements protect the interests of the Company and its counterparties should either party suffer a credit rating deterioration.Noninterest bearing deposits: The fair value of these deposits is the amount payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value.Interest bearing deposits:The fair value of interest bearing transaction, savings, and money market deposits with no defined maturity is the amount payable on demand at the reporting date, since generally accepted accounting standards do not permit an assumption of core deposit value.Certificates of deposit: The fair value of certificates of deposit is estimated by discounting the future cash flows using the current rates at which similar deposits with remaining maturities would be accepted.Customer repurchase agreements: The carrying amount approximate the fair values at the reporting date.Borrowings: The carrying amount for variable rate borrowings approximate the fair values at the reporting date. The fair value of fixed rate FHLB advances and the subordinated notes are estimated by computing the discounted value of contractual cash flows payable at current interest rates for obligations with similar remaining terms. The fair value of variable rate FHLB advances is estimated to be carrying value since these liabilities are based on a spread to a current pricing index.Off-balance sheet items: Management has reviewed the unfunded portion of commitments to extend credit, as well as standby and other letters of credit, and has determined that the fair value of such instruments is equal to the fee, if any, collected and unamortized for the commitment made.The estimated fair values of the Company’sCompany's financial instruments at September 30, 20172022 and December 31, 20162021 are as follows: Fair Value Measurements Quoted Prices in
Active Markets for
Identical Assets or
Liabilities Significant Other
Observable Inputs Significant
Unobservable
Inputs (dollars in thousands) Carrying Value Fair Value (Level 1) (Level 2) (Level 3) September 30, 2017 Assets Cash and due from banks $ 8,246 $ 8,246 $ — $ 8,246 $ — Federal funds sold 8,548 8,548 — 8,548 — Interest bearing deposits with other banks 432,156 432,156 — 432,156 — Investment securities 556,026 556,026 — 554,308 1,718 Federal Reserve and Federal Home Loan Bank stock 30,980 30,980 — 30,980 — Loans held for sale 25,980 25,980 — 25,980 — Loans, net 6,021,237 6,075,997 — — 6,075,997 Bank owned life insurance 61,238 61,238 — 61,238 — Annuity investment 11,591 11,591 — 11,591 — Mortgage banking derivatives 63 63 — — 63 Interst rate swap derivatives 191 191 — 191 — Liabilities Noninterest bearing deposits 1,843,157 1,843,157 — 1,843,157 — Interest bearing deposits 3,248,118 3,248,118 — 3,248,118 — Certificates of deposit 822,677 821,892 — 821,892 — Customer repurchase agreements 73,569 73,569 — 73,569 — Borrowings 416,807 448,768 — 448,768 — Mortgage banking derivatives 36 36 — — 36 Interest rate swap derivatives 24 24 — 24 — December 31, 2016 Assets Cash and due from banks $ 10,285 $ 10,285 $ — $ 10,285 $ — Federal funds sold 2,397 2,397 — 2,397 — Interest bearing deposits with other banks 355,481 355,481 — 355,481 — Investment securities 538,108 538,108 — 536,390 1,718 Federal Reserve and Federal Home Loan Bank stock 21,600 21,600 — 21,600 — Loans held for sale 51,629 51,629 — 51,629 — Loans, net 5,618,819 5,624,084 — — 5,624,084 Bank owned life insurance 60,130 60,130 — 60,130 — Annuity investment 11,929 11,929 — 11,929 — Mortgage banking derivatives 114 114 — — 114 Liabilities Noninterest bearing deposits 1,775,684 1,775,684 — 1,775,684 — Interest bearing deposits 3,191,682 3,191,682 — 3,191,682 — Certificates of deposit 748,748 745,985 — 745,985 — Customer repurchase agreements 68,876 68,876 — 68,876 — Borrowings 216,514 203,657 — 203,657 — Mortgage banking derivatives 55 55 — — 55 Interest rate swap derivatives 692 692 — 692 — Fair Value Measurements Quoted Prices (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Carrying (dollars in thousands) Value Fair Value September 30, 2022 Assets Cash and due from banks $ 27,235 $ 27,235 $ 27,235 $ — $ — Federal funds sold $ 69,809 $ 69,809 $ — $ 69,809 $ — Interest bearing deposits with other banks $ 47,131 $ 47,131 $ — $ 47,131 $ — Investment securities available-for-sale $ 1,649,753 $ 1,649,753 $ — $ 1,649,753 $ — Investment securities held-to-maturity $ 1,114,084 $ 989,001 $ — $ 977,001 $ 12,000 Loans held for sale $ 9,387 $ 9,387 $ — $ 9,387 $ — Loans $ 7,228,731 $ 7,117,321 $ — $ — $ 7,117,321 Mortgage banking derivatives $ 259 $ 259 $ — $ — $ 259 Interest rate derivatives $ 30,635 $ 30,635 $ — $ 30,635 $ — Liabilities Noninterest bearing deposits $ 2,928,774 $ 2,928,774 $ — $ 2,928,774 $ — Interest bearing deposits $ 5,185,335 $ 5,185,335 $ — $ 5,185,335 $ — Time deposits $ 649,241 $ 639,069 $ — $ 639,069 $ — Customer repurchase agreements $ 21,465 $ 21,465 $ — $ 21,465 $ — Borrowings $ 584,763 $ 583,416 $ — $ 583,416 $ — Mortgage banking derivatives $ 115 $ 115 $ — $ — $ 115 Credit risk participation agreement $ 3 $ 3 $ — $ 3 $ — Interest rate derivatives $ 29,492 $ 29,492 $ — $ 29,492 $ — December 31, 2021 Assets Cash and due from banks $ 12,886 $ 12,886 $ 12,886 $ — $ — Federal funds sold $ 20,391 $ 20,391 $ — $ 20,391 $ — Interest bearing deposits with other banks $ 1,680,945 $ 1,680,945 $ — $ 1,680,945 $ — Investment securities $ 2,623,408 $ 2,623,408 $ — $ 2,611,408 $ 12,000 Federal Reserve and Federal Home Loan Bank stock $ 34,153 $ 34,153 $ — $ 34,153 $ — Loans held for sale $ 47,218 $ 47,218 $ — $ 47,218 $ — Loans $ 7,065,598 $ 6,930,929 $ — $ — $ 6,930,929 Mortgage banking derivatives $ 636 $ 636 $ — $ — $ 636 Interest rate derivatives $ 5,197 $ 5,197 $ — $ 5,197 $ — Liabilities Noninterest bearing deposits $ 3,277,956 $ 3,277,956 $ — $ 3,277,956 $ — Interest bearing deposits $ 5,974,502 $ 5,974,502 $ — $ 5,974,502 $ — Time deposits $ 729,082 $ 736,001 $ — $ 736,001 $ — Customer repurchase agreements $ 23,918 $ 23,918 $ — $ 23,918 $ — Borrowings $ 369,670 $ 374,326 $ — $ 374,326 $ — Credit risk participation agreements $ 47 $ 47 $ — $ 47 $ — Interest rate derivatives $ 5,147 $ 5,147 $ — $ 5,147 $ — 13. Supplemental11 - Legal ContingenciesRetirement Planhas entered into Supplementalreached 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 RetirementOfficer and Death Benefit Agreements (the “SERP Agreements”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.withthat provide coverage for the legal defense costs related to certain of the Bank’s executive officers other than Mr. Paul, which uponabove-described investigations and litigations and those discussed in the executive’s retirement, will provideCompany's Annual Report on Form 10-K for the year ended December 31, 2021. When claims are covered by D&O Insurance Policies, the Company records a stated monthly payment for such executive’s lifetimecorresponding receivable against the incurred legal defense cost expense subject to certain death benefits described below. The retirement benefitcoverage under the D&O Insurance Policies and then eliminates the receivable and expense when the claim is computed aspaid. Since the commencement of the above-described matters in 2018 through September 30, 2022, the Company's D&O Insurance carriers have advanced a percentagenumber of each executive’s projected average base salarydefense 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 five years preceding retirement, assuming retirement at age 67. The SERP Agreements providenext few months, the Company currently believes there is a possibility that (a) the benefits vest ratably over six yearsapplicable D&O Insurance Policies may be exhausted as early as the fourth quarter of service to2022. Once the Bank,D&O Insurance Policies are exhausted, the Company will be responsible for paying the defense costs associated with the executive receiving creditabove-described investigations and litigations for yearsitself and on behalf of service priorany current and former Officers and Directors entitled to entering intoindemnification from the SERP Agreement, (b) death, disability and change-in-control shall result in immediate vesting, and (c)Company. The Company cannot predict with any certainty the monthly amount will be reduced if retirement occurs earlier than age 67 for any reason other than death, disability or change-in-control. The SERP Agreements further provide for a death benefitof defense costs that the Company may incur in the event the retired executive dies prior to receiving 180 monthly installments, paid eitherfuture in a lump sum payment or continued monthly installment payments, such that the executive’s beneficiary has received payment(s) sufficient to equate to a cumulative 180 monthly installments.The SERP Agreementsconnection with currently ongoing and any potential future investigations and legal proceedings, as they are unfunded arrangements maintained primarily to provide supplemental retirement benefits and comply with Section 409Adependent on various factors, many of which are outside of the Internal Revenue Code. Company's control.Bank financedCompany has evaluated subsequent events through the retirement benefits by purchasing fixed annuity contracts with four insurance in 2013 carriers totaling $11.4 millionfiling of this report and determined there have not been any events that have been designedoccurred that would require adjustments to, provide a future source of funds for the lifetime retirement benefits of the SERP Agreements. The primary impetus for utilizing fixed annuities is a substantial savingsor disclosures in compensation expenses for the Bank as opposed to a traditional SERP Agreement. For the quarter ended September 30, 2017, the annuity contracts accrued $54 thousand of income, which was included in other noninterest income on the Consolidated Statement of Operations. The cash surrender value of the annuity contracts was $11.6 million at September 30, 2017 and is included in other assets on the Consolidated Balance Sheet. For the three and nine months ended September 30, 2017, the Company recorded benefit expense accruals of $103 thousand and $308 thousand, for this post retirement benefit.Upon death of a named executive, the annuity contract related to such executive terminates. The Bank has purchased additional bank owned life insurance contracts, which would effectively finance payments (up to a 15 year certain amount) to the executives’ named beneficiaries.– Management’s Discussion and Analysis of Financial Condition and Results of Operationsand financial condition, liquidity, and capital resources of the CompanyEagle 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’sCompany's Annual Report on Form 10-K for the year ended December 31, 2016.forward lookingforward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act"), as amended, including statements of goals, intentions, and expectations as to future trends, plans, events or results of Company operations and policies and regarding general economic conditions. In some cases, forward-looking statements can be identified by use of words such words as “may,” “will,” “anticipate,” “believes,” “expects,” “plans,” “estimates,” “potential,” “continue,” “should,”"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’sCompany'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’sCompany's Annual Report on Form 10-K for the year ended December 31, 20162021, 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 statements are based, actual future operations and results in the future may differ materially from those indicated herein. Readers are cautioned against placing undue reliance on any such 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 statements.statement for any reason.growth oriented,growth-oriented, one-bank holding company headquartered in Bethesda, Maryland, which is currently celebrating nineteen years of successful operations.Maryland. The Company provides general commercial and consumer banking services through the Bank,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’sCompany's primary market area. The Company’sCompany'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 twenty-onesixteen branch offices, including ninefive in Northern Virginia, sevensix in Montgomery County,Suburban Maryland, and five in Washington, D.C.Bank’sBank's market area. The Bank emphasizes providing commercial banking services to sole proprietors, small and medium sizedmedium-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”"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 SBASmall Business Administration ("SBA") loans.andand/or mandatory delivery commitments with the investors to purchase the loans subject to compliance with pre-established criteria. The decision whether to sell residential mortgage loans 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 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.a small number of FHAmultifamily Federal Housing Administration ("FHA") loans through the Department of Housing and Urban Development’sDevelopment's Multifamily Accelerated Program (“MAP”("MAP"). The Company securitizes these loans through the Government National Mortgage Association (“("Ginnie Mae”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 generally retainsperiodically bundles and sells the servicing rights. Bethesda Leasing, LLC, a subsidiary of the Bank, holds title to and manages OREOother 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. ECV,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.provided subordinated financingconcluded 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.acquisition, development and/or constructionthird quarter of real estate projects. ECV lending involves higher levels2022 in connection with the FRB's approval and public announcement of risk, together with commensurate expected returns.Company’sCompany'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.Investment Securitiesfair valuesCompany 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 and the information used to record valuation adjustments for investment securities available-for-sale are based either on quoted market prices or are provided by other third-party sources, when available. The Company’s investment portfolio is categorized as available-for-sale with unrealized gains and losses net of income tax being a component of shareholders’ equity and accumulated other comprehensive loss.Allowance for Credit LossesThe allowance for credit losses is an estimate of the losses that may be sustained in our loan portfolio. The allowance is based on two principles of accounting: (a) ASC Topic 450,“Contingencies,” which requires that losses be accrued when they are probable of occurring and are estimable and (b) ASC Topic 310,“Receivables,” which requires that losses be accrued when it is probable that the Company will not collect all principal and interest payments accordingNote 1 to the contractual terms ofConsolidated Financial Statements included in this report. There have been no significant changes to the loan. The loss, if any, can be determined by the difference between the loan balance and the value of collateral, the present value of expected future cash flows, or values observableCompany's accounting policies as disclosed in the secondary markets.Three components comprise our allowance for credit losses: a specific allowance, a formula allowance and a nonspecific or environmental factors allowance. Each component is determined basedCompany's Annual Report on estimates that can and do change when actual events occur.The specific allowance allocates a reserve to identified impaired loans. Impaired loans are assigned specific reserves based on an impairment analysis. Under ASC Topic 310,“Receivables,” a loan for which reserves are individually allocated may show deficiencies in the borrower’s overall financial condition, payment record, support available from financial guarantors andForm 10-K for the fair market valueyear ended December 31, 2021 except as indicated in "Investment Securities," "Transfers of collateral. When a loan is identified as impaired, a specific reserve is established based on the Company’s assessment of the loss that may be associated with the individual loan.The formula allowance is usedInvestment Securities from Available-for-Sale to estimate the loss on internally risk rated loans, exclusive of those identified as requiring specific reserves. The portfolio of unimpaired loans is stratified by loan typeHeld-to-Maturity" and risk assessment. Allowance factors relate"Accounting Standards Adopted in 2022" in Note 1 to the type of loan and level of the internal risk rating, with loans exhibiting higher risk and loss experience receiving a higher allowance factor.The environmental allowance is also used to estimate the loss associated with pools of non-classified loans. These non-classified loans are also stratified by loan type, and environmental allowance factors are assigned by management based upon a number of conditions, including delinquencies, loss history, changesConsolidated Financial Statements in lending policy and procedures, changes in business and economic conditions, changes in the nature and volume of the portfolio, management expertise, concentrations within the portfolio, quality of internal and external loan review systems, competition, and legal and regulatory requirements.The allowance captures losses inherent in the loan portfolio, which have not yet been recognized. Allowance factors and the overall size of the allowance may change from period to period based upon management’s assessment of the above described factors, the relative weights given to each factor, and portfolio composition.Management has significant discretion in making the judgments inherent in the determination of the provision and allowance for credit losses, including in connection with the valuation of collateral, a borrower’s prospects of repayment, and in establishing allowance factors on the formula and environmental components of the allowance. The establishment of allowance factors involves a continuing evaluation, based on management’s ongoing assessment of the global factors discussed above and their impact on the portfolio. The allowance factors may change from period to period, resulting in an increase or decrease in the amount of the provision or allowance, based upon the same volume and classification of loans. Changes in allowance factors can have a direct impact on the amount of the provision, and a related after tax effect on net income. Errors in management’s perception and assessment of the global factors and their impact on the portfolio could result in the allowance not being adequate to cover losses in the portfolio, and may result in additional provisions or charge-offs. Alternatively, errors in management’s perception and assessment of the global factors and their impact on the portfolio could result in the allowance being in excess of amounts necessary to cover losses in the portfolio, and may result in lower provisions in the future. For additional information regarding the provision for credit losses, refer to the discussion under the caption “Provision for Credit Losses” below.GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the net assets acquired. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights. Intangible assets that have finite lives, such as core deposit intangibles, are amortized over their estimated useful lives and subject to periodic impairment testing. Intangible assets (other than goodwill) are amortized to expense using accelerated or straight-line methods over their respective estimated useful lives.Goodwill is subject to impairment testing at the reporting unit level, which must be conducted at least annually. The Company performs impairment testing during the fourth quarter of each year or when events or changes in circumstances indicate the assets might be impaired.The Company performs a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing updated qualitative factors, the Company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it does not have to perform the two-step goodwill impairment test. Determining the fair value of a reporting unit under the first step of the goodwill impairment test and determining the fair value of individual assets and liabilities of a reporting unit under the second step of the goodwill impairment test are judgmental and often involve the use of significant estimates and assumptions. Similarly, estimates and assumptions are used in determining the fair value of other intangible assets. Estimates of fair value are primarily determined using discounted cash flows, market comparisons and recent transactions. These approaches use significant estimates and assumptions including projected future cash flows, discount rates reflecting the market rate of return, projected growth rates and determination and evaluation of appropriate market comparables. Based on the results of qualitative assessments of all reporting units, the Company concluded that no impairment existed at December 31, 2016. However, future events could cause the Company to conclude that goodwill or other intangibles have become impaired, which would result in recording an impairment loss. Any resulting impairment loss could have a material adverse impact on the Company’s financial condition and results of operations.Stock Based CompensationThe Company follows the provisions of ASC Topic 718,“Compensation,” which requires the expense recognition for the fair value of share based compensation awards, such as stock options, restricted stock awards, and performance based shares. This standard allows management to establish modeling assumptions as to expected stock price volatility, option terms, forfeiture rates and dividend rates which directly impact estimated fair value. The accounting standard also allows for the use of alternative option pricing models which may impact fair value as determined. The Company’s practice is to utilize reasonable and supportable assumptions.DerivativesInterest rate swap derivatives designated as qualified cash flow hedges are tested for hedge effectiveness on a quarterly basis. Assessments are made at the inception of the hedge and on a recurring basis to determine whether the derivative used in the hedging transaction has been and is expected to continue to be highly effective in offsetting changes in fair values or cash flows of the hedged item. A statistical regression analysis is performed to measure the effectiveness.If, based on the assessment, a derivative is not expected to be a highly effective hedge or it has ceased to be a highly effective hedge, hedge accounting is discontinued as of the quarter the hedge is not highly effective. As the statistical regression analysis requires the use of estimates regarding the amount and timing of future cash flows which are sensitive to significant changes in future periods based on changes in market rates; we consider this a critical accounting estimate.For the three months ended2017, net income was $29.9 million, a 22% increase over the $24.5 million net2022 vs. Three Months Ended September 30, 20212016. Net2022 was $37.3 million compared to $43.6 million for the same period in 2021, a decrease of $6.3 million, or 14.5%.per basic common shareof $6.3 million for the three months ended September 30, 2017 was $0.87 compared2022 relative to $0.73 for the same period in 2016, a 19% increase. Net income per diluted common share for the three months ended September 30, 20172021 was $0.87 compared to $0.72 for the same period in 2016, a 21% increase.For the nine months ended September 30, 2017, the Company’s net income was $84.7 million, an 18% increase over the $72.0 million for the same period in 2016. Net income per basic common share for the nine months ended September 30, 2017 was $2.48 compared to $2.14 for the same period in 2016, a 16% increase. Net income per diluted common share for the nine months ended September 30, 2017 was $2.47 compared to $2.11 for the same period in 2016, a 17% increase.The increase in net income for the three months ended September 30, 2017 can be attributeddue primarily to an increase in totalprovision for credit losses of $11.2 million and a decrease in noninterest income of $3.0 million, which were partially offset by an increase in net interest income of $4.9 million and a decrease in income taxes of $2.9 million. Noninterest income decreased due to decreases in gain on sale of residential loans of $2.5 million and a decrease in gain on sale of investment securities of $1.5 million, which were partially offset by an increase on other income of $911 thousand.of 11% over the same period in 2016. Net interest income grew 11%was $89.2 million for the three months ended September 30, 20172022 as compared to $87.3 million for the same period in 2016 due to average earning asset growth2021. The most significant portion of 10%.For the three months ended September 30, 2017, the Company reported an annualized ROAA of 1.66% as compared to 1.50%revenue is net interest income, which was $83.9 million for the three months ended September 30, 2016. The annualized ROACE for the three months ended September 30, 2017 was 12.86%, as2022, compared to 12.04%$79.0 million for the three months ended September 30, 2016.The increase in net income for the nine months ended September 30, 2017 can be attributed primarily to an increase in total revenue (i.e. net interest income plus noninterest income) of 8% over the same period in 2016.2021. Net interest income grew 9% for the nine months ended September 30, 2017 as compared to the same period in 2016 due to average earning asset growth of 12%.For the nine months ended September 30, 2017, the Company reported an annualized ROAA of 1.63% as compared to 1.54% for the nine months ended September 30, 2016. The annualized ROACE for the nine months ended September 30, 2017 was 12.71%, as compared to 12.27% for the nine months ended September 30, 2016. The higher ratios areincreased due to increased earnings.increased 3 basis points from 4.11%was 3.02% for the three months ended September 30, 2016 to 4.14% for the three months ended September 30, 2017. Average earning asset yields were 4.74% for the three months ended September 30, 20172022 and 4.60%2.73% for the same period in 2016.2021. The average costdrivers of interest bearing liabilities increased by 20 basis points (to 0.97% from 0.77%) for the three months ended September 30, 2017 as compared to the same period in 2016. Combining the change are detailed in the yield on earning assets"Net Interest Income and the costs of interest bearing liabilities, the net interest spread decreased by 6 basis points for the three months ended September 30, 2017 as compared to 2016 (3.77% versus 3.83%).The benefit of noninterest sources funding earning assets increased by 9 basis points to 37 basis points from 28 basis points for the three months ended September 30, 2017 versus the same period in 2016. The combination of a 6 basis point decrease in the net interest spread and a 9 basis point increase in the value of noninterest sources resulted in the 3 basis point increase in the net interest margin for the three months ended September 30, 2017 as compared to the same period in 2016. The net interest margin was positively impacted by one basis point in the three months ended September 30, 2017 as a result of $214 thousand in amortization of the credit mark established in connection with the 2014 merger of Virginia Heritage Bank into EagleBank (the “Merger”). The net interest margin was positively impacted by two basis points in the three months ended September 30, 2016 as a result of $384 thousand in amortization of the credit mark adjustment from the Merger.The net interest margin decreased 9 basis points from 4.23% for the nine months ended September 30, 2016 to 4.14% for the nine months ended September 30, 2017. Average earning asset yields were 4.72% for the nine months ended September 30, 2017 and 4.65% for the same period in 2016. The average cost of interest bearing liabilities increased by 28 basis points (to 0.93% from 0.65%) for the nine months ended September 30, 2017 as compared to the same period in 2016. Combining the change in the yield on earning assets and the costs of interest bearing liabilities, the net interest spread decreased by 21 basis points for the nine months ended September 30, 2017 as compared to 2016 (3.79% versus 4.00%).The benefit of noninterest sources funding earning assets increased by 12 basis points to 35 basis points from 23 basis points for the nine months ended September 30, 2017 versus the same period in 2016. The combination of a 21 basis point decrease in the net interest spread and a 12 basis point increase in the value of noninterest sources resulted in the 9 basis point decrease in the net interest margin for the nine months ended September 30, 2017 as compared to the same period in 2016. The net interest margin was positively impacted by three basis points in the nine months ended September 30, 2017 as a result of $1.7 million in amortization of the credit mark established in connection with the Merger. The net interest margin was positively impacted by two basis points in the nine months ended September 30, 2016 as a result of $1.1 million in amortization of the credit mark adjustment from the Merger.The Company believes it has effectively managed its net interest margin and net interest income over the past twelve months as market interest rates (on average) have remained relatively low. This factor has been significant to overall earnings performance over the past twelve months as net interest income represents 91% of the Company’s total revenue for the nine months ended September 30, 2017.For the first nine months of 2017, total loans grew 7% over December 31, 2016, and averaged 11% higher for the nine months ended September 30, 2017 as compared to the same period in 2016. For the first nine months of 2017, total deposits increased 4% over December 31, 2016, and averaged 9% higher for the nine months ended September 30, 2017 compared with the same period in 2016.In order to fund growth in average loans of 11% over the nine months ended September 30, 2017 as compared to the same period in 2016, as well as sustain significant liquidity, the Company has relied on both core deposit growth and wholesale deposits. The major component of the growth in core deposits has been growth in noninterest bearing accounts primarily as a result of effectively building new and enhanced client relationships.In terms of the average asset composition or mix, loans, which generally have higher yields than securities and other earning assets, were 87.0% of average earning assets for the nine months ended September 30, 2017 and 87.2% for the same period in 2016. For the nine months ended September 30, 2017, as compared to the same period in 2016, average loans, excluding loans held for sale, increased $596.1 million, an 11% increase. The increase in average loans for the nine months ended September 30, 2017 as compared to the same period in 2016 is primarily attributable to growth in income producing - commercial real estate, commercial and industrial, and owner occupied – commercial real estate. Average investment securities for both the nine month periods ended September 30, 2017 and 2016 amounted to 8% of average earning assets. The combination of federal funds sold, interest bearing deposits with other banks and loans held for sale averaged 5% of average earning assets for both the first nine months of 2017 and 2016. On an average basis, the combination of federal funds sold, interest bearing deposits with other banks and loans held for sale increased $19.8 million for the nine months ended September 30, 2017 as compared to the same period in 2016.The provision for credit losses was $1.9 million for the three months ended September 30, 2017 as compared to $2.3 million for the three months ended September 30, 2016. The lower provisioning in the third quarter of 2017, as compared to the third quarter of 2016, is primarily due to lower net charge-offs and to overall improved asset quality. Net charge-offs of $2 thousand in the third quarter of 2017 represented an annualized 0.00% of average loans, excluding loans held for sale, as compared to $2.0 million, or an annualized 0.14% of average loans, excluding loans held for sale, in the third quarter of 2016. Net charge-offs in the third quarter of 2017 were attributable primarily to net charge-offs in commercial and industrial loans ($114 thousand) offset by net recoveries in construction - commercial and residential ($106 thousand).At September 30, 2017 the allowance for credit losses represented 1.03% of loans outstanding, as compared to 1.04% at both December 31, 2016 and September 30, 2016. The decrease in the allowance for credit losses as a percentage of total loans at September 30, 2017, as compared to September 30, 2016, is the result of continuing improvement in historical losses. The allowance for credit losses represented 379% of nonperforming loans at September 30, 2017, as compared to 330% at December 31, 2016, and 255% at September 30, 2016.20172022 decreased to $5.3 million from $8.3 million for the same period in 2021, a 36.0% decrease. Noninterest income was lower due to decreases in gain on sale of residential and securitized loans and gain on sale of investment securities. For further information on the components and drivers of these changes see "Noninterest Income" section below.$6.8$2.5 million from $6.4$1.6 million for the same period in 2021, a 56.9% increase. This increase was primarily attributable to an increase in other loan income of $543 thousand, gain on sale of loans securitized of $248 thousand, and $189 thousand increase in miscellaneous income.2016,2022, as compared to $36.4 million for same period in 2021, a 6% increase, due substantially to income of $780 thousand0.5% decrease. See the "Noninterest Expense" section for further detail on the origination, securitization, servicingcomponents and saledrivers of FHA Multifamily-Backed GNMA securities in the third quarter of 2017, offset by lower sales of residential mortgage loans and the resulting gains on the sale of these loans (gain of $1.8change.third quarterthree months ended September 30, 2022, a decrease of 2017 versus $2.9 million for19.8%, compared to the same period in 2016). There was no revenue related to FHA Multifamily-Backed GNMA securities2021. The components and drivers of the change are discussed in the third quarter of 2016. The portfolio sale of $37.0 million in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue during the third quarter of 2017. There was no income related to portfolio sales of residential mortgages out of the loan portfolio during the third quarter of 2016. The sale of the guaranteed portion on SBA loans resulted in $390 thousand in revenue during the third quarter of 2017 compared to $101 thousand for the same period in 2016. Other loan income was $771 thousand for the third quarter of 2017 compared to $632 thousand for the same period in 2016. Residential mortgage loans closed were $135 million for the third quarter of 2017 versus $276 million for the third quarter of 2016. Excluding gains on sales of investment securities, noninterest income was $6.8 million in the third quarter of 2017 as compared to $6.4 million for the third quarter of 2016, an increase of 6%."Income Tax Expense" section below.37.49% for the third quarter of 2017, as compared to 40.54% for the third quarter of 2016. Noninterest expenses totaled $29.5 million40.59% for the three months ended September 30, 2017,2022, as compared to $28.841.65% 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.2016, a 2% increase. Legal, accounting, and professional fees increased2022 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 $469 thousand primarily due to general bank consulting projects. FDIC insurance premiums increased by $300 thousand primarily due to a larger assessment base. Salaries and benefits expenses decreased $225 thousand due primarily to a decrease in employee benefit costs duenet income.prior year accelerationsame period in 2021, a decrease of restricted stock awards, offset by merit increases.provision for credit losses was $4.9decrease in net income of $36.3 million for the nine months ended September 30, 2017 as compared2022 relative to $9.2the 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, 2016. The lower provisioning2021. Noninterest expenses increased primarily in connection with the accrual of settlement expenses in the firstsecond 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.of 2017,ended September 30, 2022 as compared to the first nine months of 2016, is due to a combination of lower net charge-offs, lower loan growth, as net loans increased $406.3$276.1 million during the first nine months of 2017, as compared to an increase of $483.6 million duringfor the same period in 2016,2021. 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 to overall improved asset quality. Net charge-offsincome 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 $991 thousandresidential and securitized loans.first nine months of 2017 represented an annualized 0.02% of average loans, excluding loans held for sale, as compared to $5.0 million or an annualized 0.13% of average loans, excluding loans held for sale, in the first nine months of 2016."Net Interest Income and Net charge-offs in the first nine months of 2017 were attributable primarily to commercial real estate loans.20172022 decreased to $18.3 million from $29.8 million for the same period in 2021, a 38.5% decrease. Noninterest income was $19.9lower due to decreases in gain on sale of investment securities and residential and securitized loans. For further information on the components and drivers of these changes see "Noninterest Income" section below. as compared to $20.3$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.2016, a 2% decrease. This was primarily due2022, as compared to fewer sales of SBA and residential mortgage loans resulting in a $785 thousand and $939 thousand decreased gain on the sale of these loans, respectively, and a $581 thousand decreased gain on sale of securities, offset by revenue associated with the origination, securitization, servicing, and sale of FHA Multifamily-Backed GNMA securities of $1.5$109.9 million and a $338 thousand increase in service charges on deposits. The portfolio sale of $37.0 million in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue during the nine months ended September 30, 2017. There was no income related to portfolio sales of residential mortgages out of the loan portfolio for theor same period in 2016. Excluding investment securities net gains, total2021, 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 income was $19.3expense. See the "Noninterest Expense" section for further detail on the components and drivers of the change.2017, as2022, a decrease of 16.2%, compared to $19.1 million for the same period in 2016, a 1% increase.which measures the ratio of noninterest expense to total revenue, was 38.86%47.51% for the nine months ended September 30, 20172022, as compared to 40.32%39.78% for the same period in 2016. Noninterest2021. The adverse change in the efficiency ratio was driven by the $22.9 million accrual of settlement expenses, totaled $88.7which increased noninterest expense, and 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. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.2017,2022 was 10.17% as compared to $85.2 million13.98% for the same period in 2021. The annualized ROATCE for the nine months ended September 30, 2016, a 4% increase. Cost increases for salaries and benefits were $1.3 million, due2022 was 11.06% as compared to 15.21% or the same period in 2021. The decline in returns was attributable primarily to increased meritthe $22.9 million of settlement expenses and incentive compensation, offset by a decrease in employee benefit costs duethe reduction on the gain on sale of loans as higher interest rates reduced mortgage origination volume.Refer to the prior year acceleration"Use of restricted stock awards. MarketingNon-GAAP Financial Measures" section for additional detail and advertising increased by $322 thousand duea reconciliation of GAAP to costs associated with digital and print advertising and sponsorships. Data processing increased by $341 thousand due primarily to increased vendor fees associated with higher volumes and rates. Legal, accounting and professional fees increased by $694 thousand primarily due to enhanced IT risk management and general bank consulting projects. Other expenses increased $799 thousand primarily due to higher broker fees.The ratio of common equity to total assets increased to 12.63% at September 30, 2017 from 12.06% at September 30, 2016, due primarily to an increase of $110.4 million in retained earnings. As discussed later in “Capital Resources and Adequacy,” the regulatory capital ratios of the Bank and Company remain above well capitalized levels.investment securities.interest bearing deposits with other banks and other short term investments. The cost of funds representsincludes 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.For the three months ended September 30, 2017, netNet interest income increased 11% over the same period for 2016. Average loans increased by $523.7was $83.9 million and average deposits increased by $474.1 million. The net interest margin was 4.14% for the three months ended September 30, 2017,2022, as compared to 4.11%$79.0 million for the same period in 2016. The Company believes its net2021. Net interest margin remains favorable as compared to its peer banking companies.Forincome increased for the ninethree months ended September 30, 2017, net2022 primarily due to an increase in average loans balances and yields (5.10% compared to 4.59%) 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 income increased 9% over the same period for 2016. Average loans increased by $596.1 million and average deposits increased by $456.0 million. rate as compared to September 30, 2021.4.14%3.02% for the three months ended September 30, 2022 and 2.73% for the same period in 2021. 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 increase in rates forand faster rate adjustments on interest bearing liabilities.2017,2022, as compared to 4.23%$246.3 million for the same period in 2016. 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. Company believes its net interest margin remains favorablewas 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.its peer banking companies.presentpresents the average balances and rates of the major categories of the Company’sCompany's assets and liabilities for the three and nine months ended September 30, 20172022 and 2016.2021. Included in the tables are a measurementmeasurements 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 andcalculation. Net interest margin is net interest income expressed as a percentage of average earning assets. Three Months Ended September 30, 2017 2016 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 $ 331,194 $ 991 1.19 % $ 338,521 $ 376 0.44 % Loans held for sale (1) 37,146 350 3.77 % 66,791 586 3.51 % Loans (1)(2) 5,946,411 77,826 5.19 % 5,422,677 69,283 5.08 % Investment securities available for sale (2) 576,423 3,194 2.20 % 429,207 2,177 2.02 % Federal funds sold 6,439 9 0.55 % 9,115 9 0.39 % Total interest earning assets 6,897,613 82,370 4.74 % 6,266,311 72,431 4.60 % Total noninterest earning assets 292,891 281,784 Less: allowance for credit losses 61,735 55,821 Total noninterest earning assets 231,156 225,963 TOTAL ASSETS $ 7,128,769 $ 6,492,274 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing liabilities: Interest bearing transaction $ 406,923 $ 506 0.49 % $ 269,230 $ 193 0.29 % Savings and money market 2,663,762 4,211 0.63 % 2,641,863 2,976 0.45 % Time deposits 866,595 2,516 1.15 % 784,834 1,671 0.85 % Total interest bearing deposits 3,937,280 7,233 0.73 % 3,695,927 4,840 0.52 % Customer repurchase agreements 73,345 58 0.31 % 73,749 39 0.21 % Other short-term borrowings 54,840 164 1.17 % 50,013 383 3.00 % Long-term borrowings 216,774 2,979 5.38 % 176,321 2,441 5.42 % Total interest bearing liabilities 4,282,239 10,434 0.97 % 3,996,010 7,703 0.77 % Noninterest bearing liabilities: Noninterest bearing demand 1,890,673 1,657,907 Other liabilities 34,364 28,384 Total noninterest bearing liabilities 1,925,037 1,686,291 Shareholders’ equity 921,493 809,973 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 7,128,769 $ 6,492,274 Net interest income $ 71,936 $ 64,728 Net interest spread 3.77 % 3.83 % Net interest margin 4.14 % 4.11 % Cost of funds 0.60 % 0.49 % (1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $4.7 million and $4.1 million for the three months ended September 30, 2017 and 2016, respectively.(2)Interest and fees on loans and investments exclude tax equivalent adjustments.Three Months Ended September 30, 2022 2021 Average
BalanceInterest Average
Yield/RateAverage
BalanceInterest Average
Yield/RateASSETS Interest earning assets: Interest bearing deposits with other banks and other short-term investments $ 771,063 $ 4,100 2.11 % $ 2,668,265 $ 1,083 0.16 % 11,586 150 5.18 % 56,866 642 4.52 % 7,282,589 93,594 5.10 % 7,055,621 81,540 4.59 % 1,782,859 7,587 1.69 % 1,670,723 5,877 1.40 % 1,128,943 5,876 2.06 % — — — % Federal funds sold 53,630 220 1.63 % 34,805 10 0.11 % Total interest earning assets 11,030,670 111,527 4.01 % 11,486,280 89,152 3.08 % Total noninterest earning assets 475,581 432,215 Less: allowance for credit losses 75,141 92,169 Total noninterest earning assets 400,440 340,046 TOTAL ASSETS $ 11,431,110 $ 11,826,326 LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing liabilities: Interest bearing transaction $ 960,970 $ 1,891 0.78 % $ 842,086 $ 402 0.19 % Savings and money market 4,504,216 21,711 1.91 % 4,971,866 3,645 0.29 % Time deposits 633,241 2,523 1.58 % 763,513 2,543 1.32 % Total interest bearing deposits 6,098,427 26,125 1.70 % 6,577,465 6,590 0.40 % Customer repurchase agreements 26,546 55 0.82 % 27,348 14 0.20 % Other short-term borrowings 61,703 412 2.67 % 300,003 506 0.67 % Long-term borrowings 69,752 1,038 5.95 % 121,346 2,997 9.88 % Total interest bearing liabilities 6,256,428 27,630 1.75 % 7,026,162 10,107 0.57 % Noninterest bearing liabilities: Noninterest bearing demand 3,809,070 3,370,649 Other liabilities 93,859 98,493 Total noninterest bearing liabilities 3,902,929 3,469,142 Shareholders' Equity 1,271,753 1,331,022 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,431,110 $ 11,826,326 Net interest income $ 83,897 $ 79,045 Net interest spread 2.26 % 2.51 % Net interest margin 3.02 % 2.73 % Cost of funds 0.99 % 0.35 % Eagle Bancorp, Inc.Consolidated Average Balances, Yields and Rates (Unaudited)(dollarsfees on loans and investments exclude tax equivalent adjustments.Nine Months Ended September 30, 2022 2021 Average
BalanceInterest Average
Yield/RateAverage
BalanceInterest Average
Yield/RateASSETS 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 % 18,216 548 4.01 % 79,264 1,936 3.26 % 7,147,844 249,168 4.66 % 7,385,733 258,188 4.67 % 2,119,822 25,888 1.63 % 1,506,996 15,878 1.41 % 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 % thousands) Nine Months Ended September 30, 2017 2016 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 $ 290,366 $ 2,084 0.96 % $ 254,348 $ 856 0.45 % Loans held for sale (1) 34,925 1,020 3.89 % 47,786 1,288 3.59 % Loans (1)(2) 5,849,832 225,523 5.15 % 5,253,742 200,714 5.10 % Investment securities available for sale (2) 541,378 8,854 2.19 % 462,408 7,121 2.06 % Federal funds sold 6,163 27 0.59 % 9,550 31 0.43 % Total interest earning assets 6,722,664 237,508 4.72 % 6,027,834 210,010 4.65 % Total noninterest earning assets 292,700 280,220 Less: allowance for credit losses 60,416 55,187 Total noninterest earning assets 232,284 225,033 TOTAL ASSETS $ 6,954,948 $ 6,252,867 LIABILITIES AND SHAREHOLDERS’ EQUITY Interest bearing liabilities: Interest bearing transaction $ 366,521 $ 1,081 0.39 % $ 234,481 $ 445 0.25 % Savings and money market 2,677,777 12,171 0.61 % 2,656,638 8,324 0.42 % Time deposits 795,884 6,214 1.04 % 764,099 4,744 0.83 % Total interest bearing deposits 3,840,182 19,466 0.68 % 3,655,218 13,513 0.49 % Customer repurchase agreements 70,702 136 0.26 % 71,973 115 0.21 % Other short-term borrowings 58,797 441 0.99 % 38,873 727 2.46 % Long-term borrowings 216,675 8,937 5.44 % 105,005 4,515 5.65 % Total interest bearing liabilities 4,186,356 28,980 0.93 % 3,871,069 18,870 0.65 % Noninterest bearing liabilities: Noninterest bearing demand 1,841,645 1,570,586 Other liabilities 36,130 27,713 Total noninterest bearing liabilities 1,877,775 1,598,299 Shareholders’ equity 890,817 783,499 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 6,954,948 $ 6,252,867 Net interest income $ 208,528 $ 191,140 Net interest spread 3.79 % 4.00 % Net interest margin 4.14 % 4.23 % Cost of funds 0.58 % 0.42 % (1)Loans placed on nonaccrual status are included in average balances. Net loan fees and late charges included in interest income on loans totaled $12.9 million and $11.7 million for the nine months ended September 30, 2017 and 2016, respectively.
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.
(2)Interest and fees on loans and investments exclude tax equivalent adjustments.Three Months Ended September 30, 2022 Compared With Three Months Ended September 30, 2021 (dollars in thousands) Change
Due to
VolumeChange
Due to
RateTotal
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
VolumeChange
Due to
RateTotal
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 allowance for credit losses.ACL on loans and the ACL on available-for-sale and held-to-maturity investment securities. The amount of the allowance for credit losses on loans is based on many factors which reflect management’smanagement's assessment of the riskcurrent expected credit losses in the loan 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.has developed a comprehensive analytical process to monitordetermines the adequacyestimate of the ACL using a CECL model. Our methodology for determining our allowance for credit losses. The process and guidelines werewas developed utilizing, among other factors, the guidance from federal banking regulatory agencies. The results of this process, in combination with conclusionsagencies, relevant available information, from internal and external sources, relating to past events, current conditions and reasonable and supportable forecasts.Bank’s outsideACL 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; (iii) the application of qualitative and environmental factors as determined by management.consultant, support management’s assessment asfunction; (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.adequacy of the allowance at the balance sheet date. Please refer to the discussion under the caption “Critical Accounting Policies” for an overview of the methodology management employs on a quarterly basis to assess the adequacy of the allowance and the provisions charged to expense. Also, refer to the table at page 60, which reflects activity in the allowance for credit losses.2017,2022, the allowance for credit losses increased $1.9ACL on loans reflected a provision of $3.0 million reflecting $1.9 million in provision for credit losses and $2$56 thousand in net charge-offs during the period.recoveries. The provision for credit losses was $1.9 million for the three months ended September 30, 2017 as compared to $2.3 millionon loans for the same period in 2016. The lower provisioning2021 reflected a reversal of $8.3 million and $1.3 million in the third quarter of 2017, as compared to the third quarter of 2016, is primarily due to lower net charge-offs and to overall improved asset quality. Net charge-offs of $2 thousand in the third quarter of 2017 represented an annualized 0.00% of average loans, excluding loans held for sale, as compared to $2.0 million, or an annualized 0.14% of average loans, excluding loans held for sale, in the third quarter of 2016.2017,2022, the allowance for credit losses increased $3.9 million, reflecting $4.9 million inACL on loans reflected a provision for credit lossesof $532 thousand and $991 thousand in net charge-offs during the period.recoveries of $270 thousand. The provision for credit losses was $4.9 millionon loans for the same nine months ended September 30, 2017 as compared to $9.2month period in 2021 was a reversal of $14.5 million for the nine months ended September 30, 2016. The lower provisioning in ACL and $12.2 million in net charge-offs. For the first nine months of 2017, as compared2022, the provisions were primarily driven by adjustments to the first nine monthsqualitative components of 2016, is duethe CECL model owing to a combination of lower net-charge-offs, lower loan growth, as net loans increased $406.3 million during the first nine months of 2017, as compared to an increase of $483.6 million duringhigh inflationary environment and the related uncertainty and impacts on the broader economy, offset by improvements in asset quality. The reversal in the same period in 2016, and to overall2021 was driven by the improved asset quality. Net charge-offsmacroeconomic outlook, improvement of $991 thousandcredits in the first nine months of 2017 represented an annualized 0.02% of average loans, excluding loans held for sale, as compared to $5.0 million or an annualized 0.13% of average loans, excluding loans held for sale,loan portfolio and a reduction in the first nine months of 2016.the Bank’s Board of Directorsinternal loan and Loan Committee or Credit Review Committeecredit committees carefully evaluate loans whichthat are past-due 30 days or more. The Committees make a thorough assessment of the conditions and circumstances surrounding each delinquent loan. The Bank’sBank's loan policy requires that loans be placed on nonaccrual if they are ninety90 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.possible 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. Nine Months Ended September 30, (dollars in thousands) 2017 2016 Balance at beginning of period $ 59,074 $ 52,687 Charge-offs: Commercial 659 2,802 Income producing - commercial real estate 1,470 2,342 Owner occupied - commercial real estate — — Real estate mortgage - residential — — Construction - commercial and residential 39 — Construction - C&I (owner occupied) — — Home equity — 217 Other consumer 98 37 Total charge-offs 2,266 5,398 Recoveries: Commercial 675 93 Income producing - commercial real estate 80 14 Owner occupied - commercial real estate 2 2 Real estate mortgage - residential 5 5 Construction - commercial and residential 491 207 Construction - C&I (owner occupied) — — Home equity 4 11 Other consumer 18 24 Total recoveries 1,275 356 Net charge-offs 991 5,042 Provision for Credit Losses 4,884 9,219 Balance at end of period $ 62,967 $ 56,864 Annualized ratio of net charge-offs during the period to average loans outstanding during the period 0.02 % 0.13 % 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 % September 30, 2017 December 31, 2016 September 30, 2016 (dollars in thousands) Amount % (1) Amount % (1) Amount % (1) Commercial $ 11,844 20 % $ 14,700 21 % $ 12,761 21 % Income producing - commercial real estate 22,375 48 % 21,105 44 % 20,509 46 % Owner occupied - commercial real estate 5,462 12 % 4,010 12 % 4,261 11 % Real estate mortgage - residential 957 2 % 1,284 3 % 1,110 3 % Construction - commercial and residential 19,686 15 % 15,002 16 % 14,681 15 % Construction - C&I (owner occupied) 1,200 1 % 1,485 2 % 1,833 2 % Home equity 1,097 2 % 1,328 2 % 1,369 2 % Other consumer 346 — 160 — 340 — Total allowance $ 62,967 100 % $ 59,074 100 % $ 56,864 100 % (1) Represents the percent of loans in each category to total loans.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 % Company’sCompany's level of nonperforming assets, which is comprised ofcomprise loans delinquent 90 days or more, and nonaccrual loans, which includesinclude the nonperforming portion of TDRs and OREO, totaled $18.0$9.6 million at September 30, 20172022 representing 0.24%0.09% of total assets, as compared to $20.6$30.8 million of nonperforming assets, or 0.30%0.26% of total assets, at December 31, 2016 and $27.5 million of nonperforming assets, or 0.41% of total assets, at2021.2016. The2022, the Company had no accruing loans 90 days or more past due at September 30, 2017, December 31, 2016 or September 30, 2016.due. Management remains attentive to early signs of deterioration in borrowers’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 1.03%1.04% of total loans at September 30, 2017,2022, is adequate to absorb potentialexpected credit losses within the loan portfolio at that date.Includednonperforming assets are loansthe event that the asset does not share similar risk characteristics with its original segmentation. This can occur due to credit deterioration, increased collateral dependency or other factors leading to impairment. In particular, the Company considers to be impaired. Impairedindividually evaluates loans 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 defined as those as to which we believe itdetermined by one of two methods: the fair value of collateral or the discounted cash flow. Fair value of collateral is probable that we will not collect all amounts due according to the contractual terms of the loan agreement, as well as those loans whose terms have been modified in a TDR that have not shown a period of performance as required under applicable accounting standards. Valuation allowancesused for those loans determined to be impaired are evaluated in accordance with ASC Topic 310—”Receivables,” and updated quarterly. For collateral dependent, impaired loans,and the carrying amountfair value represents the net realizable value of the loan is determined by current appraised value less estimatedcollateral, adjusted for sales costs, to sellcommissions, senior liens, etc. The continuing payments are discounted over the underlying collateral, which may be adjusted downward under certain circumstancesexpected life at the loan's original contract rate and include adjustments for actual events and/or changes in market conditions. For example, current average actual selling prices less average actual closing costs on an impaired multi-unit real estate project may indicate the need for an adjustment in the appraised valuationrisk of the project, which in turn could increase the associated ASC Topic 310 specific reserve for the loan. Generally, all appraisals associated with impaired loans are updated on a not less than annual basis.borrower’sborrower'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 intended 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’sborrower's request does not rise to the level of a concession if the modified transaction is at market rates and terms and/or the borrower is not experiencing financial difficulty. For example: (1) adverse weather conditions may create a short term cash flow issue for an otherwise profitable retail business whichthat suggests a temporary interest onlyinterest-only period on an amortizing loan; (2) there may be delays in absorption on a real estate project whichthat reasonably suggests extension of the loan maturity at market terms; or (3) there may be maturing loans to borrowers with demonstrated repayment ability who are not in a position at the time of maturity to obtain alternate long-term financing. The most common change in terms provided by the Company is an extension of an interest only term. The determination of whether a restructured loan is a TDR requires considerationconsideration of all of the facts and circumstances surrounding the change in terms, and the exercise of prudent business judgment.thirteen TDR’sseven TDRs at September 30, 2017December 31, 2021, totaling approximately $13.2$16.5 million. NineFor the first nine months of these loans, totaling approximately $12.3 million, are performing under2022 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 2017, there was one default$30.3 million, including two that previously were on nonperforming status, were sold, resulting in a $237 thousand restructured loan which was charged off, as compared tocharge-off of $1.4 million in connection with the same period in 2016, which had one default on a $5.0 million restructured loan. A default is considered to have occurred once the TDR is past due 90 days or more or it has been placed on nonaccrual. Theresale. No TDRs were two nonperforming TDRs totaling $588 thousand reclassified to nonperforming loanssold during the ninethree months ended September 30, 2017. There was one nonperforming TDR totaling $5.0 million reclassified to nonperforming loans during2021. For the first nine months ended September 30, 2016. 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. There were two loans totaling $251 thousand modified in a TDR during the three months ended September 30, 2017, as compared to the three months ended September 30, 2016 which had one loan totaling $801 thousand modified in a TDR.$16.6$7.6 million at September 30, 2017 (0.27%2022 (0.10% of total loans), compared to $17.9$29.2 million at December 31, 2016 (0.31% of total loans) and $22.3 million at September 30, 20162021 (0.41% of total loans). The decrease in the ratio of nonperforming loans to total loans at September 30, 2017 as compared to September 30, 2016 was due to a decrease in the level of nonperforming loans.Included in nonperforming assets at September 30, 2017 was $1.4 million of OREO, consisting of one foreclosed property. The Company had three foreclosed properties with a net carrying value of $2.7 million at December 31, 2016 and three foreclosed properties with a net carrying value of $5.2 million at September 30, 2016. OREO properties are carried at the lower of cost or fair value less estimated costs to sell. It is the Company’sCompany'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 and December 31, 2021, respectively. During the first nine months of 2017, three foreclosed properties with a net carrying value of $2.5 million were sold for a net loss of $301 thousand. The decrease in OREO for theand nine months ended September 30, 2017, as compared to2022, an OREO property was sold, generating proceeds of $241 thousand. There were no sales of OREO property during the same period in 2016 is due to the sale of two OREO properties. September 30, December 31, (dollars in thousands) 2017 2016 2016 Nonaccrual Loans: Commercial $ 3,242 $ 2,986 $ 2,521 Income producing - commercial real estate 880 10,098 10,508 Owner occupied - commercial real estate 6,570 2,103 2,093 Real estate mortgage - residential 301 562 555 Construction - commercial and residential 4,930 6,412 2,072 Construction - C&I (owner occupied) — — — Home equity 594 113 — Other consumer 92 — 126 Accrual loans-past due 90 days — — — Total nonperforming loans (1) 16,609 22,274 17,875 Other real estate owned 1,394 5,194 2,694 Total nonperforming assets $ 18,003 $ 27,468 $ 20,569 Coverage ratio, allowance for credit losses to total nonperforming loans 379.11 % 255.29 % 330.49 % Ratio of nonperforming loans to total loans 0.27 % 0.41 % 0.31 % Ratio of nonperforming assets to total assets 0.24 % 0.41 % 0.30 % (1)Nonaccrual loans reported in the table above include loans that migrated from performing troubled debt restructuring. There were two loans totaling $588 thousand that migrated from performing TDRs during the nine months ended September 30, 2017, as compared to the nine months ended September 30, 2016 where there was one loan totaling $5.0 million that migrated from performing TDR.(dollars in thousands) September 30, 2022 December 31, 2021 Nonaccrual Loans: Commercial $ 3,018 $ 8,876 PPP loans — 1,365 Income producing - commercial real estate 2,645 13,456 Owner occupied - commercial real estate 21 42 Real estate mortgage - residential 1,917 2,010 Construction - commercial and residential — 3,093 Home equity — 366 Accruing loans-past due 90 days — — Total nonperforming loans 7,601 29,208 Other real estate owned 1,962 1,635 Total nonperforming assets $ 9,563 $ 30,843 Coverage ratio, allowance for credit losses to total nonperforming loans 997 % 257 % Ratio of nonperforming loans to total loans 0.10 % 0.41 % Ratio of nonperforming assets to total assets 0.09 % 0.26 % 2017,2022, there were $18.8$89.7 million of performing loans considered to be potential problem loans, defined as loans that are not included in the 90 daydays past due, nonaccrual or restructured categories, but for which known information about possible credit problems 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 past due, nonaccrual or restructured loan categories. The $18.8 million in potentialPotential problem loans at September 30, 2017 compared to $16.9were $88.6 million at December 31, 2016, and $8.7 million at September 30, 2016. The Company has taken a conservative posture with respect to risk rating its loan portfolio.2021. Based upon their status as potential problem loans, these loans receive heightened scrutiny and ongoing intensive risk management. Additionally, the Company’s loan loss allowance methodology incorporates increased reserve factors for certain loans considered potential problem loans as compared to the general portfolio. See “Provision for Credit Losses” for a description of the allowance methodology.loan servicingFHA multi-family income, income from BOLIbank owned life insurance ("BOLI") and other income.2017 increased2022 decreased to $6.8$5.3 million from $6.4$8.3 million for the three months ended September 30, 2016,2021, a 6% increase, due substantially to income of $780 thousand36.0% decrease. Gain on the origination, securitization, servicing and sale of FHA Multifamily-Backed GNMA securities inloans for the third quarter of 2017, offset by lower sales of residential mortgage loans andthree months ended September 30, 2022 decreased to $821 thousand from $3.3 million for the resulting gainsthree months ended September 30, 2021, a 75.4% decrease. Gains on the sale of these loans (gain of $1.8investment securities decreased to $4 thousand from $1.5 million, or 99.7% for the three months ended September 30, 2022. Residential mortgage loan locked commitments were $57.5 million for the third quarter of 2017 versus $2.9three months ended September 30, 2022 as compared to $279.8 million for the same period in 2016). There was no income related to FHA Multifamily-Backed GNMA securities2021, a 79.4% decrease. The rise in the third quarter of 2016. The portfolio sale of $37.0 million ininterest rates for residential mortgages outin 2022 has had a negative impact on the volume of mortgage originations and in turn the loan portfolio resulted in $168 thousand in revenue during the third quarter of 2017. There was no income related to portfolio salessale of residential mortgages outdeclined.portfolio duringincome, $189 thousand increase in miscellaneous income and $248 increase in gains on the third quarter of 2016. The sale of securitized loans.guaranteed portionthree months ended September 30, 2022 increased to $1.3 million from $1.2 million for the three months ended September 30, 2021.SBA loans resulted in $390sale of investment securities was $4 thousand in revenue duringfor the third quarter of 2017three months ended September 30, 2022 compared to $101 thousanda $1.5 million net gain on sale of investment securities for the same period in 2016. Other loan income was $771 thousand for the third quarter of 2017 compared2021, primarily due to $632 thousand for the samemarket volatility period in 2016. Residential mortgage loans closed were $135 million for the third quarter in 2017 versus $276 million for the third quarter of 2016. Excluding gains on sales of investment securities, noninterest income was $6.8 million in the third quarter of 2017 as compared to $6.4 million for the third quarter of 2016, an increase of 6%.2017 was $19.92022 decreased to $18.3 million as compared to $20.3from $29.8 million for the nine months ended September 30, 2016,2021, a 2%38.5% decrease. This was primarily due to fewer sales of SBA and residential mortgage loans resulting in a $785 thousand and $939 thousand decreased gain on the sale of these loans, respectively, and a $581 thousand decreased gainGain on sale of securities, offset by revenue associated with the origination, securitization, servicing, and sale of FHA Multifamily-Backed GNMA securities of $1.5 million and a $338 thousand increase in service charges on deposits. The portfolio sale of $37.0 million in residential mortgages out of the loan portfolio resulted in $168 thousand in revenue duringloans for the nine months ended September 30, 2017. There was no revenue related2022 decreased to portfolio sales of residential mortgages out of the loan portfolio for the same period of 2016. Excluding investment securities net gains, total noninterest income was $19.3$3.2 million from $12.0 million for the nine months ended September 30, 2017, as compared to $19.1 million for2021, a 73.6% decrease. The decreases in gains on the same period in 2016, a 1% increase.Service chargessale of residential mortgage loans and gains on deposit accounts increased by $195 thousand, or 14%, from $1.4 million forsale of investment securities primarily drove the three months ended September 30, 2016 to $1.6 million fordecline between the same period in 2017. Service charges on deposit accounts increased by $338 thousand, or 8%, from $4.3two periods. Residential mortgage loan locked commitments were $286.2 million for the nine months ended September 30, 20162022 as compared to $4.6$831.4 million for the same period in 2017.2021, a 65.6% decrease. The increaserise 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.three and nine month periods was primarily related to increased transaction volume.The Company originates residential mortgage loans and utilizes both “mandatory delivery” and “best efforts” forward loan sale commitments to sell those loans, servicing released. Sales of residential mortgage loans yielded gains of $1.8 million for the three months ended September 30, 2017 compared2022 decreased to $2.9$9.5 million in the same period in 2016. Sales of residential mortgage loans yielded gains of $6.1from $11.0 million for the nine months ended September 30, 2017 compared2021, a 14.2% decrease. This decrease was primarily attributable to $7.1the $2.5 million reduction in the same period in 2016. Loans sold are subject to repurchase in circumstances where documentation is deficient or the underlying loan becomes delinquent or 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 generally accepted accounting principles for possible repurchases. There were no repurchases due to fraud by the borrower during the three months ended September 30, 2017. The reserve amounted to $95 thousand as of September 30, 2017 and is included in other liabilitiesgains on the Consolidated Balance Sheets. The Bank does not originate “sub-prime” loans and has no exposure to this market segment.The Company is an originatorsale of SBA loans and its practice is to sell the guaranteed portion of those loans at a premium. Income from this source was $390 thousand and $626 thousandsecuritized loans. three and nine months ended September 30, 2017 compared2022 increased to $101 thousand and $1.4$4.0 million from $3.3 million for the three and nine month period in 2016. Activity in SBA loanmonths ended September 30, 2021.to secondary markets can vary widely from quarter to quarter.Netof investment gains were $542securities was $172 thousand for the nine months ended September 30, 20172022 compared to $1.1a $2.1 million net gain on sale of investment securities for the same period in 2016.Other income totaled $2.6 million for the three months ended September 30, 2017 as compared to $1.6 million for the same period in 2016, an increase of 66% due primarily to revenue associated with the origination, securitization, servicing and sale of FHA Multifamily-Backed Ginnie Mae securities of $780 thousand, gains of $168 thousand on the portfolio sale of $37.0 million in residential mortgages out of the loan portfolio, and an increase in other loan income of $139 thousand. ATM fees decreased to $350 thousand for the three months ended September 30, 2017 from $376 thousand for the same period in 2016, a 7% decrease. Noninterest loan fees increased to $771 thousand for the three months ended September 30, 2017 from $632 thousand for the same period in 2016, a 22% increase. Noninterest fee income totaled $1.3 million for the three months ended September 30, 2017 an increase of $967 thousand, or 255%, over the balance for the same period in 20162021, primarily due to revenue associated with the sale of FHA Multifamily-Backed Ginnie Mae securities of $779 thousand.Other income totaled $6.8 million for the nine months ended September 30, 2017 as compared to $5.2 million for the samemarket volatility period in 2016, an increase of 31% due primarily to revenue associated with the sale of FHA Multifamily-Backed Ginnie Mae securities of $1.5 million. ATM fees were $1.1 million for both the nine months ended September 30, 2017 and 2016, a decrease of $48 thousand or 4%. Noninterest loan fees increased to $2.4 million for the nine months ended September 30, 2017 from $2.1 million for the same period in 2016, a 14% increase. Noninterest fee income totaled $3.0 million for the nine months ended September 30, 2017 an increase of $1.9 million, or 178%, over the balance for the same period in 2016 primarily due to revenue associated with the sale of FHA loans of $1.5 million and higher investment income received on Small Business Investment Company investments during the first nine months of 2017 over the same period in 2016.meantime,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. At September 30, 2017, the Company had no funds advanced outstanding under FHA mortgage loan servicing agreements. To the extent the mortgage loans underlying the Company’sCompany's servicing portfolio experience delinquencies, the Company would be requiredrequired 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.expensesexpense totaled $29.5$36.2 million for the three months ended September 30, 2017,2022, as compared to $28.8$36.4 million for the three months ended September 30, 2016.2021, a 0.5% decrease. Total noninterest expensesexpense totaled $88.7$126.2 million for the nine months ended September 30, 2017,2022, as compared to $85.2$109.9 million for the nine months ended September 30, 2016.$16.9$21.5 million for the three months ended September 30, 2017,2022, as compared to $17.1$22.1 million for the same period in 2016, a 1% decrease. Salaries and benefits cost decreases for the three month period were due primarily to2021, a decrease in employee benefit costs due to the prior year acceleration of restricted stock awards, offset by merit increases.$0.6 million or 2.7%. Salaries and employee benefits were $50.5$60.4 million for the nine months ended September 30, 2017,2022, as compared to $49.2$63.8 million for the nine months ended September 30, 2021, a decrease of 5.4%. The primary reason for decrease for the first nine 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. At September 30, 2022, the Company's full time equivalent staff numbered 495 as compared to 509 at September 30, 2021.2016, a 3% increase. Salaries and benefits cost increases for2021. For the nine month period were due primarily to increased merit and incentive compensation, offset by a decrease in employee benefit costs due to the prior year acceleration of restricted stock awards. At September 30, 2017, the Company’s full time equivalent staff numbered 471, as compared to 469 at December 31, 2016 and 464 at September 30, 2016.Premises and equipment expenses amounted to $3.8 million for the three month periodsmonths ended September 30, 20172022, marketing and 2016, an increase of $60 thousand, or 2%. Premises and equipment expenses amountedadvertising expense was $3.4 million compared to $11.6$2.9 million for the nine month period ended September 30, 20172021. The increase for both the three and $11.4nine month periods were due to additional advertising, promotions and sponsorships. the same period in 2016, an increase of 2%. For the three and nine months ended September 30, 2017, the Company recognized $143 thousand and $365 thousand of sublease revenue as2022, respectively, compared to $126 thousand$2.9 million and $424 thousand$8.5 million for the same periods in 2016. The sublease revenue is accounted2021, respectively.asthe three and nine months ended September 30, 2022, respectively, compared to $2.0 million and $8.5 million for the three and nine months ended September 30, 2021, respectively, an increase of $311 thousand and a reduction to premisesdecrease of $2.5 million for the comparative periods, respectively. Legal fees and equipment expenses.Marketingexpenditures were $227 thousand and advertising expense decreased to $732$357 thousand for the three months ended September 30, 2017 from $8572022 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 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 of legal fees and expenditures reported 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.2016,2021, a decrease of 15%, primarily due16.9% decrease. For the nine months ended September 30, 2022, FDIC expenses were $3.3 million compared to reduced digital and print advertising spend. Marketing and advertising expense increased to $2.9$5.6 million for the nine months ended September 30, 20172021. 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.$2.6$2.9 million and $9.5 million for the same periodperiods in 2016, a 13%2021, respectively, for increases of 8.5% and 259.0%, respectively.The increase primarily due to costs associated with expanded digital and print advertising and sponsorships.Legal, accounting and professional fees increased to $1.2 million for the three months ended September 30, 2017 from $771 thousand in the same period in 2016, a 61% increase. Legal, accounting and professional fees increased to $3.5 million for the nine months ended September 30, 2017 from $2.8 million in2022 as compared to the same nine month period in 2016, a 24% increase. The increase in expense for the three month period2021 was primarily due to general bank consulting projects. Thethe increase in noninterest expense forassociated with the nine month period was primarily due to enhanced IT risk management$22.9 million settlement expense in connection with the settlements with the SEC and general bank consulting projects.FDIC expenses increased to $929 thousand for the three months ended September 30, 2017 from $629 thousand for the same period in 2016. FDIC expenses decreased to $2.1 million for the nine months ended September 30, 2017 from $2.2 million for the same period in 2016. The increase for the three months ended September 30, 2017 was due to a larger assessment base. The decrease for the nine months ended September 30, 2017 was due to a change in the FDIC insurance premium formula for small institutions effective July 1, 2016, offsetting the effect of a larger assessment base.Other expenses amounted to $3.8 million for both the three months ended September 30, 2017 and 2016, an increase of 2%. The major components of cost in this category include broker fees, franchise taxes, core deposit intangible amortization, and insurance expenses. Other expenses amounted to $12.2 million for the nine months ended September 30, 2017 compared to $11.4 million for the same period in 2016, an increase of 7%, due primarily to an increase in broker fees of $983 thousand.noninterestnoninterest expense to total revenue, was 37.49%40.59% for the third quarter of 2017,2022, as compared to 40.54%41.65% for the third quarter of 2016. 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. 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 in the nine months ended September 30, 2022 as compared to the same nine month period in 2021 was primarily due to the increase in noninterest expense associated with the $22.9 million of settlement expenses in the second quarter, which were partially offset by the salary accrual reduction 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.improved to 1.66%was 1.27% for the three months ended September 30, 20172022 as compared to 1.78%1.23% for the same period in 2016.2021. As a percentage of average assets, total noninterest expense (annualized) improved to 2.55%was 1.41% for the nine months ended September 30, 20172022 as compared to 2.73%1.26% for the same period in 2016. Cost control remains a significant operating objective2021. The increase for the nine month period was primarily due to the accrual of the Company.Company’sCompany's ratio of income tax expense to pre-tax income (“("effective tax rate”rate") improved to 36.8% for the three months ended September 30, 2017 as compared to 38.7% for the same period in 2016.2022 and 2021 was 24.2% and 25.4%, respectively. The Company’s effectivetotal tax rate decreased to 37.2% for the nine months ended September 30, 2017 as compared to 38.4% for the same period in 2016. The lower effective tax rateprovision for the three months ended September 30, 20172022 was due primarily$11.9 million, compared to tax credit investments in$14.8 million for the third quarter of 2017 and a lower state tax apportionment factor in the current year.three months ended September 30, 2021. The lower effective tax rate for the nine months ended September 30, 2017,2022 was due28.1% as compared to 25.4% for the same period in 2021. The total tax credit investments, a lower state income tax apportionment factor, and the adoption of the new accounting guidance for share-based transactions. That guidance requires that all excess tax benefits and tax deficiencies associated with share-based compensation be recognized as income tax expense or benefits in the income statement. Previously, tax effects resulting from changes in the Company’s stock price subsequent to the grant date were recorded directly to shareholders’ equity at the time of vesting or exercise. The adoption of this new standard (ASU 2016-09) resulted in a net $460 thousand, or $0.01 per basic common share, reduction to income tax expenseprovision for the nine months ended September 30, 2017.20172022 and December 31, 2021 were $7.39$10.7 billion a 9% increase as compared to $6.76and $11.8 billion, atrespectively. The decrease in total assets over the nine months ended September 30, 2016,2022 was primarily due to the decrease in total interest-bearing deposits with banks and a 7% increase as compared to $6.89 billion at December 31, 2016. Totalother short-term investments. The largest component of assets, total loans (excluding loans held for sale) were $6.08, had an amortized cost basis of $7.3 billion at September 30, 2017, an 11%2022, a 3.4% increase asfrom the balance at December 31, 2021. The increase in loans over the nine months ended September 30, 2022, was driven by growth from CRE loans and C&I loans. Additionally, the Bank reduced its PPP loans from $51.1 million at December 31, 2021 to $7.2 million at September 30, 2022 through the forgiveness process. Loans held for sale were $9.4 million at September 30, 2022, compared to $5.48$47.2 million at December 31, 2021, a 80.1% decrease due to a decline in production.2016, and a 7% increase2022 as compared to $5.68$2.6 billion at December 31, 2016. Loans held2021, an increase of 13.1%, primarily due to excess liquidity being invested at greater amounts in higher earning assets in response to higher rates on investments available in the market. During the first quarter of 2022, we evaluated our securities portfolio and determined that certain securities will be maintained for sale amountedthe life of the instrument and made a decision to $26.0transfer $1.1 billion of securities designated as available-for-sale ("AFS") to held-to-maturity ("HTM"), including $237.0 million atof securities acquired in the first quarter of 2022 for which the intention to hold to maturity was finalized. The transferred securities had unrealized losses of $66.2 million, and, as of September 30, 20172022, $61.1 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% of the securities portfolio, was classified as compared to $78.1 million at September 30, 2016, a 67% decrease, and $51.6 million at December 31, 2016, a 50% decrease. The investment portfolio totaled $556.0 million at September 30, 2017, a 29% increase from the $430.7 million balance at September 30, 2016. As compared to December 31, 2016, the investment portfolio at September 30, 2017 increased by $17.9 million or 3%.securities HTM.TotalIn terms of funding, total deposits at September 30, 20172022 were $5.91$8.8 billion compared to deposits of $5.56 billion at September 30, 2016, a 6% increase, and deposits of $5.72down from $10.0 billion at December 31, 2016,2021, a 4% increase.decline of 12.2%. Total borrowed funds (excluding customer repurchase agreements) were $416.8$584.8 million and $369.7 million at September 30, 2017, $266.4 million at September 30, 2016,2022 and $216.5 million at December 31, 2016. We continue to work on expanding2021, respectively, the breadthincrease of which was driven by loan growth and depthdeposit outflows as a result of our existing relationships while we pursue building new relationships.On July 26, 2016, the Company completed the sale of $150.0 million of its 5.00% Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026.During the third quarter of 2017, $200.0 millionan increase in FHLB advances were borrowed as part of the overall asset liability strategy and to support loan growth. These advances remained outstandingdisintermediation driven primarily by an increase in interest rates.2017, $100.02022, as compared to $1.4 billion as of 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 these advances will mature$41.6 million.October 2017excess of regulatory minimum and buffer requirements. Regulatory ratios based on risk-weighted assets declined from the remaining $100.0 million will mature in March 2018.Total shareholders’ equityprior quarter as non-risk weighted cash was moved into risk-weighted securities and loans. The total risk based capital ratio was 16.10% at September 30, 2017 increased 15%, to $934.0 million,2022, as compared to $815.6 million16.15% at December 31, 2021. The common equity tier 1 ("CET1") risk based capital ratio was 15.11% at September 30, 2016, and increased 11% from $842.8 million2022, as compared to 15.02% at December 31, 2016.2021. The increase in shareholders’ equitytier 1 risk based capital ratio was 15.11% at September 30, 20172022, as compared to the same period in 201615.02% at December 31, 2021. The tier 1 leverage ratio was primarily the result of retained earnings. 11.55% at September 30, 2022, as compared to 10.19% at December 31, 2021.12.63%11.39% at September 30, 2017,2022, as compared to 12.06%11.40% at December 31, 2021 as an increase in 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, 2016 and 12.23%2022, a 10.1% decrease over $42.28 at December 31, 2016. The Company’s capital position remains substantially2021 also owing to the increase in excess of regulatory requirements for well capitalized status, with a total risk based capital ratio of 15.30% at September 30, 2017, as compared to 15.05% at September 30, 2016, and 14.89% at December 31, 2016.unrealized losses on investment securities AFS between the the period. In addition, the tangible common equity ratio was 11.35%10.52% at September 30, 2017,2022, as compared to 10.64%10.60% at December 31, 2021. Tangible book value per share was $34.77 at September 30, 2016 and 10.84%2022, a 10.8% decrease from $38.97 at December 31, 2016.Effective January 1, 2015,2021. At September 30, 2022 and December 31, 2021, excluding the Company, Bank, and all other banks of similar size became subject to capital requirements. These requirements created a new required ratio for common equity Tier 1 (“CETI”) capital, increased the leverage and Tier 1 capital ratios, changed the risk weight of certain assets for purposesimpact of the risk-based capital ratios, created anbalance of accumulated other comprehensive losses, adjusted book value per share was $44.59 and $42.73, respectively, and adjusted tangible book value per share was $41.34 and $39.42, respectively. Refer to the "Use of Non-GAAP Financial Measures" section for additional capital conservation buffer over the required capital ratiosdetail and changed what qualifies as capital for purposesa reconciliation of meeting these various capital requirements. Under these standards, inGAAP to non-GAAP financial measures.CETICET1 risk based capital ratio of 6.5% (new), a Tier 1 risk-based ratio of 8.0% (increased from 6.0%), a total risk-based capital ratio of 10.0% (unchanged) and a leverage ratio of 5.0% (unchanged). The Company and the Bank meetexceed all these requirements includingand satisfy the full capital conservation buffer. Beginningbuffer of 2.5% of CET1 capital required to engage in 2016, failurecapital distribution. 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 Portfolio2017,2022 and December 31, 20162021 by major category are summarized below.September 30, 2022 December 31, 2021 (dollars in thousands) 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) $ 7,228,731 $ 6,990,633 2016 are summarized by type as follows: September 30, 2017 December 31, 2016 September 30, 2016 (dollars in thousands) Amount % Amount % Amount % Commercial $ 1,244,184 20 % $ 1,200,728 21 % $ 1,130,042 21 % Income producing - commercial real estate 2,898,948 48 % 2,509,517 44 % 2,551,186 46 % Owner occupied - commercial real estate 749,580 12 % 640,870 12 % 590,427 11 % Real estate mortgage - residential 109,460 2 % 152,748 3 % 154,439 3 % Construction - commercial and residential * 915,493 15 % 932,531 16 % 838,137 15 % Construction - C&I (owner occupied) 55,828 1 % 126,038 2 % 104,676 2 % Home equity 101,898 2 % 105,096 2 % 106,856 2 % Other consumer 8,813 — 10,365 — 6,212 — Total loans 6,084,204 100 % 5,677,893 100 % 5,481,975 100 % Less: allowance for credit losses (62,967 ) (59,074 ) (56,864 ) Net loans $ 6,021,237 $ 5,618,819 $ 5,425,111 *Includes land loans. reached $6.08were $7.3 billion at September 30, 2017,2022, an increase of $602.2$238.9 million, or 11%3.4%, as compared to $5.48from the balance at December 31, 2021. PPP loans outstanding were $7.2 million at September 30, 2022, a decrease of $43.9 million, or 85.8%, from the $51.1 million at December 31, 2021. With PPP loans excluded, loans outstanding were $7.3 billion at September 30, 2016, and2022, an increase of $406.3$282.8 million or 7%, as compared to $5.68 billion atfrom December 31, 2016. 2021. Refer to the "Use of Non-GAAP Financial Measures" section for additional detail and a reconciliation of GAAP to non-GAAP financial measures.growth during the nine months ended September 30, 2017 over the same period in 2016 was predominantlyportfolio continued to grow in the income producing - commercial real estate, owner occupied - commercial real estate,third quarter of 2022, due primarily to our CRE and commercial and industrial categories. Despite an increased level of in-market competition for business,C&I loan originations. Market interest rates continue to increase in connection with rate increases implemented by the Bank continued to experience strong organic loan growth across the portfolio.Federal Reserve. Multi-family commercial real estate leasing in the Bank’sBank's market area hashave held up well, particularly for well-located close-in projects.projects close to the District of Columbia. Overall, 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 price escalation in prime pockets. Theour 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 has remained stable tohave generally been increasing, with well-located, Metro accessibleMetro-accessible properties garnering a premium.Owner occupied - We continue to believe that there are opportunities for growth in the commercial real estate market, as evidenced by the increase in CRE and construction - C&I (owner occupied) represent 13%loans over the quarter.portfolio. The Bank has a large portionportfolio as of its loan portfolio related to real estate, with 76% consisting of commercial real estate and real estate construction loans. When owner occupied - commercial real estate and construction - C&I (owner occupied) is excluded, the percentage of total loans represented by commercial real estate decreases to 63%. Real estate also serves as collateral for loans made for other purposes, resulting in 85% of all loans being secured by real estate.September 30, 2022 (dollars in thousands) Total One Year or Less Over One Year to Five Years Over Five Years to Fifteen Years Over Fifteen Years Commercial $ 1,415,998 $ 527,404 $ 716,502 $ 164,510 $ 7,582 PPP loans 7,241 2,457 4,784 — — Income producing - commercial real estate 3,668,720 1,444,005 1,730,828 493,887 — Owner occupied - commercial real estate 1,091,283 50,621 411,787 487,002 141,873 Real estate mortgage - residential 71,731 12,357 44,429 2,961 11,984 Construction - commercial and residential 858,100 368,826 446,636 27,259 15,379 Construction - C&I (owner occupied) 139,238 15,258 32,397 65,111 26,472 Home equity 51,396 2,978 5,895 906 41,617 Other consumer 791 264 358 — 169 Total loans $ 7,304,498 $ 2,424,170 $ 3,393,616 $ 1,241,636 $ 245,076 Loans with: Predetermined fixed interest rate $ 2,910,601 $ 670,316 $ 1,434,121 $ 701,519 $ 104,645 Floating or Adjustable interest rate 4,393,897 1,753,854 1,959,495 540,117 140,431 Total loans $ 7,304,498 $ 2,424,170 $ 3,393,616 $ 1,241,636 $ 245,076 and savings accounts. Additionally, the Bank obtainsaccounts and certificates of deposits from the local market areas surrounding the Bank’s offices.deposit. The deposit base includes transaction accounts, time and savings accounts and accounts, which customers use for cash management and which provide the Bank with a source of fee income and cross-marketing opportunities, as well as an attractive source of lower cost funds. To meet funding needs during periods of high loan demand and seasonal variations in core deposits, the Bank utilizes alternative funding sources such as secured borrowings from the FHLB, federal funds purchased lines of credit from correspondent banks and brokered deposits from regional and national brokerage firms and Promontory InterfinancialIntraFi Network, LLC (“Promontory”("IntraFi").ninethree months ended September 30, 2017, noninterest bearing2022, total deposits increased $67.5 milliondecreased by $1.2 billion as compared to December 31, 2016, while2021. The decline consists of $349.2 million in noninterest bearing deposits and in $869.0 million in interest bearing deposits increasedas a result of an increase of disintermediation driven primarily by $130.4 million during the same period. Average total deposits for the first nine months of 2017 were $5.68 billion, as compared to $5.23 billion for the same periodan increase in 2016, a 9% increase.interest rates.From time to time, when appropriate in order to fund strong loan demand, thea regional brokerage firm, and other national brokerage networks, including Promontory.IntraFi. Additionally, the Bank participates in the Certificates of Deposit Account Registry Service (“CDARS”(the "CDARS") and the Insured Cash Sweep product (“ICS”("ICS"), which providesprovide for reciprocal (“two-way”("two-way") transactions among banks facilitated by PromontoryIntraFi for the purpose of maximizing FDIC insurance. These reciprocal CDARS and ICS funds are classified as brokered deposits, although the federal banking agencies have recognized that these reciprocal deposits have many characteristics of core deposits and therefore provide for separate identification of such deposits in the quarterly Call Report data. The Bank also is able to obtain one wayone-way CDARS deposits and participates in Promontory’sIntraFi's Insured Network Deposit (“IND”("IND"). At September 30, 2017,2022, total deposits included $883.5 million$2.5 billion of brokered deposits (excluding the CDARS and ICS two-way), which represented 15%28.0% of total deposits. At December 31, 2016,2021, total brokered deposits (excluding the CDARS and ICS two-way) were $676.7 million,$2.6 billion, or 12%26.5% of total deposits. The CDARS and ICS two-way component represented $493.4$728.7 million, or 8%8.3%, of total deposits and $432.1$701.5 million, or 8%7.0%, of total deposits at September 30, 20172022 and December 31, 2016,2021, respectively. These sources are believed by the Company to represent a reliable and cost efficient alternative funding source for the Bank. 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, we may experience an outflow of brokered deposits. In that event, we would be required to obtain alternate sources for funding.20172022, the Company had $1.84$2.9 billion in noninterest bearing demand deposits, representing 32%33% of total deposits, compared to $1.78$3.3 billion of noninterest bearing demand deposits at December 31, 2016,2021, or 31%33% of total deposits. TheseAverage noninterest bearing deposits are primarily business checking accounts on whichof total deposits for the payment of interest was prohibited by regulations of the Federal Reserve prior to July 2011. Since July 2011, banks are not prohibited from paying interest on demand deposits account, including those from businesses. To date, the Bank has elected not to pay interest on business checking accounts, nor is the payment of such interest a prevalent practice in the Bank’s market area at present.three months ended September 30, 2022 and 2021 were 38% and 34%, respectively. The Bank is preparedalso offers business NOW accounts and business savings accounts to evaluate optionsaccommodate those customers who may have excess short term cash to deploy in this area should competition intensify for these deposits, which is not occurring at this time. Payment of interest on these deposits could have a significant negative impact on the Company’s net interest income and net interest margin, net income, and the return on assets and equity, although no such effect is currently anticipated.“customer"customer repurchase agreement,”" allowing qualifying businesses to earn interest on short-term excess funds whichthat are not suited for either a certificate of deposit or a money market account. The balances in these accounts were $73.6$21.5 million at September 30, 20172022 compared to $68.9$23.9 million at December 31, 2016.2021. 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 backedmortgage-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.had nohad an outstanding balancesbalance of $15 million under its federal funds lines of credit provided by correspondent banks (which are unsecured) at September 30, 20172022 and no outstanding balance at December 31, 2021. At September 30, 2022 and December 31, 2016. The Bank2021, the Company had $200.0$500 million inand $300 million, respectively, of FHLB short-term borrowings outstanding under its credit facility fromadvances borrowed as part of the FHLB at September 30, 2017. There were no borrowings outstanding under its credit facility from the FHLB at December 31, 2016.overall asset liability strategy and to support loan growth. Outstanding FHLB advances are secured by collateral consisting of a blanket lien on qualifying loans in the Bank’sBank's commercial mortgage, residential mortgage and home equity loan portfolios.20172022 and December 31, 2021 included the Company’sCompany's August 5, 2014 issuance of $70.0 million of subordinated notes, due September 1, 2024 and the Company’s July 26, 2016 issuance of $150.0 million of subordinated notes, due August 1, 2026. For additional information on the subordinated notes, please refer to “Capital Resources and Adequacy” below.2024.Company’sCompany's and Bank’sBank's ability to meet loan demand and to satisfy depositor withdrawal requirements in an orderly manner. The Bank’sBank'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. The Bank’sApproximately 60% 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. 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. The Company’s secondary sources of liquidity includeability toBank can purchase up to $137.5$155 million in federal funds on an unsecured basis from its correspondents, against which there was no amount$15 million outstanding at September 30, 2017,2022, and access to borrowcan obtain unsecured funds under one-way CDARS and ICS brokered deposits in the amount of $1.11$1.6 billion, against which there was $176.9$19.5 million outstanding at September 30, 2017.2022. The Bank also has a commitment from PromontoryIntraFi to place up to $700.0 million$1.8 billion of brokered deposits from its IND program in amounts requested by the Bank, as compared to an actual balance of $291.1 million$1.4 billion at September 30, 2017.2022. At September 30, 20172022, the Bank was also eligible to make advances from the FHLB up to $1.27$1.1 billion based on loans pledged as collateral atto the FHLB, of which there was $200.0$500 million outstanding at September 30, 2017.2022. 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 $485.0$668 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. There however, a risk 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. 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’sBank (the "ALCO") and the full Board of Directors (“ALCO”) hasof the Bank have adopted policy guidelines which emphasize the importance of core deposits, adequate asset liquidity and a contingency funding plan.2017,2022, under the Bank’sBank's liquidity formula, it had $3.78$4.3 billion of primary and secondary liquidity sources. The amount is deemed adequate to meet current and projected funding needs.20172022 are as follows:(dollars in thousands) September 30, 2017 Unfunded loan commitments $ 2,447,076 Unfunded lines of credit 93,334 Letters of credit 70,767 Total $ 2,611,177 (dollars in thousands) Unfunded loan commitments $ 2,223,503 Unfunded lines of credit 109,217 Letters of credit 101,407 Total $ 2,434,127 Unfunded loan commitments of $66.1 million asAs of September 30, 2017 were2022, unfunded loan commitments included $17.9 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.Bank’sBank'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.bank’sbank's net income is largely dependent on net interest income. The Bank’sBank's ALCO formulates and monitors the management of interest rate risk through policies and guidelines established by it and the full Board of Directors and through review of detailed reports discussed monthly.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 re-pricingrepricing mismatch inherent in its asset and liability cash flows and to provide net interest income growth consistent with the Company’sCompany's profit objectives.quarternine months ended September 30, 2017, as compared to the same three months in 2016,2022, the Company was able to increase its net interest income (by 11%), produce a net interest spreadmargin of 3.77%, which was six basis points lower than the 3.83% for2.86% as compared to 2.91% during the same quarterperiod in 2016,2021 and continue to manage its overall interest rate risk position.prepayment risk in its portfolio of mortgage backed securities should interest rates remain at current levels.of mortgage-backed securities. Further, the Company has been managing the investment portfolio to mitigate extension riskprovide liquidity and related declines in market values in that same portfolio should interest rates increase.some additional yield over cash. Additionally, the Company has limited call risk in its U.S. agency investment portfolio. During the three months endedAt September 30, 2017,2022, the average investment portfolio balances increased by $345.9 million, or 13.1%, as compared to balancesthe balance at September 30, 2016. The cash received from deposit growth and borrowings along with cash flows off of the investment portfolio were deployed into loans and the purchase of additional investments.11%5% of total investments at September 30, 20172022 and 23% at September 30, 2016, theDecember 31, 2021. The portion of the portfolio invested in mortgage backed securities decreased to 54%mortgage-backed securities was 64% at September 30, 2017 from 60% at September 30, 2016.2022 and December 31, 2021. The portion of the portfolio invested in U.S. agency investments was 25% and 24% at September 30, 20172022 and 13% at September 30, 2016.December 31, 2021, respectively. Shorter duration floating rate SBA bonds and corporate bonds were 11%4% and 5% of total investments at September 30, 20172022 and 5%December 31, 2021, respectively. U.S. treasury bonds were 2% of total investments at September 30, 2016. Despite the rolling forward of the investment portfolio2022 and the changing mix through the purchase of shorter duration instruments (inclusive of shorter U.S. agency investments), theDecember 31, 2021. The duration of the investment portfolio was 3.5increased to 4.8 years at September 30, 2017 and 3.42022 from 4.3 years at September 30, 2016, owing to slower prepayment speeds on mortgage back securities, but those cash flows still position the Company well for expected increases in market interest rates.December 31, 2021.was fairly stable at 22 monthswas 14 months at September 30, 2017 versus 232022 and 18 months at September 30, 2016,December 31, 2021 with fixed rate loans amounting to 34%40% of total loans at both September 30, 20172022 and 2016.43% at December 31, 2021. Variable and adjustable rate loans comprised 66%60% of total loans at both September 30, 20172022 and September 30, 2016.57% at December 31, 2021, 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 generally indexed primarily to the five year U.S. TreasuryTreasury interest rate.to 20 monthsas rates rose, measuring 30 months at September 30, 2017 from 282022 and 41 months at September 30, 2016. The change since September 30, 2016 was due substantially to a change in the mix and duration of money market deposits.The Company has continued its emphasis on funding loans in its marketplace, and has been able to achieve favorable loan pricing, including interest rate floors on many loan originations, although competition for new loans persists. A disciplined approach to loan pricing, together with loan floors existing in 61% of total loans (at September 30, 2017), has resulted in a loan portfolio yield of 5.19% for the three months ended September 30, 2017 as compared to 5.08% for the same period in 2016. Subject to interest rate floors, variable and adjustable rate loans provide additional income opportunities should interest rates rise from current levels.$1.7$224.1 million and $18.6 million at September 30, 2017 as compared2022 and December 31, 2021, respectively. The change is primarily due to a net unrealized gain before tax of $7.4 million at September 30, 2016. The net unrealized loss on the investment portfolio at September 30, 2017 as compared to the net unrealized gain at September 30, 2016 was due primarily to the higher interest rates at September 30, 2017 and the sale of more valuable municipal bonds in the first quarter of 2017.rates. At September 30, 2017,2022, the net unrealized loss positionposition represented 0.3%8% of the investment portfolio’sportfolio's book value.as a result ofgiven competitive pressures, customer preferences and the inability to perfectly forecast future interest rates and movements.athe static GAPgap 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”"shock test" which assumes a simultaneous change in interest rates up 100, 200, 300, and 400 basis points or down 100 and 200, along the entire yield curve, but not below zero. The results are analyzed as to the impact on net interest income, net income and the market equity over the next twelve and twenty-four month periodsperiod from September 30, 2017.2022. In addition to analysis of simultaneous changes in interest rates along the yield curve, changes based on interest rate “ramps”"ramps" is also performed. This analysis represents the impact of a more gradual change in interest rates, as well as yield curve shape changes.2017,2022, the simulation assumes a 5045 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 10 basis points in the same analysis as of September 30, 2021), and assumes a 7045 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.As quantified 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 table below,effect of making the Company’soverall measure of the correlation between deposit costs and market rate changes be measured at 70%.20172022 shows a change inmoderate 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 both down 100, 200, and 200300 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 re-priceablerepriceable assets and liabilities and related shorter relative durations.durations. The re-pricingrepricing duration of the investment portfolio at September 30, 20172022 is 3.54.5 years, the loan portfolio 1.81.2 years, the interest bearing deposit portfolio 1.72.5 years, and the borrowed funds portfolio 2.40.4 years.20172022 asset and liabilities balances: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 +21.8% +40.8% +10.6% +300 +16.2% +30.3% +7.4% +200 +10.7% +20.0% +4.8% +100 +5.1% +9.7% +2.4% 0 — — — -100 -5.5% -10.2% -1.5% -200 -13.8% -23.3% -2.6% Change in interest
rates (basis points)Percentage change in net
interest incomePercentage change in
net incomePercentage change in
market value of portfolio
equity+ 400 19.5% 33.1% 5.1% + 300 14.9% 25.3% 4.6% + 200 10.3% 17.5% 3.8% + 100 5.7% 9.7% 2.6% — — — — - 100 (4.9)% (8.3)% (4.3)% - 200 (10.2)% (17.3)% (11.5)% - 300 (13.5)% (22.9)% (21.8)% Considering the likelihood of general market interest rate changes, thedeemed to be within the relevant policy limits adopted by the Company.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%400 basis point change. Due to a very low probability of further declines in market interest rates, ALCO and management have accepted the policy exception associated with the percentage of net interest income lost in a down 200 basis points scenario. The changes in net interest income, net income and the economic value of equity in both a higher and lower interest rate shock scenarioscenarios at September 30, 20172022 are not considered to be excessive. The positive impact of +5.1%-4.9% in net interest income and +9.7%-8.3% in net income given a 100 basis point increasedecrease in market interest rates reflects in large measure the impact of variable rateability to quickly reprice deposits downward while the new loans and fed funds sold repricing counteracted by a lower level of expected residential mortgage activity.third quarter first three quarters of 2017, the2022, the Company continued to manage its interest rate sensitivity position to moderate levels of risk, as indicated in the simulation results above. Except for the higher level of asset liquidity at September 30, 2017 as compared to December 31, 2016, the interest rate risk position at September 30, 2017 was similar to the interest rate risk position at December 31, 2016. As compared to December 31, 2016, the sum of federal funds sold, interest bearing deposits with banks and other short-term investments and loans held for sale increased by $57.2 million at September 30, 2017.Certain shortcomings are inherent in the method of analysis presented in the foregoing table. For example, althoughcalculating the tables.modeling. Finally, the ability of many borrowers to service their debt may decrease in the event of a significant interest rate increase.third quarterfirst three quarters of 2017,2022, average market interest rates increased on the short end of the yield curve while decreasing on the mid and long end of the curve. Overall, there was a flattening ofacross the yield curve as compared to the third quarter of 2016 with rate increases within the three2021 year maturity term and decreases further out on the yield curve.As compared to the third quarter of 2016, the average two-year U.S. Treasury rate increased by 6 basis points from 1.30% to 1.36%, the average five year U.S. Treasury rate was stable at 1.81% and the average ten year U.S. Treasury rate decreased by 2 basis points from 2.26% to 2.24%. The Company’s net interest spread for the third quarter of 2017 was 3.77% compared to 3.83% for the third quarter of 2016. The decline was due in large part to the increase in the cost of interest bearing liabilities. The Company believes that the change in the net interest spread in the most recent quarter as compared to 2016’s third quarter has been consistent with its risk analysis at December 31, 2016.GAPend.andand other financial institutions earnings are significantly dependent upon net interest income, which is the difference between interest earned on earningrate sensitive assets and interest expense on rate sensitive liabilities. Net interest bearing liabilities. This revenueincome represented 91%93% and 89% of the Company’sCompany's revenue for the third quarterfirst three quarters of both 20172022 and 2016.GAP.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.gap.GAPgap 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 charttable below provides an indication of the sensitivity of the Company to changes in interest rates. A negative GAP indicatesgap indicates the degree to which the volume of repriceable liabilities exceeds repriceable assets in given time periods.2017,2022, the Company had a positive GAPnegative gap position of approximately $515.5$1.1 billion or 10.55% of total assets, out to three months, and a negative cumulative gap position of $742 million, or 7%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 GAPgap position of $117.0$102 million or 2%0.86% of totaltotal assets out to 12 months; as compared to a positive GAP position of approximately $1.14 billion or 17% of total assets out to three months and a positive cumulative GAP position of $1.13 billion or 16% of total assets out to 12 months at December 31, 2016.months. The change in the positive GAPgap position at September 30, 20172022 as compared to December 31, 2016,2021 was due substantiallyto reduction in cash relative to securities holdings. Such a new methodology which took effect September 30, 2017. Under the new methodology, rate sensitive liabilities have been remodeled to reflect a more conservative repricing model. This resulted in significant changes to the GAP analysis due to interest bearing transaction and savings and money market deposits being assumed to reprice entirely in the 0-3 month category. Changes in the GAP position between September 30, 2017 and December 31, 2016 were also due to the higher amount of asset liquidity on the balance sheet including an increase in interest bearing balances. There was also a decrease in the mix of variable rate loans from 67% of total loans to 66%. The change in the GAPgap position at September 30, 2017 as compared to December 31, 2016 is not deemed material to the Company’sCompany's overall interest rate risk position, which relies more heavily on simulation analysis that captures the full optionalityopportunity 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.areremain appropriate to current economic and interest rate trends.Company’sCompany's net interest income and net interest margin are expected to increase modestly due to the impact of significant volumes of variable rate assets repricing ahead of liabilities andmore than offsetting the assumption of an increase in money market interest rates by 70% of the change in market interest rates.Company’sCompany'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.GAPgap model. If this were to occur, the effects of a declining interest rate environment may not be in accordance with management’smanagement's expectations.GAP Analysis September 30, 2017 (dollars in thousands) Total Rate Repricible in: 0-3 months 4-12 months 13-36 months 37-60 months Over 60 months Sensitive Non Sensitive Total RATE SENSITIVE ASSETS: Investment securities $ 24,085 $ 63,870 $ 150,900 $ 115,917 $ 232,233 $ 587,006 Loans (1)(2) 3,669,502 669,010 849,157 625,567 296,949 6,110,184 Fed funds and other short-term investments 440,704 — — — — 440,704 Other earning assets 61,238 — — — — 61,238 Total $ 4,195,529 $ 732,880 $ 1,000,057 $ 741,484 $ 529,182 $ 7,199,132 $ 194,524 $ 7,393,656 �� RATE SENSITIVE LIABILITIES: Noninterest bearing demand $ 219,573 $ 513,867 $ 707,452 $ 256,447 $ 145,818 $ 1,843,157 Interest bearing transaction 429,247 — — — — 429,247 Savings and money market 2,818,871 — — — — 2,818,871 Time deposits 188,788 367,444 242,910 23,535 — 822,677 Customer repurchase agreements and fed funds purchased 73,569 — — — — 73,569 Other borrowings 200,000 — — 147,663 69,144 416,807 Total $ 3,930,048 $ 881,311 $ 950,362 $ 427,645 $ 214,962 $ 6,404,328 $ 55,345 $ 6,459,674 GAP $ 265,481 $ (148,431 ) $ 49,695 $ 313,839 $ 314,220 $ 794,804 Cumulative GAP $ 265,481 $ 117,050 $ 166,745 $ 480,584 $ 794,804 Cumulative gap as percent of total assets 3.59 % 1.58 % 2.26 % 6.50 % 10.75 % OFF BALANCE-SHEET: Interest Rate Swaps - LIBOR based $ 150,000 $ — $ (75,000 ) $ (75,000 ) $ — $ — Interest Rate Swaps - Fed Funds based 100,000 — — (100,000 ) — — Total $ 250,000 $ — $ (75,000 ) $ (175,000 ) $ — $ — $ — $ — GAP $ 515,481 $ (148,431 ) $ (25,305 ) $ 138,839 $ 314,220 $ 794,804 Cumulative GAP $ 515,481 $ 367,050 $ 341,745 $ 480,584 $ 794,804 $ — Cumulative gap as percent of total assets 6.97 % 4.96 % 4.62 % 6.50 % 10.75 % Repriceable in: 0-3
months4-12
months13-36
months37-60
monthsOver 60
monthsTotal
Rate
SensitiveNon Sensitive Total RATE SENSITIVE ASSETS: Investment securities $ 224,038 $ 307,157 $ 715,867 $ 527,796 $ 988,980 $ 2,763,838 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’sCompany'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.institution’sinstitution's total risk-based capital; or (2) total commercial real estate loans representing 300% or more of the institution’sinstitution's total risk-based capital and the institution’sinstitution'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 a concentration infocused on commercial real estate loans, and the Company has experienced significant growth in its commercial real estate portfolio in recent years. At September 30, 2017 non-owner-occupied2022, we did exceed the construction, land development, and other land acquisitions regulatory concentration threshold, we continue to monitor our concentration in commercial real estate loans (including construction, landlending and land development loans) represent 334% of total risk based capital.remain in compliance with the guidance issued by the federal banking regulators. Construction, land and land development loans represent 131%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 criteriacriteria with respect to its commercial real estate portfolio. Loan monitoring practices include but are not limited to periodic stress testing analysis to evaluate changes to cash flows, owing to interest rate increases and declines in net operating income. Nevertheless, as our commercial real estate concentration fluctuates each quarter, we may be required to maintain higher levels of capital, as a result of our commercial real estate concentrations, which could require us to obtain additional capital, and may adversely affect shareholder returns. The Company 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 policy limitsminimum targets for regulatory capital ratios that are in excess of well capitalized ratios.In July 2013, the Board of Governors of the Federal Reserve Boardapproved finalhave adopted rules (the "Basel III Rules") implementing the Basel Committee on Banking Supervision’sSupervision's capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which became applicable toBasel III Rules, the Company and the Bank on January 1, 2015 and are subjectrequired to a phase-in period through January 1, 2019, minimum requirements will increase for bothmaintain, inclusive of the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in, a minimum CET1 ratio of 7.0%. Basel III raises the, a minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures.On July 26, 2016,completedand the saleBank meet all these requirements, and satisfy the requirement to maintain a capital conservation buffer of $150.0 million2.5% of its 5.00% Fixed-to-Floating Rate Subordinated Notes, due August 1, 2026 (the “Notes”). The Notes were offered to the public at par. The notes qualify as Tier 2CET1 capital for regulatory purposescapital adequacy purposes.the fullest extent permitted under the Basel III Rule.shareholders of record on October 10, 2022 and was paid on October 31, 2022.2017,2022 and December 31, 2016 and September 30, 20162021 are presented in the table below. To Be Well Company Bank Minimum Capitalized Under Required For Prompt Corrective Actual Actual Capital Action (dollars in thousands) Amount Ratio Amount Ratio Adequacy Purposes Regulations * As of September 30, 2017 CET1 capital (to risk weighted aseets) $ 827,220 11.40 % $ 949,487 13.12 % 5.750 % 6.5 % Total capital (to risk weighted assets) 1,110,282 15.30 % 1,012,072 13.98 % 9.250 % 10.0 % Tier 1 capital (to risk weighted assets) 827,220 11.40 % 949,487 13.12 % 7.250 % 8.0 % Tier 1 capital (to average assets) 827,220 11.78 % 949,487 13.54 % 5.000 % 5.0 % As of December 31, 2016 CET1 capital (to risk weighted aseets) $ 737,512 10.80 % $ 854,226 12.55 % 5.125 % 6.5 % Total capital (to risk weighted assets) 1,016,712 14.89 % 913,100 13.41 % 8.625 % 10.0 % Tier 1 capital (to risk weighted assets) 737,512 10.80 % 854,226 12.55 % 6.625 % 8.0 % Tier 1 capital (to average assets) 737,512 10.72 % 854,226 12.44 % 5.000 % 5.0 % As of September 30, 2016 CET1 capital (to risk weighted assets) $ 710,104 10.83 % $ 825,879 12.63 % 5.125 % 6.5 % Total capital (to risk weighted assets) 987,068 15.05 % 882,602 13.50 % 8.625 % 10.0 % Tier 1 capital (to risk weighted assets) 710,104 10.83 % 825,879 12.63 % 6.625 % 8.0 % Tier 1 capital (to average assets) 710,104 11.12 % 825,879 12.95 % 5.000 % 5.0 % Company Bank Minimum
Required For
CapitalTo Be Well
Capitalized
Under Prompt
CorrectiveActual 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 % only.20172022 the Bank could pay dividends to the parentCompany to the extent of its earnings so long as it maintained the minimum required capital ratios.“tangible"tangible common equity ratio”ratio") and, 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’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’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.ratios and as such is useful for investors, regulators, management and others to evaluate capital adequacy and to compare against other financial institutions.
GAAP ReconciliationNon-GAAP Reconciliation (Unaudited) (dollars in thousands except per share data) (dollars in thousands except per share data) September 30, 2022 December 31, 2021 Three Months Ended Twelve Months Ended Three Months Ended September 30, 2017 December 31, 2016 September 30, 2016 Common shareholders’ equity $ 933,982 $ 842,799 $ 815,639 Common shareholders' equity Common shareholders' equity $ 1,219,771 $ 1,350,775 Less: Intangible assets (107,150 ) (107,419 ) (107,694 ) Less: Intangible assets (104,240) (105,793) Tangible common equity $ 826,832 $ 735,380 $ 707,945 Tangible common equity $ 1,115,531 $ 1,244,982 Book value per common share $ 27.33 $ 24.77 $ 24.28 Book value per common share $ 38.02 $ 42.28 Less: Intangible book value per common share (3.14 ) (3.16 ) (3.20 ) Less: Intangible book value per common share (3.25) (3.31) Tangible book value per common share $ 24.19 $ 21.61 $ 21.08 Tangible book value per common share $ 34.77 $ 38.97 Book value per common share Book value per common share $ 38.02 $ 42.28 Add: AOCI book value per common share Add: AOCI book value per common share 6.57 0.45 Adjusted book value excluding AOCI per common share Adjusted book value excluding AOCI per common share $ 44.59 $ 42.73 Tangible book value per common share Tangible book value per common share $ 34.77 $ 38.97 Add: AOCI book value per common share Add: AOCI book value per common share 6.57 0.45 Adjusted tangible book value excluding AOCI per common share Adjusted tangible book value excluding AOCI per common share $ 41.34 $ 39.42 Total assets $ 7,393,656 $ 6,890,096 $ 6,762,132 Total assets $ 10,713,044 $ 11,847,310 Less: Intangible assets (107,150 ) (107,419 ) (107,694 ) Less: Intangible assets (104,240) (105,793) Tangible assets $ 7,286,506 $ 6,782,677 $ 6,654,438 Tangible assets $ 10,608,804 $ 11,741,517 Tangible common equity ratio 11.35 % 10.84 % 10.64 % Tangible common equity ratio 10.52 % 10.60 % 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 % 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 % (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 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 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 “Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations,”" under the caption “Asset/"Asset/Liability Management and Quantitative and Qualitative Disclosure about Market Risk.”"Based onThe Company's management, under the evaluationsupervision and with the participation of ourthe 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, (asas defined in RulesRule 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of 1934) required by Rules 13a-15(b) or 15d-15(b) underAct. Based on that evaluation, the Securities Exchange Act of 1934, our Chief Executive Officer, Executive Chairman and ourthe Chief Financial Officer have concluded that the Company did not maintain effectiveCompany's disclosure controls and procedures as of September 30, 2017 as a result of the material weakness2022 were effective to provide reasonable assurance that information required to be disclosed in the Company’s internal control relatingreports 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 income tax accounting, discussed below.controlscontrol 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 quarter of 20172022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than as described below under the caption “Remediation Plan.”Management assessed the Company’s system of internal control over financial reporting as of September 30, 2017. This assessment was conducted based on the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission “Internal Control – Integrated Framework (2013).” Based on this assessment, management believes that the Company did not maintain effective internal control over financial reporting as of September 30, 2017 as a result of a material weakness in the Company’s internal control relating to income tax accounting, as discussed below.A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.The Company did not maintain effective controls over its income tax accounting. Specifically, the Company did not maintain effective controls related to: state income tax apportionment; an error in federal tax rates; financial statement to tax return reconciliation errors; and matters related to accounting for share based compensation. While these errors were determined not to be material to the consolidated financial statements, and no adjustments were made as a result of these errors, this control deficiency could result in a misstatement of the tax accruals or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected on a timely basis.Remediation Plan. As previously described in Part II, Item 9A of our 2016 Form 10-K, we began implementing a remediation plan to address the control deficiency that led to the material weakness mentioned above. The remediation plan includes the following:●Implementing specific review procedures, including the enhanced involvement of outside independent tax consulting services in the review of tax accounting, designed to enhance our income tax accruals and deferrals; and●Stronger quarterly income tax controls with improved documentation standards, technical oversight and training.Our enhanced review procedures and documentation standards were in place and operating during the third quarter of 2017. We are in the process of testing the newly implemented internal controls and related procedures. The material weakness cannot be considered remediated until the control has operated for a sufficient period of time and until management has concluded, through testing, that the control is operating effectively. Our goal is to remediate this material weakness for the year ending December 31, 2017.–- OTHER INFORMATION–- Legal ProceedingsFrom time to time the Company may become involved inproceedings. At the present time there are no proceedings, which the Company believes will have a material adverse impact on the financial condition or earningssee "Note 11. Legal Contingencies" of the Company.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.–- Risk FactorsThere have been no material changes as of September 30, 2017the risk factors from those disclosedPart I, Item 1A, "Risk Factors" in the Company’sour Annual Report on Form 10-K for the year ended December 31, 2016.2021, 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.–- Unregistered Sales of Equity Securities and Use of Proceeds(a)None Use of Proceeds. Not Applicable (c)Issuer Purchases of Securities.None 3.1Certificate of Incorporation of the Company, as amended (1)BylawsCertification of the Company (2)4.1Subordinated Indenture, dated as of August 5, 2014, between the Company and Wilmington Trust, National Association, as Trustee (3)4.2First Supplemental Indenture, dated as of August 5, 2014, between the Company and Wilmington Trust, National Association, as Trustee (4)4.3Form of Global Note representing the 5.75% Subordinated Notes due September 1, 2024 (included in Exhibit 4.2)4.4Second Supplemental Indenture, dated as of July 26, 2016, between the Company and Wilmington Trust, National Association, as Trustee (5)4.5Form of Global Note representing the 5.00% Fix-to-Floating Rate Subordinated Notes due August 1, 2026 (included in Exhibit 4.4)10.12016 Stock Option Plan (6)10.22006 Stock Plan (7)10.3Employment Agreement dated as of April 7, 2017, between EagleBank and Charles D. Levingston (8)10.4Amended and Restated Employment Agreement dated as of January 31, 2017, between EagleBank and Antonio F. Marquez (9)10.5Amended and Restated Employment Agreement dated as of January 31, 2017, between Eagle Bancorp, Inc., EagleBank and Ronald D. Paul (10)10.6Amended and Restated Employment Agreement dated as of January 31, 2017, between EagleBank and Susan G. Riel (11)Amended and Restated Employment Agreement dated asCertification of January 31, 2017, between EagleBank and Janice L. Williams (12)Norman R. PozezNon-Compete Agreement dated as of April 7, 2017, between EagleBank and Charles D. Levingston (13)10.9Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Antonio F. Marquez (14)10.10Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Ronald D. Paul (15)10.11Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Susan G. Riel (16)10.12Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Janice L. Williams (17)10.13Amended and Restated Employment Agreement dated as of January 31, 2017, between EagleBank and Laurence E. Bensignor (18)10.14Non-Compete Agreement dated as of August 1, 2014, between EagleBank and Laurence E. Bensignor (19)10.15Form of Supplemental Executive Retirement Plan Agreement (20)10.16Amended and Restated Employment Agreement dated as of January 31, 2017 between EagleBank and Lindsey S. Rheaume (21)10.17Non-Compete Agreement dated as of December 15, 2014, between EagleBank and Lindsey S. Rheaume (22)10.18Virginia Heritage Bank 2006 Stock Option Plan (23)10.19Virginia Heritage Bank 2010 Long-Term Incentive Plan (24)10.20Fidelity & Trust Financial Corporation 2004 Long Term Incentive Plan (25)10.21Fidelity & Trust Financial Corporation 2005 Long Term Incentive Plan (26)11Statement Regarding Computation of Per Share IncomeSee Note 9 of the Notes to Consolidated Financial Statements21Subsidiaries of the Registrant31.1Certification of Ronald D. Paul31.2Certification of Charles D. Levingston Certification of Ronald D. PaulSusan G. RielCertification of Norman R. Pozez Certification of Charles D. Levingston 101 Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at September 30, 2017,2022 and December 31, 2016 and September 30, 2016.2021(ii) Consolidated Statement of Operations for the three and nine months ended September 30, 2017 and 2016.(iii)Consolidated Statement of Comprehensive Income for the three and nine months ended September 30, 20172022 and 2016.2021(iii) Consolidated Statement of Comprehensive (Loss) Income for the three and nine months ended September 30, 2022 and 2021 (iv) Consolidated Statement of Changes in Shareholders’ Equity for the three and nine months ended September 30, 20172022 and 2016.2021(v) Consolidated Statement of Cash Flows for the nine months ended September 30, 20172022 and 2016.2021(vi)(vi) Notes to the Consolidated Financial Statements.Statements104 (1)Incorporated by reference to the ExhibitThe cover page of the same number to the Company’s Currentthis Quarterly Report on Form 8-K filed on May 17, 2016.10-Q, formatted in Inline XBRL(2)Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on May 17, 2016.(3)Incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on August 5, 2014.(4)Incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on August 5, 2014.(5)Incorporated by Reference to Exhibit 4.2 to the Company’s Current report on Form 8-K filed on July 22, 2016.(6)Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (Registration No. 333-211857) filed on June 6, 2016.(7)Incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (No. 333-187713).(8)Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 11, 2017.(9)Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 6, 2017.(10)Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on February 6, 2017.(11)Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on February 6, 2017.(12)Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on February 6, 2017.(13)Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 11, 2017.(14)Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on December 15, 2014.(15)Incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on December 15, 2014.(16)Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on December 15, 2014.(17)Incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on December 15, 2014.(18)Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on February 6, 2017.(19)Incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed on December 15, 2014.(20)Incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K for the Year ended December 31, 2013.(21)Incorporated by reference to Exhibit 10.7 to the Company’s current Report on Form 8-K filed on February 6, 2017.(22)Incorporated by reference to Exhibit 10.29 to the Company’s Form 10-Q for the Quarter ended March 31, 2015.(23)Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333-199875).(24)Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (No. 333-199875).(25)Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-8 (No. 333- 153426).(26)Incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-8 (No. 333- 153426).EAGLE BANCORP, INC. Date: November 9, 20178, 2022By: /s/ Ronald D. PaulSusan G. RielRonald D. Paul, Chairman,Susan G. Riel, President and Chief Executive Officer of the CompanyDate: November 9, 20178, 2022By: /s/ Charles D. Levingston Charles D. Levingston, Executive Vice President and Chief Financial Officer of the Company